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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 MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 1-14573
PARK PLACE ENTERTAINMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0400631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3930 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
(Address of principal executive offices) (Zip code)
(702) 699-5000
Registrant's telephone number, including area code
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 twelve 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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
TITLE OF EACH CLASS OUTSTANDING AT MAY 1, 2000
------------------- --------------------------
Common Stock, par value $0.01 per share 303,856,090
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PARK PLACE ENTERTAINMENT
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 3
March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Income 4
Three months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows 5
Three months ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------------- ----------------
<S> <C> <C>
Assets
Cash and equivalents $ 324 $ 346
Accounts receivable, net 280 287
Inventory, prepaids and other 143 162
Deferred taxes 100 98
----------- ----------
Total current assets 847 893
Investments 253 282
Property and equipment, net 7,810 7,873
Goodwill, net of amortization of $114 million and $102 million 1,901 1,913
Other assets, net 201 190
----------- ----------
Total assets $ 11,012 $ 11,151
=========== ==========
Liabilities and stockholders' equity
Accounts payable and accrued expenses $ 647 $ 711
Current maturities of long-term debt 3 8
Income taxes payable 56 14
----------- ----------
Total current liabilities 706 733
Long-term debt, net of current maturities 5,479 5,616
Deferred income taxes, net 970 980
Other liabilities 79 82
----------- ----------
Total liabilities 7,234 7,411
----------- ----------
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 400.0 million shares authorized,
303.0 million and 303.7 million shares outstanding at
March 31, 2000 and December 31, 1999, respectively 3 3
Additional paid-in capital 3,662 3,635
Other (5) (5)
Retained earnings 188 136
Common stock in treasury at cost, 7.1 million and 3.1 million shares at
March 31, 2000 and December 31, 1999, respectively (70) (29)
----------- ----------
Total stockholders' equity 3,778 3,740
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Total liabilities and stockholders' equity $ 11,012 $ 11,151
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements
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PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
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<S> <C> <C>
Revenues
Casino $ 864 $ 540
Rooms 145 90
Food and beverage 119 67
Other revenue 103 51
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1,231 748
--------- ---------
Expenses
Casino 461 277
Rooms 47 31
Food and beverage 102 62
Other expenses 283 177
Depreciation and amortization 130 71
Pre-opening expense - 3
Corporate expense 11 8
--------- ---------
1,034 629
--------- ---------
Operating income 197 119
Interest and dividend income 5 3
Interest expense, net of interest capitalized (107) (29)
Interest expense, net from unconsolidated affiliates (3) (3)
--------- ---------
Income before income taxes, minority interest and
cumulative effect of accounting change 92 90
Provision for income taxes 40 42
Minority interest, net - 1
--------- ---------
Income before cumulative effect of accounting change 52 47
Cumulative effect of accounting change (net of
income taxes of $1 million) - (2)
--------- ---------
Net income $ 52 $ 45
========= =========
Basic earnings per share
Income before cumulative effect of accounting change $ 0.17 $ 0.16
Cumulative effect of accounting change $ - $(0.01)
Net income per share $ 0.17 $ 0.15
Diluted earnings per share
Income before cumulative effect of accounting change $ 0.17 $ 0.15
Cumulative effect of accounting change $ - $(0.01)
Net income per share $ 0.17 $ 0.15
</TABLE>
See notes to condensed consolidated financial statements
4
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PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
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<S> <C> <C>
Operating activities
Net income $ 52 $ 45
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 130 71
Pre-opening expense - 3
Change in working capital components 4 18
Change in deferred income taxes (12) 19
Other 12 6
--------- ---------
Net cash provided by operating activities 186 162
--------- ---------
Investing activities
Capital expenditures (47) (223)
Pre-opening expense - (3)
Change in investments 3 (11)
Other - (3)
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Net cash used in investing activities (44) (240)
--------- ---------
Financing activities
Net (payments) borrowings on credit facilities (638) 585
Proceeds from issuance of notes 500 -
Payments on debt (3) (621)
Payments to Hilton - (73)
Purchase of treasury stock (41) -
Other 18 (4)
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Net cash used in financing activities (164) (113)
--------- ---------
Decrease in cash and equivalents (22) (191)
Cash and equivalents at beginning of period 346 382
--------- ---------
Cash and equivalents at end of period $ 324 $ 191
========= =========
Supplemental cash flow disclosure
Cash paid for:
Interest (net of amounts capitalized) $ 83 $ 25
========= =========
Income taxes $ - $ 1
========= =========
</TABLE>
See notes to condensed consolidated financial statements
5
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PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. THE COMPANY
Park Place Entertainment Corporation ("Park Place" or "the Company"), a
Delaware corporation, was formed in June 1998. On December 31, 1998, Hilton
Hotels Corporation ("Hilton") completed the transfer of the operations, assets
and liabilities of its gaming business to the Company. The stock of the Company
was distributed to Hilton's shareholders tax-free on a one-for-one basis. Also
on December 31, 1998, immediately following the Hilton distribution, the Company
acquired, by means of a merger, the Mississippi gaming business of Grand
Casinos, Inc. ("Grand") in exchange for the assumption of debt and the issuance
of Company common stock on a one-for-one basis. On December 29, 1999, the
Company acquired all of the outstanding stock of Caesars World, Inc. and
interests in several other gaming entities ("Caesars") from Starwood Hotels &
Resorts Worldwide, Inc. for cash.
The Company is primarily engaged in the ownership, operation and
development of gaming facilities. The operations of the Company currently are
conducted under the Caesars, Bally's, Paris, Flamingo, Grand, Hilton and Conrad
brands. The Company operates a total of twenty-eight casino hotels, including
seventeen located in the United States, of which nine are located in Nevada,
three are located in Atlantic City, New Jersey, and five are located in
Mississippi. The Company has a 49.9 percent owned and managed riverboat casino
in New Orleans and an 82 percent owned and managed riverboat casino in Harrison
County, Indiana. The Company partially owns and manages two casino hotels in
Australia, one casino hotel in Punta del Este, Uruguay, two casinos in Nova
Scotia, Canada, one casino in South Africa and has an interest in two casinos on
cruise ships. The Company provides management services to a casino in Windsor,
Canada and the slot operations at the Dover Downs racetrack in Delaware.
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its subsidiaries and investments in unconsolidated affiliates, which are 50
percent or less owned, accounted for under the equity method. All material
intercompany accounts and transactions are eliminated and net earnings are
reduced by the portion of the earnings of affiliates applicable to other
ownership interests. There are no significant restrictions on the transfer of
funds from the Company's wholly owned subsidiaries to Park Place.
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments (which
include normal recurring adjustments) necessary for a fair presentation of
results for the interim periods have been made. The results for the three-month
period are not necessarily indicative of results to be expected for the full
fiscal year. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
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The condensed consolidated financial statements for the prior periods
reflect certain reclassifications to conform to classifications adopted in 2000.
These classifications have no effect on previously reported net income.
NOTE 3. STOCK REPURCHASE
In March 1999, the Company's Board of Directors approved a stock repurchase
program allowing for the purchase of up to eight million shares of the Company's
currently outstanding common stock. During the three months ended March 31,
2000, the Company repurchased approximately four million shares of its common
stock. As of March 31, 2000, the Company had repurchased approximately seven
million shares of its common stock.
NOTE 4. CAESARS ACQUISITION
Effective December 29, 1999, the Company completed the acquisition of
Caesars pursuant to an agreement dated April 27, 1999. Aggregate consideration
consisted of approximately $3 billion in cash.
The acquisition has been accounted for using the purchase method of
accounting. The purchase price has been preliminarily allocated based on
estimated fair values at the date of acquisition, pending final determination of
certain acquired balances. The final allocation of the purchase price will be
completed within one year from the date of acquisition. A total of approximately
$640 million, representing the estimated excess of acquisition cost over the
fair value of Caesars tangible net assets, was allocated to goodwill and is
being amortized over 40 years.
The following unaudited pro forma information for the three months ended
March 31, 1999 has been prepared assuming that the Caesars merger had taken
place as of January 1, 1999. This pro forma information does not purport to be
indicative of future results or what would have occurred had the Caesars merger
been completed as of January 1, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
--------------------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Revenue............................................. $ 1,094
Operating income.................................... 159
Net income.......................................... 27
Basic and diluted earnings per share................ 0.09
</TABLE>
NOTE 5. EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing net income by the
weighted average number of common shares outstanding for the period. The
weighted average number of common shares outstanding for the three months ended
March 31, 2000 and 1999 was 305 million and 303 million, respectively. Diluted
EPS reflects the effect of assumed stock option exercises. The dilutive effect
of the assumed exercise of stock options increased the weighted average number
of common shares by 5 million and 2 million for the three months ended March 31,
2000 and 1999, respectively.
7
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NOTE 6. LONG-TERM DEBT
Long-term debt is as follows (in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------------- ------------------
<S> <C> <C>
Senior and senior subordinated notes, net of unamortized discount
of $7 million.......................................................... $ 2,218 $1,718
Credit facilities...................................................... 3,250 3,888
Other.................................................................. 14 18
----------------- ------------------
5,482 5,624
Less current maturities............................................. (3) (8)
================= ==================
Net long-term debt..................................................... $5,479 $5,616
================= ==================
</TABLE>
In February 2000, the Company issued $500 million of senior subordinated
notes due 2007 through a private placement offering to institutional
investors. The notes were issued with a coupon rate of 9.375%. The Company
intends to exchange these notes for notes registered under the Securities Act
of 1933, as amended. The notes are redeemable at any time prior to their
maturity at the redemption prices described in the indenture governing such
notes. The notes are unsecured obligations, rank equal with the Company's
other senior subordinated indebtedness and are junior to all of the Company's
senior indebtedness. Proceeds from this offering were used to reduce
borrowings under the credit facilities.
NOTE 7. SUBSEQUENT EVENTS
Park Place entered into several agreements in April 2000 with the St.
Regis Mohawk Nation. One agreement, for which Park Place paid $3 million, is
for exclusive rights to develop a Class II or Class III casino project in the
State of New York for a period of three years, or extended thereafter by
mutual agreement. In the event such a casino project is developed, the
parties also agreed to enter into a seven-year management agreement whereby
Park Place will manage the casino and pay the tribe 70 percent of the net
profits. The agreements are subject to the approval of the National Indian
Gaming Commission.
On May 1, 2000, Park Place announced that it had entered into a
definitive agreement to acquire 50 acres of the Kutsher's Resort Hotel and
Country Club in Sullivan County, New York, for approximately $250,000, with
an option to purchase the remaining 1,400 acres for $65 million. It is
presently anticipated that the 50-acre site will be transferred in trust to
the St. Regis Mohawk Tribe subject to approval of the Bureau of Indian
Affairs (BIA), while regulatory approvals for the construction of a
hotel/casino resort are obtained. Subject to such regulatory approvals, which
include the BIA, the National Indian Gaming Commission, and local zoning
approvals, Park Place will develop and manage the hotel/casino under its
agreements with the Mohawk Nation. A dissident group within the St. Regis
Mohawk Tribe has filed a $12 billion class action lawsuit in a Tribal Court
to overturn the exclusive agreement and the development agreement. The
Company believes the suit is without merit.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Results of operations include our wholly-owned subsidiaries and investments
accounted for under the equity method of accounting. After our merger with Grand
Casinos, Inc. on December 31, 1998, the opening of Paris Las Vegas on September
1, 1999 and our acquisition of Caesars World, Inc. and other gaming assets from
Starwood Hotels and Resorts Worldwide, Inc. on December 29, 1999, we operate
the following portfolio of properties under the Caesars, Bally's, Paris,
Flamingo, Grand, Hilton and Conrad brand names:
- nine casino hotels in Nevada;
- three casino hotels in Atlantic City, New Jersey;
- five dockside casinos in Mississippi;
- a 49.9% owned and managed riverboat casino in New Orleans;
- an 82% owned and managed riverboat casino in Indiana;
- three partially-owned and/or managed casino hotels in Canada;
- two partially-owned and managed casino hotels in Australia;
- a partially-owned and managed casino hotel in Punta del
Este, Uruguay;
- a partially-owned and managed casino hotel in Johannesburg,
South Africa;
- two casinos on cruise ships; and
- managed slot operations at a racetrack in Delaware.
We have experienced a number of changes, resulting in increases in the
number of subsidiaries and investments (as listed above), during the period
covered in this discussion. On September 1, 1999, we opened the 2,916 room Paris
Las Vegas on the Las Vegas Strip. On December 29, 1999, we completed our
acquisition of Caesars World, Inc. As a result of the Caesars acquisition, we
now own Caesars Palace, Caesars Atlantic City, Caesars Tahoe, Sheraton Casino
and Hotel Tunica, an 82 percent interest in Caesars Indiana, a 95 percent
interest in Sheraton Casino Sydney and Sheraton Halifax Casino, an interest in
Caesars Guateng, a 50 percent interest in the management company of Windsor
Casino in Ontario, Canada, an interest in Caesars at Sea and the slot operations
at the Dover Downs racetrack in Delaware. The results of operations for the
Caesars properties and Paris are not included in our condensed consolidated
statement of income for the three months ended March 31, 1999, as the
acquisition of Caesars was completed on December 29, 1999 and Paris opened on
September 1, 1999.
The following discussion presents an analysis of the results of operations
for the three months ended March 31, 2000 and 1999. EBITDA (earnings before
interest, taxes, depreciation, amortization, pre-opening and non-cash items) is
presented supplementally in the tables below and in the discussion of operating
results because we believe it allows for a more complete analysis of results of
operations. This
9
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information should not be considered as an alternative to any measure of
performance as promulgated under accounting principles generally accepted in the
United States of America (such as operating income or net income), nor should it
be considered as an indicator of our overall financial performance. Our
calculation of EBITDA may be different from the calculation used by other
companies and therefore comparability may be limited. Our depreciation,
amortization and pre-opening costs for the three months ended March 31, 2000 and
1999 totaled $130 million and $74 million, respectively. We had no non-cash
items for the periods presented.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
A summary of our consolidated revenue and earnings for the three months
ended March 31, 2000 and 1999 is as follows (in millions, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
<S> <C> <C>
Revenue $ 1,231 $748
Operating income 197 119
Net income 52 45
Basic and diluted earnings per share 0.17 0.15
Other operating data:
EBITDA $ 327 $193
</TABLE>
We recorded net income of $52 million or diluted earnings per share of
$0.17 for the three months ended March 31, 2000, compared with net income of $45
million or diluted earnings per share of $0.15 for the three months ended March
31, 1999. Impacting results in the current quarter were the Caesars acquisition,
which was effective December 29, 1999, and the opening of Paris on September 1,
1999.
Consolidated revenues increased 65 percent to $1.2 billion for the three
months ended March 31, 2000, from $748 million in 1999. This increase in
revenues for the three months ended March 31, 2000, was primarily a result of
the opening of Paris, strong operating performance in the Eastern Region and the
Caesars acquisition. EBITDA increased 69 percent to $327 million for the three
months ended March 31, 2000, from $193 million in 1999. The Caesars properties
contributed $97 million of the increase in EBITDA. Excluding the Caesars
properties, the Western Region was up $26 million, the Eastern Region was up $13
million, the Mid-South Region was down $3 million and the International
properties were up $5 million.
WESTERN REGION
EBITDA for the Western Region was $159 million for the three months ended
March 31, 2000, an increase of 67 percent compared to $95 million for the three
months ended March 31, 1999. The increase in EBITDA was primarily attributable
to the opening of Paris and the acquisition of Caesars, partially offset by a
decrease at the Las Vegas Hilton. Caesars Palace recorded EBITDA of $35 million
for the first quarter of 2000. Occupancy for the Western Region was 91 percent
for the three months ended March 31, 2000, compared to 88 percent in the prior
year period. The average room rate was $92 compared to $82 in the prior year
period. The increase in the average room rate was a result of the addition of
Paris, Caesars Palace and Caesars Tahoe.
EBITDA at the Las Vegas Hilton was $18 million for the three months ended
March 31, 2000,
10
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compared to $27 million in the prior year. Performance was in-line with
expectations. The property experienced unusually high levels of play in the
first quarter of 1999 which was not repeated in the current quarter due to the
highly competitive nature of this market. Results at the Las Vegas Hilton are
more volatile than most of our other casinos because this property caters to the
premium play segment of the market. Future fluctuations in premium play volume
and win percentage could result in continued volatility of the results at this
property.
The combined Paris/Bally's properties generated EBITDA of $58 million in
the first quarter of 2000, an increase of $34 million from the first quarter in
the prior year. The increase in EBITDA was primarily attributable to the
addition of Paris. We believe Paris continues to drive significant incremental
visitation to this area of the Las Vegas Strip.
EBITDA at the Flamingo Hilton Las Vegas increased $1 million to $33 million
for the three months ended March 31, 2000. The Flamingo Hilton Las Vegas
continues to demonstrate the power of its location and its appeal to its target
market.
Combined EBITDA from the Reno Hilton, the Flamingo Hilton Reno and the
Flamingo Hilton Laughlin was $12 million for the three months ended March 31,
2000 consistent with the comparable 1999 quarter. Caesars Tahoe generated EBITDA
of $3 million during the three months ended March 31, 2000.
The completion of a number of room expansion projects coupled with the
opening of new casino hotels has increased competition in all segments of the
Las Vegas market. In addition, California has approved Native American gaming.
Including Paris, four new mega-resorts have opened in Las Vegas since October
1998, which drove increased visitation in 1999. In 2000, one new mega resort is
expected to open adjacent to Paris. We cannot predict what impact the recent
development projects or new expansion will have on our future results of
operations.
EASTERN REGION
EBITDA for the Eastern Region was $84 million for the three months ended
March 31, 2000, an increase of 115 percent when compared to $39 million for the
three months ended March 31, 1999. The increase is due to the addition of
Caesars Atlantic City, coupled with the continued success of our marketing
efforts, which are driving incremental visitation to our properties in Atlantic
City. Caesars Atlantic City recorded EBITDA of $32 million for the three months
ended March 31, 2000. The average room rate in the Eastern Region increased to
$86 for the three months ended March 31, 2000 from $74 in the prior year period.
The occupancy percentage increased from 94 percent to 95 percent for the three
months ended March 31, 2000.
Bally's Park Place generated EBITDA of $38 million for the three months
ended March 31, 2000, an increase of 15 percent from last year's quarter of $33
million. The increase was a result of a 15 percent increase in slot handle and a
17 percent increase in table game drop.
For the three months ended March 31, 2000, the Atlantic City Hilton
reported EBITDA of $14 million, more than doubling last year's $6 million. The
Atlantic City Hilton experienced a 34 percent increase in slot handle. This
increase was a result of marketing programs, which are having a positive impact
on both occupancy and play at the property.
11
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Certain competitors have announced plans to enter the Atlantic City market
or expand existing facilities, which may bring new capacity to the market. Such
potential new capacity could intensify the already competitive Atlantic City
marketplace, or alternatively broaden Atlantic City's appeal to an expanded
customer base. We cannot predict if these projects will be completed or how any
additional capacity would affect our operating results.
MID-SOUTH REGION
EBITDA for the Mid-South Region increased $12 million to $64 million for
the three months ended March 31, 2000. The increase in EBITDA is primarily
attributable to the $11 million in EBITDA generated by Caesars Indiana and the
$4 million generated by Sheraton Tunica, offset by a $4 million decrease at
Bally's New Orleans and a $1 million net decrease at our Grand properties. We
expect that future results at Bally's New Orleans may continue to be impacted by
the competition added in downtown New Orleans in October 1999. The average room
rate for the region was $53 and the occupancy percentage was 89 percent for the
quarter ended March 31, 2000.
Grand Gulfport generated $12 million in EBITDA for the three months ended
March 31, 2000, a 20 percent increase above the $10 million reported in 1999.
Increases in both slot handle and table game drop and the June 1999 opening of
the Oasis Resort and Spa contributed to this increase.
For the three months ended March 31, 2000, Grand Tunica reported EBITDA of
$14 million, up from $13 million reported in the prior year. A 10 percent
increase in table game drop and the March 1999 opening of the Terrace Hotel
contributed to this increase.
Grand Biloxi reported EBITDA of $16 million for the first quarter of 2000,
down from last year's $20 million due to competitive pressure from significant
new supply in the Biloxi market.
Supply on the Gulf Coast has recently increased with the opening of a new
resort by a competitor. Currently the new supply into the market continues to
drive interest and visitation to our two Gulf Coast properties. However, this
increase in supply could ultimately have an adverse impact on the operating
results of our Gulf Coast properties.
INTERNATIONAL
On a combined basis, first quarter 2000 EBITDA from the Conrad properties
in Uruguay and Australia increased $5 million to $20 million. The Caesars
properties in Canada and South Africa recorded EBITDA of $11 million. On a
combined basis, for the first quarter, the International properties reported an
average daily rate of $99, a decrease of $13, and an occupancy percentage of 71
percent, an increase of two percentage points over the prior year.
DEPRECIATION AND AMORTIZATION
Consolidated depreciation and amortization increased $59 million to $130
million for the three months ended March 31, 2000. The increase in depreciation
and amortization for the three months was primarily attributable to the addition
of the Caesars properties and Paris.
CORPORATE EXPENSE
Corporate expense increased $3 million to $11 million for the three months
ended March 31, 2000. The increase is primarily attributable to the acquisition
of Caesars.
12
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NET INTEREST EXPENSE
Consolidated net interest expense increased $76 million to $105 million for
the three months ended March 31, 2000. The increase in net interest expense for
the quarter was due primarily to an increase in long-term debt of approximately
$3 billion associated with the Caesars acquisition and a decrease in capitalized
interest primarily due to the completion of Paris. We used a combination of
fixed rate debt and bank credit facilities to fund the acquisition of Caesars.
Capitalized interest for the three months ended March 31, 2000 and 1999 was $1
million and $13 million, respectively.
INCOME TAXES
The effective income tax rate for the three months ended March 31, 2000 was
43 percent. For the three months ended March 31, 1999, the effective income tax
rate was 47 percent. Our effective income tax rate is determined by the level
and composition of pretax income subject to varying foreign, state and local
taxes and exceeds the Federal statutory rate due primarily to non-deductible
amortization of goodwill.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
As of March 31, 2000, we had cash and cash equivalents of $324 million. Net
cash provided by operating activities for the three months ended March 31, 2000
was $186 million. In addition, we had availability under our credit facilities
of approximately $365 million at March 31, 2000. We expect to finance our
current operations and capital expenditures through cash flow from operations,
existing cash balances, borrowings under our credit facilities, new issuances in
the public bond markets and commercial paper borrowings.
INVESTING ACTIVITIES
For the three months ended March 31, 2000, net cash used in investing
activities was $44 million, of which $47 million related to capital expenditures
for normal maintenance as well as major construction projects. Major
construction projects primarily consist of the Wild Wild West Casino expansion,
the permanent casino facility in Halifax and the master plan at Caesars Indiana.
During 2000 we intend to spend approximately $225 million on normal capital
replacements at our casino properties, and make some selective expansion or
improvement investments at certain of our existing properties. Obsolescence
arising from age and condition of facilities is a factor in the gaming industry.
We intend to continue to make substantial investments to maintain our facilities
in first-class condition in order to preserve our competitive position.
FINANCING ACTIVITIES
During the quarter we were able to reduce our debt by approximately $140
million with the free cash flow we generated.
In February 2000, we issued $500 million of senior subordinated notes
due 2007 through a private placement offering to institutional investors. The
notes were issued with a coupon rate of 9.375%. We intend to exchange these
notes for notes registered under the Securities Act of 1933, as amended. The
notes are redeemable at any time prior to their maturity at the redemption
prices described in the indenture
13
<PAGE>
governing such notes. The notes are unsecured obligations, rank equal with our
other senior subordinated indebtedness and are junior to all of our senior
indebtedness. Proceeds from this offering were used to reduce borrowings under
the credit facilities.
In January 1999, we filed a shelf registration statement (the "Shelf") with
the Securities and Exchange Commission registering up to $1.0 billion in debt or
equity securities. The terms of any securities offered pursuant to the Shelf
will be determined by market conditions at the time of issuance. Availability
under the Shelf at March 31, 2000 was approximately $600 million.
We have established a $1.0 billion commercial paper program. To the extent
that we incur debt under this program, we must maintain an equivalent amount of
credit available under our credit facilities. At March 31, 2000, we had no
amounts outstanding under the commercial paper program.
In March 1999, our Board of Directors approved a common stock repurchase
program to acquire up to eight million shares of our common stock. During the
three months ended March 31, 2000, we repurchased approximately four million
shares of our common stock at a total cost of approximately $41 million. At
March 31, 2000, we had repurchased a total of seven million shares under the
repurchase program.
OTHER DEVELOPMENTS
We entered into several agreements in April 2000 with the St. Regis
Mohawk Nation. One agreement, for which we paid $3 million, is for exclusive
rights to develop a Class II or Class III casino project in the State of New
York for a period of three years, or extended thereafter by mutual agreement.
In the event such a casino project is developed, the parties also agreed to
enter into a seven-year management agreement whereby we will manage the
casino and pay the tribe 70 percent of the net profits. The agreements are
subject to the approval of the National Indian Gaming Commission.
On May 1, 2000, we announced that we had entered into a definitive
agreement to acquire 50 acres of the Kutsher's Resort Hotel and Country Club
in Sullivan County, New York, for approximately $250,000, with an option to
purchase the remaining 1,400 acres for $65 million. It is presently
anticipated that the 50-acre site will be transferred in trust to the St.
Regis Mohawk Tribe subject to approval of the Bureau of Indian Affairs (BIA),
while regulatory approvals for the construction of a hotel/casino resort are
obtained. Subject to such regulatory approvals, which include the BIA, the
National Indian Gaming Commission, and local zoning approvals, we will
develop and manage the hotel/casino under our agreements with the Mohawk
Nation. A dissident group within the St. Regis Mohawk Tribe has filed a $12
billion class action lawsuit in a Tribal Court to overturn the exclusive
agreement and the development agreement. We believe the suit is without merit.
STRATEGY
As exemplified by the acquisition of Bally Entertainment Corporation in
1996, Grand Casinos, Inc. in 1998, the opening of Paris on September 1, 1999,
and the purchase of Caesars in 1999, we are interested in expanding our business
through the acquisition of quality gaming assets and selective new development.
We believe we are well-positioned to, and may from time to time, pursue
additional strategic acquisitions, dispositions of non-strategic assets, or
alliances which we believe to be financially beneficial to our long-term
interests. We also believe that in addition to our cash flow from operations, we
will have access to financial resources sufficient to finance our future growth.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "Results of Operations," "Liquidity and
Capital Resources," "Other Developments" and "Strategy" and statements
relating to our plans, strategies, objectives, expectations, intentions and
adequacy of resources, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The words "believes,"
"anticipates," "expects," "intends," "interested in," "plans," "continues,"
"projects" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect our current views with
respect to future events and financial performance, and are subject to
certain risks and uncertainties, including those identified above under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," other factors described previously in our reports filed with the
SEC, and:
- - the effect of economic conditions,
- - the impact of competition,
- - customer demand, which could cause actual results to differ
materially from historical results or those anticipated,
- - regulatory, licensing, and other governmental approvals,
- - access to available and reasonable financing,
- - political uncertainties, including legislative action, referendum,
and taxation,
- - litigation and judicial actions,
- - third party consents and approvals, and
- - construction issues, including environmental restrictions,
weather, soil conditions, building permits and zoning approvals.
Although we believe the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, we can give no assurance that
any of our expectations will be attained in light of these risks and
uncertainties.
ITEM 3. QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of loss arising from changes in market rates and
prices, such as interest rates, foreign currency exchange rates and commodity
process. We are exposed to market risk in the form of changes in interest
rates and the potential impact such change may have on our variable rate
debt. We attempt to limit the impact of changes in interest rates by
balancing the mix of our borrowings pursuant to our bank credit facilities
and commercial paper program and our long-term fixed rate debt. We have not
invested in derivative based financial instruments.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of certain material litigation to which the Company and
its subsidiaries are a party, see the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
We are party to legal proceedings relating to the Bally, Hilton, Grand
and Caesars gaming businesses that we assumed in 1998 and 1999. We are also
involved in various other legal proceedings relating to routine matters
incidental to our business. While any proceeding or litigation has an element of
uncertainty, we believe that the final outcome of these matters is not likely to
have a material adverse effect upon our company.
STRATOSPHERE STAND-BY EQUITY COMMITMENT
Grand is a defendant in STRATOSPHERE LITIGATION, L.L.C. V. GRAND
CASINOS, INC. A MINNESOTA CORPORATION, pending in the United States District
Court of Nevada. In March 1995, Grand entered into a Standby Equity Commitment
Agreement with Stratosphere in which Grand agreed, subject to certain terms and
conditions, to purchase up to $20 million of additional equity in Stratosphere
during each of the first three years Stratosphere operated if Stratosphere's
consolidated cash flow during each of such years did not exceed $50 million. The
enforceability of the Standby Equity Commitment is the subject of litigation in
the U.S. District Court as a result of an action brought by the Trustee in
Bankruptcy for the Stratosphere. On February 19, 1998, the U.S. Bankruptcy Court
for the District of Nevada ruled in favor of Grand that the Standby Equity
Commitment is not enforceable in Bankruptcy Court as a matter of law. Grand's
motion for summary judgment in the U.S. District Court action on the basis of
the bankruptcy court ruling has been denied.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4 The Company will furnish the Commission, upon its request,
copies of all agreements relating to our long-term debt
which does not exceed 10 percent of the total assets of
the Company.
10 Amendment No. 1 to Employment Agreement dated January 1,
2000 between the Company and Arthur M. Goldberg.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On January 7, 2000, the Company filed a Form 8-K/A dated December 30, 1999.
The Company reported under "Item 2" that it was amending the Form 8-K filed
December 30, 1999 regarding the closing of the Caesars acquisition.
On February 11, 2000, the Company filed a Form 8-K/A dated February 10,
1999. The Company filed the historical and pro forma financial information
for Starwood Hotels and Resorts Worldwide, Inc. Gaming Operations to be sold
to Park Place Entertainment.
On March 30, 2000, the Company filed a Form 8-K dated March 24, 2000. The
Company reported under "Item 4" a change of auditors.
17
<PAGE>
SIGNATURES
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.
PARK PLACE ENTERTAINMENT CORPORATION
(Registrant)
Date: May 12, 2000
/s/ Scott A. LaPorta
- ---------------------------------------
Scott A. LaPorta
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
18
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (this "AMENDMENT"), dated as
of January 1, 2000, is made and entered into by and between Park Place
Entertainment Corporation, a Delaware corporation (the "COMPANY"), and Arthur M.
Goldberg (the "EXECUTIVE").
WHEREAS, by Employment Agreement dated as of December 31, 1998 (the
"AGREEMENT"), the Executive agreed to serve as the Company's President and Chief
Executive Officer; and
WHEREAS, the Compensation Committee of the Company's Board of Directors has
determined that certain amendments to the Agreement are advisable to provide
additional flexibility to the Company in making compensation awards pursuant to
the Agreement; and
WHEREAS, the Company and the Executive have agreed to the proposed changes
in the Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive agree as follows:
1. DEFINITIONS. Capitalized terms which are not defined in this Amendment
shall have the meanings assigned to them in the Agreement.
2. AMENDMENTS TO SPECIFIC PROVISIONS OF AGREEMENT.
2.1. AMENDMENT TO SECTION 3(a)(1). Section 3(a)(1) of the Agreement is
amended to read in its entirety as the following new Sections 3(a)(1) and
3(a)(2):
<PAGE>
"3. COMPENSATION. (a) BASE SALARY. (1) During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary") of $2,000,000, payable in accordance with regular payroll
practices of the Company. During the Employment Period, the Annual Base
Salary shall be reviewed for possible increase at least annually, with any
increase being at the sole discretion of the Board (or an appropriate
committee thereof). Any increase in the Annual Base Salary shall not limit
or reduce any other obligation of the Company under this Agreement. The
Annual Base Salary shall not be reduced after any such increase, and the
term "Annual Base Salary" shall thereafter refer to the Annual Base Salary
as so increased.
(2) Notwithstanding Section 3(a)(1), above, the portion of the
Executive's Annual Base Salary during any taxable year of the Company
which, when added to any otherwise deductible compensation and benefits
paid or provided to the Executive by the Company during such taxable year,
would not be deductible by the Company in the taxable year such Annual Base
Salary is paid or accrued because of the applicable limitations under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") (such nondeductible portion of the Executive's Annual Base Salary
hereinafter referred to as the "Nondeductible Compensation"), may, in the
sole discretion of the Compensation Committee of the Company's Board of
Directors (the "Committee"), be deferred annually, in whole or in part, in
accordance with the remaining provisions of this Section 3(a). If the
Committee exercises its discretion to defer some or all of the
Nondeductible Compensation (such deferred portion hereinafter referred to
as the "Deferral Amount"), the Deferral Amount shall be paid to the
Executive, in the sole discretion of the Executive, in accordance with the
method of deferral described in either clause (A) or clause (B) below:
(A) in a lump sum, on that date (the "Deferral Date") which
is 30 days after the earlier of (i) the last day of the
Company's taxable year in which the Executive ceases to
be a "covered employee" within the meaning of Section
162(m)(3) of the Code or (ii) the date upon which the
Company's deduction with respect to the Deferral Amount
(or portion thereof) subject to this clause (A) shall
no longer be subject to limitation under Section 162(m)
of the Code or any successor section thereto (the
"Contractual Deferral Plan"); or
-2-
<PAGE>
(B) pursuant to the terms of the Park Place Entertainment
Corporation Executive Deferred Compensation Plan, as
amended effective January 1, 2000 (the "Executive
Deferral Plan"), AS IF the Deferral Amount (or portion
thereof) represented additional "Compensation" deferred
by the Executive and credited to the Executive's
"Deferral Account" in the Executive Deferral Plan in a
manner consistent with the Executive's "Participation
Agreement" and "Deferral Election Form" (as the terms
"Compensation", "Deferral Account", "Participation
Agreement" and "Deferral Election Form" are defined in
the Executive Deferral Plan).
The Executive shall have the right to allocate the Deferral Amount between
the Contractual Deferral Plan and the Executive Deferral Plan in such
amounts as he may elect, in his sole discretion (which may include
allocating the entire Deferral Amount to one of those two Plans and no
portion thereof to the other). The procedures by which the Committee
determines the Deferral Amount and the Executive makes his election to
allocate the Deferral Amount between the Contractual Deferral Plan and the
Executive Deferral Plan shall be adopted by the Committee, provided that
the Executive has received reasonable advance notice of such procedures."
2.2. AMENDMENT TO SECTION 3(a)(2). Section 3(a)(2) of the Agreement is
renumbered as Section 3(a)(3) and is amended to read in its entirety as follows:
"(3) To the extent that any Deferral Amount (or portion thereof)
is allocated to the Contractual Deferral Plan, such amount shall be
credited with interest, from the date it would otherwise have been paid to
the date the deferred amount is paid, at a floating rate equal to the rate
which Morgan Guaranty announces from time to time as its prime lending
rate, as in effect from time to time, compounded quarterly, and such
accrued interest shall be paid to the Executive on the Deferral Date. To
the extent that any Deferral Amount (or portion thereof) is allocated to
the Executive Deferral Plan, such amount shall be adjusted for assumed
earnings or losses in accordance with the terms of the Executive Deferral
Plan. (Said Deferral Amounts, if any, plus interest or as adjusted for
-3-
<PAGE>
assumed earnings or losses, as the case may be, shall hereinafter be
collectively referred to as the "Deferred Compensation.")"
2.3. AMENDMENT TO SECTION 3(a)(3). Section 3(a)(3) of the Agreement is
renumbered as Section 3(a)(4), and its introductory language (immediately prior
to clause (A) thereof) is amended to read as follows:
"(4) Any Deferred Compensation not credited to the Executive's
Deferral Account in the Executive Deferral Plan shall be paid in accordance
with the following provisions:"
2.4. AMENDMENT TO SECTION 3(b). Section 3(b) of the Agreement is
amended to read in its entirety as follows:
(b) ANNUAL BONUS. In addition to the Annual Base Salary,
the Executive shall be eligible to receive, for each fiscal year or portion
of a fiscal year ending during the Employment Period, an annual bonus (the
"Annual Bonus") either pursuant to the Company's Executive Incentive Plan
or otherwise. Each Annual Bonus may be deferred by the Committee on the
same basis as if it constituted Annual Base Salary for purposes of Section
3(a)(2) above, and any deferred portion of such Annual Bonus may be
allocated by the Executive between the Contractual Deferral Plan and the
Executive Deferral Plan as if such deferred portion constituted a Deferral
Amount for purposes of Section 3(a)(2) above. The term "Annual Bonus" shall
be broadly interpreted to include bonus income received under the Company's
Executive Incentive Plan, as well as bonus income received under any other
determination of the Committee."
3. EFFECTIVE DATE. The provisions of this Amendment shall be effective as
of January 1, 2000.
4. MISCELLANEOUS.
4.1. This Amendment binds and shall operate for the benefit of each of
the parties and their respective successors and permitted assigns.
-4-
<PAGE>
4.2. All references made and pronouns used in this amendment shall be
construed in the singular or plural, and in such gender, as the sense and
circumstances require. Section headings are for convenience only and shall not
affect nor be used in construing this Amendment.
4.3. This Amendment may be signed in counterparts and by facsimile,
all of which when taken together shall constitute a signed agreement.
4.4. This Amendment shall be governed by and construed in accordance
with Delaware law.
4.5. Except as amended by this Amendment, the Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
PARK PLACE ENTERTAINMENT CORPORATION
By:
----------------------------------
Name:
Title:
-------------------------------------
ARTHUR M. GOLDBERG
-5-
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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