SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ...................... to ....................
Commission file number 1-2500
BALLY'S GRAND, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-0980760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3645 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89109
(Address of principal executive offices) (Zip code)
(702) 739-4111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997 --- Common Stock, $.01 par value ---
7,606,168 shares.
PART I FINANCIAL INFORMATION
Company or group of companies for which report is filed:
BALLY'S GRAND, INC.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
- ------------------------------------------------------- ---------------------
Revenue Casino $ 41.9 38.8 85.2 78.9
Rooms 16.7 15.8 33.9 33.5
Food and beverage 10.5 11.0 22.4 23.1
Other 9.5 11.0 19.7 22.3
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78.6 76.6 161.2 157.8
- ------------------------------------------------------- ---------------------
Expenses Casino 21.9 21.2 43.4 41.0
Rooms 4.8 4.8 9.6 9.8
Food and beverage 9.2 9.6 19.1 19.6
Other expenses 27.0 27.6 53.5 54.8
---------------------------------------------- ---------------------
62.9 63.2 125.6 125.2
- -------------------------------------------------------- ---------------------
Operating income 15.7 13.4 35.6 32.6
Interest and dividend income 2.3 1.1 3.5 2.0
Interest expense (8.4) (8.4) (16.8) (16.8)
- -------------------------------------------------------- ---------------------
Income before income taxes 9.6 6.1 22.3 17.8
Provision for income taxes 3.4 2.1 7.8 6.3
- -------------------------------------------------------- ---------------------
Net income $ 6.2 4.0 14.5 11.5
- -------------------------------------------------------- ---------------------
- -------------------------------------------------------- ---------------------
Net income per share $ .71 .44 1.64 1.30
- -------------------------------------------------------- ---------------------
- -------------------------------------------------------- ---------------------
Average number
of shares 8,782,856 8,930,856 8,824,407 8,865,467
- -------------------------------------------------------- ---------------------
- -------------------------------------------------------- ---------------------
1
BALLY'S GRAND, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
JUNE 30, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------
Assets Current assets
Cash and equivalents $ 70.1 115.9
Marketable securities, at fair value (Hilton
Hotels Corporation common stock) 38.8 38.1
Receivables, less allowances of $5.1
and $4.9 16.1 17.4
Inventories 2.2 1.8
Deferred income taxes 9.2 7.1
Other current assets 4.2 3.8
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Total current assets 140.6 184.1
Property and equipment, net 369.8 376.5
Other assets 16.7 16.6
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Total assets $527.1 577.2
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Liabilities and Current liabilities
stockholders' equity Accounts payable $ 8.6 13.2
Income taxes payable 6.2 8.8
Accrued liabilities 30.7 31.1
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Total current liabilities 45.5 53.1
Long-term debt 315.0 315.0
Deferred income taxes and other liabilities 89.1 90.5
Stockholders' equity 77.5 118.6
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Total liabilities and stockholders' equity $527.1 577.2
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
2
BALLY'S GRAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
SIX MONTHS ENDED
JUNE 30,
1997 1996
- ---------------------------------------------------------------------------------------------
Operating activities Net income $ 14.5 11.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13.1 13.5
Amortization of debt issue costs .5 .5
Change in working capital components:
Receivables 1.0 (1.2)
Other current assets (.9) (.4)
Accounts payable and accrued liabilities (4.1) (.3)
Income taxes payable (2.3) 1.4
Change in deferred income taxes (1.6) 2.9
Other .4 -
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Net cash provided by operating activities 20.6 27.9
- ----------------------------------------------------------------------------------------------
Investing activities Capital expenditures (6.3) (10.0)
Decrease in construction-related liabilities (1.0) (2.1)
Other, net (2.4) -
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Net cash used in investing activities (9.7) (12.1)
- ----------------------------------------------------------------------------------------------
Financing activities Purchases of common stock for treasury (57.1) (1.2)
Proceeds from exercise of warrants .4 -
-----------------------------------------------------------------
Net cash used in financing activities (56.7) (1.2)
- ----------------------------------------------------------------------------------------------
(Decrease) increase in cash and equivalents (45.8) 14.6
Cash and equivalents at beginning of year 115.9 64.7
- ----------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 70.1 79.3
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
SUPPLEMENTAL CASH FLOW INFORMATION: (in millions) 1997 1996
- ----------------------------------------------------------------------------------------------
Cash paid during the period for the following:
Interest, net of amounts capitalized $ 16.3 16.3
Income taxes 12.0 2.0
3
BALLY'S GRANT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bally's Grand, Inc., a Delaware corporation (the Company) and its
subsidiaries. The Company owns and operates the casino hotel resort in Las
Vegas, Nevada known as "Bally's Las Vegas." The Company operates in one
industry segment and all significant revenues arise from its casino and
supporting hotel operations. Unless otherwise specified in the text,
references to the Company include the Company and its subsidiaries. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
Effective December 18, 1996, Hilton Hotels Corporation (HHC) completed the
merger of Bally Entertainment Corporation (BEC) with and into HHC pursuant to
an agreement dated June 6, 1996 (the Merger). As a result, a wholly owned
subsidiary of BEC which owned shares of the Company's common stock became a
wholly owned subsidiary of HHC. As of June 30, 1997, this wholly owned
subsidiary of HHC owned approximately 95% (89% on a fully diluted basis) of
the outstanding common stock of the Company.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the consolidated balance sheet of the
Company at June 30, 1997, its consolidated statements of income for the three
and six months ended June 30, 1997 and 1996 and its consolidated statement of
cash flows for the six months ended June 30, 1997 and 1996. All such
adjustments were of a normal recurring nature.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which require the
Company's management to make estimates and assumptions that affect the
amounts reported therein. Actual results could vary from such estimates. In
addition, certain reclassifications, which have no effect on net income, have
been made to prior years' financial statements to conform with the 1997
presentation.
NOTE 2: SEASONAL FACTORS
The Company's operations are somewhat seasonal and, therefore, the results of
operations for the three and six months ended June 30, 1997 and 1996 are not
necessarily indicative of the results of operations for the full year.
NOTE 3: EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average
number of shares of common stock and common stock equivalents outstanding
during each period. Common stock equivalents, which represent the dilutive
effect of the assumed exercise of outstanding warrants, increased the
weighted average number of shares outstanding by 370,774 shares and 490,183
shares for the three months ended June 30, 1997 and 1996, respectively, and
by 362,094 shares and 424,804 shares for the six months ended June 30, 1997
and 1996, respectively.
NOTE 4: INCOME TAXES
For the period from January 1, 1996 to December 18, 1996, taxable income or
loss of the Company is included in the consolidated Federal income tax return
of BEC. For periods subsequent to December 18, 1996, taxable income or loss
of the Company is included in the consolidated Federal income tax return of
HHC. Under a tax sharing arrangement between BEC, and now HHC, and the
Company, income taxes are allocated to the Company based on amounts the
Company would pay or receive if it filed a separate consolidated federal
income tax return. Payments to BEC or HHC for tax liabilities are due at
such time and in such amounts as payments would be required to be made to the
Internal Revenue Service.
4
Payments from BEC or HHC for tax benefits are due at the time BEC or HHC
files the applicable consolidated Federal income tax return.
NOTE 5: LONG-TERM DEBT
In October 1996, HHC announced an offer to purchase for cash (the Tender
Offer) any and all of the Company's 10 3/8% First Mortgage Notes due 2003 (the
Notes) and a solicitation of consents to proposed amendments to the indenture
for the Notes (the Consent Solicitation). In connection therewith, HHC
purchased $312,219,000 principal amount of the Notes in December 1996 at a
premium of 12.4% (10.4% for the Tender Offer and 2% for the Consent
Solicitation). Because HHC received consents for at least a majority of the
principal amount of the Notes, certain restrictive covenants and events of
default and related provisions contained in the indenture governing the Notes
were eliminated.
NOTE 6: TRANSACTIONS WITH BEC/HHC
In August 1993, the Company, BEC and Bally's Grand Management Co., Inc.
(BGM), a Nevada corporation and, at that time, a wholly owned subsidiary of
BEC, entered into a management agreement (the Management Agreement) whereby
BGM provides management services to the Company and BEC licensed, and now HHC
licenses, the use of the "Bally" name and certain computer software to the
Company for a $3 million annual management fee. Pursuant to the Management
Agreement, management fees for each of the three and six month periods ended
June 30, 1997 and 1996 were $750,000 and $1,500,000, respectively. In
addition, certain of the Company's insurance coverages were obtained by BEC
(and are currently obtained by HHC) pursuant to corporate-wide programs. In
these circumstances, BEC or HHC charged the Company its proportionate share
of the respective insurance premiums.
In August 1996, the Company sold Paris Casino Corp., an indirect wholly owned
subsidiary that owns 24 acres of land next to Bally's Las Vegas upon which
the Paris Casino-Resort is planned to be developed, to BEC for consideration
having an aggregate value of approximately $57.5 million ($17.5 million in
cash and 1,457,195 shares of BEC common stock which were converted into
1,457,195 shares of HHC common stock in the Merger). In addition, BEC
reimbursed the Company for Paris Casino-Resort development costs incurred to
date and certain transaction-related costs, and granted the Company certain
operating considerations pursuant to a shared facilities agreement. The
transaction was negotiated and approved by an independent Special Committee
of the Board of Directors of the Company. The Special Committee retained
independent legal counsel and financial advisors in connection with the
evaluation and negotiation of the transaction. For financial accounting
purposes, because BEC owned approximately 85% of the outstanding common stock
of the Company at that time, the excess of the sales price over the
historical net book value of Paris Casino Corp. (net of income taxes of
$10,593,000) was accounted for as an increase to stockholders' equity.
NOTE 7: LITIGATION
On June 13, 1997, the Company announced that it had reached an agreement to
settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION presently
pending in the Delaware Court of Chancery. Prior to the settlement, HHC
indirectly owned approximately 84% of the common stock of the Company. Under
the terms of the settlement, the Company has repurchased 966,747 shares of
its common stock and 102,698 warrants to purchase shares of its common stock
from certain plaintiffs at a price of $52.75 per share in cash for the common
stock and $52.75 less the exercise price per warrant in cash for the
warrants.
Following receipt of court approval of the settlement agreement, the Company
would merge with HHC or a subsidiary of HHC, and the remaining 408,862
outstanding shares of the Company's common stock not currently owned by HHC
would be converted into the right to receive $52.75 (less certain attorneys'
fees) per share in cash, and the 491,784 outstanding warrants to purchase the
Company's common stock not currently owned by HHC would be converted into the
right to receive the difference between $52.75 (less certain attorneys' fees)
and the exercise price per warrant in cash. Shareholders will be entitled to
appraisal rights under Delaware law in connection with any such merger.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL SPENDING
The Company has no scheduled principal payments on its long-term debt until
2003. Management plans to make capital expenditures totaling approximately
$24 million at Bally's Las Vegas during 1997 for various improvements,
renovations and equipment to maintain the casino hotel resort in first-class
condition. The Company believes that during 1997 it will be able to satisfy
its debt service requirements (interest on its public indebtedness is
approximately $32.7 million per annum) and the aforementioned capital
expenditures out of existing cash balances and cash flow from operations.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL QUARTERS ENDED JUNE 30, 1997 AND 1996
Revenues for the three months ended June 30, 1997 were $78.6 million compared
to $76.6 million for the 1996 quarter, an increase of $2.0 million (3%).
Casino revenues for the 1997 quarter were $41.9 million compared to $38.8
million for 1996, an increase of $3.1 million (8%). Table game revenues
increased $2.0 million (11%) due to an increase in the hold percentage from
14.6% in the 1996 quarter to 17.6% in 1997. Slot revenues increased $1.2
million (5%) primarily attributable to an increase of 5% in the slot handle
(volume). Rooms and food and beverage revenues remained consistent between
periods.
Management believes that the additional casino and hotel room capacity
resulting from the opening of new casino-hotels may have a short-term
negative impact on the Company, but that over the long term the Company
benefits from the increase in the number of visitors to Las Vegas that these
new properties attract. To enhance its competitiveness in the Las Vegas
market, Bally's Las Vegas completed an extensive capital improvement program
over the last three years including, among others, improvements to its
frontage area along the Strip, a monorail system, the renovation of all of
its hotel rooms, a new race and sports book room and a slot machine upgrade.
6
Operating income for the three months ended June 30, 1997 was $15.7 million
compared to $13.4 million for the 1996 quarter, an increase of $2.3 million
(17%).
Interest and dividend income was $2.3 million for the 1997 second quarter
versus $1.1 million in the prior year, an increase of $1.2 million (109%)
which resulted from higher average cash balances. Interest expense, net of
capitalized interest, was $8.4 million for both three-month periods ended
June 30, 1997 and 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues for the six months ended June 30, 1997 were $161.2 million compared
to $157.8 million for the 1996 period, an increase of $3.4 million (2%).
Casino revenues for the 1997 period were $85.2 million compared to $78.9
million for 1996, an increase of $6.3 million (8%). Slot revenues increased
$4.6 million (13%) primarily attributable to an increase of 17% in the slot
handle (volume). Table game revenues increased $3.2 million (8%) due to an
increase in the hold percentage from 15.2% in the 1996 period to 17.1% in
1997. Other casino revenues decreased $1.5 million due to a decrease in the
sports book hold percentage. Rooms and food and beverage revenues remained
consistent between periods.
Operating income for the six months ended June 30, 1997 was $35.6 million
compared to $32.6 million for the 1996 period, an increase of $3.0 million
(9%).
Interest and dividend income was $3.5 million for the 1997 six-month period
versus $2.0 million in the prior year, an increase of $1.5 million (75%) which
resulted from higher average cash balances. Interest expense, net of
capitalized interest, was $16.8 million for both six-month periods ended June
30, 1997 and 1996.
7
ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share." This
statement establishes standards for computing and presenting earnings per
share. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997 and earlier application is not permitted. The
Company's adoption of SFAS No. 128 is not expected to have a material impact
on its earnings per share presentation.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect the Company's current views
with respect to future events and financial performance, and are subject to
certain risks and uncertainties which could cause actual results to differ
materially from historical results or those anticipated. Although the
Company believes the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance
that its expectations will be attained. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
8
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Two derivative actions purportedly brought on behalf of the Company
against its directors and BEC, one commenced in October 1995 and the
other in September 1996, have been consolidated under the caption IN RE:
BALLY'S GRAND DERIVATIVE LITIGATION in the Court of Chancery of the
State of Delaware, New Castle County. BEC merged with and into HHC on
December 18, 1996. The consolidated complaint alleges breaches of
fiduciary duty and waste of corporate assets in connection with certain
actions including the sale by the Company to BEC of the capital stock of
the Company's subsidiary that owns the land and development rights with
respect to the Paris Casino-Resort in Las Vegas (the Paris Transaction),
alleged improper delegation of duties by the Company's board of
directors by virtue of a management agreement (the Management
Agreement), between the Company and Bally's Grand Management Co., Inc.,
a wholly owned subsidiary of BEC (BGM), BGM's designation pursuant to
the Management Agreement of recipients awarded Company stock options,
stock repurchases by the Company and BEC, and a consulting agreement
entered into by the Company with Arveron Investments L.P. in connection
with the Company's repurchase of securities. The plaintiffs seek, among
other things: (i) rescission of the Paris Transaction; (ii) a
declaration that the Management Agreement is unlawful; (iii) an
accounting of damages to the Company and profits to defendants as a
result of the transactions complained of; (iv) and accounting for
purchases of the Company's stock by the Company and BEC; and (v) costs
and expenses, including reasonable attorneys' fees. A third derivative
action purportedly brought on behalf of the Company against its
directors, BEC, BGM and HHC was commenced in November 1996 under the
caption TOWER INVESTMENT GROUP, INC., ET AL. V. BALLY'S GRAND, INC., ET
AL. in the Court of Chancery of the State of Delaware, New Castle
County. The complaint alleges breach of fiduciary duty and waste of
corporate assets by the Company's directors and BEC in connection with
the Paris Transaction, aiding and abetting by HHC of the breaches of
fiduciary duty and waste by the Company's directors and BEC, fraud,
willful misconduct or gross negligence by BEC and BGM in connection with
the Management Agreement, breach of fiduciary duty by the Company's
directors in connection with the stock purchases by BEC while in
possession of material inside information concerning the Company's
earnings, breach of fiduciary duty by BEC in connection with alleged
threats to abuse its controlling interest in the Company, and violation
by the Company's directors and BEC of Section 203 of the Delaware
General Corporation Law in connection with the Paris Transaction. The
plaintiffs seek, among other things: (i) rescission of the Paris
Transaction; (ii) termination of the Management Agreement; (iii)
appointment of a custodian to manage the Company's affairs; (iv)
compensatory damages; (v) an order enjoining BEC and HHC from conveying
the Paris Casino-Resort; (vi) disgorgement by BEC and HHC of the profits
of the Paris Casino-Resort; (vii) disgorgement by Arthur M. Goldberg of
all payments, warrants and interests received in connection with the BEC
Merger; and (viii) disgorgement by BEC of profits earned from any
transactions in shares of the Company's stock based upon material inside
information. This action has been consolidated with the IN RE: BALLY'S
GRAND DERIVATIVE LITIGATION action under the caption IN RE: BALLY'S
GRAND, INC. SHAREHOLDERS LITIGATION.
On June 13, 1997, the Company announced that it had reached an agreement
to settle the IN RE: BALLY'S GRAND, INC. SHAREHOLDERS LITIGATION.
Prior to the settlement, HHC indirectly owned approximately 84% of the
common stock of the Company. Under the terms of the settlement, the
Company has repurchased 966,747 shares of its common stock and 102,698
warrants to purchase shares of its common stock from certain plaintiffs
at a price of $52.75 per share in cash for the common stock and $52.75
less the exercise price per warrant in cash for the warrants.
9
Following receipt of court approval of the settlement agreement, the
Company would merge with HHC or a subsidiary of HHC, and the remaining
408,862 outstanding shares of the Company's common stock not currently
owned by HHC would be converted into the right to receive $52.75 (less
certain attorneys' fees) per share in cash, and the 491,784 outstanding
warrants to purchase the Company's common stock not currently owned by HHC
would be converted into the right to receive the difference between $52.75
(less certain attorneys' fees) and the exercise price per warrant in cash.
Shareholders will be entitled to appraisal rights under Delaware law in
connection with any such merger.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial data schedule for the six-month period ended June 30, 1997.
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K dated May 20, 1997, under Item 5
Other Events, to announce the retirement of Darrell A. Luery as president
of the Company, effective May 31, 1997.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALLY'S GRAND, INC.
(Registrant)
Date: August 13, 1997 /s/ LEON H. FLINDERS
--------------------------------
Leon H. Flinders
Chief Financial Officer and
Controller