<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-8531
GNOC, CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22-2494608
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Boston Avenue at Pacific Avenue, Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 347-7111
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 .
At July 31, 1996, all 3,002,510 outstanding shares of the registrant's common
stock were held by Bally Entertainment Corporation.
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q, and is therefore filing this form with the reduced dis-
closure format.
<PAGE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
June 30, 1996 and December 31, 1995 ................. 1
Consolidated statement of income (unaudited)
Six months ended June 30, 1996 and 1995.............. 2
Consolidated statement of income (unaudited)
Three months ended June 30, 1996 and 1995............ 3
Consolidated statement of cash flows (unaudited)
Six months ended June 30, 1996 and 1995.............. 4
Notes to condensed consolidated financial statements
(unaudited).......................................... 6
Item 2. Management's discussion and analysis of results of
operations.............................................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.................. 10
SIGNATURE PAGE................................................ 11
<PAGE>
<TABLE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents....................... $ 21,578 $ 23,903
Receivables, less allowances of $5,322
and $5,573.............................. 6,643 6,040
Income taxes receivable.................... 427 886
Inventories................................ 2,206 2,398
Deferred income taxes...................... 5,855 5,658
Other current assets....................... 3,605 2,172
-------- --------
Total current assets.................... 40,314 41,057
Property and equipment, less accumulated
depreciation of $127,998 and $119,874...... 278,104 281,736
Cost in excess of acquired assets, less
accumulated amortization of $27,844
and $26,318................................ 93,632 95,158
Deferred finance costs, less accumulated
amortization of $4,901 and $4,179.......... 9,060 9,467
Other assets.................................. 7,814 3,692
-------- --------
$428,924 $431,110
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................... $ 3,461 $ 3,399
Payable to affiliates...................... 326 323
Accrued liabilities........................ 23,071 23,374
-------- --------
Total current liabilities............... 26,858 27,096
Long-term debt, less unamortized discount
of $1,600 and $1,678....................... 273,400 273,322
Deferred income taxes......................... 55,212 57,258
Stockholder's equity:
Common stock............................... 30 30
Additional paid-in capital................. 123,421 123,421
Accumulated deficit........................ (49,997) (50,017)
-------- --------
Total stockholder's equity.............. 73,454 73,434
-------- --------
$428,924 $431,110
======== ========
<FN>
See accompanying notes.
</FN>
/TABLE
<PAGE>
<TABLE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
CONSOLIDATED STATEMENT OF INCOME
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
Revenues:
Casino..................................... $125,366 $123,840
Rooms...................................... 2,395 2,437
Food and beverage.......................... 4,453 4,487
Other...................................... 3,308 2,818
-------- --------
135,522 133,582
Costs and expenses:
Casino..................................... 79,146 71,017
Rooms...................................... 1,100 1,170
Food and beverage.......................... 3,988 3,996
Other operating expenses................... 15,016 14,241
Selling, general and administrative........ 10,528 14,366
Depreciation and amortization.............. 9,716 9,110
Allocations from Bally Entertainment
Corporation............................. 524 576
-------- --------
120,018 114,476
-------- --------
Operating income.............................. 15,504 19,106
Interest expense.............................. 15,466 15,461
-------- --------
Income before income taxes.................... 38 3,645
Income tax provision.......................... 18 2,041
-------- --------
Net income.................................... $ 20 $ 1,604
======== ========
<FN>
See accompanying notes.
</FN>
/TABLE
<PAGE>
<TABLE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
CONSOLIDATED STATEMENT OF INCOME
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended June 30,
1996 1995
<S> <C> <C>
Revenues:
Casino..................................... $65,719 $66,475
Rooms...................................... 1,315 1,330
Food and beverage.......................... 2,457 2,451
Other...................................... 1,789 1,506
------- -------
71,280 71,762
Cost and expenses:
Casino..................................... 40,108 37,721
Rooms...................................... 575 574
Food and beverage.......................... 2,158 2,120
Other operating expenses................... 7,518 7,328
Selling, general and administrative........ 5,555 7,647
Depreciation and amortization.............. 4,822 4,753
Allocations from Bally Entertainment
Corporation............................. 251 292
------- -------
60,987 60,435
------- -------
Operating income.............................. 10,293 11,327
Interest expense.............................. 7,736 7,729
------- -------
Income before income taxes.................... 2,557 3,598
Income tax provision.......................... 1,310 2,012
------- -------
Net income.................................... $ 1,247 $ 1,586
======= =======
<FN>
See accompanying notes.
</FN>
/TABLE
<PAGE>
<TABLE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
OPERATING:
Net income................................. $ 20 $ 1,604
Adjustments to reconcile to cash provided -
Depreciation and amortization........... 9,716 9,110
Other amortization included in interest
expense.............................. 800 799
Deferred income taxes................... (2,243) 840
Provision for doubtful receivables...... 314 593
Change in operating assets and
liabilities.......................... (1,937) (924)
------- -------
Cash provided by operating activities... 6,670 12,022
INVESTING:
Purchases and construction of property and
equipment............................... (4,543) (8,108)
Proceeds from disposal of property and
equipment............................... 25 68
Casino Reinvestment Development Authority
investment obligations, net............. (4,162) (71)
------- -------
Cash used in investing activities....... (8,680) (8,111)
FINANCING:
Costs to amend revolving credit agreement.. (315) -
------- -------
Cash used in financing activities....... (315) -
------- -------
Increase (decrease) in cash and equivalents... (2,325) 3,911
Cash and equivalents, beginning of period..... 23,903 14,177
------- -------
Cash and equivalents, end of period.......... $21,578 $18,088
======= =======
<FN>
(Continued)
</FN>
/TABLE
<PAGE>
<TABLE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION
Changes in operating assets and liabilities
were as follows:
Increase in receivables.................... $ (917) $(1,588)
Decrease in income taxes receivable........ 459 -
Decrease in inventories.................... 192 123
(Increase) decrease in other current
assets.................................. (1,433) 1,123
Decrease in accounts payable, payable to
affiliates and accrued liabilities...... (238) (1,783)
Increase in income taxes payable........... - 1,201
------- -------
$(1,937) $ (924)
======= =======
Operating activities include cash payments for
interest and income taxes as follows:
Interest paid.............................. $14,649 $14,680
Income taxes paid (net of refunds)......... 1,802 -
Investing activities exclude the following
non-cash activity:
Donation of Casino Reinvestment
Development Authority investment
obligations, net........................ $ - $ 1,365
<FN>
See accompanying notes.
</FN>
/TABLE
<PAGE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands)
(Unaudited)
Basis of presentation
The accompanying condensed consolidated financial statements include the
accounts of GNOC, CORP., a New Jersey corporation (the "Company"), which is
a wholly owned subsidiary of Bally Entertainment Corporation ("BEC"), and its
subsidiary. The Company owns and operates the casino hotel resort in Atlantic
City, New Jersey known as "The Grand." The Company operates in one industry
segment and all significant revenues arise from its casino and supporting
hotel operations. Unless otherwise specified in the text, references to the
Company include the Company and its subsidiary. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
All adjustments have been recorded which are, in the opinion of
management, necessary for a fair presentation of the condensed consolidated
balance sheet of the Company at June 30, 1996, its consolidated statements of
income for the three and six months ended June 30, 1996 and 1995 and its
consolidated statement of cash flows for the six months ended June 30, 1996
and 1995. All such adjustments were of a normal recurring nature.
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Company's management to make estimates and assumptions that affect
the amounts reported therein. Actual results could vary from such estimates.
In addition, certain reclassifications have been made to prior period
financial statements to conform with the 1996 presentation.
Acquisition of BEC by Hilton Hotels Corporation
In June 1996, BEC and Hilton Hotels Corporation ("Hilton") entered into
an agreement pursuant to which BEC will merge with and into Hilton. The
transaction, which has been approved by the Board of Directors of BEC and
Hilton, is subject to approval by the companies' shareholders and gaming
regulators of several states, and is expected to close by year-end 1996.
Seasonal factors
The Company's operations are subject to seasonal factors and, therefore,
the results of operations for the three and six months ended June 30, 1996 and
1995 are not necessarily indicative of the results of operations for the full
year.
Allocations from BEC and transactions with related parties
BEC allocates costs to the Company consisting of the Company's allocable
share of BEC's corporate overhead including executive salaries and benefits,
public company reporting costs and other corporate headquarters' costs. While
the Company does not obtain a measurable direct benefit from these allocated
costs, management believes that the Company receives an indirect benefit from
BEC's oversight. BEC's method for allocating costs is designed to apportion
the majority of its operating costs to its subsidiaries and is generally based
upon many subjective factors including various measures of operational size
and extent of BEC's oversight requirements. Management of BEC believes that
the methods used to allocate these costs are reasonable. Because of BEC's
controlling relationship with the Company and the allocation of certain BEC
costs, the operating results of the Company could be significantly different
if the Company operated autonomously. In addition, certain of the Company's
insurance coverage is obtained by BEC pursuant to corporate-wide programs.
In these circumstances, BEC charges the Company its proportionate share of the
respective insurance premiums.
Certain executive officers of Bally's Park Place, Inc. ("Bally's Park
Place"), an indirect wholly owned subsidiary of BEC which owns and operates
the casino hotel resort in Atlantic City known as "Bally's Park Place Casino-
Resort", function in a similar capacity for the Company and exercise decision-
making and operational authority over both entities. No allocation of cost
is made from Bally's Park Place to the Company for these executive officers
as management deems the direct allocable cost to be immaterial. In addition,
certain administrative and support operations of the Company and Bally's Park
Place are consolidated, including limousine services, legal services and
purchasing. Costs of these operations are allocated to or from the Company
either directly or using various formulas based on estimates of utilization
of such services. On a net basis, allocations from Bally's Park Place were
$107 and $76 for the three months ended June 30, 1996 and 1995, respectively,
and $215 and $137 for the six months ended June, 1996 and 1995, respectively,
which management believes were reasonable. The Company also leases land from
Bally's Park Place, and rental expense was $174 and $348 for each of the three
and six month periods ended June 30, 1996 and 1995, respectively.
Long-term debt and revolving credit agreement
The indenture for the Company's public indebtedness and the $20,000
revolving credit agreement (the entire amount was unused at June 30, 1996)
contain certain covenants limiting indebtedness and other payments. Payments
of dividends by the Company are limited to 50% of its aggregate consolidated
net income (as defined) earned since June 30, 1995. As of June 30, 1996, no
dividends were available for payment. In May 1996, the Company amended its
revolving credit agreement to extend the expiration date from December 31,
1996 to June 30, 1998.
Income taxes
Taxable income or loss of the Company is included in the consolidated
federal income tax return of BEC. Under a tax sharing agreement between BEC
and the Company, income taxes are allocated to the Company based on amounts
the Company would pay or receive if it filed a separate consolidated federal
income tax return, except that the Company receives credit from BEC for the
tax benefit of the Company's net operating losses and tax credits, if any,
that can be utilized in BEC's consolidated federal income tax return,
regardless of whether these losses or credits could be utilized by the Company
on a separate consolidated federal income tax return basis. Payments to BEC
for tax liabilities are due at such time and in such amounts as payments are
required to be made to the Internal Revenue Service. Payments from BEC for
tax benefits are due at the time BEC files the applicable consolidated federal
income tax return. Under the tax sharing agreement, the Company had income
taxes receivable from BEC of $427 and $2,145 at June 30, 1996 and December 31,
1995, respectively.<PAGE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Comparison of the Six Months Ended June 30, 1996 and 1995
Revenues of the Company for the six months ended June 30, 1996 were
$135.5 million compared to $133.6 million for 1995, an increase of $1.9
million (1%) primarily due to a $1.5 million (1%) increase in casino revenues.
Slot revenues increased $.5 million (1%) due to a 2% increase in slot handle
(volume) offset, in part, by a decline in the win percentage from 8.4% in 1995
to 8.3% in 1996. On average, the Company had 155 (9%) more slot machines in
1996 than for the 1995 period. Slot revenues approximated 60% of the
Company's casino revenues for 1996 compared to 61% in 1995. Table game
revenues, excluding poker, remained essentially unchanged as a 4% increase in
the drop (amount wagered) was offset by a decrease in the hold percentage from
17.2% in 1995 to 16.5% in 1996. Poker, horse race simulcasting and keno, all
of which commenced in April 1995, contributed $2.3 million to casino revenues
in 1996 compared to $1.1 million in 1995, an increase of $1.2 million (109%).
In addition, other revenues increased $.5 million (17%).
Atlantic City casino revenues (excluding poker, horse race simulcasting
and keno) for all operators for the six months ended June 30, 1996 increased
approximately 4% from 1995 due to a 4% increase in both table game and slot
revenues. Since June 30, 1995, the number of slot machines in Atlantic City
increased approximately 11% and the number of table games, excluding poker
tables, increased approximately 8%. Slot revenues approximated 69% of total
casino revenues in Atlantic City for both 1996 and 1995. Management believes
that the expansion of several casino hotel facilities in Atlantic City, which
includes additional hotel rooms and gaming space, has caused and will continue
to cause intense promotional efforts to attract players as both the Company
and its competitors continue to seek to expand their share of gaming revenues
and maximize the utilization of their gaming space. Further, as a result of
the aggressive competition for slot patrons, the Atlantic City slot win
percentage continues to decline. Management believes that the slot win
percentage will continue to be subject to competitive pressure and may decline
further. In addition, proposals for several new casino hotel resorts were
recently announced for Atlantic City and, if and when such resorts are opened,
capacity and competition will further increase. However, management believes
The Grand is well-positioned to compete for additional casino revenues in the
Atlantic City market through the attractive promotional gaming programs and
special events it offers and the appearance and comfort of its gaming space
and hotel accommodations. In April 1995, the Company completed an expansion
which increased its casino floor and other gaming space by nearly 30% to
accommodate approximately 400 additional slot machines, poker, horse race
simulcasting and keno. In November 1995, the Company opened The Grand Theater,
an 18,000 square-foot arena with seating capacity of up to 2,000 used for
headline entertainment, sports events and production shows. Additionally, the
Company broke ground in March 1996 for construction of a 300-room hotel tower,
including restaurants, meeting rooms and other related amenities. The Company
anticipates completing the tower in July 1997.
Operating income of the Company for the six months ended June 30, 1996
was $15.5 million compared to $19.1 million for 1995, a decrease of $3.6
million (19%) as the aforementioned 1% revenue increase was more than offset
by a 5% increase in operating expenses. Casino expenses increased $8.1 million
(11%) primarily due to increased promotional expenses and costs of providing
complimentary services to increase gaming activity. In addition, other
operating expenses increased $.8 million (5%) and depreciation and
amortization increased $.6 million (7%). These increases in operating
expenses were offset, in part, by a $3.8 million (27%) decrease in selling,
general and administrative expenses primarily due to an increase in the
estimated realizable value of certain Casino Reinvestment Development
Authority investments and funds on deposit in the 1996 period, which resulted,
in part, from the approved use of such funds for reimbursement of tower
construction costs. Operating costs and expenses include allocations from BEC
of its overhead (including executive salaries and benefits, public company
reporting costs and other corporate headquarters' costs) of $.5 million and
$.6 million for the six months ended June 30, 1996 and 1995, respectively.
Management of BEC believes that the methods used to allocate these costs are
reasonable.
For the six months ended June 30, 1996 and 1995, the effective rates of
the income tax provision varied from the U.S. statutory tax rate (35%) due
principally to nondeductible amortization of cost in excess of acquired assets
and state income taxes.<PAGE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K:
None.<PAGE>
SIGNATURE PAGE
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.
GNOC, CORP.
Registrant
/s/ Donna M. Graham
Donna M. Graham
Vice President of Finance/Treasurer
(Principal Financial and Chief Accounting Officer)
Dated: August 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996, THE CONSOLIDATED
STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 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-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,578
<SECURITIES> 0
<RECEIVABLES> 11,637
<ALLOWANCES> 5,322
<INVENTORY> 2,206
<CURRENT-ASSETS> 40,314
<PP&E> 406,102
<DEPRECIATION> 127,998
<TOTAL-ASSETS> 428,924
<CURRENT-LIABILITIES> 26,858
<BONDS> 273,400
0
0
<COMMON> 30
<OTHER-SE> 73,424
<TOTAL-LIABILITY-AND-EQUITY> 428,924
<SALES> 0
<TOTAL-REVENUES> 135,522
<CGS> 0
<TOTAL-COSTS> 98,936 <F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 314 <F2>
<INTEREST-EXPENSE> 15,466
<INCOME-PRETAX> 38
<INCOME-TAX> 18
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> THESE AMOUNTS INCLUDE TOTAL COSTS AND EXPENSES FOR CASINO, ROOMS,
FOOD AND BEVERAGE, AND OTHER OPERATING EXPENSES EXCLUDING THE PROVISION FOR
DOUBTFUL ACCOUNTS ON THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1996.
<F2> THESE AMOUNTS ARE INCLUDED IN CASINO AND ROOMS COSTS AND EXPENSES ON
THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1996.
</FN>
</TABLE>
