-----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, STsmRAaA/41UIGnQ9wFpMISNMCD1NSnz4XGDgtOzW4/yH79i/5TcGMLj1W4ptk84 dvlAaBVUFbYzBeGKNMbaLQ== 0000950148-01-500744.txt : 20010516 0000950148-01-500744.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950148-01-500744 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 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: 1637662 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 v72742e10-q.txt 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, 2001 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 6, 2001, according to the records of the registrant's registrar and transfer agent was 10,675,000. ================================================================================ 2 INDEX
PART I. FINANCIAL INFORMATION PAGE Item 1. Unaudited Financial Statements Unaudited Condensed Consolidated Balance Sheets as of June 30, 2000 and March 31, 2001 3 Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2000 and 2001 4 Unaudited Condensed Consolidated Statements of Operations for the nine months ended March 31, 2000 and 2001 5 Unaudited Condensed Consolidated Statements of Stockholders' Deficiency for the nine months ended March 31, 2001 6 Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2000 and 2001 7 Notes to Unaudited Condensed Consolidated Financial Statements 8-23 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 24-30 Item 3. Quantitative and Qualitative Disclosures About Market Risk 31 PART II. OTHER INFORMATION Item 1. Legal Proceedings 31 Item 6. Exhibits and Reports on Form 8-K 31 SIGNATURES 32
2 3 PART 1 ALLIANCE GAMING CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In 000's, except share data)
June 30, March 31, 2000 2001 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 32,044 $ 46,474 Short term investments 2,000 - Accounts and notes receivable, net of allowance for doubtful accounts of $19,255 and $16,109 82,444 73,596 Inventories, net of reserves of $6,660 and $10,262 32,019 37,167 Other current assets 11,198 11,045 --------- --------- Total current assets 159,705 168,282 --------- --------- Long-term notes receivable, net of allowance for doubtful accounts of $954 and $967 4,043 3,288 Leased equipment, net of accumulated depreciation of $10,713 and $13,740 16,959 18,880 Property, plant and equipment, net of accumulated depreciation of $60,028 and $63,631 76,823 76,675 Excess of costs over net assets of acquired businesses, net of accumulated amortization of $5,946 and $6,654 54,994 53,157 Intangible assets, net of accumulated amortization of $20,609 and $22,005 21,850 18,612 Other assets, net of reserves of $1,813 and $1,801 16,913 16,143 --------- --------- Total assets $ 351,287 $ 355,037 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 10,367 $ 19,399 Accrued liabilities 32,323 28,757 Current maturities of long-term debt 1,036 999 --------- --------- Total current liabilities 43,726 49,155 --------- --------- Long-term debt, net 344,023 331,571 Other liabilities 12,972 12,535 --------- --------- Total liabilities 400,721 393,261 --------- --------- Minority interest 1,361 1,552 Commitments and contingencies Stockholders' deficiency: Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 46,242 shares and 390 shares issued and outstanding 4,624 39 Common Stock, $.10 par value; 50,000,000 shares authorized; 10,335,000 and 10,557,800 shares issued and outstanding 1,034 1,056 Treasury stock at cost, 83,000 shares and 127,340 shares (508) (501) Additional paid-in capital 141,130 145,693 Accumulated other comprehensive loss (21,790) (26,472) Accumulated deficit (175,285) (159,591) --------- --------- Total stockholders' deficiency (50,795) (39,776) --------- --------- Total liabilities and stockholders' deficiency $ 351,287 $ 355,037 ========= =========
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, ---------------------------- 2000 2001 ----------- ----------- Revenues: Gaming equipment and systems $ 25,972 $ 41,367 Wall machines and amusement games 18,668 20,561 Route operations 53,476 56,385 Casino operations 19,428 21,272 --------- --------- 117,544 139,585 --------- --------- Costs and expenses: Cost of gaming equipment and systems 14,145 21,486 Cost of wall machines and amusement games 12,387 10,807 Cost of route operations 42,441 45,381 Cost of casino operations 7,254 8,633 Selling, general and administrative 27,267 26,535 Research and development 4,589 3,553 Depreciation and amortization 6,767 7,048 Unusual items 1,638 - --------- --------- 116,488 123,443 --------- --------- Operating income 1,056 16,142 Other income (expense): Interest income 86 157 Interest expense (8,856) (8,578) Minority interest (650) (655) Other, net (503) (97) --------- --------- Income (loss) before income taxes (8,867) 6,969 Income tax provision (223) (149) --------- --------- Net income (loss) $ (9,090) $ 6,820 ========= ========= Basic earnings (loss) per share $ (0.89) $ 0.65 ========= ========= Diluted earnings (loss) per share $ (0.89) $ 0.63 ========= ========= Weighted average common shares outstanding 10,253 10,431 ========= ========= Weighted average common and common share equivalents outstanding 10,253 10,815 ========= =========
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, --------------------------- 2000 2001 --------- --------- Revenues: Gaming equipment and systems $ 96,347 $ 113,579 Wall machines and amusement games 52,886 55,999 Route operations 147,768 163,214 Casino operations 52,232 58,335 --------- --------- 349,233 391,127 --------- --------- Costs and expenses: Cost of gaming equipment and systems 54,131 54,751 Cost of wall machines and amusement games 33,498 30,274 Cost of route operations 117,096 131,581 Cost of casino operations 20,435 24,137 Selling, general and administrative 78,752 75,517 Research and development 11,467 10,217 Depreciation and amortization 19,792 20,219 Unusual items 2,164 - --------- --------- 337,335 346,696 --------- --------- Operating income 11,898 44,431 Other income (expense): Interest income 312 513 Interest expense (25,348) (26,457) Minority interest (1,577) (1,659) Other, net (628) (273) --------- --------- Income (loss) before income taxes (15,343) 16,555 Income tax provision (478) (861) --------- --------- Net income (loss) $ (15,821) $ 15,694 ========= ========= Basic earnings (loss) per share $ (1.55) $ 1.54 Diluted earnings (loss) per share $ (1.55) $ 1.51 Weighted average common shares outstanding 10,221 10,224 ========= ========= Weighted average common and common share equivalents outstanding 10,221 10,424 ========= =========
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, 2001 (In 000's)
Common Stock ------------------------ Series E Treasury Shares Dollars Special Stock Stock ---------- ---------- ------------- ---------- Balances at June 30, 2000 10,335 $ 1,034 $ 4,624 $ (508) Net income - - - - Foreign currency translation adjustment - - - - Total comprehensive income Repurchases of common stock for treasury - - - (436) Treasury shares issued upon exercise of employee stock options - - - 443 Conversion of Series E Special Stock to Common Stock 223 22 (4,585) - ---------- ---------- ---------- ---------- Balances at March 31, 2001 10,558 $ 1,056 $ 39 $ (501) ========== ========== ========== ==========
Total Accumulated Stock- Additional Other holders' Paid-in Comprehensive Accum. Equity Capital Loss Deficit (Deficiency) ---------- ------------- ---------- ---------- Balances at June 30, 2000 $ 141,130 $ (21,790) $ (175,285) $ (50,795) Net income - - 15,694 15,694 Foreign currency translation adjustment - (4,682) - (4,682) ---------- Total comprehensive income 11,012 Repurchases of common stock for treasury - - - (436) Treasury shares issued upon exercise of employee stock options - - - 443 Conversion of Series E Special Stock to Common Stock 4,563 - - - ---------- ---------- ---------- ---------- Balances at March 31, 2001 $ 145,693 $ (26,472) $ (159,591) $ (39,776) ========== ========== ========== ==========
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, --------------------------- 2000 2001 ---------- ---------- Cash flows from operating activities: Net income (loss) $ (15,821) $ 15,694 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 19,792 20,219 Amortization of debt discounts 40 40 Write down of other assets 660 - (Gain) loss on sale of assets (4,067) 460 Provision for losses on doubtful receivables 4,708 3,415 Other (263) 1,630 Net change in operating assets and liabilities: Accounts and notes receivable 7,226 1,772 Inventories (7,829) (15,343) Other current assets (619) 1,976 Accounts payable (973) 9,182 Accrued liabilities (4,131) (2,762) ---------- ---------- Net cash provided by (used in) operating activities (1,277) 36,283 ---------- ---------- Cash flows from investing activities: Additions to property, plant and equipment (11,956) (9,171) Proceeds from disposal of property, equipment and other assets 4,090 139 Proceeds from sale/leaseback transaction 3,169 - Additions to other long term assets (2,696) (2,189) ---------- ---------- Net cash used in investing activities (7,393) (11,221) ---------- ---------- Cash flows from financing activities: Reduction of long-term debt (3,550) (2,360) Net increase (decrease) in revolving credit facility 34,460 (8,118) Purchase of common stock for treasury - (436) Proceeds from exercise of stock options 10 443 ---------- ---------- Net cash provided by (used in) financing activities 30,920 (10,471) ---------- ---------- Effect of exchange rate changes on cash (250) (161) Cash and cash equivalents: Increase for period 22,000 14,430 Balance, beginning of period 16,930 32,044 ---------- ---------- Balance, end of period $ 38,930 $ 46,474 ========== ==========
See notes to unaudited condensed consolidated financial statements 7 8 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 1. BASIS OF PRESENTATION The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that 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 periods presented. The results of operations for an interim period are not necessarily indicative of the results that 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, 2000. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior year financial statements to conform with current year presentation. The accompanying condensed consolidated financial statements at June 30, 2000, were derived from audited consolidated financial statements, but do not include all disclosures required under generally accepted accounting principles. 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 (in 000's):
June 30, March 31, 2000 2001 -------- -------- Raw materials $ 19,158 $ 10,895 Work-in-process 948 2,653 Finished goods 11,913 23,619 -------- -------- Total inventories $ 32,019 $ 37,167 ======== ========
3. DEBT, REVOLVING CREDIT FACILITY Long-term debt consists of the following (in 000's):
June 30, March 31, 2000 2001 -------- -------- 10% Senior Subordinated Notes due 2007, net of unamortized discount of $649 and $609 $149,351 $149,390 Term loan facilities: Tranche B Term Loan 70,641 69,575 Tranche C Term Loan 37,776 37,195 Delayed Draw Term Facility 23,789 23,432 Revolving Credit Facility 62,360 52,245 Other, secured by related equipment 1,142 733 -------- -------- 345,059 332,570 Less current maturities 1,036 999 -------- -------- Long-term debt, less current maturities $344,023 $331,571 ======== ========
8 9 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 The Company's bank debt consists of: (i) term loans with an original principal balance in August 1997 of $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) an $80 million revolving credit facility (the "Revolving Credit Facility") with a 6-year term. Each of the term loans and credit facility requires variable rate borrowings with interest rates, which are based on a credit grid. The interest rates 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-deutschemark rate plus 3.75% (or 8.4% at March 31, 2001). At March 31, 2001, borrowings under the $80.0 million Revolving Credit Facility totaled $52.2 million, of which $21.6 million were German Deutschemark borrowings. Based on the terms of the revolving credit facility, the Company would have been able to borrow an additional $6.6 million as of March 31, 2001. The borrowing base for the revolving credit facility includes eligible receivables and inventory (as defined). 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 is secured by both a U.S. and German Pledge Agreement (both as defined). The bank facility contains a number of maintenance covenants and it and the indenture have other significant covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries to dispose of assets, incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, enter into certain acquisitions, repurchase equity interests 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. The Company is in compliance with the credit agreement covenants as of March 31, 2001. The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are general unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt (as defined) of the Company, including indebtedness under the bank facility. The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several, senior subordinated basis by all existing and future domestic Restricted Subsidiaries 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 are general unsecured obligations of the Guarantors, ranking subordinate in right of payment to all Senior Debt of the Guarantors. The Company is in compliance with the operational covenants contained in the indenture for the Senior Subordinated Notes. 9 10 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 4. INCOME TAXES The Company's effective tax rate for the periods ended March 31, 2000, and 2001, differ 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 expense has been recorded for the taxable income produced by the Companies' domestic subsidiaries as such earnings were offset against net operating loss carryforwards. 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, --------------------------- 2000 2001 ------------ ------------ (In 000's) Non-cash transactions: Reclassify other assets to property, plant and equipment $ 242 $ 600 Dividends for Series E Special Stock 442 - Reclassify inventory to equipment 11,196 8,605 Translation rate adjustment 4,456 4,523 Conversion of Series E Special Stock into common shares 11,198 4,585 Deferred gain on sale/leaseback transaction 1,546 -
6. COMPREHENSIVE INCOME (LOSS) As of July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which requires the changes in the Company's 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, 2000, and 2001, total comprehensive income (loss) amounted to $(20.5) million and $11.0 million, respectively. 7. 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 are made from time to time in the open market or in privately negotiated transactions. During the quarter ended December 31, 2000, the Company announced its intention to resume its share repurchase plan. Fiscal year to date the Company repurchased a total of 104,000 shares at an average price of $4.19. The Company has from time to time used the acquired common stock to satisfy obligations pursuant to the exercise of stock options under the Company's stock option plans. As of March 31, 2001, the Company had approximately 127,000 shares of common stock held in treasury. 10 11 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 8. 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, --------------------- --------------------- 2000 2001 2000 2001 -------- -------- -------- -------- (In 000's except per share data) Net income (loss) $ (9,090) $ 6,820 $(15,821) $ 15,694 Wt. average common shares outstanding 10,253 10,431 10,221 10,224 Dilutive effect of stock options outstanding -- 363 -- 198 Dilutive effect of Warrants -- 19 -- -- Dilutive effect of Series E Special Stock -- 2 -- 2 Wt. average common and potentially dilutive shares outstanding 10,253 10,815 10,221 10,424 Basic earnings (loss) per share $ (0.89) $ 0.65 $ (1.55) $ 1.54 ======== ======== ======== ======== Diluted earnings (loss) per share $ (0.89) $ 0.63 $ (1.55) $ 1.51 ======== ======== ======== ========
Stock options and warrants outstanding that were potentially convertible into approximately 1.6 million common shares as of March 31, 2001, 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. In June 1996, the Company issued 113,160 shares of Series E Special Stock to certain holders of the Company's 7 1/2% Convertible Subordinated Debentures who, as part of an exchange offer, elected to receive such stock in lieu of receiving common stock. The holders of shares of Series E Special Stock have no voting rights except as required by law. Each share of Series E Special Stock accrued non-cash dividends at an annual rate of 11 1/2% however the dividend requirement concluded on July 1, 1999. The Series E Special Stock is convertible into common stock at a conversion rate of 4.859 shares of common stock per share of Series E Special Stock, subject to adjustment under certain circumstances. During the nine months ended March 31, 2001, a total of 45,852 shares of Series E converted into approximately 222,800 shares of common stock. Upon full conversion of the remaining shares of Series E Special stock, an additional 1,900 shares of common stock will be issued. 11 12 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 9. 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. The table below presents information as to the Company's revenues and operating income (loss) (in 000's):
Three Months Ended Nine Months Ended March 31, March 31, ----------------------- ----------------------- 2000 2001 2000 2001 --------- --------- --------- --------- Revenues: Gaming equipment and systems $ 25,972 $ 41,367 $ 96,347 $ 113,579 Wall machines and amusement games 18,668 20,561 52,886 55,999 Route operations 53,476 56,385 147,768 163,214 Casino operations 19,428 21,272 52,232 58,335 --------- --------- --------- --------- Total revenues $ 117,544 $ 139,585 $ 349,233 $ 391,127 ========= ========= ========= ========= Intersegment revenues: Gaming equipment and systems $ 4,404 $ 1,078 $ 17,207 $ 5,543 Wall machines and amusement games 15 14 47 42 Route operations - - - - Casino operations - - - - --------- --------- --------- --------- Total intersegment revenues $ 4,419 $ 1,092 $ 17,254 $ 5,585 ========= ========= ========= ========= Operating income (loss): Gaming equipment and systems $ (5,778) $ 5,428 $ (3,545) $ 17,843 Wall machines and amusement games (2,953) 2,597 (4,639) 5,239 Route operations 4,259 3,717 11,245 11,178 Casino operations 7,149 7,525 17,744 19,197 Corporate (a) (1,621) (3,125) (8,907) (9,026) --------- --------- --------- --------- Total operating income $ 1,056 $ 16,142 $ 11,898 $ 44,431 ========= ========= ========= =========
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. (a) For the three month and nine month periods ended March 31, 2000, gains from the sale of certain management and development rights for $3.0 million and $4.0 million, respectively, are netted against Corporate. 12 13 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 The table below presents information as to the Company's revenues and operating income by geographic region:
Three Months Ended Nine Months Ended March 31, March 31, ----------------------- ----------------------- 2000 2001 2000 2001 --------- --------- --------- --------- (In $000's) Revenues: United States $ 95,427 $ 116,857 $ 279,311 $ 325,900 Germany 20,577 21,018 59,908 60,295 Other foreign 1,540 1,710 10,014 4,932 --------- --------- --------- --------- Total revenues $ 117,544 $ 139,585 $ 349,233 $ 391,127 ========= ========= ========= ========= Operating income (loss): United States $ 9,195 $ 13,452 $ 22,700 $ 37,893 Germany (3,012) 2,309 (4,920) 5,044 Other foreign (5,127) 381 (5,882) 1,494 --------- --------- --------- --------- Total operating income $ 1,056 $ 16,142 $ 11,898 $ 44,431 ========= ========= ========= =========
10. ASSETS HELD FOR SALE The Company has entered into an agreement for the sale of its Nevada Route Operations to a third party for approximately $118 million. This transaction is expected to close in approximately August 2001, although the agreement allows either party to cancel the transaction based on certain conditions. The sale is contingent on the buyer obtaining suitable financing and various regulatory approvals. The following table presents the net assets held for sale of the Nevada Route (in 000's):
June 30, March 31, 2000 2001 --------- --------- ASSETS Current assets: Cash and cash equivalents (a) $ 13,639 $ 13,125 Accounts and notes receivable, net 3,923 3,046 Other current assets 5,332 3,970 --------- --------- Total current assets 22,894 20,141 --------- --------- Long-term notes receivable 1,310 1,146 Property, plant and equipment, net 17,891 18,155 Intangible assets, net 12,186 10,863 Other assets, net 3,910 3,951 --------- --------- Total assets $ 58,191 $ 54,256 ========= ========= LIABILITIES Current liabilities: Accounts payable $ 1,590 $ 1,924 Accrued liabilities 2,583 1,711 Other liabilities 521 32 --------- --------- Total Liabilities 4,694 3,667 --------- --------- Net Asset $ 53,497 $ 50,589 ========= =========
(a) The definitive agreement requires certain minimum levels of cash to be placed into vaults, change banks and gaming devices at the time of the consummation of the transaction. Therefore, the cash balances shown may differ from the amounts actually transferred at the time of sale. 13 14 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 11. 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 (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. 14 15 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING BALANCE SHEETS June 30, 2000 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 19,528 $ 12,516 $ - $ 32,044 Short term investments - 2,000 - 2,000 Accounts and notes receivable, net 44,889 41,603 (4,048) 82,444 Inventories, net 18,452 13,567 32,019 Other current assets 8,831 2,367 11,198 ------------ ------------ ------------ ------------ Total current assets 91,700 72,053 (4,048) 159,705 ------------ ------------ ------------ ------------ Long-term notes receivable, net 104,342 942 (101,241) 4,043 Leased equipment, net 9,618 7,341 16,959 Property, plant and equipment, net 42,152 34,671 76,823 Excess of costs over net assets of acquired businesses, net 37,845 17,149 54,994 Intangible assets, net 21,567 283 21,850 Investments in subsidiaries 70,933 (70,933) - Other assets, net 39,425 (18,600) (3,912) 16,913 ------------ ------------ ------------ ------------ $ 417,582 $ 113,839 $ (180,134) $ 351,287 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 8,232 $ 2,135 $ - $ 10,367 Accrued liabilities 20,743 12,707 (1,127) 32,323 Current maturities of long-term debt 4,488 3,498 (6,950) 1,036 ------------ ------------ ------------ ------------ Total current liabilities 33,463 18,340 (8,077) 43,726 ------------ ------------ ------------ ------------ Long term debt 421,328 23,897 (101,202) 344,023 Other liabilities 12,225 879 (132) 12,972 ------------ ------------ ------------ ------------ Total liabilities 467,016 43,116 (109,411) 400,721 ------------ ------------ ------------ ------------ Minority interest 1,361 1,361 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 loss (21,790) (21,810) 21,810 (21,790) Retained earnings (accumulated deficit) (175,285) 66,839 (66,839) (175,285) ------------ ------------ ------------ ------------ Total stockholders' equity (deficiency) (50,795) 70,723 (70,723) (50,795) ------------ ------------ ------------ ------------ $ 417,582 $ 113,839 $ (180,134) $ 351,287 ============ ============ ============ ============
See accompanying unaudited note. 15 16 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING BALANCE SHEETS March 31, 2001 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 33,839 $ 12,635 $ - $ 46,474 Short term investments - - - - Accounts and notes receivable, net 37,467 38,773 (2,644) 73,596 Inventories, net 24,274 12,893 - 37,167 Other current assets 8,026 3,019 - 11,045 ------------ ------------ ------------ ------------ Total current assets 103,606 67,320 (2,644) 168,282 ------------ ------------ ------------ ------------ Long-term notes receivable, net 105,699 471 (102,882) 3,288 Leased equipment, net 12,657 6,223 - 18,880 Property, plant and equipment, net 42,290 34,385 - 76,675 Excess of costs over net assets of acquired businesses, net 37,408 15,749 - 53,157 Intangible assets, net 18,452 160 - 18,612 Investment in subsidiaries 72,709 - (72,709) - Other assets, net 34,444 (15,024) (3,277) 16,143 ------------ ------------ ------------ ------------ $ 427,265 $ 109,284 $ (181,512) $ 355,037 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable $ 17,411 $ 1,988 $ - $ 19,399 Accrued liabilities 19,713 10,040 (996) 28,757 Current maturities of long-term debt 4,175 2,126 (5,302) 999 ------------ ------------ ------------ ------------ Total current liabilities 41,299 14,154 (6,298) 49,155 ------------ ------------ ------------ ------------ Long term debt 412,390 21,897 (102,716) 331,571 Other liabilities 11,800 735 - 12,535 ------------ ------------ ------------ ------------ Total liabilities 465,489 36,786 (109,014) 393,261 ------------ ------------ ------------ ------------ Minority interest 1,552 - - 1,552 Commitments and contingencies Stockholders' equity (deficiency): Series E Special Stock 39 - - 39 Common Stock 1,056 17,832 (17,832) 1,056 Treasury stock (501) - - (501) Additional paid-in capital 145,693 7,862 (7,862) 145,693 Accumulated other comprehensive income (26,472) (26,492) 26,492 (26,472) Retained earnings (accumulated deficit) (159,591) 73,296 (73,296) (159,591) ------------ ------------ ------------ ------------ Total stockholders' equity (deficiency) (39,776) 72,498 (72,498) (39,776) ------------ ------------ ------------ ------------ $ 427,265 $ 109,284 $ (181,512) $ 355,037 ============ ============ ============ ============
See accompanying unaudited note. 16 17 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 15,546 11,721 - 27,267 Research and development 4,030 559 - 4,589 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 2,140 (1,084) - 1,056 Earnings 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) ------------ ------------ ------------ ------------ Income before income taxes (9,223) (3,971) 4,327 (8,867) Income tax benefit (provision) 133 (356) - (223) ------------ ------------ ------------ ------------ Net income (loss) $ (9,090) $ (4,327) $ 4,327 $ (9,090) ============ ============ ============ ============
See accompanying unaudited note. 17 18 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended March 31, 2001 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ------------ ------------ Revenues: Gaming equipment and systems $ 40,232 $ 2,168 $ (1,033) $ 41,367 Wall machines and amusement games - 20,561 - 20,561 Route operations 52,012 4,373 - 56,385 Casino operations 5,037 16,235 - 21,272 ------------ ------------ ------------ ------------ 97,281 43,337 (1,033) 139,585 Costs and expenses: Cost of gaming equipment and systems 21,074 1,445 (1,033) 21,486 Cost of wall machines and amusement games - 10,807 - 10,807 Cost of route operations 42,580 2,801 - 45,381 Cost of casino operations 2,851 5,782 - 8,633 Selling, general and administrative 16,270 10,265 - 26,535 Research and development 2,926 627 - 3,553 Depreciation and amortization 5,080 1,968 - 7,048 ------------ ------------ ------------ ------------ 90,781 33,695 (1,033) 123,443 ------------ ------------ ------------ ------------ Operating income 6,500 9,642 - 16,142 Earnings in consolidated subsidiaries 6,823 - (6,823) - Other income (expense): Interest income 99 100 (42) 157 Interest expense (8,066) (554) 42 (8,578) Rainbow royalty 1,882 (1,882) - - Minority interest (655) - - (655) Other, net 144 (241) - (97) ------------ ------------ ------------ ------------ Income before income taxes 6,727 7,065 (6,823) 6,969 Income tax benefit (provision) 93 (242) - (149) ------------ ------------ ------------ ------------ Net income $ 6,820 $ 6,823 $ (6,823) $ 6,820 ============ ============ ============ ============
See accompanying unaudited note. 18 19 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 (loss) 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 income (loss) $ (15,821) $ (915) $ 915 $ (15,821) ============ ============ ============ ============
See accompanying unaudited note. 19 20 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended March 31, 2001 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ------------ ------------ Revenues: Gaming equipment and systems $ 109,694 $ 9,228 $ (5,343) $ 113,579 Wall machines and amusement games - 55,999 - 55,999 Route operations 150,407 12,807 - 163,214 Casino operations 14,391 43,944 - 58,335 ------------ ------------ ------------ ------------ 274,492 121,978 (5,343) 391,127 Costs and expenses: Cost of gaming equipment and systems 54,299 5,795 (5,343) 54,751 Cost of wall machines and amusement games - 30,274 - 30,274 Cost of route operations 123,343 8,238 - 131,581 Cost of casino operations 7,965 16,172 - 24,137 Selling, general and administrative 46,166 29,351 - 75,517 Research and development 8,323 1,894 - 10,217 Depreciation and amortization 14,404 5,815 - 20,219 ------------ ------------ ------------ ------------ 254,500 97,539 (5,343) 346,696 ------------ ------------ ------------ ------------ Operating income 19,992 24,439 - 44,431 Earnings in consolidated subsidiaries 15,797 - (15,797) - Other income (expense): Interest income 371 317 (175) 513 Interest expense (25,048) (1,584) 175 (26,457) Rainbow royalty 5,105 (5,105) - - Minority interest (1,659) - - (1,659) Other, net 309 (582) - (273) ------------ ------------ ------------ ------------ Income before income taxes 14,867 17,485 (15,797) 16,555 Income tax benefit (provision) 827 (1,688) - (861) ------------ ------------ ------------ ------------ Net income $ 15,694 $ 15,797 $ (15,797) $ 15,694 ============ ============ ============ ============
See accompanying unaudited note. 20 21 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 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. 21 22 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 2001 (In 000's)
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ ------------ ------------ Net cash provided by operating activities $ 25,347 $ 13,163 $ (2,227) $ 36,283 ------------ ------------ ------------ ------------ Cash flows from investing activities: Additions to property and equipment (6,947) (2,224) - (9,171) Proceeds from disposal of property and equipment and other assets 139 - - 139 Additions to other long term assets (2,189) - - (2,189) ------------ ------------ ------------ ------------ Net cash used in investing activities (8,997) (2,224) - (11,221) ------------ ------------ ------------ ------------ Cash flows from financing activities: Reduction of long-term debt (2,004) (2,583) 2,227 (2,360) Net increase (decrease) in revolving credit facility (9,380) 1,262 - (8,118) Proceeds from exercise of stock options 443 - - 443 Purchase of common stock for treasury (436) - - (436) Dividends received (paid) 9,339 (9,339) - - ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities (2,038) (10,660) 2,227 (10,471) ------------ ------------ ------------ ------------ Effect of exchange rate changes on cash - (161) - (161) Cash and cash equivalents: Increase for period 14,312 118 14,430 Balance, beginning of period 19,528 12,516 32,044 ------------ ------------ ------------ ------------ Balance, end of period $ 33,840 $ 12,634 $ $ 46,474 ============ ============ ============ ============
See accompanying unaudited note. 22 23 ALLIANCE GAMING CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DEBT AND REVOLVING CREDIT FACILITY Long-term debt and lines of credit at June 30, 2000, consisted of the following (in 000's):
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Elimina- and Subsidiaries Subsidiaries tions Subsidiaries ------------ ------------ --------- ------------ 10% Senior Subordinated Notes due 2007, net of unamortized discount $ 149,351 $ $ $ 149,351 Term loan facilities: Tranche B Term Loan 70,641 70,641 Tranche C Term Loan 37,776 37,776 Delayed Draw Term Facility 23,789 23,789 Revolving Credit Facility 40,000 22,360 62,360 Intercompany notes payable 104,256 3,939 (108,195) Other 1,142 1,142 --------- --------- --------- --------- 425,813 27,441 (108,195) 345,059 Less current maturities 8,508 3,498 (10,970) 1,036 --------- --------- --------- --------- Long-term debt, less current maturities $ 417,305 $ 23,943 $ (97,225) $ 344,023 ========= ========= ========= =========
Long-term debt and lines of credit at March 31, 2001, consisted of the following (in 000's):
Alliance Gaming Parent and Non- Corporation Guaranteeing Guaranteeing Adjust- and Subsidiaries Subsidiaries ments Subsidiaries ------------ ------------ --------- ------------ 10% Senior Subordinated Notes due 2007, net of unamortized discount $ 149,390 $ 149,390 Term loan facilities: Tranche B Term Loan 69,575 69,575 Tranche C Term Loan 37,195 37,195 Delayed Draw Term Facility 23,432 23,432 Revolving Credit Facility 30,600 21,645 52,245 Intercompany notes payable 106,352 1,666 (108,018) - Other 21 712 733 --------- --------- --------- --------- 416,565 24,023 (108,018) 332,570 Less current maturities 539 2,126 (1,666) 999 --------- --------- --------- --------- Long-term debt, less current maturities $ 416,026 $ 21,897 $(106,352) $ 331,571 ========= ========= ========= =========
23 24 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, based on the terms of the $80.0 million revolving credit facility, the Company would have been able to borrow $61.8 million under the facility, of which the Company had borrowings of approximately $55.2 million outstanding. As of March 31, 2001, the unborrowed availability on the revolving credit facility was approximately $6.6 million. The borrowing base for the revolving credit facility consists of eligible receivables and inventory, as defined in the credit agreement. At March 31, 2001, the Company had $46.5 million in cash and cash equivalents. Consolidated cash and cash equivalents at March 31, 2001, includes approximately $21.6 million of cash and cash equivalents used 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. 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. At March 31, 2001, the Company did not have any significant commitments for capital expenditures. In August 2000, the Company signed an agreement with UC Acquisitions Company, LLC, an independent third party gaming operator, for the sale of its Nevada-based route operations. The gross selling price, which is based on a multiple of cash flows for the 12 month period prior to closing, is estimated to be approximately $118 million, consisting of $6 million in preferred stock and $112 million in cash, which will be used to pay down certain lease obligations, pay transactional fees and expenses, with the remainder (estimated to be approximately $95 million) to be used to reduce the Term Loans. This transaction is contingent on the buyer obtaining suitable financing and obtaining approvals from various regulatory bodies. This agreement also allows either party to cancel the transaction based on certain conditions. This transaction is expected to close in approximately August 2001. 24 25 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 WORKING CAPITAL During the nine months ended March 31, 2001, working capital increased $3.1 million to $119.1 million compared to $116.0 million at June 30, 2000. The primary fluctuations in working capital were an increase in cash and cash equivalents due to cash received from reductions in accounts receivable, offset by increases in finished goods inventories and current liabilities. CASH FLOWS During the nine months ended March 31, 2001, the Company generated $36.3 million of cash flows from operating activities, which included an $1.8 million net decrease in accounts and notes receivable, a $15.3 million net increase in inventories, and a $9.2 million net increase in accounts payable. During the nine months ended March 31, 2001, the Company used $11.2 million of cash in investing activities resulting primarily from approximately $9.2 million in capital expenditures plus $2.2 million in additions to other long-term assets. During the nine months ended March 31, 2001, $10.5 million was used in financing activities primarily resulting from reductions in the Company's revolving credit facility of $8.1 million plus $2.4 million of principal reductions on the term debt which included a $1.2 million principal reduction resulting from the excess cash flow provision of the credit agreement. 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 is 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. EURO CURRENCY CONVERSION The Company's Bally Wulff subsidiary uses the German Deutschemark as its functional currency. The new Euro currency will replace the Deutschemark 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 by 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 Deutschemark 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 cannot be quantified at this time. 25 26 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 RESULTS OF OPERATIONS: GENERAL The following tables set forth the earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) and operating income (loss) for the four business units excluding unusual charges, for the following periods (in 000's):
Three Months Ending March 31, Nine Months Ending March 31, --------------------------- --------------------------- 2000 2001 2000 2001 ---------- ---------- ---------- ---------- EBITDA by Business Unit: Bally Gaming and Systems $ 742 $ 7,656 $ 7,368 $ 24,174 Wall Machines and Amusement Games (99) 3,976 1,652 9,288 Route Operations 6,612 6,187 18,264 18,134 Casino Operations 7,683 8,108 19,306 20,900 Corporate Administrative Expenses (3,543) (2,737) (10,802) (7,846) Unusual Items (3,572)(a) - (4,098)(b) - ---------- ---------- ---------- ---------- EBITDA $ 7,823 $ 23,190 $ 31,690 $ 64,650 ========== ========== ========== ========== Operating Income (Loss): Bally Gaming and Systems $ (1,205) $ 5,428 $ 1,670 $ 17,843 Wall Machines and Amusement Games (1,617) 2,597 (2,612) 5,239 Route Operations 4,259 3,717 11,245 11,178 Casino Operations 7,149 7,525 17,744 19,197 Corporate Administrative Expenses (3,958) (3,125) (12,051) (9,026) Unusual Items (3,572)(a) - (4,098)(b) - ---------- ---------- ---------- ---------- Total Operating Income $ 1,056 $ 16,142 $ 11,898 $ 44,431 ========== ========== ========== ==========
The Company believes that the analysis of EBITDA is a useful tool; however, this information should not be construed as an alternative to net income (loss) or any other GAAP measure of performance as an indicator of the Company's performance or 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 three months ended March 31, 2000 consist of approximately $6.6 million of restructuring and related charges, including $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 included 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. 26 27 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 THREE MONTHS ENDED MARCH 31, 2000 AND 2001 BALLY GAMING AND SYSTEMS For the quarter ended March 31, 2001, Bally Gaming and Systems reported revenues of $41.4 million, an increase of 59% compared to $26.0 million in the prior year quarter. Bally Gaming revenues totaled $30.4 million, an increase of 52% compared to $20.0 million in the prior year quarter. New unit sales totaled 2,700 units, a 128% increase compared to 1,180 in the prior year period. The average new unit selling price increased 20% from the prior year quarter to $7,300. The current quarter shipments for Bally Gaming included approximately 280 units to the Nevada and Atlantic City markets, 110 to Canada, 150 units to international markets, and 2,160 units to riverboats, Native American casinos and other domestic markets. Bally Systems reported revenues of $11.0 million compared to $6.0 million in the prior year's quarter. Systems reported shipments of 8,300 units, a 177% increase compared to 3,000 in the prior year period. At March 31, 2001, the Company's Bally Gaming and Systems business unit had an installed base of approximately 2,670 units earning recurring revenues compared to approximately 2,200 units at March 31, 2000. During the current quarter, Bally Gaming and Systems recorded $6.6 million of revenues from the proprietary gaming operations, and a total of $8.7 million from all recurring revenue sources, an increase of 14% compared to the prior year quarter. Recurring revenues include revenue received from the operation of the wide-area progressive systems, fees received from the operation of certain proprietary and niche games, and SDS hardware and software maintenance fees. The overall gross margin percentage for the current quarter declined to 48% compared to 53% in the prior year quarter. The margin decline was due primarily to a $2.8 million non-cash charge to increase inventory obsolescence reserves. Exclusive of this non-cash charge, the gross margin percentage was in line with the prior year quarter. The gaming operations of Bally Gaming and System achieved a 67% gross margin compared to 64% in the prior year quarter. WALL MACHINES AND AMUSEMENT GAMES For the quarter ended March 31, 2001, the Wall Machines and Amusement Games business unit reported revenues of $20.6 million, a 10% increase from the prior year quarter. The increase in revenues resulted from a 82% increase in shipments of new wall machines, a 44% increase in amusement game distribution revenues, a 1% increase in leased machine revenues, and a 1% increase in the average selling price of new wall machines. The prior year 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 Deutschemark decreased revenues by $1.3 million in the current quarter. Gross margin for the quarter was 47% compared to 34% in the prior year quarter. This increase was primarily due to higher unit sales volumes which enhanced the absorption of the fixed overhead costs. ROUTE OPERATIONS For the quarter ended March 31, 2001, the Route Operations business unit reported revenues of $56.4 million, an increase of 5% compared to revenues of $53.5 million in the prior year quarter. Revenues for the Nevada operations increased 7% as net win per gaming machine per day increased to $70.20 from $66.40 in the prior year quarter, while the average number of gaming machines increased to 8,200 from 7,890 in the prior year quarter resulting primarily from 27 28 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 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 14% due primarily to a significant increase in competition from truck stops in the metro New Orleans area as well as the impact of land based casino in New Orleans. Net win per day per gaming machine declined to $70.30 from $80.50 in the prior year quarter, and there was a 3% decrease in the average number of gaming devices deployed from the prior year quarter. The Route Operations EBITDA of $6.2 million represented a decline 6% compared to the prior period. This decline was a result of the lower results at VSI and higher game rental costs in Nevada which totaled $1.3 million in the current quarter, compared to $0.9 million in the prior year quarter. As a percentage of revenues, cost of revenues increased slightly to 81%, primarily as a result of additional game rental costs. The Route Operations unit reported operating income of $3.7 million, a decrease of 13% compared to operating income of $4.3 million in the prior year quarter. The decrease in operating income resulted primarily from increase in higher game rental cost and selling, general and administrative expenses, primarily increased promotion and marketing costs at the Nevada route operation. CASINO OPERATIONS For the quarter ended March 31, 2001, the Casino Operations business unit reported revenues of $21.3 million, an increase of 10% compared to revenues of $19.4 million in the prior year quarter. This revenue increase was a result of a 10% increase at the Rail City Casino and a 9% increase at the Rainbow Casino. The revenue improvement at the Rail City Casino to $5.0 million from $4.6 million in the prior year quarter was attributable to an increase in the average gaming machine net win per day of 8% to $88 from $81 in the prior year quarter with approximately the same number of gaming devices on the casino floor. Rainbow Casino revenues increased to $16.2 million from $14.8 million in the prior year quarter as a result of a 6% decrease in the average number of gaming machines and higher table game revenue, partially offset by a 19% increase in net win per day per gaming machine to $173 from $146 in the prior year quarter. The Rainbow Casino currently has 935 gaming machines on the casino floor, compared to 995 in the prior year quarter, which is due to the floor space required for the addition of three table games to the casino floor as well as the removal of certain low performing machines, some of which will be replaced in the upcoming quarter. For the quarter ended March 31, 2001, the cost of revenues for Casino Operations, as a percentage of revenues, increased to 41% compared to 37% in the prior year quarter. The Casino Operations business unit reported operating income of $7.5 million, an improvement of 5% compared to operating income of $7.2 million in the prior year quarter. Rainbow Casino operating income increased 5% to $6.3 million due primarily to the increase in revenues and partially offset by an increase in selling, general and administrative costs, principally marketing costs. Rail City Casino operating income increased to $1.2 million due primarily to the increase in gaming revenues and a decrease in selling and administrative costs, principally marketing cost. NET INTEREST EXPENSE AND INCOME TAXES Net interest expense in the three months ended March 31, 2001, totaled $8.4 million compared to $8.8 million from the prior year quarter, however, the prior year included $0.5 million in fees paid to amend the bank credit agreement. The increase in interest expense is primarily due to the higher balance of working capital borrowings which were entered into in December 1999, and the increased interest rates on the credit facility. The Company recorded an income tax provision of $0.1 million in the current quarter compared to $0.2 million in the prior year quarter primarily as a result of state income taxes. 28 29 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 NINE MONTHS ENDED MARCH 31, 2000 AND 2001 BALLY GAMING AND SYSTEMS For the nine months ended March 31, 2001, Bally Gaming and Systems reported revenues of $113.6 million, an increase of 18% compared to $96.3 million in the prior year period. Bally Gaming revenues totaled $82.0 million, an increase of 20% compared to $68.2 million in the prior year period. New unit sales totaled 7,400 units, a 20% increase compared to 6,200 in the prior year period. The average new unit selling price increased 11% from the prior year period. The current period shipments for Bally Gaming included approximately 1,000 units to the Nevada and Atlantic City markets, 920 to Canada, 560 units to international markets, and 4,920 units to riverboats, Native American casinos and other domestic markets. Bally Systems reported sales of $31.6 million of revenue compared to $28.1 million in the prior year period. Systems reported shipments of 22,760 units, a 9% decrease compared to 24,868 in the prior year period. The overall gross margin percentage for the current period improved to 52% compared to 45% in the prior year period. 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. The gaming operations of Bally Gaming and Systems achieved a 66% gross margin compared to 60% in the prior year period. WALL MACHINES AND AMUSEMENT GAMES For the nine months ended March 31, 2001, the Wall Machines and Amusement Games business unit reported revenues of $56.0 million, a 6% increase from the prior year period. The increase in revenues resulted from a 52% increase in shipments of new wall machines, a 91% increase in amusement game distribution revenues offset by a 8% decrease in leased machine revenues and a 8% decrease in the average selling price of new wall machines. The foreign currency fluctuation between the dollar and the Deutschemark decreased revenues by $7.0 million in the current period. Gross margin for the period was 46% compared to 37% in the prior year period. This increase was primarily due to higher unit sales volumes which enhanced the absorption of the fixed overhead costs. ROUTE OPERATIONS For the nine months ended March 31, 2001, the Route Operations business unit reported revenues of $163.2 million, an increase of 11% compared to revenues of $147.8 million in the prior year period. Revenues for the Nevada operations increased 13% as net win per gaming machine per day increased to $67.30 from $61.90 in the prior year period, while the average number of gaming machines increased to 8,060 from 7,720 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. Revenues for the Louisiana operations decreased 13%. Net win per day per gaming machine declined to $68.70 from $78.00 in the prior year period, and was offset by a 0.4% increase in the average number of gaming devices deployed from the prior year period. As a percentage of revenues, cost of revenues increased slightly to 81%, primarily as a result of additional game rental costs. The Route Operations business unit reported operating income of $11.2 million, which is unchanged from the prior year period, primarily from higher revenues and partially offset by higher selling, general and administrative expenses, primarily increased promotion and marketing costs at the Nevada route operation. 29 30 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 CASINO OPERATIONS For the nine months ended March 31, 2001, the Casino Operations business unit reported revenues of $58.3 million, an increase of 12% compared to revenues of $52.2 million in the prior year period. This increase was the result of a 10% increase at the Rail City Casino and a 12% increase at the Rainbow Casino. The revenue improvement at the Rail City Casino to $14.4 million from $13.1 million in the prior year period was attributable to an increase in the average gaming machine net win per day of 11% to $84.10 from $76.00 in the prior year period with approximately the same number of gaming devices on the casino floor. Rainbow Casino revenues increased to $43.9 million from $39.2 million in the prior year period as a result of a 15% increase in the average number of gaming machines and by a 3% increase in net win per day per gaming machine to $149 from $145 in the prior year period. For the nine months ended March 31, 2001, the cost of revenues for Casino Operations, as a percentage of revenues, increased to 41% compared to 39% in the prior year period. The Casino Operations business unit reported operating income of $19.2 million, an improvement of 8% compared to operating income of $17.7 million in the prior year period. Rainbow Casino operating income increased 8% to $15.9 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 9% to $3.3 million due primarily to the increase in revenues and 12% decreased in selling, general and administrative costs. NET INTEREST EXPENSE AND INCOME TAXES Net interest expense in the nine months ended March 31, 2001, increased to $25.9 million from $25.0 million in the prior year period; however the prior year included $1.0 million in fees paid to amend the bank credit agreement. Excluding this fee, the increase in interest expense is primarily due to the higher balance of working capital borrowings, which were entered into in December 1999, and the increased interest rates on the credit facility. The Company recorded an income tax provision of $0.9 million in the current year period compared to $0.5 million in the prior year period. The current year period provision is primarily due to various state income tax provisions and deferred taxes recorded in Germany. * * * * * 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, and other risks, as detailed from time to time in the Company's filings with the Securities and Exchange Commission. 30 31 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCOSURES ABOUT MARKET RISK Refer to Part 1, Item 7A, of the Company's annual report on Form 10-K, for the fiscal year ended June 30, 2000. There have been no material changes in market risks since the prior fiscal year end. PART II ITEM 1. LEGAL PROCEEDINGS Refer to Part 1, Item 3, of the Company's annual report on Form 10-K for the fiscal year ended June 30, 2000. There have been no material changes in any legal proceedings since the prior fiscal year end. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2001. 31 32 ALLIANCE GAMING CORPORATION FORM 10-Q MARCH 31, 2001 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 --------------------------------------- Robert Miodunski President and Chief Operating Officer (Principal Executive Officer) By /s/ ROBERT L. SAXTON --------------------------------------- Robert L. Saxton Sr. Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 32 -----END PRIVACY-ENHANCED MESSAGE-----