<PAGE>
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, 1997
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 1-2500
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)
(702) 739-4111
(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 by 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1997 -- Common Stock, $.01 par value --
7,668,568 shares.
<PAGE>
PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
BALLY'S GRAND, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
- - --------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
Revenue Casino $ 33.3 37.3 118.5 116.2
Rooms 15.0 14.8 48.9 48.3
Food and beverage 10.4 10.4 32.8 33.5
Other 12.7 10.2 32.4 32.5
----------------------------------------------------- --------------------
71.4 72.7 232.6 230.5
- - --------------------------------------------------------------- --------------------
Expenses Casino 19.6 18.8 63.0 59.8
Rooms 4.8 4.9 14.4 14.7
Food and beverage 9.0 9.4 28.1 29.0
Other expenses 26.8 28.5 80.3 83.3
----------------------------------------------------- --------------------
60.2 61.6 185.8 186.8
- - --------------------------------------------------------------- --------------------
Operating income 11.2 11.1 46.8 43.7
Interest and dividend income 1.4 2.0 4.9 4.0
Interest expense (8.4) (8.4) (25.2) (25.2)
- - --------------------------------------------------------------- --------------------
Income before income taxes 4.2 4.7 26.5 22.5
Provision for income taxes 1.5 .8 9.3 7.1
- - --------------------------------------------------------------- --------------------
Net income $ 2.7 3.9 17.2 15.4
- - --------------------------------------------------------------- --------------------
- - --------------------------------------------------------------- --------------------
Net income per share $ .34 .44 1.96 1.73
- - --------------------------------------------------------------- --------------------
- - --------------------------------------------------------------- --------------------
Average number
of shares 7,934,380 9,006,915 8,799,405 8,925,539
- - --------------------------------------------------------------- ----------------------
- - --------------------------------------------------------------- ----------------------
</TABLE>
1
<PAGE>
BALLY'S GRAND, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets
Cash and equivalents $ 92.5 115.9
Marketable securities, at fair value
(Hilton Hotels Corporation common stock) 49.1 38.1
Receivables, less allowances of $4.6
and $4.9, respectively 12.6 17.4
Inventories 2.0 1.8
Deferred income taxes 6.4 7.1
Other current assets 4.8 3.8
------------------------------------------------------------------------
Total current assets 167.4 184.1
Property and equipment, net 367.6 376.5
Other assets 13.3 16.6
------------------------------------------------------------------------
Total assets $ 548.3 577.2
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
Liabilities and Current liabilities
stockholders'
equity Accounts payable $ 10.3 13.2
Income taxes payable 8.5 8.8
Accrued liabilities 38.0 31.1
------------------------------------------------------------------------
Total current liabilities 56.8 53.1
Long-term debt 315.0 315.0
Deferred income taxes and other liabilities 89.2 90.5
Stockholders' equity 87.3 118.6
------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 548.3 577.2
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
</TABLE>
2
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BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating
activities Net income $ 17.2 15.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19.7 20.0
Amortization of debt issue costs .7 .7
Change in working capital components:
Receivables 4.5 (4.2)
Other current assets 4.8 (.3)
Accounts payable and accrued liabilities 1.9 9.9
Income taxes payable (.3) 3.7
Change in deferred income taxes (2.4) (1.4)
Other (1.0) (.8)
-----------------------------------------------------------------------
Net cash provided by operating activities 45.1 43.0
- - ------------------------------------------------------------------------------------
Investing
activities Proceeds from sale of subsidiary to BEC - 17.5
Capital expenditures (10.8) (13.6)
Increase (decrease) in construction-related
liabilities 1.1 (2.1)
Other, net (2.6) 1.7
-----------------------------------------------------------------------
Net cash (used in) provided by investing
activities (12.3) 3.5
- - ------------------------------------------------------------------------------------
Financing
activities Purchases of common stock for treasury (57.1) (1.2)
Proceeds from exercise of warrants .9 -
-----------------------------------------------------------------------
Net cash used in financing activities (56.2) (1.2)
- - ------------------------------------------------------------------------------------
(Decrease) increase in cash and equivalents (23.4) 45.3
Cash and equivalents at beginning of year 115.9 64.7
- - ------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 92.5 110.0
- - ------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
SUPPLEMENTAL CASH FLOW INFORMATION: (in millions) 1997 1996
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Cash paid during the period for the following:
Interest, net of amounts capitalized 16.3 16.3
Income taxes 12.0 4.9
</TABLE>
3
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bally's Grand, Inc., a Delaware corporation (the Company) and its
subsidiaries. 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
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, 1996.
Effective December 18, 1996, Hilton Hotels Corporation (HHC) completed the
merger of Bally Entertainment Corporation (BEC) with and into HHC pursuant to
an agreement dated June 6, 1996 (the Merger). As a result, a wholly owned
subsidiary of BEC which owned shares of the Company's common stock became a
wholly owned subsidiary of HHC. As of September 30, 1997, this wholly owned
subsidiary of HHC owned approximately 95% (89% on a fully diluted basis) of
the outstanding common stock of the Company.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the consolidated balance sheet of the
Company at September 30, 1997, its consolidated statements of income for the
three and nine months ended September 30, 1997 and 1996 and its consolidated
statement of cash flows for the nine months ended September 30, 1997 and
1996. All such adjustments were of a normal recurring nature.
The accompanying 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, which have no effect on net income, have
been made to prior years' financial statements to conform with the 1997
presentation.
NOTE 2: SEASONAL FACTORS
The Company's operations are somewhat seasonal and, therefore, the results of
operations for the three and nine months ended September 30, 1997 and 1996
are not necessarily indicative of the results of operations for the full year.
NOTE 3: EARNINGS PER SHARE
Earnings per 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 333,451 shares and 565,536
shares for the three months ended September 30, 1997 and 1996, respectively,
and by 304,676 shares and 484,635 shares for the nine months ended September
30, 1997 and 1996, respectively. The sum of net income per share for the
three quarters differs from the net income per share for the nine-month periods
due to the required method of computing weighted average number of shares
in the respective periods.
NOTE 4: INCOME TAXES
For the period from January 1, 1996 to December 18, 1996, taxable income or
loss of the Company is included in the consolidated Federal income tax return
of BEC. For periods subsequent to December 18, 1996, taxable income or loss
of the Company is included in the consolidated Federal income tax return of
HHC. Under a tax sharing arrangement between BEC, and now HHC, and the
Company, income taxes
4
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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 or HHC 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 or HHC for tax benefits are due at the time BEC
or HHC files the applicable consolidated Federal income tax return.
NOTE 5: LONG-TERM DEBT
In October 1996, HHC announced an offer to purchase for cash (the Tender
Offer) any and all of the Company's 10 3/8% First Mortgage Notes due 2003 (the
Notes) and a solicitation of consents to proposed amendments to the indenture
for the Notes (the Consent Solicitation). In connection therewith, HHC
purchased $312,219,000 principal amount of the Notes in December 1996 at a
premium of 12.4% (10.4% for the Tender Offer and 2% for the Consent
Solicitation). Because HHC received consents for at least a majority of the
principal amount of the Notes, certain restrictive covenants and events of
default and related provisions contained in the indenture governing the Notes
were eliminated.
NOTE 6: TRANSACTIONS WITH BEC/HHC
In August 1993, the Company, BEC and Bally's Grand Management Co., Inc.
(BGM), a Nevada corporation and, at that time, a wholly owned subsidiary of
BEC, entered into a management agreement (the Management Agreement) whereby
BGM provides management services to the Company and BEC licensed, and now HHC
licenses, the use of the "Bally" name and certain computer software to the
Company for a $3 million annual management fee. Pursuant to the Management
Agreement, management fees for each of the three and nine month periods ended
September 30, 1997 and 1996 were $750,000 and $2,250,000, respectively. In
addition, certain of the Company's insurance coverages were obtained by BEC
(and are currently obtained by HHC) pursuant to corporate-wide programs. In
these circumstances, BEC or HHC charged the Company its proportionate share
of the respective insurance premiums.
In August 1996, the Company sold Paris Casino Corp., an indirect wholly owned
subsidiary that owns 24 acres of land next to Bally's Las Vegas upon which
the Paris Casino-Resort is planned to be developed, to BEC for consideration
having an aggregate value of approximately $57.5 million ($17.5 million in
cash and 1,457,195 shares of BEC common stock which were converted into
1,457,195 shares of HHC common stock in the Merger). In addition, BEC
reimbursed the Company for Paris Casino-Resort development costs incurred to
date and certain transaction-related costs, and granted the Company certain
operating considerations pursuant to a shared facilities agreement. The
transaction was negotiated and approved by an independent Special Committee
of the Board of Directors of the Company. The Special Committee retained
independent legal counsel and financial advisors in connection with the
evaluation and negotiation of the transaction. For financial accounting
purposes, because BEC owned approximately 85% of the outstanding common stock
of the Company at that time, the excess of the sales price over the
historical net book value of Paris Casino Corp. (net of income taxes of
$10,593,000) was accounted for as an increase to stockholders' equity.
NOTE 7: LITIGATION
On June 13, 1997, the Company announced that it had reached an agreement to
settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION presently
pending in the Delaware Court of Chancery. Prior to the settlement, HHC
indirectly owned approximately 84% of the common stock of the Company. Under
the terms of the settlement, the Company has repurchased 966,747 shares of
its common stock and 102,698 warrants to purchase shares of its common stock
from certain plaintiffs at a price of $52.75 per share in cash for the common
stock and $52.75 less the exercise price per warrant in cash for the
warrants.
On October 9, 1997, HHC received court approval of the settlement agreement.
On October 28, 1997, a sole shareholder appealed the court approval of the
settlement agreement. On November 7, 1997, the
5
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Delaware Supreme Court granted HHC's motion for an expedited appeal. Upon
final resolution of the appeal, the Company would be merged with a subsidiary
of HHC, and the remaining 408,862 outstanding shares of the Company's common
stock not currently owned by HHC would be converted into the right to receive
$52.75 (less certain attorneys' fees) per share in cash, and the 491,784
outstanding warrants to purchase the Company's common stock not currently
owned by HHC would be converted into the right to receive the difference
between $52.75 (less certain attorneys' fees) and the exercise price per
warrant in cash.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
The Company has no scheduled principal payments on its long-term debt until
2003. Management plans to make capital expenditures totaling approximately
$24 million at Bally's Las Vegas during 1997 for various improvements,
renovations and equipment to maintain the casino hotel resort in first-class
condition. The Company believes that during 1997 it will be able to satisfy
its debt service requirements (interest on its public indebtedness is
approximately $32.7 million per annum) and the aforementioned capital
expenditures out of existing cash balances and cash flow from operations.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the three months ended September 30, 1997 were $71.4 million
compared to $72.7 million for the 1996 quarter, a decrease of $1.3 million
(2%). Casino revenues for the 1997 quarter were $33.3 million compared to
$37.3 million for 1996, a decrease of $4.0 million (11%). Table game
revenues decreased $1.6 million (10%) due to a $3.6 million decrease in
volume and a slightly lower hold percentage. Slot revenues decreased $1.6
million (9%) primarily attributable to a decrease in the win percentage.
Rooms and food and beverage revenues remained consistent between periods.
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 has completed an extensive capital improvement
program over the last three years including, among others, improvements to
its frontage area along the Strip, a monorail system, the renovation of all
of its hotel rooms, a new race and sports book room and a slot machine
upgrade.
7
<PAGE>
Operating income for the three months ended September 30, 1997 was $11.2
million compared to $11.1 million for the 1996 quarter, an increase of $.1
million (1%).
Interest and dividend income was $1.4 million for the 1997 third quarter
versus $2.0 million in the prior year quarter, a decrease of $.6 million
(30%) which resulted from lower average cash balances. Interest expense, net
of capitalized interest, was $8.4 million for both three-month periods ended
September 30, 1997 and 1996.
The provision for income taxes in the 1997 quarter totaled $1.5 million, a
$.7 million increase over the prior year. The 1996 period benefited from the
elimination of a valuation allowance no longer required.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the nine months ended September 30, 1997 were $232.6 million
compared to $230.5 million for the 1996 period, an increase of $2.1 million
(1%). Casino revenues for the 1997 period were $118.5 million compared to
$116.2 million for 1996, an increase of $2.3 million (2%). Slot revenues
increased $2.9 million (5%) primarily attributable to an increase of 11% in
the slot handle (volume). Table game revenues increased $1.6 million (3%)
due to an increase in the hold percentage from 15.1% in the 1996 period to
16.2% in 1997. Other casino revenues decreased $2.2 million due to a decrease
in the sports book hold percentage. Rooms and food and beverage revenues
remained consistent between periods.
Operating income for the nine months ended September 30, 1997 was $46.8
million compared to $43.7 million for the 1996 period, an increase of $3.1
million (7%).
Interest and dividend income was $4.9 million for the 1997 nine-month period
versus $4.0 million in the prior year, an increase of $.9 million (23%) which
resulted from higher average cash balances. Interest expense, net of
capitalized interest, was $25.2 million for both nine-month periods ended
September 30, 1997 and 1996.
8
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ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per
share. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997 and earlier application is not permitted. The
Company's adoption of SFAS No. 128 is not expected to have a material impact
on its earnings per share presentation.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
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. 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 which could cause actual results to differ
materially from historical results or those anticipated. Although the
Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance
that its expectations will be attained. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, two derivative actions purportedly brought on
behalf of the Company against its directors and BEC, one commenced in
October 1995 and the other in September 1996, have been consolidated under
the caption IN RE: BALLY'S GRAND DERIVATIVE LITIGATION in the Court of
Chancery of the State of Delaware, New Castle County. BEC merged with and
into HHC on December 18, 1996. A third derivative action purportedly
brought on behalf of the Company against its directors, BEC, Bally's Grand
Management Co., Inc., a wholly-owned subsidiary of BEC, and HHC was
commenced in November 1996 under the caption TOWER INVESTMENT GROUP, INC.,
ET AL. V. BALLY'S GRAND, INC., ET AL. in the Court of Chancery of the State
of Delaware, New Castle County. This action was consolidated with the IN
RE: BALLY'S GRAND DERIVATIVE LITIGATION action under the caption IN RE:
BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
On June 13, 1997, the Company announced that it had reached an agreement to
settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION. Prior to
the settlement, HHC indirectly owned approximately 84% of the common stock
of the Company. Under the terms of the settlement, the Company has
repurchased 966,747 shares of its common stock and 102,698 warrants to
purchase shares of its common stock from certain plaintiffs at a price of
$52.75 per share in cash for the common stock and $52.75 less the exercise
price per warrant in cash for the warrants.
On October 9, 1997, HHC received court approval of the settlement
agreement. On October 28, 1997, a sole shareholder appealed the court
approval of the settlement agreement. On November 7, 1997, the Delaware
Supreme Court granted HHC's motion for an expedited appeal. Upon final
resolution of the appeal, the Company would be merged with a subsidiary of
HHC, and the remaining 408,862 outstanding shares of the Company's common
stock not currently owned by HHC would be converted into the right to
receive $52.75 (less certain attorneys' fees) per share in cash, and the
491,784 outstanding warrants to purchase the Company's common stock not
currently owned by HHC would be converted into the right to receive the
difference between $52.75 (less certain attorneys' fees) and the exercise
price per warrant in cash.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial data schedule for the nine-month period ended September
30, 1997.
10
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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.
BALLY'S GRAND, INC.
(Registrant)
Date: November 14, 1997 /s/ LEON H. FLINDERS
---------------------------------
Leon H. Flinders
Chief Financial Officer and
Controller
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 92,500
<SECURITIES> 49,100
<RECEIVABLES> 17,200
<ALLOWANCES> 4,600
<INVENTORY> 2,000
<CURRENT-ASSETS> 167,400
<PP&E> 456,800
<DEPRECIATION> 89,200
<TOTAL-ASSETS> 548,300
<CURRENT-LIABILITIES> 56,800
<BONDS> 315,000
0
0
<COMMON> 100
<OTHER-SE> 87,200
<TOTAL-LIABILITY-AND-EQUITY> 548,300
<SALES> 232,600
<TOTAL-REVENUES> 232,600
<CGS> 0
<TOTAL-COSTS> 183,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,800
<INTEREST-EXPENSE> 25,200
<INCOME-PRETAX> 26,500
<INCOME-TAX> 9,300
<INCOME-CONTINUING> 17,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,200
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.96
</TABLE>
