Caesars Entertainment Resort Properties, LLC - FORM 10-Q

Attached files

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EX-32.2 - EXHIBIT 32.2 - Caesars Entertainment Resort Properties, LLC	a2017q3cerpex322cfosection.htm
EX-32.1 - EXHIBIT 32.1 - Caesars Entertainment Resort Properties, LLC	a2017q3cerpex321ceosection.htm
EX-31.2 - EXHIBIT 31.2 - Caesars Entertainment Resort Properties, LLC	a2017q3cerpex312cfosection.htm
EX-31.1 - EXHIBIT 31.1 - Caesars Entertainment Resort Properties, LLC	a2017q3cerpex311ceosection.htm

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, 2017



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. 333-199393

_________________________

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

(Exact name of registrant as specified in its charter)

_________________________



Delaware		46-3675913
(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	o

Non-accelerated filer	x (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. Not Applicable.

The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this report with a reduced disclosure format as permitted by General Instruction H(2).

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION		Page
Item 1.	Unaudited Financial Statements
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Operations	4
	Consolidated Condensed Statements of Member’s Equity	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	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
SIGNATURE		30

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)



(In millions)	September 30, 2017		December 31, 2016
Assets
Current assets
Cash and cash equivalents	$	336	$	168
Receivables, net	77		79
Prepayments and other current assets	33		35
Inventories	12		13
Total current assets	458		295
Property and equipment, net	4,869		4,905
Goodwill	1,402		1,402
Intangible assets other than goodwill	205		242
Deferred charges and other assets	91		97
Total assets	$	7,025	$	6,941

Liabilities and Member’s Equity
Current liabilities
Accounts payable	$	49	$	37
Due to affiliates, net	37		21
Accrued expense and other current liabilities	138		136
Accrued restructuring and support expenses	121		131
Interest payable	104		53
Current portion of long-term debt	25		68
Total current liabilities	474		446
Long-term debt	4,486		4,495
Deferred income taxes	949		1,040
Deferred credits and other liabilities	19		5
Total liabilities	5,928		5,986
Commitments and contingencies (Note 7)
Total member’s equity	1,097		955
Total liabilities and member’s equity	$	7,025	$	6,941

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2017			2016
Revenues
Casino	$	297		$	289		$	865		$	848
Food and beverage	135			132			395			396
Rooms	152			147			450			427
Other	88			85			254			243
Less: casino promotional allowances	(90		)	(84		)	(266		)	(255		)
Net revenues	582			569			1,698			1,659
Operating expenses
Direct
Casino	147			144			441			426
Food and beverage	68			68			196			199
Rooms	42			42			122			118
Property, general, administrative, and other	129			137			380			390
Depreciation and amortization	86			63			196			196
Corporate expense	11			11			34			32
Other operating costs	16			—			18			5
Total operating expenses	499			465			1,387			1,366
Income from operations	83			104			311			293
Interest expense	(84		)	(98		)	(274		)	(297		)
Restructuring and support expenses and other	7			—			9			—
Income/(loss) before income taxes	6			6			46			(4		)
Income tax benefit/(provision)	5			—			(11		)	2
Net income/(loss)	$	11		$	6		$	35		$	(2	)

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

CONSOLIDATED CONDENSED STATEMENTS OF MEMBER’S EQUITY

(UNAUDITED)



(In millions)	Contributed Capital		Accumulated Deficit			Total Member’s Equity
Balance as of December 31, 2015	$	2,042	$	(1,087	)	$	955
Net loss	—		(2		)	(2		)
Contribution from parent in settlement of taxes	67		—			67
Share-based compensation and other	8		—			8
Balance as of September 30, 2016	$	2,117	$	(1,089	)	$	1,028

Balance as of December 31, 2016	$	2,128	$	(1,173	)	$	955
Net income	—		35			35
Contribution from parent in settlement of taxes	102		—			102
Share-based compensation and other	5		—			5
Balance as of September 30, 2017	$	2,235	$	(1,138	)	$	1,097

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended September 30,
(In millions)	2017			2016
Cash flows provided by operating activities	$	342		$	299
Cash flows from investing activities
Acquisitions of property and equipment, net of change in related payables	(110		)	(87		)
Contributions to Caesars Entertainment Services	—			(4		)
Other	—			(3		)
Cash flows used in investing activities	(110		)	(94		)
Cash flows from financing activities
Proceeds from long-term debt and revolving credit facility	59			65
Repayments of long-term debt and revolving credit facility	(120		)	(173		)
Other	(3		)	—
Cash flows used in financing activities	(64		)	(108		)
Net increase in cash and cash equivalents	168			97
Cash and cash equivalents, beginning of period	168			150
Cash and cash equivalents, end of period	$	336		$	247

Supplemental Cash Flow Information:
Cash paid for interest	$	211		$	239
Non-cash investing and financing activities:
Change in accrued capital expenditures	10			9
Contribution from parent in settlement of taxes	102			67

See accompanying Notes to Consolidated Condensed Financial Statements.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

In this filing, the name “CERP LLC” refers to the parent holding company, Caesars Entertainment Resort Properties, LLC, exclusive of its consolidated subsidiaries, unless otherwise stated or the context otherwise requires. The words “CERP,” “Company,” “we,” “our,” and “us” refer to Caesars Entertainment Resort Properties, LLC, inclusive of its consolidated subsidiaries, 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, 2016 (“2016 Annual Report”).

Note 1 — Organization and Basis of Presentation and Consolidation

Organization

CERP LLC is separately organized as a single-member limited liability company, wholly owned by Caesars Entertainment Resort Properties Holdco, LLC, which is a wholly owned subsidiary of Caesars Entertainment Corporation (“CEC” and “Caesars”). CERP owns six casino properties: (1) Harrah’s Las Vegas, (2) Rio All-Suites Hotel and Casino (“Rio Las Vegas”), (3) Flamingo Las Vegas, (4) Harrah’s Atlantic City, (5) Paris Las Vegas, and (6) Harrah’s Laughlin. CERP also owns The LINQ promenade and Octavius Tower at Caesars Palace Las Vegas (“Octavius Tower”). Four of the casino properties, together with The LINQ promenade and Octavius Tower, are concentrated in Las Vegas and represented 72% and 74% of consolidated net revenues for the three and nine months ended September 30, 2017, respectively.

We view each casino property, including The LINQ promenade, as an operating segment and aggregate such properties into one reportable segment.

See Note 12 for additional information about pending transactions related to CERP’s debt and organizational structure.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated condensed financial statements of CERP have been prepared under the rules and regulations of the Securities and Exchange Commission 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 2017 fiscal year.

GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting periods. Due to the inherent uncertainties in making these estimates, actual amounts could differ.

For the three and nine months ended September 30, 2016, $2 million and $8 million, respectively, was reclassified from food and beverage revenues to other revenues, and certain other immaterial prior year amounts have also been reclassified to conform to the current year’s presentation.

Caesars Enterprise Services, LLC

In 2014, Caesars Entertainment Operating Company, Inc. (“CEOC”), CERP, and Caesars Growth Properties Holdings, LLC (“CGPH”) (collectively, the “Members”) formed Caesars Enterprise Services, LLC (“CES”), a services joint venture. CES provides certain corporate and administrative services for the Members’ casino properties and related entities, including substantially all of the casino properties owned by CEOC and casinos owned by unrelated third parties. CES manages certain assets for the casino properties to which it provides services, and it employs certain of the corresponding employees. CES owns, licenses or controls other assets and uses them to provide services to the Members. Expenses incurred by CES are allocated to the casino properties directly or to the Members according to their allocation percentages, subject to annual review. See Note 11 for additional information on related party transactions.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

CES functions as a "pass-through" entity that serves as an agent on behalf of the Members at a cost-basis, and is reimbursed by the Members for its services performed and costs incurred. CES is not intended to be a profit-generating business enterprise and is designed to have no operating cash flows of its own. Therefore, any net income or loss is generally immaterial and is typically subject to allocation to the Members in the subsequent period.

When CES was formed, we determined that it was a variable interest entity (“VIE”). CERP is not considered the primary beneficiary and does not consolidate CES. Our equity method investment in CES was $53 million and $56 million as of September 30, 2017 and December 31, 2016, respectively, and is included in deferred charges and other assets.

Note 2 — Litigation

The Company 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, as we do not believe it is reasonably possible that we will incur material losses as a result of such litigation.

Birthday Cash Promotional Offer

In connection with a Birthday Cash promotional offer by Harrah’s Atlantic City, on March 19, 2010, the Superior Court of New Jersey entered a summary judgment in favor of a modified class of approximately 79,000 plaintiffs. The summary judgment found that Harrah’s Atlantic City violated the New Jersey Truth in Consumer Contract, Warranty and Notice Act. The penalty is $100 per incident, amounting to a potential exposure of up to $7.9 million. In March 2012, the judge held that the damages class, if any, should be based upon the number of individuals who redeemed certificates, not the number of certificates redeemed (as some plaintiffs had multiple certificates). As a result, the potential exposure under the judge’s ruling was decreased to $5.2 million. After the case was stayed to wait for a pending case in the New Jersey Supreme Court, the court reopened the case in July 2013. The decision in the New Jersey Supreme Court case clarified two aspects of the New Jersey Truth in Consumer Contract, Warranty and Notice Act, which support our contention that the existing judgment against us should be vacated and the case dismissed in our favor. In November 2013, the court denied both parties’ motions for reconsideration. In December 2013, we filed a motion to stay the judgment pending appeal, and in January 2014, the court granted the stay and we filed an appeal. In February 2014, per the court’s stay order, we posted into an escrow account the potential exposure under the judge’s ruling in the amount of $5.2 million plus attorneys’ fees. This amount is included in prepayments and other current assets in the accompanying Balance Sheets. No amount has been accrued. The appeal was argued in December 2015, and we prevailed on that appeal on September 9, 2016. Plaintiffs thereafter filed a letter brief with the appellate court seeking reconsideration of the appellate decision, which request was denied. Plaintiffs filed a petition for certification with the New Jersey Supreme Court on January 3, 2017, and we opposed that petition on January 18, 2017. The petition for certification remains pending. On January 12, 2017, the trial court entered an order authorizing the return of our escrowed funds in light of the appellate court’s decision on the merits in our favor. On March 9, 2017, the New Jersey Supreme Court denied plaintiffs’ certification petition. Our escrowed funds (minus certain minor expenses) have since been returned, and the matter is now fully resolved.

CEOC Noteholder Disputes

As set forth in detail in our 2016 Annual Report and in our Form 10-Q for the quarter ended June 30, 2017, beginning in 2014, CEC, CEOC, Caesars Growth Partners, LLC (“CGP”), Caesars Acquisition Company, CERP, CES, and others were parties to a number of lawsuits (the “Noteholder Lawsuits”) relating to CEOC’s debt obligations. More specifically, seven lawsuits were filed by certain secured or unsecured creditors against CEC (originally also against others, and certain of them were against us) in federal and state courts in New York and Delaware, and one lawsuit was initiated by CEC against certain creditors in New York state court, each seeking judicial determinations of CEC’s liability, if any, for its refusal to pay creditors under various parental guarantees that supported particular CEOC indebtedness. In October 2017, following the effective date of the CEOC reorganization plan, each of these Noteholder Lawsuits was dismissed, with prejudice.

Report of Bankruptcy Examiner

With the effectiveness of the CEOC reorganization plan, matters relating to the Report of Bankruptcy Examiner have now been resolved.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

National Retirement Fund

As previously reported in more detail in our 2016 Annual Report and in our Form 10-Q for the quarter ended June 30, 2017, the five indirect subsidiaries of CEC which were required to make contributions to the National Retirement Fund’s (“NRF’s”) legacy plan (the “Five Employers”) and the members of the Five Employers’ controlled group (the “CEC Controlled Group”) have been engaged in a number of actions, proceedings and appeals with the NRF, its fund manager, and its board of trustees (the “NRF Litigations”) arising out of the January 2015 vote of a majority of the NRF’s trustees to expel the Five Employers from the NRF’s legacy plan. Pursuant to the NRF Settlement Agreement (as defined below), each of the NRF Litigations was dismissed with prejudice after the effective date of the Debtors’ reorganization pursuant to the Plan on October 6, 2017 (the “Effective Date”).

On March 13, 2017, CEC, CERP, CEOC (on behalf of itself and each of the Debtors and its other direct and indirect subsidiaries), the Five Employers, the NRF, the NRF’s legacy plan, the NRF’s trustees, and others entered into a Settlement Agreement (the “NRF Settlement Agreement”). Under the NRF Settlement Agreement, on the Effective Date, CEC would pay $45 million to the NRF (the “NRF Payments”). On the Effective Date, the NRF Payments were made to the NRF and thus the mutual releases between the CEC-affiliated parties and the NRF-affiliated parties to the NRF Settlement Agreement became effective. Promptly after the Effective Date, each of the actions, proceedings and appeals relating to the NRF Litigations was dismissed with prejudice.

Of the total $45 million paid by CEC, $30 million related to a withdrawal liability, litigation settlement, and legal fee reimbursement. The remaining $15 million represented a prepayment to be applied toward future pension contributions. No liability will be recorded by the CERP for the NRF Payments because (1) CERP will not be obligated to reimburse CEC for any portion of the payments related to the settlement and withdrawal liability and (2) the portion of the payment related to contributions will be accounted for as a prepayment toward future pension contributions. CERP is not obligated to reimburse CEC for the payments related to the settlement and withdrawal liability because CERP remained current on all contribution payments to the pension, and therefore the payments were not made on behalf of the CERP. CERP will reimburse CEC for its portion of the contributions in a manner similar to other pension contributions that are made on CERP’s behalf in the ordinary course of business.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 3 — Recently Issued Accounting Pronouncements

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

Intangibles - Goodwill and Other - January 2017: Amendments in this update intend to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of goodwill. Under the amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The elimination of Step 2 from the goodwill impairment test should reduce the cost and complexity of evaluating goodwill for impairment. Amendments should be applied on a prospective basis disclosing the nature of and reason for the change in accounting principle upon transition. Disclosure should be provided in the first annual period and in the interim period in which the entity initially adopts the amendments. Updated amendments are effective for fiscal years beginning after December 15, 2019, and interim period within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We currently plan to implement the updated guidance when we perform our annual goodwill impairment assessment as of October 1.

Business Combinations - January 2017: Updated amendments intend to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisition (or disposals) of assets or businesses. Amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business and to provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The amendments are effective to annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is allowed as follows: (1) Transactions for which acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and (2) transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. We are currently assessing the effect the adoption of this standard will have on our financial statements.

Statement of Cash Flows - August 2016: Amended guidance addresses eight specific cash flow issues with the objective of reducing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments should be applied retrospectively to each period presented. The amendments are effective for fiscal years beginning after December 15, 2017, 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.

Income Taxes - October 2016: Amended guidance addresses intra-entity transfers of assets other than inventory, which requires the recognition of any related income tax consequences when such transfers occur. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Amendments are effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years. Early adoption is permitted. We are currently assessing the effect the adoption of this standard will have on our financial statements.

Revenue Recognition - May 2014 (amended September 2017): Created a new Topic 606, Revenue from Contracts with Customers. The new guidance is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP applicable to revenue transactions. Existing industry guidance will be eliminated, including revenue recognition guidance specific to the gaming industry. The FASB has recently issued several amendments to the standard, including clarification on accounting for and identifying performance obligations. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. The guidance should be applied using the full retrospective method or retrospectively with the cumulative effect initially applying the guidance recognized at the date of initial application. We plan to adopt this standard effective January 1, 2018, on a full retrospective basis.

We are currently in the process of our analysis and anticipate this standard will have a material effect on our consolidated financial statements. As described below, we expect the most significant effect will be related to the accounting for the Total Rewards customer loyalty program and casino promotional allowances. However, due to the complexity and nature of the gaming industry, the quantitative effects of these changes have not yet been determined and are still being analyzed.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

The Total Rewards customer loyalty program affects revenue from our four core businesses: casino entertainment, food and beverage, rooms and hotel, and entertainment and other business operations. Currently, CEC estimates the 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 guidance, Reward Credits will no longer be recorded at cost, and a deferred revenue model will be 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 will result in a portion of casino revenues being recorded as deferred revenue and being recognized as revenue in a future period when the Reward Credits are redeemed, and the revenue will be classified according to the good or service for which the Reward Credits were redeemed (e.g., a hotel room).

We also expect to see a significant decrease in casino revenues. The presentation of goods and services provided to customers without charge in gross revenue with a corresponding reduction in promotional allowances will no longer be reported. Revenue will be 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 will be 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.

We will continue to monitor and assess the impact of any changes to the standard and interpretations as they become available.

Recognition and Measurement of Financial Instruments - January 2016: Amended certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other things, they require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with any changes in fair value recognized in net income and simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted on certain provisions. We are currently assessing the effect the adoption of this standard will have on our financial statements, but do not expect the effect to be material.

Leases - February 2016 (amended September 2017): 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 also requires additional qualitative and quantitative disclosures to assess the amount, timing, and uncertainty of cash flows arising from leases. 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, which includes optional practical expedients primarily focused on leases that commenced before the effective date, including continuing to account for leases that commenced before the effective date in accordance with previous guidance, unless the lease is modified.

Currently, all of our capital leases are set to expire before the initial effective date and will not require any accounting adjustments. Accounting for our operating leases where we are the lessor, including leases for the Octavius Tower at Caesars Palace Las Vegas and gaming space at The LINQ promenade, will remain unchanged. Operating leases, including agreements relating to slot machines, will 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. The ROU asset will be depreciated on a straight-line basis and recognized as lease expense. The qualitative and quantitative effects of adoption are still being analyzed. We are in the process of evaluating the full effect the new guidance will have on our financial statements.

Note 4 — Property and Equipment



(In millions)	September 30, 2017			December 31, 2016
Land and land improvements	$	2,498		$	2,498
Buildings and improvements	2,819			2,789
Furniture, fixtures, and equipment	708			673
Construction in progress	70			22
Total property and equipment	6,095			5,982
Less: accumulated depreciation	(1,226		)	(1,077		)
Total property and equipment, net	$	4,869		$	4,905

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Depreciation Expense and Capitalized Interest

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
Depreciation expense ⁽¹⁾	$	72	$	49	$	155	$	152
Capitalized interest	1		—		2		1

____________________

⁽¹⁾

Depreciation expense for the three and nine months ended September 30, 2017 includes accelerated depreciation of $31 million and $32 million, respectively, due to asset removal and replacement in connection with property renovations primarily at Harrah’s Las Vegas and Flamingo Las Vegas compared with $8 million and $32 million during the three and nine months ended September 30, 2016, respectively. The expense during the prior year quarter related to certain assets primarily at Paris Las Vegas, and during the nine months ended September 30, 2016, it related to assets primarily at Harrah’s Las Vegas, Paris Las Vegas, and Flamingo Las Vegas.

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, 2016	$	205		$	1,402	$	37
Amortization	(37		)	—		—
Balance as of September 30, 2017	$	168		$	1,402	$	37

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

	September 30, 2017								December 31, 2016
(Dollars in millions)	Weighted Average Remaining Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Customer relationships	3.6	$	682	$	(514	)	$	168	$	682	$	(477	)	$	205
Trademarks							37							37
Total intangible assets other than goodwill							$	205						$	242

Note 6 — Accrued Restructuring and Support Expenses

CEC has agreed to support the CEOC’s plan of reorganization (the “Plan”), which was confirmed by the Bankruptcy Court on January 17, 2017. On October 6, 2017, CEOC consummated their reorganization pursuant to the Plan. As part of the emergence, CEOC reorganized into an operating company (“OpCo”) and a property company (“PropCo”). OpCo became a limited liability company on the effective date of the CEOC reorganization by merging with and into CEOC, LLC (“New CEOC”), a wholly-owned subsidiary of CEC, with New CEOC as the surviving entity. OpCo will operate CEOC’s properties and facilities formerly held by CEOC. PropCo will hold certain real property assets and related fixtures formerly held by CEOC and will lease those assets to OpCo. OpCo, or New CEOC, is CEOC’s successor and a wholly owned consolidated subsidiary of CEC subsequent to CEOC’s emergence. PropCo is a separate entity that will not be consolidated by CEC and is owned by certain of CEOC’s former creditors.

Certain obligations described in the Plan were settled by CEC, CERP’s parent company. For instance, the Plan provided PropCo with a call right for up to five years to purchase and leaseback the real property assets associated with Harrah’s Atlantic City and Harrah’s Laughlin from CERP (subject to the terms of the CERP credit agreement). Therefore, we have accrued this item in accrued restructuring and support expenses on the Balance Sheets. Our accrual represents the estimated fair value of the call right.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Estimated Fair Value

(In millions)	Balance		Level 1		Level 2		Level 3
December 31, 2016
Liabilities - PropCo Call Right	$	131	$	—	$	—	$	131
September 30, 2017
Liabilities - PropCo Call Right	$	121	$	—	$	—	$	121

Changes in Level 3 Fair Value Measurements

(In millions)	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Balance as of beginning of period	$	128		$	131
Restructuring and support expenses	(7		)	(10		)
Balance as of end of period	$	121		$	121

Valuation Methodologies

The PropCo Call Right allows PropCo up to five years to purchase and leaseback the real property assets associated with Harrah’s Atlantic City and Harrah’s Laughlin from CERP for a cash purchase price of ten times the agreed upon annual rent for each property (subject to the terms of the CERP credit agreement). The initial rent for each property under the agreement will be determined based on a rent-to-earnings before interest, taxes, depreciation, amortization, and rent (“EBITDAR”) ratio of 1.00-to-1.67. PropCo’s purchase price will be determined by multiplying each property’s initial rent by 10.

The valuation model used to estimate the fair value of the PropCo Call Right is a Monte Carlo simulation and utilized the following key assumptions:

Key Assumptions -


•	Ratio of EBITDAR to Initial Rent under Property Lease - 1.67 to 1.00


•	EBITDAR volatility - 25%


•	Enterprise value to revenue volatility - 12%


•	Ratio of initial purchase price to property lease rent - 12.00 to 1.00


•	EBITDAR to multiple correlation - 0.0%


•	Composite projected revenue growth rate - 2.4%


•	Composite projected EBITDAR margin growth rate - 24.1%

Since the key assumptions used in the valuation model are significant unobservable inputs, the fair value for the call right is classified as Level 3. Should these assumptions fluctuate over time, it could result in an increase or decrease in the fair value of the call right and the corresponding restructuring accrual. Specifically, an increase in the volatility assumptions would result in an increase in the restructuring accrual.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 7 — Commitments and Contingencies

Except as described below and in Note 6 and Note 8, during the nine months ended September 30, 2017, 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, 2016.

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 (the “Cease-Use Date”) is expected to be effective in the first quarter of 2018. As a result of our decision to exit, we incurred an impact exit fee liability of $20 million, payable over six years, which was recorded at a present value of $16 million in accrued expenses and other current liabilities and deferred credits and other liabilities on the Balance Sheets as of September 30, 2017, with a corresponding expense recognized in other operating costs in the Statements of Operations.

For six years following the transition, we are also 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 renewable energy contracts and the costs of decommissioning and remediation of coal-fired power plants. Total fees to be incurred are expected to be $14 million, with an estimated present value of $12 million. We expect to record a liability at the Cease-Use Date representing an estimate of the present value of the non-bypassable rate charges on the effective date of the transition.

Note 8 — Debt

On May 12, 2017, CERP amended its first lien credit agreement to reduce the interest rate margins applicable to approximately $211 million of its revolving credit facility and to the entire remaining $2.4 billion of its term loan facility by 2.50%. The amendment also included automatic step-ups in the scheduled quarterly payments to approximately $16 million beginning December 31, 2018, and to approximately $31 million beginning December 31, 2019. This amendment resulted in a loss on extinguishment of debt of approximately $1 million, which is recorded in Restructuring and support expenses and other in the Statements of Operations. See Note 12 for additional information about pending transactions related to CERP’s debt and organizational structure.



		September 30, 2017							December 31, 2016
(Dollars in millions)	Final Maturity	Rate(s)⁽¹⁾	Face Value			Book Value			Book Value
CERP Credit Facility
CERP Revolving Credit Facility⁽²⁾	2018	various	$	—		$	—		$	40
CERP Senior Secured Term Loan⁽³⁾	2020	4.74%	2,406			2,376			2,387
CERP Notes
CERP First Lien Notes	2020	8.00%	1,000			994			993
CERP Second Lien Notes	2021	11.00%	1,150			1,141			1,140
Capital lease obligations and other	N/A	N/A	—			—			3
Total debt			4,556			4,511			4,563
Current portion of long-term debt			(25		)	(25		)	(68		)
Long-term debt			$	4,531		$	4,486		$	4,495

Unamortized discounts and deferred finance charges						$	45		$	55
Fair value			$	4,662

____________________


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


⁽²⁾	Variable interest rate for the $211 million amended revolver is LIBOR plus 3.50%, down from 6.00% prior to the amendment. The variable interest rate on the remaining $59 million is determined by adding LIBOR to a base rate of 6.00%.


⁽³⁾	Variable interest rate was amended during the 2017 second quarter from 6.00% plus the greater of LIBOR or a 1% floor to 3.50% plus the greater of LIBOR or a 1% floor.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Current Portion of Long-Term Debt

The current portion of long-term debt as of December 31, 2016, includes the $40 million outstanding under the revolving credit facility as well as principal payments on the senior secured loan that are expected to be paid within 12 months.

Although there is no amount outstanding under the Revolving Credit Facility as of September 30, 2017, borrowings under the CERP Revolving Credit Facility are subject to separate note agreements executed based on the provisions of the applicable credit facility agreement, and each note has a contractual maturity of less than one year. The applicable credit facility agreement has a contractual maturity of greater than one year, and we have the ability to rollover the outstanding principal balance on a long-term basis; however, we generally intend to repay any principal balance outstanding at the end of the quarter within the subsequent 12 month period. Amounts borrowed under the CERP Revolving Credit Facility are intended to satisfy short term liquidity needs and are classified as current.

We believe that our cash and cash equivalents balance, our cash flows from operations, and/or financing available under our revolving credit facility will be sufficient to meet our normal operating requirements, to fund planned capital expenditures, and to fund debt service during the next 12 months and the foreseeable future.

Fair Value

The fair value of debt has been estimated based on the borrowing rates available as of September 30, 2017, for debt with similar terms and maturities. We classify the fair value of debt within Level 1 and Level 2 in the fair value hierarchy.

Restrictive Covenants

The CERP Notes and CERP Credit Facility include negative covenants, subject to certain exceptions, and contain customary events of default, subject to customary or agreed-upon exceptions, baskets and thresholds (including equity cure provisions in the case of the CERP Credit Facilities).

The CERP Credit Facility also contains certain customary affirmative covenants and requires that we maintain a senior secured leverage ratio of no more than 8.00 to 1.00, which is the ratio of first lien senior secured net debt to earnings before interest, taxes, depreciation and amortization, adjusted as defined in the Credit Facility.

CERP has pledged a significant portion of its assets as collateral under the notes and facilities. The CERP Notes are co-issued, as well as fully and unconditionally guaranteed, jointly and severally, by CERP LLC and each of its wholly-owned subsidiaries on a senior secured basis. Although CERP’s subsidiaries are allowed to make distributions to CERP LLC, restrictions under CERP’s lending arrangements generally prevent the distribution of cash to CEC; except for certain restricted payments.

Note 9 — Casino Promotional Allowances

The retail value of accommodations, food and beverage, and other services furnished to guests without charge is included in gross revenues and then deducted as casino promotional allowances. The estimated cost of providing such casino promotional allowances is included in casino expense.

Estimated Retail Value of Casino Promotional Allowances

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
Food and beverage	$	45	$	42	$	134	$	133
Rooms	39		38		115		110
Other	6		4		17		12
	$	90	$	84	$	266	$	255

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Estimated Cost of Providing Casino Promotional Allowances

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
Food and beverage	$	27	$	27	$	82	$	81
Rooms	14		14		42		41
Other	4		3		11		8
	$	45	$	44	$	135	$	130

Note 10 — Income Taxes

Income Tax Allocation

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in millions)	2017			2016			2017			2016
Income/(loss) before income taxes	$	6		$	6		$	46		$	(4	)
Income tax benefit/(provision)	$	5		$	—		$	(11	)	$	2
Effective tax rate	(83.3		)%	—		%	23.9		%	50.0		%

We classify reserves for tax uncertainties within accrued expenses and deferred credits and other in our Balance Sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts relate to any potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.

The effective tax rate for the three months ended September 30, 2017 differed from the expected US tax rate of 35% primarily due to the removal of a valuation allowance on indefinite lived deferred tax assets, discussed below. The effective tax rate for the nine months ended September 30, 2017 differed from the expected US tax rate of 35% primarily due to the removal of a valuation allowance on indefinite lived deferred tax assets offset by additional state deferred tax expense from the forfeiture of its New Jersey net operating loss carryforward upon CEC’s election, on January 1, 2017, to no longer treat CERP as a corporation for income tax purposes.

The effective tax rate for the three and nine months ended September 30, 2016 differed from the expected US tax rate of 35% primarily due to the projected tax benefit of federal tax credits on the annual projected effective tax rate for 2016.

In determining the need for a valuation allowance, we must consider both positive and negative evidence including historical losses, current earnings, and tax-planning strategies, as well as the weight of the evidence. Based on recent history of earnings and future projected profitability, the Company believes that its benefit from an indefinite lived deferred tax asset will be recognized in the future. As such, the valuation allowance against the indefinite lived deferred tax asset (both federal and state) was reversed and a deferred tax benefit of $8 million was recognized in the current quarter.

We believe that it is reasonably possible that the total amount of unrecognized tax benefits as of September 30, 2017 will not materially change within the next 12 months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believe that an adequate provision has been made for such matters, there is the possibility that the ultimate resolution of such matters could have an adverse effect on our earnings. Conversely, if these matters are resolved favorably in the future, the related provision would be reduced, thus having a favorable effect on earnings.

CERP is included in the CEC consolidated tax return filing. We have allocated taxes based upon the separate return method for CERP financial reporting purposes. Historically, we have treated taxes paid or refunds received by CEC for CERP as equity contributions or distributions. Although there is no formal tax sharing agreement in place between the CERP entities and CEC for federal income tax purposes, CERP may make payments to CEC or its subsidiaries for federal, state, or local taxes that would have been paid if CERP was a standalone taxpayer.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Note 11 — Related Party Transactions



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
Services Joint Venture
Shared services allocated expenses from CES	$	61	$	60	$	185	$	171
CEOC Shared Services Agreement
Shared services allocated expenses from CEOC	6		6		19		19
Transactions with CEC and other affiliates
Employee benefits and incentive awards	1		2		7		9
Other	1		2		2		2
Transactions with Sponsors and their affiliates
Expenses paid to Sponsors’ portfolio companies	—		—		1		—
Reimbursements and expenses allocated to CERP	—		—		—		2
Other Related Party Transactions
Lease revenue received	13		13		38		38
Lease payments	—		—		1		1
Service provider fee	—		2		—		3
World Series of Poker agreements	1		1		2		2

Services Joint Venture

As described in Note 1, CES provides certain corporate and administrative services to CERP and its other Members, and the costs of these services are allocated among the Members. CES serves as an agent on behalf of the Members at a cost-basis. CERP reimburses CES for the services it performs and the costs it incurs.

CEOC Shared Services Agreement

Pursuant to a shared services agreement, CEOC provides CEC with certain corporate and administrative services, and the costs of these services are allocated among us and all of CEC’s operating subsidiaries. In May 2014, the Members entered into a services joint venture, CES, and the Omnibus License and Enterprise Services Agreement (the “Omnibus Agreement”). Certain of these corporate and administrative services are now provided by CES (see Note 1).

Transactions with CEC

Employee Benefit Plans

CEC maintains a defined contribution savings and retirement plan in which employees of CERP may participate. The plan provides for, among other things, pre-tax and after-tax contributions by employees. Under the plan, participating employees may elect to contribute up to 50% of their eligible earnings (subject to certain IRS and plan limits). In addition, employees subject to collective bargaining agreements receive benefits through the multi-employer pension plans sponsored by the organization in which they are a member. The expenses related to contributions made to the plans on their behalf are allocated to the properties at which they are employed.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Equity Incentive Awards

CEC maintains an equity incentive awards plan under which CEC may issue time-based and performance-based stock options, restricted stock units and restricted stock awards to CERP employees. Although awards under the plan result in the issuance of shares of CEC, because CERP is a consolidated subsidiary of CEC, the amounts are included in CERP share-based compensation expense as a component of total compensation for CERP employees. During the second quarter of 2016, CEC implemented ASU No. 2016-09, which amended Topic 718, Compensation - Stock Compensation. This updated guidance amended the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. CEC applied the amended guidance using a modified retrospective transition method, which had no material effect on CERP’s financial statements.

Transactions with Sponsors and their Affiliates

The members of Hamlet Holdings LLC (“Hamlet Holdings”) are comprised of individuals affiliated with Apollo Global Management, LLC and affiliates of TPG Capital LP (collectively, the “Sponsors”). As of September 30, 2017, Hamlet Holdings beneficially owned a majority of CEC’s common stock.

Reimbursements and Expenses allocated to CERP

CEC has a services agreement with the Sponsors relating to the provision of financial and strategic advisory services and consulting services. The Sponsors have granted an ongoing waiver of the monitoring fees for management services; however, CEC reimburses the Sponsors for expenses they incur related to these management services and certain legal expenses. A portion of the reimbursed expenses are allocated to CERP.

Sponsors’ Portfolio Companies

We may engage in transactions with companies owned or controlled by affiliates of the Sponsors in the normal course of business. Amounts paid to the Sponsors’ portfolio companies are included in the table above and we believe such transactions are conducted at fair value.

In addition, certain entities affiliated with or under the control of our Sponsors may from time to time transact in and hold our debt securities, and participate in any modifications of such instruments on terms available to any other holder of our debt.

Other Related Party Transactions

Lease Agreements

We lease Octavius Tower to CEOC for approximately $35 million per year and gaming space in The LINQ promenade to CGP for approximately $15 million per year pursuant to separate lease agreements that both expire April 2026.

LINQ Access and Parking Easement Lease Agreement

Under the LINQ Access and Parking Easement lease agreement, CEOC leases the parking lot behind The LINQ promenade and The LINQ Hotel & Casino to CERP and CGP. Pursuant to the lease agreement, which expires in April 2028, CERP pays approximately $1 million annually, subject to a 3% annual increase.

Service Provider Fee

CEOC, CERP and CGP have a shared services agreement under which CERP and CGP pay for certain indirect corporate support costs.

World Series of Poker (“WSOP”) Agreements

Pursuant to multiple agreements with Caesars Interactive Entertainment, Inc. (“CIE”), CERP is allowed to host various WSOP events in Las Vegas and Atlantic City, including the annual Main Event at the Rio Las Vegas. CERP pays CIE $2 million per year for the right to host WSOP tournaments in Las Vegas and pays to host a certain number of WSOP circuit events in Atlantic City. These agreements are in effect until September 1, 2017, unless terminated earlier pursuant to each agreement’s terms.

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Total Rewards Loyalty Program

CEOC’s customer loyalty program, Total Rewards, offers incentives to customers from their spending related to on-property entertainment expenses, including gaming, hotel, dining, and retail shopping at our and CEOC’s resort properties located in the U.S. and Canada. Under the program, customers are able to accumulate, or bank, Reward Credits over time that they may redeem at their discretion under the terms of the program. The Reward Credit balance will be forfeited if the customer does not earn a Reward Credit over the prior six-month period. As a result of the ability of the customer to bank the Reward Credits, CEOC estimates the cost of fulfilling the redemption of Reward Credits, after consideration of estimated forfeitures (referred to as “breakage”) based upon the cost of historical redemptions. The estimated value of Reward Credits is expensed as the Reward Credits are earned by customers and is included in direct casino expense. The total estimated cost is accrued by CEOC, with the incremental charges related to our casino properties included in due to affiliates, net in the Balance Sheets.

Intellectual Property License Agreements

Each of the CERP properties and certain of their subsidiaries have entered into license agreements with Caesars License Company, LLC (“CLC”), a subsidiary of CEOC, pursuant to which we receive non-exclusive royalty-free licenses to use certain intellectual property, including trademarks and copyrights owned by CLC in connection with the operation of the CERP properties. These license agreements have a termination date of 2023, subject to annual renewal thereafter. The licenses contemplated by the Omnibus Agreement are subject to these licenses.

In addition, certain subsidiaries of the CERP properties have entered into license agreements with CLC and CEOC pursuant to which CLC and CEOC receive non-exclusive royalty-free licenses to use certain property-specific intellectual property owned by the CERP properties, including the right to use the “Rio,” “Flamingo,” and “Paris” trademarks. These license agreements continue until the applicable operating company or the management company no longer manages the applicable property.

Centralized Transactions

In addition, the Company participates with other CEC subsidiaries in marketing, purchasing, insurance, employee benefit and other programs that are defined, negotiated and managed on a company-wide basis. The Company believes that participating in these consolidated programs is beneficial in comparison to the cost and terms for similar programs that it could negotiate on a standalone basis.

Due to Affiliates

Amounts due to affiliates for each counterparty represent the payable as of the end of the reporting period primarily resulting from the transactions described above and are settled on a net basis by each counterparty in accordance with the legal and contractual restrictions governing transactions by and among CERP’s affiliated entities. As of September 30, 2017 and December 31, 2016, due to affiliates was $37 million and $21 million, respectively.

Note 12 — Subsequent Events

CGPH and CERP Merger

After obtaining all required regulatory approvals, CERP will merge with and into CGPH, with CGPH as the surviving entity, to be renamed to Caesars Resort Collection, LLC (“CRC”) (the “CRC Merger”).

CGPH and CERP Financing Transactions

On October 16, 2017, CRC Escrow Issuer, LLC and CRC Finco, Inc., two wholly owned subsidiaries of CEC, issued $1.7 billion aggregate principal amount of 5.25% senior notes due 2025 (the “CRC Notes”). The gross proceeds of the CRC Notes will be held in escrow until the date certain escrow conditions are satisfied, including the merger of CERP and CGPH, whereby CRC will become a co-issuer of the CRC Notes. If the escrow conditions are not satisfied, the CRC Notes are subject to a special mandatory redemption.

CRC also plans to enter into new senior secured credit facilities (the “CRC Senior Secured Credit Facilities”), comprised of (i) a $1.0 billion senior secured revolving credit facility maturing in 2022 and bearing interest at LIBOR plus 2.25% (the “CRC Revolving

CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

Credit Facility”) and (ii) a $4.7 billion senior secured term loan credit facility maturing in 2024 and bearing interest at LIBOR plus 2.75% (the “CRC Term Loan Facility”).

Once the funds are released pending final regulatory approvals, we will use the net proceeds of the CRC Notes and the CRC Term Loan Facility, as well as available cash and borrowings under the CRC Revolving Credit Facility, to repay substantially all outstanding debt of CERP and CGPH. The CRC Term Loan Facility will incur fees at a rate of 1.375% beginning in November 2017, increasing to 2.75% beginning in January 2018 (if applicable) until the funds are released from escrow.

We expect to incur a loss on extinguishment in the fourth quarter of 2017 due to the write off of aggregate unamortized discounts and deferred finance charges at CERP of approximately $45 million. In addition, CERP will incur approximately $131 million in call premiums as part of the extinguishment of the CERP Notes.

Note references are to the notes to consolidated condensed financial statements included in Item 1, “Unaudited Financial Statements.”

The following discussion and analysis of the financial position and operating results of CERP for the three and nine months ended September 30, 2017 and 2016 should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto and other financial information included elsewhere in this Form 10-Q as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) presented in CERP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“2016 Annual Report”).

The statements in this discussion regarding our expectations regarding our future performance, liquidity and capital resources, and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

CERP LLC is a single-member limited liability company, wholly owned by Caesars Entertainment Resort Properties Holdco, LLC, which is a wholly owned subsidiary of Caesars Entertainment Corporation (“CEC,” “Caesars,” and “Caesars Entertainment”). We own six casino properties that operate under well-known brands and include four properties located in Las Vegas, Nevada: (1) Paris Las Vegas, (2) Harrah’s Las Vegas, (3) Rio All-Suites Hotel and Casino (“Rio Las Vegas”), (4) Flamingo Las Vegas, (5) Harrah’s Atlantic City, and (6) Harrah’s Laughlin. We also own The LINQ promenade and Octavius Tower at Caesars Palace Las Vegas.

Consolidated Operating Results

	Three Months Ended September 30,						Percent Favorable/ (Unfavorable)		Nine Months Ended September 30,						Percent Favorable/ (Unfavorable)
(Dollars in millions)	2017			2016			Percent Favorable/ (Unfavorable)		2017			2016			Percent Favorable/ (Unfavorable)
Casino revenues	$	297		$	289		2.8	%	$	865		$	848		2.0	%
Net revenues	582			569			2.3	%	1,698			1,659			2.4	%
Income from operations	83			104			(20.2	)%	311			293			6.1	%
Interest expense	84			98			14.3	%	274			297			7.7	%
Restructuring and support expenses and other	7			—			100.0	%	9			—			100.0	%
Net income/(loss)	11			6			83.3	%	35			(2		)	*
Property EBITDA⁽¹⁾	196			178			10.1	%	559			526			6.3	%

Operating margin ⁽²⁾	14.3		%	18.3		%	(4.0) pts		18.3		%	17.7		%	0.6 pts

____________________


⁽¹⁾	See the Reconciliation of Non-GAAP Financial Measures discussion later in this MD&A for a reconciliation of Property EBITDA.


⁽²⁾	Operating margin is calculated as income from operations divided by net revenues.


*	Not meaningful.

Ongoing Property Renovations


•	We perform ongoing refurbishment and maintenance at our properties to maintain our quality standards. For the three and nine months ended September 30, 2017, our capital spending totaled $38 million and $110 million, respectively. Our most significant construction projects that are planned or in process as of September 30, 2017 include the following (in millions):



Property	Project Description	Estimated Remaining Cost		Estimated Completion Date
Flamingo Las Vegas	Tower renovation	$	69	second quarter 2018
Harrah’s Las Vegas	Carnaval North renovation	53		fourth quarter 2017
Harrah’s Laughlin	Tower renovation	16		fourth quarter 2017
Harrah’s Atlantic City	Meeting center, tower renovations, self-park garage, and escalator replacement	10		second quarter 2018

•

In connection with ongoing property renovation projects, the depreciation of certain assets was accelerated due to their removal and replacement. For the three and nine months ended September 30, 2017, we recognized additional depreciation and amortization expense of $31 million and $32 million, respectively, related to projects primarily at Harrah's Las Vegas and Flamingo Las Vegas. For the three months ended September 30, 2016, we recognized $8 million of accelerated depreciation, related to certain assets primarily at Paris Las Vegas, and we recognized $32 million during the nine months ended September 30, 2016, related to assets primarily at Harrah’s Las Vegas, Paris Las Vegas, and Flamingo Las Vegas.

Net Revenues


•	Net revenues increased $13 million, or 2.3%, for the third quarter of 2017 and $39 million, or 2.4%, for the nine months ended September 30, 2017, compared with the corresponding prior year periods, primarily due to increases in rooms revenues, casino revenues, and other revenues.

•

Rooms revenues increased $5 million, or 3.4%, during the third quarter of 2017 and $23 million, or 5.4%, during the nine months ended September 30, 2017. Increased resort fees, an increase in occupancy rates, and improved hotel yield continued to drive an increase in our hotel average cash daily rate to $128 for the third quarter of 2017 from $124 in 2016 and to $130 for the nine months ended September 30, 2017 from $123 in 2016.


•	Casino revenues increased $8 million, or 2.8%, during the third quarter of 2017 and $17 million, or 2.0%, during the nine months ended September 30, 2017 primarily due to higher gaming volumes.


•	Other revenues increased $3 million, or 3.5%, during the third quarter of 2017 and $11 million, or 4.5%, during the nine months ended September 30, 2017 primarily due to the additional revenue from the valet and self-parking fees that were fully implemented in Las Vegas in April 2017.

Operating Expenses

•

Operating expenses increased $34 million, or 7.3%, during the third quarter of 2017 and $21 million, or 1.5%, during the nine months ended September 30, 2017, primarily due to an increase in other operating costs attributable to accrued exit fees of $16 million payable to NV Energy (see Note 7), partially offset by a decrease in property, general, administrative and other driven by lower entertainment expenses at Rio Las Vegas. The quarter was also effected by an increase in depreciation and amortization attributable to the property renovations discussed above.

Income Taxes

For the three months ended September 30, 2017 and 2016, the effective tax rates were negative 83.3% and zero, respectively. For the nine months ended September 30, 2017 and 2016, the effective tax rates were 23.9% and 50.0%, respectively. See Note 10 for a detailed discussion of income taxes and the effective tax rate.

Recent Accounting Pronouncements

See Note 3 for discussion of the adoption and potential effects of recently issued accounting standards.

Critical Accounting Policies

For information on critical accounting policies, see “Critical Accounting Policies and Estimates” in MD&A of the 2016 Annual Report. There have been no changes to these policies during the nine months ended September 30, 2017.

Liquidity and Capital Resources

Liquidity Discussion and Analysis

Our cash and cash equivalents totaled $336 million as of September 30, 2017. We generated net income of $35 million during the nine months ended September 30, 2017, which includes $196 million of non-cash items such as depreciation and amortization and other. Our operating activities yielded cash flows of $342 million, an increase of $43 million, or 14.4%, compared with the prior year period. The increase was primarily due to improvement in operating results in 2017, including the increase in net revenues discussed above, the timing of payments for amounts due to affiliates, and other offsetting working capital fluctuations.

Capital expenditures were $110 million during the 2017 period in support of our ongoing property renovations, an increase of $23 million, or 26.4%, compared with the prior year period. Our projected capital expenditures for 2017 are estimated to be $189 million to $201 million. We incur capital expenditures in the normal course of business, and we perform ongoing refurbishment and maintenance at our existing properties to maintain our quality standards. We also continue to pursue development and acquisition opportunities for additional casino entertainment and other hospitality facilities that meet our strategic and return on investment criteria. Cash used for capital expenditures in the normal course of business is typically made available from cash flows generated by our operating activities, while cash used for development projects is typically funded from established debt programs, specific project financing, and additional debt offerings.

Estimated Debt Service Payments as of September 30, 2017 ⁽¹⁾

	Remaining		Years Ended December 31,
(In millions)	2017		2018		2019		2020		2021		Thereafter		Total
Annual maturities of long-term debt	$	6	$	34	$	78	$	3,288	$	1,150	$	—	$	4,556
Estimated interest payments	130		330		330		300		130		—		1,220
Total principal and interest	$	136	$	364	$	408	$	3,588	$	1,280	$	—	$	5,776

____________________


⁽¹⁾	Debt principal payments are estimated amounts based on maturity dates and potential borrowings under our revolving credit facility. Interest payments are estimated based on the forward-looking LIBOR curve. Actual payments may differ from these estimates. See Note 12 for additional information about pending transactions related to CERP’s debt and organizational structure.

As of September 30, 2017, we had $4.6 billion face value of indebtedness outstanding. During the nine months ended September 30, 2017, we incurred a total of $274 million of interest expense, and we repaid $120 million primarily in connection with the repricing transactions and our revolving credit facility.

Additionally, as described in Note 12, on October 16, 2017, CRC Escrow Issuer, LLC and CRC Finco, Inc., two wholly owned subsidiaries of CEC, issued $1.7 billion aggregate principal amount of 5.25% senior notes due 2025 (the “CRC Notes”). CRC also plans to enter into new senior secured credit facilities (the “CRC Senior Secured Credit Facilities”), comprised of (i) a $1.0 billion senior secured revolving credit facility maturing in 2022 and bearing interest at LIBOR plus 2.25% (the “CRC Revolving Credit Facility”) and (ii) a $4.7 billion senior secured term loan credit facility maturing in 2024 and bearing interest at LIBOR plus 2.75% (the “CRC Term Loan Facility”). Once the funds are released pending final regulatory approvals, we will use the net proceeds of the CRC Notes and the CRC Term Loan Facility, as well as available cash and borrowings under the CRC Revolving Credit Facility, to repay substantially all outstanding debt of CERP and CGPH.

See Note 8 for details of our debt outstanding, debt service requirements, and restrictive covenants as of September 30, 2017 and Note 12 for discussion about pending transactions subsequent to the end of the quarter.

Our ability to fund our operations, pay our debt obligations, and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets and restrictive covenants related to our existing debt could affect our ability to fund liquidity needs, pay indebtedness, and secure additional funds through financing activities. We believe that our cash and cash equivalents balance, our cash flows from operations, and financing available under our revolving credit facility will be sufficient to meet our normal operating requirements during the next 12 months and the foreseeable future. Although CERP’s subsidiaries are allowed to make distributions to CERP LLC, the indentures governing the CERP Notes generally prevent the distribution of cash to Caesars Entertainment, except for certain payments as described in the indentures. We believe

that our cash flows from operations are sufficient to cover our planned capital expenditures for ongoing property renovations during the remainder of 2017, as well as remaining 2017 estimated interest and principal payments due on our long-term debt totaling $136 million. However, if needed, our existing cash and cash equivalents of $336 million and availability under our revolving credit facility of $270 million, both as of September 30, 2017, are available to further support CERP’s operations during the next 12 months and the foreseeable future.

We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us, to fund our liquidity needs and pay our indebtedness. If we are unable to meet our liquidity needs or pay our indebtedness when it is due, we may have to reduce or delay refurbishment and expansion projects, reduce expenses, sell assets, or attempt to restructure our debt. Any such actions could negatively affect our competitive position and revenue generation.

Related-Party Transactions

We participate with other CEC subsidiaries in marketing, purchasing, insurance, employee benefit, and other programs that are defined, negotiated and managed on a company-wide basis. We believe that participating in these consolidated programs is beneficial in comparison to the cost and terms for similar programs that we could negotiate on a standalone basis. For a more complete description of the nature and extent of these and other transactions with related parties, see Note 11.

Other Obligations and Commitments

Except as described in Note 6, Note 7, and Note 8, as of September 30, 2017, there have been no material changes outside of the ordinary course of business to our other known contractual obligations, which are set forth in the table included in Item 7 in our 2016 Annual Report.

Reconciliation of Non-GAAP Financial Measures

Property earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is presented as a measure of the Company’s performance. Property EBITDA is defined as revenues less property operating expenses and is comprised of net income/(loss) before (i) interest expense, net of interest capitalized and interest income, (ii) income tax (benefit)/provision, (iii) depreciation and amortization, (iv) corporate expenses, and (v) certain items that the Company does not consider indicative of its ongoing operating performance at an operating property level. In evaluating Property EBITDA you should be aware that, in the future, the Company may incur expenses that are the same or similar to some of the adjustments in this presentation. The presentation of Property EBITDA should not be construed as an inference that future results will be unaffected by unusual or unexpected items.

Property EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income/(loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with accounting principles generally accepted in the United States (“GAAP”)). Property EBITDA may not be comparable to similarly titled measures reported by other companies within the industry. Property EBITDA is included because management uses Property EBITDA to measure performance and allocate resources, and believes that Property EBITDA provides investors with additional information consistent with that used by management.

Reconciliation of Property EBITDA

	Three Months Ended September 30,					Nine Months Ended September 30,
(In millions)	2017			2016		2017			2016
Net income/(loss)	$	11		$	6	$	35		$	(2	)
Income tax (benefit)/provision	(5		)	—		11			(2		)
Restructuring and support expenses and other	(7		)	—		(9		)	—
Interest expense	84			98		274			297
Depreciation and amortization	86			63		196			196
Other operating costs	16			—		18			5
Corporate expense and other	11			11		34			32
Property EBITDA	$	196		$	178	$	559		$	526

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains or may contain “forward- looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events.

Further, statements that include words such as “may,” “will,” “project,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “present,” "seek," or “pursue,” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. These forward-looking statements are found at various places throughout this report. These forward-looking statements, including, without limitation, those relating to future actions, new projects, strategies, future performance, the outcome of contingencies such as legal proceedings, the restructuring of Caesars Entertainment Operating Company, Inc. (“CEOC”), and future financial results, wherever they occur in this report, are necessarily estimates reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward- looking statements. These forward-looking statements should, therefore, be considered in light of various important factors set forth above and from time to time in our filings with the Securities and Exchange Commission.

Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include without limitation:


▪	the effect of our substantial indebtedness and the restrictions in our debt agreements;


•	our dependence on CES and its management for services pursuant to the Omnibus Agreement, access to intellectual property rights, the Total Rewards loyalty program, its customer database and other services, rights and information, and our dependence on Caesars Entertainment’s management;


▪	our ability to use CEOC’s customer-tracking, customer loyalty and yield-management programs to continue to increase customer loyalty and same-store or hotel sales;


▪	the effect of a bankruptcy by other third parties that we depend on;


▪	the effects of competition, including locations of competitors, growth of online gaming, competition for new licenses and operating and market competition;


▪	reductions in consumer discretionary spending due to economic downturns or other factors;


▪	continued growth in consumer demand for non-gaming activities replacing demand for gambling;


▪	our ability to renew our agreement to host the World Series of Poker’s Main Event;


▪	our ability to retain our resident performers on acceptable terms;


▪	uncertainty in the completion of projects neighboring our properties that are expected to be beneficial to our properties;


▪	changes in the extensive governmental regulations to which we are subject, and changes in laws, including increased tax rates, smoking bans, regulations or accounting standards, third-party relations and approvals, and decisions, disciplines and fines of courts, regulators and governmental bodies;


▪	any impairments to goodwill, indefinite-lived intangible assets, or long- lived assets that we may incur;


▪	acts of war or terrorist incidents (including the impact of the recent mass shooting in Las Vegas on tourism), severe weather conditions, uprisings or natural disasters, including losses therefrom, losses in revenues and damage to property, and the effect of severe weather conditions on our ability to attract customers to certain of our facilities;


▪	fluctuations in energy prices;


▪	work stoppages and other labor problems;


▪	the effect, if any, of unfunded pension benefits under multi-employer pension plans;


▪	our ability to recover on credit extended to our customers;


▪	the potential difficulties in employee retention and recruitment as a result of our substantial indebtedness or any other

factors;


▪	damage caused to our brands due to the unauthorized use of our brand names by third parties;


▪	the failure of Caesars Entertainment to protect the trademarks that are licensed to us;


▪	the outcome of currently pending litigation or threatened litigation, including, but not limited to, the proceedings described under “Other Litigation” in Part II, Item 1, “Legal Proceedings,” and judicial and governmental body actions, including gaming legislative action, referenda, regulatory disciplinary actions, and fines and taxation;


▪	our ability to access additional capital on acceptable terms or at all;


▪	abnormal gaming holds (“gaming hold” is the amount of money that is retained by the casino from wagers by customers);


▪	our exposure to environmental liability, including as a result of unknown environmental contamination;


▪	our ability to recoup costs of capital investments through higher revenues;


▪	access to insurance on reasonable terms for our assets;


▪	the effects of compromises to our information systems or unauthorized access to confidential information or our customers’ personal information;


▪	the effects of environmental and structural building conditions relating to our properties;


•	a disruption, failure, or breach of our network, information systems, or other technology, or those of our vendors, on which we are dependent;


•	risks and costs associated with protecting the integrity and security of internal, employee, and customer data;


▪	the effects of deterioration in the success of third parties adjacent to our business; and


•	the other factors set forth under “Risk Factors” in our 2016 Annual Report.

You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risk in 2017. For information on our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” contained in our 2016 Annual Report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) at September 30, 2017. Based on this evaluation required by paragraph (b) of Rules 13a-15 or 15d-15, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2017.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2017, we implemented new general ledger and accounts payable systems as part of the Company’s long-term transformation initiatives aimed to automate and simplify our business process. In connection with these implementations, we have updated our control activities impacted by the changes. As additional transformation activities occur, we will continue to monitor and evaluate our internal control over financial reporting.

There have not been any other changes in our internal control over financial reporting during the three months ended September 30, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


Item 1.	Legal Proceedings

The Company is party to ordinary and routine litigation incidental to our business. See Note 2 to Part I, Item 1 for full details of the litigation matters.


Item 1A.	Risk Factors

For risk factors that could cause actual results to differ materially from those anticipated, please refer to our Annual Report on Form 10-K for the year ended December 31, 2016.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.


Item 6.	Exhibits

Incorporated by Reference

Exhibit
Number

Exhibit Description

Filed Herewith

Form

Period Ending

Exhibit

Filing Date

10.1

Second Amended and Restated Omnibus License and Enterprise Services Agreement, dated as of October 6, 2017, among Caesars Entertainment Operating Company, Inc., Caesars Growth Properties Holdings, LLC, Caesars Entertainment Resort Properties LLC, Caesars License Company, LLC, Caesars World LLC and Caesars Enterprise Services, LLC.

—

8-K

—

10.12

10/13/2017

31.1

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.1

Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

—

*32.2

Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

—

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

_______________

* Furnished herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	CAESARS ENTERTAINMENT RESORT PROPERTIES, LLC

November 1, 2017	By:	/S/ ERIC HESSION
		Eric Hession
		Treasurer and Manager

Caesars Entertainment Resort Properties, LLC - FORM 10-Q - November 1, 2017

Attached files

Caesars Entertainment Resort Properties, LLC Reports