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Basis of Presentation and Consolidation Basis of Presentation and Consolidation (Notes)
6 Months Ended
Jun. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
Basis of Presentation and Consolidation
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of Caesars have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable for interim periods, and therefore, do not include all information and footnotes necessary for complete financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). The results for the interim periods reflect all adjustments (consisting primarily of normal recurring adjustments) that management considers necessary for a fair presentation of financial position, results of operations, and cash flows. The results of operations for our interim periods are not necessarily indicative of the results of operations that may be achieved for the entire 2015 fiscal year. All amounts presented in these consolidated condensed financial statements and notes thereto exclude the operating results and cash flows of CEOC subsequent to January 15, 2015, and the assets, liabilities, and equity of CEOC as of June 30, 2015.
Certain immaterial prior year amounts have been reclassified to conform to the current year’s presentation. The financial information for the six months ended June 30, 2014 reflects the results of operations and cash flows of the Showboat Atlantic City casino as discontinued operations consistent with the current period presentation. See Note 7, “Discontinued Operations.”
In our interim report on Form 10-Q for the period ended September 30, 2014 (“September 2014 Form 10-Q”), we recorded an adjustment to correct an error discovered subsequent to the issuance of the second quarter Form 10-Q. The amounts presented in this filing, therefore, are consistent with the previously corrected amounts as included in our nine month statement of cash flows included in our September 2014 Form 10-Q. The cash flows related to CGPH’s May 2014 financing that was both borrowed and repaid during the second quarter of 2014 had been (prior to correction in the third quarter of 2014) presented on a net, rather than gross, basis. The current presentation, all within financing activities, reflects $693 million in proceeds, $700 million in repayments, and $7 million in debt issuance costs and fees, instead of a net impact of zero as disclosed in our interim report on Form 10-Q for the period ended June 30, 2014. This reclassification only impacts the presentation of these amounts in cash flows from financing activities, and we do not believe the effects of the correction are material. No other reported items are affected by this correction.
Consolidation of Subsidiaries and Variable Interest Entities
We consolidate into our financial statements the accounts of all subsidiaries in which we have a controlling financial interest and variable interest entities (“VIEs”) for which we or one of our consolidated subsidiaries is the primary beneficiary. Control generally equates to ownership percentage, whereby (1) affiliates that are more than 50% owned are consolidated; (2) investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method where we are have determined that we have significant influence over the entities; and (3) investments in affiliates of 20% or less are generally accounted for using the cost method.
We consolidate a VIE when we have both the power to direct the activities that most significantly impact the results of the VIE and the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. For VIEs that are under common control with affiliates, in lieu of an assessment of the power to direct the activities that most significantly impact the results of the VIE, we may be required to assess a number of other factors to determine the consolidating entity, including the following: (i) the closeness of the association that the VIE has with the businesses of the affiliated entities, (ii) the entity from which the VIE obtained its assets; (iii) the nature of ongoing management and other agreements; and (iv) the obligation to absorb losses and the right to receive residual returns that could potentially be significant to the VIE. Along with the VIEs that are consolidated in accordance with the above guidelines, we also hold variable interests in other VIEs that are not consolidated because we are not the primary beneficiary. We continually monitor both consolidated and unconsolidated VIEs to determine if any events have occurred that could cause the primary beneficiary to change. A change in determination could have a material impact on our financial statements.
Despite a majority financial interest, we may only possess non-substantive voting rights that do not confer upon us the ability to control key activities of the entity, such as determining operating budgets, payment of obligations, management of assets, and/or other activities necessary for the ordinary course of business. We continually monitor both consolidated and unconsolidated VIEs to determine if any events have occurred that could cause the primary beneficiary to change.
Consolidation of Caesars Growth Partners
Because the equity holders in CGP receive returns disproportionate to their voting interests and substantially all the activities of CGP are related to Caesars, CGP has been determined to be a VIE. CAC is the sole voting member of CGP. Common control exists between CAC and Caesars through the majority beneficial ownership of both by Hamlet Holdings (as defined in Note 18, “Related Party Transactions”). The assets held by CGP originally came from Caesars and continue to be intrinsically closely associated with Caesars through the nature of the business, as well as ongoing service and management agreements. Additionally, Caesars is expected to receive the majority of the benefits or absorb the majority of the losses from its higher economic participation in CGP. Since Caesars is more closely associated with CGP than CAC, we have determined that Caesars is the primary beneficiary of CGP and is required to consolidate them. Neither CAC nor CGP guarantees any of CEC’s debt, and the creditors or beneficial holders of CGP have no recourse to the general credit of CEC.
CGP generated net revenues of $574 million and $353 million for the three months ended June 30, 2015 and 2014, respectively, and $1,141 million and $579 million for the six months ended June 30, 2015 and 2014, respectively. Net income attributable to Caesars related to CGP was $8 million for the three months ended June 30, 2015 compared with net loss of $115 million for the three months ended June 30, 2014. Net income attributable to Caesars related to CGP was $6 million for the six months ended June 30, 2015 compared with net loss of $114 million for the six months ended June 30, 2014.
CGP is obligated to issue additional non-voting membership units to CEC in 2016 to the extent that the earnings from CIE’s social and mobile games business exceeds a specified threshold amount in 2015. CGP recorded a liability representing the fair value of the additional contingently issuable non-voting membership units of $230 million and $347 million as of June 30, 2015 and December 31, 2014, respectively. Such liability is eliminated in our consolidation of CGP.
Consolidation of Caesars Enterprise Services
A steering committee acts in the role of a board of managers for CES with each Member entitled to appoint one representative to the steering committee. Each Member, through its representative, is entitled to a single vote on the steering committee, accordingly, the voting power of the Members does not equate to their ownership percentages. We have determined that because Caesars consolidates two of the Members (CERP and CGPH), Caesars is deemed to have a controlling financial interest in CES through our ownership of that interest.
As described in Note 4, effective January 15, 2015, CEOC is no longer a consolidated subsidiary. Therefore, CEOC’s ownership interest in CES, totaling $11 million, is accounted for as noncontrolling interest.
Consolidation Considerations for Caesars Entertainment Operating Company
As described in Note 4, CEOC’s filing for reorganization was a reconsideration event for Caesars Entertainment to reevaluate whether consolidation of CEOC continued to be appropriate. We have concluded that CEOC is a VIE and that we are not the primary beneficiary of CEOC. See Note 18, “Related Party Transactions,” for additional information on the carrying amounts and classification of assets and liabilities that relate to our variable interest in CEOC. In addition, as described in Note 1, “Organization - Guarantee of Collection,” we have a guarantee of collection with respect to certain of CEOC’s debt obligations for which we have not accrued any amounts as of June 30, 2015.