NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Business
Golden Entertainment, Inc. and its wholly-owned subsidiaries own and operate a diversified entertainment platform, consisting of a portfolio of gaming assets that focus on resort casino operations and distributed gaming (including gaming in the Company’s branded taverns). Unless otherwise indicated, the terms “Golden” and the “Company,” refer to Golden Entertainment, Inc. together with its subsidiaries.
The Company conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The Company’s Casino segment involves the operation of ten resort casino properties in Nevada and Maryland, comprising:
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The STRAT Hotel, Casino & SkyPod (“The Strat”)
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Las Vegas, Nevada
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Arizona Charlie’s Boulder
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Las Vegas, Nevada
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Arizona Charlie’s Decatur
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Las Vegas, Nevada
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Aquarius Casino Resort (“Aquarius”)
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Laughlin, Nevada
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Edgewater Hotel & Casino Resort (“Edgewater”)
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Laughlin, Nevada
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Colorado Belle Hotel & Casino Resort (“Colorado Belle”) (1)
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Laughlin, Nevada
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Pahrump Nugget Hotel Casino (“Pahrump Nugget”)
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Pahrump, Nevada
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Gold Town Casino
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Pahrump, Nevada
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Lakeside Casino & RV Park
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Pahrump, Nevada
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Rocky Gap Casino Resort (“Rocky Gap”)
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Flintstone, Maryland
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(1) As a result of the impact of the 2019 novel coronavirus (“COVID-19”) pandemic, the operations of the Colorado Belle remain suspended.
The Company’s Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area.
Acquisitions
On January 14, 2019, the Company completed the acquisition of Edgewater Gaming, LLC and Colorado Belle Gaming, LLC (the “Laughlin Entities”) from Marnell Gaming, LLC (“Marnell”) for $156.2 million in cash (after giving effect to the post-closing adjustment provisions in the purchase agreement) and the issuance of 911,002 shares of the Company’s common stock to certain assignees of Marnell (the “Laughlin Acquisition”). The results of operations of the Laughlin Entities are included in the Company’s results subsequent to the acquisition date. Refer to “Note 3 — Acquisitions” for additional information regarding this acquisition.
Impact of COVID-19
Since the declaration of COVID-19 as a pandemic on March 11, 2020, people across the globe have been advised to avoid non-essential travel, and steps have been taken by governmental authorities, including in the states in which the Company operates, to implement closures of non-essential operations to contain the spread of the virus. The pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Following emergency executive orders issued by the Governors of Nevada, Maryland, and Montana, in the week of March 16, 2020, all of the Company’s properties were temporarily closed to the public and Golden’s Distributed Gaming operations at third-party locations were suspended. The Company's Distributed Gaming operations in Montana and Nevada resumed on May 4, 2020 and June 4, 2020, respectively, and the Company’s Casino operations in Nevada and Maryland resumed on June 4, 2020 and June 19, 2020, respectively. However, as a result of the impact of the pandemic, the operations of the Colorado Belle remain suspended. While all of the Company’s properties, except for the Colorado Belle, re-opened during the second quarter of 2020, the Company’s implementation of protocols intended to protect team members, gaming patrons and guests from potential COVID-19 exposure continues to limit its operations. These measures include enhanced sanitization, public gathering limitations of 25-50% of casino, tavern and venue capacity, patron social distancing requirements, restrictions on permitted hours of operations, limitations on casino operations, which include disabling electronic gaming machines, and face mask and temperature check requirements for patrons. Certain amenities at the Company’s casinos may remain closed or operate in a
limited capacity, including restaurants, bars, and other food and beverage outlets, as well as table games, showrooms, meeting rooms, spas and pools. These measures limit the number of patrons that are able to attend these venues. The Company cannot predict when these restrictions on its operations will be changed or eliminated.
On July 10, 2020, the Governor of Nevada issued an emergency executive order mandating the closure of bar tops and bar areas in restaurants, bars, pubs, taverns, breweries, distilleries, wineries and related facilities that are licensed to serve food in seven counties, including Clark County (the location of most of our branded taverns). In response to the Governor’s executive order, the Company immediately closed most of its tavern locations. The Company implemented modifications of the gaming areas in its taverns which allowed it to re-open its tavern locations beginning in late July 2020 and all of the tavern locations had re-opened by the end of September 2020.
On November 24, 2020, the Governor of Nevada issued an emergency executive order limiting occupancy in gaming areas and non-gaming businesses including but not limited to retail stores, restaurants and bars, non-retail venues, pools and aquatic facilities, and other establishments in Nevada to not exceed 25% of the listed fire code capacity. On February 15, 2021 certain COVID-19 mitigation measures were eased by allowing the occupancy rate at gaming floors and food and beverage establishments, including restaurants, bars, pubs, wineries, distilleries and breweries, to increase to 35%. Occupancy at retail stores, pools and aquatic facilities increased to 50% of the listed fire code capacity. The February 15, 2021 order remained in effect as of the filing of this Annual Report and it is uncertain when COVID-19 mitigation measures will be further eased.
With respect to the Company’s operations in Montana, on November 20, 2020, the Governor of Montana issued an emergency executive order limiting operating capacity at all restaurants and bars to 50%. In addition, the order required all such businesses to close between the hours of 10 pm and 4 am. This order remained in effect as of December 31, 2020 and it is uncertain when it will be lifted.
The Company’s Maryland operations have been subject to a reduced operating capacity requirement of 50% since re-opening on June 19, 2020. On November 17, 2020, the Governor of Maryland issued an emergency executive order further restricting food service establishments by requiring them to close from 10 pm to 6 am. During these closure hours, such establishments are allowed to take carry out and delivery orders off premises but such venues, including casinos, are not permitted to serve any beverages. This order remained in effect as of December 31, 2020 and it is uncertain when it will be lifted.
The disruptions arising from the COVID-19 pandemic had a significant adverse impact on the Company’s financial condition and results of operations for the year ended December 31, 2020. The duration and intensity of this global health emergency and related disruptions is uncertain, as it is unknown when the pandemic will end, when or how quickly the current travel restrictions, occupancy and other limitations will be modified or cease to be necessary, and how these uncertainties will impact the Company’s business and the willingness of customers to spend on travel and entertainment.
Temporary closures of the Company’s operations due to the COVID-19 pandemic resulted in lease concessions for certain of the Company’s taverns and route locations. Such concessions provided for deferral and, in some instances, forgiveness of rent payments with no substantive amendments to the consideration due per the terms of the original contract and did not result in a substantial changes in the Company’s obligations under such leases. The Company elected to account for the deferred rent as variable lease payments, which resulted in a reduction of the rent expense in the amount of $11.9 million for the year ended December 31, 2020. Rent expense that was not forgiven will be recorded in future periods as these deferred payments are paid to the Company’s lessors.
The Company’s $200 million revolving credit facility (the “Revolving Credit Facility”) was undrawn and available for borrowing as of December 31, 2020. In addition, the Company has implemented various mitigating actions to preserve liquidity, including delaying material capital expenditures, reducing operating expenses and implementing a cost reduction program with respect to discretionary expenditures. To further enhance its liquidity position or to finance any future acquisition or other business investment initiatives, the Company may obtain additional financing, which could consist of debt, convertible debt or equity financing from public or private credit and capital markets.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Reclassifications were made to the Company’s prior period consolidated financial statements to conform to the current period presentation, where applicable. These reclassifications had no effect on previously reported net income.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks and highly-liquid investments with original maturities of three months or less. Although these balances may at times exceed the federal insured deposit limit, the Company believes such risk is mitigated by the quality of the institutions holding such deposits.
Accounts Receivable
Accounts receivable consist primarily of gaming, hotel and other receivables, net of allowance for credit losses. Accounts receivable are non-interest bearing and are initially recorded at cost. An estimated allowance for credit losses is maintained to reduce the Company’s accounts receivable to their expected net realizable value based on specific reviews of customer accounts, the age of such accounts, management’s assessment of the customer’s financial condition, historical and current collection experience and management’s expectations of future collection trends based on the current and forecasted economic and business conditions. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received.
Inventories
Inventories consist primarily of food and beverage and retail items and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out and the average cost inventory methods.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Assets held under finance lease agreements are stated at the lower of the present value of the future minimum lease payments or fair value at the inception of the lease. Expenditures for major additions, renewals and improvements are capitalized while costs of routine repairs and maintenance are expensed when incurred. A significant amount of the Company’s property and equipment was acquired through business acquisitions and therefore was initially recognized at fair value on the effective date of the applicable acquisition transaction. Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives:
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Building and land improvements
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10 - 40 years
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Furniture and equipment
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3 - 15 years
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Leasehold improvements
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2 - 15 years
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The Company reviews the carrying amounts of its long-lived assets, other than goodwill and indefinite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability is evaluated by comparing the estimated future cash flows of the asset, on an undiscounted basis, to its carrying amount. If the undiscounted estimated future cash flows exceed the carrying amount, no impairment is indicated. If the undiscounted estimated future cash flows do not exceed the carrying amount, impairment is recorded based on the difference between the asset’s estimated fair value and its carrying amount. To estimate fair values, the Company generally uses market comparables, when available, or a discounted cash flow model. The estimation of fair value requires significant judgment and is based on assumptions about future cash flows, including future growth rates, operating margins, economic and business conditions, all of which are unpredictable and inherently uncertain. The Company’s long-lived asset impairment tests are
performed at the reporting unit level. For the years ended December 31, 2020, 2019 and 2018, there were no impairment charges.
Assets to be disposed of are carried at the lower of their carrying amount or fair value less costs of disposal. The fair value of assets to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model. Sales and other disposals of property and equipment are recorded by removing the related cost and accumulated depreciation from the accounts with gains or losses on sales and other disposals recorded in the Company’s consolidated statements of operations.
Goodwill
The Company tests its goodwill for impairment annually during the fourth quarter of each year, and whenever events or circumstances indicate that it is more likely than not that impairment may have occurred. Impairment testing for goodwill is performed at the reporting unit level.
When performing testing for impairment, the Company either conducts a qualitative assessment to determine whether it is more likely than not that the asset is impaired, or elects to bypass this qualitative assessment and perform a quantitative test. Under the qualitative assessment, the Company considers both positive and negative factors, including macroeconomic conditions, industry events, financial performance and other changes, and makes a determination of whether it is more likely than not that the fair value of goodwill is less than its carrying amount. If, after assessing the qualitative factors, the Company determines that it is more likely than not the asset is impaired, it then performs a quantitative test in which the estimated fair value of the reporting unit is compared to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to the excess, limited to the amount of goodwill allocated to the reporting unit.
When performing the quantitative test, the Company estimates the fair value of each reporting unit using the expected present value of future cash flows along with value indications based on current valuation multiples of the Company and comparable publicly traded companies. The estimation of fair value requires significant judgment and is based on assumptions about future cash flows, including future growth rates, operating margins, economic and business conditions, all of which are unpredictable and inherently uncertain. Cash flow estimates are based on the current regulatory, political and economic climates, recent operating information and projections. Such estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, competition, events affecting various forms of travel and access to the Company’s properties, and other factors, such that the actual results may differ materially from such estimates. If the Company’s estimates of future cash flows are not met, it may be required to record goodwill impairment charges in the future.
Indefinite-Lived Intangible Assets
The Company’s indefinite-lived intangible assets are comprised of trade names. The fair value of the Company’s trade names is estimated using the income approach to valuation at each of its reporting units. The Company tests its indefinite-lived intangible assets for impairment annually during the fourth quarter of each year, and whenever events or circumstances indicate that it is more likely than not that an asset is impaired. Indefinite-lived intangible assets are not amortized unless it is determined that an asset’s useful life is no longer indefinite. The Company periodically reviews its indefinite-lived assets to determine whether events and circumstances continue to support an indefinite useful life. If an indefinite-lived intangible asset no longer has an indefinite life, the asset is tested for impairment and is subsequently accounted for as a finite-lived intangible asset.
Finite-Lived Intangible Assets
The Company’s finite-lived intangible assets primarily represent assets related to its customer relationships, player relationships, non-compete agreements, leasehold interest and licenses, which are amortized over their estimated useful lives using the straight-line method. The Company periodically evaluates the remaining useful lives of its finite-lived intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization.
The Company’s customer relationship assets represent the value associated with space lease agreements and participation agreements with its distributed gaming customers acquired in an asset purchase or business acquisition. The Company’s player relationships represent the value associated with its rated casino guests. The initial fair value of these intangible assets was determined using the income approach. The recoverability of the finite-lived intangible assets could be affected by, among other things, increased competition within the gaming industry, a downturn in the economy, declines in customer spending which could impact the expected future cash flows associated with the rated casino guests, declines in the number of customer visits which could impact the expected attrition rate of the rated casino guests, and erosion of operating margins associated with rated casino guests. Should events or changes in circumstances cause the carrying amount of a customer relationship intangible asset
to exceed its estimated fair value, the Company will recognize an impairment charge in the amount of the excess of the carrying amount over its estimated fair value.
Business Combinations
The Company allocates the business combination purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. The fair value allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of assets acquired and liabilities assumed. Management estimates the fair values of assets and liabilities primarily using discounted cash flows and replacement cost analysis. Provisional fair value measurements of assets acquired and liabilities assumed may be retrospectively adjusted with the corresponding offset to goodwill during the measurement period, which does not extend beyond one year from the acquisition date. The measurement period ends once the Company is able to determine it has obtained all necessary information that existed as of the acquisition date or once the Company determines that such information is unavailable.
Long-Term Debt, Net
Long-term debt, net is reported as the outstanding debt amount, net of unamortized debt issuance costs and debt discount. These include legal and other direct costs related to the issuance of debt and discounts granted to the initial purchasers or lenders of the Company’s debt instruments, and are recorded as a direct reduction to the face amount of the Company’s outstanding long-term debt on the consolidated balance sheets. The debt discount and debt issuance costs are accreted to interest expense using the effective interest method or, if the amounts approximate the effective interest method, on a straight-line basis over the contractual term of the underlying debt. The Company amortized $4.5 million, $4.5 million and $5.1 million to interest expense for the years ended December 31, 2020, 2019 and 2018, respectively.
Derivative Instruments
The Company uses derivative financial instruments to manage interest rate exposure. The fair value of derivative financial instruments is recognized as an asset or liability at each balance sheet date, with changes in fair value recorded in earnings as the Company’s derivative financial instruments do not qualify for hedge accounting. The fair value approximates the amount the Company would pay if these contracts were settled at the respective valuation dates.
Leases
The Company determines whether an arrangement is or contains a lease at inception or modification of a contract. An arrangement is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The right to control the use of the identified asset means the lessee has both the right to obtain substantially all economic benefits from the use of the asset and the right to direct the use of the asset.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date for the arrangements with a term of 12 months or longer and are initially measured based on the present value of lease payments over the defined lease term. The measurement of the operating lease ROU assets also includes any prepaid lease payments made and is net of lease incentives. If the implicit interest rate to be applied to the determination of the present value of lease payments over the lease term is not readily determinable, the Company estimates the incremental borrowing rate based on the information available at the commencement date. The Company’s lease terms may include options to extend or terminate the lease. The Company assesses these options using a threshold of reasonably certain. For leases the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the ROU asset and lease liability. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.
The Company is the lessor under non-cancelable operating leases for retail and food and beverage outlet space within its resort casino properties. The Company also enters into operating lease agreements with certain equipment providers for placement of amusement devices and automated teller machines within its resort casino properties and taverns. The lease arrangements generally include minimum base rent and/or contingent rental clauses based on a percentage of net sales exceeding minimum base rent. Revenue is recorded on a straight-line basis over the term of the lease. The Company recognizes revenue for contingent rentals when the contingency has been resolved.
Revenue Recognition
Revenue from contracts with customers primarily consists of casino wagers, room sales, food and beverage transactions, rental income from the Company’s retail tenants and entertainment sales.
Casino gaming revenues are the aggregate of gaming wins and losses. The commissions rebated to premium players for cash discounts and other cash incentives to patrons related to gaming play are recorded as a reduction to casino gaming revenues. Gaming contracts include a performance obligation to honor the patron’s wager and typically include a performance obligation to provide a product or service to the patron on a complimentary basis to incentivize gaming or in exchange for points earned under the Company’s True Rewards® loyalty program.
The Company generally enters into three types of slot and amusement device placement contracts as part of its distributed gaming business: space lease agreements, participation agreements and space lease agreements with revenue share provisions. Under space lease agreements, that do not have revenue share provisions, the Company generally pays a fixed monthly rental fee for the right to install, maintain and operate the Company’s slots at a business location and the Company holds the applicable gaming license allowing it to operate such slots. Under these agreements, the Company recognizes all gaming revenue and records fixed monthly rental fees as gaming expenses. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue generated from the Company’s slots, which is recorded by the Company as an expense. Space lease agreements with revenue share provisions are a hybrid model that has both space lease and participation elements and the Company pays the business a percentage of the gaming revenue generated from its slots placed at the location, rather than a fixed monthly rental fee. Under such arrangements, the Company holds the applicable gaming license to conduct gaming at the location and the business location is required to obtain separate regulatory approval to receive a percentage of the gaming revenue. In Montana, the Company’s slot and amusement device placement contracts are all participation agreements. In its distributed gaming business, the Company considers its customer to be the gaming player since the Company controls all aspects of the slot machines. Due to the maintaining of control of the services directly before they are transferred to the customer, the Company is considered to be the principal in these transactions and therefore, records revenue on a gross basis.
For wagering contracts that include complimentary products and services provided by the Company to incentivize gaming, the Company allocates the stand-alone selling price of each product and service to the respective revenue type. Complimentary products or services provided under the Company’s control and discretion that are supplied by third parties are recorded as an operating expense in the consolidated statements of operations.
For wagering contracts that include products and services provided to a patron in exchange for points earned under the Company’s loyalty program, the Company allocates the estimated stand-alone selling price of the points earned to the loyalty program liability. The loyalty program liability is a deferral of revenue until redemption occurs under ASC 606, Revenue from Contracts with Customers. Upon redemption of loyalty program points for Company-owned products and services, the stand-alone selling price of each product or service is allocated to the respective revenue type. For redemptions of points with third parties, the redemption amount is deducted from the loyalty program liability and paid directly to the third party. Any discounts received by the Company from the third party in connection with this transaction are recorded to other revenue. The Company’s performance obligation related to its loyalty program is generally completed within one year, as participants’ points expire after thirteen months of no activity.
After allocation to the other revenue types for products and services provided to patrons as part of a wagering contract, the residual amount is recorded to casino gaming revenue as soon as the wager is settled. As all wagers have similar characteristics, the Company accounts for its gaming contracts collectively on a portfolio basis. Gaming contracts are typically completed daily based on the outcome of the wagering transaction and include a distinct performance obligation to provide gaming activities.
Revenue from leases is recorded to “Other revenue” in the Company’s consolidated statements of operations and is generated from base rents through long-term leases with retail tenants. Base rent, adjusted for contractual escalations as applicable, is recognized on a straight-lined basis over the term of the related lease. Overage rent is paid by a tenant when its sales exceed an agreed upon minimum amount and is not recognized by the Company until the threshold is met.
Food, beverage, and retail revenues are recorded at the time of sale. Room revenue is recorded at the time of occupancy. Sales taxes and surcharges collected from customers and remitted to governmental authorities are presented on a net basis.
Contract and Contract Related Liabilities
The Company provides numerous products and services to its customers. There is often a timing difference between the cash payment by the customers and recognition of revenue for each of the associated performance obligations. The Company generally has three types of liabilities related to contracts with customers:
•Outstanding Chip Liability — The outstanding chip liability represents the collective amounts owed to customers in exchange for gaming chips in their possession. Outstanding chips are expected to be recognized as revenue or redeemed for cash within one year of being purchased.
•Loyalty Program — The Company offers its new consolidated True Rewards loyalty program at all of its resort casino properties, as well as at all of its branded taverns and at participating supermarkets. Members of the Company’s True Rewards loyalty program may earn points based on gaming and retail activity including food and beverage purchases and resort activities at the Company’s resort casino properties, branded taverns and participating supermarkets. Loyalty points are redeemable for complimentary slot and table game play, food, beverages, grocery gift cards and hotel rooms, among other items. All points earned in the loyalty program roll up into a single account balance which is redeemable enterprise-wide at over 140 participating locations.
The Company records a liability based on the value of points earned, less an estimate for points not expected to be redeemed. This liability represents a deferral of revenue until such time as the participant redeems the points earned. Redemption history at the Company’s casinos and taverns is used to assist in the determination of the estimated accruals. Loyalty program points are expected to be redeemed and recognized as revenue within one year of being earned, since participants’ points expire after thirteen months of no activity. The True Rewards points accruals are included in current liabilities on the Company’s consolidated balance sheets. Changes in the program, increases in membership and changes in the redemption patterns of the participants can impact this liability.
•Customer Deposits and Other — Customer deposits and other deferred revenue represent cash deposits made by customers for future non-gaming services to be provided by the Company. With the exception of tenant deposits, which are tied to the terms of the lease and typically extend beyond a year, the majority of these customer deposits and other deferred revenue are expected to be recognized as revenue or refunded to the customer within one year of the date the deposit was recorded.
The following table summarizes the Company’s activity for contract and contract related liabilities:
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Outstanding Chip Liability
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Loyalty Program
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Customer Deposits and Other
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(In thousands)
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2020
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2019
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2020
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2019
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2020
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2019
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Balance at January 1
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$
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756
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|
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$
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1,763
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$
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4,696
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|
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$
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6,214
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|
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$
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5,015
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|
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$
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6,126
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Balance at December 31
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997
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756
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3,969
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4,696
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3,497
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5,015
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Increase (decrease)
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$
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241
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$
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(1,007)
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$
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(727)
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$
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(1,518)
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$
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(1,518)
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$
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(1,111)
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Costs to Acquire a Contract with a Customer
As part of the Company’s distributed gaming business, the Company incurs incremental costs to acquire customer contracts in the form of up-front fully recoverable consideration provided to a customer upon execution of the agreement. Such costs are recorded as other current and non-current assets in the Company’s consolidated balance sheets and are amortized over the term of the contract. The amount of costs to acquire customer contracts recorded by the Company as of December 31, 2020 and 2019 was $5.5 million and $6.2 million, respectively.
Gaming Taxes
The Company’s Nevada casinos are subject to taxes based on gross gaming revenues and pay annual fees based on the number of slots and table games licensed during the year. Rocky Gap is subject to gaming taxes based on gross gaming revenues and also pays an annual flat tax based on the number of table games and video lottery terminals in operation during the year. The Company’s distributed gaming operations in Nevada are subject to taxes based on the Company’s share of non-restricted gross gaming revenue for those locations that have grandfathered rights to more than 15 slots for play, and/or annual and quarterly fees at all tavern and third party distributed gaming locations. The Company’s distributed gaming operations in Montana are subject to taxes based on the Company’s share of gross gaming revenue. These gaming taxes are recorded as gaming expenses in the consolidated statements of operations. Total gaming taxes and licenses were $51.8 million, $62.1 million and $55.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Advertising Expenses
The Company expenses advertising, marketing and promotional costs as incurred. Advertising costs included in the “Selling, general and administrative” line in the Company’s consolidated statements of operations were $6.9 million, $13.1 million and $10.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Share-Based Compensation Expense
The Company has various share-based compensation programs, which provide for equity awards including stock options, time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). Share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of forfeitures, over the employee’s requisite service period. Compensation costs related to stock option awards are calculated based on the fair value of the award on the date of grant using the Black-Scholes option pricing model. For RSUs and PSUs, compensation expense is calculated based on the fair market value of the Company’s common stock on the date of grant. All of the Company’s share-based compensation expense is recorded in selling, general and administrative expenses in the consolidated statements of operations.
Income Taxes
The Company is subject to income taxes in the United States. Accounting standards require the recognition of deferred tax assets, net of applicable reserves, and liabilities for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on the income tax provision and deferred tax assets and liabilities generally is recognized in the results of operations in the period that includes the enactment date. Accounting standards also require recognition of a future tax benefit to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied.
The Company’s income tax returns are subject to examination by the Internal Revenue Service and other tax authorities in the locations where it operates. The Company assesses potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes. The accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
Uncertain tax position accounting standards apply to all tax positions related to income taxes. These accounting standards utilize a two-step approach for evaluating tax positions. If a tax position, based on its technical merits, is deemed more likely than not to be sustained, then the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon settlement.
The Company records estimated penalties and interest related to income tax matters, including uncertain tax positions, if any, as a component of income tax expense.
Net Income (Loss) per Share
For all periods, basic net income (loss) per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share in profitable periods reflects the effect of all potentially dilutive common shares outstanding by dividing net income by the weighted-average of all common and potentially dilutive shares outstanding. Due to the net loss for the years ended December 31, 2020, 2019 and 2018, the effect of all potential common share equivalents was anti-dilutive, and therefore, all such shares were excluded from the computation of diluted weighted-average common shares outstanding for these periods. The amount of potential common share equivalents was 915,025, 916,907 and 2,014,012 for years ended December 31, 2020, 2019 and 2018, respectively.
Recent Accounting Pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”), in the form of ASUs, to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. While management continues to assess the possible impact of the adoption of new accounting standards and the future adoption of the new accounting standards that are not yet effective on the Company’s financial statements, management currently believes that the following new standards have or may have an impact on the Company’s consolidated financial statements and disclosures:
Accounting Standards Issued and Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASC 326”). The new guidance replaced the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans and other financial instruments, the Company is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The Company adopted the standard effective January 1, 2020, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASC 820”). The new guidance amended the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures on fair value measurements in ASC 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. The Company adopted the standard effective January 1, 2020, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU was intended to eliminate potential diversity in practice in accounting for costs incurred to implement cloud computing arrangements that are service contracts by requiring customers in such arrangements to follow internal-use software guidance with respect to such costs, with any resulting deferred implementation costs recognized over the term of the contract in the same income statement line item as the fees associated with the hosting element of the arrangement. The Company adopted the standard effective January 1, 2020, and the adoption did not have a material impact on the Company’s financial statements and disclosures.
Accounting Standards Issued But Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU is intended to simplify the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations, and interim calculations, and adds guidance to reduce the complexity of applying Topic 740. The standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its financial statements and disclosures; however, it does not expect the impact to be material.
No other recently issued accounting standards that are not yet effective have been identified that management believes are likely to have a material impact on the Company’s financial statements.
Note 3 – Acquisitions
The Company did not have any material acquisitions during the year ended December 31, 2020 or 2018.
On January 14, 2019, the Company completed the acquisition of the Laughlin Entities from Marnell for $156.2 million in cash (after giving effect to the post-closing adjustment provisions in the purchase agreement) and the issuance of 911,002 shares of the Company’s common stock to certain assignees of Marnell. The results of operations of the Laughlin Entities are included in the Company’s results subsequent to the acquisition date.
The Laughlin Acquisition was accounted for using the acquisition method of accounting. The determination of the fair value of the assets acquired and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) was completed in the fourth quarter of 2019.
The following table summarizes the allocation of the purchase price for the Laughlin Acquisition, based on estimates of the fair values of the assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Preliminary Allocation as of March 31, 2019
|
|
Adjustments
|
|
Final Purchase Price Allocation
|
Current assets
|
|
$
|
12,615
|
|
|
$
|
(123)
|
|
|
$
|
12,492
|
|
Property and equipment
|
|
126,198
|
|
|
(1,131)
|
|
|
125,067
|
|
Right-of-use assets
|
|
2,620
|
|
|
—
|
|
|
2,620
|
|
Intangible assets
|
|
19,234
|
|
|
(324)
|
|
|
18,910
|
|
Goodwill
|
|
24,736
|
|
|
1,455
|
|
|
26,191
|
|
Other noncurrent assets
|
|
—
|
|
|
123
|
|
|
123
|
|
Liabilities
|
|
(10,023)
|
|
|
—
|
|
|
(10,023)
|
|
Lease liabilities
|
|
(2,620)
|
|
|
—
|
|
|
(2,620)
|
|
Total assets acquired, net of liabilities assumed
|
|
$
|
172,760
|
|
|
$
|
—
|
|
|
$
|
172,760
|
|
The goodwill recognized is the excess of the purchase price over the final values assigned to the assets acquired and liabilities assumed. All of the goodwill was assigned to the Casinos segment and $15.0 million is expected to be deductible for income tax purposes.
The following table summarizes the values assigned to acquired property and equipment in the Laughlin Acquisition and estimated useful lives by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Useful Life (Years)
|
|
Amount
|
Land
|
|
Not applicable
|
|
$
|
4,160
|
|
Building and site improvements
|
|
10-30
|
|
102,450
|
|
Furniture and equipment
|
|
2-13
|
|
18,290
|
|
Construction in process
|
|
Not applicable
|
|
167
|
|
Total property and equipment
|
|
|
|
$
|
125,067
|
|
The following table summarizes the values assigned to acquired intangible assets in the Laughlin Acquisition and estimated useful lives by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Useful Life (Years)
|
|
Amount
|
Non-compete agreements
|
|
5
|
|
$
|
3,630
|
|
Trade names
|
|
Indefinite
|
|
6,980
|
|
Player loyalty program
|
|
2
|
|
8,300
|
|
Total intangible assets
|
|
|
|
$
|
18,910
|
|
The following table summarizes the components of the purchase price paid by the Company to Marnell in the Laughlin Acquisition (after taking into account the adjustment to the cash portion of the purchase price pursuant to the post-closing adjustment provisions of the purchase agreement, as described above):
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amount
|
Cash
|
|
$
|
156,152
|
|
Fair value of common stock issued (911,002 shares)
|
|
16,608
|
|
Total purchase price
|
|
$
|
172,760
|
|
Note 4 – Property and Equipment
Property and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2020
|
|
2019
|
Land
|
$
|
125,240
|
|
|
$
|
125,240
|
|
Building and improvements
|
928,641
|
|
|
880,662
|
|
Furniture and equipment
|
246,292
|
|
|
222,938
|
|
Construction in process
|
6,714
|
|
|
49,869
|
|
Property and equipment
|
1,306,887
|
|
|
1,278,709
|
|
Accumulated depreciation
|
(331,137)
|
|
|
(232,173)
|
|
Property and equipment, net
|
$
|
975,750
|
|
|
$
|
1,046,536
|
|
Depreciation expense for property and equipment, including finance leases, totaled $103.4 million, $93.9 million and $76.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company concluded that the impact of the current COVID-19 pandemic on its operations and financial results was an indicator that impairment may exist related to its long-lived assets. As a result, throughout the year the Company revised its cash flow projections to reflect the current economic environment, including the uncertainty around the nature, timing and extent of elimination or change of the restrictions on its operations, and utilized such projections in performing interim and annual qualitative and quantitative assessments of its property and equipment for potential impairment. The revised cash flow projections also reflected the Company’s decision to keep operations of its Colorado Belle property suspended. Based on the results of interim and annual assessments conducted during the year, the Company concluded that there was no impairment of the Company’s long-lived assets as of and for the year ended December 31, 2020.
To the extent the Company becomes aware of new facts and circumstances arising from the COVID-19 pandemic that impact its operations, the Company will revise its cash flow projections accordingly, as its estimates of future cash flows are highly dependent upon certain assumptions, including, but not limited to, the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations and the extent and timing of the economic recovery globally, nationally, and specifically within the gaming industry. If such assumptions are not accurate, the Company may be required to record impairment charges in future periods, whether in connection with its regular review procedures, or earlier, if an indicator of an impairment is present prior to such evaluation.
Note 5 – Goodwill and Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year, and whenever events or circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its fair value. Finite-lived intangible assets are evaluated for potential impairment whenever there is an indicator that the carrying value of an asset group may not be recoverable. Refer to “Note 2 — Summary of Significant Accounting Policies” for further information on the Company’s accounting policies related to its goodwill and intangible assets.
During the first quarter of 2020, the Company concluded that the COVID-19 pandemic had an adverse impact on its operations and financial results, particularly within the Company’s Casinos segment due to the mandatory property closures, which management considered an indicator of impairment, and necessitated a performance of interim qualitative and quantitative impairment tests. The Company’s interim assessment resulted in recognition of an impairment of its Casinos segment goodwill of $6.5 million.
The mandatory closure of all the Company’s properties for a majority of the second quarter of 2020 resulted in deterioration of performance of the Company’s resort casino properties in particular, which required the Company to revise its cash flow projections to reflect the current economic environment, including the uncertainty surrounding the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations. The revised cash flow projections also reflected the Company’s decision to keep operations of its Colorado Belle property suspended. Interim qualitative and quantitative assessments of Golden’s goodwill and intangible assets for potential impairment conducted during the second quarter of 2020 utilizing the updated projections resulted in recognition of an additional impairment of the goodwill of the Company’s Casinos segment in the amount of $18.8 million as of June 30, 2020. The assessment also indicated that the carrying value of an indefinite-lived trade name for certain of the Company’s properties within the Casinos segment exceeded its fair value and resulted in recognition of an impairment charge of $2.6 million.
The Company conducted its annual quantitative test of goodwill and indefinite-lived intangible assets for potential impairment during the fourth quarter of 2020 utilizing the cash flow projections that were further revised in response to the ongoing impact of the COVID-19 pandemic on the Company’s operations, as discussed in “Note 1 — Nature of Business.” The Company’s annual test resulted in recognition of impairment charges to its goodwill and certain indefinite-lived trade names within the Casinos segment in the amount of $1.8 million and $4.3 million, respectively.
The estimated fair value of goodwill during the interim periods was determined using an income valuation approach utilizing discounted cash flow models. The annual quantitative test was conducted using a combination of an income valuation approach utilizing discounted cash flow models and a market valuation approach. The market valuation approach considers comparable market data based on multiples of revenue or earnings before interest, taxes, depreciation and amortization. The income valuation approach utilized the following Level 3 inputs: discount rate of 12.0% - 13.5%; long-term revenue growth rate of 2.0% - 3.0%.
The estimated fair value of indefinite-lived intangible assets for the interim and annual tests was determined using the income approach by applying the relief from royalty methodology using Level 3 inputs with a royalty rate of 0.75% to 2.0%, a discount rate of 12.0% to 13.5% and long-term revenue growth rate of 2.0% to 3.0%.
The following table summarizes goodwill activity by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Casinos
|
|
Distributed Gaming
|
|
Total Goodwill
|
Balance, January 1, 2019
|
|
$
|
61,175
|
|
|
$
|
98,104
|
|
|
$
|
159,279
|
|
Goodwill acquired during the year (1)
|
|
26,191
|
|
|
—
|
|
|
26,191
|
|
Balance, December 31, 2019
|
|
$
|
87,366
|
|
|
$
|
98,104
|
|
|
$
|
185,470
|
|
Goodwill impairment
|
|
(27,074)
|
|
|
—
|
|
|
(27,074)
|
|
Balance, December 31, 2020
|
|
$
|
60,292
|
|
|
$
|
98,104
|
|
|
$
|
158,396
|
|
Intangible assets, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In thousands)
|
|
Useful Life (Years)
|
|
Gross Carrying
Value
|
|
Cumulative
Amortization
|
|
Impairment
|
|
Intangible Assets, Net
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
Indefinite
|
|
$
|
53,690
|
|
|
$
|
—
|
|
|
$
|
(6,890)
|
|
|
$
|
46,800
|
|
|
|
|
|
53,690
|
|
|
—
|
|
|
(6,890)
|
|
|
46,800
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
4-16
|
|
81,105
|
|
|
(30,012)
|
|
|
—
|
|
|
51,093
|
|
Player relationships
|
|
2-14
|
|
42,990
|
|
|
(39,116)
|
|
|
—
|
|
|
3,874
|
|
Non-compete agreements
|
|
2-5
|
|
9,840
|
|
|
(7,385)
|
|
|
—
|
|
|
2,455
|
|
Gaming license (1)
|
|
15
|
|
2,100
|
|
|
(1,070)
|
|
|
—
|
|
|
1,030
|
|
In-place lease value
|
|
4
|
|
1,170
|
|
|
(918)
|
|
|
—
|
|
|
252
|
|
Leasehold interest
|
|
4
|
|
570
|
|
|
(504)
|
|
|
—
|
|
|
66
|
|
Other
|
|
4-25
|
|
1,814
|
|
|
(1,275)
|
|
|
—
|
|
|
539
|
|
|
|
|
|
139,589
|
|
|
(80,280)
|
|
|
—
|
|
|
59,309
|
|
Balance, December 31, 2020
|
|
|
|
$
|
193,279
|
|
|
$
|
(80,280)
|
|
|
$
|
(6,890)
|
|
|
$
|
106,109
|
|
(1) Relates to Rocky Gap.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(In thousands)
|
|
Useful Life (Years)
|
|
Gross Carrying
Value
|
|
Cumulative
Amortization
|
|
Intangible Assets, Net
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
Trade names
|
|
Indefinite
|
|
$
|
53,690
|
|
|
$
|
—
|
|
|
$
|
53,690
|
|
|
|
|
|
53,690
|
|
|
—
|
|
|
53,690
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
4-16
|
|
81,105
|
|
|
(24,140)
|
|
|
56,965
|
|
Player relationships
|
|
2-14
|
|
42,990
|
|
|
(26,649)
|
|
|
16,341
|
|
Non-compete agreements
|
|
2-5
|
|
9,840
|
|
|
(5,467)
|
|
|
4,373
|
|
Gaming license (1)
|
|
15
|
|
2,100
|
|
|
(929)
|
|
|
1,171
|
|
In-place lease value
|
|
4
|
|
1,301
|
|
|
(724)
|
|
|
577
|
|
Leasehold interest
|
|
4
|
|
570
|
|
|
(345)
|
|
|
225
|
|
Other
|
|
4-25
|
|
1,814
|
|
|
(1,150)
|
|
|
664
|
|
|
|
|
|
139,720
|
|
|
(59,404)
|
|
|
80,316
|
|
Balance, December 31, 2019
|
|
|
|
$
|
193,410
|
|
|
$
|
(59,404)
|
|
|
$
|
134,006
|
|
(1) Relates to Rocky Gap.
Total amortization expense related to intangible assets was $21.0 million, $22.7 million and $17.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. Estimated future amortization expense related to intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total (1)
|
Estimated amortization expense
|
|
$
|
8,051
|
|
|
$
|
7,496
|
|
|
$
|
7,367
|
|
|
$
|
6,472
|
|
|
$
|
6,132
|
|
|
$
|
23,791
|
|
|
$
|
59,309
|
|
(1) The Company did not have intangible assets that were not placed in service as of December 31, 2020.
To the extent the Company becomes aware of new facts and circumstances arising from the COVID-19 pandemic that impact its operations, the Company will revise its cash flow projections accordingly, as its estimates of future cash flows are highly dependent upon certain assumptions, including, but not limited to, the nature, timing, and extent of elimination or change of the restrictions on the Company’s operations and the extent and timing of the economic recovery globally, nationally, and specifically within the gaming industry. If such assumptions are not accurate, the Company may be required to record impairment charges in future periods, whether in connection with its regular review procedures, or earlier, if an indicator of an impairment is present prior to such evaluation.
Note 6 – Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2020
|
|
2019
|
Gaming liabilities
|
$
|
12,073
|
|
|
$
|
12,353
|
|
Accrued taxes, other than income taxes
|
6,152
|
|
|
7,495
|
|
Interest
|
6,118
|
|
|
6,562
|
|
Other accrued liabilities
|
4,751
|
|
|
3,873
|
|
Deposits
|
1,211
|
|
|
2,734
|
|
Total current accrued liabilities
|
$
|
30,305
|
|
|
$
|
33,017
|
|
Note 7 – Debt
Long-term debt, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2020
|
|
2019
|
Term Loan
|
$
|
772,000
|
|
|
$
|
772,000
|
|
2026 Unsecured Notes
|
375,000
|
|
|
375,000
|
|
Finance lease liabilities
|
9,182
|
|
|
12,463
|
|
Notes payable
|
4,373
|
|
|
6,369
|
|
Total long-term debt and finance leases
|
1,160,555
|
|
|
1,165,832
|
|
Unamortized discount
|
(15,570)
|
|
|
(18,885)
|
|
Unamortized debt issuance costs
|
(6,873)
|
|
|
(8,076)
|
|
Total long-term debt and finance leases after debt issuance costs and discount
|
1,138,112
|
|
|
1,138,871
|
|
Current portion of long-term debt and finance leases
|
(11,142)
|
|
|
(8,497)
|
|
Long-term debt, net and finance leases
|
$
|
1,126,970
|
|
|
$
|
1,130,374
|
|
Senior Secured Credit Facility
In October 2017, the Company entered into a senior secured credit facility consisting of a $900 million senior secured first lien credit facility (consisting of an $800 million term loan (the “Term Loan”) and a $100 million Revolving Credit Facility) with JPMorgan Chase Bank, N.A. (as administrative agent and collateral agent), the lenders party thereto and the other entities party thereto (the “Credit Facility”). The Revolving Credit Facility was subsequently increased from $100 million to $200 million in 2018.
As of December 31, 2020, the Company had $772 million in principal amount of outstanding Term Loan borrowings under its Credit Facility, no outstanding letters of credit and no borrowings under the Revolving Credit Facility, such that full borrowing availability of $200 million under the Revolving Credit Facility was available to the Company for re-borrowing.
Interest and Fees
Borrowings under the Credit Facility bear interest, at the Company’s option, at either (1) a base rate equal to the greatest of the federal funds rate plus 0.50%, the applicable administrative agent’s prime rate as announced from time to time, or the LIBOR rate for a one-month interest period plus 1.00%, subject to a floor of 1.75% (with respect to the term loan) or 1.00% (with respect to borrowings under the revolving credit facility) or (2)the LIBOR rate for the applicable interest period, subject to a floor of 0.75% (with respect to the term loan only), plus in each case, an applicable margin. The applicable margin for the term loan under the Credit Facility is 2.00% for base rate loans and 3.00% for LIBOR rate loans. The applicable margin for borrowings under the revolving credit facility ranges from 1.50% to 2.00% for base rate loans and 2.50% to 3.00% for LIBOR rate loans, based on the Company’s net leverage ratio. The commitment fee for the revolving credit facility is payable quarterly at a rate of 0.375% or 0.50%, depending on the Company’s net leverage ratio, and is accrued based on the average daily unused amount of the available revolving commitment. The weighted-average effective interest rate on the Company’s outstanding borrowings under the Credit Facility was approximately 3.97% for the year ended December 31, 2020.
Optional and Mandatory Prepayments
The Revolving Credit Facility matures on October 20, 2022, and the Term Loan matures on October 20, 2024. The Term Loan is repayable in 27 quarterly installments of $2 million each, which commenced in March 2018, followed by a final installment of $746 million at maturity. In April 2019, the Company made a $18 million prepayment of the term loan under the Credit Facility with the proceeds from the issuance of the Company’s 7.625% Senior Notes due 2026 (the “2026 Unsecured Notes”).
Guarantees and Collateral
Borrowings under the Credit Facility are guaranteed by each of the Company’s existing and future wholly-owned domestic subsidiaries (other than certain insignificant or unrestricted subsidiaries) and are secured by substantially all of the present and future assets of the Company and its subsidiary guarantors (subject to of certain exceptions).
Financial and Other Covenants
Under the Credit Facility, the Company and its restricted subsidiaries are subject to certain limitations, including limitations on their respective ability to: incur additional debt, grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In addition, the Company will be required to pay down the term loan under the Credit Facility under certain circumstances if the Company or its restricted subsidiaries issue debt, sell assets, receive certain extraordinary receipts or generate excess cash flow (subject to exceptions). The Credit Facility contains a financial covenant regarding a maximum net leverage ratio that applies when borrowings under the Revolving Credit Facility exceed 30% of the total revolving commitment. The Credit Facility also prohibits the occurrence of a change of control, which includes the acquisition of beneficial ownership of 50% or more of the Company’s capital stock (other than by certain permitted holders, which include, among others, Blake L. Sartini, Lyle A. Berman, and certain affiliated entities). If the Company defaults under the Credit Facility due to a covenant breach or otherwise, the lenders may be entitled to, among other things, require the immediate repayment of all outstanding amounts and sell the Company’s assets to satisfy the obligations thereunder. The Company was in compliance with its financial covenants under the Credit Facility as of December 31, 2020.
Senior Unsecured Notes
On April 15, 2019, the Company issued $375 million in principal amount of 2026 Unsecured Notes in a private placement to institutional buyers at face value. The 2026 Unsecured Notes bear interest at 7.625%, payable semi-annually on April 15th and October 15th of each year.
In connection with the issuance of the 2026 Unsecured Notes, the Company incurred approximately $6.7 million in debt financing costs and fees that have been deferred and are being amortized over the term of the 2026 Unsecured Notes using the effective interest method.
The net proceeds of the 2026 Unsecured Notes were used to (i) repay the Company’s former $200 million second lien term loan, (ii) repay outstanding borrowings under the Revolving Credit Facility, (iii) repay $18 million of the outstanding Term Loan indebtedness under the Credit Facility, and (iv) pay accrued interest, fees and expenses related to each of the foregoing.
Optional Prepayments
The 2026 Unsecured Notes may be redeemed, in whole or in part, at any time during the 12 months beginning on April 15, 2022 at a redemption price of 103.813%, during the 12 months beginning on April 15, 2023 at a redemption price of 101.906%, and at any time on or after April 15, 2024 at a redemption price of 100%, in each case plus accrued and unpaid interest, if any, thereon to the redemption date. Prior to April 15, 2022, the Company may redeem up to 40% of the 2026 Unsecured Notes at a redemption price of 107.625% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the redemption date, from the net cash proceeds of specified equity offerings. Prior to April 15, 2022, the Company may also redeem the 2026 Unsecured Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and an Applicable Premium (as defined in the indenture governing the 2026 Unsecured Notes (the “Indenture”)), if any, thereon to the redemption date.
Financial and Other Covenants
The 2026 Unsecured Notes are guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly-owned domestic subsidiaries that guarantees the Credit Facility. The 2026 Unsecured Notes are the Company and its subsidiary guarantors’ general senior unsecured obligations and rank equally in right of payment with all of the Company’s respective existing and future unsecured unsubordinated debt. The 2026 Unsecured Notes are effectively junior in right of payment to the Company and its subsidiary guarantors’ existing and future secured debt, including under the Credit Facility (to the extent of the value of the assets securing such debt), are structurally subordinated to all existing and future liabilities (including trade payables) of any of the Company’s subsidiaries that do not guarantee the 2026 Unsecured Notes, and are senior in right of payment to all of the Company and its subsidiary guarantors’ existing and future subordinated indebtedness.
Under the Indenture, the Company and its restricted subsidiaries are subject to certain limitations, including limitations on their respective ability to: incur additional debt. grant liens, sell assets, make certain investments, pay dividends and make certain other restricted payments. In the event of a change of control (which includes the acquisition of more than 50% of the Company’s capital stock, other than by certain permitted holders, which include, among others, Blake L. Sartini, Lyle A. Berman, and certain affiliated entities), each holder will have the right to require the Company to repurchase all or any part of such holder’s 2026 Unsecured Notes at a purchase price in cash equal to 101% of the aggregate principal amount of the 2026 Unsecured Notes repurchased, plus accrued and unpaid interest, if any, to the date of purchase.
Expenses Related to Extinguishment and Modification of Debt
In April 2019, the Company recognized a $5.5 million loss on extinguishment of debt and $3.7 million of expense related to modification of debt, related to the repayment of the Company’s former second lien term loan and $18 million prepayment of the Term Loan under its Credit Facility.
Derivative Instruments
In November 2017, the Company entered into an interest rate cap agreement (the “Interest Rate Cap”) with a notional value of $650 million for a cash payment of $3.1 million. The Interest Rate Cap established a range whereby the counterparty would pay the Company if one-month LIBOR exceeds the ceiling rate of 2.25%. The Interest Rate Cap settled monthly commencing in January 2018 through its expiration on December 31, 2020. No payments or receipts were required to be exchanged on the Interest Rate Cap unless interest rates rise above the pre-determined ceiling rate. The estimated fair value of the Company’s Interest Rate Cap is derived from a market price obtained from a dealer quote. Such quote represents the estimated amount the Company would receive to terminate the contract. The fair value of the Company’s Interest Rate Cap was zero as of December 31, 2019 and 2020.
Scheduled Principal Payments of Long-Term Debt
The scheduled principal payments due on long-term debt are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
Amount
|
2021
|
$
|
11,142
|
|
2022
|
11,700
|
|
2023
|
8,829
|
|
2024
|
752,265
|
|
2025
|
219
|
|
Thereafter
|
376,400
|
|
Total outstanding principal of long-term debt
|
$
|
1,160,555
|
|
Note 8 – Equity Transactions and Stock Incentive Plans
Equity Transactions
In January 2018, the Company completed an underwritten public offering pursuant to its universal shelf registration statement, in which certain of the Company’s shareholders resold an aggregate of 6.5 million shares of the Company’s common stock, and the Company sold 975,000 newly issued shares of its common stock pursuant to the exercise in full of the underwriters’ over-allotment option to purchase additional shares. The Company’s net proceeds from the offering were $25.6 million after deducting underwriting discounts and offering expenses.
On November 7, 2018, the Board of Directors authorized the repurchase of up to $25 million shares of common stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. The Company uses the par value method of accounting for its stock repurchases. As a result of the stock repurchases, the Company reduces common stock and records charges to accumulated deficit. During the year ended December 31, 2018, the Company repurchased approximately 1.2 million shares of its $0.01 par value common stock in open market transactions at an average price of $16.06 per share, resulting in a charge to accumulated deficit of $19.6 million.
On March 12, 2019, the Board of Directors authorized the repurchase of up to $25 million worth of additional shares of common stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors, which replaces the November 2018 share repurchase program. Share repurchases may be made from time to time in open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements, including compliance with the Company’s finance agreements. There is no minimum number of shares that the Company is required to repurchase and the repurchase program may be suspended or discontinued at any time without prior notice.
On December 22, 2020, the Company repurchased 50,000 shares of its common stock from Lyle A. Berman, an independent non-employee member of the Company’s Board of Directors, pursuant to its share repurchase program at a price of $19.00 per share, resulting in a charge to accumulated deficit of $1.0 million. This transaction was approved by the Audit Committee of the Board of Directors prior to being executed. There were no other repurchase transactions under the Company’s share repurchase program during the year ended December 31, 2020.
Overview of Stock Incentive Plans
On August 27, 2015, the Board of Directors of the Company approved the Golden Entertainment, Inc. 2015 Incentive Award Plan (the “2015 Plan”), which was approved by the Company’s shareholders at the Company’s 2016 annual meeting. The 2015 Plan authorizes the issuance of stock options, restricted stock, restricted stock units, dividend equivalents, stock payment awards, stock appreciation rights, performance bonus awards and other incentive awards. The 2015 Plan authorizes the grant of awards to employees, non-employee directors and consultants of the Company and its subsidiaries. Options generally have a ten-year term. Except as provided in any employment agreement between the Company and the employee, if an employee is terminated (voluntarily or involuntarily), any unvested options as of the date of termination will be forfeited.
The maximum number of shares of the Company’s common stock for which grants may be made under the 2015 Plan is 2.25 million shares, plus an annual increase on January 1st of each year during the ten-year term of the 2015 Plan equal to the lesser of 1.8 million shares, 4% of the total shares of the Company’s common stock outstanding (on an as-converted basis) and such smaller amount as may be determined by the Board of Directors in its sole discretion. The annual increase on January 1, 2020 was 1,066,403 shares. In addition, the maximum aggregate number of shares of common stock that may be subject to awards granted to any one participant during a calendar year is 2.0 million shares. As of December 31, 2020, a total of 1,501,007 shares of the Company’s common stock remained available for grants of awards under the 2015 Plan.
Stock Options
The following table summarizes the Company’s stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
Weighted-Average Remaining Term
(in years)
|
|
Weighted-Average Exercise Price
|
|
Aggregate Intrinsic Value
(in thousands)
|
Outstanding at January 1, 2020
|
3,126,521
|
|
|
6.1
|
|
$
|
11.61
|
|
|
|
Granted
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Exercised
|
(84,875)
|
|
|
|
|
$
|
3.88
|
|
|
|
Cancelled
|
(2,292)
|
|
|
|
|
$
|
13.50
|
|
|
|
Expired
|
(148,013)
|
|
|
|
|
$
|
26.61
|
|
|
|
Outstanding at December 31, 2020
|
2,891,341
|
|
|
5.5
|
|
$
|
11.07
|
|
|
$
|
25,520
|
|
Exercisable at December 31, 2020
|
2,854,813
|
|
|
5.5
|
|
$
|
11.04
|
|
|
$
|
25,286
|
|
The total intrinsic value of stock options exercised was $1.3 million, $1.6 million and $16.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company has not granted any stock options since 2017 and the amount of cash received from stock options exercised during the year ended December 31, 2020 was insignificant.
The Company issues new shares of common stock upon exercise of stock options.
The Company uses the Black-Scholes option pricing model to estimate the fair value and compensation cost associated with employee incentive stock options, which requires the consideration of historical employee exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted-average risk-free interest rate and the weighted-average expected life of the options. The Company’s determination of fair value of share-based option awards on the date of grant using the Black-Scholes option pricing model is affected by the following assumptions regarding complex and subjective variables. Any changes in these assumptions may materially affect the estimated fair value of the share-based award.
•Expected dividend yield — As the Company has not historically paid dividends, with the exception of the Special Dividend, the dividend rate variable used in the Black-Scholes model is zero.
•Risk-free interest rate — The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect at the time of grant and with maturities consistent with the expected term of options.
•Expected term — The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. It is based upon the Company’s experience as to the average historical term of option grants that were exercised, canceled or forfeited. Management believes historical data is reasonably representative of future exercise behavior.
•Expected volatility — The volatility assumption is based on the historical actual volatility of the Company’s stock. Management concluded there were no factors identified which were unusual and which would distort the volatility figure if used to estimate future volatility. Future volatility may be substantially less or greater than expected volatility.
RSUs and PSUs
On March 14, 2018, the Compensation Committee of the Board of Directors of the Company approved a new long-term incentive structure for equity awards to be granted to the executive officers of the Company under the 2015 Plan. Under this new structure, commencing in the first quarter of 2018, the executive officers of the Company receive long-term equity awards in a combination of RSUs and PSUs. The number of PSUs that will be eligible to vest with respect to these PSU awards will be determined based on the Company’s attainment of performance goals set by the Compensation Committee. Following the two-year performance period, the number of “vesting eligible” PSUs will then be subject to one additional year of time-based vesting. Share-based compensation costs related to RSU and PSU awards are calculated based on the market price on the date of the grant. The Company periodically reviews the estimates of performance against the defined criteria to assess the expected payout of each outstanding PSU grant and adjusts the stock compensation expense accordingly.
The following table summarizes the Company’s RSU activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
Shares
|
|
Weighted-
Average Grant Date Fair Value
|
|
Total Fair Value of Shares Vested
(in thousands)
|
Outstanding at January 1, 2018
|
—
|
|
|
|
|
|
Granted
|
241,542
|
|
|
$
|
29.09
|
|
|
|
Vested
|
—
|
|
|
|
|
$
|
—
|
|
Cancelled
|
(9,243)
|
|
|
$
|
28.72
|
|
|
|
Outstanding at December 31, 2018
|
232,299
|
|
|
$
|
29.10
|
|
|
|
Granted
|
564,805
|
|
|
$
|
13.88
|
|
|
|
Vested
|
(103,224)
|
|
|
$
|
29.61
|
|
|
$
|
1,596
|
|
Cancelled
|
(32,622)
|
|
|
$
|
20.77
|
|
|
|
Outstanding at December 31, 2019
|
661,258
|
|
|
$
|
16.44
|
|
|
|
Granted
|
624,415
|
|
|
$
|
9.65
|
|
|
|
Vested
|
(308,222)
|
|
|
$
|
16.06
|
|
|
$
|
3,336
|
|
Cancelled
|
(33,494)
|
|
|
$
|
16.58
|
|
|
|
Outstanding at December 31, 2020
|
943,957
|
|
|
$
|
12.06
|
|
|
|
The following table summarizes the Company’s PSU activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs
|
|
|
Shares (1)
|
|
Weighted-
Average Grant Date Fair Value
|
|
Total Fair Value of Shares Vested
(in thousands)
|
Outstanding at January 1, 2018
|
|
62,791
|
|
|
$
|
27.87
|
|
|
|
Granted
|
|
108,957
|
|
(2)
|
$
|
28.72
|
|
|
|
Vested
|
|
—
|
|
|
|
|
$
|
—
|
|
Cancelled
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
171,748
|
|
|
$
|
28.41
|
|
|
|
Granted
|
|
204,580
|
|
|
$
|
14.13
|
|
|
|
Vested
|
|
—
|
|
|
|
|
$
|
—
|
|
Cancelled
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
376,328
|
|
|
$
|
20.65
|
|
|
|
Granted
|
|
404,880
|
|
|
$
|
8.86
|
|
|
|
Vested
|
|
(5,254)
|
|
|
$
|
28.72
|
|
|
$
|
47
|
|
Cancelled
|
|
(32,235)
|
|
|
$
|
28.72
|
|
|
|
Outstanding at December 31, 2020
|
|
743,719
|
|
|
$
|
13.82
|
|
|
|
(1)The number of shares for the PSUs listed as outstanding at January 1, 2018 represents the actual number of PSUs granted to each recipient that are eligible to vest if the Company meets its performance goals for the applicable period. The number of shares listed as granted for PSUs granted after January 1, 2018 represents the “target” number of PSUs granted to each recipient eligible to vest if the Company meets its “target” performance goals for the applicable period. The actual number of PSUs eligible to vest for those PSUs will vary depending on whether or not the Company meets or exceeds the applicable threshold, target, or maximum performance goals for the PSUs, with 200% of the “target” number of PSUs eligible to vest at “maximum” performance levels.
(2)During the first quarter of 2020, the Company’s financial results for the performance goals applicable to the PSUs granted in March 2018 were certified, which resulted in the reduction of the PSUs granted in 2018 to the number of PSUs eligible to vest from 108,957 to 76,722 shares (with the 32,235 share adjustment shown in the table above as “Cancelled”), 5,254 of which shares have since vested.
Share-Based Compensation
The following table summarizes share-based compensation costs by award type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Stock options
|
$
|
1,919
|
|
|
$
|
4,850
|
|
|
$
|
5,191
|
|
RSUs
|
5,264
|
|
|
4,284
|
|
|
3,383
|
|
PSUs
|
2,342
|
|
|
911
|
|
|
1,067
|
|
Total share-based compensation costs
|
$
|
9,525
|
|
|
$
|
10,045
|
|
|
$
|
9,641
|
|
As of December 31, 2020, the Company’s unrecognized share-based compensation expenses related to stock options, RSUs and PSUs was $0.2 million, $6.5 million and $3.4 million, respectively, which are expected to be recognized over a weighted-average period of 0.2 years for stock options and 1.9 years for both RSUs and PSUs.
Note 9 – Income Taxes
Income tax provision (benefits) are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(371)
|
|
|
$
|
(371)
|
|
|
$
|
(741)
|
|
State
|
—
|
|
|
—
|
|
|
—
|
|
Total current tax benefit
|
$
|
(371)
|
|
|
$
|
(371)
|
|
|
$
|
(741)
|
|
Deferred:
|
|
|
|
|
|
Federal
|
$
|
430
|
|
|
$
|
(1,475)
|
|
|
$
|
9,872
|
|
State
|
2
|
|
|
(30)
|
|
|
508
|
|
Total deferred tax provision (benefit)
|
432
|
|
|
(1,505)
|
|
|
10,380
|
|
Income tax provision (benefit)
|
$
|
61
|
|
|
$
|
(1,876)
|
|
|
$
|
9,639
|
|
Reconciliation of the statutory federal income tax rate to the Company’s actual rate based on income (loss) before income tax provision (benefit) is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Statutory federal tax rate
|
21.00
|
%
|
|
21.00
|
%
|
|
21.00
|
%
|
State income taxes, net of federal income taxes
|
0.89
|
|
|
1.20
|
|
|
4.50
|
|
Permanent tax differences – stock compensation
|
(0.43)
|
|
|
(0.70)
|
|
|
22.00
|
|
Permanent tax differences – business meals
|
(0.07)
|
|
|
(0.90)
|
|
|
(5.00)
|
|
Permanent tax differences – executive compensation and other
|
(0.86)
|
|
|
—
|
|
|
(0.20)
|
|
Purchase price allocation adjustment – merger
|
—
|
|
|
5.90
|
|
|
—
|
|
Change in valuation allowance
|
(19.09)
|
|
|
(32.30)
|
|
|
(144.50)
|
|
FICA credit generated
|
0.33
|
|
|
2.80
|
|
|
8.50
|
|
Impact of Tax Cuts and Jobs Act
|
—
|
|
|
—
|
|
|
(4.80)
|
|
Impact of ASC 842
|
—
|
|
|
7.70
|
|
|
—
|
|
Change in tax rate and apportionment
|
0.11
|
|
|
(0.30)
|
|
|
(4.30)
|
|
Deferred only adjustment to beginning deferred balances
|
(1.92)
|
|
|
0.10
|
|
|
17.30
|
|
Effective tax rate
|
(0.04)
|
%
|
|
4.50
|
%
|
|
(85.50)
|
%
|
The Company’s current and non-current deferred tax assets (liabilities) are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Accruals and reserves
|
$
|
4,315
|
|
|
$
|
5,346
|
|
Share-based compensation expense
|
5,469
|
|
|
4,958
|
|
Alternative minimum tax credit carryforward
|
—
|
|
|
371
|
|
General business credit carryforward
|
4,500
|
|
|
3,936
|
|
State tax credits
|
5,500
|
|
|
5,500
|
|
Net operating loss carryforwards
|
42,146
|
|
|
27,269
|
|
Operating lease obligation
|
42,039
|
|
|
46,525
|
|
Amortization of intangible assets
|
1,073
|
|
|
—
|
|
Other
|
647
|
|
|
583
|
|
|
105,689
|
|
|
94,488
|
|
Valuation allowances
|
(62,724)
|
|
|
(36,652)
|
|
|
$
|
42,965
|
|
|
$
|
57,836
|
|
Deferred tax liabilities:
|
|
|
|
Prepaid services
|
$
|
(715)
|
|
|
$
|
(288)
|
|
Amortization of intangible assets
|
—
|
|
|
(7,760)
|
|
Depreciation of fixed assets
|
(5,104)
|
|
|
(7,534)
|
|
Right-of-use assets
|
(38,666)
|
|
|
(43,342)
|
|
|
(44,485)
|
|
|
(58,924)
|
|
Net deferred tax liabilities
|
$
|
(1,520)
|
|
|
$
|
(1,088)
|
|
Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies. The Company’s financial results for the year ended December 31, 2020, include a net increase in valuation allowance of $26.1 million. The Company has performed a continuing evaluation of its deferred tax asset valuation allowance on a quarterly basis. The Company concluded that, as of December 31, 2020, negative evidence outweighs positive evidence for the realization of deferred tax assets and as a result has provided a full valuation allowance against its net deferred tax assets.
As of December 31, 2020, the Company had $191.0 million of federal net operating loss carryforwards, which will begin to expire in 2033. These net operating losses have the potential to be used to offset future ordinary taxable income and reduce future cash tax liabilities. However, in connection with the acquisition of American Casino and Entertainment Properties LLC (“American”), the Company issued 4,046,494 shares of its common stock to a former American equity holder, which resulted in an “ownership change” under Section 382 that will generally limit the amount of net operating losses the Company can utilize annually. As of December 31, 2020, the Company has concluded that the acquisition of American will not result in a loss of net operating loss nor credit carryforwards.
Additionally, the Company had deferred tax assets of $4.5 million related to general business credits. The general business credit carryforward begins to expire in 2037.
As of December 31, 2020, the Company’s 2017 and 2018 federal tax returns were under audit by the IRS.
As of December 31, 2020, the Company had no material uncertain tax positions.
Note 10 – Employee Retirement and Benefit Plans
Defined contribution employee savings plans
Effective November 1, 2018 the Company combined its two qualified defined contribution employee savings plans. The Company’s qualified defined contribution employee savings plan allows eligible participants to defer, within prescribed limits, up to 75% of their income on a pre-tax basis through a portion of their salary and accumulate tax-deferred earnings as a retirement fund. The Company contributed approximately $0.6 million, $0.6 million and $0.2 million to its defined contribution employee savings plan during the years ended December 31, 2020, 2019 and 2018, respectively. The Company’s contributions vest over a five-year period.
Pension plans
As of December 31, 2020, approximately 1,800 of the Company’s employees were members of various unions and covered by union-sponsored, collectively bargained, multiemployer health and welfare and defined benefit pension plans. The Company recorded $7.1 million, $11.8 million and $11.0 million in expenses for these plans for the years ended December 31, 2020, 2019 and 2018, respectively. The Company has no obligation to fund the plans beyond payments made based upon hours worked. The risks of participating in multiemployer plans are different from single-employer plans, including in the following aspects:
•Assets contributed to multiemployer plans by one employer may be used to provide benefits to employees of other participating employers;
•If a participating employer stops contributing to a multiemployer plan, the unfunded obligations of the multiemployer plan may be required to be borne by the remaining participating employers; and
•If an entity chooses to stop participating in some of its multiemployer plans, the entity may be required to pay those plans an amount based on the underfunded status of those plans, referred to as a “withdrawal liability.”
The Company considers the following multiemployer pension plans to be significant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection Zone Status (1)
|
|
FIR/RP Status Pending/Implemented
|
|
Surcharge Imposed
|
|
Expiration Date Of Collective-
Bargaining Agreement
|
Multiemployer Pension Plans
|
|
EIN/Plan Number
|
|
2019
|
|
2018
|
|
|
|
Central Pension Fund of the IUOE and Participating Employers
|
|
36-6052390-001
|
|
Green
|
|
Green
|
|
No
|
|
No
|
|
3/31/2021
|
Southern Nevada Culinary and Bartenders Pension Plan
|
|
88-6016617-001
|
|
Green
|
|
Green
|
|
No
|
|
No
|
|
5/31/2023
|
(1)The Pension Protection Act of 2006 requires plans that are certified as endangered (yellow) or critical (red) to develop and implement a funding improvement plan.
The Company’s contributions to each multiemployer pension and benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Multiemployer pension plans
|
|
|
|
|
|
Central Pension Fund of the IUOE and Participating Employers
|
$
|
545
|
|
|
$
|
704
|
|
|
$
|
753
|
|
Southern Nevada Culinary and Bartenders Pension Plan
|
1,356
|
|
|
2,130
|
|
|
2,003
|
|
Other pension plans
|
142
|
|
|
198
|
|
|
191
|
|
Total contributions
|
$
|
2,043
|
|
|
$
|
3,032
|
|
|
$
|
2,947
|
|
Multiemployer benefit plans (excluding pension plans)
|
|
|
|
|
|
HEREIU Welfare Fund
|
$
|
5,216
|
|
|
$
|
8,757
|
|
|
$
|
7,807
|
|
All other
|
3
|
|
|
4
|
|
|
6
|
|
Total contributions
|
$
|
5,219
|
|
|
$
|
8,761
|
|
|
$
|
7,813
|
|
For the 2019 plan year, the latest period for which plan data is available, the Company made less than 5% of total contributions for all multiemployer pension plans to which the Company contributes.
Note 11 – Financial Instruments and Fair Value Measurements
Estimates of fair value for financial assets and liabilities are based on the framework established in the accounting guidance for fair value measurements. The framework defines fair value, provides guidance for measuring fair value and requires certain disclosures. The framework discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The framework utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.
Financial Instruments
The carrying values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short duration of these financial instruments.
The following table summarizes the fair value measurement of the Company’s long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(In thousands)
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Hierarchy
|
Term Loan
|
$
|
772,000
|
|
|
$
|
758,490
|
|
|
Level 2
|
2026 Unsecured Notes
|
375,000
|
|
|
402,638
|
|
|
Level 2
|
Finance lease liabilities
|
9,182
|
|
|
9,182
|
|
|
Level 3
|
Notes payable
|
4,373
|
|
|
4,373
|
|
|
Level 3
|
Total debt
|
$
|
1,160,555
|
|
|
$
|
1,174,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(In thousands)
|
Carrying Amount
|
|
Fair Value
|
|
Fair Value Hierarchy
|
Term Loan
|
$
|
772,000
|
|
|
$
|
776,806
|
|
|
Level 2
|
2026 Unsecured Notes
|
375,000
|
|
|
401,250
|
|
|
Level 2
|
Finance lease liabilities
|
12,463
|
|
|
12,463
|
|
|
Level 3
|
Notes payable
|
6,369
|
|
|
6,369
|
|
|
Level 3
|
Total debt
|
$
|
1,165,832
|
|
|
$
|
1,196,888
|
|
|
|
The estimated fair value of the Company’s Term Loan and 2026 Unsecured Notes is based on a relative value analysis performed as of December 31, 2020 and 2019. The finance lease liabilities and notes payable are fixed-rate debt, are not traded and do not have observable market inputs, therefore, the fair value is estimated to be equal to the carrying value.
The Company’s Interest Rate Cap with a notional amount of $650.0 million entered into for a cash payment of $3.1 million expired on December 31, 2020. During the life of the agreement, the Company used Level 2 inputs to adjust the carrying value of the Interest Rate Cap to estimated fair value quarterly based upon observable market-based inputs that reflected the present values of the difference between estimated future fixed rate payments and future variable receipts. The fair value of the Company’s Interest Rate Cap was zero as of December 31, 2020 and 2019.
Business Combinations and Long-lived Assets
In connection with business combinations, the Company recognizes assets acquired and liabilities assumed at estimated fair value and adjusts liabilities for contingent consideration to estimates of fair value quarterly. For the Laughlin Acquisition, these amounts were finalized during the fourth quarter of 2019 and all value metrics and estimates utilized Level 3 inputs.
Fair value estimates for land, land improvements, building and leasehold improvements, and other property and equipment are calculated with primary reliance on the cost approach, with secondary consideration being placed on the market/sales comparison approach. Significant inputs include consideration of highest and best use, replacement costs, sales comparisons (recent transactions of comparable properties), and market approaches (and the properties’ ability to generate future benefits).
Fair value estimates for intangible assets are determined using variety of methods depending on the asset type. Valuation methods generally used by the Company include: a relief-from-royalty method under the income approach that includes an estimate for a reasonable royalty rate; an excess earnings method under the income approach and/or a cost-to-replace approach; and a lost profits method under the income approach using the with and without methodology.
Note 12 – Leases
Company as Lessee
The Company is a lessee under non-cancelable operating and finance leases for offices, taverns, land, vehicles, slot machines and equipment. In addition, slot placement contracts in the form of space lease agreements at chain stores are accounted for as operating leases. Under chain store space lease agreements, the Company pays fixed monthly rental fees for the right to install, maintain and operate its slots at business locations, which are recorded in gaming expenses. The Company’s slot machine lease agreements with gaming equipment manufacturers are short-term in nature with majority of such leases being under variable rent structure, with amounts determined based on the performance of the leased machines. Certain other short-term slot machine lease agreements are under fixed fee payment structure.
The leases, excluding land, have remaining lease terms of 1 year to 77 years, some of which include options to extend the leases for an additional 1 to 25 years. Some equipment leases and space lease agreements include options to terminate the lease with 60 days to 1 year notice. The Company assesses the options to extend or terminate the lease using a threshold of reasonably certain. For leases the Company is reasonably certain to renew, those option periods are included within the lease term and, therefore, the measurement of the ROU asset and lease liability.
The Company’s lease agreements for land, buildings and taverns with lease and non-lease components are accounted for separately. The lease and non-lease components of certain vehicle and equipment leases are accounted for as a single lease component. The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.
Lease expense for arrangements with a fixed fee payment structure is recognized on a straight-line basis over the lease term. Lease expense for arrangements under a variable rent structure is recognized in the period in which the obligation for the payment is incurred.
The Company leases approximately 4.5 acres of undeveloped land in Carson City. Upon the adoption of ASC 842, the Company wrote off the associated ROU asset for this land lease of $9.4 million with a charge to its beginning balance of retained earnings as of January 1, 2019. The Company is also lessee for several taverns and locations subject to space lease agreements that it does not plan to develop, operate, or sub-lease. The Company wrote off the associated ROU asset for these leases of $2.9 million with a charge to its beginning balance of retained earnings as of January 1, 2019.
The Company leases its office headquarters building and the office space in a building adjacent to the Company’s office headquarters building from a related party. Refer to “Note 14 — Related Party Transactions” for more detail.
The current and non-current obligations under finance leases are included in “Current portion of long-term debt and finance leases” and “Long-term debt, net and finance leases” in the Company’s consolidated balance sheets, respectively. The majority of the finance leases relate to equipment for the Company’s casinos.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
Classification
|
|
2020
|
|
2019
|
Operating lease cost
|
|
|
|
|
|
Operating lease cost
|
Operating and SG&A expenses
|
|
$
|
46,082
|
|
|
$
|
46,515
|
|
Variable lease cost
|
Operating and SG&A expenses
|
|
12,095
|
|
|
17,184
|
|
Short-term lease cost
|
Operating and SG&A expenses
|
|
4,964
|
|
|
6,617
|
|
Total operating lease cost
|
|
|
$
|
63,141
|
|
|
$
|
70,316
|
|
|
|
|
|
|
|
Finance lease cost
|
|
|
|
|
|
Amortization of leased assets
|
Depreciation and amortization
|
|
$
|
2,376
|
|
|
$
|
2,389
|
|
Interest on lease liabilities
|
Interest expense, net
|
|
627
|
|
|
439
|
|
Total finance lease cost
|
|
|
$
|
3,003
|
|
|
$
|
2,828
|
|
The Company incurred $55.7 million in operating lease expense for the year ended December 31, 2018. The expense was calculated on a straight-line basis and not retrospectively adjusted by the Company upon adoption of ASC 842.
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
44,774
|
|
|
$
|
47,084
|
|
Operating cash flows from finance leases
|
491
|
|
|
429
|
|
Financing cash flows from finance leases
|
2,588
|
|
|
2,485
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
2020
|
|
2019
|
Operating leases
|
|
|
|
Operating lease right-of-use assets, gross
|
$
|
214,548
|
|
|
$
|
226,884
|
|
Accumulated amortization
|
(33,995)
|
|
|
(23,353)
|
|
Operating lease right-of-use assets, net
|
$
|
180,553
|
|
|
$
|
203,531
|
|
|
|
|
|
Current portion of operating leases
|
$
|
35,725
|
|
|
$
|
33,883
|
|
Non-current operating leases
|
160,248
|
|
|
184,301
|
|
Total operating lease liabilities
|
$
|
195,973
|
|
|
$
|
218,184
|
|
|
|
|
|
Finance leases
|
|
|
|
Property and equipment, gross
|
$
|
16,404
|
|
|
$
|
19,920
|
|
Accumulated depreciation
|
(3,807)
|
|
|
(3,787)
|
|
Property and equipment, net
|
$
|
12,597
|
|
|
$
|
16,133
|
|
|
|
|
|
Current portion of finance leases
|
$
|
3,507
|
|
|
$
|
3,662
|
|
Non-current finance leases
|
5,675
|
|
|
8,801
|
|
Total finance lease liabilities
|
$
|
9,182
|
|
|
$
|
12,463
|
|
The following presents additional information related to the Company’s leases as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
Weighted Average Remaining Lease Term
|
|
|
|
Operating leases
|
8.6 years
|
|
8.9 years
|
Finance leases
|
7.0 years
|
|
7.0 years
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
Operating leases
|
6.0
|
%
|
|
6.0
|
%
|
Finance leases
|
6.5
|
%
|
|
6.5
|
%
|
Maturities of Lease Liabilities
As of December 31, 2020, maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
2021
|
$
|
45,456
|
|
|
$
|
3,978
|
|
|
$
|
49,434
|
|
2022
|
39,346
|
|
|
3,301
|
|
|
42,647
|
|
2023
|
33,627
|
|
|
801
|
|
|
34,428
|
|
2024
|
32,416
|
|
|
338
|
|
|
32,754
|
|
2025
|
16,922
|
|
|
306
|
|
|
17,228
|
|
Thereafter
|
90,230
|
|
|
3,628
|
|
|
93,858
|
|
Total lease payments
|
257,997
|
|
|
12,352
|
|
|
270,349
|
|
Amount of interest
|
(62,024)
|
|
|
(3,170)
|
|
|
(65,194)
|
|
Present value of lease liabilities
|
$
|
195,973
|
|
|
$
|
9,182
|
|
|
$
|
205,155
|
|
As of December 31, 2020, the Company did not have any leases that have not yet commenced but that create significant rights and obligations.
Company as Lessor
The Company leases space to third-party tenants under non-cancelable operating leases primarily for retail and food and beverage outlets within its resort casino properties. Golden also enters into operating lease agreements with certain equipment providers for placement of amusement devices and automated teller machines within its resort casino properties and taverns. The leases have remaining lease terms of 1 to 10 years, some of which include options to extend the leases for an additional 1 to 15 years.
Lease payments from tenants generally include minimum base rent, adjusted for contractual escalations as applicable, and/or contingent rental clauses based on a percentage of net sales exceeding minimum base rent. The Company records revenue on a straight-line basis over the term of the lease and recognizes revenue for contingent rentals when the contingency has been resolved. The Company combines lease and non-lease components for the purpose of measuring lease revenue, which is recorded in “Other revenue” in the Company’s consolidated statements of operations.
Minimum and contingent operating lease income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2020
|
|
2019
|
|
2018
|
Minimum rental income
|
$
|
3,913
|
|
|
$
|
7,479
|
|
|
$
|
6,117
|
|
Contingent rental income
|
1,840
|
|
|
1,527
|
|
|
1,335
|
|
Total rental income
|
$
|
5,753
|
|
|
$
|
9,006
|
|
|
$
|
7,452
|
|
Future minimum rent payments to be received under operating leases are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
Amount
|
2021
|
$
|
3,498
|
|
2022
|
3,040
|
|
2023
|
2,371
|
|
2024
|
1,433
|
|
2025
|
1,431
|
|
Thereafter
|
1,489
|
|
Total future minimum rent payments
|
$
|
13,262
|
|
Note 13 – Commitments and Contingencies
Participation Agreements and Space Lease Agreements with Revenue Share Provisions
In addition to the space lease agreements described in “Note 12 — Leases” and “Note 2 — Summary of Significant Accounting Policies,” the Company enters into slot placement contracts in the form of participation agreements and space lease agreements with revenue share provisions. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue generated from the Company’s slots. Space lease agreements with revenue share provisions are a hybrid model that has both space lease and participation elements and the Company pays the business a percentage of the gaming revenue generated from the Company’s slots placed at the location, rather than a fixed monthly rental fee. Under such arrangements, the Company holds the applicable gaming license to conduct gaming at the location and the business location is required to obtain separate regulatory approval to receive a percentage of the gaming revenue. The aggregate contingent payments recognized by the Company as gaming expenses under participation agreements and space lease agreements with revenue share provisions were $133.2 million, $158.6 million and $147.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, including $0.7 million for the year ended December 31, 2020 and $0.9 million for each of the years ended December 2019 and 2018 under the agreements with related parties described in “Note 14 — Related Party Transactions.”
Collective Bargaining Agreements
As of December 31, 2020 the Company had over 6,700 employees, of which approximately 1,800 were covered by various collective bargaining agreements. The Company’s collective bargaining agreements expire between 2021 and 2025. The Company cannot ensure that, upon the expiration of existing collective bargaining agreements, new agreements will be reached without union action or that any such new agreements will be on terms satisfactory to the Company.
Employment Agreements
The Company has entered into at-will employment agreements with certain of the Company’s executive officers. Under each employment agreement, in addition to the executive’s annual base salary, the executive is entitled to participate in the Company’s incentive compensation programs applicable to executive officers of the Company. The executive officers are also eligible to participate in all health benefits, insurance programs, pension and retirement plans and other employee benefit and compensation arrangements. Each executive officer is also provided with other benefits as set forth in his employment agreement. In the event of a termination without “cause” or a “constructive termination” of the Company’s executive officers (as defined in their respective employment agreements), the Company could be liable for estimated severance payments of up to $5.7 million for Blake L. Sartini, $3.0 million for Charles H. Protell, $2.4 million for Stephen A. Arcana, and $0.8 million for Blake L. Sartini II (assuming each officer’s respective annual salary and health benefit costs as of December 31, 2020, subject to amounts in effect at the time of termination and excluding potential expense related to acceleration of stock options, RSUs and PSUs).
Legal Matters and Other
From time to time, the Company is involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters for which the Company records reserves. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its currently pending matters should not have a material adverse effect on its business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on the Company because of defense costs, diversion of management
resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect the Company’s business, financial condition, results of operations or liquidity in a particular period.
On August 5, 2015 a prior employee filed a Charge of Discrimination with the Equal Employment Opportunity Commission (“EEOC”) and subsequently filed an Amended Charge of Discrimination on January 2016 alleging that the Company engaged in disability discrimination under the Americans with Disabilities Act of 1990, as amended. The EEOC requested financial recovery as well as that the Company update certain policies and procedures. In late 2019 the EEOC issued a Letter of Determination and invited the Company to participate in a mediation on behalf of the plaintiff and similarly situated parties to work toward a resolution of this matter. This matter was settled with the complainant and the EEOC in October 2020.
While legal proceedings are inherently unpredictable and no assurance can be given as to the ultimate outcome of any of the above matters, based on management’s current understanding of the relevant facts and circumstances, the Company believes that these proceedings should not have a material adverse effect on its financial position, results of operations or cash flows.
In January 2021, the Company was affected by a ransomware cyber-attack that temporarily disrupted the Company’s access to certain information located on the Company’s network and incurred expenses relating thereto. The Company’s financial information and business operations were not materially affected. The Company implemented a variety of measures to further enhance its cybersecurity protections and minimize the impact of any future cyber incidents. The Company has insurance related to this event and is seeking to recover a portion, if not all, of the costs incurred by the Company to remediate this matter and will record insurance recovery when collection is probable.
Note 14 – Related Party Transactions
As of December 31, 2020, the Company leased its office headquarters building from a company 33% beneficially owned by Blake L. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Stephen A. Arcana. The lease for the Company’s office headquarters building expires on December 31, 2030. The rent expense for the office headquarters building was $1.6 million for the year ended December 31, 2020 and $1.3 million for each of the years ended December 31, 2019 and 2018. No amount was owed to the Company, and no amount was due and payable by the Company, under this lease arrangement as of December 31, 2020 and 2019. Additionally, a portion of the office headquarters building was sublet to Sartini Enterprises, Inc., a company controlled by Mr. Sartini. Rental income during each of the years ended December 31, 2020, 2019 and 2018 for the sublet portion of the office headquarters building was insignificant. No amount was owed to the Company under such sublease as of December 31, 2020 and 2019. In addition, Golden and Sartini Enterprises, Inc. participate in certain cost-sharing arrangements. The amount due and payable by the Company under such arrangements was insignificant as of December 31, 2020 and no amount was due and payable by the Company as of December 31, 2019. Mr. Sartini serves as the Chairman of the Board and Chief Executive Officer of the Company and is co-trustee of the Sartini Trust, which is a significant shareholder of the Company. Mr. Arcana serves as the Executive Vice President and Chief Operating Officer of the Company.
In November 2018, the Company entered into a lease agreement for office space in a building adjacent to the Company’s office headquarters building to be constructed and owned by a company 33% beneficially owned by Mr. Sartini, 5% owned by a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini serves as trustee, and 3% beneficially owned by Mr. Arcana. The lease commenced in August 2020 and expires on December 31, 2030. The rent expense for the space was $0.1 million for the year ended December 31, 2020. Additionally, the lease agreement includes a right of first refusal for additional space on the second floor of the building.
One tavern location that the Company had previously leased from a related party was sold in the second quarter of 2019 to an unrelated third party. As a result, the Company did not incur any rent expense for such tavern location for the year ended December 31, 2020 and the rent expense for such tavern was $0.2 million (for the period within which it was leased by a related party) and $0.4 million for the years ended December 31, 2019 and 2018, respectively. No tavern locations were leased from related parties as of December 31, 2020 and 2019.
From time to time, the Company’s executive officers and employees use for Company business a private aircraft that is owned by or leased to Sartini Enterprises, Inc., pursuant to aircraft timesharing, co-user and cost-sharing agreements between the Company and Sartini Enterprises, Inc. that have been approved by the Audit Committee of the Board of Directors. The aircraft timesharing, co-user and cost-sharing agreements specify the maximum expense reimbursement that Sartini Enterprises, Inc. can charge the Company under the applicable regulations of the Federal Aviation Administration for the use of the aircraft and flight crew. Such costs include fuel, landing fees, hangar and tie-down costs away from the aircraft’s operating base, flight planning and weather contract services, crew costs and other related expenses. The Company’s compliance department regularly reviews these reimbursements. The Company paid $0.5 million for the year ended December 31, 2020 and $0.6 million for each of the years ended December 31, 2019 and 2018 under these arrangements. No amount was due and payable by the Company and no amount was owed to the Company under these agreements as of December 31, 2020 and 2019.
One of the distributed gaming locations at which the Company’s slots are located was owned in part by Sean T. Higgins, who previously served as Executive Vice President of Government Affairs of the Company. This agreement was in place prior to Mr. Higgins’s joining the Company on March 28, 2016. Net revenues recorded by the Company from the use of the Company’s slots at this location were $0.8 million for the year ended December 31, 2020 and $1.0 million for each of the years ended December 31, 2019 and 2018. Gaming expenses related to this location were $0.7 million for the year ended December 31, 2020 and $0.9 million for each of the years ended December 31, 2019 and 2018. An insignificant amount was owed to the Company and due and payable by the Company related to this arrangement as of December 31, 2020 and 2019.
In connection with the Sartini Gaming merger, Lyle A. Berman, an independent non-employee member of the Company’s Board of Directors, entered into a three-year consulting agreement with the Company pursuant to which the Company paid his wholly-owned consulting firm $200,000 annually, plus reimbursements for certain health insurance, administrative assistant and office costs. The consulting agreement expired on July 31, 2018 and as such, there were no expenses incurred by the Company for the agreement for the years ended December 31, 2020 and 2019. The Company recorded less than $0.1 million under this consulting arrangement with Mr. Berman for the year ended December 31, 2018.
On December 22, 2020, the Company repurchased 50,000 shares of its common stock from Mr. Berman pursuant to its share repurchase program at a price of $19.00 per share, resulting in a charge to accumulated deficit for $1.0 million. This transaction was approved by the Audit Committee of the Board of Directors prior to being executed.
Note 15 – Segment Information
The Company conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The Company’s Casinos segment involves the ownership and operation of resort casino properties in Nevada and Maryland. The Company’s Distributed Gaming segment involves the installation, maintenance and operation of slots and amusement devices in non-casino locations such as restaurants, bars, taverns, convenience stores, liquor stores and grocery stores in Nevada and Montana, and the operation of branded taverns targeting local patrons located primarily in the greater Las Vegas, Nevada metropolitan area. The Corporate and Other segment includes the Company’s cash and cash equivalents, miscellaneous receivables and corporate overhead. Costs recorded in the Corporate and Other segment have not been allocated to the Company’s reportable operating segments because these costs are not easily allocable and to do so would not be practical.
The Company evaluates each segment’s profitability based upon such segment’s Adjusted EBITDA, which represents each segment’s earnings before interest and other non-operating income (expense), income taxes, depreciation and amortization, impairment of goodwill and intangible assets, acquisition and severance expenses, preopening and related expenses, gain or loss on disposal of assets, loss on extinguishment and modification of debt, share-based compensation expenses, other expenses and change in fair value of derivative, calculated before corporate overhead (which is not allocated to each segment).
The information within the following tables sets forth, for the periods indicated, certain operating data for the Company’s segments, and reconciles net (loss) income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(In thousands)
|
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
237,599
|
|
|
$
|
239,154
|
|
|
$
|
—
|
|
|
$
|
476,753
|
|
Food and beverage
|
|
78,663
|
|
|
33,418
|
|
|
—
|
|
|
112,081
|
|
Rooms
|
|
71,411
|
|
|
—
|
|
|
—
|
|
|
71,411
|
|
Other (1)
|
|
27,637
|
|
|
5,684
|
|
|
589
|
|
|
33,910
|
|
Total revenues
|
|
$
|
415,310
|
|
|
$
|
278,256
|
|
|
$
|
589
|
|
|
$
|
694,155
|
|
Net (loss) income
|
|
$
|
(21,940)
|
|
|
$
|
1,963
|
|
|
$
|
(116,634)
|
|
|
$
|
(136,611)
|
|
Depreciation and amortization
|
|
98,946
|
|
|
22,934
|
|
|
2,550
|
|
|
124,430
|
|
Impairment of goodwill and intangible assets
|
|
33,964
|
|
|
—
|
|
|
—
|
|
|
33,964
|
|
Acquisition and severance expenses
|
|
2,930
|
|
|
612
|
|
|
168
|
|
|
3,710
|
|
Preopening and related expenses (2)
|
|
225
|
|
|
57
|
|
|
251
|
|
|
533
|
|
Loss (gain) on disposal of assets
|
|
1,328
|
|
|
(413)
|
|
|
(112)
|
|
|
803
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
9,637
|
|
|
9,637
|
|
Other, net
|
|
1,238
|
|
|
705
|
|
|
1,332
|
|
|
3,275
|
|
Interest expense, net
|
|
837
|
|
|
488
|
|
|
67,785
|
|
|
69,110
|
|
Change in fair value of derivative
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Income tax provision
|
|
—
|
|
|
—
|
|
|
61
|
|
|
61
|
|
Adjusted EBITDA
|
|
$
|
117,528
|
|
|
$
|
26,346
|
|
|
$
|
(34,961)
|
|
|
$
|
108,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(In thousands)
|
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
284,027
|
|
|
$
|
294,776
|
|
|
$
|
—
|
|
|
$
|
578,803
|
|
Food and beverage
|
|
148,970
|
|
|
53,963
|
|
|
—
|
|
|
202,933
|
|
Rooms
|
|
132,193
|
|
|
—
|
|
|
—
|
|
|
132,193
|
|
Other (1)
|
|
50,211
|
|
|
8,500
|
|
|
770
|
|
|
59,481
|
|
Total revenues
|
|
$
|
615,401
|
|
|
$
|
357,239
|
|
|
$
|
770
|
|
|
$
|
973,410
|
|
Net income (loss)
|
|
$
|
80,179
|
|
|
$
|
28,365
|
|
|
$
|
(148,089)
|
|
|
$
|
(39,545)
|
|
Depreciation and amortization
|
|
92,918
|
|
|
22,035
|
|
|
1,639
|
|
|
116,592
|
|
Acquisition and severance expenses
|
|
575
|
|
|
35
|
|
|
2,878
|
|
|
3,488
|
|
Preopening and related expenses (2)
|
|
2,723
|
|
|
1,482
|
|
|
343
|
|
|
4,548
|
|
Loss (gain) on disposal of assets
|
|
1,124
|
|
|
(200)
|
|
|
385
|
|
|
1,309
|
|
Share-based compensation
|
|
11
|
|
|
5
|
|
|
10,108
|
|
|
10,124
|
|
Other, net
|
|
405
|
|
|
52
|
|
|
1,759
|
|
|
2,216
|
|
Interest expense, net
|
|
581
|
|
|
73
|
|
|
73,566
|
|
|
74,220
|
|
Loss on extinguishment and modification of debt
|
|
—
|
|
|
—
|
|
|
9,150
|
|
|
9,150
|
|
Change in fair value of derivative
|
|
—
|
|
|
—
|
|
|
4,168
|
|
|
4,168
|
|
Income tax benefit
|
|
—
|
|
|
—
|
|
|
(1,876)
|
|
|
(1,876)
|
|
Adjusted EBITDA
|
|
$
|
178,516
|
|
|
$
|
51,847
|
|
|
$
|
(45,969)
|
|
|
$
|
184,394
|
|
(2) Preopening and related expenses include rent, organizational costs, non-capital costs associated with the opening of tavern and casino locations, and expenses related to The Strat rebranding and the launch of the True Rewards loyalty program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
(In thousands)
|
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Revenues
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
246,623
|
|
|
$
|
278,553
|
|
|
$
|
—
|
|
|
$
|
525,176
|
|
Food and beverage
|
|
119,636
|
|
|
50,817
|
|
|
—
|
|
|
170,453
|
|
Rooms
|
|
106,805
|
|
|
—
|
|
|
—
|
|
|
106,805
|
|
Other (1)
|
|
40,885
|
|
|
7,697
|
|
|
778
|
|
|
49,360
|
|
Total revenues
|
|
$
|
513,949
|
|
|
$
|
337,067
|
|
|
$
|
778
|
|
|
$
|
851,794
|
|
Net income (loss)
|
|
$
|
82,556
|
|
|
$
|
25,870
|
|
|
$
|
(129,340)
|
|
|
$
|
(20,914)
|
|
Depreciation and amortization
|
|
72,242
|
|
|
20,604
|
|
|
1,610
|
|
|
94,456
|
|
Acquisition and severance expenses
|
|
289
|
|
|
38
|
|
|
3,413
|
|
|
3,740
|
|
Preopening and related expenses (2)
|
|
170
|
|
|
365
|
|
|
636
|
|
|
1,171
|
|
Loss (gain) on disposal of assets
|
|
2,893
|
|
|
443
|
|
|
—
|
|
|
3,336
|
|
Share-based compensation
|
|
37
|
|
|
3
|
|
|
9,948
|
|
|
9,988
|
|
Other, net
|
|
188
|
|
|
408
|
|
|
492
|
|
|
1,088
|
|
Interest expense, net
|
|
110
|
|
|
93
|
|
|
63,825
|
|
|
64,028
|
|
Change in fair value of derivative
|
|
—
|
|
|
—
|
|
|
(1,786)
|
|
|
(1,786)
|
|
Income tax provision
|
|
—
|
|
|
—
|
|
|
9,639
|
|
|
9,639
|
|
Adjusted EBITDA
|
|
$
|
158,485
|
|
|
$
|
47,824
|
|
|
$
|
(41,563)
|
|
|
$
|
164,746
|
|
(2)Preopening and related expenses include rent, organizational costs, non-capital costs associated with the opening of tavern and casino locations, and expenses related to The Strat rebranding and the launch of the True Rewards loyalty program.
Assets
The Company’s assets by segment consisted of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Casinos
|
|
Distributed Gaming
|
|
Corporate and Other
|
|
Consolidated
|
Balance at December 31, 2020
|
$
|
1,085,510
|
|
|
$
|
430,791
|
|
|
$
|
54,648
|
|
|
$
|
1,570,949
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
$
|
1,204,574
|
|
|
$
|
482,294
|
|
|
$
|
54,049
|
|
|
$
|
1,740,917
|
|
Capital Expenditures
The Company’s capital expenditures by segment consisted of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Casinos (1)
|
|
Distributed Gaming (2)
|
|
Corporate and Other
|
|
Consolidated
|
For the year ended December 31, 2020
|
|
$
|
27,091
|
|
|
$
|
6,886
|
|
|
$
|
2,525
|
|
|
$
|
36,502
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2019
|
|
$
|
83,382
|
|
|
$
|
19,185
|
|
|
$
|
4,700
|
|
|
$
|
107,267
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2018
|
|
$
|
45,634
|
|
|
$
|
15,942
|
|
|
$
|
6,599
|
|
|
$
|
68,175
|
|
(1)Capital expenditures in the Casinos segment exclude non-cash purchases of property and equipment of $1.1 million, $19.1 million and $8.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(2)Capital expenditures in the Distributed Gaming segment exclude non-cash purchases of property and equipment of $2.5 million, $3.6 million and $3.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Note 16 – Subsequent Events
The Company’s management evaluates subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that occurred during such period that would require adjustment to or disclosure in the consolidated financial statements as of and for the year ended December 31, 2020.