<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-4281
ALLIANCE GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0104066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6601 S. BERMUDA RD.
LAS VEGAS, NEVADA 89119
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: (702) 270-7600
____________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
The number of shares of Common Stock, $0.10 par value, outstanding as of May 1,
2000 according to the records of the registrant's registrar and transfer agent
was 10,336,272.
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ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
I N D E X
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1999
and March 31, 2000 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 2000 4
Unaudited Condensed Consolidated Statements of Operations
for the nine months ended March 31, 1999 and 2000 5
Unaudited Condensed Consolidated Statements of Stockholders' Deficiency
for the nine months ended March 31, 2000 6
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 1999 and 2000 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 35
Item 6. Exhibits and Reports on Form 8-K 35
SIGNATURES 36
</TABLE>
2
<PAGE> 3
PART 1
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's, except share data)
<TABLE>
<CAPTION>
June 30, Mar. 31,
1999 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,930 $ 38,930
Accounts and notes receivable, net of allowance for doubtful
accounts of $12,705 and $15,829 92,665 78,307
Inventories, net of reserves of $7,077 and $8,047 46,138 41,425
Other current assets 11,423 11,878
--------- ---------
Total current assets 167,156 170,540
--------- ---------
Long-term notes receivable, net of allowance for doubtful
accounts of $991 and $950 5,782 4,758
Leased equipment, net of accumulated depreciation of $5,111 and $8,033 10,981 13,860
Property, plant and equipment, net of accumulated depreciation
of $51,686 and $59,664 74,159 78,461
Excess of costs over net assets of acquired businesses, net of
accumulated amortization of $4,604 and $5,847 57,593 55,379
Intangible assets, net of accumulated amortization of $18,351 and $22,515 26,854 23,216
Other assets, net of reserves of $3,468 and $1,883 13,782 13,322
--------- ---------
Total assets $ 356,307 $ 359,536
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 17,372 $ 16,210
Accrued liabilities 39,196 35,375
Current maturities of long-term debt 1,927 1,028
--------- ---------
Total current liabilities 58,495 52,613
--------- ---------
Long-term debt, net 316,779 346,732
Other liabilities 9,458 9,265
--------- ---------
Total liabilities 384,732 408,610
--------- ---------
Minority interest 1,983 1,409
Commitments and contingencies
Stockholders' deficiency:
Special Stock, 10,000,000 shares authorized:
Series E, $100 liquidation value; 153,802 shares and 46,242
shares issued and outstanding 15,380 4,624
Common Stock, $.10 par value; 50,000,000 shares authorized;
9,791,000 and 10,335,000 shares issued and outstanding 979 1,034
Treasury stock at cost, 85,300 shares and 83,000 shares (522) (508)
Additional paid-in capital 129,991 141,130
Accumulated other comprehensive loss (15,986) (20,692)
Accumulated deficit (160,250) (176,071)
--------- ---------
Total stockholders' deficiency (30,408) (50,483)
--------- ---------
Total liabilities and stockholders' deficiency $ 356,307 $ 359,536
========= =========
</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 per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 2000
---------- -----------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 38,406 $ 25,972
Wall machines and amusement games 24,845 18,668
Route operations 46,037 53,476
Casino operations 16,445 19,428
--------- ---------
125,773 117,544
--------- ---------
Costs and expenses:
Cost of gaming equipment and systems 20,564 14,145
Cost of wall machines and amusement games 14,820 12,387
Cost of route operations 36,223 42,441
Cost of casino operations 6,845 7,254
Selling, general and administrative 26,944 28,466
Research and development 4,949 3,390
Depreciation and amortization 5,710 6,767
Unusual items, net -- 1,638
--------- ---------
116,055 116,488
--------- ---------
Operating income 9,678 1,056
Other income (expense):
Interest income 47 86
Interest expense (8,151) (8,856)
Minority interest (555) (650)
Other, net (74) (503)
--------- ---------
Income (loss) before income taxes 945 (8,867)
Income tax benefit (provision) 246 (223)
--------- ---------
Net income (loss) 1,191 (9,090)
Special Stock dividends (430) --
--------- ---------
Net income (loss) applicable to common shares $ 761 $ (9,090)
========= =========
Basic and diluted income (loss) per share: $ 0.08 $ (0.89)
========= =========
Weighted average common shares outstanding 9,742 10,253
========= =========
Weighted average common and common
share equivalents outstanding 9,747 10,253
========= =========
</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 per share data)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 2000
---------- ----------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 82,847 $ 96,347
Wall machines and amusement games 69,225 52,886
Route operations 128,791 147,768
Casino operations 47,551 52,232
--------- ---------
328,414 349,233
--------- ---------
Costs and expenses:
Cost of gaming equipment and systems 45,798 54,131
Cost of wall machines and amusement games 41,562 33,498
Cost of route operations 100,868 117,096
Cost of casino operations 20,165 20,435
Selling, general and administrative 75,847 78,752
Research and development 13,094 11,467
Depreciation and amortization 16,869 19,792
Unusual items,net -- 2,164
--------- ---------
314,203 337,335
--------- ---------
Operating income 14,211 11,898
Other income (expense):
Interest income 420 312
Interest expense (23,556) (25,348)
Minority interest (1,603) (1,577)
Other, net (621) (628)
--------- ---------
Loss before income taxes (11,149) (15,343)
Income tax (provision) benefit 307 (478)
--------- ---------
Net loss (10,842) (15,821)
Special Stock dividends (1,254) --
--------- ---------
Net loss applicable to common shares $ (12,096) $ (15,821)
========= =========
Basic and diluted loss per share: $ (1.25) $ (1.55)
========= =========
Weighted average common shares outstanding 9,651 10,221
========= =========
Weighted average common and common
share equivalents outstanding 9,651 10,221
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Nine Months Ended March 31, 2000
(In 000's)
<TABLE>
<CAPTION>
Total
Accumulated Stock-
Common Stock Series E Additional Other holders'
----------------- Special Treasury Paid-in Comprehensive Accum. Equity
Shares Dollars Stock Stock Capital Loss Deficit (Deficiency)
------ ------- -------- -------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1999 9,791 $ 979 $ 15,380 $(522) $ 129,991 $(15,986) $(160,250) $(30,408)
Net loss -- -- -- -- -- -- (15,821) (15,821)
Treasury shares issued
upon exercise of options -- -- -- 14 (4) -- -- 10
Special Stock dividends -- -- 442 -- -- -- -- 442
Shares issued upon
conversion of Special Stock 544 55 (11,198) -- 11,143 -- -- --
Foreign currency translation
adjustment -- -- -- -- -- (4,706) -- (4,706)
------ ------ -------- ----- --------- -------- --------- --------
Balances at March 31, 2000 10,335 $1,034 $ 4,624 $(508) $ 141,130 $(20,692) $(176,071) $(50,483)
====== ====== ======== ===== ========= ======== ========= ========
</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>
Nine Months Ended March 31,
1999 2000
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,842) $(15,821)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 16,869 19,792
Amortization of debt discounts 39 40
Write down of other assets 765 660
(Gain) loss on sale of assets 117 (4,067)
Provision for losses on doubtful receivables 1,713 4,708
Other (211) (263)
Net change in operating assets and liabilities:
Accounts and notes receivable 9,743 7,266
Inventories (9,254) (7,829)
Other current assets 2,540 (619)
Accounts payable 5,239 (973)
Accrued liabilities (2,760) (4,131)
-------- --------
Net cash provided by (used in) operating activities 13,958 (1,277)
Cash flows from investing activities:
Additions to property, plant and equipment (7,909) (11,956)
Proceeds from disposal of property and equipment
and other assets 141 4,090
Proceeds from sale/leaseback transaction -- 3,169
Additions to other long term assets (4,218) (2,696)
-------- --------
Net cash used in investing activities (11,986) (7,393)
Cash flows from financing activities:
Reduction of long-term debt (4,696) (3,550)
Net change in lines of credit 4,200 34,460
Proceeds from exercise of stock options and warrants 4,778 10
Repurchase of common stock for treasury (522) --
-------- --------
Net cash provided by financing activities 3,760 30,920
Effect of exchange rate changes on cash (5) (250)
Cash and cash equivalents:
Increase for period 5,727 22,000
Balance, beginning of period 23,487 16,930
-------- --------
Balance, end of period $ 29,214 $ 38,930
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which management believes are necessary to present fairly the
financial position, results of operations and cash flows of Alliance
Gaming Corporation ("Alliance" or the "Company") for the respective
periods presented. The results of operations for an interim period are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. The accompanying unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's annual report on Form 10-K as amended for the year ended June
30, 1999. All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying condensed consolidated financial statements at June 30,
1999 were derived from audited consolidated financial statements, but do
not include all disclosures required under generally accepted accounting
principles. Certain reclassifications have been made to prior period
financial statements to conform with current period presentation.
2. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Cost elements included for work-in-process and
finished goods include raw materials, freight, direct labor and
manufacturing overhead.
Inventories, net of reserves, consist of the following at June 30, 1999
and March 31, 2000:
<TABLE>
<CAPTION>
June 30, Mar. 31,
1999 2000
-------- --------
(in 000's)
<S> <C> <C>
Raw materials $16,676 $17,564
Work-in-process 2,057 1,144
Finished goods 27,405 22,717
------- -------
Total inventories $46,138 $41,425
======= =======
</TABLE>
8
<PAGE> 9
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
3. DEBT, LINES OF CREDIT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, Mar. 31,
1999 2000
-------- --------
(in 000's)
<S> <C> <C>
10% Senior Subordinated Notes
due 2007, net of unamortized
discount of $702 and $663 $149,298 $149,337
Term loan facilities:
Tranche B Term Loan 72,380 70,708
Tranche C Term Loan 38,744 37,822
Delayed Draw Term Facility 24,372 23,811
Revolving Credit Facility 32,200 64,862
Other, secured by related equipment 1,712 1,219
-------- --------
318,706 347,760
Less current maturities 1,927 1,028
-------- --------
Long-term debt, less current maturities $316,779 $346,732
======== ========
</TABLE>
In August 1997 the Company completed a refinancing transaction whereby the
Company repaid its 12 7/8% Senior Notes, repurchased its 15% Series B
Special Stock, and issued $150 million of 10% Senior Subordinated Notes
and entered into bank financing of $230 million. The bank financing
provides for (i) term loans in the aggregate amount of up to $140 million,
comprised of a $75 million tranche with a 7 1/2-year term (the "Tranche B
Term Loan"), a $40 million tranche with an 8-year term (the "Tranche C
Term Loan"), and a $25 million tranche with a 7 1/2-year term (the
"Delayed Draw Term Facility" and together with the Tranche B Term Loan and
the Tranche C Term Loan, the "Term Loan Facilities"); and (ii) a $80
million revolving credit facility (the "Revolving Credit Facility", as
later amended) with a 6-year term. Each of these credit facilities are
variable rate borrowings in accordance with a credit grid. The interest
rates which are currently at the highest level of the credit grid and
maturity dates are as follows:
<TABLE>
<CAPTION>
Interest Maturity
Rates Date
------------- ----------------
<S> <C> <C>
Tranche B Term Loan LIBOR + 4.25% January 31, 2005
Tranche C Term Loan LIBOR + 4.50% July 31, 2005
Delayed Draw Term Facility LIBOR + 4.25% January 31, 2005
Revolving Credit Facility LIBOR + 3.75% July 31, 2003
</TABLE>
The Revolving Credit Facility also allows for German Deutschemark
borrowings at the euro deutschmark rate plus 3.75% (or 7.7% at March 31,
2000). In an amendment to the bank credit agreement in October 1999, the
Company has agreed to keep the interest rate at the highest level of the
credit grid through December 31, 2000. As is more fully described below,
in amendments to the credit agreement in April 2000 (the "Fifth and Sixth
Amendments") the Company agreed to increase the interest rates in the Term
Loan Facilities and Revolving Credit Facility by 1.0%, which has been
reflected in the preceding table.
The bank facility is collateralized by substantially all domestic property
and is guaranteed by each domestic subsidiary of the U.S. Borrower and
German Subsidiaries (both as defined), other than the entity which holds
the Company's interest in its Louisiana operations and other non-material
subsidiaries (as defined), and secured by both a U.S. and German Pledge
Agreement (both as defined). The bank facility contains a number of
maintenance covenants and it and the Senior Subordinated Note Indenture
have other significant covenants that, among other things, restrict the
ability of the Company and certain of its subsidiaries to dispose of
assets, incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, enter into certain
9
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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
acquisitions, repurchase equity interests or subordinated indebtedness,
issue or sell equity interests of the Company's subsidiaries, engage in
mergers or acquisitions, or engage in certain transactions with
subsidiaries and affiliates, and that otherwise restrict corporate
activities.
To facilitate the disposition of certain assets, in October 1999 the
Company obtained an amendment (the "Third Amendment") to its bank credit
agreement. The Third Amendment provides the lenders' consent for the sale
of certain businesses at specified minimum prices by December 31, 2000 and
provides other financial flexibility to the Company. The Third Amendment
also provides that if the Company should elect to sell any of these
businesses, any restructuring charges that may be incurred as a result of
the sales may be excluded from the determination of EBITDA used in the
calculation of the various financial covenant ratios. In addition, the
Third Amendment provides that any restructuring charges that may be
incurred at Bally Gaming and Systems (up to $1.5 million) may be excluded
from the determination of EBITDA used in the calculation of the various
financial covenant ratios.
The Fifth and Sixth Amendments to the credit agreement allow the Company
to obtain third party financing for gaming devices used in the Bally
Gaming and Systems gaming operations, waive compliance with certain
financial ratio covenants through September 30, 2000, and provide that if
the Company should writedown any goodwill intangible assets, such charges
would be excluded from the computation of EBITDA. The Fifth and Sixth
Amendments also reduced the maximum amount of the Revolving Credit
Facility to $80.0 million from $90.0 million. The Company continues to
expand the Bally Gaming and Systems gaming operations, and future growth
will likely be financed with a combination of traditional financing and
leases as allowed for in these amendments. The Company continues to
evaluate the recoverability of the goodwill based on current and
forecasted cash flows from the businesses that have goodwill recorded, and
future write-downs of goodwill, if any, will not impact the definition of
EBITDA used in the calculation of the financial covenant ratios. The
Company incurred a fee of $0.5 million in connection with the Fifth and
Sixth Amendments, which is included in interest expense in the March 2000
quarter.
The 10% Senior Subordinated Notes are general unsecured obligations of the
Company, ranking subordinate in right of payment to all Senior Debt (as
defined) of the Company, including indebtedness under the bank financing.
The Senior Subordinated Notes will be fully and unconditionally guaranteed
on a joint and several senior subordinated basis by all existing and
future domestic Restricted Subsidiaries (as defined) of the Company,
subject to certain exceptions including the partially-owned entities
through which its Mississippi casino and Louisiana route operations are
conducted. The Subsidiary Guarantees (as defined) are general unsecured
obligations of the Guarantors, ranking subordinate in right of payment to
all Senior Debt of the Guarantors. The Company will be able to designate
other current or future subsidiaries as Unrestricted Subsidiaries (as
defined) under certain circumstances. Unrestricted Subsidiaries will not
be required to issue a Subsidiary Guarantee and will not be subject to
many of the restrictive covenants set forth in the Indenture pursuant to
which the Senior Subordinated Notes were issued. The Indenture for the
Company's Senior Subordinated Notes contains various covenants, including
limitations on incurrence of additional indebtedness, on restricted
payments and on dividend and payment restrictions on subsidiaries. The
Senior Subordinated Notes may not be redeemed for the first five years.
Upon an occurrence of a Change of Control (as defined), the holders of the
Senior Subordinated Notes would have the right to require the Company to
purchase their notes at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest to the date of such
purchase.
10
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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
4. INCOME TAXES
The Company's effective tax rate for the three and nine months ended March
31, 1999 and 2000 differs from the statutory rate of 35% due to state
income taxes and the impact of taxes applicable to earnings of Bally
Wulff. In addition, no tax benefit has been recorded for net losses
generated by the Company's domestic subsidiaries.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the unaudited
condensed consolidated statements of cash flows.
<TABLE>
<CAPTION>
Nine months ended
March 31,
1999 2000
------ -------
(In 000's)
<S> <C> <C>
Non-cash transactions:
Reclassify other assets to property, plant
and equipment $ 306 $ 242
Dividends for Series E Special Stock 1,254 442
Reclassify inventory to equipment 5,133 11,196
Translation rate adjustment 747 4,456
Conversion of Series E Special Stock into
common shares -- 11,198
Deferred gain on sale/leaseback transaction -- 1,546
</TABLE>
6. LEGAL PROCEEDINGS
LITIGATION
On September 25, 1995, BGII was named as a defendant in a class action
lawsuit filed in federal District Court in Nevada, by Larry Schreirer on
behalf of himself and all others similarly situated. The plaintiffs filed
suit against BGII and approximately 45 other defendants. Each defendant is
involved in the gaming business as either a gaming machine manufacturer,
distributor, or casino operator. The class action lawsuit arises out of
alleged fraudulent marketing and operation of casino video poker machines
and electronic slot machines. The plaintiffs allege that the defendants'
actions constitute violations of the Racketeer Influenced and Corrupt
Organizations Act (RICO) and give rise to claims of common law fraud and
unjust enrichment. The plaintiffs are seeking monetary damages in excess
of $1.0 billion, and are asking that any damage awards be trebled under
applicable Federal law. Management believes the plaintiffs' lawsuit to be
without merit. The Company intends to vigorously pursue all legal defenses
available to it.
On July 20, 1999, Bally Gaming, Inc., sued International Game Technology
in the United States District Court for the District of New Jersey. The
suit alleged that provisions in IGT's contracts with Atlantic City casinos
barred the casinos from acquiring progressive systems from IGT's
competitors, thereby preserving IGT's monopoly in the lucrative Atlantic
City progressive market, violating federal and state antitrust laws and
common law policies against unfair competition and restraints of trade,
and frustrating Bally's efforts to launch its Trillions wide-area
progressive system in Atlantic City. The lawsuit sought declaratory and
injunctive relief, compensatory damages,
11
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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
and other relief. The parties entered into a settlement pursuant to which
IGT has notified its Atlantic City customers that it will not enforce the
challenged contract provisions, and Bally dismissed the suit.
On August 30, 1999, Cardivan Company, a subsidiary of Jackpot Enterprises,
Inc., filed an action in federal court in Nevada against Raley's and
Albertson's, Inc., in which Cardivan sought to forestall the loss of its
slot machine operations at fifteen Albertson's grocery stores in the Las
Vegas area after Albertson's, Cardivan's customer, sold the stores to
Raley's, with whom Alliance subsidiary United Coin Machine Co. has an
exclusive contract. The federal court granted a preliminary injunction
allowing Cardivan to continue operating machines at Raley's before trial.
The federal court granted Anchor Gaming's motion to intervene and extended
the preliminary injunction to prohibit Raley's from removing Anchor's slot
machines at four other stores that Albertson's sold to Raley's. After the
court denied United Coin's motion to intervene, United Coin appealed to
the Ninth Circuit Court of Appeals and filed a state action against
Cardivan and Anchor for interference with contractual relations and
Albertson's and Raley's for breach of contract. In January 2000, the
parties settled all claims. Under the terms of the settlement agreement,
United Coin began operating 305 gaming machines in 19 Raley's stores on
February 1, 2000. Under its contract with Raley's, United Coin will
operate these gaming machines, the machines at Raley's stores in Northern
Nevada and machines at any new Raley's stores throughout Nevada until June
30, 2008. As part of the settlement, United Coin received cash and other
consideration.
The Company is also a party to various lawsuits relating to routine
matters incidental to its business. Management does not believe that the
outcome of such litigation, including the matters above, in the aggregate,
will have a material adverse effect on the Company.
7. COMPREHENSIVE INCOME (LOSS)
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting of comprehensive income (loss) and
its components; however, the adoption of SFAS had no impact on the
Company's net income (loss) or stockholders' deficiency. SFAS 130 requires
the changes in the cumulative translation adjustment account (which is a
component of stockholders' deficiency) to be included as a component of
other comprehensive income (loss).
During the nine months ended March 31, 1999 and 2000, total comprehensive
loss amounted to $10.1 million and $20.5 million respectively.
8. SHARE REPURCHASE PLAN
In January 1999 the Company's Board of Directors approved a share
repurchase plan for up to 1.18 million shares of its Common Stock. Under
the plan, subject to price and market conditions, purchases of shares will
be made from time to time during calendar 1999 in the open market or in
privately negotiated transactions. As of March 31, 2000, the Company had
approximately 83,000 shares of common stock in treasury at a cost of
$508,000. The Company intends to use the acquired common stock to satisfy
obligations pursuant to the exercise of stock options under the Company's
stock option plans.
12
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ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
9. REVERSE STOCK SPLIT
On January 14, 1999 the Company's Board of Directors announced a
one-for-three-and-one-half reverse stock split of its Common Stock
effective February 1, 1999. The effects of the reverse split were to
reduce the authorized number of common shares from 175.0 million to 50.0
million and to decrease the number of shares of Common Stock outstanding
at that time from 34.3 million to 9.8 million. In connection with the
reverse split, the share number, exercise price and the trigger prices, as
applicable, for the Company's stock options and warrants were
proportionately adjusted. In lieu of fractional shares resulting from the
reverse split, stockholders received a cash payment from the sale of the
aggregate fractional shares on the open market. The reverse split also
impacted the conversion ratio on the Company's Series E Special Stock.
Each share of Series E Special Stock is now convertible into 4.859 shares
of Common Stock instead of 17.007 shares. All share and per share data
included in these financial statements have been restated to reflect the
reverse split.
10. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income (loss)
applicable to common shares (the numerator) by the weighted-average number
of common shares outstanding (the denominator) for the period. The
computation of Diluted EPS is similar to Basic EPS, except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the potentially dilutive common shares
had been issued. Stock options and warrants are reflected in Diluted EPS
by application of the "Treasury Stock Method" which reduces the dilutive
effect by assuming that any proceeds from the exercise of the options and
warrants would be used to purchase common shares at the average market
price during the period. Series E Special Stock is reflected in Diluted
EPS by application of the "If-Converted Method" which assumes full
conversion at the beginning of the period.
The computation of Basic and Diluted EPS is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------- -----------------------
1999 2000 1999 2000
------ -------- -------- --------
(In 000's except share data)
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common shares $ 761 $ (9,090) $(12,096) $(15,821)
Wt. average common shares outstanding 9,742 10,253 9,651 10,221
Dilutive effect of stock options outstanding 5 -- -- --
Wt. average common and potential shares
Outstanding 9,747 10,253 9,651 10,221
Basic and diluted earnings (loss) per share $ 0.08 $ (0.89) $ (1.25) $ (1.55)
</TABLE>
Stock options, warrants and convertible preferred stock outstanding which
were potentially convertible into approximately 2.6 million common shares
as of March 31, 2000 were not included in the computation of Diluted EPS
because either (i) the exercise price was greater than the average market
price of the common shares during the period or (ii) the contingent issue
price was greater that the market price of the common shares at the end of
the period.
13
<PAGE> 14
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
11. SPECIAL ITEMS
During the quarter ended March 31, 2000, the Company incurred unusual
items of $3.6 million. The gross unusual charges for restructuring and
related costs totaled $6.6 million. The restructuring and related costs
were incurred pursuant to a plan adopted by the Company for additional
staff reductions at the Bally Gaming and Systems and Wall Machine and
Amusement Games business units, and for the costs of closing two
unprofitable foreign sales offices. Included in the restructure costs
described above is a $1.9 million charge for a valuation reserve for
certain inventory for the Australian market, which is included in the cost
of gaming equipment and systems in the accompanying Condensed Consolidated
Statement of Operations. These charges were partially offset by a $3.0
million gain on the sale of certain gaming management and development
rights with the Ewaaiipaayp Tribe.
During the quarter ended March 31, 2000, the Company incurred a fee of
$0.5 million related to the amendments to the bank credit agreement. This
amount is included in interest expense in the accompanying Condensed
Consolidated Statement of Operations.
During the quarter ended December 31, 1999, the Company incurred unusual
items of $0.5 million, which consists of $1.5 million of restructuring and
related charges at its Bally Gaming and Systems and Wall Machine and
Amusement Games business units, partially offset by a $1.0 million gain on
a release of an option the Company had to operate gaming machines at a
dormant dog racing track in Kansas.
The Company also incurred a charge of $0.5 million in the quarter ended
December 31, 1999 related to an amendment to the bank credit agreement,
which is also included in interest expense in the accompanying Condensed
Consolidated Statement of Operations.
12. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in four business segments: (i) Gaming Equipment and
Systems designs, manufactures and distributes gaming machines and
computerized monitoring systems for gaming machines, (ii) Wall Machines
and Amusement Games designs, manufactures and distributes wall-mounted
gaming machines and distributes third party manufactured amusement games,
(iii) Route Operations owns and manages a significant installed base of
gaming machines, and (iv) Casino Operations owns and operates two casinos.
Operating income is the primary measure used in assessing segment
performance. Corporate office costs are generally not allocated except
where those costs can be specifically identified with a segment.
14
<PAGE> 15
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
The table below presents information as to the Company's revenues and
operating income:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 2000
---------- ----------
(In $000's)
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 82,847 $ 96,347
Wall machines and amusement games 69,225 52,886
Route operations 128,791 147,768
Casino operations 47,551 52,232
--------- ---------
Total revenues $ 328,414 $ 349,233
========= =========
Intersegment revenues:
Gaming equipment and systems $ 532 $ 1,293
Wall machines and amusement games 53 47
Route operations -- --
Casino operations -- --
--------- ---------
Total intersegment revenues $ 585 $ 1,340
========= =========
Operating income (loss):
Gaming equipment and systems $ (581) $ 1,670
Wall machines and amusement games 4,513 (2,612)
Route operations 10,226 11,245
Casino operations 14,409 17,744
Corporate and unusual items (14,356) (16,149)
--------- ---------
Total operating income $ 14,211 $ 11,898
========= =========
</TABLE>
The Company has operations based primarily in the United States and
Germany. The German operation's customers are a diverse group of operators
of wall machines and amusement games at arcades, hotels, restaurants and
taverns, primarily in Germany. Gaming Equipment and Systems' customers are
primarily casinos and gaming machine distributors in the United States and
abroad. Receivables of the German operations and Gaming Equipment and
Systems are generally collateralized by the related equipment.
The table below presents information as to the Company's revenues and
operating income by geographic region:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 2000
--------- ----------
(In $000's)
<S> <C> <C>
Revenues:
United States $ 250,668 $ 279,311
Germany 76,801 59,908
Other foreign 945 10,014
--------- ---------
Total revenues $ 328,414 $ 349,233
========= =========
Operating income (loss):
United States $ 11,315 $ 22,700
Germany 3,865 (4,920)
Other foreign (969) (5,882)
--------- ---------
Total operating income $ 14,211 $ 11,898
========= =========
</TABLE>
15
<PAGE> 16
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
13. UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS
The following unaudited condensed consolidating financial statements are
presented to provide certain financial information regarding guaranteeing
and non-guaranteeing subsidiaries in relation to the Company's Senior
Subordinated Notes which were issued in the Refinancing (see note 2). The
financial information presented includes Alliance Gaming Corporation (the
"Parent") and its wholly-owned guaranteeing subsidiaries (together the
"Parent and Guaranteeing Subsidiaries"), and the non-guaranteeing
subsidiaries Video Services, Inc., United Gaming Rainbow, BGI Australia
Pty. Limited, Bally Gaming de Puerto Rico, Inc., and Alliance Automaten
GmbH & Co. KG (the subsidiary that holds the Company's German interests)
(together the "Non-Guaranteeing Subsidiaries"). The notes to consolidating
financial statements should be read in conjunction with these
consolidating financial statements.
16
<PAGE> 17
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
June 30, 1999
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,240 $ 11,690 $ $ 16,930
Accounts and notes receivable, net 45,498 51,842 (4,675) 92,665
Inventories, net 30,269 16,398 (529) 46,138
Other current assets 8,496 2,927 11,423
--------- --------- --------- ---------
Total current assets 89,503 82,857 (5,204) 167,156
--------- --------- --------- ---------
Long-term notes receivable, net 99,961 1,797 (95,976) 5,782
Leased equipment, net 3,923 7,058 10,981
Property, plant and equipment, net 41,781 32,378 74,159
Excess of costs over net assets of acquired
businesses, net 38,904 18,689 57,593
Intangible assets, net 26,448 406 26,854
Investments in subsidiaries 86,993 (86,993)
Other assets, net 27,890 (9,915) (4,193) 13,782
--------- --------- --------- ---------
$ 415,403 $ 133,270 $(192,366) $ 356,307
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 14,706 $ 2,689 $ $ 17,372
Accrued liabilities 26,771 13,915 (1,321) 39,196
Current maturities of long-term debt 6,175 3,299 (7,547) 1,927
--------- --------- --------- ---------
Total current liabilities 47,652 19,903 (8,868) 58,495
--------- --------- --------- ---------
Term loan facilities 134,096 134,096
Senior Subordinated Notes due 2007, net 149,298 149,298
Other long-term debt, less current maturities 104,826 24,379 (95,820) 33,385
Other liabilities 7,370 2,330 (242) 9,458
--------- --------- --------- ---------
Total liabilities 443,242 46,612 (104,930) 384,732
--------- --------- --------- ---------
Minority interest 1,983 1,983
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock 15,380 15,380
Common Stock 979 17,832 (17,832) 979
Treasury stock (522) (522)
Additional paid-in capital 129,991 68,700 (68,700) 129,991
Accumulated other comprehensive loss (15,981) (16,007) 16,002 (15,986)
Retained earnings (accumulated deficit) (159,477) 16,133 (16,906) (160,250)
--------- --------- --------- ---------
Total stockholders' equity (deficiency) (29,630) 86,658 (87,436) (30,408)
--------- --------- --------- ---------
$ 415,403 $ 133,270 $(192,366) $ 356,307
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
17
<PAGE> 18
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
March 31, 2000
(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 $ 27,473 $ 11,457 $ -- $ 38,930
Accounts and notes receivable, net 38,032 43,041 (2,766) 78,307
Inventories, net 26,313 15,676 (564) 41,425
Other current assets 8,959 2,919 -- 11,878
--------- --------- --------- ---------
Total current assets 100,777 73,093 (3,330) 170,540
--------- --------- --------- ---------
Long-term notes receivable, net 103,892 955 (100,089) 4,758
Leased equipment, net 6,405 7,455 -- 13,860
Property, plant and equipment, net 43,337 35,124 -- 78,461
Excess of costs over net assets of acquired
businesses, net 38,111 17,268 -- 55,379
Intangible assets, net 22,902 314 -- 23,216
Investment in subsidiaries 68,335 -- (68,335) --
Other assets, net 35,274 (15,594) (6,358) 13,322
--------- --------- --------- ---------
$ 419,033 $ 118,615 $(178,112) $ 359,536
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 13,244 $ 2,966 $ -- $ 16,210
Accrued liabilities 21,051 15,213 (889) 35,375
Current maturities of long-term debt 4,637 3,429 (7,038) 1,028
--------- --------- --------- ---------
Total current liabilities 38,932 21,608 (7,927) 52,613
--------- --------- --------- ---------
Term loan facilities 131,802 -- -- 131,802
Senior Subordinated Notes due 2007, net 149,337 -- -- 149,337
Other long-term debt, less current maturities 140,805 24,810 (100,022) 65,593
Other liabilities 7,231 2,194 (160) 9,265
--------- --------- --------- ---------
Total liabilities 468,107 48,612 (108,109) 408,610
--------- --------- --------- ---------
Minority interest 1,409 -- -- 1,409
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock 4,624 -- -- 4,624
Common Stock 1,034 17,832 (17,832) 1,034
Treasury stock (508) -- -- (508)
Additional paid-in capital 141,130 7,862 (7,862) 141,130
Accumulated other comprehensive income (20,692) (20,850) 20,850 (20,692)
Retained earnings (accumulated deficit) (176,071) 65,159 (65,159) (176,071)
--------- --------- --------- ---------
Total stockholders' equity (deficiency) (50,483) 70,003 (70,003) (50,483)
--------- --------- --------- ---------
$ 419,033 $ 118,615 $(178,112) $ 359,536
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
18
<PAGE> 19
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1999
(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 $ 38,472 $ 2,893 $ (2,959) $ 38,406
Wall machines and amusement games -- 24,845 -- 24,845
Route operations 40,280 5,757 -- 46,037
Casino operations 3,759 12,686 -- 16,445
-------- -------- --------- ---------
82,511 46,181 (2,959) 125,733
Costs and expenses:
Cost of gaming equipment and systems 21,061 2,462 (2,959) 20,564
Cost of wall machines and amusement games -- 14,820 -- 14,820
Cost of route operations 32,509 3,714 -- 36,223
Cost of casino operations 2,221 4,624 -- 6,845
Selling, general and administrative 16,769 10,175 -- 26,944
Research and development 4,142 807 -- 4,949
Depreciation and amortization 3,920 1,790 -- 5,710
-------- -------- --------- ---------
80,622 38,392 (2,959) 116,055
Operating income (loss) 1,889 7,789 9,678
Earnings in consolidated subsidiaries 5,679 -- (5,679) --
Other income (expense):
Interest income 125 72 (150) 47
Interest expense (7,924) (377) 150 (8,151)
Rainbow royalty 1,494 (1,494) -- --
Minority interest (555) -- -- (555)
Other, net 159 (223) -- (74)
-------- -------- --------- ---------
Income (loss) before income taxes 867 5,757 (5,679) 945
Income tax benefit 324 (78) -- 246
-------- -------- --------- ---------
Net income (loss) 1,191 5,679 (5,679) 1,191
Special Stock dividends (430) -- -- (430)
-------- -------- --------- ---------
Net income (loss) applicable to common shares $ 761 $ 5,679 $ (5,679) $ 761
======== ======== ========= =========
</TABLE>
See accompanying unaudited note.
19
<PAGE> 20
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000
(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 $ 26,375 $ 3,451 $ (3,854) $ 25,972
Wall machines and amusement games -- 18,668 -- 18,668
Route operations 48,409 5,067 -- 53,476
Casino operations 4,589 14,839 -- 19,428
-------- -------- --------- ---------
79,373 42,025 (3,854) 117,544
Costs and expenses:
Cost of gaming equipment and systems 13,469 4,530 (3,854) 14,145
Cost of wall machines and amusement games -- 12,387 -- 12,387
Cost of route operations 39,121 3,320 -- 42,441
Cost of casino operations 2,226 5,028 -- 7,254
Selling, general and administrative 16,879 11,587 -- 28,466
Research and development 2,697 693 -- 3,390
Depreciation and amortization 4,568 2,199 -- 6,767
Unusual items (1,727) 3,365 -- 1,638
-------- -------- --------- ---------
77,233 43,109 (3,854) 116,488
-------- -------- --------- ---------
Operating income (loss) 2,140 (1,084) -- 1,056
Earnings (losses) in consolidated
subsidiaries (4,327) -- 4,327 --
Other income (expense):
Interest income 129 62 (105) 86
Interest expense (8,475) (486) 105 (8,856)
Rainbow royalty 1,739 (1,739) -- --
Minority interest (650) -- -- (650)
Other, net 221 (724) -- (503)
-------- -------- --------- ---------
Loss before income taxes (9,223) (3,971) 4,327 (8,867)
Income tax benefit (provision) 133 (356) -- (223)
-------- -------- --------- ---------
Net Loss applicable to common shares $ (9,090) $ (4,327) $ 4,327 $ (9,090)
======== ======== ========= =========
</TABLE>
See accompanying unaudited note.
20
<PAGE> 21
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 1999
(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 $ 77,691 $ 12,209 $ (7,053) $ 82,847
Wall machines and amusement games -- 69,236 (11) 69,225
Route operations 112,539 16,252 -- 128,791
Casino operations 10,619 36,932 -- 47,551
--------- --------- --------- ---------
200,849 134,629 (7,064) 328,414
--------- --------- --------- ---------
Costs and expenses:
Cost of gaming equipment and systems 42,940 9,911 (7,053) 45,798
Cost of wall machines and amusement games -- 41,573 (11) 41,562
Cost of route operations 90,219 10,649 -- 100,868
Cost of casino operations 6,383 13,782 -- 20,165
Selling, general and administrative 44,417 31,430 -- 75,847
Research and development 10,731 2,363 -- 13,094
Depreciation and amortization 11,328 5,541 -- 16,869
--------- --------- --------- ---------
206,018 115,249 (7,064) 314,203
--------- --------- --------- ---------
Operating income (loss) (5,169) 19,380 -- 14,211
Earnings in consolidated subsidiaries 12,983 -- (12,983) --
Other income (expense):
Interest income 668 280 (528) 420
Interest expense (22,893) (1,191) 528 (23,556)
Rainbow royalty 4,334 (4,334) -- --
Minority interest (1,603) -- -- (1,603)
Other, net 93 (714) (621)
--------- --------- --------- ---------
Income (loss) before income taxes (11,587) 13,421 (12,983) (11,149)
Income tax benefit (provision) 745 (438) -- 307
--------- --------- --------- ---------
Net income (loss) (10,842) 12,983 (12,983) (10,842)
Special Stock dividends (1,254) -- -- (1,254)
--------- --------- --------- ---------
Net income (loss) applicable to common shares $ (12,096) $ 12,983 $ (12,983) $ (12,096)
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
21
<PAGE> 22
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 2000
(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 $ 95,223 $ 17,038 $ (15,914) $ 96,347
Wall machines and amusement games -- 52,886 -- 52,886
Route operations 133,130 14,638 -- 147,768
Casino operations 13,082 39,150 -- 52,232
--------- --------- --------- ---------
241,435 123,712 (15,914) 349,233
Costs and expenses:
Cost of gaming equipment and systems 54,328 15,717 (15,914) 54,131
Cost of wall machines and amusement games -- 33,498 -- 33,498
Cost of route operations 107,637 9,459 -- 117,096
Cost of casino operations 6,541 13,894 -- 20,435
Selling, general and administrative 47,127 31,625 -- 78,752
Research and development 9,462 2,005 -- 11,467
Depreciation and amortization 13,481 6,311 -- 19,792
Unusual items (1,892) 4,056 -- 2,164
--------- --------- --------- ---------
236,684 116,565 (15,914) 337,335
--------- --------- --------- ---------
Operating income 4,751 7,147 -- 11,898
Earnings (losses) in consolidated subsidiaries (915) -- 915
Other income (expense):
Interest income 397 268 (353) 312
Interest expense (24,288) (1,413) 353 (25,348)
Rainbow royalty 4,586 (4,586) -- --
Minority interest (1,577) -- -- (1,577)
Other, net 601 (1,229) -- (628)
--------- --------- --------- ---------
Income (loss) before income taxes (16,445) 187 915 (15,343)
Income tax benefit (provision) 624 (1,102) -- (478)
--------- --------- --------- ---------
Net Loss applicable to common shares $ (15,821) $ (915) $ 915 $ (15,821)
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
22
<PAGE> 23
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1999
(In 000's)
<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 $(12,547) $ 28,418 $ (1,913) $ 13,958
-------- -------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (6,085) (1,824) (7,909)
Proceeds from disposal of property and equipment 96 45 141
Additions to other long term assets (4,105) (113) (4,218)
-------- -------- -------- --------
Net cash used in investing activities (10,094) (1,892) (11,986)
-------- -------- -------- --------
Cash flows from financing activities:
Repayments of long-term debt (4,098) (2,511) 1,913 (4,696)
Net change in lines of credit 4,200 -- 4,200
Proceeds from exercise of stock options and warrants 4,778 -- 4,778
Repurchase common stock for treasury (522) -- -- (522)
Dividends received (paid) 21,986 (21,986) --
-------- -------- -------- --------
Net cash provided by (used in) financing activities 26,344 (24,497) 1,913 3,760
-------- -------- -------- --------
Effect of exchange rate changes on cash (5) (5)
-------- -------- -------- --------
Cash and cash equivalents:
Increase (decrease) for period 3,703 2,024 5,727
Balance, beginning of period 8,609 14,878 -- 23,487
-------- -------- -------- --------
Balance, end of period $ 12,312 $ 16,902 $ -- $ 29,214
======== ======== ======== ========
</TABLE>
See accompanying unaudited note.
23
<PAGE> 24
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2000
(In 000's)
<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 $(11,236) $ 12,019 $ (2,060) $ (1,277)
-------- -------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (6,733) (5,223) (11,956)
Proceeds from disposal of property and equipment and
other assets 4,047 43 4,090
Proceeds from sale/leaseback transaction 3,169 3,169
Additions to other long term assets (2,661) (35) (2,696)
-------- -------- -------- --------
Net cash used in investing activities (2,178 (5,215) (7,393)
-------- -------- -------- --------
Cash flows from financing activities:
Reduction of long-term debt (3,154) (2,456) 2,060 (3,550)
Net change in lines of credit 29,550 4,910 34,460
Proceeds from exercise of stock options and warrants 10 10
Dividends received (paid) 9,241 (9,241)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 35,647 (6,787) 2,060 30,920
-------- -------- -------- --------
Effect of exchange rate changes on cash (250) (250)
Cash and cash equivalents:
Increase (decrease) for period 22,233 (233) 22,000
Balance, beginning of period 5,240 11,690 -- 16,930
-------- -------- -------- --------
Balance, end of period $ 27,473 $ 11,457 $ $ 38,930
======== ======== ======== ========
</TABLE>
See accompanying unaudited note.
24
<PAGE> 25
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DEBT AND LINES OF CREDIT
Long-term debt and lines of credit at June 30, 1999 consisted of the following :
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Elimina- and
Subsidiaries Subsidiaries tions Subsidiaries
------------ ------------ --------- ------------
(in 000's)
<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2007, net of unamortized discount $149,298 $ $ $149,298
Term loan facilities:
Tranche B Term Loan 72,380 72,380
Tranche C Term Loan 38,744 38,744
Delayed Draw Term Facility 24,372 24,372
Revolving Credit Facility 12,900 19,300 32,200
Intercompany notes payable 96,701 6,666 (103,367)
Other 1,712 1,712
-------- --------- --------- --------
394,395 27,678 (103,367) 318,706
Less current maturities 6,175 3,299 (7,547) 1,927
-------- --------- --------- --------
Long-term debt, less current maturities $388,220 $ 24,379 $ (95,820) $316,779
======== ========= ========= ========
</TABLE>
Long-term debt and lines of credit at March 31, 2000 consisted 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 $149,337 $149,337
Term loan facilities:
Tranche B Term Loan 70,708 70,708
Tranche C Term Loan 37,822 37,822
Delayed Draw Term Facility 23,811 23,811
Revolving Credit Facility 42,450 22,412 64,862
Intercompany notes payable 102,483 4,606 (107,089)
Other -- 1,219 1,219
-------- --------- --------- --------
426,612 28,237 (107,089) 347,760
Less current maturities 6,732 3,428 9,132 1,028
-------- --------- --------- --------
Long-term debt, less current maturities $419,880 $ 24,808 $ (97,956) $346,732
======== ========= ========= ========
</TABLE>
25
<PAGE> 26
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, based on the terms of the amended $80.0 million revolving
credit facility, the Company would have been able to borrow $65.7 million under
the facility, of which the Company had borrowings of approximately $64.9 million
outstanding. As of May 10, 2000, the unborrowed availability on the revolving
credit facility was approximately $3.3 million. The borrowing base for the
revolving credit facility consists of eligible receivables and inventory, as
defined in the credit agreement.
At March 31, 2000, the Company had $38.9 million in cash and cash equivalents
and $0.8 million in unborrowed availability on its revolving credit facility.
Consolidated cash and cash equivalents at March 31, 2000 includes approximately
$21.3 million of cash and cash equivalents which is utilized in casino and route
operations and held in vaults, cages or change banks.
The Company is in compliance with the financial and maintenance covenants under
both the credit agreement for the Bank Facility as amended and the indenture for
the Senior Subordinated Notes.
Consistent with the Company's plan to expand the proprietary gaming operations
of its Bally Gaming and Systems business unit, the Company has increased its
investment in leased gaming equipment during the nine months ended March 31,
2000. The Company will continue the roll out, and thus increase its investment
in, these proprietary games and wide area progressive games in the future. At
March 31, 2000, due in part to the lower level of revenues from Bally Gaming and
Systems and increased collections on accounts receivable, the borrowing base for
the Company's revolving line of credit had declined by $9.7 million from June
30, 1999 to March 31, 2000. The Company is actively managing its working capital
and other assets. As part of the these efforts, during the nine months ended
March 31, 2000 the Company received $1.0 million for the release of an option it
held to operate gaming machines at a dormant dog racing track in Kansas, sold
certain gaming management and development rights for $3.0 million plus $7.0
million in future contingent consideration, and entered into sale and leaseback
transactions for $3.2 million for gaming machines deployed in its Nevada Route
Operation. As part of this plan, similar dispositions of other assets are likely
to continue. Additionally, the Fifth Amendment to the bank credit agreement
allows the Company to obtain third party financing for up to $15 million for is
proprietary gaming operations of Bally Gaming and Systems. This financing may be
in the form of traditional secured borrowings or lease type financing. While
management believes that cash flow from operating activities, cash and cash
equivalents held and the remaining borrowing availability under the revolving
credit facility will provide the Company with sufficient capital resources and
liquidity for ongoing operating needs, it will continue to actively manage its
working capital by more timely collecting on accounts receivable, reducing
levels of raw material and finished goods inventories and obtaining extended
payment terms with certain vendors. At March 31, 2000 the Company did not have
any significant commitments for capital expenditures.
The Company continues to pursue the sale of the Nevada Route Operations.
Pursuant to the Third Amendment to the bank credit agreement, the Company is
required to enter into a letter of intent for the sale of the Nevada Route
Operations by June 30, 2000 and to complete such a sale by December 31, 2000,
and certain minimum proceeds realized from a sale are required to be utilized to
reduce the bank debt. While the Company continues to pursue such a sale, no
assurance can be given that such a sale will occur within this time frame.
26
<PAGE> 27
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
WORKING CAPITAL
During the nine months ended March 31, 2000, working capital increased $9.2
million to $117.9 million. The primary fluctuations in working capital were an
increase in cash and cash equivalents due to cash received from reductions in
accounts receivable and inventory and additional borrowings on the revolving
credit facility, offset by reductions in accounts payable and accrued
liabilities.
CASH FLOWS
During the nine months ended March 31, 2000, the Company used $1.3 million of
cash in operating activities resulting from the net loss, adding back non-cash
charges such as depreciation and provision for losses on doubtful receivables,
and changes in other current assets and liabilities.
During the nine months ended March 31, 2000, the Company used $7.4 million of
cash in investing activities resulting primarily from approximately $12.0
million in capital expenditures and $2.7 million in additions to other long-term
assets, partially offset by the cash proceeds of $1.0 million from the release
of an option the Company had to operate gaming machines at a dormant dog racing
track in Kansas and cash proceeds of $3.0 million from the sale of certain
gaming development and management rights and proceeds of $3.2 million from
certain sale lease-back transactions.
During the nine months ended March 31, 2000, $30.9 million was provided by
financing activities primarily resulting from additional borrowings from the
Company's revolving credit facility of $34.5 million, partially offset by $3.6
million of scheduled and required reductions of the Company's long-term debt.
The Bank Facility is collateralized by substantially all domestic property and
is guaranteed by each domestic subsidiary of the U.S. Borrower and German
Subsidiaries (both as defined), other than the entity which holds the Company's
interest in its Louisiana operations and other non-material subsidiaries, and
secured by both a U.S. and German Pledge Agreement The Bank Facility contains a
number of maintenance covenants and it and the Indenture have other significant
covenants that, among other things, restrict the ability of the Company and
certain of its subsidiaries to dispose of assets, incur additional indebtedness,
issue preferred stock, pay dividends or make other distributions, enter into
certain acquisitions, repurchase equity interests or subordinated indebtedness,
issue or sell equity interests of the Company's subsidiaries, engage in mergers
or acquisitions, or engage in certain transactions with subsidiaries and
affiliates, and that otherwise restrict corporate activities.
27
<PAGE> 28
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
CUSTOMER FINANCING
Management believes that customer financing terms and leasing have become an
increasingly important competitive factor for the Gaming Equipment and Systems
and Wall Machine and Amusement Games business units, respectively. Competitive
conditions sometimes require Gaming Equipment and Systems to grant extended
payment terms on gaming machines, systems and other gaming equipment, especially
for sales in emerging markets. While these financings are normally
collateralized by such equipment, the resale value of the collateral in the
event of default may be less than the amount financed. Accordingly, the Company
will have greater exposure to the financial condition of its customers in
emerging markets than has historically been the case in established markets like
Nevada and Atlantic City. Bally Wulff provides customer financing for
approximately 20% of its sales and also provides lease financing to its
customers. Lease terms are generally for six months, but are also available for
12 up to 43 month terms.
YEAR 2000
The Company has not experience any significant Year 2000 interruptions from any
information technology ("IT") systems or non-IT systems such as its
manufacturing systems and physical facilities. The Company will continue to
monitor all critical systems for the appearance of any delayed Year 2000 related
issues including both internal systems and through suppliers, customers and
third parties with whom the Company does business.
EURO CURRENCY CONVERSION
The Company's Bally Wulff subsidiary uses the German deutschmark as its
functional currency. The new Euro currency will replace the deutschmark as well
as most other European currencies after a phase in period which began January 1,
1999. As most of Bally Wulff's transactions are within Germany, the switch to
the Euro is not expected to have a material impact on revenues, expenses or
income. The new Euro coins and bills will become the official currency in
January 2002. The Company's products can be brought into Euro compliance by
moving a switch inside the wall machine, replacing the coin tubes and modifying
the front glass to indicate Euros. Management believes the cost of the
implementing the Euro conversion will be borne be the customers.
The Company currently has borrowings outstanding on its line of credit facility,
a portion of which has a floating rate of interest tied to the Euro deutschmark
rate. Upon the full implementation of the Euro, as of January 1, 2002, the
interest rate will be tied to this new index. The impact of the change in this
index, if any, is not known and can not be quantified at this time.
28
<PAGE> 29
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
RESULTS OF OPERATIONS:
GENERAL
The Company operates through four business units: (i) gaming equipment and
systems, (ii) wall machines and amusement games (consisting of the manufacture
and distribution of wall-mounted gaming machines and distribution of other
recreational and amusement machines), (iii) route operations and (iv) casino
operations.
The following tables set forth the earnings (losses) before interest, taxes,
depreciation and amortization (EBITDA) and operating income (loss) for the four
business units excluding unusual charges, for the following periods:
<TABLE>
<CAPTION>
Three Months Ending March 31, Nine Months Ending March 31,
1999 2000 1999 2000
-------- --------- -------- ---------
(In $000's)
<S> <C> <C> <C> <C>
EBITDA by Business Unit:
Bally Gaming and Systems $ 4,777 $ 713 $ 2,205 $ 7,368
Wall Machines and Amusement Games 3,178 (99) 7,610 1,652
Route Operations 6,504 6,612 18,217 18,264
Casino Operations 6,106 7,712 16,153 19,306
Corporate Administrative Expenses (5,177) (3,543) (13,105) (10,802)
Unusual Items -- (a)(3,572) -- (b)(4,098)
-------- --------- -------- ---------
EBITDA $ 15,388 $ 7,823 $ 31,080 $ 31,690
======== ========= ======== =========
OPERATING INCOME (LOSS):
Bally Gaming and Systems $ 3,726 $ (1,234) $ (581) $ 1,670
Wall Machines and Amusement Games 2,234 (1,617) 4,513 (2,612)
Route Operations 3,789 4,259 10,226 11,245
Casino Operations 5,524 7,178 14,409 17,744
Corporate Administrative Expenses (5,595) (3,958) (14,356) (12,051)
Unusual items -- (a)(3,572) -- (b)(4,098)
-------- --------- -------- ---------
TOTAL OPERATING INCOME (LOSS) $ 9,678 $ 1,056 $ 14,211 $ 11,898
======== ========= ======== =========
</TABLE>
The Company believes that the analysis of EBITDA is a useful adjunct to net
income, cash flow and other GAAP measurements. However, this information should
not be construed as an alternative to net income or any other GAAP measure of
performance as an indicator of the Company's performance or to GAAP-defined cash
flows generated by operating, investing and financing activities as an indicator
of cash flows or a measure of liquidity. EBITDA may not be comparable to
similarly titled measures reported by other companies.
(a) The unusual items incurred in the quarter ended March 31, 2000 consist of
approximately $6.6 million of restructuring and related charges, including
a $1.9 million inventory valuation reserve for Australian inventory,
partially offset by a $3.0 million gain on the sale of certain gaming
management and development rights.
(b) The unusual items incurred in the nine months ended March 31, 2000 include
those listed in (a) above as well as restructuring and related charges
incurred in the December 1999 quarter of $1.5 million, offset by $1.0
million gain on the release of an option the company had to operate gaming
machines at a dormant dog racing track in Kansas.
29
<PAGE> 30
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
BALLY GAMING AND SYSTEMS
For the quarter ended March 31, 2000, Bally Gaming and Systems reported revenues
of $26.0 million, a 32% decrease over the prior year quarter. New unit shipments
totaled 1,180 units, compared to 4,450 in the prior year period. The average new
unit selling price increased by 4% over the prior year quarter. The current
quarter unit sales were negatively impacted by the fact there were no new casino
openings this period, and the prior quarter benefited from the sale of 2,000
games to the Ontario Lottery and 500 games into the New Mexico market. Bally
Systems reported sales of $4.9 million of revenue compared to $5.8 million in
the prior year quarter. The current quarter shipments for Bally Gaming included
approximately 230 units to the Nevada and Atlantic City markets, 400 units to
international markets, and 550 units to riverboats, Native American casinos and
other domestic markets.
The overall gross margin percentage for the current quarter, excluding the
impact of unusual items, improved to 53% compared to 47% in the prior year
quarter. The improvement was due primarily to a change in product mix to higher
margin gaming machines and greater revenues from higher margin recurring revenue
machines, partially offset by an increase in royalty expenses.
At March 31, 2000, the Company's Bally Gaming and Systems business unit had an
installed base of approximately 2,300 units earning recurring revenues compared
to approximately 2,000 units at December 31, 1999. During the March 2000
quarter, Bally Gaming and Systems recorded $6.2 million of revenues from the
proprietary gaming operations, and a total of $8.8 million from all recurring
revenue sources, up 527% from the prior year quarter. The gaming operations of
Bally Gaming and Systems achieved a 64% gross margin or $4.0 million.
Bally Gaming and Systems reported an operating loss before unusual charges of
$1.2 million compared to operating income of $3.7 million in the prior year
quarter. The decline in operating income was a result of new unit sales volumes
being substantially below the break even level, and was partially offset by the
substantial income contribution of the Bally Gaming and Systems gaming
operations. For the quarter ended March 31, 2000, Bally Gaming and Systems
recorded unusual charges for restructuring and related charges totaling $4.6
million. The restructuring costs included $0.6 million for additional domestic
employee staff reductions, and $4.0 million for costs of closing sales offices
in South Africa and Australia. Included in this amount is a $1.9 million
valuation reserve for Australian inventory.
WALL MACHINES AND AMUSEMENT GAMES
For the quarter ended March 31, 2000, the Wall Machines and Amusement Games
business unit reported revenues of $18.7 million, a 25% decrease from the prior
year quarter. The lower revenues resulted from a 26% decrease in shipments of
new wall machines, a 43% decrease in the average selling price of new wall
machines, and a 26 percent decrease in amusement game distribution revenues,
partially offset by a 2% increase in leased machine revenues. The prior period
benefited from the sales of a niche game with higher than traditional margins,
sales of which did not occur in the current quarter. The foreign currency
fluctuation between the dollar and the deutschmark decreased revenues by $2.6
million in the current quarter.
30
<PAGE> 31
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
Gross margin for the quarter, excluding the impact of unusual items, was 34%
compared to 40% in the prior year quarter. This decrease was due to lower unit
sales and comparatively low selling prices. Also, the prior year quarter
included substantial sales of a niche game at higher than traditional margins.
Wall Machines and Amusement Games reported an operating loss before unusual
items of $1.6 million compared to operating income of $2.2 million in the prior
year quarter, due primarily to the decrease in gross margins and increases in
depreciation expense, offset by lower selling, general and administrative
expenses. For the quarter ended March 31, 2000, Wall Machine and Amusement Games
recorded unusual item for costs of restructuring and related costs of $1.3
million.
ROUTE OPERATIONS
For the quarter ended March 31, 2000, the Route Operations business unit
reported revenues of $53.5 million, an increase of 16.2% compared to revenues of
$46.0 million in the prior year quarter. Revenues for the Nevada operations
increased 20% as net win per gaming machine per day increased to $66.40 from
$60.50 in the prior year quarter, while the average number of gaming machines
increased to 7,890 from 7,326 in the prior year quarter resulting primarily from
machines added as a result of new locations and taking over the contracts to
operate locations previously served by competitors. Revenues for the Louisiana
operations decreased 12% due primarily to the closing of two OTB's pursuant to
anti-gaming referendums in certain parishes. This resulted in a 7% decrease in
the average number of gaming units deployed. Additionally, there was a decrease
in net win per day per gaming machine to $80.50 from $85.40 in the prior year
quarter.
As a percentage of revenues, cost of revenues remained constant at 79% between
quarters. The Route Operations unit reported operating income of $4.3 million,
an increase of 12% compared to operating income of $3.8 million in the prior
year quarter. The increase in operating income resulted primarily from higher
revenues and lower depreciation expense, partially offset higher selling,
general and administrative expenses, primarily increased promotion and marketing
costs at the Nevada route operation.
Effective February 1, 2000 the Company began operating an additional 305 games
in 19 Raley's stores in Nevada. This agreement with Raley's runs through June
2008, and brings the total games on the Nevada route to over 8,000.
CASINO OPERATIONS
For the quarter ended March 31, 2000, the Casino Operations business unit
reported revenues of $19.4 million, an increase of 18.1% compared to revenues of
$16.4 million in the prior year quarter. This increase was a result of a 22%
increase at the Rail City Casino and a 17% increase at the Rainbow Casino. The
revenue improvement at the Rail City Casino to $4.6 million from $3.8 million in
the prior year quarter was attributable to an increase in the average gaming
machine net win per day of 25% to $81 from $65 in the prior year quarter and a
6% increase in the average number of gaming machines. Rainbow Casino revenues
increased to $14.8 million from $12.7 in the prior year quarter as a result of
an 35% increase in the average number of gaming machines and higher table game
revenue, partially offset by a 15% decrease in net win per day per gaming
machine to $146 from $172 in the prior year quarter. The recently completed
casino expansion at the Rainbow Casino has resulted in over 1,000 gaming
machines now on the casino floor, compared to 740 in the prior year quarter.
For the quarter ended March 31, 2000, the cost of revenues for Casino
Operations, as a percentage of revenues, improved to 37% from 42% in the prior
year quarter. The Casino Operations business unit reported operating income of
$7.2 million, an improvement of 30% compared to operating income of $5.5 million
in the prior year quarter. Rainbow
31
<PAGE> 32
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
Casino operating income increased 21% to $6.0 million due primarily to the
increase in revenues and improved operating margins, partially offset by an
increase in selling, general and administrative costs, principally marketing
costs. Rail City Casino operating income increased by 107% to $1.2 million due
primarily to the increase in revenues and improved operating margins, partially
offset by an increase in selling, general and administrative costs, primarily
gaming machine rental expense.
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the three months ended March 31, 2000 increased to $8.8
million from $8.1 million in the prior year quarter due to a higher average
amount of total borrowings outstanding and slightly higher interest rates and a
fee of $0.5 million incurred in connection with the fifth and sixth Amendment to
the Company's bank credit facility.
The Company recorded an income tax provision of $0.2 million in the March 31,
2000 quarter compared to an income tax benefit of $0.2 million in the prior year
quarter. The current quarter provision is due to various state income tax
provisions.
NINE MONTHS ENDED MARCH 31, 1999 AND 2000
BALLY GAMING AND SYSTEMS
For the nine months ended March 31, 2000, Bally Gaming and Systems reported
revenues of $96.3 million, a 16.3% increase compared to revenues of $82.8
million in the prior year period. The improvement was due primarily to a $9.5
million increase in Bally Systems revenues and a $15.3 million increase in
recurring revenue sources. Bally Gaming reported unit sales of approximately
6,200 new gaming machines, an decrease of 26% compared to unit sales of
approximately 8,400 in the prior year period, due primarily to an overall
decrease in market demand offset slightly by successful introduction of new
products recently licensed in more jurisdictions. By market segment, Bally
Gaming's unit sales for the nine month period consisted of approximately 900
units to the Nevada and Atlantic City markets, 2,400 units to international
markets and 2,900 units to riverboats, Native American and other domestic
markets. Bally Gaming reported revenues from the sale of new gaming machines of
$38.1 million, a decrease of 17% compared to $46.1 million in the prior year
period, due to lower unit volume offset by a 13% increase in average selling
prices over the prior year period.
Gross margin for the nine months ended March 31, 2000, excluding the impact of
unusual items, remained constant at 45% between periods. A change in product mix
to higher margin gaming machines coupled with greater revenues from recurring
revenue units and system sales was offset by an increase in royalty expense and
higher provisions for inventory obsolescence.
For the nine months ended March 31, 2000, Bally Gaming and Systems reported
operating income excluding unusual items of $1.6 million compared to an
operating loss of $0.6 million in the prior year period. This change resulted
from higher recurring revenues, partially offset by higher selling, general and
administrative costs including a higher provision for doubtful accounts, higher
costs to support the recurring revenue units, and higher depreciation and
amortization expense resulting from the larger installed base of recurring
revenue units. Research and development costs totaled $9.5 million, a decrease
of 12% over the prior year period.
32
<PAGE> 33
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
WALL MACHINES AND AMUSEMENT GAMES
For the nine months ended March 31, 2000, the Wall Machines and Amusement Games
business unit reported revenues of $52.9 million, a 24% decrease compared to the
prior year period. The lower revenues resulted from a 16% decrease in shipments
of new wall machines, a 29% decrease in the average selling price of new wall
machines and a 34% decrease in amusement game distribution revenues and a 12 %
decrease in leased machine revenues. The foreign currency fluctuation between
the dollar and the deutschmark decreased revenues by $5.8 million in the nine
months ended March 31, 2000. The Company believes that the soft demand for new
wall machines is due to the potential changes in the laws regulating wall
machines. The soft demand will likely remain until the outcome of the proposed
law changes is known. The ultimate outcome and timing of the proposed changes is
not determinable at this time.
For the nine months ended March 31, 2000, gross profit margin decreased to 37%
compared to 40% in the prior year period. This decrease was due to the
unfavorable impact of a higher volume of trade-ins of used equipment and a lower
fixed cost absorption rate. Wall Machines and Amusement Games reported an
operating loss before unusual items of $2.6 million compared to operating income
of $4.5 million in the prior year period, due primarily to lower revenues and
margins coupled with increases in the provision for doubtful accounts and
depreciation expense, partially offset by lower selling, general and
administrative expenses, principally a decrease in salary and wages and
marketing expenses.
ROUTE OPERATIONS
For the nine months ended March 31, 2000, the Route Operations business unit
reported revenues of $147.8 million, an increase of 15% compared to revenues of
$128.8 million in the prior year period. Revenues for the Nevada operations
increased 18% as net win per gaming machine per day increased to $61.90 from
$56.20 in the prior year period, while the average number of gaming machines
increased to 7,720 from 7,240 in the prior year period resulting primarily from
machines added as a result of new locations and taking over the contracts to
operate locations previously served by competitors. As of March 31, 2000, the
Gamblers Bonus product was installed in over 3,300 gaming machines at
approximately 325 locations statewide or 43% of the installed base of gaming
machines. Revenues for the Louisiana operations decreased 10% compared to the
prior year period due primarily to the closing of the two OTB's. This resulted
in a 8% decrease in the average number of gaming units deployed. The net win per
day per gaming machine also decreased to $78.00 from $80.40 in the prior year
period.
As a percentage of revenues, cost of revenues for the nine months increased
slightly to 79% from 78% in the prior year period. The Route Operations business
unit reported operating income of $11.2 million, and increase of 10% compared to
$10.2 in the prior year period.
CASINO OPERATIONS
For the nine months ended March 31, 2000, the Casino Operations business unit
reported revenues of $52.2 million, an increase of 10% compared to revenues of
$47.6 million in the prior year period. This increase was a result of a 23%
increase at the Rail City Casino and 6% at the Rainbow Casino. As a percentage
of revenue, cost of revenues for the nine months decreased to 39% from 42% for
the prior year period. Total operating income for the Casino Operations was
$17.7 million compared to $14.4 million in the prior year period. The Rainbow
Casino operating income increased 14% to $14.7 million and the Rail City Casino
operating income increased 109% to $3.0 million.
33
<PAGE> 34
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the nine months ended March 31, 2000 increased to $25.0
million from $23.1 million in the prior year period due to a total of $1.0
million in fees incurred to amend the Company's bank credit facility, coupled
with a higher average amount of total borrowings and slightly higher interest
rates.
The Company recorded an income tax provision of $0.5 million in the current year
period compared to an income tax benefit of approximately $0.3 million in the
prior year period. The current year period provision is due to various state
income tax provisions.
* * * * *
The information contained in this Form 10-Q may contain "forward-looking"
statements within the meaning of section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1933, as amended, and is
subject to the safe harbor created thereby. Such information involves important
risks and uncertainties that could significantly affect results in the future
and, accordingly, such results may differ from those expressed in any forward
looking statements herein. Future operating results may be adversely affected as
a result of a number of factors such as the Company's high leverage, its holding
company structure, its operating history and recent losses, competition, risks
of product development, customer financing, sales to non-traditional gaming
markets, foreign operations, dependence on key personnel, strict regulation by
gaming authorities, gaming taxes and value added taxes, uncertain effect of
National Gambling Commission, and other risks, as detailed from time to time in
the Company's filings with the Securities and Exchange Commission.
34
<PAGE> 35
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Part 1, Item 7A of the Company's annual report on Form 10-K, as
amended, for the fiscal year ended June 30, 1999. There have been no material
changes in market risks since the prior fiscal year end.
PART II
<TABLE>
<CAPTION>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
See "Notes to Unaudited Condensed Consolidated Financial
Statements-5. Legal Proceedings" for a description of certain legal
proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4.6 Fifth Amendment and Consent among Alliance Gaming
Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff
Automaten GmbH and various lenders, and Credit Suisse First
Boston as administrative agent, dated April 24, 2000.
4.7 Sixth Amendment and Consent among Alliance Gaming
Corporation, Bally Wulff Vertriebs GmbH, Bally Wulff
Automaten GmbH and various lenders, and Credit Suisse First
Boston as administrative agent, dated May 4, 2000.
10.83 Amendment to the Employment Agreement between the Company and
Athony L. DiCesare effective January 4, 2000
10.84 Amendment to the Employment Agreement between the Company and
Joel Kirschbaum effective January 4, 2000
10.85 Amendment to the Agreement between the Company and Kirkland
Investment Corporation effective January 4, 2000
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31,2000.
</TABLE>
35
<PAGE> 36
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
ALLIANCE GAMING CORPORATION
(Registrant)
By /s/ Robert Miodunski
-----------------------------------------
President and Chief Operating Officer
(Principal Executive Officer)
By /s/ Robert L. Saxton
-----------------------------------------
Sr. Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
36
<PAGE> 1
EXHIBIT 4.6
FIFTH AMENDMENT
FIFTH AMENDMENT (this "Amendment"), dated as of April 24, 2000, among
ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S. Borrower"), BALLY
WULFF VERTRIEBS GMBH, a company with limited liability organized under the laws
of the Federal Republic of Germany ("Bally Wulff Vertriebs"), BALLY WULFF
AUTOMATEN GMBH, a company with limited liability organized under the laws of the
Federal Republic of Germany ("Bally Wulff Automaten" and, together with Bally
Wulff Vertriebs, the "German Borrowers," and each a "German Borrower", and the
German Borrowers, together with the U.S. Borrower, the "Borrowers," and each a
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (the "Lenders") and CREDIT SUISSE FIRST BOSTON, as Administrative
Agent. Unless otherwise defined herein, all capitalized terms used herein and
defined in the Credit Agreement referred to below are used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Lenders and the Administrative Agent are
parties to a Credit Agreement, dated as of August 8, 1997 (as amended, modified
or supplemented through, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, the Borrowers, the Lenders and the Administrative Agent are
parties to a Third Amendment and Consent, dated as of October 28, 1999 (the
"Third Amendment");
WHEREAS, the parties hereto wish to (i) amend the Third Amendment and (ii)
further amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments, Modifications and Waivers Relating to the Credit Agreement:
1. Section 4.02(d) of the Credit Agreement is hereby amended by
deleting the text "Effective Date" contained in the first parenthetical
contained in such Section 4.02(d) and inserting the text "Fifth Amendment
Effective Date" in lieu thereof.
2. Section 4.02(e) of the Credit Agreement is hereby amended by
deleting the text "and (x)" appearing after the text "by the German Parent or
other entity described in said clause (ix))" appearing in such Section 4.02(e)
and inserting the text ", (x) and (xv)" in lieu thereof.
3. Section 9.01 of the Credit Agreement is hereby amended by
deleting the word "and" appearing at the end of clause (xvii) thereof, (ii)
redesignating existing clause (xviii) as clause (xix) and (iii) inserting the
following new clause (xviii) immediately following existing clause (xvii) of
such Section 9.01:
<PAGE> 2
"(xviii) Liens arising in connection with Gaming Equipment
Transactions permitted under Section 9.02(xv) so long as such Liens only
relate to the assets subject to the respective Gaming Equipment
Transaction permitted pursuant to such Section 9.02(xv); and".
4. Section 9.02 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (xiii) of such Section
9.02, (ii) deleting the period appearing at the end of clause (xiv) of such
Section 9.02 and inserting the text "; and" in lieu thereof and (iii) inserting
the following new clause (xv) at the end of such Section 9.02:
"(xv) Bally Gaming, Inc. or any special purpose Wholly-Owned
Subsidiary of the Borrower formed solely to enter into Gaming Equipment
Transactions (any such special purpose subsidiary, a "Special Purpose
Gaming Subsidiary") may enter into Gaming Equipment Transactions in
respect of gaming equipment owned by Bally Gaming, Inc. or such Special
Purpose Gaming Subsidiary, so long as (i) any such Special Purpose Gaming
Subsidiary has no other business activities other than entering into such
Gaming Equipment Transactions and has no assets other than gaming
equipment the subject of such Gaming Equipment Transactions, (ii) no
Default or Event of Default then exists or would exist immediately after
giving effect to any such Gaming Equipment Transaction, (iii) each such
Gaming Equipment Transaction is an arm's-length transaction and, to the
extent such Gaming Equipment Transaction is structured as a Sale and
Leaseback Transaction, Bally Gaming, Inc. or such Special Purpose Gaming
Subsidiary receives at least fair market value (as determined in good
faith by Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary) for
such assets the subject of such Gaming Equipment Transaction, (iv) to the
extent such Gaming Equipment Transaction is structured as a Sale and
Leaseback Transaction, the total consideration received by Bally Gaming,
Inc. or such Special Purpose Gaming Subsidiary is cash and is paid at the
time of the closing of such sale, (v) the aggregate amount of proceeds
received from all Gaming Equipment Transactions pursuant to this clause
(xv) structured as Sale and Leaseback Transactions, when added to the
aggregate principal amount of Indebtedness incurred under Section 9.04(xv)
(other than Capitalized Lease Obligations arising in connection with
Gaming Equipment Transactions structured as Sale and Leaseback
Transactions), shall not exceed (x) during the period from the Fifth
Amendment Effective Date to September 29, 2000, $5,000,000, (y) during the
period from September 30, 2000 to, but not including, the date upon which
the Nevada Route Operations Sale is consummated, $10,000,000 less the
aggregate amount of proceeds received from all Gaming Equipment
Transactions consummated pursuant to preceding clause (x), and (z) from
and after the consummation of the Nevada Route Operations Sale,
$15,000,000 less the aggregate amount of proceeds received from all Gaming
Equipment Transactions consummated pursuant to preceding clauses (x) and
(y), and (vi) to the extent that any such Gaming Equipment Transaction
results in a Capitalized Lease Obligation, such Capitalized Lease
Obligation is permitted under Section 9.04(xv).
5. Section 9.04 of the Credit Agreement is hereby amended by (i)
deleting the text "and" appearing at the end of clause (xiii) of such Section
9.04, (ii) deleting the period
-2-
<PAGE> 3
appearing at the end of clause (xiv) of such Section 9.04 and inserting the text
"; and" in lieu thereof and (iii) inserting the following clause (xv) at the end
of such Section 9.04:
"(xv) Indebtedness (including any Capitalized Lease Obligations)
incurred by Bally Gaming, Inc. or a Special Purpose Gaming Subsidiary in
connection with any Gaming Equipment Transaction permitted under Section
9.02(xv) so long as (i) no Default or Event of Default then exists or
would exist immediately after giving effect to the incurrence of any such
Indebtedness, (ii) the principal amount of any such Indebtedness is at
least 75% and no greater than 90% of the fair market value (as determined
by Bally Gaming, Inc. or such Special Purpose Gaming Subsidiary in good
faith) of the assets securing such Indebtedness, (iii) such Indebtedness
shall be unsecured except as otherwise permitted under Section
9.01(xviii), (iv) such Indebtedness is non-recourse to Bally Gaming, Inc.
or such Special Purpose Gaming Subsidiary (with recourse being limited to
the respective assets the subject of such Gaming Equipment Transaction,
except with respect to fraud, misrepresentation, and other similar
circumstances), (iv) neither the U.S. Borrower nor any of its Subsidiaries
shall have guaranteed any such Indebtedness or otherwise provided any
credit support (other than pursuant to Section 9.01(xviii)) in respect
thereof and (v) the aggregate principal amount of all such Indebtedness
incurred as permitted under this clause (xv) shall not exceed at any time
outstanding an amount equal to (x) during the period from the Fifth
Amendment Effective Date to September 29, 2000, $5,000,000 less the
aggregate amount of proceeds received from all Gaming Equipment
Transactions structured as Sale and Leaseback Transactions and having an
operating lease, rather than a capital lease, component, (y) during the
period from September 30, 2000 to, but not including, the date upon which
the Nevada Route Operations Sale is consummated, $10,000,000 less the
aggregate amount of proceeds received from all Gaming Equipment
Transactions structured as Sale and Leaseback Transactions and having an
operating lease, rather than a capital lease component, and (z) from and
after the consummation of the Nevada Route Operations Sale, $15,000,000
less the aggregate amount of proceeds received from all Gaming Equipment
Transactions structured as Sale and Leaseback Transactions and having an
operating lease, rather than a capital lease, component.
6. The definition of "Consolidated EBITDA" appearing in Section
11.01 of the Credit Agreement is hereby amended by (i) deleting the word "and"
appearing immediately after the text "amortization and depreciation" appearing
in the first sentence of such definition and inserting a comma in lieu thereof,
(ii) inserting the following text immediately following the text "similar tax
expense" appearing in the first sentence of said definition:
"and, for the purposes of calculating "Consolidated EBITDA" for the
purposes of determining compliance with Sections 9.08 through 9.11,
inclusive, only (but not for purposes of determining the Applicable
Commitment Commission Percentage or the Applicable Margins), all operating
lease expense attributable to the leasing of assets pursuant to any Gaming
Equipment Transactions permitted pursuant to Section 9.02(xv)",
-3-
<PAGE> 4
and (iii) inserting the following new sentence at the end of said definition:
"In addition, for the purposes of determining compliance with
Sections 9.08 through 9.11, inclusive, only (but not for the purposes of
determining the Applicable Commitment Commission Percentage or the
Applicable Margins), there shall be added to Consolidated EBITDA, to the
extent Consolidated EBITDA was reduced during the period for which
Consolidated EBITDA is then being determined as a result of such charge,
the amount of the non-cash impairment charge relating to the write-off of
goodwill attributable to the U.S. Borrower's acquisition of Bally Gaming
International, Inc. (up to an amount not to exceed $55,000,000) and taken
by the U.S. Borrower during the U.S. Borrower's fiscal quarter ended March
31, 2000 or June 30, 2000."
7. The definition of "Consolidated Indebtedness" appearing in
Section 11.01 of the Credit Agreement is hereby amended by inserting the
following sentence at the end of said definition:
"For the purposes of Section 9.10 only (but not for purposes of
determining the Applicable Commitment Commission Percentage or the
Applicable Margins), any Indebtedness arising from any Capitalized Lease
Obligations incurred pursuant to Section 9.04(xv) in connection with the
entering into of Gaming Equipment Transactions structured as Sale and
Leaseback Transactions shall be excluded from the calculation of
Consolidated Indebtedness".
8. The definition of "Consolidated Interest Expense" appearing in
Section 11.01 of the Credit Agreement is hereby amended by inserting the text
"but excluding, for the purposes of calculating "Consolidated Interest Expense"
for the purposes of determining compliance with Sections 9.08 and 9.09 only, any
interest expense attributable to any Capitalized Lease Obligations or other
Indebtedness arising in connection with any Gaming Equipment Transactions and
permitted to be outstanding under 9.04(xv)" at the end of the first
parenthetical appearing in clause (i) of such definition.
9. Section 11.01 of the Credit Agreement is hereby further
amended by inserting the following new definitions in proper alphabetical order:
"Fifth Amendment Effective Date" shall mean April 24, 2000.
"Gaming Equipment Transaction" shall mean any transaction whereby
Bally Gaming, Inc. or a Special Purpose Gaming Subsidiary shall either (i)
sell gaming equipment owned by it and, in turn, lease such equipment from
the purchaser thereof (either pursuant to an operating lease or a capital
lease) or (ii) obtain financing from a third Person which may be secured
by specific items of equipment of Bally Gaming, Inc. or such Special
Purpose Gaming Subsidiary as contemplated in Sections 9.01(xviii) and
9.04(xv).
"Special Purpose Gaming Subsidiary" shall have the meaning provided
in Section 9.02(xv).
-4-
<PAGE> 5
10. The Lenders and Borrowers hereby acknowledge that Delayed Draw
Term Loans were made on the Initial Delayed Draw Term Loan Borrowing Date
notwithstanding the fact that RCVP did not execute or deliver counterparts of
the U.S. Subsidiaries Guaranty, the U.S. Security Agreement or the U.S. Pledge
Agreement as required on or prior to such date pursuant to Section 5B of the
Credit Agreement, and the Lenders hereby waive any Event of Default that may
have arisen as a result of such event. In addition, the Lenders hereby agree
that RCVP shall not be required to execute or deliver such U.S. Subsidiaries
Guaranty or any such Security Documents so long as the U.S. Borrower in good
faith determines that such action would require the consent of one or more
partners of RCVP (other than the U.S. Borrower or any of its Subsidiaries), and
that the U.S. Borrower is unable to obtain such consent or consents.
11. The Lenders hereby waive any Default and any Event of Default
that may have arisen under the Credit Agreement solely as a result of the
failure of the Borrowers to comply with (i) Sections 9.08, 9.09 and 9.11 of the
Credit Agreement in respect of the Test Period ended on March 31, 2000 and (ii)
Section 9.10 of the Credit Agreement in respect of the period from March 31,
2000 to but excluding the Fifth Amendment Effective Date (as defined below).
12. On the Fifth Amendment Effective Date, the Total Revolving
Loan Commitment shall be reduced to $80,000,000. Such reduction shall be applied
to reduce the Revolving Loan Commitment of each Lender with such a Commitment
pro rata based on the relative Revolving Loan Commitments of such Lenders, with
each such reduction to each such Revolving Loan Commitment to be applied (i)
first, to the Non-German Revolving Loan Commitment of such Lender and (ii)
second, to the extent the Non-German Revolving Loan Sub-Commitment of such
Lender has been reduced to zero, to the German Revolving Loan Sub-Commitment of
such Lender. If after giving effect to the reductions to any Lender's German
Revolving Loan Sub-Commitment as described in the immediately preceding
sentence, the sum of the principal amount of such Lender's outstanding Deutsche
Mark Revolving Loans plus such Lender's German RL Percentage of German Letter of
Credit Outstandings (expressed Deutsche Marks (and taking the Deutsche Mark
Equivalent of the Stated Amount of any German Letters of Credit denominated in a
currency other than Deutsche Marks)) exceeds the German Revolving Loan
Sub-Commitment of such Lender, the German Borrowers shall repay Deutsche Mark
Revolving Loans of such Lender in an amount equal to such excess. If after
giving effect to the reductions to any Lender's Revolving Loan Commitment as
described in the second preceding sentence and any repayment of Deutsche Mark
Revolving Loans pursuant to the immediately preceding sentence, the sum of the
principal amount of such Lender's outstanding Revolving Loans plus such Lender's
RL Percentage of the aggregate of all Letter of Credit Outstandings and
outstanding Swingline Loans exceeds the Revolving Loan Commitment of such
Lender, the Revolving Loan Borrowers shall repay Dollar Revolving Loans of such
Lender in an amount equal to such excess.
-5-
<PAGE> 6
II. Amendments to the Third Amendment:
1. Article II, Section 8 of the Third Amendment is hereby amended
by deleting the text "for any Test Period ending on or prior to December 31,
2000 of at least 1.00:1" and inserting the following text in lieu thereof:
"of a least (I) 0.80:1 for any Test Period ending on or prior to
September 30, 2000 and (II) 1.00:1 for the Test Period ending on
December 31, 2000".
2. Article II, Section 9 of the Third Amendment is hereby amended
by deleting the text "for any Test Period ending on or prior to December 31,
2000 of at least 1.35:1.00" and inserting the following text in lieu thereof:
"of at least (I) 1.15:1 for any Test Period ending on or prior to
September 30, 2000 and (II) 1.35:1 for the Test Period ending on
December 31, 2000".
3. Article II, Section 10 of the Third Amendment is hereby
amended by deleting the text "for the period from December 31, 1999 to December
31, 2000 of no greater than 6.25:1" and inserting the following text in lieu
thereof:
"no greater than (I) 8.00:1 during the period from April 1, 2000
through and including September 30, 2000 and (II) 6.25:1 during the
period from October 1, 2000 through and including December 31,
2000".
4. Article II, Section 11 of the Third Amendment is hereby
amended by deleting the text "for any Test Period ending on or prior to December
31, 2000 of at least $44,000,000" and inserting the following text in lieu
thereof:
"of at least (I) $40,000,000 for any Test Period ending on or prior
to September 30, 2000 and (II) $44,000,000 for the Test Period
ending on December 31, 2000".
-6-
<PAGE> 7
III. Miscellaneous:
1. This Amendment shall become effective on the date (the "Fifth
Amendment Effective Date") when (i) each Borrower and the Required Lenders shall
have signed a counterpart hereof (whether the same or different counterparts)
and shall have delivered (including by way of facsimile transmission) the same
to the Administrative Agent at the Notice Office and (ii) the Borrowers shall
have paid to the Administrative Agent for the account of each Lender that has
executed a counterpart of this Amendment and delivered same to the
Administrative Agent at the Notice Office on or prior to 5:00 p.m. (New York
time) on the later of (x) April 24, 2000 or (y) date when the requirements of
preceding clause (i) are satisfied, an amendment fee equal to 0.250% of the sum
of such Lender's (x) outstanding Term Loans (using the Dollar Equivalent thereof
in the case of any Term Loans denominated in a currency other than Dollars) on
the Fifth Amendment Effective Date and (y) Revolving Loan Commitment on the
Fifth Amendment Effective Date (before giving effect to the reduction to the
Total Revolving Loan Commitment pursuant to Article I, Section 12 of this
Amendment).
2. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the U.S. Borrower and the Administrative
Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. From and after the Fifth Amendment Effective Date, all
references in the Credit Agreement and in the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
* * *
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
ALLIANCE GAMING CORPORATION
By___________________________________
Name:
Title:
BALLY WULFF VERTRIEBS GMBH
By___________________________________
Name:
Title:
BALLY WULFF AUTOMATEN GMBH
By___________________________________
Name:
Title:
<PAGE> 9
CREDIT SUISSE FIRST BOSTON,
Individually and as Administrative
Agent
By___________________________________
Name:
Title:
By___________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By___________________________________
Name:
Title:
KZH ING-1 LLC
By___________________________________
Name:
Title:
THE MITSUBISHI TRUST AND BANKING CORP.
By___________________________________
Name:
Title:
<PAGE> 10
SOUTHERN PACIFIC BANK
By___________________________________
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By___________________________________
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By___________________________________
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: Van Kampen Management Inc., as
Collateral Manager
By___________________________________
Name:
Title:
ML CLO XII PILGRIM AMERICA (Cayman)
LTD.
By: Pilgrim Investments, Inc., as its
Investment Manager
By___________________________________
Name:
Title:
<PAGE> 11
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By___________________________________
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By___________________________________
Name:
Title:
CYPRESSTREE INVESTMENT
PARTNERS I, LTD.,
By: CypressTree Investment Management
Company, Inc., as Portfolio
Manager
By___________________________________
Name:
Title:
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors LLC, as
Collateral Manager
By___________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By___________________________________
Name:
Title:
<PAGE> 12
ELF FUNDING TRUST I
By: Highland Capital Management L.P.
as Collateral Manager
By___________________________________
Name:
Title:
PAM CAPITAL FUNDING LP
By: Highland Capital Management L.P.
as Collateral Manager
By___________________________________
Name:
Title:
GLENEAGLES TRADING LLC
By___________________________________
Name:
Title:
SRV HIGHLAND, INC.
By___________________________________
Name:
Title:
<PAGE> 13
MASSMUTUAL HIGH YIELD PARTNERS II, LLC
By: HYP Management, Inc., as
Managing Member
By___________________________________
Name:
Title:
CALIFORNIA BANK & TRUST
By___________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4.7
SIXTH AMENDMENT
SIXTH AMENDMENT (this "Amendment"), dated as of May 4, 2000, among
ALLIANCE GAMING CORPORATION, a Nevada corporation (the "U.S. Borrower"), BALLY
WULFF VERTRIEBS GMBH, a company with limited liability organized under the laws
of the Federal Republic of Germany ("Bally Wulff Vertriebs"), BALLY WULFF
AUTOMATEN GMBH, a company with limited liability organized under the laws of the
Federal Republic of Germany ("Bally Wulff Automaten" and, together with Bally
Wulff Vertriebs, the "German Borrowers," and each a "German Borrower" and the
German Borrowers, together with the U.S. Borrower, the "Borrowers," and each a
"Borrower"), the financial institutions party to the Credit Agreement referred
to below (the "Lenders") and CREDIT SUISSE FIRST BOSTON, as Administrative
Agent. Unless otherwise defined herein, all capitalized terms used herein and
defined in the Credit Agreement referred to below are used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Lenders and the Administrative Agent are
parties to a Credit Agreement, dated as of August 8, 1997 (as amended, modified
or supplemented through, but not including, the date hereof the "Credit
Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein
provided;
NOW, THEREFORE, it is agreed:
1. The definitions of "Applicable Commitment Commission Percentage" and
"Applicable Margin" appearing in Section 11.01 of the Credit Agreement are
hereby amended by (i) deleting the table appearing therein in its entirety and
inserting the following new table in lieu thereof:
<TABLE>
<CAPTION>
Level Level Level Level
"Ratio 1 2 3 4
------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Euro Rate Loan Margin for U.S.
Borrower Tranche A Term Loans,
German Borrower Tranche A Term
Loans and Revolving Loans 2.75% 3.00% 3.25% 3.75%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Base Rate Loan Margin for U.S.
Borrower Tranche A Term Loans,
Revolving Loans and Swingline Loans 1.75% 2.00% 2.25% 2.75%
Euro Rate Loan Margin for Delayed
Draw Term Loans and Tranche B Term
Loans 3.50% 3.50% 3.75% 4.25%
Base Rate Loan Margin for Delayed
Draw Term Loans and Tranche B Term
Loans 2.50% 2.50% 2.75% 3.25%
Euro Rate Loan Margin for Tranche C
Term Loans 3.75% 3.75% 4.00% 4.50%
Base Rate Loan Margin for Tranche C
Term Loans 2.75% 2.75% 3.00% 3.50%
Applicable Commitment Commission
Percentage 0.40% 0.45% 0.50% 0.50%
</TABLE>
2. This Amendment shall become effective on the date (the "Sixth
Amendment Effective Date") when each Borrower, each Subsidiary Guarantor and the
Required Lenders have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at the Notice Office,
provided that the increase in the Applicable Margin pursuant to this Amendment
shall be deemed to be effective on April 28, 2000, and if any interest payments
were made on or after April 28, 2000 and prior to the Sixth Amendment Effective
Date, the Borrowers shall pay to the Administrative Agent (for the pro rata
distribution of the Lenders in accordance with Section 4.03 of the Credit
Agreement) such additional amounts as would have been paid to the Administrative
Agent had the increase in the Applicable Margin pursuant to this Amendment been
effective on April 28, 2000.
-2-
<PAGE> 3
3. Each Subsidiary Guarantor acknowledges and agrees that all
extensions of credit pursuant to the Credit Agreement, as amended hereby, shall
be fully guaranteed pursuant to the Subsidiary Guarantees and entitled to the
benefits of the respective Security Documents.
4. In order to induce the Lenders to enter into this Amendment, each
Borrower hereby represents and warrants that (i) the representations and
warranties contained in Section 7 of the Credit Agreement are true and correct
in all material respects on and as of the Sixth Amendment Effective Date, both
before and after giving effect to this Amendment (it being understood and agreed
that, as to any representation or warranty which by its terms is made as of a
specified date, each Borrower represents and warrants that such representation
and warranty is true and correct in all material respects only as of such
specified date) and (ii) there exists no Default or Event of Default on the
Sixth Amendment Effective Date, both before and after giving effect to this
Amendment.
5. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
6. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the U.S. Borrower and the Administrative
Agent.
7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
8. From and after the Sixth Amendment Effective Date, all references in
the Credit Agreement and in the other Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as modified hereby.
* * *
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
ALLIANCE GAMING CORPORATION
By___________________________________
Name:
Title:
BALLY WULFF VERTRIEBS GMBH
By___________________________________
Name:
Title:
BALLY WULFF AUTOMATEN GMBH
By___________________________________
Name:
Title:
ALLIANCE HOLDING COMPANY,
as a Guarantor
By___________________________________
Name:
Title:
APT GAMES, INC.,
as a Guarantor
By___________________________________
Name:
Title:
<PAGE> 5
UNITED COIN MACHINE CO.,
as a Guarantor
By___________________________________
Name:
Title:
PLANTATION INVESTMENTS, INC.,
as a Guarantor
By___________________________________
Name:
Title:
FOREIGN GAMING VENTURES, INC.,
as a Guarantor
By___________________________________
Name:
Title:
LOUISIANA VENTURES, INC.,
as a Guarantor
By___________________________________
Name:
Title:
UNITED GAMING RAINBOW,
as a Guarantor
By___________________________________
Name:
Title:
<PAGE> 6
NATIVE AMERICAN INVESTMENT, INC.,
as a Guarantor
By___________________________________
Name:
Title:
BALLY GAMING INTERNATIONAL, INC.,
as a Guarantor
By___________________________________
Name:
Title:
BALLY GAMING, INC.,
as a Guarantor
By___________________________________
Name:
Title:
ALLIANCE AUTOMATEN VERWALTUNGS GMBH,
as a Guarantor
By___________________________________
Name:
Title:
ALLIANCE AUTOMATEN GMBH & CO. KG,
as a Guarantor
By___________________________________
Name:
Title:
<PAGE> 7
GEDA AUTOMATENGROSSHANDEL GMBH, as a
Guarantor
By___________________________________
Name:
Title:
ERKENS VERTRIEBS GMBH,
as a Guarantor
By___________________________________
Name:
Title:
WESTAV WEST DEUTSCHER AUTOMATEN
VERTRIEB GMBH, as a Guarantor
By___________________________________
Name:
Title:
BALLY GAMING INTERNATIONAL GMBH, as a
Guarantor
By___________________________________
Name:
Title:
<PAGE> 8
CREDIT SUISSE FIRST BOSTON,
Individually and as Administrative
Agent
By___________________________________
Name:
Title:
By___________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By___________________________________
Name:
Title:
KZH ING-1 LLC
By___________________________________
Name:
Title:
THE MITSUBISHI TRUST AND BANKING CORP.
By___________________________________
Name:
Title:
<PAGE> 9
SOUTHERN PACIFIC BANK
By___________________________________
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By___________________________________
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By___________________________________
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: Van Kampen Management Inc., as
Collateral Manager
By___________________________________
Name:
Title:
ML CLO XII PILGRIM AMERICA (Cayman)
LTD.
By: Pilgrim Investments, Inc., as its
Investment Manager
By___________________________________
Name:
Title:
<PAGE> 10
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By___________________________________
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By___________________________________
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I,
LTD.,
By: CypressTree Investment Management
Company, Inc., as Portfolio
Manager
By___________________________________
Name:
Title:
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors LLC, as
Collateral Manager
By___________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By___________________________________
Name:
Title:
<PAGE> 11
ELF FUNDING TRUST I
By: Highland Capital Management
L.P. as Collateral Manager
By___________________________________
Name:
Title:
PAM CAPITAL FUNDING LP
By: Highland Capital Management L.P.
as Collateral Manager
By___________________________________
Name:
Title:
GLENEAGLES TRADING LLC
By___________________________________
Name:
Title:
SRV HIGHLAND, INC.
By___________________________________
Name:
Title:
<PAGE> 12
MASSMUTUAL HIGH YIELD PARTNERS II, LLC
By: HYP Management, Inc.,
as Managing Member
By___________________________________
Name:
Title:
CALIFORNIA BANK & TRUST
By___________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.83
AGREEMENT
Effective as of January 4, 2000, Alliance Gaming Corporation and Anthony
L. DiCesare, for good and valuable consideration the receipt and sufficiency of
which are acknowledged, hereby extend and renew their July 1, 1997 Employment
Agreement (the "Agreement") as follows:
Alliance shall not give notice of non-extension required by Paragraph 2 of
the Agreement so as to cause the Agreement to expire before June 30, 2004.
However, the parties agree that this document shall constitute notice, as
required by the Agreement, that the Agreement shall not be extended beyond
June 30, 2004.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original. This Agreement is dated as set forth below.
Alliance Gaming Corporation
By /s/ ROBERT L. MIODUNSKI By /s/ ANTHONY L. DICESARE
----------------------------------- -----------------------------------
Robert L. Miodunski, Anthony L. DiCesare
Chief Operating Officer
& Senior Vice-President
<PAGE> 1
EXHIBIT 10.84
AGREEMENT
Effective as of January 4, 2000, Alliance Gaming Corporation and Joel
Kirschbaum, for good and valuable consideration, the receipt and sufficiency of
which are acknowledged, hereby extend and renew their July 1, 1997 Employment
Agreement (the "Agreement") as follows:
Alliance shall not give notice of non-extension required by Paragraph 2 of
the Agreement so as to cause the Agreement to expire before June 30, 2004.
However, the parties agree that this document shall constitute notice, as
required by the Agreement, that the Agreement shall not be extended beyond
June 30, 2004.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original. This Agreement is dated as set forth below.
Alliance Gaming Corporation
By /s/ ROBERT L. MIODUNSKI By /s/ JOEL KIRSCHBAUM
----------------------------------- -----------------------------------
Robert L. Miodunski, Joel Kirschbaum
Chief Operating Officer
& Senior Vice-President
<PAGE> 1
EXHIBIT 10.85
AGREEMENT
Effective as of January 4, 2000, Alliance Gaming Corporation and Kirkland
Investment Corporation, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, hereby extend and renew the agreement
between them dated July 1, 1997 (the "Agreement") in the following manner:
Alliance shall not give notice of non-extension required by the first
paragraph of the Agreement so as to cause the Agreement to expire before
June 30, 2004. However, the parties agree that this document shall
constitute notice, as required by the Agreement, that the Agreement shall
not be extended beyond June 30, 2004.
This Agreement may be executed in several counterparts, each of which
shall be deemed an original. This Agreement is dated as set forth below.
Alliance Gaming Corporation Kirkland Investment Corporation
By /s/ ROBERT L. MIODUNSKI By /s/ JOEL KIRSCHBAUM
----------------------------------- -----------------------------------
Robert L. Miodunski, Joel Kirschbaum, President
Chief Operating Officer
& Senior Vice-President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXCEPTED FROM FORM 10-Q FOR
THE NINE MONTHS ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 38,930
<SECURITIES> 0
<RECEIVABLES> 83,065
<ALLOWANCES> 16,779
<INVENTORY> 41,425
<CURRENT-ASSETS> 170,540
<PP&E> 92,321
<DEPRECIATION> 67,697
<TOTAL-ASSETS> 359,536
<CURRENT-LIABILITIES> 52,613
<BONDS> 0
0
4,624
<COMMON> 1,034
<OTHER-SE> (51,517)
<TOTAL-LIABILITY-AND-EQUITY> 359,536
<SALES> 149,233
<TOTAL-REVENUES> 349,233
<CGS> 87,629
<TOTAL-COSTS> 225,160
<OTHER-EXPENSES> 112,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,348
<INCOME-PRETAX> (15,343)
<INCOME-TAX> 478
<INCOME-CONTINUING> (15,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,821)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
