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 June 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 July 31, 1995, 47,212,379 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)
June 30, 1995 and December 31, 1994
Condensed consolidated statement of operations
(unaudited)
Six months ended June 30, 1995 and 1994
Condensed consolidated statement of operations
(unaudited)
Three months ended June 30, 1995 and 1994
Condensed consolidated statement of stockholders'
equity (unaudited)
Six months ended June 30, 1995
Condensed consolidated statement of cash flows
(unaudited)
Six months ended June 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 4. Submission of matters to a vote of security
holders
Item 6. Exhibits and reports on Form 8-K
SIGNATURE PAGE
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<CAPTION>
June 30 December 31
1995 1994
----------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents . . . . . . . . . . . $ 145,859 $ 178,427
Marketable securities, at fair value . . . 11,911 6,031
Receivables, less allowances of $13,115
and $12,196. . . . . . . . . . . . . . . 20,305 23,450
Inventories. . . . . . . . . . . . . . . . 8,690 8,113
Deferred income taxes. . . . . . . . . . . 13,862 16,299
Other current assets . . . . . . . . . . . 9,654 16,373
---------- ----------
Total current assets . . . . . . . . . . 210,281 248,693
Property and equipment, less accumulated
depreciation of $476,299 and $445,239. . . 1,240,217 1,186,868
Investment in and receivables from
discontinued operations. . . . . . . . . . 283,304 291,012
Intangible assets, less accumulated
amortization of $26,625 and $24,398. . . . 124,495 123,367
Other assets . . . . . . . . . . . . . . . . 99,881 86,221
---------- ----------
$1,958,178 $1,936,161
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 17,272 $ 28,745
Income taxes payable . . . . . . . . . . . 28,745 27,707
Accrued liabilities. . . . . . . . . . . . 105,830 113,990
Current maturities of long-term debt . . . 6,886 7,200
---------- ----------
Total current liabilities. . . . . . . . 158,733 177,642
Long-term debt, less current maturities. . . 1,289,131 1,258,990
Deferred income taxes. . . . . . . . . . . . 151,082 152,851
Other liabilities. . . . . . . . . . . . . . 12,326 15,656
Minority interests . . . . . . . . . . . . . 39,137 37,410
Stockholders' equity . . . . . . . . . . . . 307,769 293,612
---------- ----------
$1,958,178 $1,936,161
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Six months ended
June 30
-----------------------
1995 1994
---------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 473,340 $ 450,726
Costs and expenses:
Cost of operations . . . . . . . . . . . . 292,619 287,605
Selling, general and administrative. . . . 57,290 60,156
Gaming development costs, including
amortization of pre-opening costs of
$3,330 in 1994 . . . . . . . . . . . . . 2,179 3,984
Depreciation and amortization. . . . . . . 34,837 37,619
---------- ----------
386,925 389,364
---------- ----------
Operating income . . . . . . . . . . . . . . 86,415 61,362
Gain on sales of marketable securities . . . 1,125
Interest expense . . . . . . . . . . . . . . (64,606) (65,083)
---------- ----------
Income (loss) from continuing operations
before income taxes and minority
interests. . . . . . . . . . . . . . . . . 22,934 (3,721)
Income tax benefit (provision) . . . . . . . (8,900) 1,500
Minority interests . . . . . . . . . . . . . (597) (1,258)
---------- ----------
Income (loss) from continuing operations . . 13,437 (3,479)
Loss from discontinued operations. . . . . . (46,091)
---------- ----------
Income (loss) before extraordinary item. . . 13,437 (49,570)
Extraordinary gain (loss) on extinguishment
of debt. . . . . . . . . . . . . . . . . . 445 (20,735)
---------- ----------
Net income (loss). . . . . . . . . . . . . . 13,882 (70,305)
Preferred stock dividend requirement . . . . (1,389) (1,389)
---------- ----------
Net income (loss) applicable to common
stock. . . . . . . . . . . . . . . . . . . $ 12,493 $ (71,694)
========== ==========
Per common and common equivalent share:
Income (loss) from continuing operations. $ .24 $ (.10)
Loss from discontinued operations. . . . . (.99)
Extraordinary gain (loss) on
extinguishment of debt . . . . . . . . . .01 (.44)
---------- ----------
Net income (loss). . . . . . . . . . . . . $ .25 $ (1.53)
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<CAPTION>
Three months ended
June 30
-----------------------
1995 1994
---------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 245,042 $ 238,437
Costs and expenses:
Cost of operations . . . . . . . . . . . . 149,580 147,249
Selling, general and administrative. . . . 30,148 29,243
Gaming development costs . . . . . . . . . 1,736 210
Depreciation and amortization. . . . . . . 17,541 19,548
---------- ----------
199,005 196,250
---------- ----------
Operating income . . . . . . . . . . . . . . 46,037 42,187
Gain on sales of marketable securities . . . 1,022
Interest expense . . . . . . . . . . . . . . (32,354) (31,843)
---------- ----------
Income from continuing operations before
income taxes and minority interests. . . . 14,705 10,344
Income tax provision . . . . . . . . . . . . (5,800) (4,100)
Minority interests . . . . . . . . . . . . . 358 (79)
---------- ----------
Income from continuing operations. . . . . . 9,263 6,165
Loss from discontinued operations. . . . . . (51,098)
---------- ----------
Income (loss) before extraordinary item. . . 9,263 (44,933)
Extraordinary gain on extinguishment
of debt. . . . . . . . . . . . . . . . . . 119
---------- ----------
Net income (loss). . . . . . . . . . . . . . 9,382 (44,933)
Preferred stock dividend requirement . . . . (694) (694)
---------- ----------
Net income (loss) applicable to common
stock. . . . . . . . . . . . . . . . . . . $ 8,688 $ (45,627)
========== ==========
Per common and common equivalent share:
Income from continuing operations. . . . . $ .17 $ .12
Loss from discontinued operations. . . . . (1.09)
Extraordinary gain on extinguishment
of debt. . . . . . . . . . . . . . . . . --
---------- ----------
Net income (loss). . . . . . . . . . . . . $ .17 $ (.97)
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
Total
Series D 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 . . . . . . 13,882 13,882
Preferred stock
dividends --
$2.00 per share. . . (1,389) (1,389)
Change in unrealized
gain on available-
for-sale securities . 419 419
Issuance of common
stock under stock
purchase and option
plans . . . . . . . . 138 1,107 1,245
-------- -------- -------- -------- -------- --------
Balance at
June 30, 1995 . . . . . $ 694 $ 31,564 $296,217 $(18,669) $ (2,037) $307,769
======== ======== ======== ======== ======== ========
<CAPTION>
Series D Common stock
preferred ----------------------
Share amounts stock Issued Treasury
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1994 . . . . . . . . . . . . . . 694 47,138 147
Issuance of common stock under
stock purchase and option plans . . . . . . . . . . . 207
-------- -------- --------
Balance at June 30, 1995 . . . . . . . . . . . . . . . . 694 47,345 147
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Six months ended
June 30
-----------------------
1995 1994
---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING:
Income (loss) from continuing operations. . $ 13,437 $ (3,479)
Adjustments to reconcile to cash provided--
Depreciation and amortization
(including pre-opening costs). . . . . . 34,837 40,949
Interest accretion on discount notes
and other amortization included in
interest expense . . . . . . . . . . . . 10,090 9,616
Deferred income taxes. . . . . . . . . . . 381 (15,087)
Provision for doubtful receivables . . . . 1,908 2,541
Change in operating assets and liabilities (6,060) (26,406)
Other, net . . . . . . . . . . . . . . . . (2,872) 231
---------- ----------
Cash provided by operating activities . 51,721 8,365
INVESTING:
Purchases of property and equipment . . . . (75,643) (56,548)
Acquisitions of Bally's Grand, Inc.
common stock . . . . . . . . . . . . . . . (15,179) (11,549)
Advances to nonconsolidated gaming
ventures . . . . . . . . . . . . . . . . . (13,600)
Purchases of marketable securities. . . . . (7,141) (7,254)
Net proceeds from sales of marketable
securities . . . . . . . . . . . . . . . . 2,435
Other, net. . . . . . . . . . . . . . . . . (5,216) 29
---------- ----------
Cash used in investing activities . . . (114,344) (75,322)
FINANCING:
Debt transactions --
Proceeds from long-term borrowings . . . . 35,925 428,907
Repayments of long-term debt . . . . . . . (12,739) (379,993)
Debt issuance costs. . . . . . . . . . . . (510) (15,199)
---------- ----------
Cash provided by debt transactions. . . 22,676 33,715
Equity transactions --
Preferred stock dividends. . . . . . . . . (1,389) (1,389)
Proceeds from issuance of common stock
under stock purchase and option plans. . 1,060 123
---------- ----------
Cash provided by financing activities . 22,347 32,449
DISCONTINUED OPERATIONS:
Cash provided by discontinued
operations. . . . . . . . . . . . . . 7,708 785
---------- ----------
Decrease in cash and equivalents . . . . . . (32,568) (33,723)
Cash and equivalents, beginning of period. . 178,427 192,078
---------- ----------
Cash and equivalents, end of period. . . . . $ 145,859 $ 158,355
========== ==========
(continued)
</TABLE>
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS--(continued)
(unaudited)
<CAPTION>
Six months ended
June 30
-----------------------
1995 1994
---------------------------------------------------------------------
(In thousands)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and
liabilities were as follows--
Decrease in receivables. . . . . . . . $ 1,847 $ 1,891
Increase in inventories. . . . . . . . (576) (573)
(Increase) decrease in other
current assets . . . . . . . . . . . 7,162 (676)
Increase in other assets . . . . . . . (12) (7,422)
Decrease in accounts payable and
accrued liabilities. . . . . . . . . (14,435) (13,065)
Increase (decrease) in income taxes
payable. . . . . . . . . . . . . . . 984 (5,828)
Decrease in other liabilities . . . . (1,030) (733)
---------- ----------
$ (6,060) $ (26,406)
========== ==========
Cash payments for interest and income
taxes for continuing operations were
as follows--
Interest paid. . . . . . . . . . . . . $ 56,708 $ 58,872
Interest capitalized . . . . . . . . . (2,036) (1,386)
Income taxes paid (net of refunds) . . 7,628 19,415
Investing and financing activities exclude
the following non-cash transactions--
Contribution of net assets by
minority interest. . . . . . . . . . $ 13,166 $
Purchases of marketable securities on
margin (including unsettled
purchases) . . . . . . . . . . . . . 9,227 7,229
Sales of margined marketable securities
(including unsettled sales). . . . . 9,148
Accrued purchases of property and
equipment. . . . . . . . . . . . . . 2,925 3,216
Discontinued operations--
Capital contribution to Bally's Health
& Tennis Corporation (forgiveness
of income tax obligation). . . . . 15,000
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 Bally's plan to spin-off its fitness
centers segment (see "Discontinued operations"). As a result, the
Company's continuing operations comprise one industry segment, with all
significant revenues 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 June 30, 1995, its
condensed consolidated statements of operations for the three and six
months ended June 30, 1995 and 1994, its condensed consolidated
statement of stockholders' equity for the six months ended June 30, 1995
and its condensed consolidated statement of cash flows for the six
months ended June 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 six months ended
June 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 six months ended
June 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 June 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 June 30, 1995
and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---------- ----------
<S> <C> <C>
Bally:
6% Convertible Subordinated Debentures
due 1998. . . . . . . . . . . . . . . . . $ 15,390 $ 15,715
10% Convertible Subordinated Debentures
due 2006. . . . . . . . . . . . . . . . . 80,000 80,000
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998. . . . . . . 146,077 149,281
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 $1,753
and $1,824. . . . . . . . . . . . . . . . 273,247 273,176
Bally's Grand, Inc.:
10-3/8% First Mortgage Notes due 2003 . . . 315,000 315,000
Bally's Casino*Lakeshore Resort:
Construction loan . . . . . . . . . . . . . 22,783 4,358
Other secured and unsecured obligations. . . 18,520 3,660
---------- ----------
Total long-term debt . . . . . . . . . . . . 1,296,017 1,266,190
Current maturities of long-term debt . . . . (6,886) (7,200)
---------- ----------
Long-term debt, less current maturities. . . $1,289,131 $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
restrictive dividend covenants and cash sinking fund requirements for
the 6% Debentures. 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, at a current conversion price of $13.85 per
share. The consummation of the exchange offer enables Bally to proceed
with the spin-off of its fitness centers segment (see "Discontinued
operations").
The Company purchased $5,000 and $10,540 principal amount of the Bally's
Casino Holdings, Inc. Senior Discount Notes due 1998 (the "Senior
Discount Notes") during the three and six months ended June 30, 1995,
respectively, which resulted in extraordinary gains of $119 and $445,
respectively, net of income taxes of $64 and $240, 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.
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 51,069,774 and 46,900,811
for the three months ended June 30, 1995 and 1994, respectively, and
50,614,960 and 46,894,475 for the six months ended June 30, 1995 and
1994, respectively. Common stock equivalents (which 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 4,011,102 and 3,585,660 for the three and six months ended June 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 six months ended June 30, 1994.
Discontinued operations
On June 28, 1994, Bally's Board of Directors (the "Board") approved a
plan to spin-off Bally's Health & Tennis (the "Spin-off"), which is
expected to be accomplished by a stock dividend to Bally's stockholders
during 1995 of all shares of Bally's Health & Tennis owned by the
Company. As a result of the Board's action regarding the Spin-off, the
Company recorded a charge in June 1994 of $23,731 ($.51 per share), net
of income taxes of $4,071, to provide for estimated operating losses
until disposal.
The Company has encountered unexpected delays in effecting the Spin-off,
but recently satisfied two significant conditions in connection
therewith. 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. In July 1995, the
Company completed the aforementioned debt exchange to eliminate
restrictions on dividends (see "Long-term debt"). The Company intends
to file a Registration Statement on Form 10 concerning the Spin-off with
the Securities and Exchange Commission no later than mid-September 1995,
and expects to complete the Spin-off as soon as possible thereafter.
Management is forecasting that Bally's Health & Tennis will not incur
cumulative losses through the date of the Spin-off in excess of the
charge recorded in June 1994. Accordingly, the Company has not recorded
an additional charge for phase-out period losses through June 30, 1995.
However, there can be no assurance that Bally's Health & Tennis will not
incur additional losses or that an additional charge for phase-out
period losses will not be necessary prior to completion of the Spin-off.
<PAGE>
The Company's investment in and receivables from discontinued operations
at June 30, 1995 and December 31, 1994 consists of:
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
Investment in fitness centers segment. . . $ 229,438 $ 229,438
Income taxes receivable from fitness
centers segment. . . . . . . . . . . . . 52,990 52,990
Other receivables from fitness centers
segment. . . . . . . . . . . . . . . . . 876 8,584
------------ -----------
$ 283,304 $ 291,012
============ ===========
</TABLE>
Summarized financial information of the fitness centers segment is as
follows:
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
Financial position--
Current assets . . . . . . . . . . . . . $ 236,267 $ 186,491
Property and equipment, net. . . . . . . 367,418 381,973
Total assets . . . . . . . . . . . . . . 890,587 841,384
Current liabilities . . . . . . . . . . 218,977 240,256
Long-term debt, less current maturities. 368,631 289,711
Total liabilities. . . . . . . . . . . . 661,149 611,946
Total equity . . . . . . . . . . . . . . 229,438 229,438
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Results of operations--
Revenues. . . . . . . . $ 162,747 $ 160,872 $ 339,242 $ 344,711
Operating income (loss) 2,126 (32,126) 12,342 (26,239)
Net income (loss) . . . -- (27,367) -- (22,360)
</TABLE>
<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, operating income (loss) before depreciation and amortization
("EBITDA") and operating income (loss) for the Company and each of its
casino properties were as follows (in millions):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------- ------------------
1995 1994 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated:
Revenues (a). . . . . . . . $245.0 $238.4 $473.3 $450.7
EBITDA (b). . . . . . . . . 63.6 61.7 121.3 102.3
Operating income (c). . . . 46.0 42.2 86.4 61.4
Bally's Park Place:
Revenues (a). . . . . . . . $104.0 $ 96.1 $196.3 $172.4
EBITDA (b). . . . . . . . . 37.2 35.2 66.4 51.7
Operating income. . . . . . 30.2 27.1 52.5 36.3
The Grand:
Revenues (a). . . . . . . . $ 71.8 $ 64.3 $133.6 $114.8
EBITDA (b). . . . . . . . . 16.1 12.1 28.2 14.1
Operating income. . . . . . 11.3 6.6 19.1 3.8
Bally's Las Vegas:
Revenues (a). . . . . . . . $ 67.4 $ 65.0 $139.7 $133.8
EBITDA (b). . . . . . . . . 13.8 13.7 32.3 30.6
Operating income. . . . . . 8.2 8.8 21.1 20.8
Bally's Mississippi (d):
Revenues (a). . . . . . . . $ .5 $ 12.1 $ 1.5 $ 27.9
EBITDA (b). . . . . . . . . (1.1) 2.9 (2.8) 8.3
Operating income
(loss) (c) . . . . . . . . (1.3) 2.0 (3.2) 3.1
<FN>
---------
Notes:
(a) Includes interest and other income for each of the three and six
month periods ended June 30, 1995 and 1994.
(b) The Company has presented EBITDA supplementally because the Company
believes it allows for a more complete analysis of its results of
operations. This data should not be considered as an alternative
to any measure of performance or liquidity as promulgated under
generally accepted accounting principles (such as net income or cash
provided by or used in operating, investing and financing
activities) nor should it be considered as an indicator of the
Company's overall financial performance.
(c) Includes a charge of $3.3 million for amortization of pre-opening
costs in the six months ended June 30, 1994.
(d) 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 opening, will be the
casino closest to Memphis, Tennessee), where Lady Luck constructed
a 240-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 a
58% equity interest), and Lady Luck contributed its hotel and
related assets to the venture.
</FN>
</TABLE>
Comparison of the three months ended June 30, 1995 and 1994
Revenues of the Company for the second quarter of 1995 were
$245.0 million compared to $238.4 million for the 1994 quarter, an
increase of $6.6 million (3%). Operating income of the Company for the
second quarter of 1995 was $46.0 million compared to $42.2 million for
the 1994 quarter, an increase of $3.8 million (9%). These increases
principally reflect improved operating results at both of the Company's
Atlantic City casino hotel resorts offset, in part, by a decline in
operating results at Bally's Mississippi.
Atlantic City
Revenues of Bally's Park Place for the second quarter of 1995 were
$104.0 million compared to $96.1 million for the 1994 quarter, an
increase of $7.9 million (8%). Casino revenues for the 1995 quarter
were $90.1 million compared to $80.9 million in 1994, an increase of
$9.2 million (11%). Slot revenues increased $7.9 million (14%) due to
a 21% increase in slot handle (volume) offset, in part, by a decline in
the win percentage from 9.0% in the 1994 quarter to 8.5% in 1995.
Bally's Park Place added 99 slot machines (a 5% increase) since June 30,
1994. Table game revenues, excluding poker, increased $.7 million (3%)
due to an 8% increase in the drop (amount wagered) offset, in part, by
a decrease in the hold percentage from 17.3% in the 1994 quarter to
16.0% in 1995. Other casino revenues were $1.9 million for the 1995
quarter compared to $1.3 million in 1994, an increase of $.6 million,
which was primarily due to the introduction of horse race simulcasting
and keno in June 1994. Rooms revenue decreased $.9 million (14%) due to
increased complimentaries in the 1995 quarter causing reduced occupancy
of rooms by paying customers. Operating income of Bally's Park Place
for the second quarter of 1995 was $30.2 million compared to
$27.1 million for the 1994 quarter, an increase of $3.1 million (11%) as
the aforementioned revenue increase was offset, in part, by a $4.8
million (7%) increase in operating expenses. The operating margin
(before depreciation and amortization) for the 1995 quarter of 36%
remained essentially unchanged from 1994. Selling, general and
administrative expenses increased $3.0 million (46%) primarily due to
increased legal, insurance and other costs. Casino expenses increased
$2.3 million (7%) 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. Depreciation and
amortization expense decreased $1.2 million (14%) primarily due to the
1994 quarter including accelerated depreciation associated with a slot
machine upgrade. Other operating expenses increased $.8 million (6%)
principally due to increased real estate taxes and entertainment costs.
Revenues of The Grand for the second quarter of 1995 were $71.8 million
compared to $64.3 million for the 1994 quarter, an increase of
$7.5 million (12%). Casino revenues for the 1995 quarter were
$66.5 million compared to $59.0 million in 1994, an increase of
$7.5 million (13%). Slot revenues increased $6.3 million (18%) due to
a 28% increase in slot handle offset, in part, by a decline in the win
percentage from 8.8% in the 1994 quarter to 8.4% in 1995. On average,
The Grand had approximately 400 (28%) more slot machines in the second
quarter of 1995 than 1994. Table game revenues, excluding poker,
increased $.1 million as a 5% increase in the drop was substantially
offset by a decrease in the hold percentage from 17.1% in the 1994
quarter to 16.4% in 1995. Poker, horse race simulcasting and keno,
which commenced in April 1995, contributed $1.1 million to casino
revenues. Operating income of The Grand for the second quarter of 1995
was $11.3 million compared to $6.6 million for the 1994 quarter, an
increase of $4.7 million due primarily to the aforementioned revenue
increase. The operating margin (before depreciation and amortization)
increased from 19% in the 1994 quarter to 22% in 1995. Operating
expenses increased 5% primarily due to a $3.2 million (9%) increase in
casino expenses related to promotional expenses and gaming taxes
associated with the aforementioned increase in casino volume and a
$1.2 million (18%) increase in selling, general and administrative
expenses primarily for advertising costs, partially offset by a
$.7 million (13%) decrease in depreciation and amortization expense due
to accelerated depreciation in 1994 of certain slot machines associated
with a casino floor reconfiguration .
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 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 further decline. 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. The Grand is currently constructing a temporary
1,500-seat arena for headline entertainment, sport events and production
shows, with completion expected in the fourth quarter of 1995. Also,
both Bally's Park Place and The Grand anticipate further expansions (see
"Liquidity and capital resources").
Las Vegas
Revenues of Bally's Las Vegas for the second quarter of 1995 were $67.4
million compared to $65.0 million for the 1994 quarter, an increase of
$2.4 million (4%). Casino revenues for the 1995 quarter were $31.8
million compared to $31.3 million for 1994, an increase of $.5 million
(2%). Slot revenues increased $1.6 million (11%) due to a 20% increase
in slot handle offset, in part, by a decline in the win percentage from
6.5% in the 1994 quarter to 6.0% in 1995. Management believes the
increase in slot handle was primarily attributable to an increase in
walk-in business which resulted from the July 1994 opening of an
automated walkway system (with related improvements to the frontage area
along the Strip) and increased marketing and promotional efforts. Table
game revenues decreased $1.0 million (7%) due to a decrease in the hold
percentage from 16.8% in the 1994 quarter to 14.3% in 1995 offset, in
part, by a 10% increase in the drop. Other casino revenues decreased $.1
million (4%). Rooms revenue remained essentially unchanged as a decline
in the number of rooms occupied (related primarily to rooms out of
service during the south tower remodeling in 1995) was substantially
offset by a higher average room rate. Food and beverage revenues
increased $1.2 million (13%) primarily due to increased convention
business. Other revenues increased $.8 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. Operating income of Bally's Las
Vegas for the second quarter of 1995 was $8.2 million compared to $8.8
million for the 1994 quarter, a decrease of $.6 million (7%) as a $3.0
million (5%) increase in operating expenses exceeded the aforementioned
revenue increase. The operating margin (before depreciation and
amortization) for the 1995 quarter of 21% remained unchanged from 1994.
Casino operating expenses increased $.9 million (5%) due principally to
increased complimentaries and special events. Depreciation and
amortization expense increased $.7 million (15%) due to substantive
capital improvements completed during 1994. Selling, general and
administrative expenses increased $.7 million (9%) due principally to
increased advertising and convention-related costs. In addition, food
and beverage expenses increased $.6 million (7%) due to the increase in
the number of convention-related banquets held during the 1995 quarter.
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, 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 has conducted an expansive capital expenditure
program. Bally's Las Vegas completed an extensive renovation of its
main tower during 1993 and opened the automated walkway system and
related improvements during 1994. In June 1995, Bally's Las Vegas
completed a redesign of the lower-level retail mall and commenced
operation of a monorail system it constructed with MGM Grand that
transports passengers between the two properties. In addition, Bally's
Las Vegas has commenced a renovation of the south tower hotel rooms and
corridors and a relocation of the race and sports book area to add
approximately 7,500 square feet of gaming space, primarily for
additional slot machines. Also, Bally's Grand, Inc. has announced its
intention to develop a new casino hotel resort (see "Liquidity and
capital resources").
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 opening,
will be the casino closest to Memphis, Tennessee), where Lady Luck
constructed a 240-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 reflected as "minority interests" in the condensed
consolidated balance sheet. The Robinsonville site is expected to be
developed to include a restaurant, an entertainment lounge,
administrative facilities and additional parking. Casino operations are
expected to commence at the Robinsonville site later in 1995. Revenues
of Bally's Mississippi for the second quarter of 1995 were $.5 million,
which resulted from the operation of the hotel. Operating loss of
Bally's Mississippi for the second quarter of 1995 was $1.3 million.
Operating expenses for the second quarter of 1995 includes certain
equipment rental expense under lease commitments, payroll and payroll-
related expenses, rooms expense and legal and advertising costs.
Revenues and operating income of Bally's Mississippi for the second
quarter of 1994 were $12.1 million and $2.0 million, respectively, which
resulted from the operation of the dockside casino at Mhoon Landing.
The Mississippi gaming law does not limit the number of gaming licenses
that may be granted. As a result, management believes there was a
saturation of gaming facilities in and around the Memphis, Tennessee
market, which led to the closing of six casinos in the Memphis market.
As of July 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) present significant competition for Bally's
Mississippi when it reopens. Further, a competitor has announced it
intends to proceed with development of a casino hotel resort, which
would be somewhat closer to Memphis than Bally's Mississippi and, if
developed as planned, would offer more casino space and greater
amenities than those expected to be offered by Bally's Mississippi,
which may reduce the anticipated patronage of Bally's Mississippi.
New Orleans
Bally's New Orleans commenced operation of its riverboat casino facility
in New Orleans, Louisiana on July 7, 1995, after the issuance of a
Certificate of Final Approval by the Louisiana Riverboat Gaming
Commission. Bally's New Orleans is situated at 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 fee based upon operating results under a
long-term management agreement. Deferred pre-opening costs were
approximately $4.4 million, which will be amortized to expense during
the first two calendar quarters of operations.
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 that of Bally's
New Orleans). In addition to the riverboat casinos, a license for a
single, large-scale, land-based casino has been awarded to a competitor.
This casino 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. Upon its opening,
the permanent facility may draw customers who might otherwise patronize
Bally's New Orleans.
Interest expense
Interest expense, net of capitalized interest, was $32.4 million for the
second quarter of 1995 compared to $31.8 million for the 1994 quarter,
an increase of $.6 million (2%) primarily due to increased debt levels.
Income taxes
For the three months ended June 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 six months ended June 30, 1995 and 1994
Revenues of the Company for the six months ended June 30, 1995 were
$473.3 million compared to $450.7 million for the 1994 period, an
increase of $22.6 million (5%). Operating income of the Company for the
six months ended June 30, 1995 was $86.4 million compared to
$61.4 million for the 1994 period, an increase of $25.0 million (41%).
These increases principally reflect improved operating results at both
of the Company's Atlantic City casino hotel resorts offset, in part, by
a decline in operating results at Bally's Mississippi.
Atlantic City
Revenues of Bally's Park Place for the six months ended June 30, 1995
were $196.3 million compared to $172.4 million for the 1994 period, an
increase of $23.9 million (14%). 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 $170.7 million
compared to $146.6 million in 1994, an increase of $24.1 million (16%).
Slot revenues increased $20.0 million (20%) due to a 25% 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 $2.7 million (6%) due to a 10% increase in the drop
offset, in part, by a decrease in the hold percentage from 16.9% in the
1994 period to 16.4% in 1995. Other casino revenues were $3.9 million
for the 1995 period compared to $2.5 million in 1994, an increase of
$1.4 million due primarily to the introduction of horse race
simulcasting and keno in June 1994. Rooms revenue decreased $.9 million
(8%) due to increased complimentaries in 1995 causing reduced occupancy
of rooms by paying customers. Other revenues increased $.7 million
(15%) principally due to increased entertainment revenues and interest
income offset, in part, by lower dividends in 1995 from a multi-casino
linked progressive trust. Operating income of Bally's Park Place for
the six months ended June 30, 1995 was $52.5 million compared to
$36.3 million for the 1994 period, an increase of $16.2 million (45%) as
the aforementioned revenue increase was offset, in part, by a $7.7
million (6%) increase in operating expenses. The operating margin
(before depreciation and amortization) increased from 30% in the 1994
period to 34% in 1995. Casino expenses increased $6.8 million (11%) 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. Other operating expenses increased $1.3
million (5%) principally due to increased real estate taxes and
entertainment costs. Selling, general and administrative expenses
increased $.9 million (5%) primarily due to increased legal, insurance
and other costs offset, in part, by a $1.8 million gain on the
settlement of a supplemental executive retirement plan in 1995.
Depreciation and amortization expense decreased $1.5 million (10%)
primarily due to the 1994 period including accelerated depreciation
associated with the aforementioned slot machine upgrade.
Revenues of The Grand for the six months ended June 30, 1995 were
$133.6 million compared to $114.8 million for the 1994 period, an
increase of $18.8 million (16%). 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 $123.8 million compared to $104.6 million in 1994, an
increase of $19.2 million (18%). Slot revenues increased $13.6 million
(22%) due to a 32% increase in slot handle offset, in part, by a decline
in the win percentage from 8.9% in the 1994 period to 8.4% in 1995. On
average, The Grand had approximately 210 (14%) more slot machines in the
1995 period than 1994. Table game revenues, excluding poker, increased
$4.5 million (11%) due to an increase in the hold percentage from 16.0%
in the 1994 period to 17.2% in 1995 and a 3% increase in the drop.
Poker, horse race simulcasting and keno, which commenced in April 1995,
contributed $1.1 million to casino revenues. Other revenues decreased
$.6 million (18%) 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 six months ended June 30, 1995 was
$19.1 million compared to $3.8 million for the 1994 period, an increase
of $15.3 million due primarily to the aforementioned revenue increase.
The operating margin (before depreciation and amortization) increased
from 12% in the 1994 period to 21% in 1995. Operating expenses
increased 3% primarily due to a $5.1 million (8%) increase in casino
expenses related to promotional expenses and gaming taxes associated
with the aforementioned increase in casino volume and a $1.7 million
(13%) increase in selling, general and administrative expenses primarily
for advertising costs, partially offset by a $1.2 million (11%) decrease
in depreciation and amortization expense due to accelerated depreciation
in 1994 of certain slot machines associated with the aforementioned
casino floor reconfiguration.
Las Vegas
Revenues of Bally's Las Vegas for the six months ended June 30, 1995
were $139.7 million compared to $133.8 million for the 1994 period, an
increase of $5.9 million (4%). Casino revenues for the 1995 period were
$64.9 million compared to $64.8 million for 1994, an increase of $.1
million. Slot revenues increased $3.5 million (13%) due to a 21%
increase in slot handle offset, in part, by a decline in the win
percentage from 6.4% in the 1994 period to 6.0% in 1995. Management
believes the increase in slot handle was primarily attributable to an
increase in walk-in business which resulted from the July 1994 opening
of the automated walkway system (with related improvements to the
frontage area along the Strip) and increased marketing and promotional
efforts. Table game revenues decreased $2.9 million (8%) due to a
decrease in the hold percentage from 16.5% in the 1994 period to 14.3%
in 1995 offset, in part, by a 6% increase in the drop. Other casino
revenues decreased $.5 million (15%). Rooms revenue increased $.6
million (2%) primarily due to a higher average room rate. Food and
beverage revenues increased $2.7 million (14%) primarily due to
increased convention business. Other revenues increased $2.5 million
(13%) 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 earned on invested cash. Operating income of Bally's
Las Vegas for the six months ended June 30, 1995 was $21.1 million
compared to $20.8 million for the 1994 period, an increase of $.3
million (1%) as the aforementioned revenue increase was substantially
offset by a $5.6 million (5%) increase in operating expenses. The
operating margin (before depreciation and amortization) for the 1995
period of 23% remained unchanged from 1994. Other operating expenses
increased $1.5 million (7%) due principally 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
to the frontage area. Depreciation and amortization expense increased
$1.4 million (14%) due to substantive capital improvements completed
during 1994. Casino operating expenses increased $1.3 million (4%) due
principally to increased complimentaries and special events. In
addition, food and beverage expenses increased $1.0 million (6%) due to
the increase in the number of convention-related banquets held during
the 1995 period.
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 opening,
will be the casino closest to Memphis, Tennessee), where Lady Luck
constructed a 240-room hotel. Revenues of Bally's Mississippi for the
six months ended June 30, 1995 were $1.5 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 $.5 million at
Robinsonville (for the second quarter of 1995). Operating loss of
Bally's Mississippi for the six months ended June 30, 1995 was $3.2
million, which includes payroll and payroll-related expenses, certain
equipment rental expense under lease commitments, rooms expense and
legal and advertising costs. Revenues and operating income of Bally's
Mississippi at its Mhoon Landing site for the six months ended June 30,
1994 were $27.9 million and $3.1 million, respectively. Operating
income for the 1994 period included amortization of pre-opening costs of
$3.3 million.
Interest expense
Interest expense, net of capitalized interest, was $64.6 million for the
six months ended June 30, 1995 compared to $65.1 million in the 1994
period, a decrease of $.5 million (1%) due principally to an increase in
the amount of capitalized interest and the March 1994 refinancing of
Bally's Park Place's public indebtedness at a more favorable rate.
Income taxes
For the six months ended June 30, 1995 and 1994, the effective rates of
the income tax provision (benefit) on income (loss) 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. Nevertheless,
Bally has certain cash obligations that must be satisfied by obtaining
cash from its subsidiaries or disposing of or leveraging certain assets.
Bally's corporate cash operating costs for the foreseeable future are
expected to be recovered substantially by cost allocations to its
subsidiaries. Bally has debt service requirements and preferred stock
dividend payments of approximately $17 million over the next twelve
months. Cash requirements for Bally also include income tax payments
which management estimates, net of amounts to be collected from
subsidiaries pursuant to tax sharing agreements, to be approximately $12
million over the next twelve months.
Sources of cash available to Bally are generally limited to existing
cash balances ($25.3 million at June 30, 1995), management fees or cost
allocations to subsidiaries, receipts pursuant to tax sharing
agreements, dividends from subsidiaries, asset sales and issuance of new
securities. The Company is presently preparing to offer for sale a new
issue of convertible preferred stock to provide additional equity, for
which the offering size has not yet been determined. In connection
therewith, on August 4, 1995 the Company filed a Registration Statement
on Form S-3 with the Securities and Exchange Commission, which has not
yet been declared effective.
Each of Bally's principal operating subsidiaries presently have debt
covenants which limit the payment of dividends to Bally and the
redemption of stock owned by Bally. Under the terms of the Senior
Discount Notes, an amount equal to dividends paid pursuant to a net
income test by Bally's Park Place to Casino Holdings may be declared as
a dividend by Casino Holdings and be paid to Bally. For the six months
ended June 30, 1995, over $5 million in dividends have been paid to
Bally, and as of June 30, 1995 almost $6 million was available for the
payment of additional dividends, 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 believes it will be
able to satisfy its cash needs over the next twelve months, but remains
dependent upon the ability of its subsidiaries to pay management fees,
cost allocations, income taxes and dividends or to advance funds to meet
its future cash requirements.
The Spin-off of Bally's Health & Tennis is expected to be accomplished
by a stock dividend to Bally's stockholders during 1995 of all shares of
Bally's Health & Tennis owned by the Company. 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
substantially. See "Discontinued operations" in Notes to condensed
consolidated financial statements.
<PAGE>
Subsidiaries
Casino Holdings
Casino Holdings. Casino Holdings is a holding company without
operations of its own and relies on obtaining cash from its subsidiaries
to meet its cash obligations. Casino Holdings has no scheduled interest
or principal payments on the Senior Discount Notes until 1998 but
expects to continue to incur costs and obligations in the pursuit of new
gaming ventures. Sources of cash available to Casino Holdings are
generally limited to existing cash balances ($7.4 million at
June 30, 1995) and loan repayments, dividends and management fees from
subsidiaries. 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 third party
sources, including banks, suppliers and capital markets.
Bally's Park Place and Bally's Grand, Inc. are both limited with respect
to amounts which may be paid as dividends to Casino Holdings under the
terms of their respective public debt indentures. In addition to the
funds that are available to be paid by Casino Holdings to Bally under
Bally's Park Place's net income test, Bally's Park Place may pay
additional dividends of up to $25 million to Casino Holdings that are
not available to be paid by Casino Holdings to Bally, of which
$15 million was paid by Bally's Park Place in July 1995. Bally's Grand,
Inc. is presently not expected to pay dividends over the next twelve
months.
Bally's New Orleans, which commenced operations in July 1995, and
Bally's Mississippi, expected to commence operations later in 1995, are
expected to generate unrestricted cash flows thereafter, a portion of
which will be used by each of Bally's New Orleans and Bally's
Mississippi to pay management fees to Casino Holdings and to repay
Casino Holdings for project costs and working capital requirements
funded by Casino Holdings. Casino Holdings believes it will be able to
satisfy its cash needs over the next twelve months, although it remains
dependent upon the ability of its subsidiaries to generate cash to repay
advances and to pay management fees and dividends.
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 June 30, 1995
are not significant. Management plans to make capital expenditures of
approximately $16 million over the next twelve months for the completion
of the penthouse floor in the hotel tower, expansions of meeting room
and ballroom space, restaurant and kitchen renovations and other
improvements and equipment necessary to maintain Bally's Park Place in
first-class condition. As of June 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 ($33.7 million at
June 30, 1995) and cash flow from operations.
In addition, Bally's Park Place has announced its intention to develop
a highly-themed, western-style casino and entertainment complex on
Boardwalk property adjacent to its existing facility. The complex is
presently planned to include approximately 50,000 square feet of casino
space and cost approximately $80 million, with groundbreaking expected
in early 1996. Bally's Park Place intends to finance the expansion
through cash generated by operations and, if necessary, utilization of
its line of credit.
Bally's Las Vegas. Bally's Grand, Inc. has no scheduled principal
payments on its indebtedness outstanding until 2003. Significant
capital improvement projects planned at Bally's Las Vegas over the next
twelve months include the renovation of the south tower hotel rooms and
corridors and the relocation of the race and sports book area to expand
gaming space, each of which has already commenced. These and certain
other improvements are expected to cost approximately $22 million, of
which approximately $8 million was expended through June 30, 1995. In
addition, capital expenditures of approximately $8 million are required
over the next twelve months to maintain Bally's Las Vegas in first-class
condition. The Company believes that Bally's Grand, Inc. will be able
to satisfy its debt service and the aforementioned capital expenditure
requirements over the next twelve months out of existing cash balances
($59.9 million at June 30, 1995) and cash flow from operations.
In May 1995, Bally's Grand, Inc. announced its intention to develop a
separate casino hotel resort with a Paris, France theme (the "Paris
Resort and Casino") 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 Resort and Casino 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 $250 million.
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 opening, will be the casino closest to Memphis,
Tennessee), where Lady Luck constructed a 240-room hotel. The
Robinsonville site is expected to be developed to include a restaurant,
an entertainment lounge, administrative facilities and additional
parking prior to the commencement of casino operations later in 1995.
In March 1995, Bally's Mississippi received a commitment from a lender
for a construction loan which converts to a three-year term loan for
maximum borrowings of up to $10 million. Proceeds from the construction
loan in addition to advances from Casino Holdings (presently estimated
to be $8 million) are expected to substantially cover Bally's
Mississippi's relocation, development and working capital requirements.
Bally's New Orleans. Bally's New Orleans began operating as a riverboat
casino facility on Lake Pontchartrain in July 1995. A total of
approximately $55 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. Casino Holdings has funded the remaining
project cost. Bally's New Orleans has debt service requirements
totalling approximately $8 million over the next twelve months under the
terms of the two five-year loans, which is expected to be funded by cash
flow from operations. In addition, Bally's New Orleans may seek
additional third-party financing, which would be used to repay amounts
funded by Casino Holdings.
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, unless an
option to extend the maturity date to October 1996 is exercised by the
subsidiary (subject to satisfaction of certain conditions). The
subsidiary expects to meet its debt service requirements through funding
from Casino Holdings.
The Grand
The Grand has no scheduled principal payments under its public
indebtedness until 2003. Management expects to make capital
expenditures of approximately $12 million over the next twelve months
for a temporary 1,500-seat entertainment arena, refurbishment of suites,
additional slot machines and certain other public area improvements
necessary to maintain The Grand in first-class condition. As of June
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 ($18.1 million at June 30,
1995) and cash flow from operations.
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 owned by
Bally's Park Place adjacent to The Grand. The planned expansion of The
Grand is subject to various governmental approvals and third-party
consents, including the receipt of Casino Reinvestment Development
Authority investment obligation credits. The Grand intends to finance
the expansion through cash generated by operations and utilization of
its line of credit.
<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.
Item 4. Submission of matters to a vote of security holders
At the annual meeting of stockholders held on May 16, 1995, the
stockholders considered and voted on the following items:
(a) Two persons nominated by the Board of Directors for election as
directors of Class III for a three-year term expiring in 1998
or until their successors have been duly elected, along with
the voting results which resulted in each nominee being elected
as a director, were as follows:
Votes Votes
Nominee cast for withheld
------- ----------- ----------
Arthur M. Goldberg 40,922,141 1,613,064
Edwin M. Halkyard 40,950,040 1,585,165
(b) An amendment to the Company's 1989 Incentive Plan (the "1989
Plan") to eliminate the ability to issue stock appreciation
rights or stock depreciation rights and to increase the number
of shares reserved for issuance under the 1989 Plan, and the
voting results which resulted in the adoption of the amendment,
were as follows:
Votes cast for Votes against Abstentions
-------------- ------------- -----------
35,335,165 5,629,135 1,570,905
(c) An amendment to the Company's Employee Stock Purchase Plan (the
"Stock Purchase Plan") to increase the number of shares
reserved for issuance under the Stock Purchase Plan, and the
voting results which resulted in the adoption of the amendment,
were as follows:
Votes cast for Votes against Abstentions
-------------- ------------- -----------
38,722,971 2,308,130 1,504,104
<PAGE>
Bally Entertainment Corporation
PART II. OTHER INFORMATION (continued)
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
4 (ii) 16 Indenture relating to 8% Convertible Senior
Subordinated Debentures due 2000, dated as of July
13, 1995, between Bally Entertainment Corporation
and First Bank National Association, as Trustee
(filed as an exhibit to Bally's Form T-3, as
amended).
27 Financial Data Schedule
(b) Reports on Form 8-K:
Date Item Financial statements
-------------- ------------- --------------------
June 12, 1995 #5 and #7 None
June 29, 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: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1995, THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 145,859
<SECURITIES> 11,911
<RECEIVABLES> 33,420
<ALLOWANCES> 13,115
<INVENTORY> 8,690
<CURRENT-ASSETS> 210,281
<PP&E> 1,716,516
<DEPRECIATION> 476,299
<TOTAL-ASSETS> 1,958,178
<CURRENT-LIABILITIES> 158,733
<BONDS> 1,289,131
<COMMON> 31,564
0
694
<OTHER-SE> 275,511
<TOTAL-LIABILITY-AND-EQUITY> 1,958,178
<SALES> 0
<TOTAL-REVENUES> 473,340
<CGS> 0
<TOTAL-COSTS> 290,711<F1>
<OTHER-EXPENSES> 2,179
<LOSS-PROVISION> 1,908<F1>
<INTEREST-EXPENSE> 64,606
<INCOME-PRETAX> 22,934
<INCOME-TAX> 8,900
<INCOME-CONTINUING> 13,437
<DISCONTINUED> 0
<EXTRAORDINARY> 445
<CHANGES> 0
<NET-INCOME> 13,882
<EPS-PRIMARY> .25
<EPS-DILUTED> 0
<FN>
<F1>THESE AMOUNTS ARE INCLUDED IN THE COST OF OPERATIONS LINE IN THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1995. THESE AMOUNTS EXCLUDE DEPRECIATION AND AMORTIZATION.
</FN>
</TABLE>
