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, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 1-7244
BALLY ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2512405
(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: (312) 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 November 1, 1994, 46,928,660 shares of the registrant's Common
Stock, par value $.66-2/3, were outstanding.
<PAGE>
BALLY ENTERTAINMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
September 30, 1994 and December 31, 1993
Condensed consolidated statement of operations
(unaudited)
Nine months ended September 30, 1994 and 1993
Condensed consolidated statement of operations
(unaudited)
Three months ended September 30, 1994 and 1993
Condensed consolidated statement of stockholders'
equity (unaudited)
Nine months ended September 30, 1994
Condensed consolidated statement of cash flows
(unaudited)
Nine months ended September 30, 1994 and 1993
Notes to condensed consolidated financial statements
(unaudited)
Item 2. Management's discussion and analysis of
financial condition and results of operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Item 6. Exhibits and reports on Form 8-K
SIGNATURE PAGE
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<CAPTION>
September 30 December 31
1994 1993
- ---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents . . . . . . . . . . . $ 174,475 $ 192,078
Receivables, less allowance for doubtful
accounts ($10,808 and $7,872). . . . . . 29,624 33,747
Deferred income taxes. . . . . . . . . . . 4,756
Other current assets . . . . . . . . . . . 17,761 14,354
---------- ----------
Total current assets . . . . . . . . . . 221,860 244,935
Property and equipment, at cost less
accumulated depreciation ($431,145 and
$392,028). . . . . . . . . . . . . . . . . 1,198,178 1,177,136
Other assets . . . . . . . . . . . . . . . . 88,754 83,266
Investment in and net advances to
discontinued operations. . . . . . . . . . 282,797 344,372
Intangible assets, at cost less accumulated
amortization ($23,350 and $20,208) . . . . 119,746 124,546
---------- ----------
$1,911,335 $1,974,255
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 10,655 $ 33,444
Income taxes payable . . . . . . . . . . . 18,000 43,674
Deferred income taxes. . . . . . . . . . . 11,022
Accrued liabilities. . . . . . . . . . . . 113,072 116,227
Current maturities of long-term debt . . . 2,858 7,631
---------- ----------
Total current liabilities. . . . . . . . 155,607 200,976
Long-term debt, less current maturities. . . 1,264,670 1,178,654
Deferred income taxes. . . . . . . . . . . . 138,990 174,591
Other liabilities. . . . . . . . . . . . . . 12,824 13,509
Minority interests . . . . . . . . . . . . . 35,544 42,384
Stockholders' equity . . . . . . . . . . . . 303,700 364,141
---------- ----------
$1,911,335 $1,974,255
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Nine months ended
September 30
-----------------------
1994 1993
- ---------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 712,017 $ 460,354
Operating costs and expenses . . . . . . . . (598,437) (363,741)
---------- ----------
Operating income . . . . . . . . . . . . . . 113,580 96,613
Gain on sale of equity securities. . . . . . 3,236
Interest expense . . . . . . . . . . . . . . (97,414) (65,872)
---------- ----------
Income from continuing operations before
income taxes and minority interests. . . . 19,402 30,741
Income tax provision . . . . . . . . . . . . (8,500) (14,213)
Minority interests . . . . . . . . . . . . . (2,607)
---------- ----------
Income from continuing operations. . . . . . 8,295 16,528
Discontinued operations:
Loss from operations prior to
discontinuance . . . . . . . . . . . . . (22,360) (10,658)
Estimated losses through disposal. . . . . (23,731)
Gain on sale . . . . . . . . . . . . . . . 6,215
---------- ----------
Income (loss) before extraordinary item
and cumulative effect on prior years
of change in accounting for income
taxes. . . . . . . . . . . . . . . . . . . (37,796) 12,085
Extraordinary loss on extinguishment
of debt. . . . . . . . . . . . . . . . . . (20,735) (8,090)
Cumulative effect on prior years of
change in accounting for income taxes. . . (28,197)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . (58,531) (24,202)
Preferred stock dividend requirement . . . . (2,083) (2,083)
---------- ----------
Net loss applicable to common stock. . . . . $ (60,614) $ (26,285)
========== ==========
Per common and common equivalent share:
Income from continuing operations. . . . . $ .14 $ .30
Discontinued operations--
Loss from operations prior to
discontinuance . . . . . . . . . . . . (.48) (.22)
Estimated losses through disposal. . . . (.51)
Gain on sale . . . . . . . . . . . . . . .13
Extraordinary loss on extinguishment
of debt. . . . . . . . . . . . . . . . . (.44) (.17)
Cumulative effect on prior years of
change in accounting for income taxes. . (.58)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . $ (1.29) $ (.54)
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended
September 30
-----------------------
1994 1993
- ---------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 261,291 $ 173,681
Operating costs and expenses . . . . . . . . (209,073) (129,521)
---------- ----------
Operating income . . . . . . . . . . . . . . 52,218 44,160
Gain on sale of equity securities. . . . . . 3,236
Interest expense . . . . . . . . . . . . . . (32,331) (24,703)
---------- ----------
Income from continuing operations before
income taxes and minority interests. . . . 23,123 19,457
Income tax provision . . . . . . . . . . . . (10,000) (8,254)
Minority interests . . . . . . . . . . . . . (1,349)
---------- ----------
Income from continuing operations. . . . . . 11,774 11,203
Discontinued operations:
Loss from operations prior to
discontinuance . . . . . . . . . . . . . (11,523)
Gain on sale . . . . . . . . . . . . . . . 6,215
---------- ----------
Net income . . . . . . . . . . . . . . . . . 11,774 5,895
Preferred stock dividend requirement . . . . (694) (694)
---------- ----------
Net income applicable to common stock. . . . $ 11,080 $ 5,201
========== ==========
Per common and common equivalent share:
Income from continuing operations. . . . . $ .24 $ .22
Discontinued operations--
Loss from operations prior to
discontinuance . . . . . . . . . . . . (.24)
Gain on sale . . . . . . . . . . . . . . .13
---------- ----------
Net income . . . . . . . . . . . . . . . . $ .24 $ .11
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
Retained Total
Series D Capital in earnings Common stock-
preferred Common excess of (accumulated stock in holders'
Dollar amounts stock stock par value deficit) treasury equity
- ------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 . . . $ 694 $ 31,325 $294,413 $ 39,507 $ (1,798) $364,141
Net loss . . . . . . . (58,531) (58,531)
Preferred stock
dividends --
$3.00 per share. . . (2,083) (2,083)
Issuance of common
stock upon conversion
of preferred stock. . (10) 14 (4)
Exercise of stock
options . . . . . . . 20 153 173
-------- -------- -------- -------- -------- --------
Balance at
September 30, 1994 . . $ 684 $ 31,359 $294,562 $(21,107) $ (1,798) $303,700
======== ======== ======== ======== ======== ========
<CAPTION>
Series D Common stock
preferred ----------------------
Share amounts stock Issued Treasury
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1993 . . . . . . . . . . . . . . 694 46,986 110
Issuance of common stock upon
conversion of preferred stock. . . . . . . . . . . . (10) 20
Exercise of stock options. . . . . . . . . . . . . . . 33
-------- -------- --------
Balance at September 30, 1994. . . . . . . . . . . . . . 684 47,039 110
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Nine months ended
September 30
-----------------------
1994 1993
- ---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING:
Income from continuing operations . . . . . $ 8,295 $ 16,528
Adjustments to reconcile to cash provided--
Depreciation and amortization . . . . . . 63,076 35,920
Interest accretion on discount notes. . . 11,146 3,715
Deferred income taxes . . . . . . . . . . 10,694 (25,027)
Minority interests. . . . . . . . . . . . 2,607
Gain on sale of equity securities . . . . (3,236)
Change in operating assets and liabilities (57,506) 9,246
Other . . . . . . . . . . . . . . . . . . 3,820 20
---------- ----------
Cash provided by operating activities . 38,896 40,402
INVESTING:
Purchases of property and equipment . . . . (76,119) (25,439)
Purchases of Bally's Grand, Inc. common
stock . . . . . . . . . . . . . . . . . . (12,122) (18,607)
Purchase of equity securities . . . . . . . (7,254)
Net proceeds from sale of equity securities 10,490
Other . . . . . . . . . . . . . . . . . . . (1,683) (10,208)
---------- ----------
Cash used in investing activities . . . (86,688) (54,254)
FINANCING:
Debt transactions --
Proceeds from issuance of long-term debt. 425,000 405,181
Proceeds from sale-leaseback transactions 5,586
Proceeds from construction loan . . . . . 4,358
Net repayments under revolving credit
agreements. . . . . . . . . . . . . . . (2,000) (3,000)
Repayments of long-term debt. . . . . . . (357,216) (264,781)
Premiums paid on early retirement of
debt. . . . . . . . . . . . . . . . . . (27,692) (9,840)
Debt issuance costs . . . . . . . . . . . (15,894) (17,715)
---------- ----------
Cash provided by debt transactions. . . 32,142 109,845
Equity transactions --
Preferred stock dividends . . . . . . . . (2,083)
Proceeds from exercise of stock options . 130 533
---------- ----------
Cash provided by financing activities . 30,189 110,378
DISCONTINUED OPERATIONS:
Dividend received from discontinued
operations. . . . . . . . . . . . . . . . 15,000
---------- ----------
Increase (decrease) in cash and equivalents. (17,603) 111,526
Cash and equivalents, beginning of period. . 192,078 25,953
---------- ----------
Cash and equivalents, end of period. . . . . $ 174,475 $ 137,479
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS--(continued)
(unaudited)
<CAPTION>
Nine months ended
September 30
-----------------------
1994 1993
- ---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and
liabilities were as follows--
Increase in receivables. . . . . . . . $ (302) $ (643)
(Increase) decrease in other current
assets and other assets. . . . . . . (10,417) 7,891
Decrease in accounts payable
and accrued liabilities. . . . . . . (11,841) (6,782)
Increase (decrease) in income
taxes payable. . . . . . . . . . . . (33,806) 26,078
Decrease in other long-term
liabilities. . . . . . . . . . . . . (1,140) (17,298)
---------- ----------
$ (57,506) $ 9,246
========== ==========
Cash payments for interest and income
taxes for continuing operations
were as follows--
Interest paid. . . . . . . . . . . . . $ 80,241 $ 55,098
Interest capitalized . . . . . . . . . (2,177) (160)
Income taxes paid (net of refunds) . . 31,615 13,164
Investing and financing activities exclude
the following non-cash activities--
Capital contribution to Bally's
Health & Tennis Corporation
(forgiveness of indebtedness). . . . $ 21,000 $ 2,000
Increase (decrease) in income taxes
receivable from Bally's Health &
Tennis Corporation . . . . . . . . . (10,861) 7,007
Purchase and sale of equity
securities on margin . . . . . . . . 7,229
Reduction of intangible assets
resulting from the settlement
of a pre-acquisition contingency . . 3,998
Accrued purchases of property
and equipment (principally
construction in progress). . . . . . 1,421 6,691
Acquisition of Bally's Grand, Inc.
common stock in exchange for Bally
Gaming International, Inc. common
stock. . . . . . . . . . . . . . . . 18,838
Issuance of common stock in
satisfaction of preferred stock
dividends and other obligations. . . 3,494
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
Bally Entertainment Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands except per share data) (unaudited)
Basis of presentation
The condensed consolidated financial statements include the accounts of
Bally Entertainment Corporation ("Bally") and the subsidiaries which it
controls (collectively, the "Company"). The condensed consolidated
financial statements have been presented (after restatement of prior
period financial statements) to reflect Bally's Health & Tennis
Corporation ("Bally's Health & Tennis"), which operates the nation's
largest chain of fitness centers, as a discontinued operation because of
Bally's plan to spin-off its fitness centers segment (see "Discontinued
operations"). As a result, the Company's continuing operations comprise
one industry segment, with all significant revenues arising from its
casino operations and, where applicable, supporting hotel operations.
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,
1993.
All adjustments have been recorded which are, in the opinion of
management, necessary for a fair presentation of the condensed
consolidated statement of financial position of the Company at
September 30, 1994, its condensed consolidated statements of operations
for the three and nine months ended September 30, 1994 and 1993, its
condensed consolidated statement of stockholders' equity for the nine
months ended September 30, 1994 and its condensed consolidated statement
of cash flows for the nine months ended September 30, 1994 and 1993.
All such adjustments were of a normal recurring nature, except for those
adjustments required to present Bally's Health & Tennis as a
discontinued operation, reflect refinancings of indebtedness of several
subsidiaries and to apply the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes"
(see "Income taxes").
Certain reclassifications have been made to prior period financial
statements to conform with the 1994 presentation.
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, 1994 and 1993 are not necessarily indicative of the
results of operations for the full year.
Acquisition of Bally's Grand, Inc.
On August 20, 1993 (the "Effective Date"), the Fifth Amended Plan of
Reorganization (the "Chapter 11 Plan") of Bally's Grand, Inc. (a company
originally acquired by Bally in 1986 which owns and operates the casino
resort in Las Vegas, Nevada known as "Bally's Las Vegas") became
effective and Bally's Grand, Inc. emerged from bankruptcy. For almost
two years prior thereto, Bally's Grand, Inc. operated its business and
managed its properties as a debtor-in-possession under chapter 11 of
title 11 of the United States Code. On the Effective Date, Bally
relinquished all of its equity interest in Bally's Grand, Inc. and
Bally's net intercompany receivable from Bally's Grand, Inc. was
cancelled and extinguished. Bally's investment in and advances to
Bally's Grand, Inc. were written down to zero in 1990. Also, Bally did
not provide any type of guarantee or commitment to Bally's Grand, Inc.
nor did it assume any other obligation of Bally's Grand, Inc. in
connection with the Chapter 11 Plan. Accordingly, the Company did not
reflect any equity in earnings of Bally's Grand, Inc. for the period
from January 1, 1991 through the Effective Date.
During 1993, Bally's Casino Holdings, Inc. ("Casino Holdings") and
another subsidiary of Bally acquired 5,215,678 shares (approximately 54%
of the shares outstanding at September 30, 1994) of reorganized Bally's
Grand, Inc. common stock in several transactions in exchange for $41,714
in cash and 1,752,400 shares of Bally Gaming International, Inc.
("Gaming") common stock. In addition, during the nine months ended
September 30, 1994, Bally's Grand, Inc. repurchased 1,000,098 shares of
its common stock in several transactions for a total of $12,122 in cash.
The acquisitions of Bally's Grand, Inc. common stock have been recorded
using the purchase method of accounting and the excess of the purchase
price over the estimated fair value of net assets acquired of $21,694 is
being amortized using the straight-line method over 20 years. Bally's
Grand, Inc. has been consolidated since December 1993 as a result of
Bally's controlling interest.
The following unaudited pro forma summary consolidated results of
operations of the Company for the three and nine months ended
September 30, 1993 was prepared to give effect to the acquisition of the
controlling interest in reorganized Bally's Grand, Inc. as if the
acquisition had occurred as of January 1, 1993. The pro forma results
have been prepared for comparative purposes only and do not purport to
present what the Company's results of operations would actually have
been if the acquisition had in fact occurred at such date or to project
the Company's results of operations for any future period. In addition,
the pro forma summary consolidated results of operations of the Company
include adjustments to the historical results of operations of Bally's
Grand, Inc. which principally reflect: (i) the elimination of the
reorganization items of Bally's Grand, Inc., (ii) the effects of
transactions related to the reorganization of Bally's Grand, Inc.
pursuant to the Chapter 11 Plan, (iii) the effects of the adoption of
"fresh-start reporting" and (iv) the income tax effects of the pro forma
adjustments. The pro forma summary consolidated results of operations
is based upon available information and upon certain assumptions that
management believes are reasonable.
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1993 September 30, 1993
------------------ ------------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . $ 237,876 $ 655,365
Operating income . . . . . . . . . . 52,264 123,084
Income from continuing operations. . 10,926 16,459
Net income (loss). . . . . . . . . . 5,618 (25,998)
Per common and common
equivalent share:
Income from continuing operations. $ .21 $ .30
Net income (loss). . . . . . . . . .10 (.58)
</TABLE>
Gain on sale of equity securities
In July 1994, a subsidiary of Bally's Grand, Inc. sold its investment in
equity securities previously classified as available-for-sale securities
(consisting of common stock of a publicly-traded gaming company) which
resulted in a gain of $3,236 before income taxes and minority interests.
Income taxes
Effective January 1, 1993, the Company changed its method of accounting
for income taxes as required by SFAS No. 109. The cumulative effect on
prior years of this change in accounting for income taxes was a charge
of $28,197.
For the three and nine months ended September 30, 1994 and 1993, the
effective rate of the income tax provision differed from the U.S.
statutory tax rate (35%) due principally to state income taxes and
nondeductible goodwill amortization offset, in part, by adjustments of
prior years' taxes. In addition, the income tax provision for the three
and nine months ended September 30, 1993 was increased by $1,492 as a
result of applying the change in the U.S. statutory tax rate from 34% to
35% to deferred tax balances.
See "Liquidity and Capital Resources" in Management's Discussion and
Analysis of Financial Condition and Results of Operations of this Form
10-Q for a description of the settlement of previously disclosed tax
claims.
Earnings (loss) per common and common equivalent share
Earnings (loss) per common and common equivalent share is computed by
dividing net income (loss) applicable to common stock by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period, which totalled 46,923,607 and 48,731,663
for the three months ended September 30, 1994 and 1993, respectively,
and 46,904,293 and 48,302,105 for the nine months ended September 30,
1994 and 1993, respectively. Common stock equivalents, which represent
the dilutive effect of the assumed exercise of certain outstanding stock
options, increased the weighted average number of shares outstanding by
1,969,729 and 1,839,451 for the three and nine months ended
September 30, 1993, respectively. The assumed exercise of outstanding
stock options was not significant for the three and nine months ended
September 30, 1994.
Long-term debt
The carrying amounts of the Company's long-term debt at September 30,
1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
------------ -----------
<S> <C> <C>
Bally Entertainment Corporation:
6% Convertible Subordinated Debentures
due 1998. . . . . . . . . . . . . . . . . $ 16,382 $ 18,969
10% Convertible Subordinated Debentures
due 2006. . . . . . . . . . . . . . . . . 80,000 85,000
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998. . . . . . . 149,886 139,418
Bally's Park Place, Inc.:
9-1/4% First Mortgage Notes due 2004. . . . 425,000
11-7/8% First Mortgage Notes due 1999 . . . 350,000
GNAC, CORP.:
10-5/8% First Mortgage Notes due 2003
(less unamortized discount of $1,858
and $1,873) . . . . . . . . . . . . . . . 273,142 273,127
Bally's Grand, Inc.:
10-3/8% First Mortgage Notes due 2003 . . . 315,000 315,000
Belle of Orleans, L.L.C.:
Construction loan . . . . . . . . . . . . . 4,358
Other. . . . . . . . . . . . . . . . . . . . 3,760 4,771
---------- ----------
Total long-term debt . . . . . . . . . . . . 1,267,528 1,186,285
Current maturities of long-term debt . . . . (2,858) (7,631)
---------- ----------
Long-term debt, less current
maturities. . . . . . . . . . . . . . . . . $1,264,670 $1,178,654
========== ==========
</TABLE>
In March 1994, a subsidiary of Bally's Park Place, Inc. ("Bally's Park
Place") issued $425,000 principal amount of 9-1/4% First Mortgage Notes
due 2004 (the "9-1/4% Notes"). Bally's Park Place used the net proceeds
from the sale of the 9-1/4% Notes to purchase and retire certain of its
11-7/8% First Mortgage Notes due 1999 (the "11-7/8% Notes"), defease the
remaining 11-7/8% Notes at a price of 104.45% of their principal amount
plus accrued interest through the redemption date, thereby satisfying
all obligations thereunder, and pay a $30,000 dividend to Casino
Holdings. The retirement and defeasance of the 11-7/8% Notes resulted
in an extraordinary loss of $20,735, net of income taxes of $14,137. In
connection with the sale of the 9-1/4% Notes, Bally's Park Place
terminated its former credit facility and entered into an agreement for
a new $50,000 revolving credit facility which expires on December 31,
1996, at which time all amounts outstanding become due. The new credit
facility provides for interest on borrowings payable, at Bally's Park
Place's option, at the agent bank's prime rate or the LIBOR rate plus
2%, each of which increases as the balance outstanding increases.
In June 1994, Belle of Orleans, L.L.C. ("Belle") entered into an
agreement for a construction loan generally not to exceed $21,791. The
construction loan is available for fifteen months, provides for interest
on borrowings at the rate of 1% above a bank's stated prime rate (8-3/4%
at September 30, 1994) and is guaranteed by Bally. Borrowings under the
construction loan are being used by Belle to fund a substantial portion
of the payments for construction of a riverboat casino for operation in
New Orleans, Louisiana. Also in June 1994, Belle received a commitment
from another lender that will enable Belle to convert the borrowings
outstanding under the construction loan into a five-year term loan upon
completion of the riverboat casino.
Discontinued operations
On June 28, 1994, Bally's Board of Directors (the "Board") approved a
plan to spin-off Bally's Health & Tennis (the "Spin-off"). The Spin-off
is expected to be accomplished by distributing all of the issued and
outstanding stock of Bally's Health & Tennis to Bally's stockholders and
Bally's Health & Tennis' management and employee related plans. The
Spin-off, which is expected to be completed in early 1995, is subject to
satisfaction of certain conditions. As a result of the Board's action
regarding the Spin-off, the Company recorded a charge in June 1994 of
$23,731, net of income taxes of $4,071, to provide for estimated
operating losses until disposal.
The investment in and net advances to discontinued operations at
September 30, 1994 and December 31, 1993 consists of:
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
------------ -----------
<S> <C> <C>
Investment in fitness centers segment. . . $ 219,038 $ 258,898
Income taxes receivable from
fitness centers segment. . . . . . . . . 63,759 85,474
------------ -----------
$ 282,797 $ 344,372
============ ===========
</TABLE>
Summarized financial information of the fitness centers segment is as
follows:
<TABLE>
<CAPTION>
September 30 December 31
1994 1993
------------ -----------
<S> <C> <C>
Financial position:
Current assets . . . . . . . . . . . . . . $ 185,526 $ 208,282
Property and equipment, net. . . . . . . . 392,316 415,002
Total assets . . . . . . . . . . . . . . . 860,333 924,555
Current liabilities . . . . . . . . . . . 241,734 213,498
Long-term debt, less current maturities. . 290,092 305,735
Total liabilities. . . . . . . . . . . . . 641,295 665,657
Total equity . . . . . . . . . . . . . . . 219,038 258,898
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
-------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Results of operations:
Revenues . . . . . . . . . $167,035 $159,391 $511,746 $537,871
Operating income (loss). . (541) (4,842) (26,780) 16,213
Loss before extraordinary
item and cumulative effect
on prior years of change
in accounting for income
taxes. . . . . . . . . . (6,925) (11,523) (29,285) (10,658)
</TABLE>
In September 1993, the Company disposed of its remaining 1,752,400
shares of Gaming common stock pursuant to stock exchange agreements.
This disposition, including the recognition of previously deferred
cumulative translation adjustment credits of $2,506, resulted in a net
gain of $6,215, including an income tax benefit of $1,452. The income
tax benefit resulted from the utilization of tax loss carryforwards to
offset taxable income arising from this disposition of Gaming common
stock.
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
As discussed in "Basis of presentation" in Notes to condensed
consolidated financial statements of this Form 10-Q, Bally's Health &
Tennis has been reflected as a discontinued operation as a result of the
planned Spin-off. Accordingly, the following discussion and analysis of
financial condition and results of operations is that of the Company's
continuing operations.
Quarter Versus Quarter
Revenues of the Company for the third quarter of 1994 were $261.3
million compared to $173.7 million for the 1993 period, an increase of
$87.6 million (50%). Operating income for the 1994 quarter was $52.2
million compared to $44.2 million for 1993, an increase of $8.0 million
(18%). These increases principally reflect the expansion of the
Company's gaming business into Las Vegas, Nevada (Bally's Grand, Inc.
has been consolidated since December 1993) and Tunica, Mississippi
(Bally's Saloon and Gambling Hall ("Bally's Tunica") commenced
operations in December 1993) and improved operating results at both of
the Company's Atlantic City casino hotel resorts.
Atlantic City
Revenues of Bally's Park Place for the third quarter of 1994 were
$111.6 million compared to $101.5 million for the 1993 period, an
increase of $10.1 million (10%). Casino revenues for the 1994 period
were $94.8 million compared to $84.7 million in the 1993 period, an
increase of $10.1 million (12%). Slot revenues increased $6.8 million
(12%) due to a 21% increase in slot handle (volume) offset, in part, by
a decline in the win percentage from 9.6% in the 1993 period to 8.8% in
1994. Bally's Park Place added 265 slot machines (a 13% increase) since
September 30, 1993. Table game revenues, excluding poker, increased
$2.4 million (10%) from the 1993 period due to an increase in the hold
percentage from 16.2% in 1993 to 17.4% in 1994 and a 3% increase in the
drop (amount wagered). Poker operations, which commenced in July 1993,
generated revenues of $1.3 million for each of the third quarters of
1994 and 1993. Horse race simulcasting and keno operations, which
commenced mid-June 1994, contributed $1.0 million to casino revenues for
the 1994 period. Operating income of Bally's Park Place for the third
quarter of 1994 was $34.2 million compared to $32.0 million for the 1993
period, an increase of $2.2 million (7%) as the aforementioned increase
in revenues was offset, in part, by a $7.9 million (11%) increase in
operating expenses. Casino expenses increased $3.7 million (12%) due
primarily to an increase in salaries, benefits and other costs
associated with the introduction and operation of horse race
simulcasting and keno in the 1994 period, and expanded marketing and
promotional efforts. Depreciation and amortization expense increased
$1.3 million (20%) primarily due to accelerated depreciation associated
with a slot machine upgrade to be completed by the end of 1994. In
addition, other operating expenses increased $1.2 million (9%) due to an
overall increase in the cost of property operations and providing
ancillary services.
Revenues of The Grand for the third quarter of 1994 were $72.0 million
compared to $69.1 million for 1993, an increase of $2.9 million (4%).
Casino revenues for the 1994 period were $65.8 million compared to
$62.7 million in the 1993 period, an increase of $3.1 million (5%).
Slot revenues increased $3.1 million (8%) due to a 17% increase in slot
handle offset, in part, by a decline in the win percentage from 9.3% in
the 1993 period to 8.6% in 1994. The Grand replaced the majority of its
slot machine inventory and reconfigured its casino floor during the
second quarter of 1994, reducing the total number of machines by 84
(6%). Table game revenues were essentially unchanged as an increase in
the hold percentage from 15.6% in the third quarter of 1993 to 15.9% in
the 1994 period was offset by a 2% decrease in the drop. Operating
income of The Grand for the third quarter of 1994 was $11.8 million
compared to $10.2 million for the 1993 period, an increase of
$1.6 million (16%) as the aforementioned increase in revenues was
offset, in part, by a $1.3 million (2%) increase in operating expenses.
Casino expenses increased $1.4 million (4%) primarily due to increases
in promotional expenses and the provision for doubtful receivables.
Management believes that the reduced rate of slot revenue growth in
Atlantic City as compared to the last several years, in conjunction with
the expanded number of slot machines resulting in a lower win per slot
machine, has caused and will continue to cause intense promotional
efforts to attract slot players as the Company's Atlantic City casinos
and their competitors seek to expand their share of slot revenues and
maximize the utilization of their slot machine inventory. Further, as
a result of the aggressive competition for slot patrons, the Atlantic
City slot win percentage has declined. Management believes that the
slot win percentage will continue to be subject to competitive pressure
and may further decline. However, the addition of poker, horse race
simulcasting and keno over the last year has had a favorable impact on
the Atlantic City gaming environment. The Company believes its Atlantic
City casinos are well-positioned to compete for their share of casino
revenues by continuing to offer attractive promotional slot and table
game programs and special events and by enhancing their gaming space.
During the second quarter of 1994, The Grand reconfigured its casino
floor, widening the aisles and replacing the majority of its slot
machine inventory with state-of-the-art machines with embedded bill
acceptors. In June 1994, Bally's Park Place expanded its gaming space
by 8,700 square feet to operate horse race simulcasting and keno, and to
relocate and expand its poker operations. In July 1994, Bally's Park
Place placed in operation an additional 127 high denomination slot
machines in the gaming space formerly occupied by its poker operations.
Further, by the end of 1994, Bally's Park Place will complete a slot
machine upgrade, replacing the majority of its slot machine inventory
with state-of-the-art machines with embedded bill acceptors.
Additionally, The Grand is expanding its casino floor and other gaming
space by 30% to include additional slot machines, poker, horse race
simulcasting and keno, with completion expected in the second quarter of
1995.
Las Vegas
Revenues of Bally's Grand, Inc. for the third quarter of 1994 were
$68.8 million. Casino revenues were $36.2 million, which primarily
consisted of table game revenues of $18.1 million and slot revenues of
$16.7 million. Table game drop and slot handle for the third quarter of
1994 were $108.1 million and $266.6 million, respectively, with hold and
win percentages of 16.7% and 6.3%, respectively. Rooms revenue was
$13.7 million and food and beverage revenues were $8.6 million. Other
revenues, including entertainment, were $10.3 million. Operating income
of Bally's Grand, Inc. for the third quarter of 1994 was $9.7 million.
Three new major casino hotels opened for business in Las Vegas during
the latter part of 1993. The three new properties include 370,000 total
square feet of casino space, 10,400 total hotel guest rooms and a theme
park. Management believes that the additional capacity resulting from
the opening of these new properties has had and will continue to have a
negative impact on Bally's Grand, Inc., but over the long term,
management believes that Bally's Grand, Inc. will benefit from the
increase in the number of visitors to Las Vegas that these new
properties are expected to attract, particularly because of (i) the July
1994 opening of a new automated walkway system and gardens in the front
of Bally's Las Vegas and (ii) the monorail system Bally's Grand, Inc. is
jointly constructing (with completion expected in mid-1995) that will
transport passengers between Bally's Las Vegas and The MGM Grand Hotel
and Theme Park.
Tunica
Revenues of Bally's Tunica for the third quarter of 1994 were
$7.3 million. Casino revenues were $7.1 million, which consisted of
slot revenues of $5.6 million and table game revenues of $1.5 million.
Slot handle and table game drop for the third quarter of 1994 were
$65.5 million and $6.3 million, respectively, with win and hold
percentages of 8.5% and 23.1%, respectively. Operating loss of Bally's
Tunica for the third quarter of 1994 was $2.0 million.
Revenues of Bally's Tunica for the first and second quarters of 1994
were $15.9 million and $12.0 million, respectively, and management
believes the decline in revenues is attributable to increased
competition. The Mississippi gaming legislation does not limit the
number of gaming licenses that may be granted and management believes
this has resulted in a saturation of gaming facilities in and around the
Tunica market. As of November 1, 1994, nine gaming facilities
(including Bally's Tunica) were operating in this market and six
additional operators' licenses had been issued by the Mississippi Gaming
Commission for operation there (although two of these licenses are for
facilities presently under construction, three of these licenses are for
facilities which have already closed). As a result of these competitive
conditions, there can be no assurance that Bally's Tunica's revenues or
operating results will not deteriorate further. Accordingly, Bally's
management is presently exploring options for Bally's Tunica which,
among others, include maintaining present operations (with anticipation
that additional competition could leave the market in the short term),
reducing hours of operation or relocating operations. The adoption of
certain of these options could result in the Company recording
significant, non-cash accounting charges.
New Gaming Projects
Operating income for the three months ended September 30, 1994 includes
a charge of $3.4 million for costs incurred in the pursuit and
development of new gaming projects in jurisdictions other than Atlantic
City, Las Vegas and Tunica. Such costs were not significant in the 1993
period. The Company continues to explore opportunities in jurisdictions
where gaming is presently authorized or may become authorized. However,
successful expansion and development opportunities are contingent upon,
among other things, the passage of legislation authorizing gaming (when
not already approved) and the Company obtaining the appropriate
licenses. There can be no assurance that the Company will be granted
gaming licenses in any of these new jurisdictions.
Corporate
Revenues for the third quarter of 1994 were $1.3 million compared to
$1.5 million in the 1993 period, a decrease of $.2 million due
principally to a $1.0 million reduction in interest and other income
from subsidiaries offset, in part, by a $.8 million gain on the purchase
of debt in 1994 for sinking fund purposes.
Operating income for the third quarter of 1994 was $2.6 million compared
to $1.5 million in the 1993 period, an increase of $1.1 million due
primarily to allocations of corporate overhead to subsidiaries.
Nine Months Versus Nine Months
Revenues of the Company for the nine months ended September 30, 1994
were $712.0 million compared to $460.4 million for 1993, an increase of
$251.6 million (55%). Operating income for the 1994 period was $113.6
million compared to $96.6 million for 1993, an increase of $17.0 million
(18%). These increases principally reflect the aforementioned expansion
of the Company's gaming business into Las Vegas, Nevada and Tunica,
Mississippi.
Atlantic City
Atlantic City's 1994 and 1993 first quarters were both negatively
affected by severe weather conditions in the northeastern United States,
however management believes the severity, duration and number of storms
in 1994 had a more dramatic impact on attendance and operating
performance than in 1993.
Revenues of Bally's Park Place for the nine months ended September 30,
1994 were $284.0 million compared to $267.1 million for the 1993 period,
an increase of $16.9 million (6%). Casino revenues for the 1994 period
were $241.4 million compared to $226.0 million in 1993, an increase of
$15.4 million (7%). Slot revenues increased $6.5 million (4%) due to a
14% increase in slot handle offset, in part, by a decline in the win
percentage from 9.7% in the 1993 period (which includes the positive
impact from the discontinuation of certain progressive linked jackpots)
to 8.9% in 1994. Table game revenues, excluding poker, increased
$5.6 million (8%) from the 1993 period due to an increase in the hold
percentage from 16.2% in 1993 to 17.0% in 1994 and a 3% increase in the
drop. Poker operations, which commenced in July 1993, generated
revenues of $3.6 million for the nine months ended September 30, 1994
compared to $1.3 million for the 1993 period. Horse race simulcasting
and keno operations, which commenced mid-June 1994, contributed
$1.0 million to casino revenues in the 1994 period. Other revenues
increased $1.1 million (16%) due to higher entrance fees for promotional
events and dividends from a multi-casino linked progressive trust.
Operating income of Bally's Park Place for the nine months ended
September 30, 1994 was $70.5 million compared to $71.4 million for the
1993 period, a decrease of $.9 million (1%) as the aforementioned
revenue increase was offset by a $17.8 million (9%) increase in
operating expenses. Casino expenses increased $8.9 million (10%) due to
an increase in salaries, benefits and other costs associated with the
introduction and operation of horse race simulcasting and keno in, and
the operation of poker throughout, the 1994 period, and expanded
marketing and promotional efforts. Depreciation and amortization
increased $3.5 million (18%) primarily due to accelerated depreciation
associated with the slot machine upgrade to be completed during the
fourth quarter of 1994. Other operating expenses increased $2.7 million
(7%) due to an overall increase in the cost of property operations and
providing ancillary services. In addition, the 1993 period included the
recognition of a non-recurring benefit related to the settlement of
amounts owed to a former executive who retired in January 1993.
Revenues of The Grand for the nine months ended September 30, 1994 were
$186.8 million compared to $183.3 million for 1993, an increase of
$3.5 million (2%). Casino revenues for the 1994 period were
$170.4 million compared to $164.8 million in 1993, an increase of
$5.6 million (3%). Table game revenues increased $4.1 million (6%) due
to a 9% increase in the drop offset, in part, by a decline in the hold
percentage from 16.4% in the 1993 period to 16.0% in 1994. Slot revenues
increased $1.5 million (2%) due to a 10% increase in slot handle offset,
in part, by a decline in the win percentage from 9.6% in the 1993 period
to 8.8% in 1994. Slot revenues include approximately $1.5 million and
$1.2 million from the discontinuation of certain progressive slot
jackpots in the 1994 and 1993 periods, respectively. Operating income
of The Grand for the nine months ended September 30, 1994 was
$15.7 million compared to $21.4 million for the 1993 period, a decrease
of $5.7 million (27%) as the aforementioned revenue increase was offset
by a $9.2 million (6%) increase in operating expenses. Casino expenses
increased $8.6 million (9%) primarily due to increases in payroll and
payroll-related expenses, the provision for doubtful receivables and the
costs of providing complimentary services and other promotional expenses
in conjunction with the increased casino volume and marketing efforts
associated with the comprehensive marketing program The Grand introduced
in July 1993.
Las Vegas
Revenues of Bally's Grand, Inc. for the nine months ended September 30,
1994 were $202.6 million. Casino revenues were $101.0 million, which
primarily consisted of table game revenues of $52.9 million and slot
revenues of $43.2 million. Table game drop and slot handle for the nine
months ended September 30, 1994 were $319.1 million and $678.1 million,
respectively, with hold and win percentages of 16.6% and 6.4%,
respectively. Rooms revenue was $44.2 million and food and beverage
revenues were $27.5 million. Other revenues, including entertainment,
were $29.9 million. Operating income of Bally's Grand, Inc. for the
nine months ended September 30, 1994 was $30.5 million.
Tunica
Revenues of Bally's Tunica for the nine months ended September 30, 1994
were $35.2 million. Casino revenues were $34.7 million, which consisted
of slot revenues of $24.6 million and table game revenues of
$10.1 million. Slot handle and table game drop for the nine months
ended September 30, 1994 were $278.9 million and $40.6 million,
respectively, with win and hold percentages of 8.8% and 23.6%,
respectively. Operating income of Bally's Tunica for the nine months
ended September 30, 1994 was $1.1 million, which is net of the
amortization of $3.3 million of pre-opening costs that were fully
amortized in the first quarter of 1994.
New Gaming Projects
Operating income for the nine months ended September 30, 1994 includes
a charge of $4.1 million for costs incurred in the pursuit and
development of new gaming projects. Such costs were not significant in
the 1993 period.
Corporate
Revenues for the nine months ended September 30, 1994 were $2.7 million
compared to $7.5 million in the 1993 period, a decrease of $4.8 million.
The decline in revenues was principally due to a $2.5 million reduction
in interest and other income from subsidiaries and the 1993 period
having included nonrecurring income of $1.7 million for the forgiveness
of a tax liability previously owed to Gaming and $.8 million for
insurance recoveries.
Operating income for the nine months ended September 30, 1994 was $2.7
million compared to $4.4 million in the 1993 period, a decrease of $1.7
million. The decline in operating income was due principally to the
aforementioned decline in revenues offset, in part, by allocations of
corporate overhead to subsidiaries and the 1993 period having included
a $1.7 million nonrecurring charge related to accelerated vesting of
stock options.
Interest Expense
Interest expense, net of capitalized interest, was $32.3 million in the
third quarter of 1994 compared to $24.7 million in the 1993 period, an
increase of $7.6 million (31%). This increase was due principally to
higher average levels of debt (primarily resulting from the
consolidation of Bally's Grand, Inc. effective December 1993) offset, in
part, by lower average interest rates.
For the nine months ended September 30, 1994, net interest expense was
$97.4 million compared to $65.9 million in the 1993 period, an increase
of $31.5 million (48%). This increase was due principally to higher
average levels of debt (primarily resulting from the consolidation of
Bally's Grand, Inc. effective December 1993 and the issuance of the
Casino Holdings Senior Discount Notes due 1998 (the "Senior Discount
Notes") in June 1993) offset, in part, by lower average interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
Bally is a holding company without operations of its own. Nevertheless,
Bally has certain cash obligations that must be satisfied by obtaining
cash from its subsidiaries or disposing of or leveraging certain assets.
Bally's corporate cash operating costs in the foreseeable future are
expected to substantially be recovered by allocations to its
subsidiaries. Bally has debt service and preferred stock dividend
payments of approximately $24 million due through the end of 1995. Cash
requirements for Bally over the next fifteen months also include income
tax payments, which management estimates to be approximately $9 million,
net of refunds and amounts to be collected from subsidiaries pursuant to
tax sharing agreements. In August 1994, the Company was authorized by
the Board to repurchase on the open market up to 2 million shares of its
common stock. No shares have been purchased to date.
As disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, the Internal Revenue Service ("IRS") has
completed an audit of the federal income tax returns of certain of the
Company's fitness center subsidiaries for periods ending on the day
these subsidiaries were acquired. Among other things, the IRS asserted
that these subsidiaries owed additional taxes and interest with respect
to issues arising pursuant to the Company's election in 1983 to treat
the purchases of stock of these subsidiaries as if they were purchases
of assets. In May 1994, the Company and the IRS reached a settlement
with respect to this matter, which resulted in the August 1994 payment
of approximately $4 million in taxes plus accrued interest.
Sources of cash available to Bally are generally limited to existing
cash balances ($8.5 million at September 30, 1994), dividends,
management fees or cost allocations to subsidiaries, receipts pursuant
to tax sharing agreements, capital transactions and asset sales. Each
of Bally's principal operating subsidiaries presently have debt
covenants which limit the payment of dividends to Bally and the
redemption of stock owned by Bally. Under the terms of the Senior
Discount Notes, an amount equal to dividends paid pursuant to a net
income test by Bally's Park Place to Casino Holdings may be declared as
a dividend by Casino Holdings and paid to Bally. As of September 30,
1994, approximately $12 million was available for the payment of dividends
by Bally's Park Place to Bally through Casino Holdings pursuant to
the net income test, and that amount is expected to be paid during the
fourth quarter of 1994. Additional dividends from Casino Holdings are
generally limited to 50% of its consolidated net income exclusive of
income attributable to Bally's Park Place. Dividends from subsidiaries
other than Bally's Park Place are not expected during the remainder of
1994 or throughout 1995. In addition, a subsidiary of Casino Holdings
has an obligation to Bally of approximately $6 million for shares of
Bally's Grand, Inc. common stock purchased from Bally during 1993, which
is also expected to be paid during the fourth quarter of 1994. Bally
believes that it will be able to satisfy its cash needs through 1995,
but remains dependent upon the ability of its subsidiaries to pay
dividends and cost allocations to meet its future cash requirements.
Subsidiaries
Casino Holdings
Casino Holdings. Casino Holdings is a holding company without
operations of its own and relies on obtaining cash from its subsidiaries
to meet its cash obligations. Casino Holdings has no scheduled interest
or principal payments on the Senior Discount Notes until 1998, but
expects to continue to incur substantial costs in the pursuit of new
gaming ventures. To the extent Casino Holdings requires additional
funds for existing ventures or to develop new ventures, Casino Holdings
expects that it will be able to obtain financing for a significant
portion of the total development costs of new gaming ventures from a
combination of third party sources, including banks, suppliers and debt
markets.
Sources of cash available to Casino Holdings are generally limited to
existing cash balances ($45.2 million at September 30, 1994) and loan
repayments, dividends and management fees from subsidiaries. Bally's
Park Place and Bally's Grand, Inc. are both limited with respect to
amounts which may be paid as dividends to Casino Holdings under the
terms of their respective public debt indentures. In 1994, Bally's Park
Place paid dividends totalling $55.0 million to Casino Holdings which,
along with $25.0 million still available to Casino Holdings as dividends
from Bally's Park Place pursuant to the indenture of the 9-1/4% Notes,
are not available to be paid by Casino Holdings to Bally. Bally's
Grand, Inc. is presently not expected to pay dividends or make any other
distributions on its common stock to Casino Holdings. Bally's Tunica,
which commenced operations in December 1993, is not expected to generate
cash flows from operations of any significance in the short term due to
the effects of increased competition as described in "Results of
Continuing Operations" included elsewhere herein. Although Casino
Holdings believes it will be able to satisfy its cash needs through
1995, Casino Holdings remains dependent upon the ability of its
subsidiaries to generate cash to repay advances and pay dividends to it
in the future.
Bally's Park Place. Bally's Park Place has no scheduled principal
payments under its public indebtedness until 2004, and its scheduled
principal payments under other indebtedness outstanding at September 30,
1994 are not significant. Management expects to make capital
expenditures at the casino hotel of approximately $19 million during
the fifteen months ending December 31, 1995 for the completion of casino
expansion and reconfiguration, completion of the penthouse floor,
construction of a new players lounge, renovation of the main kitchen and
other public area improvements necessary to maintain the facility. As
of September 30, 1994, Bally's Park Place had an unused line of credit
totalling $50 million. The Company believes that Bally's Park Place
will be able to satisfy its debt service and capital expenditure
requirements through 1995 out of cash flow from operations.
Bally's Grand, Inc. Bally's Grand, Inc. has no scheduled principal
payments on its indebtedness outstanding at September 30, 1994 until
2003, however, it expects to complete several major capital improvements
in 1995. Currently, through a joint venture formed with a subsidiary of
MGM Grand, Inc., Bally's Grand, Inc. is jointly constructing (with
completion expected in mid-1995) a monorail system that will transport
passengers between Bally's Las Vegas and The MGM Grand Hotel and Theme
Park. Bally's Grand, Inc. expects its portion of the cost of this
project to be approximately $14 million, of which approximately
$7 million was expended as of September 30, 1994. Other capital
improvement projects planned for 1995 include the renovation of its
south tower hotel rooms and corridors, the lower level shopping arcade
and other public areas which, in total, are estimated to cost
approximately $26 million. In addition, annual capital expenditures
approximating $8 million are required to maintain Bally's Las Vegas in
first-class condition. The Company believes that Bally's Grand, Inc.
will be able to satisfy its debt service and capital expenditure
requirements through 1995 out of existing cash balances ($84.1 million
at September 30, 1994) and cash flow from operations.
Bally's Tunica. The total cost to construct and equip Bally's Tunica
was approximately $39 million, which was advanced by Casino Holdings in
1993, and is being repaid out of available cash flow from operations
(which is not expected to be significant in the short term due to the
competitive conditions described previously) and funds from third party
financing. In the third quarter of 1994, Bally's Tunica completed two
sale-leaseback transactions of equipment, generating proceeds of $5.6
million which was paid to Casino Holdings. Lease payments resulting
from these transactions approximate $2 million annually for a minimum of
three years and are guaranteed by Bally.
Other. A subsidiary of Casino Holdings owns an equity interest of
approximately 50% in Belle. In August 1993, the Casino Holdings
subsidiary entered into a formal operating agreement for the
capitalization and development of Belle. Simultaneously, Casino
Holdings and Belle entered into a management agreement with a term of
five years and an option for a second five-year term granting
responsibility for the development and management of Belle to Casino
Holdings. In March 1994, the Louisiana Riverboat Gaming Commission
awarded Belle a permanent operating license. Casino Holdings will
receive management fees based on a percentage of the earnings of Belle.
Construction of the riverboat commenced in January 1994 and operations
are expected to begin in early 1995. Management estimates that not
substantially more than $55 million will be needed to develop Belle, and
anticipates the cost will primarily be financed by third parties (as
described in "Long-term debt" in Notes to condensed consolidated
financial statements of this Form 10-Q, Belle has already obtained
financing for approximately $22 million), with the remainder funded by
Casino Holdings (as of November 1, 1994, approximately $18 million had
been funded). There can be no assurance that additional third party
financing will be available on terms favorable to Belle.
In September 1994, a joint venture was formed between subsidiaries of
Casino Holdings, Caesars World, Inc. and Casino Magic Corporation as
equal participants (with minority and local interests ultimately holding
a 25% interest) in the proposed dockside casino complex at Laclede's
Landing in St. Louis, Missouri. Early this year, Gateway Casino
Company, a Missouri limited partnership of Caesars World, Inc. and
Casino Magic Corporation subsidiaries, was chosen by the city of St.
Louis' ad hoc selection committee as the preferred developer and
operator of the proposed Laclede's Landing project which would include
a replica riverboat casino and a hotel. As proposed, the $210 million
casino and hotel development would hold approximately 2,700 slot
machines and 70 gaming tables on a barge foundation. The project is
expected to be financed by a combination of third party financing and
equity contributions. The Casino Holdings subsidiary also has a one-
third interest in a management agreement pertaining to the operation of
those facilities. The ultimate successful negotiation and obtaining of
a lease with the city of St. Louis is subject to various political and
regulatory approvals, none of which can be assumed to be assured at this
time. In addition, third party financing will be required on terms
favorable to the joint venture.
Another subsidiary of Casino Holdings has entered into an option
agreement to acquire a 31-acre site along the Delaware River in
Philadelphia for the purpose of developing a dockside gaming facility
(the "Philadelphia Venture") if gaming were to be legalized in
Pennsylvania. The site includes a 550 foot pier and is easily accessed
from a major highway nearby. Pursuant to the terms of the agreement,
Casino Holdings has agreed to pay $10 million, consisting of an initial
cash payment of $5 million (paid in 1993) and $5 million payable over
the next three years. These payments are due whether or not gaming is
legalized in Pennsylvania. Additionally, in the event Casino Holdings
elects to take title to the property, it will be required to deliver at
the closing of the transaction the balance of the purchase price in the
form of a pre-payable, non-recourse note for approximately $55 million
(including interest), which is payable in various installments over the
five-year period subsequent to the closing of the transaction. Assuming
legalization, the closing of the transaction is scheduled for January
1997, unless accelerated by Casino Holdings. Certain of Casino
Holdings' obligations under the agreement are guaranteed by Bally.
The Grand
The Grand has no scheduled principal payments under its public
indebtedness until 2003. Management expects to make capital
expenditures of almost $15 million over the next fifteen months
primarily for casino expansion. As of September 30, 1994, The Grand had
an unused line of credit totalling $20 million. The Company believes
The Grand will be able to satisfy its debt service and capital
expenditure requirements through 1995 out of cash flow from operations.
<PAGE>
Bally Entertainment Corporation
PART II. OTHER INFORMATION
Item 1. Legal proceedings
See "Liquidity and Capital Resources" in Management's
Discussion and Analysis of Financial Condition and Results of
Operations of this Form 10-Q for a description of the
settlement of tax claims disclosed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLY ENTERTAINMENT CORPORATION
-------------------------------
Registrant
/s/ John W. Dwyer
-------------------------------
John W. Dwyer
Vice President
and Corporate Controller
(Chief Accounting Officer)
Dated: November 14, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1994, THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 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-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 174,475
<SECURITIES> 0
<RECEIVABLES> 40,432
<ALLOWANCES> 10,808
<INVENTORY> 7,905
<CURRENT-ASSETS> 221,860
<PP&E> 1,629,323
<DEPRECIATION> 431,145
<TOTAL-ASSETS> 1,911,335
<CURRENT-LIABILITIES> 155,607
<BONDS> 1,264,670
<COMMON> 31,359
0
684
<OTHER-SE> 271,657
<TOTAL-LIABILITY-AND-EQUITY> 1,911,335
<SALES> 0
<TOTAL-REVENUES> 712,017
<CGS> 0
<TOTAL-COSTS> 338,339<F1>
<OTHER-EXPENSES> 100,956<F1>
<LOSS-PROVISION> 4,549<F1>
<INTEREST-EXPENSE> 97,414
<INCOME-PRETAX> 19,402
<INCOME-TAX> 8,500
<INCOME-CONTINUING> 8,295
<DISCONTINUED> (46,091)
<EXTRAORDINARY> (20,735)
<CHANGES> 0
<NET-INCOME> (58,531)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.29)
<FN>
<F1>THESE AMOUNTS ARE INCLUDED IN THE OPERATING COSTS AND EXPENSES LINE IN
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994. THESE AMOUNTS EXCLUDE SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES AND DEPRECIATION AND AMORTIZATION.
</FN>
</TABLE>
