ITEM 3. LEGAL PROCEEDINGS
Several purported derivative actions against Bally and certain of its current and former directors, originally filed in December 1990 and January 1991, have been consolidated under the caption "In re: Bally Manufacturing Corporation Shareholders Litigation in the Court of Chancery of the State of Delaware, New Castle County." The consolidated complaint alleges, among other things, breach of fiduciary duty, corporate mismanagement, and waste of corporate assets in connection with certain actions including, among other things, payment of compensation, certain acquisitions by Bally, the dissemination of allegedly materially false and misleading information, the proposed restructuring of Bally's debt, and a subsidiary's allegedly discriminatory practices. The plaintiffs seek, among other things: (i) injunctions against payment of certain termination compensation benefits and implementation of the proposed restructuring plan, (ii) rescission of consummated transactions and a declaration that the complained of transactions are null and void, (iii) an accounting by individual defendants of damages to Bally and benefits received by such defendants, (iv) the appointment of a representative to negotiate on behalf of the stockholders in connection with any proposed restructuring, and (v) costs and disbursements, including a
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reasonable allowance for the fees and expenses of plaintiffs' attorneys, accountants and experts.
In January 1992, a purported holder of Bally's Grand, Inc.'s bonds filed an action in the United States District Court for the Central District of California entitled "Nehus v. Bally Manufacturing Corporation, et al." against Bally, Bally's Grand, Inc. and certain of Bally's current and former officers and directors. The complaint alleged, among other things, that defendants violated the federal securities laws and the California Corporation Code, made intentional misrepresentations and breached their fiduciary obligations to plaintiff in connection with a purported exchange of Bally's Grand, Inc.'s bonds. In December 1992, the claims against former officers and a former director were dismissed for failure to effect proper service and in July 1993, Bally and Bally's Grand, Inc. settled the alleged claims against them.
The Internal Revenue Service ("IRS") has completed an audit of the federal income tax returns of certain of the Company's fitness center subsidiaries for periods ending on the day these subsidiaries were acquired. Among other things, the IRS is asserting that these subsidiaries owe additional taxes of approximately $32 million and substantial amounts of interest with respect to issues arising pursuant to the Company's election in 1983 to treat the purchases of stock of these subsidiaries as if they were purchases of assets. The Company vigorously opposes the IRS' assertions and has filed petitions in the United States Tax Court contesting the IRS' proposed deficiencies with respect to these issues. This matter has been docketed for trial in October 1994, however, a resolution may occur sooner if the Company and the IRS resolve all or some of these issues by stipulation or otherwise. Based on the information presently available, there can be no assurance of the outcome of this matter. However, in the opinion of management, payment, if any, to the IRS of amounts which may be ultimately deemed owing will not have a material adverse effect on the Company's consolidated financial position or results of operations, since the Company believes that it has adequately provided deferred and current taxes related to this matter, although it could, though it is not expected to, have a material adverse effect on the Company's liquidity.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is inapplicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Arthur M. Goldberg was elected Chairman of the Board of Directors and Chief Executive Officer of the Company in October 1990 and President of the Company in January 1993. He is also Chairman of the Company's Executive Committee. In June 1993, he was elected Chairman of the Board of Directors, President and Chief Executive Officer of Casino Holdings. Since January 1993, Mr. Goldberg has been Chairman of the Board of Directors and Chief Executive Officer of both Bally's Park Place, Inc. and GNAC. He has also served as Chief Executive Officer of Bally's Tunica, Inc. since April 1993 and as a director of Bally's Health & Tennis since 1990. Mr. Goldberg was elected Chairman of the Board of Directors and President of Bally's Grand, Inc. in August 1992, and its Chief Executive Officer in September 1992. Since 1990, he has been Chairman of the Board of Directors, Chief Executive Officer and President of Di Giorgio Corporation, a food distributor. Mr. Goldberg is also Managing Partner of Arveron Investments L.P. and a director of First Fidelity Bancorp. From 1985 to 1989, he was Chief Executive Officer, President and a director of International Controls Corporation, a manufacturing and engineering company. Mr. Goldberg is 52 years of age.
Lee S. Hillman was elected Vice President, Chief Financial Officer and Treasurer of the Company in November 1991 and Executive Vice President in August 1992. He has been an Executive Vice President, Chief Financial Officer and a director of Casino Holdings since June 1993. Mr. Hillman has served as a director of Bally's Park Place, Inc. since January 1993 and a director of GNAC since February 1993. He has also been Chief Financial Officer of Bally's Tunica, Inc. since April 1993 and Vice President -- Administration of Bally's Grand, Inc. since August 1993. In addition, he has served as Senior Vice President of Bally's Health & Tennis since April 1991, Chief Financial Officer of that company since January 1992, one of its directors since September 1992 and its Treasurer since October 1992. From October 1989 to April 1991, he was a partner with the accounting firm of Ernst & Young. From 1987 to October 1989, he was a
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principal with the accounting firm of Arthur Young & Company, a predecessor to Ernst & Young. Mr. Hillman is 38 years of age.
Robert G. Conover was elected Vice President, Management Information Systems and Chief Information Officer of the Company in December 1992. He has been Senior Vice President, Management Information Systems of Casino Holdings since June 1993 and Senior Vice President of GNOC, CORP. (a subsidiary of GNAC) since 1987. Mr. Conover was elected a Senior Vice President of Bally's Park Place, Inc. in January 1993 and for approximately ten years prior thereto, he was a Vice President of that company. Mr. Conover has also been President of the Bally Systems division of Gaming since October 1990. From January 1987 to September 1992, he was Vice President, Management Information Systems of Bally's Grand, Inc. Mr. Conover is 48 years of age.
John W. Dwyer was elected Corporate Controller of the Company in June 1992 and Vice President in December 1992. He has been a Vice President and Controller of Casino Holdings since June 1993. From October 1989 to June 1992, he was a partner with the accounting firm of Ernst & Young. From 1986 to October 1989, Mr. Dwyer was a partner with the accounting firm of Arthur Young & Company, a predecessor to Ernst & Young. Mr. Dwyer is 41 years of age.
Harold Morgan was elected Vice President, Human Resources of the Company in December 1992. Since August 1991, he has been employed by Bally's Health & Tennis and was elected a Vice President of that company in January 1992. From 1985 until August 1991, Mr. Morgan was Director of Employee and Labor Relations of the Hyatt Corporation. Mr. Morgan is 37 years of age.
Bernard J. Murphy was elected Vice President, Corporate Affairs and Governmental Relations of the Company in November 1991. From March 1991 to November 1991, Mr. Murphy was employed as an executive of Bally and since March 1991, he has been a Senior Vice President of Bally's Health & Tennis. For 20 years prior to 1990, he had been with the Federal Bureau of Investigation. Mr. Murphy is 47 years of age.
Jerry W. Thornburg was elected Vice President, Audit of the Company in July 1993. For approximately five years prior thereto, he was Director of Internal Audit of the Company. Mr. Thornburg is 50 years of age.
Carol Stone DePaul was elected Secretary of the Company in December 1992. She has been a Vice President and Secretary of Casino Holdings since June 1993. For more than four years prior to December 1992, she was Assistant Secretary of the Company and a member of its law department. Ms. DePaul is 37 years of age.
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Wallace R. Barr was elected President and a director of Bally's Park Place, Inc. in February 1993 and has served as its Chief Operating Officer since January 1993. He has also been an Executive Vice President, Chief Operating Officer and a director of Casino Holdings since June 1993 and President of Bally's Tunica, Inc. since April 1993. Mr. Barr was a Senior Vice President of GNAC from June 1991 to February 1993, has served that company as its Chief Operating Officer since January 1993 and has been its President and a director since February 1993. From March 1984 to June 1991, he served as Senior Vice President -- Operations of Bally's Park Place, Inc. and from January 1987 to September 1992, he was Senior Vice President and Treasurer of Bally's Grand, Inc. Mr. Barr is 48 years of age.
Michael G. Lucci, Sr. was elected President of Bally's Health & Tennis in April 1993 and Chief Operating Officer in October 1992. He has been a director of Bally's Health & Tennis since September 1992. From 1991 to April 1993, he served as Executive Vice President of Bally's Health & Tennis and supervised the eastern region of that company for more than two years prior to 1991. Mr. Lucci is 54 years of age.
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ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Bally Common Stock, par value $.66 2/3 per share (the "Common Stock"), is traded on the New York Stock Exchange and Chicago Stock Exchange. The Company suspended cash dividend payments on the Common Stock beginning with the fourth quarter of 1990. The high and low quarterly sales prices on the New York Stock Exchange for the past two years are as follows:
The number of record holders of the Common Stock at March 24, 1994 was 16,555.
For restrictions on the ability of Bally's subsidiaries to pay dividends, see Liquidity and Capital Resources in Item 7 of this Report.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
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Note:
During 1993, Casino Holdings and another subsidiary of Bally acquired approximately 5.2 million shares (approximately 50% of the shares presently outstanding) of reorganized Bally's Grand, Inc. common stock. Bally's Grand, Inc. has been consolidated since December 1, 1993 as a result of Bally's controlling interest. Prior to December 1, 1993, Bally's investment in Bally's Grand, Inc. was principally recorded on the equity method of accounting. See Notes to consolidated financial statements -- Acquisition of Bally's Grand, Inc. for additional information.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In late 1992, after completing a major restructuring effort which began in October 1990, the Company began actively pursuing new casino gaming projects. In April 1993, Casino Holdings was formed as a holding company for Bally's Park Place, Inc. and for acquiring and developing gaming operations, including those in newly emerging gaming jurisdictions. In June 1993, Casino Holdings completed a private placement of $220.0 million principal amount of Senior Discount Notes and received net proceeds therefrom of approximately $127.9 million which
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have been and are being used to: (i) construct and equip Bally's Tunica (which commenced operations in December 1993), (ii) acquire a significant equity interest in Bally's Las Vegas (which caused its consolidation effective December 1, 1993), (iii) fund initial payments for construction of a riverboat (including dockside improvements) for eventual operation in New Orleans, (iv) fund an option agreement to acquire certain riverfront property in Philadelphia for the purpose of developing a dockside gaming facility if gaming were to be legalized in Pennsylvania and (v) pursue other gaming opportunities.
RESULTS OF OPERATIONS Revenues and operating income (loss) from continuing operations are as follows (in millions):
1993 VERSUS 1992
CASINOS
Revenues of the Company's casinos for 1993 were $619.2 million compared to $552.8 million for 1992, an increase of $66.4 million (12%). Operating income for 1993 was $104.4 million compared to $92.0 million for 1992, an increase of $12.4 million (13%).
ATLANTIC CITY. Revenues of Bally's Park Place for 1993 were $352.8 million compared to $331.1 million for 1992, an increase of $21.7 million (7%). Casino revenues for 1993 were $297.7 million compared to $278.0 million for 1992, an increase of $19.7 million (7%). Slot revenues, which include the discontinuation of certain progressive slot jackpots, increased $14.7 million (8%) due to an 11% increase in slot handle (volume) offset, in part, by a decline in the slot win percentage from 9.9% in 1992 to 9.6% in 1993. Bally's Park Place added 112 slot machines (a 6% increase) during 1993. Slot revenues represented 69% of Bally's Park Place's casino revenues in 1993 compared to 68% in 1992. Table game revenues, excluding poker, increased $2.4 million (3%) from 1992 primarily due to a 6% increase in the drop (amount wagered) offset, in part, by a decline in the hold percentage from 17.0% in 1992 to 16.5% in 1993. Bally's Park Place's poker operations, which commenced in July 1993, contributed $2.6 million to its casino revenues. Rooms revenue increased $1.3 million (5%) due to an increase in rooms occupied in 1993 compared to 1992 offset, in part, by a reduction in the average room rate. Food and beverage revenue remained essentially unchanged. Interest income declined $.9 million from 1992 due to the elimination of an intercompany loan. Operating income for 1993 was $85.8 million compared to $62.7 million in 1992, an increase of $23.1 million (37%), due to the aforementioned increase in revenues and, to a lesser extent, to a $1.4 million (1%) decrease in operating expenses. Operating expenses decreased due to a 10% reduction in selling, general and administrative expenses (due in part to a reduction in costs associated with a management restructuring) which was offset, in part, by increased marketing and promotional costs and food and beverage expenses.
In July 1993, The Grand introduced a comprehensive marketing program designed to emphasize the first-class nature of the facility, personalized service provided to guests, frequent special events and entertainment offered. The Grand has directed its marketing efforts toward
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expanding its domestic customer base and attracting international gaming patrons. To attract and retain these gaming patrons, The Grand is providing increased complimentary services (room, food, beverage and entertainment), increased promotional expenses (customer transportation, gifts and coin giveaways) and frequent special events. Revenues of The Grand for 1993 were $239.8 million compared to $223.7 million for 1992, an increase of $16.1 million (7%). Casino revenues for 1993 were $216.3 million compared to $199.6 million in 1992, an increase of $16.7 million (8%). Table game revenues increased $13.3 million (18%) due primarily to a 19% increase in the drop. Slot revenues increased $3.4 million (3%). Slot revenues include approximately $1.2 million and $1.9 million from the discontinuation of certain progressive slot jackpots in 1993 and 1992, respectively. Excluding these adjustments, slot revenues increased $4.1 million (3%) due to a 9% increase in slot handle offset, in part, by a decline in the slot win percentage from 10.0% in 1992 to 9.5% in 1993. The Grand added 28 slot machines (a 2% increase) during 1993. Slot revenues represented 60% of The Grand's casino revenues in 1993 compared to 63% in 1992. Rooms revenue decreased $1.5 million (22%) due primarily to a reduction in the average room rate. Food and beverage revenue remained essentially unchanged. Other revenues increased $.9 million from 1992 due principally to an adjustment to the reserve for unclaimed gaming chips and tokens in 1993. Operating income for 1993 was $21.7 million compared to $30.6 million in 1992, a decrease of $8.9 million (29%), as the aforementioned increase in revenues was more than offset by a $25.0 million (13%) increase in operating expenses. Operating expenses increased primarily due to the increase in casino volume and the increased marketing efforts described above which increased the cost of providing complimentary services, promotional expenses and special events, payroll and payroll-related expenses and state gaming taxes. Management of The Grand believes the initial costs of the comprehensive marketing program are proportionately greater during implementation and, because the incremental revenues generally trail such costs, the marketing program had an adverse effect on operating results for 1993.
Atlantic City city-wide casino revenues for all operators in 1993, excluding poker and horse race simulcasting, increased approximately 2% from 1992, which was primarily attributable to a 5% increase in slot revenues offset, in part, by a 3% decrease in table game revenues. Atlantic City's 1993 results were negatively impacted by severe weather conditions that hampered attendance on several weekends in the first quarter. The number of slot machines in Atlantic City increased approximately 8% during 1993 while the number of Atlantic City table games, excluding poker tables, declined approximately 1%. Slot revenues in 1993 represented 67% of total gaming revenues in Atlantic City compared to 66% in 1992. Changes in gaming regulations, including modifications allowing more slot machines on existing casino floor space and permitting unrestricted 24-hour gaming effective July 1992, have aided Atlantic City slot revenue growth. In addition to the ongoing slot revenue trend, the introduction in the second quarter of 1993 of poker and horse race simulcasting has also improved the Atlantic City gaming climate. The Company's competitors in Atlantic City intensified their promotional slot marketing efforts during 1992 to expand their share of slot revenues and this trend continued through 1993. The Company believes it is well-positioned to compete for its share of casino revenues by continuing to offer promotional slot and table game programs and special events at Bally's Park Place and through the comprehensive marketing program at The Grand. However, the Company believes that as a result of the aggressive competition for slot patrons, the slot win percentage will continue to be subject to competitive pressure and may further decline.
LAS VEGAS. As described previously, Bally's Grand, Inc. has been consolidated since December 1, 1993. Revenues of Bally's Grand, Inc. for December 1993 were $21.1 million. Casino revenues were $12.2 million, which primarily consisted of table game revenues of $6.7 million and slot revenues of $5.0 million. Rooms revenues were $2.9 million and food and beverage revenues were $2.8 million. Other revenues were $3.1 million and primarily resulted from entertainment. Operating income for December 1993 was $1.0 million.
TUNICA. Revenues of Bally's Tunica, which included 24 days of operations in December 1993, were $4.2 million and included casino revenues of $4.0 million (slot revenues were $2.7 million and table game revenues were $1.3 million).
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Operating loss for Bally's Tunica was $1.7 million, principally resulting from the amortization of $3.1 million of pre-opening costs ($3.1 million is also being amortized in the first quarter of 1994).
FITNESS CENTERS
In late 1991, the Company implemented a value pricing strategy which lowered the average selling price of membership contracts thereby lowering the monthly payment for financed memberships. This strategy was designed to improve the collection experience on financed memberships. In addition, commencing at the end of the third quarter of 1992, the Company implemented programs designed to increase its emphasis on the sale of financed contracts with payments made by direct bank account electronic funds transfer ("EFT") and automatic credit card payment plans by adjusting sales commission and member incentive levels. This was done to further improve the Company's collection experience on financed membership contracts based on Company studies which indicated better collection experience for financed memberships sold under these plans compared to those sold with standard coupon book payment plans. While these changes were intended to reduce the Company's exposure to risks associated with collection of financed membership contracts, the emphasis on EFT and credit card payment programs negatively affected the number of new memberships sold. In April 1993, the Company reduced the average selling price of membership contracts even further in an attempt to increase unit volume. Management now believes that the selling price decreases implemented in April 1993 were greater than required and such price decreases did not measurably increase the number of new memberships sold. Therefore, in mid-October 1993, the Company began increasing prices modestly, which has continued into 1994. Management believes that increased prices have not resulted in significant reductions in unit sales volume or exposure to higher collection risk because the prices of the Company's memberships are comparable to or less than its competitors and significantly less than memberships sold by the Company prior to the implementation of the value pricing strategy in 1991. These price increases coupled with the changes in selling methods and cost reduction programs implemented in the last fifteen months are intended to improve the Company's operating results.
Revenues for 1993 were $694.8 million compared to $741.9 million in 1992, a decrease of $47.1 million (6%). Revenues in 1992 included a gain of $3.9 million on the retirement of a portion of Bally's Health & Tennis' public debt acquired for sinking fund purposes. Excluding this gain, revenues decreased $43.2 million (6%). Revenues for the same fitness centers selling memberships throughout both years decreased $88.4 million (12%), which management believes was principally due to the changes in its sales and pricing policies described above. Revenues from new fitness centers opened during 1993 or 1992 were $45.2 million. The number of fitness centers selling memberships increased from 331 at December 31, 1992 to 339 at December 31, 1993. New membership revenues decreased $31.5 million (6%) in 1993 due to a 5% decline in the average selling price and a 4% decrease in unit volume. Management believes that unit volume has been and continues to be affected by the weak retail economy, increased competition and prevailing general economic uncertainties. Dues and renewals increased $23.3 million (16%) in 1993 due to the continuing emphasis on memberships requiring the payment of monthly dues beginning in the first month of membership and an improvement in member retention rates. Finance charges earned decreased $12.4 million (22%) due principally to a decrease in installment contracts receivable due to lower sales volume and, to a lesser extent, a lower effective interest rate on installment contracts receivable. Deferred revenues earned during 1993 decreased $22.8 million from 1992 due to an increase in the liability for membership services at December 31, 1993 as compared to December 31, 1992 and 1991.
Operating income for 1993 decreased $22.4 million from 1992. Excluding the aforementioned gain on debt, operating income was $.8 million for 1993 compared to $19.3 million in 1992, a decline of $18.5 million. Excluding the provision for doubtful receivables, operating expenses increased $19.0 million (3%) in 1993 from 1992 primarily due to $26.8 million of costs related to new clubs partially offset by a $9.4 million decrease in costs related to the same fitness centers selling memberships in both years. This decrease was primarily due to reductions in payroll, commissions and employee benefits as
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a function of the aforementioned decline in sales and as a result of the continuation of cost reduction programs. As a percentage of revenues (excluding the gain on debt), these operating expenses were 82% in 1992 and 89% in 1993. The provision for doubtful receivables for 1993 was $72.5 million compared to $116.2 million in 1992, a decrease of $43.7 million (38%). The provision for doubtful receivables as a percentage of net financed sales was reduced from 39% in 1992 to 26% in 1993, which reflects expected improvement in the collectibility of memberships sold during 1993 due to increased emphasis on EFT and automatic credit card payment programs and lower prices as described above.
CORPORATE
Revenues for 1993 were $8.0 million compared to $2.5 million in 1992, an increase of $5.5 million. The increase was due principally to the forgiveness of a tax liability of $1.7 million previously owed to Gaming, the billing of $1.7 million additional insurance costs to subsidiaries and an increase in interest income and other revenues from subsidiaries of $2.0 million.
Operating income for 1993 was $2.3 million compared to an operating loss of $4.2 million in 1992, an improvement of $6.5 million. Results in 1993, as compared to 1992, were positively impacted by the aforementioned revenue items totalling $5.4 million and a $1.1 million reversal of a tax accrual no longer deemed necessary. The allocation of corporate overhead (including executive salaries and benefits, public company reporting costs and other corporate headquarters' costs) to subsidiaries remained essentially unchanged. Allocations for 1993 and 1992 were, and management expects allocations in subsequent years will be, based upon similar cost categories and allocation methods subject to changes in circumstances which may warrant modifications.
INTEREST EXPENSE
Interest expense, net of capitalized interest, was $129.8 million in 1993 compared to $126.1 million in 1992. The increase of $3.7 million (3%) was due principally to higher average levels of debt in 1993 due, in part, to the issuance of the Senior Discount Notes in June 1993 offset, in part, by the reversal in 1993 of a $2.0 million interest reserve no longer necessary and interest in 1992 on accrued but unpaid interest for debt in default (which did not occur in 1993).
INCOME TAXES
Effective rates of the income tax benefit were 20% in 1993 and 39% in 1992. The 1993 income tax rate differed from the U.S. statutory tax rate (35%) due principally to nondeductible goodwill amortization and state income taxes, partially offset by adjustments of prior years' taxes. In addition, the income tax benefit for 1993 was reduced by $1.7 million as a result of applying the change in the U.S. statutory tax rate from 34% to 35% to deferred tax balances. The 1992 income tax rate differed from the U.S. statutory tax rate (34%) due principally to adjustments of prior years' taxes, partially offset by nondeductible amortization and depreciation and state income taxes. A reconciliation of the income tax benefit with amounts determined by applying the U.S. statutory tax rate to loss from continuing operations before income taxes and minority interests is included in Notes to consolidated financial statements -- Income taxes.
Effective January 1, 1993, the Company changed its method of accounting for income taxes as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 retains the requirement to record deferred income taxes for temporary differences that are reported in different years for financial reporting and for tax purposes; however, the methodology for calculating and recording deferred income taxes has changed. Under the liability method adopted by SFAS No. 109, deferred tax liabilities or assets are computed using the tax rates expected to be in effect when the temporary differences reverse. Also, requirements for recognition of deferred tax assets and operating loss and tax credit carryforwards were liberalized by requiring their recognition when and to the extent that their realization is deemed to be more likely than not. As permitted by SFAS No. 109, the Company elected to use the cumulative effect approach rather than to restate the consolidated financial statements of any prior years to apply the provisions of SFAS No. 109. The cumulative effect on prior years of this change in accounting for income taxes as of January 1, 1993 was a charge of $28.2 million ($.61 per share). The effect of this change in accounting for income taxes on the income tax benefit for 1993 was to reduce the income tax benefit by $1.7 million as a result of
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applying the change in the U.S. statutory tax rate described above.
In 1992, the Company utilized tax loss carryforwards to offset taxable income principally arising from the sale of Gaming common stock in July 1992 and the related tax benefit of $10.6 million was reflected as an extraordinary credit.
1992 VERSUS 1991
CASINOS
Revenues of the Company's Atlantic City casino hotels for 1992 were $552.8 million compared to $536.2 million for 1991, an increase of $16.6 million (3%). Operating income for 1992 was $92.0 million compared to $83.3 million for 1991, an increase of $8.7 million (10%).
Revenues of Bally's Park Place for 1992 were $331.1 million compared to $322.8 million for 1991, an increase of $8.3 million (3%). Casino revenues increased $12.3 million (5%), with slot revenues increasing $15.0 million (9%) as a result of a 13% increase in the slot handle, partially offset by a 4% decline in the win percentage from 10.3% in 1991 to 9.9% in 1992. Table game revenues decreased $2.7 million (3%) as a result of a decline in the table game drop of $21.6 million (4%), partially offset by an improvement in the hold percentage from 16.8% in 1991 to 17.0% in 1992. Bally's Park Place increased its number of slot machines by 119 machines (7%) since December 1991. Slot revenues in 1992 represented 68% of casino revenues compared to 66% in 1991. All other operating revenues were essentially unchanged. Interest income from Bally in 1992 was $.8 million compared to $4.2 million in 1991. This decrease was primarily due to the declaration as a dividend to Bally by Bally's Park Place of an amount totalling $50.0 million formerly classified as a demand note receivable and the discontinuation of interest payments on such note effective April 1, 1992. Operating income for 1992 was $62.7 million compared to $54.4 million for 1991, an increase of $8.3 million (15%) due primarily to the increase in revenues. Operating expenses include charges for Bally overhead expenses allocated to Bally's Park Place of $3.7 million and $1.0 million in 1992 and 1991, respectively. Operating income was adversely impacted in 1992 by the aforementioned decrease in interest income and increase in the allocation of overhead expenses from Bally. In 1991, operating income was adversely impacted by a $3.5 million charge related to the closing and demolition of an ancillary motel property operated by Bally's Park Place and a $2.0 million charge for the estimated cost of settling certain liabilities.
Revenues of The Grand for 1992 were $223.7 million compared to $215.2 million for 1991, an increase of $8.5 million (4%). Casino revenues increased $8.0 million (4%), with slot revenues increasing $9.7 million (8%), which was attributable to increased slot volume and the positive impact of discontinuation of certain progressive slot jackpots and the reversal of related reserves in 1992. Table game revenues decreased $1.7 million (2%) as a result of a decline of $21.6 million (5%) in the table game drop partially offset by an improvement in the hold percentage from 16.0% in 1991 to 16.4% in 1992. During the first half of 1992, The Grand increased its number of slot machines by 86 machines (6%) and expanded its slot marketing efforts. Slot revenues in 1992 represented 63% of casino revenues compared to 61% in 1991. All other revenues were essentially unchanged. Operating income for 1992 was $30.6 million compared to $29.8 million for 1991, an increase of $.8 million (3%), due to the increase in revenues offset, in part, by a $7.7 million (4%) increase in operating expenses. The operating expense increase includes additional spending in 1992 of $2.6 million in conjunction with intensified slot marketing efforts and $1.8 million of additional selling, general and administrative expenses. Operating expenses include charges for Bally overhead expenses allocated to The Grand of $2.2 million and $.7 million in 1992 and 1991, respectively.
Atlantic City city-wide casino revenues for all operators in 1992 increased approximately 8% from 1991, which was negatively impacted in the first quarter by the Persian Gulf war. The increase was due to a 14% increase in slot revenues, partially offset by a 3% decrease in table game revenues. Slot revenues for 1992 represented 66% of total gaming revenue in Atlantic City compared to 62% in 1991. During 1992, the Company's competitors in Atlantic City intensified their promotional slot marketing efforts to expand their share of slot revenues. Additionally, changes in gaming regulations, including modifications allowing more slot machines in existing casino floor space and permitting unrestricted 24-hour gaming effective
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July 1992, have aided Atlantic City slot revenue growth. Management believes, however, that a weak economy in the northeastern United States during 1992 and 1991 and the increased competitive pressure had a negative impact on the operating results of the Company's Atlantic City casino hotels.
FITNESS CENTERS
Revenues for 1992 were $741.9 million compared to $720.4 million for 1991, an increase of $21.5 million (3%). Revenues for 1992 and 1991 include gains of $3.9 million and $10.8 million, respectively, on the retirement of Bally's Health & Tennis' public debt acquired for sinking fund purposes. Excluding these gains, revenues increased $28.4 million (4%) of which $10.7 million related to 19 fitness centers acquired in September 1992. The remaining increase of $17.7 million was due principally to the same fitness centers selling memberships throughout both years. New membership revenues increased $8.2 million (2%) in 1992 due to a 31% increase in the number of new memberships sold offset, in part, by a 22% decline in the average selling price which reflects the value pricing strategy implemented by the Company in the second half of 1991. Dues and renewals increased $20.9 million (17%) in 1992 due to the continued emphasis on memberships requiring the payment of monthly dues beginning in the first month of membership, a practice which began in mid-1991. Finance charges earned decreased 10% from $62.8 million in 1991 to $56.8 million in 1992 due principally to a decrease in net installment contracts receivable and, to a lesser extent, a lower effective interest rate on installment contracts receivable.
Management believes that the weak economy had a negative effect on revenues in both years and that the Persian Gulf war and unfavorable publicity regarding Bally's financial condition negatively affected revenues in 1991. New membership sales in the second half of 1992 were negatively affected by the introduction of new selling practices and incentive compensation programs emphasizing EFT and automatic credit card charge payment plans for sales of financed memberships. The emphasis on EFT and credit card payment plans was intended to improve the Company's collection experience on financed membership contracts based on Company studies which indicate better collection experience for financed memberships sold with EFT or credit card payment plans compared to those sold with standard coupon book payment plans. It has been the Company's experience that new membership sales are adversely affected when significant changes in sales and commission programs are implemented. EFT and credit card sales as a percentage of total financed sales increased commencing in the third quarter and were approximately 50% of sales initiated during the fourth quarter of 1992. For the previous six quarters, such sales accounted for approximately 25% of financed sales.
Operating income for 1992 was $23.2 million compared to an operating loss of $4.4 million in 1991. Excluding the aforementioned gains on debt, operating income was $19.3 million for 1992 compared to an operating loss of $15.2 million in 1991, an improvement of $34.5 million. This improvement was due primarily to the aforementioned revenue increase and a decrease of $5.8 million (5%) in the provision for doubtful receivables. Excluding the provision for doubtful receivables, operating expenses increased $.3 million in 1992 from 1991, due to a $2.3 million increase in the cost of membership services partially offset by a $1.4 million decrease in selling and promotion expenses. As a percentage of revenues (excluding the gains on debt), these operating expenses declined to 82% in 1992 from 85% in 1991. The provision for doubtful receivables as a percentage of net financed sales was 39% in both years.
CORPORATE
Revenues for 1992 were $2.5 million compared to $8.0 million in 1991, a decrease of $5.5 million. The decrease was due principally to lower gains on the purchase of debt for sinking fund purposes in 1992 ($.6 million compared to $5.5 million in 1991) and reductions in interest and other income from subsidiaries in 1992 ($.1 million compared to $1.4 million in 1991), partially offset by foreign currency transaction losses of $1.2 million in 1991.
Operating loss for 1992 was $4.2 million compared to $14.4 million in 1991, an improvement of $10.2 million. Excluding the gains on the purchase of debt securities, the reductions in income from subsidiaries and the foreign currency transaction losses, the year-to-year improvement was $15.2 million. Operating results in 1992 were positively impacted by an
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$8.6 million reduction in general and administrative expenses, a $3.0 million reduction in restructuring costs, the elimination of litigation accruals totalling $2.7 million relating to matters which were favorably settled and a $1.0 million commission on the July 1992 sale by Bally's Grand, Inc. of the casino resort complex formerly known as "Bally's Reno." Allocations of corporate overhead to subsidiaries remained essentially unchanged.
INTEREST EXPENSE
Interest expense, net of capitalized interest, was $126.1 million in 1992 compared to $158.5 million in 1991. The decrease of $32.4 million (20%) was due principally to lower average levels of debt and, to a lesser extent, lower average interest rates and a decline in the amount of interest provided on prior years' income tax matters.
INCOME TAXES
Effective rates of the income tax benefit were 39% in 1992 and 31% in 1991. The 1992 income tax rate differed from the U.S. statutory tax rate (34%) due principally to adjustments of prior years' taxes, partially offset by nondeductible amortization and depreciation and state income taxes. The 1991 income tax rate differed from the U.S. statutory tax rate (34%) due principally to nondeductible amortization and depreciation. A reconciliation of the income tax benefit with amounts determined by applying the U.S. statutory tax rate to loss from continuing operations before income taxes and minority interests is included in Notes to consolidated financial statements -- Income taxes.
In 1992, the Company utilized tax loss carryforwards to offset taxable income principally arising from the sale of Gaming common stock in July 1992 and the related tax benefit of $10.6 million was reflected as an extraordinary credit.
LIQUIDITY AND CAPITAL RESOURCES
PARENT COMPANY
Bally is a holding company without operations of its own. Nevertheless, Bally has certain cash obligations that must be satisfied by obtaining cash from its subsidiaries or disposing of or leveraging certain assets. Bally's corporate cash operating costs, net of allocations to its subsidiaries, are expected to be less than $3 million in 1994. Bally has debt service and preferred stock dividend cash requirements of approximately $20 million in 1994. Cash requirements for Bally in 1994 may also include income tax payments which management estimates to be approximately $36 million, net of amounts to be collected from subsidiaries pursuant to tax sharing agreements.
Sources of cash available to Bally are generally limited to existing cash balances ($43.5 million at December 31, 1993), dividends, management fees or cost allocations to subsidiaries, capital transactions and asset sales. Each of Bally's principal operating subsidiaries presently have debt covenants which limit the payment of dividends to Bally and the redemption of stock owned by Bally. Under the terms of the Senior Discount Notes, an amount equal to certain dividends paid pursuant to a net income test by Bally's Park Place, Inc. to Casino Holdings may be declared as a dividend by Casino Holdings and paid to Bally. In 1993, $16.7 million in dividends were paid by Bally's Park Place, Inc. to Casino Holdings and by Casino Holdings to Bally. Additional dividends may be available from Casino Holdings and are generally limited to 50% of its consolidated net income exclusive of income attributable to Bally's Park Place, Inc. Pursuant to the terms of GNAC's 10 5/8% First Mortgage Notes due 2003 (the "10 5/8% Notes") and its credit agreement, GNAC paid dividends to Bally of $7.5 million in 1993. GNAC is not expected to be able to pay dividends to Bally in 1994. Bally's Health & Tennis, which paid a $15 million dividend to Bally in January 1993, is not expected to be able to pay dividends in 1994. In addition, Casino Holdings has an obligation to Bally of approximately $18.3 million to be paid in 1994 for shares of Bally's Grand, Inc. common stock purchased from Bally during 1993. Bally believes that it will be able to satisfy its cash needs throughout 1994, but remains dependent upon the ability of subsidiaries to pay dividends and allocations to meet its cash requirements in the future.
SUBSIDIARIES
CASINO HOLDINGS
CASINO HOLDINGS. Casino Holdings is a holding company without operations of its own and relies on obtaining cash from its subsidiaries to meet its cash obligations. Casino Holdings has no scheduled interest or principal payments on the Senior Discount Notes until 1998, but expects to incur substantial costs in the pursuit of new gaming ventures. The proceeds from the Senior Discount Notes have been and are being used to:
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(i) construct and equip Bally's Tunica, (ii) acquire a significant equity interest in Bally's Las Vegas, (iii) fund initial payments for construction of a riverboat (including dockside improvements) for eventual operation in New Orleans, (iv) fund an option agreement to acquire certain riverfront property in Philadelphia for the purpose of developing a dockside gaming facility if gaming were to be legalized in Pennsylvania and (v) pursue other gaming opportunities. To the extent Casino Holdings requires additional funds for existing ventures or to develop new ventures, Casino Holdings expects that it will be able to obtain financing for a significant portion of the total development costs of new gaming ventures from a combination of third party sources, including banks, suppliers and debt markets.
Sources of cash available to Casino Holdings are generally limited to existing cash balances ($25.4 million at December 31, 1993) and loan repayments, dividends and management fees from subsidiaries. Bally's Park Place, Inc. and Bally's Grand, Inc. are both limited with respect to amounts which may be paid as dividends to Casino Holdings under the terms of their respective public debt indentures. In March 1994, Bally's Park Place, Inc. paid a $30 million dividend to Casino Holdings from a portion of the proceeds of the sale of its 9 1/4% First Mortgage Notes due 2004 (the "9 1/4% Notes"), which is not available to be paid by Casino Holdings to Bally. Bally's Grand, Inc. is not expected to pay dividends or make any other distributions on its common stock to Casino Holdings in 1994. Bally's Tunica, which commenced operations in December 1993, is expected to generate a significant amount of unrestricted cash flows in 1994 which will be used to reduce an advance from Casino Holdings. The New Orleans project is not expected to commence operations until February 1995. Although Casino Holdings believes it will be able to satisfy its cash needs throughout 1994, Casino Holdings remains dependent upon the ability of its subsidiaries to generate cash to repay advances and pay dividends.
BALLY'S PARK PLACE, INC. In March 1994, a subsidiary of Bally's Park Place, Inc. issued $425 million principal amount of the 9 1/4% Notes. The net proceeds from the sale of the 9 1/4% Notes were used to purchase and retire certain of its 11 7/8% First Mortgage Notes due 1999 (the "11 7/8% Notes"), defease the remaining 11 7/8% Notes at a price of 104.45% of their principal amount plus accrued interest through the redemption date, thereby satisfying all obligations thereunder, and pay a $30 million dividend to Casino Holdings. In connection with the sale of the 9 1/4% Notes, Bally's Park Place terminated its existing credit facility and entered into an agreement for a new $50 million revolving credit facility which expires on December 31, 1996.
As adjusted for the refinancing described above, Bally's Park Place, Inc. has no scheduled principal payments under its public indebtedness until 2004, and its scheduled principal payments under other indebtedness outstanding at December 31, 1993 are not significant. Management expects to make capital expenditures of approximately $18 million in 1994. As of December 31, 1993, after giving effect to the new credit facility, Bally's Park Place, Inc. had unused lines of credit totalling $48 million. The Company believes that Bally's Park Place, Inc. will be able to satisfy its debt service and capital expenditure requirements in 1994 out of cash flow from operations.
BALLY'S GRAND, INC. In December 1993, Bally's Grand, Inc. issued $315 million principal amount of 10 3/8% First Mortgage Notes due 2003 (the "10 3/8% Notes"). Bally's Grand, Inc. used a substantial portion of the net proceeds from the sale of the 10 3/8% Notes to redeem $252.5 million principal amount of its 12% First Mortgage Notes due 2001 (the "12% Notes") at a price of 103% of their principal amount plus accrued interest, thereby satisfying all obligations thereunder, and to pay approximately $9 million to Bally under a tax sharing agreement between Bally's Grand, Inc. and Bally, which amount became due and payable in connection with the redemption of the 12% Notes. The remaining proceeds are primarily being used for capital expenditures.
Bally's Grand, Inc. has no scheduled principal payments on its indebtedness outstanding at December 31, 1993 until 2003, however, it expects to make several major capital improvements during 1994 and 1995. Bally's Las Vegas has commenced the construction of improvements to its frontage area along the Strip (with completion expected in mid-1994) and has formed a joint venture with a subsidiary of
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MGM Grand, Inc. to construct and operate a monorail that will transport passengers between Bally's Las Vegas and The MGM Grand Hotel and Theme Park (with completion expected in mid-1995). These capital improvement projects are expected to cost Bally's Las Vegas approximately $28 million and are intended to increase traffic into its casino. Other major capital projects currently anticipated to commence in 1994 include the renovation of the south tower rooms and corridors, the retail shopping arcade and other common areas which, with other capital expenditures required to maintain Bally's Las Vegas, are estimated to cost approximately $26 million. The Company believes that Bally's Grand, Inc. will be able to satisfy its debt service and capital expenditure requirements in 1994 out of existing cash balances ($97 million at December 31, 1993) and cash flow from operations.
BALLY'S TUNICA. Construction of Bally's Tunica was completed in early November and operations commenced in December 1993. The total cost to construct and equip Bally's Tunica was approximately $39 million, which was advanced by Casino Holdings and is being repaid out of available cash flow. Bally's Tunica may seek third party financing to enable it to repay part or all of Casino Holdings' advance to Bally's Tunica. However, there can be no assurance that third party financing will be available on terms favorable to Bally's Tunica. Bally's Tunica expects capital expenditures during 1994 to be insignificant.
OTHER. A subsidiary of Casino Holdings owns a 45% interest in Belle of Orleans, L.L.C. ("Belle"). In June 1993, Belle received a Certificate of Preliminary Approval from the Louisiana Riverboat Gaming Commission to commence construction of a riverboat casino facility (including dockside improvements) for operation in New Orleans, Louisiana. In March 1994, the Louisiana Riverboat Gaming Commission awarded Belle a permanent operating license. In August 1993, the Casino Holdings subsidiary entered into a formal operating agreement for the capitalization and development of Belle. Simultaneously, Casino Holdings and Belle entered into a management agreement with a term of five years and an option for a second five-year term granting responsibility for the development and management of Belle to Casino Holdings. Casino Holdings will receive management fees based on a percentage of the earnings of Belle. Construction of the riverboat commenced in January 1994 and operations are expected to begin in February 1995. Management estimates that as much as $75 million will be needed to develop Belle, and anticipates the cost will be funded either through third party financing (there can be no assurance that third party financing will be available on terms favorable to Belle) or by Casino Holdings, though not required to be.
Another subsidiary of Casino Holdings has entered into an option agreement to acquire a 31-acre site along the Delaware River in Philadelphia for the purpose of developing a dockside gaming facility (the "Philadelphia Venture") if gaming were to be legalized in Pennsylvania. The site includes a 550 foot pier and is easily accessed by three ramps off of a major highway nearby. Pursuant to the terms of the agreement, Casino Holdings has agreed to pay $10 million, consisting of an initial cash payment of $5 million (paid in 1993) and $5 million payable over the next three years. These payments are due whether or not gaming is legalized in Pennsylvania. Additionally, in the event Casino Holdings elects to take title to the property, it will be required to deliver the balance of the purchase price in the form of a pre-payable, non-recourse note for approximately $55 million (including interest) at the closing of the transaction, which is payable in various installments over the five-year period subsequent to the closing of the transaction. Assuming legalization, the closing of the transaction is scheduled for January 1997, unless accelerated by Casino Holdings. Certain of Casino Holdings' obligations under the agreement are guaranteed by Bally.
THE GRAND
The Grand has no scheduled principal payments on its indebtedness outstanding at December 31, 1993 until 2003. Management expects to make capital expenditures of approximately $15 million in 1994. As of December 31, 1993, The Grand had unused lines of credit totalling $20 million. The Company believes that The Grand will be able to satisfy its debt service and capital expenditure requirements in 1994 out of cash flow from operations.
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BALLY'S HEALTH & TENNIS
Bally's Health & Tennis has no scheduled principal payments of public indebtedness until 2003. The Bally's Health & Tennis revolving credit agreement has scheduled reductions of availability totalling $20 million in 1994, however, as of December 31, 1993, $26.6 million of borrowing capacity was available under the credit line. Management expects to make capital expenditures of approximately $30 million in 1994 which will be used primarily for maintaining and refurbishing its present fitness centers, leasehold improvements for 11 planned new fitness centers and acquisition of new fitness equipment. The Company believes that Bally's Health & Tennis will be able to satisfy its debt service and capital expenditure requirements in 1994 out of cash flow from operations.
The Bally's Health & Tennis revolving credit agreement requires maintenance by Bally's Health & Tennis of certain financial ratios. Certain provisions of the revolving credit agreement applicable to those financial ratios were amended as of September 30, 1993. Although Bally's Health & Tennis was in compliance with these financial ratio requirements as of December 31, 1993, there can be no assurance that it will not be necessary in the future to amend the financial ratio requirements and, if necessary, that such amendments will be obtained.
TAX MATTER
The IRS has completed an audit of the federal income tax returns of certain of the Company's fitness center subsidiaries for periods ending on the day these subsidiaries were acquired. Among other things, the IRS is asserting that these subsidiaries owe additional taxes of approximately $32 million and substantial amounts of interest with respect to issues arising pursuant to the Company's election in 1983 to treat the purchases of stock of these subsidiaries as if they were purchases of assets. The Company vigorously opposes the IRS' assertions and has filed petitions in the United States Tax Court contesting the IRS' proposed deficiencies with respect to these issues. This matter has been docketed for trial in October 1994, however, a resolution may occur sooner if the Company and the IRS resolve all or some of these issues by stipulation or otherwise. Based on the information presently available, there can be no assurance of the outcome of this matter. However, in the opinion of management, payment, if any, to the IRS of amounts which may be ultimately deemed owing will not have a material adverse effect on the Company's consolidated financial position or results of operations, since the Company believes that it has adequately provided deferred and current taxes related to this matter, although it could, though it is not expected to, have a material adverse effect on the Company's liquidity.
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ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
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REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS BALLY MANUFACTURING CORPORATION
We have audited the accompanying consolidated balance sheet of Bally Manufacturing Corporation as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bally Manufacturing Corporation at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in the "Summary of significant accounting policies -- Income taxes" note to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes.
ERNST & YOUNG
Chicago, Illinois February 25, 1994, except for the seventh paragraph of the "Long-term debt" note, as to which the date is March 8, 1994
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See accompanying notes.
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- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
See accompanying notes.
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See accompanying notes.
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See accompanying notes.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bally Manufacturing Corporation ("Bally") and the subsidiaries which it controls (collectively, the "Company").
Certain reclassifications have been made to prior years' financial statements to conform with the 1993 presentation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The carrying amount of cash equivalents approximates fair value due to the short maturity of those instruments.
PROPERTY AND EQUIPMENT
Depreciation of property and equipment is provided principally on the straight-line method over the estimated economic lives of the related assets and the terms of the applicable leases for leasehold improvements. Depreciation expense was $96,945, $91,564 and $88,765 for 1993, 1992 and 1991, respectively.
DEFERRED FINANCE COSTS
Deferred finance costs associated with the Company's debt are being amortized over the terms of the related debt using the bonds outstanding method. Included in "Other assets" at December 31, 1993 and 1992 were deferred finance costs of $40,995 and $14,823, respectively, net of accumulated amortization of $12,646 and $11,564, respectively.
PRE-OPENING COSTS
Personnel, marketing and other operating costs incurred that are directly associated with the opening of new casinos are capitalized as pre-opening costs and amortized to expense over the first two calendar quarters of operations. During 1993, pre-opening costs of $6,105 were capitalized, of which $3,052 were amortized.
INTANGIBLE ASSETS
Intangible assets consist principally of cost in excess of net assets of acquired businesses (goodwill) and are being amortized on the straight-line method over periods ranging up to forty years from dates of acquisition.
Bally periodically evaluates whether the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. Bally has reviewed and expects to continue to evaluate the goodwill related to its casino and fitness center operations. Based on present operations and strategic plans, Bally believes that no impairment of goodwill has occurred. However, if future operations do not perform as expected, or if Bally's strategic plans for its businesses were to change and independent measures of value reflecting such changed plans indicated an impairment of goodwill, a reduction for impairment may be required.
REVENUE RECOGNITION
Casinos
Casino revenues consist of the net win from gaming activities, which is the difference between gaming wins and losses. Operating revenues exclude the retail value of complimentary food, beverages and hotel services furnished to customers, which were $71,261, $69,177 and $65,061 for 1993, 1992 and 1991, respectively. The estimated costs of providing such complimentary services, which are classified as casino expenses through interdepartment allocations from the departments granting the services, are as follows:
Fitness centers
The Company's fitness centers primarily offer a dues membership, which permits members, after paying initial membership fees, to continue membership on a month-to-month basis as long as monthly dues payments are made. Revenues related to dues memberships recorded at the time of sale are limited to the portion allocable to the initial membership fee. Dues memberships also require that monthly payments be made for services provided at which time the revenue is recorded.
A substantial portion of new membership revenues are collected in installments over periods ranging up to three years. Installment
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contracts bear interest at, or are adjusted for financial accounting purposes at the time the contracts are issued to, rates for comparable consumer financing contracts. Unearned finance charges are amortized over the term of the contracts on the sum-of-the-months-digits method which approximates the interest method.
Memberships with initial terms of up to three years can also be paid in full. Revenues related to these memberships include both an initial membership fee, which is recorded as revenue at the time of sale, and an annual service fee. The service fee portion of such memberships is recorded as deferred revenues and is realized over the term of the memberships. Prepaid dues and renewals revenues are recorded in a similar manner. This policy approximates the "selling and service" method, which provides for a profit being reported for both the selling and service functions.
INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for income taxes as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109 retains the requirement to record deferred income taxes for temporary differences that are reported in different years for financial reporting and for tax purposes; however, the methodology for calculating and recording deferred income taxes has changed. Under the liability method adopted by SFAS No. 109, deferred tax liabilities or assets are computed using the tax rates expected to be in effect when the temporary differences reverse. Also, requirements for recognition of deferred tax assets and operating loss and tax credit carryforwards were liberalized by requiring their recognition when and to the extent that their realization is deemed to be more likely than not. As permitted by SFAS No. 109, the Company elected to use the cumulative effect approach rather than to restate the consolidated financial statements of any prior years to apply the provisions of SFAS No. 109. The cumulative effect on prior years of this change in accounting for income taxes as of January 1, 1993 was a charge of $28,197 ($.61 per share). The effect of this change in accounting for income taxes on the income tax benefit for 1993 was to reduce the income tax benefit by $1,684 as a result of applying the change in the U.S. statutory tax rate from 34% to 35% to deferred tax balances.
OPERATING COSTS AND EXPENSES -- OTHER, NET
Operating costs and expenses -- other, net represents: (i) for 1993, the amortization of pre-opening costs totalling $3,052 associated with Bally's Saloon and Gambling Hall dockside gaming facility in Tunica, Mississippi ("Bally's Tunica") which commenced operations in December 1993, (ii) for 1992, the elimination of litigation accruals totalling $2,738 relating to matters which were favorably settled and a $1,000 commission on the July 1992 sale by Bally's Grand, Inc. of the casino resort complex formerly known as "Bally's Reno" offset by $3,722 of professional fees related to the Company's reorganization and (iii) for 1991, $6,760 of similar professional fees.
EXTRAORDINARY ITEMS
In 1993, three of the Company's subsidiaries completed refinancings of their debt which, in the aggregate, resulted in an extraordinary loss of $8,490, net of income taxes of $5,092 and minority interests of $412. See "Long-term debt."
In 1992, the Company utilized tax loss carryforwards to offset taxable income principally arising from the sale of Bally Gaming International, Inc. ("Gaming") common stock in July 1992 and the related tax benefit of $10,605 has been reflected as an extraordinary credit. See "Discontinued operations." Also in 1992, the Company purchased $11,471 principal amount of public debt securities of Bally not related to sinking fund requirements for 952,697 shares of Bally Common Stock, par value $.66 2/3 per share ("Common Stock") and $7,900 in cash, which resulted in an extraordinary gain of $612, net of income taxes of $329.
In 1991, the Company purchased $157,255 principal amount of public debt securities of Bally and a subsidiary not related to sinking fund requirements for 3,639,000 shares of Common Stock, $33,707 in cash and substantially all of the purchaser's debt securities received by the Company in conjunction with the sale of Life Fitness, Inc. See "Discontinued operations." These purchases resulted in an extraordinary gain of $56,053, net of income taxes of $27,039 and other related costs.
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EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share is computed by dividing net income (loss) applicable to common stock by the weighted average number of shares of common stock and common stock equivalents outstanding during each year (46,558,856 in 1993, 41,110,353 in 1992 and 33,872,044 in 1991). Common stock equivalents, which represent the dilutive effect of the assumed exercise of certain outstanding stock options, increased the weighted average number of shares outstanding by 1,645,348 in 1992. The assumed exercise of outstanding stock options was not applicable in 1993 (due to losses) and not significant in 1991.
ACQUISITION OF BALLY'S GRAND, INC.
On August 20, 1993 (the "Effective Date"), the Fifth Amended Plan of Reorganization (the "Chapter 11 Plan") of Bally's Grand, Inc. (a company originally acquired by Bally in 1986 which owns and operates the casino resort in Las Vegas, Nevada known as "Bally's Las Vegas") became effective and Bally's Grand, Inc. emerged from bankruptcy. For almost two years prior thereto, Bally's Grand, Inc. operated its business and managed its properties as a debtor-in-possession under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On the Effective Date, Bally relinquished all of its equity interest in Bally's Grand, Inc. and Bally's net intercompany receivable from Bally's Grand, Inc. was cancelled and extinguished. Bally's investment in and advances to Bally's Grand, Inc. were written down to zero in 1990. Also, Bally did not provide any type of guarantee or commitment to Bally's Grand, Inc. nor did it assume any other obligation of Bally's Grand, Inc. in connection with the Chapter 11 Plan. Accordingly, the Company did not reflect any equity in earnings of Bally's Grand, Inc. for the period from January 1, 1991 through the Effective Date.
During 1993, Bally's Casino Holdings, Inc. ("Casino Holdings") and another subsidiary of Bally acquired approximately 5.2 million shares (approximately 50% of the shares presently outstanding) of reorganized Bally's Grand, Inc. common stock in several transactions in exchange for $41,714 in cash and 1,752,400 shares of Gaming common stock. The acquisitions of Bally's Grand, Inc. common stock have been recorded using the purchase method of accounting, and the excess of the purchase price over the estimated fair value of net assets acquired of $19,354 is being amortized using the straight-line method over 20 years. Bally's Grand, Inc. has been consolidated since December 1, 1993 as a result of Bally's controlling interest. From September 29, 1993 (the date a cumulative 20% equity interest in reorganized Bally's Grand, Inc. was attained) through November 30, 1993, Bally's investment in Bally's Grand, Inc. was recorded on the equity method of accounting. The equity in earnings of reorganized Bally's Grand, Inc. recognized during that period was $786.
Certain employees of Bally and certain of its subsidiaries are involved in the management and operations of Bally's Grand, Inc. For services provided to Bally's Grand, Inc. prior to the Effective Date, Bally was paid $1,427, $2,247 and $3,640 during 1993, 1992 and 1991, respectively. Following the Effective Date, such services, among other things, are provided to reorganized Bally's Grand, Inc. under a management agreement pursuant to which a subsidiary of Bally receives $3,000 annually.
The following unaudited pro forma summary consolidated results of operations of the Company for 1993 and 1992 were prepared to give effect to the acquisition of the controlling interest in reorganized Bally's Grand, Inc. as if the acquisition had occurred as of the beginning of each of the years presented. These pro forma results have been prepared for comparative purposes only and do not purport to present what the Company's results of operations would actually have been if the acquisition had in fact occurred at such dates or to project the Company's results of operations for any future year. In addition, the pro forma summary consolidated results of operations of the Company include adjustments to the historical results of operations of Bally's Grand, Inc. which principally reflect: (i) the elimination of the operating results of Bally's Reno, (ii) the elimination of the reorganization items of Bally's Grand, Inc., (iii) the effects of transactions related to the reorganization of Bally's Grand, Inc. pursuant to the Chapter 11 Plan, (iv) the effects of the adoption of "fresh-start reporting" and
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(v) the income tax effects of the pro forma adjustments. The pro forma summary consolidated results of operations are based upon available information and upon certain assumptions that management believes are reasonable.
RECEIVABLES
The carrying amount of the Company's receivables at December 31, 1993 and 1992 approximates fair value. The fair value of fitness center installment contracts is based on discounted cash flow analyses, using interest rates in effect at the end of the year comparable to similar consumer financing contracts. The fair value of other receivables approximates their carrying amount.
ACCRUED LIABILITIES
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at December 31, 1993 and 1992 are as follows:
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The indentures for Bally's debt do not contain cross-default provisions. However, the indentures and credit agreements related to the indebtedness of certain of Bally's subsidiaries require, among other things, that these subsidiaries maintain certain financial ratios and restrict the amount of additional indebtedness that can be incurred. Bally has not guaranteed the payment of principal or interest under the publicly traded debt securities and credit agreements of its subsidiaries.
The Bally 6% Convertible Subordinated Debentures due 1998 (the "6% Debentures") require annual sinking fund payments of $2,587 through 1997, which will retire 75% of these debentures prior to maturity. The Company may redeem these debentures at any time, in whole or in part, without premium. At any time prior to maturity or redemption, these debentures are convertible into Common Stock (current conversion price of $28.99 per share, subject to adjustment for certain subsequent changes in the Company's capitalization). In 1993, the Company purchased $2,587 principal amount of these debentures to satisfy the 1993 sinking fund requirement, which resulted in a pre-tax gain of $495 (included in "Other revenues").
The Bally 10% Convertible Subordinated Debentures due 2006 (the "10% Debentures") require annual sinking fund payments of $5,000 through 2005, which will retire 75% of these debentures prior to maturity. The Company may redeem these debentures at any time, in whole or in part, with premiums ranging from 1.96% at December 31, 1993 to zero in December 1996 and thereafter. At any time prior to maturity or redemption, these debentures are convertible into Common Stock (current conversion price of $32.68 per share, subject to adjustment for certain subsequent changes in the Company's capitalization). In 1993, the Company purchased $617 principal amount of these debentures to satisfy the remaining 1993 sinking fund requirement, which resulted in a pre-tax gain of $101 (included in "Other revenues").
The payment of the 6% Debentures and 10% Debentures is subordinated to the prior payment, in full, of all senior indebtedness of Bally, as defined (approximately $20,190 at December 31, 1993). In addition, almost all of the Company's business is conducted through subsidiaries and claims of creditors of subsidiaries are effectively senior to these debentures.
In June 1993, Casino Holdings issued $220,000 principal amount of Senior Discount Notes due 1998 (the "Senior Discount Notes") at a discount to yield an interest rate of 10 1/2%. The Senior Discount Notes are not subject to any sinking fund requirement, but may be redeemed at any time, in whole or in part, at their accreted value plus a "make-whole premium," as defined. In addition, on or before June 15, 1996, a portion of the Senior Discount Notes may be redeemed with premiums ranging from 8.0% of the accreted value prior to June 15, 1994 to 4.8% of the accreted value on June 15, 1996 out of the proceeds of an initial public offering by Casino Holdings if such offering were to occur, provided that at least $154,000 principal amount of the Senior Discount Notes remains outstanding after the redemption. The net proceeds from the issuance of the Senior Discount Notes were approximately $127,900, which have been and are being used to: (i) construct and equip Bally's Tunica, (ii) acquire a significant equity interest in Bally's Las Vegas, (iii) fund initial payments for construction of a riverboat (including dockside improvements) for eventual operation in New Orleans, Louisiana, (iv) fund an option agreement to acquire certain riverfront property in Philadelphia for the purpose of developing a dockside gaming facility if gaming were to be legalized in Pennsylvania and (v) pursue other gaming opportunities. The Senior Discount Notes are effectively subordinated to all liabilities of Casino Holdings' subsidiaries, which were $779,585 at December 31, 1993.
On March 8, 1994, a subsidiary of Bally's Park Place, Inc. ("Bally's Park Place") issued $425,000 principal amount of 9 1/4% First Mortgage Notes due 2004 (the "9 1/4% Notes"). The 9 1/4% Notes are not subject to any sinking fund requirement, but may be redeemed beginning March 1999, in whole or in part, with premiums ranging from 4.5% in 1999 to zero in 2002 and thereafter. In addition, on or before March 15, 1997, a portion of the 9 1/4% Notes may be redeemed at a premium of 9.25% out of the proceeds of one or more public equity offerings by Bally's Park Place or Casino Holdings if such offerings were to occur, provided that at least $100,000 principal amount of the 9 1/4% Notes remains outstanding after the redemption. The
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9 1/4% Notes are secured by a first mortgage on and security interest in substantially all property and equipment at Bally's Park Place, which had a net book value of $486,498 at December 31, 1993. Bally's Park Place used the net proceeds from the sale of the 9 1/4% Notes to purchase and retire certain of its 11 7/8% First Mortgage Notes due 1999 (the "11 7/8% Notes"), defease the remaining 11 7/8% Notes at a price of 104.45% of their principal amount plus accrued interest through the redemption date, thereby satisfying all obligations thereunder, and pay a $30,000 dividend to Casino Holdings. The retirement and defeasance of the 11 7/8% Notes results in an extraordinary loss in the first quarter of 1994 of approximately $20,500, net of income taxes of approximately $14,300. In connection with the sale of the 9 1/4% Notes, Bally's Park Place terminated its existing credit facility and entered into an agreement for a new $50,000 revolving credit facility which expires on December 31, 1996, at which time all amounts outstanding become due. The new credit facility provides for interest on borrowings payable, at Bally's Park Place's option, at the agent bank's prime rate or the LIBOR rate plus 2%, each of which increases as the balance outstanding increases. The rate of interest on borrowings was previously based upon the agent bank's prime rate or certain other short-term rates (6% at December 31, 1993). Bally's Park Place pays a fee of 1/2% on the unused commitment. The new credit facility is secured by a pari passu lien on the collateral securing the 9 1/4% Notes.
In March 1993, a subsidiary of GNAC, CORP. (which owns and operates the casino resort in Atlantic City known as "The Grand") issued $275,000 principal amount of 10 5/8% First Mortgage Notes due 2003 (the "10 5/8% Notes") at a discount to yield an interest rate of 10 3/4%. The 10 5/8% Notes are not subject to any sinking fund requirement, but may be redeemed beginning April 1998, in whole or in part, with premiums ranging from 5.25% in 1998 to zero in 2001 and thereafter. The 10 5/8% Notes are secured by a first mortgage on and security interest in substantially all property and equipment of GNAC, CORP., which had a net book value of $280,960 at December 31, 1993. GNAC, CORP. used the net proceeds from the sale of the 10 5/8% Notes, together with the collection of certain funds on deposit with Bally's Park Place, to redeem its 13 1/4% Mortgage-Backed Notes due 1995 (the "13 1/4% Notes") at a price of 102.94% of their principal amount plus accrued interest, thereby satisfying all obligations thereunder. The redemption of the 13 1/4% Notes resulted in an extraordinary loss of $2,091, net of income taxes of $1,405. During April 1993, GNAC, CORP. entered into an agreement with two banks for a $20,000 revolving credit facility. This credit facility has a term of two years, provides for interest on borrowings at the rate of 1% above the banks' stated prime rates and is secured by a pari passu lien on the collateral securing the 10 5/8% Notes. GNAC, CORP. pays a fee of 1/2% on the unused commitment.
In December 1993, Bally's Grand, Inc. issued $315,000 principal amount of 10 3/8% First Mortgage Notes due 2003 (the "10 3/8% Notes"). The 10 3/8% Notes are not subject to any sinking fund requirement, but may be redeemed beginning December 1998, in whole or in part, with premiums ranging from 5.19% in 1998 to zero in 2001 and thereafter. In addition, on or before December 15, 1996, a portion of the 10 3/8% Notes may be redeemed at a premium of 9.375% out of the proceeds of one or more public equity offerings by Bally's Grand, Inc. if such offerings were to occur, provided that at least $100,000 principal amount of the 10 3/8% Notes remains outstanding after the redemption. The 10 3/8% Notes are secured by a first priority lien on the fee interests in the approximately thirty-acre site comprising Bally's Las Vegas and by a security interest in certain personal property of Bally's Grand, Inc., which together had a net book value of $331,448 at December 31, 1993. Bally's Grand, Inc. used a substantial portion of the net proceeds from the issuance of the 10 3/8% Notes to redeem its 12% First Mortgage Notes due 2001 (the "12% Notes") at a price of 103% of their principal amount plus accrued interest, thereby satisfying all obligations thereunder, and to pay approximately $9,000 to Bally under a tax sharing agreement between Bally's Grand, Inc. and Bally, which amount became due and payable in connection with the redemption of the 12% Notes. The remaining proceeds are primarily being used for capital expenditures. The redemption of the 12% Notes resulted in an extraordinary loss of $400, net of income taxes of $438 and minority interests of $412.
The Bally's Health & Tennis Corporation ("Bally's Health & Tennis") revolving credit agreement,
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which was amended in January 1993, provides for borrowings of up to $107,500 and letters of credit up to $20,000 at December 31, 1993. The commitment under the revolving credit facility is reduced by $5,000 during each quarter of 1994 and by increasing amounts thereafter through December 31, 1997. The rate of interest on the borrowings (blended rate of 6 3/4% at December 31, 1993) is at Bally's Health & Tennis' option, based upon either the agent bank's prime rate plus 1 3/4% or the Euro-dollar rate plus 3 1/4%. Bally's Health & Tennis pays an annual fee of 1/2% on the unused commitment. Outstanding letters of credit as of December 31, 1993 totalled $11,370, for which Bally's Health & Tennis pays an annual fee of 1 3/4% on outstanding letters of credit and a fee of 1/2% on the unused commitment. The revolving credit agreement is secured by substantially all real and personal property of Bally's Health & Tennis, which had a net book value of $759,848 at December 31, 1993, and a pledge of the stock of Bally's Health & Tennis. The Bally's Health & Tennis revolving credit agreement requires maintenance by Bally's Health & Tennis of certain financial ratios. Certain provisions of the revolving credit agreement applicable to those financial ratios were amended as of September 30, 1993. Although Bally's Health & Tennis was in compliance with these financial ratio requirements as of December 31, 1993, there can be no assurance that it will not be necessary in the future to amend the financial ratio requirements and, if necessary, that such amendments will be obtained.
Also in January 1993, Bally's Health & Tennis issued $200,000 principal amount of 13% Senior Subordinated Notes due 2003 (the "13% Notes"). The 13% Notes are not subject to any sinking fund requirement, but may be redeemed beginning January 1998, in whole or in part, with premiums ranging from 6.5% in 1998 to zero in 2000 and thereafter. The payment of the 13% Notes is subordinated to the prior payment in full of all senior indebtedness of Bally's Health & Tennis, as defined ($124,463 at December 31, 1993). Bally's Health & Tennis used the net proceeds from the sale of the 13% Notes to prepay $101,500 of indebtedness under the Bally's Health & Tennis revolving credit agreement, redeem $69,505 principal amount of its 13 5/8% Senior Subordinated Debentures due 1997 (the "13 5/8% Debentures") at a price of 105.71% of their principal amount plus accrued interest, thereby satisfying all obligations thereunder, and pay a $15,000 dividend to Bally. The redemption of the 13 5/8% Debentures and the amendment to the revolving credit agreement resulted in an extraordinary loss of $5,999, net of income taxes of $3,249.
Other secured and unsecured obligations are payable through 2018 and are collateralized by land, buildings and equipment which have a net book value of $43,395 at December 31, 1993. Interest rates averaged 8% at December 31, 1993.
DIVIDEND RESTRICTIONS
Each of Bally's principal subsidiaries presently have debt covenants which limit the payment of dividends to Bally. Under the terms of the Senior Discount Notes, an amount equal to certain dividends paid pursuant to a net income test by Bally's Park Place to Casino Holdings may be declared as a dividend by Casino Holdings and paid to Bally. In February 1994, Bally's Park Place declared and paid a $595 dividend (amount of unrestricted retained earnings at December 31, 1993) to Casino Holdings which subsequently declared and paid a dividend in the same amount to Bally. In addition, Bally's Park Place paid a $30,000 dividend to Casino Holdings from a portion of the proceeds of the sale of the 9 1/4% Notes in March 1994, which is not available to be paid by Casino Holdings to Bally. In connection with the sale of the 9 1/4% Notes, the New Jersey Casino Control Commission (the "New Jersey Commission") requires, among other things, that the payment of certain dividends by Bally's Park Place to Casino Holdings which are not based on net income receive prior approval from the New Jersey Commission. GNAC, CORP. and Bally's Health & Tennis are not expected to be able to pay dividends to Bally in 1994. Also, the terms of the 10 3/8% Notes limit the ability of Bally's Grand, Inc. to pay dividends, and no dividends are expected to be paid in 1994.
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Annual maturities
Aggregate annual maturities of long-term debt for the five years after December 31, 1993 (adjusted for the Bally's Park Place refinancing described above) are as follows:
Fair value
The fair value of the Company's long-term debt at December 31, 1993 and 1992 was $1,520,926 and $1,013,552, respectively. The fair value of publicly traded debt securities is based on quoted market prices. The fair value of borrowings under revolving credit agreements and of other secured and unsecured obligations approximates their carrying amount.
INCOME TAXES
The income tax benefit applicable to loss from continuing operations before income taxes and minority interests consists of the following:
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1993 and January 1, 1993, along with their classification, are as follows:
Based on federal income tax returns as filed, as adjusted for certain agreements with the Internal Revenue Service ("IRS"), the Company had federal net operating loss carryforwards of approximately $185,000, which expire in 2006, and Alternative Minimum Tax ("AMT") credits of approximately $41,000, which have no expiration. The Company also has substantial state tax loss carryforwards which begin to expire in 1994 and fully expire in 2008. Because of complex issues involved in the Company's tax situation and the Company's present expectations of ultimate settlements with the IRS, the Company has provided a valuation allowance for substantially all of the federal and state tax loss carryforwards and a portion of its AMT credits.
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The deferred income tax provision (benefit) applicable to loss from continuing operations before income taxes and minority interests for 1992 and 1991 arises from the tax effect of timing differences as follows:
A reconciliation of the income tax benefit with amounts determined by applying the U.S. statutory tax rate to loss from continuing operations before income taxes and minority interests is as follows:
The IRS has completed an audit of the federal income tax returns of certain of the Company's fitness center subsidiaries for periods ending on the day these subsidiaries were acquired. Among other things, the IRS is asserting that these subsidiaries owe additional taxes of approximately $32,000 and substantial amounts of interest with respect to issues arising pursuant to the Company's election in 1983 to treat the purchases of stock of these subsidiaries as if they were purchases of assets. The Company vigorously opposes the IRS' assertions and has filed petitions in the United States Tax Court contesting the IRS' proposed deficiencies with respect to these issues. This matter has been docketed for trial in October 1994; however, a resolution may occur sooner if the Company and the IRS resolve all or some of these issues by stipulation or otherwise. Based on the information presently available, there can be no assurance of the outcome of this matter. However, in the opinion of management, payment, if any, to the IRS of amounts which may be ultimately deemed owing will not have a material adverse effect on the Company's consolidated financial position or results of operations, since the Company believes that it has adequately provided deferred and current taxes related to this matter, although it could, though it is not expected to, have a material adverse effect on the Company's liquidity.
STOCKHOLDERS' EQUITY
Preferred stock
The Series B Junior Participating Preferred Stock, par value $1 per share (the "Series B Junior Stock"), if issued, will have a minimum preferential quarterly dividend of $5 per share, but will be entitled to an aggregate dividend of 100 times the dividend declared on shares of Common Stock. Each share of Series B Junior Stock will have 100 votes, voting together with Common Stock, except as Delaware law may otherwise provide. In the event of liquidation, the holders of Series B Junior Stock will receive a preferred liquidation payment of $100 per share, but will be entitled to receive an aggregate liquidation payment equal to 100 times the payment made per share of Common Stock.
The Series D Convertible Exchangeable Preferred Stock, par value $1 per share (the "Preferred Stock"), with a face value of $34,725 as of December 31, 1993, bears a dividend rate of 8%. The holders of Preferred Stock do not have voting rights, except that the holders would have the right to elect two additional directors of Bally if dividends on the Preferred Stock are in arrears
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in an amount equal to at least six quarterly dividends and except as Delaware law may otherwise provide. The Preferred Stock is redeemable, in whole or in part, at the option of Bally at $51.60 per share as of December 31, 1993, declining each February 1 in equal annual amounts to $50 per share on and after February 1, 1997, in each case plus accrued and unpaid dividends. The Preferred Stock is convertible into Common Stock at a price of $25 per share, equivalent to a conversion rate of two shares of Common Stock for each share of Preferred Stock, subject to adjustment. The Preferred Stock is exchangeable at the option of Bally, in whole but not in part, on any dividend payment date for 8% Convertible Subordinated Debentures due February 1, 2007. In the event of liquidation, the holders of the Preferred Stock will receive a preferred liquidation payment of $50 per share, plus an amount equal to any dividends accrued and unpaid to the payment date, before any distribution is made to holders of junior securities.
COMMON STOCK
At December 31, 1993, shares of Common Stock were reserved for future issuance as follows:
STOCK PLANS, AWARDS AND RIGHTS
INCENTIVE PLANS
In May 1989, the stockholders approved the 1989 Incentive Plan of Bally (the "1989 Plan") for officers and key employees that provides for the grant of stock options, stock appreciation rights ("SARs"), stock depreciation rights ("SDRs") and restricted stock (collectively "Awards"). In June 1992, the stockholders approved an increase in the number of shares of Common Stock available for issuance under the 1989 Plan from 2,500,000 shares to 4,000,000 shares. Amendments to the 1989 Plan increasing the aggregate number of shares of common stock which may be sold or delivered under the 1989 Plan from 4,000,000 to 6,022,000 shares and limiting the number of stock options, stock appreciation rights or stock options in tandem with stock appreciation rights that may be granted during any one calendar year to certain executive officers of the Company are subject to stockholder approval in 1994. No Awards may be granted after March 9, 1999.
The 1989 Plan provides for granting incentive as well as non-qualified stock options. Generally, non-qualified stock options will be granted with an option price equal to the fair market value of the stock at the date of grant. Incentive stock options must be granted at not less than the fair market value of the stock at the date of grant. Option grants generally become exercisable in three equal annual installments commencing one year after the date of grant, but the Compensation and Stock Option Committee of the Board ("Compensation Committee"), in its discretion, may alter such terms.
SARs are rights granted to an officer or key employee to receive shares of stock and/or cash in an amount equal to the excess of the fair market value of the stock on the date the SARs are exercised over the fair market value of the stock on the date the SARs were granted or, at the discretion of the Compensation Committee, the date the option was granted, if granted in tandem with an option granted on a different date. Upon exercise of stock appreciation rights, the optionee surrenders the related option in exchange for payment, in cash, of the excess of the fair market value on the date of surrender over the option price.
SDRs are rights granted to an officer or key employee in conjunction with an option to receive a payment of stock and/or cash equal to the excess, if any, of the option price of stock acquired on the exercise of the related option over the greater of: (i) the fair market value of the stock, as of the date six months and one day after the option was exercised (or such other date as the Compensation Committee, in its discretion, shall determine), or (ii) if such stock was sold prior to such date, the gross sale proceeds from the sale of such stock. Stock options, SARs and SDRs granted under the 1989
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Plan may be exercisable for a term of not more than ten years after the date of grant. At December 31, 1993, no SDRs had been granted and Bally has no current intention of granting SDRs under the 1989 Plan.
Restricted stock awards are rights granted to an employee to receive shares of stock without payment but subject to forfeiture and other restrictions as set forth in the 1989 Plan. Generally, the restricted stock awarded, and the right to vote such stock or to receive dividends thereon, may not be sold, exchanged or otherwise disposed of during the restricted period. Except as otherwise determined by the Compensation Committee, the restrictions and risks of forfeiture will, after one year from the date of grant, lapse as to not more than 20% of the stock originally awarded, after two years lapse as to an aggregate of not more than 40% of the stock originally awarded, and after three years shall lapse as to all the stock originally awarded. There have been no restricted stock awards granted under this plan since 1989 and there are no shares outstanding with restrictions under this plan at December 31, 1993.
In October 1993, the Board of Directors of the Company adopted, subject to stockholder approval in 1994, the 1993 Non-Employee Directors' Stock Option Plan of Bally Manufacturing Corporation (the "1993 Plan"). The 1993 Plan provides for the grant of non-qualified stock options to purchase an aggregate of 120,000 shares of Common Stock to directors of the Company who are not officers or key employees of Bally or any of its subsidiaries. Under this plan, stock options are granted with an option price equal to the fair market value of the stock on the date of grant. Option grants generally become exercisable in three equal annual installments commencing one year after the date of grant, with such options expiring ten years after the date of grant. No options may be granted under this plan after October 13, 1998.
The Company also has a non-qualified and incentive stock option and stock appreciation rights plan for officers and key employees (the "1985 Plan") which has been terminated except as to options and stock appreciation rights outstanding, all of which are vested.
A summary of 1993 stock option activity under the 1989 Plan, the 1993 Plan and the 1985 Plan is as follows:
At December 31, 1993, options on 2,296,018 shares were exercisable and 1,103,459 shares and 80,000 shares were reserved for future grants under the 1989 Plan and 1993 Plan, respectively. Outstanding options at December 31, 1993 expire between 1994 and 2003. Included in the stock options outstanding at December 31, 1993 are options for 1,416,666 shares (options for 250,000 shares were exercised during 1993) comprising non-qualified stock options the Company granted in 1991 to two executives to each purchase 1,000,000 shares of Common Stock at an exercise price of $2 per share less than the fair market value of Common Stock at the date of grant. The awards also provided for accelerated vesting under certain circumstances. During the first quarter of 1993, the required circumstances were met, and the related compensation expense, which was being amortized over the three-year vesting period of the awards, was fully expensed.
In December 1993, Bally's Board of Directors adopted, subject to stockholder approval in 1994, the Bally's Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan provides for the purchase of an aggregate of 200,000 shares of Common Stock by eligible employees (as defined) electing to participate in the plan. The stock can generally be purchased every six months at a price equal to the lesser of: (i) 85% of the fair market value of the stock on the date when a particular offering begins or (ii) 85% of the fair market value of the stock on the date when a particular offering terminates. On each offering made under the Stock Purchase Plan, each eligible employee electing to
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participate in the Stock Purchase Plan will automatically be granted shares of Common Stock equal to the number of full shares which may be purchased from the employee's elected payroll deduction, with a maximum payroll deduction equal to 10% of eligible compensation, as defined. Assuming stockholder approval, the first offering under this plan commences on July 1, 1994 and the last offering terminates on June 30, 2004.
AWARDS OF SUBSIDIARY STOCK
During 1993, 600,000 shares of reorganized Bally's Grand, Inc. common stock were awarded to certain employees of Bally's Grand, Inc. (300,000 shares) and certain executive officers of Bally who also serve as executive officers of Bally's Grand, Inc. (300,000 shares) pursuant to the Bally's Grand, Inc. 1993 Incentive Stock Plan. The shares awarded to employees of Bally's Grand, Inc. are subject to forfeiture if the employee's employment by Bally's Grand, Inc. is terminated and are subject to restrictions which lapse as to approximately one-third of the shares awarded on each of December 31, 1993, 1994 and 1995 and the fair value of such shares on the date of award is being charged to expense over such period. The shares awarded to executive officers of Bally were not subject to restrictions and, accordingly, the fair value of the awards was expensed in 1993. In December 1993, the executive officers of Bally sold the shares of Bally's Grand, Inc. common stock awarded to them to a subsidiary of Bally at the fair market value of the shares at the date of sale.
RIGHTS TO PURCHASE PREFERRED STOCK
One preferred stock purchase right is attributable to each outstanding share of Common Stock. Under certain conditions, each right may be exercised to purchase for $60 one 1/100th of a share of Series B Junior Stock. The rights are not exercisable or transferable apart from the stock until the occurrence of one of the following: (i) ten days after the date ("Stock Acquisition Date") of a public announcement by a person or a group of beneficial ownership of 20% or more of Common Stock (an "Acquiring Person"), (ii) ten business days after a public announcement by a person or group of a tender offer for 30% or more of Common Stock, or (iii) the occurrence of a Flip-In Event. A Flip-In Event is any of: (i) a final court or administrative order finding that a person or group having beneficial ownership of 10% or more of Common Stock (a "10% Stockholder") has violated Nevada or New Jersey gaming, casino or similar laws in connection with such 10% Stockholder's interest in the Company, (ii) the failure of a 10% Stockholder to eliminate or reduce to an acceptable level its beneficial ownership of Common Stock within 20 days after a final court or administrative order finding that such 10% Stockholder is unsuitable or unqualified to hold its interest in the Company, (iii) the acquisition by a person or group of 20% or more of Common Stock without having obtained prior Nevada Gaming Commission approval to acquire control of the Company, and (iv) the consummation of certain "self-dealing" transactions between an Acquiring Person and the Company, including a merger with an Acquiring Person in which Bally is the surviving corporation and Common Stock is not changed or exchanged. Upon the occurrence of a Flip-In Event, each right, other than those held by the Acquiring Person or 10% Stockholder causing such occurrence, will entitle the holder to purchase shares of Common Stock or, in certain cases, other assets or securities of the Company having a value of $120 for $60. In the event that the Company is acquired in a merger or other business combination transaction (other than a merger with an Acquiring Person in which the Company is the surviving corporation and Common Stock is not changed or exchanged) or 50% or more of the Company's assets or earning power is sold or transferred, each holder of a right shall have the right to receive, upon exercise, common stock of the acquiring company having a calculated value equal to twice the purchase price of the right. The rights, which do not have voting privileges, are subject to adjustment to prevent dilution, expire on December 4, 1996 and may be redeemed by the Company at a price of five cents per right at any time until 20 days (subject to extension by the Board) following the Stock Acquisition Date.
EMPLOYEE BENEFIT PLANS
Bally and certain subsidiaries sponsor employee savings plans which cover certain full-time employees and which are considered part of the Company's overall retirement program. Pursuant to these savings plans, participating employees may contribute (defer) a percent of eligible
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compensation. Employee contributions to the savings plans, up to certain limits, are partially matched by the Company. The expense applicable to continuing operations for the Company's savings plans and a profit-sharing plan which was terminated on January 1, 1993 was $5,243, $3,724 and $5,082 for 1993, 1992 and 1991, respectively.
In addition, Bally and Bally's Park Place have noncontributory supplemental executive retirement plans for certain key executives. Normal retirement under these plans is age 60 to 65 and participants receive benefits based on years of service and compensation. Pension costs of these plans are unfunded except for one executive's benefits which are funded through annual contributions to a trust. Net periodic pension cost for these plans was $4,482, $1,627 and $6,664 for 1993, 1992 and 1991, respectively. The accrued pension liability related to the unfunded supplemental executive retirement plans in the consolidated balance sheet (principally classified as long-term) was $9,994 and $6,890 at December 31, 1993 and 1992, respectively. The weighted average discount rate and rate of increase in future compensation levels used in determining actuarial present value of the projected benefit obligations were 6.1% and 6.0% in 1993, 8.1% and 6.0% in 1992 and 8.3% and 5.5% in 1991.
In 1991, Bally's Park Place and one of its executives entered into an agreement to terminate the executive's participation in a noncontributory supplemental executive retirement plan sponsored by the subsidiary. Pursuant to this agreement, the subsidiary agreed to pay the executive $27,600 over five years. The subsidiary recorded the settlement in an amount equal to the net present value of the required payments. No charge against operations in 1991 was required, as the subsidiary had fully accrued in prior years the value of this settlement as part of its pension liability. The net present value of the remaining payments under this termination agreement was $16,042 at December 31, 1992. On January 8, 1993, Bally and Bally's Park Place entered into a retirement and separation agreement with this executive which, among other things, reduced the remaining amount payable under the termination agreement to $13,500, which Bally's Park Place paid on such date.
Certain employees of the Company's casinos are covered by union-sponsored, collectively bargained, multiemployer defined benefit pension plans. The contributions and charges to expense for these plans were $1,314, $942 and $915 in 1993, 1992 and 1991, respectively.
COMMITMENTS AND CONTINGENCIES
LEASES
Minimum future rent payments totalling $918,254 under commitments for noncancellable operating leases with initial terms in excess of one year in effect at December 31, 1993, principally for fitness center facilities, are payable $77,874, $76,204, $73,493, $72,017 and $70,073 in 1994 through 1998 and $548,593 thereafter. Rent expense was $80,514, $74,891 and $74,046 for 1993, 1992 and 1991, respectively.
LITIGATION
Several purported derivative actions originally filed against Bally and certain of its current and former directors and officers have been consolidated. The consolidated complaint seeks, among other things, unspecified damages and compensatory and punitive damages and costs in connection with allegations of breach of fiduciary duty, corporate mismanagement, and waste of corporate assets in connection with certain actions including, among others, payment of compensation, certain acquisitions by Bally, the dissemination of allegedly materially false and misleading information, the proposed restructuring of debt, and a subsidiary's allegedly discriminatory practices. The Company is also involved in various other matters of litigation as both plaintiff and defendant. Management believes, based upon the advice of its counsel, that the ultimate disposition of these matters will not have a materially adverse effect on the Company's consolidated financial statements.
DISCONTINUED OPERATIONS
In September 1993, the Company disposed of its remaining 1,752,400 shares of Gaming common stock pursuant to stock exchange agreements. This disposition, including the recognition of previously deferred cumulative translation adjustment credits of $2,506, resulted in a net gain of $6,215, including an income tax benefit of $1,452. The income tax benefit resulted from the utilization of tax loss carryforwards to offset taxable income arising from this disposition of
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Gaming common stock, and is included in income from discontinued operations. In 1992 and 1991, the Company sold 4,547,600 shares and 3,000,000 shares, respectively, of Gaming common stock it owned in public offerings and received net proceeds of $51,243 and $33,300, respectively, which, including the recognition of previously deferred cumulative translation adjustment credits of $7,922 and $4,263, respectively, resulted in a net gain of $6,706 and $5,219, respectively, net of income taxes of $8,529 and $3,807, respectively, and other related costs. As a result of the Company's disposal of its investment in Gaming, the consolidated financial statements reflect Gaming as a discontinued operation. Income from discontinued operations in 1992 and 1991 also includes equity in earnings of Gaming of $2,879 and $4,644, respectively. Gaming's revenues in 1992 and 1991 were $163,781 and $153,648, respectively.
Also in 1991, the Company sold the assets of its Life Fitness, Inc. computerized fitness equipment business and Scientific Games, Inc. lottery business in separate transactions for a total consideration of approximately $100,000, of which approximately $69,500 was paid in cash and the remainder was paid in the form of a new issue of one of the purchaser's debt securities. These sales resulted in a net gain of $18,010, net of income taxes of $18,172 and other related costs. The Company subsequently exchanged substantially all of the purchaser's debt securities received by the Company in connection with one of the sales and 800,000 shares of Common Stock with a third party for approximately $48,400 principal amount of public debt securities of Bally and one of its subsidiaries that were held by the third party, which resulted in an extraordinary gain of $10,800, net of income taxes of $4,800 and other related costs. See "Extraordinary items." The income from operations of these businesses has also been reflected as discontinued operations in the consolidated financial statements. Sales and income from operations of these businesses totalled $126,481 and $5,290 (after income taxes of $4,297), respectively, prior to their disposal dates in 1991.
INDUSTRY SEGMENTS
The Company operates in two segments: (i) Casinos -- includes the operation of two casino hotels in Atlantic City, New Jersey, a casino resort in Las Vegas, Nevada and a dockside gaming facility in Tunica, Mississippi; and (ii) Fitness centers -- includes the operation of 339 fitness centers. Revenues and assets of operations outside the United States are insignificant.
During 1991, Bally began allocating its corporate overhead (including executive salaries and benefits, public company reporting costs and other corporate headquarters' costs) to its subsidiaries. Bally's method for allocating costs to its subsidiaries is designed to apportion its costs to its subsidiaries based upon many subjective factors including size of operations and extent of Bally's oversight requirements. The allocations by Bally to its subsidiaries for 1993, 1992 and 1991 totalled $8,732, $9,591 and $9,175, respectively.
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SUPPLEMENTARY DATA QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
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NOTES:
1. The quarterly consolidated financial information reflects Bally Gaming International, Inc. ("Gaming") as a discontinued operation as a result of the Company's disposition of its remaining investment in September 1993.
2. Income from continuing operations for the quarters ended March 31 and June 30, 1993 includes gains of $.2 million and $.2 million, respectively, resulting from market purchases of the Company's public debt for sinking fund requirements.
3. Loss from continuing operations for the quarter ended September 30, 1993 includes a charge of $1.7 million ($.04 per share) as a result of applying the change in the U.S. statutory tax rate from 34% to 35% to deferred tax balances.
4. Loss from continuing operations for the quarter ended December 31, 1993 includes a charge of $1.9 million ($.04 per share) for the amortization of pre-opening costs associated with Bally's Saloon and Gambling Hall which commenced operations in December 1993.
5. Income from discontinued operations for the quarter ended September 30, 1993 represents a gain from the sale of Gaming common stock.
6. The extraordinary losses for the quarters ended March 31 and December 31, 1993 are due to early redemptions of debt.
7. The cumulative effect on prior years of change in accounting for income taxes for the quarter ended March 31, 1993 is a result of the Company changing its method of accounting for income taxes (effective January 1, 1993) as required by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." As permitted by SFAS No. 109, the Company elected to use the cumulative effect approach rather than to restate the financial statements of any prior years to apply the provisions of SFAS No. 109.
8. Income from continuing operations for the quarters ended March 31 and September 30, 1992 includes gains of $2.5 million ($.07 per share) and $.4 million ($.01 per share), respectively, resulting from market purchases of the Company's public debt for sinking fund requirements.
9. Income (loss) from continuing operations for the quarters ended March 31 and December 31, 1992 includes the elimination of litigation accruals relating to matters which were favorably settled amounting to $1.0 million ($.03 per share) and $1.2 million ($.03 per share), respectively.
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10. Income from continuing operations for the quarter ended September 30, 1992 includes charges for professional fees related to the Company's reorganization of $3.2 million ($.08 per share) offset, in part, by a commission on the July 1992 sale by Bally's Grand, Inc. of the casino resort complex formerly known as "Bally's Reno" of $.7 million ($.02 per share).
11. Income from discontinued operations for the quarter ended September 30, 1992 includes a gain of $6.7 million ($.17 per share) from the sale of Gaming common stock.
12. The extraordinary gain for the quarter ended March 31, 1992 relates to the extinguishment of debt as a result of market purchases of the Company's public debt.
13. The extraordinary gains for the quarters ended September 30, 1992 and December 31, 1992 represent credits for the utilization of tax loss carryforwards.
14. The Company's operations are subject to seasonal factors.
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9 is inapplicable.
PART III
Part III, except for certain information relating to Executive Officers included in Part I, is omitted inasmuch as the Company intends to file with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended December 31, 1993 a definitive proxy statement containing such information pursuant to Regulation 14A of the Securities Exchange Act of 1934 and such information shall be deemed to be incorporated herein by reference from the date of filing such document.
PART IV
ITEM 14.
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) 1. INDEX TO FINANCIAL STATEMENTS
(A) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES
All other schedules specified under Regulation S-X are omitted because they are not applicable, not required under the instructions or all information required is set forth in the Notes to consolidated financial statements.
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(A) 3. INDEX TO EXHIBITS
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALLY MANUFACTURING CORPORATION
Dated: March 21, 1994 By /s/ ARTHUR M. GOLDBERG ------------------------------------ Arthur M. Goldberg Chairman of the Board, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. This Annual Report may be signed in multiple identical counterparts all of which, taken together, shall constitute a single document.
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
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NOTE:
Amounts are exclusive of accrued interest.
S-1
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET (PARENT COMPANY ONLY) DECEMBER 31, 1993 AND 1992 (ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
See accompanying notes.
S-2
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED) CONDENSED STATEMENT OF OPERATIONS (PARENT COMPANY ONLY) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
See accompanying notes.
S-3
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED) CONDENSED STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
See accompanying notes.
S-4
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED) NOTES TO CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (ALL DOLLAR AMOUNTS IN THOUSANDS)
BASIS OF PRESENTATION
The accompanying condensed financial information of Bally Manufacturing Corporation ("Bally") includes the accounts of Bally, and on an equity basis, the subsidiaries which it controls. The accompanying condensed financial information should be read in conjunction with the consolidated financial statements of Bally.
LONG-TERM DEBT
Scheduled annual maturities of long-term debt for the five years after December 31, 1993 are $7,587, $7,587, $7,587, $7,587 and $13,621.
S-5
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE V -- PROPERTY AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
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NOTES: (a) Other changes include $372,792 and $4,289 arising from acquisitions of businesses in 1993 and 1992, respectively, an adjustment of $16,061 due to temporary differences resulting from the implementation of SFAS No. 109 in 1993 and reclassifications between categories in each of the years.
(b) Depreciable lives are equal to the estimated economic lives of the related assets and the terms of the applicable leases for leasehold improvements. Depreciation is provided principally on the straight-line method over depreciable lives ranging from two to forty years.
S-6
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
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NOTE:
Other changes include $3,876 arising from the acquisition of a business in 1993, $2,342 due to temporary differences resulting from the implementation of SFAS No. 109 in 1993 and reclassifications between categories in each of the years.
S-7
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
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NOTES:
(a) Additions charged to accounts other than costs and expenses consist of the following:
(b) Deductions include write-offs of uncollectible amounts, net of recoveries. In addition, for 1992 the allowance for doubtful receivables and cancellations also includes reclassifications of amounts ($7,040) previously reported as unearned finance charges that represent the portion of balances estimated to be related to uncollectible amounts.
S-8
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE IX--SHORT-TERM BORROWINGS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
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NOTE:
The average amount outstanding during 1992 and 1991 was computed by averaging the month-end balances during the year. The weighted average interest rate during 1992 and 1991 was computed by dividing interest expense by the weighted average amount of short-term borrowings outstanding.
S-9
- -------------------------------------------------------------------------------- BALLY MANUFACTURING CORPORATION SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (ALL DOLLAR AMOUNTS IN THOUSANDS)
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NOTE:
Royalties are not shown as they are less than one percent of consolidated revenues in all years presented.
S-10