Description of Business

We conduct business through our majority owned subsidiary, Caesars Entertainment Operating Company, Inc. (“CEOC”), and our wholly owned subsidiary, Caesars Entertainment Resort Properties, LLC (“CERP”), and their respective subsidiaries. We also consolidate Caesars Growth Partners, LLC (“CGP LLC”), which is a variable interest entity (“VIE”) for which we have determined that we are the primary beneficiary. As of December 31, 2014, through our consolidated entities we owned and operated or managed 49 casinos in 14 U.S. states and 5 countries. Of the 49 casinos, 37 are in the United States and primarily consist of land-based and riverboat or dockside casinos. Our 12 international casinos are land-based casinos, most of which are located in England.

Caesars Interactive Entertainment, Inc. (“CIE”), a majority owned subsidiary of CGP LLC, operates an online gaming business providing for social games on Facebook and other social media websites and mobile application platforms, certain real money games in Nevada and New Jersey, and “play for fun” offerings in other jurisdictions. CIE also owns the World Series of Poker (“WSOP”) tournaments and brand, and licenses trademarks for a variety of products and businesses related to this brand.

We view each casino property and CIE as operating segments and aggregate all such casino properties and CIE into four reportable segments based on management’s view of these properties, which aligns with their ownership and underlying credit structures: CEOC, CERP, Caesars Growth Partners, LLC Casino Properties and Developments (“CGP LLC Casinos”), and CIE. We revised our presentation from one reportable segment to the four listed above effective October 1, 2014, in conjunction with Caesars Enterprise Services (“CES”) commencing operations, as the way in which CEC management assesses results and allocates resources is aligned in accordance with these segments (See Note 21, “Segment Reporting”).

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. As described more fully below and in Notes 15, 22, and 23 we are a defendant in litigation and other Noteholder Disputes relating to certain CEOC related transactions dating back to 2010. These matters raise substantial doubt about CEC’s ability to continue as a going concern. Management's plans concerning these matters are also discussed in Notes 3, 15, and 22 to the consolidated financial statements.

As described more fully in Note 15, “Litigation, Contractual Commitments, and Contingent Liabilities,” under the heading “Noteholder Disputes,” and in Note 22, “Subsequent Events - Other,” under the heading “Demands for Payment,” we are subject to currently pending or threatened litigation (the “Litigation”) and demands for payment by certain creditors asserting CEC is obligated under the former parent guarantee of certain CEOC defaulted debt (the “Demands” and, together with the Litigation, the “Noteholder Disputes”). The Litigation pending against CEOC, and in certain cases against CEC and its other subsidiaries, has been stayed due to the Chapter 11 bankruptcy process; however, certain Litigation and the Demands against CEC are continuing outside of the Chapter 11 bankruptcy process. The Company believes that the Litigation claims and Demands against CEC are without merit and intends to defend itself vigorously. At the present time, we believe it is not probable that a material loss will result from the outcome of these matters. The Noteholder Disputes are in their very preliminary stages and discovery has begun on the Unsecured Note Lawsuits (as defined in Note 15). We cannot provide assurance as to the outcome of the Noteholder Disputes or of the range of potential losses should the Noteholder Disputes ultimately be resolved against us, due to the inherent uncertainty of litigation and the stage of the related litigation. Should these matters ultimately be resolved through litigation outside of the CEOC Financial Restructuring, and were a court to find in favor of the claimants in any of these Noteholder Disputes, such determination could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Accordingly, we have concluded that the material uncertainty related to certain of the Litigation proceeding against CEC raises substantial doubt about the Company’s ability to continue as a going concern.

Financial Condition and Other Matters

Over the past three years we have incurred cumulative net losses totaling $7.2 billion, primarily due to $7.0 billion of interest expense resulting from our highly-leveraged capital structure. As of December 31, 2014, we had a total accumulated deficit of $13.1 billion and long term debt, including current portion of $15.8 billion, totaled $23.2 billion. Our cash flows from operating activities were negative $772 million over the past three years, primarily due to cash paid for interest of $5.7 billion.

The substantial majority of the preceding negative financial factors have occurred in our largest operating subsidiary, CEOC, which has incurred cumulative net losses totaling $7.1 billion resulting from interest expense of $6.2 billion over the past three years. As of December 31, 2014, CEOC had a total accumulated deficit of $11.4 billion and long term debt, including current portion of $15.7 billion, totaled $16.2 billion. CEOC has experienced negative cash flows from operating activities over the past three years, primarily due to cash paid for interest. All of the foregoing factors have raised substantial doubt about CEOC’s ability to continue as a going concern. See “CEOC Financial Restructuring Plan” below.

CEOC Financial Restructuring Plan

As a result of CEOC’s highly-leveraged capital structure and the general decline in its gaming results since 2007, on January 15, 2015, CEOC and certain of its U.S. subsidiaries voluntarily filed for reorganization 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”). Because CEOC is under the control of the Bankruptcy Court, CEC deconsolidated this subsidiary effective January 15, 2015 (see Note 23, “Subsequent Events - CEOC Bankruptcy and Deconsolidation”).

Announced Merger with Caesars Acquisition Corporation

On December 21, 2014, CEC and Caesars Acquisition Company (“CAC”) entered into a merger agreement, pursuant to which, among other things, CAC will merge with and into CEC, with CEC as the surviving company. Subject to the terms and conditions of the merger agreement, upon consummation of the merger, each share of class A common stock of CAC issued and outstanding immediately prior to the effective time of the Merger will be converted into, and become exchangeable for, that number of shares of CEC common stock, equal to 0.664 to one (the “Exchange Ratio”).

The Exchange Ratio may be subject to adjustment by the Special Committee of CAC’s Board of Directors (the “CAC Special Committee”) and the Special Committee of CEC’s Board of Directors (the “CEC Special Committee”), each composed solely of independent directors, during the Adjustment Period after taking into consideration all relevant facts and circumstances affecting the intrinsic value of CAC and CEC. The Adjustment Period is defined as the 14-day period beginning on the later of:


(i)	the date that the Caesars Entertainment Operating Company, Inc. (“CEOC”) restructuring plan is confirmed; and


(ii)	the date that both CAC and CEC confirm that their respective independent financial advisors have received all information as may be reasonably necessary or advisable in order to render a fairness opinion concerning the Exchange Ratio.

If at the end of the Adjustment Period the CAC Special Committee and the CEC Special Committee have not agreed to an adjustment to the Exchange Ratio, there will not be an adjustment to the Exchange Ratio. Within five business days following the end of the Adjustment Period, either CAC or CEC may terminate the merger agreement if:


(a)	the CAC Special Committee and the CEC Special Committee cannot agree on an Exchange Ratio adjustment and a failure to terminate the Merger Agreement would be inconsistent with their respective directors’ fiduciary duties; or


(b)	the CAC Special Committee or the CEC Special Committee, as applicable, has not received an opinion of its respective financial advisor that the Exchange Ratio (as adjusted, if applicable) is fair, from a financial point of view to CEC or CAC and its public stockholders, as applicable.