Discontinued Operations

Sale of SMG Business

On September 23, 2016, CIE sold its SMG Business to Alpha Frontier Limited (“Alpha Frontier”) for cash consideration of $4.4 billion, pursuant to the Stock Purchase Agreement dated as of July 30, 2016 (the "Purchase Agreement"), which resulted in a pre-tax gain of approximately $4.2 billion.

As a result of the sale, CAC incurred estimated current income tax expense of approximately $285 million on the gain. Under the terms of its operating agreement, CGP is required to distribute funds to CAC, which CAC will use to pay its tax obligation resulting from the sale of the SMG Business (see Note 15), and $240 million of this was paid during the year ended December 31, 2016. During the first quarter of 2017, CGP amended its operating agreement to clarify the allocation method for taxable income resulting from the sale between CEC and CAC. This resulted in less taxable income being allocated to CAC and a lower resulting tax obligation for CAC; therefore, CGP reduced the amount of its estimated distribution to CAC by $26 million to $259 million.

Additionally, proceeds from the sale were deposited into an escrow account to fund potential indemnity claims of Alpha Frontier under the Purchase Agreement (the “Indemnity Escrow”). The balance in the Indemnity Escrow was approximately $259 million as of December 31, 2016, and until the balance was released in September 2017 to CIE.

As discussed in Note 2, the majority of the proceeds from the sale of the SMG Business is restricted under the terms of the Purchase Agreement and the CIE Proceeds Agreement and was therefore classified as restricted cash upon receipt. As a result of the sale, the results of operations and cash flows related to the SMG Business were classified as discontinued operations for all periods presented effective beginning in the third quarter of 2016.

In connection with the closing of the SMG Business sale (“Closing”), CIE completed the following transactions, which were funded from the proceeds of the sale:


•	Repurchased all of the shares of CIE common stock held by Rock Gaming Interactive LLC, and its other minority investors (collectively, the "Minority Investors") in exchange for the right to receive cash payments representing the fair market value of the shares of CIE common stock at Closing.


•	Accelerated the vesting of all of the outstanding options, restricted stock units and warrants of CIE (collectively, “CIE equity awards”) and canceled all such CIE equity awards in exchange for the right to receive cash payments equal to the intrinsic value of such awards.

The total amount distributed to the Minority Investors and former holders of CIE equity awards in connection with Closing was approximately $1.1 billion. As of December 31, 2016, CGP accrued $63 million for the estimated portion of the balance remaining in the Indemnity Escrow that was due to the Minority Investors and former holders of CIE equity awards.

During the third quarter of 2017, the Indemnity Escrow funds were released to CIE and $63 million was distributed to the Minority Investors and former holders of CIE equity awards according to the terms of the Purchase Agreement.

Effect on Statements of Operations of Discontinued Operations

(In millions)	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
Revenues
Social and mobile games	$	222		$	678
Operating expenses
Platform fees	64			197
Property, general, administrative, and other ⁽¹⁾	346			551
Total operating expenses	410			748

Gain from discontinued operations	4,161			4,161

Pre-tax income from discontinued operations	3,973			4,091
Income tax provision	(680		)	(740		)
Total income from discontinued operations, net of income taxes	$	3,293		$	3,351

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⁽¹⁾	Property, general, administrative, and other includes stock-based compensation expense directly identifiable with employees of the SMG Business of $211 million and $262 million for the three and nine months ended September 30, 2016, respectively.