<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 1-12962
GRAND CASINOS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1689535
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
3930 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
(Address of principal executive offices) (Zip code)
(702) 699-5000
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes / x / No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the practicable date:
TITLE OF EACH CLASS OUTSTANDING AT AUGUST 2, 1999
------------------- -----------------------------
Common Stock, par value $0.01 per share 100
<PAGE>
GRAND CASINOS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 30, 1999
and June 28, 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1999 and June 28, 1998 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GRAND CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50,154 $ 42,609
Cash and cash equivalents-restricted 6,091 135,200
Accounts receivable 23,132 12,994
Due from Park Place - 18,179
Inventory, prepaids and other 22,049 21,589
----------- -----------
Total current assets 101,426 230,571
----------- -----------
Property and equipment-net 1,173,409 1,085,716
----------- -----------
Other assets:
Cash and cash equivalents-restricted - 1,520
Debt issuance and deferred licensing costs-net - 17,505
Other long-term assets 747 450
----------- -----------
Total other assets 747 19,475
----------- -----------
TOTAL ASSETS $1,275,582 $1,335,762
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable-trade and construction $ 6,655 $ 12,052
Current installments of long-term debt 56 55
Accrued expenses 61,158 73,694
----------- -----------
Total current liabilities 67,869 85,801
----------- -----------
Long-term liabilities:
Long-term debt-less current installments 5,985 565,452
Due to Park Place 631,159 135,200
Deferred income taxes 115,432 103,097
----------- -----------
Total long-term liabilities 752,576 803,749
----------- -----------
Total liabilities 820,445 889,550
----------- -----------
Commitments and contingencies
Shareholder's equity:
Capital stock, $.01 par value; 100 shares issued and outstanding - -
Additional paid-in-capital 417,074 417,074
Retained earnings 38,063 29,138
----------- -----------
Total shareholder's equity 455,137 446,212
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,275,582 $1,335,762
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
GRAND CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- ----------------------------
JUNE 30, 1999 JUNE 28, 1998 JUNE 30, 1999 JUNE 28, 1998
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 145,763 $ 121,090 $ 286,619 $ 247,272
Hotel 10,947 9,327 19,532 15,870
Food and beverage 9,265 8,700 18,294 16,880
Management fee income - 19,718 - 42,748
Retail and other income 4,564 3,452 7,553 5,981
---------- ---------- --------- ---------
Total revenues 170,539 162,287 331,998 328,751
---------- ---------- --------- ---------
COSTS AND EXPENSES:
Casino 67,242 54,444 128,954 110,287
Hotel 5,862 3,621 10,207 6,136
Food and beverage 9,188 8,092 18,470 14,982
Other operating expenses 8,968 5,949 17,880 14,668
Pre-opening expense 611 - 1,097 -
Management fees 9,735 - 9,735 -
Selling, general and
administrative 34,652 31,708 68,636 61,890
Depreciation and amortization 14,457 13,174 29,508 26,140
Corporate expense 2,631 7,301 5,076 19,433
---------- ---------- --------- ---------
Total costs and expenses 153,346 124,289 289,563 253,536
---------- ---------- --------- ---------
OPERATING INCOME 17,193 37,998 42,435 75,215
---------- ---------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 2 2,785 25 6,852
Interest expense (14,112) (10,892) (28,293) (23,686)
Other - (583) - (888)
---------- ---------- --------- ---------
Total (14,110) (8,690) (28,268) (17,722)
---------- ---------- --------- ---------
Income before income taxes 3,083 29,308 14,167 57,493
Provision for income taxes 1,141 10,567 5,242 21,313
---------- ---------- --------- ---------
Earnings before extraordinary charge 1,942 18,741 8,925 36,180
Extraordinary charge, net of taxes - 1,560 - 1,560
---------- ---------- --------- ---------
Net income $ 1,942 $ 17,181 $ 8,925 $ 34,620
========== ========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
GRAND CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------
JUNE 30, 1999 JUNE 28, 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,925 $ 34,620
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 29,508 26,140
Change in working capital components (23,489) 13,857
Other 13,571 2,096
---------- -----------
Net cash provided by operating activities 28,515 76,713
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,717) (117,837)
Increase in due to affiliate (21,577) -
Change in notes receivable - 513
Decrease (increase) in cash and cash
equivalents-restricted and other 130,629 (3,153)
Increase in other long-term assets (297) -
Other (24) (6,510)
---------- -----------
Net cash provided by (used in) investing activities 94,014 (126,987)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (115,000) (100,831)
Proceeds from issuance of common stock, net - 2,938
Debt issuance costs and deferred financing costs - 2,379
Other 16 -
---------- -----------
Net cash used in financing activities (114,984) (95,514)
---------- -----------
Net increase (decrease) in cash and cash equivalents 7,545 (145,788)
Cash and cash equivalents - beginning of period 42,609 238,635
---------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 50,154 $ 92,847
========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of capitalized interest $ - $ 30,519
Income taxes $ - $ -
Noncash financing activities:
Repayment of notes payable by Park Place $ 444,482 $ -
Payment of capital expenditures by Park Place $ 102,460 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
GRAND CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
On December 31, 1998, Grand Casinos, Inc. (the "Company") separated
its Mississippi business and certain other assets and liabilities (which
include the Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino
Tunica casino and entertainment properties) from its non-Mississippi business
(comprised primarily of the management of Indian-owned casinos, certain
property held for possible development in Las Vegas, Nevada, and certain
other assets and liabilities) by transferring the above-mentioned assets and
liabilities of the non-Mississippi business to its subsidiary, Lakes Gaming,
Inc. ("Lakes"), and distributing the common stock of Lakes to its
shareholders. On December 31, 1998, Hilton Hotels Corporation ("Hilton")
completed a similar separation whereby Hilton transferred its gaming business
to its subsidiary, Park Place Entertainment Corporation ("Park Place"), and
distributed the common stock of Park Place to its stockholders. Immediately
following the distribution, the Company was acquired by Park Place by way of
a merger. Following the merger, the Company became a wholly owned subsidiary
of Park Place. Each shareholder received one share of Lakes stock for every
four owned shares of the Company and one share of Park Place stock for every
one owned share of the Company.
The Company develops, constructs, and operates dockside casinos and
related hotel and entertainment facilities in emerging and established gaming
jurisdictions. The Company owns and operates two dockside casinos on the
Mississippi Gulf Coast and one dockside casino in Tunica County, Mississippi.
Prior to the distribution, the Company also managed Indian-owned casinos.
The accompanying condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary for a fair
presentation of results for the interim periods have been made. The results
for the three month and six month periods are not necessarily indicative of
results to be expected for the full fiscal year. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 condensed
consolidated financial statements to conform with the 1999 presentation. Such
reclassifications had no effect on previously reported net income.
6
<PAGE>
MANAGEMENT FEES
The Company's operating subsidiaries pay management fees of three
percent of gross revenue to Park Place for services that include, but are not
limited to, functions performed by the financial, tax and treasury
departments. Management fees for the six months ended June 30, 1999 were $9.7
million.
NOTE 2. PRO FORMA INFORMATION
The condensed consolidated statements of income for the three months
and six months ended June 28, 1998, and the condensed consolidated statements
of cash flows for the six months ended June 28, 1998 include the results of
operations from the Company, including the Lakes results of operations as the
distribution and merger occurred on the last day of the 1998 fiscal year. The
1998 condensed consolidated balance sheet does not include the Lakes balance
sheet accounts as the distribution and merger occurred immediately prior to
the end of fiscal 1998. Below is the unaudited pro forma information for the
three months and six months ended June 28, 1998, assuming that the
distribution/merger had occurred on the first day of the period (amounts in
thousands).
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 28, 1998 June 28, 1998
------------- -------------
<S> <C> <C>
Total revenues $ 142,569 $ 286,003
Operating expenses 72,106 146,073
Selling, general and administrative 31,708 61,890
Depreciation and amortization 12,896 25,491
Corporate expense 6,189 13,445
------------ -------------
Total costs and expenses 122,899 246,899
------------ -------------
Operating income 19,670 39,104
Interest expense, net 9,779 20,276
------------ -------------
Income before income taxes and
extraordinary charge 9,891 18,828
Provision for income taxes 3,469 6,670
------------ -------------
Income before extraordinary charge 6,422 12,158
Extraordinary charge, net of taxes 1,560 1,560
------------ -------------
Net income $ 4,862 $ 10,598
============ =============
</TABLE>
NOTE 3. LONG TERM DEBT
In November 1995, the Company sold $450 million aggregate principal
amount of 10.125% First Mortgage Notes due 2003 ("First Mortgage Notes"). In
connection with the merger, Park Place made a tender offer for the First
Mortgage Notes and purchased approximately $444.5 million of the outstanding
First Mortgage Notes, which were subsequently cancelled. In January 1999, the
Company completed a covenant defeasance for approximately $5.5 million of
remaining outstanding First Mortgage Notes by placing into trust all future
payments of principal, interest and premium on the First Mortgage Notes to
the first optional redemption date on December 1, 1999.
7
<PAGE>
In October 1997, the Company sold $115 million aggregate principal
amount of 9.0% Senior Unsecured Notes due 2004 ("Senior Notes"). On December
31, 1998, the Company completed a covenant defeasance for the Senior Notes by
placing into trust approximately $135 million representing all future
payments of principal, interest and early redemption premium. The Senior
Notes were redeemed on February 1, 1999.
The Company advances and borrows funds (to)/from Park Place. The
advances and borrowings are recorded as due (to)/from Park Place. Amounts due
to Park Place at June 30, 1999 and December 31, 1998 totaled approximately
$631 million and $117 million, respectively. Intercompany interest expense
for the three and six months ended June 30, 1999 was $14 million and $28
million, respectively.
NOTE 4. COMMITMENTS AND CONTINGENCIES
INDEMNIFICATION AGREEMENT
As part of the merger and distribution, Lakes agreed to indemnify
the Company and certain of its subsidiaries, officers and directors, against
all costs, expenses and liabilities incurred or suffered by them in
connection with certain pending and threatened claims and legal proceedings.
Lakes further agreed to indemnify the Company for various commitments and
contingencies related to, or arising out of, the Company's Non-Mississippi
business and assets, including tribal loan guarantees, real property lease
guarantees for Lakes' subsidiaries, and director and executive officer
indemnity obligations. Lakes' indemnification obligations include the
obligation to provide the defense of all claims made in such proceedings
against the Company and to pay all related settlements and judgments.
As security to support Lakes' indemnification obligations to the
Company under each of the Grand Distribution Agreement and the Merger
Agreement, and as a condition to the consummation of the Merger, Lakes has
agreed to irrevocably deposit, in trust for the benefit of the Company, as a
wholly owned subsidiary of Park Place, an aggregate of $30 million,
consisting of four annual installments of $7.5 million during the four-year
period subsequent to December 31, 1998. The first such installment is due
December 31, 1999.
OTHER LITIGATION
The Company is involved in various other inquiries, administrative
proceedings and litigation relating to contracts and other matters arising in
the normal course of business. While any proceeding or litigation has an
element of uncertainty, management currently believes that the final outcomes
of these matters are not likely to have a material adverse effect upon the
Company's condensed consolidated financial position or its results of
operations.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
On December 31, 1998, Grand Casinos, Inc. (the "Company") transferred
all of its non-Mississippi gaming business (comprised primarily of the
management of two Indian owned casinos, certain real estate interests in the
Polo Plaza development project in Las Vegas and certain other assets and
liabilities) (the "Non-Mississippi Business") to Lakes Gaming, Inc. ("Lakes")
and spun off all of the outstanding shares of Lakes common stock to the
holders of the Company's common stock. On that same date, Hilton Hotels
Corporation ("Hilton") transferred the assets and liabilities, with certain
exceptions, of the Hilton gaming business to Park Place Entertainment
Corporation ("Park Place") and spun off all of the outstanding shares of
common stock of Park Place to the holders of Hilton common stock. Immediately
following the Grand Casinos, Inc. distribution and the Hilton distribution,
Park Place acquired, by means of the merger of a wholly owned subsidiary of
Park Place with and into the Company, with the Company as the surviving
corporation, all of the then outstanding shares of common stock of the
Company in exchange for the issuance to the Company shareholders of one share
of Park Place common stock for each share of the Company stock owned.
The Company develops, constructs and operates dockside casinos and
related hotel and entertainment facilities in emerging gaming jurisdictions.
The Company's revenues are derived from the Company-owned casinos of Grand
Casino Biloxi, Grand Casino Gulfport, and Grand Casino Tunica.
The condensed consolidated statements of income for the three months and
six months ended June 28, 1998, and the condensed consolidated statements of
cash flows for the six months ended June 28, 1998 include the results of
operations from the Company, including the Lakes results of operations, as
the distribution and merger occurred on the last day of the 1998 fiscal year.
As such, the condensed consolidated statements of income for the three months
and six months ended June 30, 1999 and June 28, 1998 are not comparable. The
discussion contained in the following analysis will compare actual results of
operations for the three months and six months ended June 30, 1999 to the pro
forma (without Lakes results of operations) results of operations for the
three months and six months ended June 28, 1998 (See Note 2 to the condensed
consolidated financial statements). The 1998 condensed consolidated balance
sheet does not include the Lakes balance sheet accounts as the distribution
and merger occurred immediately prior to the end of fiscal 1998.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1998.
RESULTS OF OPERATIONS
The Company recorded net income of $1.9 million for the three months
ended June 30, 1999, compared with net income of $4.9 million for the three
months ended June 28, 1998. For the six months ended June 30, 1999 and June
28, 1998, the Company recorded net income of $8.9 million and $10.6 million,
respectively.
9
<PAGE>
REVENUES
The Company generated $145.8 million in casino revenue and $24.8 million
in hotel, food, beverage, retail and other revenue during the three-month
period ended June 30, 1999 as compared to $121.1 million in casino revenue
and $21.5 million in food, beverage, retail and other revenue for the
comparable period for the prior year. For the six-month period ended June 30,
1999, the Company generated $286.6 million in casino revenue and $45.4
million in food, beverage, retail and other revenue as compared to $247.3
million in casino revenue and $38.7 million in food, beverage, retail and
other revenue which was generated in the six-month period ended June 28, 1998.
At Grand Casino Tunica, revenues increased $20.6 million for the
three-month period and $29.5 million for the six-month period ended June 30,
1999, compared to the same periods in the prior year. These increases are
mainly attributable to slot win and table game win, which combined increased
39 percent over the prior quarter and 28 percent over the prior year's
six-month period. The 600-room Terrace Hotel and Spa, which opened at Grand
Casino Tunica in late March 1999, successfully expanded the market and
substantially boosted the property's customer counts and gaming volume.
Revenues for Grand Casino Biloxi increased $5.1 million for the three-month
period and $13.0 million for the six-month period ended June 30, 1999,
compared to the same periods in the prior year. The increase at Biloxi is
related to increased slot win and table game win and the 500-room Biloxi
Bayview Hotel, which opened during the first quarter of 1998. Revenues at
Grand Casino Gulfport increased $2.3 million and $3.5 million for the
three-month and six-month periods, respectively, when compared to prior
periods. The increase at Gulfport was a result of increased slot win offset
by a decline in table game win. In late June of 1999, the Oasis Resort and
Spa opened at Grand Casino Gulfport which is driving increased play in to the
casino.
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 the Company's two Gulf Coast properties.
This increase in supply could ultimately have an adverse impact on the
operating results of the Company's Gulf Coast properties.
COSTS AND EXPENSES
Total costs and expenses increased $30.4 million to $153.3 million for
the three-month period ended June 30, 1999. Casino expenses were $67.2
million for the three-month period ended June 30, 1999 compared to $54.4
million for the comparable period last year. This increase primarily relates
to the increase in casino revenue. Food and beverage expenses increased $1.1
million to $9.2 million for the three-month period ended June 30, 1999. The
increase related primarily to an increase in revenue. For the six-month
period ended June 30, 1999, total costs and expenses increased $42.7 million
to $289.6 million. Casino expenses increased $18.7 million to $129.0 million
and food and beverage expenses increased $3.5 million to $18.5 million due to
the increase in related revenues for the six-month period ended June 30, 1999.
Selling, general, and administrative expenses increased in the amount of
$3.0 million from $31.7 million for the three-month period ended June 28,
1998 to $34.7 million for the three-month period ended June 30, 1999. For the
six months ended June 30, 1999, selling, general, and administrative expenses
increased to $68.6 million from $61.9 million in the comparable period of the
prior year.
10
<PAGE>
Depreciation and amortization expense increased $1.6 million to $14.5
million for the three-month period ended June 30, 1999. The increase relates
to the 600-room hotel and spa that opened at Grand Casino Tunica in March
1999. For the six-month period ended June 30, 1999, depreciation and
amortization expense increased $4.0 million to $29.5 million. The year to
date increase relates to the 500-room hotel, convention center, pool area and
spa which opened at Grand Casino Biloxi during the first quarter of 1998.
Additionally, Grand Casino Tunica opened a championship golf course, an RV
resort, and a sporting clays facility in the first quarter of 1998.
Corporate expense decreased $3.6 million for the three-months ended June
30, 1999 and $8.4 million for the six months ended June 30, 1999, due
primarily to cost savings of relocating the corporate office and efficiencies
as a result of the merger with Park Place.
OTHER MATTERS
YEAR 2000
The Company is currently working to resolve the potential impact of the
Year 2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable
year. Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000, which
could result in miscalculations or system failures.
The Company has a Year 2000 program, the objective of which is to
determine and assess the risks of the Year 2000 issue, and plan and institute
mitigating actions to minimize those risks. The Company's standard for
compliance requires that for a computer system or business process to be Year
2000 compliant, it must be designed to operate without error in dates and
date-related data prior to, on and after January 1, 2000. The Company expects
to be fully Year 2000 compliant with respect to all significant business
systems prior to December 31, 1999. Significant efforts have already been
undertaken and have resulted in near completion of systems testing, as well
as substantial completion of remedial work.
The Company's various project teams are focusing their attention in the
following major areas:
INFORMATION TECHNOLOGY (IT). Information Technology systems account for much
of the Year 2000 work and include all computer systems and technology managed
by the Company. These core systems have been assessed, testing is
substantially completed and changes are being implemented as required. No
significant remediation has been identified. The appropriate vendors and
suppliers have been contacted as to their Year 2000 compliance and their
deliverables have been factored into the Company's plans.
NON-IT SYSTEMS. An inventory of all property level non-IT systems (including
elevators, electronic door locks, gaming devices, etc.) has been completed.
The majority of these non-IT systems have been assessed, testing is
substantially completed and changes are being implemented as required. The
appropriate vendors and suppliers have been contacted as to their Year 2000
compliance and their deliverables have been factored into the Company's plans.
SUPPLIERS. The Company has communicated with its significant suppliers to
understand their Year 2000 issues and how they might prepare themselves to
manage those issues as they relate to the Company. To date, no significant
supplier has informed the Company that a material Year 2000 issue exists
which will have a material effect on the Company.
During the last two quarters of 1999, the Company will continually
review its progress against its Year 2000 plans and determine whether any
additional contingency plans are necessary to reduce its exposure
11
<PAGE>
to Year 2000 related issues. Based on the Company's current assessment, the
cost of addressing potential problems is expected to be less than $4 million.
However, if the Company is unable to resolve a Year 2000 issue, contingency
plans to update existing systems (i.e., reservation, payroll, etc.) are in
place for which the Company expects the cost to be an additional $0.5
million. If the Company's customers or vendors identify significant Year 2000
issues in the future and are unable to resolve such issues in a timely
manner, it could result in a material financial risk. Accordingly, the
Company has been devoting the necessary resources to resolve all significant
Year 2000 issues in a timely manner and will continue to do so.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
those set forth under the captions "Results of Operations" and "Other
Matters," and statements relating to the Company's plans, strategies,
objectives, expectations, intentions and adequacy of resources, are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words "believes," "anticipates," "expects,"
"intends," "interested in," "plans," "continues," "projects" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements reflect the Company's current views with respect
to future events and financial performance, and are subject to certain risks
and uncertainties, including those identified above under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
other factors described from time to time in the Company's reports filed with
the SEC, and (i) the effect of economic conditions, (ii) the impact of
competition, (iii) customer demand, which could cause actual results to
differ materially from historical results or those anticipated, (iv)
regulatory, licensing, and other governmental approvals, (v) access to
available and reasonable financing, (vi) political uncertainties, including
legislative action, referendum, and taxation, (vii) litigation and judicial
actions, (viii) third party consents and approvals, and (ix) construction
issues, including environmental restrictions, weather, soil conditions,
building permits and zoning approvals. Although the Company believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that any of its expectations
will be attained in light of these risks and uncertainties.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of certain litigation to which the Company and its
subsidiaries are a party, see the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 and the Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999.
Grand Casinos, Inc. ("Grand") and its subsidiaries are parties to
various lawsuits and any liability with respect thereto is an obligation of
the Company. Pursuant to the Grand distribution agreement and the merger
agreement, 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 the Company.
GRAND DERIVATIVE ACTION
Certain of Grand's current and former officers and directors are
defendants in a legal action filed on February 6, 1997 in the Minnesota
District Court, Hennepin County. The plaintiffs, who are former Grand
shareholders, allege the defendants breached fiduciary duties to the
shareholders of Grand as a result of certain transactions involving the
Stratosphere project. Grand is providing the defense for the defendants
pursuant to Grand's indemnification obligations to the defendants. Grand's
Board of Directors appointed an independent special litigation committee
under Minnesota law to evaluate whether Grand should pursue claims against
the officers and directors. The committee recommended to the Court that the
plaintiffs' claims not be pursued.
In May 1998, the Court granted Grand's motion for summary judgment,
thereby dismissing the plaintiffs' claims. On March 9, 1999 the Minnesota
Court of Appeals affirmed the summary judgment. Plaintiffs petitioned for
appellate consideration. On May 18, 1999 the Minnesota Supreme Court denied
Plaintiffs' petition for appellate consideration, effectively upholding the
summary judgment in Grand's favor.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter ended
June 30, 1999.
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRAND CASINOS, INC.
(Registrant)
Dated: August 13, 1999
/S/ SCOTT A. LAPORTA
- -----------------------------
Scott A. LaPorta
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEET AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 56,245
<SECURITIES> 0
<RECEIVABLES> 25,830
<ALLOWANCES> 2,698
<INVENTORY> 8,006
<CURRENT-ASSETS> 101,426
<PP&E> 1,357,877
<DEPRECIATION> 184,468
<TOTAL-ASSETS> 1,275,582
<CURRENT-LIABILITIES> 67,869
<BONDS> 6,041
0
0
<COMMON> 0
<OTHER-SE> 455,137
<TOTAL-LIABILITY-AND-EQUITY> 1,275,582
<SALES> 0
<TOTAL-REVENUES> 331,998
<CGS> 0
<TOTAL-COSTS> 244,147
<OTHER-EXPENSES> 29,508
<LOSS-PROVISION> 1,812
<INTEREST-EXPENSE> 28,268
<INCOME-PRETAX> 14,167
<INCOME-TAX> 5,242
<INCOME-CONTINUING> 8,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,925
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
