-----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, RziafDwqrmfCNm3D1JmksgIIC79DU45Jmiu+uLwbTFDg12T1bdi0nGKUOiO86qkA eqeuhp7t15XAI0/bDmCTZw== 0000002491-99-000007.txt : 19990513 0000002491-99-000007.hdr.sgml : 19990513 ACCESSION NUMBER: 0000002491-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: 99617882 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 MARCH 31, 1999 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 March 31, 1999 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 May 3, 1999 according to the records of the registrant's registrar and transfer agent was 9,705,852. ALLIANCE GAMING CORPORATION FORM 10-Q For the Quarter Ended March 31, 1999 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 March 31, 1999 3 Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 1998 and 1999 4 Unaudited Condensed Consolidated Statements of Operations for the nine months ended March 31, 1998 and 1999 5 Unaudited Condensed Consolidated Statements of Stockholders' Deficiency for the nine months ended March 31, 1999 6 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 1998 and 1999 7 Notes to Unaudited Condensed Consolidated Financial Statements 8 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 22 PART II. OTHER INFORMATION Item 6.Exhibits and Reports on Form 8-K 33 SIGNATURES 34 PART I ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In 000's, except share data) June 30, Mar. 31, 1998 1999 ASSETS Current assets: Cash and cash equivalents $ 23,487 $ 29,214 Accounts and notes receivable, net of allowance for doubtful accounts of $11,932 and $12,583 93,459 82,982 Inventories, net of reserves of $6,797 and $6,408 42,418 46,529 Other current assets 11,711 8,498 -------- ------- Total current assets 171,075 167,223 ------- ------- Long-term notes receivable, net of allowance for doubtful accounts of $1,109 and $1,022 7,931 6,439 Leased equipment, net of accumulated depreciation of $4,020 and $3,950 7,325 7,871 Property, plant and equipment, net of accumulated depreciation of $46,090 and $52,299 77,905 78,637 Excess of costs over net assets of acquired businesses, net of accumulated amortization of $3,199 and $4,288 59,952 58,782 Intangible assets, net of accumulated amortization of $13,358 and $16,659 26,732 26,708 Other assets, net of reserves of $3,488 and $3,488 15,917 16,847 ------- ------- Total assets $366,837 $362,507 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 10,477 $ 15,709 Accrued liabilities 39,122 35,669 Current maturities of long-term debt 1,996 1,962 ------ ------ Total current liabilities 51,595 53,340 -------- ------- Term loan facilities 137,800 134,348 Senior Subordinated Notes due 2007, net 149,245 149,285 Other long-term debt, less current maturities 36,912 40,525 Other liabilities 12,718 12,519 ------- ------- Total liabilities 388,270 390,017 -------- ------- Minority interest 2,315 2,118 Commitments and contingencies Stockholders' deficiency: Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 137,317 shares and 149,504 shares issued and outstanding 13,732 14,950 Common Stock, $.10 par value; 50,000,000 shares authorized; 9,178,000 shares and 9,790,000 shares issued and outstanding 3,212 3,426 Treasury Stock, at cost, 85,300 shares (522) Additional paid-in capital 122,980 127,544 Accumulated other comprehensive loss (13,946) (13,204) Accumulated deficit (149,726) (161,822) -------- -------- Total stockholders' deficiency (23,748) (29,628) -------- -------- Total liabilities and stockholders' deficiency $366,837 $362,507 ======== ======== 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 March 31, 1998 1999 Revenues: Gaming equipment and systems $ 21,538 $38,406 Wall machines and amusement games 28,340 24,845 Route operations 37,054 46,037 Casino operations 15,294 16,445 ------- ------- 102,226 125,733 ------- ------- Costs and expenses: Cost of gaming equipment and systems 13,046 20,564 Cost of wall machines and amusement games 16,102 14,820 Cost of route operations 28,761 36,223 Cost of casino operations 6,385 6,845 Selling, general and administrative 19,472 26,944 Research and development 3,956 4,949 Depreciation and amortization 6,516 5,710 ------ ------ 94,238 116,055 Operating income 7,988 9,678 Other income (expense): Interest income 184 47 Interest expense (7,464) (8,151) Minority interest (489) (555) Other, net 293 (74) ---- ----- Income before income taxes 512 945 Income tax (provision) benefit (1,243) 246 ------ ---- Net (loss) income (731) 1,191 Special Stock dividends (384) (430) ----- ----- Net (loss) income available to common shares $(1,115) $761 ======= ==== Basic and diluted (loss) earnings per share $(0.12) $0.08 ====== ===== Weighted average common shares outstanding 9,155 9,742 Weighted average common and common share equivalents outstanding 9,155 9,747 See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In 000's, except share data) Nine Months Ended March 31, 1998 1999 Revenues: Gaming equipment and systems $ 76,160 $82,847 Wall machines and amusement games 77,132 69,225 Route operations 109,749 128,791 Casino operations 43,870 47,551 ------- ------- 306,911 328,414 Costs and expenses: Cost of gaming equipment and systems 44,615 45,798 Cost of wall machines and amusement games 42,835 41,562 Cost of route operations 84,584 100,868 Cost of casino operations 18,916 20,165 Selling, general and administrative 64,034 75,847 Research and development 10,270 13,094 Depreciation and amortization 17,328 16,869 Unusual items (2,545) - ------- ------- 280,037 314,203 Operating income 26,874 14,211 Other income (expense): Interest income 625 420 Interest expense (21,030) (23,556) Rainbow royalty (587) - Rainbow royalty buyout (19,000) - Minority interest (1,325) (1,603) Other, net 345 (621) ----- ------ Loss before income taxes (14,098) (11,149) Income tax (provision) benefit ( 2,163) 307 ------- ----- Loss before extraordinary item (16,261) (10,842) Extraordinary loss, without tax benefit (note 2) (42,033) - ------- ------- Net loss (58,294) (10,842) Special Stock dividends (note 2) (3,157) (1,254) Premium on repurchase/redemption of Series B Special Stock (16,553) - Net loss applicable to common shares $(78,004) $(12,096) Basic and diluted loss per share: Loss before extraordinary item $(3.92) $(1.25) Extraordinary loss (4.62) - ----- ----- Net loss $(8.54) $(1.25) ======= ======= Weighted average common shares outstanding 9,130 9,651 Weighted average common and common share equivalents outstanding 9,130 9,651 See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY Nine Months Ended March 31, 1999 (In 000's)
Accumulated Total Additional Other Stock- Series E Common Treasury Paid-in Comprehensive Accum. holders' Special Stock Stock Stock Capital Income (Loss) Deficit Deficiency Balances at June 30, 1998 $ 13,732 $ 3,212 $ -- $ 122,980 $(13,946) $(149,726) $(23,748) Net loss -- -- -- -- -- (10,842) (10,842) Shares issued upon exercise of options and warrants -- 214 -- 4,564 -- -- 4,778 Special Stock dividends 1,218 -- -- -- -- (1,254) (36) Repurchases of common stock for treasury -- -- (522) -- -- -- (522) Foreign currency translation adjustment -- -- -- -- 742 -- 742 -------- ------ ------ -------- ------- --------- ------- Balances at March 31, 1999 $ 14,950 $ 3,426 $ (522) $ 127,544 $(13,204) $(161,822) $(29,628) ======= ====== ====== ======== ======== ========= ========
See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In 000's) Nine Months Ended March 31, 1998 1999 Cash flows from operating activities: Net loss $(58,294) $(10,842) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 17,328 16,869 Amortization of debt discounts 31 39 Extraordinary item 42,033 - Write down of other assets 2,307 765 Loss on sale of assets 35 117 Provision for losses on (recovery of) receivables (7,330) 1,713 Other 1,305 (211) Net change in operating assets and liabilities: Accounts and notes receivable 12,627 9,743 Inventories (6,171) (9,254) Other current assets (1,528) 2,540 Accounts payable (2,258) 5,239 Accrued liabilities (8,250) (2,760) ------ ------ Net cash (used in) provided by operating activities (8,165) 13,958 Cash flows from investing activities: Additions to property, plant and equipment (10,231) (7,909) Proceeds from disposal of property and equipment 304 141 Additions to other long term assets (1,862) (4,218) ------ ------ Net cash used in investing activities (11,789) (11,986) 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 - Repayments of long-term debt (178,834) (4,696) Net change in lines of credit 16,191 4,200 Repurchase/redemption of Series B Special Stock (77,568) - Proceeds from exercise of stock options and warrants 729 4,778 Repurchases of common stock for treasury - (522) ------- ------- Net cash provided by financing activities 20,044 3,760 Effect of exchange rate changes on cash (356) (5) Cash and cash equivalents: Increase (decrease) for period (266) 5,727 Balance, beginning of period 28,924 23,487 ------- ------- Balance, end of period $ 28,658 $ 29,214 ======== ======== See notes to unaudited condensed consolidated financial statements. ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended March 31, 1998 and 1999 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 the 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 March 31, 1999 consists of the following: June 30, Mar. 31, 1998 1999 (in 000's) 10% Senior Subordinated Notes due 2007, net of unamortized discount of $755 and $715 $149,245 $149,285 Term loan facilities: Tranche B Term Loan 74,438 72,511 Tranche C Term Loan 39,700 38,821 Delayed Draw Term Facility 25,000 24,416 Revolving Credit Facility 34,971 39,143 Other, secured by related equipment 2,599 1,944 ------- ------- 325,953 326,120 Less current maturities 1,996 1,962 ------ ------ Long-term debt, less current maturities $323,957 $324,158 ======== ======== 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 a bank financing agreement 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 (collectively the "Bank Facilty"). Each of these credit facilities are variable rate borrowings in accordance with a credit grid as amended. The interest rates which are currently at the highest level of the credit grid as amended and maturity dates are as follows: ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Nine Months Ended March 31, 1998 and 1999 Interest Maturity Rates Date Tranche B Term Loan LIBOR + 3.25% January 31, 2005 Tranche C Term Loan LIBOR + 3.50% July 31, 2005 Delayed Draw Term Facility LIBOR + 3.25% January 31, 2005 Revolving Credit Facility LIBOR + 2.75% July 31, 2003 The Revolving Credit Facility also allows for German Deutschemark borrowings at the euro deutschmark rate plus 2.75% (or 5.9% at March 31, 1999). 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 credit agreement for the Bank Facility contains a number of maintenance covenants and 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. In the quarter ended December 31, 1998, the Company did not meet certain financial covenants in the credit agreement. The Company and the banks have amended the current and future financial maintenance covenants in the credit agreement effective December 31, 1998 such that the Company is in compliance with such covenants. 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 Facility. The Senior Subordinated Notes are 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 and nine months ended March 31, 1998 and 1999 differs from the statutory rate of 35% due to losses at the Company's domestic subsidiaries which add to net operating loss carryforwards and for which no benefit is recorded in the income statement and tax losses at Bally Wulff which will be carried back to the prior year, partially offset by state income taxes. 4. SUPPLEMENTAL CASH FLOW INFORMATION The following supplemental information is related to the unaudited condensed consolidated statements of cash flows. For the nine months ended March 31, 1998 and 1999, the Company recorded the following significant non-cash items: Nine months ended March 31, 1998 1999 (In 000's) Reclassify other assets to property, plant and equipment $ 249 $ 306 Dividends for Series E and , for the 1998 period, Series B Special Stock 3,157 1,254 Reclassify inventory to equipment 3,964 5,133 Translation rate adjustment 4,106 747 Reclassify accounts receivable to intangible assets 60 405 Reclassify other current assets to accrued liabilities - 672 5. LEGAL PROCEEDINGS Litigation On September 25, 1995, Bally Gaming International, Inc. ("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 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. The case is in the discovery and motions stage. A trial date has not been set. 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. UNUSUAL ITEMS In December 1997 the Company, Alpha Hospitality and General Electric Credit Corporation settled certain customer notes receivable on which the Company had certain recourse obligations. The Company contributed $2.5 million to the final settlement with the holder of the notes, and reversed $6.0 million of reserves previously established for these recourse obligations. In addition, as part of the settlement the Company became the sole owner of approximately 566,000 shares of Alpha Hospitality common stock which trades on the NASDAQ Small Cap market. The Company is selling this stock within the limitations provided for in the settlement agreement. As a result of settling a dispute over the exclusive use of certain technologies and changes in gaming regulations, the Company evaluated the cash flow of certain of its technology assets, in accordance with the provisions of Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-lived Assets to be Disposed of," and determined certain items met the definition of having become impaired. In December 1997 the Company recorded write-downs totaling $2.8 million for these items, which amount is included in unusual items. Additionally, the Company accrued $0.7 million for the present value of contractual payments due to a former member of the board of directors who was not re-elected to the board at the December 1997 annual shareholders meeting. 7. COMPREHENSIVE INCOME (LOSS) 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 130 had no impact on the Company's net income (loss) or stockholders' 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 nine months ended March 31, 1998 and 1999, total comprehensive (loss) income amounted to $(62.8) million and $(10.1) million, respectively. 8. REVERSE STOCK SPLIT On January 14, 1999 the Company's Board of Directors announced a one-for-three-and-one-half reverse stock split of its Common Stock effective February 1, 1999. The effects of the reverse split were to reduce the authorized number of common shares from 175.0 million to 50.0 million and to decrease the number of shares of Common Stock outstanding from 34.3 million to 9.8 million. In connection with the reverse split, the share number, exercise price and the trigger prices, as applicable, for the Company's stock options and warrants were proportionately adjusted. In lieu of fractional shares resulting from the reverse split, stockholders will receive a cash payment from the sale of the aggregate fractional shares on the open market. The reverse split also impacted the conversion ratio on the Company's Series E Special Stock. Each share of Series E Special Stock is now convertible into 4.859 shares of Common Stock instead of 17.007 shares. All share and per share data included in this report have been restated to reflect the reverse split. 9. SHARE REPURCHASE PLAN In January 1999 the Company's Board of Directors approved a share repurchase plan for up to 1.18 million shares of its Common Stock. Subject to price and market conditions, purchases of shares will be made from time to time over the next twelve months in the open market or in privately negotiated transactions using available cash financing. During the three months ended March 31, 1999, the Company repurchased 85,300 shares of common stock at a cost of $522,500. 10. 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 transaction (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 Accumulated other comprehensive loss (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 March 31, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ASSETS Current assets: Cash and cash equivalents $ 12,312 $ 16,902 $ $ 29,214 Accounts and notes receivable, net 38,385 48,290 (3,693) 82,982 Inventories, net 32,511 14,547 (529) 46,529 Other current assets 6,348 2,150 8,498 --------- --------- -------- --------- Total current assets 89,556 81,889 (4,222) 167,223 --------- --------- -------- --------- Long-term notes receivable, net 99,316 2,058 (94,935) 6,439 Leased equipment, net 7,871 7,871 Property, plant and equipment, net 46,829 31,808 78,637 Excess of costs over net assets of acquired businesses, net 39,169 19,613 58,782 Intangible assets, net 26,246 462 26,708 Investment in subsidiaries 90,180 (90,180) -- Other assets, net 25,708 (9,372) 511 16,847 --------- --------- -------- --------- $ 417,004 $ 134,329 $(188,826) $362,507 ========= ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 12,007 $ 3,702 $ $ 15,709 Accrued liabilities 20,379 16,251 (961) 35,669 Current maturities of long-term debt 1,400 3,284 (2,722) 1,962 --------- -------- -------- --------- Total current liabilities 33,786 23,237 (3,683) 53,340 --------- -------- -------- --------- Term loan facilities 134,348 134,348 Senior Subordinated Notes due 2007, net 149,285 149,285 Other long-term debt, less current maturities 116,615 18,231 (94,321) 40,525 Other liabilities 10,506 2,330 (317) 12,519 --------- -------- -------- --------- Total liabilities 444,540 43,798 (98,321) 390,017 --------- -------- -------- --------- Minority interest 2,118 2,118 Commitments and contingencies Stockholders' equity (deficiency): Series E Special Stock 14,950 14,950 Common Stock 3,426 17,832 (17,832) 3,426 Treasury stock (522) (522) Additional paid-in capital 127,544 68,700 (68,700) 127,544 Accumulated other comprehensive loss (13,204) (13,406) 13,406 (13,204) Retained earnings (accumulated deficit) (161,848) 17,405 (17,379) (161,822) -------- ------- -------- --------- Total stockholders' equity (deficiency) (29,654) 90,531 (90,505) (29,628) -------- ------- -------- --------- $417,004 $134,329 $(188,826) $362,507 ======== ======== ========= =========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended March 31, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Revenues: Gaming equipment and systems $ 19,582 $ 3,601 $ (1,645) $ 21,538 Wall machines and amusement games 28,443 (103) 28,340 Route operations 31,445 5,609 37,054 Casino operations 3,251 12,043 15,294 ------ ------- ------- -------- 54,278 49,696 (1,748) 102,226 Costs and expenses: Cost of gaming equipment and systems 11,996 2,695 (1,645) 13,046 Cost of wall machines and amusement games 16,205 (103) 16,102 Cost of route operations 25,162 3,599 28,761 Cost of casino operations 1,937 4,448 6,385 Selling, general and administrative 10,715 8,757 19,472 Research and development 3,234 722 3,956 Depreciation and amortization 4,247 2,269 6,516 ------- ------- ------- -------- 57,291 38,695 (1,748) 94,238 ------- ------- ------- -------- Operating income (loss) (3,013) 11,001 7,988 Earnings in consolidated subsidiaries 7,532 (7,532) Other income (expense): Interest income 290 102 (208) 184 Interest expense (7,173) (499) 208 (7,464) Rainbow royalty 1,411 (1,411) Minority interest (489) (489) Other, net 410 (117) 293 ------ ------ ------- -------- Income (loss) before income taxes (1,032) 9,076 (7,532) 512 Income tax (provision) benefit 301 (1,544) (1,243) ------- ------- ------- -------- Net income (loss) (731) 7,532 (7,532) (731) Special Stock dividends (384) (384) ------- ------ ------- ------- Net income (loss) applicable to common shares $(1,115) $7,532 $(7,532) $(1,115) ======== ====== ======== =======
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended March 31, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Revenues: Gaming equipment and systems $ 37,405 $ 2,444 $ (1,443) $ 38,406 Wall machines and amusement games 24,845 24,845 Route operations 40,280 5,757 46,037 Casino operations 3,759 12,686 16,445 ------- -------- -------- -------- 81,444 45,732 (1,443) 125,733 Costs and expenses: Cost of gaming equipment and systems 19,879 2,128 (1,443) 20,564 Cost of wall machines and amusement games 14,820 14,820 Cost of route operations 32,509 3,714 36,223 Cost of casino operations 2,221 4,624 6,845 Selling, general and administrative 16,923 10,021 26,944 Research and development 4,142 807 4,949 Depreciation and amortization 3,923 1,787 5,710 -------- -------- -------- -------- 79,597 37,901 (1,443) 116,055 -------- -------- -------- -------- Operating income 1,847 7,831 9,678 Earnings in consolidated subsidiaries 5,830 (5,830) Other income (expense): Interest income 125 72 (150) 47 Interest expense (7,924) (377) 150 (8,151) Rainbow royalty 1,494 (1,494) Minority interest (555) (555) Other, net 50 (124) (74) ------ -------- -------- -------- Income before income taxes 867 5,908 (5,830) 945 Income tax benefit (provision) 324 (78) 246 ------- -------- -------- -------- Net income 1,191 5,830 (5,830) 1,191 Special Stock dividends (430) (430) ------- -------- -------- -------- Net income applicable to common shares $ 761 $ 5,830 $ (5,830) $ 761 ====== ======= ======== ======
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended March 31, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Revenues: Gaming equipment and systems $ 72,716 $ 8,641 $ (5,197) $ 76,160 Wall machines and amusement games 77,235 (103) 77,132 Route operations 94,160 15,589 109,749 Casino operations 9,979 33,891 43,870 -------- -------- -------- -------- 176,855 135,356 (5,300) 306,911 -------- -------- -------- -------- Costs and expenses: Cost of gaming equipment and systems 43,544 6,326 (5,255) 44,615 Cost of wall machines and amusement games 42,938 (103) 42,835 Cost of route operations 74,538 10,046 84,584 Cost of casino operations 6,104 12,812 18,916 Selling, general and administrative 34,500 29,534 64,034 Research and development 8,076 2,194 10,270 Depreciation and amortization 10,632 6,696 17,328 Unusual items (2,545) (2,545) -------- -------- -------- -------- 174,849 110,546 (5,358) 280,037 -------- -------- -------- -------- Operating income 2,006 24,810 58 26,874 Earnings in consolidated subsidiaries 16,659 (16,659) Other income (expense): Interest income 922 309 (606) 625 Interest expense (20,241) (1,395) 606 (21,030) Rainbow royalty 3,387 (3,974) (587) Rainbow royalty buyout (19,000) (19,000) Minority interest (1,325) (1,325) Other, net 441 (96) 345 ------- -------- -------- -------- Income (loss) before income taxes (17,151) 19,654 (16,601) (14,098) Income tax (provision) benefit 832 (2,995) (2,163) -------- -------- -------- -------- Net income (loss) before extraordinary item (16,319) 16,659 (16,601) (16,261) Extraordinary loss, without tax benefit (42,033) (42,033) -------- -------- -------- -------- Net income (loss) (58,352) 16,659 (16,601) (58,294) Special Stock dividends (3,157) (3,157) Premium on repurchase of Series B Special Stock (16,553) (16,553) -------- --------- --------- --------- Net income (loss) applicable to common shares $ (78,062) $ 16,659 $ (16,601) $ (78,004) ========= ========= ========= =========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended March 31, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Revenues: Gaming equipment and systems $ 79,863 $ 8,521 $ (5,537) $ 82,847 Wall machines and amusement games 69,236 (11) 69,225 Route operations 112,539 16,252 128,791 Casino operations 10,619 36,932 47,551 -------- -------- -------- -------- 203,021 130,941 (5,548) 328,414 -------- -------- -------- -------- Costs and expenses: Cost of gaming equipment and systems 44,492 6,843 (5,537) 45,798 Cost of wall machines and amusement games 41,573 (11) 41,562 Cost of route operations 90,219 10,649 100,868 Cost of casino operations 6,383 13,782 20,165 Selling, general and administrative 44,892 30,955 75,847 Research and development 10,731 2,363 13,094 Depreciation and amortization 11,338 5,531 16,869 -------- -------- -------- -------- 208,055 111,696 (5,548) 314,203 -------- -------- -------- -------- Operating income (loss) (5,034) 19,245 14,211 Earnings in consolidated subsidiaries 13,081 (13,081) Other income (expense): Interest income 668 280 (528) 420 Interest expense (22,893) (1,191) 528 (23,556) Rainbow royalty 4,334 (4,334) Minority interest (1,603) (1,603) Other, net (140) (481) (621) -------- -------- -------- -------- Income (loss) before income taxes (11,587) 13,519 (13,081) (11,149) Income tax benefit (provision) 745 (438) 307 ------- -------- -------- -------- Net income (loss) (10,842) 13,081 (13,081) (10,842) Special Stock dividends (1,254) (1,254) ------- -------- -------- -------- Net income (loss) applicable to common shares $ (12,096) $ 13,081 $ (13,081) $ (12,096) ========= ======== ========= =========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1998 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Cash flows from operating activities: Net cash provided by (used in) operating activities $ (25,429) $ 18,794 $ (1,530) $ (8,165) -------- -------- -------- -------- Cash flows from investing activities: Additions to property and equipment (7,520) (2,711) (10,231) Proceeds from disposal of property and equipment 205 99 304 Additions to other long-term assets (1,656) (206) (1,862) -------- -------- -------- -------- Net cash used in investing activities (8,971) (2,818) (11,789) -------- -------- -------- -------- Cash flows from financing activities: Refinancing fees and expenses (32,752) (32,752) Capitalized new debt issue costs (11,456) (11,456) Proceeds from long-term debt 303,734 303,734 Reduction of long-term debt (178,459) (1,905) 1,530 (178,834) Net change in lines of credit 10,852 5,339 16,191 Redemption of Series B Special Stock (77,568) (77,568) Proceeds from exercise of stock options 729 729 Dividends received (paid) 13,406 (13,406) -------- -------- -------- -------- Net cash provided by (used in) financing activities 28,486 (9,972) 1,530 20,044 -------- -------- -------- -------- Effect of exchange rate changes on cash (356) (356) -------- -------- -------- -------- Cash and cash equivalents: Increase (decrease) for period (5,914) 5,648 (266) Balance, beginning of period 16,462 12,462 28,924 -------- -------- -------- -------- Balance, end of period $ 10,548 $ 18,110 $ -- $ 28,658 ========= ========= ======== =========
See accompanying unaudited note. CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries Cash flows from operating activities: Net cash provided by (used in) operating activities $(12,547) $ 28,418 $ (1,913) $ 13,958 ------- ------- ------- ------- Cash flows from investing activities: Additions to property and equipment (6,085) (1,824) (7,909) Proceeds from disposal of property and equipment 96 45 141 Additions to other long term assets (4,105) (113) (4,218) -------- ------- ------- ------- Net cash used in investing activities (10,094) (1,892) (11,986) ------- ------- ------- ------- Cash flows from financing activities: Repayments of long-term debt (4,098) (2,511) 1,913 (4,696) Net change in lines of credit 4,200 4,200 Proceeds from exercise of stock options and warrants 4,778 4,778 Repurchase common stock for treasury (522) (522) Dividends received (paid) 21,986 (21,986) ------- ------- ------- ------- Net cash provided by (used in) financing activities 26,344 (24,497) 1,913 3,760 ------- ------- ------- ------- Effect of exchange rate changes on cash (5) (5) ------- ------- ------- ------- Cash and cash equivalents: Decrease for period 3,703 2,024 5,727 Balance, beginning of period 8,609 14,878 23,487 ------- ------- ------- ------- Balance, end of period $ 12,312 $ 16,902 $ -- $ 29,214 ======== ======== ======== ========
See accompanying unaudited note. Debt and Lines of Credit Long-term debt and lines of credit at March 31, 1999 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 $149,285 $149,285 Term loan facilities: Tranche B Term Loan 72,511 72,511 Tranche C Term Loan 38,821 38,821 Delayed Draw Term Facility 24,416 24,416 Revolving Credit Facility 26,900 12,243 39,143 Intercompany notes payable 89,715 7,328 (97,043) - Other 1,944 1,944 -------- ------- ------- -------- 401,648 21,515 (97,043) 326,120 Less current maturities 1,400 3,284 (2,722) 1,962 ------- ------- ------- -------- Long-term debt, less current maturities $400,248 $18,231 $(94,321) $324,158 ======== ======= ======== ========
ALLIANCE GAMING CORPORATION FORM 10-Q For the Quarter Ended March 31, 1999 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources At March 31, 1999, based on the terms of the $90.0 million Revolving Credit Facility, the Company would have been able to borrow $63.0 million, of which the Company had borrowings of approximately $39.1 million outstanding. The borrowing base for the revolving credit facility consists of eligible receivables and inventory, as defined in the credit agreement. At March 31, 1999, the Company had $29.2 million in cash and cash equivalents and $23.9 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 $113.9 million, a decrease of approximately $5.6 million from June 30, 1998, which is explained below. Consolidated cash and cash equivalents at March 31, 1999 includes approximately $15.8 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 maintenance covenants under both the credit agreement for the Bank Facility as amended 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 March 31, 1999, the Company did not have any significant commitments for capital expenditures. Working Capital During the nine months ended March 31, 1999, working capital decreased $5.6 million to $113.9 million. The primary fluctuations in working capital were: (i) a decrease in accounts receivable resulting from cash collections and lower revenues at the Wall Machine and Amusement Game business unit, (ii) an increase in inventory due new proprietary gaming products manufactured in the current quarter and expected to be deployed in the June 1999 quarter, (iii) a decrease in other current assets resulting from amortizing prepaid expenses, (iv) a decrease in accrued liabilities due to payments of accrued interest payable and a final payment in settlement of litigation, (v) the impact of foreign exchange fluctuations between the dollar and the deutschemark on all working capital categories, (vi) increases in accounts payable based on the increase in inventory levels and timing of payments, and (vii) the corresponding impact of the above listed items on cash and cash equivalents. Cash Flow During the nine months ended March 31, 1999, $14.0 million was provided from operating activities resulting from a net decrease in accounts receivable, a decrease in other current assets, an increase in accounts payable and 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 based on timing of interest payments. During the nine months ended March 31, 1999 the Company used $12.0 million of cash in investing activities primarily resulting from $7.9 million in capital expenditures, $1.5 million of payments made in acquiring the rights to manufacture and distribute several gaming products, and $1.5 million of payments in acquiring gaming rights of route locations. During the nine months ended March 31, 1999, $3.8 million was provided by financing activities primarily resulting from additional borrowings from the Company's revolving credit facility of $4.2 million and $4.8 million of cash proceeds from the exercise of certain warrants to purchase common stock, partially offset by $4.7 million used to reduce the Company's long-term debt and $0.5 million used to repurchase the Company's common stock for treasury. The following is a summary of the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) by business unit: Three Months Nine Months Ending March 31, Ending March 31, 1998 1999 1998 1999 (In $000's) EBITDA by Business Unit: Bally Gaming and Systems $ (539) $ 4,777 $ 5,387 $ 2,205 Wall Machines and Amusement Games 6,598 3,178 14,409 7,610 Route Operations 6,364 6,504 18,746 18,217 Casino Operations 5,724 6,106 14,938 16,153 Corporate Administrative Expenses (3,643) (5,177) (11,823) (13,105) Unusual Items - - 2,545 - ------- ------- ------- ------- EBITDA $14,504 $15,388 $44,202 $31,080 ======= ======= ======= ======= 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. In the quarter ended December 31, 1998,, the Company did not meet certain covenants in the credit agreement. The Company and the banks have amended the current and future financial maintenance covenants in the credit agreement effective December 31, 1998 such that the Company is in compliance with such covenants. Customer Financing Management believes that customer financing terms and leasing have become an increasingly important competitive factor for the Bally Gaming 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 up to 43 months. 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, certain 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 October 31,, 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 engaged outside consultants to assist and advise management in its assessment process and received the consultant's final report. The Company has already started to implement their recommendations, such as establishing a centralized project management organization to lead the Company through its Year 2000 efforts. This organization includes dedicated outside resources and internal business representatives. Although management believes that its efforts will be successful and the costs will be immaterial (currently estimated between $400,000 to $500,000) 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. As part of its assessment of current products and services, the Company is currently upgrading all current 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 with the patch by July 1999. The Company is in the final stages of testing version 7.1 of the software, which will be Year 2000 compliant. The Company expects to begin shipping and distributing version 7.1 by June 1999. 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 current products manufactured in the United States and Germany in recent years to determine compliance with Year 2000. The Company is actively evaluating its strategy and legal obligations for any communication to its customers. Management continues to formulate new plans and update existing plans as it progresses in its research and investigation. 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 third quarter 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 responsibility 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 deutschmark as its functional currency. The new Euro currency will replace the deutschmark as well as most other European currencies after a phase in period, which began 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, changing the coin handling tubes inside the machine and modifying the front glass to show Euros instead of deutschmarks. The cost of this conversion to Euro denominations will be borne by the customers. The Company currently has borrowings outstanding on its revolving credit facility, a portion of which has a floating rate of interest tied to the Euro deutschmark 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: General The Company operates through four segments organized by the following 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 and nine months ended March 31, 1998 and 1999: Three Months Ending Nine Months Ending March 31, March 31, 1998 1999 1998 1999 (In $000's) Revenues: Bally Gaming and Systems $ 21,538 $ 38,406 $ 76,160 $ 82,847 Wall Machines and Amusement Games 28,340 24,845 77,132 69,225 Route Operations 37,054 46,037 109,749 128,791 Casino Operations 15,294 16,445 43,870 47,551 ------- ------- ------- ------- Total Revenues $102,226 $125,733 $306,911 $328,414 ======== ======== ======== ======== Operating Income (Loss): Bally Gaming and Systems $(2,504) $3,726 $ 1,021 $ (581) Wall Machines and Amusement Games 5,246 2,234 10,113 4,513 Route Operations 4,309 3,789 12,752 10,226 Casino Operations 5,203 5,524 13,403 14,409 Corporate Administrative Expenses (4,266) (5,595) (12,960) (14,356) ------ ------ ------- ------- Subtotal 7,988 9,678 24,329 14,211 Unusual Items - - 2,545 - ------ ------ ------- ------- Total Operating Income (Loss) $7,988 $9,678 $26,874 $14,211 ====== ====== ======= ======= Three Months Ended March 31, 1998 and 1999 Bally Gaming and Systems For the quarter ended March 31, 1999, Bally Gaming and Systems business unit reported revenues of $38.4 million, a 78% increase compared to revenues of $21.5 million in the prior year quarter. Bally Gaming reported unit sales of approximately 4,450 new gaming machines, an increase of 137% compared to unit sales of approximately 1,900 in the prior year quarter due primarily to an overall increase in market demand and the successful introduction of new products recently licensed in more jurisdictions. By market segment, Bally Gaming's unit sales for the quarter consisted of approximately 750 units to the Nevada and Atlantic City markets, 3,000 units to international markets and 700 units to riverboats, Native American and other domestic markets. Bally Gaming reported revenues from the sale of new gaming machines of $26.3 million, an increase of 168% compared to $9.8 million in the prior year quarter due to higher unit volume and a 12% increase in average selling prices over the prior year quarter. Bally Systems reported revenues of $6.7 million, an increase of 10% compared to revenues of $6.1 million in the prior year quarter. In addition, revenues from recurring revenue sources were $1.7 million, an increase of 55% compared to revenues of $1.1 million in the prior year quarter. For the quarter ended March 31, 1999, gross profit margins increased to 46% from 39% in the prior year quarter. The improvement was due primarily to a change in product mix to higher margin gaming machines, higher revenues from gaming machines that provide recurring revenue to the Company and the impact of higher production at the manufacturing facility. Bally Gaming and Systems reported operating income of $3.7 million compared to an operating loss of $2.5 million in the prior year quarter. The improvement resulted from higher revenues and an improved gross margin percentage, partially offset by higher selling, general and administrative costs, and higher research and development costs. Research and development costs totaled $4.1 million, an increase of 28 percent over the prior year quarter, resulting from the Company's ongoing efforts to expand its new and existing product offerings. Selling, general and administrative expenses increased due to higher marketing costs related to new product launches and the implementation of a product management organization focus. Wall Machines and Amusement Games For the quarter ended March 31, 1999, the Wall Machines and Amusement Games business unit reported revenues of $24.8 million, a decrease of 12% compared to revenues of $28.3 million in the prior year quarter. The revenue decline resulted from a 28 percent decrease in unit shipments of new wall machines, a 12 percent decrease in leased wall machine revenues, discussed below, and a 25 percent decrease in amusement game distribution revenues both due to lower market demand. This was partially offset by a 40 percent increase in the average selling price of new wall machines due primarily to sales of wall machines coupled with a new single-site progressive jackpot system. The foreign currency fluctuation between the dollar and the deutschmark increased revenues and EBITDA by $1.0 million and $0.1 million, respectively, in the quarter ended March 31, 1999. Wall Machines and Amusement Games continued its leasing program whereby new and used wall machines and new and used amusement games 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. Lease revenues decreased as the total number of machines out on lease decreased by 15% between quarters and the average monthly lease rate decreased by 1% due to competitive pricing pressures. For the quarter ended March 31, 1999, gross profit margin decreased to 40% from 43% in the prior year quarter. This decrease was due to the unfavorable impact of lower revenues, a higher volume of trade-ins of used equipment on the sales of new wall machines and lower production at the manufacturing facility. Wall Machines and Amusement Games reported operating income of $2.2 million, compared to $5.2 million in the prior year quarter. The decrease in operating income was primarily due to decreased revenues and higher selling, general and administrative expenses, including a higher provision for doubtful accounts, partially offset by lower depreciation expense resulting from a lower installed base of leased equipment. Route Operations For the quarter ended March 31, 1999, the Route Operations business unit reported revenues of $46.0 million, an increase of 24% compared to revenues of $37.1 million in the prior year quarter. Revenues for the Nevada operations increased 28% as net win per gaming machine per day increased to $60.50 from $55.00 in the prior year quarter, while the average number of gaming machines increased to 7,330 from 6,310 in the prior year quarter primarily resulting from the additional machines added as a result of new locations and taking over the contracts to operate locations previously served by competitors. Revenues continue to be strong in Southern Nevada, particularly in Gamblers Bonus locations. As of March 31, 1999, the Gamblers Bonus product was installed in approximately 2,300 gaming machines at 200 locations statewide or 32% of its installed base of gaming machines. Revenues for the Louisiana operations increased 3%. The revenue improvement was primarily due to an increase in the average gaming machine net win per day of 8% to $85.40 from $79.20 in the prior year quarter, partially offset a decrease in the average number of gaming machines deployed of 4% to 750 machines from 780 machines. For the quarter ended March 31, 1999, cost of revenues increased 26% to $36.2 million compared to $28.8 million in the prior year quarter. As a percentage of revenues, cost of revenues increased to 79% from 78% in the prior year quarter. Nevada route operations cost of revenues increased 29%, and as a percentage of revenues increased to 81% from 80% in the prior year quarter due primarily to the lower margins in Southern Nevada route locations due primarily to an increase in rental and participation payments on gaming machines and reduced margins at new locations. Louisiana operations cost of revenues increased 3%, and as a percentage of revenues remained consistent at 64% between quarters. The Route Operations business unit reported operating income of $3.8 million, a decrease of 12% compared to operating income of $4.3 million in the prior year quarter. The decrease in operating income resulted primarily from higher operating costs, higher selling, general and administrative expenses, primarily increased marketing costs at the Nevada route operations and an increase in depreciation from an increase in the number of gaming machines deployed and amortization of costs incurred in taking over contracts in the prior fiscal year for the Nevada route operations, partially offset by higher revenues. Casino Operations For the quarter ended March 31, 1999, the Casino Operations business unit reported revenues of $16.4 million, an increase of 8% compared to revenues of $15.3 million in the prior year quarter. This increase was a result of a 5% increase at the Rainbow Hotel Casino and a 16% increase at the Rail City Casino. The improvement at the Rainbow Hotel Casino was attributable to an increase in the average gaming machine net win per day of 15% to $172 from $150 in the prior year quarter, partially offset by a 1 percent decrease in the average number of gaming machines and the impact from the removal of 3 table games. The number of gaming machines decreased from the March 1998 quarter as a result of temporarily removing machines as part of an internal remodeling project which will be completed during the September 1999 quarter. The revenue improvement at the Rail City Casino was attributable to an increase in the average gaming machine net win per day of 8% to $65 from $60 in the prior year quarter and an 8% increase in the average number of gaming machines, partially offset by a lower number of table games. For the quarter ended March 31, 1999, the cost of revenues for Casino Operations increased 7% to $6.8 million compared to $6.4 million in the prior year quarter but, as a percentage of revenues, remained stable at 42% between quarters as costs increased proportionally with the increase in revenues. The Casino Operations business unit reported operating income of $5.5 million, an improvement of 6% compared to operating income of $5.2 million in the prior year quarter. Operating income at the Rainbow Hotel Casino increased by 3% to $4.9 million due primarily to the increase in revenues, partially offset by higher selling, general and administrative expenses, primarily higher promotional and marketing costs. Operating income at the Rail City increased by 47% to $0.6 million primarily due to the increase in revenues coupled with stable operating costs and selling, general and administrative expenses as a percentage of revenues. Consolidated Total revenues for the quarter ended March 31, 1999, were $125.7 million, a increase of 23% compared to revenues of $102.2 million in the prior year quarter. The increase is primarily due to the aforementioned increases at the Bally Gaming and Systems, Route Operations and Casino Operations business units, partially offset by a decrease in revenues from the Wall Machines and Amusement Games business unit. Cost of revenues for the quarter ended March 31, 1999, were $78.5 million, an increase of 22% compared to $64.3 million in the prior year quarter. Cost of revenues as a percentage of total revenues improved to 62% from 63% in the prior year quarter. The improvement was primarily due to the decrease in costs as a percentage of revenues at the Bally Gaming and Systems business unit, partially offset by an increase in costs as a percentage of revenues at the Wall Machines and Amusement Games and the Route Operations business units. Selling, general and administrative expenses for the quarter ended March 31, 1999 were approximately $26.9 million, an increase 38% compared to costs of $19.5 million for the prior year quarter. This increase is due to increases in expenses at all of the business units, an increase in Corporate expenses, primarily an increase in payroll and related costs, and an increase in the provision for doubtful accounts. Research and development costs for the quarter ended March 31, 1999 were approximately $4.9 million, an increase of 25% compared to costs of $4.0 million in the prior year quarter. This increase is due to increases in costs at the Bally Gaming and Systems and the Wall Machines and Amusement Games business units. Depreciation and amortization for the quarter ended March 31, 1999 was approximately $5.7 million, a decrease of 12% compared to $6.5 million in the prior year quarter as decreases at the Bally Gaming and Systems and the Wall Machines and Amusement Games business units were partially offset by increases at the Route Operations and Casino Operations business units. Net Interest Expense and Income Taxes Net interest expense in the three months ended March 31, 1999 increased to $8.1 million from $7.3 million in the 1998 quarter. The increase is primarily due to a one time fee associated with amending the credit agreement, coupled with a higher average amount of working capital borrowings in the current quarter, partially offset by lower interest rates. During the quarter, the Company increased its total indebtedness by $8.8 million, primarily due to increased working capital borrowings and the semi-annual payment of interest on its 10 percent subordinated notes. The Company recorded an income tax benefit of $0.2 million in the March 31, 1999 quarter compared to an income tax provision of $1.2 million in the prior year quarter. The current quarter benefit is primarily due to tax losses for the Bally Wulff entities, which will be carried back to the prior year, partially offset by various state income tax provisions. Nine Months Ended March 31, 1998 and 1999 Bally Gaming and Systems For the nine months ended March 31, 1999 the Bally Gaming and Systems business unit reported revenues of $82.8 million, an increase of 9% compared to revenues of $76.2 million in the prior year period. The improvement was primarily due to an increase in System sales, an increase in recurring revenue from proprietary gaming machines and an increase in average selling price of new gaming machines, partially offset by a decrease in unit sales. Bally Gaming reported unit sales of approximately 8,400 new gaming machines, a decrease of 11% compared to unit sales of approximately 9,500 in the prior year period. By market segment, Bally Gaming's unit sales for the period consisted of approximately 1,700 units to the Nevada and Atlantic City markets, 5,300 units to international markets and 1,400 units to riverboats, Native American and other domestic markets. Bally Gaming reported revenues from the sale of new gaming machines of $46.9 million, a decrease of 2% compared to $47.8 million in the prior year quarter due to lower unit volume partially offset by a 9% increase in average selling price of new gaming machines. Bally Systems sales increased to $17.9 million, a 20% increase compared to $14.9 million in the prior year period. In addition, revenues from recurring revenue sources were $4.4 million, an increase of 64% compared to revenues of $2.7 million in the prior year period. For the nine months ended March 31, 1999 gross profit margins improved to 45% from 41% in the prior year period. The improvement was due primarily to a change in product mix to higher margin gaming machines, higher revenues from machines that provide recurring revenue to the Company and the impact of higher production at the manufacturing facility. Bally Gaming and Systems reported an operating loss of $0.6 million, compared to operating income of $1.0 million for the prior year period. The decrease in operating income resulted primarily from, higher selling, general and administrative expenses, primarily higher marketing costs related to new product launches and the implementation of a product management organization focus and higher research and development costs, partially offset by higher revenues and improved gross margins. Wall Machines and Amusement Games For the nine months ended March 31, 1999, the Wall Machines and Amusement Games business unit reported revenues of $69.2 million, a decrease of 10% compared to revenues of $77.1 million in the prior year period. The currency translation impact of the fluctuation of the deutschmark versus the U.S. dollar increased revenues by $2.7 million during the current year period. The revenue decrease resulted primarily from a 28% decrease in unit shipments of new wall machines due to lower market demand, a 9% decrease in leased wall machine revenues due to a lower installed base of leased machines and a 12% decrease in amusement game distribution revenues, partially offset by a 14% increase in the average sales price of new wall machines, due primarily to sales of wall machines coupled with a new single-site progressive jackpot system, and a 9% increase in used wall machine revenues. Wall Machines and Amusement Games continued to develop its leasing program whereby new and used wall machines and new and used amusement games are leased to customers pursuant to operating leases which 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. Lease revenues decreased as the total number of machines out on lease decreased by 15% between periods and the average monthly lease rate decreased by 3% due to competitive pricing pressures. At March 31, 1999 approximately 5,050 machines were out on lease compared to approximately 5,900 machines at March 31, 1998. For the nine months ended March 31, 1999, gross profit margin decreased to 40% from 44% in the prior year period. The decrease in gross margin resulted primarily from higher volume of trade-ins of used equipment on the sale of new wall machines, higher fixed costs per unit due to lower sales volume and by a decrease in higher margin lease revenues. Wall Machines and Amusement Games reported operating income of $4.5 million compared to operating income of $10.1 million in the prior year period. The decrease in operating income resulted primarily from the aforementioned decrease in revenues and lower gross margins. Selling, general and administrative expenses have increased by less than 1% between periods. Route Operations For the nine months ended March 31, 1999, the Route Operations business unit reported revenues of $128.8 million, an increase of 17% compared to revenues of $109.7 million in the prior year period. Nevada route operations revenues increased 20% as net win per gaming machine per day increased 5% to $56.20 from $53.60 in the prior year period and the average number of gaming machines increased 14% to 7,240 from 6,370 in the prior year period. The increase in the average number of gaming machines in Nevada reflects the additional machines added for new locations and taking over the contracts to operate locations previously served by competitors. The improvement in net win per gaming machine per day in Nevada resulted primarily from the continuing favorable impact of Gamblers Bonus, a cardless slot player's club and player tracking system. Louisiana route operations revenues increased 4% as net win per gaming machine per day increased 6% to $80.40 from $76.10 in the prior year period while the average number of gaming machines decreased 1% to 740 machines. For the nine months ended March 31, 1999, Nevada route operations cost of revenues increased 21% and, as a percentage of revenues, increased to 80% from 79% in the prior year period primarily due to an increase in direct costs, principally an increase in rental and participation payments on gaming machines and reduced margins at new locations. Louisiana route operations cost of revenues increased 6% and as a percentage of revenues increased to 65% from 64% in the prior year period due to higher direct costs, principally increased health insurance costs. Route Operations reported operating income of $10.2 million, a decrease of 20% compared to operating income of $12.8 million in the prior year quarter. The decrease in operating income resulted primarily from the increase in operating costs, an increase in selling, general and administrative expenses due to increases in promotions and advertising costs at the Nevada route operations, a higher provision for doubtful receivables, and an increase in depreciation expense as a result of the increase in the number of gaming machines deployed and amortization of costs incurred in taking over contracts in the prior fiscal year for the Nevada route operations, partially offset by the increase in revenues. Casino Operations For the nine months ended March 31, 1999, the Casino Operations business unit reported revenues of $47.6 million, an increase of 8% compared to revenues of $43.9 million in the prior year period. This increase reflects a 9% increase at the Rainbow Hotel Casino and a 6% increase at the Rail City Casino. The improvement at the Rainbow Hotel Casino was attributable to an increase in the average gaming machine net win per day of 4% to $152 from $146 in the prior year quarter coupled with a 2% increase in the average number of gaming machines. The increase in revenues at the Rail City Casino resulted from an increase in the average gaming machine net win per day of 5% to $62 from $59 in the prior year quarter and a 4% increase in the average number of gaming machines, partially offset by lower food and beverage revenues. For the nine months ended March 31, 1999, the cost of revenues for Casino Operations increased 7% to $20.2 million compared to $18.9 million in the prior year period but, as a percentage of revenues, improved to 42% from 43% in the prior year period. Casino Operations reported operating income of $14.4 million, an improvement of 8% compared to operating income of $13.4 million in the prior year period. Operating income at the Rainbow Hotel Casino increased by 5% to $12.9 million due primarily to the increase in revenues, partially offset by higher selling, general and administrative expenses, primarily higher promotional and marketing costs and an increase in depreciation expense. Operating income at the Rail City increased by 38% to $1.5 million primarily due to the increase in revenues and a decrease in selling, general and administrative expenses. Consolidated Total revenues for the nine months ended March 31, 1999, were $328.4 million, an increase of 7% compared to revenues of $306.9 million in the prior year period as the improvements at Bally Gaming and Systems, the Route Operations and Casino Operations business were partially offset by a decrease at the Wall Machines and Amusement Games business unit. Cost of revenues for the nine months ended March 31, 1999, were $208.4 million, an increase of 9% compared to $191.0 million in the prior year period. Cost of revenues as a percentage of total revenues increased to 64% from 62% in the prior year period as the improvements at the Bally Gaming and Systems and Casino Operations business units were more than offset by increases at the Wall Machines and Amusement Games and Route Operations business units. Selling, general and administrative expenses for the nine months ended March 31, 1999 were approximately $75.8 million, an increase of 18% compared to costs of $64.0 million for the prior year quarter. This increase is due to an increase in expenses at all of the business units, an increase in Corporate expenses and a higher provision for doubtful receivables. Research and development costs for the nine months ended March 31, 1999 were approximately $13.1 million, an increase of 28% compared to costs of $10.3 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. Depreciation and amortization for the nine months ended March 31, 1999 was $16.9 million, a 3% decrease compared to depreciation and amortization of $17.3 million in the prior year quarter as increases at the Route Operations and Casino Operations business units more than offset by decreases 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 nine months ended March 31, 1999 increased to $23.1 million compared to the net interest expense of $20.4 million in the prior year period. The increase is due primarily to higher interest costs which resulted from the additional debt taken on in the Refinancing Transaction completed in September 1997, a higher average amount of working capital borrowings in the current period and a one time fee associated with amending the credit agreement in January 1999, partially offset by the elimination of interest on the 12 7/8% Senior Secured Notes and lower interest rates. The Company recorded an income tax benefit of $0.3 million in the nine months ended March 31, 1999 compared to a provision of $2.2 million in the prior year period. The current year benefit is due primarily to tax losses, which will be carried back for the Bally Wulff entities, partially offset by various state income tax provisions. * * * * * 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 6. Exhibits and Reports on Form 8-K a. Exhibits 11 Computation of per share amounts 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule 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 COMPUTATIONS Exhibit 11 Earnings per share computations (In 000's except share data) Three Months ended March 31, 1998 Loss Shares Per share (Numerator) (Denominator) amounts Basic EPS Net loss applicable to common shares $(1,115) 9,155 $(0.12) ====== Effect of Dilutive Securities (a) Stock options Warrants Convertible preferred stock dividends -- ------- ------ Diluted EPS Net loss applicable to common shares with assumed exercises and conversions $(1,115) 9,155 $(0.12) ======= ===== ====== Nine Months ended March 31, 1998 Loss Shares Per share (Numerator) (Denominator) amounts Net loss before extraordinary item $(16,261) 9,130 $(1.77) Less: Special stock dividends and redemption premium on Series B Special Stock (19,710) 9,130 (2.15) Basic EPS Net loss before extraordinary item $(35,971) 9,130 $(3.92) Extraordinary loss (42,033) 9,130 (4.62) ------- ----- Net loss applicable to common shares $(78,004) 9,130 $(8.54) ======== ====== Effect of Dilutive Securities (a) Stock options -- Warrants -- Convertible preferred stock -- ------- ------ Diluted EPS Net loss applicable to common shares with assumed exercises and conversions $(78,004) 9,130 $(8.54) ======== ===== ====== (a) Effect would be anti-dilutive for these periods. cont. Three Months ended March 31, 1999 Loss Shares Per share (Numerator) (Denominator) amounts Basic EPS Income applicable to common shares $761 9,742 $0.08 Effect of Dilutive Securities Stock options 5 Warrants -- Convertible preferred stock dividends -- ----- ------ Diluted EPS Net income applicable to Common Shares with assumed exercises and conversions $761 9,747 $0.08 ==== ===== ===== Nine Months ended March 31, 1999 Loss Shares Per share (Numerator) (Denominator) amounts Basic EPS Loss applicable to shareholders $(12,096) 9,651 $(1.25) Effect of Dilutive Securities (a) Stock options -- Warrants -- Convertible preferred stock dividends -- ------- ------ Diluted EPS Loss applicable to common shares with assumed exercises and conversions $(12,096) 9,651 $(1.25) ======== ===== ====== (a) Effect would be anti-dilutivee for these periods. cont. 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 For the nine months ended March 31, months ended March 31, 1998 1999 1998 1999 (in 000s) Stock options 1,242 N/A 1,242 46 Warrants 642 - 571 - Convertible Preferred Stock - - - - ----- ---- ----- --- 1,884 N/A 1,813 46 ===== ==== ===== === Adjusted for application of the treasury stock method 699 N/A 567 5 ==== ==== ==== === 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-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information excerpted from Form 10-Q for the period ended March 31, 1999. 1,000 9-MOS JUN-30-1999 MAR-31-1999 29,214 0 95,565 12,583 46,529 167,223 142,757 56,249 362,507 53,340 0 0 14,950 3,426 (48,004) 362,507 152,072 328,414 87,360 208,393 104,097 1,713 23,556 (11,149) (307) (10,842) 0 0 0 (12,096) (1.25) (1.25)
EX-27.2 4 RESTATED FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information excerpted from Form 10-Q for the period ended March 31, 1998. 1,000 9-MOS JUN-30-1998 MAR-31-1998 28,658 0 95,582 13,164 39,536 159,273 133,368 50,079 346,568 42,891 0 0 13,348 3,208 (43,643) 346,568 153,292 306,911 87,450 190,950 70,679 1,080 21,030 (14,098) 2,163 (16,261) 0 (42,033) 0 (78,004) (8.54) (8.54)
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