CAESARS ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended March 31, |
(In millions) | 2023 | | 2022 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net cash provided by (used in) operating activities | $ | 174 | | | $ | (246) | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchase of property and equipment, net | (272) | | | (210) | |
| | | |
| | | |
| | | |
Proceeds from sale of businesses, property and equipment, net of cash sold | 1 | | | 3 | |
Proceeds from the sale of investments | — | | | 27 | |
Proceeds from insurance related to property damage | — | | | 27 | |
| | | |
Other | 40 | | | (6) | |
Net cash used in investing activities | (231) | | | (159) | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from long-term debt and revolving credit facilities | 4,700 | | | 475 | |
Repayments of long-term debt and revolving credit facilities | (4,630) | | | (492) | |
| | | |
| | | |
Financing obligation payments | (1) | | | — | |
Debt issuance and extinguishment costs | (79) | | | — | |
| | | |
Taxes paid related to net share settlement of equity awards | (13) | | | (20) | |
| | | |
Net cash used in financing activities | (23) | | | (37) | |
| | | |
CASH FLOWS FROM DISCONTINUED OPERATIONS: | | | |
Cash flows from operating activities | — | | | (13) | |
Cash flows from investing activities | — | | | (39) | |
Cash flows from financing activities | — | | | — | |
Net cash from discontinued operations | — | | | (52) | |
| | | |
| | | |
Effect of foreign currency exchange rates on cash | — | | | (9) | |
Decrease in cash, cash equivalents and restricted cash | (80) | | | (503) | |
Cash, cash equivalents and restricted cash, beginning of period | 1,303 | | | 2,021 | |
Cash, cash equivalents and restricted cash, end of period | $ | 1,223 | | | $ | 1,518 | |
| | | |
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO AMOUNTS REPORTED WITHIN THE CONSOLIDATED CONDENSED BALANCE SHEETS: | | | |
Cash and cash equivalents | $ | 965 | | | $ | 814 | |
Restricted cash | 155 | | | 185 | |
Restricted and escrow cash included in other assets, net | 103 | | | 266 | |
Cash and cash equivalents and restricted cash held for sale - discontinued operations | — | | | 253 | |
Total cash, cash equivalents and restricted cash | $ | 1,223 | | | $ | 1,518 | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
Interest paid | $ | 615 | | | $ | 572 | |
Income taxes paid, net | 2 | | | 6 | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | |
Payables for capital expenditures | 148 | | | 151 | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these consolidated condensed financial statements.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying consolidated condensed financial statements include the accounts of Caesars Entertainment, Inc., a Delaware corporation, and its consolidated subsidiaries which may be referred to as the “Company,” “CEI,” “Caesars,” “we,” “our,” or “us” within these financial statements.
This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). Capitalized terms used but not defined in this Form 10-Q have the same meanings as in the 2022 Annual Report.
We also refer to (i) our Consolidated Condensed Financial Statements as our “Financial Statements,” (ii) our Consolidated Condensed Balance Sheets as our “Balance Sheets,” (iii) our Consolidated Condensed Statements of Operations and Consolidated Condensed Statements of Comprehensive Income (Loss) as our “Statements of Operations,” and (iv) our Consolidated Condensed Statements of Cash Flows as our “Statements of Cash Flows.”
Note 1. Organization and Description of Business
Organization
The Company is a geographically diversified gaming and hospitality company that was founded in 1973 by the Carano family with the opening of the Eldorado Hotel Casino in Reno, Nevada. Beginning in 2005, the Company grew through a series of acquisitions, including the acquisition of MTR Gaming Group, Inc. in 2014, Isle of Capri Casinos, Inc. in 2017, Tropicana Entertainment, Inc. in 2018, Caesars Entertainment Corporation in 2020 and William Hill PLC on April 22, 2021. The Company’s ticker symbol on the NASDAQ Stock Market is “CZR.”
Description of Business
The Company owns, leases, brands or manages an aggregate of 51 domestic properties in 16 states with approximately 52,100 slot machines, video lottery terminals and e-tables, approximately 2,800 table games and approximately 47,200 hotel rooms as of March 31, 2023. The Company operates and conducts sports wagering across 30 jurisdictions in North America, 22 of which offer mobile sports betting, and operates regulated online real money gaming businesses in six jurisdictions in North America. In addition, we have other domestic and international properties that are authorized to use the brands and marks of Caesars Entertainment, Inc., as well as other non-gaming properties. The Company’s primary source of revenue is generated by our casino properties’ gaming operations, including retail and online sports betting, as well as online gaming, and the Company utilizes its hotels, restaurants, bars, entertainment, racing, retail shops and other services to attract customers to its properties.
The Company’s operations for retail and mobile sports betting, online casino, and online poker are included under the Caesars Digital segment. As part of the Caesars Digital segment, the Company has made significant investments into the interactive business in recent years, including the acquisition of William Hill PLC and strategic expansions into new markets as legalization permits. The Company has utilized significant marketing campaigns with distinguished actors, athletes and media personalities promoting the Caesars Sportsbook app. The Company expects to continue to expand its operations in the Caesars Digital segment as new jurisdictions legalize retail and online gaming and sports betting.
Divestitures
We periodically divest of assets in order to raise capital, as a result of a determination that the assets are not core to our business, or due to regulatory requirement. A summary of recently completed divestitures of our properties as of March 31, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Segment | | Property | | Date Sold | | | | | Sales Price |
Regional | | Belle of Baton Rouge Casino & Hotel | | May 5, 2022 | | | | | * |
| | | | | | | | | |
Discontinued operations: | | | |
N/A | | William Hill International | | July 1, 2022 | | | | | £2.0 billion |
___________________
*Not meaningful.
For the three months ended March 31, 2022, the operations of Belle of Baton Rouge Casino & Hotel resulted in $4 million in net revenues and the discontinued operations of William Hill International included net revenues of $419 million and net loss of $303 million.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Financial Statements contain all adjustments, all of which are normal and recurring, considered necessary for a fair presentation. The results of operations for these interim periods are not necessarily indicative of the operating results for other quarters, for the full year or any future period.
The presentation of financial information herein for the periods before the Company’s divestitures of various properties is not fully comparable to the periods after the sale dates.
Consolidation of Subsidiaries and Variable Interest Entities
Our Financial Statements include the accounts of Caesars Entertainment, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions.
We consolidate all subsidiaries in which we have a controlling financial interest and variable interest entities (“VIEs”) for which we or one of our consolidated subsidiaries is the primary beneficiary. Control generally equates to ownership percentage, whereby (i) affiliates that are more than 50% owned are consolidated; (ii) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where we have determined that we have significant influence over the entities; and (iii) investments in affiliates of 20% or less are generally accounted for as investments in equity securities.
We consider ourselves the primary beneficiary of a VIE when we have both the power to direct the activities that most significantly affect the results of the VIE and the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. We review investments for VIE consideration if a reconsideration event occurs to determine if the investment qualifies, or continues to qualify, as a VIE. If we determine an investment qualifies, or no longer qualifies, as a VIE, there may be a material effect to our Financial Statements.
Cash and Cash Equivalents
Cash equivalents include highly-liquid investments with original maturities of three months or less at the date of purchase including investments in money market funds that can be redeemed immediately at the current net asset value per share. A money market fund is a mutual fund whose investments are primarily in short-term debt securities designed to maximize current income with liquidity and capital preservation, usually maintaining per share net asset value at a constant amount, such as one dollar. Cash and cash equivalents also include cash maintained for gaming operations. The carrying amounts approximate the fair value because of the short maturity of those instruments (Level 1).
Restricted Cash
Restricted cash includes certificates of deposit and similar instruments that are subject to remeasurement on a recurring basis, as well as cash deposits which are restricted under certain operating agreements or restricted for future capital expenditures in the normal course of business.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Advertising
Advertising costs are expensed in the period the advertising initially takes place. Advertising costs were $68 million and $270 million for the three months ended March 31, 2023 and 2022, respectively, and are included within operating expenses. Advertising costs in the three months ended March 31, 2022 included significant television, radio and internet marketing campaigns promoting our Caesars Sportsbook. Advertising costs related to the Caesars Digital segment are primarily recorded in Casino expense.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Interest Expense, Net
| | | | | | | | | | | |
| Three Months Ended March 31, |
(In millions) | 2023 | | 2022 |
Interest expense | $ | 604 | | | $ | 560 | |
Capitalized interest | (6) | | | (6) | |
Interest income | (4) | | | (2) | |
Total interest expense, net | $ | 594 | | | $ | 552 | |
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Note 3. Investments in and Advances to Unconsolidated Affiliates
Pompano Joint Venture
In April 2018, the Company entered into a joint venture with Cordish Companies (“Cordish”) to plan and develop a mixed-use entertainment and hospitality destination expected to be located on unused land adjacent to the casino at the Company’s Pompano property. As the managing member, Cordish will operate the business and manage the development, construction, financing, marketing, leasing, maintenance and day-to-day operation of the various phases of the project. Additionally, Cordish will be responsible for the development of the master plan for the project with the Company’s input and will submit it for the Company’s review and approval.
While the Company holds a 50% variable interest in the joint venture, it is not the primary beneficiary; as such, the investment in the joint venture is accounted for using the equity method. The Company participates evenly with Cordish in the profits and losses of the joint venture, which are included in Transaction and other costs, net on the Statements of Operations. As of March 31, 2023 and December 31, 2022, the Company’s investment in the joint venture was $81 million and $80 million, respectively, and is recorded in Investments in and advances to unconsolidated affiliates on the Balance Sheets. The Company has no further obligation to contribute additional real estate or cash as of March 31, 2023.
NeoGames
The Company held an investment in NeoGames S.A., a global leader of iLottery solutions and services to national and state-regulated lotteries, and other investments. On March 14, 2022, the Company sold its investment at fair value for $26 million and recorded a loss of $34 million during the three months ended March 31, 2022, which is included within Other income on the Statements of Operations.
Note 4. Property and Equipment
| | | | | | | | | | | |
(In millions) | March 31, 2023 | | December 31, 2022 |
Land | $ | 2,092 | | | $ | 2,092 | |
Buildings, riverboats, and leasehold and land improvements | 13,162 | | | 13,094 | |
Furniture, fixtures, and equipment | 2,145 | | | 2,054 | |
Construction in progress | 461 | | | 351 | |
Total property and equipment | 17,860 | | | 17,591 | |
Less: accumulated depreciation | (3,252) | | | (2,993) | |
Total property and equipment, net | $ | 14,608 | | | $ | 14,598 | |
A portion of our property and equipment is subject to various operating leases for which we are the lessor. Leased property includes our hotel rooms, convention space and retail space through various short-term and long-term operating leases.
| | | | | | | | | | | | | | | |
Depreciation Expense | | | | | | | |
| | | Three Months Ended March 31, |
(In millions) | | | | | 2023 | | 2022 |
Depreciation expense | | | | | $ | 264 | | | $ | 243 | |
| | | | | | | |
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the related lease.
Note 5. Goodwill and Intangible Assets, net
The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company determines the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices and estimates made by management. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is recorded as goodwill.
| | | | | | | | | | | | | | | | | |
Changes in Carrying Value of Goodwill and Other Intangible Assets | | | | | |
| | | Non-Amortizing Intangible Assets |
(In millions) | Amortizing Intangible Assets | | Goodwill | | Other |
Balances as of December 31, 2022 | $ | 1,060 | | | $ | 11,004 | | | $ | 3,654 | |
Amortization expense | (36) | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
Balances as of March 31, 2023 | $ | 1,024 | | | $ | 11,004 | | | $ | 3,654 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross Carrying Value and Accumulated Amortization of Intangible Assets Other Than Goodwill | | |
| March 31, 2023 | | December 31, 2022 |
(Dollars in millions) | Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortizing intangible assets | | | | | | | | | | | | | |
Customer relationships | 3 - 7 years | | $ | 587 | | | $ | (296) | | | $ | 291 | | | $ | 587 | | | $ | (276) | | | $ | 311 | |
Gaming rights and other | 10 - 34 years | | 212 | | | (19) | | | 193 | | | 212 | | | (16) | | | 196 | |
Trademarks | 15 years | | 313 | | | (78) | | | 235 | | | 313 | | | (73) | | | 240 | |
Reacquired rights | 24 years | | 250 | | | (20) | | | 230 | | | 250 | | | (17) | | | 233 | |
Technology | 6 years | | 110 | | | (35) | | | 75 | | | 110 | | | (30) | | | 80 | |
| | | $ | 1,472 | | | $ | (448) | | | 1,024 | | | $ | 1,472 | | | $ | (412) | | | 1,060 | |
| | | | | | | | | | | | | |
Non-amortizing intangible assets other than Goodwill | | | | | | | | | | |
Trademarks | | | | | | | 1,998 | | | | | | | 1,998 | |
Gaming rights | | | | | | | 1,133 | | | | | | | 1,133 | |
Caesars Rewards | | | | | | | 523 | | | | | | | 523 | |
| | | | | | | | | | | | | |
| | | | | | | 3,654 | | | | | | | 3,654 | |
Total amortizing and non-amortizing intangible assets other than Goodwill, net | | $ | 4,678 | | | | | | | $ | 4,714 | |
Amortization expense with respect to intangible assets for the three months ended March 31, 2023 and 2022 totaled $36 million and $57 million, respectively, which is included in Depreciation and amortization in the Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Estimated Five-Year Amortization | | | | | | | | | | | |
| Remaining 2023 | | Years Ended December 31, |
(In millions) | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 |
Estimated annual amortization expense | $ | 106 | | | $ | 126 | | | $ | 119 | | | $ | 119 | | | $ | 76 | | | $ | 39 | |
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 6. Fair Value Measurements
Items Measured at Fair Value on a Recurring Basis
The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
| | | | | | | |
Marketable securities | $ | 2 | | | $ | 1 | | | $ | — | | | $ | 3 | |
| | | | | | | |
| | | | | | | |
Total assets at fair value | $ | 2 | | | $ | 1 | | | $ | — | | | $ | 3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Marketable securities | $ | 2 | | | $ | 2 | | | $ | — | | | $ | 4 | |
| | | | | | | |
| | | | | | | |
Total assets at fair value | $ | 2 | | | $ | 2 | | | $ | — | | | $ | 4 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Restricted Cash
The estimated fair values of the Company’s restricted cash are based upon quoted prices available in active markets (Level 1) or quoted prices for similar assets in active and inactive markets (Level 2) and represent the amounts the Company would expect to receive if the Company sold the instruments classified as restricted cash. Restricted cash classified as Level 1 includes cash equivalents held in short-term certificate of deposit accounts or money market type funds. Restricted cash that is not subject to remeasurement on a recurring basis is not included in the table above.
Marketable Securities
Marketable securities consist primarily of trading securities held by the Company’s captive insurance subsidiary and deferred compensation plans. The estimated fair values of the Company’s marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets (Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts the Company would expect to receive if the Company sold these marketable securities.
Derivative Instruments
The Company does not purchase or hold any derivative financial instruments for trading purposes.
Forward Contracts
The Company 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. During the three months ended March 31, 2022, the Company recorded a gain of $21 million, related to forward contracts, which has been recorded in Other income (loss) on the Statements of Operations. All forward contracts were settled as of July 1, 2022.
Interest Rate Swap Derivatives
The Company used interest rate swaps to manage the mix of debt between fixed and variable rate instruments. The term of the last interest rate swaps ended on December 31, 2022.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Accumulated Other Comprehensive Income (Loss)
The changes in Accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2023 and 2022 are shown below.
| | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | Unrealized Net Gains on Derivative Instruments | | Foreign Currency Translation Adjustments | | Other | | Total |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balances as of December 31, 2021 | $ | 73 | | | $ | (36) | | | $ | (1) | | | $ | 36 | |
Other comprehensive income (loss) before reclassifications | 5 | | | (33) | | | — | | | (28) | |
Amounts reclassified from accumulated other comprehensive income | 8 | | | — | | | — | | | 8 | |
Total other comprehensive income (loss), net of tax | 13 | | | (33) | | | — | | | (20) | |
Balances as of March 31, 2022 | $ | 86 | | | $ | (69) | | | $ | (1) | | | $ | 16 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balances as of December 31, 2022 | $ | 94 | | | $ | (1) | | | $ | (1) | | | $ | 92 | |
Other comprehensive income (loss) before reclassifications | — | | | 2 | | | 4 | | | 6 | |
| | | | | | | |
Total other comprehensive income (loss), net of tax | — | | | 2 | | | 4 | | | 6 | |
Balances as of March 31, 2023 | $ | 94 | | | $ | 1 | | | $ | 3 | | | $ | 98 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Note 7. Litigation, Commitments and Contingencies
Litigation
General
We are party to various legal proceedings, which have arisen in the normal course of our business. Such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings will not materially impact our consolidated financial condition or results of operations. Estimated losses are accrued for these proceedings when the loss is probable and can be estimated. While we maintain insurance coverage that we believe is adequate to mitigate the risks of such proceedings, no assurance can be given that the amount or scope of existing insurance coverage will be sufficient to cover losses arising from such matters. The current liability for the estimated losses associated with these proceedings is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.
COVID-19 Insurance Claims
The COVID-19 public health emergency had a significant impact on the Company’s business and employees, as well as the communities where the Company operates and serves. The Company purchased broad property insurance coverage to protect against “all risk of physical loss or damage” and resulting business interruption, unless specifically excluded by policies. The Company submitted claims for losses incurred as a result of the COVID-19 public health emergency which exceed $2 billion. The insurance carriers under the Company’s insurance policies have asserted that the policies do not cover losses incurred by the Company as a result of the COVID-19 public health emergency and have refused to make payments under the applicable policies. Therefore, on March 19, 2021, the Company filed a lawsuit against its insurance carriers in the state court in Clark County, Nevada. On June 8, 2021, the Company filed an amended complaint. Litigation is proceeding and there can be no assurance as to the outcome of the litigation.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Contractual Commitments
Capital Commitments
Harrah’s New Orleans
In April 2020, the Company and the State of Louisiana, by and through the Louisiana Gaming Control Board, entered into an Amended and Restated Casino Operating Contract. Additionally, the Company, New Orleans Building Corporation and the City entered into a Second Amended and Restated Lease Agreement. Based on these amendments related to Harrah’s New Orleans, the Company is required to make a capital investment of $325 million on or around Harrah’s New Orleans by July 15, 2024. The capital investment will involve the rebranding of the property to Caesars New Orleans which includes a renovation and full interior and exterior redesign, updated casino floor, new culinary experiences and a new 340-room hotel tower. The project has a current capital plan of approximately $430 million, and as of March 31, 2023, total capital expenditures have been $145 million since the project began.
Atlantic City
As required by the New Jersey Gaming Control Board, in 2020, the Company funded $400 million in escrow to provide funds for a three year capital expenditure plan in the state of New Jersey. The capital plan includes significant room renovations at both Caesars Atlantic City and Harrah’s Atlantic City, as well as the addition of new celebrity partnered restaurants. As of March 31, 2023 and December 31, 2022, the restricted cash balance remaining in the escrow account was $88 million and $118 million, respectively. This amount is currently included in restricted cash in Other assets, net.
Sports Sponsorship/Partnership Obligations
The Company has agreements with certain professional sports leagues and teams, sporting event facilities and media companies for tickets, suites, advertising, marketing, promotional and sponsorship opportunities including communication with partner customer databases. Additionally, a selection of such partnerships provide Caesars with exclusivity to access the aforementioned rights within the casino and/or sports betting category. As of March 31, 2023 and December 31, 2022, obligations related to these agreements were $847 million and $898 million, respectively, with contracts extending through 2040. These obligations include leasing of event suites that are generally considered short-term leases for which the Company does not record a right of use asset or lease liability. The Company recognizes expenses in the period services are received in accordance with the various agreements. In addition, assets or liabilities may be recorded related to the timing of payments as required by the respective agreement.
Self-Insurance
The Company is self-insured for workers compensation and other risk insurance, as well as health insurance and general liability. The Company’s total estimated self-insurance liability as of March 31, 2023 and December 31, 2022, was $208 million and $203 million, respectively, which is included in Accrued other liabilities in our Balance Sheets.
The assumptions utilized by our actuaries are subject to significant uncertainty and if outcomes differ from these assumptions or events develop or progress in a negative manner, the Company could experience a material adverse effect and additional liabilities may be recorded in the future.
Contingencies
Weather Disruption - Lake Charles
On August 27, 2020, Hurricane Laura made landfall on Lake Charles, Louisiana as a Category 4 storm severely damaging the Isle of Capri Casino Hotel Lake Charles. During the three months ended March 31, 2022, the Company reached a final settlement agreement with the insurance carriers for a total amount of $128 million, before our insurance deductible of $25 million. Insurance proceeds received to replace damaged property were in excess of the respective carrying value of the damaged assets resulting in a gain of $38 million during the three months ended March 31, 2022, which is included in Transaction and other costs, net in our Statements of Operations. The construction of our new land-based casino, Horseshoe Lake Charles, was completed and the property reopened in December 2022.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 8. Long-Term Debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
(Dollars in millions) | Final Maturity | | Rates | | Face Value | | Book Value | | Book Value |
Secured Debt | | | | | | | | | |
Baltimore Revolving Credit Facility | 2023 | | variable | | $ | — | | | $ | — | | | $ | — | |
Baltimore Term Loan | 2024 | | variable | | 266 | | | 262 | | | 262 | |
CRC Term Loan | N/A | | N/A | | — | | | — | | | 3,243 | |
CRC Incremental Term Loan | N/A | | N/A | | — | | | — | | | 972 | |
CEI Revolving Credit Facility | 2028 | | variable | | — | | | — | | | — | |
CEI Term Loan A | 2028 | | variable | | 740 | | | 738 | | | 747 | |
CEI Term Loan B | 2030 | | variable | | 2,500 | | | 2,446 | | | — | |
CRC Senior Secured Notes | 2025 | | 5.75% | | 989 | | | 980 | | | 979 | |
CEI Senior Secured Notes due 2025 | 2025 | | 6.25% | | 3,400 | | | 3,364 | | | 3,360 | |
Convention Center Mortgage Loan (a) | 2025 | | 8.01% | | 400 | | | 400 | | | 400 | |
CEI Senior Secured Notes due 2030 | 2030 | | 7.00% | | 2,000 | | | 1,976 | | | — | |
Unsecured Debt | | | | | | | | | |
CEI Senior Notes due 2027 | 2027 | | 8.125% | | 1,611 | | | 1,590 | | | 1,589 | |
CEI Senior Notes due 2029 | 2029 | | 4.625% | | 1,200 | | | 1,186 | | | 1,186 | |
Special Improvement District Bonds | 2037 | | 4.30% | | 47 | | | 47 | | | 47 | |
Long-term notes and other payables | | | | | 2 | | | 2 | | | 2 | |
Total debt | | 13,155 | | | 12,991 | | | 12,787 | |
Current portion of long-term debt | | (68) | | | (68) | | | (108) | |
Deferred finance charges associated with the CEI Revolving Credit Facility | | — | | | (19) | | | (20) | |
Long-term debt | | $ | 13,087 | | | $ | 12,904 | | | $ | 12,659 | |
| | | | | | |
Unamortized discounts and deferred finance charges | | | | $ | 183 | | | $ | 318 | |
Fair value | | $ | 13,082 | | | | | |
____________________
(a)As described below, Convention Center Mortgage Loan was repaid on May 1, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual Estimated Debt Service Requirements as of March 31, 2023 | | | | |
| Remaining | | Years Ended December 31, | | | | |
(In millions) | 2023 | | 2024 | | 2025 (a) | | 2026 | | 2027 | | Thereafter | | Total |
Annual maturities of long-term debt | $ | 51 | | | $ | 329 | | | $ | 4,854 | | | $ | 65 | | | $ | 1,676 | | | $ | 6,180 | | | $ | 13,155 | |
Estimated interest payments | 550 | | | 860 | | | 830 | | | 520 | | | 510 | | | 790 | | | 4,060 | |
Total debt service obligation (b) | $ | 601 | | | $ | 1,189 | | | $ | 5,684 | | | $ | 585 | | | $ | 2,186 | | | $ | 6,970 | | | $ | 17,215 | |
____________________
(a)Maturity of $400 million in 2025 was repaid on May 1, 2023.
(b)Debt principal payments are estimated amounts based on contractual maturity and scheduled repayment dates. Interest payments are estimated based on the forward-looking LIBOR and SOFR curve, where applicable. Actual payments may differ from these estimates.
Current Portion of Long-Term Debt
The current portion of long-term debt as of March 31, 2023 includes the principal payments on the term loans, other unsecured borrowings, and special improvement district bonds that are contractually due within 12 months. The Company may, from time to time, seek to repurchase or prepay its outstanding indebtedness. Any such purchases or repayments may be funded by existing cash balances or the incurrence of debt. The amount and timing of any repurchase will be based on business and market conditions, capital availability, compliance with debt covenants and other considerations.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Debt Discounts or Premiums and Deferred Finance Charges
Debt discounts or premiums and deferred finance charges incurred in connection with the issuance of debt are amortized to interest expense based on the related debt agreements primarily using the effective interest method. Unamortized discounts are written off and included in our gain or loss calculations to the extent we extinguish debt prior to the original maturity or scheduled payment dates.
Fair Value
The fair value of debt has been calculated primarily based on the borrowing rates available as of March 31, 2023 and based on market quotes of our publicly traded debt. We classify the fair value of debt within Level 1 and Level 2 in the fair value hierarchy.
Terms of Outstanding Debt
Baltimore Term Loan and Baltimore Revolving Credit Facility
We consolidate the aggregate principal amount of Horseshoe Baltimore’s senior secured term loan facility (the “Baltimore Term Loan”) and amount outstanding, if any, under Horseshoe Baltimore’s senior secured revolving credit facility (the “Baltimore Revolving Credit Facility”). The Baltimore Term Loan matures in July 2024 and is subject to a variable rate of interest calculated as London Interbank Offered Rate (“LIBOR”) plus 4.00%. The Baltimore Revolving Credit Facility has borrowing capacity of up to $10 million, subject to a variable rate of interest calculated as Term SOFR plus 4.00% subject to one 0.25% step-down based on senior secured leverage ratio, the ratio of first lien senior secured net debt to adjusted earnings before interest, taxes, depreciation and amortization. The Baltimore Revolving Credit Facility matures on July 7, 2023. As of March 31, 2023, there was $10 million of available borrowing capacity under the Baltimore Revolving Credit Facility.
CRC Term Loan and CRC Incremental Term Loan
Caesars Resort Collection (“CRC”) was party to a credit agreement, dated as of December 22, 2017 (as amended, the “CRC Credit Agreement”), which provided for, among other things, an initial $4.7 billion seven-year senior secured term loan (the “CRC Term Loan”), and an incremental $1.8 billion five-year senior secured term loan (the “CRC Incremental Term Loan”).
The CRC Term Loan and the CRC Incremental Term Loan were subject to the terms described below prior to repayment. The Company repaid the $3.4 billion outstanding principal amount of the CRC Term Loan and the $1.0 billion outstanding principal amount of the CRC Incremental Term Loan on February 6, 2023, with proceeds from a new CEI Term Loan B and new CEI Senior Secured Notes due 2030, both of which are described below.
Borrowings under the CRC Credit Agreement were subject to interest at a rate equal to either (a) LIBOR adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by Credit Suisse AG, Cayman Islands Branch, as administrative agent under the CRC Credit Agreement and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin shall be (a) with respect to the CRC Term Loan, 2.75% per annum in the case of any LIBOR loan or 1.75% per annum in the case of any base rate loan and (b) with respect to the CRC Incremental Term Loan, 3.50% per annum in the case of any LIBOR loan or 2.50% in the case of any base rate loan.
CEI Term Loans and CEI Revolving Credit Facility
CEI is party to a credit agreement, dated as of July 20, 2020, with JPMorgan Chase Bank, N.A., as administrative agent, U.S. Bank National Association, as collateral agent, and certain banks and other financial institutions and lenders party thereto (the “CEI Credit Agreement”), which, as amended, provides for the CEI Revolving Credit Facility in an aggregate principal amount of $2.25 billion (the “CEI Revolving Credit Facility”). The CEI Revolving Credit Facility contains reserves of $40 million which are available only for certain permitted uses.
On October 5, 2022, Caesars entered into a third amendment to the CEI Credit Agreement (the “Third Amendment”) pursuant to which the Company (a) incurred a senior secured term loan in an aggregate principal amount of $750 million (the “CEI Term Loan A”) as a new term loan under the credit agreement, (b) amended and extended the CEI Revolving Credit Facility under the CEI Credit Agreement (the CEI Revolving Credit Facility, as so amended, the “Amended CEI Revolving Credit Facility” and, together with the CEI Term Loan A, the “Senior Credit Facilities”), (c) increased the aggregate principal amount of the CEI Revolving Credit Facility to $2.25 billion, and (d) made certain other amendments to the CEI Credit Agreement. Both the Amended CEI Revolving Credit Facility and the new CEI Term Loan A mature on January 31, 2028, subject to a springing maturity in the event certain other long-term debt of Caesars is not extended or repaid. The Amended CEI Revolving Credit
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Facility includes a letter of credit sub-facility of $388 million. The CEI Term Loan A requires scheduled quarterly payments in amounts equal to 1.25% of the original aggregate principal amount of the CEI Term Loan A, with the balance payable at maturity. The Company may make voluntary prepayments of the CEI Term Loan A at any time prior to maturity at par.
Borrowings under the Senior Credit Facilities bear interest at a rate equal to, at the Company’s option, either (a) a forward-looking term rate based on the secured overnight financing rate (“SOFR”) for the applicable interest period plus an adjustment of 0.10% per annum (“Adjusted Term SOFR”), subject to a floor of 0% or (b) a base rate (the “Base Rate”) determined by reference to the highest of (i) the rate of interest per annum last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month Adjusted Term SOFR plus 1.00% per annum, in each case, plus an applicable margin. Such applicable margin is 2.25% per annum in the case of any Adjusted Term SOFR loan and 1.25% per annum in the case of any Base Rate loan, subject to three 0.25% step-downs based on the Company’s net total leverage ratio. In addition, on a quarterly basis, the Company is required to pay each lender under the Amended CEI Revolving Credit Facility a commitment fee in respect of any unused commitments under the Amended CEI Revolving Credit Facility in the amount of 0.35% per annum of the principal amount of the unused commitments of such lender, subject to three 0.05% step-downs based on the Company’s net total leverage ratio.
On February 6, 2023, Caesars entered into an Incremental Assumption Agreement No. 2 pursuant to which the Company incurred a new senior secured term loan facility in an aggregate principal amount of $2.5 billion (the “CEI Term Loan B” and, together with the CEI Term Loan A, the “CEI Term Loans”) as a new term loan under the CEI Credit Agreement. The CEI Term Loan B requires scheduled quarterly amortization payments in amounts equal to 0.25% of the original aggregate principal amount of the CEI Term Loan B, with the balance payable at maturity. Borrowings under the CEI Term Loan B bear interest at a rate equal to, at the Company’s option, either (a) a forward-looking term rate based on the Adjusted Term SOFR, subject to a floor of 0.50% or (b) a base rate (the “Base Rate”) determined by reference to the highest of (i) the Prime Rate in the United States, (ii) the federal funds rate plus 0.50% per annum and (iii) the one-month Adjusted Term SOFR plus 1.00% per annum, in each case, plus an applicable margin. Such applicable margin is 3.25% per annum in the case of any Adjusted Term SOFR loan and 2.25% per annum in the case of any Base Rate loan, subject to one 0.25% step-down based on the Company’s net total leverage ratio. The CEI Term Loan B was issued at a price of 99.0% of the principal amount and will mature in February 2030.
The net proceeds from the CEI Term Loan B, along with the net proceeds from the issuance of the CEI Senior Secured Notes due 2030 described below, were used to repay the outstanding principal balance, including accrued and unpaid interest, of both the CRC Term Loan and the CRC Incremental Term Loan. Upon the termination of the CRC Term Loan and the CRC Incremental Term Loan, the Company recorded a loss on extinguishment of debt of $197 million.
As of March 31, 2023, the Company had $2.1 billion of available borrowing capacity under the CEI Revolving Credit Facility, after consideration of $82 million in outstanding letters of credit, $48 million committed for regulatory purposes and the reserves described above.
CRC Senior Secured Notes due 2025
On July 6, 2020, Colt Merger Sub, Inc. (the “Escrow Issuer”) issued $1.0 billion in aggregate principal amount of 5.75% Senior Secured Notes due 2025 pursuant to an indenture, dated July 6, 2020 (the “CRC Senior Secured Notes”), by and among the Escrow Issuer, U.S. Bank National Association, as trustee and Credit Suisse AG, Cayman Islands Branch, as collateral agent. The CRC Senior Secured Notes rank equally with all existing and future first priority lien obligations of CRC, CRC Finco, Inc. and the subsidiary guarantors. The CRC Senior Secured Notes will mature on July 1, 2025, with interest payable semi-annually in cash in arrears on January 1 and July 1 of each year.
CEI Senior Secured Notes due 2025
On July 6, 2020, the Escrow Issuer issued $3.4 billion in aggregate principal amount of 6.25% Senior Secured Notes due 2025 pursuant to an indenture dated July 6, 2020 (the “CEI Senior Secured Notes due 2025”), by and among the Escrow Issuer, U.S. Bank National Association, as trustee, and U.S. Bank National Association, as collateral agent. The CEI Senior Secured Notes due 2025 rank equally with all existing and future first-priority lien obligations of the Company and the subsidiary guarantors. The CEI Senior Secured Notes due 2025 will mature on July 1, 2025, with interest payable semi-annually in cash in arrears on January 1 and July 1 of each year.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Convention Center Mortgage Loan
On September 18, 2020, the Company entered into a loan agreement with a subsidiary of VICI Properties L.P., a Delaware limited partnership (“VICI”), to borrow a 5-year, $400 million Forum Convention Center mortgage loan (the “Mortgage Loan”). The Mortgage Loan bears interest at a rate of, initially, 7.7% per annum, which escalates annually on the anniversary of the closing date to a maximum interest rate of 8.3% per annum. On May 1, 2023, the Company elected to prepay the outstanding $400 million Mortgage Loan utilizing cash on hand. In connection with the repayment, the Company extended VICI’s call right relating to the CAESARS FORUM convention center from December 31, 2026 to December 31, 2028.
CEI Senior Secured Notes due 2030
On February 6, 2023, concurrently with the issuance of the CEI Term Loan B, the Company issued $2.0 billion in aggregate principal amount of 7.00% senior secured notes (the “CEI Senior Secured Notes due 2030”) pursuant to an indenture by and among the Company, the subsidiary guarantors party thereto from time to time, U.S. Bank Trust Company, National Association, as trustee, and U.S. Bank National Association, as collateral agent. The CEI Senior Secured Notes due 2030 rank equally with all existing and future first-priority lien obligations of the Company and the subsidiary guarantors. The CEI Senior Secured Notes due 2030 will mature in February 2030, with interest paid semi-annually on February 15 and August 15 of each year, commencing August 15, 2023.
CEI Senior Notes due 2027
On July 6, 2020, the Escrow Issuer issued $1.8 billion in aggregate principal amount of 8.125% Senior Notes due 2027 pursuant to an indenture, dated July 6, 2020 (the “CEI Senior Notes due 2027”), by and between the Escrow Issuer and U.S. Bank National Association, as trustee. The CEI Senior Notes due 2027 rank equally with all existing and future senior unsecured indebtedness of the Company and the subsidiary guarantors. The CEI Senior Notes due 2027 will mature on July 1, 2027, with interest payable semi-annually in cash in arrears on January 1 and July 1 of each year.
CEI Senior Notes due 2029
On September 24, 2021, the Company issued $1.2 billion in aggregate principal amount of 4.625% Senior Notes due 2029 (the “CEI Senior Notes due 2029”) pursuant to an indenture dated as of September 24, 2021, between the Company and U.S. Bank National Association, as trustee. The CEI Senior Notes due 2029 rank equally with all existing and future senior unsecured indebtedness of the Company and the subsidiary guarantors. The CEI Senior Notes due 2029 will mature on October 15, 2029, with interest payable on April 15 and October 15 of each year.
Debt Covenant Compliance
The Senior Credit Facilities, the CEI Term Loan B, the Baltimore Term Loan, the Baltimore Revolving Credit Facility and the indentures governing the CEI Senior Secured Notes due 2025, the CEI Senior Secured Notes due 2030, the CEI Senior Notes due 2027, the CRC Senior Secured Notes, and the CEI Senior Notes due 2029 contain covenants which are standard and customary for these types of agreements. These include negative covenants, which, subject to certain exceptions and baskets, limit the Company’s and its subsidiaries’ ability to (among other items) incur additional indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets and make acquisitions.
Following the Third Amendment, the Amended CEI Revolving Credit Facility and the CEI Term Loan A include a maximum net total leverage ratio financial covenant of 7.25:1 until December 31, 2024 and 6.50:1 from and after December 31, 2024. In addition, the Amended CEI Revolving Credit Facility and the CEI Term Loan A include a minimum fixed charge coverage ratio financial covenant of 1.75:1 until December 31, 2024 and 2.0:1 from and after December 31, 2024. From and after the repayment of the CEI Term Loan A, the financial covenants applicable to the Amended CEI Revolving Credit Facility will be tested solely to the extent that certain testing conditions are satisfied. The Baltimore Revolving Credit Facility includes a net senior secured leverage ratio financial covenant of 5.0:1. Failure to comply with such covenants could result in an acceleration of the maturity of indebtedness outstanding under the relevant debt document.
As of March 31, 2023, the Company was in compliance with all of the applicable financial covenants described above.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Guarantees
The Senior Credit Facilities, the CEI Term Loan B, the CEI Senior Secured Notes due 2025 and the CEI Senior Secured Notes due 2030 are guaranteed on a senior secured basis by each existing and future material wholly-owned domestic subsidiary of the Company (subject to certain exceptions including CRC and its subsidiaries) and are secured by substantially all of the existing and future property and assets of the Company and its subsidiary guarantors (subject to certain exceptions). The CEI Senior Notes due 2027 and the CEI Senior Notes due 2029 are guaranteed on a senior unsecured basis by such subsidiaries.
The CRC Senior Secured Notes are guaranteed on a senior secured basis by each existing and future material wholly-owned domestic subsidiary of CRC (subject to certain exceptions) and are secured by substantially all of the existing and future property and assets of CRC and its subsidiary guarantors (subject to certain exceptions). The CRC Senior Secured Notes are also guaranteed on a senior unsecured basis by the Company.
Note 9. Revenue Recognition
The Company’s Statements of Operations present net revenue disaggregated by type or nature of the good or service. A summary of net revenues disaggregated by type of revenue and reportable segment is presented below. Refer to Note 14 for additional information on the Company’s reportable segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
(In millions) | Las Vegas | | Regional | | Caesars Digital | | Managed and Branded | | Corporate and Other | | Total |
Casino | $ | 309 | | | $ | 1,058 | | | $ | 219 | | | $ | — | | | $ | (1) | | | $ | 1,585 | |
Food and beverage | 290 | | | 137 | | | — | | | — | | | — | | | 427 | |
Hotel | 373 | | | 130 | | | — | | | — | | | — | | | 503 | |
Other | 159 | | | 64 | | | 19 | | | 69 | | | 4 | | | 315 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net revenues | $ | 1,131 | | | $ | 1,389 | | | $ | 238 | | | $ | 69 | | | $ | 3 | | | $ | 2,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
(In millions) | Las Vegas | | Regional | | Caesars Digital | | Managed and Branded | | Corporate and Other | | Total |
Casino | $ | 291 | | | $ | 1,070 | | | $ | (69) | | | $ | — | | | $ | — | | | $ | 1,292 | |
Food and beverage | 220 | | | 119 | | | — | | | — | | | — | | | 339 | |
Hotel | 266 | | | 117 | | | — | | | — | | | — | | | 383 | |
Other | 137 | | | 57 | | | 16 | | | 66 | | | 2 | | | 278 | |
Net revenues | $ | 914 | | | $ | 1,363 | | | $ | (53) | | | $ | 66 | | | $ | 2 | | | $ | 2,292 | |
| | | | | | | | | | | |
Accounts Receivable, Net | | | |
(In millions) | March 31, 2023 | | December 31, 2022 |
Casino | $ | 215 | | | $ | 259 | |
Food and beverage and hotel | 141 | | | 144 | |
Other | 187 | | | 208 | |
Accounts receivable, net | $ | 543 | | | $ | 611 | |
Contract and Contract-Related Liabilities
The Company records contract or contract-related liabilities related to differences between the timing of cash receipts from the customer and the recognition of revenue. The Company generally has three types of liabilities related to contracts with customers: (1) outstanding chip liability, which represents the amounts owed in exchange for gaming chips held by customers, (2) Caesars Rewards player loyalty program obligations, which represent the deferred allocation of revenue relating to reward credits granted to Caesars Rewards members based on certain types of customer spend, including online and retail gaming, hotel, dining, retail shopping, and player loyalty program incentives earned, and (3) customer deposits and other deferred revenue, which primarily represents funds deposited by customers related to gaming play and advance payments received for goods and services yet to be provided (such as advance ticket sales, deposits on rooms and convention space, unpaid wagers, iGaming deposits, or future sports bets). These liabilities are generally expected to be recognized as revenue within one year of being purchased, earned, or deposited and are recorded within Accrued other liabilities on the Company’s Balance Sheets. Liabilities expected to be recognized as revenue beyond one year of being purchased, earned, or deposited are recorded within Other long-term liabilities on the Company’s Balance Sheets.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table summarizes the activity related to contract and contract-related liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding Chip Liability | | Caesars Rewards | | Customer Deposits and Other Deferred Revenue |
(In millions) | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Balance at January 1 | $ | 45 | | | $ | 48 | | | $ | 87 | | | $ | 91 | | | $ | 693 | | | $ | 560 | |
Balance at March 31 | 38 | | | 37 | | | 89 | | | 96 | | | 637 | | | 625 | |
Increase / (decrease) | $ | (7) | | | $ | (11) | | | $ | 2 | | | $ | 5 | | | $ | (56) | | | $ | 65 | |
Lease Revenue
Lodging Arrangements
Lodging arrangements are considered short-term and generally consist of lease and nonlease components. The lease component is the predominant component of the arrangement and consists of the fees charged for lodging. The nonlease components primarily consist of resort fees and other miscellaneous items. As the timing and pattern of transfer of both the lease and nonlease components are over the course of the lease term, we have elected to combine the revenue generated from lease and nonlease components into a single lease component based on the predominant component in the arrangement. During the three months ended March 31, 2023 and 2022, we recognized approximately $503 million and $383 million, respectively, which is included in Hotel revenues in the Statements of Operations.
Conventions
Convention arrangements are considered short-term and generally consist of lease and nonlease components. The lease component is the predominant component of the arrangement and consists of fees charged for the use of meeting space. The nonlease components primarily consist of food and beverage and audio/visual services. Revenue from conventions is included in Other revenue in the Statements of Operations and during the three months ended March 31, 2023 and 2022, lease revenue related to conventions was approximately $14 million and $6 million, respectively.
Real Estate Operating Leases
Real estate lease revenue is included in Other revenue in the Statements of Operations. During the three months ended March 31, 2023 and 2022, we recognized approximately $37 million and $36 million, respectively, of real estate lease revenue.
Real estate lease revenue includes $14 million and $12 million of variable rental income for the three months ended March 31, 2023 and 2022, respectively.
Note 10. Earnings per Share
The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(In millions, except per share data) | | | | | 2023 | | 2022 |
Net loss from continuing operations attributable to Caesars, net of income taxes | | | | | $ | (136) | | | $ | (451) | |
Discontinued operations, net of income taxes | | | | | — | | | (229) | |
| | | | | | | |
Net loss attributable to Caesars | | | | | $ | (136) | | | $ | (680) | |
Shares outstanding: | | | | | | | |
Weighted average shares outstanding – basic | | | | | 215 | | | 214 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average shares outstanding – diluted | | | | | 215 | | | 214 | |
| | | | | | | |
Basic loss per share from continuing operations | | | | | $ | (0.63) | | | $ | (2.11) | |
Basic loss per share from discontinued operations | | | | | — | | | (1.07) | |
Net loss per common share attributable to common stockholders – basic: | | | | | $ | (0.63) | | | $ | (3.18) | |
| | | | | | | |
Diluted loss per share from continuing operations | | | | | $ | (0.63) | | | $ | (2.11) | |
Diluted loss per share from discontinued operations | | | | | — | | | (1.07) | |
Net loss per common share attributable to common stockholders – diluted: | | | | | $ | (0.63) | | | $ | (3.18) | |
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
For a period in which the Company generated a net loss from continuing operations, the Weighted average shares outstanding - basic was used in calculating Diluted loss per share because using diluted shares would have been anti-dilutive to loss per share.
| | | | | | | | | | | | | | | |
Weighted-Average Number of Anti-Dilutive Shares Excluded from the Calculation of Earnings per Share |
| | | Three Months Ended March 31, |
(In millions) | | | | | 2023 | | 2022 |
Stock-based compensation awards | | | | | 4 | | | 3 | |
| | | | | | | |
Total anti-dilutive common stock | | | | | 4 | | | 3 | |
Note 11. Stock-Based Compensation and Stockholders’ Equity
Stock-Based Awards
The Company maintains long-term incentive plans which allow for granting stock-based compensation awards for directors, employees, officers, and consultants or advisers who render services to the Company or its subsidiaries, based on Company Common Stock, including stock options, restricted stock, restricted stock units (“RSUs”), performance stock units (“PSUs”), market-based performance stock units (“MSUs”), stock appreciation rights, and other stock-based awards or dividend equivalents. Forfeitures are recognized in the period in which they occur.
Total stock-based compensation expense in the accompanying Statements of Operations totaled $27 million and $25 million during the three months ended March 31, 2023 and 2022, respectively. These amounts are included in Corporate expense in the Company’s Statements of Operations.
2015 Equity Incentive Plan (“2015 Plan”)
During the three months ended March 31, 2023, as part of the annual incentive program, the Company granted 1.4 million RSUs to eligible participants with an aggregate fair value of $72 million and a ratable vesting period of one to three years. Each RSU represents the right to receive payment in respect of one share of the Company’s Common Stock.
During the three months ended March 31, 2023, the Company also granted 186 thousand PSUs that are scheduled to vest over a period of two to three years. On the vesting date, recipients will receive between 0% and 200% of the target number of PSUs granted, in the form of Company Common Stock, based on the achievement of specified performance and service conditions. The fair value of the PSUs is based on the market price of our common stock when a mutual understanding of the key terms and conditions of the awards between the Company and recipient is achieved. The awards are remeasured each period until such an understanding is reached. The aggregate value of PSUs granted during the year was $9 million as of March 31, 2023.
In addition, during the three months ended March 31, 2023, the Company granted 367 thousand MSUs that are scheduled to cliff vest over a period of one to three years. On the vesting date, recipients will receive between 0% and 200% of the target number of MSUs granted, in the form of Company Common Stock, based on the achievement of specified market and service conditions. The grant date fair value of the MSUs was determined using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient. The effect of market conditions is considered in determining the grant date fair value, which is not subsequently revised based on actual performance. The aggregate value of MSUs granted during the three months ended March 31, 2023 was $30 million.
During the three months ended March 31, 2023, there were no grants of stock options and 88 stock options were exercised. In addition, during the three months ended March 31, 2023, 539 thousand, 229 thousand and 3 thousand of RSUs, PSUs and MSUs, respectively, vested under the 2015 Plan.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Outstanding at End of Period
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Quantity | | Wtd-Avg (a) | | Quantity | | Wtd-Avg (a) |
Stock options | — | | | $ | — | | | 88 | | $ | 30.63 | |
Restricted stock units | 2,644,442 | | 59.47 | | | 1,863,481 | | 66.87 | |
Performance stock units | 340,260 | | 48.35 | | | 383,157 | | 51.73 | |
Market-based stock units | 1,105,039 | | 82.26 | | | 741,803 | | 83.24 | |
____________________
(a)Represents the weighted-average exercise price for stock options, weighted-average grant date fair value for RSUs, weighted-average grant date fair value for PSUs where the grant date has been achieved, the price of CEI common stock as of the balance sheet date for PSUs where a grant date has not been achieved, and the grant date fair value of the MSUs determined using the Monte-Carlo simulation model.
Share Repurchase Program
In November 2018, the Company’s Board of Directors authorized a $150 million common stock repurchase program (the “Share Repurchase Program”) pursuant to which the Company may, from time to time, repurchase shares of common stock on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The Share Repurchase Program has no time limit and may be suspended or discontinued at any time without notice. There is no minimum number of shares of common stock that the Company is required to repurchase under the Share Repurchase Program.
As of March 31, 2023, the Company has acquired 223,823 shares of common stock under the Share Repurchase Program at an aggregate value of $9 million and an average of $40.80 per share. No shares were repurchased during the three months ended March 31, 2023 and 2022.
Note 12. Income Taxes
The Company’s provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. We utilized a discrete effective tax rate method, as allowed by ASC 740-270 “Income Taxes, Interim Reporting,” to calculate taxes for the three months ended March 31, 2023. We determined that small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, and therefore, the historical method would not provide a reliable estimate for the three months ended March 31, 2023.
| | | | | | | | | | | | | | | |
Income Tax Allocation | | | | | | | |
| | | Three Months Ended March 31, |
(In millions) | | | | | 2023 | | 2022 |
Loss from continuing operations before income taxes | | | | | $ | (185) | | | $ | (558) | |
Benefit for income taxes | | | | | 49 | | | 107 | |
Effective tax rate | | | | | 26.5 | % | | 19.2 | % |
We classify accruals for uncertain tax positions within Other long-term liabilities on the Balance Sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. We have provided a valuation allowance on certain federal, state and foreign deferred tax assets that were not deemed realizable based upon estimates of future taxable income.
The income tax benefit for the three months ended March 31, 2023 differed from the expected income tax benefit based on the federal tax rate of 21% primarily due to state deferred tax benefits generated from net operating losses becoming available due to elections to treat certain subsidiary corporations as disregarded entities for income tax purposes.
The income tax benefit for the three months ended March 31, 2022 differed from the expected income tax benefit based on the federal tax rate of 21% primarily due to nondeductible expenses and state income taxes.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company, including its subsidiaries, files tax returns with federal, state, and foreign jurisdictions. The Company does not have tax sharing agreements with the other members within its consolidated group. The Company is subject to exam by various state and foreign tax authorities. With few exceptions, the Company is no longer subject to US federal or state and local tax assessments by tax authorities for years before 2019, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.
Note 13. Related Affiliates
REI
As of March 31, 2023, Recreational Enterprises, Inc. (“REI”) owned approximately 4.0% of outstanding common stock of the Company. The directors of REI are the Company’s Executive Chairman of the Board, Gary L. Carano, its Chief Executive Officer and Board member, Thomas R. Reeg, and its Vice President of Player Development, Gene Carano. In addition, Gary L. Carano also serves as the Vice President of REI and Gene Carano also serves as the Secretary and Treasurer of REI. Members of the Carano family, including Gary L. Carano and Gene Carano, own the equity interests in REI. During the three months ended March 31, 2023 and 2022, there were no related party transactions between the Company and the Carano family other than compensation, including salary and equity incentives, and the CSY Lease listed below.
C. S. & Y. Associates
The Company owns the entire parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from C. S. & Y. Associates (“CSY”) which is an entity partially owned by REI (the “CSY Lease”). The CSY Lease expires on June 30, 2057. Annual rent pursuant to the CSY Lease is currently $0.6 million, paid monthly. Annual rent is subject to periodic rent escalations through the term of the lease. As of March 31, 2023 and December 31, 2022, there were no amounts due to or from CSY.
Note 14. Segment Information
The executive decision maker of the Company reviews operating results, assesses performance and makes decisions on a “significant market” basis. Management views each of the Company’s casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. The Company’s principal operating activities occur in four reportable segments. The reportable segments are based on the similar characteristics of the operating segments with the way management assesses these results and allocates resources, which is a consolidated view that adjusts for the effect of certain transactions between these reportable segments within Caesars: (1) Las Vegas, (2) Regional, (3) Caesars Digital, and (4) Managed and Branded, in addition to Corporate and Other. See table below for a summary of these segments. Also, see Note 4 and Note 5 for a discussion of any impairment of intangibles or long-lived assets related to certain segments, when applicable.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
Las Vegas | | Regional | | Managed and Branded |
Caesars Palace Las Vegas | | Caesars Atlantic City | | Horseshoe Black Hawk | | Managed |
The Cromwell | | Circus Circus Reno | | Horseshoe Bossier City | | Harrah’s Ak-Chin |
Flamingo Las Vegas | | Eldorado Gaming Scioto Downs | | Horseshoe Council Bluffs | | Harrah’s Cherokee |
Harrah’s Las Vegas | | Eldorado Resort Casino Reno | | Horseshoe Hammond | | Harrah’s Cherokee Valley River |
Horseshoe Las Vegas | | Grand Victoria Casino | | Horseshoe Indianapolis | | Harrah’s Resort Southern California |
The LINQ Hotel & Casino | | Harrah’s Atlantic City | | Horseshoe Lake Charles | | Caesars Windsor |
Paris Las Vegas | | Harrah’s Council Bluffs | | Horseshoe St. Louis | | Caesars Dubai |
Planet Hollywood Resort & Casino | | Harrah’s Gulf Coast | | Horseshoe Tunica | | Branded |
Rio All-Suite Hotel & Casino | | Harrah’s Hoosier Park Racing & Casino | | Isle Casino Bettendorf | | Caesars Southern Indiana |
| | Harrah’s Joliet | | Isle of Capri Casino Boonville | | Harrah’s Northern California |
Caesars Digital | | Harrah’s Lake Tahoe | | Isle of Capri Casino Lula | | |
Caesars Digital | | Harrah’s Laughlin | | Isle Casino Waterloo | | |
| | Harrah’s Metropolis | | Lady Luck Casino - Black Hawk | | |
| | Harrah’s New Orleans | | Silver Legacy Resort Casino | | |
| | Harrah’s North Kansas City | | Trop Casino Greenville | | |
| | Harrah’s Philadelphia | | Tropicana Atlantic City | | |
| | Harrah’s Pompano Beach | | Tropicana Laughlin Hotel & Casino | | |
| | Harveys Lake Tahoe | | | | |
| | Horseshoe Baltimore | | | | |
Certain of our properties operate off-track betting locations, including Harrah’s Hoosier Park Racing & Casino, which operates Winner’s Circle Indianapolis and Winner’s Circle New Haven, and Horseshoe Indianapolis, which operates Winner’s Circle Clarksville. The LINQ Promenade is an open-air dining, entertainment, and retail promenade located on the east side of the Las Vegas Strip next to The LINQ Hotel & Casino (the “LINQ”) that features the High Roller, a 550-foot observation wheel, and the Fly LINQ Zipline attraction. We also own the CAESARS FORUM convention center, which is a 550,000 square feet conference center with 300,000 square feet of flexible meeting space, two of the largest pillarless ballrooms in the world and direct access to the LINQ.
Corporate and Other includes certain unallocated corporate overhead costs and other adjustments, including eliminations of transactions among segments, to reconcile to the Company’s consolidated results.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table sets forth, for the periods indicated, certain operating data for the Company’s four reportable segments, in addition to Corporate and Other.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(In millions) | | | | | 2023 | | 2022 |
| | | | | | | |
Las Vegas: | | | | | | | |
Net revenues | | | | | $ | 1,131 | | | $ | 914 | |
| | | | | | | |
Adjusted EBITDA | | | | | 533 | | | 400 | |
| | | | | | | |
| | | | | | | |
Regional: | | | | | | | |
Net revenues | | | | | 1,389 | | | 1,363 | |
| | | | | | | |
Adjusted EBITDA | | | | | 448 | | | 459 | |
| | | | | | | |
| | | | | | | |
Caesars Digital: | | | | | | | |
Net revenues | | | | | 238 | | | (53) | |
Adjusted EBITDA | | | | | (4) | | | (554) | |
Managed and Branded: | | | | | | | |
Net revenues | | | | | 69 | | | 66 | |
| | | | | | | |
Adjusted EBITDA | | | | | 19 | | | 20 | |
| | | | | | | |
| | | | | | | |
Corporate and Other: | | | | | | | |
Net revenues | | | | | 3 | | | 2 | |
| | | | | | | |
Adjusted EBITDA | | | | | (38) | | | (29) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Reconciliation of Net Income (Loss) Attributable to Caesars to Adjusted EBITDA by Segment
Adjusted EBITDA is presented as a measure of the Company’s performance. Adjusted EBITDA is defined as revenues less certain operating expenses and is comprised of net income (loss) before (i) interest income and interest expense, net of interest capitalized, (ii) income tax (benefit) provision, (iii) depreciation and amortization, and (iv) certain items that we do not consider indicative of our ongoing operating performance at an operating property level.
In evaluating Adjusted EBITDA you should be aware that, in the future, we may incur expenses that are the same or similar to some of the adjustments in this presentation. The presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or unexpected items.
Adjusted EBITDA is a financial measure commonly used in our industry and should not be construed as an alternative to net income (loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with GAAP). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies within the industry. Adjusted EBITDA is included because management uses Adjusted EBITDA to measure performance and allocate resources, and believes that Adjusted EBITDA provides investors with additional information consistent with that used by management.
CAESARS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(In millions) | | | | | 2023 | | 2022 |
Net loss attributable to Caesars | | | | | $ | (136) | | | $ | (680) | |
| | | | | | | |
Net loss from discontinued operations | | | | | — | | | 229 | |
Benefit for income taxes | | | | | (49) | | | (107) | |
Other income | | | | | (3) | | | (4) | |
Loss on extinguishment of debt | | | | | 197 | | | — | |
Interest expense, net | | | | | 594 | | | 552 | |
Depreciation and amortization | | | | | 300 | | | 300 | |
| | | | | | | |
Transaction costs and other, net (a) | | | | | 28 | | | (19) | |
Stock-based compensation expense | | | | | 27 | | | 25 | |
Adjusted EBITDA | | | | | $ | 958 | | | $ | 296 | |
| | | | | | | |
Adjusted EBITDA by Segment: | | | | | | | |
Las Vegas | | | | | $ | 533 | | | $ | 400 | |
Regional | | | | | 448 | | | 459 | |
Caesars Digital | | | | | (4) | | | (554) | |
Managed and Branded | | | | | 19 | | | 20 | |
Corporate and Other | | | | | (38) | | | (29) | |
____________________
(a)Transaction costs and other, net for the three months ended March 31, 2023 primarily includes pre-opening costs in connection with new property openings, professional services for integration activities and non-cash changes in equity method investments. Transaction costs and other, net for the three months ended March 31, 2022 primarily represents a gain resulting from insurance proceeds received in excess of the respective carrying value of the assets damaged at Isle of Capri Casino Hotel Lake Charles by Hurricane Laura.
| | | | | | | | | | | |
Total Assets - By Segment | | | |
(In millions) | March 31, 2023 | | December 31, 2022 |
Las Vegas | $ | 23,767 | | | $ | 23,547 | |
Regional | 15,003 | | | 14,908 | |
Caesars Digital | 1,085 | | | 1,200 | |
Managed and Branded | 149 | | | 140 | |
Corporate and Other (a) | (6,655) | | | (6,268) | |
Total | $ | 33,349 | | | $ | 33,527 | |
____________________
(a)Includes eliminations of transactions among segments, to reconcile to the Company’s consolidated results.