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: 33-65438
BALLY'S CASINO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3886977
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8700 West Bryn Mawr Avenue, Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 399-1300
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:
As of October 31, 1996, all 100 outstanding shares of the registrant's common
stock were held by an indirect wholly owned subsidiary of 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
disclosure format.
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT 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
Condensed consolidated statement of income (unaudited)
Nine months ended September 30, 1996 and 1995................. 2
Condensed consolidated statement of income (unaudited)
Three months ended September 30, 1996 and 1995................ 3
Consolidated statement of stockholders' equity (unaudited)
Nine months ended September 30, 1996.......................... 4
Consolidated statement of cash flows (unaudited)
Nine months ended September 30, 1996 and 1995................. 5
Notes to condensed consolidated financial statements
(unaudited)................................................... 7
Item 2. Management's discussion and analysis of results
of operations.......................................... 11
PART II. OTHER INFORMATION
Item 1. Legal proceedings......................................... 15
Item 6. Exhibits and reports on Form 8-K.......................... 16
SIGNATURE PAGE....................................................... 17
<PAGE>
<TABLE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT 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.......................... $ 174,245 $ 111,297
Marketable securities, at fair value
(includes Bally Entertainment Corporation
common stock of $41,166 in 1996)............ 41,635 1,781
Receivables, less allowances of $8,146
and $7,422.................................. 26,447 19,102
Receivables from affiliates................... 3,035 428
Inventories................................... 5,613 5,960
Deferred income taxes......................... 15,240 15,897
Other current assets.......................... 14,662 7,312
------------ ------------
Total current assets........................ 280,877 161,777
Property and equipment, less accumulated
depreciation of $432,237 and $389,594......... 942,845 986,002
Intangible assets, less accumulated
amortization of $3,877 and $2,549............. 28,781 27,565
Other assets.................................... 72,174 73,676
------------ ------------
$ 1,324,677 $ 1,249,020
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to Bally Entertainment Corporation.... $ 42,608 $ 42,711
Accounts payable.............................. 13,858 18,441
Income taxes payable.......................... 11,018 5,563
Accrued liabilities........................... 70,923 80,872
Current maturities of long-term debt.......... 8,443 5,720
------------ ------------
Total current liabilities................... 146,850 153,307
Long-term debt, less current maturities......... 933,563 918,940
Deferred income taxes........................... 94,095 94,174
Other liabilities............................... 13,673 11,330
Minority interests.............................. 29,826 25,941
Stockholders' equity............................ 106,670 45,328
------------ ------------
$ 1,324,677 $ 1,249,020
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands)
(Unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues............................................ $ 670,505 $ 546,252
Costs and expenses:
Cost of operations................................ 381,857 328,868
Selling, general and administrative............... 73,276 51,301
Gaming development costs, including
amortization of pre-opening costs of
$3,281 and $2,492............................... 5,018 6,373
Allocations from Bally Entertainment
Corporation..................................... 10,219 10,061
Depreciation and amortization..................... 49,682 41,545
---------- ----------
520,052 438,148
---------- ----------
Operating income.................................... 150,453 108,104
Gain on sales of marketable securities.............. 820 539
Interest expense.................................... (72,993) (68,087)
---------- ----------
Income before income taxes, minority interests
and extraordinary item............................ 78,280 40,556
Income tax provision................................ (30,043) (20,242)
Minority interests.................................. (4,007) 1,018
---------- ----------
Income before extraordinary item.................... 44,230 21,332
Extraordinary gain on extinguishment of debt........ 339
---------- ----------
Net income.......................................... $ 44,230 $ 21,671
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands)
(Unaudited)
<CAPTION>
Three months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues............................................ $ 226,979 $ 207,666
Costs and expenses:
Cost of operations................................ 125,834 124,496
Selling, general and administrative............... 24,834 18,579
Gaming development costs, including
amortization of pre-opening costs of
$2,492 in 1995.................................. 414 4,194
Allocations from Bally Entertainment
Corporation..................................... 3,447 3,481
Depreciation and amortization..................... 16,706 15,449
---------- ----------
171,235 166,199
---------- ----------
Operating income.................................... 55,744 41,467
Gain on sales of marketable securities.............. 870 221
Interest expense.................................... (24,613) (23,362)
---------- ----------
Income before income taxes, minority interests
and extraordinary item............................ 32,001 18,326
Income tax provision................................ (11,214) (8,937)
Minority interests.................................. (428) 1,675
---------- ----------
Income before extraordinary item.................... 20,359 11,064
Extraordinary gain on extinguishment of debt........ 13
---------- ----------
Net income.......................................... $ 20,359 $ 11,077
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<CAPTION>
Retained
Addi- earnings Total
tional (accum- stock-
paid-in ulated holder's
capital deficit) equity
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1995............... $ 48,983 $ (3,655) $ 45,328
Net income............................... 44,230 44,230
Excess of sales price over historical
basis of subsidiary sold to Bally
Entertainment Corporation.............. 16,670 16,670
Change in unrealized gain/loss on
available-for-sale securities.......... 442 442
-------- -------- --------
Balance at September 30, 1996.............. $ 65,653 $ 41,017 $106,670
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT 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:
Income before extraordinary item................... $ 44,230 $ 21,332
Adjustments to reconcile to cash provided--
Depreciation and amortization (including
pre-opening costs).............................. 52,963 44,037
Interest accretion on discount notes and other
amortization included in interest expense....... 14,953 14,032
Minority interests................................ 4,007 (1,018)
Provision for doubtful receivables................ 1,440 2,431
Deferred income taxes............................. (874) (3,347)
Gain on sales of marketable securities............ (820) (539)
Change in operating assets and liabilities........ (30,738) (13,819)
Other, net........................................ 591 (2,483)
---------- ----------
Cash provided by operating activities.......... 85,752 60,626
INVESTING:
Proceeds from sale of subsidiary to Bally
Entertainment Corporation........................ 17,500
Purchases and construction of property and
equipment........................................ (32,443) (92,339)
Decrease in construction-related liabilities....... (5,152) (1,254)
Acquisitions of Bally's Grand, Inc. common stock... (6,995) (15,179)
Purchases of marketable securities................. (9,748)
Net proceeds from sales of marketable securities... 1,830 4,003
Advance to nonconsolidated venture................. (3,000)
Other, net......................................... (1,626) (6,975)
---------- ----------
Cash used in investing activities.............. (26,886) (124,492)
FINANCING:
Debt transactions--
Decrease in payable to Bally Entertainment
Corporation..................................... (103) (692)
Proceeds from long-term borrowings................ 10,000 40,516
Repayments of long-term debt...................... (4,936) (11,250)
Debt issuance costs............................... (879) (707)
---------- ----------
Cash provided by debt transactions............. 4,082 27,867
Equity transactions--
Dividends paid.................................... (11,100)
---------- ----------
Cash provided by financing activities.......... 4,082 16,767
---------- ----------
Increase (decrease) in cash and equivalents......... 62,948 (47,099)
Cash and equivalents, beginning of period........... 111,297 139,729
---------- ----------
Cash and equivalents, end of period................. $ 174,245 $ 92,630
========== ==========
(continued)
</TABLE>
5
<PAGE>
<TABLE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
(In thousands)
(Unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
---------- ----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities, net
of effects from the sale of subsidiary to Bally
Entertainment Corporation, were as follows:
Increase in receivables and receivables
from affiliates............................. $ (10,530) $ (1,511)
Decrease in income taxes receivable........... 2,558
(Increase) decrease in inventories, other
current assets and other assets............. (9,226) 1,258
Decrease in accounts payable, accrued
liabilities and other liabilities........... (7,012) (16,124)
Decrease in income taxes payable.............. (3,970)
---------- ----------
$ (30,738) $ (13,819)
========== ==========
Operating activities include cash payments for
interest and income taxes as follows:
Interest paid................................. $ 58,745 $ 58,429
Interest capitalized.......................... (395) (2,688)
Income taxes paid (net of refunds)............ 34,887 21,123
Investing and financing activities exclude the
following non-cash transactions--
Bally Entertainment Corporation common
stock received upon sale of subsidiary
to Bally Entertainment Corporation.......... $ 40,000 $
Contribution of net assets into consolidated
venture by minority interest................ 13,166
Purchases of marketable securities on
margin...................................... 13,610
Sales of margined marketable securities
(including unsettled sales)................. 10,221
<FN>
See accompanying notes.
</FN>
</TABLE>
6
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT 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 Bally's Casino Holdings, Inc., a Delaware corporation ("Casino
Holdings"), which is an indirect wholly owned subsidiary of Bally Entertainment
Corporation ("Bally"), and the subsidiaries which it controls (collectively, the
"Company"). The Company operates in one industry segment, and all significant
revenues arise from the operation of a casino hotel resort in Atlantic City, New
Jersey, a casino hotel resort in Las Vegas, Nevada, a dockside casino and hotel
in Robinsonville, Mississippi (near Memphis, Tennessee) and a riverboat casino
in New Orleans, Louisiana. 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 condensed consolidated statements of
income for the three and nine months ended September 30, 1996 and 1995, its
consolidated statement of stockholders' equity for the nine months ended
September 30, 1996 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 BALLY BY HILTON HOTELS CORPORATION
In June 1996, Bally and Hilton Hotels Corporation ("Hilton") entered into an
agreement pursuant to which Bally will merge with and into Hilton (the
"Merger"). The transaction, which has been approved by the Board of Directors
and shareholders of Bally 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.
ACQUISITIONS OF BALLY'S GRAND, INC. COMMON STOCK
Bally's Grand, Inc. owns and operates the casino hotel resort in Las Vegas,
Nevada known as "Bally's Las Vegas." During the nine months ended September 30,
1996, a wholly owned subsidiary of Casino Holdings acquired 334,074 shares of
Bally's Grand, Inc. common stock in several transactions for $5,765. As a
result, Casino Holdings' ownership of Bally's Grand, Inc. common stock increased
to approximately 85% of the shares outstanding at September 30, 1996.
ALLOCATIONS FROM BALLY AND TRANSACTIONS WITH RELATED PARTIES
Bally allocates costs to the Company (exclusive of Bally's Grand, Inc., which
pays to an indirect wholly owned subsidiary of Bally a $3,000 annual management
fee that is included in "Allocations from Bally Entertainment
7
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands)
(Unaudited)
Corporation") consisting of the Company's allocable share of Bally'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 Bally's oversight. Bally'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 Bally's oversight
requirements. Management of Bally believes that the methods used to allocate
these costs are reasonable. Because of Bally's controlling relationship with the
Company and the allocation of certain Bally 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 Bally
pursuant to corporate-wide programs. In these circumstances, Bally charges the
Company its proportionate share of the respective insurance premiums.
Certain executive officers of Bally's Park Place, Inc. ("Bally's Park Place")
function in a similar capacity for GNOC, CORP. (a wholly owned subsidiary of
Bally which owns and operates the casino hotel resort in Atlantic City known as
"The Grand"), and exercise decision-making and operational authority over both
entities. No allocation of cost is made from Bally's Park Place to The Grand for
these executive officers as management deems the direct allocable cost to be
immaterial. In addition, certain administrative and support operations of
Bally's Park Place and The Grand are consolidated, including limousine services,
legal services and purchasing. Costs of these operations are allocated to or
from Bally's Park Place either directly or using various formulas based on
estimates of utilization of such services. On a net basis, allocations to The
Grand 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. Bally's Park
Place also leases land to The Grand, and rental income for each of the three and
nine month periods ended September 30, 1996 and 1995 was $174 and $522,
respectively.
Pursuant to three notes payable, a subsidiary of Casino Holdings owes Bally
$29,401 and $27,938 at September 30, 1996 and December 31, 1995, respectively.
These notes are presently payable on demand and bear interest at varying
market-based rates. Interest expense related to these notes for the three months
ended September 30, 1996 and 1995 was $495 and zero, respectively, and for the
nine months ended September 30, 1996 and 1995 was $1,462, and zero,
respectively. In addition, Bally and Casino Holdings have a cash management
arrangement whereby Bally advances available funds to Casino Holdings to
generally fund project costs and working capital requirements of Casino
Holdings' subsidiaries. These advances are non-interest bearing and are payable
on demand.
In August 1996, Bally's Grand, Inc. sold Paris Casino Corp. (a 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 Bally for consideration
having an aggregate value of $57,500 ($17,500 in cash and 1,457,195 shares of
Bally common stock, which are included in marketable securities on the condensed
consolidated balance sheet of the Company at September 30, 1996). In addition,
Bally reimbursed Bally's Grand, Inc. for Paris Casino-Resort development costs
incurred to date and certain transaction-related costs, and granted Bally's
Grand, Inc. 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 Bally's Grand, Inc. 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 Bally (through a subsidiary of Casino Holdings) owns
approximately 85% of the outstanding common stock of
8
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands)
(Unaudited)
Bally's Grand, Inc., the excess of the sales price over the historical net book
value of Paris Casino Corp. (net of income taxes of $10,593 and minority
interests of $3,002) was accounted for as an increase to stockholders' equity.
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at September 30, 1996 and
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
----------- -----------
<S> <C> <C>
Casino Holdings:
Senior Discount Notes due 1998, less
unamortized discount of $31,635 and $43,917. $ 165,925 $ 153,643
Bally's Park Place:
9-1/4% First Mortgage Notes due 2004.......... 425,000 425,000
Bally's Las Vegas:
10-3/8% First Mortgage Notes due 2003......... 315,000 315,000
Other secured and unsecured obligations......... 36,081 31,017
----------- -----------
Total long-term debt............................ 942,006 924,660
Current maturities of long-term debt............ (8,443) (5,720)
----------- -----------
Long-term debt, less current maturities......... $ 933,563 $ 918,940
=========== ===========
</TABLE>
In October 1996, Hilton announced offers to purchase any and all of Bally's
Casino Holdings, Inc.'s Senior Discount Notes due 1998 (the "Senior Discount
Notes"), Bally's Park Place's 9-1/4% First Mortgage Notes due 2004 and Bally's
Las Vegas' 10-3/8% First Mortgage Notes due 2003 (collectively, with the Senior
Discount Notes, the "Notes") for cash (the "Tender Offers") and solicitations of
consents to proposed amendments to the indentures for the Notes (the "Consent
Solicitations"). Each Tender Offer and Consent Solicitation is subject to
consummation of the Merger, receipt of tenders and consents for at least a
majority of the principal amount of each series of the Notes and the receipt of
any necessary gaming regulatory approvals, as well as certain other conditions
described in each Offer to Purchase and Consent Solicitation.
During the three and nine months ended September 30, 1995, Casino Holdings
purchased $5,000 and $15,040 principal amount of the Senior Discount Notes for
$3,631 and $10,079 in cash, respectively, which resulted in extraordinary gains
of $13 and $339, respectively, net of income taxes of $7 and $183, respectively.
Under the terms of the Senior Discount Notes, dividends received by Casino
Holdings other than from Bally's Park Place are not available to be paid to
Bally unless available pursuant to a net income test (generally limited to 50%
of the Company's consolidated net income exclusive of income attributable to
Bally's Park Place). At September 30, 1996, no amounts were available for the
payment of dividends to Bally under such net income test. However, any dividends
paid by Bally's Park Place to Casino Holdings pursuant to a separate net income
test (generally limited to 50% of Bally's Park Place's aggregate consolidated
net income, as defined, earned since April 1, 1994) may be declared as dividends
by Casino Holdings and be paid to Bally. At September 30, 1996, $22,492 was
available to be paid by Bally's Park Place to Bally, through Casino Holdings,
under this separate net income test. In addition, $6,968 was available as of
September 30, 1996 for the payment of dividends by Bally's Las Vegas to Casino
Holdings.
9
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands)
(Unaudited)
INCOME TAXES
Taxable income or loss of the Company (partially exclusive of Bally's Grand,
Inc., which filed its own separate consolidated federal income tax return for
the period from January 1, 1995 through March 21, 1995, the date Bally's
ownership percentage of outstanding common stock of Bally's Grand, Inc.
increased to 80%) is included in the consolidated federal income tax return of
Bally. Under a tax sharing agreement between Bally's Park Place and Bally,
income taxes are allocated to Bally's Park Place based on amounts Bally's Park
Place would pay or receive if it filed a separate consolidated federal income
tax return, except that Bally's Park Place receives credit from Bally for the
tax benefit of Bally's Park Place's net operating losses and tax credits, if
any, that can be utilized in Bally's consolidated federal income tax return,
regardless of whether these losses or credits could be utilized by Bally's Park
Place on a separate consolidated federal income tax return basis. For periods
subsequent to March 21, 1995, taxable income or loss of Bally's Grand, Inc. is
also included in the consolidated federal income tax return of Bally. Under a
tax sharing arrangement between Bally's Grand, Inc. and Bally, income taxes are
allocated to Bally's Grand, Inc. based on amounts Bally's Grand, Inc. would pay
or receive if it filed a separate consolidated federal income tax return. Casino
Holdings has entered into a similar tax sharing agreement with Bally (which
generally excludes Bally's Park Place and Bally's Grand, Inc. from its stand
alone computation). If there is a default and following an acceleration under
the Senior Discount Notes while Casino Holdings is a member of the Bally
consolidated group, payments to Bally, in the aggregate, under these tax sharing
agreements will be decreased (retroactively to the date of the Casino Holdings
tax sharing agreement and refunded to the extent paid) to the extent that Casino
Holdings would have owed less, in the aggregate, if there had been a single tax
sharing agreement with Casino Holdings which included Bally's Park Place in its
stand alone computation. Payments to Bally 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 Bally for tax benefits are due at the
time Bally files the applicable consolidated federal income tax return. Under
these tax sharing arrangements, the Company had income taxes payable to Bally of
$11,623 and $429 at September 30, 1996 and December 31, 1995, respectively.
GUARANTEES
At September 30, 1996, the Company (through Bally's Park Place) was contingently
liable for the guarantee of payments up to approximately $25,200 in the event
certain nonconsolidated affiliates fail to make required payments pursuant to
various contractual obligations.
10
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT 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 and operating income (loss) for the Company and each of its casino
properties were as follows (in millions):
<TABLE>
<CAPTION>
Nine months
ended September 30
------------------
1996 1995
------- -------
<S> <C> <C>
Consolidated (a):
Revenues (b)...................................... $670.5 $546.3
Operating income (c).............................. 150.5 108.1
Bally's Park Place:
Revenues.......................................... $314.8 $315.3
Operating income.................................. 95.6 91.2
Bally's Las Vegas:
Revenues.......................................... $233.7 $209.6
Operating income.................................. 46.9 30.3
Bally's Mississippi (a):
Revenues.......................................... $ 55.0 $ 2.3
Operating income (loss) (c)....................... 3.0 (4.3)
Bally's New Orleans (a):
Revenues.......................................... $ 66.6 $ 17.7
Operating income (loss) (d)....................... 8.5 (3.0)
- ----------
<FN>
Notes:
(a) Bally's New Orleans commenced operation of its riverboat casino in July
1995 and Bally's Mississippi reopened its dockside casino in December 1995.
Between December 1993 and February 1995, Bally's Mississippi operated the
dockside casino at a different site.
(b) Includes interest income of $5.5 million and $5.9 million for the nine
months ended September 30, 1996 and 1995, respectively.
(c) After amortization of pre-opening costs totalling $3.3 million at Bally's
Mississippi for the nine months ended September 30, 1996.
(d) After amortization of pre-opening costs totalling $2.5 million at Bally's
New Orleans for the nine months ended September 30, 1995.
</FN>
</TABLE>
Revenues and operating income of the Company for the nine months ended September
30, 1996 increased $124.2 million (23%) and $42.4 million (39%), respectively,
from the 1995 period. These increases principally reflect improved operating
results at Bally's Las Vegas and the operations of Bally's New Orleans, which
commenced operation of its riverboat casino in July 1995, and Bally's
Mississippi, which reopened its dockside casino in December 1995.
Bally's Park Place
Revenues of Bally's Park Place for the nine months ended September 30, 1996 were
$314.8 million compared to $315.3 million for the 1995 period, a decrease of $.5
million due, in part, to a $2.0 million (1%) decrease in casino revenues. Slot
revenues decreased $1.3 million (1%) due to a decline in the win percentage from
8.5% in the 1995 period to 8.3% in 1996 offset, in part,
11
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS--(CONTINUED)
by a 2% increase in slot handle (volume). On average, Bally's Park Place had 89
(4%) more slot machines for the 1996 period than in 1995. Table game revenues,
excluding poker, remained essentially unchanged as a 1% increase in the drop
(amount wagered) was offset by a reduction in the hold percentage from 16.4% in
the 1995 period to 16.3% in 1996. Other casino revenues decreased $.8 million
(14%). Operating income of Bally's Park Place for the nine months ended
September 30, 1996 was $95.6 million compared to $91.2 million for the 1995
period, an increase of $4.4 million (5%) as the aforementioned revenue decrease
was more than offset by a 2% decrease in operating expenses. Other operating
expenses declined $1.8 million (4%) primarily due to a real estate tax refund
relating to prior years. In addition, food and beverage expenses decreased $1.5
million (11%) due primarily to an increase in complimentaries, which cost is
included in casino expenses.
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 Bally's Park Place 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 Bally's Park Place 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. During the first quarter of 1995, Bally's
Park Place completed a slot machine upgrade, replacing the majority of its slot
machines with state-of-the-art machines with embedded bill acceptors, and
reconfigured its slot machine layout, adding slot stools and increasing aisle
space. In addition, Bally's Park Place broke ground in April 1996 for
construction of a western-themed casino complex on approximately four acres of
Boardwalk property it owns adjacent to its existing casino hotel resort. The
complex is presently planned to include 75,000 square feet of casino space and
cost approximately $110 million, with completion anticipated in mid-1997.
Bally's Las Vegas
Revenues of Bally's Las Vegas for the nine months ended September 30, 1996 were
$233.7 million compared to $209.6 million for the 1995 period, an increase of
$24.1 million (11%). Casino revenues for the 1996 period were $116.2 million
compared to $101.3 million for 1995, an increase of $14.9 million (15%) 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. Slot revenues
increased $7.3 million (16%) due to a 27% increase in slot handle offset, in
part, by a decline in the win percentage from 6.1% in the 1995 period to 5.6% in
1996. On average, Bally's Las Vegas had 196 (13%) more slot machines for the
1996 period than in 1995. Table game revenues increased $4.9 million (10%) due
to a 7% increase in the drop and an increase in the hold percentage from 14.7%
in the 1995 period to 15.1% in 1996. Other casino revenues increased $2.7
million (60%) due to additional revenues generated by the relocated and expanded
race and sports book room, which opened in September 1995. Rooms revenue
increased $3.3 million (7%) primarily due to a higher average room rate compared
to the 1995 period. Food and beverage revenues increased $2.5 million (8%)
primarily due to increased convention business and the reinstatement of beverage
service in the showrooms in the second quarter of 1995. Other revenues increased
$3.4 million (10%) primarily due to increased entertainment revenues. Operating
income of Bally's Las Vegas for the nine months ended September 30, 1996 was
$46.9 million compared to $30.3 million for the 1995 period, an increase of
$16.6
12
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS--(CONTINUED)
million (55%) as the aforementioned 11% increase in revenues was offset, in
part, by a 4% increase in operating expenses. Casino operating expenses
increased $2.6 million (4%) due principally to increased promotional and
marketing costs and to increased gaming taxes associated with higher casino
revenues. Depreciation and amortization expense increased $2.4 million (14%) due
to major capital improvements recently completed.
The expansion of existing casino hotel resorts and the development of new casino
hotel resorts in Las Vegas continues. In particular, two casino hotel resorts
opened in mid-1996 and another is expected to open in early 1997. These three
casino hotel resorts are adding a total of approximately 270,000 square feet of
gaming space and 6,500 guest rooms to the Las Vegas Strip. 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 Bally's Las Vegas,
but that over the long term Bally's Las Vegas 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 completed an
extensive capital improvement program over the last three years including, among
others, improvements to its frontage area along the Strip, the monorail system,
a renovation of all of its hotel rooms, the new race and sports book room and a
slot machine upgrade.
Bally's Mississippi
Bally's Mississippi reopened its dockside casino in December 1995 in
Robinsonville, Mississippi, where Lady Luck Gaming Corporation had constructed a
238-room hotel. Between December 1993 and February 1995, Bally's Mississippi
operated the dockside casino at a different site. Revenues of Bally's
Mississippi for the nine months ended September 30, 1996 were $55.0 million, and
included casino revenues of $51.0 million (slot revenues were $39.6 million and
table game revenues were $11.4 million) and room revenues of $2.5 million.
Operating income for the nine months ended September 30, 1996 was $3.0 million,
after giving effect to the amortization of $3.3 million of pre-opening costs.
Revenues of Bally's Mississippi for the nine months ended September 30, 1995
were $2.3 million (casino revenues were $1.0 million and room revenues were $1.3
million). Operating loss for the nine months ended September 30, 1995 was $4.3
million, and included gaming-related costs (primarily slot machine lease costs)
and general and administrative costs incurred during the temporary cessation of
casino operations.
Mississippi gaming law does not limit the number of gaming licenses that may be
granted. As a result, management believes there was a saturation of gaming
facilities in and around the Memphis, Tennessee market, which led to the closing
of six casinos in that market since April 1994 (including Bally's Mississippi,
which was moved and reopened). As of October 31, 1996, ten gaming facilities
were operating in this market. Four of these gaming facilities are located
adjacent to Bally's Mississippi, one of which commenced operations in June 1996
somewhat closer to Memphis than Bally's Mississippi. These gaming facilities
present, and any others which subsequently commence operations in the Memphis
market could present, significant competition for Bally's Mississippi.
Bally's New Orleans
Bally's New Orleans commenced the operation of its riverboat casino in July 1995
in New Orleans, Louisiana. Revenues of Bally's New Orleans for the nine months
ended September 30, 1996 were $66.6 million and included casino revenues of
$64.4 million (slot revenues were $51.7 million and table game revenues were
$12.7 million). Operating income of Bally's New Orleans for the nine months
ended September 30, 1996 was $8.5 million. Revenues of Bally's New Orleans for
the nine months ended September 30, 1995 were $17.7 million and included casino
revenues of $16.9 million (slot revenues were $13.4 million and table game
revenues were $3.5 million). Operating loss of Bally's
13
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS--(CONTINUED)
New Orleans for the nine months ended September 30, 1995 was $3.0 million,
including the amortization of $2.5 million of pre-opening costs.
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all but one of which have been granted as of
October 31, 1996), with a maximum of six riverboats in any one parish. Four
riverboats are presently operating in the New Orleans area (including Bally's
New Orleans), although one riverboat has been granted regulatory approval to
relocate to Shreveport by the third quarter of 1997. During 1995, Bally's New
Orleans also competed with a land-based casino which was operating at a
temporary location and was expected to become the largest land-based casino in
the United States when it moved to its permanent location. However, in November
1995, the competitor filed for protection under bankruptcy laws, ceased
operations at the temporary location and suspended construction at the permanent
site. It is presently not known if, or when, operations at the temporary
location or construction of the permanent land-based facility will resume.
Interest expense
Interest expense was $73.0 million for the nine months ended September 30, 1996
compared to $68.1 million for the 1995 period, an increase of $4.9 million (7%)
due primarily to a decrease in the amount of capitalized interest and a higher
average level of debt.
Income taxes
For the nine months ended September 30, 1996, the effective rate of the income
tax provision differed from the U.S. statutory tax rate (35%) due principally to
state income taxes. The effective rate of the income tax provision for the nine
months ended September 30, 1995 differed from the U.S. statutory tax rate due to
state income taxes and certain nondeductible expenses.
14
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Two purported derivative actions against Bally's Grand Inc., its
directors and Bally, 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. The consolidated complaint alleges
breaches of fiduciary duty and waste of corporate assets in connection
with certain actions including the sale by Bally's Grand, Inc. to Bally
of the capital stock of Paris Casino Corp. (the "Paris Transaction"),
alleged improper delegation of duties by Bally's Grand, Inc.'s Board of
Directors by virtue of a management agreement (the "Management
Agreement") among Bally's Grand, Inc., Bally, and Bally's Grand
Management Co., Inc. (a wholly owned subsidiary of Bally), the Bally's
Grand Management Co., Inc.'s designation pursuant to the Management
Agreement of recipients awarded Bally's Grand, Inc. common stock
pursuant to an incentive stock plan, purchases of Bally's Grand, Inc.
common stock by Bally's Grand, Inc. and Bally, and a consulting
agreement entered into by Bally's Grand, Inc. with Arveron Investments,
L.P. in connection with Bally's Grand Inc.'s investments in
publicly-traded securities and certain repurchases of its common stock.
The plaintiffs seek, among other things: (i) rescission of the Paris
Transaction, (ii) a declaration that the Management Agreement is
unlawful, (iii) an accounting of damages to Bally's Grand, Inc. and
profits to defendants as a result of the transactions complained of,
(iv) an accounting for purchases of Bally's Grand, Inc. common stock by
Bally's Grand, Inc. and Bally, and (v) costs and expenses including
reasonable attorneys' fees. A third purported derivative action against
Bally's Grand, Inc., its directors, Bally, Bally's Grand Management
Co., Inc. and Hilton 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. The
complaint alleges breach of fiduciary duty and waste of corporate
assets by Bally's Grand, Inc.'s directors and Bally in connection with
the Paris Transaction, aiding and abetting by Hilton of the breaches of
fiduciary duty and waste by Bally's Grand, Inc.'s directors and Bally,
fraud, willful misconduct or gross negligence by Bally and Bally's
Grand Management Co., Inc. in connection with the Management Agreement,
breach of fiduciary duty by Bally's Grand, Inc.'s directors in
connection with purchases of Bally's Grand, Inc. common stock by Bally
while in possession of material inside information concerning Bally's
Grand, Inc.'s earnings, breach of fiduciary duty by Bally in connection
with alleged threats to abuse its controlling interest in Bally's
Grand, Inc., and violation by Bally's Grand, Inc.'s directors and Bally
of Section 203 of the Delaware General Corporation Law in connection
with the Paris Transaction. The plaintiffs seek, among other things:
(i) rescission of the Paris Transaction, (ii) termination of the
Management Agreement, (iii) appointment of a custodian to manage
Bally's Grand, Inc.'s affairs, (iv) compensatory damages, (v) an order
enjoining Bally and Hilton from conveying the Paris Casino-Resort, (vi)
disgorgement by Bally and Hilton of the profits of the Paris
Casino-Resort, (vii) disgorgement by Arthur M. Goldberg of all
payments, warrants and interests received in connection with the
Merger, and (viii) disgorgement by Bally of profits earned from any
transactions in shares of Bally's Grand, Inc.'s common stock based upon
material inside information. The defendants believe the complaints are
without merit.
15
<PAGE>
BALLY'S CASINO HOLDINGS, INC.
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF BALLY ENTERTAINMENT CORPORATION)
PART II. OTHER INFORMATION--(CONTINUED)
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.
16
<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 CASINO HOLDINGS, INC.
------------------------------
Registrant
/s/ John W. Dwyer
------------------------------
John W. Dwyer
Vice President and Controller
(chief accounting officer)
Dated: November 13, 1996
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996, THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY 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> 174,245
<SECURITIES> 41,635
<RECEIVABLES> 34,593
<ALLOWANCES> 8,146
<INVENTORY> 5,613
<CURRENT-ASSETS> 280,877
<PP&E> 1,375,082
<DEPRECIATION> 432,237
<TOTAL-ASSETS> 1,324,677
<CURRENT-LIABILITIES> 146,850
<BONDS> 933,563
0
0
<COMMON> 0
<OTHER-SE> 109,672
<TOTAL-LIABILITY-AND-EQUITY> 1,324,677 <F1>
<SALES> 0
<TOTAL-REVENUES> 670,505
<CGS> 0
<TOTAL-COSTS> 380,417 <F2>
<OTHER-EXPENSES> 1,737 <F3>
<LOSS-PROVISION> 1,440 <F2>
<INTEREST-EXPENSE> 72,993
<INCOME-PRETAX> 78,280
<INCOME-TAX> 30,043
<INCOME-CONTINUING> 44,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,230
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT INCLUDES 26,824 OF MINORITY INTERESTS.
<F2>THESE AMOUNTS ARE INLCUDED IN COST OF OPERATIONS UNDER COSTS AND
EXPENSES IN THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996.
<F3>GAMING DEVELOPMENT COSTS, EXCLUDING AMORTIZATION OF PRE-OPENING COSTS.
</FN>
</TABLE>
