UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2018
or
(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 000-24993
GOLDEN ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of incorporation or organization)
41-1913991
(I.R.S. Employer Identification No.)
6595 S Jones Boulevard - Las Vegas, Nevada 89118
(Address of principal executive offices)
(702) 893-7777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
Non-accelerated filer
Emerging growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:4) No (cid:3)
Based upon the last sale price of the registrant’s common stock, $0.01 par value, as reported on the Nasdaq Global Market on June 30, 2018 (the
last business day of the registrant’s most recently completed second quarter), the aggregate market value of the common stock held by non-affiliates
of the registrant as of such date was $496,366,221. For purposes of these computations only, all of the Registrant’s executive officers and directors
and entities affiliated with them have been deemed to be affiliates.
As of March 12, 2019, 27,697,615 shares of the registrant’s common stock, $0.01 par value, were outstanding.
Accelerated filer
Smaller reporting company
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2019 annual meeting of shareholders, to be filed with the Securities and Exchange Commission
within 120 days after the registrant’s year ended December 31, 2018, are incorporated by reference into Part III of this Annual Report on Form
10-K where indicated. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, the Proxy
Statement is not deemed to be filed as part hereof.
GOLDEN ENTERTAINMENT, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
PART I
ITEM I. BUSINESS .............................................................................................................................................
ITEM 1A.RISK FACTORS....................................................................................................................................
ITEM IB. UNRESOLVED STAFF COMMENTS.................................................................................................
ITEM 2. PROPERTIES ........................................................................................................................................
ITEM 3. LEGAL PROCEEDINGS ......................................................................................................................
ITEM 4. MINE SAFETY DISCLOSURES..........................................................................................................
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES...................................................................
ITEM 6. SELECTED FINANCIAL DATA .........................................................................................................
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................................................................................
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ......................
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......................................................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................................................................................
ITEM 9A.CONTROLS AND PROCEDURES ......................................................................................................
ITEM 9B.OTHER INFORMATION......................................................................................................................
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE...............................
ITEM 11. EXECUTIVE COMPENSATION .........................................................................................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS............................................................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE..................................................................................................................................
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ........................................................................
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES .....................................................................
ITEM 16. FORM 10-K SUMMARY......................................................................................................................
SIGNATURES.........................................................................................................................................................
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As used in this Annual Report on Form 10-K, unless the context suggests otherwise, the terms “Golden,” “we,” “our”
and “us” refer to Golden Entertainment, Inc. and its subsidiaries.
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and
Results of Operations, contains forward-looking statements regarding future events and our future results that are
subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, (the “Exchange Act”). Forward-looking statements can generally be identified by the use of words
such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “project,”
“seek,” “should,” “think,” “will,” “would” and similar expressions. In addition, forward-looking statements include
statements regarding cost savings, synergies, growth opportunities and other financial and operating benefits of our
casino and other acquisitions; our strategies, objectives, business opportunities and plans for future expansion,
developments or acquisitions; anticipated future growth and trends in our business or key markets; projections of
future financial condition, operating results, income, capital expenditures, costs or other financial items; anticipated
regulatory and legislative changes; and other characterizations of future events or circumstances as well as other
statements that are not statements of historical fact. Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other future conditions. These forward-looking statements
are subject to assumptions, risks and uncertainties that may change at any time, and readers are therefore cautioned
that actual results could differ materially from those expressed in any forward-looking statements. Factors that could
cause our actual results to differ materially include: our ability to realize the anticipated cost savings, synergies and
other benefits of our casino and other acquisitions, including the casinos we recently acquired in Las Vegas and
Laughlin, Nevada, and integration risks relating to such transactions; changes in national, regional and local economic
and market conditions; legislative and regulatory matters (including the cost of compliance or failure to comply with
applicable laws and regulations); increases in gaming taxes and fees in the jurisdictions in which we operate; litigation;
increased competition; our ability to renew our distributed gaming contracts; reliance on key personnel (including our
Chief Executive Officer, Chief Operating Officer and Chief Strategy and Financial Officer); the level of our
indebtedness and our ability to comply with covenants in our debt instruments; terrorist incidents; natural disasters;
severe weather conditions (including weather or road conditions that limit access to our properties); the effects of
environmental and structural building conditions; the effects of disruptions to our information technology and other
systems and infrastructure; factors affecting the gaming, entertainment and hospitality industries generally, and other
factors identified under the heading “Risk Factors” in Part I, Item 1A of this report, elsewhere in this report and in our
other filings with the Securities and Exchange Commission (“SEC”). Readers are cautioned not to place undue reliance
on any forward-looking statements, which speak only as of the filing date of this report. We undertake no obligation
to revise or update any forward-looking statements for any reason.
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ITEM 1. BUSINESS
Corporate Information
We were incorporated in Minnesota in 1998 under the name of GCI Lakes, Inc., which name was subsequently
changed to Lakes Gaming, Inc. in August 1998, to Lakes Entertainment, Inc. in June 2002 and to Golden
Entertainment, Inc. in July 2015. Our shares began trading publicly in January 1999. The mailing address of our
headquarters is 6595 S Jones Boulevard, Las Vegas, Nevada 89118, and our telephone number at that location is
(702) 893-7777.
Business Overview
We 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 our branded taverns).
We conduct our business through two reportable operating segments: Casinos and Distributed Gaming. In our Casinos
segment, we own and operate ten resort casinos: nine in Nevada and one in Maryland. Four of our Nevada resort
casino properties were added in October 2017 as a result of our acquisition of American Casino & Entertainment
Properties LLC (“American”), and in January 2019 we acquired two additional resort casino properties in Laughlin,
Nevada, as further described below. Our 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.
In January 2018, we completed an underwritten public offering pursuant to our universal shelf registration statement
in which certain of our shareholders resold an aggregate of 6.5 million shares of our common stock, and we sold
975,000 newly issued shares of our common stock pursuant to the exercise in full of the underwriters’ over-allotment
option to purchase additional shares. Our net proceeds from the offering were approximately $25.6 million after
deducting underwriting discounts and offering expenses.
On November 7, 2018, our Board of Directors authorized us to repurchase up to $25.0 million shares of common
stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other
factors. During the year ended December 31, 2018, we repurchased approximately 1.2 million shares of our common
stock in open market transactions for approximately $19.6 million at an average price of $16.06 per share. As
of December 31, 2018, approximately $5.4 million of shares of common stock remained available for repurchase
pursuant to this program. On March 12, 2019, our Board of Directors authorized us to repurchase up to $25.0 million
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 our finance
agreements. There is no minimum number of shares that we are required to repurchase and the repurchase program
may be suspended or discontinued at any time without prior notice.
Acquisitions
On January 14, 2019, we completed the acquisition of all of the outstanding equity interests of Edgewater Gaming,
LLC and Colorado Belle Gaming, LLC (the “Laughlin Entities”) from Marnell Gaming, LLC (“Marnell”) for $155.0
million in cash (subject to the post-closing adjustment provisions in the purchase agreement) and the issuance by us
of 911,002 shares of our common stock to certain assignees of Marnell (the “Laughlin Acquisition”). The Laughlin
Acquisition added two resort casino properties in Laughlin, Nevada to our casino portfolio: the Edgewater Hotel &
Casino Resort (the “Edgewater”) and the Colorado Belle Hotel & Casino Resort (the “Colorado Belle”), which
increase our scale and presence in the Southern Nevada market. The results of operations of the Laughlin Entities will
be included in our results subsequent to the acquisition date.
On October 20, 2017, we completed the acquisition of all of the outstanding equity interests of American (the
“American Acquisition”) for $787.6 million in cash (after giving effect to post-closing adjustments) and the issuance
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by us of approximately 4.0 million shares of our common stock to a former American equity holder. The American
Acquisition added four Nevada resort casino properties to our casino portfolio, including The STRAT Hotel, Casino
& SkyPod (“The Strat”) in Las Vegas. These additional resort casino properties expanded and strengthened our
presence in Nevada and the Las Vegas locals market, significantly increased our operational scale and provided us
with an iconic Las Vegas Strip destination property. The results of operations of American have been included in our
results subsequent to that date. In connection with the closing of the American Acquisition, we entered into two new
credit agreements with respect to a $900.0 million senior secured first lien credit facility (consisting of $800.0 million
in term loans and a $100.0 million revolving credit facility, which was undrawn at closing and upsized to $200.0
million in 2018) and a $200.0 million senior secured second lien term loan facility. We used the net proceeds from
the borrowings under these facilities primarily to fund the cash purchase price in the American Acquisition (a portion
of which was used to repay American’s then outstanding senior secured indebtedness), to refinance our outstanding
senior secured indebtedness under our then-existing senior secured credit facility, and to pay certain transaction fees
and expenses. See Note 8, Debt, in the accompanying consolidated financial statements for a discussion of the new
credit agreements and associated refinancing.
In January 2016, we completed the acquisition of approximately 1,100 slots from a distributed gaming operator in
Montana, as well as certain other non-gaming assets and the right to operate within certain locations (the “Initial
Montana Acquisition”). Additionally, in April 2016, we completed the acquisition of approximately 1,800 slots from
a second distributed gaming operator in Montana, as well as amusement devices and other non-gaming assets and the
right to operate within certain locations (the “Second Montana Acquisition” and, together with the Initial Montana
Acquisition, the “Montana Acquisitions”). The results of operations of the distributed gaming businesses acquired in
the Montana Acquisitions have been included in our results subsequent to their respective acquisition dates.
See Note 4, Acquisitions, in the accompanying consolidated financial statements for additional information regarding
each of these acquisitions.
Casinos
We own and operate ten resort casino properties in Nevada and Maryland, comprising: (1) The Strat, Arizona Charlie’s
Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada, (2) the Aquarius Casino Resort (the “Aquarius”), the
Edgewater and the Colorado Belle in Laughlin, Nevada, (3) the Pahrump Nugget Hotel Casino (“Pahrump Nugget”),
Gold Town Casino and Lakeside Casino & RV Park in Pahrump, Nevada, and (4) the Rocky Gap Casino Resort
(“Rocky Gap”) in Flintstone, Maryland.
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The Strat: The Strat is our premier casino property, located on Las Vegas Blvd on the north end of the Las
Vegas Strip. The Strat comprises the iconic SkyPod, a casino, a hotel and a retail center. As of December 31,
2018, The Strat featured an 80,000 sq. ft. casino, 2,429 hotel rooms, 686 slots, 48 table games, a race and
sports book, 11 restaurants, two rooftop pools, a fitness center, retail shops and entertainment facilities. We
are currently investing in a strategic renovation of The Strat, with $23.9 million invested as of December 31,
2018. Upgrades to the property encompass room and suite renovations, new premium food and beverage
outlets including a tap room concept featuring our signature branded craft beer and menu, a refresh of the
Top of the World restaurant, remodel of the casino room floor, addition of attractive group meeting space,
and an update to the signage and lighting on the exterior.
Arizona Charlie’s casinos: Our Arizona Charlie’s Decatur and Arizona Charlie’s Boulder casino properties
primarily serve local Las Vegas patrons, and provide an alternative experience to the Las Vegas Strip.
Arizona Charlie’s Decatur casino is located four miles west of the Las Vegas Strip in the heavily populated
west Las Vegas area, and is easily accessible from US Route 95, a major highway in Las Vegas. Arizona
Charlie’s Boulder casino is located on Boulder Highway, in an established retail and residential neighborhood
in the eastern metropolitan area of Las Vegas. The property is easily accessible from I-515, the primary
east/west highway in Las Vegas. As of December 31, 2018, Arizona Charlie’s Decatur casino offered 259
hotel rooms, 1,032 slots, seven table games, race and sports books, five restaurants, and an approximately
400-seat bingo parlor, and Arizona Charlie’s Boulder casino offered 303 hotel rooms, 823 slots, seven table
games, race and sports books, four restaurants, and an approximately 450-seat bingo parlor, as well as an RV
park with approximately 220 RV hook-up sites.
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Laughlin casinos: We own and operate three casinos in Laughlin, Nevada, which is located approximately
90 miles from Las Vegas on the western riverbank of the Colorado River. Our Laughlin casinos are situated
on 56 contiguous acres along the heart of the Laughlin Riverwalk and cater primarily to patrons traveling
from Arizona and Southern California, as well as customers from Nevada seeking an alternative to the Las
Vegas experience. The Aquarius is the largest resort casino property by number of hotel rooms in the
Laughlin, Nevada market. As of December 31, 2018, the Aquarius had 1,906 hotel rooms, 1,217 slots, 33
table games and eight restaurants. As of January 14, 2019 (the date we acquired the Colorado Belle and the
Edgewater in the Laughlin Acquisition), the Edgewater and the Colorado Belle collectively featured over
1,400 slots, 39 table games and 2,149 hotel rooms, as well as ten restaurants and dedicated entertainment
venues, including the Laughlin Event Center. The Laughlin Event Center, located at the Edgewater is an
outdoor arena with a capacity of approximately 12,000 guests and hosts multiple headline concerts and other
events throughout the year.
Pahrump casinos: We own and operate three casinos in Pahrump, Nevada, which is located approximately
60 miles from Las Vegas and is a gateway to Death Valley National Park. As of December 31, 2018, Pahrump
Nugget offered 69 hotel rooms, 399 slots, ten table games, a race and sports book, an approximately 200-seat
bingo facility and a bowling center. As of December 31, 2018, our Gold Town Casino offered 224 slots and
an approximately 100-seat bingo facility, and our Lakeside Casino & RV Park offered 173 slots and
approximately 160 RV hook-up sites.
Rocky Gap: Rocky Gap is situated on approximately 270 acres in the Rocky Gap State Park in Maryland,
which we lease from the Maryland Department of Natural Resources (the “Maryland DNR”) under a 40-year
ground lease expiring in 2052 (plus a 20-year option renewal). As of December 31, 2018, Rocky Gap offered
665 slots, 17 table games, two casino bars, three restaurants, a spa and the only Jack Nicklaus signature golf
course in Maryland. Rocky Gap is a AAA Four Diamond Award® winning resort with 198 hotel rooms, as
well as an event and conference center.
Distributed Gaming
Our 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. In August 2017, we were licensed as a video gaming terminal operator in Illinois, providing for
potential expansion into a new jurisdiction. We place our slots and amusement devices in locations where we believe
they will receive maximum customer traffic, generally near a store’s entrance. In addition, we own and operate
branded taverns with slots, which target local patrons, primarily in the greater Las Vegas, Nevada metropolitan area.
As of December 31, 2018, our distributed gaming operations comprised approximately 10,700 slots in over 1,000
locations.
Nevada law limits distributed gaming operations (also known as “restricted gaming” operations) to certain types of
non-casino locations, including grocery stores, drug stores, convenience stores, restaurants, bars, taverns and liquor
stores, where gaming is incidental to the primary business being conducted at the location and games are generally
limited to 15 or fewer slots and no other forms of gaming activity. The gaming area in these business locations is
typically small, and in many instances, segregated from the primary business area, including the use of alcoves in
grocery stores and drug stores and installation of slots into the physical bar (also known as “bar top” slots) in bars and
taverns. Such segregation provides greater oversight and supervision of the slots. Under Montana law, distributed
gaming operations are limited to business locations licensed to sell alcoholic beverages for on-premises consumption
only, with such locations generally restricted to offering a maximum of 20 slots.
In Nevada, we generally enter into three types of slot placement contracts as part of our distributed gaming business:
space agreements, revenue share agreements and participation agreements. Under space agreements, we pay a fixed
monthly rental for the right to install, maintain and operate our slots. Under revenue share agreements, we pay a
percentage of the gaming revenue generated from our slots, rather than a fixed monthly rental fee. With regard to both
space agreements and revenue share agreements, we hold the applicable gaming license to conduct gaming at the
location (although revenue share locations are required to obtain separate regulatory approval to receive a percentage
of the gaming revenue). Under participation agreements, the business location holds the applicable gaming license
and retains a percentage of the gaming revenue generated from our slots. In Montana, our slot and amusement device
placement contracts are all participation agreements.
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Our branded taverns offer a casual, upscale environment catering to local patrons offering superior food, craft beer
and other alcoholic beverages, and typically include 15 onsite slots. As of December 31, 2018, we owned and operated
60 branded taverns, which offered a total of over 950 onsite slots. We continue to look for opportunistic and accretive
opportunities to pursue additional tavern openings and acquisitions. Most of our taverns are located in the greater Las
Vegas, Nevada metropolitan area and cater to local patrons seeking more convenient entertainment establishments
than traditional casino properties. Our tavern patrons are typically younger than traditional casino customers, which
diversifies our customer demographic. Our tavern brands include PT’s Gold, PT’s Pub, Sierra Gold, Sean Patrick’s,
PT’s Place, PT’s Ranch, PT’s Brewing Company, Sierra Junction and SG Bar. We also own a brewery in Las Vegas,
PT’s Brewing Company, which produces craft beer for our taverns and casinos.
Sales and Marketing
Casinos
We market our Nevada resort casino properties to both the locals market and tourist traffic, targeting the value-driven
customer. We seek to attract local residents to our Nevada casinos through promotions geared towards enhancing local
play, including dining offerings at our casino restaurants and promotions of our bowling and bingo amenities.
Promotional programs for out-of-market patrons focus primarily on The Strat casino property (with over 300 newly
renovated rooms and the upcoming opening of our new sports book, lounge, and tap room concept), our newly
remodeled hotel rooms at Pahrump Nugget and our award-winning recreational vehicle park surrounding a lake at the
Lakeside Casino & RV Park.
Rocky Gap is located in western Maryland in close proximity to the affluent and heavily populated metropolitan areas
of Pittsburgh, Pennsylvania, Baltimore, Maryland and Washington, D.C., as well as two major interstate freeways.
Rocky Gap serves as a premier destination for both local and out-of-market patrons. Our marketing efforts for Rocky
Gap are primarily focused on attracting patrons through local and regional campaigns promoting both the amenities
of Rocky Gap and the vast array of outdoor activities available in the Rocky Gap State Park.
Our casino sales and marketing efforts also include various loyalty programs designed to encourage repeat business
at our resort casino properties. At our Las Vegas and Laughlin casinos in Nevada, we offer the ace|PLAY® loyalty
program. At our Pahrump, Nevada casinos, we offer the Gold Mine RewardsTM loyalty program. At Rocky Gap, we
offer the Rewards ClubTM loyalty program. Depending on the program, members of our loyalty programs may earn
points based on gaming activity and amounts spent on rooms, food, beverage and resort activities, which points are
redeemable for complimentary slot play, food, beverages and hotel rooms, among other items. As of December 31,
2018, we had approximately 600,000 active players in our marketing database, providing us with an avenue to drive
customer engagement and cross-marketing opportunities across our resort casino and distributed gaming platform.
Starting in 2019, we will be rolling out our new True RewardsTM loyalty program, which will link together our
traditional casino destinations across the country with local taverns and non-casino locations. Our new True Rewards
loyalty program is expected to reinforce the connection between all of our properties, encouraging members to stay
and play at Golden Entertainment properties. Through our new loyalty program, members will build up points on one
reward card playing at any of our casinos and taverns, encompassing over 130 locations when the program is fully
deployed in late 2019. Members will be able to redeem their points at any of our locations.
Distributed Gaming
We conduct our operations in our Distributed Gaming segment in Nevada and Montana. Our Distributed Gaming
customer base is comprised of the third party distributed gaming customers with whom we enter into slot and
amusement device placement contracts for the installation, maintenance and operation of slots and amusement devices
at non-casino locations, the primarily local patrons that use our slots and amusement devices in such locations and the
primarily local patrons of our branded taverns. We seek to place our slots and amusement devices in strategic, high-
traffic areas, including in our branded taverns, and the majority of our marketing efforts are focused on maximizing
profitability from a high-frequency, convenience-driven customer base.
Our marketing efforts also seek to capitalize on repeat visitation through the use of loyalty programs, such as our
Golden Rewards® promotional program for our branded taverns and our new True Rewards loyalty program once
fully deployed in late 2019. Members of our Golden Rewards loyalty program earn points based on play and amounts
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spent on the purchase of food and beverage, and points are redeemable for complimentary slot play, food and
beverages and other items. Our rewards technology is designed to track customer behavior indicators such as
visitation, customer spend and customer engagement. Brand equity is also leveraged in our taverns through the number
of our branded tavern locations located throughout the greater Las Vegas, Nevada metropolitan area. Our advertising
initiatives include both traditional and non-traditional channels such as direct mail, email, radio, print, television,
social media, search engine optimization and static/dynamic billboards.
Intellectual Property
We pursue registration of our important trademarks and service marks in the states where we do business and with the
United States Patent and Trademark Office. We have registered and/or have pending as trademarks with the United
States Patent and Trademark Office, among other trademarks and service marks, “Golden Entertainment” and “Golden
Gaming,” as well as various names, brands and logos relating to our resort casino properties, customer loyalty
programs and branded taverns. In addition, we have also registered or applied to register numerous other trademarks
in various jurisdictions in the United States in connection with our properties, facilities and development projects. We
also hold a patent in the United States related to player tracking systems.
Competition
The resort casino and distributed gaming industries are highly competitive. Our resort casino business competes with
numerous casinos and casino-hotels of varying quality and size in our markets. We also compete with other non-
gaming resorts and vacation destinations, and with various other casino and other entertainment businesses. The casino
entertainment business is characterized by competitors that vary considerably in their size, quality of facilities, number
of operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities,
management talent and geographic diversity. Many of our regional and national competitors have greater brand
recognition and significantly greater resources than we have. Their greater resources may also provide them with the
ability to expand operations in the future.
Furthermore, several states are currently considering legalizing casino gaming in designated areas, and Native
American tribes may develop or expand gaming properties in markets located more closely to our customer base
(particularly Native American casinos located in California). The expansion of casino gaming in or near any
geographic area from which we attract or expect to attract a significant number of our customers, including legalized
casino gaming in neighboring states and on Native American land, could have a significant adverse effect on our
business, financial condition, results of operations and prospects.
With respect to our distributed gaming businesses, we face direct competition from others involved in the distributed
gaming business, as well as substantial competition for customers from other operators of casinos, hotels, taverns and
other entertainment venues. Many of our regional and national competitors have greater brand recognition and
significantly greater resources than we have. Their greater resources may also provide them with the ability to expand
operations in the future.
In addition, in both of our segments we face ever-increasing competition from online gaming, including mobile
gaming applications for smart phones and tablet computers, state-sponsored lotteries, card clubs, sports books, fantasy
sports websites and other forms of legalized gaming. Various forms of internet gaming have been approved in Nevada,
and legislation permitting internet gaming has been proposed by the federal government and other states. The
expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition for
our operations.
Regulation
Gaming Regulation
We are subject to extensive federal, state, and local regulation. State and local government authorities in the
jurisdictions in which we operate require us to obtain gaming licenses and require our officers, key employees and
business entity affiliates to demonstrate suitability to be involved in gaming operations. These are privileged licenses
or approvals which are not guaranteed by statute or regulation. State and local government authorities may limit,
condition, suspend or revoke a license, impose substantial fines, and take other actions, any of which could have a
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material adverse effect on our business, financial condition, results of operations and prospects. We cannot assure you
that we will be able to obtain and maintain the gaming licenses and related approvals necessary to conduct our gaming
operations. Any failure to maintain or renew our existing licenses, registrations, permits or approvals could have a
material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, if
additional gaming laws or regulations are adopted, these regulations could impose additional restrictions or costs that
could have a significant adverse effect on us and our business. For additional information, see “Part I, Item 1A. Risk
Factors—Our business is subject to extensive gaming regulation, which is costly to comply with, and gaming
authorities have significant control over our operations.”
Gaming authorities may, in their sole and absolute discretion, require the holder of any securities issued by us to file
applications, be investigated, and be found suitable to own our securities if they have reason to believe that the security
ownership would be inconsistent with the declared policies of their respective states. Further, the costs of any
investigation conducted by any gaming authority under these circumstances is typically required to be paid by the
applicant, and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is
unsuitable to own the securities. Our articles of incorporation require our shareholders to cooperate with gaming
authorities in such investigations and permit us to redeem the securities held by any shareholder whose holding of
shares of our capital stock may result, in the judgment of our Board of Directors, in our failure to obtain or our loss of
any license or franchise from any governmental agency held by us to conduct any portion of our business. If any
gaming authority determines that a person is unsuitable to own our securities, then, under the applicable gaming laws
and regulations, we can be sanctioned, including the loss of our privileged licenses or approvals, if, without the prior
approval of the applicable gaming authority, we conduct certain business with the unsuitable person. For additional
information, see “Part I, Item 1A. Risk Factors—Our shareholders are subject to extensive government regulation and,
if a shareholder is found unsuitable by a gaming authority, that shareholder would not be able to beneficially own our
common stock directly or indirectly. Our shareholders may also be required to provide information that is required by
gaming authorities and we have the right, under certain circumstances, to redeem a shareholder’s securities; we may
be forced to use our cash or incur debt to fund redemption of our securities.”
Our directors, officers and key employees are also subject to a variety of regulatory requirements and various
privileged licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities.
If any gaming authority with jurisdiction over our business were to find any of our directors, officers or key employees
unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever our relationship
with that person. Furthermore, such gaming authorities may require us to terminate the employment of any person
who refuses to file appropriate applications. Either result could have a material adverse effect on our business,
operations and prospects.
Applicable gaming laws and regulations also restrict our ability to issue securities, incur debt, and undertake other
financing activities. Such transactions would generally require approval of gaming authorities, and our financing
counterparties, including lenders, might be subject to various licensing and related approval procedures in the various
jurisdictions in which we operate gaming facilities. If state regulatory authorities were to find any person unsuitable
with regard to his, her or its relationship to us or any of our subsidiaries, we would be required to sever our relationship
with that person, which could materially adversely affect our business.
The gaming industry also represents a significant source of tax revenue, particularly to the State of Nevada and its
counties and municipalities. From time to time, various federal, state and local legislators and other government
officials have proposed and adopted changes in tax laws, or in the administration or interpretation of such laws,
affecting the gaming industry. It is not possible to determine the likelihood of possible changes in tax laws or in the
administration or interpretation of such laws. Such changes, if adopted, could have a material adverse effect on our
future financial position, results of operations, cash flows and prospects. For additional information, see “Part I, Item
1A. Risk Factors—Changes to gaming tax laws could increase our cost of doing business and have a material adverse
effect on our financial condition.”
From time to time, local and state lawmakers, as well as special interest groups, have proposed legislation that would
expand, restrict or prevent gaming operations in the jurisdictions in which we operate. Any such change to the
regulatory environment or the adoption of new federal, state or local government legislation could have a material
adverse effect on our business, financial condition, results of operations and prospects.
7
Other Regulation
Our business is subject to a variety of other federal, state and local laws, rules, regulations and ordinances. These laws
and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages,
environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and
advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and
regulations could be enacted. Changes to any of the laws, rules, regulations or ordinances to which we are subject,
new laws or regulations, or material differences in interpretations by courts or governmental authorities could have a
material adverse effect on our business, financial condition, results of operations and prospects.
Our operations are subject to various environmental laws and regulations relating to emissions and discharges into the
environment, and the storage, handling and disposal of hazardous and non-hazardous substances and wastes. These laws
and regulations are complex, and subject to change, and violations can lead to significant costs for corrective action and
remediation, fines and penalties. Under certain of these laws and regulations, a current or previous owner or operator of
property may be liable for the costs of remediating contamination on its property, without regard to whether the owner
or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in
the contamination were legal at the time that they occurred, as well as incur liability to third parties impacted by such
contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use,
sell or rent property. As we acquire additional casino, resort and tavern properties, such as the casino properties we
acquired in the American Acquisition, we may not know the full level of exposure that we may have undertaken despite
appropriate due diligence. We endeavor to maintain compliance with environmental laws, but from time to time, current
or historical operations on or adjacent to, our properties may have resulted or may result in noncompliance with
environmental laws or liability for cleanup pursuant to environmental laws. In that regard, we may incur costs for cleaning
up contamination relating to historical uses of certain of our properties.
Many of our employees, especially those that interact with our customers, receive a base salary or wage that is
established by applicable state and federal laws that establish a minimum hourly wage that is, in turn, supplemented
through tips and gratuities from customers. In February and April 2017, several former employees filed two separate
purported class action lawsuits against us and on behalf of similarly situated individuals employed by us in Nevada.
The lawsuits allege that we violated certain Nevada labor laws, including payment of an hourly wage below the
statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper
overtime compensation. For additional information, please see Part I, Item 3 of this Annual Report on Form 10-K
under the heading “Legal Proceedings.” From time to time, state and federal lawmakers have increased the minimum
wage. It is difficult to predict when such increases may take place. Any such change to the minimum wage could have
a material adverse effect on our business, financial condition, results of operations and prospects.
The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. Our brewery operations at
PT’s Brewing Company in Las Vegas, Nevada require federal, state, and local licenses, permits and approvals. Our
restaurant and on-site brewery at PT’s Brewing Company operate pursuant to exceptions to the “tied house” laws,
which in Nevada generally prohibit a manufacturer or supplier of brewery products from engaging in the business of
wholesaling and prevent a wholesaler from engaging, directly or indirectly, in retail sales. Our brewery operations are
subject to more restrictive regulations and increased taxation by federal, state and local governmental entities than are
those of non-alcohol related beverage businesses. Federal, state and local laws and regulations govern the production
and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, distributor
relationships and related matters. Federal, state and local governmental entities also levy various taxes, license fees,
and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Failure
to comply with applicable federal, state or local laws and regulations could result in higher taxes, penalties, fees, and
suspension or revocation of permits, licenses or approvals and could have a material adverse effect on our business,
financial condition, results of operations and prospects. From time to time, local and state lawmakers, as well as special
interest groups, have proposed legislation that would increase the federal and/or state excise tax on alcoholic beverages
or certain types of alcoholic beverages. If adopted, such measures could affect some or all of our proprietary craft beer
production. If federal or state excise taxes are increased, we may have to raise prices to maintain our current profit
margins. Higher taxes may reduce overall demand for beer, thus negatively impacting sales of our beer. Further federal
or state regulation may be forthcoming that could further restrict the distribution and sale of alcohol products. Any
material increase in taxes or fees, or the adoption of additional taxes or fees or regulations, could have a material
adverse effect on our business, financial condition, results of operations and prospects.
8
In addition, each restaurant we operate must obtain a food service license from local authorities. Failure to comply with
such regulations could cause our licenses to be revoked or our related restaurant business or businesses to be forced to
cease operations. Moreover, state liquor laws may prevent the expansion of restaurant operations into certain markets.
Seasonality
We believe that our Casinos and Distributed Gaming segments are affected by seasonal factors, including holidays,
weather and travel conditions. Our casinos and distributed gaming businesses in Nevada have historically experienced
lower revenues during the summer as a result of fewer tourists due to higher temperatures, as well as increased vacation
activity by local residents. Rocky Gap typically experiences higher revenues during summer months and may be
significantly adversely impacted by inclement weather during winter months. Our Nevada distributed gaming
operations typically experience higher revenues during the fall which corresponds with several professional sports
seasons. Our Montana distributed gaming operations typically experience higher revenues during the fall due to the
inclement weather in the state and less opportunity for outdoor activities, in addition to the impact from professional
sports seasons. While other factors like unemployment levels, market competition and the diversification of our
business may either offset or magnify seasonal effects, some seasonality is likely to continue, which could result in
significant fluctuation in our quarterly operating results.
Employees
As of December 31, 2018 we had approximately 6,940 employees, of which approximately 2,000 were covered by
various collective bargaining agreements. Other unions may seek to organize the workers of our resort casino properties
from time to time. We believe we have good relationships with our employees, including those represented by unions.
At The Strat, four collective bargaining agreements cover our employees. Our collective bargaining agreement with
the International Union of Operating Engineers, Local 501, AFL-CIO expired on March 31, 2018 and is currently
under negotiation. Our collective bargaining agreements with the Professional, Clerical and Miscellaneous
Employees, Teamsters Local Union 986 (Valet and Warehouse) expire on March 31, 2019. Our collective bargaining
agreement with the Culinary Workers Union, Local 226 and Bartenders Union, Local 165 expires on May 31, 2023.
At the Aquarius, four collective bargaining agreements cover our employees. Our collective bargaining agreement
with the International Union of Operating Engineers, Local 501, AFL-CIO expires on March 31, 2020. Our collective
bargaining agreement with the International Union of Security, Police, and Fire Professional of America expires on
February 28, 2021. Our collective bargaining agreement with the United Steelworkers of America expires on
March 31, 2021. Our collective bargaining agreement with the International Alliance of Theatrical Stage Employees,
Moving Picture Technicians, Artist and Allied Crafts of the United States, Its Territories and Canada, Local 720, Las
Vegas, Nevada expires on November 30, 2022.
At Rocky Gap, our collective bargaining agreement with the United Food and Commercial Workers Union, Local 27
expires on November 1, 2019.
Website and Available Information
Our website is located at www.goldenent.com. Through a link on the Investors section of our website, we make the
following filings available free of charge and as soon as reasonably practicable after they are electronically filed or
furnished with the SEC: our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports
on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Copies of these documents
are also available to our shareholders upon written request to our Chief Financial Officer at 6595 S Jones Boulevard,
Las Vegas, Nevada 89118. Information on the website does not constitute part of this Annual Report on Form 10-K.
These filings are also available free of charge on the SEC’s website at www.sec.gov.
9
ITEM 1A. RISK FACTORS
You should consider each of the following factors as well as the other information in this Annual Report on Form
10-K in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also
materially adversely impact our business, financial condition, results of operations or prospects. If any of the following
risks actually occur, our business, financial condition, results of operations or prospects could be materially harmed
and the trading price of our common stock could decline. You should also refer to the other information set forth in
this Annual Report on Form 10-K, including the information in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K, as well as our
consolidated financial statements and the related notes.
Any failure to successfully integrate our businesses and businesses we acquire, including in the American
Acquisition and Laughlin Acquisition, could materially adversely affect our business, and we may not realize the
full benefits of the American Acquisition, the Laughlin Acquisition or our other strategic acquisitions.
Our ability to realize the anticipated benefits of our strategic acquisitions, including our acquisitions of Nevada resort
casino properties in January 2019 (in the Laughlin Acquisition) and the American Acquisition in October 2017, will
depend, to a large extent, on our ability to successfully integrate our businesses with the businesses we acquire.
Integrating and coordinating the operations and personnel of multiple businesses and managing the expansion in the
scope of our operations and financial systems involves complex operational, technological and personnel-related
challenges. The potential difficulties, and resulting costs and delays, relating to the integration of our business with
our strategic acquisitions include:
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(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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(cid:129)
the difficulty in integrating newly acquired businesses and operations in an efficient and effective manner;
the challenges in achieving strategic objectives, cost savings and other benefits expected from acquisitions;
the diversion of management’s attention from day-to-day operations;
additional demands on management related to the increased size and scope of our company following
significant acquisitions, such as the American Acquisition and the Laughlin Acquisition;
the assimilation of employees and the integration of different business cultures;
challenges in attracting and retaining key personnel;
the need to integrate information, accounting, finance, sales, billing, payroll and regulatory compliance
systems;
challenges in keeping existing customers and obtaining new customers; and
challenges in combining product offerings and sales and marketing activities.
There is no assurance that we will successfully or cost-effectively integrate our businesses with the businesses we
acquire, and the costs of achieving systems integration may substantially exceed our current estimates. The integration
of the recently acquired businesses in the American Acquisition and Laughlin Acquisition into our own operations in
particular will be time consuming and presents financial, managerial and operational challenges. Issues that arise
during this process may divert management’s attention away from our day-to-day operations, and any difficulties
encountered in the integration process could cause internal disruption in general, which could adversely impact our
relationships with customers, suppliers, employees and other constituencies. Combining our different systems,
technology, networks and business practices could be more difficult and time consuming than we anticipated, and
could result in additional unanticipated expenses. Our combined results of operations could also be adversely affected
by any issues we discover that were attributable to operations of American or the Laughlin Entities that arose before
the acquisition. Moreover, as non-public companies at the time of our acquisition, the subsidiaries we acquired in the
American Acquisition and the Laughlin Acquisition did not have to comply with the requirements of the Sarbanes-
Oxley Act of 2002 for internal control over financial reporting and other procedures. Bringing the legacy systems for
acquired businesses into compliance with those requirements may cause us to incur substantial additional expense.
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In addition, the integration process may cause an interruption of, or loss of momentum in, the activities of our
combined business. If management is not able to effectively manage the integration process, or if any significant
business activities are interrupted as a result of the integration process, our business could suffer and our results of
operations and financial condition may be harmed. Even if our businesses are successfully integrated, we may not
realize the full benefits of the American Acquisition, the Laughlin Acquisition or our other strategic acquisitions,
including anticipated synergies, cost savings or growth opportunities, within the expected timeframes or at all. In
addition, we have incurred, and may incur additional, significant integration and restructuring expenses to realize
synergies. However, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately.
These expenses could, particularly in the near term, exceed the savings that we expect to achieve from elimination of
duplicative expenses and the realization of economies of scale and cost savings. Although we expect that the
realization of efficiencies related to the integration of the businesses may offset incremental transaction-related and
restructuring costs over time, we cannot give any assurance that this net benefit will be achieved in the near term, or
at all. Any of these matters could materially adversely affect our businesses or harm our financial condition, results of
operations and prospects.
Our business may be adversely affected by economic conditions, acts of terrorism, natural disasters, severe weather,
contagious diseases and other factors affecting discretionary consumer spending, any of which could have a
material adverse effect on our business.
The demand for gaming, entertainment and leisure activities is highly sensitive to downturns in the economy and the
corresponding impact on discretionary consumer spending. Any actual or perceived deterioration or weakness in
general, regional or local economic conditions, unemployment levels, the job or housing markets, consumer debt
levels or consumer confidence, as well as any increase in gasoline prices, tax rates, interest rates, inflation rates or
other adverse economic or market conditions, may lead to our customers having less discretionary income to spend
on gaming, entertainment and discretionary travel, any of which may have a material adverse effect on our business,
financial condition, results of operations and prospects.
Acts of terrorism, natural disasters, severe weather conditions and actual or perceived outbreaks of public health
threats and pandemics could also significantly affect demand for gaming, entertainment and leisure activities and
discretionary travel, any of which could have a material adverse effect on our business, financial condition, results of
operations and prospects. Furthermore, our properties are subject to the risk that operations could be halted for a
temporary or extended period of time, as a result of casualty, forces of nature, adverse weather conditions, flooding,
mechanical failure, or extended or extraordinary maintenance, among other causes. If there is a prolonged disruption
at any of our casino properties due to natural disasters, terrorist attacks or other catastrophic events, our business,
financial condition, results of operations and prospects could be materially adversely affected. Additionally, if extreme
weather adversely impacts general economic or other conditions in the areas in which our properties are located or
from which we draw our patrons or prevents patrons from easily coming to our properties, our business, financial
condition, results of operations and prospects could be materially adversely affected.
We face substantial competition in both of our business segments, and may lose market share.
The resort casino and distributed gaming industries are highly competitive. Our resort casino business competes with
numerous casinos and casino-hotels of varying quality and size in our markets. We also compete with other non-
gaming resorts and vacation destinations, and with various other casino and other entertainment businesses. The casino
entertainment business is characterized by competitors that vary considerably in their size, quality of facilities, number
of operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities,
management talent and geographic diversity. Many of our regional and national competitors have greater brand
recognition and significantly greater resources than we have. Their greater resources may also provide them with the
ability to expand operations in the future.
If our competitors operate more successfully than we do, if they attract customers away from us as a result of
aggressive pricing and promotion, if they are more successful than us in attracting and retaining employees, if their
properties are enhanced or expanded, if they operate in jurisdictions that give them operating advantages due to
differences or changes in gaming regulations or taxes, or if additional hotels and casinos are established in and around
our markets, we may lose market share or the ability to attract or retain employees. Furthermore, several states are
currently considering legalizing casino gaming in designated areas, and Native American tribes may develop or
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expand gaming properties in markets located more closely to our customer base (particularly Native American casinos
located in California). The expansion of casino gaming in or near any geographic area from which we attract or expect
to attract a significant number of our customers, including legalized casino gaming in neighboring states and on Native
American land, could have a significant adverse effect on our business, financial condition and results of operations.
With respect to our distributed gaming businesses, we face direct competition from others involved in the distributed
gaming business, as well as substantial competition for customers from other operators of casinos, hotels, taverns and
other entertainment venues. In addition, in both of our segments we face ever-increasing competition from online
gaming, including mobile gaming applications for smart phones and tablet computers, state-sponsored lotteries, card
clubs, sports books, fantasy sports websites and other forms of legalized gaming. Various forms of internet gaming
have been approved in Nevada, and legislation permitting internet gaming has been proposed by the federal
government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in
significant additional competition for our operations.
We incurred significant indebtedness in connection with our acquisitions and our significant indebtedness could
adversely affect our financial health and prevent us from fulfilling our obligations.
We incurred significant indebtedness in connection with the American Acquisition and the associated refinancing of
our former senior secured credit facility. As of December 31, 2018, our senior secured indebtedness, excluding
unamortized debt issuance costs, was $1.0 billion. Subsequent to fiscal year end, we borrowed $145.0 million under
our revolving credit facility in connection with the closing of the Laughlin Acquisition on January 14, 2019.
As a result of the increases in our outstanding debt, demands on our cash resources have increased. The increased
level of debt could, among other things:
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require us to dedicate a larger portion of our cash flow from operations to the servicing and repayment of our
debt, thereby reducing funds available for working capital, capital expenditures and acquisitions, and other
general corporate requirements;
limit our ability to obtain additional financing to fund future working capital, capital expenditures and other
general corporate requirements;
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate;
restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities;
increase our vulnerability to general adverse economic and industry conditions and increases in interest rates;
place us at a competitive disadvantage compared to our competitors that have less debt; and
adversely affect our credit rating or the market price of our common stock.
Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which
could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may incur additional indebtedness, which could further increase the risks associated with our leverage.
We may incur significant additional indebtedness in the future, which may include financing relating to capital
expenditures, potential acquisitions or business expansion, working capital or general corporate purposes. Our senior
secured credit facilities include a $200.0 million revolving credit facility, which was undrawn at December 31, 2018.
Subsequent to fiscal year end, we borrowed $145.0 million under our revolving credit facility in connection with the
closing of the Laughlin Acquisition on January 14, 2019. In addition, our senior secured credit facilities permit us,
subject to specific limitations, to incur additional indebtedness. If new indebtedness is added to our current level of
indebtedness, the related risks that we now face could intensify.
We may not be able to generate sufficient cash flows to service all of our indebtedness and fund our operating
expenses, working capital needs and capital expenditures, and we may be forced to take other actions to satisfy our
obligations under our indebtedness, which may not be successful.
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Our ability to make scheduled payments on or refinance our indebtedness will depend upon our future operating
performance and our ability to generate cash flow in the future, which are subject to general economic, financial,
business, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that
our business will generate sufficient cash flow from operations, or that future borrowings will be available to us, in an
amount sufficient to enable us to pay our indebtedness or fund our other liquidity needs. If our cash flows and capital
resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could
be forced to reduce or delay investment and capital expenditures, dispose of material assets or operations, seek
additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such
alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative
actions may not allow us to meet our scheduled debt service obligations. Our senior secured credit facilities restrict
our ability to dispose of assets and use the proceeds from asset dispositions, and may also restrict our ability to raise
debt or equity capital to repay or service our indebtedness. If we cannot make scheduled payments on our debt, we
will be in default and, as a result, our lenders could declare all outstanding amounts to be due and payable, terminate
or suspend their commitments to loan money and foreclose against the assets securing such debt, and we could be
forced into bankruptcy or liquidation, any of which could have a material adverse effect on our business, financial
condition, results of operations and prospects.
Covenants in our debt instruments restrict our business and could limit our ability to implement our business plan.
Our senior secured credit facilities contain, and any future debt instruments likely will contain, covenants that may
restrict our ability to implement our business plan, finance future operations, respond to changing business and
economic conditions, secure additional financing, and engage in opportunistic transactions, such as strategic
acquisitions. Our senior secured credit facilities include covenants restricting, among other things, our ability to do
the following:
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incur, assume or guarantee additional indebtedness;
issue redeemable stock and preferred stock;
grant or incur liens;
sell or otherwise dispose of assets, including capital stock of subsidiaries;
(cid:129) make loans and investments;
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pay dividends, make distributions, or redeem or repurchase capital stock;
(cid:129)
(cid:129)
enter into transactions with affiliates; and
consolidate or merge with or into, or sell substantially all of our assets to, another person.
In addition, our revolving credit facility contains a financial covenant applying a maximum net leverage ratio when
borrowings under the facility exceed 30% of the total revolving commitment. Our senior secured credit facilities are
secured by liens on substantially all of our and the subsidiary guarantors’ present and future assets (subject to certain
exceptions).
If we default under any of our senior secured credit facilities because of a covenant breach or otherwise, all outstanding
amounts thereunder could become immediately due and payable. We cannot assure you that we will be able to comply
with the covenants in our senior secured credit facilities or that any covenant violations will be waived. Any violation
that is not waived could result in an event of default and, as a result, our lenders could declare all outstanding amounts
to be due and payable, terminate or suspend their commitments to loan money and foreclose against the assets securing
such debt, and we could be forced into bankruptcy or liquidation, any of which could have a material adverse effect
on our business, financial condition, results of operations and prospects.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to
increase significantly.
The borrowings under our senior secured credit facilities are subject to variable rates of interest, primarily based on
London Interbank Offered Rate (“LIBOR”), and expose us to interest rate risk. LIBOR tends to fluctuate based on
general economic conditions, general interest rates, Federal Reserve rates and the supply of and demand for credit in
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the London interbank market. Increases in the interest rate generally, and particularly when coupled with any
significant variable rate indebtedness, could materially adversely impact our interest expenses. If interest rates were
to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount
borrowed remained the same, and our net income and cash flows, including cash available for servicing our
indebtedness, will correspondingly decrease. Each quarter point change in interest rates would result in a $2.4 million
change in annual interest expense on our indebtedness under our senior secured credit facilities. We are not required
to enter into interest rate swaps to hedge such indebtedness. If we decide not to enter into hedges on such indebtedness,
our interest expense on such indebtedness will fluctuate based on LIBOR or other variable interest rates. Consequently,
we may have difficulties servicing such unhedged indebtedness and funding our other fixed costs, and our available
cash flow for general corporate requirements may be materially adversely affected. In the future, we may enter into
interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate
volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and
any swaps we enter into may not fully mitigate our interest rate risk.
The casino, hotel and hospitality industry is capital intensive and we may not be able to finance development,
expansion and renovation projects, which could put us at a competitive disadvantage.
Our casino and tavern properties have an ongoing need for renovations and other capital improvements to remain
competitive, including room refurbishments, amenity upgrades, and replacement, from time to time, of furniture,
fixtures and equipment. We may also need to make capital expenditures to comply with applicable laws and
regulations. Construction projects entail significant risks, which can substantially increase costs or delay completion
of a project. Such risks include shortages of materials or skilled labor, unforeseen engineering, environmental or
geological problems, work stoppages, weather interference and unanticipated cost increases. Most of these factors are
beyond our control. In addition, difficulties or delays in obtaining any of the requisite licenses, permits or
authorizations from regulatory authorities can increase the cost or delay the completion of an expansion or
development. Significant budget overruns or delays with respect to expansion and development projects could
materially adversely affect our results of operations.
Renovations and other capital improvements of casino properties in particular require significant capital expenditures.
In addition, any such renovations and capital improvements usually generate little or no cash flow until the projects
are completed. We may not be able to fund such projects solely from cash provided from operating activities.
Consequently, we may have to rely upon the availability of debt or equity capital to fund renovations and capital
improvements, and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity
financing, which will depend on, among other things, market conditions. We cannot assure you that we will be able
to obtain additional equity or debt financing on favorable terms or at all. Our failure to renovate and maintain our
casino and tavern properties from time to time may put us at a competitive disadvantage to casinos or taverns offering
more modern and better maintained facilities, which could have a material adverse effect on our business, financial
condition, results of operations and prospects.
Changes to gaming tax laws could increase our cost of doing business and have a material adverse effect on our
financial condition.
The gaming industry represents a significant source of tax revenue, particularly to the State of Nevada and its counties
and municipalities. Gaming companies are currently subject to significant state and local taxes and fees in addition to
normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. From
time to time, various federal, state and local legislators and other government officials have proposed and adopted
changes in tax laws, or in the administration or interpretation of such laws, affecting the gaming industry. In addition,
any worsening of economic conditions and the large number of state and local governments with significant current
or projected budget deficits could intensify the efforts of state and local governments to raise revenues through
increases in gaming taxes and/or property taxes. It is not possible to determine with certainty the likelihood of changes
in tax laws or in the administration or interpretation of such laws. Any material increase, or the adoption of additional
taxes or fees, could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Our business is subject to extensive gaming regulation, which is costly to comply with, and gaming authorities have
significant control over our operations.
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We are subject to a variety of gaming regulations in the jurisdictions in which we operate, including the extensive
gaming laws and regulations of the State of Nevada. Compliance with these regulations is costly and time-consuming.
Regulatory authorities at the federal, state and local levels have broad powers with respect to the regulation and
licensing of casino and gaming operations and may revoke, suspend, condition or limit our gaming or other licenses,
impose substantial fines on us and take other actions, any one of which could have a material adverse effect on our
business, financial condition, results of operations and prospects. We cannot assure you that we will be able to obtain
and maintain the gaming licenses and related approvals necessary to conduct our gaming operations. Any failure to
maintain or renew our existing licenses, registrations, permits or approvals could have a material adverse effect on our
business, financial condition, results of operations and prospects.
Our directors, officers and key employees are also subject to a variety of regulatory requirements and must be approved
by certain gaming authorities. If any gaming authority with jurisdiction over our business were to find an officer,
director or key employee of ours unsuitable for licensing or unsuitable to continue having a relationship with us, we
would be required to sever our relationship with that person. Furthermore, such gaming authorities may require us to
terminate the employment of any person who refuses to file appropriate applications. Either result could have a
material adverse effect on our business, operations and prospects.
Applicable gaming laws and regulations also restrict our ability to issue securities, incur debt and undertake other
financing activities. Such transactions would generally require approval of gaming authorities, and our financing
counterparties, including lenders, might be subject to various licensing and related approval procedures in the various
jurisdictions in which we operate gaming facilities. Further, our gaming regulators can require us to disassociate
ourselves from suppliers or business partners found unsuitable by the regulators. If any gaming authorities were to
find any person unsuitable with regard to his, her or its relationship to us or any of our subsidiaries, we would be
required to sever our relationship with that person, which could have a material adverse effect on our business,
operations and prospects.
If additional gaming regulations are adopted in a jurisdiction in which we operate, such regulations could impose
restrictions on us that would prevent us from operating our business as it is currently operated, or the increased costs
associated with compliance with such regulations could lower our profitability. From time to time, various proposals
are introduced in the legislatures of the jurisdictions in which we have operations that, if enacted, could adversely
affect the tax, regulatory, operational or other aspects of the gaming industry and our company. Any such change to
the regulatory environment or the adoption of new federal, state or local government legislation could impose
additional restrictions or costs or could otherwise have a material adverse effect on our business, financial condition,
results of operations and prospects.
Any violation of applicable anti-money laundering laws or regulations or the Foreign Corrupt Practices Act could
adversely affect our business, financial condition, results of operations and prospects.
We handle significant amounts of cash in our operations and are subject to various reporting and anti-money
laundering laws and regulations. Recently, U.S. governmental authorities have evidenced an increased focus on
compliance with anti-money laundering laws and regulations in the gaming industry. Any violation of anti-money
laundering laws or regulations could have a material adverse effect on our business, financial condition, results of
operations and prospects. Internal control policies and procedures and employee training and compliance programs
that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors
or agents from violating or circumventing our policies and the law. If we or our employees or agents fail to comply
with applicable laws or our policies governing our operations, we may face investigations, prosecutions and other
legal proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions.
Any such government investigations, prosecutions or other legal proceedings or actions could have a material adverse
effect on our business, financial condition, results of operations and prospects.
We are subject to numerous other federal, state and local laws that may expose us to liabilities or have a significant
adverse impact on our operations. Changes to any such laws could have a material adverse effect on our operations
and financial condition.
Our business is subject to a variety of other federal, state and local laws, rules, regulations and ordinances. These laws
and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages,
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environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and
advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and
regulations could be enacted. Changes to any of the laws, rules, regulations or ordinances to which we are subject,
new laws or regulations, or material differences in interpretations by courts or governmental authorities could have a
material adverse effect on our business, financial condition, results of operations and prospects.
Our operations are subject to various environmental laws and regulations relating to emissions and discharges into the
environment, and the storage, handling and disposal of hazardous and non-hazardous substances and wastes. These
laws and regulations are complex, and subject to change, and violations can lead to significant costs for corrective
action and remediation, fines and penalties.
Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the
costs of remediating contamination on its property, without regard to whether the owner or operator knew of, or
caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination
were legal at the time that they occurred, as well as incur liability to third parties impacted by such contamination.
The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent
property. As we acquire additional casino, resort and tavern properties, such as the casino properties we acquired in
the American Acquisition, we may not know the full level of exposure that we may have undertaken despite
appropriate due diligence. We endeavor to maintain compliance with environmental laws, but from time to time,
current or historical operations on or adjacent to, our properties may have resulted or may result in noncompliance
with environmental laws or liability for cleanup pursuant to environmental laws. In that regard, we may incur costs
for cleaning up contamination relating to historical uses of certain of our properties.
Many of our employees, especially those that interact with our customers, receive a base salary or wage that is
established by applicable state and federal laws that establish a minimum hourly wage that is, in turn, supplemented
through tips and gratuities from customers. In February and April 2017, several former employees filed two separate
purported class action lawsuits against us and on behalf of similarly situated individuals employed by us in Nevada.
The lawsuits alleged that we violated certain Nevada labor laws, including payment of an hourly wage below the
statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay proper
overtime compensation. For additional information, please see Part I, Item 3 of this Annual Report on Form 10-K
under the heading “Legal Proceedings.” From time to time, state and federal lawmakers have increased the minimum
wage. It is difficult to predict when such increases may take place. Any such change to the minimum wage could have
a material adverse effect on our business, financial condition, results of operations and prospects.
The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. Our brewery operations at
PT’s Brewing Company in Las Vegas, Nevada require federal, state, and local licenses, permits and approvals. Our
restaurant and on-site brewery at PT’s Brewing Company operate pursuant to exceptions to the “tied house” laws,
which in Nevada generally prohibit a manufacturer or supplier of brewery products from engaging in the business of
wholesaling and prevent a wholesaler from engaging, directly or indirectly, in retail sales. Our brewery operations are
subject to more restrictive regulations and increased taxation by federal, state and local governmental entities than are
those of non-alcohol related beverage businesses. Federal, state and local laws and regulations govern the production
and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, distributor
relationships and related matters. Federal, state and local governmental entities also levy various taxes, license fees,
and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Failure
to comply with applicable federal, state or local laws and regulations could result in higher taxes, penalties, fees, and
suspension or revocation of permits, licenses or approvals and could have a material adverse effect on our business,
financial condition, results of operations and prospects. From time to time, local and state lawmakers, as well as special
interest groups, have proposed legislation that would increase the federal and/or state excise tax on alcoholic beverages
or certain types of alcoholic beverages. If adopted, such measures could affect some or all of our proprietary craft beer
production. If federal or state excise taxes are increased, we may have to raise prices to maintain our current profit
margins. Higher taxes may reduce overall demand for beer, thus negatively impacting sales of our beer. Further federal
or state regulation may be forthcoming that could further restrict the distribution and sale of alcohol products. Any
material increase in taxes or fees, or the adoption of additional taxes or fees or regulations, could have a material
adverse effect on our business, financial condition, results of operations and prospects.
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In addition, each restaurant we operate must obtain a food service license from local authorities. Failure to comply
with such regulations could cause our licenses to be revoked or our related restaurant business or businesses to be
forced to cease operations. Moreover, state liquor laws may prevent the expansion of restaurant operations into certain
markets.
Our insurance coverage may not be adequate to cover all possible losses that our properties could suffer. In
addition, our insurance costs may increase and we may not be able to obtain the same insurance coverage in the
future.
Although we have comprehensive property and liability insurance policies for our properties in operation, with
coverage features and insured limits that we believe are customary in their breadth and scope, each such policy has
certain exclusions. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes, floods
or terrorist acts, or certain liabilities may be uninsurable or too expensive to justify obtaining insurance. Market forces
beyond our control may also limit the scope of the insurance coverage we can obtain or our ability to obtain coverage
at reasonable rates. As a result, we may not be successful in obtaining insurance without increases in cost or decreases
in coverage levels. In addition, in the event of a major casualty, the insurance coverage we carry may not be sufficient
to pay the full market value or replacement cost of our lost investment or in some cases could result in certain losses
being totally uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as
the anticipated future revenue from the property, and we could remain obligated for debt or other financial obligations
related to the property, any of which could have a material adverse effect on our business, financial condition, results
of operations and prospects. In addition to the damage caused to our property by a casualty loss (such as fire, natural
disasters, acts of war or terrorism), we may suffer business disruption as a result of these events or be subject to claims
by third parties injured or harmed. While we carry business interruption insurance and general liability insurance, this
insurance may not be adequate to cover all losses in such event.
We renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to
reduce our policy limits or agree to certain exclusions from our coverage. Among other factors, it is possible that
regional political tensions, homeland security concerns, other catastrophic events or any change in government
legislation governing insurance coverage for acts of terrorism could materially adversely affect available insurance
coverage and result in increased premiums on available coverage (which may cause us to elect to reduce our policy
limits), additional exclusions from coverage or higher deductibles.
Increasing prices or shortages of energy and water may increase our cost of operations.
Our properties use significant amounts of water, electricity, natural gas and other forms of energy. Our Nevada
properties in particular are located in a desert where water is scarce and the hot temperatures require heavy use of air
conditioning. While we have not experienced any shortages of energy or water in the past, we cannot guarantee you
that we will not in the future. Other states have suffered from electricity shortages. For example, California and Texas
have experienced rolling blackouts due to excessive air conditioner use because of unexpectedly high temperatures in
the past. We expect that potable water in Nevada, where the majority of our facilities are located, will become an
increasingly scarce commodity at an increasing price.
Work stoppages, labor problems and unexpected shutdowns may limit our operational flexibility and negatively
impact our future profits.
A number of employees at our casino properties are covered by collective bargaining agreements. These agreements
have staggered expirations over the next several years. We 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 us. The inability to negotiate and enter into a new collective bargaining
agreement on favorable terms could result in an increase in our operating expenses or covered employees could strike
or engage in other collective behaviors. Any renegotiation of these and other labor agreements could significantly
increase our costs for wages, healthcare, pension plans and other benefits, and could have a material adverse effect on
the business of our casino properties and our financial condition, results of operations and prospects.
Any work stoppage at one or more of our casino properties could cause significant disruption of our operations or
require us to expend significant funds to hire replacement workers, and qualified replacement labor may not be
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available at reasonable costs, if at all. Strikes and work stoppages could also result in adverse media attention or
otherwise discourage customers from visiting our casino properties. As a result, a strike or other work stoppage at one
of our casino properties could have a material adverse effect on the business of our casino properties and our financial
condition, results of operations and prospects.
Any unexpected shutdown of one of our casino properties could have an adverse effect on the business of our casino
properties and our results of operations. There can be no assurance that we will be adequately prepared for unexpected
events, including political or regulatory actions, which may lead to a temporary or permanent shutdown of any of our
casino properties.
Our reputation and business could be materially harmed as a result of data breaches, data theft, unauthorized
access or hacking.
Our success depends, in part, on the secure and uninterrupted performance of our information technology and other
systems and infrastructure, including systems to maintain and transmit customers’ personal and financial information,
credit card settlements, credit card funds transmissions and mailing lists. We could encounter difficulties in developing
new systems, maintaining and upgrading current systems and preventing security breaches. Among other things, our
systems are susceptible to outages due to fire, floods, power loss, break-ins, cyber-attacks, network penetration, denial
of service attacks and similar events. An increasing number of companies have disclosed breaches of their security,
some of which have involved sophisticated and highly targeted attacks on their computer networks. While we have
and will continue to implement network security measures and data protection safeguards, our servers and other
computer systems are vulnerable to viruses, malicious software, hacking, break-ins or theft, data privacy or security
breaches, third-party security breaches, employee error or malfeasance and similar events. Because the techniques
used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are
not recognized until launched against a target, we may be unable to anticipate these techniques or to implement
adequate preventative measures. If unauthorized parties gain access to our information technology and other systems,
they may be able to misappropriate assets or sensitive information (such as personally identifiable information of our
customers, business partners and employees), cause interruption in our operations, corruption of data or computers,
or otherwise damage our reputation and business. In such circumstances, we could be held liable to our customers or
other parties, or be subject to regulatory or other actions for breaching privacy rules. Any compromise of our security
could result in a loss of confidence in our security measures, and subject us to litigation, civil or criminal penalties,
and negative publicity, any of which could have a material adverse effect on our business, financial condition, results
of operations and prospects. Further, if we are unable to comply with the security standards established by banks and
the payment card industry, we may be subject to fines, restrictions, and expulsion from card acceptance programs,
which could materially adversely affect our operations.
Our revenues may be negatively impacted by volatility in our hold percentage, and we also face the risk of fraud or
cheating.
Casino revenue is recorded as the difference between gaming wins and losses or net win from gaming activities. Net win is
impacted by variations in the hold percentage (the ratio of net win to total amount wagered), or actual outcome, on our slots,
table games, race and sports betting, and all other games we provide to our customers. We use the hold percentage as an
indicator of a game’s performance against its expected outcome. Although each game generally performs within a defined
statistical range of outcomes, actual outcomes may vary for any given period. The hold percentage and actual outcome on
our games can be impacted by the level of a customer’s skill in a given game, errors made by our employees, the number of
games played, faults within the computer programs that operate our slots and the random nature of slot payouts. If our games
perform below their expected range of outcomes, our cash flow may suffer.
In addition, gaming customers may attempt or commit fraud or otherwise cheat in order to increase their winnings.
Acts of fraud or cheating could involve the use of counterfeit chips or other tactics and could include collusion with
our employees. Internal acts of cheating could also be conducted by employees through collusion with dealers,
surveillance staff, floor managers or other casino or gaming area staff. Failure to discover such acts or schemes in a
timely manner could result in losses in our gaming operations, which could be substantial. In addition, negative
publicity related to such schemes could have an adverse effect on our reputation, thereby materially adversely affecting
our business, financial condition, results of operations, and prospects.
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Our business is geographically concentrated, which subjects us to greater risks from changes in local or regional
conditions.
We currently operate casinos resort properties solely in Nevada and in Flintstone, Maryland, and conduct our
distributed gaming (including gaming in our branded taverns) business solely in Nevada and Montana. Due to this
geographic concentration, our results of operations and financial condition are subject to greater risks from changes
in local and regional conditions, such as:
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changes in local or regional economic conditions and unemployment rates;
changes in local and state laws and regulations, including gaming laws and regulations;
a decline in the number of residents in or near, or visitors to, our properties;
changes in the local or regional competitive environment; and
adverse weather conditions and natural disasters (including weather or road conditions that limit access to
our properties).
Some of our casino properties and most of our tavern properties largely depend on the local markets for customers.
Competition for local customers in Las Vegas in particular is intense. Local competitive risks and our failure to attract
a sufficient number of guests, gaming customers and other visitors in these locations could adversely affect our
business. In addition, the number of visitors to our Nevada casino properties may be adversely affected by increased
transportation costs, the number and frequency of flights into or out of Las Vegas, and capacity constraints of the
interstate highways that connect our casino properties with the metropolitan areas in which our customers reside.
As a result of the geographic concentration of our businesses, we face a greater risk of a negative impact on our
business, financial condition, results of operations and prospects in the event that any of the geographic areas in which
we operate is more severely impacted by any such adverse condition, as compared to other areas in the United States.
We may experience seasonal fluctuations that could significantly impact our quarterly operating results.
We may experience seasonal fluctuations that could significantly impact our quarterly operating results. Our casinos
and distributed gaming businesses in Nevada have historically experienced lower revenues during the summer as a
result of fewer tourists due to higher temperatures, as well as increased vacation activity by local residents. Rocky
Gap typically experiences higher revenues during summer months and may be significantly adversely impacted by
inclement weather during winter months. Our Nevada distributed gaming operations typically experience higher
revenues during the fall which corresponds with several professional sports seasons. Our Montana distributed gaming
operations typically experience higher revenues during the winter months due to the inclement weather in the state
and less opportunity for outdoor activities, in addition to the impact from professional sports seasons. While other
factors like unemployment levels, market competition and the diversification of our business may either offset or
magnify seasonal effects, some seasonality is likely to continue, which could result in significant fluctuation in our
quarterly operating results.
Our success depends in part on our ability to acquire, enhance, and/or introduce successful gaming concepts and
game content, and we may be unable to obtain slots or related technology from our third party suppliers on a timely,
cost-effective basis.
Our business is heavily dependent on revenue generated by the games, particularly slots, we offer to our customers.
We source games and game content through third-party suppliers, and currently rely on a limited number of suppliers
for our slots and related technology. We believe that creative and appealing game content, innovative game concepts
and licensed brands produce more revenue for our casinos and other gaming locations and provide them with a
competitive advantage, which in turn enhances our revenue and our ability to attract new business and to retain existing
business. There can be no assurance that we will be able to sustain the acceptance of our existing game content or
effectively obtain from third parties game content or licensed brands that will be widely accepted by our customers,
or that we will be able to obtain slots or related technology on a cost-effective basis. There can be no assurance that
our third party suppliers will be able to produce new creative and appealing game content, innovative game concepts,
and licensed brands in the future that will be widely accepted by our customers. As a result, we may be forced to incur
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significant unanticipated costs to secure alternative third party suppliers or adjust our operations, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
The success of our distributed gaming business is dependent on our ability to renew our contracts.
We conduct the majority of our distributed gaming business under space, revenue share and participation contracts
with third parties. Contracts with chain store and other third party customers are renewable at the option of the owner
of the applicable chain store or third party. As our distributed gaming contracts expire, we are required to compete for
renewals. If we are unable to renew a material portion of our space, revenue share and participation contracts, this
could have a material adverse effect on our business, financial condition, results of operations and prospects. We
cannot assure you that our existing contracts will be renewed on reasonable or comparable terms, or at all.
Our business and stock price may be adversely affected if our internal controls are not effective.
We have previously reported material weaknesses in our internal control over financial reporting. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not
be prevented or detected on a timely basis. Although we believe we have taken appropriate actions to remediate the
control deficiencies we have identified and to strengthen our internal control over financial reporting, we cannot assure
you that we will not discover other material weaknesses in the future. The existence of one or more internal control
deficiencies could result in errors in our financial statements, and substantial costs and resources may be required to
rectify internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in
our reported financial information, the market price of our common stock could decline significantly, we may be
unable to obtain additional financing to operate and expand our business, and our business, financial condition and
prospects could be harmed.
We may be subject to litigation which, even if without merit, can be expensive to defend and could expose us to
significant liabilities, damage our reputation and result in substantial losses.
From time to time, we are 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.
See Part I, Item 3 of this Annual Report on Form 10-K under the heading “Legal Proceedings” for additional
information. Certain litigation claims may not be covered entirely or at all by our insurance policies, or our insurance
carriers may seek to deny coverage. In addition, litigation claims can be expensive to defend and may divert our
attention from the operations of our businesses. Further, litigation involving visitors to our properties, even if without
merit, can attract adverse media attention.
We evaluate all litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to
estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves
and/or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are
based on the information available to management at the time and involve a significant amount of management
judgment. We caution you that actual outcomes or losses may differ materially from those envisioned by our current
assessments and estimates. As a result, litigation can have a significant adverse effect on our businesses and, because
we cannot predict the outcome of any action, it is possible that adverse judgments or settlements could have a material
adverse effect on our business, financial condition, results of operations and prospects.
We depend on a limited number of key employees who would be difficult to replace.
We depend on a limited number of key personnel to manage and operate our business, including our Chief Executive
Officer, our Chief Operating Officer and our Chief Strategy and Financial Officer. We believe our success depends to
a significant degree on our ability to attract and retain highly skilled personnel. The competition for these types of
personnel is intense and we compete with other potential employers for the services of our employees. As a result, we
may not succeed in hiring and retaining the executives and other employees that we need. An inability to hire quality
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employees or the loss of key employees could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Our executive officers and directors own or control a large percentage of our common stock, which permits them
to exercise significant control over us.
As of December 31, 2018, our executive officers and directors and entities affiliated with them owned, in the
aggregate, approximately 33% of the outstanding shares of our common stock. Accordingly, these shareholders will
be able to substantially influence all matters requiring approval by our shareholders, including the approval of mergers
or other business combination transactions and the composition of our Board of Directors. This concentration of
ownership may also delay, defer or even prevent a change in control of our company and would make some
transactions more difficult or impossible without their support. Circumstances may arise in which the interests of these
shareholders could conflict with the interests of our other shareholders.
Our shareholders are subject to extensive governmental regulation and, if a shareholder is found unsuitable by a
gaming authority, that shareholder would not be able to beneficially own our common stock directly or indirectly.
Our shareholders may also be required to provide information that is requested by gaming authorities and we have
the right, under certain circumstances, to redeem a shareholder’s securities; we may be forced to use our cash or
incur debt to fund redemption of our securities.
Gaming authorities may, in their sole and absolute discretion, require the holder of any securities issued by us to file
applications, be investigated, and be found suitable to own our securities if they have reason to believe that the security
ownership would be inconsistent with the declared policies of their respective states. Gaming authorities have very
broad discretion in determining whether an applicant should be deemed suitable. Subject to certain administrative
proceeding requirements, gaming authorities have the authority to deny any application or limit, condition, restrict,
revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered
or found suitable or approved, for any cause deemed reasonable by the gaming authorities. The applicant must pay all
costs of investigation incurred by the gaming authorities in conducting any such investigation. In evaluating individual
applicants, gaming authorities typically consider the individual’s reputation for good character and criminal and
financial history, and the character of those with whom the individual associates. If any gaming authority determines
that a person is unsuitable to own our securities, then, under the applicable gaming laws and regulations, we can be
sanctioned, including the loss of our privileged licenses or approvals, if, without the prior approval of the applicable
gaming authority, we conduct certain business with the unsuitable person or fail to redeem the unsuitable person’s
interest in our securities or take such other action with respect to the securities held by the unsuitable person as the
applicable gaming authority requires.
For example, under Nevada gaming laws, each person who acquires, directly or indirectly, beneficial ownership of
any voting security, or beneficial or record ownership of any non-voting security or any debt security, in a public
corporation which is registered with the Nevada Gaming Commission, or the Gaming Commission, may be required
to be found suitable if the Gaming Commission has reason to believe that his or her acquisition of that ownership, or
his or her continued ownership in general, would be inconsistent with the declared public policy of Nevada, in the
sole discretion of the Gaming Commission. Any person required by the Gaming Commission to be found suitable
shall apply for a finding of suitability within 30 days after the Gaming Commission’s request that he or she should do
so and, together with his or her application for suitability, deposit with the Nevada Gaming Control Board, or the
Control Board, a sum of money which, in the sole discretion of the Control Board, will be adequate to pay the
anticipated costs and charges incurred in the investigation and processing of that application for suitability, and deposit
such additional sums as are required by the Control Board to pay final costs and charges.
Furthermore, any person required by a gaming authority to be found suitable, who is found unsuitable by the gaming
authority, may not hold directly or indirectly the beneficial ownership of any voting security or the beneficial or record
ownership of any nonvoting security or any debt security of any public corporation which is registered with the gaming
authority beyond the time prescribed by the gaming authority. A violation of the foregoing may constitute a criminal
offense. A finding of unsuitability by a particular gaming authority impacts that person’s ability to associate or affiliate
with gaming licensees in that particular jurisdiction and could impact the person’s ability to associate or affiliate with
gaming licensees in other jurisdictions.
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Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of
voting securities of a gaming company and, in some jurisdictions, non-voting securities, typically 5%, to report the
acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a
finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities
for investment purposes only. For example, under Nevada gaming laws, any person who acquires more than 5% of
our voting power must report the acquisition to the Gaming Commission. Nevada gaming regulations also require that
beneficial owners of more than 10% of our voting power apply to the Gaming Commission for a finding of suitability
within 30 days after the Chairman of the Nevada Board mails written notice requiring such filing. Further, an
“institutional investor,” as defined in the Nevada gaming regulations, that acquires more than 10%, but not more than
25%, of our voting power may apply to the Gaming Commission for a waiver of such finding of suitability if such
institutional investor holds our voting securities for investment purposes only. Similarly, under Maryland gaming
laws, as interpreted by the Maryland Lottery and Gaming Control Commission, or the Maryland Commission, any
person who acquires 5% or more of our voting securities must report the acquisition to the Maryland Commission and
apply for a “Principal Employee” (if an individual) or “Principal Entity” (if an entity) license, both of which require a
finding of qualification, or seek an institutional investor waiver. The granting of a waiver rests with the discretion of
the Maryland Commission. Further, we may not sell or otherwise transfer in an issuer transaction more than 5% of the
legal or beneficial interest in Rocky Gap without the approval of the Maryland Commission, after the Maryland
Commission determines that the transferee is qualified or grants the transferee an institutional investor waiver.
Our Articles of Incorporation require our shareholders to provide information that is requested by authorities that
regulate our current or proposed gaming operations. Our Articles of Incorporation also permit us to redeem the
securities held by persons whose status as a security holder, in the opinion of our Board of Directors, jeopardizes our
existing gaming licenses or approvals. The price paid for these securities is, in general, the average closing price for
the 30 trading days prior to giving notice of redemption.
In the event a shareholder’s background or status jeopardizes our current or proposed gaming licensure, we may be
required to redeem such shareholder’s securities in order to continue gaming operations or obtain a gaming license.
This redemption may divert our cash resources from other productive uses and require us to obtain additional financing
which, if in the form of equity financing, would be dilutive to our shareholders. Further, any debt financing may
involve additional restrictive covenants and further leveraging of our fixed assets. The inability to obtain additional
financing to redeem a disqualified shareholder’s securities may result in the loss of a current or potential gaming
license.
We expect our stock price to be volatile.
The market price of our common stock has been, and is likely to continue to be, volatile. The market price of our
common stock may be significantly affected by many factors, including:
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changes in general or local economic or market conditions;
quarterly variations in operating results;
strategic developments by us or our competitors;
developments in our relationships with our customers, distributors and suppliers;
regulatory developments or any breach, revocation or loss of any gaming license;
changes in our revenues, expense levels or profitability;
changes in financial estimates and recommendations by securities analysts; and
failure to meet the expectations of securities analysts.
Any of these events may cause the market price of our common stock to fall. In addition, the stock market in general
has experienced significant volatility, which may adversely affect the market price of our common stock regardless
of our operating performance.
Future sales of our common stock could lower our stock price and dilute existing shareholders.
In January 2018, the SEC declared effective a universal shelf registration statement for the future sale of up to $150
million in aggregate amount of common stock, preferred stock, debt securities, warrants and units and the resale of up
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to approximately 8.0 million shares of our common stock held by the selling securityholders named therein. The
securities may be offered from time to time, separately or together, directly by us or through underwriters, dealers or
agents at amounts, prices, interest rates and other terms to be determined at the time of the offering. For example, in
January 2018, certain of the named selling securityholders completed the resale of 6.5 million shares of our common
stock and we completed the sale of 975,000 newly issued shares of our common stock in an underwritten public
offering pursuant to this shelf registration statement.
We may also issue additional shares of common stock to finance future acquisitions through the use of equity. For
example, we issued approximately 900,000 shares of our common stock in connection with the Laughlin Acquisition
in January 2019, approximately 4.0 million shares of our common stock in connection with the American Acquisition
in October 2017 (all of which shares were resold in the secondary public offering in January 2018), and approximately
8.5 million shares of our common stock in connection with the acquisition of Sartini Gaming in July 2015 (of which
approximately 1.0 million shares were resold in the secondary public offering in January 2018). In addition, a
substantial number of shares of our common stock is reserved for issuance upon the exercise of stock options and
other equity awards pursuant to our employee benefit plans. We cannot predict the size of future issuances of our
common stock or the effect, if any, that future sales and issuances of shares of our common stock will have on the
market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in
connection with the acquisition of Sartini Gaming, upon the exercise of stock options and warrants or in connection
with acquisition financing), or the perception that such sales could occur, may adversely affect prevailing market
prices for our common stock. In addition, these sales may be dilutive to existing shareholders.
Provisions in our Articles of Incorporation and Bylaws or our senior secured credit facilities may discourage, delay
or prevent a change in control or prevent an acquisition of our business at a premium price.
Some of the provisions of our Articles of Incorporation and our Bylaws and Minnesota law could discourage, delay
or prevent an acquisition of our business, even if a change in control would be beneficial to the interests of our
shareholders and was made at a premium price. These provisions:
(cid:129)
(cid:129)
(cid:129)
permit our Board of Directors to increase its own size and fill the resulting vacancies;
authorize the issuance of “blank check” preferred stock that our Board of Directors could issue to increase
the number of outstanding shares to discourage a takeover attempt; and
permit shareholder action by written consent only if the consent is signed by all shareholders entitled to notice
of a meeting.
Although we have amended our Bylaws to provide that Section 302A.671 (Control Share Acquisitions) of the
Minnesota Business Corporation Act does not apply to or govern us, we remain subject to 302A.673 (Business
Combinations) of the Minnesota Business Corporation Act, which generally prohibits us from engaging in business
combinations with any “interested” shareholder for a period of four years following the shareholder’s share acquisition
date, which may discourage, delay or prevent a change in control of our company. In addition, our senior secured
credit facilities provide for an event of default upon the occurrence of certain specified change of control events.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Company Headquarters
We lease a 41,000 square foot building in Las Vegas, Nevada, which houses our company headquarters and a portion
of which we have sub-leased. The lease for our office headquarters building is with a related party and expires on
December 31, 2030. See Note 15, Related Party Transactions, in the accompanying consolidated financial statements
for information on our transactions with related parties.
23
Casinos
The Strat: We own the approximately 34 acres of land on which The Strat is located (of which approximately 17 acres
are undeveloped and reserved for future development).
Arizona Charlie’s Decatur: We own the approximately 17 acres of land on which our Arizona Charlie’s Decatur
casino property is located. In addition, we lease office, storage and laundry space for our Arizona Charlie’s Decatur
casino property in an adjacent shopping center. The lease is with an unrelated party and expires in 2097.
Arizona Charlie’s Boulder: We own the approximately 24 acres of land on which our Arizona Charlie’s Boulder
casino property is located.
Laughlin Casinos: We own the approximately 18 acres of land on which the Aquarius casino property is located (of
which approximately 1.6 acres are undeveloped and reserved for future development), approximately 22 acres of land
on which the Colorado Belle casino property is located and approximately 16 acres of land on which the Edgewater
casino property is located. In addition, we lease approximately 20 acres of land for the Laughlin Event Center for our
Laughlin casino properties. The lease is with an unrelated party and expires in 2027.
Pahrump Casinos: We own the approximately 40 acres of land on which Pahrump Nugget is located (of which
approximately 20 acres are undeveloped and reserved for future development) and the approximately 35 acres of land
on which our Lakeside Casino & RV Park is located. Our Gold Town Casino is located on four leased parcels of land,
comprising approximately nine acres in the aggregate. The leases are with unrelated third parties and have various
expiration dates beginning in 2026 (for the parcel on which our main casino building is located, which we lease from
a competitor), and we sublease approximately two of the acres to an unrelated third party.
Rocky Gap: We lease the approximately 270 acres in the Rocky Gap State Park on which Rocky Gap is situated from
the Maryland DNR pursuant to a 40-year ground lease. The lease expires in 2052, with an option to renew for an
additional 20 years. We own the 170,000 square foot Rocky Gap building.
All of our owned and leased real property for our casino properties, along with substantially all of the assets of the
casino properties, are subject to liens securing all of our obligations under our senior secured credit facilities (subject
to receipt of certain approvals).
Distributed Gaming
We lease our 60 branded tavern locations under non-cancelable operating leases. As of December 31, 2018, the terms
of our tavern leases ranged from one to 15 years, with various renewal options from one to 15 years. One of our tavern
locations was leased from related parties as of December 31, 2018. See Note 15, Related Party Transactions, in the
accompanying consolidated financial statements for information on our transactions with related parties.
24
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are 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 we recorded reserves of $1.7 million for claims as of December 31, 2018. Although lawsuits, claims,
investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty,
we believe that the resolution of our currently pending matters should not have a material adverse effect on our
business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have
an adverse impact on us 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 our business, financial condition, results of operations or liquidity in a particular period.
In February and April 2017, several former employees filed two separate purported class action lawsuits against us in
the District Court of Clark County, Nevada, and on behalf of similarly situated individuals employed by us in the State
of Nevada. The lawsuits allege that we violated certain Nevada labor laws including payment of an hourly wage below
the statutory minimum wage without providing a qualified health insurance plan and an associated failure to pay
proper overtime compensation. The complaints seek, on behalf of the plaintiffs and members of the putative class, an
unspecified amount of damages (including punitive damages), injunctive and equitable relief, and an award of
attorneys’ fees, interest and costs. We agreed to settle the first of these cases in the fourth quarter of 2017 and the
second of these cases in the third quarter of 2018. In February 2019, the court approved the settlement for the first
case for $0.5 million. The remaining case remains subject to final court approval, with the final fairness hearing
scheduled for June 2019. Both were included in our recorded reserves of $1.7 million at December 31, 2018.
On August 31, 2018, prior guests of The Strat filed a purported class action complaint against us in the District Court,
Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined
Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the
period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged
in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet
access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages
equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief,
disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a joint
motion to dismiss this matter for lack of merit. The District Court granted this joint motion to dismiss on February 21,
2019. At this time this matter is closed. The plaintiffs have the right to appeal.
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, we
believe that these proceedings should not have a material adverse effect on our financial position, results of operations
or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Market under the ticker symbol GDEN.
As of March 14, 2019, there were approximately 240 shareholders of record of our common stock.
Dividends
Other than the special cash dividend that was made in July 2016 pursuant to the terms of the Sartini Gaming merger
agreement (as described in Note 4, Acquisitions, in the accompanying consolidated financial statements), we have
neither declared nor paid any cash dividends with respect to our common stock and the current policy of our Board of
Directors is to retain all future earnings, if any, for use in the operation and development of our business. The payment
of any other cash dividends in the future will be at the discretion of our Board of Directors and will depend upon such
factors as our financial condition, results of operations, capital requirements, our general business condition,
restrictions under our senior secured credit facilities and any other factors deemed relevant by our Board of Directors.
Share Repurchase Program
On November 7, 2018, our Board of Directors authorized us to repurchase up to $25.0 million shares of common
stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other
factors. During the year ended December 31, 2018, we repurchased approximately 1.2 million shares of our common
stock in open market transactions for approximately $19.6 million at an average price of $16.06 per share. As
of December 31, 2018, approximately $5.4 million of shares of common stock remained available for repurchase
pursuant to this program. On March 12, 2019, our Board of Directors authorized us to repurchase up to $25.0 million
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 our finance
agreements. There is no minimum number of shares that we are required to repurchase and the repurchase program
may be suspended or discontinued at any time without prior notice.
During the quarter ended December 31, 2018, we repurchased approximately 1.2 million shares of our common stock
in open market transactions for approximately $19.6 million at an average price of $16.06 per share, as set forth below.
Period
Total
Number of
Shares
Purchased
Average
Price
Paid Per
Share
Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan
Approximate Dollar
Value That May
Yet Be Purchased
Under the Plan
October 1, 2018 through October 31, 2018
November 1, 2018 through November 30, 2018 1,023,014 $ 15.82
December 1, 2018 through December 31, 2018 195,966 $ 17.44
—
Totals
1,218,980
$
—
1,023,014
195,966
1,218,980 $
25,000,000
—
8,820,797
5,402,419
5,402,419
26
ITEM 6.
SELECTED FINANCIAL DATA
The Selected Financial Data presented below should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Annual Report on Form 10-K, and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on Form 10-K.
Selected consolidated statement of operations data and consolidated balance sheet data are derived from our
consolidated financial statements.
December 31,
December 31,
December 31,
December 31,
December 28,
2018(1)
2017(2)(3)
2016(2)(4)
2015(5)
2014(6)
For the Year Ended or As of:
(In millions, except per share amounts)
Results of Continuing Operations:
Total revenues
Income (loss) from
operations
Net Income (loss)
Net income (loss) per
share — basic
Net income (loss) per
share — diluted
$
$
$
$
$
Balance Sheet:
Cash and cash equivalents $
$
Total assets
Total long-term liabilities $
$
Shareholders’ equity
852 $
507 $
400 $
176 $
51 $
(21) $
15 $
2 $
13 $
16 $
18 $
25 $
(0.76) $
0.09 $
0.74 $
1.45 $
(0.76) $
0.08 $
0.73 $
1.43 $
116 $
1,367 $
968 $
315 $
91 $
1,365 $
966 $
320 $
47 $
419 $
172 $
209 $
69 $
379 $
143 $
210 $
55
(24)
(25)
(1.86)
(1.86)
35
122
9
108
(1) Our results for the year ended December 31, 2018 included the operating results of American for a full year. We recorded
approximately $411.4 million in revenues and $42.7 million in net income from the operations of American for the year
ended December 31, 2018. Income from operations for the year ended December 31, 2018 included approximately $1.2
million in preopening expenses primarily related to the opening of new taverns in the Las Vegas Valley and $3.0 million
in acquisition expenses primarily related to the Laughlin Acquisition. Net loss for the year ended December 31, 2018
included an income tax provision of $9.6 million, which resulted primarily from the change in valuation allowance.
(2)
Selected financial data as of and for the years ended December 31, 2017 and 2016 have been retrospectively
adjusted for the adoption of the new revenue recognition standard. See Note 3 to the Consolidated Financial
Statements for more information. Selected financial data as of and for the years ended December 31, 2015 and
2014 have not been adjusted and therefore are not comparable.
(3) Our results for the year ended December 31, 2017 included the operating results of American from the closing date of
the American Acquisition, on October 20, 2017. We recorded approximately $76.3 million in revenues and $5.5 million
in net income from the operations of American for the year ended December 31, 2017. Income from operations for the
year ended December 31, 2017 included approximately $1.6 million in preopening expenses related to American and
the non-capital costs associated with the opening of taverns, and $5.0 million in acquisition expenses related to the
American Acquisition. Net income for the year ended December 31, 2017 included an income tax benefit of $7.9 million
attributed primarily to a partial release of the valuation allowance on deferred tax assets and the impact of the Tax Cuts
and Jobs Act.
(4) Our results for the year ended December 31, 2016 included the operating results of the distributed gaming
businesses acquired in the Montana Acquisitions from the closing dates of the respective transactions. We recorded
approximately $45.4 million in revenues and $1.6 million in net income from the operations of the Montana
distributed gaming businesses for the year ended December 31, 2016. Income from operations for the year ended
December 31, 2016 included approximately $2.5 million in preopening expenses related to the Montana distributed
gaming businesses and the non-capital costs associated with the opening of taverns, and a gain on sale of land held
for sale of $4.5 million. Net income for the year ended December 31, 2016 included an income tax benefit of $4.3
27
million attributed primarily to a partial release of the valuation allowance on deferred tax assets. On July 14,
2016, a special cash dividend of approximately $23.5 million was paid to shareholders (other than shareholders
that had waived their right to receive such dividend in connection with the Sartini Gaming merger). See Note 4,
Acquisitions, in the accompanying consolidated financial statements for additional information.
(5) Our results for the year ended December 31, 2015 included the operating results of Sartini Gaming from the
Sartini Gaming merger on August 1, 2015. We recorded approximately $116.8 million in revenues and $10.4
million in net income from the operations of Sartini Gaming’s distributed gaming and casino businesses for the
year ended December 31, 2015. Income from operations for the year ended December 31, 2015 included
approximately $11.5 million in transaction-related expenses related to the Sartini Gaming merger and net
income included income tax benefit of approximately $10.0 million attributed primarily to the income tax
benefit recorded from the release of a valuation allowance on deferred tax assets as a result of deferred tax
liabilities assumed in the Sartini Gaming merger. Our results for the year ended December 31, 2015 also
reflected a gain of $23.6 million related to the disposition of our $60.0 million subordinated promissory note
from the Jamul Indian Village to a subsidiary of Penn National Gaming, Inc. in December 2015.
(6) Our results for the year ended December 28, 2014 reflected an impairment loss of $21.0 million related to the write-
down of our then investment in Rock Ohio Ventures, LLC, a cost method investee.
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and the related
notes thereto and other financial information included in this Annual Report on Form 10-K. In addition to the historical
information, certain statements in this discussion are forward-looking statements based on current expectations that
involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those
projected in such forward-looking statements. See “Forward-Looking Statements” in Part I of this Annual Report on
Form 10-K for additional information regarding forward-looking statements.
Overview
We 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 our branded taverns).
We conduct our business through two reportable operating segments: Casinos and Distributed Gaming. In our Casinos
segment, we own and operate ten resort casino properties in Nevada and Maryland. Our 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.
Casinos
On January 14, 2019, we completed the acquisition of all of the outstanding equity interests of the Laughlin Entities
from Marnell for $155.0 million in cash (subject to the post-closing adjustment provisions in the purchase agreement)
and the issuance by us of 911,002 shares of our common stock to certain assignees of Marnell. The Laughlin
Acquisition added two resort casino properties in Laughlin, Nevada to our casino portfolio: the Edgewater and the
Colorado Belle, which increase our scale and presence in the Southern Nevada market. The results of operations of
the Laughlin Entities will be included in our results subsequent to the acquisition date. See Note 4, Acquisitions, in
the accompanying consolidated financial statements for additional information.
On October 20, 2017, we completed the acquisition of all of the outstanding equity interests of American for $787.6
million in cash (after giving effect to post-closing adjustments) and the issuance by us of approximately 4.0 million
shares of our common stock to a former American equity holder. The American Acquisition added four Nevada resort
casino properties to our casino portfolio, including The Strat in Las Vegas. The results of operations of American and
its subsidiaries have been included in our results subsequent to that date. See Note 4, Acquisitions, in the accompanying
consolidated financial statements for additional information.
We own and operate ten resort casino properties in Nevada and Maryland, comprising: (1) The Strat, Arizona Charlie’s
Decatur and Arizona Charlie’s Boulder in Las Vegas, Nevada, (2) the Aquarius, the Edgewater and the Colorado Belle
in Laughlin, Nevada, (3) Pahrump Nugget, Gold Town Casino and Lakeside Casino & RV Park in Pahrump, Nevada,
and (4) Rocky Gap in Flintstone, Maryland.
(cid:129)
(cid:129)
The Strat: The Strat is our premier casino property, located on Las Vegas Blvd on the north end of the Las
Vegas Strip. The Strat comprises The Strat SkyPod, a casino, a hotel and a retail center. As of December 31,
2018, The Strat featured an 80,000 sq. ft. casino, 2,429 hotel rooms, 686 slots, 48 table games, a race and
sports book, 11 restaurants, two rooftop pools, a fitness center, retail shops and entertainment facilities.
Arizona Charlie’s casinos: Our Arizona Charlie’s Decatur and Arizona Charlie’s Boulder casino properties
primarily serve local Las Vegas patrons, and provide an alternative experience to the Las Vegas Strip. As of
December 31, 2018, Arizona Charlie’s Decatur casino offered 259 hotel rooms, 1,032 slots, seven table
games, race and sports books, five restaurants, and an approximately 400-seat bingo parlor, and Arizona
Charlie’s Boulder casino offered 303 hotel rooms, 823 slots, seven table games, race and sports books, four
restaurants, and an approximately 450-seat bingo parlor, as well as an RV park with approximately 220 RV
hook-up sites.
29
(cid:129)
(cid:129)
(cid:129)
Laughlin casinos: We own and operate three casinos in Laughlin, Nevada, which is located approximately
90 miles from Las Vegas on the western riverbank of the Colorado River. Our Laughlin casinos are situated
on 56 contiguous acres along the heart of the Laughlin Riverwalk and cater primarily to patrons traveling
from Arizona and Southern California, as well as customers from Nevada seeking an alternative to the Las
Vegas experience. The Aquarius is the largest resort casino property by number of hotel rooms in the
Laughlin, Nevada market. As of December 31, 2018, the Aquarius had 1,906 hotel rooms, 1,217 slots, 33
table games and eight restaurants. As of January 14, 2019 (the date we acquired the Colorado Belle and the
Edgewater in the Laughlin Acquisition), the Edgewater and the Colorado Belle collectively featured over
1,400 slots, 39 table games and 2,149 hotel rooms, as well as ten restaurants and dedicated entertainment
venues, including the Laughlin Event Center.
Pahrump casinos: We own and operate three casinos in Pahrump, Nevada, which is located approximately
60 miles from Las Vegas and is a gateway to Death Valley National Park. As of December 31, 2018, Pahrump
Nugget offered 69 hotel rooms, 399 slots, ten table games, a race and sports book, an approximately 200-seat
bingo facility and a bowling center. As of December 31, 2018, our Gold Town Casino offered 224 slots and
an approximately 100-seat bingo facility, and our Lakeside Casino & RV Park offered 173 slots and
approximately 160 RV hook-up sites
Rocky Gap: Rocky Gap is situated on approximately 270 acres in the Rocky Gap State Park in Maryland,
which we lease from the Maryland Department of Natural Resources under a 40-year ground lease expiring
in 2052 (plus a 20-year option renewal). As of December 31, 2018, Rocky Gap offered 665 slots, 17 table
games, two casino bars, three restaurants, a spa and the only Jack Nicklaus signature golf course in Maryland.
Rocky Gap is a AAA Four Diamond Award® winning resort with 198 hotel rooms, as well as an event and
conference center.
Distributed Gaming
Our 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. We place our slots and amusement devices in locations where we believe they will receive
maximum customer traffic, generally near a store’s entrance. In addition, we own and operate branded taverns with
slots, which target local patrons, primarily in the greater Las Vegas, Nevada metropolitan area. As of December 31,
2018, our distributed gaming operations comprised approximately 10,700 slots in over 1,000 locations.
Our branded taverns offer a casual, upscale environment catering to local patrons offering superior food, craft beer
and other alcoholic beverages, and typically include 15 onsite slots. As of December 31, 2018, we owned and operated
60 branded taverns, which offered a total of over 950 onsite slots. Most of our taverns are located in the greater Las
Vegas, Nevada metropolitan area and cater to local patrons seeking more convenient entertainment establishments
than traditional casino properties. Our tavern brands include PT’s Gold, PT’s Pub, Sierra Gold, Sean Patrick’s, PT’s
Place, PT’s Ranch, PT’s Brewing Company, Sierra Junction and SG Bar. We also own a brewery in Las Vegas, PT’s
Brewing Company, which produces craft beer for our taverns and casinos.
30
Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2018.
(In thousands)
Revenues by segment
Casinos
Distributed Gaming
Corporate and other
Total revenues
Operating expenses by segment
Casinos
Distributed Gaming
Corporate and other
Total operating expenses
Selling, general and administrative
Depreciation and amortization
Acquisition and merger expenses
Preopening expenses
Executive severance and sign-on bonuses
Gain on contingent consideration
Loss on disposal of property and equipment
Other operating, net
Total expenses
Operating income
Non-operating expense, net
Income tax benefit (provision)
Net income (loss)
2018
Year Ended December 31,
2017
2016
$
513,949 $
337,067
778
851,794
179,049 $
327,506
583
507,138
247,042
263,953
3,237
514,232
183,892
94,456
2,956
1,171
784
—
3,336
—
800,827
90,037
255,621
641
346,299
98,382
40,786
5,041
1,632
1,142
(1,719)
441
(157)
491,847
50,967
(62,242)
(9,639)
(20,914) $
15,291
(21,128)
7,921
2,084 $
$
97,086
302,632
280
399,998
51,685
237,262
11
288,958
66,323
27,506
614
2,471
1,037
—
54
—
386,963
13,035
(1,060)
4,325
16,300
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenues
The $344.7 million, or 68%, increase in revenues resulted primarily from increases of $143.8 million, $89.1 million,
$82.6 million and $29.1 million in gaming, food and beverage, room and other revenues, respectively, due primarily
to the inclusion in 2018 of a full year of revenues from the resort casino properties acquired in the American
Acquisition which was consummated in October 2017.
The $334.9 million, or 187%, increase in revenues related to our Casinos segment compared to the prior year resulted
primarily from increases of $137.5 million, $85.3 million, $82.6 million and $29.5 million in gaming, food and
beverage, room and other revenues, respectively, due primarily to the inclusion in 2018 of a full year of revenues from
the resort casino properties acquired in the American Acquisition.
The $9.6 million, or 3%, increase in revenues related to our Distributed Gaming segment resulted primarily from
increases of $6.3 million in gaming revenues and $3.9 million in food and beverage revenues, reflecting the opening
of three new taverns in the Las Vegas Valley in 2018 as well as a full year of revenues from the five taverns opened
in 2017, and was offset by a $0.6 million decrease in other operating revenues.
During the year ended December 31, 2018, Adjusted EBITDA in our Casinos segment as a percentage of segment
revenues (or Adjusted EBITDA margin) was 31%, compared to Adjusted EBITDA margin in our Distributed Gaming
segment of 14%. The lower Adjusted EBITDA margin in our Distributed Gaming segment relative to our Casinos
31
segment reflects the fixed and variable amounts paid to third parties under our space and revenue share agreements as
expenses in the Distributed Gaming segment (which includes the percentage of gaming revenues paid to third parties
under revenue share agreements). See Note 16, Segment Information, in the accompanying consolidated financial
statements for additional information regarding segment Adjusted EBITDA and a reconciliation of segment Adjusted
EBITDA to segment net income (loss).
Operating Expenses
The $167.9 million, or 48%, increase in operating expenses compared to the prior year resulted primarily from $52.1
million, $68.9 million, $38.8 million and $8.2 million increases in gaming, food and beverage, room and other
expenses, respectively, due primarily to the inclusion in 2018 of a full year of operating expenses relating to the resort
casino properties acquired in the American Acquisition.
Selling, General and Administrative Expenses
The $85.5 million, or 87%, increase in selling, general and administrative (“SG&A”) expenses compared to the prior
year resulted primarily from the inclusion in 2018 of a full year of SG&A expenses relating to the resort casino
properties acquired in the American Acquisition.
Within our Casinos segment, SG&A expenses increased $70.5 million, or 185%, resulting primarily from the inclusion
in 2018 of a full year of SG&A relating to the resort casino properties acquired in the American Acquisition. The
majority of the SG&A expenses in this segment comprised labor costs, marketing and advertising, utilities expenses,
repairs and maintenance, property taxes.
Within our Distributed Gaming segment, SG&A expenses increased $2.7 million or 12%, primarily due to the opening
of three new taverns in the Las Vegas Valley in 2018 as well as a full year of revenues from the five taverns opened
in 2017. The majority of SG&A expenses in this segment comprised payroll and payroll taxes, marketing, building
and rent expense, insurance and property taxes.
Corporate-level SG&A expenses increased $12.3 million, or 33% compared to the prior year, primarily from the
inclusion in 2018 of a full year of SG&A expenses relating to the resort casino properties acquired in the American
Acquisition.
Acquisition Expenses
Acquisition expenses during the year ended December 31, 2018 related primarily to the Laughlin Acquisition, which
closed on January 14, 2019, and the American Acquisition. During the prior year, acquisition expenses primarily
related to the American Acquisition.
Preopening Expenses
Preopening expenses consist of labor, food, utilities, training, initial licensing, rent and organizational costs incurred.
Non-capital costs associated with the opening of tavern and casino locations are also expensed as preopening expenses
as incurred.
During 2018 and 2017, preopening expenses related primarily to costs incurred in the opening of new taverns in the
Las Vegas Valley.
Depreciation and Amortization
Depreciation and amortization expenses increased $53.7 million, or 132%, compared to the prior year, primarily due
to the depreciation of the assets and the amortization of the intangibles acquired in the American Acquisition.
32
Non-Operating Expense, Net
Non-operating expense, net increased $41.1 million compared to the prior year, primarily due to a $44.4 million
increase in interest expense from the higher level of indebtedness under our senior secured credit facilities following
the consummation of the American Acquisition, partially offset by an increase in gain on change in fair value of
derivative of $1.6 million. Non-operating expense, net in 2017 also included $1.7 million related to a loss on
extinguishment of debt.
Income Taxes
Income tax expense for the year ended December 31, 2018 was approximately $9.6 million, which resulted primarily
from the change in valuation allowance. Income tax benefit for the year ended December 31, 2017 was approximately
$7.9 million, attributable primarily to a partial release of the valuation allowance on deferred tax assets and the impact
of the Tax Cuts and Jobs Act. The effective tax rate was (85.5%) for the year ended December 31, 2018, which differed
from the federal tax rate of 21% due primarily to the change in valuation allowance. The effective tax rate for the year
ended December 31, 2017 was 137.8%, which differed from the federal tax rate of 35% due primarily to the partial
release of the valuation allowance, along with the impact of the Tax Cuts and Jobs Act.
As of December 31, 2018, we evaluated all available positive and negative evidence related to our ability to utilize
our deferred tax assets. We considered the expected future taxable income (and losses) and deductions from existing
deferred tax assets and liabilities, net operating loss carryforwards, tax credit carryforwards, and other factors in
reaching the conclusion that the deferred tax assets are not currently expected to be realized, and that therefore, the
valuation allowance against the deferred tax assets required adjustment.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Revenues
The $107.1 million, or 27%, increase in revenues resulted primarily from increases of $56.5 million and $25.5 million
in gaming revenues and food and beverage revenues, respectively, as well as the inclusion of revenues of American
from October 20, 2017.
The $82.0 million, or 84%, increase in revenues related to our Casinos segment resulted primarily from increases of
$39.1 million, $19.6 million, $16.6 million and $6.6 million in gaming, food and beverage, room and other revenues,
respectively, as well as the inclusion of revenues from the resort casino properties we acquired in the American
Acquisition from October 20, 2017. Additionally, revenues from Rocky Gap increased $3.9 million due to greater
parking capacity to accommodate peak demand days and marketing enhancements that better cater to our gaming
customers.
The $24.9 million, or 8%, increase in revenues related to our Distributed Gaming segment resulted primarily from
five new taverns in the Las Vegas Valley during 2017, as well as a full year of revenues from the five taverns we
opened in 2016. Additionally, revenues in 2017 included a full year of revenues from the Montana distributed gaming
businesses we acquired in January and April 2016.
Operating Expenses
The $57.3 million, or 20%, increase in operating expenses resulted primarily from increases of $24.0 million, $23.9
million and $8.2 million in gaming expenses, food and beverage expenses and room expenses, respectively, the
inclusion of a full year of operating expense from the Montana distributed gaming businesses we acquired in January
and April 2016, as well as operating expenses related to the resort casino properties acquired in the American
Acquisition on October 20, 2017.
Selling, General and Administrative Expenses
The $32.1 million, or 48%, increase in selling, general and administrative (“SG&A”) expenses resulted primarily from
increases in share-based compensation ($5.1 million and $3.6 million related to stock options and restricted stock
33
units, respectively), salaries and bonus ($3.3 million), marketing and advertising ($0.9 million) and building and rent
($1.7 million), which were partially offset by a decrease in professional fees ($1.2 million). Additionally, the increases
reflected the inclusion of $20.0 million in SG&A related to American from October 20, 2017, as well as the opening
of five new taverns in the Las Vegas Valley in 2017.
Within our Casinos segment, SG&A expenses increased $16.3 million, or 75%, resulting primarily from the inclusion
of SG&A related to American from October 20, 2017. The majority of the SG&A expenses in this segment comprised
marketing and advertising, building and rent expense, bonus and payroll taxes. SG&A expenses at Rocky Gap decrease
$0.4 million year-over-year.
Within our Distributed Gaming segment, SG&A expenses increased $1.2 million or 5%, primarily due to the opening
of five new taverns in the Las Vegas Valley in 2017, the inclusion of a full year of SG&A from the Montana distributed
gaming businesses we acquired in January and April 2016, and the opening of five taverns in 2016, partially offset by
a decrease year-over-year in professional fees and equipment rental. The majority of SG&A expenses in this segment
comprised payroll taxes, building and rent expense, professional fees and equipment rental.
Corporate-level SG&A increased $14.6 million, or 64%, primarily due to an increase of $1.3 million in professional
fees and $3.6 million in payroll and related expenses, and the inclusion of $3.2 million of corporate-level SG&A
related to American from October 20, 2017.
Acquisition and Merger Expenses
Acquisition and merger expenses during 2017 primarily related to the American Acquisition, and during 2016
primarily related to the Sartini Gaming merger.
Preopening Expenses
During 2017, preopening expenses related primarily to costs incurred in the opening of new tavern locations in the
Las Vegas Valley. During 2016, preopening expenses related primarily to costs incurred in connection with the
Montana Acquisitions and the opening of new tavern locations in the Las Vegas Valley.
Depreciation and Amortization
Depreciation increased $11.1 million, or 55%, due primarily to depreciation of the assets acquired in the American
Acquisition, as well as a full year of depreciation on assets acquired in the Montana Acquisitions.
Amortization of intangibles increased $2.2, or 30%, primarily to intangible assets acquired in the American
Acquisition and the Montana Acquisitions.
Non-Operating Expense, Net
Non-operating expense, net increased $20.1 million, primarily due to a $13.1 million increase in interest expense from
the substantially higher level of indebtedness under the new senior secured credit facilities we entered into in
October 2017, partially offset by a gain on change in fair value of derivative of $0.2 million. Non-operating expense,
net in 2017 also included $1.7 million related to a loss on extinguishment of debt.
Income Taxes
Income tax benefit for the year ended December 31, 2017 was approximately $7.9 million, which resulted from the
partial release of the valuation allowance on deferred tax assets and the impact of the Tax Cuts and Jobs Act. Income
tax benefit for the year ended December 31, 2016 was approximately $4.3 million, attributable primarily to a partial
release of the valuation allowance on deferred tax assets. The effective tax rate was 137.8% for the year ended
December 31, 2017, which differed from the federal tax rate of 35% due primarily to the partial release of the valuation
allowance, along with the impact of the Tax Cuts and Jobs Act. The effective tax rate for the year ended December
34
31, 2016 was (36.1) %, which differed from the federal tax rate of 35% due to changes in the valuation allowance on
deferred tax assets.
As of December 31, 2017, we evaluated all available positive and negative evidence related to our ability to utilize
our deferred tax assets. We considered the expected future book income (losses), taxable loss carryforward potential
and other factors in reaching the conclusion that some of the deferred tax assets were expected to be realized, and that
therefore, the valuation allowance against the deferred tax assets required adjustment.
Non-GAAP Measures
To supplement our consolidated financial statements presented in accordance with United States generally accepted
accounting principles (“GAAP”), we use Adjusted EBITDA, a measure we believe is appropriate to provide
meaningful comparison with, and to enhance an overall understanding of, our past financial performance and prospects
for the future. We believe Adjusted EBITDA provides useful information to both management and investors by
excluding specific expenses and gains that we believe are not indicative of our core operating results. Further, Adjusted
EBITDA is a measure of operating performance used by management, as well as industry analysts, to evaluate
operations and operating performance and is widely used in the gaming industry. The presentation of this additional
information is not meant to be considered in isolation or as a substitute for measures of financial performance prepared
in accordance with GAAP. In addition, other companies in our industry may calculate Adjusted EBITDA differently
than we do. A reconciliation of net income (loss) to Adjusted EBITDA is provided in the table below.
We define “Adjusted EBITDA” as earnings before interest and other non-operating income (expense), income taxes,
depreciation and amortization, preopening expenses, acquisition and merger expenses, class action litigation expenses,
share-based compensation expenses, executive severance and sign-on bonuses, gain on contingent consideration,
gain/loss on disposal of property and equipment, gain on change in fair value of derivative, loss on extinguishment of
debt and impairments and other gains and losses.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA:
(In thousands)
Net income (loss)
Depreciation and amortization
Acquisition and merger expenses
Loss on disposal of property and equipment
Gain on contingent consideration
Share-based compensation
Preopening expenses
Class action litigation expenses
Executive severance and sign-on bonuses
Other operating, net
Other, net
Interest expense, net
Gain on sale of land held for sale
Loss on extinguishment of debt
Change in fair value of derivative
Income tax provision (benefit)
Adjusted EBITDA
Liquidity and Capital Resources
2018
Year Ended December 31,
2017
2016
$
$
(20,914)
94,456
2,956
3,336
—
9,988
1,171
574
784
—
514
64,028
—
—
(1,786)
9,639
164,746
$
$
2,084
40,786
5,041
441
(1,719)
8,754
1,632
1,617
1,142
(157)
—
19,598
—
1,708
(178)
(7,921)
72,828
$
$
16,300
27,506
614
54
—
3,878
2,471
—
1,037
—
(869)
6,454
(4,525)
—
—
(4,325)
48,595
As of December 31, 2018, we had $116.1 million in cash and cash equivalents. We currently believe that our cash and
cash equivalents, cash flows from operations and borrowing availability under our revolving credit facility will be
sufficient to meet our capital requirements during the next 12 months.
35
Our operating results and performance depend significantly on national, regional and local economic conditions and
their effect on consumer spending. Declines in consumer spending would cause revenues generated in both our
Casinos and Distributed Gaming segments to be adversely affected.
To further enhance our liquidity position or to finance any future acquisition or other business investment initiatives,
we may obtain additional financing, which could consist of debt, convertible debt or equity financing from public
and/or private credit and capital markets. In January 2018, the SEC declared our universal shelf registration statement
effective for the future sale of up to $150.0 million in aggregate amount of common stock, preferred stock, debt
securities, warrants and units and the resale of up to approximately 8.0 million shares of our common stock held by
the selling security holders named therein. The securities may be offered from time to time, separately or together,
directly by us or through underwriters, dealers or agents at amounts, prices, interest rates and other terms to be
determined at the time of the offering.
In January 2018, we completed an underwritten public offering pursuant to our universal shelf registration statement,
in which certain of our shareholders resold an aggregate of 6.5 million shares of our common stock, and we sold
975,000 newly issued shares of our common stock. Our net proceeds from the offering were approximately $25.6
million after deducting underwriting discounts and offering expenses.
Cash Flows
Net cash provided by operating activities was $98.0 million for the year ended December 31, 2018, compared to $22.1
million for the prior year. The increase was primarily due to the flow-through effect of higher revenues from the
American Acquisition. Operating cash flow decreased $15.3 million in 2017 compared to 2016 primarily due to the
flow-through effect of lower revenues and timing of working capital spending.
Net cash used in investing activities was $69.2 million for the year ended December 31, 2018, which included $68.2
million for capital expenditures. Net cash used in investing activities was $756.2 million for the year ended December
31, 2017, which included $724.5 million for the American Acquisition and $29.5 million for capital expenditures. Net
cash used in investing activities in 2016 included cash used in the Montana Acquisitions and capital expenditures.
Net cash used in financing activities was $3.3 million for the year ended December 31, 2018, which primarily related
to $19.6 million of stock repurchases authorized in November 2018 and $8.0 million of repayments under our senior
secured first lien credit facility, offset by $25.6 million of net proceeds to us in the underwritten public offering
completed in January 2018. Net cash provided by financing activities was $777.8 million for the year ended December
31, 2017, which reflected borrowings of $789.0 million under our new senior secured credit facilities net of
repayments under our previous senior secured credit facility. Net cash provided by financing activities was $11.4
million for the year ended December 31, 2016, which reflected net borrowings of $36.5 million under our then-existing
senior secured credit facility, partly offset by the $23.5 million special dividend paid in July 2016 (as described in
Note 4, Acquisitions, in the accompanying consolidated financial statements).
Senior Secured Credit Facilities
As of December 31, 2018, our senior secured credit facilities consisted of a $1 billion senior secured first lien credit
facility (consisting of $800 million in term loans and a $200 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 “First Lien Facility”), and a $200 million senior secured second lien term loan facility with Credit Suisse AG,
Cayman Islands Branch (as administrative agent and collateral agent), the lenders party thereto and the other entities
party thereto (the “Second Lien Term Loan” and, together with the First Lien Facility, the “Credit Facilities”). During
2018, the size of the revolving credit facility under the First Lien Facility was increased from $100 million to $200
million.
As of December 31, 2018, $792 million and $200 million of term loan borrowings were outstanding under our First
Lien Facility and Second Lien Term Loan, respectively, there were no letters of credit outstanding under the First Lien
Facility, and our revolving credit facility was undrawn, leaving borrowing availability under the revolving credit
36
facility as of December 31, 2018 of $200 million. Subsequent to fiscal year end, we borrowed $145.0 million under
our revolving credit facility in connection with the closing of the Laughlin Acquisition on January 14, 2019.
Borrowings under each of the Credit Facilities bear interest, at our 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
loans) 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 loans only), plus in each case, an applicable
margin. The applicable margin for the term loans under the First Lien 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 under the First Lien
Facility ranges from 1.50% to 2.00% for base rate loans and 2.50% to 3.00% for LIBOR rate loans, based on our net
leverage ratio. The applicable margin for the Second Lien Term Loan is 6.00% for base rate loans and 7.00% for
LIBOR rate loans. The commitment fee for the revolving credit facility is payable quarterly at a rate of 0.375% or
0.50%, depending on our net leverage ratio, and is accrued based on the average daily unused amount of the available
revolving commitment. As of December 31, 2018, the weighted-average effective interest rate on our outstanding
borrowings under the Credit Facilities was approximately 5.8%.
The revolving credit facility under the First Lien Facility matures on October 20, 2022, and the term loans under the
First Lien Facility mature on October 20, 2024. The term loans under the First Lien Facility are repayable in 27
quarterly installments of $2.0 million each, which commenced in March 2018, followed by a final installment of
$746.0 million at maturity. The term loans under the Second Lien Term Loan are repayable in full at maturity on
October 20, 2025.
Borrowings under each of the Credit Facilities are guaranteed by each of our 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 Golden and our subsidiary guarantors (subject to certain exceptions).
Under the Credit Facilities, we and our restricted subsidiaries are subject to certain limitations, including limitations
on our respective ability to: incur additional debt, grant liens, sell assets, make certain investments, pay dividends and
make certain other restricted payments. In addition, we will be required to pay down the term loans under the Credit
Facilities under certain circumstances if we or our restricted subsidiaries issue debt, sell assets, receive certain
extraordinary receipts or generate excess cash flow (subject to exceptions). The revolving credit facility under the
First Lien 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 Facilities also prohibit
the occurrence of a change of control, which includes the acquisition of beneficial ownership of 50% or more of our
capital stock (other than by certain permitted holders, which include, among others, Blake L. Sartini, Lyle A. Berman,
Neil I. Sell and certain affiliated entities). If we default under the Credit Facilities 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 our assets to satisfy the obligations thereunder. We were in compliance with our financial covenants
under the Credit Facilities as of December 31, 2018.
Share Repurchase Program
On November 7, 2018, our Board of Directors authorized us to repurchase up to $25.0 million shares of common
stock, subject to available liquidity, general market and economic conditions, alternate uses for the capital and other
factors. During the year ended December 31, 2018, we repurchased approximately 1.2 million shares of our common
stock in open market transactions for approximately $19.6 million at an average price of $16.06 per share. As
of December 31, 2018, approximately $5.4 million of shares of common stock remained available for repurchase
pursuant to this program. On March 12, 2019, our Board of Directors authorized us to repurchase up to $25.0 million
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 our finance
agreements. There is no minimum number of shares that we are required to repurchase and the repurchase program
may be suspended or discontinued at any time without prior notice.
37
Other Items Affecting Liquidity
We currently believe that our cash and cash equivalents, cash flows from operations and borrowing availability under
our revolving credit facility will be sufficient to meet our capital requirements for the next twelve months. Any
additional financing that is needed may not be available to us or, if available, may not be on terms favorable to us.
The outcome of the following specific matters, including our commitments and contingencies, may also affect our
liquidity.
Commitments, Capital Spending and Development
We perform on-going refurbishment and maintenance at our facilities, of which certain maintenance costs are
capitalized if such improvement or refurbishment extends the life of the related asset, while other maintenance costs
that do not so qualify are expensed as incurred. The commitment of capital and the related timing thereof are contingent
upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate regulatory
bodies. We intend to fund such capital expenditures through our revolving credit facility and operating cash flows.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2018:
(In thousands)
First Lien Facility
Second Lien Term Loan
Interest on long-term debt (1)
Maryland DNR lease(2)
Gold Town Casino leases(3)
Space agreements(4)
Related party leases(5)
Other operating leases (6)
Notes payable and capital lease
obligations(7)
2019
2020
2021
2022
2023
Thereafter
$
8,000 $
—
62,708
425
636
39,200
1,535
15,124
8,000 $
—
62,255
425
642
11,025
1,621
14,807
8,000 $
—
61,807
425
649
7,436
1,714
13,891
8,000 $
—
61,365
425
535
5,000
1,815
12,767
8,000 $
—
60,922
425
420
2,047
1,930
12,138
752,000
200,000
66,050
12,148
15,665
86
16,098
87,252
2,480
1,941
$ 130,108 $ 100,716 $
1,272
95,194 $
199
90,106 $
140
2,206
86,022 $ 1,151,505
(1)
(2)
To the extent that applicable interest rates are variable and ultimate amounts borrowed under the Credit Facilities
may fluctuate, amounts reflected represent estimated interest payments on our current outstanding balances
based on interest rates at December 31, 2018 until maturity. Includes interest on notes payable.
In 2012, we entered into a 40-year ground lease with the Maryland DNR for approximately 270 acres in the
Rocky Gap State Park in which Rocky Gap is situated. The lease expires in 2052, with an option to renew for
an additional 20 years. Rent payments under the lease include variable amounts based on Rocky Gap gaming
revenue and surcharges on amounts billed to and collected from guests. See Note 13, Leases, in the
accompanying consolidated financial statements for information regarding the lease.
(3) We lease four parcels of land, comprising approximately nine acres in the aggregate, on which our Gold Town
Casino is located from several unrelated third parties. The leases have various expiration dates beginning in
2026. Approximately two of the acres are subleased to an unrelated third party. See Note 13, Leases, in the
accompanying consolidated financial statements for information regarding the lease.
(4) We have slot placement contracts in the form of space agreements. Under these space agreements, we lease
space for our slots as part of our distributed gaming business. We pay a fixed monthly fee for the right to install,
maintain and operate our slots at specific business location.
(5) We lease our office headquarters building and one of our taverns from related parties. The lease for our office
headquarters building expires in 2030 and the lease for our related party tavern expires in 2027. See Note 15,
Related Party Transactions, in the accompanying consolidated financial statements for information on our
transactions with related parties.
38
(6) We lease taverns, equipment and vehicles under noncancelable operating leases. The terms of the tavern leases
range from one to 15 years, with various renewal options from one to 15 years.
(7) Relates to notes payable on equipment purchases and previous tavern acquisitions and our capital lease
obligations, including total capital lease interest obligations of $6.3 million.
Other Opportunities
We may investigate and pursue expansion opportunities in our existing or new markets from time to time. Such
expansions will be influenced and determined by a number of factors, which may include licensing availability and
approval, suitable investment opportunities and availability of acceptable financing. Investigation and pursuit of such
opportunities may require us to make substantial investments or incur substantial costs, which we may fund through
cash flows from operations or borrowing availability under our revolving credit facility. To the extent such sources of
funds are not sufficient, we may also seek to raise such additional funds through public or private equity or debt
financings or from other sources. No assurance can be given that additional financing will be available or that, if
available, such financing will be obtainable on terms favorable to us. Moreover, we can provide no assurances that
the investigation or pursuit of an opportunity will result in a completed transaction.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our
consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these
financial statements requires us to make estimates 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. On an ongoing basis, we evaluate our estimates and judgments, including those related to
the application of the acquisition method of accounting, long-lived assets, goodwill and indefinite-lived intangible
assets, revenue recognition, income taxes and share-based compensation expenses. We base our estimates and
judgments on historical experience and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
The following represent our accounting policies that involve the more significant judgments and estimates used in the
preparation of our consolidated financial statements. See Note 2, Summary of Significant Accounting Policies, in the
accompanying consolidated financial statements for information regarding our significant accounting policies.
Acquisition Method of Accounting
Accounting for acquisitions requires that assets acquired and liabilities assumed be recorded at their respective fair
values as of the date of acquisition. The fair values of identifiable intangible assets are estimated using both the cost
approach and an income approach, including the excess earnings, relief from royalty, cost savings method and the
with-and-without methods. This requires significant estimates in determining the fair values, including market
participant assumptions, projected financial information, estimates of expected cash flows, brand recognition,
customer attrition rates and discount rates. Given the need for such significant judgments, we may engage the
assistance of independent valuation firms. Any excess of the purchase price over the estimated fair values of the
identifiable net assets acquired is recorded as goodwill.
Our estimates of the fair values of assets acquired and liabilities assumed are based upon assumptions believed to be
reasonable, but are inherently unpredictable and uncertain. During the measurement period, which is up to one year
from the acquisition date, we may record measurement period adjustments to the assets acquired and liabilities
assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent
adjustments are recorded to earnings. Transaction costs are expensed as incurred in our consolidated statement of
operations.
39
Property and Equipment
Property and equipment, net was $895.0 million as of December 31, 2018, comprising 65.5% of our consolidated total
assets. We evaluate the carrying value whenever events or changes in circumstances indicate that the carrying value
of such assets may not be recoverable. If triggering events are identified, we then compare the estimated undiscounted
future cash flows of such assets to the carrying value of the assets. Any such assets are not impaired if the undiscounted
future cash flows exceed their carrying value. If the carrying value exceeds the undiscounted future cash flows, then
an impairment charge is recorded, typically measured using a discounted cash flow model, which is based on the
estimated future results of the relevant reporting unit discounted using our weighted-average cost of capital and market
indicators of terminal year free cash flow multiples.
Property and equipment must be tested for recoverability whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable. Examples include a significant adverse change in the extent or manner in
which we use the asset, a change in its physical condition, or an unexpected change in financial performance.
We reconsider changes in circumstances on a frequent basis, as well as whenever a triggering event related to potential
impairment has occurred. There are three generally accepted approaches available in developing an opinion of value:
the cost, sales comparison and income approaches. We generally consider each of these approaches in developing a
recommendation of the fair value of the asset; however, the reliability of each approach is dependent upon the
availability and comparability of the market data uncovered, as well as the decision-making criteria used by market
participants when evaluating an asset. We will bifurcate our investment and apply the most indicative approach to
overall fair valuation, or in some cases, a weighted analysis of any or all of these methods. Given the need for
significant judgements in conducting such valuations, we may engage the assistance of independent valuation firms.
Goodwill
We test our 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, and we consider each of our operating properties to be a separate
reporting unit.
When performing the annual goodwill impairment testing, we either conduct a qualitative assessment to determine
whether it is more likely than not that the asset is impaired, or elect to bypass this qualitative assessment and perform
a quantitative test for impairment. Under the qualitative assessment, we consider both positive and negative factors,
including macroeconomic conditions, industry events, financial performance and other changes, and make 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, we determine it is more likely than not the asset is impaired, we perform a
quantitative test in which the estimated fair value of the reporting unit is compared with 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, we estimate the fair value of each reporting unit using the expected present
value of future cash flows along with value indications based on our current valuation multiple and multiples of
comparable publicly traded companies. The estimation of fair value requires management to make critical estimates,
judgments and assumptions, including estimating expected future cash flows and selecting appropriate discount rates,
valuation multiples and market comparables. Application of alternative estimates and assumptions could produce
significantly different results.
As of our 2018 annual goodwill testing date, the estimated fair values of each of our properties exceeded their
respective carrying amounts. If the fair value of any of our properties should decline in the future, we may be required
to recognize a goodwill impairment charge, which could be material. A property’s fair value may decline as a result
of a decrease in the property’s actual or projected operating results or changes in significant assumptions and
judgments used in the estimation process, including the discount rate and market multiple.
40
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets include trade names and licenses. The fair value of our trade names is estimated
using the income approach to valuation at each of our reporting units. We test our 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. We periodically review our 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
Our finite-lived intangible assets primarily represent assets related to our customer relationships, player relationships,
non-compete agreements and leasehold interest, which are amortized over their estimated useful lives using the
straight-line method. We periodically evaluate the remaining useful lives of our finite-lived intangible assets to
determine whether events or circumstances warrant a revision to the remaining period of amortization.
Revenue Recognition
Revenue from contracts with customers primarily consists of casino wagers, room sales, food and beverage
transactions, rental income from our 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 our loyalty programs.
We generally enter into three types of slot and amusement device placement contracts as part of our distributed gaming
business: space agreements, revenue share agreements and participation agreements. Under space agreements, we pay
a fixed monthly rental fee for the right to install, maintain and operate our slots at a business location. Under these
agreements, we recognize all gaming revenue and record fixed monthly rental fees as gaming expenses. Under revenue
share agreements, we pay the business location a percentage of the gaming revenue generated from our slots placed
at the location and record that amount as an expense. With regard to both space and revenue share agreements, we
hold the applicable gaming license to conduct gaming at the location (although revenue share locations are required
to obtain separate regulatory approval to receive a percentage of the gaming revenue). Under participation agreements,
the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it
generates from our slots, which we record as an expense. In Montana, our slot and amusement device placement
contracts are all participation agreements. In our distributed gaming business, we consider our customers to be the
gaming player since we control all aspects of the slot machines. Due to the maintaining of control of the services
directly before they are transferred to the customer, we are considered to be the principal in these transactions and
therefore record revenue on a gross basis.
For wagering contracts that include complimentary products and services provided by us to incentivize gaming, we
allocate the stand-alone selling price of each product and service to the respective revenue type. Complimentary
products or services provided under our control and discretion that are supplied by third parties are recorded as an
operating expense.
For wagering contracts that include products and services provided to a patron in exchange for points earned under
our loyalty programs, Golden Rewards, ace|PLAY, Gold Mine Rewards and Rocky Gap Rewards Club, we allocate
the estimated stand-alone selling price of the points earned to the loyalty program liability. 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
41
deducted from the loyalty program liability and paid directly to the third party. Any discounts received by us from the
third party in connection with this transaction are recorded to other revenue.
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, we account for our gaming contracts collectively on a portfolio basis.
Revenue from leases is primarily recorded to other revenues and is generated from base rents through long-term leases
with retail tenants. Base rent, adjusted for contractual escalations, 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 us 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.
Income Taxes
We are 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 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.
Our income tax returns are subject to examination by the IRS and other tax authorities in the locations where we
operate. We assess 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. The tax benefit is measured as the largest amount
of benefit that is more likely than not to be realized upon settlement.
We record estimated penalties and interest related to income tax matters, including uncertain tax positions, if any, as
a component of income tax expense.
Share-Based Compensation Expense
We have various share-based compensation programs, which provide for equity awards such as stock options, time-
based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). We use the straight-line
method to recognize compensation expense associated with share-based awards based on the fair value on the date of
grant. Expense is recognized over the requisite service period related to each award, which is the period between the
grant date and the award’s stated vesting term. The fair value of stock options is estimated using the Black-Scholes
option pricing model. Management makes several assumptions to determine the inputs into the Black-Scholes option
pricing model, including our volatility and expected term assumptions which can significantly affect the fair value of
stock options. Changes in the assumptions can materially affect the estimate of the fair value of share-based
compensation expense recognized in the consolidated statement of operations. The extent of the impact will depend,
in part, on the extent of awards in any given year. For RSUs and PSUs, compensation expense is calculated based on
the fair market value of our common stock on the date of grant. All of our stock compensation expense is recorded in
selling, general and administrative expenses in the consolidated statements of operations.
42
Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies in the accompanying consolidated financial statements for
information regarding recently issued accounting pronouncements.
Regulation and Taxes
The casino and distributed gaming industries are subject to extensive regulation by state gaming authorities. Changes
in applicable laws or regulations could have a material adverse effect on us.
The gaming industry represents a significant source of tax revenues to regulators. From time to time, various federal
and state legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the
gaming industry. It is not possible to determine the likelihood of possible changes in tax law or in the administration
of such law. Such changes, if adopted, could have a material adverse effect on our future financial position, results of
operations, cash flows and prospects. See the “Regulation” section included in Part I, Item 1 of this Annual Report on
Form 10-K for further discussion of applicable regulations.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on
our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to investors.
43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our primary exposure to market risk is interest rate risk associated with our variable rate long-term debt. As of
December 31, 2018, our variable rate long-term debt primarily comprised our indebtedness under the Credit Facilities.
As of December 31, 2018, we had $792 million in principal amount of outstanding borrowings under the First Lien
Facility, and $200 million in principal amount of outstanding borrowings under the Second Lien Term Loan. Our
primary interest rate under the Credit Facilities is the Eurodollar rate plus an applicable margin. As of December 31,
2018, the weighted-average effective interest rate on our outstanding borrowings under the Credit Facilities was
approximately 5.8%. Assuming the outstanding balance under our Credit Facilities remained constant over a year, a
50 basis point increase in the applicable interest rate would increase interest incurred, prior to effects of capitalized
interest, by $5.0 million over a twelve-month period.
As of December 31, 2018, our investment portfolio included $116.1 million in cash and cash equivalents. As of
December 31, 2018, we did not hold any short-term investments.
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
GOLDEN ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms .............................................................................
Consolidated Balance Sheets................................................................................................................................
Consolidated Statements of Operations ...............................................................................................................
Consolidated Statements of Shareholders’ Equity ...............................................................................................
Consolidated Statements of Cash Flows ..............................................................................................................
Notes to Consolidated Financial Statements ........................................................................................................
Page
46
49
50
51
52
54
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Golden Entertainment, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Golden Entertainment, Inc. and subsidiaries (the
Company) as of December 31, 2018, the related consolidated statements of operations, shareholders' equity and cash
flows for the year ended December 31, 2018, and the related notes and financial statement schedule listed in the Index
at Item 15 (a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated March 15, 2019 expressed an unqualified opinion
thereon.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method for recognizing
revenue due to the adoption of a new accounting standard. These changes have been applied retrospectively to all
periods presented.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Las Vegas, Nevada
March 15, 2019
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS
To the Stockholders and the Board of Directors
Golden Entertainment, Inc.
Opinion on the Financial Statements and Schedule.
We have audited the accompanying consolidated balance sheets of Golden Entertainment, Inc. and Subsidiaries (the
Company) as of December 31, 2017, and the consolidated statements of operations, shareholders’ equity, and cash
flows for each of the years in the two-year period ended December 31, 2017, and the related notes to the consolidated
financial statements (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017, and
the consolidated results of its operations and its cash flows for each of the two years in the period ended December
31, 2017, in conformity with accounting principles generally accepted in the United States (U.S).
Change in Accounting Principle.
As discussed in Note 3, the financial statements have been restated as a result of the Company’s election of the full
retrospective method of its 2018 adoption of the Financial Accounting Standards Board’s Accounting Standards
Codification Topic 606, “Revenue from Contracts with Customers.”
Basis for Opinion.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We began serving as the Company’s auditors in 2005, and did so continuously until 2017.
/s/ Piercy Bowler Taylor & Kern
Certified Public Accountants
Las Vegas, Nevada
March 15, 2018, except with respect to the effects of the restatement discussed in Note 3 as to which the date is March
15, 2019
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Golden Entertainment, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Golden Entertainment, Inc. and subsidiaries’ internal control over financial reporting as of December
31, 2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
Golden Entertainment, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheet of Golden Entertainment, Inc. and subsidiaries (the Company) as of
December 31, 2018, the related consolidated statements of operations, shareholders' equity and cash flows for the year
ended December 31, 2018, and the related notes and schedules listed in the Index at Item 15 (a)(2), and our report
dated March 15, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Las Vegas, Nevada
March 15, 2019
48
GOLDEN ENTERTAINMENT, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net of allowance of $503 and $414
Prepaid expenses
Inventories
Other
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt
Accounts payable
Accrued taxes, other than income taxes
Accrued payroll and related
Accrued liabilities
Total current liabilities
Long-term debt, net
Deferred income taxes
Other long-term obligations
Total liabilities
Commitments and contingencies (Note 14)
Shareholders' equity
$
$
$
December 31,
2018
2017
116,071
12,779
17,722
6,759
3,428
156,759
894,953
158,134
141,128
—
15,595
1,366,569
$
90,579
14,692
19,397
5,594
2,817
133,079
895,241
158,134
157,692
7,787
13,242
$ 1,365,175
10,480
27,812
6,540
19,780
18,848
83,460
960,563
2,593
4,801
1,051,417
$
9,759
19,470
6,664
22,570
20,373
78,836
963,200
—
3,226
1,045,262
Common stock, $.01 par value; authorized 100,000 shares; 26,779 and 26,413
common shares issued and outstanding, respectively
Additional paid-in capital
Accumulated deficit
Total shareholders' equity
Total liabilities and shareholders' equity
268
435,245
(120,361)
315,152
1,366,569
264
399,510
(79,861)
319,913
$ 1,365,175
$
The accompanying notes are an integral part of these consolidated financial statements.
49
GOLDEN ENTERTAINMENT, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended December 31,
2017
2018
2016
Revenues
Gaming
Food and beverage
Rooms
Other operating
Total revenues
Expenses
Gaming
Food and beverage
Rooms
Other operating
Selling, general and administrative
Depreciation and amortization
Acquisition and merger expenses
Preopening expenses
Executive severance and sign-on bonuses
Gain on contingent consideration
Loss on disposal of property and equipment
Other operating, net
Total expenses
Operating income
Non-operating income (expense)
Interest expense, net
Loss on extinguishment of debt
Change in fair value of derivative
Gain on sale of land held for sale
Other, net
Total non-operating expense, net
Income (loss) before income tax benefit
Income tax benefit (provision)
Net income (loss)
$
525,176
170,453
106,805
49,360
851,794
311,657
138,114
49,129
15,332
183,892
94,456
2,956
1,171
784
—
3,336
—
800,827
50,967
(64,028)
—
1,786
—
—
(62,242)
(11,275)
(9,639)
(20,914) $
$
$
381,396
81,304
24,163
20,275
507,138
$ 324,863
55,798
7,525
11,812
399,998
259,579
69,194
10,350
7,176
98,382
40,786
5,041
1,632
1,142
(1,719)
441
(157)
491,847
15,291
(19,598)
(1,708)
178
—
—
(21,128)
(5,837)
7,921
2,084
$
235,539
45,332
2,154
5,933
66,323
27,506
614
2,471
1,037
—
54
—
386,963
13,035
(6,454)
—
—
4,525
869
(1,060)
11,975
4,325
16,300
Weighted-average common shares outstanding
Basic
Dilutive impact of stock options and restricted stock units
Diluted
Net income (loss) per share
Basic
Diluted
27,553
—
27,553
23,105
1,555
24,660
22,135
319
22,454
$
$
(0.76) $
(0.76) $
0.09
0.08
$
$
0.74
0.73
The accompanying notes are an integral part of these consolidated financial statements.
50
GOLDEN ENTERTAINMENT, INC.
Consolidated Statements of Shareholders’ Equity
(In thousands)
Additional
Total
Balances, December 31, 2015
21,868 $
219 $
Common stock
Shares
Amount
Paid-In
Capital
283,991 $
Accumulated Shareholders'
Deficit
(73,725) $
Equity
210,485
Proceeds from issuance of stock on
options exercised
Share-based compensation
Share issuance related to business
combination
Special dividend ($1.71 per share)
Net income
Balances, December 31, 2016
Proceeds from issuance of stock on
options exercised
Share-based compensation
Tax benefit from share-based
compensation
Share issuance related to business
combination
Cumulative effect, change in accounting
for revenue recognition related to
business combination
Net income
Balances, December 31, 2017
Proceeds from issuance of stock on
options exercised
Share-based compensation
Repurchases of common stock
Tax benefit from share-based
compensation
Issuance of common stock, net of
offering costs
Net loss
Balances, December 31, 2018
314
—
50
—
—
22,232
135
—
3
—
1
—
—
223
1
—
1,789
3,878
—
—
1,792
3,878
499
—
—
290,157
—
(23,529)
16,300
(80,954)
500
(23,529)
16,300
209,426
168
8,754
—
—
169
8,754
—
—
(1,015)
—
(1,015)
4,046
40
101,446
—
101,486
—
—
26,413
610
—
(1,219)
—
—
264
6
—
(12)
—
—
399,510
(991)
2,084
(79,861)
(991)
2,084
319,913
1,316
9,641
—
—
—
(19,586)
1,322
9,641
(19,598)
—
—
(820)
—
(820)
975
—
26,779 $
10
—
268 $
25,598
—
—
(20,914)
435,245 $ (120,361) $
25,608
(20,914)
315,152
The accompanying notes are an integral part of these consolidated financial statements.
51
GOLDEN ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Year Ended December 31,
2017
2018
2016
$
(20,914) $
2,084
$
16,300
Depreciation and amortization
Amortization of debt issuance costs and discounts on debt
Share-based compensation
Loss on disposal of property and equipment
Gain on revaluation of contingent consideration
Loss (gain) on extinguishment of debt
Gain on change in fair value of derivative
Gain on sale of land held for sale
Deferred income taxes
Other operating activities
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable
Income taxes receivable
Prepaid expenses
Inventories and other current assets
Other assets
Accounts payable and other accrued expenses
Accrued taxes, other than income taxes
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchase of property and equipment, net of change in
construction payables
Acquisition of businesses, net of cash acquired
Purchase of intangibles and other assets
Proceeds from disposal of property and equipment
Other investing activities
Net cash used in investing activities
94,456
5,062
9,641
3,336
—
—
(1,786)
—
10,380
—
1,913
(741)
1,469
(1,034)
(368)
(4,915)
(124)
1,575
97,950
40,786
1,593
8,754
441
(1,719)
1,708
(178)
—
(7,825)
—
(1,593)
2,121
74
(568)
(2,056)
(22,519)
511
488
22,102
27,506
732
3,878
54
—
(18)
—
(4,525)
(4,325)
(49)
(3,151)
(262)
(3,810)
102
—
1,580
2,193
1,190
37,395
(68,175)
—
(1,134)
103
—
(69,206)
(29,463)
(724,473)
(2,220)
—
(31)
(756,187)
(30,634)
(41,273)
—
2,985
(2,198)
(71,120)
52
GOLDEN ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows – (Continued)
(In thousands)
Cash flows from financing activities
Proceeds from term loans
Repayments of term loans
Borrowings on revolving credit facility
Repayments of revolving credit facility
Repayments of notes payable
Purchase of derivative
Proceeds from leased equipment obligation
Principal payments under capital leases
Payments for debt issuance costs
Repurchases of common stock
Proceeds from the exercise of stock options
Proceeds from issuance of common stock, net of issuance costs
Tax withholding on share-based payments
Dividends paid
Net cash provided by (used in) financing activities
Cash and cash equivalents
Change in cash and cash equivalents
Balance, beginning of period
Balance, end of period
Supplemental cash flow disclosures
Cash paid for interest
Cash paid (received) for income taxes, net
Non-cash investing and financing activities
Payables incurred for capital expenditures
Notes payable issued for property and equipment
Assets acquired under capital lease obligations
Common stock issued in connection with acquisitions
$
$
$
Year Ended December 31,
2018
2017
2016
—
(8,000)
—
—
(506)
—
—
(1,039)
(219)
(19,598)
1,322
25,608
(820)
—
(3,252)
25,492
90,579
116,071
60,542
—
10,797
800
2,398
—
$
$
$
969,000
(150,000)
6,000
(36,000)
(3,334)
(3,152)
743
(610)
(4,035)
—
169
—
(1,015)
—
777,766
40,000
(8,500)
5,000
—
(2,061)
—
—
(756)
(500)
—
1,792
—
—
(23,529)
11,446
43,681
46,898
90,579
$
(22,279)
69,177
46,898
14,143
$
(84)
$
1,849
717
2,758
101,486
5,721
260
—
721
2,726
500
The accompanying notes are an integral part of these consolidated financial statements.
53
GOLDEN ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Business
Golden Entertainment, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) 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).
The Company conducts its business through two reportable operating segments: Casinos and Distributed Gaming. The
Company’s Casinos segment involves the operation of ten resort casino properties in Nevada and Maryland,
comprising: (1) The STRAT Hotel, Casino & SkyPod (“The Strat”), Arizona Charlie’s Decatur and Arizona Charlie’s
Boulder in Las Vegas, Nevada, (2) the Aquarius Casino Resort (the “Aquarius”), the Edgewater Hotel & Casino Resort
(the “Edgewater”) (as of January 14, 2019) and the Colorado Belle Hotel & Casino Resort (the “Colorado Belle”)(as
of January 14, 2019) in Laughlin, Nevada, (3) the Pahrump Nugget Hotel Casino (“Pahrump Nugget”), Gold Town
Casino and Lakeside Casino & RV Park in Pahrump, Nevada, and (4) the Rocky Gap Casino Resort (“Rocky Gap”)
in Flintstone, 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.
On January 14, 2019, the Company completed the acquisition of all of the outstanding equity interests of Edgewater
Gaming, LLC and Colorado Belle Gaming, LLC (the “Laughlin Entities”) from Marnell Gaming, LLC (“Marnell”)
for $155.0 million in cash (subject 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 will be included in the Company’s results subsequent
to the acquisition date. See Note 4, Acquisitions, for information regarding the Laughlin Acquisition.
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 approximately $25.6 million after deducting underwriting discounts and offering expenses.
On October 20, 2017, the Company completed the acquisition of all of the outstanding equity interests of American
Casino and Entertainment Properties LLC (“American”) from its former equity holders (the “American Acquisition”).
The results of operations of American and its subsidiaries have been included in the Company’s results subsequent to
that date. See Note 4, Acquisitions, for information regarding the American Acquisition.
On January 29, 2016, the Company completed the acquisition of approximately 1,100 slots from a distributed gaming
operator in Montana, as well as certain other non-gaming assets and the right to operate within certain locations (the
“Initial Montana Acquisition”). Additionally, on April 22, 2016, the Company completed the acquisition of
approximately 1,800 slots from a second distributed gaming operator in Montana, as well as amusement devices and
other non-gaming assets and the right to operate within certain locations (the “Second Montana Acquisition” and,
together with the Initial Montana Acquisition, the “Montana Acquisitions”). The results of operations of the distributed
gaming businesses acquired in the Montana Acquisitions have been included in the Company’s results subsequent to
their respective acquisition dates. See Note 4, Acquisitions, for information regarding the Montana Acquisitions.
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 and
disclosures. Actual results could differ from those estimates. Significant estimates also include preliminary estimates
of values assigned to assets acquired and liabilities assumed in connection with business combinations, including
conclusions of useful lives, separate entity values and underlying valuation metrics and methods. These preliminary
estimates could change significantly during the measurement period which can remain open for up to one year after
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the closing date of the business combination. See Note 4, Acquisitions, for further information regarding the
Company’s business combinations.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain
amounts in the consolidated financial statements for the previous years have been reclassified to be consistent with
current year presentation. 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 an allowance for doubtful
accounts. Accounts receivable are non-interest bearing and are initially recorded at cost. Accounts are written off
when management deems the account to be uncollectible. An estimated allowance is maintained to reduce the
Company’s accounts receivable to their expected net realizable value. Based on specific reviews of customer accounts
as well as historical collection experience and current economic and business conditions. 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 capital leases 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 additions, renewals and improvements are capitalized. Costs of 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 dates of the transactions. Depreciation
of property and equipment is computed using the straight-line method over the following estimated useful lives:
Building and site improvements
Furniture and equipment
Leasehold improvements
10 - 45 years
3 - 15 years
2 - 15 years
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 typically uses market comparables, when available, or a discounted
cash flow model. 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. The Company’s long-lived asset impairment tests are performed at the
reporting unit level. For the years ended December 31, 2018, 2017 and 2016, there were no impairment charges.
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Change in Depreciable Lives of Property and Equipment
During the quarter ended June 30, 2018, the Company completed an analysis associated with planned renovations of
certain assets acquired in the American Acquisition (see Note 4, Acquisitions). As a result, effective April 1, 2018, the
Company changed its estimated useful lives on certain buildings and land improvements to better reflect the estimated
periods during which these assets will remain in service. The estimated useful lives of buildings and building
improvements were increased to an average of 19 years from ten years. The effect of this change in estimated useful
lives on the Company’s results of operations for the twelve months ended December 31, 2018 was to reduce
depreciation expense by $6.4 million, increase net income by $0.9 million, and increase both basic and diluted loss
per share by $0.03.
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 the annual goodwill impairment testing, 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 for impairment. 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 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 with
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 involves significant judgment by
management. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from
such estimates. 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. If the Company’s estimates of future cash flows are not met, it may have to
record impairment charges in the future.
Indefinite-Lived Intangible Assets
The Company’s indefinite-lived intangible assets include trade names and licenses. 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 and leasehold interest, which are amortized over their estimated useful lives
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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 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 were 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 would 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,
an impairment charge in the amount of the excess would be recognized.
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 Company determined the fair value of identifiable intangible assets, such as player
relationships and trade names, as well as any other significant tangible assets or liabilities, such as long-lived property.
The fair value allocation methodology requires management to make assumptions and apply judgment to estimate the
fair value of acquired assets and liabilities assumed. Management estimates the fair value of assets and liabilities
primarily using discounted cash flows and replacement cost analysis. Provisional fair value measurements of acquired
assets and liabilities assumed may be retrospectively adjusted during the measurement period. 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. The measurement period does
not extend beyond one year from the acquisition date.
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.
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 establishes a range whereby the
counterparty will pay the Company if one-month LIBOR exceeds the ceiling rate of 2.25%. The Interest Rate Cap
settles monthly commencing in January 2018 through the termination date in December 31, 2020. No payments or
receipts are 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. As of December 31,
2018, the fair value of the Interest Rate Cap was an asset of $5.0 million and was recorded in other long-term assets
in the accompanying consolidated balance sheets.
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. As
of December 31, 2018 and December 31, 2017, the amount of gaming liabilities was $12.5 million and $12.2 million,
respectively. The Company’s primary types of gaming liabilities associated with contracts with gaming customers
include outstanding chip liability, and loyalty program liabilities.
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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 Programs
The Company offers various loyalty programs at its resort casino properties to encourage repeat business. At its Las
Vegas and Laughlin casinos in Nevada, the Company offers the ace|PLAY® loyalty program. Under this program,
participants earn points based on gaming activity that can be redeemed for cash, free play, lodging, food and beverages
and merchandise.
At its Pahrump, Nevada casinos, the Company offers the Gold Mine RewardsTM loyalty program. Under this program,
participants earn points based on play and retail purchases that can be redeemed for food, beverages and hotel rooms,
among other items.
At Rocky Gap, the Company offers the Rewards ClubTM loyalty program. Under this program, participants earn points
based on play and amounts spent on the purchase of rooms, food, beverage and resort activities that can be redeemed
for complimentary slot play and free goods and services at Rocky Gap’s hotel, restaurants, spa and golf course.
In its Distributed Gaming segment, the Company offers the Golden Rewards® promotional program for its taverns.
Under this program, participants earn points based on play and amounts spent on the purchase of food and beverage
which are redeemable for complimentary slot play, food and beverages, among other items.
With respect to each of the Company’s loyalty programs, 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. The Company has changed the way it records net points earned
for complimentary gaming play or free goods and services. The promotional allowances line item was eliminated from
the consolidated statement of operations with amounts being instead deducted from the respective revenue line items,
and the cost of providing such complimentary gaming play, goods and services is no longer included in gaming
expense (See Note 3, Revenue Recognition). 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. Participants’ points expire after thirteen months of no activity.
The ace|PLAY, Gold Mine Rewards, Rewards Club and Golden Rewards points accruals are included in current
liabilities on the Company’s consolidated balance sheet. Changes in the programs, increases in membership and
changes in the redemption patterns of the participants can impact this liability.
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.
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. Approximately $5.1 million,
$1.6 million and $0.7 million was amortized to interest expense during the years ended December 31, 2018, 2017 and
2016, respectively.
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Revenue Recognition
See Note 3, Revenue Recognition for information regarding the Company’s revenue recognition polices.
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 $55.3 million, $41.5 million and $35.7 million for the years ended December
31, 2018, 2017 and 2016, respectively.
Advertising Expenses
The Company expenses advertising costs as incurred. Advertising expenses, which are primarily included in selling,
general and administrative expenses, were $10.1 million, $3.3 million and $2.6 million for the years ended December
31, 2018, 2017 and 2016, 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. See Note 9, Share-Based
Compensation, for additional discussion.
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
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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 per Share
For all periods, basic net income 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 year ended December 31, 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 shares outstanding for this period. The amount of potential common share equivalents were 2,014,012 for
year ended December 31, 2018.
Share Repurchase Program
On November 7, 2018, the Board of Directors authorized the repurchase of up to $25.0 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
approximately $19.6 million. As of December 31, 2018, approximately $5.4 million of shares of common stock
remained available for repurchase pursuant to this program. On March 12, 2019, the Board of Directors authorized
the repurchase of up to $25.0 million 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 our 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.
There were no share repurchases during the years ended December 31, 2017 or 2016.
Recent Accounting Pronouncements
Changes to generally accepted accounting principles in the United States are established by the Financial Accounting
Standards Board (“FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s Accounting
Standards Codification. The Company considers the applicability and impact of all ASUs. While management
continues to assess the possible impact on the Company's consolidated financial statements of the future adoption of
new accounting standards that are not yet effective, management currently believes that the following new standards
may impact the Company’s financial statements and disclosures:
Accounting Standards Issued And Adopted
In May 2014 (amended January 2017), the FASB issued a comprehensive new revenue recognition model, ASU No.
2014-09, Revenue from Contracts with Customers which created a new Topic 606 (“ASC 606”). The guidance is
intended to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP
applicable to revenue transactions. Existing industry guidance was eliminated, including revenue recognition guidance
specific to the gaming industry. The Company adopted the standard as of January 1, 2018, following the full
retrospective approach. The accompanying financial statements and related disclosures reflect the effects of the new
revenue standard. The most significant impacts of the adoption are summarized in Note 3, Revenue Recognition.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash
Receipts and Cash Payments (Topic 230), which clarifies the classification of certain cash receipts and cash payments
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on the statement of cash flows. In particular, the new guidance clarifies the classification related to several types of
cash flows, including items such as debt extinguishment costs and distributions received from equity method investees.
The new guidance also provides a three-step approach for classifying cash receipts and payments that have aspects of
more than one class of cash flows. The Company adopted this guidance on January 1, 2018, and this adoption did not
have a material effect on its consolidated Statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other, which amends the accounting
guidance to simplify the testing for goodwill impairment. The amended guidance removes the requirement to perform
a hypothetical purchase price allocation to measure goodwill impairment. Under the new guidance, goodwill
impairment is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, and the
impairment charge is limited to the amount of goodwill allocated to the reporting unit. The guidance is effective for
annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019, and should
be applied on a prospective basis. Early adoption is permitted for annual or interim goodwill impairment tests
performed after January 1, 2017. The Company adopted this guidance in the fourth quarter of 2018 in conjunction
with its annual goodwill impairment test. The adoption did not have an impact on the Company’s financial position
or results of operations.
Accounting Standards Issued But Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), and subsequent amendments to the initial
guidance: ASU No. 2017-13, ASU No. 2018-10, and ASU No. 2018-11 (collectively, “Topic 842”). Topic 842 amends
the existing guidance relating to the definition of a lease, recognition of lease assets and lease liabilities on the balance
sheet and the disclosure of key information about leasing activities. Under the new guidance, lessees will be required
to recognize a right-of-use asset and lease liability on the balance sheet, measured on a discounted basis. Operating
leases are currently not recognized on the balance sheet. Lessor accounting will remain largely unchanged, other than
certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the
updated revenue recognition guidance. Entities are required to adopt Topic 842 using a modified retrospective
transition method at one of the following application dates: (1) the later of the beginning of the earliest period presented
in the financial statements and the lease commencement date or (2) on the effective date. The Company will adopt
Topic 842 on January 1, 2019 using the effective date transition approach, which will result in a balance sheet
presentation that is not comparable to the prior period in the first year of adoption.
Topic 842 provides for transitional relief by permitting the election of certain practical expedients. The Company is
electing the reassessment package of practical expedients, which permits the Company not to reassess whether (1) any
expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification remains appropriate
for any expired or existing leases as of the adoption date and (3) previously capitalized costs continue to qualify as
initial direct costs on expired or existing leases as of the adoption date. The Company is not electing the hindsight
practical expedient, which requires an entity to use hindsight in determining the lease term and in assessing impairment
of right-of-use assets.
While the Company is currently assessing the quantitative impact the guidance will have on its consolidated financial
statements and related disclosures, the Company expects the most significant changes will be related to the recognition
of right-of-use assets and lease liabilities for operating leases on the Company’s consolidated balance sheet, with no
material impact to net income or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new
guidance replaces the incurred loss impairment methodology in current U.S. 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 will
be 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 new guidance will be effective beginning January 1, 2020, with
early adoption permitted beginning January 1, 2018. Application of the amendments is through a cumulative-effect
adjustment to retained earnings as of the effective date. The Company does not plan to early adopt this ASU, and is
currently evaluating the impact of adopting this guidance.
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In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation, which expands previous
guidance to include all share-based payment arrangements related to the acquisition of goods and services from both
non-employees and employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018
and interim periods therein, with early adoption permitted. The Company will adopt the standard as of January 1, 2019
and does not expect the adoption to 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. The new guidance amends 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 should be applied retrospectively
to all periods presented upon their effective date. The new guidance will be effective beginning January 1, 2020, with
early adoption permitted upon issuance of this updated guidance. The Company does not plan to early adopt this ASU,
and is currently evaluating the impact of adopting this guidance.
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 is 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 ASU will be effective for the
Company on January 1, 2020, with early adoption permitted. The Company is currently assessing whether to early
adopt and the impact the guidance will have on its Consolidated Financial Statements and related disclosures.
No other recently issued accounting standards that are not yet effective have been identified that management believes
are likely to have an impact on the Company’s financial statements.
Note 3 – Revenue Recognition
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 loyalty programs.
The Company generally enters into three types of slot and amusement device placement contracts as part of its
distributed gaming business: space agreements, revenue share agreements and participation agreements. Under space
agreements, the Company pays a fixed monthly rental fee for the right to install, maintain and operate the Company’s
slots at a business location. Under these agreements, the Company recognizes all gaming revenue and records fixed
monthly rental fees as gaming expenses. Under revenue share agreements, the Company pays the business location a
percentage of the gaming revenue generated from the Company’s slots placed at the location and records that amount
as an expense. With regard to both space and revenue share agreements, the Company holds the applicable gaming
license to conduct gaming at the location (although revenue share locations are required to obtain separate regulatory
approval to receive a percentage of the gaming revenue). Under participation agreements, the business location holds
the applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s
slots which the Company records as an expense. 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
62
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.
For wagering contracts that include products and services provided to a patron in exchange for points earned under
the Company’s loyalty programs, Golden Rewards, ace|PLAY, Gold Mine Rewards and Rocky Gap Rewards Club,
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. 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 programs 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 primarily recorded to other revenues and is generated from base rents through long-term leases
with retail tenants. Base rent, adjusted for contractual escalations, 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.
Significant Impacts of Adoption of ASC 606
The adoption of ASC 606 principally affected the presentation of promotional allowances and how the Company
measured the liability associated with its loyalty programs. The promotional allowances line item was eliminated from
the consolidated statement of operations with amounts being deducted from the respective revenue line items, and the
cost of providing such complimentaries is no longer included in gaming expense. Additionally, the valuation of points
associated with the Company’s loyalty programs was changed from cost to fair value, with the Company recording an
increase to the loyalty point liability.
The Company elected to adopt the full retrospective method to apply the new guidance to each prior reporting period
presented as if it had been in effect since January 1, 2016. The only cumulative effect of the adoption recognized was
a decrease in retained earnings of $1.0 million on October 20, 2017 (no income tax effect), related to the loyalty
program point liability of the business combination.
63
Adoption of the new standard did not have a significant impact on the Company’s previously reported net revenues,
expenses, operating income, and net income. The impact of adoption of the new standard to previously reported
selected financial statement information was as follows:
(In thousands)
Gross revenues
Promotional allowances
Net revenues
Operating income
Net income
(In thousands)
Gross revenues
Promotional allowances
Net revenues
Operating income
Net income
Note 4 – Acquisitions
Laughlin Acquisition
Year Ended December 31, 2017
Adjustments
As Reported
538,676
$
$
(28,868)
509,808
15,378
2,171
(31,538) $
28,868
(2,670)
(87)
(87)
As Adjusted
507,138
—
507,138
15,291
2,084
Year Ended December 31, 2016
Adjustments
As Reported
424,395
$
$
(21,191)
403,204
13,035
16,300
(24,397) $
21,191
(3,206)
—
—
As Adjusted
399,998
—
399,998
13,035
16,300
On January 14, 2019, the Company completed the acquisition of all of the outstanding equity interests of the Laughlin
Entities from Marnell for $155.0 million in cash (subject 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 will be included in the Company’s results subsequent to the acquisition
date and the Laughlin Acquisition will be accounted for using the acquisition method of accounting.
Since the closing date of the Laughlin Acquisition occurred subsequent to the end of the reporting period, the allocation
of purchase price to the underlying net assets has not yet been completed.
American Acquisition
Overview
On October 20, 2017, the Company completed the acquisition of all of the outstanding equity interests of American
for $787.6 million in cash (after giving effect to post-closing adjustments) and the issuance of approximately 4.0
million shares of its common stock to a former American equity holder with a fair value of $101.5 million, based on
the closing price of the Company’s common stock on October 20, 2017 of $25.08 per share.
Acquisition Method of Accounting
The American Acquisition has been accounted for using the acquisition method of accounting. The determination of
the fair value of the acquired assets and assumed liabilities (and the related determination of estimated lives of
depreciable tangible and identifiable intangible assets) was completed in the second quarter of 2018. There were no
measurement period adjustments that were material to the Company’s consolidated financial statements.
64
The following table summarizes the allocation of the purchase price, based on estimates of the fair values of the assets
acquired and liabilities assumed:
(In thousands)
Current assets
Property and equipment
Other noncurrent assets
Intangible assets
Goodwill
Liabilities
Total assets acquired, net of liabilities assumed
$
$
83,079
754,581
264
66,140
52,479
(67,476)
889,067
The following table summarizes the values assigned to acquired property and equipment and estimated useful lives
by category:
(In thousands)
Land
Land improvements
Building and improvements
Furniture, fixtures and equipment
Construction in process
Total property and equipment
Useful Life (Years)
Not applicable
$
15
45
3-4
Not applicable
$
106,800
6,240
607,698
32,829
1,014
754,581
The following table summarizes the values assigned to acquired intangible assets and estimated useful lives by
category:
(In thousands)
Trade names
Players loyalty programs
Leasehold interest
In-place lease value
Total intangible assets
Useful Life (Years)
Indefinite
3
3-80
3-4
$
$
34,510
26,850
3,110
1,670
66,140
See Note 12, Financial Instruments and Fair Value Measurements, for further discussion regarding the valuation of
the tangible and intangible assets acquired through the American Acquisition.
For the period from the American Acquisition date of October 20, 2017 through December 31, 2017, American
generated net revenue of $76.3 million and net income of $5.5 million.
Refinancing
In connection with the closing of the American Acquisition, the Company entered into two new credit agreements
with respect to a $900.0 million senior secured first lien credit facility (consisting of $800.0 million in term loans and
a $100.0 million revolving credit facility, which was undrawn at closing and upsized to $200.0 million in 2018) (the
“First Lien Facility”) and a $200.0 million senior secured second lien term loan facility (the “Second Lien Term Loan”
and, together with the First Lien Facility, the “Credit Facilities”). The Company used the net proceeds from the
borrowings under the Credit Facilities primarily to fund the cash purchase price in the American Acquisition (a portion
of which was used to repay American’s outstanding senior secured indebtedness), to refinance the Company’s
outstanding senior secured indebtedness under its then-existing senior secured credit facility, and to pay certain
transaction fees and expenses. See Note 8, Debt, for a discussion of the Credit Facilities and associated refinancing.
65
Pro Forma Combined Financial Information
The following unaudited pro forma combined financial information has been prepared by management for illustrative
purposes only and does not purport to represent what the results of operations, financial condition or other financial
information of the Company would have been if the American Acquisition had occurred on January 1, 2016 or what
such results or financial condition will be for any future periods. The unaudited pro forma combined financial
information is based on estimates and assumptions and on the information available at the time of the preparation
thereof. These estimates and assumptions may change, be revised or prove to be materially different, and the estimates
and assumptions may not be representative of facts existing at the time of the American Acquisition. The unaudited
pro forma combined financial information does not reflect non-recurring charges that will be incurred in connection
with the American Acquisition, nor any cost savings and synergies expected to result from the American Acquisition
(and associated costs to achieve such savings or synergies), nor any costs associated with severance, restructuring or
integration activities resulting from the American Acquisition.
The following table summarizes certain unaudited pro forma combined financial information derived from a
combination of the historical consolidated financial statements of the Company and of American for the years ended
December 31, 2017 and 2016, adjusted to give effect to the American Acquisition, related transactions (including the
refinancing) and the adoption of ASC 606.
(In thousands, except per share data)
Pro forma combined revenues
Pro forma combined net income
Pro forma combined net income per share:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Montana Acquisitions
Year Ended December 31,
2016
2017
$
$
843,589 $
23,131
26,342
27,897
0.88 $
0.83
791,372
28,200
26,181
26,500
1.08
1.06
On January 29, 2016, the Company completed the Initial Montana Acquisition, which involved the acquisition of
approximately 1,100 slots, as well as certain other non-gaming assets and the right to operate within certain locations,
for $20.1 million, including the issuance of $0.5 million of the Company’s common stock. In connection with the
Initial Montana Acquisition, the Company was required to pay the sellers contingent consideration of up to $2.0
million in cash. In the third quarter of 2017, the Company revalued the estimated fair value of the contingent
consideration and recognized a gain of $1.7 million on the Company’s consolidated statement of operations. In the
first quarter of 2018 the contingent consideration was paid in full.
The allocation of the $20.1 million purchase price to the assets acquired as of January 29, 2016 includes $1.7 million
of cash, $2.4 million of property and equipment, $14.4 million of intangible assets and $1.6 million of goodwill. The
amounts assigned to intangible assets include customer relationships of $9.8 million with an economic life of 15 years,
non-compete agreements of $3.9 million with an economic life of five years, trade names of $0.5 million with an
economic life of four years and other amounts of $0.2 million with an economic life of 15 years.
On April 22, 2016, the Company completed the Second Montana Acquisition, which involved the acquisition of
approximately 1,800 slots, as well as amusement devices and certain other non-gaming assets and the right to operate
within certain locations, for $25.7 million.
The allocation of the $25.7 million purchase price to the assets acquired as of April 22, 2016 includes $0.3 million of
cash, less than $0.1 million of prepaid gaming license fees, $7.8 million of property and equipment, $11.4 million of
intangible assets and $6.0 million of goodwill. The amounts assigned to intangible assets include customer
66
relationships of $9.1 million with an economic life of 15 years, non-compete agreements of $1.8 million with an
economic life of five years, trade names of $0.2 million with an economic life of four years and other amounts of $0.3
million with an economic life of 15 years.
The goodwill recognized in the Montana Acquisitions is primarily attributable to potential expansion and future
development of, and anticipated synergies from, the acquired businesses and is expected to be deductible for income
tax purposes.
The Company reports the results of operations from each of the Montana Acquisitions, subsequent to their respective
closing dates, within its Distributed Gaming segment. Pro forma information is not being presented as there is no
practicable method to calculate pro forma earnings given that the Montana Acquisitions were asset purchases that
represented only a component of the businesses of the sellers.
Distribution to Shareholders
On June 17, 2016, under the terms of the July 2015 merger agreement between the Company and Sartini Gaming, the
Board of Directors of the Company approved and declared a special cash dividend to the eligible shareholders of
record on the close of business on June 30, 2016 (the “Record Date”) of approximately $23.5 million (the “Special
Dividend”), which was paid on July 14, 2016. The $1.71 per share amount of the Special Dividend comprised the net
proceeds per share received from the sale of the Company’s $60.0 million subordinated promissory note.
Note 5 – Property and Equipment, Net
The following table summarizes the components of property and equipment, net:
(In thousands)
Land
Building and site improvements
Furniture and equipment
Construction in process
Property and equipment
Less: Accumulated depreciation
Property and equipment, net
December 31,
2018
121,081
723,354
154,663
35,151
1,034,249
(139,296)
894,953
$
$
2017
121,081
705,266
125,339
6,972
958,658
(63,417)
895,241
$
$
Depreciation expense for property and equipment, including capital leases, totaled $76.7 million, $31.3 million, and
$20.2 million for 2018, 2017, and 2016, respectively.
Note 6 – Goodwill and Intangible Assets, Net
The following table summarizes goodwill activity by reportable segment:
(In thousands)
Balance, January 1, 2017
Goodwill acquired during the year
Balance, December 31, 2017
Goodwill acquired during the year
Balance, December 31, 2018
Casinos
Distributed
Gaming
Total
Goodwill
7,796 $
52,479
60,275
—
60,275 $
97,859
—
97,859
—
97,859
$
$
105,655
52,479
158,134
—
158,134
$
$
67
Intangible assets, net, consisted of the following:
(In thousands)
Indefinite-lived intangible assets
Trade names
Gaming licenses
Liquor licenses
Amortizing intangible assets
Customer relationships
Player relationships
Non-compete agreements
Leasehold interest
Gaming licenses
In-place lease value
Other
Balance, December 31, 2018
(In thousands)
Indefinite-lived intangible assets
Trade names
Gaming licenses
Liquor licenses
Amortizing intangible assets
Customer relationships
Player relationships
Non-compete agreements
Leasehold interest
Gaming licenses
In-place lease value
Other
Balance, December 31, 2017
Weighted-
Average Life
Remaining
Indefinite
Indefinite
Indefinite
11.0 years
3.2 years
2.1 years
64.7 years
9.3 years
2.3 years
7.2 years
Weighted-
Average Life
Remaining
Indefinite
Indefinite
Indefinite
12.1 years
4.2 years
3.0 years
65.7 years
10.3 years
3.3 years
8.2 years
December 31, 2018
Gross
Carrying
Value
Cumulative
Amortization
Intangible
Assets, Net
$
46,710
960
185
47,855
80,654
34,689
6,210
3,110
2,100
1,670
1,769
130,202
178,057
$
— $
—
—
-
(18,282)
(12,691)
(3,548)
(223)
(788)
(565)
(832)
(36,929)
(36,929) $
46,710
960
185
47,855
62,372
21,998
2,662
2,887
1,312
1,105
937
93,273
141,128
December 31, 2017
Gross
Carrying
Value
Cumulative
Amortization
Intangible
Assets, Net
$
46,710
960
185
47,855
80,320
34,150
6,000
3,110
2,100
1,670
1,769
129,119
176,974
$
— $
—
—
—
(12,524)
(3,045)
(2,395)
(32)
(648)
(81)
(557)
(19,282)
(19,282) $
46,710
960
185
47,855
67,796
31,105
3,605
3,078
1,452
1,589
1,212
109,837
157,692
$
$
$
$
The Rocky Gap gaming license is being amortized over its 15 year term.
Total amortization expense related to intangible assets was $17.8 million, $9.5 million and $7.3 million for 2018,
2017, and 2016, respectively. Estimated future amortization expense related to intangible assets, is as follows:
2021
2022
2023
7,166 $
6,695 $
6,583 $
Thereafter
38,717
(In thousands)
Estimated amortization expense $
2019
17,880 $
2020
16,232 $
68
Note 7 – Accrued Liabilities
Accrued liabilities consist of the following:
(In thousands)
Gaming liabilities
Deposits
Other accrued liabilities
Total accrued liabilities
Note 8 – Debt
Senior Secured Credit Facilities
December 31,
2018
12,473 $
2,652
3,723
18,848 $
2017
12,209
—
8,164
20,373
$
$
As of December 31, 2018, the Company’s Credit Facilities consisted of a $1.0 billion First Lien Facility (consisting
of $800.0 million in term loans and a $200.0 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, and a $200.0
million Second Lien Term Loan with Credit Suisse AG, Cayman Islands Branch (as administrative agent and collateral
agent), the lenders party thereto and the other entities party thereto. During 2018, the size of the revolving credit
facility under the First Lien Facility was increased from $100.0 million to $200.0 million. As of December 31, 2018,
$792.0 million and $200.0 million of term loan borrowings were outstanding under the Company’s First Lien Facility
and Second Lien Term Loan, respectively, there were no letters of credit outstanding under the First Lien Facility, and
the revolving credit facility was undrawn, leaving borrowing availability under the revolving credit facility as of
December 31, 2018 of $200.0 million.
Interest and Fees
Borrowings under each of the Credit Facilities 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 loans) 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 loans only), plus in each case, an
applicable margin. The applicable margin for the term loans under the First Lien 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 under the
First Lien 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 applicable margin for the Second Lien Term Loan is 6.00% for base rate
loans and 7.00% for LIBOR rate loans. 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. As of December 31, 2018, the weighted-average effective
interest rate on the Company’s outstanding borrowings under the Credit Facilities was approximately 5.8%.
Optional and Mandatory Prepayments
The revolving credit facility under the First Lien Facility matures on October 20, 2022, and the term loans under the
First Lien Facility mature on October 20, 2024. The term loans under the First Lien Facility are repayable in 27
quarterly installments of $2.0 million each, which commenced in March 2018, followed by a final installment of
$746.0 million at maturity. The term loans under the Second Lien Term Loan are repayable in full at maturity on
October 20, 2025.
Guarantees and Collateral
Borrowing under each of the Credit Facilities 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).
69
Financial and Other Covenants
Under the Credit Facilities, 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
loans under the Credit Facilities 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 revolving
credit facility under the First Lien 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
Facilities also prohibit 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, Neil I. Sell and certain affiliated entities). If the Company defaults under the Credit
Facilities 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 Facilities as of December 31, 2018.
Former Senior Secured Credit Facility
In connection with the American Acquisition and the entry into the Credit Facilities, in October 2017 the Company
repaid all principal amounts outstanding under the Company’s former credit agreement with Capital One, National
Association (as administrative agent) and the lenders named therein, which amounted to approximately $173.4 million,
together with accrued interest. The Company recognized a loss on extinguishment of debt of $1.7 million during the
year ended December 31, 2017.
Summary of Outstanding Debt
Long-term debt, net is comprised of the following:
(In thousands)
Term loans
Capital lease obligations
Notes payable
Total long-term debt
Less unamortized discount
Less unamortized debt issuance costs
Less current maturities
Long-term debt, net
December 31,
2018
992,000
7,127
1,111
1,000,238
(25,658)
(3,537)
971,043
(10,480)
960,563
$
$
2017
1,000,000
5,839
1,159
1,006,998
(30,122)
(3,917)
972,959
(9,759)
963,200
$
$
Subsequent to fiscal year end, the Company borrowed $145.0 million on its revolving credit facility in connection
with the closing of the Laughlin Acquisition on January 14, 2019.
70
Scheduled Principal Payments of Long-Term Debt
The scheduled principal payments due on long-term debt are as follows:
(In thousands)
For the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total outstanding principal of long-term debt
Note 9 – Stock Incentive Plans
Overview
$
$
10,480
9,941
9,272
8,199
8,140
954,206
1,000,238
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, 2018 was 1,056,505 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, 2018, a total of 870,689 shares of the Company’s common stock remained available for
grants of awards under the 2015 Plan.
In connection with the Special Dividend discussed in Note 4, Acquisitions, and in accordance with the Company’s
equity incentive plans approved by the Company’s shareholders, equitable anti-dilutive adjustments were made to the
exercise prices of outstanding stock options to purchase shares of Company common stock, in order to preserve the
value of such stock options following the Special Dividend. Accordingly, effective as of the close of business on July
14, 2016, the exercise price of each outstanding stock option granted prior to the Record Date under the 2015 Plan,
the 2007 Lakes Stock Option and Compensation Plan and the 1998 Stock Option and Compensation Plan (collectively,
the “Adjusted Options”) was reduced by $1.71 per share. The weighted-average exercise price of the Adjusted Options
presented in the table below have been adjusted accordingly. The Adjusted Options had a weighted-average exercise
price of $7.04 per share after giving effect to such anti-dilutive adjustments. The Adjusted Options have varying
remaining terms, which were not affected by the adjustments. The Company measured the incremental compensation
cost as the excess of the fair value of the Adjusted Options immediately following such anti-dilutive adjustments over
the fair value of the Adjusted Options immediately prior to such anti-dilutive adjustments. Of the 2,337,643 Adjusted
Options, 1,908,070 were unvested and 429,573 were vested at the time of the adjustment. The incremental fair value
related to the unvested Adjusted Options resulting from the anti-dilutive adjustments was estimated to be $1.7 million,
which will be recorded over the remaining vesting period of such Adjusted Options. The incremental fair value related
to the vested Adjusted Options resulting from the anti-dilutive adjustments, determined using the Black-Scholes option
pricing model, was $0.7 million and was recorded as share-based compensation expense during the third quarter of
2016.
71
Stock Options
The following table summarizes stock option activity:
Outstanding at January 1, 2018
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Stock
Options
Outstanding
Weighted-
Average
Remaining
Term
(in years)
Weighted-
Average
Exercise Price
Aggregate
Intrinsic
Value
(in thousands)
4,375,929
—
(813,228)
(117,635)
(20,311)
3,424,755
2,193,274
7.9 $
$
$
$
$
7.4 $
7.2 $
10.73
—
7.38
12.15
7.34
11.49 $
10.63 $
17,603
12,811
The total intrinsic value of stock options exercised during the years ended December 31, 2018, 2017 and 2016 was
$16.1 million, $0.1 million and $1.8 million, respectively. The weighted-average grant-date fair value of stock options
granted during the years ended December 31, 2017 and 2016 was, $7.30 and $4.80 per share, respectively. There were
no stock options granted during the year ended December 31, 2018.
The total amount of cash received from stock options exercised during the year ended December 31, 2018 was $1.3
million.
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.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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.
72
The following assumptions were used to estimate the fair value of stock options granted:
Expected dividend yield
Risk-free interest rate
Expected term (in years)
Expected volatility
RSUs and PSUs
Year Ended December 31,
2017
—
2.21 – 2.47%
10
29.07 – 34.43%
2016
—
1.43 – 2.40%
10
24.03 – 26.95%
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 RSU activity:
Outstanding at January 1, 2016
Granted
Outstanding at December 31, 2016
Granted
Vested
Cancelled
Outstanding at December 31, 2017
Granted
Vested
Cancelled
Outstanding at December 31, 2018
RSUs
Weighted-
Average
Grant Date
Fair Value
Total
Fair Value
of Shares
Vested
(in thousands)
12.57
12.57
12.57 $
12.57
29.09
$
28.72
29.10
2,556
—
Shares
—
141,296 $
141,296 $
—
(111,660) $
(29,636) $
—
241,542 $
—
(9,243) $
232,299 $
73
The following table summarizes PSU activity:
Outstanding at January 1, 2017
Granted
Vested
Cancelled
Outstanding at December 31, 2017
Granted
Vested
Cancelled
Outstanding at December 31, 2018
__________________
(1)
PSUs
Weighted-
Average
Grant Date
Fair Value
Total
Fair Value
of Shares
Vested
(in thousands)
27.87
$
27.87
28.72
$
—
—
Shares(1)
—
62,791 $
—
—
62,791 $
108,957 $
—
—
171,748 $
28.41
The number of shares listed for PSUs granted during 2017 represents the actual number of PSUs granted to each
recipient eligible to vest if the Company meets its performance goals for the applicable period. The number of
shares listed for PSUs granted during 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 with respect to PSUs granted in 2018 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.
There was no PSU activity during the year ended December 31, 2016.
Share-Based Compensation
The following table summarizes share-based compensation costs by award type:
(In thousands)
Stock options
RSUs
PSUs
Total share-based compensation costs
2018
Year Ended December 31,
2017
2016
$
$
5,191 $
3,383
1,067
9,641 $
5,135 $
3,554
65
8,754 $
3,717
161
—
3,878
As of December 31, 2018, the Company’s unrecognized share-based compensation expenses related to stock options,
RSUs and PSUs was approximately $7.1 million, $3.4 million and $3.0 million, respectively, which are expected to
be recognized over a weighted-average period of 2.0 years, 2.0 years, and 2.5 years, respectively.
74
Note 10 – Income Taxes
Income tax provision (benefits) are summarized as follows:
(In thousands)
Current:
Federal
State
Total current tax benefit
Deferred:
Federal
State
Total deferred tax benefit
Income tax (benefit) provision
2018
Year Ended December 31,
2017
2016
$
$
$
(741) $
—
(741)
9,872 $
508
10,380
9,639 $
(91) $
(5)
(96)
(7,456) $
(369)
(7,825)
(7,921) $
—
—
—
(4,091)
(234)
(4,325)
(4,325)
Reconciliation of the statutory federal income tax rate to the Company’s actual rate based on income (loss) before
income tax benefit is summarized as follows:
Statutory federal tax rate
State income taxes, net of federal income taxes
State tax credit
State rate adjustment
Permanent tax differences – stock compensation
Permanent tax differences – business meals
Permanent tax differences – executive compensation
Permanent tax differences – other
Purchase price allocation adjustment – merger
Change in valuation allowance
FICA credit generated
Impact of Tax Cuts and Jobs Act
Change in tax rate and apportionment
Deferred only adjustment to beginning deferred balances
Other, net
Effective tax rate
Year Ended December 31,
2018
2017
2016
21%
4.5
—
—
22.0
(5.0)
(0.2)
—
—
(144.5)
8.5
(4.8)
(4.3)
17.3
—
(85.5%)
35%
2.0
—
—
—
—
(12.5)
(17.0)
—
193.5
11.8
(74.6)
—
—
(0.4)
137.8%
35%
2.0
(45.9)
2.1
—
—
—
2.4
3.7
(34.8)
(4.7)
—
—
—
4.1
(36.1%)
75
The Company’s current and non-current deferred tax assets (liabilities) are comprised of the following:
(In thousands)
Deferred tax assets:
Accruals and reserves
Share-based compensation expense
Alternative minimum tax credit carryforward
General business credit carryforward
State tax credits
Net operating loss carryforwards
Other
Valuation allowances
Deferred tax liabilities:
Prepaid services
Amortization of intangible assets
Depreciation of fixed assets
Net deferred tax assets (liabilities)
December 31,
2018
2017
$
$
$
3,854 $
3,758
741
2,447
5,500
19,156
944
36,400
(23,276)
13,124 $
(876)
(9,519)
(5,322)
(15,717)
(2,593) $
1,571
2,532
1,483
1,126
5,500
17,350
701
30,263
(6,983)
23,280
(884)
(11,527)
(3,082)
(15,493)
7,787
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, 2018, include
the release of a portion of the valuation allowance recorded against the deferred tax assets of the Company, netted
with establishment of a valuation allowance recorded against other deferred tax assets of the Company. The net change
in valuation allowance resulted in the recognition of a $16.3 million income tax expense. 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, 2018, negative evidence outweighs positive evidence for the realization of deferred tax assets
and as a result has provided a full valuation allowance against its deferred tax assets. The change during the fourth
quarter of 2018 is simultaneous with the Company’s change from an income position to a loss position when analyzing
three years of cumulative pretax book income.
As of December 31, 2018, the Company had approximately $86.7 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 American Acquisition, 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, 2018 the Company has concluded that the American Acquisition will not result
in a loss of net operating loss nor credit carryforwards.
Additionally, the Company had deferred tax assets of approximately $2.4 million related to general business credits.
The general business credit carryforward begins to expire in 2037. With the enactment of The Tax Cuts and Jobs Act
of 2017, Alternative Minimum Tax credit carryforwards are eligible for a refund. The Company has recognized the
resulting refund expected on the 2018 federal income tax return of $0.7 million as income tax receivable on its balance
sheet. The remaining $0.7 million is included on its consolidated balance sheet as a deferred tax asset, as it will be
refunded on successive returns until the final amount is received on the 2022 federal income tax return. A valuation
allowance against the Alternative Minimum Tax credits, which had been previously established, has been released
accordingly.
During the second quarter of 2015, the Company was notified by the state of California that its audit of the Company
for the 2010 tax year had been completed and resulted in no adjustments.
During the fourth quarter of 2016, the Company completed an IRS audit for the 2009 through 2013 tax years. The
impact of the audit was not material and has been reflected in the financial statements. The 2015, 2016, and 2017 tax
years are still subject to examination. The Company has no jurisdictions that are currently under examination.
76
The Tax Cuts and Jobs Act of 2017 (the “TCJA”) reduced the corporate federal income tax rate to 21%, effective
January 1, 2018. The Company has completed its accounting for the TCJA. During the year ended December 31,
2018, the Company recognized an additional tax expense of $0.5 million related to the TCJA rate change, compared
to $4.3 million for the year ended December 31, 2017. As of December 31, 2018, the Company has no uncertain tax
positions.
Note 11 – 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 $0.2 million, $0.2 million and $0.3
million to its defined contribution employee savings plan during the years ended December 31, 2018, 2017 and 2016,
respectively. The Company’s contributions vest over a five-year period.
Pension plans
As of December 31, 2018, approximately 2,000 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 $11.0 million and $2.1 million in expenses for these plans for the year ended
December 31, 2018 and 2017, respectively. The Company did not incur any expenses for these plans during the year
ended December 31, 2016. 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:
(cid:129) Assets contributed to multiemployer plans by one employer may be used to provide benefits to employees of
other participating employers;
(cid:129)
(cid:129)
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:
Multiemployer Pension Plans
EIN/Plan Number
Pension Protection
FIR/RP
Status
Expiration Date
Of Collective-
Zone Status (1)
2017
2016
Surcharge
Pending/
Implemented Imposed
Bargaining
Agreement
Central Pension Fund of the
IUOE and Participating
Employers
Southern Nevada Culinary and
Bartenders Pension Plan
36-6052390-001 Green
Green
88-6016617-001 Green
Green
No
3/31/2018 and
3/31/2020
No
5/31/2023
No
No
(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.
77
The Company’s contributions to each multiemployer pension and benefit plans are as follows:
(In thousands)
Multiemployer pension plans
Central Pension Fund of the IUOE and Participating
Employers
Southern Nevada Culinary and Bartenders Pension Plan
Other pension plans
Total contributions
Multiemployer benefit plans (excluding pension plans)
HEREIU Welfare Fund
All other
Total contributions
December 31,
2018
2017
$
$
$
$
753 $
2,003
191
2,947 $
7,807 $
6
7,813 $
165
453
45
663
1,691
2
1,693
For the 2017 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 12 – Financial Instruments and Fair Value Measurements
Overview
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:
(cid:129)
(cid:129)
(cid:129)
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 Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, an
Interest Rate Cap derivative and debt.
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 information about our long-term debt:
(In thousands)
Term loans
Capital lease obligations
Notes payable
Total debt
78
Carrying
Amount
$
992,000 $
7,127
1,111
$ 1,000,238 $
December 31, 2018
Fair
Value
952,300
7,127
1,111
960,538
Fair Value
Hierarchy
Level 2
Level 3
Level 3
(In thousands)
Term loans
Capital lease obligations
Notes payable
Total debt
Carrying
Amount
December 31, 2017
Fair
Value
$ 1,000,000 $ 1,000,000
5,839
1,159
$ 1,006,998 $ 1,006,998
5,839
1,159
Fair Value
Hierarchy
Level 2
Level 3
Level 3
The estimated fair value of the Company’s term loan debt is based on a relative value analysis performed as of
December 31, 2018. As of December 31, 2017, the carrying value of the Company’s debt approximates fair value
because the terms were recently negotiated and based on the Company’s expected borrowing rate for debt with similar
remaining maturities and comparable risk. The capital leases and note payable debt 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.
As of December 31, 2018, the Interest Rate Cap was outstanding with a notional amount of $650 million and an initial
purchase price of $3.1 million, which expires on December 31, 2020. Using Level 2 inputs, the Company adjusts the
carrying value of its Interest Rate Cap derivative to estimate fair value quarterly based upon observable market-based
inputs that reflect 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 asset at December 31, 2018 was $5.0 million. As the
Company elected to not apply hedge accounting, the change in fair value of this Interest Rate Cap was recorded in the
consolidated statement of operations.
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
American Acquisition, these amounts were finalized during the second quarter of 2018. For the Initial Montana
Acquisition and Second Montana Acquisition, these amounts were finalized during the first and second quarter of
2017, respectively. All value metrics and estimates utilize 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 of intangible assets are based on a variety of methods as follows:
Trade names – Primary reliance for estimating fair value of trade names is typically placed on a relief-from-
royalty method and includes an estimate for a reasonable royalty rate (0.25% to 1.0% in the American
Acquisition) that give consideration to third-party license agreements to determine an implied royalty rate.
Estimated after-tax cash flows are discounted to present value utilizing a range of discount rates from 11.0% to
14.5% depending on the trade name, which reflects the risk of the cash flows related to the asset and the risk
and uncertainty of the cash flows for the trade name relative to the overall business. The trade names associated
with the American Acquisition and the Sartini Gaming merger were given an indefinite life. The trade names
associated with the Montana Acquisitions were given a four year useful life.
Player and customer relationships – The estimated fair value of player and customer relationships acquired
typically relies on an excess earnings method under the income approach and/or a cost-to-replace approach.
After-tax cash flow discount rates have varied from 11.0% to 14.0%. The player relationships associated with
the American Acquisition were given a useful life of three years. The player relationships associated with the
Sartini Gaming merger were given a useful life of eight years for the taverns and 12 to 14 years for the Pahrump
casinos. The customer relationships associated with the Montana Acquisitions were given a useful life of 15
years, and the distributed gaming customer relationships associated with the Sartini Gaming merger were given
a useful life of 13 to 16 years.
79
Gaming and liquor licenses – Estimated fair value for gaming and liquor licenses is generally determined based
on the cost approach. In performing the cost approach, management uses estimates for explicit and implicit
costs to obtain the licenses. The economic life of the Company’s Nevada gaming licenses, Montana gaming
license and various liquor licenses are anticipated to be indefinite, as they are easily maintained. The
Company’s Maryland gaming license associated with Rocky Gap is subject to amortization as it has a finite
life of 15 years.
Leasehold interest and in-place lease value – The leasehold interest acquired as part of the American
Acquisition comprises third party rights to lease retail space within the casinos. The leasehold interest acquired
as part of the American Acquisition was given a useful life 3 to 80 years and the in-place lease value was given
a useful life of 3 to 4 years.
Non-compete agreements – The estimated fair value of non-compete agreements is generally based on the lost
profits method under the income approach. It uses the difference between estimated future cash flows “With”
and “Without” the non-compete agreements and probability factors associated with the assumptions. The non-
compete agreements associated with the Montana Acquisitions and the Sartini Gaming merger were given a
useful life of five years and two years, respectively.
Note 13 – Leases
American Leases
The Company acquired various operating and capital leases through the American Acquisition in October 2017. See
Note 4, Acquisitions, for a description of the American Acquisition.
For the year ended December 31, 2018, the Company recorded rental revenue of $7.5 million.
The future minimum lease payments to be received by the Company under non-cancelable operating leases are as
follows:
(In thousands)
For the year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
$
$
4,558
3,208
2,452
1,607
938
—
12,763
The above minimum rental income does not include contingent rental income or common area maintenance cost
reimbursement contained within certain retail operating leases.
Rocky Gap Lease
The Company entered into a ground lease with the Maryland Department of Natural Resources for approximately 270
acres in the Rocky Gap State Park in which Rocky Gap is situated. The lease expires in 2052, with an option to renew
for an additional 20 years.
Under the lease, rent payments are due and payable annually in the amount of $0.3 million plus 0.9% of any gross
operator share of gaming revenue (as defined in the lease) in excess of $0.3 million, and $0.2 million plus any
surcharge revenue in excess of $0.2 million. Surcharge revenue consists of amounts billed to and collected from guests
and are $3.00 per room per night and $1.00 per round of golf. Rent expense associated with the lease was $0.3 million
(net of surcharge revenue of $0.1 million) during each of the years ended December 31, 2018, 2017 and 2016.
80
Gold Town Casino Leases
The Company’s Gold Town Casino is located on four leased parcels of land, comprising approximately nine acres in
the aggregate, in Pahrump, Nevada. The leases are with unrelated third parties and have various expiration dates
beginning in 2026 (for the parcel on which the Company’s main casino building is located, which the Company leases
from a competitor). Rent expense associated with these leases was $0.7 million, $0.5 million, $0.6 million,
respectively, during each of the years ended December 31, 2018, 2017 and 2016. The Company subleases
approximately two of the acres to an unrelated third party. Rental income during the year ended December 31, 2018
was $0.2 million and rental income during each of the years ended December 31, 2017 and 2016 was less than $0.1
million related to the sublease of the two acres in Pahrump, Nevada.
Capital Lease Financing Agreement
In June 2018, the Company entered into a capital lease financing arrangement for external and internal lighting and
renovations at The Strat. Construction was completed and assets put into service in the fourth quarter of 2018. The
total amount to be paid is $3.4 million, of which $2.1 million is financed over a 36-month period and outstanding as
of December 31, 2018.
Other Operating Leases
The Company leases its branded tavern locations, office headquarters building, equipment and vehicles under
noncancelable operating leases that are not subject to contingent rents. The original terms of the current leases for the
Company’s branded tavern locations range from one to 15 years with various renewal options from one to 15 years.
The Company has operating leases with related parties for one of its tavern locations and its office headquarters
building. The lease for the Company’s office headquarters building expires in December 2030. A portion of the office
headquarters building is sublet to a related party. Rental income during each of the years ended December 31, 2018,
2017 and 2016 was less than $0.1 million for the sublet portion of the office headquarters building. See Note 15,
Related Party Transactions, for more detail. Slot placement contracts in the form of space agreements are also
accounted for as operating leases. Under space 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.
Operating lease rental expense, which is calculated on a straight-line basis, net of surcharge revenue, is as follows:
(In thousands)
Space agreements
Related party leases
Other operating leases
Total rent expense
Year Ended December 31,
2017
37,061 $
2,035
13,447
52,543 $
2018
39,035 $
1,559
15,080
55,674 $
2016
40,848
2,429
11,784
55,061
$
$
Future minimum lease payments, not subject to contingent rents, are as follows:
For the year ending December 31,
(In thousands)
Space agreements
Related party leases
Other operating leases
Total minimum operating lease
payments
Capital Leases
2020
2019
2021
$39,200 $11,025 $ 7,436 $ 5,000 $ 2,047 $
86 $ 64,794
1,535 1,621 1,714 1,815 1,930 16,098 24,713
15,124 14,807 13,891 12,767 12,138 87,252 155,979
Thereafter Total
2022
2023
$55,859
$27,453
$23,041
$19,582
$16,115
$103,436
$245,486
The current and long-term obligations under capital leases are included in “Current portion of long-term debt” and
“Long-term debt, net,” respectively. The majority of the capital leases related to vehicles with minimum lease payment
terms of four years or less.
81
Future minimum capital lease payments are as follows:
For the year ending December 31,
(In thousands)
Furniture and equipment
Building
Less: Amounts representing interest
Total obligations under capital leases
Note 14 – Commitments and Contingencies
Participation and Revenue Share Agreements
2020 2021 2022 2023 Thereafter Total
2019
$ 1,667 $ 1,873 $ 1,255 $ 143 $
163
(130)
88 $ 6,222 $11,247
1,423 2,201
165
(5,439) (6,321)
(124)
$ 1,545 $ 1,821 $ 1,251 $ 176 $ 129 $ 2,206 $ 7,127
150
(154)
150
(202)
150
(272)
In addition to the space agreements described above in Note 13, Leases, the Company also enters into slot placement
contracts in the form of participation and revenue share agreements. Under revenue share agreements, the Company
pays the business location a percentage of the gaming revenue generated from the Company’s slots placed at the
location, rather than a fixed monthly rental fee. Under participation agreements, the business location holds the
applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s slots.
During the years ended December 31, 2018, 2017 and 2016, the aggregate contingent payments recognized by the
Company (recorded in gaming expenses) under revenue share and participation agreements were $147.7 million,
$143.3 million and $128.1 million, respectively, including $0.9 million, $1.0 million and $2.1 million, respectively,
under revenue share and participation agreements with related parties, as described in Note 15, Related Party
Transactions.
The Company also enters into amusement device and ATM placement contracts in the form of participation
agreements. Under these agreements, the Company pays the business location a percentage of the non-gaming revenue
generated from the Company’s amusement devices and ATMs placed at the location. During the years ended
December 31, 2018, 2017 and 2016, the total contingent payments recognized by the Company (recorded in other
operating expenses) for amusement devices and ATMs under such agreements were $1.4 million, $1.4 million and
$0.9 million, respectively.
Collective Bargaining Agreements
As of December 31, 2018 the Company had approximately 6,940 employees, of which approximately 2,000 were
covered by various collective bargaining agreements. One collective bargaining agreement expired in 2018, and is
currently under negotiation, and two other collective bargaining agreements expire in 2019. 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
executives are also eligible to participate in all health benefits, insurance programs, pension and retirement plans and
other employee benefit and compensation arrangements. Each executive 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 Mr. Sartini, $2.5 million for Stephen A. Arcana, $2.5
million for Charles H. Protell, $1.6 million for Sean T. Higgins, and amounts ranging from $0.2 million to $0.8 million
for the Company’s other executive officers (assuming each officer’s respective annual salary and health benefit costs
as of December 31, 2018, subject to amounts in effect at the time of termination and excluding potential expense
related to acceleration of stock options, RSUs and PSUs).
Miscellaneous Legal Matters
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
82
injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other
matters for which the Company recorded reserves of $1.7 million for claims as of December 31, 2018. 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.
In February and April 2017, several former employees filed two separate purported class action lawsuits against the
Company in the District Court of Clark County, Nevada, and on behalf of similarly situated individuals employed by
the Company in the State of Nevada. The lawsuits allege that the Company violated certain Nevada labor laws
including payment of an hourly wage below the statutory minimum wage without providing a qualified health
insurance plan and an associated failure to pay proper overtime compensation. The complaints seek, on behalf of the
plaintiffs and members of the putative class, an unspecified amount of damages (including punitive damages),
injunctive and equitable relief, and an award of attorneys’ fees, interest and costs. The Company agreed to settle the
first of these cases in the fourth quarter of 2017 and the second of these cases in the third quarter of 2018. In February
2019, the court approved the settlement for the first case for $0.5 million. The remaining case remains subject to final
court approval, with the final fairness hearing scheduled for June 2019. Both were included in the Company’s recorded
reserves of $1.7 million at December 31, 2018.
On August 31, 2018, prior guests of The Strat filed a purported class action complaint against us in the District Court,
Clark County, Nevada, on behalf of similarly situated individuals and entities that paid the Clark County Combined
Transient Lodging Tax (“Tax”) on the portion of a resort fee that constitutes charges for Internet access, during the
period of February 6, 2014 through the date the alleged conduct ceases. The lawsuit alleged that the Tax was charged
in violation of the federal Internet Tax Freedom Act, which imposed a national moratorium on the taxation of Internet
access by states and their political subdivisions, and sought, on behalf of the plaintiff and the putative class, damages
equal to the amount of the Tax collected on the Internet access component of the resort fee, injunctive relief,
disgorgement, interest, fees and costs. All defendants to this matter, including Golden Entertainment, Inc., filed a joint
motion to dismiss this matter for lack of merit. The District Court granted this joint motion to dismiss on February 21,
2019. At this time this matter is closed. The plaintiffs have the right to appeal.
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.
Note 15 – Related Party Transactions
As of December 31, 2018, 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 during the years ended December 31, 2018, 2017 and 2016 was $1.3 million, $1.2 million, and
$1.1 million respectively. No amount was owed to the Company, and no amount was due and payable by the Company,
under this lease as of December 31, 2018 and 2017. Additionally, a portion of the office headquarters building was
sublet to a company owned or controlled by Mr. Sartini. Rental income during each of the years ended December 31,
2018, 2017, and 2016 for the sublet portion of the office headquarters building was less than $0.1 million. No amount
was owed to the Company under such sublease as of December 31, 2018 and 2017. Mr. Sartini serves as the Chairman
of the Board, President 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. All of these related party lease agreements were in place prior to the consummation of the
Sartini Gaming merger.
As of December 31, 2018, the Company leased one tavern location from a company controlled by Mr. Sartini through
a trust for the benefit of Mr. Sartini’s immediate family members (including Blake L. Sartini, II) for which Mr. Sartini
83
serves as trustee. The remaining lease term is approximately nine years. Three tavern locations that the Company had
previously leased from related parties were sold in 2017 and in January 2018 to unrelated third parties. The rent for
the tavern locations (including sold tavern locations for the periods in which the leases were with related parties) was
$0.4 million, $0.9 million, and $1.3 million during the years ended December 31 2018, 2017, and 2016, respectively.
No amount was owed to the Company, and no amount was due and payable by the Company, under such leases as of
December 31, 2018 and 2017.
From time to time, the Company’s executive officers and employees use for Company business private aircraft that
are owned by or leased to Sartini Enterprises, Inc., a company controlled by Mr. Sartini, 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. During the years ended December 31, 2018, 2017 and 2016, the Company paid
approximately $0.6 million, $0.2 million and $0.1 million, respectively, and less than $0.1 million was owned by the
Company as of December 31, 2018 and 2017, under the aircraft timesharing, co-user and cost-sharing agreements.
One of the distributed gaming locations at which the Company’s slots are located is owned in part by Sean T. Higgins,
who serves as Executive Vice President and Chief Legal Officer of the Company. This agreement was in place prior
to Mr. Higgins’s joining the Company on March 28, 2016. Net revenues and gaming expenses recorded by the
Company from the use of the Company’s slots at this location were $1.0 million and $0.9 million, respectively, during
the year ended December 31, 2018, $1.1 million and $1.0 million, respectively, during the year ended December 31,
2017, and $0.9 million and $0.8 million, respectively, during the year ended December 31, 2016, in each case
excluding net revenues and gaming expenses incurred during the period prior to the commencement of Mr. Higgins’s
employment with the Company (as during such period the agreement was not with a related party). De minimis
amounts were owed to or due and payable by the Company as of December 31, 2018 and no amount was owed to or
due and payable by the Company as of December 31, 2017, related to this agreement.
In connection with the Sartini Gaming merger, Lyle A. Berman, who serves on the Board of the Directors of the
Company, 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. Expenses recorded by the Company for the agreement with Mr. Berman were less than $0.1
million for the year ended December 31, 2018 and $0.2 million each of the years ended December 31, 2017 and 2016.
No amounts were due and payable by the Company related to this agreement at December 31, 2018 and 2017. The
consulting agreement expired on July 31, 2018.
Note 16 – 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, preopening expense, acquisition and merger expenses, share-based compensation expenses, executive
severance and sign-on bonuses, gain on contingent consideration, class action litigation expenses, gain/loss on disposal
of property and equipment, and impairments and other losses, calculated before corporate overhead (which is not
allocated to each segment).
84
The following tables set forth, for the periods indicated, certain operating data for the Company’s segments, and
reconciles net income (loss) to Adjusted EBITDA:
(In thousands)
Revenues
Gaming
Food and beverage
Rooms
Other
Total revenues
Net income (loss)
Depreciation and amortization
Acquisition expenses
Loss on disposal of property and equipment
Share-based compensation
Preopening expenses
Class action litigation expenses
Executive severance and sign-on bonuses
Other, net
Interest expense, net
Change in fair value of derivative
Income tax provision
Adjusted EBITDA
(In thousands)
Revenues
Gaming
Food and beverage
Rooms
Other
Total revenues
Net income (loss)
$
$
$
$
$
$
$
Depreciation and amortization
Acquisition expenses
Loss on disposal of property and equipment
Gain on contingent consideration
Share-based compensation
Preopening expenses
Class action litigation expenses
Executive severance and sign-on bonuses
Other operating, net
Interest expense, net
Loss on extinguishment of debt
Change in fair value of derivative
Income tax benefit
Adjusted EBITDA
$
Casinos
Year Ended December 31, 2018
Distributed
Gaming
Corporate and
Other
Consolidated
246,623 $
119,636
106,805
40,885
513,949 $
278,553 $
50,817
—
7,697
337,067 $
— $
—
—
778
778 $
82,556 $
72,242
—
2,893
37
170
16
289
172
110
—
—
158,485 $
25,870 $
20,604
—
443
3
365
195
38
213
93
—
—
47,824 $
(129,340) $
1,610
2,956
—
9,948
636
363
457
129
63,825
(1,786)
9,639
(41,563) $
525,176
170,453
106,805
49,360
851,794
(20,914)
94,456
2,956
3,336
9,988
1,171
574
784
514
64,028
(1,786)
9,639
164,746
Casinos
Year Ended December 31, 2017
Distributed
Gaming
Corporate and
Other
Consolidated
109,097 $
34,373
24,163
11,416
179,049 $
272,299 $
46,931
—
8,276
327,506 $
— $
—
—
583
583 $
381,396
81,304
24,163
20,275
507,138
29,210 $
19,601
—
414
(1,719)
—
1,234
—
—
(240)
390
—
—
—
48,890 $
(57,477) $
1,641
5,041
10
—
8,754
398
1,617
506
(278)
19,225
1,708
(178)
(7,921)
(26,954) $
2,084
40,786
5,041
441
(1,719)
8,754
1,632
1,617
1,142
(157)
19,598
1,708
(178)
(7,921)
72,828
30,351 $
19,544
—
17
—
—
—
—
636
361
(17)
—
—
—
50,892 $
85
(In thousands)
Revenues
Gaming
Food and beverage
Rooms
Other
Total revenues
Net income (loss)
$
$
$
Depreciation and amortization
Merger expenses
Loss (gain) on disposal of property and
equipment
Share-based compensation
Preopening expenses
Executive severance and sign-on bonuses
Interest expense, net
Gain on sale of land held for sale
Other, net
Income tax provision (benefit)
Adjusted EBITDA
$
Casinos
Year Ended December 31, 2016
Distributed
Gaming
Corporate and
Other
Consolidated
69,965 $
14,736
7,525
4,860
97,086 $
254,898 $
41,062
—
6,672
302,632 $
— $
—
—
280
280 $
324,863
55,798
7,525
11,812
399,998
16,117 $
7,351
—
22,323 $
18,889
—
(22,140) $
1,266
614
94
—
—
—
9
—
—
—
23,571 $
(40)
—
2,179
—
144
—
—
60
43,555 $
—
3,878
292
1,037
6,301
(4,525)
(869)
(4,385)
(18,531) $
16,300
27,506
614
54
3,878
2,471
1,037
6,454
(4,525)
(869)
(4,325)
48,595
Assets
The Company’s assets by segment consisted of the following amounts:
(In thousands)
Balance at December 31, 2018
Casinos
Distributed
Gaming
$ 1,006,292 $
299,697 $
Corporate
and Other
Consolidated
60,580 $ 1,366,569
Balance at December 31, 2017
$ 1,039,025 $
298,453 $
27,697 $ 1,365,175
Capital Expenditures
The Company’s capital expenditures by segment consisted of the following amounts:
(In thousands)
For the year ended December 31, 2018
Casinos(1)
Distributed
Gaming(2)
Corporate
and Other
$
45,634 $
15,942 $
6,599 $
Consolidated
68,175
For the year ended December 31, 2017
$
9,665 $
18,011 $
1,787 $
29,463
For the year ended December 31, 2016
$
10,267 $
17,730 $
2,637 $
30,634
(1) Capital expenditures in the Casinos segment exclude non-cash purchases of property and equipment of
approximately $8.8 million, $1.8 million, and $0.6 million for the years ended December 31, 2018, 2017 and
2016, respectively.
(2) Capital expenditures in the Distributed Gaming segment exclude non-cash purchases of property and equipment
of approximately $3.5 million, $2.6 million, and $2.6 million for the years ended December 31, 2018, 2017 and
2016, respectively.
86
Note 17 – Selected Quarterly Financial Information (Unaudited):
The following tables present selected quarterly financial information:
(In thousands, except per share amounts)
Revenues
Income from operations
Net income (loss)
Basic income (loss) per share
Diluted income (loss) per share
(In thousands, except per share amounts)
Revenues
Income from operations
Net income (loss)
Basic income (loss) per share
Diluted income (loss) per share (2)
Year ended December 31, 2018
First
Second
Third (2)
Fourth (2)
214,789 $
16,681
3,930
0.14 $
0.13 $
216,543 $
19,095
3,594
0.13 $
0.12 $
210,337 $
9,723
(3,124)
(0.11) $
(0.11) $
210,125
5,468
(25,314)
(0.90)
(0.90)
Year ended December 31, 2017
First
Second
Third
Fourth (1)(2)
105,883 $
5,318
5,342
0.24 $
0.23 $
109,885 $
2,578
1,713
0.08 $
0.07 $
107,660 $
2,389
8,555
0.38 $
0.36 $
183,710
5,006
(13,526)
(0.53)
(0.53)
$
$
$
$
$
$
(1) Results included the operating results of American from October 20, 2017, following the completion of
the American Acquisition.
(2)
For the third and fourth quarters of 2018 and fourth quarter of 2017, the Company generated a net loss.
Accordingly, 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 shares outstanding and diluted loss per share
for this period. The amount of potential common share equivalents was 1,870 and 1,028 for the third and fourth
quarters of 2018, respectively. The amount of potential common share equivalents was 2,373 for the fourth
quarter of 2017.
Because net income (loss) per share amounts are calculated using the weighted-average number of common equivalent
shares outstanding during each quarter, the sum of the per share amounts for the four quarters in the tables above may
not equal the total net income (loss) per share amounts for the year.
Note 18 – Subsequent Events
The Company's management evaluates subsequent events through the date of issuance of the consolidated financial
statements. Other than the Laughlin Acquisition (see Note 4, Acquisitions, for information regarding the Laughlin
Acquisition), 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, 2018.
87
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
a.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective
that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified and pursuant to the requirements of the SEC’s rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate
to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures
as of December 31, 2018, the end of the period covered by this Annual Report on Form 10-K. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of December 31, 2018.
b. Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as
of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management
concluded that our internal control over financial reporting was effective as of December 31, 2018.
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Ernst
& Young LLP, our independent registered public accounting firm, as stated in their report in Part II, Item 8 of this
Annual Report on Form 10-K.
c.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31,
2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
88
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding the members of our Board of Directors and our audit committee,
including our audit committee financial expert, will be included in our definitive Proxy Statement to be filed with the
SEC in connection with our 2019 annual meeting of shareholders (the “Proxy Statement”) under the headings
“Corporate Governance,” “Executive Officers,” “Election of Directors” and “Ownership of Securities,” and is
incorporated herein by reference.
We have adopted a code of ethics applicable to all of our employees (including our principal executive officer,
principal financial officer and principal accounting officer). The code of ethics is designed to deter wrongdoing and
to promote honest and ethical conduct and compliance with applicable laws and regulations. The full text of our code
of ethics is published in the “Investors-Governance” section of our website at www.goldenent.com.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Proxy Statement under the headings “Director
Compensation” and “Executive Compensation,” and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item with respect to security ownership of certain beneficial owners will be included
in the Proxy Statement under the heading “Ownership of Securities,” and is incorporated herein by reference.
The following table provides certain information as of December 31, 2018 with respect to our equity compensation
plans:
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants,
and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities Reflected
in First Column)
3,181,996 $
11.66
870,689
242,759
3,424,755 $
9.29
11.49
—
870,689
Plan Category
Golden Entertainment, Inc.
2015 Incentive Award Plan(1)
2007 Lakes Stock Option and
Compensation Plan
Total
(1) As of December 31, 2018, we had 232,299 RSUs and 171,748 PSUs outstanding that do not have an exercise
price; therefore, the weighted-average exercise price per share only relates to outstanding stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item will be included in the Proxy Statement under the headings “Certain
Relationships and Related Transactions” and “Corporate Governance,” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in the Proxy Statement under the heading “Independent
Registered Public Accounting Firm” and is incorporated herein by reference.
89
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Golden Entertainment, Inc. Consolidated Financial Statements (including related notes to Consolidated
Financial Statements) filed in Part II of this report are listed below:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
(a)(2) Schedule II – Valuation and Qualifying Accounts
We have omitted all other financial statement schedules because they are not required or are not applicable, or the
required information is shown in the consolidated financial statements or notes to the consolidated financial
statements.
GOLDEN ENTERTAINMENT, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at
Beginning of
Period
Increase
Decrease
Balance at
End of Period
$
6,983 $
18,109
25,593
16,293 $
—
—
— $
(11,126)
(7,484)
23,276
6,983
18,109
Deferred income tax valuation allowance:
Year Ended December 31, 2018
Year Ended December 31, 2017
Year Ended December 31, 2016
(a)(3) Exhibits:
Exhibit
Number
2.1
2.2
3.1
3.2
Exhibit Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Filed or
Furnished
Herewith
Membership Interest Purchase Agreement,
dated as of June 10, 2017, by and among
Golden Entertainment, Inc., W2007/ACEP
Managers Voteco, LLC, and W2007/ACEP
Holdings, LLC.
8-K
000-24993
2.1
6/12/2017
of
Purchase Agreement,
July 14, 2018, by and between Golden
Entertainment, Inc. and Marnell Gaming,
LLC
dated
as
Amended
Incorporation of Golden Entertainment, Inc.
and Restated Articles
of
8-K
000-24993
2.1
7/16/2018
8-K
000-24993
3.1
8/4/2015
Fifth Amended and Restated Bylaws of
Golden Entertainment, Inc.
8-K
000-24993
3.2
8/4/2015
90
Exhibit
Number
10.1
10.1.1
10.1.2
10.2
10.3
10.4
10.5
10.6
Incorporated by Reference
Form
8-K
File No.
000-24993
Exhibit
10.3
Filing Date
10/23/2017
Filed or
Furnished
Herewith
8-K
000-24993
10.1
6/12/2018
Exhibit Description
First Lien Credit Agreement, dated as of
October 20, 2017, by and among Golden
Entertainment,
the
subsidiaries of Golden Entertainment, Inc.
party thereto, JPMorgan Chase Bank, N.A.
(as administrative agent and collateral agent)
and the other lenders party thereto.
(as borrower),
Inc.
Incremental Joinder Agreement No. 1, dated
as of June 11, 2018, by and among Golden
the
Entertainment,
subsidiaries of Golden Entertainment, Inc.
party thereto, the lenders party thereto and
JPMorgan Chase Bank, N.A.
(as
administrative agent)
(as borrower),
Inc.
10-Q 000-24993
10.1
11/9/2018
Incremental Joinder Agreement No. 2, dated
as of November 8, 2018, by and among
Golden Entertainment, Inc. (as borrower), the
subsidiaries of Golden Entertainment, Inc.
party thereto, the lenders party thereto and
JPMorgan Chase Bank, N.A.
(as
administrative agent).
8-K
000-24993
10.4
10/23/2017
Inc.,
Second Lien Credit Agreement, dated as of
October 20, 2017, by and among Golden
Entertainment,
the
subsidiaries of Golden Entertainment, Inc.
party
(as
thereto, Credit Suisse AG
administrative agent and collateral agent) and
the other lenders party thereto.
(as borrower),
Amended and Restated Ground Lease by and
between Evitts Resort, LLC and the State of
Maryland to the use of the Department of
Natural Resources, effective August 3, 2012.
Registration Rights Agreement, dated as of
July 31, 2015, by and between Golden
Entertainment, Inc. and The Blake L. Sartini
and Delise F. Sartini Family Trust
Registration Rights Agreement, dated as of
October 20, 2017, by and between Golden
Entertainment,
Inc. and W2007/ACEP
Holdings, LLC.
Shareholders’ Agreement, dated as of
January 25, 2015, by and among Lakes
Entertainment, Inc., The Blake L. Sartini and
Delise F. Sartini Family Trust, Lyle A.
Berman and certain other shareholders of
Lakes Entertainment, Inc.
8-K
000-24993
10.2
8/9/2012
8-K
000-24993
10.2
8/4/2015
8-K
000-24993
10.1
10/23/2017
8-K
000-24993
10.2
1/26/2015
91
Exhibit
Number
10.7
10.8
10.9
10.10
Exhibit Description
Stockholders Agreement, dated as of
October 20, 2017, by and between Golden
Entertainment,
Inc. and W2007/ACEP
Holdings, LLC.
Stockholders Agreement, dated as of
January 14, 2019, by and between Golden
Entertainment, Inc. and the stockholders
party thereto.
Noncompetition Agreement, dated as of
Golden
July 31,
Entertainment, Inc. and Blake L. Sartini
between
2015,
Noncompetition Agreement, dated as of
July 31,
Golden
Entertainment, Inc. and Lyle A. Berman
between
2015,
Incorporated by Reference
Form
8-K
File No.
000-24993
Exhibit
10.2
Filing Date
10/23/2017
Filed or
Furnished
Herewith
8-K
000-24993
10.1
1/15/2019
8-K
000-24993
10.4
8/4/2015
8-K
000-24993
10.3
8/4/2015
10.11#
Employment Agreement, dated as of
October 1, 2015, by and between Golden
Entertainment, Inc. and Blake Sartini
8-K
000-24993
10.1
10/5/2015
10.11.1# First
to
Amendment
Employment
Agreement, dated as of February 9, 2016, by
and between Golden Entertainment, Inc. and
Blake L. Sartini
10.11.2# Second Amendment
to Employment
Agreement, dated as of March 14, 2018, by
and between Golden Entertainment, Inc. and
Blake L. Sartini
10.12#
Employment Agreement, dated as of
October 1, 2015, by and between Golden
Entertainment, Inc. and Stephen Arcana
10.12.1# First
to
Amendment
Employment
Agreement, dated as of February 9, 2016, by
and between Golden Entertainment, Inc. and
Stephen Arcana
10-K 000-24993
10.11.1
3/14/2016
10-Q 000-24993
10.1
5/10/2018
8-K
000-24993
10.2
10/5/2015
10-K 000-24993
10.12.1
3/14/2016
10.12.2# Second Amendment
to Employment
Agreement, dated as of March 10, 2017, by
and between Golden Entertainment, Inc. and
Stephen Arcana
10-K 000-24993
10.11.2
3/16/2017
10.12.3# Third Amendment
Employment
Agreement, dated as of March 14, 2018, by
and between Golden Entertainment, Inc. and
Stephen Arcana
to
10-Q 000-24993
10.2
5/10/2018
10.13#
Employment Agreement, dated as of
November 15, 2016, by and between Golden
Entertainment, Inc. and Charles Protell
8-K
000-24993
10.2
11/17/2016
92
Exhibit
Number
Exhibit Description
10.13.1# First
to
Amendment
Employment
Agreement, dated as of March 10, 2017, by
and between Golden Entertainment, Inc. and
Charles Protell
Incorporated by Reference
Form
10-K 000-24993
File No.
Exhibit
10.12.1
Filing Date
3/16/2017
Filed or
Furnished
Herewith
10.13.2# Second Amendment
to Employment
Agreement, dated as of March 14, 2018, by
and between Golden Entertainment, Inc. and
Charles Protell
10.14#
10.15#
Employment Agreement, dated as of
October 11, 2016, by and between Golden
Entertainment, Inc. and Sean Higgins
Amended
and Restated Employment
Agreement, dated as of March 10, 2017, by
and between Golden Entertainment, Inc. and
Blake L. Sartini II
10.15.1# First Amendment to Amended and Restated
Employment Agreement, dated as of
March 14, 2018, by and between Golden
Entertainment, Inc. and Blake L. Sartini II
10.16#
Employment Agreement, dated as of
October 26, 2017, by and between Golden
Entertainment, Inc. and Edward W. Martin III
10.17#
2007 Amended and Restated Stock Option
and Compensation Plan
10.17.1# Form of Lakes Entertainment, Inc. Non-
Stock Option Agreement
Qualified
(Employees)
10-Q 000-24993
10.3
5/10/2018
10-K 000-24993
10.14
3/16/2017
10-K 000-24993
10.15
3/16/2017
10-Q 000-24993
10.4
5/10/2018
10-K 000-24993
10.16
3/16/2018
DEF 14A 000-24993 Appendix D 6/24/2009
10-K 000-24993
10.16.1
3/14/2016
10.17.2# Form of Lakes Entertainment, Inc. Option
10-K 000-24993
10.16.2
3/14/2016
Agreement (Directors)
10.17.3# Form of Stock Option Grant Notice and Stock
8-K
000-24993
10.5
11/17/2016
Option Award Agreement
10.18#
Golden Entertainment, Inc. 2015 Incentive
Award Plan
8-K
000-24993
10.1
9/2/2015
10.18.1# Form of Stock Option Grant Notice and Stock
8-K
000-24993
10.2
9/2/2015
Option Agreement
10.18.2# From of Restricted Stock Unit Award Grant
Notice and Restricted Stock Unit Award
Agreement
10.18.3# Form of Restricted Stock Unit Award Grant
Notice and Restricted Stock Unit Award
Agreement (time-based awards)
10.18.4# Form of Restricted Stock Unit Award Grant
Notice and Restricted Stock Unit Award
Agreement (LTIP awards)
8-K
000-24993
10.4
11/17/2016
10-Q 000-24993
10.5
5/10/2018
10-Q 000-24993
10.6
5/10/2018
93
Exhibit
Number
10.19#
21
23.1
23.2
31.1
31.2
32.1
Exhibit Description
Golden Entertainment, Inc. Non-Employee
Director Compensation Program
Subsidiaries of Golden Entertainment, Inc.
Consent of Independent Registered Public
Accounting Firm
Consent of Independent Registered Public
Accounting Firm
Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certifications of Chief Executive Officer and
Chief Financial Officer
to
Section 906 of the Sarbanes-Oxley Act of
2002
pursuant
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
Document
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF XBRL Taxonomy Extension Calculation
Definition Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
Incorporated by Reference
Form
10-Q 000-24993
File No.
Exhibit
10.2
Filing Date
8/9/2018
Filed or
Furnished
Herewith
X
X
X
X
X
X
X
X
X
X
X
X
#
Management contract or compensatory plan or arrangement in which one or more executive officers or directors
participates
ITEM 16. FORM 10-K SUMMARY
None.
94
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GOLDEN ENTERTAINMENT, INC.
Registrant
By: /s/ BLAKE L. SARTINI
Blake L. Sartini
Chairman of the Board, President and
Chief Executive Officer
Dated as of March 15, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated as of March 15, 2019.
Name
/s/ BLAKE L. SARTINI
Blake L. Sartini
/s/ CHARLES H. PROTELL
Charles H. Protell
/s/ THOMAS E. HAAS
Thomas E. Haas
/s/ LYLE A. BERMAN
Lyle A. Berman
/s/ TIMOTHY J. COPE
Timothy J. Cope
/s/ MARK A. LIPPARELLI
Mark A. Lipparelli
/s/ ROBERT L. MIODUNSKI
Robert L. Miodunski
/s/ NEIL I. SELL
Neil I. Sell
/s/ TERRENCE L. WRIGHT
Terrence L. Wright
Title
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President, Chief
Strategy and Financial Officer
(Principal Financial Officer)
Senior Vice President of
Accounting
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
95
EXHIBIT 31.1
I, Blake L. Sartini, certify that:
CERTIFICATION OF
CHIEF EXECUTIVE OFFIER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF
2002
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Golden Entertainment, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant, and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
March 15, 2019
By: /s/ BLAKE L. SARTINI
Blake L. Sartini
Chairman of the Board, President and
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF
CHIEF FINANCIAL OFFIER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF
2002
I, Charles H. Protell, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Golden Entertainment, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant, and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
March 15, 2019
By: /s/ CHARLES H. PROTELL
Charles H. Protell
Executive Vice President,
Chief Strategy Officer and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATIONS OF
CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned officer of Golden Entertainment, Inc. (the “Company”) hereby certifies, to such officer’s knowledge,
that:
1.
2.
The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2018 (the
“Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: March 15, 2019
By: /s/ BLAKE L. SARTINI
Blake L. Sartini
Chairman of the Board, President and
Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned officer of Golden Entertainment, Inc. (the “Company”) hereby certifies, to such officer’s knowledge,
that:
1.
2.
The Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2018 (the
“Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: March 15, 2019
By: /s/ CHARLES H. PROTELL
Charles H. Protell
Executive Vice President,
Chief Strategy Officer and
Chief Financial Officer
The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and
will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liability of that section. The foregoing certifications are not to be incorporated by reference
into any filing of Golden Entertainment, Inc., whether made before or after the date hereof, regardless of any
general incorporation language in such filing.(cid:3)
[THIS PAGE INTENTIONALLY LEFT BLANK]
Performance Graph
The following performance graph compares the cumulative five-year shareholders’ returns (based on
appreciation of the market price of our common stock) on an indexed basis with NASDAQ Composite
Index and the Dow Jones US Gambling Index, during the five years ended December 31, 2018. The
graph plots the changes in value of an initial $100 investment over the indicated time period, assuming
all dividends are reinvested. The stock price performance in this graph is not necessarily indicative of
future stock price performance.
Comparison of Cumulative Five Year Total Return
Among Golden Entertainment, Inc., the NASDAQ Composite Index and
the Dow Jones U.S. Gambling Index
$500
$400
$300
$200
$100
$0
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
Golden Entertainment, Inc.
NASDAQ Composite Index
Dow Jones U.S. Gambling Index
Cumulative Total Returns - Year Ending December 31,
2013
2014
2015
2016
2017
2018
Golden Entertainment, Inc. . . . . . . . . . . . $100.00 $ 85.08 $129.49 $176.22 $475.12 $233.12
165.84
NASDAQ Composite Index . . . . . . . . . . .
77.59
Dow Jones US Gambling Index . . . . . . .
122.81
62.24
172.11
111.82
133.19
79.79
100.00
100.00
114.62
81.19
The performance graph should not be deemed filed or incorporated by reference into any other
Company filing under the Securities Act of 1933 or the Exchange Act of 1934, except to the extent the
Company specifically incorporates the performance graph by reference therein.