UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-10410
CAESARS ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
62-1411755
(I.R.S. Employer Identification No.)
One Caesars Palace Drive
Las Vegas, Nevada 89109
Address of principal executive offices
Registrant’s telephone number, including area code:
(702) 407-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.01 par value
Trading Symbol(s)
CZR
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒ Accelerated filer
☐ Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2019 was $6.8 billion.
As of February 21, 2020, the registrant had 682,268,726 shares of common stock outstanding.
Portions of the Registrant’s definitive Proxy Statement for our 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K, provided that if the Registrant does not file such Proxy
Statement on or before April 29, 2020, such information will be included in an amendment to this Form 10-K filed on or before such date.
DOCUMENTS INCORPORATED BY REFERENCE
CAESARS ENTERTAINMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Part I
Part II
Item 1 – Business
Item 1A – Risk Factors
Item 1B – Unresolved Staff Comments
Item 2 – Properties
Item 3 – Legal Proceedings
Item 4 – Mine Safety Disclosures
Item 5 – Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6 – Selected Financial Data
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A – Quantitative and Qualitative Disclosures About Market Risk
Item 8 – Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A – Controls and Procedures
Item 9B – Other Information
Item 10 – Directors, Executive Officers and Corporate Governance
Item 11 – Executive Compensation
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 – Certain Relationships and Related Transactions, and Director Independence
Item 14 – Principal Accounting Fees and Services
Item 15 – Exhibits, Financial Statement Schedules - Schedule I
Item 16 – Form 10-K Summary
Part III
Part IV
Signatures
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PART I
In this filing, the name “CEC” refers to the parent holding company, Caesars Entertainment Corporation, exclusive of its consolidated subsidiaries and variable interest entities, unless otherwise
stated or the context otherwise requires. The words “Company,” “Caesars,” “Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, inclusive of its
consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires.
We also refer to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Operations and Consolidated Statements of Comprehensive
Income/(Loss) as our “Statements of Operations,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Statements of Cash
Flows.” References to numbered “Notes” refer to Notes to our Consolidated Financial Statements included in Item 8.
ITEM 1. Business
Overview
Caesars Entertainment is a casino-entertainment and hospitality services provider with one of the world’s most diversified portfolios. We have established a rich history of industry-leading growth
and expansion since we commenced operations in 1937. Our facilities typically include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment
options. In addition to our brick and mortar assets, we operate an online gaming business that provides real money games in certain jurisdictions and offers retail sports wagering in certain
jurisdictions.
CEC is primarily a holding company with no independent operations of its own. CEC operates the business primarily through its wholly owned subsidiaries CEOC, LLC (“CEOC LLC”) and Caesars
Resort Collection, LLC (“CRC”).
We lease certain real property assets from third parties, including VICI Properties Inc. and/or its subsidiaries (collectively, “VICI”).
Significant Transactions in 2019
Proposed Merger of Caesars Entertainment Corporation with Eldorado Resorts, Inc.
On June 24, 2019, Caesars, Eldorado Resorts, Inc., a Nevada corporation (“Eldorado”), and Colt Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Eldorado (“Merger
Sub”), entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 15, 2019, and as it may be further amended from time
to time, the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Caesars (the “Merger”), with Caesars
continuing as the surviving corporation and a direct wholly owned subsidiary of Eldorado. On November 15, 2019, the respective stockholders of Caesars and Eldorado voted to approve the Merger.
The transaction is expected to close in the first half of 2020. In connection with the Merger, Eldorado will change its name to Caesars Entertainment, Inc. See Note 1.
Rio All-Suite Hotel & Casino Disposition
On September 20, 2019, Rio Properties, LLC, a subsidiary of CEC, entered into a Purchase and Sale Agreement and Joint Escrow Instructions for certain assets of Rio All-Suite Hotel & Casino
(“Rio”). During the quarter ended September 30, 2019, we recorded an impairment charge of $380 million, which included $6 million related to selling costs, as the carrying value was higher than the
fair value. On December 5, 2019, the transaction was completed for a sales price of approximately $516 million. The sales price received includes $40 million in seller financing that we provided the
buyer at a 9% interest rate, that is due to us in two years unless extended for an additional year. Interest may be paid monthly, or paid-in-kind at the option of the buyer. We received $470 million in
cash proceeds, net of selling costs. In connection with the closing of the sale, we entered into a lease and trademark license under which we will continue to operate the property under the Rio
trademark for an initial term of two years at an initial annual rent amount of approximately $45 million. See Note 1.
Consolidation of Korea Joint Venture
CEC has a joint venture to acquire, develop, own, and operate a casino resort project in Incheon, South Korea (the “Korea JV”). We determined that the Korea JV is a VIE and CEC is the primary
beneficiary, and therefore, we consolidate the Korea JV into our financial statements. As of December 31, 2019, the construction schedule for the project has been delayed and discussions regarding
the project costs between us and our joint venture partner remain ongoing. On February 11, 2020, the primary subcontractor notified us that construction on the project has ceased pending resolution
of the go-forward options as explained below. In addition, the external debt financing by the Korea JV has also been delayed, which has impacted the timing of equity
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capital contributions by us, and our joint venture partner, in accordance with our joint venture agreement. We are currently in discussions with our joint venture partner regarding the project costs and
financing plan for the project, as well as evaluating all of our options under the terms of the joint venture agreement. Possible outcomes include completing the project and related financing as
originally budgeted, adding an additional equity partner, selling all, or part, of the parties’ ownership interest in the Korea JV, liquidating the joint venture or taking any other steps including those that
we may agree with our joint venture partner. These possible outcomes could result in a material impairment of assets of the Korea JV and could also change our conclusion that we are the primary
beneficiary of the joint venture, which could result in a material charge upon deconsolidating the joint venture. As reported by the joint venture and consolidated in our financial statements, as of
December 31, 2019, total net assets of $133 million was primarily composed of property and equipment valued on a cost basis, net of construction payable, of which we have a 50% interest.
Emerald Resort & Casino, South Africa Disposition
In May 2019, we entered into an agreement to sell Emerald Resort & Casino located in South Africa for total proceeds of approximately $51 million. We own 70% of this property while the
remaining 30% is owned by local minority partners. Total cash proceeds for our 70% ownership and other adjustments total approximately $41 million. The transaction is expected to close in 2020,
subject to regulatory approvals and other customary closing conditions. Subsequent to December 31, 2019, the seller informed us that pursuant to certain conditions in the agreement that they wished
to renegotiate the previously agreed upon sales price. We still believe the transaction will close in 2020 and therefore still meets the criteria of assets as held for sale as of the balance sheet date. See
Note 2.
Other Significant Transactions and Significant Events
CEO Transition
In April 2019, our Board of Directors named Tony Rodio as our Chief Executive Officer, replacing Mark P. Frissora, our former President and Chief Executive Officer, who served until April 30,
2019. Mr. Rodio’s appointment became effective on May 6, 2019. Immediately prior to joining the Company, he served as Chief Executive Officer of Affinity Gaming, and prior to that, he served as
President, Chief Executive Officer and a member of the Board of Directors of Tropicana Entertainment Inc. (“Tropicana”) for over seven years. Mr. Rodio has nearly four decades of experience in the
gaming industry.
CEOC’s Emergence from Bankruptcy and CEC’s Merger with Caesars Acquisition Company
Caesars Entertainment Operating Company, Inc. (“CEOC”) and certain of its U.S. subsidiaries (collectively, the “Debtors”) voluntarily filed for reorganization on January 15, 2015 (the “Petition
Date”), at which time CEC deconsolidated CEOC. The Debtors emerged from bankruptcy and consummated their reorganization pursuant to their third amended joint plan of reorganization (the
“Plan”) on October 6, 2017 (the “Effective Date”). As part of its emergence from bankruptcy, CEOC reorganized into an operating company (“OpCo”) separate from its real property assets
(“PropCo”). OpCo was acquired by CEC on the Effective Date and immediately merged with and into CEOC LLC. CEOC LLC operates the properties and facilities formerly held by CEOC and
leases the properties and facilities from VICI. See Note 4 for additional information.
On the Effective Date, Caesars Acquisition Company (“CAC”) merged with and into CEC, with CEC as the surviving company (the “CAC Merger”). See Note 4 for additional information. The CAC
Merger was accounted for as a reorganization of entities under common control, which resulted in CAC being consolidated into Caesars at book value as an equity transaction for all periods
presented.
Organizational Structure
As of December 31, 2019, through our consolidated entities and managed properties, we had a total of 53 properties, four of which do not have casinos, including one non-operational property, in
14 U.S. states and five countries outside of the U.S. In addition, we authorize the use of our brands and marks to a tribal casino property. Our facilities have an aggregate of over 3 million square feet
of gaming space and approximately 40,000 hotel rooms. Of the 49 casinos, 36 are in the United States and primarily consist of land-based and riverboat or dockside casinos. Our 13 international
casinos are land-based casinos, most of which are located in the United Kingdom.
We view each property as an operating segment and aggregate them 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. Within these segments, our properties are primarily categorized as Leased (where we lease real property assets from third parties, including VICI), Owned-Domestic,
Owned-International, and Managed. See Item 2, “Properties,” for more information about our properties.
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Our All Other segment includes managed and international properties as well as other businesses, such as Caesars Interactive Entertainment (“CIE”).
Business Operations
Our consolidated business is composed of five complementary businesses that reinforce, cross-promote, and build upon each other: casino entertainment, food and beverage, rooms and hotel, casino
management services, and entertainment and other business operations, including mobile sports betting. Upon CEOC’s emergence from bankruptcy on the Effective Date, the majority of its real
property assets were sold to VICI and simultaneously leased back to us as part of the plan of reorganization. Additional transactions with VICI were subsequently completed to finance acquisitions
and working capital purposes, resulting in cash proceeds and corresponding financing obligations. See Note 10 for additional information.
Casino Entertainment Operations
Our casino entertainment operations generate revenues from approximately 38,000 slot machines and 2,700 table games, as well as other games such as keno, poker, and race and sports books, all of
which comprised approximately 51% of our total net revenues in 2019. Slot revenues generate the majority of our gaming revenues, particularly in our properties located outside of Las Vegas and
Atlantic City.
Food and Beverage Operations
Our food and beverage operations generate revenues from approximately 220 buffets, restaurants, bars, nightclubs, and lounges located throughout our casinos, as well as banquets and room service,
and represented approximately 19% of our total net revenues in 2019. Many of our properties include several dining options, ranging from upscale dining experiences to moderately-priced restaurants
and buffets.
Rooms and Hotel Operations
Rooms and hotel operations generate revenues from hotel stays at our properties in our approximately 36,000 guest rooms and suites worldwide and represented approximately 18% of our total net
revenues in 2019. Our properties operate at various price and service points, allowing us to host a variety of casino guests who are visiting our properties for gaming and other casino entertainment
options and non-casino guests who are visiting our properties for other purposes, such as vacation travel or conventions.
We have engaged in large capital reinvestment projects in recent years focusing primarily on our room product across the United States, including renovating over 19,000 rooms in Las Vegas since
2015 at properties such as Caesars Palace, Planet Hollywood Resort & Casino (“Planet Hollywood”), Flamingo Las Vegas, Bally’s Las Vegas, Harrah’s Las Vegas, and Paris Las Vegas. In addition,
we continue to roll out self-check-in kiosks in order to help reduce customer wait times and improve labor efficiencies.
Management Services
We earn revenue from fees paid for the management of eight casinos. Managed properties represent Caesars-branded properties where Caesars Entertainment provides staffing and management
services under management agreements. In 2018, we opened our first non-gaming properties, including two beachfront luxury resorts, a beach club, and a residential tower on Meraas’ Bluewaters
Island in Dubai.
Entertainment and Other Non-Gaming Operations
We provide a variety of retail and entertainment offerings at our properties. We operate various entertainment venues across the United States, including the Colosseum at Caesars Palace and Zappos
Theater at Planet Hollywood, both of which were ranked among the top theater venues in the United States in 2019 based on ticket sales. These award-winning theaters host prominent headliners,
such as Mariah Carey, Christina Aguilera, Keith Urban, Gwen Stefani, Rod Stewart and Shania Twain.
The LINQ Promenade and our retail stores offer guests a wide range of options from high-end brands and accessories to souvenirs and decorative items. The LINQ Promenade is an open-air dining,
entertainment, and retail development located between The LINQ Hotel & Casino and Flamingo Las Vegas, and it features The High Roller, a 550-foot observation wheel, and Fly LINQ, the first and
only zipline on the Las Vegas Strip.
In 2018, we broke ground on CAESARS FORUM, a 550,000 square-foot conference center located at the center of the Las Vegas Strip. Scheduled to officially open in March 2020, CAESARS
FORUM will feature 300,000 square feet of flexible meeting space, the two largest pillarless ballrooms in the world, LEED silver-rating, and FORUM Plaza, the first 100,000 square-foot outdoor
meeting and event space in Las Vegas.
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Sports-Related Business Operations
The Company is now live with retail sports wagering across seven U.S. states, including Nevada, New Jersey, Pennsylvania, Mississippi, Iowa, Indiana and New York. The Company also operates the
Caesars Casino & Sports app for mobile sports betting, which allows players in New Jersey and Nevada who download the app to place bets on sporting events. The players can also play over 400
casino games including slots, table games, and video poker. This product is expected to be launched in 2020 in Pennsylvania, where regulatory approval is pending, and is planned to launch in other
states subject to receipt of regulatory approval there.
The Company continues to solidify local and national partnerships that align our casinos, resorts and brands with sports fans. In 2019, we announced high-profile exclusive sports entertainment
partnerships with the NFL, making Caesars the first-ever “Official Casino Sponsor” in the history of the league. This historic partnership combines the NFL’s legendary events with our properties to
bring unique experiences to Caesars patrons. This includes exclusive rights to use NFL trademarks in the U.S. and U.K. to promote our properties, also enabling Caesars to host exclusive special
events and experiences. For example, in April 2019, Caesars and the NFL hosted the NFL Alumni Las Vegas Draft Party with exclusive fan access to an autograph session with NFL Legends,
giveaways and an open bar at the LINQ Hotel & Casino. Caesars will continue to host brand activations at prominent, high-profile NFL events, including the NFL Draft, NFL playoffs, and the Super
Bowl during this multi-year partnership.
Additionally, in 2019, the Company entered into an agreement with ESPN pursuant to which, among other things, a new ESPN-branded studio will be built at the LINQ Hotel & Casino in Las Vegas
where ESPN will broadcast sports betting-themed content and other programming. The new studio is expected to open in 2020. Under the agreement, Caesars has also been designated as ESPN’s
“Official Odds Provider,” ESPN will produce and distribute certain content across ESPN’s media platforms that will feature Caesars branding, and Caesars will purchase advertising across ESPN and
its affiliated advertising platforms, among other terms.
The Company also entered into an agreement in 2019 with Turner Sports, owner of Bleacher Report. Under the agreement, a Bleacher Report-branded studio has been established inside the sports
book at Caesars Palace Las Vegas for the creation of a wide assortment of programming and editorial content to be regularly distributed through Bleacher Report and the B/R App. The agreement
further provides for Caesars branding to be featured in certain Turner Sports and Bleacher Report programming and content, and for the parties to pursue other sponsorship, marketing and content
opportunities together.
Our subsidiary, CIE operates regulated online real money gaming businesses in certain authorized jurisdictions, including in Nevada and New Jersey, owns the World Series of Poker (“WSOP”)
brand, and licenses the WSOP trademarks for a variety of products and services.
Sales and Marketing
On January 30, 2019, Caesars announced the rebranding of Total Rewards, the Company’s industry-leading loyalty program, to Caesars Rewards effective February 1, 2019. The new program
leverages the premium Caesars brand to better connect Caesars’ elevated standard and prestige with the Company’s global destinations.
We believe Caesars Rewards enables us to compete more effectively and capture a larger share of our customers’ entertainment spending when they travel among regions versus that of a standalone
property, which is core to our cross-market strategy. We believe that operating multiple properties in the center of the Las Vegas Strip generates greater revenues than would be generated if the
properties were operated separately.
Members who have joined Caesars Rewards can earn Reward Credits for qualifying gaming activity and qualifying hotel, dining and retail spending at all Caesars-affiliated properties in the United
States, Canada, the United Kingdom, and Dubai. Members can also earn additional Reward Credits when they use their Caesars Rewards VISA credit card or make a purchase through a Caesars
Rewards partner. Members can redeem their earned Reward Credits with Caesars for hotel amenities, casino free play and other items such as merchandise, gift cards, and travel.
Caesars Rewards is structured in tiers (designated as Gold, Platinum, Diamond or Seven Stars), each with increasing member benefits and privileges. Members are provided promotional offers based
on their Tier Level, their engagement with Caesars-affiliated properties, aspects of their casino gaming play, and their preferred spending choices outside of gaming. Member information is also used
in connection with various marketing promotions, including campaigns involving direct mail, email, our websites, mobile devices, social media, and interactive slot machines.
Intellectual Property
The development of intellectual property is part of our overall business strategy. We regard our intellectual property to be an important element of our success. While our business as a whole is not
substantially dependent on any one patent, trademark,
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copyright, or combination of several of our intellectual property rights, we seek to establish and maintain our proprietary rights in our business operations and technology through the use of patents,
trademarks, copyrights, and trade secret laws. We file applications for and obtain patents, trademarks, and copyrights in the United States and foreign countries where we believe filing for such
protection is appropriate, including United States and foreign patent applications covering certain proprietary technology of Caesars Enterprise Services, LLC (“CES”). We also seek to maintain our
trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements. CES’ United States patents have varying expiration dates.
We have not applied for the registration of all of our trademarks, copyrights, proprietary technology, or other intellectual property rights, as the case may be, and may not be successful in obtaining all
intellectual property rights for which we have applied. Despite our efforts to protect our proprietary rights, parties may infringe upon our intellectual property and use information that we regard as
proprietary, and our rights may be invalidated or unenforceable. The laws of some foreign countries do not protect proprietary rights or intellectual property to as great of an extent as do the laws of
the United States. In addition, others may independently develop substantially equivalent intellectual property.
We own or have the right to use proprietary rights to a number of trademarks that we consider, along with the associated name recognition, to be valuable to our business, including Bally’s, Caesars,
Flamingo, Harrah’s, Horseshoe, Paris, Caesars Rewards, WSOP, and licenses for the Planet Hollywood trademark used in connection with the Planet Hollywood in Las Vegas and for the Rio
trademark used in connection with the Rio in Las Vegas.
Competition
The casino entertainment business is highly competitive. The industry is comprised of a diverse group of competitors that vary considerably in size and geographic diversity, quality of facilities and
amenities available, marketing and growth strategies, and financial condition. In most regions, we compete directly with other casino facilities operating in the immediate and surrounding areas. In
Las Vegas, our largest jurisdiction, competition is expected to increase significantly in the coming years. For example, the Genting Group is developing a casino and hotel called Resorts World Las
Vegas, which is expected to open in 2021, and Marriott International and New York-based global real estate firm Witkoff are developing a casino and hotel called The Drew Las Vegas, which is
expected to open in 2022. Both are located on the northern end of the Las Vegas Strip. In response to changing trends, Las Vegas operators have been focused on expanding their non-gaming
offerings, including upgrades to hotel rooms, new food and beverage offerings, and new entertainment offerings. In May 2018, MGM rebranded the Monte Carlo Hotel and Casino as Park MGM,
which underwent non-gaming renovations focused on room, food and beverage, and entertainment enhancements. There have also been proposals for other large scale non-gaming development
projects in Las Vegas by various other developers. Our Las Vegas Strip hotels and casinos also compete, in part, with each other.
In recent years, many casino operators, including us, have been reinvesting in existing facilities, developing new casinos or complementary facilities, and acquiring established facilities. These
reinvestment and expansion efforts combined with aggressive marketing strategies by us and many of our competitors have resulted in increased competition in many regions. As companies have
completed new expansion projects, supply has typically grown at a faster pace than demand in some areas. For example, in Baltimore, Maryland, the opening of MGM Resorts National Harbor Resort
& Casino and the addition of smoking patios at Maryland Live! has resulted in significant declines in revenue at our Horseshoe Baltimore property. The expansion of properties and entertainment
venues into new jurisdictions also presents competitive issues. Atlantic City, in particular, has seen a significant decline primarily due to the addition of gaming and room capacity associated with the
expansion of gaming in Maryland, New York, and Pennsylvania as well as the opening of new properties. This has resulted in several casino closings in recent years. In addition, Hard Rock Hotel
Atlantic City and Ocean Resort Casino were introduced into the Atlantic City market in 2018, causing increased competition in the market.
Our properties also compete with legalized gaming from casinos located on Native American tribal lands. While the competitive impact on operations in Las Vegas from the continued growth of
Native American gaming establishments in California remains uncertain, the proliferation of gaming in California and other areas located in the same regions as our properties could have an adverse
effect on our results of operations. In addition, certain states have legalized, and others may legalize, casino gaming in specific areas, including metropolitan areas from which we traditionally attract
customers.
We also compete with other non-gaming resorts and vacation areas, various other entertainment businesses, and other forms of gaming, such as state lotteries, on- and off-track wagering, video lottery
terminals, and card parlors. Our non-gaming offerings also compete with other retail facilities, amusement attractions, food and beverage offerings, and entertainment venues. While we do not believe
it to be the case, some have suggested that internet gaming and sports betting could also create additional competition for us and could adversely affect our brick-and-mortar operations. We believe
that internet gaming and sports betting complements brick-and-mortar operations.
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See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See also Exhibit 99.1, “Gaming Overview,” to this Form 10-K.
Seasonality
We believe that business at our regional properties outside of Las Vegas is subject to seasonality, including seasonality based on the weather in the markets in which they operate and the travel habits
of visitors. Business in our properties can also fluctuate due to specific holidays or other significant events, such as Easter (particularly when the holiday falls in a different quarter than the prior year),
the WSOP tournament (with respect to our Las Vegas properties), city-wide conventions, a large sporting event or a concert, or visits by our premium players. We also believe that any seasonality,
holiday, or other significant event may affect our various properties or regions differently.
Governmental Regulation
The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws,
rules, and regulations of the jurisdiction in which it is located. These laws, rules, and regulations generally concern the responsibility, financial stability, and character of the owners, managers, and
persons with financial interests in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A more detailed description of the regulations
to which we are subject is contained in Exhibit 99.1, “Gaming Overview,” to this Form 10-K.
Our businesses are subject to various foreign, federal, state, and local laws and regulations, in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions
and conditions concerning alcoholic beverages, smoking, environmental matters, employees, currency transactions, taxation, zoning and building codes, construction, land use, and marketing and
advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Such laws and regulations could change or
could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or
governmental authorities could adversely affect our operating results. See Item 1A, “Risk Factors,” for additional discussion.
Employee Relations
We have approximately 64,000 employees throughout our organization. Approximately 27,000 of our employees are covered by collective bargaining agreements with certain of our subsidiaries
relating to certain casino, hotel, and restaurant employees. The majority of these employees are covered by the following agreements:
Employee Group
Las Vegas Culinary Employees
Atlantic City Food & Beverage and Hotel Employees
Las Vegas Bartenders
Las Vegas Dealers
Approximate Number of Active
Employees Represented
12,500
3,000
1,200
2,400
Union
Culinary Workers Union, Local 226
UNITE HERE, Local 54
Bartenders Union, Local 165
United Auto Workers
Date on which Collective Bargaining Agreement
Becomes Amendable
May 31, 2023
February 28, 2020
May 31, 2023
N/A - Currently in negotiations
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Corporate Social Responsibility, Citizenship and Sustainability
CEC’s Board of Directors and senior executives view Corporate Social Responsibility (“CSR”) as an integral element in the way we do business, in the belief that being a good corporate citizen helps
protect the company against risk, contributes to improved performance and helps foster positive relationships with all those with whom we connect. The Board of Directors and our executive
management are committed to being an industry leader in CSR (which includes diversity, equity and inclusion, social impact, and environmental sustainability). In 2019, we continued to engage with
our CEO-level external Corporate Social Responsibility Advisory board with experts representing diversity, business strategy, academia, and investors, and used their guidance to confirm our CSR
priorities. These priorities are reflected in our tenth annual CSR report, published in 2019 in accordance with Global Reporting Initiative Standards.
Code of Commitment
Our Code of Commitment is our public pledge to our guests, team members, communities, business partners and all those we reach that we will honor the trust they have placed in us through ethical
conduct and integrity. PEOPLE PLANET PLAY is the framework underpinning our CSR strategy and our support for the United Nations Sustainable Development Goals, aligning all our properties
and corporate functions behind a common language and programs that support sustainable, ethical and profitable business growth. PEOPLE PLANET PLAY is also the organizing framework for the
Code of Commitment in which we commit to:
•
•
•
People: supporting the wellbeing of our team members, guests and local communities.
Planet: taking care of the world we all call home.
Play: creating memorable experiences for our guests and leading Responsible Gaming practices in the industry.
Our PEOPLE PLANET PLAY strategy includes multi-year targets in key areas of impact, including science-based emissions-reduction, formally approved by the Science Based Targets Initiative
(“SBTi”), aligning with global best practices on climate change action.
Responsible Gaming
In 2019 Caesars celebrated the 30th anniversary of its Responsible Gaming (“RG”) program. We train tens of thousands of team members each year and a cadre of RG Ambassadors throughout our
properties to identify guests in need of assistance and provide support. In recent years, Caesars has contributed more than $1 million to the National Center for Responsible Gaming, the National
Council on Problem Gaming and other state programs to help advance responsible practices in the gaming industry.
Environmental Stewardship
We take a proactive approach to environmental sustainability through our CodeGreen strategy established in 2007, consistently improving our performance across energy and greenhouse gas
emissions efficiencies, reduction of water consumption and increasing waste diversion from landfills. Between 2011 and 2018, we reduced our absolute Scope 1 & 2 greenhouse gas (“GHG”)
emissions by 24%. Last year, we further committed to mitigating our impact on climate change by updating our previously approved science based targets to be in line with well below 2 degrees
Celsius per SBTi: (i) reducing absolute Scope 1 and 2 GHG emissions by 35% by 2025, and 100% by 2050 from a 2011 base-year and (ii) having 60% of suppliers by spend institute science-based
GHG reduction targets for their operations by 2023. Additionally, between 2008 and 2018, we reduced our annual water consumption by 10% and increased our waste diversion rate to 49% in 2018.
In 2020, 100% of our owned or managed North American hotel resort properties once again achieved a 4 Green Key Hotel rating out of 5. Through 2019, our Las Vegas, Lake Tahoe and Atlantic City
convention spaces received Green Key Meetings certification at the 4 key level, with Bally’s Atlantic City receiving 5 keys, the highest possible rating. Green Key is a rigorous program recognized
by the Global Sustainable Tourism Council that ranks, certifies and inspects sustainable practices at hotels and resorts.
For our management, disclosure and engagement around Caesars environmental impacts, in 2019, Caesars Entertainment made the A Lists for climate and supplier engagement and received an A-
score for water security from the CDP, an international nonprofit that drives sustainable economies. Just 3% of companies assessed are included on CDP’s Supplier Engagement Leader Board and 2%
of companies disclosing climate impacts are included in the Climate A List.
In order to engage guests in our CSR efforts, we have branded our hotel rooms with our PEOPLE PLANET PLAY messaging, inviting guests to play a role by using water, air-conditioning and
towels with the environment in mind. We promote sustainable sourcing of key food ingredients for our menus from sustainably managed farms and fisheries, and we are currently transitioning
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to sourcing 100% cage free eggs by 2025. In 2019, we further committed to sourcing, by 2024, chicken certified by the Global Animal Partnership which supports human animal welfare practices.
Employee Engagement, Development, Safety and Wellbeing
We aim to inspire our team members through our mission, vision and values, and our Code of Commitment. We invest in training and development for our team members and we reward them with
opportunities to earn substantial rewards based on merit. Team members earn rewards each year in our Total Return program that acknowledges great service. We place utmost importance on creating
a safe workplace for our team members, embedding standards and procedures so that all our colleagues have the awareness, knowledge and tools to make safe working a habit. We maintain a
Wellness Rewards program to help our team members improve their health and wellbeing that has demonstrated improved health metrics for participating employees and their spouses/domestic
partners, helping reduce the cost of healthcare for team members and for the Company.
Diversity, Equity and Inclusion
We embrace diversity and aim to create an inclusive working environment that celebrates all our team members as individuals. Our diversity, equity and inclusion (“DEI”) framework identifies five
pillars of activity: advocacy, workplace, suppliers, communities and guests for a holistic approach to embedding DEI in everything we do. In 2018, 43% of leadership roles were held by women and
35% of our manager roles were held by employees of color. Caesars received a perfect 100% score on the 2020 Human Rights Campaign Foundation Corporate Equality Index for the 13th year in a
row. Furthermore, more than 13% of our addressable spend was with diverse suppliers in 2018. We maintain extensive outreach to discover diverse suppliers and support them through mentoring
programs to gain business and grow with Caesars.
Human Trafficking
We take a strong stance against human trafficking and commercial sex exploitation and have invested significantly in recent years to raise awareness among team members, creating a suite of
educational materials including a dedicated online portal for team members, a toolkit and action guides. We trained customer-facing and security team members across our properties and have
appointed several hundred volunteer Community Engagement Ambassadors as leaders in addressing sex trafficking and commercial sexual exploitation. We continue to work as part of industry-wide
partnerships to augment our efforts to eliminate all forms of exploitation from our operations and our supply chain.
Community Investment
Caesars Entertainment contributes extensively to our local communities to help them develop and prosper, through funding community projects, employee volunteering and cash donations from the
Caesars Foundation, a private foundation funded from our operating income. In 2018, we contributed $69 million to communities through all these channels, including 343,050 reported employee
volunteer hours. Many of our contributions are long-term collaborations, for example, our 17 years of partnership with Meals on Wheels America (“MOWA”) to combat the issues of senior hunger
and isolation. Also, in 2019, we held our first Economic Equity Tour in six cities across the U.S. with a goal of helping create thriving communities by hosting educational workshops and expert-led
webinars and providing resources in the areas of financial empowerment, nonprofit organization development, and entrepreneurship.
Available Information
Our Internet address is www.caesars.com. We make available free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-
K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). We also make available through our website all filings of our executive officers
and directors on Forms 3, 4, and 5 under Section 16 of the Exchange Act. These filings are also available on the SEC’s website at www.sec.gov. Our Code of Business Conduct and Ethics is available
on our website under the “Investor Relations” link. We will provide a copy of these documents without charge to any person upon receipt of a written request addressed to Caesars Entertainment
Corporation, Attn: Corporate Secretary, One Caesars Palace Drive, Las Vegas, Nevada 89109. Reference in this document to our website address does not constitute incorporation by reference of the
information contained on the website.
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ITEM 1A. Risk Factors
Risks Related to Our Business
Our substantial indebtedness and the fact that a significant portion of our cash flow is used to make interest payments and rent payments under the Lease Agreements (defined below) could
adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service
payments and rent payments.
Caesars Entertainment is a highly-leveraged company and had $8.7 billion in face value debt outstanding under credit facilities and notes (including our convertible notes) as of December 31, 2019.
As a result, a significant portion of our liquidity needs are for debt service on such indebtedness, including significant interest payments. Our estimated debt service (including principal and interest)
on our credit facilities and notes (including our convertible notes) is $494 million for 2020 and $10.3 billion thereafter to maturity for our currently outstanding indebtedness under our credit facilities
and notes (including our convertible notes).
See Note 12 for details of our debt outstanding and related restrictive covenants.
Our substantial indebtedness and the restrictive covenants under the agreements governing such indebtedness could:
•
limit our ability to borrow money for our working capital, capital expenditures, development projects, debt service requirements, rent payment requirements, strategic initiatives or other
purposes;
• make it more difficult for us to satisfy our obligations with respect to our indebtedness and the Lease Agreements, and any failure to comply with the obligations of any of our debt
instruments or Lease Agreements, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing our indebtedness or such
Lease Agreements;
•
•
require that a substantial portion of our cash flow from operations be dedicated to the payment of rent and interest and repayment of our indebtedness, thereby reducing funds available to us
for other purposes;
limit our flexibility in planning for or reacting to changes in our operations or business;
• make us more highly-leveraged than certain of our competitors, which may place us at a competitive disadvantage;
• make us more vulnerable to downturns in our business or the economy;
•
•
•
•
restrict the availability for us to make strategic acquisitions, develop new gaming facilities, introduce new technologies or exploit business opportunities;
affect our ability to renew certain gaming and other licenses;
limit, along with the financial and other restrictive covenants in our indebtedness and the Lease Agreements, among other things, our ability to borrow additional funds or dispose of assets;
and
expose us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest.
Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our outstanding debt obligations and lease
obligations.
Our ability to satisfy our debt obligations and lease obligations will depend upon, among other things:
•
•
our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our
control; and
our future ability to borrow under our credit facilities, the availability of which depends on, among other things, our complying with the covenants thereunder.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our debt agreements contain, and the agreements governing any future indebtedness of ours would likely contain, a number of covenants that impose significant operating and financial restrictions,
including restrictions on our ability to, among other things:
•
incur additional debt or issue certain preferred shares;
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•
pay dividends on or make distributions in respect of our capital stock or make other restricted payments;
• make certain investments;
•
•
•
•
•
sell certain assets;
create liens on certain assets;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates; and
designate our subsidiaries as unrestricted subsidiaries.
As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital
needs.
We have pledged a significant portion of our assets as collateral under our subsidiaries’ secured debt agreements. If any of our lenders accelerate the repayment of borrowings, there can be no
assurance that we will have sufficient assets to repay our indebtedness.
We are required to satisfy and maintain specified financial ratios under the agreements governing our revolving credit facilities if and when specified amounts are drawn and outstanding under our
revolving credit facilities. See Note 12 for further information. Our ability to meet the financial ratios under our debt agreements can be affected by events beyond our control, and there can be no
assurance that we will be able to continue to meet those ratios.
A failure to comply with the covenants contained in the agreements that govern our indebtedness could result in an event of default thereunder, which, if not cured or waived, could have a material
adverse effect on our business, financial condition and results of operations. In the event of any default under the indebtedness of CEC, CRC or CEOC LLC, the lenders or noteholders thereunder:
•
•
•
will not be required to lend any additional amounts to such borrowers;
could elect to declare all indebtedness outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit; or
require such borrowers to apply all of our available cash to repay such indebtedness.
Such actions by the lenders or noteholders under CEC’s, CRC’s or CEOC LLC’s indebtedness could cause cross defaults under the other indebtedness of CEC, CRC or CEOC LLC, respectively, and
in the case of lenders or noteholders under CRC’s or CEOC LLC’s indebtedness, could cause additional cross defaults under CEC’s indebtedness. If we are unable to repay amounts under our secured
credit facilities, the lenders under such secured credit facilities could proceed against the collateral granted to them to secure that indebtedness.
If the indebtedness under CEC’s, CRC’s or CEOC LLC’s credit facilities or other indebtedness were to be accelerated, there can be no assurance that their assets would be sufficient to repay such
indebtedness in full.
The phase-out of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate or modification of the method used to calculate LIBOR, may
adversely affect interest rates which may have an adverse impact on us.
LIBOR is an interest rate benchmark used as a reference rate for a wide range of financial transactions, including derivatives and loans. In July 2017, the United Kingdom’s Financial Conduct
Authority, which regulates LIBOR, announced that it intends to stop compelling banks to submit LIBOR rates after 2021. It is unclear whether or not LIBOR will cease to exist at that time (and if so,
what reference rate will replace it) or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The Alternative Reference Rates Committee (“ARRC”) has
proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for use in financial and other derivatives contracts that are currently
indexed to United States dollar LIBOR. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific
transition plans as it relates to financial and other derivative contracts exposed to LIBOR. Uncertainty exists as to the transition process and broad acceptance of SOFR as the primary alternative to
LIBOR. We have material borrowing contracts (including our term loans and revolving credit facilities) and derivatives that are indexed to LIBOR. At this time, we cannot predict the future impact of
a departure from LIBOR as a reference rate. If
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future rates based upon the successor reference rate (or a new method of calculating LIBOR) are higher than LIBOR rates as currently determined, however, they may have a material adverse effect
on our financial condition and results of operations.
CEC, CEOC LLC, CRC and/or their respective subsidiaries are parties to certain leasing and related arrangements that may have a negative effect on CEC’s business and operations.
CEC, CEOC LLC, CRC and certain of their subsidiaries are parties to certain leasing and financial commitments, including three lease agreements relating to properties operated by CEOC LLC or its
subsidiaries (the “CEOC LLC Lease Agreements”), three related management and lease support agreements, a lease agreement relating to a property operated by a subsidiary of CRC (the “HLV
Lease Agreement” and collectively with the CEOC LLC Lease Agreements, the “Lease Agreements”) and related guaranties (collectively, the “Lease Documents”). Pursuant to the CEOC LLC Lease
Agreements, VICI leases properties to CEOC LLC (or the applicable subsidiaries of CEOC LLC) and CEOC LLC (or the applicable subsidiaries of CEOC LLC) is responsible for lease payments and
other obligations for: (i) Caesars Palace Las Vegas; (ii) substantially all domestic properties owned by CEOC LLC and its subsidiaries other than Caesars Palace Las Vegas; and (iii) Harrah’s Joliet
Hotel & Casino in Joliet, Illinois. CEC guarantees the payment and performance of all monetary obligations of CEOC LLC and its subsidiaries under the CEOC LLC Lease Agreements. Pursuant to
the HLV Lease Agreement, VICI leases Harrah’s Las Vegas to a subsidiary of CRC, which is responsible for lease payments and other obligations for Harrah’s Las Vegas. CRC guarantees the
payment and performance of all monetary obligations of its subsidiary under the HLV Lease Agreement.
CEC has entered into call right agreements with VICI pursuant to which VICI has the right for five years from October 6, 2017, the date of those agreements, to purchase and lease to CEC or one of
its subsidiaries interests in the real property assets associated with Harrah’s Laughlin, Harrah’s Atlantic City and Harrah’s Atlantic City Waterfront Conference Center and Harrah’s New Orleans,
which could also impose additional lease payments and other obligations on CEC and its subsidiaries. CEC and VICI also entered into a right of first refusal agreement that provides, among other
things, for (a) a grant by CEC (on behalf of itself and all of its majority owned subsidiaries) to VICI (on behalf of itself and all of its majority owned subsidiaries) of a right of first refusal to own and
lease to an affiliate of CEC certain non-Las Vegas domestic real estate that CEC or its affiliates may have the opportunity to acquire or develop and (b) a grant by VICI to CEC of a right of first
refusal to lease and manage certain non-Las Vegas domestic real estate that VICI may have the opportunity to acquire or develop.
Pursuant to the Lease Agreements, as amended in December 2018, CEC’s subsidiaries are obligated to pay, in the aggregate, approximately $773 million in fixed annual rents, subject to certain
escalators and adjustments beginning at various points in the initial term and continuing through the renewal terms. If CEC’s businesses and properties fail to generate sufficient earnings, the
payments required to service these leasing commitments may materially and adversely limit the ability of CEC to make investments to maintain and grow its portfolio of businesses and properties.
Additionally, CEC may be subject to other significant obligations under its guarantees if its subsidiaries are unable to satisfy their lease payments and other monetary obligations which could
materially and adversely affect CEC’s business and operating results.
CEC’s guarantees of the CEOC LLC Lease Agreements impose restrictions on certain business activities of CEC, including restrictions on sales of assets and making dividends and distributions. The
Lease Documents generally impose restrictions on the business activities of CEOC LLC, CRC and their applicable subsidiaries, including restrictions on transfers of the leased properties,
requirements to make specified minimum levels of capital expenditures and limitations regarding how the leased properties may be operated. Compliance with the restrictions in the Lease Documents
may constrain the ability of CEC to implement any growth plans as well as its flexibility to react and adapt to unexpected operational challenges and adverse changes in economic and legal
conditions. Additionally, with respect to properties leased pursuant to the Lease Agreements, CEOC LLC or CRC (or their applicable subsidiaries), generally, will be required to restore properties that
are damaged by casualties regardless of whether any insurance proceeds are sufficient to pay for the restoration.
Each of CEOC LLC, CRC and/or their respective subsidiaries are required to pay a significant portion of their cash flow from operations to VICI pursuant to and subject to the terms and
conditions of the Lease Agreements, which could adversely affect our ability to fund our operations or development projects, raise capital, make acquisitions, and otherwise respond to
competitive and economic changes.
Each of CEOC LLC, CRC and/or their applicable subsidiaries are required to pay a significant portion of their cash flow from operations to VICI pursuant to and subject to the terms and conditions
of the Lease Agreements. As a result of this commitment, their ability to fund their own operations or development projects, raise capital, make acquisitions and otherwise respond to competitive and
economic changes may be adversely affected. For example, their obligations under the Lease Agreements may:
• make it more difficult for the applicable entity to satisfy their obligations with respect to their indebtedness and to obtain additional indebtedness;
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•
•
•
•
increase the applicable entity’s vulnerability to general or regional adverse economic and industry conditions or a downturn in its business;
require the applicable entity to dedicate a substantial portion of its cash flow from operations to making lease payments, thereby reducing the availability of its cash flow to fund working
capital, capital expenditures and other general corporate purposes;
limit the applicable entity’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; and
restrict the applicable entity’s ability to raise capital, make acquisitions and divestitures and engage in other significant transactions.
In addition, the annual rent escalations under the Lease Agreements will continue to apply regardless of the amount of cash flows generated by the properties that are subject to the Lease Agreements
(subject to certain earnings before interest, taxes, depreciation, amortization and rent [”EBITDAR”] to rent ratio-based caps). Accordingly, if the cash flows generated by such properties decrease, or
do not increase at the same rate as the rent escalations, the rents payable under the Lease Agreements could comprise a higher percentage of the cash flows generated by the applicable entity, which
could exacerbate, perhaps materially, the issues described above.
Any of the above listed factors could have a material adverse effect on CEOC LLC’s and CRC’s respective business, financial condition, and results of operations.
The CEC Convertible Notes are exercisable for shares of our common stock. The exercise of such equity instruments would have a dilutive effect to stockholders of CEC.
The $1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 (the “CEC Convertible Notes”) are exercisable for shares of our common stock. The exercise of such
equity instruments would have a dilutive effect to stockholders of CEC. In accordance with the terms of the Plan, on the Effective Date, we issued approximately $1.1 billion aggregate principal
amount of CEC Convertible Notes that are convertible at the option of holders into a number of shares of our common stock that is initially equal to 0.139 shares of our common stock per $1.00
principal amount of CEC Convertible Notes, or approximately 156 million shares, of which 151 million shares are net of amounts held by CEC. If all the shares were issued on the Effective Date,
they would have represented approximately 17.9% of the shares of our common stock outstanding after giving effect to the shares issued in accordance with the Plan. The CEC Convertible Notes are
subject to conversion at our option beginning in October 2020 if the last reported sale price of our 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. CEC does not have any other redemption rights for the CEC Convertible Notes. As of December 31, 2019, the
remaining life of the CEC Convertible Notes is 4.75 years.
Most of CEOC LLC’s U.S. gaming facilities, as well as Harrah’s Las Vegas, are leased and could experience risks associated with leased property, including risks relating to lease termination,
lease extensions, consents and approvals, charges and our relationship with VICI, which could have a material adverse effect on our business, financial position or results of operations.
Most of CEOC LLC’s U.S. gaming facilities are leased and could experience risks associated with leased property, including risks relating to lease termination, lease extensions, consents and
approvals, charges and our relationship with VICI, which could have a material adverse effect on our business, financial position, or results of operations. CEOC LLC and its subsidiaries lease most
of the gaming facilities they operate pursuant to the CEOC LLC Lease Agreements. Termination of any or all of the CEOC LLC Lease Agreements would result in CEOC LLC or its applicable
subsidiaries losing some or all of their rights with respect to the applicable properties, could result in a default under CEOC LLC’s debt agreements, and could have a material adverse effect on CEOC
LLC’s business, financial position, or results of operations. In the event of certain terminations of the CEOC LLC Lease Agreements, CEOC LLC or its applicable subsidiaries may be required to
cooperate to transfer all personal property located at the applicable facility to a designated successor. Moreover, since as a lessee CEOC LLC and its subsidiaries do not completely control the land
and improvements underlying their operations, VICI, as lessor, could take certain actions to disrupt CEOC LLC and its subsidiaries’ rights in the facilities leased under the CEOC LLC Lease
Agreements, which are beyond our control. If VICI chose to disrupt CEOC LLC and its subsidiaries’ use either permanently or for a significant period of time, then the value of their assets could be
impaired and their business and operations could be adversely affected. There can also be no assurance that CEOC LLC and its subsidiaries will be able to comply with their obligations under the
CEOC LLC Lease Agreements in the future. In addition, if VICI has financial, operational, regulatory or other challenges, there can be no assurance that VICI will be able to comply with its
obligations under its agreements with CEC, CEOC LLC, or their subsidiaries.
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CRC’s subsidiary leases Harrah’s Las Vegas from VICI pursuant to the HLV Lease Agreement on terms that are similar to those of the CEOC LLC Lease Agreements. CRC and its subsidiary,
therefore, are subject to many of the same risks described above with respect to Harrah’s Las Vegas.
The Lease Agreements are a type of lease that is commonly known as a triple net lease. Accordingly, in addition to rent, the tenants under the Lease Agreements are required to pay all operating costs
associated with the respective facilities, including the payment of taxes, insurance, and all repairs, and providing indemnities to VICI against liabilities associated with the operations of each facility.
CEC’s applicable subsidiaries are responsible for incurring the costs described in the preceding sentence notwithstanding the fact that many of the benefits received in exchange for such costs may in
part accrue to VICI as owner of the associated facilities. In addition, if some of the leased facilities should prove to be unprofitable, CEOC LLC and its subsidiaries or CRC’s subsidiary, as applicable,
could remain obligated for lease payments and other obligations under the Lease Agreements even if they decided to withdraw from those locations, and consequently, CEC and CRC would remain
obligated under the corresponding lease guarantees. CEOC LLC and its subsidiaries or CRC’s subsidiary, as applicable, could incur special charges relating to the closing of such facilities including
lease termination costs, impairment charges, and other special charges that would reduce their net income and could have a material adverse effect on our business, financial condition and results of
operations.
We may be unable to generate sufficient cash to service all of our indebtedness and lease commitments, and may be forced to take other actions to satisfy our obligations under our indebtedness
and lease commitments that may not be successful.
We may be unable to generate sufficient cash flow from operations, or may be unable to draw under our credit facilities or otherwise, in an amount sufficient to fund our liquidity needs. Our operating
cash inflows are typically used for operating expenses, debt service costs, lease payments, working capital needs, and capital expenditures in the normal course of business. Our estimated debt service
(including principal and interest) is $494 million for 2020 and $10.3 billion thereafter to maturity for our outstanding indebtedness and our estimated financing obligations are $733 million for 2020
and $36.5 billion thereafter to maturity for our outstanding lease arrangements. If we are unable to service our debt obligations or pay our financing obligations, there can be no assurances that our
business will continue in its current state. See Note 12 for details of our debt outstanding and Note 10 for details of our lease commitments.
We may incur additional indebtedness and lease commitments, which could adversely affect our ability to pursue certain business opportunities.
We and our subsidiaries may incur additional indebtedness and lease commitments at any time subject to the restrictions set forth in the Merger Agreement. Although the terms of the agreements
governing our indebtedness and lease commitments contain restrictions on our ability to incur additional indebtedness and certain types of lease commitments, these restrictions are subject to a
number of important qualifications and exceptions, and the indebtedness and lease commitments incurred in compliance with these restrictions could be substantial. For example, as of
December 31, 2019, CRC had $975 million of additional borrowing capacity available under its senior secured credit facility, net of $25 million committed to outstanding letters of credit, and CEOC
LLC had a total of $161 million of additional borrowing capacity available under its senior secured credit facility, net of $39 million committed to outstanding letters of credit. We may consider
incurring additional indebtedness in the future to fund our growth strategy.
Our subsidiary debt agreements allow for limited future issuances of additional secured or unsecured indebtedness, which may include, in each case, indebtedness secured on a pari passu basis with
the obligations under CRC’s or CEOC LLC’s credit facilities. This indebtedness could be used for a variety of purposes, including financing capital expenditures, refinancing or repurchasing our
outstanding indebtedness, including existing unsecured indebtedness, or for general corporate purposes. We have raised and expect to continue to raise debt, including secured debt, to directly or
indirectly refinance our outstanding unsecured debt on an opportunistic basis, as well as development and acquisition opportunities. Additional indebtedness would require greater servicing payments,
and accordingly, may affect our future liquidity and limit our ability to pursue certain opportunities and implement any growth plans in the future.
Repayment of our and our subsidiaries’ debt is dependent on cash flow generated by our subsidiaries.
Our subsidiaries currently own a significant portion of our assets and conduct a significant portion of our operations. Accordingly, repayment of our and our subsidiaries’ indebtedness is dependent,
to a significant extent, on the generation of cash flow by our subsidiaries, and in the case of CEC’s debt, their ability to make such cash available to us by dividend, if needed, or otherwise. Our ability
to repay debt is also subject to the restrictions set forth in our Merger Agreement. Our subsidiaries do not have any obligation to pay amounts due on our other subsidiaries’ indebtedness or to make
funds available for that purpose (other than with respect to subsidiary guarantees granted by certain subsidiaries of CEOC LLC to guarantee CEOC LLC’s indebtedness and by certain subsidiaries of
CRC to guarantee CRC’s indebtedness). Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our or our other subsidiaries’
indebtedness. Each subsidiary is a
15
distinct legal entity, and under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.
Our business and results of operations could be negatively affected as a result of the actions of activist stockholders, which could impact our stock price.
We have been the subject of actions taken by activist stockholders. For instance, on February 19, 2019, Carl C. Icahn and various affiliated entities (collectively, “Icahn”) filed with the SEC a
Schedule 13D indicating that, among other things, Icahn had spoken to, and intended to continue to speak with, our Board of Directors and management regarding seeking board representation,
including, if necessary, by nominating a slate of directors at the 2019 Annual Meeting. On March 1, 2019, the Company and Icahn entered into a Director Appointment and Nomination Agreement,
which was amended on March 28, 2019, regarding, among other things, the membership and composition of our Board of Directors. The Schedule 13D also indicated that Icahn believed our Board of
Directors should conduct a strategic process to comprehensively assess the best path forward for the Company and Icahn’s belief that stockholder value might be best served, and enhanced, by selling
the Company. The Company subsequently initiated a strategic process and as a result entered into the Merger Agreement with Eldorado on June 24, 2019.
While we strive to maintain constructive, ongoing communications with all of our stockholders, and welcome their views and opinions with the goal of enhancing value for all stockholders, activist
stockholders may, from time to time, engage in proxy solicitations or advance stockholder proposals, or otherwise attempt to effect changes and assert influence on our Board of Directors and
management. Responding to proposals by activist stockholders may, and responding to a proxy contest instituted by stockholders would, require us to incur significant legal and advisory fees, proxy
solicitation expenses (in the case of a proxy contest) and administrative and associated costs and require significant time and attention by our Board of Directors and management, diverting their
attention from the pursuit of our business strategy. Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy or changes to the composition of our Board
of Directors or senior management team arising from proposals by activist stockholders or a proxy contest could lead to the perception of a change in the direction of our business or instability which
may be exploited by our competitors, result in the loss of potential business opportunities and make it more difficult to pursue our strategic initiatives or attract and retain qualified personnel and
business partners, any of which could have a material adverse effect on our business and operating results. In addition, stockholder activism and potential resulting changes in governance may have
implications under the various gaming laws to which we are subject, and could have an adverse impact on our gaming licenses. We may choose to initiate, or may become subject to, litigation as a
result of proposals by activist stockholders or proxy contests or matters relating thereto, which would serve as a further distraction to our Board of Directors and management and could require us to
incur significant additional costs.
In addition, actions such as those described above could cause significant fluctuations in the trading prices of our common stock, based on temporary or speculative market perceptions or other
factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Likewise, as a result of our having implemented any proposals made by Icahn, or to the extent that we implement any future proposals made by Icahn or any other activist stockholder, to change the
composition of our Board of Directors, engage in particular transactions or change certain aspects of our strategy, the resulting changes in our business, assets, results of operations and financial
condition may be material and may have an impact, which may be material, on the market prices of our common stock, and may also cause substantial volatility in the trading price of those securities.
It is unclear what impact our business structure will have on our key business relationships and our ability to compete with other gaming operators.
As a result of the consummation of the Plan, we are among a few gaming operators that lease a significant portion of its properties from a single lessor under lease arrangements. As a result, it is
difficult to predict whether and to what extent our relationship with VICI, including any actual or perceived conflicts of interest, will affect our relationships with suppliers, customers, or regulators or
our ability to compete with other gaming operators that are not subject to a master lease arrangement with a single lessor. In addition, VICI has numerous consent, audit, and other rights under the
Lease Documents. As a result, a number of CEOC LLC’s and CRC’s strategic and operational decisions are subject to review and/or agreement with VICI, and there can be no assurance that VICI’s
exercise of its rights under the Lease Documents will not be adverse to CEOC LLC’s or CRC’s business or operations, particularly where our interests and the interests of VICI (or those who control
it) are not aligned.
The development and construction of new hotels, casinos, and gaming and non-gaming venues and the expansion of existing ones could have an adverse effect on our business, financial
condition, and results of operations due to various factors including delays, cost overruns, and other uncertainties.
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Development projects may require significant capital commitments, the incurrence of additional debt, guarantees of third-party debt, the incurrence of contingent liabilities and an increase in
depreciation and amortization expense, which could have an adverse effect upon our business, financial condition, results of operations, and cash flow. In addition, the development and construction
of new hotels, casinos and gaming venues and the expansion of existing ones is susceptible to various risks and uncertainties, such as:
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the existence of acceptable market conditions and demand for the completed project;
general construction risks, including cost overruns, change orders and plan or specification modification, shortages of construction resources, labor disputes, unforeseen environmental,
engineering or geological problems, work stoppages, fire and other natural disasters, construction scheduling problems, and weather interferences;
changes and concessions required by governmental or regulatory authorities;
the ability to finance the projects, especially in light of our substantial indebtedness and certain restrictions contained in the Merger Agreement;
delays in obtaining, or inability to obtain, all licenses, permits and authorizations required to complete and/or operate the project; and
disruption of our existing operations and facilities.
Moreover, our development and expansion projects are sometimes jointly pursued with third parties or by licensing our brands to third parties. These joint development, expansion project, or license
agreements are subject to risks, in addition to those disclosed above, as they are dependent on our ability to reach and maintain agreements with third parties and the Merger Agreement contains
certain restrictions that may limit our ability to enter into such agreements absent Eldorado’s prior written consent.
Our failure to complete any new development or expansion project, or complete any joint development or expansion projects or projects where we license our brands, as planned, on schedule, within
budget, or in a manner that generates anticipated profits, could have an adverse effect on our business, financial condition, results of operations, and cash flow.
The risks associated with our existing and potential future international operations could reduce our profits.
Some of our properties are located outside the United States. International operations are subject to inherent risks including:
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political and economic instability;
variation in local economies;
currency fluctuation;
greater difficulty in accounts receivable collection;
trade barriers; and
burden of complying with a variety of international laws.
We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could have a material adverse effect on our business, financial condition, results of operations, and
prospects.
From time to time, we are a defendant in various lawsuits or other legal proceedings relating to matters incidental to our business. Some of these matters involve commercial or contractual disputes,
intellectual property claims, legal compliance, personal injury claims, and employment claims. As with all legal proceedings, no assurance can be provided as to the outcome of these matters and, in
general, legal proceedings can be expensive and time consuming. We may not be successful in the defense or prosecution of these lawsuits, which could result in settlements or damages that could
significantly impact our business, financial condition, and results of operations. In addition, the Merger Agreement contains certain restrictions that may limit our ability to settle certain lawsuits, even
if doing so would be favorable to us, absent Eldorado’s prior written consent.
Compromises of our information systems or unauthorized access to confidential information or our customers’ personal information could materially harm our reputation and business.
We collect and store confidential, personal information relating to our customers for various business purposes, including marketing and financial purposes, and credit card information for processing
payments. For example, we handle, collect and store personal
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information in connection with our customers staying at our hotels and enrolling in Caesars Rewards. We may share this personal and confidential information with vendors or other third parties in
connection with processing of transactions, operating certain aspects of our business, or for marketing purposes. Our collection and use of personal data are governed by state and federal privacy laws
and regulations as well as the applicable laws and regulations in other countries in which we operate. Privacy law is subject to frequent changes and varies significantly by jurisdiction. We may incur
significant costs in order to ensure compliance with the various applicable privacy requirements. In addition, privacy laws and regulations may limit our ability to market to our customers.
We assess and monitor the security of collection, storage, and transmission of customer information on an ongoing basis. We utilize commercially available software and technologies to monitor,
assess and secure our network. Further, some of the systems currently used for transmission and approval of payment card transactions and the technology utilized in payment cards themselves, all of
which can put payment card data at risk, are determined and controlled by the payment card industry, and other such systems are determined and controlled by us. Although we have taken steps
designed to safeguard our customers’ confidential personal information and important internal company data, our network and other systems and those of third parties, such as service providers, could
be compromised, damaged, or disrupted by a third-party breach of our system security or that of a third-party provider or as a result of purposeful or accidental actions of third parties, our employees,
or those employees of a third party, power outages, computer viruses, system failures, natural disasters, or other catastrophic events. Our third-party information system service providers face risks
relating to cybersecurity similar to ours, and we do not directly control any of such parties’ information security operations. Advances in computer and software capabilities, encryption technology,
new tools, and other developments may increase the risk of a security breach. As a result of any security breach, customer information or other proprietary data may be accessed or transmitted by or
to a third party. Despite the measures we have implemented to safeguard our information, there can be no assurance that we are adequately protecting our information.
Any loss, disclosure of, misappropriation of, or access to customers’ or other proprietary information or other breach of our information security could result in legal claims or legal proceedings,
including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, including for failure to protect personal information or for misusing
personal information, which could disrupt our operations, damage our reputation, and expose us to claims from customers, financial institutions, regulators, payment card associations, employees, and
other persons, any of which could have an adverse effect on our financial condition, results of operations, and cash flow.
We have cybersecurity insurance to respond to a breach which is designed to cover expenses around notification, credit monitoring, investigation, crisis management, public relations and legal advice.
We also carry other insurance which may cover ancillary aspects of the event. However, damage and claims arising from a breach may not be completely covered or may exceed the amount of any
insurance available.
Our reliance on our computer systems and software could expose us to great financial harm if any of our computer systems or software were subject to any material disruption or corruption.
We rely significantly on our computer systems and software to receive and properly process internal and external data, including data related to Caesars Rewards. A disruption or corruption of the
proper functioning of our computer systems or software could cause us to lose data or record erroneous data, which could result in material losses. We cannot guarantee that our efforts to maintain
competitive computer systems and software will be successful. Our computer systems and software may fail or be subject to bugs or other errors, resulting in service interruptions or other unintended
consequences. If any of these risks materialize, they could have a material adverse effect on our business, financial condition, and results of operations.
We may sell or divest different properties or assets as a result of our evaluation of our portfolio of businesses. Such sales or divestitures could affect our costs, revenues, profitability, and
financial position.
From time to time, we evaluate our properties and our portfolio of businesses and may, as a result, sell or attempt to sell, divest, or spin-off different properties or assets (subject to any restrictions in
the agreements governing our indebtedness and leases and our Merger Agreement). These sales or divestitures affect our costs, revenues, profitability, financial position, liquidity, and our ability to
comply with our debt covenants. Divestitures have inherent risks, including possible delays in closing transactions (including potential difficulties in obtaining regulatory approvals), the risk of lower-
than-expected sales proceeds for the divested businesses, and potential post-closing claims for indemnification. Expected costs savings, which are offset by revenue losses from divested properties,
may also be difficult to achieve or maximize due to our fixed cost structure.
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Reduction in discretionary consumer spending resulting from a downturn in the national economy, the volatility and disruption of the capital and credit markets, adverse changes in the global
economy, and other factors could negatively impact our financial performance and our ability to access financing.
Changes in discretionary consumer spending or consumer preferences are driven by factors beyond our control, such as perceived or actual general economic conditions; high energy, fuel and other
commodity costs; the cost of travel; the potential for bank failures; a soft job market; an actual or perceived decrease in disposable consumer income and wealth; increases in payroll taxes; increases
in gaming taxes or fees; fears of recession and changes in consumer confidence in the economy; and terrorist attacks or other global events. Our business is susceptible to any such changes because
our properties offer a highly-discretionary set of entertainment and leisure activities and amenities. Gaming and other leisure activities we offer represent discretionary expenditures and participation
in such activities may decline if discretionary consumer spending declines, including during economic downturns, during which consumers generally earn less disposable income. Particularly, we
have business concentrations in gaming offerings and in Las Vegas, which are sensitive to declines in discretionary consumer spending and changes in consumer preferences. During periods of
economic contraction, our revenues may decrease while most of our costs remain fixed and some costs even increase, resulting in decreased earnings.
We are subject to significant risks associated with joint ventures, strategic alliances and other third-party collaborations.
We pursue certain of our new license opportunities, development projects and other strategic business opportunities through third-party collaborations such as joint ventures, license arrangements and
other alliances. Examples include our joint ventures for Horseshoe Baltimore, our development project in Korea, our agreements relating to gaming-related sports content, and other sports-related
opportunities.
Our joint ventures are governed by mutually established agreements that we entered into with our partners. As such, we do not unilaterally control the joint ventures or other initiatives. The terms of
the joint venture and the rights of our joint venture partners may preclude us from taking actions that we believe to be in the best interests of the Company. Alternatively, our joint venture partners
could take actions binding on the joint venture without our consent. Disagreements with our joint venture partners could result in delays in project development, including construction delays, and
ultimate failure of the project. Moreover, our joint venture partners may not be able to provide capital to the joint venture on the terms agreed to or at all, and the joint venture may be unable to obtain
external financing to finance its operations. Also, our ability to exit the joint venture may be subject to contractual and other limitations, including as a result of certain restrictions contained in the
Merger Agreement.
With any third-party collaboration, there is a risk that our partners’ economic, business or legal interests or objectives may not be aligned with ours, leading to potential disagreements and/or failure
of the applicable project or initiative. Additionally, we are subject to the risks relating to our partners’ failure to satisfy contractual obligations, conflicts arising between us and any of our partners and
changes in the ownership of any of our partners.
Any of the foregoing with respect to our third-party collaborations could adversely affect our financial condition, operating results and cash flows.
We are subject to extensive governmental regulation and taxation policies, and the enforcement of or any changes in such regulation or policy could adversely impact our business, financial
condition, and results of operations.
We are subject to extensive gaming regulations and political and regulatory uncertainty. Regulatory authorities in the jurisdictions where we operate have broad powers with respect to the licensing of
casino operations and may revoke, suspend, condition, or limit our gaming or other licenses, impose substantial fines and take other actions, any one of which could adversely impact our business,
financial condition, and results of operations. Furthermore, in many jurisdictions where we operate, licenses are granted for limited durations and require renewal from time to time. There can be no
assurance that continued gaming activity will be approved in any referendum in the future. If we do not obtain the requisite approval in any future referendum, we will not be able to operate our
gaming operations in the affected jurisdiction, which would negatively impact our future performance. In addition, the gaming and other laws and regulations to which we are subject could change or
could be interpreted differently in the future, or new laws and regulations could be enacted. For example, in 2018, the U.S. Department of Justice (“DOJ”) reversed its previously-issued opinion
published in 2011, which stated that interstate transmissions of wire communications that do not relate to a “sporting event or contest” fall outside the purview of the Wire Act of 1961 (the “Wire
Act”). The DOJ’s updated opinion, which is still being evaluated by industry members, concluded instead that the Wire Act was not uniformly limited to gaming relating to sporting events or contests
and that certain of its provisions apply to non-sports-related wagering activity. The DOJ’s opinion was set aside by the United States District Court for the District of New Hampshire in June of 2019.
At this time, appellate litigation is ongoing, and we are unable to determine whether the DOJ’s January 2019 opinion will remain in effect or what its impact will be on our business. The DOJ filed an
appellate brief in December 2019, and we are continuing to evaluate the impact of this litigation. Any
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such material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our business and operating results.
From time to time, individual jurisdictions have also considered legislation or referendums, such as bans on smoking in casinos and other entertainment and dining facilities, which could adversely
impact our operations. These smoking bans have adversely affected revenues and operating results at our properties. The likelihood or outcome of similar legislation in other jurisdictions and
referendums in the future cannot be predicted, though any smoking ban would be expected to negatively impact our financial performance.
Furthermore, because we are subject to regulation in each jurisdiction in which we operate, and because regulatory agencies within each jurisdiction review our compliance with gaming laws in other
jurisdictions, it is possible that gaming compliance issues in one jurisdiction may lead to reviews and compliance issues in other jurisdictions.
The casino entertainment industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. From time to time, various state and federal legislators and
officials have proposed changes in tax laws, or in the administration of such laws, including increases in tax rates, which would affect the industry. If adopted, such changes could adversely impact
our business, financial condition, and results of operations.
Our ability to utilize net operating loss (“NOL”) carryforwards may be limited as a result of any future stock ownership changes.
In general, Section 382 of the Internal Revenue Code provides an annual limitation with respect to the ability of a corporation to utilize its net operating loss carryovers, as well as certain built-in
losses, against future taxable income in the event of a change in ownership. CEOC’s emergence from bankruptcy and the CAC Merger resulted in a change in ownership for purposes of Section 382,
making its provisions applicable to the Company. It is unlikely that the annual limitation caused as a result of the CAC Merger and CEOC’s emergence from bankruptcy will adversely affect the
Company’s ability to utilize its net operating loss carryovers against its future taxable income. However, if the Company undergoes another ownership change before all the net operating loss
carryovers have offset taxable income, a future limitation may restrict the Company’s ability to utilize its net operating loss carryover prospectively.
Any violation of the Bank Secrecy Act or other similar anti-money laundering (“AML”) laws and regulations could have a negative impact on us.
We deal with significant amounts of cash in our operations and are subject to various reporting and AML regulations. In recent years, governmental authorities have been increasingly focused on
AML policies and procedures, with a particular focus on the gaming industry. For example, in June 2019, the British Gambling Commission (“UKGC”) informed Caesars Entertainment UK
(“CEUK”) that it was initiating a license review of its British properties. The review relates to certain potential inadequacies in implementation of the CEUK Anti-Money Laundering policies and in
CEUK’s social responsibility policy and customer monitoring. CEC is taking all necessary steps to remedy issues identified in its own review and disclosed to the Commission and expects to enter
into a settlement with the UKGC in connection with such violations. This and other similar violations of AML or regulations at any of our properties could have a negative effect on our results of
operations.
Any violation of the Foreign Corrupt Practices Act or other similar anti-corruption laws and regulations could have a negative impact on us.
We are subject to risks associated with doing business outside of the United States, which exposes us to complex foreign and U.S. regulations inherent in doing business cross-border and in each of
the countries in which we conduct business. We are subject to requirements imposed by the Foreign Corrupt Practices Act (“FCPA”) and other anti-corruption laws that generally prohibit U.S.
companies and their affiliates from offering, promising, authorizing, or making improper payments to foreign government officials for the purpose of obtaining or retaining business. Violations of the
FCPA and other anti-corruption laws may result in severe criminal and civil sanctions and other penalties, and the SEC and DOJ have increased their enforcement activities with respect to the FCPA.
Policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be effective in prohibiting our employees, contractors, or
agents from violating or circumventing our policies and the law. If our employees or agents fail to comply with applicable laws or company policies governing our international operations, we may
face investigations, prosecutions, and other legal proceedings and actions that could result in civil penalties, administrative remedies, and criminal sanctions. Any determination that we have violated
any anti-corruption laws could have a material adverse effect on our financial condition. Compliance with international and U.S. laws and regulations that apply to our international operations
increases our cost of doing business in foreign jurisdictions.
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Our stockholders are subject to extensive governmental regulation, and if a stockholder is found unsuitable by the gaming authority, that stockholder would not be able to beneficially own our
common stock directly or indirectly.
In many jurisdictions, gaming laws can require any of our stockholders to file an application, be investigated, and qualify or have his, her or its suitability determined by gaming authorities. Gaming
authorities have very broad discretion in determining whether an applicant should be deemed suitable. For any cause deemed reasonable by the gaming authorities, subject to certain administrative
proceeding requirements, the gaming regulators have the authority to deny any application; limit, condition, restrict, revoke, or suspend any license, registration, finding of suitability or approval; or
fine any person licensed, registered, or found suitable or approved. For additional information on the criteria used in making determinations regarding suitability, see Item 1, “Business—
Governmental Regulation.”
For example, under Nevada gaming laws, each person who acquires, directly or indirectly, beneficial ownership of any voting security, or beneficial or record ownership of any non-voting security or
any debt security, in a public corporation that is registered with the Nevada Gaming Commission (“NGC”), may be required to be found suitable if the NGC has reason to believe that his or her
acquisition of that ownership, or his or her continued ownership in general, would be inconsistent with the declared public policy of Nevada, in the sole discretion of the NGC. Any person required by
the NGC to be found suitable must apply for a finding of suitability within 30 days after the NGC’s request that he or she should do so and, together with his or her application for suitability, deposit
with the Nevada Gaming Control Board (“NGCB”) a sum of money which, in the sole discretion of the NGCB, will be adequate to pay the anticipated costs and charges incurred in the investigation
and processing of that application for suitability, and deposit such additional sums as are required by the NGCB to pay final costs and charges.
Furthermore, any person required by a gaming authority to be found suitable, who is found unsuitable by the gaming authority, may not hold, directly or indirectly, the beneficial ownership of any
voting security or the beneficial or record ownership of any non-voting security or any debt security of any public corporation that is registered with the gaming authority beyond the time prescribed
by the gaming authority. A violation of the foregoing may constitute a criminal offense. A finding of unsuitability by a particular gaming authority impacts that person’s ability to associate or affiliate
with gaming licensees in that particular jurisdiction and could impact the person’s ability to associate or affiliate with gaming licensees in other jurisdictions.
Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of voting securities of a gaming company and, in some jurisdictions, non-voting
securities, typically 5%, to report the acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited
exceptions for “institutional investors” that hold a company’s voting securities for investment purposes only. Under Maryland gaming laws, we may not sell or otherwise transfer more than 5% of the
legal or beneficial interest in Horseshoe Baltimore without the approval of the Maryland Lottery and Gaming Control Commission if it determines that the transferee is qualified or grants the
transferee an institutional investor waiver.
Some jurisdictions may also limit the number of gaming licenses in which a person may hold an ownership or a controlling interest. For example, in Indiana, a person may not have an ownership
interest in more than two Indiana riverboat owner’s licenses, and in Maryland, an individual or business entity may not own an interest in more than one video lottery facility.
If we are unable to effectively compete against our competitors, our profits will decline.
The gaming industry is highly competitive and our competitors vary considerably in size, quality of facilities, number of operations, brand identities, marketing and growth strategies, financial
strength and capabilities, and geographic diversity. We also compete with other non-gaming resorts and vacation areas, and with various other entertainment businesses. Our competitors in each
region in which we participate may have greater financial, marketing, or other resources than we do, and there can be no assurance that they will not engage in aggressive pricing action to compete
with us. Although we believe we are currently able to compete effectively in each of the various regions in which we participate, we cannot ensure that we will be able to continue to do so or that we
will be capable of maintaining or further increasing our current market share. Our failure to compete successfully in our various regions could adversely affect our business, financial condition,
results of operations, and cash flow.
In recent years, many casino operators, including us, have been reinvesting in existing jurisdictions to attract new customers or to gain market share, thereby increasing competition in those
jurisdictions. As companies have completed new expansion projects, supply has typically grown at a faster pace than demand in some areas. For example, in Baltimore, Maryland, the opening of
MGM Resorts National Harbor Resort & Casino has resulted in significant declines in revenue at our Horseshoe Baltimore property. In Las Vegas, our largest jurisdiction, competition has increased
significantly. For example, the Genting Group is developing a casino and hotel called Resorts World Las Vegas, and Marriott International and New York-based global real estate firm Witkoff are
developing a casino and hotel called The Drew Las Vegas. Both are expected to open in 2020 on the northern end of the Las Vegas Strip. In response to changing trends, Las Vegas operators have
been focused on expanding their non-gaming offerings, including upgrades to hotel rooms, new food and beverage offerings, and new entertainment offerings. In May 2018, MGM rebranded the
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Monte Carlo Hotel and Casino as Park MGM, which underwent non-gaming renovations focused on room, food and beverage, and entertainment enhancements. There have also been proposals for
other large scale non-gaming development projects in Las Vegas by various other developers. The expansion of existing casino entertainment properties, the increase in the number of properties, and
the aggressive marketing strategies of many of our competitors have increased competition in many markets in which we operate, and this intense competition is expected to continue. These
competitive pressures have and are expected to continue to adversely affect our financial performance in certain areas, including Atlantic City, where Hard Rock Hotel Atlantic City and Ocean Resort
Casino were introduced into the market in 2018, causing increased competition in the market. Growth in consumer demand for non-gaming offerings could also negatively impact our gaming
revenue.
In particular, our business may be adversely impacted by the additional gaming and room capacity in Nevada, Louisiana, and Atlantic City and by the initiation and growth of online gaming in
Nevada, Louisiana and other states. In addition, our operations located in New Jersey may be adversely impacted by the expansion of gaming in Maryland, New York, and Pennsylvania, our
operations in Louisiana may be adversely impacted by the expansion of gaming in Mississippi and the Gulf Coast, and our operations located in Nevada may be adversely impacted by the expansion
of gaming in California.
In addition, the gaming industry has expanded into new jurisdictions in which gaming was not previously permitted. This growth is likely to continue in the future and will result in increased
competition for our facilities in the jurisdictions in which we operate.
The loss of the services of key personnel could have a material adverse effect on our business.
We believe that the leadership of our executive officers has been a critical element of our success. Our executive officers and other members of senior management have substantial experience and
expertise in our businesses that we believe make significant contributions to our growth and success. The unexpected loss of services of one or more of these individuals could also adversely affect
us. We do not have key man or similar life insurance policies covering members of our senior management. We have employment agreements with our executive officers, but these agreements do not
guarantee that any given executive will remain with us, and there can be no assurance that any such officers will remain with us.
Our business may be subject to seasonal fluctuations that could result in volatility and have an adverse effect on our operating results.
Our business may be subject to some degree of seasonality. Weather conditions may deter or prevent customers from reaching the facilities or undertaking trips. Such conditions would particularly
affect customers who are traveling longer distances to visit our properties. Seasonality may cause our properties working capital cash flow requirements to vary from quarter to quarter depending on
the variability in the volume and timing of sales. Business in our properties can also fluctuate due to specific holidays or other significant events, such as Easter (particularly when the holiday falls in
a different quarter than the prior year), the World Series of Poker tournament (with respect to our Las Vegas properties), city-wide conventions, a large sporting event or a concert, or visits by our
premium players. We also believe that any seasonality, holiday, or other significant event may affect our various properties or regions differently. These factors, among other things, make forecasting
more difficult and may adversely affect our properties’ ability to manage working capital and to predict financial results accurately, which could adversely affect our business, financial condition, and
operating results.
Our business is particularly sensitive to energy prices and a rise in energy prices could harm our operating results.
We are a large consumer of electricity and other energy and, therefore, higher energy prices may have an adverse effect on our results of operations. Accordingly, increases in energy costs may have a
negative impact on our operating results. Additionally, higher electricity and gasoline prices that affect our customers may result in reduced visitation to our resorts and a reduction in our revenues.
We may be indirectly impacted by regulatory requirements aimed at reducing the impacts of climate change directed at up-stream utility providers, as we could experience potentially higher utility,
fuel, and transportation costs.
Win rates (hold rates) for our casino operations depend on a variety of factors, some of which are beyond our control.
The gaming industry is characterized by an element of chance. Accordingly, we employ theoretical win rates to estimate what a certain type of game, on average, will win or lose in the long run. In
addition to the element of chance, win rates (hold percentages) are also affected by the spread of table limits and factors that are beyond our control, such as a player’s skill, experience, and behavior,
the mix of games played, the financial resources of players, the volume of bets placed, and the amount of time players spend gambling. As a result of the variability in these factors, the actual win
rates at our casinos may differ from the theoretical win rates we have estimated and could result in the winnings of our gaming customers exceeding those anticipated. The variability of win rates
(hold rates) also have the potential to negatively impact our financial condition, results of operations, and cash flows.
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We face the risk of fraud, theft, and cheating.
We face the risk that gaming customers may attempt or commit fraud or theft or cheat in order to increase winnings. Such acts of fraud, theft, or cheating could involve the use of counterfeit chips or
other tactics, possibly in collusion with our employees. Internal acts of cheating could also be conducted by employees through collusion with dealers, surveillance staff, floor managers, or other
casino or gaming area staff. Additionally, we also face the risk that customers may attempt or commit fraud or theft with respect to our non-gaming offerings or against other customers. Such risks
include stolen credit or charge cards or cash, falsified checks, theft of retail inventory and purchased goods, and unpaid or counterfeit receipts. Failure to discover such acts or schemes in a timely
manner could result in losses in our operations. Negative publicity related to such acts or schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our
business, financial condition, results of operations, and cash flows.
We may not be able to protect the intellectual property rights we own or may be prevented from using intellectual property necessary for our business.
The development of intellectual property is part of our overall business strategy, and we regard our intellectual property to be an important element of our success. We rely primarily on trade secret,
trademark, domain name, copyright, and contract law to protect the intellectual property and proprietary technology we own. We also actively pursue business opportunities in the United States and in
international jurisdictions involving the licensing of our trademarks to third parties, subject to certain restrictions contained in the Merger Agreement. It is possible that third parties may copy or
otherwise obtain and use our intellectual property or proprietary technology without authorization or otherwise infringe on our rights. For example, while we have a policy of entering into
confidentiality, intellectual property invention assignment, and/or non-competition and non-solicitation agreements or restrictions with our employees, independent contractors, and business partners,
such agreements may not provide adequate protection or may be breached, or our proprietary technology may otherwise become available to or be independently developed by our competitors. The
laws of some foreign countries may not protect proprietary rights or intellectual property to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights,
the unauthorized use or reproduction of our trademarks could diminish the value of our trademarks and our market acceptance, competitive advantages, or goodwill, which could adversely affect our
business.
Third parties have alleged and may in the future allege that we are infringing, misappropriating, or otherwise violating their intellectual property rights. Third parties may initiate litigation against us
without warning or may send us letters or other communications that make allegations without initiating litigation. We may elect not to respond to these letters or other communications if we believe
they are without merit, or we may attempt to resolve these disputes out of court by negotiating a license, but in either case it is possible that such disputes will ultimately result in litigation. Any such
claims could interfere with our ability to use technology or intellectual property that is material to the operation of our business. Such claims may be made by competitors seeking to obtain a
competitive advantage or by other parties, such as entities that purchase intellectual property assets for the purpose of bringing infringement claims. We also periodically employ individuals who were
previously employed by our competitors or potential competitors, and we may therefore be subject to claims that such employees have used or disclosed the alleged trade secrets or other proprietary
information of their former employers.
At any time, we may have to rely on litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others, or defend against
claims of infringement or invalidity. Any such litigation, whether successful or unsuccessful, could result in substantial costs and the diversion of resources and the attention of management. If
unsuccessful, such litigation could result in the loss of important intellectual property rights, require us to pay substantial damages, subject us to injunctions that prevent us from using certain
intellectual property, require us to make admissions that affect our reputation in the marketplace, and require us to enter into license agreements that may not be available on favorable terms or at all.
The Merger Agreement also contains certain restrictions that may limit our ability to resolve such disputes absent Eldorado’s prior written consent. Finally, even if we prevail in any litigation, the
remedy may not be commercially meaningful or fully compensate us for the harm we suffer or the costs we incur. Any of the foregoing could have a material adverse effect on our business, financial
condition and results of operations.
We cannot assure you that we will be able to retain our performers and other entertainment offerings on acceptable terms or at all.
Our properties’ entertainment offerings are only under contract for a limited time. For example, Celine Dion, Backstreet Boys, and Donny and Marie’s contract expired in 2019 and the contract for
Gwen Stefani is scheduled to end in 2020. These and other of our performers draw customers to our properties and are a significant source of our revenue. We cannot assure you that we will be able
to retain our performers or other shows on acceptable terms or at all. In addition, the third parties that we depend on for our properties’ entertainment offerings may become incapable or unwilling to
provide their services at the level agreed upon or at all.
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We extend credit to a portion of our customers, and we may not be able to collect gaming receivables from our credit customers.
We conduct our gaming activities on a credit and cash basis at many of our properties. Any such credit we extend is unsecured. Table games players typically are extended more credit than slot
players, and high-stakes players typically are extended more credit than customers who tend to wager lower amounts. High-end gaming is more volatile than other forms of gaming, and variances in
win-loss results attributable to high-end gaming may have a significant positive or negative impact on cash flow and earnings in a particular quarter. We extend credit to those customers whose level
of play and financial resources warrant, in the opinion of management, an extension of credit. These large receivables could have a significant impact on our results of operations if deemed
uncollectible. Gaming debts evidenced by a credit instrument, including what is commonly referred to as a “marker,” and judgments on gaming debts are enforceable under the current laws of the
jurisdictions in which we allow play on a credit basis, and judgments on gaming debts in such jurisdictions are enforceable in all U.S. states under the Full Faith and Credit Clause of the U.S.
Constitution. However, other jurisdictions may determine that enforcement of gaming debts is against public policy. Although courts of some foreign nations will enforce gaming debts directly and
the assets in the U.S. of foreign debtors may be reached to satisfy a judgment, judgments on gaming debts from U.S. courts are not binding on the courts of many foreign nations.
In addition, in November 2017, the Chinese government adopted new rules to control the cross-border transportation of cash and bearer negotiable instruments, specifically to reduce the international
transfer of cash in connection with activities that are illegal in China, including gambling. The Chinese government has recently taken steps to prohibit the transfer of cash for the payment of gaming
debts. These developments may have the effect of reducing the collectability of gaming debts of players from China. It is unclear whether these and other measures will continue to be in effect or
become more restrictive in the future. These and any future foreign currency control policy developments that may be implemented by foreign jurisdictions could significantly impact our business,
financial condition and results of operations.
Acts of terrorism, war, natural disasters, severe weather, and political, economic and military conditions may impede our ability to operate or may negatively impact our financial results.
Terrorist attacks and other acts of war or hostility have created many economic and political uncertainties. For example, a substantial number of the customers of our properties in Las Vegas use air
travel. As a result of terrorist acts that occurred on September 11, 2001, domestic and international travel was severely disrupted, which resulted in a decrease in customer visits to our properties in
Las Vegas. Visitation to Las Vegas also declined for a period of time following the mass shooting tragedy on October 1, 2017. We cannot predict the extent to which disruptions in air or other forms
of travel as a result of any further terrorist act, security alerts or war, uprisings, or hostilities in places such as Iraq, Afghanistan, and/or Syria or other countries throughout the world, and
governmental responses to those acts or hostilities, will directly or indirectly impact our business and operating results. For example, our operations in Cairo, Egypt, were negatively affected from the
uprising there in January 2011. As a consequence of the threat of terrorist attacks and other acts of war or hostility in the future, premiums for a variety of insurance products have increased, and some
types of insurance are no longer available. If any such event were to affect our properties, we would likely be adversely affected.
In addition, natural and man-made disasters such as major fires, floods, severe snowstorms, hurricanes, earthquakes, and oil spills could also adversely impact our business and operating results. Such
events could lead to the loss of use of one or more of our properties for an extended period of time and disrupt our ability to attract customers to certain of our gaming facilities. For example, Harrah’s
Metropolis Hotel & Casino and Horseshoe Southern Indiana (rebranded in 2019 to Caesars Southern Indiana) each closed in late February 2018 for an extended period of time due to flooding from
the Ohio River. In most cases, we have insurance that covers portions of any losses from a natural disaster, but it is subject to deductibles and maximum payouts in many cases. Although we may be
covered by insurance from a natural disaster, the timing of our receipt of insurance proceeds, if any, may be out of our control. In some cases, however, we may receive no proceeds from insurance.
Additionally, a natural disaster affecting one or more of our properties may affect the level and cost of insurance coverage we may be able to obtain in the future, which may adversely affect our
financial position.
As our operations depend in part on our customers’ ability to travel, severe or inclement weather can also have a negative impact on our results of operations.
Our business may be adversely affected by the recent coronavirus outbreak.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In January 2020, this coronavirus spread to other countries, including the United States, and efforts to
contain the spread of this coronavirus intensified. The outbreak and any preventative or protective actions that governments or we may take in respect of this coronavirus may result in a period of
business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial
condition and results of operations. The extent to which
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the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of
the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
We have in the past and may in the future incur impairments to goodwill, indefinite-lived intangible assets, or long-lived assets, which could negatively affect our future profits.
We perform our annual goodwill impairment assessment as of October 1. We perform this assessment more frequently if impairment indicators exist. We performed our annual goodwill impairment
test by comparing the fair value of each reporting unit with its carrying amount. We determine the estimated fair value of each reporting unit based on a combination of earnings before interest, taxes,
depreciation, and amortization (“EBITDA”), valuation multiples, and estimated future cash flows discounted at rates commensurate with the capital structure and cost of capital of comparable market
participants, giving appropriate consideration to the prevailing borrowing rates within the casino industry in general. We also evaluate the aggregate fair value of all of our reporting units and other
non-operating assets in comparison to our aggregate debt and equity market capitalization at the test date. EBITDA multiples and discounted cash flows are common measures used to value
businesses in our industry.
We perform our annual impairment assessment of other non-amortizing intangible assets as of October 1. We perform this assessment more frequently if impairment indicators exist. We determine
the estimated fair value of our non-amortizing intangible assets by primarily using the Relief from Royalty Method and Excess Earnings Method under the income approach.
We review the carrying value of our long-lived assets whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows
expected to result from its use and eventual disposition. As necessary, we typically estimate the fair value of assets starting with a Replacement Cost New approach and then deduct appropriate
amounts for both functional and economic obsolescence to arrive at the fair value estimates. Other factors considered by management in performing this assessment may include current operating
results, trends, prospects, and third-party appraisals, as well as the effect of demand, competition, and other economic, legal, and regulatory factors.
Downward adjustments to expectations of future performance at certain of our properties outside of Las Vegas resulted in impairment charges during the years ended December 31, 2019. If
significant negative industry or economic trends, reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth in our business, or property closures or
divestitures occur, we may be required to record additional impairment charges in future periods which may be material.
Work stoppages and other labor problems could negatively impact our future profits.
Some of our employees are represented by labor unions and, accordingly, we are subject to the risk of work stoppages or other labor disruptions from time to time. Approximately half of our hourly
team members employed in the U.S. are covered by a collective bargaining agreement (“CBA”). Our CBAs are the product of good faith negotiations with the respective unions that represent
employees in many of our facilities.
We currently have one CBA, represented by one union and covering various employees, in Las Vegas expiring in 2020. Thirty-four agreements covering employees within Las Vegas were set to
expire in 2019. We successfully negotiated renewal agreements for 23 agreements, and the renewal terms expire in 2024. We are currently negotiating eight of the agreements which expired in 2019.
Additionally, we are negotiating five new agreements. All agreements are subject to automatic extension unless one party gives 60 days’ prior notice of intent to terminate. No such notice has been
given. We intend to negotiate renewal agreements or agree to extensions for all CBAs expiring, subject to certain restrictions contained in the Merger Agreement, and are hopeful that we will be able
to reach agreements with the respective unions without any work stoppage. Work stoppages and other labor disruptions could have a material adverse impact on our operations.
From time to time, we have also experienced attempts by labor organizations to organize certain of our non-union employees. These efforts have achieved some success to date. We cannot provide
any assurance that we will not experience additional and successful union activity in the future. The impact of this union activity is undetermined and could negatively impact our profits.
Any deterioration in our reputation or the reputation of our brands could adversely impact our business, financial condition, or results of operations.
Our business is dependent on the quality and reputation of our Company and brands. Events beyond our control could affect the reputation of one or more of our properties or more generally impact
our corporate or brand image. Other factors that could influence our reputation include the quality of the services we offer and our actions with regard to social issues such as diversity, human rights
and support for local communities. Broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of us, our brands or our properties. It may be
difficult to control or effectively manage negative publicity, regardless of whether it is accurate. Negative events and publicity could quickly and materially damage perceptions of us, our
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brands or our properties, which, in turn, could adversely impact our business, financial condition or results of operations through loss of customers, loss of business opportunities, lack of acceptance
of our company to operate in host communities, employee retention or recruiting difficulties or other difficulties.
We may be subject to material environmental liability, including as a result of unknown environmental contamination.
Our business is subject to certain federal, state, and local environmental, health, and safety laws, regulations, and ordinances that govern activities or operations that may have adverse environmental
effects, such as emissions to air, discharges to streams and rivers, and releases of hazardous substances and pollutants into the environment, as well as handling and disposal from municipal/non-
hazardous waste, and that also apply to current and previous owners or operators of real estate generally. Federal examples of these laws include the Clean Air Act, the Clean Water Act, the Resource
Conservation Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, and the Oil Pollution Act of 1990. Our failure to comply with these laws, including any
required permits or licenses, could result in substantial fines or possible revocation of our authority to conduct some of our operations. Certain of these laws may impose cleanup responsibility and
liability without regard to whether the owner or operator knew of or caused particular contamination or release of hazardous substances and regardless of whether the practices that resulted in the
contamination were legal at the time that they occurred. Should unknown contamination be discovered on any of our properties, or should a release of hazardous substances occur on any of our
properties, we could be required to investigate and clean up the contamination and could also be held responsible to a governmental entity or third parties for property damage, personal injury, or
investigation and cleanup costs incurred in connection with the contamination or release, which may be substantial. Moreover, such contamination may also impair our ability to use or develop the
affected property. Such liability could be joint and several in nature, regardless of fault, and could affect us even if such property is vacated. The potential for substantial costs and an inability to use
the property could adversely affect our business. New and more stringent environmental, health, and safety regulations and permit requirements or stricter interpretations of current laws or
regulations, such as those related to climate change, could also impose substantial additional costs on our business.
Our insurance coverage may not be adequate to cover all possible losses we could suffer, and, in the future, our insurance costs may increase significantly, or we may be unable to obtain the
same level of insurance coverage.
We may suffer damage to our property caused by a casualty loss (such as fire, natural disasters, and acts of war or terrorism) that could severely disrupt our business or subject it to claims by third
parties who are injured or harmed. Although we maintain insurance (including property, casualty, terrorism, and business interruption), it may be inadequate or unavailable to cover all of the risks to
which our business and assets may be exposed. In several cases, we maintain extremely high deductibles or self-insure against specific losses. Should an uninsured loss (including a loss that is less
than our deductible) or loss in excess of insured limits occur, it could have a significant adverse impact on our operations and revenues.
We generally renew our insurance policies on an annual basis. If the cost of coverage becomes too high, we may need to reduce our policy limits or agree to certain exclusions from our coverage in
order to reduce the premiums to an acceptable amount. Among other factors, homeland security concerns, other catastrophic events, or any change in the current U.S. statutory requirement that
insurance carriers offer coverage for certain acts of terrorism could adversely affect available insurance coverage and result in increased premiums on available coverage (which may cause us to elect
to reduce our policy limits) and additional exclusions from coverage. Among other potential future adverse changes, in the future we may elect to not, or may be unable to, obtain any coverage for
losses due to acts of terrorism.
The success of third parties adjacent to our properties is important to our ability to generate revenue and operate our business and any deterioration to their success could materially adversely
affect our revenue and result of operations.
In certain cases, we do not own the businesses and amenities adjacent to our properties. However, the adjacent third-party businesses and amenities stimulate additional traffic through our complexes,
including the casinos, which are our largest generators of revenue. Any decrease in the popularity of, or the number of customers visiting, these adjacent businesses and amenities may lead to a
corresponding decrease in the traffic through our complexes, which would negatively affect our business and operating results. Further, if newly opened properties are not as popular as expected, we
will not realize the increase in traffic through our properties that we expect as a result of their opening, which would negatively affect our business projections.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms or at all.
We intend to continue to make significant investments to support our business growth and may require additional funds to respond to business challenges, expand into new markets, improve our
operating infrastructure, or acquire complementary businesses, personnel, and technologies. Accordingly, subject to the restrictions set forth in our Merger Agreement, we may need to engage in
equity or debt financings to secure additional funds. Any debt financing we secure in the future could involve restrictive covenants
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relating to capital raising activities and other financial and operational matters, which may make it more difficult to obtain additional capital and to pursue business opportunities. We may not be able
to obtain additional financing on favorable terms, if at all. There can be no assurances that we could pursue a future offering of securities or enter into a new credit facility at an appropriate price
and/or terms to raise the necessary financing. If we are unable to obtain adequate financing or financing on terms satisfactory to us when required, our ability to continue to support our business
growth and to respond to business challenges could be significantly impaired, which could have a material adverse effect on our business, financial condition, and operating results.
Our obligation to contribute to multi-employer pension plans, or discontinuance of such obligations, may have an adverse impact on us.
We contribute to and participate in various multi-employer pension plans for employees represented by certain unions. We are required to make contributions to these plans in amounts established
under CBAs. We do not administer these plans and, generally, are not represented on the boards of trustees of these plans. The Pension Protection Act enacted in 2006 (the “PPA”) requires under-
funded pension plans to improve their funding ratios. Based on the information available to us, some of the multi-employer plans to which we contribute are either “critical” or “endangered” as those
terms are defined in the PPA. Specifically, the HEREIU Intermediary Plan (a spin-off of the Pension Plan of the UNITE HERE National Retirement Fund, effective January 1, 2018) is less than 65%
funded. We cannot determine at this time the amount of additional funding, if any, we may be required to make to these plans. However, plan assessments could have an adverse impact on our results
of operations or cash flows for a given period. Furthermore, under current law, upon the termination of a multi-employer pension plan, due to the withdrawal of all its contributing employers (a mass
withdrawal), or in the event of a withdrawal by us, which we consider from time to time, we would be required to make payments to the plan for our proportionate share of the plan’s unfunded vested
liabilities, and that would have a material adverse impact on our consolidated financial condition, results of operations, and cash flows.
Future sales or the possibility of future sales of a substantial amount of our common stock may depress the price of shares of our common stock.
The availability for sale of substantial amounts of our common stock in the public market could adversely affect the prevailing market price of our common stock and could impair our ability to raise
capital through future sales of equity securities.
As of February 21, 2020, there were 682 million shares of our common stock outstanding, all of which are the same class of voting common stock. All of the outstanding shares of our common stock
will be eligible for resale under Rule 144 or Rule 701 of the Securities Act of 1933, as amended (“Securities Act”), subject to volume limitations, applicable holding period requirements or other
contractual restrictions.
In connection with the CAC Merger, the Plan, and CEOC’s emergence from bankruptcy, we issued a significant number of shares of our common stock and a significant amount of notes that are
convertible into shares of our common stock, subject to the restrictions set forth in our Merger Agreement. We may issue shares of common stock or other securities from time to time as
consideration for future acquisitions and investments or for any other reason that our Board of Directors deems advisable. If any such acquisition or investment is significant, the number of shares of
our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering
those shares of common stock or other securities in connection with any such acquisitions and investments.
We cannot predict the size of future issuances of our common stock or other securities or the effect, if any, that future issuances and sales of our common stock or other securities would have on the
market price of our common stock. Sales of substantial amounts of common stock (including shares of common stock issued in connection with an acquisition), or the perception that such sales could
occur, may adversely affect prevailing market prices for our common stock.
The price and trading volume of our common stock may fluctuate significantly.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our common stock may fluctuate and cause significant price
variations to occur. Volatility in the market price of our common stock may prevent a holder of our common stock from being able to sell their shares. The market price for our common stock could
fluctuate significantly for various reasons, including:
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the pendency of, or our failure to complete, the Merger;
our operating and financial performance and prospects;
our quarterly or annual earnings or those of other companies in our industry;
conditions that impact demand for our products and services;
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the public’s reaction to our press releases, other public announcements and filings with the SEC;
changes in earnings estimates or recommendations by securities analysts who track our common stock;
• market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
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strategic actions by us or our competitors, such as acquisitions or restructurings;
changes in government and environmental regulation, including gaming taxes;
changes in accounting standards, policies, guidance, interpretations, or principles;
arrival and departure of key personnel;
changes in our capital structure;
sales of common stock by us or members of our management team;
the expiration of contractual lockup agreements; and
changes in general market, economic, and political conditions in the United States and global economies or financial markets, including those resulting from natural disasters, terrorist
attacks, acts of war, and responses to such events.
In addition, the stock market experiences significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including
companies in the gaming, lodging, hospitality, and entertainment industries. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the
price of our common stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our share price.
Holders of our common stock should not expect to receive dividends on shares of our common stock.
We have no present plans to pay cash dividends to our stockholders and, for the foreseeable future, intend to retain all of our earnings for use in our business. Subject to the restrictions on dividends
set forth in our Merger Agreement, the declaration of dividends by us is within the discretion of our Board of Directors and would be dependent on our earnings, financial condition and capital
requirements, as well as any other factors deemed relevant by our Board of Directors.
Our actual financial results after CEOC’s emergence from bankruptcy may not be comparable to our historical financial information as a result of the implementation of the Plan and the
transactions contemplated thereby.
In connection with the disclosure statement CEOC filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, CEOC prepared projected financial information to
demonstrate to the Bankruptcy Court the feasibility of the Plan and CEOC’s ability to continue operations upon its emergence from bankruptcy. In connection with the proxy statement/prospectus
relating to the merger of CAC and CEC filed with the SEC, we also disclosed certain projections. These projections were prepared solely for the purpose for which they were filed and have not been,
and will not be, updated on an ongoing basis and should not be relied upon by investors. Although the financial projections disclosed in the disclosure statement filed with the Bankruptcy Court and
the proxy statement/prospectus relating to the merger of CAC and CEC represented certain views based on then current known facts and assumptions about the future operations of CEOC and the
Company, there is no guarantee that the financial projections will be realized. We may not be able to meet the projected financial results or achieve projected revenues and cash flows assumed in
projecting future business prospects. To the extent we do not meet the projected financial results or achieve projected revenues and cash flows, we may lack sufficient liquidity to continue operating
as planned and may be unable to service our debt obligations as they come due or may not be able to meet our operational needs. Any one of these failures may preclude us from, among other things:
(a) taking advantage of future opportunities; (b) growing our businesses; or (c) responding to future changes in the gaming industry. Further, our failure to meet the projected financial results or
achieve projected revenues and cash flows could lead to cash flow and working capital constraints, which constraints may require us to seek additional working capital. We may not be able to obtain
such working capital, when it is required.
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Risks Relating to the Merger
The Merger remains subject to a number of conditions, and, if these conditions are not satisfied or waived on a timely basis, the Merger Agreement may be terminated and the Merger may not
be completed.
On June 24, 2019, we entered into the Merger Agreement with Eldorado and Merger Sub, pursuant to which Merger Sub will merge with and into Caesars with Caesars continuing as the surviving
corporation and direct wholly owned subsidiary of Eldorado. The Merger Agreement was amended on August 15, 2019.
Each of Eldorado’s and Caesars’ obligation to complete the Merger remains subject to the satisfaction or waiver of certain conditions, including, among others, (1) the expiration or termination of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and receipt of required gaming approvals, (2) the absence of any
governmental order or law prohibiting the completion of the Merger, (3) absence of a material adverse effect on the other party, (4) the accuracy of the other party’s representations and warranties,
subject to customary materiality standards and (5) compliance of the other party with its respective covenants under the Merger Agreement in all material respects. Other conditions to completing the
Merger, such as obtaining stockholder approvals with respect to the Merger from each party’s stockholders and effecting certain amendments to the indenture governing the CEC Convertible Notes,
have been satisfied.
The failure to satisfy all of the required conditions, or having to make significant changes to the structure, terms or conditions of the Merger to obtain any required regulatory approvals, could delay
the completion of the Merger by a significant period of time, increase the costs associated with completing the Merger or prevent the Merger from occurring. Any delay in completing the Merger
could cause the parties to not realize some or all of the benefits that are expected to be achieved if the Merger is successfully completed within the expected timeframe. There can be no assurance that
the conditions to completion of the Merger will be satisfied or waived, and if satisfied or waived, when they will be satisfied or waived. In addition, other factors, such as delays, challenges and
expenses associated with the indebtedness planned to be incurred in connection with the Merger, may affect when and whether the Merger will occur. The Merger Agreement contains termination
rights for each of Caesars and Eldorado if the Merger is not completed by June 24, 2020, which date will be extended automatically until September 24, 2020 and thereafter until December 24, 2020,
if all conditions precedent, other than the expiration of the waiting period under the HSR Act and/or receipt of required gaming approvals, have been satisfied or are capable of being satisfied.
Our stockholders cannot be certain of the date they will receive the merger consideration or of the aggregate value of the merger consideration they will receive.
The date that our stockholders will receive the merger consideration depends on the Closing Date, which is uncertain. On the date of the special meeting of our stockholders to approve the Merger,
our stockholders did not know the exact market value of the Eldorado Common Stock that they may receive upon completion of the Merger.
Upon completion of the Merger, each share of Caesars Common Stock will be converted into merger consideration consisting of either cash consideration or stock consideration in the form of shares
of Eldorado Common Stock, or a mix of both, pursuant to the terms of the Merger Agreement.
The amount of and value of the merger consideration that our stockholders will receive will fluctuate based on the market price of shares of Eldorado Common Stock, regardless of whether they
receive cash consideration or stock consideration, or a mix of both. The merger consideration that our stockholders will receive for each share of Caesars Common Stock will be based on the
Eldorado Common Stock VWAP. Both the closing price of shares of Eldorado Common Stock on the Closing Date and the Eldorado Common Stock VWAP may vary from the closing price of shares
of Eldorado Common Stock on the date that Caesars and Eldorado announced the Merger, on the date of the special meeting of our stockholders to approve the Merger, on the date of this report, on
the date that a stockholder elects to receive cash consideration or stock consideration in the Merger or on any other date. Any change in the market price of shares of Eldorado Common Stock prior to
the completion of the Merger will affect the value of the merger consideration that our stockholders will receive upon completion of the Merger. Stock price changes may result from a variety of
factors, including general market and economic conditions, changes in Caesars’ and Eldorado’s respective businesses, operations and prospects, and regulatory considerations, among other things.
Many of these factors are beyond our control. Accordingly, at the time that our stockholders make elections to receive cash consideration or stock consideration in the Merger, our stockholders will
not know or be able to calculate the amount of the cash consideration or stock consideration they would receive or the value of the shares of Eldorado Common Stock they would receive upon
completion of the Merger.
Our stockholders may receive a form of consideration different from what they elect.
Although each holder of shares of Caesars Common Stock may elect to receive all cash or all shares of Eldorado Common Stock in the Merger, or cash for certain shares of Caesars Common Stock
and shares of Eldorado Common Stock for other shares, the
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pool of the aggregate cash and shares of Eldorado Common Stock representing the merger consideration for all of our stockholders is fixed. As a result, if either the aggregate cash elections or the
aggregate stock elections exceed the maximum available, and certain of our stockholders choose the consideration election that exceeds the maximum available, some or all of their consideration may
be in a form that they did not choose.
The Merger Agreement limits our ability to pursue alternative transactions to the Merger and, in certain circumstances, could require us to pay a termination fee to Eldorado.
The Merger Agreement prohibits Caesars and Eldorado from soliciting competing acquisition proposals, which limits our ability to affirmatively seek offers from other possible acquirers that may be
superior to the Merger. If we receive an acquisition proposal, the Merger Agreement is later terminated by Eldorado in certain circumstances relating to our breach of the Merger Agreement and
within 12 months after termination we enter into a definitive agreement with respect to or consummate an alternative transaction, we will be required to pay Eldorado a termination fee of
approximately $418.4 million. This termination fee may make it less likely that a third party will make an alternative acquisition proposal for us. Payment of this termination fee may also require us
to use available cash that would have otherwise been available for general corporate purposes and other matters.
While the Merger is pending, we are subject to business uncertainties and contractual restrictions that could materially and adversely affect our stock and/or bond prices, operating results,
financial position and/or cash flows or result in a loss of employees, customers, members, providers or suppliers.
The Merger Agreement includes restrictions on the conduct of our business prior to the completion of the Merger or termination of the Merger Agreement, generally requiring us to conduct our
business in the ordinary course and subjecting us to a variety of specified limitations absent Eldorado’s prior written consent. We may find that these and other contractual restrictions in the Merger
Agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during
such period, even if our management believes they may be advisable. The pendency of the Merger may also divert management’s attention and our resources from ongoing business and operations.
Our employees, customers, members, providers and suppliers may experience uncertainties about the effects of the Merger. In connection with the Merger, it is possible that some customers,
members, providers, suppliers and other parties with whom we have, or seek to establish, a business relationship may delay or defer certain business decisions or might decide to seek to terminate,
change or renegotiate their relationship or key commercial agreements with us, or not to establish a relationship with us, as a result of the Merger. Similarly, current and prospective employees may
experience uncertainty about their future roles with us following the completion of the Merger, which may materially and adversely affect our ability to attract and retain key employees, and current
employees may lose productivity as a result of such uncertainty. If any of these effects were to occur, it could materially and adversely impact our stock and/or bond prices, operating results, financial
position and/or cash flows.
Failure to complete the Merger could negatively impact our stock and/or bond prices, operating results, financial position and/or cash flows.
If the Merger is not completed for any reason, our ongoing businesses may be materially and adversely affected, we will not have realized any of the potential benefits of having completed the
Merger, and we will be subject to a number of risks, including the following:
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we may experience negative reactions from the financial markets, including negative impacts on our stock and/or bond prices, which may reflect a market assumption that the Merger will be
completed, and from our customers, vendors, joint-venture partners, other third parties, regulators and employees;
we may lose key employees during the period in which we and Eldorado are pursuing the Merger, which may adversely affect us in the future if we are not able to hire and retain qualified
personnel to replace departing employees;
• matters relating to the Merger (including integration planning) may require substantial commitments of time and resources by our management and key employees, which could otherwise
have been devoted to other opportunities that may have been beneficial to us;
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we may not be able to respond effectively to competitive pressures, industry developments and future business opportunities;
in certain circumstances, we may be required to pay a $418.4 million termination fee to Eldorado;
we would have incurred significant expenses relating to the Merger that we may be unable to recover; and
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•
we could be subject to litigation related to our failure to complete the Merger or to perform our obligations under the Merger Agreement.
There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may materially and adversely affect our stock and/or bond prices, operating results,
financial position and/or cash flows.
We have incurred, and will continue to incur, substantial transaction fees and Merger-related costs in connection with the Merger.
We have incurred, and will continue to incur, non-recurring transaction fees, which include legal and advisory fees and substantial Merger-related costs associated with completing the Merger,
combining the operations of the two companies and achieving desired synergies. Additional unanticipated costs may be incurred in the course of the integration of the businesses of Caesars and
Eldorado. The companies cannot be certain that the realization of other benefits related to the integration of the two businesses will offset the transaction and Merger-related costs in the near term, or
at all.
Upon completion of the Merger, holders of shares of Caesars Common Stock will become holders of shares of Eldorado Common Stock and the market price for Eldorado Common Stock may
be affected by factors different from those that historically have affected Caesars.
Upon completion of the Merger, holders of shares of Caesars Common Stock will become holders of shares of Eldorado Common Stock. Eldorado’s businesses differ from those of Caesars, and
accordingly the results of operations of Eldorado will be affected by some factors that are different from those currently affecting the results of operations of Caesars. For a discussion of risk factors
to consider in connection with Eldorado’s businesses, see Part I, Item 1A of Eldorado’s Annual Report on Form 10-K for the year ended December 31, 2018 and Part II, Item 1A of Eldorado’s
Quarterly Reports on Form 10-Q for the quarters ended June 30, 2019 and September 30, 2019.
Litigation against Caesars, Eldorado and/or the members of their respective boards of directors challenging the Merger could prevent or delay the completion of the Merger or result in the
payment of damages following completion of the Merger.
Stockholders of Caesars and/or Eldorado have filed, and may file, lawsuits challenging the Merger or the other transactions contemplated by the Merger Agreement naming Caesars, Eldorado and/or
the members of their respective boards of directors as defendants. See Note 11. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims
or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Merger
on the agreed-upon terms, such an injunction may delay completion of the Merger in the expected timeframe, or may prevent the Merger from being completed at all. Whether or not any plaintiff’s
claim is successful, this type of litigation can result in significant costs and divert management’s attention and resources from the completion of the Merger and ongoing business activities, which
could adversely affect the operation of our business.
One of the conditions to completion of the Merger is the absence of any governmental order or law prohibiting the completion of the Merger. Accordingly, if a plaintiff is successful in obtaining an
order prohibiting the completion of the Merger, then such order may prevent the Merger from being completed, or from being completed within the expected timeframe.
Following the Merger, the combined company will be subject to a number of uncertainties and risks that could affect its stock price, operating results, financial position and/or cash flows.
Following the Merger, the combined company will be subject to a number of uncertainties and risks, including the following:
•
•
•
•
the integration of Caesars and Eldorado following the Merger may present significant challenges, and we cannot be sure that the combined company will be able to realize the anticipated
benefits of the Merger in the anticipated time frame or at all;
the combined company may be unable to realize anticipated cost synergies to the extent and within the time expected, and may incur additional costs in order to realize these cost synergies;
the combined company will have a substantial amount of indebtedness outstanding following the Merger and may incur additional indebtedness in the future, which could restrict the
combined company’s ability to pay dividends and fund working capital and planned capital expenditures;
the composition of the combined company’s board of directors will be different than the composition of Caesars’ current board of directors, which may affect the strategy and operations of
the combined company;
31
•
•
•
•
•
•
•
•
regulatory agencies may impose terms and conditions on approvals of the Merger that could adversely affect the projected financial results of the combined company;
substantial costs will be incurred in connection with the Merger, including costs associated with integrating the businesses of Caesars and Eldorado and transaction expenses arising from the
Merger, which could adversely affect the projected financial results of the combined company;
following the Merger and the transactions contemplated by the Master Transaction Agreement, dated as of June 24, 2019, by and between Eldorado and VICI, the combined company and its
subsidiaries will be required to pay a significant portion of their cash flow from operations to third parties pursuant to leasing and related arrangements;
the announcement or completion of the Merger may trigger change in control or other provisions in certain of Caesars’ and Eldorado’s commercial agreements, which could adversely affect
the projected financial results of the combined company;
Caesars’ stockholders will have a reduced ownership and voting interest in the combined company and, as a result, will exercise less influence over management;
Caesars’ stockholders will have different rights under the combined company’s governing documents than they do currently under Caesars’ governing documents;
the market price of the combined company’s common stock may be affected by factors different from those affecting Caesars Common Stock prior to the completion of the Merger, and may
decline as a result of the Merger; and
business may suffer if the combined company does not succeed in attracting and retaining existing and additional personnel.
The integration process for the combined company will require significant time and resources, require significant attention from management and disrupt the ordinary functioning of our business.
There can be no assurance that the risks described above, or other risks and challenges inherent in the combination of two businesses of the size, scope and complexity of Caesars and Eldorado, will
not materialize. If any of those risks materialize, they may materially and adversely affect the combined company’s stock and/or bond prices, operating results, financial position and/or cash flows.
32
PRIVATE SECURITIES LITIGATION REFORM ACT
This Form 10-K contains or may contain “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These
statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events.
Further, statements that include words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “present,” “plan,” or “pursue,”
or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. These forward-looking statements are found at various places throughout
this report. These forward-looking statements, including, without limitation, those relating to the Merger, future actions, new projects, strategies, future performance, the outcome of contingencies
such as legal proceedings, and future financial results, wherever they occur in this report, are necessarily estimates reflecting the best judgment of our management and involve a number of risks and
uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of
various important factors set forth above and from time to time in our filings with the Securities and Exchange Commission.
In addition to the risk factors set forth above, important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include
without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
risks related to the Merger, including, but not limited to: (1) the inability to complete the Merger due to the failure to satisfy certain conditions to completion of the Merger, including the
receipt of all gaming and other regulatory approvals related to the Merger; (2) uncertainties as to the timing of the completion of the Merger and the ability of each party to complete the
Merger; (3) disruption of our current plans and operations; (4) the inability to retain and hire key personnel; (5) competitive responses to the Merger; (6) termination fees and unexpected
costs, charges or expenses resulting from the Merger; (7) the outcome of any legal proceedings instituted against us or our directors related to the Merger Agreement; (8) potential adverse
reactions or changes to business relationships resulting from the announcement or completion of the Merger; (9) the inability to obtain, or delays in obtaining, cost savings and synergies
from the Merger; (10) delays, challenges and expenses associated with integrating the combined companies’ existing businesses and the indebtedness planned to be incurred in connection
with the Merger; and (11) legislative, regulatory and economic developments;
our ability to respond to changes in the industry, particularly digital transformation, and to take advantage of the opportunity for legalized sports betting in multiple jurisdictions in the United
States (which may require third-party arrangements and/or regulatory approval);
development of our announced convention center in Las Vegas, CAESARS FORUM, and certain of our other announced projects are subject to risks associated with new construction
projects, including those described below;
we may not be able to realize the anticipated benefits of our acquisition of Centaur Holdings, LLC;
the impact of our operating structure following CEOC’s emergence from bankruptcy;
the effects of local and national economic, credit, and capital market conditions on the economy, in general, and on the gaming industry, in particular;
the effect of reductions in consumer discretionary spending due to economic downturns or other factors and changes in consumer demands;
foreign regulatory policies, particularly in mainland China or other countries in which our customers reside or where we have operations, including restrictions on foreign currency exchange
or importation of currency, and the judicial enforcement of gaming debts;
the ability to realize improvements in our business and results of operations through our property renovation investments, technology deployments, business process improvement initiatives,
and other continuous improvement initiatives;
the ability to take advantage of opportunities to grow our revenue;
the ability to use net operating losses to offset future taxable income as anticipated;
the ability to realize all of the anticipated benefits of current or potential future acquisitions or divestitures;
the ability to effectively compete against our competitors;
the financial results of our consolidated businesses;
33
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of our substantial indebtedness, including its impact on our ability to raise additional capital in the future and react to changes in the economy, and lease obligations and the
restrictions in our debt and lease agreements;
the ability to access available and reasonable financing or additional capital on a timely basis and on acceptable terms or at all, including our ability to refinance our indebtedness on
acceptable terms;
the ability of our customer tracking, customer loyalty, and yield management programs to continue to increase customer loyalty and hotel sales;
changes in the extensive governmental regulations to which we are subject and (i) changes in laws, including increased tax rates, smoking bans, regulations, or accounting standards; (ii)
third-party relations; and (iii) approvals, decisions, disciplines and fines of courts, regulators, and governmental bodies;
compliance with the extensive laws and regulations to which we are subject, including applicable gaming laws, the Foreign Corrupt Practices Act and other anti-corruption laws, and the
Bank Secrecy Act and other anti-money laundering laws;
our ability to recoup costs of capital investments through higher revenues;
growth in consumer demand for non-gaming offerings;
abnormal gaming holds (“gaming hold” is the amount of money that is retained by the casino from wagers by customers);
the effects of competition, including locations of competitors, growth of online gaming, competition for new licenses, and operating and market competition;
our ability to protect our intellectual property rights and damages caused to our brands due to the unauthorized use of our brand names by third parties in ways outside of our control;
the ability to timely and cost-effectively integrate companies that we acquire into our operations;
the ability to execute on our brand licensing and management strategy is subject to third-party agreements and other risks associated with new projects;
not being able to realize all of our anticipated cost savings;
our ability to attract, retain, and motivate employees, including in connection with the Merger;
our ability to retain our performers or other entertainment offerings on acceptable terms or at all;
the risk of fraud, theft, and cheating;
seasonal fluctuations resulting in volatility and an adverse effect on our operating results;
any impairments to goodwill, indefinite-lived intangible assets, or long-lived assets that we may incur;
construction factors, including delays, increased costs of labor and materials, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather
and other hazards, site access matters, and building permit issues;
the impact of adverse legal proceedings and judicial and governmental body actions, including gaming legislative action, referenda, regulatory disciplinary actions (such as the outcome of
the British Gambling Commission’s review of CEUK operations), and fines and taxation;
acts of war or terrorist incidents, severe weather conditions, uprisings, or natural disasters, including losses therefrom, losses in revenues and damage to property, and the impact of severe
weather conditions on our ability to attract customers to certain facilities of ours;
fluctuations in energy prices;
work stoppages and other labor problems;
our ability to collect on credit extended to our customers;
34
•
•
•
•
•
•
the effects of environmental and structural building conditions relating to our properties and our exposure to environmental liability, including as a result of unknown environmental
contamination;
a disruption, failure, or breach of our network, information systems, or other technology, or those of our vendors, on which we are dependent;
risks and costs associated with protecting the integrity and security of internal, employee, and customer data;
access to insurance for our assets on reasonable terms;
the impact, if any, of unfunded pension benefits under multi-employer pension plans; and
the other factors set forth under Item 1A, “Risk Factors.”
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to publicly update or release any
revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, except as required by law.
ITEM 1B. Unresolved Staff Comments
None.
35
ITEM 2. Properties
As of December 31, 2019, the following are our properties. All amounts are approximations.
Property
Las Vegas Segment
Owned-Domestic
Bally’s Las Vegas
The Cromwell
Flamingo Las Vegas
The LINQ Hotel & Casino
The LINQ Promenade (1)
Paris Las Vegas
Planet Hollywood Resort & Casino
Leased
Caesars Palace Las Vegas
Harrah’s Las Vegas
Rio All-Suite Hotel & Casino (2)
Other U.S. Segment
Owned-Domestic
Harrah’s Atlantic City
Harrah’s Laughlin
Harrah’s New Orleans
Hoosier Park (3)
Indiana Grand (4)
Leased from VICI Properties Inc.
Bally’s Atlantic City
Bluegrass Downs (5)
Caesars Atlantic City
Caesars Southern Indiana
Harrah’s Council Bluffs
Harrah’s Gulf Coast
Harrah’s Joliet
Harrah’s Lake Tahoe
Harrah’s Louisiana Downs
Harrah’s Metropolis
Harrah’s North Kansas City
Harrah’s Philadelphia
Harrah’s Reno (6)
Harveys Lake Tahoe
Horseshoe Bossier City
Horseshoe Council Bluffs
Horseshoe Hammond
Horseshoe Tunica
Tunica Roadhouse (7)
Location
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Las Vegas, NV
Atlantic City, NJ
Laughlin, NV
New Orleans, LA
Anderson, IN
Shelbyville, IN
Atlantic City, NJ
Paducah, KY
Atlantic City, NJ
Elizabeth, IN
Council Bluffs, IA
Biloxi, MS
Joliet, IL
Lake Tahoe, NV
Bossier City, LA
Metropolis, IL
N. Kansas City, MO
Chester, PA
Reno, NV
Lake Tahoe, NV
Bossier City, LA
Council Bluffs, IA
Hammond, IN
Tunica, MS
Tunica, MS
Casino
Space–
Sq. Ft.
Slot
Machines
Table
Games
Hotel
Rooms and
Suites
68,400
41,600
72,300
32,900
—
95,300
64,500
124,200
88,800
117,300
156,300
56,400
101,100
55,300
105,100
127,200
—
115,900
74,400
21,400
30,800
39,000
53,800
12,000
24,300
60,100
110,500
42,800
51,100
28,300
59,900
116,500
63,000
940
360
1,120
780
—
980
1,070
1,490
1,250
1,050
2,050
880
1,490
1,490
2,000
1,770
—
1,890
1,200
520
770
1,090
770
820
840
1,240
2,270
590
610
1,150
1,370
2,140
1,030
70
50
110
60
—
100
110
170
90
70
170
40
160
—
—
160
—
130
90
20
30
40
60
—
30
60
110
20
50
70
70
150
100
—
—
—
36
2,810
190
3,450
2,250
—
2,920
2,500
3,970
2,540
2,520
2,590
1,510
450
—
—
1,210
—
1,140
500
250
500
200
510
—
260
390
—
930
740
600
150
—
510
140
Property
All Other Segment
Owned-International
Caesars Cairo
Ramses Casino
Emerald Casino Resort (8)
Alea Glasgow
Alea Nottingham
The Empire Casino
Manchester235
Playboy Club London
Rendezvous Brighton
Rendezvous Southend-on-Sea
The Sportsman
Managed
Harrah’s Ak-Chin
Harrah’s Cherokee
Harrah’s Cherokee Valley River
Harrah’s Resort Southern California
Horseshoe Baltimore (9)
Caesars Windsor
Kings & Queens Casino
Caesars Dubai
Location
Egypt
Egypt
South Africa
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Phoenix, AZ
Cherokee, NC
Murphy, NC
Funner, CA
Baltimore, MD
Canada
Egypt
Casino
Space–
Sq. Ft.
Slot
Machines
Table
Games
Hotel
Rooms and
Suites
6,500
2,700
37,700
22,000
15,200
20,400
17,600
10,000
15,000
10,300
5,800
65,200
176,800
65,000
72,900
122,000
100,000
2,100
30
40
410
50
50
130
50
20
50
40
40
1,150
3,130
1,020
1,630
2,200
2,290
30
—
20
20
20
30
20
50
40
20
20
20
20
30
160
60
70
210
90
10
—
—
—
190
—
—
—
—
—
—
—
—
530
1,110
300
1,090
—
760
—
580
United Arab Emirates
—
___________________
(1)
The LINQ Promenade is an open-air dining, entertainment, and retail promenade located on the east side of the Las Vegas Strip. It also features the High Roller, a 550-foot observation wheel, and the Fly LINQ Zipline attraction.
Rio was sold on December 5, 2019 and Caesars continues to operate the property under a lease for an initial term of 2 years.
(2)
(3) Hoosier Park includes operations of our off-track betting locations, Winner’s Circle Indianapolis and Winner’s Circle New Haven.
(4)
(5)
(6)
(7)
(8)
(9)
Indiana Grand includes operations of our off-track betting location, Winner’s Circle Clarksville.
Bluegrass Downs ceased operations on October 1, 2019.
In December 2019, we entered into an agreement to sell Harrah’s Reno, contingent upon the Merger.
Tunica Roadhouse ceased gaming operations in January 2019. Hotel operations continued until it closed in January 2020.
In May 2019, we entered into an agreement to sell Emerald Resort & Casino. As of December 31, 2019, the property’s assets and liabilities were classified as held for sale.
As of December 31, 2019, Horseshoe Baltimore was 44.3% owned and held as an equity-method investment.
In addition to our properties listed above, other domestic and international properties, including Harrah’s Northern California, are authorized to use the brands and marks of Caesars Entertainment
Corporation.
37
ITEM 3. Legal Proceedings
From time to time, we are a defendant in various lawsuits or other legal proceedings relating to matters incidental to our business. Some of these matters involve commercial or contractual disputes,
intellectual property claims, legal compliance, personal injury claims, and employment claims. As with all legal proceedings, no assurance can be provided as to the outcome of these matters and in
general, legal proceedings can be expensive and time consuming. We may not be successful in the defense or prosecution of these lawsuits, which could result in settlements or damages that could
significantly impact our business, financial condition, and results of operations.
On September 5, 2019, a complaint was filed against Caesars and each member of the Caesars board of directors (the “Caesars Board”) in the United States District Court for the District of Delaware.
The lawsuit, captioned Stein v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-01656, alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and Rule 14a-9 promulgated thereunder, and 17 C.F.R. § 244.100, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with
the Merger. The complaint alleges, among other things, that Caesars violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger
by the Caesars Board; and (ii) certain financial information relating to the financial advisors’ analyses of the transaction. The plaintiff seeks (i) to enjoin the defendants from proceeding with,
consummating or closing the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in the complaint, (ii) if the Merger is consummated, rescission
of the Merger or rescissory damages and (iii) an accounting to plaintiff for all damages suffered as a result of defendants’ alleged wrongdoing. The plaintiff also seeks an award of costs and
disbursements incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
On September 9, 2019, a class action complaint was filed against Caesars, each member of the Caesars Board, Eldorado and Merger Sub in the United States District Court for the District of
Delaware. The lawsuit, captioned Palkon v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-01679, alleges violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9
promulgated thereunder, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleges, among other things, that
Caesars and/or Eldorado violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) certain financial
information relating to the financial advisors’ analyses of the transaction; and (iii) certain information regarding potential conflicts of interest of the financial advisor. The plaintiff seeks, among other
things, (i) to enjoin the defendants from proceeding with, consummating or closing the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in
the complaint and (ii) if the Merger is consummated, rescission of the Merger or rescissory damages suffered as a result of defendants’ alleged wrongdoing. The plaintiff also seeks an award of costs
incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
On September 11, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the District of New Jersey. The lawsuit, captioned
Romaniuk v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-17871, alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, against
the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleged, among other things, that Caesars violated the securities laws
by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) certain financial information relating to the financial advisors’
analyses of the transaction; and (iii) certain information regarding potential conflicts of interest of the financial advisor. The plaintiff sought (i) to enjoin the defendants from proceeding with,
consummating or closing the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in the complaint and (ii) if the Merger is consummated,
rescission of the Merger or rescissory damages. The plaintiff also sought an award of costs and expenses incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
On December 7, 2019, the Romaniuk complaint was voluntarily dismissed.
On September 12, 2019, a class action complaint was filed against Caesars, each member of the Caesars Board and Eldorado in the United States District Court for the District of Delaware. The
lawsuit, captioned Gershman v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-01720, alleges violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleges, among other things, that Caesars violated
the securities laws by failing to (i) disclose certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) disclose certain financial information relating to
the financial advisors’ analyses of the transaction; and (iii) obtain a proper valuation for Caesars. The plaintiff seeks (i) to enjoin the defendants from proceeding with filing an amendment to the
Eldorado S-4 (as defined below) and consummating the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in the complaint and (ii) if the
Merger is consummated, rescission of the Merger or rescissory damages. The plaintiff also seeks an award of costs and disbursements incurred in the action, including a reasonable allowance for
expert fees and attorneys’ fees.
38
On September 13, 2019, a class action complaint was filed against Caesars, each member of the Caesars Board and Eldorado in the Eighth Judicial District Court for Clark County, Nevada. The
lawsuit, captioned Cazer v. Caesars Entertainment Corp., et al., Civil Action No. A-19-801900-C, asserts claims for breach of fiduciary duties against the Caesars Board and aiding and abetting
breach of fiduciary duties against Caesars in connection with the Merger. The complaint alleges, among other things, that the members of the Caesars Board breached their fiduciary duties, and
Caesars aided and abetted such breaches of fiduciary duties, by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; and (ii)
certain financial information relating to the financial advisors’ analyses of the transaction. The plaintiff seeks (i) to compel the defendants to exercise their fiduciary duties to Caesars stockholders in
connection with the Merger in accordance with the information discussed in the complaint and (ii) an accounting to plaintiff for all damages suffered as a result of defendants’ alleged wrongdoing.
The plaintiff also seeks an award of costs and disbursements incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
Also on September 13, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the Southern District of New York. The lawsuit,
captioned Biasi v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-08547, alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder,
and 17 C.F.R. § 229.1015, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleged, among other things, that
Caesars violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) certain financial information
relating to the financial advisors’ analyses of the transaction; and (iii) certain information regarding potential conflicts of interest of the financial advisor. The plaintiff sought (i) to enjoin the
defendants from proceeding with the special meeting of Caesars’ stockholders to, among other things, adopt the Merger Agreement and consummating the Merger, unless and until Caesars discloses
to its stockholders the allegedly material information discussed in the complaint and (ii) an accounting to plaintiff for all damages suffered as a result of defendants’ alleged wrongdoing. The plaintiff
also sought an award of costs and expenses incurred in the action, including reasonable expert fees and attorneys’ fees. On November 15, 2019, the Biasi complaint was voluntarily dismissed.
On September 26, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the Southern District of New York. The lawsuit,
captioned Marathon Capital LLC v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-08971, alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9
promulgated thereunder, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleged, among other things, that
Caesars violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; and (ii) certain financial information
relating to the financial advisors’ analyses of the transaction. The plaintiff sought (i) to enjoin the defendants from proceeding with, consummating or closing the Merger, unless and until Caesars
discloses to its stockholders the allegedly material information discussed in the complaint and (ii) if the Merger is consummated, rescission of the Merger or rescissory damages. The plaintiff also
sought an award of costs and expenses incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees. On November 22, 2019, the Marathon Capital LLC complaint was
voluntarily dismissed.
On October 18, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the Southern District of New York. The lawsuit, captioned
Yarbrough v. Caesars Entertainment Corp., et al., Case No. 1:19-cv-09650 (S.D.N.Y.), alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder,
against the defendants for allegedly disseminating a false and misleading definitive registration statement in connection with the Merger. The complaint alleged, among other things, that Caesars
violated the securities laws by failing to disclose material information regarding: (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; and (ii)
certain financial information relating to the financial advisors’ analyses of the transaction. The plaintiff sought (i) to enjoin the shareholder vote on the Merger or consummation of the Merger; and
(ii) rescission of the Merger, to the extent it closes. The plaintiff also sought an award of costs and disbursements incurred in the action, including a reasonable allowance for expert fees and attorneys’
fees. On February 14, 2020, the Yarbrough compliant was voluntarily dismissed.
We believe the claims asserted in each of the above described complaints are without merit and intend to vigorously defend against them to the extent they have not already been dismissed. It is not
probable that litigation discussed above, to the extent it was not already dismissed as of December 31, 2019, will result in a material effect on our financial statements.
ITEM 4. Mine Safety Disclosures
Not applicable.
39
PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on The NASDAQ Stock Market under the ticker symbol “CZR.”
As of February 21, 2020, there were 682,268,726 shares of common stock issued and outstanding that were held by approximately 1,140 stockholders of record.
Except as described below, there have not been any sales by CEC of equity securities during the years ended December 31, 2019, 2018, or 2017 that have not been registered under the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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 the Company’s
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 year ended December 31, 2019, there
were no shares repurchased under the program. During the year ended December 31, 2018, we repurchased approximately 31 million shares for approximately $311 million under the program
recorded in Treasury stock. As of December 31, 2019, the maximum dollar value that may still be purchased under the program was $439 million.
Pursuant to the Merger Agreement, prior to the completion of the Merger or termination of the Merger Agreement, we may not, absent Eldorado’s prior written consent, repurchase shares of our
common stock (subject to limited exceptions related to stock options or settlement of other awards and the CEC Convertible Notes).
Performance Graph
The graph depicted below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Standard & Poor’s 500 Stock Index (“S&P 500”) and the
Dow Jones U.S. Gambling Total Stock Market Index (“Dow Jones U.S. Gambling”) for the period beginning on December 31, 2014 and ending on December 31, 2019. NASDAQ OMX furnished the
data. The performance graph assumes a $100 investment in our stock and each of the two indices, respectively, on December 31, 2014, and that all dividends were reinvested. Stock price
performance, presented for the period from December 31, 2014 to December 31, 2019, is not necessarily indicative of future results.
40
CZR
S&P 500 Index
Dow Jones U.S. Gambling
As of December 31,
2014
2015
2016
2017
2018
2019
$
100.00
$
50.29
$
54.17
$
80.62
$
43.28
$
100.00
100.00
101.38
83.32
113.51
105.68
138.29
158.5
132.23
111.73
86.68
173.86
162.28
The performance graph should not be deemed filed or incorporated by reference into any other of our filings under the Securities Act or the Exchange Act, unless we specifically incorporate the
performance graph by reference therein.
Equity Compensation Plan Information
We maintain a long-term incentive plan for management, other personnel, and key service providers. The plan allows for granting stock-based compensation awards, including time-based and
performance-based stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”), market-based stock units (“MSUs”), restricted stock awards, stock grants, or a combination of
awards. See Note 16 for a description of our stock-based compensation plan. The following table provides information relating to shares of our common stock that are authorized for issuance under
the Company’s equity compensation plan as of December 31, 2019.
Plan Category
Number of securities to be
issued upon exercise of
outstanding options, warrants and rights (1)
(a)
Weighted-average exercise
price of outstanding options, warrants and rights
(2)
(b)
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities reflected in column (a))
(c)
12,368,484
$
14.67
8,345,490
Includes (a) 2,147,750 shares of common stock issuable upon exercise of outstanding options with a weighted-average exercise price of $14.67, and (b) 10,220,734 unvested RSUs, PSUs, and MSUs.
RSUs, PSUs, and MSUs do not have an exercise price and therefore are not included in the calculation of the weighted-average exercise price.
Issuance of CEC Common Stock to Certain Creditors of the Debtors
Consideration to support the reorganization of CEOC that was provided by CEC as of the Effective Date included 268 million shares of CEC common stock (valued at $12.80 per share),
consideration provided by CEC to acquire OpCo on the Effective Date included 139 million shares of CEC common stock (valued at $12.80 per share), and CEC deposited approximately 8 million
shares of CEC common stock (valued at $12.80 per share) into an escrow account in order to satisfy obligations related to unresolved claims that are subject to the bankruptcy claims reconciliation
process to be distributed to unsecured claims (excluding debt claims) as they become allowed. These transactions were not registered under the Securities Act and are exempt from the registration
requirements of the Securities Act pursuant to Section 1145 of the Bankruptcy Reform Act of 1978 (the “Bankruptcy Code”). See Note 1 for additional information.
Transactions Related to our CEC Convertible Notes
On the Effective Date, CEC issued $1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 to the creditors of CEOC pursuant to the terms of the Plan. The CEC
Convertible Notes were issued pursuant to the indenture, dated as of October 6, 2017, between CEC and Delaware Trust Company, as trustee. On December 2, 2019, we paid $28 million to the
holders of the CEC Convertible Notes, whose consents were validly delivered and not validly revoked, to modify the CEC Convertible Notes. The consent fee is recognized as an additional discount
to our debt and will be amortized over the remaining life of the CEC Convertible Notes. The consent amended the indenture governing the CEC Convertible Notes to expressly permit the Merger and
the other transactions contemplated by the Merger Agreement. See Note 12 for additional information. As of December 31, 2019, an immaterial amount of the CEC Convertible Notes was converted
into shares of CEC common stock. The issuance of the CEC Convertible Notes and the CEC common stock issued upon conversion thereof were not registered under the Securities Act and are
exempt from the registration requirements of the Securities Act pursuant to Section 1145 of the Bankruptcy Code.
41
Equity compensation plans approved by security
holders
____________________
(1)
(2)
ITEM 6. Selected Financial Data
The following selected financial data should be read in conjunction with the consolidated financial statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” of this Form 10-K.
(In millions, except per share data)
OPERATING DATA
Net revenues
Impairment of goodwill
Impairment of tangible and other intangible assets
Income from operations
Interest expense (3)(4)
Gain on deconsolidation of subsidiaries
Restructuring and support expenses (5)
Loss on extinguishment of debt
Other income/(loss)
Income/(loss) from continuing operations, net of income taxes
Discontinued operations, net of income taxes (6)
Net income/(loss)
Net income/(loss) attributable to Caesars
COMMON STOCK DATA
Basic earnings/(loss) per share from:
Continuing operations
Discontinued operations (6)
Net income/(loss)
Diluted earnings/(loss) per share from:
Continuing operations (7)
Discontinued operations (6)
Net income/(loss) (7)
FINANCIAL POSITION DATA
Total assets
Current portion of long-term debt (4)
Long-term debt (4)
Current portion of financing obligations (3)
Financing obligations (3)
Noncontrolling interests
Stockholders’ equity/(deficit)
____________________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
2017 reflects the consolidation of CEOC’s successor operating company subsequent to the Effective Date.
2015 reflects the deconsolidation of CEOC.
See Note 10 related to financing obligations and related interest expense.
See Note 12 related to long-term debt and related interest expense.
Reflects financial support costs for the reorganization of CEOC.
Reflects the sale of CIE’s social and mobile games business (the “SMG Business”) on September 23, 2016.
See Note 14 for discussion regarding the correction of 2018 Diluted loss per share.
2019
2018
2017 (1)
2016
2015 (2)
$
8,742
$
8,391
$
4,868
$
3,877
$
27
441
618
43
35
739
(1,370)
(1,346)
—
—
—
(587)
(1,198)
—
(1,198)
(1,195)
(1.77)
$
—
(1.77)
$
(1.77)
$
—
(1.77)
$
—
—
(1)
791
304
—
304
303
0.44
$
—
0.44
$
(0.25)
$
—
(0.25)
$
—
—
537
(773)
31
(2,028)
(232)
95
(375)
—
(375)
(368)
(1.32)
$
—
(1.32)
$
(1.32)
$
—
(1.32)
$
—
—
226
(599)
—
(5,729)
—
(29)
(6,458)
3,380
(3,078)
(3,049)
(43.96)
$
23.11
(20.85)
$
(43.96)
$
23.11
(20.85)
$
25,345
$
25,775
$
25,436
$
14,936
$
64
8,478
21
10,070
80
2,131
164
8,801
20
10,057
88
3,250
64
8,849
9
9,355
71
3,226
89
6,749
—
—
53
(1,660)
$
$
$
$
$
42
3,957
—
—
318
(683)
7,125
(1,017)
—
7
5,856
155
6,011
6,012
40.44
1.07
41.51
39.83
1.06
40.89
12,251
187
6,777
—
—
80
1,962
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this filing, the name “CEC” refers to the parent holding company, Caesars Entertainment Corporation, exclusive of its consolidated subsidiaries and variable interest entities, unless otherwise
stated or the context otherwise requires. The words “Company,” “Caesars,” “Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, inclusive of its
consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires.
We also refer to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Operations and Consolidated Statements of Comprehensive
Income/(Loss) as our “Statements of Operations,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Statements of Cash
Flows.” References to numbered “Notes” refer to Notes to our Consolidated Financial Statements included in Item 8.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the audited consolidated financial statements and the notes thereto and other financial information
included elsewhere in this Form 10-K.
The statements in this discussion regarding our expectations of our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See Item
1A, “Risk Factors—PRIVATE SECURITIES LITIGATION REFORM ACT,” of this report.
Overview
CEC is primarily a holding company with no independent operations of its own. CEC operates its business primarily through its wholly owned subsidiaries CEOC, LLC (“CEOC LLC”) and Caesars
Resort Collection, LLC (“CRC”).
We lease certain real property assets from third parties, including VICI Properties Inc. and/or its subsidiaries (collectively, “VICI”).
We view each property as an operating segment and aggregate such 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 way in which Caesars management assesses results and allocates resources is aligned with these segments. See Part I, Item 2, “Properties” and Note 20.
Summary of Significant Events
The following are the significant events and drivers of performance. Accordingly, the remainder of the discussion and analysis of results in this Item 7 should be read in conjunction with this
summary.
Year Ended December 31, 2019
Proposed Merger of Caesars Entertainment Corporation with Eldorado Resorts, Inc.
On June 24, 2019, Caesars, Eldorado Resorts, Inc., a Nevada corporation (“Eldorado”), and Colt Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Eldorado (“Merger
Sub”), entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 15, 2019, and as it may be further amended from time
to time, the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Caesars (the “Merger”), with Caesars
continuing as the surviving corporation and a direct wholly owned subsidiary of Eldorado. On November 15, 2019, the respective stockholders of Caesars and Eldorado voted to approve the Merger.
The transaction is expected to close in the first half of 2020. In connection with the Merger, Eldorado will change its name to Caesars Entertainment, Inc. See Note 1.
The Merger may have significant effects on us, including, among others, the significant diversion of management and employee attention from ordinary course matters. For a more extensive
discussion of those and other possible effects, please refer to “Risk Factors” in Part I, Item 1A of this report.
Rio All-Suite Hotel & Casino Disposition
On September 20, 2019, Rio Properties, LLC, a subsidiary of CEC, entered into a Purchase and Sale Agreement and Joint Escrow Instructions for certain assets of Rio. During the quarter ended
September 30, 2019, we recorded an impairment charge of $380 million, which included $6 million related to selling costs, as the carrying value was higher than the fair value. On December 5, 2019,
the transaction was completed for a sales price of approximately $516 million. The sales price received includes $40 million in seller financing that we provided the buyer at a 9% interest rate, that is
due to us in two years unless extended for an additional
43
year. Interest may be paid monthly, or paid-in-kind at the option of the buyer. We received $470 million in cash proceeds, net of selling costs. In connection with the closing of the sale, we entered
into a lease and trademark license under which we will continue to operate the property under the Rio trademark for an initial term of two years at an annual rent amount of approximately $45
million. See Note 1.
Adoption of New Lease Accounting Standard
On January 1, 2019, we adopted the new accounting standard Accounting Standards Update 2016-02, Leases (Topic 842), and all related amendments. See Note 10 for additional information and
details on the effects of adopting the new standard.
Year Ended December 31, 2018
Failed Sale-Leaseback Financing Obligations
Our leases with VICI were evaluated as a sale-leaseback of real estate, and we determined that these transactions did not qualify for sale-leaseback accounting. The amount recognized for
depreciation expense and interest expense substantially exceeds our periodic rental payments, for most of our leases with VICI, as a result of the majority of the failed sale-leaseback obligations being
initially recognized at an amount equal to the fair value of the leased properties when one of our subsidiaries emerged from bankruptcy. The table below presents the activity for the periods.
(In millions)
Depreciation expense
Interest expense
Rental payments (1)
____________________
(1)
Reflects cash paid for interest and principal related to our failed sale-leaseback financing obligations.
2018 Transactions with VICI
Years Ended December 31,
2019
2018
$
$
473
898
812
490
878
725
On July 11, 2018, we sold Octavius Tower at Caesars Palace (“Octavius Tower”) to VICI for $508 million in cash. Proceeds from the transaction were used to partially fund the closing of CEC’s
acquisition of Centaur Holdings, LLC (“Centaur”). On December 26, 2018, we sold all land and real property improvements used in the operation of Harrah’s Philadelphia Casino and Racetrack
(“Harrah’s Philadelphia”) as part of a sale and leaseback transaction with VICI for $242 million. We continue to operate under the long-term lease agreement terms for both Octavius Tower and
Harrah’s Philadelphia.
These transactions did not qualify for sale-leaseback accounting, which resulted in the assets remaining on our Balance Sheet at their historical net book value and the assets being depreciated over
their remaining useful lives. A financing obligation was recognized for the proceeds received.
Additionally, on December 26, 2018, we consummated modifications to certain of our existing lease agreements with VICI for consideration of $159 million, which reduced the purchase price we
paid for Harrah’s Philadelphia and our financing obligation. The modifications, among other things, bring certain of the lease terms into alignment with other master leases in the sector and the long-
term performance of the properties and create additional flexibility to facilitate our future development strategies.
Acquisition of Centaur Holdings, LLC
On July 16, 2018, we completed the acquisition of Centaur. Centaur operated Hoosier Park Racing & Casino (“Hoosier Park”) in Anderson, Indiana, and Indiana Grand Racing & Casino (“Indiana
Grand”) in Shelbyville, Indiana. See Note 4 for additional information.
Share Repurchase Program
On May 2, 2018, the Company announced that our Board of Directors authorized a Share Repurchase Program ( ”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 year ended December 31, 2019, there were no
44
shares repurchased under the program. During the year ended December 31, 2018, we repurchased approximately 31 million shares for approximately $311 million under the program recorded in
Treasury stock.
Pursuant to the Merger Agreement, prior to the completion of the Merger or termination of the Merger Agreement, we may not, absent Eldorado’s prior written consent, repurchase shares of our
common stock (subject to limited exceptions related to stock options or settlement of other awards and the CEC Convertible Notes).
Year Ended December 31, 2017
CEOC’s Emergence from Bankruptcy and CEC’s Merger with Caesars Acquisition Company
CEOC and certain of its U.S. subsidiaries emerged from bankruptcy and consummated their reorganization pursuant to their third amended joint plan of reorganization (the “Plan”) on October 6,
2017 (the “Effective Date”). As part of its emergence from bankruptcy, CEOC reorganized into an operating company (“OpCo”) separate from its real property assets. OpCo was acquired by CEC on
the Effective Date and immediately merged with and into CEOC LLC. CEOC LLC operates the properties and facilities formerly held by CEOC and leases the properties and facilities from VICI,
which are accounted for as failed sale-leaseback transactions (see Failed Sale-Leaseback Financing Obligations above). As a result of CEC’s acquisition of the operating company and the subsequent
merger of the operating company with and into CEOC LLC, CEC’s consolidated financial results include the results of the operating company subsequent to the Effective Date. See Note 1. The
partial year impact in 2017 is summarized in the table below.
CEOC LLC Operating Results
(Dollars in millions)
Casino
Food and beverage
Rooms
Other revenue
Management fees
Reimbursed management costs
Net revenues
Income from operations
Interest expense
Restructuring and support expenses
Other income
Net loss, net of income taxes
Net loss attributable to Caesars
October 6, 2017 - December
31, 2017
$
$
$
628
173
118
47
15
48
1,029
52
(208)
(9)
2
(164)
(164)
On the Effective Date, Caesars Acquisition Company (“CAC”) merged with and into CEC, with CEC as the surviving company (the “CAC Merger”). The CAC Merger was accounted for as a
reorganization of entities under common control, which resulted in CAC being consolidated into Caesars at book value as an equity transaction for all periods presented.
Other Events and Transactions
On December 22, 2017, we sold the real estate assets of Harrah’s Las Vegas for approximately $1.1 billion as part of a sale and leaseback transaction with VICI.
2017 Debt Activity
During the year ended December 31, 2017, proceeds received from the issuance of new debt was $7.6 billion and cash paid to extinguish debt was $7.8 billion. In addition, as part of the acquisition of
OpCo, we assumed $1.2 billion in debt that was issued in connection with CEOC’s emergence from bankruptcy.
45
Horseshoe Baltimore Deconsolidation
As of August 31, 2017, Horseshoe Baltimore was deconsolidated and is accounted for as an equity method investment subsequent to the deconsolidation. Upon deconsolidation, we derecognized total
assets and liabilities of $350 million and $356 million, respectively, including long-term debt totaling $294 million. The equity method investment was recorded at its estimated fair value of $28
million, and we recognized a gain on deconsolidation of $31 million. See Note 2 for further details.
Horseshoe Baltimore Operating Results through August 31, 2017
(In millions)
Casino
Food and beverage
Other revenue
Net revenues
Income from operations
Interest expense
Loss on extinguishment of debt
Net loss
Net loss attributable to Caesars
2017
$
$
$
168
13
9
190
16
(18)
(12)
(14)
(7)
Discussion of Operating Results
Segment results in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented consistent with the way Caesars’ management assesses the Company’s
results and allocates resources, which is a consolidated view that adjusts for the effect of certain transactions related to reportable segments within Caesars. We view each property as an operating
segment and aggregate such properties into three regionally-focused reportable segments: (i) Las Vegas, (ii) Other U.S., and (iii) All Other. “All Other” includes managed, international and other
properties as well as parent and other adjustments to reconcile to consolidated Caesars results.
Analysis of Key Drivers of Consolidated Operating Results
The following represents the discussion and analysis of the results of operations and key metrics focusing on the key drivers of performance.
Consolidated Operating Results
(Dollars in millions)
Net revenues
Income from operations
Interest expense
Gain on deconsolidation of subsidiaries
Restructuring and support expenses
Loss on extinguishment of debt
Other income/(loss)
Net income/(loss)
Net income/(loss) attributable to Caesars
Adjusted EBITDA (1)
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
$
8,742
$
8,391
$
4,868
$
618
(1,370)
—
—
—
(587)
(1,198)
(1,195)
2,405
739
(1,346)
—
—
(1)
791
304
303
2,308
537
(773)
31
(2,028)
(232)
95
(375)
(368)
1,361
351
(121)
(24)
—
—
1
(1,378)
(1,502)
(1,498)
97
4.2 % $
(16.4)%
(1.8)%
*
*
100.0 %
*
*
*
4.2 %
3,523
202
(573)
(31)
2,028
231
696
679
671
947
Operating margin (2)
___________________
Not meaningful.
*
(1)
See the “Reconciliation of Non-GAAP Financial Measures” discussion later in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of Adjusted EBITDA.
(2) Operating margin is calculated as income from operations divided by net revenues.
(1.7) pts
11.0%
7.1%
8.8%
—
—
72.4 %
37.6 %
(74.1)%
(100.0)%
100.0 %
99.6 %
*
*
*
69.6 %
(2.2) pts
46
Analysis of Key Drivers of Revenue Performance
Our gaming-related revenues, rooms revenues, and operating performance are dependent upon the volume and spend behavior of customers at our resort properties, which affects the price we can
charge for our hotel rooms and other amenities, and directly affects our gaming volumes. Our food and beverage revenues are generated primarily from our buffets, restaurants, bars, nightclubs, and
lounges located throughout our casinos, as well as banquets and room service. Our other revenues are generated primarily from third-party real estate leasing arrangements at our properties, revenue
from company-operated retail stores, revenue from parking, revenue from our entertainment venues, including The High Roller observation wheel, and subsequent to the Effective Date, revenue
earned from our casino management service fees and reimbursed management costs charged to third parties.
Net Revenues - Consolidated
(Dollars in millions)
Casino
Food and beverage
Rooms
Other revenue
Management fees
Reimbursed management costs
Net revenues
___________________
Not meaningful.
*
Complimentaries
Years Ended December 31,
2019
2018
2017
4,448
$
4,247
$
2,168
$
1,618
1,581
824
59
212
1,574
1,519
789
60
202
982
1,074
584
12
48
8,742
$
8,391
$
4,868
$
$
$
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
201
44
62
35
(1)
10
351
4.7 % $
2,079
2.8 %
4.1 %
4.4 %
(1.7)%
5.0 %
592
445
205
48
154
4.2 % $
3,523
95.9%
60.3%
41.4%
35.1%
*
*
72.4%
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, Caesars Rewards (our customer loyalty program) Reward Credits can be redeemed for these services. 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. The table below represents the amounts recorded within
net revenues above relating to these complimentaries.
Retail Value of Complimentaries
(In millions)
Food and beverage
Rooms
Other
Total complimentaries
CEOC complimentaries (1)
Total complimentaries with CEOC
___________________
(1) Complimentaries recognized by CEOC prior to the Effective Date.
Net Revenues - Segment
(Dollars in millions)
Las Vegas
Other U.S.
All Other
Net revenues
Years Ended December 31,
2019
2018
2017
$
594
490
114
1,198
—
1,198
$
$
589
489
106
1,184
—
1,184
$
364
307
62
733
427
1,160
$
$
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
$
$
3,919
$
3,753
$
2,902
$
4,225
598
4,047
591
1,758
208
8,742
$
8,391
$
4,868
$
166
178
7
351
4.4% $
4.4%
1.2%
4.2% $
851
2,289
383
3,523
29.3%
130.2%
184.1%
72.4%
47
Cash ADR (1)
Years Ended December 31, 2017, 2018, and 2019
____________________
(1) Cash average daily rate (“cash ADR”) is a key indicator by which we evaluate the performance of our properties and is determined by rooms revenues and rooms occupied. 2017 excludes CEOC’s results prior to the Effective Date.
Year Ended December 31, 2019 versus 2018
Net revenue increased $351 million, or 4.2%, in 2019 compared with 2018 primarily due to the following:
•
•
•
•
•
Additional net revenue of $283 million associated with an extra six and a half months of operations in 2019 with the acquisition of Centaur on July 16, 2018.
Rooms revenues increased $62 million in 2019 compared with 2018 and Caesars cash ADR increased from $155 in 2018 to $158 in 2019, primarily due to an increase in occupancy rates and
higher resort fee revenue in the Las Vegas region.
Other revenue, excluding Centaur, increased $28 million in 2019 compared with 2018 primarily due to increases in parking, licensing, and commission revenues in 2019.
Food and beverage revenues, excluding Centaur, increased $26 million in 2019 compared with 2018 primarily due to higher occupancy rates, newly opened food and beverage outlets in
2019 and increased revenues from venues opened in 2018 in the Las Vegas region.
Offsetting the increases was a decline in Casino revenues, excluding Centaur, of $57 million in 2019 compared with 2018 primarily due to a decrease of $94 million in our Other U.S.
segment. The decrease was largely due to unfavorable hold and lower gaming volume from increased competition in Atlantic City, the closing of Tunica Roadhouse in January 2019, and
inclement weather across some of our properties, which resulted in prolonged closures at certain properties. An increase of $45 million in our Las Vegas segment from higher gaming
volumes and favorable hold offset the decline in our Other U.S. segment.
Year Ended December 31, 2018 versus 2017
Net revenue increased $3.5 billion, or 72.4%, in 2018 compared with 2017 primarily due to the consolidation of CEOC LLC’s results following the Effective Date, which contributed an incremental
$3.5 billion to net revenues, partially offset by a decrease of $190 million in net revenue due to the deconsolidation of Horseshoe Baltimore’s results subsequent to August 31, 2017. In addition to the
effect of CEOC LLC and Horseshoe Baltimore, net revenues increased $228 million primarily due to the following:
•
•
•
Casino revenues increased $178 million in 2018 compared with 2017 primarily due to the acquisition of Centaur, which contributed $209 million in the Other U.S. region. This was partially
offset by a decrease in the Las Vegas region primarily due to higher complimentaries.
Other revenue increased $39 million in 2018 compared with 2017 primarily due to increases in valet and self-parking revenues as well as increases in retail and lease revenues in the Las
Vegas region.
Rooms revenues increased $4 million in 2018 compared with 2017 and Caesars cash ADR increased from $145 in 2017 to $155 in 2018, primarily due to an increase in resort fee revenue in
the Las Vegas region.
48
Analysis of Key Drivers of Income from Operations Performance
Income from Operations by Category - Consolidated
(Dollars in millions)
Net revenues
Operating expenses
Casino
Food and beverage
Rooms
Property, general, administrative, and other
Reimbursable management costs
Depreciation and amortization
Impairment of goodwill
Impairment of tangible and other intangible assets
Corporate expense
Other operating costs
Total operating expenses
Income from operations
___________________
Not meaningful.
*
Income from Operations - Segment
(Dollars in millions)
Las Vegas
Other U.S.
All Other
Income from operations
Year Ended December 31, 2019 versus 2018
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
$
8,742
$
8,391
$
4,868
$
351
4.2 % $
3,523
72.4 %
2,511
1,113
486
1,882
212
1,021
27
441
295
136
8,124
2,380
1,092
472
1,796
202
1,145
43
35
332
155
7,652
1,202
682
353
1,153
48
626
—
—
202
65
4,331
618
$
739 $
537
$
(131)
(21)
(14)
(86)
(10)
124
16
(406)
37
19
(472)
(121)
(5.5)%
(1.9)%
(3.0)%
(4.8)%
(5.0)%
10.8 %
37.2 %
*
11.1 %
12.3 %
(6.2)%
(16.4)% $
(1,178)
(410)
(119)
(643)
(154)
(519)
(43)
(35)
(130)
(90)
(3,321)
202
(98.0)%
(60.1)%
(33.7)%
(55.8)%
*
(82.9)%
*
*
(64.4)%
(138.5)%
(76.7)%
37.6 %
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
560
525
(467)
$
716 $
434
(411)
$
549
199
(211)
618
$
739 $
537
$
(156)
91
(56)
(121)
(21.8)% $
21.0 %
(13.6)%
(16.4)% $
167
235
(200)
202
30.4 %
118.1 %
(94.8)%
37.6 %
$
$
$
Income from operations decreased $121 million, or 16.4%, in 2019 compared with 2018 due to an increase in net revenues of $351 million as explained above and offset by an increase in operating
expenses of $472 million in 2019 compared with 2018 primarily due to the following:
•
•
•
•
•
•
Impairment of tangible and other intangible assets increased by $406 million due to impairment charges in 2019 related to land and buildings at Rio, as well as gaming rights at Horseshoe
Hammond and our CEUK properties.
Higher operating expenses of $223 million resulting from our acquisition of Centaur in 2018.
Property, general, administrative, and other increased by $47 million, excluding Centaur, in 2019 due to higher costs in support of our technology infrastructure and expenses related to our
sports partnerships.
The increases were partially offset by a decrease of $151 million of Depreciation and amortization, excluding Centaur, primarily due to disposals of property and equipment related to
renovation projects and accelerated depreciation of assets revalued on the Effective Date, which were recorded in 2018.
The increases were also partially offset by a decrease of $20 million, excluding Centaur, in Other operating costs primarily as a result of nonrecurring contract termination fees and
acquisition costs in 2018.
Corporate expense decreased by $37 million in 2019 primarily due to a decrease in consulting fees for 2018 projects, corporate payroll and retention bonus expenses.
49
Year Ended December 31, 2018 versus 2017
Income from operations increased $202 million, or 37.6%, in 2018 compared with 2017 primarily due to the consolidation of CEOC LLC’s results following the Effective Date, which contributed an
incremental $219 million to income from operations, partially offset by a decrease of $16 million in income from operations due to the deconsolidation of Horseshoe Baltimore’s results subsequent to
August 31, 2017. In addition to the effect of CEOC LLC and Horseshoe Baltimore, income from operations decreased $1 million primarily due to the following:
•
•
Net revenues increased $228 million in 2018 compared with 2017 as explained above.
This increase was offset by an increase in operating expenses of $229 million in 2018 compared with 2017 primarily due to the acquisition of Centaur which contributed $177 million to the
increase. In addition to the effect of Centaur, operating expenses increased $52 million due to the following:
◦
◦
◦
Other operating costs increased $54 million primarily due to $20 million related to lease termination costs, a $10 million loss on asset sales in 2018, and $8 million in acquisition
costs for Centaur. In addition, during 2017, CEC benefitted from the reimbursement of $19 million for amounts related to the Korea joint venture development that were previously
written off. These were partially offset by a decrease in legal fees of $10 million in 2018 compared with 2017.
Depreciation and amortization increased $23 million primarily due to significant additions to property and equipment that began depreciating upon the completion of major
renovation projects at certain Las Vegas properties in 2018.
These increases were partially offset by a decrease of $36 million in direct expenses primarily due to operating efficiencies driven by lower marketing and labor costs.
Other Factors that Affect Net Income/(Loss)
Other Factors Affecting Net Income/(Loss) - Consolidated
(Dollars in millions)
Interest expense
Gain on deconsolidation of subsidiaries
Restructuring and support expenses
Loss on extinguishment of debt
Other income/(loss)
Income tax benefit
___________________
*
Not meaningful.
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
$
(1,370)
$
(1,346)
$
(773)
$
—
—
—
(587)
141
31
(2,028)
(232)
95
1,995
—
—
(1)
791
121
50
(24)
—
—
1
(1,378)
20
(1.8)% $
*
*
100.0 %
*
16.5 %
(573)
(31)
2,028
231
696
(1,874)
(74.1)%
(100.0)%
100.0 %
99.6 %
*
(93.9)%
Interest Expense
(Dollars in millions)
Failed sale-leasebacks
CEOC LLC Term Loan
Golf Course Use Agreement
Chester Downs Senior Secured Notes
Horseshoe Baltimore
CRC Term Loan
CRC Notes
CEC Convertible Notes
Other interest expense (1)
Total interest expense
___________________
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
2018 vs. 2017
Fav/(Unfav)
$
898
$
878 $
187
$
63
13
—
—
250
93
54
(1)
65
11
—
—
232
92
53
15
12
2
6
18
199
309
13
27
$
1,370
$
1,346
$
773
$
(20)
2
(2)
—
—
(18)
(1)
(1)
16
(24)
(2.3)% $
3.1 %
(18.2)%
*
*
(7.8)%
(1.1)%
(1.9)%
*
(1.8)% $
(691)
(53)
(9)
6
18
(33)
217
(40)
12
(573)
*
*
*
100.0 %
100.0 %
(16.6)%
70.2 %
*
44.4 %
(74.1)%
*
(1)
Not meaningful.
Includes the effect of capitalized interest of $29 million, $8 million, and $6 million for the years ended December 31, 2019, 2018, and 2017, respectively. Significant projects in 2019 primarily related to the construction of the Forum
Convention Center and the Southern Indiana land-based Casino project.
Interest expense increased $24 million, or 1.8%, in 2019 compared with 2018 primarily due to the following:
•
•
•
Failed sale-leaseback interest expense increased $20 million primarily as a result of the failed sale-leaseback financing obligations established for Octavius Tower at Caesars Palace and
Harrah’s Philadelphia Casino and Racetrack, which were sold to VICI in the second half of 2018.
Increase in the floating one-month London Interbank Offered Rate (“LIBOR”) and additional interest rate swaps becoming effective in 2019 contributed to the CRC Term Loan interest
expense increase of $18 million.
The increases in interest expense were partially offset by an increase in capitalized interest of $21 million related to construction of the Forum Convention Center and the Caesars Southern
Indiana land-based casino project in 2019.
Interest expense increased $573 million, or 74.1% in 2018 compared with 2017 primarily due to the consolidation of CEOC LLC’s results following the Effective Date. CEOC LLC contributed $658
million to the increase in interest expense as a result of (i) a $602 million increase in interest expense related to CEOC LLC’s lease agreements with VICI that are accounted for as failed sale-
leaseback financing obligations, (ii) a $53 million increase in interest expense recognized for the CEOC LLC Term Loan and (iii) a $9 million increase in interest expense related to the Golf Course
Use Agreement (as described in Note 11), and (iv) offset by non-recurring interest expense of $6 million in the prior year for the Chester Downs Senior Secured Notes. The increase was partially
offset by an $18 million decrease in interest expense related to the Horseshoe Baltimore debt resulting from the deconsolidation of Horseshoe Baltimore in August 2017. In addition to the effect of
CEOC LLC and Horseshoe Baltimore, interest expense decreased by $67 million primarily due to the following:
•
•
A $184 million decrease in interest expense resulting from lower interest rates due to the refinancing of debt as well as repayment of loans in 2017 and a $12 million decrease in other
interest expense.
These decreases were partially offset by an increase of $75 million in interest expense related to the Harrah’s Las Vegas lease agreement with VICI and $14 million of interest expense for
Octavius Tower related to CEOC LLC’s lease agreements with VICI, which are accounted for as failed sale-leaseback financing obligations, and $40 million in interest expense recognized
for the $1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 (the “CEC Convertible Notes”), which were not outstanding until the fourth quarter
of 2017.
Gain on Deconsolidation of Subsidiaries
As described in Note 2, we deconsolidated Horseshoe Baltimore in 2017 and recognized a gain of $31 million.
Restructuring and Support Expenses
As described in Note 1, we recognized certain obligations that were ultimately settled upon CEOC’s emergence from bankruptcy on the Effective Date. Restructuring and support expenses for the
year ended December 31, 2017 was $2.0 billion. This was primarily composed of accruals for (i) forbearance fees and other payments to CEOC’s creditors that were settled in cash, (ii) a bank
guaranty settlement related to the modification of CEC’s guarantee under CEOC’s senior secured credit facilities that was
51
settled in cash, (iii) payments of CEOC’s creditors’ expenses, settlement charges, and other fees that were settled in cash, (iv) the issuance of CEC common stock, (v) the issuance of the CEC
Convertible Notes (see Note 8 and Note 12), and (vi) the VICI Call Right to purchase and leaseback the real property assets associated with three of our properties as other consideration (see Note 9).
A portion of the obligations we recognized reflected our estimates of the fair value of the consideration CEC agreed to provide in exchange for the resolution of litigation claims and potential claims
against CEC and its affiliates.
Loss on Extinguishment of Debt
We recognized losses on extinguishment of debt totaling $232 million in 2017 relating to early debt redemption charges as well as the write-off of debt discounts and deferred financing costs
associated with the extinguishment of the outstanding debt of Caesars Growth Properties Holdings, LLC and Caesars Entertainment Resort Properties, LLC in conjunction with the refinancing during
the year.
Other Income/(Loss)
Other loss in 2019 primarily relates to a loss of $620 million due to a change in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes which was primarily
driven by the increase in the share price of our common stock. The change was partially offset by proceeds from a legal settlement of $14 million and dividend and interest income of $17 million
related to our investments.
Other income in 2018 primarily relates to a gain of $697 million due to a change in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes and a gain of
$24 million due to a change in the fair value of the disputed claims liability related to the CEC Convertible Notes and CEC common stock estimated to be used to settle those claims. In 2018, we also
recorded a gain of $31 million for claims that were expunged (see Note 8 for further details), recognized dividend and interest income of $21 million, and recognized $19 million in income related to
an adjustment to our pension obligation for employees of our London Clubs International subsidiary (see Note 17 for further details).
Other income in 2017 primarily relates to a gain of $64 million due to a change in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes (see Note 8 for
further details), a $17 million gain for an interest swap payment CEC made on behalf of CEOC that was recovered with interest, and $14 million for interest income earned on the proceeds from the
sale of the SMG Business.
Income Tax Benefit
The effective tax rate was 10.6% for 2019, negative 66.1% for 2018, and 84.2% for 2017. The effective tax rate in 2019 differed from the statutory rate of 21% primarily due to an increase in federal
valuation allowance from losses not tax benefitted, nondeductible stock-based compensation expense, nondeductible fines, and nondeductible impairment of goodwill. The effective tax rate in 2018
differed from the statutory rate of 21% primarily due to 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 (defined below) offset by state income taxes and nondeductible expenses. The effective tax rate in 2017 differed
from the statutory rate of 35% primarily due to nondeductible restructuring expenses, the acquisition of OpCo and the Tax Act passed in 2017.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex
changes to the U.S. tax code that affected our year ended December 31, 2017, including, but not limited to (i) reducing the U.S. federal corporate tax rate, (ii) changing rules related to uses and
limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, (iii) bonus depreciation that will allow for full expensing of qualified property, (iv) generally
eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (v) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings accumulated post
1986 through 2017 that were previously deferred from U.S. income taxes, and (vi) a tax on Global Intangible Low-Taxed Income which imposes taxes on foreign income in excess of a deemed return
on tangible assets of foreign corporations.
As of December 31, 2018, the Company completed the accounting for the tax effects of the Tax Act. In 2017, the Company 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 was
(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 were 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 year ended December 31, 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
52
benefit is (i) $710 million related to the net deferred tax benefit of the corporate rate reduction, (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.
Reconciliation of Non-GAAP Financial Measures
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) is presented as a measure of the Company’s performance. Adjusted EBITDA is defined as revenues less operating
expenses and is comprised of net income/(loss) before (i) interest expense, net of interest capitalized and interest income, (ii) income tax (benefit)/provision, (iii) depreciation and amortization, and
(iv) certain items that we do not consider indicative of its ongoing operating performance at an operating property level. Included in Adjusted EBITDA is property rent expense of $12 million for the
year ended December 31, 2019, related to certain land parcels leased from VICI.
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 generally accepted accounting principles, “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.
Reconciliation of Adjusted EBITDA
(In millions)
Net income/(loss) attributable to Caesars
Net income/(loss) attributable to noncontrolling interests
Income tax benefit
Gain on deconsolidation of subsidiaries
Restructuring and support expenses
Loss on extinguishment of debt
Other (income)/loss (1)
Interest expense
Depreciation and amortization
Impairment of goodwill
Impairment of tangible and other intangible assets
Other operating costs (2)
Stock-based compensation expense
Other items (3)
Adjusted EBITDA
Years Ended December 31,
2019
2018
2017
$
(1,195)
$
303
$
(3)
(141)
—
—
—
587
1,370
1,021
27
441
136
88
74
$
2,405
$
1
(121)
—
—
1
(791)
1,346
1,145
43
35
155
79
112
2,308
$
(368)
(7)
(1,995)
(31)
2,028
232
(95)
773
626
—
—
65
43
90
1,361
____________________
(1)
(2)
Amounts include changes in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes and the disputed claims liability as well as interest and dividend income.
Amounts primarily represent costs incurred in connection with development activities and reorganization activities, and/or recoveries associated with such items, including acquisition and integration costs, contract exit fees (including exiting
the fully bundled sales system of NV Energy for electric service at our Nevada properties), lease termination costs, regulatory settlements, weather related property closure costs, severance costs, gains and losses on asset sales, demolition
costs, and project opening costs.
Amounts include other add-backs and deductions to arrive at Adjusted EBITDA but not separately identified such as professional and consulting services, sign-on and retention bonuses, business optimization expenses and transformation
expenses, litigation awards and settlements, permit remediation costs, and costs associated with CEOC’s restructuring and related litigation.
(3)
53
Segment Adjusted EBITDA (1)
(Dollars in millions)
Las Vegas
Other U.S.
All Other
Adjusted EBITDA
Years Ended December 31,
2019
2018
2017
2019 vs. 2018
Fav/(Unfav)
$
$
1,468
$
1,362
$
1,007
$
1,052
(115)
1,014
(68)
398
(44)
2,405
$
2,308
$
1,361
$
106
38
(47)
97
7.8 % $
3.7 %
(69.1)%
4.2 % $
2018 vs. 2017
Fav/(Unfav)
355
616
(24)
947
35.3 %
154.8 %
(54.5)%
69.6 %
___________________
(1)
See reconciliation of Net income/(loss) attributable to Caesars to Adjusted EBITDA by segment in Note 20.
Liquidity and Capital Resources
Liquidity Discussion and Analysis
CEC has no requirement to fund the operations of CRC, CEOC LLC, or their subsidiaries; however, the payment of all monetary obligations under CEOC LLC’s leases with VICI is guaranteed by
CEC and the payment of all monetary obligations under the Harrah’s Las Vegas lease is guaranteed by CRC. CEC cash outflows are primarily used for corporate development opportunities, other
corporate-level activity, litigation, and discretionary investments into our subsidiaries. In addition, because CEC has no operations of its own and due to the restrictions under its subsidiaries’ lending
arrangements, CEC has limited ability to raise additional capital.
Cash and cash equivalents as of December 31, 2019, as shown in the table below, includes amounts held by CRC and CEOC LLC, which are not readily available to CEC. Other primarily includes
$102 million in cash at CEC (the parent holding company), $125 million related to insurance captives, and $62 million related to the casino resort project in Incheon, South Korea (see Note 2).
Summary of Cash and Revolver Capacity
(In millions)
Cash and cash equivalents
Revolver capacity
Revolver capacity committed to letters of credit
Total
December 31, 2019
CRC
CEOC LLC
Other
Caesars
$
$
960
$
1,000
(25)
1,935
$
$
434
200
(39)
595
$
361
$
—
—
361
$
1,755
1,200
(64)
2,891
CRC and CEOC LLC’s sources of liquidity are independent of one another and primarily include currently available cash and cash equivalents, cash flows generated from their operations, and
borrowings under their separate revolving credit facilities (see Note 12). Operating cash inflows are typically used for operating expenses, debt service costs, lease payments and working capital
needs. CRC and CEOC LLC are highly leveraged, and a significant portion of their liquidity needs are for debt service and financing obligations, as summarized below.
During the year ended December 31, 2019, our operating activities yielded consolidated operating cash inflows of $1.0 billion, which is an increase of $221 million from the year ended
December 31, 2018 primarily due to an increase in net revenues of $351 million offset by an increase in direct expenses of $166 million. We believe that our cash flows from operations are sufficient
to cover planned capital expenditures for ongoing property renovations and our total estimated financing activities during the next 12 months. In addition, restrictions under our lending arrangements
generally prevent the distribution of cash from our subsidiaries to CEC, except for certain restricted payments. We were required to contribute to an FF&E reserve under terms of, and defined by, our
lease agreement until December 2019, at which time approximately $43 million was returned to us as unrestricted cash.
In 2019, we paid $1.3 billion in interest, which includes $459 million of interest associated with our debt and $800 million of interest related to our financing obligations and Golf Course Use
Agreement. Our capital expenditures were $829 million during 2019 in support of our ongoing property renovations and development projects, see “Capital Spending and Development” section
below.
On September 13, 2019, we made a voluntary payment of $250 million toward the outstanding principal balance of our CEOC LLC Term Loan.
54
On December 2, 2019 we paid a consent fee of approximately $28 million to holders of the CEC Convertible Notes, whose consents were validly delivered and not validly revoked. The consent
amended the indenture governing the CEC Convertible Notes to expressly permit the Merger and the other transactions contemplated by the Merger Agreement.
On December 5, 2019, the sale of certain assets of Rio was completed for a sales price of approximately $516 million. The sales price received included $40 million in seller financing that we
provided the buyer at a 9% interest rate, that is due to us in two years unless extended for an additional year. Interest may be paid monthly, or paid-in-kind at the option of the buyer. We received $470
million in cash proceeds, net of selling costs. In connection with the closing of the sale, we entered into a lease under which we will continue to operate the property for an initial term of two years at
an annual rent amount of approximately $45 million.
Our ability to fund operations, pay debt and financing obligations, and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and
disruptions in capital markets and restrictive covenants related to our existing debt could impact our ability to fund liquidity needs, pay indebtedness and financing obligations, and secure additional
funds through financing activities.
The foregoing liquidity discussions are forward-looking statements based on assumptions as of the date of this filing that may or may not prove to be correct. Actual results may differ materially from
our present expectations. Factors that may cause actual results to differ materially from present expectations include, without limitation, the positive or negative changes in the operational and other
matters assumed in preparing our forecasts.
Debt and Lease-Related Obligations
As noted above, we are a highly-leveraged company and had $8.7 billion in face value of debt outstanding and $10.1 billion of failed sale-leaseback financing obligations as of December 31, 2019.
As a result, a significant portion of our liquidity needs are for debt service, including significant interest and principal payments associated with our financing obligations. As detailed in the table
below, our estimated debt service (including principal and interest) is $494 million for 2020 and $10.3 billion thereafter to maturity and our estimated financing obligations are $733 million for 2020
and $36.5 billion thereafter to maturity.
Financing Activities as of December 31, 2019
(In millions)
Annual maturities of long-term debt
Estimated interest payments
Total debt service payments (1)
Financing obligations - principal
Financing obligations - interest
Total financing obligation payments (2)
Total financing activities
Years Ended December 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
$
64
$
64
$
64
$
64
$
6,666
$
1,743
$
430
494
21
712
733
410
474
26
787
813
400
464
29
799
828
390
454
33
814
847
380
7,046
37
830
867
100
1,843
8,468
24,683
33,151
1,227
$
1,287
$
1,292
$
1,301
$
7,913
$
34,994
$
8,665
2,110
10,775
8,614
28,625
37,239
48,014
____________________
(1) Debt principal payments are estimated amounts based on maturity dates and borrowings under our revolving credit facility, if any. Interest payments are estimated based on the forward-looking London Interbank Offered Rate (“LIBOR”) curve
(2)
and include the estimated impact of the ten interest rate swap agreements (see Note 12). Actual payments may differ from these estimates.
Financing obligation principal and interest payments are estimated amounts based on the future minimum lease payments and certain estimates based on contingent rental payments (as described below under Lease-Related Obligations).
Actual payments may differ from the estimates.
Debt Activity
See Note 12 for cash paid to extinguish debt, as well as a table presenting details on our individual borrowings outstanding, interest rates and restrictive covenants related to certain of our
borrowings as of December 31, 2019 and 2018. See Note 8 for details regarding our use of interest rate swap derivatives to manage the mix of our debt between fixed and variable rate instruments.
We are party to a joint venture referred to as the Korea JV that we consolidate into our financial statements. The purpose of the Korea JV is to develop, acquire, own and operate a resort casino in
Incheon, South Korea. To finance construction of the project, the Korea JV may incur debt to supplement the equity capital contributed by us and our joint venture partner. This debt will, when
incurred, be included on our Balance Sheets, but will have no associated net income impact until the project is completed. See Note 2.
55
Lease-Related Obligations
As described in Note 10, we have entered into various leases for our properties with VICI. During 2018, we received a net amount of $591 million related to our transactions with VICI and proceeds
from the transactions were used to partially fund the closing of CEC’s acquisition of Centaur (see Note 1). On the Effective Date, in accordance with the Plan, VICI received a call right (the “VICI
Call Right”) for up to five years to purchase and leaseback the real property assets associated with Harrah’s Atlantic City, Harrah’s Laughlin, and Harrah’s New Orleans for a cash purchase price of
ten times the agreed upon annual rent for each property. The VICI Call Right is subject to the terms of the CRC Credit Agreement (see Note 9 and Note 12).
Each lease agreement provides for fixed rent (subject to escalation) during an initial period, then rent consisting of both base rent and variable rent elements, and has a 15-year initial term and four
five-year renewal options. We assume the renewal is probable and include renewal commitments in the estimated financing obligations in the table above. In addition, the future lease payment
amounts included in the table above represent the contractual lease payments adjusted for estimated escalations, as determined by the underlying lease agreements. The estimates are based on the
terms and conditions known at the inception of the leases. However, a portion of the actual payments will be determined in the period in which they are due, and therefore, actual lease payments may
differ from our estimates.
CEC determined that these transactions do not qualify for sale-leaseback accounting based on the terms of the lease agreements; therefore, the Company will be accounting for these transactions as a
financing. We do not recognize lease expense related to the leases, but we have recorded a liability for the financing obligations and the majority of the periodic lease payments are recognized as
interest expense. In the initial periods, cash payments are less than the interest expense recognized in the Statements of Operations, which causes the related sale-leaseback liability to increase during
the beginning of the lease term.
Capital Spending and Development
We incur capital expenditures in the normal course of business, and we perform ongoing refurbishment and maintenance at our properties to maintain our quality standards. We also continue to
pursue development and acquisition opportunities for additional casino entertainment and other hospitality facilities, and online businesses that meet our strategic and return on investment criteria.
Cash used for capital expenditures in the normal course of business is typically made available from cash flows generated by our operating activities and established debt programs, while cash used
for development projects is typically funded from our established debt programs, specific project financing, and additional debt offerings.
Under our lease agreements with VICI, we are required to spend certain minimum amounts on capital expenditures. Our capital expenditure projection excludes expenditures related to the Korea
Joint Venture due to the uncertainty and status of the project in 2020. See Note 2 for further discussion of the Korea Joint Venture.
Summary of Consolidated Capital Expenditures
(In millions)
Maintenance
Development
Total capital expenditures
Included in capital expenditures:
Capitalized payroll costs
Capitalized interest
Years Ended December 31,
Increase/(Decrease)
2019
2018
2017
2019 vs. 2018
2018 vs. 2017
$
$
$
556
273
829
$
$
$
11
29
419
146
565
$
$
597
$
1
598
$
137
127
264
$
$
(178)
145
(33)
$
9
8
4
6
During the year ended December 31, 2019, capital expenditures were primarily related to hotel renovation projects at Caesars Southern Indiana, Harrah’s Atlantic City, Harrah’s Las Vegas, and Paris
Las Vegas, and a new convention center in Las Vegas (“CAESARS FORUM”). During the year ended December 31, 2018, capital expenditures were primarily related to hotel renovation projects at
Flamingo Las Vegas, Bally’s Las Vegas, Harrah’s Atlantic City, and Paris Las Vegas, construction of the Fly LINQ Zipline, and the development of a casino resort project in Incheon, South Korea and
CAESARS FORUM. During the year ended December 31, 2017, capital expenditures were primarily related to hotel renovation projects at Caesars Palace, Bally’s Las Vegas, Planet Hollywood,
Flamingo Las Vegas and Harrah’s Las Vegas.
Cash paid for capital expenditures was $829 million during 2019. Our projected capital expenditures for 2020 range from $655 million to $735 million. We expect to fund capital expenditures from
cash flows generated by operating activities.
56
Our projected maintenance capital expenditures for 2020 range from $460 million to $510 million and include estimates for:
•
•
Hotel remodeling projects at Caesars Palace Las Vegas, Flamingo Las Vegas, Harrah’s Atlantic City, Harrah’s Las Vegas, Harveys Lake Tahoe, and Horseshoe Bossier City; and
Information technology, marketing, analytics, accounting, payroll, and other projects that benefit the operating structures.
Our projected development capital expenditures for 2020 range from $195 million to $225 million and are primarily related to the development of CAESARS FORUM, Sportsbooks in various states,
and the expansion of table games within our Hoosier Park and Indiana Grand properties.
Our planned development projects, if they proceed, will require significant capital commitments, individually and in the aggregate, and, if completed, may result in significant additional revenues.
The commitment of capital, the timing of completion, and the commencement of operations of development projects are contingent upon, among other things, negotiation of final agreements and
receipt of approvals from the appropriate political and regulatory bodies. We must also comply with covenants and restrictions set forth in our debt agreements.
There are various risks and uncertainties and the expected capital expenditures set forth above may change for various reasons, including our financial performance and market conditions.
We are considering divestiture opportunities of non-strategic assets and properties. If the completion of a sale is more likely than not to occur, we may recognize impairment charges for certain of our
properties to the extent current expected proceeds are below our carrying value and such impairments may be material.
Related Party Transactions
For a description of the nature and extent of related party transactions, see Note 19.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with GAAP. In preparing our financial statements, we have made our best estimates and judgments of the amounts and disclosures included in the
financial statements, giving regard to materiality. When more than one accounting principle, or method of its application, is generally accepted, we select the principle or method that we consider to
be the most appropriate under specific circumstances. Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties. Certain of our
accounting policies, including the estimated lives assigned to our assets, the determination of bad debt, asset impairments, the fair value of derivative instruments, self-insurance reserves, the purchase
price allocations made in connection with our acquisitions/mergers, the calculation of our income tax liabilities, and the determination of whether to consolidate a variable interest entity require that
we apply significant judgment in defining the appropriate assumptions for calculating financial estimates.
We consider accounting estimates to be critical accounting policies when:
•
•
the estimates involve matters that are highly uncertain at the time the accounting estimate is made; and
different estimates or changes to estimates could have a material impact on the reported financial position, changes in financial position, or results of operations.
By their nature, these judgments and estimates are subject to an inherent degree of uncertainty. Our judgments and estimates are based on our historical experience, terms of existing contracts,
observance of trends in the industry, information gathered from customer behavior, and information available from other outside sources, as appropriate. Due to the inherent uncertainty involving
judgments and estimates, actual results may differ from those estimates.
Long-Lived Assets
We have significant capital invested in our long-lived assets, and judgments are made in determining the estimated useful lives of assets, salvage values to be assigned to assets, and if or when an
asset has been impaired. The accuracy of these estimates affects the amount of depreciation and amortization expense recognized in our financial results and whether we have a gain or loss on the
disposal of an asset. We assign lives to our assets based on our standard policy, which is established by management as representative of the useful life of each category of asset. We review the
carrying value of our long-lived assets whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result
from its use and eventual disposition. The factors considered by management in performing this assessment include current
57
operating results, trends and prospects, planned construction and renovation projects, as well as the effect of obsolescence, demand, competition, and other economic, legal, and regulatory factors. In
estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the lowest level of identifiable cash flows, which, for most of our assets, is the individual
property. See Note 6 for additional information.
Goodwill and Other Non-Amortizing Intangible Assets
The evaluation of goodwill and other non-amortizing intangible assets requires the use of estimates about future revenues and EBITDA, valuation multiples, and discount rates to determine their
estimated fair value. Our future revenues and EBITDA assumptions are determined based upon actual results giving effect to expected changes in operating results in future years. Estimates are made
at the lowest level of identifiable cash flows which, for most of our assets, is the individual property. Our valuation multiples and discount rates are based upon market participant assumptions using a
defined gaming peer group. Changes in these assumptions can materially affect these estimates. Thus, to the extent the gaming volumes deteriorate in the near future, discount rates increase
significantly, or we do not meet our projected performance, we could recognize impairments, and such impairments could be material. This is especially true for any of our properties where goodwill
and other non-amortizing intangible assets have been partially impaired as a result of a recent impairment analysis, and for our Las Vegas properties, which comprise a significant portion of our
remaining goodwill balance.
As of December 31, 2019, we had approximately $4.0 billion in goodwill and $2.6 billion of other non-amortizing intangible assets. During 2019, as a result of declines in recent performance,
downgraded expectations for future cash flows and increased competition, we recognized impairment charges related to goodwill of $27 million and $11 million related to gaming rights in a reporting
unit within our Other U.S. segment. Additionally, we recognized impairment charges related to gaming rights of $50 million in a reporting unit within our All Other segment.
Goodwill associated with one of our properties in the Other U.S. segment was $139 million as of December 31, 2019. The fair value of the reporting unit exceeded the carrying value. The estimated
fair value of the reporting unit exceeded its carrying value by a margin of approximately 13%. To the extent gaming volumes deteriorate in the near future, discount rates increase significantly, or we
do not meet our projected performance, we may recognize further impairments, and such impairments could be material to our performance.
Goodwill associated with our UK reporting units in the All Other segment was $27 million as of December 31, 2019. The fair value of these reporting units exceeded their carrying value. The
estimated fair value of the reporting units exceeded their carrying value by a margin of approximately 9%. To the extent gaming volumes deteriorate in the near future, discount rates increase
significantly, or we do not meet our projected performance, we may recognize further impairments, and such impairments could be material to our performance. See Note 7 for additional information.
Allowance for Doubtful Accounts - Gaming
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. As of
December 31, 2019, a 5% increase or decrease to the allowance determined based on a percentage of aged receivables would change the reserve by approximately $13 million.
Self-Insurance Accruals
We are self-insured for workers’ compensation and other risk products through our captive insurance subsidiaries. Our insurance claims and reserves include accruals of estimated settlements for
known claims, as well as accruals of actuarial estimates of incurred but not reported claims. In estimating these reserves, historical loss experience and judgments about the expected levels of costs
per claim are considered. We also utilize consultants to assist in the determination of certain estimated accruals. These claims are accounted for based on actuarial estimates of the undiscounted
claims, including those claims incurred but not reported. We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly
judgmental accruals; however, changes in health care costs, accident frequency and severity, and other factors can materially affect the estimates for these liabilities. We regularly monitor the
potential for changes in estimates, evaluate our insurance accruals, and adjust our recorded provisions.
Fair Value Measurements
The CEC Convertible Notes contain derivative features that require bifurcation. We estimate the fair value of the CEC Convertible Notes using a market-based approach that incorporates the value of
both straight debt and conversion features of the notes. The
58
valuation model incorporates actively traded prices of the CEC Convertible Notes as of the reporting date, the value of CEC’s equity into which these notes could convert, and assumptions regarding
the incremental cost of borrowing for CEC. The fair value of the CEC Convertible Notes derivative liability is subject to interest rate and market price risk due to the conversion features of the notes
and other factors. Generally, as the fair value of fixed interest rate debt increases (due to a decrease in interest rates) the derivative liability decreases and as the fair value of fixed interest rate debt
decreases (due to an increase in interest rates) the derivative liability increases. The fair value of the CEC Convertible Notes derivative liability may also increase as the market price of our stock rises
or due to increased volatility in our stock price which will result in an expense recognized in our Statement of Operations, and decrease as the market price of our stock falls or due to decreased
volatility in our stock price which will result in income recognized in our Statement of Operations. Upon issuance on the Effective Date, the CEC Convertible Notes had a fair value of $1.1 billion
when the price per share of CEC common stock was $12.80. As of December 31, 2018, the fair value of the convertible notes was $324 million when the price per share of CEC common stock was
$6.79. During the year ended December 31, 2019, we recognized a loss of $620 million due to the increase in the fair value of the CEC Convertible Notes to $944 million as the price per share of
CEC common stock increased to $13.60 as of December 31, 2019.
We use interest rate swaps, which are derivative instruments classified as hedging transactions, to limit our exposure to interest rate risk. Derivative instruments are recognized in the financial
statements at fair value. The estimated fair values of our derivative instruments are based on market prices obtained from dealer quotes. Such quotes represent the estimated amounts we would
receive or pay to terminate the contracts. Our derivative instruments contain a credit risk that the counterparties may be unable to meet the terms of the agreements. We minimize that risk by
evaluating the creditworthiness of our counterparties, which are limited to major banks and financial institutions. The fair values of our derivative instruments are 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.
See Note 8 for more details regarding fair value measurements and Item 7A for quantitative and qualitative disclosures about market risk.
Income Taxes
We are subject to income taxes in the United States (including federal and state) and numerous foreign jurisdictions in which we operate. We record income taxes under the asset and liability method,
whereby deferred tax assets and liabilities are recognized based on the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, and as attributable to operating loss and tax credit carryforwards. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based
on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based
on the “more likely than not” realization threshold. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future
profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.
The effect on the income tax provision and deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have provided a
valuation allowance on certain foreign and state net operating losses (“NOLs”), and other federal, state, and foreign deferred tax assets. NOLs and other federal, state, and foreign deferred tax assets
were not deemed realizable based upon the Company’s recent history of losses.
We report unrecognized tax benefits within Accrued expenses other current liabilities and Deferred credits and other liabilities on our 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.
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 Internal Revenue Service and various
state taxing authorities on open tax positions, and in general, it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.
Recently Issued and Proposed Accounting Standards
See Note 5 for discussions of the adoption and potential impact of recently issued accounting standards.
59
Contractual Obligations and Commitments
The table below summarizes Caesars Entertainment’s contractual obligations and other commitments through their respective maturity or ending dates as of December 31, 2019.
(In millions)
Debt, face value
Estimated interest payments (2)
Financing obligations - principal
Financing obligations - interest
Golf course use obligations
Operating lease obligations
Purchase order obligations
Sports sponsorship and partnership obligations
Community reinvestment
Entertainment obligations (3)
Other contractual obligations (4)
Total contractual obligations (5)
Total
Less than
1 year
1-3
years
3-5
years
After
5 years
Payments due by Period (1)
$
8,665
$
64
$
2,110
8,614
28,625
667
1,269
807
246
35
11
631
430
21
712
15
105
608
65
7
6
69
128 $
810
55
1,586
30
206
177
102
15
4
85
6,730
$
770
70
1,644
31
121
15
17
13
1
64
$
51,680
$
2,102
$
3,198
$
9,476
$
1,743
100
8,468
24,683
591
837
7
62
—
—
413
36,904
____________________
(1)
(2)
(3)
In addition to the contractual obligations disclosed in this table, we have unrecognized tax benefits for which, based on uncertainties associated with the items, we are unable to make reasonably reliable estimates of the period of potential cash
settlements, if any, with taxing authorities.
Estimated interest for variable-rate debt included in this table is based on the 1-month LIBOR curve available as of December 31, 2019. Estimated interest includes the estimated impact of the ten interest rate swap agreements (see Note 8).
Actual payments may differ from these estimates.
Entertainment obligations represent obligations to pay performers that have contracts for future performances. This amount does not include estimated obligations for future performances where payment is only guaranteed when the
performances occur and/or is based on factors contingent upon the profitability of the performances.
Primarily includes licensing, management and other fees.
(4)
(5) Contractual obligations do not include amounts that we have not yet incurred under the CEOC LLC and Harrah’s Las Vegas leases. Under the CEOC LLC leases, we are required to spend an amount equal to at least 1% of CEOC LLC’s net
revenue for the prior lease year and $912 million for every three-year period. Under the Harrah’s Las Vegas lease, we are required to spend $171 million in capital expenditures for the period from January 1, 2017 through December 31, 2021,
and thereafter, spend an amount equal to at least 1% of Harrah’s Las Vegas net revenue for the prior lease year.
60
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and commodity prices. Our primary exposure to market
risk is interest rate risk associated with our debt. We attempt to limit our exposure to interest rate risk by managing the mix of our debt between fixed rate and variable rate obligations. While we may
enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection from this risk. As of December 31, 2019, the face value of long-term debt
was $8.7 billion, including $5.8 billion of variable rate obligations.
We have entered into ten interest rate swap agreements to fix the interest rate on $3.0 billion of variable rate debt, three that became effective on December 31, 2018, four that became effective on
January 1, 2019, and three that became effective on January 2, 2019. As of December 31, 2019, $2.8 billion of debt remains subject to variable interest rates for the term of the agreement. See Note 8
for additional information. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest
expense as settlements occur. Changes in the variable interest rates to be received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.
We do not purchase or hold any derivative financial instruments for trading purposes.
The table below provides information as of December 31, 2019 about our financial instruments that are sensitive to changes in interest rates including the cash flows associated with amortization, the
notional amounts of interest rate derivative instruments, and related weighted average interest rates. Principal amounts are used to calculate the payments to be exchanged under the related
agreements and weighted average variable rates are based on implied forward rates in the yield curve as of December 31, 2019.
(Dollars in millions)
Liabilities
Long-term debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
Interest Rate Derivatives
Interest rate swaps
Variable to fixed (1)
Average pay rate
Average receive rate
____________________
(1)
2020
2021
2022
2023
2024
Thereafter
Total
Fair Value
Expected Maturity Date
$
$
2
$
5.4%
62
$
4.4%
2
$
5.4%
62
$
4.2%
2
$
5.4%
62
$
4.2%
$
700
$
1,050
$
1,250
$
2.6%
1.6%
2.7%
1.4%
2.7%
1.4%
2
$
5.2%
62
$
4.3%
— $
—%
—%
1,088
$
6.4%
5,578
$
4.8%
— $
—%
—%
1,743
$
2,839
$
5.9%
— $
—%
5.6%
5,826
$
4.4%
2,961
5,860
— $
3,000
$
—
—%
—%
2.7%
1.8%
These amounts represent the interest rate swap notional amounts that mature at the end of each respective year. See Note 8 for additional information.
As of December 31, 2019, our long-term variable rate debt reflects borrowings under our credit facilities provided to us by a consortium of banks of $5.8 billion with $1.1 billion available under our
revolving credit facilities. The interest rates charged on borrowings under these facilities are a function of LIBOR. As such, the interest rates charged to us for borrowings under the facilities are
subject to change as LIBOR changes. Assuming a constant outstanding balance for our variable rate long-term debt and the effect of our interest rate swaps, a hypothetical 1% increase in interest
rates would increase interest expense approximately $28 million while a hypothetical 1% decrease in interest rates would decrease interest expense approximately $28 million.
The fair value of the CEC Convertible Notes is subject to interest rate and market price risk due to the conversion features of the notes and other factors. Generally, the fair value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise. The fair value of the notes may also increase as the market price of our stock rises or due to increased volatility in our stock
price, and decrease as the market price of our stock falls or due to decreased volatility in our stock price. Interest rate and market value changes affect the fair value of the notes, and may affect the
prices at which we would be able to repurchase such notes were we to do so.
61
ITEM 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Caesars Entertainment Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Caesars Entertainment Corporation and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated
statements of operations and comprehensive income/(loss), stockholders’ equity/(deficit), and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and
the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 25, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit
committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill and Other Intangible Assets — Refer to Note 7 to the Financial Statements
Critical Audit Matter Description
The Company’s evaluation of goodwill and indefinite-lived intangible assets (“intangible assets”) for impairment involves the comparison of the fair value of each reporting unit or intangible asset to
its respective carrying value.
The Company determines the estimated fair value of its reporting units based on a combination of earnings before interest, taxes, depreciation, and amortization (“EBITDA”), valuation multiples, and
estimated future cash flows discounted at rates commensurate with the capital structure and cost of capital of comparable market participants, giving appropriate consideration to the prevailing
borrowing rates within the casino industry in general. The Company determines the fair value of its intangible assets using either the relief from royalty method or excess earnings method under the
income approach. The determination of fair value of its
62
reporting units and intangible assets requires management to make significant assumptions and estimates about revenues and EBITDA giving effect to expected changes in operating results in future
years (collectively the “financial projections”). Changes in these estimates could have a significant impact on the fair value of the Company’s reporting units and intangible assets and the amount of a
goodwill or intangible asset impairment charge, if any.
The Company’s goodwill balance was $4,012 million as of December 31, 2019, of which $896 million was related to reporting units within the Other U.S. segment and $27 million was related to the
UK reporting units in the All Other segment. The Company performed its annual goodwill impairment assessment as of October 1, 2019 and determined that the fair value of each reporting unit
within the Other U.S. segment, was in excess of its carrying value, except for the Horseshoe Hammond reporting unit, for which the Company recorded a $27 million impairment charge for the year
ended December 31, 2019. Additionally, another reporting unit within the Other U.S. segment and a reporting unit within the All Other segment had estimated fair values that exceeded their
respective carrying values by a margin of 13% % and 9%, respectively.
The Company’s intangible assets balance was $2,554 million as of December 31, 2019, including $1,525 million of gaming rights. The fair value of each of the Company’s gaming rights was in
excess of its carrying value, except for the Caesars Entertainment UK (“CEUK”) and Horseshoe Hammond gaming rights, for which the Company recorded a $50 million impairment charge and an
$11 million impairment charge, respectively, for the year ended December 31, 2019.
Management’s financial projections used to determine the fair value of these reporting units and intangible assets within the Other U.S. and All Other segments involve significant assumptions and
estimates regarding future revenue growth and EBITDA. Therefore, our audit procedures to evaluate the reasonableness of management’s financial projections required a higher degree of auditor
judgment as well as an increased level of audit effort and the need to use more experienced audit professionals.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s financial projections for these reporting units and intangible assets within the Other U.S. and All Other segments, included the following, among others:
• We tested the effectiveness of the Company’s internal controls over goodwill and intangible assets, including internal controls over management’s financial projections.
• We evaluated management’s ability to estimate financial projections by comparing actual results to management’s historical financial projections.
• We assessed the sensitivity of goodwill and intangible asset impairment conclusions to changes in assumptions and estimates used in management’s financial projections.
• We compared management’s assumptions and estimates related to the regional gaming industry and expected economic trends to information in analyst and gaming industry reports.
•
For certain reporting units within the Other U.S. segment we evaluated the assumptions and estimates included in management’s financial projections by: (1) conducting corroborative
inquiries with regional and property management and other relevant departments; (2) comparing management’s projected cost savings, synergies, and earnings growth estimates with
historical results achieved; (3) evaluating management’s estimate of the impact of new competitive pressures by analyzing recent competitive pressures at comparable properties; and (4)
evaluating management’s estimate of the impact of the expansion of gaming activities by analyzing trends at comparable properties.
•
For the CEUK reporting unit we performed quantitative analysis and corroborative inquiries to evaluate management’s estimate of the impact of legal and regulatory matters.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 25, 2020
We have served as the Company’s auditor since 2002.
63
(In millions, except par value)
Assets
Current assets
CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31,
2019
2018
Cash and cash equivalents ($8 and $14 attributable to our VIEs)
$
1,755
$
Restricted cash
Receivables, net
Due from affiliates, net
Prepayments and other current assets ($4 and $6 attributable to our VIEs)
Inventories
Assets held for sale
Total current assets
Property and equipment, net ($212 and $137 attributable to our VIEs)
Goodwill
Intangible assets other than goodwill
Restricted cash
Deferred income taxes
Deferred charges and other assets ($26 and $35 attributable to our VIEs)
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ($97 and $41 attributable to our VIEs)
Accrued expenses and other current liabilities ($2 and $1 attributable to our VIEs)
Interest payable
Contract liabilities
Current portion of financing obligations
Current portion of long-term debt
Total current liabilities
Financing obligations
Long-term debt
Deferred income taxes
Deferred credits and other liabilities ($18 and $5 attributable to our VIEs)
Total liabilities
Commitments and contingencies (See Note 11)
Stockholders’ equity
Common stock: voting, $0.01 par value, 682 and 670 shares issued, respectively
Treasury stock: 48 and 46 shares, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Caesars stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
$
$
117
437
41
174
35
50
2,609
14,976
4,012
2,824
12
2
910
25,345
$
444
$
1,323
33
178
21
64
2,063
10,070
8,478
555
1,968
23,134
7
(510)
14,262
(11,567)
(61)
2,131
80
2,211
Total liabilities and stockholders’ equity
$
25,345
$
See accompanying Notes to Consolidated Financial Statements.
64
1,491
115
457
6
155
41
—
2,265
16,045
4,044
2,977
51
10
383
25,775
399
1,217
56
144
20
164
2,000
10,057
8,801
730
849
22,437
7
(485)
14,124
(10,372)
(24)
3,250
88
3,338
25,775
(In millions, except per share data)
Revenues
Casino
Food and beverage
Rooms
Other revenue
Management fees
Reimbursed management costs
Net revenues
Operating expenses
Direct
Casino
Food and beverage
Rooms
Property, general, administrative, and other
Reimbursable management costs
Depreciation and amortization
Impairment of goodwill
Impairment of tangible and other intangible assets
Corporate expense
Other operating costs
Total operating expenses
Income from operations
Interest expense
Gain on deconsolidation of subsidiaries
Restructuring and support expenses
Loss on extinguishment of debt
Other income/(loss)
Income/(loss) before income taxes
Income tax benefit
Net income/(loss)
Net (income)/loss attributable to noncontrolling interests
Net income/(loss) attributable to Caesars
Earnings/(loss) per share - basic and diluted (see Note 14)
Basic earnings/(loss) per share
Diluted loss per share
Weighted-average common shares outstanding - basic
Weighted-average common shares outstanding - diluted
CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2019
2018
2017
$
4,448
$
4,247
$
1,618
1,581
824
59
212
8,742
2,511
1,113
486
1,882
212
1,021
27
441
295
136
8,124
618
(1,370)
—
—
—
(587)
(1,339)
141
(1,198)
3
1,574
1,519
789
60
202
8,391
2,380
1,092
472
1,796
202
1,145
43
35
332
155
7,652
739
(1,346)
—
—
(1)
791
183
121
304
(1)
$
$
$
(1,195)
$
303
$
(1.77)
(1.77)
$
$
676
676
0.44
(0.25)
$
$
686
841
See accompanying Notes to Consolidated Financial Statements.
65
2,168
982
1,074
584
12
48
4,868
1,202
682
353
1,153
48
626
—
—
202
65
4,331
537
(773)
31
(2,028)
(232)
95
(2,370)
1,995
(375)
7
(368)
(1.32)
(1.32)
279
279
CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In millions)
Net income/(loss)
Foreign currency translation adjustments
Change in fair market value of interest rate swaps, net of tax
Other
Other comprehensive income/(loss), net of income taxes
Comprehensive income/(loss)
Amounts attributable to noncontrolling interests:
Net (income)/loss attributable to noncontrolling interests
Foreign currency translation adjustments
Comprehensive loss attributable to noncontrolling interests
Comprehensive income/(loss) attributable to Caesars
Years Ended December 31,
2019
2018
2017
(1,198)
$
304
$
(3)
(41)
2
(42)
(1,240)
3
5
8
(22)
(13)
1
(34)
270
(1)
4
3
(1,232)
$
273
$
(375)
9
—
(3)
6
(369)
7
—
7
(362)
$
$
See accompanying Notes to Consolidated Financial Statements.
66
CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
(In millions)
Balance as of January 1, 2017
Net loss
Stock-based compensation
Bankruptcy emergence and acquisition of OpCo (1)
CAC Merger (1)
Consolidation of Korea Joint Venture (2)
Other comprehensive income, net of tax
Change in noncontrolling interest, net of distributions
and contributions
Other
Balance as of December 31, 2017
Net income
Stock-based compensation
Repurchase of common stock
Other comprehensive loss, net of tax
Change in noncontrolling interest, net of distributions
and contributions
Balance as of December 31, 2018
Net loss
Stock-based compensation
Other comprehensive loss, net of tax
Other
Caesars Stockholders’ Equity/(Deficit)
Additional
Paid-in-
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income/(Loss)
Total Caesars
Stockholders’
Equity/(Deficit)
Non
controlling
Interests
Total
Equity/(Deficit)
Common Stock Treasury Stock
$
1
$
(29)
$
8,676
$
(10,307)
$
(1)
$
(1,660)
$
53
$
—
—
4
2
—
—
—
—
7
—
—
—
—
—
7
—
—
—
—
—
(9)
(114)
—
—
—
—
—
(152)
—
(22)
(311)
—
—
(485)
—
(28)
—
3
—
(368)
53
5,321
(2)
—
—
—
(8)
14,040
—
84
—
—
—
14,124
—
138
—
—
—
—
—
—
—
—
—
(10,675)
303
—
—
—
—
(10,372)
(1,195)
—
—
—
—
—
—
—
1
6
—
—
6
—
—
—
(30)
—
(24)
—
—
(37)
—
(368)
44
5,211
—
1
6
—
(8)
3,226
303
62
(311)
(30)
—
3,250
(1,195)
110
(37)
3
(7)
—
(35)
—
57
—
3
—
71
1
—
—
(4)
20
88
(3)
—
(5)
—
(1,607)
(375)
44
5,176
—
58
6
3
(8)
3,297
304
62
(311)
(34)
20
3,338
(1,198)
110
(42)
3
Balance as of December 31, 2019
$
7
$
(510)
$
14,262
$
(11,567)
$
(61)
$
2,131
$
80
$
2,211
____________________
(1)
(2)
See Note 1 .
See Note 2.
See accompanying Notes to Consolidated Financial Statements.
67
CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash flows from operating activities
Net income/(loss)
Adjustments to reconcile net income/(loss) to cash flows from operating activities:
Years Ended December 31,
2019
2018
2017
$
(1,198)
$
304
$
Non-cash change in restructuring accrual
Interest accrued on financing obligations
Deferred income taxes
Gain on deconsolidation of subsidiaries
Depreciation and amortization
Loss on extinguishment of debt
Change in fair value of derivative liability
Operating lease expense
Stock-based compensation expense
Amortization of deferred finance costs and debt discount/premium
Provision for doubtful accounts
Impairment of goodwill
Impairment of intangible and tangible assets
Other non-cash adjustments to net income/(loss)
Net changes in:
Accounts receivable
Due from affiliates, net
Inventories, prepayments and other current assets
Deferred charges and other assets
Accounts payable
Interest payable
Accrued expenses
Contract liabilities
Operating lease liability
Restructuring accruals
Deferred credits and other liabilities
Other
Cash flows provided by/(used in) operating activities
Cash flows from investing activities
Acquisition of property and equipment, net of change in related payables
Acquisition of businesses, net of cash and restricted cash acquired
Deconsolidation of subsidiary cash
Consolidation of Korea Joint Venture
Proceeds from sale of Rio
Payments to acquire certain gaming rights
Payments to acquire investments
Proceeds from the sale and maturity of investments
Other
Cash flows used in investing activities
68
—
131
(152)
—
1,021
—
620
35
88
17
26
27
441
17
(9)
(35)
(14)
20
6
(24)
11
47
(34)
—
(42)
8
1,007
(829)
—
—
—
470
—
(13)
32
12
(328)
—
142
(145)
—
1,145
1
(697)
—
79
15
21
43
35
(28)
14
5
76
(69)
(78)
19
(101)
18
—
—
(6)
(7)
786
(565)
(1,578)
—
—
—
(20)
(22)
43
7
(2,135)
(375)
2,065
27
(1,858)
(31)
626
232
(64)
—
43
26
8
—
—
32
(75)
(55)
64
(26)
(4)
(35)
15
3
—
(2,880)
(63)
2
(2,323)
(598)
561
(57)
19
—
—
(12)
33
(1)
(55)
(In millions)
Cash flows from financing activities
Proceeds from long-term debt and revolving credit facilities
Debt issuance and extension costs and fees
Repayments of long-term debt and revolving credit facilities
Proceeds from sale-leaseback financing arrangement
Proceeds from the issuance of common stock
Repurchase of common stock
Distribution of CIE sale proceeds
Taxes paid related to net share settlement of equity awards
Financing obligation payments
Contributions from noncontrolling interest owners
Distributions to noncontrolling interest owners
Cash flows provided by/(used in) financing activities
Change in cash, cash equivalents, and restricted cash classified as assets held for sale
Net increase/(decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, end of period
Supplemental Cash Flow Information
Cash paid for interest
Cash paid for income taxes
Non-cash settlement of accrued restructuring and support expenses
Issuance of convertible notes and call right
Issuance of CEC common stock
Other non-cash investing and financing activities:
ROU assets obtained in exchange for new operating lease liabilities
Change in accrued capital expenditures
Deferred consideration for acquisition of Centaur
Financing for sale of Rio
Years Ended December 31,
2019
2018
2017
—
(28)
(414)
—
47
—
—
(28)
(22)
—
(1)
(446)
(6)
227
1,657
1,884
$
1,259
$
6
—
—
104
62
—
34
1,167
(5)
(1,130)
745
6
(311)
—
(22)
(173)
20
—
297
—
(1,052)
2,709
1,657
$
1,169
$
8
—
—
—
149
66
—
7,550
(288)
(7,846)
1,136
11
—
(63)
(11)
(54)
—
(6)
429
—
(1,949)
4,658
2,709
749
7
2,349
3,435
—
(6)
—
—
$
$
See accompanying Notes to Consolidated Financial Statements.
69
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In this filing, the name “CEC” refers to the parent holding company, Caesars Entertainment Corporation, exclusive of its consolidated subsidiaries and variable interest entities, unless otherwise
stated or the context otherwise requires. The words “Company,” “Caesars,” “Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, inclusive of its
consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires.
We also refer to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Operations and Consolidated Statements of Comprehensive
Income/(Loss) as our “Statements of Operations,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Statements of Cash
Flows.” References to numbered “Notes” refer to Notes to our Consolidated Financial Statements included herein.
Note 1 — Description of Business
Organization
CEC is primarily a holding company with no independent operations of its own. Caesars Entertainment operates the business primarily through its wholly owned subsidiaries CEOC, LLC (“CEOC
LLC”) and Caesars Resort Collection, LLC (“CRC”). As of December 31, 2019, Caesars Entertainment has a total of 53 properties in 14 U.S. states and five countries outside of the U.S., including
49 casino properties. Nine casinos are in Las Vegas, which represented 45% of net revenues for the year ended December 31, 2019. In addition to our properties, other domestic and international
properties, including Harrah’s Northern California, are authorized to use the brands and marks of Caesars Entertainment Corporation.
We lease certain real property assets from third parties, including VICI Properties Inc. and/or its subsidiaries (collectively, “VICI”). See Note 10.
Proposed Merger of Caesars Entertainment Corporation with Eldorado Resorts, Inc.
On June 24, 2019, Caesars, Eldorado Resorts, Inc., a Nevada corporation (“Eldorado”), and Colt Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Eldorado (“Merger
Sub”), entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of August 15, 2019, and as it may be further amended from time
to time, the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Caesars (the “Merger”), with Caesars
continuing as the surviving corporation and a direct wholly owned subsidiary of Eldorado. On November 15, 2019, the respective stockholders of Caesars and Eldorado voted to approve the Merger.
The transaction is expected to close in the first half of 2020. In connection with the Merger, Eldorado will change its name to Caesars Entertainment, Inc.
Based on the terms and subject to the conditions set forth in the Merger Agreement, the aggregate consideration payable by Eldorado in respect of outstanding shares of common stock of Caesars
(“Caesars Common Stock”) will be (a) an amount of cash equal to (i) the sum of (A) $8.40 plus (B) if the applicable closing conditions set forth in the Merger Agreement are not satisfied by March
25, 2020, an amount equal to $0.003333 for each day from March 25, 2020 until the closing date of the Merger (the “Closing Date”), multiplied by (ii) a number of shares of Caesars Common Stock
(the “Aggregate Caesars Share Amount”) equal to (A) 682,161,838 (which includes 8,271,660 shares being held in escrow trust to satisfy unsecured claims pursuant to the Third Amended Joint Plan
of Reorganization, filed with the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago on January 13, 2017, at Docket No. 6318) plus (B) the number of shares of Caesars Common
Stock issued after June 24, 2019 and prior to the effective time of the Merger pursuant to the exercise of certain equity awards issued under Caesars stock plans or conversion of the CEC Convertible
Notes (as defined below) (the “Aggregate Cash Amount”); and (b) a number of shares of common stock of Eldorado (“Eldorado Common Stock”) equal to 0.0899 multiplied by the Aggregate
Caesars Share Amount (the “Aggregate Eldorado Share Amount”). Each holder of shares of Caesars Common Stock will be entitled to elect to receive, for each share of Caesars Common Stock held
by such holder, either an amount of cash or a number of shares of Eldorado Common Stock, with value (based on the Eldorado Common Stock VWAP, as defined below) equal to the Per Share
Amount. The “Per Share Amount” is equal to (a) (i) the Aggregate Cash Amount, plus (ii) the product of (A) the Aggregate Eldorado Share Amount and (B) the volume weighted average price of a
share of Eldorado Common Stock for a ten trading day period, starting with the opening of trading on the 11th trading day prior to the anticipated Closing Date to the closing of trading on the second
to last trading day prior to the anticipated Closing Date (the “Eldorado Common Stock VWAP”), divided by (b) the Aggregate Caesars Share Amount.
Elections by Caesars stockholders are subject to proration such that the aggregate amount of cash paid in exchange for outstanding shares of Caesars Common Stock in the Merger will not exceed the
Aggregate Cash Amount and the aggregate number of shares of Eldorado Common Stock issued in exchange for shares of Caesars Common Stock in the Merger will not exceed the Aggregate
70
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Eldorado Share Amount. Based on the number of shares of Eldorado Common Stock and Caesars Common Stock, and the principal amount of the CEC Convertible Notes, outstanding as of
December 31, 2019, and assuming the Merger occurred on that date, Caesars stockholders who receive shares of Eldorado Common Stock in exchange for their shares of Caesars Common Stock in
the Merger and holders of the CEC Convertible Notes (assuming that all CEC Convertible Notes are converted immediately following consummation of the Merger into $8.40 in cash and 0.0899
shares of Eldorado Common Stock for each share of Caesars Common Stock into which such CEC Convertible Notes were convertible immediately prior to the Merger) would be issued an aggregate
of approximately 76 million shares of Eldorado Common Stock and would hold approximately 49.5%, in the aggregate, of the issued and outstanding shares of Eldorado Common Stock.
Outstanding options and other equity awards issued under Caesars’ stock plans will be treated in the manner set forth in the Merger Agreement. Upon completion of the Merger, any unexercised,
vested, in-the-money stock options that are outstanding will be canceled in exchange for the Per Share Amount (or applicable portion thereof) in cash, reduced by the applicable exercise price.
Unvested service-vesting stock options and restricted stock units will be converted into stock options and restricted stock units for Eldorado Common Stock and will retain their original vesting
schedules. Performance-based stock options are expected to be canceled in connection with the consummation of the Merger. Performance stock units that are subject to total stockholder return
performance-vesting conditions will be converted into performance stock units for Eldorado Common Stock and will continue to vest in accordance with their original terms, except the total
stockholder return vesting conditions will be adjusted to be based on Eldorado’s total stockholder return performance. Performance stock units that are tied to earnings before interest, taxes,
depreciation and amortization (“EBITDA”) and earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) performance conditions will vest at closing and be exchanged for the
Per Share Amount (or applicable portion thereof) in cash. For EBITDA- and EBITDAR-based performance stock units that are eligible to vest in respect of performance achieved during the year in
which the closing occurs, such vesting will be based on performance of applicable goals through the end of the month prior to the close and extrapolated through the remainder of the performance
period and for EBITDA- and EBITDAR-based performance stock units that are eligible to vest in respect of a performance period that has not yet commenced as of the Closing Date, such vesting
will be based on target-level performance.
The Merger Agreement contains customary representations and warranties by each of Caesars and Eldorado, and each party has agreed to customary covenants. Each of Caesars’ and Eldorado’s
obligation to consummate the Merger remains subject to the satisfaction or waiver of certain conditions, including among others, the expiration or termination of any applicable waiting period under
the HSR Act, the receipt of required regulatory approvals and other customary closing conditions. Other conditions to completing the Merger, such as obtaining stockholder approvals with respect to
the Merger from each party’s stockholders and effecting certain amendments to the indenture governing the CEC Convertible Notes, have been satisfied.
The Merger Agreement also contains termination rights for each of Caesars and Eldorado under certain circumstances. If the Merger Agreement is terminated in certain circumstances relating to entry
by Caesars into an alternative transaction, Caesars will be required to pay Eldorado a termination fee of approximately $418.4 million. The Merger Agreement also provides that Eldorado will be
obligated to pay a termination fee of approximately $836.8 million to Caesars if the Merger Agreement is terminated (i) due to a law or order relating to gaming or antitrust laws that prohibits or
permanently enjoins the consummation of the transactions, (ii) because the required regulatory approvals were not obtained prior to June 24, 2020 (subject to extension to a date no later than
December 24, 2020 pursuant to the Merger Agreement) or (iii) due to Eldorado willfully and materially breaching certain obligations with respect to the actions required to be taken by Eldorado to
obtain required antitrust approvals.
Pursuant to the terms of the indenture governing the CEC Convertible Notes, on November 27, 2019, Caesars entered into a supplemental indenture to provide for conversion of the CEC Convertible
Notes at and after the effective time of the Merger into the weighted average, per share of Caesars Common Stock, of the types and amounts of the merger consideration received by holders of
Caesars Common Stock who affirmatively make a merger consideration election (or, if no holders of Caesars Common Stock make such an election, the types and amounts of merger consideration
actually received by such holders of Caesars Common Stock). See Note 12 for additional information.
Rio All-Suite Hotel & Casino Disposition
On September 20, 2019, Rio Properties, LLC, a subsidiary of CEC, entered into a Purchase and Sale Agreement and Joint Escrow Instructions for certain assets of Rio All-Suite Hotel & Casino
(“Rio”). During the quarter ended September 30, 2019, we recorded an impairment charge of $380 million, which included $6 million related to selling costs, as the carrying value was higher than the
fair value. On December 5, 2019, the transaction was completed for a sales price of approximately $516 million. The sales price received includes $40 million in seller financing that we provided the
buyer at a 9% interest rate, that is due to us in two years unless extended for an additional year. Interest may be paid monthly, or paid-in-kind at the option of the buyer. We received
71
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$470 million in cash proceeds, net of selling costs. In connection with the closing of the sale, we entered into a lease and trademark license under which we will continue to operate the property under
the Rio trademark for an initial term of two years at an annual rent amount of approximately $45 million.
2018 Transactions with VICI
On July 11, 2018, we sold Octavius Tower at Caesars Palace (“Octavius Tower”) to VICI for $508 million in cash. Proceeds from the transaction were used to partially fund the closing of CEC’s
acquisition of Centaur Holdings, LLC (“Centaur”). On December 26, 2018, we sold all land and real property improvements used in the operation of Harrah’s Philadelphia Casino and Racetrack
(“Harrah’s Philadelphia”) as part of a sale and leaseback transaction with VICI for $242 million. We continue to operate under the long-term lease agreement terms for both Octavius Tower and
Harrah’s Philadelphia.
These transactions did not qualify for sale-leaseback accounting resulting in the assets remaining on our Balance Sheet at their historical net book value and are depreciated over their remaining
useful lives, while a financing obligation was recognized for the proceeds received.
Additionally, on December 26, 2018, we consummated modifications to certain of our existing lease agreements with VICI for consideration of $159 million, which reduced the purchase price we
paid for Harrah’s Philadelphia and our financing obligation. The modifications, among other things, bring certain of the lease terms into alignment with other master leases in the sector and the long-
term performance of the properties and create additional flexibility to facilitate our future development strategies.
Acquisition of Centaur Holdings, LLC
On July 16, 2018, we completed the acquisition of Centaur. Centaur operated Hoosier Park Racing & Casino (“Hoosier Park”) in Anderson, Indiana, and Indiana Grand Racing & Casino (“Indiana
Grand”) in Shelbyville, Indiana. See Note 4 for additional information.
CEOC’s Emergence from Bankruptcy and CEC’s Merger with Caesars Acquisition Company
Caesars Entertainment Operating Company, Inc. (“CEOC”) and certain of its U.S. subsidiaries (collectively, the “Debtors”) voluntarily filed for reorganization on January 15, 2015 (the “Petition
Date”), at which time CEC deconsolidated CEOC. The Debtors emerged from bankruptcy and consummated their reorganization pursuant to their third amended joint plan of reorganization (the
“Plan”) on October 6, 2017 (the “Effective Date”). As part of its emergence from bankruptcy, CEOC reorganized into an operating company (“OpCo”) separate from its real property assets
(“PropCo”). OpCo was acquired by CEC on the Effective Date and immediately merged with and into CEOC LLC. See Note 4 for additional information. CEOC LLC operates the properties and
facilities formerly held by CEOC and leases the properties and facilities from VICI.
On the Effective Date, Caesars Acquisition Company (“CAC”) merged with and into CEC, with CEC as the surviving company (the “CAC Merger”). See Note 4 for additional information. The CAC
Merger was accounted for as a reorganization of entities under common control, which resulted in CAC being consolidated into Caesars at book value as an equity transaction for all periods
presented.
Summary of CAC Merger and CEOC Emergence Transactions
(In millions)
Cash
CEC common stock (value)
CEC convertible notes (fair value)
Other consideration
Total consideration
CEC common stock (shares)
CAC Merger
Restructuring Support
Settlement
OpCo Acquisition
Total
$
$
— $
2,894
—
—
2,894
$
226
72
2,787
$
3,435
2,172
177
8,571
$
700
$
1,774
—
—
2,474
$
268
139
3,487
8,103
2,172
177
13,939
633
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restructuring and Support Expenses
Prior to the Effective Date, CEC made material financial commitments to support the reorganization of CEOC as described in the Plan. Our estimate of restructuring and support expenses was
determined based on the total value of the consideration that was required by CEC to resolve claims and potential claims related to the reorganization.
Restructuring and support expenses for the year ended December 31, 2017 was $2.0 billion, recorded in the Statements of Operations. These were primarily composed of accruals for (i) forbearance
fees and other payments to CEOC’s creditors that were settled in cash, (ii) a bank guaranty settlement related to the modification of CEC’s guarantee under CEOC’s senior secured credit facilities that
was settled in cash, (iii) payments of CEOC’s creditors’ expenses, settlement charges, and other fees that were settled in cash, (iv) the issuance of CEC common stock, (v) the issuance of the $1.1
billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 (the “CEC Convertible Notes”) (see Note 8 and Note 12), and (vi) the call right to purchase and leaseback the
real property assets associated with Harrah’s Atlantic City, Harrah’s Laughlin, and Harrah’s New Orleans (the “VICI Call Right”) as other consideration (see Note 9). The total value of the
consideration that was provided by CEC as of the Effective Date was $8.6 billion. See Restructuring Support Settlement in the table above.
Potential Divestitures
We are considering divestiture opportunities of non-strategic assets and properties. If the completion of a sale is more likely than not to occur, we may recognize impairment charges for certain of our
properties to the extent current expected proceeds are below our carrying value.
Note 2 — Basis of Presentation and Principles of Consolidation
Basis of Presentation and Use of Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require the use of estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Management believes the accounting estimates are appropriate and
reasonably determined. Actual amounts could differ from those estimates.
In order to conform to the current year’s presentation, for the years ended December 31, 2018 and 2017, $35 million and $29 million, respectively, were reclassified from Direct operating expenses to
Property, general, administrative, and other on our Statements of Operations with no effect on Net income/(loss).
Adoption of New Lease Accounting Standard
On January 1, 2019, we adopted the new accounting standard Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), and all related amendments. See Note 10 for additional
information and details on the effects of adopting the new standard.
Reportable Segments
We view each property as an operating segment and aggregate all such 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. See Note 20.
Consolidation of Subsidiaries and Variable Interest Entities
Our consolidated financial statements include the accounts of Caesars Entertainment 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 using the cost method.
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 our investments for VIE consideration if a reconsideration event occurs to determine if the
73
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
investment continues to qualify as a VIE. If we determine an investment no longer qualifies as a VIE, there may be a material impact to our financial statements.
Consolidation of Korea Joint Venture
CEC has a joint venture to acquire, develop, own, and operate a casino resort project in Incheon, South Korea (the “Korea JV”). We determined that the Korea JV is a VIE and CEC is the primary
beneficiary, and therefore, we consolidate the Korea JV into our financial statements. As of December 31, 2019, the construction schedule for the project has been delayed and discussions regarding
the project costs between us and our JV partner remain ongoing. On February 11, 2020, the primary subcontractor notified us that construction on the project has ceased pending resolution of the go-
forward options as explained below. In addition, the external debt financing by the Korea JV has also been delayed, which has impacted the timing of equity capital contributions by us, and our joint
venture partner, in accordance with our joint venture agreement. We are currently in discussions with our joint venture partner regarding the project costs and financing plan for the project, as well as
evaluating all of our options under the terms of the joint venture agreement. Possible outcomes include completing the project and related financing as originally budgeted, adding an additional equity
partner, selling all, or part, of the parties’ ownership interest in the Korea JV, liquidating the joint venture or taking any other steps including those that we may agree with our joint venture
partner. These possible outcomes could result in a material impairment of assets of the Korea JV and could also change our conclusion that we are the primary beneficiary of the joint venture, which
could result in a material charge upon deconsolidating the joint venture. As reported by the joint venture and consolidated in our financial statements, as of December 31, 2019, total net assets of $133
million was primarily composed of property and equipment recorded at cost basis, net of construction payable, of which we have a 50% interest.
Horseshoe Baltimore Casino
Through August 31, 2017, we consolidated Horseshoe Baltimore Casino (“Horseshoe Baltimore”) as a VIE for which we were the primary beneficiary. Due to the expiration of certain transfer
restrictions, we were no longer considered the primary beneficiary and deconsolidated Horseshoe Baltimore.
Horseshoe Baltimore generated year-to-date net revenues of $190 million and net loss attributable to Caesars of $7 million until its deconsolidation effective August 31, 2017. Upon deconsolidation,
we recognized a gain on deconsolidation of $31 million, and are accounting for Horseshoe Baltimore as an equity method investment subsequent to the deconsolidation. We estimated the fair value of
the interest in Horseshoe Baltimore by weighting the results of the discounted cash flow method and the guideline public company method.
Horseshoe Baltimore continues to be a managed property of CEOC LLC subsequent to its deconsolidation, and transactions with Horseshoe Baltimore are not eliminated under the equity method of
accounting. These related party transactions include but are not limited to items such as casino management fees paid to CEOC LLC, reimbursed management costs, and the allocation of other
expenses. See Note 19.
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CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Emerald Resort & Casino, South Africa Disposition
In May 2019, we entered into an initial agreement to sell Emerald Resort & Casino located in South Africa for total proceeds of approximately $51 million. We own 70% of this property while the
remaining 30% is owned by local minority partners. Total cash proceeds for our 70% ownership and other adjustments total approximately $41 million. The transaction is expected to close in 2020,
subject to regulatory approvals and other customary closing conditions. Subsequent to December 31, 2019, the seller informed us that pursuant to certain conditions in the agreement that they wished
to renegotiate the previously agreed upon sales price. We still believe the transaction will close in 2020 and therefore still meets the criteria of assets as held for sale as of the balance sheet date. The
following table summarizes assets and liabilities classified as held for sale within our All Other segment.
(In millions)
Cash and cash equivalents
Property and equipment, net
Goodwill
Intangible assets other than goodwill
Other
Assets held for sale
Current liabilities
Deferred credits and other liabilities
Liabilities held for sale included in Accrued expenses and other current liabilities
Harrah’s Reno Disposition
December 31, 2019
6
26
5
11
2
50
2
4
6
$
$
$
$
In December 2019, Caesars and VICI entered into an agreement to sell Harrah’s Reno to an affiliate of CAI Investments for $50 million. The proceeds of the transaction are expected to be split 75%
to VICI and 25% to Caesars, while the annual rent payments under the Non-CPLV Master Lease between Caesars and VICI will remain unchanged. These assets and liabilities are not presented as
held for sale in our Balance Sheets as the sale is contingent upon the closing of the Merger.
Note 3 — Summary of Significant Accounting Policies
Additional significant accounting policy disclosures are provided within the applicable notes to the Financial Statements.
Cash, Cash Equivalents, and Restricted Cash
Cash equivalents are highly liquid investments with original maturities of three months or less from the date of purchase and are stated at the lower of cost or market value. Our cash and cash
equivalents as of December 31, 2019 and 2018 includes $8 million and $14 million, respectively, held by our consolidated VIE, which is not available for our use to fund operations or satisfy our
obligations.
Restricted cash includes cash pledged as collateral for certain operating and capital expenditures in the normal course of business and certain other cash deposits that are for a specific purpose
including $48 million as of December 31, 2019 that is held in the escrow trust for distribution to holders of disputed claims whose claims may ultimately become allowed (see Note 11). The
classification of restricted cash between current and non-current is dependent upon the intended use of each particular reserve.
Reconciliation to Statements of Cash Flows
(In millions)
Cash and cash equivalents
Restricted cash, current
Restricted cash, non-current
Total cash, cash equivalents, and restricted cash
As of December 31,
2019
2018
1,755
$
117
12
1,884
$
1,491
115
51
1,657
$
$
75
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising
The Company expenses the production costs of advertising the first time the advertising takes place or in the period when the services are rendered. Costs associated with certain of our recent sports
contracts are included in advertising expense. Advertising expense was $117 million, $76 million, and $61 million, respectively, for the years ended December 31, 2019, 2018 and 2017. Advertising
expense is included in Property, general, administrative, and other within the Statements of Operations.
Other Operating Costs
Other operating costs primarily includes write-downs, reserves, and project opening costs, net of recoveries, severance and acquisition and integration costs. During 2017, CEC was reimbursed $19
million for amounts related to the joint venture development in Korea that were previously deemed uncollectible and written off in 2015.
Note 4 — Business Combinations
Acquisition of Centaur Holdings, LLC
As described in Note 1, on July 16, 2018 (the “Centaur Closing Date”), CEC completed its acquisition of all of the voting equity interest of Centaur, for consideration of $1.7 billion. This acquisition
expanded our footprint to the central Indiana region and facilitated broad distribution of the Caesars Rewards customer loyalty program (see Note 7). Acquisition-related costs included in Other
operating costs in the Statements of Operations were $8 million during the year ended December 31, 2018. Consideration transferred was composed of the following:
(In millions)
Cash paid
Deferred consideration (1)
Total purchase price
$
$
1,636
66
1,702
____________________
(1) Deferred consideration is payable in an installment of $25 million in 2020 and $50 million in 2021 with prepayments and right of setoff permitted, subject to the terms and conditions of the Unit Purchase Agreement. $66 million represented the
present value of future expected cash flows, on the Centaur Closing Date.
Additionally, CEC paid a $50 million license transfer fee on behalf of Hoosier Park Racing & Casino, which was excluded from the purchase price consideration and is an assumed liability.
76
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Purchase Price Allocation
The following table summarizes the fair value of assets acquired and liabilities assumed as part of the Centaur acquisition. The intangible assets subject to amortization will be amortized on a straight-
line basis over their estimated useful lives as of the acquisition date.
(In millions)
Assets acquired:
Cash and cash equivalents
Receivables, net
Other current assets
Property and equipment
Intangible assets other than goodwill
Trade names and trademarks
Gaming rights (1)
Customer relationships
Total assets
Liabilities assumed:
Current liabilities
Deferred income taxes
Total liabilities
Net identifiable assets acquired
Goodwill
Total Centaur equity value
___________________
(1)
Indefinite-lived intangible assets.
Fair Value
Weighted-Average
Useful Life (years)
$
$
2.5
15.0
39
2
26
297
14
1,390
41
1,809
(92)
(290)
(382)
1,427
275
1,702
We applied the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations
(“ASC 805”). Goodwill of $275 million was recognized as a result of the transaction and relates to (i) the values of acquired assets that do not meet the definition of an identifiable intangible asset
under ASC 805, but that do contribute to the value of the acquired business, including the assembled workforce and relationships with customers that are not tracked through their customer loyalty
program; (ii) the going-concern value associated with expectations of forging relationships with future customers; (iii) the assemblage value associated with acquiring an on-going business whose
value is worth more than simply the sum of its parts; (iv) synergies; and (v) the future potential expansion of table games to the properties. All of the goodwill was assigned to our Other U.S.
segment. None of the goodwill recognized is expected to be deductible for income tax purposes.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of Centaur as if it had occurred on January 1, 2017, and is not necessarily
indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of this date. The pro forma results include adjustments related to
purchase accounting, primarily interest expense related to the legacy debt of Centaur that was not acquired, tax adjustments and amortization of intangible assets. Net loss for the year ended
December 31, 2017 below includes a discrete tax benefit of $185 million, resulting from a partial release of valuation allowance in connection with the acquisition. The net deferred tax liability
resulting from the acquisition of Centaur provided a source of additional future taxable income requiring us to reassess the amount of valuation allowance previously recorded. The deferred tax
liability considered the 21% corporate tax rate enacted by the Tax Act (defined in Note 18).
77
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In millions)
Net revenues
Net income/(loss) attributable to Caesars
(Unaudited)
Years Ended December 31,
2018
2017
$
8,663
$
166
5,357
(117)
The results of operations for Centaur have been included in the Company’s Financial Statements since the acquisition date. The acquired business contributed $226 million and $49 million,
respectively, to Net revenues and Income from operations to CEC for the period from July 16, 2018 to December 31, 2018.
CEC’s Acquisition of OpCo
As described in Note 1, the Debtors emerged from bankruptcy and consummated their reorganization pursuant to the Plan on the Effective Date. As part of its emergence from bankruptcy, CEOC
reorganized into OpCo and PropCo, and CEC acquired OpCo on the Effective Date for the total consideration summarized below. The acquisition was accounted for in accordance with ASC 805 with
CEC considered the acquirer, which requires, among other things, that the assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. The
excess of the purchase price over the net fair value of the assets and liabilities was recorded as goodwill. Consideration transferred was composed of the following:
(In millions)
Cash
CEC common stock (1)
Total cash and stock consideration
Settlement of pre-existing relationships
Total OpCo equity value
____________________
(1)
Approximately 139 million shares of CEC common stock issued at the Effective Date closing stock price of $12.80.
78
$
$
700
1,774
2,474
252
2,726
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Purchase Price Allocation
The following table summarizes the assets acquired and liabilities assumed. The intangible assets subject to amortization are being amortized on a straight-line basis over their estimated useful lives
as of the acquisition date.
(In millions)
Assets acquired:
Cash and cash equivalents
Receivables, net
Other current assets
Property and equipment
Intangible assets other than goodwill
Trade names and trademarks (1)
Gaming rights (1)
Caesars Rewards (1)
Customer relationships
Other non-current assets
Total assets
Liabilities assumed:
Current liabilities
Long-term debt
Financing obligations
Deferred income taxes
Deferred credits and other liabilities
Total liabilities
Noncontrolling interest
Net identifiable assets acquired
Goodwill
Total OpCo equity value
____________________
(1)
Indefinite-lived intangible assets.
Fair Value
Weighted-Average
Useful Life (years)
$
$
35.0
14.8
1,239
266
200
8,943
664
207
253
137
180
12,089
(765)
(1,607)
(8,310)
(568)
(361)
(11,611)
41
519
2,207
2,726
As part of the Plan, certain real estate assets were sold to PropCo and leased back to OpCo. The leases were evaluated as a sale-leaseback of real estate. We determined that these transactions did not
qualify for sale-leaseback accounting, and we accounted for the transaction as a financing. See Note 10. Additionally, certain golf course properties (the “Golf Course Properties”) were sold to VICI.
See Note 11.
Goodwill of $2.2 billion was recognized as a result of the transaction and relates to (i) the values of acquired assets that do not meet the definition of an identifiable intangible asset under ASC 805,
but that do contribute to the value of the acquired business, including the assembled workforce and relationships with customers that are not tracked through our customer loyalty program Caesars
Rewards; (ii) the going-concern value associated with expectations of forging relationships with future customers; and (iii) the assemblage value associated with acquiring an on-going business
whose value is worth more than simply the sum of its parts. Goodwill has been assigned to our three reportable segments. None of the goodwill recognized is expected to be deductible for income tax
purposes.
The Company recognized certain deferred tax assets and liabilities resulting from (i) net operating loss (“NOL”) carryforwards available to CEC and reorganization of CEOC under the Plan and (ii)
the difference between the fair value of the assets and liabilities and their respective tax bases. Due to CEC’s recent history of losses, CEC will continue to record a valuation allowance against the
excess deferred tax assets that are not offset by deferred tax liabilities. Deferred tax liabilities of $568 million were recognized in the purchase price allocation of OpCo.
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CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Included within liabilities are estimates related to obligations and future resolution of disputed claims pursuant to the Plan. These liabilities assumed were measured at their estimated fair value based
on the bankruptcy proceedings and creditor’s proof of claim. Refer to Note 11 for additional information.
In connection with the reorganization of CEOC, the income approach was used to estimate the fair value of the noncontrolling interest of $13 million.
Receivables
Markers acquired as part of the acquisition of OpCo were accounted for at fair value on the Effective Date, with no acquired reserve, and will be accreted to interest income up to their expected
realizable value over the life of their expected collectibility. The acquired markers are subject to adjustment if the actual cash collection differs from the expected collectibility. The fair value, which
also represents the carrying amount of markers acquired as part of the acquisition of OpCo as of the Effective Date, was $139 million. As of December 31, 2018 and 2017, the carrying amount of the
markers acquired was $25 million and $69 million, respectively.
Acquired Markers Accretable Yield
(In millions)
Balance as of January 1 and October 6, respectively
Accretion
Balance as of December 31
Unaudited Pro Forma Financial Information
$
$
2018
2017
6
$
(3)
3
$
8
(2)
6
The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of OpCo as if it had occurred on January 1, 2016, and is not necessarily
indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of this date. The pro forma adjustments, with related tax impacts, are
comprised primarily of the following:
•
•
Depreciation and interest expense recognized related to the failed sale-leaseback financing obligations associated with the real estate assets and the financing obligation associated with the
Golf Course Properties that were sold to VICI and leased back by CEOC LLC; and
Interest expense related to the issuance of the CEOC LLC Term Loan, the CEOC LLC Revolving Credit Facility, and the CEC Convertible Notes (see Note 12 for additional information).
(In millions)
Net revenues
Net income/(loss) attributable to Caesars
(Unaudited)
Years Ended December 31,
2017
2016
$
8,349
$
6,401
8,529
(2,570)
The results of operations for OpCo have been included in the Company’s Financial Statements since the acquisition date. The acquired business contributed $1 billion and $52 million, respectively, of
net revenues and income from operations to CEC for the period from October 6, 2017 to December 31, 2017.
Merger with CAC
As described in Note 1, pursuant to the Merger Agreement, CAC merged with and into CEC, with CEC as the surviving company and each share of CAC common stock issued and outstanding
immediately prior to the Effective Date was converted into, and became exchangeable for, 1.625 shares of CEC common stock on the Effective Date, which resulted in the issuance of 226 million
shares of CEC common stock to stockholders of CAC. Hamlet Holdings LLC (see Note 19) beneficially owned a majority of both CEC’s and CAC’s common stock immediately prior to the CAC
Merger. Therefore, the CAC Merger was accounted for as a reorganization of entities under common control, which resulted in CAC being consolidated into the Company at book value as an equity
transaction for all periods presented after elimination of all intercompany accounts and transactions. The consolidated financial statements are not necessarily indicative of the results of operations
that would have occurred if the Company had
80
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
consolidated CAC prior to the Effective Date. In addition, as a result of the CAC Merger, Caesars Growth Partners, LLC (“CGP”) is no longer a VIE and is a wholly owned subsidiary of CEC. The
following table summarizes the assets acquired, liabilities assumed and CEC’s noncontrolling interest in CGP and excludes CGP’s results, which were consolidated with CEC as a VIE prior to the
Effective Date.
Summary of Merger as of October 6, 2017
(In millions)
Assets acquired
Liabilities assumed
Acquisition of noncontrolling interest in CGP from CAC
Net book value
Note 5 — Recently Issued Accounting Pronouncements
The FASB issued the following authoritative guidance amending the FASB ASC.
In 2019, we adopted the following ASUs:
•
•
ASU 2016-02, Leases (Topic 842), and all related amendments (see Note 10)
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) (see Note 18)
The following ASUs were not yet effective as of December 31, 2019:
New Developments
Total Value
152
(96)
1,751
1,807
$
$
Income Taxes - December 2019: Amended guidance simplifies ASC 740 - Income Taxes by removing scope exceptions including: the incremental approach for intraperiod tax allocation when there
is a loss from continuing operations and income or a gain from other items and the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the
anticipated loss for the year. The amendment also simplifies areas such as franchise tax, step up in tax basis of goodwill in business combination, allocation of deferred tax to legal entities, inclusion
of tax laws or rate change impact in annual effective tax rate computation, and income taxes for employee stock ownership plans. The amendments in this update are effective for public entities for
fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update related to separate financial statements of
legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to franchise taxes that are partially based on income should be
applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of
adoption. All other amendments should be applied on a prospective basis. We are currently assessing the effect the adoption of this standard will have on our prospective financial statements.
Previously Disclosed
Collaborative Arrangements - November 2018: Amended guidance makes targeted improvements to GAAP for collaborative arrangements including: (i) clarifying that certain transactions between
collaborative arrangement participants should be accounted for as revenue under ASC 606 - Revenue from Contracts with Customers (“ASC 606”) when the collaborative arrangement participant is a
customer in the context of a unit of account, (ii) adding unit-of-account guidance in ASC 808 - Collaborative Arrangements to align with the guidance in ASC 606 (that is, a distinct good or service)
when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606, and (iii) requiring that in a transaction with a collaborative arrangement
participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under ASC 606 is precluded if the collaborative arrangement participant is
not a customer. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is
permitted. The amendments should be applied retrospectively to the date of initial application of ASC 606. An entity may elect to apply the amendments in this ASU retrospectively either to all
contracts or only to contracts that are not completed at the date of initial application of ASC 606. An entity should disclose its election. An entity may elect to apply the practical expedient for
contract modifications that is permitted for entities using the modified retrospective transition method
81
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in ASC 606. We will adopt the new standard on January 1, 2020 and have determined that the effect to our financial statements will not be material.
Intangibles - Goodwill and Other - Internal-Use Software - August 2018: Amended guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that
is a service contract is not affected. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
Early adoption is permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We will adopt the
new standard on January 1, 2020 and have determined that the effect to our financial statements will not be material.
Fair Value Measurement - August 2018: Amended guidance modifies fair value measurement disclosure requirements including (i) removing certain disclosure requirements such as the amount of
and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) modifying certain disclosure requirements, and (iii) adding certain disclosure requirements such as changes in
unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period. The amendments in this
update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments on changes in unrealized gains and
losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be
applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented
upon their effective date. We will adopt the new standard on January 1, 2020 and have determined that the effect to our financial statements will not be material.
Financial Instruments - Credit Losses - June 2016 (amended through February 2020): Amended guidance replaces the incurred loss impairment methodology with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Amendments affect entities holding financial assets and
net investments in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit
exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. Amendments are effective for fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. An entity will apply the amendments in this ASU through a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt
securities for which an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis
before and after the effective date of this ASU. We will adopt the new standard on January 1, 2020 and have determined that the effect to our financial statements will not be material.
Note 6 — Property and Equipment
We have significant capital invested in our long-lived assets, and judgments are made in determining their estimated useful lives and salvage values and if or when an asset (or asset group) has been
impaired. The accuracy of these estimates affects the amount of depreciation and amortization expense recognized in our financial results and whether we have a gain or loss on the disposal of an
asset. We assign lives to our assets based on our standard policy, which is established by management as representative of the useful life of each category of asset.
We review the carrying value of our long-lived assets whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows
expected to result from its use and eventual disposition. As necessary, we typically estimate the fair value of assets starting with a Replacement Cost New approach and then deduct appropriate
amounts for both functional and economic obsolescence to arrive at the fair value estimates. Other factors considered by management in performing this assessment may include current operating
results, trends, prospects, and third-party appraisals, as well as the effect of demand, competition, and other economic, legal, and regulatory factors. In estimating expected future cash flows for
determining whether an asset is impaired, assets are grouped at the lowest level of identifiable cash flows, which, for most of our assets, is the individual property. These analyses are sensitive to
management assumptions and the estimates of the obsolescence factors. Changes in these assumptions and estimates could have a material impact on the analyses and the consolidated financial
statements.
82
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additions to property and equipment are stated at cost. We capitalize the costs of improvements that extend the life of the asset. We expense maintenance and repair costs as incurred. Gains or losses
on the dispositions of property and equipment are recognized in the period of disposal. Interest expense is capitalized on internally constructed assets at the applicable weighted-average borrowing
rates of interest. Capitalization of interest ceases when the project is substantially complete or construction activity is suspended for more than a brief period of time. Interest capitalized was $29
million, $8 million, and $6 million, respectively, for the years ended December 31, 2019, 2018, and 2017.
Our property and equipment is subject to various operating leases for which we are the lessor. We lease our property and equipment related to our hotel rooms, convention space and retail space
through various short-term and long-term operating leases. See Note 10 for further discussion of our leases.
Useful Lives
Land improvements
Buildings
Building and leasehold improvements
Riverboats and barges
Furniture, fixtures, and equipment
Property and Equipment, Net
(In millions)
Land
Buildings, riverboats, and leasehold and land improvements
Furniture, fixtures, and equipment
Construction in progress
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
5
3
2.5
to
to
to
12
40
30
30
12
years
years
years
years
years
As of December 31,
2019
2018
4,218
$
12,022
1,762
706
18,708
(3,732)
14,976
$
4,871
12,243
1,563
406
19,083
(3,038)
16,045
$
$
During 2019, we recorded an impairment charge to land and buildings in the amount of $380 million, which included $6 million related to selling costs for the disposition of Rio in our Las Vegas
segment. In connection with our sale of Rio, we also recorded a $6 million loss on the sale of assets which is included in Other operating costs on our Statements of Operations. The impairment and
sale resulted in a decrease of the carrying value of our property and equipment of $879 million. During 2018, we recorded tangible asset impairment charges of $14 million, which were related to the
closure of casino operations at our property Tunica Roadhouse in our Other U.S. segment.
Depreciation Expense and Other Amortization Expense
(In millions)
Depreciation expense
Other amortization expense
Years Ended December 31,
2019
2018
2017
$
949
$
1
1,074
$
3
555
4
Depreciation is calculated using the straight-line method over the shorter of the estimated useful life of the asset or the related lease.
Note 7 — Goodwill and Other Intangible Assets
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. We determine 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.
83
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We perform our annual goodwill impairment assessment as of October 1. We perform this assessment more frequently if impairment indicators exist. We performed our annual goodwill impairment
test by comparing the fair value of each reporting unit with its carrying amount. We determine the estimated fair value of each reporting unit based on a combination of EBITDA, valuation multiples,
and estimated future cash flows discounted at rates commensurate with the capital structure and cost of capital of comparable market participants, giving appropriate consideration to the prevailing
borrowing rates within the casino industry in general. We also evaluate the aggregate fair value of all of our reporting units and other non-operating assets in comparison to our aggregate debt and
equity market capitalization at the test date. EBITDA multiples and discounted cash flows are common measures used to value businesses in our industry.
We perform our annual impairment assessment of other non-amortizing intangible assets as of October 1. We perform this assessment more frequently if impairment indicators exist. We determine
the estimated fair value of our non-amortizing intangible assets by primarily using the Relief from Royalty Method and Excess Earnings Method under the income approach.
The evaluation of goodwill and other non-amortizing intangible assets requires the use of estimates about future operating results, valuation multiples, and discount rates to determine their estimated
fair value. Changes in these assumptions can materially affect these estimates. Thus, to the extent gaming volumes deteriorate in the near future, discount rates increase significantly, or we do not
meet our projected performance, we could have impairments to record in the future and such impairments could be material.
Changes in Carrying Value of Goodwill by Segment
(In millions)
Gross Goodwill
Balance as of January 1, 2018
Centaur acquisition (1)
Other
Balance as of December 31, 2018
Accumulated Impairment
Balance as of January 1, 2018
Impairment
Balance as of December 31, 2018
Net carrying value, as of December 31, 2018 (2)
Gross Goodwill
Balance as of January 1, 2019
Transferred to assets held for sale
Balance as of December 31, 2019
Accumulated Impairment
Balance as of January 1, 2019
Impairment
Balance as of December 31, 2019
Net carrying value, as of December 31, 2019 (2)
Las Vegas
Other U.S.
All Other
CEC Total
$
$
$
$
6,204
$
—
—
6,204
(3,115)
—
(3,115)
1,002
$
275
—
1,277
(337)
(17)
(354)
3,089
$
923
$
6,204
$
—
6,204
(3,115)
—
(3,115)
1,277
$
—
1,277
(354)
(27)
(381)
3,089
$
896
$
61
$
—
(3)
58
—
(26)
(26)
32
$
58
$
(5)
53
(26)
—
(26)
27
$
7,267
275
(3)
7,539
(3,452)
(43)
(3,495)
4,044
7,539
(5)
7,534
(3,495)
(27)
(3,522)
4,012
____________________
(1)
(2)
See Note 4 for further details relating to the acquisition of Centaur.
$405 million and $81 million of goodwill within our Las Vegas and Other U.S. segments, respectively, is associated with reporting units with zero or negative carrying value. Except for Horseshoe Hammond, the fair value of our reporting units
exceed their respective carrying values.
84
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Changes in Carrying Value of Intangible Assets Other than Goodwill
(In millions)
Balance as of January 1
Impairments
Amortization expense
Transferred to assets held for sale
Centaur acquisition (1)
Other additions (2)
Other
Balance as of December 31
____________________
(1)
(2) Other additions of $20 million are related to gaming rights.
See Note 4 for further details relating to the acquisition of Centaur.
Amortizing
Non-Amortizing
Total
2019
2018
2019
2018
2019
2018
$
$
342
$
—
(71)
(1)
—
—
—
355
$
2,635
$
1,254
$
2,977
$
1,609
—
(68)
—
55
—
—
(61)
—
(10)
—
—
(10)
(21)
—
—
1,390
20
(8)
(61)
(71)
(11)
—
—
(10)
(21)
(68)
—
1,445
20
(8)
270
$
342
$
2,554
$
2,635
$
2,824
$
2,977
During 2019, as a result of declines in recent performance and downgraded expectations for future cash flows at the properties of our subsidiary Caesars Entertainment UK (“CEUK”), we recognized
an impairment charge related to gaming rights of $50 million. This impairment was recognized within our All Other segment. In addition, we recognized impairment charges related to goodwill of
$27 million and gaming rights of $11 million at Horseshoe Hammond, LLC within our Other U.S. segment as a result of downgraded expectations for future cash flows from increased competition in
the region.
During 2018, as a result of declines in our stock price and increases in market yields within our industry, which are both factors used to determine the discount rate, along with downward adjustments
to expectations of future performance at certain of our properties outside of Las Vegas, we recognized impairment charges related to goodwill of $43 million and gaming rights of $21 million for
certain of our properties, of which $12 million was recognized in our Other U.S. segment and $9 million was recognized in our All Other segment.
We used the Excess Earnings Method and a Cost Approach for estimating fair value for these gaming rights. We utilized an income approach using a discounted cash flow method to determine the
fair value of our goodwill.
Gross Carrying Value and Accumulated Amortization of Intangible Assets Other than Goodwill
December 31, 2019
December 31, 2018
Weighted
Average
Remaining
Useful Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(Dollars in millions)
Amortizing intangible assets
Trade names and trademarks
Customer relationships
Contract rights
Gaming rights and other
Non-amortizing intangible assets
Trademarks
Gaming rights
Caesars Rewards
1.0 $
14
$
(8)
$
6
$
14
$
(3)
$
3.6
5.0
4.5
1,070
3
43
$
1,130
$
(819)
(2)
(31)
(860)
251
1
12
1,071
3
43
270
$
1,131
$
(756)
(2)
(28)
(789)
11
315
1
15
342
790
1,592
253
2,635
2,977
776
1,525
253
2,554
2,824
$
Total intangible assets other than goodwill
$
The aggregate amortization expense for intangible assets that continue to be amortized was $71 million, $68 million, and $67 million, respectively, for the years ended December 31, 2019, 2018, and
2017.
85
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2020
2021
2022
2023
2024
$
71
$
60
$
17 $
15
$
13
Years Ended December 31,
Estimated Five-Year Amortization
(In millions)
Estimated annual amortization expense
Note 8 — Fair Value Measurements
Our assessment of goodwill and other intangible assets for impairment includes an assessment using various Level 2 (EBITDA multiples and discount rate) and Level 3 (forecasted cash flows) inputs.
See Note 7 for more information on the application of the use of fair value methodology to measure goodwill and other intangible assets.
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:
(In millions)
December 31, 2019
Assets
Government bonds
Total assets at fair value
Liabilities
Derivative instruments - interest rate swaps
Derivative instruments - CEC Convertible Notes
Disputed claims liability
Total liabilities at fair value
December 31, 2018
Assets
Government bonds
Derivative instruments - interest rate swaps
Total assets at fair value
Liabilities
Derivative instruments - interest rate swaps
Derivative instruments - CEC Convertible Notes
Disputed claims liability
Total liabilities at fair value
Government Bonds
Balance
Level 1
Level 2
Level 3
$
$
$
$
$
$
$
$
13
13
$
$
69
$
944
51
1,064
$
15
6
21
$
$
22
$
324
45
391
$
— $
— $
— $
—
—
— $
— $
—
— $
— $
—
—
— $
13
13
$
$
69
$
944
51
1,064
$
15
6
21
$
$
22
$
324
45
391
$
—
—
—
—
—
—
—
—
—
—
—
—
—
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, see Note 12 for further details.
86
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 the changes in fair value as a result of fluctuations in the share
price of our common stock resulted in a loss of $620 million and a gain of $697 million, respectively, which were recorded as a component of Other income/(loss) for the years ended
December 31, 2019 and 2018 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.
Valuation Methodology
The CEC Convertible Notes have a face value of $1.1 billion, an initial term of 7 years, a coupon rate of 5%, and are convertible into 156 million shares of CEC common stock, of which 151 million
shares are net of amounts held by CEC.
As of December 31, 2019 and December 31, 2018, we estimated the fair value of the CEC Convertible Notes using a market-based approach that incorporated the value of both the straight debt and
conversion features of the notes. The valuation model incorporated actively traded prices of the CEC Convertible Notes as of the reporting date, and assumptions regarding the incremental cost of
borrowing for CEC. The key assumption used in the valuation model is the actively traded price of CEC Convertible Notes and the incremental cost of borrowing is an indirectly observable input.
The fair value for the conversion features of the CEC Convertible Notes is classified as Level 2 measurement.
Key Assumptions as of December 31, 2019 and December 31, 2018:
•
•
Actively traded price of CEC Convertible Notes - $192.55 and $122.38, respectively
Incremental cost of borrowing - 4.0% and 7.0%, respectively
Interest Rate Swap Derivatives
We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of December 31, 2019, we have entered into ten interest rate swap agreements to fix the
interest rate on $3.0 billion of variable rate debt. 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 is accrued as interest rates change and recognized as an adjustment to interest expense at settlement. Changes in the variable interest rates to be received pursuant to the terms of the
interest rate swap agreements will have a corresponding effect on future cash flows.
87
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The major terms of the interest rate swap agreements as of December 31, 2019 are as follows:
Effective Date
12/31/2018
12/31/2018
12/31/2018
1/1/2019
1/1/2019
1/1/2019
1/1/2019
1/2/2019
1/2/2019
1/2/2019
Valuation Methodology
Notional Amount
(In millions)
Fixed Rate Paid
Variable Rate Received as of
December 31, 2019
Maturity Date
250
200
600
250
250
400
200
250
200
400
2.274%
2.828%
2.739%
2.153%
2.196%
2.788%
2.828%
2.172%
2.731%
2.707%
1.691%
1.691%
1.691%
1.691%
1.691%
1.702%
1.691%
1.691%
1.691%
1.691%
12/31/2022
12/31/2022
12/31/2022
12/31/2020
12/31/2021
12/31/2021
12/31/2022
12/31/2020
12/31/2020
12/31/2021
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.
Financial Statement Impact
The effect of derivative instruments designated as hedging instruments on the Balance Sheet for amounts transferred into Accumulated other comprehensive income/(loss) (“AOCI”) before tax was a
loss of $53 million and $16 million, respectively, for the years ended December 31, 2019 and 2018. AOCI reclassified to Interest expense on the Statements of Operations was $10 million and zero
for the years ended December 31, 2019 and December 31, 2018, respectively. The estimated amount of existing losses that are reported in AOCI at the reporting date that are expected to be
reclassified into earnings within the next 12 months is approximately $29 million.
88
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accumulated Other Comprehensive Income/(Loss)
The changes in AOCI by component, net of tax, for the annual periods through December 31, 2019, 2018 and 2017 are shown below.
(In millions)
Balances as of January 1, 2017
Other comprehensive income/(loss) before reclassifications
Total other comprehensive income/(loss), net of tax
Balances as of December 31, 2017
Other comprehensive income/(loss) before reclassifications
Total other comprehensive income/(loss), net of tax
Balances as of December 31, 2018
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Total other comprehensive income/(loss), net of tax
Balances as of December 31, 2019
Disputed Claims Liability
Unrealized Net
Gains/(Losses) on
Derivative Instruments
Foreign Currency
Translation Adjustments
Other
Total
$
$
$
$
— $
—
—
— $
(13)
(13)
(13)
$
(51)
10
(41)
(54)
$
— $
9
9
9
(18)
(18)
$
(9)
$
2
—
2
(7)
$
$
$
(1)
(2)
(2)
(3)
1
1
(2)
$
2
—
2
— $
(1)
7
7
6
(30)
(30)
(24)
(47)
10
(37)
(61)
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 11). We have estimated the fair value of the remaining liability of those claims. As of December 31, 2019, the fair value of the Disputed claims liability is classified as
Level 2.
For the years ended December 31, 2019 and 2018, the changes in fair value related to the disputed claims liability was a loss of $20 million and a gain of $24 million, respectively. The change in fair
value, which is a result of the increase in the share price of our common stock, was recorded as components of Other income/(loss) in the Statements of Operations.
Note 9 — Accrued Expenses and Other Current Liabilities
(In millions)
Payroll and other compensation
VICI Call Right
Self-insurance claims and reserves
Accrued taxes
Advance deposits
Disputed claims liability (See Note 11)
Chip and token liability
Operating lease liability
Other accruals
Total accrued expenses and other current liabilities
89
As of December 31,
2019
2018
$
267
177
163
171
89
51
38
66
301
1,323
$
281
177
173
157
92
45
37
—
255
1,217
$
$
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Self-Insurance Accruals
We are self-insured for workers’ compensation and other risk products through our captive insurance subsidiaries. Our insurance claims and reserves include accruals of estimated settlements for
known claims, as well as accruals of actuarial estimates of incurred but not reported claims. In estimating these reserves, historical loss experience and judgments about the expected levels of costs
per claim are considered. We also utilize consultants to assist in the determination of certain estimated accruals. These claims are accounted for based on actuarial estimates of the undiscounted
claims, including those claims incurred but not reported. We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly
judgmental accruals; however, changes in health care costs, accident frequency and severity, and other factors can materially affect the estimates for these liabilities. We regularly monitor the
potential for changes in estimates, evaluate our insurance accruals, and adjust our recorded provisions.
VICI Call Right
On the Effective Date, in accordance with the Plan, VICI received the VICI Call Right for up to five years to purchase and leaseback the real property assets associated with Harrah’s Atlantic City
and Harrah’s Atlantic City Waterfront Conference Center, Harrah’s Laughlin, and Harrah’s New Orleans for a cash purchase price of ten times the agreed upon annual rent for each property. The VICI
Call Right is subject to the terms of the CRC Credit Agreement (defined in Note 12). On the Effective Date, the VICI Call Right was transferred to Accrued expenses and other current liabilities on
our Balance Sheet at an amount equal to the fair value of the option on the Effective Date. Management does not believe that the liability should continue to be recognized at fair value after initial
recognition until the execution or expiration of the option because it is an option related to real estate, not a derivative, and the fair value option has not been elected. Additionally, provided the real
estate property assets remain on the Balance Sheets, they will be evaluated for impairment.
Note 10 — Leases
Adoption of New Lease Accounting Standard
In February 2016, the FASB issued a new standard related to leases, ASU 2016-02, Leases (Topic 842) (“ASC 842”). We adopted the standard effective January 1, 2019, using the modified
retrospective approach applied as of the beginning of the period of adoption. The Company elected to utilize the transition guidance within the new standard that permits us to (i) continue to report
under legacy lease accounting guidance for comparative periods consistent with previously issued financial statements; and (ii) carryforward our prior conclusions about lease identification, lease
classification, and initial direct costs. The most significant effects of adopting the new standard relate to the recognition of right-of-use (“ROU”) assets and liabilities for leases classified as operating
leases when the Company is the lessee in the arrangement. Adopting the new standard did not affect our accounting related to leases when the Company is the lessor in the arrangement.
We assess whether an arrangement is or contains a lease at the inception of the agreement. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent
our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease
term using an appropriate incremental borrowing rate, which is consistent with interest rates of similar financing arrangements based on the information available at the commencement date. We
determined our incremental borrowing rate based on the interest rates published for unsecured borrowings with credit ratings similar to our unsecured debt, which were then adjusted for the
appropriate lease term and effects of full collateralization.
Upon adoption, our ROU assets were also adjusted to include any prepaid lease payments and were reduced by any previously accrued lease liabilities. The terms of our leases used to determine the
ROU asset and lease liability take into account options to extend when it is reasonably certain that we will exercise those options. Lease expense is recognized on a straight-line basis over the lease
term. Additionally, we have elected the short-term lease measurement and recognition exemption and do not establish ROU assets or lease liabilities for operating leases with terms of 12 months or
less.
90
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effect of Adopting New Lease Standard - January 1, 2019 Balance Sheet
(In millions)
Property and equipment, net (1)
Deferred charges and other assets (2)(3)
Accrued expenses and other current liabilities (2)
Financing obligations (1)
Prior to Adoption
Effect of Adoption
Post Adoption
$
16,045
$
383
1,217
10,057
(96)
$
480
33
(96)
15,949
863
1,250
9,961
Deferred credits and other liabilities (2)(3)
___________________
(1) Non-operating land assets previously considered as failed sale-leaseback financing obligations were determined to qualify for sale-leaseback accounting and are recognized as operating lease liabilities with corresponding ROU assets.
(2) Operating leases previously considered as off-balance sheet obligations are now recognized as operating lease liabilities with corresponding ROU assets.
(3)
Accruals associated with future obligations for leases not in use have been applied against the carrying amount of the ROU assets.
447
849
1,296
Lessee Arrangements
Operating Leases
We lease real estate and equipment used in our operations from third parties. As of December 31, 2019, the remaining term of our operating leases ranged from 1 to 72 years with various extension
options available, if we elect to exercise them. However, our remaining terms only include extension options that we have determined are reasonably assured as of December 31, 2019. In addition to
minimum rental commitments, certain of our operating leases provide for contingent rentals based on a percentage of revenues in excess of specified amounts. We do not include costs associated with
our non-lease components in our lease costs disclosed in the table below.
The following are additional details related to leases recorded on our Balance Sheet as of December 31, 2019:
(In millions)
Assets
Operating lease ROU assets (1)
Liabilities
Current operating lease liabilities (1)
Non-current operating lease liabilities (1)
Balance Sheet Classification
December 31, 2019
Deferred charges and other assets
$
Accrued expenses and other current liabilities
Deferred credits and other liabilities
____________________
(1)
As noted above, we have elected the short-term lease measurement and recognition exemption and do not establish ROU assets or liabilities for operating leases with terms of 12 months or less.
Maturity of Lease Liabilities
The following table summarizes the future minimum lease obligations of our operating leases as of December 31, 2019 under the new standard:
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total
Less: present value discount
Lease liability
Operating Leases
$
$
91
550
64
545
105
106
100
63
58
837
1,269
(660)
609
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 and under the old standard, the following table summarizes the future minimum lease obligations
of our operating leases as of December 31, 2018:
(In millions)
2019
2020
2021
2022
2023
Thereafter
Total
Lease Costs
(In millions)
Operating lease expense
Short-term lease expense
Variable lease expense
Total lease costs
Other Information
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Weighted-Average Details
Weighted-average remaining lease term (in years)
Weighted-average discount rate
Finance Leases
$
$
$
$
$
Operating Leases
December 31, 2019
December 31, 2019
December 31, 2019
82
70
57
53
51
966
1,279
74
102
15
191
71
18.5
7.11%
We have finance leases for certain equipment. As of December 31, 2019, our finance leases had remaining lease terms of up to approximately 5 years, some of which include options to extend the
lease terms in one month increments. Our finance lease ROU assets and liabilities were less than a million within our Financial Statements as of December 31, 2019.
Failed Sale-Leaseback Financing Obligations
We lease certain real property assets from VICI (each a “Lease Agreement,” and, collectively, the “Lease Agreements”): (i) for Caesars Palace Las Vegas, (ii) for a portfolio of properties at various
locations throughout the United States, (iii) for Harrah’s Joliet Hotel & Casino and (iv) for Harrah’s Las Vegas. The Lease Agreements provide for annual fixed rent (subject to escalation) of $773
million during an initial period, then rent consisting of both base rent and variable rent elements. The Lease Agreements have a 15-year initial term and four five-year renewal options, subject to
certain restrictions on extension applicable to certain of the leased properties. The Lease Agreements include escalation provisions beginning in year two of the initial term and continuing through the
renewal terms. The Lease Agreements also include provisions for variable rent payments calculated, in part, based on increases or decreases of net revenue of the underlying lease properties,
commencing in year eight of the initial term and continuing through the renewal terms.
The Lease Agreements were evaluated as sale-leasebacks of real estate. We determined that these transactions did not qualify for sale-leaseback accounting, and we have accounted for each of the
transactions as a financing.
For these failed sale-leaseback transactions, we continue to reflect the real estate assets on our Balance Sheets in Property and equipment, net as if we were the legal owner, and we continue to
recognize depreciation expense over their estimated useful lives.
92
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
We do not recognize lease expense related to the Lease Agreements, but we have recorded a liability for the failed sale-leaseback obligations and the majority of the periodic lease payments are
recognized as interest expense. In the initial periods, the majority of the cash payments are less than the interest expense recognized in the Statements of Operations, which causes the related failed
sale-leaseback financing obligations to increase during the initial periods of the lease term.
Annual Estimated Failed Sale-Leaseback Financing Obligation Service Requirements as of December 31, 2019
Years Ended December 31,
(In millions)
Financing obligations - principal
Financing obligations - interest
Total financing obligation payments (1)
2020
2021
2022
2023
2024
Thereafter
Total
$
$
21
$
712
733
$
26
$
787
813
$
29
$
799
828
$
33
$
814
847
$
37
$
8,468
$
830
867
24,683
$
33,151
$
8,614
28,625
37,239
____________________
(1)
Financing obligation principal and interest payments are estimated amounts based on the future minimum lease payments and certain estimates based on contingent rental payments. Actual payments may differ from the estimates.
Subject to certain exceptions, the payment of all monetary obligations under the CEOC LLC Lease Agreements are guaranteed by CEC and the payment of all monetary obligations under the
Harrah’s Las Vegas lease is guaranteed by CRC.
Lessor Arrangements
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 year ended December 31, 2019, we recognized approximately $1.6 billion in lease revenue related to lodging arrangements, which is included in Rooms revenue in the
Statement 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 Food and beverage
revenue in the Statement of Operations, and during the year ended December 31, 2019, we recognized approximately $47 million in lease revenue related to conventions.
Real Estate Operating Leases
We enter into long-term real estate leasing arrangements with third-party lessees at our properties. As of December 31, 2019, the remaining terms of these operating leases ranged from 1 to 85 years,
some of which include options to extend the lease term for up to 5 years. In addition to minimum rental commitments, certain of our operating leases provide for contingent payments including
contingent rentals based on a percentage of revenues in excess of specified amounts and reimbursements for common area maintenance and utilities charges. 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. In addition, to maintain the value of our leased assets, certain leases include specific maintenance requirements of the lessees or maintenance
is performed by the Company on behalf of the lessees.
93
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturity of Lease Receivables as of December 31, 2019
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total
Operating Leases
70
66
59
54
47
772
1,068
$
$
Note 11 — 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, as we do not believe it is reasonably possible that we will incur material losses as a result of such litigation.
Litigation Relating to the Merger
On September 5, 2019, a complaint was filed against Caesars and each member of the Caesars board of directors (the “Caesars Board”) in the United States District Court for the District of Delaware.
The lawsuit, captioned Stein v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-01656, alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and Rule 14a-9 promulgated thereunder, and 17 C.F.R. § 244.100, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with
the Merger. The complaint alleges, among other things, that Caesars violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger
by the Caesars Board; and (ii) certain financial information relating to the financial advisors’ analyses of the transaction. The plaintiff seeks (i) to enjoin the defendants from proceeding with,
consummating or closing the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in the complaint, (ii) if the Merger is consummated, rescission
of the Merger or rescissory damages and (iii) an accounting to plaintiff for all damages suffered as a result of defendants’ alleged wrongdoing. The plaintiff also seeks an award of costs and
disbursements incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
On September 9, 2019, a class action complaint was filed against Caesars, each member of the Caesars Board, Eldorado and Merger Sub in the United States District Court for the District of
Delaware. The lawsuit, captioned Palkon v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-01679, alleges violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9
promulgated thereunder, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleges, among other things, that
Caesars and/or Eldorado violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) certain financial
information relating to the financial advisors’ analyses of the transaction; and (iii) certain information regarding potential conflicts of interest of the financial advisor. The plaintiff seeks, among other
things, (i) to enjoin the defendants from proceeding with, consummating or closing the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in
the complaint and (ii) if the Merger is consummated, rescission of the Merger or rescissory damages suffered as a result of defendants’ alleged wrongdoing. The plaintiff also seeks an award of costs
incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
On September 11, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the District of New Jersey. The lawsuit, captioned
Romaniuk v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-17871, alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, against
the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleged, among other things, that Caesars violated the securities laws
by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) certain financial information relating to the financial advisors’
analyses of the transaction; and (iii) certain information regarding potential conflicts of interest of the financial advisor. The plaintiff sought (i) to enjoin the defendants from proceeding with,
consummating or closing the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in the complaint and (ii) if the Merger is consummated,
rescission
94
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the Merger or rescissory damages. The plaintiff also sought an award of costs and expenses incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees. On
December 7, 2019, the Romaniuk complaint was voluntarily dismissed.
On September 12, 2019, a class action complaint was filed against Caesars, each member of the Caesars Board and Eldorado in the United States District Court for the District of Delaware. The
lawsuit, captioned Gershman v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-01720, alleges violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleges, among other things, that Caesars violated
the securities laws by failing to (i) disclose certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) disclose certain financial information relating to
the financial advisors’ analyses of the transaction; and (iii) obtain a proper valuation for Caesars. The plaintiff seeks (i) to enjoin the defendants from proceeding with filing an amendment to the
Eldorado S-4 (as defined below) and consummating the Merger, unless and until Caesars discloses to its stockholders the allegedly material information discussed in the complaint and (ii) if the
Merger is consummated, rescission of the Merger or rescissory damages. The plaintiff also seeks an award of costs and disbursements incurred in the action, including a reasonable allowance for
expert fees and attorneys’ fees.
On September 13, 2019, a class action complaint was filed against Caesars, each member of the Caesars Board and Eldorado in the Eighth Judicial District Court for Clark County, Nevada. The
lawsuit, captioned Cazer v. Caesars Entertainment Corp., et al., Civil Action No. A-19-801900-C, asserts claims for breach of fiduciary duties against the Caesars Board and aiding and abetting
breach of fiduciary duties against Caesars in connection with the Merger. The complaint alleges, among other things, that the members of the Caesars Board breached their fiduciary duties, and
Caesars aided and abetted such breaches of fiduciary duties, by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; and (ii)
certain financial information relating to the financial advisors’ analyses of the transaction. The plaintiff seeks (i) to compel the defendants to exercise their fiduciary duties to Caesars stockholders in
connection with the Merger in accordance with the information discussed in the complaint and (ii) an accounting to plaintiff for all damages suffered as a result of defendants’ alleged wrongdoing.
The plaintiff also seeks an award of costs and disbursements incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees.
Also on September 13, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the Southern District of New York. The lawsuit,
captioned Biasi v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-08547, alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder,
and 17 C.F.R. § 229.1015, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleged, among other things, that
Caesars violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; (ii) certain financial information
relating to the financial advisors’ analyses of the transaction; and (iii) certain information regarding potential conflicts of interest of the financial advisor. The plaintiff sought (i) to enjoin the
defendants from proceeding with the special meeting of Caesars’ stockholders to, among other things, adopt the Merger Agreement and consummating the Merger, unless and until Caesars discloses
to its stockholders the allegedly material information discussed in the complaint and (ii) an accounting to plaintiff for all damages suffered as a result of defendants’ alleged wrongdoing. The plaintiff
also sought an award of costs and expenses incurred in the action, including reasonable expert fees and attorneys’ fees. On November 15, 2019, the Biasi complaint was voluntarily dismissed.
On September 26, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the Southern District of New York. The lawsuit,
captioned Marathon Capital LLC v. Caesars Entertainment Corp., et al., Civil Action No. 1:19-cv-08971, alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9
promulgated thereunder, against the defendants for allegedly disseminating a false and misleading proxy statement in connection with the Merger. The complaint alleged, among other things, that
Caesars violated the securities laws by failing to disclose (i) certain information about the process leading up to the approval of the Merger by the Caesars Board; and (ii) certain financial information
relating to the financial advisors’ analyses of the transaction. The plaintiff sought (i) to enjoin the defendants from proceeding with, consummating or closing the Merger, unless and until Caesars
discloses to its stockholders the allegedly material information discussed in the complaint and (ii) if the Merger is consummated, rescission of the Merger or rescissory damages. The plaintiff also
sought an award of costs and expenses incurred in the action, including a reasonable allowance for expert fees and attorneys’ fees. On November 22, 2019, the Marathon Capital LLC complaint was
voluntarily dismissed.
On October 18, 2019, a complaint was filed against Caesars and each member of the Caesars Board in the United States District Court for the Southern District of New York. The lawsuit, captioned
Yarbrough v. Caesars Entertainment Corp., et al., Case No. 1:19-cv-09650 (S.D.N.Y.), alleged violations of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder,
against the defendants for allegedly disseminating a false and misleading definitive registration statement in connection
95
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with the Merger. The complaint alleged, among other things, that Caesars violated the securities laws by failing to disclose material information regarding: (i) certain information about the process
leading up to the approval of the Merger by the Caesars Board; and (ii) certain financial information relating to the financial advisors’ analyses of the transaction. The plaintiff sought: (i) to enjoin the
shareholder vote on the Merger or consummation of the Merger; and (ii) rescission of the Merger, to the extent it closes. The plaintiff also sought an award of costs and disbursements incurred in the
action, including a reasonable allowance for expert fees and attorneys’ fees. On February 14, 2020, the Yarbrough complaint was voluntarily dismissed.
We believe the claims asserted in each of the above described complaints are without merit and intend to vigorously defend against them to the extent they have not already been dismissed. It is not
probable that litigation discussed above, to the extent it was not already dismissed as of December 31, 2019, will result in a material effect on our financial statements.
Contractual Commitments
Proposed Extension of Casino Operating Contract for Harrah’s New Orleans
On June 7, 2019, the Governor of the State of Louisiana signed into effect legislation that would authorize the Louisiana Gaming Control Board to enter into a 30-year extension of the Harrah’s New
Orleans casino operating contract to 2054, subject to certain approvals of the amended casino operating contract that would provide for the 30-year extension and provided that such amended casino
operating contract includes certain requirements set forth in the legislation, including (without limitation), that (a) Caesars be obligated to make (i) a capital investment of $325 million on or around
the official gaming establishment by July 15, 2024 (subject to extensions for force majeure events), (ii) certain one-time payments totaling $25 million to the City of New Orleans and State of
Louisiana, (iii) certain one-time payments totaling $40 million to the City of New Orleans and State of Louisiana, (iv) an annual payment to the Louisiana Gaming Control Board in the amount of
$3.4 million (subject to certain adjustments based on changes with respect to the consumer price index), (v) an annual license payment to the Louisiana Gaming Control Board in the amount of $3
million starting in April 2022, and (vi) an annual payment in the amount of $6 million (subject to certain adjustments based on changes with respect to the consumer price index) to the City of New
Orleans, which annual payment is to be paid in quarterly installments, and (b) the minimum amount of the annual gaming payments made by Caesars to the Louisiana Gaming Control Board increase
from $60 million to $65 million starting in April 2022.
Exit Cost Accruals
As of December 31, 2019 and 2018, 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)
Future obligations under land lease agreements (1)
Iowa greyhound pari-mutuel racing fund
Permanent closure of international properties (2)
Unbundling of electric service provided by NV Energy
Total
Accrual Obligation End Date
2019
2018
As of December 31,
December 2092
December 2021
January 2032
February 2024
$
$
— $
17
—
49
66
$
43
33
10
58
144
____________________
(1) Associated with the abandonment of a construction project near the Mississippi Gulf Coast.
(2) Properties include Alea Leeds, Golden Nugget and Southend. As a result of the adoption of ASC 842, as of January 1, 2019, accruals associated with future obligations for leases not in use have been applied against the carrying amount of the
ROU assets. See Note 10.
NV Energy
In 2017, we elected to exit the fully bundled sales system of NV Energy and purchase energy, capacity, and/or ancillary services from other providers. As a result, we are required to pay an aggregate
exit fee and non-bypassable charges related to our Nevada properties until 2024. These fees are recorded in Accrued expenses and other current liabilities and Deferred credits and other liabilities on
the Balance Sheets, based on the expected payment date. The amount will be adjusted in the future if actual fees incurred differ from our estimates.
96
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sports Sponsorship/Partnership Obligations
We have agreements with certain professional sports leagues and teams, sporting event facilities and sports television networks for tickets, suites, and advertising, marketing, promotional and
sponsorship opportunities. As of December 31, 2019, obligations related to these agreements were $246 million with contracts extending through 2034. We recognize expenses in the period services
are rendered 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.
Golf Course Use Agreement
On October 6, 2017, certain Golf Course Properties were sold to VICI and CEOC LLC entered into a Golf Course Use Agreement with VICI over a 35-year term (inclusive of all renewal periods),
pursuant to which we incur (i) an annual payment of $10 million subject to escalation, (ii) an annual use fee of $3 million, subject to escalation beginning in the second year, and (iii) per-round fees.
All of these payments are guaranteed by CEC.
An obligation of $145 million is recorded in Deferred credits and other liabilities as of December 31, 2019, which represents the amount that the obligations of $10 million in annual payments to be
made under the Golf Course Use Agreement exceeds the fair value of services being received.
VICI Leases
Under the CEOC LLC Lease Agreements and the Harrah’s Las Vegas lease, we are required to spend certain minimum amounts on capital expenditures.
Tribal Casino Management Contracts
The agreements pursuant to which we manage casinos on Indian lands contain provisions required by law that state that a minimum monthly payment must be made to the applicable tribe. This
payment obligation has priority over scheduled repayments of borrowings for development costs and over the management fee earned and paid to the manager. In the event that insufficient cash flow
is generated by the operations to fund this payment, we must pay the shortfall to the tribe. Subject to certain limitations as to time, such advances, if any, would be repaid to us in future periods in
which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the
management contract. Our aggregate monthly commitment for the minimum guaranteed payments, pursuant to contracts for the three managed, Indian-owned facilities, is approximately $1 million.
Each of these casinos currently generates sufficient cash flows to cover all of its obligations, including its debt service.
Separation Agreement
On November 1, 2018, the Company announced that Mark P. Frissora, our former President and Chief Executive Officer, was leaving the Company. Subject to the terms of the separation agreement
entered into between the Company and Mr. Frissora (as amended, the “Separation Agreement”), Mr. Frissora continued as President and Chief Executive Officer until his termination date of April 30,
2019. In connection with his Separation Agreement, upon his termination date, Mr. Frissora was vested in all unvested equity and cash awards (with vesting of performance stock units and options
remaining subject to achievement of applicable targets and options generally exercisable for two years after vesting). As a result of the separation, a total of $32 million of accelerated compensation
expense was recognized through his exit date of April 30, 2019, of which $13 million was recognized during the year ended December 31, 2019 and $19 million during the year ended
December 31, 2018. As of December 31, 2019 approximately $5 million was unpaid and recorded in Accrued expenses and other current liabilities.
Voluntary Severance Program
During 2019, in an effort towards achieving greater operational efficiency, the Company initiated a Voluntary Severance Program (“VSP”). The VSP was offered to non-property, US-based corporate
employees in management roles, as defined by the program, excluding certain revenue focused departments. For the year ended December 31, 2019, the Company recognized severance and stock-
based compensation charges related to this VSP program totaling approximately $17 million. As of December 31, 2019, approximately $4 million was unpaid and recorded in Accrued expenses and
other current liabilities.
97
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Parking Area Use Agreement
Planet Hollywood Resort & Casino is party to an agreement for a common parking area for purposes of parking, passage, loading and unloading of motor vehicles and pedestrian traffic. The parking
area is owned by a third party to which we make annual fee payments of $3 million. In addition, certain expenses incurred by the property owner in connection with the operation, management, repair
and maintenance are allocated to all parties within the agreement. Our expected obligation, including the annual fee, for each of the next five years is estimated to be $5 million per year and the term
of the agreement continues through December 31, 2097. This expense is recorded within Property, general, administrative, and other on our Statement of Operations.
Contingent Liabilities
Resolution of Disputed Claims
As described in Note 1, CEOC and certain of its U.S. subsidiaries (collectively, the “Debtors”) emerged from bankruptcy and consummated their reorganization pursuant to their third amended joint
plan of reorganization on the Effective Date. 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 $437 million. We estimate the fair value of these claims to be $51 million as of December 31, 2019, which is recorded in Accrued expenses and other current liabilities
and 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. See Note 8.
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 December 31, 2019, approximately $48 million in cash, 8 million shares of CEC common stock, and $32 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.
Caesars United Kingdom UKGC Investigation
In June 2019, the British Gambling Commission (the “Commission” or “UKGC”) informed CEUK that it was initiating a license review of its British properties. The review relates to certain potential
inadequacies in implementation of the CEUK Anti-Money Laundering policies and in CEUK’s social responsibility policy and customer monitoring. CEC is taking all necessary steps to remedy
issues identified in its own review and disclosed to the Commission. At the present time, we believe a regulatory settlement is probable and have recorded a liability of $17 million recorded in
Accrued expenses and other current liabilities. Given the uncertainty of the review, we do not have a better estimate of the outcome of the review or the potential settlement at this time; however, it is
possible we will incur a loss that is higher than what we have recorded and the Commission may limit, condition, restrict, revoke, or suspend CEUK’s licenses.
98
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 — Debt
(Dollars in millions)
Secured debt
CRC Revolving Credit Facility
CRC Term Loan
CEOC LLC Revolving Credit Facility
CEOC LLC Term Loan
Unsecured debt
CEC Convertible Notes
CRC Notes
Special Improvement District Bonds
Total debt
Current portion of long-term debt
Long-term debt
Unamortized premiums, discounts and deferred finance charges
Fair value
____________________
(1)
(2)
(3)
London Interbank Offered Rate (“LIBOR”) plus 2.13%.
LIBOR plus 2.75%.
LIBOR plus 2.00%.
Annual Estimated Debt Service Requirements
Final
Maturity
2022
2024
2022
2024
2024
2025
2037
December 31, 2019
December 31, 2018
Rates
Face Value
Book Value
Book Value
variable (1)
$
variable (2)
variable (3)
variable (3)
5.00%
5.25%
4.30%
— $
4,606
—
1,220
1,086
1,700
53
8,665
(64)
— $
4,541
—
1,218
1,058
1,672
53
8,542
(64)
$
$
8,601
$
8,478
$
$
8,821
123 $
100
4,577
—
1,483
1,083
1,668
54
8,965
(164)
8,801
110
(In millions)
Annual maturities of long-term debt
Estimated interest payments
Total debt service obligation (1)
2020
2021
2022
2023
2024
Thereafter
Total
$
$
64
$
430
494
$
64
$
410
474
$
64
$
400
464
$
64
$
6,666
$
1,743
$
390
454
380
100
$
7,046
$
1,843
$
8,665
2,110
10,775
____________________
(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 8). Actual payments may differ from these estimates.
Years Ended December 31,
Current Portion of Long-Term Debt
The current portion of long-term debt as of December 31, 2019 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.
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.
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 its original maturity date.
Fair Value
The fair value of debt has been calculated primarily based on the borrowing rates available as of December 31, 2019 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.
99
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CRC Term Loan and Revolving Credit Facility
On December 22, 2017, CRC entered into a new $5.7 billion senior secured credit facility (the “CRC Senior Secured Credit Facilities”), including a $1.0 billion five-year revolving credit facility (the
“CRC Revolving Credit Facility”) and a $4.7 billion seven-year first lien term loan (the “CRC Term Loan”). The CRC Senior Secured Credit Facilities were funded and closed pursuant to the Credit
Agreement, dated as of December 22, 2017 (the “CRC Credit Agreement”).
The CRC Term Loan matures in 2024. The CRC Revolving Credit Facility matures in 2022 and includes a letter of credit sub-facility. The CRC Term Loan requires scheduled quarterly principal
payments in amounts equal to 0.25% of the original aggregate principal amount, with the balance due at maturity. The CRC Credit Agreement also includes customary voluntary and mandatory
prepayment provisions, subject to certain exceptions. As of December 31, 2019 and 2018, approximately $25 million and $36 million was committed to outstanding letters of credit, respectively. As
of December 31, 2019, there were no borrowings outstanding under the CRC Revolving Credit Facility.
Borrowings under the CRC Credit Agreement bear 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) in the case of the CRC Revolving Credit Facility, 2.25% per annum in the case of any LIBOR loan and 1.25% per
annum in the case of any base rate loan, subject in the case of the CRC Revolving Credit Facility to two 0.125% step-downs based on CRC’s senior secured leverage ratio (“SSLR”), the ratio of first
lien senior secured net debt to adjusted earnings before interest, taxes, depreciation and amortization.
In addition, CRC is required to pay a commitment fee in respect of any commitments under the CRC Revolving Credit Facility in the amount of 0.50% of the principal amount of the commitments,
subject to step-downs to 0.375% and 0.25% based upon CRC’s SSLR. CRC is also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum
equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and
processing fees and charges and a fronting fee in an amount equal to 0.125% of the daily stated amount of such letter of credit.
CRC Notes
On October 16, 2017, CRC Escrow Issuer LLC (“Escrow Issuer”) and CRC Finco. Inc., then both wholly owned subsidiaries of CEC, issued $1.7 billion aggregate principal amount of 5.25% senior
notes due 2025 (the “CRC Notes”). On December 22, 2017, Escrow Issuer merged with and into CRC, with CRC as the surviving entity and issuer of the CRC Notes.
CEOC LLC Term Loan and Revolving Credit Facility
As part of the acquisition of OpCo on the Effective Date, we assumed debt that was issued in connection with CEOC’s emergence from bankruptcy including a $1.235 billion term loan (the “CEOC
LLC Term Loan”) pursuant to a Credit Agreement dated as of October 6, 2017, and amended on April 16, 2018, (the “CEOC LLC Credit Agreement”). In addition, OpCo had a $200 million
revolving credit facility under the CEOC LLC Credit Agreement (the “CEOC LLC Revolving Credit Facility”). In December 2017, we increased the CEOC LLC Term Loan by $265 million to $1.5
billion.
The CEOC LLC Term Loan matures in 2024 and the CEOC LLC Revolving Credit Facility matures in 2022 and includes a letter of credit sub-facility. The CEOC LLC Term Loan requires scheduled
quarterly principal payments in amounts equal to 0.25% of the original aggregate principal amount, with the balance due at maturity. The CEOC LLC Credit Agreement also includes customary
voluntary and mandatory prepayment provisions, subject to certain exceptions. As of December 31, 2019, there were no borrowings outstanding under the CEOC LLC Revolving Credit Facility and
approximately $39 million was committed to outstanding letters of credit. As of December 31, 2018, approximately $39 million was committed to outstanding letters of credit.
Borrowings under the CEOC LLC Credit Agreement bear 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 CEOC LLC Credit
Agreement and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin.
100
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The applicable margins under the CEOC LLC Credit Agreement are (a) with respect to the CEOC LLC Term Loan, 2.00% per annum in the case of any LIBOR loan or 1.00% per annum in the case
of any base rate loan and (b) in the case of the CEOC LLC Revolving Credit Facility, 2.00% per annum in the case of any LIBOR loan and 1.00% per annum in the case of any base rate loan, subject
in the case of the CEOC LLC Revolving Credit Facility to two 0.125% step-downs based on CEOC LLC’s SSLR.
In addition, CEOC LLC is required to pay a commitment fee in respect of any commitments under the CEOC LLC Revolving Credit Facility in the amount of 0.50% of the principal amount of the
commitments, subject to step-downs to 0.375% and 0.25% based upon CEOC LLC’s SSLR. CEOC LLC is also required to pay customary agency fees as well as letter of credit participation fees
computed at a rate per annum equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit
issuer’s customary documentary and processing fees and charges and a fronting fee in an amount equal to 0.125% of the daily stated amount of such letter of credit.
CEC Convertible Notes
On the Effective Date, CEC issued $1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 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. CEC does not have any other redemption rights under the CEC Convertible Notes.
On December 2, 2019, we paid $28 million to the holders of the CEC Convertible Notes, whose consents were validly delivered and not validly revoked, to modify the CEC Convertible Notes (the
“Consent”). The consent fee is recognized as an additional discount to our debt and will be amortized over the remaining life of the CEC Convertible Notes. The Consent amended the indenture
governing the CEC Convertible Notes to expressly permit the Merger and the other transactions contemplated by the Merger Agreement (including the related financing transactions) and, subject to
the consummation of the Merger, delete the negative covenants contained in Sections 4.02 (Reports and Other Information), 4.03 (Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock), 4.04 (Limitation on Restricted Payments), 4.05 (Dividend and Other Payment Restrictions Affecting Subsidiaries) 4.06 (Asset Sales), 4.07 (Transactions with
Affiliates), 4.09 (Compliance Certificate), 4.10 (Further Instruments and Acts), 4.12 (Liens), 4.13 (Business Activities), 4.15 (Payments for Consents) and 5.01 (When Issuer may Merge or Transfer
Assets) of the indenture for the purpose of providing additional operating flexibility after the consummation of the Merger.
As of December 31, 2019, an immaterial amount of the CEC Convertible Notes was converted into shares of CEC common stock. An aggregate of 156 million shares of CEC common stock, of
which 151 million shares are net of amounts held by CEC, are issuable upon conversion of the CEC Convertible Notes. As of December 31, 2019, the remaining life of the CEC Convertible Notes is
4.75 years.
The Company has determined that the CEC Convertible Notes contain derivative features that require bifurcation. We separately account for the liability component and equity conversion option of
the CEC Convertible Notes. The portion of the overall fair value allocated to the liability was calculated by using a market-based approach without the conversion features included. The difference
between the overall instrument value and the value of the liability component was assumed to be the value of the equity component. See Note 8 for more information on the CEC Convertible Notes’
fair value measurements.
101
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summary of Debt and Revolving Credit Facility Cash Flows from Financing Activities in 2019
(In millions)
CEC Convertible Notes
CRC Revolving Credit Facility
CRC Term Loan
CEOC LLC Term Loan
Other debt activity
Total
Terms of Outstanding Debt
Repayments
Debt issuance and extension costs and
fees
$
$
— $
(100)
(47)
(265)
(2)
(414)
$
(28)
—
—
—
—
(28)
The Company may elect, at its option, to prepay any borrowings outstanding under the CEOC LLC Credit Agreement without premium or penalty (except with respect to any break funding payments
which may be payable pursuant to the terms of the CEOC LLC Credit Agreement). On September 13, 2019, we made a voluntary payment of $250 million toward the outstanding principal balance of
our CEOC LLC Term Loan.
Restrictive Covenants
The CRC Credit Agreement, CEOC LLC Credit Agreement, as amended, and the indentures 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 ability of CRC and certain of its subsidiaries, and CEOC LLC and certain of its subsidiaries,
respectively, 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) incur additional
indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets, and make acquisitions. The Consent amended the indenture related to the CEC Convertible
Notes to, subject to the consummation of the Merger, delete certain of such negative covenants from the indenture as described above.
The CRC Revolving Credit Facility and CEOC LLC Revolving Credit Facility include maximum first-priority net SSLR 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, as amended, 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 of CRC or CEOC LLC, respectively, and their respective subsidiary guarantors serve
as collateral for the respective 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.
Restricted Net Assets
Because of the restrictions in our borrowings and other arrangements, the amount of net assets at consolidated subsidiaries not available to be remitted to CEC via dividend, loan or transfer was
approximately $2.1 billion and $3.2 billion as of December 31, 2019 and 2018, respectively.
Note 13 — 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
102
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
time. Any shares acquired are available for general corporate purposes. During the year ended December 31, 2019, there were no shares repurchased under the program. During the year ended
December 31, 2018, we repurchased approximately 31 million shares for approximately $311 million under the program recorded in Treasury stock. As of December 31, 2019, the maximum dollar
value that may still be purchased under the program was $439 million.
Pursuant to the Merger Agreement, prior to the completion of the Merger or termination of the Merger Agreement, we may not, absent Eldorado’s prior written consent, repurchase shares of our
common stock (subject to limited exceptions related to stock options or settlement of other awards and the CEC Convertible Notes).
Note 14 — 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 EPS 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.
Basic and Dilutive Net Earnings Per Share Reconciliation
(In millions, except per share data)
Net income/(loss) attributable to Caesars
Dilutive effect of CEC Convertible Notes, net of tax
Adjusted net loss attributable to Caesars
Weighted-average common shares outstanding - basic
Dilutive potential common shares: Stock-based compensation awards
Dilutive potential common shares: CEC Convertible Notes
Weighted-average common shares outstanding - diluted
Basic earnings/(loss) per share
Diluted loss per share
Years Ended December 31,
2019
2018 (1)
2017
$
$
$
$
(1,195)
$
—
(1,195)
$
676
—
—
676
(1.77)
(1.77)
$
$
303
$
(510)
(207)
$
686
4
151
841
0.44
(0.25)
$
$
(368)
—
(368)
279
—
—
279
(1.32)
(1.32)
____________________
(1)
The Company identified an error in the computation of Diluted EPS in the financial statements for the year ended December 31, 2018. The Company did not reverse the changes in fair value of the CEC Convertible Notes, net of tax, which was
a gain of $552 million from Net income/(loss) attributable to Caesars for the purpose of calculation of Diluted EPS. The Dilutive effect of CEC Convertible Notes, net of tax of $42 million for the year ended December 31, 2018 has been
corrected to be $(510) million. As a result, Diluted EPS for the year ended December 31, 2018 was overstated by $0.66 per share. Diluted EPS of $0.41 for the year ended December 31, 2018 has been corrected to Diluted loss per share of
$0.25. This error had no effect on Net Income/(Loss) on our Statements of Operations, our Balance Sheets, Statements of Cash Flows, or Consolidated Statements of Stockholders’ Equity/Deficit, as of, and for the year ended
December 31, 2018.
Weighted-Average Number of Anti-Dilutive Shares Excluded from Calculation of EPS
(In millions)
Stock-based compensation awards
CEC Convertible Notes
Total anti-dilutive common stock
Years Ended December 31,
2019
2018
2017
20
151
171
11
—
11
21
36
57
103
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 15 — Revenue Recognition
Accounting Policies
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.
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 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.
Reimbursed Management Costs
Reimbursed management costs are presented on a gross basis as revenue and expense, thus resulting in no net impact on operating income.
Caesars Rewards Loyalty Program
On January 30, 2019, Caesars announced the rebranding of Total Rewards, the Company’s industry-leading loyalty program, to Caesars Rewards effective February 1, 2019. The new program
leverages the premium Caesars brand to better connect Caesars’ elevated standard and prestige with the Company’s global destinations.
Caesars Rewards grants Reward Credits to Caesars 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, free play, 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 at least one Reward Credit during a continuous six-month period.
Because of the significance of the Caesars 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
104
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Caesars 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 discretionary lodging, transportation, food and beverage, entertainment, free play and other goods and services to our customers at no
additional charge. Non-discretionary Reward Credits can be redeemed for these services. 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.
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 collectability 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.
105
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Receivables
(In millions)
Casino
Food and beverage and rooms (1)
Entertainment and other
Contract receivables, net
Real estate leases
Other
Receivables, net
2019
As of December 31,
2018
2017
186
$
188
$
65
82
333
16
88
437
$
62
77
327
15
115
457
$
173
59
79
311
11
172
494
$
$
____________________
(1)
As a result of the adoption of ASC 842, as of January 1, 2019, revenue generated from the lease components of lodging arrangements and conventions as well as their associated receivables are no longer considered contract revenue or
contract receivables under ASC 606, Revenue from Contracts with Customers. A portion of this balance relates to lease receivables under ASC 842. See Note 10 for further details.
Allowance for Doubtful Accounts
(In millions)
Balance as of January 1, 2017
Provision for doubtful accounts
Write-offs less recoveries
OpCo consolidation (1)
Balance as of December 31, 2017
Provision for doubtful accounts
Write-offs less recoveries
Balance as of December 31, 2018
Provision for doubtful accounts
Write-offs less recoveries
Balance as of December 31, 2019 (2)
____________________
(1)
(2)
See Note 4 for further details relating to the acquisition of OpCo.
“Other” includes allowance associated with lease receivables under ASC 842. See Note 10 for further details.
Contracts
Other
Total
$
21
9
14
—
44
17
(18)
43
18
(9)
20
$
(1)
(32)
20
7
4
(7)
4
8
4
52
$
16
$
41
8
(18)
20
51
21
(25)
47
26
(5)
68
$
$
106
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Contract Liabilities
(In millions)
Balance as of January 1, 2017
Amount recognized from the beginning balance
Amount earned and recognized within the period
OpCo consolidation (1)
Balance as of December 31, 2017 (2)
Amount recognized during the period (3)
Amount accrued during the period
Balance as of December 31, 2018 (4)
Amount recognized during the period (5)
Amount accrued during the period
Balance as of December 31, 2019 (6)
Caesars Rewards
Customer Advance Deposits
Total
— $
—
(19)
81
62
(144)
148
66
(145)
149
70
$
63
$
(56)
34
28
69
(440)
454
83
(603)
646
126
$
63
(56)
15
109
131
(584)
602
149
(748)
795
196
$
$
____________________
(1)
(2)
(3)
(4)
(5)
(6)
See Note 4 for further details relating to the acquisition of OpCo.
$2 million included within Deferred credits and other liabilities as of December 31, 2017.
Includes $35 million for Caesars Rewards and $62 million for Customer Advances recognized from the December 31, 2017 Contract liability balances.
$5 million included within Deferred credits and other liabilities as of December 31, 2018.
Includes $35 million for Caesars Rewards and $72 million for Customer Advances recognized from the December 31, 2018 Contract liability balances.
$18 million included within Deferred credits and other liabilities as of December 31, 2019. Includes lodging arrangement and convention contract liabilities accounted for under ASC 842. See Note 10 for further details.
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 16 — Stock-Based Compensation
Caesars Entertainment Stock-Based Compensation Plans
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”), market-based stock units (“MSUs”),
restricted stock awards, stock grants, or a combination of awards. Forfeitures are recognized in the period in which they occur.
Performance Incentive Plans
In July 2017, we adopted the Caesars Entertainment Corporation 2017 Performance Incentive Plan, (the “2017 Incentive Plan”) upon approval of the Company’s stockholders and, upon adoption,
awards are no longer granted under the Caesars Entertainment Corporation 2012 Performance Incentive Plan, as amended, (the “2012 Incentive Plan”). As of December 31, 2019, there were
approximately 2 million options outstanding under the 2012 Incentive Plan, which will expire between years 2022 and 2025. As of December 31, 2019, there were less than a million RSUs
outstanding under the 2012 Incentive Plan.
The 2017 Incentive Plan allows for the granting of equity-based awards for directors, employees, officers and consultants or advisers who render services to Caesars Entertainment or its subsidiaries.
Under the 2017 Incentive Plan, a total of 25 million shares of our common stock have been authorized for issuance. No options have been granted under the 2017 plan. RSUs granted under the 2017
Incentive Plan generally vest ratably over four years. PSUs vest over three years and MSUs cliff vest over three years. The number of unissued common shares reserved for future grants under the
plan is 8 million as of December 31, 2019.
During November and December 2019, certain employees were terminated under the VSP (See Note 11). As a result of separation agreements, including those under the VSP, certain equity awards of
the 43 participants were modified to decrease the requisite service period and, in some cases, allow for immediate vesting and issuance of shares of our common stock. As a result of these
107
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
modifications, we accelerated all unvested compensation expense for the modified awards and recorded incremental stock-based compensation of approximately $2 million based on the fair value of
the modified awards.
Caesars Entertainment Stock Option Activity
Outstanding as of December 31, 2018
Exercised
Forfeited
Expired
Outstanding as of December 31, 2019
Vested and expected to vest as of December 31, 2019
Exercisable as of December 31, 2019
Caesars Entertainment Stock Option Exercises
(Dollars in millions)
Option Exercises:
Number of options exercised
Cash received for options exercised
Aggregate intrinsic value of options exercised
Caesars Entertainment Restricted Stock Unit Activity
Shares
Weighted Average Exercise
Price
Weighted Average
Remaining Contractual
Term (years)
Aggregate Intrinsic Value
(in millions)
8,360,365
$
(5,550,720)
(45,544)
(616,351)
2,147,750
2,147,750
1,516,588
10.63
8.51
8.65
15.74
14.67
14.67
8.71
2.8 $
2.8
2.8
3.7
—
9
9
8
Years Ended December 31,
2019
2018
2017
5,550,720
746,332
1,249,640
$
$
47
17
$
$
6
3
$
$
8
7
During the year ended December 31, 2019, we granted RSUs to employees of Caesars Entertainment with an aggregate fair value of $45 million. Each RSU represents the right to receive payment in
respect of one share of the Caesars Entertainment’s common stock. The following table summarizes the activity of Caesars Entertainment’s RSUs during the year ended December 31, 2019.
Outstanding as of December 31, 2018
Granted
Vested
Forfeited
Outstanding as of December 31, 2019
Units
13,455,092
$
5,228,512
(8,087,020)
(2,264,434)
8,332,150
Weighted Average Fair
Value (1)
11.51
8.77
10.76
10.58
10.77
____________________
(1)
Represents the weighted average grant date fair value of RSUs, which is the share price of our common stock on the grant date.
The fair value of RSUs vested during the years ended December 31, 2019, 2018, and 2017, was $85 million, $72 million, and $29 million, respectively.
Caesars Entertainment Performance Stock Unit Activity
The Company granted approximately 1.2 million PSUs in 2019 and 1.6 million PSUs in 2018 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. The grant date fair value is reassessed at each reporting
date to reflect the market price of our common stock until a mutual understanding of the key terms and conditions of the awards, between the Company and recipient, is achieved. The following table
summarizes the activity of Caesars Entertainment’s PSUs during the year ended December 31, 2019.
108
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Outstanding as of December 31, 2018
Granted
Vested
Forfeited
Outstanding as of December 31, 2019
Units
1,466,183
$
1,166,336
(676,923)
(501,933)
1,453,663
Weighted Average Fair
Value (1)
6.79
8.71
10.34
9.19
13.60
____________________
(1) Grant date fair value, for which compensation expense of these unvested awards is measured, has not been achieved. This represents the quoted market price of our common stock on the dates indicated.
Caesars Entertainment Market-Based Stock Unit Activity
In 2019, the Company granted approximately 703 thousand MSUs that are scheduled to cliff vest in three years. On the vesting date, recipients will receive between 0% and 200% of the granted
MSUs in the form of CEC common stock based on the achievement of specified market and service conditions. Based on the terms and conditions of the awards, 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 December 31, 2019 was $9 million.
Outstanding as of December 31, 2018
Granted
Vested
Forfeited
Outstanding as of December 31, 2019
____________________
(1)
Represents the fair value determined using a Monte-Carlo simulation model.
The fair value of MSUs vested during the year ended December 31, 2019 was $1 million.
Unrecognized Compensation Cost
Units
— $
702,761
(81,832)
(186,008)
434,921
Weighted Average Fair
Value (1)
—
12.63
12.63
12.63
As of December 31, 2019, there was $84 million of total unrecognized compensation cost related to Caesars Entertainment stock-based compensation plans, which is expected to be recognized over a
remaining weighted-average period of 1.8 years.
Composition of Stock-Based Compensation Expense (All Plans)
(In millions)
Corporate expense
Property, general, administrative, and other
Total stock-based compensation expense
Note 17 — Deferred Compensation and Employee Benefit Plans
Deferred Compensation
Years Ended December 31,
2019
2018
2017
$
$
69
19
88
$
$
60
19
79
$
$
36
7
43
On December 6, 2018, we adopted the Caesars Entertainment Corporation Executive Supplemental Savings Plan III (“ESSP III”) and the Caesars Entertainment Corporation Outside Director
Deferred Compensation Plan, effective January 1, 2019. These plans
109
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
are unfunded, non-qualified deferred compensation plans. Payment obligations pursuant to the plans are unsecured general obligations of the Company and affiliates of the Company employing
participants in the ESSP III. The liability as of December 31, 2019 was $1 million which was recorded in Deferred credits and other liabilities. There was no liability as of December 31, 2018 as the
plans were not effective.
Deferred Compensation Plans
As of December 31, 2019, certain current and former employees of Caesars, and our subsidiaries and affiliates, have balances under: (i) the Harrah’s Entertainment, Inc. Executive Supplemental
Savings Plan, (ii) the Harrah’s Entertainment, Inc. Executive Supplemental Savings Plan II, (iii) the Park Place Entertainment Corporation Executive Deferred Compensation Plan, (iv) the Harrah’s
Entertainment, Inc. Deferred Compensation Plan, and (v) the Harrah’s Entertainment, Inc. Executive Deferred Compensation Plan (collectively, the “existing deferred compensation plans”). These
plans are deferred compensation plans that allow certain employees an opportunity to save for retirement and other purposes.
Each of the plans is now frozen and is no longer accepting contributions. However, participants may still earn returns on existing plan balances based upon their selected investment alternatives,
which are reflected in their deferral accounts. The total liability recorded in Deferred credits and other liabilities for these plans was $53 million as of December 31, 2019 and 2018.
Trust Assets
CEC is a party to a trust agreement (the “Trust Agreement”) and an escrow agreement with respect to all five of the existing deferred compensation plans (the “Escrow Agreement”), each structured
as so-called “rabbi trust” arrangements, which holds assets that may be used to satisfy obligations under the existing deferred compensation plans above. Amounts held pursuant to the Trust
Agreement and the Escrow Agreement were approximately $88 million and $99 million as of December 31, 2019 and 2018, respectively, and have been reflected within Deferred charges and other
assets on the Balance Sheets.
Savings and Retirement Plan
We maintain a defined contribution savings and retirement plan that allows employees to make pre-tax and after-tax contributions. Under the plan, participating employees may elect to contribute up
to 50% of their eligible earnings (subject to Internal Revenue Service (“IRS”) rules and regulations). Participating employees become vested in matching contributions on a pro-rata basis over five
years of credited service. Prior to January 1, 2018, participating employees were eligible to receive a company match of 50% up to 6% of eligible earnings that the individual elected to contribute
with an individual cap of $600. During 2018, the company match was the greater of 25% up to 6% of earnings that the individual elected to contribute with no cap or 50% up to 6% of eligible
earnings that the individual elected to contribute with an individual cap of $600. Beginning January 1, 2019, the match increased to 50% up to 6% of eligible earnings that the individual elects to
contribute with no individual cap (subject to further limitations for certain higher-salaried employees). Our contribution expense for this plan was $26 million, $14 million, and $7 million for the
years ended December 31, 2019, 2018, and 2017, respectively.
Pension Commitments
We have a defined benefit plan for employees of our London Clubs International subsidiary that provides benefits based on final pensionable salary. The plan is no longer accepting participants or
employee contributions. The assets of the plan are held in a separate trustee-administered fund, and death-in-service benefits, professional fees, and other expenses are paid by the pension plan.
Annual contributions are made as required. We account for this plan under the immediate recognition method, under which actuarial gains and losses are recognized in our Statements of Operations in
the year in which the gains and losses occur rather than deferring them into Other comprehensive income/(loss) and amortizing them over future periods. Any such amounts are recorded in the fourth
quarter of each year, and during 2019 and 2018, we recognized a gain of $3 million and $19 million, respectively. These amounts do not reflect current compensation costs and are recorded outside of
Income from operations, within Other income/(loss) on our Statements of Operations.
As of December 31, 2019 and 2018, total plan assets were $213 million and $180 million, respectively, with projected benefit obligations totaling $242 million and $217 million, respectively,
resulting in a net pension liability of $29 million and $37 million, respectively, which is recorded within Deferred credits and other liabilities on our Balance Sheets. As of December 31, 2019, our
estimated long-term expected return on assets for this plan is 4.2% with a 2.0% discount rate. For the year ended December 31, 2019, we contributed $6 million to the plan, which we expect to
remain consistent annually.
110
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Multi-employer Pension Plans
The Company contributes to a number of multi-employer defined benefit pension plans under the terms of collective bargaining agreements that cover its union-represented employees. The risks of
participating in these multi-employer plans are different from a single-employer plan in the following respects:
i. Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
ii.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
iii.
If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount based on the underfunding of the plan, referred
to as a “withdrawal liability.”
111
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Multi-employer Pension Plan Participation
Pension Protection Act
Zone Status (1)
Contributions
(In millions) (2)
Pension Fund
EIN/Pension Plan
Number
Southern Nevada Culinary and Bartenders
88-6016617/001
Pension Plan (5)
Legacy Plan of the National Retirement Fund
13-6130178/001
(6)(8)
Adjustable plan of the National Retirement
13-6130178/002
Fund (7)
Legacy Plan of the UNITE HERE Retirement
82-0994119/001
Fund (5)(8)
Adjustable Plan of the UNITE HERE
Retirement Fund (5)(9)
Central Pension Fund of the IUOE &
Participating Employers (10)
82-0994119/002
36-6052390/001
Western Conference of Teamsters Pension
91-6145047/001
Plan
2019
Green
N/A
N/A
Red
Green
Green
Green
2018
Green
N/A
N/A
Red
Green
Green
Green
Local 68 Engineers Union Pension Plan (5)
51-0176618/001
Yellow
Yellow
(11)
NJ Carpenters Pension Fund
Painters IUPAT
Other Funds
Total Contributions
22-6174423/001
52-6073909/001
Yellow
Yellow
Yellow
Yellow
FIP/RP Status
(3)
2019
2018
2017
Surcharge
Imposed
$
19
No
N/A
N/A
Yes
N/A
No
No
Yes
Yes
Yes
$
26
—
N/A
16
N/A
6
5
1
$
25
—
N/A
15
N/A
6
5
1
—
1
2
—
1
2
$
57
$
55
$
9
N/A
—
N/A
5
4
1
—
1
1
40
Expiration Date of
Collective Bargaining
Agreement (4)
May 31, 2023
N/A
N/A
February 29, 2020
February 29, 2020
March 31, 2021
Various up to March 31, 2024
April 30, 2020
April 30, 2020
Various up to June 30, 2021
No
N/A
N/A
No
N/A
No
No
No
No
No
____________________
(1)
Represents the Pension Protection Act zone status for applicable plan year beginning January 1, except where noted otherwise. The zone status is based on information that the Company received from the plan administrator and is certified by
the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are between 65% and less than 80% funded, and plans in the green zone are at least 80% funded. All plans detailed in
the table above utilized extended amortization provisions to calculate zone status.
(2) Comparability to periods prior to the Effective Date are affected by the consolidation of CEOC LLC in 2017.
(3)
(4)
(5)
(6) CEC contributed to the National Retirement Fund (“NRF”) under multiple collective bargaining agreements (“CBAs”). Effective January 1, 2015, the NRF split into two separate plans, the Legacy Plan of the NRF and the Adjustable Plan of
Indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented.
The terms of the current agreement continue indefinitely until either party provides appropriate notice of intent to terminate the contract.
Employer provided more than 5% of the total contributions for the plan years ended 2018 and 2017. As of the date the financial statements were issued, Forms 5500 were not available for the 2019 plan year.
the NRF.
(7) CEC contributes a single contribution to the NRF, the Trustees of which allocate such contribution between the two plans. The contribution amount reflected to the Legacy Plan is the aggregate contribution made to the NRF before such
(8)
allocation between the Legacy Plan and the Adjustable Plan.
Effective January 1, 2018, the NRF Fund spun-off a portion of the Fund and a number of contributing employers, including CEC, into a new multiemployer pension fund, the HEREIU Pension Fund. The HEREIU Pension Fund consists of two
separate plans, the Legacy Plan of the HEREIU Pension Fund and the Adjustable Plan of the HEREIU Pension Fund. CEC no longer contributes to the NRF.
(9) CEC makes a single contribution to the HEREIU Pension Fund, the Trustees of which allocate such contribution between the Legacy Plan and the Adjustable Plan. The contribution amount reflected to the Legacy Plan is the aggregate
contribution made to the HEREIU Pension Fund before such allocation between the Legacy Plan and the Adjustable Plan.
(10) Plan years begin February 1.
(11) Plan years begin July 1.
In 2017, we reached an agreement with Hilton Hotels Corporation, whereby CEC received $12 million in exchange for assuming responsibility of a 31.75% funding liability of the Hilton Hotels
Retirement Plan. These proceeds have been used to make quarterly contributions, of which $2 million has been contributed for the year ended December 31, 2019 and $5 million for the year ended
December 31, 2018. Once the proceeds are depleted, future contributions will be expensed as incurred. Remaining proceeds of $3 million are recorded within Accrued expenses and other liabilities
and $1 million is recorded within Deferred credits and other liabilities on our balance sheet as of December 31, 2019.
112
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 18 — Income Taxes
The effect on the income tax provision and deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have provided a
valuation allowance on certain foreign and state net operating losses (“NOLs”), and other federal, state, and foreign deferred tax assets. NOLs and other federal, state, and foreign deferred tax assets
were not deemed realizable based upon the Company’s recent history of taxable losses.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex
changes to the U.S. tax code that affected our year ended December 31, 2017, including, but not limited to (i) reducing the U.S. federal corporate tax rate, (ii) changing rules related to uses and
limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, (iii) bonus depreciation that will allow for full expensing of qualified property, (iv) generally
eliminating U.S. federal income taxes on dividends from foreign subsidiaries, and (v) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings accumulated post
1986 through 2017 that were previously deferred from U.S. income taxes.
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 December 31, 2018, the Company completed the accounting for the tax effects of the Tax Act. During the year ended December 31, 2017, the Company 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 in the period ended December 31, 2017. The amount of the estimated income
tax benefit was (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 were
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 year ended
December 31, 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, (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.
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. 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 elected the period cost method.
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.
In January 2019, we adopted ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220), which allows for a reclassification from accumulated other comprehensive income to
retained earnings effectively eliminating the stranded tax effects resulting from the Tax Act. The adoption of this standard had no effect on our financial statements.
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 and various state taxing authorities
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.
113
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of Income/(Loss) Before Income Taxes
(In millions)
United States
Outside of the U.S.
Income Tax Benefit
(In millions)
United States
Current
Federal
State
Deferred
Federal
State
Outside of the U.S.
Current
Deferred
Allocation of Income Tax Benefit
(In millions)
Income tax benefit applicable to:
Income from operations
Other comprehensive income/(loss)
Effective Income Tax Rate Reconciliation
Statutory tax rate
Increases/(decreases) in tax resulting from:
State taxes, net of federal tax benefit
Valuation allowance
Foreign income taxes
Deferred tax benefit from changes in federal tax law
Stock-based compensation
Acquisition of CEOC
Reserves for uncertain tax positions
Current tax benefit from change in CGP operating agreement
Impairment of goodwill
Nondeductible transaction costs
Other
Effective tax rate
Years Ended December 31,
2019
2018
2017
(1,272)
$
(67)
(1,339)
$
205
$
(22)
183
$
(2,374)
4
(2,370)
Years Ended December 31,
2019
2018
2017
$
(2)
(1)
131
22
(7)
(2)
$
(9)
(1)
170
(39)
(9)
9
141
$
121
$
148
(7)
1,835
23
(4)
—
1,995
Years Ended December 31,
2019
2018
2017
141
$
12
121
$
3
1,995
—
$
$
$
$
$
Years Ended December 31,
2019
2018
2017
21.0 %
2.5
(9.9)
(1.3)
—
(1.8)
—
0.5
—
(0.3)
—
(0.1)
10.6 %
21.0 %
35.0 %
4.0
(70.4)
2.3
(44.7)
4.7
—
4.4
—
4.7
6.6
1.3
(66.1)%
5.2
(17.1)
(0.1)
52.1
(0.2)
36.7
(4.6)
2.4
—
(25.0)
(0.2)
84.2 %
114
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Temporary Differences Resulting in Deferred Tax Assets and Liabilities
(In millions)
Deferred tax assets:
State net operating losses
Federal net operating loss
Foreign net operating loss
Compensation programs
Allowance for doubtful accounts
Self-insurance reserves
Accrued expenses
Federal tax credits
Financing obligations
Golf course properties’ obligation
Investment in non-consolidated affiliates
Other debt-related items
Deferred revenue
Leases
Other
Subtotal
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation and other property-related items
Other debt-related items
Intangibles
Prepaid expenses
Other
Total deferred tax liabilities
Net deferred tax liability (1)
As of December 31,
2019
2018
$
415
409
16
46
40
8
41
82
2,479
35
5
66
39
62
16
3,759
1,436
2,323
2,360
—
497
23
—
2,880
557
$
420
485
16
81
41
10
45
70
2,445
35
5
—
42
66
—
3,761
1,302
2,459
2,567
95
496
20
1
3,179
720
$
$
____________________
(1)
The net deferred tax liability above is reflected in the Balance Sheets as follows: Deferred income tax asset of $2 million; Deferred income tax liability of $555 million; Accrued Expenses and other current liabilities - Liabilities held for sale of
$4 million.
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. Due to ongoing losses from
operations, we project that future reversals of taxable temporary differences are not sufficient to provide adequate taxable income to realize our deferred tax assets. Accordingly, we have a valuation
allowance against the federal, state and foreign deferred tax assets that are not projected to be realizable.
As of December 31, 2019 and 2018, we had federal NOL carryforwards of $2.5 billion and $2.6 billion, respectively. These NOLs will begin to expire in 2030. In addition, we had federal general
business tax credits and research tax credit carryforwards of $82 million, which will begin to expire in 2029.
NOL carryforwards for our domestic subsidiaries for state income taxes were $8.6 billion and $9.0 billion as of December 31, 2019 and 2018, respectively. Due to the Company’s recent history of
taxable losses, it is more likely than not that the benefit from certain state NOL carryforwards will not be realized. Accordingly, we have provided a valuation allowance on the deferred tax assets
relating to these NOL carryforwards which will not more likely than not be realized. These state NOLs will begin to expire in 2021.
NOL carryforwards for our foreign subsidiaries were $84 million and $91 million as of December 31, 2019 and 2018, respectively. Due to the Company’s recent history of taxable losses, it is more
likely than not that the benefit from certain foreign NOL carryforwards will not be realized. Accordingly, we have provided a valuation allowance on the deferred tax assets relating to these NOL
carryforwards which will not more likely than not be realized. These foreign NOLs do not expire.
115
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of Unrecognized Tax Benefits
(In millions)
Balance as of beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions for prior years
Acquisition of OpCo
Settlements
Effect of changes in federal tax law
Balance as of end of year
Years Ended December 31,
2019
2018
2017
169
$
162
$
37
25
(18)
—
—
—
—
13
(5)
—
(1)
—
213
$
169
$
115
113
1
(92)
67
—
(42)
162
$
$
We classify reserves for tax uncertainties within Accrued expenses and other current liabilities and Deferred credits and other liabilities in our 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.
We accrue interest and penalties related to unrecognized tax benefits in income tax expense. During 2019, we increased our accrual by $2 million. During 2018, we increased our accrual by $2
million, and during 2017, we increased our accrual by $2 million (including the interest from OpCo unrecognized tax benefits acquired in 2017). There was an accrual for the payment of interest and
penalties of $10 million, $8 million, and $5 million as of December 31, 2019, 2018, and 2017, respectively. Included in the balances of unrecognized tax benefits as of December 31, 2019 and 2018
was approximately $143 million and $145 million, respectively, of unrecognized tax benefits that, if recognized, would impact the effective tax rate. There were $78 million unrecognized tax benefits
as of December 31, 2017 that, if recognized, would impact the effective tax rate.
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are subject to exam by various state and foreign tax authorities. As of
December 31, 2019, the tax years prior to 2015 are not subject to examination for U.S. income tax purposes and for most of the state or foreign income tax jurisdictions as the statutes of limitations
have lapsed.
We believe that it is reasonably possible that the unrecognized tax benefits liability will not materially change within the next 12 months. Audit outcomes and the timing of audit settlements are
subject to significant uncertainty. Although we believe that adequate provision has been made for such issues, there is the possibility that the ultimate resolution of such issues could have an adverse
effect on our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced, thus having a favorable impact on earnings.
Note 19 — Related Party Transactions
We may engage in transactions with other companies, owned or controlled by affiliates of our significant owners, in the normal course of business. We believe such transactions are conducted at fair
value and are immaterial to our financial statements. Significant transactions with related parties are described in the table below.
116
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$
Years Ended December 31,
2019
2018
2017
— $
—
9
6
—
—
—
—
—
— $
—
10
5
—
—
—
—
—
34
3
3
16
312
71
33
26
9
(In millions)
Transactions with Sponsors and their affiliates
Reimbursements and expenses
Expenses paid to Sponsors’ portfolio companies
Transactions with Horseshoe Baltimore
Management fees
Reimbursements and allocated expenses
Transactions with CEOC
Shared services allocated expenses to CEOC
Shared services allocated expenses from CEOC
Management fees incurred
Octavius Tower lease revenue
Other expenses incurred
Transactions with Sponsors and their Affiliates
The members of Hamlet Holdings LLC were comprised of individuals affiliated with Apollo Global Management, LLC and affiliates of TPG Capital LP (collectively, the “Sponsors”) and were
significant shareholders. On the Effective Date, we entered into a “Termination Agreement” with the Sponsors and their affiliates, pursuant to which certain agreements terminated. We reimbursed
$34 million to the Sponsors on the Effective Date, included in the table above, related to CEOC’s pre-emergence expenses that were paid by the Sponsors. Due to reductions in ownership percentage
of the Company starting on the Effective Date, we are no longer controlled or significantly influenced by the Sponsors. Amounts paid prior to the Effective Date to the Sponsors’ portfolio companies
with which we engage in transactions are included in the table above. We believe such transactions were conducted at fair value.
Transactions with Horseshoe Baltimore
As described in Note 2, upon our deconsolidation of Horseshoe Baltimore effective August 31, 2017, Horseshoe Baltimore, which remains 44.3% 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
As described in Note 1, upon its 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 on the Effective
Date, CEOC’s successor, OpCo immediately merged with and into CEOC LLC, which is a wholly owned subsidiary of CEC. The following activities, to the extent that they continue subsequent to
the Effective Date with CEOC LLC, are eliminated.
Prior to the effective date, 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. In addition, certain services were provided to CEOC by CEC. Among the services provided were coverage for insurance such as worker’s compensation and employee medical. Caesars
Enterprise Services, LLC (“CES”), a subsidiary of CEC, began providing certain services including corporate and administrative services and costs were allocated to CEOC. Additionally, we paid
CEOC management fees for certain of our properties, lease payments associated with certain properties and royalty fees for use of certain brands.
Until the Effective Date, the total estimated cost for Caesars Rewards was accrued by CEOC with expenses allocated to our properties; on the Effective Date, administration of Caesars Rewards is
managed by CEC.
117
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 2019 and December 31, 2018, Due from affiliates, net was $41 million and $6 million, respectively, and represented transactions with Horseshoe Baltimore.
118
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 20 — Segment Reporting
We view each property as an operating segment and aggregate such 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. These segments include the following properties:
All Other
Other
Caesars Interactive Entertainment
Las Vegas
Other U.S.
Bally’s Las Vegas
Caesars Palace Las Vegas (1)
The Cromwell
Flamingo Las Vegas
Harrah’s Las Vegas
The LINQ Hotel & Casino
The LINQ Promenade
Paris Las Vegas
Planet Hollywood Resort & Casino
Rio All-Suite Hotel & Casino (4)
Bally’s Atlantic City (1)
Bluegrass Downs (2)
Caesars Atlantic City (1)
Caesars Southern Indiana (1)
Harrah’s Atlantic City
Harrah’s Council Bluffs (1)
Harrah’s Gulf Coast (1)
Harrah’s Joliet (1)
Harrah’s Lake Tahoe (1)
Harrah’s Laughlin (1)
Harrah’s Louisiana Downs (1)
Harrah’s Metropolis (1)
Harrah’s New Orleans
Harrah’s North Kansas City (1)
Harrah’s Philadelphia (1)
Harrah’s Reno (1)(6)
Harveys Lake Tahoe (1)
Hoosier Park
Horseshoe Bossier City (1)
Horseshoe Council Bluffs (1)
Horseshoe Hammond (1)
Horseshoe Tunica (1)
Indiana Grand
Tunica Roadhouse (1)(7)
Managed Properties (1)
Caesars Dubai
Caesars Windsor
Harrah’s Ak-Chin
Harrah’s Cherokee
Harrah’s Cherokee Valley River
Harrah’s Resort Southern California
Horseshoe Baltimore (3)
Kings & Queens Casino
International (1)
Alea Glasgow
Alea Nottingham
Caesars Cairo
Emerald Casino Resort (5)
The Empire Casino
Manchester235
Playboy Club London
Ramses Casino
Rendezvous Brighton
Rendezvous Southend-on-Sea
The Sportsman
___________________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
These properties were not consolidated with CEC prior to the Effective Date with the exception of Horseshoe Baltimore, which was consolidated in the Other U.S. region prior to deconsolidation.
Bluegrass Downs ceased operations on October 1, 2019.
As of December 31, 2019, Horseshoe Baltimore was 44.3% owned, and was deconsolidated and held as an equity-method investment effective August 31, 2017.
Rio was sold on December 5, 2019 and Caesars continues to operate the property under a lease for an initial term of two years.
In May 2019, we entered into an agreement to sell Emerald Casino Resort. As of December 31, 2019, the property’s assets and liabilities were classified as held for sale.
In December 2019, we entered into an agreement to sell Harrah’s Reno, contingent upon the Merger.
Tunica Roadhouse ceased gaming operations in January 2019. Hotel operations continued until it closed in January 2020.
In addition to our properties listed above, other domestic and international properties, including Harrah’s Northern California, are authorized to use the brands and marks of Caesars Entertainment
Corporation.
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. Net revenues are presented disaggregated by category for contract revenues separate from other revenues by segment.
119
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
“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
(In millions)
Casino
Food and beverage (1)
Rooms (1)
Management fees
Reimbursed management costs
Entertainment and other
Total contract revenues
Real estate leases (2)
Other revenues
Net revenues
Depreciation and amortization
Income/(loss) from operations
Interest expense
Other income/(loss) (3)
Income tax benefit (4)
(In millions)
Casino
Food and beverage
Rooms
Management fees
Reimbursed management costs
Entertainment and other
Total contract revenues
Other revenues
Net revenues
Depreciation and amortization
Income/(loss) from operations
Interest expense
Loss on extinguishment of debt
Other income (3)
Income tax benefit (4)
$
$
$
$
$
$
Las Vegas
Other U.S.
All Other
Elimination
Caesars
1,149
$
3,053
$
246
$
— $
Year Ended December 31, 2019
1,017
1,177
—
—
437
3,780
139
—
3,919
$
$
495
560
(330)
(1)
576
401
—
2
183
4,215
10
—
25
3
60
210
54
598
1
4
4,225
$
603
$
$
71
$
455
525
(572)
1
(467)
(468)
(587)
141
—
—
—
—
(1)
—
(4)
(5)
—
—
(5)
$
— $
—
—
—
—
Las Vegas
Other U.S.
All Other
Elimination
Caesars
Year Ended December 31, 2018
1,104
$
2,889
$
254
$
975
1,117
—
—
411
3,607
146
571
399
—
2
175
4,036
11
28
3
63
200
45
593
5
3,753
$
4,047
$
598
$
— $
—
—
(3)
—
(3)
(6)
(1)
(7)
$
$
501
434
(556)
—
2
—
62
$
— $
(411)
(463)
(1)
786
121
—
—
—
—
—
$
582
716
(327)
—
3
—
120
4,448
1,618
1,581
59
212
670
8,588
150
4
8,742
1,021
618
(1,370)
(587)
141
4,247
1,574
1,519
60
202
628
8,230
161
8,391
1,145
739
(1,346)
(1)
791
121
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Las Vegas
Other U.S.
All Other
Elimination
Caesars
Year Ended December 31, 2017
$
1,188
$
116 $
$
$
$
864
700
872
—
1
300
2,737
165
274
201
—
1
84
1,748
10
8
1
15
46
24
210
5
2,902
$
1,758
$
215
$
$
420
549
(65)
—
—
(4)
4
—
$
186
199
(153)
31
(177)
(13)
1
2
20
$
(211)
(555)
—
(1,851)
(215)
90
1,993
— $
—
—
(3)
—
(3)
(6)
(1)
(7)
$
— $
—
—
—
—
—
—
—
2,168
982
1,074
12
48
405
4,689
179
4,868
626
537
(773)
31
(2,028)
(232)
95
1,995
(In millions)
Casino
Food and beverage
Rooms
Management fees
Reimbursed management costs
Entertainment and other
Total contract revenues
Other revenues
Net revenues
Depreciation and amortization
Income/(loss) from operations
Interest expense
Gain on deconsolidation of subsidiary
Restructuring and support expenses
Loss on extinguishment of debt
Other income (3)
Income tax benefit (4)
____________________
(1)
As a result of the adoption of ASC 842, as of January 1, 2019, revenue generated from the lease components of lodging arrangements and conventions are no longer considered contract revenue under ASC 606, Revenue from Contracts with
Customers. A portion of these balances relate to lease revenues under ASC 842. See Note 10 for further details.
Real estate leases revenue includes $71 million of variable rental income for the year ended December 31, 2019.
Amounts include changes in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes and the disputed claims liability as well as interest and dividend income.
Taxes are recorded at the consolidated level and not estimated or recorded to our Las Vegas and Other U.S. segments.
(2)
(3)
(4)
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, and (iv) certain items that we do not consider indicative of its ongoing
operating performance at an operating property level. Included in Adjusted EBITDA is property rent expense of $12 million for the year ended December 31, 2019, related to certain land parcels
leased from VICI.
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.
121
(In millions)
Net income/(loss) attributable to Caesars
Net loss attributable to noncontrolling interests
Income tax benefit (1)
Other (income)/loss (2)
Interest expense
Depreciation and amortization
Impairment of goodwill
Impairment of tangible and other intangible assets
Other operating costs (3)
Stock-based compensation expense
Other items (4)
Adjusted EBITDA
(In millions)
Net income/(loss) attributable to Caesars
Net income/(loss) attributable to noncontrolling interests
Income tax benefit (1)
Loss on extinguishment of debt
Other income (2)
Interest expense
Depreciation and amortization
Impairment of goodwill
Impairment of tangible and other intangible assets
Other operating costs (3)
Stock-based compensation expense
Other items (4)
Adjusted EBITDA
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Las Vegas
Other U.S.
All Other
Elimination
Caesars
Year Ended December 31, 2019
229
$
—
—
1
330
495
—
380
22
8
3
(46)
$
(1,378)
$
— $
—
—
(1)
572
455
27
11
22
10
2
(3)
(141)
587
468
71
—
50
92
70
69
—
—
—
—
—
—
—
—
—
—
1,468
$
1,052
$
(115)
$
— $
Las Vegas
Other U.S.
All Other
Elimination
Caesars
392
$
(122)
$
33
$
— $
Year Ended December 31, 2018
$
$
$
—
—
—
(3)
327
582
—
—
52
8
4
2
—
—
(2)
556
501
17
26
21
10
5
(1)
(121)
1
(786)
463
62
26
9
82
61
103
—
—
—
—
—
—
—
—
—
—
—
$
1,362
$
1,014
$
(68)
$
— $
122
(1,195)
(3)
(141)
587
1,370
1,021
27
441
136
88
74
2,405
303
1
(121)
1
(791)
1,346
1,145
43
35
155
79
112
2,308
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In millions)
Net income/(loss) attributable to Caesars
Net loss attributable to noncontrolling interests
Income tax benefit (1)
Gain on deconsolidation of subsidiary
Restructuring and support expenses
Loss on extinguishment of debt
Other income (2)
Interest expense
Depreciation and amortization
Other operating costs (3)
Stock-based compensation expense
Other items (4)
Adjusted EBITDA
Las Vegas
Other U.S.
All Other
Elimination
Caesars
Year Ended December 31, 2017
$
484
$
(103)
$
—
—
—
—
4
(4)
65
420
25
4
9
(7)
(2)
(31)
177
13
(1)
153
186
3
3
7
(749)
$
—
(1,993)
—
1,851
215
(90)
555
20
37
36
74
— $
—
—
—
—
—
—
—
—
—
—
—
(368)
(7)
(1,995)
(31)
2,028
232
(95)
773
626
65
43
90
$
1,007
$
398
$
(44)
$
— $
1,361
____________________
(1)
(2)
(3)
Taxes are recorded at the consolidated level and not estimated or recorded to our Las Vegas and Other U.S. segments.
Amounts include changes in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes and the disputed claims liability as well as interest and dividend income.
Amounts primarily represent costs incurred in connection with development activities and reorganization activities, and/or recoveries associated with such items, including acquisition and integration costs, contract exit fees (including exiting
the fully bundled sales system of NV Energy for electric service at our Nevada properties), lease termination costs, regulatory settlements, weather related property closure costs, severance costs, gains and losses on asset sales, demolition
costs, and project opening costs.
Amounts include other add-backs and deductions to arrive at Adjusted EBITDA but not separately identified such as professional and consulting services, sign-on and retention bonuses, business optimization expenses and transformation
expenses, litigation awards and settlements, permit remediation costs, and costs associated with CEOC’s restructuring and related litigation.
(4)
Condensed Balance Sheets - By Segment
(In millions)
Total assets
Total liabilities
(In millions)
Total assets
Total liabilities
Las Vegas
Other U.S.
All Other
Elimination
Caesars
13,138
$
5,896
8,509
$
5,730
6,829
$
11,519
(3,131)
$
(11)
As of December 31, 2019
Las Vegas
Other U.S.
All Other
Elimination
Caesars
13,987
$
5,730
8,565
$
5,143
6,046
$
11,267
(2,823)
$
297
As of December 31, 2018
25,345
23,134
25,775
22,437
$
$
123
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 21 — Quarterly Results of Operations (Unaudited)
(In millions, except per share amounts)
2019
Net revenues
Income/(loss) from operations
Net loss
Net loss attributable to Caesars
Basic loss per share
Diluted loss per share
2018
Net revenues
Income from operations
Net income/(loss)
Net income/(loss) attributable to Caesars
Basic earnings/(loss) per share
Diluted earnings/(loss) per share (1)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
$
$
2,115
$
2,222
$
2,236
$
2,169
$
240
(218)
(217)
(0.32)
(0.32)
269
(315)
(315)
(0.47)
(0.47)
(68)
(360)
(359)
(0.53)
(0.53)
177
(305)
(304)
(0.45)
(0.45)
1,972
$
2,119
$
2,185
$
2,115 $
125
(34)
(34)
(0.05)
(0.05)
282
29
29
0.04
0.02
232
111
110
0.16
0.05
100
198
198
0.29
(0.15)
8,742
618
(1,198)
(1,195)
(1.77)
(1.77)
8,391
739
304
303
0.44
(0.25)
____________________
(1)
The Company identified an error in the computation of Diluted earnings per share (“EPS”) in the financial statements for the year ended December 31, 2018 and the second, third, and fourth quarters within the fiscal year. The Company did
not reverse the changes in fair value of the CEC Convertible Notes, net of tax, from Net income/(loss) attributable to Caesars for the purpose of calculation of Diluted EPS. Diluted EPS of $0.04 for the second quarter of 2018 has been
corrected to Diluted EPS of $0.02, Diluted EPS of $0.14 for the third quarter of 2018 has been corrected to Diluted EPS of $0.05, Diluted EPS of $0.25 for the fourth quarter of 2018 has been corrected to Diluted loss per share of $0.15, and
Diluted EPS of $0.41 for the year ended December 31, 2018 has been corrected to Diluted loss per share of $0.25. See Note 14.
Fourth Quarter of 2019: Impairment of goodwill and other intangible assets was recognized (see Note 7).
Third Quarter of 2019: Related to the sale of Rio, impairment of land and buildings was recognized (see Note 6).
Fourth Quarter of 2018: Impairment of goodwill was recognized (see Note 7). Impairment of tangible and other intangible assets was recognized (see Note 6 and Note 7). Change in the fair value
of derivative component of the convertible notes was recognized (see Note 8).
Third Quarter of 2018: Centaur’s results are consolidated with CEC subsequent to the acquisition on July 16, 2018. See Note 4.
124
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
a. Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) or 15d-15(e) promulgated under the Exchange Act) as of December 31, 2019. Based on these evaluations, our CEO and CFO concluded that our disclosure controls and procedures required by
paragraph (b) of Rules 13a-15 or 15d-15 were effective as of December 31, 2019, at a reasonable assurance level.
b. Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. This system is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, misstatements due to error or fraud
may not be prevented or detected on a timely basis.
Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019, utilizing the criteria discussed in the “Internal Control -
Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control
over financial reporting was effective as of December 31, 2019. Based on management’s assessment, we have concluded that our internal control over financial reporting was effective as of
December 31, 2019.
The effectiveness of our internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report, which is
included herein.
c. Changes in Internal Control Over Financial Reporting
We have commenced several transformation initiatives to automate and simplify our business processes. These are long-term initiatives that we believe will enhance our internal control over financial
reporting due to increased automation and integration of related processes. We will continue to monitor and evaluate our internal control over financial reporting throughout the transformation.
There have not been any other changes in our internal control over financial reporting during the three months ended December 31, 2019, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
125
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Caesars Entertainment Corporation:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Caesars Entertainment Corporation and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year
ended December 31, 2019, of the Company and our report dated February 25, 2020, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 25, 2020
126
ITEM 9B. Other Information
None.
127
PART III
ITEM 10. Directors, Executive Officers, and Corporate Governance
We incorporate by reference the information appearing under the captions “Proposal 1 - Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,”
“Corporate Governance and Board Matters—Code of Ethics,” and “Corporate Governance—Board Composition and Nomination Process” in our definitive Proxy Statement for our 2020 Annual
Meeting of Stockholders (the “Proxy Statement”); provided that if the Proxy Statement is not filed on or before April 29, 2020, such information will be included in an amendment to this Form 10-K
filed on or before such date.
ITEM 11. Executive Compensation
We incorporate by reference the information appearing under the captions “Executive Compensation Matters” and “Compensation Committee Report” in the Proxy Statement; provided that if the
Proxy Statement is not filed on or before April 29, 2020, such information will be included in an amendment to this Form 10-K filed on or before such date.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate by reference the information appearing under the caption “Security Ownership” in the Proxy Statement; provided that if the Proxy Statement is not filed on or before April 29, 2020,
such information will be included in an amendment to this Form 10-K filed on or before such date. The information under Part II, Item 5, “Market for the Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities—Equity Compensation Plan Information” of this Form 10-K is also incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
We incorporate by reference the information appearing under the captions “Certain Relationships and Related Party Transactions” and “Corporate Governance and Board Matters—Director
Independence” in the Proxy Statement; provided that if the Proxy Statement is not filed on or before April 29, 2020, such information will be included in an amendment to this Form 10-K filed on or
before such date.
ITEM 14. Principal Accounting Fees and Services
We incorporate by reference the information appearing under the caption “Audit-Related Matters” in the Proxy Statement; provided that if the Proxy Statement is not filed on or before April 29, 2020,
such information will be included in an amendment to this Form 10-K filed on or before such date.
128
ITEM 15. Exhibits, Financial Statement Schedules
(a) 1.
Financial statements of the Company (including related notes to consolidated financial statements) filed as part of this report are listed below (see Item 8):
PART IV
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of December 31, 2019 and 2018.
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018, and 2017.
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2019, 2018, and 2017.
Consolidated Statements of Stockholders’ Equity/(Deficit) for the Years Ended December 31, 2019, 2018, and 2017.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017.
2.
Financial statement schedules of the Company as follows:
Schedule I—Condensed Financial Information of Registrant Parent Company Only as of December 31, 2019 and 2018 and for the Years Ended December 31, 2019, 2018, and 2017.
We have omitted schedules other than the ones listed above because they are not required or are not applicable, or the required information is shown in the financial statements or notes
to the financial statements.
3.
Exhibits
Exhibit
Number
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
2.1
2.2
2.3
2.4
2.5
2.6
Amended and Restated Agreement and Plan of Merger, dated as of July 9, 2016,
between Caesars Acquisition Company and Caesars Entertainment Corporation.
First Amendment to Amended and Restated Agreement and Plan of Merger, dated
as of February 20, 2017, by and between Caesars Entertainment Corporation and
Caesars Acquisition Company.
Third Amended Joint Plan of Reorganization, filed with the United States
Bankruptcy Court for the Northern District of Illinois in Chicago on January 13,
2017, at Docket No. 6318.
Purchase and Sale Agreement, dated July 11, 2018, by and between Caesars
Octavius, LLC and Octavius Propco LLC.
Purchase and Sale Agreement, dated July 11, 2018, by and between Chester
Downs and Marina, LLC and Philadelphia Propco LLC.
Agreement and Plan of Merger, dated as of June 24, 2019, by and among Caesars
Entertainment Corporation, Eldorado Resorts, Inc. and Colt Merger Sub, Inc.
2.7
Amendment No. 1 to Agreement and Plan of Merger.
—
—
—
—
—
__
__
129
8-K
8-K
S-4/A
8-K
8-K
8-K
8-K
—
—
—
—
—
__
__
2.1
2.1
2.6
2.1
2.2
2.1
2.1
7/11/2016
2/21/2017
6/5/2017
7/12/2018
7/12/2018
6/25/2019
8/16/2019
Exhibit
Number
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
4.3
4.4
10.1
10.2
10.3
Second Amended and Restated Certificate of Incorporation of Caesars
Entertainment Corporation, dated February 8, 2012.
Amendment, dated October 6, 2017, to the Second Amended and Restated
Certificate of Incorporation of Caesars Entertainment Corporation, dated February
8, 2012.
Amendment, dated October 6, 2017, to the Second Amended and Restated
Certificate of Incorporation of Caesars Entertainment Corporation, dated February
8, 2012.
Amendment, dated October 6, 2017, to the Second Amended and Restated
Certificate of Incorporation of Caesars Entertainment Corporation, dated February
8, 2012.
Bylaws of Caesars Entertainment Corporation, dated March 28, 2019.
Certificate of Amendment to the Second Amended and Restated Certificate of
Incorporation of Caesars Entertainment Corporation, dated July 2, 2019.
Certificate of Amendment to the Second Amended and Restated Certificate of
Incorporation of Caesars Entertainment Corporation, dated July 2, 2019.
Indenture, dated as of October 6, 2017, between Caesars Entertainment
Corporation and Delaware Trust Company, as trustee, relating to the 5.00%
Convertible Senior Notes due 2024.
Indenture, dated October 16, 2017, by and among CRC Escrow Issuer, LLC, CRC
Finco, Inc. and Deutsche Bank Trust Company Americas, as trustee.
Supplemental Indenture, dated December 22, 2017, by and among Caesars Resort
Collection, LLC, the subsidiary guarantors party thereto, CRC Finco, Inc. and
Deutsche Bank Trust Company Americas, as trustee.
First Supplemental Indenture, dated November 27, 2019 between Caesars
Entertainment Corporation and Delaware Trust Company, as trustee.
Credit Agreement, dated as of December 22, 2017, by and among Caesars Resort
Collection, LLC, the other borrowers from time to time party thereto, the lenders
party thereto, and Credit Suisse, AG, Cayman Islands Branch, as administrative
agent.
Escrow Agreement, dated October 16, 2017, by and among CRC Escrow Issuer,
LLC, CRC Finco, Inc., Deutsche Bank Trust Company Americas, as escrow agent
and Deutsche Bank Trust Company Americas, as trustee.
Caesars Entertainment Corporation Amended and Restated Escrow Agreement,
dated as of December 12, 2016, between Caesars Entertainment Corporation and
Wells Fargo Bank, N.A.
†10.4
Amendment and Restatement of Harrah’s Entertainment, Inc. Executive Deferred
Compensation Plan, effective August 3, 2007.
—
—
—
—
—
__
__
—
—
—
—
—
—
—
—
130
10-K
12/31/2011
S-8
S-8
S-8
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
—
—
—
—
__
__
—
—
—
—
—
—
—
10-Q
6/30/2007
3.7
4.2
4.3
4.4
3.1
3.1
3.2
4.1
4.1
4.1
4.1
3/15/2012
10/6/2017
10/6/2017
10/6/2017
5/2/2019
7/2/2019
7/2/2019
10/13/2017
10/16/2017
12/22/2017
11/29/2019
10.1
12/22/2017
10.1
10/16/2017
10.19
10.69
10/13/2017
8/9/2007
Exhibit
Number
†10.5
†10.6
†10.7
†10.8
†10.9
†10.10
†10.11
10.12
10.13
10.14
**10.15
10.16
**10.17
10.18
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Amendment and Restatement of Harrah’s Entertainment, Inc. Deferred
Compensation Plan, effective as of August 3, 2007.
Amendment and Restatement of Park Place Entertainment Corporation Executive
Deferred Compensation Plan, effective as of August 3, 2007.
Amendment and Restatement of Harrah’s Entertainment, Inc. Executive
Supplemental Savings Plan, effective as of August 3, 2007.
Amendment and Restatement of Harrah’s Entertainment, Inc. Executive
Supplemental Savings Plan II, effective as of August 3, 2007.
First Amendment to the Amendment and Restatement of Harrah’s Entertainment,
Inc. Executive Supplemental Savings Plan II, effective as of February 9, 2009.
Second Amendment to the Amendment and Restatement of the Caesars
Entertainment Corporation Executive Supplemental Savings Plan II (fka Harrah’s
Entertainment, Inc. Executive Supplemental Savings Plan II), effective as of
November 5, 2014.
Caesars Entertainment Corporation Second Amended and Restated Executive
Deferred Compensation Trust Agreement, dated as of December 12, 2016,
between Caesars Entertainment Corporation and Wells Fargo Bank, N.A.
Lease (CPLV), dated as of October 6, 2017, by and among CPLV Property Owner
LLC, Desert Palace LLC, Caesars Entertainment Operating Company, Inc. and
CEOC, LLC, relating to the CPLV Facilities.
First Amendment, dated December 26, 2018, to Lease (CPLV), dated October 6,
2017, by and among CPLV Property Owner LLC, Desert Palace LLC and CEOC,
LLC.
Lease (Non-CPLV), dated as of October 6, 2017, by and among the entities listed
on Schedules A and B thereto and CEOC, LLC, relating to the Non-CPLV
Facilities.
Fourth Amendment, dated December 26, 2018, to Lease (Non-CPLV), dated
October 6, 2017, by and among the entities listed on Schedules A and B thereto
and CEOC, LLC.
Lease (Joliet), dated as of October 6, 2017, by and between Harrah’s Joliet Landco
LLC and Des Plaines Development Limited Partnership, relating to the Joliet
Facilities.
First Amendment, dated December 26, 2018, to Lease (Joliet), dated October 6,
2017, by and between Harrah’s Joliet Landco LLC and Des Plaines Development
Limited Partnership.
Trademark License Agreement, dated as of October 6, 2017, between Caesars
License Company, LLC and Desert Palace LLC.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
131
10-Q
10-Q
10-Q
10-Q
8-K
6/30/2007
6/30/2007
6/30/2007
6/30/2007
—
10.70
10.71
10.72
10.73
10.2
8/9/2007
8/9/2007
8/9/2007
8/9/2007
2/13/2009
10-K
12/31/2014
10.48
3/16/2015
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
—
—
—
—
—
—
—
—
10.20
10/13/2017
10.1
10/13/2017
10.1
12/26/2018
10.2
10/13/2017
10.2
12/26/2018
10.3
10/13/2017
10.3
10.4
12/26/2018
10/13/2017
Exhibit
Number
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Golf Course Use Agreement, dated as of October 6, 2017, by and among Rio
Secco LLC, Cascata LLC, Chariot Run LLC, Grand Bear LLC, Caesars Enterprise
Services, LLC, CEOC, LLC and, solely for purposes of Section 2.1(c) thereof,
Caesars License Company, LLC.
—
8-K
Management and Lease Support Agreement, dated as of October 6, 2017, by and
among Desert Palace LLC, Caesars Entertainment Operating Company, Inc.,
CEOC, LLC, CPLV Manager, LLC, Caesars Entertainment Corporation, CPLV
Property Owner LLC, and solely for certain articles and sections named therein,
Caesars License Company, LLC and Caesars Enterprise Services, LLC relating to
the CPLV Facilities.
First Amendment, dated December 26, 2018, to Management and Lease Support
Agreement, dated as of October 6, 2017, by and among Desert Palace LLC,
CEOC, LLC, CPLV Manager, LLC, Caesars Entertainment Corporation, CPLV
Property Owner LLC, and solely for certain articles and sections named therein,
Caesars License Company, LLC and Caesars Enterprise Services, LLC.
First Amendment, dated December 26, 2018, to Management and Lease Support
Agreement, dated as of October 6, 2017, by and among CEOC, LLC, the entities
listed on Schedule A and Schedule B thereto, Chester Downs and Marina, LLC,
Non-CPLV Manager, LLC, Caesars Entertainment Corporation, Philadelphia
Propco LLC, and solely for certain articles and sections named therein, Caesars
License Company, LLC and Caesars Enterprise Services, LLC.
Management and Lease Support Agreement, dated as of October 6, 2017, by and
among CEOC, LLC, the entities listed therein, Non-CPLV Manager, LLC, Caesars
Entertainment Corporation and solely for certain articles and sections named
therein, Caesars License Company, LLC and Caesars Enterprise Services, LLC
relating to the Non-CPLV Facilities.
Management and Lease Support Agreement, dated as of October 6, 2017, by and
among Des Plaines Development Limited Partnership, Joliet Manager, LLC,
Caesars Entertainment Corporation, Harrah’s Joliet Landco LLC and solely for
certain articles and sections named therein, Caesars License Company, LLC and
Caesars Enterprise Services, LLC relating to the Joliet Facilities.
First Amendment, dated December 26, 2018, to Management and Lease Support
Agreement, dated as of October 6, 2017, by and among Des Plaines Development
Limited Partnership, Joliet Manager, LLC, Caesars Entertainment Corporation,
Harrah’s Joliet Landco LLC and solely for certain articles and sections named
therein, Caesars License Company, LLC and Caesars Enterprise Services, LLC.
Right of First Refusal Agreement, dated as of October 6, 2017, between Caesars
Entertainment Corporation and VICI Properties L.P.
Second Amended and Restated Right of First Refusal Agreement, dated as of
December 26, 2018, by and between Caesars Entertainment Corporation and VICI
Properties L.P.
—
8-K
—
8-K
—
8-K
—
8-K
—
8-K
8-K
8-K
8-K
—
—
—
132
—
—
—
—
—
—
—
—
—
10.5
10/13/2017
10.6
10/13/2017
10.5
12/26/2018
10.6
12/26/2018
10.7
10/13/2017
10.8
10/13/2017
10.7
12/26/2018
10.9
10.8
10/13/2017
12/26/2018
Exhibit
Number
10.28
10.29
10.30
10.31
10.32
*10.33
10.34
†10.35
*10.36
*10.37
*10.38
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Tax Matters Agreement, dated as of October 6, 2017, between Caesars
Entertainment Corporation, CEOC, LLC, VICI Properties Inc., VICI Properties
L.P. and CPLV Property Owner LLC.
Credit Agreement, dated as of October 6, 2017, among Caesars Entertainment
Operating Company, Inc., CEOC, LLC, the lenders party thereto, Credit Suisse
AG, Cayman Islands Branch, as Administrative Agent, Credit Suisse Securities
(USA) LLC and Deutsche Bank Securities Inc., as Joint Lead Arrangers, Credit
Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Barclays Bank PLC,
Citigroup Global Markets Inc., Goldman Sachs Bank USA, JPMorgan Chase
Bank, N.A., Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as
Joint Bookrunners and Credit Suisse Securities (USA) LLC as Syndication Agent
and Documentation Agent.
Amendment No. 1, dated April 16, 2018, among CEOC, LLC, the lenders named
therein and Credit Suisse AG, Cayman Islands Branch, as administrative agent and
as collateral agent.
Second Amended and Restated Omnibus License and Enterprise Services
Agreement, dated as of October 6, 2017, among Caesars Entertainment Operating
Company, Inc., Caesars Growth Properties Holdings, LLC, Caesars Entertainment
Resort Properties LLC, Caesars License Company, LLC, Caesars World LLC and
Caesars Enterprise Services, LLC.
Amendment to Unit Purchase Agreement, dated May 8, 2018, among Caesars
Entertainment Corporation and Clairvest GP Manageco, Inc.
Second Amendment to Unit Purchase Agreement, dated July 15, 2018, among
Caesars Entertainment Corporation, Clairvest GP Manageco, Inc., Centaur
Holdings, LLC, and each of the Persons listed on Schedule 1 of the Unit Purchase
Agreement, dated November 16, 2017.
Assignment Agreement, dated July 15, 2018, among Caesars Entertainment
Corporation, Caesars Resort Collection, LLC, Clairvest GP Manageco, Inc. and
Centaur Holdings, LLC.
Contribution Agreement, dated as of October 6, 2017, between Caesars
Entertainment Corporation and Hamlet Holdings LLC.
Unit Purchase Agreement between the Persons Listed on Schedule 1, Clairvest GP
Manageco, Inc., Centaur Holdings, LLC, and Caesars Entertainment Corporation,
dated as of November 16, 2017.
Purchase and Sale Agreement by and between Vegas Development LLC, a
Delaware limited liability company and Eastside Convention Center, LLC, a
Delaware limited liability company as Buyer, effective date November 29, 2017.
Amended and Restated Lease by and among Claudine Propco, LLC, a Delaware
limited liability company, and Harrah’s Las Vegas, LLC, a Nevada limited liability
company, dated December 22, 2017.
—
8-K
—
10.10
10/13/2017
—
8-K
—
10.11
10/13/2017
8-K
8-K
—
—
10.1
4/16/2018
10.12
10/13/2017
10-Q
6/30/2018
10-Q
6/30/2018
10.2
10.3
8/1/2018
8/1/2018
10-Q
6/30/2018
10.4
8/1/2018
8-K
—
10.13
10/13/2017
10-K
12/31/2017
10.42
3/8/2018
10-K
12/31/2017
10.43
3/8/2018
10-K
12/31/2017
10.44
3/8/2018
—
—
—
—
—
—
—
—
—
133
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Exhibit
Number
10.39
*10.40
*10.41
*10.42
*10.43
First Amendment, dated December 26, 2018, to Amended and Restated Lease,
dated December 22, 2017, by and between Claudine Propco, LLC and Harrah’s
Las Vegas, LLC.
Put-Call Right Agreement dated as of December 22, 2017 by and among Claudine
Propco, LLC, a Delaware limited liability company and Vegas Development Land
Owner, LLC, a Delaware limited liability company and 3535 LV Newco, LLC, a
Delaware limited liability company.
Incremental Assumption Agreement No. 1, dated as of December 18, 2017 relating
to the Credit Agreement dated as of October 6, 2017, among Caesars
Entertainment Operating Company, Inc. and CEOC, LLC, as borrower and the
Lenders party thereto from time to time and Credit Suisse AG, Cayman Islands
Branch, as administrative agent for the Lenders and collateral agent for the
Secured Parties.
First Amendment to Lease (Non-CPLV), dated as of December 22, 2017 by and
among the entities listed on Schedules A and B thereto and CEOC, LLC, relating
to the Non-CPLV Facilities.
Purchase and Sale Agreement, by and between, Harrah’s Las Vegas, LLC, as
Seller, and Claudine Property Owner, LLC, as Buyer, dated November 29, 2017.
*10.44
Guaranty of Lease dated December 22, 2017, by and between Caesars Resort
Collection, LLC and Claudine Propco LLC.
*10.45
10.46
*10.47
*10.48
10.49
Amended and Restated Right of First Refusal Agreement, dated as of December
22, 2017, by and between Caesars Entertainment Corporation and VICI Properties
L.P.
Settlement and Forbearance Agreement, dated as of August 15, 2016, among
Caesars Entertainment Operating Company, Inc., on behalf of itself and each of the
debtors in the Chapter 11 Cases, Caesars Entertainment Corporation and Frederick
Barton Danner.
Purchase and Sale Agreement and Joint Escrow Instructions by and between Rio
Properties, LLC and IC 3700 Flamingo Road Venture LLC, dated September 20,
2019.
Form of Lease Agreement between IC 3700 Flamingo Road LLC and Rio
Properties, LLC.
Guaranty by Caesars Resort Collection, LLC for the benefit of IC 3700 Flamingo
Road Venture LLC, dated September 20, 2019.
†10.50
Caesars Entertainment Corporation Management Equity Incentive Plan, as
amended and restated on November 29, 2011.
†10.51
Caesars Entertainment Corporation 2012 Performance Incentive Plan.
†10.52
†10.53
Amendment No.1 to the Caesars Entertainment Corporation 2012 Performance
Incentive Plan.
Amendment No. 2 to the Caesars Entertainment Corporation 2012 Performance
Incentive Plan.
—
—
8-K
—
10.4
12/26/2018
10-K
12/31/2017
10.45
3/8/2018
—
10-K
12/31/2017
10.46
3/8/2018
10-K
12/31/2017
10.47
3/8/2018
10-K
12/31/2017
10.48
3/8/2018
10-K
12/31/2017
10.49
3/8/2018
10-K
12/31/2017
10.50
3/8/2018
8-K
—
99.1
8/17/2016
10-Q
9/30/2019
10-Q
9/30/2019
10-Q
9/30/2019
S-1/A
S-1/A
8-K
8-K
—
—
—
—
10.1
10.2
10.3
10.78
10.89
10.1
10.1
11/5/2019
11/5/2019
11/5/2019
12/28/2011
2/2/2012
7/25/2012
5/20/2015
—
—
—
—
—
__
__
__
—
—
—
—
134
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Exhibit
Number
†10.54
†10.55
†10.56
†10.57
†10.58
†10.59
†10.60
†10.61
†10.62
†10.63
†10.64
Amendment No. 3 to the Caesars Entertainment Corporation 2012 Performance
Incentive Plan.
Amendment No. 4 to the Caesars Entertainment Corporation 2012 Performance
Incentive Plan.
Form of Caesars Entertainment Corporation 2012 Performance Incentive Plan
Nonqualified Option Award Agreement.
Form of Caesars Entertainment Corporation 2012 Performance Incentive Plan
Nonqualified Option Award Agreement (Replacement Options).
Form of Caesars Entertainment 2012 Performance Incentive Plan Restricted Share
Award Agreement.
Form of Caesars Entertainment Corporation 2012 Performance Incentive Plan
Restricted Stock Unit Award Agreement.
Form of Caesars Entertainment Corporation 2012 Performance Incentive Plan
Restricted Stock Unit Award Agreement.
Form of Indemnification Agreement entered into by Caesars Entertainment
Corporation and Richard Broome, Timothy Donovan, Eric Hession, Thomas
Jenkin, Robert Morse, Les Ottolenghi, and Christian Stuart.
Form of Indemnification Agreement entered into by Caesars Entertainment
Corporation and Thomas Benninger, Michelle Bushore, Juliana Chugg, Denise
Clark, Keith Cozza, Monica Digilio, John Dionne, Christopher Holdren, James
Hunt, Jan Jones Blackhurst, Courtney Mather, James Nelson and Tony Rodio.
Form of Caesars Entertainment Corporation Management Equity Incentive Plan
Stock Option Grant Agreement.
Form of Amendment to Caesars Entertainment Corporation Management Equity
Incentive Plan Stock Option Grant Agreement.
†10.65
2009 Senior Executive Incentive Plan, amended and restated December 7, 2012.
†10.66
Caesars Entertainment Corporation Omnibus Incentive Plan, dated November 14,
2012.
†10.67
Form of Cash Award Agreement under 2012 Performance Incentive Plan.
†10.68
†10.69
†10.70
Form of Restricted Stock Unit Award Agreement (July 2016 Retention Awards)
under 2012 Performance Incentive Plan.
Form of Cash Award Agreement (July 2016 Retention Awards) under 2012
Performance Incentive Plan.
Employment Agreement dated February 5, 2015, between Caesars Entertainment
Corporation, Caesars Enterprise Services, LLC, and Mark Frissora.
8-K
—
10-Q
6/30/2016
SC-TO-I
SC-TO-I
—
—
10-K
12/31/2012
8-K
8-K
S-1/A
10-K
SC-TO-I
SC-TO-I
10-K
10-K
8-K
8-K
8-K
—
—
—
—
—
—
12/31/2012
12/31/2012
—
—
—
10.1
10.3
(d)(3)
(d)(4)
10.84
10.1
10.1
5/20/2016
8/2/2016
7/25/2012
7/25/2012
3/15/2013
7/2/2013
1/9/2015
10.75
11/16/2010
10.64
3/8/2018
(d)(7)
(d)(8)
10.90
10.91
10.1
10.4
10.5
7/25/2012
7/25/2012
3/15/2013
3/15/2013
5/27/2016
7/6/2016
7/6/2016
10-K
12/31/2014
10.106
3/16/2015
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
135
Exhibit
Number
†10.71
†10.72
†10.73
†10.74
†10.75
†10.76
†10.77
†10.78
†10.79
†10.80
†10.81
†10.82
†10.83
†10.84
†10.85
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Amendment No. 1 to Employment Agreement, made as of August 4, 2015,
between Caesars Entertainment Corporation, Caesars Enterprise Services, LLC
and Mark Frissora.
Amendment No. 2 to Employment Agreement, made as of February 5, 2015, by
and among Caesars Entertainment Corporation, Caesars Enterprise Services, LLC,
Caesars Acquisition Company and Mark Frissora.
Third Amendment to the Employment Agreement between Caesars Enterprise
Services, LLC and Mark Frissora, dated February 5, 2015 and effective as of
March 8, 2017.
Separation Agreement, dated November 1, 2018, by and between Caesars
Entertainment Corporation and Mark Frissora.
Amendment to Separation Agreement, dated December 21, 2018, by and between
Caesars Entertainment Corporation and Mark Frissora.
Employment Agreement, made as of November 10, 2014, by and between Caesars
Enterprise Services, LLC and Eric Hession.
Amendment No. 1 to the Employment Agreement between Caesars Enterprise
Services, LLC and Eric Hession, dated November 10, 2014 and effective as of
March 8, 2017.
Form of Employment Agreement between Caesars Entertainment Operating
Company, Inc., and Thomas M. Jenkin (assigned by Caesars Entertainment
Operating Company, Inc. to Caesars Enterprise Services, LLC on October 1,
2014).
Amendment No. 1 to the Employment Agreement between Caesars Enterprise
Services, LLC and Thomas Jenkin, dated January 3, 2012 and effective as of
March 8, 2017.
Employment Agreement made as of April 2, 2009 by and between Caesars
Entertainment Operating Company, Inc. and Timothy R. Donovan (assigned by
Caesars Entertainment Operating Company, Inc. to Caesars Enterprise Services,
LLC on October 1, 2014).
Amendment No. 1 to the Employment Agreement between Caesars Enterprise
Services, LLC and Timothy R. Donovan, dated April 2, 2009 and effective as of
March 8, 2017.
Employment Agreement, dated August 8, 2018, between Caesars Enterprise
Services, LLC and Robert J. Morse.
Employment Agreement, by and between Caesars Enterprise Services, LLC and
Anthony P. Rodio, dated as of April 15, 2019.
Employment Agreement dated January 18, 2016 between Caesars Enterprise
Services, LLC and Les Ottolenghi.
Amendment No. 1 to Employment Agreement dated January 18, 2016 between
Caesars Enterprise Services, LLC and Les Ottolenghi, effective as of March 8,
2017.
—
—
—
__
__
—
—
—
—
—
—
—
__
__
__
136
10-Q
6/30/2015
8-K
—
10-Q
3/31/2017
10-K
10-K
8-K
12/31/2018
12/31/2018
—
10-Q
3/31/2017
8-K
—
10.5
10.1
10.2
10.88
10.89
10.2
10.3
10.1
8/6/2015
7/6/2016
5/2/2017
2/22/2019
2/22/2019
11/12/2014
5/2/2017
1/9/2012
10-Q
3/31/2017
10.4
5/2/2017
10-K
12/31/2012
10.87
3/15/2013
10-Q
3/31/2017
8-K
8-K
—
__
10.5
10.1
10.1
5/2/2017
8/13/2018
4/17/2019
10-K/A
12/31/2018
10.118
4/26/2019
10-K/A
12/31/2018
10.119
4/26/2019
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Exhibit
Number
†10.86
†10.87
†10.88
†10.89
†10.90
†10.91
†10.92
†10.93
†10.94
†10.95
†10.96
†10.97
†10.98
†10.99
Separation Agreement and General Release dated November 15, 2019 between
Caesars Enterprise Services, LLC and Les Ottolenghi.
Separation Agreement and Release effective October 18, 2019 between Caesars
Enterprise Services, LLC and Janis L. Jones Blackhurst.
Amendment No. 2 to Employment Agreement, effective as of April 29, 2019, by
and between Caesars Enterprises Services, LLC and Eric Hession.
Separation Agreement, dated November 26, 2018, by and between Caesars
Enterprise Services, LLC and Robert J. Morse.
Restricted Stock Unit Award Agreement by and between Mark Frissora and
Caesars Entertainment Corporation, dated March 23, 2016.
Restricted Stock Unit Award Agreement by and between Mark Frissora and
Caesars Acquisition Company, dated June 29, 2016.
Letter Agreement, dated as of October 6, 2017, between Caesars Enterprise
Services, LLC and Timothy R. Donovan.
Amended and Restated Letter Agreement, dated January 29, 2018, between
Timothy R. Donovan and Caesars Enterprise Services, LLC.
Caesars Entertainment Corporation 2017 Performance Incentive Plan.
Amendment No. 1 to Caesars Entertainment Corporation 2017 Performance
Incentive Plan.
Form of Caesars Entertainment Corporation 2017 Performance Incentive Plan
Restricted Stock Unit Award Agreement.
Form of Caesars Entertainment Corporation 2017 Performance Incentive Plan
Restricted Stock Unit Award Agreement by and between Mark Frissora and
Caesars Entertainment Corporation.
Form of Caesars Entertainment Corporation 2017 Performance Incentive Plan
Performance Stock Unit Award Agreement.
Form of Caesars Entertainment Corporation 2017 Performance Incentive Plan
Performance Stock Unit Award Agreement by and between Mark Frissora and
Caesars Entertainment Corporation.
†10.100
Form of Board Member Stock Grant Agreement.
†10.101
Caesars Entertainment Corporation Executive Supplemental Savings Plan III.
†10.102
Caesars Entertainment Corporation Outside Director Deferred Compensation Plan.
†10.103
Form of Cash Award Agreement under the Caesars Entertainment Corporation
2017 Performance Incentive Plan.
X
X
__
__
—
—
—
—
—
—
—
—
—
—
—
—
—
__
137
10-Q
10-K
__
12/31/2018
8-K
8-K
8-K
8-K
S-8
8-K
S-8
S-8
8-K
8-K
8-K
S-8
S-8
—
—
—
—
—
—
—
—
—
—
—
—
—
10.4
10.97
10.2
10.3
5/2/2019
2/22/2019
7/6/2016
7/6/2016
10.17
10/13/2017
10.1
4.6
10.1
4.7
4.8
10.2
10.3
10.4
4.1
4.2
2/2/2018
10/6/2017
4/6/2018
10/6/2017
10/6/2017
4/6/2018
4/6/2018
4/6/2018
12/13/2018
12/13/2018
10-K
12/31/2018
10.111
2/22/2019
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
Incorporated by Reference
Exhibit
Number
†10.104
†10.105
†10.106
†10.107
†10.108
†10.109
†10.110
14
21
23
31.1
31.2
32.1‡
32.2‡
Form of Amendment to Cash Award Agreement under the Caesars Entertainment
Corporation 2017 Performance Incentive Plan.
Caesars Acquisition Company 2014 Performance Incentive Plan.
Form Nonqualified Option Award Agreement under the Caesars Acquisition
Company 2014 Performance Incentive Plan.
Form Restricted Stock Award Agreement under the Caesars Acquisition Company
2014 Performance Incentive Plan.
Form Restricted Stock Unit Award Agreement under the Caesars Acquisition
Company 2014 Performance Incentive Plan.
Amended and Restated Limited Liability Company Agreement of Caesars
Enterprise Services, LLC.
Voting and Support Agreement, dated as of June 24, 2019, by and between Caesars
Entertainment Corporation and Recreational Enterprises, Inc.
Code of Business Conduct and Ethics, February 1, 2018.
List of Subsidiaries
Consent of Deloitte & Touche, LLP, independent registered public accounting
firm.
Certification of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.1
Gaming and Regulatory Overview.
101.INS
XBRL Instance Document - the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
10-K
12/31/2018
10.112
2/22/2019
***8-K
***8-K
***8-K
***8-K
****8-K
8-K
—
—
—
—
—
__
10.1
10.2
10.3
10.4
99.1
10.1
4/6/2014
4/16/2014
4/16/2014
4/16/2014
5/21/2014
6/25/2019
__
—
—
—
—
—
__
X
X
X
X
X
__
__
X
X
X
X
X
X
X
138
†
‡
*
**
***
****
Denotes a management contract or compensatory plan or arrangement.
Furnished herewith.
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any
omitted schedule or exhibit upon request.
Confidential treatment has been requested with respect to the omitted portions of Exhibits 10.32 and 10.34 pursuant to Rule 24b-2 promulgated under the Exchange Act which portions have been filed
separately with the Securities and Exchange Commission.
Filed by Caesars Acquisition Company.
Filed by Caesars Entertainment Operating Company, Inc.
ITEM 16. Form 10-K Summary
None.
139
CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY
CAESARS ENTERTAINMENT CORPORATION
CONDENSED BALANCE SHEETS
(In millions)
Assets
Current assets
Cash and cash equivalents
Receivables, net
Prepayments and other current assets
Intercompany receivables
Total current assets
Deferred charges and other assets
Investment in subsidiary
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
Accrued expenses and other current liabilities
Interest payable
Intercompany payables
Total current liabilities
Long-term debt
Deferred credits and other liabilities
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
See accompanying Notes to Condensed Financial Information.
140
Schedule I
As of December 31,
2019
2018
184
$
24
7
20
235
114
3,980
4,329
$
— $
10
14
21
45
1,091
1,062
2,198
2,131
4,329
$
457
21
5
20
503
128
4,199
4,830
1
7
14
20
42
1,119
419
1,580
3,250
4,830
CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY
CAESARS ENTERTAINMENT CORPORATION
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
Schedule I
(In millions)
Net revenues
Operating expenses
Corporate expense
Other operating costs
Total operating expenses
Loss from operations
Interest expense
Gain/(loss) on interests in subsidiaries
Restructuring and support expenses
Other income/(loss)
Income/(loss) from operations before income taxes
Income tax benefit/(provision)
Net income/(loss)
Other comprehensive income/(loss), net of income taxes
Comprehensive income/(loss)
Years Ended December 31,
2019
2018
2017
$
2
$
2
$
40
31
71
(69)
(63)
(457)
—
(604)
(1,193)
(2)
(1,195)
—
(1,195)
$
33
10
43
(41)
(55)
(316)
—
726
314
(11)
303
(30)
273
$
$
See accompanying Notes to Condensed Financial Information.
141
2
88
24
112
(110)
(18)
776
(1,842)
85
(1,109)
741
(368)
6
(362)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY
CAESARS ENTERTAINMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Schedule I
(In millions)
Cash flows provided by/(used in) operating activities
Cash flows from investing activities
Payments to acquire investments
Proceeds from the sale and maturity of investments
Cash flows provided by/(used in) investing activities
Cash flows from financing activities
Debt issuance and extension costs and fees
Repayments of long-term debt
Taxes paid related to net share settlement of equity awards
Proceeds from the issuance of common stock
Repurchase of common stock
Other financing
Cash flows used in financing activities
Net increase/(decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, end of period
Years Ended December 31,
2019
2018
2017
$
(281)
$
(138)
$
—
17
17
(28)
—
(28)
47
—
—
(9)
(273)
457
184
$
—
—
—
—
(2)
(22)
6
(311)
(2)
(331)
(469)
926
457
$
$
See accompanying Notes to Condensed Financial Information.
142
1,504
(700)
—
(700)
—
—
—
—
—
—
—
804
122
926
CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY ONLY
CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONDENSED FINANCIAL INFORMATION
Schedule I
1. Background and basis of presentation
These condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule 1 of Regulation S-X, as the restricted net assets of Caesars Entertainment
Corporation and its subsidiaries exceed 25% of the consolidated net assets of Caesars Entertainment Corporation and its subsidiaries (the “Company”). This information should be read in conjunction
with the Company’s consolidated financial statements included elsewhere in this filing.
2. Restricted net assets of subsidiaries
Certain of the Company’s subsidiaries have restrictions on their ability to pay dividends or make intercompany loans and advances pursuant to financing arrangements and regulatory restrictions. The
amount of restricted net assets the Company’s consolidated subsidiaries held as of both December 31, 2019 and 2018 was approximately $2.1 billion and $3.2 billion, respectively. Such restrictions
are on net assets of Caesars Entertainment Corporation and its subsidiaries. The amount of restricted net assets in the Company’s unconsolidated subsidiaries was not material to the financial
statements.
3. Commitments, contingencies, and long-term obligations
For a discussion of the Company’s commitments, contingencies, and long-term obligations under its senior secured credit facilities, see Note 11 and Note 12 of the Company’s consolidated financial
statements.
143
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
CAESARS ENTERTAINMENT CORPORATION
February 25, 2020
By:
/s/ TONY RODIO
Tony Rodio
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the
dates indicated.
Signature
Title
/s/ THOMAS BENNINGER
Thomas Benninger
/s/ JAN JONES BLACKHURST
Jan Jones Blackhurst
/s/ JULIANA L. CHUGG
Juliana L. Chugg
/s/ DENISE M. CLARK
Denise M. Clark
/s/ KEITH COZZA
Keith Cozza
/s/ JOHN DIONNE
John Dionne
/s/ JAMES HUNT
James Hunt
/s/ DON KORNSTEIN
Don Kornstein
/s/ COURTNEY MATHER
Courtney Mather
/s/ JAMES L. NELSON
James L. Nelson
/s/ TONY RODIO
Tony Rodio
/s/ ERIC HESSION
Eric Hession
/s/ KEITH A. CAUSEY
Keith A. Causey
Director
Director
Director
Director
Director
Director
Director
Chairman of the Board
Director
Director
Director
Chief Executive Officer and
Director
Executive Vice President and
Chief Financial Officer
Senior Vice President and
Chief Accounting Officer
144
Date
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
February 25, 2020
SEPARATION AGREEMENT AND GENERAL RELEASE
Exhibit 10.86
This Separation Agreement and General Release (this “Agreement”) is made and entered into on November 15, 2019 (the “Signature Date”), by and
between Caesars Enterprise Services, LLC (the “Company”) and Les Ottolenghi (“Executive”) (each a “Party” and collectively, the “Parties”).
WHEREAS, Executive and the Company entered into that certain Employment Agreement, (the “Employment Agreement”), dated January 18, 2016, as
amended March 8, 2017 (a copy of which is attached hereto as Exhibit A, and is incorporated by reference).
WHEREAS, Executive’s last day of employment with the Company is November 15, 2019 (the “Date of Termination”).
WHEREAS, the Parties now enter into this Agreement for the purposes of resolving all claims of any kind that Executive has or might have against the
Company and the “Released Parties” (as defined herein), through the date this Agreement is executed by all Parties, including, without limitation, those claims
arising out of or relating in any way to Executive’s employment by or termination from employment with the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual
promises set forth herein, the Parties agree that the foregoing recitals are true and correct and are incorporated herein as if fully set forth, and further agree as follows:
1. Monetary Consideration by the Company. In consideration for Executive’s entering into and signing this Agreement and complying with its terms, the
Company agrees, upon satisfaction of the conditions identified herein, as follows:
a. The Company will pay to Executive, as salary continuation pay, 78 weeks’ pay (minus standard payroll deductions) (“Salary Continuation”), which
totals $930,187.50 before standard payroll deductions, with the first installment to commence no later than the first regular payroll date following the date
the ADEA Release (as defined below) becomes effective and irrevocable (the “Release Effective Date”). The first installment shall be a “catch-up”
payment equal to Executive’s base salary rate for the period of time following the Separation Date through the date such first installment is paid, and the
balance of the severance shall be paid in regular installments payable according to the normal payroll practices of the Company. Executive understands
and agrees all
1
benefits will cease on the Separation Date except, if applicable, subsidized COBRA benefits for the Salary Continuation period. If Executive elects to
continue applicable benefits under COBRA during the Salary Continuation period, Executive will continue to be required to pay the then-applicable
required employee contribution for said benefits (“COBRA Subsidy”). Executive will not be eligible to contribute to the 401(k) Plan, or any other
retirement or deferred compensation plans, and no paid time off or vacation will be earned or accrued. If Executive dies prior to the expiration of the
Salary Continuation period, Executive (or Executive’s estate, as applicable) will receive a lump sum payment for the remainder of the Salary Continuation
period in a final paycheck within thirty (30) days after the Company receives notice. If Salary Continuation ceases for any reason, the COBRA Subsidy
shall also cease as of the effective date that Salary Continuation ceases. All Salary Continuation shall be deposited in accordance with Executive’s direct
deposit instructions on file with the Company and in accordance with the Company’s regular payroll practices in effect at the time.
b. The outstanding equity awards covering shares of common stock of Caesars Entertainment Corporation held by the Executive and unvested as of the
Separation Date granted under the Caesars Entertainment Corporation 2012 and 2017 Performance Incentive Plans, each as set forth on Exhibit B,
Schedule A attached hereto, will immediately vest in full upon the Release Effective Date (at target level with respect to performance-vesting restricted
stock awards) and any stock options that are vested and outstanding as of the Release Effective Date shall remain exercisable for a period of up to 120
days following the Separation Date, but in no event beyond the original term of such options; provided that such awards will be settled in accordance with
the terms of the applicable award agreement and incentive plan. Notwithstanding the foregoing, (A) any outstanding stock options covering shares of
common stock of Caesars Entertainment Corporation that vest based on performance shall not be accelerated and shall be cancelled as of the Termination
Date; and (B) any outstanding Caesars Entertainment Corporation restricted stock units granted during 2018 that vest in respect of performance conditions
shall remain outstanding and be paid out in accordance with the terms of the applicable award agreement and incentive plan;
c. Executive’s outstanding cash retention award granted under the Caesars Entertainment Corporation 2017 Performance Incentive Plan, pursuant to that
certain Form of Cash Award Agreement, by and between Caesars Entertainment Corporation and Executive, dated December 12, 2018, as amended, shall
accelerate and vest upon the Release Effective Date, and shall be paid in a single lump-sum within thirty (30) days of the Release Effective Date;
d. The Company will pay Executive a pro rata bonus for fiscal year 2019 based on actual performance and services through the Separation Date, payable in a
single lump-sum at
2
the same time annual bonuses are paid to active officers. If Executive dies prior to the date of payout, the bonus will be paid to Executive’s estate; and
e. The Company will provide Executive with outplacement support in accordance with the terms of the Caesars Enterprise Services, LLC Severance Pay
Program, as amended.
All payments under this Section will be subject to any required withholding of federal, state and local taxes pursuant to any applicable law or regulation, and the
Company will be entitled to withhold any and all such taxes from amounts payable under this Section. Executive agrees that the payments and benefits listed in this
Section 1 shall constitute the entire monetary consideration provided to Executive under this Agreement, and that Executive will not seek any further compensation
for any other money owed including, without limitation, any damage, costs, or attorneys’ fees in connection with the matters encompassed in this Agreement.
Executive understands that the consideration described in this Section is not automatically provided to every employee, and it is in addition to anything to which
Executive already is entitled. Executive further acknowledges that none of the payments or benefits described in this Section will be paid or provided to Executive if
he chooses to revoke this Agreement.
2. Complete Release of All Claims. In consideration for the promises set forth in this Agreement, Executive for himself, his heirs, representatives,
attorneys, executors, administrators, successors, relatives, and assigns, knowingly and voluntarily releases and forever discharges the Company, its parent entities,
owners, affiliates, subsidiaries, divisions, predecessors, insurers, reinsurers, successors, and assigns, and their current and former employees, attorneys, officers,
directors and agents thereof, both individually and in their representative capacities, and their employee benefit plans and programs and their administrators and
fiduciaries (collectively referred to throughout the remainder of this Agreement as “Released Parties”), of and from any and all claims, known and unknown,
asserted or unasserted, contingent or actual, which the Executive has or may have against the Released Parties as of the date Executive executes this Agreement,
including, but not limited to, any alleged violation of all common law, public policy, contract, tort (whether negligent or intentional), or other claims of any kind,
whether under asserted under federal, state or local law, as well as all claims Executive might have under or pursuant to inter alia, the Age Discrimination in
Employment Act (ADEA); the WARN Act; Title VII of the Civil Rights Act of 1964; Sections 1981 and 1983 of the Civil Rights Act of 1866; the Americans With
Disabilities Act (ADA), as amended; the Family and Medical Leave Act; the Fair Labor Standards Act; the Fair Credit Reporting Act; the Equal Pay Act, the
Occupational Safety and Health Act; the Employee Retirement Income Security Act of 1974 (ERISA); Nevada statutes on Compensation, Wages and Hours, Nev.
Rev. Stat. Chapter 608; Nevada statutes on Employment Practices, Nev. Rev. Stat. Chapter 613; Nevada Occupational Safety & Health statutes; any other federal,
state or local law, rule, regulation, or ordinance; and any claim for costs, fees, or other expenses including attorneys’ fees incurred in these matters.
3
Notwithstanding the foregoing, Executive understands that nothing contained in this Agreement limits Executive’s ability to file a charge or complaint with
the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and
Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). However, to the maximum extent
permitted by law, Executive agrees that if such an administrative claim is made, Executive shall not be entitled to recover any individual monetary relief or other
individual remedies.
2.1 No Other Pending Claims. Executive represents and affirms that, prior to signing this Separation Agreement, Executive has not filed or pursued any
complaints, charges, or lawsuits of any kind with any court, governmental or administrative agency, arbitrator, or other forum against the Company or any of the
other Released Parties, asserting any claims whatsoever. Executive represents and warrants that he has been granted all leave (paid or unpaid) to which he was
entitled under the federal Family and Medical Leave Act and any similar state or local law and that he has not been discriminated or retaliated against due to the
exercise of rights, if any, under the federal Family and Medical Leave Act or any similar state or local law.
2.2 Claims Not Released. Executive is not waiving any rights Executive may have to: (a) Executive’s own vested accrued employee benefits under
the Company’s health, welfare, or retirement benefit plans as of the Separation Date; (b) benefits and/or the right to seek benefits under applicable workers’
compensation and/or unemployment compensation statutes; (c) pursue claims which by law cannot be waived by signing this Agreement; and/or (d) enforce this
Agreement.
2.3 Provisions Related to Sexual Harassment Claims. Notwithstanding the general release of all claims, known or unknown, freely and expressly
given by Executive in this Agreement, Executive represents, warrants and agrees that Executive has not raised, nor ever had, claims involving sexual harassment or
sexual abuse while employed by the Company, and the compensation in this Agreement has no relation to sexual harassment or sexual abuse.
3. Cooperation Required. Executive agrees that, as requested by the Company, Executive will cooperate fully with the Company or its representatives in
any investigation, proceeding, administrative review or litigation brought against the Company or any Released Party by any government agency or private party
pertaining to matters occurring during Executive’s employment with the Company or any Released Party. If Executive incurs out-of-pocket expenses in assisting the
Company or any affiliate at its request, the Company will mail to Executive a reimbursement check for those expenses within fifteen (15) days after it receives a
request for payment, along with satisfactory written substantiation of the claimed expenses.
4. Agreement Not to Seek or Accept Future Employment. Executive agrees that, because of circumstances unique to the termination, Executive is not
qualified for reemployment
4
with the Company, or any subsidiaries or affiliates of either the Company or Caesars Entertainment Corporation (collectively, “Caesars”) or Eldorado Resorts, Inc.
or any subsidiaries or affiliates of Eldorado Resorts, Inc. (collectively, “Eldorado”) prior to the later of (i) the end of the Salary Continuation period, and (ii) the
anticipated closing date of its merger with Caesars. For the purposes of clarification, this provision does not apply to any business entity that is not owned by, a
subsidiary of, or affiliated with Caesars or Eldorado as of the date Executive executes this Agreement. Executive further agrees that in the event Executive does apply
for such employment with Caesars or Eldorado, Executive’s application may be rejected legitimately and lawfully solely because Executive breached this promise.
5. Neutral Reference. Executive will not direct any prospective employers to contact any Company employee or manager. Rather, Executive will direct any
prospective employers to contact “The Work Number,” an automated third-party service that the Company uses for employment verification at (800) 367-5690 or
www.theworknumber.com. The prospective employer must provide the Company’s number (10587). The prospective employer should be able to verify Executive’s
dates of service, job title, salary, and current employment status. Information regarding eligibility for rehire will not be provided. Company will exercise good faith
efforts to provide only this information but, due to the size and number of employees at the Company, and due to the confidential nature of this settlement, Company
is not responsible for statements made by Company personnel if prospective employers contact anyone at Company individually instead of The Work Number.
Notwithstading the foregoing, Executive may use Anthony Rodio as a reference and may direct any prospective employers to contact Mr. Rodio.
6. Return of Company Property, Confidentiality and Non-Disparagement.
6.1 Return of Company Property. Executive has returned or will return to the Company within five (5) business days of the Separation Date, all
Company property including but not limited to credit cards, mobile telephone(s), computer(s), portable devices, keys, building passes, security passes, access or
identification cards, thumb drives , equipment, supplies, records, files, handbooks, guidelines, materials, documents, and all other property belonging to the
Company, whether in physical or electronic form, and all copies thereof. The deletion or removal of any Company records, files, documents, information or data shall
be a breach of this Agreement.
6.2 Confidentiality of Agreement. Executive understands, acknowledges, and agrees that, unless disclosure is otherwise required by applicable law
or regulation including disclosure(s) required by any gaming regulatory authority, the fact or content of this Agreement, and all the terms contained herein, are
confidential and shall not be disclosed by Executive to any person or entity by Executive except that Executive may discuss the terms of this Agreement with
Executive’s spouse, attorney, and tax advisor rendering professional services regarding the consideration provided to Executive pursuant to this Agreement, provided
that each such individual agrees to keep such information strictly confidential and disclose it to no other person. Executive agrees that if any such individual to whom
Executive discloses information regarding the terms of this Agreement then discloses such information to any other person, Executive will be personally
5
liable for such disclosure as a breach of this Agreement. Executive affirms that Executive has not made any prior disclosures that, if made after the Signature Date,
would have violated this confidentiality obligation.
Executive further understands that this Agreement does not limit Executive’s ability to disclose information to any gaming regulator upon the request
of the gaming regulator or communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any
Government Agency, including providing documents or other information, without notice to the company. Nothing in this Agreement is intended to or will prevent
Executive from communicating directly with, cooperating with, or providing information (including trade secrets) in confidence to, any federal, state or local
government regulator (including, but not limited to, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, or the U.S.
Department of Justice) for the purpose of reporting or investigating a suspected violation of law, or from providing such information to Executive’s attorney or in a
sealed complaint or other document filed in a lawsuit or other governmental proceeding.
6.3 Confidentiality of Business Information. Executive agrees the Company and Released Parties are engaged in a highly competitive gaming,
entertainment, and hospitality business (hereafter the “Business of the Company”). The Business of the Company has required and continues to require the
expenditure of substantial amounts of money and the use of skills developed over a long period of time. As a result of these investments of money, skill and time, the
Company and Released Parties have developed during Executive’s employment, and will continue to develop, certain valuable business information, trade secrets,
and Confidential Business Information (as defined in Section 6.3.2 below), that are peculiar to the Business of the Company and the disclosure and/or use of which
would cause the Company and Released Parties great and irreparable harm. Executive acknowledges that by virtue of Executive’s position and in the course of
Executive performing Executive’s duties and responsibilities, Executive gained intimate knowledge of and access to the Company’s business information and became
specifically and generally acquainted with the Company’s operations and relationships. Executive further acknowledges that such information and relationships are
and will remain highly valuable to the Company and that, for this reason, Executive shall not disclose the Company’s business information without the express
written consent of an authorized representative of the Company.
6.3.1 Handling Confidential Business Information. Executive agrees to promptly deliver to the Company the originals and all copies, in
whatever medium, of all such Confidential Business Information in Executive’s possession, custody or control. In consideration of the compensation and other items
of benefit provided for in this Agreement, Executive agrees not to, at any time, either during Executive’s employment or thereafter, divulge, post, use, publish, or in
any other manner reveal, directly or indirectly, to any person, firm, corporation or any other form of business organization or arrangement and keep in the strictest
confidence any Confidential Business Information, except (i) with the express written consent of the Company’s CEO or General
6
Counsel, (ii) to the extent that any such information is in or becomes in the public domain other than as a result of Executive’s breach of any of obligations, or (iii)
where required to be disclosed by court order, subpoena or other government process (including but not limited to disclosure(s) required by any gaming regulatory
authority) and in such event, provided that Executive notifies the Company in writing within three (3) days of receiving such order, subpoena, or process, cooperates
with the Company in seeking an appropriate protective order and in attempting to keep such information confidential to the maximum extent possible.
6.3.2 Confidential Business Information Defined. “Confidential Business Information” as used in this Agreement means any and all
confidential and/or proprietary knowledge, data, or information of the Company or any Subsidiary or Affiliate, including, without limitation, any: (A) food and
beverage procedures, recipes, finances, financial management systems, player identification systems (Caesars Rewards), pricing systems, organizational charts, salary
and benefit programs, and training programs, (B) trade secrets, drawings, inventions, methodologies, mask works, ideas, processes, formulas, source or object codes,
data, programs, software source documents, data, film, audio and digital recordings, works of authorship, know-how, improvements, discoveries, developments,
designs or techniques, intellectual property or other work product of the Company or any Affiliate, whether or not patentable or registrable under trademark,
copyright, patent, or similar laws; (C) information regarding plans for research, development, new service offerings and/or products, marketing, advertising, and
selling, distribution, business plans, business forecasts, budgets, and unpublished financial statements, licenses, prices, costs, suppliers, customers, or distribution
arrangements; (D) non-public information regarding or collected from employees, suppliers, customers, clients, suppliers, vendors, agents, and/or independent
contractors of the Company or any Subsidiary or Affiliate; (E) concepts and ideas relating to the development and distribution of content in any medium or to the
current, future, or proposed business opportunities, products or services of the Company or any Subsidiary or Affiliate; or (F) any other information, data, or the like
that is designated as confidential or treated as confidential by the Company or any of its Subsidiaries or Affiliates.
6.4 Defend Trade Secrets Act. Under the Defend Trade Secrets Act of 2016, Executive will not be held criminally or civilly liable under federal or
state trade secret law for the disclosure of a trade secret that: (i) is made (a) in confidence to a federal, state, or local government official, either directly or indirectly,
or to an attorney; and (b) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a
lawsuit or other proceeding, if such filing is made under seal.
6.5 Non-Disparagement. Executive agrees not to criticize, denigrate, or otherwise disparage Caesars, any other Released Party, Eldorado or any of
Caesars or Eldorado’s products, processes, policies, practices, services, standards of business conduct, officers, directors, senior executives or employees and will not
disrupt Caesar’s or Eldorado’s businesses in any manner. Nothing in this section, however, shall prohibit Executive from providing truthful information in
compliance with any lawful subpoena or court order or otherwise complying with directives given
7
by entities or individuals authorized by law to compel information from Executive regarding the Company or any of the Released Parties, in each case, pursuant to
applicable law that cannot be waived by agreement.
7. Consequence of Executive’s Breach. Executive understands acknowledges that the Executive’s obligations set forth in this Agreement, including the
confidentiality, return of Company property and non-disparagement obligations set forth in Section 6 and its subsections above, and Executive’s post-employment
obligations, terms and conditions set forth in Section 10 of the Employment Agreement (“Restrictive Covenants”) are an important, material part of the
consideration Executive is giving to the Company in this Agreement and that it would be very difficult for the Company to quantify the effect of a breach of these
provisions or the Restrictive Covenants, and that, accordingly, injunctive relief is an appropriate remedy for any breach of these provisions or the Restrictive
Covenants, whether by Executive or by any person to whom Executive or Executive’s agent or agents have divulged information regarding the terms of this
Agreement. Additionally, if the Company receives evidence that Executive has breached any material provision of this Agreement, including, without limitation, the
confidentiality, return of Company property and non-disparagement obligations set forth in this Agreement, or the Restrictive Covenants, Executive’s Salary
Continuation pay, COBRA Subsidy and any other payments under Section 1 of this Agreement shall cease and the Company’s covenants hereunder shall be deemed
null and void in their entirety.
8. Dispute Resolution. Any dispute arising in connection with the validity, interpretation, enforcement, or breach of this Agreement; under any statute,
regulation, ordinance or the common law; or otherwise arising between Executive, on the one hand, and the Company or any of its Subsidiaries or Affiliates, on the
other hand, the Parties, shall be submitted to binding arbitration before the American Arbitration Association (“AAA”) for resolution. Such arbitration shall be
conducted in Las Vegas, Nevada, and the arbitrator will apply the law of the State of Nevada, including federal law as applied in the State of Nevada. The arbitration
shall be conducted in accordance with the AAA’s Employment Arbitration Rules, as modified by the terms set forth in this Agreement. The arbitration will be
conducted by a single arbitrator, who shall be an attorney who specializes in the field of employment law and shall have prior experience arbitrating employment
disputes. The Company will pay the fees and costs of the Arbitrator and/or the AAA, except that Executive will be responsible for paying the applicable filing fee not
to exceed the fee that Executive would otherwise pay to file a lawsuit asserting the same claim in court. The arbitrator shall not have the authority to modify the terms
of this Agreement except to the extent that the Agreement violates any governing statute, in which case the arbitrator may modify the Agreement solely as necessary
to not conflict with such statute. The Arbitrator shall have the authority to award any remedy or relief that a court in Nevada could grant in conformity with the
applicable law on the basis of claims actually made in the arbitration. The Arbitrator shall render an award and written opinion which shall set forth the factual and
legal basis for the award. The award of the arbitrator shall be final and binding on the Parties, and judgment on the award may be confirmed and entered in any state
or federal court located in Clark County, Nevada. The arbitration shall be conducted on a strictly confidential basis, and Executive shall not disclose the existence of
a claim, the nature of a claim, any documents, exhibits, or information exchanged or presented in connection with any such a claim, or the result of any arbitration
(collectively, “Arbitration Materials”), to any third
8
party, with the sole exception of Executive’s legal counsel, who Executive shall ensure adheres to all confidentiality terms in this Agreement. In the event of any
court proceeding to challenge or enforce an arbitrator’s award, the Parties hereby consent to the exclusive jurisdiction of the state and federal courts in Clark County,
Nevada and agree to venue in that jurisdiction. The Parties agree to take all steps necessary to protect the confidentiality of the Arbitration Materials in connection
with any such proceeding, agree to file all confidential information, including but not limited to Confidential Business Information, under seal to the extent possible,
and agree to the entry of an appropriate protective order encompassing the confidentiality terms of this Agreement. Each party agrees to pay its own costs and fees in
connection with any arbitration of a dispute arising under this Agreement, and any court proceeding arising therefrom, regardless of outcome. To the extent any
dispute is found not to be subject to this arbitration provision, both Executive and the Company hereby waive their respective rights to trial by jury. EXECUTIVE
ACKNOWLEDGES THAT EXECUTIVE HAS CAREFULLY READ THIS SECTION 8, VOLUNTARILY AGREES TO ARBITRATE ALL DISPUTES,
AND HAS HAD THE OPPORTUNITY TO REVIEW THE PROVISIONS OF THIS SECTION WITH ANY ADVISORS AS EXECUTIVE CONSIDERED
NECESSARY. BY SIGNING THIS SEPARATION AGREEMENT, EXECUTIVE SIGNIFIES EXECUTIVE’S UNDERSTANDING AND AGREEMENT
TO THIS SECTION.
9. 409A Provisions. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payment of the
benefits set forth herein either shall either be exempt from the requirements of Section 409A of the Code or shall comply with the requirements of such provision.
Notwithstanding any provision in this Agreement or elsewhere to the contrary, if Executive is a “specified employee” within the meaning of Section 409A of the
Code as of the Separation Date, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of
compensation” within the meaning of Section 409A of the Code and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1
(including without limitation, the short-term deferral exemption and the permitted payments under Treas. Regs. Section 1.409A-1(b)(9)(iii)(A)), shall be delayed and
paid or provided within thirty (30) days following the earlier of (i) the date which is six (6) months after Executive’s separation from service (as defined in Section
409A of the Code and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s death.
Notwithstanding anything in this Agreement or elsewhere to the contrary, distributions upon termination of Executive’s employment may only be made upon a
“separation from service” as determined under Section 409A of the Code and such date shall be the Separation Date for purposes of this Agreement. Each separately
identified amount to which Executive is entitled under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of the Code.
In addition, to the extent possible under Section 409A of the Code, any series of installment payments under this Agreement shall be treated as a right to a series of
separate payments. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise if
such designation would constitute a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits provided
under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any reimbursements pursuant to
this Agreement or otherwise are taxable to Executive, any
9
reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the
related expense was incurred; provided, that, Executive has provided the Company written documentation of such expenses in a timely fashion and such expenses
otherwise satisfy the Company’s expense reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or
exchange for another benefit and the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements
that Executive receives in any other taxable year. Notwithstanding any of the foregoing to the contrary, the Company and its officers, directors, employees, agents,
and representatives make no guarantee or representation that the payments or benefits provided under this Agreement comply with, or are exempt from, the
provisions of Section 409A of the Code, and none of the foregoing shall have any liability or other obligation to indemnify or hold harmless Executive or any
beneficiary of Executive for any Tax, additional tax, interest or penalties that Executive or any beneficiary of Executive may incur in the event that any provision of
this Agreement, or any amendment or modification thereof, or any other action taken with respect thereto, is deemed to violate any of the requirements of Section
409A of the Code.
10. Knowing and Voluntary Waiver/ADEA Waiver. Executive represents, warrants and agrees that Executive has carefully read and fully understands all
of the provisions of this Agreement, knowingly and voluntarily agrees to all of the terms set forth in this Agreement, and knowingly and voluntarily intends to be
legally bound by all of the terms set forth in this Agreement. Executive has been advised by the Company to consider the terms of this Agreement and consult with
an attorney of Executive’s choice prior to executing this Agreement. Executive agrees that by signing this Agreement, Executive waives any claims Executive
may have under the Age Discrimination in Employment Act of 1967 (the ADEA) up to Signature Date (the “ADEA Release”). Executive has, if Executive
wishes, twenty-one (21) days to consider this Agreement prior to signing it, and seven (7) days after the Signature Date to revoke Executive’s signature (the
“Revocation Expiration Date”). Any revocation within this seven (7) day period must be submitted, in writing via US Mail (registered or certified; return receipt
requested) or via email (with a copy to follow US Mail), to Corporate Human Resources, 1 Caesars Palace Drive, Las Vegas, Nevada 89109, mheidke@caesars.com,
and state, “I hereby revoke my acceptance of our Separation Agreement and General Release.” For this revocation to be effective, the written notice must be received
by Corporate Human Resources no later than the close of business on the seventh (7th) calendar day after the Signature Date. If Executive revokes this Agreement, it
shall not be effective or enforceable and Executive will not receive the consideration stated herein. This Agreement does not prevent Executive from raising an age
discrimination claim arising from facts and events occurring after the Revocation Expiration Date.
The termination of Executive’s employment is the result of Executive’s decision to participate in Caesars Entertainment Corporation 2019 Voluntary
Severance Program. Attachment “A” to this Agreement is a schedule reflecting the job titles and ages of all persons who did and did not participate in the program.
11. Miscellaneous.
10
11.1 Medicare Beneficiary Reporting. This Agreement requires a release of all claims, including personal injury claims. Therefore, the Company may
report the amount of this settlement in the quarter following the settlement date to the Centers for Medicare and Medicaid Services (CMS). Please consult Section
111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 and the CMS User Guide for additional information on the reporting requirements.
11.2 Attorneys’ Consultation, Fees and Costs. Executive has been advised by the Company to consider the terms of this Agreement and consult
with an attorney of Executive’s choice prior to executing this Agreement. The Parties agree that each shall bear its own attorney’s fees and costs in connection with
the negotiation and execution of this Agreement.
11.3 Transfer of Claims. Executive has not transferred or assigned, or purported to transfer or assign, to any person or entity, any claim described in this
Agreement.
11.4 Governing Law. This Agreement shall be governed by, construed in, and enforced exclusively in accordance with the laws of Nevada without
regard to its conflict of laws provisions. Any action, suit or proceeding involving this Agreement shall be initiated solely in the state or federal courts located in Las
Vegas, Nevada.
11.5 Attorney’s Fees. In the event of any action, suit or proceeding in connection with this Agreement, the prevailing party shall be entitled to
recover its actual and reasonable attorney’s fees in connection therewith.
11.6 No Admission of Wrongdoing. The Parties have entered into this Agreement solely to resolve any disputed claims that may exist between
them. Neither the fact of this Agreement nor any of its parts shall be construed as an admission of wrongdoing or liability.
11.7 Severability. Should any provision in this Agreement be determined to be invalid, the validity of the remaining provisions shall not be affected
thereby, and the invalid provision shall be deemed not to be part of this Agreement, and all remaining provisions shall remain valid and enforceable.
11.8 Entire Agreement. This Agreement sets forth the entire agreement between the Parties and supersedes any prior agreements between the
Parties pertaining to the subject matter of this Agreement, except that the claw-back provisions set forth in Section 5 of the Employment Agreement and Article 10
and Section 8, as applicable, of the Caesars Entertainment Corporation 2012 and 2017 Performance Incentive Plans and the Restrictive Covenants in the Employment
Agreement shall remain in full force and effect as set forth therein, and are incorporated into this Agreement as though fully set forth. In addition, Section 10(c) of the
Employment Agreement is modified such that “Competitive Business” shall mean MGM Resorts International, Las Vegas Sands Corporation, Wynn Resorts, Boyd
Gaming Corporation, and Penn National Gaming and any other casino, casino/resort, casino/hotel, internet gaming, other gaming venture or entity, in each case, with
more than 10,000 employees and headquartered in Las Vegas, Nevada, in exchange for the Executive’s agreement to double the time period set forth in Sections
10(d) and 10(e) in which the Executive is prohibited from soliciting any employees or service providers or existing or
11
prospective customer, client, supplier or vendor of the Company or its subsidiaries or affiliates without the prior written permission of the Company. Executive has
previously executed a Confidentiality Agreement, the terms of which will likewise survive the execution of this Agreement. To the extent any conflict exists between
provisions contained in this Agreement and Section 10 of the Employment Agreement or the Confidentiality Agreement, the provision that is more protective of the
Company shall control to the extent such provision is enforceable by law. If Executive violates any of the provisions of the Confidentiality Agreement or set forth in
Section 10 of the Employment Agreement, such violation will constitute a breach of this Agreement, and shall be subject to the provisions of Section 7 of this
Agreement.
11.9 Neutral Interpretation. The Parties have both participated in the negotiation and preparation of this Agreement. The provisions of this
Agreement shall not be construed for or against a Party because such Party’s counsel drafted this Agreement, and all rules of construction in this regard are hereby
waived.
11.10 No Representations. The Parties acknowledge that, except as expressly set forth herein, no representations of any kind or character have been
made by any other party or that party’s agents, representatives, or attorneys to induce the execution of this Agreement. The Parties further agree that Executive has
not relied upon any advice whatsoever from the Company or its attorneys.
11.11 No Modification or Waiver. No modification or waiver of the terms of this Agreement shall be effective unless it appears in a writing signed
by all Parties to this Agreement.
11.12 Successors. This Agreement shall be binding upon the Parties, and their heirs, representatives, executors, administrators, successors, and
assigns, and shall inure to the benefit of each and all of the Released Parties, and to their heirs, representatives, executors, administrators, successors, and assignees.
11.13. Counterparts. This Agreement may be executed in one or more counterparts including, without limitation, facsimile and electronic
counterparts, each of which shall be deemed an original and together shall constitute one and the same instrument.
11.14. Clawback. Notwithstanding anything to the contrary contained herein: if, at any time after Executive’s termination from employment or
services with the Company, the Company determines in its discretion that the Company had grounds to terminate the Executive for “cause” (as defined in the
Employment Agreement) or if the Company receives evidence that Executive has breached its obligations under this Agreement, including, without limitation, the
confidentiality, return of Company property and non-disparagement obligations set forth in this Agreement or the Restrictive Covenants, then Executive’s Salary
Continuation pay, COBRA Subsidy and any other payments under Section 1 of this Agreement shall cease and (a) any outstanding, vested or unvested, earned or
unearned portion of an award covering shares of common stock of Caesars Entertainment Corporation that is held by Executive may, at the Company’s discretion, be
canceled without payment therefor and (b) the Company, in its discretion, may require
12
the Executive, to forfeit and pay over to the Company, on demand, all or any portion of the Salary Continuation pay or other compensation paid or payable hereunder
and any compensation, gain or other value (whether or not taxable) realized on the vesting, payment or settlement of any award covering shares of common stock of
Caesars Entertainment Corporation.
[Signatures appear on the following page.]
13
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed and effective as of the Signature Date.
CAESARS ENTERPRISE SERVICES, LLC
By: /s/ Monica Digilio____________
Name: Monica Digilio
Title: Executive Vice President and
Chief Human Resources Officer
Executive:
/s/ Les Ottolenghi__________________
Les Ottolenghi
14
SCHEDULE TO RELEASE & SEPARATION AGREEMENT
The following is a listing of the ages and job titles of persons within Caesars Services Enterprises LLC who did and did not participate in Caesars Entertainment
Corporation 2019 Voluntary Severance Program.
Attachment A
15
EXHIBIT B
Caesars Entertainment Corporation Equity Awards Subject to Acceleration
Grant Date
October 6, 2017
April 2, 2018
March 28, 2019
March 28, 2019
Number of Unvested Shares
88,624
30,865
52,630
62,298
Schedule A
Award Type
Restricted Stock Unit (RSU)
Restricted Stock Unit (RSU)
Performance Stock Unit (PSU)
Restricted Stock Unit (RSU)
Schedule B
Caesars Entertainment Corporation Equity Awards Remaining Outstanding and Paid Out in Accordance With the Terms of the Applicable Award Agreement and
Incentive Plan
Award Type
Performance Stock Unit (PSU)
Grant Date
April 2, 2018
Number of Unvested Shares
31,636
16
SEPARATION AGREEMENT AND RELEASE
Exhibit 10.87
THIS SEPARATION AGREEMENT AND RELEASE (this “Separation Agreement”) is entered into effective as of the date on which Executive signs this Separation
Agreement (the “Effective Date”), by and between Caesars Enterprise Services, LLC, with offices at One Caesars Palace Drive, Las Vegas, Nevada 89109 (together with its
successors and assigns, the “Company”) and Janis L. Jones Blackhurst (“Executive”). All terms not defined in this Separation Agreement shall have the same meanings as those set
forth in the Employment Agreement (as defined below).
RECITALS
WHEREAS, Executive’s employment under her Employment Agreement, dated February 28, 2008, by and between the Executive and Harrah’s Operating Company, Inc., as
amended (the “Employment Agreement”) is terminated by the Company without Cause (as defined in the Employment Agreement) effective as of September 30, 2019, which is
also Executive’s last day of employment (“Termination Date”) and the Company and Executive acknowledge and agree that the termination of Executive’s employment hereunder
constitutes a “separation from service” within the meaning of Section 409A (as defined below); and
WHEREAS, Executive and the Company have determined to provide for the termination of Executive’s employment with the Company on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1.1 Executive will be paid for all hours worked through the Termination Date, less regular withholdings and deductions;
1.2 Executive is entitled to any stock and/or equity awards that were fully vested at the time of Executive’s Termination Date. Such vested equity awards held by
Executive shall be administered and managed according to the terms, conditions and provisions of the equity compensation plan and award agreement under which they were
granted;
1.3 Executive will be reimbursed for reasonable expenses incurred but not paid prior to the Termination Date conditioned upon submission of those expenses by the
Termination Date;
1.4 Executive acknowledges that any applicable D&O insurance policy or indemnification agreement, by their terms and to the extent provided therein, will continue to
cover claims that arose prior to the Termination Date in the same manner and as if Executive were still employed; and
1.5 Executive and Company understand and acknowledge that the payments and benefits recited in subparagraphs 1.1-1.4 above shall not be conditioned upon any of the
promises or covenants contained in this Separation Agreement, including, but not limited to, the Release (as defined below), nor do such payments and benefits represent
consideration for Executive’s entering into this Separation Agreement.
2.
Consideration. Executive acknowledges and agrees that the payments and benefits paid or granted to Executive under this Separation Agreement represent good,
valuable, and sufficient consideration for signing this Separation Agreement and the Release, and exceed any amounts or interests to which Executive otherwise would be entitled.
Executive acknowledges and agrees that except as specifically provided in this Separation Agreement, the Company shall have no other obligations or liabilities, monetary or
otherwise, to Executive following the Effective Date and that the payments and benefits contemplated herein constitute a complete settlement, satisfaction, and waiver of any and all
claims Executive may have against the Company.
(a) Severance. Subject to Section 2(c) below, in consideration of, and subject to and conditioned upon (i) Executive’s execution of the General Release of Claims
attached hereto as Exhibit B (the “Release”) no sooner than the Termination Date and on or prior to October 22, 2019 and non-revocation of the ADEA Release (as defined in the
Release), and (ii) Executive’s continued compliance with the terms and conditions of the Release, this Separation Agreement and the Sections in the Employment Agreement
identified in Section 4 (“Survival”):
i. The Company shall pay to Executive an amount equal to eighteen (18) months of Executive’s Base Salary (the “Severance Amount”), payable during
the period ending on the eighteenth (18)-month anniversary of the Termination Date (“Severance Period”). Unless terminated early due to Executive’s breach of this Separation
Agreement or the terms of her Employment Agreement that survive termination of employment, the Severance Amount will be paid in equal installments minus applicable
withholding and pursuant to the Company’s regular payroll practices; provided that any portion of the Severance Amount payable during the period commencing on the Termination
Date and ending on the six (6)-month anniversary of the Termination Date shall be paid in a lump sum, plus interest at a rate equal to the short-term applicable federal rate then in
effect, on the six (6)-month anniversary of the Termination Date;
ii. The outstanding equity awards covering shares of common stock of Caesars Entertainment Corporation held by the Executive and unvested as of the
Termination Date granted under the Caesars Entertainment Corporation 2012 and 2017 Performance Incentive Plans, each as set forth on Exhibit A attached hereto, will
immediately vest in full (at the target level with respect to the restricted stock units granted during 2019 that vest in respect of performance conditions) upon the date the ADEA
Release becomes effective and irrevocable (the “Release Effective Date”) and any stock options that are vested and outstanding as of the Release Effective Date shall remain
exercisable through the second anniversary of the Termination Date but in no event beyond the original term of such options; provided that such awards will be settled in accordance
with the terms of the applicable award agreement and incentive plan. Notwithstanding the foregoing, (A) any outstanding stock options covering shares of common stock of Caesars
Entertainment Corporation that vest based on performance shall not be accelerated and shall be cancelled as of the Termination Date; and (B) any outstanding Caesars Entertainment
Corporation restricted stock units granted during 2018 that vest in respect of performance conditions shall continue to be governed by the terms of the applicable award agreement
and incentive plan;
payable in a single lump-sum at the same time annual bonuses are paid to other active officers; and
iii. The Company shall pay Executive a pro rata bonus for fiscal year 2019 based on actual performance and services through the Termination Date,
iv. Executive’s outstanding cash award in the amount of $250,000 under the Caesars Entertainment Corporation 2017 Performance Incentive Plan,
pursuant to that certain Form of Cash Award Agreement, by and between Caesars Entertainment Corporation and Executive, dated March 20, 2019, as amended, shall accelerate and
vest upon the Release Effective Date, and shall be paid in a single lump-sum within thirty (30) days of the Release Effective Date;
(b) Group Health Insurance. Executive shall remain eligible to participate in the Company’s group health insurance plan in accordance with the terms and
conditions of Section 7 of the Employment Agreement.
(c) Withholding. All payments under Section 2 will be subject to any required withholding of federal, state and local taxes pursuant to any applicable law or
regulation and the Company shall be entitled to withhold any and all such taxes from amounts payable under Section 2.
3. Release of Claims.
(a) Executive, for Executive, Executive’s spouse, and each of Executive’s heirs, beneficiaries, representatives, agents, successors, and assigns (collectively,
“Executive Releasors”), irrevocably and unconditionally releases and forever discharges the Company, each and all of its predecessors, parents, Subsidiaries, Affiliates, divisions,
successors, and assigns (collectively with the Company, the “Company Entities”), and each and all of the Company Entities’ current and former officers, directors, employees,
shareholders, representatives, attorneys, agents, and assigns (collectively, with the Company Entities, the “Company Releasees”), from any and all causes of action, claims, actions,
rights, judgments, obligations, damages, demands, accountings, or liabilities of any kind or character, whether known or unknown, whether accrued or contingent, that Executive
has, had, or may have against them, or any of them, by reason of, arising out of, connected with, touching upon, or concerning Executive’s employment with the Company,
Executive’s separation from the Company, and Executive’s relationship with any or all of the Company Releasees, and from any and all statutory claims, regulatory claims, claims
under the Employment Agreement, and any and all other claims or matters of whatever kind, nature, or description, arising from the beginning of the world up through the Effective
Date (as defined below) (collectively, the “Released Claims”). Executive acknowledges that the Released Claims specifically include, but are not limited to, any and all claims for
fraud, breach of express or implied contract, breach of the implied covenant of good faith and fair dealing, interference with contractual rights, violation of public policy, invasion of
privacy, intentional or negligent infliction of emotional distress, intentional or negligent misrepresentation, defamation, libel, slander, or breach of privacy; claims for failure to pay
wages, benefits, deferred compensation, commissions, bonuses, vacation pay, expenses, severance pay, attorneys’ fees, or other compensation of any sort; claims related to stock
options, equity awards, or other grants, awards, or warrants; claims related to any tangible or intangible property of Executive that remains with the Company; claims for retaliation,
harassment or discrimination on the basis of race, color, sex, sexual orientation, national origin, ancestry, religion, disability, medical condition, marital status, gender identity,
gender expression, or any other characteristic or criteria protected by law; any claim under Title VII of the Civil Rights Act of 1964 (Title VII, as amended), 42 U.S.C. §§ 2000e, et
seq., the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Family and Medical Leave Act (“FMLA”), 29 U.S.C. §§ 2601, et seq., the Fair Labor Standards Act (“FLSA”),
29 U.S.C. §§201, et seq., the Equal Pay Act, 29 U.S.C. §206(a) and interpretive regulations, the Americans with Disabilities Act (“ADA”). 42 U.S.C. §§ 12101, et seq., the
Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”), the Occupational Safety and Health Act (“OSHA”) or any other health and/or safety laws, statutes, or
regulations, the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), 38 U.S.C. §§ 4301-4333, the Employee Retirement Income Security Act of 1974
(“ERISA”). 29 U.S.C. §§ 301, et seq., the Immigration Reform and Control Act of 1986, 8 U.S.C. §§ 1101, et seq., or the Internal Revenue Code of 1986, as amended (the “Code”),
the Worker Adjustment and Retraining Notification Act; all claims arising under the Sarbanes-Oxley Act of 2002 (Public Law 107-204), including whistleblowing claims under 18
U.S.C. §§ 1513(e) and 1514A; the Nevada Wage and Hour Laws, NEV. REV. STAT. § 608.005, et seq., the Nevada Fair Employment Practices Act. NEV. REV. STAT. § 613.310 et
seq., and any and all other foreign, federal, state, or local laws, common law, or case law, including but not limited to all statutes, regulations, common law, and other laws in place
in Clark County, Nevada. Executive understands that nothing contained in this agreement limits Executive’s ability to file a charge or complaint with the U.S. Equal Employment
Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal,
state or local governmental agency or commission (government agencies). Executive further understands that this Separation Agreement does not limit Executive’s ability to
communicate with any government agencies or otherwise participate in any investigation or proceeding that may be conducted by any government agency, including providing
documents or other information, without notice to the Company. This Separation Agreement does not limit Executive’s right to seek a judicial determination of the validity of the
release of Executive’s rights under the Age Discrimination in Employment Act. Notwithstanding the foregoing, this release by Executive shall not include any claims with respect to
(i) payments or benefits due under this Separation Agreement, (ii) any rights to indemnification or coverage under D&O insurance policies, (iii) vested employee benefits, and (iv)
claims which cannot be released under applicable law.
(b) Executive acknowledges that there is a risk that after the execution of this Separation Agreement, Executive will incur or suffer damage, loss, or injury that is
in some way caused by or connected with Executive’s employment with the Company or its Subsidiaries or Affiliates or Executive’s separation from the Company or its
Subsidiaries or Affiliates, and any relationship with or membership or investment in the Company Releasees, but that is unknown or unanticipated at the time of execution of this
Separation Agreement. Executive specifically assumes that risk and agrees that this Separation Agreement and the Released Claims apply to all unknown or unanticipated, accrued
or contingent claims and all matters caused by or connected with Executive’s employment with the Company or its Subsidiaries or Affiliates and/or Executive’s separation from the
Company or its Subsidiaries or Affiliates, as well as those claims currently known or anticipated. Executive acknowledges and agrees that this Separation Agreement constitutes a
knowing and voluntary waiver of any and all rights and claims Executive does or may have as of the Effective Date. Executive acknowledges that Executive has waived rights or
claims pursuant to this Separation Agreement in exchange for consideration, the value of which exceeds payment or remuneration to which Executive otherwise would be entitled.
(c) To the extent permitted by law, Executive agrees never to file a lawsuit or other adversarial proceeding with any court or arbitrator against the Company or any
other Company Releasee asserting any Released Claims. Executive represents and agrees that, prior to signing this Separation Agreement, Executive has not filed or pursued any
complaints, charges, or lawsuits of any kind with any court, governmental or administrative agency, arbitrator, or other forum against the Company or any of the other Company
Releasees, asserting any claims whatsoever. Executive understands and acknowledges that, in the event Executive files an administrative charge or commences any proceeding with
respect to any Released Claim, or in the event another person or entity does so in whole or in part on Executive’s behalf, Executive waives and is estopped from receiving any
monetary award or other legal or equitable relief in connection with any such proceeding.
(d) Executive represents and warrants that Executive has not assigned, transferred, or permitted the subrogation of any of Executive’s rights, claims, and/or causes
of action, including any claims referenced in this Separation Agreement, or authorized any other person or entity to assert any such claim or claims on Executive’s behalf, and
Executive agrees to indemnify and hold harmless the Company against any assignment, transfer, or subrogation of said rights, claims, and/or causes of action.
(e) The Company hereby acknowledges that it is not aware of any claims or causes of action that it may have against Executive as of the execution of this
Separation Agreement.
4. Survival. The following Sections of the Employment Agreement shall remain in full force and effect following the Termination Date: Section 12 (“Non-Competition
Agreement”). Section 13 (“Confidentiality”). Section 14 (“Injunctive Relief”). Section 15 (“Post Employment Cooperation”). Section 16 (“Release”), and Section 24 (“Notices”).
5. Tax Liability. Executive expressly acknowledges that neither the Company nor its attorneys have made any representations to Executive regarding the tax consequences
of the consideration provided to Executive pursuant to this Separation Agreement. It is the intention of the parties to this Separation Agreement that no payments made under this
Separation Agreement be subject to the additional tax on deferred compensation imposed by Section 409A of the Code and Department of Treasury regulations and other
interpretive guidance issued thereunder (“Section 409A”), but the Company does not guarantee that any such payment complies with or is exempt from Code Section 409A.
Notwithstanding any provision of this Separation Agreement to the contrary, if the Company and Executive determine that any compensation or benefits payable under this
Separation Agreement may be subject to Section 409A, the Company shall work in good faith with Executive to adopt such amendments to this Separation Agreement or adopt
other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Company determines are necessary or
appropriate to avoid the imposition of taxes under Section 409A, including without limitation, actions intended to (a) exempt the compensation and benefits payable under this
Separation Agreement from Section 409A, and/or (b) comply with the requirements of Section 409A; provided, however, that this Section 5 shall not create an obligation on the part
of the Company to adopt any such amendment, policy or procedure or take any such other action, nor shall the Company have any liability for failing to do so and provided, further,
that any such amendments shall endeavor to preserve to the maximum extent permissible the economic benefits of this Separation Agreement. If Executive is a “specified
employee” within the meaning of Section 409A of the Code, any payments or benefits due under this Separation Agreement that constitutes a “deferral of compensation” within the
meaning of Section 409A of the Code and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1 (including, without limitation, the short-term
deferral exemption and the separation pay plan exemption), shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after Executive’s separation
from service (as defined in Section 409A of the Code and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s
death; provided, that such payments shall be made in a lump-sum amount equal to the cumulative amount that would have otherwise been payable to Executive during such period
(without interest). Each payment made under this Separation Agreement will be treated as a separate payment for purposes of Code Section 409A and the right to a series of
installment payments under this Separation Agreement is to be treated as a right to a series of separate payments. To the extent permitted under Section 409A, any separate payment
or benefit under this Separation Agreement or otherwise shall not be deemed “nonqualified deferred compensation” subject to Section 409A to the extent provided in the exceptions
in Treasury Regulation Section 1.409A-1(b)(4), Section 1.409A-1(b)(9) or any other applicable exception or provision of Section 409A.
2. Confidentiality. Subject to applicable law, Executive will keep this Separation Agreement (including attachments) and its terms (other than the fact that Executive’s
employment was terminated on the Separation Date) confidential and will not disclose such information to anyone other than Executive’s immediate family and professional
advisors and the Company’s professional advisors, each of whom must, as a condition to the disclosure, agree to keep the information confidential. Subject to applicable law,
Executive will be responsible for any breach of this Section by Executive’s immediate family members and professional advisors, such as attorney and tax advisors.
Notwithstanding the foregoing, this Separation Agreement does not prohibit Executive from (a) providing truthful testimony in response to compulsory legal process, (b)
communicating with, participating or assisting in any investigation or inquiry by a governmental agency acting within the scope of its statutory or regulatory jurisdiction, or (c) or
disclosing information to any gaming regulator upon the request of the gaming regulator. Subject to applicable law, if Executive violates this Section, the Company’s obligation to
make any further payments under this Separation Agreement shall cease and, subject to applicable law, Executive shall be obligated to repay any amounts already paid by the
Company under the terms of this Separation Agreement.
3. Knowing/Voluntary Waiver. Executive acknowledges that Executive (a) has carefully read this Separation Agreement and the Employment Agreement; (b) is competent
to manage Executive’s own affairs; (c) fully understands the Separation Agreement’s and Employment Agreement’s contents and legal effect, and understands that Executive is
giving up any legal claims Executive has against any of the Company Releasees as set forth in Section 3(a); (d) has been advised to consult with an attorney of Executive’s choosing
prior to signing this Separation Agreement, if Executive so desires; and (e) has chosen to enter into this Separation Agreement freely, without coercion, and based upon Executive’s
own judgment, and that Executive has not relied upon any promises made by any of the Company Releasees, other than the promises explicitly contained in this Separation
Agreement.
4. Arbitration.
(a)
Executive and the Company agree that any dispute, controversy or claim, however significant, arising out of or in any way relating to Executive’s
employment with or termination of employment from the Company, including without limitation any dispute, controversy or claim arising out of or in any way relating to any
provision of this Separation Agreement (including the validity, scope and enforceability of this arbitration clause), to the fullest extent authorized by applicable law, shall be
submitted to final and binding arbitration before a single neutral arbitrator in accordance with the rules of JAMS pursuant to its Employment Arbitration Rules and Procedures,
which are available at http://www.jamsadr.com/rules-employment-arbitration/, and the Company will provide a copy upon Executive’s request, as the exclusive remedy for resolving
any and all such disputes.
(b)
The tribunal will consist of a sole neutral arbitrator selected by mutual agreement of the parties (or, absent such mutual agreement, in accordance with the
rules of JAMS) and the place of arbitration will be Las Vegas, Nevada. Each party shall be entitled to all types of remedies and relief otherwise available in court (subject to the
limitations set forth herein). The parties agree that any arbitration pursuant to this Separation Agreement shall be brought on an individual, rather than class, collective, or
representative basis, and waive the right to pursue any claim subject to arbitration on a class, collective, or representative basis.
The parties to this Separation Agreement hereby expressly and irrevocably submit themselves to the personal jurisdiction of the Superior Court of the State
of Nevada (the “Superior Court”) for the purpose of compelling arbitration pursuant to this Separation Agreement and for the purpose of any judicial proceedings seeking to
confirm, modify or vacate any arbitration award.
(c)
To the extent required by applicable law, the fees of the arbitrator and all other costs that are unique to arbitration shall be paid by the Company initially.
Each party shall be solely responsible for paying its own further costs for the arbitration, including, but not limited to, its own attorneys’ fees and/or its own witnesses’ fees. The
arbitrator may award fees and costs (including attorneys’ fees) to the prevailing party where authorized by applicable law.
(d)
WAIVER OF TRIAL BY JURY OR COURT. EXECUTIVE AND THE COMPANY UNDERSTAND THAT BY AGREEING TO ARBITRATE ANY
ARBITRATION CLAIM, THEY WILL NOT HAVE THE RIGHT TO HAVE ANY ARBITRATION CLAIM DECIDED BY A JURY OR A COURT, BUT SHALL INSTEAD
HAVE ANY ARBITRATION CLAIM DECIDED THROUGH ARBITRATION.
(e)
WAIVER OF OTHER RIGHTS. EXECUTIVE AND THE COMPANY WAIVE ANY CONSTITUTIONAL OR OTHER RIGHT TO BRING CLAIMS
COVERED BY THIS SEPARATION AGREEMENT OTHER THAN IN THEIR INDIVIDUAL CAPACITIES. EXCEPT AS MAY BE PROHIBITED BY LAW, THIS WAIVER
INCLUDES THE ABILITY TO ASSERT CLAIMS AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING.
(f)
(g)
The parties acknowledge that they are entering into this arbitration provision voluntarily, and are represented by counsel. If any part of this arbitration
provision is deemed unenforceable, it is entirely severable from the rest and shall not affect or limit the validity or enforceability of the remainder of the provision, or the Separation
Agreement.
5. Miscellaneous.
(a) This Separation Agreement may be executed in counterparts, each of which shall be deemed an original, and both of which together shall constitute one and
the same instrument. The section headings in this Separation Agreement are provided for convenience only and shall not affect the construction or interpretation of this Separation
Agreement or the provisions hereof.
(b) This Separation Agreement shall not in any way be construed as an admission that the Company, Executive, or any other individual or entity has any liability
to or acted wrongfully in any way with respect to Executive, the Company, or any other person.
(c) This Separation Agreement shall not be construed against either Party, and no consideration shall be given or presumption made on the basis of who drafted
the Separation Agreement or any particular provision hereof or who supplied the form of this Separation Agreement. In construing the Separation Agreement, (i) examples shall not
be construed to limit, expressly or by implication, the matter they illustrate, (ii) the connectives “and,” “or,” and “and/or” shall be construed either disjunctively or conjunctively so
as to construe a sentence or clause most broadly and bring within its scope all subject matter that might otherwise be construed to be outside of its scope; (iii) the word “includes”
and its derivatives means “includes, but is not limited to” and corresponding derivative expressions, (iv) a defined term has its defined meaning throughout the Separation
Agreement, whether it appears before or after the place where it is defined, and (v) the headings and titles herein are for convenience only and shall have no significance in the
interpretation hereof.
(d) The parties agree that each of the Company Releasees is an intended third-party beneficiary of Section 3 of this Separation Agreement and shall have the
authority to enforce the provisions applicable to it, her, or Executive in accordance with the terms of hereof.
(e) This Separation Agreement shall be governed, construed, performed, and enforced in accordance with its express terms, and otherwise in accordance with the
laws of the State of Nevada.
(f) The Company shall reimburse Executive for reasonable legal fees and expenses incurred in connection with the negotiation of this Separation Agreement, in an
amount not to exceed five thousand dollars ($5,000).
(g) The Company shall assign its rights and obligations under this Separation Agreement to any successor to all or substantially all of the business or the assets of
the Company (by merger or otherwise).
(h) Assignment.
Agreement by either party shall not relieve such party of its or his or her obligations hereunder.
(i) This Separation Agreement cannot be assigned by either party hereto, except with the written consent of the other. Any assignment of this Separation
(ii) The Company may elect to perform any or all of its obligations under this Separation Agreement through a subsidiary or affiliate. Notwithstanding any
such election, the Company’s obligations to Executive under this Separation Agreement will continue in full force and effect as obligations of the Company, and the Company shall
retain primary liability for their performance.
2. Entire Agreement. Except as otherwise specifically provided herein, this Separation Agreement constitutes the entire agreement of the parties with respect to the subject
matter hereof, contains all the covenants, promises, representations, warranties, and agreements between the Parties with respect to Executive’s separation from the Company and all
positions therewith; provided, however, that nothing in this Separation Agreement shall supersede the Sections in the Employment Agreement identified in Section 4 (“Survival”) of
this Separation Agreement. Any modification of this Separation Agreement will be effective only if it is in writing and signed by Executive and the Chief Executive Officer or
General Counsel of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Separation Agreement and Release on this _10____ day of October, 2019 .
CAESARS ENTERPRISE SERVICES, LLC
By:
/s/ Monica S. Digilio
Monica S. Digilio
Executive Vice President
Chief Human Resources Officer
Executive:
/s/ Janis L. Jones Blackhurst
Name: Janis L. Jones Blackhurst
EXHIBIT A
Award Type
Grant Date
Number of Unvested Shares
Caesars Entertainment Corporation Equity Awards Subject to Acceleration
Restricted Stock Unit (RSU)
October 6, 2017
Restricted Stock Unit (RSU)
April 2, 2018
Restricted Stock Unit (RSU)
March 28, 2019
Performance Stock Unit (PSU)
March 28, 2019
Performance Stock Unit (PSU)
March 28, 2019
56,515
21,606
40,184
20,092
13,856
¡ ¢ £ ¤ £ ¥ ¦ § Code of Business Conduct and Ethics FEBRUARY 2018
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Table of Contents 3 CEO letter 4 General Standards 5 Conicts of Interest 6 Corporate Opportunities 6 Condentiality 7 Harassment and Bullying 8 Competition and Fair Dealing 8 Company Records 8 Company Assets 9 Accuracy of Financial Reports and other Public Communications 11 Compliance with Laws and Regulations 12 Compliance with Trading Laws 12 Fair Disclosure 13 Reporting Violations and Accountability 15 Waivers 15 Compliance Policy 15 Conclusion 2
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 We work in one of the most highly regulated and closely watched industries on earth.And we are the leader in that industry. Our very name means leader.Working at Caesars Entertainment means to expect nothing less than the very best behavior from ourselves and from one another. We are the stewards of Caesars Entertainment’s reputation. To help guide our actions, we have adopted this Code of Business Conduct and Ethics. This Code sets clear expecta- tions for each of us in conducting Caesars Entertainment’s business consistent with the highest standards of ethics and responsibility. This Code applies to all of our directors, ofcers and em- ployees and demands that each of us do the right thing – follow the law, treat customers, co-workers and other peo- ple with respect and demonstrate honesty and integrity in all things we do. Please review this Code carefully. If you have any questions or are unsure how to handle an issue, reach out. Reach out to your manager or to our Chief Compliance Ofcer or someone on that team. We also have a con dential, toll-free hotline to ask questions or report potential violations. Thank you for your commitment to our company and our culture. 3
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 General Standards This Code of Business Conduct and Ethics contains general guidelines for conducting the business of Caesars Entertain- ment Corporation (with its afliates and subsidiaries, “Cae- sars Entertainment” or the “Company”) consistent with the highest standards of business ethics. Here is what we expect of everyone: • honest and ethical conduct, including ethical handling of actual or apparent conicts of interest between personal and professional relationships; • full, fair, accurate, timely and understand- able disclosure in reports and documents that Caesars Entertainment les with, or submits to, the United States Securities and Exchange Commission (the “SEC”), and in other public communications made by Caesars Entertainment; • compliance with all applicable laws, rules and regulations; • prompt internal reporting to an appropriate person or per- sons identied in this Code of violations of the Code; and • accountability for adherence to this Code. What Does “Applicable Laws” Mean? Follow the rules. Remember, US laws apply to you regardless of where you work. We operate in ve countries and must follow the local law as well as US law. 4
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Conicts of Interest All directors, ofcers and employees must fully disclose any sit- uations, including situations involving immediate family mem- All directors, bers, that reasonably could be expected to give rise to a con- ofcers and ict of interest or the appearance of one. Conicts should be employees must disclosed to your immediate supervisor or the General Counsel fully disclose any or someone on his team. situation that What is a conict of interest? reasonably could A conict of interest exists when your private interest, or the be expected to give private interest of one of your family members, interferes, or rise to a conict appears to interfere, in any way with the interests of the Com- of interest or the pany as a whole. The following are examples of situations (ap- appearance of one. plicable to both you and your family member) that may present a conict of interest: • employment by, service as a • receipt of personal benets director of or the provision or favors (other than nominal of any services benets or favors) as a result of to a company your position with the Company; that is one of • a signicant nancial interest the Company’s (ownership or otherwise) in material any company that is one of the customers, Company’s material customers, suppliers or suppliers or competitors; and competitors, or a company • any loan or guarantee of whose interests personal obligations from, or could reasonably any other nancial transaction be expected with, any company that is one to conict with of the Company’s material the Company’s customers, suppliers or interests; competitors (other than loans from commercial lending institutions in the ordinary course of business). 5
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Corporate Opportunities Employees of the Company owe a duty to the Company to advance its legitimate interests when the opportunity arises. Employees Employees are prohibited from taking (or directing to a third are prohibited party) a business opportunity discovered through the use of from taking (or the Company’s property, information or position. In general, directing to a third employees may not use corporate property, information or party) a business position for personal gain or compete with the Company, but opportunity ownership of a nancial interest in a competitor that is not a discovered signicant nancial interest is not considered to be compet- through the use ing with the Company. of the Company’s Any employee that discovers a business opportunity that is in property, one of the Company’s lines of business must rst present the information or business opportunity to the General Counsel, or his designee, position. before pursuing the activity in his individual capacity. If the General Counsel, or his designee, as the case may be, waives the Company’s right to pursue the opportunity, then you may do so in your individual capacity. Condentiality In the course of the Com- pany’s business, directors, ofcers and employees may gain condential information, including non-public informa- tion, that might be of use to competitors or harmful to the Company or its customers, if disclosed. You should maintain the condentiality of informa- tion entrusted to you by the Company or its customers, ex- cept when disclosure is autho- rized or legally mandated. 6
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Harassment and Bullying Harassment is an action, conduct or behavior that is viewed as Caesars unwelcome, humiliating, intimidating or offensive by the re- Entertainment cipient. Bullying is repeated verbal, physical, social or psycho- does not tolerate logical abuse by a person or group of people at work. Caesars any form of Entertainment does not tolerate any form of harassment or harassment or bullying in any of our workplaces. bullying in any of You must never engage in actions or behaviors that involve ha- our workplaces. rassment or bullying. You are expected to be inclusive, collabo- rative and supportive. It is important that you consider the impli- cations of your behaviors, and support your coworkers to speak up and raise concerns. Our Code of Business Conduct supports a culture where we treat all of our employees with respect. Caesars Entertainment is governed and abides by each coun- try’s laws and regulations regarding the fair and proper treat- ment of others. Harassment and bullying are illegal in many countries and may lead to penalties for individuals and for Cae- sars Entertainment. Always act in accordance with the highest ethical and legal standards. Always Never · Treat everyone with respect and dignity in line · Behave in a way that is offensive, insulting, with Corporate Code of Commitment. intimidating, malicious or humiliating. · Speak up if you are uncomfortable or upset · Make jokes or comments about a person’s race, with someone’s comments or behaviors, and gender, ethnicity, religion, sexual preference, talk it through. (Be mindful that workplace ha- age, physical appearance or disability. rassment and bullying should not be confused · Engage in sexual harassment. with constructive feedback or coaching on work performance or work-related behavior of · Distribute or display offensive material, includ- an individual or group for development.) ing
inappropriate pictures or cartoons. · Feel comfortable speaking up, even if the be- Where to go for help havior is not directed at you. · Supervisor or manager · Human Resources representative · Encourage and insist on a workplace free of · Group Legal representative harassment and bullying. · Compliance & Ethics Hotline 7
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Competition and Fair Dealing All directors, ofcers and employees are obligated to deal fairly with the Company’s customers, suppliers and competitors. You You may not may not take unfair advantage of any person or entity through take unfair manipulation, concealment, abuse of privileged information, advantage of misrepresentation or any other unfair dealing or practice. any person or Company Records entity. Our senior leaders have implemented policies to ensure that all Company records are complete, accurate and reliable in all material respects. Company records include, but are not lim- ited to, bookkeeping information, payroll, e-mails, accounting and nancial data, measurement and performance records, electronic data les and all other records maintained in the course of our business. You are responsible for understand- ing and complying with the Company’s document retention policy. Please refer to the Company’s document retention policy for more information about Company records. Company Assets You should protect the Company’s assets employed by or entrusted to you, and ensure their efcient and responsible use. Theft, carelessness and waste have a direct impact on the Company’s protability. Don’t participate in these activ- ities and don’t ignore it if others do so. All Company assets should be used only for legitimate business purposes. 8
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Accuracy of Financial Reports and other Public Communications It is our policy that our public disclosures be accurate and complete in all material respects regarding our business, Materially nancial condition and results of operations. Materially inac- inaccurate, curate, incomplete or untimely public reporting will not be incomplete tolerated and can severely damage the Company and cause or untimely legal liability. reporting will Each director, ofcer or employee of the Company, to the not be tolerated extent involved in the Company’s disclosure process, is re- and can severely quired to be familiar with the Company’s disclosure controls damage the and procedures applicable to him or her so that the Compa- Company and ny’s public reports and documents led with the SEC comply cause legal in all material respects with the applicable federal securities liability. laws and SEC rules. In addition, each such person having direct or supervisory authority regarding these SEC lings or the Company’s other public communications concerning its general business, results, nancial condition and pros- pects should, to the extent appropriate within his or her area of responsibility, consult with other Company ofcers and employees and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and under- standable disclo- sure. 9
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 To the extent you are involved in the Company’s disclosures, you must: • familiarize yourself with the • not knowingly misrepresent, disclosure requirements appli- or cause others to misrepre- cable to the Company, as well sent, facts about the Compa- as the business and nancial ny to others, whether within operations of the Company; or outside the Company, and including to the Company’s independent auditors, gov- ernmental regulators and self-regulatory organizations. We are responsible for implementing and maintaining an adequate internal control structure and procedures for nancial reporting, including without limitation disclosure controls and procedures. You should be on guard for, and promptly report, evidence of im- proper public reporting . What Does Disclosure Mean? Don’t be cute. We should use plain language to communi- cate with regulators, markets, customers and investors. That applies when the news is good and even when it isn’t. We will never communicate false or mis- leading information to the me- dia, to our auditors or anyone else, and we will never direct or allow a colleague to do so. 10
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Compliance with Laws and Regulations Each of us has Each of us has an obligation to comply with the laws of the an obligation cities, states and countries in which the Company operates. to comply with The Company will not tolerate any activity that violates any the laws of the laws, rules or regulations applicable to it. This includes, with- out limitation, laws covering the gaming industry, commer- cities, states and cial bribery and kickbacks, copyrights, trademarks and trade countries in which secrets, information privacy, illegal political contributions, the Company antitrust prohibitions, foreign corrupt practices, offering or operates. receiving gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety, false or misleading nancial information or misuse of corpo- rate assets. 11
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 You are strictly Compliance with Trading Laws prohibited from You are strictly prohibited from trading in the Company’s recommending, stock or other securities, or the stock or other securities of “tipping” or any other company, while in possession of material, nonpub- suggesting that lic information about the Company or the other company. In addition, you are strictly prohibited from recommending, anyone else “tipping” or suggesting that anyone else buy or sell our stock buy or sell our or other securities, or the stock or securities of any other stock or other company, on the basis of material, nonpublic information. For securities. more information, please refer to the Company’s securities trading policy and procedures. Fair Disclosure The Company’s policy is to provide timely, materially accurate and complete informa- tion in response to public requests (media, analysts, etc.), consistent with the Compa- ny’s obligations to maintain the condenti- ality of competitive and proprietary infor- mation and to prevent selective disclosure of market-sensitive nancial data. In con- nection with our public communications, the Company is required, and its policy is, to comply with Regulation FD (which stands for “fair disclosure”) under the federal securities laws. For more information, please contact the Law Department. Directors, ofcers and employees who are authorized to speak to the media must be aware of the requirements of Regulation FD and must make every effort to ensure that the Company’s public disclosures comply with those requirements. 12
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Reporting Violations and Accountability The Board of Directors has the authority to interpret this Code in any particular situation. If you become aware of any violation of this Code, you must notify your “Policy Contact” If you become promptly. “Policy Contact” means (a) for directors and ex- aware of any ecutive ofcers of the Company, the General Counsel or his designee (unless the General Counsel or such designee is the violation of this subject of the potential violation, in which case the Policy Code, you must Contact is the Chief Financial Ofcer), and (b) for other em- notify your ployees of the Company, your immediate supervisor or the “Policy Contact” General Counsel or his designee. If you do not feel comfort- promptly. able reporting the conduct in question to your Policy Con- tact, or do not get a satisfactory response, you may contact any member of the Board of Directors. Any questions relating to how these policies should be inter- preted or applied should be addressed to the General Coun- sel or designee. If you are unsure of whether a situation violates this Code, you should discuss the situation with your Policy Contact. Your obligations: • notify the appropriate Policy Contact promptly of any existing or potential violation of this Code; and • not retaliate against any director, ofcer or employee of the Compa- ny for reports of potential violations that are made in good faith. 13
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Our procedures to enforce this Code: • all Policy Contacts will en- • the Audit Committee may sure that the General Counsel conduct any additional in- or his designee is notied vestigation of a matter as it promptly of any reports not deems necessary. If the Audit made to the General Counsel Committee determines that a or designee directly. In the director or executive ofcer case of violations or alleged has violated this Code, it will violations involving the Gen- report its determination to the eral Counsel or his designee, Board of Directors; the Chief Financial Ofcer will • in the event a violation of this take on this role; Code has occurred, the Com- • the General Counsel or his pany will take disciplinary or designee will take action to in- preventive action as it deter- vestigate any violation report- mines to be appropriate, up to ed as he or she determines to and including dismissal or, in be appropriate; the event of criminal or other serious violations of law, no- • the General Counsel will re- tication of the SEC or other port each violation and al- appropriate law enforcement leged violation involving a authorities; and director or an executive of- cer to the Chair of the Audit • all questions and reports of Committee. In the case of known or suspected violations violations or alleged violations of the law or this Code will be involving the General Counsel, treated with sensitivity and the Chief Financial Ofcer will discretion. The Company will take on this role. To the extent protect each director’s, of- he or she deems appropriate, cer’s and employee’s con- the Chair of the Audit Com- dentiality to the extent pos- mittee may participate in any sible consistent with the law investigation of a director or and our need to investigate executive ofcer. After the reports. The Company strictly conclusion of an investigation prohibits retaliation against a of a director or executive of- director, ofcer
or employee cer, the conclusions shall be who, in good faith, seeks help reported to the Audit Com- or reports known or suspect- mittee; ed violations. 14
CAESARS CODE OF BUSINESS CONDUCT AND ETHICS | 2018 Waivers Each of the Board of Directors (in the case of a violation by a director or executive ofcer) and the General Counsel or his designee (in the case of a violation by any other person) may, in its or his discretion, waive any violation of this Code. Any waiver for a director or an executive ofcer will be dis- closed as required by SEC and Nasdaq rules. Compliance Policy This Code is not intended to amend or replace the Com- pany’s Compliance Policy or any other company codes of conduct and you will be required to comply with the terms of this Code, the Compliance Policy and any other Company codes of conduct. Conclusion You are This Code contains general guidelines for conducting the responsible business of the Company consistent with the highest stan- for your own dards of business ethics. Please contact the Law Department actions. with any questions about these guidelines. You are separate- ly responsible for your own actions. If you engage in conduct prohibited by the law or this Code, you will be deemed to have acted outside the scope of your relationship with the Company and may be subject to disciplinary action, includ- ing possibly termination or removal from your position. THIS CODE AND THE MATTERS ADDRESSED HEREIN ARE NEITHER A CONTRACT OF EMPLOYMENT NOR A GUARANTEE OF CONTINUING COMPANY POLICY. WE RESERVE THE RIGHT TO AMEND, SUPPLEMENT OR DISCONTINUE THIS CODE AND THE MATTERS ADDRESSED HEREIN, WITHOUT PRIOR NOTICE, AT ANY TIME. 15
Name
1300 WSED, LLC
1301 WSED, LLC
1400 WSED, LLC
3535 LV Corp.
3535 LV Newco, LLC
AC Conference Holdco., LLC
AC Conference Newco., LLC
Aster Insurance Ltd.
Bally's Las Vegas Manager, LLC
Bally's Park Place, LLC
Baluma Holdings S.A.
Benco, LLC
BL Development, LLC
Boardwalk Regency LLC
Burlington Street Services Limited
BV Manager, LLC
CA Hospitality Holding Company, Ltd.
Caesars Asia Limited
Caesars Bahamas Investment Corporation
Caesars Bahamas Management Corporation
Caesars Baltimore Acquisition Company, LLC
Caesars Baltimore Investment Company, LLC
Caesars Baltimore Management Company, LLC
Caesars Dubai, LLC
Caesars Enterprise Services, LLC (1)
Caesars Entertainment Japan, LLC
Caesars Entertainment UK Ltd.
Caesars Entertainment Windsor Limited
Caesars Growth Bally's LV, LLC
Caesars Growth Baltimore Fee, LLC
Caesars Growth Cromwell, LLC
Caesars Growth Harrah's New Orleans, LLC
Caesars Growth Partners, LLC
Caesars Growth PH Fee, LLC
Caesars Growth PH, LLC
Caesars Growth Quad, LLC
Caesars Hospitality, LLC
Caesars Interactive Entertainment New Jersey, LLC
Caesars Interactive Entertainment, LLC
Caesars International Hospitality, LLC
Caesars Korea Holding Company, LLC
Caesars Korea Services, LLC
Caesars License Company, LLC
Caesars Linq, LLC
CAESARS ENTERTAINMENT CORPORATION
LIST OF SUBSIDIARIES
As of February 25, 2020
Exhibit 21
Jurisdiction of
Incorporation
Delaware
Maryland
Delaware
Nevada
Delaware
Delaware
Delaware
Bermuda
Delaware
New Jersey
Bahamas
Nevada
Minnesota
New Jersey
England/Wales
Delaware
British Virgin Islands
Hong Kong
Bahamas
Bahamas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
United Kingdom
Canada
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Nevada
Delaware
1
Name
Caesars Massachusetts Investment Company, LLC
Caesars Mayfair Limited
Caesars Nevada Newco LLC
Caesars New Jersey, LLC
Caesars Octavius, LLC
Caesars Ontario Holding, Inc.
Caesars Palace LLC
Caesars Palace Realty LLC
Caesars Parlay Holding, LLC
Caesars Resort Collection, LLC
Caesars Riverboat Casino, LLC
Caesars Trex, Inc.
Caesars World International Corporation (S) PTE, Ltd.
Caesars World International Far East Limited
Caesars World, LLC
Caesars World Marketing LLC
Caesars World Merchandising, LLC
California Clearing Corporation
Casino Computer Programming, Inc.
CBAC Borrower, LLC
CBAC Gaming, LLC (2)
CBAC Holding Company, LLC
Centaur Acquisition, LLC
Centaur Colorado, LLC
Centaur Holdings, LLC
CEOC, LLC
CH Management Company, Ltd.
Chester Downs and Marina LLC
Chester Facility Holding Company, LLC
Christian County Land Acquisition Company, LLC
CIE Growth, LLC
Corner Investment Company, LLC
CPLV Manager, LLC
CR Baltimore Holdings, LLC (3)
CRC Finco, Inc.
Cromwell Manager, LLC
Dagger Holdings Ltd.
Des Plaines Development Limited Partnership (4)
Desert Palace, LLC
Eastside Convention Center, LLC
Emerald Safari Resort (Pty) Limited (5)
Entertainment RMG Canada, Inc.
Flamingo CERP Manager, LLC
Flamingo Las Vegas Operating Company, LLC
GB Investor, LLC
Giles Road Developer, LLC
Golden Nugget Club Limited
Grand Casinos of Biloxi, LLC
2
Jurisdiction of
Incorporation
Delaware
England and Wales
Nevada
New Jersey
Delaware
Canada
Delaware
Nevada
Delaware
Delaware
Indiana
Delaware
Singapore
Hong Kong
Florida
New Jersey
Nevada
California
Indiana
Delaware
Delaware
Delaware
Indiana
Delaware
Delaware
Delaware
Hong Kong
Pennsylvania
Delaware
Delaware
Delaware
Nevada
Delaware
Delaware
Delaware
Delaware
England
Delaware
Nevada
Delaware
South Africa
Canada
Nevada
Nevada
Delaware
Delaware
England/Wales
Minnesota
Name
Grand Casinos, Inc.
Harrah South Shore Corporation
Harrah's Arizona Corporation
Harrah's Atlantic City Operating Company, LLC
Harrah's Atlantic City Propco, LLC
Harrah's Bossier City Investment Company, LLC
Harrah's Chester Downs Investment Company, LLC
Harrah's Chester Downs Management Company, LLC
Harrah's Illinois LLC
Harrah's Interactive Investment Company
Harrah's Iowa Arena Management, LLC
Harrah's Las Vegas, LLC
Harrah's Laughlin, LLC
Harrah's Management Company
Harrah's NC Casino Company, LLC
Harrah's New Orleans Management Company, LLC
Harrah's North Kansas City LLC
Harrah's Operating Company Memphis, LLC
Harrah's Shreveport/Bossier City Investment Company, LLC
Harveys BR Management Company, Inc.
Harveys Iowa Management Company, LLC
Harveys Tahoe Management Company, LLC
HBR Realty Company, LLC
HCAL, LLC
HET International 1 B.V.
HET International 2 B.V
HLV CERP Manager, LLC
Hole in the Wall, LLC
Homerun Russia, LLC
Hoosier Park, LLC
Horseshoe Cincinnati Management, LLC
Horseshoe Entertainment
Horseshoe Gaming Holding, LLC
Horseshoe GP, LLC
Horseshoe Hammond, LLC
HP Dining & Entertainment, LLC
HP Dining & Entertainment II, LLC
HTM Holding, LLC
Inter Casino Management (Egypt) Limited
Jazz Casino Company, LLC
JCC Fulton Development, LLC
JCC Holding Company II, LLC
JGB Vegas Retail Lessee, LLC (6)
Joliet Manager, LLC
Laughlin CERP Manager, LLC
Laundry Newco, LLC
LCI (Overseas) Investments (Pty) Ltd.
Lifeboat, Inc.
3
Jurisdiction of
Incorporation
Minnesota
California
Nevada
New Jersey
Delaware
Louisiana
Delaware
Nevada
Nevada
Nevada
Delaware
Nevada
Nevada
Nevada
North Carolina
Nevada
Missouri
Delaware
Delaware
Nevada
Nevada
Nevada
Nevada
Nevada
The Netherlands
The Netherlands
Nevada
Nevada
Russia Federation
Indiana
Delaware
Louisiana
Delaware
Nevada
Indiana
Indiana
Indiana
Nevada
Isle of Man
Louisiana
Louisiana
Delaware
Nevada
Delaware
Nevada
Delaware
South Africa
Louisiana
Name
London Clubs (Overseas) Limited
London Clubs Brighton Limited
London Clubs Glasgow Limited
London Clubs Holdings Limited
London Clubs International Limited
London Clubs Leeds Limited
London Clubs LSQ Limited
London Clubs Management Limited
London Clubs Manchester Limited
London Clubs Nottingham Limited
London Clubs Poker Room Limited
London Clubs South Africa Limited
London Clubs Southend Limited
London Clubs Trustee Limited
MVCE Middle East, LLC (7)
New Centaur, LLC
New Gaming Capital Partnership
New Robinson Property Group, LLC
Non-CPLV Manager, LLC
Ocean Showboat, Inc.
Octavius/Linq Intermediate Holding, LLC
Parball LLC
Parball Newco, LLC
Paris CERP Manager, LLC
Paris Las Vegas Operating Company, LLC
Parlay Solutions, LLC(8)
PHW Las Vegas, LLC
PHW Manager, LLC
PHWCUP, LLC
PHWLV, LLC
Pier at Caesars LLC
Playboy Club (London) Limited
Players Bluegrass Downs, LLC
Players Holding, LLC
Players International, LLC
RFCZ (UK) Ltd. (9)
RFCZ Korea Corporation
Rio CERP Manager, LLC
Rio Properties, LLC
Robinson Property Group LLC
Roman Entertainment Corporation of Indiana
Roman Holding Company of Indiana, LLC
Romulus Risk and Insurance Company, Inc.
Sharp Dressed Man Las Vegas, LLC
Sharp Dressed Man Manager, LLC(10)
Showboat Atlantic City Operating Company, LLC
Southern Illinois Riverboat/Casino Cruises, LLC
Sterling Suffolk Racecourse, LLC (11)
4
Jurisdiction of
Incorporation
England/Wales
England/Wales
Scotland
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
England/Wales
Dubai
Delaware
Nevada
Delaware
Delaware
New Jersey
Delaware
Nevada
Delaware
Nevada
Nevada
Delaware
Nevada
Nevada
Delaware
Nevada
New Jersey
England/Wales
Kentucky
Nevada
Nevada
England
Republic of Korea
Nevada
Nevada
Mississippi
Indiana
Indiana
Nevada
Nevada
Nevada
New Jersey
Illinois
Massachusetts
Jurisdiction of
Incorporation
Nevada
Delaware
England/Wales
Delaware
Delaware
Canada
Name
The Caesars Foundation
The Quad Manager, LLC
The Sportsman Club Limited
Tunica Roadhouse LLC
Vegas Development Land Owner, LLC
Windsor Casino Limited
1
2
3
4
5
6
7
8
9
10
11
69% CEOC, LLC; 31% Caesars Resort Collection, LLC
75.8% CR Baltimore Holdings, LLC; 24.2% third party shareholders
58.51% Caesars Baltimore Investment Company, LLC; 41.49% third party shareholders
80% Harrah's Illinois LLC; 20% third party shareholder
70% LCI (Overseas) Investments Pty Ltd.; 30% third party shareholders
8.65% GB Investor, LLC; 91.35% third party shareholder
49% Caesars Dubai LLC; 51% third party shareholder
50% Caesars Parlay Holdings, LLC; 50% third party shareholder
50% Caesars Korea Holding Company, LLC; 50% third party shareholder
50% Caesars Hospitality, LLC; 50% third-party shareholder
4.09% Caesars Massachusetts Investment Company, LLC; 95.91% third party shareholders
5
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
We consent to the incorporation by reference in Registration Statement Nos. 333-182385, 333-204343, 333-211766, 333-220865, 333-220872, and 333-228792 on Form S-8, Registration Statement
No. 333-216636 on Form S-4, and Registration Statement No. 333-180116 on Form S-3 of our reports dated February 25, 2020, relating to the financial statements of Caesars Entertainment
Corporation and the effectiveness of Caesars Entertainment Corporation’s internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended
December 31, 2019.
/s/ DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 25, 2020
Exhibit 31.1
I, Tony Rodio, certify that:
1.
I have reviewed this annual report on Form 10-K of Caesars Entertainment Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
February 25, 2020
By:
/s/ TONY RODIO
Tony Rodio
Chief Executive Officer
Exhibit 31.2
I, Eric Hession, certify that:
1.
I have reviewed this annual report on Form 10-K of Caesars Entertainment Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
February 25, 2020
By:
/s/ ERIC HESSION
Eric Hession
Executive Vice President and Chief Financial Officer
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Caesars Entertainment Corporation (the “Company”), hereby certifies, to such
officer's knowledge, that:
(i)
the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
February 25, 2020
By:
/s/ TONY RODIO
Tony Rodio
Chief Executive Officer
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Caesars Entertainment Corporation (the “Company”), hereby certifies, to such
officer's knowledge, that:
(i)
the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
February 25, 2020
By:
/s/ ERIC HESSION
Eric Hession
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 99.1
GAMING REGULATORY OVERVIEW
General
The ownership and operation of casino entertainment facilities is subject to comprehensive regulation under the laws, rules and regulations of each of the jurisdictions in which we operate. Gaming
laws and regulations are based upon public policies designed to ensure that gaming and other related activity is conducted honestly, competitively and free of criminal and corruptive elements. The
continued growth and success of gaming is dependent upon public confidence, and gaming laws protect gaming consumers and the viability and integrity of the gaming industry, including prevention
of cheating and fraudulent practices. Gaming laws may also be designed to protect and maximize state and local revenues derived through taxation and licensing fees imposed on gaming industry
participants and enhance economic development and tourism. To accomplish these public policy goals, gaming laws establish procedures to ensure that participants in the gaming industry meet
certain standards of character and fitness, or suitability. In addition, applicable laws require gaming industry participants to:
•
Establish and maintain responsible accounting practices and procedures;
• Maintain effective controls over their financial practices, including establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues;
• Maintain systems for reliable record keeping;
•
File periodic reports with gaming regulators; and
• Maintain strict compliance with various laws, regulations and required minimum internal controls pertaining to gaming and related activity.
Typically, regulatory environments in the jurisdictions in which we operate are established by statute and are administered by a regulatory agency or agencies with interpretive authority with respect
to gaming laws and regulations and broad discretion to regulate the affairs of owners, managers, and persons/entities with financial interests in gaming operations. Among other things, regulatory
authorities in the various jurisdictions in which we operate:
•
Adopt rules and regulations under the implementing statutes;
• Make appropriate investigations to determine if there has been any violation of laws or regulations;
•
•
•
•
•
•
Enforce gaming and finance laws and impose disciplinary sanctions for violations, including fines and penalties;
Review the character and fitness of participants in gaming operations and make determinations regarding their suitability or qualification for licensure;
Grant licenses for participation in gaming operations;
Collect and review reports and information submitted by participants in gaming operations;
Review and approve transactions, such as acquisitions or change-of-control transactions of gaming industry participants, securities offerings and debt transactions engaged in by such
participants; and
Establish and collect fees and/or taxes.
1
Licensing and Suitability Determinations
Gaming laws require us, each of our subsidiaries engaged in gaming operations, certain of our directors, officers and employees, and in some cases, our stockholders and holders of our debt
securities, to obtain licenses or findings of suitability from gaming authorities. Licenses or findings of suitability typically require a determination that the applicant qualifies or is suitable. Gaming
authorities have very broad discretion in determining whether an applicant qualifies for licensing or should be deemed suitable. Subject to certain administrative proceeding requirements, the gaming
regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered or
found suitable or approved, for any cause deemed reasonable by the gaming authorities. Criteria used in determining whether to grant a license or finding of suitability, while varying between
jurisdictions, generally include consideration of factors such as:
•
•
•
•
•
The financial stability, integrity and responsibility of the applicant, including whether the operation is adequately capitalized in the jurisdiction and exhibits the ability to maintain adequate
insurance levels;
The quality of the applicant’s casino facilities;
The amount of revenue to be derived by the applicable jurisdiction through operation of the applicant’s gaming facility;
The applicant’s practices with respect to minority hiring and training; and
The effect on competition and general impact on the community.
In evaluating individual applicants, gaming authorities consider the individual’s reputation for good character and criminal and financial history and the character of those with whom the individual
associates.
Many jurisdictions limit the number of licenses granted to operate gaming facilities within the jurisdiction, and some jurisdictions limit the number of licenses granted to any one gaming operator.
Licenses under gaming laws are generally not transferable unless the transfer is approved by the requisite regulatory agency. Licenses in many of the jurisdictions in which we conduct gaming
operations are granted for limited durations and require renewal from time to time. There can be no assurance that any of our licenses or any of the above mentioned contracts will be renewed.
Most jurisdictions have statutory or regulatory provisions that govern the required action that must be taken in the event that a license is revoked or not renewed.
In addition to us and our direct and indirect subsidiaries engaged in gaming operations, gaming authorities may investigate any individual or entity having a material relationship to, or material
involvement with, any of these entities to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Certain jurisdictions require that any change
in our directors or officers, including the directors or officers of our subsidiaries, must be approved by the requisite regulatory agency. Our officers, directors and certain key employees must also file
applications with the gaming authorities and may be required to be licensed, qualified or be found suitable in many jurisdictions. Gaming authorities may deny an application for licensing for any
cause which they deem reasonable. Qualification and suitability determinations require submission of detailed personal and financial information followed by a thorough investigation. The burden of
demonstrating suitability is on the applicant, who must pay all the costs of the investigation. Changes in licensed positions must be reported to gaming authorities and in addition to their authority to
deny an application for licensure, qualification or a finding of suitability, gaming authorities have jurisdiction to condition, limit, or disapprove of a change in a corporate position.
If gaming authorities were to find that an officer, director or key employee fails to qualify or is unsuitable for licensing or unsuitable to continue having a relationship with us, we may be required to
sever all relationships with such person. In addition, gaming authorities may require us to terminate the employment of any person who refuses to file appropriate applications.
In many jurisdictions, stockholders or holders of our debt securities may be required to file an application, be investigated, and qualify or have his, her or its suitability determined. For example,
under Nevada gaming laws, each person who acquires, directly or indirectly, beneficial ownership of any voting security, or beneficial or record ownership of any non-voting security or any debt
security in a public corporation which is registered with the Nevada Gaming Commission (the “Commission”), such as Caesars Entertainment Corporation, may be required to be found suitable if the
Commission has reason to believe that his or her acquisition of that ownership, or his or her continued ownership in general, would be inconsistent with the declared public policy of Nevada, in the
sole discretion of the Commission. Any person required by the Commission to be found suitable shall apply for a finding of suitability within 30 days after the Commission’s request that he or she
should do so and, together with his or her application for suitability, deposit with the Nevada Gaming Control Board (the “Board”) a sum of money which, in the sole discretion of the Board, will be
adequate to pay the anticipated costs and charges incurred in the investigation and processing of that application for suitability, and deposit such additional sums as are required by the Board to pay
final costs and charges.
2
Furthermore, any person required by a gaming authority to be found suitable, who is found unsuitable by the gaming authority, shall not be able to hold directly or indirectly the beneficial ownership
of any voting security or the beneficial or record ownership of any nonvoting security or any debt security of any public corporation which is registered with the gaming authority, such as Caesars
Entertainment Corporation, beyond the time prescribed by the gaming authority. A violation of the foregoing may constitute a criminal offense. A finding of unsuitability by a particular gaming
authority impacts that person’s ability to associate or affiliate with gaming licensees in that particular jurisdiction and could impact the person’s ability to associate or affiliate with gaming licensees in
other jurisdictions.
Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of our voting securities and, in some jurisdictions, our non-voting securities, typically
5%, to report the acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability. Most gaming authorities, at least allow an
“institutional investor” to apply for a waiver that allows the “institutional investor” to acquire, in most cases, up to 15% of our voting securities without applying for qualification or a finding of
suitability. An “institutional investor” is generally defined as an investor acquiring and holding voting securities in the ordinary course of business as an institutional investor, and not for the purpose
of causing, directly or indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or those of any
of our gaming affiliates, or the taking of any other action which gaming authorities find to be inconsistent with holding our voting securities for investment purposes only. An application for a waiver
as an institutional investor requires the submission of detailed information about the company and its regulatory filings, the name of each person that beneficially owns more than 5% of the
institutional investor’s voting securities or other equivalent and a certification made under oath or penalty for perjury, that the voting securities were acquired and are held for investment purposes
only. Even if a waiver is granted, an institutional investor generally may not take any action inconsistent with its status when the waiver was granted without once again becoming subject to the
foregoing reporting and application obligations. A change in the investment intent of an institutional investor must be reported to certain regulatory authorities immediately after its decision.
Notwithstanding, each person who acquires directly or indirectly, beneficial ownership of any voting security, or beneficial or record ownership of any nonvoting security or any debt security in our
company may be required to be found suitable if a gaming authority has reason to believe that such person’s acquisition of that ownership would otherwise be inconsistent with the declared policy of
the jurisdiction.
Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised it is required by gaming authorities may be denied a license
or found unsuitable, as applicable. The same restrictions may also apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any person found unsuitable or
denied a license and who holds, directly or indirectly, any beneficial ownership of our securities beyond such period of time as may be prescribed by the applicable gaming authorities may be guilty
of a criminal offense. Furthermore, we may be subject to disciplinary action if, after we receive notice that a person is unsuitable to be a stockholder or to have any other relationship with us or any of
our subsidiaries, we:
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pay that person any dividend or interest upon our voting securities;
allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;
pay remuneration in any form to that person for services rendered or otherwise; or
fail to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities, including, if necessary, the immediate purchase of said voting securities for cash at fair
market value.
Although many jurisdictions generally do not require the individual holders of debt securities such as notes to be investigated and found suitable, gaming authorities often retain the discretion to do so
for any reason, including but not limited to, a default, or where the holder of the debt instruments exercises a material influence over the gaming operations of the entity in question. Any holder of
debt securities required to apply for a finding of suitability or otherwise qualify must generally pay all investigative fees and costs of the gaming authority in connection with such an investigation. If
the gaming authority determines that a person is unsuitable to own a debt security, we may be subject to disciplinary action, including the loss of our approvals, if without the prior approval of the
gaming authority, we:
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pay to the unsuitable person any dividend, interest or any distribution whatsoever;
recognize any voting right by the unsuitable person in connection with those securities;
pay the unsuitable person remuneration in any form; or
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• make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.
Certain jurisdictions impose similar restrictions in connection with debt securities and retain the right to require holders of debt securities to apply for a license or otherwise be found suitable by the
gaming authority.
Under New Jersey gaming laws, if a holder of our debt or equity securities is required to qualify, the holder may be required to file an application for qualification or divest itself of the securities. If
the holder files an application for qualification, it must place the securities in trust with an approved trustee, which trust shall be effective but not operative, pending the gaming regulatory authorities’
consideration of interim authorization. If the gaming regulatory authorities approve interim authorization, and while the application for plenary qualification is pending, such holder may, through the
approved trustee, continue to exercise all rights incident to the ownership of the securities. If the gaming regulatory authorities deny interim authorization, the trust shall become operative and the
trustee shall have the authority to exercise all the rights incident to ownership, including the authority to dispose of the securities and the security holder shall have no right to participate in casino
earnings and may only receive a return on its investment in an amount not to exceed the actual cost of the investment (as defined by New Jersey gaming laws). If the security holder obtains interim
authorization but the gaming authorities later find reasonable cause to believe that the security holder may be found unqualified, the trust shall become operative and the trustee shall have the
authority to exercise all rights incident to ownership pending a determination on such holder’s qualifications. However, during the period the securities remain in trust, the security holder may petition
the New Jersey gaming authorities to direct the trustee to dispose of the trust property and distribute proceeds of the trust to the security holder in an amount not to exceed the lower of the actual cost
of the investment or the value of the securities on the date the trust became operative. If the security holder is ultimately found unqualified, the trustee is required to sell the securities and to distribute
the proceeds of the sale to the applicant in an amount not exceeding the lower of the actual cost of the investment or the value of the securities on the date the trust became operative and to distribute
any remaining proceeds to the state. If the security holder is found qualified, the trust agreement will be terminated.
Following the Reclassification, the Certificate of Incorporation of Caesars Entertainment Corporation contains provisions establishing the right to redeem the securities of disqualified holders if
necessary to avoid any regulatory sanctions, to prevent the loss or to secure the reinstatement of any license or franchise, or if such holder is determined by any gaming regulatory agency to be
unsuitable, has an application for a license or permit denied or rejected, or has a previously issued license or permit rescinded, suspended, revoked or not renewed. The Certificate of Incorporation
also contains provisions defining the redemption price and the rights of a disqualified security holder.
Many jurisdictions also require that manufacturers and distributors of gaming equipment and suppliers of certain goods and services to gaming industry participants be licensed and require us to
purchase and lease gaming equipment, supplies and services only from licensed suppliers.
Violations of Gaming Laws
If we or our subsidiaries violate applicable gaming laws, our gaming licenses could be limited, conditioned, suspended or revoked by gaming authorities, and we and any other persons involved could
be subject to substantial fines. Further, a supervisor or conservator can be appointed by gaming authorities to operate our gaming properties, or in some jurisdictions, take title to our gaming assets in
the jurisdiction, and under certain circumstances, earnings generated during such appointment could be forfeited to the applicable jurisdictions. Furthermore, violations of laws in one jurisdiction
could result in disciplinary action in other jurisdictions. As a result, violations by us of applicable gaming laws could have a material adverse effect on our financial condition, prospects and results of
operations.
Reporting and Recordkeeping Requirements
We are required periodically to submit detailed financial and operating reports and furnish any other information about us and our subsidiaries which gaming authorities may require. Under federal
law, we are considered a financial institution subject to the Bank Secrecy Act of 1970 (otherwise known as “Title 31”) and other financial regulations, and are required to record and submit detailed
reports of certain currency transactions, including Currency Transaction Reports for amounts involving greater than $10,000 at our casinos, Suspicious Activity Reports if the facts presented so
warrant, and state and/or federal tax reports at certain thresholds. Some jurisdictions require us to maintain a log that records aggregate cash transactions in the amount of $3,000 or more. In addition,
certain jurisdictions require logging, reporting, and/or review of transactions and winning wagers over certain amounts. For example, in Nevada, any sports wager above $5,000 must be logged; in
Indiana, any sports wagering win of $600 or more must be checked for outstanding child support obligations. We are required to maintain a current stock ledger which may be examined by gaming
authorities at any time. We may also be required to disclose to gaming authorities upon request the identities of the holders of our debt or other securities. If any securities are held in trust by an agent
or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to gaming authorities. Failure to make such disclosure may be grounds for finding the record holder
unsuitable. Gaming authorities may also require certificates
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for our stock to bear a legend indicating that the securities are subject to specified gaming laws. In certain jurisdictions, gaming authorities have the power to impose additional restrictions on the
holders of our securities at any time.
Review and Approval of Transactions
Substantially all material loans, leases, sales of securities and similar financing transactions by us and our subsidiaries must be reported to, or approved by, gaming authorities. Neither we nor any of
our subsidiaries may make a public offering of securities without the prior approval of certain gaming authorities if the securities or the proceeds therefrom are intended to be used to construct,
acquire or finance gaming facilities in such jurisdictions, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a recommendation or approval of the
investment merits of the securities subject to the offering. Changes in control through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or otherwise, require
prior approval of gaming authorities in certain jurisdictions. Entities seeking to acquire control of us or one of our subsidiaries must satisfy gaming authorities with respect to a variety of stringent
standards prior to assuming control. Gaming authorities may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.
Certain gaming laws and regulations in jurisdictions we operate in establish that certain corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics
affecting us or our subsidiaries may be injurious to stable and productive corporate gaming, and as a result, prior approval may be required before we may make exceptional repurchases of voting
securities (such as repurchases which treat holders differently) above the current market price and before a corporate acquisition opposed by management can be consummated. In certain
jurisdictions, the gaming authorities also require prior approval of a plan of recapitalization proposed by the board of directors of a publicly traded corporation which is registered with the gaming
authority in response to a tender offer made directly to the registered corporation’s stockholders for the purpose of acquiring control of the registered corporation.
Because licenses under gaming laws are generally not transferable, we may not grant a security interest in our gaming licenses, and our ability to grant a security interest in any of our gaming assets is
limited and may be subject to receipt of prior approval from gaming authorities. A pledge of the stock of a subsidiary holding a gaming license and the foreclosure of such a pledge may be ineffective
without the prior approval of gaming authorities in certain jurisdictions. Moreover, our subsidiaries holding gaming licenses may be unable to guarantee a security issued by an affiliated or parent
company pursuant to a public offering, or pledge their assets to secure payment of the obligations evidenced by the security issued by an affiliated or parent company, without the prior approval of
certain gaming authorities.
Some jurisdictions also require us to file a report with the gaming authority within a prescribed period of time following certain financial transactions and the offering of debt securities. Certain
gaming authorities reserve the right to order such transactions rescinded.
Certain jurisdictions require the implementation of a compliance review and reporting system created for the purpose of monitoring activities related to our continuing qualification. These plans
require periodic reports to senior management of our company and to the regulatory authorities.
Certain jurisdictions require that an independent audit committee oversee the functions of surveillance and internal audit departments at our casinos.
License Fees and Gaming Taxes
We pay substantial license fees, contributions to responsible gaming programs, and taxes in many jurisdictions, including the counties, cities, and any related agencies, boards, commissions, or
authorities, in which our operations are conducted, in connection with our casino gaming operations, computed in various ways depending on the type of gaming or activity involved. Depending upon
the particular fee or tax involved, these fees and taxes are payable either daily, monthly, quarterly or annually. License fees and taxes are based upon such factors as:
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a percentage of the gross revenues received;
the number of gaming devices and table games operated; and
franchise fees for riverboat casinos operating on certain waterways.
In many jurisdictions, gaming tax rates are graduated with the effect of increasing as gross revenues increase. Furthermore, tax rates are subject to change, sometimes with little notice, and we have
recently experienced tax rate increases in a number of
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jurisdictions in which we operate. A live entertainment tax is also paid in certain jurisdictions by casino operations where entertainment is furnished in connection with the selling or serving of food
or refreshments or the selling of merchandise.
Operational Requirements
In many jurisdictions, we are subject to certain requirements and restrictions on how we must conduct our gaming operations. Our operating licenses may also be subject to requirements governing
third-party operations on our gaming properties. In many jurisdictions, we are required to give preference to local suppliers and include minority-owned and women-owned businesses in construction
projects to the maximum extent practicable.
Some jurisdictions also require us to give preferences to local residents for employment and to minority-owned and women-owned businesses in the procurement of goods and services. Certain of our
management or services agreements with Native American tribes require us to give preferences to tribal members. Some of our operations are subject to restrictions on the number of gaming
positions we may have, the minimum or maximum wagers allowed by our customers, and the maximum loss a customer may incur within specified time periods.
Our land-based casino in New Orleans operates under a casino operating contract (the “COC”) with the State of Louisiana by and through the Louisiana Gaming Control Board, which assumed the
regulatory authority, control and jurisdiction from the Louisiana Economic Development Control Board pursuant to Louisiana Revised Statute 27:31. The COC was recently renegotiated to extend the
term by thirty years to 2054. Under Louisiana state law, our New Orleans casino is subject to restrictions on the number of hotel rooms, the amount of meeting space within the hotel and how we may
market and advertise the rates we charge for rooms.
In Mississippi, we are required to include adequate parking facilities (generally 500 spaces or more) in close proximity to our existing casino complexes, as well as infrastructure facilities, such as
hotels, that will amount to at least 25% of the casino cost. Amendments to the Mississippi gaming regulations impose additional non-gaming infrastructure requirements on new casino projects in
Mississippi.
To comply with requirements of Iowa gaming laws, we (through Harveys BR Management Company, Inc.) have entered into a management agreement with Iowa West Racing Association, a non-
profit organization that is the licensee, with regard to the operation of Horseshoe Casino Council Bluffs. Further, Iowa West Racing Association and Harveys Iowa Management Company LLC have
entered into an operating agreement and in reliance on that agreement, the Iowa Racing and Gaming Commission has issued a license to Iowa West Racing Association as a qualified sponsoring
organization to conduct gambling games and to Harveys Iowa Management Company LLC to operate gambling games at Harrah’s Council Bluffs Casino & Hotel, which was an excursion gambling
boat, but is now a full-service, land-based casino. Both the management agreement at Horseshoe Casino Council Bluffs and the operating agreement at Harrah’s Council Bluffs Casino & Hotel are for
specific terms with certain options to extend.
The United Kingdom Gambling Act of 2005 which became effective in September 2007, replaced the Gaming Act 1968, and removed most of the restrictions on adverting. Though the 2005 Act
controls marketing, advertising gambling is now controlled by the Advertising Standards Authority through a series of codes of practice. Known as the CAP codes, the codes offer guidance on the
content of print, television and radio advertisements.
Indian Gaming
The terms and conditions of management contracts and the operation of casinos and all gaming on Indian land in the United States are subject to the Indian Gaming Regulatory Act of 1988, (the
“IGRA”), which is administered by the National Indian Gaming Commission, (the “NIGC”), the gaming regulatory agencies of tribal governments, and Class III gaming compacts between the tribes
for which we manage casinos and the states in which those casinos are located. IGRA established three separate classes of tribal gaming-Class I, Class II and Class III. Class I includes all traditional
or social games solely for prizes of minimal value played by a tribe in connection with celebrations or ceremonies. Class II gaming includes games such as bingo, pulltabs, punchboards, instant bingo
and non-banked card games (those that are not played against the house) such as poker. Class III gaming includes casino-style gaming such as banked table games like blackjack, craps and roulette,
and gaming machines such as slots and video poker, as well as lotteries and pari-mutuel wagering. Harrah’s Ak-Chin and Harrah’s Resort Southern California (Rincon) provide Class II gaming and,
as limited by the tribal-state compacts, Class III gaming. Harrah’s Cherokee currently provides only Class III gaming.
IGRA prohibits all forms of Class III gaming unless the tribe has entered into a written agreement or compact with the state that specifically authorizes the types of Class III gaming the tribe may
offer. These compacts may address, among other things, the manner and extent to which each state will conduct background investigations and certify the suitability of the manager, its officers,
directors, and key employees to conduct gaming on tribal lands. We have received our permanent certification from the Arizona Department of Gaming as management contractor for the Ak-Chin
Indian Community’s casino, a Tribal-State Compact Gaming Resource Supplier Finding of Suitability from the California Gambling Control Commission in connection with management of
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the Rincon San Luiseno Band of Indians casino, and have been licensed by the relevant tribal gaming authorities to manage the Ak-Chin Indian Community’s casino, the Eastern Band of Cherokee
Indians’ casino and the Rincon San Luiseno Band of Indians’ casino, respectively. In addition, we provide advisory services under an agreement with the Buena Vista Rancheria of We-Muk Indians
of California tribe for their casino operated in Ione, California.
IGRA requires NIGC approval of management contracts for Class II and Class III gaming as well as the review of all agreements collateral to the management contracts. Management contracts which
are not so approved are void.
Management contracts can be modified or canceled pursuant to an enforcement action taken by the NIGC based on a violation of the law or an issue affecting suitability.
Indian tribes are sovereign with their own governmental systems, which have primary regulatory authority over gaming on land within the tribes’ jurisdiction. Therefore, persons engaged in gaming
activities, including the company, are subject to the provisions of tribal ordinances and regulations on gaming. These ordinances are subject to review by the NIGC under certain standards established
by IGRA. The NIGC may determine that some or all of the ordinances require amendment, and that additional requirements, including additional licensing requirements, may be imposed on the
management company. The possession of valid licenses from the Ak-Chin Indian Community, the Eastern Band of Cherokee Indians and the Rincon San Luiseno Band of Indians, are ongoing
conditions of our agreements with these tribes.
Riverboat Casinos
In addition to all other regulations applicable to the gaming industry generally, some of our riverboat casinos are also subject to regulations applicable to vessels operating on navigable waterways,
including regulations of the U.S. Coast Guard and/or inspection and oversight by a third-party inspector. These requirements set limits on the operation of the vessel, mandate that it must be operated
by a minimum complement of licensed personnel, establish periodic inspections, including the physical inspection of the outside hull, and establish other mechanical and operational rules.
Racetracks
With the acquisition of Centaur on July 16, 2018, we acquired Hoosier Park Racing & Casino (renamed Harrah’s Hoosier Park) which offers standardbred racing in Anderson, Indiana, and Indiana
Grand Racing & Casino which offers thoroughbred racing in Shelbyville, Indiana. The properties are regulated by the Indiana Horse Racing Commission for racing and the Indiana Gaming
Commission for the gambling games. We operate slot machines and live horse racing at a racetrack in Bossier City, Louisiana. We own a combination harness racetrack and casino in southeastern
Pennsylvania licensed by the Pennsylvania Gaming Control Board and the Pennsylvania Horse Racing Commission. In addition to laws and regulations affecting the slot machine and other gaming
operations at these tracks, there exist extensive laws and regulations governing the operation of racetracks and the horse races that are run at those tracks. Regulation of horse racing is typically
administered separately from our other gaming operations, with separate licenses and license fee structures. Gaming or racing regulations may limit or dictate the number of days on which races may
be or must be held.
Internet
In recent years, Caesars Interactive Entertainment, LLC has entered into license agreements with third parties for the use of the World Series of Poker brand on online gaming websites in Italy and
France. In addition, the State of Nevada legalized real money online internet poker within the State. The Nevada Gaming Commission adopted regulations and established licensing requirements for
the operation of real money online internet poker in the State of Nevada. Caesars Interactive Entertainment, LLC obtained the appropriate licenses in Nevada, and pursuant to a relationship with a
third-party software provider, operation of its real money website began in September 2013. The State of New Jersey also legalized real money online internet gaming within the State. The New
Jersey regulators adopted regulations and established licensing requirements for the operation of real money online internet gaming in the State of New Jersey. Caesars Interactive Entertainment New
Jersey, LLC, a wholly owned subsidiary of Caesars Interactive Entertainment, LLC, obtained a casino license and was issued an Internet Gaming Permit. In conjunction with two third-party platform
providers, operation of its real money websites began in November 2013. Several states, including Nevada and New Jersey, have also authorized internet-based sports wagering; we and our partners
continue to monitor these and other domestic markets for points of entry.
The gaming and other laws and regulations to which we are subject could change or could be interpreted differently in the future, or new laws and regulations could be enacted. For example, in 2018,
the U.S. Department of Justice (the “DOJ”) reversed its previously-issued opinion published in 2011, which stated that interstate transmissions of wire communications that do not relate to a “sporting
event or contest” fall outside the purview of the Wire Act of 1961 (the “Wire Act”). The DOJ’s updated opinion, which is the subject of ongoing litigation in federal court, stated instead that the Wire
Act was not uniformly limited to gaming relating to sporting events or contests and that certain of its provisions apply to non-sports-related wagering activity. Any such
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material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our business and operating results.
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