Caesars Entertainment Reports Financial Results for the Second Quarter 2013

LAS VEGAS, July 29, 2013 /PRNewswire/ -- Caesars Entertainment Corporation (NASDAQ: CZR) today reported the following second quarter 2013 results. 

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• Significant progress made in development of Las Vegas hospitality corridor, including The LINQ and High Roller
• Challenging conditions in the gaming industry impact second quarter gaming results; positive underlying trends in food and beverage and hotel are emerging
• Financing closed and ground broken in July 2013 for Horseshoe Baltimore, scheduled to open in third quarter 2014
• Strategic transaction to form Caesars Growth Partners and Caesars Acquisition Company moves forward
• Company buys back approximately $275 million face value of debt, and maintains $1.9 billion in liquidity

Summary Financial Data

The table below highlights certain GAAP and non-GAAP financial measures:

Management Commentary

"We reached a number of key milestones against our strategic initiatives in recent months, including breaking ground on Horseshoe Baltimore; setting a new attendance record at the World Series of Poker; beginning construction on our meetings facility in Atlantic City; and executing on our hospitality investments in Las Vegas," said Gary Loveman, chairman, chief executive officer and president of Caesars Entertainment Corporation.

"We are also making progress on our strategic transaction to form Caesars Acquisition Company and Caesars Growth Partners and have proactively improved our liquidity profile and balance sheet," Loveman said.

"While challenging conditions in the gaming industry impacted our gaming revenues during the second quarter, we are beginning to observe positive underlying trends resulting directly from the investments we've made to enhance our hospitality footprint, particularly in Las Vegas," Loveman said. "Our performance also reflects our focus on managing operating expenses without sacrificing service."

Loveman concluded, "We are excited about our prospects in 2014 and beyond, particularly in light of the improving economic conditions and consumer sentiment, favorable underlying business trends and projects that are scheduled to come online."

Consolidated Financial Results

Net Revenues

Net revenues were relatively flat in the second quarter 2013 compared with the second quarter 2012. The decline in casino revenues of $116.8 million, or 7.5%, was largely offset by increases in non-gaming revenues, coupled with lower promotional allowances. The decline in casino revenues was driven by lower overall visitation to the Company's properties resulting from increased competition in Atlantic City and our other U.S. regional markets outside of Las Vegas and an elimination of marketing activities identified as less profitable. Additionally, on a comparative basis, the Company experienced lower hold percentages in Las Vegas, partially offset by higher hold percentages in Atlantic City and other regional markets, which also contributed to lower casino revenues.

Consistent with the first quarter of 2013, revenues in the second quarter dropped most significantly in Atlantic City due to continued competitive pressure in the region. Revenues in Las Vegas continued to be negatively impacted by the construction activities related to the LINQ, the ongoing renovation of The Quad Resort & Casino and the closure of Bill's Gamblin' Hall & Saloon in February 2013 for renovation. The renovated hotel and casino are expected to re-open as the Gansevoort Las Vegas in early 2014 and the dayclub/nightclub is expected to open in the first half of 2014. 

On a consolidated basis, cash average daily room rates increased from $95 in the second quarter 2012 to $103 in 2013 as higher rates attributable to resort fees in Las Vegas and other properties in Nevada more than offset the lower rates in Atlantic City. Total occupancy percentage decreased 1.7 percentage points to 91% in the second quarter 2013 from 2012 due mainly to the disruption caused by construction activities related to the renovation of the Quad in Las Vegas. 

Revenues for the Company's Managed properties increased $71.2 million for the second quarter 2013 when compared to the second quarter 2012 due to new managed projects, including Horseshoe Cleveland (opened in May 2012), Horseshoe Cincinnati (opened in March 2013), Thistledown Racino (commenced video lottery terminal operations in April 2013) and the management company for Caesars Windsor, which the Company is now consolidating since increasing its ownership from 50% to 100% in June 2012. A large portion of these revenues represent reimbursable payroll expenses, which are presented on a gross basis as revenue and expense, thus resulting in no income from operations.

Income from Operations

Second quarter 2013 income from operations decreased $63.8 million, or 33.7%, compared with the second quarter 2012.  This was primarily due to non-cash intangible and tangible asset impairment charges of $104.7 million in the second quarter 2013, compared with non-cash intangible asset impairment charges of $33.0 million in the second quarter 2012. Aside from the change in impairment charges, income from operations increased $7.9 million due mainly to the second quarter benefit from decreases in certain costs when compared to the prior year quarter.  The decrease in expenses included a $34.2 million decrease in depreciation and amortization expense due to increasing numbers of assets becoming fully depreciated in 2013, an approximately $18 million reversal of a sales tax reserve related to the Nevada complimentary meals sales tax matter, which the Company settled during the quarter, and decreases in expenses resulting from the Company's cost savings initiatives. These expense reductions were partially offset by the income impact of the decline in revenues discussed above and higher remediation costs.

Net Loss and EBITDA measures

Net loss attributable to Caesars decreased $29.5 million, or 12.2%, in the second quarter 2013 from 2012. The decrease was due  to a variety of factors, including an $80.2 million favorable change in the loss from discontinued operations, net of income taxes, an increase in gain on early extinguishments of debt, an increase in the benefit for income taxes and a gain of $44.1 million related to the sale of 45% of Baluma S.A., which owns the Conrad Punta Del Este Resort and Casino, to Enjoy S.A. for total consideration of $139.5 million. These favorable changes were partially offset by a decrease in income from operations as described above, combined with a $43.6 million increase in interest expense, net of interest capitalized. These factors are further described in "Additional Financial Information" that follows later in this release.

The declines in second quarter 2013 Property EBITDA and Adjusted EBITDA from 2012 are primarily driven by the factors described above, including reductions as a result of the sale of Harrah's St. Louis in November 2012. Further details on these non-GAAP financial measures are found later in this release.

Regional Operational Results

To provide more meaningful information than would be possible on either a consolidated basis or an individual property basis, the Company's casino properties and other operations have been grouped into four regions. Operating results for each of the regions are provided below.

Las Vegas properties include Bally's Las Vegas, Bill's Gamblin' Hall & Saloon ("Bill's"), Caesars Palace, Flamingo Las Vegas, Harrah's Las Vegas, Paris Las Vegas, Planet Hollywood Resort & Casino, The Quad Resort & Casino (the "Quad") and Rio. Bill's temporarily closed in early February 2013 to accommodate previously disclosed renovations and is expected to reopen in phases beginning in early 2014 as Gansevoort Las Vegas.

Net revenues decreased $34.8 million, or 4.5%, in the second quarter 2013 compared with the prior year quarter, driven by declines in casino revenues, partially offset by increases in rooms and food and beverage revenues. Construction activities associated with the LINQ project and activities associated with the renovation of the Quad and the renovation-related closure of Bill's Gamblin' Hall & Saloon have also unfavorably impacted the revenues in the region. The Company estimates that the LINQ project negatively impacted second quarter 2013 revenues in Las Vegas by approximately $6 million to $9 million and reduced income from operations and Property EBITDA by approximately $4 million to $7 million.

Casino revenues were down $63.1 million, or 15.5%, in the second quarter 2013 compared with the prior year quarter due to weaker gaming volumes, a decline in hold percentage as well as the negative impact of the LINQ project mentioned above, while visitation remained flat.

However, food and beverage revenues increased $18.1 million, or 8.9%, in the second quarter 2013 compared with the prior year quarter due to the addition of several new restaurant offerings such as Bacchanal Buffet and Nobu at Caesars Palace and Gordon Ramsay-branded restaurants at Caesars Palace, Paris, and Planet Hollywood.

Hotel revenues increased $12.8 million, or 6.3%, in the second quarter 2013 compared with the prior year, as the implementation of resort fees in March 2013, partially offset by a change in the mix of group business, led to an increase in cash average daily room rates from $97 in 2012 to $107 in 2013. However, the region's occupancy percentage declined 1.3 percentage points to 95% in 2013, primarily due to the disruption caused by construction activities related to the renovation of the Quad.

Overall, property operating expenses in the region declined $31.1 million in the second quarter 2013 compared with the prior year quarter largely due to a reversal of a sales tax reserve of $14.1 million related to the Nevada complimentary meals sales tax matter, which the Company settled during the quarter, as well as decreases in fixed expenses attributable to the Company's cost-savings initiatives, partially offset by an increase in variable costs associated with higher Food and Beverage revenues. Depreciation expense in the region decreased as a result of assets becoming fully depreciated, while write-downs, reserves, and project opening costs, net of recoveries increased as a result of additional remediation costs in 2013 when compared with 2012.

The overall reduction in property operating expenses largely offset lower revenues resulting in a slight decline in Property EBITDA of $3.8 million, or 1.8%, in the second quarter 2013 compared with the prior year quarter.

Atlantic City continues to be affected by the continuing competitive environment which has caused a significant decline in visitation to the region's properties as compared to 2012.  This traffic decline has contributed in overall revenue declines, partially offset by lower promotional allowances and improved gaming hold. Net revenues declined $36.4 million, or 8.3%, in the second quarter 2013 compared with the prior year quarter, an improvement compared with the Company's first quarter 2013 results in the region, which were largely affected by sharp visitation declines in the wake of Hurricane Sandy.

Operating expenses in the second quarter 2013 were lower than in 2012 as a result of a continued focus on controlling costs to align the cost structure with lower revenue levels, including more efficient marketing spending and other cost-savings initiatives, and lower depreciation expense. These reductions in operating expenses were partially offset by non-cash tangible asset impairment charges of $22.4 million recorded in the second quarter 2013, primarily related to the Company's investment in a real estate project initiated by the Casino Reinvestment Development Authority ("CRDA"), a New Jersey state governmental agency responsible for directing the spending of casino reinvestment funds for the benefit of Atlantic City.

Property operating expense reductions attributable to the Company's focus on controlling costs to align the cost structure with lower revenue levels nearly offset revenue declines, resulting in a decrease in Property EBITDA of  $4.0 million, or 5.9%, in the second quarter 2013 compared with the prior year quarter.

Net revenue declines were attributable to lower visitation to the properties driven by competition within the regional markets and an elimination of marketing activities identified as less profitable, partially offset by improved hold.  Income from operations decreased $67.4 million or 60.3%, primarily due to a $79.3 million non-cash impairment charge related to land holdings in Mississippi, with no comparable impairment charges in the prior year quarter.  A continued focus on controlling costs, coupled with a $9.4 million decrease in depreciation expense and a $3.4 million reversal of a sales tax reserve related to the Nevada complimentary meals sales tax matter, partially offset the impact of the above impairment charges. Property EBITDA rose $4.7 million, or 2.6%, in the second quarter 2013 compared with the prior year quarter primarily due to decreases in property operating expenses as a result of our cost savings programs, partially offset by the income impact of lower revenues.

Managed

Revenues for the Company's Managed properties increased $71.2 million in the second quarter 2013 compared with the prior year quarter, primarily due to new managed projects, including Horseshoe Cleveland (opened in May 2012), Horseshoe Cincinnati (opened in March 2013), Thistledown Racino (commenced video lottery terminal operations in April 2013) and the management company for Caesars Windsor, the results of which have been consolidated into the Company's financial statements since June 2012 when the Company increased its 50% ownership to 100%. A large portion of these revenues represent reimbursable payroll expenses, which are presented on a gross basis as revenue and expense, thus resulting in no income from operations.

International

During the second quarter 2013, the Company sold 45% of its equity interests in Conrad Punta Del Este in Uruguay to Enjoy S.A. for total consideration of $139.5 million. Subsequent to the sale, Enjoy S.A. assumed control of the property and as a result, the Company no longer consolidates the property which resulted in a  decrease in revenues and income from operations in the second quarter 2013 compared with 2012. 

Other

Net revenues increased during the second quarter for the company's social and mobile games business, mostly related to CIE's late 2012 acquisition of substantially all of the assets of Buffalo Studios, LLC ("Buffalo"). This acquisition also increased the company's second quarter expenses, but resulted in an overall decrease to loss from operations. Loss from operations decreased $19.7 million, or  26.3%, resulting from the net impact of the Buffalo acquisition previously mentioned and from $33.0 million of non-cash intangible asset impairment charges in the second quarter 2012 that did not recur in 2013.

Additional Financial Information

Interest Expense, Net of Interest Capitalized

Interest expense, net of interest capitalized, increased by $43.6 million, or 8.8%, in the second quarter 2013, due primarily to  higher interest rates as a result of the amendment and extension of the maturities of CEOC's debt combined with higher debt balances, compared with the year-ago quarter, partially offset by higher mark-to-market gains on derivatives in 2013.

Gain on Early Extinguishments of Debt

During the second quarter 2013 the Company recognized $41.3 million in gains on early extinguishments of debt, net of deferred finance charges.  The gains were primarily related to the purchase of $225.0 million of aggregate face value CMBS Loans for $183.7 million, resulting in a gain of $39.0 million, net of deferred finance charges and open market repurchases of approximately $51.2 million face value of outstanding debt of CEOC for $40.9 million, resulting in a gain of $2.4 million, net of discount.

During the second quarter 2012 the Company recognized $33.7 million in gains on early extinguishments of debt, net of deferred finance charges, primarily related to the purchase of $83.7 million of aggregate face value CMBS Loans for $50.2 million.

Benefit for Income Taxes

The effective tax rate benefit for the second quarter of 2013 and 2012 was 35.6% and 39.6%, respectively. The effective rate benefit in the second quarter of 2013 was lower than 2012 primarily due to lower tax benefits from foreign operations.

Loss from Discontinued Operations, Net of Income Taxes

Loss from discontinued operations, net of income taxes improved significantly compared to the second quarter 2012, which included a $101.0 million non-cash impairment charge related to the Macau land concession and $14.1 million of income related to the Harrah's St. Louis casino with no comparable amounts recorded in the second quarter 2013.

Liquidity

Caesars had $1.9 billion in liquidity as of June 30, 2013, comprised of $1.8 billion of cash and $215.5 million of revolver capacity, partially offset by $119.9 million of revolver capacity committed to letters of credit.  The $1.9 billion in liquidity does not include $334.4 million of restricted cash. 

The total face value of debt outstanding was $23.7 billion as of June 30, 2013.

Cost-Savings Initiatives

Caesars Entertainment has undertaken comprehensive cost-reduction efforts to rightsize expenses with business levels. The Company estimates that its cost-savings programs produced $66.9 million in incremental cost savings for the second quarter of 2013 compared with the same period in 2012. Additionally, as of June 30, 2013, the Company expects that these and additional new cost-savings programs will produce additional annual cost-savings of $148.4 million, based on the full implementation of current projects that are in process. As the Company realizes savings or identifies new cost-reduction activities, this amount will change.

Caesars Entertainment Operating Company, Inc. Results

As a substantial portion of the debt of Caesars Entertainment's consolidated group is issued by Caesars Entertainment Operating Company, Inc. ("CEOC"), the Company believes it is meaningful to provide information on the results of operations of CEOC, which are summarized below. CEOC's Summary of Operations, Supplemental Information, and Reconciliation of Net Loss Attributable to CEOC to Adjusted EBITDA, LTM Adjusted EBITDA-Pro Forma and LTM Adjusted EBITDA-Pro Forma - CEOC Restricted, can be found at the end of this release.

Conference Call Information

Caesars Entertainment Corporation (NASDAQ: CZR) will host a conference call at 2 p.m. Pacific Time Monday, July 29, 2013 to review its second-quarter results. The call will be accessible in the Investor Relations section of www.caesars.com.

If you would like to ask questions and be an active participant in the call, you may dial 877-637-3723, or 832-412-1752 for international callers, and enter Conference ID 14390108 approximately 10 minutes before the call start time. A recording of the live call will be available on the Company's web site for 90 days after the event.

About Caesars

Caesars Entertainment Corporation is the world's most diversified casino-entertainment provider and the most geographically diverse U.S. casino-entertainment company. Since its beginning in Reno, Nevada, 75 years ago, Caesars has grown through development of new resorts, expansions and acquisitions and now operates casinos on four continents. The Company's resorts operate primarily under the Caesars^®, Harrah's^® and Horseshoe^® brand names. Caesars also owns the World Series of Poker^® and the London Clubs International family of casinos. Caesars is focused on building loyalty and value with its guests through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership. The Company is committed to environmental sustainability and energy conservation and recognizes the importance of being a responsible steward of the environment. For more information, please visit www.caesars.com.  

Forward Looking Information

This release includes "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  You can identify these statements by the fact that they do not relate strictly to historical or current facts.  These statements contain words such as "may," "will," "project," "might," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "continue," "pursue," or the negative or other variations thereof or comparable terminology.  In particular, they include statements relating to, among other things, future actions, new projects, strategies, future performance, the outcomes of contingencies, and future financial results of Caesars.  These forward-looking statements are based on current expectations and projections about future events.

Investors are cautioned that forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that cannot be predicted or quantified, and, consequently, the actual performance of Caesars may differ materially from those expressed or implied by such forward-looking statements.  Such risks and uncertainties include, but are not limited to, the following factors, as well as other factors described from time to time in the Company's reports filed with the Securities and Exchange Commission (including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein):

• the ability to satisfy the conditions to the closing of the previously announced Caesars Growth Partners transaction, including receipt of required regulatory approvals;
• the previously announced Caesars Growth Partners transaction may not consummate on the terms contemplated or at all;
• the impact of the Company's substantial indebtedness and the restrictions in the Company's debt agreements;
• access to available and reasonable financing on a timely basis, including the ability of the Company to refinance its indebtedness on acceptable terms;
• the effects of local and national economic, credit, and capital market conditions on the economy, in general, and on the gaming industry, in particular;
• the ability to realize the expense reductions from cost savings programs;
• changes in the extensive governmental regulations to which the Company and its stockholders are subject, and changes in laws, including increased tax rates, smoking bans, regulations or accounting standards, third-party relations and approvals, and decisions, disciplines, and fines of courts, regulators, and governmental bodies;
• the ability of the Company's customer-tracking, customer loyalty, and yield-management programs to continue to increase customer loyalty and same-store or hotel sales;
• the effects of competition, including locations of competitors and operating and market competition;
• the ability to recoup costs of capital investments through higher revenues;
• abnormal gaming holds ("gaming hold" is the amount of money that is retained by the casino from wagers by customers);
• the ability to timely and cost-effectively integrate companies that the Company acquires into its operations;
• the potential difficulties in employee retention and recruitment as a result of the Company's substantial indebtedness or any other factor;
• construction factors, including delays, increased costs of labor and materials, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters, and building permit issues;
• litigation outcomes and judicial and governmental body actions, including gaming legislative action, referenda, regulatory disciplinary actions, and fines and taxation;
• acts of war or terrorist incidents, severe weather conditions, uprisings or natural disasters, including losses therefrom, including losses in revenues and damage to property, and the impact of severe weather conditions on the Company's ability to attract customers to certain of its facilities, such as the amount of losses and disruption to the Company as a result of Hurricane Sandy in late October 2012;
• the effects of environmental and structural building conditions relating to the Company's properties;
• access to insurance on reasonable terms for the Company's assets; and
• the impact, if any, of unfunded pension benefits under multi-employer pension plans.

Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.  Caesars disclaims any obligation to update the forward-looking statements.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated or, if no date is stated, as of the date of this release.