<PAGE> 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 DECEMBER 31, 1997
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 January
30, 1998 according to the records of the registrant's registrar and transfer
agent was 32,013,284.
<PAGE> 2
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
I N D E X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Unaudited Financial Statements
Unaudited Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1997 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended December 31, 1996 and 1997 4
Unaudited Condensed Consolidated Statements of Operations
for the six months ended December 31, 1996 and 1997 5
Unaudited Condensed Consolidated Statements of Stockholders'
Equity (Net Capital Deficiency) for the six months ended
December 31, 1997 6
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 1996 and 1997 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 6. Exhibits and reports on Form 8-K 32
SIGNATURES 33
</TABLE>
2
<PAGE> 3
PART 1
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's, except share data)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1997 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,924 $ 27,047
Accounts and notes receivable, net of allowance for doubtful
accounts of $21,929 and $13,661 87,701 87,450
Inventories, net of reserves of $8,856 and $8,076 37,329 34,982
Other current assets 9,627 8,483
--------- ---------
Total current assets 163,581 157,962
--------- ---------
Long-term notes receivable, net of allowance for doubtful
accounts of $1,972 and $1,547 8,981 8,135
Leased equipment, net of accumulated depreciation of $3,377 and $3,821 7,902 8,279
Property, plant and equipment, net of accumulated depreciation
of $39,695 and $43,864 74,647 74,862
Excess of costs over net assets of acquired businesses, net of
accumulated amortization of $1,723 and $2,045 62,098 61,104
Intangible assets, net of accumulated amortization of $9,626 and $10,885 18,231 21,002
Other assets, net 16,576 16,001
--------- ---------
Total assets $ 352,016 $ 347,345
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 14,270 $ 7,276
Accrued liabilities 37,392 32,847
Current maturities of long-term debt 1,124 2,279
--------- ---------
Total current liabilities 52,786 42,402
--------- ---------
Term loan facilities -- 138,500
Senior Subordinated Notes due 2007, net of unamortized discount of $779 -- 149,221
Senior Secured Notes, net of unamortized discount 151,224 19
Other long-term debt, less current maturities 21,491 26,587
Other liabilities 12,433 13,666
--------- ---------
Total liabilities 237,934 370,395
--------- ---------
Minority interest 1,546 1,590
Series B Special Stock, $.10 par value, $100 liquidation value; 754,198
shares issued and outstanding at June 30, 1997, net of discount 58,981 --
Commitments and contingencies Stockholders' equity (net capital deficiency):
Special Stock, 10,000,000 shares authorized:
Series E, $100 liquidation value; 123,689 shares and 129,749
shares issued and outstanding 12,368 12,975
Common Stock, $.10 par value; 175,000,000 shares authorized;
31,852,000 shares and 32,010,000 shares issued and outstanding 3,185 3,201
Additional paid-in capital 138,590 122,609
Cumulative translation adjustment (11,719) (14,220)
Accumulated deficit (88,869) (149,205)
--------- ---------
Total stockholders' equity (net capital deficiency) 53,555 (24,640)
--------- ---------
Total liabilities and stockholders' equity (net capital deficiency) $ 352,016 $ 347,345
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In 000's, except share data)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1997
--------- ---------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 42,273 $ 27,455
Wall machines and amusement games 42,293 27,731
Route operations 31,692 37,040
Casino operations 12,445 14,488
--------- ---------
128,703 106,714
--------- ---------
Costs and expenses:
Cost of gaming equipment and systems 26,483 15,333
Cost of wall machines and amusement games 20,317 15,165
Cost of route operations 23,644 28,635
Cost of casino operations 5,583 6,271
Selling, general and administrative 32,847 26,604
Depreciation and amortization 5,920 5,809
Unusual items -- (2,545)
--------- ---------
114,794 95,272
--------- ---------
Operating income 13,909 11,442
Other income (expense):
Interest income 471 210
Interest expense (5,628) (7,497)
Rainbow royalty (1,125) --
Minority interest (285) (446)
Other, net 53 64
--------- ---------
Income before income taxes 7,395 3,773
Income tax provision 3,250 427
--------- ---------
Net income 4,145 3,346
Special Stock dividends (3,094) (373)
--------- ---------
Net income applicable to common shares $ 1,051 $ 2,973
========= =========
Basic earnings per share $ 0.03 $ 0.09
========= =========
Diluted earnings per share $ 0.03 $ 0.09
========= =========
Weighted average common shares outstanding 31,834 31,974
========= =========
Weighted average common and common share equivalents outstanding 32,540 34,058
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In 000's, except share data)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1996 1997
--------- ---------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 77,175 $ 54,622
Wall machines and amusement games 68,700 48,792
Route operations 60,582 72,695
Casino operations 25,158 28,576
--------- ---------
231,615 204,685
Costs and expenses:
Cost of gaming equipment and systems 48,290 31,569
Cost of wall machines and amusement games 35,421 26,733
Cost of route operations 45,539 55,823
Cost of casino operations 10,958 12,531
Selling, general and administrative 56,702 50,876
Depreciation and amortization 11,141 10,812
Unusual items 700 (2,545)
--------- ---------
208,751 185,799
--------- ---------
Operating income 22,864 18,886
Other income (expense):
Interest income 1,034 441
Interest expense (11,879) (13,566)
Rainbow royalty (2,276) (587)
Rainbow Royalty Buyout -- (19,000)
Minority interest (426) (836)
Other, net 52 52
--------- ---------
Income (loss) before income taxes 9,369 (14,610)
Income tax provision 4,588 920
--------- ---------
Income (loss) before extraordinary item 4,781 (15,530)
Extraordinary loss, without tax benefit (note 2) -- (42,033)
--------- ---------
Net income (loss) 4,781 (57,563)
Special Stock dividends (note 2) 5,411 2,773
Premium on repurchase/redemption of Series B Special Stock 580 16,553
--------- ---------
Net loss applicable to common shares $ (1,210) $ (76,889)
========= =========
Basic earnings per share:
Loss before extraordinary item $ (0.04) $ (1.09)
Extraordinary loss -- (1.32)
--------- ---------
Net loss $ (0.04) $ (2.41)
========= =========
Diluted earnings per share:
Loss before extraordinary item $ (0.04) $ (1.09)
Extraordinary loss -- (1.32)
--------- ---------
Net loss $ (0.04) $ (2.41)
========= =========
Weighted average common shares outstanding 31,802 31,913
========= =========
Weighted average common and common share equivalents outstanding 31,802 31,913
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Six Months Ended December 31, 1997
(In 000's)
<TABLE>
<CAPTION>
Total
Stock-
holders'
Series E Additional Cumulative Equity (Net
Common Stock Special Stock Paid-in Accum. Translation Capital
Shares Dollars Shares Dollars Capital Deficit Adjustment Deficiency)
------ ------- ------ ------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1997 31,852 $ 3,185 123 $ 12,368 $ 138,590 $ (88,869) $ (11,719) $ 53,555
Net loss -- -- -- -- -- (57,563) -- (57,563)
Shares issued upon
exercise of options 138 14 -- -- 459 -- -- 473
Special Stock dividends -- -- 7 722 -- (2,773) -- (2,051)
Conversion of Series E
Special Stock to common 20 2 -- (115) 113 -- -- --
Special Stock redemption
premium -- -- -- -- (16,553) -- -- (16,553)
Foreign currency translation
adjustment -- -- -- -- -- -- (2,501) (2,501)
--------- --------- --------- --------- --------- --------- --------- ---------
Balances at
December 31, 1997 32,010 $ 3,201 130 $ 12,975 $ 122,609 $(149,205) $ (14,220) $ (24,640)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In 000's)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,781 $ (57,563)
Adjustments to reconcile net income (loss)
to net cash provided (used in) by operating activities:
Depreciation and amortization 11,141 10,812
Amortization of debt discounts 654 19
Extraordinary item -- 42,033
Write down of other assets 1,153 2,776
Loss (gain) on sale of assets 275 (45)
Provision for losses on (recovery of) receivables 6,309 (6,886)
Other (1,625) 572
Net change in operating assets and liabilities:
Accounts and notes receivable (13,521) 8,026
Inventories (5,036) (754)
Other current assets 898 (347)
Accounts payable (2,546) (6,994)
Accrued liabilities 1,274 (3,803)
--------- ---------
Net cash provided by (used in) operating activities 3,757 (12,154)
Cash flows from investing activities:
Additions to property, plant and equipment (6,055) (6,574)
Proceeds from disposal of property and equipment 2,791 224
Other (1,534) (1,974)
--------- ---------
Net cash used in investing activities (4,798) (8,324)
Cash flows from financing activities:
Refinancing fees and expenses -- (32,752)
Capitalized debt issue costs -- (11,456)
Proceeds from issuance of long-term debt 41 303,734
Reduction of long-term debt (4,853) (178,355)
Net change in lines of credit (9,564) 14,674
Repurchase/redemption of Series B Special Stock (3,307) (77,568)
Proceeds from exercise of stock options 123 473
--------- ---------
Net cash provided by (used in) financing activities (17,560) 18,750
Effect of exchange rate changes on cash (55) (149)
Cash and cash equivalents:
Decrease for period (18,656) (1,877)
Balance, beginning of period 48,057 28,924
--------- ---------
Balance, end of period $ 29,401 $ 27,047
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which management believes are necessary to present fairly the
financial position, results of operations and cash flows of Alliance
Gaming Corporation ("Alliance" or the "Company") for the respective
periods presented. The results of operations for an interim period are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. The accompanying unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's annual report on Form 10-K as amended for the year ended June
30, 1997. All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying condensed consolidated financial statements at June 30,
1997 were derived from the audited consolidated financial statements, but
do not include all disclosures required under generally accepted
accounting principles. Certain reclassifications have been made to prior
period financial statements to conform with current period presentation.
2. DEBT AND LINES OF CREDIT
As discussed in detail below, substantially all of the Company's
indebtedness shown below at June 30, 1997 was repaid as part of the
Refinancing (as defined below). Long-term debt at June 30, 1997, prior to
the Refinancing and at December 31, 1997, after the Refinancing, consists
of the following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
1997 1997
---- ----
(in 000's)
<S> <C> <C>
10% Senior Subordinated Notes due 2007, net of unamortized
discount of $779,000 $ -- $149,221
Tranche B Term Loan -- 74,813
Tranche C Term Loan -- 39,900
Delayed Draw Term Facility -- 25,000
Revolving Credit Facility -- 24,243
12 7/8% Senior Secured Notes due 2003, net of unamortized
discount of $2,776,000 and $0 151,224 19
Bally Wulff revolving lines of credit 9,611 --
Hospitality Franchise Systems note payable,
secured by the assets of the Rainbow Casino 6,569 --
7.5% Convertible subordinated debentures due 2003, unsecured 1,642 --
Other, secured by related equipment 4,793 3,410
-------- --------
173,839 316,606
Less current maturities 1,124 2,279
-------- --------
Long-term debt, less current maturities $172,715 $314,327
======== ========
</TABLE>
In August 1997 the Company effected a series of related transactions (as
described below, the "Refinancing"). The Refinancing consisted of the
private placement of $150 million of Senior Subordinated Notes and the
closing of $230 million of bank financing. The bank financing provides for
(i) term loans in the aggregate amount of up to $140.0 million, comprised
of a $75.0 million tranche with a 7 1/2-year term (the "Tranche B Term
Loan"), a $40.0 million tranche with an 8-year term (the "Tranche C Term
Loan"), and a $25.0 million tranche with a 7 1/2-year term (the "Delayed
Draw Term Facility" and together with the Tranche B Term Loan and the
Tranche C Term Loan, the "Term Loan Facilities"); and (ii) a $90.0 million
revolving credit
8
<PAGE> 9
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
facility (the "Revolving Credit Facility") with a 6-year term. Each of
these credit facilities are variable rate borrowings in accordance with a
credit grid. The interest rates at the highest level of the credit grid
and maturity dates are as follows:
<TABLE>
<CAPTION>
Initial Maturity
Rate Date
<S> <C> <C>
Tranche B Term Loan LIBOR + 2.75% January 31, 2005
Tranche C Term Loan LIBOR + 3.00% July 31, 2005
Delayed Draw Term Facility LIBOR + 2.75% January 31, 2005
Revolving Credit Facility LIBOR + 2.25% July 31, 2003
</TABLE>
The Revolving Credit Facility also allows for German Deutschemark
borrowings at the Eurodeutschemark rate plus 2.25% (or 6.0% at December
31, 1997.
As part of the Refinancing, the Company used the proceeds of the Senior
Subordinated Note offering, together with borrowings under the Revolving
Credit Facility, the Term Loan Facilities and cash on hand to fund (a) the
repurchase at a premium of substantially all of the Company's 12 7/8%
Senior Secured Notes, plus accrued interest to August 8, 1997 totaling
$181.6 million, (b) the redemption at liquidation value of all of the
Company's Series B Special Stock on September 8, 1997 totaling $77.6
million, (c) the purchase from HFS Gaming Corporation of the right to
receive royalty payments based on revenues of the Rainbow Casino for $19.0
million (the "Rainbow Royalty Buyout"), (d) the repayment of related debt
owed to an HFS affiliate, National Gaming Mississippi, Inc. on August 12,
1997 totaling $7.3 million, (e) repayment of amounts outstanding under the
domestic and foreign revolving lines of credit and (f) the payment of
transaction fees and expenses totaling $16.6 million. At December 31,
1997, based on the terms of the new $90.0 million Revolving Credit
Facility, the Company would have been able to borrow, net of credit line
restrictions of $1.5 million, $71.6 million. At December 31, 1997,
borrowings under the revolving credit line totaled $24.2 million, of which
$15.7 million were German Deutschemark borrowings. The borrowing base for
the revolving credit facility includes eligible receivables and inventory
(as defined). Additionally, in July 1997 the Company redeemed the
remaining balance of the 7 1/2% Convertible Debentures at a price of 104%,
or a total of $1.7 million.
The bank facility 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 subject to both a U.S. and
German Pledge Agreement (both as defined). The bank facility contains a
number of maintenance covenants and together with the indenture, both have
other significant covenants that, among other things, restrict the ability
of the Company and certain of its subsidiaries to dispose of assets, incur
additional indebtedness and issue preferred stock, pay dividends or make
other distributions, enter into certain acquisitions, repurchase equity
interests (as defined) or subordinated indebtedness, issue or sell equity
interests of the Company's subsidiaries (as defined), engage in mergers or
acquisitions, or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities.
The Senior Subordinated Notes bear interest at 10%, are due in 2007, and
are general unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt (as defined) of the Company, including
indebtedness under the new credit facility. The Senior Subordinated Notes
will be fully and unconditionally guaranteed on a joint and several senior
subordinated basis by all existing and future domestic Restricted
Subsidiaries (as defined) of the Company, subject to certain exceptions
including the partially-owned entities through which its Mississippi
casino and Louisiana route operations are conducted. The Subsidiary
Guarantees (as defined) are general unsecured obligations of the
Guarantors, ranking
9
<PAGE> 10
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
subordinate in right of payment to all Senior Debt of the Guarantors. The
Company will be able to designate other current or future subsidiaries as
Unrestricted Subsidiaries (as defined) under certain circumstances.
Unrestricted Subsidiaries will not be required to issue a Subsidiary
Guarantee and will not be subject to many of the restrictive covenants set
forth in the Indenture pursuant to which the Senior Subordinated Notes
were issued. The Indenture for the Company's Senior Subordinated Notes
contains various covenants, including limitations on incurrence of
additional indebtedness, on restricted payments and on dividend and
payment restrictions on subsidiaries. The Senior Subordinated Notes may
not be redeemed for the first five years. Upon the occurrence of a Change
of Control (as defined), the holders of the Senior Subordinated Notes will
have the right to require the Company to purchase their notes at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
3. REFINANCING CHARGES
As a result of the Refinancing described above, the Company recorded an
extraordinary loss of $42.0 million consisting of the $27.7 million
premium paid to repurchase the Senior Secured Notes, the payment of
related transaction fees and expenses, and the charge-off of the
unamortized debt discount and deferred financing fees. There was no tax
benefit recognized for the extraordinary item as a valuation allowance was
recorded to fully reserve the net operating losses created.
The Company also recorded a $19.0 million charge for the cost of the
Rainbow Royalty Buyout. Additionally, the Company recorded a $16.5 million
charge to equity and a corresponding increase in the net loss applicable
to common shares for the difference between the carrying value and the
liquidation value of the Series B Special Stock, all of which was redeemed
on September 8, 1997 at the liquidation price of $100 per share, plus
accrued dividends.
4. INCOME TAXES
The Company's effective tax rate for the three and six months ended
December 31, 1996 and 1997 differs from the statutory rate of 35% due to
state income taxes and the impact of taxes applicable to earnings of Bally
Wulff. In addition, earnings at the Company's domestic subsidiaries cannot
be fully offset by the utilization of net operating loss carryforwards.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the condensed
consolidated statements of cash flows. For the six months ended December
31, 1996 and 1997, the Company recorded the following significant non-cash
items:
<TABLE>
<CAPTION>
Six months ended December 31,
1996 1997
---- ----
(In 000's)
<S> <C> <C>
Reclassify other assets to property, plant and equipment $1,461 $ 154
Reclassify excess costs over net assets of acquired business
to property, plant and equipment 1,436 --
Dividends for Series E and Series B Special Stock 5,411 2,773
Reclassify inventory to property, plant and equipment 6,496 3,101
Translation rate adjustments 859 2,352
</TABLE>
10
<PAGE> 11
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
6. LEGAL PROCEEDINGS
LITIGATION
In the action filed on December 2, 1996, the Company was named as a
defendant in an action brought by Canpartners Investments IV and Cerberus
Partners, pending in federal district court for the Southern District of
New York. The Company entered into certain loan commitment letters with
the plaintiffs in August 1995, contemplating that the plaintiffs would
lend approximately $30.0 million to partially fund the Company's then
pending hostile tender offer for Bally Gaming International, Inc. (BGII).
The Company entered into a merger agreement with BGII in October 1995 and
did not use funds provided by the plaintiffs to fund the acquisition of
BGII in June 1996. On October 27, 1997, the court granted in part the
Company's motion to dismiss the Canyon/Cerebus complaint. The claims for
breach of the duty of good faith and fair dealing, seeking damages in
excess of $12.0 million, and fraudulent concealment have been dismissed in
their entirety, without prejudice to plaintiffs' right to replead. The
claim for indemnification has been dismissed to the extent plaintiffs seek
reimbursement of costs and fees relating to the litigation, but remains to
the extent they seek reimbursement of expenses in connection with
negotiation of the commitment letter and loan documents. The court left
intact the plaintiffs' claim for breach of contract; however, the Company
believes it has strong defenses to the plaintiffs' claim and intends to
vigorously defend the action.
On September 25, 1995, BGII was named as a defendant in a class action
lawsuit filed in Federal District Court in Nevada, by Larry Schreirer on
behalf of himself and all others similarly situated. The plaintiffs filed
suit against BGII and approximately 45 other defendants. Each defendant is
involved in the gaming business as either a gaming machine manufacturer,
distributor, or casino operator. The class action lawsuit arises out of
alleged fraudulent marketing and operation of casino video poker machines
and electronic slot machines. The plaintiffs allege that the defendants'
actions constitute violations of the Racketeer Influenced and Corrupt
Organizations Act (RICO) and give rise to claims of common law fraud and
unjust enrichment. The plaintiffs are seeking monetary damages in excess
of $1.0 billion, and are asking that any damage awards be trebled under
applicable Federal law. In December 1997, the judge dismissed the
defendants' motion to dismiss all claims in the litigation. Management
believes the plaintiffs' lawsuit to be without merit. The Company intends
to vigorously pursue all legal defenses available to it.
As is further discussed below, during the quarter ended December 31, 1997
the Company, Alpha Hospitality and General Electric Credit Corporation
settled certain customer notes receivable obligations which had been sold
by the Company on a recourse basis in prior years. As a result of this
settlement, all litigation between these parties has been dismissed.
The Company is also a party to various lawsuits relating to routine
matters incidental to its business. Management does not believe that the
outcome of such litigation, including the matters above, in the aggregate,
will have a material adverse effect on the company.
7. UNUSUAL ITEMS
In December 1997 the Company, Alpha Hospitality and General Electric
Credit Corporation settled certain customer notes receivable on which the
Company had certain recourse obligations. The Company contributed $2.5
million to the final settlement with the holder of the notes, and reversed
$6.0 million of reserves previously established for these recourse
obligations. In addition, as part of the settlement the Company became the
sole owner of approximately 566,000 shares of Alpha Hospitality common
stock which trades on
11
<PAGE> 12
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
the NASDAQ Small Cap market. The Company intends to sell this stock within
the limitations provided for in the settlement agreement.
As a result of settling a dispute over the exclusive use of certain
technologies and changes in gaming regulations, the Company evaluated the
cash flow of certain of its technology assets, in accordance with the
provisions of Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-lived Assets
to be Disposed of," and determined certain items met the definition of
having become impaired. The Company recorded write-downs totaling $2.8
million for these items, which amount is included in unusual items.
Additionally, the Company accrued $0.7 million for the present value of
contractual payments due to a former member of the board of directors who
was not re-elected to the board at the December 1997 annual shareholders
meeting.
During the quarter ended September 30, 1996, the Company incurred unusual
charges of $0.7 million related primarily to separation costs of Alliance
personnel subsequent to the acquisition of Bally Gaming International,
Inc.
8. UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS
The following unaudited consolidating financial statements are presented
to provide certain financial information regarding guaranteeing and
non-guaranteeing subsidiaries in relation to the Company's Senior
Subordinated Notes which were issued in the Refinancing transaction
completed in August 1997 (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.
12
<PAGE> 13
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
June 30, 1997
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,462 $ 12,462 $ $ 28,924
Accounts and notes receivable, net 31,799 57,207 (1,305) 87,701
Inventories, net 19,231 18,778 (680) 37,329
Other current assets 6,695 2,932 9,627
--------- --------- --------- ---------
Total current assets 74,187 91,379 (1,985) 163,581
--------- --------- --------- ---------
Long-term notes receivable, net 96,271 1,501 (88,791) 8,981
Leased equipment, net 7,902 7,902
Property, plant and equipment, net 41,836 32,811 74,647
Excess of costs over net assets of acquired
businesses, net 41,185 21,031 (118) 62,098
Intangible assets, net 17,979 252 18,231
Investment in subsidiaries 100,478 (100,478)
Other assets, net 22,310 (5,758) 24 16,576
--------- --------- --------- ---------
$ 394,246 $ 149,118 $(191,348) $ 352,016
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,936 $ 4,262 $ 72 $ 14,270
Accrued liabilities 21,129 16,727 (464) 37,392
Current maturities of long-term debt 585 1,348 (809) 1,124
--------- --------- --------- ---------
Total current liabilities 31,650 22,337 (1,201) 52,786
--------- --------- --------- ---------
Senior Secured Notes due 2003, net 151,224 151,224
Other long-term debt, less current maturities 87,924 22,676 (89,109) 21,491
Other liabilities 9,366 3,500 (433) 12,433
--------- --------- --------- ---------
Total liabilities 280,164 48,513 (90,743) 237,934
--------- --------- --------- ---------
Minority interest 1,546 1,546
Series B Special Stock 58,981 58,981
Stockholders' equity:
Common Stock 3,185 17,832 (17,832) 3,185
Series E Special Stock 12,368 12,368
Additional paid-in capital 138,590 68,699 (68,699) 138,590
Cumulative translation adjustment (11,719) (11,880) 11,880 (11,719)
Retained earnings (accumulated deficit) (88,869) 25,954 (25,954) (88,869)
--------- --------- --------- ---------
Total stockholders' equity 53,555 100,605 (100,605) 53,555
--------- --------- --------- ---------
$ 394,246 $ 149,118 $(191,348) $ 352,016
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
13
<PAGE> 14
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
December 31, 1997
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,905 $ 16,142 $ $ 27,047
Accounts and notes receivable, net 37,869 53,454 (3,873) 87,450
Inventories, net 19,275 16,204 (497) 34,982
Other current assets 5,084 3,399 8,483
--------- --------- --------- ---------
Total current assets 73,133 89,199 (4,370) 157,962
--------- --------- --------- ---------
Long-term notes receivable, net 99,366 1,496 (92,727) 8,135
Leased equipment, net 8,279 8,279
Property, plant and equipment, net 41,920 32,942 74,862
Excess of costs over net assets of acquired
businesses, net 40,829 20,275 61,104
Intangible assets, net 20,523 479 21,002
Investment in subsidiaries 100,090 (100,090) --
Other assets, net 34,711 (5,804) (12,906) 16,001
--------- --------- --------- ---------
$ 410,572 $ 146,866 $(210,093) $ 347,345
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 5,657 $ 2,273 $ (654) $ 7,276
Accrued liabilities 22,225 11,992 (1,370) 32,847
Current maturities of long-term debt 1,773 2,980 (2,474) 2,279
--------- --------- --------- ---------
Total current liabilities 29,655 17,245 (4,498) 42,402
--------- --------- --------- ---------
Term loan facilities 138,500 138,500
Senior Secured Notes due 2003, net 19 19
Senior Subordinated Notes due 2007, net 149,221 149,221
Other long-term debt, less current maturities 105,916 25,731 (105,060) 26,587
Other liabilities 10,311 3,742 (387) 13,666
--------- --------- --------- ---------
Total liabilities 433,622 46,718 (109,945) 370,395
--------- --------- --------- ---------
Minority interest 1,590 1,590
Stockholders' equity (net capital deficiency):
Common Stock 3,201 17,832 (17,832) 3,201
Series E Special Stock 12,975 12,975
Additional paid-in capital 122,609 68,700 (68,700) 122,609
Cumulative translation adjustment (14,220) (14,381) 14,381 (14,220)
Retained earnings (accumulated deficit) (149,205) 27,997 (27,997) (149,205)
--------- --------- --------- ---------
Total stockholders' equity (net capital deficiency) (24,640) 100,148 (100,148) (24,640)
--------- --------- --------- ---------
$ 410,572 $ 146,866 $(210,093) $ 347,345
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
14
<PAGE> 15
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1996
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $ 41,319 $ 2,575 $ (1,621) $ 42,273
Wall machines and amusement games 42,293 42,293
Route operations 27,180 4,512 31,692
Casino operations 2,932 9,513 12,445
--------- --------- --------- ---------
71,431 58,893 (1,621) 128,703
--------- --------- --------- ---------
Costs and expenses:
Cost of gaming equipment and systems 25,177 2,122 (816) 26,483
Cost of wall machines and amusement games 20,317 20,317
Cost of route operations 20,736 2,908 23,644
Cost of casino operations 1,918 3,665 5,583
Selling, general and administrative 18,099 14,731 17 32,847
Depreciation and amortization 3,340 2,580 5,920
--------- --------- --------- ---------
69,270 46,323 (799) 114,794
--------- --------- --------- ---------
Operating income 2,161 12,570 (822) 13,909
Earnings in consolidated subsidiaries 6,880 (6,880)
Other income (expense):
Interest income 498 81 (108) 471
Interest expense (5,282) (454) 108 (5,628)
Rainbow royalty (1,125) (1,125)
Minority interest (285) (285)
Other, net 59 (23) 17 53
--------- --------- --------- ---------
Income before income taxes 4,031 11,049 (7,685) 7,395
Income tax (benefit) provision (114) 3,364 3,250
--------- --------- --------- ---------
Net income 4,145 7,685 (7,685) 4,145
Special Stock dividends 3,094 3,094
--------- --------- --------- ---------
Net income applicable to common shares $ 1,051 $ 7,685 $ (7,685) $ 1,051
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
15
<PAGE> 16
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1997
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $ 26,611 $ 2,293 $ (1,449) $ 27,455
Wall machines and amusement games 27,731 27,731
Route operations 31,950 5,090 37,040
Casino operations 3,439 11,049 14,488
--------- --------- --------- ---------
62,000 46,163 (1,449) 106,714
--------- --------- --------- ---------
Costs and expenses:
Cost of gaming equipment and systems 15,268 1,588 (1,523) 15,333
Cost of wall machines and amusement games 15,165 15,165
Cost of route operations 25,324 3,311 28,635
Cost of casino operations 2,069 4,202 6,271
Selling, general and administrative 15,273 11,331 26,604
Depreciation and amortization 3,458 2,351 5,809
Unusual items (2,545) (2,545)
--------- --------- --------- ---------
58,847 37,948 (1,523) 95,272
--------- --------- --------- ---------
Operating income 3,153 8,215 74 11,442
Earnings in consolidated subsidiaries 6,004 (6,004)
Other income (expense):
Interest income 340 96 (226) 210
Interest expense (7,266) (457) 226 (7,497)
Rainbow royalty 1,296 (1,296)
Minority interest (446) (446)
Other, net (33) 97 64
--------- --------- --------- ---------
Income before income taxes 3,048 6,655 (5,930) 3,773
Income tax (benefit) provision (298) 725 427
--------- --------- --------- ---------
Net income 3,346 5,930 (5,930) 3,346
Special Stock dividends 373 373
--------- --------- --------- ---------
Net income applicable to common shares $ 2,973 $ 5,930 $ (5,930) $ 2,973
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
16
<PAGE> 17
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1996
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $ 74,921 $ 5,583 $ (3,329) $ 77,175
Wall machines and amusement games 68,700 68,700
Route operations 51,749 8,833 60,582
Casino operations 6,047 19,111 25,158
--------- --------- --------- ---------
132,717 102,227 (3,329) 231,615
--------- --------- --------- ---------
Costs and expenses:
Cost of gaming equipment and systems 46,264 4,550 (2,524) 48,290
Cost of wall machines and amusement games 35,421 35,421
Cost of route operations 39,853 5,686 45,539
Cost of casino operations 3,783 7,175 10,958
Selling, general and administrative 31,243 25,459 56,702
Depreciation and amortization 6,588 4,553 11,141
Unusual items 700 700
--------- --------- --------- ---------
128,431 82,844 (2,524) 208,751
--------- --------- --------- ---------
Operating income 4,286 19,383 (805) 22,864
Earnings in consolidated subsidiaries 10,068 (10,068)
Other income (expense):
Interest income 1,084 171 (221) 1,034
Interest expense (10,576) (1,524) 221 (11,879)
Rainbow royalty (2,276) (2,276)
Minority interest (426) (426)
Other, net (77) 129 52
--------- --------- --------- ---------
Income before income taxes 4,359 15,883 (10,873) 9,369
Income tax (benefit) provision (422) 5,010 4,588
--------- --------- --------- ---------
Net income 4,781 10,873 (10,873) 4,781
Special Stock dividends 5,411 5,411
Premium on repurchase of Series B Special Stock 580 580
--------- --------- --------- ---------
Net income applicable to common shares $ (1,210) $ 10,873 $ (10,873) $ (1,210)
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
17
<PAGE> 18
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1997
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $ 53,134 $ 5,040 $ (3,552) $ 54,622
Wall machines and amusement games 48,792 48,792
Route operations 62,715 9,980 72,695
Casino operations 6,728 21,848 28,576
--------- --------- --------- ---------
122,577 85,660 (3,552) 204,685
--------- --------- --------- ---------
Costs and expenses:
Cost of gaming equipment and systems 31,548 3,631 (3,610) 31,569
Cost of wall machines and amusement games 26,733 26,733
Cost of route operations 49,376 6,447 55,823
Cost of casino operations 4,167 8,364 12,531
Selling, general and administrative 28,627 22,249 50,876
Depreciation and amortization 6,385 4,427 10,812
Unusual items (2,545) (2,545)
--------- --------- --------- ---------
117,558 71,851 (3,610) 185,799
--------- --------- --------- ---------
Operating income 5,019 13,809 58 18,886
Earnings in consolidated subsidiaries 9,185 (9,185)
Other income (expense):
Interest income 632 207 (398) 441
Interest expense (13,068) (896) 398 (13,566)
Rainbow royalty 1,976 (2,563) (587)
Rainbow royalty buyout (19,000) (19,000)
Minority interest (836) (836)
Other, net 31 21 52
--------- --------- --------- ---------
Income (loss) before income taxes (16,061) 10,578 (9,127) (14,610)
Income tax (benefit) provision (531) 1,451 920
--------- --------- --------- ---------
Net income (loss) before extraordinary item (15,530) 9,127 (9,127) (15,530)
Extraordinary loss, without tax benefit (42,033) (42,033)
--------- --------- --------- ---------
Net income (loss) (57,563) 9,127 (9,127) (57,563)
Special Stock dividends 2,773 2,773
Premium on redemption of Series B Special Stock 16,553 16,553
--------- --------- --------- ---------
Net loss applicable to common shares $ (76,889) $ 9,127 $ (9,127) $ (76,889)
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
18
<PAGE> 19
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1996
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities: (9,323) 12,699 381 3,757
-------- -------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (3,493) (2,562) (6,055)
Proceeds from disposal of property and equipment 39 2,752 2,791
Other (1,534) (1,534)
-------- -------- -------- --------
Net cash provided by (used in) investing
activities (4,988) 190 (4,798)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 41 41
Reduction of long-term debt (428) (4,044) (381) (4,853)
Net change in lines of credit (6,929) (2,365) (9,564)
Repurchase of Series B Special Stock (3,307) (3,307)
Proceeds from issuance of common stock 123 123
Dividends received (paid) 524 (524) --
-------- -------- -------- --------
Net cash used in financing
activities (9,976) (7,203) (381) (17,560)
-------- -------- -------- --------
Effect of exchange rate changes on cash (55) (55)
Cash and cash equivalents:
Increase (decrease) for period (24,287) 5,631 (18,656)
Balance, beginning of period 36,954 11,103 48,057
-------- -------- -------- --------
Balance, end of period $ 12,667 $ 16,734 $ -- $ 29,401
======== ======== ======== ========
</TABLE>
See accompanying unaudited note.
19
<PAGE> 20
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1997
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities (26,736) 8,231 6,351 (12,154)
--------- --------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (4,415) (2,159) (6,574)
Proceeds from disposal of property and equipment 6 221 224
Other (1,827) (147) (1,974)
--------- --------- --------- ---------
Net cash used in investing activities (6,239) (2,085) (8,324)
--------- --------- --------- ---------
Cash flows from financing activities:
Refinancing fees and expenses (32,752) (32,752)
Capitalized new debt issue costs (11,456) (11,456)
Proceeds from long-term debt 303,734 7,279 (7,279) 303,734
Reduction of long-term debt (170,728) (8,555) 928 (178,355)
Net change in lines of credit 8,631 6,043 14,674
Redemption of Series B Special Stock (77,568) (77,568)
Proceeds from exercise of stock options 473 473
Dividends received (paid) 7,084 (7,084)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities 27,418 (2,317) (6,351) 18,750
--------- --------- --------- ---------
Effect of exchange rate changes on cash (149) (149)
Cash and cash equivalents:
Increase (decrease) for period (5,557) 3,680 (1,877)
Balance, beginning of period 16,462 12,462 28,924
--------- --------- --------- ---------
Balance, end of period $ 10,905 $ 16,142 $ -- $ 27,047
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
20
<PAGE> 21
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DEBT AND LINES OF CREDIT
Long-term debt and lines of credit at December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ----- ------------
(in 000's)
<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2007, net of unamortized discount $ 149,221 $ 149,221
Tranche B Term Loan 74,813 74,813
Tranche C Term Loan 39,900 39,900
Delayed Draw Term Facility 25,000 25,000
Revolving Credit Facility 8,589 15,654 24,243
Intercompany notes payable 97,079 10,455 (107,534) --
Other 827 2,602 3,429
--------- --------- --------- ---------
395,429 28,711 (107,534) 316,606
Less current maturities 1,773 2,980 (2,474) 2,279
--------- --------- --------- ---------
Long-term debt, less current
maturities $ 393,656 $ 25,731 $(105,060) $ 314,327
========= ========= ========= =========
</TABLE>
21
<PAGE> 22
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES
In August 1997 the Company completed a series of related transactions as
described below ("the Refinancing") which consisted of the private placement of
$150.0 million of Senior Subordinated Notes and the closing of $230.0 million of
bank financing. The bank financing provides for (i) term loans in the aggregate
amount of up to $140.0 million, comprised of a $75.0 million tranche with a
7 1/2-year term (the "Tranche B Term Loan"), a $40.0 million tranche with an
8-year term (the "Tranche C Term Loan"), and a $25.0 million tranche with a
7 1/2-year term (the "Delayed Draw Term Facility" and together with the
Tranche B Term Loan and the Tranche C Term Loan, the "Term Loan Facilities");
and (ii) a $90.0 million revolving credit facility with a 6-year term (the
"Revolving Credit Facility").
As part of the Refinancing, the Company used the proceeds of the Senior
Subordinated Note offering, together with borrowings under the Revolving Credit
Facility, the Term Loan Facilities and cash on hand, to fund (a) the repurchase
at a premium of substantially all of the Company's 12 7/8% Senior Secured Notes,
plus accrued interest to August 8, 1997 totaling $181.6 million, (b) the
redemption at liquidation value of all of the Company's Series B Special Stock
on September 8, 1997 totaling $77.6 million, (c) the purchase from HFS Gaming
Corporation of the right to receive royalty payments based on revenues of the
Rainbow Casino and the purchase of related debt owed to an HFS affiliate,
National Gaming Mississippi, Inc. on August 12, 1997 totaling $26.3 million and
(d) the payment of transaction fees and expenses totaling $16.6 million.
Additionally, in July 1997 the Company redeemed the remaining balance of its
7-1/2% Convertible Debentures at a price of 104%, or a total of $1.7 million.
At December 31, 1997, based on the terms of the new $90.0 million Revolving
Credit Facility, the Company would have been able to borrow, net of credit line
restrictions, $71.6 million, of which the Company had borrowings of
approximately $24.2 million on December 31, 1997. The borrowing base for the
revolving credit facility consists of eligible receivables and inventory, as
defined in the credit agreement.
At December 31, 1997, the Company actually had $27.0 million in cash and cash
equivalents and $47.4 million in additional availability on its revolving line
of credit. In addition, the Company had working capital of approximately $115.6
million, an increase of approximately $4.8 million from June 30, 1997 which is
explained below. Consolidated cash and cash equivalents at December 31, 1997
includes approximately $13.0 million of cash which is utilized in Casino and
Route Operations which is held in vaults, cages or change banks, which amount
has increased due to the growth in locations serviced by the Route Operations
business unit.
Management believes that cash flow from operating activities, cash and cash
equivalents held and the new $90.0 million Revolving Credit Facility will
provide the Company with sufficient capital resources and liquidity. At December
31, 1997, the Company did not have any significant commitments for capital
expenditures.
Working Capital
During the six months ended December 31, 1997, working capital increased $4.8
million to $115.6 million. The primary fluctuations contributing to the increase
in working capital were: (i) reductions in accounts payable and accrued
liabilities of $11.5 million, (ii) the impact of foreign exchange fluctuations
between the dollar and the deutschemark, and (iii) an increase in accounts
receivable resulting from the reversal of the provision for doubtful
22
<PAGE> 23
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
receivables related to the Alpha Hospitality obligation discussed below,
partially offset by decreases in cash and cash equivalents of $1.9 million and
decreases in accounts receivable due to cash collections.
Cash Flow
During the six months ended December 31, 1997, the Company used cash from
operating activities of $12.2 million primarily related to cash payments for
accounts payable and accrued liabilities, partially offset by cash collected
from accounts receivable..
During the six months ended December 31, 1997 $8.3 million was used by investing
activities primarily related to capital expenditures.
During the six months ended December 31, 1997, $18.8 million was provided in
financing activities from the issuance of the Senior Subordinated Notes and the
new credit facility, and was used to repurchase the Senior Secured Notes, redeem
the Series B Special Stock, fund the Rainbow Royalty Buyout and pay related fees
and expenses.
- --------------
The following is a summary of EBITDA by business unit:
<TABLE>
<CAPTION>
Three Months Ending December 31, Six Months Ending December 31,
1996 1997 1996 1997
-------- -------- -------- --------
(In $000's)
<S> <C> <C> <C> <C>
EBITDA by Business Unit:
Gaming Equipment and Systems $ 6,328 $ 2,781 $ 11,771 $ 5,927
Wall Machines and Amusement Games 10,841 5,210 14,911 7,811
Route Operations 5,067 6,048 9,788 12,382
Casino Operations 4,176 4,956 8,791 9,213
Corporate Administrative Expenses (6,583) (4,289) (10,556) (8,180)
Unusual Items -- 2,545 (700) 2,545
-------- -------- -------- --------
EBITDA $ 19,829 $ 17,251 $ 34,005 $ 29,698
======== ======== ======== ========
</TABLE>
The Company believes that the above analysis of EBITDA is a useful adjunct to
net income, cash flow and other GAAP measurements. However, this information
should not be construed as an alternative to net income or any other GAAP
measure of performance as an indicator of the Company's performance or to
GAAP-defined cash flows generated by operating, investing and financing
activities as an indicator of cash flows or a measure of liquidity.
The new credit facility 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 subject to both a U.S. and German Pledge
Agreement (both as defined). The new credit facility contains a number of
maintenance covenants and both it and the indenture have other significant
covenants that, among other things, restrict the ability of the Company and
certain of its subsidiaries to dispose of assets, incur additional indebtedness
and issue preferred stock, pay dividends or make other distributions, enter into
certain acquisitions, repurchase equity interests (as defined) or subordinated
indebtedness, issue or sell equity interests of the Company's subsidiaries (as
defined), engage in mergers or
23
<PAGE> 24
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
acquisitions, or engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities.
Customer Financing
In December 1997 the Company, Alpha Hospitality and General Electric Credit
Corporation settled certain customer notes receivable on which the Company had
certain recourse obligations. The Company contributed $2.5 million to the final
settlement with the holder of the notes, and reversed $6.0 million of reserves
previously established for these recourse obligations. In addition, as part of
the settlement the Company became the sole owner of approximately 566,000 shares
of Alpha Hospitality common stock which trades on the NASDAQ Small Cap market.
The Company intends to sell this stock within the limitations provided for in
the settlement agreement.
Bally Wulff provides customer financing for approximately 17% of its sales and
also provides lease financing to its customers. Lease terms are generally for
six months, but leases are also available for 12 and 43 month terms.
24
<PAGE> 25
RESULTS OF OPERATIONS:
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
General
The Company operates through four business units: (i) gaming equipment and
systems, (ii) wall machines and amusement games (consisting of the manufacture
and distribution of wall-mounted gaming machines and distribution of other
recreational and amusement machines), (iii) route operations and (iv) casino
operations.
The following tables set forth the combined revenues and operating income (loss)
for the three months ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------ -----
(In 000's)
<S> <C> <C>
REVENUES:
Gaming Equipment and Systems $ 42,273 $ 27,455
Wall Machines and Amusement Games 42,293 27,731
Route Operations 31,692 37,040
Casino Operations 12,445 14,488
-------- -------
TOTAL REVENUES $128,703 $106,714
======== ========
OPERATING INCOME (LOSS):
Gaming Equipment and Systems $ 4,955 $ 1,655
Wall Machines and Amusement Games 8,858 3,423
Route Operations 3,296 4,053
Casino Operations 3,685 4,447
Corporate Administrative Expenses (6,885) (4,681)
-------- --------
Subtotal 13,909 8,897
Unusual items - 2,545
-------- --------
TOTAL OPERATING INCOME: $ 13,909 $11,442
======== ========
</TABLE>
GAMING EQUIPMENT AND SYSTEMS
For the quarter ended December 31, 1997, the Gaming Equipment and Systems
business unit reported revenues of $27.5 million, a decrease of 35%, compared to
revenues of $42.3 million in the prior year quarter. Bally Gaming reported unit
sales of approximately 3,400 new gaming machines, a decrease of 38% compared to
unit sales of approximately 5,500 in the prior year quarter. By market segment,
Bally Gaming's unit sales for the quarter consisted of approximately 1,300 units
to the Nevada and Atlantic City markets, 1,000 units to international markets
and 1,100 units to riverboats, Native American and other domestic markets.
Management believes the industry-wide decrease in number of units shipped
resulted primarily from lower replacement demand from existing casinos as casino
operators await regulatory approval of new products that gaming manufacturers
displayed at the World Gaming Congress in October 1997. Bally Gaming reported
revenues from the sale of new gaming machines of $17.5 million, a decrease of
42% compared to $30.4 million in the prior year quarter due to lower unit volume
and a 7% decrease in the average selling price of new gaming machines. In
addition, Systems sales decreased from $7.6 million in the prior year quarter to
$5.5 million in the current year quarter.
25
<PAGE> 26
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
Gross margin for the quarter ended December 31, 1997 was 44 percent compared to
37 percent in the prior year quarter. The increase was due principally to a
higher proportion of higher margin System revenues and lower provisions for
inventory obsolescence in the current year quarter. Operating income was $1.7
million in the current year quarter, representing a 66 percent decrease over the
prior year quarter results. Operating income was lower due to decreased revenues
and higher research and development costs, partially offset by improved gross
margins and a lower provision for doubtful receivables.
WALL MACHINES AND AMUSEMENT GAMES
For the quarter ended December 31, 1997, the Wall Machines and Amusement Games
business unit reported revenues of $27.7 million, a decrease of 34% compared to
revenues of $42.3 million in the prior year quarter, which was a record quarter
for this business unit. The currency translation impact of the fluctuation of
the German mark versus the U.S. dollar reduced revenues by $4.1 million during
the 1997 quarter. The revenue decrease resulted primarily from a 33% decrease in
unit shipments of new wall machines and a 30% decrease in amusement game
distribution revenues partially offset by a 48% increase in leased wall machine
revenues. Management believes the general slowdown in the German economy during
the current period has resulted in customers acquiring only enough units to
replace those units whose licenses are expiring, and deferring purchases of
other equipment.
Wall Machines and Amusement Games continued to expand its leasing program
whereby new wall machines are leased to customers pursuant to operating leases
which provide Wall Machines and Amusement Games with a stream of revenues and
cash flow over the life of the leases, which range from six months to three and
one half years. At December 31, 1997, a total of 5,600 machines were out on
lease versus 4,000 at December 31, 1996.
Gross margin for the quarter was 45 percent compared to 52 percent in the prior
year quarter. The decrease in gross margin was due to higher fixed overhead
costs per unit due to lower sales volumes, and a slightly lower average selling
price for new wall machines. Operating income of $3.4 million decreased by 61
percent, due primarily to decreased revenues and lower gross margins, partially
offset by lower selling, general and administrative expenses and a lower
provision for doubtful receivables.
ROUTE OPERATIONS
For the quarter ended December 31, 1997, the Route Operations business unit
reported revenues of $37.0 million, an increase of 17% compared to revenues of
$31.7 million in the prior year quarter. Revenues for the Nevada operations
increased 18% as net win per gaming machine per day increased to $53.60 from
$52.00 in the prior year quarter, while the average number of gaming machines
increased to 6,390 from 5,660 in the prior year quarter primarily resulting from
the additional machines added as a result of taking over operations of the
Westronics route and the Scolaris' locations. The improvement in net win per
gaming machine per day in Nevada resulted primarily from the continuing
favorable impact of Gamblers Bonus, a cardless slot player's club and player
tracking system. Gamblers Bonus is currently installed in approximately 1,800
gaming machines at over 160 locations or 25% of the installed base of gaming
machines. Revenues for the Louisiana operations increased 13% as net win per
gaming machine per day increased to $74.20 from $70.70 in the prior year quarter
and the average number of gaming machines increased to 740 from 690 in the prior
year quarter
For the quarter ended December 31, 1997, Nevada operations cost of revenues
increased 22% to $25.3 million, and as a percentage of revenues increased to 79%
from 76% in the prior year quarter. The increase is due to higher space lease
cost and higher direct costs, primarily increased health insurance costs.
Louisiana operations cost
26
<PAGE> 27
of revenues increased 14% to $3.3 million, and as a percentage of revenues
increased to 65% from 64% in the prior year quarter. The increase is due to
higher direct costs, primarily increased health insurance costs. The Route
Operations business unit reported operating income of $4.1 million, an increase
of 24% compared to operating income of $3.3 million in the prior year quarter.
The operating income improvement resulted primarily from the aforementioned
increase in revenues, lower selling, general and administrative expenses as a
percentage of revenues, and a lower provision for doubtful receivables,
partially offset by the increase in operating costs as a percentage of revenues.
CASINO OPERATIONS
For the quarter ended December 31, 1997, the Casino Operations business unit
reported revenues of $14.5 million, an increase of 16%, compared to revenues of
$12.4 million in the prior year quarter. This increase reflects a 16% increase
at the Rainbow Casino and a 17% increase at the Rail City Casino. The
improvement at the Rainbow Casino was attributable to the continuing success of
its direct marketing campaigns resulting in a 12% higher average market share
than in the prior year quarter. Revenues from the Rail City Casino improved as a
result of enhanced marketing efforts including the introduction of the Rail City
Players Club and an increase in the net win per gaming machine per day resulting
from a 20% replacement of gaming machines with new gaming machines.
For the quarter ended December 31, 1997, the cost of revenues for Casino
Operations increased 12% to $6.3 million compared to $5.6 million in the prior
year quarter but, as a percentage of revenues, improved to 43% from 45% in the
prior year quarter due to the fixed nature of certain direct costs. The Casino
Operations business unit reported operating income of $4.4 million, an increase
of 19% compared to operating income of $3.7 million in the prior year quarter.
The increase in operating income resulted from the aforementioned increase in
revenues and the improvement in operating costs as a percentage of revenues,
partially offset by a slight increase in selling, general and administrative
expenses as a percentage of revenues.
CONSOLIDATED
Total revenues for the quarter ended December 31, 1997, were $106.7 million, a
decrease of 17% compared to revenues of $128.7 million in the prior year
quarter. The decrease is primarily due to the aforementioned decreases in Gaming
Equipment and Systems and Wall Machines and Amusement Games and the impact of
foreign exchange rate fluctuations, partially offset by increases in revenues at
the Route Operations and Casino Operations business units.
Cost of revenues for the quarter ended December 31, 1997, were $65.4 million, a
decrease of 14% compared to $76.0 million in the prior year quarter. Cost of
revenues as a percentage of total revenues increased to 61% from 59% in the
prior year quarter as the improvements at the Casino Operations and Gaming
Equipment and Systems business units were offset by increases at the Wall
Machines and Amusement Games and Route Operations business units.
Selling, general and administrative expenses for the quarter ended December 31,
1997 were approximately $26.6 million, a decrease of 19% compared to costs of
$32.8 million for the prior year quarter. This decrease is due to a decrease in
the provision for doubtful receivables of $3.9 million as well as a decrease in
corporate administrative expenses and a decrease in expenses at the Wall
Machines and Amusement Games business unit, partially offset by increases in
expenses at the Gaming Equipment and Systems, the Casino Operations and the
Route Operations business units.
27
<PAGE> 28
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
Depreciation and amortization for the quarter ended December 31, 1997 was $5.8
million, a 2% decrease compared to depreciation and amortization of $5.9 million
in the prior year quarter.
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the quarter ended December 31, 1997 increased to $7.3
million compared to net interest expense of $5.2 million in the prior year
quarter. The increase is primarily due to a higher level of debt resulting from
the Company's new 10% Senior Subordinated Notes due 2007 and the term loan
facilities which replaced substantially all of the Company's 12 7/8% Senior
Secured Notes and the 15% Series B Special Stock as part of the refinancing of
the Company's capital structure, completed in September 1997 resulting in
substantially lower fixed charges.
The Company recorded an income tax provision of $0.4 million in the quarter
ended December 31, 1997 compared to an income tax provision of $3.2 million in
the prior year quarter. The current quarter provision is primarily due to income
taxes for the Wall Machines and Amusement Games business unit and state income
taxes, and is lower than the effective tax rate in the prior year due to a
change in the organization structure in Germany, effective January 1, 1997,
which resulted in a lower tax rate on German earnings.
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
General
The following tables set forth the combined revenues and operating income for
the six months ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------ -----
(In 000's)
<S> <C> <C>
REVENUES:
Gaming Equipment and Systems $ 77,175 $ 54,622
Wall Machines and Amusement Games 68,700 48,792
Route Operations 60,582 72,695
Casino Operations 25,158 28,576
-------- --------
TOTAL REVENUES $231,615 $204,685
======== ========
OPERATING INCOME:
Gaming Equipment and Systems $ 9,050 $ 3,527
Wall Machines and Amusement Games 11,522 4,867
Route Operations 6,310 8,442
Casino Operations 7,828 8,199
Corporate Administrative Expenses (11,146) (8,694)
------- -------
SUBTOTAL 23,564 16,341
Unusual items (700) 2,545
------- ------
TOTAL OPERATING INCOME $22,864 $18,886
======= =======
</TABLE>
GAMING EQUIPMENT AND SYSTEMS
For the six months ended December 31, 1997 the Gaming Equipment and Systems
business unit reported revenues of $54.6 million, a decrease of 29% compared to
revenues of $77.2 million in the prior year period. Bally Gaming
28
<PAGE> 29
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
reported unit sales of approximately 7,600 new gaming machines, a decrease of
27% compared to unit sales of approximately 10,400 in the prior year period. By
market segment, Bally Gaming's unit sales for the period consisted of
approximately 2,500 units to the Nevada and Atlantic City markets, 3,000 units
to international markets and 2,100 units to riverboats, Native American and
other domestic markets. The decrease in number of units shipped resulted
primarily from fewer new casino openings and lower replacement demand from
existing casinos. Bally Gaming reported revenues from the sale of new gaming
machines of $38.0 million, a decrease of 31% compared to $54.7 million in the
prior year quarter due to lower unit volume and a 5% decrease in average selling
price of new gaming machines. In addition, Systems sales decreased from $12.8
million in the prior year period to $8.8 million in the current year period.
For the six months ended December 31, 1997 gross profit margins improved to 42%
from 37% in the prior year period. The increase was due principally to a higher
proportion of higher margin System revenues and lower provisions for inventory
obsolescence in the current year period. Gaming Equipment and Systems reported
operating income of $3.5 million, a decrease of 61% over prior year period
results. The decrease in operating income resulted primarily from lower revenues
and higher research and development costs, partially offset by improved gross
margins and a lower provision for doubtful receivables.
WALL MACHINES AND AMUSEMENT GAMES
For the six months ended December 31, 1997, the Wall Machines and Amusement
Games business unit reported revenues of $48.8 million, a decrease of 29%
compared to revenues of $68.7 million in the prior year period. The currency
translation impact of the fluctuation of the German mark versus the U.S. dollar
reduced revenues by $8.5 million during the current year period. The revenue
decrease resulted primarily from a 26% decrease in unit shipments of new wall
machines and a 28% decrease in amusement game distribution revenues partially
offset by a 58% increase in leased wall machine revenues. Management believes
the general slowdown in the German economy during the current has resulted in
customers acquiring only enough units to replace those units whose licenses are
expiring, and deferring purchases of other equipment.
Wall Machines and Amusement Games continued to expand its leasing program
whereby new wall machines are leased to customers pursuant to operating leases
which provide Wall Machines and Amusement Games with a stream of revenues and
cash flow over the life of the leases, which range from six months to three and
one half years. As of December 31, 1997, a total of 5,600 machines were out on
lease versus 4,000 at December 31, 1996.
For the six months ended December 31, 1997, gross profit margin decreased to 45%
from 48% in the prior year period. The decrease in gross margin resulted
primarily due to higher fixed costs per unit due to lower sales volume and, in
dollars, a decrease in the average selling price of new wall machines, partially
offset by an increase in higher margin lease revenues. Wall Machines and
Amusement Games reported operating income of $4.9 million, a decrease of 58%
over prior year period results. The decrease in operating income resulted
primarily from the aforementioned decrease in revenues and lower gross margin,
partially offset by lower selling, general and administrative expenses and a
decrease in the provision for doubtful receivables.
ROUTE OPERATIONS
For the six months ended December 31, 1997, the Route Operations business unit
reported revenues of $72.7 million, an increase of 20% compared to revenues of
$60.6 million in the prior year period. Nevada route operations revenues
increased 21% as net win per gaming machine per day increased 5% to $53.00 from
$50.70 in the prior year period, while the average number of gaming machines
increased to 6,390 from 5,580 in the prior
29
<PAGE> 30
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
year period. The increase in the average number of gaming machines in Nevada
reflects the additional machines added as a result of taking over operations of
the Westronics route and the Scolaris' locations. The improvement in net win per
gaming machine per day in Nevada resulted primarily from the continuing
favorable impact of Gamblers Bonus, a cardless slot player's club and player
tracking system. Louisiana route operations revenues increased 13% as net win
per gaming machine per day increased 4% to $74.50 from $71.40 in the prior year
period and the average number of gaming machines increased to 730 from 670 in
the prior year period.
For the six months ended December 31, 1997, Nevada route operations cost of
revenues increased 24% and, as a percentage of revenues, increased to 79% from
77% in the prior year period primarily due to higher space lease costs and
higher direct costs, primarily increased health insurance costs. Louisiana route
operations cost of revenues increased 13% and as a percentage of revenues
remained relatively flat at 64% between periods. Route Operations reported
operating income of $8.4 million, an increase of 34% compared to operating
income of $6.3 million in the prior year quarter. The operating income
improvement resulted primarily from the aforementioned increase in revenues, an
improvement in selling, general and administrative expenses as a percentage of
revenues and a decrease in the provision for doubtful receivables, partially
offset by the increase in operating costs as a percentage of revenues.
CASINO OPERATIONS
For the six months ended December 31, 1997, the Casino Operations business unit
reported revenues of $28.6 million, an increase of 14% compared to revenues of
$25.2 million in the prior year period. This increase reflects a 14% increase at
the Rainbow Casino and an 11% increase at the Rail City Casino. The improvement
at the Rainbow Casino was attributable to the continuing impact of its marketing
campaigns and the addition of new gaming machines. Revenues from the Rail City
Casino improved as a result of enhanced marketing efforts and an increase in net
win per gaming machine per day resulting from the replacement of older gaming
machines with new gaming machines.
For the six months ended December 31, 1997, the cost of revenues for Casino
Operations increased 14% to $12.5 million compared to $11.0 million in the prior
year period but, as a percentage of revenues, remained relatively flat at 44%.
Casino Operations reported operating income of $8.2 million, an increase of 5%
compared to operating income of $7.8 million in the prior year period. The
operating income improvement resulted from the aforementioned increase in
revenues, partially offset by an increase in selling, general and administrative
expenses as a percentage of revenues.
CONSOLIDATED
Total revenues for the six months ended December 31, 1997, were $204.7 million,
a decrease of 12% compared to revenues of $231.6 million in the prior year
period. The decrease is primarily due to the aforementioned decreases in Gaming
Equipment and Systems and Wall Machines and Amusement Games and the impact of
foreign exchange rate fluctuations, partially offset by increases in revenues at
the Route Operations and Casino Operations business units.
Cost of revenues for the six months ended December 31, 1997, were $126.6
million, a decrease of 10% compared to $140.2 million in the prior year period.
Cost of revenues as a percentage of total revenues increased slightly to 62%
from 61% in the prior year period as the improvements at the Gaming Equipment
and Systems business unit were offset by increases at the Wall Machines and
Amusement Games and Route Operations business units.
30
<PAGE> 31
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
Selling, general and administrative expenses for the six months ended December
31, 1997 were approximately $50.9 million, a decrease of 10% compared to costs
of $56.7 million for the prior year period. This decrease is due to a decrease
in the provision for doubtful receivables of $4.8 million, as well a decrease in
corporate administrative expenses and a decrease in expenses at the Wall
Machines and Amusement Games business unit, partially offset by increases in
expenses at the Gaming Equipment and Systems, the Casino Operations and the
Route Operations business units.
Depreciation and amortization for the six months ended December 31, 1997 was
$10.8 million, a 3% decrease compared to depreciation and amortization of $11.1
million in the prior year quarter.
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the six months ended December 31, 1997 increased to
$13.1 million compared to the net interest expense of $10.8 million in the prior
year period. The increase is due primarily to a higher level of debt resulting
from the Company's new 10% Senior Subordinated Notes due 2007 and the term loan
facilities which replaced substantially all of the Company's 12 7/8% Senior
Secured Notes and the 15% Series B Special Stock as part of the refinancing of
the Company's capital structure, completed in September 1997.
The Company recorded an income tax provision of $0.9 million in the six months
ended December 31, 1997 compared to a provision of $4.6 million in the prior
year period. The current period provision is due primarily to income taxes for
the Wall Machines and Amusement Games business unit and state income taxes, and
is lower than the effective tax rate in the prior year due to a change in the
organization structure in Germany, effective January 1, 1997, which resulted in
a lower tax rate on German earnings.
* * * * *
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 ability to
service debt; its holding company structure; its operating history and recent
losses, competition, risks of product development, customer financing, sales to
non-traditional gaming markets, foreign operations, dependence on key personnel,
strict regulation by gaming authorities, gaming taxes and value added taxes,
uncertain effect of National Gambling Commission, change in control, and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission.
31
<PAGE> 32
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
PART II
ITEM 1. LEGAL PROCEEDINGS
See "Notes to Unaudited Condensed Consolidated Financial
Statements- 6. Legal Proceedings" for a description of certain
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 19, 1997, the Company held its annual shareholders
meeting at which the shareholders were asked to vote on one
matter: the election of three directors. Of the 32,012,776 shares
of common stock outstanding, 29,230,252 shares were voted for,
and 86,192 against, Mr. Morris Goldstein; 21,362,185 shares were
voted for, and 7,954,259 against, Mr. David Robbins; and
24,234,609 shares were voted for, and 5,081,835 against, Mr.
Morton Topfer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.(ii) Amended by-laws of the Company.
11 Computation of per share amounts
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended December 31, 1997.
32
<PAGE> 33
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
ALLIANCE GAMING CORPORATION
(Registrant)
By /s/ Morris Goldstein
- ------------------------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Scott D. Schweinfurth
- ----------------------------------------------------
Sr. Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
33
<PAGE> 1
EXHIBIT 3.(ii)
BYLAWS
OF
ALLIANCE GAMING CORPORATION
ARTICLE I -- OFFICES
The principal office of the Corporation shall be located at 3101 W.
Spring Mountain Road, Las Vegas, Nevada, 89102, and it may be changed from time
to time by the Board of Directors. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II -- MEETING OF STOCKHOLDERS
Section 1 -- Annual Meetings:
Annual meetings shall be held at such date and time as the directors
may from time to time fix; provided, however, that each annual meeting shall be
held within fifteen months of the date of the preceding annual meeting. At such
meetings directors shall be elected, reports of the affairs of the Corporation
shall be considered, and any other business may be transacted which is within
tile powers of the stockholders.
Section 2 -- Special Meetings:
Special meetings of the stockholders may be called at any time only by
the majority of the Board of Directors, Chairman of the Board, or by the
President, and shall be called by the President or the Secretary as otherwise
required by law. The business of a special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
Section 3 -- Place of Meetings:
All meetings of the stockholders shall be held at the principal office
of the Corporation, or at such other places as shall be designated in the
notices or waivers of notice of such meetings.
Section 4 -- Notice of Meetings:
(a) Whenever stockholders are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given which shall state
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called. Unless otherwise provided by law, the written notice of
any meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
(b) Attendance at a meeting of stockholders, in person or by proxy,
constitutes a waiver of notice of the meeting, except when the stockholder
attends a meeting for the express purpose of
Page 1 of 19
<PAGE> 2
objecting at the beginning of the meeting to the transaction of any business on
grounds that the meeting is not lawfully called or convened.
Section 5 -- Quorum:
(a) The presence in person or by proxy of the persons entitled to vote
a majority of the voting shares at any meeting shall constitute a quorum for the
transaction of business. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
(b) Despite the absence of a quorum at any annual or special meeting of
stockholders, the stockholders, by a majority of the votes cast by the holders
of shares entitled to vote thereat, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 -- Voting:
(a) Unless otherwise provided in the Articles of Incorporation of the
Corporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by him which has
voting power upon the matter in question. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after six months from
its date, unless coupled with an interest, or unless the proxy provides for a
longer period which in no case shall exceed seven years from the date of its
execution. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only so long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the Secretary. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. Directors shall be elected in accordance with the
Articles of Incorporation of the Corporation and these by-laws by a plurality of
the votes cast at an election by the holders of shares entitled to vote thereon.
All other elections and questions shall , unless otherwise provided by law or by
the Articles of Incorporation of the Corporation or these by-laws, be decided by
the vote of the holders of a majority of the outstanding shares of stock
entitled to vote thereon present in person or by proxy at the meeting.
(b) No action required or permitted to be taken by the stockholders of
the Corporation may be effected by any consent in writing in lieu of a meeting.
(c) Sections 2 to 14, inclusive, of Assembly Bill No. 748, amending
Chapter 78 of the Nevada Revised Statutes, shall not apply to any acquisition of
a controlling interest (as defined in such Bill) in the Corporation.
Section 7 -- Notice of Stockholder Business and Nominations:
Page 2 of 19
<PAGE> 3
(a)(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (A) by or at the
direction of the Chairman of the Board or the Board of Directors pursuant to a
resolution adopted by a majority of the whole Board or (B) by any stockholder of
the Corporation who is entitled to vote at the meeting with respect to the
election of directors or the business to be proposed by such stockholder, as the
case may be, who complies with the notice procedures set forth in clauses (2)
and (3) of paragraph (a) of this Section 7 and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation as
provided below.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (B) of paragraph (a)(1) of
this Section 7, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such business must be a proper subject
for stockholder action under applicable law. To be timely, a stockholder's
notice shall be delivered to the Secretary of the Corporation at the principal
executive offices of the Corporation not less than sixty days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than thirty days, or delayed by more than sixty
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the sixtieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (A) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (B) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2)
of this Section 7 to the contrary, in the event that the number of directors to
be elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the Corporation at least eighty days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by paragraph (a)(2) of this Section 7 shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not later than
the close of business on the tenth day following the day on which such public
announcement is first made by the Corporation.
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(b) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected (i) by or at the direction of the Chairman of the Board or the Board of
Directors pursuant to a resolution adopted by a majority of the whole Board or
(ii) by any stockholder of the Corporation who is entitled to vote at the
meeting with respect to the election of directors, who complies with the notice
procedures set forth in this paragraph (b) and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation as
provided below. Nominations by stockholders of persons for election to the Board
of Directors may be made at such a special meeting of stockholders if the
stockholder's notice as required by paragraph (a)(2) of this Section 7 shall be
delivered to the Secretary of the Corporation at the principal executive offices
of the Corporation not earlier than the ninetieth day prior to such special
meeting and not later than the close of business on the later of the sixtieth
day prior to such special meeting or the tenth day following the day on which
public announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c)(1) Only persons who are nominated in accordance with the procedures
set forth in this Section 7 shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 7.
(2) Except as otherwise provided by law, the Articles of Incorporation
or this Section 7, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this Section 7
and, if any proposed nomination or business is not in compliance with this
Section 7, to declare that such defective nomination or proposal shall be
disregarded.
(3) For purposes of this Section 7, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section 7, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 7. Nothing in this Section 7 shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy materials with respect to a meeting of stockholders pursuant
to Rule 14a-8 under Exchange Act or (ii) of the holders of any series of Special
Stock or any other series or class of stock as set forth in the Articles of
Incorporation to elect directors under specified circumstances or to consent to
specific actions taken by the Corporation.
Section 8 -- Presiding Officer; Order of Business; Conduct of Meeting:
(a) Meetings of the stockholders shall be presided over by such person
as shall be designated by the board of directors or if no designation is made,
then by the Chairman of the Board, or in his absence or if there is no Chairman
of the Board, then the President. The Secretary of this corporation, or in his
absence, an Assistant Secretary, shall act as Secretary of the meeting, or in
the
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absence of an Assistant Secretary, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
(b) Subject to the following, meetings of stockholders shall generally
follow accepted rules of parliamentary procedure:
(1) The chairman of the meeting shall have absolute authority
over matters of procedure and there shall be no appeal from the ruling of the
chairman. If the chairman, in his absolute discretion, deems it advisable to
dispense with the rules of parliamentary procedure as to any one meeting of
stockholders or a part thereof, the chairman shall so state and shall clearly
state the rules under which the meeting or appropriate part thereof shall be
conducted.
(2) If disorder shall arise which prevents continuation of the
legitimate business of the meeting, the chairman may quit the chair and announce
the adjournment of the meeting; and upon his so doing, the meeting is
immediately adjourned.
(3) The chairman may ask or require that anyone not a bona
fide stockholder or proxy holder leave the meeting.
(4) A resolution or motion shall be only considered for a vote
if proposed by a stockholder or duly authorized proxy, and seconded by an
individual , who is a stockholder or a duly authorized proxy, other than the
individual who proposed the resolution or motion.
ARTICLE III -- BOARD OF DIRECTORS
Section 1 -- Powers:
Subject to limitations of the Articles of Incorporation and statute as
to action to be authorized or approved by the stockholders, and subject to the
duties of directors as prescribed by the by-laws, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be controlled by, the board of directors. Without prejudice to
such general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers, to wit:
First -- To select and remove all the officers, agents and employees of
the Corporation, prescribe such powers and duties for them as Play not be
inconsistent with law, with the Articles of Incorporation or the by-laws, fix
their compensation and require from them security for faithful service. To
select the outside auditors of the Corporation.
Second -- To conduct, manage and control the affairs and business of
the corporation and to make such rules and regulations therefor not inconsistent
with law, or with the Articles of Incorporation or the by-laws, as they may deem
best.
Third -- To change the principal executive office and principal office
for the transaction of the business of the Corporation from one location to
another; to fix and locate from time to time one or more subsidiary offices of
the Corporation within or without the State of Nevada; to designate any
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place within or without the State of Nevada for the holding of any stockholders'
meeting or meetings; and to adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time, as in their judgment they may deem
best, provided such seal and such certificates shall at all times comply with
the provisions of law.
Fourth -- To authorize the issue of shares of stock of the Corporation
from time to time, upon such terms as may be lawful.
Fifth -- To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth -- By resolution adopted by a majority of the authorized number
of directors, to designate an executive and other committees, each consisting of
two or more directors, to serve at the pleasure of the board, and to prescribe
the manner in which proceedings of such committee shall be conducted. Unless the
Board of Directors shall otherwise prescribe the manner of proceedings of any
such committee, meetings of such committee may be regularly scheduled in advance
and may be called at any time by any two members thereof; otherwise, the
provisions of these by-laws with respect to notice and conduct of meetings of
the board shall govern. Any such committee, to the extent provided in a
resolution of the Board, may have all of the authority of the board, except with
respect to:
(i) the approval of any action for which state statute or the articles
of incorporation also require stockholder approval;
(ii) the filing of vacancies of the Board or in any committee;
(iii) the fixing of compensation of the directors for serving on the
Board or on any committee;
(iv) the adoption, amendment or repeal of by-laws;
(v) the amendment or repeal of any resolution of the Board;
(vi) any distribution to the stockholders, except at a rate or in a
periodic amount or within a price range determined by the Board;
(vii) the appointment of other committees of the Board or the members
thereof; and
(viii) the authorization of issuance of shares of stock of the
Corporation or the grant of options or other rights to purchase shares of stock
of the Corporation.
Section 2 -- Number and Qualification of Directors:
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<PAGE> 7
The number of directors of the Corporation shall not be less than three
(3) nor more than nine (9) until changed by amendment of the Articles of
Incorporation or by a by-law amending this Section 2 duly adopted by the vote or
written consent of holders of a majority of the outstanding shares entitled to
vote. The exact number of directors shall be fixed from time to time, within the
limits specified in the Articles of Incorporation or in this Section 2, by
resolution adopted by a majority of the then authorized number of directors.
Section 3 -- Election and Term of Office:
The directors are hereby divided into three classes, each class to
consist, as nearly as may be, of one-third of the number of directors then
constituting the whole Board. The tern, of office of the first class of
directors shall expire at the annual meeting of stockholders held in 1984. The
term of office of the second class shall expire one year thereafter and the term
of office of the third class shall expire two years thereafter. At each
succeeding annual meeting of stockholders, the directors elected shall be chosen
for a full term of three years to succeed those whose terms expire. The
directors, who need not be stockholders, shall be elected at each annual meeting
by a plurality of votes cast at a meeting of stockholders, by the holders of
shares of stock present in person or by proxy, entitled to vote in the election.
Each director shall hold office until the next annual meeting of stockholders at
which his term expires, and until his successor is elected and qualified, or
until his prior death, resignation or removal.
Section 4 -- Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held
immediately following the annual meeting of the stockholders, at the place of
such annual meeting of stockholders.
(b) The Board of Directors, from time to time, may provide by
resolution for the holding of other regular meetings of the Board of Directors,
and may fix the time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not
be required to be given, and, if given, need not specify the purpose of the
meeting; provided, however, that in case the Board of Directors shall fix or
change the time or place of any regular meeting, notice of such action shall be
given to each director who shall not have been present at the meeting at which
such change was made within the time limited, and in the manner set forth in
Paragraph (b) Section 5 of this Article III, with respect to special meetings,
unless such notice shall be waived in the manner set forth in Paragraph (c) of
such Section 5.
Section 5 -- Special Meetings; Notice:
(a) Special meetings of the Board of Directors shall be held whenever
called by the President, Chairman, Vice Chairman, or by one of the remaining
directors, at such time and place as may be specified in the respective notices
or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meetings
shall be mailed directly to each director, addressed to him at his residence or
usual place of business at least four (4)
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<PAGE> 8
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, facsimile transmission, radio or cable, or shall be
delivered to him personally or given to him orally, not later than the day
before the day on which the meeting is to be held. A notice, or waiver of
notice, except as required by Section 9 of this Article III, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to
any director who shall attend such meeting without protesting prior thereto or
at its commencement, the lack of notice to him, or who submits a signed waiver
of notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 6 -- Chairman:
At all meetings of the Board of Directors, the Chairman of the Board,
if any and if present, shall preside. If there shall be no Chairman, or he shall
be absent, then the Vice Chairman shall preside, and in his absence, a Chairman
chosen by the directors shall preside.
Section 7 -- Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a
majority of the entire Board shall be necessary and sufficient to constitute a
quorum for the transaction of business, except as otherwise provided by law, by
the Articles of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any
regular or special meeting, although less than a quorum, may adjourn the same
from time to time without notice, until a quorum shall be present.
Section 8 -- Manner of Acting:
(a) At all meetings of the Board of Directors, each director present
shall have one vote, irrespective of the number of shares of stock, if any,
which he may hold.
(b) Except as otherwise provided by statute, by the Articles of
Incorporation, or by these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors.
(c) Unless otherwise required by the Articles of Incorporation or
statute, any action required or permitted to be taken at any meeting of the
Board of Directors or any Committee thereof may be taken without a meeting if a
written consent thereto is signed by all the Members of the Board or Committee.
Such written consent shall be filed with the minutes of the proceedings of the
Board or Committee.
(d) Unless otherwise prohibited by the Articles of Incorporation or
statute, members of the Board of Directors or of any Committee of the Board of
Directors may participate in a meeting of such Board or Committee by means of a
conference telephone network or a similar communications method by which all
persons participating in the meeting can hear each other. Such
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<PAGE> 9
participation constitutes the presence of all of the participating persons at
such meeting, and each person participating in the meeting shall sign the
minutes thereof, which may be signed in counterparts.
Section 9 -- Vacancies:
Any vacancy in the Board of Directors, occurring by reason of an
increase in the number of directors, or by reason of the death, resignation,
disqualification, removal (unless a vacancy created by the removal of a director
by the stockholders shall be filled by the stockholders at the meeting at which
the removal was effected) or inability to act of any director, or otherwise,
shall be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 10 -- Resignation:
Any director may resign at any time by giving written notice to the
Board of Directors, the President or the Secretary of the Corporation. Unless
otherwise specified in such written notice, such resignation shall take effect
upon receipt thereof by the Board of Directors or by such officer, and the
acceptance of such resignation shall not be necessary to make it effective.
Section 11 -- Removal:
Any director may be removed with or without cause at any time by the
affirmative vote of stockholders holding of record in the aggregate at least
two-thirds of the outstanding shares of stock of the Corporation at a special
meeting of the stockholders called for that purpose, and may be removed for
cause by action of the Board.
Section 12 -- Compensation:
Directors, and members of any committee of the board of directors,
shall be entitled to such reasonable compensation for their services as
directors, as members of any such committee or in any other capacity as shall be
fixed from time to time by resolution of the Board of Directors and shall also
be entitled to reimbursement for any reasonable expenses incurred in attending
such meetings. The compensation of directors may be on such basis as is
determined by the resolution of the Board of Directors. Any director receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and receiving reasonable compensation for such
other services.
Section 13 -- Contracts:
(a) No contract or other transaction between this Corporation and one
or more of its directors or officers, or between this Corporation and any
corporation, firm or association in which one or more of the directors or
officers of this Corporation is a director or officer or is financially
interested, shall be affected, impaired, invalidated or voidable solely for this
reason or solely because any such director or officer is present at the meeting
of the Board of Directors or a committee thereof that authorizes or approves the
contract or transaction, or because the vote of any common or
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<PAGE> 10
interested director is counted for such purpose, if the circumstances specified
in any of the following paragraphs exist:
(i) The fact of the common directorship or financial interest
is disclosed or known to the Board of Directors or committee and noted in the
minutes, and the Board or committee authorizes, approves or ratifies the
contract or transaction in good faith by a vote sufficient for the purpose
without counting the vote or votes of such director or directors; or
(ii) The fact of the common directorship or financial interest
is disclosed or known to the stockholders, and they approve or ratify the
contract or transaction in good faith by a majority vote or written consent of
stockholders holding a majority of the shares entitled to vote; or
(iii) The contract or transaction is fair as to the
Corporation at the time it is authorized or approved.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies a contract or transaction, and if
the votes of tile common or interested directors are not counted at such
meeting, then a majority of the disinterested directors may authorize, approve
or ratify a contract or transaction.
Section 14 -- Loans to Officers and Directors:
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of any
subsidiary of the Corporation, including any officer or employee who is a
director of the Corporation or any subsidiary, whenever, in tile judgment of the
Board of Directors, such loan, guaranty or assistance may reasonably be expected
to benefit the Corporation. Such loan, guaranty or other assistance may be with
or without interest, and may be unsecured, or secured in such manner as the
Board of Directors shall approve, including, without limitation, by a pledge of
shares of the Corporation. The authority of the Board of Directors may be
general or confined to specific instances, and the Board of Directors may
delegate to its Executive Committee the power to grant, administer and determine
the terms and condition of any loan, guaranty or assistance to be made or given
pursuant to a general authorization of tile Board of Directors.
Section 15 -- Indemnification:
(a) The Corporation shall, to the maximum extent permitted by law,
indemnify each person against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person has served, at any time after May
10, 1987, as an Agent of the Corporation, and may so indemnify any person in
connection with any proceeding arising by reason of the fact that such person
has served, at any time prior to May 11, 1987, as an Agent of the Corporation.
For purposes of this Section, the term "Agent" shall include any person who is
or was a director, officer, employee or other agent of the Corporation; the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprise" shall
include any corporation, partnership,
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<PAGE> 11
joint venture, trust or employee benefit plan; service "at the request of the
Corporation" shall include service as an Agent of the Corporation that imposes
duties on, or involves services by, such Agent with respect to any other
enterprise or any employee benefit plan, its participants or beneficiaries; any
excise taxes assessed on a person with respect to an employee benefit plan shall
be deemed to be indemnifiable expenses; and action by a person with respect to
any employee benefit plan which such person reasonably believes to be in the
interest of the participants and beneficiaries of such plan shall be deemed to
be action not opposed to the best interests of the Corporation. Expenses
incurred in defending any such action, suit or proceeding by any person who the
Corporation is required to indemnify as set forth above shall be paid or
reimbursed by the Corporation promptly upon receipt by it of an undertaking of
such person to repay such expenses if it should ultimately be determined that
such person was not entitled to be indemnified by the Corporation. The rights
provided to any person by this Section shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as an Agent of the Corporation as defined above.
No amendment of this Section shall impair the rights of any person arising at
any time with respect to events occurring prior to such amendment. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be an Agent of the Corporation and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
(b) The provisions of this Article shall be deemed to be a contract
between the Corporation and each such person who serves in any such capacity at
any time while this Article and the relevant provisions of the Nevada General
Corporation Law or other applicable laws, if any, are in effect, and any repeal
or modification of any such laws or of this Article shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of facts.
The Corporation shall also enter into such express agreements as the Board of
Directors deems appropriate for the indemnification of present or future Agents
of the Corporation, consistent with the Corporation's Articles of Incorporation,
these by-laws and applicable law.
Section 16 -- Insurance:
Upon a determination of the Board of Directors to purchase liability
insurance, this Corporation shall purchase and maintain insurance on behalf of
each Agent identified by the Board against any liability asserted against or
incurred by the Agent in such capacity or arising out of the Agent's status as
such whether or not this Corporation would have the power to indemnify the Agent
against such liability under the provisions of section 15.
Section 17 -- Transfer Agents and Registrars:
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, either domestic or foreign, who
shall be appointed at such times and places as the requirements of the
Corporation may necessitate and the Board of Directors may designate.
ARTICLE IV -- OFFICERS
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Section 1 -- Number, Qualifications, Election and Term of Office:
(a) The officers of the Corporation shall consist of a President,
Secretary, Treasurer and such other officers, including a Chairman of the Board
of Directors, a Vice Chairman of the Board of Directors and one or more Vice
Presidents, as the Board of Directors may from time to time deem advisable. Any
officer other than the Chairman or Vice Chairman of the Board of Directors may
be, but is not required to be, a director of the Corporation. Any two or more
offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of
Directors at the regular annual meeting of the Board following the annual
meeting of stockholders.
(c) Each officer shall hold office until the annual meeting of the
Board of Directors next succeeding his election, and until his successor shall
have been elected and qualified, or until his death, resignation or removal.
Section 2 -- Resignation:
Any officer may resign at any time by giving written notice of such
resignation to the Board of Directors, or to the President or the Secretary of
the Corporation. Unless otherwise specified in such written notice, such
resignation shall take effect upon receipt thereof by the Board of Directors or
by such officer, and the acceptance of such resignation shall not be necessary
to make it effective.
Section 3 -- Removal:
Any officer may be removed, either with or without cause, and a
successor elected by a majority vote of the Board of Directors at any time.
Section 4 -- Vacancies:
A vacancy in any office by reason or death, resignation, inability to
act, disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by a majority vote of the Board of Directors.
Section 5 -- Duties of Officers:
(a) Chairman of the Board. The Chairman of the Board shall, when
present, preside at all meetings of the stockholders and of the Board of
Directors, and shall have such other powers and duties as may be delegated to
him by the Board of Directors. He may from time to time, with the approval of a
majority of the Board, delegate to the Vice Chairman of the Board, if any, or
the President, the duties of presiding at meetings of stockholders and of the
Board of Directors.
(b) Vice Chairman of the Board. In the absence or the incapacity of the
Chairman of the Board, the Vice Chairman of the Board shall preside at all
meetings of the stockholders and of the Board of Directors, but shall not have
any other duties or powers of the Chairman of the Board with respect to
supervision or control of the business or other officers of the Corporation,
except insofar
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as such duties or powers may be expressly delegated to him by the Chairman of
the Board or the Board of Directors.
(c) President. The President shall be the chief executive officer of
the Corporation. In the absence or incapacity of the Chairman of the Board and
subject to the duties and powers granted the Vice Chairman of the Board, he
shall perform all the duties and functions and shall have all the powers of the
Chairman of the Board. The President shall have the power to execute
certificates for shares of Common Stock and other documents as is normally
accorded the President and chief executive officer of a Corporation under Nevada
and other applicable law. He shall have general supervision over the business
affairs and other officers of the Corporation and shall perform such other
duties as may be prescribed by the Board of Directors from time to time.
(d) Vice President. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board of Directors or, if
not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the by-laws.
(e) Secretary. The Secretary shall record or cause to be recorded, and
shall keep or cause to be kept, at the principal executive office and such other
place as the Board of Directors may order, a book of minutes of actions taken at
all meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board of Directors required by the
by-laws or by law to be given, and shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the by-laws.
(f) Treasurer. The Treasurer shall be the chief financial officer of
the Corporation and shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The books of account
shall at all reasonable times be open to inspection by any director.
The Treasurer shall deposit, or cause to be deposited, all monies and
other valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of
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Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, shall render to the Chairman of the Board, the President
and the Board of Directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the by-laws.
Section 6 -- Salaries:
The salaries for the principal officers of the Corporation shall be
fixed, from time to time, by the Board of Directors. No officer shall be
disqualified from receiving a salary by reason of his also being a director of
the corporation.
Section 7 -- Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee
or agent of the Corporation shall execute to the Corporation a bond in such sum,
and with such surety or sureties as the Board of Directors may direct,
conditioned upon the faithful performance of his duties to the Corporation,
including responsibility for negligence and for the accounting for all property,
funds or securities of the Corporation which may come into his hands.
Section 8 -- Shares of Stock of Other Corporations:
Whenever the Corporation is the holder of shares of stock of any other
corporation, any right or power of the Corporation as such stockholder
(including the attendance, acting and voting at stockholders' meetings and
execution of waivers, consents, proxies or other instruments) may be exercised
on behalf of the Corporation by the President, any Vice President, or such other
person as the Board of Directors may authorize.
ARTICLE V -- SHARES OF STOCK
Section 1 -- Certificates of Stock:
(a) The certificates representing shares of the Corporation's stock
shall be in Such form as shall be adopted by the Board of Directors, and shall
be numbered and registered in the order issued. They shall bear the holder's
name and the number of shares of stock and shall be signed by (i) the Chairman
of the Board or the President or a Vice President, and (ii) the Secretary or
Treasurer, or any Assistant Secretary or Assistant Treasurer, and shall bear the
corporate seal. All of such signatures may be facsimiles.
(b) No certificate representing shares of stock shall be issued until
the full amount of consideration therefor has been paid, except as otherwise
permitted by law.
(c) To the extent permitted by law, the Board of Directors may
authorize the issuance of certificates for fractions of a share of stock which
shall entitle the holder to exercise voting rights, receive dividends and
participate in liquidating distributions, in proportion to the fractional
holdings; or it may authorize the payment in cash of the fair value of fractions
of a share of stock as of the time when those entitled to receive such fractions
are determined; or it may authorize the issuance, subject
Page 14 of 19
<PAGE> 15
to such conditions as may be permitted by law, of scrip in registered or bearer
form over the signature of an officer or agent of the Corporation, exchangeable
as therein provided for full shares of stock, but such scrip shall not entitle
the holder to any rights of a stockholder, except as therein provided.
Section 2 -- Lost or Destroyed Certificates:
The holder of any certificate representing shares of stock of the
Corporation shall immediately notify the Corporation of any loss or destruction
of the certificate representing the same. The Corporation may issue a new
certificate in the place of any certificate theretofore issued by it, alleged to
have been lost or destroyed. On production of such evidence of loss or
destruction as the Board of Directors in its discretion may require, the Board
of Directors may, in its discretion, require the owner of the lost or destroyed
certificate, or his legal representatives, to give the Corporation a bond in
such sum as tile Board may direct, and with such surety or sureties as may be
satisfactory to the Board, to indemnify the Corporation against any claims,
loss, liability or damage it may suffer on account of the issuance of tile new
certificate. A new certificate may be issued without requiring any such evidence
or bond when, in the judgment of the Board of Directors, it is proper so to do.
Section 3 -- Transfers of Shares:
(a) Transfers of shares of stock of the Corporation shall be made on
the stock ledger of the Corporation only by the holder of record thereof, in
person or by his duly authorized attorney, upon surrender for cancellation of
the certificate or certificates representing such shares of stock with an
assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, with such proof of tile authenticity of the signature and of authority
to transfer and of payment of taxes as the Corporation or its agents may
require.
(b) The Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the absolute owner thereof for all purposes and,
accordingly, shall not be bound to recognize any legal , equitable or other
claim to, or interest in, such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
Section 4 -- Record Date:
In lieu of closing the stock ledger of the Corporation, the Board of
Directors may fix, in advance, a date not exceeding sixty (60) days, nor less
than ten (10) days, as the record date for the determination of stockholders
entitled to receive notice of, or to vote at, any meeting of stockholders, or to
consent to any proposal without a meeting, or for the purpose of determining
stockholders entitled to receive payment of any dividends, or allotment of any
rights, or for the purpose of any other action. If no record date is fixed, the
record date for the determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if no notice is given, the
day preceding the day on which the meeting is held; the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the resolution of the directors relating thereto is adopted.
When a determination of stockholders of record entitled to notice of or to vote
at any
Page 15 of 19
<PAGE> 16
meeting of stockholders has been made as provided for herein, such determination
shall apply to any adjournment thereof, unless the directors fix a new record
date for the adjourned meeting.'
Section 5 -- Shareholders of Record:
Voting by stockholders shall in all cases be subject to the following
provisions:
(a) Subject to clause (g) of this Section 5, shares held by an
administrator, executor, guardian, conservator or custodian may be voted by such
holder either in person or by proxy, without a transfer of such shares into the
holder's name; and shares standing in the name of a trustee may be voted by the
trustee, either in person or by proxy, but no trustee shall be entitled to vote
shares held by such trustee without a transfer of such shares into the trustee's
name.
(b) Shares standing in the name of a receiver may be voted by such
receiver; and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into the receiver's name if authority
to do so is contained in the order of the court by which such receiver was
appointed.
(c) Subject to the provisions of applicable law, and except where
otherwise agreed in writing between the parties, a stockholder whose shares are
pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and the
Corporation may treat all rights incident thereto as exercisable by the minor,
in person or by proxy, whether or not the Corporation has notice, actual or
constructive, of the non-age, unless a guardian of the minor's property has been
appointed and written notice of such appointment given to the Corporation.
(e) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy holder as the by-laws of
such other corporation may prescribe or, in the absence of such provision, as
the board of directors of such other corporation may determine or, in the
absence of such determination, by the chairman of the board, president or any
vice president of such other corporation, or by any other person authorized to
do so by the board, president or any vice president of such other corporation.
Shares which are purported to be voted or any proxy purported to be executed in
the name of a corporation (whether or not any title of the person signing is
indicated), shall be presumed to be voted or the proxy executed in accordance
with the provisions of this subdivision, unless the contrary is shown.
(f) Shares of the Corporation owned by any subsidiary shall not be
entitled to vote on any matter.
(g) Shares held by the Corporation in a fiduciary capacity, and shares
of the Corporation held in a fiduciary capacity by any subsidiary, shall not be
entitled to vote on any matter, except to the extent that the settlor or
beneficial owner possesses and exercises a right to vote or to give the
corporation binding instructions as to how to vote such shares.
Page 16 of 19
<PAGE> 17
(h) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a stockholder voting agreement or
otherwise, or it two or more persons (including proxy holders) have the same
fiduciary relationship respecting the same shares, unless the Secretary of the
Corporation is given written notice to the contrary and is furnished with a copy
of the instrument or order appointment them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect:
(i) If only one vote, such act binds all;
(ii) If more than one vote, the act of the majority so voting binds
all;
(iii) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately. If the instrument so filed or the registration of the shares
shows that any such tenancy is held in unequal interests, a majority or even
split for the purpose of this section shall be a majority or even split in
interest.
ARTICLE VI -- MISCELLANEOUS
Section 1 -- Checks, Drafts, Etc.:
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.
Section 2 -- Contracts, Etc., How Executed:
The Board of Directors, except as in the by-laws otherwise provided,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board of Directors, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose of for any amount. Subject to the provisions of applicable law, any
note, mortgage, evidence of indebtedness, contract, share certificate,
conveyance, or other instrument in writing and any assignment or endorsements
thereof executed or entered into between this Corporation and any other person,
when signed by the Chairman of the Board, the President or any Vice President,
and the Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of this Corporation shall be valid and binding on this Corporation in
the absence of actual knowledge on the part of the other person that the signing
officers had not authority to execute the same.'
Section 3 -- Seal:
Page 17 of 19
<PAGE> 18
The Corporation shall adopt and use a corporate seal consisting of a
circle setting forth on its circumference the name of the Corporation and
showing the state of incorporation.
Section 4 -- Fiscal Year:
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
Section 5 -- Loans:
No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors; such authority may be general or confined
to specific instances.
Section 6 -- Deposits:
The Board of Directors shall select banks, trust companies or other
depositories in which all funds of the Corporation not otherwise employed shall,
from time to time, be deposited to the credit of the Corporation.
Section 7 -- Dividends:
Subject to applicable law, dividends may be declared and paid out of
any funds available therefor, as often, in such amounts, and at such time or
times as the Board of Directors may determine.
Section 8 -- Construction and Definitions:
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the laws of the State of Nevada shall
govern the construction of these by-laws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the singular
number includes the plural and the plural number includes the singular, and the
term "person" includes a corporation as well as a natural person.
ARTICLE VII -- AMENDMENTS
Section 1 -- By Stockholders:
All by-laws of the Corporation shall be subject to alteration or
repeal, and new by-laws may be made, by the affirmative vote of stockholders
holding of record in the aggregate at least 80 percent of the outstanding shares
of stock entitled to vote in the election of directors at any annual or special
meeting of stockholders, provided that the notice or waiver of notice of such
meeting shall have summarized or set forth in full therein, the proposed
amendment.'
Section 2 -- By Directors:
Page 18 of 19
<PAGE> 19
The Board of Directors shall have power to make, adopt, alter, amend
and repeal, from time to time, by-laws of the Corporation; provided, however,
that the stockholders entitled to vote with respect thereto as in this Article
VII above-provided may alter, amend or repeal by-laws made by the Board of
Directors; and further provided, that the Board of Directors shall have no power
to change the quorum for meetings of stockholders or of the Board of Directors,
or to change any provisions of the by-laws with respect to the removal of
directors or the filling of vacancies in the Board resulting from the removal by
the stockholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of stockholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
Page 19 of 19
<PAGE> 1
Exhibit 11
EARNINGS PER SHARE COMPUTATIONS
(In 000's except share data)
<TABLE>
<CAPTION>
Three Months ended
December 31, 1997
----------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amounts
----------- ------------- -----------
BASIC EPS
<S> <C> <C> <C>
Income applicable to common shares $2,973 31,974 $ 0.09
========
EFFECT OF DILUTIVE SECURITIES
Stock options 1,087
Warrants 997
Convertible preferred stock dividends --
------ ------
DILUTIVE EPS
Income applicable to Common Shares
with assumed conversions $2,973 34,058 $ 0.09
====== ====== ========
Six Months ended
December 31, 1997
----------------------------------------------
Income (Loss) Shares Per share
(Numerator) (Denominator) Amounts
------------- ------------- ------------
Loss before extraordinary item $(15,532)
Less: Preferred stock dividends
including premium on repurchase 19,326
--------
BASIC EPS
Loss before extraordinary item $(34,856) 31,913 $ (1.09)
========
EFFECT OF DILUTIVE SECURITIES (a)
Stock options --
Warrants --
Convertible preferred stock dividends --
-------- ------
DILUTIVE EPS
Loss applicable to common shares
with assumed conversions $(34,856) 31,913 $ (1.09)
======== ======== ========
</TABLE>
<PAGE> 2
CONT.
<TABLE>
<CAPTION>
Three Months ended
December 31, 1996
--------------------
Income Shares Per share
(Numerator) (Denominator) Amounts
----------- ------------- -------
<S> <C> <C> <C>
BASIC EPS
Income applicable
to common shares $1,051 31,834 $ 0.03
========
EFFECT OF DILUTIVE SECURITIES
Stock options 119
Warrants 587
Convertible preferred stock dividends --
------ ------ --------
DILUTIVE EPS
Income applicable to common shares
with assumed conversions $1,051 32,540 $ 0.03
====== ====== ========
</TABLE>
<TABLE>
<CAPTION> Six Months ended
December 31, 1996
-----------------
Income (Loss) Shares Per share
(Numerator) (Denominator) Amounts
----------- ------------- -------
<S> <C> <C> <C>
BASIC EPS
Loss applicable to common shares $(1,210) 31,802 $ (0.04)
========
EFFECT OF DILUTIVE SECURITIES (a)
Stock options --
Warrants --
Convertible preferred stock dividends --
------- -----
DILUTIVE EPS
Net loss applicable to common shares
with assumed conversions $(1,210) 31,802 $ (0.04)
======= ======= ========
(a) Effect would be anti-dilutive for these periods
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,047
<SECURITIES> 0
<RECEIVABLES> 101,110
<ALLOWANCES> 13,660
<INVENTORY> 34,982
<CURRENT-ASSETS> 157,962
<PP&E> 130,826
<DEPRECIATION> 47,685
<TOTAL-ASSETS> 347,345
<CURRENT-LIABILITIES> 42,402
<BONDS> 0
0
12,975
<COMMON> 3,201
<OTHER-SE> (40,816)
<TOTAL-LIABILITY-AND-EQUITY> 347,345
<SALES> 103,414
<TOTAL-REVENUES> 204,685
<CGS> 58,302
<TOTAL-COSTS> 124,656
<OTHER-EXPENSES> 46,807
<LOSS-PROVISION> 1,524
<INTEREST-EXPENSE> 13,566
<INCOME-PRETAX> (14,640)
<INCOME-TAX> 920
<INCOME-CONTINUING> (15,230)
<DISCONTINUED> 0
<EXTRAORDINARY> (42,033)
<CHANGES> 0
<NET-INCOME> (76,889)
<EPS-PRIMARY> (2.41)
<EPS-DILUTED> (2.41)
</TABLE>
