Organization

CEC is primarily a holding company with no independent operations of its own. It owns Caesars Entertainment Resort Properties, LLC (“CERP”) and an interest in Caesars Growth Partners, LLC (“CGP”). As of June 30, 2015, CERP and CGP owned a total of 12 casinos in the United States, which are concentrated in Las Vegas, where there are eight.

CEC also owns 89% of Caesars Entertainment Operating Company, Inc. (“CEOC”). As described in Note 4, “Deconsolidation of Caesars Entertainment Operating Company,” the results of CEOC and its subsidiaries are no longer consolidated with Caesars subsequent to CEOC’s voluntarily filing for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) on January 15, 2015.

Caesars Enterprise Services, LLC

In 2014, we launched Caesars Enterprise Services, LLC (“CES”), a services joint venture by and among CERP, CEOC and Caesars Growth Properties Holdings, LLC (“CGPH” and, together with CERP and CEOC, the “Members” and each a “Member”). CES provides certain corporate and administrative services for the Members’ casino properties, including substantially all of the 28 casinos owned by CEOC and nine casinos owned by unrelated third parties (including three Indian tribes). CES manages certain assets for the casinos to which it provides services and the other assets it owns, licenses or controls, and employs certain of the corresponding employees. Under the terms of the joint venture and the Omnibus License and Enterprise Services Agreement, we believe that CEC and its operating subsidiaries will continue to have access to the services historically provided to us by CEOC and its employees, its trademarks, and its programs despite the CEOC bankruptcy filing. Expenses incurred by CES that are not allocated to the properties directly are allocated to the Members according to their allocation percentages, subject to annual review. 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 net income; therefore, any such net income or loss is immaterial and will be subject to allocation in the subsequent period.

Caesars Interactive Entertainment, Inc. (“CIE”)

We also include the results of CIE, a majority owned subsidiary of CGP that operates an online gaming business providing 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.

Reportable Segments

We view each casino property and CIE as operating segments and currently aggregate all such casino properties and CIE into three reportable segments based on management’s view of these properties, which aligns with their ownership and underlying credit structures: CERP, Caesars Growth Partners Casino Properties and Developments (“CGP Casinos”), and CIE. CGP Casinos is comprised of all subsidiaries of CGP excluding CIE. CEOC remained a reportable segment until its deconsolidation effective January 15, 2015.

Going Concern

Overview

The accompanying consolidated financial statements have been prepared assuming that Caesars 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. The following provides our analysis and the factors that were considered in reaching this conclusion.

Litigation

As described more fully below and in Note 5, we are a defendant in litigation and other noteholder disputes relating to certain CEOC transactions dating back to 2010. These matters, if resolved against us, raise substantial doubt about Caesars’ ability to continue as a going concern. Management's plans concerning these matters are also discussed in Note 5.

CEC Liquidity

CEC is primarily a holding company with no independent operations, employees, or material debt issuances of its own. Its primary assets at June 30, 2015 consist of $350 million in cash and cash equivalents and its ownership interests in CEOC, CERP and CGP. The restrictions included in certain debt arrangements entered into by CERP and CGP (and/or their respective subsidiaries) do not allow for CERP, CGP, or their subsidiaries to provide dividends to CEC. In addition, CEC does not receive any financial benefit from CEOC during CEOC’s bankruptcy, as all earnings and cash flows are retained by CEOC for the benefit of its creditors.

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. Because CEC has no operations on its own and the restrictions on its subsidiaries under lending arrangements prevent the distribution of cash from the subsidiaries to the holding company, CEC is generally limited to raising additional capital through borrowings or equity transactions.

We have a number of material outstanding uncertainties for which we have not accrued any amounts, specifically the following, all of which are described in Note 5, “Litigation,” unless otherwise noted:


•	Litigation commenced by Wilmington Savings Fund Society, FSB on August 4, 2014 (the “Delaware Second Lien Lawsuit”);


•	Litigation commenced by parties on September 3, 2014 and October 2, 2014 (the “Senior Unsecured Lawsuits”);


•	Litigation commenced by UMB Bank on November 25, 2014 (the “Delaware First Lien Lawsuit”);


•	Demands for payment made by Wilmington Savings Fund Society, FSB on February 13, 2015 (the “February 13 Notice”);


•	Demands for payment made by BOKF, N.A., on February 18, 2015 (see “February 18 Notice”);


•	Litigation commenced by BOKF, N.A. on March 3, 2015 (the “New York Second Lien Lawsuit”);


•	Litigation commenced by UMB Bank on June 15, 2015 (the “New York First Lien Lawsuit”);


•	Litigation commenced by Trustees of the National Retirement Fund in January 2015; and


•	The CEC Collection Guarantee which resulted from certain of the 2014 bank amendments (see “CEC Collection Guarantee” below).

In each of these matters, claims have been made or could be made against our ultimate parent holding company, CEC. In the event of an adverse outcome on one or all of the matters set forth above, it is likely that a reorganization under Chapter 11 of the Bankruptcy Code would be necessary due to the limited resources available at CEC to resolve such matters. Certain claims in the Parent Guarantee Lawsuits (defined below) subject to summary judgment motions could be decided as early as August 2015, and in the event of an adverse outcome on such claims, CEC would likely seek reorganization under Chapter 11 of the Bankruptcy Code soon thereafter. See Note 5.

Guarantee of Collection

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 will be limited to a guarantee of collection (“CEC Collection Guarantee”) with respect to obligations owed to the lenders who consent 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, including, without limitation, through foreclosure or similar proceedings, a Chapter 11 case, a Chapter 7 case, or any other proceeding under a Debtor Relief Law with respect to CEOC or any of its subsidiaries, litigation, and collection on all applicable insurance policies, and termination of all commitments to advance additional funds to CEOC under the Loan Documents (it being understood that, in the event of a Chapter 11 case, the effective date of a plan of reorganization shall constitute the exhaustion of all remedies).



(In millions)	June 30, 2015
Maturities of debt guaranteed by such guarantee of collection, total	$	5,354
Estimated contractual interest payments guaranteed by such guarantee of collection, annually ⁽¹⁾	426

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⁽¹⁾	Quarterly payments are normally scheduled to be paid on January 2nd, April 2nd, July 2nd, and October 2nd. The last quarterly payment was made on January 2nd, 2015. Payments have been stayed due to the CEOC bankruptcy. See Note 4.

In July 2015, CEC and CEOC entered into a Fourth Amended and Restated Restructuring Support and Forbearance Agreement with certain holders of claims in respect of claims under CEOC’s first lien notes and other indebtedness (“First Lien Bond RSA”) under which certain offers have been made that are expected to reduce the liabilities associated with the CEC Collection Guarantee in conjunction with the overall restructuring of CEOC. The conclusion of these negotiations are highly uncertain because they are: (1) contingent upon the overall restructuring, (2) include many factors interconnected with the restructuring as described in the preceding paragraph, (3) assume the Caesars Acquisition Corporation (“CAC”) plan of merger, among other items. See Note 11, “Contractual Commitments and Contingent Liabilities - CEOC Reorganization.”

We assessed the fair value of the CEC Collection Guarantee under ASC460 as of the CEOC Petition Date (see Note 4). We applied a probability-weighted valuation method considering the possible scenarios at that time, and concluded that the CEC Collection Guarantee does not have a fair value materially higher than zero. Accordingly, as noted above under “CEC Liquidity,” we have not accrued any amounts due under the CEC Collection Guarantee.

Financial Condition as of December 31, 2014 and Financial Restructuring

Over the three-year period ended December 31, 2014, we 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 $23.0 billion. Our cumulative cash flows from operating activities were negative $772 million over the three-year period, primarily due to total 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 incurred cumulative net losses totaling $7.1 billion resulting from interest expense of $6.2 billion over the three-year period ended December 31, 2014. As of December 31, 2014, CEOC had a total accumulated deficit of $11.4 billion and long term debt, including current portion of $15.8 billion, totaled $15.9 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 raised substantial doubt about CEOC’s ability to continue as a going concern as of December 31, 2014 and contributed to CEOC’s decision to voluntarily file for reorganization under Chapter 11 of the Bankruptcy Code (see Note 4).

Caesars’ Financial Condition

During the six months ended June 30, 2015, we recognized net income of $6.8 billion, which includes a $7.1 billion gain recognized upon the deconsolidation of CEOC, and generated operating cash flows of $101 million, which includes $220 million of negative operating cash flow attributable to CEOC prior its deconsolidation. As of June 30, 2015, subsequent to the deconsolidation of CEOC, we had a total accumulated deficit of $6.3 billion and long term debt, including current portion of $222 million, totaled $7.0 billion.