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 December 31, 1995
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.)
4380 Boulder Highway
Las Vegas, Nevada 89121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (702) 435-4200
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 February 8, 1996 according to the records of
the registrant's registrar and transfer agent, was 12,987,483.
On the same date, there were no shares outstanding of non voting
Junior Convertible Special Stock, $0.10 par value.
I N D E X
PART I. FINANCIAL INFORMATION Page
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1995
and December 31, 1995 (unaudited) 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended December 31, 1994 and 1995 4
Unaudited Condensed Consolidated Statements of Operations
for the six months ended December 31, 1994 and 1995 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 1994 and 1995 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and reports on Form 8-K 18
SIGNATURES 19
PART 1
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 Dec. 31
1995 1995
(unaudited)
(In thousands)
ASSETS
Current assets:
Cash, cash equivalents and securities available
for sale $ 37,414 $ 29,468
Receivables, net 3,316 3,110
Inventories 714 672
Prepaid expenses 4,148 2,984
Other 517 411
Total current assets 46,109 36,645
Property and equipment, net 50,352 50,870
Receivables, net 5,309 4,809
Excess of costs over net assets of an acquired business,
net of accumulated amortization of $585 and $694 3,842 3,733
Intangible assets, net of accumulated amortization of
$5,516 and $5,798 12,405 11,638
Investment in minority owned subsidiary 1,585 1,585
Other 6,746 7,592
Total Assets $126,348 $116,872
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt $ 3,995 $ 4,054
Accounts payable 1,758 2,295
Accrued expenses, including due to related parties
of $931 and $23 8,610 10,187
Total current liabilities 14,363 16,536
Long-term debt, less current maturities 97,402 96,052
Othe liabilities 3,955 4,082
Total liabilities 115,720 116,670
Minority interest 643 919
Stockholders' equity (deficiency):
Common stock, $0.10 par value; authorized 175,000,000
shares issued and outstanding 11,654,150
and 12,987,483 1,165 1,298
Special stock, $0.10 par value; authorized 10,000,000
shares; issued and outstanding 1,333,333 and 0 133 ---
Paid-in capital 32,134 32,134
Unrealized loss on securities available for sale, net (316) (1,587)
Accumulated deficit (23,131) (32,562)
Total stockholders' equity (deficiency) 9,985 (717)
Total liabilities and stockholders' equity
(deficiency) $126,348 $116,872
See notes to unaudited condensed consolidated financial statements.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1994 and 1995
1994 1995
(In thousands, except
per share amounts)
Revenues:
Gaming
Routes $ 26,794 $ 26,325
Casinos and taverns 3,796 10,489
Food and beverage sales 918 870
Net equipment sales 6 3
31,514 37,687
Costs and expenses:
Cost of gaming
Routes 20,113 20,148
Casinos and taverns 2,247 4,728
Cost of food and beverage 691 669
Cost of equipment sales 2 1
Selling, general and administrative 3,157 4,849
Business development expenses 1,965 5,372
Corporate expenses 2,356 1,560
Depreciation and amortization 2,309 2,419
32,840 39,746
Operating loss (1,326) (2,059)
Other income (expense):
Interest income 800 392
Interest expense (1,970) (2,081)
Minority share of income (96) (132)
Other, net (398) (875)
Loss before income taxes (2,990) (4,755)
Income tax expense (100) (1,258)
Net loss $ (3,090) $ (6,013)
Loss per share of common stock $ (.28) $ (.50)
Weighted average common shares outstanding 11,231 12,103
See notes to unaudited condensed consolidated financial
statements.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1994 and 1995
1994 1995
(In thousands, except
per share amounts)
Revenues:
Gaming
Routes $ 52,511 $ 52,621
Casinos and taverns 7,861 21,679
Food and beverage sales 1,950 1,923
Net equipment sales 16 6
62,338 76,229
Costs and expenses:
Cost of gaming
Routes 39,214 40,361
Casinos and taverns 4,653 9,887
Cost of food and beverage 1,414 1,426
Cost of equipment sales 9 1
Selling, general and administrative 6,486 9,398
Business development expenses 3,508 10,737
Corporate expenses 4,302 3,037
Depreciation and amortization 4,613 4,906
64,199 79,753
Operating loss (1,861) (3,524)
Other income (expense):
Interest income 1,504 818
Interest expense (3,915) (4,288)
Minority share of income (169) (276)
Other, net (286) (1,373)
Loss before income taxes (4,727) ( 8,643)
Income tax expense (290) (788)
Net loss $ (5,017) $ (9,431)
Loss per share of common stock $ (.45) $ (.79)
Weighted average common shares outstanding 11,101 11,879
See notes to unaudited condensed consolidated financial statements.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1994 and 1995
1994 1995
(In thousands)
Cash flows from operating activities:
Net loss $ (5,017) $ (9,431)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,613 4,906
Loss on sale of property and equipment 560 240
Write off of other assets 361 201
Provision for losses on receivables 261 20
Amortization of debt discounts 179 118
Equity in losses of affiliate 405 ---
Deferred income tax provision --- 655
Net change in operating assets and liabilities:
Decrease in:
Inventories 28 12
Prepaid expenses 1,577 1,163
Refundable income taxes --- 312
Other assets 615 143
Increase (decrease) in:
Accounts and slot contracts payable 101 537
Accrued expenses (1,333) 1,577
Minority interests 168 276
Other liabilities (424) (223)
Net cash provided by operating activities 2,094 506
Cash flows from investing activities:
Additions to property and equipment (2,905) (5,004)
Proceeds from sale of property and equipment 265 2,218
Additions to receivables (12,303) (6,296)
Cash collections on receivables 9,272 6,564
Investment in subsidiary (1,580) ---
Proceeds from sale of (purchases of) securities
available for sale (133) 8,015
Additions to intangible assets (162) (420)
Additions to other long-term assets (1,959) (2,179)
Net cash provided by (used in)
investing activities (9,505) 2,898
Cash flows from financing activities:
Reduction of long-term debt (1,594) (2,091)
Proceeds from long-term debt --- 682
Issuance of stock 109 ---
Net cash used in financing activities (1,485) (1,409)
Cash and cash equivalents:
(Decrease) increase for period (8,896) 1,995
Balance, beginning of period 37,085 13,734
Balance, end of period $ 28,189 $ 15,729
See notes to unaudited condensed consolidated financial statements.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 1994 and 1995
1. ADJUSTMENTS FOR FAIR PRESENTATION
In the opinion of management, the accompanying unaudited
interim financial statements contain all adjustments,
consisting of normal recurring adjustments, necessary to
present fairly the financial condition, results of operations
and cash flows of the Company for the respective periods
presented. The results of operations for an interim period are
not necessarily indicative of the results to be expected for a
full year.
Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that the accompanying condensed consolidated
financial statements be read in conjunction with the financial
statements and notes in the Company's annual report on Form 10-
K. All intercompany accounts and transactions have been
eliminated in consolidation.
2. RECLASSIFICATIONS
Certain reclassifications have been made to prior period
financial statements to conform with current period
presentations.
3. RECEIVABLES
The Company's gaming route operations from time to time
involve making loans to location operators in order to
participate in revenues over extended periods of time. These
loans, generally made for buildouts, tenant improvements and
initial operating expenses, are generally guaranteed on a full
recourse basis by the location owner and are secured by the
assets of the location. The majority of the loans are
interest bearing and are expected to be repaid over a period
of time not to exceed the life of the related revenue sharing
agreement. The loans have varying payment terms requiring
either weekly or monthly payments. Annual interest rates on
the loans range from prime plus 1.5% to stated rates of 12%
with various maturity dates ranging through 2007. The loans
are expected to be repaid from the locations' cash flows or
proceeds from the sale of the leaseholds.
Receivables consist of the following:
June 30 Dec. 31
1995 1995
(In thousands)
Notes receivable-location operators $ 7,760 $ 7,764
Other receivables 865 155
8,625 7,919
Less current amounts (3,316) (3,110)
Long-term receivables, excluding
current amounts $ 5,309 $ 4,809
Receivables are presented net of an allowance for doubtful
accounts of approximately $1,659,000 and $1,435,000 as of June
30, 1995 and December 31, 1995, respectively. The allowance
is allocated between current and long-term receivables on a
pro rata basis related to notes receivable from location
operators.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 1994 and 1995
4. DEBT
Long-term debt at June 30, 1995 and December 31, 1995 consists
of the following:
June 30 Dec. 31
1995 1995
(In thousands)
Convertible subordinated debentures due 2003,
7.5% $ 85,000 $ 85,000
Due to stockholder due 1998, 200 basis
points over the London Inter Bank offer
rate (current rate 7.97%), net of
discount of $747,619 and $629,573 3,309 2,797
Hospitality Franchise Systems due 2001, 7.5% 9,065 8,476
National Gaming Mississippi due 2002, 10.0% 631 1,224
Other debt 3,392 2,609
101,397 100,106
Less current maturities 3,995 4,054
Long-term debt, less current maturities $ 97,402 $ 96,052
Accrued interest of approximately $1,991,000 (June 30) and
$1,973,000 (December 31) is included in accrued expenses in
the unaudited condensed consolidated balance sheets. Amounts
due to stockholder include amounts owed to affiliates of
Alfred H. Wilms, the Company's largest stockholder and a
member of the Board of Directors of the Company, relating to
funding of the Company's majority-controlled subsidiary, Video
Services, Inc.'s ("VSI") gaming device route operations.
5. INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Financial Accounting Standard No. 109 Accounting
for Income Taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Due to losses and the lack of available carrybacks, the
Company recognized no federal income tax expense or benefit
for the six month period ended December 31, 1994 and 1995
other than the tax effects of changes in the unrealized gains
(losses) on securities available for sale. At December 31,
1995, the Company had estimated net operating loss
carryforwards for federal income tax purposes of approximately
$35,000,000 which are available to offset future federal
taxable income, if any, expiring 2007 through 2009. The tax
deferred benefit from the net operating losses has been fully
reserved.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 1994 and 1995
6. INVESTMENT IN MINORITY OWNED SUBSIDIARY
The Company and Casino Magic Corporation, through wholly owned
subsidiaries, are members in Kansas Gaming Partners, L.L.C.
("KGP") and Kansas Financial Partners, L.L.C. ("KFP"), both
Kansas limited liability companies. Under an option agreement
(the "Option Agreement") granted to KGP by Camptown Greyhound
Racing, Inc. ("Camptown") and The Racing Association of Kansas-
Southeast ("TRAK Southeast"), KGP has been granted the
exclusive right, which right expires on September 13, 2013, to
operate gaming devices and/or casino-type gaming at Camptown's
racing facility in Frontenac, Kansas if and when such gaming
is permitted in Kansas. In December 1994, Camptown received a
$3,205,000 loan from Boatmen's Bank which was guaranteed by
KFP. The Company and Casino Magic Corporation each invested
$1,580,000 in KFP which was used to purchase a certificate of
deposit to collateralize its guaranty. Construction of
Camptown's racing facility has been completed and the facility
opened for business in May 1995. The racing facility was
temporarily closed on November 5, 1995 due to poor financial
results. Camptown filed for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in January 1996 and has stated an
intention to reopen for business following bankruptcy
reorganization. Boatmen's Bank demanded payment of the
Camptown loan from KFP under the terms of the guaranty. KFP
paid the loan and Boatmen's Bank returned KFP's certificate of
deposit and KFP assumed Boatmen's Bank's position in the loan
to Camptown which is secured by a second mortgage on
Camptown's greyhound racing facility in Frontenac, Kansas.
TRAK Southeast and Camptown continue to be bound by the Option
Agreement. KFP intends to vigorously pursue all of its rights
and remedies which may include, among other things, seeking
authority from the bankruptcy court to commence a foreclosure
action. In the case of a foreclosure action, KFP would be
required to assume or pay the existing first mortgage of
approximately $2,000,000 if KFP becomes the purchaser at any
such sale. The Company intends to continue to monitor its
investment in KFP. While the Company is encouraged by the
positive movement in Kansas towards considering legislation
that would legalize the operation of gaming devices at pari-
mutuel track locations, there can be no assurance as to
Camptown's ability to maintain its license at the location, or
any successful completion or operation of any part of this
project.
7. CASH, CASH EQUIVALENTS AND SECURITIES AVAILABLE FOR SALE
For balance sheet presentation the following account balances
have been combined at December 31, 1995:
(in thousands)
Cash and cash equivalents $ 15,729
Securities available for sale 13,739
Total $ 29,468
As of December 31, 1995 unrealized losses for securities
available for sale was $1,587,000 net of the tax effect of
$817,000 and is included as a component of stockholder's
equity.
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 1994 and 1995
8. INTANGIBLE ASSETS
Intangible Assets includes $4,272,000 net of $1,232,000 of
accumulated amortization, for costs related to the
commissions, discounts and other issuance costs of the
Company's private placement of $85,000,000 aggregate principal
amount of 7.5% Convertible Subordinated Debentures due 2003.
Such costs are being amortized on a straight line basis over
the term of the debentures.
9. PROPOSED BGII MERGER TRANSACTION
On October 18, 1995, the Company and Bally Gaming
International, Inc. ("BGII") entered into a definitive merger
agreement ("Merger") under which the outstanding shares of
BGII common stock would each be exchanged for $13 in cash and
shares of the Company,s common stock.
On January 22, 1996, the parties reached an agreement to amend
the terms of the Merger. Under the amended agreement, each
share of BGII common stock outstanding (10,799,501 as of
September 30, 1995 less the 1,000,000 shares already owned by
the Company) will receive $7.83 per share in cash, $3.57 per
share in the Company's Series B Special Stock which is a Pay-
in-Kind (PIK) preferred stock, and $0.30 per share of the
Company's common stock totaling $11.70 per share of BGII
common stock. The PIK preferred stock has an eight-year
maturity and has a dividend rate of 15% as follows: PIK at 15%
for the first five years; 8% PIK and 7% cash for years six and
seven; and 15% cash in the eighth year of the term. All shares
of Series B Special Stock are mandatorily redeemable by the eighth
anniversary of the date of initial issuance. If the Company fails to
redeem such shares by that date, then
the number of directors constituting the Company's Board will
be increased by two and the holders of the shares of Series B
Special Stock will have the right to elect no more than two
directors total to the Company's Board. The holders of Series
B Special Stock will have no other remedies upon such failure
to redeem the outstanding shares of Series B Special Stock by
such date. Other than as described herein, the holders of
shares of Series B Special Stock have no other voting rights
except as stated by law. The Company intends to seek to have
the Series B Special Stock quoted on NASDAQ. The aggregate
amount of cash is unchanged from the previous agreement.
The transaction is subject to approval by shareholders,
obtaining customary regulatory approvals, the securing of
$150,000,000 in permanent financing by the Company including
$15,000,000 through a registered public offering of the Series
B Special Stock, and certain other conditions. The Merger is
expected to occur in late April 1996.
10. LEGAL PROCEEDINGS
In June 1995, Bally Entertainment Corporation ("BEC") asserted
that a certain agreement between BEC and BGII (the "Noncompete
Agreement") prohibits the use of the trade name "Bally" if it
is merged with a company that is in the casino business within
or without the United States and operates such business prior
to January 8, 1996. BGII believes such claim is entirely
without merit since the restriction referred to expires on
January 8, 1996 and in any event does not relate to the use of
the "Bally" trade name, which is covered by the License
Agreement. The restriction in the Noncompete Agreement will
not have any impact on the combined company after the Merger
since the effective time of the Merger contemplates a closing
of the Merger after the restriction in the Noncompete
Agreement lapses. BEC has not reasserted this position since
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended December 31, 1994 and 1995
10. LEGAL PROCEEDINGS (continued)
it was informed by BGII in July 1995 that the restriction
lapses on January 8, 1996. Consequently, BGII believes BEC has
determined not to contest with BGII's position.
BEC has also asserted that its permission is required for use
of the "Bally" trade name by any entity other than BGII and
that a merger between BGII and another company would violate
the terms of the License Agreement. BGII has denied these
claims and believes that the surviving company in a merger
will be permitted to use the "Bally" trade name in accordance
with the terms of such License Agreement. BGII believes that
no breach of such License Agreement is caused by the Merger
and the use of the "Bally" trade name by the surviving
corporation. In a letter dated November 9, 1995, BEC
reasserted its position. On November 20, 1995 the Company, the
Company's Merger Subsidiary, and BGII commenced an action
against BEC in Federal District Court in Delaware seeking a
declaratory judgment, among other things, that the surviving
company in the Merger will be permitted to use the "Bally"
trade name in accordance with the terms of the License
Agreement, and seeking injunctive relief (the " Alliance
Action"). On November 28, 1995, BEC commenced an action
against BGII, Bally Gaming (a BGII subsidiary), the Company,
and the Company's Merger Subsidiary in Federal District Court
in New Jersey to enjoin the defendants from using the
"Bally" trade name (the "BEC Action"). The BEC Action alleges
that BGII's continued use of the trade name after the Merger
will (1) constitute a prohibited assignment of BGII's rights
to use the trade name and (2) exceed the scope of the license
granted to BGII because BGII will be under control of the
Company. Also on November 28, 1995, BEC filed a motion to di
smiss, transfer to New Jersey, or stay the Alliance Action
pending resolution of the BEC Action. BGII, Bally Gaming, the
Company, and the Company's Merger Subsidiary intend to
vigorously defend their position in these actions. However,
there can be no assurance that BEC will not be successful in
its action to prohibit the surviving corporation in the Merger
from using the "Bally" trade name. The loss of the "Bally"
trade name would have a material adverse effect on the gaming
machine operations of the surviving corporation in the Merger.
11. INITIAL SERIES SPECIAL STOCK
In September 1993, Kirkland-Ft. Worth Investment Partners,
L.P. ("Kirkland") invested $5,000,000 in the Company in
exchange for 1,333,333 shares of the Company's Non-Voting
Junior Convertible Special Stock, which are convertible on a
share for share basis into shares of the Company's Common
Stock, and warrants to purchase up to 2,750,000 shares of
common stock subject to certain conditions. In December 1995,
Kirkland elected to convert the entire 1,333,333 shares of
Special Stock into shares of the Company's Common Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Liquidity and Capital Resources:
At December 31, 1995, the Company had working capital of
approximately $20,109,000, a decrease of approximately
$11,637,000 from June 30, 1995. The decrease in working capital
is due in part to a decrease in cash and cash equivalents which
were used to fund development activities in connection with the
Company's business strategy. As of December 31, 1995, the Company
had $29,468,000 in cash, cash equivalents and securities
available for sale, of which approximately $7,000,000 is
necessary to fund ongoing gaming operations in the ordinary
course of business.
On October 18, 1995, the Company and Bally Gaming International,
Inc. ("BGII") entered into a definitive agreement under which the
outstanding shares of BGII common stock will each be exchanged
for $13 in cash and the Company's shares of common stock. On
January 22, 1996, the parties reached an agreement to amend the
terms of the merger agreement. Under the amended agreement, each
share of BGII common stock outstanding (10,799,501 as of
September 30, 1995 less the 1,000,000 shares already owned by the
Company) will receive $7.83 per share in cash, $3.57 per share in
the Company's Series B Special Stock which is a Pay-in-Kind (PIK)
preferred stock, and $0.30 per share of the Company's common
stock totaling $11.70 per share of BGII common stock. The PIK
preferred stock has an eight-year maturity and has a dividend
rate of 15% as follows: PIK at 15% for the first five years; 8%
PIK and 7% cash for years six and seven; and 15% cash in the
eighth year of the term. All shares of Series B Special Stock are
mandatorily redeemable on the eighth anniversary of the date
of the initial issuance. If the Company fails to redeem
such shares by that date, then the number of directors constituting
the Company's Board will be increased by two and the holders of
the shares of Series B Special Stock will have the right to elect
no more than two directors total to the Company's Board. The
holders of Series B Special Stock will have no other remedies
upon such failure to redeem the outstanding shares of Series B
Special Stock by such date. Other than as described herein, the
holders of shares of Series B Special Stock have no other voting
rights except as stated by law. The Company intends to seek to
have the Series B Special Stock quoted on NASDAQ. The aggregate
amount of cash is unchanged from the previous agreement. The
transaction is subject to approval by shareholders, obtaining
customary regulatory approvals, the securing of $150,000,000 in
permanent financing by the Company including $15,000,000 through
a registered public offering of the Series B Special Stock, and
certain other conditions. The Merger is expected to occur in late
April 1996. The Company intends to seek financing of
approximately $180,000,000 in connection with its intended merger
with BGII, with the additional proceeds to be used for working
capital purposes.
During the six months ended December 31, 1995, the Company
incurred approximately $10,737,000 in costs associated with
pursuit of the Company's business strategy. The Company's
strategy is to use its strengthened management team, diversified
gaming expertise and business and investment community
relationships to develop new opportunities in the operation of
land-based, dockside and riverboat casinos (including Native
American casinos), gaming systems and technology, and the supply
and management of gaming devices. Included in these costs are
expenses of $9,437,000 associated with the Company's tender and
consent solicitation for the common stock of, and subsequent
entering into a definitive merger agreement with, BGII.
On July 16, 1994, the Rainbow Casino located in Vicksburg,
Mississippi permanently opened for business. In connection with
the completion of the casino and the acquisition of its 45%
limited partnership interest, through a wholly-owned subsidiary,
the Company funded a $3,250,000 advance to Rainbow Casino
Corporation ("RCC") on the same terms as RCC's financing from
Hospitality Franchise Systems, Inc. ("HFS"). On March 29, 1995
the Company consummated certain transactions whereby the Company
acquired from RCC the controlling general partnership interest in
Rainbow Casino Vicksburg Partnership ("RCVP") and increased its
partnership interest. In exchange for commitments by the Company
and National Gaming Mississippi, Inc. ("NGM"), a subsidiary of
National Gaming Corporation, to provide additional financing (up
to a maximum of $2,000,000 each) to be used for the completion of
certain elements of the project which survived the opening of the
casino (for which RCC was to have been responsible for, but
failed to satisfy), and a $500,000 payment also funded jointly by
the Company and NGM paid to HFS as a waiver fee, the following
occurred: (i) a subsidiary of the Company became the general
partner and RCC became the limited partner and (ii) the
respective partnership interests were adjusted. As adjusted, RCC
is entitled to receive 10% of the net available cash flows from
gaming revenues, as defined (which amount shall increase to 20%
of cash flow from gaming revenues above $35,000,000 (i.e. only on
such incremental amount)), for a period of 15 years, such period
being subject to one year extensions for each year in which a
minimum payment of $50,000 is not made. Since March 29, 1995 the
results of operations of the Rainbow Casino have been
consolidated.
The Company and Casino Magic Corporation, through wholly owned
subsidiaries, are members in Kansas Gaming Partners, L.L.C.
("KGP") and Kansas Financial Partners, L.L.C. ("KFP"), both
Kansas limited liability companies. Under an option agreement
(the "Option Agreement") granted to KGP by Camptown Greyhound
Racing, Inc. ("Camptown") and The Racing Association of Kansas-
Southeast ("TRAK Southeast"), KGP has been granted the exclusive
right, which right expires on September 13, 2013, to operate
gaming devices and/or casino-type gaming at Camptown's racing
facility in Frontenac, Kansas if and when such gaming is
permitted in Kansas. In December 1994, Camptown received a
$3,205,000 loan from Boatmen's Bank which was guaranteed by KFP.
The Company and Casino Magic Corporation each invested $1,580,000
in KFP which was used to purchase a certificate of deposit to
collateralize its guaranty. Construction of Camptown's racing
facility has been completed and the facility opened for business
in May 1995. The racing facility was temporarily closed on
November 5, 1995 due to poor financial results. Camptown filed
for reorganization under Chapter 11 of the U.S. Bankruptcy Code
in January 1996 and has stated an intention to reopen for
business following bankruptcy reorganization. Boatmen's Bank
demanded payment of the Camptown loan from KFP under the terms of
the guaranty. KFP paid the loan and Boatmen's Bank returned KFP's
certificate of deposit and KFP assumed Boatmen's Bank's position
in the loan to Camptown which is secured by a second mortgage on
Camptown's greyhound racing facility in Frontenac, Kansas. TRAK
Southeast and Camptown continue to be bound by the Option
Agreement. KFP intends to vigorously pursue all of its rights and
remedies which may include, among other things, seeking authority
from the bankruptcy court to commence a foreclosure action. In
the case of a foreclosure action, KFP would be required to assume
or pay the existing first mortgage of approximately $2,000,000 if
KFP becomes the purchaser at any such sale. The Company intends
to continue to monitor its investment in KFP. While the Company
is encouraged by the positive movement in Kansas towards
considering legislation that would legalize the operation of
gaming devices at pari-mutuel track locations, there can be no
assurance as to Camptown's ability to maintain its license at the
location, or any successful completion or operation of any part
of this project.
Cash provided by operations for the six months decreased by
approximately $1,588,000 from amounts reported for the prior year
period. The change is primarily due to an increase in cash
provided by the casino and tavern operations of approximately
$5,700,000 which was attributable to the Rainbow Casino, offset
by an increase in business development costs over the same period
from the prior year of $7,229,000, primarily related to the BGII
merger.
Cash provided by investing activities for the six months improved
$12,403,000 from the same period in the prior year due primarily
to the proceeds from the sale of approximately $8,015,000
securities available for sale. Also, cash collections on,
net of additions to, receivables improved by
$3,299,000 compared to the same period last year.
Cash used in financing activities for the six months declined
$76,000 from the same period last year due primarily to the
Company's principal reductions on its existing long-term debt of
$2,091,000 offset by proceeds of $682,000 from issuing additional
long-term debt.
Management believes the Company's present working capital and
funds generated from operations will be sufficient to meet its
existing commitments, debt payments and other obligations as they
become due. As discussed in previous reports, however, it
remains a part of the Company's business strategy to seek
complementary gaming opportunities, including opportunities in
which its route and casino experience may be applicable. As part
of its business activities, the Company is regularly involved in
the identification, investigation and development of such
opportunities. Accordingly, in order to support such activities,
the Company may in the future elect to issue additional debt or
equity securities if and when appropriate opportunities become
available on terms satisfactory to management.
Results of Operations.
Three Months Ended December 31, 1994 and 1995
Revenues:
Total revenues for the three months ended December 31, 1995 were
$37,687,000, an increase of $6,173,000 (19.6%) over those for the
same period in 1994. Revenues from all gaming route operations
decreased $469,000 (1.7%) to approximately $26,325,000 in the
second quarter of fiscal 1996. Revenues from the Louisiana route
operations increased $334,000 (an increase of 9.0%) primarily as
a result of an expansion of operations from the opening of a new
OTB parlor in October 1995. Revenue from Nevada route operations
decreased approximately $803,000 (3.5%) over those for the same
period last year. The decrease in the Nevada gaming route
revenues was attributable to a $1.65 decrease in the average net
win per gaming device per day for the three months ended December
31, 1995 compared to the same period in 1994 (accounting for a
decrease of approximately $793,000) and a decrease in the
weighted average number of gaming devices on location for the
three months ended December 31, 1995 as compared to the same
period in 1994 (accounting for a decrease of approximately
$10,000). Revenues from casino and tavern operations, including
food and beverage sales, increased approximately $6,645,000
(141.0%) during the current year quarter as compared to those for
the prior year as revenues recognized from the Rainbow Casino,
which were consolidated beginning March 29, 1995, exceeded the
revenues lost with the termination of the Company's lease at the
Royal Casino and the reduction of operations at the Company's
tavern locations.
Costs and Expenses:
Costs of Revenues
Cost of gaming route revenues for the quarter ended December 31,
1995 increased $35,000 (0.2%) over the same quarter in 1994.
Costs of revenues from route operations in Louisiana increased
$157,000 (an increase of 6.5% from last year) as a result of an
expansion of operations from the opening of a new OTB parlor in
October 1995. Costs of gaming revenues for Nevada gaming route
revenues decreased $122,000 (0.7%) as compared to the prior year
as revenues declined and increased slightly as a percent of
Nevada gaming route revenues primarily due to increased costs
associated with additional and renewed space lease contracts.
Cost of route revenues includes rents under both space lease and
revenue sharing arrangements, gaming taxes and direct labor,
including related taxes and benefits. The cost of casino and
tavern revenues including costs of food and beverage revenues
increased $2,459,000 (83.7%) compared to 1994 results primarily
due to the Rainbow Casino cost of revenues which were
consolidated beginning March 29, 1995. This increase was
partially offset from the termination of the Company's lease at
the Royal Casino and the reduction of operations at the Company's
tavern locations. Cost of casino and tavern revenues includes
cost of goods sold, gaming taxes, rent and direct labor,
including related taxes and benefits.
Expenses
For the quarter ended December 31, 1995 the Company incurred
developmental costs associated with pursuing the Company's growth
strategy of approximately $5,372,000, an increase of $3,407,000
(173.4%) over the same period from last year. These business
development expenses include salaries and wages, related taxes
and benefits, professional fees, travel expense and other
expenses associated with supporting the Company's growth
strategy. Current quarter development costs also include expenses
of $4,760,000 associated with the Company's merger with BGII.
Selling, general and administrative expenses for the period
increased approximately $1,692,000 (53.6%) from the prior year.
Expenses for casinos and taverns increased $1,984,000 (224.4%)
from the prior year primarily due to the Rainbow Casino expenses
which were consolidated beginning March 29, 1995. This increase
was partially offset from the termination of the Company's lease
at the Royal Casino and the reduction of operations at the
Company's tavern locations. Such expenses related to gaming route
operations decreased $294,000 (12.9%) from the prior year
reflecting steps taken to control costs, including reduced
staffing levels. Corporate general and administrative expenses
decreased $796,000 (33.8%). This decrease was caused primarily by
controlling costs and reducing staffing levels. The Company
expects that there may be further increases in selling, general
and administrative expenses related to the addition of new
management and development personnel and other costs associated
with supporting the Company's business strategy.
Six Months Ended December 31, 1994 and 1995
Revenues:
Total revenues for the six months ended December 31, 1995 were
$76,229,000, an increase of $13,891,000 (22.3%) over those for
the same period in 1994. Revenues from all gaming route
operations increased $110,000 (0.2%) to approximately $52,621,000
in the first six months of fiscal 1996. Revenues from the
Louisiana route operations increased $147,000 (a increase of
1.9%) primarily as a result of an expansion of operations from
the opening of a new OTB parlor in October 1995. Revenues from
Nevada route operations decreased approximately $36,000 (0.1%)
over those for the same period last year. The decrease in the
Nevada gaming route revenues was attributable to a $0.52 decrease
in the average net win per gaming device per day for the six
months ended December 31, 1995 compared to the same period in
1994 (accounting for a decrease of approximately $499,000) which
exceeded an increase in the weighted average number of gaming
devices on location for the six months ended December 31, 1995 as
compared to the same period in 1994 (accounting for an increase
of approximately $463,000). Revenues from casino and tavern
operations, including food and beverage sales, increased
approximately $13,791,000 (140.6%) during the current six months
as compared to those for the prior year as revenues recognized
from the Rainbow Casino, which were consolidated beginning March
29, 1995, exceeded the revenues lost with the termination of the
Company's lease at the Royal Casino and the reduction of
operations at the Company's tavern locations.
Costs and Expenses:
Costs of Revenues
Cost of gaming route revenues for the six months ended December
31, 1995 increased $1,147,000 (2.9%) over the same period in
1994. Costs of revenues from route operations in Louisiana
decreased $53,000 (a decrease of 1.1% from last year) as a result
of controlling direct labor costs. Costs of gaming revenues for
Nevada gaming route revenues increased $1,200,000 (3.5%) as
compared to the prior year and increased slightly as a percent of
Nevada gaming route revenues primarily due to increased costs
associated with additional and renewed space lease contracts.
Cost of route revenues includes rents under both space lease and
revenue sharing arrangements, gaming taxes and direct labor,
including related taxes and benefits. The cost of casino and
tavern revenues including costs of food and beverage revenues
increased $5,246,000 (86.5%) compared to 1994 results primarily
due to the Rainbow Casino cost of revenues which were
consolidated beginning March 29, 1995. This increase was
partially offset from the termination of the Company's lease at
the Royal Casino and the reduction of operations at the Company's
tavern locations. Cost of casino and tavern revenues includes
cost of goods sold, gaming taxes, rent and direct labor,
including related taxes and benefits.
Expenses
For the six months ended December 31, 1995 the Company incurred
developmental costs associated with pursuing the Company's
business strategy of approximately $10,737,000, an increase of
$7,229,000 (206.1%) over the same period from last year. These
business development expenses include salaries and wages, related
taxes and benefits, professional fees, travel expense and other
expenses associated with supporting the Company's strategy.
Current year development costs also include expenses of
$9,437,000 associated with the Company's tender and consent
solicitation for the common stock of, and subsequent entering
into a definitive merger agreement with, Bally Gaming
International, Inc.
Selling, general and administrative expenses for the period
increased approximately $2,912,000 (44.9%) from the prior year.
Expenses for casinos and taverns increased $3,629,000 (198.3%)
from the prior year primarily due to the Rainbow Casino expenses
which were consolidated beginning March 29, 1995. This increase
was partially offset from the termination of the Company's lease
at the Royal Casino and the reduction of operations at the
Company's tavern locations. Such expenses related to gaming route
operations decreased $717,000 (15.4%) from the prior year
reflecting steps taken to control costs, including reduced
staffing levels. Corporate general and administrative expenses
decreased $1,265,000 (29.4%). This decrease was caused primarily
by controlling costs and reducing staffing levels. The Company
expects that there may be further increases in selling, general
and administrative expenses related to the addition of new
management and development personnel and other costs associated
with supporting the Company's growth strategy.
PART II
Item 1. Legal Proceedings
See "Notes to Unaudited Condensed Consolidated Financial
Statements- 10. Legal Proceedings" for a description of
certain legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Description
10.67 Agreement and Plan of Merger among Alliance
Gaming Corporation, BGII Acquisition Corp. and
Bally Gaming International, Inc. as of
October 18, 1995.
10.68 Employment Agreement, dated as of October 28, 1995,
between the Company and Robert Miodunski.
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the
three months ended December 31, 1995.
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/ Steve Greathouse
Chairman of the Board of Directors,
President and Chief Executive Officer
By /s/ John W. Alderfer
Sr. Vice President, Treasurer
and Chief Financial Officer
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<LEGEND>
This schedule contains summary financial information excerpted from Form 10-Q
for the quarter ended 12/31/95.
</LEGEND>
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<PERIOD-END> DEC-31-1995
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