CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Gross Carrying Value and Accumulated Amortization of Intangible Assets Other Than Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
(Dollars in millions)
|
Weighted
Average
Remaining
Useful Life
(in years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Amortizing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks
|
2.3
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Customer relationships
|
4.7
|
|
1,071
|
|
|
(741
|
)
|
|
330
|
|
|
1,030
|
|
|
(693
|
)
|
|
337
|
|
Contract rights
|
6.3
|
|
3
|
|
|
(2
|
)
|
|
1
|
|
|
3
|
|
|
(2
|
)
|
|
1
|
|
Gaming rights and other
|
5.8
|
|
43
|
|
|
(28
|
)
|
|
15
|
|
|
43
|
|
|
(26
|
)
|
|
17
|
|
|
|
|
$
|
1,131
|
|
|
$
|
(772
|
)
|
|
359
|
|
|
$
|
1,076
|
|
|
$
|
(721
|
)
|
|
355
|
|
Non-amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
790
|
|
|
|
|
|
|
790
|
|
Gaming rights
|
|
1,606
|
|
|
|
|
|
|
211
|
|
Total Rewards
|
|
253
|
|
|
|
|
|
|
253
|
|
|
|
2,649
|
|
|
|
|
|
|
1,254
|
|
Total intangible assets other than goodwill
|
|
$
|
3,008
|
|
|
|
|
|
|
$
|
1,609
|
|
Note 7
—
Fair Value Measurements
Items Measured at Fair Value on a Recurring Basis
The following table shows the fair value of our financial assets and financial liabilities that are required to be measured at fair value as of the date shown:
Estimated Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Balance
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
September 30, 2018
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Government bonds
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
Derivative instruments - interest rate swaps
|
31
|
|
|
—
|
|
|
31
|
|
|
—
|
|
Total assets at fair value
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative instruments - CEC Convertible Notes
|
$
|
738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
738
|
|
Disputed claims liability
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
Total liabilities at fair value
|
$
|
811
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
811
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Equity securities
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Government bonds
|
25
|
|
|
—
|
|
|
25
|
|
|
—
|
|
Total assets at fair value
|
$
|
33
|
|
|
$
|
8
|
|
|
$
|
25
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative instruments - CEC Convertible Notes
|
$
|
1,016
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,016
|
|
Disputed claims liability
|
112
|
|
|
—
|
|
|
—
|
|
|
112
|
|
Total liabilities at fair value
|
$
|
1,128
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,128
|
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Changes in Level 3 Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
(In millions)
|
Derivative Instruments
|
|
Disputed Claims Liability
|
|
Derivative Instruments
|
|
Disputed Claims Liability
|
Balance as of beginning of period
|
$
|
831
|
|
|
$
|
86
|
|
|
$
|
1,016
|
|
|
$
|
112
|
|
Change in fair value recorded in Restructuring and support expenses and other
|
(97
|
)
|
|
(1
|
)
|
|
(282
|
)
|
|
(10
|
)
|
Change due to resolved claims in Disputed claims liability
|
4
|
|
|
(12
|
)
|
|
4
|
|
|
(29
|
)
|
Balance as of end of period
|
$
|
738
|
|
|
$
|
73
|
|
|
$
|
738
|
|
|
$
|
73
|
|
Equity Securities
Investments in equity securities are traded in active markets and have readily determined market values. These investments were included in Prepayments and other current assets on our Balance Sheets. Gross unrealized gains and losses on marketable securities were not material as of
December 31, 2017
.
Government Bonds
Investments primarily consist of debt securities held by our captive insurance entities that are traded in active markets, have readily determined market values, and have maturity dates of greater than three months from the date of purchase. These investments primarily represent collateral for several escrow and trust agreements with third-party beneficiaries and are recorded in Deferred charges and other assets while a portion is included in Prepayments and other current assets in our Balance Sheets.
Derivative Instruments
We do not purchase or hold any derivative financial instruments for trading purposes.
CEC Convertible Notes - Derivative Liability
On the Effective Date, CEC issued
$1.1 billion
aggregate principal amount of
5.00%
convertible senior notes maturing in 2024 (the “CEC Convertible Notes”) to CEOC’s creditors pursuant to the terms of the Plan. The CEC Convertible Notes were issued pursuant to the Indenture, dated as of October 6, 2017.
The CEC Convertible Notes are convertible at the option of holders into a number of shares of CEC common stock that is equal to approximately 0.139 shares of CEC common stock per $1.00 principal amount of CEC Convertible Notes, which is equal to an initial conversion price of $7.19 per share. If all the shares were issued on the Effective Date, they would have represented approximately 17.9% of the shares of CEC common stock outstanding on a fully diluted basis. The holders of the CEC Convertible Notes can convert them at any time after issuance. CEC can convert the CEC Convertible Notes beginning in October 2020 if the last reported sale price of CEC common stock equals or exceeds 140% of the conversion price for the CEC Convertible Notes in effect on each of at least 20 trading days during any 30 consecutive trading day period. As of September 30, 2018, an immaterial amount of the CEC Convertible Notes were converted into shares of CEC common stock. An aggregate of 156 million shares of CEC common stock are issuable upon conversion of the CEC Convertible Notes. As of September 30, 2018, the remaining life of the CEC Convertible Notes is 6 years.
Management analyzed the conversion features for derivative accounting consideration under ASC Topic 815,
Derivatives and Hedging
, (“ASC 815”) and determined that the CEC Convertible Notes contains bifurcated derivative features and qualifies for derivative accounting. In accordance with ASC 815, CEC has bifurcated the conversion features of the CEC Convertible Notes and recorded a derivative liability. The CEC Convertible Notes derivative features are not designated as hedging instruments. The derivative features of the CEC Convertible Notes are carried on CEC’s Balance Sheet at fair value in Deferred credits and other liabilities. The derivative liability is marked-to-market each measurement period, and any unrealized change in fair value is recorded as a component of Restructuring and support expenses and other in the Statements of Operations. The derivative liability associated with the CEC Convertible Notes will remain in effect until such time as the underlying convertible notes are exercised or terminated and the resulting derivative liability will be transitioned from a liability to equity as of such date.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Valuation Methodology
We estimated the fair value of the CEC Convertible Notes using a binomial lattice valuation model that incorporated the value of both the straight debt and conversion features of the notes. The CEC Convertible Notes have a face value of
$1.1 billion
, a term of
7
years, a coupon rate of
5%
, and are convertible into
156 million
shares of CEC common stock. The valuation model incorporated assumptions regarding the incremental cost of borrowing for CEC, the value of CEC’s equity into which these notes could convert, the expected volatility of such equity, and the risk-free rate.
Key Assumptions as of
September 30, 2018
:
|
|
•
|
Incremental cost of borrowing -
6.0%
|
|
|
•
|
Expected volatility -
30%
|
Since the key assumptions used in the valuation model, including CEC’s estimated incremental cost of borrowing and the expected volatility of CEC’s equity, were significant unobservable inputs, the fair value for the conversion features of the CEC Convertible Notes was classified as Level 3.
Interest Rate Swap Derivatives
We use forward-starting interest rate swaps to manage the mix of our debt between fixed and variable rate instruments.
During the nine months ended September 30, 2018, we entered into six interest rate swap agreements to fix the interest rate on $2.0 billion of variable rate debt.
As of
September 30, 2018
, we have entered into a total of
ten
interest rate swap agreements for notional amounts totaling
$3.0 billion
. The interest rate swaps are designated as cash flow hedging instruments. The difference to be paid or received under the terms of the interest rate swap agreements will be accrued as interest rates change and recognized as an adjustment to interest expense for the related debt beginning on December 31, 2018. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.
The major terms of the interest rate swap agreements as of
September 30, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
Effective Date
|
|
Notional Amount
(In millions)
|
|
Fixed Rate Paid
|
|
Variable Rate Received as of
September 30, 2018
|
|
Maturity Date
|
12/31/2018
|
|
250
|
|
2.274%
|
|
N/A
|
|
12/31/2022
|
12/31/2018
|
|
200
|
|
2.828%
|
|
N/A
|
|
12/31/2022
|
12/31/2018
|
|
600
|
|
2.739%
|
|
N/A
|
|
12/31/2022
|
1/1/2019
|
|
250
|
|
2.153%
|
|
N/A
|
|
12/31/2020
|
1/1/2019
|
|
250
|
|
2.196%
|
|
N/A
|
|
12/31/2021
|
1/1/2019
|
|
400
|
|
2.788%
|
|
N/A
|
|
12/31/2021
|
1/1/2019
|
|
200
|
|
2.828%
|
|
N/A
|
|
12/31/2022
|
1/2/2019
|
|
250
|
|
2.172%
|
|
N/A
|
|
12/31/2020
|
1/2/2019
|
|
200
|
|
2.731%
|
|
N/A
|
|
12/31/2020
|
1/2/2019
|
|
400
|
|
2.707%
|
|
N/A
|
|
12/31/2021
|
Valuation Methodology
The estimated fair values of our interest rate swap derivative instruments are derived from market prices obtained from dealer quotes for similar, but not identical, assets or liabilities. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. The interest rate swap derivative instruments are included in either Deferred charges and other assets or Deferred credits and other liabilities on our Balance Sheets. Our derivatives are recorded at their fair values, adjusted for the credit rating of the counterparty if the derivative is an asset, or adjusted for the credit rating of the Company if the derivative is a liability. None of our derivative instruments are offset and all were classified as Level 2.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The effect of derivative instruments designated as hedging instruments on the Balance Sheet for amounts transferred into Accumulated other comprehensive income (“AOCI”) was
$14 million
and
$31 million
, respectively, during the
three and nine months ended
September 30, 2018
. The estimated amount of existing gains that are reported in AOCI at the reporting date that are expected to be reclassified into earnings within the next 12 months is approximately
$8 million
.
Disputed Claims Liability
CEC and CEOC deposited cash, CEC common stock, and CEC Convertible Notes into an escrow trust to be distributed to satisfy certain remaining unsecured claims (excluding debt claims) as they become allowed (see
Note 8
). We have estimated the fair value of the remaining liability of those claims. As key assumptions used in the valuation model, including assumptions for the conversion features of the CEC Convertible Notes, include significant unobservable inputs, the fair value of the liability is classified as Level 3.
Note 8
—
Litigation, Contractual Commitments, and Contingent Liabilities
Litigation
Caesars is party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any such litigation to have a material effect on our consolidated financial position, results of operations, or cash flows.
Contractual Commitments
Except as described in
Note 7
, during the
nine months ended
September 30, 2018
, we have not entered into any material contractual commitments outside of the ordinary course of business that have materially changed our contractual commitments as compared to
December 31, 2017
.
Exit Cost Accruals
As of
September 30, 2018
and
December 31, 2017
, exit costs were included in Accrued expenses and other current liabilities and Deferred credits and other liabilities on the accompanying Balance Sheets for accruals related to the following:
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Accrual Obligation End Date
|
|
September 30, 2018
|
|
December 31, 2017
|
Iowa greyhound pari-mutuel racing fund
|
December 2021
|
|
$
|
33
|
|
|
$
|
40
|
|
Future obligations under land lease agreements
(1)
|
December 2092
|
|
43
|
|
|
43
|
|
Permanent closure of international properties
(2)
|
January 2032
|
|
10
|
|
|
18
|
|
Total
|
|
|
$
|
86
|
|
|
$
|
101
|
|
____________________
|
|
(1)
|
Associated with the abandonment of a construction project near the Mississippi Gulf Coast.
|
|
|
(2)
|
Properties include Alea Leeds, Golden Nugget and Southend.
|
NV Energy
In September 2017, we filed our final notice to proceed with our plan to exit the fully bundled sales system of NV Energy for our Nevada casino properties and purchase energy, capacity, and/or ancillary services from a provider other than NV Energy. The transition to unbundle electric service was completed in the first quarter of 2018 (the “Cease-Use Date”). As a result of our decision to exit, an order from the Public Utilities Commission of Nevada required that we pay an aggregate exit fee of
$48 million
. These fees are payable over three to six years at an aggregate present value of
$36 million
as of
September 30, 2018
and are recorded in Accrued expenses and other current liabilities and Deferred credits and other liabilities on the Balance Sheets.
For six years following the Cease-Use Date, we will also be required to make ongoing payments to NV Energy for non-bypassable rate charges, which primarily relate to each entity’s share of NV Energy’s portfolio of above-market renewable energy contracts and the costs of decommissioning and remediation of coal-fired power plants. As of the effective date of the transition, total fees to be incurred were
$31 million
, which was accrued at its present value in the first quarter of 2018. As of
September 30, 2018
,
$25 million
was recorded in Accrued expenses and other current liabilities and Deferred credits and other liabilities on the Balance Sheets. The amount will be adjusted in the future if actual fees incurred differ from our estimates.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Golf Course Properties
Concurrently with the execution of the leases CEOC LLC maintains with VICI, certain golf course properties (the “Golf Course Properties”) were sold to VICI, and CEOC LLC entered into a golf course use agreement (the “Golf Course Use Agreement”) with VICI. An obligation of
$143 million
is recorded in Deferred credits and other liabilities as of
September 30, 2018
representing the fair value of the
$10 million
in annual payments to be made under the Golf Course Use Agreement, which exceeds the fair value of services being received.
The obligation is being amortized using the effective interest method over the term of the Golf Course Use Agreement which continues through October 2052. The amortization on this obligation for the three and nine months ended
September 30, 2018
was
$3 million
and
$8 million
, respectively, reflected in Interest expense in our Statement of Operations.
Resolution of Disputed Claims
Prior to the Effective Date, CEOC’s financial statements included amounts classified as liabilities subject to compromise, which represented estimates of pre-petition obligations impacted by the Chapter 11 reorganization process. These amounts represented the Debtors’ then-current estimate of known or potential pre-petition obligations to be resolved in connection with CEOC’s emergence from bankruptcy.
Following the Effective Date, actions to enforce or otherwise affect repayment of liabilities preceding January 15, 2015 (the “Petition Date”), as well as pending litigation against the Debtors related to such liabilities, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. CEOC LLC will continue the process of reconciling such claims to the amounts listed by the Debtors in their schedules of assets and liabilities, as amended. The amounts submitted by claimants that remain unresolved total approximately
$614 million
. We estimate the fair value of these claims to be
$73 million
as of
September 30, 2018
, which is based on management’s estimate of the claim amounts that the Bankruptcy Court will ultimately allow and the fair value of the underlying CEC common stock and CEC Convertible Notes held in escrow for the purpose of resolving those claims.
Pursuant to the Plan, CEC and CEOC deposited cash, CEC common stock, and CEC Convertible Notes into an escrow trust to be distributed to satisfy certain remaining unsecured claims (excluding debt claims) as they become allowed. As claims are resolved, the claimants receive distributions of CEC common stock, cash or cash equivalents, and/or CEC Convertible Notes from the reserves on the same basis as if such distributions had been made on or about the Effective Date. To the extent that any of the reserved shares, cash, and convertible notes remain undistributed upon resolution of the remaining disputed claims, such amounts will be returned to CEC.
As of
September 30, 2018
, approximately
$51 million
in cash,
8 million
shares of CEC common stock, and
$33 million
in principal value of CEC Convertible Notes remain in reserve for distribution to holders of disputed claims whose claims may ultimately become allowed in the escrow trust. The CEC common stock and CEC Convertible Notes held in the escrow trust are treated as not outstanding in CEC’s Financial Statements. We estimate that the number of shares, cash, and CEC Convertible Notes reserved is sufficient to satisfy the Debtors’ obligations under the Plan.
Contingent Liabilities
Self-Insurance
We are self-insured for workers compensation and other risk insurance, as well as health insurance effective in the first quarter of
2017
when the liability related to certain health insurance contracts was transferred from CEOC to Caesars Enterprise Services, LLC (“CES”). Our total estimated self-insurance liability was
$185 million
and
$192 million
, respectively, as of
September 30, 2018
and
December 31, 2017
.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 9
—
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
(Dollars in millions)
|
Final
Maturity
|
|
Rate(s)
(1)
|
|
Face Value
|
|
Book Value
|
|
Book Value
|
Secured debt
|
|
|
|
|
|
|
CRC Revolving Credit Facility
|
2022
|
|
variable
(2)
|
|
$
|
100
|
|
|
$
|
100
|
|
|
$
|
—
|
|
CRC Term Loan
|
2024
|
|
variable
(3)
|
|
4,665
|
|
|
4,586
|
|
|
4,616
|
|
CEOC LLC Revolving Credit Facility
|
2022
|
|
variable
(4)
|
|
—
|
|
|
—
|
|
|
—
|
|
CEOC LLC Term Loan
|
2024
|
|
variable
(5)
|
|
1,489
|
|
|
1,487
|
|
|
1,499
|
|
Unsecured debt
|
|
|
|
|
|
|
CEC Convertible Notes
|
2024
|
|
5.00%
|
|
1,082
|
|
|
1,082
|
|
|
1,078
|
|
CRC Notes
|
2025
|
|
5.25%
|
|
1,700
|
|
|
1,666
|
|
|
1,664
|
|
Special Improvement District Bonds
|
2037
|
|
4.30%
|
|
54
|
|
|
54
|
|
|
56
|
|
Total debt
|
|
9,090
|
|
|
8,975
|
|
|
8,913
|
|
Current portion of long-term debt
|
|
(164
|
)
|
|
(164
|
)
|
|
(64
|
)
|
Long-term debt
|
|
$
|
8,926
|
|
|
$
|
8,811
|
|
|
$
|
8,849
|
|
|
|
|
|
|
|
|
Unamortized discounts and deferred finance charges
|
|
|
|
$
|
115
|
|
|
$
|
121
|
|
Fair value
|
|
$
|
9,031
|
|
|
|
|
|
____________________
|
|
(1)
|
Interest rate is fixed, except where noted.
|
|
|
(2)
|
London Interbank Offered Rate (“LIBOR”) plus
2.00%
. On May 4, 2018, the interest rate was reduced from the previous LIBOR plus
2.25%
to LIBOR plus
2.13%
and on August 2, 2018, the interest rate was further reduced to LIBOR plus
2.00%
due to step-downs based on the senior secured leverage ratio in accordance with the CRC Credit Agreement.
|
|
|
(5)
|
LIBOR plus
2.00%
. On April 16, 2018, the interest rate was repriced from the previous LIBOR plus
2.50%
, see CEOC LLC Term Loan Repricing section below.
|
Annual Estimated Debt Service Requirements as of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Years Ended December 31,
|
|
|
|
|
(In millions)
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
Annual maturities of long-term debt
|
$
|
16
|
|
|
$
|
164
|
|
|
$
|
64
|
|
|
$
|
64
|
|
|
$
|
64
|
|
|
$
|
8,718
|
|
|
$
|
9,090
|
|
Estimated interest payments
|
150
|
|
|
490
|
|
|
490
|
|
|
490
|
|
|
480
|
|
|
1,030
|
|
|
3,130
|
|
Total debt service obligation
(1)
|
$
|
166
|
|
|
$
|
654
|
|
|
$
|
554
|
|
|
$
|
554
|
|
|
$
|
544
|
|
|
$
|
9,748
|
|
|
$
|
12,220
|
|
___________________
|
|
(1)
|
Debt principal payments are estimated amounts based on maturity dates and potential borrowings under our revolving credit facilities. Interest payments are estimated based on the forward-looking LIBOR curve and include the estimated impact of the
ten
interest rate swap agreements (see
Note 7
). Actual payments may differ from these estimates.
|
Current Portion of Long-Term Debt
The current portion of long-term debt as of
September 30, 2018
and
December 31, 2017
includes the principal payments on the term loans, other unsecured borrowings, and special improvement district bonds that are expected to be paid within 12 months.
As of
September 30, 2018
,
$100 million
was outstanding under our revolving credit facilities and
$86 million
was committed to outstanding letters of credit. Borrowings under the revolving credit facilities are each subject to the provisions of the applicable credit facility agreements, which each have a contractual maturity of greater than one year. Amounts borrowed, if any, under the revolving credit facilities are intended to satisfy short term liquidity needs and would be classified as current.
Fair Value
The fair value of debt has been calculated primarily based on the borrowing rates available as of
September 30, 2018
based on market quotes of our publicly traded debt. We classify the fair value of debt within Level 1 and Level 3 in the fair value hierarchy.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CEOC LLC Term Loan Repricing
On April 16, 2018, CEOC LLC entered into Amendment No. 1 to the Credit Agreement, dated as of October 6, 2017 (as amended, the “CEOC LLC Credit Agreement”) that, among other things, reduced the interest rate margins applicable to CEOC LLC’s existing approximately
$1.5 billion
term loan facility to LIBOR plus
2.00%
, from LIBOR plus
2.50%
.
Terms of Outstanding Debt
Restrictive Covenants
The CRC Credit Agreement, CEOC LLC Credit Agreement, and the indenture related to 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 the Company’s ability to (among other items) incur additional indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets and make acquisitions. The indenture related to the CEC Convertible Notes contains covenants including negative covenants, which, subject to certain exceptions, limit the Company’s ability to (among other items) make restricted payments, including dividends and sell assets.
The CRC Revolving Credit Facility and CEOC LLC Revolving Credit Facility include maximum first-priority net senior secured leverage ratio financial covenants of 6.35:1 and 3.50:1, respectively, which are applicable solely to the extent that certain testing conditions are satisfied.
Guarantees
The borrowings under the CRC Credit Agreement and CEOC LLC Credit Agreement are guaranteed by the material, domestic, wholly owned subsidiaries of CRC and CEOC LLC, respectively, (subject to exceptions) and substantially all of the applicable existing and future property and assets that serve as collateral for the borrowings.
The CRC Notes are guaranteed on a senior unsecured basis by each wholly owned, domestic subsidiary of CRC that is a subsidiary guarantor with respect to the CRC Senior Secured Credit Facilities.
Note 10
—
Stockholders’ Equity
Share Repurchase Program
On May 2, 2018, the Company announced that our Board of Directors authorized a Share Repurchase Program (the “Repurchase Program”) to repurchase up to
$500 million
of our common stock. On August 10, 2018, the Company announced that our Board of Directors increased its share repurchase authorization to
$750 million
of our common stock. Repurchases may be made at the Company’s discretion from time to time on the open market or in privately negotiated transactions. The Repurchase Program has no time limit, does not obligate the Company to make any repurchases, and may be suspended for periods or discontinued at any time. Any shares acquired are available for general corporate purposes. During the
three and nine months ended
September 30, 2018
, we repurchased approximately
28 million
shares and
31 million
shares, respectively, for approximately
$280 million
and
$311 million
, respectively, under the program recorded in Treasury stock.
Note 11
—
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing the applicable income amounts by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing the applicable income amounts by the sum of weighted-average number of shares of common stock outstanding and dilutive potential common stock.
For a period in which Caesars generated a net loss, the weighted-average basic shares outstanding was used in calculating diluted loss per share because using diluted shares would have been anti-dilutive to loss per share.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Basic and Dilutive Net Earnings Per Share Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions, except per share data)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income/(loss) attributable to Caesars
|
$
|
110
|
|
|
$
|
(433
|
)
|
|
$
|
105
|
|
|
$
|
(2,372
|
)
|
Dilutive effect of CEC Convertible Notes, net of tax
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted net income/(loss) attributable to Caesars
|
$
|
119
|
|
|
$
|
(433
|
)
|
|
$
|
105
|
|
|
$
|
(2,372
|
)
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
681
|
|
|
149
|
|
|
692
|
|
|
148
|
|
Dilutive potential common shares: Stock-based compensation awards
|
4
|
|
|
—
|
|
|
5
|
|
|
—
|
|
Dilutive potential common shares: CEC Convertible Notes
|
150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted-average common shares outstanding - diluted
|
835
|
|
|
149
|
|
|
697
|
|
|
148
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per share
|
$
|
0.16
|
|
|
$
|
(2.90
|
)
|
|
$
|
0.15
|
|
|
$
|
(15.97
|
)
|
Diluted earnings/(loss) per share
|
$
|
0.14
|
|
|
$
|
(2.90
|
)
|
|
$
|
0.15
|
|
|
$
|
(15.97
|
)
|
Weighted-Average Number of Anti-Dilutive Shares Excluded from Calculation of EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Stock-based compensation awards
|
1
|
|
|
16
|
|
|
1
|
|
|
19
|
|
CEC Convertible Notes
|
—
|
|
|
—
|
|
|
150
|
|
|
—
|
|
Total anti-dilutive common stock
|
1
|
|
|
16
|
|
|
151
|
|
|
19
|
|
Note 12
—
Revenue Recognition
Adoption of New Revenue Recognition Standard
In May 2014, the FASB issued a new standard related to revenue recognition, ASU 2014-09,
Revenue from Contracts with Customers
. We adopted the standard effective January 1, 2018, using the full retrospective method, which requires the Company to recast each prior reporting period presented consistent with the new standard. The most significant effects of adopting the new standard related to the accounting for our Total Rewards customer loyalty program and casino promotional allowances.
Total Rewards affects revenue from our four core businesses: casino entertainment, food and beverage, rooms and hotel, and entertainment and other business operations. Previously, the Company accrued a liability based on the estimated cost of fulfilling the redemption of Reward Credits, after consideration of estimated forfeitures (referred to as “breakage”), based upon the cost of historical redemptions. Upon adoption of the new accounting standard, Reward Credits are no longer recorded at cost, and a deferred revenue model is used to account for the classification and timing of revenue recognized as well as the classification of related expenses when Reward Credits are redeemed. This results in a portion of casino revenues being recorded as deferred revenue as Reward Credits are earned. Revenue is recognized in a future period based on when and for what good or service the Reward Credits are redeemed (e.g., a hotel room).
Additionally, we previously recorded promotional allowances in a separate line item within net revenues. As part of adopting the new standard, promotional allowances are no longer presented separately. Alternatively, revenue is recognized based on relative standalone selling prices for transactions with more than one performance obligation. For example, when a casino customer is given a complimentary room, we are required to allocate a portion of the casino revenues earned from the customer to rooms revenues based on the standalone selling price of the room. As a result of this change, we are reporting substantially lower casino revenues; however, there is no material effect on total net revenues.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Effect of Adopting New Revenue Recognition Standard - Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Previously Reported
|
|
ASC Adjustments
|
|
As Recast
|
December 31, 2017
|
|
|
|
|
|
Receivables, net
|
$
|
496
|
|
|
$
|
(2
|
)
|
|
$
|
494
|
|
Property and equipment, net
(1)
|
16,228
|
|
|
(74
|
)
|
|
16,154
|
|
Accrued expenses and other current liabilities
(2)
|
1,459
|
|
|
(133
|
)
|
|
1,326
|
|
Contract liabilities
(2)
|
—
|
|
|
129
|
|
|
129
|
|
Financing obligations
(1)
|
9,429
|
|
|
(74
|
)
|
|
9,355
|
|
Deferred credits and other liabilities
|
1,473
|
|
|
1
|
|
|
1,474
|
|
Stockholders’ equity
|
3,296
|
|
|
1
|
|
|
3,297
|
|
December 31, 2016
|
|
|
|
|
|
Stockholders’ deficit
|
$
|
(1,609
|
)
|
|
$
|
2
|
|
|
$
|
(1,607
|
)
|
____________________
|
|
(1)
|
The conditions that were considered prohibited forms of continuing involvement related to our sale of the Golf Course Properties (see
Note 8
) are no longer considered continuing involvement under the new revenue recognition standard. As of result of adopting the new standard on a full retrospective basis, we are now reflecting this transaction as a completed sale in the period in which it occurred.
|
|
|
(2)
|
Adjustments are primarily related to the reclassification of assets and liabilities in accordance with the new accounting and disclosure requirements.
|
Effect of Adopting New Revenue Recognition Standard - Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Prior to Adoption
|
|
Post Adoption
|
(In millions)
|
CEC
|
|
CAC
|
|
Eliminations
|
|
Total
|
|
Total
|
Net revenues
|
$
|
986
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
986
|
|
|
$
|
993
|
|
Total operating expenses
|
900
|
|
|
5
|
|
|
—
|
|
|
905
|
|
|
909
|
|
Income/(loss) from operations
|
86
|
|
|
(5
|
)
|
|
—
|
|
|
81
|
|
|
84
|
|
Net income/(loss)
|
(460
|
)
|
|
5
|
|
|
14
|
|
|
(441
|
)
|
|
(439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Prior to Adoption
|
|
Post Adoption
|
(In millions)
|
CEC
|
|
CAC
|
|
Eliminations
|
|
Total
|
|
Total
|
Net revenues
|
$
|
2,951
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,951
|
|
|
$
|
2,967
|
|
Total operating expenses
|
2,550
|
|
|
22
|
|
|
—
|
|
|
2,572
|
|
|
2,584
|
|
Income/(loss) from operations
|
401
|
|
|
(22
|
)
|
|
—
|
|
|
379
|
|
|
383
|
|
Net income/(loss)
|
(2,410
|
)
|
|
4
|
|
|
23
|
|
|
(2,383
|
)
|
|
(2,379
|
)
|
Disaggregation of Revenue by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Eliminations
|
|
Total
|
Casino
|
$
|
249
|
|
|
$
|
789
|
|
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
1,102
|
|
Food and beverage
|
244
|
|
|
158
|
|
|
6
|
|
|
—
|
|
|
408
|
|
Rooms
|
271
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
395
|
|
Management fees
|
—
|
|
|
(2
|
)
|
|
18
|
|
|
—
|
|
|
16
|
|
Reimbursed management costs
|
—
|
|
|
1
|
|
|
50
|
|
|
—
|
|
|
51
|
|
Entertainment and other
|
106
|
|
|
52
|
|
|
12
|
|
|
(2
|
)
|
|
168
|
|
Total contract revenues
|
870
|
|
|
1,122
|
|
|
150
|
|
|
(2
|
)
|
|
2,140
|
|
Other
|
40
|
|
|
3
|
|
|
2
|
|
|
—
|
|
|
45
|
|
Net revenues
|
$
|
910
|
|
|
$
|
1,125
|
|
|
$
|
152
|
|
|
$
|
(2
|
)
|
|
$
|
2,185
|
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Eliminations
|
|
Total
|
Casino
|
$
|
203
|
|
|
$
|
171
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
389
|
|
Food and beverage
|
156
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
206
|
|
Rooms
|
206
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
253
|
|
Entertainment and other
|
77
|
|
|
13
|
|
|
7
|
|
|
(1
|
)
|
|
96
|
|
Total contract revenues
|
642
|
|
|
281
|
|
|
22
|
|
|
(1
|
)
|
|
944
|
|
Other
|
45
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
49
|
|
Net revenues
|
$
|
687
|
|
|
$
|
284
|
|
|
$
|
23
|
|
|
$
|
(1
|
)
|
|
$
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Eliminations
|
|
Total
|
Casino
|
$
|
817
|
|
|
$
|
2,143
|
|
|
$
|
187
|
|
|
$
|
—
|
|
|
$
|
3,147
|
|
Food and beverage
|
731
|
|
|
431
|
|
|
20
|
|
|
—
|
|
|
1,182
|
|
Rooms
|
833
|
|
|
315
|
|
|
2
|
|
|
—
|
|
|
1,150
|
|
Management fees
|
—
|
|
|
—
|
|
|
49
|
|
|
(3
|
)
|
|
46
|
|
Reimbursed management costs
|
—
|
|
|
2
|
|
|
149
|
|
|
—
|
|
|
151
|
|
Entertainment and other
|
312
|
|
|
134
|
|
|
35
|
|
|
(4
|
)
|
|
477
|
|
Total contract revenues
|
2,693
|
|
|
3,025
|
|
|
442
|
|
|
(7
|
)
|
|
6,153
|
|
Other
|
111
|
|
|
8
|
|
|
4
|
|
|
—
|
|
|
123
|
|
Net revenues
|
$
|
2,804
|
|
|
$
|
3,033
|
|
|
$
|
446
|
|
|
$
|
(7
|
)
|
|
$
|
6,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Eliminations
|
|
Total
|
Casino
|
$
|
605
|
|
|
$
|
556
|
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
1,199
|
|
Food and beverage
|
474
|
|
|
143
|
|
|
—
|
|
|
—
|
|
|
617
|
|
Rooms
|
622
|
|
|
120
|
|
|
—
|
|
|
—
|
|
|
742
|
|
Entertainment and other
|
210
|
|
|
43
|
|
|
16
|
|
|
(2
|
)
|
|
267
|
|
Total contract revenues
|
1,911
|
|
|
862
|
|
|
54
|
|
|
(2
|
)
|
|
2,825
|
|
Other
|
131
|
|
|
8
|
|
|
3
|
|
|
—
|
|
|
142
|
|
Net revenues
|
$
|
2,042
|
|
|
$
|
870
|
|
|
$
|
57
|
|
|
$
|
(2
|
)
|
|
$
|
2,967
|
|
Accounting Policy
We analyze our revenues based upon the type of services we provide and the geographic location of the related property. We recognize revenue when control over the goods and services we provide has transferred to the customer, which is generally when the services are performed and when we have no substantive performance obligation remaining. Sales and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in net revenues or operating expenses.
Casino Revenues
Casino revenues include revenues generated by our casino operations and casino related activities such as poker, pari-mutuel wagering, and tournaments, less sales incentives and other adjustments. Casino revenues are measured by the aggregate net difference between gaming wins and losses. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. We accrue the incremental amount of progressive jackpots as the progressive machine is played, and the progressive jackpot amount increases, with a corresponding reduction to casino revenues. Funds deposited by customers in advance along with chips and slot vouchers in a customer’s possession are recorded in Accrued expenses and other current liabilities on our Balance Sheets until such amounts are redeemed or used in gaming play by the customer.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Non-Gaming Revenues
Rooms revenue, food and beverage revenue, and entertainment and other revenue include: (i) the actual amounts paid for such services (less any amounts allocated to unperformed performance obligations, such as Reward Credits described below); (ii) the value of Reward Credits redeemed for such services; and (iii) the portion of the transaction price allocated to complimentary goods or services provided in conjunction with other revenue-generating activities. Rooms revenue is generally recognized over time, consistent with the customer’s reservation period. Food and beverage and entertainment and other revenues are recognized at the point in time the services are performed or events are held. Amounts paid in advance, such as advance deposits on rooms and advance ticket sales, are recorded as a liability until the goods or services are provided to the customer (see Contract Liabilities below).
Other Revenue
Other revenue primarily includes revenue from third-party real estate leasing arrangements at our casino properties. Rental income is recognized ratably over the lease term with contingent rental income being recognized when the right to receive such rental income is established according to the lease agreements.
Total Rewards Loyalty Program
Caesars’ customer loyalty program, Total Rewards, grants Reward Credits to Total Rewards Members based on on-property spending, including gaming, hotel, dining, and retail shopping at all Caesars-affiliated properties. Members may redeem Reward Credits for complimentary or discounted goods and services such as rooms, food and beverages, merchandise, entertainment, and travel accommodations. Members are able to accumulate Reward Credits over time that they may redeem at their discretion under the terms of the program. A member’s Reward Credit balance is forfeited if the member does not earn a Reward Credit for a continuous six-month period.
Because of the significance of the Total Rewards program and the ability for customers to accumulate Reward Credits based on their past play, we have determined that Reward Credits granted in conjunction with other earning activity represent a performance obligation. As a result, for transactions in which Reward Credits are earned, we allocate a portion of the transaction price to the Reward Credits that are earned based upon the relative standalone selling prices (“SSP”) of the goods and services involved. When the activity underlying the “earning” of the Reward Credits has a wide range of selling prices and is highly variable, such as in the case of gaming activities, we use the residual approach in this allocation by computing the value of the Reward Credits as described below and allocating the residual amount to the gaming activity. This allocation results in a significant portion of the transaction price being deferred and presented as a Contract Liability on our accompanying Balance Sheets. Any amounts allocated to Contract Liabilities are recognized as revenue when the Reward Credits are redeemed in accordance with the specific recognition policy of the activity for which the credits are redeemed. This balance is further described below under Contract Liabilities.
Our Total Rewards loyalty program includes various tiers that offer different benefits, and members are able to earn credits towards tier status, which generally enables them to receive discounts similar to those provided as complimentaries described below. We have determined that any such discounts received as a result of tier status do not represent material rights, and therefore, we do not account for them as distinct performance obligations.
We have determined the SSP of a Reward Credit by computing the redemption value of credits expected to be redeemed. Because Reward Credits are not otherwise independently sold, we analyzed all Reward Credit redemption activity over the preceding calendar year and determined the redemption value based on the fair market value of the goods and services for which the Reward Credits were redeemed. We have applied the practical expedient under the portfolio approach to our Reward Credit transactions because of the similarity of gaming and other transactions and the homogeneity of Reward Credits.
As part of determining the SSP for Reward Credits, we also determined that there is generally an amount of Reward Credits that is not redeemed, which is considered “breakage.” We recognize the expected breakage proportionally with the pattern of revenue recognized related to the redemption of Reward Credits. We periodically reassess our customer behaviors and revise our expectations as deemed necessary on a prospective basis.
Complimentaries
As part of our normal business operations, we often provide lodging, transportation, food and beverage, entertainment and other goods and services to our customers at no additional charge. Alternatively, Reward Credits can be redeemed for these services.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Both are considered complimentaries. Such complimentaries are provided in conjunction with other revenue‑earning activities and are generally provided to encourage additional customer spending on those activities. Accordingly, we allocate a portion of the transaction price we receive from such customers to the complimentary goods and services. We perform this allocation based on the SSP of the underlying goods and services, which is determined based upon the weighted-average cash sales prices received for similar services at similar points during the year.
Retail Value of Complimentaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Food and beverage
|
$
|
146
|
|
|
$
|
70
|
|
|
$
|
438
|
|
|
$
|
209
|
|
Rooms
|
133
|
|
|
68
|
|
|
359
|
|
|
194
|
|
Other
|
16
|
|
|
7
|
|
|
46
|
|
|
22
|
|
|
$
|
295
|
|
|
$
|
145
|
|
|
$
|
843
|
|
|
$
|
425
|
|
Receivables and Contract Liabilities
We issue credit to approved casino customers following investigations of creditworthiness. Business or economic conditions or other significant events could affect the collectibility of these receivables. Accounts receivable are non-interest bearing and are initially recorded at cost.
Marker play represents a significant portion of our overall table games volume. We maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their marker balances timely. These collection efforts include the mailing of statements and delinquency notices, personal contacts, the use of outside collection agencies and civil litigation. Markers are generally legally enforceable instruments in the United States. Markers are not legally enforceable instruments in some foreign countries, but the United States assets of foreign customers may be reached to satisfy judgments entered in the United States. We consider the likelihood and difficulty of enforceability, among other factors, when we issue credit to customers who are not residents of the United States.
Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. We reserve an estimated amount for gaming receivables that may not be collected to reduce the Company’s receivables to their net carrying amount. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. As with many estimates, management must make judgments about potential actions by third parties in establishing and evaluating our reserves for allowance for doubtful accounts. Receivables are reported net of the allowance for doubtful accounts.
Receivables
|
|
|
|
|
|
|
|
|
(In millions)
|
September 30, 2018
|
|
December 31, 2017
|
Casino
|
$
|
181
|
|
|
$
|
173
|
|
Food and beverage and rooms
|
78
|
|
|
59
|
|
Entertainment and other
|
80
|
|
|
79
|
|
Contract receivables, net
|
339
|
|
|
311
|
|
Other
|
133
|
|
|
183
|
|
Receivables, net
|
$
|
472
|
|
|
$
|
494
|
|
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Contracts
|
|
Other
|
|
Total
|
Balance as of December 31, 2017
|
$
|
44
|
|
|
$
|
7
|
|
|
$
|
51
|
|
Provision for doubtful accounts
|
9
|
|
|
(2
|
)
|
|
7
|
|
Write-offs less recoveries
|
(12
|
)
|
|
(2
|
)
|
|
(14
|
)
|
Balance as of September 30, 2018
|
$
|
41
|
|
|
$
|
3
|
|
|
$
|
44
|
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Contract Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Total Rewards
|
|
Customer Advances
|
|
Total
|
Beginning balance as of June 30, 2018
|
$
|
68
|
|
|
$
|
84
|
|
|
$
|
152
|
|
Amount recognized during the period
(1)
|
(34
|
)
|
|
(126
|
)
|
|
(160
|
)
|
Amount accrued during the period
|
38
|
|
|
130
|
|
|
168
|
|
Ending balance as of September 30, 2018
(2)
|
$
|
72
|
|
|
$
|
88
|
|
|
$
|
160
|
|
____________________
|
|
(1)
|
Includes
$5 million
for Total Rewards and
$5 million
for Customer Advances recognized from the June 30, 2018 Contract liability balances.
|
|
|
(2)
|
$6 million
included within Deferred credits and other liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Total Rewards
|
|
Customer Advances
|
|
Total
|
Beginning balance as of December 31, 2017
(1)
|
$
|
62
|
|
|
$
|
69
|
|
|
$
|
131
|
|
Amount recognized during the period
(2)
|
(97
|
)
|
|
(409
|
)
|
|
(506
|
)
|
Amount accrued during the period
|
107
|
|
|
428
|
|
|
535
|
|
Ending balance as of September 30, 2018
(3)
|
$
|
72
|
|
|
$
|
88
|
|
|
$
|
160
|
|
____________________
|
|
(1)
|
$2 million
included within Deferred credits and other liabilities.
|
|
|
(2)
|
Includes
$29 million
for Total Rewards and
$64 million
for Customer Advances recognized from the December 31, 2017 Contract liability balances.
|
|
|
(3)
|
$6 million
included within Deferred credits and other liabilities.
|
Generally, customer advances and their corresponding performance obligations are satisfied within 12 months of the date of receipt of advanced payment.
While Rewards Credits are generally redeemed by customers over a four-year period from when they were earned, of the total Reward Credits expected to be redeemed, approximately 90% are redeemed within one year and approximately 10% are redeemed beyond one year
.
Note 13
—
Stock-Based Compensation
We maintain long-term incentive plans for management, other personnel, and key service providers. The plans allow for granting stock-based compensation awards, based on CEC common stock (NASDAQ symbol “CZR”), including time-based and performance-based stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”), restricted stock awards, stock grants, or a combination of awards.
2017 Performance Incentive Plan
In April 2018, the Company granted approximately
1.6 million
PSUs that are scheduled to vest in three equal tranches over a three-year period.
On each vesting date, recipients will receive between 0% and 200% of the granted PSUs in the form of CEC common stock based on the achievement of specified performance service conditions. Based on the terms and conditions of the awards, the fair value of the PSUs was initially set equal to the quoted market price of our common stock on the date of grant, but will need to be reassessed each reporting period.
Composition of Stock-Based Compensation Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Corporate expense
|
$
|
13
|
|
|
$
|
7
|
|
|
$
|
41
|
|
|
$
|
23
|
|
Property, general, administrative, and other
|
4
|
|
|
1
|
|
|
14
|
|
|
3
|
|
Total stock-based compensation expense
|
$
|
17
|
|
|
$
|
8
|
|
|
$
|
55
|
|
|
$
|
26
|
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Outstanding at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Quantity
(1)
|
|
Wtd Avg
(2)
|
|
Quantity
|
|
Wtd Avg
(2)
|
Stock options
(3)
|
8,642,179
|
|
|
$
|
10.48
|
|
|
9,227,890
|
|
|
$
|
10.36
|
|
Restricted stock units
(4)
|
16,964,640
|
|
|
11.72
|
|
|
17,274,659
|
|
|
11.22
|
|
Performance stock units
(5)
|
1,535,385
|
|
|
10.25
|
|
|
—
|
|
|
—
|
|
____________________
|
|
(1)
|
During the
nine months ended
September 30, 2018
,
4.1 million
RSUs were issued under the 2017 Performance Incentive Plan. There were
no
grants of stock options during the
nine months ended
September 30, 2018
.
|
|
|
(2)
|
Represents weighted average exercise price for stock options, weighted average grant date fair value for RSUs, and the price of CEC common stock as of the balance sheet date for PSUs.
|
|
|
(3)
|
During the
nine months ended
September 30, 2018
,
526,174
stock options were exercised.
|
|
|
(4)
|
During the
nine months ended
September 30, 2018
,
3,684,153
restricted stock units vested.
|
|
|
(5)
|
No
PSUs have vested during the
nine months ended
September 30, 2018
.
|
Note 14
—
Income Taxes
Caesars’ provision for income taxes during the interim reporting period for the
three and nine months ended
September 30, 2018
has been calculated by applying an estimate of the annual effective tax rate (“AETR”) 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 and nine months ended
September 30, 2017
. We determined that as small changes in estimated “ordinary” income would result in significant changes in the estimated AETR, the historical method would not provide a reliable estimate for the
three and nine months ended
September 30, 2017
.
Effective January 1, 2018, we adopted ASU 2016-16,
Income Taxes (Topic 740)
, which provides amended guidance regarding intra-entity transfers of assets other than inventory and requires the recognition of any related income tax consequences when such transfers occur.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the accounting of the effects of the Tax Act. SAB 118 provides a measurement period that should not be extended past a year from the enactment date for companies to complete the accounting of the Tax Act under ASC Topic 740,
Income Taxes
(“ASC 740”). Companies that do not complete the accounting under ASC 740 for the tax effects of the Tax Act, must record a provisional estimate of the tax effects of the Tax Act. If a provisional estimate cannot be determined, a company should continue to apply ASC 740 based on the tax laws in effect immediately before the enactment of the Tax Act.
As of
September 30, 2018
, the Company has not completed the accounting for the tax effects of the Tax Act; however, the Company has made a reasonable estimate of the effects on the existing deferred tax balances and accrued a provisional income tax benefit of approximately
$1.2 billion
which was recorded in the period ended
December 31, 2017
. The amount of the estimated income tax benefit is (i)
$797 million
related to the net deferred tax benefit of the corporate rate reduction and (ii)
$442 million
related to the net deferred tax benefit of deferred tax assets which are now realizable due to the changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after
December 31, 2017
. During the
three months ended
September 30, 2018
, no changes in this estimate were made. However, during the three months ended
June 30, 2018
, the Company revised its estimate of the effects on the existing deferred tax balances as of
December 31, 2017
, and accrued an additional provisional income tax benefit of
$82 million
. The total amount of the revised estimated income tax benefit is (i)
$710 million
related to the net deferred tax benefit of the corporate rate reduction and (ii)
$569 million
related to the net deferred tax benefit of deferred tax assets, which are now realizable due to the changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after
December 31, 2017
and (iii)
$42 million
relating to the net deferred tax benefit of state deferred tax assets, which are now realizable due to the changing rules related to interest expense disallowance for those states which conform to the Tax Act.
In order to complete the accounting requirements under ASC 740, the Company needs to (i) evaluate the impact of additional guidance, if any, from the FASB and external providers on its application of ASC 740 to the calculation; (ii) evaluate the impact of further guidance from Treasury and/or the Internal Revenue Service (“IRS”) on the technical application of the law with regard to our facts; (iii) evaluate the impact of further guidance from the state tax authorities regarding their conformity to the provisions
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
of the Tax Act; and (iv) complete the analysis of the revaluation of deferred tax assets and liabilities as the Company is still analyzing certain aspects of the Tax Act. The accounting for the tax effects of the Tax Act will be completed in 2018.
The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”), which imposes taxes on foreign income in excess of a deemed return on tangible assets of foreign corporations. Because of the complexities of the new provisions, the Company is continuing to evaluate how the provisions will be accounted for under GAAP. Companies are allowed to make an accounting policy election of either (i) account for GILTI as a component of income tax expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). The Company has not elected a method and will do so after completing its analysis of the GILTI provisions of the Tax Act depending on the analysis of the Company’s global income. Therefore, we have not recorded any potential deferred tax effects related to the GILTI in our financial statements and have no policy election regarding whether to record deferred taxes on GILTI or use the period cost method. We have however, included an estimate of the current GILTI impact in our AETR for 2018. We expect to complete the accounting during the measurement period.
Income Tax Allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(Dollars in millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Loss before income taxes
|
$
|
—
|
|
|
$
|
(484
|
)
|
|
$
|
(28
|
)
|
|
$
|
(2,345
|
)
|
Income tax benefit/(provision)
|
$
|
111
|
|
|
$
|
45
|
|
|
$
|
134
|
|
|
$
|
(34
|
)
|
Effective tax rate
|
*
|
|
|
9.3
|
%
|
|
478.6
|
%
|
|
(1.4
|
)%
|
____________________
We classify reserves for tax uncertainties within Deferred credits and other liabilities on the Balance Sheets, separate from any related income tax payable, which is also reported within Accrued expenses and other current liabilities, 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 and state deferred tax assets that were not deemed realizable based upon estimates of future taxable income.
The income tax benefit for the
three months ended
September 30, 2018
differed from the expected income tax benefit based on the federal tax rate of
21%
primarily due to the deferred tax benefit from the partial release of the federal valuation allowance upon the acquisition of Centaur offset by the deferred tax expense from New Jersey tax reform, losses not tax benefitted, and nondeductible expenses. The effective tax rate related to the loss before income taxes for the
three months ended
September 30, 2017
differed from the expected federal tax rate of
35%
primarily due to losses not tax benefitted, including accrued restructuring and support expenses, and state deferred tax expense.
The effective tax rate related to the loss before income taxes for the
nine months ended
September 30, 2018
differed from the expected federal tax rate of
21%
primarily due the deferred tax benefit from the partial release of the federal valuation allowance upon the acquisition of Centaur and from revisions to the estimated deferred tax balances as of
December 31, 2017
as a result of the Tax Act offset by losses not tax benefitted and nondeductible expenses. The effective tax rate related to the loss before income taxes for the
nine months ended
September 30, 2017
differed from the expected federal tax rate of
35%
primarily due to losses not tax benefitted, including accrued restructuring and support expenses, and state deferred tax expense. Effective January 1, 2017, CEC elected to no longer treat Caesars Entertainment Resort Properties, LLC (“CERP”) as a corporation for income tax purposes, which resulted in additional state deferred tax expense due to additional state filing requirements for CEC.
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular and recurring audit by the IRS on open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 15
—
Related Party Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Transactions with Sponsors and their affiliates
|
|
|
|
|
|
|
|
Expenses paid to Sponsors’ portfolio companies
|
$
|
9
|
|
|
$
|
1
|
|
|
$
|
18
|
|
|
$
|
2
|
|
Transactions with Horseshoe Baltimore
|
|
|
|
|
|
|
|
Management fees
|
2
|
|
|
1
|
|
|
7
|
|
|
1
|
|
Reimbursements and allocated expenses
|
1
|
|
|
4
|
|
|
4
|
|
|
4
|
|
Transactions with CEOC
|
|
|
|
|
|
|
|
Shared services allocated expenses to CEOC
|
—
|
|
|
108
|
|
|
—
|
|
|
312
|
|
Shared services allocated expenses from CEOC
|
—
|
|
|
25
|
|
|
—
|
|
|
71
|
|
Management fees incurred
|
—
|
|
|
11
|
|
|
—
|
|
|
33
|
|
Octavius Tower lease revenue
|
—
|
|
|
8
|
|
|
—
|
|
|
26
|
|
Other expenses incurred
|
—
|
|
|
3
|
|
|
—
|
|
|
9
|
|
Transactions with Sponsors and their Affiliates
The members of Hamlet Holdings LLC are comprised of individuals affiliated with Apollo Global Management, LLC and affiliates of TPG Capital LP (collectively, the “Sponsors”). On the Effective Date, we entered into a “Termination Agreement” with the Sponsors and their affiliates, pursuant to which certain agreements terminated. Due to a reduction in ownership percentage of the Company on the Effective Date, we are no longer controlled by the Sponsors.
We may engage in transactions with companies owned or controlled by affiliates of the Sponsors in the normal course of business. Amounts paid to the Sponsors’ portfolio companies are included in the table above and we believe such transactions are conducted at fair value.
Transactions with Horseshoe Baltimore
Upon our deconsolidation of Horseshoe Baltimore effective August 31, 2017, Horseshoe Baltimore, which remains
41%
owned by us, is now held as an equity method investment and considered to be a related party. These related party transactions include items such as casino management fees, reimbursement of various costs incurred by CEOC LLC on behalf of Horseshoe Baltimore, and the allocation of other general corporate expenses. A summary of the transactions with Horseshoe Baltimore subsequent to the deconsolidation is provided in the table above.
Transactions with CEOC
Upon CEOC’s filing for reorganization under Chapter 11 of the Bankruptcy Code and its subsequent deconsolidation, transactions with CEOC were no longer eliminated in consolidation and were considered related party transactions for Caesars. A summary of these transactions is provided in the table above. However, subsequent to CEOC’s emergence from bankruptcy on the Effective Date, CEOC’s successor, CEOC LLC, became a wholly owned subsidiary of CEC, and therefore will no longer be treated as a related party going forward. The following activities, to the extent that they continued subsequent to the Effective Date, are eliminated in consolidation from that point forward.
CEOC Shared Services Agreement
Pursuant to a shared services agreement, CEOC provided Caesars with certain corporate and administrative services, and the costs of these services were allocated to Caesars. Certain services are now provided by CES.
Prior to the deconsolidation of CEOC, we were self-insured for employee medical (health, dental, and vision) and risk products, including workers compensation and surety bonds, and our insurance claims and reserves included accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Services Joint Venture
CES provides certain corporate and administrative services to its members, and the costs of these services are allocated among the members. CES allocates costs including amounts for insurance coverage.
Management Fees
Caesars Growth Partners, LLC (“CGP”) pays a management fee to CEOC for the CGP properties that are managed by CEOC or CES.
Octavius Tower Lease Agreement
Under the Octavius Tower lease agreement, CEOC LLC leased the Octavius Tower for
$35 million
annually from CRC. On July 11, 2018, the real estate assets of the Octavius Tower were sold by the Company to VICI and CEOC LLC leases the Octavius Tower under the current terms of the long-term lease agreement with VICI relating to Caesars Palace.
LINQ Access and Parking Easement Agreements
Under the LINQ Access and Parking easement agreements, subsidiaries of CEOC granted easements for access and parking behind The LINQ Promenade and The LINQ Hotel & Casino to CERP and CGP and certain of their subsidiaries. Together, CERP and CGP paid approximately
$2 million
annually. Amounts are included within Other expenses incurred in the table above. The parking lot was sold to VICI upon CEOC’s emergence from bankruptcy but was partially repurchased by CRC as part of the purchase of approximately 18 acres of land adjacent to the Harrah’s Las Vegas property with the other portion still owned by VICI.
Service Provider Fee
CEOC, CERP and CGP had a shared services agreement under which CERP and CGP paid for certain indirect corporate support costs. Amounts are included within Other expenses incurred in the table above.
Cross Marketing and Trademark License Agreement
Caesars Interactive Entertainment, LLC (“CIE”) and CEOC have a Cross Marketing and Trademark License Agreement. The agreement granted CIE the exclusive right to use various brands of Caesars Entertainment in connection with social and mobile games and online real money gaming in exchange for a
3.0%
royalty. This agreement also provides for cross marketing and promotional activities between CIE and CEOC, including participation by CIE in Caesars’ Total Rewards customer loyalty program. CEOC also receives a revenue share from CIE for customer referrals. Amounts are included within Other expenses incurred in the table above.
Equity Incentive Awards
Caesars maintained an equity incentive awards plan under which CEC issued time-based and performance-based stock options, restricted stock units and restricted stock awards to CEOC employees. Although awards under the plan resulted in the issuance of shares of CEC common stock, because CEOC was no longer a consolidated subsidiary of CEC, we accounted for these awards as nonemployee awards subsequent to the date of deconsolidation.
Employee Benefit Plans
CEC maintains a defined contribution savings and retirement plan in which eligible employees of specified CEC subsidiaries may participate. The plan provides for, among other things, pre-tax, Roth and after-tax contributions by employees. The plan also provides for employer matching contributions. Under the plan, participating employees may elect to contribute a percentage of their eligible earnings (subject to certain IRS and plan limits). In addition, employees subject to certain collective bargaining agreements receive benefits through the multi-employer retirement plans sponsored by the organization in which they are a member. The expenses related to contributions for a participant in the CEC plan or a multi-employer plan are allocated to the properties at which the participant is employed.
Total Rewards Loyalty Program
Until the Effective Date, the total estimated cost for Total Rewards was accrued by CEOC; on the Effective Date, administration of Total Rewards is managed by CEC.
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Due from/to Affiliates
Amounts due from or to affiliates for each counterparty represent the net receivable or payable as of the end of the reporting period primarily resulting from the transactions described above and are settled on a net basis by each counterparty in accordance with the legal and contractual restrictions governing transactions by and among Caesars’ consolidated entities.
As of
September 30, 2018
and
December 31, 2017
, Due from affiliates, net was
$4 million
and
$11 million
, respectively, and represented transactions with Horseshoe Baltimore.
Note 16
—
Segment Reporting
We view each casino property as an operating segment and aggregate such casino properties into
three
regionally-focused reportable segments: (i) Las Vegas, (ii) Other U.S. and (iii) All Other, which is consistent with how we manage the business.
The results of each reportable segment presented below are consistent with the way management assesses these results and allocates resources, which is a consolidated view that adjusts for the effect of certain transactions between reportable segments within Caesars. We recast previously reported segment amounts to conform to the way management assesses results and allocates resources for the current year.
“All Other” includes managed, international and other properties as well as parent and other adjustments to reconcile to consolidated Caesars results.
Condensed Statements of Operations - By Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net revenues
|
$
|
910
|
|
|
$
|
1,125
|
|
|
$
|
152
|
|
|
$
|
(2
|
)
|
|
$
|
2,185
|
|
Depreciation and amortization
|
149
|
|
|
129
|
|
|
17
|
|
|
—
|
|
|
295
|
|
Income/(loss) from operations
|
141
|
|
|
172
|
|
|
(81
|
)
|
|
—
|
|
|
232
|
|
Interest expense
|
(87
|
)
|
|
(137
|
)
|
|
(117
|
)
|
|
—
|
|
|
(341
|
)
|
Restructuring and support expenses and other
(1)
|
4
|
|
|
—
|
|
|
105
|
|
|
—
|
|
|
109
|
|
Income tax benefit
(2)
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net revenues
|
$
|
687
|
|
|
$
|
284
|
|
|
$
|
23
|
|
|
$
|
(1
|
)
|
|
$
|
993
|
|
Depreciation and amortization
|
124
|
|
|
24
|
|
|
2
|
|
|
—
|
|
|
150
|
|
Income/(loss) from operations
|
107
|
|
|
47
|
|
|
(70
|
)
|
|
—
|
|
|
84
|
|
Interest expense
|
—
|
|
|
(3
|
)
|
|
(117
|
)
|
|
—
|
|
|
(120
|
)
|
Restructuring and support expenses and other
(1)
|
—
|
|
|
20
|
|
|
(468
|
)
|
|
—
|
|
|
(448
|
)
|
Income tax benefit
(2)
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net revenues
|
$
|
2,804
|
|
|
$
|
3,033
|
|
|
$
|
446
|
|
|
$
|
(7
|
)
|
|
$
|
6,276
|
|
Depreciation and amortization
|
423
|
|
|
371
|
|
|
49
|
|
|
—
|
|
|
843
|
|
Income/(loss) from operations
|
535
|
|
|
389
|
|
|
(285
|
)
|
|
—
|
|
|
639
|
|
Interest expense
|
(245
|
)
|
|
(414
|
)
|
|
(346
|
)
|
|
—
|
|
|
(1,005
|
)
|
Restructuring and support expenses and other
(1)
|
4
|
|
|
2
|
|
|
332
|
|
|
—
|
|
|
338
|
|
Income tax benefit
(2)
|
—
|
|
|
—
|
|
|
134
|
|
|
—
|
|
|
134
|
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net revenues
|
$
|
2,042
|
|
|
$
|
870
|
|
|
$
|
57
|
|
|
$
|
(2
|
)
|
|
$
|
2,967
|
|
Depreciation and amortization
|
277
|
|
|
66
|
|
|
5
|
|
|
—
|
|
|
348
|
|
Income/(loss) from operations
|
415
|
|
|
123
|
|
|
(155
|
)
|
|
—
|
|
|
383
|
|
Interest expense
|
(8
|
)
|
|
(17
|
)
|
|
(384
|
)
|
|
—
|
|
|
(409
|
)
|
Restructuring and support expenses and other
(1)
|
(3
|
)
|
|
20
|
|
|
(2,336
|
)
|
|
—
|
|
|
(2,319
|
)
|
Income tax provision
(2)
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
—
|
|
|
(34
|
)
|
____________________
|
|
(1)
|
2018 amount primarily represents a change in fair value of our derivative liability related to the conversion option of the CEC Convertible Notes; 2017 amount primarily represents CEC’s costs in connection with the restructuring of CEOC.
|
|
|
(2)
|
Taxes are recorded at the consolidated level and not estimated or recorded to our Las Vegas and Other U.S. segments.
|
Adjusted EBITDA - By Segment
Adjusted EBITDA is presented as a measure of the Company’s performance. Adjusted EBITDA is defined as revenues less operating expenses and is comprised of net income/(loss) before (i) interest expense, net of interest capitalized and interest income, (ii) income tax (benefit)/provision, (iii) depreciation and amortization, (iv) corporate expenses, and (v) certain items that we do not consider indicative of its 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 non-GAAP 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net income attributable to Caesars
|
$
|
58
|
|
|
$
|
35
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
110
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Income tax benefit
(1)
|
—
|
|
|
—
|
|
|
(111
|
)
|
|
—
|
|
|
(111
|
)
|
Restructuring and support expenses and other
(2)
|
(4
|
)
|
|
—
|
|
|
(105
|
)
|
|
—
|
|
|
(109
|
)
|
Interest expense
|
87
|
|
|
137
|
|
|
117
|
|
|
—
|
|
|
341
|
|
Depreciation and amortization
|
149
|
|
|
129
|
|
|
17
|
|
|
—
|
|
|
295
|
|
Other operating costs
(3)
|
13
|
|
|
6
|
|
|
11
|
|
|
(1
|
)
|
|
29
|
|
Stock-based compensation expense
|
2
|
|
|
2
|
|
|
13
|
|
|
—
|
|
|
17
|
|
Other items
(4)
|
2
|
|
|
1
|
|
|
23
|
|
|
1
|
|
|
27
|
|
Adjusted EBITDA
|
$
|
307
|
|
|
$
|
310
|
|
|
$
|
(17
|
)
|
|
$
|
—
|
|
|
$
|
600
|
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net income/(loss) attributable to Caesars
|
$
|
107
|
|
|
$
|
70
|
|
|
$
|
(610
|
)
|
|
$
|
—
|
|
|
$
|
(433
|
)
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Income tax benefit
(1)
|
—
|
|
|
—
|
|
|
(45
|
)
|
|
—
|
|
|
(45
|
)
|
Restructuring and support expenses and other
(2)
|
—
|
|
|
(20
|
)
|
|
468
|
|
|
—
|
|
|
448
|
|
Interest expense
|
—
|
|
|
3
|
|
|
117
|
|
|
—
|
|
|
120
|
|
Depreciation and amortization
|
124
|
|
|
24
|
|
|
2
|
|
|
—
|
|
|
150
|
|
Other operating costs
(3)
|
2
|
|
|
1
|
|
|
33
|
|
|
—
|
|
|
36
|
|
Stock-based compensation expense
|
1
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
8
|
|
Other items
(4)
|
1
|
|
|
2
|
|
|
23
|
|
|
—
|
|
|
26
|
|
Adjusted EBITDA
|
$
|
235
|
|
|
$
|
74
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net income/(loss) attributable to Caesars
|
$
|
294
|
|
|
$
|
(24
|
)
|
|
$
|
(165
|
)
|
|
$
|
—
|
|
|
$
|
105
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Income tax benefit
(1)
|
—
|
|
|
—
|
|
|
(134
|
)
|
|
—
|
|
|
(134
|
)
|
Restructuring and support expenses and other
(2)
|
(4
|
)
|
|
(2
|
)
|
|
(332
|
)
|
|
—
|
|
|
(338
|
)
|
Interest expense
|
245
|
|
|
414
|
|
|
346
|
|
|
—
|
|
|
1,005
|
|
Depreciation and amortization
|
423
|
|
|
371
|
|
|
49
|
|
|
—
|
|
|
843
|
|
Other operating costs
(3)
|
42
|
|
|
13
|
|
|
73
|
|
|
—
|
|
|
128
|
|
Stock-based compensation expense
|
6
|
|
|
7
|
|
|
42
|
|
|
—
|
|
|
55
|
|
Other items
(4)
|
5
|
|
|
4
|
|
|
67
|
|
|
—
|
|
|
76
|
|
Adjusted EBITDA
|
$
|
1,011
|
|
|
$
|
784
|
|
|
$
|
(54
|
)
|
|
$
|
—
|
|
|
$
|
1,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Net income/(loss) attributable to Caesars
|
$
|
404
|
|
|
$
|
133
|
|
|
$
|
(2,909
|
)
|
|
$
|
—
|
|
|
$
|
(2,372
|
)
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Income tax provision
(1)
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
34
|
|
Restructuring and support expenses and other
(2)
|
3
|
|
|
(20
|
)
|
|
2,336
|
|
|
—
|
|
|
2,319
|
|
Interest expense
|
8
|
|
|
17
|
|
|
384
|
|
|
—
|
|
|
409
|
|
Depreciation and amortization
|
277
|
|
|
66
|
|
|
5
|
|
|
—
|
|
|
348
|
|
Other operating costs
(3)
|
17
|
|
|
3
|
|
|
33
|
|
|
—
|
|
|
53
|
|
Stock-based compensation expense
|
2
|
|
|
1
|
|
|
23
|
|
|
—
|
|
|
26
|
|
Other items
(4)
|
5
|
|
|
4
|
|
|
50
|
|
|
—
|
|
|
59
|
|
Adjusted EBITDA
|
$
|
716
|
|
|
$
|
197
|
|
|
$
|
(44
|
)
|
|
$
|
—
|
|
|
$
|
869
|
|
____________________
|
|
(1)
|
Taxes are recorded at the consolidated level and not estimated or recorded to our Las Vegas and Other U.S. segments.
|
|
|
(2)
|
2018 amount primarily represents a change in fair value of our derivative liability related to the conversion option of the CEC Convertible Notes; 2017 amount primarily represents CEC’s costs in connection with the restructuring of CEOC.
|
|
|
(3)
|
Amounts primarily represent costs incurred in connection with costs associated with the development activities and reorganization activities, and/or recoveries associated with such items.
|
|
|
(4)
|
Other items includes other add-backs and deductions to arrive at Adjusted EBITDA but not separately identified such as litigation awards and settlements, costs associated with CEOC’s restructuring and related litigation, severance and relocation costs, sign-on and retention bonuses, permit remediation costs, and business optimization expenses.
|
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Condensed Balance Sheets - By Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Total assets
|
$
|
13,990
|
|
|
$
|
8,633
|
|
|
$
|
6,342
|
|
|
$
|
(2,999
|
)
|
|
$
|
25,966
|
|
Total liabilities
|
5,856
|
|
|
5,082
|
|
|
11,720
|
|
|
141
|
|
|
22,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
(In millions)
|
Las Vegas
|
|
Other U.S.
|
|
All Other
|
|
Elimination
|
|
Caesars
|
Total assets
|
$
|
14,145
|
|
|
$
|
6,865
|
|
|
$
|
7,458
|
|
|
$
|
(3,032
|
)
|
|
$
|
25,436
|
|
Total liabilities
|
5,239
|
|
|
5,012
|
|
|
11,780
|
|
|
108
|
|
|
22,139
|
|