Caesars Entertainment Reports Third Quarter of 2012 Results

LAS VEGAS, Oct. 31, 2012 /PRNewswire/ -- Caesars Entertainment Corporation (NASDAQ: CZR) today reported the following financial results for the third quarter of 2012:

• Net revenues and Adjusted EBITDA remain flat
• August debt transactions consummated in October extend maturities, boost liquidity and increase balance sheet cash
• First wave of Linq tenants announced in October
• Total Rewards receives customer-loyalty industry's top award

(Logo: http://photos.prnewswire.com/prnh/20120607/LA21221LOGO)

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

Management Commentary

"We continued to make significant progress during the third quarter on a strategy designed to position our company for future growth," said Gary Loveman, Caesars Entertainment chairman, chief executive officer and president. "We continued to refinance our nearest-term maturities and improve our financial flexibility. In August 2012, we issued $750 million in new debt due 2020, with proceeds used to refinance debt maturing in 2014 and 2015 and to increase liquidity. In conjunction with this transaction, which closed in October, we extended the maturity of approximately $958 million of term loans from 2015 to 2018 and beyond, and repaid approximately $479 million of term loans under our credit facilities. 

"We moved forward with the expansion of our distribution network into growth markets while we continued to invest in our hub markets of Las Vegas and Atlantic City," Loveman said. "We've started taking reservations for the highly anticipated opening of the Nobu Hotel at Caesars Palace in Las Vegas next January. We've also announced an eclectic and exciting mix of tenants who've already signed contracts to be part of the Linq retail, dining and entertainment experience at the center of the Las Vegas Strip.

"Our consortium with Rock Gaming and others is proceeding with plans to open a gaming facility in Baltimore in the middle of 2014, and we will apply for a license to build a full-scale gaming-destination resort in Boston in an alliance with Suffolk Downs," he said. "We've also begun booking meetings and conventions for the spring 2013 opening of the new $450 million Horseshoe Cincinnati being developed by Rock Ohio Caesars LLC, a joint venture in which we have a 20% ownership interest.

"Our focus on increasing the relevance and reach of our core brands gained recognition when COLLOQUY, a global provider of publications, education and research, granted our Total Rewards customer-loyalty program its most prestigious honor, the Master of Enterprise Loyalty Award," Loveman said. "What was particularly gratifying was that we were nominated and selected for the honor by external audiences and expert judges over all other leading loyalty-marketing programs globally.

"Thanks primarily to growth in our interactive operations and a continued emphasis on expense reductions, we achieved about the same net revenues and Adjusted EBITDA as in the third quarter of 2011, despite more competitive markets and the challenges posed by the continuing weakness of the U.S. economy," Loveman said. "Reflecting the sluggish economic conditions, customer visitation declined in all regions and spend per trip declined in several regions. However, Las Vegas saw a nearly 8 percent increase in per trip customer spending and Iowa-Missouri and Louisiana-Mississippi experienced modest increases in spend per trip.

"As we enter the fourth quarter, we remain focused on increasing revenues, strengthening our capital structure, investing in growth opportunities in new markets, increasing our brand recognition and controlling expenses," he said. "In fact, our efforts to streamline our cost structure resulted in Property EBITDA gains in three of our six domestic regions, including the struggling Atlantic City Region.

"During this quarter, we expect to complete the previously announced sale of Harrah's St. Louis for $610 million and plan to use the proceeds from the sale to reinvest in our core properties and invest in growth opportunities," Loveman said. "One example is our anticipated renovation and rebranding of the Imperial Palace, which we are renaming The Quad. We expect to upgrade significant portions of that property, including the casino, public spaces and guest rooms. The reconfiguration of the casino and its entrances will enable direct access from the Linq and make the Quad what we believe to be one of the most easily accessible casinos on the Strip."

Financial Results

As a result of the pending sale, the assets and liabilities of the Harrah's St. Louis casino included in the sale are classified as held for sale in the consolidated summary balance sheets shown later in this release and the results of the Harrah's St. Louis casino are presented as Discontinued Operations in the consolidated summary of operations for the third quarter and nine-month periods of 2012 and 2011, also shown later in this release.

Net revenues for the third quarter of 2012 increased 0.4% compared with the year-earlier period, due mainly to an increase in other revenues from the Company's interactive operations, which include Playtika Ltd., and higher revenues from Caesars' management companies resulting from the opening of Horseshoe Cleveland earlier this year. These increases were largely offset by lower casino revenues in all but the Las Vegas and Illinois/Indiana regions.

Loss from operations for the third quarter of 2012 was $220.6 million compared with income from operations of $179.8 million in the prior-year quarter.  This change was due mainly to non-cash charges totaling $419.0 million, comprised of intangible asset impairments of $247.0 million related to goodwill, $127.0 million related to trademarks and $32.0 million related to gaming rights, and a tangible asset impairment of $13.0 million.

Net loss attributable to Caesars for the third quarter of 2012 was $505.5 million, up $341.5 million, or 208.2%, from the third quarter of 2011.  Higher net losses in the third quarter of 2012 reflect the impairment charges discussed above, increased interest expense for the third quarter of 2012 and changes in the tax rate benefit as further described in "Other Items" that follows later in this release.

For the third quarter of 2012, Property EBITDA and Adjusted EBITDA increased $15.0 million, or 3.0%, and $2.0 million, or 0.4%, respectively, from 2011 primarily driven by the income impact of higher revenues. 

Performance Metrics

The Company measures its performance in part through the tracking of trips by rated customers, which means a customer whose gaming activity is tracked through the Total Rewards customer-loyalty system ("trips"), and by spend per rated customer trip ("spend per trip").

The following table reflects the percentage increase/(decrease) in trips and spend per trip for the U.S. regions for the third quarter and the nine-month periods of 2012, compared with the same periods in 2011.

Trips across all regions decreased in the third quarter of 2012 when compared with the same period in 2011, resulting in a decline of 4.9% on a consolidated basis, due mainly to economic and competitive pressures as well as hurricane-related property closures in the Louisiana/Mississippi region in August 2012.  The overall increase in spend per trip in the third quarter of 2012 was attributable to a large increase in the Las Vegas region due primarily to strength in the international high-end segment, as well as modest increases in the Iowa/Missouri and Louisiana/Mississippi regions. 

On a consolidated basis in 2012, third quarter cash average daily room rates decreased from $91 to $89, due primarily to decreases in the Company's groups segment, and total occupancy percentage remained flat when compared with 2011.

Results by Region

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 seven regions. Operating results for each of the regions are provided below.

Las Vegas Region

Las Vegas Region properties include Bally's Las Vegas, Bill's Gamblin' Hall & Saloon, Caesars Palace, Flamingo Las Vegas, Harrah's Las Vegas, Imperial Palace, Paris Las Vegas, Planet Hollywood Resort & Casino, and Rio.

Third-quarter net revenues were relatively flat for the region when compared with 2011, as increased casino revenues were mostly offset by decreases in food and beverage and other revenues combined with higher promotional allowances. Revenues rose slightly, despite the negative impact on results caused by Project Linq construction activities, including the closure of O'Shea's casino in May 2012, the closure of several retail outlets at Harrah's Las Vegas and the ongoing renovation of the Imperial Palace, which the Company estimates to have reduced net revenues by approximately $10 million to $15 million.  Trips were relatively flat, while spend per trip increased 7.8%, due primarily to strength in the international high-end segment. Hotel revenues in the region were relatively flat when compared with 2011, due in part to the 662 additional Octavius Tower rooms, offset by a decrease in cash average daily room rates from $89 in 2011 to $87 in 2012 and a decrease in total occupancy percentage of 1.8 percentage points.

Income from operations decreased for the third quarter of 2012 by 29.3% primarily due to increases in property operating expenses, non-cash intangible asset impairment charges of $3.0 million and an increase in write-downs, reserves, and project opening costs, net of recoveries, associated with demolition costs to prepare for Project Linq.

Property EBITDA for the third quarter of 2012 was lower than in 2011, mainly resulting from the increase in property operating expenses which more than offset the slight increase in net revenues. Also, the Company estimates that the negative impact caused by Project Linq construction activities was to reduce Property EBITDA by approximately $5 million to $10 million.

Construction on Project Linq, which is scheduled to open in phases in the second half of 2013, continues. Caesars recently announced the first wave of tenants who will populate the retail, dining and entertainment experience between the Company's Flamingo and Imperial Palace casinos, on the east side of the Las Vegas Strip.  The tenants are aimed at appealing to Gen X and Gen Y visitors and include trend-setting brands such as Brooklyn Bowl, F.A.M.E., Yard House, Tilted Kilt and others that, combined, will constitute more than 70% of the 230,000 square feet of the space available for lease. 

Atlantic City Region

Atlantic City region properties include Bally's Atlantic City, Caesars Atlantic City, Harrah's Atlantic City, Harrah's Philadelphia (formerly known as Harrah's Chester), and Showboat Atlantic City.

Net revenues for the third quarter of 2012 in the Atlantic City region were down $20.2 million, or 4.1%, from 2011, due mainly to lower casino revenues, largely resulting from a decline in trips. Trips by lodgers and non-lodgers declined 4.5% and 5.1%, respectively, in the third quarter of 2012 from 2011 due mainly to new competition in the region. Spend per trip for lodgers and non-lodger decreased 2.8% and 4.1%, respectively. The Company expects the market to continue to be challenged by local and regional competition. Income from operations and Property EBITDA increased 19.1% and 11.5%, respectively, in the third quarter of 2012 compared with 2011 due mainly to decreased property operating expenses resulting from cost savings initiatives and lower property tax assessments in Atlantic City, partially offset by the decline in net revenues.  

Louisiana/Mississippi Region

Louisiana/Mississippi region properties include Grand Casino Biloxi, Harrah's New Orleans, Harrah's Tunica, Horseshoe Bossier City, Harrah's Horseshoe Tunica, Harrah's Louisiana Downs, and Tunica Roadhouse Hotel and Casino.

Third quarter of 2012 net revenues in the Louisiana/Mississippi region decreased $25.5 million, or 8.7%, from 2011.  Revenues were negatively impacted by the closures of two casinos in the region as a result of Hurricane Isaac in August 2012, which contributed to a 6.2% decline in trips.  Loss from operations was $183.0 million in the third quarter of 2012 compared with income from operations of $35.4 million in 2011. This change was due primarily to non-cash intangible asset impairment charges of $176.0 million, as well as a non-cash tangible asset impairment charge of $13.0 million and a $20.2 million charge for exit activities related to the halted development project in Biloxi, Mississippi.  Also contributing to the loss from operations is the income impact of lower revenues and non-recurring costs associated with hurricane-related damage to the closed properties. The Company estimates that the negative impact of Hurricane Isaac on its income from operations and Property EBITDA was approximately $4 million.

Iowa/Missouri Region

Iowa/Missouri region properties include Harrah's Council Bluffs, Harrah's North Kansas City, and Horseshoe Council Bluffs. On May 7, 2012, Caesars entered into an agreement to sell Harrah's St Louis; therefore, the results in the table below exclude those of Harrah's St. Louis for all periods. 

Net revenues in the third quarter of 2012 in the Iowa/Missouri region decreased $2.9 million, or 2.4%, from 2011 due mainly to a decline in casino revenues resulting from new competition in the Kansas City market. Income from operations and Property EBITDA increased for the third quarter of 2012 from 2011 due mainly to a reduction in property operating expenses resulting from the refinement of estimates of costs remaining in the discontinued operations of the Harrah's St. Louis casino as a result of the imminent closing of the transaction.

Illinois/Indiana Region

Illinois/Indiana region properties include Harrah's Joliet, Harrah's Metropolis, Horseshoe Hammond, and Horseshoe Southern Indiana.

Third quarter of 2012 net revenues in the Illinois/Indiana region increased slightly from 2011.  Spend per trip declined while increased competitive pressures in the region resulted in fewer trips, despite the reopening earlier this year of the bridge that allows direct access by customers to the Company's Southern Indiana property, which closure affected the property starting in early September 2011. Income from operations for the third quarter of 2012 increased 32.8% from the same period in 2011 due mainly to higher revenues together with reduced property operating expenses as a result of cost savings initiatives. The increase in Property EBITDA reflects higher revenues and reduced property operating expenses mentioned above.

Other Nevada Region

Other Nevada Region properties include Harrah's Lake Tahoe, Harrah's Laughlin, Harrah's Reno, and Harveys Lake Tahoe.

Third quarter of 2012 net revenues decreased $6.8 million, or 4.8%, from the same period in 2011 due mainly to a decline in casino revenues. Trips to the properties in the region, as well as spend per trip, declined in the third quarter of 2012 compared with 2011 due to local competitive pressures, and the Company expects the market to continue to be challenged. There was a loss from operations of $75.2 million in the third quarter of 2012 compared with income from operations of $30.3 million in 2011.  This change was due mainly to non-cash intangible asset impairment charges of $103.0 million recorded in the 2012 quarter.  Property EBITDA decreased slightly from 2011 due mainly to the income impact of lower revenues, partly offset by reduced property operating expenses.

Managed, International, and Other

The Managed region includes companies that operate three Indian-owned casinos, as well as Horseshoe Cleveland and Caesars Windsor, and the results of Thistledown Racetrack ("Thistledown") through August 2012 when the racetrack was contributed to Rock Ohio Caesars, LLC, a joint venture in which Caesars holds a 20% ownership interest. Subsequent to August 2012, the Managed region includes the results of the subsidiary that manages Thistledown. The International region includes the results of Caesars' international operations. The Other region is comprised of corporate expenses, including administrative, marketing, and development costs, income from certain non-consolidated affiliates, and the results of Caesars Interactive Entertainment, Inc., which consists of the businesses related to the World Series of Poker^® ("WSOP") brand, an online real-money business in the U.K. and alliances with online gaming providers in Italy and France, and the results of Playtika Ltd., a social media and mobile games developer, since since it was acquired in May 2011.

Net revenues in the third quarter of 2012 for Managed, International, and Other increased $58.9 million, or 40.3%, from 2011, due primarily to higher revenues associated with the Company's growing interactive operations. Net revenue increases were also attributable to the opening of a new managed casino, Horseshoe Cleveland, which began operations in May 2012, including an increase in reimbursable expenses for Horseshoe Cleveland that is presented on a gross revenue basis, thus resulting in an increase in net revenues and an equally offsetting increase in operating expenses. Loss from operations increased $79.4 million in the third quarter of 2012 from 2011, due mainly to non-cash intangible asset impairment charges of $124.0 million in the 2012 quarter and increased corporate expenses. Increases in corporate expenses were attributable to the consolidation of certain functions at corporate, and increased stock-based compensation expense.

Other Items

Interest expense, net of interest capitalized, increased by $65.4 million, or 14.5%, in the third quarter of 2012, due primarily to  higher interest rates as a result of extending the maturities of the Company's debt combined with higher debt balances compared with the year-ago quarter, and a $66.2 million decrease in mark-to-market gains on derivatives resulting from $6.2 million of gains in 2012 compared with gains of $72.4 million in 2011, partially offset by $33.9 million of lower amortization of deferred losses in accumulated other comprehensive loss. Interest expense is reported net of interest capitalized of $9.5 million and $11.6 million for the third quarter of 2012 and 2011, respectively. Interest capitalized in the third quarter of 2012 is primarily related to the Project Linq.

The effective tax rate benefit for the quarter ended September 30, 2012 and September 30, 2011, was 30.8% and 29.6%, respectively.  The reason for the increase in the quarterly rate at September 30, 2012 is that the negative impact to the 2012 rate, which is primarily caused by nondeductible goodwill impairments, was relatively less than the negative impact to the 2011 rate, which was primarily caused by nondeductible foreign losses and nondeductible losses on company-owned life insurance policies.

Caesars Entertainment has undertaken comprehensive cost-reduction efforts to rightsize expenses with business levels through its implementation of "Project Renewal," an initiative designed to reinvent certain aspects of the Company's functional and operating units to gain significant further cost reductions and streamline its operations. As a part of Project Renewal, the Company designed a shared-services organization that will enable more efficient decision making and sharing of best practices. Caesars anticipates that the Company will have a permanently lower cost structure and will benefit from greater concentration of specified talent and quicker decision making. The Company estimates that Project Renewal and other cost-savings programs produced $50.8 million in incremental cost savings for the third quarter of 2012 compared with the same period in 2011. Additionally, as of September 30, 2012, we expect that these cost-savings programs will produce additional annual cost savings of $204.3 million, based on the full implementation of current projects that are in process. As the Company firms up cost reduction activities, this amount could change.

Caesars Entertainment Operating Company, Inc. Results

As a substantial portion of the debt of Caesars Entertainment's consolidated group is issued by CEOC, the Company believes it is meaningful to also provide information on the results of operations of CEOC. Results for CEOC 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.

Caesars Entertainment Corporation (NASDAQ: CZR) will host a conference call at 2 p.m. Pacific Time Wednesday, October 31, 2012, to review its third-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 50057754 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.

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Caesars Entertainment Corporation is the world's most diversified 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. We are committed to environmental sustainability and energy conservation and recognize the importance of being a responsible steward of the environment. For more information, please visit www.caesars.com.  

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 impact of the Company's significant indebtedness;
• 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;
• access to available and reasonable financing on a timely basis;
• 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;
• 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 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 effects of competition, including locations of competitors and operating and market competition;
• 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;
• 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;
• acts of war or terrorist incidents, severe weather conditions, uprisings, or natural disasters; 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.

The following table reconciles net loss attributable to Caesars to Adjusted EBITDA for the nine months ended September 30, 2012 and 2011 and for the year ended December 31, 2011, and reconciles net loss attributable to Caesars to LTM Adjusted EBITDA-Pro Forma for the last twelve months ended September 30, 2012.

The following tables present the Consolidated Summary of Operations and Supplemental Information for Caesars Entertainment Operating Company, Inc. ("CEOC"), a wholly owned subsidiary of Caesars Entertainment Corporation for the periods indicated.

The following table reconciles net loss attributable to CEOC to Adjusted EBITDA for the six months ended September 30, 2012 and 2011 and for the year ended December 31, 2011, and reconciles net loss attributable to CEOC to LTM Adjusted EBITDA-Pro Forma, and LTM Adjusted EBITDA-Pro Forma - CEOC Restricted for the last twelve months ended September 30, 2012.

SOURCE Caesars Entertainment Corporation