EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are
based upon our historical consolidated financial statements and those of
Grand Casinos, Inc. ("Grand") and Caesars World, Inc. ("Caesars"). You should
read this pro forma financial information in connection with the historical
financial statements included herein or previously filed.
With respect to our merger with Grand and as further described in the
accompanying footnotes, the unaudited pro forma condensed statement of income
for the year ended December 31, 1998, gives effect to:
- our merger with Grand applying the purchase method of accounting; and
- adjustments that are directly attributable to the Grand merger and are
anticipated to have a continuing impact.
The pro forma condensed statement of income reflecting our merger with Grand
assumes the merger was consummated on January 1, 1998.
With respect to the proposed acquisition of Caesars, the unaudited pro
forma condensed statements of income for the nine months ended September 30,
1999 and the year ended December 31, 1998 give effect to:
- our acquisition of Caesars applying the purchase method of accounting; and
- adjustments that are directly attributable to the acquisition and
anticipated to have a continuing impact.
The pro forma condensed statements of income reflecting the acquisition
assume we completed the Caesars' acquisition on January 1, 1998.
The unaudited pro forma condensed balance sheet presents our combined
financial position with Grand and Caesars as of September 30, 1999. The
unaudited pro forma condensed balance sheet reflects the acquisition of
Caesars applying the purchase method of accounting and adjustments that are
directly attributable to the acquisition and anticipated to have a continuing
impact. The pro forma condensed balance sheet assumes we completed the
Caesars' acquisition as of September 30, 1999.
We have prepared the unaudited pro forma condensed financial statements
based upon currently available information and assumptions that we have deemed
appropriate. This pro forma information may not be indicative of what actual
results would have been, nor does the data purport to represent our and Caesars'
combined financial results for future periods.
For the purpose of preparing these pro forma financial statements, we will
undertake a study to establish the fair value of the acquired assets and
liabilities of Caesars. The allocation of the purchase price to the assets and
liabilities acquired reflected in this pro forma financial data is preliminary.
Accordingly, the actual financial position and results of operations may differ
from these pro forma amounts.
The following table sets forth the calculation of the purchase price of
Caesars and the preliminary allocation as of September 30, 1999.
(IN MILLIONS)
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Purchase Price................................................................... $ 3,000
Other adjustments, net........................................................... (13)
Transaction costs and expenses................................................... 50
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$ 3,037
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The preliminary allocation of the pro forma purchase price is as follows:
(IN MILLIONS)
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Property and equipment........................................................... $ 2,454
Goodwill......................................................................... 702
Other, net....................................................................... (119)
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$ 3,037
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We are currently in the process of allocating the purchase price among the
assets to be acquired and the liabilities assumed. The final purchase price and
its allocation will be based on independent appraisals, discounted cash flows,
quoted market prices and estimates by management and is expected to be completed
within one year following the Caesars acquisition.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN MILLIONS)
PARK PLACE
HISTORICAL CAESARS PRO FORMA PARK PLACE
(INCLUDING GRAND) HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------- -----------
ASSETS
Cash and cash equivalents............................... $ 215 $ 79 $ -- $ 294
Restricted cash......................................... 6 -- -- 6
Accounts receivable, net................................ 151 102 -- 253
Other current assets.................................... 160 47 -- 207
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Total current assets.................................. 532 228 -- 760
Investments............................................. 137 60 46 (a) 243
Property and equipment, net............................. 5,325 1,982 472 (a) 7,779
Goodwill................................................ 1,269 -- 702 (b) 1,971
Goodwill--Caesars....................................... -- 963 (963)(c) --
Other assets............................................ 97 89 30 (d) 216
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Total assets.............................................. $ 7,360 $ 3,322 $ 287 $10,969
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LIABILITIES AND EQUITY
Accounts payable and accrued expenses................... $ 408 $ 169 $ 50 (e) $ 627
Current maturities of long-term debt.................... 5 11 -- 16
Income taxes payable.................................... 10 25 (25) 10
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Total current liabilities............................. 423 205 25 653
Bank financing.......................................... 1,190 -- 1,836 (f)
(13)(g) 3,013
Notes and other......................................... 1,331 31 1,200 (f) 2,562
Deferred income taxes, net.............................. 639 80 208 (h) 927
Due to parent and affiliates............................ -- 1,309 (1,309)(i) --
Other non-current liabilities........................... 54 37 -- 91
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Total liabilities..................................... 3,637 1,662 1,947 7,246
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EQUITY
Common stock, 302.6 million shares outstanding.......... 3 -- -- 3
Additional paid-in capital.............................. 3,621 -- -- 3,621
Other................................................... (8) -- -- (8)
Retained earnings....................................... 119 -- -- 119
Common stock in treasury at cost, 1.7 million shares.... (12) -- -- (12)
Division equity......................................... -- 1,660 (1,660)(j) --
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Total equity.......................................... 3,723 1,660 (1,660) 3,723
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Total liabilities and equity.............................. $ 7,360 $ 3,322 $ 287 $10,969
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(FOOTNOTES ON FOLLOWING PAGE)
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The following pro forma adjustments have been made to the unaudited pro
forma balance sheet as of September 30, 1999:
(a) Reflects the net increase in the carrying value of Caesars' investments,
property and equipment to adjust those assets to their estimated fair
market value.
(b) Reflects as goodwill the excess purchase price over fair value of net
tangible assets acquired and liabilities assumed.
(c) Reflects the elimination of Caesars' historical goodwill.
(d) Reflects deferred financing charges related to the notes and increased bank
facility financings.
(e) Reflects the accrual of direct merger costs related to the acquisition.
(f) Reflects the increase in long-term debt of $1.8 billion to be drawn under
our revolving credit facilities and the issuance of long-term notes in the
aggregate amount of $1.2 billion.
(g) Reflects the adjustment to the purchase price for the net working capital
adjustment and the capital lease obligations pursuant to the purchase
agreement.
(h) Reflects the deferred tax liability due to the carryover tax basis of the
assets acquired and the fair value of such assets as recorded by Park Place.
(i) Reflects the elimination of Caesars' loans due to parent and affiliates.
(j) Reflects the elimination of Caesars' equity accounts.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PARK PLACE
HISTORICAL CAESARS PRO FORMA PARK PLACE
(INCLUDING GRAND) HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ------------- -----------
Revenues
Casino.................................................. $ 1,683 $ 808 $ -- $2,491
Rooms................................................... 279 89 -- 368
Food and beverage....................................... 203 83 -- 286
Other revenue........................................... 161 105 -- 266
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2,326 1,085 -- 3,411
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Expenses
Casino.................................................. 874 462 -- 1,336
Rooms................................................... 102 25 -- 127
Food and beverage....................................... 190 71 -- 261
Other expenses.......................................... 549 241 -- 790
Depreciation and amortization........................... 218 133 28 (c)
(21)(d) 358
Pre-opening expense..................................... 47 1 -- 48
Corporate expense....................................... 26 -- -- 26
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2,006 933 7 2,946
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Operating income.......................................... 320 152 (7) 465
Starwood management fee................................. -- (24) 24 (e) --
Interest and dividend income............................ 9 -- -- 9
Interest expense and other, net......................... (95) (49) (188)(f)
48 (g) (284)
Interest expense, net from unconsolidated affiliates.... (9) -- -- (9)
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Income before income taxes and minority interest........ 225 79 (123) 181
Provision for income taxes.............................. 101 39 (46)(h) 94
Minority interest, net.................................. 3 (2) -- 1
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Income from continuing operations......................... $ 121 $ 42 $ (77) $ 86
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Basic earnings per share.................................. $ 0.40 $ 0.28
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Diluted earnings per share................................ $ 0.39 $ 0.28
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Basic weighted average shares outstanding................. 303 303
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Diluted weighted average shares outstanding............... 307 307
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(FOOTNOTES ON FOLLOWING PAGES)
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PARK PLACE,
PARK PLACE GRAND AND
PARK PLACE GRAND PRO FORMA AND GRAND CAESARS PRO FORMA CAESARS
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ------------- ------------- ----------- ------------- -------------
Revenues
Casino....................... $ 1,587 $ 513 $ -- $ 2,100 $ 937 $ -- $ 3,037
Rooms........................ 306 34 -- 340 105 -- 445
Food and beverage............ 230 35 -- 265 101 -- 366
Management fee income........ -- 92 (92)(a) -- -- -- --
Other revenue................ 182 13 -- 195 113 -- 308
----------- ----------- ------------- ------ ----------- ------------- ------
2,305 687 (92) 2,900 1,256 -- 4,156
----------- ----------- ------------- ------ ----------- ------------- ------
Expenses
Casino....................... 845 169 -- 1,014 558 -- 1,572
Rooms........................ 112 16 -- 128 33 -- 161
Food and beverage............ 230 37 -- 267 88 -- 355
Other expenses............... 555 216 4(a) 775 257 -- 1,032
Depreciation and
amortization............... 225 59 -- 284 143 37 (c)
(27)(d) 437
Impairment losses and
other...................... 29 -- (13)(b) 16 39 -- 55
Pre-opening expense.......... -- -- -- -- 42 -- 42
Corporate expense............ 7 57 (31)(a) 33 -- -- 33
----------- ----------- ------------- ------ ----------- ------------- ------
2,003 554 (40) 2,517 1,160 10 3,687
----------- ----------- ------------- ------ ----------- ------------- ------
Operating income............... 302 133 (52) 383 96 (10) 469
Starwood Management Fee........ -- -- -- -- (33) 33 (e) --
Interest and dividend
income..................... 21 10 (5)(a) 26 -- -- 26
Interest expense and other,
net........................ (87) (45) -- (132) (26) (251)(f)
23 (g) (386)
Interest expense, net from
unconsolidated
affiliates................. (13) -- -- (13) -- -- (13)
----------- ----------- ------------- ------ ----------- ------------- ------
Income before income taxes
and minority interest...... 223 98 (57) 264 37 (205) 96
Provision for income taxes... 111 27 (16)(a) 122 22 (75)(h) 69
Minority interest, net....... 3 -- -- 3 (5) -- (2)
----------- ----------- ------------- ------ ----------- ------------- ------
Income from continuing
operations................... $ 109 $ 71 $ (41) $ 139 $ 20 $ (130) $ 29
----------- ----------- ------------- ------ ----------- ------------- ------
----------- ----------- ------------- ------ ----------- ------------- ------
Basic earnings per share....... $ 0.42 $ 0.46 $ 0.10
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Diluted earnings per share..... $ 0.42 $ 0.45 $ 0.09
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Basic weighted average shares
outstanding.................. 261 303 303
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----------- ------ ------
Diluted weighted average shares
outstanding.................. 263 306 306
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(FOOTNOTES ON FOLLOWING PAGE)
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
The following pro forma adjustments have been made to the unaudited pro
forma statements of income for the nine months ended September 30, 1999 and
the year ended December 31, 1998:
(a) Reflects the elimination of Lakes Gaming, Inc.
(b) Reflects the elimination of the transaction costs associated with our
spin-off from Hilton and our merger with Grand.
(c) Reflects the adjustment to depreciation expense due to the revaluation of
the acquired property and equipment resulting from the allocation of the
purchase price of Caesars. This adjustment also reflects the increase in
expense due to amortization of goodwill arising from our purchase of
Caesars. Goodwill is to be amortized over 40 years.
(d) Reflects the elimination of the amortization of Caesars' historical
goodwill.
(e) Reflects the elimination of the intercompany management fee charged by
Starwood.
(f) Reflects additional interest expense, including amortization of related
deferred finance charges, arising from expected borrowings incurred by us to
fund the purchase of Caesars. We expect to fund the acquisition with
borrowings under our revolving credit facilities. The pro forma effects of
borrowings under the revolving credit facilities, future note offerings and
the old notes have been computed at a rate of 7.8%. Each 1/8% change in the
rate on the borrowings would result in a change in interest expense of $4
million for the year.
(g) Reflects the elimination of the interest expense on the Caesars World, Inc.
loans due to parent and affiliates.
(h) Reflects the tax effect of the pro forma adjustments using the statutory
rate of 35%, with the exception of the amortization of goodwill, which is
assumed to be non-deductible for tax purposes.