-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FF8+hnb63vbZ+CSJ3LNnYOEPWNgb86epucKiS57fcvr9hUocQkP8LnSHOJnSsDJ5 T1sU+FypvhI0CvYfvPMHTw== 0000002491-98-000014.txt : 19981118 0000002491-98-000014.hdr.sgml : 19981118 ACCESSION NUMBER: 0000002491-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE GAMING CORP CENTRAL INDEX KEY: 0000002491 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 880104066 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04281 FILM NUMBER: 98749925 BUSINESS ADDRESS: STREET 1: 6601 S. BERMUDA RD. CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7028967700 MAIL ADDRESS: STREET 1: 4380 BOULDER HIGHWAY CITY: LAS VEGAS STATE: NV ZIP: 89121 FORMER COMPANY: FORMER CONFORMED NAME: UNITED GAMING INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GAMING & TECHNOLOGY INC DATE OF NAME CHANGE: 19890206 FORMER COMPANY: FORMER CONFORMED NAME: ADVANCED PATENT TECHNOLOGY INC DATE OF NAME CHANGE: 19830519 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended September 30, 1998 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 0-4281 ALLIANCE GAMING CORPORATION (Exact name of registrant as specified in its charter) NEVADA 88-0104066 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6601 S. Bermuda Rd. Las Vegas, Nevada 89119 (Address of principal executive offices) (Zip Code) Registrant's telephone number: (702) 270-7600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares of Common Stock, $0.10 par value, outstanding as of November 4, 1998 according to the records of the registrant's registrar and transfer agent was 34,261,167. ALLIANCE GAMING CORPORATION FORM 10-Q For the Quarter Ended September 30, 1998 I N D E X PART I. FINANCIAL INFORMATION Page Item 1. Unaudited Financial Statements Unaudited Condensed Consolidated Balance Sheets as of June 30, 1998 and September 30, 1998 3 Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 1997 and 1998 4 Unaudited Condensed Consolidated Statements of Stockholders' Deficiency for the three months ended September 30, 1998 5 Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 1997 and 1998 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 26 Item 6. Exhibits and Reports on Form 8-K 26 SIGNATURES 27 PART 1 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In 000's, except share data) June 30, Sept. 30, 1998 1998 ASSETS Current assets: Cash and cash equivalents $ 23,487 $26,916 Accounts and notes receivable, net of allowance for doubtful accounts of $11,932 and $11,909 93,459 87,510 Inventories, net of reserves of $6,797 and $6,085 42,418 47,395 Other current assets 11,711 9,179 -------- -------- Total current assets 171,075 171,000 ------- ------- Long-term notes receivable, net of allowance for doubtful accounts of $1,109 and $988 7,931 7,441 Leased equipment, net of accumulated depreciation of $4,020 and $3,564 7,325 7,229 Property, plant and equipment, net of accumulated depreciation of $46,090 and $50,211 77,905 79,139 Excess of costs over net assets of acquired businesses, net of accumulated amortization of $3,199 and $3,864 59,952 60,940 Intangible assets, net of accumulated amortization of $13,358 and $14,001 26,732 27,868 Other assets, net 15,917 15,476 ------- ------- Total assets $366,837 $369,093 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 10,477 $ 12,926 Accrued liabilities 39,122 29,542 Current maturities of long-term debt 1,996 2,116 --------- ------ Total current liabilities 51,595 44,584 -------- ------- Term loan facilities 137,800 137,450 Senior Subordinated Notes due 2007, net 149,245 149,258 Other long-term debt, less current maturities 36,912 38,609 Other liabilities 12,718 12,658 ------- ------- Total liabilities 388,270 382,559 -------- -------- Minority interest 2,315 1,956 Commitments and contingencies Stockholders' deficiency: Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 137,317 shares and 141,265 shares issued and outstanding 13,732 14,127 Common Stock, $.10 par value; 175,000,000 shares authorized; 32,122,000 shares and 34,261,000 issued and outstanding 3,212 3,426 Additional paid-in capital 122,980 127,609 Accumulated other comprehensive income (13,946) (8,176) Accumulated deficit (149,726) (152,408) ------- ------- Total stockholders' deficiency (23,748) (15,422) ------ ------ Total liabilities and stockholders' deficiency $366,837 $369,093 ======= ======== See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In 000's, except per share data) Three Months Ended September 30, 1997 1998 Revenues: Gaming equipment and systems $ 27,167 $ 21,942 Wall machines and amusement games 21,061 20,611 Route operations 35,655 40,004 Casino operations 14,088 16,214 ------- ------- 97,971 98,771 Costs and expenses: Cost of gaming equipment and systems 16,236 11,840 Cost of wall machines and amusement games 11,568 12,068 Cost of route operations 27,188 31,129 Cost of casino operations 6,260 6,816 Selling, general and administrative 21,403 21,012 Research and development 2,869 4,194 Depreciation and amortization 5,003 5,402 ------ ----- 90,527 92,461 Operating income 7,444 6,310 Other income (expense): Interest income 231 232 Interest expense (6,069) (7,903) Rainbow royalty (587) - Rainbow royalty buyout (19,000) - Minority interest (390) (539) Other, net (12) (192) ------- ------- Loss before income taxes (18,383) (2,092) Income tax provision (493) (184) ------ -------- Net loss before extraordinary item (18,876) (2,276) Extraordinary loss, without tax benefit (note 2) (42,033) - ------- ------- Net loss (60,909) (2,276) Special Stock dividends and redemption premium on Series B Special Stock (18,953) (406) ------ ---- Net loss applicable to common shares $(79,862) $(2,682) ======== ======= Basic and diluted loss per share: Loss per share before extraordinary item $ (1.19) $ (0.08) Extraordinary loss per share (1.32) - ------- ----- Net loss per share $ (2.51) $ (0.08) ======== ======= Weighted average common shares outstanding 31,853 32,982 ======= ======= See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY Three Months Ended September 30, 1998 (In 000's)
Accumulated Total Series E Additional Other Stock- Special Stock Common Stock Paid-in Comprehensive Accum. holders' Shares Dollars Shares Dollars Capital Income Deficit Deficiency Balances at June 30, 1998 137 $13,732 32,122 $3,212 $122,980 $(13,946) $(149,726) $(23,748) Net loss -- -- -- -- -- -- (2,276) (2,276) Shares issued upon exercise of Options and warrants -- -- 2,139 214 4,629 -- -- 4,843 Special Stock dividends 4 395 -- -- -- -- (406) (11) Foreign currency translation Adjustment -- -- -- -- -- 5,770 -- 5,770 --- ------- ------ ------ -------- -------- --------- -------- Balances at September 30, 1998 141 $14,127 34,261 $3,426 $127,609 $ (8,176) $(152,408) $(15,422)
See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In 000's) Three Months Ended September 30, 1997 1998 Cash flows from operating activities: Net loss $(60,909) $ (2,276) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 5,003 5,402 Amortization of debt discounts 7 13 Extraordinary item 42,033 - Write down of other assets 476 185 Loss (gain) on sale of assets (14) (21) Provision for doubtful receivables 771 (353) Other 259 (198) Net change in operating assets and liabilities: Accounts and notes receivable 8,700 10,281 Inventories (2,622) (4,420) Other current assets (70) 2,692 Accounts payable (2,865) 2,449 Accrued liabilities 1,124 (9,723) Net cash provided by (used in) operating activities (8,107) 4,031 Cash flows from investing activities: Additions to property, plant and equipment (3,049) (3,483) Proceeds from disposal of property and equipment 131 36 Additions to other long term assets (862) (2,008) Net cash used in investing activities (3,780) (5,455) Cash flows from financing activities: Refinancing fees and expenses (32,752) - Capitalized debt issuance costs (11,456) - Proceeds from issuance of long-term debt 303,734 - Reduction of long-term debt (177,894) (467) Net change in lines of credit 3,072 300 Repurchase of Series B Special Stock (77,568) - Proceeds from exercise of stock options and warrants - 4,843 ------- ----- Net cash provided by financing activities 7,136 4,676 Effect of exchange rate changes on cash (120) 177 Cash and cash equivalents: Increase (decrease) for period (4,871) 3,429 Balance, beginning of period 28,924 23,487 ------ ------- Balance, end of period $ 24,053 $ 26,916 ======== ======== See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three Months Ended September 30, 1997 and 1998 1. BASIS OF PRESENTATION The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to present fairly the financial position, results of operations and cash flows of Alliance Gaming Corporation ("Alliance" or the "Company") for the respective periods presented. The results of operations for an interim period are not necessarily indicative of the results which may be expected for any other interim period or for the year as a whole. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes in the Company's annual report on Form 10-K as amended for the year ended June 30, 1998. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements at June 30, 1998 were derived from audited consolidated financial statements, but do not include all disclosures required under generally accepted accounting principles. Certain reclassifications have been made to prior period financial statements to conform with current period presentation. 2. DEBT, LINES OF CREDIT AND REFINANCING TRANSACTION Long-term debt at June 30, 1998 and September 30, 1998 consists of the following: June 30, Sept. 30, 1998 1998 (in 000's) 10% Senior Subordinated Notes due 2007, net of unamortized discount of $755,000 and $742,000 $149,245 $149,258 Term loan facilities: Tranche B Term Loan 74,438 74,250 Tranche C Term Loan 39,700 39,600 Delayed Draw Term Facility 25,000 25,000 Revolving Credit Facility 34,971 36,253 Other, secured by related equipment 2,599 3,072 ------- ------- 325,953 327,433 Less current maturities 1,996 2,116 ------ ------- Long-term debt, less current maturities $323,957 $325,317 ======== ======== In August 1997 the Company completed a refinancing transaction whereby the Company repaid its 12 7/8% Senior Notes, repurchased its 15% Series B Special Stock, and issued $150 million of Senior Subordinated Notes and entered into bank financing of $230 million. The bank financing provides for (i) term loans in the aggregate amount of up to $140 million, comprised of a $75 million tranche with a 7 1/2-year term (the "Tranche B Term Loan"), a $40 million tranche with an 8-year term (the "Tranche C Term Loan"), and a $25 million tranche with a 7 1/2-year term (the "Delayed Draw Term Facility" and together with the Tranche B Term Loan and the Tranche C Term Loan, the "Term Loan Facilities"); and (ii) a $90 million revolving credit facility (the "Revolving Credit Facility") with a 6-year term. Each of these credit facilities are variable rate borrowings in accordance with a credit grid. The interest rates which are currently at the highest level of the credit grid and maturity dates are as follows: Interest Maturity Rates Date Tranche B Term Loan LIBOR + 2.75% January 31, 2005 Tranche C Term Loan LIBOR + 3.00% July 31, 2005 Delayed Draw Term Facility LIBOR + 2.75% January 31, 2005 Revolving Credit Facility LIBOR + 2.25% July 31, 2003 The Revolving Credit Facility also allows for German Deutschemark borrowings at the euro deutschmark rate plus 2.25% (or 5.4% at September 30, 1998). The bank facility is collateralized by substantially all domestic property and is guaranteed by each domestic subsidiary of the U.S. Borrower and German Subsidiaries (both as defined), other than the entity which holds the Company's interest in its Louisiana operations and other non-material subsidiaries (as defined), and secured by both a U.S. and German Pledge Agreement (both as defined). The bank facility contains a number of maintenance covenants and it and the Indenture have other significant covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests (as defined) or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries (as defined), engage in mergers or acquisitions, or engage in certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities. The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are general unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt (as defined) of the Company, including indebtedness under the bank financing. The Senior Subordinated Notes will be fully and unconditionally guaranteed on a joint and several senior subordinated basis by all existing and future domestic Restricted Subsidiaries (as defined) of the Company, subject to certain exceptions including the partially-owned entities through which its Mississippi casino and Louisiana route operations are conducted. The Subsidiary Guarantees (as defined) are general unsecured obligations of the Guarantors, ranking subordinate in right of payment to all Senior Debt of the Guarantors. The Company will be able to designate other current or future subsidiaries as Unrestricted Subsidiaries (as defined) under certain circumstances. Unrestricted Subsidiaries will not be required to issue a Subsidiary Guarantee and will not be subject to many of the restrictive covenants set forth in the Indenture pursuant to which the Senior Subordinated Notes were issued. The Indenture for the Company's Senior Subordinated Notes contains various covenants, including limitations on incurrence of additional indebtedness, on restricted payments and on dividend and payment restrictions on subsidiaries. The Senior Subordinated Notes may not be redeemed for the first five years. Upon the occurrence of a Change of Control (as defined), the holders of the Senior Subordinated Notes will have the right to require the Company to purchase their notes at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. The refinancing transaction was completed in September 1997, and as a result, the Company recorded an extraordinary loss of $42.0 million consisting of the $27.7 million premium paid to repurchase the Senior Secured Notes, the payment of related transaction fees and expenses, and the charge-off of the unamortized debt discount and deferred financing fees. There was no tax benefit recognized for the extraordinary item as a valuation allowance was recorded to fully reserve the net operating losses created. The Company also recorded a $19.0 million charge for the cost of the Rainbow Royalty Buyout. Additionally, the Company recorded a $16.6 million charge to equity and a corresponding increase in the net loss applicable to common shares for the difference between the carrying value and the liquidation value of the Series B Special Stock, all of which was redeemed on September 8, 1997 at the liquidation price of $100 per share, plus accrued dividends. 3. INCOME TAXES The Company's effective tax rate for the three months ended September 30, 1997 and 1998 differs from the statutory rate of 35% due to state income taxes and the impact of taxes applicable to earnings of Bally Wulff. In addition, earnings at the Company's domestic subsidiaries cannot be fully offset by the utilization of net operating loss carryforwards. 4. SUPPLEMENTAL CASH FLOW INFORMATION The following supplemental information is related to the unaudited condensed consolidated statements of cash flows. For the three months ended September 30, 1997 and 1998, the Company recorded the following significant non-cash items: Three months ended September 30, 1997 1998 (In 000's) Reclassify other assets to property, plant and equipment $ 105 $ 108 Dividends for Series E and Series B Special Stock 2,400 406 Reclassify inventory to equipment 1,599 459 Series B Special Stock redemption premium 16,553 - Translation rate adjustment 895 5,593 Capitalized obligation incurred in acquisition of route asset - 652 5. LEGAL PROCEEDINGS Litigation On September 25, 1995, BGII was named as a defendant in a class action lawsuit filed in Federal District Court in Nevada, by Larry Schreirer on behalf of himself and all others similarly situated. The plaintiffs filed suit against Bally Gaming International, Inc. ("BGII") and approximately 45 other defendants. Each defendant is involved in the gaming business as a gaming machine manufacturer, distributor, or casino operator. The class action lawsuit arises out of alleged fraudulent marketing and operation of casino video poker machines and electronic slot machines. The plaintiffs allege that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people into playing their gaming machines based on a false belief concerning how those machines actually operate as well as the extent to which there is actually an opportunity to win on any given play. The plaintiffs allege that the defendants' actions constitute violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and give rise to claims of common law fraud and unjust enrichment. The plaintiffs are seeking monetary damages in excess of $1.0 billion, and are asking that any damage awards be trebled under applicable Federal law. Management believes the plaintiffs' lawsuit to be without merit. The Company intends to vigorously pursue all legal defenses available to it. The Company is also a party to various lawsuits relating to routine matters incidental to its business. Management does not believe that the outcome of such litigation, including the matters above, in the aggregate, will have a material adverse effect on the Company. 6. COMPREHENSIVE INCOME As of July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the reporting of comprehensive income (loss) and its components; however, the adoption of SFAS had no impact on the Company's net income (loss) or stockholders' equity (deficiency). SFAS 130 requires the changes in the cumulative translation adjustment account (which is a component of stockholders' deficiency) to be included as a component of other comprehensive income (loss). During the three months ended September 30, 1998 and 1997, total comprehensive income (loss) amounted to $3,088,000 and $(80,877,000) respectively. 7. UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS The following unaudited condensed consolidating financial statements are presented to provide certain financial information regarding guaranteeing and non-guaranteeing subsidiaries in relation to the Company's Senior Subordinated Notes which were issued in the Refinancing (see note 2). The financial information presented includes Alliance Gaming Corporation (the "Parent") and its wholly-owned guaranteeing subsidiaries (together the "Parent and Guaranteeing Subsidiaries"), and the non-guaranteeing subsidiaries Video Services, Inc., United Gaming Rainbow, BGI Australia Pty. Limited, Bally Gaming de Puerto Rico, Inc., and Alliance Automaten GmbH & Co. KG (the subsidiary that holds the Company's German interests) (together the "Non-Guaranteeing Subsidiaries"). The notes to consolidating financial statements should be read in conjunction with these consolidating financial statements. ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATING BALANCE SHEETS June 30, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ASSETS Current assets: Cash and cash equivalents $ 8,609 $ 14,878 $ $ 23,487 Accounts and notes receivable, net 44,757 52,380 (3,678) 93,459 Inventories, net 27,957 14,990 (529) 42,418 Other current assets 7,998 3,713 11,711 ------ ------ ------ ------ Total current assets 89,321 85,961 (4,207) 171,075 ------ ------ ------ ------- Long-term notes receivable, net 95,036 1,926 (89,031) 7,931 Leased equipment, net 2 7,323 7,325 Property, plant and equipment, net 45,052 32,853 77,905 Excess of costs over net assets of acquired businesses, net 39,963 19,989 59,952 Intangible assets, net 26,248 484 26,732 Investment in subsidiaries 104,219 (104,219) Other assets, net 22,453 (1,124) (5,412) 15,917 ------- ------- --------- -------- $422,294 $147,412 $(202,869) $366,837 ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 7,373 $ 3,104 $ $ 10,477 Accrued liabilities 26,415 13,705 (998) 39,122 Current maturities of long-term debt 6,912 3,176 (8,092) 1,996 ----- ----- ------ ----- Total current liabilities 40,700 19,985 (9,090) 51,595 ------ ------ ------- ------ Term loan facilities 137,800 137,800 Senior Subordinated Notes due 2007, net 149,245 149,245 Other long-term debt, less current maturities 105,279 20,878 (89,245) 36,912 Other liabilities 10,729 2,330 (341) 12,718 ------- ------- ------- ------- Total liabilities 443,753 43,193 (98,676) 388,270 ------- ------- ------- ------- Minority interest 2,315 2,315 Commitments and contingencies Stockholders' equity (deficiency): Series E Special Stock 13,732 13,732 Common Stock 3,212 17,832 (17,832) 3,212 Additional paid-in capital 122,980 68,700 (68,700) 122,980 Cumulative translation adjustment (13,946) (14,140) 14,140 (13,946) Retained earnings (accumulated deficit) (149,752) 31,827 (31,801) (149,726) -------- ------ ------- -------- Total stockholders' equity (deficiency) (23,774) 104,219 (104,193) (23,748) -------- ------- ------- ------- $422,294 $147,412 $(202,869) $366,837 ======== ======== ========= ========
See accompanying unaudited note. CONSOLIDATING BALANCE SHEETS September 30, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ASSETS Current assets: Cash and cash equivalents $ 14,643 $ 12,273 $ $ 26,916 Accounts and notes receivable, net 38,881 53,028 (4,399) 88,510 Inventories, net 31,630 16,294 (529) 47,395 Other current assets 7,157 2,022 9,179 ------ ------ ------ ------- Total current assets 92,311 83,617 (4,928) 171,000 ------- ------ ------ ------- Long-term notes receivable, net 95,943 2,447 (90,949) 7,441 Leased equipment, net 7,229 7,229 Property, plant and equipment, net 46,032 33,107 79,139 Excess of costs over net assets of acquired businesses, net 39,699 21,241 60,940 Intangible assets, net 27,399 469 27,868 Investment in subsidiaries 96,414 (96,414) - Other assets, net 23,088 (8,639) 1,027 15,476 ------- ------- ------- ------- $420,886 $139,471 $(191,264) $369,093 ======== ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 10,603 $ 2,323 $ $ 12,926 Accrued liabilities 16,475 13,810 (743) 29,542 Current maturities of long-term debt 1,528 3,216 (2,628) 2,116 ------ ------ ------- ------ Total current liabilities 28,606 19,349 (3,371) 44,584 ------- ------- ------- ------- Term loan facilities 137,450 137,450 Senior Subordinated Notes due 2007, net 149,258 149,258 Other long-term debt, less current maturities 108,418 21,085 (90,894) 38,609 Other liabilities 10,646 2,330 (318) 12,658 ------- ------- ------- ------- Total liabilities 434,378 42,764 (94,583) 382,559 ------- ------ ------- ------- Minority interest 1,956 1,956 Commitments and contingencies Stockholders' equity (deficiency): Series E Special Stock 14,127 14,127 Common Stock 3,426 17,832 (17,832) 3,426 Additional paid-in capital 127,609 68,700 (68,700) 127,609 Cumulative translation adjustment (8,176) (8,375) 8,375 (8,176) Retained earnings (accumulated deficit) (152,434) 18,550 (18,524) (152,408) -------- ------- ------- -------- Total stockholders' equity (deficiency) (15,448) 96,707 (96,681) (15,422) -------- ------- ------- ------- $420,886 $139,471 $(190,264) $369,093 ======== ======== ========= ========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 1997 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Revenues: Gaming equipment and systems $26,523 $ 2,747 $(2,103) $27,167 Wall machines and amusement games 21,061 21,061 Route operations 30,765 4,890 35,655 Casino operations 3,289 10,799 14,088 ------- -------- ------ ------- 60,577 39,497 (2,103) 97,971 ------- ------- ------ ------- Costs and expenses: Cost of gaming equipment and systems 16,280 2,043 (2,087) 16,236 Cost of wall machines and amusement games 11,568 11,568 Cost of route operations 24,052 3,136 27,188 Cost of casino operations 2,098 4,162 6,260 Selling, general and administrative 11,202 10,201 21,403 Research and development 2,152 717 2,869 Depreciation and amortization 2,927 2,076 5,003 ------- ------- ------ ------- 58,711 33,903 (2,087) 90,527 ------- ------- ------ ------- Operating income 1,866 5,594 (16) 7,444 Earnings in consolidated subsidiaries 3,197 (3,197) Other income (expense): Interest income 292 111 (172) 231 Interest expense (5,802) (439) 172 (6,069) Rainbow royalty 680 (1,267) (587) Rainbow royalty buyout (19,000) (19,000) Minority interest (390) (390) Other, net 64 (76) (12) ------ ----- ------ ------ Income (loss) before income taxes (19,093) 3,923 (3,213) (18,383) Income tax benefit (provision) 233 (726) (493) ------ ------- ------ ------ Net income (loss) before extraordinary item (18,860) 3,197 (3,213) (18,876) Extraordinary loss, without tax benefit (42,033) (42,033) ------- ------- ------ ------- Net income (loss) (60,893) 3,197 (3,213) (60,909) Special Stock dividends and redemption premium (18,953) (18,953) ------- ------- ------ -------- Net loss applicable to common shares $(79,846) $ 3,197 $(3,213) $(79,862) ======== ======= ======= ========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Revenues: Gaming equipment and systems $20,171 $ 3,072 $(1,301) $21,942 Wall machines and amusement games 20,622 (11) 20,611 Route operations 34,889 5,115 40,004 Casino operations 3,307 12,907 16,214 ----- ------- ------- ------- 58,367 41,716 (1,312) 98,771 Costs and expenses: Cost of gaming equipment and systems 10,791 2,350 (1,301) 11,840 Cost of wall machines and amusement games 12,079 (11) 12,068 Cost of route operations 27,816 3,313 31,129 Cost of casino operations 2,039 4,777 6,816 Selling, general and administrative 11,837 9,175 21,012 Research and development 3,436 758 4,194 Depreciation and amortization 3,672 1,730 5,402 ----- ------- ------ ------ 59,591 34,182 (1,312) 92,461 Operating income (1,224) 7,534 6,310 Earnings in consolidated subsidiaries 5,102 (5,102) Other income (expense): Interest income 315 104 (187) 232 Interest expense (7,701) (389) 187 (7,903) Rainbow royalty 1,507 (1,507) Minority interest (539) (539) Other, net (13) (179) (192) ------ ------ ------ ------ Income (loss) before income taxes (2,553) 5,563 (5,102) (2,092) Income tax benefit (provision) 277 (461) (184) ----- ------ ------- ------ Net income (loss) (2,276) 5,102 (5,102) (2,276) ----- ----- ------ ------ Special Stock dividends (406) (406) ------ ------ ------- ----- Net loss applicable to common shares $(2,682) $5,102 $(5,102) $(2,682) ======== ======= ======= =======
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF CASH FLOWS Three Months Ended September 30, 1997 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Net cash provided by (used in) operating activities (23,015) 7,968 6,940 (8,107) ------- ------ ------ ------ Cash flows from investing activities: Additions to property and equipment (2,288) (761) (3,049) Proceeds from disposal of property and equipment 62 69 131 Additions to other long term asets (710) (152) (862) ------ ----- ------ ------ Net cash used in investing activities (2,936) (844) (3,780) ------ ----- ------ ------ Cash flows from financing activities: Refinancing fees and expenses (32,752) (32,752) Capitalized new debt fees (11,456) (11,456) Proceeds from issuance of long-term debt, net of expenses 303,734 7,279 (7,279) 303,734 Reduction of long-term debt (170,294) (7,939) 339 (177,894) Net change in lines of credit 1,840 1,232 3,072 Repurchase of Series B Special Stock (77,568) (77,568) Dividends received (paid) 5,374 (5,374) - ------- ------ ------ ------- Net cash provided by (used in) financing activities 18,878 (4,802) (6,940) 7,136 ------- ------ ------ ------- Effect of exchange rate changes on cash (120) (120) Cash and cash equivalents: Increase (decrease) for period (7,073) 2,202 (4,871) Balance, beginning of period 16,462 12,462 28,924 ------- ------- ------- Balance, end of period $ 9,389 $14,664 $ -- $24,053 ======= ======= ======== =======
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF CASH FLOWS Three Months Ended September 30, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Net cash provided by (used in) operating activities (6,904) 11,558 (623) 4,031 ------ ------- ----- ------ Cash flows from investing activities: Additions to property and equipment (2,732) (751) (3,483) Proceeds from disposal of property and equipment 28 8 36 Additions to other long term assets (2,008) (2,008) ------ ------- ------ ------ Net cash used in investing activities (4,712) (743) (5,455) ------ ------- ------ ------ Cash flows from financing activities: Reduction of long-term debt (355) (735) 623 (467) Net change in lines of credit 300 300 Proceeds from exercise of stock options and warrants 4,843 4,843 Dividends received (paid) 12,862 (12,862) - ------- ------- ------ ------ Net cash provided by (used in) financing activities 17,650 (13,597) 623 4,676 ------- ------- ------ ------ Effect of exchange rate changes on cash 177 177 Cash and cash equivalents: Increase (decrease) for period 6,034 (2,605) 3,429 Balance, beginning of period 8,609 14,878 23,487 ------ ------- ------ Balance, end of period $ 14,643 $12,273 $ -- $26,916 ======== ======= ====== =======
See accompanying unaudited note. Debt and Lines of Credit Long-term debt and lines of credit at September 30, 1998 consist of the following:
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries (in 000's) 10% Senior Subordinated Notes due 2007, net of unamortized discount $149,258 $149,258 Term loan facilities: Tranche B Term Loan 74,250 74,250 Tranche C Term Loan 39,600 39,600 Delayed Draw Term Facility 25,000 25,000 Revolving Credit Facility 23,000 13,253 36,253 Intercompany notes payable 84,904 8,618 (93,522) - Other 642 2,430 3,072 ------- ----- ------- ------- 396,654 24,301 (93,522) 327,433 Less current maturities 1,528 3,216 (2,628) 2,116 ------- ------- ------- ------- Long-term debt, less current maturities $395,126 $21,085 $(90,894) $325,317 ======== ======= ======== ========
ALLIANCE GAMING CORPORATION FORM 10-Q For the Quarter Ended September 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources In August 1997 the Company completed a series of related transactions as described below ("the Refinancing") which consisted of the private placement of $150.0 million of Senior Subordinated Notes and the closing of $230.0 million of bank financing. The bank financing provides for (i) term loans in the aggregate amount of up to $140.0 million, comprised of a $75.0 million tranche with a 7 1/2-year term (the "Tranche B Term Loan"), a $40.0 million tranche with an 8-year term (the "Tranche C Term Loan"), and a $25.0 million tranche with a 7 1/2-year term (the "Delayed Draw Term Facility" and together with the Tranche B Term Loan and the Tranche C Term Loan, the "Term Loan Facilities") and (ii) a $90.0 million revolving credit facility with a 6-year term (the "Revolving Credit Facility"). At September 30, 1998, based on the terms of the new $90.0 million Revolving Credit Facility, the Company would have been able to borrow $69.4 million, of which the Company had borrowings of approximately $36.3 million outstanding. The borrowing base for the revolving credit facility consists of eligible receivables and inventory, as defined in the credit agreement. At September 30, 1998, the Company had $26.9 million in cash and cash equivalents and $33.1 million in unborrowed availability on its revolving credit facility pursuant to the borrowing base limitations contained in the credit agreement. In addition, the Company had working capital of approximately $126.4 million, an increase of approximately $6.9 million from June 30, 1998, which is explained below. Consolidated cash and cash equivalents at September 30, 1998 includes approximately $12.1 million of cash which is utilized in Casino and Route Operations which is held in vaults, cages or change banks. The Company is in compliance with the financial and operational covenants under both the bank credit agreement and the Indenture for the Senior Subordinated Notes. Management believes that cash flow from operating activities, cash and cash equivalents held and the availability under the revolving credit facility will provide the Company with sufficient capital resources and liquidity. At September 30, 1998, the Company did not have any significant commitments for capital expenditures. Working Capital During the three months ended September 30, 1998, working capital increased $6.9 million to $126.4 million. The primary fluctuations in working capital were: (i) a decrease in accounts receivable resulting from cash collections and lower revenues, (ii) an increase in inventory due to new product sales expected in fiscal year 1999, (iii) a decrease in accrued liabilities due to payments of accrued interest payable and a final payment in settlement of litigation related to the acquisition of BGII, (iv) the impact of foreign exchange fluctuations between the dollar and the deutschemark on all working capital categories, (v) increases in accounts payable based on timing of payments, and (vi) the corresponding impact of the above listed items on cash and cash equivalents. Cash Flow During the three months ended September 30, 1998, $4.0 million was provided from operating activities resulting from a net decrease in accounts receivable, a decrease in other current assets, an increase in depreciation and amortization, partially offset by a net loss, an increase in inventories primarily at Bally Gaming and Systems, and a decrease in accrued expenses. During the three months ended September 30, 1998 the Company used $5.5 million of cash in investing activities primarily resulting from $3.5 million in capital expenditures and $2.0 million of payments made in acquiring the rights to manufacture and distribute several gaming products. During the three months ended September 30, 1998, $4.7 million was provided by financing activities primarily resulting from the cash proceeds from the exercise of certain stock purchase warrants. The following is a summary of the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) by business unit: Three Months Ending September 30, 1997 1998 (In $000's) Bally Gaming and Systems $ 3,146 $ 960 Wall Machines and Amusement Games 2,601 3,145 Route Operations 6,334 5,678 Casino Operations 4,257 5,442 Corporate Administrative Expenses (3,891) (3,513) ------- ------- EBITDA $12,447 $11,712 ======= ======= The Company believes that the analysis of EBITDA is a useful adjunct to net income, cash flow and other GAAP measurements. However, this information should not be construed as an alternative to net income or any other GAAP measure of performance as an indicator of the Company's performance or to GAAP-defined cash flows generated by operating, investing and financing activities as an indicator of cash flows or a measure of liquidity. The bank facility is collateralized by substantially all domestic property and is guaranteed by each domestic subsidiary of the U.S. Borrower and German Subsidiaries (both as defined), other than the entity which holds the Company's interest in its Louisiana operations and other non-material subsidiaries (as defined), and secured by both a U.S. and German Pledge Agreement (both as defined). The bank facility contains a number of maintenance covenants and it and the indenture have other significant covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness, issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests (as defined) or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries (as defined), engage in mergers or acquisitions, or engage in certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities. Customer Financing Management believes that customer financing terms and leasing have become an increasingly important competitive factor for the Gaming Equipment and Systems and Wall Machine and Amusement Games business units, respectively. Competitive conditions sometimes require Gaming Equipment and Systems to grant extended payment terms on gaming machines, systems and other gaming equipment, especially for sales in emerging markets. While these financings are normally collateralized by such equipment, the resale value of the collateral in the event of default may be less than the amount financed. Accordingly, the Company will have greater exposure to the financial condition of its customers in emerging markets than has historically been the case in established markets like Nevada and Atlantic City. Bally Wulff provides customer financing for approximately 15% of its sales and also provides lease financing to its customers. Lease terms are generally for six months, but are also available for 12 and 43 month terms. Year 2000 The Year 2000 readiness issue, which is common to most businesses, arises from the inability of information systems, and other time and date sensitive products and systems, to properly recognize and process date-sensitive information on and beyond January 1, 2000. The result could create errors in information or system failures. Assessments of the potential cost and effects of Year 2000 issues vary significantly among businesses, and it is extremely difficult to predict the actual impact. Recognizing this uncertainty, management has and is continuing to actively analyze, assess and plan for various Year 2000 issues across its businesses. The Year 2000 issue has an impact on both information technology ("IT") systems and non-IT systems, such as its manufacturing systems and physical facilities including, but not limited to, security systems and utilities. Although management believes that a majority of the Company's IT systems are Year 2000 ready, such systems still have to be tested for Year 2000 readiness. The Company plans to replace or upgrade those systems that are identified as non-Year 2000 ready during calendar 1999. Certain IT systems previously identified as non-Year 2000 compliant are being upgraded or replaced which should be complete by June 30, 1999. Non-IT system issues are more difficult to identify and resolve. The Company is actively identifying non-IT Year 2000 issues concerning its products and services, as well as its physical facility locations. As non-IT areas are identified, management formulates the necessary actions to ensure minimal disruption to its business processes. Management has engaged outside consultants to assist and advise management in this assessment process and the consultant's final report and recommendation is forthcoming. Although management believes that its efforts will be successful and the costs will be immaterial to its consolidated financial position and results of operations, it also recognizes that any failure or delay could cause a disruption in its business and have a significant financial impact. To minimize this potential impact, the Company is actively planning and designing a contingency plan to support critical business processes. The Company has also initiated efforts to ensure the Year 2000 readiness of its products and services. The Company is actively evaluating its strategy and legal obligations for any communication to its customers. As part of its assessment of current products and services, the Company is currently upgrading all Bally Systems SDS customers to version 7.0 software, for which the Company has developed a Year 2000 compliance "patch" which is currently being distributed. The Company plans to have all customers upgraded to version 7.0 by December 1998, and have the patch installed by July 1999. The Company is currently shipping version 7.1 of the software, which is also Year 2000 compliant. Customers are also being advised that the IBM or Unix operating systems they are using must also be upgraded to versions that are Year 2000 compliant. Bally Systems has obtained the operating system upgrades from the vendors and has offered to assist users in installing the upgrade. The Company has also tested most of the products manufactured in the United States and Germany in recent years to determine compliance with Year 2000 and plans to advise customers what, if any, non-compliance issues exist before December 31, 1998. Based upon the results of research and investigation, management will formulate further plans as necessary. The Year 2000 readiness of its customers varies, and the Company is encouraging its customers to evaluate and prepare their own systems. These efforts by customers to address Year 2000 issues may affect the demand for certain products and services; however, the impact to the revenue or any change in revenue patterns is highly uncertain. The Company has also initiated efforts to assess the Year 2000 readiness of its key suppliers and business partners. The Company's direction in this effort is to ensure the adequacy of resources and supplies to minimize any potential business interruptions. Management plans to complete this part of its Year 2000 readiness plan in the earlier part of calendar 1999. As part of the Company's contingency plans, management will begin to identify and solidify relationships with and access to alternative suppliers and resources to ensure the support and continuation of its critical business operations. The Year 2000 issue presents a number of other risks and uncertainties that could impact the Company, such as public utility failures, potential claims against it for damages arising from products and services that are not Year 2000 compliant, and the response ability of certain government and gaming commissions of the various jurisdictions where the Company conducts business. While the Company continues to believe the Year 2000 issues described above will not materially affect its consolidated financial position or results of operations, it remains uncertain as to what extent, if any, the Company may be impacted. Euro Currency Conversion The Company's Bally Wulff subsidiary uses the German duetschmark as its functional currency. The new Euro currency will replace the duetschmark as well as most other European currencies after a phase in period which begins January 1, 1999. As most of Bally Wulff's transactions are within Germany, the switch to the Euro is not expected to have a material impact on revenues, expenses or income. The Company's products can be brought into Euro compliance by moving a switch inside the wall machine. The cost of the new front glass showing Euro denominations will be borne be the customers. The Company currently has borrowings outstanding on its line of credit facility, a portion of which has a floating rate of interest tied to the Euro duetschmark rate. Upon the full implementation of the Euro, as of January 1, 2002, the interest rate will be tied to this new index. The impact of the change in this index, if any, is not known and can not be quantified at this time. Results of Operations: Three Months Ended September 30, 1997 and 1998 General The Company operates through four business units: (i) gaming equipment and systems, (ii) wall machines and amusement games (consisting of the manufacture and distribution of wall-mounted gaming machines and distribution of other recreational and amusement machines), (iii) route operations and (iv) casino operations. The following tables set forth the combined revenues and operating income (loss) for the four business units for the three months ended September 30, 1997 and 1998: 1997 1998 (In 000's) Revenues: Bally Gaming and Systems $ 27,167 $ 21,942 Wall Machines and Amusement Games 21,061 20,611 Route Operations 35,655 40,004 Casino Operations 14,088 16,214 ------- ------- Total Revenues $ 97,971 $ 98,771 ======== ======== Operating income (loss): Bally Gaming and Systems $ 1,871 $ 147 Wall Machines and Amusement Games 1,444 2,157 Route Operations 4,388 3,076 Casino Operations 3,754 4,862 Corporate and Other (4,013) (3,932) ------ ------ Total operating income: $ 7,444 $ 6,310 ======= ======= Bally Gaming and Systems For the quarter ended September 30, 1998, Bally Gaming and Systems business unit reported revenues of $21.9 million, a decrease of 19% compared to revenues of $27.2 million in the prior year quarter. Bally Gaming reported unit sales of approximately 2,100 new gaming machines, a decrease of 50% compared to unit sales of approximately 4,200 in the prior year quarter. By market segment, Bally Gaming's unit sales for the quarter consisted of approximately 900 units to the Nevada and Atlantic City markets, 1,100 units to international markets and 100 units to riverboats, Native American and other domestic markets. The decrease in number of units shipped resulted from fewer new casino openings and lower replacement demand from existing casinos. Bally Gaming reported revenues from the sale of new gaming machines of $11.4 million, a decrease of 44% compared to $20.5 million in the prior year quarter due to lower unit volume, partially offset by a 13% increase in average selling prices over the prior year quarter. Bally Systems reported revenues of $4.7 million, an increase of 41% compared to revenues of $3.3 million in the prior year quarter. For the quarter ended September 30, 1998, gross profit margins improved to 46% from 40% in the prior year quarter. The gross margin improvement resulted primarily from a change in the mix of product sales to higher margin products, a greater percentage of higher margin Systems revenues and lower provisions for inventory obsolescence in the current year quarter. Bally Gaming and Systems reported operating income of $0.1 million compared to operating income of $1.9 million in the prior year quarter. The decrease in operating income resulted primarily from lower revenues, higher selling, general and administrative expenses and a $1.3 million increase in research and development costs resulting from the Company's ongoing efforts to expand its new and existing product offerings, partially offset by improved gross margins and a lower provision for doubtful receivables. Wall Machines and Amusement Games For the quarter ended September 30, 1998, the Wall Machines and Amusement Games business unit reported revenues of $20.6 million, a decrease of 2% compared to revenues of $21.1 million in the prior year quarter. The revenue decrease resulted primarily from a 12% decrease in unit shipments of new wall machines and a 21% decrease in amusement game distribution revenues, partially offset by a 51% increase in used wall machine revenues and a 4% increase in leased wall machine revenues. The foreign currency fluctuation of the German mark versus the U.S. dollar increased revenues and EBITDA by $0.5 million and $0.1 million, respectively, during the 1998 quarter. The Company believes that the general slowdown in the German economy has resulted in customers acquiring only enough units to replace those units whose licenses are expiring, and deferring purchases of other equipment. Wall Machines and Amusement Games continued to expand its leasing program whereby new wall machines are leased to customers pursuant to operating leases. These leases provide Wall Machines and Amusement Games with a stream of revenues and cash flow over the life of the leases, which range from six months to three and one half years. Wall Machines and Amusement Games experienced a 17% increase in new units leased compared to the prior year quarter and a total of 4,500 machines are currently out on lease. For the quarter ended September 30, 1998, gross profit margin decreased to 41% from 45% in the prior year quarter This decrease was due to the unfavorable impact of lower production at the manufacturing facility, partially offset by the increase in higher margin lease revenues and a 1 percent increase in the average selling price of new wall machines. Wall Machines and Amusement Games reported operating income of $2.2 million, an increase of 49% compared to $1.4 million in the prior year quarter. The improvement resulted primarily from lower selling, general and administrative expenses as the prior year quarter included additional expenses for a trade show, a lower provision for doubtful receivables resulting from an overall reduction in receivable balances and lower depreciation expense, partially offset by the decrease in revenues and lower gross margins. Route Operations For the quarter ended September 30, 1998, the Route Operations business unit reported revenues of $40.0 million, an increase of 12% compared to revenues of $35.7 million in the prior year quarter. Revenues for the Nevada operations increased 13% as net win per gaming machine per day increased to $52.60 from $52.40 in the prior year quarter, while the average number of gaming machines increased to 7,140 from 6,340 in the prior year quarter primarily resulting from the additional machines added as a result of taking over the contracts to operate locations previously served by competitors. Industry-wide gaming revenues in Northern Nevada have declined from the prior year period and except for Gamblers Bonus locations, this has caused the Company to experience a decrease in the net operating margins in this area of the state. Revenues and net operating margins continue to be strong in Southern Nevada, particularly in Gamblers Bonus locations. As of September 30, 1998, the Gamblers Bonus product was installed in approximately 2,160 gaming machines at over 180 locations statewide or 30% of its installed base of gaming machines. Revenues for the Louisiana operations increased 5% as net win per gaming machine per day increased to $77.00 from $74.80 in the prior year quarter and an increase in the average number of gaming machines to 720 from 710 in the prior year quarter For the quarter ended September 30, 1998, cost of revenues increased 14% to $31.1 million compared to $27.2 million in the prior year quarter. As a percentage of revenues, cost of revenues increased to 78% from 76% in the prior year quarter. Nevada operations cost of revenues increased 16%, and as a percentage of revenues increased to 80% from 78% in the prior year quarter primarily due to the lower margins in the Northern Nevada route. Louisiana operations cost of revenues increased 6%, and as a percentage of revenues increased slightly to 65% from 64% in the prior year quarter, due to an increase in direct costs. The Route Operations business unit reported operating income of $3.1 million, a decrease of 30% compared to operating income of $4.4 million in the prior year quarter. The decrease in operating income resulted primarily due to higher direct costs, higher selling, general and administrative expenses and an increase in depreciation from an increase in the number of gaming machines deployed, partially offset by higher revenues. Casino Operations For the quarter ended September 30, 1998, the Casino Operations business unit reported revenues of $16.2 million, an increase of 15% compared to revenues of $14.1 million in the prior year quarter. This increase was driven by a 20% increase at the Rainbow Hotel Casino. The improvement at the Rainbow Hotel Casino was attributable to an increase in the average gaming machine net win per day of 8% to $153 from $142 in the prior year quarter coupled with a 14% increase in the average number of gaming machines. Revenues remained relatively flat at the Rail City Casino between periods as an increase in the average gaming machine net win per day of 7% (to $59 from $55 in the prior year quarter) and an 7% increase in the average number of gaming machines were mostly offset by a lower number of table games and a decrease in win per table game position combined with lower food and beverage revenues. For the quarter ended September 30, 1998, the cost of revenues for Casino Operations increased 9% to $6.8 million compared to $6.3 million in the prior year quarter but, as a percentage of revenues, improved to 42% from 44% in the prior year quarter due primarily to the achievement of higher revenues without a corresponding increase in direct gaming costs. The Casino Operations business unit reported operating income of $4.9 million, an increase of 30% compared to operating income of $3.8 million in the prior year quarter. The increase in operating income resulted from the increase in revenues, the improvement in operating costs as a percentage of revenues and an improvement in selling, general and administrative expenses as a percentage of revenues, partially offset by an increase in depreciation from an increase in the number of gaming machines at both casinos. Earlier this year, the independently owned and operated hotel adjacent to the Rainbow Casino changed its name to the Rainbow Hotel. To further enhance the Company's brand, the casino and hotel are now marketed as the Rainbow Hotel Casino. Consolidated Total revenues for the quarter ended September 30, 1998, were $98.8 million, an increase of 1% compared to revenues of $98.0 million in the prior year quarter. The increase is primarily due to the aforementioned increases at the Route Operations and Casino Operations business units, partially offset by decreases in Bally Gaming and Systems and Wall Machines and Amusement Games business units. Cost of revenues for the quarter ended September 30, 1998, were $61.9 million, an increase of 1% compared to $61.3 million in the prior year quarter. Cost of revenues as a percentage of total revenues remained flat at 63% from the prior year quarter as increases in Wall Machines and Amusement Games and the Route Operations business units were offset by improvements in costs as a percentage of revenues at the Bally Gaming and Systems and the Casino Operations business units. Selling, general and administrative expenses for the quarter ended September 30, 1998 were approximately $21.0 million, a decrease 2% compared to costs of $21.4 million for the prior year quarter. This decrease is due to a decrease in expenses at the Wall Machines and Amusement Games business unit, a 10% decrease in Corporate expenses, partially offset by increases in expenses at the Bally Gaming and Systems, the Route operations and the Casino Operations business units. Research and development costs for the quarter ended September 30, 1998 were approximately $4.2 million, an increase of 46% compared to costs of $2.9 million in the prior year. This increase is due to increases in costs at the Bally Gaming and Systems and the Wall Machines and Amusement Games business units. Net Interest Expense and Income Taxes Net interest expense in the three months ended September 30, 1998 increased to $7.7 million from $5.8 million in the 1997 quarter. The increase is primarily due to higher interest costs which resulted from the additional debt taken on in the refinancing transaction which was completed in September 1997 and a higher average amount of working capital borrowings in the current quarter, partially offset by the elimination of interest on the 12 7/8% Senior Secured Notes. The Company recorded an income tax provision of $0.2 million in the quarter ended September 30, 1998 compared to an income tax provision of $0.5 million in the prior fiscal year quarter. The provision is primarily due to income taxes related to the Bally Wulff entities and state income taxes. * * * * * The information contained in this Form 10-Q may contain "forward-looking" statements within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1933, as amended, and is subject to the safe harbor created thereby. Such information involves important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward looking statements herein. Future operating results may be adversely affected as a result of a number of factors such as the Company's high leverage, its holding company structure, its operating history and recent losses, competition, risks of product development, customer financing, sales to non-traditional gaming markets, foreign operations, dependence on key personnel, strict regulation by gaming authorities, gaming taxes and value added taxes, uncertain effect of National Gambling Commission, and other risks including Year 2000 issues, as detailed from time to time in the Company's filings with the Securities and Exchange Commission. PART II Item 1. Legal Proceedings See "Notes to Unaudited Condensed Consolidated Financial Statements-5. Legal Proceedings" for a description of certain legal proceedings. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 11 Computation of per share amounts 27 Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1998. 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 authorized. ALLIANCE GAMING CORPORATION (Registrant) By /s/ Morris Goldstein President and Chief Executive Officer (Principal Executive Officer) By /s/ Scott D. Schweinfurth Sr. Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) EX-11 2 EARNINGS PER SHARE COMPUTATION EXHIBIT 11 Earnings per share computations (unaudited) (In 000's except share data)
Restated Three Months ended September 30, 1997 Income (Loss) Shares Per share (Numerator) (Denominator) Amounts Net loss before extraordinary item $(18,876) Less: Special stock dividends and redemption premium on series B Special Stock (18,953) Basic EPS Net loss before extraordinary item $(37,829) 31,853 $(1.19) Extraordinary loss (42,033) 31,853 (1.32) Net loss applicable to common shares $(79,862) 31,853 $(2.51) Effect of Dilutive Securities (a) Stock options -- Warrants -- Convertible preferred stock dividends -- -------- ------ Dilutive EPS Net loss applicable to common shares with assumed conversions $(79,862) 31,853 $(2.51) ======== ====== ======
Three Months ended September 30, 1998 Income Shares Per share (Numerator) (Denominator) Amounts Basic EPS Net loss applicable to common shares $(2,682) 32,982 $(0.08) ====== Effect of Dilutive Securities (a) Stock options -- Warrants -- Convertible preferred stock dividends -- ------ ------ Dilutive EPS Net loss applicable to Common Shares with assumed conversions $(2,682) 32,982 $(0.08) ======= ====== ====== cont. (a) The following securities were in-the-money as of the period end but were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the periods presented: For the three months ended September 30,September 30, 1998 1997 (in 000s) Stock options 38 3,930 Warrants - 2,000 --- ----- 38 5,930 Adjusted for application of the treasury stock method 38 1,450 === ===== Under the treasury stock method, the assumed net proceeds from the exercise of the weighted average number of common stock equivalents outstanding during the period are assumed to be used to repurchase common stock at its average market price during the period. Such repurchase of common stock reduces the dilutive effect of the common stock equivalents. EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary information excerpted from Form 10-Q for the three months ended 9/30/98 1,000 3-MOS JUN-30-1999 SEP-30-1998 26,916 0 99,419 11,909 47,395 171,000 139,931 53,553 369,093 44,584 0 0 14,127 3,426 (32,975) 369,093 42,553 98,771 23,908 61,853 30,961 (353) 7,903 (2,092) 184 (2,276) 0 0 0 (2,682) (0.08) (0.08)
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