Caesars Entertainment Corporation
CAESARS ENTERTAINMENT Corp (Form: 10-K/A, Received: 03/17/2011 17:09:41)

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K/A

(Amendment No. 1)

 

 

(Mark One)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

OR

 

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

Commission File No. 1-10410

 

 

CAESARS ENTERTAINMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   62-1411755
(State of incorporation)   (I.R.S. Employer Identification No.)
One Caesars Palace Drive, Las Vegas, Nevada   89109
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code:

(702) 407-6000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

voting common stock, $0.01 par value

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes   ¨      No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

         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 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 Act).    Yes   ¨     No   x

As of March 4, 2011, the Registrant had 71,799,659 shares of voting Common Stock outstanding. There is not a market for the Registrant’s common stock; therefore, the aggregate market value of the Registrant’s common stock held by non-affiliates is not calculable.

 

 

 


Explanatory Note

This Amendment No. 1 to the Annual Report on Form 10-K/A (“Amendment No. 1”) is being filed to amend Caesars Entertainment Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2010, previously filed on March 4, 2011 (the “Original Filing”), in order to correct the Company’s disclosures in Part IV, Item 15, “Exhibits, Financial Statement Schedules” related to Exhibit 99.1, Supplemental Discussion of Caesars Entertainment Operating Company, Inc. (“CEOC”) Results. A substantial portion of the debt of the Company’s consolidated group is issued by CEOC. Therefore, the Company provides supplemental information pertaining solely to the results of operations of CEOC.

Within CEOC’s Condensed Combined Statement of Cash Flows for the year ended December 31, 2010, included in Exhibit 99.1 of the Original Filing, the Company erroneously presented a receipt by CEOC of approximately $220 million for a federal income tax refund as an operating cash inflow, with a corresponding transfer of cash to the Company as a financing cash outflow. The cash flow associated with the federal income tax refund came directly to the Company and should not have been included in either the operating or financing sections of the CEOC Condensed Combined Statement of Cash Flows. The Company is filing this Amendment No. 1 to correct those line items in CEOC’s Condensed Combined Statement of Cash Flows for the year ended December 31, 2010. This error had no impact on the net loss or financial position of either the Company or CEOC for the year ended December 31, 2010.

For the convenience of the reader, Exhibit 99.1 sets forth the originally filed Exhibit in its entirety. However, the only changes in this Amendment No. 1 to the original Exhibit 99.1 filed with the Original Filing are those revisions related to the description above.

This Amendment No. 1 includes only Exhibit 99.1 of the Original Filing and does not amend or update any other information contained in the Original Filing. This Amendment No. 1 should be read in conjunction with the Original Filing, which continues to speak as of the date of the Original Filing. Accordingly, this Amendment No. 1 does not reflect events occurring after the filing of the Original Filing.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are being filed or furnished as exhibits to this Amendment No. 1.

 

2


PART IV

 

ITEM 15. Exhibits, Financial Statement Schedules.

 

Exhibit

Number

  

Exhibit Description

*31.1    Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated March 17, 2011.
*31.2    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated March 17, 2011.
*32.1    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated March 17, 2011.
*32.2    Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated March 17, 2011.
*99.1    Supplemental Discussion of Pro Forma Caesars Entertainment Operating Company, Inc. Financial Results

 

* Filed herewith


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

March 17, 2011   CAESARS ENTERTAINMENT CORPORATION
  By:  

    /s/ Diane E. Wilfong

   

Diane E. Wilfong

Vice President, Controller and Chief Accounting Officer

Exhibit 31.1

I, Gary W. Loveman, certify that:

 

1. I have reviewed this annual report on Form 10-K/A of Caesars Entertainment Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2011

 

By:  

/s/ Gary W. Loveman

    Gary W. Loveman
    Chairman of the Board, Chief Executive
Officer and President

Exhibit 31.2

 

I, Jonathan S. Halkyard, certify that:

 

1. I have reviewed this annual report on Form 10-K/A of Caesars Entertainment Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2011

 

By:  

/s/ Jonathan S. Halkyard

  Jonathan S. Halkyard
 

Senior Vice President and

Chief Financial Officer

 

Exhibit 32.1

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Caesars Entertainment Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Annual Report on Form 10-K/A of the Company for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 17, 2011

 

/s/ Gary W. Loveman

Gary W. Loveman
Chairman of the Board, Chief Executive Officer and President

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Caesars Entertainment Corporation (the “Company”), hereby certifies, to such officer’s knowledge, that:

(i) the accompanying Annual Report on Form 10-K/A of the Company for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 17, 2011

 

/s/ Jonathan S. Halkyard

Jonathan S. Halkyard
Senior Vice President and Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 99.1

Supplemental Discussion of Caesars Entertainment Operating Company Results

On January 28, 2008, Caesars Entertainment Corporation (formerly known as Harrah’s Entertainment, Inc.)(“Caesars Entertainment”, or “CEC”) was acquired by affiliates of Apollo Global Management, LLC and TPG Capital, LP in an all cash transaction, hereinafter referred to as the “Acquisition.” A substantial portion of the financing of the Acquisition is comprised of bank and bond financing obtained by Caesars Entertainment Operating Company, Inc. (formerly known as Harrah’s Operating Company, Inc.)(for purposes of this Exhibit, “CEOC”, the “Company,” “we,” “our” or “us”, and including our subsidiaries when the context requires), a wholly-owned subsidiary of Caesars Entertainment. This financing is neither secured nor guaranteed by Caesars Entertainment’s other wholly-owned subsidiaries, including certain subsidiaries that own properties that are secured under $5,189.6 million face value of commercial mortgage-backed securities (“CMBS”) financing. Therefore, we believe it is meaningful to provide information pertaining solely to the consolidated financial position and results of operations of CEOC and its subsidiaries.

During 2008, in connection with the CMBS financing for the Acquisition, CEOC spun off to Caesars Entertainment the following casino properties and related operating assets: 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. We refer to this spin-off as the “CMBS Spin-Off.” Upon receipt of regulatory approvals that were requested prior to the closing of the Acquisition, in May 2008, Paris Las Vegas and Harrah’s Laughlin and their related operating assets were spun out of CEOC to Caesars Entertainment and Harrah’s Lake Tahoe, Harveys Lake Tahoe, Bill’s Lake Tahoe and Showboat Atlantic City and their related operating assets were transferred to CEOC from Caesars Entertainment. We refer to this spin-off and transfer as the “Post-Closing CMBS Transaction.”

We refer to the CMBS Spin-Off and the Post-Closing CMBS Transaction as the “CMBS Transactions.”

Additionally, in connection with the CMBS Transactions and the Acquisition, London Clubs and its subsidiaries, with the exception of the subsidiaries related to London Clubs South Africa operations, became subsidiaries of CEOC. The South African subsidiaries became subsidiaries of CEOC in second quarter 2008. We refer to these transfers collectively as “the London Clubs Transfer.”

In accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), we have separated our historical financial results for the period subsequent to the Acquisition (the “Successor” period) and the period prior to the Acquisition (the “Predecessor” period). However, we have also combined certain results for the Successor and Predecessor periods for 2008 in the presentations below because we believe that it enables a meaningful presentation and comparison of results. As a result of the application of purchase accounting as of the Acquisition date, financial information for the Successor periods and the Predecessor periods are presented on different bases and, therefore, are not comparable. We have reclassified certain amounts for prior periods to conform to our 2010 presentation.

OPERATING RESULTS FOR CEOC

Overall CEOC Results

The following tables represent CEOC’s unaudited Condensed Combined Balance Sheets as of December 31, 2010 and 2009 and its unaudited Condensed Combined Statements of Operations and unaudited Condensed Combined Statements of Cash Flows for the Successor years ended December 31, 2010 and 2009, the Successor period from January 28, 2008 through December 31, 2008, and the Predecessor period from January 1, 2008 through January 27, 2008.


Caesars Entertainment Operating Company, Inc.

Condensed Combined Balance Sheet

As of December 31, 2010

(Unaudited)

 

(In millions)

   CEOC (1)     CEC Parent and
Other Caesars
Entertainment
Subsidiaries  and
Accounts (2)
    Caesars
Entertainment (3)
 

ASSETS

      

Current assets

      

Cash and cash equivalents

   $ 619.1      $ 367.9      $ 987.0   

Receivables, net of allowance for doubtful accounts

     344.5        48.7        393.2   

Deferred income taxes

     159.1        16.7        175.8   

Prepayments and other

     129.0        55.1        184.1   

Inventories

     38.7        11.7        50.4   
                        

Total current assets

     1,290.4        500.1        1,790.5   
                        

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

     12,426.0        5,340.6        17,766.6   

Goodwill

     1,731.5        1,689.4        3,420.9   

Intangible assets other than goodwill

     4,153.7        558.1        4,711.8   

Investments in and advances to non-consolidated affiliates

     85.3        8.7        94.0   

Deferred charges and other

     605.3        198.6        803.9   
                        
   $ 20,292.2      $ 8,295.5      $ 28,587.7   
                        

LIABILITIES AND STOCKHOLDER’S EQUITY

      

Current liabilities

      

Accounts payable

   $ 218.9      $ 32.5      $ 251.4   

Interest payable (4)

     205.3        (3.8     201.5   

Accrued expenses

     765.7        308.6        1,074.3   

Current portion of long-term debt

     55.6        —          55.6   
                        

Total current liabilities

     1,245.5        337.3        1,582.8   

Long-term debt (5)

     14,405.2        4,380.3        18,785.5   

Intercompany note

     500.0        (500.0     —     

Deferred credits and other

     893.5        29.6        923.1   

Deferred income taxes

     3,828.1        1,795.6        5,623.7   
                        
     20,872.3        6,042.8        26,915.1   
                        

Total Caesars Entertainment Operating Company, Inc. Stockholder’s (deficit)/equity

     (618.7     2,251.5        1,632.8   

Non-controlling interests

     38.6        1.2        39.8   
                        

Total Stockholder’s (deficit)/equity

     (580.1     2,252.7        1,672.6   
                        
   $ 20,292.2      $ 8,295.5      $ 28,587.7   
                        

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the financial information of Caesars Entertainment.
(4) Interest payable for CEC Parent and Other Caesars Entertainment Subsidiaries and Accounts totals $8.0 million. The amount of $(3.8) million shown above includes the elimination of $11.8 million of interest payable for CEOC which is payable to a CEC subsidiary.

 

2


(5) Long-term debt for CEC Parent and Other Caesars Entertainment Subsidiaries and Accounts totals $5,182.3 million. The amount of $4,380.3 million shown above is presented net of $802.0 million of long-term debt outstanding for CEOC which is payable to a CEC subsidiary.

 

3


Caesars Entertainment Operating Company, Inc.

Condensed Combined Balance Sheet

As of December 31, 2009

(Unaudited)

 

(In millions)

   CEOC (1)      CEC Parent and
Other Caesars
Entertainment
Subsidiaries  and
Accounts (2)
    Caesars
Entertainment (3)
 

ASSETS

       

Current assets

       

Cash and cash equivalents

   $ 568.8       $ 349.3      $ 918.1   

Receivables, net of allowance for doubtful accounts

     286.6         36.9        323.5   

Deferred income taxes

     128.4         19.8        148.2   

Prepayments and other

     108.8         47.6        156.4   

Inventories

     39.0         13.7        52.7   
                         

Total current assets

     1,131.6         467.3        1,598.9   
                         

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

     12,430.1         5,494.7        17,924.8   

Assets held for sale

     16.7         —          16.7   

Goodwill

     1,767.5         1,689.4        3,456.9   

Intangible assets other than goodwill

     4,333.6         617.7        4,951.3   

Investments in and advances to non-consolidated affiliates

     73.3         20.7        94.0   

Deferred charges and other

     683.4         253.2        936.6   

Intercompany Receivables

     235.0         (235.0     —     
                         
   $ 20,671.2       $ 8,308.0      $ 28,979.2   
                         

LIABILITIES AND STOCKHOLDER’S EQUITY

       

Current liabilities

       

Accounts payable

   $ 229.7       $ 31.1      $ 260.8   

Interest payable (4)

     194.7         0.9        195.6   

Accrued expenses

     773.4         301.4        1,074.8   

Current portion of long-term debt

     74.3         —          74.3   
                         

Total current liabilities

     1,272.1         333.4        1,605.5   

Long-term debt (5)

     13,895.3         4,973.5        18,868.8   

Deferred credits and other

     850.7         21.8        872.5   

Deferred income taxes

     4,064.7         1,792.2        5,856.9   
                         
     20,082.8         7,120.9        27,203.7   
                         

Preferred stock

     —           2,642.5        2,642.5   
                         

Total Caesars Entertainment Operating Company, Inc. Stockholder’s equity/(deficit)

     538.5         (1,461.4     (922.9

Non-controlling interests

     49.9         6.0        55.9   
                         

Total Stockholder’s equity/(deficit)

     588.4         (1,455.4     (867.0
                         
   $ 20,671.2       $ 8,308.0      $ 28,979.2   
                         

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the financial information of Caesars Entertainment.
(4) Interest payable for CEC Parent and Other Caesars Entertainment Subsidiaries and Accounts totals $8.0 million. The amount of $0.9 million shown above includes the elimination of $7.1 million of interest payable for CEOC which is payable to a CEC subsidiary.

 

4


(5) Long-term debt for CEC Parent and Other Caesars Entertainment Subsidiaries and Accounts totals $5,551.5 million. The amount of $4,973.5 million shown above is presented net of approximately $578.0 million of long-term debt outstanding for CEOC which is payable to a CEC subsidiary.

 

5


Caesars Entertainment Operating Company, Inc. (Successor)

Condensed Combined Statement of Operations

For the Year Ended

December 31, 2010

(Unaudited)

 

(In millions)

   CEOC (1)     CEC Parent and
Other Caesars
Entertainment
Subsidiaries  and
Accounts (2)
    Caesars
Entertainment (3)
 

Revenues

      

Casino

   $ 5,646.1      $ 1,271.8      $ 6,917.9   

Food and beverage

     1,012.4        498.2        1,510.6   

Rooms

     704.8        427.5        1,132.3   

Management fees

     39.1        —          39.1   

Other

     438.9        137.4        576.3   

Less: casino promotional allowances

     (985.2     (372.4     (1,357.6
                        

Net revenues

     6,856.1        1,962.5        8,818.6   
                        

Operating expenses

      

Direct

      

Casino

     3,289.8        659.1        3,948.9   

Food and beverage

     385.5        235.8        621.3   

Rooms

     154.7        104.7        259.4   

Property, general, administrative and other

     1,499.0        562.7        2,061.7   

Depreciation and amortization

     573.2        162.3        735.5   

Project opening costs

     2.1        —          2.1   

Write-downs, reserves and recoveries

     121.7        25.9        147.6   

Impairment of intangible assets

     193.0        —          193.0   

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

     3.7        (2.2     1.5   

Corporate expense

     107.5        33.4        140.9   

Acquisition and integration costs

     12.8        0.8        13.6   

Amortization of intangible assets

     101.3        59.5        160.8   
                        

Total operating expenses

     6,444.3        1,842.0        8,286.3   
                        

Income from operations

     411.8        120.5        532.3   

Interest expense, net of interest capitalized

     (1,782.0     (199.6     (1,981.6

(Losses)/gains on early extinguishments of debt

     (4.7     120.3        115.6   

Other income, including interest income

     40.9        0.8        41.7   
                        

(Loss)/income from continuing operations before income taxes

     (1,334.0     42.0        (1,292.0

Benefit/(provision) for income taxes

     490.9        (22.2     468.7   
                        

Net (loss)/income

     (843.1     19.8        (823.3

Less: net (income)/loss attributable to non-controlling interests

     (8.0     0.2        (7.8
                        

Net (loss)/income attributable to Caesars Entertainment Operating Company, Inc.

   $ (851.1   $ 20.0      $ (831.1
                        

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the consolidated financial information of Caesars Entertainment.

 

6


Caesars Entertainment Operating Company, Inc. (Successor)

Condensed Combined Statement of Operations

For the Year Ended

December 31, 2009

(Unaudited)

 

(In millions)

   CEOC (1)     CEC Parent and
Other Caesars
Entertainment
Subsidiaries  and
Accounts (2)
    Caesars
Entertainment (3)
 

Revenues

      

Casino

   $ 5,757.6      $ 1,366.7      $ 7,124.3   

Food and beverage

     946.3        533.0        1,479.3   

Rooms

     636.7        432.2        1,068.9   

Management fees

     56.6        —          56.6   

Other

     443.2        149.2        592.4   

Less: casino promotional allowances

     (1,010.0     (404.1     (1,414.1
                        

Net revenues

     6,830.4        2,077.0        8,907.4   
                        

Operating expenses

      

Direct

      

Casino

     3,267.2        658.3        3,925.5   

Food and beverage

     345.0        251.0        596.0   

Rooms

     118.2        95.3        213.5   

Property, general, administrative and other

     1,466.6        552.2        2,018.8   

Depreciation and amortization

     523.5        160.4        683.9   

Project opening costs

     3.4        0.2        3.6   

Write-downs, reserves and recoveries

     71.4        36.5        107.9   

Impairment of intangible assets

     1,178.9        459.1        1,638.0   

(Income)/loss on interests in non-consolidated affiliates

     (0.4     2.6        2.2   

Corporate expense

     110.7        40.0        150.7   

Acquisition and integration costs

     0.3        —          0.3   

Amortization of intangible assets

     115.2        59.6        174.8   
                        

Total operating expenses

     7,200.0        2,315.2        9,515.2   
                        

Loss from operations

     (369.6     (238.2     (607.8

Interest expense, net of interest capitalized

     (1,678.5     (214.0     (1,892.5

Gains on early extinguishments of debt, net

     3,929.6        1,035.9        4,965.5   

Other income, including interest income

     32.0        1.0        33.0   
                        

Income from continuing operations before income taxes

     1,913.5        584.7        2,498.2   

Provision for income taxes

     (1,287.2     (364.6     (1,651.8
                        

Net income

     626.3        220.1        846.4   

Less: net income attributable to non-controlling interests

     (13.5     (5.3     (18.8
                        

Net income attributable to Caesars Entertainment Operating Company, Inc.

   $ 612.8      $ 214.8      $ 827.6   
                        

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the consolidated financial information of Caesars Entertainment.

 

7


Caesars Entertainment Operating Company, Inc. (Successor)

Condensed Combined Statement of Operations

For the Period From January 28, 2008

Through December 31, 2008

(Unaudited)

 

(In millions)

   CEOC (1)     CEC Parent and
Other Caesars
Entertainment
Subsidiaries  and
Accounts (2)
    Caesars
Entertainment (3)
 

Revenues

      

Casino

   $ 5,962.6      $ 1,514.3      $ 7,476.9   

Food and beverage

     971.6        558.6        1,530.2   

Rooms

     684.2        490.3        1,174.5   

Management fees

     59.1        —          59.1   

Other

     520.9        103.9        624.8   

Less: casino promotional allowances

     (1,080.7     (417.9     (1,498.6
                        

Net revenues

     7,117.7        2,249.2        9,366.9   
                        

Operating expenses

      

Direct

      

Casino

     3,376.3        726.5        4,102.8   

Food and beverage

     371.4        268.1        639.5   

Rooms

     128.7        108.0        236.7   

Property, general, administrative and other

     1,650.9        492.1        2,143.0   

Depreciation and amortization

     473.6        153.3        626.9   

Project opening costs

     27.6        1.3        28.9   

Write-downs, reserves and recoveries

     (60.1     76.3        16.2   

Impairment of intangible assets

     3,745.2        1,744.4        5,489.6   

Loss on interests in non-consolidated affiliates

     2.0        0.1        2.1   

Corporate expense

     106.3        25.5        131.8   

Acquisition and integration costs

     24.0        —          24.0   

Amortization of intangible assets

     108.2        54.7        162.9   
                        

Total operating expenses

     9,954.1        3,650.3        13,604.4   
                        

Loss from operations

     (2,836.4     (1,401.1     (4,237.5

Interest expense, net of interest capitalized

     (1,704.3     (370.6     (2,074.9

Gains on early extinguishments of debt, net

     742.1        —          742.1   

Other income, including interest income

     29.6        5.6        35.2   
                        

Loss from continuing operations before income taxes

     (3,769.0     (1,766.1     (5,535.1

Benefit/(provision) for income taxes

     378.5        (18.1     360.4   
                        

Loss from continuing operations, net of tax

     (3,390.5     (1,784.2     (5,174.7

Discontinued operations, net of tax

     90.4        —          90.4   
                        

Net loss

     (3,300.1     (1,784.2     (5,084.3

Less: net income attributable to non-controlling interests

     (6.4     (5.6     (12.0
                        

Net loss attributable to Caesars Entertainment Operating Company, Inc.

   $ (3,306.5   $ (1,789.8   $ (5,096.3
                        

 

(1) Represents the financial information of CEOC.

 

8


(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the consolidated financial information of Caesars Entertainment.

 

9


Caesars Entertainment Operating Company, Inc. (Predecessor)

Condensed Pro Forma Combined Statement of Operations

For the Period From January 1, 2008

Through January 27, 2008

(Unaudited)

 

(In millions)

   Pro-forma
CEOC
    London Clubs
Transfer   (1)
    CMBS
Transactions   (2)
    Historical
CEOC (3)
    CEC Parent and
Other Caesars

Entertainment
Subsidiaries
and
Accounts (4)
    Caesars
Entertainment (5)
 

Revenues

        

Casino

   $ 498.2      $ (29.5   $ 116.4      $ 585.1      $ 29.5      $ 614.6   

Food and beverage

     77.3        (4.7     41.1        113.7        4.7        118.4   

Rooms

     56.0        (0.4     40.4        96.0        0.4        96.4   

Management fees

     5.0        (0.1     —          4.9        0.1        5.0   

Other

     28.0        (1.1     14.4        41.3        1.4        42.7   

Less: casino promotional allowances

     (87.0     1.8        (30.0     (115.2     (1.8     (117.0
                                                

Net revenues

     577.5        (34.0     182.3        725.8        34.3        760.1   
                                                

Operating expenses

        

Direct

        

Casino

     285.2        (24.5     55.4        316.1        24.5        340.6   

Food and beverage

     30.3        (1.8     20.2        48.7        1.8        50.5   

Rooms

     10.7        (0.2     8.9        19.4        0.2        19.6   

Property, general, administrative and other

     141.7        (7.5     42.0        176.2        2.0        178.2   

Depreciation and amortization

     47.5        (1.6     16.0        61.9        1.6        63.5   

Project opening costs

     0.7        (0.7     —          —          0.7        0.7   

Write-downs, reserves and recoveries

     0.2        —          4.5        4.7        —          4.7   

Income on interests in non-consolidated affiliates

     (0.5     —          —          (0.5     —          (0.5

Corporate expense

     (26.2     —          34.7        8.5        —          8.5   

Acquisition and integration costs

     125.6        —          —          125.6        —          125.6   

Amortization of intangible assets

     5.5        (0.2     —          5.3        0.2        5.5   
                                                

Total operating expenses

     620.7        (36.5     181.7        765.9        31.0        796.9   
                                                

(Loss)/income from operations

     (43.2     2.5        0.6        (40.1     3.3        (36.8

Interest expense, net of interest capitalized

     (89.7     —          —          (89.7     —          (89.7

Other income/(expense), including interest income

     5.1        (3.3     (4.0     (2.2     3.3        1.1   
                                                

(Loss)/income before income taxes

     (127.8     (0.8     (3.4     (132.0     6.6        (125.4

Benefit/(provision) for income taxes

     21.6        (0.9     1.2        21.9        4.1        26.0   
                                                

(Loss)/income from continuing operations, net of tax

     (106.2     (1.7     (2.2     (110.1     10.7        (99.4

Discontinued operations, net of tax

     0.1        —          —          0.1        —          0.1   
                                                

Net (loss)/income

     (106.1     (1.7     (2.2     (110.0     10.7        (99.3

Less: net (income)/loss attributable to non-controlling interests

     (1.4     0.9        (0.2     (0.7     (0.9     (1.6
                                                

Net (loss)/income attributable to Caesars Entertainment Operating Company, Inc.

   $ (107.5   $ (0.8   $ (2.4   $ (110.7   $ 9.8      $ (100.9
                                                

 

10


(1) Reflects the inclusion of the London clubs operating results pursuant to the London Clubs Transfer, in which London Clubs and its subsidiaries became subsidiaries of CEOC.
(2) Reflects the removal of the operating results of the CMBS properties, pursuant to the CMBS Transactions in which certain properties and operations of CEOC were spun-off into a separate borrowing structure and held side-by-side with CEOC under Caesars Entertainment. The operating expenses of CEOC include unallocated costs attributable to service that have been performed by CEOC on behalf of the CMBS properties. These costs are primarily related to corporate functions such as accounting, tax, treasury, payroll and benefits administration, risk management, legal, and information management and technology. The CMBS Transactions reflect the push-down of corporate expenses of $34.7 million that was unallocated at January 27, 2008. Following the Acquisition, many of these services continue to be provided by CEOC pursuant to a shared service agreement with the CMBS properties.
(3) Represents the historical financial information of CEOC.
(4) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(5) Represents the consolidated financial information of Caesars Entertainment.

 

11


Caesars Entertainment Operating Company, Inc. (Successor)

Condensed Combined Statement of Cash Flows

For the Year Ended December 31, 2010

(Unaudited)

 

(In millions)

   CEOC (1)
(Revised)
    CEC Parent and
Other Caesars
Entertainment
Subsidiaries
and
Accounts (2)
(Revised)
    Caesars
Entertainment (3)
 

Cash flows (used in)/provided by operating activities (4)

   $ (207.9   $ 378.7      $ 170.8   
                        

Cash flows (used in)/provided by investing activities

      

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

     (135.4     (25.3     (160.7

Investments in subsidiaries

     (44.6     —          (44.6

Payment made for partnership interest

     (19.5     —          (19.5

Payment made for Pennsylvania gaming rights

     (16.5     —          (16.5

Cash acquired in business acquisitions, net of transaction costs

     14.0        —          14.0   

Investments in and advances to non-consolidated affiliates

     (64.0     —          (64.0

Proceeds from other asset sales

     21.8        —          21.8   

Other

     (13.2     (5.2     (18.4
                        

Cash flows used in investing activities

     (257.4     (30.5     (287.9
                        

Cash flows provided by/(used in) financing activities

      

Proceeds from the issuance of long-term debt

     780.8        551.4        1,332.2   

Debt issuance costs and fees

     (18.2     (46.4     (64.6

Borrowings under lending agreements

     1,175.0        —          1,175.0   

Repayments under lending agreements

     (1,625.8     —          (1,625.8

Cash paid in connection with early extinguishment of debt

     (219.9     (149.2     (369.1

Scheduled debt retirements

     (237.0     —          (237.0

Non-controlling interests’ distributions, net of contributions

     (10.1     —          (10.1

Repurchase of treasury shares

     —          (1.6     (1.6

Other

     (11.6     —          (11.6

Transfers from/(to) affiliates (4)

     682.4        (682.4     —     
                        

Cash flows provided by/(used in) financing activities (4)

     515.6        (328.2     187.4   
                        

Effect of deconsolidation of variable interest entities

     —          (1.4     (1.4
                        

Net increase in cash and cash equivalents

     50.3        18.6        68.9   

Cash and cash equivalents, beginning of period

     568.8        349.3        918.1   
                        

Cash and cash equivalents, end of period

   $ 619.1      $ 367.9      $ 987.0   
                        

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the consolidated financial information of Caesars Entertainment.
(4) These amounts have been revised in accordance with the explanatory note to this Form 10-K/A.

 

12


Caesars Entertainment Operating Company, Inc. (Successor)

Condensed Combined Statement of Cash Flows

For the Year Ended December 31, 2009

(Unaudited)

 

(In millions)

   CEOC (1)     CEC Parent and
Other Caesars
Entertainment
Subsidiaries
and
Accounts (2)  
    Caesars
Entertainment (3)
 

Cash flows (used in)/provided by operating activities

   $ (98.3   $ 318.5      $ 220.2   
                        

Cash flows (used in)/provided by investing activities

      

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

     (437.8     (26.7     (464.5

Investments in and advances to non-consolidated affiliates

     (66.9     —          (66.9

Proceeds from other asset sales

     20.0        —          20.0   

Other

     (11.9     —          (11.9
                        

Cash flows used in investing activities

     (496.6     (26.7     (523.3
                        

Cash flows provided by/(used in) financing activities

      

Proceeds from the issuance of long-term debt

     2,259.6        —          2,259.6   

Debt issuance costs

     (76.4     —          (76.4

Borrowings under lending agreements

     3,076.6        —          3,076.6   

Repayments under lending agreements

     (3,535.1     —          (3,535.1

Cash paid in connection with early extinguishment of debt

     (544.9     (458.6     (1,003.5

Scheduled debt retirements

     (45.5     —          (45.5

Purchase of additional interest in subsidiary

     (83.7     —          (83.7

Non-controlling interests’ distributions, net of contributions

     (15.3     (1.9     (17.2

Repurchase of treasury shares

     —          (3.0     (3.0

Other

     (1.1     —          (1.1

Transfers (to)/from affiliates

     (317.9     317.9        —     
                        

Cash flows provided by/(used in) financing activities

     716.3        (145.6     570.7   
                        

Net increase in cash and cash equivalents

     121.4        146.2        267.6   

Cash and cash equivalents, beginning of period

     447.4        203.1        650.5   
                        

Cash and cash equivalents, end of period

   $ 568.8      $ 349.3      $ 918.1   
                        

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the consolidated financial information of Caesars Entertainment.

 

13


Caesars Entertainment Operating Company, Inc. (Successor)

Condensed Combined Statement of Cash Flows

For the Period from January 28, 2008

Through December 31, 2008

(Unaudited)

 

(In millions)

   CEOC (1)     CEC Parent and
Other Caesars
Entertainment
Subsidiaries
and
Accounts (2)  
    Caesars
Entertainment (3)
 

Cash flows provided by operating activities

   $ 367.4      $ 154.7      $ 522.1   
                        

Cash flows (used in)/provided by investing activities

      

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

     (1,031.4     (150.0     (1,181.4

Insurance proceeds for hurricane losses from asset recovery

     181.4        —          181.4   

Payment for Acquisition

     —          (17,490.2     (17,490.2

Investments in and advances to non-consolidated affiliates

     (5.9     —          (5.9

Proceeds from other asset sales

     4.9        0.2        5.1   

Other

     (17.4     (5.8     (23.2
                        

Cash flows used in investing activities

     (868.4     (17,645.8     (18,514.2
                        

Cash flows provided by/(used in) financing activities

      

Proceeds from the issuance of long-term debt

     15,024.9        6,500.0        21,524.9   

Debt issuance costs

     (474.4     (170.1     (644.5

Borrowings under lending agreements

     433.0        —          433.0   

Repayments under lending agreements

     (6,760.7     0.2        (6,760.5

Cash paid in connection with early extinguishment of debt

     (2,167.4     —          (2,167.4

Scheduled debt retirements

     (6.5     —          (6.5

Payment to bondholders for debt exchange

     (289.0     —          (289.0

Equity contribution from buyout

     —          6,007.0        6,007.0   

Non-controlling interests’ distributions, net of contributions

     (8.8     (5.8     (14.6

Proceeds from the exercises of stock options

     2.4        (2.4     —     

Excess tax provision from stock equity plans

     —          (50.5     (50.5

Repurchase of treasury shares

     —          (3.6     (3.6

Other

     (1.1     (0.2     (1.3

Transfers from/(to) affiliates

     (5,242.3     5,242.3        —     
                        

Cash flows provided by financing activities

     510.1        17,516.9        18,027.0   
                        

Cash flows provided by discontinued operations

      

Cash flows from operating activities

     4.7        —          4.7   
                        

Cash flows provided by discontinued operations

     4.7        —          4.7   
                        

Net increase in cash and cash equivalents

     13.8        25.8        39.6   

Cash and cash equivalents, beginning of period

     433.6        177.3        610.9   
                        

Cash and cash equivalents, end of period

   $ 447.4      $ 203.1      $ 650.5   
                        

 

(1) Represents the financial information of CEOC.
(2) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(3) Represents the consolidated financial information of Caesars Entertainment.

 

14


Caesars Entertainment Operating Company, Inc. (Predecessor)

Condensed Pro Forma Combined Statement of Cash Flows

For the Period from January 1, 2008

Through January 27, 2008

(Unaudited)

 

(In millions)

  CEOC
Restructured
    London
Clubs
Transfer (1)
    CMBS
Transactions (2)
    Historical
CEOC (3)
    CEC Parent and
Other Caesars
Entertainment
Subsidiaries
and
Accounts (4)
    Caesars
Entertainment (5)
 

Cash flows (used in)/provided by operating activities

  $ (49.8   $ (14.0   $ 1.7      $ (62.1   $ 69.3      $ 7.2   
                                               

Cash flows (used in)/provided by investing activities

           

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

    (80.9     11.1        (37.5     (107.3     (18.3     (125.6

Payments for businesses acquired, net of cash acquired

    0.1        (0.1     —          —          0.1        0.1   

Proceeds from other asset sales

    0.1        —          3.0        3.1        —          3.1   

Other

    (1.2     —          (0.5     (1.7     —          (1.7
                                               

Cash flow (used in)/provided by investing activities

    (81.9     11.0        (35.0     (105.9     (18.2     (124.1
                                               

Cash flows provided by/(used in) financing activities

           

Borrowing under lending agreements

    11,316.3        —          —          11,316.3        —          11,316.3   

Repayments under lending agreements

    (11,288.6     —          —          (11,288.6     (0.2     (11,288.8

Cash paid in connection with early extinguishments of debt

    (87.7     —          —          (87.7     —          (87.7

Non-controlling interests’ distributions, net of contributions

    (1.6     —          —          (1.6     —          (1.6

Proceeds from exercises of stock options

    —          —          —          —          2.4        2.4   

Excess tax benefit from stock equity plans

    —          —          —          —          77.5        77.5   

Other

    (0.8     —          —          (0.8     —          (0.8

Transfers (to)/from affiliates

    133.3        (10.9     (10.2     112.2        (112.2     —     
                                               

Cash flows provided by/(used in) financing activities

    70.9        (10.9     (10.2     49.8        (32.5     17.3   
                                               

Cash flows provided by discontinued operations

           

Cash flows from operating activities

    0.5        —          —          0.5        —          0.5   
                                               

Cash flows provided by discontinued operations

    0.5        —          —          0.5        —          0.5   
                                               

Net (decrease)/increase in cash and cash equivalents

    (60.3     (13.9     (43.5     (117.7     18.6        (99.1

Cash and cash equivalents, beginning of period

    493.9        (53.8     132.7        572.8        137.2        710.0   
                                               

Cash and cash equivalents, end of period

  $ 433.6      $ (67.7   $ 89.2      $ 455.1      $ 155.8      $ 610.9   
                                               

 

(1) Reflects the inclusion of the London clubs operating results pursuant to the London Clubs Transfer, in which London Clubs and its subsidiaries became subsidiaries of CEOC.

 

15


(2) Reflects the removal of the operating results of the CMBS properties, pursuant to the CMBS Transactions in which certain properties and operations of CEOC were spun-off into a separate borrowing structure and held side-by-side with CEOC under Caesars Entertainment. The operating expenses of CEOC include unallocated costs attributable to service that have been performed by CEOC on behalf of the CMBS properties. These costs are primarily related to corporate functions such as accounting, tax, treasury, payroll and benefits administration, risk management, legal, and information management and technology. The CMBS Transactions reflect the push-down of corporate expenses of $34.7 million that was unallocated at January 27, 2008. Following the Acquisition, many of these services continue to be provided by CEOC pursuant to a shared service agreement with the CMBS properties.
(3) Represents the historical financial information of CEOC.
(4) Represents the combination of the parent company of Caesars Entertainment and the financial information of subsidiaries of Caesars Entertainment that are not a component of CEOC, primarily, captive insurance companies and the CMBS properties, and any consolidation eliminations.
(5) Represents the consolidated financial information of Caesars Entertainment.

 

16


REGIONAL AGGREGATION

The executive officers of our Company review operating results, assess performance and make decisions related to the allocation of resources on a property-by-property basis. We believe, therefore, that each property is an operating segment and that it is appropriate to aggregate and present the operations of our Company as one reportable segment. In order to provide more meaningful information than would be possible on a consolidated basis, our casino properties as of December 31, 2010, have been grouped as follows to facilitate discussion of our operating results:

 

Las Vegas

 

Atlantic City

 

Louisiana/Mississippi

 

Iowa/Missouri

Caesars Palace

 

Showboat Atlantic City

 

Harrah’s New Orleans

 

Harrah’s St. Louis

Bally’s Las Vegas

 

Bally’s Atlantic City

 

Harrah’s Louisiana Downs

 

Harrah’s North Kansas City

Imperial Palace

 

Caesars Atlantic City

 

Horseshoe Bossier City

 

Harrah’s Council Bluffs

Bill’s Gamblin’ Hall &
Saloon

 

Harrah’s Chester (2)

 

Grand Biloxi

 

Horseshoe Council Bluffs/
Bluffs Run

   

Harrah’s Tunica

 

Planet Hollywood Resort & Casino (1)

   

Horseshoe Tunica

 
   

Tunica Roadhouse Hotel & Casino

 
     

 

Illinois/Indiana

 

Other Nevada

 

Managed and International

   

Horseshoe Southern Indiana

 

Harrah’s Reno

 

Harrah’s Ak-Chin (3)

 

Harrah’s Joliet (2)

 

Harrah’s Lake Tahoe

 

Harrah’s Cherokee (3)

 

Harrah’s Metropolis

 

Harvey’s Lake Tahoe

 

Harrah’s Rincon (3)

 

Horseshoe Hammond

   

Conrad Punta del Este (2)

 
   

Casino Windsor (4)

 
   

London Clubs International (5)

 

 

(1)

Acquired February 19, 2010.

(2)

We have approximately 95 percent ownership interest in this property.

(3)

Managed.

(4)

We have a 50 percent interest in Windsor Casino Limited, which operates this property. The province of Ontario owns the complex.

(5)

We operate/manage ten casino clubs in the provinces of the United Kingdom and two in Egypt. We have a 70 percent ownership interest in and manage one casino club in South Africa.

COMBINED OPERATING RESULTS

In accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), we have separated our historical financial results for the period subsequent to the Acquisition (the “Successor” period) and the period prior to the Acquisition (the “Predecessor” period). However, we have also combined results for the Successor and Predecessor periods for 2008 in the presentations below because we believe that it enables a meaningful presentation and comparison of results. As a result of the application of purchase accounting as of the Acquisition date, financial information for the Successor periods and the Predecessor period are presented on different bases and, therefore, are not comparable. We have reclassified certain amounts for prior periods to conform to our 2010 presentation.

Because the financial results for 2010, 2009 and 2008 include significant impairment charges for goodwill and other non-amortizing intangible assets, the following tables also present separately income/(loss) from operations before such impairment charges and the impairment charges to provide more meaningful comparisons of results. This presentation is not in accordance with U.S. GAAP.

 

17


     Successor     Predecessor                    
     2010     2009     Jan. 28,  2008
through
Dec. 31, 2008
    Jan. 1,  2008
through
Jan. 27, 2008
    Combined
2008
    Percentage  
               Increase/(Decrease)  

(In millions)

             10 vs. 09     09 vs. 08  

Casino revenues

   $ 5,646.1      $ 5,757.6      $ 5,962.6      $ 498.2      $ 6,460.8        (1.9 )%      (10.9 )% 

Net revenues

     6,856.1        6,830.4        7,117.7        577.5        7,695.2        0.4     (11.2 )% 

Income/(loss) from operations

     411.8        (369.6     (2,836.4     (43.2     (2,879.6     N/M        87.2

Impairment of intangible assets, including goodwill

     193.0        1,178.9        3,745.2        —          3,745.2        N/M        N/M   

Income/(loss) from operations before impairment charges

     604.8        809.3        908.8        (43.2     865.6        (25.3 )%      (6.5 )% 

Net (loss)/income

     (843.1     626.3        (3,390.5     (106.2     (3,496.7     N/M        N/M   

Net (loss)/income attributable to CEOC

     (851.1     612.8        (3,306.5     (107.5     (3,414.0     N/M        N/M   

Operating margin

     6.0     (5.4 )%      (39.8 )%      (7.5 )%      (37.4 )%      11. 4 pts      32.0  pts 

Operating margin before impairment charges

     8.8     11.8     12.8     (7.5 )%      11.2     (3.0 )pts      0.6  pts 

 

N/M = Not Meaningful

The Company’s 2010 net revenues increased approximately 0.4 percent to $6,856.1 million from $6,830.4 million in 2009, due primarily to revenues associated with our February 2010 acquisition of Planet Hollywood, which were largely offset by the continuing impact of the weak economic environment on customers’ discretionary spending.

Income from operations for the year ended December 31, 2010 was $411.8 million, compared with a loss from operations of $369.6 million for the same period in 2009. Included in income/(loss) from operations for 2010 and 2009 were impairment charges for goodwill and other non-amortizing intangible assets totaling $193.0 million and $1,178.9 million, respectively. Prior to consideration of these impairment charges, income from operations for the year ended December 31, 2010 decreased to $604.8 million from $809.3 million in the prior year. The decline was driven by the income impact of reduced revenues and the previously disclosed contingent liability reserve and asset reserve charges recorded during the second quarter 2010, which were partially offset by a tangible asset impairment charge in 2009 that did not recur in 2010 and the benefit of a $23.5 million property tax accrual adjustment recorded in the fourth quarter 2010.

Net loss for the year ended December 31, 2010 was $843.1 million compared with net income $626.3 million for the year-ago period. Net loss for the year ended December 31, 2010 included i) the aforementioned impairment charges for intangible assets and ii) losses related to the early extinguishment of debt of $4.7 million. Net income for the year ended December 31, 2009 included i) the aforementioned impairment charges for intangible assets and ii) gains related to the early extinguishment of debt of $3,929.6 million. Gains on early extinguishments of debt in the year ended December 31, 2009 represented discounts related to the exchange of certain outstanding debt for new debt in the second quarter and purchases of certain of our debt in the open market during 2009. The gains were partially offset by the write-off of market value premiums and unamortized debt issue costs. These events are discussed more fully in the “Liquidity and Capital Resources” section that follows herein.

Revenues for the year ended December 31, 2009 declined as compared to 2008 as a result of reduced customer visitation and spend per trip due to the impact of the recession on customers’ discretionary spending, as well as reduced aggregate demand, which impacted average daily room rates. The earnings impact of the declines in revenue in 2009 as compared to 2008 was partially offset by company-wide cost savings initiatives that began in the third quarter of 2008. The year ended December 31, 2008 included charges of $3,745.2 million related to impairment of goodwill and other non-amortizing intangible assets, and expenses incurred in connection with the Acquisition, primarily related to accelerated vesting of employee stock options, stock appreciation rights (“SARs”) and restricted stock, and higher interest expense. Offsetting a portion of these costs in 2008 were net gains on the early extinguishments of debt and proceeds received from the settlement of insurance claims related to hurricane damage in 2005.

REGIONAL OPERATING RESULTS

Las Vegas Results

 

18


     Successor     Predecessor                    
     2010     2009     Jan. 28,  2008
through
Dec. 31, 2008
    Jan. 1,  2008
through
Jan. 27, 2008
    Combined
2008
    Percentage
Increase/(Decrease)
 
              

(In millions)

             10 vs. 09     09 vs. 08  

Casino revenues

   $ 793.7      $ 675.3      $ 677.5      $ 67.7      $ 745.2        17.5     (9.4 )% 

Net revenues

     1,441.1        1,215.1        1,318.9        118.5        1,437.4        18.6     (15.5 )% 

Income/(loss) from operations

     162.5        (481.1     (869.3     29.7        (839.6     N/M        42.7

Impairment of intangible assets, including goodwill

     —          671.8        1,121.4        —          1,121.4        N/M        N/M   

Income from operations before impairment charges

     162.5        190.7        252.1        29.7        281.8        (14.8 )%      (32.3 )% 

Operating margin

     11.3     (39.6 )%      (65.9 )%      25.1     (58.4 )%      50.9  pts      18.8  pts 

Operating margin before impairment charges

     11.3     15.7     19.1     25.1     19.6     (4.4 )pts      (3.9 )pts 

On February 19, 2010, CEOC 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. Net revenues and income from continuing operations before income taxes (excluding transaction costs associated with the acquisition) of Planet Hollywood subsequent to the date of acquisition through December 31, 2010 are included in consolidated results from operations.

Hotel occupancy remained above 90 percent, and revenues for the year ended December 31, 2010 increased 18.6% in the Las Vegas Region from 2009 due to our February 2010 acquisition of Planet Hollywood. On a same-store basis, revenues declined 0.4 percent for the year ended December 31, 2010, resulting primarily from decreased spend per customer. Increased labor and depreciation expenses in the region combined with the income impact of reduced same-store revenues resulted in reduced income from operations for 2010, before consideration of impairment charges. Income from operations for the year ended December 31, 2010 includes incremental depreciation associated with the Caesars Palace expansions placed into service late in 2009, increased levels of remediation costs during 2010 at two properties within the region, and the write-off of assets associated with certain capital projects. Loss from operations for the year ended December 31, 2009 includes charges of $671.8 million related to impairment of intangible assets in the region.

An expansion and renovation of Caesars Palace Las Vegas was completed in stages during 2009 on the Octavius Tower, a new hotel tower with 110,000 square feet of additional meeting and convention space, three 10,000-square-foot luxury villa suites and an expanded pool and garden area. We have deferred completion of approximately 660 rooms, including 75 luxury suites, in the hotel tower expansion as a result of current economic conditions impacting the Las Vegas tourism sector. The convention center and the remainder of the expansion project, other than the deferred rooms, was completed during 2009. The Company has incurred capital expenditures of approximately $640.3 million on this project through December 31, 2010. The Company does not expect to incur significant additional capital expenditures on this project until construction on the deferred rooms is resumed, at which time the Company estimates that between approximately $90.0 million and $110.0 million will be required to complete the project. We anticipate initiating activity on this project during 2011.

For the year ended December 31, 2009, revenues and income from operations before impairment charges were lower than in 2008, driven by lower spend per customer and declines in the group-travel business due to the recession. While hotel occupancy was strong at approximately 90%, average room rates declined due to the impact of reduced aggregate demand. Loss from operations for 2008 included charges of $1,121.4 million recorded for the impairment of goodwill and other non-amortizing intangible assets.

 

19


Atlantic City Results

 

     Successor     Predecessor                    
                 Jan. 28, 2008     Jan. 1, 2008           Percentage  
                 through     through     Combined     Increase/(Decrease)  
(In millions)    2010     2009     Dec. 31, 2008     Jan. 27, 2008     2008     10 vs. 09     09 vs. 08  

Casino revenues

   $ 1,295.2      $ 1,446.6      $ 1,630.5      $ 128.7      $ 1,759.2        (10.5 )%      (17.8 )% 

Net revenues

     1,417.6        1,528.1        1,650.8        125.8        1,776.6        (7.2 )%      (14.0 )% 

Income/(loss) from operations

     33.5        (37.2     (308.7     8.0        (300.7     N/M        87.6

Impairment of intangible assets, including goodwill

     —          178.7        514.5        —          514.5        N/M        N/M   

Income from operations before impairment charges

     33.5        141.5        205.8        8.0        213.8        (76.3 )%      (33.8 )% 

Operating margin

     2.4     (2.4 )%      (18.7 )%      6.4     (16.9 )%      4.8  pts      14.5  pts 

Operating margin before impairment charges

     2.4     9.3     12.5     6.4     12.0     (6.9 )pts      (2.7 )pts 

The Atlantic City market continues to be affected by the current economic environment as well as competition from new casinos outside of Atlantic City and the mid-2010 introduction of table games in the Pennsylvania market.

Reduced customer spend per trip and increased competition from other markets led to lower Atlantic City Region revenues during the year ended December 31, 2010. Income from operations for the year ended December 31, 2009 included a charge of $178.7 million related to impairment of goodwill and other non-amortizing intangible assets at certain of the region’s properties. Income from operations for the year ended December 31, 2010 was lower than the prior year, prior to consideration of the impairment charge, as cost-saving initiatives were unable to offset the income impact of reduced revenues and increased marketing and labor-related expenses. Income from operations for the year ended December 31, 2010 also included the write-off of assets associated with certain capital projects.

Revenues for 2009 were lower than in 2008 due to reduced visitor volume and spend per trip, as well as competition from slot parlors in Pennsylvania. Income from operations before impairment charges for 2009 was also lower than in 2008 as cost savings initiatives were insufficient to offset the earnings impact of the reduced revenues and increased marketing expenses. These adverse factors were partially offset by the full-year impact of the 2008 expansion of the Harrah’s Atlantic City property.

Louisiana/Mississippi Results

 

     Successor     Predecessor                    
                 Jan. 28, 2008     Jan. 1, 2008           Percentage  
                 through     through     Combined     Increase/(Decrease)  

(In millions)

   2010     2009     Dec. 31, 2008     Jan. 27, 2008     2008     10 vs. 09     09 vs. 08  

Casino revenues

   $ 1,096.4      $ 1,140.8      $ 1,252.7      $ 99.0      $ 1,351.7        (3.9 )%      (15.6 )% 

Net revenues

     1,193.4        1,245.2        1,340.8        106.1        1,446.9        (4.2 )%      (13.9 )% 

Income from operations

     69.9        181.4        28.3        10.1        38.4        (61.5 )%      N/M   

Impairment of intangible assets, including goodwill

     51.0        6.0        328.9        —          328.9        N/M        N/M   

Income from operations before impairment charges

     120.9        187.4        357.2        10.1        367.3        (35.5 )%      (49.0 )% 

Operating margin

     5.9     14.6     2.1     9.5     2.7     (8.7 )pts      11.9  pts 

Operating margin before impairment charges

     10.1     15.0     26.6     9.5     25.4     (4.9 )pts      (10.4 )pts 

 

20


Reduced visitation and customer spend per trip unfavorably impacted the Louisiana/ Mississippi Region revenues during the year ended December 31, 2010. Income from operations for the year ended December 31, 2010 included a charge of $51.0 million related to impairment of goodwill and other non-amortizing intangible assets at one of the region’s properties. Income from operations for the year ended December 31, 2009 included a charge of $6.0 million related to impairment of intangible assets at one of the region’s properties. Income from operations for the year ended December 31, 2010 was lower than in 2009, prior to consideration of impairment charges, as cost-saving initiatives were unable to offset the income impact of reduced revenues and increased marketing expenses.

Revenues for 2009 in the region were lower compared to 2008 driven by lower visitor volume due to the current economic environment. Included in income from operations for 2008 were $328.9 million of impairment charges for goodwill and other non-amortizing assets of certain properties within the region. Prior to the consideration of impairment charges and the insurance proceeds received in 2008 of $185.4 million from the final settlement of claims related to 2005 hurricane damage at certain properties, income from operations before impairment charges for 2009 improved slightly when compared to 2008 primarily as a result of cost savings initiatives within the region. During December 2009, we rebranded Sheraton Tunica to Tunica Roadhouse. For the rebranding, the property was closed for a minimal amount of time, during a traditionally quiet period, resulting in limited disruptions to operations.

Construction began in third quarter 2007 on a casino and resort in Biloxi. We have halted construction on this project, and continue to evaluate our development options. As of December 31, 2010, approximately $180.0 million had been spent on this project.

Iowa/Missouri Results

 

     Successor     Predecessor                    
                 Jan. 28, 2008     Jan. 1, 2008           Percentage  
                 through     through     Combined     Increase/(Decrease)  
(In millions)    2010     2009     Dec. 31, 2008     Jan. 27, 2008     2008     10 vs. 09     09 vs. 08  

Casino revenues

   $ 688.4      $ 707.3      $ 678.7      $ 52.5      $ 731.2        (2.7 )%      (3.3 )% 

Net revenues

     735.4        756.6        727.0        55.8        782.8        (2.8 )%      (3.3 )% 

Income from operations

     171.0        187.5        108.2        7.7        115.9        (8.8 )%      61.8

Impairment of intangible assets, including goodwill

     9.0        —          49.0        —          49.0        N/M        N/M   

Income from operations before impairment charges

     180.0        187.5        157.2        7.7        164.9        (4.0 )%      13.7

Operating margin

     23.3     24.8     14.9     13.8     14.8     (1.5 )pts      10.0  pts 

Operating margin before impairment

     24.5     24.8     21.6     13.8     21.1     (0.3 )pts      3.7  pts 

Revenues in the region declined for the year ended December 31, 2010 from 2009 due to new competition in the region and lower customer spend per trip. Income from operations for the year ended December 31, 2010 included a charge of $9.0 million related to impairment of goodwill and other non-amortizing intangible assets at one of the region’s properties. Income from operations for the year ended December 31, 2010 declined from 2009 primarily due to the income impact of revenue declines.

Revenues for 2009 at our Iowa and Missouri properties were slightly lower compared to the same period in 2008 driven by the weak economy that impacted guest visitation. The region was also impacted by severe winter storms during the fourth quarter of 2009 which also affected guest visitation. Income from operations before impairment charges and operating margin in 2009 were higher than in the prior year due primarily to cost savings initiatives.

 

21


Illinois/Indiana Results

 

     Successor     Predecessor                    
                 Jan. 28, 2008     Jan. 1, 2008           Percentage  
                 through     through     Combined     Increase/(Decrease)  

(In millions)

   2010     2009     Dec. 31, 2008     Jan. 27, 2008     2008     10 vs. 09     09 vs. 08  

Casino revenues

   $ 1,152.9      $ 1,180.7      $ 1,102.5      $ 86.9      $ 1,189.4        (2.4 )%      (0.7 )% 

Net revenues

     1,160.1        1,172.3        1,098.7        85.5        1,184.2        (1.0 )%      (1.0 )% 

Income/(loss) from operations

     119.0        (35.4     (505.9     8.7        (497.2     N/M        92.9

Impairment of intangible assets, including goodwill

     58.0        180.7        617.1        —          617.1        N/M        N/M   

Income from operations before impairment charges

     177.0        145.3        111.2        8.7        119.9        21.8     21.2

Operating margin

     10.3     (3.0 )%      (46.0 )%      10.2     (42.0 )%      13.3  pts      39.0  pts 

Operating margin before impairment charges

     15.3     12.4     10.1     10.2     10.1     2.9  pts      2.3  pts 

Revenues in the region decreased for the year ended December 31, 2010 from 2009 due to decreased customer spend per trip. Income from operations for the year ended December 31, 2010 included a charge of $58.0 million related to impairment of goodwill and other non-amortizing intangible assets at certain of the region’s properties, partially offset by the benefit of a $23.5 million property tax accrual adjustment recorded in the fourth quarter 2010. Loss from operations for the year ended December 31, 2009 included a charge of $180.7 million related to impairment of intangible assets at certain of the region’s properties. Income from operations, prior to consideration of impairment charges, increased for the year ended December 31, 2010 relative to 2009 as a result of reduced marketing expenses and the aforementioned property tax accrual adjustment.

For the year ended December 31, 2009, revenues were relatively unchanged compared to 2008 due to the full year impact of the 2008 expansion of the Horseshoe Hammond property, which offset the revenue declines at other properties in the region. The Horseshoe Hammond renovation and expansion was completed in August 2008. Cost savings initiatives at properties in the region also contributed to the increase in income from operations before impairment charges in 2009.

Other Nevada Results

 

     Successor     Predecessor                    
                 Jan. 28, 2008     Jan. 1, 2008           Percentage  
                 through     through     Combined     Increase/(Decrease)  

(In millions)

   2010     2009     Dec. 31, 2008     Jan. 27, 2008     2008     10 vs. 09     09 vs. 08  

Casino revenues

   $ 231.5      $ 253.9      $ 294.8      $ 19.5      $ 314.3        (8.8 )%      (19.2 )% 

Net revenues

     307.6        332.5        379.5        26.8        406.3        (7.5 )%      (18.2 )% 

(Loss)/income from operations

     (28.7     26.3        (178.5     (1.9     (180.4     N/M        N/M   

Impairment of intangible assets, including goodwill

     49.0        4.0        217.5        —          217.5        N/M        N/M   

Income/(loss) from operations before impairment charges

     20.3        30.3        39.0        (1.9     37.1        (33.0 )%      (18.3 )% 

Operating margin

     (9.3 )%      7.9     (47.0 )%      (7.1 )%      (44.4 )%      (17.2 )pts      52.3  pts 

Operating margin before impairment charges

     6.6     9.1     10.3     (7.1 )%      9.1     (2.5 )pts      —     

Results for the year ended December 31, 2010 for the Other Nevada Region declined from 2009 due to lower visitation and decreased customer spend per trip. Also contributing to the decline in income from operations for the year ended December 31, 2010 was a charge of $49.0 million, recorded during the second quarter of 2010, related to the impairment of goodwill and other non-amortizing intangible assets at one of the region’s properties.

 

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For 2009, revenues from our Nevada properties outside of Las Vegas were lower than in 2008 due to lower guest visitation and lower customer spend per trip. Cost-savings initiatives implemented throughout 2009 partially offset the earnings impact of the net revenue declines. During December 2009, we announced the permanent closure of Bill’s Lake Tahoe effective in January 2010, which was later sold in February 2010. The closure and sale were the result of several years of declining business levels at that property.

Managed and International Results

 

     Successor     Predecessor                     
                  Jan. 28, 2008     Jan. 1, 2008            Percentage  
                  through     through      Combined     Increase/(Decrease)  

(In millions)

   2010      2009     Dec. 31, 2008     Jan. 27, 2008      2008     10 vs. 09     09 vs. 08  

Net revenues

                

Managed

   $ 43.9       $ 56.3      $ 59.1      $ 5.0       $ 64.1        (22.0 )%      (12.2 )% 

International

     431.1         403.8        375.7        51.2         426.9        6.8     (5.4 )% 
                                              

Net revenues

   $ 475.0       $ 460.1      $ 434.8      $ 56.2       $ 491.0        3.2     (6.3 )% 
                                              

Income/(loss) from operations

                

Managed

   $ 11.9       $ 19.4      $ 22.1      $ 4.0       $ 26.1        (38.7 )%      (25.7 )% 

International

     10.5         (23.0     (276.0     2.2         (273.8     N/M        91.3
                                              

Total Income/(loss) from operations

   $ 22.4       $ (3.6   $ (253.9   $ 6.2       $ (247.7     N/M        98.5
                                              

Impairment of intangible assets, including goodwill

                

Managed

   $ —         $ —        $ —        $ —         $ —          N/M        N/M   

International

     6.0         31.0        210.8        —           210.8        N/M        N/M   
                                              

Total impairment charges

   $ 6.0       $ 31.0      $ 210.8      $ —         $ 210.8        N/M        N/M   
                                              

Income/(loss) from operations before impairment

                

Managed

   $ 11.9       $ 19.4      $ 22.1      $ 4.0       $ 26.1        (38.7 )%      (25.7 )% 

International

     16.5         8.0        (65.2     2.2         (63.0     N/M        N/M   
                                              

Income/(loss) from operations before impairment

   $ 28.4       $ 27.4      $ (43.1   $ 6.2       $ (36.9     3.6     N/M   
                                              

Managed and international results include income from our managed properties and Thistledown Racetrack, and the results of our international properties.

Managed

We manage three tribal casinos and have consulting arrangements with casino companies in Australia. The table below gives the location and expiration date of the current management contracts for our three tribal casino properties as of December 31, 2010.

 

Casino

  

Location

  

Expiration of

Management Agreement

Harrah’s Rincon    near San Diego, California    November 2013
Harrah’s Cherokee    Cherokee, North Carolina    November 2011
Harrah’s Ak-Chin    near Phoenix, Arizona    December 2014

In December 2010, we formed Rock Ohio Caesars LLC, a joint venture with Rock Gaming, LLC, created to pursue casino developments in Cincinnati and Cleveland. Pursuant to the agreements forming the joint venture, we have committed to invest up to $200 million for an approximately 30% interest in the joint venture. As part of our investment, we also plan to contribute Thistledown Racetrack (“Thistledown”), a non-casino racetrack located outside Cleveland, Ohio, to the joint venture. Based upon this commitment, we have included Thistledown as a managed property. As of December 31, 2010 we have invested approximately $64.0 million in the joint venture.

 

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The decline in revenues from our managed properties for the years ended December 31, 2010 and 2009, when compared to their respective prior periods, reflects the impact of the current economic environment on our managed properties, partially offset by incremental revenues of $7.2 million associated with our July 2010 acquisition of Thistledown.

International

Our international results include the operations of our property in Punta del Este, Uruguay, and our London Clubs International Limited (“London Clubs”) entities. As of December 31, 2010, London Clubs owns or manages ten casinos in the United Kingdom, two in Egypt and one in South Africa. During 2009, one of the London Clubs owned properties, Fifty, was closed and liquidated.

Revenues for the year ended December 31, 2010 increased over 2009 due to increased visitation and increased spend per trip at our Uruguay and London Clubs properties. Income from operations for the year ended December 31, 2010 included a charge of $6.0 million related to impairment of goodwill and other non-amortizing intangible assets at our international properties. Income from operations for the year ended December 31, 2009 included a charge of $31.0 million related to impairment of goodwill and other non-amortizing intangible assets. Prior to consideration of impairment charges, international income from operations significantly increased for the year ended December 31, 2010 when compared with 2009 due to strong revenue performance and cost-saving initiatives.

Revenues for London Clubs decreased slightly in 2009 when compared to 2008 as the increase in local currency revenues attributable to the full-year impact in 2009 of two new properties which opened in 2008 was insufficient to offset the adverse movements in exchange rates. Loss from operations in 2009 was improved compared to 2008 as a result of the $210.8 million impairment charge recorded in 2008 compared to the $31.0 million charged in 2009. Income from operations before impairment in 2009 improved when compared to a loss from operations before impairment in 2008 due to the income impact of increased revenues and cost savings initiatives throughout the international properties.

OTHER FACTORS AFFECTING NET INCOME

 

     Successor     Predecessor                    
                 Jan. 28, 2008     Jan. 1, 2008           Percentage  
Expense/(Income)                through     through     Combined     Increase/(Decrease)  

(in millions)

   2010     2009     Dec. 31, 2008     Jan. 27, 2008     2008     10 vs. 09     09 vs. 08  

Corporate expense

   $ 107.5      $ 110.7      $ 106.3      $ (26.2   $ 80.1        (2.9 )%      38.2

Write-downs, reserves and recoveries

     121.7        71.4        (60.1     0.2        (59.9     N/M        N/M   

Impairment of intangible assets, including goodwill

     193.0        1,178.9        3,745.2        —          3,745.2        N/M        N/M   

Acquisition and integration costs

     12.8        0.3        24.0        125.6        149.6        N/M        (99.8 )% 

Amortization of intangible assets

     101.3        115.2        108.2        5.5        113.7        (12.1 )%      1.3

Interest expense, net

     1,782.0        1,678.5        1,704.3        89.7        1,794.0        6.2     (6.4 )% 

Losses/(gains) on early extinguishments of debt

     4.5        (3,929.6     (742.1     —          (742.1     N/M        N/M   

Other income

     (40.8     (32.0     (29.6     (5.1     (34.7     27.5     (7.8 )% 

(Benefit)/provision for income taxes

     (490.9     1,287.2        (378.5     (21.6     (400.1     N/M        N/M   

Income attributable to non-controlling interests

     (8.0     (13.5     (6.4     (1.4     (7.8     (40.7 )%      73.1

Discontinued operations, net of income taxes

     —          —          (90.4     (0.1     (90.5     N/M        N/M   

 

N/M = Not meaningful

Corporate Expense

Corporate expense decreased in 2010 from the comparable period in 2009 due primarily to expenses incurred in connection with our April 2009 debt exchange transaction that did not recur during 2010 and reduced expense associated with incentive compensation, partially offset by increased labor-related expenses for year ended December 31, 2010 when compared with 2009.

 

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Corporate expense increased in 2009 from 2008 due to certain non-capitalizable expenses related to the debt exchange offer and other advisory services, partially offset by the continued realization of cost savings initiatives that began in the third quarter of 2008.

Corporate expense includes expenses associated with share-based compensation plans in the amounts of $17.2 million, $12.0 million, $12.1 million, and $1.7 million for the years ended December 31, 2010 and 2009, the Successor period from January 28, 2008 through December 31, 2008, and the Predecessor period from January 1, 2008 through January 27, 2008, respectively.

Write-downs, reserves and recoveries

Write-downs, reserves and recoveries include various pre-tax charges to record certain long-lived tangible asset impairments, contingent liability or litigation reserves or settlements, project write-offs, demolition costs, permit remediation costs, recoveries of previously recorded reserves and other non-routine transactions. Given the nature of the transactions included within write-downs, reserves and recoveries, these amounts are not expected to be comparable from year-to-year, nor are the amounts expected to follow any particular trend from year-to-year.

Write-downs, reserves and recoveries for 2010 were $121.7 million, compared with $71.4 million in 2009. Included in write-downs, reserves and recoveries for the year ended December 31, 2010 with no comparable amounts in 2009 is an accrual of $25.0 million for a contingency related to employee benefit obligations, and a charge of approximately $52.2 million to fully reserve a note receivable balance related to land and pre-development costs contributed to a venture for development of a casino project in Philadelphia with which we were involved prior to December 2005. Also included in write-downs, reserves and recoveries for the year ended December 31, 2010 were charges of $26.6 million to write-off assets associated with certain capital projects in the Las Vegas and Atlantic City regions.

Amounts incurred during 2010 for remediation costs were $20.3 million, and increased by $13.8 million when compared to 2009.

Write-downs, reserves and recoveries in 2009 of $71.4 million increased when compared with a credit balance of $59.9 million in 2008. Included in the amounts for 2008 are insurance proceeds related to the 2005 hurricanes totaling $185.4 million. Prior to these insurance proceeds, write-downs, reserves and recoveries for 2008 were $125.5 million. Amounts incurred in 2009 for remediation costs were $6.5 million, an increase of $4.0 million from similar costs in 2008. We recorded $59.3 million in impairment charges for long-lived tangible assets during 2009, an increase of $21.0 million when compared to 2008. The majority of the 2009 charge was related to the Company’s office building in Memphis, Tennessee due to the relocation to Las Vegas, Nevada of those corporate functions formerly performed at that location. We recorded $33.3 million in charges related to efficiency projects that were also a result of the relocation.

Also during 2009, associated with its closure and ultimate liquidation, we wrote off the assets and liabilities on one of our London Club properties. Because the assets and liabilities were in a net liability position, a pre-tax gain of $9.0 million was recognized in the fourth quarter of 2009. The recognized gain was partially offset by charges related to other projects. 2009 also included a reversal of an accrual for approximately $30.0 million due to a judgment against the Company that was vacated in third quarter of 2009. This amount was previously charged to write-downs, reserves and recoveries in 2006 and was reversed accordingly upon the vacated judgment.

Impairment of intangible assets

During the fourth quarter of each year, we perform annual assessments for impairment of goodwill and other intangible assets that are not subject to amortization as of September 30. We perform assessments for impairment of goodwill and other non-amortizing intangible assets more frequently if impairment indicators exist.

During 2010, due to the relative impact of weak economic conditions on certain properties in the Other Nevada and Louisiana/Mississippi regions, we performed an interim assessment of goodwill and certain non-amortizing intangible assets for impairment during the second quarter, which resulted in an impairment charge of $100.0 million. During the third quarter, we completed a preliminary annual assessment of goodwill and other non-amortizing intangible assets as of September 30, which resulted in an impairment charge of $44.0 million. We finalized our annual assessment during the fourth quarter, and as a result of the final assessment, we recorded an impairment charge of $49.0 million, which brought the aggregate charges recorded for the year ended December 31, 2010 to $193.0 million.

During 2009, we performed an interim assessment of goodwill and certain non-amortizing intangible assets for impairment during the second quarter, due to the relative impact of weak economic conditions on certain properties in the Las Vegas market, which resulted in an impairment charge of $42.0 million. During the third quarter, we completed a preliminary annual assessment of goodwill and other non-amortizing intangible assets as of September 30, which resulted in an impairment charge

 

25


of $1,124.6 million. We finalized our annual assessment during the fourth quarter, and as a result of the final assessment, we recorded an impairment charge of approximately $12.3 million, which brought the aggregate charges recorded for the year ended December 31, 2009 to approximately $1,178.9 million.

Our 2008 analysis indicated that certain of our goodwill and other non-amortizing intangible assets were impaired based upon projected performance which reflected factors impacted by the then-current market conditions, including lower valuation multiples for gaming assets, higher discount rates resulting from turmoil in the credit markets, and the completion of our 2009 budget and forecasting process. As a result of our projected deterioration in financial performance, an impairment charge of $3,745.2 million was recorded in the fourth quarter 2008.

Acquisition and integration costs

Acquisition and integration costs in 2010 include costs in connection with our acquisitions of Planet Hollywood and Thistledown Racetrack, and costs associated with potential development and investment activities.

Acquisition and integration costs in 2008 include costs incurred in connection with the Acquisition, including the expense related to the accelerated vesting of employee stock options, SARs and restricted stock.

Amortization of intangible assets

Amortization of intangible assets was lower in 2010 when compared to 2009 due to lower intangible asset balances as a result of certain contract rights being fully amortized during 2009.

Amortization expense associated with intangible assets for 2009 was slightly higher than the amounts recorded in 2008 due to the amounts in 2008 including only eleven months of amortization of post-Acquisition intangible assets.

Interest Expense

Interest expense increased by $103.5 million for the year ended December 31, 2010, compared to the same period in 2009. Interest expense is reported net of capitalized interest of $1.3 million and $32.4 million for the years ended December 31, 2010 and 2009, respectively. The majority of the capitalized interest in 2009 related to the Caesars Palace expansion in Las Vegas. Prior to the consideration of capitalized interest, interest expense increased by $72.4 million for the year ended December 31, 2010, compared to the same period in 2009 due primarily to (i) debt issuances that occurred in the second quarter of 2010 that resulted in higher debt levels and a higher weighted average interest rate; and (ii) changes in our hedging designations related to one interest rate swap agreement. Interest expense for the year ended December 31, 2010, as a result of interest rate swap agreements, included (i) $81.2 million of gains due to measured ineffectiveness for derivatives designated as hedging instruments; (ii) $4.9 million of gains due to changes in fair value for derivatives not designated as hedging instruments; and (iii) $9.7 million of expense due to amortization of deferred losses frozen in Other Comprehensive Income (“OCI”). At December 31, 2010, our variable-rate debt, excluding $5,810.1 million of variable-rate debt for which we have entered into interest rate swap agreements, represents approximately 10% of our total debt, while our fixed-rate debt is approximately 90% of our total debt.

Interest expense declined by $115.5 million in the year ended December 31, 2009 compared to the same period in 2008 primarily due to lower debt levels resulting from debt exchanges completed in April 2009 and December 2008 and debt purchases on the open market during 2009. Interest expense for 2009, as a result of interest rate swap agreements, was (i) reduced $4.6 million due to measured ineffectiveness for derivatives designated as hedging instruments; (ii) reduced $4.6 million due to changes in fair value for derivatives not designated as hedging instruments; and (iii) increased $3.0 million due amortization of deferred losses frozen in OCI. At December 31, 2009 our variable-rate debt, excluding $5,810.1 million of variable-rate debt for which we have entered into interest rate swap agreements, represents approximately 10.5% of our total debt, while our fixed-rate debt is approximately 89.5% of our total debt.

Losses/(gains) on early extinguishments of debt

Gains on early extinguishments of debt during 2009, mentioned above, related to multiple debt transactions initiated throughout the year, including i) the exchange of approximately $3,648.8 million principal amount of new 10% second-priority senior secured notes due in 2018 for approximately $5,470.1 million aggregate principal amount of outstanding debt with maturity dates ranging from 2010 to 2018; and ii) the purchase of approximately $747.6 million principal amount of outstanding debt through tender offers or open market purchases. The gains were partially offset by the write-off of market value premiums

 

26


and unamortized debt issue costs. These events are discussed more fully in the “Liquidity and Capital Resources” section that follows herein.

Gains on early extinguishments of debt of $742.1 million in 2008 represented discounts related to the exchange of certain debt for new debt and purchases of certain of our debt in connection with an exchange offer in December 2008 and in the open market. The gains were partially offset by the write-off of market value premiums and unamortized deferred financing costs.

Other income

As a result of the cancellation of our debt investment in certain 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 investment to reflect the estimated fair value of consideration paid for the acquisition. This gain is reflected in Other income, including interest income, in our Condensed Combined Statement of Operations for the year ended December 31, 2010. In addition, other income for all periods presented included insurance policy proceeds related to the Company’s deferred compensation plan.

Income tax (benefit)/provision

For the year ended December 31, 2010, we recorded tax benefit of $490.9 million on pre-tax loss from continuing operations of $1,334.0 million, compared with an income tax provision of $1,287.2 million on pre-tax income from continuing operations of $1,913.5 million for the year ended December 31, 2009. Income tax benefit for the year ended December 31, 2010 was favorably impacted by the effects of state income tax benefits and other discrete items.

Income tax provision for the year ended December 31, 2009 was primarily attributable to the tax impact of gains on early extinguishments of debt and the non-deductibility of the impairment charges on goodwill and other non-amortizing intangible assets. In 2008, tax benefits were generated by operating losses caused by higher interest expense, partially offset by non-deductible merger costs, international income taxes and state income taxes.

Other items

Discontinued operations for 2008 reflects insurance proceeds of $87.3 million, after taxes, representing the final funds received that were in excess of the net book value of the impacted assets and costs and expenses that were reimbursed under our business interruption claims for a 2005 hurricane that caused damage to our Grand Casino Gulfport property.

 

27


LIQUIDITY AND CAPITAL RESOURCES

Cost Savings Initiatives

Over the past three years, in light of the severe economic downturn and adverse conditions in the travel and leisure industry generally, Caesars Entertainment has undertaken comprehensive cost reduction efforts to right-size expenses with business levels. The efforts have included organizational restructurings within our functional and operating units, reduction of employee travel and entertainment expenses, rationalization of our corporate-wide marketing expenses, and procurement savings, among others. During the fourth quarter of 2010, the Company began a new initiative to attempt to reinvent certain aspects of its functional and operating units in an effort to gain significant further cost reductions and streamline our operations.

Since the inception of our cost initiatives programs, Caesars Entertainment has identified $856.3 million in estimated cost savings, of which approximately $648.8 million had been realized as of December 31, 2010. Included in the $856.3 million program size are additional initiatives that total $153.2 million identified during the fourth quarter of 2010.

In accordance with our shared services agreement with Caesars Entertainment, $145.3 million in estimated future cost savings have been allocated to CEOC. In addition, CEOC has realized cost savings of $454.2 million during the year ended December 31, 2010.

Capital Spending and Development

In addition to the development and expansion projects discussed in the “Regional Operating Results” section, we also perform on-going refurbishment and maintenance at our casino entertainment facilities to maintain our quality standards, and we continue to pursue development and acquisition opportunities for additional casino entertainment facilities that meet our strategic and return on investment criteria. Prior to the receipt of necessary regulatory approvals, the costs of pursuing development projects are expensed as incurred. Construction-related costs incurred after the receipt of necessary approvals are capitalized and depreciated over the estimated useful life of the resulting asset. Project opening costs are expensed as incurred.

Our planned development projects, if they go forward, will require, individually and in the aggregate, significant capital commitments and, if completed, may result in significant additional revenues. The commitment of capital, the timing of completion and the commencement of operations of casino entertainment development projects are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate political and regulatory bodies. We must also comply with covenants and restrictions set forth in our debt agreements. Cash needed to finance projects currently under development as well as additional projects being pursued is expected to be made available from operating cash flows, established debt programs, joint venture partners, specific project financing, guarantees of third-party debt and additional debt offerings. Our capital spending for the year ended December 31, 2010, totaled approximately $135.4 million. Estimated total capital expenditures for 2011 are expected to be between $400.0 million and $465.0 million.

Capital spending in 2009 totaled approximately $437.8 million. Our capital spending for the combined Predecessor and Successor periods of 2008 totaled approximately $1,112.3 million.

Liquidity

We generate substantial cash flows from operating activities, as reflected on the unaudited Condensed Combined Statements of Cash Flows in our Combined Financial Statements. We use the cash flows generated by our operations to fund debt service, to reinvest in existing properties for both refurbishment and expansion projects and to pursue additional growth opportunities via new development. When necessary, we supplement the cash flows generated by our operations with funds provided by financing activities to balance our cash requirements.

Our ability to fund our operations, pay our debt obligations and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets and restrictive covenants related to our existing debt could impact our ability to secure additional funds through financing activities. We believe that our cash and cash equivalents balance, our cash flows from operations and the financing sources discussed herein will be sufficient to meet our normal operating requirements during the next twelve months and to fund capital expenditures. In addition, we may consider issuing additional debt in the future to refinance existing debt or to finance specific capital projects. In connection with the Acquisition, we incurred substantial additional debt, which has significantly impacted our financial position.

 

28


We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us, to fund our liquidity needs and pay our indebtedness. If we are unable to meet our liquidity needs or pay our indebtedness when it is due, we may have to reduce or delay refurbishment and expansion projects, reduce expenses, sell assets or attempt to restructure our debt. In addition, we have pledged a significant portion of our assets as collateral under certain of our debt agreements, and if any of those lenders accelerate the repayment of borrowings, there can be no assurance that we will have sufficient assets to repay our indebtedness.

Our cash and cash equivalents totaled $619.1 million at December 31, 2010, compared to $568.8 million at December 31, 2009. The following provides a summary of our cash flows for the Successor periods ended December 31, 2010 and 2009, the Successor period from January 28, 2008 through December 31, 2008, and the Predecessor period from January 1, 2008 through January 27, 2008:

 

     Successor     Predecessor        

(In millions)

   2010     2009     Jan. 28,  2008
through
Dec. 31, 2008
    Jan. 1, 2008
through
Jan. 27, 2008
    Combined
2008
 

Cash (used in)/provided by operating activities

   $ (207.9   $ (98.3   $ 367.4      $ (49.8   $ 317.6   

Capital investments

     (135.4     (437.8     (1,031.4     (80.9     (1,112.3

Investments in and advances to non-consolidated affiliates

     (64.0     (66.9     (5.9     —          (5.9

Investments in subsidiaries

     (44.6     —          —          —          —     

Cash acquired in business acquisitions, net of transaction costs

     14.0        —          —          —          —     

Insurance proceeds for hurricane losses for continuing operations

     —          —          98.1        —          98.1   

Insurance proceeds for hurricane losses for discontinued operations

     —          —          83.3        —          83.3   

Other investing activities

     (27.4     8.1        (12.5     (1.0     (13.5
                                        

Cash used in operating/investing activities

     (465.3