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 March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 1-2500
BALLY'S GRAND, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-0980760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3645 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 739-4111
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:
Indicate by a check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes: X No:
As of April 30, 1996, 8,440,673 shares of the registrant's common stock were
outstanding.
<PAGE>
BALLY'S GRAND, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
March 31, 1996 and December 31, 1995........................ 1
Consolidated statement of income (unaudited)
Three months ended March 31, 1996 and 1995.................. 2
Consolidated statement of stockholders' equity (unaudited)
Three months ended March 31, 1996........................... 3
Consolidated statement of cash flows (unaudited)
Three months ended March 31, 1996 and 1995.................. 4
Notes to condensed consolidated financial
statements (unaudited)...................................... 5 - 6
Item 2. Management's discussion and analysis of financial
condition and results of operations.................... 7 - 8
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.......................... 9
SIGNATURE PAGE...................................................... 10
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<CAPTION>
March 31 December 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......................... $78,848 $64,750
Marketable securities, at fair value.......... 2,281 1,781
Receivables, less allowances of $6,346 and
$5,862...................................... 15,284 12,653
Inventories................................... 3,438 3,506
Deferred income taxes......................... 6,038 6,678
Other current assets.......................... 3,684 3,223
------------ ------------
Total current assets...................... 109,573 92,591
Property and equipment, less accumulated
depreciation of $53,896 and $48,010........... 405,387 409,441
Other assets.................................... 17,693 16,055
------------ ------------
$532,653 $518,087
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $7,975 $13,613
Income taxes payable to Bally Entertainment
Corporation................................. 1,000
Accrued liabilities........................... 34,047 26,580
------------ ------------
Total current liabilities................. 43,022 40,193
Long-term debt.................................. 315,000 315,000
Deferred income taxes........................... 87,570 84,838
Other long-term liabilities..................... 1,902 761
Stockholders' equity............................ 85,159 77,295
------------ ------------
$532,653 $518,087
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share data)
(Unaudited)
<CAPTION>
Three months
ended March 31
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Casino............................................. $40,113 $33,155
Rooms.............................................. 17,734 16,376
Food and beverage.................................. 12,086 11,432
Other.............................................. 12,168 11,373
--------- ---------
82,101 72,336
Costs and expenses:
Casino............................................. 19,767 18,578
Rooms.............................................. 5,018 4,786
Food and beverage.................................. 10,039 9,977
Other operating expenses........................... 11,817 12,097
Selling, general and administrative................ 8,784 8,475
Depreciation and amortization...................... 6,540 5,546
--------- ---------
61,965 59,459
--------- ---------
Operating income..................................... 20,136 12,877
Gain (loss) on sales of marketable securities........ (50) 103
Interest expense..................................... (8,352) (8,045)
--------- ---------
Income before income taxes........................... 11,734 4,935
Provision for income taxes........................... (4,197) (1,875)
--------- ---------
Net income........................................... $7,537 $3,060
========= =========
Net income per common and common equivalent share.... $.86 $.35
========= =========
Average common and common equivalent shares
outstanding........................................ 8,754,304 8,846,963
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<CAPTION>
Total
Shares of common stock Additional Common stock-
---------------------- Common paid-in Retained stock in holders'
Issued Treasury stock capital earnings treasury equity
---------- ---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.. 10,600,000 2,159,506 $106 $82,408 $20,116 $(25,335) $77,295
Net income.................. 7,537 7,537
Change in unrealized gain/
loss on available-for-
sale securities........... 325 325
Exercise of warrants........ 179 2 2
---------- ---------- --------- --------- --------- --------- ---------
Balance at March 31, 1996..... 10,600,179 2,159,506 $106 $82,410 $27,978 $(25,335) $85,159
========== ========== ========= ========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three months
ended March 31
---------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING:
Net income......................................... $7,537 $3,060
Adjustments to reconcile to cash provided -
Depreciation and amortization.................... 6,540 5,546
Other amortization included in interest expense.. 235 234
Provision for doubtful receivables............... 484 582
Deferred income taxes............................ 3,197 1,875
Loss (gain) on sales of marketable securities.... 50 (103)
Changes in operating assets and liabilities:
Increase in receivables........................ (3,115) (813)
Decrease (increase) in inventories, other
current assets and other assets.............. (1,118) 516
Increase in accounts payable, accrued
liabilities and other long-term liabilities.. 4,966 840
Increase in income taxes payable to Bally
Entertainment Corporation.................... 1,000
Other, net....................................... 7 (287)
--------- ---------
Cash provided by operating activities.......... 19,783 11,450
INVESTING:
Purchases and construction of property and
equipment........................................ (2,486) (7,104)
Decrease in construction-related liabilities....... (1,921) (1,257)
Purchases of marketable securities................. (3,353)
Net proceeds from sales of marketable securities... 2,434
Other, net......................................... (50) (183)
--------- ---------
Cash used in investing activities.............. (4,457) (9,463)
FINANCING:
Purchases of common stock for treasury (including
December 1995 purchases settled in January 1996). (1,230) (6,432)
Proceeds from exercise of warrants................. 2
--------- ---------
Cash used in financing activities.............. (1,228) (6,432)
--------- ---------
Increase (decrease) in cash and equivalents.......... 14,098 (4,445)
Cash and equivalents, beginning of period............ 64,750 86,359
--------- ---------
Cash and equivalents, end of period.................. $78,848 $81,914
========= =========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Operating activities include cash payments for
interest as follows -
Interest paid.................................. $17 $
Interest capitalized........................... (61) (360)
Investing activities exclude the following
non-cash transactions -
Purchases of marketable securities on margin... $ $1,311
Sales of margined marketable securities
(including unsettled sales).................. 4,807
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
BALLY'S GRAND, INC.
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 Bally's Grand, Inc., a Delaware corporation (the "Company") and its
subsidiaries. As of March 31, 1996, a wholly owned subsidiary of Bally
Entertainment Corporation ("BEC") owned approximately 85% (78% on a fully
diluted basis) of the outstanding common stock of the Company. The Company owns
and operates the casino hotel resort in Las Vegas, Nevada known as "Bally's Las
Vegas." 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
subsidiaries. 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 March 31, 1996, its consolidated statements of income and cash
flows for the three months ended March 31, 1996 and 1995, and its consolidated
statement of stockholders' equity for the three months ended March 31, 1996. 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.
SEASONAL FACTORS
The Company's operations are somewhat seasonal and, therefore, the results of
operations for the three months ended March 31, 1996 and 1995 are not
necessarily indicative of the results of operations for the full year.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. Common stock equivalents, which
represent the dilutive effect of the assumed exercise of outstanding warrants,
increased the weighted average number of shares outstanding by 313,651 shares
for the three months ended March 31, 1996. The assumed exercise of outstanding
warrants was not applicable for the three months ended March 31, 1995.
INCOME TAXES
For the period from January 1, 1995 through March 21, 1995 (the date BEC's
ownership percentage of outstanding common stock of the Company reached 80%),
the Company is required to file its own separate consolidated federal income tax
return. For periods subsequent to March 21, 1995, taxable income or loss of the
Company is included in the consolidated federal income tax return of BEC. Under
a tax sharing arrangement 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. Payments to BEC for tax
liabilities are due at such time and in such amounts as payments would be
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.
5
<PAGE>
BALLY'S GRAND, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands)
(Unaudited)
LONG-TERM DEBT
The indenture governing the Company's public indebtedness contains covenants
that (i) restrict mergers and asset sales and (ii) limit indebtedness,
restricted payments, transactions with affiliates, encumbrances and liens,
dividends and guarantees. As of March 31, 1996, $5,807 was unrestricted under
the indenture covenants for the payment of dividends.
TRANSACTIONS WITH BEC
In August 1993, the Company, BEC and Bally's Grand Management Co., Inc. (the
"Manager"), a Nevada corporation and a wholly owned subsidiary of BEC, entered
into a management agreement (the "Management Agreement") whereby the Manager
provides management services to the Company and BEC licenses the use of the
"Bally" name and certain computer software to the Company for a $3,000 annual
management fee. Pursuant to the Management Agreement, management fees for each
of the three month periods ended March 31, 1996 and 1995 were $750. 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.
6
<PAGE>
BALLY'S GRAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1996 and 1995
Revenues for the three months ended March 31, 1996 were $82.1 million compared
to $72.3 million for the 1995 quarter, an increase of $9.8 million (14%). Casino
revenues for the 1996 quarter were $40.1 million compared to $33.2 million for
1995, an increase of $6.9 million (21%) due, in part, to additional walk-in
business resulting from the June 1995 opening of a monorail system connecting
Bally's Las Vegas and MGM Grand. Table game revenues increased $3.0 million
(18%) due to an increase in the hold percentage from 14.3% in the 1995 quarter
to 15.8% in 1996 and a 6% increase in the drop (amount wagered). Slot revenues
increased $2.5 million (18%) due to a 19% increase in slot handle (volume)
offset, in part, by a decline in the win percentage from 6.1% in the 1995
quarter to 6.0% in 1996. On average, Bally's Las Vegas had 180 (12%) more slot
machines for the three months ended March 31, 1996 compared to the same period
in 1995. Other casino revenues increased $1.4 million (90%) due to additional
revenues generated by the relocated and expanded race and sports book room,
which opened in September 1995. Rooms revenue increased $1.4 million (8%) due to
a higher average room rate and an increase in the number of rooms occupied
compared to the 1995 quarter. Food and beverage revenues increased $.7 million
(6%) primarily due to the reinstatement of beverage service in the showrooms in
the second quarter of 1995 and increased convention business, and other revenues
increased $.8 million (7%) due, in part, to increased rental income from a
redesign of the retail shopping mall and increased gift shop revenues.
There have been various public announcements concerning the expansion of
existing casino hotel resorts and the development of new casino hotel resorts in
Las Vegas, certain of which have commenced construction. In particular, three
casino hotel resorts are expected to open on the Strip in 1996 with a total of
approximately 270,000 square feet of gaming space and 6,900 guest rooms.
Management believes that the additional casino and hotel room capacity resulting
from the opening of new casino hotels may have a short-term negative impact on
the Company, but that over the long term the Company benefits from the increase
in the number of visitors to Las Vegas that these new properties attract. To
enhance its competitiveness in the Las Vegas market, Bally's Las Vegas recently
completed an extensive capital improvement program, including improvements to
its frontage area along the Strip, the monorail system, the renovation of all of
its hotel rooms and the new race and sports book room, among others. In
addition, the Company has announced its intention to develop a new casino hotel
resort (see "Liquidity and capital resources").
Operating income for the three months ended March 31, 1996 was $20.1 million
compared to $12.9 million for the 1995 quarter, an increase of $7.2 million
(56%) as the aforementioned 14% increase in revenues was offset, in part, by a
4% increase in operating expenses. Casino operating expenses increased $1.2
million (6%) due principally to increased promotional costs and increased gaming
taxes associated with higher casino revenues, and depreciation and amortization
expense increased $1.0 million (18%) due to the major capital improvements
recently completed.
Interest expense, net of capitalized interest, was $8.4 million for the three
months ended March 31, 1996 compared to $8.0 million for the 1995 quarter, an
increase of $.4 million (5%) primarily due to a decrease in the amount of
capitalized interest.
For the three months ended March 31, 1996 and 1995, the effective rate of the
income tax provision differed from the U.S. statutory tax rate (35%) due
principally to certain nondeductible expenses.
7
<PAGE>
BALLY'S GRAND, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company has no scheduled principal payments on its long-term debt until
2003. Management plans to make capital expenditures totalling approximately $23
million at Bally's Las Vegas over the next twelve months (i) to replace certain
slot machines so that substantially all of the Company's slot machines will be
state-of-the-art with embedded bill acceptors, (ii) to redesign and expand the
baccarat area, (iii) to upgrade certain penthouses and suites, and (iv) for
other improvements and equipment necessary to maintain the casino hotel resort
in first-class condition. The Company believes that it will be able to satisfy
its debt service (interest on its public indebtedness is approximately $32.7
million per annum) and the aforementioned capital expenditure requirements over
the next twelve months out of existing cash balances ($78.8 million at March 31,
1996) and cash flow from operations. For the three months ended March 31, 1996
and the year ended December 31, 1995, the Company's cash provided by operating
activities totalled $19.8 million and $34.0 million, respectively, and its
operating margin (before depreciation and amortization) was 32% and 24%,
respectively. In addition, the Company received a commitment from a lender in
March 1996 for a revolving credit facility totalling $15 million.
In 1995, the Company announced its intention to develop a separate casino hotel
resort with a Paris, France theme (the "Paris Casino-Resort") on approximately
24 acres of land situated on the Strip adjacent to Bally's Las Vegas. The Paris
Casino-Resort is presently planned to include, among other things, an 85,000
square-foot casino, 3,000 guest rooms and a 50-story replica of the Eiffel
Tower. Construction of the Paris Casino-Resort is expected to commence in the
third quarter of 1996, with completion expected in 1998. The cost of the
project, exclusive of the value of the land, is presently estimated to be
between $375 million and $425 million, of which $30 million to $40 million is
expected to be incurred over the next twelve months. The Company expects to
obtain third-party financing for a significant portion of the project cost.
8
<PAGE>
BALLY'S GRAND, INC.
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.
9
<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.
BALLY'S GRAND, INC.
--------------------------------------------
Registrant
/s/ Jerry A. Blumenshine
--------------------------------------------
Jerry A. Blumenshine
Vice President and Chief Financial Officer
(principal financial and accounting officer)
Dated: May 13, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND THE CONSOLIDATED
STATEMENTS OF INCOME AND STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 78,848
<SECURITIES> 2,281
<RECEIVABLES> 21,630
<ALLOWANCES> 6,346
<INVENTORY> 3,438
<CURRENT-ASSETS> 109,573
<PP&E> 459,283
<DEPRECIATION> 53,896
<TOTAL-ASSETS> 532,653
<CURRENT-LIABILITIES> 43,022
<BONDS> 315,000
0
0
<COMMON> 106
<OTHER-SE> 85,053
<TOTAL-LIABILITY-AND-EQUITY> 532,653
<SALES> 0
<TOTAL-REVENUES> 82,101
<CGS> 0
<TOTAL-COSTS> 46,157<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 484<F2>
<INTEREST-EXPENSE> 8,352
<INCOME-PRETAX> 11,734
<INCOME-TAX> 4,197
<INCOME-CONTINUING> 7,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,537
<EPS-PRIMARY> .86
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT IS THE SUM OF CASINO, ROOMS, FOOD AND BEVERAGE, AND OTHER
OPERATING EXPENSES UNDER COSTS AND EXPENSES IN THE CONSOLIDATED STATEMENT
OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996, LESS THE PROVISION
FOR DOUBTFUL RECEIVABLES INCLUDED THEREIN.
<F2>THIS AMOUNT IS INCLUDED IN CASINO AND ROOMS UNDER COSTS AND EXPENSES
IN THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1996.
</FN>
</TABLE>
