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 Entertainment 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 reasonable allowance for the fees and expenses of plaintiffs' attorneys, accountants and experts.
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 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. Mr. Goldberg is 53 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 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, one of its directors since September 1992 and its Treasurer since October 1992, and was Chief
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Financial Officer of that company from January 1992 through May 1994. From October 1989 to April 1991, he was a partner with the accounting firm of Ernst & Young LLP. Mr. Hillman is 39 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 Bally Gaming International, Inc. ("Gaming"), a former subsidiary of the Company, since October 1990. From January 1987 to September 1992, he was Vice President, Management Information Systems of Bally's Grand, Inc. Mr. Conover is 49 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 and Vice President and Chief Financial Officer of Bally's Health & Tennis since May 1994. From October 1989 to June 1992, he was a partner with the accounting firm of Ernst & Young LLP. Mr. Dwyer is 42 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 38 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 1991, he had been with the Federal Bureau of Investigation. Mr. Murphy is 48 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 51 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 three years prior to December 1992, she was Assistant Secretary of the Company and a member of its law department. Ms. DePaul is 38 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 its Chief Operating Officer in January 1993. He has also been an Executive Vice President, Chief Operating Officer and a director of Casino Holdings since June 1993. Mr. Barr was a Senior Vice President of GNAC from June 1991 to February 1993 and has served as its Chief Operating Officer since January 1993 and 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 49 years of age.
Michael G. Lucci, Sr. was elected President of Bally's Health & Tennis in April 1993 and its 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 55 years of age.
Darrell A. Luery was elected Senior Vice President of Bally's Grand, Inc. in August 1989 and its Chief Operating Officer in September 1992. Mr. Luery is 54 years of age.
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ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of holders of record of the Common Stock at March 23, 1995 was 16,249.
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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ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described previously, Bally's Health & Tennis has been reflected as a discontinued operation in the Company's financial statements because of the Spin-off. As a result, the Company's continuing operations comprise one industry segment, with all significant revenues arising from its casino operations and, where applicable, supporting hotel operations. The following discussion and analysis of financial condition and results of operations is that of the Company's continuing operations.
RESULTS OF OPERATIONS
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1994 VERSUS 1993
Revenues of the Company for 1994 were $942.3 million compared to $628.2 million for 1993, an increase of $314.1 million (50%). Operating income for 1994 was $125.1 million compared to $107.9 million for 1993, an increase of $17.2 million (16%). These increases principally reflect the inclusion of twelve months of operations of Bally's Las Vegas and Bally's Mississippi in 1994 as compared to approximately one month in 1993 and improved operating results at both of the Company's Atlantic City casino hotel resorts.
ATLANTIC CITY. Revenues of Bally's Park Place for 1994 were $377.0 million compared to $352.8 million for 1993, an increase of $24.2 million (7%). Bally's Park Place achieved this increase in revenues despite extremely adverse weather in the first quarter of 1994 when revenues grew only $.3 million. Casino revenues for 1994 were $321.5 million compared to $297.7 million in 1993, an increase of $23.8 million (8%). Slot revenues increased $13.5 million (7%) due to a 16% increase in slot handle (volume) offset, in part, by a decline in the win percentage from 9.6% in 1993 (which includes the positive impact from the discontinuation of certain progressive linked jackpots) to 8.8% in 1994. Bally's Park Place added 223 slot machines (an 11% increase) during 1994. Table game revenues, excluding poker, increased $6.4 million (7%) from 1993 due to a 3% increase in the drop (amount wagered) and an increase in the hold percentage from 16.5% in 1993 to 17.1% in 1994. Poker operations, which commenced in July 1993, generated revenues of $4.7 million for 1994 compared to $2.6 million for 1993. Horse race simulcasting and keno operations, which commenced in June 1994, contributed $1.8 million to casino revenues for 1994. Rooms and food and beverage revenues remained essentially unchanged. Other revenues increased $1.0 million (11%) due to higher entrance fees for promotional events, dividends from a multi-casino linked progressive trust and increased interest income. Operating income of Bally's Park Place for 1994 was $88.3 million compared to $85.8 million for 1993, an increase of $2.5 million (3%) as the aforementioned revenue increase was offset, in part, by a $21.7 million (8%) increase in operating expenses. Despite the increase in operating expenses, the 1994 operating margin (before depreciation and amortization) remained unchanged from 1993's level of nearly 32%. Casino expenses increased $11.3 million (10%) due to an increase in salaries, benefits and other costs associated with the introduction and operation of horse race simulcasting and keno in 1994 and the operation of poker throughout all of 1994 compared to only six months in 1993, and expanded marketing and promotional efforts. Depreciation and amortization expense increased $5.2 million (20%) primarily due to accelerated depreciation associated with a slot machine upgrade and an increase in capital expenditures during 1994 and 1993. Other operating expenses increased $3.1 million (6%) due to an increase in the cost of property operations and ancillary services.
Revenues of The Grand for 1994 were $249.5 million compared to $239.8 million for 1993, an increase of $9.7 million (4%). The Grand achieved this increase in revenues despite extremely adverse weather in the first quarter of 1994 when revenues declined $5.6 million. Casino revenues for 1994 were $228.4 million compared to $216.3 million in 1993, an increase of $12.1 million (6%). Table game revenues increased $6.8 million (8%) due to a 5% increase in the drop and an increase in the hold percentage from 16.3% in 1993 to 16.6% in 1994. Slot revenues increased $5.3 million (4%) due to a 14% increase in slot handle offset, in part, by a decline in the win percentage from 9.5% in 1993 to 8.6% in 1994. Slot revenues include approximately $1.5 million and $1.2 million from the discontinuation of certain progressive slot jackpots in 1994 and 1993, respectively. The change in rooms and food and beverage revenues was not significant. Other revenues decreased $1.5 million (19%) due, in part, to an adjustment to the reserve for unclaimed gaming chips and tokens in 1993. Operating income of The Grand for 1994 was $23.7 million compared to $21.7 million for 1993, an increase of $2.0 million (9%) as the aforementioned revenue increase was offset, in part, by a $7.7 million (4%) increase in operating expenses. The 1994 operating margin (before depreciation and amortization) remained unchanged from 1993's level. Casino expenses increased $10.2 million (8%) primarily due to increases in payroll and payroll-related expenses, the provision for doubtful receivables and the costs of providing additional complimentary services and other promotional expenses in conjunction with the
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increase in casino volume and additional marketing efforts associated with the comprehensive marketing program introduced in July 1993. Selling, general and administrative expenses decreased $1.3 million (5%) primarily due to a real estate tax refund for prior years offset, in part, by increases in advertising and various other expenses.
Management believes that the reduced rate of slot revenue growth in Atlantic City as compared to the last several years, in conjunction with the expanded number of slot machines, has caused and will continue to cause intense promotional efforts to attract slot players as the Company's Atlantic City casinos and their competitors seek to expand their share of slot revenues and maximize the utilization of their slot machine inventory. Further, as a result of the aggressive competition for slot patrons, the Atlantic City slot win percentage has declined. Management believes that the slot win percentage will continue to be subject to competitive pressure and may further decline. However, the addition of poker, horse race simulcasting and keno over the last year has had a favorable impact on the Atlantic City gaming environment. The Company believes its Atlantic City casinos are well-positioned to compete for additional casino revenues by continuing to offer attractive promotional slot and table game programs and special events and by enhancing the appearance and comfort of their gaming space. In February 1994, Bally's Park Place expanded its casino floor space from 68,100 to 71,400 square feet and in June 1994, Bally's Park Place added another 8,700 square feet of gaming space to offer horse race simulcasting and keno, and to relocate and expand its poker operations. In July 1994, Bally's Park Place placed in operation an additional 127 high denomination slot machines in the gaming space formerly occupied by its poker operations. Further, Bally's Park Place recently completed a slot machine upgrade, replacing the majority of its slot machine inventory with state-of-the-art machines with embedded bill acceptors, and reconfigured its slot machine layout, adding additional slot stools and aisle space. The Grand also reconfigured its casino floor, widening the aisles, adding additional slot stools and replacing the majority of its slot machine inventory with state-of-the-art machines with embedded bill acceptors during the second quarter of 1994. Additionally, The Grand is expanding its casino floor and other gaming space by 30% to accommodate approximately 400 additional slot machines, poker, horse race simulcasting and keno, with completion expected in April 1995.
LAS VEGAS. Revenues of Bally's Las Vegas for 1994 were $271.9 million compared to $21.1 million for December 1993. Casino revenues in 1994 were $134.6 million, which primarily consisted of table game revenues of $68.9 million and slot revenues of $59.2 million. Table game hold and slot win percentages for 1994 were 16.0% and 6.2%, respectively. Rooms revenue for 1994 was $58.6 million and food and beverage revenues and other revenues (including entertainment) for 1994 were $37.6 million and $41.1 million, respectively. Casino revenues for December 1993 were $12.2 million, which primarily consisted of table game revenues of $6.7 million and slot revenues of $5.0 million. In December 1993, rooms revenue, food and beverage revenues and other revenues were $2.9 million, $2.8 million and $3.1 million, respectively. Operating income of Bally's Las Vegas for 1994 and December 1993 was $40.3 million and $1.0 million, respectively. The 1994 operating margin (before depreciation and amortization) was 23%.
Three new major casino hotels opened for business in Las Vegas during the latter part of 1993 that contain 370,000 total square feet of casino space, 10,400 total hotel guest rooms and a theme park. In addition, there have been several public announcements concerning new casino projects in Las Vegas which, when opened, will further expand capacity. Management believes that the additional casino and hotel room capacity resulting from the opening of new casino hotels has a short-term negative impact on Bally's Las Vegas, but that over the long-term Bally's Las Vegas benefits from the increase in the number of visitors to Las Vegas that these new properties attract. Further, Bally's Las Vegas has completed an extensive renovation of its main tower and improvements to its frontage area along the Strip, and has commenced construction of the monorail, renovation of the south tower hotel rooms and corridors and redesign of the lower-level retail mall, all of which are intended to enhance its competitiveness in the Las Vegas market.
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MISSISSIPPI. Revenues of Bally's Mississippi for 1994 were $39.1 million compared to $4.1 million in 1993 (which included only 24 days of operations). Casino revenues in 1994 were $38.5 million and consisted of slot revenues of $27.4 million and table game revenues of $11.1 million. Slot win and table game hold percentages for 1994 were 8.8% and 24.3%, respectively. Casino revenues for December 1993 were $4.0 million and consisted of slot and table game revenues of $2.7 million and $1.3 million, respectively. Management believes Bally's Mississippi's revenues were negatively impacted by intense competition in the Memphis market (especially from casinos closer to the Memphis metropolitan area) and as a result, Bally's management commenced exploring various options available to Bally's Mississippi during the fourth quarter of 1994. On February 9, 1995, Bally's Mississippi entered into a venture agreement with Lady Luck under which Bally's Mississippi is expected to relocate its dockside casino to Lady Luck's site in Robinsonville, Mississippi (which is presently the closest gaming site to Memphis) and contribute the dockside casino and related assets to the venture. Operating loss of Bally's Mississippi for 1994 was $13.9 million principally resulting from a charge of $13.1 million for the write-down of certain assets deemed unrecoverable upon Bally's Mississippi's planned relocation of its operations and the amortization of $3.3 million of pre-opening costs. Operating loss of Bally's Mississippi for December 1993 was $1.7 million principally resulting from the amortization of $3.1 million of pre-opening costs. In connection with the proposed relocation, Bally's Mississippi ceased operations on February 9, 1995 and expects casino operations to commence at the Robinsonville site by mid-1995. Management believes the cessation of Bally's Mississippi's casino operations for several months in 1995 will have a short-term negative effect on Bally's Mississippi's results of operations, but that over the long term Bally's Mississippi will benefit from improved operating results.
NEW GAMING PROJECTS. Operating income for 1994 includes a charge of $10.9 million for costs incurred in the pursuit and development of new gaming projects in various jurisdictions compared to $1.3 million in 1993. The Company continues to explore opportunities in jurisdictions where gaming is presently authorized or may become authorized. However, successful expansion and development opportunities are contingent upon, among other things, the passage of legislation authorizing gaming (when not already approved) and the Company obtaining the appropriate licenses. There can be no assurance that the Company will be granted gaming licenses in any of these new jurisdictions.
CORPORATE. Revenues for 1994 were $3.7 million compared to $8.0 million in 1993, a decrease of $4.3 million. The decline in revenues was principally due to a $2.4 million reduction in interest and other income from subsidiaries and 1993 having included nonrecurring income of $1.7 million for the forgiveness of a tax liability previously owed to Gaming and $.8 million for insurance recoveries.
Operating income for 1994 was $2.2 million compared to $2.3 million in 1993, a decrease of $.1 million as the decline in revenues was substantially offset by 1993 having included a nonrecurring charge of $1.7 million related to the accelerated vesting of stock options and increased allocations of corporate overhead (including executive salaries and benefits, public company reporting costs and other corporate headquarters' costs) to subsidiaries in 1994. Management of Bally believes that the methods used to allocate these costs are reasonable and expects similar allocations (subject to changes in circumstances which may warrant modification) in future years.
GAIN ON SALES OF MARKETABLE SECURITIES
During 1994, Bally's Grand, Inc. acquired and sold common stock of certain publicly traded gaming companies. The pre-tax gain on these transactions totalled $11.8 million.
INTEREST EXPENSE
Interest expense, net of capitalized interest, was $130.8 million in 1994 compared to $92.9 million in 1993. The increase of $37.9 million (41%) was due principally to higher average levels of debt (primarily resulting from the consolidation of Bally's Grand, Inc. effective December 1993 and the issuance of the Casino Holdings Senior Discount Notes due 1998 (the "Senior Discount Notes") in June 1993) offset, in part, by lower average interest rates.
INCOME TAXES
Effective rates of the income tax provision on income from continuing operations were 49% in
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1994 and 35% in 1993. The 1994 income tax rate differed from the U.S. statutory tax rate (35%) due principally to state income taxes and certain nondeductible expenses offset, in part, by adjustments of prior years' taxes and changes in the valuation allowance. The 1993 income tax rate approximated the U.S. statutory tax rate as the effect of state income taxes, the change in the U.S. statutory tax rate from 34% to 35% on deferred tax balances and nondeductible amortization was principally offset by adjustments of prior years' taxes. A reconciliation of the income tax provision with amounts determined by applying the U.S. statutory tax rate to income from continuing operations before income taxes and minority interests is included in Notes to consolidated financial statements -- Income taxes.
1993 VERSUS 1992
Revenues of the Company for 1993 were $628.2 million compared to $556.0 million for 1992, an increase of $72.2 million (13%). Operating income for 1993 was $107.9 million compared to $86.5 million for 1992, an increase of $21.4 million (25%).
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 positive impact from the discontinuation of certain progressive linked jackpots, increased $14.7 million (8%) due to an 11% increase in slot handle offset, in part, by a decline in the 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. Table game revenues, excluding poker, increased $2.4 million (3%) from 1992 primarily due to a 6% increase in the drop offset, in part, by a decline in the hold percentage from 17.0% in 1992 to 16.5% in 1993. Poker operations, which commenced in July 1993, contributed $2.6 million to 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 of Bally's Park Place 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.
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, which include the discontinuation of certain progressive slot jackpots, increased $3.4 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. 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 of The Grand 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 to a comprehensive marketing program that The Grand introduced in July 1993, which expanded the use of complimentary and promotional programs and special events and also resulted in higher payroll and payroll-related expenses and state gaming taxes. Management of The Grand believes the initial costs of the comprehensive marketing program were proportionately greater during implementation and, because the incremental revenues generally trailed such costs, the marketing program had an adverse effect on operating results for 1993.
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Changes in gaming regulations, including modifications allowing more slot machines on existing casino floor space and permitting unrestricted 24-hour gaming effective July 1992, 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 also improved the Atlantic City gaming climate. However, 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.
LAS VEGAS. As described previously, Bally's Las Vegas was consolidated effective December 1, 1993. Revenues of Bally's Las Vegas 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 of Bally's Las Vegas for December 1993 was $1.0 million.
MISSISSIPPI. Revenues of Bally's Mississippi, which included 24 days of operations in December 1993, were $4.1 million and included casino revenues of $4.0 million (slot revenues were $2.7 million and table game revenues were $1.3 million). Operating loss of Bally's Mississippi for its December 1993 operations was $1.7 million, principally caused by the amortization of $3.1 million of pre-opening costs offset, in part, by income from operations before depreciation and amortization.
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: (i) the forgiveness of a tax liability of $1.7 million previously owed to Gaming, (ii) the billing of an additional $1.7 million of insurance costs to subsidiaries, and (iii) 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 an accrual no longer deemed necessary. The allocation of corporate overhead to subsidiaries remained essentially unchanged.
INTEREST EXPENSE
Interest expense, net of capitalized interest, was $92.9 million in 1993 compared to $93.8 million in 1992. The decrease of $.9 million (1%) was due principally to 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) offset, in part, by higher average levels of debt in 1993 (due, in part, to the issuance of the Senior Discount Notes in June 1993).
INCOME TAXES
The effective rate of the income tax provision on income from continuing operations for 1993 equalled the U.S. statutory tax rate (35%) as the effect of state income taxes, the change in the U.S. statutory tax rate from 34% to 35% on deferred tax balances and nondeductible amortization was principally offset by adjustments of prior years' taxes. The effective rate of the income tax benefit on loss from continuing operations for 1992 differed from the U.S. statutory tax rate (34%) due principally to adjustments of prior years' taxes offset, in part, by nondeductible amortization and state income taxes. A reconciliation of the income tax provision (benefit) with amounts determined by applying the U.S. statutory tax rate to income (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." 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 was a charge of $28.2 million ($.61 per share).
In 1992, the Company utilized tax loss carryforwards to offset taxable income principally
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arising from the sale of Gaming common stock in July 1992, and the related tax benefit of $10.6 million ($.26 per share) 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 in the foreseeable future are expected to be recovered substantially by allocations to its subsidiaries. Bally has debt service and preferred stock dividend payments of approximately $19 million in 1995. Cash requirements for Bally in 1995 also include income tax payments, which management expects to be recovered substantially from subsidiaries pursuant to tax sharing agreements. Additionally, the Company is authorized by the Board to purchase, on the open market, up to 2 million shares of Common Stock, of which 37,000 shares were purchased in December 1994.
Sources of cash available to Bally are generally limited to existing cash balances ($24.1 million at December 31, 1994), dividends, management fees or cost allocations to subsidiaries, receipts pursuant to tax sharing agreements, capital transactions and asset sales. In addition, a subsidiary of Casino Holdings has an obligation to Bally of $6.7 million to be paid in 1995 for shares of Bally's Grand, Inc. common stock purchased from Bally. Each of Bally's principal operating subsidiaries presently have debt covenants which limit the payment of dividends to Bally and the redemption of stock owned by Bally. Under the terms of the Senior Discount Notes, an amount equal to dividends paid pursuant to a net income test by Bally's Park Place, Inc. to Casino Holdings may be declared as a dividend by Casino Holdings and paid to Bally. In 1994, dividends totalling $12.8 million were paid by Bally's Park Place, Inc. to Casino Holdings and by Casino Holdings to Bally and additional dividends of $2.1 million were available at December 31, 1994. Dividends to Bally from subsidiaries other than Bally's Park Place, Inc. are not presently expected during 1995. Bally believes it will be able to satisfy its cash needs in 1995, although it remains dependent upon the ability of its subsidiaries to pay dividends (primarily Bally's Park Place, Inc.) and other obligations to meet its future cash requirements.
The Spin-off of Bally's Health & Tennis, which is subject to satisfaction of certain conditions and receipt of certain consents, is expected to be accomplished by distributing substantially all of the issued and outstanding stock of Bally's Health & Tennis to Bally's stockholders. Because the Spin-off is expected to be a dividend, stockholders' equity of the Company will be reduced by the amount of its investment in Bally's Health & Tennis, and the Company's debt to equity ratio will increase substantially.
CASINO HOLDINGS
CASINO HOLDINGS. Casino Holdings is a holding company without operations of its own and relies on obtaining cash from its subsidiaries to meet its cash obligations. Casino Holdings has no scheduled interest or principal payments on the Senior Discount Notes until 1998 but expects to continue to incur costs and obligations in the pursuit of new gaming ventures. Sources of cash available to Casino Holdings are generally limited to existing cash balances ($36.6 million at December 31, 1994) and loan repayments, dividends and management fees from subsidiaries. To the extent Casino Holdings requires additional funds for existing ventures or to develop new ventures, Casino Holdings expects that it will be able to obtain financing for a significant portion of the total development costs of new gaming ventures from a combination of third party sources, including banks, suppliers and debt markets.
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 1994, Bally's Park Place, Inc. paid Casino Holdings dividends totalling $55.2 million, exclusive of dividends ultimately paid to Bally. An additional $25.0 million dividend is still available to Casino Holdings from Bally's Park Place, Inc. pursuant to the indenture of the Bally's Park Place, Inc. 9 1/4% First Mortgage Notes due 2004 (the "9 1/4% Notes"). Such dividend is subject to the approval of the New Jersey Commission and is not available to be paid by Casino Holdings to Bally. Bally's Grand, Inc. is presently not expected to pay dividends during
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1995. Bally's Mississippi and Casino Holdings have an arrangement whereby Bally's Mississippi borrows amounts as dictated by working capital requirements and uses excess cash generated to reduce amounts outstanding. However, due to Bally's Mississippi's planned relocation of its operations by mid-1995 (as described in "Results of Operations" included elsewhere herein), Bally's Mississippi is not expected to generate cash flows from operations of any significance in the first half of 1995.
Both Bally's New Orleans and Bally's Mississippi, which are expected to commence operations by mid-1995, are expected to generate unrestricted cash flows thereafter, a portion of which will be used by each of Bally's New Orleans and Bally's Mississippi to pay management fees to Casino Holdings and to repay Casino Holdings for project costs funded by Casino Holdings. Casino Holdings believes it will be able to satisfy its cash needs in 1995, although it remains dependent upon the ability of its subsidiaries to generate cash to repay advances and pay dividends.
BALLY'S PARK PLACE, INC. 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, 1994 are not significant. Management plans to make capital expenditures of approximately $13 million during 1995 for the completion of the penthouse floor in the hotel tower, restaurant and kitchen renovations and other improvements and equipment necessary to maintain Bally's Park Place in first-class condition. In December 1994, Bally's Park Place acquired 3.1 acres of land adjacent to its existing facility, which Bally's Park Place intends to develop to provide additional casino space and a state-of-the-art entertainment complex. This project is presently in the planning stage, therefore, the cost and specifics of the design and funding of this project have yet to be determined. As of December 31, 1994, Bally's Park Place, Inc. had an unused line of credit totalling $50 million. The Company believes that Bally's Park Place, Inc. will be able to satisfy its debt service and capital expenditure requirements and pay dividends in 1995 out of existing cash balances ($13.9 million at December 31, 1994) and cash flow from operations.
BALLY'S LAS VEGAS. Bally's Grand, Inc. has no scheduled principal payments on its indebtedness outstanding at December 31, 1994 until 2003; however, several major capital improvements are in process or planned. Bally's Las Vegas has commenced construction of and expects to operate by June 1995 a monorail that will transport passengers between Bally's Las Vegas and The MGM Grand Hotel and Theme Park through a joint venture formed with a subsidiary of MGM Grand, Inc. Bally's Las Vegas expects its portion of the total cost of this project to be approximately $15 million, of which approximately $10 million was expended through December 31, 1994. Significant capital improvement projects planned for 1995, certain of which have already commenced, include the renovation of the south tower hotel rooms and corridors, redesign of the lower-level retail mall and relocation of the race and sports book area to space formerly occupied by a theatre (which will enable Bally's Las Vegas to add approximately 7,500 square feet of gaming space, primarily for additional slot machines). These and certain other public area improvements for 1995 are expected to cost approximately $34 million. In addition, annual capital expenditures of approximately $8 million are required to maintain Bally's Las Vegas in first-class condition. Bally's Grand, Inc. is considering the development of a separate, themed casino hotel resort on the 24 acres of land situated on the Strip adjacent to Bally's Las Vegas. This project, which is presently expected to include high-tech convention facilities, entertainment venues and outdoor attractions, is in the preliminary planning phase of development. As a result, the cost and specifics of the design and funding of this project have yet to be determined. The Company believes that Bally's Grand, Inc. will be able to satisfy its debt service and capital expenditure requirements in 1995 out of existing cash balances ($86.4 million at December 31, 1994) and cash flow from operations.
BALLY'S MISSISSIPPI. As described previously, Bally's Mississippi ceased operations on February 9, 1995 and entered into a venture agreement with Lady Luck under which Bally's Mississippi is expected to relocate its dockside casino from Mhoon Landing to Lady Luck's site in Robinsonville, Mississippi (which is presently the closest gaming site to Memphis) and
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contribute the dockside casino and related assets to the venture. Prior to the commencement of operations, the venture expects to develop the site to include a restaurant, an entertainment lounge, administrative facilities and additional parking, all of which are expected to cost approximately $10 million, the majority of which is expected to be funded by third-party financing. In the event third-party financing cannot be obtained, Bally's Mississippi and affiliates are committed to provide financing up to $5 million in the aggregate, and certain of these improvements may be staged or postponed.
BALLY'S NEW ORLEANS. Construction of Bally's New Orleans' riverboat casino commenced in January 1994, and operations are expected to begin by mid-1995. Management estimates that a total of approximately $55 million will be required to construct and equip the riverboat and to develop related landside improvements. Management anticipates the cost will be funded by third parties and Casino Holdings. Bally's New Orleans, to date, has a construction loan for borrowings of up to approximately $23 million (which will be replaced with a five-year term loan upon completion of the riverboat casino pursuant to a commitment from another lender) and Casino Holdings had funded approximately $19 million of the project cost through December 31, 1994. Bally's New Orleans expects to seek third-party financing to enable it to finance equipment purchases, fund pre-opening costs and working capital requirements or repay amounts funded by Casino Holdings. There can be no assurance that additional third-party financing will be available on terms favorable to Bally's New Orleans.
OTHER. A subsidiary of Casino Holdings has an option agreement enabling it to acquire a 31-acre site along the Delaware River in Philadelphia for the purpose of developing a dockside gaming facility if gaming were to be legalized in Pennsylvania. The site includes a 550-foot pier and is easily accessed from Interstate 95. Pursuant to the terms of the agreement, Casino Holdings agreed to pay $10 million through 1997, of which $6 million was paid through December 31, 1994. Additionally, in the event that Casino Holdings elects to take title to the property, it will be required to deliver, at the closing of the transaction, the balance of the purchase price in the form of a pre-payable, non-recourse note for approximately $55 million (including interest), 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 under its public indebtedness until 2003. Management expects to make capital expenditures of approximately $15 million during 1995 for the expansion of its casino floor and other gaming space and for certain other public area improvements. As of December 31, 1994, The Grand had an unused line of credit totalling $20 million. The Company believes that The Grand will be able to satisfy its debt service and capital expenditure requirements in 1995 out of existing cash balances ($14.2 million at December 31, 1994) and cash flow from operations.
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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 ENTERTAINMENT CORPORATION
We have audited the accompanying consolidated balance sheet of Bally Entertainment Corporation as of December 31, 1994 and 1993, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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 Entertainment Corporation at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, 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 LLP Chicago, Illinois February 15, 1995, except for the "Discontinued operations" note, as to which the date is March 17, 1995
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See accompanying notes.
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See accompanying notes.
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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 Entertainment Corporation ("Bally") and the subsidiaries which it controls (collectively, the "Company"). The consolidated financial statements have been presented (after restatement of prior years' financial statements) to reflect Bally's Health & Tennis Corporation ("Bally's Health & Tennis"), which operates the nation's largest chain of fitness centers, as a discontinued operation because of Bally's plan to spin-off its fitness centers segment (see "Discontinued operations"). As a result, the Company's continuing operations comprise one industry segment, with all significant revenues presently arising from the operation of two casino hotel resorts in Atlantic City, New Jersey, a casino hotel resort in Las Vegas, Nevada and a dockside gaming facility in Tunica, Mississippi ("Bally's Mississippi").
Certain reclassifications have been made to prior years' financial statements to conform with the 1994 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.
Marketable securities
Marketable securities consist of common stock of certain publicly-traded gaming companies. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," these securities are considered available-for-sale securities and are carried at fair value (cost at December 31, 1994 was $5,846) with unrealized gains or losses reported net of tax, as a credit or charge to retained earnings. Gross unrealized gains and losses of securities held at December 31, 1994 were $219 and $34, respectively. Gross realized gains and losses on sales of available-for-sale equity securities totalled $11,884 and $78, respectively, for the year ended December 31, 1994. The cost of securities sold is determined on the specific identification method.
Inventories
Inventories of provisions and supplies are stated at the lower of cost (first-in, first-out basis) or market, which approximates replacement cost.
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 $68,938, $44,112 and $42,224 for 1994, 1993 and 1992, respectively.
Deferred finance costs
Deferred finance costs are amortized over the terms of the related debt using the bonds outstanding method. Included in "Other assets" at December 31, 1994 and 1993 were deferred finance costs of $36,528 and $32,505, respectively, net of accumulated amortization of $6,105 and $9,044, respectively.
Gaming development costs
Gaming development costs include consulting and legal fees, design and architectural costs, application and licensing fees and salaries incurred in connection with the pursuit and development of new gaming projects in various jurisdictions. These costs are expensed as incurred until such time as a particular opportunity is determined to be viable, generally when the Company has been selected as the operator of a new gaming facility or a gaming license has been granted to the Company, at which time the costs are classified as pre-opening costs.
Pre-opening costs
Personnel, marketing and other operating costs 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. Included in "Other assets" at December 31, 1994 and 1993 were pre-opening costs of $1,740 and $3,653, respectively.
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 the dates of acquisition. -------------------------------------------------------------------------------- BALLY ENTERTAINMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Company periodically evaluates whether the remaining estimated useful life of goodwill may warrant revision or the remaining balance of goodwill may not be recoverable, generally based upon expectations of nondiscounted cash flows and operating income for each subsidiary having goodwill of significance. Based on present operations and strategic plans, the Company believes that no impairment of goodwill has occurred.
Revenue recognition
Income taxes
Effective January 1, 1993, the Company changed its method of accounting for income taxes as required by 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 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 was a charge of $28,197 ($.61 per share).
ABANDONMENT LOSS
On February 9, 1995, Bally's Mississippi entered into a venture agreement with Lady Luck Gaming Corporation ("Lady Luck") under which Bally's Mississippi is expected to relocate its dockside casino from Mhoon Landing to Lady Luck's site in Robinsonville, Mississippi (which is presently the closest gaming site to Memphis) and contribute the dockside casino and related assets to the venture. The Robinsonville site presently includes a 240-room hotel and is expected to be developed to include a restaurant, an entertainment lounge, administrative facilities and additional parking, all of which are expected to cost approximately $10,000. Bally's Mississippi, through an affiliate which is general manager of the venture, plans to commence operations at the Robinsonville site by mid-1995. Bally's Mississippi, which will be majority owner of the venture, is committed to provide financing up to $5,000 in the event that third-party financing cannot be obtained.
In connection with the venture agreement, Bally's Mississippi ceased operations at Mhoon Landing on February 9, 1995 and will terminate its land lease later in 1995, at which time the land-based building and related leaseholds will become property of the lessor. In addition, certain other assets are not recoverable upon relocation. As a result, Bally's Mississippi wrote down unrecoverable assets and recognized a charge of $13,100 at December 31, 1994, which represents the cost (net of accumulated depreciation) of assets to be abandoned.
EXTRAORDINARY ITEMS
In 1994, Bally's Park Place, Inc. ("Bally's Park Place") completed a refinancing of its debt which resulted in an extraordinary loss of $20,735, net of income taxes of $14,137. See "Long-term debt." Also in 1994, the Company purchased $7,400 principal amount of public debt securities (discount notes) not related to sinking fund requirements for $4,456 in cash, which resulted in an extraordinary gain of $340, net of income taxes of $183.
In 1993, three other subsidiaries of the Company completed refinancings of their debt which, in the aggregate, resulted in the issuance of over $700,000 principal amount of public debt securities. These refinancings resulted in an extraordinary loss totalling $8,490, net of income taxes of $5,092 and minority interests of $412.
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
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Company purchased $11,471 principal amount of public debt securities not related to sinking fund requirements for 952,697 shares of Bally Common Stock, par value 66 2/3c per share ("Common Stock") and $7,900 in cash, which resulted in an extraordinary gain of $612, net of income taxes of $329.
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 (46,897,196 in 1994, 46,558,856 in 1993 and 41,110,353 in 1992). 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 1994 or 1993.
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 hotel 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, 1992 through the Effective Date.
During 1993, two subsidiaries of Bally acquired 5,215,678 shares (approximately 50% of the shares then 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. 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.
During 1994, Bally's Grand, Inc. repurchased 1,439,681 shares of its common stock in several transactions for a total cash consideration of $17,080. In addition, in December 1994, a subsidiary of Bally purchased 752,676 shares of reorganized Bally's Grand, Inc. common stock from an executive officer of Bally in exchange for cumulative exchangeable preferred stock of that subsidiary. See "Minority interests."
Collectively, as a result of the transactions described above, Bally owns approximately 65% of the Bally's Grand, Inc. common shares outstanding at December 31, 1994. 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 $26,363 is being amortized using the straight-line method over 20 years.
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 and $2,247 during 1993 and 1992, 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 have been prepared to give effect to the acquisition of the controlling interest in reorganized Bally's Grand, Inc. as if
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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 the casino hotel resort formerly known as "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 (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.
ACCRUED LIABILITIES
LONG-TERM DEBT
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 1994, the Company purchased $3,254 principal amount of these debentures to satisfy the 1994 and a portion of the 1995 sinking fund requirement, which resulted in a pre-tax gain of $441 (included in "Other revenues").
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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 1.29% at December 31, 1994 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 1994, the Company purchased $5,000 principal amount of these debentures to satisfy the 1994 sinking fund requirement, which resulted in a pre-tax gain of $794 (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 $39,000 at December 31, 1994). 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.
The Bally's Casino Holdings, Inc. ("Casino Holdings") $220,000 principal amount of Senior Discount Notes due 1998 (the "Senior Discount Notes") were issued 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 6.4% of the accreted value at December 31, 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 Senior Discount Notes are effectively subordinated to all liabilities and guarantees of Casino Holdings' subsidiaries, which were approximately $881,000 at December 31, 1994.
In March 1994, a subsidiary of 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 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 approximately $483,000 at December 31, 1994. 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 dividends of $30,214 to Casino Holdings. In connection with the sale of the 9 1/4% Notes, Bally's Park Place terminated its former 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 the option of Bally's Park Place, at the agent bank's prime rate or the LIBOR rate plus 2%, each of which increases as the balance outstanding increases. The new credit facility is secured by a pari passu lien on the collateral securing the 9 1/4% Notes. Bally's Park Place pays a fee of 1/2% on the unused commitment and the entire credit line was available at December 31, 1994.
The GNAC, CORP. 10 5/8% First Mortgage Notes due 2003 (the "10 5/8% Notes") were issued 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.'s casino hotel resort in Atlantic City known as "The Grand," which
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had a net book value of approximately $279,000 at December 31, 1994. GNAC, CORP. has a $20,000 revolving credit facility expiring on December 31, 1996 which provides for interest on borrowings at the rate of 1% above the agent bank's prime rate 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 and the entire credit line was available at December 31, 1994.
The Bally's Grand, Inc. 10 3/8% First Mortgage Notes due 2003 (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 approximately $340,000 at December 31, 1994.
In June 1994, Bally's Casino Lakeshore Resort, which is expected to operate a riverboat gaming facility in New Orleans, Louisiana ("Bally's New Orleans"), entered into an agreement (as amended) for a construction loan generally not to exceed $23,183. The construction loan is available for fifteen months, provides for interest on borrowings at the rate of 1% above a bank's stated prime rate (9.5% at December 31, 1994) and is guaranteed by Bally. Borrowings under the construction loan are being used by Bally's New Orleans to fund a substantial portion of the payments for construction of the riverboat casino. Also in June 1994, Bally's New Orleans received a commitment from another lender that will enable Bally's New Orleans to replace the borrowings outstanding under the construction loan with a five-year term loan upon completion of the riverboat casino.
Other secured and unsecured obligations are payable through 2018 and are collateralized by land, buildings and equipment which have a net book value of approximately $3,000 at December 31, 1994. Interest rates on other secured and unsecured obligations averaged 7% at December 31, 1994. For 1994 and 1992, the weighted average interest rate on short-term borrowings was 7.9%, and 6.5%, respectively. There were no short-term borrowings in 1993.
Dividend and other restrictions
Each of Bally's principal subsidiaries presently have debt covenants which limit the payment of dividends to Bally. The New Jersey Casino Control Commission (the "New Jersey Commission") requires, among other things, that dividends paid by Bally's Park Place to Casino Holdings which are not paid pursuant to a net income test (generally limited to 50% of Bally's Park Place's aggregate consolidated net income, as defined, earned since April 1, 1994) receive prior approval from the New Jersey Commission. The indenture for the 9 1/4% Notes limits dividends that are not paid pursuant to the net income test to $50,000 in the aggregate, of which $25,000 was paid in 1994. At December 31, 1994, $2,059 was available to be paid by Bally's Park Place to Casino Holdings under the net income test.
Under the terms of the Senior Discount Notes, dividends received by Casino Holdings other than from Bally's Park Place are not available to be paid to Bally unless available pursuant to a net income test (generally limited to 50% of Casino Holdings' consolidated net income exclusive of income attributable to Bally's Park Place). At December 31, 1994, no amounts were available for the payment of dividends to Bally under such net income test. However, any dividends paid by Bally's Park Place to Casino Holdings pursuant to the net income test may be declared as a dividend by Casino Holdings and paid to Bally. Under the terms of the indenture for the 10 3/8% Notes, $2,614 was available as of December 31, 1994 for the payment of dividends by Bally's Grand, Inc. Dividends to Bally from subsidiaries other than Bally's Park Place are not presently expected during 1995.
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
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restrict the amount of additional indebtedness that can be incurred.
Except for Bally's New Orleans' construction loan, Bally has not guaranteed the payment of principal or interest under the publicly traded debt securities and credit agreements of its subsidiaries.
Annual maturities
Fair value The fair value of the Company's long-term debt at December 31, 1994 and 1993 was $1,033,222 and $1,205,534, respectively. The fair value of publicly held 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. The fair values are not necessarily indicative of the amounts the Company could realize in a current market exchange.
INCOME TAXES
The deferred income tax provision for the year ended December 31, 1992, which was determined pursuant to Accounting Principles Board Opinion No. 11, arose from the tax effect of timing differences primarily related Alternative Minimum Tax ("AMT") credits and basis difference in Gaming common stock offset, in part, by debt discharge income.
Based on federal income tax returns as filed, as adjusted for certain agreements with the Internal Revenue Service ("IRS"), the Company had federal loss and AMT credit carryforwards at December 31, 1994 of approximately $343,000 and $20,000, respectively. A substantial portion of such carryforwards may no longer be available to Bally upon consummation of the spin-off of Bally's Health & Tennis (the "Spin-off"). See "Discontinued operations" included elsewhere herein. The Company's federal loss carryforwards begin to expire in 2006 and fully expire in 2009, and the Company's AMT credits have no expirations. In addition, the Company has substantial state tax loss carryforwards which begin to expire in 1995 and fully expire in 2009. Because of complex issues involved in the Company's tax situation and the Company's present expectations of the ultimate resolution of such issues, the Company has provided a valuation allowance for a substantial portion of the federal and state loss carryforwards and a portion of its AMT credits.
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MINORITY INTERESTS
At December 31, 1994, minority interests represents: (i) the 35% share in the Bally's Grand, Inc. common stockholders' equity that Bally does not own and (ii) the $10,161 redemption value/liquidation preference of the preferred stock of a Bally subsidiary that was issued to an executive officer of Bally in December 1994 in connection with the acquisition of Bally's Grand, Inc. common stock from that officer. The subsidiary preferred stock has cumulative annual dividend requirements of $572 and can be exchanged at any time through 2001 (date the subsidiary must redeem the preferred stock) at the option of the holder for 1,505,405 shares of Common Stock (lesser amounts can be exchanged in the same ratio). In addition, at any time on or after June 30, 1997, the preferred stock may be redeemed for cash at the option of either the subsidiary or the holder.
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, 1994, 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 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 $51.20 per share as of December 31, 1994, 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.
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Common stock
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"). Through December 31, 1994, 6,022,000 shares of Common Stock were reserved for issuance under the 1989 Plan. A 1995 amendment to the 1989 Plan increasing the aggregate number of shares of Common Stock which may be sold or delivered under the 1989 Plan to 8,000,000 shares is subject to stockholder approval in 1995. 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 (the "Compensation Committee") of the Bally's Board of Directors (the "Board") 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 Plan may be exercisable for a term of not more than ten years after the date of grant. At December 31, 1994, 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, 1994.
In May 1994, the stockholders approved the 1993 Non-Employee Directors' Stock Option Plan of Bally (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
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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.
At December 31, 1994, options on 2,566,662 shares were exercisable and 106,620 shares and 80,000 shares were reserved for future grants under the 1989 Plan and 1993 Plan, respectively. Outstanding options at December 31, 1994 expire between 1995 and 2004.
In May 1994, the stockholders approved Bally's Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan provides for the purchase 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 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. The first offering under this plan commenced on July 1, 1994 and the last offering terminates on June 30, 2004. During 1994, 117,448 shares of Common Stock were purchased by employees electing to participate in the Stock Purchase Plan. At December 31, 1994, 82,552 shares of Common Stock were reserved for future purchases under the Stock Purchase Plan. Since the Stock Purchase Plan is noncompensatory, no expense has been recorded by the Company.
Awards of subsidiary stock
The Bally's Grand, Inc. Incentive Stock Plan is a general incentive stock award plan for the benefit of its officers which provides for the grant of stock awards for no consideration. During 1993, Bally's Grand, Inc. awarded 600,000 shares of its common stock, of which 300,000 shares were awarded through an outright grant and were subsequently acquired by a subsidiary of Bally at their fair market value. The remaining 300,000 shares were awarded subject to certain restrictions and forfeiture if the participant's employment with Bally's Grand, Inc. terminates before the restrictions lapse (forfeitures occurred in both 1994 and 1993). The restrictions applicable to these 300,000 shares lapse as to approximately one-third of the shares awarded on each of December 31, 1993, 1994 and 1995, and Bally's Grand, Inc. acquired 180,175 of these shares at their fair market value during 1994. The fair value of restricted shares awarded is amortized to expense over the period the restrictions lapse. Pursuant to this stock plan, forfeited shares are available to be awarded again. As of December 31, 1994, there were 37,800 shares of Bally's Grand, Inc. common stock available for award under this plan.
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
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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 have defined contribution plans that provide retirement benefits for eligible non-union employees. Eligible employees may elect to participate by contributing a percentage of their pre-tax earnings to the plans. Employee contributions to the plans, up to certain limits, are matched in various percentages by the Company. The expense applicable to continuing operations for the Company's defined contribution plans was $5,602, $4,299 and $3,724 for 1994, 1993 and 1992, 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 $2,387, $4,482 and $1,627 for 1994, 1993 and 1992, respectively. The accrued pension liability related to the unfunded supplemental executive retirement plans in the consolidated balance sheet (principally classified as long-term) was $10,832 and $9,994 at December 31, 1994 and 1993, 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 each of 1994 and 1993, respectively, and 8.1% and 6.0% in 1992, respectively.
Certain employees of the Company's casinos are covered by union-sponsored, collectively bargained, multi-employer defined benefit pension plans. The contributions and charges to expense for these plans were $4,255, $1,314 and $942 in 1994, 1993 and 1992, respectively.
DISCONTINUED OPERATIONS
On June 28, 1994, the Board approved the Spin-off, which is expected to be accomplished by distributing substantially all of the issued and outstanding stock of Bally's Health & Tennis to
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Bally's stockholders. The Spin-off, which is expected to be completed by mid-1995, is subject to satisfaction of certain conditions and receipt of certain consents. As a result of the Board's action regarding the Spin-off, the Company recorded a charge in June 1994 of $23,731, net of income taxes of $4,071, to provide for estimated operating losses until disposal.
Bally's Health & Tennis' 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 the members to make monthly payments for services provided at which time the revenue is recorded. In certain instances, memberships are sold whereby dues may be waived for periods ranging up to thirty-six months, in which case a portion of the initial membership fee is considered a 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 renewal 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. A substantial portion of new membership revenues are collected in installments over periods ranging up to thirty-six months. Installment contracts bear interest at, or are adjusted for financial accounting purposes at the time the contracts are sold 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.
The Company's investment in and receivables from discontinued operations at December 31, 1994 and 1993 consists of:
Summarized financial information of the fitness centers segment is as follows:
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Bally's Health & Tennis' revolving credit agreement provides for borrowings of up to $92,500 and letters of credit up to $20,000 (of which $10,592 was outstanding) at December 31, 1994. The commitment under the revolving credit facility (as amended March 17, 1995) is periodically reduced during 1995, 1996 and 1997 in varying amounts totalling $21,875, $25,000 and $45,625, respectively. The rate of interest on the borrowings (9 1/4% at December 31, 1994) is at Bally's Health & Tennis' option, based upon either the agent bank's prime rate plus 2 1/4% or the Euro-dollar rate plus 3 3/4%. Bally's Health & Tennis pays an annual fee of 1 3/4% on outstanding letters of credit and a fee of 1/2% per annum on each of the unused commitments. The amendment dated March 17, 1995 reduces the amount available for letters of credit to $14,375 at June 30, 1995. The revolving credit agreement, which expires December 31, 1997, is secured by substantially all real and personal property of Bally's Health & Tennis, which had a net book value of approximately $697,000 at December 31, 1994, and a pledge of the stock of Bally's Health & Tennis.
Bally's Health & Tennis' $200,000 principal amount of 13% Senior Subordinated Notes due 2003 (the "13% Notes") are not subject to any sinking fund requirement, but may be redeemed beginning in 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 (approximately $112,000 at December 31, 1994). The more restrictive covenants under the 13% Notes and the revolving credit agreement permit, but limit, payments of cash dividends and the purchase or retirement of Bally's Health & Tennis common stock. As of December 31, 1994, no amount was available to pay dividends or retire common stock. In addition to limiting dividends, the covenants limit transactions with affiliates and payments to Bally for principal and interest on loans or advances by Bally to Bally's Health & Tennis and for other obligations arising in the ordinary course of business. The covenants also limit the amounts available for capital expenditures and additional borrowings, and require maintenance of certain financial ratios. Certain provisions of the revolving credit agreement applicable to those financial ratios were amended as of March 31, 1994. Amendments on December 22, 1994 and March 17, 1995 modified certain performance covenants under the revolving credit agreement. In addition, the financial covenants in the revolving credit agreement, as amended, become substantially more restrictive in 1996. While it is necessary to replace or amend the revolving credit agreement to permit the Spin-off, there are no assurances that such amendments, if sought, could be obtained.
In 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 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 Gaming common stock. In 1992, the Company sold 4,547,600 shares of Gaming common stock it owned in a public offering and received net proceeds of $51,243 which, including the recognition of previously deferred cumulative translation adjustment credits of $7,922, resulted in a gain of $6,706, net of income taxes of $8,529 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 also includes equity in earnings of Gaming of $2,879. Gaming's revenues in 1992 were $163,781.
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QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
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9. Loss from discontinued operations for the quarter ended September 30, 1993 includes a gain of $6.2 million ($.13 per share) from the sale of Gaming common stock.
10. The extraordinary losses for the quarters ended March 31 and December 31, 1993 are due to early redemptions of debt.
11. 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.
12. 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, 1994 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 ENTERTAINMENT CORPORATION
Dated: March 29, 1995 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.
See accompanying notes.
S-1
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See accompanying notes.
S-2
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See accompanying notes.
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S-4
-------------------------------------------------------------------------------- BALLY ENTERTAINMENT CORPORATION SCHEDULE I -- 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 Entertainment Corporation ("Bally") includes the accounts of Bally, and on an equity basis, the subsidiaries which it controls. The accompanying condensed financial information has been presented (after restatement of prior years' financial statements) to reflect Bally's Health & Tennis Corporation, a subsidiary which operates the nation's largest chain of fitness centers, as a discontinued operation because of Bally's plan to spin-off its fitness centers segment. Certain reclassifications have been made to prior years' condensed financial statements to conform with the 1994 presentation. The accompanying condensed financial information should be read in conjunction with the consolidated financial statements of Bally.
LONG-TERM DEBT
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NOTES:
(1) Additions charged to accounts other than costs and expenses result from the acquisition of a business.
(2) Deductions include write-offs of uncollectible amounts, net of recoveries.
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