Stock-Based Compensation

Summary of Caesars Entertainment Stock-Based Incentive Plans

We maintain long-term incentive plans for management, other personnel, and key service providers. The plans allow for granting stock-based compensation awards, including time-based and performance-based stock options, restricted stock units, restricted stock awards, stock grants, or a combination of awards.

Management Equity Incentive Plan

The Harrah’s Entertainment, Inc. Management Equity Incentive Plan, as amended, (the “2008 Incentive Plan”) allowed for the granting of performance-based options. The options vest and become exercisable if the return on investment in the Company of TPG, Apollo, and their affiliates (the “Majority Stockholders”) achieves a 2.0X return. The options vest on a pro-rata basis from zero to 100% if the Majority Stockholders achieve a return of less than 2.0X but greater than or equal to 1.75X. Upon the adoption of the 2012 Performance Incentive Plan, as amended, (the “2012 Incentive Plan”) options may no longer be granted under the 2008 Incentive Plan. As of December 31, 2014, 23,755 options were outstanding under this plan will expire between years 2018 - 2021.

Performance Incentive Plan

We adopted the 2012 Incentive Plan for directors, employees, officers and consultants or advisers who render services to Caesars Entertainment or its subsidiaries. As of December 31, 2014, a total of 15,449,468 shares of our common stock had been authorized to be issued under the long-term incentive plans. The number of unissued common shares reserved for future grants under the long-term incentive plans was 3,374,865 as of that date.

The 2012 Incentive Plan provided for a one-time stock option exchange program (the “Option Exchange”) to permit Caesars Entertainment to cancel certain stock options held by certain of its employees, service providers and directors in exchange for new, replacement options to purchase an equal number of shares of our common stock (the “Replacement Options”).

Options eligible for the Option Exchange (the “Eligible Options”) were granted on or prior to February 9, 2012, and had an exercise price equal to or greater than $20.09 per share. Replacement Options have an exercise price of $8.22 per share, a 10-year term and a new vesting schedule determined on a grant-by-grant basis, as follows:

Time-Based Options: 20% of the time-based Replacement Options were immediately vested, with the remainder vesting annually in equal amounts over four years.

Performance-Based Options:


•	For options replacing the Eligible Options subject to vesting if funds affiliated with the Sponsors (as defined in Note 20, “Related Party Transactions”) achieve at least a 1.5X return, the Replacement Options will vest on the date that the Caesars Entertainment’s 30-day trailing average closing common stock price equals or exceeds $35.00 per share.


•	For options replacing the Eligible Options subject to vesting if funds affiliated with the Sponsors achieve at least a 2.0X return, the Replacement Options vest on the earlier of the following: (i) 50% on March 15, 2014 and 50% on March 15, 2015 or (ii) Caesars Entertainment’s 30-day trailing average closing common stock price equals or exceeds $57.41 per share.

Loveman Performance-Based Option: We granted 290,334 options in November 2011 to Gary Loveman, the Company’s Chairman of the Board, Chief Executive Officer and President. The options were eligible to vest if funds affiliated with the Sponsors achieve at least a 1.0X return (the “Loveman Performance-Based Option”). The Replacement Options granted in exchange for the Loveman Performance-Based Options vested on the date that Caesars Entertainment’s 30‑day trailing average closing common stock price equaled or exceeded $57.41 per share.

As a result of the Option Exchange, incremental stock compensation totaling $15 million is being amortized to compensation expense over an approximate vesting period of 4 to 5.5 years.

Caesars Entertainment Stock-Based Compensation

Our stock-based compensation expense consists primarily of time-based and performance based stock options, restricted stock units and restricted stock awards that have been granted to management, other personnel and key service providers.

Composition of Stock-Based Compensation Expense

	Years Ended December 31,
(In millions)	2014		2013		2012
Corporate expense	$	36	$	25	$	29
Property, general, administrative, and other	96		32		26
Total stock-based compensation expense	$	132	$	57	$	55

Stock Options

Stock Option Activity

(Dollars in millions, except per share data)	Shares		Weighted Average Exercise Price		Fair Value ⁽¹⁾		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2013	8,463,811		$	12.09	$	2.68	8.5
Granted	1,500,770		21.18		10.27
Exercised	(317,703	)	9.10		1.78
Forfeited	(237,202	)	11.30		3.98
Expired	(29,791	)	17.16		2.39
Outstanding as of December 31, 2014	9,379,885		$	13.65	$	3.35	7.8	$	53
Vested and expected to vest as of December 31, 2014	9,060,016		$	12.09	$	3.28	7.8	$	52
Exercisable as of December 31, 2014	3,746,013		$	9.61	$	1.80	7.5	$	25

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⁽¹⁾	Represents the weighted-average grant date fair value per option, using the Monte Carlo simulation option-pricing model for performance-based options, and the Black-Scholes option-pricing model for time-based options.

Stock Option Grants and Exercises

	Years Ended December 31,
(Dollars in millions, except per share data)	2014		2013		2012
Options Granted:
Number of options granted	1,500,770		550,812		8,173,944
Weighted Average Grant-Date Fair Value per share ⁽¹⁾	$	10.27	$	5.95	$	3.50
Weighted Average Exercise Price per Share ⁽¹⁾⁽²⁾	$	21.18	$	13.65	$	8.44

Option Exercises:
Number of options exercised	317,703		143,109		—
Cash received for options exercised	$	3	$	1	$	—
Aggregate intrinsic value of options exercised	$	2	$	2	$	—

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⁽¹⁾	Represents the weighted-average grant date fair value per option, using the Monte Carlo simulation option-pricing model for performance-based options, and the Black-Scholes option-pricing model for time-based options.


⁽²⁾	Adjusted for the February 2012 1.742-for-1 stock split.

Assumptions Used to Estimate Option Values

	Years Ended December 31,
	2014		2013		2012
Expected volatility	52.1	%	57.4	%	55.8	%
Expected dividend yield	—	%	—	%	—	%
Expected term (in years)	5.5		3.8		4.9
Risk-free interest rate	1.7	%	1.0	%	0.9	%

We utilized historical optionee behavioral data to estimate the option exercise and termination rates used in the option-pricing models. The expected term of the options represents the period of time the options were expected to be outstanding based on historical trends and/or derived from a numerical pricing model, such as the Monte Carlo simulation model. Expected volatility was based on the historical volatility of the common stock of Caesars Entertainment and its competitor peer group for a period approximating the expected life. We do not expect to pay dividends on common stock. The risk-free interest rate within the expected term was based on the U.S. Treasury yield curve in effect at the time of grant.

As of December 31, 2014, there was $57 million of total unrecognized compensation cost related to Caesars Entertainment stock-based compensation plans, which is expected to be recognized over a remaining weighted-average period of 2.8 years.

Restricted Stock Units

During the year ended December 31, 2014, we granted restricted stock units (the “RSUs”) to employees of Caesars Entertainment with an aggregate fair value of $25 million. Each RSU represents the right to receive payment in respect of one share of the Caesars Entertainment’s common stock. The majority of the RSUs will vest 25% annually beginning January 2, 2014. The following table summarizes the activity of RSUs during the fiscal year ended December 31, 2014.

Restricted Stock Unit Activity

	Units		Fair Value
Outstanding as of December 31, 2013	1,503,534		$	13.74
Granted	1,183,098		20.82
Vested	(375,500	)	13.74
Forfeited	(154,405	)	16.20
Outstanding as of December 31, 2014	2,156,727		17.45

Restricted Common Stock Awards

In 2012, we granted 50,000 shares of restricted common stock to an executive officer of Caesars Entertainment under the 2012 Incentive Plan. The restricted common stock vested annually in equal amounts over two years. No unvested shares were outstanding as of December 31, 2014. No additional shares of restricted common stock have been granted.

CIE Stock-Based Compensation Plan

CIE grants 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 (the “Plan”), which is intended to promote the interests of CIE and its shareholders 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. CIE has granted stock options and warrants, restricted shares, and restricted stock units to its employees and service providers. These programs are classified as either equity or liability-based instruments dependent on the terms and conditions of each of the awards. Equity-classified instruments are measured at their fair value at their date of grant, and liability-classified instruments are re-measured at their fair value at each reporting date.

During the third quarter of 2014, CIE determined that certain of its stock options should have been modified to be accounted for as liability-classified awards during the first quarter of 2014. As a result of this correction, which we have determined is not material, $20 million of expense was recorded during the third quarter of 2014 that related to the prior quarters of 2014. The correction represents a non-cash expense adjustment, and thus, the correction has no net effect on our Consolidated Statements of Cash Flows.

Stock-based compensation expense attributable to CIE is recorded property, general, administrative, and other in the Consolidated Statements of Operations and totaled $87 million in 2014, $25 million in 2013, and $21 million in 2012. As of the December 31, 2014, the liability related to outstanding options and warrants was $103 million. The current portion is recorded in accrued expenses and other current liabilities on the Consolidated Balance Sheets, while the long-term portion is recorded in deferred credits and other liabilities.

CIE Stock Option Activity

(Dollars in millions, except per share data)	Shares		Weighted Average Exercise Price		Fair Value ⁽¹⁾		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2013	17,015		$	3,194.48	$	1,124.81	7.3
Granted	1,135		$	9,976.43	$	4,717.02
Exercised	(3,822	)	$	1,649.71	$	249.57
Forfeited	(1,049	)	$	5,767.76	$	2,764.01
Outstanding as of December 31, 2014	13,279		$	3,953.85	$	1,616.01	6.8	$	115
Vested and expected to vest as of December 31, 2014	12,581		$	3,832.25	$	1,544.87	6.7	$	111
Exercisable as of December 31, 2014	6,920		$	2,202.24	$	547.75	5.1	$	72

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⁽¹⁾	Represents the weighted-average grant date fair value per option, using the Monte Carlo simulation option-pricing model for performance-based options, and the Black-Scholes option-pricing model for time-based options.

CIE Stock Option Grants and Exercises

	Years Ended December 31,
(Dollars in millions, except per share data)	2014		2013		2012
Options Granted:
Number of options granted	1,135		6,300		1,442
Weighted Average Grant-Date Fair Value per share ⁽¹⁾	$	4,717.02	$	2,620.48	$	2,724.86
Weighted Average Exercise Price per Share	$	9,976.43	$	5,539.98	$	5,360.86

Option Exercises:
Number of options exercised	3,822		365		—
Cash received for options exercised	$	6	$	1	$	—
Aggregate intrinsic value of options exercised	$	27	$	1	$	—

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⁽¹⁾	Represents the weighted-average grant date fair value per option, using the Monte Carlo simulation option-pricing model for performance-based options, and the Black-Scholes option-pricing model for time-based options.

Assumptions Used to Estimate CIE Option Value

	Years Ended December 31,
	2014		2013		2012
Expected range of volatility	46.5% - 56.8%		49.7% - 58.6%		59.4% - 61.3%
Expected dividend yield	—	%	—	%	—	%
Expected range of term (in years)	2.4 - 7.1		2.3 - 7.3		4.2 - 7.1
Risk-free interest rate range	0.7% - 2.3%		0.6% - 2.5%		0.6% - 1.2%

CIE Restricted Stock Unit Activity

	Units		Fair Value
Outstanding as of December 31, 2013	7,991		$	3,853.00
Granted	1,209		10,019.69
Vested	(3,794	)	4,496.67
Forfeited	(310	)	6,368.06
Outstanding as of December 31, 2014	5,096		6,494.71

During the year ended December 31, 2013, CIE granted 5,260 RSUs with a weighted-average grant date fair value per RSU granted of $5,470.

CIE utilized historical optionee behavioral data to estimate the option exercise and termination rates used in the option-pricing models. The expected term of the options represents the period of time the options were expected to be outstanding based on historical trends and/or derived from a numerical pricing model, such as the Monte Carlo simulation model. Expected volatility was based on the historical volatility of the common stock of CIE and its competitor peer group for a period approximating the expected life. CIE does not expect to pay dividends on common stock. The risk-free interest rate within the expected term was based on the U.S. Treasury yield curve in effect at the time of grant.

As of December 31, 2014, there was $93 million of total unrecognized compensation cost related to CIE stock-based compensation plans, which is expected to be recognized over a remaining weighted-average period of 3.3 years.

CEOC Stock-Based Compensation Plan

In May 2014, the CEOC Board of Directors adopted the Caesars Entertainment Operating Company, Inc. 2014 Performance Incentive Plan (“2014 Incentive Plan”). All CEOC share-based compensation programs are managed under this plan. During the second quarter of 2014, CEOC granted 86,936 shares of CEOC common stock with a fair value of $90.31 per share and CEC recognized a total of $8 million in share-based compensation expense in the Consolidated Statements of Operations.

CAC Stock-Based Compensation Plan

In April 2014, the CAC Board of Directors approved the CAC Equity-Based Compensation Plan for officers, employees, directors, individual consultants and advisers of the Company and its subsidiaries (the “CAC Equity Plan”). Under the CAC Equity Plan, CEC is authorized to grant stock-based instruments in the form of or with a value related to CAC Class A Common Stock, par value $0.001 per share (the “CAC Common Stock”) to officers, employees, directors, individual consultants and advisers of CEC and its subsidiaries. The CAC Equity Plan will terminate ten years after approval by the Board. Subject to adjustments in connection with certain changes in capitalization, the maximum value of the shares of CAC Common Stock that may be delivered pursuant to awards under the CAC Equity Plan is $25 million. Upon issuance of shares pursuant to this plan, such shares will be contributed by CAC to CGP LLC as additional investment into that entity, at which time CGP LLC will settle its management fee obligation with CEC and its subsidiaries through a distribution of such shares.

In May 2014, CEC granted awards to officers, employees, directors, individual consultants, and advisers of CEC and its subsidiaries in accordance with the CAC Equity Plan to reward and provide incentive for services provided in their capacity, promote the success of CGP LLC, and more closely align the interests of such individuals with those of the stockholders of the CAC. Awards under this plan vested one-third in October 2014 with the remaining two-thirds vesting in equal portions in October 2015 and October 2016. During the year ended December 31, 2014, expense associated with the vesting of such awards is recorded as stock-based compensation expense by CEC totaling $10 million.