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”). We also consolidate the results of Caesars Interactive Entertainment, Inc. (“CIE”), a majority owned subsidiary of CGP that operates an online games business and owns the World Series of Poker (“WSOP”) tournaments and brand. As of March 31, 2016, 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 53% of consolidated net revenues for the three months ended March 31, 2016.

CEC also holds a majority interest in Caesars Entertainment Operating Company, Inc. (“CEOC”). The results of CEOC and its subsidiaries are no longer consolidated with Caesars subsequent to CEOC and certain of its United States subsidiaries (the “Debtors”) voluntarily filing for reorganization under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) on January 15, 2015.

Caesars Enterprise Services, LLC

Caesars Enterprise Services, LLC (“CES”) is a services joint venture formed by CERP, CEOC and Caesars Growth Properties Holdings, LLC (“CGPH”) (collectively, the “Members”). CES provides certain corporate and administrative services for the Members’ casino properties and related entities, including substantially all of the 28 casino properties owned by CEOC, and 9 casinos owned by unrelated third parties (including four Indian tribal casinos). 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, 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 despite the CEOC bankruptcy filing.

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, 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

We have identified the following circumstances that raise substantial doubt about CEC’s ability to continue as a going concern (which are described in more detail below):


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


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


•	we are a defendant in litigation relating to certain CEOC transactions dating back to 2010 and other legal matters (see Note 3) that could result in one or more adverse rulings against us.

The completion of the merger of Caesars and Caesars Acquisition Company (“CAC”) is expected to aid CEC in meeting its previously disclosed financial commitments to support the Restructuring. While the cash forecast at CEC currently contemplates liquidity to be sufficient through the end of year, the CEC cash balance will be consumed by expenses associated with the Restructuring unless we identify additional sources of liquidity to meet CEC’s ongoing obligations as well as meet its commitments to support the Restructuring. We are evaluating whether we are able to obtain additional sources of cash. Furthermore, if the merger with CAC is not completed for any reason, CEC would still be liable for many of these obligations.

Under the terms of the Restructuring, all related litigation is expected to be resolved. However, if CEC is unable to obtain additional sources of cash when needed, in the event of a material adverse ruling on one or all of the litigation matters disclosed below, or if CEOC does not emerge from bankruptcy on a timely basis on terms and under circumstances satisfactory to CEC, it is likely that CEC would seek reorganization under Chapter 11 of the Bankruptcy Code.

We believe that CERP and CGP’s cash and cash equivalents, their cash flows from operations, and/or financing available under their separate revolving credit facilities will be sufficient to meet their normal operating requirements, to fund planned capital expenditures, and to fund debt service during the next 12 months and the foreseeable future.

CEOC Reorganization

CEC and the Debtors are party to the (a) Fifth Amended and Restated Restructuring Support and Forbearance Agreement dated October 7, 2015, with certain parties holding 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 parties holding 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 become effective.

CEOC filed a plan of reorganization on October 7, 2015, (the “Initial Plan”) with the United States Bankruptcy Court for the Northern District of Illinois in Chicago (the “Bankruptcy Court”) that reflects the terms of the First Lien RSAs. 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.

Because more than a majority of the first lien bondholders and first lien bank lenders approved the First Lien RSAs, we believe it is probable that certain amounts will ultimately be paid under the First Lien RSAs or otherwise, and therefore, we have accrued the items described in the table below in accrued restructuring and support expenses on the balance sheets. We believe that the Initial Plan serves as a low end of the potential settlement range. We are currently unable to determine either a best estimate or the high end of the estimated range, as negotiations between the various parties are ongoing and are ultimately subject to approval by the Bankruptcy Court and the receipt of required gaming regulatory approvals.

On April 5, 2016, CEOC filed an amended plan of reorganization (the “Amended Plan”) on different terms than the Initial Plan, and therefore, different from the plan contemplated by the First Lien RSAs. CEC and CEOC’s creditors have not agreed to the Amended Plan and continue to assess it. Additionally, the Amended Plan has not been approved by the Bankruptcy Court.

Summary of Restructuring and Support Expenses

			Accrued as of
(Dollars in millions)	Initial Plan Terms		March 31, 2016		December 31, 2015
Amounts to First Lien Creditors (Accrued)
Forbearance fees (“Fixed Payments”) in connection with the Restructuring ⁽¹⁾	$	406	$	320	$	320
Contingent payment to CEOC if there is insufficient liquidity at the Effective Date⁽²⁾	$	75	—		—
“Additional Consideration” for the period from February 1, 2016 through the Effective Datefor the benefit of the First Lien Noteholders ⁽³⁾	$25 per month		325		162
“Upfront Payments” to certain First Lien Bank Lenders ⁽⁴⁾	$	63	2		2
“Bank Guaranty Settlement” to purchase from the Settling First Lien Bank Lenders 100% of their respective First Lien Bank Obligations that survive the Effective Date ⁽⁵⁾	$	460	460		386
Total accrued			$	1,107	$	870

Amounts to First Lien Creditors (Due On or After Effective Date) ⁽⁶⁾
Purchase up to all of OpCo⁽⁷⁾ equity pursuant to put rights	$	700	--		--
Purchase up to 14.8% of PropCo⁽⁸⁾ equity pursuant to the put rights	$	269	--		--
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 listed properties: Harrah’s Atlantic City and Harrah’s Laughlin	--		--		--
Guarantee OpCo’s monetary obligations to PropCo under the leases	--		--		--
Enter into a guaranty of collection of the OpCo debt received by the First Lien Bank Lenders and First Lien Noteholders	--		--		--

Additional Potential Commitments ⁽⁹⁾
Principal amount of 5% convertible notes to be issued by CEC	Up to $450		--		--
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 Initial Plan value) if the PropCo put rights are not fully exercised	--		--		--
The consideration CAC would have received under the Initial Plan on account of CEOC’s unsecured notes held by CAC	--		--		--
Give PropCo a call right to purchase Harrah’s New Orleans	--		--		--

____________________


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


⁽²⁾	Amount has not been accrued because CEOC currently has excess liquidity and is expected to maintain this position.


⁽³⁾	For the purposes of determining this amount, the Effective Date is estimated to be in the first quarter of 2017; however this date is outside of our control and is highly subject to change.


⁽⁴⁾	$61 million was paid in fourth quarter of 2015.


⁽⁵⁾	Amount payable on the Effective Date is subject to the excess cash held by CEOC at Emergence.


⁽⁶⁾	No amounts have been accrued because amounts are not a settlement of past actions, do not relate to any existing contingencies, and are not legally enforceable at this time. In addition, for certain items, CEC will receive valuable consideration in return and therefore these payments will not be expensed when incurred. We expect to accrue such items on or subsequent to the Effective Date.


⁽⁷⁾	“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. Holders of over 85% of the First Lien Notes have already indicated their intent to put their OpCo equity to CEC once received.


⁽⁸⁾	“PropCo” refers to the proposed entity resulting from the Restructuring that will own the CEOC Properties as of the Effective Date.


⁽⁹⁾	Under the terms of the Initial Plan, CEC will pay amounts if certain classes of CEOC’s unsecured creditors vote in favor of the Initial Plan and if the Initial Plan is approved by the Bankruptcy Court.

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, the agreement contemplates an additional payment to CEOC of $35 million from CEC, which CEOC has demanded. 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.

CEC Liquidity

Caesars Entertainment (which includes CEC and its consolidated subsidiaries and VIEs) is a highly-leveraged company and had $7.0 billion in consolidated debt outstanding as of March 31, 2016. As a result, a significant portion of our liquidity needs are for debt service, including significant interest payments. As detailed in Note 9, our consolidated estimated debt service (including principal and interest) for the remainder of 2016 is $538 million and $9.5 billion thereafter to maturity. See Note 9 for details of our debt outstanding and related restrictive covenants. This includes, among other information, details of our individual borrowings outstanding and each subsidiary’s annual maturities of long-term debt as of March 31, 2016.

Cash and Available Revolver Capacity

	March 31, 2016
(In millions)	CERP			CES		CGP			Other
Cash and cash equivalents	$	211		$	64	$	951		$	218
Revolver capacity	270			—		160			—
Revolver capacity drawn or committed to letters of credit	(75		)	—		(15		)	—
Total	$	406		$	64	$	1,096		$	218

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. Its primary assets as of March 31, 2016, consist of $218 million in cash and cash equivalents and its ownership interests in CEOC, CERP and CGP. CEC’s cash includes $96 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. 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, including defending itself in the litigation in which it has been named as a defendant (see Note 3). 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. In the first quarter of 2016, CEC began to utilize $100 million that management had previously restricted for use in connection with a casino development project.

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 $460 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 3:


•	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 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”).

Report of Bankruptcy Examiner

The Bankruptcy Court previously engaged an examiner to investigate possible claims CEOC might have against CEC and/or other entities and individuals. On March 15, 2016, the examiner released his report, which identifies a variety of potential claims against CEC and certain individuals related to a number of transactions dating back to 2009. Most of the examiner’s findings are premised on his view that CEOC was “insolvent” at the time of the applicable transactions and that CEOC did not receive fair value for assets transferred. The examiner’s report includes his conclusions on the relative strengths of these possible claims, many of which are described in Note 3. The examiner calculates an estimated range of potential damages for these potential claims from $3.6 billion to $5.1 billion, and such calculation does not account for probability of success, likelihood of collection, or the time or cost of litigation.

While this report was prepared at the request of the Bankruptcy Court, none of the findings included therein are legally binding on the Bankruptcy Court or any party. CEC contests several of the examiner’s findings, including his findings that CEOC was insolvent at relevant times, that there were breaches of fiduciary duty, that CEOC did not receive fair value for assets transferred, that there were fraudulent transfers, and as to the calculation of damages. CEC believes that each of the challenged transactions was undertaken to provide CEOC with the liquidity and resources required to sustain it and provide time to recover from significant market challenges.

CEC believes that the conclusion of the examination and the release of the report was a necessary step to facilitate ongoing settlement discussions in the CEOC bankruptcy proceedings. In April 2016, CEC, CEOC, and various other constituents began mediation with Joseph Farnan, the former chief judge of the United States District Court for the District of Delaware, seeking to reach a mutually agreeable plan of reorganization of CEOC. Despite its disagreements with the examiner’s conclusions, CEC has offered to provide substantial value to creditors in settlement as part of the plan of reorganization for CEOC. The mediation is ongoing, with further sessions scheduled over the next few weeks. CEC has been in regular, direct contact with both of CEOC’s official creditors’ committees, as well as other major creditor constituents, in an ongoing effort to arrive at a consensual plan providing for the timely emergence of CEOC from bankruptcy.