CAESARS ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| Six Months Ended June 30, |
| (In millions) | 2022 | | 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
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| Net cash provided by operating activities | $ | 116 | | | $ | 672 | |
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| CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| Purchase of property and equipment, net | (471) | | | (177) | |
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| Acquisition of William Hill, net of cash acquired | — | | | (2,042) | |
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| Acquisition of gaming rights and trademarks | — | | | (272) | |
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| Proceeds from sale of businesses, property and equipment, net of cash sold | 4 | | | 460 | |
| Proceeds from the sale of investments | 121 | | | 44 | |
| Proceeds from insurance related to property damage | 33 | | | 40 | |
| Investments in unconsolidated affiliates | — | | | (33) | |
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| Net cash used in investing activities | (313) | | | (1,980) | |
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| CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| Proceeds from long-term debt and revolving credit facilities | 750 | | | — | |
| Repayments of long-term debt and revolving credit facilities | (878) | | | (35) | |
| Cash paid to settle convertible notes | — | | | (367) | |
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| Taxes paid related to net share settlement of equity awards | (23) | | | (27) | |
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| Net cash used in financing activities | (151) | | | (429) | |
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| CASH FLOWS FROM DISCONTINUED OPERATIONS: | | | |
| Cash flows from operating activities | (18) | | | (67) | |
| Cash flows from investing activities | (82) | | | (916) | |
| Cash flows from financing activities | — | | | 591 | |
| Net cash from discontinued operations | (100) | | | (392) | |
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| Effect of foreign currency exchange rates on cash | (29) | | | 19 | |
| Decrease in cash, cash equivalents and restricted cash | (477) | | | (2,110) | |
| Cash, cash equivalents and restricted cash, beginning of period | 2,021 | | | 4,280 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 1,544 | | | $ | 2,170 | |
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| RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONSOLIDATED CONDENSED BALANCE SHEETS: | | | |
| Cash and cash equivalents | $ | 997 | | | $ | 1,128 | |
| Restricted cash included in restricted cash and investments | 145 | | | 237 | |
| Restricted and escrow cash included in other assets, net | 210 | | | 385 | |
| Cash and cash equivalents and restricted cash held for sale - discontinued operations | 192 | | | 420 | |
| Total cash, cash equivalents and restricted cash | $ | 1,544 | | | $ | 2,170 | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
| Interest paid | $ | 986 | | | $ | 923 | |
| Income taxes paid, net | 14 | | | — | |
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | |
| Payables for capital expenditures | 115 | | | 54 | |
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Convertible notes settled with shares | — | | | 440 | |
| Land contributed to joint venture | — | | | 61 | |
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The accompanying notes are an integral part of these consolidated condensed financial statements.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying consolidated condensed financial statements include the accounts of Caesars Entertainment, Inc., a Delaware corporation, and its consolidated subsidiaries which may be referred to as the “Company,” “CEI,” “Caesars,” “we,” “our,” or “us” within these financial statements.
This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Annual Report”). Capitalized terms used but not defined in this Form 10-Q have the same meanings as in the 2021 Annual Report.
We also refer to (i) our Consolidated Condensed Financial Statements as our “Financial Statements,” (ii) our Consolidated Condensed Balance Sheets as our “Balance Sheets,” (iii) our Consolidated Condensed Statements of Operations and Consolidated Condensed Statements of Comprehensive Income (Loss) as our “Statements of Operations,” and (iv) our Consolidated Condensed Statements of Cash Flows as our “Statements of Cash Flows.”
Note 1. Organization and Basis of Presentation
Organization
The Company is a geographically diversified gaming and hospitality company that was founded in 1973 by the Carano family with the opening of the Eldorado Hotel Casino in Reno, Nevada. Beginning in 2005, the Company grew through a series of acquisitions, including the acquisition of MTR Gaming Group, Inc. in 2014, Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”) in 2017 and Tropicana Entertainment, Inc. in 2018. On July 20, 2020, the Company completed the merger with Caesars Entertainment Corporation (“Former Caesars”) pursuant to which Former Caesars became a wholly-owned subsidiary of the Company (the “Merger”) and the Company changed the Company’s ticker symbol on the NASDAQ Stock Market from “ERI” to “CZR”.
On April 22, 2021, the Company completed the acquisition of William Hill PLC for £2.9 billion, or approximately $3.9 billion (the “William Hill Acquisition”). See below for further discussion of the William Hill Acquisition.
The Company owns, leases, brands or manages an aggregate of 51 domestic properties in 16 states with approximately 53,200 slot machines, video lottery terminals and e-tables, approximately 2,900 table games and approximately 47,500 hotel rooms as of June 30, 2022. The Company operates and conducts sports wagering across 25 jurisdictions in North America, 18 of which are mobile for sports betting, and operates regulated online real money gaming businesses in six jurisdictions in North America. In addition, we have other domestic and international properties that are authorized to use the brands and marks of Caesars Entertainment, Inc., as well as other non-gaming properties. The Company’s primary source of revenue is generated by its casino properties’ gaming operations, retail and online sports betting, as well as online gaming, and the Company utilizes its hotels, restaurants, bars, entertainment, racing, retail shops and other services to attract customers to its properties.
The Company’s operations for retail and mobile sports betting, online horse racing wagering, online casino, and online poker are included within the Caesars Digital segment. The Company has made significant investments into the interactive business with the completion of the Merger and the William Hill Acquisition. In addition, in connection with the launch and rebranding of the Caesars Sportsbook app, our Caesars Digital segment initiated a significant marketing campaign with distinguished actors, former athletes and other media personalities. As new states and jurisdictions have legalized sports betting, we have made significant upfront investments which have been executed through marketing campaigns and promotional incentives to acquire new customers and establish ourselves as an industry leader. During significant promotional periods, such as entering new jurisdictions with our Caesars Sportsbook app, the Company intends to limit the duration and apply discretion to determine the level of investment for a particular jurisdiction. The Caesars Sportsbook app offers numerous pre-match and live markets, extensive odds and flexible limits, player props, and same-game parlays. Caesars Sportsbook has partnerships with the NFL, NBA, NHL and MLB and is the exclusive odds provider for ESPN and CBS Sports. The Company also intends to continue to create new partnerships among collegiate and professional sports teams and entered into the exclusive naming-rights partnership to rebrand the Superdome in New Orleans as the Caesars Superdome. In addition to the Caesars Sportsbook app, the Company and NYRABets LLC, the official online wagering platform of the New York Racing Association, Inc., launched the Caesars Racebook app. The Caesars Racebook app provides access for wagers at over 300 race tracks around the world. Wagers placed can earn credits towards the Caesars Rewards program or points which can be redeemed for free wagering credits. The Company expects to continue to expand its operations in the Caesars Digital segment as new jurisdictions legalize retail and online sports betting and online horse racing wagering.
The Company has divested certain properties and other assets, including non-core properties and divestitures required by regulatory agencies. See Note 3 for a discussion of properties recently sold or currently held for sale and Note 15 for segment information.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
William Hill Acquisition
On September 30, 2020, the Company announced that it had reached an agreement with William Hill PLC on the terms of a recommended cash acquisition pursuant to which the Company would acquire the entire issued and to be issued share capital (other than shares owned by the Company or held in treasury) of William Hill PLC, in an all-cash transaction. On April 22, 2021, the Company completed the acquisition of William Hill PLC for £2.9 billion, or approximately $3.9 billion. See Note 2.
In connection with the William Hill Acquisition, on April 22, 2021, a newly formed subsidiary of the Company (the “Bridge Facility Borrower”) entered into a Credit Agreement (the “Bridge Credit Agreement”) with certain lenders party thereto and Deutsche Bank AG, London Branch, as administrative agent and collateral agent, pursuant to which the lenders party thereto provided the Debt Financing (as defined below). The Bridge Credit Agreement provides for (a) a 540-day £1.0 billion asset sale bridge facility, (b) a 60-day £503 million cash confirmation bridge facility and (c) a 540-day £116 million revolving credit facility (collectively, the “Debt Financing”). The proceeds of the bridge loan facilities provided under the Bridge Credit Agreement were used (i) to pay a portion of the cash consideration for the acquisition and (ii) to pay fees and expenses related to the acquisition and related transactions. The proceeds of the revolving credit facility under the Bridge Credit Agreement may be used for working capital and general corporate purposes. The £1.5 billion Interim Facilities Agreement (the “Interim Facilities Agreement”) entered into on October 6, 2020 with Deutsche Bank AG, London Branch and JPMorgan Chase Bank, N.A., and amended on December 11, 2020, was terminated upon the execution of the Bridge Credit Agreement. On May 12, 2021, the Company repaid the £503 million cash confirmation bridge facility. On June 14, 2021, the Company drew down the full £116 million from the revolving credit facility and the proceeds, in addition to excess Company cash, were used to make a partial repayment of the asset sale bridge facility in the amount of £700 million. On July 1, 2022, outstanding borrowings under the Bridge Credit Agreement were repaid immediately following the sale of William Hill’s non-U.S. operations, which included the UK and international online divisions and the retail betting shops (collectively, “William Hill International”), all of which were held for sale as of the date of the closing of the William Hill Acquisition with operations reflected within discontinued operations. See Note 3. Certain investments acquired have been excluded from the held for sale asset group. See Note 7 for investments in which the Company elected to apply the fair value option.
On September 8, 2021, the Company entered into an agreement to sell William Hill International to 888 Holdings Plc for approximately £2.2 billion. In order to manage the risk of changes in the GBP denominated sales price and expected proceeds, the Company entered into foreign exchange forward contracts. See Note 7. On April 7, 2022, the Company amended the agreement to sell the non-US assets of William Hill to 888 Holdings Plc for a revised enterprise value of approximately £2.0 billion. The amended agreement reflects a £250 million reduction in consideration payable at closing and up to £100 million as deferred consideration to be paid to the Company, subject to 888 Holdings Plc meeting certain 2023 financial targets. During the three and six months ended June 30, 2022, the Company recorded impairments to assets held for sale of $174 million and $503 million, respectively, within discontinued operations based on the revised and final sales prices.
On July 1, 2022, the Company completed the sale of William Hill International to 888 Holdings Plc. After the repayment of the Bridge Credit Agreement, other permitted leakage, and the settlement of related forward contracts, Caesars received net proceeds of $730 million. Including open market repurchases during the second quarter and subsequent repurchases and repayments in July 2022, the Company utilized all $730 million to reduce the Company’s outstanding debt. See Note 9.
Basis of Presentation
The accompanying unaudited Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Financial Statements contain all adjustments, all of which are normal and recurring, considered necessary for a fair presentation. The results of operations for these interim periods are not necessarily indicative of the operating results for other quarters, for the full year or any future period.
The presentation of financial information herein for the periods after the Company’s acquisition of William Hill on April 22, 2021 and the acquisition of an additional interest in Horseshoe Baltimore on August 26, 2021 is not fully comparable to the periods prior to the respective acquisitions. In addition, the presentation of financial information herein for the periods after the Company’s sales of various properties is not fully comparable to the periods prior to their respective sale dates. See Note 2 for further discussion of the acquisitions and related transactions and Note 3 for properties recently sold or currently held for sale. Additionally, certain reclassifications of prior year presentations have been made to conform to the current period presentation.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Consolidation of Subsidiaries and Variable Interest Entities
Our Financial Statements include the accounts of Caesars Entertainment, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions.
We consolidate all subsidiaries in which we have a controlling financial interest and variable interest entities (“VIEs”) for which we or one of our consolidated subsidiaries is the primary beneficiary. Control generally equates to ownership percentage, whereby (i) affiliates that are more than 50% owned are consolidated; (ii) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where we have determined that we have significant influence over the entities; and (iii) investments in affiliates of 20% or less are generally accounted for as investments in equity securities.
We consider ourselves the primary beneficiary of a VIE when we have both the power to direct the activities that most significantly affect the results of the VIE and the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. We review investments for VIE consideration if a reconsideration event occurs to determine if the investment qualifies, or continues to qualify, as a VIE. If we determine an investment qualifies, no longer qualifies, as a VIE, there may be a material effect to our Financial Statements.
Developments Related to COVID-19
The resurgence of the Omicron variant of COVID-19 continued to impact the beginning of the year, however, many of our properties experienced positive trends during much of the six months ended June 30, 2022, including higher hotel occupancy, particularly in Las Vegas, and increased gaming and food and beverage volumes. COVID-19 had a significant impact to the prior year results as mandates and restrictions on maximum capacities and amenities available were eased, discretionary consumer spending was supplemented via governmental stimulus and consumers pent up demand resulted in strong results during 2021 across our properties. Our results of operations remain comparable to pre-pandemic years, however, specifically within our Regional segment, are slightly down to the comparative prior year period. Additionally, future variants, mandates or restrictions imposed by various regulatory bodies are uncertain and could, once again, have a significant impact on our future operations.
Recently Issued Accounting Pronouncements
Pronouncements Implemented in 2022
Effective January 1, 2022, we adopted Accounting Standards Update 2020-04 (amended through January 2021), Reference Rate Reform. We will apply this guidance to applicable contracts and instruments if, and when, they are modified. Such application is not expected to have a material effect on our Financial Statements.
Note 2. Acquisitions and Purchase Price Accounting
Acquisition of William Hill
On April 22, 2021, we completed the acquisition of William Hill PLC for cash consideration of approximately £2.9 billion, or approximately $3.9 billion, based on the GBP to USD exchange rate on the closing date.
We acquired William Hill PLC and its U.S. subsidiary, William Hill U.S. Holdco (“William Hill US” and together with William Hill PLC, “William Hill”) to better position the Company to address the extensive usage of digital platforms, continued legalization in additional states and jurisdictions, and growing bettor demand, which are driving the market for online sports betting platforms in the U.S. In addition, we continue to leverage the World Series of Poker (“WSOP”) brand, and license the WSOP trademarks for a variety of products and services across these digital platforms. On September 8, 2021, the Company entered into an agreement to sell William Hill International to 888 Holdings Plc for approximately £2.2 billion. On April 7, 2022, the Company amended the agreement to sell the non-US assets of William Hill to 888 Holdings Plc for a revised enterprise value of approximately £2.0 billion. On July 1, 2022 the Company completed the sale of William Hill International to 888 Holdings Plc.
The Company previously held an equity interest in William Hill PLC and William Hill US (see Note 4). Accordingly, the acquisition was accounted for as a business combination achieved in stages, or a “step acquisition.”
As mentioned above, the total purchase consideration for William Hill was approximately $3.9 billion. The estimated purchase consideration in the acquisition was determined with reference to its acquisition date fair value.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | |
| (In millions) | Consideration |
Cash for outstanding William Hill common stock (a) | $ | 3,909 | |
| Fair value of William Hill equity awards | 30 | |
| Settlement of preexisting relationships (net of receivable/payable) | 7 | |
| Settlement of preexisting relationships (net of previously held equity investment and off-market settlement) | (34) | |
| Total purchase consideration | $ | 3,912 | |
____________________
(a)William Hill common stock of approximately 1.0 billion shares as of the acquisition date was paid at £2.72 per share, or approximately $3.77 per share using the GBP to USD exchange rate on the acquisition date.
Final Purchase Price Allocation
The fair values are based on management’s analysis including work performed by third-party valuation specialists, which were finalized over the one-year measurement period. The following table summarizes the allocation of the purchase consideration to the identifiable assets acquired and liabilities assumed of William Hill, with the excess recorded as goodwill as of June 30, 2022:
| | | | | | | |
| (In millions) | Fair Value | | |
| Other current assets | $ | 164 | | | |
| Assets held for sale | 4,337 | | | |
| Property and equipment, net | 55 | | | |
| Goodwill | 1,154 | | | |
Intangible assets (a) | 565 | | | |
| Other noncurrent assets | 317 | | | |
| Total assets | $ | 6,592 | | | |
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| Other current liabilities | $ | 242 | | | |
Liabilities related to assets held for sale (b) | 2,142 | | | |
| Deferred income taxes | 251 | | | |
| Other noncurrent liabilities | 35 | | | |
| Total liabilities | 2,670 | | | |
| Noncontrolling interests | 10 | | | |
| Net assets acquired | $ | 3,912 | | | |
____________________
(a)Intangible assets consist of gaming rights valued at $80 million, trademarks valued at $27 million, developed technology valued at $110 million, reacquired rights valued at $280 million and user relationships valued at $68 million.
(b)Includes the fair value of debt of $1.1 billion related to William Hill International at the acquisition date.
The fair values of the assets acquired and liabilities assumed were determined using the market, income, and cost approaches, or a combination. Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the William Hill acquisition make use of Level 3 inputs, such as expected cash flows and projected financial results. The market approach indicates value for a subject asset based on available market pricing for comparable assets.
Trade receivables and payables and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the William Hill acquisition date. Assets and liabilities held for sale substantially represent William Hill International which was valued using a combination of approaches including a market approach based on valuation multiples and EBITDA, the relief from royalty method and the replacement cost method. In addition to the approaches described, our estimates have been updated to reflect the sale price of William Hill International in the proposed sale to 888 Holdings Plc, described above.
The acquired net assets of William Hill included certain investments in common stock. Investments with a publicly available share price were valued using the share price on the acquisition date. Investments without publicly available share data were valued at their carrying value, which approximated fair value.
Other personal property assets such as furniture, equipment, computer hardware, and fixtures were valued using a cost approach which determined that the carrying values represented fair value of those items at the William Hill acquisition date.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Trademarks and developed technology were valued using the relief from royalty method, which presumes that without ownership of such trademarks or technology, the Company would have to make a series of payments to the assets’ owner in return for the right to use their brand or technology. By virtue of their ownership of the respective intangible assets, the Company avoids any such payments and records the related intangible value. The estimated useful lives of the trademarks and developed technology are approximately 15 years and six years, respectively, from the acquisition date.
Online user relationships are valued using a cost approach based on the estimated marketing and promotional cost to acquire the new active user base if the user relationships were not already in place and needed to be replaced. We estimate the useful life of the user relationships to be approximately three years from the acquisition date.
Operating agreements with non-Caesars entities allowed William Hill to operate retail and online sportsbooks as well as online gaming within certain states. These agreements are valued using the excess earnings method, estimating the projected profits of the business attributable to the rights afforded through the agreements, adjusted for returns of other assets that contribute to the generation of this profit, such as working capital, fixed assets and other intangible assets. We estimate the useful life of these operating agreements to be approximately 20 years from the acquisition date and have included them within amortizing gaming rights.
The reacquired rights intangible asset represents the estimated fair value of the Company’s share of the William Hill’s forecasted profits arising from the prior contractual arrangement with the Company to operate retail and online sportsbooks and online gaming. This fair value estimate was determined using the excess earnings method, an income-based approach that reflects the present value of the future profit William Hill expected to earn over the remaining term of the contract, adjusted for returns of other assets that contribute to the generation of this profit, such as working capital, fixed assets and other intangible assets. The forecasted profit used within this valuation is adjusted for the settlement of the preexisting relationship noted previously in the calculation of the purchase consideration in order to avoid double counting of this settlement. Reacquired rights are amortizable over the remaining contractual period of the contract in which the rights were granted and estimated to be approximately 24 years from the acquisition date.
Goodwill is the result of expected synergies from the operations of the combined company and future customer relationships including the brand names and strategic partner relationships of Caesars and the technology and assembled workforce of William Hill. The goodwill acquired will not generate amortization deductions for income tax purposes.
The fair value of long-term debt assumed has been calculated based on market quotes.
The Company recognized acquisition-related transaction costs of $7 million and $62 million for the three months ended June 30, 2022 and 2021, respectively, and $8 million and $67 million for the six months ended June 30, 2022 and 2021, respectively, excluding additional transaction costs associated with the sale of William Hill International. These costs were primarily associated with legal and professional services and were recorded in Transaction and other operating costs, net in our Statements of Operations.
For the period of January 1, 2022 through June 30, 2022, the operations of William Hill resulted in net revenues of $17 million, excluding discontinued operations (see Note 3), and a net loss of $1.2 billion.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information is presented to illustrate the estimated effects of the William Hill Acquisition as if it had occurred on January 1, 2021. The pro forma amounts include the historical operating results of the Company and William Hill prior to the acquisition, with adjustments directly attributable to the acquisition. The pro forma results include adjustments and consequential tax effects to reflect incremental amortization expense to be incurred based on preliminary fair values of the identifiable intangible assets acquired, eliminate gains and losses related to certain investments and adjustments to the timing of acquisition related costs and expenses incurred during the three and six months ended June 30, 2021. The unaudited pro forma financial information is not necessarily indicative of the financial position or results that would have occurred had the William Hill Acquisition been consummated as of the dates indicated, nor is it indicative of any future results. In addition, the unaudited pro forma financial information does not reflect the expected realization of any synergies or cost savings associated with the acquisition.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | |
| (In millions) | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| Net revenues | $ | 2,532 | | | $ | 4,421 | |
| Net income (loss) | 175 | | | (265) | |
| Net income (loss) attributable to Caesars | 174 | | | (265) | |
Consolidation of Horseshoe Baltimore
On August 26, 2021, the Company increased its ownership interest in Horseshoe Baltimore, a property which it also manages, to approximately 75.8% for cash consideration of $55 million. Subsequent to the change in ownership, the Company was determined to have a controlling financial interest and has begun to consolidate the operations of Horseshoe Baltimore.
Prior to the purchase, the Company held an interest in Horseshoe Baltimore of approximately 44.3% which was accounted for as an equity method investment.
| | | | | |
| (In millions) | Consideration |
Cash for additional ownership interest | $ | 55 | |
| Preexisting relationships (net of receivable/payable) | 18 | |
| Preexisting relationships (previously held equity investment) | 81 | |
| Total purchase consideration | $ | 154 | |
Preliminary Purchase Price Allocation
The purchase price allocation for Horseshoe Baltimore is preliminary as it relates to determining the fair value of certain assets and liabilities, including goodwill, and is subject to change. The estimated fair values are based on management’s analysis including preliminary work performed by a third-party valuation specialist, which is subject to finalization over the one-year measurement period. The following table summarizes the preliminary allocation of the purchase consideration to the identifiable assets and liabilities of Horseshoe Baltimore, with any potential excess recorded as goodwill as of June 30, 2022:
| | | | | |
| (In millions) | Fair Value |
| Current assets | $ | 60 | |
| Property and equipment, net | 317 | |
| Goodwill | 63 | |
Intangible assets (a) | 53 | |
| Other noncurrent assets | 183 | |
| Total assets | $ | 676 | |
| |
| Current liabilities | $ | 26 | |
| Long-term debt | 272 | |
| Other long-term liabilities | 182 | |
| Total liabilities | 480 | |
| Noncontrolling interests | 42 | |
| Net assets acquired | $ | 154 | |
____________________
(a)Intangible assets consist of gaming rights valued at $43 million and customer relationships valued at $10 million.
The fair values of the assets acquired and liabilities assumed were determined using the market, income, and cost approaches, or a combination. Valuation methodologies under both a market and income approach used for the identifiable net assets acquired in the Horseshoe Baltimore acquisition make use of Level 3 inputs, such as expected cash flows and projected financial results. The market approach indicates value for a subject asset based on available market pricing for comparable assets.
Trade receivables and payables and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented the estimated fair value of those items at the Horseshoe Baltimore acquisition date.
Other personal property assets such as furniture, equipment, computer hardware, and fixtures were valued at the existing carrying values as they closely represented the estimated fair value of those items at the Horseshoe Baltimore acquisition date.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The fair value of the buildings and improvements were estimated via the income approach. The remaining estimated useful life of the buildings and improvements is 40 years.
The right of use asset and operating lease liability related to a ground lease for the site on which Horseshoe Baltimore is located was recorded at fair value and will be amortized over the estimated remaining useful life due to changes in the underlying fair value and estimated remaining useful life of the building and improvements. Renewal options are considered to be reasonably certain. The income approach was used to determine fair value, based on the estimated present value of the future lease payments over the lease term, including renewal options, using an incremental borrowing rate of approximately 7.6%.
Customer relationships are valued using an income approach, comparing the prospective cash flows with and without the customer relationships in place to estimate the fair value of the customer relationships, with the fair value assumed to be equal to the discounted cash flows of the business that would be lost if the customer relationships were not in place and needed to be replaced. We estimate the useful life of these customer relationships to be approximately seven years.
The fair value of the gaming rights was determined using the excess earnings method, which is an income approach methodology that estimates the projected cash flows of the business attributable to the gaming license intangible asset, which is net of charges for the use of other identifiable assets of the business including working capital, fixed assets and other intangible assets. The acquired gaming rights are considered to have an indefinite life.
The goodwill acquired will generate amortization deductions for income tax purposes.
The fair value of long-term debt has been calculated based on market quotes.
For the period of January 1, 2022 through June 30, 2022, the operations of Horseshoe Baltimore generated net revenues of $117 million, and net income of $6 million.
Note 3. Assets Held for Sale
The Company periodically divests assets to raise capital or, in some cases, to comply with conditions, terms, obligations or restrictions imposed by antitrust, gaming and other regulatory entities. The carrying value of the net assets held for sale are compared to the expected selling price and any expected losses are recorded immediately. Gains or losses associated with the disposal of assets held for sale are recorded within other operating costs, unless the assets represent a discontinued operation.
Held for sale - Sold
Baton Rouge, MontBleu and Evansville Divestitures
On May 5, 2022, the Company consummated the sale of the equity interests of Belle of Baton Rouge Casino & Hotel (“Baton Rouge”) to CQ Holding Company, Inc., subject to a customary working capital adjustment, resulting in a loss of $3 million. Baton Rouge was within the Regional segment.
On April 6, 2021, the Company consummated the sale of the equity interests of MontBleu Casino Resort & Spa (“MontBleu”) to Bally’s Corporation for $15 million, subject to a customary working capital adjustment, resulting in a gain of less than $1 million. The Company received the payment in full on April 5, 2022. MontBleu was within the Regional segment.
On June 3, 2021, the Company consummated the sale of the real property and equity interests of Tropicana Evansville (“Evansville”) to Gaming and Leisure Properties, Inc. (“GLPI”) and Bally’s Corporation (formerly Twin River Worldwide Holdings, Inc.), respectively, for $480 million, subject to a customary working capital adjustment, resulting in a gain of $12 million. Evansville was within the Regional segment.
The following information presents the net revenues and net income (loss) of previously held for sale properties, which were recently sold:
| | | | | | | | | | | | | | | |
| Baton Rouge | | |
| (In millions) | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| Net revenues | $ | 2 | | | | | $ | 6 | | | |
| Net loss | (1) | | | | | (1) | | | |
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (In millions) | Baton Rouge | | MontBleu | | Evansville | | Baton Rouge | | MontBleu | | Evansville |
| Net revenues | $ | 5 | | | $ | — | | | $ | 27 | | | $ | 9 | | | $ | 11 | | | $ | 58 | |
| Net income (loss) | — | | | — | | | 13 | | | (1) | | | 4 | | | 26 | |
The assets and liabilities held for sale were as follows as of December 31, 2021:
| | | | | |
| Baton Rouge |
| (In millions) | December 31, 2021 |
| Assets: | |
| |
| |
| |
| |
| |
| Cash | $ | 3 | |
| Property and equipment, net | 2 | |
| |
| |
| Other assets, net | 1 | |
| Assets held for sale | $ | 6 | |
| Liabilities: | |
| Current liabilities | $ | 3 | |
| |
| |
| |
| |
| |
| Other long-term liabilities | 1 | |
| Liabilities related to assets held for sale | $ | 4 | |
Held for sale - Discontinued operations
On the closing date of the Merger, Harrah’s Louisiana Downs, Caesars Southern Indiana and Caesars UK Group, which includes Emerald Resorts & Casino met held for sale criteria. The operations of these properties, until their respective date of divestiture, have been presented within discontinued operations.
On September 3, 2020, the Company and VICI Properties L.P., a Delaware limited partnership (“VICI”) entered into an agreement to sell the equity interests of Harrah’s Louisiana Downs to Rubico Acquisition Corp. for $22 million, subject to a customary working capital adjustment. On November 1, 2021, the sale of Harrah’s Louisiana Downs was completed and proceeds were split between the Company and VICI. The annual base rent payments under the Regional Master Lease between Caesars and VICI remained unchanged.
On December 24, 2020, the Company entered into an agreement to sell the equity interests of Caesars Southern Indiana to the Eastern Band of Cherokee Indians (“EBCI”) for $250 million, subject to customary purchase price adjustments. On September 3, 2021, the Company completed the sale of Caesars Southern Indiana, resulting in a gain of $12 million. In connection with this transaction, the Company’s annual base rent payments to VICI Properties under the Regional Master Lease were reduced by $33 million. Additionally, the Company and EBCI entered into a 10-year brand license agreement for the continued use of the Caesars brand and Caesars Rewards loyalty program at Caesars Southern Indiana. The agreement contains cancellation rights in exchange for a termination fee at the buyer’s discretion following the fifth anniversary of the agreement.
On July 16, 2021, the Company completed the sale of Caesars UK Group, in which the buyer assumed all liabilities associated with the Caesars UK Group, and recorded an impairment of $14 million within discontinued operations.
At the time that the William Hill Acquisition was consummated, the Company’s intent was to divest William Hill International. Accordingly, the assets and liabilities of William Hill International are classified as held for sale with operations presented within discontinued operations. See Note 1 and Note 2.
The following information presents the net revenues and net income (loss) for the Company’s properties that are part of discontinued operations for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | |
| William Hill International |
| (In millions) | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| Net revenues | $ | 401 | | | $ | 820 | |
| Net loss | (145) | | | (448) | |
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| (In millions) | Harrah’s Louisiana Downs | | Caesars UK Group | | Caesars Southern Indiana | | William Hill International | | Harrah’s Louisiana Downs | | Caesars UK Group | | Caesars Southern Indiana | | William Hill International |
| Net revenues | $ | 16 | | | $ | 20 | | | $ | 65 | | | $ | 343 | | | $ | 29 | | | $ | 30 | | | $ | 114 | | | $ | 343 | |
| Net income (loss) | 5 | | | (39) | | | 9 | | | (2) | | | 9 | | | (46) | | | 9 | | | (2) | |
Not included in tables are assets and liabilities held for sale of $2.9 billion and $2.4 billion, respectively, as of June 30, 2022 and $3.8 billion and $2.7 billion, respectively, as of December 31, 2021, related to William Hill International. Liabilities held for sale as of June 30, 2022 and December 31, 2021 include $557 million and $617 million, respectively, of debt related to the Bridge Credit Agreement, which was repaid upon the sale of William Hill International on July 1, 2022, as described in Note 1. The Bridge Credit Agreement included a financial covenant, of which the Company was in compliance as of June 30, 2022, requiring the Bridge Facility Borrower to maintain a maximum total net leverage ratio of 10.50 to 1.00. The borrowings under the Bridge Credit Agreement were guaranteed by the Bridge Facility Borrower and its material wholly-owned subsidiaries (subject to exceptions), and were secured by a pledge of substantially all of the existing and future property and assets of the Bridge Facility Borrower and the guarantors (subject to exceptions). In addition, $850 million of debt is held for sale related to two trust deeds assumed in the William Hill Acquisition. One trust deed relates to £350 million aggregate principal amount of 4.750% Senior Notes due 2026, and the other trust deed relates to £350 million aggregate principal amount of 4.875% Senior Notes due 2023. Each of the trust deeds contain a put option due to a change in control which allowed noteholders to require the Company to purchase the notes at 101% of the principal amount with interest accrued. The put period expired on July 26, 2021, and approximately £1 million of debt was repurchased. No financial covenants were noted related to the two trust deeds assumed in the William Hill Acquisition. The two trust deeds were included within liabilities held for sale, which were disposed of on July 1, 2022 with the completion of the sale of William Hill International.
Note 4. Investments in and Advances to Unconsolidated Affiliates
William Hill
The Company previously entered into a 25-year agreement which granted William Hill the right to conduct betting activities, including operating our sportsbooks, and conduct certain real money online gaming activities. On April 22, 2021, the Company consummated its previously announced acquisition of William Hill PLC in an all-cash transaction. Prior to the acquisition, the Company accounted for its investment in William Hill PLC as an investment in equity securities and William Hill US as an equity method investment. See Note 2 for further detail on the consideration transferred and the allocation of the purchase price.
NeoGames
The acquired net assets of William Hill included an investment in publicly traded common stock of NeoGames S.A. (“NeoGames”), a global leader of iLottery solutions and services to national and state-regulated lotteries, and other investments. On September 16, 2021, the Company sold a portion of its shares of NeoGames common stock for $136 million which decreased Company’s ownership interest from 24.5% to 8.4%. Additionally, on March 14, 2022 the Company sold its remaining 2 million shares at fair value for $26 million and recorded a loss on the change in fair value of $34 million during the six months ended June 30, 2022, which is included within Other income (loss) on the Statements of Operations.
Pompano Joint Venture
In April 2018, the Company entered into a joint venture with Cordish Companies (“Cordish”) to plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack at the Company’s Pompano property. As the managing member, Cordish will operate the business and manage the development, construction, financing, marketing, leasing, maintenance and day-to-day operation of the various phases of the project. Additionally, Cordish will be responsible for the development of the master plan for the project with the Company’s input and will submit it for the Company’s review and approval. In June 2021, the joint venture issued a capital call and we contributed $3 million, for a total of $4 million in cash since inception of the joint venture. On February 12, 2021, the Company contributed 186 acres to the joint venture with a fair value of $61 million. Total contributions of approximately 206 acres of land have been made with a fair value of approximately $69 million and the Company has no further obligation to contribute additional real estate or cash as of June 30, 2022. We entered into a short-term lease agreement in February 2021, which we can cancel at any time, to lease back a portion of the land from the joint venture.
While the Company holds a 50% variable interest in the joint venture, it is not the primary beneficiary; as such the investment in the joint venture is accounted for using the equity method. The Company participates evenly with Cordish in the profits and losses of the joint venture, which are included in Transaction and other operating costs, net on the Statements of Operations.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As of June 30, 2022 and December 31, 2021, the Company’s investment in the joint venture is recorded in Investment in and advances to unconsolidated affiliates on the Balance Sheets.
Note 5. Property and Equipment
| | | | | | | | | | | |
| (In millions) | June 30, 2022 | | December 31, 2021 |
| Land | $ | 2,093 | | | $ | 2,125 | |
| Buildings, riverboats, and leasehold and land improvements | 12,680 | | | 12,433 | |
| Furniture, fixtures, and equipment | 1,830 | | | 1,650 | |
| Construction in progress | 495 | | | 395 | |
| Total property and equipment | 17,098 | | | 16,603 | |
| Less: accumulated depreciation | (2,492) | | | (2,002) | |
| Total property and equipment, net | $ | 14,606 | | | $ | 14,601 | |
Our property and equipment are subject to various operating leases for which we are the lessor. We lease our property and equipment related to our hotel rooms, convention space and retail space through various short-term and long-term operating leases.
| | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation Expense | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Depreciation expense | $ | 255 | | | $ | 264 | | | $ | 498 | | | $ | 509 | |
| | | | | | | |
Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the related lease.
Note 6. Goodwill and Intangible Assets, net
The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company determines the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices, and estimates made by management. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is recorded as goodwill.
| | | | | | | | | | | | | | | | | |
| Changes in Carrying Value of Goodwill and Other Intangible Assets | | | | | |
| | | Non-Amortizing Intangible Assets |
| (In millions) | Amortizing Intangible Assets | | Goodwill | | Other |
| December 31, 2021 | $ | 1,209 | | | $ | 11,076 | | | $ | 3,711 | |
| Amortization | (108) | | | — | | | — | |
| | | | | |
| | | | | |
Other (a) | — | | | 6 | | | — | |
| June 30, 2022 | $ | 1,101 | | | $ | 11,082 | | | $ | 3,711 | |
____________________
(a)Purchase price adjustment related to William Hill Acquisition.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Carrying Value and Accumulated Amortization of Intangible Assets Other Than Goodwill | | |
| June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Amortizing intangible assets | | | | | | | | | | | | | |
| Customer relationships | 3 - 7 years | | $ | 587 | | | $ | (233) | | | $ | 354 | | | $ | 587 | | | $ | (187) | | | $ | 400 | |
| Gaming rights and other | 20 - 34 years | | 174 | | | (10) | | | 164 | | | 174 | | | (7) | | | 167 | |
| Trademarks | 15 years | | 307 | | | (50) | | | 257 | | | 322 | | | (21) | | | 301 | |
| Reacquired rights | 24 years | | 250 | | | (12) | | | 238 | | | 250 | | | (7) | | | 243 | |
| Technology | 6 years | | 110 | | | (22) | | | 88 | | | 110 | | | (12) | | | 98 | |
| | | $ | 1,428 | | | $ | (327) | | | 1,101 | | | $ | 1,443 | | | $ | (234) | | | 1,209 | |
| | | | | | | | | | | | | |
| Non-amortizing intangible assets | | | | | | | | | | | | |
| Trademarks | | | | | | | 1,998 | | | | | | | 1,998 | |
| Gaming rights | | | | | | | 1,190 | | | | | | | 1,190 | |
| Caesars Rewards | | | | | | | 523 | | | | | | | 523 | |
| | | | | | | | | | | | | |
| | | | | | | 3,711 | | | | | | | 3,711 | |
| Total amortizing and non-amortizing intangible assets, net | | $ | 4,812 | | | | | | | $ | 4,920 | |
Amortization expense with respect to intangible assets for the three months ended June 30, 2022 and 2021 totaled $51 million and $37 million, respectively, and for the six months ended June 30, 2022 and 2021 totaled $108 million and $57 million, respectively, which is included in depreciation and amortization in the Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Five-Year Amortization | | | | | | | | | | | |
| Remaining 2022 | | Years Ended December 31, |
| (In millions) | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 |
| Estimated annual amortization expense | $ | 76 | | | $ | 138 | | | $ | 123 | | | $ | 116 | | | $ | 116 | | | $ | 73 | |
Note 7. Fair Value Measurements
Items Measured at Fair Value on a Recurring Basis
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the Balance Sheets at June 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| (In millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| | | | | | | |
| Marketable securities | $ | 2 | | | $ | 1 | | | $ | — | | | $ | 3 | |
| Derivative instruments - FX forward | — | | | 3 | | | — | | | 3 | |
| Total assets at fair value | $ | 2 | | | $ | 4 | | | $ | — | | | $ | 6 | |
| Liabilities: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Derivative instruments - interest rate swaps | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| | | | | | | |
| | | | | | | |
| Total liabilities at fair value | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (In millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Restricted cash | $ | 1 | | | $ | 1 | | | $ | — | | | $ | 2 | |
| Marketable securities | 69 | | | 9 | | | — | | | 78 | |
| Derivative instruments - FX forward | — | | | 1 | | | — | | | 1 | |
| Total assets at fair value | $ | 70 | | | $ | 11 | | | $ | — | | | $ | 81 | |
| Liabilities: | | | | | | | |
| Derivative instruments - interest rate swaps | $ | — | | | $ | 28 | | | $ | — | | | $ | 28 | |
| Derivative instruments - FX forward | — | | | 16 | | | — | | | 16 | |
| Total liabilities at fair value | $ | — | | | $ | 44 | | | $ | — | | | $ | 44 | |
Restricted Cash
The estimated fair values of the Company’s restricted cash are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), or quoted prices available in active markets adjusted for time restrictions related to the sale of the investment (Level 3) and represent the amounts the Company would expect to receive if the Company sold the restricted cash. Restricted cash classified as Level 1 includes cash equivalents held in short-term certificate of deposit accounts or money market type funds. Restricted cash that is not subject to remeasurement on a recurring basis is not included in the table above.
Marketable Securities
Marketable securities consist primarily of trading securities held by the Company’s captive insurance subsidiary and investments acquired in the William Hill Acquisition. See Note 4. These investments also include collateral for several escrow and trust agreements with third-party beneficiaries. The estimated fair values of the Company’s marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets (Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts the Company would expect to receive if the Company sold these marketable securities.
Derivative Instruments
The Company does not purchase or hold any derivative financial instruments for trading purposes.
Forward contracts
The Company has entered into several foreign exchange forward contracts with third parties to hedge the risk of fluctuations in the foreign exchange rates between USD and GBP. As of June 30, 2022 the Company has one contract related to the expected proceeds of the sale of the international operations. During the three months ended June 30, 2022 and 2021, the Company recorded total gains of $55 million and $9 million, respectively, and $76 million and $10 million for the six months ended June 30, 2022 and 2021, respectively, related to forward contracts, which is recorded in the Other income (loss) on the Statements of Operations. The remaining forward contract was settled in connection with the completion of the sale of William Hill International on July 1, 2022.
Interest Rate Swap Derivatives
We assumed Former Caesars’ interest rate swaps to manage the mix of assumed debt between fixed and variable rate instruments. As of June 30, 2022, we have four interest rate swap agreements to fix the interest rate on $1.3 billion of variable rate debt related to the CRC Credit Agreement. The interest rate swaps are designated as cash flow hedging instruments. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense at settlement. Changes in the variable interest rates to be received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The major terms of the interest rate swap agreements as of June 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effective Date | | Notional Amount (In millions) | | Fixed Rate Paid | | Variable Rate Received as of
June 30, 2022 | | | | Maturity Date |
| | | | | | | | | | |
| 1/1/2019 | | 250 | | 2.274% | | 1.0617% | | | | 12/31/2022 |
| | | | | | | | | | |
| 1/1/2019 | | 200 | | 2.828% | | 1.0617% | | | | 12/31/2022 |
| 1/1/2019 | | 200 | | 2.828% | | 1.0617% | | | | 12/31/2022 |
| 1/1/2019 | | 600 | | 2.739% | | 1.0617% | | | | 12/31/2022 |
| | | | | | | | | | |
Valuation Methodology
The estimated fair values of our interest rate swap derivative instruments are derived from market prices obtained from dealer quotes for similar, but not identical, assets or liabilities. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. The interest rate swap derivative instruments are included in either Other assets, net or Other long-term liabilities on our Balance Sheets. Our derivatives are recorded at their fair values, adjusted for the credit rating of the counterparty if the derivative is an asset, or adjusted for the credit rating of the Company if the derivative is a liability. None of our derivative instruments are offset and all were classified as Level 2.
Financial Statement Effect
The effect of derivative instruments designated as hedging instruments on the Balance Sheets for amounts transferred into Accumulated other comprehensive income (loss) (“AOCI”) before tax was a gain of $10 million and $14 million during the three months ended June 30, 2022 and 2021, respectively, and a gain of $27 million and $29 million during the six months ended June 30, 2022 and 2021, respectively. AOCI reclassified to Interest expense on the Statements of Operations was $6 million and $15 million for the three months ended June 30, 2022 and 2021, respectively, and $14 million and $29 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, the interest rate swaps derivative liability of $1 million and $28 million, respectively, was recorded in Other long-term liabilities. Net settlement of these interest rate swaps results in the reclassification of deferred gains and losses within AOCI to be reclassified to the income statement as a component of interest expense as settlements occur. The estimated amount of existing gains or losses that are reported in AOCI at the reporting date that are expected to be reclassified into earnings within the next 12 months is less than $1 million.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Accumulated Other Comprehensive Income
The changes in AOCI by component, net of tax, for the periods through June 30, 2022 and 2021 are shown below.
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Unrealized Net Gains on Derivative Instruments | | Foreign Currency Translation Adjustments | | Other | | Total |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balances as of December 31, 2020 | $ | 26 | | | $ | 8 | | | $ | — | | | $ | 34 | |
| Other comprehensive loss before reclassifications | (2) | | | — | | | (1) | | | (3) | |
| Amounts reclassified from accumulated other comprehensive income | 14 | | | — | | | — | | | 14 | |
| Total other comprehensive income (loss), net of tax | 12 | | | — | | | (1) | | | 11 | |
Balances as of March 31, 2021 | $ | 38 | | | $ | 8 | | | $ | (1) | | | $ | 45 | |
| Other comprehensive income (loss) before reclassifications | (5) | | | (11) | | | 3 | | | (13) | |
| Amounts reclassified from accumulated other comprehensive income | 15 | | | — | | | — | | | 15 | |
| Total other comprehensive income (loss), net of tax | 10 | | | (11) | | | 3 | | | 2 | |
Balances as of June 30, 2021 | $ | 48 | | | $ | (3) | | | $ | 2 | | | $ | 47 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balances as of December 31, 2021 | $ | 73 | | | $ | (36) | | | $ | (1) | | | $ | 36 | |
| Other comprehensive income (loss) before reclassifications | 5 | | | (33) | | | — | | | (28) | |
| Amounts reclassified from accumulated other comprehensive income | 8 | | | — | | | — | | | 8 | |
| Total other comprehensive income (loss), net of tax | 13 | | | (33) | | | — | | | (20) | |
Balances as of March 31, 2022 | $ | 86 | | | $ | (69) | | | $ | (1) | | | $ | 16 | |
| Other comprehensive income (loss) before reclassifications | 1 | | | (44) | | | 1 | | | (42) | |
| Amounts reclassified from accumulated other comprehensive income | 6 | | | — | | | — | | | 6 | |
| Total other comprehensive income (loss), net of tax | 7 | | | (44) | | | 1 | | | (36) | |
Balances as of June 30, 2022 | $ | 93 | | | $ | (113) | | | $ | — | | | $ | (20) | |
Note 8. Litigation, Commitments and Contingencies
Litigation
General
We are a party to various legal proceedings, which have arisen in the normal course of our business. Such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings will not materially impact our consolidated financial condition or results of operations. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. While we maintain insurance coverage that we believe is adequate to mitigate the risks of such proceedings, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters. The current liability for the estimated losses associated with these proceedings is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.
COVID-19 Insurance Claims
The COVID-19 public health emergency had a significant impact on the Company’s business and employees, as well as the communities where the Company operates and serves. The Company purchased broad property insurance coverage to protect against “all risk of physical loss or damage” and resulting business interruption, unless specifically excluded by policies. The Company submitted claims for losses incurred as a result of the COVID-19 public health emergency which are expected to exceed $2 billion. The insurance carriers under the Company’s insurance policies have asserted that the policies do not cover losses incurred by the Company as a result of the COVID-19 public health emergency and have refused to make payments under the applicable policies.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Therefore, on March 19, 2021, the Company filed a lawsuit against its insurance carriers in the state court in Clark County, Nevada. On June 8, 2021, the Company filed an amended complaint. Litigation is proceeding and there can be no assurance as to the outcome of the litigation.
Contractual Commitments
The following contractual commitments associated with Former Caesars were assumed by the Company as a result of the consummation of the Merger.
Capital Commitments
Harrah’s New Orleans
In April 2020, the Company and the State of Louisiana, by and through the Louisiana Gaming Control Board, entered into an Amended and Restated Casino Operating Contract. Additionally, the Company, New Orleans Building Corporation and the City entered into a Second Amended and Restated Lease Agreement (the “Ground Lease”). Based on these amendments related to Harrah’s New Orleans, the Company is required to make certain payments and to make a capital investment of $325 million on or around Harrah’s New Orleans by July 15, 2024. The capital investment will include a renovation and full interior and exterior redesign, updated casino floor, new culinary experiences and a new 340 room hotel tower as we are in the process of rebranding the property as Caesars New Orleans. As of June 30, 2022, total capital expenditures were $64 million.
Atlantic City
As required by the New Jersey Gaming Control Board in connection with its approval of the Merger, we have funded $400 million in escrow to provide funds for a three year capital expenditure plan in the state of New Jersey. This amount is currently included in restricted cash in Other assets, net. As of June 30, 2022 and December 31, 2021, our restricted cash balance in the escrow account was $189 million and $297 million, respectively, for future capital expenditures in New Jersey.
Sports Sponsorship/Partnership Obligations
We have agreements with certain professional sports leagues and teams, sporting event facilities and media companies for tickets, suites, advertising, marketing, promotional and sponsorship opportunities including communication with partner customer databases. Additionally, a selection of such partnerships provide Caesars with exclusivity to access the aforementioned rights within the casino and/or sports betting category. In connection with the launch of the Caesars Sportsbook app, we entered into a significant marketing campaign with distinguished actors, former athletes and other media personalities. As of June 30, 2022 and December 31, 2021, obligations related to these agreements were $988 million and $997 million, respectively, which include obligations assumed in the William Hill Acquisition, with contracts extending through 2040. These obligations include leasing of event suites that are generally considered short term leases for which we do not record a right of use asset or lease liability. We recognize expenses in the period services are received in accordance with the various agreements. In addition, assets or liabilities may be recorded related to the timing of payments as required by the respective agreement.
Self-Insurance
We are self-insured for workers compensation and other risk insurance, as well as health insurance and general liability. Our total estimated self-insurance liability as of June 30, 2022 and December 31, 2021, was $212 million and $221 million, respectively, which is included in Accrued other liabilities in our Balance Sheets.
The assumptions utilized by our actuaries are subject to significant uncertainty and if outcomes differ from these assumptions or events develop or progress in a negative manner, the Company could experience a material adverse effect and additional liabilities may be recorded in the future.
Contingencies
Weather disruption - Lake Charles
On August 27, 2020, Hurricane Laura made landfall on Lake Charles as a Category 4 storm severely damaging the Isle of Capri Casino Lake Charles. During the six months ended June 30, 2022, the Company reached a final settlement agreement with the insurance carriers for a total amount of $128 million, before our insurance deductible of $25 million. The Company has received $100 million related to damaged fixed assets, remediation costs and business interruption. We expect to receive an additional $3 million in the third quarter of 2022, which is included in Accounts receivable, net.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
No gain was recorded during the three months ended June 30, 2022. The Company recorded a gain of $14 million during the three months ended June 30, 2021, and a gain of $38 million and $22 million during the six months ended June 30, 2022 and 2021, respectively, which are included in Transaction and other operating costs, net in our Statements of Operations, as proceeds received for the cost to replace damaged property were in excess of the respective carrying value of the assets. The property will remain closed until the fourth quarter of 2022 when construction of a new land-based casino, Horseshoe Lake Charles, is expected to be complete.
Note 9. Long-Term Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| (Dollars in millions) | Final Maturity | | Rates | | Face Value | | Book Value | | Book Value |
| Secured Debt | | | | | | | | | |
| CRC Revolving Credit Facility | 2022 | | variable | | $ | — | | | $ | — | | | $ | — | |
| Baltimore Revolving Credit Facility | 2023 | | variable | | — | | | — | | | — | |
| Baltimore Term Loan | 2024 | | variable | | 278 | | | 272 | | | 275 | |
| CRC Term Loan | 2024 | | variable | | 4,488 | | | 4,217 | | | 4,190 | |
| CEI Revolving Credit Facility | 2025 | | variable | | — | | | — | | | — | |
| CRC Incremental Term Loan | 2025 | | variable | | 1,769 | | | 1,703 | | | 1,705 | |
| CRC Senior Secured Notes | 2025 | | 5.75% | | 989 | | | 976 | | | 985 | |
| CEI Senior Secured Notes | 2025 | | 6.25% | | 3,400 | | | 3,353 | | | 3,346 | |
| Convention Center Mortgage Loan | 2025 | | 7.85% | | 400 | | | 399 | | | 399 | |
| Unsecured Debt | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| CEI Senior Notes | 2027 | | 8.125% | | 1,621 | | | 1,598 | | | 1,673 | |
| Senior Notes | 2029 | | 4.625% | | 1,200 | | | 1,184 | | | 1,183 | |
| Special Improvement District Bonds | 2037 | | 4.30% | | 47 | | | 47 | | | 49 | |
| Long-term notes and other payables | | | | | 2 | | | 2 | | | 2 | |
| Total debt | | 14,194 | | | 13,751 | | | 13,807 | |
| Current portion of long-term debt | | (70) | | | (70) | | | (70) | |
| Deferred finance charges associated with the CEI Revolving Credit Facility | | — | | | (13) | | | (15) | |
| Long-term debt | | $ | 14,124 | | | $ | 13,668 | | | $ | 13,722 | |
| | | | | | |
| Unamortized premiums, discounts and deferred finance charges | | | | $ | 456 | | | $ | 531 | |
| Fair value | | $ | 13,506 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual Estimated Debt Service Requirements as of June 30, 2022 | | | | |
| Remaining | | Years Ended December 31, | | | | |
| (In millions) | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
| Annual maturities of long-term debt | $ | 34 | | | $ | 70 | | | $ | 4,711 | | | $ | 6,515 | | | $ | 3 | | | $ | 2,861 | | | $ | 14,194 | |
| Estimated interest payments | 450 | | | 930 | | | 880 | | | 550 | | | 190 | | | 310 | | | 3,310 | |
Total debt service obligation (a) | $ | 484 | | | $ | 1,000 | | | $ | 5,591 | | | $ | 7,065 | | | $ | 193 | | | $ | 3,171 | | | $ | 17,504 | |
____________________
(a)Debt principal and interest payments are estimated amounts based on contractual maturity and repayment dates and exclude the effect of discretionary early repayments, such as our early repayments made in July 2022, as discussed below. Interest payments are estimated based on the forward-looking LIBOR curve, where applicable, and include the estimated impact of the four interest rate swap agreements related to our CRC Credit Facility (see Note 7). Actual payments may differ from these estimates.
Current Portion of Long-Term Debt
The current portion of long-term debt as of June 30, 2022 includes the principal payments on the term loans, other unsecured borrowings, and special improvement district bonds that are contractually due within 12 months. The Company may, from time to time, seek to repurchase its outstanding indebtedness. Any such purchases may be funded by existing cash balances or the incurrence of debt. The amount and timing of any repurchase will be based on business and market conditions, capital availability, compliance with debt covenants and other considerations.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Debt Discounts or Premiums and Deferred Finance Charges
Debt discounts or premiums and deferred finance charges incurred in connection with the issuance of debt are amortized to interest expense based on the related debt agreements primarily using the effective interest method. Unamortized discounts are written off and included in our gain or loss calculations to the extent we extinguish debt prior to its original maturity date.
Fair Value
The fair value of debt has been calculated primarily based on the borrowing rates available as of June 30, 2022 and based on market quotes of our publicly traded debt. We classify the fair value of debt within Level 1 and Level 2 in the fair value hierarchy.
Terms of Outstanding Debt
Baltimore Term Loan and Baltimore Revolving Credit Facility
As a result of our increased ownership interest in Horseshoe Baltimore, we began to consolidate the aggregate principal amount of Horseshoe Baltimore’s senior secured term loan facility (the “Baltimore Term Loan”) and amount outstanding, if any, under Horseshoe Baltimore’s senior secured revolving credit facility (the “Baltimore Revolving Credit Facility”). The Baltimore Term Loan matures in 2024 and is subject to a variable rate of interest calculated as LIBOR plus 4.00%. The Baltimore Revolving Credit Facility has borrowing capacity of up to $10 million available, subject to a variable rate of interest calculated as LIBOR plus 6.00%. On June 24, 2022, we entered into an amendment related to the Baltimore Revolving Credit Facility to extend the maturity date to July 7, 2023. As of June 30, 2022, there was $10 million of available borrowing capacity under the Baltimore Revolving Credit Facility.
CRC Term Loans and CRC Revolving Credit Facility
CRC is party to a credit agreement, dated as of December 22, 2017 (as amended, the “CRC Credit Agreement”), which provided for a $1.0 billion five-year revolving credit facility (the “CRC Revolving Credit Facility”) and an initial $4.7 billion seven-year first lien term loan (the “CRC Term Loan”), which was increased by $1.8 billion pursuant to an incremental agreement executed in connection with the Merger (the “CRC Incremental Term Loan”).
The CRC Term Loan matures in December 2024 and the CRC Incremental Term Loan matures in July 2025. The CRC Revolving Credit Facility matures in December 2022 and includes a $400 million letter of credit sub-facility. The CRC Term Loan and the CRC Incremental Term Loan require scheduled quarterly principal payments in amounts equal to 0.25% of the original aggregate principal amount, with the balance due at maturity. The CRC Credit Agreement also includes customary voluntary and mandatory prepayment provisions, subject to certain exceptions.
Borrowings under the CRC Credit Agreement bear interest at a rate equal to either (a) LIBOR adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by Credit Suisse AG, Cayman Islands Branch, as administrative agent under the CRC Credit Agreement and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin shall be (a) with respect to the CRC Term Loan, 2.75% per annum in the case of any LIBOR loan or 1.75% per annum in the case of any base rate loan, (b) with respect to the CRC Incremental Term Loan, 4.50% per annum in the case of any LIBOR loan or 3.50% in the case of any base rate loan and (c) in the case of the CRC Revolving Credit Facility, 2.25% per annum in the case of any LIBOR loan and 1.25% per annum in the case of any base rate loan, subject in the case of the CRC Revolving Credit Facility to two 0.125% step-downs based on CRC’s senior secured leverage ratio (“SSLR”), the ratio of first lien senior secured net debt to adjusted earnings before interest, taxes, depreciation and amortization. The CRC Revolving Credit Facility is subject to a financial covenant discussed below. On September 21, 2021, CRC entered into a second amendment related to the CRC Incremental Term Loan to reduce the interest rate margins to 3.50% per annum in the case of any LIBOR loan or 2.50% per annum in the case of any base rate loan. The CRC Term Loan and the CRC Incremental Term Loan are LIBOR based loans as of June 30, 2022.
In addition, CRC is required to pay a commitment fee in respect of any commitments under the CRC Revolving Credit Facility in the amount of 0.50% of the principal amount of the commitments, subject to step-downs to 0.375% and 0.25% based upon CRC’s SSLR. CRC is also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee in an amount equal to 0.125% of the daily stated amount of such letter of credit.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the six months ended June 30, 2022, the Company utilized and fully repaid on the CRC Revolving Credit Facility. Such activity is presented in the financing section in the Statements of Cash Flows. As of June 30, 2022, the Company had $966 million of available borrowing capacity, after consideration of $59 million in outstanding letters of credit under the CRC Revolving Credit Facility.
Following the closing of the sale of William Hill International, the Company made partial prepayments totaling $630 million of the outstanding balance of the CRC Incremental Term Loan in July 2022 and recognized a $23 million loss on the early extinguishment of debt.
CEI Revolving Credit Facility
CEI is party to a credit agreement, dated as of July 20, 2020, with JPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as collateral agent, and certain banks and other financial institutions and lenders party thereto, which provided for a five-year CEI Revolving Credit Facility in an aggregate principal amount of $1.2 billion (the “CEI Revolving Credit Facility”). On November 10, 2021, the Company amended the CEI Revolving Credit Facility to establish reserves in the total amount of $190 million which are available only for permitted use. On May 23, 2022, pursuant to the amendment, the Company obtained approval for a reduction of $150 million in required reserves. The CEI Revolving Credit Facility matures in July 2025 and includes a letter of credit sub-facility of $250 million.
The interest rate per annum applicable under the CEI Revolving Credit Facility, at the Company’s option is either (a) LIBOR adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by JPMorgan Chase Bank, N.A. and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin shall be 3.25% per annum in the case of any LIBOR loan and 2.25% per annum in the case of any base rate loan, subject to three 0.25% step-downs based on the Company’s total leverage ratio.
Additionally, the Company is required to pay a commitment fee in respect of any unused commitments under the CEI Revolving Credit Facility in the amount of 0.50%, subject to a step-down to 0.375% based upon the Company’s total leverage ratio. The Company is also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee in an amount equal to 0.125% of the daily stated amount of such letter of credit.
As of June 30, 2022, the Company had $1.1 billion of available borrowing capacity under the CEI Revolving Credit Facility, after consideration of $18 million in outstanding letters of credit, $48 million committed for regulatory purposes and the reserves described above.
CRC Senior Secured Notes due 2025
On July 6, 2020, Colt Merger Sub, Inc. (the “Escrow Issuer”) issued $1.0 billion in aggregate principal amount of 5.75% Senior Secured Notes due 2025 pursuant to an indenture, dated July 6, 2020 (the “CRC Senior Secured Notes”), by and among the Escrow Issuer, U.S. Bank National Association, as trustee and Credit Suisse AG, Cayman Islands Branch, as collateral agent. In connection with the consummation of the Merger, CRC assumed the rights and obligations under the CRC Senior Secured Notes and the indenture governing such notes. The CRC Senior Secured Notes will mature on July 1, 2025 with interest payable semi-annually in cash in arrears on January 1 and July 1 of each year. In the second quarter, the Company purchased a total of $11 million in principal amount of the CRC Senior Secured Notes.
CEI Senior Secured Notes due 2025
On July 6, 2020, the Escrow Issuer issued $3.4 billion in aggregate principal amount of 6.25% Senior Secured Notes due 2025 pursuant to an indenture dated July 6, 2020 (the “CEI Senior Secured Notes”), by and among the Escrow Issuer, U.S. Bank National Association, as trustee, and U.S. Bank National Association, as collateral agent. The Company assumed the rights and obligations under the CEI Senior Secured Notes and the indenture governing such notes on July 20, 2020. The CEI Senior Secured Notes will mature on July 1, 2025 with interest payable semi-annually in cash in arrears on January 1 and July 1 of each year.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Convention Center Mortgage Loan
On September 18, 2020, the Company entered into a loan agreement with VICI to borrow a 5-year, $400 million Forum Convention Center mortgage loan (the “Mortgage Loan”). The Mortgage Loan bears interest at a rate of, initially, 7.7% per annum, which escalates annually to a maximum interest rate of 8.3% per annum. Beginning October 1, 2021, the Mortgage Loan is subject to an interest rate of 7.854%.
CEI Senior Notes due 2027
On July 6, 2020, the Escrow Issuer issued $1.8 billion in aggregate principal amount of 8.125% Senior Notes due 2027 pursuant to an indenture, dated July 6, 2020 (the “CEI Senior Notes”), by and between the Escrow Issuer and U.S. Bank National Association, as trustee. The Company assumed the rights and obligations under the CEI Senior Notes and the indenture governing such notes on July 20, 2020. The CEI Senior Notes will mature on July 1, 2027 with interest payable semi-annually in cash in arrears on January 1 and July 1 of each year. In the second quarter, the Company purchased a total of $79 million in principal amount of CEI Senior Notes. The Company purchased a total of $10 million of the outstanding balance of the CEI Senior Notes in July 2022.
Senior Notes due 2029
On September 24, 2021, the Company issued $1.2 billion in aggregate principal amount of 4.625% Senior Notes due 2029 (the “Senior Notes”) pursuant to an indenture dated as of September 24, 2021 between the Company and U.S. Bank National Association, as Trustee. The Senior Notes will mature on October 15, 2029 with interest payable on April 15 and October 15 of each year, which began on April 15, 2022.
Debt Covenant Compliance
The CRC Credit Agreement, the CEI Revolving Credit Facility, the Baltimore Term Loan, the Baltimore Revolving Credit Facility, and the indentures governing the CEI Senior Secured Notes, the CEI Senior Notes, the CRC Senior Secured Notes and the Senior Notes contain covenants which are standard and customary for these types of agreements. These include negative covenants, which, subject to certain exceptions and baskets, limit the Company’s and its subsidiaries’ ability to (among other items) incur additional indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets and make acquisitions.
The CRC Revolving Credit Facility and the CEI Revolving Credit Facility include a maximum first-priority net senior secured leverage ratio financial covenant of 6.35:1, which is applicable solely to the extent that certain testing conditions are satisfied. The Baltimore Revolving Credit Facility includes a senior secured leverage ratio financial covenant of 5.0:1. Failure to comply with such covenants could result in an acceleration of the maturity of indebtedness outstanding under the relevant debt document.
As of June 30, 2022, the Company was in compliance with all of the applicable financial covenants described above.
Guarantees
The CEI Revolving Credit Facility and the CEI Senior Secured Notes are guaranteed on a senior secured basis by each existing and future material wholly-owned domestic subsidiary of CEI (subject to certain exceptions) and are secured by substantially all of the existing and future property and assets of CEI and its subsidiary guarantors (subject to certain exceptions). The CEI Senior Notes and the Senior Notes are guaranteed on a senior unsecured basis by such subsidiaries.
The CRC Credit Agreement and the CRC Senior Secured Notes are guaranteed on a senior secured basis by each existing and future material wholly-owned domestic subsidiary of CRC (subject to certain exceptions) and are secured by substantially all of the existing and future property and assets of CRC and its subsidiary guarantors (subject to certain exceptions). The CRC Credit Agreement and the CRC Senior Secured Notes are also guaranteed on a senior unsecured basis by CEI.
Note 10. Revenue Recognition
The Company’s Statements of Operations presents net revenue disaggregated by type or nature of the good or service. A summary of net revenues disaggregated by type of revenue and reportable segment is presented below. Refer to Note 15 for additional information on the Company’s reportable segments.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| (In millions) | Las Vegas | | Regional | | Caesars Digital | | Managed and Branded | | Corporate and Other | | Total |
| Casino and pari-mutuel commissions | $ | 315 | | | $ | 1,098 | | | $ | 137 | | | $ | — | | | $ | (1) | | | $ | 1,549 | |
| Food and beverage | 291 | | | 131 | | | — | | | — | | | — | | | 422 | |
| Hotel | 358 | | | 161 | | | — | | | — | | | — | | | 519 | |
| Other | 178 | | | 65 | | | 15 | | | 74 | | | (1) | | | 331 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net revenues | $ | 1,142 | | | $ | 1,455 | | | $ | 152 | | | $ | 74 | | | $ | (2) | | | $ | 2,821 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| (In millions) | Las Vegas | | Regional | | Caesars Digital | | Managed and Branded | | Corporate and Other | | Total |
| Casino and pari-mutuel commissions | $ | 315 | | | $ | 1,178 | | | $ | 78 | | | $ | — | | | $ | — | | | $ | 1,571 | |
| Food and beverage | 171 | | | 109 | | | — | | | 1 | | | — | | | 281 | |
| Hotel | 242 | | | 154 | | | — | | | — | | | — | | | 396 | |
| Other | 127 | | | 49 | | | 8 | | | 65 | | | 5 | | | 254 | |
| Net revenues | $ | 855 | | | $ | 1,490 | | | $ | 86 | | | $ | 66 | | | $ | 5 | | | $ | 2,502 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| (In millions) | Las Vegas | | Regional | | Caesars Digital | | Managed and Branded | | Corporate and Other | | Total |
| Casino and pari-mutuel commissions | $ | 606 | | | $ | 2,168 | | | $ | 68 | | | $ | — | | | $ | (1) | | | $ | 2,841 | |
| Food and beverage | 511 | | | 250 | | | — | | | — | | | — | | | 761 | |
| Hotel | 624 | | | 278 | | | — | | | — | | | — | | | 902 | |
| Other | 315 | | | 122 | | | 31 | | | 140 | | | 1 | | | 609 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net revenues | $ | 2,056 | | | $ | 2,818 | | | $ | 99 | | | $ | 140 | | | $ | — | | | $ | 5,113 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| (In millions) | Las Vegas | | Regional | | Caesars Digital | | Managed and Branded | | Corporate and Other | | Total |
| Casino and pari-mutuel commissions | $ | 541 | | | $ | 2,145 | | | $ | 112 | | | $ | — | | | $ | — | | | $ | 2,798 | |
| Food and beverage | 255 | | | 193 | | | — | | | 2 | | | — | | | 450 | |
| Hotel | 357 | | | 254 | | | — | | | — | | | — | | | 611 | |
| Other | 199 | | | 89 | | | 13 | | | 125 | | | 9 | | | 435 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net revenues | $ | 1,352 | | | $ | 2,681 | | | $ | 125 | | | $ | 127 | | | $ | 9 | | | $ | 4,294 | |
| | | | | | | | | | | |
| Accounts Receivable, Net | | | |
| (In millions) | June 30, 2022 | | December 31, 2021 |
| Casino and pari-mutuel commissions | $ | 152 | | | $ | 168 | |
| Food and beverage and hotel | 163 | | | 100 | |
| Other | 179 | | | 204 | |
| Accounts receivable, net | $ | 494 | | | $ | 472 | |
Contract and Contract Related Liabilities
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) Caesars Rewards player loyalty program obligations, which represent the deferred allocation of revenue relating to reward credits granted to Caesars Rewards members based on certain types of customer spend, including online and retail gaming, hotel, dining, retail shopping, and player loyalty program incentives earned, and (3) customer deposits and other deferred revenue, which primarily represents funds deposited by customers related to gaming play and advance payments received for goods and services yet to be provided (such as advance ticket sales, deposits on rooms and convention space, unpaid wagers, iGaming deposits, or future sports bets). 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 Balance Sheets.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Liabilities expected to be recognized as revenue beyond one year of being purchased, earned, or deposited are recorded within other long-term liabilities on the Company’s Balance Sheets.
The following table summarizes the activity related to contract and contract-related liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding Chip Liability | | Caesars Rewards | | Customer Deposits and Other
Deferred Revenue |
| (In millions) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Balance at January 1 | $ | 48 | | | $ | 34 | | | $ | 91 | | | $ | 94 | | | $ | 560 | | | $ | 310 | |
| Balance at June 30 | 45 | | | 32 | | | 98 | | | 96 | | | 665 | | | 352 | |
| Increase / (decrease) | $ | (3) | | | $ | (2) | | | $ | 7 | | | $ | 2 | | | $ | 105 | | | $ | 42 | |
The June 30, 2022 balances above exclude liabilities related to liabilities held for sale recorded in 2022 and 2021. See Note 3. The change in customer deposits and other deferred revenue during the period ended June 30, 2022 was primarily due to expansion of the Caesars Digital segment from the legalization of retail and online sports betting in new jurisdictions.
Lease Revenue
Lodging Arrangements
Lodging arrangements are considered short-term and generally consist of lease and nonlease components. The lease component is the predominant component of the arrangement and consists of the fees charged for lodging. The nonlease components primarily consist of resort fees and other miscellaneous items. As the timing and pattern of transfer of both the lease and nonlease components are over the course of the lease term, we have elected to combine the revenue generated from lease and nonlease components into a single lease component based on the predominant component in the arrangement. During the three months ended June 30, 2022 and 2021, we recognized approximately $519 million and $396 million, respectively, and during the six months ended June 30, 2022 and 2021, we recognized approximately $902 million and $611 million, respectively, which is included in Hotel revenues in the Statements of Operations.
Conventions
Convention arrangements are considered short-term and generally consist of lease and nonlease components. The lease component is the predominant component of the arrangement and consists of fees charged for the use of meeting space. The nonlease components primarily consist of food and beverage and audio/visual services. Revenue from conventions is included in Other revenue in the Statements of Operations, and during the three months ended June 30, 2022 and 2021, lease revenue related to conventions was approximately $13 million and less than $1 million, respectively, and during the six months ended June 30, 2022 and 2021, lease revenue related to conventions was approximately $19 million and less than $1 million, respectively.
Real Estate Operating Leases
Real estate lease revenue is included in Other revenue in the Statements of Operations. During the three months ended June 30, 2022 and 2021, we recognized approximately $47 million and $44 million, respectively, and during the six months ended June 30, 2022 and 2021, we recognized approximately $83 million and $65 million, respectively, of real estate lease revenue.
Real estate lease revenue includes $16 million and $6 million of variable rental income for the three months ended June 30, 2022 and 2021, respectively, and $28 million and $13 million for the six months ended June 30, 2022 and 2021, respectively.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 11. Earnings per Share
The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) from continuing operations attributable to Caesars, net of income taxes | $ | 34 | | | $ | 101 | | | $ | (417) | | | $ | (318) | |
| Discontinued operations, net of income taxes | (157) | | | (30) | | | (386) | | | (34) | |
| | | | | | | |
| Net income (loss) attributable to Caesars | $ | (123) | | | $ | 71 | | | $ | (803) | | | $ | (352) | |
| Shares outstanding: | | | | | | | |
| Weighted average shares outstanding – basic | 214 | | | 209 | | | 214 | | | 209 | |
| Effect of dilutive securities: | | | | | | | |
| | | | | | | |
| Stock-based compensation awards | 1 | | | 2 | | | — | | | — | |
| | | | | | | |
| Weighted average shares outstanding – diluted | 215 | | | 211 | | | 214 | | | 209 | |
| | | | | | | |
| Basic income (loss) per share from continuing operations | $ | 0.16 | | | $ | 0.48 | | | $ | (1.95) | | | $ | (1.52) | |
| Basic loss per share from discontinued operations | (0.73) | | | (0.14) | | | (1.80) | | | (0.16) | |
| Net income (loss) per common share attributable to common stockholders – basic: | $ | (0.57) | | | $ | 0.34 | | | $ | (3.75) | | | $ | (1.68) | |
| | | | | | | |
| Diluted income (loss) per share from continuing operations | $ | 0.16 | | | $ | 0.48 | | | $ | (1.95) | | | $ | (1.52) | |
| Diluted loss per share from discontinued operations | (0.73) | | | (0.14) | | | (1.80) | | | (0.16) | |
| Net income (loss) per common share attributable to common stockholders – diluted: | $ | (0.57) | | | $ | 0.34 | | | $ | (3.75) | | | $ | (1.68) | |
For a period in which the Company generated a net loss from continuing operations, the weighted average shares outstanding - basic was used in calculating diluted loss per share because using diluted shares would have been anti-dilutive to loss per share.
| | | | | | | | | | | | | | | | | | | | | | | |
| Weighted-Average Number of Anti-Dilutive Shares Excluded from Calculation of EPS | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Stock-based compensation awards | 2 | | | — | | | 3 | | | 3 | |
| | | | | | | |
| Total anti-dilutive common stock | 2 | | | — | | | 3 | | | 3 | |
Note 12. Stock-Based Compensation and Stockholders’ Equity
Stock-Based Awards
The Company maintains long-term incentive plans which allow for granting stock-based compensation awards for directors, employees, officers, and consultants or advisers who render services to the Company or its subsidiaries, based on Company Common Stock, including performance-based and incentive stock options, restricted stock, restricted stock units (“RSUs”), performance stock units (“PSUs”), market-based performance stock units (“MSUs”), stock appreciation rights, and other stock-based awards or dividend equivalents. Forfeitures are recognized in the period in which they occur.
Total stock-based compensation expense in the accompanying Statements of Operations totaled $26 million and $20 million during the three months ended June 30, 2022 and 2021, respectively, and $51 million and $43 million during the six months ended June 30, 2022 and 2021, respectively. These amounts are included in Corporate expense in the Company’s Statements of Operations.
2015 Equity Incentive Plan (“2015 Plan”)
During the six months ended June 30, 2022, as part of the annual incentive program, the Company granted 718 thousand RSUs to employees of the Company with an aggregate fair value of $53 million and a ratable vesting period of one to three years. Each RSU represents the right to receive payment in respect of one share of the Company’s Common Stock.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the six months ended June 30, 2022, the Company also granted 80 thousand PSUs that are scheduled to vest over a period of one to three years. On the vesting date, recipients will receive between 0% and 200% of the target number of PSUs granted, in the form of Company Common Stock, based on the achievement of specified performance and service conditions. The fair value of the PSUs is based on the market price of our common stock when a mutual understanding of the key terms and conditions of the awards between the Company and recipient is achieved. The awards are remeasured each period until such an understanding is reached. The aggregate value of PSUs granted during the year was $3 million as of June 30, 2022.
In addition, during the six months ended June 30, 2022, the Company granted 428 thousand MSUs that are scheduled to cliff vest over a period of one to three years. On the vesting date, recipients will receive between 0% and 200% of the target number of MSUs granted, in the form of Company Common Stock, based on the achievement of specified market and service conditions. The grant date fair value of the MSUs was determined using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient. The effect of market conditions is considered in determining the grant date fair value, which is not subsequently revised based on actual performance. The aggregate value of MSUs granted during the six months ended June 30, 2022 was $36 million. Included in the MSUs granted during the period is an award for the Company’s CEO in the amount of 225,000 MSUs, with a grant date fair value of $16 million which is eligible to be earned based on the achievement of certain stock prices over a three-year period. The stock-based compensation expense associated with this award is expected to be recognized over the derived service period ending December 31, 2022. These awards will be settled in February 2025.
During the six months ended June 30, 2022, there were no grants of stock options and 19 thousand stock options were exercised. In addition, during the six months ended June 30, 2022, 589 thousand, 185 thousand and 113 thousand of RSUs, PSUs and MSUs, respectively, vested under the 2015 plan.
Outstanding at End of Period
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| June 30, 2022 | | December 31, 2021 |
| Quantity | | Wtd-Avg (a) | | Quantity | | Wtd-Avg (a) |
| Stock options | 25,402 | | | $ | 16.12 | | | 43,905 | | $ | 20.69 | |
| Restricted stock units | 2,170,957 | | 67.56 | | | 2,090,607 | | 61.47 | |
| Performance stock units | 391,429 | | 50.42 | | | 417,069 | | 62.20 | |
| Market-based stock units | 750,184 | | 83.46 | | | 381,923 | | 77.09 | |
____________________
(a)Represents the weighted-average exercise price for stock options, weighted-average grant date fair value for RSUs, weighted-average grant date fair value for PSUs where the grant date has been achieved, the price of CEI common stock as of the balance sheet date for PSUs where a grant date has not been achieved, and the grant date fair value of the MSUs determined using the Monte-Carlo simulation model.
Share Repurchase Program
In November 2018, the Company’s Board of Directors authorized a $150 million common stock repurchase program (the “Share Repurchase Program”) pursuant to which the Company may, from time to time, repurchase shares of common stock on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The Share Repurchase Program has no time limit and may be suspended or discontinued at any time without notice. There is no minimum number of shares of common stock that the Company is required to repurchase under the Share Repurchase Program.
As of June 30, 2022, the Company has acquired 223,823 shares of common stock under the Share Repurchase Program at an aggregate value of $9 million and an average of $40.80 per share. No shares were repurchased during the six months ended June 30, 2022 and 2021.
Changes to the Authorized Shares
On June 17, 2021, following receipt of required shareholder approvals, the Company amended its Certificate of Incorporation to increase the number of authorized shares of common stock from 300 million to 500 million, and authorize the issuance of up to 150 million shares of preferred stock.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 13. Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | |
| Income Tax Allocation | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Income (loss) from continuing operations before income taxes | $ | 88 | | | $ | 101 | | | $ | (470) | | | $ | (395) | |
| Benefit (provision) for income taxes | (52) | | | 1 | | | 55 | | | 77 | |
| Effective tax rate | 59.1 | % | | (1.0) | % | | 11.7 | % | | 19.5 | % |
We classify accruals for uncertain tax positions within Other long-term liabilities on the Balance Sheets separate from any related income tax payable or deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. We have provided a valuation allowance on certain federal, state and foreign deferred tax assets that were not deemed realizable based upon estimates of future taxable income.
As a result of the William Hill Acquisition, the Company assumed $381 million of additional net deferred tax liabilities net of necessary valuation allowances, plus $34 million in additional accruals for uncertain tax positions. $130 million of the additional deferred tax liabilities and $34 million of the accruals for uncertain tax positions relating to the William Hill Acquisition are presented in Liabilities held for sale as they relate to William Hill International.
The income tax benefit (provision) for the three and six months ended June 30, 2022 differed from the expected income tax benefit (provision) based on the federal tax rate of 21% primarily due to a true-up adjustment related to the tax impact of the settlement of preexisting relationships upon the acquisition of William Hill in 2021.
The income tax benefit (provision) for the three and six months ended June 30, 2021 differed from the expected income tax benefit (provision) based on the federal tax rate of 21% due to the tax impacts of; (i) changes in certain U.S. state tax laws and the United Kingdom tax rate, each enacted in June 2021, (ii) certain income and deductions that are not tax benefited, and (iii) the reclassification of Horseshoe Hammond from held for sale.
The Company, including its subsidiaries, files tax returns with federal, state, and foreign jurisdictions. The Company does not have tax sharing agreements with the other members within its consolidated group. The Company is subject to exam by various state and foreign tax authorities. With few exceptions, the Company is no longer subject to US federal or state and local tax assessments by tax authorities for years before 2018, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.
Note 14. Related Affiliates
REI
As of June 30, 2022, Recreational Enterprises, Inc. (“REI”) owned approximately 4.0% of outstanding common stock of the Company. The directors of REI are the Company’s Executive Chairman of the Board, Gary L. Carano, its Chief Executive Officer and Board member, Thomas R. Reeg, and its former Senior Vice President of Regional Operations, Gene Carano. In addition, Gary L. Carano also serves as the Vice President of REI and Gene Carano also serves as the Secretary and Treasurer of REI. Members of the Carano family, including Gary L. Carano and Gene Carano, own the equity interests in REI. During the six months ended June 30, 2022 and 2021, there were no related party transactions between the Company and the Carano family other than compensation, including salary and equity incentives, and the CSY Lease listed below.
C. S. & Y. Associates
The Company owns the entire parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from C. S. & Y. Associates (“CSY”) which is an entity partially owned by REI (the “CSY Lease”). The CSY Lease expires on June 30, 2057. Annual rent pursuant to the CSY Lease is currently $0.6 million, paid quarterly. Annual rent is subject to periodic rent escalations through the term of the lease. As of June 30, 2022 and December 31, 2021, there were no amounts due to or from CSY.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Transactions with Horseshoe Baltimore
The Company held an interest in Horseshoe Baltimore of approximately 44.3%, which was accounted for as an equity method investment, prior to our acquisition of an additional interest and subsequent consolidation on August 26, 2021. Related party transactions include items such as casino management fees, reimbursement of various costs incurred on behalf of Horseshoe Baltimore, and the allocation of other general corporate expenses. Following our consolidation of Horseshoe Baltimore, these transactions are eliminated.
Note 15. Segment Information
The executive decision maker of the Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of the Company’s casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. The Company’s principal operating activities occur in four reportable segments. The reportable segments are based on the similar characteristics of the operating segments with the way management assesses these results and allocates resources, which is a consolidated view that adjusts for the effect of certain transactions between these reportable segments within Caesars: (1) Las Vegas, (2) Regional, (3) Caesars Digital, and (4) Managed and Branded, in addition to Corporate and Other. See table below for a summary of these segments. Also, see Note 3 and Note 6 for a discussion of any impairment of intangibles or long-lived assets related to certain segments, when applicable.
The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as of June 30, 2022:
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| Las Vegas | | Regional | | Managed and Branded |
Bally’s Las Vegas | | Caesars Atlantic City | | Horseshoe Bossier City | | Managed |
Caesars Palace Las Vegas | | Circus Circus Reno | | Horseshoe Council Bluffs | | Harrah’s Ak-Chin |
The Cromwell | | Eldorado Gaming Scioto Downs | | Horseshoe Hammond | | Harrah’s Cherokee |
Flamingo Las Vegas | | Eldorado Resort Casino Reno | | Horseshoe Indianapolis | | Harrah’s Cherokee Valley River |
Harrah’s Las Vegas | | Grand Victoria Casino | | Horseshoe St. Louis | | Harrah’s Resort Southern California |
The LINQ Hotel & Casino | | Harrah’s Atlantic City | | Horseshoe Tunica | | Caesars Windsor |
Paris Las Vegas | | Harrah’s Council Bluffs | | Isle Casino Bettendorf | | Caesars Dubai |
Planet Hollywood Resort & Casino | | Harrah’s Gulf Coast | | Isle of Capri Casino Boonville | | Branded |
Rio All-Suite Hotel & Casino | | Harrah’s Hoosier Park Racing & Casino | | Horseshoe Lake Charles (b) | | Caesars Southern Indiana (c) |
| | Harrah’s Joliet | | Isle of Capri Casino Lula | | Harrah’s Northern California |
| Caesars Digital | | Harrah’s Lake Tahoe | | Isle Casino Hotel - Black Hawk | | |
| Caesars Digital | | Harrah’s Laughlin | | Isle Casino Pompano Park | | |
| | Harrah’s Metropolis | | Isle Casino Waterloo | | |
| | Harrah’s New Orleans | | Lady Luck Casino - Black Hawk | | |
| | Harrah’s North Kansas City | | Silver Legacy Resort Casino | | |
| | Harrah’s Philadelphia | | Trop Casino Greenville | | |
| | Harveys Lake Tahoe | | Tropicana Atlantic City | | |
| | Horseshoe Baltimore (a) | | Tropicana Laughlin Hotel & Casino | | |
___________________
(a)On August 26, 2021, the Company increased its ownership interest in Horseshoe Baltimore to 75.8% and began to consolidate the property in our Regional segment following the change in ownership. Management fees prior to the consolidation of Horseshoe Baltimore have been reflected in the Managed and Branded segment.
(b)Isle of Capri Casino Hotel Lake Charles has been temporarily closed since the end of August 2020 due to damage from Hurricane Laura and will remain closed until the fourth quarter of 2022 when construction of a new land-based casino, Horseshoe Lake Charles, is expected to be complete.
(c)The sale of Caesars Southern Indiana closed on September 3, 2021 and the Company entered into a license agreement with the Eastern Band of Cherokee Indians for the continued use of the Caesars brand and the Caesars Rewards loyalty program at Caesars Southern Indiana. Caesars Southern Indiana was previously reported within the Regional segment and subsequent to the sale, as a result of the license agreement, is reported within the Managed and Branded segment.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The properties listed above exclude the discontinued operations, including previous international properties which have been sold, or we have entered into agreements to sell. The sale of Caesars UK Group closed on July 16, 2021, in which the buyer assumed all liabilities associated with the Caesars UK Group. Additionally, on September 8, 2021, the Company entered into an agreement to sell William Hill International, which closed on July 1, 2022.
Certain of our properties operate off-track betting locations, including Harrah’s Hoosier Park Racing & Casino, which operates Winner’s Circle Indianapolis and Winner’s Circle New Haven, and Horseshoe Indianapolis (formerly “Indiana Grand”), which operates Winner’s Circle Clarksville. The LINQ Promenade is an open-air dining, entertainment, and retail promenade located on the east side of the Las Vegas Strip next to The LINQ Hotel & Casino (the “LINQ”) that features the High Roller, a 550-foot observation wheel, and the Fly LINQ Zipline attraction. We also own the CAESARS FORUM conference center, which is a 550,000 square feet conference center with 300,000 square feet of flexible meeting space, two of the largest pillarless ballrooms in the world and direct access to the LINQ.
“Corporate and Other” includes certain unallocated corporate overhead costs and other adjustments, including eliminations of transactions among segments, to reconcile to the Company’s consolidated results.
The following table sets forth, for the periods indicated, certain operating data for the Company’s four reportable segments. We recast previously reported segment amounts to conform to the way management assesses results and allocates resources for the current year.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions) | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| Las Vegas: | | | | | | | |
| Net revenues | $ | 1,142 | | | $ | 855 | | | $ | 2,056 | | | $ | 1,352 | |
| | | | | | | |
| Adjusted EBITDA | 547 | | | 423 | | | 947 | | | 585 | |
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| Regional: | | | | | | | |
| Net revenues | 1,455 | | | 1,490 | | | 2,818 | | | 2,681 | |
| | | | | | | |
| Adjusted EBITDA | 513 | | | 602 | | | 972 | | | 995 | |
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| Caesars Digital: | | | | | | | |
| Net revenues | 152 | | | 86 | | | 99 | | | 125 | |
| Adjusted EBITDA | (69) | | | (5) | | | (623) | | | (7) | |
| Managed and Branded: | | | | | | | |
| Net revenues | 74 | | | 66 | | | 140 | | | 127 | |
| | | | | | | |
| Adjusted EBITDA | 22 | | | 26 | | | 42 | | | 47 | |
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| Corporate and Other: | | | | | | | |
| Net revenues | (2) | | | 5 | | | — | | | 9 | |
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| Adjusted EBITDA | (35) | | | (42) | | | (64) | | | (81) | |
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Reconciliation of Adjusted EBITDA - By Segment to Net Income (Loss) Attributable to Caesars
Adjusted EBITDA is presented as a measure of the Company’s performance. Adjusted EBITDA is defined as revenues less certain operating expenses and is comprised of net income (loss) before (i) interest income and interest expense, net of interest capitalized, (ii) income tax (benefit) provision, (iii) depreciation and amortization, and (iv) certain items that we do not consider indicative of our ongoing operating performance at an operating property level.
In evaluating Adjusted EBITDA you should be aware that, in the future, we may incur expenses that are the same or similar to some of the adjustments in this presentation. The presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or unexpected items.
Adjusted EBITDA is a financial measure commonly used in our industry and should not be construed as an alternative to net income (loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies within the industry. Adjusted EBITDA is included because management uses Adjusted EBITDA to measure performance and allocate resources, and believes that Adjusted EBITDA provides investors with additional information consistent with that used by management.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In millions) | 2022 | | 2021 | | 2022 | | 2021 |
| Adjusted EBITDA by Segment: | | | | | | | |
| Las Vegas | $ | 547 | | | $ | 423 | | | $ | 947 | | | $ | 585 | |
| Regional | 513 | | | 602 | | | 972 | | | 995 | |
| Caesars Digital | (69) | | | (5) | | | (623) | | | (7) | |
| Managed and Branded | 22 | | | 26 | | | 42 | | | 47 | |
| Corporate and Other | (35) | | | (42) | | | (64) | | | (81) | |
| 978 | | | 1,004 | | | 1,274 | | | 1,539 | |
| Reconciliation to net income (loss) attributable to Caesars: | | | | | | | |
| Net income attributable to noncontrolling interests | (2) | | | (1) | | | (2) | | | — | |
| Net loss from discontinued operations | (157) | | | (30) | | | (386) | | | (34) | |
| Benefit (provision) for income taxes | (52) | | | 1 | | | 55 | | | 77 | |
Other income (loss) (a) | 45 | | | 110 | | | 49 | | | (23) | |
| Loss on extinguishment of debt | — | | | (23) | | | — | | | (23) | |
| Interest expense, net | (559) | | | (576) | | | (1,111) | | | (1,155) | |
| Depreciation and amortization | (306) | | | (301) | | | (606) | | | (566) | |
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Transaction and other operating costs, net (b) | (14) | | | (72) | | | 21 | | | (92) | |
| Stock-based compensation expense | (26) | | | (20) | | | (51) | | | (43) | |
Other items (c) | (30) | | | (21) | | | (46) | | | (32) | |
| Net income (loss) attributable to Caesars | $ | (123) | | | $ | 71 | | | $ | (803) | | | $ | (352) | |
____________________
(a)Other income (loss) for the three and six months ended June 30, 2022 primarily represents the net change in fair value of investments held by the Company, foreign exchange forward contracts, and the changes in the disputed claims liability related to Former Caesars’ bankruptcy prior to the Merger. Other income (loss) for the three and six months ended June 30, 2021 primarily represents a gain in the change of fair value of the Company’s investments offset by a loss on the change in fair value of the derivative liability related to the 5% Convertible Notes.
(b)Transaction and other operating costs, net for the three and six months ended June 30, 2022 primarily represents a gain resulting from insurance proceeds received in excess of the respective carrying value of the assets damaged at Lake Charles by Hurricane Laura partially offset by various contract or lease termination exit costs. Transaction and other operating costs, net for the three and six months ended June 30, 2021 primarily represents costs related to the William Hill Acquisition and the Merger, various contract or license termination exit costs, professional services, other acquisition costs and severance costs.
(c)Other items primarily represent certain consulting and legal fees, rent for non-operating assets, relocation expenses, retention bonuses and business optimization expenses.
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| Total Assets - By Segment | | | |
| (In millions) | June 30, 2022 | | December 31, 2021 |
| Las Vegas | $ | 22,960 | | | $ | 22,374 | |
| Regional | 14,678 | | | 14,419 | |
| Caesars Digital | 1,265 | | | 1,878 | |
| Managed and Branded | 3,026 | | | 3,527 | |
Corporate and Other (a) | (5,259) | | | (4,167) | |
| Total | $ | 36,670 | | | $ | 38,031 | |
____________________
(a)Includes eliminations of transactions among segments, to reconcile to the Company’s consolidated results.
