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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-14573
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PARK PLACE ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 88-0400631
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3930 HOWARD HUGHES PARKWAY 89109
LAS VEGAS, NEVADA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (702) 699-5000
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of each exchange on which registered
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COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Based upon the March 15, 2000 New York Stock Exchange closing price of
$10.19 per share, the aggregate market value of the Registrant's outstanding
Common Stock held by non-affiliates of the Registrant was approximately
$2.8 billion. On that date, there were 305,907,609 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference to the
Registrant's definitive Proxy Statement in connection with the May 12, 2000
Annual Meeting of Stockholders.
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ITEM 1. BUSINESS
GENERAL
The terms "Park Place," "we," "our," and "us," as used in this document
refer to Park Place Entertainment Corporation and its subsidiaries as a combined
entity except where it is clear that the terms mean only Park Place
Entertainment Corporation.
Park Place Entertainment Corporation was formed when Hilton Hotels
Corporation split its lodging and gaming operations into two separate companies
on December 31, 1998. Hilton accomplished the separation through a tax free
distribution of Hilton's gaming division to its shareholders. Subsequent to the
distribution we merged with the Mississippi gaming operations of Grand
Casinos, Inc. ("Grand"). In December 1999, we 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 approximately
$3 billion in cash. We consider our casino properties to be leading
establishments with respect to location, size, facilities, physical condition,
quality and variety of services offered in the areas in which they are located.
We are the largest gaming company, as measured by casino square footage, rooms
and revenues, with approximately 2 million square feet of gaming space and 1999
net revenues of $3.2 billion. We are the only gaming company with a significant
presence in Nevada, New Jersey and Mississippi, the three largest gaming markets
in the United States.
We own, operate or manage the casino properties as noted in the table below.
Our gaming operations are conducted under the Bally, Paris, Caesars, Flamingo,
Grand, Hilton and Conrad brand names.
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APPROXIMATE APPROXIMATE YEAR
CASINO NUMBER OF ACQUIRED/
NAME AND LOCATION SQUARE FOOTAGE(1) ROOMS/SUITES OPENED
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DOMESTIC CASINOS
NEVADA
Paris Las Vegas(2)........................................ 85,000 2,916 1999
Bally's Las Vegas......................................... 83,000 2,814 1996
Caesars Palace............................................ 125,000 2,454 1999
Las Vegas Hilton.......................................... 100,000 2,944 1971
Flamingo Hilton Las Vegas................................. 81,000 3,626 1971
Reno Hilton............................................... 114,000 2,003 1992
Caesars Tahoe(3).......................................... 41,000 440 1999
Flamingo Hilton Laughlin.................................. 58,000 1,912 1990
Flamingo Hilton Reno(4)................................... 46,000 604 1981
NEW JERSEY
Bally's Park Place........................................ 155,000 1,246 1996
Caesars Atlantic City..................................... 120,000 1,148 1999
Atlantic City Hilton...................................... 60,000 804 1996
MISSISSIPPI
Grand Casino Biloxi....................................... 135,000 985 1998
Grand Casino Gulfport..................................... 110,000 1,001 1998
Grand Casino Tunica....................................... 140,000 1,356 1998
Bally's Saloon-Gambling Hall-Hotel........................ 40,000 235 1996
Sheraton Casino & Hotel................................... 33,000 134 1999
INDIANA
Caesars Indiana(5)........................................ 90,000 -- 1999
LOUISIANA
Bally's Casino Lakeshore Resort(6)........................ 30,000 -- 1996
DELAWARE
Dover Downs(7)............................................ 25,000 -- 1999
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APPROXIMATE APPROXIMATE YEAR
CASINO NUMBER OF ACQUIRED/
NAME AND LOCATION SQUARE FOOTAGE(1) ROOMS/SUITES OPENED
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INTERNATIONAL CASINOS
AUSTRALIA
Conrad Jupiters, Gold Coast(8)............................ 70,000 609 1985
Conrad International Treasury Casino, Brisbane(8)......... 65,000 136 1995
URUGUAY
Conrad International Punta del Este Resort and
Casino(9)............................................... 38,000 300 1997
CANADA
Windsor Casino(10)........................................ 100,000 389 1999
Casino Nova Scotia--Sydney(11)............................ 16,000 -- 1999
Casino Nova Scotia--Halifax(11) (12)...................... 20,000 350 1999
SOUTH AFRICA
Caesars Gauteng(13)....................................... 65,000 80 1999
CAESARS AT SEA
S.S. Crystal Harmony(14).................................. 3,850 -- 1999
S.S. Crystal Symphony(14)................................. 5,000 -- 1999
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(1) Includes square footage attributable to race and sports books.
(2) This property opened on September 1, 1999.
(3) We lease the building that houses the hotel and casino and lease the
underlying land pursuant to a long-term ground and structure lease.
(4) In December 1999, we entered into a definitive agreement to sell Flamingo
Hilton Reno. The sale is expected to close by June 30, 2000.
(5) We manage Caesars Indiana and own an 82% interest in a joint venture that
owns this property.
(6) We have a 49.9% ownership interest in and manage this property.
(7) We provide management services to the casino at the Dover Downs racetrack
in Delaware.
(8) We have a 19.9% ownership interest in and manage these properties.
(9) We have a 46.4% ownership interest in and manage this property.
(10) We have a 50% interest in Windsor Casino Limited, which operates Casino
Windsor. The province of Ontario owns the complex.
(11) We have a 95% interest in Metropolitan Entertainment Group, which owns and
operates the two properties on behalf of the Nova Scotia Gaming
Corporation pursuant to an operating contract.
(12) This property currently operates a 20,000 square foot temporary casino,
while the 33,000 square foot permanent casino is under construction.
(13) We have a 25% interest in a joint venture that owns Caesars Gauteng and a
50% interest in a joint venture that manages Caesars Guateng.
(14) We operate the Caesars Palace at Sea casinos on two Crystal Cruises, Inc.
cruise ships, the Symphony and the Harmony, only while the ships are in
international waters.
We are continually evaluating attractive acquisition opportunities and may
at any time be negotiating to engage in a business combination transaction or
other acquisition. We plan to continuously evaluate our property portfolio and
intend to dispose of interests in properties that, in our opinion, are no longer
strategic to own. In doing so, we expect to maintain a balanced mix of sources
of revenue and a favorable return on stockholders' equity.
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We seek to maintain the diversity of our gaming businesses while expanding
both domestically and internationally. Plans to improve and expand our core
business include:
- leveraging our strong brand names;
- capitalizing our market leadership positions;
- maximizing operating efficiencies;
- expanding and enhancing our existing properties; and
- strategically acquiring or developing properties as appropriate.
NEVADA CASINOS
We currently own and operate nine casino hotels in the state of Nevada,
including Paris Las Vegas, Bally's Las Vegas, Caesars Palace, Flamingo Hilton
Las Vegas, Las Vegas Hilton, Flamingo Hilton Laughlin, Caesars Tahoe, Reno
Hilton and Flamingo Hilton Reno.
PARIS LAS VEGAS
Paris Las Vegas opened in September 1999. Located on approximately 24 acres
adjacent to Bally's Las Vegas, Paris Las Vegas features 2,916 spacious guest
rooms, an 85,000 square foot casino, eight French-inspired restaurants, five
lounges, 130,000 square feet of meeting and convention space, 31,500 square feet
of retail space, a two-acre roof-top pool and a European health spa. This
Parisian-themed resort also features a 50-story half-scale Eiffel Tower, as well
as replicas of famous French landmarks including the Arc deTriomphe, the Hotel
de Ville, the Paris Opera House and The Louvre. In January 2000, the French
theatrical musical Notre Dame de Paris opened at Paris Las Vegas. Marketing
efforts are directed toward convention groups and the mid-to upper mid-market,
including the group tour and travel segment.
BALLY'S LAS VEGAS
Bally's Las Vegas is located on approximately 41 acres at the prominent
"Four Corners" section of the Las Vegas Strip. This property, which is connected
to Paris Las Vegas, features 2,814 guest rooms, a 83,000 square foot casino, 9
restaurants, 175,000 square feet of meeting and convention areas, an
Olympic-sized pool, tennis courts and a spa. Bally's Las Vegas also has a 1,040
seat showroom which attracts well known entertainers, as well as being home to
one of the traditional Las Vegas shows, Jubilee. Bally's Las Vegas caters to
convention groups and the mid-to upper mid-market, including the group tour and
travel segment. Bally's Las Vegas is also serviced by a public monorail
connected to the MGM Grand Hotel and Casino.
CAESARS PALACE
Caesars Palace is located on approximately 80 acres at the prominent "Four
Corners" section of the Las Vegas Strip. Admired for its lavish accommodations,
Caesars Palace features 2,454 guest rooms and suites, approximately 125,000
square feet of gaming space and 14 restaurants. Approximately 171,000 square
feet of meeting and convention space, a 1,000 seat showroom attracting the very
best entertainers, pools, a spa, and a wedding chapel are also featured. Caesars
Palace is also home to the Forum Shops, a shopping mall which features upscale
boutiques, well known stores and dining from some of the world's premier chefs.
The Forum Shops' developer is planning a $100 million expansion to the Forum
Shops, to be completed by 2003. The 200,000 square foot, tri-level expansion
will house an additional 25 to 30 retailers, as well as a replica of the
Pantheon. Caesars markets to the upscale individual leisure guests and
convention groups. During 2000, we plan to renovate certain restaurants, add a
night club, renovate the high end table games area and begin constructing
additional hotel suites at this property.
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FLAMINGO HILTON LAS VEGAS
The Flamingo Las Vegas is located on approximately 27 acres at the center of
the Las Vegas Strip, also at the prominent "Four Corners". This property
features 3,626 guest rooms and suites, approximately 81,000 square feet of
casino space, 9 restaurants, approximately 66,000 square feet of meeting and
convention area, 750 showroom seats, multiple pools and lagoons, tennis courts,
a spa and health club, and a wedding chapel. The Flamingo Las Vegas has a solid
repeat customer base and focuses primarily on the mid-market customers,
particularly the group tour and travel market segment. We are planning to
convert a portion of the guest rooms into suites and add an additional
restaurant to this property during 2000.
LAS VEGAS HILTON
The Las Vegas Hilton is located on approximately 61 acres adjacent to the
Las Vegas Convention Center. With this prominent convention location, the Las
Vegas Hilton focuses its marketing toward convention groups, as well as upscale
individual leisure guests. This property features 2,944 guest rooms and suites,
approximately 85,000 square feet of casino space, 15 restaurants and 225,000
square feet of meeting and convention area. A 1,500 seat showroom featuring top
entertainers, a night club, and a spa and health club are also featured. The Las
Vegas Hilton has partnered with Paramount Parks to present Star Trek: The
Experience, a journey in interactive entertainment and has centered a themed
casino area around this attraction.
RENO HILTON
The Reno Hilton, which is located on 145 acres just 5 minutes from the Reno
Tahoe International Airport, features approximately 2,003 guest rooms and
suites, an 114,000 square foot casino, 7 restaurants, a comedy club and a lounge
and approximately 200,000 square feet of meeting and convention space. This
property is also complemented by outdoor and indoor recreational facilities
including an outdoor golf driving range on a lake, indoor and outdoor tennis
courts, two movie theaters and a 24 hour bowling center. The Reno Hilton focuses
primarily on the mid-market, in particular convention groups.
CAESARS TAHOE
Caesars Tahoe is located nine miles from the South Lake Tahoe Airport, in
Stateline, NV. This property features 440 guest rooms, an approximately 41,000
square foot casino, five restaurants, a nightclub, a 1,500 seat showroom, a
health spa, and approximately 25,000 square feet of meeting space. Caesars Tahoe
experiences a strong repeat customer business, drawing a significant portion of
its mid- to high-end resort destination travelers from the northern California
area. We lease the building that houses the hotel and casino, and lease the
underlying land pursuant to a long-term ground and structure lease.
FLAMINGO HILTON LAUGHLIN
Flamingo Hilton Laughlin, which is located on the banks of the Colorado
River, offers 1,912 guest rooms and suites, approximately 58,000 square feet of
gaming space, five restaurants, banquet facilities, a showroom and an outdoor
amphitheater. This property targets the budget and mid-market customer segments.
A 21,000 square foot ballroom will be added to this property to accommodate
demand in the market.
FLAMINGO HILTON RENO
Flamingo Hilton Reno is located in the heart of downtown Reno. This property
targets the mid-market, group travel and tour customers and offers 604 guest
rooms, a 46,000 square foot casino, five restaurants and a 732 seat showroom. We
have entered into a definitive agreement to sell the Flamingo Hilton Reno for
approximately $20 million. The transaction is expected to close by June 30,
2000. Prior to the close, we will continue to own and operate the facility.
Following completion of the transaction, the
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property will retain the Flamingo name under a long-term licensing agreement.
The transaction is subject to regulatory approval and resulted in a non-cash
after-tax charge of approximately $17 million in the fourth quarter of 1999.
Each of our Nevada casino hotels is open 24 hours a day, seven days a week,
for gaming activities. Games operated in these casinos include "blackjack,"
craps, roulette, "big 6," baccarat, poker, keno and slot and other video
machines. Las Vegas Hilton's race and sports book is linked by satellite or
modem to our casinos at Flamingo Hilton Las Vegas, Bally's Las Vegas, Flamingo
Hilton Laughlin, Reno Hilton, Flamingo Hilton Reno, and will include Caesars Las
Vegas and Caesars Tahoe in the near future.
The Las Vegas Hilton, Caesars Palace, and, to a lesser extent, Paris Las
Vegas, Bally's Las Vegas, Flamingo Hilton Las Vegas, Reno Hilton, Caesars Tahoe,
Flamingo Hilton Laughlin, and Flamingo Hilton Reno invite VIP customers to their
casinos and may pay for or reimburse the cost of their air transportation and
provide them with complimentary rooms, food and beverage. In addition, the Las
Vegas Hilton and Caesars Palace have a special flight program through which they
provide free air transportation on their owned or chartered aircraft to selected
groups or persons. Generally, these persons either have established casino
credit limits or cash on deposit in the casino and have previously evidenced a
willingness to put substantial amounts at risk at the casino.
NEW JERSEY CASINOS
We own and operate three casino hotels in Atlantic City, New Jersey: Bally's
Park Place, which includes The Wild Wild West Casino, Caesars Atlantic City, and
Atlantic City Hilton.
BALLY'S PARK PLACE
Bally's Park Place is located on an eight-acre site with ocean frontage at
the intersection of Park Place and the Boardwalk. With its strategic location on
the Boardwalk, over 2,800 parking spaces and a bus terminal, Bally's Park Place
is strongly positioned to attract significant walk-in and drive-in business and
focuses on high-end players and the mid-market segment, including the mid- to
upper mid-market slot player segment. This property offers 1,246 guest rooms and
suites, an approximately 155,000 square foot casino, 60,000 square feet of
meeting and convention space, 12 restaurants and a spa. To maintain our presence
as among the premier properties, in 1999 we continued renovating 500 guest rooms
at this property, purchased new slot machines and slot technology and
reconfigured the casino floor.
The Wild Wild West Casino at Bally's Park Place is the first themed casino
in the Atlantic City market. During the year 2000 we plan to expand and connect
The Wild Wild West Casino to Caesars Atlantic City. The expansion will include
additional gaming space, a retail outlet and a restaurant and is expected to be
completed by fall 2000.
CAESARS ATLANTIC CITY
Caesars Atlantic City is located on approximately ten acres at the center of
the Boardwalk and features 1,148 guest rooms, approximately 120,000 square feet
of casino space, 13 restaurants, an 1,100 seat showroom and a health spa. A
significant percentage of this property's customers are locals from the
tri-state (New York, New Jersey and Pennsylvania) area, who arrive by both bus
and auto. Caesars Atlantic City also offers convention, meeting and banquet
facilities, a multi-function grand ballroom and a four-story atrium to attract
convention business as well as walk-in patrons from the boardwalk. Additional
meeting rooms are planned for Caesars Atlantic City during 2000 as part of the
Wild Wild West expansion.
In August 1996, Caesars Atlantic City acquired the Ocean One retail mall.
The Ocean One mall is constructed on a pier that extends 900 feet over the
Atlantic Ocean and is located directly in front of the Boardwalk entrance to
Caesars Atlantic City. Ocean One contains approximately 400,000 square feet of
restaurant and retail space on three floors.
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ATLANTIC CITY HILTON
Atlantic City Hilton is located on approximately five acres at the
intersection of Boston and Pacific Avenues at the southern end of the Boardwalk
in proximity to one of the major highways leading into Atlantic City. This
location gives Atlantic City Hilton an advantage in attracting
destination-oriented customers arriving by automobile or bus. This property
features 804 guest rooms, approximately 60,000 square feet of casino space,
seven restaurants, a 1,500 seat theater, and a spa. Atlantic City Hilton
primarily focuses on personalized service for high-end and mid-market casino
customers. During 1999 we renovated the ballroom and purchased new slot machines
and slot technology at this property.
In January 1998, we acquired the historic Atlantic City Country Club which
features an 18-hole golf course, in Northfield, New Jersey, approximately a 10
minute drive from our Atlantic City properties. In 1999, renovations to the golf
course were substantially completed and the course will open in spring of 2000
for the exclusive use of our guests.
The Atlantic City casinos are open 24 hours a day, seven days a week for
gaming activities, and feature table games and slot machines similar to those
offered at our Nevada casino hotels. Atlantic City casinos do not contain sports
books; however, Bally's Park Place and Caesars Atlantic City feature simulcast
horse racing.
MISSISSIPPI CASINOS
We own and operate five dockside casino hotels in the State of Mississippi:
Grand Casino Biloxi, Grand Casino Gulfport, Grand Casino Tunica, Sheraton
Casino & Hotel and Bally's Saloon-Gambling Hall-Hotel.
GRAND CASINO BILOXI
Grand Casino Biloxi is the largest dockside casino on the Mississippi Gulf
Coast with approximately 302,000 square feet of interior space and is located on
one of a few sites on the Mississippi Gulf Coast that permits east-west
orientation, thus maximizing visibility from the highway. This location attracts
both mid-market and budget travelers arriving for day trips or overnight stays
via automobile and bus. It also draws the convention market with its 41,500
square feet of convention space. Grand Casino Biloxi features approximately
135,000 square feet of gaming space, seven restaurants, two 500-room hotels, a
spa, a Grand Casino Kids Quest childcare entertainment center, and a 1,600-seat
show theater. In December 1999, Grand Casino Biloxi expanded the Mississippi
Long Bar area of the casino by 52,000 square feet, adding 25,000 square feet of
gaming space and a new restaurant.
GRAND CASINO GULFPORT
Grand Casino Gulfport is a dockside casino on the Mississippi Gulf Coast
consisting of approximately 225,000 square feet of interior space that includes
approximately 110,000 square feet of gaming area. Other amenities at this
beachside resort include four restaurants, a Grand Casino Kids Quest, a tropical
pool with a lazy river, an arcade, a 500-seat theater, a spa, a 400-room hotel
and an additional 600-room hotel that opened in June 1999. The customer base at
this property is primarily comprised of the local markets, arriving by
automobile and bus.
In 1999, we opened the Grand Bear Golf Course on the Mississippi Gulf Coast,
strategically situated between the Grand Gulfport and Grand Biloxi properties.
This 18-hole Jack Nicklaus designed course is considered the premier golf course
in the region. In March 2000, the course was named as one of the top ten new
courses to play in the United States by Golf Magazine. This course is
exclusively available to our hotel and gaming guests.
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GRAND CASINO TUNICA
Grand Casino Tunica is located in Tunica County, Mississippi, approximately
15 miles south of the Memphis, Tennessee metropolitan area. Grand Casino Tunica
is the largest dockside casino in Mississippi with one of the largest casino
floors in the United States. Grand Casino Tunica is a 400,000 square foot,
three-story, casino complex containing approximately 140,000 square feet of
gaming space. Three hotels comprise an aggregate of 1,356 rooms, 600 of which
were opened in March of 1999. To attract the mid-market, extended stay
customers, the Grand Casino Tunica is complemented by six restaurants, an
18-hole professionally designed championship golf course and driving range, a
spa, a recreational vehicle park and a sporting clay course. In July 1999, a
clubhouse and golf school commenced operations at the golf course. This property
also has a 2,600 seat event center, which opened in November 1999, featuring
headline entertainers and sporting events.
OTHER MISSISSIPPI
Sheraton Casino & Hotel and Bally's Saloon-Gambling Hall-Hotel are also
located in Tunica County, Mississippi. Sheraton Casino & Hotel consists of
33,000 square feet of gaming space, an attached hotel with approximately 134
rooms and three restaurants and bars. Bally's Saloon-Gambling Hall- Hotel,
primarily a 'locals' casino, features a 40,000 square foot dockside casino, a
235 room hotel, and an adjacent land-based facility with entertainment
facilities and three restaurants.
INDIANA CASINO
We manage and own an 82% interest in a joint venture that owns Caesars
Indiana's "Glory of Rome" Riverboat, which at 450 feet long, 100 feet wide and
four stories high, is the largest cruising riverboat casino in the U.S. with
approximately 90,000 square feet of gaming space. This riverboat, which features
five separate uniquely themed casinos, commenced operations in November of 1998
and is located in Harrison County, Indiana, across the Ohio River from the city
of Louisville, Kentucky. Caesars Indiana is currently constructing a 170,000
square foot pavilion that will house retail space, restaurants, and a 1,500 seat
sports and entertainment coliseum. Caesars Indiana is planning to begin
construction on a 500-room hotel in 2000 and also has plans to build an 18-hole
championship golf course.
The Glory of Rome riverboat casino has been licensed to conduct gaming
operations by the Indiana Gaming Commission pursuant to a license originally
granted to RDI/Caesars Riverboat Casino, L.L.C., which we acquired from
Starwood. We have submitted an application for transfer of the license to the
Indiana Gaming Commission and expect the Indiana Gaming Commission to hold the
required public hearing and to then consider our application for transfer. We
expect the meeting of the Commission to be held in spring 2000 and anticipate
receiving the necessary approvals for the transfer of the riverboat owner's
license and the continued operation of the Glory of Rome by Park Place. In the
event we do not receive the necessary approvals, we would be required to sell
our interest in the joint venture that owns the casino.
There exists an on-going archeological site review being conducted in
connection with further development on the site of the Glory of Rome riverboat,
which may postpone or adversely affect our plans to construct the hotel. We
anticipate this review will be concluded within six months and further
development decisions will be made at that time.
LOUISIANA CASINO
We own a 49.9% interest in the Belle of Orleans, L.L.C. ("Belle") which owns
Bally's Casino Lakeshore Resort, a 30,000 square foot riverboat casino facility
that operates out of South Shore Harbor on Lake Pontchartrian in Orleans Parish,
which is approximately eight miles from the French Quarter of New Orleans. Metro
Riverboat Associates, Inc. owns the other 50.1% of the Belle. We manage this
casino
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under a management agreement with Belle. Results at this property have been
impacted by the opening of a large land based casino located in downtown New
Orleans in October 1999.
INTERNATIONAL CASINOS
AUSTRALIA
We have a 19.9% ownership interest in Jupiters Limited, which owns Conrad
Jupiters Gold Coast and Conrad International Treasury Casino Brisbane, both of
which are located in Queensland, Australia. We also manage both of these
properties. Conrad Jupiters is located on a beach in Broadbeach, Queensland and
is surrounded by lush tropical gardens. This property, which is open 24 hours a
day, features 609 rooms, approximately 70,000 square feet of gaming space, a
convention center and a 1,000 seat showroom. There is also a health center with
a pool, spa, tennis and squash courts and a gym. Conrad Treasury is located in
the central business district of Brisbane, Queensland's capital city. The casino
is approximately 65,000 square feet in total, located on three levels of a
Victoria-era Treasury building. The 136 room hotel is located in the historic
Lands Administration Building, featuring Edwardian Baroque architecture and
historic sandstone walls. The Conrad International Treasury Casino, Brisbane has
the exclusive right to conduct casino gaming in Brisbane until 2005. Both Conrad
Jupiters and Conrad Treasury attract a significant portion of their customers
from the local, as well as the interstate markets, while the individual premium
players travel from various parts of Asia.
URUGUAY
We have a 46.4% ownership interest in Baluma Holdings, SA which owns Conrad
Resort & Casino Punta del Este, located on the beach in Punta del Este, Uruguay.
We also manage this property which features 300 rooms and suites, both slot and
table games, convention and meeting space, restaurants and shops, tennis courts,
pools and a spa. The casino is open all year round and 24 hours a day during the
high season from December through February. A significant percentage of Conrad
Punta del Este's customers travel from Brazil and Argentina, therefore
fluctuations in these countries' economies can affect this property's business.
CANADA
We have a 50% ownership interest in Windsor Casino Limited, which operates
Casino Windsor, a hotel/casino complex owned by the Province of Ontario, Canada.
This property features a 100,000 square foot casino, 389 guest rooms, an 11,000
square foot ballroom and meeting rooms. Casino Windsor is located on the river
in Windsor, Ontario, directly across the river from Detroit, Michigan. Future
results at this property may be impacted by the newly opened casinos in Detroit.
Metropolitan Entertainment Group, of which we have a 95% ownership interest,
operates a casino at the Sheraton Halifax Hotel & Casino in Halifax, Nova
Scotia, and also operates the Sheraton Casino Sydney, which is a stand-alone
casino, in Sydney, Cape Breton, Nova Scotia. Metropolitan Entertainment Group
funded the construction of the Nova Scotia properties and is being repaid, with
interest, out of the operating revenues generated by the properties.
Sheraton Halifax Hotel & Casino currently operates a 20,000 square foot
temporary casino in the lobby of the 350 room hotel. The permanent casino,
which will be approximately 138,000 square feet in total, with 33,000 square
feet of casino space, is currently being constructed a few blocks away from the
hotel and is scheduled to open by summer 2000. The casino facility will also
include a restaurant, food court, lounge and banquet room. Upon closing of the
temporary casino, meeting rooms and a conference center are to be constructed at
the hotel, with the focus of marketing efforts toward the convention guests.
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Sheraton Casino Sydney is attached to a local sports arena and features
approximately 15,000 square feet of gaming space, a restaurant and a lounge. The
customer base at this casino is comprised mostly of locals, with some junket
play from Toronto and Montreal.
SOUTH AFRICA
We have a 25% ownership interest in a joint venture that owns Caesars
Gauteng and a 50% ownership interest in a joint venture that manages Caesars
Guateng in Johannesburg, South Africa. This property commenced operations in
December of 1998 with a 65,000 square foot temporary casino, an 80 room hotel,
four restaurants and 14 meeting and banquet rooms. The permanent casino, which
will also be approximately 65,000 square feet, is scheduled to open in the fall
of 2000, along with an additional 200 room hotel, a theater and a retail
concourse.
OTHER
Park Place operates the Caesars Palace at Sea casinos on two cruise ships,
the Symphony and the Harmony, which are owned by Crystal Cruises, Inc.. The
casinos operate only when the ships are in international waters.
The gaming industry is highly competitive; therefore obsolescence arising
from age and condition of facilities is a factor. Accordingly, we expend, and
intend to continue to expend, substantial funds to maintain our facilities in
first-class condition in order to maintain our presence as among the premier
properties in the market. These continuous maintenance projects include items
such as room and casino refurbishments, continually upgrading to the latest slot
and video gaming machines, and upgrading our information systems.
CREDIT POLICY
We have extended credit on a discretionary basis to qualified patrons,
especially at the Las Vegas Hilton and Caesars Palace, and to a much lesser
extent at our other properties. We maintain strong controls over the extension
of credit and perform extensive credit checks to determine each individual
patron's creditworthiness. Collection of our customer's debts are aggressively
pursued, although the ultimate collectibility of customer receivables is
impacted by many factors including changes in economic conditions in the
patrons' home countries, changes in currency exchange rates and judicial action.
CASH CONTROLS
It is impractical for Park Place's casinos to record the total amount of
wagers placed, although Park Place regularly determines the amount of chips
issued for cash and credit. The amount of gaming activity varies significantly
from time to time primarily due to general economic conditions, popularity of
entertainment in the hotels, and occupancy rates in the hotels and in Park
Place's markets. The amount of revenue from gaming operations varies depending
upon the amount of gaming activity as well as variations in the odds for
different games and chance. Casino activities are conducted by experienced
personnel who are well-trained and supervised. As is the case of any business
that extensively involves the handling of cash, gaming operations at Park
Place's casino hotels are subject to risk of substantial loss as a result of
dishonesty. However, Park Place believes that it has reduced the risk to the
fullest extent practicable without impeding play and within reasonable cost
limitations through supervision of employees and other internal controls.
COMPETITION
To the extent that the casino hotel capacity is expanded by others in a city
where our casino hotels are located, competition will increase. Along with the
extensive growth in the Las Vegas market over the past year, new capacity
additions or new gaming operations in markets in which we operate could
adversely
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impact our future operating results. Our competitors have announced other
projects in Las Vegas which, if completed, will add significant casino space and
hotel rooms to this market. Our business could also be adversely affected if
gaming operations are permitted or established in locations near markets in
which we operate. The business at our Nevada casinos could also be adversely
affected if similar gaming operations were to be permitted under the laws of
other states, particularly in California. The legalization of gaming operations
in any jurisdictions located near Atlantic City, New Jersey, could affect our
properties located there. Although we have not experienced a significant change
in business as a result of the recent increase in supply in the Mississippi Gulf
Coast, future expansion could have an adverse impact on our operations. Our
interest in Windsor Casino has not yet been significantly affected by the
addition of gaming across the river, in Detroit, Michigan.
Gaming related referenda have been voted upon or are being proposed in
several states which, if passed, could materially affect our business. Voters in
California approved Proposition Five, which was proposed by California Indian
tribes in a November 1998 election. This referendum sought to legalize games
which several tribes operated in contravention of California and Federal law,
which could lead to the expansion of gaming operations by California Indian
tribes and could have a material adverse effect on our Nevada operations. A
legal action was filed in California State court challenging the validity of
Proposition Five under the California constitutions. On December 2, 1998, the
California Supreme Court issued its decision on Proposition Five, concluding
that Proposition Five is invalid because it violates a state constitutional ban
on Nevada-style casino gambling. On September 10, 1999, nearly 60 Indian tribes
and California's Governor signed tribal-state agreements that would legalize
casino-style gambling in California. The agreements are contingent on a
constitutional amendment that would give tribes the right to offer a limited
number of slot machines and a range of house-banked card games. On
September 10, 1999, California lawmakers approved the constitutional amendment
along with a separate measure ratifying the tribal-state agreements. On
March 7, 2000, California voters approved this amendment. A number of the Indian
tribes have begun signing gaming compacts with the State of California. If the
compacts are subsequently approved by the Federal government, casino-style
gaming will be legal in California upon those tribal lands. At this time, we
cannot determine the impact this will have on our Nevada casinos.
In Mississippi, in three separate instances, referenda were proposed which,
if approved, would have amended the Mississippi Constitution to ban gaming in
Mississippi and would have required all currently legal gaming entities to cease
operations within two years of the ban. All three of the proposed referenda have
been ruled illegal by Mississippi state trial court judges because, among other
reasons, each of the proposed referenda failed to include required information
regarding the anticipated effect of such a ban on government revenues. The
proponents of the most recent referendum filed a notice of appeal of the trial
court ruling with the Mississippi Supreme Court, requesting expedited action on
the matter. The Mississippi Supreme Court has scheduled a hearing with respect
to the matter for March 2000. Any such referendum must be approved by the
Mississippi Secretary of State and signatures of approximately 98,000 registered
voters must be gathered and certified in order for such a proposal to be
included on a statewide ballot for consideration by the voters. The next
election for which the proponents could attempt to place such a proposal on the
ballot would be in November 2002. It is likely at some point that a revised
initiative will be filed which will adequately address the issues regarding the
effect on government revenues of a prohibition of gaming in Mississippi.
However, while it is too early in the process for us to make any predictions
with respect to whether such a referendum will appear on a ballot or the
likelihood of which a referendum being approved by the voters, it such a
referendum were passed and gaming were prohibited in Mississippi, it would have
a material adverse on us and our Mississippi gaming operations.
ENVIRONMENTAL MATTERS
Park Place, like others in our industry, is subject to various federal,
state, local and, in some cases, foreign laws, ordinances and regulations that
(i) govern activities or operations that may have adverse
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environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous or toxic wastes, or (ii) may
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous or toxic
substances or wastes (together, "Environmental Laws"). We endeavor to maintain
compliance with Environmental Laws, but, from time to time, current or
historical operations at our properties may have resulted or may result in
noncompliance or liability for cleanup pursuant to Environmental Laws. In that
regard, we may incur costs for cleaning up contamination relating to historical
uses of certain of its properties.
ARRANGEMENTS BETWEEN HILTON AND PARK PLACE
In connection with the spin-off of Park Place form Hilton Hotels
Corporation, Hilton and Park Place entered into several agreements governing
their relationship after the spin-off.
TRADEMARK ASSIGNMENT AND LICENSE AGREEMENT
Under the terms of the Assignment and License Agreement (the "Hilton
Trademark Agreement") entered into by and among Hilton, Park Place and Conrad
International Royalty Corporation ("Conrad"), Hilton agreed to license to Park
Place certain trademarks used in the Hilton gaming business, including the
trademarks "Flamingo's," "Bally's" and any other marks obtained by Hilton or its
subsidiaries as a result of the acquisition of Bally by Hilton. Hilton and
Conrad also granted to Park Place a nonexclusive right to use (1) the "Hilton"
mark solely in connection with the operation of the Hilton Casino Hotels in the
United States and in connection with the advertising and promotion of such
hotels worldwide; and (2) the "Conrad" mark solely in connection with the
operation of Conrad gaming properties and in connection with the advertising and
promotion of such properties worldwide.
Park Place's license with respect to the "Hilton" mark is for a term of five
years following December 31, 1998, except with respect to the Atlantic City
Hilton, Las Vegas Hilton and the Reno Hilton, in which case, the term is ten
years from December 31, 1998. Park Place's license with respect to the "Conrad"
mark is for the duration of the respective Conrad License Agreements for the
gaming properties (as defined in the Hilton Trademark Agreement).
During the initial two-year term of the license, Park Place pays no royalty
fees to Hilton. Beginning January 1, 2001, Park Place will pay a license fee of
3% of the "Net Room Revenues" of each hotel that is branded with the "Hilton"
mark; however, with respect to the Las Vegas Hilton, the Reno Hilton and the
Atlantic City Hilton, Park Place will pay a fixed fee of $5 million per year
after the initial two-year term of the license. Park Place pays no royalty fees
to Conrad for use of the "Conrad" mark.
During the initial two-year term, Park Place is required to use the "Hilton"
mark at each of its Hilton Casino Hotels; thereafter, Park Place may terminate
such use upon six months' written notice. However, with respect to the Atlantic
City Hilton, the Las Vegas Hilton and/or the Reno Hilton, Park Place may
terminate the use (1) after five years upon six months written notice or
(2) upon sale of the Atlantic City Hilton, Las Vegas Hilton and/or the Reno
Hilton, and as an additional condition of both (1) and (2) herein, upon the
payment of the present discounted value of the yearly fee due for the remainder
of the ten-year term.
Either party may terminate the Hilton Trademark Agreement prior to the
expiration of its term if any party materially breaches any term of the Hilton
Trademark Agreement and such breach is not cured within 10 days.
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ASSUMPTION AGREEMENT RELATING TO CERTAIN INDEBTEDNESS
Hilton and Park Place entered into a debt assumption agreement, pursuant to
which Park Place assumed and agreed to pay 100% of the amount of each payment
required to be made by Hilton under the terms of the indentures governing
Hilton's $300 million aggregate principal amount of 7.375% Senior Notes due 2002
and $325 million aggregate principal amount of 7% Senior Notes due 2004. In the
event of an increase in the interest rate on these Notes pursuant to their terms
as a result of certain actions taken by Hilton, and certain other limited
circumstances, Hilton is required to reimburse Park Place for any such increase.
Hilton is obligated to make any payment Park Place fails to make and in such
event Park Place shall pay to Hilton the amount of such payment together with
interest, at the rate per annum borne by the applicable notes plus 2% per annum,
to the date of such reimbursement.
ARRANGEMENTS BETWEEN GRAND AND LAKES
On December 31, 1998, Grand Casinos, Inc. completed a tax free spin-off of
its non-Mississippi assets with a distribution to the holders of its common
stock shares of Lakes Gaming, Inc., a new publicly held company. Lakes conducts
the former Grand gaming business located outside the state of Mississippi. Upon
completion of the Grand spin-off to Lakes, Park Place merged with Grand.
Pursuant to the Grand spin-off, Grand and Lakes allocated between them
Grand's assets and liabilities related to the Mississippi business and the
non-Mississippi business. Grand and Lakes also entered into certain other
agreements governing their relationship following consummation of the Grand
spin-off.
INTELLECTUAL PROPERTY LICENSE AGREEMENT
In the Grand spin-off, Grand retained all of its right, title, and interest
in certain trademarks, including the trademarks "Grand Casinos," "Grand
Advantage Players Club," "Grand Casino Kid Quest," "Marketplace Buffet," "Rapid
Change," "Show & Tell Blackjack," and "There's More Than One Reason To Call Us
Grand." Pursuant to the terms of an Intellectual Property License Agreement
entered into between Grand and Lakes, Grand granted Lakes a royalty-free and
non-exclusive right and license to use the intellectual property solely in
connection with Lakes' management of certain facilities for the Mille Lacs Band
of Chippewa Indians (the "Minnesota Tribe") and the Coushatta Tribe of Louisiana
and the Tunica-Biloxi Tribe of Louisiana.
The Minnesota Tribe retains the right to certain of these trademarks
indefinitely. While the Minnesota Tribe's rights to certain trademarks are
perpetual, the rights of the Tunica-Biloxi Tribe of Louisiana and the Coushatta
Tribe of Louisiana will expire upon termination of the "Louisiana Management
Agreements," as defined in such agreement. Upon termination of its management
agreement with the Minnesota Tribe, Lakes may sublicense the Intellectual
Property to the Minnesota Tribe for use solely in connection with the operation
of the Minnesota Tribe's Facilities. For so long as the applicable License
remains in effect, Grand will not itself (nor will authorize any other person or
entity to) use the Intellectual Property in connection with the operation of any
hotel, restaurant, retail, gaming, or other facility of a similar type or nature
within a twenty mile radius of a facility owned by the Minnesota Tribe.
REGULATION AND LICENSING
Each of our casinos is subject to extensive regulation under laws, rules and
supervisory procedures primarily in the jurisdiction where located or docked.
Some jurisdictions, however, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and require
access to and periodic reports respecting the gaming activities. Violations of
laws in one jurisdiction could result in disciplinary action in other
jurisdictions.
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Under provisions of gaming laws in which we have operations and under our
Amended and Restated Certificate of Incorporation, certain of our securities are
subject to restrictions on ownership which may be imposed by specified
governmental authorities. The restrictions may require a holder of our
securities to dispose of the securities or, if the holder refuses to dispose of
the securities, we may be obligated to repurchase the securities.
Each holder of a note, by accepting any note, will be deemed to have agreed
to be bound by the requirements imposed on holders of our debt securities by the
gaming authority of any jurisdiction in which we or any of our subsidiaries
conducts or proposes to conduct gaming activity. See "Description of
Notes--Mandatory Disposition Pursuant to Gaming Laws." In addition, the
indenture governing the notes provides that each holder and beneficial owner
thereof, by accepting or otherwise acquiring an interest in any of the notes,
will be deemed to have agreed that if the gaming authority of any jurisdiction
in which we or any of our subsidiaries conducts or proposes to conduct gaming
requires that a person who is a holder or beneficial owner must be licensed,
qualified or found suitable under applicable gaming laws, the holder or
beneficial owner will apply for a license, qualification or finding of
suitability within the required time period. If the person fails to apply or
become licensed or qualified or is found unsuitable, we will have the right, at
our option:
(1) to require the person to dispose of its notes or beneficial interest
therein within 30 days of receipt of notice of our election or an earlier
date as may be requested or prescribed by the Gaming Authority; or
(2) to redeem the notes at a redemption price equal to the lesser of:
(A) the person's cost; or
(B) 100% of the principal amount, plus accrued and unpaid interest to the
earlier of the redemption date and the date of the finding of
unsuitability, which may be less than 30 days following the notice of
redemption if so requested or prescribed by the Gaming Authority.
We will notify the trustee under the indenture in writing of any such redemption
as soon as practicable. We will not be responsible for any costs or expenses any
such holder or beneficial owner may incur in connection with its application for
a license, qualification or finding of suitability.
NEVADA GAMING LAWS
The ownership and operation of casino gaming facilities in the State of
Nevada, such as those at the Las Vegas Hilton, the Flamingo Hilton Las Vegas,
Bally's Las Vegas, Paris Las Vegas, the Flamingo Hilton Laughlin, the Reno
Hilton, the Flamingo Hilton Reno, Caesars Palace and Caesars Tahoe are subject
to the Nevada Gaming Control Act and the regulations promulgated thereunder and
various local regulations. Our Nevada gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission, the Nevada
State Gaming Control Board and, depending on the facility's location, the Clark
County Liquor and Gaming Licensing Board and the City of Reno, which we refer to
collectively as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment and maintenance of effective
controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding
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of assets and revenues, providing reliable record keeping and requiring
the filing of periodic reports with the Nevada Gaming Authorities;
- the prevention of cheating and fraudulent practices; and
- providing a source of state and local revenues through taxation and
licensing fees.
Changes in such laws, regulations and procedures could have an adverse
effect on our gaming operations.
Each of our subsidiaries that currently operates a casino in Nevada is
required to be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not transferable. We are
required to be registered by the Nevada Gaming Commission as a publicly traded
corporation and as such, are required periodically to submit detailed financial
and operating reports to the Nevada Gaming Commission and furnish any other
information that the Nevada Gaming Commission may require. No person may become
a stockholder of, or receive any percentage of profits from, a licensed casino
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. We and our licensed subsidiaries have obtained from the Nevada
Gaming Authorities the various registrations, findings of suitability,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us or any of our
licensed subsidiaries in order to determine whether the individual is suitable
or should be licensed as a business associate of a gaming licensee. Our and the
licensed subsidiaries' officers, directors and key employees must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. An applicant for licensing or an applicant for a finding
of suitability must pay for all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove
a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us or any licensed subsidiary, we and the licensed subsidiary
would have to sever all relationships with that person. In addition, the Nevada
Gaming Commission may require us or a licensed subsidiary to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
We and all licensed subsidiaries are required to submit detailed financial
and operating reports to the Nevada Gaming Commission. Substantially all of our
or a licensed subsidiaries' material loans, leases, sales of securities and
similar financing transactions must be reported to, or approved by, the Nevada
Gaming Commission.
If the Nevada Gaming Commission determined that we or a licensed subsidiary
violated the Nevada Gaming Control Act, it could limit, condition, suspend or
revoke our gaming licenses. In addition, we, the licensed subsidiary, and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Gaming Control Act at the discretion of the Nevada
Gaming Commission. Further, a supervisor could be appointed by the Nevada Gaming
Commission to operate a licensed subsidiary's gaming establishment and, under
specified circumstances, earnings generated during the supervisor's appointment,
except for the reasonable rental value of the premises, could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license of a licensed subsidiary and the appointment of a supervisor could, or
revocation of any gaming license would, have a material adverse effect on our
gaming operations.
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Any beneficial holder of our common stock, or any of our other voting
securities, regardless of the number of shares owned, may be required to file an
application, be investigated, and have that person's suitability as a beneficial
holder of our voting securities determined if the Nevada Gaming Commission has
reason to believe that the ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
the investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Gaming Control Act requires any person who acquires a beneficial
ownership of more than 5% of our voting securities to report the acquisition to
the Nevada Gaming Commission. The Nevada Gaming Control Act requires that
beneficial owners of more than 10% of our voting securities apply to the Nevada
Gaming Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Gaming Control Board mails the written notice requiring
such filing. An "institutional investor," as defined in the Nevada Act, which
acquires beneficial ownership of more than 10%, but not more than 15%, of our
voting securities may apply to the Nevada Gaming Commission for a waiver of a
finding of suitability if the institutional investor holds our voting securities
for investment purposes only. An institutional investor will be deemed to hold
our voting securities for investment purposes if it acquired and holds our
voting securities in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly:
- the election of a majority of the members of the our board of directors;
- any change in our corporate charter, bylaws, management, policies or
operations, or any of its gaming affiliates; or
- any other action which the Nevada Gaming Commission finds to be
inconsistent with holding our voting securities for investment purposes
only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by stockholders;
- making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and
- other activities as that the Nevada Gaming Commission may determine to be
consistent with investment intent. If the beneficial holder of our voting
securities who must be found suitable is a corporation, partnership,
limited partnership, limited liability company or trust, it must submit
detailed business and financial information including a list of beneficial
owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Gaming
Commission or by the Chairman of the Nevada Gaming Control Board may be found
unsuitable. The same restrictions apply to a record owner if the record owner,
after request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
our voting securities beyond such period of time as may be prescribed by the
Nevada Gaming Commission may be guilty of a criminal offense. We will be subject
to disciplinary action if, after we receive notice that a person is unsuitable
to be a stockholder or to have any other relationship with us or a licensed
subsidiary, we:
- pay that person any dividend or interest upon any of our voting
securities;
- allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pay remuneration in any form to that person for services rendered or
otherwise; or
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- fail to pursue all lawful efforts to require such unsuitable person to
relinquish the voting securities including, if necessary, the immediate
purchase of such voting securities for cash at fair market value.
Additionally, the Clark County Liquor and Gaming Licensing Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Gaming Commission may, in its discretion, require the holder of
any debt security of a registered publicly traded corporation, to file
applications, be investigated and be found suitable to own the debt security of
the registered corporation. If the Nevada Gaming Commission determines that a
person is unsuitable to own the security, then pursuant to the Nevada Gaming
Control Act, the registered publicly traded corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Gaming Commission, it:
- pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
- recognizes any voting right by such unsuitable person in connection with
such securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
We are required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make the disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner of any of our voting securities. The Nevada
Gaming Commission has the power to require our stock certificates to bear a
legend indicating that the securities are subject to the Nevada Gaming Control
Act. To date, the Nevada Gaming Commission has not imposed that requirement on
us.
We may not make a public offering of our securities without the prior
approval of the Nevada Gaming Commission if we intend to use the securities or
the proceeds therefrom to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for those purposes. On
December 17, 1998, the Nevada Gaming Commission granted us prior approval to
make public offerings for a period of two years, subject to specified
conditions, which we refer to as the "shelf approval." The shelf approval also
applies to any company we wholly own that is a publicly traded corporation or
would become a publicly traded corporation pursuant to a public offering. The
shelf approval also includes approval for the licensed subsidiaries to guarantee
any security issued by, and to hypothecate their assets to secure the payment or
performance of any obligations issued by, us or an affiliate in a public
offering under the shelf registration. The shelf approval also includes approval
to place restrictions upon the transfer of and enter into agreements not to
encumber the equity securities of the licensed subsidiaries. The shelf approval,
however, may be rescinded for good cause without prior notice upon the issuance
of an interlocutory stop order by the Chairman of the Nevada Gaming Control
Board. The shelf approval does not constitute a finding, recommendation or
approval of the Nevada Gaming Authorities as to the accuracy or adequacy of the
offering memorandum or the investment merits of the securities offered by the
offering memorandum. Any representation to the contrary is unlawful.
We must obtain prior approval of the Nevada Gaming Commission with respect
to a change in control through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby the person obtains control of us. Entities seeking to acquire
control of a registered publicly-traded corporation must satisfy the Nevada
Gaming Control Board and Nevada Gaming Commission in a variety of stringent
standards before assuming control of the registered
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corporation. The Nevada Gaming Commission may also require controlling
stockholders, officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and registered publicly-traded corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Gaming Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of these
business practices upon Nevada's gaming industry and to further Nevada's policy
to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals may be required from the Nevada Gaming Commission before we can
make exceptional repurchases of voting securities above their current market
price and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by our board of directors in response to a tender
offer made directly to its stockholders for the purpose of acquiring control of
us.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the licensed subsidiaries respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada corporate licensees that hold
a license as an operator of a slot machine route, or a manufacturer's or
distributor's license, also pay fees and taxes to the State of Nevada. The
licensed subsidiaries currently pay monthly fees to the Nevada Gaming Commission
equal to a maximum of 6.25% of gross revenues.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Gaming Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Gaming Control Board of the licensee's
participation in such foreign gaming. The revolving fund is subject to increase
or decrease in the discretion of the Nevada Gaming Commission. Thereafter,
licensees are required to comply with the reporting requirements imposed by the
Nevada Gaming Control Act. A licensee is also subject to disciplinary action by
the Nevada Gaming Commission if it:
- knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engages in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
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- employs, contracts with or associates with a person in the foreign
operation who has been denied a license or finding of suitability in
Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at establishments operated by a licensed
subsidiary is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
such license, and any such disciplinary action could, and revocation would, have
a material adverse effect upon the operations of the licensed subsidiary.
NEW JERSEY GAMING LAWS
The ownership and operation of casino gaming facilities in Atlantic City are
subject to the New Jersey Casino Control Act, regulations of the New Jersey
Casino Control Commission and other applicable laws. No casino may operate
unless it obtains the required permits or licenses and approvals from the New
Jersey Commission. The New Jersey Commission is authorized under the New Jersey
Act to adopt regulations covering a broad spectrum of gaming and gaming related
activities and to prescribe the methods and forms of applications from all
classes of licensees. These laws and regulations concern primarily:
- the financial stability, integrity, responsibility, good character,
honesty and business ability of casino service suppliers and casino
operators, their directors, officers and employees, their security holders
and others financially interested in casino operations;
- the nature of casino hotel facilities; and
- the operating methods and financial and accounting practices used in
connection with the casino operations.
The State of New Jersey imposes taxes on gaming operations at the rate of 8%
of gross gaming revenues. In addition, the New Jersey Act provides for an
investment alternative tax of 2.5% of gross gaming revenues. This investment
alternative tax may be offset by investment tax credits equal to 1.25% of gross
gaming revenues, which are obtained by purchasing bonds issued by, or investing
in housing or other development projects approved by, the Casino Reinvestment
Development Authority.
The New Jersey Commission has broad discretion with regard to the issuance,
renewal and revocation or suspension of casino licenses. A casino license is not
transferable, is issued for a term of up to one year for the first two renewals
and thereafter for a term of up to four years, subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time. A
casino license must be renewed by filing an application which must be acted on
by the New Jersey Commission before the license in force expires. At any time,
upon a finding of disqualification or noncompliance, the New Jersey Commission
may revoke or suspend a license or impose fines or other penalties.
The New Jersey Act imposes certain restrictions on the ownership and
transfer of securities issued by a corporation that holds a casino license or is
deemed a holding company, intermediary company, subsidiary or entity qualifier
of a casino licensee. "Security" is defined by the New Jersey Act to include
instruments that evidence either a beneficial ownership in an entity, such as
common stock or preferred stock, or a creditor interest in an entity, such as a
bond, note or mortgage. The New Jersey Act requires that the corporate charter
of a publicly-traded affiliate of a casino licensee must require that a holder
of the company's securities who is disqualified by the New Jersey Commission
dispose of the securities. The corporate charter of a casino licensee or any
privately-held affiliate of the licensee must:
- establish the right of prior approval by the New Jersey Commission with
regard to a transfer of any security in the company; and
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- create the absolute right of the company to repurchase at the market price
or purchase price, whichever is less, any security in the company if the
New Jersey Commission disapproves a transfer of the security under the New
Jersey Act.
The New Jersey Commission has approved our corporate charter. The corporate
charters of our subsidiaries that operate Bally's Park Place, the Atlantic City
Hilton, and Caesars Atlantic City and their privately-held affiliates likewise
conform to the New Jersey Act's requirements described above for privately-held
companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of the corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action, including divestiture of the securities held. If disqualified
persons fail to divest themselves of the securities, the New Jersey Commission
may revoke or suspend the license. However, if an affiliate of a casino licensee
is a publicly-traded company, and the New Jersey Commission makes a finding of
disqualification with respect to any owner or holder of any security thereof,
and the New Jersey Commission also finds that:
- the company has adopted the charter provisions;
- the company has made a good faith effort, including the prosecution of all
legal remedies, to comply with any order of the New Jersey Commission
requiring the divestiture of the security interest held by the
disqualified owner or holder; and
- the disqualified owner or holder does not have the ability to control the
corporate licensee or the affiliate, or to elect one or more members of
the board of directors of the affiliate, the New Jersey Commission will
not take action against the casino licensee or its affiliate with respect
to the continued ownership of the security interest by the disqualified
owner or holder.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly-traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if the holder
owns or beneficially holds 5% or more of any class of the equity securities of
the corporation, unless the security holder rebuts the presumption of control or
ability to elect by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly-traded holding or intermediary company of a casino licensee and:
- the holdings were purchased for investment purposes only;
- there is no cause to believe the institutional investor may be found
unqualified; and
- upon request by the New Jersey Commission, the institutional investor
files a certified statement to the effect that it has no intention of
influencing or affecting the affairs of the issuer, the casino licensee or
its other affiliates. The New Jersey Commission may grant a waiver of
qualification to an institutional investor holding 10% or more of the
securities upon a showing of good cause and if the conditions specified
above are met.
With respect to debt securities, the New Jersey Commission generally
requires a person holding 15% or more of a debt issue of a publicly-traded
affiliate of a casino licensee to qualify under the New Jersey Act. We cannot
assure you that the New Jersey Commission will continue to apply the 15%
threshold, and the New Jersey Commission could at any time establish a lower
threshold for qualification. The New Jersey Commission may make an exception to
the qualification requirement for institutional investors, in which case the
institutional holder is entitled to a waiver of qualification if the holder's
position in the aggregate is less than 20% of the total outstanding debt of the
affiliate and less than 50% of any outstanding publicly-traded issue of the
debt, and if the institutional investor meets the conditions specified in the
above paragraph. As with equity securities, the New Jersey Commission may grant
a waiver of qualification to
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institutional investors holding larger positions upon a showing of good cause
and if the institutional investor meets all of the conditions specified in the
above paragraph.
Generally, the New Jersey Commission would require each institutional holder
seeking a waiver of qualification to execute a certificate stating that:
- the holder has reviewed the definition of institutional investor under the
New Jersey Act and believes that it meets the definition of institutional
investor;
- the holder purchased the securities for investment purposes only and holds
them in the ordinary course of business;
- the holder has no involvement in the business activities of, and no
intention of influencing or affecting the affairs of, the issuer, the
casino licensee or any affiliate; and
- if the holder subsequently determines to influence or affect the affairs
of the issuer, the casino licensee or any affiliate, it will provide not
less than 30 days' notice of its intent and will file with the New Jersey
Commission an application for qualification before taking the action.
Beginning on the date the New Jersey Commission serves notice on a corporate
licensee or an affiliate of the corporate licensee that a security holder of the
corporation has been disqualified, it will be unlawful for the security holder
to:
- receive any dividends or interest upon the securities;
- exercise, directly or through any trustee or nominee, any right conferred
by the securities; or
- receive any remuneration in any form from the corporate licensee for
services rendered or otherwise.
Persons who are required to qualify under the New Jersey Act because they
hold debt or equity securities, and are not already qualified, are required to
place the securities into an interim casino authorization trust pending
qualification. Unless and until the New Jersey Commission has reason to believe
that the investor may not qualify, the investor will retain the ability to
direct the trustee how to vote, or whether to dispose of, the securities. If at
any time the New Jersey Commission finds reasonable cause to believe that the
investor may be found unqualified, it can order the trust to become "operative,"
in which case the investor will lose voting power, if any, over the securities
but will retain the right to petition the New Jersey Commission to order the
trustee to dispose of the securities.
Once an interim casino authorization trust is created and funded, and
regardless of whether it becomes operative, the investor has no right to receive
a return on the investment until the investor becomes qualified. Should an
investor ultimately be found unqualified, the trustee would dispose of the trust
property, and the proceeds would be distributed to the unqualified applicant
only in an amount not exceeding the actual cost of the trust property. Any
excess proceeds would be paid to the State of New Jersey. If the securities were
sold by the trustee pending qualification, the investor would receive only
actual cost, with disposition of the remainder of the proceeds, if any, to await
the investor's qualification hearing.
If the New Jersey Commission determines that a licensee has violated the New
Jersey Act or its regulations, then under certain circumstances, the licensee
could be subject to fines or have its license suspended or revoked. In addition,
if a person who is required to qualify under the New Jersey Act fails to
qualify, including a security holder who fails to qualify and does not dispose
of securities as may be required by the New Jersey Act, with the exception
discussed above for publicly-traded affiliates, the licensee could have its
license suspended or revoked.
If a casino license is not renewed, is suspended for more than 120 days or
is revoked, the New Jersey Commission can appoint a conservator. The conservator
would be charged with the duty of conserving and
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preserving the assets so acquired and continuing the operation of the casino
hotel of a suspended licensee or with operating and disposing of the casino
hotel of a former licensee. The suspended licensee or former licensee would be
entitled only to a fair return on its investment, to be determined under New
Jersey law, with any excess to go to the State of New Jersey, if so directed by
the New Jersey Commission. Suspension or revocation of any licenses or the
appointment of a conservator by the New Jersey Commission would have a material
adverse effect on the businesses of our Atlantic City casino hotels.
MISSISSIPPI GAMING LAWS
The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission and the Mississippi
State Tax Commission.
The Mississippi Gaming Control Act, which legalized dockside casino gaming
in Mississippi, was enacted on June 29, 1990. Although not identical, the
Mississippi Act is similar to the Nevada Gaming Control Act. The Mississippi
Gaming Commission has adopted regulations which are also similar in many
respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- establish and maintain responsible accounting practices and procedures;
- maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission;
- prevent cheating and fraudulent practices;
- provide a source of state and local revenues through taxation and
licensing fees; and
- ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. We believe that our compliance with the licensing
procedures and regulatory requirements of the Mississippi Gaming Commission will
not affect the marketability of our securities. Changes in Mississippi law or
regulations may limit or otherwise materially affect the types of gaming that
may be conducted and could have an adverse effect on us and our Mississippi
gaming operations.
The Mississippi Act provides for legalized dockside gaming at the discretion
of the 14 counties that either border the Gulf Coast or the Mississippi River,
but only if the voters in such counties have not voted to prohibit gaming in
that county. As of January 1, 2000, dockside gaming was permissible in nine of
the 14 eligible counties in the state and gaming operations had commenced in
Adams, Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. Under
Mississippi law, gaming vessels must be located on the Mississippi River or on
navigable waters in eligible counties along the Mississippi River, or in the
waters of the State of Mississippi lying south of the state in eligible counties
along the Mississippi Gulf Coast. The law permits unlimited stakes gaming on
permanently moored vessels on a 24-hour basis and does not restrict the
percentage of space which may be utilized for gaming. There are no limitations
on the number of gaming licenses which may be issued in Mississippi.
We and each of our Mississippi licensee affiliates are subject to the
licensing and regulatory control of the Mississippi Gaming Commission. We are
registered under the Mississippi Act as a publicly-traded holding company of our
Mississippi licensee affiliates and will be required periodically to submit
detailed financial and operating reports to the Mississippi Gaming Commission
and furnish any other information
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which the Mississippi Gaming Commission may require. If we are unable to satisfy
the registration requirements of the Mississippi Act, we and our affiliates
cannot own or operate gaming facilities in Mississippi. Each of our Mississippi
licensee affiliates must maintain a gaming license from the Mississippi Gaming
Commission to operate a casino in Mississippi. The Mississippi Gaming Commission
issues the licenses.
Gaming licenses are not transferable, are issued for a three-year period
(and may be continued for two additional three year periods) and must be renewed
periodically thereafter. No person may become a stockholder of or receive any
percentage of profits from a licensed subsidiary of a holding company without
first obtaining licenses and approvals from the Mississippi Gaming Commission.
Certain of our officers and employees and the officers, directors and key
employees of our licensed Mississippi subsidiaries must be found suitable or be
licensed by the Mississippi Gaming Commission. We believe we have applied for
all necessary findings of suitability with respect to these persons, although
the Mississippi Gaming Commission, in its discretion, may require additional
persons to file applications for findings of suitability. In addition, any
person having a material relationship or involvement with us may be required to
be found suitable, in which case those persons must pay the costs and fees
associated with the investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi Gaming
Commission. In addition to its authority to deny an application for a finding of
suitability, the Mississippi Gaming Commission has jurisdiction to disapprove a
change in a licensed position. The Mississippi Gaming Commission has the power
to require us and our registered or licensed subsidiaries to suspend or dismiss
officers, directors and other key employees or sever relationships with other
persons who refuse to file appropriate applications or whom the authorities find
unsuitable to act in their capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension. The Mississippi Gaming Commission will refuse to issue
a work permit to a person convicted of a felony and it may refuse to issue a
work permit to a gaming employee if the employee has committed various
misdemeanors or knowingly violated the Mississippi Act or for any other
reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require a finding of suitability of any of our record or beneficial
stockholders. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly-traded corporation registered with the
Mississippi Gaming Commission to report the acquisition to the Mississippi
Gaming Commission, and that person may be required to be found suitable. Also,
any person who becomes a beneficial owner of more than 10% of the common stock
of such a company, as reported to the Commission, must apply for a finding of
suitability by the Mississippi Gaming Commission and must pay the costs and fees
that the Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered public company's common stock. However, the Mississippi Gaming
Commission has adopted a policy that may permit institutional investors to own
beneficially up to 10% of a registered public company's common stock without a
finding of suitability. If a stockholder who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of our securities beyond the
time that the Mississippi Gaming Commission prescribes, may be guilty of a
misdemeanor. We are subject to disciplinary action if, after receiving notice
that a person is unsuitable to be a stockholder or to have any other
relationship with us or our licensed subsidiaries, we:
- pay the unsuitable person any dividend or other distribution upon our
voting securities;
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- recognize the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
- pay the unsuitable person any remuneration in any form for services
rendered or otherwise, except in limited and specific circumstances; or
- fail to pursue all lawful efforts to require the unsuitable person to
divest himself of the securities, including, if necessary, the immediate
purchase of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Gaming Commission upon
request the identities of the holders of any debt or other securities. In
addition, under the Mississippi Act the Mississippi Gaming Commission may, in
its discretion:
- require holders of debt securities of registered corporations to file
applications;
- investigate the holders; and
- require the holders to be found suitable to own the debt securities.
Although the Mississippi Gaming Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Gaming Commission retains the discretion to do so for
any reason, including but not limited to a default, or where the holder of the
debt instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt or equity securities required to apply
for a finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with the investigation.
Each of our Mississippi licensed subsidiaries must maintain in Mississippi a
current ledger with respect to the ownership of its equity securities and we
must maintain in Mississippi a current list of our stockholders which must
reflect the record ownership of each outstanding share of any equity security
issued by us. The ledger and stockholder lists must be available for inspection
by the Mississippi Gaming Commission at any time. If any of our securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Mississippi Gaming
Commission. A failure to make that disclosure may be grounds for finding the
record holder unsuitable. We must also render maximum assistance in determining
the identity of the beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a registered publicly-traded corporation bear a legend to the general effect
that the securities are subject to the Mississippi Act and the regulations of
the Mississippi Gaming Commission. The Mississippi Gaming Commission has granted
us an exemption from this legend requirement. The Mississippi Gaming Commission
has the power to impose additional restrictions on the holders of our securities
at any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Gaming Commission. A licensed gaming subsidiary may not make a
public offering of its securities, but may pledge or mortgage casino facilities
if it obtains the prior approval of the Mississippi Gaming Commission. We may
not make a public offering of our securities without the prior approval of the
Mississippi Gaming Commission if any part of
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the proceeds of the offering is to be used to finance the construction,
acquisition or operation of gaming facilities in Mississippi or to retire or
extend obligations incurred for those purposes. The approval, if given, does not
constitute a recommendation or approval of the investment merits of the
securities subject to the offering. We received a waiver of the prior approval
requirement for our securities offerings, subject to certain conditions.
Under the regulations of the Mississippi Gaming Commission, none of our
gaming licensees may guarantee a security issued by us pursuant to a public
offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by us, without the prior approval
of the Mississippi Gaming Commission. Similarly, we may not pledge the stock or
other ownership interests of any of our gaming licensees, nor may the pledgee of
such ownership interests foreclose on such a pledge, without the prior approval
of the Mississippi Gaming Commission. Moreover, restrictions on the transfer of
an equity security issued by our Mississippi licensees and agreements not to
encumber such securities are ineffective without the prior approval of the
Mississippi Gaming Commission. We have received approvals from the Mississippi
Gaming Commission for such guarantees, pledges and restrictions, subject to
certain conditions.
We cannot change our control through merger, consolidation, acquisition of
assets, management or consulting agreements or any form of takeover without the
prior approval of the Mississippi Gaming Commission. The Mississippi Gaming
Commission may also require controlling stockholders, officers, directors, and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly-traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
We may be required to obtain approval from the Mississippi Gaming Commission
before we may make exceptional repurchases of voting securities in excess of the
current market price of our common stock (commonly called "greenmail") or before
we may consummate a corporate acquisition opposed by management. Mississippi's
gaming regulations will also require prior approval by the Mississippi Gaming
Commission if we adopt a plan of recapitalization proposed by our board of
directors opposing a tender offer made directly to the stockholders for the
purpose of acquiring control of us.
Neither we nor any subsidiary may engage in gaming activities in Mississippi
while also conducting gaming operations outside of Mississippi without approval
of the Mississippi Gaming Commission. The Mississippi Gaming Commission may
require determinations that there are means for the Mississippi Gaming
Commission to have access to information concerning our and our affiliates
out-of-state gaming operations. We received a waiver of foreign gaming approval
from the Mississippi Gaming Commission for our operations in other
jurisdictions, but may be required to obtain the approval or a waiver of such
approval from the Mississippi Gaming Commission before engaging in any
additional future gaming operations outside of Mississippi.
If the Mississippi Gaming Commission decides that a licensed gaming
subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
subsidiary. In addition, we, the licensed subsidiary and the persons involved
could be subject
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to substantial fines for each separate violation. Because of a violation, the
Mississippi Gaming Commission could attempt to appoint a supervisor to operate
the casino facilities. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could, and revocation of any gaming
license would, materially adversely affect our Mississippi gaming operations.
A licensed gaming subsidiary must pay license fees and taxes, computed in
various ways depending on the type of gaming involved, to the State of
Mississippi and to the county or city in which the licensed gaming subsidiary
conducts operations. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are based
upon:
- a percentage of the gross gaming revenues received by the casino
operation;
- the number of slot machines operated by the casino; or
- the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon "gaming
receipts," generally defined as gross receipts less payouts to customers as
winnings, and equals:
- 4% of gaming receipts of $50,000 or less per month;
- 6% of gaming receipts over $50,000 and less than $134,000 per month; and
- 8% of gaming receipts over $134,000.
These license fees are allowed as a credit against our Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
Mississippi cities and counties in which our casino operations are located,
equals approximately 4% of the gaming receipts.
The Mississippi Gaming Commission has adopted a regulation requiring as a
condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
We believe we are in compliance with this requirement. Recently, the Mississippi
Gaming Commission adopted a regulation which increased the infrastructure
requirement to 100% from the existing 25%; however, the regulation grandfathers
existing licensees and applies only to new casino projects and casinos that are
not operating at the time of acquisition or purchase.
Both the local jurisdiction and the Alcoholic Beverage Control Division of
the Mississippi State Tax Commission license, control and regulate the sale of
alcoholic beverages by our subsidiaries. All of our Mississippi casinos are in
areas designated as special resort areas, which allows the casinos to serve
alcoholic beverages on a 24-hour basis. The Alcohol Beverage Control Division
has the full power to limit, condition, suspend or revoke any license for the
serving of alcoholic beverages or to place a licensee on probation with or
without conditions. Any disciplinary action could, and revocation would, have a
material adverse effect upon the casino's operations. Our and our Mississippi
casinos' key officers and managers must be investigated by the Alcohol Beverage
Control Division in connection with its liquor permits and changes in key
positions must be approved by the Alcohol Beverage Control Division.
LOUISIANA GAMING LAWS
The ownership and operation of a riverboat gaming vessel in the State of
Louisiana is subject to the Louisiana Riverboat Economic Development and Gaming
Control Act. The Louisiana Gaming Control Board regulates gaming activities. The
Louisiana Board is responsible for investigating the background of all
applicants seeking a riverboat gaming license, issuing the license and enforcing
the laws, rules and regulations relating to riverboat gaming activities.
The Louisiana Board must find suitable the applicant, its officers,
directors, key personnel, partners and persons holding a 5% or greater interest
in the holder of a gaming license. The Louisiana Board may,
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in its discretion, also review the suitability of other security holders of, or
persons affiliated with, a licensee. This finding of suitability requires the
filing of an extensive application to the Louisiana Board disclosing personal,
financial, criminal, business and other information. Our Louisiana affiliate,
Bally's Louisiana, Inc., has filed the required forms with the Louisiana
regulatory authorities with respect to a finding of suitability.
On March 24, 1994, the Louisiana Board's predecessor issued a riverboat
gaming license to Belle of Orleans, L.L.C., a limited liability company in which
we have a 49.9% interest. Belle of Orleans, L.L.C. commenced riverboat gaming
operations in New Orleans on July 9, 1995. We are engaged in litigation with our
50.1% partner in the Belle of Orleans, L.L.C. See "Business and Properties of
Park Place--Legal Proceedings" and Note 17 to our audited financial statements
for a description of this litigation.
The Louisiana Act prohibits the transfer of a Louisiana gaming license. The
Louisiana Board must approve the sale, assignment, transfer, pledge or
disposition of securities which represent 5% or more of the total outstanding
shares issued by a holder of a license and the Louisiana Board must find the
transferee suitable. In addition, the Louisiana Board must approve certain
contracts and leases entered into by a licensee and enterprises which transact
business with the licensee must be licensed.
If a security holder of a licensee is found unsuitable, it will be unlawful
for the security holder to:
- receive any dividend or interest with regard to the securities;
- exercise, directly or indirectly, any rights conferred by the securities;
or
- receive any remuneration from the licensee for services rendered or
otherwise.
The Louisiana Board may impose similar approval requirements on holders of
securities of any intermediary or holding company of the licensee. The State of
Louisiana taxes gaming operations at the rate of 18.5% of net gaming proceeds.
On April 19, 1996, the Louisiana legislature approved legislation mandating
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming. On November 5,
1996, Louisiana voters determined whether each of the following types of gaming
would be prohibited or permitted in the following described Louisiana parishes:
- the operation of video draw poker devices in each parish;
- the conduct of riverboat gaming in each parish that is contiguous to a
statutorily designated river or waterway; or
- the conduct of land-based casino gaming operations in Orleans Parish.
In Orleans Parish, where our riverboat casino currently operates, a majority
of the voters elected to continue to permit the three types of gaming described
above. The current legislation does not provide for any moratorium on future
local elections on gaming. Further, the current legislation does not provide for
any moratorium that must expire before future local elections on gaming could be
mandated or allowed. In addition, a change of berth by a licensee would require
voter approval in the parish in which the new berth is located.
DELAWARE GAMING LAWS
Video lottery operations in the State of Delaware are regulated by the
Delaware State Lottery Office through the powers delegated to the Director of
the lottery pursuant to Title 29 of the Delaware code. Under Delaware's video
lottery program, video lottery machines are permitted at Delaware's licensed
horse racing tracks.
Any person seeking to contract with the Delaware State Lottery Office for
the provision of goods or services related to video lottery operations,
including management services such as those we provide with
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respect to video lottery operation at the Dover Downs race track in Delaware,
must be licensed by the Delaware State Lottery Office as a "technology
provider." It is the ongoing duty of each technology provider licensee to notify
the Director of the lottery of any change in officers, partners, directors, key
employees, video lottery operations employees or owners, collectively the "key
individuals." An owner is a person who owns, directly or indirectly, ten percent
or more of an applicant or licensee. Key individuals are subject to a background
investigation, and the failure of a key individual to satisfy a background
investigation may constitute "cause" for the suspension or revocation of the
technology provider's license.
INDIANA GAMING LAWS
Our Indiana casino riverboat operations are subject to the Indiana Riverboat
Gambling Act and the licensing and regulatory control of the Indiana Gaming
Commission, as well as various local, county and state regulatory agencies.
The Indiana Riverboat Act authorizes the issuance of up to 11 riverboat
gaming licenses on waterways located in Indiana. The Indiana Riverboat Act
strictly regulates the facilities, persons, associations and practices related
to gaming operations pursuant to the police powers of the State of Indiana,
including comprehensive law enforcement provisions. The Indiana Riverboat Act
vests the Indiana Gaming Commission with the power and duties of administering,
regulating and enforcing the system of riverboat gaming in the State of Indiana.
The Indiana Gaming Commission's jurisdiction extends to every person,
association, corporation, partnership and trust involved in riverboat gaming
operations in the State of Indiana.
The Indiana Riverboat Act requires the owner of a riverboat gaming operation
to hold an owner's license issued by the Indiana Gaming Commission. Each license
granted entitles the licensee to own and operate one riverboat and gaming
equipment as part of the gaming operation. A licensee may own no more than a 10%
interest in any other owner's license.
The Indiana Riverboat Act restricts the granting of the 11 owner's licenses
by location, with five to be awarded for riverboats operating in specific cities
on Lake Michigan, five to be awarded for riverboats operating on the Ohio River,
and one to be awarded for a riverboat operating on Patoka Lake. The Indiana
Gaming Commission has not considered applicants for the eleventh license since
the Patoka Lake site has been determined by the U.S. Army Corps of Engineers to
be unsuitable for a casino vessel project.
Each owner's license runs for a period of five years. Thereafter, the
license is subject to renewal on an annual basis upon a determination by the
Indiana Gaming Commission that the licensee continues to be eligible for an
owner's license pursuant to the Indiana Riverboat Act and the rules and
regulations adopted thereunder. All riverboat licensees have a continuing duty
to maintain suitability for licensure and are required to notify the Indiana
Gaming Commission of any material change in the information submitted in its
application or any other matter which would render the licensee ineligible. An
owner's license does not create a property right but is a revocable privilege
contingent upon continuing suitability for licensure. A licensed owner undergoes
a complete investigation every three years.
The Indiana Gaming Commission may revoke, restrict or suspend an owner's
license at any time that the Indiana Gaming Commission determines the licensee
is in violation of the Indiana Riverboat Act or the rules and regulations of the
Indiana Gaming Commission or if the Indiana Gaming Commission determines
revocation of the license is in the best interest of the State of Indiana and
will protect and enhance the credibility and integrity of riverboat gambling
operations. If the Indiana Gaming Commission determines that a licensee is in
violation of the Indiana Riverboat Act or the rules and regulations promulgated
by the Indiana Gaming Commission, the Indiana Gaming Commission may initiate a
disciplinary proceeding to revoke, restrict or suspend the license or take such
other action, including imposition of civil penalties, that the Indiana Gaming
Commission deems necessary. If for any reason the license is terminated, the
assets of the riverboat gambling operation must be secured and cannot be
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disposed of without the approval of the Indiana Gaming Commission and the
licensee remains under the jurisdiction of the Indiana Gaming Commission until
all matters related to the license have been resolved.
A licensed owner may apply for and may hold other licenses that are
necessary for the operation of a riverboat, including licenses to sell alcoholic
beverages, a license to prepare and serve food and any other necessary license.
Furthermore, the Indiana Riverboat Act requires that officers, directors and
employees of a gaming operation and suppliers of gaming equipment, devices, and
supplies and certain other suppliers be licensed.
Applicants for licensure must submit comprehensive application and personal
disclosure forms and undergo an exhaustive background investigation prior to the
issuance of a license. The applicant must also disclose the identity of every
shareholder or participant of the applicant and provide specific information
with respect to certain shareholders holding significant interests, 5% or
greater, in the applicant. The Indiana Gaming Commission has the authority to
request specific information on any shareholder.
The Glory of Rome riverboat casino has been licensed to conduct gaming
operations by the Indiana Gaming Commission pursuant to a license originally
granted to RDI/Caesars Riverboat Casino, L.L.C., which we acquired from
Starwood. An ownership interest in an owner's riverboat license may only be
transferred after receiving approval from the Indiana Gaming Commission and upon
compliance with the regulations issued under the Indiana Riverboat Act. We have
submitted an application for transfer of the riverboat owner's license to the
Indiana Gaming Commission and expect the Indiana Gaming Commission to hold the
required public hearing and to then consider our application for transfer. We
expect the meeting of the Commission to be held in Spring 2000 and anticipate
receiving the necessary approvals for the transfer of the riverboat owner's
license and the continued operation of the Glory of Rome by Park Place. In the
event we do not receive the necessary approvals, we would be required to sell
our interest in the joint venture that owns the casino.
A riverboat owner licensee or any other person may not lease, hypothecate,
borrow money against or loan money against an owner's riverboat gaming license.
The Indiana Riverboat Act does not limit the maximum bet or per patron loss.
Minimum and maximum wagers on games are set by the licensee. Wagering may not be
conducted with money or other negotiable currency. No person under the age of 21
is permitted to wager, and wagers may only be taken from a person present on a
licensed riverboat.
Riverboats operating in Indiana must (1) have a valid certificate of
inspection from the U.S. Coast Guard to carry at least 500 passengers; and
(2) be at least 150 feet long. In addition, any riverboat that operates on the
Ohio River must replicate, as nearly as possible, historic Indiana steamboat
passenger vessels of the nineteenth century.
Gaming sessions are generally required to be at least two hours and are
limited to a maximum duration of four hours. No gaming may be conducted while
the boat is docked, except:
- for 30-minute time periods at the beginning and end of each cruise while
the passengers are embarking and disembarking, in which case total gaming
time is limited to four hours, including the pre- and post-docking
periods; and
- when weather or water conditions prevent the boat from cruising.
The Indiana Gaming Commission may grant extended cruise hours in its
discretion. If the master of the riverboat reasonably determines and certifies
in writing that specific weather conditions or water conditions present a danger
to the riverboat and the riverboat's passengers and crew, the riverboat may
remain docked and gaming may take place until the master determines that the
conditions have sufficiently diminished for the riverboat to safely proceed or
the duration of the authorized excursion has expired.
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After consultation with the U.S. Army Corps of Engineers, the Indiana Gaming
Commission may determine the available navigable waterways that are suitable for
the operation of riverboats under the Indiana Riverboat Act. If the U.S. Army
Corps of Engineers rescinds an approval for the operation of riverboats on a
waterway, a license issued under the Indiana Riverboat Act is void and the
holder may not conduct or continue gaming operations under the Indiana Riverboat
Act. The Indiana Gaming Commission requires employees working on a riverboat to
have a valid merchant marine document from the U.S. Coast Guard.
The Indiana Riverboat Act imposes a 20% wagering tax on adjusted gross
receipts from gaming. The tax imposed is to be paid by the licensed owner to the
Indiana Department of State Revenue before the close of the business day
following the day when the wagers are made. The Indiana Riverboat Act also
requires that licensees pay a $3.00 admission tax for each person admitted to a
gaming excursion. A riverboat license may be suspended for failure to pay such
tax. The Indiana Gaming Commission also has promulgated regulations requiring
riverboat owners to reimburse the Indiana Gaming Commission for the costs of
inspectors and agents required to be present during the conduct of gambling
operations. Further, the Indiana Gaming Commission may impose other fees and
assessments. Riverboats are assessed for property tax purposes as real property
and are taxed at rates determined by local taxing authorities. All Indiana state
excise taxes, use taxes and gross retail taxes apply to sales on a riverboat.
The Indiana Gaming Commission may subject a licensee to fines, suspension or
revocation of its license for any act that is in violation of the Indiana
Riverboat Act, the rules and regulations of the Indiana Gaming Commission, or
for an owner's license if the licensee has not begun regular riverboat
excursions prior to the end of the twelve month period following receipt of a
license from the Indiana Gaming Commission or if the Indiana Gaming Commission
determines that the revocation of the license is in the best interests of the
State of Indiana. A holder of a gaming license is required to post bond with the
Indiana Gaming Commission in an amount that a local community will expend for
infrastructure and other facilities associated with a riverboat operation.
The Indiana Riverboat Act places special emphasis upon minority and women's
business enterprise participation in the riverboat industry. Any person issued a
riverboat owner's license must establish goals of expending at least 10% of the
total dollar value of the licensee's contracts for goods and services with
minority business enterprises and 5% of the total dollar value of the licensee's
contracts for goods and services with women's business enterprises.
An institutional investor which acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to notify the Indiana
Gaming Commission and to provide additional information, and may be subject to a
finding of suitability. A person who acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to apply to the
Indiana Gaming Commission for a finding of suitability. A person, other than an
institutional investor, who acquires a direct or indirect beneficial ownership
interest of 5% or more of any riverboat licensee, through any class of voting
securities of the licensee or a holding company or intermediary company of the
licensee, other than an institutional investor, is required to apply to the
Indiana Gaming Commission for a finding of suitability.
A riverboat owner licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods and services rendered or received. All contracts are subject to
disapproval by the Indiana Gaming Commission. The Indiana Gaming Commission has
a rule requiring the reporting of certain currency transactions, which is
similar to that required by Federal authorities.
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A riverboat owner licensee or applicant (or affiliate thereof) may not enter
into a debt transaction of $1.0 million or more, including the issuance of the
notes, without the prior approval of the Indiana Gaming Commission. The Indiana
Gaming Commission rules require that:
- a written request for approval of the debt transaction, along with
relevant information regarding the debt transaction, be submitted to the
Indiana Gaming Commission at least ten days prior to a scheduled meeting
of the Indiana Gaming Commission;
- a representative of the riverboat licensee or applicant be present at the
meeting to answer any questions; and
- a decision regarding the approval of the debt transaction be issued by the
Indiana Gaming Commission at the next following meeting. The Indiana
Gaming Commission rules also authorize the Executive Director of the
Indiana Gaming Commission to waive certain requirements.
The Indiana Riverboat Act prohibits contributions to a candidate for a
state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee or by an officer of a person
that holds at least a 1% interest in the licensee. The Indiana Gaming Commission
has promulgated a rule requiring quarterly reporting by the holder of a
riverboat owner's license or a supplier's license of officers of the licensee,
officers of persons that hold at least a 1% interest in the licensee, and of
persons who directly or indirectly own a 1% interest in the licensee.
The Indiana Gaming Commission adopted a rule which prohibits a distribution,
except to allow payment of taxes, by a riverboat licensee to its partners,
shareholders, itself, or any affiliated entity, if the distribution would impair
the financial viability of the riverboat gaming operation. The Indiana Gaming
Commission has adopted a rule which requires riverboat licensees to maintain, on
a quarterly basis, a cash reserve in the amount of the actual payout for three
days, and the cash reserve would include cash in the casino cage, cash in a bank
account in Indiana, or cash equivalents not committed or obligated.
QUEENSLAND GAMING LAWS
Queensland, Australia, like the jurisdictions discussed above, has
comprehensive laws and regulations governing the conduct of casino gaming. All
persons connected with the ownership and operation of a casino, including us,
our subsidiary that manages the Conrad Jupiters, Gold Coast and the Conrad
International Treasury Casino, Brisbane and their principal stockholders,
directors and officers, must be found suitable and/or licensed. A casino license
once issued remains in force until surrendered or canceled. Queensland law
defines the grounds for cancellation and, in that event, an administrator may be
appointed to assume control of the casino hotel complex. The Queensland
authorities have also conducted an investigation of, and have found suitable, us
and our subsidiary BI Gaming Corporation, which holds our Australian gaming
assets.
Queensland imposes taxes on gaming operations at the rate of 20% of gross
gaming revenues, except that gaming revenues arising from persons or groups
participating in special flight programs or "junkets" are taxed at a 10% rate. A
casino community benefit levy of 1% of gross gaming revenues is also imposed.
URUGUAY GAMING LAWS
Uruguay also has laws and regulations governing the establishment and
operation of casino gaming. The Internal Auditors Bureau of Uruguay, under the
authority of the Executive Power of the Oriental Republic of Uruguay, is
responsible for establishing the terms under which casino operations are
conducted, including suitability requirements of persons associated with gaming
operations, authorized games, specifications for gaming equipment, security,
surveillance and compliance. The Executive Power of the Oriental Republic of
Uruguay has authorized Baluma S.A., a corporation duly organized and existing
under the laws of the Oriental Republic of Uruguay, as owner of the Conrad
International Punta del Este
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Resort & Casino to conduct casino operations. The authorization was granted
based on the expertise and financial suitability of Hilton and its subsidiary
Conrad International Hotels Corporation, which acted as manager of the Punta del
Este Resort & Casino. By resolution dated December 29, 1998, the Executive Power
of the Oriental Republic of Uruguay authorized the replacement of Conrad
International Hotels Corporation by B I Gaming Corporation, a subsidiary of
ours, as manager of the Punta del Este Resort & Casino, subject to the
fulfillment of formal requirements set forth in the resolution. Documents to
comply with the referred formal requirements were submitted in due time. The
Internal Auditors Bureau has reviewed the documents and recommended to the
Executive Power of the Oriental Republic of Uruguay to declare that requirements
made by resolution dated December 29, 1998 have been complied with.
Uruguay imposes a casino concession fee on gaming operations conducted by
the Punta del Este Resort & Casino at a fixed amount per fiscal year. For the
years ending December 31, 1997, 1998 and 1999, the casino concession fee imposed
is $3.2 million, $3.3 million and $3.3 million, respectively.
ONTARIO, CANADA, GAMING LAWS
Our Ontario casino gaming operations are subject to the regulatory control
of the Ontario Alcohol and Gaming Commission pursuant to the Ontario Gaming
Control Act and certain contractual obligations to the Ontario Casino
Corporation, a provincial crown corporation owned by the Province of Ontario.
We own 50% of Windsor Casino Limited, which operates the casino in Windsor,
Ontario, Canada, on behalf of the Ontario Casino Corporation, pursuant to an
operating agreement with the Ontario Casino Corporation. The operating agreement
imposes certain obligations on Windsor Casino Limited relating to the operation
of the Windsor Casino. Pursuant to a support agreement between the shareholders
of Windsor Casino Limited and the Ontario Casino Corporation, the shareholders,
including us, have certain obligations relating to the operation of Windsor
Casino Limited.
Windsor Casino Limited is required under the Ontario Gaming Control Act to
be registered as a gaming operator with the Ontario Alcohol and Gaming
Commission and must operate in accordance with the terms and conditions of its
registration.
Pursuant to the Ontario Gaming Control Act and the terms of Windsor Casino
Limited's registration, the Registrar of the Ontario Commission must approve any
change in the directors or officers of Windsor Casino Limited. The Ontario
Gaming Control Act also provides that the Ontario Commission may require the
submission of disclosures and informational material from any person who has an
interest in Windsor Casino Limited. This includes parent companies and their
directors and officers.
The Registrar of the Ontario Commission has the power, subject to the
Ontario Gaming Control Act, to grant, renew, suspend or revoke registrations.
The Registrar is entitled to make such inquiries and conduct such investigations
as are necessary to determine that applicants for registration meet the
requirements of the Ontario Gaming Control Act and to require information or
material from any person who has an interest in an applicant for registration.
The criteria to be considered in connection with registration under the Ontario
Gaming Control Act include the financial responsibility, integrity and honesty
of the applicant and the public interest. The Registrar may, at any time,
revoke, suspend or refuse to renew Windsor Casino Limited's registration for any
reason that would have disentitled it to registration.
Changes to these laws and regulations could have an adverse effect on our
casino gaming operations.
NOVA SCOTIA, CANADA, GAMING LAWS
Our Nova Scotia casino gaming operations are subject to the regulatory
control of the Nova Scotia Alcohol and Gaming Authority pursuant to the Nova
Scotia GAMING CONTROL ACT and certain contractual obligations to the Nova Scotia
Gaming Corporations (NSGC), a provincial crown corporation owned by the Province
of Nova Scotia.
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One of our subsidiaries owns a 95% partnership interest in a registered
partnership known as Metropolitan Entertainment Group (Metropolitan) which
operates casinos in Halifax and Sydney, Nova Scotia, on behalf of the Nova
Scotia Gaming Corporation pursuant to an Operating Contract with the Nova Scotia
Gaming Corporation. The Operating Contract imposes certain obligations on
Metropolitan relating to the operation of the Halifax and Sydney casinos. Park
Place Entertainment Corporation has guaranteed certain Metropolitan obligations
under the Operating Contract with NSGC and a contract to construct a permanent
casino in Halifax, Nova Scotia.
We are currently in discussions with the Nova Scotia Gaming Corporation
regarding other changes to the operating contract arising from our acquisition
of the 95% interest in Metropolitan.
Metropolitan is required to register as a casino operator with the Nova
Scotia Alcohol and Gaming Authority.
Under the GAMING CONTROL ACT the Director of Registration of the Alcohol and
Gaming Authority must be notified within fifteen (15) days of any change in the
officers or directors of an operator or in the membership of a partnership that
is an operator. Metropolitan is also required to file a disclosure form with the
Director of Registration within fifteen (15) days of:
- a person acquiring a beneficial interest in the business of the operator
of a casino;
- a person exercising control, either directly or indirectly, over the
business of the operator of a casino; or
- a person providing financing, either directly or indirectly, to the
business of the business of the operator of a casino.
The GAMING CONTROL ACT also provides that the Director of Registration may
require information or material from Metropolitan of any person who has an
interest in the casino. This includes parent companies and their directors and
officers.
The Nova Scotia Alcohol and Gaming Authority has the power to suspend or to
revoke Metropolitan's registration at any time for any reason that would have
disentitled Metropolitan to obtain registration or renewal of registration.
Grounds for suspension or revocation include the financial responsibility,
integrity and honesty of the casino operator, parent companies of the casino
operator and their officers and directors and the public interest.
Changes to these laws and regulations could have an adverse effect on our
casino gaming operations.
SOUTH AFRICA GAMING LAWS
Our South African operations are subject to the Gauteng Gambling and Betting
Act No. 4 of 1995 and the regulations issued thereunder. If an entity has
directly or indirectly procured a controlling or financial interest of 1% or
more in a casino license holder in Gauteng, then the acquiring entity will have
to apply for the consent of the Gauteng Gambling Board for the holding of such
an interest. The acquiring entity must apply to the Gauteng Gambling Board for
consent to hold such an interest within 14 days after the transaction closes and
the interest is procured.
The application for the consent of the Gauteng Gambling Board must be made
within a period and in a manner prescribed by the Gauteng Gambling Board. To
this end, the Gauteng Gambling Board has issued a standard application form. In
making such an application, all the relevant provisions of the Gauteng Gambling
and Betting Act relating to an application for a casino license apply. These
include:
- the application itself;
- representations by interested persons;
- response by the applicant to such representations;
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- further information and oral representations;
- public inspection of the application and representations;
- obtaining of a police report;
- the holding of a hearing in respect of the application which is open to
members of the public and where witnesses are called; and
- a decision being given on the application and conditions being applied in
the event of the application being granted.
The Gauteng Gambling Board may recover from the applicant all reasonable
expenses incurred by the Gauteng Gambling Board in conducting the necessary
investigation in respect of the application. Where consent is not granted, the
acquiring entity shall, within the prescribed period and in the manner
prescribed or determined by the Gauteng Gambling Board, dispose of the interest
in question. In addition, the casino license holder must notify the Gauteng
Gambling Board of the acquiring entity's identity and address as soon as
practicable after it becomes aware of the procurement of an interest in it.
IRS REGULATIONS
The Internal Revenue Service requires operators of casinos located in the
United States to file information returns for U.S. citizens, including names and
addresses of winners, for keno and slot machine winnings in excess of stipulated
amounts. The IRS also requires operators to withhold taxes on some keno, bingo
and slot machine winnings of nonresident aliens. We are unable to predict the
extent, to which these requirements, if extended, might impede or otherwise
adversely affect operations of, and/or income from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, or in which we have applied
for licensing to operate a casino, require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation began in May 1985 and may have resulted in the loss of gaming
revenues to jurisdictions outside the United States which are exempt from the
ambit of these regulations.
OTHER LAWS AND REGULATIONS
Each of the casino hotels and riverboat casinos described in this annual
report is subject to extensive state and local regulations and, on a periodic
basis, must obtain various licenses and permits, including those required to
sell alcoholic beverages. We believe that we have obtained all required licenses
and permits and our businesses are conducted in substantial compliance with
applicable laws.
HEADQUARTERS
Our principal executive offices are located at 3930 Howard Hughes Parkway,
Las Vegas, Nevada 89109. Our telephone number is (702) 699-5000.
EMPLOYEES
At January 31, 2000, we had approximately 57,000 employees, of which
approximately 22,000 were covered by various collective bargaining agreements
providing, generally, for basic pay rates, working hours, other conditions of
employment and orderly settlement of labor disputes. We believe that the
aggregate compensation benefits and working conditions afforded its employees
compare favorably with those received by employees in the gaming industry
generally. Although strikes of short duration have from time to time occurred at
certain of our facilities, we believe our employee relations are satisfactory.
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FORWARD-LOOKING STATEMENTS
This Form 10-K and the documents incorporated by reference in this
Form 10-K include forward-looking statements. We intend for the words
"believes," "anticipates," "expects," "intends," "interested in," "plans,"
"continues," "projects" and similar expressions to identify forward-looking
statements. Forward-looking statements include, among other things, statements
relating to our plans, strategies, properties and adequacy of resources under
the headings "Business and Properties" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." We have based these forward-
looking statements on our current expectations and projections about future
events. These forward-looking statements are subject to risks, uncertainties,
and assumptions about us and our subsidiaries, including, among other things,
factors discussed in this Form 10-K and in our filings with the Securities and
Exchange Commission and the following:
- the effect of economic, credit and capital market conditions in general
and on gaming companies in particular;
- construction and development issues, including environmental restrictions,
weather, soil conditions, building permits and zoning approvals;
- the impact of competition, particularly from other gaming and hotel/gaming
operations;
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies;
- litigation outcomes and judicial action; and
- changes in customer demand.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Form 10-K might not occur. Any forward-looking
statements are made pursuant to the Private Securities Litigation Reform Act of
1995 and, as such, speak only as of the date made.
ITEM 2. PROPERTIES
Casino hotels owned and operated, leased and managed by Park Place are
listed and described in Item 1 of this Report.
ITEM 3. LEGAL PROCEEDINGS
We are party to legal proceedings relating to the Bally, Hilton, Grand and
Caesars gaming businesses that we assumed in 1998 and 1999. We do not believe
that the resolution of these matters will have a material adverse effect on our
consolidated results of our operations and financial position.
BELLE OF ORLEANS
Our wholly owned subsidiary, Bally's Louisiana, Inc., owns 49.9% of the
Belle of Orleans, L.L.C., a limited liability company which owns and holds the
riverboat gaming license to operate Bally's Casino Lakeshore Resort. Metro
Riverboat Associates, Inc. owns the remaining 50.1% interest in the Belle.
Bally's Louisiana and Metro entered into an operating agreement defining the
rights and obligations of the members of Belle, along with a management
agreement providing for Bally's Louisiana to manage the riverboat casino. The
parties are involved in numerous lawsuits, appeals and administrative hearings
regarding their rights and obligations under those agreements. Cases are pending
between the parties in the Civil District Court for the Parish of Orleans, the
Nineteenth Judicial District Court for the Parish of East Baton Rouge, the
Louisiana First Circuit Court of Appeal, the Louisiana Supreme Court, and the
U.S. District Court for the Northern District of Illinois, Eastern Division.
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The disputes revolve around Metro's claim that the assignments from previous
Bally's entities to Bally's Louisiana, which resulted from Hilton's merger with
Bally Entertainment Corporation in 1996, and Hilton's subsequent spin-off of its
gaming operations to Park Place in 1998, were invalid and that Bally's Louisiana
has no authority to manage the casino. Metro is seeking injunctive relief and
unspecified damages in its efforts to remove Bally's Louisiana as manager of the
Belle.
BALLY MERGER LITIGATION
A purported class action against Bally Entertainment Corporation, its
directors and Hilton was commenced on September 4, 1996, under the caption
PARNES V. BALLY ENTERTAINMENT CORPORATION, ET. AL. in the Court of Chancery of
the State of Delaware, New Castle County. The plaintiff alleges that certain
payments received by Arthur M. Goldberg, in connection with the merger of Bally
into Hilton in December 1996, involved breaches of fiduciary duty which denied
other Bally shareholders an opportunity to sell their shares to Hilton or any
other bidder at the best possible price. The plaintiff seeks injunctive relief
enjoining the Bally-Hilton merger, disgorgement of profits, and unspecified
damages. In orders dated May 13, 1997 and February 3, 1998, the trial court
dismissed the litigation. The plaintiff appealed and on January 25, 1999, the
Delaware Supreme Court reversed the dismissal order and remanded the case to the
Court of Chancery for further proceedings.
ATLANTIC CITY LITIGATION
On September 9, 1997, Mirage Resorts, Inc. ("Mirage") commenced an action in
United States District Court for the Southern District of New York. Named as
defendants were Park Place, Trump Hotel & Casino Resorts ("THCR"), and the
allegedly controlling shareholder of THCR. The complaint alleged that the
defendants violated the Sherman Antitrust Act, committed tortious interference
with prospective economic advantage, and induced a breach of fiduciary duty in
connection with Mirage's efforts to develop a casino resort in Atlantic City,
New Jersey. Injunctive relief and compensatory and punitive damages in
unspecified amounts were sought. In February 2000, the plaintiff dismissed its
action with prejudice and without cost to Park Place, other than the payment of
its own costs and expenses incurred in defending the action.
SLOT MACHINE LITIGATION
On April 26, 1994, William H. Poulos brought a class action in the U.S.
District Court for the Middle District of Florida, Orlando Division captioned
WILLIAM H. POULOS, ET. AL. V. CAESARS WORLD, INC. ET. AL., against 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including Park Place. On May 10, 1994, another plaintiff filed a
class action complaint in the United States District Court for the Middle
District of Florida--WILLIAM AHEARN, ET. AL. V. CAESARS WORLD, INC. ET. AL.--
alleging substantially the same allegations against 48 defendants, including
Park Place. On September 26, 1995, a third action was filed against 45
defendants, including Park Place, in the U.S. District Court for the District of
Nevada--LARRY SCHREIER, ET. AL. V. CAESARS WORLD, INC. ET. AL. The court
consolidated the three cases in the U.S. District Court for the District of
Nevada under the case caption WILLIAM H. POULOS, ET. AL. V. CAESARS WORLD, INC.
ET. AL.
The consolidated complaints allege that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play. The actions included claims under the
federal Racketeering Influenced and Corrupt Organizations Act, fraud, unjust
enrichment and negligent misrepresentation, and seek unspecified compensatory
and punitive damages. The case has not been certified as a class action.
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GRAND CASINOS
INDEMNIFICATION OF PARK PLACE
Grand Casinos, Inc., and its subsidiaries are parties to various lawsuits
arising out of actions prior to Grand's merger with Park Place. Any liabilities
with respect thereto are an obligation of Grand, and Grand is to be indemnified
by Lakes Gaming, Inc. (the company that retained the non-Mississippi business of
Grand prior to the merger) for certain liabilities. If Lakes is unable to
satisfy its indemnification obligations, Grand will be responsible for any
liabilities, which could have a material adverse effect on Park Place.
As security to support Lakes' indemnification obligations to Grand, Lakes
agreed to irrevocably deposit, in trust for the benefit of Grand, a total sum of
$30 million. The trust will be funded with four annual installments of
$7.5 million during the four-year period subsequent to December 31, 1998. The
first annual installment payment was made in December 1999.
GRAND SECURITIES LITIGATION
Grand and certain of Grand's current and former officers and directors are
defendants in IN REGRAND CASINOS, INC. SECURITIES LITIGATION, filed on
September 9, 1996 in the United States District Court in Minnesota. This action
arises out of Grand's involvement in the Stratosphere project in which Grand was
a dominant shareholder. The plaintiffs in the action, who are current or former
Grand shareholders, seek to pursue the action as a class action, alleging
securities fraud, insider trading and the making of false statements concerning
the Stratosphere project.
STRATOSPHERE SECURITIES LITIGATION
Grand and certain persons who have been indemnified by Grand, including
certain former and current Grand officers and directors, are defendants in legal
actions filed on August 5, 1996 in the United States District Court, District of
Nevada (MICHAEL CEASAR V. STRATOSPHERE CORPORATION ET. AL.) and on August 16,
1996 in the District Court, Clark County, Nevada (OPITZ ET. AL. V. STRATOSPHERE
CORPORATION ET. AL.). These actions arise out of Grand's involvement in the
Stratosphere Tower, Casino and Hotel project in Las Vegas, Nevada. Grand was a
dominant shareholder of Stratosphere. The state court action has been stayed
pending resolution of the federal court action.
The plaintiffs in the actions, who are present or former shareholders of
Stratosphere Corporation, seek to pursue the actions as class actions. The
complaints seek unspecified damages for allegations that the defendants
concealed material information and made false positive statements about the
Stratosphere, which caused the value of the Stratosphere stock to be inflated.
In April 1998, a motion to dismiss submitted by Grand was partially granted. By
order dated October 4, 1999, the court granted in part and denied in part a
motion for summary judgment filed by Grand. The plaintiffs are pursuing the
claims that survived the motion to dismiss and summary judgment.
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
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Standby Equity Commitment is not enforceable in Bankruptcy Court as a matter of
law. Grand has filed for summary judgment in the U.S. District Court action on
the basis of that ruling.
On November 7, 1997, Stratosphere filed its Second Amended Plan, which was
approved by the Bankruptcy Court and declared effective on October 14, 1998.
Pursuant to the Second Amended Plan, Stratosphere common stock that was
outstanding prior to the effective date of the Second Amended Plan was
cancelled. The Second Amended Plan contemplates the formation of a new limited
liability company which will own and pursue certain alleged claims and causes of
action that Stratosphere and other persons may have against numerous third
parties, including Grand and/or officers and/or directors of Grand. The Second
Amended Plan contemplates capitalizing this new limited liability company with
an investment of $5 million.
STRATOSPHERE PREFERENCE ACTION
On February 12, 1998, Stratosphere filed a complaint in the United States
Bankruptcy Court in and for the District of Nevada against Grand and Grand
Media & Electronics Distributing, Inc. ("Grand Media"), a wholly owned
subsidiary of Grand, seeking recovery of approximately $5.7 million in total
fees paid by Stratosphere to Grand as management fees and for costs and expenses
under a management agreement between Stratosphere and Grand, and to Grand Media
for electronic equipment purchased by Stratosphere from Grand Media.
Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law.
OTHER
We are 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Our common stock began trading on December 21, 1998 on a "when issued"
basis, prior to the Hilton distribution on December 31, 1998. The common stock
trades on the New York Stock Exchange under the symbol PPE. The following table
sets forth, for the calendar quarters indicated, the high and low sale prices of
our common stock on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1999
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
First quarter............................................... $ 8.59 $ 6.38
Second quarter.............................................. 11.84 7.47
Third quarter............................................... 12.63 9.34
Fourth quarter.............................................. 13.69 11.25
</TABLE>
As of March 15, 2000, there were approximately 12,236 holders of record of
our common stock.
Pursuant to the Amended and Restated Certificate of Incorporation, our
authorized capital stock consisted of 400,000,000 shares of common stock, par
value $0.01 per share, and 100,000,000 shares of preferred stock, par value
$0.01 per share. In March 1999, the Board of Directors approved a stock
repurchase plan that authorized the repurchase of up to 8 million shares of our
common stock. During the year ended December 31, 1999 we repurchased
3.1 million shares of our common stock.
DIVIDENDS
We do not currently anticipate paying cash dividends.
PREFERRED STOCK PURCHASE RIGHTS
On December 29, 1998, the Board of Directors adopted a Preferred Share
Purchase Rights Plan and declared a dividend distribution of one Right on each
outstanding share of our common stock and one Right on each share of common
stock issued between such date and the earliest of the Distribution Date and the
Expiration Date (as these terms are defined in the Rights Plan). Stockholders
may transfer the Rights with the common stock only until they become
exercisable.
Generally, the Rights become exercisable only if a person or group (other
than Exempt Persons, as defined below) acquires 15% or more of the then
outstanding shares of common stock or announces a tender offer which would
result in ownership by a person or group of 15% or more of the then outstanding
shares of common stock. Each Right entitles stockholders to buy one
one-hundredth of a share of a new series of junior participating preferred stock
at an exercise price of $40.
If a person or group (other than Exempt Persons) acquires 15% or more of our
shares of common stock, each holder of a Right will be entitled to receive upon
exercise a number of shares of the common stock having a market value equal to
two times the then current purchase price of the Right. If, after a person or
group acquires 15% or more of our shares of common stock, we are acquired in a
merger or engage in certain other business combination transactions or transfers
of assets, each Right entitles its holder to purchase, at the Right's then
current price, a number of the acquiring company's common shares having a then
current market value of twice the Right's exercise price.
Following the acquisition by a person or group of beneficial ownership of
15% or more of our common stock (other than Exempt Persons) and prior to an
acquisition of 50% or more of our common stock, the board of directors may
exchange the Rights (other than Rights owned by the person or group), in whole
or in part, at an exchange ratio described in the Rights Plan.
39
<PAGE>
Prior to the acquisition by a person or group of beneficial ownership of 15%
or more of our common stock, the Rights are redeemable for $.001 per Right at
the option of the board of directors.
"Exempt Person" means:
- Park Place or any of our subsidiaries;
- any of our employee benefit plans;
- any entity or trustee holding shares of our capital stock for or pursuant
to the terms of any such plan or for the purpose of funding other employee
benefits for our or our subsidiaries' employees; or
- Barron Hilton or the Conrad N. Hilton Fund.
40
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
We have derived the following historical information from our audited
financial statements for 1995 through 1999. The information is only a summary
and should be read in conjunction with Management's Discussion and Analysis in
Item 7 and the historical financial statements and related notes in Item 8.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OR AS OF DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenue.................................... $ 3,176 $2,305 $2,153 $ 970 $ 942
Total operating income........................... 399 302 201 92 165
Income before extraordinary item and cumulative
effect......................................... 138 109 67(1) 36(2) 85
Income before extraordinary item and cumulative
effect per share...............................
Basic........................................ $ 0.46 $ 0.42 $ 0.25 $ 0.18 $ 0.44
Diluted...................................... $ 0.45 $ 0.42 $ 0.25 $ 0.18 $ 0.44
OTHER OPERATING DATA:
Cash flows from
Operating activities........................... $ 519 $ 318 $ 375 $ 139 $ 159
Investing activities........................... 3,610 584 583 55 161
Financing activities........................... 3,055 449 175 110 14
EBITDA(3)........................................ $ 778 $ 556 $ 512 $ 216 $ 253
BALANCE SHEET:
Cash and equivalents, restricted cash and
temporary investments.......................... $ 346 $ 382(4) $ 234 $ 232 $ 38
Total assets..................................... 11,159 7,174 5,630 5,364 1,350
Total debt....................................... 5,624 2,472(4) 1,306 1,278 549
Stockholders'/Division equity.................... 3,740 3,608 3,381 3,157 592
</TABLE>
- ------------------------
(1) Includes after-tax non-recurring charges totaling $59 million related to the
recognition of an impairment loss related to a riverboat casino and an
impairment loss and other costs associated with the closure of another
riverboat casino.
(2) Includes after-tax non-recurring charges totaling $23 million, primarily
related to the write-off of pre-opening expenses for a riverboat casino and
losses associated with a planned relocation of another riverboat casino.
(3) EBITDA is earnings before interest, taxes, depreciation, amortization,
pre-opening costs, non-cash items and transaction costs in 1998, which can
be computed by adding depreciation, amortization, pre-opening costs,
non-cash items and transaction costs to operating income. EBITDA is
presented supplementally because management believes it allows for a more
complete analysis of results of operations. Non-cash items, such as asset
write-downs and impairment losses are excluded from EBITDA as these items do
not impact operating results on a recurring basis. Pre-tax non-cash charges
for Park Place historical totaled $26 million for the year ended
December 31, 1999, $16 million for the year ended December 31, 1998 and
$96 million for the year ended December 31, 1997. These charges relate to
the recognition of an impairment loss on the sale of the Flamingo Hilton
Reno, an impairment loss on a riverboat casino and an impairment loss and
other costs associated with the closure of another riverboat casino. Pre-tax
non-cash charges for totaled $1 million for the year ended December 31, 1996
and relate to the write-down of an asset to estimated fair market value.
This
41
<PAGE>
information should not be considered as an alternative to any measure of
performance as promulgated under generally accepted accounting principles
(such as operating income or income before extraordinary item) nor should it
be considered as an indicator of our overall financial performance. The
calculations of EBITDA may be different from the calculations used by other
companies and therefore comparability may be limited. Historical
depreciation, amortization, non-cash items and transaction costs in 1998 for
the years ended December 31, 1999, 1998, 1997, 1996 and 1995 totaled
$332 million, $254 million, $311 million, $124 million and $88 million,
respectively.
(4) On December 31, 1998, we completed a covenant defeasance of the Grand 9.0%
senior unsecured notes by depositing $135 million in an irrevocable trust.
The amount deposited in trust, as well as the obligation, have been
reflected in the consolidated balance sheet in restricted cash and long-term
debt, respectively, as of December 31, 1998.
42
<PAGE>
ITEM 7. 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 Bally's, Paris,
Caesars, 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 December 31, 1998, we completed our merger with
the Mississippi gaming operations of Grand and now own Grand Casino Tunica,
Grand Casino Gulfport and Grand Casino Biloxi, the Grand properties. Because the
completion of the Grand merger occurred on the last day of 1998, the results of
operations for the Grand properties are not included in our consolidated
statement of income for the year ended December 31, 1998.
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%
interest in Caesars Indiana, a 95% interest in Sheraton Casino Sydney and
Sheraton Halifax Casino, an interest in Caesars Guateng, a 50% 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 are not included in our
consolidated statements of income for the year ended December 31, 1998, and only
two days are included in the December 31, 1999 results, as the acquisition was
completed on December 29, 1999.
The following discussion presents an analysis of our results of operations
for the years ended December 31, 1999 and 1998. EBITDA (earnings before
interest, taxes, depreciation, amortization, pre-opening expenses 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 information should not be considered as an
alternative to any measure of performance as promulgated under generally
accepted accounting principles (such as operating income or net income), nor
should it be considered as an indicator of our overall financial performance.
Our calculation of
43
<PAGE>
EBITDA may be different from the calculation used by other companies and
therefore comparability may be limited.
COMPARISON OF DECEMBER 31, 1999 WITH DECEMBER 31, 1998
A summary of our consolidated revenue and earnings for the years ended
December 31, 1999 and 1998 is as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Revenue..................................................... $3,176 $2,305
Operating income............................................ 399 302
Net income.................................................. 136 109
Basic earnings per share.................................... 0.45 0.42
Diluted earnings per share.................................. 0.44 0.42
Other operating data:
EBITDA...................................................... $ 778 $ 556
</TABLE>
We recorded net income of $136 million or diluted earnings per share of
$0.44, for the year ended December 31, 1999, compared with net income of
$109 million or diluted earnings per share of $0.42, for the year ended
December 31, 1998. This 25 percent increase in net income was primarily
associated with positive operating contributions arising from the Grand merger
and the opening of Paris Las Vegas, offset by a $26 million ($17 million net of
tax) impairment loss associated with the pending sale of the Flamingo Hilton
Reno. In addition, on January 1, 1999, we adopted Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities" which requires that
pre-opening costs be expensed as incurred. We expensed $47 million of
pre-opening costs incurred during the year, related primarily to the opening and
development of Paris Las Vegas. As required by SOP 98-5, we recorded a
cumulative effect of accounting change net of tax of $2 million for pre-opening
costs incurred and capitalized prior to January 1, 1999.
Consolidated revenues increased 38 percent to $3.2 billion for the year
ended December 31, 1999, from $2.3 billion in 1998. This increase in revenues
was related to revenues generated from the Mississippi operations acquired in
the Grand merger and the opening of Paris Las Vegas. EBITDA increased
40 percent to $778 million for the year ended December 31, 1999, from
$556 million in 1998. The Mid-South Region contributed $166 million of the
increase in EBITDA, all attributed to the addition of the Grand properties. The
Western Region increased $58 million and the Eastern Region had an increase of
$19 million. These increases were offset by a decrease of $7 million in the
International Region.
WESTERN REGION
EBITDA for the Western Region was $356 million for the year ended
December 31, 1999, an increase of 19 percent, compared to $298 million for the
prior year period. The increase in EBITDA was primarily attributable to the
opening of Paris Las Vegas, improved performance at the Flamingo Hilton Las
Vegas and a strong year at the Reno Hilton. Occupancy for the Western Region was
88 percent for the year ended December 31, 1999, flat with the prior year
period. The average room rate was $79 compared to $75 in the prior year period.
EBITDA at the Las Vegas Hilton increased two percent to $59 million for the
year ended December 31, 1999. The increase was primarily attributable to
increases in the domestic table games, slots and race and sports areas. Results
at the Las Vegas Hilton are more volatile than our other casinos because this
property caters to the premium play segment of the market. Fluctuations in
premium play volume and win percentage could result in volatility of the results
at this property.
EBITDA at the Flamingo Hilton Las Vegas increased $6 million to
$112 million for the year ended December 31, 1999. The Flamingo Hilton Las Vegas
continues to demonstrate the power of its location
44
<PAGE>
and its appeal to its target market. A five percent increase in casino volume
was the primary contributor to the year over year increase.
The combined Paris/Bally's properties generated EBITDA of $130 million for
the year ended December 31, 1999, an increase of $46 million from the prior
year. The increase in EBITDA was primarily attributable to the opening of Paris
Las Vegas on September 1, 1999. This French themed property, which is located
adjacent to Bally's Las Vegas, features 2,916 rooms, an 85,000 square foot
casino, a 50-story replica of the Eiffel Tower, eight restaurants, five lounges,
130,000 square feet of convention space and a 24,000 square foot retail shopping
complex.
Combined EBITDA from the Reno Hilton, the Flamingo Hilton Reno and the
Flamingo Hilton Laughlin was $55 million for the year ended December 31, 1999, a
$5 million increase from the prior year. The Reno Hilton had the most
significant affect on this increase, with a 26 percent increase in EBITDA. A
significant portion of this increase is attributable to increases in non-gaming
revenues. Special events and casino marketing drove increases in room, food and
beverage revenues. In December 1999, we entered into a definitive agreement to
sell the Flamingo Hilton Reno. The sale is expected to close by June 30, 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. Including Paris Las Vegas, four new mega-resorts have opened
since October 1998, which drove increased visitation in 1999. We cannot predict
what the impact will be in 2000.
EASTERN REGION
EBITDA for the Eastern Region was $213 million for the year ended
December 31, 1999, an increase of ten percent from $194 million for the year
ended December 31, 1998. The increase is due in part to the continued success of
our marketing efforts, which are driving incremental visitation to our
properties in Atlantic City. Table game drop and slot handle increased over the
prior year for both of the Atlantic City properties. The average room rate
increased to $88 from $84 and the occupancy percentage increased from
94 percent to 96 percent for the year.
Bally's Park Place generated EBITDA of $165 million for the year ended
December 31, 1999, an increase of five percent from last year's $157 million.
Increases in both slot and table games volume attributed to this increase. The
increased volume associated with the gaming revenues also had a positive impact
on revenues in other operating departments.
For the year ended December 31, 1999, the Atlantic City Hilton reported
EBITDA of $48 million, an increase of $11 million, or 30 percent from the prior
year. Increases in both table games and a slot win contributed to a 16 percent
increase in gaming revenue. The increase in casino play was a result of
successful marketing programs, which are also having a positive impact on
overall customer traffic counts at the property.
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 $166 million to $205 million for
the year ended December 31, 1999, up from $39 million in 1998. The Grand
properties contributed the entire $166 million increase. The Grand properties'
results are not included in the 1998 results because our merger with
45
<PAGE>
Grand occurred on December 31, 1998. Occupancy and average room rate for the
year ended December 31, 1999, were 88 percent and $58, respectively. Combined
EBITDA from Bally's Saloon-Gambling Hall-Hotel and Bally's New Orleans increased
three percent, to $35 million for the year ended December 31, 1999. We expect
that future results at Bally's New Orleans may be impacted by the October 1999
opening of a land-based casino in downtown New Orleans.
In Mississippi, we expanded our properties with the March 1999 opening of
the Terrace Hotel at Grand Casino Tunica and the June 1999 opening of the Oasis
Resort and Spa at Grand Casino Gulfport. In December 1999, we added additional
gaming space and two restaurants to our Grand Casino Biloxi property. We also
opened the Grand Bear Golf Course, strategically situated between the Grand
Casino Biloxi and Grand Casino Gulfport properties, available exclusively for
our guests and Mississippi residents.
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. This increase in
supply could ultimately have an adverse impact on the operating results of our
Gulf Coast properties.
INTERNATIONAL
On a combined basis, 1999 EBITDA from the Conrad properties in Uruguay and
Australia decreased $7 million to $40 million. The decrease came primarily in
the first quarter of 1999 from the casino resort in Punta del Este, Uruguay,
which was impacted by the devaluation of Brazil's currency, resulting in lower
levels of play from Brazilian customers. On a combined basis, the International
properties reported an average daily rate of $97, down from $104 in the prior
year, and an occupancy percentage of 62 percent, flat with the prior year.
DEPRECIATION AND AMORTIZATION
Consolidated depreciation and amortization increased $81 million to
$306 million for the year ended December 31, 1999. The increase in depreciation
and amortization is primarily attributable to the addition of the Grand
properties in December 1998 and the opening of Paris in September 1999.
NON-RECURRING CHARGES
Non-recurring charges during the year included $47 million of pre-opening
expenses related primarily to the opening of Paris Las Vegas and a $26 million
($17 million net of tax) impairment loss associated with the pending sale of the
Flamingo Hilton Reno. One time charges in 1998 totaled $29 million ($16 million
net of tax) and included an impairment loss related to certain riverboat casino
assets as well as approximately $13 million of costs associated with the
spin-off from Hilton and merger with Grand.
CORPORATE EXPENSE
Corporate expense increased $13 million to $36 million for the year ended
December 31, 1999. The increase is attributable to the infrastructure put in
place to operate and manage Park Place as a separate publicly traded entity
after our spin-off from Hilton.
INTEREST INCOME AND INTEREST EXPENSE
Interest and dividend income decreased $10 million to $11 million for the
year ended December 31, 1999 compared to $21 million in the prior year. The 1998
period includes interest income from our investment in certain mortgage notes
that were sold in the second half of 1998. Consolidated interest expense
increased $57 million to $157 million for the year ended December 31, 1999. The
increase in interest expense is due primarily to an increase in long-term debt
associated with the Grand merger and the construction of Paris Las Vegas.
Capitalized interest for the years ended December 31, 1999 and 1998
46
<PAGE>
was $37 million and $25 million, respectively. Capitalized interest is expected
to decline significantly going forward, with the opening of Paris Las Vegas in
September 1999.
INCOME TAXES
The effective income tax rate for the year ended December 31, 1999 was
44.7 percent, compared to 49.8 percent in the prior year. Our effective income
tax rate is determined by the level and composition of pretax income subject to
varying state, local and foreign taxes and exceeds the Federal statutory rate
due primarily to non-deductible amortization of goodwill.
COMPARISON OF DECEMBER 31, 1998 TO DECEMBER 31, 1997
A summary of our consolidated revenue and earnings for the years ended
December 31, 1998 and 1997 is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenue..................................................... $2,305 $2,153
Operating income............................................ 302 201
Net income.................................................. 109 67
Basic earnings per share.................................... 0.42 0.25
Diluted earnings per share.................................. 0.42 0.25
Other operating data:
EBITDA...................................................... $ 556 $ 512
</TABLE>
Total revenue increased seven percent for fiscal 1998 to $2.3 billion.
Casino revenue increased nine percent to $1.6 billion in 1998, compared to
$1.5 billion in the prior year. Total EBITDA was $556 million, a nine percent
increase from $512 million in the 1997 period, and operating income increased
50 percent to $302 million from $201 million in 1997. Our 1998 results benefited
from significantly improved operations at the Las Vegas Hilton, the completion
of 300 hotel rooms at the Conrad International Punta del Este in late 1997 and
the opening of The Wild Wild West casino in Atlantic City in July 1997.
WESTERN REGION
EBITDA at the Las Vegas Hilton increased $13 million over the prior year to
$58 million. Our efforts to broaden the property's domestic customer base have
resulted in significant increases in non-baccarat table game and slot volume.
Non-baccarat table game win increased 42 percent and slot revenue increased
23 percent on higher volume and comparable win percentages. Results at the Las
Vegas Hilton are more volatile than 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 in the
results at this property. However, we believe that our 1998 implementation of
new casino marketing and entertainment strategies and the opening of the "Star
Trek" attraction and SpaceQuest casino has broadened the Las Vegas Hilton's
customer base and increased non-premium play volume.
EBITDA from the Flamingo Hilton Las Vegas declined $3 million from 1997 to
$106 million due to lower table game volume and win, and a decline in non-casino
revenues. Bally's Las Vegas generated EBITDA of $84 million for the year, a
decrease of $9 million from the prior year. The decline was due primarily to
lower drop and lower rooms revenue. Combined EBITDA from the Reno Hilton and the
Flamingo Hilton Reno remained flat at $26 million.
Occupancy for the Nevada properties was 88 percent in 1998 compared to
86 percent in 1997. The average room rate for the Nevada properties was $75
compared to $77 in 1997.
47
<PAGE>
EASTERN REGION
In Atlantic City, Bally's Park Place generated EBITDA of $157 million, an
increase of one percent from $155 million in 1997. The Atlantic City Hilton
reported EBITDA of $37 million, $8 million above last year. The improvement was
due to higher table game drop and win as well as increased non-casino revenues
from the property's new 300-room tower.
Occupancy for the Atlantic City properties was 94 percent in 1998 compared
to 91 percent in 1997. The average room rate for the Atlantic City properties
was $84, down seven percent from $90 in 1997.
MID-SOUTH AND INTERNATIONAL REGIONS
Combined EBITDA from our riverboat properties increased $20 million over
1997, while the EBITDA contribution from our two hotel-casinos in Australia was
flat at $25 million.
The opening of 300 hotel rooms in the latter half of 1997 resulted in
significant growth in casino volume at the partially-owned Conrad International
Punta del Este Resort and Casino in Uruguay. Our share of EBITDA totaled
$22 million for 1998, a $13 million increase over 1997. Results from this
property are highly seasonal, with the peak season falling in the first quarter.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $10 million to $225 million in 1998
due primarily to the Las Vegas and Atlantic City expansion projects completed in
1997.
NON-RECURRING CHARGES
Our results were adversely affected by non-recurring charges totaling
$29 million ($16 million non-cash) in 1998 and $108 million ($96 million
non-cash) in 1997. The 1998 charges include an impairment loss related to
certain riverboat casino assets as well as approximately $13 million of costs
associated with the spin-off from Hilton and merger with Grand. The 1997 charges
include an impairment loss relating to a riverboat casino and an impairment loss
and other costs associated with the closure of another riverboat casino as well
as the settlement costs of outstanding litigation.
CORPORATE EXPENSE AND OTHER
Corporate expense increased $2 million to $23 million in 1998. Interest and
dividend income decreased $4 million to $21 million. Interest expense, net of
amounts capitalized, was $87 million and $82 million in 1998 and 1997,
respectively. Interest expense, net, from unconsolidated affiliates increased
$3 million to $13 million. Our effective tax rate was 49.8 percent in 1998
versus 47 percent in 1997.
FINANCIAL CONDITION
LIQUIDITY
As of December 31, 1999, we had cash and cash equivalents of $346 million.
Net cash provided by operating activities was $519 million and $318 million in
1999 and 1998, respectively. We had availability under our credit facilities of
$213 million at December 31, 1999. We expect to finance our current operations
and future 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.
CAPITAL SPENDING AND ACQUISITIONS
Cash used in investing activities was $3.6 billion and $584 million in 1999
and 1998, respectively. Cash flows from investing activities include
expenditures for acquisitions, normal capital replacements, new
48
<PAGE>
construction, and improvement projects at existing facilities. On December 29,
1999 we purchased from Starwood Hotels & Resorts Worldwide, Inc. and several of
its subsidiaries, all of the outstanding stock of Caesars World, Inc., a wholly
owned subsidiary of Starwood, and all of Starwood's interests in several other
gaming entities, for $3.0 billion in cash. This acquisition was funded with
borrowings from our credit facilities and issuances of long-tem notes. For the
year ended December 31, 1999, $653 million of the net cash used in investing
activities related to capital expenditures for normal capital replacements as
well as major construction projects. Major construction projects primarily
consisted of Paris Las Vegas, the Terrace Hotel at Grand Casino Tunica, the
Oasis Resort and Spa at Grand Casino Gulfport and the expansion of Grand Casino
Biloxi.
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.
On December 31, 1998, we completed our acquisition of Grand through a merger
into Park Place. As a result of the Grand merger, we now include the operations
of Grand Casino Tunica, Grand Casino Gulfport and Grand Casino Biloxi. Aggregate
consideration consisted of approximately 42 million shares of our common stock
for an equity value of approximately $270 million and the assumption of
approximately $625 million of Grand's debt at fair market value.
As exemplified by the acquisitions of Bally Entertainment Corporation in
1996, Grand Casinos, Inc. in 1998, the opening of Paris Las Vegas on
September 1, 1999, and the purchase of Caesars in December 1999, we are
interested in expanding our business through the acquisition of quality gaming
assets and selective new development. We believe that we are well-positioned to,
and may from time to time, pursue additional strategic acquisitions,
dispositions 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.
In late 1999, we submitted to the U.S. Bankruptcy Court for the District of
New Jersey, a Plan of Reorganization for Greate Bay Hotel and Casino, Inc.,
doing business as the Sands Hotel & Casino in Atlantic City, New Jersey. Our
current plan calls for a $40 million equity investment and a long term
management agreement, as well as other operating arrangements. The plan is one
of two plans currently under consideration by the court. We cannot predict what
the outcome of this bankruptcy action will be, whether our plan will be
approved, nor whether we will acquire the business under these or any other
terms.
FINANCING
Our portion of Hilton's public and corporate bank debt balances at the time
of the Hilton distribution was approximately 50 percent. As such, the portion of
Hilton's historical outstanding public debt and corporate bank debt balances and
related interest expense had been allocated to us. We entered into a long-term
credit facility and completed a senior subordinated note offering (see below) to
repay $1.1 billion of Hilton's commercial paper borrowings representing an
estimation of our share of Hilton's debt as a part of the distribution. A
reconciliation of the debt and cash allocation between us and Hilton resulted in
a $73 million cash transfer to Hilton in February 1999. This payable is
reflected in current liabilities in the accompanying consolidated balance sheet
as of December 31, 1998.
CREDIT FACILITIES. In December 1998, we entered into revolving credit
facilities with a syndicate of financial institutions. The revolving credit
facilities at that time, were governed by separate loan agreements, and provided
for borrowings of up to $2.15 billion, consisting of:
- a 364-day senior unsecured revolving credit facility of up to
$650 million, and
49
<PAGE>
- a five-year senior unsecured revolving credit facility of up to
$1.5 billion.
In connection with the financing of the Caesars transaction, we entered into
a new $2.0 billion 364-day revolving credit facility in August 1999, which
replaced the prior $650 million 364-day revolving credit facility. In addition
to the new $2.0 billion 364-day facility, we also entered into a new
$1.0 billion 364-day revolving credit facility which was available only to
provide funding for the Caesars acquisition. The $1.0 billion facility is
required to be repaid and permanently reduced with the proceeds of public note
issuances. At December 31, 1999, $3.9 billion was outstanding on our credit
facilities and approximately $213 million was available.
The 364-day revolver, as amended, matures August 2000 and the five-year
revolver matures December 2003. Both the 364-day revolver and the five-year
revolver may be extended in one year increments at our request with the prior
written consent of the lenders.
Borrowings under the credit facilities bear interest at a floating rate and
may be obtained at our option as LIBOR advances for one week or 1, 2, 3, or
6 months, or as base rate advances, each adjusted for an applicable margin (as
further described in the credit facilities), or as competitive bid loans. LIBOR
advances bear interest at December 31, 1999, at LIBOR plus 112.5 basis points
and may be adjusted quarterly based on our leverage ratio or debt ratings. Base
rate advances will bear interest at the base rate defined as the higher of:
- the federal funds rate plus 0.50%, or
- the reference rate as publicly announced by Bank of America in San
Francisco
plus a margin equal to the applicable margin for LIBOR loans in effect from time
to time minus 1.25%. Competitive bid loans shall bear interest either on an
absolute rate bid basis or on the basis of a spread above or below LIBOR. The
maximum applicable margin for LIBOR loans is 1.75% under the 364-day revolver
and the five-year revolver plus or minus pre-determined discounts based on our
leverage ratios. The five-year revolver provides for a $250 million commitment
for the issuance of letters of credit.
The credit facilities contain certain customary affirmative and negative
covenants. The credit facilities also contain customary events of default,
including without limitation, payment defaults, breaches of representations and
warranties, covenant defaults, certain events of bankruptcy and insolvency and
cross defaults to other material indebtedness. In connection with the Caesars
acquisition, we amended our five-year facility to increase the maximum total
debt to ebitda ratio (calculated using pro forma ebitda figures) to 5.25x for
the quarters ending December 31, 1999, March 31, 2000, and June 30, 2000. These
ratios are reduced to 4.75x after June 30, 2000 and 4.50x after December 31,
2000. The 364-day facilities contain the same requirements. At December 31,
1999, we were in compliance with all covenants of the credit facilities.
SENIOR NOTES. Concurrently with the Hilton distribution, we assumed primary
liability for $625 million of Hilton's fixed rate debt. The payment terms of
this debt assumption mirror the terms of Hilton's existing $300 million 7.375%
Notes due 2002 and its $325 million 7.0% Notes due 2004. Together with Hilton,
we entered into supplemental indentures with the trustee providing for the
assumption by us of the payment obligations under the existing indentures.
In August 1999, we issued $300 million of senior notes due 2003 in a private
placement offering to institutional investors. These notes were subsequently
exchanged for notes registered under the Securities Act of 1933, as amended. The
notes were issued with a coupon rate of 7.95%. The notes are unsecured
obligations and rank senior to our subordinated indebtedness and equally with
our other senior indebtedness. Proceeds from this offering were used to reduce
borrowings under the credit facilities.
In November 1999, we issued $400 million of senior notes due 2006 under our
shelf registration statement. The notes were issued with a coupon rate of 8.5%.
The notes are unsecured obligations and
50
<PAGE>
rank senior to our subordinated indebtedness and equally with our other senior
indebtedness. Proceeds from this offering were used to reduce borrowings under
the credit facilities.
SENIOR SUBORDINATED NOTES. In December 1998, we issued $400 million senior
subordinated notes due December 2005 through a private placement offering to
individual investors. These notes were subsequently exchanged for notes
registered under the Securities Act of 1933, as amended. The notes were issued
with a coupon rate of 7.875%. 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 and rank equal with all of our
other senior subordinated debt.
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 plan 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 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.
GRAND'S DEBT. As part of the acquisition of Grand, we assumed certain Grand
indebtedness as of December 31, 1998. This indebtedness included 10.125% First
Mortgage Notes due 2003 and 9.0% Senior Unsecured Notes due 2004, both of which
were marked to fair market value as of the date of acquisition.
On December 31, 1998, we completed a covenant defeasance of the Grand 9.0%
Senior Unsecured Notes. This defeasance was completed by depositing
$135 million in an irrevocable trust. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" the obligation as well as
the amount deposited in trust have been reflected in the accompanying
consolidated balance sheet as of December 31, 1998, in restricted cash and
long-term debt, respectively. On February 1, 1999 we exercised our rights to
redeem the Grand 9.0% Notes and all amounts were retired as of that date.
In January 1999, we settled a cash tender offer and consent solicitation for
substantially all of the Grand 10.125% First Mortgage Notes due 2003. The
remaining untendered notes of $5.5 million were defeased in January 1999 by
depositing $6.1 million in an irrevocable trust. Cash consideration for the
repurchase and defeasance, including premiums, totaled approximately
$490 million. On December 1, 1999 we exercised our rights to redeem the 10.125%
First Mortgage Notes and all amounts were retired as of that date.
OTHER. In January 1999, we filed a shelf registration statement with the
Securities and Exchange Commission registering up to $1 billion in debt or
equity securities. The terms of any securities offered pursuant to the shelf
registration will be determined by market conditions at the time of issuance.
The $400 million 8.5% senior notes issued in November 1999 were drawn under this
shelf registration statement. Availability under the shelf registration
statement at December 31, 1999 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. We have borrowed under the program
for varying periods during 1999. At December 31, 1999 and 1998, no amounts were
outstanding under the commercial paper program. Interest under the program is at
market rates, for varying periods.
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
year we repurchased approximately 3 million shares of our common stock at a
total cost of approximately $29 million. The amount and timing of any additional
purchases will depend on market conditions and our financial position.
51
<PAGE>
YEAR 2000
Our Year 2000 program focused on assessing the risks of the year 2000 issue
and implementing mitigating actions to minimize those risks in the areas of
information technology, non-IT systems and suppliers. We were fully year 2000
compliant with respect to all significant business systems prior to
December 31, 1999. We believe that no material adverse impact has occurred on
our ability to operate, resulting from the year 2000 issue. We have incurred
minimal costs or capital expenditures as a result of our Year 2000 program.
REGULATION AND TAXES
The gaming industry is highly regulated and we must adhere to various
regulations and maintain our licenses to continue our operations. The ownership,
management and operation of gaming facilities are subject to extensive federal,
state, provincial, tribal and/or local laws, regulations and ordinances, which
are administered by the relevant regulatory agency or agencies in each
jurisdiction. These laws, regulations and ordinances vary from jurisdiction to
jurisdiction, but generally concern the responsibility, financial stability and
character of the owners and managers of gaming operations as well as persons
financially interested or involved in gaming operations. The regulatory
environment in any particular jurisdiction may change in the future and any such
change could have a material adverse effect on our results of operations.
The gaming industry provides a significant source of tax revenue for the
states, counties and municipalities in which we operate. Occasionally, proposals
are made by federal and state legislators to amend tax laws affecting the gaming
industry. Changes in such laws, if any, could have a material effect on our
results of operations.
ITEM 7A. 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.
52
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 54
Consolidated Balance Sheets................................. 55
Consolidated Statements of Operations....................... 56
Consolidated Statements of Stockholders' Equity............. 57
Consolidated Statements of Cash Flows....................... 58
Notes to Consolidated Financial Statements.................. 59
</TABLE>
53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Park Place Entertainment
Corporation:
We have audited the accompanying consolidated balance sheets of Park Place
Entertainment Corporation (a Delaware corporation) and subsidiaries (the
"Company") as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Park Place Entertainment
Corporation and subsidiaries as of December 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
As explained in Note 2 of notes to the consolidated financial statements,
effective January 1, 1999, the Company changed its method of accounting for
pre-opening expenses.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in Item 14(a)(1) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 22, 2000
54
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ 346 $ 247
Restricted cash............................................. -- 135
Accounts receivable, net.................................... 287 119
Inventories, prepaids and other............................. 162 99
Deferred income taxes....................................... 98 34
------- ------
Total current assets.................................... 893 634
Investments................................................. 282 169
Property and equipment, net................................. 7,873 4,991
Goodwill, net of amortization of $102 million and
$68 million............................................... 1,913 1,295
Other assets................................................ 190 85
------- ------
Total assets................................................ $11,151 $7,174
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 70 $ 34
Construction payable........................................ 43 13
Current maturities of long-term debt........................ 8 6
Income taxes payable........................................ 14 --
Accrued expenses............................................ 598 387
------- ------
Total current liabilities............................... 733 440
Long-term debt, net of current maturities................... 5,616 2,466
Deferred income taxes, net.................................. 980 609
Other liabilities........................................... 82 51
------- ------
Total liabilities....................................... 7,411 3,566
======= ======
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 400 million shares
authorized, 304 million and 303 million shares
outstanding at December 31, 1999 and 1998,
respectively............................................ 3 3
Additional paid-in capital................................ 3,635 3,613
Other..................................................... (5) (8)
Retained earnings......................................... 136 --
Common stock in treasury, at cost, 3 million shares....... (29) --
------- ------
Total stockholders' equity.............................. 3,740 3,608
------- ------
Total liabilities and stockholders' equity.............. $11,151 $7,174
======= ======
</TABLE>
See notes to consolidated financial statements
55
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Casino.................................................... $2,269 $1,587 $1,450
Rooms..................................................... 392 306 312
Food and beverage......................................... 287 230 216
Other revenue............................................. 228 182 175
------ ------ ------
3,176 2,305 2,153
------ ------ ------
Expenses
Casino.................................................... 1,200 845 770
Rooms..................................................... 142 112 110
Food and beverage......................................... 268 230 191
Other..................................................... 752 539 537
Depreciation and amortization............................. 306 225 215
Pre-opening expense....................................... 47 -- --
Impairment losses and other............................... 26 29 108
Corporate expense......................................... 36 23 21
------ ------ ------
2,777 2,003 1,952
------ ------ ------
Operating income............................................ 399 302 201
Interest and dividend income.............................. 11 21 25
Interest expense.......................................... (146) (87) (82)
Interest expense, net from unconsolidated affiliates...... (11) (13) (10)
------ ------ ------
Income before income taxes, minority interest and cumulative
effect of accounting change............................... 253 223 134
Provision for income taxes................................ 113 111 63
Minority interest, net.................................... 2 3 4
------ ------ ------
Income before cumulative effect of accounting change........ 138 109 67
Cumulative effect of accounting change, net of tax.......... (2) -- --
------ ------ ------
Net income.................................................. $ 136 $ 109 $ 67
====== ====== ======
Basic earnings per share
Income before cumulative effect of accounting change...... $ 0.46
Cumulative effect of accounting change.................... (0.01)
------
Net income per share...................................... $ 0.45
======
Diluted earnings per share
Income before cumulative effect of accounting change...... $ 0.45
Cumulative effect of accounting change.................... (0.01)
------
Net income per share...................................... $ 0.44
======
Basic earnings per share--pro forma......................... $ 0.42 $ 0.25
====== ======
Diluted earnings per share--pro forma....................... $ 0.42 $ 0.25
====== ======
</TABLE>
See notes to consolidated financial statements
56
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONAL
HILTON COMMON PAID-IN RETAINED TREASURY
INVESTMENT STOCK CAPITAL OTHER EARNINGS STOCK TOTAL
---------- --------- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............. $ 3,157 $ -- $ -- $ -- $ -- $ -- $3,157
Net income.............................. 67 -- -- -- -- -- 67
Intercompany activity with Hilton....... 157 -- -- -- -- -- 157
------- --------- ------ --------- ---- ---- ------
Balance, December 31, 1997.............. 3,381 -- -- -- -- -- 3,381
Net income.............................. 109 -- -- -- -- -- 109
Intercompany activity with Hilton....... (152) -- -- -- -- -- (152)
Spin-off of the Company................. (3,338) 3 3,343 (8) -- -- --
Acquisition of Grand Casinos, Inc....... -- -- 270 -- -- -- 270
------- --------- ------ --------- ---- ---- ------
Balance, December 31, 1998.............. -- 3 3,613 (8) -- -- 3,608
Net income.............................. -- -- -- -- 136 -- 136
Options exercised....................... -- -- 26 -- -- -- 26
Treasury stock acquired................. -- -- -- -- -- (29) (29)
Adjustment to spin-off of the Company... -- -- (4) -- -- -- (4)
Currency translation adjustment......... -- -- -- 3 -- -- 3
------- --------- ------ --------- ---- ---- ------
Balance, December 31, 1999.............. $ -- $ 3 $3,635 $ (5) $136 $(29) $3,740
======= ========= ====== ========= ==== ==== ======
</TABLE>
See notes to consolidated financial statements
57
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income.................................................. $ 136 $ 109 $ 67
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 306 225 215
Pre-opening expense....................................... 47 -- --
Non-cash items............................................ 26 16 96
Amortization of debt issue costs.......................... 6 2 2
Change in working capital components:
Accounts receivable..................................... (50) 36 (21)
Inventories, prepaids and other......................... (16) (30) 45
Accounts payable and accrued expenses................... 54 (18) 12
Income taxes payable.................................... 13 (1) 1
Change in deferred income taxes........................... 3 35 39
Change in other liabilities............................... (2) (24) (36)
Distributions from equity investments in excess of (less
than) earnings.......................................... 3 (12) (1)
Other..................................................... (7) (20) (44)
------- ----- -----
Net cash provided by operating activities................. 519 318 375
------- ----- -----
Investing activities
Capital expenditures...................................... (653) (608) (438)
Pre-opening expense....................................... (47) -- --
Change in investments..................................... -- -- (57)
Change in temporary investments........................... -- 36 (25)
Acquisitions, net of cash acquired........................ (2,920) (15) (70)
Other..................................................... 10 3 7
------- ----- -----
Net cash used in investing activities..................... (3,610) (584) (583)
------- ----- -----
Financing activities
Change in credit facilities............................... 3,078 810 --
Payments on debt.......................................... (631) (9) (16)
Proceeds from issuance of notes........................... 694 -- --
Advances (to) from Hilton................................. (71) (352) 191
Purchases of treasury stock............................... (29) -- --
Proceeds from exercise of stock options................... 26 -- --
Other..................................................... (12) -- --
------- ----- -----
Net cash provided by financing activities................. 3,055 449 175
------- ----- -----
Increase (decrease) in cash and equivalents and restricted
cash...................................................... (36) 183 (33)
Cash and equivalents and restricted cash at beginning of
year...................................................... 382 199 232
------- ----- -----
Cash and equivalents and restricted cash at end of year..... $ 346 $ 382 $ 199
======= ===== =====
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest, net of amounts capitalized...................... $ 120 $ 81 $ 74
======= ===== =====
Income taxes.............................................. $ 87 $ -- $ --
======= ===== =====
</TABLE>
See notes to consolidated financials statements
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION
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") which includes the Grand Casino Biloxi, Grand Casino
Gulfport and Grand Casino Tunica properties, 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% owned and managed riverboat casino in New Orleans and an 82%
interest in a joint venture which owns a 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
and one casino in South Africa. The Company provides management services to a
casino in Windsor, Canada and the slot operations at the Dover Downs racetrack
in Delaware.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its subsidiaries and investments in unconsolidated affiliates, which are 50% 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 Entertainment Corporation.
The accompanying consolidated financial statements include the revenues,
expenses and cash flows of Hilton's gaming business on a stand-alone basis
including an allocation of corporate expenses relating to the Park Place
entities for the years ending December 31, 1998 and 1997.
CASH AND EQUIVALENTS
Cash and equivalents include investments with initial maturities of three
months or less.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of short-term investments and receivables.
The Company extends credit to certain casino customers following background
investigations and an evaluation of the creditworthiness of the individual. The
Company maintains an allowance for doubtful accounts to reduce the casino
receivables to their estimated collectible amount. As of December 31, 1999,
management believes that there are no concentrations of credit risk for which an
allowance has not been established and recorded. The collectibility of foreign
and domestic receivables could be affected by future
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
economic or other significant events in the United States or in the countries in
which such foreign customers reside.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue is the aggregate of gaming wins and losses. The revenue
components presented in the consolidated financial statements exclude the retail
value of rooms, food and beverage and other goods or services provided to
customers on a complimentary basis. The estimated cost of providing these
promotional allowances, primarily classified as casino expenses through
interdepartmental allocations, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Rooms................................................... $ 43 $ 32 $ 30
Food and beverage....................................... 159 96 105
Other................................................... 17 12 1
---- ---- ----
Total cost of promotional allowances.................... $219 $140 $136
==== ==== ====
</TABLE>
CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at year-end exchange rates and related gains and losses, net of
applicable deferred income taxes, are reflected in stockholders' equity. Gains
and losses from foreign currency transactions are included in earnings.
INVENTORIES
Inventories, prepaids and other at December 31, 1999 and 1998, includes
inventories of $58 million and $25 million, respectively. Inventories are stated
at the lower of cost or market. Cost is determined by the first-in first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Interest incurred during
construction of facilities or expansions is capitalized at the Company's
weighted average borrowing rate and amortized over the life of the related
asset. Interest capitalization is ceased when a project is substantially
completed or construction activities are no longer underway. Interest
capitalized for the years ended December 31, 1999, 1998 and 1997 were
$37 million, $25 million and $16 million, respectively. Costs of improvements
are capitalized. Costs of normal repairs and maintenance are charged to expense
as incurred. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation are removed from the respective accounts, and
the resulting gain or loss, if any, is included in income.
Depreciation is provided on a straight-line basis over the estimated useful
life of the assets. Leasehold improvements are amortized over the shorter of the
asset life or lease term. The service lives of assets are generally 30 to
40 years for buildings and riverboats and three to ten years for furniture and
equipment.
The carrying value of the Company's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred based
on expected future cash flows, then a loss is recognized in the statement of
income using a fair-value based model.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
The excess of the purchase price over the fair value of net assets of
businesses acquired (goodwill) is amortized using the straight-line method over
40 years. The Company periodically evaluates the carrying value of goodwill and
measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows as well as other factors.
UNAMORTIZED DEBT ISSUE COSTS
Debt discount and issuance costs incurred in connection with the issuance of
long-term debt are capitalized and amortized to interest expense based on the
related debt agreements using the effective interest method or a method which
approximates the effective interest method.
PRE-OPENING EXPENSE
Pre-opening expense includes operating expenses and incremental salaries and
wages directly related to a facility or project during its construction.
In the first quarter of 1999, the Company adopted Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." The provisions of
SOP 98-5 require that the Company expense costs of start-up activities
(pre-opening, pre-operating and organizational costs) as those costs are
incurred and requires the write-off of any unamortized balances upon
implementation. Adoption of the SOP resulted in an expense of approximately
$2 million, net of tax, which has been accounted for as a cumulative effect of
accounting change. The Company also expensed $47 million of pre-opening expense
for the year ended December 31, 1999, primarily related to Paris Las Vegas.
EARNINGS PER SHARE ("EPS")
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "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 year ended December 31, 1999 was 303 million. Diluted EPS
reflects the effect of potential common stock which consists solely of assumed
stock option exercises. The dilutive effect of the assumed exercise of stock
options increased the weighted average number of common shares by 6 million for
the year ended December 31, 1999.
For the years ended December 31, 1998 and 1997, pro forma earnings per share
is calculated using weighted average number of common shares outstanding of
261 million and 263 million, respectively. The dilutive effect of the assumed
exercise of stock options increased the weighted average number of common shares
by 2 million and 3 million for the years ended December 31, 1998 and 1997,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
The consolidated financial statements for 1998 and 1997 reflect certain
reclassifications to conform with classifications adopted in 1999. These
classifications have no effect on previously reported net income.
NOTE 3. ACQUISITIONS
CAESARS ACQUISITION
Effective December 29, 1999, the Company acquired Caesars pursuant to an
agreement dated April 27, 1999. Aggregate consideration consisted of
approximately $3.0 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.
GRAND ACQUISITION
Effective December 31, 1998, the Company completed the acquisition of Grand
pursuant to an agreement dated June 30, 1998. Aggregate consideration consisted
of approximately 42 million shares of the Company's common stock with an equity
value of $270 million and assumption of Grand's debt at fair market value
totaling $625 million at December 31, 1998.
The acquisition has been accounted for using the purchase method of
accounting. The purchase price has been allocated based on estimated fair values
at the date of acquisition. A total of $244 million, representing the excess of
the fair value of Grand's tangible net assets over the acquisition cost, has
reduced, by a proportionate share, the book value of non-current assets
acquired.
UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information has been prepared assuming
that these acquisitions had taken place at the beginning of the respective
periods. This pro forma information does not purport to be indicative of future
results or what would have occurred had these acquisitions been made as of such
dates. For the year ended December 31, 1998 the amounts reflect Park Place
results combined with Grand and Caesars on a pro forma basis. For the year ended
December 31, 1999 actual Park Place results (including Grand) are combined with
Caesars on a pro forma basis.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue.................................................... $4,604 $4,156
Operating income........................................... 555 469
Net income................................................. 62 29
Basic EPS.................................................. 0.20 0.10
Diluted EPS................................................ 0.20 0.09
</TABLE>
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. IMPAIRMENT LOSSES AND OTHER
In December 1999, the Company entered into a definitive agreement to sell
the Flamingo Hilton Reno for approximately $20 million in cash. The transaction
is expected to close by June 30, 2000. In connection with this disposition, the
Company recognized an impairment loss of $26 million, or $17 million, after tax,
in 1999. In 1998, the Company recorded an impairment loss related to certain
riverboat assets as well as transaction costs associated with the distribution
from Hilton and the merger with Grand. The 1997 charges included an impairment
loss relating to a riverboat casino and an impairment loss and other costs
associated with the closure of another riverboat casino.
NOTE 5. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Casino accounts receivable.................................. $285 $127
Less allowance for doubtful accounts........................ (84) (34)
---- ----
201 93
Other accounts receivable, net.............................. 86 26
---- ----
Total....................................................... $287 $119
==== ====
</TABLE>
The provision for estimated uncollectible receivables is included in casino
expenses in the amount of $53 million, $37 million and $26 million in 1999, 1998
and 1997, respectively.
NOTE 6. INVESTMENTS
Investments in and notes from affiliates at December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Equity investments
Casino hotels............................................. $181 $ 63
Notes receivable.......................................... 56 97
Other....................................................... 45 9
---- ----
Total....................................................... $282 $169
==== ====
</TABLE>
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Land........................................................ $1,732 $ 756
Buildings, riverboats and leasehold improvements............ 5,523 3,232
Furniture and equipment..................................... 1,139 697
Property held for sale or development....................... 19 6
Construction in progress.................................... 122 767
------ ------
8,535 5,458
Less accumulated depreciation and amortization.............. (662) (467)
------ ------
Total....................................................... $7,873 $4,991
====== ======
</TABLE>
NOTE 8. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Compensation and benefits................................... $147 $ 95
Payable to Hilton........................................... -- 73
Customer deposits........................................... 65 27
Outstanding casino chip liability........................... 45 18
Gaming and property taxes................................... 45 26
Interest.................................................... 32 18
Other....................................................... 264 130
---- ----
Total....................................................... $598 $387
==== ====
</TABLE>
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Credit facilities........................................... $3,888 $ 810
7.0% Senior Notes, due 2004................................. 325 324
7.375% Senior Notes, due 2002, net of unamortized discount
of $1 million............................................. 299 299
7.95% Senior Notes, due 2003, net of unamortized discount of
$2 million................................................ 298 --
8.5% Senior Notes, due 2006, net of unamortized discount of
$4 million................................................ 396 --
7.875% Senior Subordinated Notes, due 2005.................. 400 400
10.125% First Mortgage Notes, due 2003...................... -- 490
9.0% Senior Unsecured Notes, due 2004....................... -- 135
Other....................................................... 18 14
------ ------
5,624 2,472
Less current maturities..................................... (8) (6)
------ ------
Net long-term debt.......................................... $5,616 $2,466
====== ======
</TABLE>
Debt maturities during the next five years are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
2000........................................................ $ 8
2001........................................................ 2,394
2002........................................................ 300
2003........................................................ 1,794
2004........................................................ 325
Thereafter.................................................. 803
------
$5,624
======
</TABLE>
In order to equalize the indebtedness between Park Place and Hilton at the
time of the distribution, Park Place and Hilton agreed to an allocation of
pre-distribution debt balances and entered into a debt assumption agreement.
Pursuant to the debt assumption agreement, Park Place assumed and agreed to pay
100% of the amount of each payment required to be made by Hilton under the terms
of the indentures governing Hilton's $300 million aggregate principal amount of
7.375% Notes due 2002 and its $325 million aggregate principal amount of 7.0%
Notes due 2004. In the event of an increase in the interest rate on these Notes
pursuant to their terms as a result of certain actions taken by Hilton, and
certain other limited circumstances, Hilton will be required to reimburse Park
Place for any such increase. Hilton is obligated to make any payment Park Place
fails to make and in such event Park Place shall pay to Hilton the amount of
such payment together with interest, at the rate per annum borne by the
applicable notes plus 2% per annum, to the date of such reimbursement.
In order to facilitate the transfer of debt balances in connection with the
distribution, in December 1998, Park Place entered into a $2.15 billion
long-term credit facility and completed a $400 million 7.875% senior
subordinated note offering. Park Place used the proceeds from the new facility
and the note
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. LONG-TERM DEBT (CONTINUED)
offering to repay $1,066 million of Hilton's commercial paper borrowings
representing an estimate of Park Place's share of the obligation. The
distribution agreement entered into between Park Place and Hilton called for a
final reconciliation and allocation of certain debt and cash balances, as
defined. The reconciliation resulted in an additional amount due Hilton from
Park Place of $73 million. This balance is reflected in current liabilities in
the accompanying consolidated balance sheet as of December 31, 1998.
The long-term credit facility originally had an aggregate commitment of
$2.15 billion consisting of a 364-day $650 million facility and a five-year
$1.5 billion facility. In August 1999, the Company entered into a new
$2.0 billion 364-day revolving credit facility which replaced the prior
$650 million 364-day revolving credit facility. In addition to the new
$2.0 billion 364-day facility, the Company also entered into a $1.0 billion
364-day revolving credit facility which was available only to provide funding
for the Caesars acquisition. At December 31, 1999, a total of $3.9 billion was
outstanding under the credit facilities and approximately $213 million was
available.
In August 1999, the Company amended the five-year facility to increase the
maximum total debt to ebitda ratio (calculated using pro forma ebitda figures)
to 5.25x for the quarters ending December 31, 1999, March 31, 2000, and
June 30, 2000. These ratios are reduced to 4.75x after June 30, 2000 and 4.50x
after December 31, 2000. The covenants included in the $2.0 billion and
$1.0 billion 364-day facilities mirror those of the five-year facility. As of
December 31, 1999, the Company was in compliance with the covenants of the
credit facilities.
In August 1999, the Company issued $300 million of senior notes due 2003 in
a private placement offering to institutional investors. These notes were
subsequently exchanged for notes registered under the Securities Act of 1933, as
amended. The notes were issued with a coupon rate of 7.95%. The notes are
unsecured obligations and rank senior to the Company's subordinated indebtedness
and equally with the Company's other senior indebtedness. Proceeds from this
offering were used to reduce borrowings under the credit facilities.
In November 1999, the Company issued $400 million of senior notes due 2006
under its shelf registration statement. The notes were issued with a coupon rate
of 8.5%. The notes are unsecured obligations and rank senior to the Company's
subordinated indebtedness and equally with the Company's other senior
indebtedness. Proceeds from this offering were used to reduce borrowings under
the credit facilities.
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 plans 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.
As part of the acquisition of Grand, the Company assumed certain Grand
indebtedness as of December 31, 1998. This indebtedness included 10.125% First
Mortgage Notes due 2003 and 9.0% Senior Unsecured Notes due 2004, both of which
were marked to fair market value as of the date of acquisition.
On December 31, 1998, the Company completed a covenant defeasance of the
Grand 9.0% Senior Unsecured Notes. This defeasance was completed by depositing
$135 million in an irrevocable trust. In accordance with SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" the obligation as well as the amount deposited in trust have
been reflected in the
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. LONG-TERM DEBT (CONTINUED)
accompanying consolidated balance sheet in restricted cash and long-term debt,
respectively, at December 31, 1998. On February 1, 1999 the Company exercised
its rights to redeem these notes and all amounts were retired as of that date.
In January 1999, the Company settled a cash tender offer and consent
solicitation for substantially all of the Grand First Mortgage 10.125% notes due
2003. The remaining untendered notes of $5.5 million were defeased in
January 1999 by depositing $6.1 million in an irrevocable trust. Cash
consideration for the repurchase and defeasance, including premiums, totaled
approximately $490 million. On December 1, 1999 the Company exercised its rights
to redeem these notes and all amounts were retired as of that date.
The Company has established a $1.0 billion commercial paper program. To the
extent that the Company incurs debt under this program, it must maintain an
equivalent amount of credit available under its credit facilities. The Company
has borrowed under the program for varying periods during 1999. At December 31,
1999 and 1998 no amounts were outstanding under the commercial paper program.
NOTE 10. FINANCIAL INSTRUMENTS
CASH AND EQUIVALENTS
The fair value of cash and equivalents and temporary investments is
estimated based on the quoted market price of the investments.
LONG-TERM DEBT
The estimated fair value of long-term debt is based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and equivalents....................... $ 346 $ 346 $ 247 $ 247
Long-term debt (including current
maturities).............................. 5,624 5,582 2,472 2,466
</TABLE>
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. INCOME TAXES
The provision for income taxes for the three years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal................................................ $ 99 $ 74 $23
State, foreign and local............................... 15 20 1
---- ---- ---
114 94 24
Deferred................................................. (1) 17 39
---- ---- ---
Total.................................................... $113 $111 $63
==== ==== ===
</TABLE>
No income taxes were paid by the Company in 1998 or 1997 as these payments
were the responsibility of Hilton.
The income tax effects of temporary differences between financial and income
tax reporting that gave rise to deferred income tax assets and liabilities at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Accrued expenses.......................................... $ 81 $ 37
Insurance and other reserves.............................. 24 7
Benefit plans............................................. 13 6
Pre-opening expense....................................... 19 13
Foreign tax credit carryovers (expire beginning in
2000)................................................... 30 5
Investments............................................... -- 3
Capital loss carryover (expires in 2002).................. 23 23
Other..................................................... 57 64
------- -----
247 158
Valuation allowance......................................... (36) (31)
------- -----
211 127
------- -----
Deferred tax liabilities
Fixed assets, primarily depreciation...................... (995) (633)
Other..................................................... (98) (69)
------- -----
(1,093) (702)
------- -----
Net deferred tax liability.................................. $ (882) $(575)
======= =====
</TABLE>
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. INCOME TAXES (CONTINUED)
A reconciliation of the Federal income tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal income tax rate................................. 35.0% 35.0% 35.0%
State and local income taxes, net of Federal tax
benefits............................................ 1.8 3.4 1.0
Goodwill amortization................................. 4.7 5.2 8.6
Distribution costs.................................... -- 1.2 --
Other................................................. 3.2 5.0 2.4
---- ---- ----
Effective tax rate...................................... 44.7% 49.8% 47.0%
==== ==== ====
</TABLE>
NOTE 12. STOCKHOLDERS' EQUITY
Four hundred million shares of common stock with a par value of $0.01 per
share are authorized. As of December 31, 1999, 307 million shares were issued
and 304 million were outstanding. As of December 31, 1998, 303 million were
issued and outstanding. One hundred million shares of preferred stock with a par
value of $0.01 per share are authorized, of which no amounts have been issued.
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 year ended December 31, 1999, the
Company repurchased approximately 3 million shares of its common stock.
The Company has a Share Purchase Rights Plan under which a right is attached
to each share of the Company's common stock. The rights may only become
exercisable under certain circumstances involving actual or potential
acquisitions of the Company's common stock by a specified person or affiliated
group. Depending on the circumstances, if the rights become exercisable, the
holder may be entitled to purchase units of the Company's junior participating
preferred stock, shares of the Company's common stock or shares of common stock
of the acquiror. The rights remain in existence until 2008 unless they are
terminated, exercised or redeemed.
NOTE 13. STOCK OPTIONS
At December 31, 1999 and 1998, 45 million shares of common stock were
reserved for the exercise of options under the Company's Stock Incentive Plans.
Options may be granted to salaried officers, directors and other key employees
of the Company to purchase common stock at not less than the fair market value
at the date of grant. Generally, options may be exercised in installments
commencing one year after the date of grant. The Stock Incentive Plans also
permit the granting of Stock Appreciation Rights (SARs). No SARs have been
granted as of December 31, 1999.
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. STOCK OPTIONS (CONTINUED)
The following table summarizes information for the stock option plans for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at beginning of year.................... 32,810,464 $8.24
Granted........................................... 6,938,660 7.92
Exercised......................................... (3,341,807) 7.00
Cancelled......................................... (634,204) 9.34
----------
Outstanding at end of year.......................... 35,773,113 8.27
==========
Options exercisable at end of year.................. 19,248,145 $8.17
Options available at end of year.................... 5,950,080
</TABLE>
As a result of the Hilton distribution, effective December 31, 1998, a total
of 14.6 million Park Place stock options were issued, representing the
adjustment of existing Hilton stock options to represent options in both Park
Place and Hilton. The exercise price for options to purchase Park Place common
stock were adjusted based on the relative values of Park Place and Hilton common
stock on the date the Company's stock began trading on a "when issued" basis.
Also on December 31, 1998, 18.2 million options were granted representing the
conversion of existing options to purchase Grand common stock in connection with
the Grand merger and the grant of additional Park Place stock options.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.69-6.50 12,387,838 8.09 $ 6.28 3,699,838 $ 5.92
6.54-8.37 9,967,430 3.95 7.35 7,854,731 7.38
9.11-11.23 10,279,345 4.84 10.17 7,630,576 10.05
11.28-12.88 3,138,500 8.99 12.85 63,000 12.06
---------- ----------
2.69-12.88 35,773,113 6.08 $ 8.27 19,248,145 $ 8.17
========== ==========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, compensation expense recognized was different than what would have
otherwise been recognized under the fair value based method defined in SFAS
No. 123, "Accounting for Stock-Based Compensation." Had compensation cost for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. STOCK OPTIONS (CONTINUED)
under those plans consistent with the method of SFAS 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net income
As reported.......................................... $ 136 $ 109 $ 67
Pro forma............................................ 111 92 61
Basic EPS
As reported.......................................... $0.45 $0.42 $0.25
Pro forma............................................ 0.37 0.35 0.23
Diluted EPS
As reported.......................................... $0.44 $0.42 $0.25
Pro forma............................................ 0.36 0.35 0.23
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield
of zero percent for each of the three years; expected volatility of 40, 34 and
32 percent; risk-free interest rates of 5.30, 5.51 and 6.49 percent and expected
life of six years for each of the options granted. As a result of the
distribution, the fair values of the Hilton options were adjusted and prior
periods were restated based on the relative values of Hilton and Park Place
common stock at December 31, 1998.
The Company adopted an Employee Stock Purchase Plan by which the Company is
authorized to issue up to five million shares of common stock to its full-time
employees. Under the terms of the Plan, employees can elect to have a percentage
of their earnings withheld to purchase the Company's common stock.
NOTE 14. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income" requires that the Company disclose comprehensive income
and its components. Comprehensive income is the total of net income and all
other non-stockholder changes in equity. Comprehensive income for the years
ended December 31, 1999, 1998 and 1997 is calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Net income............................................... $136 $109 $ 67
Currency translation adjustment.......................... 3 (8) --
---- ---- ---------
Comprehensive income..................................... $139 $101 $ 67
==== ==== =========
</TABLE>
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
A significant number of the Company's employees are covered by union
sponsored, collectively bargained multi-employer pension plans. The Company
contributed and charged to expense $13 million, $12 million and $12 million in
1999, 1998 and 1997, respectively, for such plans. Information from the plans'
administrators is not sufficient to permit the Company to determine its share,
if any, of unfunded vested benefits.
The Company also has other employee investment plans including a 401K plan
and a deferred compensation plan whereby the Company matches certain percentages
of employee contributions. The cost of these plans is not significant.
The Company provides life insurance benefits to certain retired employees.
Under terms of the plan covering such life insurance benefits, the Company
reserves the right to change, modify or discontinue these benefits. The cost of
these benefits is not significant.
NOTE 16. LEASES
The Caesars Tahoe land and building are leased pursuant to an operating
lease which expires in 2004 and is renewable for two additional 25-year periods.
The lease provides for a minimum rental payment of $3.0 million for the period
from August 1, 1999 to July 31, 2000, increasing by $75 thousand per year on
August 1, 2000 and in each subsequent year, and for percentage rent of 20% of
the casino/hotel's net profit (as therein defined).
The Company has entered into various operating leases for land adjacent to
its dockside casinos in Mississippi. The lease for land adjacent to the Grand
Casino Gulfport is for the period from July 1, 1997, through June 30, 2002, and
contains renewal options totaling 40 years. The Company is required to make
annual rental payments of $1.2 million subject to adjustment as defined, plus 5%
of gross annual gaming revenues in excess of $25 million and 3% of all
non-gaming revenues. The lessor of the Grand Casino Gulfport site has the right
to cancel the lease at any time for reason of port expansion, in which case the
lessor will be liable to the Company for the depreciated value of improvements
and other structures placed on the leased premises, as defined.
The lease for land adjacent to the Grand Casino Biloxi has an initial term
of 99 years and provides for rental payments of 5% of casino revenues (as
defined therein) which will be a minimum payment of $2.5 million per year. The
Company also entered into a 15-year lease for submerged land adjacent to the
Grand Casino Biloxi with an option to extend the lease for five years after the
expiration of the initial 15-year term. The lease provides for annual rental
payments of $900 thousand for the next four years, and subsequent increases as
defined in the agreement.
The land lease in connection with the operation of Grand Casino Tunica
provides for annual rental payments of $3.2 million for the period from
January 1, 2000 to January 1, 2001, subject to adjustment as defined in each
subsequent year. The initial term of the lease is for six years with nine
six-year renewal options, for a total of 60 years.
For the years ended December 31, 1999, 1998 and 1997, total rental expense
was approximately $30 million, $7 million and $7 million. Contingent rental
payments of $17 million, $3 million and $2 million were included in total rental
expense for the years ended December 31, 1999, 1998 and 1997, respectively.
Minimum lease commitments under noncancelable operating leases approximate
$15 million annually through 2004 with an aggregate commitment of $350 million
through 2092.
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. LITIGATION
The Company is party to legal proceedings relating to the Bally, Hilton,
Grand and Caesars gaming businesses that it assumed in 1998 and 1999. Management
does not believe that the resolution of these matters will have a material
adverse effect on the consolidated results of operations or financial position.
BELLE OF ORLEANS
The Company's wholly owned subsidiary, Bally's Louisiana, Inc. ("Bally's
Louisiana"), owns 49.9% of the Belle of Orleans, L.L.C. (the "Belle"), a limited
liability company which owns and holds the riverboat gaming license to operate
Bally's Casino Lakeshore Resort. Metro Riverboat Associates, Inc. ("Metro") owns
the remaining 50.1% interest in the Belle. Bally's Louisiana and Metro entered
into an operating agreement defining the rights and obligations of the members
of Belle, along with a management agreement providing for Bally's Louisiana to
manage the riverboat casino. The parties are involved in numerous lawsuits,
appeals and administrative hearings regarding their rights and obligations under
those agreements. Cases are pending between the parties in the Civil District
Court for the Parish of Orleans, the Nineteenth Judicial District Court for the
Parish of East Baton Rouge, the Louisiana First Circuit Court of Appeal, the
Louisiana Supreme Court, and the U.S. District Court for the Northern District
of Illinois, Eastern Division.
The disputes revolve around Metro's claim that the assignments from previous
Bally's entities to Bally's Louisiana, which resulted from Hilton's merger with
Bally Entertainment Corporation in 1996 and Hilton's subsequent spin-off of its
gaming operations to Park Place in 1998, were invalid and that Bally's Louisiana
has no authority to manage the casino. Metro is seeking injunctive relief and
unspecified damages in its efforts to remove Bally's Louisiana as manager of the
Belle.
BALLY MERGER LITIGATION
A purported class action against Bally Entertainment Corporation, its
directors and Hilton was commenced on September 4, 1996, under the caption
PARNES V. BALLY ENTERTAINMENT CORPORATION, ET. AL. in the Court of Chancery of
the State of Delaware, New Castle County. The plaintiff alleges that certain
payments received by Arthur M. Goldberg, in connection with the merger of Bally
into Hilton in December 1996, involved breaches of fiduciary duty which denied
other Bally shareholders an opportunity to sell their shares to Hilton or any
other bidder at the best possible price. The plaintiff seeks injunctive relief
enjoining the Bally-Hilton merger, disgorgement of profits, and unspecified
damages. In orders dated May 13, 1997 and February 3, 1998, the trial court
dismissed the litigation. The plaintiff appealed and on January 25, 1999, the
Delaware Supreme Court reversed the dismissal order and remanded the case to the
Court of Chancery for further proceedings.
ATLANTIC CITY LITIGATION
On September 9, 1997, Mirage Resorts, Inc. ("Mirage") commenced an action in
the United States District Court for the Southern District of New York. Named as
defendants were Park Place, Trump Hotel & Casino Resorts ("THCR"), and the
allegedly controlling shareholder of THCR. The complaint alleged that the
defendants violated the Sherman Antitrust Act, committed tortious interference
with prospective economic advantage, and induced a breach of fiduciary duty in
connection with Mirage's efforts to develop a casino resort in Atlantic City,
New Jersey. Injunctive relief and compensatory and punitive damages in
unspecified amounts were sought. In February 2000, the plaintiff dismissed its
action with prejudice and without cost to Park Place, other than the payment of
its own costs and expenses incurred in defending the action.
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. LITIGATION (CONTINUED)
SLOT MACHINE LITIGATION
On April 26, 1994, William H. Poulos brought a class action in the U.S.
District Court for the Middle District of Florida, Orlando Division captioned
WILLIAM H. POULOS, ET. AL. V. CAESARS WORLD, INC. ET. AL., against 41
manufacturers, distributors and casino operators of video poker and electronic
slot machines, including Park Place. On May 10, 1994, another plaintiff filed a
class action complaint in the United States District Court for the Middle
District of Florida-WILLIAM AHEARN, ET. AL. V. CAESARS WORLD, INC. ET.
AL.-alleging substantially the same allegations against 48 defendants, including
Park Place. On September 26, 1995, a third action was filed against 45
defendants, including Park Place, in the U.S. District Court for the District of
Nevada-LARRY SCHREIER, ET. AL. V. CAESARS WORLD, INC. ET. AL. The court
consolidated the three cases in the U.S. District Court for the District of
Nevada under the case caption WILLIAM H. POULOS, ET. AL. V. CAESARS WORLD, INC.
ET. AL.
The consolidated complaints allege that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play. The actions included claims under the
federal Racketeering Influenced and Corrupt Organizations Act, fraud, unjust
enrichment and negligent misrepresentation, and seek unspecified compensatory
and punitive damages. The case has not been certified as a class action.
GRAND CASINOS
INDEMNIFICATION OF PARK PLACE
Grand Casinos, Inc., and its subsidiaries are parties to various lawsuits
arising out of actions prior to Grand's merger with Park Place. Any liabilities
with respect thereto are an obligation of Grand, and Grand is to be indemnified
by Lakes Gaming, Inc. ("Lakes") (the company that retained the non-Mississippi
business of Grand prior to the merger) for certain liabilities. If Lakes is
unable to satisfy its indemnification obligations, Grand will be responsible for
any liabilities, which could have a material adverse effect on Park Place.
As security to support Lakes' indemnification obligations to Grand, Lakes
agreed to irrevocably deposit, in trust for the benefit of Grand, a total sum of
$30 million. The trust will be funded with four annual installments of
$7.5 million during the four-year period subsequent to December 31, 1998. The
first annual installment payment was made in December 1999.
GRAND SECURITIES LITIGATION
Grand and certain of Grand's current and former officers and directors are
defendants in IN REGRAND CASINOS, INC. SECURITIES LITIGATION, filed on
September 9, 1996 in the United States District Court in Minnesota. This action
arises out of Grand's involvement in the Stratosphere project in which Grand was
a dominant shareholder. The plaintiffs in the action, who are current or former
Grand shareholders, seek to pursue the action as a class action, alleging
securities fraud, insider trading and the making of false statements concerning
the Stratosphere project.
STRATOSPHERE SECURITIES LITIGATION
Grand and certain persons who have been indemnified by Grand, including
certain former and current Grand officers and directors, are defendants in legal
actions filed on August 5, 1996 in the United States District Court, District of
Nevada (MICHAEL CEASAR V. STRATOSPHERE CORPORATION ET. AL.) and on
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. LITIGATION (CONTINUED)
August 16, 1996 in the District Court, Clark County, Nevada (OPITZ ET. AL. V.
STRATOSPHERE CORPORATION ET. AL.). These actions arise out of Grand's
involvement in the Stratosphere Tower, Casino and Hotel project in Las Vegas,
Nevada. Grand was a dominant shareholder of Stratosphere. The state court action
has been stayed pending resolution of the federal court action.
The plaintiffs in the actions, who are present or former shareholders of
Stratosphere Corporation, seek to pursue the actions as class actions. The
complaints seek unspecified damages for allegations that the defendants
concealed material information and made false positive statements about the
Stratosphere, which caused the value of the Stratosphere stock to be inflated.
In April 1998, a motion to dismiss submitted by Grand was partially granted. By
order dated October 4, 1999, the court granted in part and denied in part a
motion for summary judgment filed by Grand. The plaintiffs are pursuing the
claims that survived the motion to dismiss and summary judgment.
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. Court for the District of Nevada 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 has filed for summary judgment in the U.S. District Court action on
the basis of that ruling.
On November 7, 1997, Stratosphere filed its Second Amended Plan, which was
approved by the Bankruptcy Court and declared effective on October 14, 1998.
Pursuant to the Second Amended Plan, Stratosphere common stock that was
outstanding prior to the effective date of the Second Amended Plan was
cancelled. The Second Amended Plan contemplates the formation of a new limited
liability company which will own and pursue certain alleged claims and causes of
action that Stratosphere and other persons may have against numerous third
parties, including Grand and/or officers and/or directors of Grand. The Second
Amended Plan contemplates capitalizing this new limited liability company with
an investment of $5 million.
STRATOSPHERE PREFERENCE ACTION
On February 12, 1998, Stratosphere filed a complaint in the United States
Bankruptcy Court in and for the District of Nevada against Grand and Grand
Media & Electronics Distributing, Inc. ("Grand Media"), a wholly owned
subsidiary of Grand, seeking recovery of approximately $5.7 million in total
fees paid by Stratosphere to Grand as management fees and for costs and expenses
under a management agreement between Stratosphere and Grand, and to Grand Media
for electronic equipment purchased by Stratosphere from Grand Media.
Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law.
OTHER
Park Place and its subsidiaries are involved in various other legal
proceedings relating to routine matters incidental to our business. While any
proceeding or litigation has an element of uncertainty,
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. LITIGATION (CONTINUED)
management believes that the final outcome of these matters is not likely to
have a material adverse effect upon the Company's results of operations or
financial position.
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1(ST) 2(ND) 3(RD) 4(TH)
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Revenues............................................ $ 748 $ 739 $ 839 $ 850 $3,176
Operating income.................................... 119 101 100 79 399
Net income.......................................... 45 40 34 17 136
Basic EPS(1)........................................ 0.15 0.13 0.11 0.06 0.45
Diluted EPS(1)...................................... 0.15 0.13 0.11 0.05 0.44
YEAR ENDED DECEMBER 31, 1998
Revenues............................................ $ 575 $ 574 $ 591 $ 565 $2,305
Operating income.................................... 92 95 92 23 302
Net income (loss)................................... 39 41 38 (9) 109
Basic EPS(1)........................................ 0.15 0.16 0.15 (0.03) 0.42
Diluted EPS(1)...................................... 0.15 0.16 0.15 (0.03) 0.42
</TABLE>
- ------------------------
(1) The sum of Basic and Diluted EPS for the four quarters may differ from the
annual EPS due to the required method of computing weighted average number
of shares in the respective periods.
76
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS
We incorporate by reference the information appearing under "Directors and
Executive Officers" in our definitive proxy statement, to be filed with the
Securities and Exchange Commission within 120 days after the close of the
Company's year ended December 31, 1999 and forwarded to stockholders prior to
the Company's 2000 Annual Meeting of Stockholders (the Proxy Statement).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We incorporate by reference the information appearing under "Stock Ownership
of Major Stockholders and Management" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
We incorporate by reference the information appearing under "Executive
Compensation" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We incorporate by reference the information appearing under "Compensation
Committee Interlocks" and "Related-Party Transactions" in the Proxy Statement.
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT CHARGED TO (CREDITED) BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OTHER OF PERIOD
---------- ---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts........ 34 53 -- 46 43(A) 84
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts........ 21 37 -- 25 1(A) 34
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts........ 21 26 -- 26 -- 21
</TABLE>
- ------------------------
(A) Represents balances acquired during the period.
77
<PAGE>
(A)(2) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 30, 1998, by
and among Hilton Hotels Corporation, the Registrant, Gaming
Acquisition Corporation, GCI Lakes, Inc. and Grand Casinos,
Inc. (incorporated by reference to Exhibit 2.1 to the Form
10-Q for the quarter ended June 30, 1998 of Hilton Hotels
Corporation).
2.2 Stock Purchase Agreement dated as of April 27, 1999 by and
among the Registrant and Starwood Hotels & Resorts
Worldwide, Inc., ITT Sheraton Corporation, Starwood Canada
Corp., Caesars World, Inc., Desert Inn Corporation and
Sheraton Tunica Corporation (incorporated by reference from
Exhibit 2.1 to the Quarterly Report on Form 10-Q of the
Registrant dated March 31, 1999, filed with the Commission
on May 17, 1999).
2.3 Amendment No.1 dated as of December 29, 1999, to the Stock
Purchase Agreement by and among the Registrant and Starwood
Hotels & Resorts Worldwide, Inc. (incorporated by reference
from Exhibit 2.1 to the Current Report on Form 8-K of the
Registrant filed with the Commission on December 30, 1999).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference from Exhibit 4.1 to
the Registration Statement on Form S-8 of the Registrant
filed with the Commission on December 22, 1998).
3.2 Amended and Restated Bylaws of the Registrant (incorporated
by reference from Exhibit 4.2 to the Registration Statement
on Form S-8 of the Registrant filed with the Commission on
December 22, 1998).
4.1 Indenture dated as of August 2, 1999 by and among the
Registrant and Norwest Bank Minnesota, N.A., with respect to
$300 million aggregate principal amount of 7.95% Senior
Notes due 2003 (incorporated by reference to the
Registration Statement on Form S-4 Amendment No. 1 filed
with the Commission on September 22, 1999).
4.2 Registration Rights Agreement dated as of August 2, 1999 by
and among the Registrant and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Banc or America
Securities LLC, Deutsche Bank Securities Inc., SG Cowen
Securities Corporation, Scotia Capital Markets (USA) Inc.,
BNY Capital Markets, Inc. First Union Capital Markets Corp.,
PNC Capital Markets, Inc., Bear, Stearns & Co. Inc. and
Norwest Investment Services, Inc. (incorporated by reference
to the Registration Statement on Form S-4 Amendment No. 1
filed with the Commission on September 22, 1999).
4.3 Rights Agreement dated as of December 29, 1998 by and among
the Registrant and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent (incorporated by reference from Exhibit 1 to
the Registrant's Form 8-A filed with the Commission on
December 30, 1998).
4.4 Indenture dated as of December 21, 1998 by and among the
Registrant and First Union National Bank, as trustee, with
respect to $400 million aggregate principal amount of 7 7/8%
Senior Subordinated Notes due 2005 (incorporated by
reference to Exhibit 4.5 to the Current Report on Form 8-K
of the Registrant filed with the Commission on January 8,
1999).
4.5 First Supplemental Indenture dated as of December 31, 1998
by and among Hilton Hotels Corporation, BNY Western Trust
Company, as Trustee, and the Registrant, to the Indenture
dated as of April 15, 1997 between Hilton Hotels Corporation
and BNY Western Trust Company, as Trustee (incorporated by
reference to Exhibit 4.4 to the Current Report on Form 8-K
of the Registrant filed with the Commission on January 8,
1999).
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
4.6 Five Year Credit Agreement dated as of December 31, 1998
among the Registrant, Bank of America National Trust
Association, as Administrative Agent, and NationsBanc
Montgomery Securities, LLC, as Lead Arranger (incorporated
by reference to Exhibit 99.10 to the Current Report on Form
8-K of the Registrant filed with the Commission on January
8, 1999).
4.7 Amendment No. 1 to the Five Year Credit Agreement dated as
of August 31, 1999 amoung Park Place Entertainment
Corporation, the Lenders, Syndication Agent and
Documentation Agents referred to in the Fiver Year Credit
Agreement dated as of December 31, 1998, and Bank of America
National Trust and Savings Association, as Administrative
Agent (incorporated by reference to the Registration
Statement on Form S-4 Amendment No. 1 filed with the
Commission on September 22, 1999).
4.8 $2.0 Billion Short Term Credit Agreement dated as of August
31, 1999 among Park Place Entertainment Corporation, the
Lenders, Documentation Agents, Co-Arrangers and Senior
Managing Agents Referred to therein, and Bank of America,
N.A., as Administrative Agent (incorporated by reference to
the Registration Statement on Form S-4 Amendment No. 1 filed
with the Commission on September 22, 1999).
4.9 $1.0 Billion Short Term Credit Agreement dated as of August
31, 1999 among Park Place Entertainment Corporation, the
Lenders, Documentation Agents, Co-Arrangers and Senior
Managing Agents Referred to therein, and Bank of America,
N.A., as Administrative Agent (incorporated by reference to
the Registration Statement on Form S-4 Amendment No. 1 filed
with the Commission on September 22, 1999).
4.10 Prospectus Supplement dated November 9, 1999 with respect to
$400 million principal amount of 8.5% Senior Notes due 2006
(incorporated by reference to the Current Report on Form 8-K
of the Registrant filed with the Commission on November 12,
1999).
10.1 Lease Agreement between the Mississippi Department of
Economic and Community Development and the Mississippi State
Port Authority at Gulfport, as lessor, and Grand Casinos,
Inc., as lessee, dated as of May 20, 1992 (incorporated by
reference to Exhibit 10VV to Grand Casinos, Inc.'s Report on
Form 10-K for the fiscal year ended August 2, 1992 (File No.
0-19565)).
10.2 Ground Lease between Mavar, Inc., a Mississippi Corporation,
as lessor and Grand Casinos of Mississippi, Inc., a
Minnesota corporation, as lessee, dated as of June 23, 1992
(incorporated by reference to Exhibit 10XX to Grand Casinos,
Inc.'s Report on Form 10-K for the fiscal year ended August
2, 1992 (File No. 0-19565)).
10.3 Fifth Lease Amendment between the State of Mississippi
through its duly authorized agencies. The Mississippi
Department of Economic and Community Development and the
Mississippi State Port Authority at Gulfport and Grand
Casinos of Mississippi, Inc. dated July 8, 1996
(incorporated by reference to Exhibit 10.13 to Grand
Casinos, Inc.'s Report on Form 10-K for the fiscal year
ended December 29, 1996).
10.4 First Amendment to Ground Lease with Mavar, Inc. and Grand
Casinos, Inc., dated November 9, 1992 (incorporated by
reference to Exhibit 10MMM to Grand Casinos, Inc.'s Report
on Form 10-Q for the quarter ended November 1, 1992 (File
No. 0-19565)).
10.5 Application for Standard Lease of Public Trust Tidelands,
dated December 7, 1992 (incorporated by reference to Exhibit
10NNN to Grand Casinos, Inc.'s Report on Form 10-Q for the
quarter ended November 1, 1992 (File No. 0-19565)).
10.6 Second Lease Amendment with consent to Assignment between
the State of Mississippi and Grand Casinos, Inc.
(incorporated by reference to Exhibit 10.9 to Grand Casinos,
Inc.'s Report on Form 10-Q for the quarter ended January 31,
1993 (File No. 0-19565)).
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.7 Second Amendment to Lease Agreement dated as of February 1,
1993 between Mavar, Inc. and Grand Casinos of Mississippi,
Inc. Biloxi (incorporated by reference to Exhibit 10.10 to
Grand Casinos, Inc.'s Report on Form 10-Q for the quarter
ended January 31, 1993 (File No. 0-19565)).
10.8 Public Trust Tidelands lease dated January 28, 1993 by and
between the Secretary of State of the State of Mississippi,
on behalf of the State of Mississippi and Grand Casinos of
Mississippi, Inc. Biloxi (incorporated by reference to
Exhibit 10.11 to the Grand Casinos, Inc.'s Report on Form
10-Q for the quarter ended January 31, 1993 (File No.
0-19565)).
10.9 Standby Equity Commitment dated March 9, 1995 by and between
Grand Casinos, Inc. and Stratosphere Corporation
(incorporated by reference to Exhibit 10.51 to Grand
Casinos, Inc.'s Report on Form 10-K for the fiscal year
ended January 1, 1995 (File No. 0-19565)).
10.10 First Amendment to Port Authority Ground Lease dated as of
December 14, 1992, between the Mississippi Department of
Economic and Community Development, the Mississippi State
Port Authority at Gulfport, and Grand Casinos, Inc.
(incorporated by reference to Exhibit 10.31 to Grand
Casinos, Inc.'s Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.11 Third Amendment to Port Authority Ground Lease dated as of
February 9, 1994, between the Mississippi Department of
Economic and Community Development, the Mississippi State
Port Authority at Gulfport, and Grand Casinos of
Mississippi, Inc. Gulfport (incorporated by reference to
Exhibit 10.32 to Grand Casinos, Inc.'s Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.12 Fourth Amendment to Port Authority Ground Lease dated as of
June 3, 1994, between the Mississippi Department of Economic
and Community Development, the Mississippi State Port
Authority at Gulfport, and Grand Casinos of Mississippi,
Inc. Gulfport (incorporated by reference to Exhibit 10.33 to
Grand Casinos, Inc.'s Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.13 Fifth Amendment to Port Authority Ground Lease dated as of
November 30, 1995, between the Mississippi Department of
Economic and Community Development, the Mississippi State
Port Authority at Gulfport, and Grand Casinos of
Mississippi, Inc. Gulfport (incorporated by reference to
Exhibit 10.34 to Grand Casinos, Inc.'s Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.14 Ground Sublease Agreement between Grand Casinos of
Mississippi, Inc. Gulfport and CHC/ GCI Gulfport Limited
Partnership dated as of April 1, 1994 (incorporated by
reference to Exhibit 10.35 to Grand Casinos, Inc.'s Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.15 First Amendment to Ground Sublease Agreement dated as of
February 3, 1995 by and between Grand Casinos of
Mississippi, Inc. Gulfport and CHC/GCI Gulfport Limited
Partnership (incorporated by reference to Exhibit 10.36 to
Grand Casinos, Inc.'s Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.16 Ground Sublease Agreement between Grand Casinos of
Mississippi, Inc. Biloxi and CHC/GCI Gulfport Limited
Partnership dated as of September 1, 1994 (incorporated by
reference to Exhibit 10.37 to Grand Casinos, Inc.'s Report
on Form 10-K for the fiscal year ended December 31, 1995).
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.17 First Amendment to Ground Sublease Agreement dated as of
February 3, 1995 by and between Grand Casinos of
Mississippi, Inc. Biloxi and CHC/GCI Biloxi Limited
Partnership (incorporated by reference to Exhibit 10.38 to
Grand Casinos, Inc.'s Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.18 Public Trust Tidelands Lease dated as of June 20, 1994 by
and between the State of Mississippi and CHC/GCI Biloxi
Limited Partnership (incorporated by reference to Exhibit
10.39 to Grand Casinos, Inc.'s Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.19 First Amendment to Public Trust Tidelands Lease dated as of
November 30, 1995 by and between the State of Mississippi
and Grand Casinos Biloxi Theater, Inc. (incorporated by
reference to Exhibit 10.40 to Grand Casinos, Inc.'s Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.20 Memorandum of Lease dated as of January 20, 1995 by and
between the Board of Levy Commissioners for the
Yazoo-Mississippi delta and BL Development Corp.
(incorporated by reference to Exhibit 10.41 to Grand
Casinos, Inc.'s Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.21 First Amendment to Lease dated as of November 30, 1995 by
and between the Board of Levee Commissioners for the
Yazoo-Mississippi Delta and BL Development Corp.
(incorporated by reference to Exhibit 10.42 to Grand
Casinos, Inc.'s Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.22 Distribution Agreement dated as of December 31, 1998 between
Hilton Hotels Corporation and the Registrant (incorporated
by reference to Exhibit 99.1 to the Current Report on Form
8-K of the Registrant filed with the Commission on January
8, 1999).
10.23 Debt Assumption Agreement dated as of December 31, 1998
between Hilton Hotels Corporation and the Registrant
(incorporated by reference to Exhibit 99.2 to the Current
Report on Form 8-K of the Registrant filed with the
Commission on January 8, 1999).
10.24 Assignment and License Agreement dated as of December 31,
1998 by and between Hilton Hotels Corporation, Conrad
International Royalty Corporation and the Registrant
(incorporated by reference to Exhibit 99.3 to the Current
Report on Form 8-K of the Registrant filed with the
Commission on January 8, 1999).
10.25 Non-Competition Agreements dated as of December 31, 1998 by
and between Lyle Berman, Thomas J. Brosig, Stanley M. Taube
and the Registrant (incorporated by reference to Exhibit
99.8 to the Current Report on Form 8-K of the Registrant
filed with the Commission on January 8, 1999).
10.26 Employment Agreement between the Registrant and Arthur M.
Goldberg (incorporated by reference to Exhibit 99.11 to the
Current Report on Form 8-K of the Registrant filed with the
Commission on January 8, 1999).
10.27 Employment Agreement between the Registrant and Stephen F.
Bollenbach (incorporated by reference to Exhibit 99.12 to
the Current Report on Form 8-K of the Registrant filed with
the Commission on January 8, 1999).
10.28 1991 Grand Casinos, Inc. Stock Option and Compensation Plan,
as amended. (Incorporated by reference to Exhibit 4.3 to the
Registrants Form S-8 dated January 8, 1999).
10.29 Park Place Entertainment Corporation 1998 Independent
Director Stock Option Plan (incorporated by reference to
Exhibit 4.3 to the Registrants Form S-8 dated December 22,
1998).
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.30 Park Place Entertainment Corporation 1998 Employee Stock
Purchase Plan (incorporated by reference to Exhibit 4.3 to
the Registrants Form S-8 dated December 22, 1998).
10.31 Park Place Entertainment Corporation 1998 Stock Incentive
Plan (incorporated by reference to Exhibit 4.3 to the
Registrants Form S-8 dated December 22, 1998).
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule-Year ended December 31, 1999
</TABLE>
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated December 30, 1999. The
Company reported under the caption "Item 2 Acquisition of Assets", that it had
completed the acquisition of Caesars World Inc. and other gaming assets
("Caesars") from Starwood Hotels and Resorts Worldwide, Inc. ("Starwood").
82
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
PARK PLACE ENTERTAINMENT CORPORATION
By: /s/ CLIVE S. CUMMIS
---------------------------------------
Clive S. Cummis
EXECUTIVE VICE PRESIDENT LAW
& CORPORATE AFFAIRS AND SECRETARY
</TABLE>
DATED: MARCH 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in their capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LYLE BERMAN Director March 27, 2000
--------------------------------------
Lyle Berman
/s/ STEPHEN F. BOLLENBACH Chairman of the Board and Director March 27, 2000
--------------------------------------
Stephen F. Bollenbach
/s/ A. STEVEN CROWN Director March 27, 2000
--------------------------------------
A. Steven Crown
/s/ BARBARA BELL COLEMAN Director March 27, 2000
--------------------------------------
Barbara Bell Coleman
Executive Vice President-
/s/ CLIVE S. CUMMIS Law & Corporate Affairs and March 27, 2000
-------------------------------------- Secretary and Director
Clive S. Cummis
President and Chief Executive
/s/ ARTHUR M. GOLDBERG Officer (Principal Executive March 27, 2000
-------------------------------------- Officer) and Director
Arthur M. Goldberg
/s/ BARRON HILTON Director March 27, 2000
--------------------------------------
Barron Hilton
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ERIC M. HILTON Director March 27, 2000
--------------------------------------
Eric M. Hilton
/s/ P.X. KELLEY Director March 27, 2000
--------------------------------------
P.X. Kelley
Executive Vice President and Chief
/s/ SCOTT A. LAPORTA Financial Officer (Principal March 27, 2000
-------------------------------------- Financial and Accounting Officer)
Scott A. LaPorta
/s/ J. KENNETH LOOLOIAN Director March 27, 2000
--------------------------------------
J. Kenneth Looloian
/s/ ROCCO J. MARANO Director March 27, 2000
--------------------------------------
Rocco J. Marano
/s/ GILBERT L. SHELTON Director March 27, 2000
--------------------------------------
Gilbert L. Shelton
</TABLE>
84
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF PARK PLACE ENTERTAINMENT CORPORATION
- -------------------------------------------------------------------------------
PARBALL CORPORATION
a Nevada corporation
dba Flamingo Hilton-Las Vegas and Bally's Las Vegas
FLAMINGO HILTON-LAUGHLIN, INC.
a Nevada corporation
FHR CORPORATION
a Nevada corporation
dba Reno Hilton and Flamingo Hilton-Reno
LVH CORPORATION
a Nevada corporation
dba Las Vegas Hilton
BALLY'S PARK PLACE, INC.
a New Jersey corporation
GNOC, CORP.
a New Jersey corporation
dba Atlantic City Hilton
ATLANTIC CITY COUNTRY CLUB, INC.
A New Jersey corporation
BI GAMING CORPORATION
a Nevada corporation
BALLY'S MIDWEST CASINO, INC.
A Delaware corporation
BALLY'S MARYLAND, INC.
A Maryland corporation
dba Ocean Downs Racetrack
BALLY'S LOUISIANA, INC.
a Louisiana corporation
BALLY'S TUNICA, INC.
A Mississippi Corporation
BALLY'S OLYMPIA LIMITED PARTNERSHIP
a Delaware partnership
dba Bally's Saloon-Gaming Hall-Hotel
PARK PLACE ENTERTAINMENT SCOTIA LIMITED
A Canadian corporation
PARK PLACE WINDSOR HOLDING, INC.
A Canadian corporation
GRAND CASINOS, INC.
A Minnesota corporation
GRAND CASINOS OF MISSISSIPPI, L.L.C.-GULFPORT
a Mississippi Limited Liability Company
dba Grand Casino Gulfport
GRAND CASINOS OF MISSISSIPPI, INC.-BILOXI
a Minnesota corporation
dba Grand Casino Biloxi
77
<PAGE>
BL DEVELOPMENT CORP.
a Minnesota corporation
dba Grand Casino Tunica
CAESARS WORLD, INC.
a Florida corporation
ROMAN HOLDING CORPORATION OF INDIANA
an Indiana corporation
CAESARS PALACE CORPORATION
a Delaware corporation
CAESARS PALACE REALTY CORPORATION
a Nevada corporation
CAESARS NEW JERSEY, INC.
a New Jersey corporation
CAESARS SOUTH AFRICA, INC.
a Nevada corporation
DESERT PALACE, INC.
a Nevada corporation
dba Caesars Las Vegas and Caesars Tahoe
BOARDWALK REGENCY CORPORATION
a New Jersey corporation
dba Caesars Atlantic City
SHERATON TUNICA CORPORATION
a Delaware corporation
78
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-3 (File No. 333-70853) and Form S-8 (File
No. 333-69507, 333-69513, 333-69515, and 333-70303).
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 27, 2000
85
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 346
<SECURITIES> 0
<RECEIVABLES> 371
<ALLOWANCES> (84)
<INVENTORY> 58
<CURRENT-ASSETS> 893
<PP&E> 8,535
<DEPRECIATION> (662)
<TOTAL-ASSETS> 11,151
<CURRENT-LIABILITIES> 733
<BONDS> 5,624
0
0
<COMMON> 3
<OTHER-SE> 3,737
<TOTAL-LIABILITY-AND-EQUITY> 11,151
<SALES> 0
<TOTAL-REVENUES> 3,176
<CGS> 0
<TOTAL-COSTS> 2,362
<OTHER-EXPENSES> 306
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 253
<INCOME-TAX> 113
<INCOME-CONTINUING> 138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2
<NET-INCOME> 136
<EPS-BASIC> 0.45
<EPS-DILUTED> 0.44
</TABLE>
