CAESARS ENTERTAINMENT, INC. The following discussion and analysis of the financial position and operating results ofCaesars Entertainment, Inc. , aDelaware corporation, and its consolidated subsidiaries, which may be referred to as the "Company," "CEI," "Caesars," "we," "our," or "us," for the three and nine months endedSeptember 30, 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 endedDecember 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 refer to (i) our Consolidated Condensed Financial Statements as our "Financial Statements," (ii) our Consolidated Condensed Balance Sheets as our "Balance Sheets," (iii) our Consolidated Condensed Statements of Operations and Consolidated Condensed Statements of Comprehensive Income (Loss) as our "Statements of Operations," and (iv) our Consolidated Condensed Statements of Cash Flows as our "Statements of Cash Flows." 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 the 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 analyzed; and (iii) to 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 that was founded in 1973 by the Carano family with the opening of theEldorado Hotel Casino inReno, Nevada . We partnered with MGM Resorts International to buildSilver Legacy Resort Casino inReno, Nevada in 1993 and, beginning in 2005, we grew through a series of acquisitions, including the acquisition ofEldorado Resort Casino Shreveport ("Eldorado Shreveport") in 2005,MTR Gaming Group, Inc. in 2014, Circus 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 andGrand Victoria Casino andTropicana Entertainment, Inc. in 2018. OnJuly 20, 2020 , we completed the merger withCaesars Entertainment Corporation ("Former Caesars") pursuant to which Former Caesars became our wholly-owned subsidiary (the "Merger"). OnApril 22, 2021 , we completed the acquisition ofWilliam Hill PLC for £2.9 billion, or approximately$3.9 billion (the "William Hill Acquisition"). We own, lease, brand or manage an aggregate of 53 domestic properties in 16 states with approximately 56,000 slot machines, video lottery terminals and e-tables, approximately 2,900 table games and approximately 46,500 hotel rooms as ofSeptember 30, 2021 . In addition, we have other domestic and international properties that are authorized to use the brands and marks ofCaesars 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 to continue to own, lease, brand or manage 51 properties. Our primary source of revenue is generated by our casino properties' gaming operations, as well as online gaming, 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 lease 27 casinos in theU.S. We lease 19 casinos fromVICI Properties L.P. , aDelaware limited partnership ("VICI") pursuant to a regional lease, aLas Vegas lease and a Joliet lease. In addition, we lease seven casinos fromGLP Capital, L.P. , the operating partnership of Gaming and Leisure Properties, Inc. ("GLPI") pursuant to aMaster Lease (as amended, the "GLPI Master Lease") and a Lumière lease. Additionally, we lease theRio All-Suite Hotel & Casino from a separate third party.
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We also operate and conduct sports wagering across 18 states plus the District
of Columbia , 14 of which are mobile for sports betting, and operate regulated
online real money gaming businesses in five states. Our recently launched
Caesars Sportsbook app operates on the Liberty technology platform, which we
acquired in the William Hill Acquisition along with other technology platforms
that we intend to migrate to the Liberty technology platform in the future,
subject to required approvals. The map below illustrates Caesars Digital's
presence as of September 30, 2021 :
[[Image Removed: czr-20210930_g1.jpg]]
Subsequent to September 30, 2021 , we launched retail sports in Louisiana and are
in the process of expanding our Caesars Digital footprint into other states in
the near term.
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44-------------------------------------------------------------------------------- We periodically divest of assets in order to raise capital or as a result of a determination that the assets are not core to our business. We also divested certain assets in connection with regulatory approvals related to closing of the Merger. A summary of recently completed and planned divestitures of our properties as ofSeptember 30, 2021 is as follows: Segment Property Date Sold Location Isle of Capri Casino Kansas City ("Kansas Regional City") July 1, 2020 Missouri Regional Lady Luck Casino Vicksburg ("Vicksburg") July 1, 2020 Mississippi Regional Eldorado Resort Casino Shreveport December 23, 2020 (a) Louisiana Regional MontBleu Casino Resort & Spa ("MontBleu") April 6, 2021 (a) Nevada Regional Tropicana Evansville ("Evansville") June 3, 2021 (b) Indiana Belle of Baton Rouge Casino & Hotel N/A (c) Louisiana Regional ("Baton Rouge") Discontinued operations (d): Regional Harrah's Louisiana Downs November 1, 2021 (e) Louisiana September 3, 2021 Regional Caesars Southern Indiana (b)(f) Indiana N/A Emerald Resort & Casino July 16, 2021 (g) South Africa N/A Caesars Entertainment UK July 16, 2021 (g) United Kingdom N/A William Hill International N/A (h) United Kingdom ___________________ (a)OnApril 24, 2020 , we entered into a definitive purchase agreement withBally's Corporation (formerlyTwin River Worldwide Holdings, Inc. ) and certain of its affiliates for the sale of the equity interests ofEldorado Resort Casino Shreveport Joint Venture andColumbia Properties Tahoe, LLC , the entities that hold Eldorado Shreveport and MontBleu for aggregate consideration of$155 million , subject to a customary working capital adjustment. The sale of Eldorado Shreveport closed onDecember 23, 2020 and the sale of MontBleu closed onApril 6, 2021 . As a result of the sale of MontBleu, an impairment charge totaling$45 million was recorded during the nine months endedSeptember 30, 2020 due to the carrying value exceeding the estimated net sales proceeds from the sale. (b)In connection with its review of the Merger, theIndiana Gaming Commission ("IGC") determined onJuly 16, 2020 that, as a condition to their approval of the Merger, we were initially required to divest three properties within the state ofIndiana in order to avoid undue economic concentration. OnOctober 27, 2020 , the Company entered into an agreement to sellEvansville to GLPI andBally's Corporation for$480 million in cash, subject to a customary working capital adjustment. The sale ofEvansville closed onJune 3, 2021 . In addition, onDecember 24, 2020 , the Company entered into an agreement to divest of CaesarsSouthern Indiana (see (f) below). OnJune 24, 2021 , the IGC amended its order that previously required the Company to sell a third property and, as a result, we are not required to sell Horseshoe Hammond. (c)OnDecember 1, 2020 , the Company entered into an agreement to sell theBaton Rouge toCQ 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 fourth quarter of 2021 and is subject to regulatory approvals, and other customary closing conditions. (d)These Former Caesars properties and William Hill's non-U.S. operations met held for sale criteria as of their acquisition dates. These properties are classified as discontinued operations as ofSeptember 30, 2021 . (e)OnSeptember 3, 2020 , the Company and VICI entered into an agreement withRubico 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. OnNovember 1, 2021 , the sale of Harrah'sLouisiana Downs was completed. (f)OnDecember 24, 2020 , the Company entered into an agreement to sell CaesarsSouthern Indiana to theEastern 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 entered into a long-term license agreement for the continued use of the Caesars brand and Caesars Rewards loyalty program at Caesars Southern Indiana. The sale of Caesars Southern Indiana closed onSeptember 3, 2021 . (g)OnJune 10, 2021 , the Company entered into an agreement withMetropolitan Gaming Limited to sellCaesars Entertainment UK , including the interest inEmerald Resort & Casino (together, "Caesars UK Group "), in which the buyer assumed all liabilities associated with theCaesars UK Group . The sale closed onJuly 16, 2021 . (h)OnSeptember 8, 2021 , the Company entered into an agreement with 888 Holdings Plc. to sellWilliam Hill International for £2.2 billion, 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 first quarter of 2022. Merger and Acquisition Related Activities Merger withCaesars Entertainment Corporation OnJuly 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 •Diversification of the Company's domestic footprint •Access to iconic brands, rewards programs and new gaming opportunities expected to enhance customer experience •Realization of significant identified synergies
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The total purchase consideration for Former Caesars was $10.9 billion . The
estimated purchase consideration in the acquisition was determined with
reference to its acquisition date fair value.
The Company recognized acquisition-related transaction costs in connection with
the Merger of $6 million and $107 million for the three months ended
September 30, 2021 and 2020, respectively, and recognized $21 million and
$129 million during the nine months ended September 30, 2021 and 2020,
respectively. These costs were associated with legal, IT costs, internal labor
and professional services and were recorded in Transaction costs and other
operating costs in our Statements of Operations.
William Hill Acquisition
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. 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 $3.9 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 (as defined below). The
Bridge Credit Agreement provides for (a) a 540-day £1.0 billion asset sale
bridge facility, (b) a 60-day £503 million cash confirmation bridge facility and
(c) a 540-day £116 million revolving credit facility (collectively, the "Debt
Financing"). The proceeds of the bridge loan facilities provided under the
Bridge Credit Agreement were used (i) to pay a portion of the cash consideration
for the acquisition and (ii) to pay fees and expenses related to the acquisition
and related transactions. The proceeds of the revolving credit facility under
the Bridge Credit Agreement may be used for working capital and general
corporate purposes. The £1.5 billion Interim Facilities Agreement ("Interim
Facilities Agreement") entered into on October 6, 2020 with Deutsche Bank AG,
London Branch and JPMorgan Chase Bank, N.A ., and amended on December 11, 2020 ,
was terminated upon the execution of the Bridge Credit Agreement. On May 12,
2021 , the Company repaid the £503 million cash confirmation bridge facility. On
June 14, 2021 , the Company drew down the full £116 million from the revolving
credit facility and the proceeds, in addition to excess Company cash, were used
to make a partial repayment of the asset sale bridge facility in the amount of
£700 million. Outstanding borrowings under the Bridge Credit Agreement are
expected to be repaid upon the sale of William Hill's non-U.S. operations
including the UK and international online divisions and the retail betting shops
(collectively, "William Hill International "), all of which are held for sale and
related activity is reflected within discontinued operations. Certain
investments acquired will be excluded from the held for sale group.
On September 8, 2021 , we entered into an agreement to sell William Hill
International to 888 Holdings Plc for approximately £2.2 billion. After
repayment of the outstanding debt under the Bridge Credit Agreement, described
above, and other working capital adjustments, the Company expects to receive
approximately £835 million, or $1.2 billion . The sale is subject to satisfaction
of customary conditions, including receipt of the approval of shareholders of
888 Holdings Plc and regulatory approvals, and is expected to close in the first
quarter of 2022.
We recognized acquisition-related transaction costs of $5 million and
$60 million for the three and nine months ended September 30, 2021 ,
respectively, excluding additional transaction cost associated with sale of
William Hill International . These costs were associated with legal and
professional services and were recorded in Transaction costs and other operating
costs in our Statements of Operations.
Consolidation of Baltimore
On August 26, 2021 , we increased our ownership interest in CBAC Borrower, LLC
("Horseshoe Baltimore"), a property which we also manage, to approximately
75.8%. We were subsequently determined to have a controlling financial interest
in Horseshoe Baltimore and we began to consolidate the results of operations of
the property following our change in ownership. As a result of the increase in
our ownership interest, our previously held investment was remeasured and we
recognized a gain of $40 million during the nine months ended September 30,
2021 . Management fees received prior to the consolidation event have been
presented within our Managed and Branded segment. Following the increase in our
ownership the operations of Horseshoe Baltimore are presented within our
Regional segment.
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Partnerships and Acquisition Opportunities
NeoGames
The acquired net assets of William Hill included an investment in NeoGames S.A.
("NeoGames"), a global leader of iLottery solutions and services to national and
state-regulated lotteries, and other investments. On September 16, 2021 , the
Company sold a portion of its shares of NeoGames common stock for $136 million
which decreased the Company's ownership interest from 24.5% to approximately
8.4%. As of September 30, 2021 , the Company held approximately 2 million shares
of NeoGames common stock with a fair value of $79 million . The shares have a
readily determinable fair value and, accordingly, the Company remeasures the
investment based on the publicly available share price (Level 1). For the three
and nine months ended September 30, 2021 , the Company recorded a loss of
approximately $158 million and $35 million , respectively, which is included
within Other income (loss) on the Statements of Operations.
The Stars Group/Flutter Entertainment
In November 2018 , we entered into an agreement with The Stars Group Inc., which
was subsequently acquired by Flutter Entertainment PLC ("Flutter") to provide
options to obtain access to our second skin for online sports wagering and third
skin for real money online gaming and poker with respect to our properties in
the U.S. Under the terms of the agreement, we received common shares, as a
revenue share from certain operations of Flutter under our licenses. As of
December 31, 2020 , the fair value of shares held was $10 million , and was
included in Prepayments and other current assets on the Balance Sheets.
On July 7, 2021 , the Company sold all remaining Flutter shares for $9 million .
The Company recorded a realized loss of $1 million during the nine months ended
September 30, 2021 , and unrealized gains of $5 million and $8 million during the
three and nine months ended September 30, 2020 , respectively, which were
included in Other income (loss) on the Statements of Operations.
Pompano Joint Venture
In April 2018 , we entered into a joint venture with Cordish Companies
("Cordish") to plan and develop a mixed-use entertainment and hospitality
destination expected to be located on unused land adjacent to the casino and
racetrack at 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. In June 2021 , the joint venture issued a capital call and we
contributed $3 million . We have made cash contributions totaling $4 million and
have contributed land. On February 12, 2021 , we contributed 186 acres to the
joint venture with a fair value of $61 million . Total contributions of
approximately 206 acres of land have been made with a fair value of
approximately $69 million and we have no further obligation to contribute
additional real estate or cash as of September 30, 2021 . We entered into a
short-term lease agreement in February 2021 , which we can cancel at any time, to
lease back a portion of the land from the joint venture.
While we hold a 50% variable interest in the joint venture, we are not the
primary beneficiary. 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 are included in Transaction 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 Balance Sheets.
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Reportable Segments
The following table sets forth certain information regarding our properties
(listed by segment in which each property is reported) as of September 30, 2021 :
Las Vegas Regional Managed and Branded
Bally's Las Vegas (a) Eldorado Resort Casino Harrah's Atlantic City (a)
Reno Managed
Caesars Palace Las Silver Legacy Resort Harrah's Laughlin (a) Harrah's Ak-Chin (a)
Vegas (a) Casino
The Cromwell (a) Circus Circus Reno Harrah's New Orleans (a) Harrah's Cherokee (a)
Flamingo
Harrah's Cherokee Valley
Spa (c) River (a)
Harrah's
Harrah's Resort Southern
Casino California (a)
The LINQ Hotel & Casino Isle Casino Hotel - Black Caesars Atlantic City (a) Caesars Windsor (a)
(a) Hawk
Paris Las Vegas (a) Lady Luck Casino - Black Harrah's Council Bluffs (a) Caesars Dubai (a)
Hawk
Planet Hollywood Resort Isle Casino Waterloo Harrah's Gulf Coast (a)
& Casino (a)
Rio All-Suite Hotel & Isle Casino Bettendorf Harrah's Joliet (a)
Casino (a) Branded
Isle of Capri Casino Harrah's Lake Tahoe (a) Caesars Southern Indiana
Boonville (a)(e)
Caesars Digital Isle Casino Racing Pompano Harrah's Louisiana Downs Harrah's Northern
Park (a)(b) California (a)
Caesars Digital Isle of Capri Casino Hotel Harrah's Metropolis (a)
Lake Charles
Belle of Baton Rouge Harrah's North Kansas City
Casino & Hotel (g) (a)
Isle of Capri Casino Lula Harrah's Philadelphia (a)
Trop Casino Greenville Harveys Lake Tahoe (a)
Eldorado Gaming Scioto Horseshoe Baltimore (a)(f)
Downs
Tropicana Casino and Horseshoe Bossier City (a)
Resort, Atlantic City
Grand Victoria Casino Horseshoe Council Bluffs (a)
Lumière Place Casino Horseshoe Hammond (a)
Tropicana Evansville (d) Horseshoe Tunica (a)
___________________
(a)These properties were acquired from the Merger on July 20, 2020 .
(b)On September 3, 2020 , the Company entered into an agreement to sell Harrah's
Louisiana Downs, which met the requirements for presentation as discontinued
operations as of September 30, 2021 . On November 1, 2021 , the sale of Harrah's
Louisiana Downs was completed.
(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 . The sale of Evansville closed on June 3, 2021 .
(e)On December 24, 2020 , the Company entered into an agreement to sell Caesars
Southern Indiana . The sale of Caesars Southern Indiana closed on September 3,
2021 . Additionally, the Company and Eastern Band of Cherokee Indians extended
their existing relationship by entering into a long-term license agreement for
the continued use of the Caesars brand and Caesars Rewards loyalty program at
Caesars Southern Indiana.
(f)On August 26, 2021 , the Company increased its ownership interest in Horseshoe
Baltimore to approximately 75.8%. The Company was subsequently determined to
have a controlling financial interest and began to consolidate operations of the
property following the change in ownership. Management fees prior to the
consolidation of Horseshoe Baltimore have been reflected in the Managed and
Branded segment.
(g)On December 1, 2020 , the Company entered into an agreement to sell Belle of
Baton Rouge , which is expected to close in the fourth quarter of 2021.
In addition to our properties listed above, international operations which have
been sold, or we have agreements to sell, are classified as discontinued
operations. The sale of Caesars UK Group closed on July 16, 2021 , in which the
buyer assumed all liabilities associated with the Caesars UK Group . On September
8, 2021 , the Company entered into an agreement to sell William Hill
International , which is expected to close in the first quarter of 2022.
The executive decision maker of the 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. Prior to the William Hill Acquisition, our principal operating
activities occurred in three regionally-focused reportable segments: Las Vegas ,
Regional, and Managed, International, CIE, in addition to Corporate and Other.
The William Hill Acquisition and rebranding of our interactive business
(formerly, Caesars Interactive Entertainment "CIE" and now, inclusive of William
Hill US, "Caesars Digital") expands our access to conduct sports wagering and
real online
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money gaming operations. As a result, the Company has made a change to the
composition of its reportable segments. The Las Vegas and Regional segments are
substantially unchanged, while the former Managed, International and CIE
reportable segment has been recast for all periods presented into two segments;
Caesars Digital and Managed and International. Accordingly, our principal
operating activities occur in four reportable segments: (1) Las Vegas , (2)
Regional, (3) Caesars Digital, and (4) Managed and Branded, 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
Caesars.
Presentation of Financial Information
The financial information included in this Item 2 for the periods after our
acquisitions of Former Caesars on July 20, 2020 , William Hill on April 22, 2021
and of the increase in our ownership percentage and subsequent consolidation of
Horseshoe Baltimore on August 26, 2021 , is not fully comparable to the periods
prior to the acquisitions. In addition, the presentation of financial
information herein for the periods after the Company's sales of various
properties is not fully comparable to the periods prior to their respective sale
dates. See "Reportable Segments" above for a discussion of changes to the
Company's reportable segments.
This MD&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. In June 2021 , the IGC amended its order that
previously required the Company to sell a third casino asset in the state of
Indiana . As a result, Caesars will not be required to sell Horseshoe Hammond and
Horseshoe Hammond no longer meets the held for sale criteria. The assets and
liabilities previously held for sale have been reclassified as held and used for
all periods presented measured at the lower of the carrying amount, adjusted for
depreciation and amortization that would have been recognized had the assets
been continuously classified as held and used, and the fair value at the date of
the amended ruling. Additionally, amounts previously presented in discontinued
operations have been reclassified into continuing operations for all periods
presented.
Key Performance Metrics
Our primary source of revenue is generated by our gaming operations and online
gaming. Additionally we utilize 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
and using our sports betting and iGaming applications.
Key performance metrics include volume indicators such as drop or 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. Slot win percentage is typically in the range of
approximately 9% to 10% of slot handle for both the Las Vegas and Regional
segments. Table game hold percentage is typically in the range of approximately
14% to 23% of table game drop in the Las Vegas segment and 18% to 21% of table
game drop in the Regional segment. Sports betting hold is typically in the range
of 6% to 9% and iGaming hold typically ranges from 3% to 4%. In addition, hotel
occupancy, which is the average percentage of available hotel rooms occupied
during a period, is a key indicator for our hotel business in the Las Vegas
segment. See "Results of Operations" section below. Complimentary rooms are
treated as occupied rooms in our calculation of hotel occupancy. The key metrics
we utilize to measure our profitability and performance are Adjusted EBITDA and
Adjusted EBITDA margin.
Developments and Significant Factors Impacting Financial Results
The following summary highlights recent developments and significant factors
impacting our financial results for the three and nine months ended
September 30, 2021 and 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 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 government agencies and tribal bodies as part of certain
precautionary measures intended to help slow the spread of
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COVID-19. As of September 30, 2021 , we have resumed operations at all of our
properties, to the extent permitted by regulations governing the applicable
jurisdiction, with the exception of Isle of Capri Casino Hotel Lake Charles
("Lake Charles"), which was severely damaged by Hurricane Laura (as described
below).
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 their furloughed period. We have
emphasized a focus on labor efficiencies as our workforce returns and operations
resume in compliance with governmental or tribal orders, directives, and
guidelines. Due to a triggering event resulting from the COVID-19 public health
emergency, we recognized impairment charges of $116 million related to goodwill
and trade names (described below) during the nine months ended September 30,
2020 .
The COVID-19 public health emergency had a material adverse effect on the
Company's business, financial condition and results of operations for
comparative periods in 2020, including the three and nine months ended
September 30, 2020 which continued into the first quarter of 2021. 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. The Company is subject to the
financial covenant for quarters beginning after September 30, 2021 . In addition,
on March 19, 2021 , the Company filed a lawsuit against its insurance carriers
for losses attributed to the COVID-19 public health emergency. There can be no
assurance as to the outcome of the litigation.
We have experienced positive operating trends thus far in 2021, with a continued
focus on operational efficiencies which have resulted in net income, Adjusted
EBITDA and Adjusted EBITDA margin exceeding pre-pandemic levels experienced in
2019 within our Las Vegas and Regional segments. However, certain revenue
streams continue to be negatively impacted, including convention and
entertainment revenues, and have yet to reach pre-pandemic levels as compared to
2019. The extent and duration of the negative 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 or new variants,
restrictions on operations imposed by governmental authorities, the potential
for authorities reimposing stay at home orders, international and domestic
travel restrictions or additional restrictions in response to continued
developments with the COVID-19 public health emergency, our ability to adapt to
evolving operating procedures and maintain adequate staffing in response to
increased customer demand, the impact on consumer demand and discretionary
spending, the efficacy and acceptance of vaccines, and our ability to adjust our
cost structures for the duration of any such interruption of its operations
•Caesars Acquisition - The Merger closed on July 20, 2020 . The Company
recognized acquisition-related transaction costs in connection with the Merger
of $6 million and $107 million for the three months ended September 30, 2021 and
2020, respectively, $21 million and $129 million during the nine months ended
September 30, 2021 and 2020, respectively.
•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 $3.9 billion . We recognized acquisition-related transaction costs
of approximately $5 million and $60 million for the three and nine months ended
September 30, 2021 , respectively, excluding additional transaction cost
associated with sale of William Hill International . See "Reportable Segments"
above for a description of our revised segments following the acquisition.
•Consolidation of Baltimore - On August 26, 2021 , the Company increased the
ownership interest in CBAC Borrower, LLC , a property which we also manage, to
approximately 75.8%. Caesars was subsequently determined to have a controlling
financial interest and we began to consolidate the results of operations of the
property following our change in ownership. As a result of the acquisition, the
Company recognized a gain of $40 million during the nine months ended
September 30, 2021 .
•Discontinued Operations - Former Caesars properties, Harrah's Louisiana Downs,
Caesars Southern Indiana, and Caesars UK Group met held for sale criteria as of
the date of the closing of the Merger. On July 16, 2021 , the Company completed
the sale of the Caesars UK Group , in which the buyer assumed all liabilities
associated with the Caesars UK Group . On September 3, 2021 , the Company
completed the sale of Caesars Southern Indiana, subject to a customary working
capital adjustment, resulting in a gain of approximately $12 million .
Additionally, William Hill International met held for sale criteria as of the
date of the closing of the William Hill Acquisition and is classified as
discontinued operations. On September 8, 2021 , the Company entered into an
agreement with 888 Holdings Plc to sell
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William Hill International for £2.2 billion. On November 1, 2021 , the sale of
Harrah's Louisiana Downs was completed.
•Divestitures - We have completed several divestitures including the sales of
Kansas City , Vicksburg , Eldorado Shreveport, MontBleu, Evansville and
discontinued operations of Harrah's Reno , Bally's Atlantic City , Caesars
Southern Indiana and Caesars UK Group . The properties that have been sold as of
September 30, 2021 , are collectively referred to as "Divestitures." The results
of operations of the divested entities, other than those identified as
discontinued operations, are included in income from continuing operations for
the periods prior to their respective closing dates.
•Impairment Charges - During 2020, the effects of the COVID-19 public health
emergency resulted in changes to estimated future cash flows utilized to
estimate fair value and we recognized impairment charges in our Regional segment
related to goodwill and trade names totaling $100 million and $16 million ,
respectively, during the nine months ended September 30, 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 nine months
ended September 30, 2020 due to the carrying value exceeding the net sales
proceeds.
•Weather and Construction Disruption - During the three months ended
September 30, 2021 , our Regional segment was negatively impacted by natural
disasters including Hurricane Ida in Louisiana and Mississippi and wildfires in
the Lake Tahoe area. Harrah's New Orleans , Harrah's Lake Tahoe and Harvey's Lake
Tahoe all experienced temporary closures which lasted slightly more than one
week. Additionally, in late August 2020 , our Regional segment was negatively
impacted by Hurricane Laura, causing severe damage to Lake Charles , which will
remain closed until the second half of 2022 when construction of a new
land-based casino is expected to be complete. During the nine months ended
September 30, 2021 , we received insurance proceeds of approximately $44 million
related to damaged fixed assets and remediation costs. The Company also recorded
a gain of approximately $22 million as proceeds received for the cost to replace
damaged property were in excess of the respective carrying value of the assets.
•Post-Merger Synergies - We continue to identify operating and cost
efficiencies, including savings from the purchasing power of the combined
Caesars organization and targeted integrated marketing strategies, as well as
the 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.
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Results of Operations
The following table highlights the results of our operations:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2021 2020 2021 2020
Net revenues:
Las Vegas $ 1,017 $ 304 $ 2,369 $ 304
Regional 1,492 1,055 4,173 1,632
Caesars Digital 96 39 221 58
Managed and Branded 79 41 206 41
Corporate and Other (a) 1 4 10 8
Total $ 2,685 $ 1,443 $ 6,979 $ 2,043
Net loss $ (231) $ (925) $ (583) $ (1,201)
Adjusted EBITDA (b):
Las Vegas $ 500 $ 43 $ 1,085 $ 43
Regional 554 350 1,549 449
Caesars Digital (164) 11 (171) 20
Managed and Branded 22 12 69 12
Corporate and Other (a) (42) (41) (123) (59)
Total $ 870 $ 375 $ 2,409 $ 465
Net loss margin (8.6) % (64.1) % (8.4) % (58.8) %
Adjusted EBITDA margin 32.4 % 26.0 % 34.5 % 22.8 %
___________________
(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.
(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 and nine months ended September 30, 2021
and 2020
Net Revenues
Net revenues were as follows:
Three Months Ended September Nine Months Ended September
30, Percent 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change
Casino and pari-mutuel
commissions $ 1,510 $ 981 $ 529 53.9 % $ 4,308 $ 1,422 $ 2,886 *
Food and beverage 347 127 220 173.2 % 797 190 607 *
Hotel 511 200 311 155.5 % 1,122 257 865 *
Other 317 135 182 134.8 % 752 174 578 *
Net Revenues $ 2,685 $ 1,443 $ 1,242 86.1 % $ 6,979 $ 2,043 $ 4,936 *
___________________
* Not meaningful.
Consolidated revenues increased for the three and nine months ended
September 30, 2021 primarily due to recent acquisitions including the Merger on
July 20, 2020 , the William Hill Acquisition on April 22, 2021 , and the
consolidation of Horseshoe Baltimore on August 26, 2021 , offset by the
divestiture of certain properties discussed above. In addition, net revenues for
the three and nine months ended September 30, 2020 were negatively impacted by
the COVID-19 public health emergency. All of our properties were temporarily
closed for the period from mid-March 2020 through mid-May 2020 and not all
properties reopened as of September 30, 2020 due to orders issued by various
government agencies and tribal bodies as part of certain precautionary measures
intended to help slow the spread of COVID-19. Local and state regulations and
the implementation of
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social distancing and health and safety protocols in response to COVID-19
resulted in reduced gaming capacity and hotel occupancy as well as limitations
on the operation of food and beverage outlets, live entertainment events, and
conventions. As of September 30, 2021 , all of our properties have resumed
certain operations, to the extent permitted, with the exception of Lake Charles
which was severely damaged by Hurricane Laura.
Operating Expenses
Operating expenses were as follows:
Three Months Ended September Nine Months Ended September
30, Percent 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change
Casino and pari-mutuel
commissions $ 830 $ 493 $ 337 68.4 % $ 2,111 $ 717 $ 1,394 194.4 %
Food and beverage 210 92 118 128.3 % 484 154 330 *
Hotel 130 63 67 106.3 % 317 91 226 *
Other 114 53 61 115.1 % 262 63 199 *
General and administrative 486 338 148 43.8 % 1,284 503 781 155.3 %
Corporate 86 90 (4) (4.4) % 228 120 108 90.0 %
Impairment charges - - - * - 161 (161) (100.0) %
Depreciation and
amortization 276 225 51 22.7 % 842 324 518 159.9 %
Transaction costs and
other operating costs 21 220 (199) (90.5) % 113 243 (130) (53.5) %
Total operating expenses $ 2,153 $ 1,574 $ 579 36.8 % $ 5,641 $ 2,376 $ 3,265 137.4 %
___________________
* Not meaningful.
Casino and pari-mutuel commissions expense consists primarily of payroll and
related costs associated with our gaming operations, marketing and promotions
and gaming taxes. Food and beverage expense consists principally of 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 and nine months ended September 30, 2021 increased year over year
as a result of recent acquisitions, including the Merger, the William Hill
Acquisition, and the consolidation of Horseshoe Baltimore. In addition, the
reopening of substantially all of our properties to the extent permitted by
regulations governing the applicable jurisdiction and the partial return of our
workforce contributed to the increased expenses noted. These increases have been
offset as the Company continues to identify more efficient methods to manage
marketing and promotional spend and reduce gaming expenses, as well as focus on
labor efficiencies as described above. Additionally, the Company has managed
recent increases in food costs and effectively improved margins by focusing on
efficiencies within food and beverage venues and menu options.
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 other marketing
expenses not directly related to our gaming and non-gaming operations.
General and administrative expenses for the three and nine months ended
September 30, 2021 increased year over year as the result of the reopening of
all of our properties to the extent permitted by regulations governing the
applicable jurisdiction, the Merger, the William Hill Acquisition and the
consolidation of Horseshoe Baltimore. These increases have been offset by a
reduced cost structure implemented by the Company while our properties were
temporarily closed due to the impact of the COVID-19 public health emergency.
Additionally, synergies associated with the combined companies from the Merger
have also resulted in reductions to certain administrative costs while focusing
on labor efficiencies and opportunities to execute expense saving strategies.
Corporate expenses include unallocated expenses such as payroll, stock-based
compensation, professional fees, and other various expenses not directly related
to the Company's operations. For the three months ended September 30, 2021
compared to the same prior year period, corporate expense decreased primarily
due to reductions to certain administrative and corporate payroll costs from
synergies associated with the combined companies and the elimination of
redundant expenses. For the nine
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months ended September 30, 2021 compared to the same prior year period,
corporate expenses increased primarily due to the recent acquisitions including
the Merger, the William Hill Acquisition and the consolidation of Horseshoe
Baltimore . In addition, payroll costs, including employee bonuses, have
increased as compared to the prior year period as property performance continues
to improve.
As described above, we recorded impairment charges of $116 million due to the
effects of the COVID-19 public health emergency during the nine months ended
September 30, 2020 . In addition, $45 million of additional impairment charges
related to the sale of MontBleu were recorded during the nine months ended
September 30, 2020 .
For the three and nine months ended September 30, 2021 compared to the same
prior year period, depreciation and amortization expense increased mainly due to
the recent acquisitions, including the Merger, the William Hill Acquisition, and
the consolidation of Horseshoe Baltimore.
For the three and nine months ended September 30, 2021 compared to the same
prior year period, transaction costs and other operating costs decreased as the
three and nine months ended September 30, 2020 included acquisition-related
transaction costs in connection with the Merger. Offsetting these decreases are
costs or fees incurred related to the William Hill Acquisition.
Other income (expenses)
Other income (expenses) were as follows:
Three Months Ended Nine Months Ended September
September 30, Percent 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change
Interest expense, net
(19.4) %
(179.7) % Loss on extinguishment of debt (117) (173) 56 32.4 % (140) (173) 33 19.1 % Other income (loss) (153) 9 (162) * (176) (1) (175) * Benefit (provision) for income taxes 90 (138) 228 165.2 % 167 (67) 234 * ___________________ * Not meaningful. For the three and nine months endedSeptember 30, 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 the increase in interest expense. For the three months endedSeptember 30, 2021 , loss on extinguishment of debt was related to the early repayment and related discount of the CRC Notes and CEI Senior Notes in addition to the repricing of the CRC Incremental Term Loan. Additionally, for the nine months endedSeptember 30, 2021 , loss on extinguishment of debt was due to the early extinguishment of the 5% Convertible Notes and the related discount on the settlement date, which wasJune 29, 2021 . The loss on extinguishment of debt for the three and nine months endedSeptember 30, 2020 was due to the payment of outstanding debt as a result of the Merger. For the three and nine months endedSeptember 30, 2021 , other loss increased year over year primarily due to a loss on the change in fair value of investments and a loss on the change in fair value of the derivative liability related to the 5% Convertible Notes. The income tax benefit for the three months endedSeptember 30, 2021 differed from the expected income tax expense based on the federal tax rate of 21% primarily due to the realization of capital losses previously not tax benefited due to the acquisition of William Hill. The income tax benefit for the nine months endedSeptember 30, 2021 differed from the expected income tax benefit based on the federal tax rate of 21% primarily due to state taxes and the reclassification of Horseshoe Hammond from held for sale offset by nondeductible expense related to the convertible note conversion. The income tax benefit for the three and nine months endedSeptember 30, 2020 differed from the expected income tax benefit based on the federal tax rate of 21% primarily due to an increase in the valuation allowance against the deferred tax assets due to the series of transactions with VICI during the quarter.
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Segment comparison of the three and nine months ended September 30, 2021 and
2020
Las Vegas Segment
Three Months Ended September Nine Months Ended September
30, Percent 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change
Revenues:
Casino and pari-mutuel commissions$ 329 $ 122 $ 207 169.7 %$ 870 $ 122 $ 748 * Food and beverage 221 52 169 * 476 52 424 * Hotel 303 79 224 * 660 79 581 * Other 164 51 113 * 363 51 312 * Net Revenues$ 1,017 $ 304 $ 713 *$ 2,369 $ 304 $ 2,065 * Table game drop$ 805 $ 510 $ 295 57.8 %$ 2,174 $ 510 $ 1,664 * Table game hold % 22.6 % 15.6 % 7 pts 20.0 % 15.6 % 4.4 pts Slot handle$ 2,676 $ 1,700 $ 976 57.4 %$ 7,261 $ 1,700 $ 5,561 * Hotel occupancy 89.6 % 41.7 % 47.9 pts 80.3 % 41.7 % 38.6 pts Adjusted EBITDA$ 500 $ 43 $ 457 *$ 1,085 $ 43 $ 1,042 * Adjusted EBITDA margin 49.2 % 14.1 % 35.1 pts 45.8 % 14.1 %
31.7 pts
Net income (loss) attributable to Caesars$ 272 $ (162) $ 434 *$ 389 $ (162) $ 551 * ___________________ * Not meaningful.Las Vegas segment's net revenues and Adjusted EBITDA increased as a result of the Merger and reopening of all properties in accordance with state and local regulations as ofSeptember 30, 2021 . InJune 2021 , convention venues began to reopen with conventions held and future bookings received. During the three and nine months endedSeptember 30, 2021 , all of our reopened properties in theLas Vegas segment experienced an increase in net revenues and Adjusted EBITDA compared to Former Caesars' prior year results for the same properties as all properties were temporarily closed during most of the same period in 2020. Slot win percentage inLas Vegas during both the three and nine months endedSeptember 30, 2021 has been slightly higher than our typical range and hotel occupancy has been trending upward in recent quarters. Additionally, pent up demand has resulted in operations recovering at a faster rate than expected. These positive trends, however, may not be sustained due to the uncertainty of the current COVID-19 environment, including fluctuations in positive cases, new variants and the efficacy and acceptance of available vaccines.
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Regional Segment
Three Months Ended September
30, Percent Nine Months Ended September 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change
Revenues:
Casino and pari-mutuel
commissions $ 1,096 $ 825 $ 271 32.8 % $ 3,241 $ 1,247 $ 1,994 159.9 %
Food and beverage 125 74 51 68.9 % 318 137 181 132.1 %
Hotel 208 121 87 71.9 % 462 178 284 159.6 %
Other 63 35 28 80.0 % 152 70 82 117.1 %
Net Revenues $ 1,492 $ 1,055 $ 437 41.4 % $ 4,173 $ 1,632 $ 2,541 155.7 %
Table game drop $ 1,198 $ 1,112 $ 86 7.7 % $ 3,315 $ 1,412 $ 1,903 134.8 %
Table game hold % 20.7 % 20.7 % (0) pts 20.8 % 20.6 % 0.2 pts
Slot handle $ 11,921 $ 11,034 $ 887 8.0 % $ 34,053 $ 15,335 $ 18,718 122.1 %
Adjusted EBITDA $ 554 $ 350 $ 204 58.3 % $ 1,549 $ 449 $ 1,100 *
Adjusted EBITDA margin 37.1 % 33.2 % 3.9 pts 37.1 % 27.5 % 9.6 pts
Net income (loss)
attributable to Caesars $ 239 $ 45 $ 194 * $ 555 $ (186) $ 741 *
___________________
* Not meaningful.
Regional segment's net revenues, Adjusted EBITDA and margin increased for the
three and nine months ended September 30, 2021 compared to the same prior year
period as a result of the Merger and the consolidation of Horseshoe Baltimore.
The increase was slightly offset by closures of certain properties due to
Hurricane Ida and the Caldor fire. As of September 30, 2021 , all of our
properties in our Regional segment have reopened, with the exception of Lake
Charles due to the weather disruption described above. Slot win percentage in
the Regional segment during both the three and nine months ended September 30,
2021 has been within our typical range. Additionally, pent up demand has
resulted in operations recovering at a faster rate than expected. These positive
trends, however, may not be sustained due to the uncertainty of the current
COVID-19 environment, including fluctuations in positive cases, new variants and
the efficacy and acceptance of available vaccines.
In our Regional segment, net revenues, Adjusted EBITDA and Adjusted EBITDA
margin increased compared to the prior year across all properties, including
Former Caesars', due to reductions in workforce and marketing costs, synergies
from the purchasing power of the combined Caesars organization, and limitations
on certain lower margin food and beverage offerings.
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Caesars Digital Segment
Three Months Ended September Nine Months Ended September
30, Percent 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change
Revenues:
Casino and pari-mutuel
commissions $ 85 $ 34 $ 51 150.0 % $ 197 $ 53 $ 144 *
Other 11 5 6 120.0 % 24 5 19 *
Net Revenues $ 96 $ 39 $ 57 146.2 % $ 221 $ 58 $ 163 *
Sports betting handle
(a) $ 1,528 $ 14 $ 1,514 * $ 2,442 $ 14 $ 2,428 *
iGaming handle $ 1,467 $ 962 $ 505 52.5 % $ 3,754 $ 1,649 $ 2,105 127.7 %
Adjusted EBITDA $ (164) $ 11 $ (175) * $ (171) $ 20 $ (191) *
Adjusted EBITDA margin (170.8) % 28.2 % * (77.4) % 34.5 % *
Net income (loss)
attributable to Caesars $ (190) $ 11 $ (201) * $ (220) $ 20 $ (240) *
___________________
* Not meaningful.
(a)Caesars Digital generated an additional $196 million and $325 million of
sports betting handle, which is not included in this table for the three and
nine months ended September 30, 2021 , respectively, for select wholly-owned and
third-party operations for which Caesars Digital provides services and we
receive all. or a share of, the net profits. Sports betting handle includes
$14 million and $26 million for the three and nine months ended September 30,
2021 , respectively, related to horse racing and pari-mutuel wagers.
Caesars Digital is a newly developed segment which includes Caesars operations
for retail and mobile sports betting, online casino, and online poker. It is
comprised of the Caesars interactive business acquired in the Merger, operations
acquired in the William Hill Acquisition and historical iGaming at Tropicana
Atlantic City . Caesars Digital's sports betting handle, iGaming handle, and net
revenues increased significantly for the three and nine months ended
September 30, 2021 compared to the same prior year period due to the
acquisitions and the recent marketing launch of our new sportsbook applications
in nine states. However, net revenues for the three and nine months ended
September 30, 2021 were negatively impacted by a sports betting hold percentage
that was below our typical range. The low hold percentage was driven in part by
increased odds and profit boosts, which are promotional enhancements that
improve odds or wager payouts for customers. In addition, our hold percentage
was negatively impacted by competitive pricing strategies and lower than typical
hold in certain betting markets. iGaming hold percentage for the three and nine
months ended September 30, 2021 was within our typical range.
In connection with the launch of our Caesars branded sportsbook and iGaming
applications, we expect to continue to deploy a significant level of marketing
spend to build brand awareness and acquire and retain customers. As sports
betting and online casinos continue to expand through increased state
legalization and customer adoption, growth in marketing and promotional costs in
highly competitive markets have negatively impacted Caesars Digital EBITDA and
EBITDA margins in comparison to prior periods.
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Nine Months Ended September
Three Months Ended September 30, Percent 30, Percent
(Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change Revenues: Food and beverage $ 1$ 1 $ - - %$ 3 $ 1 $ 2 200.0 % Other 78 40 38 95.0 % 203 40 163 * Net Revenues $ 79$ 41 $ 38 92.7 %$ 206 $ 41 $ 165 * Adjusted EBITDA $ 22$ 12 $ 10 83.3 %$ 69 $ 12 $ 57 * Adjusted EBITDA margin 27.8 % 29.3 % (1.5) pts 33.5 % 29.3 % 4.2 pts Net income (loss) attributable to Caesars $ 38$ (3) $ 41 *$ 40 $ (3) $ 43 * ___________________ * Not meaningful. We manage several properties and license rights to the use of our brands. These revenue agreements typically include reimbursement of certain costs that we incur directly. Such costs are primarily related to payroll costs incurred on behalf of the properties under management. The revenue related to these reimbursable management costs has a direct impact on our evaluation of Adjusted EBITDA margin which, when excluded, reflects margins typically realized from such agreements. The table below presents the amount included in net revenues and total operating expenses related to these reimbursable costs. Three Months Ended September Nine Months Ended September 30, Percent 30, Percent (Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change Reimbursable management revenue$ 57 $ 25 $ 32 128.0 %$ 137 $ 25 $ 112 * Reimbursable management cost 57 25 32 128.0 % 137 25 112 * ___________________ * Not meaningful. Managed and Branded segment's net revenues and Adjusted EBITDA increased as a result of the Merger. Upon the consolidation of Horseshoe Baltimore, the property was moved from the Managed and Branded segment to the Regional segment above. All of our managed and branded properties have reopened as ofSeptember 30, 2021 . For the three and nine months endedSeptember 30, 2021 , net revenues and Adjusted EBITDA for Managed and Branded increased as compared to Former Caesars' prior period. Corporate & Other Three Months Ended September Nine Months Ended September 30, Percent 30, Percent (Dollars in millions) 2021 2020 Variance Change 2021 2020 Variance Change Revenues: Other$ 1 $ 4 $ (3) (75.0) %$ 10 $ 8 $ 2 25.0 % Net Revenues$ 1 $ 4 $ (3) (75.0) %$ 10 $ 8 $ 2 25.0 % Adjusted EBITDA$ (42) $ (41) $ (1) (2.4) %$ (123) $ (59) $ (64) (108.5) % Supplemental Unaudited Presentation of Consolidated Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") for the Three and Nine Months EndedSeptember 30, 2021 and 2020 Adjusted EBITDA (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
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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) before interest income or
interest expense, net of interest capitalized, (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 sign-on and 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 leases as these transactions were accounted for as financing obligations
and the associated expense is included in interest expense. Adjusted EBITDA is
not a measure of performance or liquidity calculated in accordance with 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 and 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 the three and nine months
ended September 30, 2021 and 2020, respectively, in addition to reconciling net
income (loss) to Adjusted EBITDA in accordance with GAAP (unaudited):
Three Months Ended September 30, 2021
Less: Divest.
Pre-Cons. Add: Disc.
(In millions) CEI Baltimore (d) Ops (e)(f) Total (g)
Net loss attributable to Caesars $ (233) $ (38) $ (7) $ (278)
Net income attributable to noncontrolling
interests 2 - - 2
Discontinued operations, net of income
taxes 4 - 9 13
(Benefit) provision for income taxes (90) - 1 (89)
Other loss (a) 153 40 - 193
Loss on extinguishment of debt 117 - - 117
Interest expense, net 579 2 - 581
Depreciation and amortization 276 3 - 279
Transaction costs and other operating costs
(b) 21 2 - 23
Stock-based compensation expense 21 - - 21
Other items (c) 20 - - 20
Adjusted EBITDA $ 870 $ 9 $ 3 $ 882
Three
Months Ended
Less: Divest.
Pre-Cons. Pre-Acq. WH US Pre-Acq. CEC Add: Disc. Ops
(In millions) CEI Baltimore (d) (h) (i) (e)(f) Total (j)
Net income (loss) attributable to
Caesars $ (926) $ 1 $ 1 $ (173) $ 67 $ (1,030)
Net income (loss) attributable to
noncontrolling interests 1 - - (62) 62 1
Discontinued operations, net of
income taxes 7 - - - (5) 2
(Benefit) provision for income
taxes 138 - (4) (51) (6) 77
Other (income) loss (a) (9) - (2) 67 (6) 50
Loss on extinguishment of debt 173 - - - - 173
Interest expense, net 485 4 - 72 (11) 550
Depreciation and amortization 225 4 6 53 (5) 283
Impairment charges - - - 124 (124) -
Transaction costs and other
operating costs (b) 220 1 1 22 - 244
Stock-based compensation expense 45 - - 3 - 48
Other items (c) 16 - (1) 19 1 35
Adjusted EBITDA $ 375 $ 10 $ 1 $ 74 $ (27) $ 433
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Nine Months Ended September 30, 2021
Less: Divest.
Pre-Cons. Pre-Acq. WH US Add: Disc. Ops
(In millions) CEI Baltimore (d) (h) (e)(f) Total (g)
Net income (loss) attributable to
Caesars $ (585) $ (32) $ (33) $ 2 $ (648)
Net income attributable to
noncontrolling interests 2 - - - 2
Discontinued operations, net of
income taxes 38 - - (23) 15
(Benefit) provision for income
taxes (167) - (2) 3 (166)
Other (income) loss (a) 176 40 (2) - 214
Loss on extinguishment of debt 140 - - - 140
Interest expense, net 1,734 9 - - 1,743
Depreciation and amortization 842 10 8 - 860
Transaction costs and other
operating costs (b) 113 6 27 - 146
Stock-based compensation expense 64 - - - 64
Other items (c) 52 - 2 - 54
Adjusted EBITDA $ 2,409 $ 33 $ - $ (18) $ 2,424
Nine Months Ended September 30, 2020
Less: Divest.
Pre-Cons. Pre-Acq. WH US Pre-Acq. CEC Add: Disc. Ops
(In millions) CEI Baltimore (d) (h) (i) (e)(f) Total (j)
Net income (loss) attributable to
Caesars $ (1,202) $ (11) $ (17) $ (1,059) $ 260 $ (2,029)
Net income (loss) attributable to
noncontrolling interests 1 - - (67) 63 (3)
Discontinued operations, net of income taxes 7 - - - (5)
2
(Benefit) provision for income taxes 67 - (17) (224) 2 (172) Other (income) loss (a) 1 (10) (3) (45) (19) (76) Loss on extinguishment of debt 173 - - - - 173 Interest expense, net 620 12 - 750 (67) 1,315 Depreciation and amortization 324 12 15 559 (42) 868 Impairment charges 161 - - 189 (203) 147 Transaction costs and other operating costs (b) 243 1 24 71 (6) 333 Stock-based compensation expense 55 - - 26 - 81 Other items (c) 15 - - 54 (1) 68 Adjusted EBITDA$ 465 $ 4 $ 2$ 254 $ (18)$ 707 ____________________ (a)Other (income) loss for the three and nine months endedSeptember 30, 2021 primarily represents a loss on the change in fair value of investments held by the Company and a loss on the change in fair value of the derivative liability related to the 5% Convertible Notes. Other (income) loss for the three and nine months endedSeptember 30, 2020 primarily represents unrealized loss on the change in fair value of the derivative liability related to the 5% Convertible Notes, slightly offset by gains on investments held by the Company and realized gains on conversion of the 5% Convertible Notes. (b)Transaction costs and other operating costs for the three and nine months endedSeptember 30, 2021 and 2020 primarily 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, retention bonuses, and business optimization expenses. (d)Represents results of operations for Horseshoe Baltimore for periods prior to the consolidation resulting from the Company's increase in its ownership interest onAugust 26, 2021 , excluding amounts associated with our management of the property which eliminate on consolidation. Such figures are based on unaudited internal financial statements and have not been reviewed by the Company's auditors and do not conform to GAAP. (e)Discontinued operations include Harrah's Louisiana Downs. Such figures are based on unaudited internal financial statements and have not been reviewed by the Company's auditors and do not conform to GAAP. (f)Divestitures for the three and nine months endedSeptember 30, 2021 include results of operations for MontBleu andEvansville , and discontinued operations ofCaesars Southern Indiana and Caesars UK Group . For the three and nine months endedSeptember 30, 2020 include results of operations forKansas City ,Vicksburg , Eldorado Shreveport, MontBleu,Evansville and discontinued operations of the Korea JV, Harrah'sReno ,Bally's Atlantic City ,Caesars Southern Indiana and Caesars UK Group . Such figures are based on unaudited internal financial statements and have not been reviewed by the Company's auditors and do not conform to GAAP.
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(g)Excludes results of operations from divestitures as detailed in (f) and
includes results of operations of Horseshoe Baltimore for periods prior to the
consolidation, William Hill US prior to the acquisition and from discontinued
operations for the periods presented. 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.
(h)Pre-acquisition William Hill represents results of operations for William
Hill prior to the acquisition. Such figures are based on unaudited internal
financial statements and have not been reviewed by the Company's auditors and,
for the 2021 and 2020 periods, do not conform to GAAP.
(i)Pre-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.
(j)Excludes results of operations from divestitures as detailed in (f) and
includes results of operations of Horseshoe Baltimore for periods prior to the
consolidation, William Hill US prior to the acquisition and of Former Caesars
prior to the Merger, including discontinued operations, for the relevant period.
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.
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 flows from our subsidiaries and our
ability to raise capital. Our primary sources of liquidity and capital resources
are existing cash on hand, cash flows from operations, availability of
borrowings under our revolving credit 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 and marketing
investments.
As of September 30, 2021 , our cash on hand and revolving borrowing capacity was
as follows:
(In millions) September 30, 2021
Cash and cash equivalents $ 1,072
Revolver capacity (a) 2,220
Revolver capacity committed to letters of credit (92)
Available revolver capacity committed as regulatory requirement (48)
Total $ 3,152
___________________
(a)Revolver capacity includes $1.2 billion under our CEI Revolving Credit
Facility, due July 2025 , $1.0 billion under our CRC Revolving Credit Facility,
due December 2022 and $10 million under our Baltimore Revolving Credit Facility,
due July 2022 .
During the nine months ended September 30, 2021 , our operating activities
generated operating cash inflows of $974 million , as compared to operating cash
outflows of $203 million during the nine months ended September 30, 2020 due to
the results of operations described above. In addition, we continue to improved
our financial position and reduce our operating costs related to our debt
through accelerated repayments, amendments to existing debt agreements and
obtaining favorable rates on new borrowings.
On September 21, 2021 , CRC entered into a second amendment related to the CRC
Incremental Term Loan to reduce the interest rate margins to 3.50% per annum in
the case of any London Inter-bank Offered Rate ("LIBOR") loan or 2.50% per annum
in the case of any base rate loan. The CRC Incremental Term Loan is a LIBOR
based loan of which the amendment lowers our annual interest cost by reducing
the applicable margin by 100 basis points from 4.50% to 3.50%.
On September 24, 2021 , the Company repaid $889 million in aggregate principal
amount of the $1.7 billion aggregate principal amount of 5.25% senior notes due
2025 (the "CRC Notes"). The Company recognized a total of $106 million of loss
on extinguishment of debt. The remaining $811 million in aggregate principal
amount of the CRC Notes was redeemed on October 15, 2021 and the Company
recognized and additional loss on extinguishment of debt of approximately
$93 million . The Company classified the cash used to repay the remaining
aggregate principal balance as long-term restricted cash in Other assets, net as
of September 30, 2021 .
During the quarter ended September 30, 2021 , the Company purchased $76 million
of aggregate principal amount of the $1.8 billion 8.125% Senior Notes due 2027
(the "CEI Senior Notes") and recognized $10 million of loss on extinguishment of
debt. The Company purchased an additional $24 million in aggregate principal
amount of the CEI Senior Notes subsequent to September 30, 2021 . In October
2021 , we cancelled a total of $100 million of aggregate principal, which we
purchased.
On September 24, 2021 , the Company issued $1.2 billion in aggregate principal
amount of 4.625% Senior Notes due 2029 (the "Senior Notes") pursuant to an
indenture dated as of September 24, 2021 between the Company and U.S. Bank
National
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Association, as Trustee. The proceeds, in addition to cash on hand, were used to
repay the outstanding CRC Notes, as described above. The Senior Secured Notes
will mature on October 15, 2029 with interest paid on April 15 and October 15 of
each year, commencing April 15, 2022 .
In connection with the increase of our interest, Horseshoe Baltimore's
outstanding indebtedness of $284 million in the aggregate principal amount of a
senior secured term loan facility (the "Baltimore Term Loan") and amounts
outstanding, if any, under Horseshoe Baltimore's senior secured revolving credit
facility (the "Baltimore Revolving Credit Facility") have been consolidated in
the Company's financial statements. The Baltimore Term Loan matures in 2024 and
is subject to a variable rate of interest calculated as LIBOR plus 4.00%. The
Baltimore Revolving Credit Facility has borrowing capacity of up to $10 million
and matures in 2022, subject to a variable rate of interest calculated as LIBOR
plus 6.00%. As of September 30, 2021 , there was $10 million of available
borrowing capacity under the Baltimore Revolving Credit Facility.
On September 30, 2020 , the Company announced that it had reached an agreement
with William Hill PLC on the terms of a recommended cash acquisition pursuant to
which the Company would acquire the entire issued and to be issued share capital
(other than shares owned by the Company or held in treasury) of William Hill
PLC , in an all-cash transaction. On April 20, 2021 , a UK Court sanctioned the
proposed acquisition and on April 22, 2021 , the Company completed the William
Hill Acquisition for £2.9 billion, or approximately $3.9 billion .
In connection with the William Hill Acquisition, on April 22, 2021 , a newly
formed subsidiary of the Company (the "Bridge Facility Borrower") entered into a
Credit Agreement (the "Bridge Credit Agreement") with certain lenders party
thereto and Deutsche Bank AG, London Branch, as administrative agent and
collateral agent, pursuant to which the lenders party thereto provided the debt
financing. 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
may be used for working capital and general corporate purposes. The Interim
Facilities Agreement entered into on October 6, 2020 , and amended on December
11, 2020 , was terminated upon the execution of the Bridge Credit Agreement. On
May 12, 2021 , we repaid the £503 million cash confirmation bridge facility. On
June 14, 2021 , the Company borrowed the full £116 million available under the
revolving credit facility and the funds, in addition to excess Company cash,
were used to make a partial repayment of the asset sale bridge facility in the
amount of £700 million. In addition, $1.1 billion of debt, at book value which
approximates fair value, is held for sale related to two trust deeds assumed in
the William Hill Acquisition. One trust deed relates to £350 million aggregate
principal amount of 4.750% Senior Notes due 2026, and the other trust deed
relates to £350 million aggregate principal amount of 4.875% Senior Notes due
2023. Each of the trust deeds contain a put option due to the change in control
which allowed noteholders to require the Company to purchase the notes at 101%
of the principal amount thereof together with interest accrued. The put period
expired on July 26, 2021 , and approximately £1 million of debt was repurchased.
Outstanding borrowings under the Bridge Credit Agreement are expected to be
repaid upon the sale of William Hill International , all of which are held for
sale and related activity is reflected within discontinued operations. On
September 8, 2021 , the Company entered into an agreement to sell William Hill
International to 888 Holdings Plc for approximately £2.2 billion. After
repayment of the outstanding debt under the Bridge Credit Agreement, described
above, and other working capital adjustments, the Company expects to receive
approximately £835 million, or $1.2 billion . The sale is subject to satisfaction
of customary conditions, including receipt of the approval of shareholders of
888 Holdings Plc and regulatory approvals, and is expected to close in the first
quarter of 2022.
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 leases 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 the remainder of 2021 and for 2022 are expected to
increase compared to prior periods as a result of the additional properties
acquired in the Merger, the William Hill Acquisition and new development
projects including the ongoing launch of our Caesars branded sportsbook and
iGaming applications in our Caesars Digital segment. In addition, we may, from
time to time, seek to repurchase our outstanding indebtedness. Any such
purchases may be funded by existing cash balances or the incurrence of debt. The
amount and timing of any repurchase will be based on business and market
conditions, capital availability, compliance with debt covenants and other
considerations.
In 2020, we funded $400 million to escrow as of the closing of the Merger and
have begun to utilize those funds in accordance with a three year capital
expenditure plan in the state of New Jersey . This amount is currently included
in restricted cash in Other assets, net. As of September 30, 2021 , our
restricted cash balance in the escrow account was $328 million for future
capital expenditures in New Jersey .
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As a condition of the extension of the casino operating contract and ground
lease for Harrah's New Orleans , we are also required to make a capital
investment of $325 million in Harrah's New Orleans by July 15, 2024 . In
connection with the capital investment in Harrah's New Orleans , we expect to
rebrand the property as Caesars New Orleans.
On August 27, 2020 , Hurricane Laura made landfall on Lake Charles as a Category
4 storm. The hurricane severely damaged Lake Charles and the Company has begun
to receive insurance proceeds related to, in part, estimated damages and repairs
that have been incurred to the property. A portion of the proceeds received is
expected to be utilized for the construction of a new land-based casino which is
expected to be completed in the second half of 2022.
Cash spent for capital expenditures totaled $313 million and $95 million for the
nine months ended September 30, 2021 and 2020, respectively. The following table
summarizes our capital expenditures for the nine months ended September 30,
2021 , and an estimated range of capital expenditures for the remainder of 2021:
Nine Months
Ended September Estimate of Remaining Capital
30, 2021 Expenditures for 2021(In millions) Actual Low High Atlantic City $ 74 $ 65$ 85 Indiana racing operations 15 5 10 Total estimated capital expenditures from restricted cash 89 70 95 Lake Charles 33 15 20 New Orleans 19 25 35 Caesars Digital 43 25 35 Other growth and maintenance projects 129 100 125 Total estimated capital expenditures from unrestricted cash and insurance proceeds 224 165 215 Total $ 313 $ 235$ 310 A significant portion of our liquidity needs are for debt service and payments associated with our leases. Our estimated debt service (including principal and interest) is approximately$108 million for the remainder of 2021, excluding elective debt repayments such as the early extinguishment of the remaining CRC Notes. We also lease certain real property assets from third parties, including VICI and GLPI. We estimate our lease payments to VICI and GLPI to be approximately$290 million for the remainder of 2021. OnJune 21, 2021 , the Company delivered a notice of mandatory conversion to the trustee of the 5% Convertible Notes to convert all outstanding notes onJune 24, 2021 . All outstanding notes, at the election of either the Company or the holder, were subject to conversion into approximately 0.014 shares of the Company's Common Stock ("Company Common Stock") and approximately$1.17 of cash per$1.00 principal amount of the 5% Convertible Notes. During the nine months endedSeptember 30, 2021 , the Company converted the remaining outstanding aggregate principal amount of the 5% Convertible Notes, which resulted in cash payments of$367 million , net of amounts paid into our trust accounts and the issuance of approximately 5 million shares of Company Common Stock. 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. InJune 2021 , the IGC amended its order that previously required the Company to sell a third casino asset in the state ofIndiana . As a result, Caesars will not be required to sell Horseshoe Hammond. We have divested of several international properties including an interest in aKorea joint venture and theCaesars UK Group , which includesEmerald Resort & Casino . The sale of theCaesars UK Group closed onJuly 16, 2021 , and the buyer assumed all liabilities associated with theCaesars UK Group . We also expect to divest ofWilliam Hill International in the first quarter of 2022, as described above. OnApril 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 gain of less than$1 million . The purchase price is due no later than the first anniversary of the closing of the sale. OnSeptember 3, 2020 , the Company and VICI entered into an agreement to sell Harrah's Louisiana Downs withRubico Acquisition Corp. for$22 million , subject to a customary working capital adjustment, where the proceeds will be split between the Company and VICI. OnNovember 1, 2021 , the sale of Harrah's Louisiana Downs was completed. The annual base rent payments under the RegionalMaster Lease between Caesars and VICI will remain unchanged.
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On June 3, 2021 , the Company consummated the sale of the real property and
equity interests of Evansville to GLPI and Bally's Corporation, respectively,
for $480 million in cash, subject to a customary working capital adjustment,
resulting in a gain of approximately $12 million .
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 fourth 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. On September 3, 2021 , the Company
completed the sale of Caesars Southern Indiana and recorded a gain of
approximately $12 million . In connection with this transaction, Company's annual
base rent payments to VICI Properties under the Regional Master Lease were
reduced by $33 million .
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 our current liquidity, cash flows from operations, availability
of borrowings under committed credit facilities and proceeds from the announced
asset sales will be sufficient to fund our operations, capital requirements and
service our outstanding indebtedness for the next twelve months. However, we
cannot be certain that the COVID-19 public health emergency will not adversely
affect our business, financial condition and results of operations or cause
disruption in the financial markets that could adversely affect ability to
access additional capital.
Debt and Master Lease Covenant Compliance
The Caesars Resort Collection ("CRC") Credit Agreement, the CEI Revolving Credit
Facility, the Baltimore Term Loan and the indentures related to the CEI Senior
Secured Notes, the CEI Senior Notes, the CRC Senior Secured Notes, Senior 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 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. The Baltimore Revolving Credit Facility includes a senior secured
leverage ratio financial covenant of 5.0:1. Failure to comply with such
covenants could result in an acceleration of the maturity of indebtedness
outstanding under the relevant debt document. The Company is subject to the
financial covenants for quarters beginning after September 30, 2021 .
The GLPI Master Lease and VICI leases contain certain operating, capital
expenditure and financial covenants, including minimum capital improvement
expenditures and a rent coverage ratio.
Liabilities held for sale include $612 million of debt related to the asset sale
bridge facility and the revolving credit facility. The Bridge Credit Agreement
includes a financial covenant requiring the Bridge Facility Borrower to comply
with a maximum total net leverage ratio of 10.50 to 1.00 beginning the fiscal
quarter ending on September 30, 2021 . The borrowings under the Bridge Credit
Agreement are guaranteed by the Bridge Facility Borrower and the Bridge Facility
Borrower's material wholly-owned subsidiaries (subject to exceptions), and are
secured by a pledge of substantially all of the existing and future property and
assets of the Bridge Facility Borrower and the guarantors (subject to
exceptions). No financial covenants are related to the $1.1 billion of debt from
the two trust deeds assumed in the William Hill Acquisition.
As of September 30, 2021 , we were in compliance with all of the applicable
financial covenants described above.
Share Repurchase Program
In November 2018 , our Board of Directors 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 September 30, 2021 , we have acquired 223,823 shares of common stock under
the program at an aggregate value of $9 million and an average of $40.80 per
share. No shares were repurchased during the nine months ended September 30,
2021 and 2020.
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Contractual Obligations
The Company assumed various long-term debt arrangements, financing obligations
and leases, previously described, associated with Former Caesars as result of
the consummation of the Merger, William Hill related to the William Hill
Acquisition. We also consolidate additional debt related to Horseshoe Baltimore.
See Note 2 for a description of the Merger, the William Hill Acquisition and the
consolidation of Horseshoe Baltimore. See Note 8 for additional contractual
obligations. There have been no other material changes during the nine months
ended September 30, 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, 2020 .
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 8 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, 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, 2020 . There have been no material
changes since December 31, 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 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.
Item 3. 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 September 30, 2021 , long-term variable-rate borrowings totaled $6.6
billion under the CRC term loans and the Baltimore term loan and no amounts were
outstanding under the CEI Revolving Credit Facility, CRC Revolving Credit
Facility and Baltimore Revolving Credit Facility. Long-term variable-rate
borrowings under the CRC term loans and the Baltimore term loan represented
approximately 43% of consolidated long-term debt as of September 30, 2021 . We
have entered into seven interest rate swap agreements to fix the interest rate
on $2.3 billion of variable rate debt, and $4.3 billion of debt remains subject
to variable interest rates for the term of the agreements. During the nine
months ended September 30, 2021 , the weighted average interest rates on our
variable and fixed rate debt were 3.09% and 6.30%, respectively.
The 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.
The Company has entered into several foreign exchange forward contracts with
third parties to hedge the risk of fluctuations in the foreign exchange rates
between USD and GBP and to fix the exchange rate for a portion of the funds used
in the William Hill Acquisition, repayment of related debt and expected proceeds
of the sale of William Hill International . On April 23, 2021 , the Company
entered into a foreign exchange forward contract to purchase £237 million at a
contracted exchange rate, which was settled on June 11, 2021 . Similarly, the
Company has entered into foreign exchange forward contracts to sell £717 million
at a contracted exchange rate. The forward term of the contracts ends on
December 31, 2021 and March 31, 2022 . 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 nine months ended
September 30, 2021 .
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