Description of Business and Summary of Significant Accounting Policies - CGP (Predecessor Growth Partners [Member]) | 10 Months Ended |
Oct. 21, 2013 |
Predecessor Growth Partners [Member] | ' |
Organization and Basis of Presentation [Line Items] | ' |
Description of Business and Summary of Significant Accounting Policies | ' |
Description of Business and Summary of Significant Accounting Policies |
Organization and Transaction |
Caesars Acquisition Company (the "Company," "CAC," "we," "our" and "us"), a Delaware corporation, was formed on February 25, 2013 to make an equity investment in Caesars Growth Partners, LLC ("CGP LLC"), a joint venture between CAC and subsidiaries of Caesars Entertainment Corporation ("CEC" or "Caesars Entertainment"), and following the transactions described below, directly owns 100% of the voting membership units of CGP LLC, a Delaware limited liability company. CGP LLC was formed on July 16, 2013 for the purpose of acquiring certain businesses and assets of Caesars Entertainment and to pursue high-growth operating assets. |
On October 21, 2013, the joint venture was formed between subsidiaries of Caesars Entertainment and CAC through the execution of the series of transactions described below (which are collectively referred to as the "Transactions"): |
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(i) | The Class A common stock of CAC was made available via a subscription rights offering by Caesars Entertainment to its shareholders as of October 17, 2013 (the "Rights Offering"), whereby each subscription right entitled its holder to purchase from CAC one share of CAC's Class A common stock or the right to retain such subscription right; | | | | | | | | | | |
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(ii) | Affiliates of Apollo Global Management, LLC ("Apollo") and affiliates of TPG Global, LLC ("TPG" and, together with Apollo, the "Sponsors") exercised their basic subscription rights in full and purchased $457.8 million worth of CAC's Class A common stock at a price of $8.64 per whole share; | | | | | | | | | | |
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(iii) | CAC used the proceeds from the exercise of the basic subscription rights in clause (ii) above to purchase 100% of the voting units of CGP LLC; | | | | | | | | | | |
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(iv) | CGP LLC subsequently used $360.0 million of the proceeds received from CAC in clause (iii) above to purchase from Caesars Entertainment Operating Company, Inc. ("CEOC"), a wholly-owned subsidiary of Caesars Entertainment (we refer to the following assets as the "Purchased Assets"): | | | | | | | | | | |
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a. | the equity interests of PHWLV, LLC ("PHWLV"), which holds the Planet Hollywood Resort & Casino in Las Vegas ("Planet Hollywood"); | | | | | | | | | | |
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b. | the equity interests of Caesars Baltimore Investment Company, LLC (the "Maryland Joint Venture"), the entity that indirectly holds interests in the owner of the Horseshoe Baltimore Casino ("Horseshoe Baltimore") in Maryland, a licensed casino development project expected to open in the third quarter of 2014; and | | | | | | | | | | |
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c. | a 50% interest in the management fee revenues of PHW Manager, LLC, which manages Planet Hollywood, and Caesars Baltimore Management Company LLC, which holds an agreement to manage the Maryland Joint Venture. | | | | | | | | | | |
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(v) | Caesars Entertainment contributed all of the shares of Caesars Interactive Entertainment, Inc.’s ("CIE" or "Caesars Interactive") outstanding common stock held by a subsidiary of Caesars Entertainment and approximately $1.1 billion in aggregate principal amount of senior notes held by a subsidiary of Caesars Entertainment (the "CEOC Notes" and, together with the shares of CIE, the "Contributed Assets") to CGP LLC, in exchange for all of CGP LLC’s non-voting units. | | | | | | | | | | |
Prior to the consummation of the Transactions, Planet Hollywood was owned by PHW Las Vegas, LLC ("PHW Las Vegas"). On October 21, 2013, in connection with and prior to the closing of the Transactions, PHW Las Vegas contributed and assigned to PHWLV, a wholly-owned subsidiary of PHW Las Vegas, and PHWLV accepted and assumed from PHW Las Vegas, all of its assets and liabilities of PHW Las Vegas, including Planet Hollywood. |
The closing of the Rights Offering for subscription rights not previously exercised by the Sponsors, and for any over-subscription privileges including over-subscription privileges exercised by the Sponsors, occurred on November 18, 2013 and CAC distributed a total of 135,771,882 shares of Class A common stock to the holders of subscription rights who validly exercised their subscription rights and paid the subscription price in full. CAC received aggregate gross proceeds from the Rights Offering of approximately $1,173.1 million. Effective November 19, 2013, our common stock trades on the NASDAQ Global Select Market under the symbol "CACQ." |
Description of Business |
Predecessor Growth Partners has two reportable segments: Interactive Entertainment and Casino Properties and Developments. The Interactive Entertainment segment consists of the Caesars Interactive business and the Casino Properties and Developments segment consists primarily of the Planet Hollywood business along with the interest in Horseshoe Baltimore. |
Interactive Entertainment |
In May 2009, Caesars Interactive was formed by Caesars Entertainment. At December 31, 2012, Caesars Entertainment owned approximately 119,047 shares of Caesars Interactive’s common stock, representing approximately 89.2% of the outstanding shares of Caesars Interactive. The remainder of the outstanding common stock of Caesars Interactive was owned by Rock Gaming LLC ("Rock") and members of the Caesars Interactive management team, representing approximately 4.9% for Rock and 5.9% for management as of December 31, 2012. |
Caesars Interactive is a social and mobile games and online real money gaming provider and owner of the World Series of Poker ("WSOP") brand. In early 2010, Caesars Interactive licensed the WSOP and Caesars brands for use on branded poker, bingo and casino online sites in the United Kingdom. As part of its online strategy, Caesars Interactive will expand its online real money gaming offerings in the United States (the “U.S.”), as it becomes legal and regulated, and will offer social and mobile casino-themed game options in those and other jurisdictions. In addition, Caesars Interactive licenses live WSOP tournaments in both the U.S. and international locations. |
Casino Properties and Developments |
On February 19, 2010, Caesars Entertainment acquired 100% of the equity interests of Planet Hollywood, which owns the Planet Hollywood Resort and Casino, an entertainment facility located in Las Vegas, Nevada, comprised of one casino, a hotel, multiple restaurants and retail outlets. |
In July 2012, a consortium led by Caesars Entertainment was awarded the license to operate a casino in downtown Baltimore. In October 2012, Caesars Entertainment entered into definitive agreements with its partners to form a joint venture that will build and own the Horseshoe Baltimore casino (see Note 3 - Development and Acquisition Activity). |
Basis of Presentation |
The combined financial statements of Predecessor Growth Partners have been prepared on a stand-alone basis and, as the Transactions are considered transactions between entities under common control, include financial information derived from the historical accounting records and consolidated financial statements of Caesars Entertainment Corporation ("Caesars Entertainment"). |
Use of Estimates |
Predecessor Growth Partners' combined financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), which requires management to make estimates and assumptions that affect the reported amounts in the combined financial statements and notes thereto. Significant estimates and assumptions reflected in Predecessor Growth Partners' combined financial statements include, but are not limited to, the estimated consumption rate of virtual goods that it uses for revenue recognition within the Interactive Entertainment segment, useful lives of property, equipment and amortizing intangible assets, income taxes, accounting for stock-based compensation, the valuation of contingent consideration and the evaluation of goodwill and long-lived assets for impairment. Management believes the accounting estimates are appropriate and reasonably determined. However, due to the inherent uncertainties in making these estimates, actual amounts could differ from such estimates. |
Principles of Consolidation |
Predecessor Growth Partners' combined financial statements include the accounts of Predecessor Growth Partners and its subsidiaries after elimination of all intercompany accounts and transactions. These combined financial statements include the accounts of all wholly-owned subsidiaries and any partially-owned subsidiaries that Predecessor Growth Partners has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than 50% owned are consolidated, investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method, and investments in affiliates of 20% or less are accounted for using the cost method. |
Predecessor Growth Partners' combined financial statements also include the accounts of any variable interest entity for which Predecessor Growth Partners is determined to be the primary beneficiary. Up through and including October 21, 2013, Predecessor Growth Partners analyzed its variable interests to determine if the entity that is party to the variable interest is a variable interest entity in accordance with GAAP. This analysis included both quantitative and qualitative reviews. Qualitative analysis was based on Predecessor Growth Partners' review of the design of the entity, its organizational structure including decision-making ability, and financial agreements. Based on these analyses, Predecessor Growth Partners is the primary beneficiary, and therefore has included the Horseshoe Baltimore development project in Maryland, a variable interest entity venture with Rock, in its combined financial statements. |
Transactions between Caesars Entertainment and Predecessor Growth Partners have been identified in the combined historical financial statements and the notes thereto as transactions between related parties (see Note 18 — Related Party Transactions). |
Cash and Cash Equivalents |
Cash equivalents are highly liquid investments with maturities of less than three months from the date of purchase and are stated at the lower of cost or market value. |
Short-term Investments |
Predecessor Growth Partners' short-term investments consist of bank deposits with original maturities greater than 3 months but less than 12 months, which are classified as held-to-maturity investments and recorded at amortized cost. |
Restricted Cash |
Restricted cash includes amounts restricted under the terms of the Planet Hollywood and Horseshoe Baltimore debt agreements (see Note 8 — Financial Instruments) which require that Predecessor Growth Partners maintain certain reserves for items including but not limited to payment of property taxes, insurance, interest and ongoing furniture, fixtures and equipment purchases or property development or improvements. The classification between current and long-term is dependent upon the intended use of each particular reserve. |
Receivables |
Predecessor Growth Partners issues credit to approved casino customers following background checks and investigations of creditworthiness. Business or economic conditions or other significant events could affect the collectability of these receivables. |
Accounts receivable are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. Predecessor Growth Partners reserves an estimated amount for gaming receivables that may not be collected to reduce receivables to their net carrying amount, which approximates fair value. Methodologies for estimating the allowance for doubtful accounts range from specific reserves to various percentages applied to aged receivables. Historical collection rates are considered, as are customer relationships, in determining specific reserves. Receivables are reported net of an allowance for doubtful accounts of $7.6 million as of December 31, 2012. |
Marker play represents a significant portion of Predecessor Growth Partners' overall table games volume. Predecessor Growth Partners maintains strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their marker balances timely. These collection efforts are similar to those used by most large corporations when dealing with overdue customer accounts, including the mailing of statements and delinquency notices, personal contacts, the use of outside collection agencies and civil litigation. Markers are generally legally enforceable instruments in the United States. Markers are not legally enforceable instruments in some foreign countries, but the United States' assets of foreign customers may be reached to satisfy judgments entered in the United States. Predecessor Growth Partners considers the likelihood and difficulty of enforceability, among other factors, when Predecessor Growth Partners issues credit to customers who are not residents of the United States. |
Investments in Notes from Related Party |
Predecessor Growth Partners' investments in senior notes previously issued by CEOC, a related party, are classified as available for sale investments and recorded at fair value with changes in fair value being recorded in accumulated other comprehensive income. Any discount or premium is amortized to interest income using the effective interest method. Predecessor Growth Partners classifies their investment in notes from related party as current or long-term depending on the maturity of the instruments along with management’s intent on holding such instruments. |
Land, Property and Equipment |
Additions to land, property and equipment are stated at cost. Predecessor Growth Partners capitalizes the costs of improvements that extend the life of the asset and expense maintenance and repair costs as incurred. Gains or losses on the dispositions of land, property and equipment are included in the determination of income. Predecessor Growth Partners capitalized interest of $0.8 million, $0.1 million and $0.2 million for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, respectively, primarily associated with the Horseshoe Baltimore development project. |
Depreciation is provided using the straight-line method over the shorter of the estimated useful life of the asset or the related lease, as follows: |
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Land improvements | 12 years | | | | | | | | | | |
Building and improvements | 5 - 40 years | | | | | | | | | | |
Furniture, fixtures and equipment | 2.5 - 20 years | | | | | | | | | | |
Predecessor Growth Partners reviews the carrying value of land, property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value of the asset, an impairment loss is recognized equal to an amount by which the carrying value exceeds the estimated fair value of the asset. The factors considered by management in performing this assessment include current operating results, trends, prospects, the effect of obsolescence, demand, competition, potential decreases in the marketplace, a change in physical condition, and legal and other economic factors. In estimating expected future cash flows for determining whether an asset is impaired, assets are grouped at the reporting unit level, which, for most of Predecessor Growth Partners assets, is the individual property. Predecessor Growth Partners did not recognize any impairment in any of the periods presented. |
Goodwill and Other Non-Amortizing Intangible Assets |
The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We determine the estimated fair values after review and consideration of relevant information including discounted cash flows, quoted market prices, and estimates made by management. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is recorded as goodwill. |
We performed our annual goodwill impairment assessment as of September 30, or more frequently if impairment indicators existed. We determined the estimated fair value of each reporting unit based on a combination of earnings before interest, taxes, depreciation and amortization ("EBITDA") and estimated future cash flows discounted at rates commensurate with the capital structure and cost of capital of comparable market participants, giving appropriate consideration to the prevailing borrowing rates within the casino industry in general. We also evaluated the aggregate fair value of all of our reporting units and other non-operating assets in comparison to our aggregate debt and equity market capitalization at the test date. EBITDA multiples and discounted cash flows are common measures used to value businesses in our industry. |
We performed an annual impairment assessment of other non-amortizing intangible assets as of September 30, or more frequently if impairment indicators existed. We determined the estimated fair value of our non-amortizing intangible assets by primarily using the "Relief From Royalty Method" and "Excess Earnings Method" under the income approach. |
Debt Discounts or Premiums and Unamortized Debt Issue Costs |
Debt discounts or premiums and debt issue costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense based on the related debt agreements primarily using the effective interest method. Unamortized discounts or premiums are written off and included in gain or loss calculations to the extent Predecessor Growth Partners retires debt prior to its original maturity date. Unamortized debt issue costs are included in deferred charges and other in their Combined Balance Sheet. |
Derivative Instruments |
Derivative instruments are recognized in the combined financial statements at fair value. Any changes in fair value are recorded in the Combined Statements of Operations. The estimated fair value of Predecessor Growth Partner's derivative instrument is based on market prices obtained from dealer quotes. Such quotes represent the estimated amounts Predecessor Growth Partners would receive or pay to terminate the contract. See Note 8 — Financial Instruments for additional discussion on the Planet Hollywood interest cap agreement. |
Deferred Credits |
Below market leases of Planet Hollywood recorded at their estimated fair value at the date of acquisition are recorded in Deferred credits and other on the Consolidated Balance Sheet. Predecessor Growth Partners revalued existing tenant leases at the time of acquisition of Planet Hollywood and recorded deferred credits of $14.4 million related to these below-market leases. Deferred credits related to below market leases are amortized as an increase to rental income over the remaining terms of the respective leases. Planet Hollywood recognized additional non-cash rental income of $1.6 million, $2.2 million and $2.5 million for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, respectively. |
Self-Insurance Accruals |
Planet Hollywood was self-insured up to certain limits for costs associated with general liability, workers' compensation, and employee health coverage through June 2013. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims and are included in Accrued expenses on the Predecessor Growth Partners Combined Balance Sheets. In estimating these reserves, historical loss experience and judgments about the expected levels of costs per claim are considered. These claims are accounted for based on actuarial estimates of the undiscounted claims, including those claims incurred but not reported. Planet Hollywood believes the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals. Predecessor Growth Partners regularly monitors the potential for changes in estimates, evaluates its insurance accruals, and adjusts its recorded provisions. Starting in July 2013, third-party insurance coverage was obtained on a prospective basis. |
Revenue Recognition |
Interactive Entertainment |
Social and Mobile Games. CIE derives revenue from the sale of virtual currencies within casino-themed social and mobile games which are played on various global social and mobile third-party platforms. CIE's Slotomania and Bingo Blitz applications represented 90%, 94% and 97% of CIE's social and mobile games revenues for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, respectively. |
Within the Slotomania application, game players may collect free virtual coins on a regular basis, may send "gifts" of either free virtual coins or free slot machine spins to their friends through interactions with the Facebook application, and may "earn" free virtual coins through targeted marketing promotions. Within the Bingo Blitz application, game players may collect free bingo credits on a regular basis, may send "gifts" of free bingo credits or other virtual items to their friends through interactions with the Facebook application, and may "earn" free bingo credits through targeted marketing promotions. Virtual coins in Slotomania and virtual bingo credits in Bingo Blitz (collectively referred to as "virtual currency" or "virtual goods") allow the game players to play the respective games free of charge. If a game player wishes to obtain virtual goods above and beyond the level of free virtual goods available to that player, the player may purchase additional virtual goods. Once a purchase of virtual goods is completed, the coins are deposited into the players account and are not separately identifiable from previously purchased virtual goods or virtual goods obtained by the game player for free. |
Once obtained, virtual currency (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than game play. When virtual currency is played in the games, the game player could "win" and would be awarded additional virtual currency, or could "lose" and essentially lose the future use of that virtual currency. As the game player does not receive any additional benefit from the games, nor is the game player entitled to any additional rights once the game player’s virtual goods are substantially consumed, CIE has concluded that the virtual goods represent consumable goods. |
CIE has determined through a review of customer play behavior that game players who purchase virtual currency generally are not purchasing additional virtual currency if their existing virtual goods balances have not been substantially consumed. As CIE is able to track the duration between purchases of virtual currency for individual game players, CIE is able to reliably estimate the period of time over which virtual currency is consumed. As such, CIE recognizes revenue using an item-based revenue model. |
Because CIE is unable to distinguish whether purchased or free virtual currency is consumed, CIE must estimate the amount of outstanding purchased virtual currency at each reporting period based on customer behavior. Based upon an analysis of the customers’ historical play behavior, the timing difference between when virtual currencies are purchased by a customer and when those virtual currencies are consumed in gameplay is relatively short. CIE records within other current liabilities the deferred revenue associated with its social and mobile games, and also records within other current assets the prepaid platform fees associated with this deferred revenue. At December 31, 2012, CIE recorded within Accrued expenses deferred revenue associated with its social and mobile games of $1.2 million, representing the estimated value of purchased virtual currencies not yet consumed at year-end. CIE also recorded within Prepayments and other current assets the prepaid platform fees associated with this deferred revenue, aggregating $0.4 million at December 31, 2012. |
CIE continues to gather detailed customer play behavior and assess this data in relation to its revenue recognition policy. To the extent the customer play behavior changes, CIE will reassess its estimates and assumptions used for revenue recognition. |
The Slotomania and Bingo Blitz applications are played on various social and mobile third-party platforms for which such third parties collect monies from CIE’s customers and pay CIE an amount after deducting a platform fee. CIE is the primary obligor with its customers under these arrangements, retains the ability to establish the pricing for its virtual currencies, and assumes all credit risk with its customers. |
Based upon the above facts, CIE recognizes revenues from its game-playing customers on a gross basis and related platform fees are recorded as a component of operating expense. |
Prior to September 2013, transactions conducted through the Facebook platform were facilitated using Facebook credits ("FB Credits"), which is a form of virtual currency specific to the Facebook platform. Effectively, transactions priced by CIE to sell a specified number of virtual goods for a specified cost in a game player’s local currency had FB Credits inserted into the transaction flow, whereby the purchase price paid by the game player was first converted to FB Credits, and the FB Credits were then converted into the resulting number of virtual goods. This provided a means for Facebook platform users to accumulate FB Credits prior to making an in-application purchase, and for the Facebook platform to provide to its users FB Credits at a discount or for free. |
Subsequent to the September 2013 elimination of FB Credits, Facebook may provide free gift cards or determine other means of discounting virtual currencies purchased by the Facebook platform users. As a result, CIE reviews the individual transaction details to ensure that revenues recognized for the sale of virtual currencies through the Facebook platform represent cash paid for such currencies by CIE’s game players. |
Taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in net revenues or operating expenses. |
WSOP and Online Real Money Gaming. The majority of CIE's WSOP and non-U.S. regulated online real money licensed gaming revenue is derived from licensing the WSOP and Caesars trade names to third parties for the use in regulated non-U.S. online real money gaming and social and mobile games, the licensing of the WSOP trade name, television rights and sponsorship for the WSOP live tournaments. With respect to the licensing agreements, CIE's revenues are typically based upon a percentage of gaming revenue earned by its licensees and the fees it receives from Caesars Entertainment for the WSOP circuit events. |
CIE's license fee revenues generated from regulated online real money gaming are recognized as earned based on a contractually agreed upon percentage of the net gaming revenue. CIE believes that it is the agent in these transactions and therefore records the net licensing revenue derived from its licensees’ net gaming revenue. Revenue related to the licensing of the WSOP trade name to third parties for the use in for social, mobile and console games is recognized based on an agreed percentage of the third parties’ revenues through revenue sharing agreements. |
Media and sponsorship revenues related to WSOP live tournaments are recorded as earned generally over the initial broadcasting period of the WSOP live tournaments. At December 31, 2012, CIE recorded within Accrued expenses, deferred revenue associated with its WSOP and online gaming business of $1.4 million. |
Online real money gaming revenues are measured by the aggregate net difference between gaming wins and losses, with liabilities recognized for player deposits. Cash discounts and other cash incentives related to online real money gaming are recorded as a reduction to WSOP and online real money gaming revenues. |
Casino Properties and Developments |
Casino Revenues. Casino revenues are measured by the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs and for chips in the customers’ possession. However, jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. CGP LLC accrues the incremental amount of progressive jackpots as the progressive machine is played and the progressive jackpot amount increases, with a corresponding reduction of casino revenue. |
Food, Beverage, Rooms, and Other. Food, beverage, accommodations, and other revenues are recognized when services are performed. Advance deposits on rooms and advance ticket sales are recorded as customer deposits until services are provided to the customer. Sales taxes and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in net revenues or operating expenses. The retail value of accommodations, food and beverage, and other services furnished to casino guests without charge is included in gross revenue and then deducted as promotional allowances. The estimated costs of providing such promotional allowances are classified as casino expenses as follows: |
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| 1-Jan-13 | | Year Ended | | Year Ended |
Through | 31-Dec-12 | 31-Dec-11 |
21-Oct-13 | | |
Food and beverage | $ | 11.1 | | | $ | 12.5 | | | $ | 11.2 | |
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Rooms | 6 | | | 9.6 | | | 9.3 | |
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Other | 0.2 | | | — | | | — | |
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| $ | 17.3 | | | $ | 22.1 | | | $ | 20.5 | |
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Platform Fees |
Platform fees relate to Predecessor Growth Partners' Interactive Entertainment segment and consist of fees paid to third- party social and mobile platform providers, including Facebook and Apple. Approximately 47.6%, 48.2% and 90.0% of platform fees incurred for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, respectively, were payable to Facebook. Approximately 31.8% and 35.6% of platform fees incurred for the period from January 1 through October 21, 2013 and for the year ended December 31, 2012, respectively, were payable to Apple. Other than the deferral of platform fees associated with deferred revenues, platform fees are expensed as incurred. |
Total Rewards Point Liability Program |
Caesars Entertainment's customer loyalty program, Total Rewards, offers incentives to customers who gamble at Caesars Entertainment’s casinos throughout the United States, including Predecessor Growth Partners' Planet Hollywood casino. 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, Caesars Entertainment accrues the expense of reward credits, after consideration of estimated forfeitures (referred to as "breakage"), as they are earned. The estimated value of the cost to provide reward credits is expensed by Caesars Entertainment as the reward credits are earned by customers. To arrive at the estimated cost associated with reward credits, estimates and assumptions are made regarding incremental marginal costs of the benefits, breakage rates, and the mix of goods and services for which reward credits will be redeemed. Caesars Entertainment uses historical data to assist in the determination of estimated accruals. |
Amounts associated with Planet Hollywood's participation in the program are included in Payables to related party in Predecessor Growth Partners' combined Balance Sheet and this liability is settled with Caesars Entertainment on a monthly basis. Planet Hollywood’s associated cost to provide reward credits is included in Casino expense in the Combined Statements of Operations. The estimated liability for Total Rewards credit redemptions was $0.9 million as of December 31, 2012. |
Research and Development |
CIE incurs various direct costs in relation to the development of future social and mobile games applications and future online real money poker applications, along with costs to improve current social and mobile games. CIE evaluates research and development costs incurred to determine whether the costs relate to the development of software, and therefore are required to be capitalized, and have concluded there are no capitalizable research and development costs related to the development of software. |
All other research and development costs are expensed as incurred. Research and development costs were $23.1 million, $15.6 million and $2.3 million for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, respectively. Such amounts are included in Property, general, administrative and other within the Combined Statements of Operations. |
Advertising |
Predecessor Growth Partners expenses the production costs of advertising the first time the advertising takes place. Advertising expense was $46.2 million, $34.3 million and $12.5 million for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, respectively. Advertising expense is included in Property, general, administrative and other expenses within the Combined Statements of Operations. |
Stock-based Compensation |
Caesars Entertainment grants stock-based compensation awards in Caesars Entertainment common stock to certain employees that work for the management companies of Planet Hollywood and Horseshoe Baltimore under the Caesars 2012 Performance Incentive Plan. Caesars Entertainment’s allocated expense to Predecessor Growth Partners associated with Planet Hollywood or Horseshoe Baltimore executives’ stock-based awards for the period from January 1 through October 21, 2013 and for the years ended December 31, 2012 and 2011, but it was not considered material to the Combined Statements of Operations of Predecessor Growth Partners. |
Caesars Interactive grants stock-based compensation awards in Caesars Interactive common stock to its employees and service providers in accordance with the Caesars Interactive Entertainment, Inc. Amended and Restated Management Equity Incentive Plan (the "Plan"), which is intended to promote the interests of Caesars Interactive and its shareholders by providing key employees, directors, service providers and consultants with an incentive to encourage their continued employment or service and improve the growth and profitability of Caesars Interactive. The Plan provides for the Plan to be administered by the Human Resources Committee of the Board of Directors of Caesars Acquisition Company (the "Committee"). As a matter of policy, the exercise price of all options granted under the Plan has been determined by the Committee to ensure that the exercise price of options granted under the Plan complies with the requirement that such exercise price is not less than the fair market value of the underlying shares at the respective grant dates. Caesars Interactive has granted stock options and warrants, restricted shares and management shares to its employees. These programs are classified as either equity or liability-based instruments dependent on the terms and conditions of each of the awards. Equity-classified instruments are measured at their fair value at their date of grant and liability-classified instruments are re-measured at their fair value at each reporting date for accounting purposes. A description of the components of these programs is provided in Note 15 — Stock-Based Compensation and Employee Benefit Plans. |
Income Taxes |
Predecessor Growth Partners records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. Predecessor Growth Partners reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the more likely than not realization threshold. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, Predecessor Growth Partners' experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives. |
The effect on the income tax provision and deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. |
Prior to October 21, 2013, Predecessor Growth Partners' operations were included in the consolidated U.S. Federal income tax return and state income tax returns of Caesars Entertainment. The provision for income taxes included in the Combined Statements of Operations and Comprehensive Income was computed as if Predecessor Growth Partners filed its U.S. federal, state and income tax returns on a stand-alone basis. Planet Hollywood is a disregarded entity for federal and state income tax purposes as part of the Caesars Entertainment consolidated group. However, for the purpose of the combined financial statements for the period ended October 21, 2013 and the years ended December 31, 2012 and 2011, Planet Hollywood recorded income taxes to properly represent the cost of its operations. Upon closing of the Transactions, CGP LLC is treated as a pass-through entity for federal and state income tax purposes. |