<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 SEPTEMBER 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 NOVEMBER 1, 1999
Common Stock, par value $0.01 per share 100
1
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GRAND CASINOS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS Page
----
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
(Unaudited) Three months and nine months ended
September 30, 1999 and September 27, 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1999 and September 27, 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
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
GRAND CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- ------------
<C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,901 $ 42,609
Cash and cash equivalents-restricted 6,091 135,200
Accounts receivable 13,251 12,994
Due from Park Place -- 18,179
Inventory, prepaids and other 26,864 21,589
---------- ----------
Total current assets 96,107 230,571
---------- ----------
Property and equipment-net 1,184,043 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 742 450
---------- ----------
Total other assets 742 19,475
---------- ----------
TOTAL ASSETS $1,280,892 $1,335,762
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable-trade and construction $ 8,939 $ 12,052
Current installments of long-term debt 60 55
Accrued expenses 66,120 73,694
---------- ----------
Total current liabilities 75,119 85,801
---------- ----------
Long-term liabilities:
Long-term debt-less current installments 6,483 565,452
Due to Park Place 619,509 135,200
Deferred income taxes 116,680 103,097
---------- ----------
Total long-term liabilities 742,672 803,749
---------- ----------
Total liabilities 817,791 889,550
---------- ----------
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 46,027 29,138
---------- ----------
Total shareholder's equity 463,101 446,212
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,280,892 $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 NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 27, SEPTEMBER 30, SEPTEMBER 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Casino $159,012 $135,763 $445,631 $383,035
Hotel 14,061 9,039 33,593 24,909
Food and beverage 9,919 9,480 28,213 26,755
Management fee income -- 21,582 -- 64,330
Retail and other income 4,411 6,406 11,964 11,906
------------- ------------- ------------- -------------
Total revenues 187,403 182,270 519,401 510,935
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Casino 70,524 55,213 199,478 165,643
Hotel 7,250 3,740 17,457 9,909
Food and beverage 10,020 10,611 28,490 25,658
Other operating expenses 9,831 10,604 27,711 24,800
Pre-opening expense 432 -- 1,529 --
Management fees 5,909 -- 15,644 --
Selling, general and
administrative 37,987 32,087 106,623 94,122
Depreciation and
amortization 16,057 19,633 45,565 45,773
Corporate expense 2,656 8,584 7,732 28,017
------------- ------------- ------------- -------------
Total costs and expenses 160,666 140,472 450,229 393,922
------------- ------------- ------------- -------------
OPERATING INCOME 26,737 41,798 69,172 117,013
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 3 1,882 28 8,734
Interest expense (14,099) (9,072) (42,392) (32,758)
Other -- (1,900) -- (2,788)
------------- ------------- ------------- -------------
Total (14,096) (9,090) (42,364) (26,812)
------------- ------------- ------------- -------------
Income before income taxes 12,641 32,708 26,808 90,201
Provision for income taxes 4,677 (207) 9,919 21,106
------------- ------------- ------------- -------------
Earnings before extraordinary
charge 7,964 32,915 16,889 69,095
Extraordinary charge, net
of taxes -- -- -- 1,560
------------- ------------- ------------- -------------
NET INCOME $ 7,964 $ 32,915 $ 16,889 $ 67,535
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 27,
1999 1998
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,889 $ 67,535
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45,565 45,773
Amortization of debt issue costs - 2,698
Change in working capital components (8,341) 28,762
Change in deferred income taxes 13,165 -
Other - 1,826
------------- -------------
Net cash provided by operating activities 67,278 146,594
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,978) (167,755)
Decrease in due to Park Place (58,361) -
Change in notes receivable - 1,496
Decrease (increase) in cash and cash
equivalents-restricted and other 130,629 (2,604)
Increase in other long-term assets (292) (7,403)
------------- -------------
Net cash provided by (used in) investing activities 54,998 (176,266)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (115,000) (100,885)
Proceeds from issuance of common stock, net - 2,962
Other 16 1,086
------------- -------------
Net cash used in financing activities (114,984) (96,837)
------------- -------------
Net increase (decrease) in cash and cash equivalents 7,292 (126,509)
Cash and cash equivalents - beginning of period 42,609 238,635
------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 49,901 $ 112,126
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of capitalized interest $ - $ 30,601
Income taxes $ - $ 460
Non-cash financing activities:
Repayment of notes payable by Park Place $443,980 $ -
Payment of capital expenditures by Park Place $128,096 $ -
Other non-cash transactions with Park Place $(11,227) $ -
</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 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 nine-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 legal, financial, marketing, human
resources, tax and treasury departments. Management fees for the nine months
ended September 30, 1999 were $15.6 million.
NOTE 2. PRO FORMA INFORMATION
The condensed consolidated statements of income for the three months
and nine months ended September 27, 1998, and the condensed consolidated
statements of cash flows for the nine months ended September 27, 1998 include
the results of operations from the Company, including 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 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 nine months ended September 27, 1998,
assuming that the distribution/merger had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 27, 1998 September 27, 1998
------------------ ------------------
(in thousands) (in thousands)
<S> <C> <C>
Total revenues $160,688 $446,605
Operating expenses 80,168 226,010
Selling, general and administrative 32,087 94,122
Depreciation and amortization 19,350 44,841
Corporate expense 6,888 20,333
------------------ ------------------
Total costs and expenses 138,493 385,306
------------------ ------------------
Operating income 22,195 61,299
Other expense, net 10,454 30,730
------------------ ------------------
Income before income taxes and
extraordinary charge 11,741 30,569
Provision for income taxes 4,109 10,779
------------------ ------------------
Income before extraordinary charge 7,632 19,790
Extraordinary charge, net of taxes - 1,560
------------------ ------------------
Net income $ 7,632 $ 18,230
------------------ ------------------
------------------ ------------------
</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 the
remaining outstanding First Mortgage Notes by
7
<PAGE>
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.
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 September 30, 1999 and December 31, 1998 totaled
approximately $620 million and $117 million, respectively. Intercompany
interest expense for the three and nine months ended September 30, 1999 was
$14 million and $42 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 operates dockside casinos and related hotel and
entertainment facilities. 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
nine months ended September 27, 1998, and the condensed consolidated
statement of cash flows for the nine months ended September 27, 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 nine months ended September 30, 1999 and September
27, 1998 are not comparable. The discussion contained in the following
analysis will compare actual results of operations for the three months and
nine months ended September 30, 1999 to the pro forma (without Lakes results
of operations) results of operations for the three months and nine months
ended September 27, 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 $8.0 million for the three months
ended September 30, 1999, compared with net income of $7.6 million for the
three months ended September 27, 1998. For the nine months ended September
30, 1999 and September 27, 1998, the Company recorded net income of $16.9
million and $18.2 million, respectively.
REVENUES
The Company generated $159.0 million in casino revenue and $28.4 million
in hotel, food, beverage, retail and other revenue during the three-month
period ended September 30, 1999 as compared to $135.8
9
<PAGE>
million in casino revenue and $24.9 million in food, beverage, retail and
other revenue for the comparable period for the prior year. For the
nine-month period ended September 30, 1999, the Company generated $445.6
million in casino revenue and $73.8 million in food, beverage, retail and
other revenue as compared to $383.0 million in casino revenue and $63.6
million in food, beverage, retail and other revenue which was generated in
the nine-month period ended September 27, 1998.
At Grand Casino Tunica, revenues increased $12.2 million for the
three-month period and $41.3 million for the nine-month period ended
September 30, 1999, compared to the same periods in the prior year. These
increases are mainly attributable to casino revenue and room revenue. Grand
Casino Tunica also opened the 600-room Terrace Hotel and Spa in late March
1999, which successfully expanded the market and substantially boosted the
property's customer counts and gaming volume. Revenues for Grand Casino
Biloxi increased $2.1 million for the three-month period and $15.3 million
for the nine-month period ended September 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 $12.5 million and $16.1 million for the three-month and nine-month
periods, respectively, when compared to prior periods. The increase at
Gulfport was a result of increased slot win and 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 $22.2 million to $160.7 million for
the three-month period ended September 30, 1999. Casino expenses were $70.5
million for the three-month period ended September 30, 1999 compared to $55.2
million for the comparable period last year. This increase primarily relates
to the increase in casino revenue. For the nine-month period ended September
30, 1999, total costs and expenses increased $64.9 million to $450.2 million.
Casino expenses increased $33.8 million to $199.5 million and food and
beverage expenses increased $2.8 million to $28.5 million due to the increase
in related revenues for the nine-month period ended September 30, 1999.
Selling, general, and administrative expenses increased in the amount of
$5.9 million from $32.1 million for the three-month period ended September
27, 1998 to $38.0 million for the three-month period ended September 30,
1999. For the nine months ended September 30, 1999, selling, general, and
administrative expenses increased to $106.6 million from $94.1 million in the
prior year.
Depreciation and amortization expense increased $0.7 million over the
prior year to $45.6 million for the nine months ended September 30, 1999.
This increase primarily relates to the Oasis Resort and Spa at Grand Casino
Gulfport and the Terrace Hotel and Spa at Grand Casino Tunica.
10
<PAGE>
Corporate expense decreased $4.2 million for the three-months ended
September 30, 1999 and $12.6 million for the nine months ended September 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 most required changes have been implemented. 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 most required changes have been implemented.
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 remaining quarter 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 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
11
<PAGE>
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 previously 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 Reports on Form 10-Q for
the quarters ended March 31, 1999 and June 30, 1999.
The Company and its subsidiaries are parties to various lawsuits arising
out of actions prior to the Company's merger with Park Place. Any liabilities
with respect thereto are an obligation of Park Place. The Company 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,
the Company will be responsible for any liabilities, which could have a
material adverse effect on Park Place.
As security to support Lakes' indemnification obligations to the Company,
Lakes has agreed to irrevocably deposit, in trust for the benefit of the
Company, an aggregate of $30 million. The trust will be funded with four
annual deposits of $7.5 million each during each of the four years commencing
December 31, 1999.
STRATOSPHERE SECURITIES LITIGATION
The Company and certain persons who have been indemnified by the
Company, including certain former and current officers and directors, are
defendants in legal actions filed on August 16, 1996 in the District Court,
Clark County, Nevada and on August 5, 1996 in the United States District
Court, District of Nevada. These actions arise out of the Company's
involvement in the Stratosphere Tower, Casino and Hotel project in Las Vegas,
Nevada. The Company 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 generally allege 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 the Company was partially granted. The
plaintiffs are pursuing the claims that survived the motion to dismiss.
By order dated October 4, 1999, the court granted in part and denied in
part a motion for summary judgment filed by the Company and the
Company-related defendants. Many of the plaintiff's claims were dismissed by
the court, which left surviving the issue of whether material cost overruns
had been adequately disclosed in public filings.
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
September 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: November 15, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,992
<SECURITIES> 0
<RECEIVABLES> 16,266
<ALLOWANCES> (3,015)
<INVENTORY> 8,422
<CURRENT-ASSETS> 96,107
<PP&E> 1,384,524
<DEPRECIATION> (200,481)
<TOTAL-ASSETS> 1,280,892
<CURRENT-LIABILITIES> 75,119
<BONDS> 6,543
0
0
<COMMON> 0
<OTHER-SE> 463,101
<TOTAL-LIABILITY-AND-EQUITY> 1,280,892
<SALES> 0
<TOTAL-REVENUES> 519,401
<CGS> 0
<TOTAL-COSTS> 379,759
<OTHER-EXPENSES> 45,565
<LOSS-PROVISION> 2,624
<INTEREST-EXPENSE> 42,364
<INCOME-PRETAX> 26,808
<INCOME-TAX> 9,919
<INCOME-CONTINUING> 16,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,889
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
