Description of Business

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 December 31, 2015, CERP and CGP owned a total of 12 casino properties in the United States, eight of which are in Las Vegas. These eight casino properties represented 52% of consolidated net revenues for the year ended December 31, 2015.

CEC also holds a majority interest in Caesars Entertainment Operating Company, Inc. (“CEOC”). As described in Note 3, 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, CERP, CEOC and Caesars Growth Properties Holdings, LLC (“CGPH”) (collectively, the “Members”) formed Caesars Enterprise Services, LLC (“CES”), a services joint venture. CES provides certain corporate and administrative services for the Members’ casino properties, including substantially all of the 28 casino properties owned by CEOC, and ten casinos owned by unrelated third parties (including four Indian tribal properties). 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. Expenses incurred by CES are allocated to the casino properties directly or 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 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.

Omnibus License and Enterprise Services Agreement

In 2014, the Members entered into an Omnibus License and Enterprise Services Agreement (the “Omnibus Agreement”), which granted licenses to the Members and certain of their affiliates in connection with the implementation of CES. CES was funded in 2014 through initial contributions by two of the Members, including cash contributions by CERP of $43 million and by CGP LLC for CGPH of $23 million. Certain executives and employees have been transitioned to CES by the Members and the services of such employees are available as part of CES’s provision of services to the Members and certain of their affiliates that own properties that require CES services under the Omnibus Agreement.

Under the Omnibus Agreement, CEOC, Caesars Licensing Company, LLC (“CLC”), Caesars World, Inc. (“CWI”), and certain of our subsidiaries that are the owners of our properties granted CES a non-exclusive, irrevocable, world-wide, royalty-free license in and to all intellectual property owned or used by such licensors, including all intellectual property (a) currently used, or contemplated to be used, in connection with the properties owned by the Members and their respective affiliates, including any and all intellectual property related to the Total Rewards program, and (b) necessary for the provision of services contemplated by the Omnibus Agreement and by the applicable management agreement for any such property (collectively, the “Enterprise Assets”). CERP also granted CES non-exclusive licenses to certain other intellectual property, including intellectual property that is specific to properties controlled by CERP or its subsidiaries. Under the terms of the joint venture and the Omnibus 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.

CES granted to the properties owned or controlled by the Members and their respective affiliates non-exclusive licenses to the Enterprise Assets. CES granted to CEOC, CLC, CWI and the properties owned or controlled by the Members, including us, licenses to any intellectual property that CES develops or acquires in the future that is not derivative of the intellectual property licensed to it. CES also granted to CEOC, CLC and CWI a non-exclusive license to intellectual property specific to the properties controlled by CGPH, CERP and their subsidiaries for any uses consistent with the uses made by CEOC, CLC and CWI with respect to such intellectual property prior to the date of the Omnibus Agreement.

Caesars Interactive Entertainment, Inc. (“CIE”)

Our results also include CIE, a majority owned subsidiary of CGP that operates an online games business providing social games on Facebook and other social media websites and mobile application platforms that utilize virtual currency and certain real money gaming in Nevada and New Jersey. CIE also owns the World Series of Poker (“WSOP”) tournaments and brand and licenses WSOP trademarks for a variety of products and businesses related to this brand.

Employee Relations

We have approximately 33,000 employees throughout our organization. Approximately 16,000 of our employees are covered by collective bargaining agreements with certain of our subsidiaries, relating to certain casino, hotel, and restaurant employees. The majority of these employees are covered by the following agreements:



Employee Group	Approximate Number of Active Employees Represented	Union	Date on which Collective Bargaining Agreement Becomes Amendable
Las Vegas Culinary Employees	8,500	Culinary Workers Union, Local 226	May 2018
Atlantic City Food & Beverage and Hotel employees	1,400	UNITE HERE, Local 54	March 2015 and continuing on a month to month basis
Las Vegas Bartenders	1,200	Bartenders Union, Local 165	May 2018
Las Vegas Dealers	1,100	Transport Workers Union of America	February 2019

Going Concern

Overview

We have identified the following circumstances that raise substantial doubt about CEC’s ability to continue as a going concern:


•	we have limited cash available to meet financial commitments of CEC, primarily resulting from significant expenditures made to (1) defend the Company against the matters disclosed below under “Litigation” and (2) support CEOC’s plan of reorganization (the “Restructuring”);


•	we have made material future commitments to support the Restructuring; and


•	we are a defendant in litigation, including the Noteholder Disputes, and other noteholder disputes relating to certain CEOC transactions dating back to 2010, that if resolved against us would raise substantial doubt about CEC’s ability to continue as a going concern.

The circumstances set forth above and described in more detail below under “CEC Liquidity” and “Litigation,” individually and collectively, raise substantial doubt about CEC’s ability to continue as a going concern between now and the Effective Date of the Restructuring, while continuing to also meet its commitments. Under the terms of the Restructuring, all related litigation is expected to be resolved. However, in the event of a material adverse ruling on one or all of the litigation matters disclosed below, it is likely that a CEC reorganization under Chapter 11 of the Bankruptcy Code would be necessary.

CEOC Reorganization

As described more fully in Note 3, on January 15, 2015, CEOC and certain of its United States subsidiaries (the “Debtors”) voluntarily filed for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for Northern District of Illinois in Chicago (the “Bankruptcy Court”) in order to implement a restructuring plan for balance sheet deleveraging.

Commitments Under the First Lien RSAs. CEC and the Debtors are party to the (a) Fifth Amended and Restated Restructuring Support and Forbearance Agreement dated October 7, 2015, with certain holders of claims in respect of claims under CEOC’s first lien notes (the “First Lien Bond RSA”) and (b) Restructuring Support and Forbearance Agreement dated August 21, 2015, with certain holders of claims in respect of claims under CEOC’s first lien credit agreement (the “First Lien Bank RSA” and, together with the First Lien Bond RSA, the “First Lien RSAs”).

The Effective Date of the Restructuring (the material terms of which are contained in the First Lien RSAs as they may be modified by their terms) is the date upon which all required conditions of the Restructuring have been satisfied or waived and on which the CEOC reorganization and related transactions will become effective.

CEOC filed a plan of reorganization on October 7, 2015, with the Bankruptcy Court (the “Plan”) that reflects the terms of the First Lien RSAs. Under the Plan, CEC has agreed to pay the following amounts and take other actions:


•	$406 million for forbearance fees in connection with the Restructuring, general corporate purposes and to fund sources and uses (“Fixed Payments”);


•	$25 million per month for the period from February 1, 2016 through the Effective Datefor the benefit of the First Lien Noteholders (“Additional Consideration”);


•	Up to $63 million in upfront payments to certain First Lien Bank Lenders (“Upfront Payments”);


•	$386 million to purchase from the Settling First Lien Bank Lenders 100% of their respective First Lien Bank Obligations that survive the Effective Date (“Bank Guaranty Settlement”);

•

Purchase up to all of OpCo equity for $700 million pursuant to the put rights, where holders of over 85% of the First Lien Notes have already indicated their intent to put their OpCo equity to CEC once received (“OpCo” refers to the proposed entity resulting from the Restructuring that will operate the CEOC Properties under a lease with PropCo. “CEOC Properties” refers to those properties owned by CEOC as of the Petition Date.);


•	Purchase up to 14.8% of PropCo equity for $269 million pursuant to the put rights (“PropCo” refers to the proposed entity resulting from the Restructuring that will own the CEOC Properties as of the Effective Date.);


•	Give PropCo a right of first refusal on all new domestic non-Las Vegas gaming facility opportunities, with CEC or OpCo leasing such properties;


•	Give PropCo a call right to purchase Harrah’s Atlantic City and Harrah’s Laughlin;


•	Guarantee OpCo’s monetary obligations to PropCo under the leases; and


•	Enter into a guaranty of collection of the OpCo debt received by the First Lien Bank Lenders and First Lien Noteholders.

The Restructuring is subject to approval by the Bankruptcy Court and the receipt of required gaming regulatory approvals. Because more than a majority of the first lienholders has approved the First Lien RSAs, we believe it is probable that the contingent obligations will be paid and, therefore, we have recorded the items below in Deconsolidation and Restructuring of CEOC and Other in the statements of operations:



Description	Amount (in millions)
Fixed payments ⁽¹⁾	$	406
Additional consideration ⁽²⁾	163
Upfront payments ⁽³⁾	63
Bank Guaranty Settlement ⁽⁴⁾	386
Total accrued restructuring and support expenses	$	1,018

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⁽¹⁾	$86 million was paid in fourth quarter of 2015.


⁽²⁾	For the purposes of determining this amount, the Effective Date is estimated to be in the third quarter of 2016; however this date is outside of our control and is highly subject to change.


⁽³⁾	$61 million was paid in fourth quarter of 2015.


⁽⁴⁾	The liability is primarily based on the terms of the settlement agreement for creditors that have agreed to the settlement. A portion of the liability was estimated for creditors who have not yet agreed, based on the assumption their settlement will be substantially equivalent to those who have agreed to the settlement.

In addition to the amounts accrued and described above, we also committed to pay $75 million to CEOC if there is insufficient liquidity as of the Effective Date.

Additional Potential Commitments. In addition to terms described above relative to the First Lien RSAs, under the terms of the Plan, CEC will pay the following if certain classes of CEOC’s unsecured creditors vote in favor of the Plan and if the Plan is approved by the Bankruptcy Court:


•	Up to $450 million in principal amount of 5% convertible notes to be issued by CEC;


•	Up to 9.8% of PropCo equity purchased pursuant to the PropCo put rights and/or cash in an amount equal to the shortfall from 9.8% of PropCo equity (at Plan value) if the PropCo put rights are not fully exercised;


•	The consideration CAC would have received under the Plan on account of CEOC’s unsecured notes held by CAC; and


•	Give PropCo a call right to purchase Harrah’s New Orleans.

Payment to CEOC. In addition, and separate from the transactions and agreements described above, if there is 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, CEC will be obligated upon demand to make an additional payment to CEOC of $35 million. During the first quarter of 2015, we accrued this liability in Accrued Restructuring and Support Expenses on the consolidated balance sheet, and this amount is currently due and payable.

Termination by Consenting Creditors (Subsequent Event). On February 15, 2016, certain milestones under the First Lien RSAs were not met by CEOC, giving rise to the ability of two-thirds of each of CEOC’s first lien bondholders and first lien bank lenders to terminate their respective First Lien RSAs, although neither has done so. We, CEOC, and CEOC’s creditors continue to negotiate terms of the Restructuring.

CEC Liquidity

Caesars Entertainment is a highly-leveraged company and had $7.1 billion in consolidated debt outstanding as of December 31, 2015. As a result, a significant portion of our liquidity needs are for debt service, including significant interest payments. As of December 31, 2015, our consolidated estimated debt service obligation for 2016 is $767 million, and $9.5 billion thereafter to maturity, consisting of $187 million in principal maturities and $580 million in required interest payments. See Note 13 for details of our debt outstanding and related restrictive covenants. This includes, among other information, a table presenting details of our individual borrowings outstanding as of December 31, 2015 and 2014, and each subsidiary’s annual maturities of long-term debt as of December 31, 2015.

Summary of Cash and Revolver Capacity

	December 31, 2015
(In millions)	CERP			CES		CGP			Other
Cash and cash equivalents	$	150		$	158	$	902		$	128
Revolver capacity	270			—		160			—
Revolver capacity drawn or committed to letters of credit	(80		)	—		(45		)	—
Total	$	340		$	158	$	1,017		$	128

Consolidated cash and cash equivalents as of December 31, 2015, as shown in the table above, includes 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. Its primary assets at December 31, 2015, consist of $128 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) generally 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. 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.

We made material commitments under the Restructuring described above that have been accrued as of December 31, 2015. The completion of the merger of Caesars and Caesars Acquisition Company (“CAC”) described below is expected to aid CEC in meeting these commitments. However, based on our current forecasts, we estimate that CEC will require additional sources of funding to meet its ongoing obligations when they come due as well as in order to meet its commitments under the First Lien RSAs. We are evaluating additional sources of liquidity to enable CEC to meet its ongoing obligations and its commitments under the Restructuring, but have not yet secured additional funding. Furthermore, if the merger with CAC is not completed for any reason, CEC would still be liable for these payments. As a result of the foregoing, we have substantial doubt about CEC’s ability to continue as a going concern.

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 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. As part of the Bank Guaranty Settlement disclosed above, the CEOC creditors have agreed to eliminate the CEC Collection Guarantee, and we recorded a $386 million as an estimate of the liability based on the terms of the Bank Guaranty Settlement agreement.

Litigation

In addition to financial commitments described above, we have the following outstanding uncertainties for which we have not accrued any amounts, all of which are described in Note 4:


•	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 (the “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 Wilmington Trust, National Association on October 20, 2015 (the “New York Senior Notes Lawsuit”); and


•	Litigation commenced by Trustees of the National Retirement Fund in January 2015 (“NRF Litigation”).

Summary

The circumstances described in “CEC Liquidity” above raise substantial doubt as to CEC’s ability to continue as a going concern without securing additional sources of funding to meet its ongoing obligations and its commitments under the Restructuring. Additionally, in each of the litigation matters, claims have been made or could be made against CEC that, if resolved against us, raise substantial doubt about CEC’s ability to continue as a going concern. Under the terms of the Plan that was filed with the Bankruptcy Court, all of the above litigation should be resolved. However, in the event of a material adverse ruling on one or all of the litigation matters set forth above, it is likely that a reorganization under Chapter 11 of the Bankruptcy Code would be necessary.

Announced Merger with Caesars Acquisition Company

In 2014, Caesars and CAC entered into a merger agreement (the “Merger”), pursuant to which, among other things, CAC will merge with and into Caesars, with Caesars 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 Special Committees of both CAC’s Board of Directors and Caesars’ Board of Directors, each composed solely of independent directors (these Special Committees are referred to here collectively as the “Special Committees”). The adjustment of the Exchange Ratio may be made during the 14-day period beginning on the later of the confirmation date of a CEOC restructuring plan and the date that both CAC and Caesars confirm that information to render a fairness opinion has been received by their respective independent financial advisors. If the Special Committees do not agree to an adjustment to the Exchange Ratio during this 14-day period, there will not be an adjustment to the Exchange Ratio.

Either CAC or Caesars may terminate the merger agreement within five business days following this period, if:


(a)	the Special Committees 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)	either of the Special Committees 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 Caesars or CAC and its public stockholders, as applicable.