Eldorado Resorts, Inc.

Our operating leases, in which we are the lessee, are recorded on the balance sheet as a ROU asset with a corresponding lease liability. The lease liability will be remeasured each reporting period with a corresponding change to the ROU asset. ROU assets and lease liabilities for operating leases totaled $282.4 million and $287.1 million, respectively, as of March 31, 2019. The adoption of this guidance did not have an impact on net income; however, upon adoption we recorded a cumulative adjustment to our retained earnings of $4.7 million, net of tax, primarily related to the Company’s lease and management agreements at its Bettendorf location. (See Note 2 for more information).  Adoption of this guidance did not have a material impact on the Company’s other financing leases.

The Company’s lease arrangements have lease and non-lease components. For leases in which the Company is the lessee, the Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases, in which the Company is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately, which is consistent with the Company’s historical accounting. Leases with an expected or initial term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

The Company records contract or contract-related liabilities related to differences between the timing of cash receipts from the customer and the recognition of revenue. The Company generally has three types of liabilities related to contracts with customers: (1) outstanding chip liability, which represents the amounts owed in exchange for gaming chips held by a customer, (2) player loyalty program obligations, which represents the deferred allocation of revenue relating to player loyalty program incentives earned, as discussed above, and (3) customer deposits and other deferred revenue, which is primarily funds deposited by customers related to gaming play, advance payments on goods and services yet to be provided (such as advance ticket sales and deposits on rooms and convention space or for unpaid wagers), and deferred revenues associated with the Company’s interests in William Hill and TSG  (see Note 7 and Note 8). Except for deferred revenues related to William Hill and TSG, these liabilities are generally expected to be recognized as revenue within one year of being purchased, earned, or deposited and are recorded within “Accrued other liabilities” on the Company’s Consolidated Balance Sheets.

The Company is accounting for its investment in William Hill US under the equity method. The fair value of the Company’s initial investment in William Hill US of $128.9 million at January 29, 2019 was determined using Level 3 inputs. As of March 31, 2019, the carrying value of the Company’s interest in William Hill US was $130.3 million recorded in investment in and advances to unconsolidated affiliates on the Consolidated Balance Sheet. The Company also recorded deferred revenue associated with the ownership interest received in William Hill US and is recognizing revenue on a straight-line basis over the 25 year agreement term. The Company recognized revenue of $0.8 million during the three months ended March 31, 2019. As of March 31, 2019, the balance of the William Hill US deferred revenue totaled $128.1 million and is recorded in other long term liabilities on the Consolidated Balance Sheet.

Our primary sources of liquidity and capital resources have been existing cash, cash flow from operations, borrowings under our revolving credit facility, proceeds from the issuance of debt securities and proceeds from our recent disposition of Presque Isle Downs. As of March 31, 2019, we had $40.0 million outstanding and $447.7 million of available borrowing capacity, after consideration of $12.3 million in outstanding letters of credit, under our Revolving Credit Facility.  We applied approximately $150.0 million of proceeds from the sale of Presque Isle Downs to temporarily repay amounts outstanding under the Revolving Credit Facility.  Pursuant to the terms of the indentures governing the Company’s senior notes, the Company will be required to make an offer to purchase a portion of its outstanding senior notes with the excess proceeds from such sale unless it applies the net proceeds of such sale to either permanently repay outstanding indebtedness or make specified acquisitions or capital expenditures within 365 days of the sale of Presque Isle Downs.