Caesars Entertainment Corporation
CAESARS ENTERTAINMENT Corp (Form: 10-Q, Received: 11/02/2017 06:04:15)
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 September 30, 2017
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
 
 
 
 
 
 
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
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 November 1, 2017
Common stock, $0.01 par value
704,131,238



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.



2


PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)

(In millions)
September 30, 2017

December 31, 2016
Assets
 

 
Current assets
 

 
Cash and cash equivalents ($1,056 and $1,157 attributable to our VIEs)
$
1,515


$
1,513

Restricted cash ($2,731 and $3,040 attributable to our VIEs)
2,798

 
3,113

Receivables, net ($80 and $76 attributable to our VIEs)
161


160

Due from affiliates ($85 and $64 attributable to our VIEs)
85

 
64

Prepayments and other current assets ($71 and $61 attributable to our VIEs)
165


118

Inventories ($3 and $7 attributable to our VIEs)
14


20

Total current assets
4,738


4,988

Property and equipment, net ($2,250 and $2,537 attributable to our VIEs)
7,123


7,446

Goodwill ($206 and $206 attributable to our VIEs)
1,608


1,608

Intangible assets other than goodwill ($157 and $191 attributable to our VIEs)
362


433

Restricted cash ($0 and $5 attributable to our VIEs)
101


5

Deferred charges and other assets ($255 and $240 attributable to our VIEs)
421


414

Total assets
$
14,353


$
14,894

 
 
 
 
Liabilities and Stockholders’ Deficit
 

 
Current liabilities
 

 
Accounts payable ($101 and $143 attributable to our VIEs)
$
208


$
215

Due to affiliates ($25 and $94 attributable to our VIEs)
46

 
112

Accrued expenses and other current liabilities ($303 and $312 attributable to our VIEs)
637


664

Accrued restructuring and support expenses
8,776

 
6,601

Interest payable ($27 and $14 attributable to our VIEs)
131


67

Current portion of long-term debt ($14 and $21 attributable to our VIEs)
39

 
89

Total current liabilities
9,837


7,748

Long-term debt ($1,952 and $2,254 attributable to our VIEs)
6,438


6,749

Deferred income taxes
1,808


1,722

Deferred credits and other liabilities ($14 and $33 attributable to our VIEs)
85


93

Total liabilities
18,168


16,312

Commitments and contingencies (Note 8)


 


Stockholders’ deficit
 

 
Caesars stockholders’ deficit
(5,617
)

(3,177
)
Noncontrolling interests
1,802


1,759

Total stockholders’ deficit
(3,815
)

(1,418
)
Total liabilities and stockholders’ deficit
$
14,353


$
14,894


See accompanying Notes to Consolidated Condensed Financial Statements.

3




CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions, except per share data)
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Casino
$
531

 
$
542

 
$
1,617

 
$
1,633

Food and beverage
198

 
198

 
591

 
599

Rooms
245

 
237

 
726

 
701

Other
150

 
140

 
428

 
398

Less: casino promotional allowances
(138
)
 
(131
)
 
(411
)
 
(403
)
Net revenues
986

 
986

 
2,951

 
2,928

Operating expenses
 
 
 
 
 
 
 
Direct
 
 
 
 
 
 
 
Casino
265

 
276

 
828

 
840

Food and beverage
97

 
99

 
286

 
292

Rooms
66

 
67

 
193

 
189

Property, general, administrative, and other
247

 
402

 
732

 
928

Depreciation and amortization
150

 
112

 
348

 
327

Corporate expense
39

 
39

 
112

 
120

Other operating costs
36

 
35

 
51

 
77

Total operating expenses
900

 
1,030

 
2,550

 
2,773

Income/(loss) from operations
86

 
(44
)
 
401

 
155

Interest expense
(120
)
 
(147
)
 
(409
)
 
(448
)
Restructuring of CEOC and other
(446
)
 
(3,070
)
 
(2,319
)
 
(5,333
)
Loss from continuing operations before income taxes
(480
)
 
(3,261
)
 
(2,327
)
 
(5,626
)
Income tax benefit/(provision)
20

 
(27
)
 
(83
)
 
(37
)
Loss from continuing operations, net of income taxes
(460
)
 
(3,288
)
 
(2,410
)
 
(5,663
)
Discontinued operations, net of income taxes

 
3,293

 

 
3,351

Net income/(loss)
(460
)
 
5

 
(2,410
)
 
(2,312
)
Net income attributable to noncontrolling interests
(8
)
 
(648
)
 
(46
)
 
(716
)
Net loss attributable to Caesars
$
(468
)
 
$
(643
)
 
$
(2,456
)
 
$
(3,028
)
 
 
 
 
 
 
 
 
Loss per share - basic and diluted



 

 
 
 
Basic and diluted loss per share from continuing operations
$
(3.14
)

$
(26.80
)

$
(16.54
)
 
$
(43.70
)
Basic and diluted earnings per share from discontinued operations


22.42



 
22.96

Basic and diluted loss per share
$
(3.14
)
 
$
(4.38
)
 
$
(16.54
)
 
$
(20.74
)
 
 
 
 
 
 
 
 
Weighted-average common stock outstanding
149

 
147

 
148

 
146

See accompanying Notes to Consolidated Condensed Financial Statements.

4



CAESARS ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
(UNAUDITED)



 
Caesars Stockholders’ Equity/(Deficit)
 
 
 
 
(In millions)
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, 2015
$
1

 
$
(21
)
 
$
8,190

 
$
(7,184
)
 
$
1

 
$
987

 
$
1,246

 
$
2,233

Cumulative effect adjustment for stock-based compensation (1)

 

 
1

 
(1
)
 

 

 

 

Net income/(loss)

 

 

 
(3,028
)
 

 
(3,028
)
 
716

 
(2,312
)
Stock-based compensation

 
(7
)
 
32

 

 

 
25

 

 
25

CIE stock transactions, net (2)

 

 
(622
)
 

 

 
(622
)
 
(3
)
 
(625
)
Change in noncontrolling interest, net of distributions and contributions

 

 

 

 

 

 
(287
)
 
(287
)
Other

 

 
(1
)
 

 

 
(1
)
 
(4
)
 
(5
)
Balance as of September 30, 2016
$
1

 
$
(28
)
 
$
7,600

 
$
(10,213
)
 
$
1

 
$
(2,639
)
 
$
1,668

 
$
(971
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
$
1

 
$
(29
)
 
$
7,605

 
$
(10,753
)
 
$
(1
)
 
$
(3,177
)
 
$
1,759

 
$
(1,418
)
Net income/(loss)

 

 

 
(2,456
)
 

 
(2,456
)
 
46

 
(2,410
)
Stock-based compensation

 
(8
)
 
22

 

 

 
14

 

 
14

Change in noncontrolling interest, net of distributions and contributions

 

 
3

 

 
(1
)
 
2

 
(3
)
 
(1
)
Balance as of September 30, 2017
$
1

 
$
(37
)
 
$
7,630

 
$
(13,209
)
 
$
(2
)
 
$
(5,617
)
 
$
1,802

 
$
(3,815
)
____________________
(1)  
Adoption of Accounting Standards Update No. 2016-09, Compensation-Stock Compensation. See Note 12 .
(2)  
Primarily related to the repurchase of shares held by minority interest holders as part of CIE’s sale of its SMG Business (see Note 14 ).


 


See accompanying Notes to Consolidated Condensed Financial Statements.

5



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


 
Nine Months Ended September 30,
(In millions)
2017
 
2016
Cash flows provided by operating activities
$
283

 
$
454

Cash flows from investing activities
 
 
 
Acquisitions of property and equipment, net of change in related payables
(245
)
 
(147
)
Deconsolidation of CRBH
(57
)
 

Return of investment from discontinued operations

 
132

Contributions to discontinued operations

 
(144
)
Proceeds from the sale and maturity of investments
28

 
38

Payments to acquire investments
(21
)
 
(15
)
Other

 
(3
)
Cash flows used in investing activities
(295
)
 
(139
)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt and revolving credit facilities
585

 
80

Debt issuance costs and fees
(19
)
 

Repayments of long-term debt and revolving credit facilities
(673
)
 
(255
)
Repurchase of CIE shares

 
(609
)
Distribution of CIE sale proceeds
(63
)
 
(487
)
Distributions to noncontrolling interest owners
(30
)
 
(21
)
Other
(5
)
 
7

Cash flows used in financing activities
(205
)
 
(1,285
)
Cash flows from discontinued operations
 
 
 
Cash flows from operating activities

 
157

Cash flows from investing activities

 
4,384

Cash flows from financing activities

 
12

Net cash from discontinued operations

 
4,553

 
 
 
 
Change in cash, cash equivalents, and restricted cash classified as held for sale

 
111

 
 
 
 
Net increase/(decrease) in cash, cash equivalents, and restricted cash
(217
)
 
3,694

Cash, cash equivalents, and restricted cash, beginning of period
4,631

 
1,394

Cash, cash equivalents, and restricted cash, end of period
$
4,414

 
$
5,088

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Cash paid for interest
$
319

 
$
363

Cash paid for income taxes

 
65

Non-cash investing and financing activities:
 
 
 
Change in accrued capital expenditures
2

 
1


See accompanying Notes to Consolidated Condensed Financial Statements.

6




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



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.
This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 (“ 2016 Annual Report ”).
We also refer to (i) our Consolidated Condensed Financial Statements as our “Financial Statements,” (ii) our Consolidated Condensed Statements of Operations and Comprehensive Income as our “Statements of Operations,” and (iii) our Consolidated Condensed Balance Sheets as our “Balance Sheets.”
Note 1 - Description of Business
Organization
CEC is primarily a holding company with no independent operations of its own. CEC owns 100% of Caesars Entertainment Resort Properties, LLC (“CERP”) and an interest in Caesars Growth Partners, LLC (“CGP”). CERP and CGP own a total of 12 casino properties in the United States, eight of which are in Las Vegas. These eight casino properties represented 67% of consolidated net revenues for both the three and nine months ended September 30, 2017 . See Note 17 for additional information about pending transactions related to CERP and CGPH’s debt and their organizational structures.
CEC also holds a majority interest in Caesars Entertainment Operating Company, Inc. (“CEOC”). The results of CEOC and its subsidiaries are not consolidated with Caesars due to CEOC and certain of its United States subsidiaries (the “Debtors”) voluntarily filing for reorganization in January 2015 under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Illinois in Chicago (the “Bankruptcy Court”). The Debtors emerged from bankruptcy effective October 6, 2017 (the “Effective Date”). See Note 17 .
Caesars Enterprise Services, LLC
Caesars Enterprise Services, LLC (“CES”) is a services joint venture formed by CERP, CEOC, and a subsidiary of CGP (Caesars Growth Properties Holdings, LLC, or “CGPH”) (collectively, the “Members”). CES provides certain corporate and administrative services for the Members’ casino properties and related entities, including substantially all of the casino properties owned by CEOC and casinos owned by unrelated third parties. CES manages certain assets for the casino properties to which it provides services, and it employs certain of the corresponding employees. CES owns, licenses or controls other assets and uses them to provide services to the Members. Under the terms of the Omnibus License and Enterprise Services Agreement, CEC and its operating subsidiaries continue to have access to the services historically provided to us by CEOC and its employees, its trademarks, and its programs.
Reportable Segments
We view each casino property as an operating segment and currently aggregate all such casino properties into two reportable segments based on management’s view, which aligns with their ownership and underlying credit structures: CERP and CGP.
On September 23, 2016, Caesars Interactive Entertainment (“CIE”), a wholly owned subsidiary of CGP, sold its social and mobile games business (the “SMG Business”) and retained only its World Series of Poker (“WSOP”) and regulated online real money gaming businesses. The SMG Business represented the majority of CIE’s operations and is classified as discontinued operations for all periods presented (see Note 14 ).
Merger with Caesars Acquisition Company
Caesars Acquisition Company (“CAC”) was formed on February 25, 2013 to make an equity investment in CGP, a joint venture between CAC and certain subsidiaries of CEC, and directly owns 100% of the voting membership units of CGP and serves as CGP’s managing member. Certain subsidiaries of CEC hold 100% of the non-voting membership units of CGP.

7




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


CEC and CAC entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 9, 2016, as amended by the First Amendment to Amended and Restated Agreement and Plan of Merger, dated as of February 20, 2017 (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, on the October 6, 2017 Effective Date, CAC completed the merger with and into CEC, with CEC as the surviving company (the “Merger”). Subject to the terms and conditions of the Merger Agreement, each share of CAC common stock issued and outstanding immediately prior to the effective date of the Merger was converted into, and became exchangeable for, 1.625 (the “Exchange Ratio”) shares of CEC common stock.

CEC’s registration statement on Form S-4 filed with the Securities and Exchange Commission (“SEC”) on March 13, 2017, as amended by Amendment No. 1 to such registration statement on Form S-4 filed with the SEC on June 5, 2017 and Amendment No. 2 to such registration statement on Form S-4 filed with the SEC on June 20, 2017 (as amended, the “Registration Statement”), was declared effective by the SEC on June 23, 2017. Special meetings of CEC and CAC stockholders were held on July 25, 2017, where the stockholders agreed to:
adopt the Merger Agreement and approve the Merger;
approve the issuance of shares of CEC common stock:
to CAC stockholders in the Merger,
to creditors of the Debtors in connection with their emergence from bankruptcy, and
under the approximately $1.1 billion in face value of 5.00% convertible senior notes due 2024 to be issued by CEC to certain creditors of the Debtors in connection with the Debtors’ emergence (the “CEC Convertible Notes”);
approve, on a non-binding, advisory basis, the Merger-related compensation for CEC’s named executive officers and certain of CAC’s named executive officers;
approve amendments to CEC’s certificate of incorporation to:
increase the number of authorized shares of CEC common stock from 1,250,000,000 to 2,000,000,000 ,
allow for cumulative voting in the election of individuals to the CEC board of directors, and
implement, over a number of years, the declassification of the CEC board of directors; and
approve the CEC 2017 Performance Incentive Plan.
As described in Note 17 , the Merger was effective on October 6, 2017 , and will be accounted for as a transaction among entities under common control, which will result in CAC being consolidated into Caesars at book value as an equity transaction for all periods presented.
CEOC Reorganization
On January 17, 2017 , the Bankruptcy Court entered an order approving and confirming the Debtors’ third amended joint plan of reorganization (the “Plan”). As described in Note 17 , on October 6, 2017 , the Debtors consummated their reorganization pursuant to the Plan. The Plan provides for, among other things:
A global settlement of all claims the Debtors may have against CEC and its affiliates;
Comprehensive releases for CEC and its affiliates and CAC and its affiliates; and
The reorganization of CEOC into an operating company (“OpCo”) and a property company (“PropCo”). OpCo became a limited liability company on October 6, 2017 by merging with and into CEOC, LLC (“New CEOC”), a wholly-owned subsidiary of CEC, with New CEOC as the surviving entity. New CEOC will operate properties and facilities formerly held by CEOC. PropCo will hold certain real property assets and related fixtures formerly held by CEOC and will lease those assets to New CEOC. OpCo, or New CEOC, is CEOC’s successor and a wholly owned consolidated subsidiary of

8




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


CEC subsequent to CEOC’s emergence. PropCo is a separate entity that will not be consolidated by CEC and is owned by certain of CEOC’s former creditors.
CEC made material financial commitments to support the reorganization of CEOC as described in the Plan. As of September 30, 2017 , in accrued restructuring and support expenses on the Balance Sheets, our accrual was estimated based on the total value of the consideration that was provided by CEC as determined on October 6, 2017 , the Effective Date of CEOC’s reorganization, which included a combination of cash, CEC common stock, and CEC Convertible Notes. The total consideration provided by CEC on the Effective Date includes amounts that related to the acquisition of New CEOC, which will be recorded in the fourth quarter of 2017 when the transaction was consummated. However, the purchase price allocation for the New CEOC acquisition has not been completed, and adjustments to the purchase price of New CEOC may affect our estimate of the consideration allocated to the accrued restructuring and support expenses described below.
For the three and nine months ended September 30, 2017 , we recorded $472 million and $2.3 billion , respectively, in restructuring of CEOC and other in the Statements of Operations, which increased our total accrual to $8.8 billion as of September 30, 2017 .
Accrued Restructuring and Support Expenses
 
Accrued as of
(In millions)
September 30, 2017
 
December 31, 2016
Forbearance fees and other payments to creditors
$
893

 
$
970

Bank Guaranty Settlement
765

 
734

Issuance of CEC common stock
4,507

 
2,936

Issuance of CEC Convertible Notes
2,240

 
1,600

PropCo Call Right
189

 
131

Payment of creditor expenses, settlement charges, and other fees
182

 
195

Payment to CEOC

 
35

Total accrued
$
8,776

 
$
6,601

The amounts disclosed above are reported net of payments totaling $173 million during the nine months ended September 30, 2017 (including $104 million paid during the third quarter), and $34 million during the year ended December 31, 2016 .
Forbearance Fees and Other Payments to Creditors. On the Effective Date, CEC paid certain fees in exchange for CEOC’s major creditors agreeing to forebear from exercising their rights and remedies under certain of CEOC’s credit agreements and to stay all pending litigation.
Bank Guaranty Settlement. In 2014, CEOC amended its senior secured credit facilities (the “Bank Amendment”) resulting in, among other things, a modification of CEC’s guarantee under the senior secured credit facilities such that CEC’s guarantee was limited to a guarantee of collection (“CEC Collection Guarantee”) with respect to obligations owed to the lenders who consented to the Bank Amendment. The CEC Collection Guarantee requires the creditors to exhaust all rights and remedies at law and in equity that the creditors or their agents may have against CEOC or any of its subsidiaries and its and their respective property to collect, or obtain payment of, the guaranteed amounts. Pursuant to the Plan, on the Effective Date we settled this obligation and the CEOC creditors have agreed to eliminate the CEC Collection Guarantee.
Issuance of CEC Common Stock. On the Effective Date, CEC issued shares of CEC common stock for the settlement of claims and potential claims. Also on the Effective Date, CEC repurchased approximately 146 million shares of CEC common stock for approximately $1.0 billion from certain creditors of CEOC at a pre-negotiated price of $6.86 per share. As of September 30, 2017 , our accrual includes the $1.0 billion repurchase obligation plus the estimated fair value of $3.5 billion for the net shares that were issued after satisfying the repurchase obligation. See Note 7 for additional information on fair value measurements and how this value was determined.
Issuance of CEC Convertible Notes. On the Effective Date, CEC issued approximately $1.1 billion in face value of CEC Convertible Notes to the CEOC creditors for the settlement of claims and potential claims, and our accrual represents the estimated fair value of the notes at the time of issuance (see Note 7 ).

9




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


PropCo Call Right Agreement. PropCo will have a call right for up to five years to purchase the real property assets and related fixtures associated with the Harrah’s Atlantic City and Harrah’s Laughlin properties from CERP and the Harrah’s New Orleans property from CGPH (subject to the terms of the CERP and CGPH credit agreements) (the “PropCo Call Right”). Our accrual represents the estimated fair value of the call right related to Harrah's Atlantic City, Harrah's Laughlin, and Harrah’s New Orleans. See Note 7 .
Payment of Creditor Expenses, Settlement Charges, and Other Fees. Pursuant to the Plan, CEC paid certain professional fees incurred by CEOC’s creditors and other ancillary fees and settlement amounts on the Effective Date.
Payment to CEOC . In addition, and separate from the transactions and agreements described above, because there was not a comprehensive out-of-court restructuring of CEOC's debt securities or a prepackaged or prearranged in-court restructuring with requisite voting support from each of the first and second lien secured creditor classes by February 15, 2016, a debt agreement entered into by CEOC in 2014 contemplates an additional payment to CEOC of $35 million from CEC. During the first quarter of 2015, we accrued this liability in accrued restructuring and support expenses on the Balance Sheet, which was paid during the second quarter of 2017 using a portion of the proceeds from the sale of the SMG Business.
Other Commitments Under the Plan
The following represents other commitments or potential obligations to which CEC has agreed as part of the Plan and certain of the restructuring support and forbearance agreements (the”RSAs”) entered into in connection with the Plan, none of which have been accrued as of September 30, 2017 .
Purchase 100% of OpCo common stock for $700 million ;
Issuance of CEC common stock in exchange for OpCo preferred stock;
PropCo has right of first refusal to purchase (and lease to an affiliate of CEC) the real property assets associated with all new domestic non-Las Vegas gaming facility opportunities that CEC or its affiliates may have the right to acquire or develop; and
Guarantee of OpCo’s monetary obligations to PropCo under the management and lease support agreements related to the properties that OpCo leases from PropCo.
The acquisitions of OpCo equity represent future investment transactions and will be recorded in the fourth quarter of 2017, when the transactions are consummated. The PropCo right of first refusal is not a financial obligation that would require accrual. The guarantee of OpCo’s monetary obligations relates to OpCo commitments that did not exist as of September 30, 2017 , and thus does not give rise to an obligation for CEC.
Liquidity
Cash and Available Revolver Capacity
 
September 30, 2017
(In millions)
CERP
 
CGP
 
CES
 
Other
Cash and cash equivalents
$
336

 
$
1,026

 
$
31

 
$
122

Revolver capacity
270

 
150

 

 

Revolver capacity drawn or committed to letters of credit

 

 

 

Total
$
606

 
$
1,176

 
$
31

 
$
122

Consolidated cash and cash equivalents, excluding restricted cash, as shown in the table above include amounts held by CERP, CGP, and CES, which are not readily available to CEC. “Other” reflects CEC and certain of its direct subsidiaries, including its insurance captives.
CEC is primarily a holding company with no independent operations, employees, or material debt issuances of its own as of September 30, 2017 . Its primary assets as of September 30, 2017 , consist of $122 million in cash and cash equivalents and its ownership interests in CEOC, CERP, and CGP. CEC’s cash and cash equivalents includes $92 million held by its insurance captives.

10




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


Provisions included in certain debt arrangements entered into by CERP and CGP (and/or their respective subsidiaries) substantially restrict the ability of CERP, CGP, and their subsidiaries to provide dividends to CEC. CEC has no requirement to fund the operations of CERP, CGP, or their subsidiaries. Accordingly, CEC cash outflows are primarily used for corporate development opportunities and other corporate-level activity.
CEC is generally limited to raising additional capital through borrowings or equity transactions because it has no operations of its own and the restrictions on its subsidiaries under lending arrangements generally prevent the distribution of cash from the subsidiaries to CEC, except for certain restricted payments that CERP and CGPH are authorized to make in accordance with their lending arrangements.
Note 2 Basis of Presentation and Principles of Consolidation
Basis of Presentation and Use of Estimates
The accompanying unaudited consolidated condensed financial statements of Caesars have been prepared under the rules and regulations of the 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 2017 fiscal year.
Reclassifications
For the three and nine months ended September 30, 2016 , $4 million and $13 million , respectively, was reclassified from food and beverage revenues to other revenues, and certain other immaterial prior year amounts have also been reclassified to conform to the current year’s presentation.
Cash, Cash Equivalents, and Restricted Cash
We adopted Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash , during the fourth quarter of 2016, and retrospectively applied the amendments. Prior to adopting ASU No. 2016-18, our consolidated statements of cash flows reported changes in restricted cash as investing activities and excluded restricted cash from the beginning and ending balances of cash and cash equivalents. The effect on prior periods of adopting the new guidance includes: (i) increases in cash, cash equivalents, and restricted cash balances to $5.1 billion and $1.4 billion as of September 30, 2016 and December 31, 2015 , respectively; and (ii) an increase of $3.3 billion in cash flows provided by investing activities for the nine months ended September 30, 2016 .
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Balance Sheets that sum to amounts reported on the consolidated statements of cash flows.
(In millions)
September 30, 2017
 
December 31, 2016
Cash and cash equivalents
$
1,515

 
$
1,513

Restricted cash, current portion
2,798

 
3,113

Restricted cash, non-current portion
101

 
5

Total cash, cash equivalents, and restricted cash
$
4,414

 
$
4,631

Other Operating Costs
Other operating costs primarily include write-downs, reserves, and project opening costs, net of recoveries and acquisition and integration costs. During the first quarter of 2017, CEC was reimbursed $19 million for amounts related to the joint venture development in Korea that were deemed uncollectible and written off in 2015.
Consolidation of Subsidiaries and Variable Interest Entities
Our consolidated financial statements include the accounts of Caesars Entertainment and its subsidiaries after elimination of all intercompany accounts and transactions.

11




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


We consolidate all subsidiaries in which we have a controlling financial interest and variable interest entities (“VIEs”) for which we or one of our consolidated subsidiaries is the primary beneficiary. Control generally equates to ownership percentage, whereby (1) affiliates that are more than 50% owned are consolidated; (2) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where we have determined that we have significant influence over the entities; and (3) investments in affiliates of 20% or less are generally accounted for using the cost method.
Consolidation of CGP
Effective in 2013, CGP was determined to be a VIE, and Caesars was determined to be the primary beneficiary. As of September 30, 2017 , CAC is the sole voting member of CGP and holds a material noncontrolling interest in CGP. Common control exists between CAC and CEC through the majority beneficial ownership of both by Hamlet Holdings (as defined in Note 15 ). Neither CAC nor CGP guarantees any of CEC’s debt, and neither the creditors nor the beneficial holders of CGP have recourse to the general credit of CEC. As a result of the Merger, CGP became a wholly owned subsidiary of CEC; therefore, CGP will no longer be a VIE subsequent to September 30, 2017 (see Note 17 ).
CGP generated net revenues of $407 million and $422 million for the three months ended September 30, 2017 and 2016 , respectively, and $1.3 billion for both the nine months ended September 30, 2017 and 2016 . Net income attributable to Caesars related to CGP was $17 million and $3.2 billion for the three months ended September 30, 2017 and 2016 , respectively, and $12 million and $3.2 billion for the nine months ended September 30, 2017 and 2016 , respectively.
Our consolidated restricted cash includes amounts held by CGP of $2.7 billion and $3.0 billion as of September 30, 2017 and December 31, 2016 , respectively. As of September 30, 2017 , the majority of the balance is restricted under the terms of the CIE Proceeds and Reservation Rights Agreement (the “CIE Proceeds Agreement”) with CIE, CEOC, and CAC, which requires a portion of the proceeds from the sale of the SMG Business be deposited into the CIE escrow account (the "CIE Escrow Account"). Under the terms of the Plan and upon consummation of the Merger, the restricted cash was released from the CIE Escrow Account in order to fund certain of CEC’s obligations on the Effective Date (see Note 17 ).
CR Baltimore Holdings (“CRBH”)
CGP consolidates into its financial statements the accounts of any variable interest entity for which it is determined to be the primary beneficiary. Caesars Baltimore Investment Company, LLC (“CBIC”) is wholly-owned and consolidated by CGP. CBIC indirectly holds interests in CBAC Borrower, LLC (“CBAC”), owner of the Horseshoe Baltimore Casino, through its ownership interest in CRBH, a variable interest entity. The counterparty that owns the minority interest in CRBH was restricted from transferring its interest in CRBH without prior consent from CBIC. As a result, CBIC was determined to be the primary beneficiary of CRBH, and therefore, consolidated CRBH into its financial statements. Under the terms of the agreement, the transfer restrictions expired in August 2017, at which time CBIC was no longer considered the primary beneficiary and deconsolidated CRBH.
CRBH generated year-to-date net revenues of $188 million and net loss attributable to Caesars of $6 million until its deconsolidation effective August 31, 2017 . Upon deconsolidation, we derecognized total assets and liabilities of $350 million and $354 million , respectively, including long-term debt totaling $294 million . CBIC recorded its interest in CRBH at its estimated fair value of $28 million , recognizing a gain on deconsolidation of $30 million , and will account for CRBH as an equity method investment going forward. We estimated the fair value of the interest in CRBH by weighting the results of the discounted cash flow method and the guideline public company method.
Horseshoe Baltimore Casino will continue to be a managed property of New CEOC subsequent to its deconsolidation, and transactions with CRBH will no longer be eliminated in consolidation. These transactions include but are not limited to items such as casino management fees paid to New CEOC, reimbursed management costs, and the allocation of other expenses.
Consolidation of CES
A steering committee acts in the role of a board of managers for CES with each Member entitled to appoint one representative to the steering committee. Each Member, through its representative, is entitled to a single vote on the steering committee; accordingly, the voting power of the Members does not equate to their ownership percentages. Therefore, we determined that CES was a VIE, and we concluded that CEC is the primary beneficiary because our combined economic interest in CES, through our subsidiaries, represents a controlling financial interest.

12




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


Expenses incurred by CES are allocated to the casino properties directly or to the Members according to their allocation percentages, subject to annual review (see Note 15 ). Therefore, CES is a "pass-through" entity that serves as an agent on behalf of the Members at a cost-basis, and is contractually required to fully allocate its costs. CES is designed to have no operating cash flows of its own, and any net income or loss is generally immaterial and is typically subject to allocation to the Members in the subsequent period.
Consolidation Considerations for CEOC
CEOC’s filing for reorganization was a reconsideration event for Caesars Entertainment to reevaluate whether consolidation of CEOC continued to be appropriate. We concluded that CEOC was a VIE and that we were not the primary beneficiary; therefore, we no longer consolidated CEOC. Subsequent to the deconsolidation, we accounted for our investment in CEOC as a cost method investment of zero due to the negative equity associated with CEOC’s underlying financial position. CEOC’s ownership interest in CES was $26 million and $33 million as of September 30, 2017 and December 31, 2016 , respectively, and is accounted for as noncontrolling interest .
Transactions with CEOC were treated as related party transactions for Caesars Entertainment. These transactions include items such as casino management fees paid to CEOC, insurance expenses related to insurance coverage provided to CEOC by Caesars Entertainment, and rent payments by CEOC to CERP under the Octavius Tower lease agreement. See Note 15 for additional information on related party transactions and on the carrying amounts and classification of assets and liabilities that relate to our variable interest in CEOC.
As described in Note 17 , on October 6, 2017 , the Debtors consummated their reorganization pursuant to the Plan, and CEC completed the acquisition of all of New CEOC. As a result, New CEOC, as CEOC’s successor, is a wholly owned subsidiary of CEC following the Effective Date, and will no longer be treated as a related party going forward.
Note 3 Litigation
Litigation
Noteholder Disputes
As set forth in detail in our 2016 Annual Report and in our Form 10-Q for the quarter ended June 30, 2017, beginning in 2014, CEC was party to a number of lawsuits (the “Noteholder Lawsuits”) relating to the enforceability of certain CEC financial guarantees of CEOC debt obligations. More specifically, seven lawsuits were filed by certain secured or unsecured creditors against CEC (originally also against others) in federal and state courts in New York and Delaware, and one lawsuit was initiated by CEC against certain creditors in New York state court, each seeking judicial determinations of CEC’s liability, if any, for its refusal to pay creditors under various parental guarantees that supported particular CEOC indebtedness. In October 2017, following the Effective Date, each of these Noteholder Lawsuits was dismissed, with prejudice.     
Report of Bankruptcy Examiner
With the effectiveness of the CEOC reorganization plan, matters relating to the Report of Bankruptcy Examiner have now been resolved.
Employee Benefit Obligations
As previously reported in more detail in our 2016 Annual Report and in our Form 10-Q for the quarter ended June 30, 2017, CEC and CEOC have been engaged in a number of actions and proceedings (the “Hilton Actions”) with Hilton Hotels Corporation (“Hilton”), the Plan Administrator of the Hilton Hotels Retirement Plan (the “Hilton Plan”), and a representative of the Plan Administrator (together with Hilton and the Plan Administrator, the “Hilton Parties”) relating to amounts to be paid to the Hilton Plan in connection with an Employee Benefits and Other Employment Allocation Agreement dated December 31, 1998 (the “Allocation Agreement”).
On June 9, 2016, CEC, CEOC and the Hilton Parties entered into a settlement of the claims in the Hilton Actions (the “Settlement Agreement”). Under the Settlement Agreement, Hilton would receive a general unsecured claim in CEOC’s bankruptcy case for an amount equal to $51 million plus 31.75% of amounts paid by Hilton to the Hilton Plan due after July 16, 2016. In addition, for periods following the effective date of CEOC’s plan of reorganization, CEC would assume certain of CEOC’s obligations under the Allocation Agreement and Hilton would turn over to CEC the distributions on account of $24.5 million of Hilton’s claim in

13




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


the CEOC bankruptcy, minus an amount for reimbursement of Hilton’s costs and expenses. The CEOC Bankruptcy Court approved the Settlement Agreement on July 19, 2016. The settlement amount is fully accrued in liabilities subject to compromise at CEOC, which will be acquired by CEC (see Note 17 ).
The effective date of CEOC’s plan of reorganization occurred on October 6, 2017. Pursuant to the Settlement Agreement and the occurrence of the effective date, the Hilton Actions were dismissed with prejudice. In addition, with CEC’s consent, Hilton sold its claim in the CEOC bankruptcy and turned over to CEC the proceeds from the sale of Hilton’s claim minus the reimbursement of Hilton’s costs and expenses. CEC received approximately $12 million in the fourth quarter of 2017.
National Retirement Fund
As previously reported in more detail in our 2016 Annual Report and in our Form 10-Q for the quarter ended June 30, 2017, the five indirect subsidiaries of CEC which were required to make contributions to the National Retirement Fund’s (“NRF’s”) legacy plan (the “Five Employers”) and the members of the Five Employers’ controlled group (the “CEC Controlled Group”) have been engaged in a number of actions, proceedings and appeals with the NRF, its fund manager, and its board of trustees (the “NRF Litigations”) arising out of the January 2015 vote of a majority of the NRF’s trustees to expel the Five Employers from the NRF’s legacy plan. Pursuant to the NRF Settlement Agreement (as defined below), each of the NRF Litigations was dismissed with prejudice after the Effective Date of the Debtors’ reorganization pursuant to the Plan on October 6, 2017.
On March 13, 2017, CEC, CERP, CEOC (on behalf of itself and each of the Debtors and its other direct and indirect subsidiaries), the Five Employers, the NRF, the NRF’s legacy plan, the NRF’s trustees, and others entered into a Settlement Agreement (the “NRF Settlement Agreement”). Under the NRF Settlement Agreement, on the Effective Date, CEC would pay $45 million to the NRF (the “NRF Payments”). On the Effective Date, the NRF Payments were made to the NRF and thus the mutual releases between the CEC-affiliated parties and the NRF-affiliated parties to the NRF Settlement Agreement became effective. Promptly after the Effective Date, each of the actions, proceedings and appeals relating to the NRF Litigations was dismissed with prejudice.
As of both December 31, 2016 and September 30, 2017 , with respect to the NRF Payments, the Company had accrued $30 million related to the litigation settlement, the legal fee reimbursement, and the withdrawal liability in accrued expenses and other current liabilities on the Balance Sheets. The portion of the NRF Payments related to contributions will be accounted for as a prepayment toward future pension contributions.
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. In October 2013, CEOC’s subsidiary, Desert Palace, Inc. (the owner of and referred to herein as Caesars Palace, and which is now known as Desert Palace, LLC as of the Effective Date), received a letter from the Financial Crimes Enforcement Network of the United States Department of the Treasury (“FinCEN”), stating that FinCEN was investigating 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, we were informed in October 2013 that a federal grand jury investigation regarding anti-money laundering practices of the Company and its subsidiaries had been initiated. In September 2015, FinCEN announced a settlement with Caesars Palace, and CEOC and the Nevada Gaming Control Board reached a settlement on the same facts as above. New CEOC continues to cooperate with the Department of Justice in its investigation of this matter.
Caesars is party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any such litigation to have a material effect on our consolidated financial position, results of operations, or cash flows, as we do not believe it is reasonably possible that we will incur material losses as a result of such litigation.
Note 4 Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (the “FASB”) issued the following authoritative guidance amending the FASB Accounting Standards Codification.
Compensation - Stock Compensation - May 2017 : Amendments in this update provide guidance regarding which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following are met: (i) the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award; (ii) the vesting conditions of the modified award are the same as the

14




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


vesting conditions of the original award; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as before the original award was modified. Amendments in this update are effective for all periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. Application of amended guidance should be applied prospectively to an award modified on or after the adoption date.
Intangibles - Goodwill and Other - January 2017 : Amendments in this update intend to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. Under the amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The elimination of Step 2 from the goodwill impairment test should reduce the cost and complexity of evaluating goodwill for impairment. Amendments should be applied on a prospective basis disclosing the nature of and reason for the change in accounting principle upon transition. Disclosure should be provided in the first annual period and in the interim period in which the entity initially adopts the amendments. Updated amendments are effective for fiscal years beginning after December 15, 2019, and interim period within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We currently plan to implement the updated guidance when we perform our annual goodwill impairment assessment as of October 1.
Business Combinations - January 2017 : Updated amendments intend to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments are effective to annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is allowed as follows: (1) Transactions for which acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. We are currently assessing the effect the adoption of this standard will have on our financial statements.
Statement of Cash Flows - August 2016 : Amended guidance addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments should be applied retrospectively to each period presented. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the effect the adoption of this standard will have on our financial statements.
Income Taxes - October 2016 : Amended guidance addresses intra-entity transfers of assets other than inventory, which requires the recognition of any related income tax consequences when such transfers occur. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Amendments are effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early adoption is permitted. We are currently assessing the effect the adoption of this standard will have on our financial statements.
Revenue Recognition - May 2014 (amended September 2017) : Created a new Topic 606, Revenue from Contracts with Customers . The new guidance is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP applicable to revenue transactions. Existing industry guidance will be eliminated, including revenue recognition guidance specific to the gaming industry. The FASB has recently issued several amendments to the standard, including clarification on accounting for and identifying performance obligations. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. The guidance should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application. We plan to adopt this standard effective January 1, 2018, on a full retrospective basis.
We are currently in the process of our analysis and anticipate this standard will have a material effect on our consolidated financial statements. As described below, we expect the most significant effect will be related to the accounting for the Total Rewards customer loyalty program and casino promotional allowances. However, due to the complexity and nature of the gaming industry, the quantitative effects of these changes have not yet been determined and are still being analyzed.

15




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


The Total Rewards customer loyalty program affects revenue from our four core businesses: casino entertainment, food and beverage, rooms and hotel, and entertainment and other business operations. Currently, CEC estimates the 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 guidance, Reward Credits will no longer be recorded at cost, and a deferred revenue model will be 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 will result in a portion of casino revenues being recorded as deferred revenue and being recognized as revenue in a future period when the Reward Credits are redeemed, and the revenue will be classified according to the good or service for which the Reward Credits were redeemed (e.g., a hotel room).
We also expect to see a significant decrease in casino revenues. The presentation of goods and services provided to customers without charge in gross revenue with a corresponding reduction in promotional allowances will no longer be reported. Revenue will be 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 will be 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.
We will continue to monitor and assess the impact of any changes to the standard and interpretations as they become available.
Recognition and Measurement of Financial Instruments - January 2016 : Amended certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other things, they require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with any changes in fair value recognized in net income and simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted on certain provisions. We are currently assessing the effect the adoption of this standard will have on our financial statements, but do not expect the effect to be material.
Leases - February 2016 (amended September 2017) : The amended guidance requires most lease obligations to be recognized as a right-of-use (“ROU”) asset with a corresponding liability on the balance sheet. The guidance also requires additional qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance should be implemented for the earliest period presented using a modified retrospective approach, which includes optional practical expedients primarily focused on leases that commenced before the effective date, including continuing to account for leases that commenced before the effective date in accordance with previous guidance, unless the lease is modified.
Currently, all of our capital leases are set to expire before the initial effective date and will not require any accounting adjustments. Accounting for our operating leases where we are the lessor, including leases for the Octavius Tower at Caesars Palace Las Vegas and gaming space at The LINQ promenade, will remain unchanged. However, after the Debtors consummated their reorganization pursuant to the Plan, New CEOC became a wholly owned subsidiary of CEC, and this lease transaction will be eliminated upon consolidation. Operating leases, including agreements relating to slot machines, will be recorded on the balance sheet as an ROU asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption are still being analyzed. We are in the process of evaluating the full effect the new guidance will have on our financial statements.
Financial Instruments-Credit Losses - June 2016 (amended January 2017) : Amended guidance replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of broader range of reasonable and supportable information to inform credit loss estimates. Amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. Amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the effect the adoption of this standard will have on our financial statements.

16

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

Note 5 Property and Equipment
(In millions)
September 30, 2017
 
December 31, 2016
Land and land improvements
$
3,576

 
$
3,584

Buildings and leasehold improvements
4,021

 
4,149

Furniture, fixtures, and equipment
1,309

 
1,346

Construction in progress
119

 
55

Total property and equipment
9,025

 
9,134

Less: accumulated depreciation
(1,902
)
 
(1,688
)
Total property and equipment, net
$
7,123

 
$
7,446

Depreciation Expense and Capitalized Interest
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Depreciation expense (1)
$
135

 
$
94

 
$
303

 
$
273

Capitalized interest
2

 
1

 
4

 
1

____________________
(1)  
Depreciation expense for the three and nine months ended September 30, 2017 includes accelerated depreciation of $54 million and $59 million , respectively, due to asset removal and replacement in connection with property renovations primarily at Bally’s Las Vegas and Harrah’s Las Vegas compared with $16 million and $41 million during the three and nine months ended September 30, 2016 , respectively, related to property renovations primarily at Harrah’s Las Vegas and Paris Las Vegas.

17




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


Note 6 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 December 31, 2016
$
285

 
$
1,608

 
$
148

Amortization
(49
)
 

 

Deconsolidation of CRBH

 

 
(22
)
Balance as of September 30, 2017
$
236

 
$
1,608

 
$
126

Gross Carrying Value and Accumulated Amortization of Intangible Assets Other Than Goodwill
 
September 30, 2017
 
December 31, 2016
(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
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
3.7
 
$
893

 
$
(676
)
 
$
217

 
$
893

 
$
(630
)
 
$
263

Contract rights
7.3
 
3

 
(2
)
 
1

 
3

 
(1
)
 
2

Gaming rights and other
6.8
 
43

 
(25
)
 
18

 
43

 
(23
)
 
20

 
 
 
$
939

 
$
(703
)
 
236

 
$
939

 
$
(654
)
 
285

Non-amortizing
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
 
126

 
 
 
 
 
126

Gaming rights
 

 
 
 
 
 
22

 
 
 
 
 
 
 
126

 
 
 
 
 
148

Total intangible assets other than goodwill
 
$
362

 
 
 
 
 
$
433

Note 7 Fair Value Measurements
Investments
Investments reported at fair value primarily consist of government bonds held by our captive insurance entities totaling $28 million and $47 million as of September 30, 2017 and December 31, 2016 , respectively. These investments are traded in active markets, have readily determined market values and have maturity dates of greater than three months from the date of purchase. Because the fair value of these instruments is not estimated individually, but rather in the aggregate using alternative pricing methods, their fair value is classified as Level 2. These investments primarily represent collateral for several escrow and trust agreements with third-party beneficiaries and are recorded in deferred charges and other in the Balance Sheets while a portion is included in prepayments and other current assets.

18




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


Restructuring Commitments
Estimated Fair Value
(In millions)
Balance 
 
Level 1
 
Level 2
 
Level 3
December 31, 2016
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Issuance of CEC Convertible Notes
$
1,600

 
$

 
$

 
$
1,600

Issuance of CEC common stock
1,936

 

 
1,936

 

PropCo Call Right
131

 

 

 
131

Total liabilities at fair value
$
3,667

 
$

 
$
1,936

 
$
1,731

September 30, 2017
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Issuance of CEC Convertible Notes
$
2,240

 
$

 
$

 
$
2,240

Issuance of CEC common stock
3,507

 
3,507

 

 

PropCo Call Right
189

 

 

 
189

Total liabilities at fair value
$
5,936

 
$
3,507

 
$

 
$
2,429

Changes in Level 3 Fair Value Measurements
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
(In millions)
CEC Convertible Notes
 
PropCo Call Right
 
CEC Convertible Notes
 
PropCo Call Right
Balance as of beginning of period
$
1,910

 
$
193

 
$
1,600

 
$
131

Restructuring of CEOC and other
330

 
(4
)
 
640

 
58

Balance as of end of period
$
2,240

 
$
189

 
$
2,240

 
$
189

As described in Note 1 , we recognized certain obligations that were settled on the Effective Date of the Plan. A portion of the obligations we recognized reflect our estimates of the fair value of the consideration CEC has agreed to provide in the form of CEC common stock, CEC Convertible Notes, and the PropCo Call Right in exchange for the settlement of litigation claims and potential claims against CEC and its affiliates. These obligations are recorded in accrued restructuring and support expenses on the Balance Sheets.
Valuation Methodologies
CEC Convertible Notes - We estimated the fair value of the CEC Convertible Notes to be issued using a binomial lattice valuation model that incorporates the value of both the straight debt and conversion features of the notes. In the Plan, the CEC Convertible Notes have a face value of $1.1 billion , a term of 7 years, a coupon rate of 5% , and are convertible into 156 million shares of CEC common stock. The valuation model incorporates assumptions regarding the incremental post-emergence 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.
Key Assumptions -
Incremental cost of borrowing - 5.0%
Expected volatility - 32%
Risk-free rate - 2.2%

19




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


Since the key assumptions used in the valuation model, including CEC’s estimated incremental post-emergence cost of borrowing and the expected volatility of CEC’s equity, are significant unobservable inputs, the fair value for the CEC convertible notes is classified as Level 3. Should CEC’s estimated incremental cost of borrowing or equity value fluctuate over time, it could result in an increase or decrease in the fair value of the notes and the corresponding restructuring accrual. Specifically, a decrease in the incremental borrowing rate or an increase in the expected volatility of CEC’s common stock would result in an increase in the restructuring accrual.
CEC Common Stock - On the Effective Date, CEC issued shares of CEC common stock for the settlement of claims and potential claims. Also on the Effective Date, CEC repurchased approximately 146 million shares of CEC common stock for approximately $1.0 billion from certain creditors of CEOC at a pre-negotiated price of $6.86 per share. The value of the purchase obligation is not subject to changes in fair value; therefore, the estimated fair value primarily represents the net shares that we issued after satisfying the repurchase obligation. We have used the fair value of CEC’s common stock as of the Effective Date to estimate this portion of the restructuring accrual, and the fair value is no longer subject to market fluctuations because the shares of common stock have been issued.
The valuation models used to estimate the fair value of CEC’s common stock expected to be issued do not require significant judgment and inputs can be observed in a liquid market, such as the current trading price; therefore, this portion of the restructuring accrual is classified as Level 1.
PropCo Call Right Agreement - On the Effective Date, PropCo received a call right for up to five years to purchase and leaseback the real property assets associated with Harrah’s Atlantic City and Harrah’s Laughlin from CERP and Harrah’s New Orleans from CGP for a cash purchase price of ten times the agreed upon annual rent for each property (subject to the terms of the CERP and CGPH credit agreements). The initial rent for each property under the agreement will be determined based on a rent-to-earnings before interest, taxes, depreciation, amortization, and rent (“EBITDAR”) ratio of 1.00-to-1.67. PropCo’s purchase price will be determined by multiplying each property’s initial rent by 10.
The valuation model used to estimate the fair value of the PropCo Call Right is a Monte Carlo simulation and utilized the following key assumptions:
Key Assumptions -
Ratio of EBITDAR to Initial Rent under Property Lease - 1.67 to 1.00
EBITDAR volatility - 25%
Enterprise value to revenue volatility - 12%
Ratio of initial purchase price to property lease rent - 12.00 to 1.00
EBITDAR to multiple correlation - 0.0%
Composite projected revenue growth rate - 2.4%
Composite projected EBITDAR margin growth rate - 24.1%
Since the key assumptions used in the valuation model are significant unobservable inputs, the fair value for the call right is classified as Level 3. Should these assumptions fluctuate over time, it could result in an increase or decrease in the fair value of the call right and the corresponding restructuring accrual. Specifically, an increase in the volatility assumptions would result in an increase in the restructuring accrual.
Note 8 Contractual Commitments and Contingent Liabilities
Contractual Commitments
Except as described below and in Note 1 and Note 9 , during the nine months ended September 30, 2017 , we have not entered into any material contractual commitments outside of the ordinary course of business that have materially changed our contractual commitments as compared to December 31, 2016 .

20




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


NV Energy
In September 2017, we filed our final notice to proceed with our plan to exit the fully bundled sales system of NV Energy for our Nevada casino properties and purchase energy, capacity, and/or ancillary services from a provider other than NV Energy. The transition to unbundle electric service (the “Cease-Use Date”) is expected to begin in December 2017 and should extend through the first quarter of 2018. As a result of our decision to exit, NV Energy charged aggregate impact exit fees of $48 million , of which $33 million related to CGPH and CERP properties and $15 million related to New CEOC’s properties. These fees are payable over three to six years at an aggregate present value of $38 million . The portion attributable to CGPH and CERP was recorded at $26 million in accrued expenses and other current liabilities and deferred credits and other liabilities on the Balance Sheets as of September 30, 2017 , with a corresponding expense recognized in other operating costs in the Statements of Operations.
For six years following the transition, we are also required to make ongoing payments to NV Energy for non-bypassable rate charges, which primarily relate to each entity’s share of NV Energy’s portfolio of renewable energy contracts and the costs of decommissioning and remediation of coal-fired power plants. Total fees to be incurred, including the portion attributable to New CEOC, are expected to be $32 million , with an estimated present value of $26 million . The portion of fees attributable to CGPH and CERP properties is estimated to be $24 million , with an estimated present value of $19 million . We expect to record a liability at the Cease-Use Date representing an estimate of the present value of the non-bypassable rate charges on the effective date of the transition.
Contingent Liabilities
Self-Insurance
We are self-insured for workers compensation and other risk insurance, as well as health insurance effective in the first quarter of 2017 when the liability related to certain health insurance contracts was transferred from CEOC to CES. Our total estimated self-insurance liability was $193 million and $179 million as of September 30, 2017 and December 31, 2016 , respectively.
Deferred Compensation and Employee Benefits
Deferred Compensation Plans
As of September 30, 2017 , certain current and former employees of Caesars, and our subsidiaries and affiliates, have balances under the Harrah’s Entertainment, Inc. Executive Supplemental Savings Plan (“ESSP”), the Harrah’s Entertainment, Inc. Executive Supplemental Savings Plan II (“ESSP II”), the Park Place Entertainment Corporation Executive Deferred Compensation Plan (“CEDCP”), the Harrah’s Entertainment, Inc. Deferred Compensation Plan (“DCP”), and the Harrah’s Entertainment, Inc. Executive Deferred Compensation Plan (“EDCP”). These plans are deferred compensation plans that allow certain employees an opportunity to save for retirement and other purposes.
Each of the plans is now frozen and is no longer accepting contributions. However, participants may still earn returns on existing plan balances based upon their selected investment alternatives, which are reflected in their deferral accounts.
Plan obligations in respect of all of these plans were included in Caesars’ financial statements as liabilities prior to the deconsolidation of CEOC. Caesars has recorded in the accompanying financial statements $39 million and $40 million in liabilities as of September 30, 2017 and December 31, 2016 , respectively, representing the estimate of its obligations under the ESSP and ESSP II and for certain former directors and employees who had employment agreements with Harrah’s Entertainment, Inc. (the predecessor to CEC) and participated in the EDCP.
Trust Assets
CEC is a party to a trust agreement (the “Trust Agreement”) structured as a so-called “rabbi trust” arrangement, which holds assets that may be used to satisfy obligations under the deferred compensation plans above. Amounts held pursuant to the Trust Agreement were approximately $67 million and $62 million as of September 30, 2017 and December 31, 2016 , respectively, and have been reflected as long-term restricted assets on the Balance Sheets.

21




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


Settlement Agreement
On September 14, 2016, CEC entered into a settlement agreement with CEOC related to the liabilities and assets associated with the above deferred compensation plans, which was approved by the Bankruptcy Court on October 17, 2016. Pursuant to the settlement agreement, contemporaneously with the Effective Date of the Restructuring, CEC would assume all obligations to plan participants under or with respect to all five of the deferred compensation plans, and the Debtors would have no further obligations to the deferred compensation plan participants. At that time, CEOC and the other Debtors would relinquish and release any claim or right that any of them may have in respect of the assets held under either the Trust Agreement or additional assets held pursuant to a separate escrow agreement (the “Escrow Agreement”). This settlement transaction was completed as part of the Plan on the Effective Date. See Note 17 .
Note 9 Debt
 
September 30, 2017
 
December 31, 2016
(In millions)
Face Value
 
Book Value
 
Book Value
CERP  (1)
$
4,556

 
$
4,511

 
$
4,563

CGP (1)
1,999

 
1,966

 
2,275

Total debt
6,555

 
6,477

 
6,838

Current portion of long-term debt
(39
)
 
(39
)
 
(89
)
Long-term debt
$
6,516

 
$
6,438

 
$
6,749

 
 
 
 
 
 
Unamortized discounts and deferred finance charges
 
 
$
78

 
$
110

Fair value
$
6,717

 
 
 
 
____________________
(1)  
See Note 17 for additional information about pending transactions related to CERP and CGPH’s debt and their organizational structures.
Current Portion of Long-Term Debt
CERP’s current portion of long-term debt is $25 million , which includes scheduled principal payments on its senior secured loan that are expected to be paid within 12 months. CGP’s current portion of long-term debt is $14 million , which includes scheduled principal payments on term loans, special improvement district bonds, and various capital lease obligations.
Although there are no outstanding amounts under the revolving credit facilities for CERP or CGPH as of September 30, 2017 , borrowings under these revolving credit facilities are each subject to separate note agreements executed based on the provisions of the applicable credit facility agreements, and each note has a contractual maturity of less than one year. The applicable credit facility agreements each have a contractual maturity of greater than one year, and we have the ability to rollover the outstanding principal balances on a long-term basis. Amounts borrowed under the revolving credit facilities are intended to satisfy short term liquidity needs and are classified as current.
Fair Value
We calculate the fair value of debt based on borrowing rates available as of September 30, 2017 , for debt with similar terms and maturities, and based on market quotes of our publicly traded debt. We classify the fair value of debt within Level 1 and Level 2 in the fair value hierarchy.
CERP Debt
On May 12, 2017 , CERP amended its first lien credit agreement to reduce the interest rate margins applicable to approximately $211 million of its revolving credit facility and to the entire remaining $2.4 billion of its term loan facility by 2.50% . The amendment also included automatic step-ups in the scheduled quarterly payments to approximately $16 million beginning December 31, 2018 , and to approximately $31 million beginning December 31, 2019 . This amendment resulted in a loss on extinguishment of debt of approximately $1 million , which is recorded in Restructuring of CEOC and other in the Statements of Operations.

22




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


 
September 30, 2017
 
December 31, 2016
(Dollars in millions)
Final
Maturity
 
Rate(s) (1)
 
Face Value
 
Book Value
 
Book Value
CERP Credit Facility
 
 
 
 
 
 
 
 
 
CERP Revolving Credit Facility  (2)
2018
 
various
 
$

 
$

 
$
40

CERP Senior Secured Term Loan (3)
2020
 
4.74%
 
2,406

 
2,376

 
2,387

CERP Notes
 
 
 
 
 
 
 
 
 
CERP First Lien Notes
2020
 
8.00%
 
1,000

 
994

 
993

CERP Second Lien Notes
2021
 
11.00%
 
1,150

 
1,141

 
1,140

Capital lease obligations and other
N/A
 
N/A
 

 

 
3

Total CERP Debt
 
4,556

 
4,511

 
4,563

Current portion of CERP long-term debt
 
(25
)
 
(25
)
 
(68
)
CERP long-term debt
 
$
4,531

 
$
4,486

 
$
4,495

____________________
(1)  
Interest rate is fixed, except where noted.
(2)  
Variable interest rate for the $211 million amended revolver is LIBOR plus 3.50% , down from 6.00% prior to the amendment. The variable interest rate on the remaining $59 million is determined by adding LIBOR to a base rate of 6.00% .
(3)  
Variable interest rate was amended during the 2017 second quarter from 6.00% plus the greater of LIBOR or a 1% floor to 3.50% plus the greater of LIBOR or a 1% floor .

CGP Debt
On April 27, 2017 , CGPH entered into an Incremental Assumption Agreement and Amendment No. 1 to its First Lien Credit Agreement that, among other things, (a) provided for an increase in CGPH’s existing Senior Secured Term Loan of $175 million to approximately $1.3 billion and (b) reduced the interest rate margins applicable to the Senior Secured Term Loan and CGPH's existing $150 million revolving credit facility by 2.25% . On June 20, 2017, the $175 million incremental proceeds were used to repay the property-specific term loan encumbering The Cromwell, which extended the final maturity for the majority of the $175 million from 2019 to 2021. At the time of the repayment, The Cromwell became part of the CGPH restricted group (which is subject to certain restrictions or limitations placed on CGPH and its restricted subsidiaries), and its assets were pledged as collateral for both the CGPH Senior Secured Term Loan and the CGPH Notes. This amendment resulted in a loss on extinguishment of debt of approximately $4 million , which is recorded in Restructuring of CEOC and other in the Statements of Operations.
On July 7, 2017 , CBAC closed the syndication of new senior secured credit facilities, consisting of $300 million in the aggregate principal amount of a senior secured term loan facility maturing in 2024 (the “Baltimore Term Facility”), subject to a variable rate of interest calculated as LIBOR plus 4.00% , which is down from 7.00% prior to the amendment. The proceeds from the Baltimore Term Facility, in addition to $15 million in cash, were used to repay the amounts outstanding under the Horseshoe Baltimore Credit Facility and the Horseshoe Baltimore FF&E Facility.
CBAC’s new senior secured revolving credit facility has up to $15 million available in aggregate principal amount and matures in 2022.
As described in Note 2 , CGP deconsolidated CRBH effective August 31, 2017 . As a result, we derecognized the long-term debt outstanding under the Horseshoe Baltimore Credit Facility and the Horseshoe Baltimore FF&E Facility.

23




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


 
September 30, 2017
 
December 31, 2016
(Dollars in millions)
Final
Maturity
 
Rate(s) (1)
 
Face Value
 
Book Value
 
Book Value
CGPH Credit Facilities
 
 
 
 
 
 
 
 
 
CGPH Senior Secured Revolving Credit Facility (2)
2019
 
various
 
$

 
$

 
$

CGPH Senior Secured Term Loan (3)
2021
 
4.24%
 
1,311

 
1,289

 
1,119

CGPH Notes
2022
 
9.38%
 
675

 
664

 
662

Cromwell Credit Facility
N/A
 
N/A
 

 

 
167

Horseshoe Baltimore Credit and FF&E Facilities
 
 
 
 
 
 
 
 
 
Horseshoe Baltimore Revolving Facility Loan
N/A
 
N/A
 

 

 

Horseshoe Baltimore Credit Facility
N/A
 
N/A
 

 

 
287

Horseshoe Baltimore FF&E Facility
N/A
 
N/A
 

 

 
22

Other secured debt
N/A
 
N/A
 

 

 
4

Special Improvement District Bonds
2037
 
4.30%
 
13

 
13

 
14

Total CGP Debt
 
1,999

 
1,966

 
2,275

Current portion of CGP long-term debt
 
(14
)
 
(14
)
 
(21
)
CGP long-term debt
 
$
1,985

 
$
1,952

 
$
2,254

____________________
(1)  
Interest rate is fixed, except where noted.
(2)  
Variable interest rate calculated as LIBOR plus 3.00% , down from 5.25% prior to the amendment.
(3)  
Variable interest rate was amended during the 2017 second quarter from 5.25% plus the greater of LIBOR or a 1% floor to 3.00% plus the greater of LIBOR or a 1% floor .
Terms of Outstanding Debt
Restrictive Covenants
The CERP Notes, CERP Credit Facility, CGPH Senior Secured Term Loan, and CGPH Notes all include negative covenants, subject to certain exceptions, and contain affirmative covenants and events of default, subject to exceptions, baskets and thresholds (including equity cure provisions in the case of the CERP Credit Facility), all of the preceding being customary in nature.
The restrictive covenants also require that we maintain Senior Secured Leverage Ratios (“SSLR”) as shown in the table below. SSLR is defined as the ratio of first lien senior secured net debt to earnings before interest, taxes, depreciation and amortization, adjusted as defined (“Adjusted EBITDA”).
Credit Facility
 
Covenant Type
 
Effective Period
 
Requirement
CERP Credit Facility
 
CERP Maximum SSLR
 
From inception
 
8.00
to 1.00
CGPH Senior Secured Term Loan
 
CGPH Maximum SSLR
 
From inception
 
6.00
to 1.00
Guarantees
CERP has pledged a significant portion of its assets as collateral under the notes and facilities. The CERP Notes are co-issued, as well as fully and unconditionally guaranteed, jointly and severally, by Caesars Entertainment Resort Properties, LLC (parent entity) and each of its wholly-owned subsidiaries on a senior secured basis.
The CGPH Senior Secured Term Loan is guaranteed by the direct parent of CGPH and substantially all of CGPH’s subsidiaries, and is secured by the direct parent’s equity interest in CGPH and substantially all of the existing and future assets of CGPH and the subsidiary guarantors.

24




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


The CGPH Notes are secured by substantially all of the existing and future property and assets of CGPH and the subsidiary guarantors (subject to exceptions), and are guaranteed by CGPH and substantially all of CGPH’s subsidiaries (subject to exceptions).
Note 10 Earnings Per Share
Basic earnings per share is computed by dividing the applicable income amounts by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing the applicable income amounts by the sum of weighted-average number of shares of common stock outstanding and dilutive potential common stock.
For a period in which Caesars generated a net loss, the weighted-average basic shares outstanding was used in calculating diluted loss per share because using diluted shares would have been anti-dilutive to loss per share.
Basic and Dilutive Net Earnings Per Share Reconciliation
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions, except per share data)
2017
 
2016
 
2017
 
2016
Loss from continuing operations attributable to Caesars, net of income taxes
$
(468
)
 
$
(3,936
)
 
$
(2,456
)
 
$
(6,379
)
Income from discontinued operations attributable to Caesars, net of income taxes

 
3,293

 

 
3,351

Net loss attributable to Caesars
$
(468
)
 
$
(643
)
 
$
(2,456
)
 
$
(3,028
)
 
 
 
 
 
 
 
 
Weighted-average common stock outstanding
149

 
147

 
148

 
146

 
 
 
 
 
 
 
 
Basic and diluted loss per share from continuing operations
$
(3.14
)
 
$
(26.80
)
 
$
(16.54
)
 
$
(43.70
)
Basic and diluted earnings per share from discontinued operations

 
22.42

 

 
22.96

Basic and diluted loss per share
$
(3.14
)
 
$
(4.38
)
 
$
(16.54
)
 
$
(20.74
)
Weighted-Average Number of Anti-Dilutive Shares Excluded from Calculation of EPS
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Stock options
10

 
10

 
13

 
10

Restricted stock units and awards
6

 
9

 
6

 
9

Total anti-dilutive common stock
16

 
19

 
19

 
19


25




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 cost of providing such casino promotional allowances is included in casino expenses.
Estimated Retail Value of Casino Promotional Allowances
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Food and beverage
$
68

 
$
66

 
$
206

 
$
207

Rooms
60

 
57

 
178

 
174

Other
10

 
8

 
27

 
22

 
$
138

 
$
131

 
$
411

 
$
403

Estimated Cost of Providing Casino Promotional Allowances
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Food and beverage
$
41

 
$
40

 
$
125

 
$
124

Rooms
20

 
20

 
61

 
60

Other
6

 
5

 
16

 
13

 
$
67

 
$
65

 
$
202

 
$
197

Note 12 Stock-Based Compensation
Caesars Entertainment Stock-Based Compensation
During the second quarter 2016, we implemented FASB ASU No. 2016-09, which amended Topic 718, Compensation - Stock Compensation . This updated guidance amended the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We applied the amended guidance using a modified retrospective transition method of a cumulative-effect adjustment to beginning equity of $1 million .
We maintain long-term incentive plans for management, other personnel, and key service providers. The plans allow for granting stock-based compensation awards, based on CEC common stock (NASDAQ symbol “CZR”), including time-based and performance-based stock options, restricted stock units, restricted stock awards, stock grants, or a combination of awards.
Composition of Caesars Entertainment Stock-Based Compensation Expense
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Corporate expense
$
6

 
$
7

 
$
19

 
$
26

Property, general, administrative, and other
1

 
1

 
3

 
4

Total stock-based compensation expense
$
7

 
$
8

 
$
22

 
$
30


26




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


Outstanding at End of Period
 
September 30, 2017
 
December 31, 2016
 
Quantity (1)
 
Wtd Avg (2)
 
Quantity
 
Wtd Avg (2)
Stock options (3)
9,316,676

 
$
10.35

 
9,820,168

 
$
11.69

Restricted stock units (4)
5,331,636

 
7.61

 
8,447,922

 
7.95

____________________
(1)  
There were no grants of stock options or restricted stock units related to CEC common stock during the nine months ended September 30, 2017 .
(2)  
Represents weighted average exercise price for stock options and weighted average fair value for restricted stock units.
(3)  
On March 14, 2017, we modified vested and unvested stock options held by active employees with exercise prices above the then-current market price of CEC’s common stock to have an exercise price of $9.45 .
(4)  
During the three and nine months ended September 30, 2017 , 88,856 and 2,710,851 restricted stock units vested, respectively.
CIE Stock-Based Compensation Plan
Historically, CIE has granted stock-based compensation awards in CIE common stock to its employees, directors, service providers and consultants in accordance with the Caesars Interactive Entertainment, Inc. Amended and Restated Management Equity Incentive Plan, which was intended to promote the interests of CIE and its stockholders by providing key employees, directors, service providers and consultants with an incentive to encourage their continued employment or service and improve the growth and profitability of CIE. These awards were classified as liability-based instruments and were re-measured at their fair value at each reporting date.
As described in Note 1 , in September 2016, CIE sold its SMG Business, which represented the majority of CIE’s operations, and the SMG Business is now presented as discontinued operations (see Note 14 ). Upon the closing of the SMG Business sale, all outstanding CIE stock-based compensation awards were deemed fully vested and were subsequently paid in cash in connection with the closing of the SMG Business sale, as described in Note 14 .
The portion of CIE’s stock-based compensation expense directly identifiable with employees of the SMG Business was reclassified to discontinued operations for all periods presented in the Statements of Operations. The portion of CIE’s stock-based compensation expense not directly identifiable with employees of the SMG Business was $145 million and $188 million for the three and nine months ended September 30, 2016, respectively, and was included in property, general, administrative, and other in the Statements of Operations.
Note 13 Income Taxes
Caesars’ provision for income taxes during interim reporting periods has historically been calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. We utilized a discrete effective tax rate method, as allowed by ASC 740-270 “ Income Taxes, Interim Reporting, ” to calculate taxes for the three and nine months ended September 30, 2017 . We determined that as small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three and nine months ended September 30, 2017 .
Income Tax Allocation
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(Dollars in millions)
2017
 
2016
 
2017
 
2016
Loss from continuing operations, before income taxes
$
(480
)
 
$
(3,261
)
 
$
(2,327
)
 
$
(5,626
)
Income tax benefit/(provision)
$
20

 
$
(27
)
 
$
(83
)
 
$
(37
)
Effective tax rate
4.2
%
 
(0.8
)%
 
(3.6
)%
 
(0.7
)%
 
 
 
 
 
 
 
 
Discontinued operations, before income taxes
$

 
$
3,973

 
$

 
$
4,091

Income tax provision
$

 
$
(680
)
 
$

 
$
(740
)

27




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


We classify reserves for tax uncertainties within deferred credits and other in the 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.
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. We have provided a valuation allowance on certain federal and state deferred tax assets that were not deemed realizable based upon estimates of future taxable income.
The effective tax rate related to the loss from continuing operations for the three months ended September 30, 2017 differed from the expected federal tax rate of 35% primarily due to losses from continuing operations not tax benefitted, including accrued restructuring and support expenses. The effective tax rate for the three months ended September 30, 2016 differed from the expected federal tax rate of 35% primarily due to losses from continuing operations not tax benefitted, including accrued restructuring and support expenses, and nondeductible stock based compensation from CIE.
The effective tax rate related to the loss from continuing operations for the nine months ended September 30, 2017 differed from the expected federal tax rate of 35% primarily due to losses from continuing operations not tax benefitted, including accrued restructuring and support expenses, and from state deferred tax expense. Effective January 1, 2017, CEC elected to no longer treat CERP as a corporation for income tax purposes, which resulted in additional state deferred tax expense due to additional state filing requirements for CEC. The effective tax rate related to the loss from continuing operations for the nine months ended September 30, 2016 differed from the expected federal tax rate of 35% primarily due to losses from continuing operations not tax benefitted, including accrued restructuring and support expenses, and nondeductible stock based compensation from CIE.
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 Discontinued Operations
Sale of SMG Business
On September 23, 2016 , CIE sold its 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 .
As a result of the sale, CAC incurred estimated current income tax expense of approximately $285 million on the gain. Under the terms of its operating agreement, CGP is required to distribute funds to CAC, which CAC will use to pay its tax obligation resulting from the sale of the SMG Business (see Note 15 ), and $240 million of this was paid during the year ended December 31, 2016 . During the first quarter of 2017, CGP amended its operating agreement to clarify the allocation method for taxable income resulting from the sale between CEC and CAC. This resulted in less taxable income being allocated to CAC and a lower resulting tax obligation for CAC; therefore, CGP reduced the amount of its estimated distribution to CAC by $26 million to $259 million .
Additionally, proceeds from the sale were deposited into an escrow account to fund potential indemnity claims of Alpha Frontier under the Purchase Agreement (the “Indemnity Escrow”). The balance in the Indemnity Escrow was approximately $259 million as of December 31, 2016 , and until the balance was released in September 2017 to CIE.
As discussed in Note 2 , the majority of the proceeds from the sale of the SMG Business is restricted under the terms of the Purchase Agreement and the CIE Proceeds Agreement and was therefore classified as restricted cash upon receipt. As a result of the sale, the results of operations and cash flows related to the SMG Business were classified as discontinued operations for all periods presented effective beginning in the third quarter of 2016 .
In connection with the closing of the SMG Business sale (“Closing”), CIE completed the following transactions, which were funded from the proceeds of the sale:
Repurchased all of the shares of CIE common stock held by Rock Gaming Interactive LLC, and its other minority investors (collectively, the "Minority Investors") in exchange for the right to receive cash payments representing the fair market value of the shares of CIE common stock at Closing.

28




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


Accelerated the vesting of all of the outstanding options, restricted stock units and warrants of CIE (collectively, “CIE equity awards”) and canceled all such CIE equity awards in exchange for the right to receive cash payments equal to the intrinsic value of such awards.
The total amount distributed to the Minority Investors and former holders of CIE equity awards in connection with Closing was approximately $1.1 billion . As of December 31, 2016 , CGP accrued $63 million for the estimated portion of the balance remaining in the Indemnity Escrow that was due to the Minority Investors and former holders of CIE equity awards.
During the third quarter of 2017, the Indemnity Escrow funds were released to CIE and $63 million was distributed to the Minority Investors and former holders of CIE equity awards according to the terms of the Purchase Agreement.
Effect on Statements of Operations of Discontinued Operations
(In millions)
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
Revenues
 
 
 
Social and mobile games
$
222

 
$
678

Operating expenses
 
 
 
Platform fees
64

 
197

Property, general, administrative, and other (1)
346

 
551

Total operating expenses
410

 
748

 
 
 
 
Gain from discontinued operations
4,161

 
4,161

 
 
 
 
Pre-tax income from discontinued operations
3,973

 
4,091

Income tax provision
(680
)
 
(740
)
Total income from discontinued operations, net of income taxes
$
3,293

 
$
3,351

____________________
(1)  
Property, general, administrative, and other includes stock-based compensation expense directly identifiable with employees of the SMG Business of $211 million and $262 million for the three and nine months ended September 30, 2016 , respectively.
Note 15 Related Party Transactions
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2017
 
2016
 
2017
 
2016
Transactions with Sponsors and their affiliates
 
 
 
 
 
 
 
Reimbursements and expenses
$

 
$

 
$

 
$
6

Expenses paid to Sponsors’ portfolio companies
1

 
1

 
2

 
3

Expenses paid on behalf of CAC
3

 
286