CAESARS ENTERTAINMENT, INC. The accompanying consolidated condensed financial statements include the accounts ofCaesars Entertainment, Inc. , aDelaware corporation, and its consolidated subsidiaries which may be referred to as the "Company," "CEI," "Caesars," "we," "our," or "us" within these financial statements. The following discussion and analysis of the financial position and operating results of Caesars for the three months endedMarch 31, 2021 and 2020 should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto and other financial information included elsewhere in this Form 10-Q as well as our Annual Report on Form 10-K for the fiscal year 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 also refer to (i) our Consolidated Condensed Financial Statements as our "Financial Statements," (ii) our Consolidated Condensed Balance Sheets as our "Balance Sheets," (iii) our Consolidated Condensed Statements of Operations and Consolidated Condensed Statements of Comprehensive Loss as our "Statements of Operations," and (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 ("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 ("Elgin") andTropicana Entertainment, Inc. ("Tropicana") 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"). We own, lease or manage an aggregate of 54 domestic properties in 16 states with approximately 54,600 slot machines, video lottery terminals ("VLTs") and e-tables, approximately 3,200 table games and approximately 47,700 hotel rooms as ofMarch 31, 2021 . We also have international operations in five countries outside of theU.S. 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 that we will continue to own, lease or manage 48 properties. Our primary source of revenue is generated by gaming operations, and we utilize our hotels, restaurants, bars, entertainment, racing, sportsbook offerings, retail shops and other services to attract customers to our properties. We own 20 of our casinos and lease 28 casinos in theU.S. We lease 20 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
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amended, the "GLPI Master Lease") and a Lumière lease. Additionally, we lease
the Rio All-Suite Hotel & Casino from a separate third party.
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, and are required to divest additional assets, in connection with
regulatory approvals related to closing of the Merger. A summary of recently
completed and planned divestitures of our properties as of March 31, 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
Eldorado Resort Casino Shreveport December 23, 2020 (a) Louisiana
Regional ("Eldorado Shreveport")
Regional MontBleu Casino Resort & Spa ("MontBleu") April 6, 2021 (a) Nevada
Regional Tropicana Evansville ("Evansville") N/A (b) Indiana
Belle of Baton Rouge Casino & Hotel N/A (c) Louisiana
Regional ("Baton Rouge")
Discontinued operations (d):
Regional Harrah's Louisiana Downs N/A (e) Louisiana
Regional Caesars Southern Indiana N/A (b)(f) Indiana
Regional Horseshoe Hammond N/A (b) Indiana
Managed, International, CIE Emerald Resort & Casino N/A South Africa
Managed, International, CIE Caesars Entertainment UK N/A United Kingdom
___________________
(a)On April 24, 2020 , we entered into a definitive purchase agreement with
Bally's Corporation (formerly Twin River Worldwide Holdings, Inc. ) and certain
of its affiliates for the sale of the equity interests of Eldorado Resort Casino
Shreveport Joint Venture and Columbia Properties Tahoe, LLC , the entities that
hold Eldorado Shreveport and MontBleu for aggregate consideration of $155
million , subject to a customary working capital adjustment. The sale of Eldorado
Shreveport closed on December 23, 2020 and the sale of MontBleu closed on April
6, 2021 . MontBleu met the requirements for presentation as assets held for sale
and its results of operations are included in income from continuing operations
in the periods presented. As a result of the agreement to sell MontBleu, an
impairment charge totaling $45 million was recorded during the three months
ended March 31, 2020 due to the carrying value exceeding the estimated net sales
proceeds from the sale.
(b)In connection with its review of the Merger, the Indiana Gaming Commission
determined on July 16, 2020 that, as a condition to their approval of the
Merger, we are required to divest three properties within the state of Indiana
in order to avoid undue economic concentration. On October 27, 2020 , the Company
entered into an agreement to sell Evansville to GLPI and Bally's Corporation for
$480 million in cash, subject to a customary working capital adjustment. The
sale is subject to satisfaction of customary conditions, including receipt of
required regulatory approvals and is expected to close in mid-2021. In addition,
on December 24, 2020 , the Company entered into an agreement to divest of Caesars
Southern Indiana (see (f) below). We expect to enter into an agreement to sell
Horseshoe Hammond prior to December 31, 2021 . Evansville met the requirements
for presentation as assets held for sale as of March 31, 2021 .
(c)On December 1, 2020 , the Company entered into an agreement to sell the Baton
Rouge to CQ Holding Company, Inc. Pursuant to the terms of the GLPI Master
Lease, Baton Rouge will be removed from the GLPI Master Lease, and the rent
payments to GLPI will remain unchanged. The transaction is expected to close in
the third quarter of 2021 and is subject to regulatory approvals and other
customary closing conditions.
(d)These Former Caesars properties met held for sale criteria as of the
acquisition date. The sales of these properties have or are expected to close
within one year and the properties are classified as discontinued operations as
of March 31, 2021 .
(e)On September 3, 2020 , we and VICI entered into agreement with Rubico
Acquisition Corp. to sell Harrah's Louisiana Downs for $22 million , subject to a
customary working capital adjustment, where the proceeds will be split between
us and VICI. The sale is subject to satisfaction of customary conditions,
including receipt of required regulatory approvals and is expected to close in
the third quarter of 2021.
(f)On December 24, 2020 , the Company entered into agreement to sell Caesars
Southern Indiana to the Eastern Band of Cherokee Indians ("EBCI") for
$250 million , subject to a customary working capital adjustment. Caesar's annual
payments to VICI under the regional lease will decline by $33 million upon
closing of the transaction. Additionally, effective as of the closing of the
transaction, Caesars and EBCI are expected to enter into a long-term agreement
for the continued use of the Caesars brand and Caesars Rewards loyalty program
at Caesars Southern Indiana. The sale is subject to satisfaction of customary
conditions, including receipt of required regulatory approvals and is expected
to close in the third quarter of 2021.
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Merger Related Activities
Merger with Caesars Entertainment Corporation
On July 20, 2020 , the Merger was consummated and Former Caesars became a
wholly-owned subsidiary of ours. The strategic rationale for the Merger
includes, but is not limited to, the following:
•Creation of the largest owner, operator and manager of domestic gaming assets
•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
As described above, following the Merger our domestic and international
footprint has expanded as we own, lease or manage an aggregate of 54 domestic
properties in 16 states and have international operations in five countries
outside of the U.S. as of March 31, 2021 . We also have other domestic and
international properties that are authorized to use the brands and marks of
Caesars Entertainment, Inc. , as well as other non-gaming properties.
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.
We recognized acquisition-related transaction costs of $12 million and
$9 million for the three months ended March 31, 2021 and 2020, respectively.
Partnerships and Acquisition Opportunities
William Hill
We entered into a 25-year agreement, which became effective January 29, 2019 ,
with William Hill PLC and William Hill U.S. Holdco, Inc. ("William Hill US"),
its U.S. subsidiary (together, "William Hill") which granted to William Hill the
right to conduct betting activities, including operating certain of our
sportsbooks, in retail channels under certain skins for online channels with
respect to our current and future properties, and conduct real money online
gaming activities. We received a 20% ownership interest in William Hill US
initially valued at approximately $129 million . We also received 13 million
ordinary shares of William Hill PLC , which were subject to restrictions on
timing of sale, with an initial value of approximately $27 million in January
2019 . The time restrictions on approximately 6 million shares expire within the
next twelve months and are classified as current. Our profit and losses
attributable to William Hill US are included in Transaction costs and other
operating costs on the Statements of Operations. We granted William Hill the
right to the use of certain skins in exchange for an equity method investment.
The fair value of the William Hill US and William Hill PLC shares received has
been deferred and is recognized as revenue on a straight-line basis over the
25-year agreement term. The amortization of deferred revenues associated with
our equity interests is included in other revenue within our Corporate and Other
segment. Additionally, we receive a profit share from the operations of sports
betting and other gaming activities associated with our properties.
On September 30, 2020 , we announced that we had reached an agreement with
William Hill PLC on the terms of a recommended cash acquisition pursuant to
which we would acquire the entire issued and to be issued share capital (other
than shares owned by us or held in treasury) of William Hill PLC , in an all-cash
transaction of approximately £2.9 billion (the "William Hill Acquisition"). In
order to manage the risk of appreciation of the GBP denominated purchase price
the Company entered into foreign exchange forward contracts. On March 25, 2021 ,
the remaining outstanding forward contract was settled, for which the Company
received $41 million in proceeds and recorded a net gain of $1 million during
the three months ended March 31, 2021 .
On September 29, 2020 , the Company entered into a debt financing commitment
letter pursuant to which the lenders party thereto committed to arrange and
provide a newly formed subsidiary of the Company with (a) a £1.0 billion senior
secured 540-day bridge loan facility, (b) a £116 million senior secured 540-day
revolving credit facility and (c) a £503 million senior secured 60-day bridge
loan facility (collectively, the "Debt Financing"), which commitment letter was
amended and restated on December 11, 2020 in order to join additional lenders as
parties thereto.
Pending negotiation of the definitive loan agreement for the Debt Financing, on
October 6, 2020 , a newly formed subsidiary of the Company entered into a
£1.5 billion Interim Facilities Agreement (the "Interim Facilities Agreement")
with Deutsche Bank AG, London Branch and JPMorgan Chase Bank, N.A . to provide:
(a) a 90-day £1.0 billion interim asset sale bridge facility and (b) a 90-day
£503 million interim cash confirmation bridge facility, which Interim Facilities
Agreement was amended and restated on December 11, 2020 in order to join
additional lenders as parties thereto.
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On April 20, 2021 , a UK Court sanctioned the William Hill Acquisition and on
April 22, 2021 , the Company completed the acquisition for approximately
£2.9 billion, or approximately $4.0 billion .
In connection with the William Hill Acquisition, on April 22, 2021 , a newly
formed subsidiary of the Company entered into a Credit Agreement (the "Bridge
Credit Agreement") with certain lenders party thereto and Deutsche Bank AG,
London Branch, as administrative agent and collateral agent, pursuant to which
the lenders party thereto provided the Debt Financing. The Bridge Credit
Agreement provides for (a) a 540-day £1.0 billion asset sale bridge facility,
(b) a 60-day £503 million cash confirmation bridge facility and (c) a 540-day
£116 million revolving credit facility. The proceeds of the bridge loan
facilities provided under the Bridge Credit Agreement were used (i) to pay a
portion of the cash consideration for the acquisition and (ii) to pay fees and
expenses related to the acquisition and related transactions. The proceeds of
the revolving credit facility under the Bridge Credit Agreement will be used for
working capital and general corporate purposes. The Interim Facilities Agreement
was terminated upon the execution of the Bridge Credit Agreement for the Debt
Financing. The Bridge Credit Agreement is included within William Hill's
non-U.S. operations which is expected to be divested.
The Stars Group/Flutter Entertainment
In November 2018 , we entered into a 20-year agreement with The Stars Group Inc.,
which was subsequently acquired by Flutter Entertainment PLC ("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. The fair value of the shares received has been deferred and is
recognized as revenue on a straight-line basis over the 20-year agreement term.
As of March 31, 2021 and December 31, 2020 , the fair value of shares held was
$10 million and is included in Prepayments and other current assets on the
Balance Sheets. The Company recorded an unrealized gain of less than a million
during the three months ended March 31, 2021 , and an unrealized loss of $3
million during the three months ended March 31, 2020 , 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. We have made cash contributions totaling $1 million and have
contributed land. On February 12, 2021 , we contributed an additional 186 acres
to the joint venture for 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 March 31, 2021 . We entered into a lease
agreement in February 2021 to lease back a portion of the land from the joint
venture.
While we hold a 50% variable interest in the joint venture, we are not the
primary beneficiary. 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
Las Vegas Regional Managed, International, CIE
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) Horseshoe Baltimore (a)(h)
(a) Hawk
Paris Las Vegas (a) Lady Luck Casino - Black Caesars Southern Indiana Caesars Windsor (a)
Hawk (a)(b)(e)
Planet Hollywood Resort Isle Casino Waterloo Harrah's Council Bluffs (a) Kings & Queens Casino (a)
& Casino (a)
Rio All-Suite Hotel & Isle Casino Bettendorf Harrah's Gulf Coast (a) Caesars Dubai (a)
Casino (a)
Isle of Capri Casino Harrah's Joliet (a) International
Boonville
Isle Casino Racing Pompano Harrah's Lake Tahoe (a) Caesars Cairo (a)(b)
Park
Isle of Capri Casino Hotel Harrah's Louisiana Downs Ramses Casino (a)(b)
Lake Charles (a)(b)(g)
Belle of Baton Rouge Harrah's Metropolis (a) Emerald Casino Resort (a)(b)
Casino & Hotel (i)
Isle of Capri Casino Lula Harrah's North Kansas City Alea Glasgow (a)(b)
(a)
Trop Casino Greenville Harrah's Philadelphia (a) Alea Nottingham (a)(b)
Eldorado Gaming Scioto Harveys Lake Tahoe (a) The Empire Casino (a)(b)
Downs
Tropicana Casino and Horseshoe Bossier City (a) Manchester235 (a)(b)
Resort, Atlantic City
Grand Victoria Casino Horseshoe Council Bluffs (a) Playboy Club London (a)(b)
Lumière Place Casino Horseshoe Hammond (a)(b)(f) Rendezvous Brighton (a)(b)
Tropicana Evansville (d) Horseshoe Tunica (a) The Sportsman (a)(b)
CIE
Caesars Interactive
Entertainment (a)
___________________
(a)These properties were acquired from the Merger onJuly 20, 2020 . (b)As a result of the Merger, these properties met the requirements for presentation as discontinued operations as ofMarch 31, 2021 . (c)InApril 2020 , the Company entered into an agreement to sell MontBleu. The sale of MontBleu closed onApril 6, 2021 . (d)OnOctober 27, 2020 , the Company entered into an agreement to sellEvansville , which is expected to close mid-2021. (e)OnDecember 24, 2020 , the Company entered into an agreement to sell CaesarsSouthern Indiana , which is expected to close in the third quarter of 2021. (f)The Company plans to enter into an agreement to sell Horseshoe Hammond prior toDecember 31, 2021 . (g)OnSeptember 3, 2020 , the Company entered into an agreement to sell Harrah's Louisiana Downs, which is expected to close in the third quarter of 2021. (h)As ofMarch 31, 2021 , Horseshoe Baltimore was 44.3% owned by us and held as an equity-method investment. (i)OnDecember 1, 2020 , the Company entered into an agreement to sell Belle ofBaton Rouge , which is expected to close in the third quarter of 2021. 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 Merger, our principal operating activities occurred in five geographic regions and reportable segments: West, Midwest, South, East and Central, in addition to Corporate and Other. Following the Merger, our principal operating activities occur in three regionally-focused reportable segments: (1)Las Vegas , (2) Regional, and (3) Managed, International, CIE, in addition to Corporate and Other. The reportable segments are based on the similar characteristics of the operating segments with the way management assesses these results and allocates resources, which is a consolidated view that adjusts for the effect of certain transactions between these reportable segments within Caesars.
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Presentation of Financial Information
The financial information included in this Item 2 for the period after our
acquisition of Former Caesars on July 20, 2020 is not fully comparable to the
periods prior to the acquisition. In addition, the presentation of financial
information herein for the periods after the Company's sales of various
properties are not fully comparable to the periods prior to their respective
sale dates.
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. Marketing and promotions expense previously
disclosed for the three months ended March 31, 2020 has been reclassified to
Casino and pari-mutuel commissions expense and General and administrative
expense based on the nature of the expense.
Key Performance Metrics
Our primary source of revenue is generated by our gaming operations, but we use
our hotels, restaurants, bars, entertainment venues, retail shops, racing and
sportsbook offerings and other services to attract customers to our properties.
Our operating results are highly dependent on the volume and quality of
customers visiting and staying at our properties. Key performance metrics
include volume indicators such as table games drop and slot handle, which refer
to amounts wagered by our customers. The amount of volume we retain, which is
not fully controllable by us, is recognized as casino revenues and is referred
to as our win or hold. In addition, hotel occupancy and price per room
designated by average daily rate ("ADR") are key indicators for our hotel
business. Our calculation of ADR consists of the average price of occupied rooms
per day including the impact of resort fees and complimentary rooms.
Complimentary room rates are determined based on an analysis of retail or cash
rates for each customer segment and each type of room product to estimate
complimentary rates which are consistent with retail rates. Complimentary rates
are reviewed at least annually and on an interim basis if there are significant
changes in market conditions. Complimentary rooms are treated as occupied rooms
in our calculation of hotel occupancy.
Developments and Significant Factors Impacting Financial Results
The following summary highlights recent developments and significant factors
impacting our financial results for the three months ended March 31, 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 the COVID-19 public
health emergency. We have resumed certain operations at substantially all of our
properties as of March 31, 2021 , with the exception of Isle of Capri Casino
Hotel Lake Charles ("Lake Charles") which was severely damaged by Hurricane
Laura (as described below), and many of our international properties.
We continued to pay our full-time employees through April 10, 2020 , including
tips and tokens. Effective April 11, 2020 , we furloughed approximately 90% of
our employees, implemented salary reductions and committed to continue to
provide benefits to our employees during their furloughed period. A portion of
our workforce has returned to service as the properties have resumed with
limited capacities and in compliance with operating restrictions imposed by
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 three months ended March 31, 2020 .
The COVID-19 public health emergency has had, and continues to have, a material
adverse effect on the Company's business, financial condition and results of
operations for the three months ended March 31, 2021 and 2020. As a result, the
terms of our debt arrangements provide that the financial covenant measurement
period is not effective through September 30, 2021 , so long as we comply with a
minimum liquidity requirement. In addition, on March 19, 2021 , the Company filed
a lawsuit against its insurance carriers for losses attributed to the COVID-19
public health emergency.
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The extent of the ongoing and future effects of the COVID-19 public health
emergency on our business and the casino resort industry generally is uncertain,
but we expect that it will continue to have a significant impact on our
business, results of operations and financial condition. The extent and duration
of the impact of the COVID-19 public health emergency will ultimately depend on
future developments, including but not limited to, the duration and severity of
the outbreak, restrictions on operations imposed by governmental authorities,
the potential for authorities reimposing stay at home orders or additional
restrictions in response to continued developments with the COVID-19 public
health emergency, our ability to adapt to evolving operating procedures, the
impact on consumer demand and discretionary spending, the length of time it
takes for demand to return, the efficacy and availability of vaccines, and our
ability to adjust our cost structures for the duration of the outbreak's effect
on our operations.
•Caesars Acquisition - The Merger closed on July 20, 2020 and, as a result, we
own, lease or manage an aggregate of 54 domestic properties in 16 states and
have international operations in five countries outside of the U.S. as of
March 31, 2021 . We also have other domestic and international properties that
are authorized to use the brands and marks of Caesars Entertainment, Inc. , as
well as other non-gaming properties. See "Reportable Segments" above for a
description of our revised segments following the Merger. Transaction costs
related to our acquisition of Former Caesars totaled $12 million and $9 million
for the three months ended March 31, 2021 and 2020, respectively.
•Discontinued Operations - As result of the Merger, Former Caesars properties,
including Harrah's Louisiana Downs, Caesars Southern Indiana, Horseshoe Hammond,
and the Caesars UK group, including Emerald Resort & Casino , have met held for
sale criteria as of the date of the closing of the Merger. The sales of these
properties are expected to close within one year and the properties are
classified as discontinued operations.
•William Hill Acquisition - On April 22, 2021 , the Company consummated its
previously announced acquisition of the entire issued and to be issued share
capital (other than shares owned by the Company or held in treasury) of William
Hill PLC , in an all-cash transaction of approximately £2.9 billion or
approximately $4.0 billion (the "William Hill Acquisition"). We recognized
acquisition-related transaction costs of approximately $5 million for the three
months ended March 31, 2021 .
•Divestitures - In the previous twelve months we completed several divestitures
including the sales of Kansas City and Vicksburg , Eldorado Shreveport, and
discontinued operations of Harrah's Reno and Bally's Atlantic City . The
properties that have been sold as of March 31, 2021 , are collectively referred
to as "Divestitures." The results of operations of the 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 - As a result of declines in recent performance and the
expected impact on future cash flows as a result of the COVID-19 public health
emergency, we recognized impairment charges in our Regional segment related to
goodwill and trade names totaling $100 million and $16 million , respectively,
during the three months ended March 31, 2020 . In addition, as a result of
entering the agreement to sell MontBleu in our Regional segment, impairment
charges totaling $45 million were recorded during the three months ended
March 31, 2020 due to the carrying value exceeding the estimated net sales
proceeds. No impairment charge was recorded during the three months ended
March 31, 2021 .
•Weather and Construction Disruption - In late August 2020 , our Regional segment
was negatively impacted by Hurricane Laura, causing severe damage to Lake
Charles , which will remain closed until 2022 when construction of a new
land-based casino is expected to be complete. During the three months ended
March 31, 2021 , we received insurance proceeds of approximately $26 million
related to damaged fixed assets and remediation costs. The Company also recorded
a gain of approximately $8 million as proceeds received were in excess of the
losses incurred and the net book value of the damaged property.
•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, throughout our segments.
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Results of Operations
The following table highlights the results of our operations:
Three Months Ended March 31,
(Dollars in millions) 2021 2020
Net revenues:
Las Vegas $ 497 $ -
Regional 1,108 471
Managed, International, CIE 90 -
Corporate and Other (a) 4 2
Total $ 1,699 $ 473
Net loss $ (424) $ (176)
Adjusted EBITDA (b):
Las Vegas $ 162 $ -
Regional 367 111
Managed, International, CIE 15 -
Corporate and Other (a) (39) (8)
Total $ 505 $ 103
Net income (loss) margin (25.0) % (37.2) %
Adjusted EBITDA margin 29.7 % 21.8 %
___________________
(a)Corporate and Other includes revenues related to certain licensing
arrangements and various revenue sharing agreements. Corporate and Other
Adjusted EBITDA includes corporate overhead costs, which consist of certain
expenses, such as: payroll, professional fees and other general and
administrative expenses.
(b)See the "Supplemental Unaudited Presentation of Consolidated Adjusted
Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted
EBITDA")" discussion later in this MD&A for a definition of Adjusted EBITDA and
a reconciliation of net income (loss) to Adjusted EBITDA.
Consolidated comparison of the three months ended March 31, 2021 and 2020
Net Revenues
Net revenues were as follows:
Three Months Ended March 31, Percent
(Dollars in millions) 2021 2020 Variance Change
Casino and pari-mutuel commissions $ 1,140 $ 340 $ 800 *
Food and beverage 166 56 110 196.4 %
Hotel 215 48 167 *
Other 178 29 149 *
Net Revenues $ 1,699 $ 473 $ 1,226 *
___________________
* Not meaningful.
Consolidated revenues increased for the three months ended March 31, 2021 as a
result of the Merger on July 20, 2020 . This was offset by a decline in revenues
associated with the COVID-19 public health emergency and, to a lesser extent,
divestitures of certain properties discussed earlier. All of our properties were
temporarily closed for the period from mid-March 2020 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 the COVID-19
public health emergency. As of March 31, 2021 , substantially all of our
properties have resumed certain operations, with the exception of Lake Charles
which was severely damaged by Hurricane Laura, and many of our international
properties. Due to the impact of the COVID-19 public health emergency, including
local and state regulations and the implementation of social distancing and
health and safety protocols, our properties are subject to reduced gaming
capacity and hotel occupancy, limited operation of food and beverage outlets,
live entertainment events and conventions.
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Our diversified portfolio has yielded mixed results as the properties have
reopened under the conditions noted above. Net revenues for properties which
have historically relied on a local customer base, not dependent on air travel
or convention business, showed an increase as compared to the three months ended
March 31, 2020 results. These properties' gaming and hotel revenues have
historically been the largest portion of their total revenue. Net revenues for
properties in destination markets such as Las Vegas , Atlantic City and New
Orleans , which have historically relied on a broader regional and national
customer base or convention business have declined from the prior year period.
These properties have historically relied on a broader mix of revenue sources
including conventions, entertainment, and food and beverage offerings. As a
result of reduced visitation, an overall reduction in air travel, state and
local restrictions on capacity, and social distancing, safety and health
protocols, these sources of revenue have been materially reduced as compared to
prior periods.
Operating Expenses
Operating expenses were as follows:
Three Months Ended March 31, Percent
(Dollars in millions) 2021 2020 Variance Change
Casino and pari-mutuel commissions $ 541 $ 179 $ 362 *
Food and beverage 106 53 53 100.0 %
Hotel 81 22 59 *
Other 68 9 59 *
General and administrative 366 98 268 *
Corporate 66 16 50 *
Impairment charges - 161 (161) (100.0) %
Depreciation and amortization 265 50 215 *
Transaction costs and other operating costs 20 8 12 150.0 %
Total operating expenses $ 1,513 $ 596 $ 917 153.9 %
___________________
* Not meaningful.
Casino and pari-mutuel commissions expense consists primarily of salaries and
wages associated with our gaming operations, marketing and promotions and gaming
taxes. Food and beverage expense consists principally 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 months ended March 31, 2021 increased year over year as a result
of the Merger. This was partially offset by reopening with restrictions under
the public health guidelines of reduced gaming and hotel capacity and limited
food and beverage options. As such, our properties are operating with a reduced
workforce, which resulted in decreased salaries and wages. In addition, our
properties have reduced marketing and promotional spend, resulting in further
declines in gaming expenses.
General and administrative expenses include items such as information
technology, facility maintenance, utilities, property and liability insurance,
expenses for administrative departments such as accounting, compliance,
purchasing, human resources, legal and internal audit, and property taxes.
Property, general and administrative expenses also include stock-based
compensation expense for certain property executives, sports sponsorships and
other marketing expenses not directly related to our gaming and non-gaming
operations.
General and administrative expenses for the three months ended March 31, 2021
increased year over year as the result of the Merger. This was offset by the
actions taken to reduce our cost structure while our properties were temporarily
closed and reduced operations due to the impact of the COVID-19 public health
emergency.
For the three months ended March 31, 2021 compared to the same prior year
period, corporate expenses increased primarily due to the Merger, and have been
offset by reductions in salaries and wages due to reductions in workforce
implemented as a result of the impact of the COVID-19 public health emergency.
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As described above, we recorded impairment charges of $116 million due to the
effects of the COVID-19 public health emergency during the three months ended
March 31, 2020 . In addition, $45 million of additional impairment charges
related to the sale of MontBleu were recorded during the three months ended
March 31, 2020 . No impairment charges were recorded during the three months
ended March 31, 2021 .
For the three months ended March 31, 2021 compared to the same prior year
period, depreciation and amortization expense increased mainly due to the
Merger, offset by ceasing depreciation and amortization expense on certain
assets held for sale and the Divestitures.
For the three months ended March 31, 2021 compared to the same prior year
period, transaction costs and other operating costs increased primarily due to
the acquisition of Former Caesars, as well as, costs or fees incurred related to
the William Hill Acquisition, various project exit fees and related write offs,
and higher severance expense related to the Merger.
Other income (expenses)
Other income (expenses) were as follows:
Three Months Ended March 31, Percent
(Dollars in millions) 2021 2020 Variance Change
Interest expense, net $ (563) $ (67) $ (496) *
Other loss (133) (23) (110) *
Benefit for income taxes 79 37 42 113.5 %
___________________
* Not meaningful.
For the three months ended March 31, 2021 , interest expense, net increased year
over year as a result of the Merger. Outstanding debt assumed, additional debt
raised, and assumed financing obligations resulted in the increase in interest
expense.
For the three months ended March 31, 2021 , other loss increased year over year
due to an unrealized loss on the change in fair value of the derivative
liability related to the 5% Convertible Notes, offset by a gain on the foreign
currency exchange rate associated with restricted cash held in GBP.
The income tax expense for the three months ended March 31, 2021 differed from
the expected income tax benefit based on the federal tax rate of 21% primarily
due to nondeductible expenses related to the convertible notes liability. The
income tax expense for the three months ended March 31, 2020 differed from the
expected income tax expense based on the federal tax rate of 21% primarily due
to goodwill impairments and changes in the valuation allowance, offset by the
true-up of certain state tax benefits and state and local income taxes.
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Segment comparison of the three months ended March 31, 2021 and 2020
Las Vegas Segment
Three Months Ended March 31, Percent
(Dollars in millions) 2021 2020 Variance Change
Revenues:
Casino and pari-mutuel commissions $ 226 $ - $ 226 *
Food and beverage 84 - 84 *
Hotel 115 - 115 *
Other 72 - 72 *
Net Revenues $ 497 $ - $ 497 *
Adjusted EBITDA $ 162 $ - $ 162 *
Adjusted EBITDA margin 32.6 % - % 32.6 pts
Net loss attributable to Caesars $ (67) $ - $ (67) *
___________________
* Not meaningful.
Las Vegas segment's net revenues and Adjusted EBITDA increased as a result of
the Merger. As of March 31, 2021 , all of our Las Vegas properties reopened with
reduced gaming and hotel capacity with limited food and beverage and
entertainment offerings. As of March 31, 2021 , convention venues have not
reopened due to capacity limitations.
During the three months ended March 31, 2021 , all of our reopened properties in
the Las Vegas segment experienced a decline in net revenues and Adjusted EBITDA
compared to Former Caesars' prior year results for the same properties due to
the general weakness in the economic environment resulting from reduced
visitation and travel to Las Vegas resulting from the COVID-19 public health
emergency. Adjusted EBITDA margins for our Las Vegas properties were negatively
impacted by greater declines in revenue than our Regional segment as well as
rent expense associated with our Rio lease in our Las Vegas segment. As
restrictions related to the COVID-19 public health emergency have begun to ease,
net revenues, net income and Adjusted EBITDA have shown positive trends during
the three months ended March 31, 2021 .
Regional Segment
Three Months Ended March 31, Percent
(Dollars in millions) 2021 2020 Variance Change
Revenues:
Casino and pari-mutuel commissions $ 890 $ 340 $ 550 161.8 %
Food and beverage 81 56 25 44.6 %
Hotel 100 48 52 108.3 %
Other 37 27 10 37.0 %
Net Revenues $ 1,108 $ 471 $ 637 135.2 %
Adjusted EBITDA $ 367 $ 111 $ 256 *
Adjusted EBITDA margin 33.1 % 23.6 % 9.5 pts
Net income (loss) attributable to Caesars $ 65 $ (135) $ 200 148.1 %
___________________
* Not meaningful.
Regional segment's net revenues, Adjusted EBITDA and margin increased for the
three months ended March 31, 2021 compared to the same prior year period as a
result of the acquisition of Former Caesars. As of March 31, 2021 , all of our
properties in our Regional segment have reopened, with the exception of Lake
Charles due to the closures from the weather disruption described above.
However, all of our properties within the Regional segment are subject to
reduced capacities and limited food and beverage offerings.
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In our Regional segment, net revenues were flat compared to the prior year
across all properties, including Former Caesars'. Similarly, Adjusted EBITDA and
Adjusted EBITDA margin for these properties were also higher as compared to
prior year due to reductions in workforce and marketing costs, synergies from
the purchasing power of the combined Caesars organization, and limitations on
certain lower margin food and beverage offerings.
Managed, International & CIE Segment
Three Months Ended March 31, Percent
(Dollars in millions) 2021 2020 Variance Change
Revenues:
Casino and pari-mutuel commissions $ 24 $ -$ 24 * Food and beverage 1 - 1 * Other 65 - 65 * Net Revenues $ 90 $ -$ 90 * Adjusted EBITDA $ 15 $ -$ 15 * Adjusted EBITDA margin 16.7 % - % 16.7 pts Net income attributable to Caesars $ 3 $ -$ 3 * ___________________ * Not meaningful. Managed, International, CIE segment's net revenues and Adjusted EBITDA increased as a result of the acquisition of Former Caesars. All of our managed properties have reopened as ofMarch 31, 2021 except for many of our international properties. For the three months endedMarch 31, 2021 , net revenues for Managed, International and CIE declined as compared to Former Caesars' prior period due to the absence of reimbursed management costs related to Caesars Windsor remaining closed throughout the quarter. Excluding that, net revenues increased primarily related to increased revenue in our CIE business.Adjusted EBITDA for Managed, International and CIE increased as compared to Former Caesars' prior period. Corporate & Other Three Months Ended March 31, Percent (Dollars in millions) 2021 2020 Variance Change Revenues: Other $ 4$ 2 $ 2 100.0 % Net Revenues $ 4$ 2 $ 2 100.0 % Adjusted EBITDA $ (39)$ (8) $ (31) * ___________________ * Not meaningful. Supplemental Unaudited Presentation of Consolidated Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") for the Three Months EndedMarch 31, 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 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 expense, (benefit) provision for income taxes, unrealized (gain) loss on investments and marketable securities, depreciation and amortization, stock-based compensation, impairment charges, transaction expenses, severance expense, selling costs associated with the divestitures of properties, equity in income (loss) of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, (gain) loss related to divestitures, changes in the fair value of certain derivatives and certain non-recurring expenses such as
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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 months ended
March 31, 2021 and 2020, respectively, in addition to reconciling net income
(loss) to Adjusted EBITDA in accordance with GAAP (unaudited):
Three Months Ended March 31, 2021
Add:
(In millions) CEI Disc. Ops (d) Total (f)
Net loss attributable to Caesars $ (423) $ - $ (423)
Net loss attributable to noncontrolling interests (1) - (1)
Discontinued operations, net of income taxes (7) 7 -
(Benefit) provision for income taxes (79) 4 (75)
Other loss (a) 133 - 133
Interest expense, net 563 32 595
Depreciation and amortization 265 - 265
Transaction costs and other operating costs (b) 20 - 20
Stock-based compensation expense 23 - 23
Other items (c) 11 - 11
Adjusted EBITDA $ 505 $ 43 $ 548
Three Months Ended March 31, 2020
Less: Divestitures Pre-Acq.
(In millions) CEI (g) CEC (e) Total (h)
Net income (loss) attributable to Caesars
48$ 189 $ 61 Net loss attributable to noncontrolling interests - - (1) (1) (Benefit) provision for income taxes (37) - 54 17 Other (income) loss (a) 23 - (641) (618) Interest expense, net 67 (4) 333 396 Depreciation and amortization 50 (3) 256 303 Impairment charges 161 (33) 65 193 Transaction costs and other operating costs (b) 8 - 21 29 Stock-based compensation expense 6 - 10 16 Other items (c) 1 - 13 14 Adjusted EBITDA$ 103 $ 8$ 299 $ 410 ____________________ (a)Other loss for the three months endedMarch 31, 2021 primarily represents a loss on the change in fair value of the derivative liability related to the 5% Convertible Notes slightly offset by gains on foreign currency exchange and investments held. Other (income) loss for the three months endedMarch 31, 2020 primarily represents a gain on the change in fair value of the of the derivative liability related to the 5% Convertible Notes and losses on investments. (b)Transaction costs and other operating costs for the three months endedMarch 31, 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, and business optimization expenses. (d)Discontinued operations include Horseshoe Hammond, Caesars Southern Indiana, Harrah's Louisiana Downs, and the CaesarsUK group, includingEmerald Resorts & Casino. 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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(e)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.
(f)Includes results of operations from discontinued operations. Such
presentation does not conform to GAAP or the Securities and Exchange Commission
rules for pro forma presentation; however, we believe that the additional
financial information will be helpful to investors in comparing current results
with results of prior periods. This is non-GAAP data and should not be
considered a substitute for data prepared in accordance with GAAP, but should be
viewed in addition to the results of operations reported by the Company.
(g)Divestitures for the three months ended March 31, 2020 include results of
operations for Eldorado Shreveport, Kansas City , Vicksburg and discontinued
operations of Harrah's Reno and Bally's Atlantic City . 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.
(h)Excludes results of operations from divestitures as detailed in (g) and
includes results of operations of Former Caesars, including discontinued
operations. Such presentation does not conform to GAAP or the Securities and
Exchange Commission rules for pro forma presentation; however, we believe that
the additional financial information will be helpful to investors in comparing
current results with results of prior periods. This is non-GAAP data and should
not be considered a substitute for data prepared in accordance with GAAP, but
should be viewed in addition to our reported results of operations.
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 investments to
maintain the quality of our properties.
During 2020, in an effort to mitigate the impacts of the COVID-19 public health
emergency on our business and maintain liquidity, we furloughed approximately
90% of our employees beginning on April 11, 2020 . We have resumed operations at
all of our properties, with the exception of Lake Charles which was severely
damaged by Hurricane Laura, and many of our international properties. A portion
of the workforce has returned to service as our properties have resumed
operations with limited capacities and in compliance with operating restrictions
imposed by governmental or tribal orders, directives and guidelines. As a result
of these payroll changes combined with other cost saving measures, our operating
expenses were reduced significantly.
As of March 31, 2021 , our cash on hand and revolving borrowing capacity was as
follows:
(In millions) March 31, 2021
Cash and cash equivalents $ 1,794
Revolver capacity 2,210
Revolver capacity committed to letters of credit (82)
Available revolver capacity committed as regulatory requirement (48) Total$ 3,874 OnSeptember 30, 2020 , we announced that we had reached an agreement withWilliam 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) ofWilliam Hill PLC , in an all-cash transaction of approximately £2.9 billion. The William Hill Acquisition was consummated onApril 22, 2021 , for approximately$4.0 billion , based on the GBP:USD exchange rate on the closing date. As ofMarch 31, 2021 , we had restricted cash of approximately$2.1 billion which we applied to pay a portion of the purchase price of the acquisition. We entered into a foreign exchange forward contract to hedge the risk of appreciation of the GBP denominated purchase price for the William Hill Acquisition. OnMarch 25, 2021 , the forward contract was settled, for which the Company received$41 million in proceeds. OnSeptember 29, 2020 , the Company entered into a debt financing commitment letter pursuant to which the lenders party thereto committed to arrange and provide a newly formed subsidiary of the Company with (a) a £1.0 billion senior secured 540-day bridge loan facility, (b) a £116 million senior secured 540-day revolving credit facility and (c) a £503 million senior secured 60-day bridge loan facility (collectively, the "Debt Financing"), which was amended and restated onDecember 11, 2020 in order to join additional lenders as parties thereto. Pending negotiations of the definitive loan agreement for the Debt Financing, onOctober 6, 2020 , we entered into a £1.5 billion interim facilities agreement (the "Interim Facilities Agreement") with Deutsche Bank AG,London Branch andJPMorgan Chase Bank, N.A . to provide: (a) a 90-day £1.0 billion interim asset sale bridge facility and (b) a 90-day £503 million interim cash confirmation bridge facility, which Interim Facilities Agreement was amended and restated onDecember 11, 2020 in order to join additional lenders as parties thereto.
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In connection with the William Hill Acquisition, on April 22, 2021 , a newly
formed subsidiary of the Company entered into a Credit Agreement (the "Bridge
Credit Agreement") with certain lenders party thereto and Deutsche Bank AG,
London Branch, as administrative agent and collateral agent, pursuant to which
the lenders party thereto provided the Debt Financing. The Bridge Credit
Agreement provides for (a) a 540-day £1.0 billion asset sale bridge facility,
(b) a 60-day £503 million cash confirmation bridge facility and (c) a 540-day
£116 million revolving credit facility. The proceeds of the bridge loan
facilities provided under the Bridge Credit Agreement were used (i) to pay a
portion of the cash consideration for the acquisition and (ii) to pay fees and
expenses related to the acquisition and related transactions. The proceeds of
the revolving credit facility under the Bridge Credit Agreement will be used for
working capital and general corporate purposes. The Interim Facilities Agreement
was terminated upon the execution of the Bridge Credit Agreement for the Debt
Financing. The Bridge Credit Agreement is included within William Hill's
non-U.S. operations which is expected to be divested.
We expect that our primary capital requirements going forward will relate to the
operation and maintenance of our properties, taxes, servicing our outstanding
indebtedness, and rent payments under our GLPI Master Lease, the VICI 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 2021 are expected to significantly increase as a
result of the additional properties acquired in the Merger and new development
projects. 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. As of March 31, 2021 , our restricted cash balance in the
escrow account was $376 million for future capital expenditures in New Jersey .
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 .
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 2022.
Cash spent for capital expenditures totaled $65 million and $23 million for the
three months ended March 31, 2021 and 2020, respectively. The following table
summarizes our capital expenditures for the three months ended March 31, 2021 ,
and an estimated range of capital expenditures for the remainder of 2021:
Three Months Ended Estimate of Remaining
March 31, 2021 Capital Expenditures for 2021
(In millions) Actual Low High
Atlantic City $ 12 $ 165 $ 215
Indiana racing operations 2 5 15
Total estimated capital expenditures from
restricted cash 14 170 230
Lake Charles 12 65 115
New Orleans 3 25 50
Other growth and maintenance projects 36 335 360
Total estimated capital expenditures from
unrestricted cash and insurance proceeds 51 425 525
Total $ 65 $ 595 $ 755
A significant portion of our liquidity needs are for debt service and payments
associated with our leases. Our estimated debt service (including principal and
interest) is approximately $610 million for the remainder of 2021. We also lease
certain real property assets from third parties, including GLPI and VICI. We
estimate our lease payments to be approximately $900 million for the remainder
of 2021.
The 5% Convertible Notes are convertible at any time at the option of the
holders thereof or the Company. We do not intend to exercise our option to cause
the conversion of the 5% Convertible Notes prior to maturity. During the three
months ended March 31, 2021 , conversions have been negligible. At such time as
the holders of the 5% Convertible Notes elect to cause conversion, we estimate
using cash of $379 million and issuing 4.5 million shares to settle the
remaining outstanding 5% Convertible Notes as of March 31, 2021 .
The Company periodically divests assets that it does not consider core to its
business to raise capital or, in some cases, to comply with conditions, terms,
obligations or restrictions imposed by antitrust, gaming and other regulatory
entities.
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On April 6, 2021 , the Company consummated the sale of the equity interests of
MontBleu for $15 million , subject to a customary working capital adjustment,
resulting in a loss of approximately $2 million . The purchase price is due no
later than the first anniversary of the closing of the sale.
On September 3, 2020 , the Company and VICI entered into agreement to sell
Harrah's Louisiana Downs with Rubico Acquisition Corp. for $22 million , subject
to a customary working capital adjustment, where the proceeds will be split
between the Company and VICI. The sale is subject to satisfaction of customary
conditions, including receipt of required regulatory approvals and is expected
to close in the third quarter of 2021.
On October 27, 2020 , the Company entered into an agreement to sell Evansville to
GLPI and Bally's Corporation for $480 million in cash, subject to a customary
working capital adjustment. The sale is subject to satisfaction of customary
conditions, including receipt of required regulatory approvals and is expected
to close in mid-2021.
On December 1, 2020 , the Company entered into a definitive agreement with CQ
Holding Company, Inc. to sell the equity interests of Baton Rouge . The
definitive agreement provides that the consummation of the sale is subject to
satisfaction of customary conditions, including receipt of required regulatory
approvals and is expected to close in the third quarter of 2021.
On December 24, 2020 , the Company entered into an agreement to sell the equity
interests of Caesars Southern Indiana to the EBCI for $250 million , subject to a
customary working capital adjustment. The sale is subject to satisfaction of
customary conditions, including receipt of required regulatory approvals and is
expected to close in the third quarter of 2021.
In addition to the agreements above, we also expect to enter into additional
agreements to divest of Horseshoe Hammond prior to December 31, 2021 . Further,
we expect to divest of several other non-core properties including our
international properties within our Caesars UK group, which includes Emerald
Resorts Casino .
If the agreed upon selling price for future divestitures does not exceed the
carrying value of the assets, we may be required to record additional impairment
charges in future periods which may be material.
We expect that 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, the
COVID-19 public health emergency has had, and is expected to continue to have,
an adverse effect on our business, financial condition and results of operations
and has caused, and may continue to cause, disruption in the financial markets.
While we have undertaken efforts to mitigate the impacts of the COVID-19 public
health emergency on our business and maintain liquidity, the extent of the
ongoing and future effects of the COVID-19 public health emergency on our
business, results of operations and financial condition is uncertain and may
adversely impact our liquidity in the future. Our ability to access additional
capital may be adversely affected by the disruption in the financial markets
caused by the COVID-19 public health emergency, restrictions on incurring
additional indebtedness contained in the agreements governing our indebtedness
and the impact of the public health emergency on our business, results of
operations and financial condition.
Debt and Master Lease Covenant Compliance
The Caesars Resort Collection ("CRC") Credit Agreement, the CEI Revolving Credit
Facility, and the indentures related to the CEI Senior Secured Notes, the CEI
Senior Notes, the CRC Senior Secured Notes and the CRC Notes contain covenants
which are standard and customary for these types of agreements. These include
negative covenants, which, subject to certain exceptions and baskets, limit our
ability to (among other items) incur additional indebtedness, make investments,
make restricted payments, including dividends, grant liens, sell assets and make
acquisitions. The indenture for the 5% Convertible Notes contains limited
covenants as a result of amendments that became effective in connection with the
consummation of the Merger.
The CRC Revolving Credit Facility and CEI Revolving Credit Facility include a
maximum first-priority net senior secured leverage ratio financial covenant of
6.35:1, which is applicable solely to the extent that certain testing conditions
are satisfied. Failure to comply with such covenants could result in an
acceleration of the maturity of indebtedness outstanding under the relevant debt
document. Due to the effects of the COVID-19 public health emergency, the
current terms of the CRC Credit Agreement and the CEI Revolving Credit Facility
provide that the financial covenant measurement period is not effective through
September 30, 2021 so long as CRC and the Company, respectively, comply with a
minimum liquidity requirement, which includes any such availability under the
applicable revolving credit facilities.
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.
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As of March 31, 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 March 31, 2021 , we 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 three months ended March 31, 2021 and
2020.
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. See Note 2 for a description of the Merger and
the related obligations assumed and Note 8 for additional contractual
obligations. There have been no material changes during the three months ended
March 31, 2021 to our contractual obligations as disclosed in Part II, Item 7 of
our Annual Report on Form 10-K for the year ended December 31, 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 March 31, 2021 , our long-term variable-rate borrowings totaled $6.3
billion under the CRC term loans and no amounts were outstanding under the CEI
Revolving Credit Facility and CRC Revolving Credit Facility. Long-term
variable-rate borrowings under the CRC term loans represented approximately 42%
of our long-term debt as of March 31, 2021 . Of our $15.0 billion face value of
debt, as of March 31, 2021 , we have entered into seven interest rate swap
agreements to fix the interest rate on $2.3 billion of variable rate debt, and
$4.0 billion of debt remains subject to variable interest rates for the term of
the agreement. During the three months ended March 31, 2021 , the weighted
average interest rates on our variable and fixed rate debt were 3.36% and 6.40%,
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.
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On October 9, 2020 , the Company entered into a foreign exchange forward contract
to hedge the risk of appreciation of the GBP denominated purchase price related
to William Hill PLC , pursuant to which the Company agreed to purchase
£536 million at a contracted exchange rate. On March 25, 2021 , the forward
contract was settled, for which the Company received $41 million in proceeds.
Subsequent to March 31, 2021 , the Company entered into foreign exchange swap
agreements in order to mitigate the risk of changes in foreign currency exchange
rates. We are contracted to purchase £237 million at a contracted rate which we
expect to settle in June 2021 . We have also contracted to sell £487 million that
we expect to settle in December 2021 . We may elect to enter into additional such
agreements as we continue to mitigate our exposure to changes in foreign
currency exchange rates.
We evaluate our exposure to market risk by monitoring interest rates in the
marketplace and have, on occasion, utilized derivative financial instruments to
help manage this risk. We do not utilize derivative financial instruments for
trading purposes. There were no other material quantitative changes in our
market risk exposure, or how such risks are managed, for the three months ended
March 31, 2021 .
Item 4. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports that
we file under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is recorded, processed, summarized, evaluated and reported within the
time periods specified in the rules and forms of the SEC , and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation
of our Chief Executive Officer (principal executive officer) and Chief Financial
Officer (principal financial officer), of the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this Quarterly Report on Form
10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures as of the end
of the period covered by this Quarterly Report on Form 10-Q are effective to
ensure that the information required to be disclosed by us in the reports that
we file under the Exchange Act is recorded, processed, summarized, evaluated and
reported within the time periods specified in SEC rules and forms and that such
information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
(b)Changes in Internal Controls
The Company continues to integrate our internal controls over financial
reporting following the Merger. As a result of these integration activities,
certain controls will be evaluated and may be changed.
There were no changes in our internal control over financial reporting during
the three months ended March 31, 2021 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
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