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.

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 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).

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. 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.