You should read the following discussion together with the financial statements, including the related notes and the other financial information, contained in this Quarterly Report on Form 10-Q.Caesars Entertainment, Inc. , aDelaware corporation formerly known asEldorado Resorts, Inc. ("ERI" or "Eldorado"), is referred to as the "Company," "CEI," "Caesars," or the "Registrant," and together with its subsidiaries may also be referred to as "we," "us" or "our." Overview We are a geographically diversified gaming and hospitality company that was founded in 1973 by the Carano family with the opening of theEldorado Hotel Casino inReno, Nevada . We partnered with MGM Resorts International to buildSilver Legacy Resort Casino inReno, Nevada in 1993 and, beginning in 2005, we grew through a series of acquisitions, including the acquisition of EldoradoShreveport in 2005,MTR Gaming Group, Inc. in 2014, Circus Circus Reno ("CircusReno ") and the 50% membership interest in the Silver Legacy that was owned by MGM Resorts International in 2015,Isle of Capri Casinos , Inc. ("Isle" or "Isle of Capri") in 2017 andGrand Victoria Casino ("Elgin") andTropicana Entertainment, Inc. ("Tropicana") in 2018. OnJuly 20, 2020 , we completed the merger withCaesars Entertainment Corporation ("Former Caesars") pursuant to which Former Caesars became our wholly-owned subsidiary (the "Merger"). As a result of the Merger, we currently own, lease or manage an aggregate of 56 domestic properties in 16 states with approximately 67,200 slot machines, video lottery terminals ("VLTs") and e-tables, approximately 3,500 table games and approximately 48,800 hotel rooms as ofSeptember 30, 2020 . We also have international operations in five countries outside of theU.S. In addition, we have other domestic and international properties that are authorized to use the brands and marks ofCaesars Entertainment, Inc. , as well as other non-gaming properties. Upon completion of our previously announced sales, or expected sales, of certain gaming properties, we expect that we will continue to own, lease or manage 51 properties. Our primary source of revenue is generated by gaming operations, and we utilize our hotels, restaurants, bars, entertainment, racing, sportsbook offerings, retail shops and other services to attract customers to our properties. In connection with the Merger,Caesars Entertainment Corporation changed its name to "Caesars Holdings, Inc. " andEldorado Resorts, Inc. converted into aDelaware corporation and changed its name to "Caesars Entertainment, Inc. " In addition, effective as ofJuly 21, 2020 our ticker symbol on theNASDAQ Stock Market changed from "ERI" to "CZR". In connection with the Merger, we also entered into a Master Transaction Agreement (the "MTA") with VICI Properties L.P., aDelaware limited partnership ("VICI"), pursuant to which, among other things, we agreed to consummate certain sale and leaseback transactions and amend certain lease agreements with VICI and/or its affiliates, with respect to certain property described in the MTA. As ofSeptember 30, 2020 , we owned 23 of our casinos and leased 28 casinos in theU.S. We have leases withGLP Capital, L.P. , the operating partnership of Gaming and Leisure Properties, Inc. ("GLPI"), including ourMaster Lease that we entered into in connection with the Tropicana Acquisition onOctober 1, 2018 (as amended, the "GLPI Master Lease") and our Lumiere lease. Six of the leased casinos are subject to leases with GLPI, and we lease an additional 22 casinos from other third parties, including VICI. See descriptions under the "GLPIMaster Lease " and "VICI Leases". We periodically divest of assets in order to raise capital or as a result of a determination that the assets are not core to our business. We also divested certain assets, and are required to divest additional assets, in connection with regulatory approvals related to closing of the Merger. A summary of recently completed and planned divestitures of our properties as ofSeptember 30, 2020 is as follows: 44 -------------------------------------------------------------------------------- Segment Property Date Sold Location Regional Presque Isle Downs & Casino ("Presque") January 11, 2019 Pennsylvania Regional Lady Luck Casino Nemacolin ("Nemacolin") March 8, 2019 Pennsylvania Mountaineer Casino, Racetrack and Resort Regional ("Mountaineer") December 6, 2019 West Virginia Regional Isle Casino Cape Girardeau ("Cape Girardeau") December 6, 2019 Missouri Lady Luck Casino Caruthersville Regional ("Caruthersville") December 6, 2019 Missouri Isle of Capri Casino Kansas City ("Kansas Regional City") July 1, 2020 (a) Missouri Regional Lady Luck Casino Vicksburg ("Vicksburg") July 1, 2020 (a) Mississippi Eldorado Resort Casino Shreveport ("Eldorado N/A (b) Louisiana Regional Shreveport") Regional MontBleu Casino Resort & Spa ("MontBleu") N/A (b) Nevada Regional Tropicana Evansville ("Evansville") N/A (c) Indiana Discontinued operations (d): Regional Harrah's Reno September 30, 2020 (e) Nevada Regional Bally's Atlantic City N/A (f) New Jersey Harrah's Louisiana Downs Casino, Racing & N/A (g) Regional Entertainment ("Harrah's Louisiana Downs") Louisiana Regional Caesars Southern Indiana N/A (c) Indiana Regional Horseshoe Hammond N/A (c) Indiana
Managed, International, CIE Emerald Resort & Casino N/A South Africa Managed, International, CIE Caesars Entertainment UK N/A United Kingdom (a)We closed the sales ofKansas City andVicksburg onJuly 1, 2020 and recorded a gain of approximately$8 million during the quarter endedSeptember 30, 2020 . (b)OnApril 24, 2020 , we entered into a definitive purchase agreement withTwin River Worldwide Holdings, Inc. ("Twin River") and certain of its affiliates for the sale of the equity interests ofEldorado Resort Casino Shreveport Joint Venture andColumbia Properties Tahoe, LLC , the entities that hold EldoradoShreveport and MontBleu for aggregate consideration of$155 million , subject to a working capital adjustment. The definitive agreement provides that the consummation of the sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and Eldorado Shreveport and MontBleu are expected to close in the first quarter of 2021. EldoradoShreveport and MontBleu met the requirements for presentation as assets held for sale under generally accepted accounting principles as ofSeptember 30, 2020 . In conjunction with the classification of MontBleu's operations as assets held for sale as a result of the announced sale, an impairment charge totaling$45 million was recorded during the nine months endedSeptember 30, 2020 due to the carrying value exceeding the estimated net sales proceeds. (c)In connection with its review of the Merger, theIndiana Gaming Commission determined onJuly 16, 2020 that we are required to divest three properties within the state ofIndiana in order to avoid undue economic concentrations as conditions to theIndiana Gaming Commission's approval of the Merger. OnOctober 27, 2020 , the Company entered into an agreement to sellEvansville to GLPI andTwin River for$480 million in cash, subject to a customary working capital adjustment. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in mid-2021. In addition, we plan to enter into agreements to divest of CaesarsSouthern Indiana , and Horseshoe Hammond prior toDecember 31, 2020 .Evansville met the requirements for presentation as assets held for sale under generally accepted accounting principles as ofSeptember 30, 2020 . See (d) below for Caesars Southern Indiana, and Horseshoe Hammond. (d)These Former Caesars properties met, or are expected to meet within a short period of time, held for sale criteria as of the acquisition date. The sales of these properties have or are expected to close within one year from the date of the closing of the Merger and the properties are classified as discontinued operations. (e)OnSeptember 30, 2020 , we and VICI completed the sale of Harrah'sReno to an affiliate of CAI Investments for$42 million , which proceeds were split between us and VICI. We received approximately$8 million of net proceeds. (f)OnApril 24, 2020 , Former Caesars reached an agreement with VICI to sellBally's Atlantic City Hotel & Casino toTwin River for approximately$25 million . Caesars will receive approximately$6 million from the sale. In addition, onOctober 9, 2020 , we reached an agreement to sell the Bally's brand toTwin River for$20 million , while retaining the right to use the brand withinBally's Las Vegas into perpetuity. 45 -------------------------------------------------------------------------------- (g)OnSeptember 3, 2020 , we and VICI entered into agreement to sell Harrah's Louisiana Downs withRubico Acquisition Corp. for$22 million , subject to a customary working capital adjustment, where the proceeds will be split between us and VICI. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the first half of 2021. Merger Related Activities Merger withCaesars Entertainment Corporation OnJuly 20, 2020 , the Merger was consummated and Former Caesars became a wholly-owned subsidiary of ours. The strategic rationale for the Merger includes, but is not limited to, the following: •Creation of the largest owner, operator and manager of domestic gaming assets •Diversification of the Company's domestic footprint •Access to iconic brands, rewards programs and new gaming opportunities expected to enhance customer experience •Realization of significant identified synergies Based on the closing price of$38.24 per share of the Company's common stock, par value$0.00001 per share ("Company Common Stock"), reported on NASDAQ onJuly 20, 2020 , the aggregate implied value of the aggregate merger consideration paid to former holders of Former Caesars common stock in connection with the Merger was approximately$8.5 billion , including approximately$2.4 billion in the Company Common Stock and approximately$6.1 billion in cash. The aggregate merger consideration transferred also included approximately$2.4 billion related to the repayment of certain outstanding debt balances of Former Caesars and approximately$48 million of other consideration paid, which includes$19 million related to a transaction success fee, for the benefit of Former Caesars, and$29 million for the replacement of equity awards of certain employees attributable to services provided prior to the Merger. Pursuant to the Merger, each share of Former Caesars common stock was converted into the right to receive, at the election of the holder thereof and subject to proration, approximately$12.41 of cash consideration or approximately 0.3085 shares of Company Common Stock, with a value equal to approximately$12.41 in cash (based on the volume weighted average price per share of Company Common Stock for the 10 trading days ending onJuly 16, 2020 ). Following the consummation of the Merger, stockholders of the Company and stockholders of Former Caesars held approximately 61% and 39%, respectively, of the outstanding shares of Company Common Stock. We recognized acquisition-related transaction costs of$107 million and$129 million for the three and nine months endedSeptember 30, 2020 , respectively, and$13 million and$17 million for the three and nine months endedSeptember 30, 2019 , respectively. Partnerships and Acquisition OpportunitiesWilliam Hill InSeptember 2018 , we entered into a 25-year agreement, which became effectiveJanuary 2019 , with William Hill plc andWilliam Hill U.S. Holdco, Inc. ("William Hill US"), itsU.S. subsidiary (together, "William Hill") pursuant to which we (i) granted to William Hill the right to conduct betting activities, including operating sportsbooks, in retail channels and under our first skin and third skin for online channels with respect to our current and future properties located inthe United States and the territories and possessions ofthe United States , includingPuerto Rico and theU.S. Virgin Islands and (ii) agreed that William Hill will have the right to conduct real money online gaming activities utilizing our second skin available with respect to properties in such territories. Pursuant to the terms of the agreement, we received a 20% ownership interest in William Hill US valued at approximately$129 million as well as 13 million ordinary shares of William Hill plc with an initial value of approximately$27 million upon closing of the transaction inJanuary 2019 . Our profit and losses attributable to William Hill US are included in Transaction costs and other operating costs on the Consolidated Condensed Statements of Operations. We granted William Hill the right to the use of certain skins in exchange for an equity method investment. The fair value of theWilliam Hill US and William Hill plc shares received has been deferred and is recognized as revenue on a straight-line basis over the 25-year agreement term. The amortization of deferred revenues associated with our equity interests is included in other revenue within our Corporate and Other segment. Additionally, we receive a profit share from the operations of betting and other gaming activities associated with our properties. OnSeptember 30, 2020 , we announced that we had reached an agreement with William Hill plc on the terms of a recommended cash acquisition pursuant to which we would acquire the entire issued and to be issued share capital (other than shares owned by us or held in treasury) of William Hill plc, in an all-cash transaction of approximately £2.9 billion, or$3.7 billion . The transaction is conditioned on, among other things, the approval of William Hill plc shareholders and receipt of required regulatory approvals. To provide liquidity to fund the cash purchase price for the proposed acquisition, we entered into various 46 -------------------------------------------------------------------------------- financing transactions. OnSeptember 25, 2020 , we borrowed$900 million under the CEI Revolving Credit Facility (defined below), which was repaid subsequent toSeptember 30, 2020 . OnSeptember 28, 2020 , we deposited$2.1 billion , which included borrowings under the CEI Revolving Credit Facility, into an escrow account related to the William Hill offer. As ofSeptember 30, 2020 , these funds in escrow were classified as restricted cash until certain regulatory approvals were received. In addition, onOctober 1, 2020 , we raised an additional$1.9 billion through a public offering of Company Common Stock. In connection with the proposed acquisition of William Hill plc, onSeptember 29, 2020 , the Company entered into a debt financing commitment letter pursuant to which the lenders party thereto have committed to arrange and provide a newly formed subsidiary of the Company with (a) a £1.0 billion senior secured 540-day bridge loan facility, (b) a £116 million senior secured 540-day revolving credit facility and (c) a £503 million senior secured 60-day bridge loan facility (collectively, the "Debt Financing"). The proceeds of the Debt Financing will be used (i) to pay a portion of the cash consideration for the proposed acquisition, (ii) to refinance certain of William Hill plc's and its subsidiaries' existing debt, (iii) to pay fees and expenses related to the acquisition and related transactions and (iv) for working capital and general corporate purposes. In order to manage the risk of appreciation of the GBP denominated purchase price the Company has entered into foreign exchange forward contracts. In connection with the Debt Financing onOctober 6, 2020 , our newly formed subsidiary entered into a £1.5 billion Interim Facilities Agreement with Deutsche Bank AG,London Branch andJPMorgan Chase Bank, N.A . to provide: (a) a 540-day £1.0 billion asset sale bridge facility and (b) a 60-day £503 million cash confirmation bridge facility. Upon receipt of regulatory approvals, the restriction on the$2.1 billion funded as ofSeptember 30, 2020 was released and we transferred$1.4 billion of cash into our operating accounts and the outstanding balance of the CEI Revolving Credit Facility was repaid in full. Approximately$598 million of cash remains in an unrestricted account.The Stars Group/Flutter Entertainment InNovember 2018 , we entered into a 20-year agreement with The Stars Group Inc. ("TSG") pursuant to which we agreed to provide TSG with options to obtain access to our second skin for online sports wagering and third skin for real money online gaming and poker, in each case with respect to our properties inthe United States . Under the terms of the agreement, we received 1 million TSG common shares. The fair value of the shares received has been deferred and is recognized as revenue on a straight-line basis over the 20-year agreement term. All shares are subject to a one year restriction on transfer from the date they are received. OnMay 5, 2020 ,Flutter Entertainment PLC ("Flutter") completed the acquisition of all of the issued and outstanding common shares of TSG in exchange for 0.2253 Flutter shares per common share of TSG. In addition, we will receive a revenue share from the operation of the applicable verticals by TSG under our licenses. Reportable Segments The following table sets forth certain information regarding our properties (listed by segment in which each property is reported) as ofSeptember 30, 2020 : Las Vegas Regional Managed, International, CIE (a) Bally's Las Vegas Eldorado Resort Casino (a) Harrah's Atlantic City International Reno (a) The Cromwell Silver Legacy Resort (a) Harrah's Laughlin (a) Caesars Cairo Casino (a) Flamingo Las Vegas Circus Circus Reno (a) Harrah's New Orleans (a) Ramses Casino (a) The LINQ Hotel & Casino MontBleu Casino Resort & (a) Hoosier Park (f) (a) Emerald Casino Resort (b) Spa (c) (a) Paris Las Vegas Tropicana Laughlin Hotel (a) Indiana Grand (g) (a) Alea Glasgow (b) & Casino (a) Planet Hollywood Resort Isle Casino Hotel - (a) Bally's Atlantic City (a) Alea Nottingham (b) & Casino Blackhawk
(b)
(a) Caesars Palace Las Vegas
(a) The Empire Casino (b) Hawk (a) Harrah's Las Vegas Isle Casino Waterloo (a) Caesars Southern (a) Manchester235 (b)
(a) Rio All-Suite Hotel & Isle Casino Bettendorf (a) Harrah's Council Bluffs (a) Playboy Club London (b) Casino Isle of Capri Casino (a) Harrah's Gulf Coast (a) Rendezvous Brighton (b) Boonville Isle of Capri Casino (a) Harrah's Joliet (a) Rendezvous Southend-on-Sea Kansas City (d) (j)(b) Isle Casino Racing (a) Harrah's Lake Tahoe (a) The Sportsman (b) Pompano Park 47
-------------------------------------------------------------------------------- Eldorado Resort Casino (a) Harrah's Louisiana Downs Managed Shreveport (c) (h)(b) Isle of Capri Casino (a) Harrah's Metropolis (a) Harrah's Ak-Chin Hotel Lake Charles Belle of Baton Rouge (a) Harrah's North Kansas (a) Harrah's Cherokee Casino & Hotel City Isle of Capri Casino Lula (a) Harrah's Philadelphia (a) Harrah's Cherokee Valley River Lady Luck Casino (a) Harrah's Reno (i)(b) (a) Harrah's Resort Southern Vicksburg (d) California Trop Casino Greenville (a) Harveys Lake Tahoe (a) Horseshoe Baltimore (k) Eldorado Gaming Scioto (a) Horseshoe Bossier City (a) Caesars Windsor Downs Tropicana Casino and (a) Horseshoe Council Bluffs (a) Kings & Queens Casino Resort, Atlantic City Grand Victoria Casino (a) Horseshoe Hammond (e)(b) (a) Caesars Dubai Lumière Place Casino (a) Horseshoe Tunica CIE Tropicana Evansville (e) (a) Caesars Interactive Entertainment ___________________ (a)These properties were acquired from the Merger with Former Caesars onJuly 20, 2020 . (b)As a result of the Merger, the sales of these properties met the requirements for presentation as discontinued operations as ofSeptember 30, 2020 . (c)InApril 2020 , the Company entered into an agreement to sell EldoradoShreveport and MontBleu, which are expected to close in the first quarter of 2021. As ofSeptember 30, 2020 , the properties' assets and liabilities were classified as held for sale. (d)Kansas City andVicksburg were sold onJuly 1, 2020 . (e)OnOctober 27, 2020 , the Company entered into an agreement to sellEvansville , which is expected to close mid-2021. In addition, the Company plans to enter into an agreement to divest of Caesars Southern Indiana, and HorseshoeHammond prior toDecember 31, 2020 . As ofSeptember 30, 2020 ,Evansville's assets and liabilities were classified as held for sale. (f)Hoosier Park includes operations of our off-track betting locations, Winner's Circle Indianapolis and Winner's Circle New Haven. (g)Indiana Grand includes operations of our off-track betting location, Winner's Circle Clarksville. (h)OnSeptember 3, 2020 , the Company entered into an agreement to sell Harrah's Louisiana Downs, which is expected to close in the in the first half of 2021. (i)Harrah'sReno was sold onSeptember 30, 2020 . (j)Rendezvous Southend-on-Sea permanently closed inJune 2020 following the recent closure due to the COVID-19 public health emergency. (k)As ofSeptember 30, 2020 , Horseshoe Baltimore was 44.3% owned and held as an equity-method investment. The executive decision maker of the Company reviews operating results, assesses performance and makes decisions on a "significant market" basis. Management views each of our casinos as an operating segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, and their management and reporting structure. Prior to the Merger, our principal operating activities occurred in five geographic regions and reportable segments: West, Midwest, South, East and Central. Following the Merger, our principal operating activities occur in three regionally-focused reportable segments. The reportable segments continue to be based on the similar characteristics of the operating segments within the regions in which they operate and align with the way management assesses these results and allocates resources. The Company's reportable segments are: (1)Las Vegas , (2) Regional, and (3) Managed, International, CIE, in addition to Corporate and Other. Presentation of Financial Information The financial information included in this Item 2 for the period after our acquisition of Former Caesars onJuly 20, 2020 is not fully comparable to the periods prior to the acquisition. In addition, the presentation of financial information herein for the periods after our sales of Presque andNemacolin onJanuary 11, 2019 andMarch 8, 2019 , respectively, our sales of Mountaineer,Cape Girardeau andCaruthersville onDecember 6, 2019 , and our sales ofKansas City andVicksburg onJuly 1, 2020 are not fully comparable to the periods prior to their respective sale dates. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist in better understanding and evaluating our financial condition and results of operations. Our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets, as well as by factors discussed elsewhere herein. We recommend that you read this MD&A in conjunction with our unaudited consolidated condensed financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q. 48 -------------------------------------------------------------------------------- Key Performance Metrics Our primary source of revenue is generated by our gaming operations, but we use our hotels, restaurants, bars, entertainment, retail shops, racing, sportsbook offerings and other services to attract customers to our properties. Our operating results are highly dependent on the volume and quality of customers visiting and staying at our properties. Key performance metrics include volume indicators such as table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. Other Recent Developments and Significant Factors Impacting Financial Results The following summary highlights recent developments and significant factors impacting our financial results for the three and nine months endedSeptember 30, 2020 and 2019. •COVID-19 Public Health Emergency - InJanuary 2020 , an outbreak of a new strain of coronavirus ("COVID-19") was identified and has since spread throughout much of the world, includingthe United States . All of our casino properties were temporarily closed for the period frommid-March 2020 throughmid-May 2020 due to orders issued by various government agencies and tribal bodies as part of certain precautionary measures intended to help slow the spread of the COVID-19 public health emergency. OnMay 15, 2020 , we began reopening our properties and have resumed certain operations at all of our properties as ofSeptember 30, 2020 , with the exception of TheCromwell ,Planet Hollywood Resort and Casino ("Planet Hollywood"),Rio All-Suite Hotel & Casino ("Rio"), and Caesars Windsor. PlanetHollywood and Caesars Windsor reopened onOctober 8, 2020 and TheCromwell reopened onOctober 29, 2020 . The COVID-19 public health emergency has had a material adverse effect on our business, financial condition and results of operations for the three and nine months endedSeptember 30, 2020 . We continued to pay our full-time employees throughApril 10, 2020 , including tips and tokens. EffectiveApril 11, 2020 , we furloughed approximately 90% of our employees, implemented salary reductions and committed to continue to provide benefits to our employees throughSeptember 30, 2020 . Subsequently, the benefit coverage for furloughed employees was extended indefinitely. A portion of our workforce has returned to service as the properties have resumed with limited capacities and in compliance with operating restrictions imposed by governmental or tribal orders, directives, and guidelines. Due to the impact of the ongoing COVID-19 public health emergency on our results of operations, we obtained waivers on the financial covenants in our former credit facility agreement and the GLPI Master Lease. Furthermore, we obtained waivers from VICI in relation to annual capital expenditure requirements under the leases with VICI. The extent of the ongoing and future effects of the COVID-19 public health emergency on our business and the casino resort industry generally is uncertain, but we expect that it will continue to have a significant impact on our business, results of operations and financial condition. The extent and duration of the impact of COVID-19 will ultimately depend on future developments, including but not limited to, the duration and severity of the outbreak, restrictions on operations imposed by governmental authorities, the potential for authorities reimposing stay at home orders or additional restrictions in response to continued developments with the COVID-19 public health emergency, our ability to adapt to evolving operating procedures, the impact on consumer demand and discretionary spending, the length of time it takes for demand to return and our ability to adjust our cost structures for the duration of the outbreak's effect on our operations. •Caesars Acquisition - The Merger closed onJuly 20, 2020 . Transaction costs related to our acquisition of Former Caesars totaled$107 million and$129 million for the three and nine months endedSeptember 30, 2020 , respectively, and$13 million and$17 million for the three and nine months endedSeptember 30, 2019 , respectively. •Discontinued Operations - As result of the Merger, Former Caesars properties including Harrah's Louisiana Downs, Caesars Southern Indiana, Horseshoe Hammond, Harrah'sReno , CaesarsUK group includingEmerald Resort & Casino , andBally's Atlantic City have met, or are expected to meet within a short period of time, held for sale criteria as of the date of the closing of the Merger. The sales of these properties have or are expected to close within one year from the date of the closing of the Merger and the properties are classified as discontinued operations. Additionally, we closed the sale of Harrah'sReno onSeptember 30, 2020 . •Proposed William Hill Acquisition - OnSeptember 30, 2020 , we announced that we had reached an agreement with William Hill plc on the terms of a recommended cash acquisition pursuant to which we would acquire the entire issued and to be issued share capital (other than shares owned by us or held in treasury) of William Hill plc, in an all-cash transaction of approximately £2.9 billion, or$3.7 billion . The transaction is conditioned on, among other things, the approval of William Hill plc shareholders and receipt of required regulatory approvals. 49 -------------------------------------------------------------------------------- •ESPN Agreement - OnSeptember 10, 2020 , we entered into a multi-year agreement withESPN including link integrations fromESPN's website and app to sportsbooks with our sports betting partner, William Hill. •Divestitures - We closed the sales ofKansas City andVicksburg onJuly 1, 2020 and recorded a gain of approximately$8 million during the quarter endedSeptember 30, 2020 . We closed the sales of Presque andNemacolin onJanuary 11, 2019 andMarch 8, 2019 , respectively, and recorded a net gain of$22 million . We closed the sales of Mountaineer,Cape Girardeau andCaruthersville onDecember 6, 2019 and recorded a net gain of$29 million during the fourth quarter of 2019. The properties that have been sold are collectively referred to as the "Divestitures." In conjunction with the classification of MontBleu's operations as assets held for sale as a result of the announced sale, an impairment charge totaling$45 million was recorded during the nine months endedSeptember 30, 2020 due to the carrying value exceeding the estimated net sales proceeds. None of the sales listed met requirements for presentation as discontinued operations and are included in income from continuing operations for the periods prior to their respective closing dates. •Impairment Charges - As a result of declines in recent performance and the expected impact on future cash flows as a result of COVID-19, we recognized impairment charges in our Regional segment related to goodwill and trade names totaling$100 million and$16 million , respectively, during the nine months endedSeptember 30, 2020 . •Weather and Construction Disruption - Our Regional segment was negatively impacted by severe weather, including flooding, during the first quarter of 2019 compared to the same current year period. Additionally, our Regional segment was negatively impacted by disruption to our casino floor and hotel availability associated with renovation projects at our Black Hawk properties during the construction period from January toJune 2019 . In lateAugust 2020 , our Regional segment was negatively impacted by Hurricane Laura, causing severe damage to Isle ofCapri Casino Hotel Lake Charles ("Lake Charles"), which remains temporarily closed. We recorded an insurance receivable of$31 million , of which$15 million related to fixed asset impairments and$16 million related to remediation costs and repairs that have been incurred in the three months endedSeptember 30, 2020 . Results of Operations The following table highlights the results of our operations: Three Months Ended Nine Months Ended September 30, September 30, (Dollars in millions) 2020 2019 2020 2019 Net revenues: Las Vegas$ 304 $ -$ 304 $ - Regional 1,000 661 1,596 1,930 Managed, International, CIE 69 - 69 - Corporate and Other (a) 4 2 8 6 Total$ 1,377 $ 663 $ 1,977 $ 1,936 Net (loss) income$ (925) $ 37 $ (1,201) $ 94 Adjusted EBITDA (b): Las Vegas$ 43 $ -$ 43 $ - Regional 331 205 439 569 Managed, International, CIE 18 - 18 - Corporate and Other (a) (41) (8) (59) (27) Total$ 351 $ 197 $ 441 $ 542 Net (loss) income margin (c) (67.2) % 5.6 % (60.7) % 4.9 % Adjusted EBITDA margin 25.5 % 29.7 % 22.3 % 28.0 % ___________________ (a)Corporate and Other includes revenues related to certain licensing revenue and various revenue sharing agreements. Expenses incurred for corporate activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property. The Other category also includes corporate overhead costs, which consist of certain expenses, such as: payroll, professional fees, travel expenses and other general and administrative expenses that do not directly relate to or have not otherwise been allocated to a property. (b)See the "Supplemental Unaudited Presentation of Consolidated Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")" discussion later in this MD&A for a definition of Adjusted EBITDA and a reconciliation of net (loss) income to Adjusted EBITDA related margins. 50 -------------------------------------------------------------------------------- (c)Net (loss) income margin is calculated as net (loss) income divided by net revenues. Consolidated comparison of the three and nine months endedSeptember 30, 2020 and 2019 Net Revenues Net revenues were as follows: Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019 Variance Change Net Revenues: Casino and pari-mutuel commissions$ 919 $ 458 $ 461 100.7 %$ 1,360 $ 1,386 $ (26) (1.9) % Food and beverage 125 78 47 60.3 % 188 229 (41) (17.9) % Hotel 200 94 106 112.8 % 257 237 20 8.4 % Other 133 33 100 * 172 84 88 104.8 % Net Revenues$ 1,377 $ 663 $ 714 107.7 %$ 1,977 $ 1,936 $ 41 2.1 %
___________________
* Not meaningful. Consolidated revenues increased for the three and nine months endedSeptember 30, 2020 as a result of our acquisition of Former Caesars onJuly 20, 2020 . This was offset by a decline in revenues associated with the COVID-19 public health emergency and, to a lesser extent, divestitures of certain properties discussed earlier. Both we and Former Caesars began temporarily closing our properties frommid-March 2020 . We began reopening our properties onMay 15, 2020 . Former Caesars began opening properties onMay 18, 2020 . As ofSeptember 30, 2020 , all but TheCromwell , Planet Hollywood, Rio and CaesarsWindsor were reopened. Due to the impact of the COVID-19 public health emergency, including local and state regulations and the implementation of social distancing and health and safety protocols, our properties are subject to reduced gaming capacity and hotel occupancy, limited operation of food and beverage outlets, live entertainment events and group business. As a result, gaming revenue represents a larger portion of our total revenues following the reopening of our properties as compared to earlier periods, which we expect to continue until at least such time that social distancing and safety and health protocols, along with governmental capacity or other restrictions, are relaxed or no longer necessary. Our diversified portfolio has yielded mixed results as the properties have reopened under the conditions noted above. Net revenues for properties which have historically relied on a local customer base, not dependent on air travel or convention business, showed a smaller decrease as compared to the three months endedSeptember 30, 2019 results. These properties' gaming and hotel revenues have historically been the largest portion of their total revenue. Properties in destination markets such asLas Vegas ,Atlantic City ,Northern Nevada andNew Orleans , which have historically relied on a broader regional and national customer base or convention business have declined significantly from the prior year period. These properties have historically relied on a broader mix of revenue sources including convention, entertainment, and food and beverage offerings. As a result of reduced visitation, state and local restrictions on capacity, and social distancing and safety and health protocols, these sources of revenue have been materially reduced as compared to prior periods. Operating Expenses Operating expenses were as follows: 51 --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019 Variance Change Operating Expenses: Casino and pari-mutuel commissions$ 461 $ 229 $ 232 101.3 % 685 693$ (8) (1.2) % Food and beverage 91 60 31 51.7 % 153 180 (27) (15.0) % Hotel 63 27 36 133.3 % 91 76 15 19.7 % Other 52 12 40 * 62 34 28 82.4 % General and administrative 330 130 200 153.8 % 495 381 114 29.9 % Corporate 90 13 77 * 120 51 69 135.3 % Impairment charges - - - * 161 1 160 * Depreciation and amortization 223 53 170 * 322 167 155 92.8 % Transaction costs and other operating costs 219 14 205 * 242 2 240 * Total operating expenses$ 1,529 $ 538 $ 991 184.2 %$ 2,331 $ 1,585 $ 754 47.6 % ___________________ * Not meaningful. Casino and pari-mutuel expenses consist primarily of salaries and wages associated with our gaming operations, marketing and promotions and gaming taxes. Hotel expenses consist principally of salaries, wages and supplies associated with our hotel operations. Food and beverage expenses consist principally of salaries and wages and costs of goods sold associated with our food and beverage operations. Other expenses consist principally of salaries and wages and costs of goods sold associated with our retail, entertainment and other operations. Casino and pari-mutuel, hotel, food and beverage, and other expenses for the three and nine months endedSeptember 30, 2020 increased year over year as a result of our acquisition of Former Caesars. This was offset as a result of the temporary closures of all of our properties due to the COVID-19 public health emergency, which reduced our salaries and wages, gaming taxes, costs of goods sold, and other expenses. As discussed above, our reopened properties are operating with reduced gaming and hotel capacity and limited food and beverage options. As such, our properties are operating with a reduced workforce, which resulted in decreased salaries and wages. In addition, our properties have reduced marketing and promotional spend, resulting in further declines in gaming expenses. General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit, and property taxes. Property, general and administrative expenses also include stock-based compensation expense for certain property executives, sports sponsorships and other marketing expenses not directly related to our gaming operations. General and administrative expenses for the three and nine months endedSeptember 30, 2020 increased year over year as the result of our acquisition of Former Caesars. This was offset by actions taken to reduce our cost structure while our properties were temporarily closed and during the period of reduced operations due to the impact of the COVID-19 public health emergency, which are discussed above and implemented. For the three and nine months endedSeptember 30, 2020 compared to the same prior year period, corporate expenses increased primarily due to the acquisition of Former Caesars offset by reductions in salaries and wages due to reductions in workforce implemented as a result of the impact of the COVID-19 public health emergency. For the three and nine months endedSeptember 30, 2020 compared to the same prior year period, depreciation and amortization expense increased mainly due to the acquisition of Former Caesars offset by ceasing depreciation and amortization expense on assets held for sale and the Divestitures. For the three and nine months endedSeptember 30, 2020 compared to the same prior year period, transaction costs and other operating costs increased primarily due to costs or fees incurred related to the Merger, various project exit fees and related write offs, and higher severance expense related to synergies with the Merger. 52 -------------------------------------------------------------------------------- Other income (expenses) Other income (expenses) were as follows: Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019
Variance Change Other income (expenses) Interest expense, net$ (473) $ (72) $ (401) *$ (608) $ (217) $ (391) (180.2) % Loss on extinguishment of debt (173) (1) (172) * (173) (1) (172) * Other (loss) income 9 3 6 200.0 % (1) - (1) * Provision for income taxes (135) (18) (117) * (64) (39) (25) (64.1) % ___________________ * Not meaningful. For the three and nine months endedSeptember 30, 2020 , interest expense, net increased year over year as a result of our acquisition of Former Caesars. Outstanding debt assumed, additional debt raised, and assumed financing obligations resulted in the increase in interest expense. For the three and nine months endedSeptember 30, 2020 , the loss on extinguishment of debt increased year over year due to the payment of outstanding debt as a result of our acquisition of Former Caesars. Segment comparison of the three and nine months endedSeptember 30, 2020 and 2019 Las Vegas Segment Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019 Variance Change Revenues: Casino and pari-mutuel commissions$ 122 $ -$ 122 *$ 122 $ -$ 122 * Food and beverage 52 - 52 * 52 - 52 * Hotel 79 - 79 * 79 - 79 * Other 51 - 51 * 51 - 51 * Net Revenues$ 304 $ -$ 304 *$ 304 $ -$ 304 * Adjusted EBITDA$ 43 $ -$ 43 *$ 43 $ -$ 43 * Adjusted EBITDA margin 14.1 % - % 14.1 pts 14.1 % - % 14.1 pts Net loss attributable to Caesars$ (162) $ -$ (162) *$ (162) $ -$ (162) * ___________________ * Not meaningful.Las Vegas segment's net revenues and Adjusted EBITDA increased as a result of the acquisition of Former Caesars. As ofSeptember 30, 2020 , all of ourLas Vegas properties other than TheCromwell , Planet Hollywood and Rio were reopened. PlanetHollywood opened onOctober 8, 2020 and TheCromwell reopened onOctober 29, 2020 . All of our properties within theLas Vegas segment reopened with reduced gaming and hotel capacity and with limited food and beverage offerings. As ofSeptember 30, 2020 , entertainment and convention venues have not reopened due to capacity limitations. During the third quarter of 2020 or in the period between properties reopening andSeptember 30, 2020 , all of our reopened properties in theLas Vegas segment experienced a significant decline in net revenues and Adjusted EBITDA compared to Former Caesars' prior year results for the same properties due to the general weakness in the economic environment resulting from reduced visitation and travel toLas Vegas resulting from the COVID-19 public health emergency. Adjusted EBITDA margins for ourLas Vegas properties were negatively impacted by greater declines in revenue than our Regional segment as well as rent expense associated with our Rio lease in ourLas Vegas segment. 53 --------------------------------------------------------------------------------
Regional Segment Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019 Variance Change Revenues: Casino and pari-mutuel commissions$ 774 $ 458 $ 316 69.0 %$ 1,215 $ 1,386 $ (171) (12.3) % Food and beverage 72 78 (6) (7.7) % 135 229 (94) (41.0) % Hotel 121 94 27 28.7 % 178 237 (59) (24.9) % Other 33 31 2 6.5 % 68 78 (10) (12.8) % Net Revenues$ 1,000 $ 661 $ 339 51.3 %$ 1,596 $ 1,930 $ (334) (17.3) % Adjusted EBITDA$ 331 $ 205 $ 126 61.5 %$ 439 $ 569 $ (130) (22.8) % Adjusted EBITDA margin 33.1 % 31.0 % 2.1 pts 27.5 % 29.5 % (2) pts Net (loss) income attributable to Caesars$ 47 $ 117 $ (70) (59.8) %$ (175) 300$ (475) (158.3) % Regional segment's net revenues, Adjusted EBITDA and margin increased for the three months endedSeptember 30, 2020 compared to the same prior year period as a result of the acquisition of Former Caesars. All of our properties in our Regional segment have reopened as ofSeptember 30, 2020 . All of our properties within the Regional segment reopened with reduced gaming and hotel capacity and with limited food and beverage offerings. During the third quarter of 2020 or in the period between properties reopening andSeptember 30, 2020 , our Regional properties experienced a decline in net revenues as compared to the prior year. However, in the period between reopening andSeptember 30, 2020 for all of our Regional properties other thanAtlantic City ,Northern Nevada andNew Orleans . Adjusted EBITDA grew as compared to prior year, and Former Caesars' prior year, for the same properties. Adjusted EBITDA margin for these properties were higher as compared to prior year due to operating with a reduced workforce, reducing marketing costs, and limiting certain lower margin food and beverage offerings such as buffets. Properties inAtlantic City ,Northern Nevada andNew Orleans experienced significant declines in net revenues and Adjusted EBITDA as compared to prior year and Former Caesars' prior year for the same properties as they were all negatively impacted by reduced visitation and limitations on capacity due to the COVID-19 public health emergency. Managed, International & CIE Segment Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019 Variance
Change Revenues: Casino and pari-mutuel commissions$ 23 $ -$ 23 *$ 23 $ -$ 23 * Food and beverage 1 - 1 * 1 - 1 * Hotel - - - * - - - * Other 45 - 45 * 45 - 45 * Net Revenues$ 69 $ -$ 69 *$ 69 $ -$ 69 * Adjusted EBITDA$ 18 $ -$ 18 *$ 18 $ -$ 18 * Adjusted EBITDA margin 26.1 % - % 26.1 pts 26.1 % - %
26.1 pts
Net income attributable to Caesars$ 3 $ -$ 3 *$ 3 $ -$ 3 * ___________________ * Not meaningful. Managed, International, CIE segment's net revenues and Adjusted EBITDA increased as a result of the acquisition of Former Caesars. All of our managed properties have reopened as ofSeptember 30, 2020 except for Caesars Windsor, which opened onOctober 8, 2020 . Our CIE business was not closed at any point related to the COVID-19 public health emergency. 54 -------------------------------------------------------------------------------- For the three and nine months endedSeptember 30, 2020 , net revenues for Managed, International and CIE declined as compared to Former Caesars' prior period related to reimbursed management costs related to Caesars Windsor remaining closed throughout the quarter. Excluding that, net revenues increased primarily related to increased revenue in our CIE business.Adjusted EBITDA for Managed, International and CIE increased as compared to Former Caesars' prior period. Corporate & Other Three Months Ended Nine Months Ended September 30, Percent September 30, Percent (Dollars in millions) 2020 2019 Variance Change 2020 2019 Variance Change Revenues: Other$ 4 $ 2 $ 2 100.0 %$ 8 $ 6 $ 2 33.3 % Net Revenues$ 4 $ 2 $ 2 100.0 %$ 8 $ 6 $ 2 33.3 % Adjusted EBITDA$ (41) $ (8) $ (33) *$ (59) $ (27) $ (32) (118.5) % ___________________ * Not meaningful. Supplemental Unaudited Presentation of Consolidated Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA for the Three and Nine Months EndedSeptember 30, 2020 and 2019 Adjusted EBITDA (defined below), a non-GAAP financial measure, has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry and we believe that this non-GAAP supplemental information will be helpful in understanding our ongoing operating results. Management has historically used Adjusted EBITDA when evaluating operating performance because we believe that the inclusion or exclusion of certain recurring and non-recurring items is necessary to provide a full understanding of our core operating results and as a means to evaluate period-to-period results. Adjusted EBITDA represents net income (loss) before interest expense, (benefit) provision for income taxes, unrealized (gain) loss on investments and marketable securities, depreciation and amortization, stock-based compensation, impairment charges, transaction expenses, severance expense, selling costs associated with the divestitures of properties, equity in income (loss) of unconsolidated affiliates, (gain) loss on the sale or disposal of property and equipment, (gain) loss related to divestitures, changes in the fair value of certain derivatives and certain non-recurring expenses such as sign-on and retention bonuses, business optimization expenses and transformation expenses, litigation awards and settlements, losses on inventory associated with properties temporarily closed as a result of the COVID-19 public health emergency, contract exit or termination costs, and regulatory settlements. Adjusted EBITDA also excludes the expense associated with certain of our leases as these transactions were accounted for as financing obligations and the associated expense is included in interest expense. Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP, is unaudited and should not be considered an alternative to, or more meaningful than, net income (loss) as an indicator of our operating performance. Uses of cash flows that are not reflected in Adjusted EBITDA include capital expenditures, interest payments, income taxes, debt principal repayments, payments under our leases with affiliates ofGLPI and VICI Properties Inc. and certain regulatory gaming assessments, which can be significant. As a result, Adjusted EBITDA should not be considered as a measure of our liquidity. Other companies that provide EBITDA information may calculate Adjusted EBITDA differently than we do. The definition of Adjusted EBITDA may not be the same as the definitions used in any of our debt agreements. The following table summarizes our Adjusted EBITDA for our operating segments for the three and nine months endedSeptember 30, 2020 and 2019, respectively, in addition to reconciling net (loss) income to Adjusted EBITDA in accordance with US GAAP (unaudited): 55 -------------------------------------------------------------------------------- Three
Months Ended
Add: Disc. Ops Pre-Acq. CEC (In millions) CEI (d) (e) Total (f) Net (loss) income attributable to Caesars$ (926) $ -$ (173) $ (1,099) Net income (loss) attributable to noncontrolling interests 1 - (62) (61) Net loss from discontinued operations 1 2 - 3 Interest expense, net 473 26 72 571 Provision (benefit) for income taxes 135 4 (51) 88 Other loss (a) 164 - 67 231 Impairment charges - - 124 124 Depreciation and amortization 223 2 53 278 Stock-based compensation 45 1 3 49 Transaction costs and other operating costs (b) 219 3 22 244 Other items (c) 16 - 19 35 Adjusted EBITDA$ 351 $ 38$ 74 $ 463 Three
Months Ended
Less: Divestitures Pre-Acq. CEC (In millions) CEI (g) (e) Total (h)
Net income (loss) attributable to Caesars
14$ (359) $ (336) Net loss attributable to noncontrolling interests - - (1) (1) Provision (benefit) for income taxes 18 5 (22) (9) Other income (a) (2) - (27) (29) Interest expense, net 72 1 341 412 Depreciation and amortization 53 1 255 307 Impairment charges - - 380 380 Transaction costs and other operating costs (b) 14 - 33 47 Stock-based compensation expense 4 - 19 23 Other items (c) 1 1 16 16 Adjusted EBITDA$ 197 $ 22$ 635 $ 810 Nine Months Ended September 30, 2020 Less: Divest. Add: Disc. Pre-Acq. CEC (In millions) CEI Ops (d) (g) (e) Total (i) Net loss attributable to Caesars$ (1,202) $ (11) $ (1,059) $ (2,250) Net income (loss) attributable to noncontrolling interests 1 - (67) (66) Net loss (income) from discontinued operations 1 (2) - 3 Interest expense, net 608 (23) 750 1,381 Provision (benefit) for income taxes 64 (4) (224) (156) Other loss (income) (a) 174 - (45) 129 Impairment charges 161 - 189 350 Depreciation and amortization 322 - 559 881 Stock-based compensation 55 (1) 26 82 Transaction costs and other operating costs (b) 242 (1) 71 314 Other items (c) 15 1 54 68 Adjusted EBITDA$ 441 $ (41) $ 254 $ 736 56
-------------------------------------------------------------------------------- Nine
Months Ended
Less: Divestitures Pre-Acq. CEC (In millions) CEI (g) (e) Total (h)
Net income (loss) attributable to Caesars
33$ (891) $ (830) Net loss attributable to noncontrolling interests - - (2) (2) Provision (benefit) for income taxes 39 11 (111) (83) Other loss (a) 1 - 412 413 Interest expense, net 217 2 1,033 1,248 Depreciation and amortization 167 13 743 897 Impairment charges 1 - 430 431 Transaction costs and other operating costs (b) 2 - 86 88 Stock-based compensation expense 16 - 62 78 Other items (c) 5 1 66 70 Adjusted EBITDA$ 542 $ 60$ 1,828 $ 2,310 ____________________ (a)Other loss (income) for the three and nine months endedSeptember 30, 2020 primarily represent loss on early repayment of debt in connection with the consummation of the Merger and unrealized loss on the change in fair value of the derivative liability related to CEC's 5% convertible notes, slightly offset by gain on William HillUK and Flutter stock and realized gain on conversion of CEC's 5% convertible notes. Other loss (income) for the three and nine months endedSeptember 30, 2019 primarily represent unrealized loss on the change in fair value of the derivative liability related to CEC's 5% convertible notes. (b)Transaction costs and other operating costs for the three and nine months endedSeptember 30, 2020 primarily represent costs related to the Merger with Former Caesars, various contract or license termination exit costs, and severance costs. (c)Other represents internal labor charges related to certain departed executives and contract labor. (d)Discontinued operations include Horseshoe Hammond, Caesars Southern Indiana, Harrah's Louisiana Downs, CaesarsUK group includingEmerald Resorts & Casino , andBally's Atlantic City . (e)Pre-acquisition CEC represents results of operations for Former Caesars for the period fromJuly 1, 2020 andJanuary 1, 2020 toJuly 20, 2020 , the date on which the Merger was consummated, for the three and nine months endedSeptember 30, 2020 , respectively, and for the three and nine months endedSeptember 30, 2019 . Additionally, certain corporate overhead costs which were historically charged to properties within the segments have been reclassified to the Corporate and Other. These costs primarily include centralized marketing expenses, redundant executive and management payroll and benefits expenses, centralized contract labor expenses, and corporate rent expenses. Such figures are based on unaudited internal financial statements and have not been reviewed by the Company's auditors and, for the 2020 periods, do not conform to GAAP. (f)2020 Total for the three months endedSeptember 30, 2020 includes results of operations from discontinued operations and from Former Caesars prior toJuly 20, 2020 , the date on which the Merger was consummated. Such presentation does not conform to GAAP or theSecurities and Exchange Commission rules for pro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to the results of operations reported by the Company. (g)Divestitures for the three and nine months endedSeptember 30, 2019 include results of operations for Mountaineer,Cape Girardeau ,Caruthersville ,Kansas City , andVicksburg for the three and nine months endedSeptember 30, 2019 . Divestitures for the nine months endedSeptember 30, 2020 include results of operations forKansas City andVicksburg for the period beginningJanuary 1, 2020 toJuly 1, 2020 . Such figures are based on unaudited internal financial statements and have not been reviewed by the Company's auditors and do not conform to GAAP. (h)2019 Total for the three and nine months endedSeptember 30, 2019 excludes results of operations from divestitures as detailed in (g) and includes results of operations of Former Caesars, including discontinued operations, for the relevant period. Such presentation does not conform to GAAP or theSecurities and Exchange Commission rules for pro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to our reported results of operations. (i)2020 Total for the nine months endedSeptember 30, 2020 excludes divestitures as detailed in (g) and includes results of operations from discontinued operations and from Former Caesars prior toJuly 20, 2020 , the date on which the Merger was consummated. Such presentation does not conform to GAAP or theSecurities and Exchange Commission rules for pro forma presentation; however, we believe that the additional financial information will be helpful to investors in comparing current results with results of prior periods. This is non-GAAP data and should not be considered a substitute for data prepared in accordance with GAAP, but should be viewed in addition to our reported results of operations. Liquidity and Capital Resources We are a holding company and our only significant assets are ownership interests in our subsidiaries. Our ability to fund our obligations depends on existing cash on hand, contracted asset sales, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been existing cash on hand, cash flow from operations, borrowings under our revolving credit facilities, proceeds from the issuance of debt and equity securities and proceeds from completed asset sales and lease transactions. Our cash requirements fluctuate significantly depending on our decisions with respect to business acquisitions or divestitures and strategic capital investments to maintain the quality of our properties. Beginning onMay 18, 2020 , we began reopening our properties and as ofSeptember 30, 2020 we have resumed operations at all of our properties, with the exception of The 57 --------------------------------------------------------------------------------Cromwell , Planet Hollywood, Rio, and Caesars Windsor. PlanetHollywood and Caesars Windsor reopened onOctober 8, 2020 and TheCromwell reopened onOctober 29, 2020 . In an effort to mitigate the impacts of COVID-19 public health emergency on our business and maintain liquidity, we furloughed approximately 90% of our employees beginning onApril 11, 2020 . A portion of the workforce has returned to service as the properties have resumed with limited capacities and in compliance with operating restrictions in accordance with governmental orders, directives and guidelines. As a result of these payroll changes combined with other cost saving measures, our operating expenses were reduced significantly. In an effort to maintain liquidity and provide financial flexibility as the effects of COVID-19 public health emergency continue to evolve and impact global financial markets, we borrowed$465 million under our revolving credit facility onMarch 16, 2020 , which we repaid utilizing, in part, proceeds from the sale of our interests inKansas City andVicksburg . OnJune 19, 2020 , we completed a public offering of 20,700,000 shares of common stock, at a public offering price of$39.00 per share, with proceeds of$772 million , net of fees and estimated expenses of$35 million . OnJuly 6, 2020 , we issued$3.4 billion aggregate principal amount of 6.250% Senior Secured Notes due 2025 (the "CEI Senior Secured Notes") and$1.8 billion aggregate principal amount of 8.125% Senior Notes due 2027 (the "CEI Senior Notes"). In addition, we issued$1.0 billion aggregate principal amount of 5.75% Senior Secured Notes due 2025 (the "CRC Senior Secured Notes"). OnJuly 1, 2020 , we completed the sale ofKansas City andVicksburg for$230 million and used a portion of the proceeds to repay the outstanding balance under our revolving credit facility. In addition, we closed the sale of Harrah'sReno onSeptember 30, 2020 which provided additional proceeds of$8 million , net of certain closing costs. OnJuly 20, 2020 , in connection with the Merger, we consummated the sale leaseback transactions related to Harrah'sNew Orleans , Harrah'sLaughlin and Harrah's Resort Atlantic City, including the Harrah'sAtlantic City Waterfront Conference Center , for approximately$1.8 billion of net proceeds. Additionally, we received a one-time payment from VICI of approximately$1.4 billion for amendments to the VICI leases. Furthermore, we entered into an incremental agreement to the existing CRC credit agreement, for an incremental term loan in an aggregate principal amount of$1.8 billion . In connection with the consummation of the Merger, onJuly 20, 2020 , our current and future liquidity significantly changed. A portion of the proceeds from our newly issued debt and proceeds we received from VICI, as well as cash on hand generated from our sale of common stock, were used (a) to fund a portion of the cash consideration of the Merger, (b) to prepay in full the loans outstanding and terminate all commitments under our existing Credit Agreement, dated as ofApril 17, 2017 , (c) to satisfy and discharge our Senior Notes, (d) to repay$975 million of the outstanding amount under the existing CRC revolving credit facility, (e) to repay in full the loans outstanding and terminate all commitments under the existingCEOC, LLC Credit Agreement, dated as ofOctober 6, 2017 , (f) to pay fees and expenses related to the financing arrangements, and (g) for general corporate use. Additionally, we entered into the CEI Revolving Credit Facility which provides for a five-year senior secured revolving credit facility in an aggregate principal amount of$1.2 billion . OnSeptember 18, 2020 , we entered into a$400 million Loan Agreement with a subsidiary of VICI for a term of five years, with such loan secured by, among other things, a first priority fee mortgage on theCaesars Forum Convention Center (the "Forum Convention Center Mortgage Loan"). The interest rate on the Forum Convention Center Mortgage Loan is initially 7.7% per annum, which escalates annually to a maximum interest rate of 8.3% per annum. After the second anniversary of the closing of the loan, we have the option of prepaying the loan, which may include a premium. As ofSeptember 30, 2020 , our cash on hand and revolving borrowing capacity was as follows: (In millions) September 30, 2020 Cash and cash equivalents $ 1,037 Revolver capacity 1,310 Revolver capacity committed to letters of credit (83) Total $ 2,264 OnSeptember 30, 2020 , we announced that we had reached an agreement with William Hill on the terms of a recommended cash acquisition pursuant to which the we would acquire the entire issued and to be issued share capital (other than shares owned by us or held in treasury) of William Hill, in an all-cash transaction of approximately £2.9 billion, or$3.7 billion . The transaction is conditional on, among other things, the approval of William Hill shareholders and state and federal regulators. OnSeptember 25, 2020 , to provide liquidity to potentially fund a portion of the cash purchase price, as required byUK regulators, we borrowed$900 million on our CEI Revolving Credit Facility. OnSeptember 28, 2020 , we deposited$2.1 billion , which included the proceeds from the revolver, into an escrow account related to the William Hill offer. As ofSeptember 30 , 58 -------------------------------------------------------------------------------- 2020 these funds in escrow were classified as restricted cash until we received certain regulatory approvals for financing described below. OnSeptember 28, 2020 , we entered into a foreign exchange forward contract to hedge the risk of appreciation of the GBP denominated purchase price. Under the agreement, we would purchase £1.3 billion at a contracted exchange rate. An unrealized loss of$5 million related to the change in fair value during the period fromSeptember 28, 2020 andSeptember 30, 2020 was recorded in the consolidated condensed statement of operations. OnOctober 1, 2020 the contract was cancelled. OnOctober 1, 2020 , we completed a public offering of 35,650,000 shares of our common stock at a public offering price of$56.00 per share. Net proceeds from the offering, after deducting the underwriting discounts and commissions and estimated expenses, was approximately$1.9 billion . We expect to use$1.7 billion of these proceeds for the acquisition of William Hill and, as such, we deposited that amount into aUK escrow account denominated in British Pounds. Upon receipt of regulatory approval of our Interim Facilities Agreement (described below), the restriction on the$2.1 billion funded as ofSeptember 30, 2020 , was released and we transferred$1.4 billion of cash back into our operating accounts and the outstanding balance of our revolving credit facility was repaid in full. Approximately$598 million of cash remains in an unrestricted account. OnOctober 9, 2020 , we entered into a foreign exchange forward contract to hedge the risk of appreciation of the GBP denominated purchase price for the William Hill acquisition. Under the agreement, we would purchase £536 million at a contracted exchange rate. The forward term of the contract ends onMarch 31, 2021 . OnOctober 6, 2020 , we entered into a £1.5 billion interim facilities agreement (the "Interim Facilities Agreement") with Deutsche Bank AG,London Branch andJPMorgan Chase Bank, N.A . (the "Arrangers"). Pursuant to the Interim Facilities Agreement, the Arrangers have made available to theCompany: (a) a 540-day £1.0 billion asset sale bridge facility and (b) a 60-day £503.0 million cash confirmation bridge facility (collectively, the "Facility"). The Facility may be used to finance the acquisition, refinance or otherwise discharge the indebtedness of William Hill and its subsidiaries, pay transaction fees and expenses related to the foregoing and for working capital and general corporate purposes, among other things. The availability of the borrowings under the Facility is subject to the satisfaction of certain customary conditions. If drawn upon, outstanding borrowings under the Facility will bear interest at a rate equal to theLondon interbank offered rate plus 3.50% per annum. We entered into the Interim Facilities Agreement in connection with requirement under applicableUnited Kingdom law to demonstrate that we have "funds certain" to pay the entirety of the cash purchase price for the acquisition of William Hill. We do not intend to borrow under the Interim Facilities Agreement. Instead, we intend to negotiate long-form financing documentation pursuant to which a subsidiary will incur the Debt Financing for the acquisition. In addition to the capital required to complete the proposed acquisition of William Hill, we expect that our primary capital requirements going forward will relate to the operation and maintenance of our properties, taxes, servicing our outstanding indebtedness, and rent payments under our GLPI Master Lease, the VICI Leases and other leases. We make capital expenditures and perform continuing refurbishment and maintenance at our properties to maintain our quality standards. Our capital expenditure requirements for 2020 are expected to significantly increase as a result of the additional properties acquired in the Merger. In addition to our future capital expenditures for the normal course of business, we funded$400 million to escrow as of the closing of the Merger and will utilize those funds in accordance with a three year capital expenditure plan in the state ofNew Jersey . We will also be required to fund a similar escrow account with$25 million for improvements at our racing properties within the state ofIndiana . During the remainder of 2020, we plan to spend an estimated$50 million to$75 million on capital expenditures. We expect to use cash on hand and cash generated from operations to meet such obligations. OnAugust 27, 2020 , Hurricane Laura made landfall on Lake Charles as a Category 4 storm. The hurricane severely damaged the Isle ofCapri Casino Lake Charles and the Company has recorded in insurance receivable of$31 million , of which$15 million related to fixed asset impairments and$16 million related to remediation costs and repairs that have been incurred in the three months endedSeptember 30, 2020 . The property has remained closed. A significant portion of our liquidity needs are for debt service and payments associated with our leases. In addition to our newly issued debt, our debt obligations increased as a result of outstanding debt of Former Caesars that remained outstanding following the consummation of the Merger. Our estimated debt service (including principal and interest) is approximately$165 million for the remainder of 2020. We also lease certain real property assets from third parties, including GLPI and VICI. We estimate our lease payments to be approximately$300 million for the remainder of 2020. The 5% Convertible Notes (defined below) remain outstanding following the consummation of the Merger. As a result of the Merger, the 5% Convertible Notes are convertible into weighted average of the number of shares of Company Common Stock and amount of cash actually received per share by holders of common stock of Former Caesars that made elections for 59 -------------------------------------------------------------------------------- consideration in the Merger. The 5% Convertible Notes are convertible at any time at the option of the holders thereof and, beginning inOctober 2020 , are convertible at the option of the Company if the last reported sale price of Company Common Stock equals or exceeds 140% of the conversion price for the 5% Convertible Notes in effect on each of at least 20 trading days during any 30 consecutive trading day period. As ofSeptember 30, 2020 , we have paid approximately$574 million and issued approximately 6.8 million shares upon conversion of$487 million in aggregate principal amount of the convertible notes during 2020. ThroughNovember 2, 2020 , we paid an additional$328 million and issued 3.9 million shares upon conversion of an additional$281 million in aggregate principal amount of the 5% Convertible Notes. At such time as the holders of the 5% Convertible Notes elect to cause conversion, we estimate using cash of$380 million and issuing 4.5 million shares to settle the remaining outstanding 5% Convertible Notes. OnApril 24, 2020 , the Company entered into a definitive purchase agreement withTwin River and certain of its affiliates for the sale of the equity interests ofEldorado Resort Casino Shreveport Joint Venture andColumbia Properties Tahoe, LLC , the entities that hold Eldorado Shreveport and MontBleu, respectively, for aggregate consideration of$155 million , subject to a working capital adjustment. The definitive agreement provides that the consummation of the sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and the sale of Eldorado Shreveport and MontBleu is expected to close in the first quarter of 2021. OnSeptember 3, 2020 , the Company and VICI entered into agreement to sell Harrah's Louisiana Downs withRubico Acquisition Corp. for$22 million , subject to a customary working capital adjustment, where the proceeds will be split between the Company and VICI. The sale is subject to satisfaction of customary conditions, including receipt of required regulatory approvals and is expected to close in the first half of 2021. We previously reached an agreement with VICI to sellBally's Atlantic City Hotel & Casino toTwin River for approximately$25 million . Caesars will receive approximately$6 million from the sale. In addition, onOctober 9, 2020 , we reached an agreement to sell the Bally's brand toTwin River Worldwide Holding, Inc. for$20 million , while retaining the right to use the brand withinBally's Las Vegas into perpetuity. In addition to the agreements above, we also expect to enter into additional agreements to divest of Caesars Southern Indiana, Horseshoe Hammond andEvansville prior toDecember 31, 2020 , as required by theIndiana Gaming Commission . Further, we expect to enter into agreements to sell several other non-core properties including our international properties within our CaesarsUK group, which includesEmerald Resorts Casino . We expect these divestitures to close by mid-year 2021. We expect that our current liquidity, cash flows from operations, borrowings under committed credit facilities and the announced asset sales, net of associated taxes, will be sufficient to fund our operations, capital requirements and service our outstanding indebtedness for the next twelve months. However, the COVID-19 public health emergency has had, and is expected to continue to have, an adverse effect on our business, financial condition and results of operations and has caused, and may continue to cause, disruption in the financial markets. While we have undertaken efforts to mitigate the impacts of COVID-19 on our business and maintain liquidity, the extent of the ongoing and future effects of the COVID-19 public health emergency on our business, results of operations and financial condition is uncertain and may adversely impact our liquidity in the future. Our ability to access additional capital may be adversely affected by the disruption in the financial markets caused by the COVID-19 public health emergency, restrictions on incurring additional indebtedness contained in the agreements governing our indebtedness and the impact of the public health emergency on our business, results of operations and financial condition. Debt and Master Lease Covenant Compliance The CRC Credit Agreement, the CEI Revolving Credit Facility and the indenture related to the CRC Notes and CEI Notes contain covenants which are standard and customary for these types of agreements. These include negative covenants, which, subject to certain exceptions and baskets, limit our ability to (among other items) incur additional indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets and make acquisitions. The indenture for the 5% Convertible Notes contained limited covenants as a result of amendments that became effective in connection with the consummation of the Merger. The CRC Revolving Credit Facility and CEI Revolving Credit Facility include a maximum first-priority net senior secured leverage ratio financial covenant of 6.35:1, which is applicable solely to the extent that certain testing conditions are satisfied. Failure to comply with such covenants could result in an acceleration of the maturity of indebtedness outstanding under the relevant debt document. The Company's results of operations have been materially adversely affected by the impacts of the COVID-19 public health emergency. As a result, the current terms of the CRC Credit Agreement and the CEI Credit Agreement provide that the financial covenant measurement period is not effective throughSeptember 30, 2021 so long as the CRC and the Company, 60 -------------------------------------------------------------------------------- respectively, comply with a minimum liquidity requirement, which includes any such availability under the applicable revolving credit facilities. The GLPI Master Lease contains certain operating, capital expenditure and financial covenants thereunder, and our ability to comply with these covenants was negatively impacted by the effects of the COVID-19 public health emergency on our results of operations. OnJune 15, 2020 , we entered into an amendment to the GLPI Master Lease which provides certain relief under these covenants in the event of facility closures due to public health emergencies, governmental restrictions and certain other instances of unavoidable delay. OnJuly 17, 2020 , the amendment to the GLPI Master Lease became effective as the Company obtained all necessary approvals and the applicable waiting period expired. Furthermore, the Company obtained waivers from VICI with relation to annual capital expenditure requirements related to the leases with VICI, starting with the annual period endingDecember 31, 2020 . As ofSeptember 30, 2020 , we were in compliance with all of the applicable financial covenants under the CRC Credit Agreement, the CEI Credit Agreement, CEI Senior Secured Notes, CEI Senior Notes, CRC Secured Notes, 5% Convertible Notes, the GLPI Leases and VICI Leases. Share Repurchase Program OnNovember 8, 2018 , we issued a press release announcing that its Board of Directors has authorized a$150 million common stock repurchase program (the "Share Repurchase Program") pursuant to which we may, from time to time, repurchase shares of common stock on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The Share Repurchase Program has no time limit and may be suspended or discontinued at any time without notice. There is no minimum number of shares of common stock that we are required to repurchase under the Share Repurchase Program. As ofSeptember 30, 2020 , we acquired 223,823 shares of common stock under the program at an aggregate value of$9 million and an average of$40.80 per share. No shares were repurchased during the nine months endedSeptember 30, 2020 and 2019. Debt Obligations and Leases New Debt Transactions We were party to a credit agreement withJPMorgan Chase Bank, N.A ., as administrative agent, and the lenders party thereto dated as ofApril 17, 2017 (as amended, the "ERI Credit Facility"), consisting of a$1.5 billion term loan facility and a$500 million revolving credit facility. In an effort to maintain liquidity and provide financial flexibility as the effects of COVID-19 continued to evolve and impact global financial markets, we borrowed$465 million under the ERI Credit Facility onMarch 16, 2020 , which we repaid inJuly 2020 utilizing, in part, proceeds from the sale of our interests inKansas City andVicksburg . OnJuly 6, 2020 ,Colt Merger Sub, Inc. , a wholly-owned subsidiary of the Company ("Escrow Issuer") issued$3.4 billion aggregate principal amount of 6.250% Senior Secured Notes due 2025 (the "CEI Senior Secured Notes"),$1.8 billion aggregate principal amount of 8.125% Senior Notes due 2027 (the "CEI Senior Notes") and$1.0 billion aggregate principal amount of 5.75% Senior Secured Notes due 2025 (the "CRC Senior Secured Notes"). OnJuly 20, 2020 , in connection with the closing of the Merger, the Company entered into a new credit agreement ("CEI Credit Agreement") which provides a five-year senior secured revolving credit facility for an aggregate principal amount of$1.2 billion (the "CEI Revolving Credit Facility"). In addition,Caesars Resort Collection, LLC , which became a wholly-owned subsidiary of the Company as a result of the Merger ("CRC"), entered into an incremental agreement to the CRC Credit Agreement (described below) for an aggregate principal amount of$1.8 billion . A portion of the proceeds from these arrangements was used to prepay in full the loans outstanding and terminate all commitments under the ERI Credit Facility, and to satisfy and discharge the Company's 6% Senior Notes due 2025, 6% Senior Notes due 2026, and the 7% Senior Notes due 2023. The 6% Senior Notes due 2025 were redeemed at a redemption price of 105%, the 7% Senior Notes due 2023 were redeemed at a redemption price of 103.5%, and$210 million aggregate principal amount of the 6% Senior Notes due 2026 was redeemed at a redemption price of 106% with the remaining balance redeemed at a redemption price of 100% of the aggregate principal amount thereof plus the Applicable Premium, as defined in the indenture for the 6% Senior Notes due 2026. The redemption of these Notes resulted in a loss on extinguishment of debt of$132 million during the three and nine months endedSeptember 30, 2020 , which is recorded within other (loss) income on the Statement of Operations. 61 -------------------------------------------------------------------------------- CEI Senior Secured Notes due 2025 OnJuly 6, 2020 , Escrow Issuer issued$3.4 billion in aggregate principal amount of 6.250% CEI Senior Secured Notes pursuant to an indenture datedJuly 6, 2020 (the "Senior Secured Notes Indenture"), by and among the Escrow Issuer,U.S. Bank National Association , as trustee, andU.S. Bank National Association , as collateral agent. In connection with the consummation of the Merger, we assumed the rights and obligations under the CEI Senior Secured Notes and the Senior Secured Notes Indenture onJuly 20 , 2020.The CEI Senior Secured Notes will mature onJuly 1, 2025 with interest payable semi-annually in cash in arrears onJanuary 1 andJuly 1 of each year, commencingJanuary 1, 2021 . CEI Senior Notes due 2027 OnJuly 6, 2020 , Escrow Issuer issued$1.8 billion in aggregate principal amount of 8.125% Senior Notes due 2027 pursuant to an indenture, datedJuly 6, 2020 (the "Senior Notes Indenture"), by and between theEscrow Issuer andU.S. Bank National Association , as trustee. We assumed the rights and obligations under the CEI Senior Notes and the Senior Notes Indenture onJuly 20, 2020 . The CEI Secured Notes will mature onJuly 1, 2027 with interest payable semi-annually in cash in arrears onJanuary 1 andJuly 1 of each year, commencingJanuary 1, 2021 . CRC Senior Secured Notes due 2025 OnJuly 6, 2020 , Escrow Issuer issued$1.0 billion in aggregate principal amount of 5.75% Senior Notes due 2025 pursuant to an indenture, datedJuly 6, 2020 (the "CRC Senior Secured Notes Indenture"), by and among the Escrow Issuer,U.S. Bank National Association , as trustee and Credit Suisse AG,Cayman Islands Branch, as collateral agent. CRC assumed the rights and obligations, jointly and severally, under the CRC Senior Secured Notes onJuly 20, 2020 . The rights and obligations under the CRC Senior Secured Notes to be assumed jointly and severally by CRC. The CRC Senior Secured Notes will mature onJuly 1, 2025 with interest payable semi-annually in cash in arrears onJanuary 1 andJuly 1 of each year, commencingJanuary 1, 2021 . CEI Revolving Credit Facility OnJuly 20, 2020 , we entered into a new credit agreement withJPMorgan Chase Bank, N.A ., as administrative agent,U.S. Bank National Association , as collateral agent, and certain banks and other financial institutions and lenders party thereto, as well as an incremental amendment thereto, which provide for a five-year CEI Revolving Credit Facility for an aggregate principal amount of$1.2 billion . The CEI Revolving Credit Facility matures in 2025 and includes a letter of credit sub-facility of$250 million . The interest rate per annum applicable under the CEI Revolving Credit Facility, at the Company's option is either (a) LIBOR adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined byJPMorgan Chase Bank, N.A . and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin shall be 3.25% per annum in the case of any LIBOR loan and 2.25% per annum in the case of any base rate loan, subject to three 0.25% step-downs based on the Company's total leverage ratio. Additionally, we are required to pay a commitment fee in respect of any unused commitments under CEI Revolving Credit Facility in the amount of 0.50% of principal amount of the commitments of all lenders, subject to a step-down to 0.375% based upon the Company's total leverage ratio. We are also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer's customary documentary and processing fees and charges and a fronting fee in an amount equal to 0.125% of the daily stated amount of such letter of credit. We had$266 million of available borrowing capacity, after consideration of$19 million in outstanding letters of credit under CEI Revolving Credit Facility, as ofSeptember 30, 2020 . Convention Center Mortgage Loan OnSeptember 18, 2020 , we entered into a loan agreement with VICI to borrow a 5-year,$400 million Forum Convention Center mortgage loan (the "Mortgage Loan"). The Mortgage Loan bears interest at a rate of, initially, 7.7% per annum, which escalates annually to a maximum interest rate of 8.3% per annum. Assumed Debt Activity Former Caesars and its subsidiaries incurred the following indebtedness that remained outstanding following the consummation of the Merger. 62 -------------------------------------------------------------------------------- CRC Term Loans and CRC Revolving Credit Facility In connection with the Merger, we assumed the CRC senior secured credit facility (the "CRC Senior Secured Credit Facilities"), which included a$1.0 billion five-year revolving credit facility (the "CRC Revolving Credit Facility") and an initial$4.7 billion seven-year first lien term loan (the "CRC Term Loan"). The CRC Senior Secured Credit Facilities were funded pursuant to the Credit Agreement, dated as ofDecember 22, 2017 (the "CRC Credit Agreement"). OnJuly 20, 2020 , in connection with the closing of the Merger, CRC entered into an incremental amendments to the CRC Credit Agreement, which provided a$1.8 billion incremental tern loan ("CRC Incremental Term Loan"). The CRC Term Loan matures in 2024. The CRC Incremental Term Loan matures in 2025. The CRC Revolving Credit Facility matures in 2022 and includes a letter of credit sub-facility. Each of the CRC Term Loan requires scheduled quarterly principal payments in amounts equal to 0.25% of the original aggregate principal amount, with the balance due at maturity. The CRC Credit Agreement also includes customary voluntary and mandatory prepayment provisions, subject to certain exceptions. As ofSeptember 30, 2020 , approximately$64 million was committed to outstanding letters of credit. As ofSeptember 30, 2020 , there were no borrowings outstanding under the CRC Revolving Credit Facility. Borrowings under the CRC Credit Agreement bear interest at a rate equal to either (a) LIBOR adjusted for certain additional costs, subject to a floor of 0% or (b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as determined by Credit Suisse AG,Cayman Islands Branch, as administrative agent under the CRC Credit Agreement and (iii) the one-month adjusted LIBOR rate plus 1.00%, in each case plus an applicable margin. Such applicable margin shall be (a) with respect to the CRC Term Loan, 2.75% per annum in the case of any LIBOR loan or 1.75% per annum in the case of any base rate loan, (b) with respect to the CRC Incremental Term Loan, 4.50% per annum in the case of any LIBOR loan or 3.50% in the case of any base rate loan and (c) in the case of the CRC Revolving Credit Facility, 2.25% per annum in the case of any LIBOR loan and 1.25% per annum in the case of any base rate loan, subject in the case of the CRC Revolving Credit Facility to two 0.125% step-downs based on CRC's senior secured leverage ratio ("SSLR"), the ratio of first lien senior secured net debt to adjusted earnings before interest, taxes, depreciation and amortization. The CRC Revolving Credit Facility is subject to a financial covenant discussed below. In addition, CRC is required to pay a commitment fee in respect of any commitments under the CRC Revolving Credit Facility in the amount of 0.50% of the principal amount of the commitments, subject to step-downs to 0.375% and 0.25% based upon CRC's SSLR. CRC is also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer's customary documentary and processing fees and charges and a fronting fee in an amount equal to 0.125% of the daily stated amount of such letter of credit. Former Caesars 5% Convertible Notes OnOctober 6, 2017 , Former Caesars issued$1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 (the "5% Convertible Notes"). The 5% Convertible Notes are convertible into weighted average of the number of shares of Company Common Stock and amount of cash actually received per share by holders of common stock of Former Caesars that made elections for consideration in the Merger. As ofSeptember 30, 2020 , we have paid approximately$574 million and issued approximately 6.8 million shares to settle$487 million of the convertible notes during 2020. InOctober 2020 , we paid an additional$328 million and issued 3.9 million shares to settle an additional$281 million of the convertible notes. The Company has determined that the 5% Convertible Notes contain derivative features that require bifurcation. The Company separately account for the liability component and equity conversion option of the Convertible Notes. The portion of the overall fair value allocated to the liability was calculated by using a market-based approach without the conversion features included. The difference between the overall instrument value and the value of the liability component was assumed to be the value of the equity component. See Note 11 for more information on the Convertible Notes' fair value measurements. Net amortization of the debt issuance costs and the discount and/or premium associated with the Company's indebtedness totaled$34 million and$2 million for the three months endedSeptember 30, 2020 and 2019, respectively, and$37 million and$6 million for the nine months endedSeptember 30, 2020 and 2019 respectively. Amortization of debt issuance costs is computed using the effective interest method and is included in interest expense. VICI Leases Upon consummation of the Merger, we assumed obligations of certain real property assets leased from VICI by Former Caesars under the following agreements: (i) for a portfolio of properties at various locations throughoutthe United States (the "Non- 63 -------------------------------------------------------------------------------- CPLV lease"), (ii) for Caesars Palace Las Vegas (the "CPLV lease"), (iii) for Harrah'sJoliet Hotel & Casino (the "Joliet Lease") and (iv) for Harrah'sLas Vegas (the "HLV Lease"). These lease agreements provided for annual fixed rent (subject to escalation) of$773 million during an initial period, then rent consisting of both base rent and variable rent elements. The lease agreements had a 15-year initial term and four five-year renewal options. The lease agreements included escalation provisions beginning in year two of the initial term and continuing through the renewal terms. The lease agreements also included provisions for variable rent payments calculated, in part, based on increases or decreases of net revenue of the underlying lease properties, commencing in year eight of the initial term and continuing through the renewal terms. Former Caesars entered into a Golf Course Use Agreement with VICI, which has a 35-year term (inclusive of all renewal periods), pursuant to which such affiliates of the Company agreed to pay (i) an annual payment of$10 million , subject to escalation, (ii) an annual use fee of$3 million , subject to escalation beginning in the second year, and (iii) certain per-round fees, all as more particularly set forth in the Golf Course Use Agreement. In connection with the closing of the Merger onJuly 20, 2020 , we consummated a series of transactions with VICI and certain of its affiliates in accordance with the MTA entered onJune 24, 2019 and certain purchase and sales agreement entered onSeptember 26, 2019 . We consummated sale leaseback transactions related to Harrah'sNew Orleans , Harrah'sLaughlin and Harrah's Resort Atlantic City, including the Harrah'sAtlantic City Waterfront Conference Center , for approximately$1.8 billion of net proceeds. The CPLV Lease with VICI was amended, among other things, (i) add Harrah'sLas Vegas ("HLV") to the leased premises thereunder (and in connection therewith HLV Lease was terminated), (ii) add (subject to certain adjustments) the rent payable with respect to HLV under such terminated stand-alone lease to such lease and further increase the annual rent payable with respect to HLV by approximately$15 million , (iii) increase the annual rent with respect to CPLV by approximately$84 million and (iv) extend the term of such lease so that following the amendment of such lease there will be 15 years remaining until the expiration of the initial term. In addition, Harrah'sNew Orleans , Harrah'sLaughlin , and Harrah's Resort Atlantic City, including the Harrah'sAtlantic City Waterfront Conference Center , were added to the Regional Lease and such lease was further amended to increase the annual rent thereunder by$154 million in the aggregate related to such added properties and extend the term of such lease so that following the amendment of such lease there will be 15 years remaining until the expiration of the initial term. Furthermore, the Joliet Lease, as well as the term of the Golf Course Use Agreement, were extended such that there will be 15 years remaining until the expiration of the initial term. Our VICI lease is accounted for as a financing obligation and totaled$11 billion as ofSeptember 30, 2020 . Furthermore, we obtained waivers from VICI with relation to annual capital expenditure requirements. This waiver is effective as ofJune 1, 2020 untilDecember 31, 2020 . See Note 9 to our Consolidated Condensed Financial Statements for additional information about our VICI Lease and related matters. GLPI Leases Our GLPI Master Lease is accounted for as a financing obligation and totaled$1.2 billion as ofSeptember 30, 2020 . Additionally, our GLPI Master Lease contains certain operating, capital expenditure and financial covenants thereunder, and our ability to maintain compliance with these covenants was also negatively impacted. OnJune 15, 2020 , we entered into an amendment to the GLPIMaster Lease which, among other things, provides certain relief under these covenants in the event of facility closures due to pandemics, governmental restrictions and certain other instances of unavoidable delay. As ofJuly 17, 2020 , the amendment to the GLPI Master Lease became effective as we obtained all necessary approvals and the applicable waiting period expired. See Note 9 to our Consolidated Condensed Financial Statements for additional information about our GLPI Master Lease and related matters. Contractual Obligations The Company assumed various long-term debt arrangements, financing obligations and leases, previously described, associated with Former Caesars as result of the consummation of the Merger. See Note 2 for a description of the Merger and the related obligations assumed and Note 13 for additional contractual obligations. There have been no material changes during the nine months endedSeptember 30, 2020 to our contractual obligations as disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Other Liquidity Matters We are faced with certain contingencies involving litigation and environmental remediation and compliance. These commitments and contingencies are discussed in "Part II, Item 1. Legal Proceedings" and Note 13 to our unaudited consolidated condensed financial statements, both of which are included elsewhere in this report. In addition, new competition may have a material adverse effect on our revenues, and could have a similar adverse effect on our liquidity. See "Part I, Item 1A. Risk Factors-Risks Related to Our Business" which is included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and "Part II, Item IA. Risk Factors" which is included in this Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2020 . 64
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Critical Accounting Policies Our critical accounting policies disclosures are included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Except as described in Note 1 and Note 2, as it relates to the Merger with Former Caesars, to the accompanying notes of these consolidated condensed financial statements, we believe there have been no material changes sinceDecember 31, 2019 . We have not substantively changed the application of our policies and there have been no material changes in assumptions or estimation techniques used as compared to prior periods. Off-Balance Sheet Arrangements We do not currently have any off-balance sheet arrangements.
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