-----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, Htu8BgAiL/6L+s9ASxg9Mfw6lbEldySr8Th4b+0sNfnMZAVowZ2Wodz6xWeDYSSx pqLKk/wnqSRGg0aUqAKQhg== 0000950148-00-001078.txt : 20000516 0000950148-00-001078.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950148-00-001078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633340 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 1 ================================================================================ 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, 2000 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 1, 2000 according to the records of the registrant's registrar and transfer agent was 10,336,272. ================================================================================ 2 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 I N D E X
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Unaudited Financial Statements Unaudited Condensed Consolidated Balance Sheets as of June 30, 1999 and March 31, 2000 3 Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 1999 and 2000 4 Unaudited Condensed Consolidated Statements of Operations for the nine months ended March 31, 1999 and 2000 5 Unaudited Condensed Consolidated Statements of Stockholders' Deficiency for the nine months ended March 31, 2000 6 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 1999 and 2000 7 Notes to Unaudited Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings 35 Item 6. Exhibits and Reports on Form 8-K 35 SIGNATURES 36
2 3 PART 1 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In 000's, except share data)
June 30, Mar. 31, 1999 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 16,930 $ 38,930 Accounts and notes receivable, net of allowance for doubtful accounts of $12,705 and $15,829 92,665 78,307 Inventories, net of reserves of $7,077 and $8,047 46,138 41,425 Other current assets 11,423 11,878 --------- --------- Total current assets 167,156 170,540 --------- --------- Long-term notes receivable, net of allowance for doubtful accounts of $991 and $950 5,782 4,758 Leased equipment, net of accumulated depreciation of $5,111 and $8,033 10,981 13,860 Property, plant and equipment, net of accumulated depreciation of $51,686 and $59,664 74,159 78,461 Excess of costs over net assets of acquired businesses, net of accumulated amortization of $4,604 and $5,847 57,593 55,379 Intangible assets, net of accumulated amortization of $18,351 and $22,515 26,854 23,216 Other assets, net of reserves of $3,468 and $1,883 13,782 13,322 --------- --------- Total assets $ 356,307 $ 359,536 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 17,372 $ 16,210 Accrued liabilities 39,196 35,375 Current maturities of long-term debt 1,927 1,028 --------- --------- Total current liabilities 58,495 52,613 --------- --------- Long-term debt, net 316,779 346,732 Other liabilities 9,458 9,265 --------- --------- Total liabilities 384,732 408,610 --------- --------- Minority interest 1,983 1,409 Commitments and contingencies Stockholders' deficiency: Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 153,802 shares and 46,242 shares issued and outstanding 15,380 4,624 Common Stock, $.10 par value; 50,000,000 shares authorized; 9,791,000 and 10,335,000 shares issued and outstanding 979 1,034 Treasury stock at cost, 85,300 shares and 83,000 shares (522) (508) Additional paid-in capital 129,991 141,130 Accumulated other comprehensive loss (15,986) (20,692) Accumulated deficit (160,250) (176,071) --------- --------- Total stockholders' deficiency (30,408) (50,483) --------- --------- Total liabilities and stockholders' deficiency $ 356,307 $ 359,536 ========= =========
See notes to unaudited condensed consolidated financial statements. 3 4 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In 000's, except per share data)
Three Months Ended March 31, 1999 2000 ---------- ----------- Revenues: Gaming equipment and systems $ 38,406 $ 25,972 Wall machines and amusement games 24,845 18,668 Route operations 46,037 53,476 Casino operations 16,445 19,428 --------- --------- 125,773 117,544 --------- --------- Costs and expenses: Cost of gaming equipment and systems 20,564 14,145 Cost of wall machines and amusement games 14,820 12,387 Cost of route operations 36,223 42,441 Cost of casino operations 6,845 7,254 Selling, general and administrative 26,944 28,466 Research and development 4,949 3,390 Depreciation and amortization 5,710 6,767 Unusual items, net -- 1,638 --------- --------- 116,055 116,488 --------- --------- Operating income 9,678 1,056 Other income (expense): Interest income 47 86 Interest expense (8,151) (8,856) Minority interest (555) (650) Other, net (74) (503) --------- --------- Income (loss) before income taxes 945 (8,867) Income tax benefit (provision) 246 (223) --------- --------- Net income (loss) 1,191 (9,090) Special Stock dividends (430) -- --------- --------- Net income (loss) applicable to common shares $ 761 $ (9,090) ========= ========= Basic and diluted income (loss) per share: $ 0.08 $ (0.89) ========= ========= Weighted average common shares outstanding 9,742 10,253 ========= ========= Weighted average common and common share equivalents outstanding 9,747 10,253 ========= =========
See notes to unaudited condensed consolidated financial statements. 4 5 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In 000's, except per share data)
Nine Months Ended March 31, 1999 2000 ---------- ---------- Revenues: Gaming equipment and systems $ 82,847 $ 96,347 Wall machines and amusement games 69,225 52,886 Route operations 128,791 147,768 Casino operations 47,551 52,232 --------- --------- 328,414 349,233 --------- --------- Costs and expenses: Cost of gaming equipment and systems 45,798 54,131 Cost of wall machines and amusement games 41,562 33,498 Cost of route operations 100,868 117,096 Cost of casino operations 20,165 20,435 Selling, general and administrative 75,847 78,752 Research and development 13,094 11,467 Depreciation and amortization 16,869 19,792 Unusual items,net -- 2,164 --------- --------- 314,203 337,335 --------- --------- Operating income 14,211 11,898 Other income (expense): Interest income 420 312 Interest expense (23,556) (25,348) Minority interest (1,603) (1,577) Other, net (621) (628) --------- --------- Loss before income taxes (11,149) (15,343) Income tax (provision) benefit 307 (478) --------- --------- Net loss (10,842) (15,821) Special Stock dividends (1,254) -- --------- --------- Net loss applicable to common shares $ (12,096) $ (15,821) ========= ========= Basic and diluted loss per share: $ (1.25) $ (1.55) ========= ========= Weighted average common shares outstanding 9,651 10,221 ========= ========= Weighted average common and common share equivalents outstanding 9,651 10,221 ========= =========
See notes to unaudited condensed consolidated financial statements. 5 6 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY Nine Months Ended March 31, 2000 (In 000's)
Total Accumulated Stock- Common Stock Series E Additional Other holders' ----------------- Special Treasury Paid-in Comprehensive Accum. Equity Shares Dollars Stock Stock Capital Loss Deficit (Deficiency) ------ ------- -------- -------- ---------- ------------- ---------- ------------ Balances at June 30, 1999 9,791 $ 979 $ 15,380 $(522) $ 129,991 $(15,986) $(160,250) $(30,408) Net loss -- -- -- -- -- -- (15,821) (15,821) Treasury shares issued upon exercise of options -- -- -- 14 (4) -- -- 10 Special Stock dividends -- -- 442 -- -- -- -- 442 Shares issued upon conversion of Special Stock 544 55 (11,198) -- 11,143 -- -- -- Foreign currency translation adjustment -- -- -- -- -- (4,706) -- (4,706) ------ ------ -------- ----- --------- -------- --------- -------- Balances at March 31, 2000 10,335 $1,034 $ 4,624 $(508) $ 141,130 $(20,692) $(176,071) $(50,483) ====== ====== ======== ===== ========= ======== ========= ========
See notes to unaudited condensed consolidated financial statements. 6 7 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In 000's)
Nine Months Ended March 31, 1999 2000 ----------- ---------- Cash flows from operating activities: Net loss $(10,842) $(15,821) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 16,869 19,792 Amortization of debt discounts 39 40 Write down of other assets 765 660 (Gain) loss on sale of assets 117 (4,067) Provision for losses on doubtful receivables 1,713 4,708 Other (211) (263) Net change in operating assets and liabilities: Accounts and notes receivable 9,743 7,266 Inventories (9,254) (7,829) Other current assets 2,540 (619) Accounts payable 5,239 (973) Accrued liabilities (2,760) (4,131) -------- -------- Net cash provided by (used in) operating activities 13,958 (1,277) Cash flows from investing activities: Additions to property, plant and equipment (7,909) (11,956) Proceeds from disposal of property and equipment and other assets 141 4,090 Proceeds from sale/leaseback transaction -- 3,169 Additions to other long term assets (4,218) (2,696) -------- -------- Net cash used in investing activities (11,986) (7,393) Cash flows from financing activities: Reduction of long-term debt (4,696) (3,550) Net change in lines of credit 4,200 34,460 Proceeds from exercise of stock options and warrants 4,778 10 Repurchase of common stock for treasury (522) -- -------- -------- Net cash provided by financing activities 3,760 30,920 Effect of exchange rate changes on cash (5) (250) Cash and cash equivalents: Increase for period 5,727 22,000 Balance, beginning of period 23,487 16,930 -------- -------- Balance, end of period $ 29,214 $ 38,930 ======== ========
See notes to unaudited condensed consolidated financial statements. 7 8 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 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, 1999. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements at June 30, 1999 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. INVENTORIES Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Cost elements included for work-in-process and finished goods include raw materials, freight, direct labor and manufacturing overhead. Inventories, net of reserves, consist of the following at June 30, 1999 and March 31, 2000:
June 30, Mar. 31, 1999 2000 -------- -------- (in 000's) Raw materials $16,676 $17,564 Work-in-process 2,057 1,144 Finished goods 27,405 22,717 ------- ------- Total inventories $46,138 $41,425 ======= =======
8 9 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 3. DEBT, LINES OF CREDIT Long-term debt consists of the following:
June 30, Mar. 31, 1999 2000 -------- -------- (in 000's) 10% Senior Subordinated Notes due 2007, net of unamortized discount of $702 and $663 $149,298 $149,337 Term loan facilities: Tranche B Term Loan 72,380 70,708 Tranche C Term Loan 38,744 37,822 Delayed Draw Term Facility 24,372 23,811 Revolving Credit Facility 32,200 64,862 Other, secured by related equipment 1,712 1,219 -------- -------- 318,706 347,760 Less current maturities 1,927 1,028 -------- -------- Long-term debt, less current maturities $316,779 $346,732 ======== ========
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 10% 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 $80 million revolving credit facility (the "Revolving Credit Facility", as later amended) 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 + 4.25% January 31, 2005 Tranche C Term Loan LIBOR + 4.50% July 31, 2005 Delayed Draw Term Facility LIBOR + 4.25% January 31, 2005 Revolving Credit Facility LIBOR + 3.75% July 31, 2003
The Revolving Credit Facility also allows for German Deutschemark borrowings at the euro deutschmark rate plus 3.75% (or 7.7% at March 31, 2000). In an amendment to the bank credit agreement in October 1999, the Company has agreed to keep the interest rate at the highest level of the credit grid through December 31, 2000. As is more fully described below, in amendments to the credit agreement in April 2000 (the "Fifth and Sixth Amendments") the Company agreed to increase the interest rates in the Term Loan Facilities and Revolving Credit Facility by 1.0%, which has been reflected in the preceding table. 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 Senior Subordinated Note 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 9 10 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 acquisitions, repurchase equity interests or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries, engage in mergers or acquisitions, or engage in certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities. To facilitate the disposition of certain assets, in October 1999 the Company obtained an amendment (the "Third Amendment") to its bank credit agreement. The Third Amendment provides the lenders' consent for the sale of certain businesses at specified minimum prices by December 31, 2000 and provides other financial flexibility to the Company. The Third Amendment also provides that if the Company should elect to sell any of these businesses, any restructuring charges that may be incurred as a result of the sales may be excluded from the determination of EBITDA used in the calculation of the various financial covenant ratios. In addition, the Third Amendment provides that any restructuring charges that may be incurred at Bally Gaming and Systems (up to $1.5 million) may be excluded from the determination of EBITDA used in the calculation of the various financial covenant ratios. The Fifth and Sixth Amendments to the credit agreement allow the Company to obtain third party financing for gaming devices used in the Bally Gaming and Systems gaming operations, waive compliance with certain financial ratio covenants through September 30, 2000, and provide that if the Company should writedown any goodwill intangible assets, such charges would be excluded from the computation of EBITDA. The Fifth and Sixth Amendments also reduced the maximum amount of the Revolving Credit Facility to $80.0 million from $90.0 million. The Company continues to expand the Bally Gaming and Systems gaming operations, and future growth will likely be financed with a combination of traditional financing and leases as allowed for in these amendments. The Company continues to evaluate the recoverability of the goodwill based on current and forecasted cash flows from the businesses that have goodwill recorded, and future write-downs of goodwill, if any, will not impact the definition of EBITDA used in the calculation of the financial covenant ratios. The Company incurred a fee of $0.5 million in connection with the Fifth and Sixth Amendments, which is included in interest expense in the March 2000 quarter. The 10% Senior Subordinated Notes 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 an occurrence of a Change of Control (as defined), the holders of the Senior Subordinated Notes would 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 such purchase. 10 11 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 4. INCOME TAXES The Company's effective tax rate for the three and nine months ended March 31, 1999 and 2000 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, no tax benefit has been recorded for net losses generated by the Company's domestic subsidiaries. 5. SUPPLEMENTAL CASH FLOW INFORMATION The following supplemental information is related to the unaudited condensed consolidated statements of cash flows.
Nine months ended March 31, 1999 2000 ------ ------- (In 000's) Non-cash transactions: Reclassify other assets to property, plant and equipment $ 306 $ 242 Dividends for Series E Special Stock 1,254 442 Reclassify inventory to equipment 5,133 11,196 Translation rate adjustment 747 4,456 Conversion of Series E Special Stock into common shares -- 11,198 Deferred gain on sale/leaseback transaction -- 1,546
6. 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 BGII and approximately 45 other defendants. Each defendant is involved in the gaming business as either 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' 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. On July 20, 1999, Bally Gaming, Inc., sued International Game Technology in the United States District Court for the District of New Jersey. The suit alleged that provisions in IGT's contracts with Atlantic City casinos barred the casinos from acquiring progressive systems from IGT's competitors, thereby preserving IGT's monopoly in the lucrative Atlantic City progressive market, violating federal and state antitrust laws and common law policies against unfair competition and restraints of trade, and frustrating Bally's efforts to launch its Trillions wide-area progressive system in Atlantic City. The lawsuit sought declaratory and injunctive relief, compensatory damages, 11 12 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 and other relief. The parties entered into a settlement pursuant to which IGT has notified its Atlantic City customers that it will not enforce the challenged contract provisions, and Bally dismissed the suit. On August 30, 1999, Cardivan Company, a subsidiary of Jackpot Enterprises, Inc., filed an action in federal court in Nevada against Raley's and Albertson's, Inc., in which Cardivan sought to forestall the loss of its slot machine operations at fifteen Albertson's grocery stores in the Las Vegas area after Albertson's, Cardivan's customer, sold the stores to Raley's, with whom Alliance subsidiary United Coin Machine Co. has an exclusive contract. The federal court granted a preliminary injunction allowing Cardivan to continue operating machines at Raley's before trial. The federal court granted Anchor Gaming's motion to intervene and extended the preliminary injunction to prohibit Raley's from removing Anchor's slot machines at four other stores that Albertson's sold to Raley's. After the court denied United Coin's motion to intervene, United Coin appealed to the Ninth Circuit Court of Appeals and filed a state action against Cardivan and Anchor for interference with contractual relations and Albertson's and Raley's for breach of contract. In January 2000, the parties settled all claims. Under the terms of the settlement agreement, United Coin began operating 305 gaming machines in 19 Raley's stores on February 1, 2000. Under its contract with Raley's, United Coin will operate these gaming machines, the machines at Raley's stores in Northern Nevada and machines at any new Raley's stores throughout Nevada until June 30, 2008. As part of the settlement, United Coin received cash and other consideration. 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. 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 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, 1999 and 2000, total comprehensive loss amounted to $10.1 million and $20.5 million respectively. 8. 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. Under the plan, subject to price and market conditions, purchases of shares will be made from time to time during calendar 1999 in the open market or in privately negotiated transactions. As of March 31, 2000, the Company had approximately 83,000 shares of common stock in treasury at a cost of $508,000. The Company intends to use the acquired common stock to satisfy obligations pursuant to the exercise of stock options under the Company's stock option plans. 12 13 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 9. 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 at that time 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 received 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 these financial statements have been restated to reflect the reverse split. 10. EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing income (loss) applicable to common shares (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of Diluted EPS is similar to Basic EPS, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. Stock options and warrants are reflected in Diluted EPS by application of the "Treasury Stock Method" which reduces the dilutive effect by assuming that any proceeds from the exercise of the options and warrants would be used to purchase common shares at the average market price during the period. Series E Special Stock is reflected in Diluted EPS by application of the "If-Converted Method" which assumes full conversion at the beginning of the period. The computation of Basic and Diluted EPS is as follows:
Three months ended Nine months ended March 31, March 31, -------------------- ----------------------- 1999 2000 1999 2000 ------ -------- -------- -------- (In 000's except share data) Net income (loss) applicable to common shares $ 761 $ (9,090) $(12,096) $(15,821) Wt. average common shares outstanding 9,742 10,253 9,651 10,221 Dilutive effect of stock options outstanding 5 -- -- -- Wt. average common and potential shares Outstanding 9,747 10,253 9,651 10,221 Basic and diluted earnings (loss) per share $ 0.08 $ (0.89) $ (1.25) $ (1.55)
Stock options, warrants and convertible preferred stock outstanding which were potentially convertible into approximately 2.6 million common shares as of March 31, 2000 were not included in the computation of Diluted EPS because either (i) the exercise price was greater than the average market price of the common shares during the period or (ii) the contingent issue price was greater that the market price of the common shares at the end of the period. 13 14 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 11. SPECIAL ITEMS During the quarter ended March 31, 2000, the Company incurred unusual items of $3.6 million. The gross unusual charges for restructuring and related costs totaled $6.6 million. The restructuring and related costs were incurred pursuant to a plan adopted by the Company for additional staff reductions at the Bally Gaming and Systems and Wall Machine and Amusement Games business units, and for the costs of closing two unprofitable foreign sales offices. Included in the restructure costs described above is a $1.9 million charge for a valuation reserve for certain inventory for the Australian market, which is included in the cost of gaming equipment and systems in the accompanying Condensed Consolidated Statement of Operations. These charges were partially offset by a $3.0 million gain on the sale of certain gaming management and development rights with the Ewaaiipaayp Tribe. During the quarter ended March 31, 2000, the Company incurred a fee of $0.5 million related to the amendments to the bank credit agreement. This amount is included in interest expense in the accompanying Condensed Consolidated Statement of Operations. During the quarter ended December 31, 1999, the Company incurred unusual items of $0.5 million, which consists of $1.5 million of restructuring and related charges at its Bally Gaming and Systems and Wall Machine and Amusement Games business units, partially offset by a $1.0 million gain on a release of an option the Company had to operate gaming machines at a dormant dog racing track in Kansas. The Company also incurred a charge of $0.5 million in the quarter ended December 31, 1999 related to an amendment to the bank credit agreement, which is also included in interest expense in the accompanying Condensed Consolidated Statement of Operations. 12. SEGMENT AND GEOGRAPHICAL INFORMATION The Company operates in four business segments: (i) Gaming Equipment and Systems designs, manufactures and distributes gaming machines and computerized monitoring systems for gaming machines, (ii) Wall Machines and Amusement Games designs, manufactures and distributes wall-mounted gaming machines and distributes third party manufactured amusement games, (iii) Route Operations owns and manages a significant installed base of gaming machines, and (iv) Casino Operations owns and operates two casinos. Operating income is the primary measure used in assessing segment performance. Corporate office costs are generally not allocated except where those costs can be specifically identified with a segment. 14 15 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 The table below presents information as to the Company's revenues and operating income:
Nine Months Ended March 31, 1999 2000 ---------- ---------- (In $000's) Revenues: Gaming equipment and systems $ 82,847 $ 96,347 Wall machines and amusement games 69,225 52,886 Route operations 128,791 147,768 Casino operations 47,551 52,232 --------- --------- Total revenues $ 328,414 $ 349,233 ========= ========= Intersegment revenues: Gaming equipment and systems $ 532 $ 1,293 Wall machines and amusement games 53 47 Route operations -- -- Casino operations -- -- --------- --------- Total intersegment revenues $ 585 $ 1,340 ========= ========= Operating income (loss): Gaming equipment and systems $ (581) $ 1,670 Wall machines and amusement games 4,513 (2,612) Route operations 10,226 11,245 Casino operations 14,409 17,744 Corporate and unusual items (14,356) (16,149) --------- --------- Total operating income $ 14,211 $ 11,898 ========= =========
The Company has operations based primarily in the United States and Germany. The German operation's customers are a diverse group of operators of wall machines and amusement games at arcades, hotels, restaurants and taverns, primarily in Germany. Gaming Equipment and Systems' customers are primarily casinos and gaming machine distributors in the United States and abroad. Receivables of the German operations and Gaming Equipment and Systems are generally collateralized by the related equipment. The table below presents information as to the Company's revenues and operating income by geographic region:
Nine Months Ended March 31, 1999 2000 --------- ---------- (In $000's) Revenues: United States $ 250,668 $ 279,311 Germany 76,801 59,908 Other foreign 945 10,014 --------- --------- Total revenues $ 328,414 $ 349,233 ========= ========= Operating income (loss): United States $ 11,315 $ 22,700 Germany 3,865 (4,920) Other foreign (969) (5,882) --------- --------- Total operating income $ 14,211 $ 11,898 ========= =========
15 16 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1999 AND 2000 13. 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. 16 17 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING BALANCE SHEETS June 30, 1999 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries ------------ ------------ --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 5,240 $ 11,690 $ $ 16,930 Accounts and notes receivable, net 45,498 51,842 (4,675) 92,665 Inventories, net 30,269 16,398 (529) 46,138 Other current assets 8,496 2,927 11,423 --------- --------- --------- --------- Total current assets 89,503 82,857 (5,204) 167,156 --------- --------- --------- --------- Long-term notes receivable, net 99,961 1,797 (95,976) 5,782 Leased equipment, net 3,923 7,058 10,981 Property, plant and equipment, net 41,781 32,378 74,159 Excess of costs over net assets of acquired businesses, net 38,904 18,689 57,593 Intangible assets, net 26,448 406 26,854 Investments in subsidiaries 86,993 (86,993) Other assets, net 27,890 (9,915) (4,193) 13,782 --------- --------- --------- --------- $ 415,403 $ 133,270 $(192,366) $ 356,307 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 14,706 $ 2,689 $ $ 17,372 Accrued liabilities 26,771 13,915 (1,321) 39,196 Current maturities of long-term debt 6,175 3,299 (7,547) 1,927 --------- --------- --------- --------- Total current liabilities 47,652 19,903 (8,868) 58,495 --------- --------- --------- --------- Term loan facilities 134,096 134,096 Senior Subordinated Notes due 2007, net 149,298 149,298 Other long-term debt, less current maturities 104,826 24,379 (95,820) 33,385 Other liabilities 7,370 2,330 (242) 9,458 --------- --------- --------- --------- Total liabilities 443,242 46,612 (104,930) 384,732 --------- --------- --------- --------- Minority interest 1,983 1,983 Commitments and contingencies Stockholders' equity (deficiency): Series E Special Stock 15,380 15,380 Common Stock 979 17,832 (17,832) 979 Treasury stock (522) (522) Additional paid-in capital 129,991 68,700 (68,700) 129,991 Accumulated other comprehensive loss (15,981) (16,007) 16,002 (15,986) Retained earnings (accumulated deficit) (159,477) 16,133 (16,906) (160,250) --------- --------- --------- --------- Total stockholders' equity (deficiency) (29,630) 86,658 (87,436) (30,408) --------- --------- --------- --------- $ 415,403 $ 133,270 $(192,366) $ 356,307 ========= ========= ========= =========
See accompanying unaudited note. 17 18 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING BALANCE SHEETS March 31, 2000 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 27,473 $ 11,457 $ -- $ 38,930 Accounts and notes receivable, net 38,032 43,041 (2,766) 78,307 Inventories, net 26,313 15,676 (564) 41,425 Other current assets 8,959 2,919 -- 11,878 --------- --------- --------- --------- Total current assets 100,777 73,093 (3,330) 170,540 --------- --------- --------- --------- Long-term notes receivable, net 103,892 955 (100,089) 4,758 Leased equipment, net 6,405 7,455 -- 13,860 Property, plant and equipment, net 43,337 35,124 -- 78,461 Excess of costs over net assets of acquired businesses, net 38,111 17,268 -- 55,379 Intangible assets, net 22,902 314 -- 23,216 Investment in subsidiaries 68,335 -- (68,335) -- Other assets, net 35,274 (15,594) (6,358) 13,322 --------- --------- --------- --------- $ 419,033 $ 118,615 $(178,112) $ 359,536 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 13,244 $ 2,966 $ -- $ 16,210 Accrued liabilities 21,051 15,213 (889) 35,375 Current maturities of long-term debt 4,637 3,429 (7,038) 1,028 --------- --------- --------- --------- Total current liabilities 38,932 21,608 (7,927) 52,613 --------- --------- --------- --------- Term loan facilities 131,802 -- -- 131,802 Senior Subordinated Notes due 2007, net 149,337 -- -- 149,337 Other long-term debt, less current maturities 140,805 24,810 (100,022) 65,593 Other liabilities 7,231 2,194 (160) 9,265 --------- --------- --------- --------- Total liabilities 468,107 48,612 (108,109) 408,610 --------- --------- --------- --------- Minority interest 1,409 -- -- 1,409 Commitments and contingencies Stockholders' equity (deficiency): Series E Special Stock 4,624 -- -- 4,624 Common Stock 1,034 17,832 (17,832) 1,034 Treasury stock (508) -- -- (508) Additional paid-in capital 141,130 7,862 (7,862) 141,130 Accumulated other comprehensive income (20,692) (20,850) 20,850 (20,692) Retained earnings (accumulated deficit) (176,071) 65,159 (65,159) (176,071) --------- --------- --------- --------- Total stockholders' equity (deficiency) (50,483) 70,003 (70,003) (50,483) --------- --------- --------- --------- $ 419,033 $ 118,615 $(178,112) $ 359,536 ========= ========= ========= =========
See accompanying unaudited note. 18 19 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 $ 38,472 $ 2,893 $ (2,959) $ 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 -------- -------- --------- --------- 82,511 46,181 (2,959) 125,733 Costs and expenses: Cost of gaming equipment and systems 21,061 2,462 (2,959) 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 16,769 10,175 -- 26,944 Research and development 4,142 807 -- 4,949 Depreciation and amortization 3,920 1,790 -- 5,710 -------- -------- --------- --------- 80,622 38,392 (2,959) 116,055 Operating income (loss) 1,889 7,789 9,678 Earnings in consolidated subsidiaries 5,679 -- (5,679) -- 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 159 (223) -- (74) -------- -------- --------- --------- Income (loss) before income taxes 867 5,757 (5,679) 945 Income tax benefit 324 (78) -- 246 -------- -------- --------- --------- Net income (loss) 1,191 5,679 (5,679) 1,191 Special Stock dividends (430) -- -- (430) -------- -------- --------- --------- Net income (loss) applicable to common shares $ 761 $ 5,679 $ (5,679) $ 761 ======== ======== ========= =========
See accompanying unaudited note. 19 20 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended March 31, 2000 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Revenues: Gaming equipment and systems $ 26,375 $ 3,451 $ (3,854) $ 25,972 Wall machines and amusement games -- 18,668 -- 18,668 Route operations 48,409 5,067 -- 53,476 Casino operations 4,589 14,839 -- 19,428 -------- -------- --------- --------- 79,373 42,025 (3,854) 117,544 Costs and expenses: Cost of gaming equipment and systems 13,469 4,530 (3,854) 14,145 Cost of wall machines and amusement games -- 12,387 -- 12,387 Cost of route operations 39,121 3,320 -- 42,441 Cost of casino operations 2,226 5,028 -- 7,254 Selling, general and administrative 16,879 11,587 -- 28,466 Research and development 2,697 693 -- 3,390 Depreciation and amortization 4,568 2,199 -- 6,767 Unusual items (1,727) 3,365 -- 1,638 -------- -------- --------- --------- 77,233 43,109 (3,854) 116,488 -------- -------- --------- --------- Operating income (loss) 2,140 (1,084) -- 1,056 Earnings (losses) in consolidated subsidiaries (4,327) -- 4,327 -- Other income (expense): Interest income 129 62 (105) 86 Interest expense (8,475) (486) 105 (8,856) Rainbow royalty 1,739 (1,739) -- -- Minority interest (650) -- -- (650) Other, net 221 (724) -- (503) -------- -------- --------- --------- Loss before income taxes (9,223) (3,971) 4,327 (8,867) Income tax benefit (provision) 133 (356) -- (223) -------- -------- --------- --------- Net Loss applicable to common shares $ (9,090) $ (4,327) $ 4,327 $ (9,090) ======== ======== ========= =========
See accompanying unaudited note. 20 21 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 $ 77,691 $ 12,209 $ (7,053) $ 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 --------- --------- --------- --------- 200,849 134,629 (7,064) 328,414 --------- --------- --------- --------- Costs and expenses: Cost of gaming equipment and systems 42,940 9,911 (7,053) 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 44,417 31,430 -- 75,847 Research and development 10,731 2,363 -- 13,094 Depreciation and amortization 11,328 5,541 -- 16,869 --------- --------- --------- --------- 206,018 115,249 (7,064) 314,203 --------- --------- --------- --------- Operating income (loss) (5,169) 19,380 -- 14,211 Earnings in consolidated subsidiaries 12,983 -- (12,983) -- 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 93 (714) (621) --------- --------- --------- --------- Income (loss) before income taxes (11,587) 13,421 (12,983) (11,149) Income tax benefit (provision) 745 (438) -- 307 --------- --------- --------- --------- Net income (loss) (10,842) 12,983 (12,983) (10,842) Special Stock dividends (1,254) -- -- (1,254) --------- --------- --------- --------- Net income (loss) applicable to common shares $ (12,096) $ 12,983 $ (12,983) $ (12,096) ========= ========= ========= =========
See accompanying unaudited note. 21 22 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended March 31, 2000 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ Revenues: Gaming equipment and systems $ 95,223 $ 17,038 $ (15,914) $ 96,347 Wall machines and amusement games -- 52,886 -- 52,886 Route operations 133,130 14,638 -- 147,768 Casino operations 13,082 39,150 -- 52,232 --------- --------- --------- --------- 241,435 123,712 (15,914) 349,233 Costs and expenses: Cost of gaming equipment and systems 54,328 15,717 (15,914) 54,131 Cost of wall machines and amusement games -- 33,498 -- 33,498 Cost of route operations 107,637 9,459 -- 117,096 Cost of casino operations 6,541 13,894 -- 20,435 Selling, general and administrative 47,127 31,625 -- 78,752 Research and development 9,462 2,005 -- 11,467 Depreciation and amortization 13,481 6,311 -- 19,792 Unusual items (1,892) 4,056 -- 2,164 --------- --------- --------- --------- 236,684 116,565 (15,914) 337,335 --------- --------- --------- --------- Operating income 4,751 7,147 -- 11,898 Earnings (losses) in consolidated subsidiaries (915) -- 915 Other income (expense): Interest income 397 268 (353) 312 Interest expense (24,288) (1,413) 353 (25,348) Rainbow royalty 4,586 (4,586) -- -- Minority interest (1,577) -- -- (1,577) Other, net 601 (1,229) -- (628) --------- --------- --------- --------- Income (loss) before income taxes (16,445) 187 915 (15,343) Income tax benefit (provision) 624 (1,102) -- (478) --------- --------- --------- --------- Net Loss applicable to common shares $ (15,821) $ (915) $ 915 $ (15,821) ========= ========= ========= =========
See accompanying unaudited note. 22 23 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 ------------ ------------ -------- ------------ 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: Increase (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. 23 24 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 2000 (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 $(11,236) $ 12,019 $ (2,060) $ (1,277) -------- -------- -------- -------- Cash flows from investing activities: Additions to property and equipment (6,733) (5,223) (11,956) Proceeds from disposal of property and equipment and other assets 4,047 43 4,090 Proceeds from sale/leaseback transaction 3,169 3,169 Additions to other long term assets (2,661) (35) (2,696) -------- -------- -------- -------- Net cash used in investing activities (2,178 (5,215) (7,393) -------- -------- -------- -------- Cash flows from financing activities: Reduction of long-term debt (3,154) (2,456) 2,060 (3,550) Net change in lines of credit 29,550 4,910 34,460 Proceeds from exercise of stock options and warrants 10 10 Dividends received (paid) 9,241 (9,241) -------- -------- -------- -------- Net cash provided by (used in) financing activities 35,647 (6,787) 2,060 30,920 -------- -------- -------- -------- Effect of exchange rate changes on cash (250) (250) Cash and cash equivalents: Increase (decrease) for period 22,233 (233) 22,000 Balance, beginning of period 5,240 11,690 -- 16,930 -------- -------- -------- -------- Balance, end of period $ 27,473 $ 11,457 $ $ 38,930 ======== ======== ======== ========
See accompanying unaudited note. 24 25 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DEBT AND LINES OF CREDIT Long-term debt and lines of credit at June 30, 1999 consisted of the following :
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries ------------ ------------ --------- ------------ (in 000's) 10% Senior Subordinated Notes due 2007, net of unamortized discount $149,298 $ $ $149,298 Term loan facilities: Tranche B Term Loan 72,380 72,380 Tranche C Term Loan 38,744 38,744 Delayed Draw Term Facility 24,372 24,372 Revolving Credit Facility 12,900 19,300 32,200 Intercompany notes payable 96,701 6,666 (103,367) Other 1,712 1,712 -------- --------- --------- -------- 394,395 27,678 (103,367) 318,706 Less current maturities 6,175 3,299 (7,547) 1,927 -------- --------- --------- -------- Long-term debt, less current maturities $388,220 $ 24,379 $ (95,820) $316,779 ======== ========= ========= ========
Long-term debt and lines of credit at March 31, 2000 consisted 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 $149,337 $149,337 Term loan facilities: Tranche B Term Loan 70,708 70,708 Tranche C Term Loan 37,822 37,822 Delayed Draw Term Facility 23,811 23,811 Revolving Credit Facility 42,450 22,412 64,862 Intercompany notes payable 102,483 4,606 (107,089) Other -- 1,219 1,219 -------- --------- --------- -------- 426,612 28,237 (107,089) 347,760 Less current maturities 6,732 3,428 9,132 1,028 -------- --------- --------- -------- Long-term debt, less current maturities $419,880 $ 24,808 $ (97,956) $346,732 ======== ========= ========= ========
25 26 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, based on the terms of the amended $80.0 million revolving credit facility, the Company would have been able to borrow $65.7 million under the facility, of which the Company had borrowings of approximately $64.9 million outstanding. As of May 10, 2000, the unborrowed availability on the revolving credit facility was approximately $3.3 million. The borrowing base for the revolving credit facility consists of eligible receivables and inventory, as defined in the credit agreement. At March 31, 2000, the Company had $38.9 million in cash and cash equivalents and $0.8 million in unborrowed availability on its revolving credit facility. Consolidated cash and cash equivalents at March 31, 2000 includes approximately $21.3 million of cash and cash equivalents which is utilized in casino and route operations and 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. Consistent with the Company's plan to expand the proprietary gaming operations of its Bally Gaming and Systems business unit, the Company has increased its investment in leased gaming equipment during the nine months ended March 31, 2000. The Company will continue the roll out, and thus increase its investment in, these proprietary games and wide area progressive games in the future. At March 31, 2000, due in part to the lower level of revenues from Bally Gaming and Systems and increased collections on accounts receivable, the borrowing base for the Company's revolving line of credit had declined by $9.7 million from June 30, 1999 to March 31, 2000. The Company is actively managing its working capital and other assets. As part of the these efforts, during the nine months ended March 31, 2000 the Company received $1.0 million for the release of an option it held to operate gaming machines at a dormant dog racing track in Kansas, sold certain gaming management and development rights for $3.0 million plus $7.0 million in future contingent consideration, and entered into sale and leaseback transactions for $3.2 million for gaming machines deployed in its Nevada Route Operation. As part of this plan, similar dispositions of other assets are likely to continue. Additionally, the Fifth Amendment to the bank credit agreement allows the Company to obtain third party financing for up to $15 million for is proprietary gaming operations of Bally Gaming and Systems. This financing may be in the form of traditional secured borrowings or lease type financing. While management believes that cash flow from operating activities, cash and cash equivalents held and the remaining borrowing availability under the revolving credit facility will provide the Company with sufficient capital resources and liquidity for ongoing operating needs, it will continue to actively manage its working capital by more timely collecting on accounts receivable, reducing levels of raw material and finished goods inventories and obtaining extended payment terms with certain vendors. At March 31, 2000 the Company did not have any significant commitments for capital expenditures. The Company continues to pursue the sale of the Nevada Route Operations. Pursuant to the Third Amendment to the bank credit agreement, the Company is required to enter into a letter of intent for the sale of the Nevada Route Operations by June 30, 2000 and to complete such a sale by December 31, 2000, and certain minimum proceeds realized from a sale are required to be utilized to reduce the bank debt. While the Company continues to pursue such a sale, no assurance can be given that such a sale will occur within this time frame. 26 27 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 WORKING CAPITAL During the nine months ended March 31, 2000, working capital increased $9.2 million to $117.9 million. The primary fluctuations in working capital were an increase in cash and cash equivalents due to cash received from reductions in accounts receivable and inventory and additional borrowings on the revolving credit facility, offset by reductions in accounts payable and accrued liabilities. CASH FLOWS During the nine months ended March 31, 2000, the Company used $1.3 million of cash in operating activities resulting from the net loss, adding back non-cash charges such as depreciation and provision for losses on doubtful receivables, and changes in other current assets and liabilities. During the nine months ended March 31, 2000, the Company used $7.4 million of cash in investing activities resulting primarily from approximately $12.0 million in capital expenditures and $2.7 million in additions to other long-term assets, partially offset by the cash proceeds of $1.0 million from the release of an option the Company had to operate gaming machines at a dormant dog racing track in Kansas and cash proceeds of $3.0 million from the sale of certain gaming development and management rights and proceeds of $3.2 million from certain sale lease-back transactions. During the nine months ended March 31, 2000, $30.9 million was provided by financing activities primarily resulting from additional borrowings from the Company's revolving credit facility of $34.5 million, partially offset by $3.6 million of scheduled and required reductions of the Company's long-term debt. 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, and secured by both a U.S. and German Pledge Agreement 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 or subordinated indebtedness, issue or sell equity interests of the Company's subsidiaries, engage in mergers or acquisitions, or engage in certain transactions with subsidiaries and affiliates, and that otherwise restrict corporate activities. 27 28 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 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 20% of its sales and also provides lease financing to its customers. Lease terms are generally for six months, but are also available for 12 up to 43 month terms. YEAR 2000 The Company has not experience any significant Year 2000 interruptions from any information technology ("IT") systems or non-IT systems such as its manufacturing systems and physical facilities. The Company will continue to monitor all critical systems for the appearance of any delayed Year 2000 related issues including both internal systems and through suppliers, customers and third parties with whom the Company does business. 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 new Euro coins and bills will become the official currency in January 2002. The Company's products can be brought into Euro compliance by moving a switch inside the wall machine, replacing the coin tubes and modifying the front glass to indicate Euros. Management believes the cost of the implementing the Euro conversion 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 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. 28 29 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 RESULTS OF OPERATIONS: 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 earnings (losses) before interest, taxes, depreciation and amortization (EBITDA) and operating income (loss) for the four business units excluding unusual charges, for the following periods:
Three Months Ending March 31, Nine Months Ending March 31, 1999 2000 1999 2000 -------- --------- -------- --------- (In $000's) EBITDA by Business Unit: Bally Gaming and Systems $ 4,777 $ 713 $ 2,205 $ 7,368 Wall Machines and Amusement Games 3,178 (99) 7,610 1,652 Route Operations 6,504 6,612 18,217 18,264 Casino Operations 6,106 7,712 16,153 19,306 Corporate Administrative Expenses (5,177) (3,543) (13,105) (10,802) Unusual Items -- (a)(3,572) -- (b)(4,098) -------- --------- -------- --------- EBITDA $ 15,388 $ 7,823 $ 31,080 $ 31,690 ======== ========= ======== ========= OPERATING INCOME (LOSS): Bally Gaming and Systems $ 3,726 $ (1,234) $ (581) $ 1,670 Wall Machines and Amusement Games 2,234 (1,617) 4,513 (2,612) Route Operations 3,789 4,259 10,226 11,245 Casino Operations 5,524 7,178 14,409 17,744 Corporate Administrative Expenses (5,595) (3,958) (14,356) (12,051) Unusual items -- (a)(3,572) -- (b)(4,098) -------- --------- -------- --------- TOTAL OPERATING INCOME (LOSS) $ 9,678 $ 1,056 $ 14,211 $ 11,898 ======== ========= ======== =========
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. EBITDA may not be comparable to similarly titled measures reported by other companies. (a) The unusual items incurred in the quarter ended March 31, 2000 consist of approximately $6.6 million of restructuring and related charges, including a $1.9 million inventory valuation reserve for Australian inventory, partially offset by a $3.0 million gain on the sale of certain gaming management and development rights. (b) The unusual items incurred in the nine months ended March 31, 2000 include those listed in (a) above as well as restructuring and related charges incurred in the December 1999 quarter of $1.5 million, offset by $1.0 million gain on the release of an option the company had to operate gaming machines at a dormant dog racing track in Kansas. 29 30 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 THREE MONTHS ENDED MARCH 31, 1999 AND 2000 BALLY GAMING AND SYSTEMS For the quarter ended March 31, 2000, Bally Gaming and Systems reported revenues of $26.0 million, a 32% decrease over the prior year quarter. New unit shipments totaled 1,180 units, compared to 4,450 in the prior year period. The average new unit selling price increased by 4% over the prior year quarter. The current quarter unit sales were negatively impacted by the fact there were no new casino openings this period, and the prior quarter benefited from the sale of 2,000 games to the Ontario Lottery and 500 games into the New Mexico market. Bally Systems reported sales of $4.9 million of revenue compared to $5.8 million in the prior year quarter. The current quarter shipments for Bally Gaming included approximately 230 units to the Nevada and Atlantic City markets, 400 units to international markets, and 550 units to riverboats, Native American casinos and other domestic markets. The overall gross margin percentage for the current quarter, excluding the impact of unusual items, improved to 53% compared to 47% in the prior year quarter. The improvement was due primarily to a change in product mix to higher margin gaming machines and greater revenues from higher margin recurring revenue machines, partially offset by an increase in royalty expenses. At March 31, 2000, the Company's Bally Gaming and Systems business unit had an installed base of approximately 2,300 units earning recurring revenues compared to approximately 2,000 units at December 31, 1999. During the March 2000 quarter, Bally Gaming and Systems recorded $6.2 million of revenues from the proprietary gaming operations, and a total of $8.8 million from all recurring revenue sources, up 527% from the prior year quarter. The gaming operations of Bally Gaming and Systems achieved a 64% gross margin or $4.0 million. Bally Gaming and Systems reported an operating loss before unusual charges of $1.2 million compared to operating income of $3.7 million in the prior year quarter. The decline in operating income was a result of new unit sales volumes being substantially below the break even level, and was partially offset by the substantial income contribution of the Bally Gaming and Systems gaming operations. For the quarter ended March 31, 2000, Bally Gaming and Systems recorded unusual charges for restructuring and related charges totaling $4.6 million. The restructuring costs included $0.6 million for additional domestic employee staff reductions, and $4.0 million for costs of closing sales offices in South Africa and Australia. Included in this amount is a $1.9 million valuation reserve for Australian inventory. WALL MACHINES AND AMUSEMENT GAMES For the quarter ended March 31, 2000, the Wall Machines and Amusement Games business unit reported revenues of $18.7 million, a 25% decrease from the prior year quarter. The lower revenues resulted from a 26% decrease in shipments of new wall machines, a 43% decrease in the average selling price of new wall machines, and a 26 percent decrease in amusement game distribution revenues, partially offset by a 2% increase in leased machine revenues. The prior period benefited from the sales of a niche game with higher than traditional margins, sales of which did not occur in the current quarter. The foreign currency fluctuation between the dollar and the deutschmark decreased revenues by $2.6 million in the current quarter. 30 31 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 Gross margin for the quarter, excluding the impact of unusual items, was 34% compared to 40% in the prior year quarter. This decrease was due to lower unit sales and comparatively low selling prices. Also, the prior year quarter included substantial sales of a niche game at higher than traditional margins. Wall Machines and Amusement Games reported an operating loss before unusual items of $1.6 million compared to operating income of $2.2 million in the prior year quarter, due primarily to the decrease in gross margins and increases in depreciation expense, offset by lower selling, general and administrative expenses. For the quarter ended March 31, 2000, Wall Machine and Amusement Games recorded unusual item for costs of restructuring and related costs of $1.3 million. ROUTE OPERATIONS For the quarter ended March 31, 2000, the Route Operations business unit reported revenues of $53.5 million, an increase of 16.2% compared to revenues of $46.0 million in the prior year quarter. Revenues for the Nevada operations increased 20% as net win per gaming machine per day increased to $66.40 from $60.50 in the prior year quarter, while the average number of gaming machines increased to 7,890 from 7,326 in the prior year quarter resulting primarily from machines added as a result of new locations and taking over the contracts to operate locations previously served by competitors. Revenues for the Louisiana operations decreased 12% due primarily to the closing of two OTB's pursuant to anti-gaming referendums in certain parishes. This resulted in a 7% decrease in the average number of gaming units deployed. Additionally, there was a decrease in net win per day per gaming machine to $80.50 from $85.40 in the prior year quarter. As a percentage of revenues, cost of revenues remained constant at 79% between quarters. The Route Operations unit reported operating income of $4.3 million, an increase of 12% compared to operating income of $3.8 million in the prior year quarter. The increase in operating income resulted primarily from higher revenues and lower depreciation expense, partially offset higher selling, general and administrative expenses, primarily increased promotion and marketing costs at the Nevada route operation. Effective February 1, 2000 the Company began operating an additional 305 games in 19 Raley's stores in Nevada. This agreement with Raley's runs through June 2008, and brings the total games on the Nevada route to over 8,000. CASINO OPERATIONS For the quarter ended March 31, 2000, the Casino Operations business unit reported revenues of $19.4 million, an increase of 18.1% compared to revenues of $16.4 million in the prior year quarter. This increase was a result of a 22% increase at the Rail City Casino and a 17% increase at the Rainbow Casino. The revenue improvement at the Rail City Casino to $4.6 million from $3.8 million in the prior year quarter was attributable to an increase in the average gaming machine net win per day of 25% to $81 from $65 in the prior year quarter and a 6% increase in the average number of gaming machines. Rainbow Casino revenues increased to $14.8 million from $12.7 in the prior year quarter as a result of an 35% increase in the average number of gaming machines and higher table game revenue, partially offset by a 15% decrease in net win per day per gaming machine to $146 from $172 in the prior year quarter. The recently completed casino expansion at the Rainbow Casino has resulted in over 1,000 gaming machines now on the casino floor, compared to 740 in the prior year quarter. For the quarter ended March 31, 2000, the cost of revenues for Casino Operations, as a percentage of revenues, improved to 37% from 42% in the prior year quarter. The Casino Operations business unit reported operating income of $7.2 million, an improvement of 30% compared to operating income of $5.5 million in the prior year quarter. Rainbow 31 32 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 Casino operating income increased 21% to $6.0 million due primarily to the increase in revenues and improved operating margins, partially offset by an increase in selling, general and administrative costs, principally marketing costs. Rail City Casino operating income increased by 107% to $1.2 million due primarily to the increase in revenues and improved operating margins, partially offset by an increase in selling, general and administrative costs, primarily gaming machine rental expense. NET INTEREST EXPENSE AND INCOME TAXES Net interest expense in the three months ended March 31, 2000 increased to $8.8 million from $8.1 million in the prior year quarter due to a higher average amount of total borrowings outstanding and slightly higher interest rates and a fee of $0.5 million incurred in connection with the fifth and sixth Amendment to the Company's bank credit facility. The Company recorded an income tax provision of $0.2 million in the March 31, 2000 quarter compared to an income tax benefit of $0.2 million in the prior year quarter. The current quarter provision is due to various state income tax provisions. NINE MONTHS ENDED MARCH 31, 1999 AND 2000 BALLY GAMING AND SYSTEMS For the nine months ended March 31, 2000, Bally Gaming and Systems reported revenues of $96.3 million, a 16.3% increase compared to revenues of $82.8 million in the prior year period. The improvement was due primarily to a $9.5 million increase in Bally Systems revenues and a $15.3 million increase in recurring revenue sources. Bally Gaming reported unit sales of approximately 6,200 new gaming machines, an decrease of 26% compared to unit sales of approximately 8,400 in the prior year period, due primarily to an overall decrease in market demand offset slightly by successful introduction of new products recently licensed in more jurisdictions. By market segment, Bally Gaming's unit sales for the nine month period consisted of approximately 900 units to the Nevada and Atlantic City markets, 2,400 units to international markets and 2,900 units to riverboats, Native American and other domestic markets. Bally Gaming reported revenues from the sale of new gaming machines of $38.1 million, a decrease of 17% compared to $46.1 million in the prior year period, due to lower unit volume offset by a 13% increase in average selling prices over the prior year period. Gross margin for the nine months ended March 31, 2000, excluding the impact of unusual items, remained constant at 45% between periods. A change in product mix to higher margin gaming machines coupled with greater revenues from recurring revenue units and system sales was offset by an increase in royalty expense and higher provisions for inventory obsolescence. For the nine months ended March 31, 2000, Bally Gaming and Systems reported operating income excluding unusual items of $1.6 million compared to an operating loss of $0.6 million in the prior year period. This change resulted from higher recurring revenues, partially offset by higher selling, general and administrative costs including a higher provision for doubtful accounts, higher costs to support the recurring revenue units, and higher depreciation and amortization expense resulting from the larger installed base of recurring revenue units. Research and development costs totaled $9.5 million, a decrease of 12% over the prior year period. 32 33 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 WALL MACHINES AND AMUSEMENT GAMES For the nine months ended March 31, 2000, the Wall Machines and Amusement Games business unit reported revenues of $52.9 million, a 24% decrease compared to the prior year period. The lower revenues resulted from a 16% decrease in shipments of new wall machines, a 29% decrease in the average selling price of new wall machines and a 34% decrease in amusement game distribution revenues and a 12 % decrease in leased machine revenues. The foreign currency fluctuation between the dollar and the deutschmark decreased revenues by $5.8 million in the nine months ended March 31, 2000. The Company believes that the soft demand for new wall machines is due to the potential changes in the laws regulating wall machines. The soft demand will likely remain until the outcome of the proposed law changes is known. The ultimate outcome and timing of the proposed changes is not determinable at this time. For the nine months ended March 31, 2000, gross profit margin decreased to 37% compared to 40% in the prior year period. This decrease was due to the unfavorable impact of a higher volume of trade-ins of used equipment and a lower fixed cost absorption rate. Wall Machines and Amusement Games reported an operating loss before unusual items of $2.6 million compared to operating income of $4.5 million in the prior year period, due primarily to lower revenues and margins coupled with increases in the provision for doubtful accounts and depreciation expense, partially offset by lower selling, general and administrative expenses, principally a decrease in salary and wages and marketing expenses. ROUTE OPERATIONS For the nine months ended March 31, 2000, the Route Operations business unit reported revenues of $147.8 million, an increase of 15% compared to revenues of $128.8 million in the prior year period. Revenues for the Nevada operations increased 18% as net win per gaming machine per day increased to $61.90 from $56.20 in the prior year period, while the average number of gaming machines increased to 7,720 from 7,240 in the prior year period resulting primarily from machines added as a result of new locations and taking over the contracts to operate locations previously served by competitors. As of March 31, 2000, the Gamblers Bonus product was installed in over 3,300 gaming machines at approximately 325 locations statewide or 43% of the installed base of gaming machines. Revenues for the Louisiana operations decreased 10% compared to the prior year period due primarily to the closing of the two OTB's. This resulted in a 8% decrease in the average number of gaming units deployed. The net win per day per gaming machine also decreased to $78.00 from $80.40 in the prior year period. As a percentage of revenues, cost of revenues for the nine months increased slightly to 79% from 78% in the prior year period. The Route Operations business unit reported operating income of $11.2 million, and increase of 10% compared to $10.2 in the prior year period. CASINO OPERATIONS For the nine months ended March 31, 2000, the Casino Operations business unit reported revenues of $52.2 million, an increase of 10% compared to revenues of $47.6 million in the prior year period. This increase was a result of a 23% increase at the Rail City Casino and 6% at the Rainbow Casino. As a percentage of revenue, cost of revenues for the nine months decreased to 39% from 42% for the prior year period. Total operating income for the Casino Operations was $17.7 million compared to $14.4 million in the prior year period. The Rainbow Casino operating income increased 14% to $14.7 million and the Rail City Casino operating income increased 109% to $3.0 million. 33 34 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 NET INTEREST EXPENSE AND INCOME TAXES Net interest expense in the nine months ended March 31, 2000 increased to $25.0 million from $23.1 million in the prior year period due to a total of $1.0 million in fees incurred to amend the Company's bank credit facility, coupled with a higher average amount of total borrowings and slightly higher interest rates. The Company recorded an income tax provision of $0.5 million in the current year period compared to an income tax benefit of approximately $0.3 million in the prior year period. The current year period provision is due to 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, as detailed from time to time in the Company's filings with the Securities and Exchange Commission. 34 35 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to Part 1, Item 7A of the Company's annual report on Form 10-K, as amended, for the fiscal year ended June 30, 1999. There have been no material changes in market risks since the prior fiscal year end. 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 4.6 Fifth Amendment and Consent among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH and various lenders, and Credit Suisse First Boston as administrative agent, dated April 24, 2000. 4.7 Sixth Amendment and Consent among Alliance Gaming Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff Automaten GmbH and various lenders, and Credit Suisse First Boston as administrative agent, dated May 4, 2000. 10.83 Amendment to the Employment Agreement between the Company and Athony L. DiCesare effective January 4, 2000 10.84 Amendment to the Employment Agreement between the Company and Joel Kirschbaum effective January 4, 2000 10.85 Amendment to the Agreement between the Company and Kirkland Investment Corporation effective January 4, 2000 27.1 Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31,2000.
35 36 ALLIANCE GAMING CORPORATION FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 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/ Robert Miodunski ----------------------------------------- President and Chief Operating Officer (Principal Executive Officer) By /s/ Robert L. Saxton ----------------------------------------- Sr. Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 36 EX-4.6 2 EXHIBIT 4.6 1 EXHIBIT 4.6 FIFTH AMENDMENT FIFTH AMENDMENT (this "Amendment"), dated as of April 24, 2000, among ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S. Borrower"), BALLY WULFF VERTRIEBS GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("Bally Wulff Vertriebs"), BALLY WULFF AUTOMATEN GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("Bally Wulff Automaten" and, together with Bally Wulff Vertriebs, the "German Borrowers," and each a "German Borrower", and the German Borrowers, together with the U.S. Borrower, the "Borrowers," and each a "Borrower"), the financial institutions party to the Credit Agreement referred to below (the "Lenders") and CREDIT SUISSE FIRST BOSTON, as Administrative Agent. Unless otherwise defined herein, all capitalized terms used herein and defined in the Credit Agreement referred to below are used herein as so defined. W I T N E S S E T H : WHEREAS, the Borrowers, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of August 8, 1997 (as amended, modified or supplemented through, but not including, the date hereof, the "Credit Agreement"); WHEREAS, the Borrowers, the Lenders and the Administrative Agent are parties to a Third Amendment and Consent, dated as of October 28, 1999 (the "Third Amendment"); WHEREAS, the parties hereto wish to (i) amend the Third Amendment and (ii) further amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments, Modifications and Waivers Relating to the Credit Agreement: 1. Section 4.02(d) of the Credit Agreement is hereby amended by deleting the text "Effective Date" contained in the first parenthetical contained in such Section 4.02(d) and inserting the text "Fifth Amendment Effective Date" in lieu thereof. 2. Section 4.02(e) of the Credit Agreement is hereby amended by deleting the text "and (x)" appearing after the text "by the German Parent or other entity described in said clause (ix))" appearing in such Section 4.02(e) and inserting the text ", (x) and (xv)" in lieu thereof. 3. Section 9.01 of the Credit Agreement is hereby amended by deleting the word "and" appearing at the end of clause (xvii) thereof, (ii) redesignating existing clause (xviii) as clause (xix) and (iii) inserting the following new clause (xviii) immediately following existing clause (xvii) of such Section 9.01: 2 "(xviii) Liens arising in connection with Gaming Equipment Transactions permitted under Section 9.02(xv) so long as such Liens only relate to the assets subject to the respective Gaming Equipment Transaction permitted pursuant to such Section 9.02(xv); and". 4. Section 9.02 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (xiii) of such Section 9.02, (ii) deleting the period appearing at the end of clause (xiv) of such Section 9.02 and inserting the text "; and" in lieu thereof and (iii) inserting the following new clause (xv) at the end of such Section 9.02: "(xv) Bally Gaming, Inc. or any special purpose Wholly-Owned Subsidiary of the Borrower formed solely to enter into Gaming Equipment Transactions (any such special purpose subsidiary, a "Special Purpose Gaming Subsidiary") may enter into Gaming Equipment Transactions in respect of gaming equipment owned by Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary, so long as (i) any such Special Purpose Gaming Subsidiary has no other business activities other than entering into such Gaming Equipment Transactions and has no assets other than gaming equipment the subject of such Gaming Equipment Transactions, (ii) no Default or Event of Default then exists or would exist immediately after giving effect to any such Gaming Equipment Transaction, (iii) each such Gaming Equipment Transaction is an arm's-length transaction and, to the extent such Gaming Equipment Transaction is structured as a Sale and Leaseback Transaction, Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary receives at least fair market value (as determined in good faith by Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary) for such assets the subject of such Gaming Equipment Transaction, (iv) to the extent such Gaming Equipment Transaction is structured as a Sale and Leaseback Transaction, the total consideration received by Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary is cash and is paid at the time of the closing of such sale, (v) the aggregate amount of proceeds received from all Gaming Equipment Transactions pursuant to this clause (xv) structured as Sale and Leaseback Transactions, when added to the aggregate principal amount of Indebtedness incurred under Section 9.04(xv) (other than Capitalized Lease Obligations arising in connection with Gaming Equipment Transactions structured as Sale and Leaseback Transactions), shall not exceed (x) during the period from the Fifth Amendment Effective Date to September 29, 2000, $5,000,000, (y) during the period from September 30, 2000 to, but not including, the date upon which the Nevada Route Operations Sale is consummated, $10,000,000 less the aggregate amount of proceeds received from all Gaming Equipment Transactions consummated pursuant to preceding clause (x), and (z) from and after the consummation of the Nevada Route Operations Sale, $15,000,000 less the aggregate amount of proceeds received from all Gaming Equipment Transactions consummated pursuant to preceding clauses (x) and (y), and (vi) to the extent that any such Gaming Equipment Transaction results in a Capitalized Lease Obligation, such Capitalized Lease Obligation is permitted under Section 9.04(xv). 5. Section 9.04 of the Credit Agreement is hereby amended by (i) deleting the text "and" appearing at the end of clause (xiii) of such Section 9.04, (ii) deleting the period -2- 3 appearing at the end of clause (xiv) of such Section 9.04 and inserting the text "; and" in lieu thereof and (iii) inserting the following clause (xv) at the end of such Section 9.04: "(xv) Indebtedness (including any Capitalized Lease Obligations) incurred by Bally Gaming, Inc. or a Special Purpose Gaming Subsidiary in connection with any Gaming Equipment Transaction permitted under Section 9.02(xv) so long as (i) no Default or Event of Default then exists or would exist immediately after giving effect to the incurrence of any such Indebtedness, (ii) the principal amount of any such Indebtedness is at least 75% and no greater than 90% of the fair market value (as determined by Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary in good faith) of the assets securing such Indebtedness, (iii) such Indebtedness shall be unsecured except as otherwise permitted under Section 9.01(xviii), (iv) such Indebtedness is non-recourse to Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary (with recourse being limited to the respective assets the subject of such Gaming Equipment Transaction, except with respect to fraud, misrepresentation, and other similar circumstances), (iv) neither the U.S. Borrower nor any of its Subsidiaries shall have guaranteed any such Indebtedness or otherwise provided any credit support (other than pursuant to Section 9.01(xviii)) in respect thereof and (v) the aggregate principal amount of all such Indebtedness incurred as permitted under this clause (xv) shall not exceed at any time outstanding an amount equal to (x) during the period from the Fifth Amendment Effective Date to September 29, 2000, $5,000,000 less the aggregate amount of proceeds received from all Gaming Equipment Transactions structured as Sale and Leaseback Transactions and having an operating lease, rather than a capital lease, component, (y) during the period from September 30, 2000 to, but not including, the date upon which the Nevada Route Operations Sale is consummated, $10,000,000 less the aggregate amount of proceeds received from all Gaming Equipment Transactions structured as Sale and Leaseback Transactions and having an operating lease, rather than a capital lease component, and (z) from and after the consummation of the Nevada Route Operations Sale, $15,000,000 less the aggregate amount of proceeds received from all Gaming Equipment Transactions structured as Sale and Leaseback Transactions and having an operating lease, rather than a capital lease, component. 6. The definition of "Consolidated EBITDA" appearing in Section 11.01 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing immediately after the text "amortization and depreciation" appearing in the first sentence of such definition and inserting a comma in lieu thereof, (ii) inserting the following text immediately following the text "similar tax expense" appearing in the first sentence of said definition: "and, for the purposes of calculating "Consolidated EBITDA" for the purposes of determining compliance with Sections 9.08 through 9.11, inclusive, only (but not for purposes of determining the Applicable Commitment Commission Percentage or the Applicable Margins), all operating lease expense attributable to the leasing of assets pursuant to any Gaming Equipment Transactions permitted pursuant to Section 9.02(xv)", -3- 4 and (iii) inserting the following new sentence at the end of said definition: "In addition, for the purposes of determining compliance with Sections 9.08 through 9.11, inclusive, only (but not for the purposes of determining the Applicable Commitment Commission Percentage or the Applicable Margins), there shall be added to Consolidated EBITDA, to the extent Consolidated EBITDA was reduced during the period for which Consolidated EBITDA is then being determined as a result of such charge, the amount of the non-cash impairment charge relating to the write-off of goodwill attributable to the U.S. Borrower's acquisition of Bally Gaming International, Inc. (up to an amount not to exceed $55,000,000) and taken by the U.S. Borrower during the U.S. Borrower's fiscal quarter ended March 31, 2000 or June 30, 2000." 7. The definition of "Consolidated Indebtedness" appearing in Section 11.01 of the Credit Agreement is hereby amended by inserting the following sentence at the end of said definition: "For the purposes of Section 9.10 only (but not for purposes of determining the Applicable Commitment Commission Percentage or the Applicable Margins), any Indebtedness arising from any Capitalized Lease Obligations incurred pursuant to Section 9.04(xv) in connection with the entering into of Gaming Equipment Transactions structured as Sale and Leaseback Transactions shall be excluded from the calculation of Consolidated Indebtedness". 8. The definition of "Consolidated Interest Expense" appearing in Section 11.01 of the Credit Agreement is hereby amended by inserting the text "but excluding, for the purposes of calculating "Consolidated Interest Expense" for the purposes of determining compliance with Sections 9.08 and 9.09 only, any interest expense attributable to any Capitalized Lease Obligations or other Indebtedness arising in connection with any Gaming Equipment Transactions and permitted to be outstanding under 9.04(xv)" at the end of the first parenthetical appearing in clause (i) of such definition. 9. Section 11.01 of the Credit Agreement is hereby further amended by inserting the following new definitions in proper alphabetical order: "Fifth Amendment Effective Date" shall mean April 24, 2000. "Gaming Equipment Transaction" shall mean any transaction whereby Bally Gaming, Inc. or a Special Purpose Gaming Subsidiary shall either (i) sell gaming equipment owned by it and, in turn, lease such equipment from the purchaser thereof (either pursuant to an operating lease or a capital lease) or (ii) obtain financing from a third Person which may be secured by specific items of equipment of Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary as contemplated in Sections 9.01(xviii) and 9.04(xv). "Special Purpose Gaming Subsidiary" shall have the meaning provided in Section 9.02(xv). -4- 5 10. The Lenders and Borrowers hereby acknowledge that Delayed Draw Term Loans were made on the Initial Delayed Draw Term Loan Borrowing Date notwithstanding the fact that RCVP did not execute or deliver counterparts of the U.S. Subsidiaries Guaranty, the U.S. Security Agreement or the U.S. Pledge Agreement as required on or prior to such date pursuant to Section 5B of the Credit Agreement, and the Lenders hereby waive any Event of Default that may have arisen as a result of such event. In addition, the Lenders hereby agree that RCVP shall not be required to execute or deliver such U.S. Subsidiaries Guaranty or any such Security Documents so long as the U.S. Borrower in good faith determines that such action would require the consent of one or more partners of RCVP (other than the U.S. Borrower or any of its Subsidiaries), and that the U.S. Borrower is unable to obtain such consent or consents. 11. The Lenders hereby waive any Default and any Event of Default that may have arisen under the Credit Agreement solely as a result of the failure of the Borrowers to comply with (i) Sections 9.08, 9.09 and 9.11 of the Credit Agreement in respect of the Test Period ended on March 31, 2000 and (ii) Section 9.10 of the Credit Agreement in respect of the period from March 31, 2000 to but excluding the Fifth Amendment Effective Date (as defined below). 12. On the Fifth Amendment Effective Date, the Total Revolving Loan Commitment shall be reduced to $80,000,000. Such reduction shall be applied to reduce the Revolving Loan Commitment of each Lender with such a Commitment pro rata based on the relative Revolving Loan Commitments of such Lenders, with each such reduction to each such Revolving Loan Commitment to be applied (i) first, to the Non-German Revolving Loan Commitment of such Lender and (ii) second, to the extent the Non-German Revolving Loan Sub-Commitment of such Lender has been reduced to zero, to the German Revolving Loan Sub-Commitment of such Lender. If after giving effect to the reductions to any Lender's German Revolving Loan Sub-Commitment as described in the immediately preceding sentence, the sum of the principal amount of such Lender's outstanding Deutsche Mark Revolving Loans plus such Lender's German RL Percentage of German Letter of Credit Outstandings (expressed Deutsche Marks (and taking the Deutsche Mark Equivalent of the Stated Amount of any German Letters of Credit denominated in a currency other than Deutsche Marks)) exceeds the German Revolving Loan Sub-Commitment of such Lender, the German Borrowers shall repay Deutsche Mark Revolving Loans of such Lender in an amount equal to such excess. If after giving effect to the reductions to any Lender's Revolving Loan Commitment as described in the second preceding sentence and any repayment of Deutsche Mark Revolving Loans pursuant to the immediately preceding sentence, the sum of the principal amount of such Lender's outstanding Revolving Loans plus such Lender's RL Percentage of the aggregate of all Letter of Credit Outstandings and outstanding Swingline Loans exceeds the Revolving Loan Commitment of such Lender, the Revolving Loan Borrowers shall repay Dollar Revolving Loans of such Lender in an amount equal to such excess. -5- 6 II. Amendments to the Third Amendment: 1. Article II, Section 8 of the Third Amendment is hereby amended by deleting the text "for any Test Period ending on or prior to December 31, 2000 of at least 1.00:1" and inserting the following text in lieu thereof: "of a least (I) 0.80:1 for any Test Period ending on or prior to September 30, 2000 and (II) 1.00:1 for the Test Period ending on December 31, 2000". 2. Article II, Section 9 of the Third Amendment is hereby amended by deleting the text "for any Test Period ending on or prior to December 31, 2000 of at least 1.35:1.00" and inserting the following text in lieu thereof: "of at least (I) 1.15:1 for any Test Period ending on or prior to September 30, 2000 and (II) 1.35:1 for the Test Period ending on December 31, 2000". 3. Article II, Section 10 of the Third Amendment is hereby amended by deleting the text "for the period from December 31, 1999 to December 31, 2000 of no greater than 6.25:1" and inserting the following text in lieu thereof: "no greater than (I) 8.00:1 during the period from April 1, 2000 through and including September 30, 2000 and (II) 6.25:1 during the period from October 1, 2000 through and including December 31, 2000". 4. Article II, Section 11 of the Third Amendment is hereby amended by deleting the text "for any Test Period ending on or prior to December 31, 2000 of at least $44,000,000" and inserting the following text in lieu thereof: "of at least (I) $40,000,000 for any Test Period ending on or prior to September 30, 2000 and (II) $44,000,000 for the Test Period ending on December 31, 2000". -6- 7 III. Miscellaneous: 1. This Amendment shall become effective on the date (the "Fifth Amendment Effective Date") when (i) each Borrower and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office and (ii) the Borrowers shall have paid to the Administrative Agent for the account of each Lender that has executed a counterpart of this Amendment and delivered same to the Administrative Agent at the Notice Office on or prior to 5:00 p.m. (New York time) on the later of (x) April 24, 2000 or (y) date when the requirements of preceding clause (i) are satisfied, an amendment fee equal to 0.250% of the sum of such Lender's (x) outstanding Term Loans (using the Dollar Equivalent thereof in the case of any Term Loans denominated in a currency other than Dollars) on the Fifth Amendment Effective Date and (y) Revolving Loan Commitment on the Fifth Amendment Effective Date (before giving effect to the reduction to the Total Revolving Loan Commitment pursuant to Article I, Section 12 of this Amendment). 2. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 3. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the U.S. Borrower and the Administrative Agent. 4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 5. From and after the Fifth Amendment Effective Date, all references in the Credit Agreement and in the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. * * * -7- 8 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. ALLIANCE GAMING CORPORATION By___________________________________ Name: Title: BALLY WULFF VERTRIEBS GMBH By___________________________________ Name: Title: BALLY WULFF AUTOMATEN GMBH By___________________________________ Name: Title: 9 CREDIT SUISSE FIRST BOSTON, Individually and as Administrative Agent By___________________________________ Name: Title: By___________________________________ Name: Title: THE BANK OF NOVA SCOTIA By___________________________________ Name: Title: KZH ING-1 LLC By___________________________________ Name: Title: THE MITSUBISHI TRUST AND BANKING CORP. By___________________________________ Name: Title: 10 SOUTHERN PACIFIC BANK By___________________________________ Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By___________________________________ Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST By___________________________________ Name: Title: VAN KAMPEN CLO I, LIMITED By: Van Kampen Management Inc., as Collateral Manager By___________________________________ Name: Title: ML CLO XII PILGRIM AMERICA (Cayman) LTD. By: Pilgrim Investments, Inc., as its Investment Manager By___________________________________ Name: Title: 11 MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By___________________________________ Name: Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By___________________________________ Name: Title: CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management Company, Inc., as Portfolio Manager By___________________________________ Name: Title: ARCHIMEDES FUNDING, L.L.C. By: ING Capital Advisors LLC, as Collateral Manager By___________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By___________________________________ Name: Title: 12 ELF FUNDING TRUST I By: Highland Capital Management L.P. as Collateral Manager By___________________________________ Name: Title: PAM CAPITAL FUNDING LP By: Highland Capital Management L.P. as Collateral Manager By___________________________________ Name: Title: GLENEAGLES TRADING LLC By___________________________________ Name: Title: SRV HIGHLAND, INC. By___________________________________ Name: Title: 13 MASSMUTUAL HIGH YIELD PARTNERS II, LLC By: HYP Management, Inc., as Managing Member By___________________________________ Name: Title: CALIFORNIA BANK & TRUST By___________________________________ Name: Title: EX-4.7 3 EXHIBIT 4.7 1 EXHIBIT 4.7 SIXTH AMENDMENT SIXTH AMENDMENT (this "Amendment"), dated as of May 4, 2000, among ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S. Borrower"), BALLY WULFF VERTRIEBS GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("Bally Wulff Vertriebs"), BALLY WULFF AUTOMATEN GMBH, a company with limited liability organized under the laws of the Federal Republic of Germany ("Bally Wulff Automaten" and, together with Bally Wulff Vertriebs, the "German Borrowers," and each a "German Borrower" and the German Borrowers, together with the U.S. Borrower, the "Borrowers," and each a "Borrower"), the financial institutions party to the Credit Agreement referred to below (the "Lenders") and CREDIT SUISSE FIRST BOSTON, as Administrative Agent. Unless otherwise defined herein, all capitalized terms used herein and defined in the Credit Agreement referred to below are used herein as so defined. W I T N E S S E T H : WHEREAS, the Borrowers, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of August 8, 1997 (as amended, modified or supplemented through, but not including, the date hereof the "Credit Agreement"); WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. The definitions of "Applicable Commitment Commission Percentage" and "Applicable Margin" appearing in Section 11.01 of the Credit Agreement are hereby amended by (i) deleting the table appearing therein in its entirety and inserting the following new table in lieu thereof:
Level Level Level Level "Ratio 1 2 3 4 ------ ----- ----- ----- ----- Euro Rate Loan Margin for U.S. Borrower Tranche A Term Loans, German Borrower Tranche A Term Loans and Revolving Loans 2.75% 3.00% 3.25% 3.75%
2
Base Rate Loan Margin for U.S. Borrower Tranche A Term Loans, Revolving Loans and Swingline Loans 1.75% 2.00% 2.25% 2.75% Euro Rate Loan Margin for Delayed Draw Term Loans and Tranche B Term Loans 3.50% 3.50% 3.75% 4.25% Base Rate Loan Margin for Delayed Draw Term Loans and Tranche B Term Loans 2.50% 2.50% 2.75% 3.25% Euro Rate Loan Margin for Tranche C Term Loans 3.75% 3.75% 4.00% 4.50% Base Rate Loan Margin for Tranche C Term Loans 2.75% 2.75% 3.00% 3.50% Applicable Commitment Commission Percentage 0.40% 0.45% 0.50% 0.50%
2. This Amendment shall become effective on the date (the "Sixth Amendment Effective Date") when each Borrower, each Subsidiary Guarantor and the Required Lenders have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at the Notice Office, provided that the increase in the Applicable Margin pursuant to this Amendment shall be deemed to be effective on April 28, 2000, and if any interest payments were made on or after April 28, 2000 and prior to the Sixth Amendment Effective Date, the Borrowers shall pay to the Administrative Agent (for the pro rata distribution of the Lenders in accordance with Section 4.03 of the Credit Agreement) such additional amounts as would have been paid to the Administrative Agent had the increase in the Applicable Margin pursuant to this Amendment been effective on April 28, 2000. -2- 3 3. Each Subsidiary Guarantor acknowledges and agrees that all extensions of credit pursuant to the Credit Agreement, as amended hereby, shall be fully guaranteed pursuant to the Subsidiary Guarantees and entitled to the benefits of the respective Security Documents. 4. In order to induce the Lenders to enter into this Amendment, each Borrower hereby represents and warrants that (i) the representations and warranties contained in Section 7 of the Credit Agreement are true and correct in all material respects on and as of the Sixth Amendment Effective Date, both before and after giving effect to this Amendment (it being understood and agreed that, as to any representation or warranty which by its terms is made as of a specified date, each Borrower represents and warrants that such representation and warranty is true and correct in all material respects only as of such specified date) and (ii) there exists no Default or Event of Default on the Sixth Amendment Effective Date, both before and after giving effect to this Amendment. 5. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 6. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the U.S. Borrower and the Administrative Agent. 7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 8. From and after the Sixth Amendment Effective Date, all references in the Credit Agreement and in the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. * * * -3- 4 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. ALLIANCE GAMING CORPORATION By___________________________________ Name: Title: BALLY WULFF VERTRIEBS GMBH By___________________________________ Name: Title: BALLY WULFF AUTOMATEN GMBH By___________________________________ Name: Title: ALLIANCE HOLDING COMPANY, as a Guarantor By___________________________________ Name: Title: APT GAMES, INC., as a Guarantor By___________________________________ Name: Title: 5 UNITED COIN MACHINE CO., as a Guarantor By___________________________________ Name: Title: PLANTATION INVESTMENTS, INC., as a Guarantor By___________________________________ Name: Title: FOREIGN GAMING VENTURES, INC., as a Guarantor By___________________________________ Name: Title: LOUISIANA VENTURES, INC., as a Guarantor By___________________________________ Name: Title: UNITED GAMING RAINBOW, as a Guarantor By___________________________________ Name: Title: 6 NATIVE AMERICAN INVESTMENT, INC., as a Guarantor By___________________________________ Name: Title: BALLY GAMING INTERNATIONAL, INC., as a Guarantor By___________________________________ Name: Title: BALLY GAMING, INC., as a Guarantor By___________________________________ Name: Title: ALLIANCE AUTOMATEN VERWALTUNGS GMBH, as a Guarantor By___________________________________ Name: Title: ALLIANCE AUTOMATEN GMBH & CO. KG, as a Guarantor By___________________________________ Name: Title: 7 GEDA AUTOMATENGROSSHANDEL GMBH, as a Guarantor By___________________________________ Name: Title: ERKENS VERTRIEBS GMBH, as a Guarantor By___________________________________ Name: Title: WESTAV WEST DEUTSCHER AUTOMATEN VERTRIEB GMBH, as a Guarantor By___________________________________ Name: Title: BALLY GAMING INTERNATIONAL GMBH, as a Guarantor By___________________________________ Name: Title: 8 CREDIT SUISSE FIRST BOSTON, Individually and as Administrative Agent By___________________________________ Name: Title: By___________________________________ Name: Title: THE BANK OF NOVA SCOTIA By___________________________________ Name: Title: KZH ING-1 LLC By___________________________________ Name: Title: THE MITSUBISHI TRUST AND BANKING CORP. By___________________________________ Name: Title: 9 SOUTHERN PACIFIC BANK By___________________________________ Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By___________________________________ Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST By___________________________________ Name: Title: VAN KAMPEN CLO I, LIMITED By: Van Kampen Management Inc., as Collateral Manager By___________________________________ Name: Title: ML CLO XII PILGRIM AMERICA (Cayman) LTD. By: Pilgrim Investments, Inc., as its Investment Manager By___________________________________ Name: Title: 10 MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By___________________________________ Name: Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By___________________________________ Name: Title: CYPRESSTREE INVESTMENT PARTNERS I, LTD., By: CypressTree Investment Management Company, Inc., as Portfolio Manager By___________________________________ Name: Title: ARCHIMEDES FUNDING, L.L.C. By: ING Capital Advisors LLC, as Collateral Manager By___________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By___________________________________ Name: Title: 11 ELF FUNDING TRUST I By: Highland Capital Management L.P. as Collateral Manager By___________________________________ Name: Title: PAM CAPITAL FUNDING LP By: Highland Capital Management L.P. as Collateral Manager By___________________________________ Name: Title: GLENEAGLES TRADING LLC By___________________________________ Name: Title: SRV HIGHLAND, INC. By___________________________________ Name: Title: 12 MASSMUTUAL HIGH YIELD PARTNERS II, LLC By: HYP Management, Inc., as Managing Member By___________________________________ Name: Title: CALIFORNIA BANK & TRUST By___________________________________ Name: Title: EX-10 4 EXHIBIT 10.83 1 EXHIBIT 10.83 AGREEMENT Effective as of January 4, 2000, Alliance Gaming Corporation and Anthony L. DiCesare, for good and valuable consideration the receipt and sufficiency of which are acknowledged, hereby extend and renew their July 1, 1997 Employment Agreement (the "Agreement") as follows: Alliance shall not give notice of non-extension required by Paragraph 2 of the Agreement so as to cause the Agreement to expire before June 30, 2004. However, the parties agree that this document shall constitute notice, as required by the Agreement, that the Agreement shall not be extended beyond June 30, 2004. This Agreement may be executed in several counterparts, each of which shall be deemed an original. This Agreement is dated as set forth below. Alliance Gaming Corporation By /s/ ROBERT L. MIODUNSKI By /s/ ANTHONY L. DICESARE ----------------------------------- ----------------------------------- Robert L. Miodunski, Anthony L. DiCesare Chief Operating Officer & Senior Vice-President EX-10.84 5 EXHIBIT 10.84 1 EXHIBIT 10.84 AGREEMENT Effective as of January 4, 2000, Alliance Gaming Corporation and Joel Kirschbaum, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, hereby extend and renew their July 1, 1997 Employment Agreement (the "Agreement") as follows: Alliance shall not give notice of non-extension required by Paragraph 2 of the Agreement so as to cause the Agreement to expire before June 30, 2004. However, the parties agree that this document shall constitute notice, as required by the Agreement, that the Agreement shall not be extended beyond June 30, 2004. This Agreement may be executed in several counterparts, each of which shall be deemed an original. This Agreement is dated as set forth below. Alliance Gaming Corporation By /s/ ROBERT L. MIODUNSKI By /s/ JOEL KIRSCHBAUM ----------------------------------- ----------------------------------- Robert L. Miodunski, Joel Kirschbaum Chief Operating Officer & Senior Vice-President EX-10.85 6 EXHIBIT 10.85 1 EXHIBIT 10.85 AGREEMENT Effective as of January 4, 2000, Alliance Gaming Corporation and Kirkland Investment Corporation, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, hereby extend and renew the agreement between them dated July 1, 1997 (the "Agreement") in the following manner: Alliance shall not give notice of non-extension required by the first paragraph of the Agreement so as to cause the Agreement to expire before June 30, 2004. However, the parties agree that this document shall constitute notice, as required by the Agreement, that the Agreement shall not be extended beyond June 30, 2004. This Agreement may be executed in several counterparts, each of which shall be deemed an original. This Agreement is dated as set forth below. Alliance Gaming Corporation Kirkland Investment Corporation By /s/ ROBERT L. MIODUNSKI By /s/ JOEL KIRSCHBAUM ----------------------------------- ----------------------------------- Robert L. Miodunski, Joel Kirschbaum, President Chief Operating Officer & Senior Vice-President EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXCEPTED FROM FORM 10-Q FOR THE NINE MONTHS ENDED MARCH 31, 2000. 1,000 9-MOS JUN-30-2000 MAR-31-2000 38,930 0 83,065 16,779 41,425 170,540 92,321 67,697 359,536 52,613 0 0 4,624 1,034 (51,517) 359,536 149,233 349,233 87,629 225,160 112,175 0 25,348 (15,343) 478 (15,821) 0 0 0 (15,821) (1.55) (1.55)
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