Caesars Entertainment Corporation
CAESARS ENTERTAINMENT Corp (Form: 10-Q, Received: 05/09/2013 16:35:07)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2013
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 1-10410
 _________________________
CAESARS ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
 _________________________
 
Delaware
 
62-1411755
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
One Caesars Palace Drive, Las Vegas, Nevada
 
89109
(Address of principal executive offices)
 
(Zip Code)
(702) 407-6000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 _________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   o
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   x      No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o   (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o     No   x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding at May 1, 2013
Common stock, $0.01 par value
125,359,584



CAESARS ENTERTAINMENT CORPORATION
INDEX
 
 
Page
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

We have proprietary rights to a number of trademarks used in this Form 10-Q that are important to our business, including, without limitation, Caesars, Caesars Entertainment, Caesars Palace, Harrah’s, Total Rewards, World Series of Poker (WSOP), Horseshoe, Paris Las Vegas, Flamingo, Bally's and Bingo Blitz. We have omitted the ® and ™ trademark designations for such trademarks named in this Form 10-Q.

2



PART I—FINANCIAL INFORMATION

Item 1.
Unaudited Financial Statements

CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(In millions, except par value)
 
March 31, 2013

December 31, 2012
Assets
 

 
Current assets
 

 
Cash and cash equivalents
$
2,095.4


$
1,757.5

Restricted cash
70.6

 
833.6

Receivables, less allowance for doubtful accounts of $205.3 and $201.7
543.9


580.5

Deferred income taxes
174.7


114.9

Prepayments and other current assets
191.6


150.0

Inventories
49.7


52.0

Assets held for sale
5.2


5.1

Total current assets
3,131.1


3,493.6

Property and equipment, net
15,676.2


15,701.7

Goodwill
3,165.8


3,160.3

Intangible assets other than goodwill
3,921.9


3,985.7

Investments in and advances to non-consolidated affiliates
118.6


100.4

Restricted cash
295.9


364.6

Deferred charges and other
722.9


720.6

Assets held for sale
442.6

 
471.2

 
$
27,475.0


$
27,998.1

Liabilities and Stockholders’ Deficit
 

 
Current liabilities
 

 
Accounts payable
$
340.4


$
376.2

Interest payable
386.4


233.7

Accrued expenses
1,030.7


1,094.7

Current portion of long-term debt
143.0


879.9

Liabilities held for sale
3.5

 
3.8

Total current liabilities
1,904.0


2,588.3

Long-term debt
21,134.1


20,532.2

Deferred credits and other
841.0


823.0

Deferred income taxes
4,106.2


4,334.1

Liabilities held for sale
49.7

 
52.1

 
28,035.0


28,329.7

Commitments and contingencies


 


Stockholders’ equity/(deficit)
 

 
Common stock: voting; $0.01 par value; 127.5 shares issued
1.3


1.3

Treasury Stock: 2.1 shares
(16.3
)
 
(16.3
)
Additional paid-in capital
6,959.6


6,954.4

Accumulated deficit
(7,497.8
)

(7,280.2
)
Accumulated other comprehensive loss
(83.9
)

(70.9
)
Total Caesars stockholders’ deficit
(637.1
)

(411.7
)
Non-controlling interests
77.1


80.1

Total deficit
(560.0
)

(331.6
)
 
$
27,475.0


$
27,998.1

See accompanying Notes to Consolidated Condensed Financial Statements.

3


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share data)
 
Quarter Ended March 31,
 
2013
 
2012
Revenues
 
 
 
Casino
$
1,495.1

 
$
1,625.0

Food and beverage
380.1

 
382.1

Rooms
288.2

 
303.8

Management fees
10.7

 
9.6

Other
262.9

 
195.4

Less: casino promotional allowances
(293.8
)
 
(309.8
)
Net revenues
2,143.2

 
2,206.1

Operating expenses
 
 
 
Direct
 
 
 
Casino
834.7

 
924.8

Food and beverage
165.2

 
161.8

Rooms
73.3

 
75.1

Property, general, administrative, and other
581.5

 
510.8

Depreciation and amortization
161.7

 
179.5

Write-downs, reserves, and project opening costs, net of recoveries
20.7

 
16.2

Intangible and tangible asset impairment charges
20.0

 
174.0

Loss on interests in non-consolidated affiliates
2.6

 
7.1

Corporate expense
36.1

 
52.2

Acquisition and integration costs
64.2

 
0.1

Amortization of intangible assets
41.4

 
43.2

Total operating expenses
2,001.4

 
2,144.8

Income from operations
141.8

 
61.3

Interest expense, net of interest capitalized
(574.7
)
 
(562.0
)
(Loss)/gain on early extinguishments of debt
(36.7
)
 
45.8

Other income, including interest income
3.7

 
8.2

Loss from continuing operations before income taxes
(465.9
)
 
(446.7
)
Benefit for income taxes
290.2

 
158.3

Loss from continuing operations, net of income taxes
(175.7
)
 
(288.4
)
Discontinued operations
 
 
 
(Loss)/income from discontinued operations
(43.8
)
 
14.2

Benefit/(provision) for income taxes
2.8

 
(6.9
)
(Loss)/income from discontinued operations, net of income taxes
(41.0
)
 
7.3

Net loss
(216.7
)
 
(281.1
)
Less: net (income)/loss attributable to non-controlling interests
(0.9
)
 
0.5

Net loss attributable to Caesars
$
(217.6
)
 
$
(280.6
)
Loss per share - basic and diluted



 
Loss per share from continuing operations
$
(1.41
)

$
(2.30
)
(Loss)/earnings per share from discontinued operations
(0.33
)

0.06

Net loss per share
$
(1.74
)
 
$
(2.24
)
Weighted-average common shares outstanding - basic and diluted
125.3

 
125.2


See accompanying Notes to Consolidated Condensed Financial Statements. 

4


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In millions)
 
Quarter Ended March 31,
 
2013
 
2012
Net loss
$
(216.7
)
 
$
(281.1
)
Other comprehensive income/(loss):
 
 
 
Defined Benefit Plan Adjustments
4.6

 
0.8

Foreign currency translation adjustments
(20.1
)
 
4.6

Loss on derivative instruments
3.9

 
7.1

Unrealized losses/(gains) on investments
0.1

 
(0.3
)
Total other comprehensive (loss)/income, before income taxes
(11.5
)
 
12.2

Income tax expense related to items of other comprehensive loss
(1.5
)
 
(2.9
)
Total other comprehensive (loss)/income, net of income taxes
(13.0
)
 
9.3

Total comprehensive loss
(229.7
)
 
(271.8
)
Less: amounts attributable to non-controlling interests:
 
 
 
Net (income)/loss
(0.9
)
 
0.5

Foreign currency translation adjustments

 
(1.0
)
Total amounts attributable to non-controlling interests
(0.9
)
 
(0.5
)
Comprehensive loss attributable to Caesars
$
(230.6
)
 
$
(272.3
)

See accompanying Notes to Consolidated Condensed Financial Statements. 

5


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
(UNAUDITED)
(In millions)
 
 
Caesars Stockholders
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in-
Capital
 

Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
Caesars Stockholders' Equity/(Deficit)
 
Non-controlling
Interests
 
Total Equity/(Deficit)
 
 
 
Balance at December 31, 2011
 
$
0.7

 
$

 
$
6,885.1

 
$
(5,782.7
)
 
$
(96.4
)
 
$
1,006.7

 
$
46.7

 
$
1,053.4

Net loss
 

 

 

 
(280.6
)
 

 
(280.6
)
 
(0.5
)
 
(281.1
)
Share-based compensation
 

 

 
11.5

 

 

 
11.5

 

 
11.5

Initial public offering
 
0.6

 

 
16.6

 

 

 
17.2

 

 
17.2

Increase of treasury shares
 
*

 
(16.3
)
 
16.3

 

 

 

 

 

Contributions and contractual obligations from non-controlling interests, net of distributions
 

 

 

 

 

 

 
38.9

 
38.9

Other comprehensive income, net of tax
 

 

 

 

 
8.3

 
8.3

 
1.0

 
9.3

Balance at March 31, 2012
 
$
1.3

 
$
(16.3
)
 
$
6,929.5

 
$
(6,063.3
)
 
$
(88.1
)
 
$
763.1

 
$
86.1

 
$
849.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
 
$
1.3

 
$
(16.3
)
 
$
6,954.4

 
$
(7,280.2
)
 
$
(70.9
)
 
$
(411.7
)
 
$
80.1

 
$
(331.6
)
Net (loss)/income
 

 

 

 
(217.6
)
 

 
(217.6
)
 
0.9

 
(216.7
)
Share-based compensation
 

 

 
7.2

 

 

 
7.2

 

 
7.2

Decrease in non-controlling interests including distributions and write-downs
 

 

 

 

 

 

 
(3.9
)
 
(3.9
)
Other comprehensive loss, net of tax
 

 

 

 

 
(13.0
)
 
(13.0
)
 

 
(13.0
)
Purchase of additional interest in subsidiary
 

 

 
(2.0
)
 

 

 
(2.0
)
 

 
(2.0
)
Balance at March 31, 2013
 
$
1.3

 
$
(16.3
)
 
$
6,959.6

 
$
(7,497.8
)
 
$
(83.9
)
 
$
(637.1
)
 
$
77.1

 
$
(560.0
)
___________________ 
*
Amount rounds to zero.
See accompanying Notes to Consolidated Condensed Financial Statements.

6



CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)
 
Quarter Ended March 31,
 
2013
 
2012
Cash flows from operating activities
 
 
 
Net loss
$
(216.7
)
 
$
(281.1
)
Adjustments to reconcile net loss to cash flows (used in)/provided by operating activities:
 
 
 
 Loss/(income) from discontinued operations
41.0


(7.3
)
 Loss/(gain) on early extinguishments of debt
36.7

 
(45.8
)
Depreciation and amortization
206.3

 
225.8

Amortization of deferred finance costs and debt discount/premium
86.7

 
96.5

Reclassification from, and amortization of, accumulated other comprehensive loss
4.2

 
7.2

Non-cash write-downs and reserves, net of recoveries
5.8

 
4.2

Non-cash acquisition and integration costs
52.4

 

Impairment of intangible and tangible assets
20.0

 
174.0

Share-based compensation expense
3.6

 
11.5

Deferred income taxes
(290.9
)
 
(123.8
)
Change in deferred charges and other
(5.9
)
 
(26.7
)
Change in deferred credits and other
(45.1
)
 
1.7

Change in current assets and liabilities:
 
 
 
Accounts receivable
38.0

 
24.6

Prepayments and other current assets
(41.9
)
 
(48.9
)
Accounts payable
(41.9
)
 
(10.6
)
Interest payable
151.7

 
161.1

Accrued expenses
(61.7
)
 
(29.2
)
Other
10.4

 
10.1

Cash flows (used in)/provided by operating activities
(47.3
)
 
143.3

Cash flows from investing activities
 
 
 
Acquisitions of property and equipment, net of change in related payables
(148.1
)
 
(82.7
)
Change in restricted cash
831.7

 
70.2

Investments in/advances to non-consolidated affiliates
(21.9
)
 
(0.2
)
Purchases of investment securities
(1.4
)
 
(4.9
)
Proceeds from the sale and maturity of investment securities
0.7

 
0.2

Other
(3.2
)
 
2.6

Cash flows provided by/(used in) investing activities
657.8

 
(14.8
)
Cash flows from financing activities
 
 
 
Proceeds from the issuance of long-term debt
1,589.5

 
1,643.6

Debt issuance costs and fees
(47.3
)
 
(30.6
)
Borrowings under lending agreements

 
453.0

Repayments under lending agreements

 
(608.0
)
Cash paid for early extinguishments of debt
(1,784.2
)
 
(1,397.3
)
Cash paid for loan maturity extension fees
(23.3
)
 

Scheduled debt retirements
(2.5
)
 
(3.8
)
Purchase of additional interests in subsidiary

 
(9.6
)
Non-controlling interests' contributions, net of distributions

 
28.9

Issuance of common stock, net of fees

 
17.2

Other
(5.8
)
 
(7.5
)
Cash flows (used in)/provided by financing activities
(273.6
)
 
85.9

Cash flows from discontinued operations
 
 
 
Cash flows from operating activities
1.1

 
16.1

Cash flows from investing activities

 
(0.2
)
Cash flows from financing activities

 

Net cash provided by discontinued operations
1.1

 
15.9

Net increase in cash and cash equivalents
338.0

 
230.3

Change in cash classified as assets held for sale
(0.1
)
 
1.0

Cash and cash equivalents, beginning of period
1,757.5

 
891.2

Cash and cash equivalents, end of period
$
2,095.4

 
$
1,122.5


See accompanying Notes to Consolidated Condensed Financial Statements.

7


CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

In these footnotes, the words “Company,” “Caesars,”“Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, a Delaware corporation, and its subsidiaries, unless otherwise stated or the context requires otherwise.
Note 1 — Organization and Basis of Presentation
Organization
Our business is primarily conducted through a wholly-owned subsidiary, Caesars Entertainment Operating Company, Inc. ("CEOC"), although certain material properties are not owned by CEOC. As of March 31, 2013 , we owned, operated, or managed, through various subsidiaries, 52 casinos in 13 U.S. states and seven countries. Of the 52 casinos, 38 are in the United States, including 19 land-based casinos, 11 riverboat or dockside casinos, three managed casinos on Indian lands, two managed casinos in Ohio, one casino combined with a greyhound racetrack, one casino combined with a thoroughbred racetrack, and one casino combined with a harness racetrack. Our 14 international casinos are comprised of eight land-based casinos in England, two in Egypt, one in Scotland, one in South Africa, one in Uruguay and one in Canada. In addition, through Caesars Interactive Entertainment, Inc. ("CIE"), a majority-owned subsidiary, we own an online gaming business, providing for real money casino, bingo, and poker games in the United Kingdom, alliances with online gaming providers in Italy and France, "play for fun" offerings in other jurisdictions, and social games on Facebook and other social media websites and mobile application platforms. Also through CIE, we own the World Series of Poker tournament and brand. We view each casino property and CIE as operating segments and aggregate all such casino properties and CIE into one reportable segment.
On January 28, 2008, Caesars Entertainment was acquired by affiliates of Apollo Global Management, LLC (together with such affiliates, “Apollo”) and affiliates of TPG Capital, LP (together with such affiliates, “TPG” and, together with Apollo, the “Sponsors”) in an all-cash transaction (the “Acquisition”). Our common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “CZR.”
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of the Company have been prepared under the rules and regulations of the Securities and Exchange Commission ("SEC") applicable for interim periods and, therefore, do not include all information and footnotes necessary for complete financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"). The results for the interim periods reflect all adjustments (consisting primarily of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations, and cash flows.
The results of operations for our interim periods are not necessarily indicative of the results of operations that may be achieved for the entire 2013 fiscal year.
The financial information for the quarter ended March 31, 2012 is derived from our consolidated condensed financial statements and footnotes included in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and has been revised to reflect the results of operations and cash flows of Harrah's Maryland Heights, LLC, owner of the Harrah's St. Louis casino, the Alea Leeds casino, and the subsidiaries that hold a land concession in Macau as discontinued operations. See Note 3 , " Acquisitions, Investments, Dispositions and Divestitures " for further discussion.
We have revised certain other amounts for prior periods to conform to our 2013 presentation. This Form 10-Q filing should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012, as amended ("2012 10-K").


8

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)



Note 2 — Recently Issued Accounting Pronouncements
Effective January 1, 2013, we adopted guidance issued by the Financial Accounting Standards Board ("FASB") on the reporting of reclassifications out of accumulated other comprehensive income. The guidance requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount is reclassified to net income in its entirety in the same reporting period. As this is a presentation and disclosure requirement, there was no impact on our consolidated financial position, results of operations or cash flows upon adoption.
In February 2013, the FASB issued new guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The new guidance is effective for us January 1, 2014. We are currently assessing what impact, if any, the adoption of this new guidance will have on our consolidated financial position, results of operations and cash flows.
In March 2013, the FASB issued new guidance applicable to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The new guidance is effective for us January 1, 2014. We are currently assessing what impact, if any, the adoption of this new guidance will have on our consolidated financial position, results of operations and cash flows.

Note 3 Acquisitions, Investments, Dispositions and Divestitures
Acquisitions
Buffalo Studios, LLC and Bubbler Media
In December 2012, CIE purchased substantially all of the net assets of Buffalo Studios, LLC ("Buffalo"), a social and mobile games developer and owner of Bingo Blitz, for consideration of $45.2 million plus an earnout payment with an acquisition date fair value estimated at $5.6 million . During the first quarter 2013, the estimated fair value of the earnout was increased to $58.0 million , with a charge to acquisition and integration costs of $52.4 million .
In September 2012, CIE purchased the assets of Bubbler Media ("Bubbler") a social and mobile games developer based in Belarus, for consideration of approximately $7.5 million .
The purchase prices of Buffalo and Bubbler were allocated based on estimated fair values of the assets acquired and liabilities assumed, with the excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. The preliminary purchase price allocations include total assets, liabilities and net assets acquired of Buffalo of $52.9 million , $7.7 million and $45.2 million , respectively. The preliminary purchase price allocations include net assets acquired of Bubbler of $7.5 million . The Company has not yet finalized its purchase price allocations for either of these transactions and is in the process of performing final reviews of the values assigned to assets acquired and liabilities assumed for both transactions.
Dispositions
Harrah's St. Louis
On November 2, 2012, the Company sold its Harrah's St. Louis casino and recorded a pre-tax gain of $9.3 million on the sale. In March 2013, upon resolution of the working capital adjustment in connection with such sale, the Company recorded a $0.7 million reduction to the originally recorded pre-tax gain. We have presented the results of the Harrah's St. Louis casino as discontinued operations in our Consolidated Condensed Statements of Operations for the quarters ended March 31, 2013 and 2012 . See “ Discontinued Operations ” below.

9

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Macau Land Concession
In the fourth quarter of 2012, the Company began discussions with interested investors regarding a sale of the subsidiaries that hold a land concession in Macau. As a result of this plan of disposal, the assets and liabilities have been classified as held for sale in our Consolidated Condensed Balance Sheets at March 31, 2013 and December 31, 2012 . During the quarter ended March 31, 2013 , the Company recorded a tangible asset impairment charge of $21.0 million related to the land concession. We have presented the operations of the business as discontinued operations in the Consolidated Condensed Statements of Operations for the quarter ended March 31, 2013 and 2012 . See “ Discontinued Operations ” below.
Alea Leeds
On March 4, 2013, we permanently closed our Alea Leeds casino in England. As a result of the closure, during the quarter ended March 31, 2013, we recorded charges of $5.7 million related to the write-down of tangible and intangible assets, net of currency translation adjustment and $15.8 million related to exit costs comprised of non-cancellable contract costs of $15.1 million , employment related costs of $0.5 million and other costs in the amount of $0.2 million . We have presented the operations of Alea Leeds casino as discontinued operations in the Consolidated Condensed Statements of Operations for the quarters ended March 31, 2013 and 2012 . See “ Discontinued Operations ” below.
Discontinued Operations
Assets and liabilities classified as held for sale are as follows:
(In millions)
March 31, 2013
 
December 31, 2012
Assets
 
 
 
Cash and cash equivalents
$
4.8

 
$
4.7

Other current assets
0.4

 
0.4

     Assets held for sale, current
$
5.2

 
$
5.1

 
 
 
 
Property and equipment, net
$
442.6

 
$
471.2

     Assets held for sale, non-current
$
442.6

 
$
471.2

 
 
 
 
Liabilities
 
 
 
Accounts payable and accrued expenses
$
3.5

 
$
3.8

     Liabilities held for sale, current
$
3.5

 
$
3.8

 
 
 
 
Deferred credits and other
$
0.3

 
$
0.2

Deferred income taxes
49.4

 
51.9

     Liabilities held for sale, non-current
$
49.7

 
$
52.1


10

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Net revenues, pre-tax (loss)/income from operations, and (loss)/income, net of income taxes presented as discontinued operations are as follows:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Net revenues
 
 
 
Harrah's St. Louis
$

 
$
63.5

Macau
1.0

 
0.9

Alea Leeds
0.7

 
1.4

           Total net revenues
$
1.7

 
$
65.8

 
 
 
 
Pre-tax (loss)/income from operations
 
 
 
Harrah's St. Louis
$
(0.7
)
 
$
19.1

Macau
(20.7
)
 
(3.7
)
Alea Leeds
(22.4
)
 
(1.2
)
           Total pre-tax (loss)/income from discontinued operations
$
(43.8
)
 
$
14.2

 
 
 
 
(Loss)/income, net of income taxes
 
 
 
Harrah's St. Louis
$
(0.4
)
 
$
11.6

Macau
(18.2
)
 
(3.1
)
Alea Leeds
(22.4
)
 
(1.2
)
           Total (loss)/income from discontinued operations, net of income taxes
$
(41.0
)
 
$
7.3


Note 4—Restricted Cash
In December 2012, CEOC completed the offering of $750.0 million aggregate principal amount of 9.0% senior secured notes due 2020, the proceeds of which were placed into escrow and recorded as short-term restricted cash at December 31, 2012. On February 20, 2013, the escrow conditions were satisfied, and the cash was released from restriction.

Note 5 Property and Equipment, net
Property and equipment, net consists of the following:
(In millions)
March 31, 2013
 
December 31, 2012
Land and land improvements
$
7,208.6

 
$
7,208.8

Buildings, riverboats, and improvements
8,693.4

 
8,725.7

Furniture, fixtures, and equipment
2,518.2

 
2,491.0

Construction in progress
508.9

 
378.3

 
18,929.1

 
18,803.8

Less: accumulated depreciation
(3,252.9
)
 
(3,102.1
)
 
$
15,676.2

 
$
15,701.7

In March 2012, we recorded a tangible asset impairment on construction in progress of $167.5 million related to a halted development project in Biloxi, Mississippi as well as a tangible asset impairment on a project in Spain for $6.5 million . There were no tangible asset impairments relating to continuing operations in the first quarter 2013.
Depreciation expense, which is included in depreciation and amortization, corporate expense and (loss)/income from discontinued operations in our Consolidated Condensed Statements of Operations, is as follows:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Depreciation expense
$
163.5

 
$
190.3

Interest expense is capitalized on internally constructed assets at the applicable weighted-average borrowing rates of interest. Capitalization of interest ceases when the project is substantially complete or construction activity is suspended for more than a brief period of time.

Note 6 Goodwill and Other Intangible Assets
The following table sets forth changes in our goodwill and other intangible assets for the quarter ended March 31, 2013 :
 
Amortizing
Intangible Assets
 
Non-Amortizing Intangible Assets
(In millions)
Goodwill
 
Other
Balance at December 31, 2012
$
1,027.6

 
$
3,160.3

 
$
2,958.1

Impairments

 

 
(20.0
)
Amortization expense
(41.4
)
 

 

Foreign currency translation
(0.4
)
 

 
(1.6
)
Other

 
5.5

 
(0.4
)
Balance at March 31, 2013
$
985.8

 
$
3,165.8

 
$
2,936.1

During the first quarter of 2013, due to changes in projected earnings, we performed an interim impairment assessment of goodwill and other non-amortizing intangible assets and, as a result, we recorded an impairment charge of $20.0 million related to certain gaming rights.
The following table provides the gross carrying value and accumulated amortization for each major class of intangible assets other than goodwill:
 
March 31, 2013
 
December 31, 2012
(Dollars in millions)
Weighted
Average
Remaining
Useful Life
(in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizing intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
6.8

 
$
1,456.7

 
$
(649.5
)
 
$
807.2

 
$
1,456.7

 
$
(618.0
)
 
$
838.7

Contract rights
1.7

 
144.0

 
(68.9
)
 
75.1

 
145.1

 
(66.3
)
 
78.8

Patented technology
3.5

 
156.8

 
(82.6
)
 
74.2

 
156.7

 
(76.6
)
 
80.1

Gaming rights
11.3

 
42.8

 
(13.5
)
 
29.3

 
42.8

 
(12.8
)
 
30.0

Trademarks

 
1.7

 
(1.7
)
 

 
1.7

 
(1.7
)
 

 
 
 
$
1,802.0

 
$
(816.2
)
 
985.8

 
$
1,803.0

 
$
(775.4
)
 
1,027.6

Non-amortizing intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
 
 
 
 
 
 
1,699.0

 
 
 
 
 
1,699.7

Gaming rights
 
 
 
 
 
 
1,237.1

 
 
 
 
 
1,258.4

 
 
 
 
 
 
 
2,936.1

 
 
 
 
 
2,958.1

Total intangible assets other than goodwill
 
 
 
 
 
$
3,921.9

 
 
 
 
 
$
3,985.7



11

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Note 7 Debt
The following table presents our outstanding debt as of March 31, 2013 and December 31, 2012 :
Detail of Debt (Dollars in millions)
 
Final
Maturity
 
Rate(s) at
March 31, 2013
 
Face Value at March 31, 2013
 
Book Value at March 31, 2013
 
Book Value at
Dec. 31, 2012
Credit Facilities (a)
 
 
 
 
 
 
 
 
 
 
Term Loans B1 - B3
 
2015
 
3.20% - 3.28%
 
$
29.1

 
$
29.1

 
$
1,025.8

Term Loan B4
 
2016
 
9.50%
 
967.5

 
952.9

 
954.5

Term Loan B5
 
2018
 
4.45%
 
991.9

 
988.8

 
1,218.8

Term Loan B6
 
2018
 
5.45%
 
2,431.9

 
2,394.9

 
2,812.6

Revolving Credit Facility
 
2014
 
 

 

 

Revolving Credit Facility
 
2017
 
 

 

 

Secured Debt
 
 
 
 
 
 
 
 
 
 
Senior Secured Notes (a)
 
2017
 
11.25%
 
2,095.0

 
2,061.6

 
2,060.2

Senior Secured Notes (a)
 
2020
 
8.50%
 
1,250.0

 
1,250.0

 
1,250.0

Senior Secured Notes (a)
 
2020
 
9.00%
 
3,000.0

 
2,950.7

 
1,486.9

CMBS Financing
 
2015
(c)  
3.70%
 
4,664.1

 
4,638.5

 
4,660.5

Second-Priority Senior Secured Notes (a)
 
2018
 
12.75%
 
750.0

 
743.2

 
742.9

Second-Priority Senior Secured Notes (a)
 
2018
 
10.00%
 
4,553.1

 
2,298.6

 
2,260.2

Second-Priority Senior Secured Notes (a)
 
2015
 
10.00%
 
214.8

 
176.4

 
173.7

Chester Downs Senior Secured Notes
 
2020
 
9.25%
 
330.0

 
330.0

 
330.0

PHW Las Vegas Senior Secured Loan
 
2015
(d)  
3.06%
 
514.6

 
455.3

 
438.2

Linq/Octavius Senior Secured Loan
 
2017
 
9.25%
 
450.0

 
446.7

 
446.5

Bill's Gamblin' Hall & Saloon Credit Facility
 
2019
 
11.00%
 
185.0

 
181.4

 
181.4

Subsidiary-Guaranteed Debt (b)
 
 
 
 
 
 
 
 
 
 
Senior Notes
 
2016
 
10.75%
 
478.6

 
478.6

 
478.6

Senior PIK Toggle Notes
 
2018
 
10.75%-11.5%
 
10.3

 
10.3

 
9.7

Unsecured Senior Debt (a)
 
 
 
 
 
 
 
 
 
 
5.375%
 
2013
 
5.375%
 
125.2

 
118.8

 
116.6

7.0%
 
2013
 
7.00%
 
0.6

 
0.6

 
0.6

5.625%
 
2015
 
5.625%
 
364.5

 
311.8

 
306.7

6.5%
 
2016
 
6.50%
 
248.7

 
203.6

 
200.9

5.75%
 
2017
 
5.75%
 
147.9

 
110.2

 
108.7

Floating Rate Contingent Convertible Senior Notes
 
2024
 
0.57%
 
0.2

 
0.2

 
0.2

Other Unsecured Borrowings
 
 
 
 
 
 
 
 
 
 
Special Improvement District Bonds
 
2037
 
5.30%
 
64.3

 
64.3

 
64.3

Other
 
2014
 
 
47.7

 
47.7

 
47.7

Capitalized Lease Obligations
 
to 2017
 
3.57% - 11.0%
 
32.9

 
32.9

 
35.9

Total Debt
 
 
 
 
 
23,947.9

 
21,277.1

 
21,412.1

Current Portion of Long-Term Debt
 
 
 
 
 
(153.0
)
 
(143.0
)
 
(879.9
)
Long-Term Debt
 
 
 
 
 
$
23,794.9

 
$
21,134.1

 
$
20,532.2

___________________
(a)
Guaranteed by Caesars Entertainment.
(b)  
Guaranteed by Caesars Entertainment and certain wholly-owned subsidiaries of CEOC
(c)  
Based on our ability and intent, assumes the exercise of extension options to move the maturity from 2014 to 2015, subject to certain conditions.
(d)  
Based on our ability and intent, assumes the exercise of extension options to move the maturity from 2013 to 2015, subject to certain conditions.

12

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)



As of March 31, 2013 and December 31, 2012 , book values are presented net of unamortized discounts of $2,670.8 million and $2,691.0 million , respectively.
Current Portion of Long-Term Debt
Our current maturities of long-term debt include required interim principal payments on certain term loans under the senior secured credit facilities, the special improvement district bonds and capitalized lease obligations. The current portion of long-term debt also includes $125.2 million and $0.6 million of 5.375% unsecured senior debt and 7.0% unsecured senior debt, respectively. Our current maturities exclude the PHW Las Vegas senior secured loan due in December 2013 and the CMBS financing due in February 2014 based upon the assumed exercise of our option to extend the maturity to 2015.
The current portion of long-term debt at December 31, 2012 includes $750.0 million of 9.0% notes issued in December 2012 pending satisfaction of certain escrow conditions. On February 20, 2013, the escrow conditions were satisfied and the debt obligation was re-classified to long-term.
CEOC Credit Facilities
In connection with the Acquisition, CEOC entered into the senior secured credit facilities (the “Credit Facilities”). This financing is neither secured nor guaranteed by Caesars Entertainment’s other direct, wholly-owned subsidiaries, including the subsidiaries that own properties that are security for the CMBS Financing, as defined in our 2012 10-K.
In January and February 2013, CEOC converted $133.9 million aggregate principal amount of original maturity revolver commitments held by consenting lenders to Term B-6 Loans and terminated $133.9 million principal amount of revolving commitments of extending lenders.
In connection with the February 2013 notes offering described in the CEOC Bond Offerings section below, CEOC received the requisite lenders’ consent and entered into a bank amendment to its Credit Facilities to, among other things: (i) use the net cash proceeds of the February 2013 notes offering to repay a portion of CEOC’s existing term loans as described in the CEOC Bond Offerings section below; (ii) obtain up to $75.0 million of extended revolving facility commitments with a maturity of January 28, 2017, (iii) increase the accordion capacity under the Credit Facilities by an additional $650.0 million (which may be used to, among other things, establish extended revolving facility commitments under the Credit Facilities); (iv) modify the calculation of the senior secured leverage ratio for purposes of the maintenance test under the Credit Facilities to exclude the notes issued in February 2013; and (v) modify certain other provisions of the Credit Facilities.
As of March 31, 2013 , our Credit Facilities provide for senior secured financing of up to $4,560.9 million , consisting of (i) senior secured term loans in an aggregate principal amount of $4,420.4 million , comprised of $29.1 million maturing on January 28, 2015, $967.5 million  maturing on October 31, 2016, and $3,423.8 million maturing on January 28, 2018, and (ii) a senior secured revolving credit facility in an aggregate principal amount of up to $140.5 million , with $109.4 million maturing January 28, 2014 and $31.1 million maturing on January 28, 2017, including both a letter of credit sub-facility and a swingline loan sub-facility. The term loans under the Credit Facilities require scheduled quarterly payments of $2.5 million , with the balance due at maturity. As of March 31, 2013 $86.8 million of the revolving credit facility is committed to outstanding letters of credit. After consideration of the letter of credit commitments, $53.7 million of additional borrowing capacity was available to the Company under its revolving credit facility as of March 31, 2013 .
CEOC Bond Offerings
In December 2012, CEOC completed the offering of $750.0 million aggregate principal amount of 9.0% senior secured notes due 2020. On February 20, 2013, when the proceeds were released from escrow, CEOC used $350.0 million of the proceeds to repay a portion of the existing term loans under the Credit Facilities at par.
In February 2013, CEOC completed the offering of $1,500.0 million aggregate principal amount of 9.0% senior secured notes due 2020. On March 27, 2013, when the proceeds were released from escrow, CEOC used $1,433.3 million of the proceeds to repay a portion of the existing term loans under the Credit Facilities at par.
As a result of these repayments, CEOC recognized a loss on early extinguishment of debt of $29.4 million .

13

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


CMBS Financing
In February 2013, we paid an extension fee of $23.3 million and exercised the option to extend the maturity of the CMBS Financing to 2014. The loan contains an additional extension option to extend its maturity from 2014 to 2015, subject to certain conditions. As part of the extension, we entered into a new interest rate cap agreement as further described in Note 8 , " Derivative Instruments ."
Restrictive Covenants and Other Matters
Certain of our borrowings have covenants and requirements that include, among other things, the maintenance of specific levels of financial ratios. Failure to comply with these covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions, or cause an event of default. Specifically, the Credit Facilities require CEOC to maintain a senior secured leverage ratio of no more than 4.75 to 1.0 , which is the ratio of senior first priority secured debt to last twelve months ("LTM") Adjusted EBITDA - Pro Forma - CEOC Restricted. After giving effect to the February 2013 bank amendment to the Credit Facilities discussed above, this ratio excludes $3,700.0 million of first priority senior secured notes and up to $350.0 million aggregate principal amount of consolidated debt of subsidiaries that are not wholly owned. For purposes of calculating the senior secured leverage ratio, the amount of senior first priority secured debt is reduced by the amount of unrestricted cash on hand. As of March 31, 2013, CEOC's senior secured leverage ratio was 3.82 to 1.0 .
In addition, certain covenants contained in CEOC's senior secured credit facilities and indentures covering its first priority senior secured notes and second priority senior secured notes restrict our ability to take certain actions such as incurring additional debt or making acquisitions if we are unable to meet a fixed charge coverage ratio (LTM Adjusted EBITDA-Pro Forma - CEOC Restricted to fixed charges) of at least 2.0 to 1.0 , a total first priority secured leverage ratio (first priority senior secured debt to LTM Adjusted EBITDA-Pro Forma - CEOC Restricted) of no more than 4.5 to 1.0 , and/or a consolidated leverage ratio (consolidated total debt to LTM Adjusted EBITDA-Pro Forma - CEOC Restricted) of no more than 7.25 to 1.0 . As of March 31, 2013 , CEOC's total first priority secured leverage ratio and consolidated leverage ratio were 6.69 to 1.0 and 12.95 to 1.0 , respectively. For the twelve months ended March 31, 2013 , CEOC's LTM Adjusted EBITDA-Pro Forma - CEOC Restricted was insufficient to cover fixed charges by $504.6 million . For purposes of calculating the fixed charge coverage ratio, fixed charges includes consolidated interest expense less interest income and any cash dividends paid on preferred stock (other than amounts eliminated in consolidation). For purposes of calculating the total first priority secured leverage ratio and the consolidated leverage ratio, the amounts of first priority senior secured debt and consolidated total debt, respectively, are reduced by the amount of unrestricted cash on hand. The covenants that provide for the fixed charge coverage ratio, total first priority secured leverage ratio, and consolidated leverage ratio described in this paragraph are not maintenance covenants.

Note 8 Derivative Instruments
Derivative Instruments – Interest Rate Swap Agreements
We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of March 31, 2013 , we have entered into eight interest rate swap agreements for notional amounts totaling $5,750.0 million . The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.

14

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


The major terms of the interest rate swap agreements as of March 31, 2013 are as follows:
Effective Date
 
Notional Amount
(In millions)
 
Fixed Rate
Paid
 
Variable Rate
Received as of
March 31, 2013
 
Next Reset Date
 
Maturity Date
April 25, 2011
 
$
250.0

 
1.351
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
April 25, 2011
 
250.0

 
1.347
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
April 25, 2011
 
250.0

 
1.350
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
January 25, 2011
 
1,000.0

 
3.068
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
April 25, 2011
 
1,000.0

 
3.150
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
January 25, 2011
 
1,000.0

 
3.750
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
April 25, 2011
 
1,000.0

 
3.264
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
January 25, 2011
 
1,000.0

 
3.814
%
 
0.204
%
 
April 25, 2013
 
January 25, 2015
The variable rate on our interest rate swap agreements did not materially change as a result of the April 25, 2013 reset.
Derivative Instruments – Interest Rate Cap Agreements
In February 2013, in conjunction with exercising the option to extend the maturity of the CMBS Financing to 2014, we entered into a new interest rate cap agreement. The interest rate cap agreement, which is effective from February 13, 2013 and terminates February 13, 2015, is for a notional amount of $4,664.1 million at a LIBOR cap rate of 4.5% . Any future changes in fair value of the interest rate cap will be recognized in interest expense during the period in which the changes in value occur.
Derivative Instruments – Other
During the second quarter of 2012, the Company entered into a written put option (the “Option”) for certain preferred equity interests. The potential future aggregate cash payments of $17.5 million as of March 31, 2013 related to the Option may occur from time to time. Based on the structure of this security as a written put option, the obligation for these potential cash payments is not reflected in our Consolidated Condensed Balance Sheets. Additionally, the Option is recorded in our Consolidated Condensed Balance Sheets at its fair value, which was de minimis as of March 31, 2013 .
Derivative Instruments – Impact on Consolidated Condensed Financial Statements
The following table represents the fair values of derivative instruments in the Consolidated Condensed Balance Sheets as of March 31, 2013 and December 31, 2012 :
 
 
Asset Derivatives
 
Liability Derivatives
  
March 31, 2013
 
December 31, 2012
 
March 31, 2013
 
December 31, 2012
(In millions)
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps

 
$

 
 
 
$

 
Deferred credits
and other
 
$
(282.6
)
 
Deferred credits
and other
 
$
(306.4
)
Interest rate caps
Deferred charges
and other
 
0.1

 
 
 

 

 

 

 

Total derivatives
 
 
$
0.1

 
 
 
$

 
 
 
$
(282.6
)
 
 
 
$
(306.4
)

15

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


The following table represents the effect of derivative instruments in the Consolidated Condensed Statements of Operations for the quarters ended March 31, 2013 and 2012 :
(In millions)
 
Amount of (Gain) or Loss Recognized in AOCL
(Effective Portion)
 
Location of (Gain) or
Loss Reclassified
From AOCL Into Net Loss
(Effective Portion)
 
Amount of (Gain) or
Loss Reclassified
from AOCL into Net Loss
(Effective Portion)
 
Location of (Gain) or Loss Recognized in Net Loss
(Ineffective Portion)
 
Amount of (Gain) or Loss Recognized in Net Loss
(Ineffective Portion)
Derivatives designated as hedging instruments
 
Quarter Ended March 31, 2013
 
Quarter Ended March 31, 2012
 
 
 
Quarter Ended March 31, 2013
 
Quarter Ended March 31, 2012
 
 
 
Quarter Ended March 31, 2013
 
Quarter Ended March 31, 2012
Interest rate contracts
 
$

 
$

 
Interest expense
 
$
3.9

 
$
7.1

 
Interest expense
 
$

 
$

(In millions)

 
 
Amount of (Gain) or Loss Recognized in Net Loss
Derivatives not designated as hedging instruments

Location of (Gain) or Loss Recognized in Net Loss
 
Quarter Ended March 31, 2013
 
Quarter Ended March 31, 2012
Interest rate contracts
 
Interest expense
 
$
(21.0
)
 
$
34.7

The difference to be paid or received under the terms of the interest rate swap agreements is recognized as interest expense and is paid monthly. This cash settlement portion of the interest rate swap agreements increased interest expense for the quarter ended March 31, 2013 and 2012 by $42.2 million and $41.8 million , respectively.
At March 31, 2013 , our variable-rate debt, excluding $5,750.0 million of variable-rate debt hedged using interest rate swap agreements, represents 19% of our total debt, while our fixed-rate debt is 81% of our total debt.

Note 9 — Reclassifications out of Accumulated Other Comprehensive Loss
For the quarter ended March 31, 2013 , reclassifications out of accumulated other comprehensive loss ("AOCL") include the following:
(In millions)
Defined Benefit Plan Adjustments
Foreign Currency Translation Adjustments
Losses on Derivative Instruments
Amount reclassified from AOCL to Interest expense, net of capitalized interest
$
0.2

$

$
3.9

Amount reclassified from AOCL to Write-downs, reserves, and project opening costs, net of recoveries

(4.1
)

Amount reclassified from AOCL to Loss/(income) from discontinued operations

(2.2
)

Related tax impact
(0.1
)

(1.4
)
Reclassification, net of income taxes
$
0.1

$
(6.3
)
$
2.5

For the quarter ended March 31, 2012 , reclassifications out of AOCL include the following:
(In millions)
Losses on derivative instruments
Amount reclassified from AOCL to Interest expense, net of capitalized interest
$
7.1

Related tax impact
(2.6
)
Reclassification, net of income taxes
$
4.5



16

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Note 10 — Casino Promotional Allowances
The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as casino promotional allowances.
The estimated retail value of such casino promotional allowances is included in operating revenues as follows:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Food and Beverage
$
159.4

 
$
167.9

Rooms
110.6

 
118.2

Other
23.8

 
23.7

 
$
293.8

 
$
309.8

The estimated cost of providing such casino promotional allowances is included in casino expenses as follows:  
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Food and Beverage
$
113.2

 
$
123.1

Rooms
44.2

 
45.6

Other
12.3

 
12.5

 
$
169.7

 
$
181.2


Note 11 — Loss Per Share
Basic loss per share from continuing operations and discontinued operations is calculated by dividing loss from continuing operations and (loss)/income from discontinued operations, respectively, net of income taxes, by the weighted-average number of common shares outstanding for each period. Because the Company generated net losses for the quarters ended March 31, 2013 and 2012 , the weighted-average basic shares outstanding was used in calculating diluted loss per share from continuing operations, and diluted (loss)/earnings per share from discontinued operations, as using diluted shares would be anti-dilutive to loss per share.
The following table shows the number of shares which were excluded from the computation of diluted loss per share as they were anti-dilutive:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Stock options
2.4

 
8.1

Warrants
0.4

 
0.4

Total anti-dilutive potential common shares
2.8

 
8.5



17

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Note 12 — Write-downs, Reserves, and Project Opening Costs, net of Recoveries
Write-downs, reserves, and project opening costs, net of recoveries include project opening costs and various pre-tax charges to record contingent liability reserves, costs associated with efficiency projects, project write-offs, demolition costs, and other non-routine transactions, net of recoveries of previously recorded non-routine reserves.
The components of write-downs, reserves, and project opening costs, net of recoveries are as follows:
 
Quarter Ended March 31,
(In millions)
2013

2012
Write-downs and reserves, net of recoveries:
 
 
 
Remediation costs
$
12.1

 
$
2.4

Divestitures and abandonments
1.8

 
6.2

Efficiency projects

 
6.1

Other
5.1

 
(0.2
)
Total write-downs and reserves, net of recoveries
19.0

 
14.5

Project opening costs
1.7

 
1.7

Total write-downs, reserves, and project opening costs, net of recoveries
$
20.7

 
$
16.2

Remediation costs relate to projects at certain of our Las Vegas properties.
Divestitures and abandonments include (gains)/losses on divested or abandoned assets and costs associated with various projects that are determined to no longer be viable.
Efficiency projects represent costs incurred to identify and implement efficiency programs aimed at streamlining corporate and operating functions to achieve cost savings.
Other includes contingent liability reserves, demolition costs, and other non-routine transactions.

Note 13 — Income Taxes
Total income taxes were allocated as follows:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Income tax benefit on loss before income taxes
$
(290.2
)
 
$
(158.3
)
Income tax (benefit)/provision on discontinued operations
(2.8
)
 
6.9

Accumulated other comprehensive loss
1.5

 
2.9

We classify reserves for tax uncertainties within accrued expenses and deferred credits and other in our Consolidated Condensed Balance Sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.
The effective tax rate for the quarter ended March 31, 2013 and 2012 was 62.3% and 35.4% , respectively. The primary cause for the difference from the federal statutory rate of 35% is due to a discrete tax benefit from a capital loss resulting from a tax election made for U.S. federal income tax purposes during the quarter which was retroactive to December 2012. In addition, the rate was favorably impacted by (i) retroactive U.S. tax law changes which were enacted in January 2013 and (ii) a favorable tax ruling in Israel received in February 2013.
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular and recurring audit by the Internal Revenue Service on open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next twelve months.

18

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)



Note 14 — Fair Value Measurements
Items Measured at Fair Value on a Recurring Basis
The following table shows the fair value of our financial assets and financial liabilities that are required to be measured at fair value as of March 31, 2013 and December 31, 2012
(In millions)
Balance 
 
Level 1
 
Level 2
 
Level 3
March 31, 2013
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments
$
157.8

 
$
157.8

 
$

 
$

Derivative instruments
0.1

 

 
0.1

 

Liabilities:
 
 
 
 
 
 
 
Derivative instruments
(282.6
)
 

 
(282.6
)
 

 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments
$
155.2

 
$
155.2

 
$

 
$

Derivative instruments
*

 

 
*

 

Liabilities:
 
 
 
 
 
 
 
Derivative instruments
(306.4
)
 

 
(306.4
)
 

___________________
*
Amount rounds to zero
The following section describes the valuation methodologies used to estimate or measure fair value, key inputs, and significant assumptions:
Investments
Investments consist of debt and equity securities with maturity dates greater than 90 days at the date of the security's acquisition. These securities are traded in active markets, have readily determined market values, and use Level 1 inputs. Securities for which there are not active markets or the market values are not readily determinable are valued using Level 2 inputs. All of these investments are included in either prepayments and other current assets or deferred charges and other in our Consolidated Condensed Balance Sheets.
The fair value of investments in marketable securities were as follows:
(In millions)
March 31, 2013
 
December 31, 2012
Equity securities
$
3.2

 
$
2.8

Government bonds
111.9

 
111.4

Other liquid investments
42.7

 
41.0

Total investments
$
157.8

 
$
155.2

Gross unrealized gains and losses on marketable securities at March 31, 2013 and December 31, 2012 were not material.
Derivative instruments
The estimated fair values of our derivative instruments are derived from market prices obtained from dealer quotes for similar, but not identical, assets or liabilities. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. Our derivatives are recorded at their fair values, adjusted for the credit rating of the counterparty if the derivative is an asset, or adjusted for the credit rating of the Company if the derivative is a liability. See Note 8 , " Derivative Instruments ," for more information.

19

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Items Measured at Fair Value on a Non-recurring Basis
The following table shows the fair value of our assets and liabilities that are required to be measured at fair value as of March 31, 2013 and the total impairment recorded on these assets during the three months ended March 31, 2013 :
(In millions)
Balance 
 
Level 1
 
Level 2
 
Level 3
 
Total Impairment
Intangible assets other than goodwill
$
17.8

 
$

 
$

 
$
17.8

 
$
20.0

Net assets held for sale
$
394.6

 
$

 
$

 
$
394.6

 
$
21.0

Contingent earnout liability
$
58.0

 
$

 
$

 
$
58.0

 
$

Net assets held for sale represent the net assets of the subsidiaries that hold our land concession in Macau and the contingent earnout liability relates to CIE's acquisition of Buffalo's assets, both of which are further described in Note 3, " Acquisitions, Investments, Dispositions and Divestitures ."
Market and income approaches were used to value the intangible and tangible assets in accordance with the provisions of FASB Codification Subtopic 350, Intangibles -- Goodwill and Other , and Subtopic 360, Property, Plant, and Equipment . Inputs included an expected range of market values, probability assessments made by management that each outcome could be achieved, expected cash flows, recent comparable transactions, discounted cash flows, discount rate, royalty rate, growth rate, and tax rate. The fair value of our contingent liability is estimated based upon probability-weighted outcomes using the best information available including cash flow projections.
Items Disclosed at Fair Value
Long-term debt
The fair value of the Company’s debt has been calculated based on the borrowing rates available as of March 31, 2013 , for debt with similar terms and maturities, and based on market quotes of our publicly traded debt. As of March 31, 2013 , the Company’s outstanding debt had an estimated fair value of $21,499.1 million  and a carrying value of $21,277.1 million .

Note 15 — Litigation, Contractual Commitments and Contingent Liabilities
Litigation
Nevada Sales and Use Tax
The Supreme Court of Nevada decided in early 2008 that food purchased for subsequent use in the provision of complimentary and/or employee meals is exempt from use tax. Previously, such purchases were subject to use tax and the Company has claimed, but not recognized into earnings, a use tax refund totaling $32.2 million , plus interest, as a result of the 2008 decision. In early 2009, the Nevada Department of Taxation ("Department”) audited our refund claim, but has taken the position that those same purchases are now subject to sales tax; therefore, they subsequently issued a sales tax assessment totaling $27.4 million plus interest after application of our refund on use tax.
On October 21, 2010, the administrative law judge (“ALJ”) issued a decision and ruled in our favor on a number of key issues, including that complimentary employee meals are not subject to sales tax. Although both the Company and the Department filed an appeal of the decision with the Nevada Tax Commission (“Commission”), the case was returned to the ALJ for further factual development. The ALJ issued a second decision on March 8, 2012, reversing her previous, partially favorable ruling relating to the taxability of complimentary employee meals and affirmed the taxability of complimentary meals but limited the entire sales tax assessment to the amount of the Company's use tax refund claims resulting in no use tax refund awarded but no sales tax amounts due. The ALJ decision was affirmed in the Commission hearing on June 25, 2012 and the Commission's final decision was issued on July 31, 2012. We filed a petition for judicial review with the District Court on August 7, 2012. On March 1, 2013, the District Court judge ruled that employee meals are not subject to sales tax but affirmed the application of sales tax to complimentary patron meals. Additionally, the judge ordered a refund of the portion of our use tax refund claims filed prior to October 1, 2005 without any offsetting sales tax assessments relating to complimentary patron meals for those periods. We have appealed the District Court decision to the Nevada Supreme Court.

20

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Subsequent to a written Commission decision issued in February 2012 for another gaming company, the Department has issued draft regulations requiring the collection of sales tax on the retail value of complimentary meals and the cost of employee meals. Although the Commission approved the regulation on June 25, 2012, there are several additional approvals required, including by the Legislative Commission, before the regulation is finalized. On June 6, 2012, the Department issued additional guidance regarding the payment of sales tax on complimentary and employee meals, maintaining that meals are taxable as of February 15, 2012 but that the payment of the tax is due, without penalty or interest, at the earlier of (a) one month after approval of the regulation by the Legislative Commission, (b) one month after a Nevada Supreme Court decision, (c) the effective date of any legislation or (d) June 30, 2013. The Department stated that it provided this additional guidance regarding the deferral of payment requirements because the Legislative Commission has not had the opportunity to approve the regulation and because there are several ongoing appeals that have not been heard by the Commission and the Nevada Supreme Court.
As of March 31, 2013 we have accrued $17.5 million in sales tax accruals on complementary meals. Due to uncertainty regarding the ultimate outcome of our pending litigation and/or the final approval and form of the pending regulation, we continue to record sales tax reserves against loss on this matter.
Other
The Company is party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material effect on our consolidated financial position, results of operations, or cash flows.
Contractual Commitments
Material changes to our aggregate indebtedness are described in Note 7 , " Debt ." At March 31, 2013 , our estimated interest payments for the rest of the year ended December 31, 2013 are $1,511.8 million , for the years ended December 31, 2014 through 2017 are $2,024.6 million , $1,682.4 million , $1,527.9 million , and $1,273.5 million , respectively, and our estimated interest payments thereafter are $1,421.1 million .
There have been no material changes of our other known contractual obligations to those set forth in our 2012 10-K.


21

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Contingent Liabilities
In December 1998, Hilton Hotels Corporation ("Hilton") spun-off its gaming operations as Park Place Entertainment Corporation ("Park Place"). In connection with the spin-off, Hilton and Park Place entered into various agreements, including an Employee Benefits and Other Employment Allocation Agreement dated December 31, 1998 (the "Allocation Agreement") whereby Park Place assumed or retained, as applicable, certain liabilities and excess assets, if any, related to the Hilton Hotels Retirement Plan (the "Hilton Plan") based on the accrued benefits of Hilton employees and Park Place employees. Park Place changed its name to Caesars Entertainment, Inc., and the Company acquired Caesars Entertainment, Inc. in June 2005. In 1999 and 2005, the United States District Court for the District of Columbia (the "Court") certified two nationwide classes in the lawsuit against Hilton and others alleging that the Hilton Plan's benefit formula was backloaded in violation of ERISA, and that Hilton and the other defendants failed to properly calculate Hilton Plan participants' service for vesting purposes. In May 2009, the Court issued a decision granting summary judgment to the plaintiffs. Thereafter, the Court required the parties to attempt to agree on a remedies determination and further required the parties to submit briefs to the Court in support of their positions. On September 7, 2010, the Court issued an opinion resolving certain of Hilton's and the plaintiffs' issues regarding a remedies determination and requiring the parties to confer and take other actions in an effort to resolve the remaining issues. On July 28 and 29, 2011, the Court held a hearing to address the remaining remedy issues and on August 31, 2011, the Court issued a Memorandum Opinion and a final Order (the “Order”). In the Order, the Court ordered, among other things, Hilton to award back payments and commence increased benefits for all class members no later than January 1, 2012 or, in the case of any individual benefit or vesting disputes, within 30 days after the final dispute resolution by the Court. On September 28, 2011, Hilton filed a Motion for Reconsideration to ask the Court to reconsider certain aspects of the Order. On October 5, 2011, Hilton filed a Notice of Appeal to appeal all aspects of the Order and all other orders in the case to the United States Court of Appeals for the District of Columbia Circuit (the "Circuit Court") and on December 22, 2011, plaintiffs filed a cross-appeal. On November 28, 2011, Hilton filed a motion to stay the implementation of the backloading remedy pending the appeal and on January 19, 2012, the Court granted Hilton's motion contingent upon Hilton posting a bond of $75.8 million by no later than February 21, 2012. On December 14, 2012, the Circuit Court affirmed the decisions of the Court. At various times prior to the Court’s 2010 opinion, we were advised by counsel for the defendants that the plaintiffs estimated that the damages were in the range of $80.0 million to $280.0 million . Counsel for the defendants further advised that approximately $50 million of the damages relates to questions regarding the proper size of the class and the amount, if any, of damages to any additional class members due to issues with Hilton’s record keeping.
The Company received a letter from Hilton dated October 7, 2009 notifying the Company for the first time of this lawsuit and alleging that the Company has potential liability for the above described claims under the terms of the Allocation Agreement. Based on the terms of the Allocation Agreement, the Company believes its maximum potential exposure is approximately 30 percent to 33 percent of the amount ultimately awarded as damages. The Company is not a party to the proceedings between the plaintiffs and the defendants and has not participated in the defense of the litigation or in any discussions between the plaintiffs and the defendants about potential remedies or damages. Further, the Company does not have access to information sufficient to enable the Company to make an independent judgment about the possible range of loss in connection with this matter. Based on conversations between our representative of the Company and a representative of the defendants, the Company believes it is probable that damages will be at least $80.0 million and, accordingly, the Company recorded a charge of $25.0 million in accordance with FASB Codification Subtopic 450, Contingencies , during the second quarter 2010 in relation to this matter. The Company has not changed its belief respecting the damages which may be awarded in this lawsuit as a result of the 2010 opinion of the Court, the Order, or the Circuit Court's rulings. The Company also continues to believe that it may have various defenses if a claim under the Allocation Agreement is asserted against the Company, including defenses as to the amount of damages. Because the Company has not had access to sufficient information regarding this matter, we cannot at this time predict the ultimate outcome of this matter or the possible additional loss, if any.

Note 16 — Supplemental Cash Flow Information
Significant Non-cash Transactions
Significant non-cash transactions during the three months ended March 31, 2013 include non-cash intangible asset impairment charges of $20.0 million as further described in Note 6 , " Goodwill and Other Intangible Assets ," and non-cash charges of $42.5 million related to discontinued operations as further described in Note 3 , " Acquisitions, Investments, Dispositions and Divestitures ."

22

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Cash Paid for Interest and Taxes
The following table reconciles our interest expense, net of capitalized interest, per the Consolidated Condensed Statements of Operations, to cash paid for interest:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Interest expense, net of interest capitalized
$
574.7

 
$
562.0

Adjustments to reconcile to cash paid for interest:
 
 
 
Net change in accruals
(160.4
)
 
(149.1
)
Amortization of deferred finance charges
(16.0
)
 
(38.3
)
Net amortization of discounts and premiums
(70.7
)
 
(58.2
)
Amortization of accumulated other comprehensive loss
(4.2
)
 
(7.2
)
Rollover of PIK interest to principal
(0.6
)
 
(0.5
)
Change in fair value of derivative instruments
21.0

 
(34.7
)
Cash paid for interest
$
343.8

 
$
274.0

Cash payments for income taxes, net
$
7.7

 
$
3.8


Note 17 — Stock-Based Compensation
Our stock-based compensation expense consists primarily of time-based and performance-based options of Caesars Entertainment and one of its subsidiaries that have been granted to management, other personnel and key service providers. The Company has recognized compensation expense associated with its stock-based compensation programs as follows:
 
Quarter Ended March 31,
(In millions)
2013
 
2012
Amounts included in: