<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 SEPTEMBER 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 October 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)
September 30, 1996 and December 31, 1995 ............ 1
Consolidated statement of income (unaudited)
Nine months ended September 30, 1996 and 1995........ 2
Consolidated statement of income (unaudited)
Three months ended September 30, 1996 and 1995....... 3
Consolidated statement of cash flows (unaudited)
Nine months ended September 30, 1996 and 1995........ 4
Notes to condensed consolidated financial statements
(unaudited).......................................... 6
Item 2. Management's discussion and analysis of results of
operations.............................................. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.................. 11
SIGNATURE PAGE................................................ 12
<PAGE>
<TABLE>
GNOC, CORP.
(A Wholly Owned Subsidiary of Bally Entertainment Corporation)
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents....................... $ 29,978 $ 23,903
Receivables, less allowances of $4,976
and $5,573.............................. 6,157 6,040
Income taxes receivable.................... 480 886
Inventories................................ 2,259 2,398
Deferred income taxes...................... 5,670 5,658
Other current assets....................... 3,946 2,172
-------- --------
Total current assets.................... 48,490 41,057
Property and equipment, less accumulated
depreciation of $132,050 and $119,874...... 282,394 281,736
Cost in excess of acquired assets, less
accumulated amortization of $28,608
and $26,318................................ 92,868 95,158
Deferred finance costs, less accumulated
amortization of $5,271 and $4,179.......... 8,705 9,467
Other assets.................................. 9,977 3,692
-------- --------
$442,434 $431,110
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................... $ 3,352 $ 3,399
Payable to affiliates...................... 472 323
Accrued liabilities........................ 31,999 23,374
-------- --------
Total current liabilities............... 35,823 27,096
Long-term debt, less unamortized discount
of $1,559 and $1,678....................... 273,441 273,322
Deferred income taxes......................... 58,226 57,258
Stockholder's equity:
Common stock............................... 30 30
Additional paid-in capital................. 123,421 123,421
Accumulated deficit........................ (48,507) (50,017)
-------- --------
Total stockholder's equity.............. 74,944 73,434
-------- --------
$442,434 $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>
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
Revenues:
Casino..................................... $194,135 $196,488
Rooms...................................... 3,621 3,846
Food and beverage.......................... 6,847 7,105
Other...................................... 5,723 4,757
-------- --------
210,326 212,196
Costs and expenses:
Casino..................................... 117,612 112,920
Rooms...................................... 1,564 1,686
Food and beverage.......................... 6,075 6,174
Other operating expenses................... 23,433 22,237
Selling, general and administrative........ 18,640 19,099
Depreciation and amortization.............. 14,533 13,474
Allocations from Bally Entertainment
Corporation............................. 778 824
-------- --------
182,635 176,414
-------- --------
Operating income.............................. 27,691 35,782
Interest expense.............................. 23,017 23,196
-------- --------
Income before income taxes.................... 4,674 12,586
Income tax provision.......................... 3,164 6,838
-------- --------
Net income.................................... $ 1,510 $ 5,748
======== ========
<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 September 30,
1996 1995
<S> <C> <C>
Revenues:
Casino..................................... $68,769 $72,648
Rooms...................................... 1,226 1,409
Food and beverage.......................... 2,394 2,618
Other...................................... 2,415 1,939
------- -------
74,804 78,614
Cost and expenses:
Casino..................................... 40,733 40,625
Rooms...................................... 464 516
Food and beverage.......................... 2,087 2,178
Other operating expenses................... 8,417 7,996
Selling, general and administrative........ 5,845 6,011
Depreciation and amortization.............. 4,817 4,364
Allocations from Bally Entertainment
Corporation............................. 254 248
------- -------
62,617 61,938
------- -------
Operating income.............................. 12,187 16,676
Interest expense.............................. 7,551 7,735
------- -------
Income before income taxes.................... 4,636 8,941
Income tax provision.......................... 3,146 4,797
------- -------
Net income.................................... $ 1,490 $ 4,144
======= =======
<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>
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
OPERATING:
Net income................................. $ 1,510 $ 5,748
Adjustments to reconcile to cash provided -
Depreciation and amortization........... 14,533 13,474
Other amortization included in interest
expense.............................. 1,211 1,201
Deferred income taxes................... 956 4,337
Provision for doubtful receivables...... 331 929
Change in operating assets and
liabilities.......................... 4,486 7,676
------- -------
Cash provided by operating activities... 23,027 33,365
INVESTING:
Purchases and construction of property and
equipment............................... (12,885) (11,588)
Increase in construction related
liabilities............................. 2,564 1,091
Proceeds from disposal of property and
equipment............................... 25 70
Casino Reinvestment Development Authority
investment obligations, net............. (6,326) (494)
------- -------
Cash used in investing activities....... (16,622) (10,921)
FINANCING:
Costs to amend revolving credit agreement.. (330) -
------- -------
Cash used in financing activities....... (330) -
------- -------
Increase in cash and equivalents.............. 6,075 22,444
Cash and equivalents, beginning of period..... 23,903 14,177
------- -------
Cash and equivalents, end of period.......... $29,978 $36,621
======= =======
<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>
Nine Months Ended September 30,
1996 1995
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION
Changes in operating assets and liabilities
were as follows:
Increase in receivables.................... $ (448) $(1,248)
Decrease in income taxes receivable........ 406 -
Decrease in inventories.................... 139 131
(Increase) decrease in other current
assets.................................. (1,774) 1,225
Increase in accounts payable, payable to
affiliates and accrued liabilities...... 6,163 6,367
Increase in income taxes payable........... - 1,201
------- -------
$ 4,486 $ 7,676
======= =======
Operating activities include cash payments for
interest and income taxes as follows:
Interest paid.............................. $14,695 $14,686
Interest capitalized....................... (194) -
Income taxes paid (net of refunds)......... 1,802 1,300
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 September 30, 1996, its consolidated
statements of income for the three and nine months ended September 30, 1996
and 1995 and its consolidated statement of cash flows for the nine months
ended September 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
"Merger"). The Merger, which has been approved by the Board of Directors and
shareholders of BEC and Hilton, is subject to approval by gaming regulators
of several jurisdictions, and is expected to close before year-end 1996.
Seasonal factors
The Company's operations are subject to seasonal factors and, therefore,
the results of operations for the three and nine months ended September 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
$65 and $107 for the three months ended September 30, 1996 and 1995,
respectively, and $280 and $244 for the nine months ended September 30, 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 $522
for each of the three and nine month periods ended September 30, 1996 and
1995, respectively.
Long-term debt and revolving credit agreement
The indenture for the Company's 10-5/8% First Mortgage Notes due 2003
(the "Notes") and the $20,000 revolving credit agreement (the entire amount
was unused at September 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 September 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.
In October 1996, Hilton announced an offer to purchase for cash any and
all of the Notes (the "Tender Offer") and a solicitation of consents to
proposed amendments to the indenture for the Notes (the "Consent
Solicitation"). The Tender Offer and Consent Solicitation are subject to
consummation of the Merger, receipt of tenders and consents for at least a
majority of the principal amount of the Notes and the receipt of any necessary
gaming regulatory approvals, as well as certain other conditions described in
the Offer to Purchase and Consent Solicitation.
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 $480 and $2,145 at September 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 Nine Months Ended September 30, 1996 and 1995
Revenues of the Company for the nine months ended September 30, 1996 were
$210.3 million compared to $212.2 million for 1995, a decrease of $1.9 million
(1%) primarily due to a $2.4 million (1%) decrease in casino revenues offset,
in part, by a $1.0 million (20%) increase in other revenues. Slot revenues
decreased $2.5 million (2%) due to a 1% decrease in slot handle (volume) along
with a decline in the win percentage from 8.4% in 1995 to 8.3% in 1996. On
average, the Company had 101 (6%) more slot machines in 1996 than for the 1995
period. Slot revenues approximated 61% of the Company's casino revenues for
1996 compared to 62% in 1995. Table game revenues, excluding poker, decreased
$.7 million (1%) as a 3% increase in the drop (amount wagered) was more than
offset by a decrease in the hold percentage from 16.4% in 1995 to 15.8% in
1996. Poker, horse race simulcasting and keno, all of which commenced in
April 1995, contributed $3.4 million to casino revenues in 1996 compared to
$2.5 million in 1995, an increase of $.9 million (36%).
Atlantic City casino revenues (excluding poker, horse race simulcasting
and keno) for all operators for the nine months ended September 30, 1996
increased approximately 3% from 1995 due to a 3% increase in both table game
and slot revenues. Since September 30, 1995, the number of slot machines in
Atlantic City increased approximately 10% and the number of table games,
excluding poker tables, increased approximately 6%. 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 nine months ended September 30,
1996 was $27.7 million compared to $35.8 million for 1995, a decrease of $8.1
million (23%) due to the aforementioned 1% revenue decrease and a 4% increase
in operating expenses. Casino expenses increased $4.7 million (4%) primarily
due to increased promotional expenses and costs of providing complimentary
services to increase gaming activity offset, in part, by an increase in the
estimated realizable value of 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. In addition, other operating expenses increased $1.2 million (5%) and
depreciation and amortization increased $1.1 million (8%). 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 $.8 million for each of the nine month periods ended
September 30, 1996 and 1995. Management of BEC believes that the methods used
to allocate these costs are reasonable.
For the nine months ended September 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: November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996, AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 29,978
<SECURITIES> 0
<RECEIVABLES> 11,133
<ALLOWANCES> 4,976
<INVENTORY> 2,259
<CURRENT-ASSETS> 48,490
<PP&E> 414,444
<DEPRECIATION> 132,050
<TOTAL-ASSETS> 442,434
<CURRENT-LIABILITIES> 35,823
<BONDS> 273,441
0
0
<COMMON> 30
<OTHER-SE> 74,914
<TOTAL-LIABILITY-AND-EQUITY> 442,434
<SALES> 0
<TOTAL-REVENUES> 210,326
<CGS> 0
<TOTAL-COSTS> 148,353 <F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 331 <F2>
<INTEREST-EXPENSE> 23,017
<INCOME-PRETAX> 4,674
<INCOME-TAX> 3,164
<INCOME-CONTINUING> 1,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,510
<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 INCOME FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996.
<F2> THESE AMOUNTS ARE INCLUDED IN CASINO AND ROOMS COSTS AND EXPENSES ON
THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996.
</FN>
</TABLE>
