Edgar Filing: CAESARS ENTERTAINMENT Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File No. 1-10410

_________________________

CAESARS ENTERTAINMENT CORPORATION

(Exact name of registrant as specified in its charter)

_________________________



Delaware		62-1411755
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Caesars Palace Drive, Las Vegas, Nevada		89109
(Address of principal executive offices)		(Zip Code)

(702) 407-6000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

_________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class	Outstanding at July 30, 2018
Common stock, $0.01 par value	693,508,796

CAESARS ENTERTAINMENT CORPORATION

INDEX



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements	3
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Operations and Comprehensive Income/(Loss)	4
	Consolidated Condensed Statements of Stockholders’ Equity/(Deficit)	5
	Consolidated Condensed Statements of Cash Flows	6
	Notes to Consolidated Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

Signature		53

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)



(In millions)	June 30, 2018		December 31, 2017
Assets
Current assets
Cash and cash equivalents ($40 and $58 attributable to our VIEs)	$	2,687	$	2,558
Restricted cash	111		116
Receivables, net	443		494
Due from affiliates, net	9		11
Prepayments and other current assets ($1 and $2 attributable to our VIEs)	187		239
Inventories	40		39
Total current assets	3,477		3,457
Property and equipment, net ($79 and $57 attributable to our VIEs)	15,844		16,154
Goodwill	3,814		3,815
Intangible assets other than goodwill	1,573		1,609
Restricted cash	50		35
Deferred income taxes	2		2
Deferred charges and other assets ($30 and $0 attributable to our VIEs)	394		364
Total assets	$	25,154	$	25,436

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ($4 and $3 attributable to our VIEs)	$	250	$	318
Accrued expenses and other current liabilities	1,247		1,326
Interest payable	35		38
Contract liabilities	146		129
Current portion of financing obligations	11		9
Current portion of long-term debt	64		64
Total current liabilities	1,753		1,884
Financing obligations	9,422		9,355
Long-term debt	8,822		8,849
Deferred income taxes	550		577
Deferred credits and other liabilities	1,301		1,474
Total liabilities	21,848		22,139
Commitments and contingencies (Note 7)
Stockholders’ equity
Caesars stockholders’ equity	3,219		3,226
Noncontrolling interests	87		71
Total stockholders’ equity	3,306		3,297
Total liabilities and stockholders’ equity	$	25,154	$	25,436

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except per share data)	2018			2017			2018			2017
Revenues
Casino	$	1,062		$	420		$	2,045		$	810
Food and beverage	391			205			774			411
Rooms	388			242			755			489
Other revenue	215			141			387			264
Management fees	15			—			30			—
Reimbursed management costs	48			—			100			—
Net revenues	2,119			1,008			4,091			1,974
Operating expenses
Direct
Casino	567			227			1,131			449
Food and beverage	273			142			539			283
Rooms	121			82			236			162
Property, general, administrative, and other	451			246			873			477
Reimbursable management costs	48			—			100			—
Depreciation and amortization	268			96			548			198
Corporate expense	76			48			158			89
Other operating costs	33			18			99			17
Total operating expenses	1,837			859			3,684			1,675
Income from operations	282			149			407			299
Interest expense	(334		)	(142		)	(664		)	(289		)
Restructuring and support expenses and other	45			(1,407		)	229			(1,871		)
Loss before income taxes	(7		)	(1,400		)	(28		)	(1,861		)
Income tax benefit/(provision)	36			(32		)	23			(79		)
Net income/(loss)	29			(1,432		)	(5		)	(1,940		)
Net loss attributable to noncontrolling interests	—			—			—			1
Net income/(loss) attributable to Caesars	$	29		$	(1,432	)	$	(5	)	$	(1,939	)

Earnings/(loss) per share - basic and diluted
Basic and diluted earnings/(loss) per share	$	0.04		$	(9.62	)	$	(0.01	)	$	(13.09	)
Weighted-average common shares outstanding - basic	698			149			697			148
Weighted-average common shares outstanding - diluted	702			149			697			148

Comprehensive income/(loss)
Foreign currency translation adjustments	$	(22	)	$	—		$	(19	)	$	—
Change in fair market value of interest rate swaps, net of tax	9			—			13			—
Other	—			—			1			—
Other comprehensive loss, net of income taxes	(13		)	—			(5		)	—
Comprehensive income/(loss)	16			(1,432		)	(10		)	(1,940		)

Amounts attributable to noncontrolling interests:
Foreign currency translation adjustments	5			—			3			—
Comprehensive loss attributable to noncontrolling interests	5			—			3			1
Comprehensive income/(loss) attributable to Caesars	$	21		$	(1,432	)	$	(7	)	$	(1,939	)

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

(UNAUDITED)



	Caesars Stockholders’ Equity/(Deficit)
(In millions)	Common Stock		Treasury Stock			Additional Paid-in- Capital		Accumulated Deficit			Accumulated Other Comprehensive Income/(Loss)			Total Caesars Stockholders’ Equity/(Deficit)			Noncontrolling Interests			Total Equity/(Deficit)
Balance as of December 31, 2016	$	1	$	(29	)	$	8,676	$	(10,307	)	$	(1	)	$	(1,660	)	$	53		$	(1,607	)
Net loss	—		—			—		(1,939		)	—			(1,939		)	(1		)	(1,940		)
Stock-based compensation	—		(8		)	24		—			—			16			—			16
Change in noncontrolling interest, net of distributions and contributions	—		—			—		—			—			—			(5		)	(5		)
Balance as of June 30, 2017	$	1	$	(37	)	$	8,700	$	(12,246	)	$	(1	)	$	(3,583	)	$	47		$	(3,536	)

Balance as of December 31, 2017	$	7	$	(152	)	$	14,040	$	(10,675	)	$	6		$	3,226		$	71		$	3,297
Net loss	—		—			—		(5		)	—			(5		)	—			(5		)
Stock-based compensation	—		(12		)	43		—			—			31			—			31
Repurchase of common stock	—		(31		)	—		—			—			(31		)	—			(31		)
Other comprehensive loss, net of tax	—		—			—		—			(2		)	(2		)	(3		)	(5		)
Change in noncontrolling interest, net of distributions and contributions	—		—			—		—			—			—			19			19
Balance as of June 30, 2018	$	7	$	(195	)	$	14,083	$	(10,680	)	$	4		$	3,219		$	87		$	3,306

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
(In millions)	2018			2017
Cash flows provided by operating activities	$	404		$	203
Cash flows from investing activities
Acquisitions of property and equipment, net of change in related payables	(215		)	(164		)
Proceeds from the sale and maturity of investments	28			26
Payments to acquire investments	(16		)	(18		)
Cash flows used in investing activities	(203		)	(156		)
Cash flows from financing activities
Proceeds from long-term debt and revolving credit facilities	467			285
Debt issuance costs and fees	(5		)	(8		)
Repayments of long-term debt and revolving credit facilities	(500		)	(348		)
Proceeds from the issuance of common stock	4			7
Repurchase of common stock	(31		)	—
Taxes paid related to net share settlement of equity awards	(12		)	(9		)
Financing obligation payments	(5		)	—
Contributions from noncontrolling interest owners	20			—
Distributions to noncontrolling interest owners	—			(6		)
Cash flows used in financing activities	(62		)	(79		)
Net increase/(decrease) in cash, cash equivalents, and restricted cash	139			(32		)
Cash, cash equivalents, and restricted cash, beginning of period	2,709			4,658
Cash, cash equivalents, and restricted cash, end of period	$	2,848		$	4,626

Supplemental Cash Flow Information:
Cash paid for interest	$	581		$	272
Cash paid for income taxes	4			3
Non-cash investing and financing activities:
Change in accrued capital expenditures	10			(9		)

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

In this filing, the name “CEC” refers to the parent holding company, Caesars Entertainment Corporation, exclusive of its consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires. The words “Company,” “Caesars,” “Caesars Entertainment,” “we,” “our,” and “us” refer to Caesars Entertainment Corporation, inclusive of its consolidated subsidiaries and variable interest entities, unless otherwise stated or the context otherwise requires.

This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017 and Exhibit 99.1 included in our Current Report on Form 8-K filed on June 1, 2018 presenting the Company’s financial statements and financial information in certain sections of our Form 10-K recast on a basis consistent with the new revenue recognition standard discussed in Note 11 (collectively, the “2017 Annual Report”). Capitalized terms used but not defined in this Form 10-Q have the same meanings as in the 2017 Annual Report.

We also refer to (i) our Consolidated Condensed Financial Statements as our “Financial Statements,” (ii) our Consolidated Condensed Statements of Operations and Comprehensive Income/(Loss) as our “Statements of Operations,” (iii) our Consolidated Condensed Balance Sheets as our “Balance Sheets,” and (iv) our Consolidated Condensed Statements of Cash Flows as our “Statements of Cash Flows.”

Note 1 — Description of Business

Organization

CEC is primarily a holding company with no independent operations of its own. Caesars Entertainment operates the business primarily through its wholly owned subsidiaries CEOC, LLC (“CEOC LLC”) and Caesars Resort Collection, LLC (“CRC”). Caesars Entertainment operates a total of 49 casino properties in 13 U.S. states and five countries. Nine casinos are in Las Vegas, which represented 47% and 46%, respectively, of net revenues for the three and six months ended June 30, 2018.

We lease certain real property assets from VICI Properties Inc. (“VICI”).

CEOC’s Emergence from Bankruptcy and CEC’s Merger with Caesars Acquisition Company

As previously disclosed in our 2017 Annual Report, Caesars Entertainment Operating Company, Inc. (“CEOC”) and certain of its U.S. subsidiaries (collectively, the “Debtors”) voluntarily filed for reorganization on January 15, 2015, at which time CEC deconsolidated CEOC. The Debtors emerged from bankruptcy and consummated their reorganization pursuant to their third amended joint plan of reorganization (the “Plan”) on October 6, 2017 (the “Effective Date”). As part of its emergence from bankruptcy, CEOC reorganized into an operating company separate from its real property assets. The operating company was acquired by CEC on the Effective Date and immediately merged with and into CEOC LLC. CEOC LLC operates the properties and facilities formerly held by CEOC and leases the properties and facilities from VICI.

Pursuant to the merger agreement with Caesars Acquisition Company (“CAC”), on the Effective Date, CAC merged with and into CEC, with CEC as the surviving company (the “CAC Merger”). The CAC Merger was accounted for as a reorganization of entities under common control, which resulted in CAC being consolidated into Caesars at book value as an equity transaction for all periods presented (see Note 2).

Acquisition of Centaur Holdings, LLC

On July 16, 2018, we completed the acquisition of Centaur Holdings, LLC (“Centaur”). Centaur operates Hoosier Park Racing & Casino in Anderson, Indiana, and Indiana Grand Racing & Casino in Shelbyville, Indiana. See Note 16 for additional information.

Note 2 — Basis of Presentation and Principles of Consolidation

Basis of Presentation and Use of Estimates

The accompanying unaudited consolidated condensed financial statements of Caesars have been prepared under the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable for interim periods, and therefore, do not include all information and footnotes necessary for complete financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). The results for the interim periods reflect all adjustments (consisting primarily of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations, and

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

cash flows. The results of operations for our interim periods are not necessarily indicative of the results of operations that may be achieved for the entire 2018 fiscal year.

GAAP requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Management believes the accounting estimates are appropriate and reasonably determined. Actual amounts could differ from those estimates.

Adoption of New Revenue Recognition Standard

On January 1, 2018, we adopted the new accounting standard Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and all related amendments. See Note 11 for additional information and details on the effects of adopting the new standard.

Reportable Segments

We view each casino property as an operating segment and aggregate all such casino properties into three regionally-focused reportable segments: (i) Las Vegas, (ii) Other U.S., and (iii) All Other, which is consistent with how we manage the business. See Note 15.

Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Balance Sheets that sum to amounts reported on the Statements of Cash Flows.



(In millions)	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	2,687	$	2,558
Restricted cash, current	111		116
Restricted cash, non-current	50		35
Total cash, cash equivalents, and restricted cash	$	2,848	$	2,709

Merger with CAC

The following table reconciles the previously-reported net revenues and net income/(loss) of Caesars to the amounts reported in the Statements of Operations after giving effect to the CAC Merger (see Note 1) and adoption of the new revenue recognition standard (see Note 11).

Reconciliation of Net Revenues and Net Loss

(In millions)	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
Net revenues
Caesars previously reported	$	1,002		$	1,965
CAC previously reported	—			—
Adoption of new revenue recognition standard ⁽¹⁾	6			9
As currently reported	$	1,008		$	1,974

Net loss
Caesars previously reported	$	(1,426	)	$	(1,950	)
CAC previously reported	(3		)	(1		)
Elimination and consolidation adjustments	(5		)	9
Adoption of new revenue recognition standard ⁽¹⁾	2			2
As currently reported	$	(1,432	)	$	(1,940	)

____________________


⁽¹⁾	See Adoption of New Revenue Recognition Standard above.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Consolidation of Subsidiaries and Variable Interest Entities

Our consolidated financial statements include the accounts of Caesars Entertainment and its subsidiaries after elimination of all intercompany accounts and transactions.

We consolidate all subsidiaries in which we have a controlling financial interest and variable interest entities (“VIEs”) for which we or one of our consolidated subsidiaries is the primary beneficiary. Control generally equates to ownership percentage, whereby (1) affiliates that are more than 50% owned are consolidated; (2) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where we have determined that we have significant influence over the entities; and (3) investments in affiliates of 20% or less are generally accounted for using the cost method.

Consolidation of Korea Joint Venture

During 2017, CEC formed a joint venture referred to herein as the Korea JV. The purpose of the Korea JV is to acquire, develop, own, and operate a casino resort project in Incheon, South Korea. We determined that the Korea JV is a VIE and CEC is the primary beneficiary, and therefore, consolidates the Korea JV into its financial statements as of December 31, 2017.

Note 3 — Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued the following authoritative guidance amending the FASB Accounting Standards Codification (“ASC”).

In 2018, we adopted the following ASUs:


•	ASU 2014-09, Revenue from Contracts with Customers (see Note 11).


•	ASU 2016-16, Income Taxes (see Note 13).

In 2018, the following ASUs became effective, but there was no effect on our financial statements:


•	ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.


•	ASU 2018-04, Investments — Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273.


•	ASU 2017-09, Compensation - Stock Compensation.


•	ASU 2017-01, Business Combinations.


•	ASU 2016-18, Statement of Cash Flows.


•	ASU 2016-01, Financial Instruments - Overall.

The following amendments to the FASB ASC are not yet effective:

Compensation - Stock Compensation - June 2018: Amended guidance expands the scope of employee share-based payments to include share-based payment transactions for acquiring goods and services from nonemployees. Equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date. This amended guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC 606, Revenue from Contracts with Customers. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. We are currently assessing the effect the adoption of this standard will have on our financial statements.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Previously Disclosed

Income Statement - Reporting Comprehensive Income - February 2018: Amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings effectively eliminating the stranded tax effects resulting from the Tax Cuts and Jobs Act (the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018) (the “Tax Act”). Because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not impacted. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Amendments in this update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. We are currently assessing the effect the adoption of this standard will have on our financial statements.

Leases - February 2016 (amended through July 2018): The amended guidance requires most lease obligations to be recognized as a right-of-use (“ROU”) asset with a corresponding liability on the balance sheet. The guidance requires additional qualitative and quantitative disclosures to aid users in assessing the amount, timing, and uncertainty of cash flows arising from leases. Many long-term operating leases, including agreements relating to slot machines and real estate, may be recorded on the balance sheet as an ROU asset with a corresponding lease liability, which will be amortized using the effective interest rate method as payments are made. Leases embedded in other arrangements will be accounted for separately by allocating payments between lease and nonlease components. As a practical expedient, lessees are permitted to make an accounting policy election by class of underlying asset to account for each lease and nonlease component as a single lease component. The amended guidance will not require us to re-evaluate land easements that exist or expired before adoption that were not previously accounted for as a lease under Topic 840.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance should be implemented for the earliest period presented using a modified retrospective approach. We will adopt the new standard on January 1, 2019. The qualitative and quantitative effects of adoption are still being analyzed as we are in the process of cataloging our existing lease contracts and identifying arrangements containing embedded leases.

Financial Instruments - Credit Losses - June 2016 (amended January 2017): Amended guidance replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. Amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the effect the adoption of this standard will have on our financial statements.

Note 4 — Property and Equipment



(In millions)	June 30, 2018			December 31, 2017
Land and land improvements	$	4,850		$	4,930
Buildings, riverboats and leasehold improvements	11,939			11,751
Furniture, fixtures, and equipment	1,397			1,277
Construction in progress	163			329
Total property and equipment	18,349			18,287
Less: accumulated depreciation	(2,505		)	(2,133		)
Total property and equipment, net	$	15,844		$	16,154

Depreciation Expense and Capitalized Interest

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2018		2017		2018		2017
Depreciation expense	$	251	$	81	$	515	$	168
Capitalized interest	1		1		3		2

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Note 5 — Goodwill and Other Intangible Assets

Changes in Carrying Value of Goodwill and Other Intangible Assets

	Amortizing Intangible Assets			Non-Amortizing Intangible Assets
(In millions)	Amortizing Intangible Assets			Goodwill			Other
Balance as of December 31, 2017	$	355		$	3,815		$	1,254
Other	—			(1		)	(3		)
Amortization	(33		)	—			—
Balance as of June 30, 2018	$	322		$	3,814		$	1,251

Gross Carrying Value and Accumulated Amortization of Intangible Assets Other Than Goodwill

	June 30, 2018								December 31, 2017
(Dollars in millions)	Weighted Average Remaining Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizing
Customer relationships	4.5	$	1,030	$	(725	)	$	305	$	1,030	$	(693	)	$	337
Contract rights	6.5	3		(2		)	1		3		(2		)	1
Gaming rights and other	6.0	43		(27		)	16		43		(26		)	17
		$	1,076	$	(754	)	322		$	1,076	$	(721	)	355
Non-amortizing intangible assets
Trademarks							790							790
Gaming rights							208							211
Total Rewards							253							253
							1,251							1,254
Total intangible assets other than goodwill							$	1,573						$	1,609

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Note 6 — Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following table shows the fair value of our financial assets and financial liabilities that are required to be measured at fair value as of the date shown:

Estimated Fair Value

(In millions)	Balance		Level 1		Level 2		Level 3
June 30, 2018
Assets
Government bonds	$	19	$	—	$	19	$	—
Derivative instruments - interest rate swaps	18		—		18		—
Total assets at fair value	$	37	$	—	$	37	$	—
Liabilities
Derivative instruments - interest rate swaps	$	1	$	—	$	1	$	—
Derivative instruments - CEC Convertible Notes	831		—		—		831
Disputed claims liability	86		—		—		86
Total liabilities at fair value	$	918	$	—	$	1	$	917

December 31, 2017
Assets
Equity securities	$	8	$	8	$	—	$	—
Government bonds	25		—		25		—
Total assets at fair value	$	33	$	8	$	25	$	—
Liabilities
Derivative instruments - CEC Convertible Notes	$	1,016	$	—	$	—	$	1,016
Disputed claims liability	112		—		—		112
Total liabilities at fair value	$	1,128	$	—	$	—	$	1,128

Changes in Level 3 Fair Value Measurements

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
(In millions)	Derivative Instruments			Disputed Claims Liability			Derivative Instruments			Disputed Claims Liability
Balance as of beginning of period	$	856		$	102		$	1,016		$	112
Change in fair value recorded in Restructuring and support expenses and other	(25		)	(1		)	(185		)	(9		)
Change due to resolved claims in Disputed claims liability	—			(15		)	—			(17		)
Balance as of end of period	$	831		$	86		$	831		$	86

Equity Securities

Investments in equity securities are traded in active markets and have readily determined market values. These investments were included in Prepayments and other current assets on our Balance Sheets. Gross unrealized gains and losses on marketable securities were not material as of December 31, 2017.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Government Bonds

Investments primarily consist of debt securities held by our captive insurance entities that are traded in active markets, have readily determined market values, and have maturity dates of greater than three months from the date of purchase. These investments primarily represent collateral for several escrow and trust agreements with third-party beneficiaries and are recorded in Deferred charges and other assets while a portion is included in Prepayments and other current assets in our Balance Sheets.

Derivative Instruments

We do not purchase or hold any derivative financial instruments for trading purposes.

CEC Convertible Notes - Derivative Liability

On the Effective Date, CEC issued $1.1 billion aggregate principal amount of 5.00% convertible senior notes maturing in 2024 (the “CEC Convertible Notes”) to CEOC’s creditors pursuant to the terms of the Plan. The CEC Convertible Notes were issued pursuant to the Indenture, dated as of October 6, 2017.

The CEC Convertible Notes are convertible at the option of holders into a number of shares of CEC common stock that is equal to approximately 0.139 shares of CEC common stock per $1.00 principal amount of CEC Convertible Notes, which is equal to an initial conversion price of $7.19 per share. If all the shares were issued on the Effective Date, they would have represented approximately 17.9% of the shares of CEC common stock outstanding on a fully diluted basis. The holders of the CEC Convertible Notes can convert them at any time after issuance. CEC can convert the CEC Convertible Notes beginning in October 2020 if the last reported sale price of CEC common stock equals or exceeds 140% of the conversion price for the CEC Convertible Notes in effect on each of at least 20 trading days during any 30 consecutive trading day period. As of June 30, 2018, an immaterial amount of the CEC Convertible Notes were converted into shares of CEC common stock. An aggregate of 156 million shares of CEC common stock are issuable upon conversion of the CEC Convertible Notes. As of June 30, 2018, the remaining life of the CEC Convertible Notes is 6.25 years.

Management analyzed the conversion features for derivative accounting consideration under ASC Topic 815, Derivatives and Hedging, (“ASC 815”) and determined that the CEC Convertible Notes contains bifurcated derivative features and qualifies for derivative accounting. In accordance with ASC 815, CEC has bifurcated the conversion features of the CEC Convertible Notes and recorded a derivative liability. The CEC Convertible Notes derivative features are not designated as hedging instruments. The derivative features of the CEC Convertible Notes are carried on CEC’s Balance Sheet at fair value in Deferred credits and other liabilities. The derivative liability is marked-to-market each measurement period, and any unrealized change in fair value is recorded as a component of Restructuring and support expenses and other in the Statements of Operations. The derivative liability associated with the CEC Convertible Notes will remain in effect until such time as the underlying convertible notes are exercised or terminated and the resulting derivative liability will be transitioned from a liability to equity as of such date.

Valuation Methodology

We estimated the fair value of the CEC Convertible Notes using a binomial lattice valuation model that incorporated the value of both the straight debt and conversion features of the notes. The CEC Convertible Notes have a face value of $1.1 billion, a term of 7 years, a coupon rate of 5%, and are convertible into 156 million shares of CEC common stock. The valuation model incorporated assumptions regarding the incremental cost of borrowing for CEC, the value of CEC’s equity into which these notes could convert, the expected volatility of such equity, and the risk-free rate.

Key Assumptions as of June 30, 2018:


•	Incremental cost of borrowing - 6.0%


•	Expected volatility - 35%


•	Risk-free rate - 2.8%

Since the key assumptions used in the valuation model, including CEC’s estimated incremental cost of borrowing and the expected volatility of CEC’s equity, were significant unobservable inputs, the fair value for the conversion features of the CEC Convertible Notes was classified as Level 3.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Interest Rate Swap Derivatives

We use forward-starting interest rate swaps to manage the mix of our debt between fixed and variable rate instruments. During the six months ended June 30, 2018, we entered into six interest rate swap agreements to fix the interest rate on $2.0 billion of variable rate debt. As of June 30, 2018, we have entered into a total of ten interest rate swap agreements for notional amounts totaling $3.0 billion. The interest rate swaps are designated as cash flow hedging instruments. The difference to be paid or received under the terms of the interest rate swap agreements will be accrued as interest rates change and recognized as an adjustment to interest expense for the related debt beginning on December 31, 2018. Changes in the variable interest rates to be paid or received pursuant to the terms of the interest rate swap agreements will have a corresponding effect on future cash flows.

The major terms of the interest rate swap agreements as of June 30, 2018 are as follows:



Effective Date	Notional Amount (In millions)	Fixed Rate Paid	Variable Rate Received as of June 30, 2018	Maturity Date
12/31/2018	250	2.274%	N/A	12/31/2022
12/31/2018	200	2.828%	N/A	12/31/2022
12/31/2018	600	2.739%	N/A	12/31/2022
1/1/2019	250	2.153%	N/A	12/31/2020
1/1/2019	250	2.196%	N/A	12/31/2021
1/1/2019	400	2.788%	N/A	12/31/2021
1/1/2019	200	2.828%	N/A	12/31/2022
1/2/2019	250	2.172%	N/A	12/31/2020
1/2/2019	200	2.731%	N/A	12/31/2020
1/2/2019	400	2.707%	N/A	12/31/2021

Valuation Methodology

The estimated fair values of our interest rate swap derivative instruments are derived from market prices obtained from dealer quotes for similar, but not identical, assets or liabilities. Such quotes represent the estimated amounts we would receive or pay to terminate the contracts. The interest rate swap derivative instruments are included in either Deferred charges and other assets or Deferred credits and other liabilities on our Balance Sheets. Our derivatives are recorded at their fair values, adjusted for the credit rating of the counterparty if the derivative is an asset, or adjusted for the credit rating of the Company if the derivative is a liability. None of our derivative instruments are offset and all were classified as Level 2.

The effect of derivative instruments designated as hedging instruments on the Balance Sheet for amounts transferred into Accumulated other comprehensive income was $12 million and $17 million, respectively, during the three and six months ended June 30, 2018.

Disputed Claims Liability

CEC and CEOC deposited cash, CEC common stock, and CEC Convertible Notes into an escrow trust to be distributed to satisfy certain remaining unsecured claims (excluding debt claims) as they become allowed (see Note 7). We have estimated the fair value of the remaining liability of those claims. As key assumptions used in the valuation model, including assumptions for the conversion features of the CEC Convertible Notes, include significant unobservable inputs, the fair value of the liability is classified as Level 3.

Note 7 — Litigation, Contractual Commitments, and Contingent Liabilities

Litigation

Caesars is party to ordinary and routine litigation incidental to our business. We do not expect the outcome of any such litigation to have a material effect on our consolidated financial position, results of operations, or cash flows.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Contractual Commitments

Except as described in Note 6, during the six months ended June 30, 2018, we have not entered into any material contractual commitments outside of the ordinary course of business that have materially changed our contractual commitments as compared to December 31, 2017.

Exit Cost Accruals

As of June 30, 2018 and December 31, 2017, exit costs were included in Accrued expenses and other current liabilities and Deferred credits and other liabilities on the accompanying Balance Sheets for accruals related to the following:



(In millions)	Accrual Obligation End Date	June 30, 2018		December 31, 2017
Iowa greyhound pari-mutuel racing fund	December 2021	$	32	$	40
Future obligations under land lease agreements ⁽¹⁾	December 2092	43		43
Permanent closure of international properties⁽²⁾	January 2032	18		18
Total		$	93	$	101

____________________


⁽¹⁾	Associated with the abandonment of a construction project near the Mississippi Gulf Coast.


⁽²⁾	Properties include Alea Leeds, Golden Nugget and Southend.

NV Energy

In September 2017, we filed our final notice to proceed with our plan to exit the fully bundled sales system of NV Energy for our Nevada casino properties and purchase energy, capacity, and/or ancillary services from a provider other than NV Energy. The transition to unbundle electric service was completed in the first quarter of 2018 (the “Cease-Use Date”). As a result of our decision to exit, an order from the Public Utilities Commission of Nevada required that we pay an aggregate exit fee of $48 million. These fees are payable over three to six years at an aggregate present value of $37 million as of June 30, 2018 and are recorded in Accrued expenses and other current liabilities and Deferred credits and other liabilities on the Balance Sheets.

For six years following the Cease-Use Date, we will also be required to make ongoing payments to NV Energy for non-bypassable rate charges, which primarily relate to each entity’s share of NV Energy’s portfolio of above-market renewable energy contracts and the costs of decommissioning and remediation of coal-fired power plants. As of the effective date of the transition, total fees to be incurred are $31 million, which was recorded at a present value of $26 million in Accrued expenses and other current liabilities and Deferred credits and other liabilities on the Balance Sheets as of June 30, 2018. The amount will be adjusted in the future if actual fees incurred differ from our estimates.

Golf Course Properties

Concurrently with the execution of the leases CEOC LLC maintains with VICI, certain golf course properties (the “Golf Course Properties”) were sold to VICI, and CEOC LLC entered into a golf course use agreement (the “Golf Course Use Agreement”) with VICI. An obligation of $143 million is recorded in Deferred credits and other liabilities as of June 30, 2018 representing the fair value of the $10 million in annual payments to be made under the Golf Course Use Agreement, which exceeds the fair value of services being received.

The obligation is being amortized using the effective interest method over the term of the Golf Course Use Agreement which continues through October 2052. The amortization on this obligation for the three and six months ended June 30, 2018 was $2 million and $5 million, respectively, reflected in Interest expense in our Statement of Operations.

Resolution of Disputed Claims

Prior to the Effective Date, CEOC’s financial statements included amounts classified as liabilities subject to compromise, which represented estimates of pre-petition obligations impacted by the Chapter 11 reorganization process. These amounts represented the Debtors’ then-current estimate of known or potential pre-petition obligations to be resolved in connection with CEOC’s emergence from bankruptcy.

Following the Effective Date, actions to enforce or otherwise affect repayment of liabilities preceding January 15, 2015 (the “Petition Date”), as well as pending litigation against the Debtors related to such liabilities, generally have been permanently

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. CEOC LLC will continue the process of reconciling such claims to the amounts listed by the Debtors in their schedules of assets and liabilities, as amended. The amounts submitted by claimants that remain unresolved total approximately $777 million. We estimate the fair value of these claims to be $86 million as of June 30, 2018, which is based on management’s estimate of the claim amounts that the Bankruptcy Court will ultimately allow and the fair value of the underlying CEC common stock and CEC Convertible Notes held in escrow for the purpose of resolving those claims.

Pursuant to the Plan, CEC and CEOC deposited cash, CEC common stock, and CEC Convertible Notes into an escrow trust to be distributed to satisfy certain remaining unsecured claims (excluding debt claims) as they become allowed. As claims are resolved, the claimants receive distributions of CEC common stock, cash or cash equivalents, and/or CEC Convertible Notes from the reserves on the same basis as if such distributions had been made on or about the Effective Date. To the extent that any of the reserved shares, cash, and convertible notes remain undistributed upon resolution of the remaining disputed claims, such amounts will be returned to CEC.

As of June 30, 2018, approximately $51 million in cash, 8 million shares of CEC common stock, and $33 million in principal value of CEC Convertible Notes remain in reserve for distribution to holders of disputed claims whose claims may ultimately become allowed in the escrow trust. The CEC common stock and CEC Convertible Notes held in the escrow trust are treated as not outstanding in CEC’s Financial Statements. We estimate that the number of shares, cash, and CEC Convertible Notes reserved is sufficient to satisfy the Debtors’ obligations under the Plan.

Contingent Liabilities

Self-Insurance

We are self-insured for workers compensation and other risk insurance, as well as health insurance effective in the first quarter of 2017 when the liability related to certain health insurance contracts was transferred from CEOC to Caesars Enterprise Services, LLC (“CES”). Our total estimated self-insurance liability was $180 million and $192 million, respectively, as of June 30, 2018 and December 31, 2017.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Note 8 — Debt



	June 30, 2018								December 31, 2017
(Dollars in millions)	Final Maturity	Rate(s) ⁽¹⁾	Face Value			Book Value			Book Value
Secured debt
CRC Revolving Credit Facility	2022	variable ⁽²⁾	$	—		$	—		$	—
CRC Term Loan	2024	variable ⁽³⁾	4,676			4,595			4,616
CEOC LLC Revolving Credit Facility	2022	variable ⁽⁴⁾	—			—			—
CEOC LLC Term Loan	2024	variable ⁽⁵⁾	1,493			1,490			1,499
Unsecured debt
CEC Convertible Notes	2024	5.00%	1,081			1,081			1,078
CRC Notes	2025	5.25%	1,700			1,665			1,664
Special Improvement District Bonds	2037	4.30%	55			55			56
Total debt			9,005			8,886			8,913
Current portion of long-term debt			(64		)	(64		)	(64		)
Long-term debt			$	8,941		$	8,822		$	8,849

Unamortized discounts and deferred finance charges						$	119		$	121
Fair value			$	8,870

____________________


⁽¹⁾	Interest rate is fixed, except where noted.


⁽²⁾	London Interbank Offered Rate (“LIBOR”) plus 2.13%. On May 4, 2018, the interest rate was reduced from the previous LIBOR plus 2.25% due to a step-down based on the senior secured leverage ratio in accordance with the CRC Credit Agreement.


⁽³⁾	LIBOR plus 2.75%.


⁽⁴⁾	LIBOR plus 2.00%.


⁽⁵⁾	LIBOR plus 2.00%. On April 16, 2018, the interest rate was repriced from the previous LIBOR plus 2.50%, see CEOC LLC Term Loan Repricing section below.

Annual Estimated Debt Service Requirements as of June 30, 2018

	Remaining		Years Ended December 31,
(In millions)	2018		2019		2020		2021		2022		Thereafter		Total
Annual maturities of long-term debt	$	31	$	64	$	64	$	64	$	64	$	8,718	$	9,005
Estimated interest payments	230		470		480		480		480		1,010		3,150
Total debt service obligation ⁽¹⁾	$	261	$	534	$	544	$	544	$	544	$	9,728	$	12,155

___________________


⁽¹⁾	Debt principal payments are estimated amounts based on maturity dates and potential borrowings under our revolving credit facilities. Interest payments are estimated based on the forward-looking LIBOR curve and include the estimated impact of the ten interest rate swap agreements (see Note 6). Actual payments may differ from these estimates.

Current Portion of Long-Term Debt

The current portion of long-term debt as of June 30, 2018 and December 31, 2017 includes the principal payments on the term loans, other unsecured borrowings, and special improvement district bonds that are expected to be paid within 12 months.

Although there are no outstanding amounts under the revolving credit facilities as of June 30, 2018, $77 million was committed to outstanding letters of credit. Borrowings under the revolving credit facilities are each subject to the provisions of the applicable credit facility agreements, which each have a contractual maturity of greater than one year. Amounts borrowed, if any, under the revolving credit facilities are intended to satisfy short term liquidity needs and would be classified as current.

Fair Value

The fair value of debt has been calculated primarily based on the borrowing rates available as of June 30, 2018 based on market quotes of our publicly traded debt. We classify the fair value of debt within Level 1 and Level 3 in the fair value hierarchy.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

CEOC LLC Term Loan Repricing

On April 16, 2018, CEOC LLC entered into Amendment No. 1 to the Credit Agreement, dated as of October 6, 2017 (as amended, the “CEOC LLC Credit Agreement”) that, among other things, reduced the interest rate margins applicable to CEOC LLC’s existing approximately $1.5 billion term loan facility to LIBOR plus 2.00%, from LIBOR plus 2.50%.

Terms of Outstanding Debt

Restrictive Covenants

The CRC Credit Agreement, CEOC LLC Credit Agreement, and the indentures related to the CEC Convertible Notes and CRC Notes contain covenants which are standard and customary for these types of agreements. These include negative covenants, which, subject to certain exceptions and baskets, limit the Company’s ability to (among other items) incur additional indebtedness, make investments, make restricted payments, including dividends, grant liens, sell assets and make acquisitions.

The CRC Revolving Credit Facility and CEOC LLC Revolving Credit Facility include maximum first-priority net senior secured leverage ratio financial covenants of 6.35:1 and 3.50:1, respectively, which are applicable solely to the extent that certain testing conditions are satisfied.

Guarantees

The borrowings under the CRC Credit Agreement and CEOC LLC Credit Agreement are guaranteed by the material, domestic, wholly owned subsidiaries of CRC and CEOC LLC, respectively, (subject to exceptions) and substantially all of the applicable existing and future property and assets that serve as collateral for the borrowings.

The CRC Notes are guaranteed on a senior unsecured basis by each wholly owned, domestic subsidiary of CRC that is a subsidiary guarantor with respect to the CRC Senior Secured Credit Facilities.

Note 9 — Stockholders’ Equity

Share Repurchase Program

On May 2, 2018, the Company announced that our Board of Directors authorized a Share Repurchase Program (the “Repurchase Program”) to repurchase up to $500 million of our common stock. Repurchases may be made at the Company’s discretion from time to time on the open market or in privately negotiated transactions. The Repurchase Program has no time limit, does not obligate the Company to make any repurchases, and may be suspended for periods or discontinued at any time. Any shares acquired are available for general corporate purposes. During the three and six months ended June 30, 2018, we repurchased approximately 2.7 million shares for approximately $31 million under the program recorded in Treasury stock.

Note 10 — Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing the applicable income amounts by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing the applicable income amounts by the sum of weighted-average number of shares of common stock outstanding and dilutive potential common stock.

For a period in which Caesars generated a net loss, the weighted-average basic shares outstanding was used in calculating diluted loss per share because using diluted shares would have been anti-dilutive to loss per share.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Basic and Dilutive Net Earnings Per Share Reconciliation

	Three Months Ended June 30,					Six Months Ended June 30,
(In millions, except per share data)	2018		2017			2018			2017
Net income/(loss) attributable to Caesars	$	29	$	(1,432	)	$	(5	)	$	(1,939	)

Weighted-average common shares outstanding - basic	698		149			697			148
Dilutive potential common shares: Stock Options	2		—			—			—
Dilutive potential common shares: Restricted Stock Units and Awards	2		—			—			—
Weighted-average common shares outstanding - diluted	702		149			697			148

Basic and diluted earnings/(loss) per share	$	0.04	$	(9.62	)	$	(0.01	)	$	(13.09	)

Weighted-Average Number of Anti-Dilutive Shares Excluded from Calculation of EPS

	Three Months Ended June 30,		Six Months Ended June 30,
(In millions)	2018	2017	2018	2017
Stock options	1	10	9	12
Restricted stock units and awards	—	5	18	7
CEC Convertible Notes	150	—	150	—
Total anti-dilutive common stock	151	15	177	19

Note 11 — Revenue Recognition

Adoption of New Revenue Recognition Standard

In May 2014, the FASB issued a new standard related to revenue recognition, ASU 2014-09, Revenue from Contracts with Customers. We adopted the standard effective January 1, 2018, using the full retrospective method, which requires the Company to recast each prior reporting period presented consistent with the new standard. The most significant effects of adopting the new standard related to the accounting for our Total Rewards customer loyalty program and casino promotional allowances.

Total Rewards affects revenue from our four core businesses: casino entertainment, food and beverage, rooms and hotel, and entertainment and other business operations. Previously, the Company accrued a liability based on the estimated cost of fulfilling the redemption of Reward Credits, after consideration of estimated forfeitures (referred to as “breakage”), based upon the cost of historical redemptions. Upon adoption of the new accounting standard, Reward Credits are no longer recorded at cost, and a deferred revenue model is used to account for the classification and timing of revenue recognized as well as the classification of related expenses when Reward Credits are redeemed. This results in a portion of casino revenues being recorded as deferred revenue as Reward Credits are earned. Revenue is recognized in a future period based on when and for what good or service the Reward Credits are redeemed (e.g., a hotel room).

Additionally, we previously recorded promotional allowances in a separate line item within net revenues. As part of adopting the new standard, promotional allowances are no longer presented separately. Alternatively, revenue is recognized based on relative standalone selling prices for transactions with more than one performance obligation. For example, when a casino customer is given a complimentary room, we are required to allocate a portion of the casino revenues earned from the customer to rooms revenues based on the standalone selling price of the room. As a result of this change, we are reporting substantially lower casino revenues; however, there is no material effect on total net revenues.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Effect of Adopting New Revenue Recognition Standard - Balance Sheets

(In millions)	Previously Reported			ASC Adjustments			As Recast
December 31, 2017
Receivables, net	$	496		$	(2	)	$	494
Property and equipment, net⁽¹⁾	16,228			(74		)	16,154
Accrued expenses and other current liabilities ⁽²⁾	1,459			(133		)	1,326
Contract liabilities⁽²⁾	—			129			129
Financing obligations⁽¹⁾	9,429			(74		)	9,355
Deferred credits and other liabilities	1,473			1			1,474
Stockholders’ equity	3,296			1			3,297
December 31, 2016
Stockholders’ deficit	$	(1,609	)	$	2		$	(1,607	)

____________________

⁽¹⁾

The conditions that were considered prohibited forms of continuing involvement related to our sale of the Golf Course Properties (see Note 7) are no longer considered continuing involvement under the new revenue recognition standard. As of result of adopting the new standard on a full retrospective basis, we are now reflecting this transaction as a completed sale in the period in which it occurred.


⁽²⁾	Adjustments are primarily related to the reclassification of assets and liabilities in accordance with the new accounting and disclosure requirements.

Effect of Adopting New Revenue Recognition Standard - Statements of Operations

	Three Months Ended June 30, 2017
	Prior to Adoption												Post Adoption
(In millions)	CEC			CAC			Eliminations			Total			Total
Net revenues	$	1,002		$	—		$	—		$	1,002		$	1,008
Total operating expenses	845			8			—			853			859
Income/(loss) from operations	157			(8		)	—			149			149
Net loss	(1,426		)	(3		)	(5		)	(1,434		)	(1,432		)



	Six Months Ended June 30, 2017
	Prior to Adoption											Post Adoption
(In millions)	CEC			CAC			Eliminations		Total			Total
Net revenues	$	1,965		$	—		$	—	$	1,965		$	1,974
Total operating expenses	1,650			17			—		1,667			1,675
Income/(loss) from operations	315			(17		)	—		298			299
Net loss	(1,950		)	(1		)	9		(1,942		)	(1,940		)

Disaggregation of Revenue by Segment

	Three Months Ended June 30, 2018
(In millions)	Las Vegas		Other U.S.		All Other		Eliminations			Total
Casino	$	311	$	691	$	60	$	—		$	1,062
Food and beverage	246		138		7		—			391
Rooms	282		105		1		—			388
Management fees	—		1		15		(1		)	15
Reimbursed management costs	—		1		47		—			48
Entertainment and other	114		43		16		(1		)	172
Total contract revenues	953		979		146		(2		)	2,076
Other	39		3		1		—			43
Net revenues	$	992	$	982	$	147	$	(2	)	$	2,119

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)



	Three Months Ended June 30, 2017
(In millions)	Las Vegas		Other U.S.		All Other		Eliminations			Total
Casino	$	209	$	199	$	12	$	—		$	420
Food and beverage	156		49		—		—			205
Rooms	201		41		—		—			242
Entertainment and other	72		15		5		(1		)	91
Total contract revenues	638		304		17		(1		)	958
Other	46		3		1		—			50
Net revenues	$	684	$	307	$	18	$	(1	)	$	1,008



	Six Months Ended June 30, 2018
(In millions)	Las Vegas		Other U.S.		All Other		Eliminations			Total
Casino	$	568	$	1,354	$	123	$	—		$	2,045
Food and beverage	487		273		14		—			774
Rooms	562		191		2		—			755
Management fees	—		2		31		(3		)	30
Reimbursed management costs	—		1		99		—			100
Entertainment and other	206		82		23		(2		)	309
Total contract revenues	1,823		1,903		292		(5		)	4,013
Other	71		5		2		—			78
Net revenues	$	1,894	$	1,908	$	294	$	(5	)	$	4,091



	Six Months Ended June 30, 2017
(In millions)	Las Vegas		Other U.S.		All Other		Eliminations			Total
Casino	$	402	$	385	$	23	$	—		$	810
Food and beverage	318		93		—		—			411
Rooms	416		73		—		—			489
Entertainment and other	133		30		9		(1		)	171
Total contract revenues	1,269		581		32		(1		)	1,881
Other	86		5		2		—			93
Net revenues	$	1,355	$	586	$	34	$	(1	)	$	1,974

Accounting Policy

We analyze our revenues based upon the type of services we provide and the geographic location of the related property. We recognize revenue when control over the goods and services we provide has transferred to the customer, which is generally when the services are performed and when we have no substantive performance obligation remaining. Sales and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in net revenues or operating expenses.

Casino Revenues

Casino revenues include revenues generated by our casino operations and casino related activities such as poker, pari-mutuel wagering, and tournaments, less sales incentives and other adjustments. Casino revenues are measured by the aggregate net difference between gaming wins and losses. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. We accrue the incremental amount of progressive jackpots as the progressive machine is played, and the progressive jackpot amount increases, with a corresponding reduction to casino revenues. Funds deposited by customers in advance along with chips and slot vouchers in a customer’s possession are recorded in Accrued expenses and other current liabilities on our Balance Sheets until such amounts are redeemed or used in gaming play by the customer.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Non-Gaming Revenues

Rooms revenue, food and beverage revenue, and entertainment and other revenue include: (i) the actual amounts paid for such services (less any amounts allocated to unperformed performance obligations, such as Reward Credits described below); (ii) the value of Reward Credits redeemed for such services; and (iii) the portion of the transaction price allocated to complimentary goods or services provided in conjunction with other revenue-generating activities. Rooms revenue is generally recognized over time, consistent with the customer’s reservation period. Food and beverage and entertainment and other revenues are recognized at the point in time the services are performed or events are held. Amounts paid in advance, such as advance deposits on rooms and advance ticket sales, are recorded as a liability until the goods or services are provided to the customer (see Contract Liabilities below).

Other Revenue

Other revenue primarily includes revenue from third-party real estate leasing arrangements at our casino properties. Rental income is recognized ratably over the lease term with contingent rental income being recognized when the right to receive such rental income is established according to the lease agreements.

Total Rewards Loyalty Program

Caesars’ customer loyalty program, Total Rewards, grants Reward Credits to Total Rewards Members based on on-property spending, including gaming, hotel, dining, and retail shopping at all Caesars-affiliated properties. Members may redeem Reward Credits for complimentary or discounted goods and services such as rooms, food and beverages, merchandise, entertainment, and travel accommodations. Members are able to accumulate Reward Credits over time that they may redeem at their discretion under the terms of the program. A member’s Reward Credit balance is forfeited if the member does not earn a Reward Credit for a continuous six-month period.

Because of the significance of the Total Rewards program and the ability for customers to accumulate Reward Credits based on their past play, we have determined that Reward Credits granted in conjunction with other earning activity represent a performance obligation. As a result, for transactions in which Reward Credits are earned, we allocate a portion of the transaction price to the Reward Credits that are earned based upon the relative standalone selling prices (“SSP”) of the goods and services involved. When the activity underlying the “earning” of the Reward Credits has a wide range of selling prices and is highly variable, such as in the case of gaming activities, we use the residual approach in this allocation by computing the value of the Reward Credits as described below and allocating the residual amount to the gaming activity. This allocation results in a significant portion of the transaction price being deferred and presented as a Contract Liability on our accompanying Balance Sheets. Any amounts allocated to Contract Liabilities are recognized as revenue when the Reward Credits are redeemed in accordance with the specific recognition policy of the activity for which the credits are redeemed. This balance is further described below under Contract Liabilities.

Our Total Rewards loyalty program includes various tiers that offer different benefits, and members are able to earn credits towards tier status, which generally enables them to receive discounts similar to those provided as complimentaries described below. We have determined that any such discounts received as a result of tier status do not represent material rights, and therefore, we do not account for them as distinct performance obligations.

We have determined the SSP of a Reward Credit by computing the redemption value of credits expected to be redeemed. Because Reward Credits are not otherwise independently sold, we analyzed all Reward Credit redemption activity over the preceding calendar year and determined the redemption value based on the fair market value of the goods and services for which the Reward Credits were redeemed. We have applied the practical expedient under the portfolio approach to our Reward Credit transactions because of the similarity of gaming and other transactions and the homogeneity of Reward Credits.

As part of determining the SSP for Reward Credits, we also determined that there is generally an amount of Reward Credits that is not redeemed, which is considered “breakage.” We recognize the expected breakage proportionally with the pattern of revenue recognized related to the redemption of Reward Credits. We periodically reassess our customer behaviors and revise our expectations as deemed necessary on a prospective basis.

Complimentaries

As part of our normal business operations, we often provide lodging, transportation, food and beverage, entertainment and other goods and services to our customers at no additional charge. Alternatively, Reward Credits can be redeemed for these services.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Both are considered complimentaries. Such complimentaries are provided in conjunction with other revenue‑earning activities and are generally provided to encourage additional customer spending on those activities. Accordingly, we allocate a portion of the transaction price we receive from such customers to the complimentary goods and services. We perform this allocation based on the SSP of the underlying goods and services, which is determined based upon the weighted-average cash sales prices received for similar services at similar points during the year.

Retail Value of Complimentaries

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2018		2017		2018		2017
Food and beverage	$	143	$	144	$	292	$	295
Rooms	118		122		226		237
Other	15		17		30		31
	$	276	$	283	$	548	$	563

Receivables and Contract Liabilities

We issue credit to approved casino customers following investigations of creditworthiness. Business or economic conditions or other significant events could affect the collectibility of these receivables. Accounts receivable are non-interest bearing and are initially recorded at cost.

Marker play represents a significant portion of our overall table games volume. We maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their marker balances timely. These collection efforts include the mailing of statements and delinquency notices, personal contacts, the use of outside collection agencies and civil litigation. Markers are generally legally enforceable instruments in the United States. Markers are not legally enforceable instruments in some foreign countries, but the United States assets of foreign customers may be reached to satisfy judgments entered in the United States. We consider the likelihood and difficulty of enforceability, among other factors, when we issue credit to customers who are not residents of the United States.

Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. We reserve an estimated amount for gaming receivables that may not be collected to reduce the Company’s receivables to their net carrying amount. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. As with many estimates, management must make judgments about potential actions by third parties in establishing and evaluating our reserves for allowance for doubtful accounts. Receivables are reported net of the allowance for doubtful accounts.

Receivables

(In millions)	June 30, 2018		December 31, 2017
Casino	$	156	$	173
Food and beverage and rooms	78		59
Entertainment and other	77		79
Contract receivables, net	311		311
Other	132		183
Receivables, net	$	443	$	494

Allowance for Doubtful Accounts

(In millions)	Contracts			Other			Total
Balance as of December 31, 2017	$	44		$	7		$	51
Provision for doubtful accounts	—			(3		)	(3		)
Write-offs less recoveries	(7		)	(1		)	(8		)
Balance as of June 30, 2018	$	37		$	3		$	40

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Contract Liability Balances

(In millions)	Total Rewards		Customer Advances		Total
December 31, 2017 ⁽¹⁾	$	62	$	69	$	131
June 30, 2018 ⁽²⁾	68		84		152

____________________


⁽¹⁾	$2 million included within Deferred credits and other liabilities.


⁽²⁾	$6 million included within Deferred credits and other liabilities.

Revenue Recognized from December 31, 2017 Contract Liability Balances

(In millions)	Total Rewards		Customer Advances	Total
Three Months Ended June 30, 2018	$	9	$