Caesars Entertainment Corporation
CAESARS ENTERTAINMENT Corp (Form: 10-Q, Received: 05/12/2011 17:08:12)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 1-10410

 

 

CAESARS ENTERTAINMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   I.R.S. No. 62-1411755

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Caesars Palace Drive

Las Vegas, Nevada

  89109
(Address of principal executive offices)   (Zip Code)

(702) 407-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes   ¨     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

As of May 12, 2011, the Registrant had 71,795,409 shares of voting Common Stock outstanding.

 

 

 


Table of Contents

CAESARS ENTERTAINMENT CORPORATION

INDEX

 

          Page  
PART I. FINANCIAL INFORMATION   
Item 1.   

Unaudited Consolidated Condensed Financial Statements

     3   
  

Consolidated Condensed Balance Sheets as of March 31, 2011 and December 31, 2010

     4   
  

Consolidated Condensed Statements of Operations for the quarters ended March 31, 2011 and 2010

     5   
  

Consolidated Condensed Statements of Cash Flows for the quarters ended March 31, 2011 and 2010

     6   
  

Consolidated Condensed Statements of Stockholders’ Equity and Comprehensive Loss as of and for the quarter ended March 31, 2011

     7   
  

Notes to Consolidated Condensed Financial Statements

     8   
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     39   
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     61   
Item 4.   

Controls and Procedures

     61   
Item 4T.   

Controls and Procedures

     61   
PART II. OTHER INFORMATION   
Item 1.    Legal Proceedings      62   
Item 1A.    Risk Factors      62   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      62   
Item 3.    Defaults Upon Senior Securities      62   
Item 4.    Removed and Reserved      62   
Item 5.    Other Information      62   
Item 6.    Exhibits      63   
SIGNATURES      74   

 

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PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

The accompanying unaudited Consolidated Condensed Financial Statements of Caesars Entertainment Corporation, a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles in the United States. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, operating results and cash flows.

Results of operations for interim periods are not necessarily indicative of a full year of operations. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

 

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CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

 

(In millions, except share amounts)

   March 31, 2011     December 31, 2010  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 880.5      $ 987.0   

Receivables, less allowance for doubtful accounts of $214.2 and $216.3

     366.6        393.2   

Deferred income taxes

     171.1        175.8   

Prepayments and other

     237.4        184.1   

Inventories

     47.2        50.4   

Assets held for sale

     2.8        —     
                

Total current assets

     1,705.6        1,790.5   
                

Land, buildings, riverboats and equipment

     19,763.5        19,758.1   

Less: accumulated depreciation

     (2,166.0     (1,991.5
                
     17,597.5        17,766.6   

Goodwill

     3,422.3        3,420.9   

Intangible assets other than goodwill

     4,734.7        4,711.8   

Investments in and advances to non-consolidated affiliates

     100.9        94.0   

Restricted cash

     55.6        —     

Deferred charges and other

     787.9        803.9   
                
   $ 28,404.5      $ 28,587.7   
                

Liabilities and Stockholders’ Equity

    

Current liabilities

    

Accounts payable

   $ 243.0      $ 251.4   

Interest payable

     402.4        201.5   

Accrued expenses

     1,015.2        1,074.3   

Current portion of long-term debt

     102.9        55.6   
                

Total current liabilities

     1,763.5        1,582.8   

Long-term debt

     18,648.1        18,785.5   

Deferred credits and other

     864.3        923.1   

Deferred income taxes

     5,570.8        5,623.7   
                
     26,846.7        26,915.1   

Stockholders’ equity/(deficit)

    

Common stock; voting; $0.01 par value; 1,250,000,000 shares authorized; 71,799,659 and 71,809,719 shares issued and outstanding (net of 164,406 and 154,346 shares held in treasury) as of March 31, 2011 and December 31, 2010, respectively

     0.7        0.7   

Additional paid-in capital

     6,911.7        6,906.5   

Accumulated deficit

     (5,242.4     (5,105.6

Accumulated other comprehensive loss

     (155.8     (168.8
                

Total Caesars Entertainment Corporation Stockholders’ equity

     1,514.2        1,632.8   

Non-controlling interests

     43.6        39.8   
                

Total stockholders’ equity

     1,557.8        1,672.6   
                
   $ 28,404.5      $ 28,587.7   
                

See accompanying Notes to Consolidated Condensed Financial Statements.

 

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CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

     Quarter Ended March 31,  

(In millions, except share and per share data)

   2011     2010  

Revenues

    

Casino

   $ 1,663.1      $ 1,750.0   

Food and beverage

     377.9        374.0   

Rooms

     293.5        268.4   

Management fees

     9.1        13.1   

Other

     144.6        131.0   

Less: casino promotional allowances

     (309.2     (348.1
                

Net revenues

     2,179.0        2,188.4   
                

Operating expenses

    

Direct

    

Casino

     940.0        987.6   

Food and beverage

     158.5        144.6   

Rooms

     67.9        59.2   

Property general, administrative and other

     527.7        503.3   

Depreciation and amortization

     177.0        169.7   

Project opening costs

     0.2        0.7   

Write-downs, reserves and recoveries

     18.3        12.5   

(Income)/loss on interests in nonconsolidated affiliates

     (0.3     0.6   

Corporate expense

     34.3        34.5   

Acquisition and integration costs

     2.6        7.2   

Amortization of intangible assets

     39.3        42.7   
                

Total operating expenses

     1,965.5        1,962.6   
                

Income from operations

     213.5        225.8   

Interest expense, net of interest capitalized

     (473.4     (491.5

Gains/(losses) on early extinguishments of debt

     33.2        (47.4

Other income, including interest income

     3.5        14.6   
                

Loss before income taxes

     (223.2     (298.5

Benefit for income tax

     78.4        104.9   
                

Net loss

     (144.8     (193.6

Less: net income attributable to non-controlling interests

     (2.7     (2.0
                

Net loss attributable to Caesars Entertainment Corporation

   $ (147.5   $ (195.6
                

Loss per share - basic and diluted

   $ (2.05   $ (4.73
                

Basic and diluted weighted-average common shares outstanding

     71,803,988        41,335,253   
                

See accompanying Notes to Consolidated Condensed Financial Statements.

 

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CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Quarter Ended March 31,  

(In millions)

   2011     2010  

Cash flows (used in)/provided by operating activities

    

Net loss

   $ (144.8   $ (193.6

Adjustments to reconcile net loss to cash flows provided by operating activities:

    

(Gains)/losses on early extinguishments of debt

     (33.2     47.4   

Depreciation and amortization

     277.8        275.4   

Non-cash write-downs, reserves and recoveries, net

     3.1        (3.9

Share-based compensation expense

     5.9        6.7   

Deferred income taxes

     (76.5     (127.9

Gain on investment

     —          (7.1

Net change in long-term accounts

     (9.0     86.3   

Net change in working capital accounts

     150.9        113.3   

Other

     3.6        (34.3
                

Cash flows provided by operating activities

     177.8        162.3   
                

Cash flows (used in)/provided by investing activities

    

Land, buildings, riverboats and equipment additions, net of change in construction payables

     (37.9     (35.7

Change in restricted cash

     (81.0     —     

Payment made for partnership interest

     —          (19.5

Cash acquired in business acquisition, net of transaction costs

     —          13.0   

Investments in/advances to non-consolidated affiliates and other

     (67.5     —     

Proceeds from other asset sales

     0.1        12.5   

Other

     (5.1     (3.9
                

Cash flows used in investing activities

     (191.4     (33.6
                

Cash flows provided by/(used in) financing activities

    

Debt issuance costs

     —          (2.3

Borrowings under lending agreements

     50.0        545.0   

Repayments under lending agreements

     (50.0     (472.0

Cash paid in connection with early extinguishments of debt

     (75.7     —     

Scheduled debt retirements

     (12.6     (159.5

Non-controlling interests’ distributions, net of contributions

     (2.1     (1.4

Other

     (2.5     (2.0
                

Cash flows used in financing activities

     (92.9     (92.2
                

Effect of deconsolidation of variable interest entities

     —          (7.9
                

Net (decrease)/increase in cash and cash equivalents

     (106.5     28.6   

Cash and cash equivalents, beginning of period

     987.0        918.1   
                

Cash and cash equivalents, end of period

   $ 880.5      $ 946.7   
                

See accompanying Notes to Consolidated Condensed Financial Statements.

 

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CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

(UNAUDITED)

 

    Common Stock     Additional
Paid-in-
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Non-
controlling
Interests
    Total     Comprehensive
Loss
 

(In millions)

  Shares
Outstanding
    Amount              

Balance at December 31, 2010

    71.8      $ 0.7      $ 6,906.5      $ (5,105.6   $ (168.8   $ 39.8      $ 1,672.6     

Net (loss)/income

          (147.5       2.7        (144.8   $ (144.8

Share-based compensation

        5.9              5.9     

Repurchase of treasury shares

    *        *        (0.7           (0.7  

Post Retirement Medical, net of tax

            0.1          0.1        0.1   

Pension adjustment, net of tax

            (1.0       (1.0     (1.0

Foreign currency translation adjustments, net of tax

            (18.9     3.2        (15.7     (15.7

Fair market value of swap agreements, net of tax

            29.3          29.3        29.3   

Fair market value of interest rate cap agreements on commercial mortgage backed securities, net of tax

            3.5          3.5        3.5   

Reclassification of loss on interest rate locks from other comprehensive loss to interest expense, net of tax

            0.2          0.2        0.2   

Unrealized gains/losses on investments, net of tax

            (0.2       (0.2     (0.2

Non-controlling distributions, net of contributions

              (2.1     (2.1  

Effect of ASU 2010-16 Accruals for Casino Jackpot Liabilities, net of tax

          10.7            10.7     
                     

Comprehensive Loss, three months ended March 31, 2011

                $ (128.6
                                                               

Balance at March 31, 2011

    71.8      $ 0.7      $ 6,911.7      $ (5,242.4   $ (155.8   $ 43.6      $ 1,557.8     
                                                         

 

* Amount rounds to zero and does not change rounded total.

See accompanying Notes to Consolidated Condensed Financial Statements.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

March 31, 2011

(UNAUDITED)

Note 1—Basis of Presentation and Organization

Caesars Entertainment Corporation (formerly known as Harrah’s Entertainment, Inc.) (referred to in this discussion, together with its consolidated subsidiaries where appropriate, as “Caesars Entertainment,” the “Company,” “we,” “our” and “us”), is a Delaware corporation. As of March 31, 2011, we owned, operated or managed 52 casinos in 12 U.S. states and seven countries. The vast majority of these casinos operate in the United States and England, primarily under the Caesars, Harrah’s and Horseshoe brand names in the United States. Our casino entertainment facilities include 33 land-based casinos, 12 riverboat or dockside casinos, three managed casinos on Indian lands in the United States, one operated casino in Canada, one combination greyhound racetrack and casino, one combination thoroughbred racetrack and casino, and one combination harness racetrack and casino. Our 33 land-based casinos include one in Uruguay, nine in England, one in Scotland, two in Egypt and one in South Africa. We view each property as an operating segment and aggregate all operating segments into one reporting segment.

On January 28, 2008, Caesars Entertainment was acquired by affiliates of Apollo Global Management, LLC (“Apollo”) and TPG Capital, LP (“TPG” and, together with Apollo, the “Sponsors”) in an all-cash transaction, hereinafter referred to as the “Acquisition.” As a result of the Acquisition, our stock is no longer publicly traded. Currently, the issued and outstanding shares of common stock of Caesars Entertainment are owned by entities affiliated with Apollo, TPG, Paulson & Co. Inc. (“Paulson”), certain co-investors and members of management.

The accompanying unaudited Consolidated Condensed Financial Statements of Caesars Entertainment Corporation, a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles in the United States. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, operating results and cash flows.

We have recast certain amounts for prior periods to conform to our 2011 presentation.

Subsequent to the filing of our annual report on Form 10-K for the year ended December 31, 2010, the Company determined that $64.9 million reported as cash and cash equivalents as of December 31, 2010 should have been reported as either current or non-current restricted cash at that date. At March 31, 2011, the Company has presented $81.0 million as current and non-current restricted cash, including the $64.9 million that existed as of December 31, 2010. Restricted cash primarily consists of cash reserved under loan agreements for certain expenditures incurred in the normal course of business, such as interest service, real estate taxes, property insurance and capital improvements. The consolidated condensed statement of cash flows for the quarter ended March 31, 2011 includes $81.0 million of investing cash outflows for the funding of restricted cash balances, including the restricted cash funded prior to 2011. Management has determined that reclassifying the cash balances on the March 31, 2011 balance sheet and reporting the aggregate investing cash outflows in the first quarter of 2011 is not a material correction of our 2010 financial statements.

Note 2—Recently Issued Accounting Pronouncements

The following are accounting standards adopted or issued during 2011 that could have an impact on our Company.

In December 2010, the FASB issued ASU No. 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,” (ASC Topic 350, “Intangibles-Goodwill and Other”). The amendment in this update modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. As of our 2010 annual assessment of goodwill and other non-amortizing intangible assets for impairment, we did not have any reporting units with zero or negative carrying amounts.

We adopted the provision of ASU No. 2010-16, “Accruals for Casino Jackpot Liabilities,” (ASC Topic 924, “Entertainment—Casinos”) on January 1, 2011. The amendments in this update clarify that an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won if the entity can avoid paying that jackpot. Instead, jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot. This update applies to both base and

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

progressive jackpots. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Upon adoption of this standard on January 1, 2011, we adjusted our recorded accrual in the amount of $16.7 million ($10.7 million net of tax) with a corresponding cumulative effect adjustment to Retained Earnings.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Note 3—Development and Acquisition Activity

Acquisition of Planet Hollywood

On February 19, 2010, Caesars Entertainment Operating Company, Inc. (“CEOC”)(formerly known as Harrah’s Operating Company, Inc.), a wholly-owned subsidiary of Caesars Entertainment Corporation, acquired 100% of the equity interests of PHW Las Vegas, LLC (“PHW Las Vegas”), which owns the Planet Hollywood Resort and Casino (“Planet Hollywood”) located in Las Vegas, Nevada. PHW Las Vegas is an unrestricted subsidiary of CEOC and therefore not a borrower under CEOC’s credit facilities.

The Company paid approximately $67.2 million substantially during the second half of 2009 for the combination of i) the Company’s initial debt investment in certain predecessor entities of PHW Las Vegas; and ii) certain interest only participations associated with the debt of certain predecessor entities of PHW Las Vegas. In connection with the February 2010 cancellation of our debt investment in such predecessor entities of PHW Las Vegas in exchange for the equity of PHW Las Vegas, the Company recognized a gain of $7.1 million to adjust our investments to reflect the estimated fair value of consideration paid for the acquisition. This gain is reflected in Other income, including interest income, in our Statement of Operations for the quarter ended March 31, 2010. Also, as a result of the acquisition, the Company acquired the net cash balance of PHW Las Vegas during the quarter ended March 31, 2010, net of closing costs.

In connection with this transaction, PHW Las Vegas assumed a $554.3 million, face value, senior secured loan, and a subsidiary of CEOC canceled certain debt issued by PHW Las Vegas’ predecessor entities. In connection with the transaction and the assumption of debt, PHW Las Vegas entered into an amended and restated loan agreement (the “Amended and Restated Loan Agreement”) as discussed in Note 5, “Debt.”

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Purchase Accounting

The Company accounted for the acquisition of PHW Las Vegas in accordance with ASC 805, “Business Combinations,” under which the purchase price of the acquisition was allocated based upon estimated fair values of the assets acquired and liabilities assumed, with the excess of estimated fair value over net tangible and intangible assets acquired recorded as goodwill. During the quarter ended March 31, 2011, the Company finalized its purchase price allocation and the supporting valuations and related assumptions. Based upon this finalization, the Company made adjustments to its final purchase price allocation resulting in an increase to the recorded goodwill of $2.4 million and concluding on final assets and liabilities of PHW Las Vegas as follows:

 

(In millions)

   February 19, 2010  

Assets

  

Current assets

  

Cash and cash equivalents

   $ 31.3   

Accounts receivable

     13.6   

Prepayments and other

     5.5   

Inventories

     1.9   
        

Total current assets

     52.3   

Land, buildings, riverboats and equipment

     461.0   

Goodwill

     18.7   

Intangible assets other than goodwill

     5.4   

Deferred charges and other

     4.6   
        
     542.0   
        

Liabilities

  

Current liabilities

  

Accounts payable

     (1.9

Interest payable

     (1.1

Accrued expenses

     (27.7

Current portion of long-term debt

     (4.3
        

Total current liabilities

     (35.0

Long-term debt, net of discount

     (433.3

Deferred credits and other

     (12.6
        

Total liabilities

     (480.9
        

Net assets acquired

   $ 61.1   
        

Acquisition of Thistledown Racetrack

On May 25, 2010, CEOC entered into an agreement to purchase the assets of Thistledown Racetrack. The acquisition was completed on July 28, 2010 at a cost of approximately $42.5 million. The results of Thistledown Racetrack for periods subsequent to July 28, 2010 are consolidated with our results.

The Company accounted for the acquisition of Thistledown Racetrack in accordance with ASC 805, “Business Combinations,” under which the purchase price of the acquisition has been allocated based upon preliminary estimated fair values of the assets acquired and liabilities assumed, with the excess of estimated fair value over net tangible and intangible assets acquired recorded as goodwill. The preliminary purchase price allocation includes assets, liabilities and net assets acquired of Thistledown Racetrack of $46.8 million, $4.3 million and $42.5 million, respectively.

Venture with Rock Gaming, LLC

In December 2010, we formed a venture, Rock Ohio Caesars LLC, with Rock Gaming, LLC, to pursue casino developments in Cincinnati and Cleveland. Pursuant to the agreements forming the venture, we have committed to invest up to $200.0 million for an approximate 30.0% interest in the venture. As part of our investment, we plan to contribute Thistledown Racetrack to the venture. The casino developments will be managed by subsidiaries of Caesars Entertainment Corporation.

Completion of the casino developments is subject to a number of conditions, including, without limitation, the venture’s ability to obtain financing for development of the projects, the adoption of final rules and regulations by the Ohio casino control commission and receipt of necessary licensing to operate casinos in the State of Ohio.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

During the quarter ended March 31, 2011, the Company contributed an additional $7.5 million into its venture with Rock Gaming, LLC, bringing its total investment to approximately $71.5 million. This contribution is included in the line “Investments in and advances to non-consolidated affiliates” in our Consolidated Condensed Balance Sheet at March 31, 2011.

Suffolk Downs

On March 29, 2011, we acquired an interest in Sterling Suffolk Racecourse, LLC, which owns a horse-racing track in Massachusetts, along with options to purchase additional interests and the right to manage a potential future gaming facility. The consideration paid for this investment has been recorded as an amortizing intangible asset, representing the right to manage the potential future gaming facility, with amortization commencing upon the future opening date of such facility. Our interest will be accounted for using the cost method of accounting.

Note 4—Goodwill and Other Intangible Assets

We account for our goodwill and other intangible assets in accordance with ASC 350, “Intangible Assets – Goodwill and Other,” which provides guidance regarding the recognition and measurement of intangible assets and requires at least annual assessments for impairment of intangible assets that are not subject to amortization.

The following table sets forth changes in our goodwill and other intangible assets for the three months ended March 31, 2011:

 

     Amortizing     Non-Amortizing Intangible Assets  

(In millions)

   Intangible Assets     Goodwill     Other  

Balance at December 31, 2010

   $ 1,235.1      $ 3,420.9      $ 3,476.7   

Acquisitions

     60.0        2.4        —     

Amortization Expense

     (39.3     —          —     

Other, including foreign translations

     0.8        (1.0     1.4   
                        

Balance at March 31, 2011

   $ 1,256.6      $ 3,422.3      $ 3,478.1   
                        

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets other than goodwill:

 

     March 31, 2011      December 31, 2010  

(In millions)

   Weighted
Average
Remaining
Useful Life
(in years)
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
 

Amortizing intangible assets

  

Customer relationships

     8.9       $ 1,456.9       $ (398.0   $ 1,058.9       $ 1,456.9       $ (366.5   $ 1,090.4   

Contract rights

     3.6         193.1         (89.6     103.5         132.5         (85.6     46.9   

Patented technology

     4.9         93.9         (37.1     56.8         93.5         (34.1     59.4   

Gaming rights

     13.3         42.8         (8.3     34.5         42.8         (7.6     35.2   

Trademarks

     1.8         7.8         (4.9     2.9         7.8         (4.6     3.2   
                                                      
      $ 1,794.5       $ (537.9     1,256.6       $ 1,733.5       $ (498.4     1,235.1   
                                                      

Non-amortizing intangible assets

  

Trademarks

       1,916.9              1,916.7   

Gaming rights

       1,561.2              1,560.0   
                              
       3,478.1              3,476.7   
                              

Total intangible assets other than goodwill

     $ 4,734.7            $ 4,711.8   
                              

The aggregate amortization of intangible assets for the quarter ended March 31, 2011 was $39.3 million. Estimated annual amortization expense for the years ending December 31, 2011, 2012, 2013, 2014, 2015 and thereafter is $156.3 million, $154.9 million, $152.5 million, $142.3 million, $142.3 million and $547.6 million, respectively.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Note 5—Debt

The following table presents our outstanding debt as of March 31, 2011 and December 31, 2010:

 

Detail of Debt (dollars in millions)

   Final
Maturity
    Rate(s) at
Mar. 31,  2011
    Face Value at
Mar. 31, 2011
    Book Value at
Mar.  31, 2011
    Book Value at
Dec.  31, 2010
 

Credit Facilities and Secured Debt

          

Term Loans B1 - B3

     2015        3.30%      $ 5,810.1      $ 5,810.1      $ 5,815.1   

Term Loans B4

     2016        9.50%        987.5        966.5        968.3   

Revolving Credit Facility

     2014        —          —          —          —     

Senior Secured Notes

     2017        11.25%        2,095.0        2,050.9        2,049.7   

CMBS financing

     2015     3.27%        5,081.5        5,074.7        5,182.3   

Second-Priority Senior Secured Notes

     2018        12.75%        750.0        741.5        741.3   

Second-Priority Senior Secured Notes

     2018        10.0%        4,553.1        2,054.7        2,033.3   

Second-Priority Senior Secured Notes

     2015        10.0%        214.8        158.0        156.2   

Chester Downs term loan

     2016        12.375%        243.4        233.6        237.5   

PHW Las Vegas senior secured loan

     2015 **      3.114%        529.0        428.6        423.8   

Other

     Various        4.25%-6.0%        0.7        0.7        1.4   

Subsidiary-guaranteed debt

          

Senior Notes, including senior interim loans

     2016        10.75%        478.6        478.6        478.6   

Senior PIK Toggle Notes, including senior interim loans

     2018        10.75%/11.5%        11.1        11.1        10.5   

Unsecured Senior Debt

          

5.375%

     2013        5.375%        125.2        103.3        101.6   

7.0%

     2013        7.0%        0.6        0.6        0.6   

5.625%

     2015        5.625%        364.6        275.1        273.9   

6.5%

     2016        6.5%        248.7        183.8        183.8   

5.75%

     2017        5.75%        153.9        103.5        105.5   

Floating Rate Contingent Convertible Senior Notes

     2024        0.303%        0.2        0.2        0.2   

Other Unsecured Borrowings

          

5.3% special improvement district bonds

     2035        5.3%        67.1        67.1        67.1   

Other

     Various        Various        1.0        1.0        1.0   

Capitalized Lease Obligations

          

6.42%-9.8%

     to 2020        6.42%-9.8%        7.4        7.4        9.4   
                            

Total debt

         21,723.5        18,751.0        18,841.1   

Current portion of long-term debt

         (102.9     (102.9     (55.6
                            

Long-term debt

       $ 21,620.6      $ 18,648.1      $ 18,785.5   
                            

 

* We are permitted to extend the maturity of the CMBS Loans from 2013 to 2015, subject to satisfying certain conditions, in connection with the amendment to the CMBS Facilities
** The Planet Hollywood Las Vegas senior secured loan is subject to extension options moving its maturity from 2011 to 2015, subject to certain conditions.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

As of March 31, 2011, book values are presented net of unamortized discounts of $2,973.0 million and unamortized premiums of $0.5 million. Book values of debt as of December 31, 2010 are presented net of unamortized discounts of $3,006.6 million.

Our current maturities of debt include required interim principal payments on each of our Term Loans, our Chester Downs term loan, the special improvement district bonds, and $50.0 million face value of CMBS financing repurchased on April 1, 2011. The PHW Las Vegas senior secured loan has not been included in current maturities of debt as of March 31, 2011 based upon the Company’s ability and intent to exercise its options to extend the maturity of this loan.

Credit Agreement

In connection with the Acquisition, CEOC entered into the senior secured credit facilities (the “Credit Facilities.”) This financing is neither secured nor guaranteed by Caesars Entertainment’s other direct, wholly-owned subsidiaries, including the subsidiaries that own properties that are security for the CMBS Financing (as defined below).

As of March 31, 2011, our Credit Facilities provide for senior secured financing of up to $8,427.6 million, consisting of (i) senior secured term loan facilities in an aggregate principal amount of $6,797.6 million with $5,810.1 million maturing on January 28, 2015 and $987.5 million maturing on October 31, 2016, (the $987.5 million borrowing defined as the “Incremental Loans”) and (ii) a senior secured revolving credit facility in an aggregate principal amount of up to $1,630.0 million, maturing January 28, 2014, including both a letter of credit sub-facility and a swingline loan sub-facility. The term loans under the Credit Facilities require scheduled quarterly payments of $7.5 million, with the balance due at maturity. A total of $6,797.6 million face amount of borrowings were outstanding under the Credit Facilities as of March 31, 2011, with $126.4 million of the revolving credit facility committed to outstanding letters of credit. After consideration of these borrowings and letters of credit, $1,503.6 million of additional borrowing capacity was available to the Company under its revolving credit facility as of March 31, 2011.

CMBS Financing

In connection with the Acquisition, eight of our properties and their related assets were spun out of CEOC to Caesars Entertainment. As of the Acquisition date, the CMBS properties were Harrah’s Las Vegas, Rio, Flamingo Las Vegas, Harrah’s Atlantic City, Showboat Atlantic City, Harrah’s Lake Tahoe, Harveys Lake Tahoe and Bill’s Lake Tahoe. The CMBS properties borrowed $6,500 million of CMBS financing (the “CMBS Financing”). The CMBS Financing is secured by the assets of the CMBS properties and certain aspects of the financing are guaranteed by Caesars Entertainment. On May 22, 2008, Paris Las Vegas and Harrah’s Laughlin and their related operating assets were spun out of CEOC to Caesars Entertainment and became property secured under the CMBS loans, and Harrah’s Lake Tahoe, Harveys Lake Tahoe, Bill’s Lake Tahoe and Showboat Atlantic City were transferred to CEOC from Caesars Entertainment, and no longer secured the CMBS Financing, as contemplated under the debt agreements effective pursuant to the Acquisition.

On August 31, 2010, we executed an agreement with the lenders to amend the terms of our CMBS Financing to, among other things, (i) provide our subsidiaries that are borrowers under the CMBS mortgage loan and/or related mezzanine loans (“CMBS Loans”) the right to extend the maturity of the CMBS Loans, subject to certain conditions, by up to 2 years until February 2015, (ii) amend certain terms of the CMBS Loans with respect to reserve requirements, collateral rights, property release prices and the payment of management fees, (iii) provide for ongoing mandatory offers to repurchase CMBS Loans using excess cash flow from the CMBS properties at discounted prices, (iv) provide for the amortization of the mortgage loan in certain minimum amounts upon the occurrence of certain conditions and (v) provide for certain limitations with respect to the amount of excess cash flow from the CMBS properties that may be distributed to us. Any CMBS Loan purchased pursuant to the amendments will be canceled.

Pursuant to the terms of the amendment as initially agreed to on March 5, 2010, we agreed to pay lenders selling CMBS Loans during the fourth quarter 2009 an additional $47.4 million for their loans previously sold, to be paid no later than December 31, 2010. This additional liability was recorded as a loss on early extinguishment of debt during the first quarter of 2010 and was paid during the fourth quarter of 2010.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

In June 2010, we purchased $46.6 million face value of CMBS Loans for $22.6 million, recognizing a net gain on the transaction of approximately $23.3 million during the second quarter of 2010. In September 2010, in connection with the execution of the amendment, we purchased $123.8 million face value of CMBS Loans for $37.1 million, of which $31.0 million was paid at the closing of the CMBS amendment, and the remainder of which was paid during fourth quarter 2010. We recognized a pre-tax gain on the transaction of approximately $77.4 million, net of deferred finance charges.

In December 2010, we purchased $191.3 million of face value of CMBS Loans for $95.6 million, recognizing a pre-tax gain of $66.9 million, net of deferred finance charges.

In March 2011, we purchased $108.1 million of face value of CMBS Loans for $73.5 million, recognizing a pre-tax gain of $33.2 million, net of deferred finance charges.

As part of the amended CMBS Loan Agreement, in order to extend the maturity of the CMBS Loans under the extension option, we are required to extend our interest rate cap agreement to cover the two years of extended maturity of the CMBS Loans, with a maximum aggregate purchase price for such extended interest rate cap for $5.0 million. We funded the $5.0 million obligation on September 1, 2010 in connection with the closing of the CMBS Loan Agreement.

PHW Las Vegas senior secured loan

On February 19, 2010, CEOC acquired 100% of the equity interests of PHW Las Vegas, which owns the Planet Hollywood Resort and Casino located in Las Vegas, Nevada. In connection with this transaction, PHW Las Vegas assumed a $554.3 million, face value, senior secured loan, and a subsidiary of CEOC canceled certain debt issued by PHW Las Vegas’ predecessor entities. The outstanding amount is secured by the assets of PHW Las Vegas, and is non-recourse to other subsidiaries of the Company.

In connection with the transaction and the assumption of debt, PHW Las Vegas entered into the Amended and Restated Loan Agreement with Wells Fargo Bank, N.A., as trustee for The Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-TFL2 (“Lender”). The maturity date for this loan is December 2011, with two extension options (subject to certain conditions), which, if exercised, would extend maturity until April 2015. PHW Las Vegas is an unrestricted subsidiary of CEOC and therefore not a borrower under CEOC’s Credit Facilities. A subsidiary of CEOC manages the property for PHW Las Vegas for a fee.

PHW Las Vegas may, at its option, voluntarily prepay the loan in whole or in part upon twenty (20) days prior written notice to Lender. PHW Las Vegas is required to prepay the loan in (i) the amount of any insurance proceeds received by Lender for which Lender is not obligated to make available to PHW Las Vegas for restoration in accordance with the terms of the Amended and Restated Loan Agreement, (ii) the amount of any proceeds received from the operator of the timeshare property adjacent to the Planet Hollywood Resort and Casino, subject to the limitations set forth in the Amended and Restated Loan Agreement and (iii) the amount of any excess cash remaining after application of the cash management provisions of the Amended and Restated Loan Agreement.

Other Financing Transactions

During 2009, Chester Downs and Marina LLC (“Chester Downs”), a majority-owned subsidiary of CEOC and owner of Harrah’s Chester, entered into an agreement to borrow under a senior secured term loan with a principal amount of $230.0 million and borrowed such amount, net of original issue discount. The proceeds of the term loan were used to pay off intercompany debt due to CEOC and to repurchase equity interests from certain minority partners of Chester Downs. As a result of the purchase of these equity interests, CEOC currently owns 95.0% of Chester Downs.

On October 8, 2010, Chester Downs amended its existing senior secured term loan facility to obtain an additional $40.0 million term loan. The additional loan has substantially the same terms as the existing term loan with respect to interest rates, maturity and security.

Exchange Offers, Debt Purchases and Open Market Purchases

From time to time, we may retire portions of our outstanding debt in open market purchases, privately negotiated transactions or otherwise. These purchases will be funded through available cash from operations and from our established debt programs. Such purchases are dependent on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Issuances and Redemptions

During the second quarter of 2010, CEOC completed the offering of $750.0 million aggregate principal amount of 12.75% second-priority senior secured notes due 2018 and used the proceeds of this offering to redeem or repay the following outstanding debt:

 

Debt (dollars in millions)

   Maturity      Interest Rate   Face Value  

5.5% Senior Notes

     2010       5.5%   $ 191.6   

8.0% Senior Notes

     2011       8.0%     13.2   

8.125% Senior Subordinated Notes

     2011       8.125%     12.0   

Revolving Credit Facility

     2014       3.23%-3.25%     525.0   

In connection with the retirement of the outstanding senior and senior subordinated notes above, CEOC recorded a pre-tax loss of $4.7 million during the second quarter of 2010.

On June 3, 2010, Caesars announced an agreement under which affiliates of each of Apollo, TPG and Paulson & Co. Inc. (“Paulson”) were to exchange approximately $1,118.3 million face amount of debt for approximately 15.7 percent of the common equity of Caesars Entertainment, subject to regulatory approvals and certain other conditions. In connection with the transaction, Apollo, TPG, and Paulson purchased approximately $835.4 million, face amount, of CEOC notes that were held by another subsidiary of Caesars Entertainment for aggregate consideration of approximately $557.0 million, including accrued interest. The notes that were purchased, together with $282.9 million face amount of notes they had previously acquired, were exchanged for equity in the fourth quarter of 2010. The notes exchanged for equity are held by a subsidiary of Caesars Entertainment and remain outstanding for purposes of CEOC. The exchange was accounted for as an equity transaction.

Interest and Fees

Borrowings under the Credit Facilities, other than borrowings under the Incremental Loans, bear interest at a rate equal to the then-current LIBOR rate or at a rate equal to the alternate base rate, in each case plus an applicable margin. As of March 31, 2011, the Credit Facilities, other than borrowings under the Incremental Loans, bore interest at LIBOR plus 300 basis points for the term loans and a portion of the revolver loan and 150 basis points over LIBOR for the swingline loan and at the alternate base rate plus 200 basis points for the remainder of the revolver loan.

Borrowings under the Incremental Loans bear interest at a rate equal to either the alternate base rate or the greater of (i) the then-current LIBOR rate or (ii) 2.0%; in each case plus an applicable margin. At March 31, 2011, borrowings under the Incremental Loans bore interest at the minimum base rate of 2.0%, plus 750 basis points.

In addition, on a quarterly basis, we are required to pay each lender (i) a commitment fee in respect of any unborrowed amounts under the revolving credit facility and (ii) a letter of credit fee in respect of the aggregate face amount of outstanding letters of credit under the revolving credit facility. As of March 31, 2011, the Credit Facilities bore a commitment fee for unborrowed amounts of 50 basis points.

We make monthly interest payments on our CMBS Financing. Our Senior Secured Notes, including the Second-Priority Senior Secured Notes, and our unsecured debt have semi-annual interest payments, with the majority of those payments on June 15 and December 15.

The amount outstanding under the PHW Las Vegas senior secured loan bears interest, payable to third party lenders on a monthly basis, at a rate per annum equal to LIBOR plus 1.530%. Interest only participations of PHW Las Vegas bear interest at a fixed rate equal to $7.3 million per year, payable to the subsidiary of CEOC that owns such participations.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Collateral and Guarantors

CEOC’s Credit Facilities are guaranteed by Caesars Entertainment, and are secured by a pledge of CEOC’s capital stock, and by substantially all of the existing and future property and assets of CEOC and its material, wholly-owned domestic subsidiaries, including a pledge of the capital stock of CEOC’s material, wholly-owned domestic subsidiaries and 65% of the capital stock of the first-tier foreign subsidiaries, in each case subject to exceptions. The following casino properties have mortgages under the Credit Facilities:

 

Las Vegas

 

Atlantic City

 

Louisiana/Mississippi

 

Iowa/Missouri

Caesars Palace   Bally’s Atlantic City   Harrah’s New Orleans   Harrah’s St. Louis
Bally’s Las Vegas   Caesars Atlantic City   (Hotel only)   Harrah’s Council Bluffs
Imperial Palace   Showboat Atlantic City   Harrah’s Louisiana Downs   Horseshoe Council Bluffs/
Bill’s Gamblin’ Hall & Saloon     Horseshoe Bossier City   Bluffs Run
    Harrah’s Tunica  
    Horseshoe Tunica  
    Tunica Roadhouse Hotel & Casino  

Illinois/Indiana

 

Other Nevada

           
Horseshoe Southern Indiana   Harrah’s Reno    
Harrah’s Metropolis   Harrah’s Lake Tahoe    
Horseshoe Hammond   Harveys Lake Tahoe    

Additionally, certain undeveloped land in Las Vegas also is mortgaged.

In connection with PHW Las Vegas’ Amended and Restated Loan Agreement, Caesars Entertainment entered into a Guaranty Agreement (the “Guaranty”) for the benefit of the Lender pursuant to which Caesars Entertainment guaranteed to the Lender certain recourse liabilities of PHW Las Vegas. Caesars Entertainment’s maximum aggregate liability for such recourse liabilities is limited to $30.0 million provided that such recourse liabilities of PHW Las Vegas do not arise from (i) events, acts, or circumstances that are actually committed by, or voluntarily or willfully brought about by Caesars Entertainment or (ii) event, acts, or circumstances (regardless of the cause of the same) that provide actual benefit (in cash, cash equivalent, or other quantifiable amount) to the Registrant, to the full extent of the actual benefit received by the Registrant. Pursuant to the Guaranty, Caesars Entertainment is required to maintain a net worth or liquid assets of at least $100.0 million.

Restrictive Covenants and Other Matters

The Credit Facilities require compliance on a quarterly basis with a maximum net senior secured first lien debt leverage test. In addition, the Credit Facilities include negative covenants, subject to certain exceptions, restricting or limiting CEOC’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional debt; (ii) create liens on certain assets; (iii) enter into sale and lease-back transactions; (iv) make certain investments, loans and advances; (v) consolidate, merge, sell or otherwise dispose of all or any part of its assets or to purchase, lease or otherwise acquire all or any substantial part of assets of any other person; (vi) pay dividends or make distributions or make other restricted payments; (vii) enter into certain transactions with its affiliates; (viii) engage in any business other than the business activity conducted at the closing date of the loan or business activities incidental or related thereto; (ix) amend or modify the articles or certificate of incorporation, by-laws and certain agreements or make certain payments or modifications of indebtedness; and (x) designate or permit the designation of any indebtedness as “Designated Senior Debt.”

Caesars Entertainment is not bound by any financial or negative covenants contained in CEOC’s credit agreement, other than with respect to the incurrence of liens on and the pledge of its stock of CEOC.

All borrowings under the senior secured revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties, and the requirement that such borrowing does not reduce the amount of obligations otherwise permitted to be secured under our new senior secured credit facilities without ratably securing the retained notes.

        The PHW Las Vegas senior secured loan requires that the Company maintain certain reserve funds in respect of furniture, fixtures, and equipment, capital improvements, interest service, taxes and insurance. Amounts deposited into the specified reserve funds are reported within the accompanying consolidated condensed balance sheet as current and non-current restricted cash as of March 31, 2011.

Certain covenants contained in CEOC’s credit agreement require the maintenance of a senior first priority secured debt to last twelve months (LTM) Adjusted EBITDA (“Earnings Before Interest, Taxes, Depreciation and Amortization”), as defined in the agreements, ratio (“Senior Secured Leverage Ratio”). The June 3, 2009 amendment and waiver to our credit agreement

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

excludes from the Senior Secured Leverage Ratio (a) the $1,375.0 million Original First Lien Notes issued June 15, 2009 and the $720.0 million Additional First Lien Notes issued on September 11, 2009 and (b) up to $250.0 million aggregate principal amount of consolidated debt of subsidiaries that are not wholly owned subsidiaries. Certain covenants contained in CEOC’s credit agreement governing its senior secured credit facilities, the indenture and other agreements governing CEOC’s 10.0% Second-Priority Senior Secured Notes due 2015 and 2018, and our first lien notes restrict our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet defined Adjusted EBITDA to Fixed Charges, senior secured debt to LTM Adjusted EBITDA and consolidated debt to LTM Adjusted EBITDA ratios. The covenants that restrict additional indebtedness and the ability to make future acquisitions require an LTM Adjusted EBITDA to Fixed Charges ratio (measured on a trailing four-quarter basis) of 2.0:1.0. Failure to comply with these covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions.

The indenture governing the 10.75% Senior Notes, 10.75%/11.5% Senior Toggle Notes and the agreements governing the other cash pay debt and PIK toggle debt limit CEOC’s (and most of its subsidiaries’) ability to among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends or make distributions in respect of our capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) with respect to CEOC only, engage in any business or own any material asset other than all of the equity interest of CEOC so long as certain investors hold a majority of the notes; (vi) create or permit to exist dividend and/or payment restrictions affecting its restricted subsidiaries; (vii) create liens on certain assets to secure debt; (viii) consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; (ix) enter into certain transactions with its affiliates; and (x) designate its subsidiaries as unrestricted subsidiaries. Subject to certain exceptions, the indenture governing the notes and the agreements governing the other cash pay debt and PIK toggle debt will permit us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

We believe we are in compliance with CEOC’s Credit Facilities and indentures, including the Senior Secured Leverage Ratio, as of March 31, 2011. If our LTM Adjusted EBITDA were to decline significantly from the level achieved at March 31, 2011, it could cause us to exceed the Senior Secured Leverage Ratio and could be an Event of Default under CEOC’s credit agreement. However, we could implement certain actions in an effort to minimize the possibility of a breach of the Senior Secured Leverage Ratio, including reducing payroll and other operating costs, deferring or eliminating certain maintenance, delaying or deferring capital expenditures, or selling assets. In addition, under certain circumstances, our Credit Facilities allow us to apply cash contributions received by CEOC as a capital contribution to cure covenant breaches. However, there is no guarantee that such contributions will be able to be secured.

The CMBS Financing includes negative covenants, subject to certain exceptions, restricting or limiting the ability of the borrowers and operating companies under the CMBS Financing to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) make certain investments, loans and advances; (iv) consolidate, merge, sell or otherwise dispose of all or any part of its assets or to purchase, lease or otherwise acquire all or any substantial part of assets of any other person; (v) enter into certain transactions with its affiliates; (vi) engage in any business other than the ownership of the properties and business activities ancillary thereto; and (vi) amend or modify the articles or certificate of incorporation, by-laws and certain agreements.

The CMBS Financing also includes affirmative covenants that require the CMBS properties to, among other things, maintain the borrowers as “special purpose entities”, maintain certain reserve funds in respect of furniture, fixtures, and equipment, taxes, and insurance, and comply with other customary obligations for CMBS real estate financings. Amounts deposited into the specified reserve funds are reported within the accompanying consolidated condensed balance sheet as current and non-current restricted cash as of March 31, 2011.

In addition, the CMBS Financing obligates the CMBS properties to apply excess cash in certain specified manners, depending on the outstanding principal amount of various tranches of the CMBS loans and other factors. These obligations will limit the amount of excess cash flow from the CMBS properties that may be distributed to Caesars Entertainment. For example, the CMBS properties are required to use 100% of excess cash flow to make ongoing mandatory offers on a quarterly basis to purchase CMBS mezzanine loans at discounted prices from the holders thereof. To the extent such offers are accepted, such excess cash flow will need to be so utilized and will not be available for distribution to Caesars Entertainment. To the extent such offers are not accepted with respect to any fiscal quarter, the amount of excess cash flow that may be distributed to Caesars Entertainment is limited to 85% of excess cash flow with respect to such quarter. In addition, the CMBS Financing provides that once the aggregate principal amount of the CMBS mezzanine loans is less than or equal to $625.0 million, the mortgage loan will begin to amortize on a quarterly basis in an amount equal to the greater of 100% of excess cash flow for such quarter and $31.25 million. If the CMBS mortgage loan begins to amortize, the excess cash flow from the CMBS properties will need to be applied to such amortization and will not be available for distribution to Caesars Entertainment.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Note 6—Derivative Instruments

Derivative Instruments – Interest Rate Swap Agreements

We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of March 31, 2011, we have entered into 13 interest rate swap agreements, three of which have effective dates starting in April 2011, subsequent to the expiration of seven of our other swap agreements. As a result of staggering the effective dates, we had a notional amount of $6,500.0 million outstanding through April 25, 2011, and have a notional amount of $5,750.0 million outstanding beginning after April 25, 2011. 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 for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows. The major terms of the interest rate swap agreements as of March 31, 2011 are as follows:

 

Effective Date

   Notional Amount
(in millions)
     Fixed Rate
Paid
    Variable Rate
Received as  of
Mar. 31, 2011
    Next Reset Date      Maturity Date  

April 25, 2007

   $ 200         4.898     0.303     —           April 25, 2011   

April 25, 2007

     200         4.896     0.303     —           April 25, 2011   

April 25, 2007

     200         4.925     0.303     —           April 25, 2011   

April 25, 2007

     200         4.917     0.303     —           April 25, 2011   

April 25, 2007

     200         4.907     0.303     —           April 25, 2011   

September 26, 2007

     250         4.809     0.303     —           April 25, 2011   

September 26, 2007

     250         4.775     0.303     —           April 25, 2011   

April 25, 2008

     2,000         4.276     0.303     April 26, 2011         April 25, 2013

April 25, 2008

     2,000         4.263     0.303     April 26, 2011         April 25, 2013

April 25, 2008

     1,000         4.172     0.303     April 26, 2011         April 25, 2012

April 26, 2011

     250         1.351     —          April 26, 2011         January 25, 2015   

April 26, 2011

     250         1.347     —          April 26, 2011         January 25, 2015   

April 26, 2011

     250         1.350     —          April 26, 2011         January 25, 2015   

 

* On April 1, 2011, the Company completed transactions to change the fixed payment rates and extend the maturity dates to January 25, 2015 as more fully described in Note 18, “Subsequent Events.”

The variable rate on our interest rate swap agreements did not materially change as a result of the April 26, 2011 reset.

During October 2009, we borrowed $1,000.0 million under the Incremental Loans and used a majority of the net proceeds to temporarily repay most of our revolving debt under the Credit Facility. As a result, we no longer had a sufficient amount of outstanding debt under the same terms as our interest rate swap agreements to support hedge accounting treatment for the full $6,500.0 million in interest rate swaps. Thus, as of September 30, 2009, we removed the cash flow hedge designation for the $1,000.0 million swap agreement, freezing the amount of deferred losses recorded in Accumulated Other Comprehensive Loss (“AOCL”) associated with this swap agreement, and reducing the total notional amount on interest rate swaps designated as cash flow hedging instruments to $5,500.0 million. Beginning October 1, 2009, we began amortizing deferred losses frozen in

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

AOCL into income over the original remaining term of the hedged forecasted transactions that are still considered to be probable of occurring. For the quarter ended March 31, 2011, we recorded $2.2 million as an increase to interest expense, and we will record an additional $8.6 million as an increase to interest expense and other comprehensive income over the next twelve months, all related to deferred losses on the $1,000.0 million interest rate swap.

During the fourth quarter of 2009, we re-designated approximately $310.1 million of the $1,000.0 million swap as a cash flow hedging instrument. Also, on September 29, 2010, we entered into three forward interest rate swap agreements for notional amounts totaling $750.0 million that have been designated as cash flow hedging instruments. As a result, at March 31, 2011, $5,810.1 million of our total interest rate swap agreements notional amount of $7,250.0 million remained designated as hedging instruments for accounting purposes. Any future changes in fair value of the portion of the interest rate swap agreement not designated as a hedging instrument will be recognized in interest expense during the period in which the changes in value occur.

Derivative Instruments – Interest Rate Cap Agreements

On January 28, 2008, we entered into an interest rate cap agreement to partially hedge the risk of future increases in the variable rate of the CMBS Financing. The CMBS interest rate cap agreement, which was effective January 28, 2008 and terminates February 13, 2013, is for a notional amount of $6,500.0 million at a LIBOR cap rate of 4.5%. The CMBS interest rate cap was designated as a cash flow hedging instrument for accounting purposes on May 1, 2008.

In 2009, we began purchasing and extinguishing portions of the CMBS Financing. The hedging relationship between the CMBS Financing and the interest rate cap remained effective subsequent to each debt extinguishment. In connection with the extinguishments, we reclassified deferred losses out of AOCL and into interest expense associated with hedges for which the forecasted future transactions are no longer probable of occurring. The following table summarizes the face value of debt extinguishments and the amount of deferred losses reclassified out of AOCL (in millions):

 

Extinguishment Date

   Debt Extinguished      Deferred Losses
Reclassified
 

November 30, 2009

   $ 948.8       $ 12.1   

June 7, 2010

     46.6         0.8   

September 1, 2010

     123.8         1.5   

December 13, 2010

     191.3         3.3   

March 11, 2011

     108.1         1.4   
Subsequent to March 31, 2011, an additional $50.0 million face value of CMBS Financing was purchased and extinguished.    

On January 31, 2010, we removed the cash flow hedge designation for the $6,500.0 million interest rate cap, freezing the amount of deferred losses recorded in AOCL associated with the interest rate cap. Beginning February 1, 2010, we began amortizing deferred losses frozen in AOCL into income over the original remaining term of the hedge forecasted transactions that are still probable of occurring. For the quarter ended March 31, 2011, we recorded $5.2 million as an increase to interest expense, and we will record an additional $20.9 million as an increase to interest expense and AOCL over the next twelve months, all related to deferred losses on the interest rate cap.

On January 31, 2010, we re-designated $4,650.2 million of the interest rate cap as a cash flow hedging instrument for accounting purposes. Any future changes in fair value of the portion of the interest rate cap not designated as a hedging instrument will be recognized in interest expense during the period in which the changes in value occur.

On April 5, 2010, as required under the amended and restated loan agreement, we entered into an interest rate cap agreement to partially hedge the risk of future increases in the variable interest rate of the PHW Las Vegas senior secured loan. The interest rate cap agreement is for a notional amount of $554.3 million at a LIBOR cap rate of 5.0%, and matures on December 9, 2011. To give proper consideration to the prepayment requirements of the PHW Las Vegas senior secured loan, we have designated $525.0 million of the $554.3 million notional amount of the interest rate cap as a cash flow hedging instrument for accounting purposes.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Derivative Instruments – Impact on Financial Statements

The following table represents the fair values of derivative instruments in the Consolidated Condensed Balance Sheets as of March 31, 2011 and December 31, 2010:

 

     Asset Derivatives      Liability Derivatives  
     March 31, 2011      December 31, 2010      March 31, 2011     December 31, 2010  

(In millions)

   Balance
Sheet
Location
     Fair
Value
     Balance
Sheet
Location
     Fair
Value
     Balance
Sheet
Location
     Fair
Value
    Balance
Sheet
Location
     Fair
Value
 

Derivatives designated as hedging instruments

  

Interest rate swaps

      $ —            $ —          

 

Accrued

expenses

  

  

   $ (4.9    

 

Accrued

expenses

  

  

   $ (21.6

Interest rate swaps

    

 

Deferred charges

and other

  

  

     14.5        

 

Deferred charges

and other

  

  

     11.6        

 

Deferred credits

and other

  

  

     (270.5    

 

Deferred credits

and other

  

  

     (305.5

Interest rate cap

    

 

Deferred charges

and other

  

  

     1.6        

 

Deferred charges

and other

  

  

     3.7            —             —     
                                              

Subtotal

        16.1            15.3            (275.4        (327.1

Derivatives not designated as hedging instruments

  

Interest rate swaps

        —              —          

 

Deferred credits

and other

  

  

     (26.7    

 

Deferred credits

and other

  

  

     (32.2

Interest rate cap

    

 

Deferred charges

and other

  

  

     0.6        

 

Deferred charges

and other

  

  

     1.5            —             —     
                                              

Subtotal

        0.6            1.5            (26.7        (32.2
                                              

Total Derivatives

      $ 16.7          $ 16.8          $ (302.1      $ (359.3
                                              

The following table represents the effect of derivative instruments in the Consolidated Condensed Statements of Operations for the quarters ended March 31, 2011 and 2010 for amounts transferred into or out of AOCL:

 

(In millions)

   Amount of (Gain) or
Loss Recognized in
AOCL (Effective
Portion)
     Location of (Gain)  or
Loss Reclassified
From AOCL Into
Income

(Effective Portion)
     Amount of (Gain) or
Loss Reclassified
from AOCL into
Income

(Effective Portion)
     Location of (Gain) or
Loss Recognized in
Income (Ineffective
Portion)
     Amount of (Gain) or
Loss Recognized in

Income (Ineffective
Portion)
 

Derivatives designated as

hedging instruments

   Quarter
Ended
Mar. 31,
2011
    Quarter
Ended
Mar. 31,
2010
            Quarter
Ended
Mar. 31,
2011
     Quarter
Ended
Mar. 31,
2010
            Quarter
Ended
Mar. 31,
2011
    Quarter
Ended
Mar. 31,
2010
 

Interest rate contracts

   $ (44.0   $ 45.2         Interest expense       $ 10.1       $ 5.9         Interest expense       $ (9.8   $ 10.6   
                                              Amount of (Gain) or
Loss Recognized in
Income
 

Derivatives not

designated as hedging

instruments

                                     Location of (Gain) or
Loss Recognized in
Income
     Quarter
Ended
Mar. 31,
2011
    Quarter
Ended
Mar. 31,
2010
 

Interest rate contracts

                   Interest expense       $ (3.3   $ 4.9   

In addition to the impact on interest expense from amounts reclassified from AOCL, the difference to be paid or received under the terms of the interest rate swap agreements is recognized as interest expense and is paid quarterly. This cash settlement portion of the interest rate swap agreements increased interest expense for the quarters ended March 31, 2011 and 2010 by approximately $66.6 million and $66.4 million, respectively.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

A change in interest rates on variable-rate debt will impact our financial results. For example, assuming a constant outstanding balance for our variable-rate debt, excluding the $5,810.1 million of variable-rate debt for which our interest rate swap agreements are designated as hedging instruments for accounting purposes, for the next twelve months, a hypothetical 1% increase in corresponding interest rates would increase interest expense for the twelve months following March 31, 2011 by approximately $63.1 million. At March 31, 2011, our weighted average USD LIBOR rate for our variable rate debt was 0.262%. A hypothetical reduction of this rate to 0% would decrease interest expense for the next twelve months by approximately $16.5 million. At March 31, 2011, our variable-rate debt, excluding the aforementioned $5,810.1 million of variable-rate debt hedged using interest rate swap agreements, represents approximately 35% of our total debt, while our fixed-rate debt is approximately 65% of our total debt.

Note 7—Stock-Based Employee Compensation

Our share-based compensation expense consists primarily of time-based and performance-based options that have been granted to management, other personnel and key service providers. As of March 31, 2011, there was approximately $50.6 million of total unrecognized compensation cost related to stock option grants. The Company has recognized compensation expense associated with its stock-based employee compensation programs as follows:

 

     Quarter Ended March 31,  

(In millions)

   2011      2010  

Amounts included in:

     

Corporate expense

   $ 3.6       $ 4.2   

Property general, administrative and other

     2.3         2.5   
                 

Total Stock-Based Compensation Expense

   $ 5.9       $ 6.7   
                 

On February 23, 2010, the Human Resources Committee of the Board of Directors of the Company adopted an amendment to the Company’s Management Equity Incentive Plan (the “Plan”). The amendment provides for an increase in the available number shares of the Registrant’s non-voting common stock for which options may be granted to 4,566,919 shares.

The amendment also revised the vesting hurdles for performance-based options under the Plan. The performance options vest if the return on investment in the Company of TPG, Apollo, and their respective affiliates and co-investors (the “Majority Stockholders”) achieve a specified return. Previously, 50% of the performance-based options vested upon a 2x return and 50% vested upon a 3x return. The triggers have been revised to 1.5x and 2.5x, respectively. In addition, a pro-rata portion of the 2.5x options will vest if the Majority Stockholders achieve a return on their investment that is greater than 2.0x, but less than 2.5x. The pro rata portion will increase on a straight line basis from zero to a participant’s total number of 2.5x options depending upon the level of returns that the Majority Stockholders realize between 2.0x and 2.5x.

The following is a summary of share-based option activity for the three months ended March 31, 2011:

 

Options

   Shares     Weighted
Average
Exercise
Price
     Weighted  Average
Remaining
Contractual  Term
(years)
 

Outstanding at December 31, 2010

     4,242,002      $ 80.75         7.7   

Options granted

     156,669        59.90      

Canceled

     (242,559     66.44      
             

Outstanding at March 31, 2011

     4,156,112        80.74         7.4   
             

Exercisable at March 31, 2011

     1,056,732      $ 87.88         6.0   

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

The assumptions used to estimate fair value and the resulting estimated fair value of options granted during the quarter ended March 31, 2011 are as follows:

 

     Quarter Ended
March 31,  2011
 

Expected volatility

     70.7

Expected dividend yield

     —     

Expected term (in years)

     6.21   

Risk-free interest rate

     2.59

Weighted average fair value per share of options granted

   $ 30.86   

Note 8—Preferred and Common Stock

As of March 31, 2011, the total number of shares of capital stock which the Company has authority to issue is 1,375,000,000 shares, consisting of 1,250,000,000 shares of voting economic common stock, par value $.01 per share and 125,000,000 shares of preferred stock, par value $.01 per share. The holders of common stock shall be entitled to one vote per share on all matters to be voted on by the stockholders of the Company. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of common stock shall receive a pro-rata distribution of any remaining assets after payment of or provision for liabilities and the liquidation preference on preferred stock, if any.

During the quarter ended March 31, 2011, we paid approximately $0.7 million to purchase 10,060 shares of our outstanding common stock from former employees. Such shares were recorded as treasury shares as of March 31, 2011.

The Company has no shares of preferred stock outstanding at March 31, 2011 and December 31, 2010.

Note 9—Write-downs, Reserves and Recoveries

Write-downs, reserves and recoveries include various pretax charges to record long-lived tangible asset impairments, contingent liability reserves, costs associated with efficiency projects, project write-offs, demolition costs, recoveries of previously recorded non-routine reserves and other non-routine transactions. The components of write-downs, reserves and recoveries were as follows:

 

     Quarter Ended March 31,  

(In millions)

   2011      2010  

Remediation costs

   $ 3.4       $ 16.1   

Litigation reserves, awards and settlements

     0.8         0.5   

Efficiency projects

     11.6         0.4   

Loss on divested or abandoned assets

     2.2         —     

Other

     0.3         (4.5
                 

Total Write-downs, reserves and recoveries

   $ 18.3       $ 12.5   
                 

Remediation costs relate to projects at certain of our Las Vegas properties.

Efficiency projects represent costs incurred to identify and implement efficiency programs aimed at stream-lining corporate and operating functions to achieve cost savings and efficiencies.

Other write-downs, reserves and recoveries for the quarter ended March 31, 2010 included the release of a $4.8 million reserve for excise tax for which the statute of limitations expired.

Note 10—Income Taxes

We are subject to income taxes in the United States as well as various states and foreign jurisdictions in which we operate. We account for income taxes under ASC 740 “Accounting for Income Taxes,” whereby deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or income tax

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

returns. Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and their respective tax bases using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We reduce deferred tax assets by a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company’s income tax benefit/(provision) and effective tax rate were as follows:

 

(In millions, except effective tax rate)

   Quarter Ended March 31,  
     2011     2010  

Loss from continuing operations before income tax

   $ (223.2   $ (298.5

Benefit for income taxes

   $ 78.4      $ 104.9   

Effective tax rate

     (35.1 )%      (35.1 )% 

Our effective tax rate for the three months ending March 31, 2011 was favorably impacted by the tax effects of state taxes and federal tax credits offset by the impact of nondeductible expenses and accrued interest on prior years’ uncertain tax positions.

Total income taxes were allocated as follows:

 

Income tax benefit/(provision)

   Quarter Ended March 31,  

(In millions)

   2011     2010  

Loss from continuing operations

   $ 78.4      $ 104.9   

Accumulated other comprehensive loss

     (17.4     10.7   

Retained earnings

     (6.0     —     
                
   $ 55.0      $ 115.6   
                

We classify reserves for tax uncertainties within “Accrued expenses” and “Deferred credits and other” in our Consolidated Balance Sheets, separate from any related income tax payable or deferred income taxes. In accordance with ASC 740, reserve amounts relate to any potential income tax liabilities (uncertain tax benefits (“UTB”)) resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities. During the quarter ended March 31, 2011, our UTB, excluding related interest and penalties, decreased by $2.1 million as a result of the expiration of the statute of limitations and translation adjustments on foreign UTBs. This change in gross UTB, excluding related interest and penalties, during the quarter ended March 31, 2011 benefited the effective tax rate by $1.4 million.

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 (“IRS”) on open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next twelve months. As a result of the expiration of the statute of limitations and closure of IRS audits, our 2004 and 2005 federal income tax years were closed during the year ended December 31, 2009. We filed amended 2005 income tax returns in 2010 to deduct foreign tax credits which were projected to expire. The IRS could reexamine our 2005 federal income tax year with any resultant adjustments limited to the amount of our amended claim. The IRS audit of our 2006 federal income tax year also concluded during the year ended December 31, 2009. The IRS audit of our 2007 federal income tax year concluded during the quarter ended March 31, 2010. The IRS audit of our 2008 federal income tax year concluded during the quarter ended June 30, 2010. During the quarter ended June 30, 2010, we submitted a protest to the IRS Appeals office regarding several issues from the 2008 IRS audit. As our 2008 IRS Appeals conference is scheduled during May 2011, it is reasonably possible that these issues could be settled in the next twelve months; however, we are unable to estimate the impact of a settlement at this time. The IRS audit of our 2009 federal income tax year commenced in the quarter ended March 31, 2011.

We are also subject to exam by various state and foreign tax authorities. Tax years prior to 2005 are generally closed for foreign and state income tax purposes as the statutes of limitations have lapsed. However, various subsidiaries could be examined by the New Jersey Division of Taxation for tax years beginning with 1999 due to our execution of New Jersey statute of limitation extensions.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Under the American Recovery and Reinvestment Act of 2009, or the ARRA, the Company will receive temporary federal tax relief under the Delayed Recognition of Cancellation of Debt Income, or CODI, rules. The ARRA contains a provision that allows for a deferral for tax purposes of CODI for debt reacquired in 2009 and 2010, followed by recognition of CODI ratably from 2014 through 2018. In connection with the debt that we reacquired in 2009 and 2010, we have deferred related CODI of $3.6 billion for tax purposes (net of Original Issue Discount (OID) interest expense, some of which must also be deferred to 2014 through 2018 under the ARRA). We are required to include one-fifth of the deferred CODI, net of deferred and regularly scheduled OID, in taxable income each year from 2014 through 2018. For state income tax purposes, certain states have conformed to the Act and others have not.

Note 11—Fair Value Measurements

ASC 820 “Fair Value Measurements and Disclosures,” outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:    Observable inputs such as quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date;
Level 2:    Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:    Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Under ASC 825, “Financial Instruments,” entities are permitted to choose to measure many financial instruments and certain other items at fair value. We did not elect the fair value measurement option under ASC 825 for any of our financial assets or financial liabilities.

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 March 31, 2011 and December 31, 2010.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

(In millions)

   Balance     Level 1      Level 2     Level 3  

March 31, 2011

         

Assets:

         

Cash equivalents

   $ 273.6      $ 273.6       $ —        $ —     

Investments

     99.8        97.1         2.7        —     

Derivative instruments

     16.7        —           16.7        —     

Liabilities:

         

Derivative instruments

     (302.1     —           (302.1     —     

December 31, 2010

         

Assets:

         

Cash equivalents

   $ 175.7      $ 175.7       $ —        $ —     

Investments

     95.4        92.7         2.7        —     

Derivative instruments

     16.8        —           16.8        —     

Liabilities:

         

Derivative instruments

     (359.3     —           (359.3     —     

The following section describes the valuation methodologies used to estimate or measure fair value, key inputs, and significant assumptions:

Cash equivalents – Cash equivalents are investments in money market accounts with a maturity of 90 days or less at the date of purchase and utilize Level 1 inputs to determine fair value.

Investments – Investments are primarily debt and equity securities with a maturity date greater than 90 days at the date of the security’s acquisition. The majority of these securities are traded in active markets, have readily determined market values and use Level 1 inputs. Those debt and equity securities for which there are not active markets or the market values are not readily determinable are valued using Level 2 inputs. All of these investments are included in either Prepayments and other, or Deferred charges and other, in our Consolidated Balance Sheets. We elect to record marketable securities at fair value.

Investments in marketable securities were as follows:

 

     March 31, 2011      December 31, 2010  

(In millions)

   Fair Value      Unrealized
Gains/(Losses)
     Fair Value      Unrealized
Gains/(Losses)
 

Corporate bonds

   $ 2.7       $ 0.1       $ 2.7       $ 0.1   

Equity

     2.8         0.6         2.6         0.5   

Government bonds

     92.2         1.8         88.0         2.1   

Mortgaged backed securities

     0.1         —           0.1         —     

Other liquid investments

     2.0         —           2.0         —     
                                   

Total Investments

   $ 99.8       $ 2.5       $ 95.4       $ 2.7   
                                   

Derivative instruments – The estimated fair values of our 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. Derivative instruments are included in either Deferred charges and other, or Deferred credits and other, in our Consolidated Condensed 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. See Note 6, “Derivative Instruments” for more information.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Items to be Disclosed at Fair Value

Long-Term Debt – The fair value of the Company’s debt has been calculated based on the borrowing rates available as of March 31, 2011 for debt with similar terms and maturities, and based on market quotes of our publicly traded debt. As of March 31, 2011, the Company’s outstanding debt had a fair value of $19,997.7 million and a carrying value of $18,751.0 million. The Company’s interest rate swaps used for hedging purposes had fair values equal to their carrying values, in the aggregate a liability of $302.1 million for ten of our interest rate swaps and an asset of $14.5 million for three of our interest rate swaps. Our interest rate cap agreements had a fair value equal to their carrying value as an asset of $2.2 million at March 31, 2011. See additional discussion about derivatives in Note 5, “Debt”.

Interest-only Participations – Late in 2009, a subsidiary of CEOC acquired certain interest only participations payable by certain predecessor entities of PHW Las Vegas. When the Company assumed the debt in connection with the acquisition of Planet Hollywood, these interest only participations survived the transaction and remain outstanding as an asset of a subsidiary of CEOC as of March 31, 2011. In connection with both the initial acquisition of the interest only participations and the acquisition of Planet Hollywood, the fair value of these participations was determined based upon valuations as of each date. As the Company owns 100% of the outstanding participations, there is no active market available to determine a trading fair value at any point in time subsequent to the acquisition. As a result, the Company does not have the ability to update the fair value of the interest only participations subsequent to their acquisition and valuation, other than by estimating fair value based upon discounted future cash flows. Since discounted cash flows were used as the primary basis for valuation upon their acquisition, and are also being used as the method to determine the amortization of the value of such participations into earnings, the Company believes that the book value of the interest only participations at March 31, 2011 approximates their fair value.

Note 12—Commitments and Contingent Liabilities

Contractual Commitments

We continue to pursue additional casino development opportunities that may require, individually and in the aggregate, significant commitments of capital, up-front payments to third parties and development completion guarantees.

The agreements pursuant to which we manage casinos on Indian lands contain provisions required by law that provide that a minimum monthly payment be made to the tribe. That 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 these contracts for the three managed Indian-owned facilities now open, which extend for periods of up to 45 months from March 31, 2011, is $1.2 million. Each of these casinos currently generates sufficient cash flows to cover all of its obligations, including its debt service.

In addition to the guarantees discussed above, we had total aggregate non-cancelable purchase obligations of $892.0 million as of March 31, 2011, including construction-related commitments.

Contingent Liability - Nevada Sales and Use Tax

The Supreme Court of Nevada decided in early 2008 that food purchased for subsequent use in the provision of complimentary and/or employee meals is exempt from use tax. Previously, such purchases were subject to use tax and the Company has claimed, but not recognized into earnings, a use tax refund totaling $32.2 million, plus interest, as a result of the 2008 decision. In early 2009, the Nevada Department of Taxation audited our refund claim, but has taken the position that those same purchases are now subject to sales tax; therefore, they subsequently issued a sales tax assessment totaling $27.4 million plus interest after application of our refund on use tax. While we have established certain reserves against possible loss on this matter, we believe that the Nevada Department of Taxation’s position has no merit and we moved the matter to a procedural, administrative hearing before a Nevada Department of Taxation administrative law judge.

On October 21, 2010, the administrative law judge issued a decision and ruled in our favor on a number of key issues. Both the Company and the Nevada Department of Taxation have filed an appeal of the decision with the Nevada Tax Commission.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Contingent Liability - Employee Benefit Obligations

In December 1998, Hilton Hotels Corporation (Hilton) spun-off its gaming operations as Park Place Entertainment Corporation (Park Place). In connection with the spin-off, Hilton and Park Place entered into various agreements, including an Employee Benefits and Other Employment Allocation Agreement dated December 31, 1998 (the Allocation Agreement) whereby Park Place assumed or retained, as applicable, certain liabilities and excess assets, if any, related to the Hilton Hotels Retirement Plan (the Hilton Plan) based on the accrued benefits of Hilton employees and Park Place employees. Park Place changed its name to Caesars Entertainment, Inc. (Caesars) and the Company acquired Caesars in June 2005. In 1999 and 2005, the United States District Court for the District of Columbia certified two nationwide classes in the lawsuit against Hilton and others alleging that the Hilton Plan’s benefit formula was backloaded in violation of ERISA, and that Hilton and the other defendants failed to properly calculate Hilton Plan participants’ service for vesting purposes. In May 2009, the Court issued a decision granting summary judgment to the plaintiffs. Thereafter, the Court required the parties to attempt to agree on a remedies determination and further required the parties to submit briefs to the Court in support of their positions. On September 7, 2010, the Court issued an opinion resolving certain of Hilton’s and the plaintiffs’ issues regarding a remedies determination and requiring the parties to confer and take other actions in an effort to resolve the remaining issues. The Court may require the parties to submit additional briefs and schedules to support their positions and intends to hold another hearing before issuing a final judgment. Prior to the Court’s latest opinion, we were advised by counsel for the defendants that the plaintiffs have estimated that the damages are in the range of $180.0 million to $250.0 million. Counsel for the defendants further advised that approximately $50.0 million of the damages relates to questions regarding the proper size of the class and the amount, if any, of damages to any additional class members due to issues with Hilton’s record keeping.

The Company received a letter from Hilton dated October 7, 2009 notifying the Company for the first time of this lawsuit and alleging that the Company has potential liability for the above described claims under the terms of the Allocation Agreement. Based on the terms of the Allocation Agreement, the Company believes its maximum potential exposure is approximately 30% to 33% of the amount ultimately awarded as damages. The Company is not a party to the proceedings between the plaintiffs and the defendants and has not participated in the defense of the litigation or in any discussions between the plaintiffs and the defendants about potential remedies or damages. Further, the Company does not have access to information sufficient to enable the Company to make an independent judgment about the possible range of loss in connection with this matter. Based on conversations between a representative of the Company and a representative of the defendants, the Company believes it is probable that damages will be at least $80.0 million and, accordingly, the Company recorded a charge of $25.0 million in accordance with ASC 450, Contingencies, during the second quarter 2010 in relation to this matter. The Company has not changed its belief respecting the damages which may be awarded in this lawsuit as a result of the aforementioned recent opinion of the Court. The Company also continues to believe that it may have various defenses if a claim under the Allocation Agreement is asserted against the Company, including defenses as to the amount of damages. Because the Company has not had access to sufficient information regarding this matter, we cannot at this time predict the ultimate outcome of this matter or the possible additional loss, if any.

Contingent Liability - Multi-Employer Pension Plans

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 collective bargaining agreements. 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, or the PPA, requires under-funded pension plans to improve their funding ratios. Based on the information available to us, we believe that some of the multi-employer plans to which we contribute are either “critical” or “endangered” as those terms are defined in the PPA. We cannot determine at this time the amount of additional funding, if any, we may be required to make to these plans.

Self-Insurance

We are self-insured for various levels of general liability, workers’ compensation, employee medical coverage and other coverage. 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.

Note 13—Litigation

The Company is party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material adverse effect on our consolidated financial position or results of operations.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Note 14—Comprehensive Loss

The following activity affected comprehensive loss:

 

     Quarter Ended March 31,  

(In millions)

   2011     2010  

Net loss

   $ (144.8   $ (193.6

Post retirement medical, net of tax

     0.1        —     

Pension adjustments, net of tax

     (1.0     0.2   

Reclassification of loss on derivative instruments from other comprehensive loss to net loss, net of tax

     0.2        0.2   

Unrealized gains/losses on investments, net of tax

     (0.2     —     

Foreign currency translation adjustment, net of tax

     (15.7     (10.1

Fair market value of swap agreements, net of tax

     29.3        (18.6

Fair market value of interest rate cap agreements on commercial mortgage-backed securities, net of tax

     3.5        (15.5
                

Total comprehensive loss

   $ (128.6   $ (237.4
                

Note 15— Loss Per Share

The weighted-average number of common and common equivalent shares used in the calculation of basic and diluted loss per share consisted of the following:

 

     Quarter Ended March 31,  
     2011      2010  

Weighted-average common shares outstanding used in the calculation of basic loss per share

     71,803,988         41,335,253   

Potential dilution from stock options and warrants

     —           —     
                 

Weighted-average common and common equivalent shares used in the calculation of diluted loss per share

     71,803,988         41,335,253   
                 

Antidilutive stock options, warrants, and convertible preferred shares excluded from the calculation of diluted loss per share

     4,095,105         60,576,536   
                 

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Note 16—Supplemental Cash Flow Disclosures

Cash Paid for Interest and Taxes

The following table reconciles our interest expense, net of capitalized interest, per the Consolidated Condensed Statements of Operations, to cash paid for interest, net of amount capitalized:

 

     Quarter Ended March 31,  

(In millions)

   2011     2010  

Interest expense, net of interest capitalized

   $ 473.4      $ 491.5   

Adjustments to reconcile to cash paid for interest:

    

Net change in accruals

     (201.5     (181.8

Amortization of deferred finance charges

     (14.7     (19.7

Net amortization of discounts and premiums

     (33.5     (33.9

Amortization of other comprehensive income

     (10.4     (6.5

Rollover of Paid-in-Kind (“PIK”) interest to principal

     (0.6     (0.5

Change in fair value of derivative instruments

     13.1        (10.6
                

Cash paid for interest, net of amount capitalized

   $ 225.8      $ 238.5   
                

Cash payments (refunds) of income taxes, net

   $ (6.8   $ 7.4   
                

Significant non-cash transactions include the first quarter 2011 include the adjustment to the accrued jackpot liability, and the corresponding cumulative effect adjustment to Retained Earnings, resulting from the adoption of the provision of ASU No. 2010-16, as further discussed in Note 2, “Recently Issued Accounting Pronouncements”.

Note 17—Related Party Transactions

In connection with the Acquisition, Apollo, TPG and their affiliates entered into a services agreement with Caesars Entertainment relating to the provision of financial and strategic advisory services and consulting services. In addition, we pay a monitoring fee for management services and advice. Fees paid to Apollo and TPG, which are included in Corporate expense in our Consolidated Statements of Operations, for the quarters ended March 31, 2011 and 2010, were $7.5 million and $7.3 million, respectively. We also reimburse Apollo and TPG for expenses that they incur related to their management services.

Note 18—Subsequent Events

Derivative Transaction

On April 1, 2011, the Company completed transactions related to three existing swap contracts. The $1.0 billion swap was modified to change the fixed payment rate from 4.172% to 3.233% and the maturity date was extended from April 25, 2012 to January 25, 2015. The two $2.0 billion swaps were each split into two $1.0 billion tranches. The terms of one tranche for each swap remained unchanged with fixed payment rates of 4.276% and 4.263% and maturity dates of April 25, 2013. The second tranche for each swap was modified to reduce the fixed payment rates to 3.915% and 3.935% and extend the maturity dates to January 25, 2015.

CMBS Loan repurchase

On April 1, 2011, we purchased $50.0 million of face value of CMBS Loans for $35.0 million, recognizing a pre-tax gain of $14.3 million, net of deferred finance charges, which will be reported within our second quarter 2011 financial statements.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

Octavius and LINQ Projects

On April 25, 2011, the Company, together with certain indirect wholly-owned subsidiaries of the Company (the “Borrowers”) entered into a credit agreement (the “Credit Agreement”) pursuant to which the Borrowers incurred financing to complete the Octavius Tower at Caesars Palace Las Vegas (“Project Octavius”) and to develop a retail, dining and entertainment corridor located between the Imperial Palace Hotel and Casino and the Flamingo Las Vegas on the Las Vegas strip (“Project Linq” and, together with Project Octavius, the “Development”). The Credit Agreement provides for a $450 million senior secured term facility (the “Term Facility”) with a six-year maturity, which will be secured by all material assets of the Borrowers. The proceeds of the Term Facility will be used by the Borrowers to finance the Development and to pay fees and expenses incurred in connection with the Term Facility and the transactions related thereto.

As a condition to the provision of the Term Facility, the Company provided a completion guarantee (the “Completion Guaranty”) with respect to the Development, which guarantees completion of the construction of the Development, availability of contemplated working capital and receipt of material permits and licenses necessary to open and operate the Development. The maximum liability of the Company under the completion guarantee is $25.0 million in respect of Project Octavius and $75.0 million in respect of Project Linq.

In connection with the Development and the Term Facility, the Company will contribute or cause to be contributed the existing Octavius Tower and related assets to one of the Borrowers and the existing O’Shea casino (adjacent to the Flamingo Las Vegas) and related real property and other assets comprising the components of Project Linq to one of the Borrowers. Upon completion of Project Octavius, one of the Borrowers will lease the Octavius Tower to a wholly-owned subsidiary of CEOC. Upon completion of Project Linq, one of the Borrowers will lease the gaming space in Project Linq to a wholly-owned subsidiary of CEOC. The total lease payments will be $50.0 million annually once the Development is open. CEOC has guaranteed certain of the obligations of the lessees under the Project Octavius and Project Linq leases described above.

Pursuant to the Credit Agreement, the Company is required to make cash contributions to the Borrowers from time to time to fund a total equity commitment to the Development of $76.0 million. In addition, from time to time, the Company may be required to make additional cash contributions to the Borrowers to fund certain portions of the Development upon the occurrence of certain conditions. In addition to potential contributions pursuant to the Completion Guaranty, the Company has guaranteed all payments of interest under the Term Facility until the later of the commencement of operations of the Octavius Tower and Project Linq and guaranteed the performance of the Borrowers of the first lien leverage ratio maintenance covenant (the “Performance Guarantee”) by agreeing, upon certain conditions, to make cash equity contributions to the Borrowers from time to time pursuant to the terms of the Term Facility. The maximum liability of the Company under the Performance Guarantee is $50.0 million. Except in the circumstances described above, neither the Company nor CEOC has any material obligations under the Term Facility, and the Term Facility is non-recourse to the Company or CEOC.

CEOC Credit Facilities

On May 4, 2011, CEOC announced its intent to seek amendments to its senior secured credit facilities to, among other things: (i) extend the maturity of B-1, B-2 and B-3 term loans held by consenting lenders to January 28, 2018 and increase the interest rate with respect to such extended term loans (the “Extended Term Loans”), (ii) convert up to $816.0 million of revolver commitments held by consenting lenders to Extended Term Loans, (iii) extend the maturity of revolver commitments held by consenting lenders, who elect not to convert their commitments to term loans, to January 28, 2015 and increase the interest rate and the undrawn fee with respect to such extended revolver commitments, (iv) allow CEOC to buy back loans from individual lenders at negotiated prices at any time, which may be less than par, (v) allow CEOC to extend the maturity of term loans or revolving commitments, as applicable, and for CEOC to otherwise modify the terms of loans or revolving commitments in connection with such an extension and (vi) modify certain other provisions of the credit facilities. The proposed amendment of the senior secured credit facilities is subject to market and other conditions, and may not occur as described or at all.

Note 19—Consolidating Financial Information of Guarantors and Issuers

As of March 31, 2011, CEOC is the issuer of certain debt securities that have been guaranteed by Caesars Entertainment and certain subsidiaries of CEOC. The following consolidating schedules present condensed financial information for Caesars Entertainment, the parent and guarantor; CEOC, the subsidiary issuer; guarantor subsidiaries of CEOC; and non-guarantor subsidiaries of Caesars Entertainment and CEOC, which include PHW Las Vegas and the CMBS properties, as of March 31, 2011, and December 31, 2010, and for the quarters ended March 31, 2011 and 2010.

        In lieu of providing separate unaudited financial statements for the guarantor subsidiaries, we have included the accompanying condensed consolidating financial statements based on the Securities and Exchange Commission’s interpretation and application of ASC 470-10-S99, (Rule 3-10 of the Securities and Exchange Commission’s Regulation S-X). Management does not believe that separate financial statements of the guarantor subsidiaries are material to our investors. Therefore, separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented.

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

CONDENSED CONSOLIDATING BALANCE SHEET

MARCH 31, 2011

 

(In millions)

   CEC
(Parent)
    Subsidiary
Issuer
    Guarantors      Non-
Guarantors
     Consolidating/
Eliminating
Adjustments
    Total  

Assets

              

Current assets

              

Cash and cash equivalents

   $ 117.0      $ 131.4      $ 278.2       $ 353.9       $ —        $ 880.5   

Receivables, net of allowance for doubtful accounts

     —          17.7        240.7         108.2         —          366.6   

Deferred income taxes

     —          71.2        84.2         15.7         —          171.1   

Prepayments and other

     —          27.8        102.5         107.1         —          237.4   

Inventories

     —          0.3        31.3         15.6         —          47.2   

Assets held for sale

     —          —          2.8         —           —          2.8   

Intercompany receivables

     7.7        222.7        142.7         182.8         (555.9     —     
                                                  

Total current assets

     124.7        471.1        882.4         783.3         (555.9     1,705.6   

Land, buildings, riverboats and equipment, net of accumulated depreciation

     —          231.0        10,356.7         7,009.8         —          17,597.5   

Goodwill

     —          —          1,646.1         1,776.2         —          3,422.3   

Intangible assets other than goodwill

     —          5.4        4,029.0         700.3         —          4,734.7   

Investments in and advances to nonconsolidated affiliates

     1,114.8        13,806.1        7.7         939.4         (15,767.1     100.9   

Restricted cash

     —          —          —           55.6         —          55.6   

Deferred charges and other

     —          395.6        188.3         204.0         —          787.9   

Intercompany receivables

     279.2        1,111.6        669.4         184.4         (2,244.6     —     
                                                  
   $ 1,518.7      $ 16,020.8      $ 17,779.6       $ 11,653.0       $ (18,567.6   $ 28,404.5   
                                                  

Liabilities and Stockholders’ Equity/ (Deficit)

              

Current liabilities

              

Accounts payable

   $ 0.8      $ 91.9      $ 87.5       $ 62.8       $ —        $ 243.0   

Interest payable

     —          390.9        1.9         9.6         —          402.4   

Accrued expenses

     3.9        201.8        367.0         442.5         —          1,015.2   

Current portion of long-term debt

     —          30.0        5.9         67.0         —          102.9   

Intercompany payables

     —          70.9        319.6         165.4         (555.9     —     
                                                  

Total current liabilities

     4.7        785.5        781.9         747.3         (555.9     1,763.5   

Long-term debt

     —          13,728.6        70.1         5,670.1         (820.7     18,648.1   

Deferred credits and other

     —          590.5        163.6         110.2         —          864.3   

Deferred income taxes

     (0.2     1,112.2        2,519.2         1,939.6         —          5,570.8   

Intercompany payables

     —          377.2        955.2         912.2         (2,244.6     —     
                                                  
     4.5        16,594.0        4,490.0         9,379.4         (3,621.2     26,846.7   
                                                  

Caesars Entertainment Corporation stockholders’ equity/(deficit)

     1,514.2        (573.2     13,289.6         2,230.0         (14,946.4     1,514.2   

Non-controlling interests

     —          —          —           43.6         —          43.6   
                                                  

Total Stockholders’ equity/(deficit)

     1,514.2        (573.2     13,289.6         2,273.6         (14,946.4     1,557.8   
                                                  
   $ 1,518.7      $ 16,020.8      $ 17,779.6       $ 11,653.0       $ (18,567.6   $ 28,404.5   
                                                  

 

 

 

 

 

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CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2010

 

(In millions)    CEC
(Parent)
    Subsidiary
Issuer
    Guarantors      Non-
Guarantors
     Consolidating/
Eliminating
Adjustments
    Total  

Assets

              

Current assets

              

Cash and cash equivalents

   $ 136.0      $ 61.0      $ 358.2       $ 431.8       $ —        $ 987.0   

Receivables, net of allowance for doubtful accounts

     —          18.0        261.4         113.8         —          393.2   

Deferred income taxes

     —          66.2        92.6         17.0         —          175.8   

Prepayments and other

     —          29.0        77.2         77.9         —          184.1   

Inventories

     —          0.4        32.7         17.3         —          50.4   

Intercompany receivables

     3.7        313.0        161.9         169.1         (647.7     —     
                                                  

Total current assets

     139.7        487.6        984.0         826.9         (647.7     1,790.5   

Land, buildings, riverboats and equipment, net of accumulated depreciation

     —          229.8        10,457.8         7,079.0         —          17,766.6   

Goodwill

     —          —          1,646.1         1,774.8         —          3,420.9   

Intangible assets other than goodwill

     —          5.6        4,052.1         654.1         —          4,711.8   

Investments in and advances to non-consolidated affiliates

     1,002.3        13,924.4        7.6         914.0         (15,754.3     94.0   

Deferred charges and other

     —          408.2        188.4         207.3         —          803.9   

Intercompany receivables

     500.0        1,106.7        669.5         184.2         (2,460.4     —     
                                                  
   $ 1,642.0      $ 16,162.3      $ 18,005.5       $ 11,640.3       $ (18,862.4   $ 28,587.7   
                                                  

Liabilities and Stockholders’ Equity/(Deficit)

              

Current liabilities

              

Accounts payable

   $ 2.1      $ 87.6      $ 91.3       $ 70.4       $ —        $ 251.4   

Interest payable

     —          191.2        0.5         9.8         —          201.5   

Accrued expenses

     7.3        208.2        420.2         438.6         —          1,074.3   

Current portion of long-term debt

     —          30.0        6.7         18.9         —          55.6   

Intercompany payables

     —          47.9        318.8         281.0         (647.7     —     
                                                  

Total current liabilities

     9.4        564.9        837.5         818.7         (647.7     1,582.8   

Long-term debt

     —          13,690.7        71.8         5,825.0         (802.0     18,785.5   

Deferred credits and other

     —          646.4        164.2         112.5         —          923.1   

Deferred income taxes

     (0.2     1,131.3        2,536.1         1,956.5         —          5,623.7   

Intercompany payables

     —          598.1        955.2         907.1         (2,460.4     —     
                                                  
     9.2        16,631.4        4,564.8         9,619.8         (3,910.1     26,915.1   
                                                  

Caesars Entertainment Corporation Stockholders’ equity/(deficit)

     1,632.8        (469.1     13,440.7         1,980.7         (14,952.3     1,632.8   

Non-controlling interests

     —          —          —           39.8         —          39.8   
                                                  

Total Stockholders’ equity/(deficit)

     1,632.8        (469.1     13,440.7         2,020.5         (14,952.3     1,672.6   
                                                  
   $ 1,642.0      $ 16,162.3      $ 18,005.5       $ 11,640.3       $ (18,862.4   $ 28,587.7   
                                                  

 

34


Table of Contents

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

QUARTER ENDED MARCH 31, 2011

 

(In millions)

   CEC
(Parent)
    Subsidiary
Issuer
    Guarantors     Non-
Guarantors
    Consolidating/
Eliminating
Adjustments
    Total  

Revenues

            

Casino

   $ —        $ 13.5      $ 1,054.5      $ 595.1      $ —        $ 1,663.1   

Food and beverage

     —          3.6        208.2        166.1        —          377.9   

Rooms

     —          3.6        151.1        138.8        —          293.5   

Management fees

     —          —          17.8        1.1        (9.8     9.1   

Other

     —          12.4        91.4        85.9        (45.1     144.6   

Less: casino promotional allowances

     —          (4.3     (184.2     (120.7     —          (309.2
                                                

Net revenues

     —          28.8        1,338.8        866.3        (54.9     2,179.0   
                                                

Operating expenses

            

Direct

            

Casino

     —          9.5        596.8        333.7        —          940.0   

Food and beverage

     —          2.0        82.8        73.7        —          158.5   

Rooms

     —          0.5        31.6        35.8        —          67.9   

Property general, administrative and other

     —          14.3        323.1        225.3        (35.0     527.7   

Depreciation and amortization

     —          1.7        113.2        62.1        —          177.0   

Project opening costs

     —          —          —          0.2        —          0.2   

Write-downs, reserves and recoveries

     —          11.9        3.2        3.2        —          18.3   

Losses/(income) on interests in non-consolidated affiliates

     146.7        (106.0     (10.6     (0.3     (30.1     (0.3

Corporate expense

     4.7        23.5        3.6        22.4        (19.9     34.3   

Acquisition and integration costs

     0.3        0.3        1.4        0.6        —          2.6   

Amortization of intangible assets

     —          0.2        23.5        15.6        —          39.3   
                                                

Total operating expenses

     151.7        (42.1     1,168.6        772.3        (85.0     1,965.5   
                                                

(Loss)/income from operations

     (151.7     70.9        170.2        94.0        30.1        213.5   

Interest expense, net of interest capitalized

     —          (439.0     (9.6     (81.2     56.4        (473.4

Gains on early extinguishments of debt

     —          —          —          33.2        —          33.2   

Other income, including interest income

     3.8        11.7        4.8        39.6        (56.4     3.5   
                                                

(Loss)/income from continuing operations before income taxes

     (147.9     (356.4     165.4        85.6        30.1        (223.2

Benefit/(provision) for income taxes

     0.4        163.6        (60.1     (25.5     —          78.4   
                                                

Net (loss)/income

     (147.5     (192.8     105.3        60.1        30.1        (144.8

Less: net income attributable to non-controlling interests

     —          —          —          (2.7     —          (2.7
                                                

Net (loss)/income attributable to Caesars Entertainment Corporation

   $ (147.5   $ (192.8   $ 105.3      $ 57.4      $ 30.1      $ (147.5
                                                

 

35


Table of Contents

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

QUARTER ENDED MARCH 31, 2010

 

(In millions)

   CEC (Parent)     Subsidiary
Issuer
    Guarantors     Non-Guarantors     Consolidating/
Eliminating
Adjustments
    Total  

Revenues

            

Casino

   $ —        $ 14.9      $ 1,153.9      $ 581.2      $ —        $ 1,750.0   

Food and beverage

     —          4.1        217.1        152.8        —          374.0   

Rooms

     —          3.7        144.5        120.2        —          268.4   

Management fees

     —          2.3        17.0        0.2        (6.4     13.1   

Other

     —          13.9        83.3        71.5        (37.7     131.0   

Less: casino promotional allowances

     —          (5.0     (218.9     (124.2     —          (348.1
                                                

Net revenues

     —          33.9        1,396.9        801.7        (44.1     2,188.4   
                                                

Operating expenses

            

Direct

            

Casino

     —          10.5        648.2        328.9        —          987.6   

Food and beverage

     —          2.1        77.0        65.5        —          144.6   

Rooms

     —          0.5        28.9        29.8        —          59.2   

Property general, administrative and other

     —          9.2        322.9        203.2        (32.0     503.3   

Depreciation and amortization

     —          1.9        108.4        59.4        —          169.7   

Project opening costs

     —          —          0.7        —          —          0.7   

Write-downs, reserves and recoveries

     —          (4.1     9.5        7.1        —          12.5   

Losses/(income) on interests in non-consolidated affiliates

     189.3        (119.4     (8.3     0.5        (61.5     0.6   

Corporate expense

     7.5        21.4        5.6        12.1        (12.1     34.5   

Acquisition and integration costs

     —          0.1        0.8        6.3        —          7.2   

Amortization of intangible assets

     —          0.2        27.0        15.5        —          42.7   
                                                

Total operating expenses

     196.8        (77.6     1,220.7        728.3        (105.6     1,962.6   
                                                

(Loss)/income from operations

     (196.8     111.5        176.2        73.4        61.5        225.8   

Interest expense, net of interest capitalized

     (1.4     (435.5     (21.3     (92.6     59.3        (491.5

Losses on early extinguishments of debt

     —          —          —          (47.4     —          (47.4

Other income, including interest income

     —          23.2        12.9        37.8        (59.3     14.6   
                                                

(Loss)/income from continuing operations before income taxes

     (198.2     (300.8     167.8        (28.8     61.5        (298.5

Benefit/(provision) for income taxes

     2.6        142.5        (61.1     20.9        —          104.9   
   &nb