CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as of March 31, 2021:
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Las Vegas | | Regional | | Managed, International, CIE |
Bally’s Las Vegas (a) | | Eldorado Resort Casino Reno | | Harrah’s Atlantic City (a) | | Managed |
Caesars Palace Las Vegas (a) | | Silver Legacy Resort Casino | | Harrah’s Laughlin (a) | | Harrah’s Ak-Chin (a) |
The Cromwell (a) | | Circus Circus Reno | | Harrah’s New Orleans (a) | | Harrah’s Cherokee (a) |
Flamingo Las Vegas (a) | | MontBleu Casino Resort & Spa (c) | | Hoosier Park (a) | | Harrah’s Cherokee Valley River (a) |
Harrah’s Las Vegas (a) | | Tropicana Laughlin Hotel & Casino | | Indiana Grand (a) | | Harrah’s Resort Southern California (a) |
The LINQ Hotel & Casino (a) | | Isle Casino Hotel - Black Hawk | | Caesars Atlantic City (a) | | Horseshoe Baltimore (a)(h) |
Paris Las Vegas (a) | | Lady Luck Casino - Black Hawk | | Caesars Southern Indiana (a)(b)(e) | | Caesars Windsor (a) |
Planet Hollywood Resort & Casino (a) | | Isle Casino Waterloo | | Harrah’s Council Bluffs (a) | | Kings & Queens Casino (a) |
Rio All-Suite Hotel & Casino (a) | | Isle Casino Bettendorf | | Harrah’s Gulf Coast (a) | | Caesars Dubai (a) |
| | Isle of Capri Casino Boonville | | Harrah’s Joliet (a) | | International |
| | Isle Casino Racing Pompano Park | | Harrah’s Lake Tahoe (a) | | Caesars Cairo (a)(b) |
| | Isle of Capri Casino Hotel Lake Charles | | Harrah’s Louisiana Downs (a)(b)(g) | | Ramses Casino (a)(b) |
| | Belle of Baton Rouge Casino & Hotel(i) | | Harrah’s Metropolis (a) | | Emerald Casino Resort (a)(b) |
| | Isle of Capri Casino Lula | | Harrah’s North Kansas City (a) | | Alea Glasgow (a)(b) |
| | Trop Casino Greenville | | Harrah’s Philadelphia (a) | | Alea Nottingham (a)(b) |
| | Eldorado Gaming Scioto Downs | | Harveys Lake Tahoe (a) | | The Empire Casino (a)(b) |
| | Tropicana Casino and Resort, Atlantic City | | Horseshoe Bossier City (a) | | Manchester235 (a)(b) |
| | Grand Victoria Casino | | Horseshoe Council Bluffs (a) | | Playboy Club London (a)(b) |
| | Lumière Place Casino | | Horseshoe Hammond (a)(b)(f) | | Rendezvous Brighton (a)(b) |
| | Tropicana Evansville (d) | | Horseshoe Tunica (a) | | The Sportsman (a)(b) |
| | | | | | CIE |
| | | | | | Caesars Interactive Entertainment (a) |
___________________
(a)These properties were acquired from the Merger on July 20, 2020.
(b)As a result of the Merger, the sales of these properties met the requirements for presentation as discontinued operations as of March 31, 2021.
(c)In April 2020, the Company entered into an agreement to sell MontBleu. The sale of MontBleu closed on April 6, 2021.
(d)On October 27, 2020, the Company entered into an agreement to sell Evansville, which is expected to close mid-2021.
(e)On December 24, 2020, the Company entered into an agreement to sell Caesars Southern Indiana, which is expected to close in the third quarter of 2021.
(f)The Company plans to enter into an agreement to sell Horseshoe Hammond prior to December 31, 2021.
(g)On September 3, 2020, the Company entered into an agreement to sell Harrah’s Louisiana Downs, which is expected to close in the third quarter of 2021.
(h)As of March 31, 2021, Horseshoe Baltimore was 44.3% owned by us and held as an equity-method investment.
(i)On December 1, 2020, the Company entered into an agreement to sell Belle of Baton Rouge, which is expected to close in the third quarter of 2021.
In addition to our properties listed above, other domestic and international properties, including Harrah’s Northern California, are authorized to use the brands and marks of Caesars Entertainment, Inc. Additionally, certain of our properties operate off-track betting locations, including Hoosier Park, which operates Winner’s Circle Indianapolis and Winner’s Circle New Haven, and 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, 2 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.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table sets forth, for the periods indicated, certain operating data for the Company’s 53 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, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
| (in thousands) | | | | | | |
Revenues and expenses | | | | | | | |
West: | | | | | | | |
Net revenues | $ | 29,937 | | | $ | 127,727 | | | $ | 135,427 | | | $ | 245,822 | |
Depreciation and amortization | 13,299 | | | 13,508 | | | 27,237 | | | 26,651 | |
Operating (loss) income | (12,808) | | | 20,613 | | | (110,265) | | | 31,414 | |
Midwest: | | | | | | | |
Net revenues | 22,787 | | | 97,239 | | | 83,580 | | | 194,026 | |
Depreciation and amortization | 4,148 | | | 7,714 | | | 8,670 | | | 16,135 | |
Operating (loss) income | 415 | | | 29,012 | | | (18,939) | | | 56,845 | |
South: | | | | | | | |
Net revenues | 30,760 | | | 116,937 | | | 127,812 | | | 249,651 | |
Depreciation and amortization | 6,786 | | | 9,850 | | | 13,906 | | | 20,865 | |
Operating (loss) income | (9,473) | | | 19,023 | | | (20,667) | | | 46,538 | |
East: | | | | | | | |
Net revenues | 21,226 | | | 170,455 | | | 129,282 | | | 336,688 | |
Depreciation and amortization | 11,046 | | | 12,240 | | | 22,287 | | | 24,389 | |
Operating (loss) income | (21,231) | | | 35,213 | | | (10,215) | | | 62,374 | |
Central: | | | | | | | |
Net revenues | 19,848 | | | 122,792 | | | 119,553 | | | 243,264 | |
Depreciation and amortization | 11,793 | | | 11,480 | | | 23,556 | | | 22,690 | |
Operating (loss) income | (8,194) | | | 28,033 | | | 9,920 | | | 55,103 | |
Corporate and Other: | | | | | | | |
Net revenues | 1,912 | | | 1,971 | | | 3,885 | | | 3,493 | |
Depreciation and amortization | 1,867 | | | 1,741 | | | 3,716 | | | 3,560 | |
Operating loss | (27,036) | | | (29,344) | | | (51,341) | | | (26,120) | |
Total Reportable Segments | | | | | | | |
Net revenues | $ | 126,470 | | | $ | 637,121 | | | $ | 599,539 | | | $ | 1,272,944 | |
Depreciation and amortization | $ | 48,939 | | | $ | 56,533 | | | $ | 99,372 | | | $ | 114,290 | |
Operating (loss) income | $ | (78,327) | | | $ | 102,550 | | | $ | (201,507) | | | $ | 226,154 | |
Reconciliations to consolidated net (loss) income: | | | | | | | |
Operating (loss) income | $ | (78,327) | | | $ | 102,550 | | | $ | (201,507) | | | $ | 226,154 | |
Unallocated (loss) income and expenses: | | | | | | | |
Interest expense, net | (68,136) | | | (71,798) | | | (134,600) | | | (145,308) | |
Loss on extinguishment of debt | — | | | — | | | (158) | | | — | |
Unrealized gain (loss) on investments and marketable securities | 12,806 | | | (1,398) | | | (10,202) | | | (2,858) | |
Benefit (provision) for income taxes | 33,661 | | | (10,418) | | | 70,833 | | | (20,823) | |
Net (loss) income | $ | (99,996) | | | $ | 18,936 | | | $ | (275,634) | | | $ | 57,165 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(In millions) | 2021 | | 2020 | | | | |
| | | | | | | |
Las Vegas: | | | | | | | |
Net revenues | $ | 497 | | | $ | 0 | | | | | |
| | | | | | | |
Adjusted EBITDA | 162 | | | 0 | | | | | |
| | | | | | | |
| | | | | | | |
Regional: | | | | | | | |
Net revenues | 1,108 | | | 471 | | | | | |
| | | | | | | |
Adjusted EBITDA | 367 | | | 111 | | | | | |
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Managed, International, CIE: | | | | | | | |
Net revenues | 90 | | | 0 | | | | | |
| | | | | | | |
Adjusted EBITDA | 15 | | | 0 | | | | | |
| | | | | | | |
| | | | | | | |
Corporate and Other: | | | | | | | |
Net revenues | 4 | | | 2 | | | | | |
| | | | | | | |
Adjusted EBITDA | (39) | | | (8) | | | | | |
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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 operating expenses and is comprised of net income (loss) before (i) interest expense, net of interest capitalized and interest income, (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 March 31, |
(In millions) | 2021 | | 2020 |
Adjusted EBITDA by Segment: | | | |
Las Vegas | $ | 162 | | | $ | 0 | |
Regional | 367 | | | 111 | |
Managed, International, CIE | 15 | | | 0 | |
Corporate and Other | (39) | | | (8) | |
| 505 | | | 103 | |
Reconciliation to net income (loss) attributable to Caesars: | | | |
Net loss attributable to noncontrolling interests | 1 | | | 0 | |
Net income from discontinued operations | 7 | | | 0 | |
Benefit for income taxes | 79 | | | 37 | |
Other loss (a) | (133) | | | (23) | |
| | | |
Interest expense, net | (563) | | | (67) | |
Depreciation and amortization | (265) | | | (50) | |
Impairment charges | 0 | | | (161) | |
Transaction costs and other operating costs (b) | (20) | | | (8) | |
Stock-based compensation | (23) | | | (6) | |
Other items (c) | (11) | | | (1) | |
Net loss attributable to Caesars | $ | (423) | | | $ | (176) | |
____________________
(a)Other loss for the three months ended March 31, 2021 primarily represents a loss on the change in fair value of the derivative liability related to the 5% Convertible Notes slightly offset by a gain on foreign currency exchange and investments held. Other (income) loss for the three months ended March 31, 2020 primarily represents change in fair value of the Company’s investments in William Hill PLC.
(b)Transaction costs and other operating costs for the three months ended March 31, 2021 and 2020primarily represent 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, and business optimization expenses.
| | | | | | | | | | | |
| Three Months Ended March 31, |
(In millions) | 2021 | | 2020 |
Capital Expenditures, Net | | | |
Las Vegas | $ | 15 | | | $ | 0 | |
Regional | 46 | | | 22 | |
Managed, International, CIE | 0 | | | 0 | |
Corporate and Other | 4 | | | 1 | |
Total | $ | 65 | | | $ | 23 | |
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2020 | | 2019 |
| (in thousands) | | |
Capital Expenditures, Net | | | |
West | $ | 15,699 | | | $ | 49,450 | |
Midwest | 2,732 | | | 9,443 | |
South | 7,707 | | | 10,098 | |
East | 6,735 | | | 19,857 | |
Central | 3,561 | | | 5,308 | |
Corporate | 4,580 | | | 2,958 | |
Total | $ | 41,014 | | | $ | 97,114 | |
| | | | | | | | | | | |
| Balance Sheet as of | | |
| June 30, 2020 | | December 31, 2019 |
| (in thousands) | | |
Total Assets | | | |
West | $ | 1,231,649 | | | $ | 1,385,982 | |
Midwest | 1,061,521 | | | 1,157,884 | |
South | 1,034,363 | | | 1,132,707 | |
East | 1,533,568 | | | 1,588,308 | |
Central | 1,491,265 | | | 1,522,023 | |
Corporate, Other and Eliminations | (203,919) | | | (1,146,351) | |
Total | $ | 6,148,447 | | | $ | 5,640,553 | |
| | | | | | | | | | | |
(In millions) | March 31, 2021 | | December 31, 2020 |
Total Assets | | | |
Las Vegas | $ | 21,454 | | | $ | 21,464 | |
Regional | 13,918 | | | 13,732 | |
Managed, International, CIE | 443 | | | 548 | |
Corporate and Other | 204 | | | 641 | |
Total | $ | 36,019 | | | $ | 36,385 | |
ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with theThe accompanying consolidated condensed financial statements includinginclude the related notes and the other financial information, contained in this Quarterly Report on Form 10-Q.
accounts of Caesars Entertainment, Inc., a Delaware corporation, formerly known as Eldorado Resorts, Inc. (“ERI” or “Eldorado”), isand its consolidated subsidiaries which may be referred to as the “Company,” “CEI,” “Caesars,” “we,” “our,” or “us” within these financial statements.
The following discussion and analysis of the “Registrant,financial position and operating results of Caesars for the three months ended March 31, 2021 and 2020 should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto and other financial information included elsewhere in this Form 10-Q as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Annual Report”). Capitalized terms used but not defined in this Form 10-Q have the same meanings as in the 2020 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 Loss as our “Statements of Operations,” and together(iv) our Consolidated Condensed Statements of Cash Flows as our “Statements of Cash Flows.” References to numbered “Notes” refer to Notes to Consolidated Condensed Financial Statements included in Item 1, “Unaudited Financial Statements.”
The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” in this report.
Objective
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to be a narrative explanation of the financial statements and other statistical data that should be read in conjunction with its subsidiaries may alsothe accompanying financial statements to enhance an investor’s understanding of our financial condition, changes in financial condition and results of operations. Our objectives are: (i) to provide a narrative explanation of our financial statements that will enable investors to see the Company through the eyes of management; (ii) to enhance the overall financial disclosure and provide the context within which financial information should be referredanalyzed; and (iii) to as “we,” “us” or “our.”
provide information about the quality of, and potential variability of, our earnings and cash flows so that investors can ascertain the likelihood of whether past performance is indicative of future performance.
Overview
We are a geographically diversified gaming and hospitality company with 23 gaming facilities in 11 states as of June 30, 2020. As of June 30, 2020, our properties were located in Colorado, Florida, Illinois, Indiana, Iowa, Mississippi, Missouri, Louisiana, Nevada, New Jersey and Ohio, and featured approximately 23,900 slot machines, video lottery terminals (“VLTs”) and e-tables, approximately 660 table games and approximately 11,300 hotel rooms. On July 20, 2020, we completed the merger in which a wholly-owned subsidiary of the Company merged with and into Caesars Entertainment Corporation (“Former Caesars”) with Former Caesars surviving as a wholly-owned subsidiary of the Company (the “Merger”) pursuant to the Agreement and Plan of Merger dated as of June 24, 2019 (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 15, 2019, the “Merger Agreement”). As a result of the Merger, we currently own an aggregate of 54 domestic properties in 16 states with approximately 60,400 slot machines, VLTs and e-tables, approximately 3,350 table games and approximately 51,200 hotel rooms, which includes international operations in five countries outside of the U.S. Our primary source of revenue is generated by gaming operations, and we utilize our hotels, restaurants, bars, entertainment, racing, sportsbook offerings, retail shops and other services to attract customers to our properties.
We werethat was founded in 1973 by the Carano family with the opening of the Eldorado Hotel Casino in Reno, Nevada and in 1993Nevada. We partnered with MGM Resorts International to build Silver Legacy Resort Casino in Reno, Nevada. BeginningNevada in 1993 and, beginning in 2005, we grew through a series of acquisitions, including the acquisition of Eldorado Resort Casino Shreveport (“Eldorado Shreveport”) in 2005, MTR Gaming Group, Inc. in 2014, Circus Circus Reno (“Circus Reno”) and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International in 2015, Isle of Capri Casinos, Inc. (“Isle” or “Isle of Capri”) in 2017 and Grand Victoria Casino (“Elgin”) and Tropicana Entertainment, Inc. (“Tropicana”) in 2018.
As of June 30,On July 20, 2020, we owned 18completed the merger with Caesars Entertainment Corporation (“Former Caesars”) pursuant to which Former Caesars became our wholly-owned subsidiary (the “Merger”).
We own, lease or manage an aggregate of 54 domestic properties in 16 states with approximately 54,600 slot machines, video lottery terminals (“VLTs”) and e-tables, approximately 3,200 table games and approximately 47,700 hotel rooms as of March 31, 2021. We also have international operations in five countries outside of the U.S. 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. Upon completion of our previously announced sales, or expected sales, of certain gaming properties, we expect that we will continue to own, lease or manage 48 properties. Our primary source of revenue is generated by gaming operations, and we utilize our hotels, restaurants, bars, entertainment, racing, sportsbook offerings, retail shops and other services to attract customers to our properties.
We own 20 of our casinos and leased fivelease 28 casinos that are subjectin the U.S. We lease 20 casinos from VICI Properties L.P., a Delaware limited partnership (“VICI”) pursuant to a masterregional lease, witha Las Vegas lease and a Joliet lease. In addition, we lease seven casinos from GLP Capital, L.P., the operating partnership of Gaming and Leisure Properties, Inc. (“GLPI”), that we entered into in connection with the Tropicana Acquisition on October 1, 2018 pursuant to a Master Lease (as
amended, the “GLPI Master Lease”). See full description under and a Lumière lease. Additionally, we lease the “GLPI Master Lease”.
In connection with the Merger, Caesars Entertainment Corporation changed its name to “Caesars Holdings, Inc.” and Eldorado Resorts, Inc. converted intoRio All-Suite Hotel & Casino from a Delaware corporation and changed its name to “Caesars Entertainment, Inc.” In addition, effective as of July 21, 2020 our ticker symbol on the NASDAQ Stock Market changed from “ERI” to “CZR”. In connection with the execution of the Merger Agreement, we also entered into a Master Transaction Agreement (the “MTA”) with VICI Properties L.P., a Delaware limited partnership (“VICI”), pursuant to which, among other things, we agreed to consummate certain sale and leaseback transactions and amend certain lease agreements with VICI and/or its affiliates, with respect to certain property described in the MTA.separate third party.
We periodically divest of assets in order to raise capital.capital or as a result of a determination that the assets are not core to our business. We also divested certain assets, and will beare required to divest additional assets, in connection with obtaining required regulatory approvals in preparationrelated to closing of the Merger. A summary of recently completed and planned divestitures of our properties as of June 30, 2020March 31, 2021 is as follows:
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Segment | | Property | | Date Sold | | StateLocation |
East | | Presque Isle Downs & Casino (“Presque”) | | January 11, 2019 | | Pennsylvania |
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East | | Lady Luck Casino Nemacolin (“Nemacolin”) | | March 8, 2019 | | Pennsylvania |
East | | Mountaineer Casino, Racetrack and Resort (“Mountaineer”) | | December 6, 2019 | | West Virginia |
Midwest | | Isle Casino Cape Girardeau (“Cape Girardeau”) | | December 6, 2019 | | Missouri |
Midwest | | Lady Luck Casino Caruthersville (“Caruthersville”) | | December 6, 2019 | | Missouri |
MidwestRegional | | Isle of Capri Casino Kansas City (“Kansas City”) | | July 1, 2020 (a) | | Missouri |
SouthRegional | | Lady Luck Casino Vicksburg (“Vicksburg”) | | July 1, 2020 (a) | | Mississippi |
SouthRegional | | Eldorado Resort Casino Shreveport (“Eldorado Shreveport”) | | N/A (b)December 23, 2020 (a)
| | Louisiana |
WestRegional | | MontBleu Casino Resort & Spa (“MontBleu”) | | N/A (b)April 6, 2021 (a)
| | Nevada |
CentralRegional | | Tropicana Evansville (“Evansville”) | | N/A (c) (b) | | Indiana |
Regional | | Belle of Baton Rouge Casino & Hotel (“Baton Rouge”) | | N/A (c) | | Louisiana |
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Discontinued operations(d): |
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Regional | | Harrah’s Louisiana Downs | | N/A (e) | | Louisiana |
Regional | | Caesars Southern Indiana | | N/A (b)(f) | | Indiana |
Regional | | Horseshoe Hammond | | N/A (b) | | Indiana |
Managed, International, CIE | | Emerald Resort & Casino | | N/A | | South Africa |
Managed, International, CIE | | Caesars Entertainment UK | | N/A | | United Kingdom |
(a)On July 10, 2019, we entered into a definitive agreement to sell Kansas City and Vicksburg to Twin River Worldwide Holdings, Inc. (“Twin River”) for cash consideration of approximately $230 million, subject to a working capital adjustment. The transaction closed on July 1, 2020. Kansas City and Vicksburg met the requirements for presentation as assets held for sale as of June 30, 2020 and December 31, 2019.
(b)On April 24, 2020, we entered into a definitive purchase agreement with Bally’s Corporation (formerly Twin River to sellWorldwide Holdings, Inc.) and certain of its affiliates for the sale of the equity interests of Eldorado Resort Casino Shreveport Joint Venture and Columbia Properties Tahoe, LLC, the entities that hold Eldorado Shreveport and MontBleu for aggregate consideration of $155 million, and terminated the prior agreement to sell those assets. The agreement is subject to regulatory approvals and is expected to close in the first quartera customary working capital adjustment. The sale of 2021. Eldorado Shreveport closed on December 23, 2020 and the sale of MontBleu closed on April 6, 2021. MontBleu met the requirements for presentation as assets held for sale under generally accepted accounting principles asand its results of June 30, 2020. In conjunction withoperations are included in income from continuing operations in the classification of MontBleu’s operations as assets held for sale asperiods presented. As a result of the announced sale,agreement to sell MontBleu, an impairment charge totaling $45.6$45 million was recorded during the sixthree months ended June 30,March 31, 2020 due to the carrying value exceeding the estimated net sales proceeds.proceeds from the sale.
(c)(b)In connection with its review of the Merger, the Indiana Gaming Commission determined on July 16, 2020 that, as a condition to their approval of the Merger, we will beare required to divest three properties within the state of Indiana in order to avoid undue economic concentrations asconcentration. On October 27, 2020, the Company entered into an agreement to sell Evansville to GLPI and Bally’s Corporation for $480 million in cash, subject to a customary working capital adjustment. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in mid-2021. In addition, on December 24, 2020, the Company entered into an agreement to divest of Caesars Southern Indiana Gaming Commission’s approval of the Merger. As a result, we plan(see (f) below). We expect to enter into agreementsan agreement to divest of Evansville, as well as two additional properties that we acquired as a result of the Merger,sell Horseshoe Hammond prior to December 31, 2020.2021. Evansville met the requirements for presentation as assets held for sale as of March 31, 2021.
(c)On December 1, 2020, the Company entered into an agreement to sell the Baton Rouge to CQ Holding Company, Inc. Pursuant to the terms of the GLPI Master Lease, Baton Rouge will be removed from the GLPI Master Lease, and the rent payments to GLPI will remain unchanged. The transaction is expected to close in the third quarter of 2021 and is subject to regulatory approvals and other customary closing conditions.
(d)These Former Caesars properties met held for sale criteria as of the acquisition date. The sales of these properties have or are expected to close within one year and the properties are classified as discontinued operations as of March 31, 2021.
(e)On September 3, 2020, we and VICI entered into agreement with Rubico Acquisition Corp. to sell Harrah’s Louisiana Downs for $22 million, subject to a customary working capital adjustment, where the proceeds will be split between us and VICI. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the third quarter of 2021.
(f)On December 24, 2020, the Company entered into agreement to sell Caesars Southern Indiana to the Eastern Band of Cherokee Indians (“EBCI”) for $250 million, subject to a customary working capital adjustment. Caesar’s annual payments to VICI under the regional lease will decline by $33 million upon closing of the transaction. Additionally, effective as of the closing of the transaction, Caesars and EBCI are expected to enter into a long-term agreement for the continued use of the Caesars brand and Caesars Rewards loyalty program at Caesars Southern Indiana. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the third quarter of 2021.
Merger Related Activities
Merger with Caesars Entertainment Corporation
On July 20, 2020, the Merger was consummated and Former Caesars became a wholly-owned subsidiary of ours. The strategic rationale for the Merger includes, but is not limited to, the following:
•Creation of the largest owner, operator and manager of domestic gaming assets
•The largest and most diversifiedDiversification of the Company’s domestic footprint
•IconicAccess to iconic brands, rewards programprograms and new gaming opportunities expected to enhance customer experience
•Realization of significant identified synergies
Based onAs described above, following the closing priceMerger our domestic and international footprint has expanded as we own, lease or manage an aggregate of $38.00 per share of Company common stock, par value $0.00001 per share (“Company Common Stock”), reported on NASDAQ on July 17, 2020, the aggregate implied value54 domestic properties in 16 states and have international operations in five countries outside of the aggregate mergerU.S. as of March 31, 2021. We also 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 total purchase consideration paid to former holders offor Former Caesars common stock in connection with the Merger was approximately $8.46 billion, including approximately $2.37 billion in Company Common Stock and approximately $6.09 billion in cash.$10.9 billion. The aggregate merger consideration transferred also included the repayment of certain outstanding debt balances of Former Caesars and the replacement of equity awards of certain employees attributable to services provided prior to the Merger.
The cash consideration paid in the Merger was $12.41 per share (inclusive of the applicable ticking fee) of Former Caesars common stock for which cash consideration was payable and the stock consideration per share of Former Caesars common stock for which stock consideration was payable was 0.3085 shares of Company Common Stock, with a value equal to approximately $12.41 in cash (based on the volume weighted average price per share of Company Common Stock for the 10 trading days ending on July 16, 2020). Following the consummation of the Merger, Eldorado’s and Former Caesars’ stockholders hold approximately 56% and 44%, respectively, of the outstanding shares of Company Common Stock.
The major classes of assets acquired through the Merger include cash, cash equivalents and restricted cash, accounts receivable, including receivables from affiliates, property and equipment, goodwill and intangible assets, and other assets. The major classes of liabilities assumed through the Merger include accounts payable, accrued expenses, contract liabilities, financing obligations and long-term debt, which includes $1.1 billion in aggregate principal amount of 5% convertible notes due 2024 that are convertible into the weighted average of the number of shares of Company Common Stock and amount of cash actually received by holders of common stock of Former Caesars that made elections forestimated purchase consideration in the Merger.
Given the short period of time from the Merger completionacquisition was determined with reference to its acquisition date and the date of these consolidated financial statements and the size and complexity of the transaction, the initial accounting for the business combination is incomplete at this time. We are not able to provide the valuation of certain components of consideration transferred or provide the allocation of consideration paid to the assets acquired or liabilities assumed. Supplemental pro forma revenue and earnings of the combined company are predicated on the completion of the business combination accounting and allocation of consideration.fair value.
We recognized acquisition-related transaction costs of $12.7$12 million and $22.0$9 million for the three and six months ended June 30,March 31, 2021 and 2020, respectively, and $4.5 million for the three and six months ended June 30, 2019.
Debt and Financing Activity
On July 6, 2020, a wholly-owned subsidiary of ours issued $3.4 billion aggregate principal amount of 6.250% Senior Secured Notes due 2025 (the “2025 Secured Notes”) and $1.8 billion aggregate principal amount of 8.125% Senior Notes due 2027 (the “2027 Senior Notes”). We assumed the obligations under the 2025 Secured Notes and 2027 Senior Notes upon consummation of the Merger. In addition, Caesars Resort Collection (“CRC”), a subsidiary of Former Caesars, issued $1.0 billion aggregate principal amount of 5.750% Senior Secured Notes due 2025 (the “CRC Secured Notes”).
On July 20, 2020, in connection with the closing of the Merger, we entered into a new credit agreement which provides a five-year senior secured revolving credit facility for an aggregate principal amount of $1.0 billion (the “ERI Revolving Credit Facility”) and an additional revolving credit facility commitment under the ERI Revolving Credit Facility in an aggregate principal amount equal to $185 million, and CRC entered into an incremental agreement to its existing credit agreement dated as of December 22, 2017 for an aggregate principal amount of $1.8 billion of incremental term loan and an additional $25 million of revolving credit facility commitments. The additional capacities of $185 million under the ERI Revolving Credit Facility and $25 million under the existing CRC revolving credit facility are subject to approval from certain gaming authorities which we expect to receive in the third quarter of 2020. In addition, the borrowing capacity and obligations under CRC’s existing $1.0 billion revolving credit facility remain outstanding following the consummation of the Merger.
A portion of the proceeds from these arrangements, as well as our cash on hand, was used (a) to fund a portion of the cash consideration of the Merger, (b) to prepay in full the loans outstanding and terminate all commitments under our existing Credit Agreement, dated as of April 17, 2017, (c) to satisfy and discharge our 6% Senior Notes due 2025, the Senior Notes due 2026 and the 7% Senior Notes due 2023, (d) to repay $975 million of the outstanding amount under CRC’s existing revolving credit facility, (e) to repay in full the loans outstanding and terminate all commitments under the CEOC, LLC Credit Agreement, dated as of October 6, 2017, (f) to pay fees and expenses related to the financing arrangements, and (g) for general corporate use. See Note 11.
VICI Transactions
In connection with the closing of the Merger on July 20, 2020, we consummated a series of transactions with VICI in accordance with the Master Transaction Agreement (“MTA”) entered on June 24, 2019 and the Purchase and Sales Agreement entered on September 26, 2019. We consummated the sale leaseback transactions related to Harrah’s New Orleans, Harrah’s Laughlin and Harrah’s Resort Atlantic City, including the Harrah’s Atlantic City Waterfront Conference Center, for approximately $1.82 billion of net proceeds. Additionally, we received a one-time payment from VICI of approximately $1.38 billion for amendments to VICI lease agreements. The Caesars Palace Las Vegas (“CPLV”) Lease with VICI was amended to include Harrah’s Las Vegas (“HLV”) under the CPLV lease and increased HLV’s annual rent by $15 million and CPLV’s annual rent by $84 million. In addition, Harrah’s New Orleans, Harrah’s Laughlin, Harrah’s Resort Atlantic City and the Harrah’s Atlantic City Waterfront Conference Center were added to the Non-CPLV lease with VICI, with an increase in total aggregate annual rent for these properties of $154 million. The CPLV, Non-CPLV and Joliet lease agreements, as well as the Golf Course Use Agreement, were extended such that there will be 15 years remaining until the expiration of the initial term. The amendment also contains a put-call agreement related to the Centaur properties pursuant to which CRC may require VICI or its applicable affiliate to purchase and lease back (as lessor) to the Company or its applicable affiliate(s) the real estate components of the gaming and racetrack facilities of Hoosier Park Racing & Casino (“Hoosier Park”) and Indiana Grand Racing & Casino (“Indiana Grand”) and VICI or its applicable affiliate may require CRC to sell to VICI or its affiliate(s) and lease back (as lessee) the real estate components of such gaming and racetrack facilities.
On June 15, 2020, we entered into a non-binding letter of intent with VICI to borrow a new 5-year, $400 million mortgage loan (the “Convention Center Mortgage Loan”) and sell to VICI approximately 23 acres of land in the vicinity of, or adjacent to, The LINQ, Bally’s Paris and Planet Hollywood in Las Vegas, Nevada and commonly known as the Eastside Land (the “Eastside Land Sale”). The Convention Center Mortgage Loan and the Eastside Land Sale are expected to close concurrently and are subject to customary closing conditions, including completion of due diligence, and negotiation of definitive documents and receipt of regulatory approvals. These transactions are expected to close in the third quarter of 2020.
respectively.
Partnerships and DevelopmentAcquisition Opportunities
William Hill
In September 2018, weWe entered into a 25-year agreement, which became effective January 29, 2019, with William Hill PLC and William Hill US,U.S. Holdco, Inc. (“William Hill US”), its U.S. subsidiary (together, “William Hill”) pursuant to which we (i) granted to William Hill the right to conduct betting activities, including operating certain of our sportsbooks, in retail channels and under our first skin and third skincertain skins for online channels with respect to our current and future properties, located in the United States and the territories and possessions of the United States, including Puerto Rico and the U.S. Virgin Islands and (ii) agreed that William Hill will have the right to conduct real money online
gaming activities utilizing our second skin available with respect to properties in such territories. Pursuant to the terms of the agreement, weactivities. We received a 20% ownership interest in William Hill US initially valued at approximately $128.9 million as well as 13.4$129 million. We also received 13 million ordinary shares of William Hill PLC, which were subject to restrictions on timing of sale, with an initial value of approximately $27.3$27 million upon closing of the transaction in January 2019. The time restrictions on approximately 6 million shares expire within the next twelve months and are classified as current. Our profit and losses attributable to William Hill US are included in income (loss) from unconsolidated affiliatesTransaction costs and other operating costs on the Consolidated Statements of Operations. We granted William Hill the right to the use of certain skins in exchange for an equity method investment. The fair value of the William Hill US and William Hill PLC shares received has been deferred and is recognized as revenue on a straight-line basis over the 25-year agreement term. The amortization of deferred revenues associated with our equity interests is included in other revenue within our corporateCorporate and otherOther segment. Additionally, we receive a profit share from the operations of sports betting and other gaming activities associated with our properties,properties.
On September 30, 2020, we announced that we had reached an agreement with William Hill PLC on the terms of a recommended cash acquisition pursuant to which we would acquire the entire issued and to be issued share capital (other than shares owned by us or held in treasury) of William Hill PLC, in an all-cash transaction of approximately £2.9 billion (the “William Hill Acquisition”).In order to manage the risk of appreciation of the GBP denominated purchase price the Company entered into foreign exchange forward contracts. On March 25, 2021, the remaining outstanding forward contract was settled, for which the Company received $41 million in proceeds and recorded a net gain of $1 million during the three months ended March 31, 2021.
On September 29, 2020, the Company entered into a debt financing commitment letter pursuant to which the lenders party thereto committed to arrange and provide a newly formed subsidiary of the Company with (a) a £1.0 billion senior secured 540-day bridge loan facility, (b) a £116 million senior secured 540-day revolving credit facility and (c) a £503 million senior secured 60-day bridge loan facility (collectively, the “Debt Financing”), which commitment letter was amended and restated on December 11, 2020 in order to join additional lenders as parties thereto.
Pending negotiation of the definitive loan agreement for the Debt Financing, on October 6, 2020, a newly formed subsidiary of the Company entered into a £1.5 billion Interim Facilities Agreement (the “Interim Facilities Agreement”) with Deutsche Bank AG, London Branch and JPMorgan Chase Bank, N.A. to provide: (a) a 90-day £1.0 billion interim asset sale bridge facility and (b) a 90-day £503 million interim cash confirmation bridge facility, which Interim Facilities Agreement was amended and restated on December 11, 2020 in order to join additional lenders as parties thereto.
On April 20, 2021, a UK Court sanctioned the William Hill Acquisition and on April 22, 2021, the Company completed the acquisition for approximately £2.9 billion, or approximately $4.0 billion.
In connection with the William Hill Acquisition, on April 22, 2021, a newly formed subsidiary of the Company 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. 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. 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 will be used for working capital and general corporate purposes. The Interim Facilities Agreement was terminated upon the execution of the Bridge Credit Agreement for the Debt Financing. The Bridge Credit Agreement is included within William Hill’s non-U.S. operations which is included in other revenue at the respective property.expected to be divested.
The Stars Group/Flutter Entertainment
In November 2018, we entered into a 20-year agreement with The Stars Group Inc., which was subsequently acquired by Flutter Entertainment PLC (“TSG”Flutter”) pursuant to which we agreed to provide TSG with options to obtain access to our second skin for online sports wagering and third skin for real money online gaming and poker in each case with respect to our properties in the United States.U.S. Under the terms of the agreement, we will receivereceived common shares, as a revenue share from the operationcertain operations of the applicable verticals by TSGFlutter under our licenses. Pursuant to the termsThe fair value of the TSG agreement, we received 1.1 million TSG common shares valued at approximately $18.6 million and an additional $5.0 million in TSG common shares became payable to us upon TSG’s exercise of its first option, which shares we received in the fourth quarter of 2019. In December 2019, we sold approximately 0.5 million of our TSG common shares at the request of William Hill and remitted the proceeds to them in accordance with the terms of our William Hill agreement. We may also receive additional TSG common shares in the future based on TSG net gaming revenue generated in our markets. Upon entry into the TSG agreement, we recorded deferred revenue associated with the shares received has been deferred and recognizeis recognized as revenue whichon a straight-line basis over the 20-year agreement term.
As of March 31, 2021 and December 31, 2020, the fair value of shares held was $10 million and is included in other revenue within our corporatePrepayments and other segment. On May 5,current assets on the Balance Sheets. The Company recorded an unrealized gain of less than a million during the three months ended March 31, 2021, and an unrealized loss of $3 million during the three months ended March 31, 2020, Flutter Entertainment PLC (“Flutter”) completedwhich were included in Other income (loss) on the acquisitionStatements of all of the issued and outstanding common shares of TSG in exchange for 0.2253 Flutter shares per common share of TSG.Operations.
Pompano Joint Venture
In April 2018, we entered into a joint venture with Cordish Companies (“Cordish”) to master plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino and racetrack at our 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 our input and will submit it for our review and approval. We have made cash contributions totaling $1.0$1 million and have agreed to contribute a total of approximately 130 to 200contributed land. On February 12, 2021, we contributed an additional 186 acres of land to the joint venture for the project. As of June 30, 2020, we have contributed approximately 20 acres to the joint venture at an approximatea fair value of $6.6$61 million. Total contributions of approximately 206 acres of land have been made with a fair value of approximately $69 million and we have no further obligation to contribute additional real estate or cash as of March 31, 2021. We entered into a lease agreement in February 2021 to lease back a portion of the land from the joint venture.
While we hold a 50% variable interest in the joint venture, we are not the primary beneficiary; asbeneficiary. As such the investment in the joint venture is accounted for using the equity method. We participate evenly with Cordish in the profits and losses of the joint venture, which isare included in income (loss) fromTransaction costs and other operating costs on the Statements of Operations. Our investment in the joint venture is recorded in Investment in and advances to unconsolidated affiliates on the Consolidated Statements of Operations.Balance Sheets.
Reportable Segments
The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as of June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
SegmentLas Vegas | | PropertyRegional | | Date Acquired | | StateManaged, International, CIE |
WestBally’s Las Vegas (a)
| | Eldorado Resort Casino Reno (“Eldorado Reno”) | | Harrah’s Atlantic City (a) | | NevadaManaged |
Caesars Palace Las Vegas (a) | | Silver Legacy Resort Casino (“Silver Legacy”) | | Harrah’s Laughlin (a) | | NevadaHarrah’s Ak-Chin (a)
|
The Cromwell (a) | | Circus Circus Reno (“Circus Reno”) | | Harrah’s New Orleans (a) | | NevadaHarrah’s Cherokee (a)
|
Flamingo Las Vegas (a) | | MontBleu Casino Resort & Spa (“MontBleu”)(c) | | October 1, 2018 (c)Hoosier Park (a)
| | NevadaHarrah’s Cherokee Valley River (a)
|
Harrah’s Las Vegas (a) | | Tropicana Laughlin Hotel & Casino (“Laughlin”) | | October 1, 2018Indiana Grand (a)
| | NevadaHarrah’s Resort Southern California (a)
|
The LINQ Hotel & Casino (a) | | Isle Casino Hotel - Blackhawk (“Isle Black Hawk”)Hawk | | May 1, 2017Caesars Atlantic City (a)
| | ColoradoHorseshoe Baltimore (a)(h)
|
Paris Las Vegas (a) | | Lady Luck Casino - Black Hawk (“Lady Luck Black Hawk”) | | May 1, 2017Caesars Southern Indiana (a)(b)(e)
| | ColoradoCaesars Windsor (a)
|
| | | | | | |
Midwest (b)Planet Hollywood Resort & Casino (a)
| | Isle Casino Waterloo (“Waterloo”) | | May 1, 2017Harrah’s Council Bluffs (a)
| | IowaKings & Queens Casino (a)
|
Rio All-Suite Hotel & Casino (a) | | Isle Casino Bettendorf (“Bettendorf”) | | May 1, 2017Harrah’s Gulf Coast (a)
| | IowaCaesars Dubai (a)
|
| | Isle of Capri Casino Boonville (“Boonville”) | | May 1, 2017Harrah’s Joliet (a)
| | MissouriInternational |
| | Isle of Capri Casino Kansas City (“Kansas City”) | | May 1, 2017 (c) | | Missouri |
| | | | | | |
South | | Isle Casino Racing Pompano Park (“Pompano”) | | May 1, 2017Harrah’s Lake Tahoe (a)
| | FloridaCaesars Cairo
|
| | Eldorado Resort Casino Shreveport (“Eldorado Shreveport”) | | (a) (c)(b) | | Louisiana |
| | Isle of Capri Casino Hotel Lake Charles (“Lake Charles”) | | May 1, 2017Harrah’s Louisiana Downs (a)(b)(g)
| | LouisianaRamses Casino (a)(b)
|
| | Belle of Baton Rouge Casino & Hotel (“Baton Rouge”)(i) | | October 1, 2018Harrah’s Metropolis (a)
| | LouisianaEmerald Casino Resort (a)(b)
|
| | Isle of Capri Casino Lula (“Lula”) | | May 1, 2017Harrah’s North Kansas City (a)
| | MississippiAlea Glasgow
|
| | Lady Luck Casino Vicksburg (“Vicksburg”)(a)(b) | | May 1, 2017 (c) | | Mississippi |
| | Trop Casino Greenville (“Greenville”) | | October 1, 2018Harrah’s Philadelphia (a)
| | MississippiAlea Nottingham (a)(b)
|
| | | | | | |
East (b) | | Eldorado Gaming Scioto Downs (“Scioto Downs”) | | Harveys Lake Tahoe (a) | | OhioThe Empire Casino (a)(b)
|
| | Tropicana Casino and Resort, Atlantic City (“Trop AC”) | | October 1, 2018Horseshoe Bossier City (a)
| | Manchester235 (a)(b) |
| | Grand Victoria Casino | | New JerseyHorseshoe Council Bluffs (a)
| | Playboy Club London (a)(b) |
| | Lumière Place Casino | | Horseshoe Hammond (a)(b)(f) | | Rendezvous Brighton (a)(b) |
| | Tropicana Evansville (d) | | Horseshoe Tunica (a) | | The Sportsman (a)(b) |
| | | | | | CIE |
| | | | | | |
CentralCaesars Interactive Entertainment
| | Grand Victoria Casino (“Elgin”)(a) | | August 7, 2018 | | Illinois |
| | Lumière Place Casino (“Lumière”) | | October 1, 2018 | | Missouri |
| | Tropicana Evansville (“Evansville”) | | October 1, 2018 (c) | | Indiana |
___________________
(a)Property was aggregated into segment prior to January 1, 2016.These properties were acquired from the Merger on July 20, 2020.
(b)Presque was sold on January 11, 2019, Nemacolin was sold onAs a result of the Merger, these properties met the requirements for presentation as discontinued operations as of March 8, 2019 and Mountaineer was sold on December 6, 2019. All three properties were previously reported in the East segment. Cape Girardeau and Caruthersville were sold on December 6, 2019. Both properties were previously reported in the Midwest segment.31, 2021.
(c)WeIn April 2020, the Company entered into agreementsan agreement to sell Kansas City, Vicksburg, Eldorado Shreveport and MontBleu. The Kansas City and Vicksburg salessale of MontBleu closed on July 1, 2020. The Eldorado Shreveport and MontBleu sales areApril 6, 2021.
(d)On October 27, 2020, the Company entered into an agreement to sell Evansville, which is expected to close mid-2021.
(e)On December 24, 2020, the Company entered into an agreement to sell Caesars Southern Indiana, which is expected to close in the firstthird quarter of 2021. We plan
(f)The Company plans to reachenter into an agreement to divest of Evansvillesell Horseshoe Hammond prior to December 31, 2020.2021.
(g)On September 3, 2020, the Company entered into an agreement to sell Harrah’s Louisiana Downs, which is expected to close in the third quarter of 2021.
(h)As of March 31, 2021, Horseshoe Baltimore was 44.3% owned by us and held as an equity-method investment.
(i)On December 1, 2020, the Company entered into an agreement to sell Belle of Baton Rouge, which is expected to close in the third quarter of 2021.
The executive decision maker of ourthe Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of our 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. OurPrior to the Merger, our principal operating activities occuroccurred in five geographic regions and reportable segments.segments: West, Midwest, South, East and Central, in addition to Corporate and Other. Following the Merger, our principal operating activities occur in three regionally-focused reportable segments: (1) Las Vegas, (2) Regional, and (3) Managed, International, CIE, in addition to Corporate and Other. 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 the regions in which they operate: West, Midwest, South, East, and Central. See the table above for a listingCaesars.
Presentation of Financial Information
The financial information included in this Item 2 for the period after our acquisition of Former Caesars on July 20, 2020 is not fully comparable to the periods prior to the acquisition. In addition, the presentation of financial information herein for the periods after ourthe Company’s sales of Presque and Nemacolin on January 11, 2019 and March 8, 2019, respectively, and our sales of Mountaineer, Cape Girardeau and Caruthersville on December 6, 2019various properties are not fully comparable to the periods prior to their respective sale dates. See Note 5.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)&A is intended to provide information to assist in better understanding and evaluating our financial condition and results of operations. Our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets, as well as by factors discussed elsewhere herein. We recommend that you read
this MD&A in conjunction with our unaudited consolidated condensed financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q.
Reclassifications
Certain reclassifications of prior year presentations have been made to conform to the current period presentation. Marketing and promotions expense previously disclosed for the three months ended March 31, 2020 has been reclassified to Casino and pari-mutuel commissions expense and General and administrative expense based on the nature of the expense.
Key Performance Metrics
Our primary source of revenue is generated by our gaming operations, but we use our hotels, restaurants, bars, entertainment venues, retail shops, racing and sportsbook offerings and other services to attract customers to our properties. Our operating results are highly dependent on the volume and quality of customers visiting and staying at our properties. Key performance metrics include volume indicators such as table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. In addition, hotel occupancy and price per room designated by average daily rate (“ADR”) are key indicators for our hotel business. Our calculation of ADR consists of the average price of occupied rooms per day including the impact of resort fees and complimentary rooms. Complimentary room rates are determined based on an analysis of retail or cash rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Complimentary rooms are treated as occupied rooms in our calculation of hotel occupancy.
Recent Developments and Significant Factors Impacting Financial Results
The following summary highlights recent developments and significant factors impacting our financial results for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020.
•COVID-19 Public Health Emergency – In January 2020, an outbreak of a new strain of coronavirus (“COVID-19”) was identified and has since spread throughout much of the world, including the United States.U.S. All of our casino properties were temporarily closed for the period from mid-March 2020 through mid-May 2020 due to orders issued by various state government agencies and tribal bodies as part of certain precautionary measures intended to help slow the spread of the COVID-19 public health emergency. On May 18, 2020, we began reopening our properties andWe have resumed certain operations at substantially all of our properties as of June 30, 2020,March 31, 2021, with the exception of ElginIsle of Capri Casino Hotel Lake Charles (“Lake Charles”) which was severely damaged by Hurricane Laura (as described below), and Trop AC which reopened on July 1 and July 2, 2020, respectively. As a resultmany of the temporary closures, the COVID-19 public health emergency has had a material adverse effect on our business, financial condition and results of operations for the three and six months ended June 30, 2020. international properties.
We continued to pay our full-time employees through April 10, 2020, including tips and tokens. Effective April 11, 2020, we furloughed approximately 90% of our employees, implemented salary reductions and committed to continue to provide benefits to our employees through June 30, 2020. Subsequently, the benefit coverage forduring their furloughed employees was extended through August 31, 2020.period. A portion of theour workforce has returned to service as the properties have resumed with limited capacities and in compliance with operating restrictions in accordance withimposed by governmental or tribal orders, directives, and guidelines. AsDue to a result of these payroll changes combined with other cost saving measures, our daily operating expenses were reduced significantly. On June 15, 2020, in order to address the effects of the property closurestriggering event resulting from the ongoing COVID-19 public health emergency, we obtained waiversrecognized impairment charges of $116 million related to goodwill and trade names (described below) during the three months ended March 31, 2020.
The COVID-19 public health emergency has had, and continues to have, a material adverse effect on the Company’s business, financial condition and results of operations for the three months ended March 31, 2021 and 2020. As a result, the terms of our debt arrangements provide that the financial covenant measurement period is not effective through September 30, 2021, so long as we comply with a minimum liquidity requirement. In addition, on our existing credit facility agreements and GLPI Master Lease. The amendment to our GLPI Master Lease is subjectMarch 19, 2021, the Company filed a lawsuit against its insurance carriers for losses attributed to the receiptCOVID-19 public health emergency.
The extent of the ongoing and future effects of the COVID-19 public health emergency on our business and the casino resort industry generally is uncertain, but we expect that it will continue to have a significant impact on our business, results of operations and financial condition. The extent and duration of the impact of the COVID-19 public health emergency will ultimately depend on future developments, including but not limited to, the duration and severity of the outbreak, varying levels of restrictions on operations imposed by governmental authorities, the potential for authorities reimposing stay at home orders or additional restrictions in response to continued developments with the COVID-19 public health emergency, our ability to adapt to evolving operating procedures, the impact on consumer demand and discretionary spending, the length of time it takes for demand to return, the efficacy and availability of vaccines, and our ability to adjust our cost structures for the duration of the outbreak’s impacteffect on our operations.
•Caesars Acquisition – The Merger closed on July 20, 2020.2020 and, as a result, we own, lease or manage an aggregate of 54 domestic properties in 16 states and have international operations in five countries outside of the U.S. as of March 31, 2021. We also 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. See “Reportable Segments” above for a description of our revised segments following the Merger. Transaction costs related to our acquisition of Former Caesars totaled $12.7$12 million and $22.0$9 million for the three and six months ended June 30,March 31, 2021 and 2020, respectively,respectively.
•Discontinued Operations – As result of the Merger, Former Caesars properties, including Harrah’s Louisiana Downs, Caesars Southern Indiana, Horseshoe Hammond, and $4.5the Caesars UK group, including Emerald Resort & Casino, have met held for sale criteria as of the date of the closing of the Merger. The sales of these properties are expected to close within one year and the properties are classified as discontinued operations.
•William Hill Acquisition – On April 22, 2021, the Company consummated its previously announced acquisition of 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 of approximately £2.9 billion or approximately $4.0 billion (the “William Hill Acquisition”). We recognized acquisition-related transaction costs of approximately $5 million for the three and six months ended June 30, 2019. Pursuant to the MTA with VICI, we are required to reimburse VICI for 50% of any prepayment penalties in connection with VICI’s payoff related to its CPLV loan, regardless of whether the Merger closing occurs. As of June 30, 2020 and
DecemberMarch 31, 2019, our proportionate share of VICI’s prepayment penalty paid in 2019 was accrued and totaled approximately $55.4 million.2021.
•Presque and Nemacolin Divestitures - The– In the previous twelve months we completed several divestitures including the sales of PresqueKansas City and Nemacolin did not meetVicksburg, Eldorado Shreveport, and discontinued operations of Harrah’s Reno and Bally’s Atlantic City. The properties that have been sold as of March 31, 2021, are collectively referred to as “Divestitures.” The results of operations of the requirements for presentationdivested entities, other than those identified as discontinued operations, and are included in income from continuing operations for the periods prior to their respective closing dates for the six months ended June 30, 2019. We closed the sales of Presque and Nemacolin on January 11, 2019 and March 8, 2019, respectively, and recorded a net gain of $22.2 million.
•Mountaineer, Cape Girardeau and Caruthersville Divestitures – The sales of Mountaineer, Cape Girardeau and Caruthersville did not meet the requirements for presentation as discontinued operations and are included in income from continuing operations for the periods prior to their closing date for the three and six months ended June 30, 2019. We closed the sales of these properties on December 6, 2019 and recorded a net gain of $28.6 million during the fourth quarter of 2019.
•Eldorado Shreveport and MontBleu Divestitures - The sales of Eldorado Shreveport and MontBleu did not meet the requirements for presentation as discontinued operations and are included in income from continuing operations. In conjunction with the classification of MontBleu’s operations as assets held for sale as a result of the announced sale, an impairment charge totaling $45.6 million was recorded during the six months ended June 30, 2020 due to the carrying value exceeding the estimated net sales proceeds.dates.
•Impairment Charges – As a result of declines in recent performance and the expected impact on future cash flows as a result of the COVID-19 public health emergency, we recognized impairment charges in our Regional segment related to goodwill and trade names totaling $99.5$100 million and $15.6$16 million, respectively, during the sixthree months ended June 30,March 31, 2020. In addition, as a result of entering the agreement to sell MontBleu in our Regional segment, impairment charges totaling $45 million were recorded during the three months ended March 31, 2020 due to the carrying value exceeding the estimated net sales proceeds. No impairment charge was recorded during the three months ended March 31, 2021.
•Weather and Construction Disruption - All of– In late August 2020, our segments were negatively impacted by severe weather, including flooding, during the first quarter of 2019 compared to the same current year period. Additionally, our WestRegional segment was negatively impacted by disruptionHurricane Laura, causing severe damage to ourLake Charles, which will remain closed until 2022 when construction of a new land-based casino flooris expected to be complete. During the three months ended March 31, 2021, we received insurance proceeds of approximately $26 million related to damaged fixed assets and hotel availability associated with renovation projects at our Black Hawk properties duringremediation costs. The Company also recorded a gain of approximately $8 million as proceeds received were in excess of the construction periodlosses incurred and the net book value of the damaged property.
•Post-Merger Synergies –We continue to identify operating and cost efficiencies, including savings from January to June 2019.
The divestituresthe purchasing power of Presque, Nemacolinthe combined Caesars organization and Mountaineer, Cape Girardeau and Caruthersville in January, March and December 2019, respectively, are collectively referred totargeted integrated marketing strategies, as well as the “Divestitures.”elimination of redundant costs such as accounting and professional expenses, certain payroll costs, and other corporate costs. As a result, we have seen margin improvements in our results of operations, throughout our segments.
Results of Operations
The following table highlights the results of our operations (dollars in thousands):operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Six Months Ended June 30, | | | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Net revenues | $ | 126,470 | | | $ | 637,121 | | | (80.1) | % | | $ | 599,539 | | | $ | 1,272,944 | | | (52.9) | % |
Operating (loss) income | (78,327) | | | 102,550 | | | (176.4) | % | | (201,507) | | | 226,154 | | | (189.1) | % |
Net (loss) income | (99,996) | | | 18,936 | | | (628.1) | % | | (275,634) | | | 57,165 | | | (582.2) | % |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(Dollars in millions) | 2021 | | 2020 | | | | |
Net revenues: | | | | | | | |
Las Vegas | $ | 497 | | | $ | — | | | | | |
Regional | 1,108 | | | 471 | | | | | |
Managed, International, CIE | 90 | | | — | | | | | |
Corporate and Other (a) | 4 | | | 2 | | | | | |
Total | $ | 1,699 | | | $ | 473 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss | $ | (424) | | | $ | (176) | | | | | |
| | | | | | | |
| | | | | | | |
Adjusted EBITDA (b): | | | | | | | |
Las Vegas | $ | 162 | | | $ | — | | | | | |
Regional | 367 | | | 111 | | | | | |
Managed, International, CIE | 15 | | | — | | | | | |
Corporate and Other (a) | (39) | | | (8) | | | | | |
Total | $ | 505 | | | $ | 103 | | | | | |
| | | | | | | |
Net income (loss) margin | (25.0) | % | | (37.2) | % | | | | |
Adjusted EBITDA margin | 29.7 | % | | 21.8 | % | | | | |
___________________
(a)Corporate and Other includes revenues related to certain licensing arrangements and various revenue sharing agreements. Corporate and Other Adjusted EBITDA includes corporate overhead costs, which consist of certain expenses, such as: payroll, professional fees and other general and administrative expenses.
Operating Results(b). See the “Supplemental Unaudited Presentation of Consolidated Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)” discussion later in this MD&A for a definition of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA.
Consolidated comparison of the three months ended March 31, 2021 and 2020
Net Revenues
Net revenues declined $510.7 million and $673.4 million, or 80.1% and 52.9%,were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
| | | | | | | | | | | | | | | |
Casino and pari-mutuel commissions | $ | 1,140 | | | $ | 340 | | | $ | 800 | | | * | | | | | | | | |
Food and beverage | 166 | | | 56 | | | 110 | | | 196.4 | % | | | | | | | | |
Hotel | 215 | | | 48 | | | 167 | | | * | | | | | | | | |
Other | 178 | | | 29 | | | 149 | | | * | | | | | | | | |
Net Revenues | $ | 1,699 | | | $ | 473 | | | $ | 1,226 | | | * | | | | | | | | |
___________________
* Not meaningful.
Consolidated revenues increased for the three and six months ended June 30,March 31, 2021 as a result of the Merger on July 20, 2020. This was offset by a decline in revenues associated with the COVID-19 public health emergency and, to a lesser extent, divestitures of certain properties discussed earlier. All of our properties were temporarily closed for the period from mid-March 2020 respectively, comparedthrough mid-May 2020 due to orders issued by various government agencies and tribal bodies as part of certain precautionary measures intended to help slow the same prior year periods. Excludingspread of the COVID-19 public health emergency. As of March 31, 2021, substantially all of our properties have resumed certain operations, with the exception of Lake Charles which was severely damaged by Hurricane Laura, and many of our international properties. Due to the impact of the Divestitures, net revenues decreased $455.0 millionCOVID-19 public health emergency, including local and $555.1 million, or 78.2% and 48.1%, for the three and six months ended June 30, 2020, respectively, compared to the same prior year periods. The decline in net revenues was primarily due to the negative impact of COVID-19state regulations and the resulting closureimplementation of social distancing and health and safety protocols, our properties in mid-March 2020, which began reopening mid-May 2020 based on state ordersare subject to reduced gaming capacity and restrictions.
Operating (loss) income declined $180.9 millionhotel occupancy, limited operation of food and $427.7 million, or 176.4%beverage outlets, live entertainment events and 189.1%, for the three and six months ended June 30, 2020, respectively, compared to the same prior year periods. Excluding the impact of the Divestitures, operating (loss) income decreased $170.6 million and $408.2 million, or 184.9% and 197.5%, for the three and six months ended June 30, 2020, respectively. The changes in operating (loss) income were mainly due to the negative impact of COVID-19 on net revenues in addition to transaction costs associated with the acquisition of Caesars and impairment charges totaling $160.8 million recorded during the six months ended June 30, 2020.conventions.
Our diversified portfolio has yielded mixed results as the properties have reopened under the conditions noted above. Net (loss) income decreased $118.9 million and $332.8 million,revenues for properties which have historically relied on a local customer base, not dependent on air travel or 628.1% and 582.2%, for the three and six months ended June 30, 2020, respectively,convention business, showed an increase as compared to the samethree months ended March 31, 2020 results. These properties’ gaming and hotel revenues have historically been the largest portion of their total revenue. Net revenues for properties in destination markets such as Las Vegas, Atlantic City and New Orleans, which have historically relied on a broader regional and national customer base or convention business have declined from the prior year periods. Excluding the impactperiod. These properties have historically relied on a broader mix of the Divestitures, net (loss) income decreased $111.1 millionrevenue sources including conventions, entertainment, and $317.7 million or 1001.5%food and 755.5% for the threebeverage offerings. As a result of reduced visitation, an overall reduction in air travel, state and six months ended June 30, 2020, respectively. The changeslocal restrictions on capacity, and social distancing, safety and health protocols, these sources of revenue have been materially reduced as compared to net (loss) income, including Divestitures,prior periods.
Operating Expenses
Operating expenses were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
| | | | | | | | | | | | | | | |
Casino and pari-mutuel commissions | $ | 541 | | | $ | 179 | | | $ | 362 | | | * | | | | | | | | |
Food and beverage | 106 | | | 53 | | | 53 | | | 100.0 | % | | | | | | | | |
Hotel | 81 | | | 22 | | | 59 | | | * | | | | | | | | |
Other | 68 | | | 9 | | | 59 | | | * | | | | | | | | |
General and administrative | 366 | | | 98 | | | 268 | | | * | | | | | | | | |
| | | | | | | | | | | | | | | |
Corporate | 66 | | | 16 | | | 50 | | | * | | | | | | | | |
Impairment charges | — | | | 161 | | | (161) | | | (100.0) | % | | | | | | | | |
Depreciation and amortization | 265 | | | 50 | | | 215 | | | * | | | | | | | | |
Transaction costs and other operating costs | 20 | | | 8 | | | 12 | | | 150.0 | % | | | | | | | | |
Total operating expenses | $ | 1,513 | | | $ | 596 | | | $ | 917 | | | 153.9 | % | | | | | | | | |
___________________
* Not meaningful.
Casino and pari-mutuel commissions expense consists primarily of salaries and wages associated with our gaming operations, marketing and promotions and gaming taxes. Food and beverage expense consists principally due to the same factors impacting operating (loss) income, offset by the benefit for income taxes totaling $33.7 millionof salaries and wages and costs of goods sold associated with our food and beverage operations. Hotel expense consists principally of salaries, wages and supplies associated with our hotel operations. Other expenses consist principally of salaries and wages and costs of goods sold associated with our retail, entertainment and other operations.
Casino and pari-mutuel commissions, food and beverage, hotel, and other expenses for the three months ended June 30, 2020March 31, 2021 increased year over year as compareda result of the Merger. This was partially offset by reopening with restrictions under the public health guidelines of reduced gaming and hotel capacity and limited food and beverage options. As such, our properties are operating with a reduced workforce, which resulted in decreased salaries and wages. In addition, our properties have reduced marketing and promotional spend, resulting in further declines in gaming expenses.
General and administrative expenses include items such as information technology, facility maintenance, utilities, property and liability insurance, expenses for administrative departments such as accounting, compliance, purchasing, human resources, legal and internal audit, and property taxes. Property, general and administrative expenses also include stock-based compensation expense for certain property executives, sports sponsorships and other marketing expenses not directly related to a provision of $10.4 millionour gaming and non-gaming operations.
General and administrative expenses for the comparative period and a benefit of $70.8 million for sixthree months ended June 30, 2020March 31, 2021 increased year over year as comparedthe result of the Merger. This was offset by the actions taken to a provision of $20.8 million for the comparative period.
Net Revenuesreduce our cost structure while our properties were temporarily closed and Net (Loss) Income
The following tables highlight our net revenues and net (loss) income by reportable segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenues for the Three Months Ended June 30, | | | | Net (Loss) Income for the Three Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
West | $ | 29,937 | | | $ | 127,727 | | | $ | (12,711) | | | $ | 11,348 | |
Midwest | 22,787 | | | 97,239 | | | 1,378 | | | 21,435 | |
South | 30,760 | | | 116,937 | | | (10,912) | | | 12,747 | |
East | 21,226 | | | 170,455 | | | (30,456) | | | 15,981 | |
Central | 19,848 | | | 122,792 | | | (20,452) | | | 13,070 | |
Corporate and Other | 1,912 | | | 1,971 | | | (26,843) | | | (55,645) | |
Total | $ | 126,470 | | | $ | 637,121 | | | $ | (99,996) | | | $ | 18,936 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Revenues for the Six Months Ended June 30, | | | | Net (Loss) Income for the Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
West | $ | 135,427 | | | $ | 245,822 | | | $ | (104,011) | | | $ | 15,665 | |
Midwest | 83,580 | | | 194,026 | | | (15,239) | | | 43,590 | |
South | 127,812 | | | 249,651 | | | (24,910) | | | 32,956 | |
East | 129,282 | | | 336,688 | | | (32,647) | | | 27,149 | |
Central | 119,553 | | | 243,264 | | | (15,728) | | | 25,948 | |
Corporate and Other | 3,885 | | | 3,493 | | | (83,099) | | | (88,143) | |
Total | $ | 599,539 | | | $ | 1,272,944 | | | $ | (275,634) | | | $ | 57,165 | |
Three Months Ended June 30, 2020 Comparedreduced operations due to the Three Months Ended June 30, 2019impact of the COVID-19 public health emergency.
Net revenues and operating expenses were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Percent Change |
| 2020 | | 2019 | | Variance | | |
Revenues: | | | | | | | |
Gaming and Pari-Mutuel Commissions: | | | | | | | |
West | $ | 15,276 | | | $ | 55,493 | | | $ | (40,217) | | | (72.5) | % |
Midwest | 21,119 | | | 85,223 | | | (64,104) | | | (75.2) | % |
South | 27,303 | | | 94,871 | | | (67,568) | | | (71.2) | % |
East | 19,777 | | | 124,052 | | | (104,275) | | | (84.1) | % |
Central | 18,004 | | | 97,523 | | | (79,519) | | | (81.5) | % |
Total Gaming and Pari-Mutuel Commissions | 101,479 | | | 457,162 | | | (355,683) | | | (77.8) | % |
Non-gaming: | | | | | | | |
West | 14,661 | | | 72,234 | | | (57,573) | | | (79.7) | % |
Midwest | 1,668 | | | 12,016 | | | (10,348) | | | (86.1) | % |
South | 3,457 | | | 22,066 | | | (18,609) | | | (84.3) | % |
East | 1,449 | | | 46,403 | | | (44,954) | | | (96.9) | % |
Central | 1,844 | | | 25,269 | | | (23,425) | | | (92.7) | % |
Corporate and Other | 1,912 | | | 1,971 | | | (59) | | | (3.0) | % |
Total Non-gaming | 24,991 | | | 179,959 | | | (154,968) | | | (86.1) | % |
Total Net Revenues | 126,470 | | | 637,121 | | | (510,651) | | | (80.1) | % |
Expenses: | | | | | | | |
Gaming and Pari-Mutuel Commissions: | | | | | | | |
West | 5,314 | | | 20,862 | | | (15,548) | | | (74.5) | % |
Midwest | 8,355 | | | 34,176 | | | (25,821) | | | (75.6) | % |
South | 13,319 | | | 45,377 | | | (32,058) | | | (70.6) | % |
East | 12,839 | | | 59,057 | | | (46,218) | | | (78.3) | % |
Central | 3,527 | | | 43,768 | | | (40,241) | | | (91.9) | % |
Total Gaming and Pari-Mutuel Commissions | 43,354 | | | 203,240 | | | (159,886) | | | (78.7) | % |
Non-gaming | | | | | | | |
West | 7,029 | | | 38,634 | | | (31,605) | | | (81.8) | % |
Midwest | 1,092 | | | 6,323 | | | (5,231) | | | (82.7) | % |
South | 2,427 | | | 13,624 | | | (11,197) | | | (82.2) | % |
East | 2,557 | | | 23,884 | | | (21,327) | | | (89.3) | % |
Central | 2,170 | | | 12,891 | | | (10,721) | | | (83.2) | % |
Total Non-gaming | 15,275 | | | 95,356 | | | (80,081) | | | (84.0) | % |
| | | | | | | |
Marketing and promotions | 5,105 | | | 32,080 | | | (26,975) | | | (84.1) | % |
General and administrative | 64,862 | | | 117,431 | | | (52,569) | | | (44.8) | % |
Corporate | 13,050 | | | 21,051 | | | (8,001) | | | (38.0) | % |
Depreciation and amortization | 48,939 | | | 56,533 | | | (7,594) | | | (13.4) | % |
Total Operating Expenses | $ | 190,585 | | | $ | 525,691 | | | $ | (335,106) | | | (63.7) | % |
Gaming Revenues and Pari-Mutuel Commissions.For the three months ended June 30, 2020 compared to the same prior year period, gaming revenues and pari-mutuel commissions declined 77.8%. Excluding the impact of the Divestitures, gaming revenues and pari-mutuel commissions decreased 75.2% for the three months ended June 30, 2020 compared to the same prior year period mainly due to reductions in casino volume and pari-mutuel commissions associated with the impact of COVID-19 and the related closures of our properties and race tracks in mid-March 2020 until reopening of properties starting mid-May 2020.
Non-gaming Revenues. Non-gaming revenues decreased 86.1% for the three months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, non-gaming revenues declined 85.5% for the three months ended June 30, 2020 compared to the same prior year period mainly due to the impact of COVID-19 and the related closures of our properties, including hotels, restaurants and entertainment venues in mid-March 2020 until reopening of hotels and restaurants starting mid-May 2020 based on government reopening guidelines.
Gaming Expenses and Pari-Mutuel Commissions.Gaming expenses and pari-mutuelcommissions declined78.7% for the three months ended June 30, 2020 compared to the same prior year period. Excluding theimpactof the Divestitures, gaming expenses and pari-mutuelcommissions decreased75.4% for the three months endedJune 30, 2020compared to thesame prior year periodin conjunction with the previously discussed decrease in gaming revenues and pari-mutuel commissions.
Non-gaming Expenses. Non-gaming expenses declined 84.0% for the three months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, non-gaming expenses decreased 83.2% for the three months ended June 30, 2020 compared to the same prior year period in conjunction with the previously discussed decrease in non-gaming revenues.
Marketing and Promotions Expenses. Marketing and promotions expenses declined 84.1% for the three months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, marketing and promotions expense decreased 83.2% for the three months ended June 30, 2020 compared to the same prior year period. This decline was primarily due to the reduction or elimination of marketing and promotions expenses during the closure of our properties from mid-March 2020 through mid-May 2020.
General and Administrative Expenses. General and administrative expenses declined 44.8% for the three months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, general and administrative expenses decreased 40.4% for the three months ended June 30, 2020 compared to the same prior year period mainly due to the reduction of general and administrative expenses, including utilities and payroll expenses, following the closure of our properties in mid-March 2020 until reopening started in mid-May 2020.
Corporate Expenses. For the three months ended June 30, 2020March 31, 2021 compared to the same prior year period, corporate expenses decreased 38.0%increased primarily due to the Merger, and have been offset by reductions in salaries and wages due to reductions in workforce implemented as a result of the impact of the COVID-19 impact and a decrease in stock compensation expense forpublic health emergency.
As described above, we recorded impairment charges of $116 million due to the effects of the COVID-19 public health emergency during the three months ended June 30, 2020 comparedMarch 31, 2020. In addition, $45 million of additional impairment charges related to the same prior year period.sale of MontBleu were recorded during the three months ended March 31, 2020. No impairment charges were recorded during the three months ended March 31, 2021.
Depreciation and Amortization Expense. For the three months ended June 30, 2020March 31, 2021 compared to the same prior year period, depreciation and amortization expense declined 13.4%increased mainly due to the Merger, offset by ceasing depreciation and amortization expense on certain assets held for sale. Excludingsale and the impact of the Divestitures, depreciation and amortization expense decreased 7.6% forDivestitures.
For the three months ended June 30, 2020March 31, 2021 compared to the same prior year period, mainlytransaction costs and other operating costs increased primarily due to many assets becoming fully depreciatedthe acquisition of Former Caesars, as well as, costs or fees incurred related to the William Hill Acquisition, various project exit fees and related write offs, and higher severance expense related to the Merger.
Other income (expenses)
Other income (expenses) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
| | | | | | | | | | | | | | | |
Interest expense, net | $ | (563) | | | $ | (67) | | | $ | (496) | | | * | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other loss | (133) | | | (23) | | | (110) | | | * | | | | | | | | |
Benefit for income taxes | 79 | | | 37 | | | 42 | | | 113.5 | % | | | | | | | | |
___________________
* Not meaningful.
For the three months ended March 31, 2021, interest expense, net increased year over year as a result of the Merger. Outstanding debt assumed, additional debt raised, and assumed financing obligations resulted in 2019.the increase in interest expense.
For the three months ended March 31, 2021, other loss increased year over year due to an unrealized loss on the change in fair value of the derivative liability related to the 5% Convertible Notes, offset by a gain on the foreign currency exchange rate associated with restricted cash held in GBP.
The income tax expense for the three months ended March 31, 2021 differed from the expected income tax benefit based on the federal tax rate of 21% primarily due to nondeductible expenses related to the convertible notes liability. The income tax expense for the three months ended March 31, 2020 differed from the expected income tax expense based on the federal tax rate of 21% primarily due to goodwill impairments and changes in the valuation allowance, offset by the true-up of certain state tax benefits and state and local income taxes.
Six Months Ended June 30,Segment comparison of the three months ended March 31, 2021 and 2020 Compared
Las Vegas Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | |
Casino and pari-mutuel commissions | $ | 226 | | | $ | — | | | $ | 226 | | | * | | | | | | | | |
Food and beverage | 84 | | | — | | | 84 | | | * | | | | | | | | |
Hotel | 115 | | | — | | | 115 | | | * | | | | | | | | |
Other | 72 | | | — | | | 72 | | | * | | | | | | | | |
Net Revenues | $ | 497 | | | $ | — | | | $ | 497 | | | * | | | | | | | | |
| | | | | | | | | | | | | | | |
Adjusted EBITDA | $ | 162 | | | $ | — | | | $ | 162 | | | * | | | | | | | | |
Adjusted EBITDA margin | 32.6 | % | | — | % | | | | 32.6 pts | | | | | | | | |
| | | | | | | | | | | | | | | |
Net loss attributable to Caesars | $ | (67) | | | $ | — | | | $ | (67) | | | * | | | | | | | | |
___________________
* Not meaningful.
Las Vegas segment’s net revenues and Adjusted EBITDA increased as a result of the Merger. As of March 31, 2021, all of our Las Vegas properties reopened with reduced gaming and hotel capacity with limited food and beverage and entertainment offerings. As of March 31, 2021, convention venues have not reopened due to capacity limitations.
During the three months ended March 31, 2021, all of our reopened properties in the Las Vegas segment experienced a decline in net revenues and Adjusted EBITDA compared to Former Caesars’ prior year results for the same properties due to the Six Months Ended June 30, 2019
Netgeneral weakness in the economic environment resulting from reduced visitation and travel to Las Vegas resulting from the COVID-19 public health emergency. Adjusted EBITDA margins for our Las Vegas properties were negatively impacted by greater declines in revenue than our Regional segment as well as rent expense associated with our Rio lease in our Las Vegas segment. As restrictions related to the COVID-19 public health emergency have begun to ease, net revenues, net income and operating expenses were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | Percent Change |
| 2020 | | 2019 | | Variance | | |
Revenues: | | | | | | | |
Gaming and Pari-Mutuel Commissions: | | | | | | | |
West | $ | 60,253 | | | $ | 108,899 | | | $ | (48,646) | | | (44.7) | % |
Midwest | 74,432 | | | 170,392 | | | (95,960) | | | (56.3) | % |
South | 106,955 | | | 204,221 | | | (97,266) | | | (47.6) | % |
East | 99,708 | | | 249,003 | | | (149,295) | | | (60.0) | % |
Central | 99,880 | | | 195,333 | | | (95,453) | | | (48.9) | % |
Total Gaming and Pari-Mutuel Commissions | 441,228 | | | 927,848 | | | (486,620) | | | (52.4) | % |
Non-gaming: | | | | | | | |
West | 75,174 | | | 136,923 | | | (61,749) | | | (45.1) | % |
Midwest | 9,148 | | | 23,634 | | | (14,486) | | | (61.3) | % |
South | 20,857 | | | 45,430 | | | (24,573) | | | (54.1) | % |
East | 29,574 | | | 87,685 | | | (58,111) | | | (66.3) | % |
Central | 19,673 | | | 47,931 | | | (28,258) | | | (59.0) | % |
Corporate and Other | 3,885 | | | 3,493 | | | 392 | | | 11.2 | % |
Total Non-gaming | 158,311 | | | 345,096 | | | (186,785) | | | (54.1) | % |
Total Net Revenues | 599,539 | | | 1,272,944 | | | (673,405) | | | (52.9) | % |
Expenses: | | | | | | | |
Gaming and Pari-Mutuel Commissions: | | | | | | | |
West | 25,723 | | | 41,910 | | | (16,187) | | | (38.6) | % |
Midwest | 31,261 | | | 68,656 | | | (37,395) | | | (54.5) | % |
South | 55,066 | | | 95,318 | | | (40,252) | | | (42.2) | % |
East | 49,875 | | | 120,343 | | | (70,468) | | | (58.6) | % |
Central | 40,585 | | | 87,319 | | | (46,734) | | | (53.5) | % |
Total Gaming and Pari-Mutuel Commissions | 202,510 | | | 413,546 | | | (211,036) | | | (51.0) | % |
Non-gaming | | | | | | | |
West | 44,162 | | | 77,796 | | | (33,634) | | | (43.2) | % |
Midwest | 5,855 | | | 12,828 | | | (6,973) | | | (54.4) | % |
South | 15,249 | | | 28,100 | | | (12,851) | | | (45.7) | % |
East | 20,919 | | | 46,358 | | | (25,439) | | | (54.9) | % |
Central | 13,794 | | | 25,558 | | | (11,764) | | | (46.0) | % |
Total Non-gaming | 99,979 | | | 190,640 | | | (90,661) | | | (47.6) | % |
| | | | | | | |
Marketing and promotions | 30,058 | | | 64,381 | | | (34,323) | | | (53.3) | % |
General and administrative | 156,537 | | | 237,319 | | | (80,782) | | | (34.0) | % |
Corporate | 29,532 | | | 37,805 | | | (8,273) | | | (21.9) | % |
Impairment charges | 160,758 | | | 958 | | | 159,800 | | | 16,680.6 | % |
Depreciation and amortization | 99,372 | | | 114,290 | | | (14,918) | | | (13.1) | % |
Total Operating Expenses | $ | 778,746 | | | $ | 1,058,939 | | | $ | (280,193) | | | (26.5) | % |
Gaming Revenues and Pari-Mutuel Commissions. ForAdjusted EBITDA have shown positive trends during the sixthree months ended June 30, 2020March 31, 2021.
Regional Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | |
Casino and pari-mutuel commissions | $ | 890 | | | $ | 340 | | | $ | 550 | | | 161.8 | % | | | | | | | | |
Food and beverage | 81 | | | 56 | | | 25 | | | 44.6 | % | | | | | | | | |
Hotel | 100 | | | 48 | | | 52 | | | 108.3 | % | | | | | | | | |
Other | 37 | | | 27 | | | 10 | | | 37.0 | % | | | | | | | | |
Net Revenues | $ | 1,108 | | | $ | 471 | | | $ | 637 | | | 135.2 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Adjusted EBITDA | $ | 367 | | | $ | 111 | | | $ | 256 | | | * | | | | | | | | |
Adjusted EBITDA margin | 33.1 | % | | 23.6 | % | | | | 9.5 pts | | | | | | | | |
| | | | | | | | | | | | | | | |
Net income (loss) attributable to Caesars | $ | 65 | | | $ | (135) | | | $ | 200 | | | 148.1 | % | | | | | | | | |
___________________
* Not meaningful.
Regional segment’s net revenues, Adjusted EBITDA and margin increased for the three months ended March 31, 2021 compared to the same prior year period gaming revenues and pari-mutuel commissions declined 52.4%. Excluding the impactas a result of the Divestitures, gamingacquisition of Former Caesars. As of March 31, 2021, all of our properties in our Regional segment have reopened, with the exception of Lake Charles due to the closures from the weather disruption described above. However, all of our properties within the Regional segment are subject to reduced capacities and limited food and beverage offerings.
In our Regional segment, net revenues and pari-mutuel commissions decreased 46.5% for the six months ended June 30, 2020were flat compared to the same prior year period mainlyacross all properties, including Former Caesars’. Similarly, Adjusted EBITDA and Adjusted EBITDA margin for these properties were also higher as compared to prior year due to reductions in casino volumeworkforce and pari-mutuel commissions associated withmarketing costs, synergies from the impactpurchasing power of COVID-19the combined Caesars organization, and limitations on certain lower margin food and beverage offerings.
Managed, International & CIE Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | |
Casino and pari-mutuel commissions | $ | 24 | | | $ | — | | | $ | 24 | | | * | | | | | | | | |
Food and beverage | 1 | | | — | | | 1 | | | * | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | 65 | | | — | | | 65 | | | * | | | | | | | | |
Net Revenues | $ | 90 | | | $ | — | | | $ | 90 | | | * | | | | | | | | |
| | | | | | | | | | | | | | | |
Adjusted EBITDA | $ | 15 | | | $ | — | | | $ | 15 | | | * | | | | | | | | |
Adjusted EBITDA margin | 16.7 | % | | — | % | | | | 16.7 pts | | | | | | | | |
| | | | | | | | | | | | | | | |
Net income attributable to Caesars | $ | 3 | | | $ | — | | | $ | 3 | | | * | | | | | | | | |
___________________
* Not meaningful.
Managed, International, CIE segment’s net revenues and Adjusted EBITDA increased as a result of the related closuresacquisition of Former Caesars. All of our managed properties and race tracks in mid-March 2020 until reopeninghave reopened as of properties starting mid-May 2020.March 31, 2021 except for many of our international properties.
Non-gaming Revenues. Non-gaming revenues decreased 54.1% forFor the sixthree months ended June 30, 2020March 31, 2021, net revenues for Managed, International and CIE declined as compared to the sameFormer Caesars’ prior year period. Excluding the impact of the Divestitures, non-gaming revenues declined 52.0% for the six months ended June 30, 2020 compared to the same prior year period mainly due to the impactabsence of COVID-19reimbursed management costs related to Caesars Windsor remaining closed throughout the quarter. Excluding that, net revenues increased primarily related to increased revenue in our CIE business. Adjusted EBITDA for Managed, International and the related closures of our properties, including hotels, restaurants and entertainment venues in mid-March 2020 until reopening of hotels and restaurants starting mid-May 2020 based on government reopening guidelines.CIE increased as compared to Former Caesars’ prior period.
Corporate & Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | Percent Change | | | | | | |
(Dollars in millions) | 2021 | | 2020 | | Variance | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other | $ | 4 | | | $ | 2 | | | $ | 2 | | | 100.0 | % | | | | | | | | |
Net Revenues | $ | 4 | | | $ | 2 | | | $ | 2 | | | 100.0 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Adjusted EBITDA | $ | (39) | | | $ | (8) | | | $ | (31) | | | * | | | | | | | | |
| | | | | | | | | | | | | | | |
___________________
* Not meaningful.
Gaming Expenses and Pari-Mutuel Commissions.Gaming expenses and pari-mutuelcommissions declined51.0% for the six months ended June 30, 2020 compared to the same prior year period. Excluding theimpactof the Divestitures, gaming expenses and pari-mutuelcommissions decreased42.9% for the six months endedJune 30, 2020compared to thesame prior year periodin conjunction with the previously discussed decrease in gaming revenues and pari-mutuel commissions.
Non-gaming Expenses. Non-gaming expenses declined 47.6% for the six months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, non-gaming expenses decreased 44.9% for the six months ended June 30, 2020 compared to the same prior year period in conjunction with the previously discussed decrease in non-gaming revenues.
Marketing and Promotions Expenses. Marketing and promotions expenses declined 53.3% for the six months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, marketing and promotions expense decreased 50.1% for the six months ended June 30, 2020 compared to the same prior year period. This decline was primarily due to savings achieved via the termination of certain marketing contracts, reductions in direct mail costs and continued company-wide changes in marketing and promotional activity. Additionally, to the extent possible, marketing and promotions expenses were reduced or eliminated during the closure of our properties from mid-March 2020 through mid-May 2020.
General and Administrative Expenses. General and administrative expenses declined 34.0% for the six months ended June 30, 2020 compared to the same prior year period. Excluding the impact of the Divestitures, general and administrative expenses decreased 28.5% for the six months ended June 30, 2020 compared to the same prior year period mainly due to the centralization of certain services provided to our properties and realized savings achieved through the continued consolidation of purchasing programs. Additionally, general and administrative expenses, including utilities and payroll expenses, were reduced following the closure of our properties in mid-March 2020 until reopening started in mid-May 2020.
Corporate Expenses. For the six months ended June 30, 2020 compared to the same prior year period, corporate expenses decreased 21.9% primarily due to reductions in salaries and wages, stock compensation expense, corporate bonus expense, captive insurance expense, certain professional fees and travel costs due to the COVID-19 impact for the six months ended June 30, 2020 compared to the same prior year period.
Depreciation and Amortization Expense. For the six months ended June 30, 2020 compared to the same prior year period, depreciation and amortization expense declined 13.1% mainly due to ceasing depreciation and amortization expense on assets held for sale. Excluding the impact of the Divestitures, depreciation and amortization expense decreased 6.7% for the six months ended June 30, 2020 compared to the same prior year period mainly due to many assets becoming fully depreciated in 2019.
Supplemental Unaudited Presentation of Consolidated Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and Adjusted EBITDA for the Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019
Adjusted EBITDA (defined(described below), a non-GAAP financial measure, has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry and we believe that this non-GAAP supplemental information will be helpful in understanding our ongoing operating results. Management has historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results. Adjusted EBITDA represents net income (loss) income before interest expense, (benefit) provision for income taxes, unrealized (gain) loss on investments and marketable securities, depreciation and amortization, stock-based compensation, impairment charges, transaction expenses, severance expense, selling costs associated with the divestitures of properties, equity in income (loss) of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, (gain) loss related to divestitures, changes in the fair value of certain derivatives and certain non-recurring expenses such as
equipment,sign-on and (gain) loss related to divestitures.retention bonuses, business optimization expenses and transformation expenses, certain litigation awards and settlements, losses on inventory associated with properties temporarily closed as a result of the COVID-19 public health emergency, contract exit or termination costs, and certain regulatory settlements. Adjusted EBITDA also excludes the expense associated with certain of our GLPI Master Leaseleases as the transaction wasthese transactions were accounted for as a financing obligationobligations and the associated expense is included in interest expense. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States (“US GAAP”),GAAP. It is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments, payments under our leases with affiliates of GLPI Master Leaseand VICI Properties, Inc. and certain regulatory gaming assessments, which can be significant. As a result, Adjusted EBITDA should not be considered as a measure of our liquidity. Other companies that provide EBITDA information may calculate Adjusted EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements.
The following table summarizes our Adjusted EBITDA for our operating segments for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, respectively, in addition to reconciling net income (loss) income to Adjusted EBITDA in accordance with US GAAP (unaudited, in thousands)(unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | | | | | |
| West | | Midwest | | South | | East | | Central | | Corporate and Other | | Total |
Net (loss) income | $ | (12,711) | | | $ | 1,378 | | | $ | (10,912) | | | $ | (30,456) | | | $ | (20,452) | | | $ | (26,843) | | | $ | (99,996) | |
Interest expense, net | 5,295 | | | (32) | | | 4,196 | | | 12,842 | | | 13,505 | | | 32,330 | | | 68,136 | |
Benefit for income taxes | (5,392) | | | (931) | | | (2,757) | | | (3,617) | | | (1,247) | | | (19,717) | | | (33,661) | |
| | | | | | | | | | | | | |
Unrealized gain on investments and marketable securities | — | | | — | | | — | | | — | | | — | | | (12,806) | | | (12,806) | |
Depreciation and amortization | 13,299 | | | 4,148 | | | 6,786 | | | 11,046 | | | 11,793 | | | 1,867 | | | 48,939 | |
Stock-based compensation | — | | | 1 | | | 1 | | | — | | | — | | | 4,227 | | | 4,229 | |
Transaction expenses (1) | — | | | — | | | — | | | — | | | — | | | 12,697 | | | 12,697 | |
Other (2) | 243 | | | 84 | | | 210 | | | 237 | | | (6) | | | 1,311 | | | 2,079 | |
Adjusted EBITDA | $ | 734 | | | $ | 4,648 | | | $ | (2,476) | | | $ | (9,948) | | | $ | 3,593 | | | $ | (6,934) | | | $ | (10,383) | |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
(In millions) | CEI | | Add: Disc. Ops (d) | | | | Total (f) |
Net loss attributable to Caesars | $ | (423) | | | $ | — | | | | | $ | (423) | |
Net loss attributable to noncontrolling interests | (1) | | | — | | | | | (1) | |
Discontinued operations, net of income taxes | (7) | | | 7 | | | | | — | |
(Benefit) provision for income taxes | (79) | | | 4 | | | | | (75) | |
Other loss (a) | 133 | | | — | | | | | 133 | |
Interest expense, net | 563 | | | 32 | | | | | 595 | |
| | | | | | | |
Depreciation and amortization | 265 | | | — | | | | | 265 | |
Transaction costs and other operating costs (b) | 20 | | | — | | | | | 20 | |
Stock-based compensation expense | 23 | | | — | | | | | 23 | |
Other items (c) | 11 | | | — | | | | | 11 | |
Adjusted EBITDA | $ | 505 | | | $ | 43 | | | | | $ | 548 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
(In millions) | CEI | | Less: Divestitures (g) | | Pre-Acq. CEC (e) | | Total (h) |
Net income (loss) attributable to Caesars | $ | (176) | | | $ | 48 | | | $ | 189 | | | $ | 61 | |
Net loss attributable to noncontrolling interests | — | | | — | | | (1) | | | (1) | |
(Benefit) provision for income taxes | (37) | | | — | | | 54 | | | 17 | |
Other (income) loss (a) | 23 | | | — | | | (641) | | | (618) | |
Interest expense, net | 67 | | | (4) | | | 333 | | | 396 | |
Depreciation and amortization | 50 | | | (3) | | | 256 | | | 303 | |
Impairment charges | 161 | | | (33) | | | 65 | | | 193 | |
Transaction costs and other operating costs (b) | 8 | | | — | | | 21 | | | 29 | |
Stock-based compensation expense | 6 | | | — | | | 10 | | | 16 | |
Other items (c) | 1 | | | — | | | 13 | | | 14 | |
Adjusted EBITDA | $ | 103 | | | $ | 8 | | | $ | 299 | | | $ | 410 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | | | | | |
| West | | Midwest | | South | | East | | Central | | Corporate and Other | | Total |
Includes Divestitures: | | | | | | | | | | | | | |
Net (loss) income | $ | 11,348 | | | $ | 21,435 | | | $ | 12,747 | | | $ | 15,981 | | | $ | 13,070 | | | $ | (55,645) | | | $ | 18,936 | |
Interest expense, net | 4,982 | | | (1) | | | 4,353 | | | 12,691 | | | 13,306 | | | 36,467 | | | 71,798 | |
(Benefit) provision for income taxes | 4,283 | | | 7,578 | | | 1,923 | | | 6,541 | | | 1,657 | | | (11,564) | | | 10,418 | |
| | | | | | | | | | | | | |
Unrealized loss on investments and marketable securities | — | | | — | | | — | | | — | | | — | | | 1,398 | | | 1,398 | |
Depreciation and amortization | 13,508 | | | 7,714 | | | 9,850 | | | 12,240 | | | 11,480 | | | 1,741 | | | 56,533 | |
Stock-based compensation | — | | | 10 | | | — | | | — | | | — | | | 6,499 | | | 6,509 | |
Transaction expenses (1) | — | | | — | | | — | | | — | | | — | | | 7,292 | | | 7,292 | |
Other (3) | 184 | | | 17 | | | 236 | | | (35) | | | 89 | | | 5,286 | | | 5,777 | |
Adjusted EBITDA | $ | 34,305 | | | $ | 36,753 | | | $ | 29,109 | | | $ | 47,418 | | | $ | 39,602 | | | $ | (8,526) | | | $ | 178,661 | |
| | | | | | | | | | | | | |
Divestitures: | | | | | | | | | | | | | |
Net income | $ | — | | | $ | 4,737 | | | $ | — | | | $ | 3,107 | | | $ | — | | | $ | — | | | $ | 7,844 | |
| | | | | | | | | | | | | |
Provision for income taxes | — | | | 1,241 | | | — | | | 1,156 | | | — | | | — | | | 2,397 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Depreciation and amortization | — | | | 1,950 | | | — | | | 1,643 | | | — | | | — | | | 3,593 | |
Stock-based compensation | — | | | 4 | | | — | | | — | | | — | | | — | | | 4 | |
| | | | | | | | | | | | | |
Other (3) | — | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
Total Divestitures (4) | $ | — | | | $ | 7,932 | | | $ | — | | | $ | 5,904 | | | $ | — | | | $ | — | | | $ | 13,836 | |
| | | | | | | | | | | | | |
Excluding Divestitures: | | | | | | | | | | | | | |
Net (loss) income | $ | 11,348 | | | $ | 16,698 | | | $ | 12,747 | | | $ | 12,874 | | | $ | 13,070 | | | $ | (55,645) | | | $ | 11,092 | |
Interest expense, net | 4,982 | | | (1) | | | 4,353 | | | 12,691 | | | 13,306 | | | 36,467 | | | 71,798 | |
(Benefit) provision for income taxes | 4,283 | | | 6,337 | | | 1,923 | | | 5,385 | | | 1,657 | | | (11,564) | | | 8,021 | |
| | | | | | | | | | | | | |
Unrealized loss on investments and marketable securities | — | | | — | | | — | | | — | | | — | | | 1,398 | | | 1,398 | |
Depreciation and amortization | 13,508 | | | 5,764 | | | 9,850 | | | 10,597 | | | 11,480 | | | 1,741 | | | 52,940 | |
Stock-based compensation | — | | | 6 | | | — | | | — | | | — | | | 6,499 | | | 6,505 | |
Transaction expenses (1) | — | | | — | | | — | | | — | | | — | | | 7,292 | | | 7,292 | |
Other (3) | 184 | | | 17 | | | 236 | | | (33) | | | 89 | | | 5,286 | | | 5,779 | |
Total Excluding Divestitures (5) | $ | 34,305 | | | $ | 28,821 | | | $ | 29,109 | | | $ | 41,514 | | | $ | 39,602 | | | $ | (8,526) | | | $ | 164,825 | |
____________________
(a)Other loss for the three months ended March 31, 2021 primarily represents a loss on the change in fair value of the derivative liability related to the 5% Convertible Notes slightly offset by gains on foreign currency exchange and investments held. Other (income) loss for the three months ended March 31, 2020 primarily represents a gain on the change in fair value of the of the derivative liability related to the 5% Convertible Notes and losses on investments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | | | | | | | |
| West | | Midwest | | South | | East | | Central | | Corporate and Other | | Total |
Net loss | $ | (104,011) | | | $ | (15,239) | | | $ | (24,910) | | | $ | (32,647) | | | $ | (15,728) | | | $ | (83,099) | | | $ | (275,634) | |
Interest expense, net | 10,466 | | | (42) | | | 8,529 | | | 25,661 | | | 26,933 | | | 63,053 | | | 134,600 | |
Benefit for income taxes | (16,720) | | | (3,658) | | | (4,286) | | | (3,229) | | | (1,285) | | | (41,655) | | | (70,833) | |
Loss on extinguishment of debt | — | | | — | | | — | | | — | | | — | | | 158 | | | 158 | |
Unrealized loss on investments and marketable securities | — | | | — | | | — | | | — | | | — | | | 10,202 | | | 10,202 | |
Depreciation and amortization | 27,237 | | | 8,670 | | | 13,906 | | | 22,287 | | | 23,556 | | | 3,716 | | | 99,372 | |
Stock-based compensation | — | | | 3 | | | 3 | | | — | | | — | | | 9,965 | | | 9,971 | |
Transaction expenses (1) | — | | | — | | | — | | | — | | | — | | | 21,991 | | | 21,991 | |
Other (2) | 103,387 | | | 36,701 | | | 21,986 | | | 265 | | | 14 | | | (16) | | | 162,337 | |
Adjusted EBITDA | $ | 20,359 | | | $ | 26,435 | | | $ | 15,228 | | | $ | 12,337 | | | $ | 33,490 | | | $ | (15,685) | | | $ | 92,164 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | | | | | | | | | | | | |
| West | | Midwest | | South | | East | | Central | | Corporate and Other | | Total |
Includes Divestitures: | | | | | | | | | | | | | |
Net (loss) income | $ | 15,665 | | | $ | 43,590 | | | $ | 32,956 | | | $ | 27,149 | | | $ | 25,948 | | | $ | (88,143) | | | $ | 57,165 | |
Interest expense, net | 10,072 | | | 3 | | | 8,701 | | | 25,530 | | | 26,580 | | | 74,422 | | | 145,308 | |
(Benefit) provision for income taxes | 5,677 | | | 13,252 | | | 4,881 | | | 9,695 | | | 2,575 | | | (15,257) | | | 20,823 | |
Unrealized loss on investments and marketable securities | — | | | — | | | — | | | — | | | — | | | 2,858 | | | 2,858 | |
Depreciation and amortization | 26,651 | | | 16,135 | | | 20,865 | | | 24,389 | | | 22,690 | | | 3,560 | | | 114,290 | |
Stock-based compensation | — | | | 25 | | | 9 | | | 7 | | | — | | | 11,416 | | | 11,457 | |
Transaction expenses (1) | — | | | — | | | — | | | — | | | — | | | 9,186 | | | 9,186 | |
Other (3) | 283 | | | 72 | | | 368 | | | 152 | | | 132 | | | (16,781) | | | (15,774) | |
Adjusted EBITDA | $ | 58,348 | | | $ | 73,077 | | | $ | 67,780 | | | $ | 86,922 | | | $ | 77,925 | | | $ | (18,739) | | | $ | 345,313 | |
| | | | | | | | | | | | | |
Divestitures: | | | | | | | | | | | | | |
Net income | $ | — | | | $ | 9,887 | | | $ | — | | | $ | 5,229 | | | $ | — | | | $ | — | | | $ | 15,116 | |
Interest expense, net | — | | | — | | | — | | | 23 | | | — | | | — | | | 23 | |
Provision for income taxes | — | | | 2,616 | | | — | | | 1,730 | | | — | | | — | | | 4,346 | |
| | | | | | | | | | | | | |
Depreciation and amortization | — | | | 4,140 | | | — | | | 3,670 | | | — | | | — | | | 7,810 | |
Stock-based compensation | — | | | 11 | | | — | | | 7 | | | — | | | — | | | 18 | |
| | | | | | | | | | | | | |
Other (3) | — | | | — | | | — | | | 78 | | | — | | | — | | | 78 | |
Total Divestitures (6) | $ | — | | | $ | 16,654 | | | $ | — | | | $ | 10,737 | | | $ | — | | | $ | — | | | $ | 27,391 | |
| | | | | | | | | | | | | |
Excluding Divestitures: | | | | | | | | | | | | | |
Net (loss) income | $ | 15,665 | | | $ | 33,703 | | | $ | 32,956 | | | $ | 21,920 | | | $ | 25,948 | | | $ | (88,143) | | | $ | 42,049 | |
Interest expense, net | 10,072 | | | 3 | | | 8,701 | | | 25,507 | | | 26,580 | | | 74,422 | | | 145,285 | |
(Benefit) provision for income taxes | 5,677 | | | 10,636 | | | 4,881 | | | 7,965 | | | 2,575 | | | (15,257) | | | 16,477 | |
Unrealized loss on investments and marketable securities | — | | | — | | | — | | | — | | | — | | | 2,858 | | | 2,858 | |
Depreciation and amortization | 26,651 | | | 11,995 | | | 20,865 | | | 20,719 | | | 22,690 | | | 3,560 | | | 106,480 | |
Stock-based compensation | — | | | 14 | | | 9 | | | — | | | — | | | 11,416 | | | 11,439 | |
Transaction expenses (1) | — | | | — | | | — | | | — | | | — | | | 9,186 | | | 9,186 | |
Other (3) | 283 | | | 72 | | | 368 | | | 74 | | | 132 | | | (16,781) | | | (15,852) | |
Total Excluding Divestitures (5) | $ | 58,348 | | | $ | 56,423 | | | $ | 67,780 | | | $ | 76,185 | | | $ | 77,925 | | | $ | (18,739) | | | $ | 317,922 | |
(1)(b)Transaction expenses costs and other operating costs for the three months ended March 31, 2021 and 2020primarily represent costs related to the pendingWilliam Hill Acquisition and the Merger, various contract or license termination exit costs, professional services, other acquisition of Caesars for the threecosts and six months ended June 30, 2020 and 2019, and costs related to the acquisitions of Elgin and Tropicana for the three and six months ended June 30, 2019.severance costs.
(2)(c)Other items primarily represent certain consulting and legal fees, rent for the threenon-operating assets, relocation expenses, and six months ended June 30, 2020, is comprised of severance expense, (gain) loss on the sale or disposal of property and equipment, equity in loss of unconsolidated affiliate, and selling costs associated with the divestitures of Kansas City, Vicksburg, Shreveport, and MontBleu. For the six months ended June 30, 2020, other is also comprised of impairment charges.business optimization expenses.
(3)(d)Other, for the three and six months ended June 30, 2019, is comprised of severance expense, (gain) loss on the sale or disposal of property and equipment, equity in loss of unconsolidated affiliate,Discontinued operations include Horseshoe Hammond, Caesars Southern Indiana, Harrah’s Louisiana Downs, and the gain associated withCaesars UK group, including Emerald Resorts & Casino. Such figures are based on unaudited internal financial statements and have not been reviewed by the sales of PresqueCompany’s auditors and Nemacolin. For the six months ended June 30, 2019, other is also comprised of impairment charges.
(4)Figures are for Mountaineer, Cape Girardeau and Caruthersville for the three months ended June 30, 2019.do not conform to GAAP.
(5)(e)TotalPre-acquisition CEC represents results of operations for Former Caesars prior to the Merger. Such figures are based on unaudited internal financial statements and have not been reviewed by the Company’s auditors and, for the 2020 periods, do not conform to GAAP.
(f)Includes results of operations from discontinued operations. Such presentation does not conform to GAAP or the Securities and Exchange Commission rules for pro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to the results of operations reported by the Company.
(g)Divestitures for the three months ended June 30, 2019 exclude theMarch 31, 2020 include results of operations for Mountaineer, Cape GirardeauEldorado Shreveport, Kansas City, Vicksburg and Caruthersville. Totaldiscontinued operations of Harrah’s Reno and Bally’s Atlantic City. Such figures forare based on unaudited internal financial statements and have not been reviewed by the six months ended June 30, 2019 exclude theCompany’s auditors and do not conform to GAAP.
(h)Excludes results of operations for Presque for the period beginning January 1, 2019from divestitures as detailed in (g) and ending January 11, 2019, Nemacolin for the period beginning January 1, 2019 and ending March 8, 2019, and Mountaineer, Cape Girardeau and Caruthersville for the six months ended June 30, 2019.includes results of operations of Former Caesars, including discontinued operations. Such presentation does not conform to GAAP or the Securities and Exchange Commission rules for pro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to our reported results of operations.
(6)Figures are for Presque for the period beginning January 1, 2019 and ending January 11, 2019, Nemacolin for the period beginning January 1, 2019 and ending March 8, 2019 and Mountaineer, Cape Girardeau and Caruthersville for the six months ended June 30, 2019.
Liquidity and Capital Resources
We are a holding company and our only significant assets are ownership interests in our subsidiaries. Our ability to fund our obligations depends on existing cash on hand, contracted asset sales, cash flowflows from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have beenare existing cash on hand, cash flowflows from operations, availability of borrowings under our revolving credit facility,facilities, proceeds from the issuance of debt and equity securities and proceeds from completed asset sales.
Our cash requirements may fluctuate significantly depending on our decisions with respect to business acquisitions or divestitures and strategic capital investments to maintain the quality of our properties. Beginning on May 18,
During 2020, we began reopening our properties and as of June 30, 2020 we have resumed operations at all of our properties, with the exception of Elgin and Trop AC which reopened on July 1 and July 2, 2020, respectively. Inin an effort to mitigate the impacts of the COVID-19 public health emergency on our business and maintain liquidity, we furloughed approximately 90% of our employees beginning on April 11, 2020. We have resumed operations at all of our properties, with the exception of Lake Charles which was severely damaged by Hurricane Laura, and many of our international properties. A portion of the workforce has returned to service as theour properties have resumed operations with limited capacities and in compliance with operating restrictions in accordance withimposed by governmental or tribal orders, directives and guidelines. As a result of these payroll changes combined with other cost saving measures, our operating expenses were reduced significantly.
As of March 31, 2021, our cash on hand and revolving borrowing capacity was as follows:
| | | | | | | | |
(In millions) | | March 31, 2021 |
Cash and cash equivalents | | $ | 1,794 | |
Revolver capacity | | 2,210 | |
Revolver capacity committed to letters of credit | | (82) | |
Available revolver capacity committed as regulatory requirement | | (48) | |
Total | | $ | 3,874 | |
On September 30, 2020, we announced that we had reached an agreement with William Hill PLC on the terms of a recommended cash acquisition pursuant to which we would acquire the entire issued and to be issued share capital (other than shares owned by us or held in treasury) of William Hill PLC, in an all-cash transaction of approximately £2.9 billion. The William Hill Acquisition was consummated on April 22, 2021, for approximately $4.0 billion, based on the GBP:USD exchange rate on the closing date. As of March 31, 2021, we had restricted cash of approximately $2.1 billion which we applied to pay a portion of the purchase price of the acquisition. We entered into a foreign exchange forward contract to hedge the risk of appreciation of the GBP denominated purchase price for the William Hill Acquisition. On March 25, 2021, the forward contract was settled, for which the Company received $41 million in proceeds.
On September 29, 2020, the Company entered into a debt financing commitment letter pursuant to which the lenders party thereto committed to arrange and provide a newly formed subsidiary of the Company with (a) a £1.0 billion senior secured 540-day bridge loan facility, (b) a £116 million senior secured 540-day revolving credit facility and (c) a £503 million senior secured 60-day bridge loan facility (collectively, the “Debt Financing”), which was amended and restated on December 11, 2020 in order to join additional lenders as parties thereto.
Pending negotiations of the definitive loan agreement for the Debt Financing, on October 6, 2020, we entered into a £1.5 billion interim facilities agreement (the “Interim Facilities Agreement”) with Deutsche Bank AG, London Branch and JPMorgan Chase Bank, N.A. to provide: (a) a 90-day £1.0 billion interim asset sale bridge facility and (b) a 90-day £503 million interim cash confirmation bridge facility, which Interim Facilities Agreement was amended and restated on December 11, 2020 in order to join additional lenders as parties thereto.
In connection with the William Hill Acquisition, on April 22, 2021, a newly formed subsidiary of the Company 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. 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. 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 will be used for working capital and general corporate purposes. The Interim Facilities Agreement was terminated upon the execution of the Bridge Credit Agreement for the Debt Financing. The Bridge Credit Agreement is included within William Hill’s non-U.S. operations which is expected to be divested.
We expect that our primary capital requirements going forward will relate to the operation and maintenance of our properties, taxes, servicing our outstanding indebtedness, and rent payments under our GLPI Master Lease, the VICI Leasesleases and other leases. We make capital expenditures and perform continuing refurbishment and maintenance at our properties to maintain our quality standards. Our capital expenditure requirements for 20202021 are expected to significantly increase as a result of the additional properties acquired in the Merger. In addition to our future capital expenditures for the normal course of business, weMerger and new development projects. We funded $400 million to escrow as of the closing of the Merger and willhave begun to utilize those funds in accordance with a three year capital expenditure plan in the state of New Jersey. We will also be required to fund a similarThis amount is currently included in restricted cash. As of March 31, 2021, our restricted cash balance in the escrow account with $25was $376 million for improvements at our racing properties within the state of Indiana. During the remainder of 2020, we plan to spend an estimated $150 million to $175 million onfuture capital expenditures. We expect to use cash on hand and cash generated from operations to meet such obligations.
In an effort to maintain liquidity and provide financial flexibility as the effects of COVID-19 continue to evolve and impact global financial markets, we borrowed $465.0 million under our revolving credit facility on March 16, 2020. We repaid $357.0 million during the second quarter and had $108.0 million outstanding as of June 30, 2020. In addition, we had $372.9 million of available borrowing capacity, after consideration of $19.1 millionexpenditures in outstanding letters of credit, under our Revolving Credit Facility. On July 1, 2020, we utilized proceeds from the sale of our interests in Kansas City and Vicksburg to pay down the remaining $108.0 million on the revolving credit facility.
On June 19, 2020, we completed a public offering of 20,700,000 shares (including the shares sold pursuant to the underwriters’ option) of common stock, at a public offering price of $39.00 per share, with proceeds of $772.4 million, net of fees and estimated expenses of $34.9 million.
As a condition of June 30, 2020, our cash on handthe extension of the casino operating contract and revolving borrowing capacity was as follows:
| | | | | | | | |
| | June 30, 2020 |
| | (in thousands) |
Cash and cash equivalents | | $ | 950,483 | |
Revolver capacity | | 392,000 | |
Revolver capacity committed to letters of credit | | (19,135) | |
Total | | $ | 1,323,348 | |
On July 6, 2020, we issued $3.4 billion of 2025 Secured Notes, $1.8 billion of 2027 Senior Notes and $1.0 billion of CRC Secured Notes in connection with the Merger (collectively, the “Debt Financing”).
On July 20, 2020, in connection with the Merger, we consummated the sale leaseback transactions related toground lease for Harrah’s New Orleans, we are also required to make a capital investment of $325 million in Harrah’s LaughlinNew Orleans by July 15, 2024.
On August 27, 2020, Hurricane Laura made landfall on Lake Charles as a Category 4 storm. The hurricane severely damaged Lake Charles and Harrah’s Resort Atlantic City, including the Harrah’s Atlantic City Waterfront Conference Center, for approximately $1.82 billion of net proceeds. Additionally, we received a one-time payment from VICI of approximately $1.38 billion for amendmentsCompany has begun to VICI Leases. Furthermore, we entered intoreceive insurance proceeds related to, in part, estimated damages and repairs that have been incurred to the ERI Revolving Credit Facility which provides for a five-year senior secured revolving credit facility in an aggregate principal amount of $1.2 billion, including an incremental agreement which is, as discussed below, subject to regulatory approval. In addition, the borrowing capacity and obligations under CRC’s existing $1.0 billion revolving credit facility remain outstanding following the consummation of the Merger.
In connection with the consummation of the Merger, on July 20, 2020, our current and future liquidity significantly changed.property. A portion of the proceeds from our newly issued debt and proceeds we received from VICI, as well as cash on hand generated from our sale of common stock, were used (a) to fund a portion of the cash consideration of the Merger, (b) to prepay in full the loans outstanding and terminate all commitments under our existing Credit Agreement, dated as of April 17, 2017, (c) to satisfy and discharge our Senior Notes, (d) to repay $975 million of the outstanding amount under the existing CRC revolving credit facility, (e) to repay in full the loans outstanding and terminate all commitments under the existing CEOC, LLC Credit Agreement, dated as of October 6, 2017, (f) to pay fees and expenses related to the financing arrangements, and (g) for general corporate use. As a result of these transactions, we may incur a loss on extinguishment of debt during the third quarter of 2020, which could be significant.
Following the completion of the transactions described in conjunction with the closing of the Merger, we estimate our total liquidityis expected to be approximately $4.3 billion, which includes approximately $2.3 billionutilized for the construction of cash on hand, and $2.0 billion of availability on our revolving credit facilities. We expect to obtain an additional $210 million of capacity on our revolving credit facilities upon regulatory approval and generate approximately $500 million of additional proceeds from VICI with a sale of excess land and a new mortgage note duringland-based casino which is expected to be completed in 2022.
Cash spent for capital expenditures totaled $65 million and $23 million for the third quarterthree months ended March 31, 2021 and 2020, respectively. The following table summarizes our capital expenditures for the three months ended March 31, 2021, and an estimated range of 2020.capital expenditures for the remainder of 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | Estimate of Remaining Capital Expenditures for 2021 |
(In millions) | | Actual | | Low | | High |
Atlantic City | | $ | 12 | | | $ | 165 | | | $ | 215 | |
Indiana racing operations | | 2 | | | 5 | | | 15 | |
Total estimated capital expenditures from restricted cash | | 14 | | | 170 | | | 230 | |
Lake Charles | | 12 | | | 65 | | | 115 | |
New Orleans | | 3 | | | 25 | | | 50 | |
Other growth and maintenance projects | | 36 | | | 335 | | | 360 | |
Total estimated capital expenditures from unrestricted cash and insurance proceeds | | 51 | | | 425 | | | 525 | |
Total | | $ | 65 | | | $ | 595 | | | $ | 755 | |
A significant portion of our liquidity needs are for debt service and payments associated with our leases. In addition to our newly issued debt, our debt obligations increased as a result of outstanding debt of Former Caesars that remained outstanding following the consummation of the Merger. Our estimated debt service (including principal and interest) is $200approximately $610 million for the remainder of 2020. The convertible notes assumed in connection with the Merger are expected to be settled during 2020. The convertible notes are convertible into weighted average of the number of shares of Company Common Stock and amount of cash actually received per share by holders of common stock of Former Caesars that made elections for consideration in the Merger.2021. We currently estimate a cash payment of approximately $1.3 billion to settle the convertible notes during 2020. Wealso lease certain real property assets from third parties, including GLPI and VICI. We estimate our lease payments to be approximately $540$900 million for the remainder of 2020.2021.
The 5% Convertible Notes are convertible at any time at the option of the holders thereof or the Company. We do not intend to exercise our option to cause the conversion of the 5% Convertible Notes prior to maturity. During the three months ended March 31, 2021, conversions have been negligible. At such time as the holders of the 5% Convertible Notes elect to cause conversion, we estimate using cash of $379 million and issuing 4.5 million shares to settle the remaining outstanding 5% Convertible Notes as of March 31, 2021.
The Company periodically divests assets that it does not consider core to its business to raise capital or, in some cases, to comply with conditions, terms, obligations or restrictions imposed by antitrust, gaming and other regulatory entities.
On April 24,6, 2021, the Company consummated the sale of the equity interests of MontBleu for $15 million, subject to a customary working capital adjustment, resulting in a loss of approximately $2 million. The purchase price is due no later than the first anniversary of the closing of the sale.
On September 3, 2020, wethe Company and VICI entered into a definitive purchase agreement with Twin River to sell Eldorado ShreveportHarrah’s Louisiana Downs with Rubico Acquisition Corp. for $22 million, subject to a customary working capital adjustment, where the proceeds will be split between the Company and MontBleu for aggregate consideration of $155 million.VICI. The agreementsale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the firstthird quarter of 2021.
On October 27, 2020, the Company entered into an agreement to sell Evansville to GLPI and Bally’s Corporation for $480 million in cash, subject to a customary working capital adjustment. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in mid-2021.
On December 1, 2020, the Company entered into a definitive agreement with CQ Holding Company, Inc. to sell the equity interests of Baton Rouge. The definitive agreement provides that the consummation of the sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the third quarter of 2021.
On December 24, 2020, the Company entered into an agreement to sell the equity interests of Caesars Southern Indiana to the EBCI for $250 million, subject to a customary working capital adjustment. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the third quarter of 2021.
WeIn addition to the agreements above, we also expect to enter into additional agreements to divest three properties in the state of Indiana as required by the Indiana Gaming Commission Horseshoe Hammond prior to December 31, 2020.2021. Further, we expect to divest of several other non-core properties including our international properties within our Caesars UK group, which includes Emerald Resorts Casino.
If the agreed upon selling price for future divestitures does not exceed the carrying value of the assets, we may be required to record additional impairment charges in future periods which may be material.
We expect that borrowings incurred under the ERI Revolving Credit Facility, the CRC revolving credit facility and Convention Center Mortgage Loan andour current liquidity, cash generatedflows from operations, the equity offering consummated in July 2020availability of borrowings under committed credit facilities and proceeds from the announced asset sales net of associated taxes, will be sufficient to fund our operations, capital requirements and service our outstanding indebtedness for the next twelve months. However, the COVID-19 public health emergency has had, and is expected to continue to have, an adverse effect on our business, financial condition and results of operations and has caused, and may continue to cause, disruption in the financial markets. While we have undertaken efforts to mitigate the impacts of the COVID-19 public health emergency on our business and maintain liquidity, the extent of the ongoing and future effects of the COVID-19 public health
emergency on our business, results of operations and financial condition is uncertain and may adversely impact our liquidity in the future. Our ability to access additional capital may be adversely affected by the disruption in the financial markets caused by the COVID-19 public health emergency, restrictions on incurring additional indebtedness contained in the agreements governing our indebtedness and the impact of the public health emergency on our business, results of operations and financial condition.
Operating Cash Flows. For the six months ended June 30, 2020, cash flows used by operating activities totaled $80.5 million compared to $127.9 million provided for the same prior year period. Our operating cash flows generally follow trends in operating income, excluding non-cash charges. Changes in the balance sheet accounts and the timing of significant payments, including interest, rent and tax payments will impact our operating cash flows. The decrease in operating cashflowscompared to the same prior year period was primarily due to cash used to continue to pay operating expenses, including rent and interest payments, during the temporary closure of our properties as a result of the COVID-19 public health emergency from mid-March to mid-May 2020.
Investing Cash Flow and Capital Expenditures. Net cash flows used in investing activities totaled $41.4 million for the six months ended June 30, 2020 compared to $75.5 million provided by investing activities in the same prior year period. Our investing cash flows generally fluctuate depending upon the timing of strategic and maintenance capital expenditures in addition to business acquisitions or dispositions. Net cash used in investing activities for the six months ended June 30, 2020 was primarily due to $41.0 million cash used for capital expenditures for various property enhancement and maintenance projects along with equipment purchases. Net cash flows provided by investing activities for the six months ended June 30, 2019 was primarily due to $178.9 million in net proceeds from the sales of Presque Isle Downs and Nemacolin offset by cash used totaling $97.1 million for capital expenditures.
Financing Cash Flow. Net cash provided by financing activities for the six months ended June 30, 2020 totaled $862.7 million compared to $253.2 million used in financing activities for the same prior year period. The cash provided by financing activities for the six months ended June 30, 2020 was principally due to $772.4 million of proceeds from issuance of common stock and $465.0 million of borrowings under the Revolving Credit Facility offset by $357.0 million and $10.0 million of payments under the Revolving Credit Facility and Term Loan, respectively. The cash used in financing activities for the six months ended June 30, 2019 was principally due to net payments under the Revolving Credit Facility partially funded by the proceeds from the sales of Presque and Nemacolin.
Debt and Master Lease Covenant Compliance
The Caesars Resort Collection (“CRC”) Credit Agreement, the CEI Revolving Credit Facility, and the indentures related to the CEI Senior Secured Notes, the CEI Senior Notes, the CRC Senior Secured Notes and the CRC 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 our ability to (among other items) incur additional indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets and make acquisitions. The indenture for the 5% Convertible Notes contains limited covenants as a result of amendments that became effective in connection with the consummation of the Merger.
The CRC Revolving Credit Facility and 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. Failure to comply with such covenants could result in an acceleration of the maturity of indebtedness outstanding under the relevant debt document. Due to the ongoing effects of the COVID-19 public health emergency, our ability to maintain compliance with the financial covenants under ourcurrent terms of the CRC Credit Agreement and the CEI Revolving Credit Facility was negatively impacted. On June 15, 2020, we entered into an amendment to the Credit Facility which provided relief forprovide that the financial covenant requirement under the existing Credit Facility agreementmeasurement period is not effective through September 30, 2021. During2021 so long as CRC and the covenant relief period we were required to maintainCompany, respectively, comply with a minimum liquidity level, including unrestricted cash and unused commitmentsrequirement, which includes any such availability under the Revolving Credit Facility of $200.0 million.applicable revolving credit facilities.
Additionally, ourThe GLPI Master Lease containsand VICI leases contain certain operating, capital expenditure and financial covenants, thereunder,including minimum capital improvement expenditures and our ability to maintain compliance with these covenants was also negatively impacted. On June 15, 2020, we entered into an amendment to the GLPI Master Lease which, among other things, provides certain relief under these covenants in the eventa rent coverage ratio.
As of June 30, 2020,March 31, 2021, we were in compliance with all of the applicable financial covenants under the 7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026, and the Lumière Loan.
described above.
Share Repurchase Program
OnIn November 8, 2018, we issued a press release announcing that itsour Board of Directors has authorized a $150 million common stock repurchase program (the “Share Repurchase Program”) pursuant to which we 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 we are required to repurchase under the Share Repurchase Program.
As of June 30, 2020,March 31, 2021, we acquired 223,823 shares of common stock under the program at an aggregate value of $9.1$9 million and an average of $40.80 per share. No shares were repurchased during the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020.
DebtContractual Obligations and GLPI Master Lease
Term Loan and Revolving Credit Facility
As of June 30, 2020, we were party to a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto dated as of April 17, 2017 (as amended, the “Credit Facility”), consisting of a $1.5 billion term loan facility (the “Term Loan Facility” or “Term Loan”) and a $500.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Facility provided that our obligations under the Revolving Credit Facility would mature on October 1, 2023 and our obligations under the Term Loan Facility would mature on April 17, 2024.
As of June 30, 2020, we had $488.8 million outstanding on the Term Loan and $108.0 million outstanding under the Revolving Credit Facility. During the six months ended June 30, 2020, we elected to draw down $465.0 million of availability under the Revolving Credit Facility as a precautionary measure to enhance our liquidity and provide financial flexibility as the effects of COVID-19 continue to evolve and impact global financial markets and we repaid $357.0 million of the outstanding balance. We had $372.9 million of available borrowing capacity, after consideration of $19.1 million in outstanding letters of credit under our Revolving Credit Facility, as of June 30, 2020.
The interest rate per annum applicable to loans under the Revolving Credit Facility are, at our option, either LIBOR plus a margin ranging from 1.75% to 2.50% or a base rate plus a margin from 0.75% to 1.50%, the margin is based on our total leverage ratio. The interest rate per annum applicable to the loans under the Term Loan Facility is, at our option, either LIBOR plus 2.25% or a base rate plus 1.25%; provided, however, that in no event will LIBOR be less than zero or the base rate be less than 1.00%. Additionally, we pay a commitment fee on the unused portionCompany assumed various long-term debt arrangements, financing obligations and leases, previously described, associated with Former Caesars as result of the Revolving Credit Facility of 0.50% per annum. As of June 30, 2020, the weighted average interest rates on the Term Loan and Revolving Credit Facility were 3.25% and 3.13%, respectively.
On July 20, 2020, in connection with the Merger, all amounts outstanding under the Credit Facility, including accrued interest and fees, were paid in full, the commitment to extend credit under the Credit Facility were terminated and all guarantees and security interests in respect of the Credit Facility were released.
Senior Notes
6% Senior Notes due 2026
On September 20, 2018, Delta Merger Sub, Inc. (“Escrow Issuer”), a Delaware corporation and a wholly-owned subsidiary of the Company, issued $600 million aggregate principal amount of 6.0% senior notes due 2026 (the “6% Senior Notes due 2026”) pursuant to an indenture, dated as of September 20, 2018 (the “2026 Indenture”), between Escrow Issuer and U.S. Bank, National Association, as Trustee. Interest on the 6% Senior Notes due 2026 will be paid semi-annually in arrears on March 15 and September 15.
The 6% Senior Notes due 2026 were general unsecured obligations of Escrow Issuer’s upon issuance and, upon the assumption of such obligations by the Company and the subsidiary guarantors (the “Guarantors”) upon consummation of the Tropicana Acquisition, became general unsecured obligations of the Company and the Guarantors, ranking senior in right of payment to all of the Company’s existing and future debt that is expressly subordinated in right of payment to the 6% Senior Notes due 2026 and the guarantees, ranking equally in right of payment with all of the applicable obligor’s existing and future senior liabilities, including the obligations under the Company’s existing 7% Senior Notes due 2023 and 6% Senior Notes due 2025, and are effectively subordinated to all of the applicable obligor’s existing and future secured debt, including indebtedness under the Company’s Term Loan and Revolving Credit Facility and the Lumière Note (as defined in the 2026 Indenture), in each case, to the extent of the value of the collateral securing such debt. In addition, the 6% Senior Notes due 2026 and the related guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s subsidiaries and other entities in which the Company has an equity interest that do not guarantee the 6% Senior Notes due 2026 (other than indebtedness and liabilities owed to the Company or the Guarantors).
In connection with the Merger, $210 million aggregate principal amount of the 6% Senior Notes due 2026 was redeemed on July 25, 2020 at a redemption price of 106% of such aggregate principal amount, and the remaining and outstanding principal amount of the 6% Senior Notes due 2026 was redeemed on July 26, 2020 at a redemption price of 100% of the aggregate principal amount thereof plus the Applicable Premium as defined in the 2026 Indenture.
6% Senior Notes due 2025
On March 29, 2017, Eagle II issued at par $375.0 million aggregate principal amount of 6.0% senior notes due 2025 (the “6% Senior Notes due 2025”) pursuant to an indenture, dated as of March 29, 2017 (the “2025 Indenture”), between Eagle II and U.S. Bank, National Association, as Trustee. The 6% Senior Notes due 2025 will mature on April 1, 2025, with interest
payable semi-annually in arrears on April 1 and October 1. In connection with the consummation of the Isle Acquisition on May 1, 2017,Merger. See Note 2 for a description of the Company assumed Eagle II’s obligations under the 6% Senior Notes due 2025Merger and the 2025 Indenturerelated obligations assumed and certain of the Company’s subsidiaries (including Isle and certain of its subsidiaries) executed guarantees of the Company’s obligations under the 6% Senior Notes due 2025.
On September 13, 2017, the Company issued an additional $500.0 million principal amount of its 6% Senior Notes due 2025 at an issue price equal to 105.5% of the principal amount of the 6% Senior Notes due 2025. The additional notes were issued pursuant to the 2025 Indenture that governs the 6% Senior Notes due 2025. The Company used the proceeds of the offering to repay $78.0 million of outstanding borrowings under the previous revolving credit facility and used the remainder to repay $444.5 million outstanding borrowings under the previous term loan facility and related accrued interest.
In connection with the Merger, the 6% Senior Notes due 2025 were redeemed on July 25, 2020 at a redemption price of 104.5% of the aggregate principal amount.
7% Senior Notes due 2023
On July 23, 2015, the Company issued at par $375.0 million in aggregate principal amount of 7.0% senior notes due 2023 (“7% Senior Notes due 2023”) pursuant to an indenture, dated as of July 23, 2015 (the “2023 Indenture”), between the Company and U.S. Bank, National Association, as Trustee. The 7% Senior Notes due 2023 will mature on August 1, 2023, with interest payable semi-annually in arrears on February 1 and August 1 of each year.
In connection with the Merger, the 7% Senior Notes due 2023 were redeemed on July 25, 2020 at a redemption price of 103.5% of the aggregate principal amount.
Lumière Loan
We borrowed $246.0 million from GLPI to fund the purchase price of the real estate underlying Lumière. The Lumière Loan bears interest at a rate equal to (i) 9.09% until October 1, 2019 and (ii) 9.27% until October 1, 2020, and matures on October 1, 2020. The Lumière Loan was secured by a first priority mortgage on the Lumière real property that was released pursuant to its terms on October 1, 2019. On June 24,2020, we received approval from Missouri Gaming Commission to sell Lumière to GLPI and leaseback the property under a long term financing obligation. The loan is scheduled to mature during 2020; however, we have classified the loan balance as long-term debt as of June 30, 2020 as the Lumière real estate will be refinanced under a long-term lease, or financing obligation, during the third quarter of 2020.
GLPI Master Lease
Our GLPI Master Lease is accounted for as a financing obligation and totaled $975.8 million as of June 30, 2020. Additionally, our GLPI Master Lease contains certain operating, capital expenditure and financial covenants thereunder, and our ability to maintain compliance with these covenants was also negatively impacted. On June 15, 2020, we entered into an amendment to the GLPI Master Lease which, among other things, provides certain relief under these covenants in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. Subsequent to June 30, 2020, the amendment to the GLPI Master Lease became effective as we obtained all necessary approvals and the applicable waiting period expired. See Note 10 to our Consolidated Financial Statements8 for additional information about our GLPI Master Lease and related matters.
Contractual Obligations
contractual obligations. There have been no material changes during the sixthree months ended June 30, 2020March 31, 2021 to our contractual obligations as disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.
Summarized Information of Guarantors
Certain of our wholly-owned subsidiaries have fully and unconditionally guaranteed on a joint and several basis, the payment of all obligations under our 7% Senior Notes due 2023, 6% Senior Notes due 2025, 6% Senior Notes due 2026 and Credit Facility. There were no changes in our wholly-owned subsidiaries serving as guarantors, on a joint and several basis during the six months ended June 30, 2020. Our debt obligations as of June 30, 2020 are considered to be obligations of Eldorado Resorts, Inc., prior to the consummation of the Merger and our subsequent name change.
The consolidating condensed balance sheet as of June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Obligor Group | | Non-Obligors | | Consolidating and Eliminating Entries | | Eldorado Resorts, Inc. Consolidated |
| (in thousands) | | | | | | |
Current assets | $ | 1,512,907 | | | $ | 21,830 | | | $ | — | | | $ | 1,534,737 | |
Intercompany (payables) receivables | (7,831) | | | 7,831 | | | — | | | — | |
Other non-current assets | 4,609,918 | | | 3,792 | | | — | | | 4,613,710 | |
Current liabilities | 461,638 | | | 14,364 | | | — | | | 476,002 | |
Non-current liabilities | 4,057,595 | | | (1,599) | | | — | | | 4,055,996 | |
The consolidating condensed balance sheet as of December 31, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Obligor Group | | Non-Obligors | | Consolidating and Eliminating Entries | | Eldorado Resorts, Inc. Consolidated |
| (in thousands) | | | | | | |
Current assets | $ | 582,918 | | | $ | 21,725 | | | $ | — | | | $ | 604,643 | |
Intercompany receivables (payables) | 1,790 | | | (1,790) | | | — | | | — | |
Other non-current assets | 8,876,547 | | | 13,768 | | | (3,854,405) | | | 5,035,910 | |
Current liabilities | 673,403 | | | 15,043 | | | — | | | 688,446 | |
Non-current liabilities | 3,836,939 | | | (2,089) | | | — | | | 3,834,850 | |
The consolidating condensed statement of operations for the three months ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Obligor Group | | Non-Obligors | | Consolidating and Eliminating Entries | | Eldorado Resorts, Inc. Consolidated |
| (in thousands) | | | | | | |
Net revenues | $ | 125,514 | | | $ | 956 | | | $ | — | | | $ | 126,470 | |
Operating (loss) income | (79,253) | | | 926 | | | — | | | (78,327) | |
Interest expense, net | (68,280) | | | 144 | | | — | | | (68,136) | |
Net (loss) income | (100,845) | | | 849 | | | — | | | (99,996) | |
The consolidating condensed statement of operations for the three months ended June 30, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Obligor Group | | Non-Obligors | | Consolidating and Eliminating Entries | | Eldorado Resorts, Inc. Consolidated |
| (in thousands) | | | | | | |
Net revenues | $ | 635,597 | | | $ | 1,524 | | | $ | — | | | $ | 637,121 | |
Operating (loss) income | 101,623 | | | 927 | | | — | | | 102,550 | |
Interest expense, net | (71,310) | | | (488) | | | — | | | (71,798) | |
Net (loss) income | 78,757 | | | 198 | | | (60,019) | | | 18,936 | |
The consolidating condensed statement of operations for the six months ended June 30, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Obligor Group | | Non-Obligors | | Consolidating and Eliminating Entries | | Eldorado Resorts, Inc. Consolidated |
| (in thousands) | | | | | | |
Net revenues | $ | 597,373 | | | $ | 2,166 | | | $ | — | | | $ | 599,539 | |
Operating (loss) income | (204,125) | | | 2,618 | | | — | | | (201,507) | |
Interest expense, net | (134,954) | | | 354 | | | — | | | (134,600) | |
Net (loss) income | (278,167) | | | 2,533 | | | — | | | (275,634) | |
The consolidating condensed statement of operations for the six months ended June 30, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Obligor Group | | Non-Obligors | | Consolidating and Eliminating Entries | | Eldorado Resorts, Inc. Consolidated |
| (in thousands) | | | | | | |
Net revenues | $ | 1,264,937 | | | $ | 8,007 | | | $ | — | | | $ | 1,272,944 | |
Operating income | 223,656 | | | 2,498 | | | — | | | 226,154 | |
Interest expense, net | (144,575) | | | (733) | | | — | | | (145,308) | |
Net income (loss) | 188,242 | | | 1,196 | | | (132,273) | | | 57,165 | |
Other Liquidity Matters
We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in “Part II, Item 1. Legal Proceedings” and Note 148 to our unaudited consolidated condensed financial statements, both of which are included elsewhere in this report. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See “Part I, Item 1A. Risk Factors—Risks Related to Our Business” which is included in our Annual Report on Form 10-K for the year ended December 31, 2019 and “Part II, Item IA. Risk Factors” which is included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
Critical Accounting Policies
Our critical accounting policies disclosures are included in our Annual Report on Form 10-K for the year ended December 31, 2019. Except as described in Note 1 to the accompanying condensed notes of these consolidated financial statements, we believe there2020. There have been no material changes since December 31, 2019.2020. We have not substantively changed the application of our policies and there have been no material changes in assumptions or estimation techniques used as compared to prior periods.
those described in our Annual Report on Form 10-K for the year ended December 31, 2020.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements.
ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We are exposed to changes in interest rates primarily from long-term variable-rate debt arrangements.
As of June 30, 2020, interest on borrowings under our Credit Facility was subject to fluctuation based on changes in short-term interest rates.
As of June 30, 2020,March 31, 2021, our long-term variable-rate borrowings totaled $488.8 million$6.3 billion under the Term LoanCRC term loans and $108.0 million wasno amounts were outstanding under the CEI Revolving Credit Facility and CRC Revolving Credit Facility. Long-term variable-rate borrowings under the Term Loan and the Revolving Credit FacilityCRC term loans represented approximately 22%42% of our long-term debt as of June 30, 2020.March 31, 2021. Of our $15.0 billion face value of debt, as of March 31, 2021, we have entered into seven interest rate swap agreements to fix the interest rate on $2.3 billion of variable rate debt, and $4.0 billion of debt remains subject to variable interest rates for the term of the agreement. During the sixthree months ended June 30, 2020,March 31, 2021, the weighted average interest rates on our variable and fixed rate debt were 3.23%3.36% and 6.56%6.40%, respectively.
LIBORThe London Inter-bank Offered Rate (“LIBOR”) is expected to be discontinued after 2021. The interest rate per annum applicable to loans under our credit facilities is, at our option, either LIBOR plus a margin or a base rate plus a margin. We intend to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
On October 9, 2020, the Company entered into a foreign exchange forward contract to hedge the risk of appreciation of the GBP denominated purchase price related to William Hill PLC, pursuant to which the Company agreed to purchase £536 million at a contracted exchange rate. On March 25, 2021, the forward contract was settled, for which the Company received $41 million in proceeds.
Subsequent to March 31, 2021, the Company entered into foreign exchange swap agreements in order to mitigate the risk of changes in foreign currency exchange rates. We are contracted to purchase £237 million at a contracted rate which we expect to settle in June 2021. We have also contracted to sell £487 million that we expect to settle in December 2021. We may elect to enter into additional such agreements as we continue to mitigate our exposure to changes in foreign currency exchange rates.
We evaluate our exposure to market risk by monitoring interest rates in the marketplace and have, on occasion, utilized derivative financial instruments to help manage this risk. We do not utilize derivative financial instruments for trading purposes. There were no other material quantitative changes in our market risk exposure, or how such risks are managed, for the sixthree months ended June 30, 2020.March 31, 2021.
ITEMItem 4. CONTROLS AND PROCEDURES.Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, evaluated and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q are effective to ensure that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized, evaluated and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
(b)Changes in Internal Controls
The Company continues to integrate our internal controls over financial reporting following the Merger. As a result of these integration activities, certain controls will be evaluated and may be changed.
There were no changes in our internal control over financial reporting during the three months ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
- OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
We areFor a party to various lawsuits, which have arisen in the normal coursediscussion of our business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the estimated losses associated with those lawsuits is not material“Legal Proceedings,” refer to Note 8 to our consolidated condensed financial condition and those estimated losses are not expected to have a material impactstatements located elsewhere in this Quarterly Report on our results of operations.
Legal matters are discussed in greater detail in “Part I, Item 3. Legal Proceedings”Form 10-Q and Note 1711 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Cautionary Statement Regarding Forward-Looking Information
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information. When used in this report, the terms or phrases such as “anticipates,” “believes,” “projects,” “plans,” “intends,” “expects,” “might,” “may,” “estimates,” “could,” “should,” “would,” “will likely continue,” and variations of such words or similar expressions are intended to identify forward-looking statements. Specifically, forward-looking statements may include, among others, statements concerning:
•the impact of the COVID-19 public health emergency on our business and financial condition;
•projections of future results of operations or financial condition;
•our ability to consummate the disposition of MontBleu, Eldorado Shreveport and certain of our other properties, including the planned sale of William Hill’s non-U.S. operations and the required divestitures of certain properties located in Indiana;
•expectations regarding our business and results of operations of our existing casino properties and prospects for future development;
•expectations regarding trends that will affect our market and the gaming industry generally and the impact of those trends on our business and results of operations;
•our ability to comply with the covenants in the agreements governing our outstanding indebtedness and leases;
•our ability to meet our projected debt service obligations, operating expenses, and maintenance capital expenditures;
•expectations regarding availability of capital resources;
•our intention to pursue development opportunities, including the development of a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the Pompano casino and racetrack, and additional acquisitions and divestitures;
•our ability to realize the anticipated benefits of the acquisition of CaesarsMerger, William Hill Acquisition and future development and acquisition opportunities; and
•the impact of regulation on our business and our ability to receive and maintain necessary approvals for our existing properties and future projects and operation of online sportsbook, poker and gaming
Any forward-looking statements are based upon underlying assumptions, including any assumptions mentioned with the specific statements, as of the date such statements were made. Such assumptions are in turn based upon internal estimates and analyses of market conditions and trends, management plans and strategies, economic conditions and other factors. Such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control, and are subject to change. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend upon future circumstances that may not occur. Actual results may differ materially from any future results, performance or achievements expressed or implied by such statements. Forward-looking statements speak only as of the date they are made, and we assume no duty to update forward-looking statements. Forward-looking statements should not be regarded as a representation by us or any other person that the forward-looking statements will be
achieved. Undue reliance should not be placed on any forward-looking statements. Some of the contingencies and uncertainties to which any forward-looking statement contained herein are subject include, but are not limited to, the following:
•the extent and duration of the impact of the global COVID-19 public health emergency on the Company’s business, financial results and liquidity;
•the duration of closure of our properties, which we cannot predict at this time;
•the impact and cost of new operating procedures expected to be implemented upon re-opening of the Company’s casinos;
•the impact of actions we have undertaken to reduce costs and improve efficiencies to mitigate losses as a result of the COVID-19 public health emergency, which could negatively impact guest loyalty and our ability to attract and retain our employees;
•the impact of the COVID-19 public health emergency and resulting unemployment and changes in general economic conditions on discretionary consumer spending and customer demand;
•our substantial indebtedness and significant financial commitments, including our obligations under our lease arrangements, could adversely affect our results of operations and our ability to service such obligations, react to changes in our markets and pursue development and acquisition opportunities;
•restrictions and limitations in agreements governing our debt and leased properties could significantly affect our ability to operate our business and our liquidity;
•risks relating to payment of a significant portion of our cash flow as debt service and rent under the GLPI Master Lease;leases of our casino properties with VICI and GLPI;
•financial, operational, regulatory or other potential challenges that may arise as a result of leasing of a number of our properties;
•our facilities operate in very competitive environments and we face increasing competition including through legalization of online betting and gaming;
•uncertainty regarding legalization of betting and online gaming in the jurisdictions in which we operate and conditions applicable to obtaining the licenses required to enable our betting and online gaming partnersus to conduct betting and online gaming activities;
•the ability to identify suitable acquisition opportunities and realize growth and cost synergies from any future acquisitions;
•future maintenance, development or expansion projects will be subject to significant development and construction risks;
•our gaming operations are highly regulated by governmental authorities and the cost of complying or the impact of failing to comply with such regulations;
•changes in gaming taxes and fees in jurisdictions in which we operate;
•risks relating to pending claims or future claims that may be brought against us;
•changes in interest rates and capital and credit markets;
•our ability to comply with certain covenants in our debt documents and lease arrangements;
•the effect of disruptions to our information technology and other systems and infrastructure;
•our ability to attract and retain customers;
•weather or road conditions limiting access to our properties;
•the effect of war, terrorist activity, acts of violence, natural disasters, public health emergencies and other catastrophic events;
•the intense competition to attract and retain management and key employees in the gaming industry; and
•other factors described in Part II, Item 1A. “Risk Factors” contained herein and our reports on Form 10-K, Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.
In addition, the acquisition of William Hill and the disposition of Evansville, Southern Indiana, Baton Rouge, Harrah’s Louisiana Downs and certain of our other properties, including the planned sale of William Hill’s non-U.S. operations and the required divestitures of certain properties located in Indiana, create additional risks, uncertainties and other important factors, including but not limited to:
•the possibility that we are not able to enter into agreements to sell assets that we intend to divest on terms that are acceptable to us;
•the possibility that post-closing regulatory approvals of the acquisition of William Hill PLC impose conditions or are not obtained;
•the possibility that the proposed transactions are not consummated when expected or at all because required regulatory or other approvals are not received or other conditions to the consummation thereof are not satisfied on a timely basis or at all;
•the possibility that one or more of such transactions do not close on the terms described herein or that we are required to modify aspects of one or more of such transactions to obtain, or otherwise take action to satisfy conditions imposed in connection with, required regulatory approvals;
•risks associated with increased leverage as a result of the William Hill Acquisition;
•the possibility that the anticipated benefits of the proposed transactions are not realized when expected or at all;
•the incurrence of significant transaction and acquisition-related costs and the possibility that the transactions may be more expensive to complete than expected;
•competitive responses to the proposed transactions;
•legislative, regulatory and economic developments;
•the possibility that our business or William Hill’s business may suffer as a result of the announcement of the acquisition;
•the ability to retain certain of our key employees and William Hills’ key employees;
•the outcome of legal proceedings that may be instituted as a result of the proposed transactions;
•the impact of the proposed transactions, or the failure to consummate the proposed transactions, on our stock price;
•diversion of management’s attention from our ongoing operations; and
•the impact of the announcement or consummation of the proposed transactions on the Company’s relationships with third parties, which may make it more difficult to maintain business relationships.
In light of these and other risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. These forward-looking statements speak only as of the date on which this statement is made, even if subsequently made available on our website or otherwise, and we do not intend to update publicly any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.
You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.
ITEMItem 1A. RISK FACTORSRisk Factors
A description of our risk factors can be found in “Part I, Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. There have been no material changes to those risk factors during the sixthree months ended June 30, 2020, except for the following additional risk factors related to the impact of COVID-19 and the Merger.
The outbreak of COVID-19 has impacted our operations and caused an economic downturn, widespread unemployment and an adverse impact on consumer sentiment. Such negative impacts could continue for an extended period of time and may worsen.
On March 13, 2020, in response to the coronavirus public health emergency the U.S. government declared a national state of emergency. In an effort to help control the spread of COVID-19, public health officials imposed or recommended various measures, including social distancing, quarantine and stay-at- home or shelter-in-place directives, limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, and cancellation of events, including sporting events, concerts, conferences and meetings. As a result of orders issued by governmental authorities in the states in which our properties, all of our properties were closed beginning on March 18, 2020. While our properties have reopened, our operations, financial results and cash flows have been affected by social distancing measures, including reduced gaming operations arising from the reconfiguration of our gaming floor, limitations on the number of customers present in our facilities, implementation of additional health and safety measures, restrictions on hotel, food and beverage outlets and limits on concerts, conventions or special events that would otherwise attract customers to our properties. We expect that our operations will continue to be impacted by such restrictions for the foreseeable future. In addition, our operations, financial results and cash flows would be further adversely affected by the implementation or extension of new or existing restrictions, including reinstatement of shelter-in-place requirements or additional restrictions on travel and business operations. The implementation of stay-at-home or additional social distancing and mitigation measures in response to COVID-19 or other public health emergencies could cause future closures of all or a portion of our properties, which would adversely affect operations, financial results and cash flows.
COVID-19 has materially adversely affected the economy and financial markets of the United States and the world and has resulted in widespread unemployment in the United States. Consumer demand for casino hotel and racetrack properties such as ours is particularly sensitive to downturns in the economy, unemployment and the associated impact on discretionary spending on leisure activities which bring demand for casino hotel properties such as ours. Reduced customer demand could result in lower occupancy rates, reduced visitation and additional disruptions in our casino business. The extent of changes in customer demand resulting from the economic downturn, widespread unemployment, reduced consumer confidence and consumer fears on our properties cannot reasonably be determined, but the impact of such factors may be significant and protracted.
As a result of the foregoing, we cannot predict the ultimate scope, duration and impact of the COVID-19 public health emergency, but we expect that it will continue to have a material impact on our business, financial condition, liquidity, results of operations (including revenues and profitability) and stock price for an extended period of time. The impact of the COVID-19 public health emergency may also have the effect of exacerbating many of the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2019.
We have undertaken aggressive actions to reduce costs and improve efficiencies to mitigate losses as a result of the COVID-19 public health emergency, which could negatively impact guest loyalty and our ability to attract and retain employees.
As a result of the closure of all of our properties and the continued uncertainty regarding the duration and severity of this public health emergency, we have taken steps to reduce operating costs and improve efficiencies, including furloughing approximately 90% our employees while our casinos were closed. Such steps, and further changes we may make in the future to reduce costs, may negatively impact guest loyalty or our ability to attract and retain employees, and our reputation may suffer as a result. While a significant number of our employees returned to work once our casinos reopened, our operations continue to be affected by COVID-19 and our full work force has not returned. If our furloughed employees do not return to work with us when the COVID-19 public health emergency subsides, including because they find new employment during the furlough, we may experience operational challenges that may impact our ability to resume operations in full. We may also face demands or requests from labor unions that represent our employees, whether in the course of our periodic renegotiation of our collective bargaining agreements, for additional health and safety measures, compensation, healthcare benefits or other terms as a result of COVID-19 that could increase costs, and we could experience labor disputes or disruptions as we continue to implement our COVID-19 mitigation plans.2021.
ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
None.During the quarter ended March 31, 2021, we issued 196 shares of unregistered Company Common Stock to holders of 5% Convertible Notes due 2024 upon conversion of $14 thousand in aggregate principal amount of such notes. For further information regarding such transactions, see Note 7, Fair Value Measurements, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The shares of common stock were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended.
ITEMItem 3. DEFAULTS UPON SENIOR SECURITIES.Defaults Upon Senior Securities
None.
ITEMItem 4. MINE SAFETY DISCLOSURES.Mine Safety Disclosures
Not applicable.
ITEMItem 5. OTHER INFORMATION.Other Information
None.
ITEMItem 6. EXHIBITS.Exhibits
| | | | | | | | | | | | | | | | |
Exhibit
Number | | Description of Exhibit | | Method of Filing | | |
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10.13.1 | | Second Amendment to Amended and Restated Commitment Letter, dated asCertificate of June 15, 2020, by and among Eldorado Resorts, Inc., JPMorgan Chase Bank, N.A., Credit Suisse AG, Cayman Islands Branch, Credit Suisse Loan Funding LLC, Macquarie Capital Funding LLC, Macquarie Capital (USA) Inc., BankIncorporation of America, N.A., BofA Securities, Inc., Deutsche Bank Securities Inc., Deutsche Bank AG, New York Branch, Deutsche Bank AG Cayman Islands Branch, Goldman Sachs Bank USA, Trust Bank, SunTrust Robinson Humphrey, Inc., U.S. Bank National Association, KeyBank National Association, KeyBanc Capital Markets Inc., Fifth Third Bank and Citizens Bank, National Association. | | Previously filed on Form 8-K filed on June 15, 2020. |
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10.2 | | Additional Revolving Commitment Side Letter, dated as of June 15, 2020, by and among Eldorado Resorts, Inc., JPMorgan Chase Bank, N.A., Credit Suisse AG, Cayman Islands Branch, Credit Suisse Loan Funding LLC, Deutsche Bank AG, New York Branch, Bank of America, N.A., Citizens Bank, National Association and Goldman Sachs Lending Partners LLC. | | Previously filed on Form 8-K filed on June 15, 2020. |
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10.3 | | | | Previously filed on Form 8-K filed on June 15, 2020. |
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10.4 | | | | Previously filed on Form 8-K filed on June 15,July 21, 2020. | | |
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3.2 | | | | Previously filed on Form 8-K filed on July 21, 2020. | | |
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†10.1 | | | | Filed herewith. | | |
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31.1 | | | | Filed herewith. | | |
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31.2 | | | | Filed herewith. | | |
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32.1 | | | | Filed herewith. | | |
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32.2 | | | | Filed herewith. | | |
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99.1 | | | | Filed herewith. | | |
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101.1 | | Inline XBRL Instance Document | | Filed herewith. | | |
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101.2 | | Inline XBRL Taxonomy Extension Schema Document | | Filed herewith. | | |
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101.3 | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith. | | |
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101.4 | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith. | | |
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101.5 | | Inline XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith. | | |
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101.6 | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith. | | |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | Filed herewithherewith. | | |
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† | | Denotes a management contract or compensatory plan or arrangement. | |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CAESARS ENTERTAINMENT, INC. |
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Date: August 6, 2020May 4, 2021 | /s/ Thomas R. Reeg |
| Thomas R. Reeg Chief Executive Officer (Principal Executive Officer) |
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Date: August 6, 2020May 4, 2021 | /s/ Bret Yunker |
| Bret Yunker Chief Financial Officer (Principal Financial Officer) |