Stock-Based Compensation and Stockholders' Equity

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement, Noncash Expense [Abstract]

Stock-Based Compensation and Stockholders’ Equity

. Stock-Based Compensation and Stockholders’ Equity

Common Stock Offering

On June 19, 2020, the Company completed the public offering of 20,700,000 shares (including the shares sold pursuant to the underwriters’ overallotment option) of Company Common Stock, at an offering price of $39.00 per share, which provided $772 million of proceeds, net of fees and estimated expenses of $35 million.

On October 1, 2020, the Company completed the public offering of 35,650,000 shares (including the shares sold pursuant to the underwriters’ overallotment option) of Company Common Stock, at an offering price of $56.00 per share, which provided $1.9 billion of proceeds, net of fees and estimated expenses of $50 million.

Share Repurchase Program

In November 2018, the Company’s Board of Directors authorized a $150 million common stock repurchase program (the “Share Repurchase Program”) pursuant to which the Company 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 the Company is required to repurchase under the Share Repurchase Program.

As of September 30, 2020, the Company acquired 223,823 shares of common stock under the Share Repurchase Program at an aggregate value of $9 million and an average of $40.80 per share. No shares were repurchased during the nine months ended September 30, 2020 and 2019.

Stock-Based Compensation

The Company maintains long-term incentive plans for management, other personnel, and key service providers. The plans allow for granting stock-based compensation awards, based on Company Common Stock, including time-based and performance-based stock options, restricted stock units (“RSUs”), performance stock units, market-based stock units (“MSUs”), restricted stock awards, stock grants, or a combination of awards. Forfeitures are recognized in the period in which they occur.

Total stock-based compensation expense in the accompanying Consolidated Condensed Statements of Operations totaled $45 million and $4 million during the three months ended September 30, 2020 and 2019, respectively, and $55 million and $16 million during the nine months ended September 30, 2020 and 2019, respectively. These amounts are included in corporate expenses and, in the case of certain property positions, general and administrative expenses in the Company’s Consolidated Condensed Statements of Operations.

In connection with the Merger, Former Caesars’ outstanding performance-based stock options ceased to represent an option or right to acquire shares of Former Caesars common stock and were converted into an option or right to purchase shares of Company Common Stock on the same terms and conditions as were applicable to such option immediately prior to the consummation of the Merger. Former Caesars’ unvested RSUs and MSUs were converted into a number of RSUs or MSUs, as applicable, in respect of shares of Company Common Stock and remained subject to the same terms and conditions as were applicable to such RSUs and MSUs immediately prior to the consummation of the Merger.

In addition, during the three months ended September 30, 2020, the Company granted both RSUs and MSUs to members of management. Vesting of the awards varies, and includes awards that cliff vest after a two or three year service period, as well as awards that vest ratably on each anniversary during the three year service period. In addition, awards were granted to certain key individuals related to their efforts and the related shareholder return from potential transactions. Vesting of the awards is subject to various service and performance conditions and will accelerate and vest immediately upon the closing of a qualifying transaction as defined by the agreements. Certain awards contained a market-based performance condition with which the fair value of the awards was determined based on a Monte Carlo simulation. The grant date fair value for these awards with a market-based performance condition was approximately $7 million.

Restricted Stock Unit Activity

During the three and nine months ended September 30, 2020, as part of the annual incentive program, the Company granted RSUs to employees of the Company with an aggregate fair value of $42 million and $59 million, respectively. Each RSU represents the right to receive payment in respect of one share of the Company’s Common Stock.

In connection with the Merger, on July 20, 2020, each Former Caesars’ RSU that was eligible to vest based solely on the passage of time that was outstanding as of immediately prior to the consummation of the Merger was converted into a RSU in respect of Company Common Stock and remained subject to the same terms and conditions as were applicable as of immediately prior to the consummation of the Merger.

A summary of the RSUs activity, including performance awards, for the nine months ended September 30, 2020 is presented in the following table:

	Units	Weighted- Average Grant Date Fair Value (a)
Unvested outstanding as of December 31, 2019	1,246,641	$	35.56
Granted (b)	1,222,736	48.17
Acquired (c)	1,876,969	38.24
Vested	(1,068,509)	33.22
Forfeited	(22,912)	41.89
Unvested outstanding as of September 30, 2020	3,254,925	42.56

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(a)Represents the weighted-average grant date fair value of RSUs, which is the share price of our common stock on the grant date.

(b)Included are 20,615 RSUs granted to non-employee members of the Board of Directors during the nine months ended September 30, 2020.

(c)Assumed RSU shares of Former Caesars as of the Merger date.

Market-Based Stock Unit Activity

During the quarter ended September 30, 2020, the Company granted approximately 185,639 MSUs that are scheduled to cliff vest in three years. On the vesting date, recipients will receive between 0% and 200% of the granted MSUs in the form of Company Common Stock based on the achievement of specified market and service conditions. Based on the terms and conditions of the awards, the grant date fair value of the MSUs was determined using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient. The effect of market conditions is considered in determining the grant date fair value, which is not subsequently revised based on actual performance. The aggregate value of MSUs granted during the nine months ended September 30, 2020 was $13 million.

In connection with the Merger, on July 20, 2020, each MSU of Former Caesars was converted into a MSU in respect of shares of Company Common Stock and remained subject to the same terms and conditions as were applicable as of immediately prior to the consummation of the Merger.

	Units	Weighted- Average Fair Value (a)
Unvested outstanding as of December 31, 2019	—	$	—
Granted	185,639	70.26
Acquired (b)	124,984	63.36
Vested	(61,322)	63.36
Forfeited	—	—
Unvested outstanding as of September 30, 2020	249,301	68.50

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(a)Represents the fair value determined using a Monte-Carlo simulation model.

(b)Assumed MSU shares of Former Caesars as of the Merger date.

Stock Option Activity

There were 26,900 stock options exercised for the nine months ended September 30, 2020. Outstanding options as of September 30, 2020 totaled 220,432, of which 104,257 options were exercisable.

Unrecognized Compensation Cost

As of September 30, 2020, the Company had $103 million of unrecognized compensation expense, which is expected to be recognized over a weighted-average period of 1.7 years.