Caesars Entertainment Corporation
CAESARS ENTERTAINMENT Corp (Form: 10-Q, Received: 05/09/2014 17:11:47)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File No. 1-10410
 _________________________
CAESARS ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
 _________________________
 
Delaware
 
62-1411755
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
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, former address and former fiscal year, if changed since last report)
 _________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x      No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o   (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o     No   x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding at May 1, 2014
Common stock, $0.01 par value
144,214,527



CAESARS ENTERTAINMENT CORPORATION
INDEX
 
 
 
Page
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

We have proprietary rights to a number of trademarks used in this Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2014 (this "Form 10-Q"), that are important to our business, including, without limitation, Caesars, Caesars Entertainment, Caesars Palace, Harrah’s, Total Rewards, Horseshoe, Paris Las Vegas, Flamingo, and Bally's. In addition, Caesars Interactive Entertainment, Inc., which is a majority-owned subsidiary of Caesars Growth Partners, LLC, has proprietary rights to the Slotomania, Bingo Blitz and World Series of Poker ("WSOP") trademarks. We have omitted the registered trademark (®) and trademark (™) symbols for such trademarks named in this Quarterly Report on Form 10-Q.
.

2


PART I—FINANCIAL INFORMATION

Item 1.
Unaudited Financial Statements

CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(In millions, except par value)
 
March 31, 2014

December 31, 2013
Assets
 

 
Current assets
 

 
Cash and cash equivalents ($972.6 and $976.9 attributable to our VIEs)
$
2,483.4


$
2,771.2

Restricted cash ($22.9 and $28.8 attributable to our VIEs)
64.6

 
87.5

Receivables, net ($65.2 and $54.8 attributable to our VIEs)
578.6


619.9

Deferred income taxes ($3.3 and $7.0 attributable to our VIEs)
4.6


8.7

Prepayments and other current assets ($11.6 and $15.6 attributable to our VIEs)
232.6


237.4

Inventories
43.0


45.6

Total current assets
3,406.8


3,770.3

Property and equipment, net ($608.3 and $516.0 attributable to our VIEs)
13,347.9


13,237.9

Goodwill ($126.6 and $112.8 attributable to our VIEs)
3,077.4


3,063.3

Intangible assets other than goodwill ($203.1 and $180.0 attributable to our VIEs)
3,462.0


3,487.7

Investments in and advances to non-consolidated affiliates
182.7


176.8

Restricted cash ($203.6 and $231.6 attributable to our VIEs)
265.3


336.8

Deferred income taxes ($9.5 and $0.0 attributable to our VIEs)
13.5

 

Deferred charges and other ($25.8 and $11.0 attributable to our VIEs)
617.1


604.2

Assets held for sale
4.0

 
11.9

 
$
24,376.7


$
24,688.9

Liabilities and Stockholders’ Deficit
 

 
Current liabilities
 

 
Accounts payable ($104.9 and $54.8 attributable to our VIEs)
$
488.7


$
442.7

Accrued expenses and other current liabilities ($169.5 and $126.1 attributable to our VIEs)
1,310.3


1,212.3

Interest payable ($1.1 and $5.5 attributable to our VIEs)
521.4


389.5

Deferred income taxes ($0.4 and $0.0 attributable to our VIEs)
323.2


289.2

Current portion of long-term debt ($0.1 and $47.8 attributable to our VIEs)
197.2

 
197.1

Total current liabilities
2,840.8


2,530.8

Long-term debt ($720.0 and $673.9 attributable to our VIEs)
20,994.3


20,918.4

Deferred credits and other ($80.2 and $67.3 attributable to our VIEs)
396.2


667.5

Deferred income taxes ($10.1 and $3.8 attributable to our VIEs)
2,422.2


2,476.0

 
26,653.5


26,592.7

Commitments and contingencies (Note 15)


 


Stockholders’ deficit
 

 
Common stock: voting; $0.01 par value; 139.4 and 139.0 shares issued
1.4


1.4

Treasury Stock: 2.2 and 2.2 shares
(16.3
)
 
(16.3
)
Additional paid-in capital
7,241.0


7,230.5

Accumulated deficit
(10,707.1
)

(10,320.7
)
Accumulated other comprehensive loss
(21.2
)

(16.9
)
Total Caesars stockholders’ deficit
(3,502.2
)

(3,122.0
)
Noncontrolling interests
1,225.4


1,218.2

Total deficit
(2,276.8
)

(1,903.8
)
 
$
24,376.7


$
24,688.9

See accompanying Notes to Consolidated Condensed Financial Statements.

3


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In millions, except per share data)
 
Three Months Ended March 31,
 
2014
 
2013
Revenues
 
 
 
Casino
$
1,364.8

 
$
1,493.1

Food and beverage
385.0

 
379.8

Rooms
318.8

 
288.2

Management fees
13.7

 
10.7

Other
255.2

 
203.2

Reimbursed management costs
62.4

 
59.7

Less: casino promotional allowances
(298.6
)
 
(293.6
)
Net revenues
2,101.3

 
2,141.1

Operating expenses
 
 
 
Direct
 
 
 
Casino
825.6

 
833.1

Food and beverage
161.2

 
165.1

Rooms
82.5

 
73.3

Property, general, administrative, and other
556.1

 
520.5

Reimbursable management costs
62.4

 
59.7

Depreciation and amortization
122.8

 
161.6

Write-downs, reserves, and project opening costs, net of recoveries
24.0

 
20.7

Impairment of intangible and tangible assets
100.8

 
20.0

(Income)/loss on interests in non-consolidated affiliates
(3.8
)
 
2.6

Corporate expense
50.4

 
36.1

Acquisition and integration costs
15.0

 
64.2

Amortization of intangible assets
33.0

 
41.4

Total operating expenses
2,030.0

 
1,998.3

Income from operations
71.3

 
142.8

Interest expense
(592.3
)
 
(574.7
)
Loss on early extinguishment of debt
(0.7
)
 
(36.7
)
Other income, including interest income
0.3

 
3.7

Loss from continuing operations, before income taxes
(521.4
)
 
(464.9
)
Income tax benefit
154.5

 
290.2

Loss from continuing operations, net of income taxes
(366.9
)
 
(174.7
)
Discontinued operations
 
 
 
Loss from discontinued operations
(15.9
)
 
(44.8
)
Income tax benefit

 
2.8

Loss from discontinued operations, net of income taxes
(15.9
)
 
(42.0
)
Net loss
(382.8
)
 
(216.7
)
Less: net income attributable to noncontrolling interests
(3.6
)
 
(0.9
)
Net loss attributable to Caesars
$
(386.4
)
 
$
(217.6
)
Loss per share - basic and diluted





Loss per share from continuing operations
$
(2.70
)

$
(1.41
)
Loss per share from discontinued operations
(0.12
)

(0.33
)
Net loss per share
$
(2.82
)
 
$
(1.74
)
Weighted-average common shares outstanding - basic and diluted
137.2

 
125.3

See accompanying Notes to Consolidated Condensed Financial Statements. 

4


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2014
 
2013
Net loss
$
(382.8
)
 
$
(216.7
)
Other comprehensive income/(loss):
 
 
 
Benefit plan adjustments
0.5

 
0.1

Foreign currency translation adjustments
(0.6
)
 
(15.6
)
Reclassification of loss on derivative instruments from other comprehensive loss to interest expense

 
3.9

Unrealized gain/(loss) on available-for-sale investments
(4.3
)
 
0.1

Total other comprehensive loss, before income taxes
(4.4
)
 
(11.5
)
Income tax provision related to items of other comprehensive loss
(0.1
)
 
(1.5
)
Total other comprehensive loss, net of income taxes
(4.5
)
 
(13.0
)
Total comprehensive loss
(387.3
)
 
(229.7
)
Less: amounts attributable to noncontrolling interests:
 
 
 
Net loss
(3.6
)
 
(0.9
)
Foreign currency translation adjustments
0.2

 

Total amounts attributable to noncontrolling interests
(3.4
)
 
(0.9
)
Comprehensive loss attributable to Caesars
$
(390.7
)
 
$
(230.6
)

See accompanying Notes to Consolidated Condensed Financial Statements. 

5


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
(UNAUDITED)
(In millions)
 
Caesars Stockholders
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in-
Capital
 

Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
Caesars Stockholders' Equity/(Deficit)
 
Noncontrolling
Interests
 
Total Equity/(Deficit)
 
 
Balance as of December 31, 2012
$
1.3

 
$
(16.3
)
 
$
6,954.4

 
$
(7,280.2
)
 
$
(70.9
)
 
$
(411.7
)
 
$
80.1

 
$
(331.6
)
Net income/(loss)

 

 

 
(217.6
)
 

 
(217.6
)
 
0.9

 
(216.7
)
Share-based compensation

 

 
7.2

 

 

 
7.2

 

 
7.2

Decrease in noncontrolling interests, net of distributions

 

 

 

 

 

 
(3.9
)
 
(3.9
)
Other comprehensive loss, net of tax

 

 

 

 
(13.0
)
 
(13.0
)
 

 
(13.0
)
Purchase of additional interests in subsidiary

 

 
(2.0
)
 

 

 
(2.0
)
 

 
(2.0
)
Balance as of March 31, 2013
$
1.3

 
$
(16.3
)
 
$
6,959.6

 
$
(7,497.8
)
 
$
(83.9
)
 
$
(637.1
)
 
$
77.1

 
$
(560.0
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2013
$
1.4

 
$
(16.3
)
 
$
7,230.5

 
$
(10,320.7
)
 
$
(16.9
)
 
$
(3,122.0
)
 
$
1,218.2

 
$
(1,903.8
)
Net income/(loss)

 

 

 
(386.4
)
 

 
(386.4
)
 
3.6

 
(382.8
)
Share-based compensation plans
 *

 

 
8.5

 

 

 
8.5

 

 
8.5

Repurchase of subsidiary stock and noncontrolling interest transactions

 

 
2.0

 

 

 
2.0

 
3.8

 
5.8

Other comprehensive loss, net of tax

 

 

 

 
(4.3
)
 
(4.3
)
 
(0.2
)
 
(4.5
)
Balance as of March 31, 2014
$
1.4

 
$
(16.3
)
 
$
7,241.0

 
$
(10,707.1
)
 
$
(21.2
)
 
$
(3,502.2
)
 
$
1,225.4

 
$
(2,276.8
)
___________________ 
*
Amount rounds to zero.
See accompanying Notes to Consolidated Condensed Financial Statements.

6



CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In millions)

 
Three Months Ended March 31,
 
2014
 
2013
Cash flows from operating activities
 
 
 
Net loss
$
(382.8
)
 
$
(216.7
)
Adjustments to reconcile net loss to cash flows (used in)/provided by operating activities:
 
 
 
 Loss from discontinued operations
15.9


42.0

 Loss on early extinguishments of debt
0.7

 
36.7

Depreciation and amortization
163.6

 
206.3

Amortization of deferred finance costs and debt discount/premium
90.6

 
86.7

Reclassification from, and amortization of, accumulated other comprehensive loss
0.2

 
4.2

Non-cash write-downs and reserves, net of recoveries
8.2

 
5.8

Non-cash acquisition and integration costs
6.3

 
52.4

Impairment of intangible and tangible assets
100.8

 
20.0

(Income)/loss on interests in non-consolidated affiliates
(3.8
)
 
2.6

Share-based compensation expense
26.4

 
3.6

Deferred income taxes
(39.4
)
 
(290.9
)
Change in deferred charges and other
(3.7
)
 
(5.9
)
Change in deferred credits and other
(308.2
)
 
(45.1
)
Change in current assets and liabilities:
 
 
 
Accounts receivable
47.0

 
38.0

Prepayments and other current assets
3.8

 
(41.9
)
Accounts payable
(12.3
)
 
(41.9
)
Interest payable
132.5

 
151.7

Accrued expenses
65.5

 
(61.7
)
Other
(5.1
)
 
6.8

Cash flows from operating activities
(93.8
)
 
(47.3
)
Cash flows from investing activities
 
 
 
Acquisitions of property and equipment, net of change in related payables
(240.5
)
 
(148.1
)
Change in restricted cash
94.4

 
831.7

Proceeds received from sale of assets
12.5

 

Payments to acquire businesses, net of transaction costs and cash acquired
(22.5
)
 

Investments in/advances to non-consolidated affiliates and other
(2.1
)
 
(21.9
)
Purchases of investment securities
(12.5
)
 
(1.4
)
Proceeds from the sale and maturity of investment securities
3.9

 
0.7

Other
2.9

 
(3.2
)
Cash flows from investing activities
(163.9
)
 
657.8

 
 
 
 

7


CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
(In millions)

 
Three Months Ended March 31,
 
2014
 
2013
Cash flows from financing activities
 
 
 
Proceeds from the issuance of long-term debt

 
1,589.5

Debt issuance and extension costs and fees
(8.0
)
 
(70.6
)
Cash paid for early extinguishments of debt
(9.7
)
 
(1,784.2
)
Scheduled debt and capital lease payments
(15.9
)
 
(5.6
)
Purchase of additional interests in subsidiaries
(4.0
)
 

Issuance of common stock, net of fees
0.9

 

Proceeds from sales of noncontrolling interests
11.7

 

Distributions to noncontrolling interest owners
(4.4
)
 

Other

 
(2.7
)
Cash flows from financing activities
(29.4
)
 
(273.6
)
Cash flows from discontinued operations
 
 
 
Cash flows from operating activities
(0.7
)
 
1.1

Cash flows from investing activities

 

Cash flows from financing activities

 

Net cash from discontinued operations
(0.7
)
 
1.1

Net increase/(decrease) in cash and cash equivalents
(287.8
)
 
338.0

Change in cash classified as assets held for sale

 
(0.1
)
Cash and cash equivalents, beginning of period
2,771.2

 
1,757.5

Cash and cash equivalents, end of period
$
2,483.4

 
$
2,095.4

 
 
 
 
 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Cash paid for interest
$
419.6

 
$
343.8

Cash paid for income taxes
12.4

 
7.7

Non-cash investing and financing activities:
 
 
 
  Change in accrued capital expenditures
53.7

 
5.8

See accompanying Notes to Consolidated Condensed Financial Statements.

8


CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

In these footnotes, the words “Company,” “Caesars,”“Caesars Entertainment,” “CEC,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, a Delaware corporation, and its subsidiaries, unless otherwise stated or the context requires otherwise.
Note 1 Organization and Basis of Presentation
Organization
We conduct business through our wholly owned subsidiaries, Caesars Entertainment Operating Company, Inc. ("CEOC") and Caesars Entertainment Resort Properties ("CERP"), and their subsidiaries. We also consolidate Caesars Growth Partners, LLC ("CGP LLC"), which is a variable interest entity ("VIE") for which we have determined that we are the primary beneficiary (see Note 4 , " Caesars Growth Partners "). As of March 31, 2014 , we owned and operated or managed, through various subsidiaries and CGP LLC, 51 casinos in 13 U.S. states and 5 countries. Of the 51 casinos, 39 are 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 England.
Caesars Interactive Entertainment, Inc. ("CIE"), a majority owned subsidiary of CGP LLC, operates an online gaming business providing for certain real money games in Nevada, New Jersey, and the United Kingdom; "play for fun" offerings in other jurisdictions; and social games on Facebook and other social media websites and mobile application platforms, such as Slotomania. CIE also owns the WSOP tournaments and brand, and licenses trademarks for a variety of products and businesses related to this brand.
We view each casino property as an operating segment and aggregate such casino properties into one reportable segment.
Liquidity Considerations
We are a highly leveraged company and a significant amount of our liquidity needs are for debt service, including significant interest payments. As of March 31, 2014 , we had $23,583.7 million face value of outstanding indebtedness and our current debt service obligation for the remaining nine months of 2014 is $1,981.6 million , consisting of $187.7 million in principal maturities and $1,793.9 million in required interest payments. Our debt service obligation for 2015 is $3,254.6 million , consisting of $1,210.7 million in principal maturities and $2,043.9 million in required interest payments.
Following the U.S. recession of late 2007 through 2009, we have observed that gaming activity has remained well below the pre-recession levels. In addition, new competition in certain regional markets has negatively affected “same store” volumes, while overall slot volume trends continue to weaken in most markets. These factors have negatively affected our results of operations, and may continue to negatively affect our results of operations in the future. During periods of economic weakness and in the face of continued weak consumer spending on gaming, our revenues may decrease while many of our costs remain fixed and some costs even increase, resulting in decreased earnings. As a result, we have experienced substantial net losses since 2010, as well as operating losses in 2013, resulting in a net stockholders’ deficit of $3,502.2 million as of March 31, 2014 . Further, we expect to experience operating and net losses for the remainder of 2014 and the foreseeable future.
Our cash and cash equivalents, excluding restricted cash, totaled $2,483.4 million as of March 31, 2014 compared with $2,771.2 million as of December 31, 2013. Cash and cash equivalents as of March 31, 2014 , includes $972.6 million held by CGP LLC, which is not available for our use to fund operations or satisfy our obligations. We experienced negative operating cash flows of $93.8 million for the three months ended March 31, 2014 and $109.4 million for the year ended December 31, 2013, and we expect to experience negative operating cash flows for the remainder of 2014 and the foreseeable future.
In addition to cash flows from operations, available sources of cash include amounts available under CEOC's current revolving credit facility. As of March 31, 2014 , the facility provided for $106.1 million , of which $9.8 million remained as available borrowing capacity. In addition, the CERP revolving credit facility provided for $269.5 million , all of which remained as available borrowing capacity at March 31, 2014 .
As described more fully in Note 5 , " Property Transaction with CGP LLC and Related Financing ," in the first quarter of 2014 we announced that CGP LLC will acquire certain assets from CEOC for $2,000.0 million in cash, minus assumed debt and closing adjustments. The net cash proceeds impact the calculation of the senior secured leverage ratio ("SSLR") covenant on a pro forma

9

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

basis in the three months ended March 31, 2014 as the SSLR calculations give effect to the cash to be received and the reduction to LTM Adjusted EBITDA - Pro Forma - CEOC Restricted for the properties sold. In addition, the SSLR calculation going forward will be impacted to the extent the proceeds reduce first lien debt or increase CEOC cash.
From time to time, depending upon market, pricing, and other conditions, and on our cash balances and liquidity, we may seek to acquire or exchange notes or other indebtedness of the Company’s subsidiaries through open market purchases, privately negotiated transactions, tender offers, redemption, exchange offers or otherwise, upon such terms and at such prices as we may determine (or as may be provided for in the indentures governing the notes), for cash or other consideration, including our common stock. In addition, we have considered and will continue to evaluate potential transactions to reduce net debt, such as debt for debt exchanges, debt for equity exchanges and other transactions.
We do not expect that our cash flow from operations will be sufficient to repay our indebtedness in the long-term and we will have to ultimately seek a restructuring, amendment or refinancing of our debt, or if necessary, pursue additional debt or equity offerings.
Our ability to refinance or restructure our debt, or to issue additional debt or equity, will depend upon, among other things:
The condition of the capital markets at the time, which is beyond our control,
Our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and
Our continued compliance with the terms and covenants in our credit facilities, indentures and loan agreements that govern our debt.
Under CEOC's Credit Facilities, we are required to satisfy and maintain specified financial ratios. Specifically, our credit facilities require CEOC to maintain an SSLR of no more than 4.75 to 1.0, which is the ratio of CEOC's senior first priority secured debt to LTM Adjusted EBITDA - Pro Forma - CEOC Restricted. This ratio excludes up to $3,700.0 million of CEOC first priority senior secured notes and up to $350.0 million aggregate principal amount of consolidated debt of subsidiaries that are not wholly-owned. This ratio also reduces the amount of senior first priority secured debt by the amount of unrestricted CEOC cash on hand, which was $2,937.3 million as of March 31, 2014 after giving effect to the first and second closings of the transaction described in Note 5 , " Property Transaction with CGP LLC and Related Financing ." As of March 31, 2014 , the CEOC SSLR was 3.73 to 1.0, after giving effect to the first and second closings of the transaction described in Note 5 , " Property Transaction with CGP LLC and Related Financing ." The first closing was completed on May 5, 2014, and included proceeds to CEOC of $1,340.0 million , minus assumed debt and other closing adjustments, for the sale of the Nevada Properties (as defined herein).
While we were in compliance with the terms and conditions of all of our loan agreements, including CEOC’s Credit Facilities and indentures as of March 31, 2014 , in order to comply with the quarterly SSLR covenant under the CEOC Credit Facility in the future, we will need to achieve a certain amount of LTM Adjusted EBITDA - Pro-Forma - CEOC Restricted and/or reduced levels of total senior secured net debt (total senior secured debt less unrestricted cash). The factors that could impact the foregoing include (a) changes in gaming trips, spend per trip and hotel metrics, which we believe are correlated to consumer spending and confidence generally and spending by consumers for gaming and other entertainment activities, (b) our ability to effect cost savings initiatives, (c) our ability to complete asset sales, including the transaction described more fully in Note 5, (d) issuing additional second lien or unsecured debt, or project financing, (e) reducing net debt through open market purchases, privately negotiated transactions, redemptions, tender offers or exchanges, (f) equity issuances, (g) reductions in capital expenditures spending, or (h) a combination thereof.
In addition, under certain circumstances, the CEOC Credit Facilities allow us to apply cash contributions received by CEOC from CEC as an increase to LTM Adjusted EBITDA - Pro Forma - CEOC Restricted, if CEOC is unable to meet its SSLR, in order to cure any breach.
Based upon our current operating forecast, the expected closing of the CEOC-CGP LLC Property Transaction described above and in Note 5, " Property Transaction with CGP LLC and Related Financing ", and our ability to achieve one or more of the other factors noted above, including our ability to cure a breach of the SSLR, in certain circumstances, with cash contributions from CEC, we believe that we will have sufficient liquidity to fund our operations and meet our debt service obligations and that we will continue to be in compliance with the CEOC SSLR during the next twelve months.

10

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

See Note 8 , " Debt ," for details on our debt outstanding and restrictive covenants related to certain of our borrowings. This detail includes, among other things, a table presenting details of our individual borrowings outstanding as of March 31, 2014 and December 31, 2013, as well as discussion of recent changes in our debt outstanding, and any changes in the terms of existing debt subsequent to December 31, 2013.
On May 6, 2014, we announced a number of material transactions that, if completed, are expected to have a material impact on our liquidity, debt covenants and compliance (by modifying the financial maintenance covenant to increase the leverage ratio level and excluding the new incremental term loans from the definition of "Senior Secured Leverage Ratio" for purposes of such covenant), debt maturities, parent guarantees of our securities, and the CEOC-CGP LLC Property Transaction (described in Note 5 ). These transactions include the following:
Amendment to the definitive agreement governing the CEOC-CGP LLC Property Transaction;
Incurrence by Caesars Growth Properties Holdings, LLC of $700.0 million of term loans to partially fund the first closing of the CEOC-CGP LLC Property Transaction;
Sale of CEOC common stock, triggering the automatic release of CEC guarantee of CEOC’s outstanding secured and unsecured notes;
Announcement of tender offers to reacquire all of our scheduled 2015 debt maturities; and
Certain bank transactions that would, if completed as expected, modify the existing covenants and other key terms included in the CEOC Credit Facilities.
For more information on the above-referenced transactions and the impact that these transactions would have if completed as expected, see Note 19 , " Subsequent Events ."
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of the Company have been prepared under the rules and regulations of the Securities and Exchange Commission ("SEC") applicable for interim periods and, therefore, do not include all information and footnotes necessary for complete financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"). The results for the interim periods reflect all adjustments (consisting primarily of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations, and cash flows. The results of operations for our interim periods are not necessarily indicative of the results of operations that may be achieved for the entire 2014 fiscal year.
The financial information for the three months ended March 31, 2013 is derived from our consolidated condensed financial statements and footnotes included in the Quarterly Report on Form 10-Q ("Form 10-Q") for the three months ended March 31, 2013 , and has been revised to reflect the results of operations and cash flows of the Golden Nugget casino as discontinued operations. See Note 3 , " Acquisitions, Investments, Dispositions and Divestitures ."
Certain prior period amounts have been reclassified to conform to the current period's presentation. This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 , (" 2013 10-K").
Note 2 Recently Issued Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (FASB) issued authoritative guidance amending existing requirements for reporting discontinued operations. Under the new guidance, discontinued operations reporting will be limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. Public entities will apply the amended guidance prospectively to all disposals occurring within annual periods beginning on or after December 15, 2014, and interim periods within those years. We will adopt this standard effective January 1, 2015. Due to the change in requirements for reporting discontinued operations described above, presentation and disclosures of future disposal transactions after adoption may be different than under current standards.

11

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Note 3 Acquisitions, Investments, Dispositions and Divestitures
Acquisitions and Investments
In January 2014, we acquired the land and non-gaming assets of the Atlantic Club in Atlantic City, New Jersey for $15.0 million , which was included in land within Property and Equipment, net at March 31, 2014. See Note 6 , " Property and Equipment, net ." We are actively pursuing a sale of these assets.
Dispositions and Divestitures
Harrah's Tunica, Mississippi
During the three months ended March 31, 2014 , we announced our plans to permanently close the Harrah’s Tunica casino. As a result of this decision, we determined an impairment analysis was necessary. We completed our impairment analysis and determined the fair value of the related assets under the market approach. As a result of this analysis, we recorded intangible and tangible asset impairment charges totaling $68.0 million during the three months ended March 31, 2014 .
Other Dispositions
Golden Nugget - During the three months ended March 31, 2014 , we permanently closed the Golden Nugget casino in London. As a result, we recorded charges of $1.7 million related to the impairment of intangible and tangible assets and $13.1 million related to accrued exit costs. We have presented the operations of the Golden Nugget casino as discontinued operations in the Consolidated Condensed Statements of Operations for the three months ended March 31, 2014 and 2013.
Claridge Hotel Tower - In October 2013 we entered into an agreement to sell the Claridge Hotel Tower, which was part of the Bally's Atlantic City asset group, for $12.5 million , plus customary closing adjustments. We received these proceeds in February 2014 upon the transaction closing. The Claridge Hotel Tower assets of $11.9 million were classified as assets held for sale as of December 31, 2013 .
Discontinued Operations
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Net revenues
 
 
 
Golden Nugget
$
1.3

 
$
2.1

 Harrah's St. Louis

 

Macau

 
1.0

Alea Leeds

 
0.7

           Total net revenues
$
1.3

 
$
3.8

 
 
 
 
Pre-tax income/(loss) from operations
 
 
 
Golden Nugget
$
(15.4
)
 
$
(1.0
)
 Harrah's St. Louis

 
(0.7
)
Macau

 
(20.7
)
Alea Leeds
(0.5
)
 
(22.4
)
           Total pre-tax income/(loss) from discontinued operations
$
(15.9
)
 
$
(44.8
)
 
 
 
 
Income/(loss), net of income taxes
 
 
 
Golden Nugget
$
(15.4
)
 
$
(1.0
)
 Harrah's St. Louis

 
(0.4
)
Macau

 
(18.2
)
Alea Leeds
(0.5
)
 
(22.4
)
           Total income/(loss) from discontinued operations, net of income taxes
$
(15.9
)
 
$
(42.0
)

12

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Note 4 Caesars Growth Partners
Consolidation as a Variable Interest Entity
We own 58% of the equity of CGP LLC and are also party to asset management and management services agreements between CGP LLC and CEOC that constitute variable interests in CGP LLC. Because the equity holders in CGP LLC receive returns disproportionate to their voting interests and substantially all the activities of CGP LLC are related to Caesars, CGP LLC has been determined to be a variable interest entity.
Because substantially all the activities of CGP LLC are related to Caesars and due to the factors set forth below, we have concluded that we are required to consolidate it under accounting rules. We have reached this conclusion based upon the weighting of a number of items, including the following: (i) the close association that CGP LLC has with Caesars, including the fact that all of the assets and businesses owned by CGP LLC were acquired from Caesars; (ii) Caesars through CEOC, has ongoing asset and management services agreements with each of the properties owned by CGP LLC; and (iii) Caesars has the obligation to absorb losses and the right to receive residual returns that could potentially be significant to CGP LLC. During the three months ended March 31, 2014 , CGP LLC generated net revenues of $226.3 million and net income attributable to Caesars related to CGP LLC was $0.7 million .
Contingently Issuable Non-Voting Membership Units
CGP LLC is obligated to issue additional non-voting membership units to Caesars Entertainment to the extent that the earnings from CIE's social and mobile games business exceed a specified threshold amount in 2015. The number of units to be received is capped at a value of $225.0 million divided by the value of the non-voting units at the date of the CGP LLC transaction.
CGP LLC maintains a liability equal to the fair value of the additional non-voting membership units contingently issuable to Caesars Entertainment during 2016 as described above. The contingently issuable membership units' fair value is based upon a multiple of EBITDA for the calendar year 2015 in excess of a specified minimum threshold and includes a maximum payout threshold. The fair value of the contingently issuable non-voting membership units was $382.6 million on the CGP LLC balance sheet as of March 31, 2014 . This liability is eliminated in our consolidation of CGP LLC.
Note 5 Property Transaction with CGP LLC and Related Financing
Property Transaction between CEOC and CGP LLC
As disclosed in greater detail in CEC's Current Report on Form 8-K filed on May 6, 2014 with the Securities and Exchange Commission, and in Note 19 , " Subsequent Events - Amendment to Transaction Agreement ," Caesars amended the agreement entered into on March 1, 2014, under which CGP LLC (or one or more of its designated direct or indirect subsidiaries) agreed to acquire from CEOC or one or more of its affiliates, the following (hereafter referred to as the " CEOC-CGP LLC Property Transaction "):
(i)
The subsidiaries of CEOC that own the assets comprising: The Cromwell, The Quad Resort & Casino, Bally’s Las Vegas (the “Nevada Properties”);
(ii)
The CEOC subsidiary that owns Harrah’s New Orleans. (Collectively, Harrah’s New Orleans and the Nevada Properties are referred to as the "Properties");
(iii)
50% of the ongoing management fees and any termination fees payable under property management agreements to be entered between a subsidiary of CEOC and the owners of each of the Properties; and
(iv)
Certain intellectual property that is specific to each of the Properties.
CGP LLC will pay CEOC $2,000.0 million , minus assumed debt for (i) through (iv) above. In addition, the final proceeds are subject to various pre-closing and post-closing adjustments in accordance with the terms of the agreements governing the CEOC-CGP LLC Property Transaction. Consistent with the 2013 sale of Planet Hollywood Las Vegas, this transaction will also be accounted for as a reorganization of entities under common control.
The CEOC-CGP LLC Property Transaction was fully negotiated by and between a Special Committee of CEC’s Board of Directors (the "CEC Special Committee") and a Special Committee of CAC’s Board of Directors (the "CAC Special Committee"), each comprised solely of independent directors, and was recommended by both committees and approved by the Boards of Directors of CEC and CAC.

13

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The terms of the CEOC-CGP LLC Property Transaction contain certain closing conditions, all of which have been met other than the receipt of gaming and other required governmental approvals from the Louisiana Gaming Control Board with respect to the transfer of the subsidiary of CEOC that owns Harrah’s New Orleans, which approval we are currently seeking. Because we have obtained all necessary conditions to closing with respect to the Nevada Properties, including the approval of the Nevada Gaming Control Board and the necessary financing for that transaction, we will complete the CEOC-CGP LLC Property Transaction via two closings, the first of which, the sale of the Nevada Properties, closed on May 5, 2014.
Under the terms of the agreements governing the CEOC-CGP LLC Property Transaction , upon closing, each property will be managed by CEOC. In addition, upon closing, each property will license enterprise-wide intellectual property from Caesars Licensing Company, LLC. The ongoing management fees payable to CEOC during the term of the related property management agreement consists of a (i) base management fee of 2% of monthly net operating revenues and (ii) an incentive management fee in an amount equal to 5% of EBITDA for each operating year.
In addition to the above, the agreements governing the CEOC-CGP LLC Property Transaction also provide that CEC and the sellers of the Properties will indemnify the acquirers of the Properties for certain obligations, including:
(i)
New construction and renovation of The Quad of at least $223.0 million ;
(ii)
CEOC's full funding of the remaining amounts required to construct and open The Cromwell;
(iii)
CEOC's provision of a minimum amount of House Funds in connection with the opening of The Cromwell;
(iv)
Other indemnifications amongst the parties to the agreements governing the CEOC-CGP LLC Property Transaction ;
(v)
The agreement to establish a new services joint venture (the "Services JV") between CEOC, CERP and CGP LLC and certain of their respective subsidiaries. The Services JV will include common management of enterprise-wide intellectual property, which will be licensed by the Services JV to each of the owners of the properties, and shared services operations across the portfolio of CEOC, CERP and CGP LLC properties; and
(vi)
The assignment of the related property management agreements from CEOC to the Services JV upon receipt of any required regulatory approvals. Services JV will thereafter manage the properties.
The CEOC-CGP LLC Property Transaction is subject to termination if the Closing is not completed by June 30, 2014, which date may be extended until August 31, 2014 in certain circumstances.
Related Financing Agreement
On April 17, 2014, subsidiaries of CGP LLC (the "Issuers") entered into a credit agreement providing for $1,325.0 million in senior secured credit facilities (a $1,175.0 million senior secured term facility and a $150.0 million senior secured revolving facility) and completed the offering of $675.0 million aggregate principal amount of their 9.375% second-priority senior secured notes due May 1, 2022 (the " CEOC-CGP LLC Property Transaction Notes "). As disclosed in greater detail in Note 19 , " Subsequent Events - The CEOC-CGP LLC Property Transaction Credit Agreement ," Caesars Growth Properties Holdings, LLC, an indirect subsidiary of CGP LLC, entered into a $700.0 million term facility that, along with CGP LLC cash on hand, funded the purchase price of the first closing for the Nevada Properties.
Escrow Agreement
Pursuant to an escrow agreement, dated April 17, 2014, the gross proceeds of the CEOC-CGP LLC Property Transaction Notes, together with additional amounts necessary to redeem the CEOC-CGP LLC Property Transaction Notes, were deposited into a segregated escrow account (the "Escrow Account") until the escrow conditions are satisfied. The escrow conditions include, among other things, the receipt of all required regulatory approvals, the consummation of the CEOC-CGP LLC Property Transaction and the contribution by CGP LLC of the entity that owns the assets comprising the Planet Hollywood Resort & Casino (the "CEOC-CGP LLC Transactions").
In the event that the escrow conditions are not satisfied on or prior to August 31, 2014, the Issuers will redeem the notes at a redemption price equal to the initial issue price of the notes, plus accrued and unpaid interest, if any, from the issue date up to, but not including, the payment date of such mandatory redemption.  The amount deposited into the Escrow Account will be used to pay for such mandatory redemption, if applicable.

14

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Indenture and 9.375% Second-Priority Senior Secured Notes due 2022
The Issuers will pay interest on the CEOC-CGP LLC Property Transaction Notes at 9.375% per annum, semi-annually to holders of record at the close of business on April 15 or October 15 immediately preceding the interest payment date on May 1 and November 1 of each year, commencing on November 1, 2014.
The Issuers may redeem the CEOC-CGP LLC Property Transaction Notes at their option, in whole or part, at any time prior to May 1, 2017, at a price equal to 100% of the principal amount of the CEOC-CGP LLC Property Transaction Notes redeemed plus accrued and unpaid interest to the redemption date and a “make-whole” premium. The Issuers may redeem the CEOC-CGP LLC Property Transaction Notes , in whole or in part, on or after May 1, 2017, at the redemption prices set forth in the indenture governing the CEOC-CGP LLC Property Transaction Notes (the "Indenture"). In addition, at any time and from time to time on or before May 1, 2017, the Issuers may choose to redeem in the aggregate up to 35% of the original aggregate principal amount of the CEOC-CGP LLC Property Transaction Notes (calculated after giving effect to the issuance of additional notes) at a redemption price equal to 109.375% of the principal amount thereof with the net proceeds of one or more equity offerings so long as at least 50% of the original aggregate principal amount of the CEOC-CGP LLC Property Transaction Notes (calculated after giving effect to any issuance of additional notes) remain outstanding after each such redemption.
The CEOC-CGP LLC Property Transaction Notes are senior secured obligations of the Issuers and rank equally and ratably in right of payment with all existing and future senior obligations and senior to all future subordinated indebtedness. Upon the release of funds from the Escrow Account, the CEOC-CGP LLC Property Transaction Notes will be guaranteed on a senior secured basis by subsidiaries of Caesars Growth Properties Holding, LLC (a CGP LLC subsidiary, and an Issuer) that are guarantors of a new senior secured credit facility to be entered into in connection with the CEOC-CGP LLC Transactions , and secured by a second-priority security interest, subject to permitted liens, in certain assets of the Issuers and such subsidiary guarantors. None of CGP LLC, CEC or CEOC will guarantee the CEOC-CGP LLC Property Transaction Notes .
The Indenture contains customary covenants that limit the Issuers’ (and their restricted subsidiaries’) ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting their restricted subsidiaries; (vi) create liens on certain assets to secure debt; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; (viii) enter into certain transactions with their affiliates; and (ix) designate their subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important limitations and exceptions outlined in the Indenture. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Property Transaction Notes to be immediately due and payable.
Upon closing of the transaction, the Issuers intend to pay all outstanding amounts under the senior secured term loan of PHWLV, LLC.
Registration Rights Agreement
In connection with the issuance of the CEOC-CGP LLC Property Transaction Notes , the Issuers agreed to use their commercially reasonable efforts to register with the Securities and Exchange Commission notes having substantially identical terms as the CEOC-CGP LLC Property Transaction Notes on or prior to 365 days after the issue date of the CEOC-CGP LLC Property Transaction Notes, and effect and exchange of the CEOC-CGP LLC Property Transaction Notes for the newly registered notes.
If the Issuers fail to meet the targets for the registration and exchange of notes, the annual interest rate on the CEOC-CGP LLC Property Transaction Notes will increase by 0.25%. The annual interest rate on the CEOC-CGP LLC Property Transaction Notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.0% per year. If the registration default is corrected, the interest rate of the CEOC-CGP LLC Property Transaction Notes will revert to the original level.

15

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Note 6 Property and Equipment, net
(In millions)
March 31, 2014
 
December 31, 2013
Land and land improvements
$
6,273.3

 
$
6,266.8

Buildings, riverboats, and improvements
6,610.0

 
6,668.1

Furniture, fixtures, and equipment
2,244.4

 
2,297.7

Construction in progress
1,099.4

 
824.6

 
16,227.1

 
16,057.2

Less: accumulated depreciation
(2,879.2
)
 
(2,819.3
)
 
$
13,347.9

 
$
13,237.9

Depreciation expense is included in depreciation and amortization, corporate expense, and income from discontinued operations, and was as follows:
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Depreciation expense
$
129.0

 
$
163.5

Tangible Asset Impairments
Tunica, Mississippi
During the three months ended March 31, 2014 , due to our announced plans to permanently close the Harrah’s Tunica casino, we recorded tangible asset impairment charges of $66.8 million .
Note 7 Goodwill and Other Intangible Assets
Changes in Carrying Value of Goodwill and other Intangible Assets
 
Amortizing Intangible Assets
 
Non-Amortizing Intangible Assets
(In millions)
 
Goodwill
 
Other
Balance as of January 1
$
730.0

 
$
3,063.3

 
$
2,757.7

Additions
49.9

 
13.8

 

Impairments
(1.6
)
 

 
(29.3
)
Amortization
(33.0
)
 

 

Disposals

 

 

Other
(7.8
)
 
0.3

 
(3.9
)
Balance as of March 31
$
737.5

 
$
3,077.4

 
$
2,724.5

During the three months ended March 31, 2014 , as a result of a reduction in our changes in financial projections, we recorded impairment charges of $30.9 million primarily related to certain gaming rights classified as non-amortizing intangible assets. During the three months ended March 31, 2013 , we recorded impairment charges of $20.0 million related to certain gaming rights.
We determine the estimated fair values of our non-amortizing intangible assets by primarily using the Relief from Royalty Method and Excess Earnings Method under the income approach.

16

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Gross Carrying Value and Accumulated Amortization of Intangible Assets Other Than Goodwill
 
March 31, 2014
 
December 31, 2013
(Dollars in millions)
Weighted
Average
Remaining
Useful Life
(in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortizing intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
5.9
 
$
1,265.6

 
$
(667.3
)
 
$
598.3

 
$
1,268.1

 
$
(645.5
)
 
$
622.6

Contract rights
3.6
 
85.7

 
(80.1
)
 
5.6

 
97.6

 
(79.4
)
 
18.2

Developed technology
2.6
 
188.2

 
(83.8
)
 
104.4

 
138.3

 
(76.5
)
 
61.8

Gaming rights
10.5
 
42.8

 
(16.1
)
 
26.7

 
42.8

 
(15.4
)
 
27.4

     Trademarks
0.8
 
3.8

 
(1.3
)
 
2.5

 

 

 

 
 
 
$
1,586.1

 
$
(848.6
)
 
737.5

 
$
1,546.8

 
$
(816.8
)
 
730.0

Non-amortizing intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Gaming rights
 
 
 
 
 
 
1,130.8

 
 
 
 
 
1,159.5

Trademarks
 
 
 
 
 
 
1,593.7

 
 
 
 
 
1,598.2

 
 
 
 
 
 
 
2,724.5

 
 
 
 
 
2,757.7

Total intangible assets other than goodwill
 
 
 
 
 
$
3,462.0

 
 
 
 
 
$
3,487.7


17

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Note 8 Debt
The following table presents our outstanding debt from a consolidated viewpoint. Accordingly, debt owed between consolidated entities is not considered outstanding, and therefore, is not presented in the table below. See footnotes 4 and 7 to this table for greater detail.
Detail of Debt (Dollars in millions)
 
Final
Maturity
 
Rate(s)
 
Face Value
 
Book Value
 
Book Value
 
 
 
 
March 31, 2014
 
December 31, 2013
CEOC Debt
 
 
 
 
 
 
 
 
 
 
Credit Facilities (1)
 
 
 
 
 
 
 
 
 
 
Term Loans B1 - B3
 
2015
 
3.23% - 3.24%
 
$
29.0

 
$
29.0

 
$
29.0

Term Loan B4
 
2016
 
9.50%
 
957.3

 
946.3

 
948.1

Term Loan B5
 
2018
 
4.49%
 
991.9

 
989.5

 
989.3

Term Loan B6 (5)
 
2018
 
5.49%
 
2,431.9

 
2,401.7

 
2,399.9

Secured Debt
 
 
 
 
 
 
 
 
 
 
Senior Secured Notes (1)
 
2017
 
11.25%
 
2,095.0

 
2,068.0

 
2,066.4

Senior Secured Notes (1)
 
2020
 
8.50%
 
1,250.0

 
1,250.0

 
1,250.0

Senior Secured Notes (1)
 
2020
 
9.00%
 
3,000.0

 
2,955.9

 
2,954.5

Second-Priority Senior Secured Notes (1)
 
2018
 
12.75%
 
750.0

 
744.2

 
743.9

Second-Priority Senior Secured Notes (1)
 
2018
 
10.00%
 
4,528.1

 
2,484.6

 
2,433.2

Second-Priority Senior Secured Notes (1)
 
2015
 
10.00%
 
214.8

 
191.1

 
187.7

Chester Downs Senior Secured Notes
 
2020
 
9.25%
 
330.0

 
330.0

 
330.0

Bill's Gamblin' Hall & Saloon ("Bill's") Credit Facility (6)
 
2019
 
11.00%
 
185.0

 
179.9

 
179.8

Capitalized Lease Obligations
 
to 2017
 
various
 
22.2

 
22.2

 
16.7

Subsidiary-Guaranteed Debt (2)
 
 
 
 
 
 
 
 
 
 
Senior Notes
 
2016
 
10.75%
 
478.6

 
478.6

 
478.6

Senior PIK Toggle Notes
 
2018
 
10.75%/11.50%
 
11.5

 
11.5

 
10.9

Unsecured Senior Debt (1)
 
 
 
 
 
 
 
 
 
 
5.625%
 
2015
 
5.625%
 
364.4

 
334.2

 
328.3

6.5%
 
2016
 
6.50%
 
248.7

 
215.8

 
212.6

5.75%
 
2017
 
5.75%
 
147.9

 
116.7

 
115.0

Floating Rate Contingent Convertible
Senior Notes
 
2024
 
0.25%
 
0.2

 
0.2

 
0.2

Other Unsecured Borrowings
 
 
 
 
 
 
 
 
 
 
Special Improvement District Bonds
 
2037
 
5.30%
 
62.9

 
62.9

 
62.9

Other
 
2016
 
0.00% - 6.00%
 
43.4

 
43.4

 
45.9

Total CEOC Debt (4)
 
 
 
 
 
18,142.8

 
15,855.7

 
15,782.9

 
 
 
 
 
 
 
 
 
 
 
CERP Debt
 
 
 
 
 
 
 
 
 
 
Secured Debt
 
 
 
 
 
 
 
 
 
 
     CERP Senior Secured Loan (3)
 
2020
 
7.00%
 
2,493.8

 
2,445.0

 
2,449.7

     CERP First Lien Notes (3)
 
2020
 
8.00%
 
1,000.0

 
993.9

 
993.7

     CERP Second Lien Notes (3)
 
2021
 
11.00%
 
1,150.0

 
1,141.0

 
1,140.8

     Capitalized Lease Obligations
 
to 2017
 
various
 
13.7

 
13.7

 
5.4

Other Unsecured Borrowings
 
 
 
 
 
 
 
 
 
 
     Other
 
2016
 
0.00% - 6.00%
 
20.0

 
20.0

 
21.3

Total CERP Debt
 
 
 
 
 
4,677.5

 
4,613.6

 
4,610.9

 
 
 
 
 
 
 
 
 
 
 

18

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

CGP LLC Debt   (7)
 
 
 
 
 
 
 
 
 
 
Secured Debt
 
 
 
 
 
 
 
 
 
 
PHW Las Vegas Senior Secured Loan
 
2015
 
3.01%
 
485.1

 
454.1

 
456.1

Baltimore Credit Facility
 
2020
 
8.25%
 
225.0

 
214.8

 
214.5

Capitalized Lease Obligations
 
to 2017
 
various
 
0.1

 
0.1

 
0.1

Other Unsecured Borrowing
 
 
 
 
 
 
 
 
 
 
Other
 
2014 - 2018
 
various
 
51.1

 
51.1

 
51.0

Total CGP LLC Debt
 
 
 
 
 
761.3

 
720.1

 
721.7

 
 
 
 
 
 
 
 
 
 
 
Caesars Entertainment Other Unsecured Borrowing
 
2014
 
2.99%
 
2.1

 
2.1

 

 
 
 
 
 
 
 
 
 
 
 
Total Debt
 
 
 
 
 
23,583.7

 
21,191.5

 
21,115.5

Current Portion of Long-Term Debt
 
 
 
 
 
(197.2
)
 
(197.2
)
 
(197.1
)
Long-Term Debt
 
 
 
 
 
$
23,386.5

 
$
20,994.3

 
$
20,918.4

___________________
(1)
Guaranteed by Caesars Entertainment.
(2)  
Guaranteed by Caesars Entertainment and certain wholly owned subsidiaries of CEOC.
(3)  
Guaranteed by Caesars Entertainment Resort Properties and its subsidiaries.
(4)  
$1,146.8 million face value of debt issued by CEOC is held by other consolidated entities, substantially all of which is held by CGP LLC. Accordingly, such debt is not considered outstanding in the above presentation.
(5)  
The Term B-6 Loans have a springing maturity to April 14, 2017 if more than $250.0 million of CEOC's 11.25% senior secured notes due 2017 remain outstanding on April 14, 2017.
(6)  
During the three months ended March 31, 2014, the Company announced the agreement to sell the property to CGP LLC. As part of this transaction, CGP LLC will assume this debt. See Note 5, " Property Transaction with CGP LLC and Related Financing ".
(7)  
As of March 31, 2014 and December 31, 2013 , under the CGP LLC structure, CIE has $39.8 million drawn under a revolver arrangement with Caesars Entertainment. Accordingly, such debt is eliminated in consolidation.
As of March 31, 2014 and December 31, 2013 , book values of debt are presented net of unamortized discounts of $2,392.2 million and $2,473.8 million , respectively.
As of March 31, 2014 , the Company’s outstanding debt had a fair value of $19,840.7 million and had a carrying value of $21,191.5 million . The fair value of the debt has been calculated based on the borrowing rates available as of March 31, 2014 , for debt with similar terms and maturities, and based on market quotes of our publicly traded debt. The fair value of our debt is classified within level 1 and level 2 in the fair value hierarchy.
Current Portion of Long-Term Debt
The current portion of long-term debt as of March 31, 2014 primarily includes $29.0 million of CEOC senior secured term loans maturing on January 28, 2015, $18.6 million of CEOC required interim principal payments on senior secured term loans, $43.5 million of CEOC 10.0% second-priority senior secured notes due 2018, $31.6 million of CEOC 10.0% second-priority senior secured notes due 2015, and $25.0 million of CERP senior secured loan. The current portion of long-term debt also includes required interim principal payments on the special improvement district bonds, other unsecured borrowings and capitalized lease obligations.
The current portion of long-term debt as of December 31, 2013 included required principal payments of $43.5 million of CEOC 10.0% second-priority senior secured notes due 2018, $31.6 million of CEOC 10.0% second-priority senior secured notes due 2015, $25.0 million of CERP senior secured loan, and CIE non-interest bearing convertible promissory notes totaling $47.7 million , under the CGP LLC structure.
CEOC Debt
CEOC Credit Facilities Activity
As of March 31, 2014 , CEOC's Credit Facilities provide for senior secured financing of up to $4,516.2 million , consisting of (i) senior secured term loan facilities in an aggregate principal amount of $4,410.1 million and (ii) a senior secured revolving credit facility in an aggregate principal amount of up to $106.1 million maturing on January 28, 2017, including both a letter of credit

19

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

sub-facility and a swingline loan sub-facility. The term loans under the Credit Facilities currently require scheduled quarterly payments of $2.5 million , with the balance due at maturity. As of March 31, 2014 , the senior secured term loans are comprised of $29.0 million maturing on January 28, 2015, $957.3 million  maturing on October 31, 2016, and $3,423.8 million maturing on January 28, 2018. As of March 31, 2014 $96.3 million of the revolving credit facility is committed to outstanding letters of credit. After consideration of the letter of credit commitments, $9.8 million of additional borrowing capacity was available to the Company under its revolving credit facility as of March 31, 2014 .
CEOC Notes Activity
Our Senior Secured Notes, including the Second-Priority Senior Secured Notes, and our unsecured debt, which is fixed-rate debt, have semi-annual interest payments.
Restrictive Covenants and Other Matters
Under CEOC's Credit Facilities, we are required to satisfy and maintain specified financial ratios. Failure to comply with these covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions, or cause an event of default. Specifically, the CEOC Credit Facilities require CEOC to maintain an SSLR of no more than 4.75 to 1.0, which is the ratio of CEOC's senior first priority secured debt to last twelve months ("LTM") Adjusted EBITDA - Pro Forma - CEOC Restricted. This ratio excludes up to $3,700.0 million of first priority senior secured notes and up to $350.0 million aggregate principal amount of consolidated debt of subsidiaries that are not wholly owned. This ratio also reduces the amount of senior first priority secured debt by the amount of unrestricted CEOC cash on hand which was $2,937.3 million as of March 31, 2014 , after giving effect to the transaction described in Note 5 , " Property Transaction with CGP LLC and Related Financing ". We recently announced tender offers for our 2015 debt maturities and certain anticipated bank transactions, that, if completed would allow us to refinance all of our existing indebtedness that matures in 2015. See Note 19 , " Subsequent Events - Announced Tender Offers " and " Subsequent Events - Bank Transactions ," for more information on the impact recent events may have on debt covenants, liquidity and debt maturities.
As described more fully in Note 5 , " Property Transaction with CGP LLC and Related Financing ", we announced in the first quarter of 2014 that CGP LLC will acquire certain assets from CEOC for $2,000.0 million in cash, minus assumed debt and closing adjustments. The net cash proceeds impact the calculation of the senior secured leverage ratio ("SSLR") covenant on a pro forma basis in the quarter ended March 31, 2014 (see Note 19 , " Subsequent Events - Amendment to Transaction Agreement ") as the SSLR calculations give effect to the cash to be received and the reduction to LTM Adjusted EBITDA - Pro Forma - CEOC Restricted for the properties sold. In addition, the SSLR calculation going forward will be impacted to the extent the proceeds reduce first lien debt or increase CEOC cash. After giving effect to both the first and second closing of this transaction, as of March 31, 2014 , CEOC's SSLR was 3.73 to 1.0. The first closing was completed on May 5, 2014 and included proceeds to CEOC of $1,340.0 million , minus assumed debt and other closing adjustments, for the sale of the Nevada Properties (as defined herein).
The CEOC Credit Facilities require compliance on a quarterly basis with a maximum net senior secured first lien debt leverage test. In addition, the CEOC Credit Facilities include negative covenants, subject to certain exceptions, restricting or limiting CEOC’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional debt; (ii) create liens on certain assets; (iii) enter into sale and lease-back transactions; (iv) make certain investments, loans, and advances; (v) consolidate, merge, sell, or otherwise dispose of all or any part of its assets or to purchase, lease, or otherwise acquire all or any substantial part of assets of any other person; (vi) pay dividends or make distributions or make other restricted payments; (vii) enter into certain transactions with its affiliates; (viii) engage in any business other than the business activity conducted at the closing date of the loan or business activities incidental or related thereto; (ix) amend or modify the articles or certificate of incorporation, by-laws, and certain agreements or make certain payments or modifications of indebtedness; and (x) designate or permit the designation of any indebtedness as "Designated Senior Debt."
While we were in compliance with the terms and conditions of all of our loan agreements, including CEOC’s Credit Facilities and indentures, as of March 31, 2014 , in order to comply with the quarterly SSLR covenant under the CEOC Credit Facility in the future, we will need to achieve a certain amount of LTM Adjusted EBITDA - Pro-Forma - CEOC Restricted and/or reduced levels of total senior secured net debt (total senior secured debt less unrestricted cash). The factors that could impact the foregoing include (a) changes in gaming trips, spend per trip and hotel metrics, which we believe are correlated to consumer spending and confidence generally and spending by consumers for gaming and other entertainment activities, (b) our ability to effect cost savings initiatives, (c) asset sales, (d) issuing additional secured or unsecured debt, or project financing, (e) reducing net debt through open market purchases, privately negotiated transactions, redemptions, tender offers or exchanges, (f) equity issuances, (g) reductions in capital expenditures spending, or (h) a combination thereof.

20

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Caesars Entertainment is not bound by any financial or negative covenants contained in CEOC’s credit agreement, other than with respect to the incurrence of liens on and the pledge of its stock of CEOC.
CERP Debt
CERP Financing
On October 11, 2013, we formed CERP from the prior CMBS financing structure assets plus the addition of the LINQ and Octavius Tower at Caesars Palace ("Octavius Tower") acquired from CEOC, and (i) completed the offering of $1,000.0 million aggregate principal amount of their 8.0% first-priority senior secured notes due 2020 and $1,150.0 million aggregate principal amount of their 11.0% second-priority senior secured notes due 2021 (together with the 8.0% first-priority senior secured notes due 2020, the "CERP Notes") and (ii) entered into a first lien credit agreement governing their new $2,769.5 million senior secured credit facilities, consisting of senior secured term loans in an aggregate principal amount of $2,500.0 million (the "CERP Term Loans") and a senior secured revolving credit facility in an aggregate principal amount of up to $269.5 million . We refer to this new borrowing structure as CERP and the refinancing transaction as "CERP Financing". The CERP Term Loans require scheduled quarterly payments of $6.3 million , with the balance due at maturity.
CERP Restrictive Covenants
The CERP Notes includes negative covenants, subject to certain exceptions, restricting or limiting the ability of CERP and operating companies under the CERP Financing to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create liens on certain assets to secure debt; (vi) consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; (vii) enter into certain transactions with their affiliates; and (viii) designate their subsidiaries as unrestricted subsidiaries.
The CERP Term Loans contain certain customary affirmative covenants. In addition to such affirmative covenants, the agreement also contains negative covenants, subject to certain exceptions, that restrict or limit the ability of CERP to, among other things: (i) incur additional debt; (ii) create liens on certain assets; (iii) enter into certain sale and leaseback transactions; (iv) make certain investments; (v) consolidate, merge, sell, or otherwise dispose of all or substantially all of their assets; (vi) pay dividends on or make distributions in respect of their capital stock or make other restricted payments; and (vii) enter into certain transactions with affiliates. This agreement requires CERP to maintain a senior secured leverage ratio of no more than 8.0 to 1.0, which is the ratio of first lien senior secured net debt to earnings before interest, taxes, depreciation and amortization, adjusted as defined ("CERP Adjusted EBITDA"), for a test period. As of March 31, 2014 , CERP's SSLR was 5.44 to 1.0.
CGP LLC Debt
PHW Las Vegas, LLC Senior Secured Loan
All amounts then outstanding under the senior secured term loan of PHWLV, LLC are expected to be repaid in full as part of the transaction described in Note 5 , " Property Transaction with CGP LLC and Related Financing ."
CIE Convertible Notes
During 2012, CIE issued to Rock Gaming two non-interest bearing convertible promissory notes totaling $47.7 million . The promissory notes are convertible into approximately 8,913 shares of CIE common stock. The notes are due June 2014.
Note 9 Derivative Instruments
Derivative Instruments – Interest Rate Swap Agreements
We use interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. As of March 31, 2014 , we had eight interest rate swap agreements outstanding with notional amounts totaling $5,750.0 million that were not designated as accounting hedges. These interest rate swaps reset monthly or quarterly and expire on January 25, 2015. The difference to be paid or received under the terms of the interest rate swap agreements is accrued as interest rates change and recognized as an adjustment to interest expense for the related debt. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows. Changes in the fair value of the swap agreements are recognized in interest expense.

21

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Derivative Instruments – Interest Rate Cap Agreements
We have an interest rate cap agreement to partially hedge the risk of future increases in the variable rate of the CERP Financing. In February 2013, we entered into an interest rate cap agreement with $4,664.1 million notional amount at a LIBOR cap rate of 4.5% and which terminates February 13, 2015. This is not designated as a hedge for accounting purposes and as a result, changes in fair value of the interest rate cap are recognized in interest expense.
We have an interest rate cap agreement to partially hedge the risk of future increases in the variable rate of the PHW Las Vegas senior secured loan. The interest rate cap agreement is for a notional amount of $501.4 million at a LIBOR cap rate of 7.0% . Changes in fair value of the interest rate cap are recognized in interest expense.
Derivative Instruments – Impact on Consolidated Condensed Financial Statements
None of our derivative instruments are offset, and the fair values of assets and liabilities are recognized in the Consolidated Condensed Balance Sheets. As of March 31, 2014 and December 31, 2013 , none of our derivative instruments were designated as accounting hedges.
Fair Value of Derivative Instruments
(In millions)
 
 
 
Asset Derivatives
 
Liability Derivatives
  
 
 
 
Fair Value
 
Fair Value
Derivatives instruments
 
Balance Sheet
Location
 
March 31, 2014
 
December 31, 2013
 
March 31, 2014
 
December 31, 2013
Interest rate swaps
 
Accrued expenses and other current liabilities
 
$

 
$

 
$
(130.8
)
 
$

Interest rate swaps
 
Deferred credits and other
 

 

 

 
(165.9
)
Interest rate caps
 
Deferred charges and other
 
*

 
*

 

 

Total
 
 
 
$

 
$

 
$
(130.8
)
 
$
(165.9
)
___________________ 
*
Amount rounds to zero.
Effect of Derivative Instruments on Net Loss and Comprehensive Loss
(In millions)
 
 
Three Months Ended
March 31,
Derivatives designated as hedging instruments
 
Location of Loss Recognized in Net Loss
2014
 
2013
Amount of loss reclassified from AOCL into net loss (effective portion)
 
Interest expense
$

 
$
3.9

Effect of Non-designated Derivative Instruments on Net Loss
(In millions)
 
 
Three Months Ended
March 31,
Derivatives not designated as hedging instruments
 
Location of Loss Recognized in Net Loss
2014
 
2013
Net periodic cash settlements and accrued interest (1)
 
Interest expense
$
43.4

 
$
42.2

Total expense related to derivatives
 
Interest expense
8.4

 
21.2


(1)  
The derivative settlements under the terms of the interest rate swap agreements are recognized as interest expense and are paid monthly or quarterly.
Note 10 Stockholders' Equity and Loss Per Share
Common Stock
In March 2012, the Company filed a registration statement with the SEC, to sell shares of common stock, up to a maximum aggregate offering price of $500.0 million . In April 2012, the Company entered into an equity distribution agreement with Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC whereby the Company may issue and sell up to 10.0 million shares of the Company's common stock from time to time. There were no shares issued during the three months ended March 31, 2014 and 2013. As of March 31, 2014 , a total of 1,070,493 shares had been issued for total proceeds of $15.6 million .

22

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Pursuant to an underwriting agreement entered into on March 27, 2014, between Caesars and Citigroup Global Markets Inc., Caesars sold 7.0 million shares of the Company's common stock, at a price of $19.40 per share for total proceeds of $135.8 million (before expenses). The offering closed on April 2, 2014.
Noncontrolling Interests
In February 2014, CGP LLC's joint venture, CR Baltimore Holdings ("CRBH"), sold a portion of its interest in CBAC Gaming, LLC, the entity which owns a majority of the interests in the Horseshoe Baltimore joint venture to Caves Valley Partners, an existing joint venture partner. CGP LLC received $12.8 million of the proceeds from the sale. The sale reduced CRBH's ownership from 51.8% to 41.4% .
Earnings/(Loss) Per Share
Basic loss per share from continuing operations and discontinued operations is calculated by dividing loss from continuing operations and loss from discontinued operations, respectively, net of income taxes, by the weighted-average number of common shares outstanding for each period. Because the Company generated net losses for the three months ended March 31, 2014 and 2013 , the weighted-average basic shares outstanding was used in calculating diluted loss per share from continuing operations, and diluted loss per share from discontinued operations, as using diluted shares would be anti-dilutive to loss per share.
The following table shows the number of shares which were excluded from the computation of diluted loss per share as they were anti-dilutive:
 
 
Three Months Ended March 31,
(In millions)
 
2014
 
2013
Stock options
 
4.5

 
2.4

Restricted stock units
 
1.4

 

Warrants
 
0.4

 
0.4

Total anti-dilutive potential common shares
 
6.3

 
2.8

Reclassifications out of Accumulated Other Comprehensive Loss
We reclassified immaterial amounts from AOCL into operating expense during the three months ended March 31, 2014 . During the three months ended March 31, 2013, we reclassified $4.1 million from AOCL to expense within write-downs, reserves, and project opening costs, net of recoveries and $2.2 million from AOCL to loss/(income) from discontinued operations. In addition, we reclassified $2.5 million from AOCL as an increase to interest expense.

23

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Note 11 Casino Promotional Allowances
The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as casino promotional allowances. The estimated retail value of such casino promotional allowances is included in casino expenses.
Estimated Retail Value of Casino Promotional Allowances
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Food and Beverage
$
164.8

 
$
159.4

Rooms
109.9

 
110.6

Other
23.9

 
23.6

 
$
298.6

 
$
293.6

Estimated Cost of Providing Casino Promotional Allowances
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Food and Beverage
$
121.8

 
$
113.2

Rooms
44.5

 
44.2

Other
13.8

 
12.3

 
$
180.1

 
$
169.7

Note 12 Write-downs, Reserves, and Project Opening Costs, net of Recoveries
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Remediation costs
$
3.9

 
$
12.1

Divestitures and abandonments
8.5

 
1.8

Project opening costs
13.2

 
1.7

Other
(1.6
)
 
5.1

Total write-downs, reserves, and project opening costs, net of recoveries
$
24.0

 
$
20.7

Write-downs, reserves, and project opening costs, net of recoveries include project opening costs and various pre-tax charges to record contingent liability reserves, costs associated with efficiency projects, project write-offs, demolition costs, and other non-routine transactions, net of recoveries of previously recorded non-routine reserves.
Remediation costs primarily relate to projects at certain of our Las Vegas properties.
Divestitures and abandonments include losses on divested or abandoned assets, demolition costs and costs associated with various projects that are determined to no longer be viable. Costs incurred during the three months ended March 31, 2014 primarily relate to lease exit costs.
Project opening costs represents costs associated exclusively with opening a new property or project.
Other includes contingent liability reserves and other recoveries.

24

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Note 13 Income Taxes
Income Tax Allocation
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Income tax benefit/(provision) applicable to:
 
 
 
Loss from continuing operations, before income taxes
$
154.5

 
$
290.2

Discontinued operations

 
2.8

Accumulated other comprehensive loss
(0.1
)
 
(1.5
)
We classify reserves for tax uncertainties within accrued expenses and deferred credits and other in our Consolidated Condensed Balance Sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions and potential interest or penalties associated with those liabilities.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Due to recent impairments and ongoing losses from continuing operations, we project that future reversals of taxable temporary differences are no longer sufficient to provide adequate taxable income to realize our deferred tax assets. As such, we have established a valuation allowance against the federal deferred tax assets that are not projected to be realizable.
The effective tax rate for the three months ended March 31, 2014 and 2013 was 29.6% and 62.4% , respectively. The effective tax rate benefit in the first quarter of 2014 was unfavorably impacted by an increase in the federal valuation allowance against 2014 losses from continuing operations which were not tax benefitted, partially offset by a tax benefit from the reversal of uncertain state tax positions.  The effective tax rate benefit in the first quarter of 2013 was favorably impacted by the tax benefits from a capital loss resulting from a tax election made for U.S. federal income tax purposes.
We file income tax returns, including returns for our subsidiaries, with federal, state, and foreign jurisdictions. We are under regular and recurring audit by the Internal Revenue Service on open tax positions, and it is possible that the amount of the liability for unrecognized tax benefits could change during the next 12 months.
Note 14 Fair Value Measurements
Items Measured at Fair Value on a Recurring Basis
(In millions)
Balance 
 
Level 1
 
Level 2
 
Level 3
March 31, 2014
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments
$
95.3

 
$
95.3

 
$

 
$

Derivative instruments
*

 

 
*

 

Liabilities:
 
 
 
 
 
 
 
Derivative instruments
(130.8
)
 

 
(130.8
)
 

 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investments
$
91.7

 
$
91.7

 
$

 
$

Derivative instruments
*

 

 
*

 

Liabilities:
 
 
 
 
 
 
 
Derivative instruments
(165.9
)
 

 
(165.9
)
 

___________________
*
Amount rounds to zero

25

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Investments
Investments consist of equity and debt securities with maturity dates of greater than three months from the date of purchase. The majority of these securities are traded in active markets, have readily determined market values, and use Level 1 inputs. Securities for which there are not active markets or the market values are not readily determinable are valued using Level 2 inputs. All of these investments are included in either prepayments and other current assets or deferred charges and other in our Consolidated Condensed Balance Sheets. The following table shows our investments by type:
(In millions)
March 31, 2014
 
December 31, 2013
Equity securities
$
14.7

 
$
19.6

Government bonds
80.6

 
72.1

Total investments
$
95.3

 
$
91.7

Gross unrealized gains and losses on marketable securities at March 31, 2014 and December 31, 2013 were not material.
Derivative instruments
The estimated fair values of our derivative instruments are derived from market prices obtained from dealer quotes for similar, but not identical, assets or liabilities. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. Derivative instruments are included in either deferred charges and other, or deferred credits and other, in our Consolidated Condensed Balance Sheets. Our derivatives are recorded at their fair values, 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 9 , " Derivative Instruments ."
Items Measured at Fair Value on a Non-recurring Basis
The following table shows the fair value of our assets and liabilities that are required to be measured at fair value as of March 31, 2014 and the total adjustments recorded on these items during the three months ended March 31, 2014 :
(In millions)
Balance 
 
Level 1
 
Level 2
 
Level 3
 
Total Adjustments
Loss/(Gain)
Intangible and tangible assets
$
81.4

 
$

 
$

 
$
81.4

 
$
97.1

Contingent earnout liabilities
97.3

 

 

 
97.3

 
0.7

Market and income approaches were used to value the intangible and tangible assets. Inputs included an expected range of market values, probability estimated by management that each value could be achieved, expected cash flows, recent comparable transactions, discounted cash flows, discounted cash flows, discount rate, royalty rate, growth rate, and tax rate.
The contingent earnout liabilities primarily relate to the CIE acquisitions of Buffalo Studios and Pacific Interactive.
Note 15 Litigation, Contractual Commitments and Contingent Liabilities
Litigation
The Company is party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material effect on our consolidated financial position, results of operations, or cash flows.
Contractual Commitments
As of March 31, 2014 , our estimated interest payments for the rest of the year ended December 31, 2014 are $1,793.9 million , for the years ended December 31, 2015 through 2018 are $2,043.9 million , $1,977.8 million , $1,785.2 million , and $1,436.9 million , respectively, and our estimated interest payments thereafter are $1,644.9 million . See Note 8 , " Debt ."
As of March 31, 2014 , there have been no other material changes outside of the ordinary course of business to our other known contractual obligations, which are set forth in the table included in Item 7 in our 2013 10-K.

26

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Contingent Liabilities
Employee Benefit Obligations
In December 1998, Hilton Hotels Corporation ("Hilton") spun-off its gaming operations as Park Place Entertainment Corporation ("Park Place"). In connection with the spin-off, Hilton and Park Place entered into various agreements, including an Employee Benefits and Other Employment Allocation Agreement dated December 31, 1998 (the "Allocation Agreement") whereby Park Place assumed or retained, as applicable, certain liabilities and excess assets, if any, related to the Hilton Hotels Retirement Plan (the "Hilton Plan") based on the accrued benefits of Hilton employees and Park Place employees. CEOC is the ultimate successor to this Allocation Agreement. In 2013, a lawsuit was settled related to the Hilton Plan, which retroactively and prospectively increased total benefits to be paid under the Hilton Plan. In 2009, we received a letter from Hilton, notifying us of a lawsuit related to the Hilton Plan which alleged that we had potential liability for the additional claims under the terms of the Allocation Agreement. Based on conversations between our representative and a representative of the defendants, we recorded a charge of $25.0 million representing our allocated share of the total damages estimate in accordance with FASB Codification Topic 450, Contingencies , during the second quarter 2010.
In December 2013, we received a letter from Hilton notifying us that all final court rulings have been rendered in relation to this matter. We were subsequently informed that our obligation under the Allocation Agreement was approximately $53.5 million , and that approximately $18.5 million relates to contributions for historical periods and approximately $35.0 million relates to estimated future contributions. We are currently assessing the information supporting Hilton’s calculation of total amounts due under the Allocation Agreement; however, because we have not been able to adequately assess the underlying details supporting Hilton's claimed amounts, we have not been able to revise our estimate. We cannot currently predict the ultimate outcome of this matter, but we continue to believe that we may have various defenses against such claims, including defenses as to the amount of liabilities.
Other Matters
In recent years, governmental authorities have been increasingly focused on anti-money laundering (“AML”) policies and procedures, with a particular focus on the gaming industry. As an example, a major gaming company recently settled a U.S. Attorney investigation into its AML practices. On October 11, 2013, a subsidiary of the Company received a letter from the Financial Crimes Enforcement Network of the United States Department of the Treasury (“FinCEN”), stating that FinCEN is investigating the Company’s subsidiary, Desert Palace, Inc. (the owner of Caesars Palace), for alleged violations of the Bank Secrecy Act to determine whether it is appropriate to assess a civil penalty and/or take additional enforcement action against Caesars Palace. Additionally, the Company has been informed that a federal grand jury investigation regarding the Company’s anti-money laundering practices and procedures is ongoing. The Company is fully cooperating with both the FinCEN and grand jury investigations. Based on proceedings to date, the Company is currently unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any.
Bondholder Communications
On March 21, 2014, CEC, CEOC, CERP, Caesars Acquisition Company ("CAC"), and CGP LLC received a letter (the “March 21 Letter”) from a law firm acting on behalf of unnamed clients who claim to hold Second-Priority Secured Notes of CEOC, alleging, among other things, that CEOC is insolvent and that CEOC’s owners improperly transferred or seek to transfer valuable assets of CEOC to affiliated entities in connection with: (a) the transaction agreement dated October 21, 2013 by and among CEC, certain subsidiaries of CEC and CEOC, CAC and CGP LLC, which, among other things, provides for the asset transfers from subsidiaries of CEOC to CGP LLC of Planet Hollywood Las Vegas and interests in Horseshoe Baltimore that was consummated in 2013; (b) the transfer by CEOC to CERP of Octavius Tower and Linq that was consummated in 2013; and (c) the contemplated transfers by CEOC to CGP LLC of the Properties. The March 21 Letter does not identify the holders or specify the amount of Second-Priority Secured Notes of CEOC or other securities that they may hold. The March 21 Letter includes allegations that these transactions constitute or will constitute voidable fraudulent transfers and represent breaches of alleged fiduciary duties owed to CEOC creditors and that certain disclosures concerning the transactions were inadequate. The March 21 Letter demands, among other things, that the transactions be rescinded or terminated, as would be applicable. CEC strongly believes there is no merit to the March 21 Letter’s allegations and will defend itself vigorously and seek appropriate relief should any action be brought.
On April 3, 2014, a letter was sent to CEC, the Board of Directors of CEC (the “CEC Board”) and the Board of Directors of CEOC (the “CEOC Board” and, together with the CEC Board, the “Boards”) (the “April 3 Letter”) by a law firm claiming to act on behalf of unnamed parties who assert that they are lenders under CEOC’s credit agreement and/or holders of CEOC’s first priority senior secured notes (collectively, the “First Lien Group”), alleging, among other things, that CEC and CEOC improperly

27

CAESARS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

transferred or seek to transfer assets of CEC and CEOC to affiliated entities in connection with: (a) the transaction agreement dated October 21, 2013 by and among CEC, certain subsidiaries of CEC and CEOC, CAC and CGP LLC, which, among other things, provides for the contributions by CEC and its subsidiaries to CGP LLC of CIE and $1.1 billion face amount of CEOC’s unsecured notes in exchange for non-voting interests of CGP LLC, and the asset transfers from subsidiaries of CEOC to CGP LLC of the Planet Hollywood casino and interests in Horseshoe Baltimore that was consummated in 2013; (b) the transfer by CEOC to CERP of Octavius Tower and Linq that was consummated in 2013 ((a) and (b) collectively, the “2013 Transactions”); and (c) the contemplated transfers by CEOC to CGP LLC of the Properties and formation of a new services joint venture between CEOC, CERP and CGP LLC to provide certain centralized services, including but not limited to common management of enterprise-wide intellectual property (the “Contemplated Transaction”). The April 3 Letter asserts that the consideration provided by CGP LLC and CERP in connection with the 2013 Transactions and the Contemplated Transaction is inadequate and that CEC and CEOC were insolvent at the time the transactions were approved. The April 3 Letter claims that the First Lien Group consists of institutions that collectively hold in excess of $1.85 billion of CEOC’s first lien debt and that holders of an additional $880 million of CEOC’s first lien debt endorse and support the April 3 Letter. The April 3 Letter alleges, among other things, that these transactions represent breaches of alleged fiduciary duties owed to CEOC creditors and that certain disclosures concerning the transactions were inadequate. The April 3 Letter demands, among other things, that the transactions be rescinded or terminated, as would be applicable, and requests a meeting with representatives of CEC and other parties to discuss these matters. CEC strongly believes there is no merit to the April 3 Letter’s allegations and will defend itself vigorously and seek appropriate relief should any action be brought.
Self-Insurance
We are self-insured for various levels of workers’ compensation, property and general liability, employee medical coverage, and other coverage. 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. As of March 31, 2014 and December 31, 2013 , we had total self-insurance liability accruals of $214.4 million and $208.2 million , respectively.
Note 16 Supplemental Cash Flow Information
Reconciliation of Cash Paid for Interest
 
Three Months Ended March 31,
(In millions)
2014
 
2013
Interest expense
$
592.3

 
$
574.7

Adjustments to reconcile to cash paid for interest:
 
 
 
Net change in accrued interest
(116.6
)
 
(160.4
)
Amortization of deferred finance charges
(9.6
)
 
(16.0
)
Net amortization of discounts and premiums
(81.0
)
 
(70.7
)