FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number: 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: (773) 399-1300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
As of October 31, 1996, 51,632,972 shares of the registrant's common stock were
outstanding.
<PAGE>
BALLY ENTERTAINMENT CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheet (unaudited)
September 30, 1996 and December 31, 1995 .................. 1
Condensed consolidated statement of income (unaudited)
Nine months ended September 30, 1996 and 1995.............. 2
Condensed consolidated statement of income (unaudited)
Three months ended September 30, 1996 and 1995............. 3
Consolidated statement of stockholders' equity (unaudited)
Nine months ended September 30, 1996....................... 4
Consolidated statement of cash flows (unaudited)
Nine months ended September 30, 1996 and 1995.............. 5
Notes to condensed consolidated financial statements
(unaudited)................................................ 7
Item 2. Management's discussion and analysis of financial
condition and results of operations................. 10
PART II. OTHER INFORMATION
Item 1. Legal proceedings..................................... 20
Item 4. Submission of matters to a vote of security
holders............................................. 21
Item 6. Exhibits and reports on Form 8-K...................... 21
SIGNATURE PAGE................................................... 22
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<CAPTION>
September 30 December 31
1996 1995
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................ $ 280,539 $ 285,801
Marketable securities, at fair value........ 7,624 18,111
Receivables, less allowances of $13,213
and $13,094............................... 36,230 27,497
Inventories................................. 7,872 8,358
Income taxes receivable..................... 4,428
Deferred income taxes....................... 22,283 22,450
Other current assets ....................... 22,249 11,495
----------- -----------
Total current assets...................... 381,225 373,712
Property and equipment, less accumulated
depreciation of $571,245 and $510,898....... 1,255,060 1,267,233
Intangible assets, less accumulated
amortization of $32,485 and $28,867......... 121,654 122,728
Other assets.................................. 129,813 125,544
----------- -----------
$ 1,887,752 $ 1,889,217
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 17,565 $ 22,209
Income taxes payable........................ 3,583
Accrued liabilities......................... 113,823 116,548
Current maturities of long-term debt ....... 13,438 11,160
----------- -----------
Total current liabilities................. 144,826 153,500
Long-term debt, less current maturities....... 1,208,678 1,278,441
Deferred income taxes......................... 170,590 157,913
Other liabilities............................. 15,006 12,626
Minority interests............................ 36,885 36,102
Stockholders' equity.......................... 311,767 250,635
----------- -----------
$ 1,887,752 $ 1,889,217
=========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
- -------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues.......................................... $ 891,052 $ 760,467
Costs and expenses:
Cost of operations.............................. 530,544 471,885
Selling, general and administrative............. 105,253 82,435
Gaming development costs, including
amortization of pre-opening costs of
$3,281 and $2,492............................. 5,018 6,373
Depreciation and amortization................... 64,325 54,500
---------- ----------
705,140 615,193
---------- ----------
Operating income.................................. 185,912 145,274
Gain on sales of marketable securities............ 2,484 1,346
Interest expense.................................. (98,754) (98,188)
---------- ----------
Income from continuing operations before income
taxes and minority interests.................... 89,642 48,432
Income tax provision.............................. (31,000) (19,000)
Minority interests................................ (4,452) 1,018
---------- ----------
Income from continuing operations................. 54,190 30,450
Loss from discontinued operations................. (10,980)
---------- ----------
Income before extraordinary item.................. 54,190 19,470
Extraordinary gain (loss) on extinguishment
of debt......................................... (2,948) 458
---------- ----------
Net income........................................ 51,242 19,928
Preferred stock dividend requirement.............. (11,414) (2,083)
---------- ----------
Net income applicable to common stock............. $ 39,828 $ 17,845
========== ==========
Per common and common equivalent share:
Income from continuing operations............... $ .77 $ .57
Loss from discontinued operations............... (.22)
Extraordinary gain (loss) on extinguishment
of debt....................................... (.04) .01
---------- ----------
Net income...................................... $ .73 $ .36
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<CAPTION>
Three months
ended September 30
----------------------
1996 1995
- -------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues.......................................... $ 306,732 $ 287,127
Costs and expenses:
Cost of operations.............................. 177,538 175,811
Selling, general and administrative............. 35,280 28,600
Gaming development costs, including
amortization of pre-opening costs of
$2,492 in 1995................................ 414 4,194
Depreciation and amortization................... 21,586 19,663
---------- ----------
234,818 228,268
---------- ----------
Operating income.................................. 71,914 58,859
Gain on sales of marketable securities............ 870 221
Interest expense.................................. (31,882) (33,582)
---------- ----------
Income from continuing operations before income
taxes and minority interests.................... 40,902 25,498
Income tax provision.............................. (12,700) (10,100)
Minority interests................................ (587) 1,615
---------- ----------
Income from continuing operations................. 27,615 17,013
Loss from discontinued operations................. (10,980)
---------- ----------
Income before extraordinary item.................. 27,615 6,033
Extraordinary gain (loss) on extinguishment
of debt......................................... (2,300) 13
---------- ----------
Net income........................................ 25,315 6,046
Preferred stock dividend requirement.............. (3,300) (694)
---------- ----------
Net income applicable to common stock............. $ 22,015 $ 5,352
========== ==========
Per common and common equivalent share:
Income from continuing operations............... $ .39 $ .32
Loss from discontinued operations............... (.21)
Extraordinary gain (loss) on extinguishment
of debt....................................... (.03) --
---------- ----------
Net income...................................... $ .36 $ .11
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
Total
Capital in Common stock-
Preferred Common excess of Retained stock in holders'
Dollar amounts stock stock par value earnings treasury equity
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ $ 16,219 $ 31,751 $177,551 $ 27,151 $ (2,037) $250,635
Net income.......................... 51,242 51,242
Dividends on preferred stock:
Series D - $2.00 per share........ (1,206) (1,206)
8% PRIDES - $.6675 per share...... (10,208) (10,208)
Change in unrealized gain/loss
on available-for-sale
securities........................ (337) (337)
Issuance of common/treasury stock:
Under stock purchase and
option plans.................... 506 7,202 108 7,816
Upon conversion of/in exchange
for preferred stock............. (1,387) 1,452 (1,531) 1,466 --
Upon conversion of debt........... 732 13,098 13,830
Redemption of Series D preferred
stock............................. (5) (5)
-------- -------- -------- -------- -------- --------
Balance at September 30, 1996....... $ 14,832 $ 34,441 $196,315 $ 66,642 $ (463) $311,767
======== ======== ======== ======== ======== ========
<CAPTION>
Preferred stock Common stock
-------------------- --------------------
Share amounts Series D 8% PRIDES Issued Treasury
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1995.............................. 694 15,525 47,626 147
Issuance of common/treasury stock:
Under stock purchase and option plans................... 758 (8)
Upon conversion of/in exchange for preferred stock...... (694) (693) 2,179 (106)
Upon conversion of debt................................. 1,097
-------- -------- -------- --------
Balance at September 30, 1996............................. -- 14,832 51,660 33
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING:
Income from continuing operations.................. $ 54,190 $ 30,450
Adjustments to reconcile to cash provided--
Depreciation and amortization (including
pre-opening costs).............................. 67,606 56,992
Interest accretion on discount notes and other
amortization included in interest expense....... 14,139 15,270
Deferred income taxes............................. 14,630 13,111
Minority interests................................ 4,452 (1,018)
Provision for doubtful receivables................ 1,771 3,360
Gain on sales of marketable securities............ (2,484) (1,346)
Change in operating assets and liabilities........ (31,246) (9,939)
Other, net........................................ (1,092) (2,859)
---------- ----------
Cash provided by operating activities.......... 121,966 104,021
INVESTING:
Purchases and construction of property
and equipment.................................... (46,953) (103,942)
Decrease in construction-related liabilities....... (2,588) (163)
Acquisitions of Bally's Grand, Inc. common stock... (6,995) (15,179)
Purchases of marketable securities................. (5,711) (9,748)
Net proceeds from sales of marketable securities... 19,244 5,335
Loans to nonconsolidated gaming ventures........... (13,600)
Other, net......................................... (8,658) (7,327)
---------- ----------
Cash used in investing activities.............. (51,661) (144,624)
FINANCING:
Debt transactions --
Proceeds from long-term borrowings................ 10,000 48,316
Repayments of long-term debt...................... (77,834) (17,473)
Debt issuance costs............................... (1,209) (769)
---------- ----------
Cash provided by (used in) debt transactions... (69,043) 30,074
Equity transactions --
Preferred stock dividends paid.................... (11,568) (2,083)
Proceeds from issuance of common stock
under stock purchase and option plans........... 5,049 1,397
Redemption of Series D preferred stock............ (5)
---------- ----------
Cash provided by (used in) financing
activities................................... (75,567) 29,388
DISCONTINUED OPERATIONS:
Cash provided by discontinued operations....... 7,751
---------- ----------
Decrease in cash and equivalents.................... (5,262) (3,464)
Cash and equivalents, beginning of period........... 285,801 178,427
---------- ----------
Cash and equivalents, end of period................. $ 280,539 $ 174,963
========== ==========
(continued)
</TABLE>
5
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
(unaudited)
<CAPTION>
Nine months
ended September 30
----------------------
1996 1995
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities
were as follows--
Increase in receivables....................... $ (12,414) $ (2,966)
(Increase) decrease in inventories............ 486 (137)
Increase in income taxes receivable........... (2,494)
(Increase) decrease in other current assets... (10,428) 7,831
Increase in other assets...................... (3,203) (2,271)
Decrease in accounts payable and accrued
liabilities................................. (1,451) (1,934)
Decrease in income taxes payable.............. (3,583) (3,928)
Increase (decrease) in other liabilities ..... 1,841 (6,534)
---------- ----------
$ (31,246) $ (9,939)
========== ==========
Cash payments for interest and income taxes
were as follows--
Interest paid................................. $ 78,174 $ 78,283
Interest capitalized.......................... (589) (2,688)
Income taxes paid (net of refunds)............ 15,688 9,909
Investing and financing activities exclude
the following non-cash activities--
Issuance of common/treasury stock in
exchange for/upon conversion of other
securities.................................. $ 81,262 $
Issuance of 8% PRIDES 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...................................... 13,610
Sales of margined marketable securities
(including unsettled sales)................. 10,221
<FN>
See accompanying notes.
</FN>
</TABLE>
6
<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 Company operates in one industry
segment and all significant revenues arise from two casino hotel resorts in
Atlantic City, New Jersey, a casino hotel resort in Las Vegas, Nevada, a
dockside casino and hotel in Robinsonville, Mississippi (near Memphis,
Tennessee) and a riverboat casino in New Orleans, Louisiana. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated balance sheet of
the Company at September 30, 1996, its condensed consolidated statements of
income for the three and nine months ended September 30, 1996 and 1995, its
consolidated statement of stockholders' equity for the nine months ended
September 30, 1996 and its consolidated statement of cash flows for the nine
months ended September 30, 1996 and 1995. All such adjustments were of a normal
recurring nature.
The accompanying condensed consolidated financial statements have been prepared
in conformity with generally accepted accounting principles which require the
Company's management to make estimates and assumptions that affect the amounts
reported therein. Actual results could vary from such estimates. In addition,
certain reclassifications have been made to prior period financial statements to
conform with the 1996 presentation.
ACQUISITION OF BALLY BY HILTON HOTELS CORPORATION
In June 1996, Bally and Hilton Hotels Corporation ("Hilton") entered into an
agreement pursuant to which Bally will merge with and into Hilton (the
"Merger"). If the Merger is consummated, each share of Bally common stock issued
and outstanding immediately prior to the Merger would be converted into the
right to receive one share of Hilton common stock. In the event that the trading
price of Hilton common stock for a specified period of time prior to the
effective time of the Merger is less than $27.00 per share, each holder of Bally
common stock will receive an additional cash payment for each share of Bally
common stock held by such holder, up to a maximum of $3.00 per share, equal to
the excess of $27.00 over such trading price. In addition, upon consummation of
the Merger, each share of 8% PRIDES Convertible Preferred Stock of Bally issued
and outstanding immediately prior to the Merger will be converted into the right
to receive one share of newly authorized 8% PRIDES Convertible Preferred Stock
of Hilton having the same rights and preferences. The Merger, which has been
approved by the Board of Directors and shareholders of Bally and Hilton, is
subject to approval by gaming regulators of several jurisdictions, and is
expected to close before year-end 1996.
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore, the
results of operations for the three and nine months ended September 30, 1996 and
1995 are not necessarily indicative of the results of operations for the full
year.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is computed by dividing net
income applicable to common stock by the weighted average number of shares of
common stock and common stock equivalents outstanding during each period, which
totalled 70,468,967 shares and 51,671,071 shares for the three months ended
September 30, 1996 and 1995, respectively, and 68,460,297 shares and 50,924,758
shares for the nine months ended September 30, 1996 and 1995, respectively.
Common stock equivalents for each of the periods presented
7
<PAGE>
Bally Entertainment Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(All dollar amounts in thousands except per share data) (unaudited)
represent the dilutive effect of the assumed exercise of certain outstanding
stock options and the assumed conversion of exchangeable preferred stock of a
subsidiary. In addition, common stock equivalents for the three and nine months
ended September 30, 1996 include the dilutive effect of the assumed conversion
of certain convertible preferred stock (not outstanding during the 1995 periods)
and convertible debentures of Bally. Common stock equivalents increased the
weighted average number of shares outstanding by 19,121,653 shares and 4,445,204
shares for the three months ended September 30, 1996 and 1995, respectively, and
18,916,673 shares and 3,829,216 shares for the nine months ended September 30,
1996 and 1995, respectively.
ACQUISITIONS OF BALLY'S GRAND, INC. COMMON STOCK
Bally's Grand, Inc. owns and operates the casino hotel resort in Las Vegas,
Nevada known as "Bally's Las Vegas." During the nine months ended September 30,
1996, a wholly owned subsidiary of Bally acquired 334,074 shares of Bally's
Grand, Inc. common stock in several transactions for $5,765. As a result,
Bally's ownership of Bally's Grand, Inc. common stock increased to approximately
85% of the shares outstanding at September 30, 1996.
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at September 30, 1996 and
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
----------- -----------
<S> <C> <C>
Bally:
10% Convertible Subordinated Debentures
due 2006................................... $ 74,995 $ 75,000
6% Convertible Subordinated Debentures
due 1998................................... 1,505 1,804
8% Convertible Senior Subordinated
Debentures due 2000........................ 13,586
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998, less
unamortized discount of $18,206
and $42,805................................ 96,094 149,755
Bally's Park Place:
9-1/4% First Mortgage Notes due 2004......... 425,000 425,000
The Grand:
10-5/8% First Mortgage Notes due 2003, less
unamortized discount of $1,559 and $1,678.. 273,441 273,322
Bally's Las Vegas:
10-3/8% First Mortgage Notes due 2003........ 315,000 315,000
Other secured and unsecured obligations........ 36,081 36,134
----------- -----------
Total long-term debt........................... 1,222,116 1,289,601
Current maturities of long-term debt........... (13,438) (11,160)
----------- -----------
Long-term debt, less current maturities........ $ 1,208,678 $ 1,278,441
=========== ===========
</TABLE>
In April 1996, Bally announced its intention to redeem all of its outstanding 8%
Convertible Senior Subordinated Debentures due 2000 (the "8% Debentures") on May
23, 1996, at a price equal to the principal amount thereof together with
interest accrued to the redemption date. At May 23, 1996, $13,527 principal
amount of the 8% Debentures had been converted into 1,085,531 shares of Bally
common stock (conversion price of $12.46 per share) and the remaining $59
principal amount of the 8% Debentures was redeemed for $60 in cash.
8
<PAGE>
Bally Entertainment Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(All dollar amounts in thousands except per share data) (unaudited)
In October 1996, Hilton announced that upon consummation of the Merger, it
intends to redeem all of Bally's outstanding 10% Convertible Subordinated
Debentures due 2006 and 6% Convertible Subordinated Debentures due 1998 pursuant
to the optional redemption provisions of the respective indentures.
Also in October 1996, Hilton announced offers to purchase any and all of Bally's
Casino Holdings, Inc.'s Senior Discount Notes due 1998 (the "Senior Discount
Notes"), Bally's Park Place's 9-1/4% First Mortgage Notes due 2004, The Grand's
10-5/8% First Mortgage Notes due 2003 and Bally's Las Vegas' 10- 3/8% First
Mortgage Notes due 2003 (collectively, with the Senior Discount Notes, the
"Notes") for cash (the "Tender Offers") and solicitations of consents to
proposed amendments to the indentures for the Notes (the "Consent
Solicitations"). Each Tender Offer and Consent Solicitation is subject to
consummation of the Merger, receipt of tenders and consents for at least a
majority of the principal amount of each series of the Notes and the receipt of
any necessary gaming regulatory approvals, as well as certain other conditions
described in each Offer to Purchase and Consent Solicitation.
During the three and nine months ended September 30, 1996, the Company purchased
$60,000 and $78,260 principal amount of the Senior Discount Notes for $52,125
and $67,723 in cash, respectively, which resulted in extraordinary losses of
$2,300 and $2,948, respectively, net of income taxes of $1,239 and $1,588,
respectively.
During the three and nine months ended September 30, 1995, the Company purchased
$5,000 and $20,040 principal amount of the Senior Discount Notes for $3,631 and
$13,448 in cash, respectively, which resulted in extraordinary gains of $13 and
$458, respectively, net of income taxes of $7 and $247, respectively.
PREFERRED STOCK
In March 1996, Bally exchanged 512,948 shares of its common stock for 183,409
shares of its Series D Convertible Exchangeable Preferred Stock (the "Series D
Stock"). In May 1996, Bally announced its intention to redeem all of its
outstanding Series D Stock on June 24, 1996, at a price of $50.40 per share plus
accrued and unpaid dividends to the redemption date. At June 24, 1996, 510,988
shares of the Series D Stock had been converted into 1,134,391 shares of Bally
common stock (conversion price of $22.52 per share) and the remaining 100 shares
of Series D Stock were redeemed for $5 in cash.
During the three months ended September 30, 1996, holders converted 692,700
shares of Bally 8% PRIDES Convertible Preferred Stock into 637,284 shares of
Bally common stock (conversion price of $12.092 per share).
DISCONTINUED OPERATIONS
Financial results for the three and nine months ended September 30, 1995 reflect
the fitness center business operated by Bally Total Fitness Holding Corporation
("BFIT") as a discontinued operation because of Bally's disposal of this segment
through a spin-off distribution completed in January 1996.
9
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 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 Nine months
ended September 30 ended September 30
------------------ ------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated (a):
Revenues (b)..................... $306.7 $287.1 $891.1 $760.5
Operating income (c)............. 71.9 58.9 185.9 145.3
Bally's Park Place:
Revenues......................... $116.7 $119.0 $314.8 $315.3
Operating income................. 42.8 38.7 95.6 91.2
The Grand:
Revenues......................... $ 74.8 $ 78.6 $210.3 $212.2
Operating income................. 12.2 16.7 27.7 35.8
Bally's Las Vegas:
Revenues......................... $ 74.0 $ 69.9 $233.7 $209.6
Operating income................. 12.3 9.2 46.9 30.3
Bally's Mississippi (a):
Revenues......................... $ 15.4 $ .8 $ 55.0 $ 2.3
Operating income (loss) (c)...... (.1) (1.1) 3.0 (4.3)
Bally's New Orleans (a):
Revenues......................... $ 20.9 $ 17.7 $ 66.6 $ 17.7
Operating income (loss) (d)...... 2.2 (2.7) 8.5 (3.0)
- ---------
<FN>
Notes:
(a) Bally's New Orleans commenced operation of its riverboat casino in July
1995 and Bally's Mississippi reopened its dockside casino in December
1995. Between December 1993 and February 1995, Bally's Mississippi
operated the dockside casino at a different site.
(b) Includes interest income of $7.5 million and $3.0 million for the three
months ended September 30, 1996 and 1995, respectively, and $16.7 million
and $8.8 million for the nine months ended September 30, 1996 and 1995,
respectively.
(c) After amortization of pre-opening costs totalling $3.3 million at Bally's
Mississippi for the nine months ended September 30, 1996.
(d) After amortization of pre-opening costs totalling $2.5 million at Bally's
New Orleans for the three and nine months ended September 30, 1995.
</FN>
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues and operating income of the Company for the third quarter of 1996
increased $19.6 million (7%) and $13.0 million (22%), respectively, from the
1995 quarter. The increase in revenues principally reflects the operations of
Bally's Mississippi, which reopened its dockside casino in December 1995. The
increase in operating income principally reflects improved operating results at
Bally's New Orleans, Bally's Park Place and Bally's Las Vegas.
10
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
ATLANTIC CITY
Revenues of Bally's Park Place for the third quarter of 1996 were $116.7 million
compared to $119.0 million for the 1995 quarter, a decrease of $2.3 million (2%)
due, in part, to a $4.4 million (4%) decrease in casino revenues. Slot revenues
decreased $4.2 million (6%) due to a decline in the win percentage from 8.5% in
the 1995 quarter to 8.2% in 1996 and a 2% decrease in slot handle (volume). On
average, Bally's Park Place had 89 (4%) more slot machines for the third quarter
of 1996 than in 1995. Table game revenues, excluding poker, increased $.2
million (1%) due to a 1% increase in the drop (amount wagered) offset, in part,
by a decrease in the hold percentage from 16.5% in the 1995 quarter to 16.4% in
1996. Other casino revenues decreased $.4 million (21%) due primarily to a
decrease in poker revenues. Operating income of Bally's Park Place for the third
quarter of 1996 was $42.8 million compared to $38.7 million for the 1995
quarter, an increase of $4.1 million (11%) as the aforementioned 2% decrease in
revenues was more than offset by a 8% decrease in operating expenses. Casino
expenses decreased $3.8 million (10%) and selling, general and administrative
expenses decreased $1.8 million (18%), due primarily to a decrease in
compensation-related costs.
Revenues of The Grand for the third quarter of 1996 were $74.8 million compared
to $78.6 million for the 1995 quarter, a decrease of $3.8 million (5%) primarily
due to a $3.9 million (5%) decrease in casino revenues. Slot revenues decreased
$3.0 million (6%) due to a 6% decrease in slot handle and a decrease in the win
percentage from 8.3% in the 1995 quarter to 8.2% in 1996. Table game revenues,
excluding poker, decreased $.6 million (2%) due to a decrease in the hold
percentage from 15.1% in the 1995 quarter to 14.6% in 1996 offset, in part, by a
1% increase in the drop. The Grand had approximately the same number of slot
machines for the third quarter of 1996 as in 1995. Operating income of The Grand
for the third quarter of 1996 was $12.2 million compared to $16.7 million for
the 1995 quarter, a decrease of $4.5 million (27%) due to the aforementioned 5%
decrease in revenues and a 1% increase in operating expenses. Depreciation and
amortization expense increased $.5 million (10%) and other operating expenses
increased $.4 million (5%).
Management believes that the expansion of several casino hotel facilities in
Atlantic City, which includes additional hotel rooms and gaming space, has
caused and will continue to cause intense promotional efforts to attract players
as both the Company's Atlantic City casino hotel resorts and their competitors
continue to seek to expand their share of gaming revenues and maximize the
utilization of their gaming space. Further, as a result of the aggressive
competition for slot patrons, the Atlantic City slot win percentage continues to
decline. Management believes that the slot win percentage will continue to be
subject to competitive pressure and may decline further. In addition, proposals
for several new casino hotel resorts were recently announced for Atlantic City
and, if and when such resorts are opened, capacity and competition will further
increase. However, management believes its Atlantic City casino hotel resorts
are well-positioned to compete for additional casino revenues in the Atlantic
City market through the attractive promotional gaming programs and special
events they offer and the appearance and comfort of their gaming space and hotel
accommodations. During the first quarter of 1995, Bally's Park Place completed a
slot machine upgrade, replacing the majority of its slot machines with
state-of-the-art machines with embedded bill acceptors, and reconfigured its
slot machine layout, adding slot stools and increasing aisle space. In 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 opened The Grand Theater, an 18,000 square-foot arena with seating
capacity of up to 2,000 used for headline entertainment, sports events and
production shows. Bally's Park Place and The Grand have also broken ground for
further expansions (see "Liquidity and capital resources").
11
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Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
LAS VEGAS
Revenues of Bally's Las Vegas for the third quarter of 1996 were $74.0 million
compared to $69.9 million for the 1995 quarter, an increase of $4.1 million
(6%). Casino revenues for the 1996 quarter were $37.3 million compared to $36.4
million for 1995, an increase of $.9 million (2%). Slot revenues increased $1.9
million (11%) due to a 30% increase in slot handle offset, in part, by a decline
in the win percentage from 6.3% in the 1995 quarter to 5.4% in 1996. On average,
Bally's Las Vegas had 205 (13%) more slot machines for the third quarter of 1996
than in 1995. Table game revenues decreased $1.7 million (9%) due to a 7%
decrease in the drop and a decrease in the hold percentage from 15.5% in the
1995 quarter to 15.1% in 1996. Other casino revenues increased $.7 million (49%)
due to additional revenues generated by the relocated and expanded race and
sports book room, which opened in September 1995. Rooms revenue increased $.8
million (6%) primarily due to a higher average room rate compared to the 1995
quarter. Food and beverage revenues increased $1.0 million (11%) primarily due
to increased convention business, and other revenues increased $1.3 million
(13%) due, in part, to increased entertainment revenues. Operating income of
Bally's Las Vegas for the third quarter of 1996 was $12.3 million compared to
$9.2 million for the 1995 quarter, an increase of $3.1 million (34%) as the
aforementioned 6% increase in revenues was offset, in part, by a 2% increase in
operating expenses. Selling, general and administrative costs increased $1.0
million (12%) due, in part, to certain trademark-related costs, and food and
beverage expenses increased $.5 million (6%) due to the aforementioned increase
in volume from convention-related business. In addition, rooms expense increased
$.3 million (6%) and other operating expenses increased $.3 million (2%). These
increases in operating expenses were offset, in part, by a $1.2 million (6%)
decrease in casino expenses.
The expansion of existing casino hotel resorts and the development of new casino
hotel resorts in Las Vegas continues. In particular, two casino hotel resorts
opened in mid-1996 and another is expected to open in early 1997. These three
casino hotel resorts are adding a total of approximately 270,000 square feet of
gaming space and 6,500 guest rooms to the Las Vegas Strip. Management believes
that the additional casino and hotel room capacity resulting from the opening of
new casino hotels may have a short-term negative impact on Bally's Las Vegas,
but that over the long term Bally's Las Vegas benefits from the increase in the
number of visitors to Las Vegas that these new properties attract. To enhance
its competitiveness in the Las Vegas market, Bally's Las Vegas completed an
extensive capital improvement program over the last three years including, among
others, improvements to its frontage area along the Strip, a monorail system, a
renovation of all of its hotel rooms, the new race and sports book room and a
slot machine upgrade. In addition, the Company has announced its intention to
develop a separate casino hotel resort in Las Vegas with a Paris, France theme
(the "Paris Casino-Resort") next to Bally's Las Vegas (see "Liquidity and
capital resources").
MISSISSIPPI
Bally's Mississippi reopened its dockside casino in December 1995 in
Robinsonville, Mississippi, where Lady Luck Gaming Corporation had constructed a
238-room hotel. Between December 1993 and February 1995, Bally's Mississippi
operated the dockside casino at a different site. Revenues of Bally's
Mississippi for the third quarter of 1996 were $15.4 million, and included
casino revenues of $14.1 million (slot revenues were $11.5 million and table
game revenues were $2.6 million) and room revenues of $.9 million. Operating
loss for the 1996 quarter was $.1 million. Revenues of Bally's Mississippi for
the third quarter of 1995 were $.8 million, which resulted from the operation of
the hotel. Operating loss for the 1995 quarter was $1.1 million, and included
gaming-related costs (primarily slot machine lease costs) and general and
administrative costs incurred during the temporary cessation of casino
operations.
12
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Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Mississippi gaming law does not limit the number of gaming licenses that may be
granted. As a result, management believes there was a saturation of gaming
facilities in and around the Memphis, Tennessee market, which led to the closing
of six casinos in that market since April 1994 (including Bally's Mississippi,
which was moved and reopened). As of October 31, 1996, ten gaming facilities
were operating in this market. Four of these gaming facilities are located
adjacent to Bally's Mississippi, one of which commenced operations in June 1996
somewhat closer to Memphis than Bally's Mississippi. These gaming facilities
present, and any others which subsequently commence operations in the Memphis
market could present, significant competition for Bally's Mississippi.
NEW ORLEANS
Bally's New Orleans commenced the operation of its riverboat casino in July 1995
in New Orleans, Louisiana. Revenues of Bally's New Orleans for the third quarter
of 1996 were $20.9 million compared to $17.7 million for the 1995 quarter, an
increase of $3.2 million (18%) primarily due to a $3.3 million (20%) increase in
casino revenues. Slot revenues increased $3.2 million (24%) due to a 33%
increase in slot handle offset, in part, by a decline in the win percentage from
7.4% in the 1995 quarter to 6.9% in 1996. Bally's New Orleans had approximately
the same number of slot machines for the third quarter of 1996 as in 1995. Table
game revenues increased $.1 million (3%) as a 13% increase in the drop was
substantially offset by a decrease in the hold percentage from 21.7% in the 1995
quarter to 19.8% in 1996. Operating income of Bally's New Orleans for the third
quarter of 1996 was $2.2 million compared to an operating loss of $2.7 million
for the 1995 quarter, an improvement of $4.9 million due primarily to the
aforementioned 18% increase in revenues and the amortization of pre-opening
costs totalling $2.5 million in the 1995 quarter.
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all but one of which have been granted as of
October 31, 1996), with a maximum of six riverboats in any one parish. Four
riverboats are presently operating in the New Orleans area (including Bally's
New Orleans), although one riverboat has been granted regulatory approval to
relocate to Shreveport by the third quarter of 1997. During 1995, Bally's New
Orleans also competed with a land-based casino which was operating at a
temporary location and was expected to become the largest land-based casino in
the United States when it moved to its permanent location. However, in November
1995, the competitor filed for protection under bankruptcy laws, ceased
operations at the temporary location and suspended construction at the permanent
site. It is presently not known if, or when, operations at the temporary
location or construction of the permanent land-based facility will resume.
INTEREST EXPENSE
Interest expense was $31.9 million for the third quarter of 1996 compared to
$33.6 million for the 1995 quarter, a decrease of $1.7 million (5%) due
principally to a lower average level of debt.
INCOME TAXES
For the three months ended September 30, 1996 and 1995, 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 adjustments of prior years' taxes, partially offset in 1996 and
more than offset in 1995, by state income taxes and nondeductible expenses
(including goodwill amortization).
13
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues and operating income of the Company for the nine months ended September
30, 1996 increased $130.6 million (17%) and $40.6 million (28%), respectively,
from the 1995 period. These increases principally reflect improved operating
results at Bally's Las Vegas and the operations of Bally's New Orleans, which
commenced operation of its riverboat casino in July 1995, and Bally's
Mississippi, which reopened its dockside casino in December 1995.
ATLANTIC CITY
Revenues of Bally's Park Place for the nine months ended September 30, 1996 were
$314.8 million compared to $315.3 million for the 1995 period, a decrease of $.5
million due, in part, to a $2.0 million (1%) decrease in casino revenues. Slot
revenues decreased $1.3 million (1%) due to a decline in the win percentage from
8.5% in the 1995 period to 8.3% in 1996 offset, in part, by a 2% increase in
slot handle. On average, Bally's Park Place had 89 (4%) more slot machines for
the 1996 period than in 1995. Table game revenues, excluding poker, remained
essentially unchanged as a 1% increase in the drop was offset by a reduction in
the hold percentage from 16.4% in the 1995 period to 16.3% in 1996. Other casino
revenues decreased $.8 million (14%). Operating income of Bally's Park Place for
the nine months ended September 30, 1996 was $95.6 million compared to $91.2
million for the 1995 period, an increase of $4.4 million (5%) as the
aforementioned revenue decrease was more than offset by a 2% decrease in
operating expenses. Other operating expenses declined $1.8 million (4%)
primarily due to a real estate tax refund relating to prior years. In addition,
food and beverage expenses decreased $1.5 million (11%) due primarily to an
increase in complimentaries, which cost is included in casino expenses.
Revenues of The Grand for the nine months ended September 30, 1996 were $210.3
million compared to $212.2 million for the 1995 period, a decrease of $1.9
million (1%) primarily due to a $2.4 million (1%) decrease in casino revenues
offset, in part, by a $1.0 million (20%) increase in other revenues. Slot
revenues decreased $2.5 million (2%) due to a 1% decrease in slot handle along
with a decline in the win percentage from 8.4% in the 1995 period to 8.3% in
1996. On average, The Grand had 101 (6%) more slot machines for the 1996 period
than in 1995. Table game revenues, excluding poker, decreased $.7 million (1%)
as a 3% increase in the drop was more than offset by a decrease in the hold
percentage from 16.4% in the 1995 period to 15.8% in 1996. Poker, horse race
simulcasting and keno, all of which commenced in April 1995, contributed $3.4
million to casino revenues in 1996 compared to $2.5 million in 1995, an increase
of $.9 million (36%). Operating income of The Grand for the nine months ended
September 30, 1996 was $27.7 million compared to $35.8 million for the 1995
period, a decrease of $8.1 million (23%) due to the aforementioned 1% revenue
decrease and a 4% increase in operating expenses. Casino expenses increased $4.7
million (4%) primarily due to increased promotional expenses and costs of
providing complimentary services to increase gaming activity offset, in part, by
an increase in the estimated realizable value of Casino Reinvestment Development
Authority ("CRDA") investments and funds on deposit in the 1996 period which
resulted, in part, from the approved use of such funds for reimbursement of
certain construction costs. In addition, other operating expenses increased $1.2
million (5%) and depreciation and amortization increased $1.1 million (8%).
LAS VEGAS
Revenues of Bally's Las Vegas for the nine months ended September 30, 1996 were
$233.7 million compared to $209.6 million for the 1995 period, an increase of
$24.1 million (11%). Casino revenues for the 1996 period were $116.2 million
compared to $101.3 million for 1995, an increase of $14.9 million (15%) due, in
part, to additional walk-in business resulting from the June 1995 opening of the
monorail system connecting Bally's Las Vegas and MGM Grand. Slot revenues
increased $7.3 million (16%) due to a 27% increase in
14
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Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
slot handle offset, in part, by a decline in the win percentage from 6.1% in the
1995 period to 5.6% in 1996. On average, Bally's Las Vegas had 196 (13%) more
slot machines for the 1996 period than in 1995. Table game revenues increased
$4.9 million (10%) due to a 7% increase in the drop and an increase in the hold
percentage from 14.7% in the 1995 period to 15.1% in 1996. Other casino revenues
increased $2.7 million (60%) due to additional revenues generated by the
relocated and expanded race and sports book room. Rooms revenue increased $3.3
million (7%) primarily due to a higher average room rate compared to the 1995
period. Food and beverage revenues increased $2.5 million (8%) primarily due to
increased convention business and the reinstatement of beverage service in the
showrooms in the second quarter of 1995. Other revenues increased $3.4 million
(10%) primarily due to increased entertainment revenues. Operating income of
Bally's Las Vegas for the nine months ended September 30, 1996 was $46.9 million
compared to $30.3 million for the 1995 period, an increase of $16.6 million
(55%) as the aforementioned 11% increase in revenues was offset, in part, by a
4% increase in operating expenses. Casino operating expenses increased $2.6
million (4%) due principally to increased promotional and marketing costs and to
increased gaming taxes associated with higher casino revenues. Depreciation and
amortization expense increased $2.4 million (14%) due to the aforementioned
major capital improvements.
MISSISSIPPI
As described previously, Bally's Mississippi reopened its dockside casino in
December 1995 in Robinsonville, Mississippi, where Lady Luck Gaming Corporation
had constructed a 238-room hotel. Between December 1993 and February 1995,
Bally's Mississippi operated the dockside casino at a different site. Revenues
of Bally's Mississippi for the nine months ended September 30, 1996 were $55.0
million, and included casino revenues of $51.0 million (slot revenues were $39.6
million and table game revenues were $11.4 million) and room revenues of $2.5
million. Operating income for the nine months ended September 30, 1996 was $3.0
million, after giving effect to the amortization of $3.3 million of pre-opening
costs. Revenues of Bally's Mississippi for the nine months ended September 30,
1995 were $2.3 million (casino revenues were $1.0 million and room revenues were
$1.3 million). Operating loss for the nine months ended September 30, 1995 was
$4.3 million, and included gaming- related costs (primarily slot machine lease
costs) and general and administrative costs incurred during the temporary
cessation of casino operations.
NEW ORLEANS
As described previously, Bally's New Orleans commenced the operation of its
riverboat casino in July 1995 in New Orleans, Louisiana. Revenues of Bally's New
Orleans for the nine months ended September 30, 1996 were $66.6 million and
included casino revenues of $64.4 million (slot revenues were $51.7 million and
table game revenues were $12.7 million). Operating income of Bally's New Orleans
for the nine months ended September 30, 1996 was $8.5 million. Revenues of
Bally's New Orleans for the nine months ended September 30, 1995 were $17.7
million and included casino revenues of $16.9 million (slot revenues were $13.4
million and table game revenues were $3.5 million). Operating loss of Bally's
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.
INTEREST EXPENSE
Interest expense was $98.8 million for the nine months ended September 30, 1996
compared to $98.2 million for the 1995 period, an increase of $.6 million (1%)
due principally to a decrease in the amount of capitalized interest offset, in
part, by a lower average level of debt.
15
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
INCOME TAXES
For the nine months ended September 30, 1996 and 1995, 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 adjustments of prior years' taxes, substantially offset in 1996
and more than offset in 1995, by state income taxes and nondeductible expenses
(including goodwill amortization).
LIQUIDITY AND CAPITAL RESOURCES
As described in "Notes to condensed consolidated financial statements -
Acquisition of Bally by Hilton Hotels Corporation and Long-term debt," the
Merger, the Tender Offers and the Consent Solicitations are pending. However, as
there can be no assurance that the Merger, the Tender Offers and the Consent
Solicitations will actually be completed, the following discussion and analysis
of financial condition has been prepared without giving effect thereto.
PARENT COMPANY
Bally is a holding company without significant operations of its own. Sources of
cash available to Bally are generally limited to existing cash balances ($75.8
million at September 30, 1996), management fees or cost allocations to
subsidiaries, receipts pursuant to tax sharing agreements, dividends from
subsidiaries, asset sales and issuance of additional securities. In May 1996,
Bally filed a Registration Statement on Form S-3 (the "Shelf Registration") with
the Securities and Exchange Commission (the "Commission") to offer debt and/or
equity securities at an aggregate initial offering price not to exceed $750
million. In August 1996, the Commission declared the Shelf Registration
effective.
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 Bally's
Casino Holdings, Inc. ("Casino Holdings") may be declared as dividends by Casino
Holdings and be paid to Bally. As of September 30, 1996, approximately $22
million was available for the payment of dividends to Bally (through Casino
Holdings) pursuant to this net income test. In addition, under the terms of The
Grand's 10-5/8% First Mortgage Notes due 2003, dividends to Bally are limited by
a net income test. As of September 30, 1996, no amount was available for the
payment of dividends by The Grand. Dividends to Bally from subsidiaries other
than Bally's Park Place and possibly The Grand 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. Cash requirements for Bally over the next twelve months
include income tax payments, which management expects to be more than fully
recovered from subsidiaries pursuant to tax sharing agreements. Debt service
requirements and preferred stock dividend payments are expected to be
approximately $31 million over the next twelve months. In addition, if
necessary, Bally may advance or contribute funds to Casino Holdings. Bally
believes that it will be able to satisfy these cash requirements over the next
twelve months.
In August 1996, Bally acquired Paris Casino Corp. (a wholly owned subsidiary
that owns 24 acres of land next to Bally's Las Vegas upon which the Paris
Casino-Resort is planned to be developed) from Bally's Grand, Inc. for
consideration having an aggregate value of $57.5 million ($17.5 million in cash
and 1,457,195 shares of Bally common stock which were drawn from the Shelf
Registration). In addition, Bally reimbursed Bally's Grand, Inc. for
16
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Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Paris Casino-Resort development costs incurred to date and certain
transaction-related costs, and granted Bally's Grand, Inc. certain operating
considerations pursuant to a shared facilities agreement. The Paris Casino-
Resort is presently planned to include, among other things, an 85,000 square-
foot casino, 3,000 guest rooms and a 50-story replica of the Eiffel Tower.
Construction of the Paris Casino-Resort is planned to commence in early 1997,
with completion planned by the end of 1998. The cost of the project, exclusive
of the value of the land, is presently estimated to be approximately $575
million, of which approximately $150 million is expected to be incurred over the
next twelve months. Since construction of this project is now planned to
commence after the expected completion of the Merger, project financing
activities have been suspended.
SUBSIDIARIES
CASINO HOLDINGS
CASINO HOLDINGS. Casino Holdings is also a holding company without significant
operations of its own. Sources of cash available to Casino Holdings are
generally limited to existing cash balances ($5.1 million at September 30,
1996), 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 certain of their indebtedness. To the extent
Bally's New Orleans and Bally's Mississippi generate unrestricted cash flows,
each subsidiary pays management fees to Casino Holdings and thereafter is
expected to 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. To the extent Casino Holdings requires additional
funds for existing ventures, to satisfy debt service obligations or to develop
new ventures, Casino Holdings expects that it will be able to obtain financing
for such cash requirements from Bally and, as a result, Casino Holdings believes
that 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, 1996 are not significant.
Management plans to make capital expenditures of approximately $19 million over
the next twelve months for various improvements, renovations and equipment to
maintain Bally's Park Place in first-class condition. As of September 30, 1996,
Bally's Park Place had an unused line of credit totalling $65 million which
expires on December 31, 1998. 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 ($49.0 million at September 30, 1996) and cash flow from operations.
For the nine months ended September 30, 1996 and the year ended December 31,
1995, cash provided by operating activities at Bally's Park Place totalled $35.3
million and $75.1 million, respectively, and its operating margin (before
depreciation and amortization) was 37% and 34%, respectively.
Bally's Park Place broke ground in April 1996 for construction of a western-
themed casino complex on approximately four acres of Boardwalk property it owns
adjacent to its existing casino hotel resort. The complex is presently planned
to include 75,000 square feet of casino space and cost approximately $110
million, with completion anticipated in mid-1997. Bally's Park Place intends to
finance the expansion through available cash, cash generated by operations and,
if necessary, utilization of its line of credit.
17
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
BALLY'S LAS VEGAS. Bally's Grand, Inc. has no scheduled principal payments on
its long-term debt until 2003. Management plans to make capital expenditures
totalling approximately $33 million at Bally's Las Vegas over the next twelve
months for various improvements, renovations and equipment 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 ($110.1 million at September 30, 1996). For the nine months ended
September 30, 1996 and the year ended December 31, 1995, cash provided by
operating activities at Bally's Las Vegas totalled $43.0 million and $34.0
million, respectively, and its operating margin (before depreciation,
amortization and management fees) was 30% and 25%, respectively.
BALLY'S MISSISSIPPI. Bally's Mississippi reopened its dockside casino in
Robinsonville, Mississippi in December 1995. A total of approximately $29
million was required to relocate the dockside casino from Mhoon Landing to
Robinsonville and to develop the Robinsonville site to include a restaurant,
entertainment lounge, administrative facilities and additional parking. The
project cost was substantially funded by Casino Holdings; however, Bally's
Mississippi thereafter entered into a credit agreement for a $10 million term
loan (guaranteed by Bally), the proceeds of which were paid to Casino Holdings.
Management plans to make capital expenditures of approximately $2 million at
Bally's Mississippi over the next twelve months for various improvements,
renovations and equipment to maintain the property in first-class condition. The
Company believes Bally's Mississippi will be able to satisfy its debt service
and the aforementioned capital expenditure requirements over the next twelve
months out of existing cash balances ($5.3 million at September 30, 1996) and
cash flow from operations. For the nine months ended September 30, 1996, cash
provided by operating activities at Bally's Mississippi totalled $6.4 million
and its operating margin (before depreciation, amortization, and management
fees) was 21%.
BALLY'S NEW ORLEANS. Bally's New Orleans commenced operation of a riverboat
casino 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. 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 existing cash balances ($4.9 million at September 30, 1996)
and cash flow from operations. For the nine months ended September 30, 1996,
cash provided by operating activities at Bally's New Orleans totalled $5.7
million and its operating margin (before depreciation, amortization, and
management fees) was 21%.
THE GRAND
The Grand has no scheduled principal payments under its public indebtedness
until 2003. Management expects to make capital expenditures of approximately $6
million over the next twelve months for various improvements, renovations and
equipment to maintain The Grand in first-class condition. As of September 30,
1996, The Grand had an unused line of credit totalling $20 million which expires
on June 30, 1998. The Company believes that 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 ($30.0 million at September
30, 1996) and cash flow from operations. For the nine months ended September 30,
1996 and the year ended December 31, 1995, cash provided by operating activities
at The Grand totalled $23.0 million and $27.4 million, respectively, and its
operating margin (before depreciation and amortization) was 20% and 22%,
respectively.
18
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Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
In March 1996, The Grand broke ground for construction of a 300-room hotel
tower, including restaurants, meeting rooms and other related amenities. The
tower is expected to cost approximately $50 million, net of CRDA investment
obligation credits. Completion of the tower is anticipated in July 1997. The
Grand intends to finance the tower through available cash, cash generated by
operations and utilization of its line of credit.
19
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Bally Entertainment Corporation
PART II. OTHER INFORMATION
Item 1. Legal proceedings
A purported class action against Bally, its directors and Hilton,
which commenced in August 1996 under the caption Parnes v. Bally
Entertainment Corporation, et al. in the Court of Chancery of the
State of Delaware, New Castle County, alleges breaches of fiduciary
duty in connection with the Merger, including allegedly illegal
payments to Arthur M. Goldberg. Plaintiff alleges that these payments
to Mr. Goldberg denied shareholders other than Mr. Goldberg an
opportunity to sell their shares to Hilton or any other bidder at the
best possible price. The plaintiff seeks, among other things: (i) an
order enjoining the Merger (ii) an award of damages in an unspecified
amount, (iii) an order requiring Mr. Goldberg to disgorge his
profits, and (iv) an award of attorneys' fees and expenses. Two other
purported class actions relating to the Merger are pending against
Bally and its directors, one commenced in April 1996 under the
caption Kinder v. Brunet, et al. and the other commenced in June 1996
under the caption Lord v. Brunet, et al., in the Court of Chancery of
the State of Delaware, New Castle County. These actions are virtually
identical, and also allege breaches of fiduciary duty in connection
with the Merger. The plaintiffs seek, among other things: (i) a
declaration that defendants have breached their fiduciary duties,
(ii) an order requiring defendants to act in accordance with their
fiduciary duties in order to maximize the value obtained for Bally's
shareholders, (iii) an award of damages in an unspecified amount, and
(iv) an award of expenses, including attorneys' fees. The defendants
believe the complaints are without merit.
Two purported derivative actions against Bally's Grand Inc., its
directors and Bally, one commenced in October 1995 and the other in
September 1996, have been consolidated under the caption In re:
Bally's Grand Derivative Litigation in the Court of Chancery of the
State of Delaware, New Castle County. The consolidated complaint
alleges breaches of fiduciary duty and waste of corporate assets in
connection with certain actions including the sale by Bally's Grand,
Inc. to Bally of the capital stock of Paris Casino Corp. (the "Paris
Transaction"), alleged improper delegation of duties by Bally's
Grand, Inc.'s Board of Directors by virtue of a management agreement
(the "Management Agreement") among Bally's Grand, Inc., Bally, and
Bally's Grand Management Co., Inc. (a wholly owned subsidiary of
Bally), the Bally's Grand Management Co., Inc.'s designation pursuant
to the Management Agreement of recipients awarded Bally's Grand, Inc.
common stock pursuant to an incentive stock plan, purchases of
Bally's Grand, Inc. common stock by Bally's Grand, Inc. and Bally,
and a consulting agreement entered into by Bally's Grand, Inc. with
Arveron Investments, L.P. in connection with Bally's Grand, Inc.'s
investments in publicly-traded securities and certain repurchases of
its common stock. The plaintiffs seek, among other things: (i)
rescission of the Paris Transaction, (ii) a declaration that the
Management Agreement is unlawful, (iii) an accounting of damages to
Bally's Grand, Inc. and profits to defendants as a result of the
transactions complained of, (iv) an accounting for purchases of
Bally's Grand, Inc. common stock by Bally's Grand, Inc. and Bally,
and (v) costs and expenses including reasonable attorneys' fees. A
third purported derivative action against Bally's Grand, Inc., its
directors, Bally, Bally's Grand Management Co., Inc. and Hilton was
commenced in November 1996 under the caption Tower Investment Group,
Inc., et al. v. Bally's Grand, Inc., et al. in the Court of Chancery
of the State of Delaware, New Castle County. The complaint alleges
breach of fiduciary duty and waste of corporate assets by Bally's
Grand, Inc.'s directors and Bally in connection with the Paris
Transaction, aiding and abetting by Hilton of the breaches of
fiduciary duty and waste by Bally's Grand, Inc.'s directors and
20
<PAGE>
Bally Entertainment Corporation
PART II. OTHER INFORMATION--(CONTINUED)
Bally, fraud, willful misconduct or gross negligence by Bally and
Bally's Grand Management Co., Inc. in connection with the Management
Agreement, breach of fiduciary duty by Bally's Grand, Inc.'s
directors in connection with purchases of Bally's Grand, Inc. common
stock by Bally while in possession of material inside information
concerning Bally's Grand, Inc.'s earnings, breach of fiduciary duty
by Bally in connection with alleged fiduciary duty and waste by
Bally's Grand, Inc.'s directors and Bally, fraud, willful misconduct
or gross negligence by Bally and Bally's Grand Management Co., Inc.
in connection with the Management Agreement, breach of fiduciary duty
by Bally's Grand, Inc.'s directors in connection with purchases of
Bally's Grand, Inc. common stock by Bally while in possession of
material inside information concerning Bally's Grand, Inc.'s
earnings, breach of fiduciary duty by Bally in connection with
alleged threats to abuse its controlling interest in Bally's Grand,
Inc., and violation by Bally's Grand, Inc.'s directors and Bally of
Section 203 of the Delaware General Corporation Law in connection
with the Paris Transaction. The plaintiffs seek, among other things:
(i) rescission of the Paris Transaction, (ii) termination of the
Management Agreement, (iii) appointment of a custodian to manage
Bally's Grand, Inc.'s affairs, (iv) compensatory damages, (v) an
order enjoining Bally and Hilton from conveying the Paris
Casino-Resort, (vi) disgorgement by Bally and Hilton of the profits
of the Paris Casino-Resort, (vii) disgorgement by Arthur M. Goldberg
of all payments, warrants and interests received in connection with
the Merger, and (viii) disgorgement by Bally of profits earned from
any transactions in shares of Bally's Grand, Inc.'s common stock
based upon material inside information. The defendants believe the
complaints are without merit.
Item 4. Submission of matters to a vote of security holders
At a special meeting of Bally's stockholders held on September 18,
1996, the stockholders considered and voted on the following item:
An Agreement and Plan of Merger, dated as of June 6, 1996, as
amended, by and between Hilton and Bally pursuant to which Bally will
merge with and into Hilton, with Hilton continuing as the surviving
corporation. The voting results, which resulted in the approval of
the Agreement and Plan of Merger, were as follows:
<TABLE>
<CAPTION>
Votes cast for Votes against Abstentions
-------------- ------------- -----------
<S> <C> <C> <C>
42,910,559 91,315 107,322
</TABLE>
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K:
None
21
<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, 1996
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996, THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 280,539
<SECURITIES> 7,624
<RECEIVABLES> 49,443
<ALLOWANCES> 13,213
<INVENTORY> 7,872
<CURRENT-ASSETS> 381,225
<PP&E> 1,826,305
<DEPRECIATION> 571,245
<TOTAL-ASSETS> 1,887,752
<CURRENT-LIABILITIES> 144,826
<BONDS> 1,208,678
0
14,833
<COMMON> 34,440
<OTHER-SE> 262,494
<TOTAL-LIABILITY-AND-EQUITY> 1,887,752 <F1>
<SALES> 0
<TOTAL-REVENUES> 891,052
<CGS> 0
<TOTAL-COSTS> 528,773 <F2>
<OTHER-EXPENSES> 1,737 <F3>
<LOSS-PROVISION> 1,771 <F2>
<INTEREST-EXPENSE> 98,754
<INCOME-PRETAX> 89,642
<INCOME-TAX> 31,000
<INCOME-CONTINUING> 54,190
<DISCONTINUED> 0
<EXTRAORDINARY> (2,948)
<CHANGES> 0
<NET-INCOME> 51,242
<EPS-PRIMARY> .73
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT INCLUDES 36,885 OF MINORITY INTERESTS.
<F2>THESE AMOUNTS ARE INLCUDED IN COST OF OPERATIONS UNDER COSTS AND
EXPENSES IN THE CONSOLIDATED STATEMENT OF INCOME FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996.
<F3>GAMING DEVELOPMENT COSTS, EXCLUDING AMORTIZATION OF PRE-OPENING COSTS.
</FN>
</TABLE>
