BALLY'S CORPORATION
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes and other financial information included elsewhere in this
Annual Report on Form 10-K. Some of the information contained in this discussion
and analysis or set forth elsewhere in this Annual Report on Form 10-K,
including information with respect to our plans and strategy for our business,
includes forward-looking statements that involve risks and uncertainties. You
should review Item 1A. "Risk Factors" and "Cautionary Note Regarding
Forward-Looking Statements" in this Annual Report on Form 10-K for a discussion
of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
29
--------------------------------------------------------------------------------Executive Overview
Our objective is to be one of the leading omni-channel gaming and interactive entertainment companies in theU.S. During 2020, we made great progress in our long-term growth and diversification strategy. Among other transactions, we acquired the rights to the name "Bally's" in 2020 as part of our strategy to become the leadingU.S. full-service sports betting/iGaming company with physical casinos and online gaming solutions united under a single, prominent brand. We took other key steps to build our iGaming and sports betting business in the past year, including entering into a strategic partnership with Sinclair Broadcast Group to leverage the Bally's brand and combine our sports betting technology with Sinclair's expansive natural footprint, which includes 188 local TV stations, 19 regional sports networks, the STIRR streaming service, the Tennis Channel and five stadium digital TV and internet sports networks. We also signed definitive agreements to acquire Bet.Works, a sports betting platform provider to operators inColorado ,New Jersey ,Indiana andIowa , and Monkey Knife Fight, the third-largest fantasy sports platform inNorth America . Earlier this year, we acquired SportsCaller, a leading B2B free-to-play game provider. See "Our Strategy - Recent and Pending Acquisitions, Development Projects and Other" for a description of our recent and pending business acquisitions. COVID-19 Pandemic We also experienced unprecedented challenges resulting from the COVID-19 pandemic. In an effort to mitigate the spread of the virus, during the first quarter of 2020, our regulators temporarily closed all of our properties byMarch 16, 2020 . ByJune 17, 2020 , all of our properties, including the newly acquiredCasino KC andCasino Vicksburg , had reopened. OurRhode Island properties were closed again fromNovember 29 through December 20, 2020 .
The following is an update of re-openings and current operations by property:
•Twin River Casino Hotel andTiverton Casino Hotel - TheRhode Island properties pre-opened onJune 8, 2020 with very limited invitation-only guests allowed. BeginningJune 30, 2020 , we were able to open to the general public, at approximately 65% capacity, with half of VLTs and a limited number of table games (with a three-player limit). The properties were closed again fromNovember 29 through December 20, 2020 due to a state-mandated pause to slow the spread of COVID-19. Currently, the properties are open to the general public and are operating at 65% capacity with about half of VLTs, and all table games (with a three-player limit) available. The hotels at theRhode Island properties remain closed. •Hard Rock Biloxi - TheBiloxi property re-opened to the general public onMay 21, 2020 at 50% capacity with 41% of VLTs, all table games (with a three-player limit) available and 75% of the hotel rooms available to guests. Currently, Hard Rock Biloxi is operating at 50% capacity with over 63% of VLTs and all table games (with a three-player limit) available, and the hotel is operating with all rooms available to guests. •Dover Downs Casino Hotel - TheDelaware property re-opened onJune 1, 2020 at 30% capacity with 45% of VLTs. Table games (with a two-player limit) became available onJune 17, 2020 and the hotel, at 60% room capacity, became available onJune 18, 2020 . Currently, the property is operating at approximately 60% capacity with 52% of VLTs and 89% of table games (with a four-player limit) available, and all hotel rooms available to guests. •Casino KC -Casino KC re-opened onJune 1, 2020 at 50% capacity with 70% of VLTs and 30% of table games (with a three-player limit) available.Casino KC is currently operating at 50% capacity with all VLTs and table games (with a three-player limit) available. •Casino Vicksburg -Casino Vicksburg re-opened onMay 21, 2020 at 50% capacity with 48% of VLTs and 50% of hotel rooms available to guests. Currently,Casino Vicksburg is still operating at 50% capacity; however, 70% of VLTs are available and all table games (with a three-player limit) are available, and the hotel is currently operating with all rooms available to guests. •Black Hawk Casinos -The Black Hawk Casinos re-opened onJune 17, 2020 at 50% capacity with 55% of VLTs available to guests. Currently, the properties are still operating at 50% capacity; however, 83% of VLTs are now available to guests. As ofNovember 11, 2020 , table games remain closed. •Bally'sAtlantic City -Bally's Atlantic City is operating at 25% capacity with 58% of VLTs and all table games (with a four-player limit) available, and the hotel is currently operating with all rooms available to guests. •Shreveport -Shreveport is operating at 50% capacity with 56% of VLTs and about half of table games (with a four-player limit) available, and the hotel is currently operating with all rooms available to guests. 30 -------------------------------------------------------------------------------- While we are working closely with government officials on operational aspects of our re-opened properties and our desire to get additional amenities online, we cannot predict the duration of any limitations the government or we may impose on our operations. Though our operations are partially open in each of our markets, continuing restrictions on our operations, the economic uncertainty that COVID-19 continues to cause and the personal risk tolerances of our customers have caused, and may continue to cause, our business to be negatively impacted. In light of the foregoing, we are unable to determine when, or if, our properties will return to pre-pandemic demand. As a result of the current restrictions on our properties related to the COVID-19 pandemic and the uncertainty regarding when we will return to pre-pandemic demand, we have established a multi-faceted plan to slow the usage of our available liquidity, focus on employee and community matters and prepare our facilities for full re-opening.
Liquidity
We are proactively managing expenses carefully in an effort to retain sufficient liquidity to last through these uncertain times and to fund the purchase prices for acquisitions. OnMay 11, 2020 , we increased our term loan facility by$275 million , a portion of the proceeds of which was utilized to repay the outstanding borrowings under our revolving credit facility. OnOctober 9, 2020 , we issued an additional$125 million aggregate principal amount of 6.75% Senior Notes for a total of$525 million of Senior Notes due 2027. Though the timing of when or if we will be able to return to pre-pandemic demand is uncertain, we believe we are prepared for sustained restriction on cash flow from operations and believe that our current available cash balances and availability under our revolving credit facility are sufficient to provide necessary liquidity to meet all of our obligations including debt service and required capital expenditures for the foreseeable future. Throughout 2020, we carefully managed expenses in an effort to minimize variable costs and fixed property level costs and corporate expenses to protect our financial position. These efforts included the following: •the suspension of all major capital projects and significant reduction of our expected capital expenditure spend, excluding our cash outlay for acquisitions during the year; •renegotiation of certain service and vendor agreements to reduce or eliminate certain recurring fees and/or defer payments; •reduction of employee costs through measured levels of re-hiring aimed at matching demand based on our properties' operating status and offerings; •the suspension of employer 401(k) matching contributions; and •suspension of dividend payments on our common stock as well as share repurchases under our Capital Return Program, each of which was a condition of the amendment we signed to our credit facility onApril 24, 2020 . Employee and Community Matters We have taken a series of employee-and community-focused actions. Among other things, we continued health coverage at no cost to employees who were furloughed. We have also established a fund to provide financial assistance to employees who experience severe hardship during the shutdown period and are working diligently to bring employees back to work at levels that correspond to demand for our offerings. OurTwin River Casino property also served as a host site for a drive through rapid COVID-19 testing during the second quarter. We continue to collaborate with community and employee leaders, health officials and regulatory authorities. Health and Safety Efforts at Re-opened Facilities As we have reopened our facilities we have actively engaged in a comprehensive sanitization of all properties with an emphasis on public spaces and 'touchpoints' such as handrails, VLTs, countertops and elevator buttons along with a chip sanitizing program. Additionally, we established a multi-phased approach to re-open each of our facilities. The plans include, among other things, screening of team members and guests upon arrival at our properties, thermal imaging cameras, enforcement of social distancing guidelines, including spacing between VLTs and limited or no table games to start, frequent cleaning and sanitizing protocols for all areas, mask protection, and public awareness signage. We expect that the current restrictions on operations and amenities as a result of the COVID-19 pandemic will continue to negatively impact our results of operations. We do not expect to see a return to pre-pandemic levels until our properties are allowed to fully re-open with all amenities to the public, which is indeterminable at this time and is dependent on the length and severity of the pandemic, the duration of the restrictions in our markets and the speed and depth of vaccinations. 31 -------------------------------------------------------------------------------- The COVID-19 pandemic has caused, and is continuing to cause, significant disruption in the financial markets both globally and in theU.S. , and will continue to impact, possibly materially, our business, financial condition and results of operations. We cannot predict the degree or duration to which our operations will be affected by the COVID-19 pandemic, and the effects could be material. While we believe that strong liquidity position, valuable unencumbered assets and aggressive cost reduction initiatives will enable us to fund our current obligations, the COVID-19 pandemic has resulted in significant disruption of global financial markets, which could have a negative impact on our ability to access capital in the future. We continue to monitor the rapidly evolving situation and guidance from authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to further adjust our operating plan, including ongoing restrictions to operations and potential future closings of our properties. Because the situation is ongoing, and because the duration and severity of the pandemic remain unclear, it is difficult to forecast any impacts on our future results. We currently expect the COVID-19 pandemic to continue to impact our operations negatively throughout 2021.
CARES Act
OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees, including those like us that operate in the gaming area. Based on our analysis of the CARES Act, the benefits we believe will be available to us include: •refund of federal income taxes due to five-year carryback of net operating loss incurred in 2020 when our 2020 tax return is filed; •relaxation of interest expense deduction limitation for income tax purposes; •the employee retention credit, providing a refundable federal tax credit equal to 50% of the first$10,000 of qualified wages and benefits, including qualified medical plan contributions, paid to employees while they are not performing services afterMarch 12, 2020 and beforeJanuary 1, 2021 ; and •deferral of all employer Federal Insurance Contributions Act ("FICA") taxes for the remainder of 2020, 50% payable byDecember 2021 and the remainder payable byDecember 2022 .
Recent and Pending Acquisitions, Development Projects and Other
We seek to continue to grow our business by actively pursuing the acquisition and development of new gaming opportunities and reinvesting in our existing operations. We believe that interactive gaming, including mobile sports betting and iGaming represent a significant strategic opportunity for our future growth. In addition, we seek to increase revenues at our brick and mortar casinos through enhancing the guest experience by providing popular games, restaurants, hotel accommodations, entertainment and other amenities in attractive surroundings with high-quality guest service.
Our recent and pending business acquisitions are summarized above in "Our Strategy-Recent and Pending Acquisitions, Development Projects and Other."
Acquisition ofBally's Atlantic City Details of Transaction OnNovember 18, 2020 we completed our acquisition ofBally's Atlantic City from Caesars Entertainment, Inc. and Vici Properties Inc. Total cash consideration at closing was approximately$27 million , subject to customary adjustments. As part of the regulatory approval process with theState of New Jersey , we committed to capital improvements to the property of$90 million over a five-year period, which was a condition for approval for our temporary operating license. Refer to Note 5 "Acquisitions" for further information. 32 -------------------------------------------------------------------------------- Historical and Current Performance Prior to our acquisition ofBally's Atlantic City , its operations were run by Caesars as a single entity inclusive of the operations ofWild Wild West Casino , which we did not acquire. Historically, the results ofBally's Atlantic City andWild Wild West Casino were reported on a combined basis and the ability to accurately produce historical financials on a carved out basis was determined to be difficult to produce without undue effort. Based on diligence procedures performed, it is believed that prior to COVID-19 related shut downs experienced in 2020, theBally's Atlantic City property, excluding the operations ofWild Wild West Casino , generated approximately$170 million of annual revenues and adjusted EBITDA of approximately$12 million in 2019. As a result of COVID-19 restrictions,Bally's Atlantic City closed its operations fromMarch 2020 throughJuly 2020 . SinceJuly 2020 , the property has continued to operate at limited capacity and under restricted hours based on local state-mandated restrictions.Bally's Atlantic City has historically generated a majority of its profit in the summer, as it is located on theNew Jersey boardwalk, and has generated losses during the winter. Additionally, at the time of closing, our IT systems had not yet been converted and it was determined that we would operate the property under a transition services agreement ("TSA") using Caesars IT systems and the player rewards programs tied to Caesars Total Rewards until we were able to convert to our own systems, which ultimately occurred inmid-February 2021 . The combination of COVID related restrictions, seasonality and increased overhead costs under theTSA and Caesars Total Rewards resulted in increased losses from the acquisition date throughDecember 31, 2020 . We expect those losses to continue intoFebruary 2021 , when these systems were converted. Planned Capital Improvements As noted above, we expect to invest capital into the property over an initial five-year period, which we believe will transform the property resulting in increased revenue and profitability. Construction is expected to include a permanent Sportsbook facility, on which we have partnered with FanDuel, refurbished hotel rooms, new food and beverage offerings, a new boardwalk facade, and other cosmetic upgrades to the property. Sports and iGaming Licenses In connection with the transaction, we acquired three sports betting and five iGaming licenses inNew Jersey . We have announced strategic partnerships with Points Bet, Esports Entertainment, SportTrade and the Score Bet for use of these licenses. We expect all of these agreements to be accretive and bring something unique to the expansive and cutting-edgeNew Jersey mobile gaming market. We also have kept one sports betting and i-gaming skin inNew Jersey for our own future use as we roll ourBally's Interactive division in 2021. Key Performance Indicator The main key performance indicator used in managing our business is adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), a non-GAAP measure. Adjusted EBITDA is defined as earnings for the Company, or where noted our reporting segments, before, in each case, interest expense, net of interest income, provision (benefit) for income taxes, depreciation and amortization, non-operating income, acquisition, integration and restructuring expense, goodwill and asset impairment, expansion and pre-opening expenses, share-based compensation, rebranding, change in fair value of naming rights liabilities, gain on bargain purchases, professional and advisory fees associated with the capital return program, CARES Act credit, credit agreement amendment expenses, storm related losses, net of insurance recoveries, Bet.Works and Sinclair, sports and iGaming licensing, and certain other gains or losses as well as, when presented for our reporting segments, an adjustment related to the allocation of corporate cost among segments. 33 -------------------------------------------------------------------------------- We use Adjusted EBITDA to analyze the performance of our business and it is used as a determining factor for performance based compensation for members of our management team. We have historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period performance. Also, we present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. Adjusted EBITDA information is presented because management believes that it is a commonly-used measure of performance in the gaming industry and that it is considered by many to be a key indicator of our operating results. Management believes that while certain items excluded from Adjusted EBITDA may be recurring in nature and should not be disregarded in evaluating our earnings performance, it is useful to exclude such items when comparing current performance to prior periods because these items can vary significantly depending on specific underlying transactions or events that may not be comparable between the periods presented or they may not relate specifically to current operating trends or be indicative of future results. Adjusted EBITDA should not be construed as an alternative to GAAP net income, its most directly comparable GAAP measure, as an indicator of our performance. In addition, Adjusted EBITDA as used by us may not be defined in the same manner as other companies in our industry, and, as a result, may not be comparable to similarly titled non-GAAP financial measures of other companies. Results of Operations The following table presents, for the periods indicated, certain revenue and income items: Years Ended December 31, (In millions) 2020 2019 2018 Total revenue$ 372.8 $ 523.6 $ 437.5
(Loss) income from operations (18.4) 114.6 120.6 Net (loss) income
(5.5) 55.1 71.4
The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of total revenue:
Years Ended
2020 2019 2018
Total revenue 100.0 % 100.0 % 100.0 %
Gaming, racing, hotel, food and beverage, retail, entertainment and other expenses
37.2 % 35.4 % 30.9 %
Advertising, general and administrative 47.5 % 34.5 % 32.7 %
Goodwill and asset impairment 2.3 % - % - %
Other operating costs and expenses 7.8 % 2.1 % 3.7 %
Depreciation and amortization 10.2 % 6.2 % 5.1 %
Total operating costs and expenses 104.9 % 78.1 % 72.4 %
(Loss) income from operations (4.9) % 21.9 % 27.6 %
Other income (expense):
Interest income 0.2 % 0.4 % 0.0 %
Interest expense (17.0) % (7.6) % (5.3) %
Change in value of naming rights liabilities (15.5) % - % - %
Gain on bargain purchases 17.1 % - % - %
Loss on extinguishment and modification of debt - % (0.3) % - %
Other, net - % 0.0 % - %
Total other expense, net (15.1) % (7.5) % (5.2) %
(Loss) income before provision for income taxes (20.1) % 14.4 % 22.4 %
(Benefit) provision for income taxes (18.6) % 3.8 % 6.0 %
Net (loss) income (1.5) % 10.5 % 16.3 %
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Note: Amounts in table may not subtotal due to rounding.
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--------------------------------------------------------------------------------Segment Information
The following table sets forth certain financial information associated with results of operations for the years endedDecember 31, 2020 , 2019 and 2018. Non-gaming revenue includes hotel, food and beverage and other revenue. Non-gaming expenses include hotel, food and beverage and retail, entertainment and other expenses. (In thousands, except percentages) Years Ended December 31, 2020 over 2019 2019 over 2018 2020 2019 2018 $ Change % Change $ Change % Change Revenue: Gaming and Racing revenue Rhode Island$ 111,103 $ 243,372 $ 249,922 $ (132,269) (54.3) %$ (6,550) (2.6) % Mid-Atlantic 51,776 44,796 - 6,980 15.6 % 44,796 100.0 % Southeast 86,851 84,247 81,614 2,604 3.1 % 2,633 3.2 % West 43,611 - - 43,611 100.0 % - - % Other 4,729 8,647 9,362 (3,918) (45.3) % (715) (7.6) % Total Gaming and Racing revenue 298,070 381,062 340,898 (82,992) (21.8) % 40,164 11.8 % Non-gaming revenue Rhode Island 20,925 62,934 52,730 (42,009) (66.8) % 10,204 19.4 % Mid-Atlantic 21,900 36,010 - (14,110) (39.2) % 36,010 100.0 % Southeast 27,981 43,185 43,523 (15,204) (35.2) % (338) (0.8) % West 3,721 - - 3,721 100.0 % - - % Other 195 386 386 (191) (49.5) % - - % Total Non-gaming revenue 74,722 142,515 96,639 (67,793) (47.6) % 45,876 47.5 % Total revenue 372,792 523,577 437,537 (150,785) (28.8) % 86,040 19.7 % Operating costs and expenses: Gaming and Racing expenses Rhode Island$ 29,270 $ 53,431 $ 47,567 $ (24,161) (45.2) %$ 5,864 12.3 % Mid-Atlantic 17,416 16,139 - 1,277 7.9 % 16,139 100.0 % Southeast 27,421 28,159 27,325 (738) (2.6) % 834 3.1 % West 17,766 - - 17,766 100.0 % - - % Other 4,028 5,828 5,937 (1,800) (30.9) % (109) (1.8) % Total Gaming and Racing expenses 95,901 103,557 80,829 (7,656) (7.4) % 22,728 28.1 % Non-gaming expenses Rhode Island 12,797 35,625 31,323 (22,828) (64.1) % 4,302 13.7 % Mid-Atlantic 14,418 22,426 - (8,008) (35.7) % 22,426 100.0 % Southeast 13,078 23,487 23,002 (10,409) (44.3) % 485 2.1 % West 2,436 - - 2,436 100.0 % - - % Other 39 77 88 (38) (49.4) % (11) (12.5) % Total Non-gaming expenses 42,768 81,615 54,413 (38,847) (47.6) % 27,202 50.0 % Advertising, general and administrative Rhode Island 54,331 86,148 85,650 (31,817) (36.9) % 498 0.6 % Mid-Atlantic 33,003 25,584 - 7,419 29.0 % 25,584 100.0 % Southeast 33,167 38,654 37,955 (5,487) (14.2) % 699 1.8 % West 16,437 - - 16,437 100.0 % - - % Other 40,005 30,014 19,673 9,991 33.3 % 10,341 52.6 %Total Advertising , general and administrative 176,943 180,400 143,278 (3,457) (1.9) % 37,122 25.9 % Margins: Gaming and Racing expenses as a percentage of Gaming and Racing revenue 32 % 27 % 24 % 5 % 3 % Non-gaming expenses as a percentage of Non-gaming revenue 57 % 57 % 56 % - % 1 % Advertising, general and administrative as a percentage of Total Revenue 47 % 34 % 33 % 13 % 1 % 35
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Year ended
Total revenue
Total revenue for the year endedDecember 31, 2020 decreased$150.8 million , or 28.8%, to$372.8 million , from$523.6 million in 2019. Gaming and racing revenue for the year endedDecember 31, 2020 decreased$83.0 million , or 21.8%, food and beverage revenue decreased$37.8 million , or 54.0%, and hotel revenue decreased$14.2 million , or 36.5%, each compared to the prior year. The decreases in total revenue, gaming and racing revenue, food and beverage revenue and hotel revenue were driven by the mandated shut-down of our operations at all properties from mid-March of 2020 intoJune 2020 and the continued limitations on our operations in response to the COVID-19 pandemic, including a second shut down of our properties inRhode Island fromNovember 29 through December 20, 2020 . Decreases in revenue resulting from the pandemic were partially offset by revenue from current year acquisitions ofCasino KC andCasino Vicksburg onJuly 1, 2020 which contributed$40.1 million , theBlack Hawk Casinos onJanuary 23, 2020 which contributed$17.8 million ,Bally's Atlantic City onNovember 18, 2020 which contributed$8.7 million , andShreveport onDecember 23, 2020 which contributed$2.5 million .
Operating costs and expenses
For 2020, we recorded total operating costs and expenses of$391.2 million , down 4.3% compared to the$409.0 million in 2019. Gaming and racing expenses for the year endedDecember 31, 2020 decreased$7.7 million , or 7.4%, to$95.9 million from$103.6 million in 2019. The decrease for the year endedDecember 31, 2020 year-over-year was primarily attributable to the mandated shut-down of our facilities in mid-March of 2020 intoJune 2020 as of result of the COVID-19 pandemic and the operational restrictions and limitations on our properties throughout the remainder of the 2020 year. Non-gaming expenses for the year endedDecember 31, 2020 decreased$38.8 million , or 47.6%, to$42.8 million from$81.6 million in 2019. This decrease was primarily due to the minimization of variable costs of non-gaming amenities during the mandated shut-down of our properties and during the year and the continued restrictions on operations. We expect our total operating costs and expenses to increase in 2021 as compared to 2020 as a result of the inclusion of our recent acquisitions ofCasino KC ,Casino Vicksburg ,Bally's Atlantic City andShreveport operations as well as the operations of pending acquisitions of MontBleu, Jumer's and Tropicana Evansville that we expect to close in the first half of 2021.
Advertising, general and administrative
Advertising, general and administrative expenses for the year endedDecember 31, 2020 decreased$3.5 million , or 1.9%, to$176.9 million from$180.4 million , in 2019. The decrease in advertising, general and administrative expenses year-over-year is primarily due to the shut down of operations at all of our facilities as a result of the COVID-19 pandemic frommid-March 2020 intoJune 2020 and the continued operational restrictions and limitations on our properties in the second half of 2020. The decrease was partially offset by an increase in share-based compensation expense for the year endedDecember 31, 2020 , which increased$13.9 million compared to last year. The increase in share-based compensation expense was directly attributable to our annual grant of restricted stock awards to eligible employees and executive management which occurred during the first quarter of 2020 with one-third of the restricted stock award vesting during the first quarter of 2020 and one-third vesting at the end of the 2020 year, In addition, in light of the pandemic and cash flow considerations for 2020, we elected to pay annual bonuses to eligible recipients in the form of immediately vested stock awards which were paid onDecember 30, 2020 . In the prior year, we only granted equity awards to members of our Board and executive team with the grant occurring during the second quarter of 2019. 36 --------------------------------------------------------------------------------
Acquisition, integration and restructuring expense
We incurred$13.3 million of acquisition, integration and restructuring expense during the year endedDecember 31, 2020 compared to$12.2 million in 2019 driven by acquisition and integration costs in each year of$13.2 million and$10.9 million , respectively. During 2020, we recorded total acquisition costs of$10.3 million for acquisitions closed during the year includingShreveport ,Bally's Atlantic City ,Casino KC andCasino Vicksburg and theBlack Hawk Casinos , and$2.7 million of acquisition costs related to the proposed acquisitions of MontBleu, Jumer's and Tropicana Evansville. During 2020, we also incurred approximately$0.1 million of costs relating to the proposed build of a casino inCentre County, Pennsylvania . During the year endedDecember 31, 2019 , we incurred$7.9 million of costs attributable to Dover Downs merger and going public expenses and$3.0 million of acquisition costs related to the acquisitions of theBlack Hawk Casinos andCasino KC andCasino Vicksburg . Additionally, in 2019 we incurred restructuring expenses of$0.8 million related to severance costs incurred attributable to the acquisition of Dover Downs in the first quarter of 2019 as well as$0.4 million related to severance costs incurred at ourTwin River Casino Hotel property as a result of a voluntary termination program put into place in response to softness in the market due to new competition. Refer to Note 10 "Acquisition, integration and restructuring expense" for further information.
Other operating costs and expenses
We recorded storm related losses, net of insurance recoveries of$14.1 million during 2020 primarily attributable to the effects of Hurricane Zeta which made landfall inLouisiana shutting down our Hard Rock Biloxi property for three days in the fourth quarter of 2020. Additionally, we recorded an impairment charge of$8.7 million as a result of an impairment analysis performed on goodwill and intangible assets acquired in connection with our acquisition of theBlack Hawk Casinos and$0.8 million of rebranding expense during the fourth quarter of 2020 as we changed our corporate name toBally's Corporation inNovember 2020 .
Depreciation and amortization
Depreciation and amortization of intangibles expense for the year endedDecember 31, 2020 was$37.8 million , an increase of$5.5 million , or 16.8%, compared to$32.4 million in 2019. These increases in depreciation and amortization expenses were attributable to the additions ofCasino KC andCasino Vicksburg and theBlack Hawk Casinos which contributed$2.7 million and$2.3 million during the year endedDecember 31, 2020 , respectively.
(Loss) income from operations
Loss from operations was$18.4 million for the year endedDecember 31, 2020 compared to income from operations of$114.6 million in 2019. As a percentage of total revenue, income from operations decreased from 21.9% to a loss from operations of 4.9%, primarily impacted negatively by the COVID-19 pandemic with the shut-down of our properties frommid-March 2020 intoJune 2020 and the continued operational restrictions experienced in 2020, including the second shutdown of theRhode Island properties in the fourth quarter of 2020.
Other income (expense)
Total other expense increased$17.0 million , or 43.0%, to$56.4 million for the year endedDecember 31, 2020 from other expense of$39.4 million in 2019. The increase in other expense was driven primarily by expense associated with the change in naming rights liability associated with our contracts with Sinclair Broadcast group of$57.7 million . Refer to Note 9 "Sinclair Agreement" for further information. Additionally, interest expense was$63.2 million for the year endedDecember 31, 2020 , an increase of$23.4 million from$39.8 million in 2019, due to increased borrowings and higher interest rates year-over-year. These increases in expense were offset by a total gain on bargain purchases of$63.9 million recorded during the fourth quarter of 2020 related to the acquisitions ofBally's Atlantic City andShreveport , which resulted in bargain purchase gains of$32.6 million and$31.3 million , respectively, as the preliminary fair values of the acquired assets and assumed liabilities for each of the acquisitions exceeded its purchase price. Refer to Note 5 "Acquisitions" for further information. The year endedDecember 31, 2019 also included a loss on extinguishment and modification of debt of 1.7 million as a result of the debt refinancing completed during the second quarter of 2019. 37 --------------------------------------------------------------------------------
(Benefit) provision for income taxes
Provision for income taxes for the year endedDecember 31, 2020 decreased$89.4 million to a benefit of$69.3 million compared to 2019. The effective tax rate for the year endedDecember 31, 2020 was 92.7% compared to 26.7% in 2019. The increase in the effective tax rate was due to the impact of the CARES Act on the federal rate applied during 2020 and the impact of the bargain purchase gain recorded related to the acquisitions ofBally's Atlantic City andShreveport in the fourth quarter of 2020, offset in part by the immediately exercisable penny warrants issued to Sinclair in the fourth quarter of 2020. The bargain purchase gain and the penny warrants issued to Sinclair will not impact the future tax basis of the underlying assets acquired.
Net Income (Loss) and earnings (loss) per share
Net loss for the year endedDecember 31, 2020 was$5.5 million compared to net income of$55.1 million in 2019. As a percentage of revenue, net income decreased from 10.5% for the year endedDecember 31, 2019 to a net loss of 1.5% for the year endedDecember 31, 2020 . Diluted loss per share for the year endedDecember 31, 2020 was$0.18 , compared to earnings per share of$1.46 for the year endedDecember 31, 2019 , and was impacted by the factors noted above and share repurchases under our capital return program during the year.
Adjusted EBITDA by Segment
Consolidated Adjusted EBITDA was$70.4 million for the year endedDecember 31, 2020 , a decrease of$96.7 million , or 58%, from$167.2 million in the same period last year. Adjusted EBITDA for theRhode Island segment decreased 74% to$33.6 million , driven by the negative impact of COVID related restrictions and the shut down of ourRhode Island properties in mid-March of 2020 intoJune 2020 and again for three weeks during the fourth quarter of 2020. The Mid-Atlantic segment decreased 51% to$8.1 million from$16.7 million in the prior year and was negatively impacted by COVID related restrictions and the shut down of Dover Downs and the impact ofBally's Atlantic City , which was acquired in November, as operations were impacted by a combination of COVID related restrictions, seasonality and increased overhead costs under theTSA and reliance on IT systems, as described above. Adjusted EBITDA for the Southeast segment was$40.6 million , an increase of$3.4 million from the prior year, benefiting from the additions ofCasino Vicksburg andShreveport which were acquired onJuly 1, 2020 andDecember 23, 2020 , respectively. Consolidated Adjusted EBITDA also includes the addition of Adjusted EBITDA from the West segment of$10.3 million which includes ourCasino KC and theBlack Hawk Casinos properties which were acquired onJuly 1, 2020 andJanuary 23, 2020 , respectively. 38 -------------------------------------------------------------------------------- Year EndedDecember 31 . 2020 (in thousands) Rhode Island Mid-Atlantic Southeast West Other Total Revenue$ 132,028 $ 73,676 $ 114,832 $ 47,332 $ 4,924 $ 372,792 Net income (loss)$ 20,276 $ (241) $ 10,486 $ (712) $ (35,296) $ (5,487) Interest expense, net of interest income (56) 132 (42) - 62,602
62,636
(Benefit) provision for income taxes (10,326) (1,232) (763) (3,697) (53,306)
(69,324)
Depreciation and amortization 17,310 6,082 10,037 4,104 309
37,842
Acquisition, integration and restructuring expense - 20 - - 13,237
13,257
Expansion and pre-opening expenses 921 - - - -
921
Goodwill and asset impairment - - - 8,659 - 8,659 Share-based compensation - - - - 17,706 17,706 Rebranding - - - - 792 792 Change in value of naming rights liability - - - - 57,660 57,660 Gain on bargain purchase - - - - (63,871) (63,871) Professional and advisory fees associated with capital return program - - - - (17) (17) CARES Act credit (1) (2,215) (755) (548) (361) (49) (3,928) Credit Agreement amendment expenses (2) - - - - 810 810 Storm related losses, net of insurance recoveries(3) - - 15,131 - (1,036) 14,095 Bet.Works and Sinclair(4) - - - - 1,248 1,248 Sports and iGaming Licensing(5) - - - - 226 226 Other (6) 157 - - - (2,980) (2,823) Allocation of corporate costs 7,505 4,078 6,317 2,339 (20,239) - Adjusted EBITDA$ 33,572 $ 8,084 $ 40,618 $ 10,332 $ (22,204) $ 70,402
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(1) Amount represents the Employee Retention Credit under the CARES Act which provides the Company with a refundable tax credit of 50% of up to$10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. (2) Credit Agreement amendment expenses include costs associated with amendments made to the Company's Credit Agreement. (3) Represents losses incurred from damage resulting from Hurricane Zeta at Hard Rock Biloxi in the fourth quarter of 2020 offset by insurance recovery proceeds received for a damaged roof at the Company'sArapahoe Park racetrack for the respective periods. (4) Expenses incurred to establish the partnership with Sinclair and acquisition costs attributable to the Bet.Works acquisition in the fourth quarter of 2020. (5) Represents costs incurred to apply for and obtain sports and iGaming licenses in various jurisdictions. (6) Other includes the following non-recurring items (i) expenses incurred associated with theRhode Island State Police investigation into a former tenant in theTwin River Casino property and a former employee of the Company, (ii) expenses incurred associated with the campaign attempting to create an open bid process for the Rhode Island Lottery Contract, (iii) non-routine legal expenses incurred in connection with certain litigation matters (net of insurance reimbursements), and (iv) costs incurred in connection with the implementation of a new human resources information system. 39 -------------------------------------------------------------------------------- Year Ended December 31, 2019 (in thousands) Rhode Island Mid-Atlantic Southeast Other Total Revenue$ 306,306 $ 80,806 $ 127,432 $ 9,033 $ 523,577 Net income$ 71,124 $
6,031
3,265 145 (30) 34,546 37,926
Provision for income taxes 26,653 2,903 5,108 (14,614) 20,050
Depreciation and amortization 18,473 3,996 9,743 180 32,392
Non-operating income - (39) - (144) (183)
Acquisition, integration and restructuring
expense 425 1,155 - 10,588 12,168
Share-based compensation - - - 3,826 3,826
Professional and advisory fees associated
with capital return program - - - 3,510 3,510
Credit Agreement amendment expenses (1) 1,038 - - 1,877 2,915
Storm related losses, net of insurance
recoveries(2) - - (152) (1,181) (1,333)
Other (3) (419) - 275 893 749
Allocation of corporate costs 10,124 2,466 4,148 (16,738) -
Adjusted EBITDA $ 130,683 $ 16,657 $ 37,257 $ (17,447) $ 167,150 __________________________________
(1) Credit Agreement amendment expenses include costs associated with amendments made to the Company's Credit Agreement. (2) Gain related to insurance recovery proceeds received for a damaged roof at the Company'sArapahoe Park racetrack and storm-related repair expenses, net of insurance recoveries, associated with damage from Hurricane Nate at Hard RockBiloxi . (3) Other includes the following non-recurring items for the applicable periods (i) expenses incurred associated with theRhode Island State Police investigation into a former tenant in theTwin River Casino property and a former employee of the Company, (ii) a pension audit payment representing an adjustment to a charge for out-of-period unpaid contributions, inclusive of estimated interest and penalties, to one of the Company's multi-employer pension plans, (iii) expenses incurred associated with the campaign attempting to create an open bid process for the Rhode Island Lottery Contract, and (iv) non-routine legal expenses incurred in connection with certain litigation matters (net of insurance reimbursements).
Year ended
The information required by this section can be found in our Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Liquidity and Capital Resources
We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy, and debt repayment obligations and interest payments. Over the next twelve months, we believe that operating cash flows will be sufficient to meet funding needs for operating, capital expenditure and debt service purposes. Furthermore, existing cash balances and availability of additional borrowings under the Credit Facility provide additional sources of liquidity. While we may seek other funding alternatives, we believe existing cash balances, cash flow from operations and availability under our Credit Facility will provide the cash necessary to fund our proposed acquisitions of MontBleu, Jumer's, TropicanaEvansville , and Bet.Works, all of which are currently expected to close in the first half of 2021. 40 --------------------------------------------------------------------------------
Cash Flows Summary
Years Ended December 31,
(In thousands) 2020 2019 2018
Net cash provided by operating activities $ 19,502 $ 94,100 $ 109,244
Net cash used in investing activities (444,846) (38,925) (117,600)
Net cash provided by (used in) financing activities 366,397 48,896 (3,429)
Net change in cash and cash equivalents and restricted cash
(58,947) 104,071 (11,785)
Cash and cash equivalents and restricted cash,
beginning of period 185,502 81,431 93,216
Cash and cash equivalents and restricted cash, end of
period $ 126,555 $ 185,502 $ 81,431 Operating Activities
Net cash provided by operating activities for the year endedDecember 31, 2020 was$19.5 million , a decrease of$74.6 million from$94.1 million in 2019. This decrease was attributable to a net loss of$5.5 million in 2020 compared to net income of$55.1 million in 2019 primarily due to themid-March 2020 shut-down of our facilities in response to the COVID-19 pandemic and operating restrictions on our properties following their reopening and a gain on bargain purchases of$63.9 million relating to the current year acquisitions ofBally's Atlantic City andShreveport , partially offset by a loss of$57.7 million relating to a change in value of naming rights liabilities associated with the Sinclair Agreement. Prepaid expenses and other assets as ofDecember 31, 2020 included the contingent consideration asset of$27.7 million in connection with our arrangement with Caesars to reimburse us for capital spending to refurbish, upgrade and expand the amenities at ourBally's Atlantic City property.
Investing Activities
Net cash used in investing activities for the year endedDecember 31, 2020 was$444.8 million , an increase of$405.9 million compared to$38.9 million used in investing activities for 2019. This increase was primarily driven by the$425.1 million aggregate cash outlay for the acquisitions of theBlack Hawk Casinos ,Casino KC andCasino Vicksburg ,Bally's Atlantic City , andShreveport in 2020 compared to$9.6 million paid in 2019 for the acquisition of Dover Downs, partially offset by a decrease in capital expenditures of$13.0 million when compared to the prior year as we limited spending on capital projects to conserve cash in response to COVID related shutdowns. The 2020 year also includes a$4.0 million deposit paid in connection with our acquisition of Jumer's inSeptember 2020 ,$2.0 million of which is nonrefundable.
Financing Activities
Net cash provided by financing activities for the year endedDecember 31, 2020 was$366.4 million compared to net cash provided by financing activities of$48.9 million for 2019. Cash provided by financing activities in 2020 was driven by$261.2 million of borrowings, net of fees, on our additional term loan,$122.5 million of Senior Notes proceeds and borrowings under our revolver, all of which were used to fund current year acquisitions. We also spent$33.3 million on share repurchases and paid cash dividends of$3.2 million under our capital return program. During 2019, cash provided by financing activities was driven by proceeds received from the Term Loan Facility and Senior Notes (defined below), net of fees incurred, of$683.2 million , partially offset by debt repayments of$343.9 million on our previous term loan and the required quarterly payments on our new Term Loan Facility. We also paid$223.1 million for share repurchases, including shares repurchased in connection with our Dutch auction tender offer inJuly 2019 under our capital return program.
Working Capital
AtDecember 31, 2020 , net working capital balance was$145.8 million , compared to$155.2 million atDecember 31, 2019 a decrease of$9.5 million . This decrease is primarily attributable to a decrease in our cash and cash equivalents balance to$123.4 million as ofDecember 31, 2020 compared to$182.6 million as a result of the timing of transactions in each respective period, as noted above. 41 --------------------------------------------------------------------------------
Capital Return Program and Quarterly Cash Dividend
During the second quarter of 2019, we announced that our Board approved a capital return program under which we may expend a total of up to$250 million for a share repurchase program and payment of dividends. OnJuly 26, 2019 , we completed a modified Dutch auction tender offer, purchasing 2,504,971 common shares at an aggregate purchase price of$73.9 million and repurchased an additional 6,558,379 common shares under the capital return program. During the year endedDecember 31, 2019 , we paid cash dividends of$0.10 per common share in each of the third and fourth quarters, for a total of$0.20 per common share and a total cost of approximately$7.6 million .
On
As noted below, as a result of the amendment to our Credit Facility, we are not permitted to declare or pay dividends on our common stock (or repurchase shares of our common stock) until the end of the Leverage Ratio Covenant Relief Period.
Senior Secured Credit Facility
OnMay 10, 2019 , we entered into a credit agreement ("the "Credit Agreement") withCitizens Bank, N.A. , as administrative agent, (the "Agent"), and the lenders party thereto (the "Credit Facility"), consisting of a$300 million Term B Loan facility (the "Term Loan Facility") and a$250 million revolving credit facility (the "Revolving Credit Facility"). Our obligations under the Revolving Credit Facility will mature onMay 10, 2024 . Our obligations under the Term Loan Facility will mature onMay 10, 2026 . BeginningSeptember 30, 2019 , the Company is required to make quarterly principal payments of$750,000 on the Term Loan Facility on the last business day of each fiscal quarter. In addition, we are required to make mandatory payments of amounts outstanding under the Credit Facility with the proceeds of certain casualty events, debt issuances, and asset sales and, commencing with the fiscal year beginningJanuary 1, 2020 , we are required to apply a portion of its excess cash flow to repay amounts outstanding under the Credit Facility. OnMarch 16, 2020 , we borrowed under our Revolving Credit Facility the full available amount of$250 million to increase our cash position and liquidity to facilitate financial flexibility in light of the then uncertainty in the global markets and the our business resulting from the COVID-19 pandemic. Upon closing of the additional$275 million term loan noted below, we repaid the full$250 million we had outstanding under our Revolving Credit Facility and currently have the full amount of the Revolving Credit Facility available for borrowing. Pursuant to the Revolving Credit Facility, we may utilize this availability for working capital, general corporate and other purposes as permitted under the terms of the Revolving Credit Facility. We believe that we have sufficient liquidity to meet our obligations, including those under our Term Loan Facilities, the Senior Notes and pending acquisitions. OnApril 24, 2020 , we and our lenders amended the financial covenants and certain other terms of our Credit Facility to provide financial covenant relief from the effects of the COVID-19 pandemic. Until the period on which we are required to deliver our compliance statement and financial statements for the three months endingMarch 31, 2021 (the "Leverage Ratio Covenant Relief Period"), we will not be required to comply with the maximum total net leverage ratio covenant. Instead the Company will be required to comply with a minimum liquidity covenant tested at the last day of each month during the Leverage Ratio Covenant Relief Period. Under the minimum liquidity requirement, we will be required to have unrestricted cash on hand at the end of each month in the following amounts: (1)$75.0 million atApril 30, 2020 andMay 31, 2020 , (2)$65.0 million atJune 30, 2020 , (3)$55.0 million atJuly 31, 2020 , and (4)$50.0 million at each month-end thereafter throughMarch 31, 2021 . We will not be permitted to declare or pay dividends on our common stock or make other restricted payments, complete investments or acquisitions (other than those previously announced or to which the lenders consent) during the Leverage Ratio Covenant Relief Period, and the interest rates on the Revolving Credit Facility borrowings are LIBOR + 2.75% during the Leverage Ratio Covenant Relief Period. Additionally, the amendment permanently changed the minimum LIBOR on Revolver borrowings from 0.00% to 0.75%. OnMarch 5, 2021 , we and our lenders amended the financial covenants and certain other terms of our Credit Facility to provide deemed consolidated EBITDA numbers for certain fiscal quarters of 2021 and to permit the annualization of consolidated EBITDA for the 2021 fiscal year for purposes of calculating compliance with the consolidated total net leverage ratio, to the extent we are required to comply with it. 42 -------------------------------------------------------------------------------- OnMay 11, 2020 , we closed on an amendment to our Credit Facility to increase our Term Loan Facility by$275.0 million . Borrowings under the increased portion of the Term Loan Facility will bear interest at LIBOR + 8.00% per annum with a 1.00% LIBOR floor through theMay 10, 2026 maturity date. Following the amendment, we repaid the full$250.0 million outstanding under our Revolving Credit Facility. This new term loan satisfied the financing contingency in the purchase agreement to acquireShreveport and MontBleu from affiliates ofEldorado . OnMarch 9, 2021 , we amended our Credit Agreement to increase the aggregate principal amount of the Revolving Credit Facility to$325 million , an increase of$75 million pursuant to an incremental revolving facility. Borrowings under the new incremental revolving facility will be subject to the same terms and conditions of the existing Revolving Credit Facility under the Credit Agreement.
6.75% Senior Notes due 2027
OnMay 10, 2019 , we issued$400.0 million aggregate principal amount of 6.75% unsecured senior notes dueJune 1, 2027 (the "Senior Notes"). OnOctober 9, 2020 , we issued an additional$125.0 million aggregate principal amount of 6.75% unsecured senior notes dueJune 1, 2027 (the "Additional Notes" and, together with the Initial Notes, the "Senior Notes"). The Additional Notes, other than with respect to the date of issuance and issue price, are identical to the Initial Notes, and are treated as a single class with the Initial Notes for all purposes under the indenture governing the Senior Notes (the "Indenture"). Immediately after giving effect to the issuance and sale of the Additional Notes, we had$525.0 million in aggregate principal amount of Senior Notes outstanding. Interest on the Senior Notes is paid semi-annually in arrears onJune 1 andDecember 1 . We used a portion of the net proceeds from the Initial Notes, together with a portion of the proceeds from our Term Loan Facility, to repay borrowings under our prior credit agreement (the "Former Credit Facility"). OnFebruary 4, 2021 , we announced we had obtained the consent of the Senior Notes holders to amend the indenture governing the Senior Notes. The amendment to the Indenture amended the "Incurrence of Indebtedness and Issuance of Subsidiary Preferred Stock" covenant contained in Section 4.09 of the Indenture to increase the fixed dollar prong of the credit facility basket from "$745.0 million " to "975.0 million." Except for this amendment, all the existing terms of the Senior Notes remain unchanged.
Refer to Note 11 "Long-Term Debt" in Item 8 of this Annual Report on Form 10-K.
Capital Expenditures
Capital expenditures are accounted for as either project or maintenance (replacement) capital expenditures. Project capital expenditures are for fixed asset additions that expand an existing facility or create a new facility. Maintenance and small project capital expenditures are expenditures to replace existing fixed assets with a useful life greater than one year that are obsolete, worn out or no longer cost effective to repair. For the year endedDecember 31, 2020 , capital expenditures were$15.3 million compared to$28.2 million in 2019, a decrease directly attributable spending restrictions resulting from the COVID-19 pandemic coupled with the completion of projects in the prior year relating to theTiverton Casino Hotel and the new hotel atTwin River Casino . As a result of the COVID-19 pandemic, all major projects were suspended in 2020. We expect capital expenditures in 2021 to exceed 2020 amounts as we intend to move forward with several proposed projects. At ourCasino KC property, we have planned a redevelopment project for approximately$40 million as we believe it will enhance the property and guest experience, and drive growth and our return on investment. We plan to invest approximately$90 million in ourBally's Atlantic City property over a span of five years to refurbish and upgrade our facilities and expand its amenities. Additionally, as noted above, we signed a framework agreement with an established developer to jointly design, develop, construct and manage a casino inCentre County, Pennsylvania and construction is expected to begin the first half of 2021 and will take approximately one year to complete. We estimate the total cost of the project, including construction, licensing and sports betting/iGaming operations, to be approximately$120 million . We may also commence our expansion and other capital improvements at ourTwin River Casino Hotel location related to our proposed partnership with IGT and are optimistic that this legislation will be addressed and approved as soon as the second quarter of 2021. We expect to fund the expenditures from a combination of cash flow from operations, cash on hand and available borrowings under our Credit Facility. Because the pandemic is ongoing and the duration and severity remains unclear, it is difficult to forecast any impacts on our future results and therefore, planned spending on these projects may be impacted as we embark into the 2021 year. 43
--------------------------------------------------------------------------------
Contractual Obligations
The following summarizes our undiscounted contractual obligations as ofDecember 31, 2020 : Less than More than (In thousands) Total 1 year 1-3 years 4-5 years 5 years Current and long-term obligations, at par$ 569,125 $ 5,750 $ 11,500 $ 11,500 $ 540,375 Revolver 35,000 - - 35,000 - Senior notes, at par 525,000 - - - 525,000 Interest(a) 407,091 68,814 204,415 116,143 17,719 Operating leases(b) 139,293 6,204 11,877 11,499 109,713 Naming rights fees(c) 88,019 2,000 10,000 18,000 58,019 Acquisition commitments(d) 33,050 33,050 - - - Capital expenditures(e) 90,000 25,000 50,000 15,000 - Bally's trade name 20,000 10,000 10,000 - - Other(f) 6,227 5,499 728 - - Total contractual obligations$ 1,912,805 $ 156,317
___________________________________________
(a)Interest for the term loan with obligations at par of$569,125 is calculated at theDecember 31, 2020 interest rate of 3.00% and interest for senior notes with obligations at par of$525,000 is calculated at the stated rate of 6.75%. (b)Represents the minimum rent payable under operating leases. (c)Represents fees under the terms of the Sinclair Agreement for naming rights of the regional sports networks which escalate annually over the ten year term of the agreement. Refer to Note 9 "Sinclair Agreement" in our consolidated financial statements. (d)Represents termination fees related to the pending acquisitions of MontBleu, Jumer's, Tropicana Evansville, and Bet.Works as well as non-cancelable fees owed to our advisors on select of these transactions. Refer to Note 17 "Commitments and Contingencies" in our consolidated financial statements. (e)We anticipate spending approximately$250 million for planned projects atCasino KC ,Bally's Atlantic City andCentre County, PA of which we are contractually committed to spend$90 million in connection with ourBally's Atlantic City property . (f)Includes various non-cancellable contractual obligations, including advertising and facilities maintenance agreements.
Off-Balance Sheet Arrangements
Except for obligations disclosed above under "Contractual Obligations" and performance obligations incurred in the ordinary course of business, we are not party to any off-balance sheet arrangements involving guarantee, contingency or similar obligations to entities whose financial statements are not consolidated with our results, and that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors in our securities.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. TheSEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies are: (i) valuing intangible assets, (ii) valuing goodwill, (iii) income taxes, (iv) business combinations and (v) pension plans. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies and estimates. 44 --------------------------------------------------------------------------------
Valuation of Intangible Assets
As a result of "fresh start accounting", we adjusted theTwin River Casino Hotel intangible assets to reflect their fair values onNovember 5, 2010 (the "Emergence Date"). Intangible assets consist of a Rhode Island VLT license, the Master Video Lottery Terminal Contract (the "Contract") with theDivision of Lotteries for theState of Rhode Island and theState of Rhode Island Department of Transportation , as amended, theTwin River trade name and theTwin River Casino Hotel rated player relationships. The Rhode Island VLT license has an indefinite life and therefore is not being amortized. The Contract for the VLTs, theTwin River Casino Hotel rated player relationships and theTwin River trade name are being amortized using the straight-line method based on their estimated useful lives from the Emergence Date. Our other intangible assets primarily consist of gaming licenses, trademarks, rated player relationships, and hotel and conference pre-bookings, which have all been obtained through acquisition, as well as a Naming Rights intangible asset obtained through the Sinclair Agreement. We consider our gaming licenses, VLT licenses and theBally's trademark to be indefinite lived based on future expectations of operating our gaming properties indefinitely and continuing to brand our corporate name and certain properties under theBally's trademark indefinitely. Intangible assets not subject to amortization are reviewed for impairment annually as ofOctober 1 and between annual test dates whenever events or changes in circumstances may indicate that the carrying amount of the related asset may not be recoverable. We establish a useful life upon initial recognition of our finite-lived intangible assets based on the period over which the asset is expected to contribute to our future cash flows, and periodically evaluate the remaining useful lives to determine whether events and circumstances warrant a revision to the remaining period of amortization. Finite-lived intangible assets are amortized over their remaining useful lives on a straight-line basis.
Valuation of
Goodwill represents the excess of reorganization value over the fair market value ofTwin River Casino Hotel net assets on the Emergence Date and the excess of the Hard Rock Biloxi, Newport Grand, Dover Downs,Casino KC andCasino Vicksburg purchase prices over the respective fair values of tangible and identifiable assets acquired and liabilities assumed. The Acquisitions ofBally's Atlantic City andShreveport resulted in a bargain purchase and therefore no goodwill was recorded associated with these transactions. We are required to test goodwill for impairment at least annually, and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have elected to perform our annual tests for indications of goodwill impairment as of the first day of the fourth quarter of each year. We test for goodwill impairment at the reporting unit level, which is at or one level below the operating segment level. When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. The quantitative goodwill test compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit's estimated fair value exceeds its estimated net book value, goodwill is not impaired. An impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value, in an amount not to exceed the carrying value of the reporting unit's goodwill. Income Taxes We prepare our income tax provision in accordance with ASC 740, Income Taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the 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 expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate change is enacted. A valuation allowance is required when it is "more likely than not" that all or a portion of the deferred taxes will not be realized. The consolidated financial statements reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities' full knowledge of the position and all relevant facts. 45 -------------------------------------------------------------------------------- OnDecember 22, 2017 , theSEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to provide guidance on accounting for the tax effects of the TCJA.SAB 118 provides a measurement period that begins in the reporting period that includes the TCJA's enactment date and ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740, however in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance withSAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete.SAB 118 provides that to the extent that a company's accounting for certain income tax effects of the TCJA is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. We recorded the impact of enactment ofU.S. tax reform subject toSAB 118, which provided for a twelve-month remeasurement period to complete the accounting required under Accounting Standards Codification ("ASC") 740, Income Taxes. During the fourth quarter of 2018, we completed our analysis to determine the deferred tax effect of the TCJA and recorded immaterial adjustments as ofDecember 22, 2018 .
Business Combinations
We account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of the acquisition at their respective estimated fair values.Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. The judgments made in determining the estimated fair value assigned to each class of assets acquired, as well as the estimated useful life of each asset, can materially impact the net income of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In determining the estimated fair value for intangible assets, we typically utilize the income approach, which discounts the projected future net cash flow using a discount rate deemed appropriate by management that reflects the risks associated with such projected future cash flow. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. Intangible assets determined to have an indefinite useful life are reassessed periodically based on the expected use of the asset by us, legal or contractual provisions that may affect the useful life or renewal or extension of the asset's contractual life without substantial cost, and the effects of demand, competition and other economic factors.
Pension Plan
We sponsor a defined benefit pension plan that covers certain employees who meet eligibility requirements. OnJune 15, 2011 , it was announced that the Dover Downs Pension Plan was frozen to participation and benefit accruals as ofJuly 31, 2011 . The benefits provided by our defined benefit pension plan are based on years of service and employee's remuneration throughJuly 31, 2011 . While we believe the valuation methods used to determine the fair value of plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The determination of our obligation and related expense for Company-sponsored pension benefits is dependent, in part, on management's selection of certain actuarial assumptions used in calculating these amounts. These assumptions include, among other things, the discount rate and the expected long-term rate of return on plan assets. Refer to Note 15 "Employee Benefit Plans" in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for information related to the actuarial assumptions used in determining pension liabilities and expenses. We review and select the discount rate to be used in connection with our pension obligation annually. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. We set our rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. Our assumption regarding expected long-term rate of return on plan assets is determined based on the portfolio's actual and target composition, current market conditions, forward-looking return and risk assumptions by asset class, and historical long-term investment performance. In accordance with applicable accounting standards, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, affect expense and obligations in future periods. 46 -------------------------------------------------------------------------------- For 2020, each 25 basis point increase/decrease in the discount rate and expected return on plan assets would, collectively, increase/decrease pension expense by less than$0.1 million . Although we believe our assumptions are appropriate, the actuarial assumptions may differ from actual results due to changing market and economic conditions, higher or lower withdrawal rates and longer or shorter life spans of participants.
Amortization of net actuarial loss or gain expense recognition
We recognize the amortization of net actuarial loss or gain on the Dover Downs Pension Plan over the remaining life expectancy of all plan participants. This is based on the fact that the defined benefit pension plan is both closed to new entrants and all benefit accruals have been frozen.
Full yield curve expense recognition
We utilize the "full yield curve" approach for determining the interest and service cost components of net periodic benefit cost for defined benefit pension plans. Under this method, the discount rate assumption used in the interest and service cost components of net periodic benefit cost is built through applying the specific spot rates along the yield curve used in the determination of the benefit obligation described above, to the relevant projected future cash flows of our pension plan. We believe the "full yield curve" approach reflects a greater correlation between projected benefit cash flows and the corresponding yield curve spot rates and provides a more precise measurement of interest and service costs.
Recently Issued Accounting Pronouncements
For a discussion of recently issued financial accounting standards, refer to Note 3 "Recently Issued and Adopted Accounting Pronouncements", "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for further detail. JOBS Act Transition Period InApril 2012 , the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. We will rely on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we will rely on certain of these exemptions, including without limitation, (1) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will be considered an emerging growth company until the earliest to occur of (1) the last day of the first fiscal year in which our annual gross revenues exceed$1.07 billion , (2) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act which could occur if the market value of our shares that are held by non-affiliates exceeds$700 million as of the last business day of our most recently completed second fiscal quarter, (3) the date on which we have issued more than$1.0 billion in non convertible debt during the preceding three-year period, and (4) the last day of our fiscal year containing the fifth anniversary of the date on which we first sold common equity securities pursuant to an effective registration statement, orDecember 31, 2024 . 47
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