Business Combinations (Notes)

9 Months Ended

Sep. 30, 2018

Business Combination Disclosure [Text Block]

Business Combination

Acquisition of Centaur Holdings, LLC

As described in Note 1, on July 16, 2018 (the “Centaur Closing Date”), CEC completed its acquisition of all of the voting equity interest of Centaur, for consideration of $1.7 billion. This acquisition expands our footprint to the central Indiana region and facilitates broad distribution of the Total Rewards program. Acquisition-related costs included in Other operating costs in the Statements of Operations were $3 million and $6 million, respectively, during the three and nine months ended September 30, 2018. Consideration transferred was composed of the following:



(In millions)
Cash paid	$	1,636
Deferred consideration ⁽¹⁾	66
Total purchase price	$	1,702

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⁽¹⁾	Deferred consideration is payable in an installment of $25 million on the second anniversary of the Centaur Closing Date and $50 million on the third anniversary of the Centaur Closing Date with prepayments and right of setoff permitted, subject to the terms and conditions of the Unit Purchase Agreement. $66 million represents the present value of future expected cash flows.

Additionally, CEC paid a $50 million license transfer fee on behalf of Hoosier Park Racing & Casino.

Purchase Price Allocation

The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as part of the Centaur acquisition. We will continue to evaluate the fair value of the assets acquired and liabilities assumed which may require the preliminary purchase price allocation to be adjusted within the allowable measurement period. The intangible assets subject to amortization will be amortized on a straight-line basis over their estimated useful lives as of the acquisition date.



(In millions)	Fair Value			Weighted-Average Useful Life (years)
Assets acquired:
Cash and cash equivalents	$	39
Receivables, net	2
Other current assets	26
Property and equipment	297
Intangible assets other than goodwill
Trade names and trademarks	14			2.5
Gaming rights ⁽¹⁾	1,390
Customer relationships	41			15.0
Total assets	1,809

Liabilities assumed:
Current liabilities	(92		)
Deferred income taxes	(285		)
Total liabilities	(377		)
Net identifiable assets acquired	1,432
Goodwill	270
Total Centaur equity value	$	1,702

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⁽¹⁾	Indefinite-lived intangible assets.

We applied the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations (“ASC 805”). Goodwill of $270 million was recognized as a result of the transaction and relates to (i) the values of acquired assets that do not meet the definition of an identifiable intangible asset under ASC 805, but that do contribute to the value of the acquired business, including the assembled workforce and relationships with customers that are not tracked through their customer loyalty program; (ii) the going-concern value associated with expectations of forging relationships with future customers; (iii) the assemblage value associated with acquiring an on-going business whose value is worth more than simply the sum of its parts; (iv) synergies associated with centralized services; and (v) the future potential expansion of table games to the properties. All of the goodwill was assigned to our Other U.S. segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of Centaur as if it had occurred on January 1, 2017, and is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of this date. The pro forma results include adjustments related to purchase accounting, primarily interest expense related to the legacy debt of Centaur that was not acquired, tax adjustments and amortization of intangible assets. Net loss for the nine months ended September 30, 2017 below includes a discrete tax benefit of $185 million, resulting from a partial release of valuation allowance in connection with the acquisition. The net deferred tax liability resulting from the acquisition of Centaur provided a source of additional future taxable income requiring us to reassess the amount of valuation allowance previously recorded. The deferred tax liability considered the 21% corporate tax rate enacted by the Tax Act.



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2018			2017			2018			2017
Net revenues	$	2,210		$	1,116		$	6,551		$	3,337
Net loss attributable to Caesars	(70		)	(230		)	(26		)	(2,131		)

The results of operations for Centaur have been included in the Company’s Financial Statements since the acquisition date. The acquired business contributed $105 million and $22 million, respectively, to Net revenues and Income from operations to CEC for the period from July 16, 2018 to September 30, 2018.