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, 1995
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 October 31, 1995, 47,252,983 shares of the registrant's common
stock were outstanding.
<PAGE>
BALLY ENTERTAINMENT CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
September 30, 1995 and December 31, 1994
Condensed consolidated statement of operations
(unaudited)
Nine months ended September 30, 1995 and 1994
Condensed consolidated statement of operations
(unaudited)
Three months ended September 30, 1995 and 1994
Condensed consolidated statement of stockholders'
equity (unaudited)
Nine months ended September 30, 1995
Condensed consolidated statement of cash flows
(unaudited)
Nine months ended September 30, 1995 and 1994
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 2. Changes in securities
Item 5. Other information
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
1995 1994
- ----------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents . . . . . . . . . . . $ 174,963 $ 178,427
Due from underwriters. . . . . . . . . . . 167,530
Marketable securities, at fair value . . . 14,925 6,031
Receivables, less allowances of $13,665
and $12,196. . . . . . . . . . . . . . . 23,666 23,450
Inventories. . . . . . . . . . . . . . . . 8,251 8,113
Deferred income taxes. . . . . . . . . . . 13,912 16,299
Other current assets . . . . . . . . . . . 8,923 16,373
---------- ----------
Total current assets . . . . . . . . . . 412,170 248,693
Property and equipment, less accumulated
depreciation of $493,206 and $445,239. . . 1,254,574 1,186,868
Investment in and receivables from
discontinued operations. . . . . . . . . . 272,281 291,012
Intangible assets, less accumulated
amortization of $27,742 and $24,398. . . . 123,367 123,367
Other assets . . . . . . . . . . . . . . . . 100,228 86,221
---------- ----------
$2,162,620 $1,936,161
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 14,478 $ 21,065
Payable to brokers for security
purchases, net . . . . . . . . . . . . . 7,503 7,680
Income taxes payable . . . . . . . . . . . 23,741 27,707
Accrued liabilities. . . . . . . . . . . . 122,833 113,990
Current maturities of long-term debt . . . 26,021 7,200
---------- ----------
Total current liabilities. . . . . . . . 194,576 177,642
Long-term debt, less current maturities. . . 1,281,413 1,258,990
Deferred income taxes. . . . . . . . . . . . 163,291 152,851
Other liabilities. . . . . . . . . . . . . . 6,572 15,656
Minority interests . . . . . . . . . . . . . 37,169 37,410
Stockholders' equity . . . . . . . . . . . . 479,599 293,612
---------- ----------
$2,162,620 $1,936,161
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Nine months ended
September 30
------------------------
1995 1994
- ---------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 760,467 $ 712,017
Costs and expenses:
Cost of operations . . . . . . . . . . . . 466,749 443,844
Selling, general and administrative. . . . 87,571 91,066
Gaming development costs, including
amortization of pre-opening costs of
$2,492 and $3,330. . . . . . . . . . . . 6,373 7,423
Depreciation and amortization. . . . . . . 54,500 56,104
---------- ----------
615,193 598,437
---------- ----------
Operating income . . . . . . . . . . . . . . 145,274 113,580
Gain on sales of marketable securities . . . 1,346 3,236
Interest expense . . . . . . . . . . . . . . (98,188) (97,414)
---------- ----------
Income from continuing operations before
income taxes and minority interests. . . . 48,432 19,402
Income tax provision . . . . . . . . . . . . (19,000) (8,500)
Minority interests . . . . . . . . . . . . . 1,018 (2,607)
---------- ----------
Income from continuing operations. . . . . . 30,450 8,295
Loss from discontinued operations. . . . . . (10,980) (46,091)
---------- ----------
Income (loss) before extraordinary item. . . 19,470 (37,796)
Extraordinary gain (loss) on extinguishment
of debt. . . . . . . . . . . . . . . . . . 458 (20,735)
---------- ----------
Net income (loss). . . . . . . . . . . . . . 19,928 (58,531)
Preferred stock dividend requirement . . . . (2,083) (2,083)
---------- ----------
Net income (loss) applicable to common
stock. . . . . . . . . . . . . . . . . . . $ 17,845 $ (60,614)
========== ==========
Per common and common equivalent share:
Income from continuing operations. . . . . $ .57 $ .14
Loss from discontinued operations. . . . . (.22) (.99)
Extraordinary gain (loss) on
extinguishment of debt . . . . . . . . . .01 (.44)
---------- ----------
Net income (loss). . . . . . . . . . . . . $ .36 $ (1.29)
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended
September 30
-----------------------
1995 1994
- ---------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 287,127 $ 261,291
Costs and expenses:
Cost of operations . . . . . . . . . . . . 174,130 156,239
Selling, general and administrative. . . . 30,281 30,910
Gaming development costs, including
amortization of pre-opening costs of
$2,492 in 1995 . . . . . . . . . . . . . 4,194 3,439
Depreciation and amortization. . . . . . . 19,663 18,485
---------- ----------
228,268 209,073
---------- ----------
Operating income . . . . . . . . . . . . . . 58,859 52,218
Gain on sales of marketable securities . . . 221 3,236
Interest expense . . . . . . . . . . . . . . (33,582) (32,331)
---------- ----------
Income from continuing operations before
income taxes and minority interests. . . . 25,498 23,123
Income tax provision . . . . . . . . . . . . (10,100) (10,000)
Minority interests . . . . . . . . . . . . . 1,615 (1,349)
---------- ----------
Income from continuing operations. . . . . . 17,013 11,774
Loss from discontinued operations. . . . . . (10,980)
---------- ----------
Income before extraordinary item . . . . . . 6,033 11,774
Extraordinary gain on extinguishment
of debt. . . . . . . . . . . . . . . . . . 13
---------- ----------
Net income . . . . . . . . . . . . . . . . . 6,046 11,774
Preferred stock dividend requirement . . . . (694) (694)
---------- ----------
Net income applicable to common stock. . . . $ 5,352 $ 11,080
========== ==========
Per common and common equivalent share:
Income from continuing operations. . . . . $ .32 $ .24
Loss from discontinued operations. . . . . (.21)
Extraordinary gain on extinguishment
of debt. . . . . . . . . . . . . . . . . --
---------- ----------
Net income . . . . . . . . . . . . . . . . $ .11 $ .24
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
Total
Capital in 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, 1994 . . . $ 694 $ 31,426 $295,110 $(31,581) $ (2,037) $293,612
Net income . . . . . . 19,928 19,928
Issuance of 8% PRIDES
Convertible Preferred
Stock . . . . . . . . 15,525 151,305 166,830
Dividends on Series D
Preferred Stock,
$3.00 per share . . . (2,083) (2,083)
Change in unrealized
gain/loss on available-
for-sale securities . (370) (370)
Issuance of common
stock under stock
purchase and option
plans . . . . . . . . 172 1,510 1,682
-------- -------- -------- -------- -------- --------
Balance at
September 30, 1995. . . $ 16,219 $ 31,598 $447,925 $(14,106) $ (2,037) $479,599
======== ======== ======== ======== ======== ========
<CAPTION>
Preferred stock Common stock
----------------------- -------------------
Share amounts Series D 8% PRIDES Issued Treasury
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 . . . . . . . . 694 47,138 147
Issuance of 8% PRIDES Convertible
Preferred Stock . . . . . . . . . . . . . 15,525
Issuance of common stock under
stock purchase and option plans . . . . . 259
-------- -------- -------- --------
Balance at September 30, 1995. . . . . . . . 694 15,525 47,397 147
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Nine months ended
September 30
-----------------------
1995 1994
- ---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING:
Income from continuing operations . . . . . $ 30,450 $ 8,295
Adjustments to reconcile to cash provided--
Depreciation and amortization
(including pre-opening costs). . . . . . 56,992 59,434
Interest accretion on discount notes
and other amortization included in
interest expense . . . . . . . . . . . . 15,270 14,788
Deferred income taxes. . . . . . . . . . . 13,111 10,694
Provision for doubtful receivables . . . . 3,360 4,549
Change in operating assets and liabilities (9,939) (54,240)
Other, net . . . . . . . . . . . . . . . . (5,223) (1,358)
---------- ----------
Cash provided by operating activities . 104,021 42,162
INVESTING:
Purchases of property and equipment . . . . (104,105) (76,119)
Acquisitions of Bally's Grand, Inc.
common stock . . . . . . . . . . . . . . . (15,179) (12,122)
Advances to nonconsolidated ventures. . . . (13,600)
Purchases of marketable securities. . . . . (9,748) (7,254)
Net proceeds from sales of marketable
securities . . . . . . . . . . . . . . . . 5,335 10,490
Other, net. . . . . . . . . . . . . . . . . (7,327) (5,683)
---------- ----------
Cash used in investing activities . . . (144,624) (90,688)
FINANCING:
Debt transactions --
Proceeds from long-term borrowings . . . . 48,316 434,970
Repayments of long-term debt . . . . . . . (17,473) (386,934)
Debt issuance costs. . . . . . . . . . . . (769) (15,894)
---------- ----------
Cash provided by debt transactions. . . 30,074 32,142
Equity transactions --
Preferred stock dividends. . . . . . . . . (2,083) (2,083)
Proceeds from issuance of common stock
under stock purchase and option plans. . 1,397 130
---------- ----------
Cash provided by financing activities . 29,388 30,189
DISCONTINUED OPERATIONS:
Cash provided by discontinued
operations. . . . . . . . . . . . . . 7,751 734
---------- ----------
Decrease in cash and equivalents . . . . . . (3,464) (17,603)
Cash and equivalents, beginning of period. . 178,427 192,078
---------- ----------
Cash and equivalents, end of period. . . . . $ 174,963 $ 174,475
========== ==========
(continued)
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS--(continued)
(unaudited)
<CAPTION>
Nine months ended
September 30
-----------------------
1995 1994
- ---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and
liabilities were as follows--
Increase in receivables. . . . . . . . $ (2,966) $ (1,036)
Increase in inventories. . . . . . . . (137) (395)
(Increase) decrease in other
current assets . . . . . . . . . . . 7,831 (2,878)
Increase in other assets . . . . . . . (2,271) (3,144)
Decrease in payables and
accrued liabilities. . . . . . . . . (1,934) (11,841)
Decrease in income taxes payable . . . (3,928) (33,806)
Decrease in other liabilities . . . . (6,534) (1,140)
---------- ----------
$ (9,939) $ (54,240)
========== ==========
Cash payments for interest and income
taxes for continuing operations were
as follows--
Interest paid. . . . . . . . . . . . . $ 78,283 $ 80,241
Interest capitalized . . . . . . . . . (2,688) (2,177)
Income taxes paid (net of refunds) . . 9,909 31,615
Investing and financing activities exclude
the following non-cash activities--
Issuance of 8% PRIDES Convertible
Preferred Stock (settled
on October 3, 1995). . . . . . . . . $ 167,530 $
Contribution of net assets into
consolidated venture by minority
interest . . . . . . . . . . . . . . 13,166
Purchases of marketable securities on
margin (including unsettled
purchases) . . . . . . . . . . . . . 13,610 7,229
Sales of margined marketable securities
(including unsettled sales). . . . . 10,221 7,229
Reduction of intangible assets
resulting from the settlement
of a pre-acquisition contingency . . 3,998
Discontinued operations--
Capital contribution to Bally's Health
& Tennis Corporation (forgiveness
of income tax obligation). . . . . 21,000
Reduction in income taxes receivable
from Bally's Health & Tennis
Corporation. . . . . . . . . . . . 10,861
<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 accompanying 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 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 a spin-off of the fitness centers
business (see "Discontinued operations"). As a result, the Company's
continuing operations comprise one industry segment, with all
significant revenues presently 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, 1994.
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, 1995, its
condensed consolidated statements of operations for the three and nine
months ended September 30, 1995 and 1994, its condensed consolidated
statement of stockholders' equity for the nine months ended September
30, 1995 and its condensed consolidated statement of cash flows for the
nine months ended September 30, 1995 and 1994. All such adjustments
were of a normal recurring nature, except for those adjustments required
to present Bally's Health & Tennis as a discontinued operation and to
reflect a refinancing of indebtedness of a subsidiary in March 1994 (see
"Long-term debt").
Certain reclassifications have been made to prior period financial
statements to conform with the 1995 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, 1995 and 1994 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, 1995, the Company acquired 850,810 shares of Bally's
Grand, Inc. common stock in several transactions for $8,747.
Additionally, Bally's Grand, Inc. repurchased 600,000 shares of its
common stock in several transactions during that period for $6,432. As
a result of the aforementioned transactions, Bally owns approximately
80% of the Bally's Grand, Inc. common shares outstanding at September
30, 1995. 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
($2,253 in 1995) is being amortized using the straight-line method over
20 years.
Marketable securities
Marketable securities consist primarily of common stock of certain
publicly traded gaming companies. These securities are considered
available-for-sale securities and are carried at fair value with the
change in unrealized gains or losses reported net of tax, as a credit or
charge to accumulated deficit. The cost of securities sold is
determined on the specific identification method.
<PAGE>
Long-term debt
The carrying amounts of the Company's long-term debt at September 30,
1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
Bally:
6% Convertible Subordinated Debentures
due 1998. . . . . . . . . . . . . . . . . $ 1,804 $ 15,715
8% Convertible Senior Subordinated
Debentures due 2000 . . . . . . . . . . . 13,586
10% Convertible Subordinated Debentures
due 2006. . . . . . . . . . . . . . . . . 80,000 80,000
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998, less
unamortized discount of $46,391 and
$63,319 . . . . . . . . . . . . . . . . . 146,169 149,281
Bally's Park Place, Inc.:
9-1/4% First Mortgage Notes due 2004. . . . 425,000 425,000
GNAC, CORP.:
10-5/8% First Mortgage Notes due 2003,
less unamortized discount of $1,716
and $1,824. . . . . . . . . . . . . . . . 273,284 273,176
Bally's Grand, Inc.:
10-3/8% First Mortgage Notes due 2003 . . . 315,000 315,000
Bally's Casino*Lakeshore Resort:
Term loan . . . . . . . . . . . . . . . . . 22,611
Construction loan . . . . . . . . . . . . . 4,358
Other secured and unsecured obligations. . . 29,980 3,660
---------- ----------
Total long-term debt . . . . . . . . . . . . 1,307,434 1,266,190
Current maturities of long-term debt . . . . (26,021) (7,200)
---------- ----------
Long-term debt, less current maturities. . . $1,281,413 $1,258,990
========== ==========
</TABLE>
In July 1995, Bally completed an exchange offer pursuant to which Bally
exchanged $13,586 of 8% Convertible Senior Subordinated Debentures due
2000 (the "8% Debentures") for $13,586 of 6% Convertible Subordinated
Debentures due 1998 (the "6% Debentures"). The exchange eliminated all
cash sinking fund requirements for the 6% Debentures and restrictive
dividend covenants, enabling Bally to proceed with the spin-off of
Bally's Health & Tennis. At any time prior to maturity or redemption,
the 8% Debentures are convertible into shares of common stock of Bally,
par value $.66-2/3 per share (the "Common Stock"), at a conversion price
of $13.85 per share (subject to adjustment in certain events, including
the spin-off of Bally's Health & Tennis).
Also in July 1995, Bally's Casino*Lakeshore Resort ("Bally's New
Orleans") replaced its construction loan with a five-year term loan,
which is secured by its riverboat and guaranteed by Bally. The term
loan requires monthly payments of $490, including interest at 9.58%.
The Company purchased $5,000 and $20,040 principal amount of the Bally's
Casino Holdings, Inc. Senior Discount Notes due 1998 (the "Senior
Discount Notes") during the three and nine months ended September 30,
1995, respectively, which resulted in extraordinary gains of $13 and
$458, respectively, net of income taxes of $7 and $247, respectively.
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 retire and defease its 11-7/8%
First Mortgage Notes due 1999 (the "11-7/8% Notes") and pay dividends of
$30,214 to Bally's Casino Holdings, Inc. ("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.
Issuance of equity securities
On September 28, 1995, Bally issued 15,525,000 shares of 8% PRIDES
Convertible Preferred Stock, par value $1.00 per share (the "PRIDES"),
which provided proceeds of $166,830 after expenses (received October 3,
1995). Generally, holders of shares of PRIDES have the right with
holders of Common Stock to vote in the election of Bally's Board of
Directors (the "Board") and upon each other matter coming before any
meeting of the holders of Common Stock, on the basis of 4/5 of a vote
for each share of PRIDES held. On October 3, 1999, the shares of PRIDES
mandatorily convert into an equal number of shares of Common Stock
(subject to adjustment in certain events, including the spin-off of
Bally's Health & Tennis), and the right to receive an amount in cash
equal to any accrued and unpaid dividends thereon. At any time prior to
October 3, 1999, unless previously redeemed, each share of PRIDES is
convertible (at the option of the holder) into .82 of a share of Common
Stock (equivalent to a conversion price of $13.567 per share of Common
Stock), subject to adjustment in certain events, including the spin-off
of Bally's Health & Tennis. The shares of PRIDES are not redeemable by
Bally prior to October 3, 1998 and rank senior to the Common Stock, but
junior to the Company's Series D Convertible Exchangeable Preferred
Stock, as to the payment of dividends and distribution of assets upon
liquidation. The PRIDES have an aggregate liquidation value of
$172,716, plus any accrued and unpaid dividends thereon.
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 51,671,071 and 46,923,607
for the three months ended September 30, 1995 and 1994, respectively,
and 50,924,758 and 46,904,293 for the nine months ended September 30,
1995 and 1994, respectively. Common stock equivalents (which primarily
represent the dilutive effect of the assumed exercise of certain
outstanding stock options and the assumed conversion of exchangeable
preferred stock of a subsidiary) increased the weighted average number
of shares outstanding by 4,445,204 and 3,829,216 for the three and nine
months ended September 30, 1995. The assumed exercise of outstanding
stock options was not significant and the assumed conversion of
preferred stock was not applicable for the three and nine months ended
September 30, 1994.
Discontinued operations
On June 28, 1994, the Board approved a plan to spin-off Bally's Health
& Tennis (the "Spin-off"). As a result, the Company recognized a
$23,731 after-tax provision in June 1994 to provide for estimated
operating losses until disposal. Several unexpected delays in
completing the Spin-off were encountered which, when combined with
recent lower than expected operating results of the fitness centers
segment, resulted in the Company's recognition of a $10,980 after-tax
provision in the third quarter of 1995 to provide for additional
operating losses estimated through the date of the Spin-off.
On November 6, 1995, the Board declared a spin-off distribution to
holders of Common Stock at the close of business on November 15, 1995
(the "Record Date"), whereby one share of Bally's Health & Tennis common
stock will be distributed for every four shares of Common Stock held on
the Record Date. The distribution of the Bally's Health & Tennis common
stock, which will represent all of its issued and outstanding stock, is
expected to be completed as a tax-free dividend on or about
January 5, 1996.
<PAGE>
The Company's investment in and receivables from discontinued operations
at September 30, 1995 and December 31, 1994 consists of:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
Investment in fitness centers segment. . . $ 218,458 $ 229,438
Income taxes receivable from fitness
centers segment. . . . . . . . . . . . . 52,990 52,990
Other receivables from fitness centers
segment. . . . . . . . . . . . . . . . . 833 8,584
------------ -----------
$ 272,281 $ 291,012
============ ===========
</TABLE>
Summarized financial information of the fitness centers segment is as
follows:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
Financial position--
Current assets . . . . . . . . . . . . . $ 196,019 $ 186,491
Property and equipment, net. . . . . . . 358,900 381,973
Total assets . . . . . . . . . . . . . . 857,522 841,384
Current liabilities . . . . . . . . . . 202,552 240,256
Long-term debt, less current maturities. 366,173 289,711
Total liabilities. . . . . . . . . . . . 639,064 611,946
Total equity . . . . . . . . . . . . . . 218,458 229,438
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Results of operations--
Revenues. . . . . . . . $ 169,827 $ 167,035 $ 509,069 $ 511,746
Operating income (loss) 1,862 (541) 14,204 (26,780)
Net loss. . . . . . . . (10,980) -- (10,980) (46,091)
</TABLE>
In June 1995, Bally's Health & Tennis completed a $150,000 private
placement of asset-backed securities, the proceeds of which were
primarily used to repay restrictive bank debt.
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's continuing operations comprise one industry segment, with
all significant revenues arising from its casino operations and, where
applicable, supporting hotel operations. As described 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 in the Company's consolidated financial
statements because of the Spin-off. The following discussion and
analysis of financial condition and results of operations is that of the
Company's continuing operations.
RESULTS OF OPERATIONS
Revenues and operating income (loss) for the Company and each of its
casino properties were as follows (in millions):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------- ------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated (a)(b):
Revenues (c). . . . . . . . $287.1 $261.3 $760.5 $712.0
Operating income (d)(e) . . 58.9 52.2 145.3 113.6
Bally's Park Place:
Revenues (c). . . . . . . . $119.0 $111.6 $315.3 $284.0
Operating income. . . . . . 38.7 34.2 91.2 70.5
The Grand:
Revenues (c). . . . . . . . $ 78.6 $ 72.0 $212.2 $186.8
Operating income. . . . . . 16.7 11.8 35.8 15.7
Bally's Las Vegas:
Revenues (c). . . . . . . . $ 69.9 $ 68.8 $209.6 $202.6
Operating income. . . . . . 9.2 9.7 30.3 30.5
Bally's New Orleans (a):
Revenues (c). . . . . . . . $ 17.7 $ 17.7
Operating loss (d). . . . . (2.7) (3.0)
Bally's Mississippi (b):
Revenues (c). . . . . . . . $ .8 $ 7.3 $ 2.3 $ 35.2
Operating income
(loss) (e) . . . . . . . . (1.1) (2.0) (4.3) 1.1
<FN>
- ---------
Notes:
(a) Bally's New Orleans commenced operation of its riverboat casino
facility on July 7, 1995.
(b) On February 9, 1995, Bally's Mississippi entered into a venture
agreement with Lady Luck Gaming Corporation ("Lady Luck") under
which Bally's Mississippi has relocated its dockside casino from
Mhoon Landing in Tunica, Mississippi to Lady Luck's site in
Robinsonville, Mississippi (a site which, upon its expected
reopening in December 1995, will be the casino closest to Memphis,
Tennessee), where Lady Luck constructed a 238-room hotel. In
connection with the relocation, Bally's Mississippi suspended
operations at Mhoon Landing on February 9, 1995. Effective April
1, 1995, Bally's Mississippi contributed its dockside casino and
related assets to the venture (resulting in the acquisition of a 58%
equity interest in the venture), and Lady Luck contributed its hotel
and related assets to the venture.
(c) Includes interest and other income for each of the three and nine
month periods ended September 30, 1995 and 1994.
(d) Includes amortization of pre-opening costs totalling $2.5 million
at Bally's New Orleans for each of the three and nine months ended
September 30, 1995.
(e) Includes amortization of pre-opening costs totalling $3.3 million
at Bally's Mississippi for the nine months ended September 30, 1994.
</FN>
</TABLE>
Comparison of the three months ended September 30, 1995 and 1994
Revenues of the Company for the third quarter of 1995 were
$287.1 million compared to $261.3 million for the 1994 quarter, an
increase of $25.8 million (10%). Operating income of the Company for
the third quarter of 1995 was $58.9 million compared to $52.2 million
for the 1994 quarter, an increase of $6.7 million (13%). These
increases principally reflect improved operating results at both of the
Company's Atlantic City casino hotel resorts. In addition, Bally's New
Orleans commenced operation of its riverboat casino facility in July
1995.
Atlantic City
Revenues of Bally's Park Place for the third quarter of 1995 were
$119.0 million compared to $111.6 million for the 1994 quarter, an
increase of $7.4 million (7%). Casino revenues for the 1995 quarter
were $102.5 million compared to $94.8 million in 1994, an increase of
$7.7 million (8%). Slot revenues increased $6.9 million (10%) due to a
14% increase in slot handle (volume) offset, in part, by a decline in
the win percentage from 8.8% in the 1994 quarter to 8.5% in 1995. Table
game revenues, excluding poker, increased $1.0 million (4%) due to an 8%
increase in the drop (amount wagered) offset, in part, by a decrease in
the hold percentage from 17.1% in the 1994 quarter to 16.5% in 1995.
Other casino revenues decreased $.2 million (14%) primarily due to a
decrease in poker and keno revenues. Rooms revenue decreased $1.0
million (12%) due to increased complimentaries in 1995 causing reduced
occupancy of rooms by paying customers. Operating income of Bally's
Park Place for the third quarter of 1995 was $38.7 million compared to
$34.2 million for the 1994 quarter, an increase of $4.5 million (13%) as
the aforementioned 7% revenue increase was offset, in part, by a 4%
increase in operating expenses. Casino expenses increased $2.2 million
(6%) due to expanded marketing and promotional efforts and increased
gaming taxes associated with higher gaming revenues. Selling, general
and administrative expenses increased $2.1 million (24%) primarily due
to increased legal, promotional, insurance, advertising and other costs.
Depreciation and amortization expense decreased $.6 million (7%)
primarily due to the 1994 quarter including accelerated depreciation
associated with a slot machine upgrade and certain assets becoming fully
depreciated in 1994.
Revenues of The Grand for the third quarter of 1995 were $78.6 million
compared to $72.0 million for the 1994 quarter, an increase of
$6.6 million (9%). Casino revenues for the 1995 quarter were
$72.6 million compared to $65.8 million in 1994, an increase of
$6.8 million (10%). Slot revenues increased $5.1 million (13%) due to
a 15% increase in slot handle offset, in part, by a decline in the win
percentage from 8.6% in the 1994 quarter to 8.3% in 1995. On average,
The Grand had 431 (31%) more slot machines in the third quarter of 1995
than in 1994. Table game revenues, excluding poker, increased $.2
million (1%) as a 6% increase in the drop was substantially offset by a
decrease in the hold percentage from 15.9% in the 1994 quarter to 15.1%
in 1995. Poker, horse race simulcasting and keno, which commenced in
April 1995, contributed $1.5 million to casino revenues in the 1995
quarter. Operating income of The Grand for the third quarter of 1995
was $16.7 million compared to $11.8 million for the 1994 quarter, an
increase of $4.9 million (42%) as the aforementioned 9% revenue increase
was offset, in part, by a 3% increase in operating expenses. Operating
expenses increased primarily due to a $2.9 million (8%) increase in
casino expenses related to promotional expenses and gaming taxes
associated with the aforementioned increase in gaming activity,
partially offset by a $1.5 million (18%) decrease in selling, general
and administrative expenses primarily due to a reduction in advertising
costs.
Management believes that the increased number of slot machines in
Atlantic City has caused and will continue to cause intense promotional
efforts to attract slot players as both the Company's Atlantic City
casinos and their competitors continue to seek to expand their share of
slot revenues and maximize the utilization of their slot machines.
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 decline further. However, management believes its
Atlantic City casinos are well-positioned to compete for additional
casino revenues by continuing to offer attractive promotional slot and
table game programs and special events and by enhancing the appearance
and comfort of their gaming space. In 1994, Bally's Park Place expanded
its casino floor from 68,100 to 71,400 square feet and added another
8,700 square feet of gaming space to offer horse race simulcasting and
keno, and to relocate and expand its poker operations. 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 additional slot stools and aisle space. During the
second quarter of 1994, The Grand reconfigured its casino floor,
widening the aisles, adding additional slot stools and replacing the
majority of its slot machines with state-of-the-art machines with
embedded bill acceptors. In April 1995, The Grand completed an
expansion which increased its casino floor and other gaming space by
nearly 30% to accommodate approximately 400 additional slot machines,
poker, horse race simulcasting and keno. In November 1995, The Grand
completed a 1,500-seat arena for headline entertainment, sports events
and production shows. Bally's Park Place and The Grand have also
announced plans for further expansions (see "Liquidity and capital
resources").
Las Vegas
Revenues of Bally's Las Vegas for the third quarter of 1995 were $69.9
million compared to $68.8 million for the 1994 quarter, an increase of
$1.1 million (2%). Casino revenues for the 1995 quarter were $36.4
million compared to $36.2 million for 1994, an increase of $.2 million
(1%). Slot revenues increased $.1 million (less than 1%) due to a 1%
increase in slot handle, as the win percentage of 6.3% for the 1995
quarter remained unchanged from 1994. Table game revenues decreased $.1
million (less than 1%) due to a decline in the hold percentage from
16.7% in the 1994 quarter to 15.5% in 1995 offset, in part, by a 7%
increase in the drop. Other casino revenues increased $.2 million (13%).
Rooms revenue increased $.2 million (2%) due primarily to a higher
average room rate, and food and beverage revenues increased $.8 million
(9%) primarily due to increased convention business. Operating income
of Bally's Las Vegas for the third quarter of 1995 was $9.2 million
compared to $9.7 million for the 1994 quarter, a decrease of $.5 million
(5%) as a 3% increase in operating expenses exceeded the aforementioned
2% revenue increase. Depreciation and amortization expense increased
$1.1 million (20%) due to recently completed capital improvements, and
casino operating expenses increased $.5 million (3%) due principally to
increased promotional and special event costs.
Bally's Las Vegas competes principally with other casino hotels and
casinos located in Las Vegas. Currently, there are approximately 30
major casino hotels located on or near the Strip, approximately 10 major
casino hotels located in the Las Vegas downtown area and several major
facilities located elsewhere in the Las Vegas area. In addition, there
have been several public announcements concerning major casino hotel
projects in Las Vegas (certain of which have commenced construction)
which, if and when opened, will further expand capacity. Management
believes that the additional casino and hotel room capacity resulting
from the opening of new casino hotels has 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 recently completed an extensive capital
improvement program, including a renovation of its main tower during
1993, an automated walkway system with related frontage area
improvements in July 1994, and a monorail system connecting Bally's Las
Vegas with the MGM Grand and a redesign of the lower-level retail
shopping mall in June 1995. In addition, Bally's Las Vegas completed a
renovation of the south tower hotel rooms and corridors in August 1995
and a relocation of the race and sports book in September 1995, adding
approximately 7,500 square feet of gaming space. Bally's Grand, Inc.
has also announced its intention to develop a new casino hotel resort
(see "Liquidity and capital resources").
New Orleans
Bally's New Orleans commenced operation of its riverboat casino facility
in New Orleans, Louisiana on July 7, 1995. Bally's New Orleans operates
out of South Shore Harbor on Lake Pontchartrain, about eight miles from
the French Quarter. The riverboat accommodates up to 2,500 passengers
and features a 30,000 square-foot casino (the maximum size currently
allowed under Louisiana law) on the two upper decks of the vessel.
Onshore facilities include a 34,000 square-foot terminal building that
houses a buffet restaurant, cocktail lounge and waiting area. The
Company owns an approximate 50% interest in Belle of Orleans, L.L.C.
(the entity that owns Bally's New Orleans) and receives a management fee
based upon operating results. Revenues of Bally's New Orleans for the
third quarter of 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 New Orleans for the third
quarter of 1995 was $2.7 million, including the amortization of $2.5
million of pre-opening costs (a similar amount of pre-opening costs is
also being amortized in the fourth quarter of 1995).
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all but one of which have been granted),
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). In addition to the riverboat casinos, Bally's New Orleans
competes with a land-based casino, which commenced operations at a
temporary location in May 1995 and is expected to be the largest land-
based casino in the United States when it moves to a permanent location
in mid-1996.
Mississippi
On February 9, 1995, Bally's Mississippi entered into a venture
agreement with Lady Luck under which Bally's Mississippi has relocated
its dockside casino from Mhoon Landing in Tunica, Mississippi to Lady
Luck's site in Robinsonville, Mississippi (a site which, upon its
expected reopening in December 1995, will be the casino closest to
Memphis, Tennessee), where Lady Luck constructed a 238-room hotel. In
connection with the relocation, Bally's Mississippi suspended operations
at Mhoon Landing on February 9, 1995. Effective April 1, 1995, Bally's
Mississippi contributed its dockside casino and related assets to the
venture, and Lady Luck contributed its hotel and related assets to the
venture. Bally's Mississippi is the majority owner and general manager
(through an affiliate) of the venture; accordingly, Lady Luck's equity
in the venture is classified as "minority interests" in the condensed
consolidated balance sheet. The Robinsonville site is presently being
developed to include a restaurant, an entertainment lounge,
administrative facilities and additional parking prior to the
commencement of casino operations. Revenues of Bally's Mississippi for
the third quarter of 1995 were $.8 million, which resulted from the
operation of the hotel. Operating loss of Bally's Mississippi for the
third quarter of 1995 was $1.1 million. In addition to costs related to
hotel operations during the third quarter of 1995, operating expenses of
Bally's Mississippi include land and equipment rental expense and other
general and administrative costs incurred while the Robinsonville site
is developed. Revenues and operating loss of Bally's Mississippi at its
Mhoon Landing site for the third quarter of 1994 were $7.3 million and
$2.0 million, respectively.
Mississippi gaming law does not limit the number of gaming licenses that
may be granted. In particular, 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. As of
October 31, 1995, seven gaming facilities were operating in this market,
three of which are located in proximity to the Robinsonville site.
These facilities, as well as any others which subsequently commence
operations there (construction of a casino hotel resort recently
commenced at a site somewhat closer to Memphis than Bally's
Mississippi), present significant competition for Bally's Mississippi.
Gain on sales of marketable securities
During the three months ended September 30, 1995 and 1994, the Company
sold certain marketable securities which resulted in pre-tax gains
totalling $.2 million and $3.2 million, respectively.
Interest expense
Interest expense, net of capitalized interest, was $33.6 million for the
third quarter of 1995 compared to $32.3 million for the 1994 quarter, an
increase of $1.3 million (4%) due principally to a higher average level
of debt.
Income taxes
For the three months ended September 30, 1995 and 1994, the effective
rates of the income tax provision on income from continuing operations
before income taxes and minority interests differed from the U.S.
statutory tax rate (35%) due principally to state income taxes and
nondeductible expenses (including goodwill amortization) offset, in
part, by adjustments of prior years' taxes.
Comparison of the nine months ended September 30, 1995 and 1994
Revenues of the Company for the nine months ended September 30, 1995
were $760.5 million compared to $712.0 million for the 1994 period, an
increase of $48.5 million (7%). Operating income of the Company for the
nine months ended September 30, 1995 was $145.3 million compared to
$113.6 million for the 1994 period, an increase of $31.7 million (28%).
These increases principally reflect improved operating results at both
of the Company's Atlantic City casino hotel resorts offset, in part, by
the temporary cessation of casino operations at Bally's Mississippi in
1995. In addition, Bally's New Orleans commenced operation of its
riverboat casino facility in July 1995.
Atlantic City
Revenues of Bally's Park Place for the nine months ended September 30,
1995 were $315.3 million compared to $284.0 million for the 1994 period,
an increase of $31.3 million (11%). Revenues during the first quarter
of 1994 were negatively affected by severe weather in the northeastern
United States. Casino revenues for the 1995 period were $273.2 million
compared to $241.4 million in 1994, an increase of $31.8 million (13%).
Slot revenues increased $26.8 million (16%) due to a 21% increase in
slot handle offset, in part, by a decline in the win percentage from
8.9% in the 1994 period to 8.5% in 1995. Table game revenues, excluding
poker, increased $3.8 million (5%) due to a 9% increase in the drop
offset, in part, by a decrease in the hold percentage from 17.0% in the
1994 period to 16.4% in 1995. Other casino revenues increased $1.2
million (26%) due primarily to the introduction of horse race
simulcasting and keno in June 1994. Rooms revenue decreased $1.8
million (9%) due to increased complimentaries in 1995 causing reduced
occupancy of rooms by paying customers. Other revenues increased $1.7
million (23%) principally due to increased special event revenues and
interest income. Operating income of Bally's Park Place for the nine
months ended September 30, 1995 was $91.2 million compared to
$70.5 million for the 1994 period, an increase of $20.7 million (29%) as
the aforementioned 11% revenue increase was offset, in part, by a 5%
increase in operating expenses. Casino expenses increased $9.0 million
(9%) due to expanded marketing and promotional efforts, increased gaming
taxes associated with higher gaming revenues and an increase in
salaries, benefits and other costs associated with the operation of
horse race simulcasting and keno in 1995. Rooms expense decreased $.7
million (9%) as the cost associated with complimentary room occupancy
(which increased) is classified as casino expenses. Other operating
expenses increased $2.1 million (5%) principally due to increased real
estate taxes and entertainment costs. Selling, general and
administrative expenses increased $3.0 million (12%) primarily due to
increased legal, advertising, promotional and insurance costs offset, in
part, by a gain on the settlement of a supplemental executive retirement
plan in 1995. Depreciation and amortization expense decreased $2.1
million (9%) primarily due to the 1994 period including accelerated
depreciation associated with the aforementioned slot machine upgrade and
certain assets becoming fully depreciated in 1994.
Revenues of The Grand for the nine months ended September 30, 1995 were
$212.2 million compared to $186.8 million for the 1994 period, an
increase of $25.4 million (14%). As described previously, revenues
during the first quarter of 1994 were negatively affected by severe
weather in the northeastern United States. Casino revenues for the 1995
period were $196.5 million compared to $170.4 million in 1994, an
increase of $26.1 million (15%). Slot revenues increased $18.8 million
(18%) due to a 25% increase in slot handle offset, in part, by a decline
in the win percentage from 8.8% in the 1994 period to 8.4% in 1995. On
average, The Grand had 284 (20%) more slot machines in the 1995 period
than in 1994. Table game revenues, excluding poker, increased $4.8
million (7%) due to a 4% increase in the drop and an increase in the
hold percentage from 16.0% in the 1994 period to 16.4% in 1995. Poker,
horse race simulcasting and keno, which commenced in April 1995,
contributed $2.5 million to casino revenues. Other revenues decreased
$.4 million (7%) due primarily to an adjustment to the reserve for
unclaimed gaming chips and tokens in the first quarter of 1994.
Operating income of The Grand for the nine months ended September 30,
1995 was $35.8 million compared to $15.7 million for the 1994 period, an
increase of $20.1 million as the aforementioned 14% revenue increase was
offset, in part, by a 3% increase in operating expenses. Operating
expenses increased primarily due to an $8.0 million (8%) increase in
casino expenses related to promotional expenses and gaming taxes
associated with the aforementioned increase in gaming activity,
partially offset by a $1.0 million (7%) decrease in depreciation and
amortization expense due to accelerated depreciation in 1994 of certain
slot machines associated with the aforementioned casino floor
reconfiguration and an $.8 million (11%) decrease in food and beverage
expense.
Las Vegas
Revenues of Bally's Las Vegas for the nine months ended September 30,
1995 were $209.6 million compared to $202.6 million for the 1994 period,
an increase of $7.0 million (3%). Casino revenues for the 1995 period
were $101.3 million compared to $101.0 million for 1994, an increase of
$.3 million (less than 1%). Slot revenues increased $3.6 million (8%)
due to a 13% increase in slot handle offset, in part, by a decline in
the win percentage from 6.4% in the 1994 period to 6.1% in 1995.
Management believes the increase in slot handle was primarily
attributable to an increase in walk-in business resulting from the
operation of the automated walkway system and related improvements
throughout all of the 1995 period and increased marketing and
promotional efforts. Table game revenues decreased $2.9 million (6%)
due to a decline in the hold percentage from 16.6% in the 1994 period to
14.7% in 1995 offset, in part, by a 6% increase in the drop. Other
casino revenues decreased $.4 million (7%). Rooms revenue increased $.8
million (2%) primarily due to a higher average room rate. Food and
beverage revenues increased $3.5 million (13%) primarily due to
increased convention business. Other revenues increased $2.4 million
(8%) primarily due to Bally's Las Vegas operating two retail gift shops
in 1995 which were operated by a third party in 1994 and an increase in
interest income due principally to higher average levels of invested
cash in 1995. Operating income of Bally's Las Vegas for the nine months
ended September 30, 1995 was $30.3 million compared to $30.5 million for
the 1994 period, a decrease of $.2 million (1%) as a 4% increase in
operating expenses exceeded the aforementioned 3% revenue increase.
Depreciation and amortization expense increased $2.4 million (16%) due
to the recent capital improvements. Casino operating expenses increased
$1.9 million (3%) due principally to increased promotional and special
event costs. Other operating expenses increased $1.6 million (5%) due,
in part, to the cost of operating the aforementioned gift shops in 1995
and additional costs associated with the operation of the automated
walkway system and related improvements throughout all of the 1995
period and the monorail system commencing in June 1995. In addition,
food and beverage expenses increased $1.3 million (5%) due to the
aforementioned increase in volume from convention-related business.
New Orleans
As described previously, Bally's New Orleans commenced operation of its
riverboat casino facility in New Orleans, Louisiana on July 7, 1995.
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 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 (a similar amount of pre-opening costs
is also being amortized in the fourth quarter of 1995).
Mississippi
As described previously, Bally's Mississippi entered into a venture
agreement with Lady Luck under which Bally's Mississippi has relocated
its dockside casino from Mhoon Landing in Tunica, Mississippi to Lady
Luck's site in Robinsonville, Mississippi (a site which, upon its
expected reopening in December 1995, will be the casino closest to
Memphis, Tennessee), where Lady Luck constructed a 238-room hotel.
Revenues of Bally's Mississippi for the nine months ended September 30,
1995 were $2.3 million, which includes casino revenues of $1.0 million
at Mhoon Landing (for the period January 1, 1995 through February 9,
1995) and rooms revenue of $1.3 million at Robinsonville (for the second
and third quarters of 1995). Operating loss of Bally's Mississippi for
the nine months ended September 30, 1995 was $4.3 million. In addition
to costs related to casino and hotel operations during 1995, operating
expenses of Bally's Mississippi include land and equipment rental
expense and other general and administrative costs incurred while the
Robinsonville site is developed. Revenues and operating income of
Bally's Mississippi at its Mhoon Landing site for the nine months ended
September 30, 1994 were $35.2 million and $1.1 million, respectively.
Operating income for the 1994 period included amortization of pre-
opening costs of $3.3 million.
Gain on sales of marketable securities
During the nine months ended September 30, 1995 and 1994, the Company
sold certain marketable securities which resulted in pre-tax gains
totalling $1.3 million and $3.2 million, respectively.
Interest expense
Interest expense, net of capitalized interest, was $98.2 million for the
nine months ended September 30, 1995 compared to $97.4 million in the
1994 period, an increase of $.8 million (1%) due principally to a higher
average level of debt.
Income taxes
For the nine months ended September 30, 1995 and 1994, the effective
rates of the income tax provision on income from continuing operations
before income taxes and minority interests differed from the U.S.
statutory tax rate (35%) due principally to state income taxes and
nondeductible expenses (including goodwill amortization) offset, in
part, by adjustments of prior years' taxes.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Parent Company
Bally is a holding company without operations of its own. Sources of
cash available to Bally are generally limited to existing cash balances
($45.2 million at September 30, 1995), management fees or cost
allocations to subsidiaries, receipts pursuant to tax sharing
agreements, dividends from subsidiaries, asset sales and issuing new
securities. On October 3, 1995, Bally received approximately $167
million of net proceeds from the issuance of the PRIDES.
Each of Bally's principal operating subsidiaries presently has 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 be paid to Bally. As of September 30,
1995, approximately $8 million was available for the payment of
dividends to Bally pursuant to this net income test. Dividends to Bally
from subsidiaries other than Bally's Park Place are not expected over
the next twelve months.
Bally's corporate cash operating costs for the foreseeable future are
expected to be recovered substantially by cost allocations to, and
management fees from, its subsidiaries. Except for a $23 million
payment made in October 1995 in settlement of various prior years'
income tax matters, over the next year Bally expects to substantially
recover its cash requirements for income taxes from subsidiaries
pursuant to tax sharing agreements. Bally also has annual debt service
requirements and preferred stock dividend payments of approximately $31
million. Bally believes it will be able to satisfy its cash
requirements over the next twelve months.
The Spin-off of Bally's Health & Tennis is expected to be completed on
or about January 5, 1996 by distributing all of the issued and
outstanding common stock of Bally's Health & Tennis owned by the Company
to Bally's stockholders. As a result, stockholders' equity of the
Company will be reduced by the amount of its investment in Bally's
Health & Tennis and by a portion of income taxes receivable from Bally's
Health and Tennis to the extent any amounts are forgiven, and the
Company's debt to equity ratio will increase accordingly. See
"Discontinued operations" in Notes to condensed consolidated financial
statements.
Subsidiaries
Casino Holdings
Casino Holdings. Casino Holdings is also a holding company without
operations of its own. Sources of cash available to Casino Holdings are
generally limited to existing cash balances ($12.4 million at September
30, 1995), advances or contributions from Bally and dividends,
management fees and loan repayments 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. Dividends from Bally's Park
Place are limited to funds available under Bally's Park Place's
aforementioned net income test, which is available to be paid to Bally
through Casino Holdings. Bally's Grand, Inc. is presently not expected
to pay dividends over the next twelve months. To the extent Bally's New
Orleans and Bally's Mississippi generate unrestricted cash flows, each
subsidiary is expected to pay management fees to Casino Holdings and
repay Casino Holdings for project costs and working capital requirements
funded by Casino Holdings.
Casino Holdings has no scheduled interest or principal payments on the
Senior Discount Notes until 1998 but expects to continue to incur costs
and obligations in the pursuit of new gaming ventures. Bally's New
Orleans may require additional funding from Casino Holdings to meet its
debt service requirements over the next twelve months. 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 such cash requirements
from a combination of Bally and third party sources (including banks,
suppliers and capital markets) and, as a result, Casino Holdings
believes it will be able to satisfy its cash needs over the next twelve
months.
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,
1995 are not significant. Management plans to make capital expenditures
of approximately $18 million over the next twelve months for the
expansion of the theatre and bar area, completion of the penthouse floor
in the hotel tower, restaurant and kitchen renovations and other
improvements and equipment necessary to maintain Bally's Park Place in
first-class condition. As of September 30, 1995, 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 the
aforementioned capital expenditure requirements and pay dividends over
the next twelve months out of existing cash balances ($15.6 million at
September 30, 1995) and cash flow from operations. For the nine months
ended September 30, 1995 and the year ended December 31, 1994, cash
provided by operating activities at Bally's Park Place totalled $46.0
million and $68.4 million, respectively, and its operating margin
(before depreciation and amortization) was 36% and 32%, respectively.
In addition, Bally's Park Place has announced its intention to develop
a western-themed casino on Boardwalk property it owns adjacent to its
existing facility. The complex is presently planned to include
approximately 60,000 to 80,000 square feet of casino space and cost
between $80 and $100 million, with groundbreaking expected in early
1996. The planned expansion is subject to regulatory approval. Bally's
Park Place intends to finance the expansion through cash generated by
operations and utilization of its line of credit, which the Company may
seek to amend to provide for additional financing.
Bally's Las Vegas. Bally's Grand, Inc. has no scheduled principal
payments on its indebtedness outstanding until 2003. Management plans
to make capital expenditures of approximately $18 million at Bally's Las
Vegas over the next twelve months for a slot machine upgrade, the
renovation of certain penthouse suites, and other improvements and
equipment necessary to maintain the casino hotel resort in first-class
condition. The Company believes that Bally's Grand, Inc. will be able
to satisfy its debt service and the aforementioned capital expenditure
requirements over the next twelve months out of existing cash balances
($60.8 million at September 30, 1995) and cash flow from operations.
For the nine months ended September 30, 1995 and the year ended December
31, 1994, cash provided by operating activities at Bally's Las Vegas
totalled $24.8 million and $28.0 million, respectively, and its
operating margin (before depreciation and amortization) was 23% for both
periods.
In May 1995, Bally's Grand, Inc. announced its intention to develop a
separate casino hotel resort with a Paris, France theme (the "Paris
Casino-Resort") on approximately 24 acres of land situated on the strip
adjacent to Bally's Las vegas. Bally's Grand, Inc. expects to finalize
development plans for the Paris Casino-Resort by the end of 1995, at
which time construction costs will be better known and third-party
financing for the project will be sought. The cost of the project,
exclusive of the value of land already owned by Bally's Grand, Inc., is
presently estimated to be $290 million.
Bally's New Orleans. Bally's New Orleans began operating a riverboat
casino facility on Lake Pontchartrain in July 1995. A total of
approximately $60 million was required to construct and equip the
riverboat and to develop related landside improvements. The project
cost was partially funded by two five-year term loans totalling
approximately $30 million, and Casino Holdings funded the remaining
project cost. Bally's New Orleans has debt service requirements
totalling approximately $8 million over the next twelve months, which it
expects to satisfy out of cash flow from operations and, if required,
funding from Casino Holdings.
Bally's Mississippi. As described previously, Bally's Mississippi
entered into a venture agreement with Lady Luck under which Bally's
Mississippi has relocated its dockside casino from Mhoon Landing in
Tunica, Mississippi to Lady Luck's site in Robinsonville, Mississippi (a
site which, upon its expected reopening in December 1995, will be the
casino closest to Memphis, Tennessee), where Lady Luck constructed a
238-room hotel. The Robinsonville site is presently being developed to
include a restaurant, an entertainment lounge, administrative facilities
and additional parking prior to the commencement of casino operations.
In October 1995, Bally's Mississippi entered into an agreement for a
construction loan generally not to exceed $10 million, which converts
into a term loan that matures in March 1998. The construction loan
provides for interest on borrowings at the rate of 2% above prime and is
guaranteed by Bally. Through September 30, 1995, Casino Holdings has
funded approximately $7 million of Bally's Mississippi's development
costs at the Robinsonville site, and proceeds from the construction loan
are expected to substantially cover remaining development costs.
Other. In April 1995, a subsidiary of Casino Holdings obtained a
$15 million unsecured loan, the proceeds of which were used to repay its
obligation to Bally for shares of Bally's Grand, Inc. common stock
purchased previously and to purchase additional shares of Bally's Grand,
Inc. common stock from Bally. The loan matures in April 1996. Bally
expects to make funds available to this subsidiary to enable it to repay
this loan.
The Grand
The Grand has no scheduled principal payments under its public
indebtedness until 2003. Management expects to make capital
expenditures of approximately $7 million over the next twelve months for
the aforementioned 1,500-seat entertainment arena (completed in November
1995), refurbishment of suites, additional slot machines and certain
other public area improvements necessary to maintain The Grand in first-
class condition. As of September 30, 1995, 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 the aforementioned capital
expenditure requirements over the next twelve months out of existing
cash balances ($36.6 million at September 30, 1995) and cash flow from
operations. For the nine months ended September 30, 1995 and the year
ended December 31, 1994, cash provided by operating activities at The
Grand totalled $33.4 million and $20.6 million, respectively, and its
operating margin (before depreciation and amortization) was 23% and 17%,
respectively.
In addition, The Grand has filed plans with local authorities seeking
approval for construction of a 300-room hotel tower, including meeting
rooms, a restaurant and other related amenities, all on land leased from
Bally's Park Place adjacent to The Grand. The planned expansion of The
Grand is subject to final approval from various governmental entities
and the receipt of third-party consents, including the receipt of Casino
Reinvestment Development Authority investment obligation credits.
Exclusive of such credits, the planned expansion is presently expected
to cost approximately $40 million, with groundbreaking expected in early
1996. The Grand intends to finance the expansion through cash generated
by operations and utilization of its line of credit, which the Company
may seek to amend to provide for additional financing.
<PAGE>
Bally Entertainment Corporation
PART II. OTHER INFORMATION
Item 2. Changes in securities
See "long-term debt" in Notes to Condensed Consolidated
Financial Statements of this Form 10-Q for a description of the
8% Debentures issued by the Company in July 1995 in exchange
for 6% Debentures.
See "Issuance of equity securities" in Notes to Condensed
Consolidated Financial Statements of this Form 10-Q for a
description of the PRIDES issued by the Company in September
1995.
Item 5. Other information
The Company has entered into an amendment (the "Amendment") to
the Rights Agreement, dated as of December 4, 1986 (the "Rights
Agreement"), between the Company and Chemical Bank, N.A., as
successor to Manufacturers Hanover Trust Company. The
Amendment is effective November 15, 1995.
Pursuant to the Amendment, the rights issued pursuant to the
Rights Agreement (the "Rights"), unless earlier redeemed by the
Board of Directors, become exercisable upon the close of
business on the day which is the earliest of (i) the tenth day
following a public announcement that a person or group of
affiliated or associated persons, with certain exceptions, has
acquired beneficial ownership of 10% or more of the outstanding
common stock of the Company (an "Acquiring Person"), (ii) the
tenth business day (or such later date as may be determined by
the Board of Directors prior to such time as any person or
group of affiliated or associated persons becomes an Acquiring
Person) after the date of the commencement or announcement of
a person's or group's intention to commence a tender or
exchange offer (with certain exceptions) the consummation of
which would result in the ownership of 20% or more of the
Company's outstanding common stock and (iii) the tenth day
after the date on which any person becomes a "Triggering 5%
Stockholder" (as defined in the Amendment). An Acquiring
Person does not include (A) the Company, (B) any subsidiary of
the Company, (C) any employee benefit plan of the Company or of
any subsidiary of the Company or any person or entity
organized, appointed or established by the Company for or
pursuant to the terms of any such plan or (D) any director of
the Company holding office as of the close of business on
November 15, 1995 and any immediate family member of, or person
controlled by, any such director.
The Amendment also provides that unless the Rights are earlier
redeemed, if a person or group (with certain exceptions)
becomes an Acquiring Person or a Triggering 5% Stockholder,
proper provision will be made so that each holder of record of
a Right, other than the Acquiring Person or Triggering 5%
Stockholder (whose Rights will thereupon become null and void),
will thereafter have the right to receive, upon payment of the
exercise price of the Rights, that number of shares of the
Company's common stock (or other securities or property) having
a market value at the time of the transaction equal to two
<PAGE>
Bally Entertainment Corporation
PART II. OTHER INFORMATION--(continued)
times the exercise price. A "Triggering 5% Stockholder" is
defined in the Amendment generally as a person or group of
affiliated or associated persons holding 5% or more of the
Company's common stock and who have been found to have violated
any state gaming, casino or similar statute or regulation in
connection with the stockholder's interest in the Company, to
be unsuited or unqualified under any such statute or regulation
to own 5% or more of the common stock or to have acquired
beneficial ownership of a percentage ownership of the common
stock in excess of the percentage ownership deemed by a
governmental authority to constitute control of the Company
without the requisite prior approvals from the applicable
gaming authorities.
The foregoing description of the Amendment is qualified by
reference to an exhibit to the Company's filing of Form 8-A/A
(filed November 14 1995), which contains as an exhibit the
entire Amendment.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
3 (i)-4 Certificate of Designations, Preferences, Rights
and Limitations of Preferred Redeemable Increased
Dividend Equity Securities[SM], for 8% PRIDES[SM],
Convertible Preferred Stock, par value $1.00 per
share, of Bally Entertainment Corporation.
3 (i)-5 Certificate of Correction to the Certificate of
Designations, Preferences, Rights and Limitations
of Preferred Redeemable Increased Dividend Equity
Securities[SM], for 8% PRIDES[SM], Convertible
Preferred Stock, par value $1.00 per share, of
Bally Entertainment Corporation
27 Financial Data Schedule
-----------
[SM] Service mark of Merrill Lynch & Co., Inc.
(b) Reports on Form 8-K:
Date Item Financial statements
-------------- --------- --------------------
July 21, 1995 #5 and #7 None
July 26, 1995 #5 and #7 None
September 19, 1995 #5 and #7 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 13, 1995
EXHIBIT 3 (i)-4
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
Preferred Redeemable Increased Dividend Equity
Securities[SM], 8% PRIDES[SM], Convertible Preferred Stock
of
BALLY ENTERTAINMENT CORPORATION
______________________________
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
______________________________
BALLY ENTERTAINMENT CORPORATION, a corporation
organized and existing under the laws of the State of
Delaware (the "Corporation"), hereby certifies that, under
(i) authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of the Corporation,
as amended to date, (ii) the provisions of Sections 141(c)
and 151 of the General Corporation Law of the State of
Delaware, and (iii) resolutions adopted by the Board of
Directors by unanimous written consent on August 1, 1995,
the Pricing Committee of the Board of Directors duly
adopted the following resolutions by unanimous written
consent on September 27, 1995:
RESOLVED, that under authority conferred
upon the Board of Directors by the Restated Certifi-
cate of Incorporation, as amended (the "Restated
Certificate of Incorporation"), and conferred by the
Board of Directors on the Pricing Committee of the
Board of Directors, the Pricing Comittee of the Board
of Directors hereby authorizes the issuance of up to
15,525,000 shares of authorized and unissued stock,
par value $1.00, of the Corporation, and hereby fixes
the designation, powers, preferences and relative
participating, optional or other special rights, and
the qualifications, limitations or restrictions
thereof, of such shares (including the voting provi-
sions determined by the Board of Directors), in addi-
- -------------------------
[SM] Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
tion to those set forth in the Restated Certificate of
Incorporation, as follows, to be set forth in a
certificate of designations (the "Certificate of
Designations"):
Section 1. Designation and Size of Issue;
Ranking. (a) The distinctive designation of the series of
Preferred Stock shall be "Preferred Redeemable Increased
Dividend Equity Securities[SM], 8% PRIDES[SM], Convertible
Preferred Stock" (the "PRIDES"). The number of shares
constituting the PRIDES shall be 15,525,000 shares. Each
share of PRIDES shall have a stated liquidation value of
$11.125.
(b) Any shares of the PRIDES which at any
time have been redeemed for, or converted into, Common
Stock, par value $.66 2/3, of the Corporation (the "Common
Stock") or otherwise reacquired by the Corporation shall,
after such redemption, conversion of other acquisition,
resume the status of authorized and unissued shares of
preferred stock, par value $1.00 of the Corporation (the
"Preferred Stock"), without designation as to series until
such shares are once more designated as part of a particu-
lar series by the Board of Directors.
(c) The shares of PRIDES shall rank on a
parity, both as payment of dividends and distribution of
assets upon liquidation, with any Preferred Stock issued by
the Corporation after the date of this Certificate of
Designations that by its terms ranks pari passu with the
PRIDES ("Parity Preferred Stock").
Section 2. Dividends. (a) The holders of
record of the shares of PRIDES shall be entitled to
receive, when and as declared by the Board of Directors out
of funds legally available therefor, cash dividends
("Preferred Dividends") from the date of the issuance of
the shares of PRIDES at the rate per annum of 8 percent of
the stated liquidation value per share (equivalent to $.89
per annum or $.2225 per quarter for each share of PRIDES),
payable quarterly in arrears, on each January 3, April 3,
July 3 and October 3 (each a "Dividend Payment Date") or,
if any such date is not a business day (as defined herein),
the Preferred Dividend due on such Dividend Payment Date
shall be paid on the next succeeding business day; provid-
ed, however, that, with respect to any dividend period
- ------------------------
[SM] Service Mark of Merrill Lynch & Co., Inc.
<PAGE>
during which a redemption occurs, the Corporation may, at
its option, declare accrued Preferred Dividends to, and pay
such Preferred Dividends on, the date fixed for redemption,
in which case such Preferred Dividends shall be payable to
the holders of shares of PRIDES as of the record date for
such dividend payment and shall not be included in the
calculation of the related PRIDES Call Price (as defined
herein). The first dividend period shall be from the date
of initial issuance of the shares of PRIDES to but exclud-
ing January 3, 1996 and the first Preferred Dividend shall
be payable on January 3, 1996. Preferred Dividends on
shares of PRIDES shall be cumulative and shall accumulate
from the date of the original issuance. Preferred Divi-
dends on shares of PRIDES shall cease to accrue from and
after the Mandatory Conversion Date (as defined herein) or
on and after the date of their earlier conversion or
redemption, as the case may be. Preferred Dividends shall
be payable to holders of record as they appear on the stock
register of the Corporation on such record date, not less
than 15 nor more than 60 days preceding the payment date
thereof, as shall be fixed by the Board of Directors.
Preferred Dividends payable on shares of PRIDES for any
period less than a full quarterly dividend period (or, in
the case of the first Preferred Dividend, from the date of
initial issuance of the shares of PRIDES to but excluding
the first Dividend Payment Date) shall be computed on the
basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed in any period less than one
month. Preferred Dividends shall accrue on a daily basis
whether or not there are funds of the Corporation legally
available for the payment of such dividends and whether or
not such Preferred Dividends are declared. Accrued but
unpaid Preferred Dividends shall cumulate as of the
Dividend Payment Date on which they first become payable,
but no interest shall accrue on accumulated but unpaid
Preferred Dividends.
(b) As long as shares of PRIDES are
outstanding, no dividends (other than dividends payable in
shares of, or warrants, rights or options exercisable for
or convertible into, shares of Common Stock or any other
capital stock of the Corporation ranking junior to the
shares of PRIDES as to the payment of dividends and the
distribution of assets upon liquidation (collectively, the
"Junior Stock") and cash in lieu of fractional shares of
such Junior Stock in connection with any such dividend)
shall be paid or declared in cash or otherwise, nor shall
any other distribution be made (other than a distribution
payable in Junior Stock and cash in lieu of fractional
shares of such Junior Stock in connection with any such
<PAGE>
distribution), on any Junior Stock unless (i) full divi-
dends on Preferred Stock (including the shares of PRIDES)
that does not constitute Junior Stock ("Senior Preferred
Stock") have been paid, or declared and set aside for
payment, for all dividend periods terminating at or before
the date of such Junior Stock dividend or distribution
payment to the extent such dividends are cumulative; (ii)
dividends in full for the current quarterly dividend period
have been paid, or declared and set aside for payment, on
all Senior Preferred Stock to the extent such dividends are
cumulative; (iii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or
set aside for all purchase, retirement, and sinking funds,
if any, for any Senior Preferred Stock; and (iv) the
Corporation is not in default on any of its obligations to
redeem any Senior Preferred Stock.
(c) As long as any shares of PRIDES are
outstanding, no shares of any Junior Stock may be pur-
chased, redeemed, or otherwise acquired by the Corporation
or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through
the issuance of other Junior Stock (and cash in lieu of
fractional shares of such Junior Stock in connection there-
with) or the purchase, redemption or other acquisition of
any Junior Stock with any Junior Stock (and cash in lieu of
fractional shares in connection therewith)) nor may any
funds be set aside or made available for any sinking fund
for the purchase or redemption of any Junior Stock unless:
(i) full dividends on Senior Preferred Stock have been
paid, or declared and set aside for payment, for all
dividend periods terminating at or before the date of such
purchase, redemption or other acquisition to the extent
such dividends are cumulative; (ii) dividends in full for
the current quarterly dividend period have been paid, or
declared and set aside for payment, on all Senior Preferred
Stock to the extent such dividends are cumulative; (iii)
the Corporation has paid or set aside all amounts, if any,
then or theretofore required to be paid or set aside for
all purchase, retirement and sinking funds, if any, for any
Senior Preferred Stock; and (iv) the Corporation is not in
default on any of its obligations to redeem any Senior
Preferred Stock.
(d) As long as any shares of PRIDES are
outstanding, dividends or other distributions may not be
declared or paid on any Parity Preferred Stock (other than
dividends or other distributions payable in Junior Stock
and cash in lieu of fractional shares of such Junior Stock
in connection therewith) and the Corporation may not
<PAGE>
purchase, redeem or otherwise acquire any Parity Preferred
Stock (except with any Junior Stock and cash in lieu of
fractional shares of such Junior Stock in connection
therewith), unless either (a) (i) full dividends on Senior
Preferred Stock have been paid, or declared and set aside
for payment, for all dividend periods terminating at or
before the date of such Parity Preferred Stock dividend,
distribution, purchase, redemption or other acquisition
payment to the extent such dividends are cumulative; (ii)
dividends in full or the current quarterly dividend period
have been paid, or declared and set aside for payment, on
all Senior Preferred Stock to the extent such dividends are
cumulative; (iii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or
set aside for all purchase, retirement, and sinking funds,
if any, for any Senior Preferred Stock; and (iv) the
Corporation is not in default on any of its obligations to
redeem any Senior Preferred Stock; or (b) with respect to
the payment of dividends only, any such dividends on the
Parity Preferred Stock shall be declared and paid pro rata
so that the amounts of any dividends declared and paid per
share of PRIDES and each other share of Senior Preferred
Stock shall in all cases bear to each other the same ratio
that accrued dividends (including any accumulation with
respect to unpaid dividends for prior dividend periods, if
such dividends are cumulative) per share of PRIDES and such
other shares of Parity Preferred Stock bear to each other.
Section 3. Conversion or Redemption. (a)
Unless previously either redeemed or converted at the
option of the holder in accordance with the provisions of
Section 3(c), on October 3, 1999 (the "Mandatory Conversion
Date"), each outstanding share of PRIDES shall mandatorily
convert ("Mandatory Conversion") into (i) shares of
authorized Common Stock at the PRIDES Common Equivalent
Rate (as defined herein) in effect on the Mandatory
Conversion Date and (ii) the right to receive cash in an
amount equal to all accrued and unpaid Preferred Dividends
on such share of PRIDES (other than previously declared
dividends payable to a holder of record as of a prior date)
from and after the Mandatory Conversion Date, whether or
not declared, out of funds legally available for the
payment of Preferred Dividends, subject to the right of the
Corporation to redeem the shares of PRIDES on or after
October 3, 1998 (the "Initial Redemption Date") and before
the Mandatory Conversion Date and subject to the conversion
of the shares of PRIDES at the option of the holder at any
time before the Mandatory Conversion Date. The "PRIDES
Common Equivalent Rate" shall initially be one (1) share of
Common Stock for each share of PRIDES and shall be subject
<PAGE>
to adjustment as set forth in Sections 3(d) and 3(e) below.
Shares of PRIDES shall cease to be outstanding from and
after the Mandatory Conversion Date. The Corporation shall
make such arrangements as it deems appropriate for the
issuance of certificates representing Shares of Common
Stock and for the payment of cash in respect of such
accrued and unpaid dividends, if any, or cash in lieu of
fractional shares of Common Stock, if any, in exchange for
and contingent upon surrender of certificates representing
shares of PRIDES, and the Corporation may defer the payment
of dividends on such shares of Common Stock and the voting
thereof until, and make such payment and voting contingent
upon, the surrender of certificates representing the shares
of PRIDES; provided that the Corporation shall give the
holders of the shares of PRIDES such notice of any such
actions as the Corporation deems appropriate and upon
surrender such holders shall be entitled to receive such
dividends declared and paid, if any, on such shares of
Common Stock subsequent to the Mandatory Conversion Date.
(b) (i) Shares of PRIDES are not redeem-
able by the Corporation before the Initial Redemption Date.
At any time and from time to time on or after the Initial
Redemption Date until immediately before the Mandatory
Conversion Date, the Corporation shall have the right to
redeem, in whole or in part, the outstanding shares of
PRIDES (subject to the notice provisions set forth in
Section 3(b)(iv)). Upon any such redemption, the Corpora-
tion shall deliver to each holder thereof, in exchange for
each such share of PRIDES subject to redemption, the
greater of (A) the number of shares of Common Stock equal
to the applicable PRIDES Call Price (as defined herein) in
effect on the redemption date divided by the Current Market
Price (as defined herein) of the Common Stock, determined
as of the second Trading Day (as defined herein) immediate-
ly preceding the Notice Date (as defined herein); or (B)
shares of Common Stock (the "Minimum Redemption
Rate" which is subject to adjustment in the same manner as
the PRIDES Optional Conversion Rate (as defined herein) is
adjusted). Preferred Dividends on the shares of PRIDES
shall cease to accrue on and after the date fixed for their
redemption.
(ii) The "PRIDES Call Price" of each share
of PRIDES shall be the sum of (x) $11.348 on and after the
Initial Redemption Date, to and including January 2, 1999;
$11.292 on and after January 3, 1999, to and including
April 2, 1999; $11.237 on and after April 3, 1999, to and
including July 2, 1999; $11.181 on and after July 3, 1999,
to and including September 2, 1999; and $11.125 (being the
<PAGE>
price at which shares of PRIDES are initially sold to the
public) on and after September 3, 1999, to and including
October 3, 1999; and (y) all accrued and unpaid Preferred
Dividends thereon to but not including the date fixed for
redemption (other than previously declared Preferred Divi-
dends payable to a holder of record as of a prior date).
If fewer than all the outstanding shares of PRIDES are to
be called for redemption, shares of PRIDES to be called
shall be selected by the Corporation from outstanding
shares of PRIDES not previously called by lot or pro rata
(as nearly as may be) or by any other method determined by
the Board of Directors in its sole discretion to be
equitable.
(iii) The term "Current Market Price" per
share of the Common Stock on any date of determination
means the lesser of (x) the average of the Closing Prices
(as defined herein) of the Common Stock for the 15 consecu-
tive Trading Days ending on and including such date of
determination, and (y) the Closing Price of the Common
Stock on such date of determination; provided, however,
that, with respect to any redemption of shares of PRIDES,
if any event resulting in an adjustment of the PRIDES
Common Equivalent Rate occurs during the period beginning
on the first day of such 15-day period and ending on the
applicable redemption date, the Current Market Price as
determined pursuant to the foregoing shall be appropriately
adjusted to reflect the occurrence of such event.
(iv) The Corporation shall provide notice
of any redemption of the shares of PRIDES to holders of
record of the shares of PRIDES to be called for redemption
not less than 30 nor more than 60 days before the date
fixed for redemption. Any such notice shall be provided by
mail, sent to the holders of record of the shares of PRIDES
to be called at each such holder's address as it appears on
the stock register of the Corporation, first-class postage
prepaid; provided, however, that failure to give such
notice or any defect therein shall not affect the validity
of the proceeding for redemption of any shares of PRIDES to
be redeemed except as to the holder to whom the Corporation
has failed to give such notice or whose notice was defec-
tive. A public announcement of any call for redemption
shall be made by the Corporation before, or at the time of,
the mailing of such notice of redemption. The term "Notice
Date" with respect to any notice given by the Corporation
in connection with a redemption of the shares of PRIDES
means the date on which first occurs either the public
announcement of such redemption or the commencement of
<PAGE>
mailing of the notice to the holders of shares of PRIDES,
in each case pursuant to this Section 3(b)(iv).
Each such notice shall state, as appropriate, the
following and may contain such other information as the
Corporation deems advisable:
(A) the redemption date;
(B) that all outstanding shares of
PRIDES are to be redeemed or, in the case of a
redemption of fewer than all outstanding shares
of PRIDES, the number of such shares held by such
holder to be redeemed;
(C) the PRIDES Call Price, the number
of shares of Common Stock deliverable upon
redemption of each share of PRIDES to be redeemed
and the Current Market Price used to calculate
such number of shares of Common Stock;
(D) the place or places where one or
more certificates for such shares of PRIDES are
to be surrendered for redemption; and
(E) that dividends on the shares of
PRIDES to be redeemed shall cease to accrue on
and after such redemption date (except as other-
wise provided herein).
(v) The Corporation's obligation to deliver
shares of Common Stock and provide funds upon redemption in
accordance with this Section 3(b) shall be deemed fulfilled
if, on or before a redemption date, the Corporation shall
deposit with a bank or trust company, or an affiliate of a
bank or trust company, having a combined capital and
surplus of at least $50,000,000 according to its last
published statement of condition, or shall set aside or
make other reasonable provision for the issuance of, such
number of shares of Common Stock as are required to be
delivered by the Corporation pursuant to this Section 3(b)
upon the occurrence of the related redemption of shares of
PRIDES and for the payment of cash in lieu of the issuance
of fractional share amounts and accrued and unpaid divi-
dends payable in cash on the shares of PRIDES to be
redeemed as required by this Section 3(b), in trust for the
account of the holders of such shares of PRIDES to be
redeemed (and so as to be and continue to be available
therefor), with irrevocable instructions and authority to
such bank or trust company that such shares and funds be
<PAGE>
delivered upon redemption of the shares of PRIDES so called
for redemption. Any interest accrued on such funds shall
be paid to the Corporation from time to time. Any shares
of Common Stock or funds so deposited and unclaimed at the
end of three years from such redemption date shall be
repaid and released to the Corporation, after which the
holder or holders of such shares of PRIDES so called for
redemption shall look only to the Corporation for delivery
of shares of Common Stock and the payment of any other
funds due in connection with the redemption of the shares
of PRIDES.
(vi) Each holder of shares of PRIDES called
for redemption must surrender the certificates evidencing
such shares (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the notice
shall so state) to the Corporation at the place designated
in the notice of such redemption and shall thereupon be
entitled to receive certificates evidencing shares of
Common Stock and to receive any funds payable pursuant to
this Section 3(b) following such surrender and following
the date of such redemption. In case fewer than all the
shares represented by any such surrendered certificate are
called for redemption, a new certificate shall be issued at
the expense of the Corporation representing the unredeemed
shares. If such notice of redemption shall have been
given, and if on the date fixed for redemption shares of
Common Stock and funds necessary for the redemption shall
have been irrevocably either set aside by the Corporation
separate and apart from its other funds or assets in trust
for the account of the holders of the shares to be redeemed
(and so as to be and continue to be available therefor) or
deposited with a bank or trust company or an affiliate
thereof as provided herein or the Corporation shall have
made other reasonable provision therefor, then notwith-
standing that the certificates evidencing any shares of
PRIDES so called for redemption shall not have been
surrendered, the shares represented thereby so called for
redemption shall be deemed no longer outstanding and
Preferred Dividends with respect to the shares so called
for redemption and all rights with respect to the shares so
called for redemption shall forthwith on and after such
date cease and terminate (unless the Corporation defaults
on the payment of the redemption price), except for (i) the
rights of the holders to receive the shares of Common Stock
and funds, if any, payable pursuant to this Section 3 (b)
without interest upon surrender of their certificates
therefor and (ii) the right of the holders, pursuant to
Section 3 (c) to convert the shares of PRIDES called for
redemption until immediately before the close of business
<PAGE>
on any redemption date; provided, however, that holders of
shares of PRIDES at the close of business on a record date
for any payment of Preferred Dividends shall be entitled to
receive the Preferred Dividend payable on such shares on
the corresponding Dividend Payment Date notwithstanding the
redemption of such shares following such record date and
before the Dividend Payment Date. Holders of shares of
PRIDES that are redeemed shall not be entitled to receive
dividends declared and paid on such shares of Common Stock,
and such shares of Common Stock shall not be entitled to
vote, until such shares of Common Stock are issued upon the
surrender of the certificates representing such shares of
PRIDES, and upon such surrender such holders shall be
entitled to receive such dividends declared and paid on
such shares of Common Stock subsequent to such redemption
date.
(vii) Notwithstanding the provisions of
this Section 3(b), the shares of PRIDES shall be subject to
regulatory redemption pursuant to Article THIRTEENTH of the
Restated Certificate of Incorporation of the Corporation,
as amended to date.
(c) Shares of PRIDES are convertible, in
whole or in part, at the option of the holders thereof
("Optional Conversion"), at any time before the Mandatory
Conversion Date, unless previously redeemed, into shares of
Common Stock at a rate of .82 shares of Common Stock for
each share of PRIDES (the "PRIDES Optional Conversion
Rate"), subject to adjustment as set forth below. The
right of Optional Conversion of shares of PRIDES called for
redemption shall terminate immediately before the close of
business on any redemption date with respect to such
shares.
Optional Conversion of shares of PRIDES may be
effected by delivering certificates evidencing such shares
of PRIDES, together with written notice of conversion and
a proper assignment of such certificates to the Corporation
or in blank (and, if applicable, cash payment of an amount
equal to the Preferred Dividend attributable to the current
quarterly dividend period payable on such shares), to the
office of the transfer agent for the shares of PRIDES or to
any other office or agency maintained by the Corporation
for that purpose and otherwise in accordance with Optional
Conversion procedures established by the Corporation.
Each Optional Conversion shall be deemed to have been
effected immediately before the close of business on the
date on which the foregoing requirements shall have been
satisfied. The Optional Conversion shall be at the PRIDES
<PAGE>
Optional Conversion Rate in effect at such time and on such
date.
Holders of shares of PRIDES at the close of
business on a record date for any payment of declared
Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares of PRIDES on the
corresponding Dividend Payment Date notwithstanding the
Optional Conversion of such shares of PRIDES following such
record date and before such Dividend Payment Date.
However, shares of PRIDES surrendered for Optional Conver-
sion after the close of business on a record date for any
payment of declared Preferred Dividends and before the
opening of business on the next succeeding Dividend Payment
Date must be accompanied by payment in cash of an amount
equal to the Preferred Dividends attributable to the
current quarterly dividend period payable on such date
(unless such shares of PRIDES are subject to redemption on
a redemption date between such record date established for
such Dividend Payment Date and such Dividend Payment Date).
Except as provided above, upon any Optional Conversion of
shares of PRIDES, the Corporation shall make no payment of
or allowance for unpaid Preferred Dividends, whether or not
in arrears, on such shares of PRIDES as to which Optional
Conversion has been effected or for previously declared
dividends or distributions on the shares of Common Stock
issued upon Optional Conversion.
(d) The PRIDES Common Equivalent Rate, the
PRIDES Minimum Redemption Rate and the PRIDES Optional
Conversion Rate (collectively, referred to as the "Rates")
are each subject to adjustment from time to time as
provided below in this paragraph (d).
(i) If the Corporation shall pay a stock
dividend or make a distribution with respect to its Common
Stock in shares of Common Stock (including by way of
reclassification of any shares of its Common Stock), the
Rates in effect at the opening of business on the day
following the date fixed for the determination by stock-
holders entitled to receive such dividend or other distri-
bution shall each be increased by multiplying such Rates by
a fraction of which the numerator shall be the sum of the
number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination,
immediately before such dividend or distribution, plus the
total number of shares of Common Stock constituting such
dividend or other distribution, and of which the denomina-
tor shall be the number of shares of Common Stock outstand-
ing at the close of business on the date fixed for such
<PAGE>
determination, immediately before such dividend or distri-
bution, such increase to become effective immediately after
the opening of business on the day following the date fixed
for such determination. For the purposes of this clause
(i), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury
of the Corporation but shall include shares issuable in
respect of certificates issued in lieu of fractions of
shares of Common Stock.
(ii) In case outstanding shares of Common
Stock shall be subdivided or split into a greater number of
shares of Common Stock, the Rates in effect at the opening
of business on the day following the day upon which such
subdivision becomes effective shall each be proportionately
increased, and, conversely, in case outstanding shares of
Common Stock shall be combined into a smaller number of
shares of Common Stock, the Rates in effect at the opening
of business on the day following the day upon which such
combination becomes effective shall each be proportionately
reduced, such increases or reductions, as the case may be,
to become effective immediately after the opening of
business on the day following the day upon which such
subdivision or combination becomes effective.
(iii) If the Corporation shall, after the
date of this Certificate of Designations, issue rights or
warrants to all holders of its Common Stock entitling them
(for a period not exceeding 45 days from the date of such
issuance) to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market
Price of the Common Stock (determined pursuant to Section
3(b)(ii)) on the record date for the determination of
stockholders entitled to receive such rights or warrants,
then in each case the Rates shall each be adjusted by
multiplying the Rates in effect on such record date by a
fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance
of such rights or warrants, immediately before such
issuance, plus the number of additional shares of Common
Stock offered for subscription or purchase pursuant to such
rights or warrants, and of which the denominator shall be
the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants, immediately
before such issuance, plus the number of shares of Common
Stock which the aggregate offering price of the total
number of shares of Common Stock so offered for subscrip-
tion or purchase pursuant to such rights or warrants would
purchase at such Current Market Price (determined by
multiplying such total number of shares by the exercise
<PAGE>
price of such rights or warrants and dividing the product
so obtained by such Current Market Price). Shares of
Common Stock held by the Corporation or by another corpora-
tion of which a majority of the shares entitled to vote in
the election of directors are held, directly or indirectly,
by the Corporation shall not be deemed to be outstanding
for purposes of such computation. Such adjustment shall
become effective at the opening of business on the business
day next following the record date for the determination of
stockholders entitled to receive such rights or warrants.
To the extent that shares of Common Stock are not delivered
after the expiration of such rights or warrants, the Rates
shall each be readjusted to the Rates which would then be
in effect had the adjustments made after the issuance of
such rights or warrants been made upon the basis of
issuance of rights or warrants in respect of only the
number of shares of Common Stock actually delivered.
(iv) If the Corporation shall pay a
dividend or make a distribution to all holders of its
Common Stock consisting of evidences of its indebtedness,
cash or other assets (including shares of capital stock of
the Corporation other than Common Stock and shares of
capital stock of any other corporation (except for shares
of Bally's Health & Tennis Corporation or any subsidiary or
parent thereof other than the Corporation, which shall be
dealt with exclusively by paragraph (v) below) but exclud-
ing any cash dividends or distributions, other than
Extraordinary Cash Distributions (as defined herein) and
dividends referred to in clauses (i) and (ii) above), or
shall issue to all holders of its Common Stock rights or
warrants to subscribe for or purchase any of its securities
(other than those referred to in clause (iii) above), then
in each such case, the Rates shall each be adjusted by
multiplying such Rates in effect on the record date for
such dividend or distribution or for the determination of
stockholders entitled to receive such rights or warrants,
as the case may be, by a fraction of which he numerator
shall be the Current Market Price per share of the Common
Stock (determined pursuant to 3(b)(ii) on such record
date), and of which the denominator shall be such Current
Market Price per share of Common Stock less either (i) the
fair market value (as determined by the Board of Directors,
whose determination shall be conclusive) on such record
date of the portion of the assets or evidences of indebted-
ness so distributed, or of such subscription rights or
warrants, applicable to one share of Common Stock, or (ii)
if applicable, the amount of the Extraordinary Cash
Distributions. Such adjustment shall become effective on
the opening of business on the business day next following
<PAGE>
the record date for such dividend or distribution or for
the determination of holders entitled to receive such
rights or warrants, as the case may be.
(v) If the Corporation shall pay a dividend
or make a distribution in shares of capital stock of
Bally's Health & Tennis Corporation or any subsidiary or
parent thereof (other than the Corporation), the Rates
shall be adjusted pursuant to the formula contained in
paragraph (iv) above, except that the fair market value
shall be determined based on the average of the high and
low sales prices of such capital stock (trading regular way
and not on a when issued basis) on the national securities
exchange on which such security is listed, and if not so
listed, on the Nasdaq National Market, for the 20 consecu-
tive Trading Days beginning on the first Trading Day after
the distribution date, and such adjustment shall be
retroactively effective to the opening of business on the
business day next following the record date for holders of
the Common Stock entitled to receive such dividend or
distribution.
(vi) Any shares of Common Stock issuable in
payment of a dividend or other distribution (other than as
described in clause (i) above) shall be deemed to have been
issued immediately before the close of business on the
record date for such dividend or other distribution for
purposes of calculating the number of outstanding shares of
Common Stock under this Section 3.
(vii) Anything in this Section 3 notwith-
standing, the Corporation shall be entitled (but shall not
be required) to make such upward adjustments in the Rates
and the PRIDES Call Price in addition to those set forth by
this Section 3, as the Corporation, in its sole discretion,
shall determine to be advisable, in order that any stock
dividends, subdivision of stock, distribution of rights to
purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock (or any transac-
tion that could be treated as any of the foregoing transac-
tions pursuant to Section 305 of the Internal Revenue Code
of 1986, as amended) hereafter made by the Corporation to
its stockholders shall not be taxable. The term "Extraor-
dinary Cash Distribution" means, with respect to any
consecutive 12-month period, all cash dividend and cash
distributions on the Common Stock during such period (other
than cash dividends and cash distributions for which a
prior adjustment to the Rates was previously made) to the
extent such dividends and distributions exceed, on a per
<PAGE>
share of Common Stock basis, 10% of the average daily
Closing Price of the Common Stock over such period.
(viii) In any case in which this Section
3(d) shall require that an adjustment as a result of any
event become effective at the opening of business on the
business day next following a record date and (a) the date
fixed for conversion pursuant to Section 3(a) or redemption
pursuant to Section 3(b) occurs after such record date, but
before the occurrence of such event or (b) such adjustment
is retroactively effected pursuant to a final determination
of fair market value pursuant to paragraph (v) above, the
Corporation may, in its sole discretion, elect to defer the
following until after the occurrence of such event or the
date of final determination of such fair market value: (A)
issuing to the holder of any shares of PRIDES surrendered
for conversion or redemption the additional shares of
Common Stock issuable over the shares of Common Stock
issuable before giving effect to such adjustment; and (B)
paying to such holder any amount in cash in lieu of a
fractional share of Common Stock pursuant to Section 4.
(ix) All adjustments to the Rates shall be
calculated to the nearest 1/100th of a share of Common
Stock. No adjustment in any of the Rates shall be required
unless such adjustment would require an increase or
decrease of at least one percent therein; provided,
however, that any adjustments which by reason of this
Section 3(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjust-
ment. All adjustments to the Rates shall be made succes-
sively.
(x) Before redeeming any shares of PRIDES,
the Corporation shall taken any corporate action which may,
in the opinion of its counsel, be necessary in order that
the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock upon such redemp-
tion.
(e) In case of any consolidation or merger
to which the Corporation is a party (other than a consoli-
dation or merger in which the Corporation is the surviving
or continuing corporation and in which the shares of Common
Stock outstanding immediately before the merger or consoli-
dation remain unchanged) or in the case of any sale or
transfer to another corporation of the property of the
Corporation as an entirety or substantially as an entirety,
or in the case of a statutory exchange of securities with
another corporation (other than in connection with a merger
<PAGE>
or acquisition), each share of PRIDES shall, after consum-
mation of such transaction, be subject to (i) conversion at
the option of the holder into the kind and amount of
securities, cash, or other property receivable upon
consummation of such transaction by a holder of the number
of shares of Common Stock into which such shares of PRIDES
might have been converted immediately before consummation
of such transaction, (ii) conversion on the Mandatory
Conversion Date into the kind and amount of securities,
cash, or other property receivable upon consummation of
such transaction by a holder of the number of shares of
Common Stock into which such share of PRIDES would have
been converted if the conversion on the Mandatory Conver-
sion Date had occurred immediately before the date of
consummation of such transaction, plus the right to receive
cash in an amount equal to all accrued and unpaid dividends
on such share of PRIDES (other than previously declared
dividends payable to a holder of record as of a prior
date), and (iii) redemption on any redemption date in
exchange for the kind and amount of securities, cash, or
other property receivable upon consummation of such
transaction by a holder of the number of shares of Common
Stock that would have been issuable at the PRIDES Call
Price in effect on such redemption date upon a redemption
of such share of PRIDES immediately before consummation of
such transaction, assuming that, if the Notice Date for
such redemption is not before such transaction, the Notice
Date had been the date of such transaction; and assuming in
each case that such holder of shares of Common Stock failed
to exercise rights of election, if any, as to the kind or
amount of securities, cash, or other property receivable
upon consummation of such transaction (provided that, if
the kind or amount of securities, cash, or other property
receivable upon consummation of such transaction is not the
same for each non-electing share, then the kind and amount
of securities, cash, or other property receivable upon
consummation of such transaction for each non-electing
share shall be deemed to be the kind and amount so receiv-
able per share by a plurality of the non-electing shares).
The kind and amount of securities into or for which the
shares of PRIDES shall be convertible or redeemable after
consummation of such transaction shall be subject to
adjustment as described in Section 3(d) following the date
of consummation of such transaction. The Corporation may
not become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
(f) Whenever the Rates are adjusted as
provided in Section 3(d), the Corporation shall:
<PAGE>
(i) forthwith compute the Rates in accor-
dance with this Section 3 and prepare a certificate signed
by the Chief Financial Officer, any Vice President, the
Treasurer or the Controller of the Corporation setting
forth the adjusted Rates, the method of calculation thereof
in reasonable detail and the facts requiring such adjust-
ment and upon which such adjustment is based, which
certificate shall be conclusive, final and binding evidence
of the correctness of the adjustment, and shall file such
certificate forthwith with the transfer agent for the
shares of the PRIDES and the Common Stock;
(ii) make a prompt public announcement
stating that the Rates have been adjusted and setting forth
the adjusted Rates; and
(iii) mail a notice stating that the Rates
have been adjusted, the facts requiring such adjustment and
upon which such adjustment is based and setting forth the
adjusted Rates, to the holders of record of the outstanding
shares of PRIDES, at or prior to the time the Corporation
mails an interim statement, if any, to its stockholders
covering the fiscal quarter period during which the facts
requiring such adjustment occurred, but in any event within
45 days of the end of such fiscal quarter period.
(g) In case, at any time while any of the
shares of PRIDES are outstanding,
(i) the Corporation shall declare a
dividend (or any other distribution) on the Common Stock,
excluding any cash dividends other than Extraordinary Cash
Distributions; or
(ii) the Corporation shall authorize the
issuance to all holders of the Common Stock of rights or
warrants to subscribe for or purchase shares of the Common
Stock or of any other subscription rights or warrants; or
(iii) the Corporation shall authorize any
reclassification of the Common Stock (other than a subdivi-
sion or combination thereof) or any consolidation or merger
to which the Corporation is a party and for which approval
of any stockholders of the Corporation is required (except
for a merger of the Corporation into one of its subsidiar-
ies solely for the purpose of changing the corporate
domicile of the Corporation to another state of the United
States and in connection with which there is no substantive
change in the rights or privileges of any securities of the
Corporation other than changes resulting from differences
<PAGE>
in the corporate statutes of the state the Corporation was
then domiciled in and the new state of domicile), or the
sale or transfer of all or substantially all of the assets
of the Corporation;
then the Corporation shall cause to be filed at each office
or agency maintained for the purpose of conversion of the
shares of PRIDES, and shall cause to be mailed to the
holders of shares of PRIDES at their last addresses as they
shall appear on the stock register of the Corporation, at
least 10 business days before the date hereinafter speci-
fied in clause (A) or (B) below (or the earlier of the
dates hereinafter specified, in the event that more than
one date is specified), a notice stating (A) the date on
which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants, or, if a record
is not be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribu-
tion, rights or warrants are to be determined, or (B) the
date on which any such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding
up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for
securities or other property (including cash), if any,
deliverable upon such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding
up. The failure to give or receive the notice required by
this paragraph (g) or any defect therein shall not affect
the legality or validity of any such dividend, distribu-
tion, right or warrant or other action.
Section 4. No Fractional Shares. No fractional
shares of Common Stock shall be issued upon redemption or
conversion of any shares of the PRIDES. In lieu of any
fractional share otherwise issuable in respect of the
aggregate number of shares of the PRIDES of any holder that
are redeemed or converted on any redemption date or upon
Mandatory Conversion or Optional Conversion, such holder
shall be entitled to receive an amount in cash (computed to
the nearest cent) equal to the same fraction of the (i)
Current Market Price of the Common Stock (determined as of
the second Trading Day immediately preceding the Notice
Date) in the case of redemption, or (ii) Closing Price of
the Common Stock determined (A) as of the fifth Trading Day
immediately preceding the Mandatory Conversion Date, in the
case of Mandatory Conversion, or (B) as of the second
Trading Day immediately preceding the effective date of
conversion, in the case of an Optional Conversion by a
holder. If more than one share of PRIDES shall be surren-
<PAGE>
dered for conversion or redemption at one time by or for
the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of the PRIDES so
surrendered or redeemed.
Section 5. Reservation of Common Stock. The
Corporation shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for
issuance upon the conversion or redemption of shares of
PRIDES, as herein provided, free from preemptive rights,
such maximum number of shares of Common Stock as shall from
time to time be issuable upon the Mandatory Conversion or
Optional Conversion or redemption of all the shares of
PRIDES then outstanding.
Section 6. Definitions. As used in this
Certificate of Designations:
(i) the term "business day" shall mean any
day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are autho-
rized or obligated by law or executive order to close;
(ii) the term "Closing Price", on any day,
shall mean the last reported sales price of the Common
Stock, regular way on such day, or, if no sale takes place
on such day, the average of the reported closing bid and
asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange or, if such
security is not listed or admitted for trading on the New
York Stock Exchange, on the Nasdaq National Market of the
National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or, if such security is not
quoted on such Nasdaq National Market, the average of the
closing bid and asked prices on such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked
prices for such security on such day shall not have been
reported through NASDAQ, the average of the bid and asked
prices on such day, as furnished by any New York Stock
Exchange member firm making a market in the Common Stock
selected from time to time by the Board of Directors for
that purpose;
(iii) the term "record date" shall be such
date as from time to time shall be fixed by the Board of
Directors with respect to the receipt of dividends, the
receipt of a redemption price upon redemption or the taking
of any action or exercise of any voting rights permitted
hereby; and
<PAGE>
(iv) the term "Trading Day" shall mean a
date on which the New York Stock Exchange (or any succes-
sor) is open for the transaction of business.
Section 7. Payment of Taxes. The Corporation
shall pay any and all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on the redemption or
conversion of shares of PRIDES pursuant to Section 3;
provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of
any registration of transfer involved in the issue or
delivery of shares of Common Stock in a name other than
that of the registered holder of shares of PRIDES redeemed
or converted or to be redeemed or converted, and no such
issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the
amount of any such tax or has established, to the satisfac-
tion of the Corporation, that such tax has been paid.
Section 8. Liquidation Rights. In the event of
any voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, and subject to the rights of
holders of any other series of Preferred Stock, the holders
of outstanding shares of PRIDES are entitled to receive the
sum of $11.125 per share, plus an amount equal to any
accrued and unpaid Preferred Dividends thereon, out of the
assets of the Corporation available for distribution to
stockholders, before any distribution of assets is made to
holders of Junior Stock. If, upon any voluntary or in-
voluntary liquidation, dissolution, or winding up of the
Corporation, the assets of the Corporation are insufficient
to permit the payment of the full preferential amounts
payable with respect to the shares of PRIDES and all other
series of Parity Preferred Stock, the holders of shares of
PRIDES and of all other series of Parity Preferred Stock
shall share ratably in any distribution of assets of the
Corporation in proportion to the full respective preferen-
tial amounts to which they are entitled. After payment of
the full amount of the liquidating distribution to which
they are entitled, the holders of shares of PRIDES shall
not be entitled to any further participation in any
distribution of assets by the Corporation. A consolidation
or merger of the Corporation with or into one or more other
corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger), or a
sale, lease or exchange of all or substantially all of the
assets of the Corporation shall not be deemed to be a
voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation.
<PAGE>
Section 9. Voting Rights. (a) The holders of
shares of PRIDES shall have the right with the holders of
Common Stock to vote in the election of Directors and upon
each other matter coming before any meeting of the holders
of Common Stock on the basis of 4/5 of a vote for each
share of PRIDES held. The holders of shares of PRIDES and
the holders of Common Stock will vote together as one class
on such matters except as otherwise provided by law or the
Restated Certificate of Incorporation of the Corporation.
(b) In the event that dividends on the
shares of PRIDES or any other series of Preferred Stock
shall be in arrears and unpaid for six quarterly dividend
periods, or if any series of Preferred Stock (other than
the PRIDES) shall be entitled for any other reason to
exercise voting rights, separate from the Common Stock, to
elect any directors of the Corporation ("Preferred Stock
Directors"), the holders of the shares of PRIDES (voting
separately as a class with holders of all other series of
Preferred Stock upon which like voting rights have been
conferred and are exercisable with the PRIDES as a class),
with each share of PRIDES entitled to one vote on this and
other matters in which such Preferred Stock votes as a
group, shall be entitled to vote for the election of two
directors of the Corporation, such directors to be in
addition to the number of directors constituting the Board
of Directors immediately before the accrual of such right.
Such right, when vested, shall continue until all cumula-
tive dividends accumulated and payable on the shares of
PRIDES and such other series of Preferred Stock shall have
been paid in full and the right of any other such series of
Preferred Stock to exercise voting rights, separate from
the Common Stock, to elect Preferred Stock Directors shall
terminate or have terminated, and, when so paid and any
such termination occurs or has occurred, such right of the
holders of the shares of PRIDES shall cease. The term of
office of any director elected by the holders of the shares
of PRIDES and such other series shall terminate on the
earlier of (i) the next annual meeting of stockholders at
which a successor shall have been elected and qualified or
(ii) the termination of the right of holders of the shares
of PRIDES and such other series to vote for such directors.
(c) The Corporation shall not, without the
approval of the holders of at least 66-2/3 percent of the
shares of PRIDES then outstanding: (i) amend, alter, or
repeal any of the provisions of the Restated Certificate of
Incorporation of the Corporation so as to affect adversely
the powers, preferences or rights of the holders of the
shares of PRIDES then outstanding or reduce the minimum
<PAGE>
time for any required notice to which the holders of the
shares of PRIDES then outstanding may be entitled (an
amendment of the Restated Certificate of Incorporation to
authorize or create, or to increase the authorized amount
of, Junior Stock or any stock of any class ranking on a
parity with the PRIDES being deemed not to affect adversely
the powers, preferences, or rights of the holders of the
shares of PRIDES); (ii) authorize or create, or increase
the authorized amount of, any stock (whether or not
convertible into capital stock of any class), ranking prior
to the shares of PRIDES either as to the payment of
dividends or the distribution of assets upon liquidation,
dissolution or winding up of the Corporation; or (iii)
merge or consolidate with or into any other corporation,
unless each holder of shares of PRIDES immediately preced-
ing such merger or consolidation shall receive or continue
to hold in the resulting corporation the same number of
shares, with substantially the same rights and preferences,
including, without limitation, as set forth in Section 3(e)
hereof, as correspond to the shares of PRIDES so held.
(d) The Corporation shall not, without the
approval of the holders of at least a majority of the
shares of PRIDES then outstanding, increase the authorized
number of shares of Preferred Stock to greater than
60,000,000 shares.
(e) Notwithstanding the provisions set
forth in Sections 9(c) and 9(d), no such approval described
therein of the holders of the shares of PRIDES shall be
required if, at or before the time when such amendment,
alteration or repeal is to take effect or when the authori-
zation, creation, increase or issuance of any such prior or
parity stock or convertible security is to be made, or when
such consolidation or merger, voluntary liquidation,
dissolution, or winding up, sale, lease, conveyance,
purchase, or redemption is to take effect, as the case may
be, provision is made for the redemption of all shares of
PRIDES at the time outstanding.
<PAGE>
IN WITNESS WHEREOF, BALLY ENTERTAINMENT CORPORA-
TION has caused this certificate to be signed and attested
this 2nd day of October, 1995.
BALLY ENTERTAINMENT CORPORATION
By /s/ Lee S. Hillman
-----------------------------
Lee S. Hillman
Executive Vice President,
Treasurer and Chief Financial
Officer
ATTEST:
By /s/ Susan R. Rehorst
------------------------
Susan R. Rehorst
Assistant Secretary
EXHIBIT 3 (i)-5
CERTIFICATE OF CORRECTION
TO THE
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS
OF
BALLY ENTERTAINMENT CORPORATION
_________________________________________________________
Pursuant to Section 103(f) of the General
Corporation Law of the State of Delaware
_________________________________________________________
Bally Entertainment Corporation, a Delaware corpora-
tion (the "Corporation"), does hereby certify as follows:
FIRST: On October 2, 1995, the Corporation filed
with the Secretary of State a Certificate of Designa-
tions, Preferences, Rights and Limitations of Preferred
Redeemable Increased Dividend Equity Securities, 8%
PRIDES, Convertible Preferred Stock (the "Certificate of
Designations").
SECOND: The ratio that appears in the second sen-
tence of Section 3(b)(i) of the Certificate of Desig-
nations was inadvertently omitted and should have read
".82." That sentence is hereby corrected to read in its
entirety as follows:
Upon any such redemption, the Corporation shall
deliver to each holder thereof, in exchange for
each such share of PRIDES subject to redemp-
tion, the greater of (A) the number of shares
of Common Stock equal to the applicable PRIDES
Call Price (as defined herein) in effect on the
redemption date divided by the Current Market
Price (as defined herein) of the Common Stock,
determined as of the second Trading Day (as
defined herein) immediately preceding the No-
tice Date (as defined herein); or (B) .82
shares of Common Stock (the "Minimum Redemption
Rate" which is subject to adjustment in the
same manner as the PRIDES Optional Conversion
Rate (as defined herein) is adjusted).
THIRD: The foregoing correction was prepared in
accordance with the provisions of Section 103(f) of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Correction
has been duly executed this 3rd Day of October, 1995.
BALLY ENTERTAINMENT CORPORATION
By /s/ Lee S. Hillman
-----------------------------
Lee S. Hillman
Executive Vice President,
Treasurer and Chief Financial
Officer
ATTEST:
By /s/ Susan R. Rehorst
------------------------
Susan R. Rehorst
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995, THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 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-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 174,963
<SECURITIES> 14,925
<RECEIVABLES> 37,331
<ALLOWANCES> 13,665
<INVENTORY> 8,251
<CURRENT-ASSETS> 412,170
<PP&E> 1,747,780
<DEPRECIATION> 493,206
<TOTAL-ASSETS> 2,162,620
<CURRENT-LIABILITIES> 179,576
<BONDS> 1,281,413
<COMMON> 31,598
0
16,219
<OTHER-SE> 431,782
<TOTAL-LIABILITY-AND-EQUITY> 2,162,620
<SALES> 0
<TOTAL-REVENUES> 760,467
<CGS> 0
<TOTAL-COSTS> 463,389<F1>
<OTHER-EXPENSES> 3,881
<LOSS-PROVISION> 3,360<F1>
<INTEREST-EXPENSE> 98,188
<INCOME-PRETAX> 48,432
<INCOME-TAX> 19,000
<INCOME-CONTINUING> 30,450
<DISCONTINUED> (10,980)
<EXTRAORDINARY> 458
<CHANGES> 0
<NET-INCOME> 19,928
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
<FN>
<F1>THESE AMOUNTS ARE INCLUDED IN THE COST OF OPERATIONS LINE IN THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995. THESE AMOUNTS EXCLUDE DEPRECIATION AND AMORTIZATION.
</FN>
</TABLE>
