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 September 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 every Interactive Data File required to be submitted 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	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 October 30, 2018
Common stock, $0.01 par value	669,733,000

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)	September 30, 2018		December 31, 2017
Assets
Current assets
Cash and cash equivalents ($17 and $58 attributable to our VIEs)	$	1,563	$	2,558
Restricted cash	123		116
Receivables, net	472		494
Due from affiliates, net	4		11
Prepayments and other current assets ($3 and $2 attributable to our VIEs)	178		239
Inventories	40		39
Total current assets	2,380		3,457
Property and equipment, net ($84 and $57 attributable to our VIEs)	16,029		16,154
Goodwill	4,083		3,815
Intangible assets other than goodwill	3,008		1,609
Restricted cash	40		35
Deferred income taxes	2		2
Deferred charges and other assets ($46 and $0 attributable to our VIEs)	424		364
Total assets	$	25,966	$	25,436

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ($3 and $3 attributable to our VIEs)	$	325	$	318
Accrued expenses and other current liabilities ($1 and $0 attributable to our VIEs)	1,260		1,326
Interest payable	135		38
Contract liabilities	154		129
Current portion of financing obligations	15		9
Current portion of long-term debt	164		64
Total current liabilities	2,053		1,884
Financing obligations	9,957		9,355
Long-term debt	8,811		8,849
Deferred income taxes	716		577
Deferred credits and other liabilities	1,262		1,474
Total liabilities	22,799		22,139
Commitments and contingencies (Note 8)
Stockholders’ equity
Caesars stockholders’ equity	3,079		3,226
Noncontrolling interests	88		71
Total stockholders’ equity	3,167		3,297
Total liabilities and stockholders’ equity	$	25,966	$	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 September 30,						Nine Months Ended September 30,
(In millions, except per share data)	2018			2017			2018			2017
Revenues
Casino	$	1,102		$	389		$	3,147		$	1,199
Food and beverage	408			206			1,182			617
Rooms	395			253			1,150			742
Other revenue	213			145			600			409
Management fees	16			—			46			—
Reimbursed management costs	51			—			151			—
Net revenues	2,185			993			6,276			2,967
Operating expenses
Direct
Casino	625			210			1,756			659
Food and beverage	284			143			823			426
Rooms	123			83			359			245
Property, general, administrative, and other	467			247			1,340			724
Reimbursable management costs	51			—			151			—
Depreciation and amortization	295			150			843			348
Corporate expense	79			40			237			129
Other operating costs	29			36			128			53
Total operating expenses	1,953			909			5,637			2,584
Income from operations	232			84			639			383
Interest expense	(341		)	(120		)	(1,005		)	(409		)
Restructuring and support expenses and other	109			(448		)	338			(2,319		)
Loss before income taxes	—			(484		)	(28		)	(2,345		)
Income tax benefit/(provision)	111			45			134			(34		)
Net income/(loss)	111			(439		)	106			(2,379		)
Net (income)/loss attributable to noncontrolling interests	(1		)	6			(1		)	7
Net income/(loss) attributable to Caesars	$	110		$	(433	)	$	105		$	(2,372	)

Earnings/(loss) per share - basic and diluted
Basic earnings/(loss) per share	$	0.16		$	(2.90	)	$	0.15		$	(15.97	)
Diluted earnings/(loss) per share	$	0.14		$	(2.90	)	$	0.15		$	(15.97	)
Weighted-average common shares outstanding - basic	681			149			692			148
Weighted-average common shares outstanding - diluted	835			149			697			148

Comprehensive income/(loss)
Foreign currency translation adjustments	$	2		$	—		$	(17	)	$	—
Change in fair market value of interest rate swaps, net of tax	11			—			24			—
Other	—			—			1			—
Other comprehensive income, net of income taxes	13			—			8			—
Comprehensive income/(loss)	124			(439		)	114			(2,379		)

Amounts attributable to noncontrolling interests:
Foreign currency translation adjustments	1			—			4			—
Comprehensive loss attributable to noncontrolling interests	—			6			3			7
Comprehensive income/(loss) attributable to Caesars	$	124		$	(433	)	$	117		$	(2,372	)

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	—		—			—		(2,372		)	—			(2,372		)	(7		)	(2,379		)
Stock-based compensation	—		(8		)	32		—			—			24			—			24
Change in noncontrolling interest, net of distributions and contributions	—		—			—		—			—			—			(4		)	(4		)
Balance as of September 30, 2017	$	1	$	(37	)	$	8,708	$	(12,679	)	$	(1	)	$	(4,008	)	$	42		$	(3,966	)

Balance as of December 31, 2017	$	7	$	(152	)	$	14,040	$	(10,675	)	$	6		$	3,226		$	71		$	3,297
Net income	—		—			—		105			—			105			1			106
Stock-based compensation	—		(12		)	59		—			—			47			—			47
Repurchase of common stock	—		(311		)	—		—			—			(311		)	—			(311		)
Other comprehensive income/(loss), net of tax	—		—			—		—			12			12			(4		)	8
Change in noncontrolling interest, net of distributions and contributions	—		—			—		—			—			—			20			20
Balance as of September 30, 2018	$	7	$	(475	)	$	14,099	$	(10,570	)	$	18		$	3,079		$	88		$	3,167

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended September 30,
(In millions)	2018			2017
Cash flows provided by operating activities	$	692		$	263
Cash flows from investing activities
Acquisition of Centaur, net of cash and restricted cash acquired	(1,578		)	—
Acquisitions of property and equipment, net of change in related payables	(342		)	(245		)
Payments to acquire certain gaming rights	(10		)	—
Deconsolidation of subsidiary cash	—			(57		)
Proceeds from the sale and maturity of investments	30			28
Payments to acquire investments	(19		)	(21		)
Cash flows used in investing activities	(1,919		)	(295		)
Cash flows from financing activities
Proceeds from long-term debt and revolving credit facilities	1,167			585
Debt issuance costs and fees	(5		)	(19		)
Repayments of long-term debt and revolving credit facilities	(1,116		)	(673		)
Proceeds from sale-leaseback financing arrangement	508			—
Distribution of CIE sale proceeds	—			(63		)
Proceeds from the issuance of common stock	4			7
Repurchase of common stock	(311		)	—
Taxes paid related to net share settlement of equity awards	(12		)	(8		)
Financing obligation payments	(11		)	—
Contributions from noncontrolling interest owners	20			—
Distributions to noncontrolling interest owners	—			(6		)
Cash flows provided by/(used in) financing activities	244			(177		)
Net decrease in cash, cash equivalents, and restricted cash	(983		)	(209		)
Cash, cash equivalents, and restricted cash, beginning of period	2,709			4,658
Cash, cash equivalents, and restricted cash, end of period	$	1,726		$	4,449

Supplemental Cash Flow Information:
Cash paid for interest	$	782		$	319
Cash paid for income taxes	5			3
Non-cash investing and financing activities:
Change in accrued capital expenditures	51			2
Deferred consideration for acquisition of Centaur	66			—

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 12 (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 42% and 45%, respectively, of net revenues for the three and nine months ended September 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 operated Hoosier Park Racing & Casino in Anderson, Indiana, and Indiana Grand Racing & Casino in Shelbyville, Indiana. See Note 4 for additional information.

New Transactions with VICI

Sale of Octavius Tower at Caesars Palace

On July 11, 2018, we sold Octavius Tower at Caesars Palace (“Octavius Tower”) to VICI for $508 million in cash. Proceeds from the transaction supported the closing of CEC’s acquisition of Centaur. We continue to operate the Octavius Tower under the current terms of the long-term lease agreement with VICI relating to Caesars Palace.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Harrah’s Philadelphia Real Estate Sale and Leaseback

Also on July 11, 2018, CEC agreed to sell to VICI all the real property used in the operation of Harrah’s Philadelphia Casino and Racetrack (“Harrah’s Philadelphia”) for $242 million. We will lease the real property of Harrah’s Philadelphia from VICI pursuant to the existing long-term lease agreement relating to other domestic properties.

Modifications to Lease Agreements with VICI

In connection with the Octavius Tower and Harrah’s Philadelphia transactions, CEC and VICI will consummate modifications to certain of our existing lease agreements for consideration of $159 million to VICI. The modifications are intended to bring the lease terms into alignment with other market precedents and the long-term performance of the properties and create additional flexibility to facilitate our future development strategies.

The Harrah’s Philadelphia transaction and lease modifications are expected to close during the fourth quarter of 2018, subject to customary closing conditions and regulatory and third party approvals. The Octavius Tower sale includes a contingency that CEC may repurchase at its option or may be required to repurchase the Octavius Tower if the Harrah’s Philadelphia transaction and lease modifications transactions are not completed.

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 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 12 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 16.

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)	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	1,563	$	2,558
Restricted cash, current	123		116
Restricted cash, non-current	40		35
Total cash, cash equivalents, and restricted cash	$	1,726	$	2,709

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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 12).

Reconciliation of Net Revenues and Net Income/(Loss)

(In millions)	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Net revenues
Caesars previously reported	$	986		$	2,951
CAC	—			—
Adoption of new revenue recognition standard ⁽¹⁾	7			16
As currently reported	$	993		$	2,967

Net income/(loss)
Caesars previously reported	$	(460	)	$	(2,410	)
CAC	5			4
Elimination and consolidation adjustments	14			23
Adoption of new revenue recognition standard ⁽¹⁾	2			4
As currently reported	$	(439	)	$	(2,379	)

____________________


⁽¹⁾	See above.

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 (i) affiliates that are more than 50% owned are consolidated; (ii) 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 (iii) 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 12).


•	ASU 2016-16, Income Taxes (see Note 14).

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


•	ASU 2018-09, Codification Improvements.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)


•	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 ASUs are not yet effective:

Codification Improvements - July 2018: Amended guidance provides miscellaneous changes to clarify, correct errors in, or make minor improvements to the ASC. These amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Many of the amendments in this update do not have transition guidance and were effective upon issuance of the update. We assessed these updates and noted no applicability to Caesars. However, several amendments in this update do have transition guidance with effective dates for annual periods beginning after December 15, 2018 for public business entities. We are currently assessing the effect the adoption of the remaining amendments in this standard will have on our financial statements.

Intangibles - Goodwill and Other - Internal-Use Software - August 2018: Amended guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2019, and 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.

Compensation - Retirement Benefits - August 2018: Amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans including (i) removing certain disclosure requirements such as the amount and timing of plan assets expected to be returned to the employer, (ii) adding certain disclosure requirements such as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period, and (iii) clarifying certain disclosure requirements such as disclosing the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets. The amendments in this update are effective for public entities for fiscal years ending after December 15, 2020. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our financial statements.

Fair Value Measurement - August 2018: Amended guidance modifies fair value measurement disclosure requirements including (i) removing certain disclosure requirements such as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (ii) modifying certain disclosure requirements, and (iii) adding certain disclosure requirements such as changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and 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.

Previously Disclosed

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)

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 is intended to increase transparency and comparability among organizations by requiring additional disclosures to reflect the significance of an entity’s leasing arrangements and by recognizing right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Many long-term operating leases, including agreements relating to 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. Certain leases embedded in other arrangements, such as service and supplier contracts, may be accounted for separately by allocating payments between lease and non-lease components.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We will adopt the new standard on January 1, 2019, and we have elected to apply the guidance as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. Under this method, comparative periods will continue to be reported under legacy lease accounting guidance consistent with previously issued financial statements. We are currently assessing the effects the guidance will have on our financial statements and related disclosures.

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 — 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.

CAESARS ENTERTAINMENT CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

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