Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 8-K
 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
May 31, 2018 (May 31, 2018)
Date of Report (Date of earliest event reported)
 
Caesars Entertainment Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-10410
 
62-1411755
(State of Incorporation)
 
(Commission File Number)
 
(IRS Employer
 
 
 
 
Identification Number)
 
 
One Caesars Palace Drive
 
 
 
 
Las Vegas, Nevada 89109
 
 
 
 
(Address of principal executive offices)
(Zip Code)
 
 
 
(702) 407-6000
(Registrant’s telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o







Item 8.01 Other Events
As disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed with the Securities and Exchange Commission on May 2, 2018, effective January 1, 2018, Caesars Entertainment Corporation (the “Company”) adopted the Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (and all related amendments). The Company adopted the new standard using the full retrospective method, which required the Company to recast each prior reporting period presented consistent with the new standard.
The Company is filing this Current Report on Form 8-K to present its consolidated financial statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 and financial information presented in certain sections of its Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 8, 2018 (the “2017 Annual Report”) recast on a basis consistent with the new standard. The recasting of information presented in certain sections of the 2017 Annual Report is set forth in Exhibit 99.1, which is incorporated herein by reference.
No attempt has been made in Exhibit 99.1 to update disclosures presented in our 2017 Annual Report except as required to reflect the effects of ASU 2014-09. Exhibit 99.1 does not reflect events occurring after the filing of our 2017 Annual Report, or modify or update those disclosures, including the exhibits to the 2017 Annual Report affected by subsequent events. For developments that have occurred subsequent to the filing of the 2017 Annual Report, refer to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and other filings by the Company with the Securities and Exchange Commission.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report contains or may contain “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. Further, statements that include words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “present,” or “pursue,” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. These forward-looking statements are found at various places throughout this report. These forward-looking statements, including, without limitation, those relating to future actions, new projects, strategies, future performance, the outcome of contingencies such as legal proceedings, and future financial results, wherever they occur in this report, are necessarily estimates reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of various important factors set forth above and from time to time in our filings with the Securities and Exchange Commission.
Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include without limitation:
completion of the acquisition of Centaur Holdings, LLC ("Centaur") is subject to receipt of regulatory approvals and other customary closing conditions, which may not be satisfied;
we may not be able to realize the anticipated benefits of our proposed acquisition of Centaur;
development of our announced convention center in Las Vegas and certain of our other announced projects are subject to risks associated with new construction projects, including those described below;
the impact of our new operating structure following CEOC’s emergence from bankruptcy;
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 effect of reductions in consumer discretionary spending due to economic downturns or other factors and changes in consumer demands;
the ability to realize improvements in our business and results of operations through our property renovation investments, technology deployments, business process improvement initiatives, and other continuous improvement initiatives;
the ability to take advantage of opportunities to grow our revenue;
the ability to use net operating losses to offset future taxable income as anticipated;
the ability to realize all of the anticipated benefits of current or potential future acquisitions;





the ability to effectively compete against our competitors;
the financial results of our consolidated businesses;
the impact of our substantial indebtedness, including its impact on our ability to raise additional capital in the future and react to changes in the economy, and lease obligations and the restrictions in our debt and lease agreements;
the ability to access available and reasonable financing or additional capital on a timely basis and on acceptable terms or at all, including our ability to refinance our indebtedness on acceptable terms;
the ability of our customer tracking, customer loyalty, and yield management programs to continue to increase customer loyalty and same-store or hotel sales;
changes in the extensive governmental regulations to which we are subject and (1) changes in laws, including increased tax rates, smoking bans, regulations, or accounting standards; (2) third-party relations; and (3) approvals, decisions, disciplines and fines of courts, regulators, and governmental bodies;
compliance with the extensive laws and regulations to which we are subject, including applicable gaming laws, the Foreign Corrupt Practices Act and other anti-corruption laws, and the Bank Secrecy Act and other anti-money laundering laws;
our ability to recoup costs of capital investments through higher revenues;
growth in consumer demand for non-gaming offerings;
abnormal gaming holds (“gaming hold” is the amount of money that is retained by the casino from wagers by customers);
the effects of competition, including locations of competitors, growth of online gaming, competition for new licenses, and operating and market competition;
our ability to protect our intellectual property rights and damages caused to our brands due to the unauthorized use of our brand names by third parties in ways outside of our control;
the ability to timely and cost-effectively integrate companies that we acquire into our operations;
not being able to realize all of our anticipated cost savings;
the potential difficulties in employee retention, recruitment, and motivation;
our ability to retain our performers or other entertainment offerings on acceptable terms or at all;
the risk of fraud, theft, and cheating;
seasonal fluctuations resulting in volatility and an adverse effect on our operating results;
any impairments to goodwill, indefinite-lived intangible assets, or long-lived assets that we may incur;
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;
the impact of adverse legal proceedings and judicial and governmental body actions, including gaming legislative action, referenda, regulatory disciplinary actions, and fines and taxation;
acts of war or terrorist incidents (including the impact of the recent mass shooting in Las Vegas on tourism), severe weather conditions, uprisings, or natural disasters, including losses therefrom, losses in revenues and damage to property, and the impact of severe weather conditions on our ability to attract customers to certain of our facilities;
fluctuations in energy prices;
work stoppages and other labor problems;
our ability to collect on credit extended to our customers;





the effects of environmental and structural building conditions relating to our properties and our exposure to environmental liability, including as a result of unknown environmental contamination;
a disruption, failure, or breach of our network, information systems, or other technology, or those of our vendors, on which we are dependent;
risks and costs associated with protecting the integrity and security of internal, employee, and customer data;
access to insurance for our assets on reasonable terms;
the impact, if any, of unfunded pension benefits under multi-employer pension plans; and
the other factors set forth under Part I, Item 1A. “Risk Factors” in our 2017 Annual Report.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events, except as required by law.

Item 9.01 Financial Statements and Exhibits
 
(d) 
Exhibits.
23.1
99.1
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.

 






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
 
 
 
 
CAESARS ENTERTAINMENT CORPORATION
 
 
 
 
 
Date:
May 31, 2018
By:
 
/S/ KEITH A. CAUSEY
 
 
 
 
Keith A. Causey
 
 
 
 
Senior Vice President and Chief Accounting Officer



Exhibit
Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-182385, 333-204343, 333-211766, 333-220865, and 333-220872 on Form S-8, Registration Statement No. 333-216636 on Form S-4 and Registration Statement No. 333-180116 on Form S-3 of Caesars Entertainment Corporation of our report dated March 7, 2018 (May 31, 2018 as it relates to the adoption of ASU 2014-09 as discussed in Note 14 of the financial statements, including the schedule listed in the Index at Item 15), relating to the consolidated financial statements and financial statement schedule of Caesars Entertainment Corporation and its subsidiaries (the “Company”) (which report expresses an unqualified opinion and includes emphasis of matter paragraphs regarding (1) the Company’s change of its method of accounting for revenue in all periods presented due to the adoption of ASU 2014-09 and (2) the Caesars Acquisition Company merger with and into the Company, with the Company as the surviving company on October 6, 2017) appearing in this Current Report on Form 8-K of Caesars Entertainment Corporation.

/s/ DELOITTE & TOUCHE LLP

Las Vegas, Nevada
May 31, 2018



Exhibit
Exhibit 99.1
CAESARS ENTERTAINMENT CORPORATION
EXPLANATORY NOTE
As disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed with the Securities and Exchange Commission on May 2, 2018, effective January 1, 2018, Caesars Entertainment Corporation (the “Company”) adopted the Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (and all related amendments). The Company adopted the new standard using the full retrospective method, which required the Company to recast each prior reporting period presented consistent with the new standard.
The Company is filing this Current Report on Form 8-K to present its consolidated financial statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 and financial information presented in certain sections of its Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 8, 2018 (the “2017 Annual Report”) recast on a basis consistent with the new standard.
No attempt has been made herein to update disclosures presented in our 2017 Annual Report except as required to reflect the effects of ASU 2014-09. This filing does not reflect events occurring after the filing of our 2017 Annual Report, or modify or update those disclosures, including the exhibits to the 2017 Annual Report affected by subsequent events. For developments that have occurred subsequent to the filing of the 2017 Annual Report, refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 and other filings by the Company with the Securities and Exchange Commission.
The most significant effects of adopting the new standard related to the accounting for our Total Rewards customer loyalty program and casino promotional allowances.
Total Rewards affects revenue from our four core businesses: casino entertainment, food and beverage, rooms and hotel, and entertainment and other business operations. Previously, the Company accrued a liability based on the estimated cost of fulfilling the redemption of Reward Credits, after consideration of estimated forfeitures (referred to as “breakage”), based upon the cost of historical redemptions. Upon adoption of the new accounting standard, Reward Credits are no longer recorded at cost, and a deferred revenue model is used to account for the classification and timing of revenue recognized as well as the classification of related expenses when Reward Credits are redeemed. This results in a portion of casino revenues being recorded as deferred revenue as Reward Credits are earned. Revenue is recognized in a future period based on when and for what good or service the Reward Credits are redeemed (e.g., a hotel room).
Additionally, we previously recorded promotional allowances in a separate line item within net revenues. As part of adopting the new standard, promotional allowances are no longer presented separately. Alternatively, revenue is recognized based on relative standalone selling prices for transactions with more than one performance obligation. For example, when a casino customer is given a complimentary room, we are required to allocate a portion of the casino revenues earned from the customer to rooms revenues based on the standalone selling price of the room. As a result of this change, we are reporting substantially lower casino revenues; however, there is no material effect on total net revenues.
As of December 31, 2017, we had a financing obligation of $74 million related to our continued recognition of certain golf course properties (the “Golf Course Properties”) that were sold to VICI Properties LLC (“VICI”) prior to our acquisition of OpCo (see Note 4 of Item 8) and the Golf Course Properties value of $74 million was reflected in Property, plant and equipment, net on our Balance Sheet. The conditions that were considered prohibited forms of continuing involvement related to OpCo’s sale of the Golf Course Properties are no longer considered continuing involvement under the new revenue recognition standard. As a result of adopting the new standard on full retrospective basis, this transaction is now reflected as if it was a completed sale prior to our acquisition of OpCo, and therefore, we reversed the assets and financing obligation that were recognized as part of the OpCo acquisition.
In addition, adopting the new standard did not have a material effect on income from operations or net income.

1


The following table reconciles the previously-reported net revenues and net income/(loss) of the Company to the amounts reported in the Statements of Operations after giving effect to adoption of the new revenue recognition standard:
Reconciliation of Net Revenues and Net Income/(Loss)
 
Years Ended December 31,
(In millions)
2017
 
2016
 
2015
Net revenues
 
 
 
 
 
Previously reported
$
4,852

 
$
3,877

 
$
3,929

Adoption of new revenue recognition standard
16

 

 
28

As recast
$
4,868

 
$
3,877

 
$
3,957

 
 
 
 
 
 
Net income/(loss)
 
 
 
 
 
Previously reported
$
(382
)
 
$
(3,077
)
 
$
6,008

Adoption of new revenue recognition standard
7

 
(1
)
 
3

As recast
$
(375
)
 
$
(3,078
)
 
$
6,011

Below is a detail of Items in the Company’s 2017 Annual Report that were updated to recast certain prior period financial information to reflect our retrospective application of the new revenue recognition standard:
Part I, Item 1. Business
The percentages of total net revenues in 2017 under the caption “Business Operations” have been recast.
Part II, Item 6. Selected Financial Data
The amounts reported under “Financial Position Data,” “Operating Data,” and “Common Stock Data” as of and for the years ended December 31, 2017, 2016 and 2015 have been recast.
Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Under the caption “Summary of Significant Events,” the section “Adoption of New Revenue Recognition Standard” has been added, and the amounts reported in the section “Horseshoe Baltimore Deconsolidation” have been recast.
Amounts reported under the captions “Discussion of Operating Results” and “Liquidity and Capital Resources” have been recast as necessary.
Part II, Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm has been updated as of May 31, 2018.
Consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of operations and comprehensive income/(loss), stockholders’ equity/(deficit), and cash flows for each of the years in the three-year period ended December 31, 2017 have been recast.
Note 14 to the Notes to Consolidated Financial Statements titled “Revenue Recognition” has replaced the note previously titled “Casino Promotional Allowances.”
The following Notes to the Consolidated Financial Statements have been recast: Note 1 - Description of Business, Note 2 - Basis of Presentation and Principles of Consolidation, Note 3 - Summary of Significant Accounting Policies, Note 4 - Business Combinations, Note 5 - Recently Issued Accounting Pronouncements, Note 6 - Property and Equipment, Note 9 - Accrued Expenses and Other Current Liabilities, Note 11 - Litigation, Contractual Commitments and Contingent Liabilities, Note 13 - Earnings Per Share, Note 17 - Income Taxes, Note 19 - Related Party Transactions, Note 20 - Segment Reporting, Note 21 - Quarterly Results of Operations (unaudited).
Part IV, Item 15 – Exhibits, Financial Statement Schedules
Schedule I — Condensed Financial Information of Registrant Parent Company Only as of December 31, 2017 and 2016 and for the Years Ended December 31, 2017, 2016, and 2015 have been recast.

2



CAESARS ENTERTAINMENT CORPORATION
INDEX TO EXHIBIT 99.1
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




3



PART I

In this filing, the name “CEC” refers to the parent holding company, Caesars Entertainment Corporation, exclusive of its consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires. The words “Company,” “Caesars,” “Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, inclusive of its consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires.
We also refer to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Operations and Comprehensive Income/(Loss) as our “Statements of Operations,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Statements of Cash Flows.” References to numbered “Notes” refer to Notes to our Consolidated Financial Statements included in Item 8.
Additionally, in this filing, except as the context otherwise requires, references to “VICI” or “PropCo” are references to VICI Properties Inc. and its subsidiaries, from which we lease a number of our properties.
ITEM 1.
Business
Overview
Caesars Entertainment is a casino-entertainment and hospitality services provider with the world’s most diversified portfolio and facilities in more areas throughout the United States than any other participant in the gaming industry. We have established a rich history of industry-leading growth and expansion since we commenced operations in 1937. Our facilities typically include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment options. In addition to our brick and mortar assets, we operate an online gaming business that provides real money games in certain jurisdictions.
CEC is primarily a holding company with no independent operations of its own. CEC operates the business primarily through its wholly owned subsidiaries CEOC, LLC (“CEOC LLC”) and Caesars Resort Collection, LLC (“CRC”).
Significant Events and Transactions in 2017
Transactions Related to CAC Merger and CEOC’s Emergence from Bankruptcy
Merger with Caesars Acquisition Company
In 2014, CEC and Caesars Acquisition Company (“CAC”) entered into a merger agreement, which was amended and restated in July 2016 and February 2017 (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, on October 6, 2017 (the “Effective Date”), CAC merged with and into CEC, with CEC as the surviving company (the “CAC Merger”), and each share of CAC common stock issued and outstanding immediately prior to the Effective Date was converted into, and became exchangeable for, 1.625 shares of CEC common stock on the Effective Date, which resulted in the issuance of 226 million shares of CEC common stock to the stockholders of CAC. See Note 4 for additional information.
CEOC’s Emergence from Bankruptcy and Acquisition of OpCo
In addition, on the Effective Date, Caesars Entertainment Operating Company, Inc. (“CEOC”) and certain of its United States subsidiaries (collectively, the “Debtors”) emerged from bankruptcy. CEC made material financial commitments to support the reorganization of CEOC, as described in the Debtors’ third amended joint plan of reorganization (the “Plan”). The total value of the consideration that was provided by CEC as of the Effective Date was $8.6 billion and included a combination of cash, shares of CEC common stock, and $1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 (the “CEC Convertible Notes”). See Note 1 for additional information.
As part of its emergence from bankruptcy, CEOC reorganized into an operating company (“OpCo”) and PropCo. PropCo holds certain real property assets formerly held by CEOC and leases those assets to OpCo. See Note 10 for additional information. PropCo is a separate entity that is not consolidated by Caesars and, on the Effective Date, was sold to VICI Properties Inc., the real estate investment trust that was initially owned by certain former creditors of CEOC and is independent from CEC.
OpCo was acquired by CEC on the Effective Date for total consideration of $2.5 billion, which included a combination of cash and CEC common stock. OpCo operates the properties and facilities formerly held by CEOC and leases the properties and facilities from VICI. Upon acquisition, OpCo was immediately merged with and into CEOC LLC, with CEOC LLC as the surviving entity. See Note 4 for additional information.

4



As part of the acquisition of OpCo, we assumed $1.2 billion in debt that was issued in connection with CEOC’s emergence from bankruptcy. See Note 12 for additional information.
Hamlet Holdings
The members of Hamlet Holdings LLC (“Hamlet Holdings”) are comprised of affiliates of Apollo Global Management, LLC (“Apollo”) and affiliates of TPG Global, LLC (“TPG”) (collectively, the “Sponsors”). Hamlet Holdings contributed to CEC the 88 million shares of CEC common stock it owned prior to the CAC Merger, which CEC immediately canceled and retired. Hamlet Holdings controlled CEC prior to the CAC Merger. Upon completion of the CAC Merger and CEOC’s emergence from bankruptcy, Hamlet Holdings beneficially owned approximately 20.8% of CEC common stock as a result of its former interest in CAC, and consequently, Hamlet Holdings no longer controls CEC.
CRC Merger and Related Debt Transactions
On October 16, 2017, CRC Escrow Issuer, LLC (“Escrow Issuer”) and CRC Finco, Inc. (“Finance”), two wholly owned, indirect subsidiaries of CEC, issued $1.7 billion aggregate principal amount of 5.25% senior notes due 2025 (the “CRC Notes”). CRC, a wholly owned subsidiary of CEC, was created on December 22, 2017, with the merger of Caesars Entertainment Resort Properties, LLC (“CERP”) into Caesars Growth Properties Holdings, LLC (“CGPH”) (the “CRC Merger”). In conjunction with the CRC Merger, Escrow Issuer merged with and into CRC, with CRC as the surviving entity and borrower.
Additionally, on December 22, 2017, CRC entered into new senior secured credit facilities comprised of (i) a $1.0 billion senior secured revolving credit facility (the “CRC Revolving Credit Facility”) and (ii) a $4.7 billion senior secured term loan credit facility (the “CRC Term Loan Facility”). The net proceeds of the CRC Notes and the CRC Term Loan Facility, as well as available cash and borrowings under the CRC Revolving Credit Facility, were used to repay the outstanding debt of CERP and CGPH. See Note 12 for additional information.
Other Events and Transactions
As of August 31, 2017, CR Baltimore Holdings, which indirectly owns the Horseshoe Baltimore Casino (“Horseshoe Baltimore”), was deconsolidated and is accounted for as an equity method investment subsequent to the deconsolidation. See Note 2 for additional information.
On November 16, 2017, we announced it entered into a definitive agreement to acquire Centaur Holdings, LLC (“Centaur”) for $1.7 billion, including $1.6 billion in cash at closing and $75 million in deferred consideration. Centaur operates Hoosier Park Racing & Casino in Anderson, Indiana, and Indiana Grand Racing & Casino in Shelbyville, Indiana. The transaction is subject to receipt of regulatory approvals and other customary closing conditions and is expected to close in the first half of 2018.
On December 22, 2017, we sold the real estate assets of Harrah’s Las Vegas for approximately $1.1 billion as part of a sale and leaseback transaction with VICI. See Note 1 and Note 10 for additional information.
On December 22, 2017, we acquired approximately 18 acres of land adjacent to Harrah’s Las Vegas (the “Eastside Land”) for $74 million in cash. We intend to use the Eastside Land as part of a new convention center development featuring approximately 300,000 square feet of flexible meeting space. See Note 1 for additional information.
Organizational Structure
As of December 31, 2017, through our consolidated entities, we operate 47 casino properties in 13 U.S. states and 4 countries outside of the United States. Our facilities had an aggregate of over 2.8 million square feet of gaming space and approximately 39,000 hotel rooms. Of the 47 casinos, 35 were in the United States and primarily consist of land-based and riverboat or dockside casinos. Our 12 international casinos are land-based casinos, most of which are located in the United Kingdom.
We view each casino property as an operating segment and aggregate them into three regionally-focused reportable segments: (i) Las Vegas, (ii) Other U.S., and (iii) All Other, which is consistent with how we manage the business. Within these segments, our properties are primarily categorized as Leased (where we lease real property assets from VICI), Owned-Domestic, Owned-International, and Managed. See Item 2, “Properties,” for more information about our properties.
Our All Other segment includes managed and international properties as well as other businesses, such as Caesars Interactive Entertainment (“CIE”).

5



Business Operations
Our consolidated business is composed of five complementary businesses that reinforce, cross-promote, and build upon each other: casino entertainment, food and beverage, rooms and hotel, casino management services, and entertainment and other business operations.
Casino Entertainment Operations
Our casino entertainment operations generate revenues from approximately 36,000 slot machines and 2,700 table games, as well as other games such as keno, poker, and race and sports books, all of which comprised approximately 45% of our total net revenues in 2017. Slot revenues generate the majority of our gaming revenues, particularly in our properties located outside of Las Vegas and Atlantic City. We are testing a number of skill-based games as we implement product offerings intended to appeal to all demographics, and we expect to expand these offerings as required regulatory approvals are obtained.
Food and Beverage Operations
Our food and beverage operations generate revenues from over 150 buffets, restaurants, bars, nightclubs, and lounges located throughout our casinos, as well as banquets and room service, and represented approximately 20% of our total net revenues in 2017. Many of our properties include several dining options, ranging from upscale dining experiences to moderately-priced restaurants and buffets.
Rooms and Hotel Operations
Rooms and hotel operations generate revenues from hotel stays at our casino properties in our approximately 36,000 guest rooms and suites worldwide and represented approximately 22% of our total net revenues in 2017. Our properties operate at various price and service points, allowing us to host a variety of casino guests who are visiting our properties for gaming and other casino entertainment options and non-casino guests who are visiting our properties for other purposes, such as vacation travel or conventions.
We have engaged in large capital reinvestment projects in recent years focusing primarily on our room product across the United States, including renovating nearly 11,000 rooms in Las Vegas since 2014 at properties such as Caesars Palace, The LINQ Hotel & Casino and Planet Hollywood Resort & Casino (“Planet Hollywood”). In addition, we continue the roll out of self-check-in kiosks in order to help reduce customer wait times and improve labor efficiencies.
Casino Management Services
We earn revenue from fees paid for the management of eight casinos. Managed properties represent Caesars-branded properties where Caesars Entertainment provides staffing and management services under management agreements.
Entertainment and Other Business Operations
We provide a variety of retail and entertainment offerings in our casinos and The LINQ Promenade. We offer various entertainment venues across the United States, including the Colosseum at Caesars Palace and Zappos Theater at Planet Hollywood, both of which were ranked among the top theater venues in the United States in 2017 based on ticket sales. These award-winning theaters have hosted prominent headliners, such as Celine Dion, the Backstreet Boys, and Jennifer Lopez.
The LINQ Promenade and our retail stores offer guests a wide range of options from high-end brands and accessories to souvenirs and decorative items. The LINQ Promenade is an open-air dining, entertainment, and retail development located between The LINQ Hotel & Casino and Flamingo Las Vegas, and it features The High Roller, a 550-foot observation wheel.
In addition, CIE operates a regulated online real money gaming business in Nevada and New Jersey and owns the World Series of Poker (“WSOP”) tournaments and brand, and also licenses WSOP trademarks for a variety of products and businesses related to this brand.
Sales and Marketing
We believe our customer loyalty program Total Rewards enables us to capture a larger share of our customers’ entertainment spending when they travel among regions versus that of a standalone property, which is core to our cross market strategy. We believe that operating multiple properties in the center of the Las Vegas Strip generates greater revenues than would be generated if the properties were operated separately.

6



We believe Total Rewards, in conjunction with this distribution system, enables us to capture a larger share of our customers’ entertainment spending and compete more effectively. Members who have joined Total Rewards can earn Reward Credits for qualifying gaming activity and qualifying hotel, dining and retail spending at all Caesars-affiliated properties in the United States, Canada and the United Kingdom. Members can also earn additional Reward Credits when they use their Total Rewards VISA credit card or make a purchase through a Total Rewards partner. Members can redeem their earned Reward Credits with Caesars for hotel amenities, casino free play and other items such as merchandise, gift cards, and travel.
Total Rewards is structured in tiers (designated as Gold, Platinum, Diamond or Seven Stars), each with increasing member benefits and privileges. Members are provided promotional offers based on their Tier Level, their engagement with Caesars-affiliated properties, aspects of their casino gaming play, and their preferred spending choices outside of gaming. Member information is also used in connection with various marketing promotions, including campaigns involving direct mail, email, our websites, mobile devices, social media, and interactive slot machines.
Intellectual Property
The development of intellectual property is part of our overall business strategy. We regard our intellectual property to be an important element of our success. While our business as a whole is not substantially dependent on any one patent, trademark, copyright, or combination of several of our intellectual property rights, we seek to establish and maintain our proprietary rights in our business operations and technology through the use of patents, trademarks, copyrights, and trade secret laws. We file applications for and obtain patents, trademarks, and copyrights in the United States and foreign countries where we believe filing for such protection is appropriate, including United States and foreign patent applications covering certain proprietary technology of Caesars Enterprise Services, LLC (“CES”). We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements. CES’ United States patents have varying expiration dates, the last of which is 2031.
We have not applied for the registration of all of our trademarks, copyrights, proprietary technology, or other intellectual property rights, as the case may be, and may not be successful in obtaining all intellectual property rights for which we have applied. Despite our efforts to protect our proprietary rights, parties may infringe upon our intellectual property and use information that we regard as proprietary, and our rights may be invalidated or unenforceable. The laws of some foreign countries do not protect proprietary rights or intellectual property to as great an extent as do the laws of the United States. In addition, others may independently develop substantially equivalent intellectual property.
We own or have the right to use proprietary rights to a number of trademarks that we consider, along with the associated name recognition, to be valuable to our business, including Bally’s, Caesars, Flamingo, Harrah’s, Horseshoe, Paris, Rio, Total Rewards, WSOP, and a license for the Planet Hollywood trademark used in connection with the Planet Hollywood in Las Vegas.
Competition
The casino entertainment business is highly competitive. The industry is comprised of a diverse group of competitors that vary considerably in size and geographic diversity, quality of facilities and amenities available, marketing and growth strategies, and financial condition. In most regions, we compete directly with other casino facilities operating in the immediate and surrounding areas. In Las Vegas, our largest jurisdiction, competition has increased significantly. For example, the Genting Group is developing a casino and hotel called Resorts World Las Vegas and Marriott International and New York-based global real estate firm Witkoff are developing a casino and hotel called The Drew Las Vegas. Both are expected to open in 2020 on the northern end of the Las Vegas Strip. Further, Wynn Resorts has begun construction on Wynn Paradise Park adjacent to its existing property and announced plans for a Wynn West casino and hotel property. In response to changing trends, Las Vegas operators have been focused on expanding their non-gaming offerings, including upgrades to hotel rooms, new food and beverage offerings, and new entertainment offerings. In June 2016, MGM announced that the Monte Carlo Resort and Casino will undergo $450 million in non-gaming renovations focused on room, food and beverage and entertainment enhancements and is expected to re-open in late 2018 as two newly branded hotels. There have also been proposals for other large scale non-gaming development projects in Las Vegas by various other developers. Our Las Vegas Strip hotels and casinos also compete, in part, with each other.
In recent years, many casino operators, including us, have been reinvesting in existing facilities, developing new casinos or complementary facilities, and acquiring established facilities. These reinvestment and expansion efforts combined with aggressive marketing strategies by us and many of our competitors have resulted in increased competition in many regions. As companies have completed new expansion projects, supply has typically grown at a faster pace than demand in some areas. For example, in Baltimore, Maryland, the opening of MGM Resorts National Harbor Resort & Casino has resulted in significant declines in revenue at our Horseshoe Baltimore property. The expansion of casino properties and entertainment venues into new jurisdictions also presents competitive issues. Atlantic City, in particular, has seen a significant decline primarily due to the addition of gaming and

7



room capacity associated with the expansion of gaming in Maryland, New York, and Pennsylvania. This has resulted in several casino closings in recent years.
Our properties also compete with legalized gaming from casinos located on Native American tribal lands. While the competitive impact on operations in Las Vegas from the continued growth of Native American gaming establishments in California remains uncertain, the proliferation of gaming in California and other areas located in the same regions as our properties could have an adverse effect on our results of operations. In addition, certain states have legalized, and others may legalize, casino gaming in specific areas, including metropolitan areas from which we traditionally attract customers.
We also compete with other non-gaming resorts and vacation areas, various other entertainment businesses, and other forms of gaming, such as state lotteries, on-and off-track wagering, video lottery terminals, and card parlors. Our non-gaming offerings also compete with other retail facilities, amusement attractions, food and beverage offerings, and entertainment venues. While we do not believe it to be the case, some have suggested that internet gaming could also create additional competition for us and could adversely affect our brick-and-mortar operations. We believe that internet gaming complements brick-and-mortar operations.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See also Exhibit 99.1, “Gaming Overview,” to our 2017 Annual Report. In addition, for a summary of key developments in 2017, see “Summary of Significant Events” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Seasonality
We believe that business at our regional properties outside of Las Vegas is subject to seasonality, including seasonality based on the weather in the markets in which they operate and the travel habits of visitors. Business in our properties can also fluctuate due to specific holidays or other significant events, such as Easter (particularly when the holiday falls in a different quarter than the prior year), the World Series of Poker tournament (with respect to our Las Vegas properties), city-wide conventions, a large sporting event or a concert, or visits by our premium players. We also believe that any seasonality, holiday, or other significant event may affect our various properties or regions differently.
Governmental Regulation
The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules, and regulations of the jurisdiction in which it is located. These laws, rules, and regulations generally concern the responsibility, financial stability, and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A more detailed description of the regulations to which we are subject is contained in Exhibit 99.1, “Gaming Overview,” to our 2017 Annual Report.
Our businesses are subject to various foreign, federal, state, and local laws and regulations, in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, smoking, environmental matters, employees, currency transactions, taxation, zoning and building codes, construction, land use, and marketing and advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results. See Item 1A, “Risk Factors,” for additional discussion.

8



Employee Relations
We have approximately 65,000 employees throughout our organization. Approximately 28,000 of our employees are covered by collective bargaining agreements with certain of our subsidiaries relating to certain casino, hotel, and restaurant employees. The majority of these employees are covered by the following agreements:
Employee Group
 
Approximate Number of Active Employees Represented
 
Union
 
Date on which Collective Bargaining Agreement Becomes Amendable
Las Vegas Culinary Employees
 
13,000
 
Culinary Workers Union, Local 226
 
 Various up to July 31, 2018
Atlantic City Food & Beverage and Hotel Employees
 
3,500
 
UNITE HERE, Local 54
 
February 28, 2020
Las Vegas Bartenders
 
1,600
 
Bartenders Union, Local 165
 
 Various up to July 31, 2018
Las Vegas Dealers
 
3,900
 
Transport Workers Union of America and UAW
 
Various up to
September 30, 2019
Corporate Citizenship, Social Responsibility and Sustainability
CEC’s Board of Directors the (“Board”) and senior executives are committed to maintaining our position as an industry leader in corporate citizenship, corporate social responsibility, and sustainability. In 2017, we continued to engage with our CEO-level external environmental sustainability advisory board with experts representing non-governmental organizations, business strategy, academia, and investors, and used their guidance to confirm our citizenship priorities. These priorities are reflected in our eighth annual citizenship report, published in 2017 in accordance with Global Reporting Initiative Standards.
In 2017, we also launched our new corporate citizenship framework under the branded theme of People Planet Play. This approach unites all our properties and business activities behind a common language to more effectively support sustainable and ethical profitable business growth:
People: supporting the wellbeing of our team members, guests and local communities.
Planet: caring for our planet so our guests don’t need to worry.
Play: creating memorable experiences for our guests and leading Responsible Gaming practices in the industry.
We introduced targets to 2020 and 2030 across all elements of People Planet Play, including science-based emissions-reduction targets, aligning with global best practices on climate change action. We enjoy strong support from our team members for People Planet Play activities, with 46% of team members participating in our HERO volunteering and/or CodeGreen environmental programs in 2016. Additionally, we aim to raise awareness and gain support from our guests for People Planet Play initiatives. In 2016, guest perception improved in that 59% strongly agreed that our company made a positive impact in economic development, responsible gaming, environmental impact and overall responsible conduct (versus 55% in 2015).
Code of Commitment
Our Code of Commitment to our employees, guests and communities has guided our approach to responsible and ethical business, compliance, anti-corruption and whistleblower processes. Training reinforces our expectations of all employees. Caesars was the first company to develop responsible gaming programs informed by science, evaluated objectively and created in conjunction with leading researchers. All of our gaming offerings are underpinned by comprehensive Responsible Gaming programs that provide advice for those who need it (see more on our website: http://caesarscorporate.com/about-caesars/responsible-gaming/) with fully trained team members. In 2016, team members participated in 64,700 hours of training in Responsible Gaming.
Over the past several years, with the engagement and support of the Board, we have further intensified our anti-money-laundering (“AML”) compliance activities. We doubled the number of qualified staff in dedicated AML compliance roles to around 90 experts by the middle of 2016 and approved more than $5 million in technology investments to implement new systems to improve transparency and information sharing within the Company, increase automation and enhance analytics, all to ensure we are an industry leader when it comes to AML compliance.

9



For the third year running, we were recognized on the Civic 50, an initiative organized by Points of Light and Bloomberg that recognizes companies for their commitment to improving the quality of life in their home communities. In 2016, we reconfirmed our support for the UN Sustainable Development Goals and highlighted three goals where we can make the most significant contribution and expand our impact in coming years.
#3: Good Health And Well-Being
#8: Decent Work And Economic Growth
#11: Sustainable Cities And Communities
Environmental Stewardship
Our structured, data-driven CodeGreen strategy leverages the passion of our team members and engages our guests and suppliers.
In 2017, we set a science-based target to reduce Scope 1 and 2 absolute greenhouse gas emissions by 30% by 2025 (over a 2011 baseline). Between 2007 and 2016, we reduced energy consumption across our U.S. and international properties by 21% and greenhouse gas emissions by 34% (against the U.S. only baseline year, 2007). Since 2008, we have reduced water consumption by 20%. In 2016, 43% of our total waste in North America was diverted from landfill, bringing our cumulative waste diversion from landfill to 268,900 tons since 2012.
In 2017, 100% of owned or managed North American hotel resort properties achieved a 4 Green Key rating or higher. Recently recognized by the Global Sustainable Tourism Council, Green Key is a rigorous program that ranks, certifies and inspects hotels and resorts based on their commitment to sustainable operations. Green Key uses a rating system of 1 to 5 Keys, with 5 being the highest possible attainment.
For our work in disclosure of our environmental impacts, Caesars Entertainment received an “A” score for water impact and A- in carbon reporting from the formerly named Carbon Disclosure Project (“CDP”), an international not-for-profit that drives sustainable economies. Thousands of companies submit annual disclosures to CDP for independent assessment against its scoring methodology. We joined the A List for Water for the first time this year and are among 10% of companies participating in CDP’s water program to receive this honor.
In order to both enhance our offerings and engage guests in our citizenship efforts, we have branded our hotel rooms with our citizenship messaging under the theme of People Planet Play, inviting guests to play a role by using water, air-conditioning and towels with the environment in mind. We promote sustainable sourcing of key food ingredients for our menus from sustainably managed farms and fisheries, in response to the growing number of consumers who value such options. Additionally, to address concerns from animal rights groups, we have committed to source cage-free eggs across all our properties by 2025.
Diversity, Inclusion, and Employee Wellbeing
We seek to create a dynamic and innovative working culture where individual growth is rewarded, recognized, and celebrated. Caesars is the only company in the casino entertainment industry to receive perfect scores on the Human Rights Campaign Corporate Equality Index for eleven consecutive years, including 2018. We encourage diversity and the advancement of women, and in 2016, 37% of our manager level employees belonged to minority groups and 44% were women. In November 2017, we announced our goal to achieve gender equity in management by 2025. This initiative embodies Caesars’ commitment to identifying, hiring, developing, and retaining great talent. This will enable our organization to be best in class, be more innovative, make better decisions, and better reflect our diverse clients and communities. Our Employee Wellness Program, includes 26 nurses and coaches across our properties. The program demonstrates results each year with improved health metrics for participating employees, and insurance savings for Caesars through lower health risk.
Community Investment
Caesars Entertainment consistently makes significant contributions to our local communities to help them develop and prosper. We do this through funding of community projects, employee volunteering hours and cash donations from the Caesars Foundation (a private foundation funded by a portion of our operating income and has gifted more than $74 million since its inception in 2002). In 2017, we contributed a total of $63 million to communities through all these channels, including 331,000 reported employee volunteer hours.
Available Information
Our Internet address is www.caesars.com. We make available free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished

10



pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). We also make available through our website all filings of our executive officers and directors on Forms 3, 4, and 5 under Section 16 of the Exchange Act. These filings are also available on the SEC’s website at www.sec.gov. Our Code of Business Conduct and Ethics is available on our website under the “Investor Relations” link. We will provide a copy of these documents without charge to any person upon receipt of a written request addressed to Caesars Entertainment Corporation, Attn: Corporate Secretary, One Caesars Palace Drive, Las Vegas, Nevada 89109. Reference in this document to our website address does not constitute incorporation by reference of the information contained on the website.

11



PART II

ITEM 6.
Selected Financial Data
The following table includes OpCo’s (which immediately merged with and into CEOC LLC upon acquisition) results after the Effective Date and the consolidated results of CAC for all periods. See Note 2 for additional information.
The following selected financial data should be read in conjunction with the consolidated financial statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Exhibit 99.1.
(In millions, except per share data)
2017 (1)
 
2016
 
2015 (2)
 
2014 (8)
 
2013 (8)
OPERATING DATA
 
 
 
 
 
 
 
 
 
Net revenues
$
4,868

 
$
3,877

 
$
3,957

 
$
7,967

 
$
7,917

Impairment of goodwill

 

 

 
695

 
104

Impairment of tangible and other intangible assets

 

 

 
299

 
2,727

Income/(loss) from operations
537

 
226

 
318

 
(580
)
 
(2,047
)
Interest expense
(773
)
 
(599
)
 
(683
)
 
(2,669
)
 
(2,252
)
Gain on deconsolidation of subsidiaries
31

 

 
7,125

 

 

Restructuring and support expenses (3)
(2,028
)
 
(5,729
)
 
(1,017
)
 

 

Loss on extinguishment of debt
(232
)
 

 

 
(96
)
 
(30
)
Other income/(loss)
95

 
(29
)
 
7

 
1

 
58

Income/(loss) from continuing operations, net of income taxes
(375
)
 
(6,458
)
 
5,856

 
(2,995
)
 
(2,762
)
Discontinued operations, net of income taxes (4)

 
3,380

 
155

 
(143
)
 
(192
)
Net income/(loss)
(375
)
 
(3,078
)
 
6,011

 
(3,138
)
 
(2,954
)
Net income/(loss) attributable to Caesars
(368
)
 
(3,049
)
 
6,012

 
(2,941
)
 
(2,955
)
COMMON STOCK DATA
 
 
 
 
 
 
 
 
 
Basic earnings/(loss) per share from:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(1.32
)
 
$
(43.96
)
 
$
40.44

 
$
(19.64
)
 
$
(21.48
)
Discontinued operations (4)

 
23.11

 
1.07

 
(1.00
)
 
(1.50
)
Net income/(loss)
$
(1.32
)
 
$
(20.85
)
 
$
41.51

 
$
(20.64
)
 
$
(22.98
)
Diluted earnings/(loss) per share from:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(1.32
)
 
$
(43.96
)
 
$
39.83

 
$
(19.64
)
 
$
(21.48
)
Discontinued operations (4)

 
23.11

 
1.06

 
(1.00
)
 
(1.50
)
Net income/(loss)
$
(1.32
)
 
$
(20.85
)
 
$
40.89

 
$
(20.64
)
 
$
(22.98
)
 
 
 
 
 
 
 
 
 
 
FINANCIAL POSITION DATA
 
 
 
 
 
 
 
 
 
Total assets
$
25,436

 
$
14,936

 
$
12,251

 
$
23,368

 
$
24,500

Current portion of long-term debt (5)
64

 
89

 
187

 
15,779

 
197

Long-term debt (5)
8,849

 
6,749

 
6,777

 
7,230

 
20,715

Financing obligations (6)
9,355

 

 

 

 

Noncontrolling interests (7)
71

 
53

 
80

 
(809
)
 
76

Stockholders’ equity/(deficit)
3,226

 
(1,660
)
 
1,962

 
(4,140
)
 
(1,983
)
____________________
(1) 
2017 reflects the consolidation of OpCo subsequent to the Effective Date (see Note 1).
(2) 
2015 reflects the deconsolidation of CEOC (see Note 1).
(3) 
See Note 1.
(4) 
See Note 18.
(5) 
See Note 12.
(6) 
See Note 10.
(7) 
The decrease in 2014 was primarily due to the sale and grant of CEOC shares in May 2014, which reduced CEC’s ownership to approximately 89%.
(8) 
2013 and 2014 financial information have not been recast for our adoption of ASU 2014-09 and therefore, is not comparable to the 2015 through 2017 financial information.

12



ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this filing, the name “CEC” refers to the parent holding company, Caesars Entertainment Corporation, exclusive of its consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires. The words “Company,” “Caesars,” “Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, inclusive of its consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires.
We also refer to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Operations and Comprehensive Income/(Loss) as our “Statements of Operations,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Statements of Cash Flows as our “Statements of Cash Flows.” References to numbered “Notes” refer to Notes to our Consolidated Financial Statements included in Item 8.
In this filing, except as the context otherwise requires, references to “VICI” or “PropCo” are references to VICI Properties Inc. and its subsidiaries, from which we lease a number of our properties.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the audited consolidated financial statements and the notes thereto and other financial information included elsewhere in this Exhibit 99.1.
The statements in this discussion regarding our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See Item 1A, “Risk Factors—PRIVATE SECURITIES LITIGATION REFORM ACT” of this report.
Overview

CEC is primarily a holding company with no independent operations of its own. CEC operates its business primarily through its wholly owned subsidiaries CEOC, LLC (“CEOC LLC”) and Caesars Resort Collection, LLC (“CRC”).
We view each casino property as an operating segment and aggregate such casino properties into three regionally-focused reportable segments: (i) Las Vegas, (ii) Other U.S., and (iii) All Other, which is consistent with how we manage the business. We revised our reportable segments during the fourth quarter of 2017 in conjunction with the merger with Caesars Acquisition Company (“CAC”) and Caesars Entertainment Operating Company Inc.’s (“CEOC”) emergence from bankruptcy, both of which are described in more detail below. The way in which Caesars management assesses results and allocates resources is aligned with these segments.

13



Reportable Segments
Las Vegas
 
Other U.S.
 
All Other
Bally's Las Vegas
 
Bally's Atlantic City
 
Management Companies
 
Other
Caesars Palace Las Vegas
 
Caesars Atlantic City
 
Caesars Cairo
 
Caesars Interactive Entertainment
The Cromwell
 
Harrah's Atlantic City
 
Caesars Windsor
 
 
Flamingo Las Vegas
 
Harrah's Council Bluffs
 
Harrah's Ak-Chin
 
 
Harrah's Las Vegas
 
Harrah's Gulf Coast
 
Harrah's Cherokee
 
 
The LINQ Hotel & Casino
 
Harrah's Joliet
 
Harrah's Cherokee Valley River
 
 
Paris Las Vegas
 
Harrah's Lake Tahoe
 
Harrah's Resort Southern California
 
 
Planet Hollywood Resort & Casino
 
Harrah's Laughlin
 
Horseshoe Baltimore (1)
 
 
Rio All-Suites Hotel & Casino
 
Harrah's Louisiana Downs
 
The London Clubs Cairo-Ramses
 
 
LINQ Promenade/High Roller
 
Harrah's Metropolis
 
 
 
 
 
 
Harrah's New Orleans
 
International
 
 
 
 
Harrah's North Kansas City
 
Alea Glasgow
 
 
 
 
Harrah's Philadelphia
 
Alea Nottingham
 
 
 
 
Harrah's Reno
 
The Casino at the Empire
 
 
 
 
Harveys Lake Tahoe
 
Emerald Safari
 
 
 
 
Horseshoe Baltimore (until Q3) (1)
 
Manchester235
 
 
 
 
Horseshoe Bossier City
 
Playboy Club London
 
 
 
 
Horseshoe Council Bluffs
 
Rendezvous Brighton
 
 
 
 
Horseshoe Hammond
 
Rendezvous Southend-on-Sea
 
 
 
 
Horseshoe Southern Indiana
 
The Sportsman
 
 
 
 
Horseshoe Tunica
 
 
 
 
 
 
Tunica Roadhouse
 
 
 
 
___________________
(1) 
Horseshoe Baltimore is 41% owned, and was deconsolidated and held as an equity-method investment effective August 31, 2017.
Summary of Significant Events

The following are the significant events and drivers of performance. Accordingly, the remainder of the discussion and analysis of results in this Item 7 should be read in conjunction with these explanations.
Adoption of New Revenue Recognition Standard
On January 1, 2018, we adopted the new accounting standard Accounting Standards Update 2014-09, Revenue from Contracts with Customers, and all related amendments using the full retrospective method and have recast revenue and expenses for all prior periods presented. See Note 14 for additional information.
Year Ended December 31, 2017
Merger with CAC and CEOC’s Emergence from Bankruptcy
As described in Note 1, on October 6, 2017 (the “Effective Date”), CEC, CAC, and CEOC completed several transactions pursuant to the merger agreement between CEC and CAC and pursuant to CEOC’s third amended joint plan of reorganization (the “Plan”), including the following:
CAC merged with and into CEC, with CEC as the surviving company (the “CAC Merger”), and each share of CAC common stock issued and outstanding was exchanged for 1.625 shares of CEC common stock (see Note 4 for additional information);
Pursuant to the Plan, we settled all claims CEOC and certain of its United States subsidiaries (the “Debtors”) may have had against CEC and its affiliates;
Comprehensive releases for CEC and its affiliates and CAC and its affiliates;
The emergence from bankruptcy and reorganization of CEOC into an operating company (“OpCo”) and PropCo. PropCo holds certain real property assets formerly held by CEOC and leases those assets to OpCo. PropCo is a separate entity

14



that is not consolidated by Caesars and, on the Effective Date, was sold to VICI Properties Inc., the real estate investment trust that was initially owned by certain former creditors of CEOC and is independent from CEC;
OpCo was acquired by CEC on the Effective Date for total consideration of $2.5 billion, which included a combination of cash and CEC common stock. OpCo operates the properties and facilities formerly held by CEOC and leases the properties and facilities from VICI. Upon acquisition, OpCo was immediately merged with and into CEOC LLC, with CEOC LLC as the surviving entity (see Note 4 for additional information); and
OpCo established an escrow trust that will be used to fund the resolution of unsecured claims that were unresolved at the time of CEOC’s emergence from bankruptcy. The consideration that was deposited into the escrow trust totaled $234 million (see Note 11 for additional information).
As previously disclosed, we accrued certain obligations described in the Plan that were estimable in accrued restructuring and support expenses on the Balance Sheets. These obligations were settled for total consideration of $8.6 billion on the Effective Date with a combination of primarily cash, CEC common stock, and CEC convertible notes. The restructuring and support expenses exclude consideration related to the acquisition of OpCo and establishing the escrow trust. Restructuring and support expenses recorded in the Statements of Operations for the years ended December 31, 2017, 2016, and 2015 totaled $2.0 billion, $5.7 billion, and $1.0 billion, respectively. See Note 1 for additional information.
CAC’s primary asset was its membership interest in Caesars Growth Partners, LLC (“CGP”). As described in Note 4, the CAC Merger was accounted for as a reorganization among entities under common control; therefore, the financial information herein includes the financial results of CAC as if it were consolidated for all periods presented. In addition, as a result of the CAC Merger, CGP, which was consolidated by CEC as a variable interest entity (“VIE”) prior to the CAC Merger, is no longer a VIE and is now presented as a wholly owned subsidiary for all periods presented. CAC’s contractual claim on CGP’s financial results, which was reflected as noncontrolling interests in our Balance Sheets and Statements of Operations, has been eliminated upon consolidation of CAC.
CEOC was deconsolidated effective January 15, 2015 (the “Petition Date”), when the Debtors voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for Northern District of Illinois in Chicago (the “Bankruptcy Court”). As a result of CEC’s acquisition of OpCo and its subsequent merger with and into CEOC LLC, CEC’s consolidated financial results include the results of OpCo subsequent to the Effective Date.
Failed Sale-Leaseback Financing Obligation
As mentioned above and further described in Note 10, in conjunction with CEOC’s emergence from bankruptcy, OpCo entered into leases with VICI on the Effective Date related to certain real property assets formerly held by CEOC: (i) for Caesars Palace; (ii) for a portfolio of casino properties at various locations throughout the United States; and (iii) for Harrah’s Joliet Hotel & Casino (collectively, the “CEOC LLC Leases”). Subject to certain exceptions, the payment of all monetary obligations under the CEOC LLC Leases is guaranteed by CEC. The leases were evaluated as a sale-leaseback of real estate, and we determined that these transactions did not qualify for sale-leaseback accounting.
For the CEOC LLC Leases transaction, the real estate assets that were sold to VICI and leased back by OpCo were first adjusted to fair value upon CEOC’s emergence from bankruptcy and the failed sale-leaseback financing obligation was recognized at an amount equal to this fair value. The real estate assets continue to be depreciated over their remaining useful lives; however, as a result of the fair value adjustment, we are recognizing a higher amount of depreciation expense for these assets compared with what CEOC would have recognized prior to its emergence. The amount recognized for interest and depreciation expense substantially exceeds our periodic rental payments. During 2017, depreciation expense and interest expense related to these failed sale-leaseback transactions were $118 million and $185 million, respectively. Our rental payments during 2017 totaled $204 million.
Hamlet Holdings
The members of Hamlet Holdings LLC (“Hamlet Holdings”) are comprised of affiliates of Apollo Global Management, LLC (“Apollo”) and affiliates of TPG Global, LLC (“TPG”) (collectively, the “Sponsors”). Hamlet Holdings contributed to CEC the 88 million shares of CEC common stock it owned prior to the CAC Merger, which CEC immediately canceled and retired. Hamlet Holdings controlled CEC prior to the CAC Merger. Upon completion of the CAC Merger and CEOC’s emergence from bankruptcy, Hamlet Holdings beneficially owned approximately 20.8% of CEC common stock as a result of its former interest in CAC, and consequently, Hamlet Holdings no longer controls CEC.

15



Summary of CAC Merger and CEOC Emergence Transactions
(In millions)
CAC Merger
 
Restructuring Support Settlement
 
OpCo Acquisition
 
Total
Cash
$

 
$
2,787

 
$
700

 
$
3,487

CEC common stock (value)
2,894

 
3,435

 
1,774

 
8,103

CEC convertible notes (fair value)

 
2,172

 

 
2,172

Other consideration

 
177

 

 
177

Total consideration
$
2,894

 
$
8,571

 
$
2,474

 
$
13,939

 
 
 
 
 
 
 
 
CEC common stock (shares)
226

 
268

 
139

 
633

Other Events and Transactions
On November 16, 2017, CEC announced it entered into a definitive agreement to acquire Centaur Holdings, LLC (“Centaur”) for $1.7 billion, including $1.6 billion in cash at closing and $75 million in deferred consideration. Centaur operates Hoosier Park Racing & Casino in Anderson, Indiana, and Indiana Grand Racing & Casino in Shelbyville, Indiana. The transaction is subject to receipt of regulatory approvals and other customary closing conditions and is expected to close in the first half of 2018.
On December 22, 2017, we acquired approximately 18 acres of land adjacent to Harrah’s Las Vegas (the “Eastside Land”) for $74 million in cash. We intend to use the Eastside Land as part of a new convention center development featuring approximately 300,000 square feet of flexible meeting space. See Note 1 for additional information.
On December 22, 2017, we completed the sale to VICI of the real estate assets of Harrah’s Las Vegas for approximately $1.1 billion in cash proceeds. As part of the Harrah’s Las Vegas property sale and leaseback transaction, Harrah’s Las Vegas entered into a lease with VICI (the “HLV Lease”). The lease was evaluated as a sale-leaseback of real estate, and we determined that this transaction did not qualify for sale-leaseback accounting. The Harrah’s Las Vegas real estate assets remain on our consolidated balance sheet at their historical net book value and are depreciated over their remaining useful lives, while a failed sale-leaseback financing obligation is recognized for the proceeds received. Subsequent to December 22, 2017, depreciation expense and interest expense related to the Harrah’s Las Vegas failed sale-leaseback transaction was immaterial and $2 million, respectively. Our rental payments during 2017 totaled $10 million. See Note 10 for further details.
Debt Activity
During the year ended December 31, 2017, proceeds received from the issuance of new debt was $7.6 billion and cash paid to extinguish debt was $7.8 billion. In addition, as part of the acquisition of OpCo, we assumed $1.2 billion in debt that was issued in connection with CEOC’s emergence from bankruptcy. See Note 12 for additional information on our debt transactions.
Horseshoe Baltimore Deconsolidation
As of August 31, 2017, Horseshoe Baltimore was deconsolidated and is accounted for as an equity method investment subsequent to the deconsolidation. Upon deconsolidation, we derecognized total assets and liabilities of $350 million and $356 million, respectively, including long-term debt totaling $294 million. The equity method investment was recorded at its estimated fair value of $28 million, and we recognized a gain on deconsolidation of $31 million. See Note 2 for further details.
Horseshoe Baltimore Operating Results through August 31, 2017
(In millions)
2017
 
2016
 
2015
Casino revenues
$
168

 
$
296

 
$
271

Food and beverage revenues
13

 
21

 
24

Other revenue
9

 
16

 
13

Net revenues
$
190

 
$
333

 
$
308

 
 
 
 
 
 
Income from operations
$
16

 
$
37

 
$
7

Net income/(loss) attributable to Caesars
(7
)
 
3

 
(9
)

16



Year Ended December 31, 2016
Sale of the SMG Business
On September 23, 2016, Caesars Interactive Entertainment (“CIE”) sold its social and mobile games business (the “SMG Business”) to Alpha Frontier Limited (“Alpha Frontier”) for cash consideration of $4.4 billion, pursuant to the Stock Purchase Agreement dated as of July 30, 2016 (the “Purchase Agreement”), which resulted in a pre-tax gain of approximately $4.2 billion. The SMG Business represented the majority of CIE’s operations and was classified as discontinued operations effective beginning in the third quarter of 2016. See “Discontinued Operations, net of Income Taxes” in the Discussion of Operating Results section below and Note 18 for further details.
Upon closing the sale of the SMG Business, all outstanding CIE stock-based compensation awards were deemed fully vested and subsequently canceled in return for the right to receive a cash payment. CIE’s stock-based compensation expense directly identifiable with employees of the SMG Business was $264 million and $29 million, respectively, during the years ended December 31, 2016 and 2015. This expense amount was reclassified to discontinued operations. Stock-based compensation expense not directly identifiable with employees of the SMG Business was $189 million and $31 million, respectively, during the years ended December 31, 2016 and 2015 and was included in property, general, administrative, and other in the Statements of Operations. In 2017, there were no amounts related to CIE’s stock-based compensation expense.
Approximately $259 million was held as of December 31, 2016, in an escrow account to fund potential indemnity claims of Alpha Frontier under the Purchase Agreement. In the third quarter of 2017, the escrow funds were released to CIE and $63 million was distributed to the minority investors and former holders of CIE equity awards.
Year Ended December 31, 2015
CEOC Chapter 11 Reorganization
On the Petition Date, the Debtors voluntarily filed for reorganization with the Bankruptcy Court. As a result, the results of CEOC and its subsidiaries were not consolidated with Caesars subsequent to the Petition Date, and we recognized a gain of $7.1 billion in 2015 related to deconsolidation.
Discussion of Operating Results

Segment results in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented consistent with the way Caesars’ management assesses the Company’s results and allocates resources, which is a consolidated view that adjusts for the effect of certain transactions related to reportable segments within Caesars. We view each casino property as an operating segment and aggregate such casino properties into three regionally-focused reportable segments: (i) Las Vegas, (ii) Other U.S., and (iii) All Other. “All Other” includes managed, international and other properties as well as parent, consolidating, and other adjustments to reconcile to the consolidated Caesars results.

17



Analysis of Key Drivers of Consolidated Operating Results
The following represents the discussion and analysis of the results of operations and key metrics focusing on the key drivers of performance.
Consolidated Operating Results
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Casino revenues
$
2,168

 
$
1,608

 
$
1,728

 
$
560

 
34.8
 %
 
$
(120
)
 
(6.9
)%
Net revenues
4,868

 
3,877

 
3,957

 
991

 
25.6
 %
 
(80
)
 
(2.0
)%
Income from operations
537

 
226

 
318

 
311

 
137.6
 %
 
(92
)
 
(28.9
)%
Gain on deconsolidation of subsidiaries
31

 

 
7,125

 
31

 
*

 
(7,125
)
 
(100.0
)%
Restructuring and support expenses
(2,028
)
 
(5,729
)
 
(1,017
)
 
3,701

 
64.6
 %
 
(4,712
)
 
*

Loss on extinguishment of debt
(232
)
 

 

 
(232
)
 
*

 

 
*

Other income/(loss)
95

 
(29
)
 
7

 
124

 
*

 
(36
)
 
*

Income/(loss) from continuing operations, net of income taxes
(375
)
 
(6,458
)
 
5,856

 
6,083

 
94.2
 %
 
(12,314
)
 
*

Discontinued operations, net of income taxes

 
3,380

 
155

 
(3,380
)
 
(100.0
)%
 
3,225

 
*

Net income/(loss) attributable to Caesars
(368
)
 
(3,049
)
 
6,012

 
2,681

 
87.9
 %
 
(9,061
)
 
*

Adjusted EBITDA (1)
1,361

 
1,069

 
1,020

 
292

 
27.3
 %
 
49

 
4.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Margin (2)
11.0
%
 
5.8
%
 
8.0
%
 
--

 
5.2 pts

 
--

 
(2.2) pts

CEOC LLC and CEOC Operating Results
 
CEOC LLC
 
CEOC
(Dollars in millions)
October 6 - December 31, 2017
 
January 1 - January 15, 2015
Casino revenues
$
628

 
$
97

Food and beverage revenues
173

 
25

Rooms revenues
118

 
18

Other revenue
62

 
9

Reimbursed management costs
48

 
9

Net revenues
$
1,029

 
$
158

 
 
 
 
Income from operations
$
52

 
$
9

Interest expense
(208
)
 
(87
)
Restructuring and support expenses
(9
)
 

Loss on extinguishment of debt
(1
)
 

Other income
3

 

Loss from continuing operations, net of income taxes
(164
)
 
(78
)
Net loss attributable to Caesars
(164
)
 
(85
)
 
 
 
 
Operating Margin (2)
5.1
%
 
5.7
%
___________________
*
Not meaningful.
(1) 
See the “Reconciliation of Non-GAAP Financial Measures” discussion later in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for a reconciliation of Adjusted EBITDA.
(2) 
Operating margin is calculated as income from operations divided by net revenues.

18



Analysis of Key Drivers of Revenue Performance
Our gaming-related revenues, rooms revenues, and operating performance are dependent upon the volume and spend behavior of customers at our resort properties, which affects the price we can charge for our hotel rooms and other amenities, and directly affects our gaming volumes. Our food and beverage revenues are generated primarily from our buffets, restaurants, bars, nightclubs, and lounges located throughout our casinos, as well as banquets and room service. Our other revenues are generated primarily from third-party real estate leasing arrangements at our casino properties, revenue from company-operated retail stores, revenue from parking and revenue from our entertainment venues and The High Roller observation wheel and, subsequent to the Effective Date, revenue earned from CEOC LLC’s casino management service fees charged to third parties.
Net Revenues - Consolidated
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Casino
$
2,168

 
$
1,608

 
$
1,728

 
$
560

 
34.8
%
 
$
(120
)
 
(6.9
)%
Food and beverage
982

 
822

 
849

 
160

 
19.5
%
 
(27
)
 
(3.2
)%
Rooms
1,074

 
950

 
895

 
124

 
13.1
%
 
55

 
6.1
 %
Other
596

 
497

 
475

 
99

 
19.9
%
 
22

 
4.6
 %
Reimbursed management costs
48

 

 
10

 
48

 
*

 
(10
)
 
(100.0
)%
Net revenues
$
4,868

 
$
3,877

 
$
3,957

 
$
991

 
25.6
%
 
$
(80
)
 
(2.0
)%
Net Revenues - Segment
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Las Vegas
$
2,915

 
$
2,622

 
$
2,561

 
$
293

 
11.2
%
 
$
61

 
2.4
 %
Other U.S.
1,758

 
1,209

 
1,318

 
549

 
45.4
%
 
(109
)
 
(8.3
)%
All Other
195

 
46

 
78

 
149

 
*

 
(32
)
 
(41.0
)%
Net revenues
$
4,868

 
$
3,877

 
$
3,957

 
$
991

 
25.6
%
 
$
(80
)
 
(2.0
)%
___________________
*
Not meaningful.
Cash ADR (1) 
Years Ended December 31, 2015, 2016, and 2017

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12289281&doc=10
____________________
(1) 
Average cash daily rate (“cash ADR”) is a key indicator by which we evaluate the performance of our properties and is determined by room revenue and rooms occupied.
Year Ended December 31, 2017 versus 2016
Due to the acquisition of OpCo on the Effective Date, the results for the year ended December 31, 2017 are not comparable with the year ended December 31, 2016.

19



Net revenue increased $991 million, or 25.6%, in 2017 compared with 2016 primarily due to the consolidation of CEOC LLC’s results following the Effective Date, which contributed $1.0 billion to net revenues, partially offset by a decrease of $143 million in net revenue due to the deconsolidation of Horseshoe Baltimore’s results subsequent to August 31, 2017. In addition to the effect of CEOC LLC and Horseshoe Baltimore, net revenues increased by $105 million primarily due to:
$60 million increase in casino revenues during 2017 primarily resulting from increases in gaming volume and gross casino hold;
Increased rooms revenues of $6 million during 2017 resulting from an increase in resort fees and occupancy rates, as well as improved hotel yield. Room revenues also benefitted from completed room renovations at Planet Hollywood, Harrah’s Las Vegas, and Paris Las Vegas, which resulted an increase in cash ADR from $137 in 2016 to $141 in 2017; and
Revenue from valet and self-parking fees that were fully implemented in Las Vegas in April 2017, as well as amounts related to a sub-license agreement extending the right to use various brands of Caesars Entertainment in connection with social and mobile games to the buyer of the SMG Business contributed to an increase in other revenues of $44 million.
Year Ended December 31, 2016 versus 2015
Due to the deconsolidation of CEOC subsequent to the Petition Date, the results of operations for the year ended December 31, 2016 are not comparable with year ended December 31, 2015.
Net revenues decreased $80 million, or 2.0%, in 2016 compared with 2015. In 2015, we recognized $158 million of net revenues related to CEOC prior to the deconsolidation. Horseshoe Baltimore’s net revenues increased $25 million in 2016 compared with 2015. In addition to the impact of CEOC and Horseshoe Baltimore, net revenues increased $53 million, primarily due to:
$73 million in higher rooms revenues primarily due to (i) the expansion of resort fees to all properties during 2015; (ii) improved hotel yield as a result of newly renovated rooms becoming available during 2016 at Harrah’s Las Vegas and The LINQ Hotel & Casino; and (iii) the opening of the Harrah’s Atlantic City Waterfront Conference Center (the “Atlantic City Conference Center”) in the third quarter 2015, which drove an increase in cash ADR from $127 in 2015 to $137 in 2016. In addition, room nights available increased approximately 14% in 2016 compared with 2015 because room renovations at The LINQ Hotel & Casino were substantially completed and available to guests in early May 2015; and
$28 million increase in other revenue primarily due to new performers and additional scheduled performances by entertainers in Las Vegas.
Analysis of Key Drivers of Income from Operations Performance
Income from Operations by Category - Consolidated
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Net revenues
$
4,868

 
$
3,877

 
$
3,957

 
$
991

 
25.6
 %
 
$
(80
)
 
(2.0
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Casino
1,213

 
890

 
969

 
(323
)
 
(36.3
)%
 
79

 
8.2
 %
Food and beverage
693

 
572

 
587

 
(121
)
 
(21.2
)%
 
15

 
2.6
 %
Rooms
360

 
318

 
300

 
(42
)
 
(13.2
)%
 
(18
)
 
(6.0
)%
Property, general, administrative, and other
1,124

 
1,147

 
1,041

 
23

 
2.0
 %
 
(106
)
 
(10.2
)%
Reimbursable management costs
48

 

 
10

 
(48
)
 
*

 
10

 
100.0
 %
Depreciation and amortization
626

 
439

 
374

 
(187
)
 
(42.6
)%
 
(65
)
 
(17.4
)%
Corporate expense
202

 
194

 
196

 
(8
)
 
(4.1
)%
 
2

 
1.0
 %
Other operating costs
65

 
91

 
162

 
26

 
28.6
 %
 
71

 
43.8
 %
Total operating expenses
4,331

 
3,651

 
3,639

 
(680
)
 
(18.6
)%
 
(12
)
 
(0.3
)%
Income from operations
$
537

 
$
226

 
$
318

 
$
311

 
137.6
 %
 
$
(92
)
 
(28.9
)%

20



Income from Operations - Segment
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Las Vegas
$
549

 
$
526

 
$
535

 
$
23

 
4.4
%
 
$
(9
)
 
(1.7
)%
Other U.S.
199

 
163

 
192

 
36

 
22.1
%
 
(29
)
 
(15.1
)%
All Other
(211
)
 
(463
)
 
(409
)
 
252

 
54.4
%
 
(54
)
 
(13.2
)%
Income from operations
$
537

 
$
226

 
$
318

 
$
311

 
137.6
%
 
$
(92
)
 
(28.9
)%
Year Ended December 31, 2017 versus 2016
Income from operations increased $311 million, or 137.6%, in 2017 compared with 2016 partially due to the consolidation of CEOC LLC’s results following the Effective Date, which contributed $52 million to income from operations, partially offset by a $21 million decrease in income from operations due to the deconsolidation of Horseshoe Baltimore’s results subsequent to August 31, 2017. In addition to the effect of CEOC LLC and Horseshoe Baltimore, income from operations increased $280 million primarily due to:
Property, general, administrative, and other expenses decreased as a result of CIE’s stock-based compensation expense recorded in the prior year of $189 million compared with no CIE stock-based compensation recognized in the current year.
Other operating costs decreased $23 million primarily due to:
$36 million less in expenses incurred by CEC in 2017 compared with 2016 related to CEOC’s bankruptcy activity and other expenses related to ongoing litigation, $18 million of costs related to the sale of the SMG Business that were incurred during 2016, and CEC was reimbursed $19 million in 2017 for amounts related to a joint venture development in Korea that were previously deemed uncollectible and written off in 2015;
partially offset by accrued exit fees of $26 million for amounts payable to NV Energy (see Note 11) and a $19 million increase in demolition costs for ongoing renovations.
These decreases were partially offset by a $25 million increase in depreciation expense that was accelerated in 2017 compared with 2016 due to the removal and replacement of certain assets in connection with ongoing property renovation projects primarily at Flamingo Las Vegas, Bally’s Las Vegas, and Harrah’s Las Vegas.
Year Ended December 31, 2016 versus 2015
Income from operations decreased $92 million, or 28.9%, in 2016 compared with 2015. In addition to the effect of the $9 million generated by CEOC in 2015 and the $30 million increase in income from operations attributable to Horseshoe Baltimore in 2016 compared with 2015, income from operations decreased $113 million, primarily due to:
The accelerated vesting of CIE equity awards resulting in stock-based compensation expense of $189 million in 2016 compared with $31 million in 2015. In addition, CIE incurred $18 million in costs during 2016 related to the sale of the SMG Business; and
Depreciation and amortization expense in 2016 included an increase of $49 million of depreciation that was accelerated due to the removal and replacement of certain assets in connection with ongoing property renovation projects primarily in Las Vegas, as well as depreciation expense related to the Atlantic City Conference Center, which opened during 2015.

21



Other Factors that Affect Net Income/(Loss)
Other Factors Affecting Net Income/(Loss) - Consolidated
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Interest expense
$
(773
)
 
$
(599
)
 
$
(683
)
 
$
(174
)
 
(29.0
)%
 
$
84

 
12.3
 %
Gain on deconsolidation of subsidiaries
31

 

 
7,125

 
31

 
*

 
(7,125
)
 
(100.0
)%
Restructuring and support expenses
(2,028
)
 
(5,729
)
 
(1,017
)
 
3,701

 
64.6
 %
 
(4,712
)
 
*

Loss on extinguishment of debt
(232
)
 

 

 
(232
)
 
*

 

 
*

Other income/(loss)
95

 
(29
)
 
7

 
124

 
*

 
(36
)
 
*

Income tax benefit/(provision)
1,995

 
(327
)
 
106

 
2,322

 
*

 
(433
)
 
*

Discontinued operations, net of income taxes

 
3,380

 
155

 
(3,380
)
 
(100.0
)%
 
3,225

 
*

____________________
*    Not meaningful.
Interest Expense
Interest expense increased $174 million in 2017 compared with 2016 primarily due to $187 million recognized as interest expense related to our lease agreements with VICI that are accounted for as failed sale-leaseback financing obligations in 2017 (see Note 10) and $2 million recognized as interest expense related to the Golf Course Use Agreements (as defined and further described in Note 11). In addition to interest expense related to the failed sale-leaseback financing obligation and Golf Course Use Agreements, interest expense is primarily attributable to debt described in Note 12. Excluding the impact of interest expense related to the failed sale-leaseback financing obligation and Golf Course Use Agreements, interest expense decreased in 2017 compared with 2016 primarily due to the following:
A $64 million decrease at CRC primarily due to the refinancing of the previously outstanding CGPH and CERP debt which reduced the interest rate margins in the second quarter of 2017 as well as repayment of the CERP, CGPH and Cromwell loans during the year; and
An $11 million decrease in interest expense related to the Horseshoe Baltimore debt resulting from the deconsolidation of Horseshoe Baltimore in August 2017.
These decreases were mostly offset by $24 million in interest expense recognized related to the CRC Term Loan Facility and CRC Notes, $13 million in interest expense recognized for the CEC Convertible Notes, $12 million in interest expense recognized for the CEOC LLC Term Loan and $6 million in interest expense recognized for the Chester Downs Senior Secured Notes.
Interest expense decreased $84 million in 2016 compared with 2015 primarily due to the deconsolidation of CEOC. Excluding the effect of the CEOC deconsolidation, interest expense increased $3 million in 2016.
Gain on Deconsolidation of Subsidiaries
As described in Note 2, we deconsolidated Horseshoe Baltimore in 2017 and recognized a gain of $31 million, and we deconsolidated CEOC in 2015 and recognized a gain of $7.1 billion.
Restructuring and Support Expenses
As described in Note 1, we recognized certain obligations that were ultimately settled upon CEOC’s emergence from bankruptcy on the Effective Date. As a result, during the years ended December 31, 2017, 2016, and 2015, we incurred expenses associated with the CEOC restructuring. A portion of the obligations we recognized reflected our estimates of the fair value of the consideration CEC agreed to provide in exchange for the resolution of litigation claims and potential claims against CEC and its affiliates.
Loss on Extinguishment of Debt
We recognized losses on extinguishment of debt totaling $232 million in 2017 relating to early debt redemption charges as well as the write-off of debt discounts and deferred financing costs associated with the extinguishment of the outstanding debt of CGPH and CERP in conjunction with the refinancing during the year. See the Liquidity and Capital Resources section below and the Debt Repayments and Refinancing in 2017 section in Note 12 for further details.

22



Other Income/(Loss)
Other income in 2017 primarily relates to a benefit of $64 million due to a change in fair value of the derivative liability related to the conversion option of the CEC Convertible Notes (see Note 8 for further details), a $17 million gain for an interest swap payment CEC made on behalf of CEOC that was recovered with interest, and $14 million for interest income earned on the proceeds from the sale of the SMG Business described above (see Note 18). Other loss in 2016 relates primarily to a $30 million accrual pursuant to the NRF Settlement Agreement for the litigation settlement, the legal fee reimbursement, and the withdrawal liability (see Note 11 for additional information). Other income in 2015 primarily relates to a $5 million gain recorded by CIE for a Wynn license application withdrawal.
Income Tax Benefit/(Provision)
The effective tax rate was 84.2% for 2017, negative 5.3% for 2016, and negative 1.8% for 2015. The effective tax rate in 2017 differed from the statutory rate of 35% primarily due to nondeductible restructuring expenses, the acquisition of OpCo and the tax reform bill passed in 2017. The effective tax rate in 2016 differed from the statutory rate of 35% primarily due to nondeductible restructuring expenses and other pre-tax losses for which the Company could not recognize a tax benefit. The effective tax rate in 2015 differed from the statutory rate of 35% primarily due to the deconsolidation of CEOC. See Note 17 for a detailed discussion of income taxes and the effective tax rate.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected our year ended December 31, 2017, including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017, (3) bonus depreciation that will allow for full expensing of qualified property, (4) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (5) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings accumulated post 1986 through 2017 that were previously deferred from U.S. income taxes, and (6) a tax on Global Intangible Low-Taxed Income (“GILTI”) which imposes taxes on foreign income in excess of a deemed return on tangible assets of foreign corporations.
As of December 31, 2017, the Company had not completed the accounting for the tax effects of the Tax Act; however, the Company has made a reasonable estimate of the effects on the existing deferred tax balances and accrued a provisional income tax benefit of approximately $1.2 billion in the period ended December 31, 2017. The amount of the estimated income tax benefit is (i) $797 million related to the net deferred tax benefit of the corporate rate reduction and (ii) $442 million related to the net deferred tax benefit of deferred tax assets which are now realizable due to the changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. There is no tax expense related to the one-time transitional tax as the Company does not have a net positive accumulated earnings and profits in its foreign subsidiaries post 1986. The Company does not expect the impact of GILTI to be material to the Company’s tax rate in future periods.
Discontinued Operations, net of Income Taxes
Discontinued operations primarily represent CIE’s SMG Business, which was sold in September 2016, as well as activity for certain properties owned by CEOC that occurred prior to its deconsolidation in January 2015. See Note 18 for additional information.
Reconciliation of Non-GAAP Financial Measures
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) is presented as a measure of the Company’s performance. Adjusted EBITDA is defined as revenues less operating expenses and is comprised of net income/(loss) before (i) interest expense, net of interest capitalized and interest income, (ii) income tax (benefit)/provision, (iii) depreciation and amortization, (iv) corporate expenses, and (v) certain items that we do not consider indicative of its ongoing operating performance at an operating property level.
In evaluating Adjusted EBITDA you should be aware that, in the future, we may incur expenses that are the same or similar to some of the adjustments in this presentation. The presentation of Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or unexpected items.
Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income/(loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with generally accepted accounting principles, “GAAP”). Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies within the industry. Adjusted EBITDA is included because management uses Adjusted EBITDA to measure performance and allocate resources, and believes that Adjusted EBITDA provides investors with additional information consistent with that used by management.

23



Reconciliation of Adjusted EBITDA
 
Years Ended December 31,
(In millions)
2017
 
2016
 
2015
Net income/(loss) attributable to Caesars
$
(368
)
 
$
(3,049
)
 
$
6,012

Net loss attributable to noncontrolling interests
(7
)
 
(29
)
 
(1
)
Discontinued operations, net of income taxes

 
(3,380
)
 
(155
)
Income tax (benefit)/provision
(1,995
)
 
327

 
(106
)
Gain on deconsolidation of subsidiaries
(31
)
 

 
(7,125
)
Restructuring and support expenses
2,028

 
5,729

 
1,017

Loss on extinguishment of debt
232

 

 

Other (income)/loss
(95
)
 
29

 
(7
)
Interest expense
773

 
599

 
683

Depreciation and amortization
626

 
439

 
374

Other operating costs (1)
65

 
91

 
162

CIE stock-based compensation

 
189

 
31

Stock-based compensation expense
43

 
43

 
71

Other items (2)
90

 
81

 
64

Adjusted EBITDA
$
1,361

 
$
1,069

 
$
1,020

____________________
(1) 
Amounts primarily represent costs incurred in connection with property openings and expansion projects at existing properties, costs associated with the development activities and reorganization activities, and/or recoveries associated with such items.
(2) 
Other items includes other add-backs and deductions to arrive at Adjusted EBITDA but not separately identified such as litigation awards and settlements, costs associated with CEOC’s restructuring and related litigation, severance and relocation costs, sign-on and retention bonuses, permit remediation costs, and business optimization expenses.
Segment Adjusted EBITDA (1) 
 
Years Ended December 31,
 
2017 vs. 2016
 
2016 vs. 2015
(Dollars in millions)
2017
 
2016
 
2015
 
Fav/(Unfav)
 
Fav/(Unfav)
Las Vegas
$
1,003

 
$
881

 
$
828

 
$
122

 
13.8
%
 
$
53

 
6.4
 %
Other U.S.
396

 
259

 
280

 
137

 
52.9
%
 
(21
)
 
(7.5
)%
All Other
(38
)
 
(71
)
 
(88
)
 
33

 
46.5
%
 
17

 
19.3
 %
Adjusted EBITDA
$
1,361

 
$
1,069

 
$
1,020

 
$
292

 
27.3
%
 
$
49

 
4.8
 %
___________________
(1) 
See reconciliation of Net income/(loss) to Adjusted EBITDA by segment in Note 20.

Liquidity and Capital Resources

Liquidity Discussion and Analysis
As described above, on the Effective Date, pursuant to the merger agreement between CEC and CAC, CAC merged with and into CEC, with CEC as the surviving company, and each share of CAC common stock issued and outstanding immediately prior to the Effective Date was converted into, and was exchanged for, 1.625 shares of CEC common stock on the Effective Date. In addition, the Debtors voluntarily filed for reorganization in January 2015 under Chapter 11 of the Bankruptcy Code. The Debtors consummated their reorganization pursuant to the Plan and emerged from bankruptcy on the Effective Date. See Note 1 for additional information.
CEC has no requirement to fund the operations of CRC, CEOC LLC, or their subsidiaries; however, the payment of all monetary obligations under the CEOC LLC Leases is guaranteed by CEC. See Lease-Related Obligations below for further information. CEC cash outflows are primarily used for corporate development opportunities, other corporate-level activity, litigation, and restructuring expenses associated with CEOC’s bankruptcy including residual claims upon emergence. In addition, because CEC has no operations of its own and due to the restrictions under its subsidiaries’ lending arrangements, CEC has limited ability to raise additional capital.

24



Cash and cash equivalents as of December 31, 2017, as shown in the table below includes amounts held by CRC and CEOC LLC, which are not readily available to CEC and includes $96 million related to its insurance captives.
Summary of Cash and Revolver Capacity
 
December 31, 2017
(In millions)
CRC
 
CEOC LLC
 
Other
 
Caesars
Cash and cash equivalents
$
1,038

 
$
405

 
$
1,115

 
$
2,558

Revolver capacity
1,000

 
200

 

 
1,200

Revolver capacity drawn or committed to letters of credit

 
(50
)
 

 
(50
)
Total
$
2,038

 
$
555

 
$
1,115

 
$
3,708

CRC and CEOC LLC’s sources of liquidity are independent of one another and primarily include currently available cash and cash equivalents, cash flows generated from their operations, and borrowings under their separate revolving credit facilities (see Note 12). Operating cash inflows are typically used for operating expenses, debt service costs, lease payments and working capital needs. Additionally, we expect CRC to use a substantial amount of cash for the Centaur acquisition. CRC and CEOC LLC are highly leveraged, and a significant portion of their liquidity needs are for debt service and financing obligations, as summarized below.
During the year ended December 31, 2017, we generated a net loss of $375 million and our operating activities yielded consolidated operating cash outflows of $2.3 billion, which is primarily a result of $2.8 billion in cash paid on the Effective Date to support the reorganization of CEOC as described in the Plan (see Note 1) using proceeds from the sale of CIE’s SMG Business in the third quarter of 2016 (see Note 18). Excluding the impact of the cash outflows in support of the reorganization, we generated consolidated operating cash inflows of $464 million for the year ended December 31, 2017, which is an increase of $422 million from the year ended December 31, 2016.
We believe that our cash flows from operations are sufficient to cover planned capital expenditures for ongoing property renovations and our total estimated financing activities of $1.2 billion during 2018. However, if needed, our existing cash and cash equivalents and availability under our revolving credit facilities are available to further support operations during the next 12 months and the foreseeable future. In addition, restrictions under our lending arrangements generally prevent the distribution of cash from our subsidiaries to CEC, except for certain restricted payments.
In 2017, we paid $749 million in interest and refinanced all of our existing debt (see below). Interest paid includes $586 million of interest associated with our debt and $163 million of interest related to our financing obligations and Golf Course Use Agreements. Our capital expenditures were $598 million during 2017 in support of our ongoing property renovations.
As discussed above, on November 16, 2017, CEC announced it had entered into a definitive agreement to acquire Centaur for $1.7 billion, including $1.6 billion in cash at closing and $75 million in deferred consideration. The transaction is subject to receipt of regulatory approvals and other customary closing conditions and is expected to close in the first half of 2018. The funding for this acquisition will be primarily from the $1.1 billion in cash proceeds received from the sale of the real estate assets of Harrah’s Las Vegas to VICI in December 2017.
Our ability to fund operations, pay debt and financing obligations, and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets and restrictive covenants related to our existing debt could impact our ability to fund liquidity needs, pay indebtedness and financing obligations, and secure additional funds through financing activities.
The foregoing liquidity discussions are forward-looking statements based on assumptions as of the date of this filing that may or may not prove to be correct. Actual results may differ materially from our present expectations. Factors that may cause actual results to differ materially from present expectations include, without limitation, the positive or negative changes in the operational and other matters assumed in preparing our forecasts.
Debt Activity and Lease-Related Obligations
As noted above, we are a highly-leveraged company and had $9.0 billion in face value of debt outstanding as of December 31, 2017. Additionally, as a result of the reorganization pursuant to the Plan, VICI owns certain real property assets and related fixtures and leases those assets back to us. We account for our leases with VICI as failed sale-leaseback financing obligations. As of December 31, 2017, our financing obligations were $9.4 billion. As a result, a significant portion of our liquidity needs are for debt service, including significant interest payments, and these financing obligations. As detailed in the table below, our estimated

25



debt service (including principal and interest) is $504 million for 2018 and $11.8 billion thereafter to maturity and our estimated financing obligations of $666 million for 2018 and $39.3 billion thereafter to maturity.
Financing Activities
 
Years Ended December 31,
 
 
 
 
(In millions)
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Annual maturities of long-term debt
$
64

 
$
64

 
$
64

 
$
64

 
$
64

 
$
8,714

 
$
9,034

Estimated interest payments
440

 
450

 
460

 
450

 
450

 
980

 
3,230

Total debt service payments (1)
504

 
514

 
524

 
514

 
514

 
9,694

 
12,264

Financing obligations - principal
9

 
11

 
13

 
15

 
17

 
7,766

 
7,831

Financing obligations - interest
657

 
719

 
721

 
724

 
728

 
28,564

 
32,113

Total financing obligation payments(2)
666

 
730

 
734

 
739

 
745

 
36,330

 
39,944

Total financing activities
$
1,170

 
$
1,244

 
$
1,258

 
$
1,253

 
$
1,259

 
$
46,024

 
$
52,208

___________________
(1) 
Debt principal payments are estimated amounts based on maturity dates and potential borrowings under our revolving credit facility. Interest payments are estimated based on the forward-looking London Interbank Offered Rate (“LIBOR”) curve. Actual payments may differ from these estimates.
(2) 
Financing obligation principal and interest payments are estimated amounts based on the future minimum lease payments and certain estimates based on contingent rental payments (as described below under Lease-Related Obligations). Actual payments may differ from the estimates.
Debt Activity
During the year ended December 31, 2017, proceeds received from the issuance of new debt was $7.6 billion and cash paid to extinguish debt was $7.8 billion. In addition, as part of the acquisition of OpCo, we assumed $1.2 billion in debt that was issued in connection with CEOC’s emergence from bankruptcy. See Note 12 for additional information relating to these transactions as well as a table presenting details on our individual borrowings outstanding, interest rates and restrictive covenants related to certain of our borrowings as of December 31, 2017 and 2016. See Note 8 for details regarding our use of interest rate swap derivatives to manage the mix of our debt between fixed and variable rate instruments. As a result of these amendments to our existing debt agreements and excluding interest recognized for Horseshoe Baltimore, we expect to reduce our annual interest obligations by approximately $280 million going forward when compared to the interest rates prior to repricing and refinancing.

26



Summary of Debt and Revolving Credit Facility Cash Flows from Financing Activities
 
Years Ended December 31,
 
2017
 
2016
(In millions)
Proceeds
 
Repayments
 
Proceeds
 
Repayments
CRC Revolving Credit Facility
$
300

 
$
(300
)
 
$

 
$

CRC Term Loan
4,700

 

 

 

CEOC LLC Term Loan (1)
265

 

 

 

CRC Notes
1,700

 

 

 

CERP Revolving Credit Facility (2)

 
(40
)
 
105

 
(145
)
CERP Senior Secured Loan (2)
59

 
(2,484
)
 

 
(25
)
CERP First Lien Notes (2)

 
(1,000
)
 

 

CERP Second Lien Notes (2)

 
(1,150
)
 

 

CGPH Term Loan (2)
226

 
(1,372
)
 

 
(12
)
CGPH Notes (2)

 
(675
)
 

 

CGPH Revolving Credit Facility (2)

 

 
15

 
(60
)
Cromwell Credit Facility (2)

 
(171
)
 

 
(3
)
Horseshoe Baltimore Credit & FF&E Facilities (3)
300

 
(320
)
 

 
(8
)
Chester Downs Senior Secured Notes (2)

 
(330
)
 

 

Other debt activity

 
(2
)
 

 
(10
)
Capital lease payments

 
(2
)
 

 
(5
)
Total
$
7,550

 
$
(7,846
)
 
$
120

 
$
(268
)
____________________
(1) 
This amount does not include the debt assumed as part of the OpCo acquisition. As part of the acquisition of OpCo, we assumed $1.2 billion in debt that was issued in connection with CEOC’s emergence from bankruptcy. See Note 12.
(2) 
All outstanding amounts were fully repaid during 2017.
(3) 
The Horseshoe Baltimore Credit & FF&E Facilities were refinanced in July 2017. We deconsolidated Horseshoe Baltimore effective August 31, 2017 and derecognized the long-term debt outstanding under the Horseshoe Baltimore Credit Facility and the Horseshoe Baltimore FF&E Facility. See Note 2.
Lease-Related Obligations
As described above and in Note 1, in conjunction with CEOC’s emergence from bankruptcy, CEOC LLC entered into leases with VICI on the Effective Date related to certain real property assets formerly held by CEOC: (i) for Caesars Palace, (ii) for a portfolio of casino properties at various locations throughout the United States, and (iii) for the Harrah’s Joliet Hotel & Casino. Additionally, on December 22, 2017, Harrah’s Las Vegas sold certain real estate assets to VICI and simultaneously entered into a lease agreement with VICI. Each lease agreement provides for fixed rent (subject to escalation) during an initial term, then rent consisting of both base rent and variable percentage rent elements, and has a 15-year initial term and four five-year renewal options. We assume the renewal is probable and include renewal commitments in the estimated financing obligations in the table above.
In addition, the future lease payment amounts included in the table above represent the contractual lease payments adjusted for estimated escalations, as determined by the underlying lease agreements. The estimates are based on the terms and conditions known at the inception of the leases. However, a portion of the actual payments will be determined in the period in which they are due, and therefore, actual lease payments may differ from our estimates.
CEC determined that these transactions do not qualify for sale-leaseback accounting based on the terms of the lease agreements; therefore, the Company will be accounting for these transactions as a financing. We do not recognize rent expense related to the leases, but we have recorded a liability for the financing obligations and the majority of the periodic lease payments are recognized as interest expense. In the initial periods, cash payments are less than the interest expense recognized in the Statements of Operations, which causes the related sale-leaseback liability to increase during the beginning of the lease term. Subject to certain exceptions, the payment of all monetary obligations under the CEOC LLC Leases is guaranteed by CEC and the payment of all monetary obligations under the HLV Lease is guaranteed by CRC. See Note 10 for further details around the financing obligations.
Capital Spending and Development
We incur capital expenditures in the normal course of business, and we perform ongoing refurbishment and maintenance at our existing casino entertainment facilities to maintain our quality standards. We also continue to pursue development and acquisition opportunities for additional casino entertainment and other hospitality facilities, and online businesses that meet our strategic and return on investment criteria. Cash used for capital expenditures in the normal course of business is typically made available from

27



cash flows generated by our operating activities and established debt programs, while cash used for development projects is typically funded from established debt programs, specific project financing, and additional debt offerings.
Summary of Consolidated Capital Expenditures
 
Years Ended December 31,
 
Increase/(Decrease)
(In millions)
2017
 
2016
 
2015
2017 vs. 2016
 
2016 vs. 2015
Development
$
1

 
$
3

 
$
96

 
$
(2
)
 
$
(93
)
Renovation/refurbishment
538

 
189

 
207

 
349

 
(18
)
Other
59

 
28

 
38

 
31

 
(10
)
Total capital expenditures
$
598

 
$
220

 
$
341

 
$
378

 
$
(121
)
 
 
 
 
 
 
 
 
 
 
Included in capital expenditures:
 
 
 
 
 
 
 
 
 
Capitalized payroll costs
$
4

 
$
5

 
$
5

 
 
 
 
Capitalized interest
6

 
2

 
12

 
 
 
 
During the year ended December 31, 2017, capital expenditures were primarily related to hotel renovation projects at Caesars Palace, Bally’s Las Vegas, Planet Hollywood, Flamingo Las Vegas and Harrah’s Las Vegas. During the year ended December 31, 2016, capital expenditures were primarily related to hotel renovation projects at Harrah’s Las Vegas, Paris Las Vegas and Planet Hollywood. During the year ended December 31, 2015, capital expenditures were primarily related to The LINQ Hotel & Casino renovation and the Atlantic City Conference Center, which was still under construction in the first quarter of 2015.
Our projected capital expenditures for 2018 range from $675 million to $850 million. We expect to fund these capital expenditures from cash flows generated by our operating activities. Our projected capital expenditures for 2018 include estimates for:
Hotel remodeling projects at Bally’s Las Vegas, Flamingo Las Vegas, Harrah’s Atlantic City, and Horseshoe South Indiana;
Development of the Eastside Convention Center;
Integration and maintenance costs associated with the expected Centaur acquisition post-closing; and
Information technology, marketing, analytics, accounting, payroll, and other projects that benefit the operating structures.
Under the CEOC LLC Leases, we are required to spend $100 million in capital expenditures annually and $495 million for every three-year period. Under the HLV Lease, we are required to spend $171 million in capital expenditures for the period from January 1, 2017 through December 31, 2021, and thereafter, spend an amount equal to at least 1% of Harrah’s Las Vegas net revenue for the prior lease year.
Our planned development projects, if they proceed, will require, individually and in the aggregate, significant capital commitments and, if completed, may result in significant additional revenues. The commitment of capital, the timing of completion, and the commencement of operations of development projects are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate political and regulatory bodies. We must also comply with covenants and restrictions set forth in our debt agreements.
There are various risks and uncertainties and the expected capital expenditures set forth above may change for various reasons, including our financial performance and market conditions.
Related Party Transactions
For a description of the nature and extent of related party transactions, see Note 19.
Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with GAAP. In preparing our financial statements, we have made our best estimates and judgments of the amounts and disclosures included in the financial statements, giving regard to materiality. When more than one accounting principle, or method of its application, is generally accepted, we select the principle or method that we consider to be the most appropriate under specific circumstances. Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties. Certain of our accounting policies, including the estimated lives assigned to our assets, the determination of bad debt, asset impairments, the fair value of derivative instruments, self-insurance reserves, the purchase price allocations made in connection with our acquisitions/mergers, the calculation of our income tax

28



liabilities, and the determination of whether to consolidate a variable interest entity require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates.
We consider accounting estimates to be critical accounting policies when:
the estimates involve matters that are highly uncertain at the time the accounting estimate is made; and
different estimates or changes to estimates could have a material impact on the reported financial position, changes in financial position, or results of operations.
By their nature, these judgments and estimates are subject to an inherent degree of uncertainty. Our judgments and estimates are based on our historical experience, terms of existing contracts, observance of trends in the industry, information gathered from customer behavior, and information available from other outside sources, as appropriate. Due to the inherent uncertainty involving judgments and estimates, actual results may differ from those estimates.
Long-Lived Assets
We have significant capital invested in our long-lived assets, and judgments are made in determining the estimated useful lives of assets, salvage values to be assigned to assets, and if or when an asset has been impaired. The accuracy of these estimates affects the amount of depreciation and amortization expense recognized in our financial results and whether we have a gain or loss on the disposal of an asset. We assign lives to our assets based on our standard policy, which is established by management as representative of the useful life of each category of asset. We review the carrying value of our long-lived assets whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. The factors considered by management in performing this assessment include current operating results, trends and prospects, planned construction and renovation projects, as well as the effect of obsolescence, demand, competition, and other economic, legal, and regulatory factors. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the lowest level of identifiable cash flows, which, for most of our assets, is the individual property. See Note 6 for additional information.
Goodwill and Other Non-Amortizing Intangible Assets
The evaluation of goodwill and other non-amortizing intangible assets requires the use of estimates about future revenues and EBITDA, valuation multiples, and discount rates to determine their estimated fair value. Our future revenues and EBITDA assumptions are determined based upon actual results giving effect to expected changes in operating results in future years. Our valuation multiples and discount rates are based upon market participant assumptions using a defined gaming peer group. Changes in these assumptions can materially affect these estimates. Thus, to the extent the gaming volumes deteriorate in the near future, discount rates increase significantly, or we do not meet our projected performance, we could recognize impairments, and such impairments could be material. This is especially true for any of our properties where goodwill and other non-amortizing intangible assets have been partially impaired as a result of a recent impairment analysis, and for our Las Vegas properties, which comprise a significant portion of our remaining goodwill balance.
As of December 31, 2017, we had approximately $3.8 billion in goodwill and $1.3 billion of other non-amortizing intangible assets. Resulting from the acquisition of OpCo discussed in Note 1 and Note 4, we added approximately $2.2 billion of goodwill and $1.1 billion of other non-amortizing intangible assets during the fourth quarter of 2017. As of December 31, 2017, all reporting units with goodwill and/or other non-amortizing intangible assets have estimated fair values that exceed their carrying values. See Note 7 for additional information.
Allowance for Doubtful Accounts - Gaming
We reserve an estimated amount for gaming receivables that may not be collected to reduce the Company’s receivables to their net carrying amount. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. As with many estimates, management must make judgments about potential actions by third parties in establishing and evaluating our reserves for allowance for doubtful accounts. As of December 31, 2017, a 5% increase or decrease to the allowance determined based on a percentage of aged receivables would change the reserve by approximately $10 million.
Markers acquired as part of the acquisition of OpCo were accounted for at fair value on the Effective Date, with no acquired reserve, and will be accreted to interest income up to their expected realizable value over the life of their expected collectability. The acquired markers are subject to adjustment if the actual cash collection differs from the expected collectibility.

29



Self-Insurance Accruals
We are self-insured for workers’ compensation and other risk products through our captive insurance subsidiaries. Our insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims. In estimating these reserves, historical loss experience and judgments about the expected levels of costs per claim are considered. We also utilize consultants to assist in the determination of certain estimated accruals. These claims are accounted for based on actuarial estimates of the undiscounted claims, including those claims incurred but not reported. We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals; however, changes in health care costs, accident frequency and severity, and other factors can materially affect the estimates for these liabilities. We regularly monitor the potential for changes in estimates, evaluate our insurance accruals, and adjust our recorded provisions.
Fair Value Measurements
The CEC Convertible Notes contain derivative features that require bifurcation. We estimate the fair value of the CEC Convertible Notes using a binomial lattice valuation model that incorporates the value of both the straight debt and conversion features of the notes. The valuation model incorporates assumptions regarding the incremental cost of borrowing for CEC, the value of CEC’s equity into which these notes could convert, the expected volatility of such equity, and the risk-free rate. The fair value of the CEC Convertible Notes derivative liability is subject to interest rate and market price risk due to the conversion features of the notes and other factors. Generally, as the fair value of fixed interest rate debt increases (due to a decrease in interest rates) the derivative liability decreases and as the fair value of fixed interest rate debt decreases (due to an increase in interest rates) the derivative liability increases. The fair value of the CEC Convertible Notes derivative liability may also increase as the market price of our stock rises or due to increased volatility in our stock price, and decrease as the market price of our stock falls or due to decreased volatility in our stock price.
We use interest rate swaps, which are derivative instruments classified as hedging transactions, to limit our exposure to interest rate risk. Derivative instruments are recognized in the financial statements at fair value. The estimated fair values of our derivative instruments are based on market prices obtained from dealer quotes. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. Our derivative instruments contain a credit risk that the counterparties may be unable to meet the terms of the agreements. We minimize that risk by evaluating the creditworthiness of our counterparties, which are limited to major banks and financial institutions. The fair values of our derivative instruments are adjusted for the credit rating of the counterparty, if the derivative is an asset, or adjusted for the credit rating of the Company, if the derivative is a liability.
See Note 8 for more details regarding fair value measurements and Item 7A for quantitative and qualitative disclosures about market risk.
Income Taxes
We are subject to income taxes in the United States (including federal and state) and numerous foreign jurisdictions in which we operate. We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and as attributable to operating loss and tax credit carryforwards. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the “more likely than not” realization threshold. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.
The effect on the income tax provision and deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have provided a valuation allowance on certain foreign and state net operating losses (“NOLs”), and other federal, state, and foreign deferred tax assets. NOLs and other federal, state, and foreign deferred tax assets were not deemed realizable based upon near term estimates of future taxable income.
We report unrecognized tax benefits within accrued expenses and deferred credits and other in our balance sheets, separate from any related income tax payable, which is also reported within accrued expenses, or deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions, as well as potential interest or penalties associated with those liabilities.
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular

30



and recurring audit by the Internal Revenue Service and various state taxing authorities on open tax positions, and in general, it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.
Recently Issued and Proposed Accounting Standards
See Note 5 for discussions of the adoption and potential impact of recently issued accounting standards.
Contractual Obligations and Commitments
The table below summarizes Caesars Entertainment’s contractual obligations and other commitments through their respective maturity or ending dates as of December 31, 2017.