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 March 31, 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: (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 April 30, 1996, 49,146,598 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)
March 31, 1996 and December 31, 1995 ...................... 1
Condensed consolidated statement of income (unaudited)
Three months ended March 31, 1996 and 1995................. 2
Consolidated statement of stockholders' equity (unaudited)
Three months ended March 31, 1996.......................... 3
Consolidated statement of cash flows (unaudited)
Three months ended March 31, 1996 and 1995................. 4 - 5
Notes to condensed consolidated financial statements
(unaudited)................................................ 6 - 7
Item 2. Management's discussion and analysis of financial
condition and results of operations................. 8 - 14
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K...................... 15
SIGNATURE PAGE................................................... 16
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<CAPTION>
March 31 December 31
1996 1995
- --------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................... $ 296,762 $ 285,801
Marketable securities, at fair value......... 15,276 18,111
Receivables, less allowances of $13,854
and $13,094 ............................... 32,202 27,497
Inventories.................................. 8,003 8,358
Deferred income taxes........................ 23,400 22,450
Other current assets ........................ 15,113 11,495
----------- -----------
Total current assets....................... 390,756 373,712
Property and equipment, less accumulated
depreciation of $535,448 and $510,898........ 1,260,296 1,267,233
Intangible assets, less accumulated
amortization of $30,117 and $28,867.......... 124,020 122,728
Other assets................................... 123,776 125,544
----------- -----------
$ 1,898,848 $ 1,889,217
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 15,018 $ 22,209
Income taxes payable......................... 9,921 3,583
Accrued liabilities.......................... 115,479 116,548
Current maturities of long-term debt ........ 11,306 11,160
----------- -----------
Total current liabilities.................. 151,724 153,500
Long-term debt, less current maturities........ 1,280,460 1,278,441
Deferred income taxes.......................... 158,097 157,913
Other liabilities.............................. 12,920 12,626
Minority interests............................. 34,886 36,102
Stockholders' equity........................... 260,761 250,635
----------- -----------
$ 1,898,848 $ 1,889,217
=========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<CAPTION>
Three months
ended March 31
----------------------
1996 1995
- -------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues.......................................... $ 286,721 $ 228,298
Costs and expenses:
Cost of operations.............................. 177,593 143,039
Selling, general and administrative............. 33,063 27,142
Gaming development costs, including
amortization of pre-opening costs of
$1,961 in 1996................................ 2,530 443
Depreciation and amortization................... 21,208 17,296
---------- ----------
234,394 187,920
---------- ----------
Operating income.................................. 52,327 40,378
Gain (loss) on sales of marketable securities..... (377) 103
Interest expense.................................. (33,519) (32,252)
---------- ----------
Income before income taxes, minority interests
and extraordinary item.......................... 18,431 8,229
Income tax provision.............................. (7,200) (3,100)
Minority interests................................ (2,093) (955)
---------- ----------
Income before extraordinary item.................. 9,138 4,174
Extraordinary gain on extinguishment of debt...... 326
---------- ----------
Net income........................................ 9,138 4,500
Preferred stock dividend requirement.............. (4,148) (694)
---------- ----------
Net income applicable to common stock............. $ 4,990 $ 3,806
========== ==========
Per common and common equivalent share:
Income before extraordinary item................ $ .10 $ .07
Extraordinary gain on extinguishment of debt.... .01
---------- ----------
Net income...................................... $ .10 $ .08
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
2
<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........................ 9,138 9,138
Dividends on Preferred Stock:
Series D - $1.00 per share...... (694) (694)
8% Prides - $.2225 per share.... (3,454) (3,454)
Change in unrealized gain/loss
on available-for-sale
securities...................... 1,605 1,605
Issuance of common/treasury
stock under stock purchase
and option plans................ 222 2,911 108 3,241
Issuance of common/treasury
stock in exchange for Series D
Preferred Stock................. (183) 271 (1,554) 1,466 --
Issuance of common stock upon
conversion of 8% Convertible
Senior Subordinated Debentures
due 2000........................ 16 274 290
-------- -------- -------- -------- -------- --------
Balance at March 31, 1996........... $ 16,036 $ 32,260 $179,182 $ 33,746 $ (463) $260,761
======== ======== ======== ======== ======== ========
<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............................. 333 (8)
Issuance of common/treasury stock in exchange for
Series D Preferred Stock.............................. (183) 407 (106)
Issuance of common stock upon conversion of 8%
Convertible Senior Subordinated Debentures due 2000... 23
-------- -------- -------- --------
Balance at March 31, 1996................................. 511 15,525 48,389 33
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
Three months
ended March 31
----------------------
1996 1995
- ---------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
OPERATING:
Income before extraordinary item................... $ 9,138 $ 4,174
Adjustments to reconcile to cash provided--
Depreciation and amortization (including
pre-opening costs).............................. 23,169 17,296
Interest accretion on discount notes and other
amortization included in interest expense....... 5,155 5,007
Minority interests................................ 2,093 955
Deferred income taxes............................. (1,660) (1,212)
Provision for doubtful receivables................ 1,222 1,524
Change in operating assets and liabilities........ (5,580) (3,464)
Other, net........................................ (150) (389)
---------- ----------
Cash provided by operating activities.......... 33,387 23,891
INVESTING:
Purchases and construction of property
and equipment.................................... (12,896) (32,032)
Decrease in construction-related liabilities....... (4,900) (1,364)
Acquisitions of Bally's Grand, Inc. common stock... (6,995) (11,305)
Purchases of marketable securities................. (1,878) (3,353)
Net proceeds from sales of marketable securities... 8,016 2,434
Other, net......................................... 669 (2,729)
---------- ----------
Cash used in investing activities.............. (17,984) (48,349)
FINANCING:
Debt transactions--
Proceeds from construction loan................... 10,184
Repayments of long-term debt...................... (1,493) (6,517)
Debt issuance costs............................... (783)
---------- ----------
Cash provided by (used in) debt transactions... (2,276) 3,667
Equity transactions--
Proceeds from issuance of common stock under
stock purchase and option plans................. 1,982 99
Preferred stock dividends paid.................... (4,148) (694)
---------- ----------
Cash provided by (used in)
financing activities......................... (4,442) 3,072
DISCONTINUED OPERATIONS:
Cash provided by discontinued operations....... 216
---------- ----------
Increase (decrease) in cash and equivalents......... 10,961 (21,170)
Cash and equivalents, beginning of period........... 285,801 178,427
---------- ----------
Cash and equivalents, end of period................. $ 296,762 $ 157,257
========== ==========
(continued)
</TABLE>
4
<PAGE>
<TABLE>
Bally Entertainment Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
(unaudited)
<CAPTION>
Three months
ended March 31
----------------------
1996 1995
- ---------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities
were as follows--
(Increase) decrease in receivables............ $ (7,837) $ 107
Decrease in inventories....................... 355 77
(Increase) decrease in other current assets... (3,290) 8,518
(Increase) decrease in other assets........... (1,535) 169
Decrease in accounts payable and accrued
liabilities................................. (175) (10,171)
Increase in income taxes payable.............. 6,763 138
Increase (decrease) in other liabilities ..... 139 (2,302)
---------- ----------
$ (5,580) $ (3,464)
========== ==========
Cash payments for interest and income taxes
were as follows--
Interest paid................................. $ 21,237 $ 20,535
Interest capitalized.......................... (159) (747)
Income taxes paid (net of refunds)............ 2,097 4,265
Investing and financing activities exclude
the following non-cash activities--
Issuance of common/treasury stock in
exchange for/upon conversion of other
securities.................................. $ 8,351 $
Purchases of marketable securities on
margin...................................... 1,311
Sales of margined marketable securities
(including unsettled sales)................. 4,807
Acquisition of Bally's Grand, Inc. common
stock in exchange for a note payable........ 3,873
<FN>
See accompanying notes.
</FN>
</TABLE>
5
<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 March 31, 1996, its condensed consolidated statement of income
for the three months ended March 31, 1996 and 1995, its consolidated statement
of stockholders' equity for the three months ended March 31, 1996 and its
consolidated statement of cash flows for the three months ended March 31, 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.
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore, the
results of operations for the three months ended March 31, 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 52,656,507 and 48,692,783 for the three months ended March 31, 1996 and
1995, respectively. Common stock equivalents (which represent the dilutive
effect of the assumed exercise of certain outstanding stock options for both
periods and the assumed conversion of exchangeable preferred stock of a
subsidiary for the 1996 period) increased the weighted average number of shares
outstanding by 4,938,262 and 1,693,182 for the three months ended March 31, 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 three months ended March 31,
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 March 31, 1996.
6
<PAGE>
Bally Entertainment Corporation
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(All dollar amounts in thousands except per share data) (unaudited)
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at March 31, 1996 and
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
----------- -----------
<S> <C> <C>
Bally:
8% Convertible Senior Subordinated
Debentures due 2000......................... $ 13,296 $ 13,586
10% Convertible Subordinated Debentures
due 2006.................................... 75,000 75,000
6% Convertible Subordinated Debentures
due 1998.................................... 1,804 1,804
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998, less
unamortized discount of $38,896
and $42,805................................. 153,664 149,755
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 $1,639 and $1,678... 273,361 273,322
Bally's Las Vegas:
10-3/8% First Mortgage Notes due 2003......... 315,000 315,000
Other secured and unsecured obligations......... 34,641 36,134
----------- -----------
Total long-term debt............................ 1,291,766 1,289,601
Current maturities of long-term debt............ (11,306) (11,160)
----------- -----------
Long-term debt, less current maturities......... $ 1,280,460 $ 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. The 8% Debentures are convertible into
common stock at a conversion price of $12.46 per share. The right to convert the
8% Debentures terminates at the close of business on May 22, 1996.
During the three months ended March 31, 1995, Bally's Casino Holdings, Inc.
("Casino Holdings") purchased $10,040 principal amount of its Senior Discount
Notes due 1998 (the "Senior Discount Notes") for $6,448 in cash, which resulted
in an extraordinary gain of $326, net of income taxes of $176.
7
<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
ended March 31
---------------------
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Consolidated (a):
Revenues (b)....................................... $286.7 $228.3
Operating income (c)............................... 52.3 40.4
Bally's Park Place:
Revenues........................................... $ 94.1 $ 92.3
Operating income................................... 22.6 22.3
The Grand:
Revenues........................................... $ 64.2 $ 61.8
Operating income................................... 5.2 7.8
Bally's Las Vegas:
Revenues........................................... $ 82.1 $ 72.3
Operating income................................... 20.1 12.9
Bally's Mississippi (a):
Revenues........................................... $ 20.6 $ 1.0
Operating income (loss) (c)........................ 1.3 (1.9)
Bally's New Orleans (a):
Revenues........................................... $ 22.9 $ --
Operating income................................... 3.1 --
<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 $4.6 and $3.0 for the three months ended March
31, 1996 and 1995, respectively.
(c) After amortization of pre-opening costs totalling $2.0 million at Bally's
Mississippi for the three months ended March 31, 1996.
</FN>
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues and operating income of the Company for the first quarter of 1996
increased $58.4 million (26%) and $11.9 million (29%), respectively, from the
1995 quarter. 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 first quarter of 1996 were $94.1 million
compared to $92.3 million for the 1995 quarter, an increase of $1.8 million (2%)
primarily due to a $1.6 million (2%) increase in casino revenues.
8
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Slot revenues increased $2.1 million (4%) due to a 6% increase in slot handle
(volume) offset, in part, by a decline in the win percentage from 8.6% in the
1995 quarter to 8.4% in 1996. On average, Bally's Park Place had 89 (4%) more
slot machines for the first quarter of 1996 than in 1995. Table game revenues,
excluding poker, decreased $.4 million (2%) due to a decrease in the hold
percentage from 16.7% in the 1995 quarter to 16.3% in 1996 offset, in part, by a
1% increase in the drop (amount wagered). Other casino revenues decreased $.1
million (5%). Operating income of Bally's Park Place for the first quarter of
1996 was $22.6 million compared to $22.3 million for the 1995 quarter, an
increase of $.3 million (1%) as the aforementioned revenue increase was offset,
in part, by a 2% increase in operating expenses. Casino expenses increased $2.5
million (7%) due primarily to expanded promotional efforts. Selling, general and
administrative expenses decreased $.9 million (12%) primarily due to an increase
in the estimated realizable value of certain funds on deposit with the Casino
Reinvestment Development Authority (the "CRDA") in the first quarter of 1996
resulting from the approved use of such funds for reimbursement of certain costs
to complete several floors of hotel rooms in prior years.
Revenues of The Grand for the first quarter of 1996 were $64.2 million compared
to $61.8 million for the 1995 quarter, an increase of $2.4 million (4%)
primarily due to a $2.3 million (4%) increase in casino revenues. Slot revenues
increased $.8 million (2%) due to a 6% increase in slot handle offset, in part,
by a decline in the win percentage from 8.5% in the 1995 quarter to 8.2% in
1996. On average, the Company had 309 (20%) more slot machines for the first
quarter of 1996 than in 1995. Table game revenues, excluding poker, increased
$.4 million (2%) due to a 5% increase in the drop offset, in part, by a decrease
in the hold percentage from 18.2% in the 1995 quarter to 17.6% in 1996. Poker,
horse race simulcasting and keno, all of which commenced in April 1995,
contributed $1.1 million to casino revenues in the first quarter of 1996.
Operating income of The Grand for the first quarter of 1996 was $5.2 million
compared to $7.8 million for the 1995 quarter, a decrease of $2.6 million (33%)
as the aforementioned 4% revenue increase was more than offset by a 9% increase
in operating expenses. Casino expenses increased $5.7 million (17%) primarily
due to increased promotional expenses and costs of providing complimentary
services to increase gaming activity. In addition, other operating expenses
increased $.6 million (8%) and depreciation and amortization increased $.5
million (12%). These increases in operating expenses were offset, in part, by a
$1.7 million (26%) decrease in selling, general and administrative expenses
primarily due to an increase in the estimated realizable value of certain funds
on deposit with the CRDA in the first quarter of 1996 resulting from the
approved use of such funds for reimbursement of certain construction costs.
Management believes that the expansion of several casino hotel facilities in
Atlantic City, which includes additional hotel rooms and slot machines, has
caused and will continue to cause intense promotional efforts to attract slot
players as both the Company's Atlantic City casino hotel resorts and their
competitors continue to seek to expand their share of slot revenues and maximize
the utilization of their slot machines. Further, as a result of the aggressive
competition for slot patrons, the Atlantic City slot win percentage has
declined. Management believes that the slot win percentage will continue to be
subject to competitive pressure and may decline further. In addition, proposals
for several new casino hotel resorts were recently announced for the marina
district in 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 because of 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 additional slot
stools and increasing aisle space. In April
9
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
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").
LAS VEGAS
Revenues of Bally's Las Vegas for the first quarter of 1996 were $82.1 million
compared to $72.3 million for the 1995 quarter, an increase of $9.8 million
(14%). Casino revenues for the 1996 quarter were $40.1 million compared to $33.2
million for 1995, an increase of $6.9 million (21%) due, in part, to additional
walk-in business resulting from the June 1995 opening of a monorail system
connecting Bally's Las Vegas and MGM Grand. Table game revenues increased $3.0
million (18%) due to an increase in the hold percentage from 14.3% in the 1995
quarter to 15.8% in 1996 and a 6% increase in the drop. Slot revenues increased
$2.5 million (18%) due to a 19% increase in slot handle offset, in part, by a
decline in the win percentage from 6.1% in the 1995 quarter to 6.0% in 1996. On
average, Bally's Las Vegas had 180 (12%) more slot machines for the first
quarter of 1996 than in 1995. Other casino revenues increased $1.4 million (90%)
due to additional revenues generated by the relocated and expanded race and
sports book room, which opened in September 1995. Rooms revenue increased $1.4
million (8%) due to a higher average room rate and an increase in the number of
rooms occupied compared to the 1995 quarter. Food and beverage revenues
increased $.7 million (6%) primarily due to the reinstatement of beverage
service in the showrooms in the second quarter of 1995 and increased convention
business, and other revenues increased $.8 million (7%) due, in part, to
increased rental income from a redesign of the retail shopping mall and
increased gift shop revenues. Operating income of Bally's Las Vegas for the
first quarter of 1996 was $20.1 million compared to $12.9 million for the 1995
quarter, an increase of $7.2 million (56%) as the aforementioned 14% increase in
revenues was offset, in part, by a 4% increase in operating expenses. Casino
operating expenses increased $1.2 million (6%) due principally to increased
promotional costs and increased gaming taxes associated with higher casino
revenues, and depreciation and amortization expense increased $1.0 million (18%)
due to major capital improvements recently completed.
There have been various public announcements concerning the expansion of
existing casino hotel resorts and the development of new casino hotel resorts in
Las Vegas, certain of which have commenced construction. In particular, three
casino hotel resorts are expected to open on the Strip in 1996 with a total of
approximately 270,000 square feet of gaming space and 6,900 guest rooms.
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 recently completed an extensive capital improvement program, including
improvements to its frontage area along the Strip, the monorail system, the
renovation of all of its hotel rooms and the new race and sports book room,
among others. In addition, Bally's Grand, Inc. has announced its intention to
develop a new casino hotel resort (see "Liquidity and capital resources").
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 first quarter of 1996 were
10
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
$20.6 million, and included casino revenues of $19.4 million (slot revenues were
$14.3 million and table game revenues were $5.1 million) and room revenues of
$.6 million. Operating income for the 1996 quarter was $1.3 million, after
giving effect to the amortization of $2.0 million of pre-opening costs. Revenues
of Bally's Mississippi for the first quarter of 1995 were $1.0 million.
Operating loss for the 1995 quarter was $1.9 million, and included
gaming-related costs (primarily slot machine lease costs) and general and
administrative costs incurred during the temporary cessation of casino
operations.
Mississippi gaming law does not limit the number of gaming licenses that may be
granted. As a result, management believes there was a saturation of gaming
facilities in and around the Memphis, Tennessee market, which led to the closing
of six casinos in that market since April 1994 (including Bally's Mississippi,
which was moved and reopened). As of April 30, 1996, nine gaming facilities were
operating in this market, three of which are located immediately adjacent to
Bally's Mississippi. These gaming facilities present significant competition for
Bally's Mississippi. In addition, a casino is expected to commence operations in
mid-1996 somewhat closer to Memphis than Bally's Mississippi and, upon opening,
may affect Bally's Mississippi's results of 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 first quarter of 1996 were $22.9 million and included casino
revenues of $22.1 million (slot revenues were $17.1 million and table game
revenues were $5.0 million). Operating income of Bally's New Orleans for the
first quarter of 1996 was $3.1 million.
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all of which have been granted as of April 30,
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).
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 ceased operations at the temporary
location and suspended construction at the permanent site. It is presently not
known if, or when, construction of the permanent land-based facility will
resume.
INTEREST EXPENSE
Interest expense, net of capitalized interest, was $33.5 million for the first
quarter of 1996 compared to $32.3 million for the 1995 quarter, an increase of
$1.2 million (4%) due to a higher average level of debt and a decrease in the
amount of capitalized interest.
INCOME TAXES
For the three months ended March 31, 1996 and 1995, the effective rates of the
income tax provision on income before income taxes, minority interests and
extraordinary item 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 the effects of minority interests' equity in
earnings in 1996 and adjustments of prior years' taxes in 1995.
11
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
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 ($136.9
million at March 31, 1996), management fees or cost allocations to subsidiaries,
receipts pursuant to tax sharing agreements, dividends from subsidiaries, asset
sales and issuance of additional securities.
Each of Bally's principal operating subsidiaries presently has debt covenants
which limit the payment of dividends to Bally and the redemption of stock owned
by Bally. Under the terms of the Senior Discount Notes, an amount equal to
dividends paid pursuant to a net income test by Bally's Park Place to Casino
Holdings may be declared as dividends by Casino Holdings and be paid to Bally.
As of March 31, 1996, approximately $7 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 March 31, 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. As described in
"Long-term debt" in Notes to condensed consolidated financial statements, Bally
has announced its intention to redeem all of its outstanding 8% Debentures on
May 23, 1996. Bally expects substantially all holders of the 8% Debentures to
convert their holdings into common stock prior to that date in lieu of receiving
cash equal to the principal amount thereof together with interest accrued to the
redemption date. Accordingly, debt service requirements and preferred stock
dividend payments are expected to be approximately $30 million over the next
twelve months. In addition, if necessary, Bally may advance or contribute funds
to Casino Holdings. Bally believes it will be able to satisfy its cash
requirements over the next twelve months.
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 ($9.0 million at March 31, 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. Dividends from
Bally's Park Place are limited to funds available under Bally's Park Place's
aforementioned net income test, which is available to be paid to Bally through
Casino Holdings. Bally's Grand, Inc. is presently not expected to pay dividends
over the next twelve months. To the extent Bally's New Orleans and Bally's
Mississippi generate unrestricted cash flows, each subsidiary 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 but expects to continue to incur costs and obligations
in the pursuit of new gaming ventures. To the extent Casino
12
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Holdings requires additional funds for existing ventures or to develop new
ventures, Casino Holdings expects that it will be able to obtain financing for a
significant portion of such cash requirements from a combination of Bally
(either loans or contributions) and third party sources (including banks,
suppliers and capital markets) and, as a result, Casino Holdings believes it
will be able to satisfy its cash needs over the next twelve months.
BALLY'S PARK PLACE. Bally's Park Place has no scheduled principal payments under
its public indebtedness until 2004, and its scheduled principal payments under
other indebtedness outstanding at March 31, 1996 are not significant. Management
plans to make capital expenditures of approximately $20 million over the next
twelve months for improvements, renovations and equipment to maintain Bally's
Park Place in first-class condition. As of March 31, 1996, Bally's Park Place
had an unused line of credit totalling $65 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 ($26.9 million at March 31, 1996)
and cash flow from operations. For the three months ended March 31, 1996 and the
year ended December 31, 1995, cash provided by operating activities at Bally's
Park Place totalled $.7 million and $75.1 million, respectively, and its
operating margin (before depreciation and amortization) was 31% 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 Bally's Park Place. The complex is presently planned to include
approximately 75,000 square feet of casino space and cost between $80 and $100
million, of which approximately $70 million is expected to be incurred over the
next twelve months. Completion of the complex is 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.
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 $23 million at Bally's Las Vegas over the next twelve
months (i) to replace certain slot machines so that substantially all of the
Company's slot machines will be state-of-the-art with embedded bill acceptors,
(ii) to redesign and expand the baccarat area, (iii) to upgrade certain
penthouses and suites, and (iv) for other improvements and equipment necessary
to maintain the casino hotel resort in first-class condition. The Company
believes that Bally's Grand, Inc. will be able to satisfy its debt service
(interest on its public indebtedness is approximately $32.7 million per annum)
and the aforementioned capital expenditure requirements over the next twelve
months out of existing cash balances ($78.8 million at March 31, 1996) and cash
flow from operations. For the three months ended March 31, 1996 and the year
ended December 31, 1995, cash provided by operating activities at Bally's Las
Vegas totalled $19.8 million and $34.0 million, respectively, and its operating
margin (before depreciation, amortization and management fees) was 33% and 25%,
respectively. In addition, Bally's Grand, Inc. received a commitment from a
lender in March 1996 for a revolving credit facility totalling $15 million.
In 1995, Bally's Grand, Inc. announced its intention to develop a separate
casino hotel resort with a Paris, France theme (the "Paris Casino-Resort") on
approximately 24 acres of land situated on the Strip adjacent to Bally's Las
Vegas. 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 expected to
commence in the third quarter of 1996, with completion expected in 1998. The
cost of the project, exclusive of the value of the land, is presently estimated
to be between $375 million and $425 million, of which $30 million to $40 million
is expected to be incurred over the next twelve months.
13
<PAGE>
Bally Entertainment Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Bally's Grand, Inc. expects to obtain third-party financing for a significant
portion of the project cost.
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 recently entered into a credit agreement for a $10 million term loan
(guaranteed by Bally), the proceeds of which upon satisfaction of a condition
are expected to be paid to Casino Holdings. Management plans to make capital
expenditures of approximately $2 million at Bally's Mississippi over the next
twelve months for a steakhouse, additional slot machines and other improvements
necessary 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 ($9.8 million at March 31, 1996) and cash flow from
operations. For the three months ended March 31, 1996, cash provided by
operating activities at Bally's Mississippi totalled $4.0 million and its
operating margin (before depreciation, amortization, and management fees) was
25%.
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 ($4.6 million at March 31, 1996) and
cash flow from operations. For the three months ended March 31, 1996, cash
provided by operating activities at Bally's New Orleans totalled $2.4 million
and its operating margin (before depreciation, amortization, and management
fees) was 22%.
THE GRAND
The Grand has no scheduled principal payments under its public indebtedness
until 2003. Management expects to make capital expenditures of approximately $5
million over the next twelve months for slot machines and other improvements and
equipment necessary to maintain The Grand in first-class condition. As of March
31, 1996, The Grand had an unused line of credit totalling $20 million. In May
1996, The Grand amended this revolving credit agreement to extend the expiration
date from December 31, 1996 to 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 ($30.1 million at March 31, 1996) and cash flow from operations. For
the three months ended March 31, 1996 and the year ended December 31, 1995, cash
provided by operating activities at The Grand totalled $10.1 million and $27.4
million, respectively, and its operating margin (before depreciation and
amortization) was 16% and 22%, respectively.
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 $40 million (net of over $10 million of
CRDA investment obligation credits), of which approximately $20 million is
expected to be incurred over the next twelve months. Completion of the tower is
anticipated in the second quarter of 1997. The Grand intends to finance the
tower through available cash, cash generated by operations and, if necessary,
utilization of its line of credit.
14
<PAGE>
Bally Entertainment Corporation
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
*4.(ii)-19 Second Amended and Restated Loan Agreement dated as of
May 2, 1996 among GNOC, CORP., First Union National
Bank and Midlantic Bank, National Association (filed
as an exhibit to GNOC, CORP.'s Quarterly Report on
Form 10-Q, file no. 1-8531, for the quarter ended
March 31, 1996).
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K:
None.
---------
* Incorporated herein by reference as indicated.
15
<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: May 15, 1996
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996, THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME AND THE CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 296,762
<SECURITIES> 15,276
<RECEIVABLES> 46,056
<ALLOWANCES> 13,854
<INVENTORY> 8,003
<CURRENT-ASSETS> 390,756
<PP&E> 1,795,744
<DEPRECIATION> 535,448
<TOTAL-ASSETS> 1,898,848
<CURRENT-LIABILITIES> 151,724
<BONDS> 1,280,460
0
16,036
<COMMON> 32,260
<OTHER-SE> 212,465
<TOTAL-LIABILITY-AND-EQUITY> 1,898,848<F1>
<SALES> 0
<TOTAL-REVENUES> 286,721
<CGS> 0
<TOTAL-COSTS> 176,371<F2>
<OTHER-EXPENSES> 569<F3>
<LOSS-PROVISION> 1,222<F2>
<INTEREST-EXPENSE> 33,519
<INCOME-PRETAX> 18,431
<INCOME-TAX> 7,200
<INCOME-CONTINUING> 9,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,138
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT INCLUDES 34,886 OF MINORITY INTERESTS.
<F2>THESE AMOUNTS ARE INCLUDED IN COST OF OPERATIONS UNDER COSTS AND
EXPENSES IN THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE
MONTHS ENDED MARCH 31, 1996.
<F3>GAMING DEVELOPMENT COSTS, EXCLUDING AMORTIZATION OF PRE-OPENING COSTS.
</FN>
</TABLE>
