<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 DECEMBER 31, 1999
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
February 1, 2000 according to the records of the registrant's registrar and
transfer agent was 10,336,272.
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<PAGE> 2
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Unaudited Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended December 31, 1998 and 1999 4
Unaudited Condensed Consolidated Statements of Operations
for the six months ended December 31, 1998 and 1999 5
Unaudited Condensed Consolidated Statements of Stockholders' Deficiency
for the six months ended December 31, 1999 6
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 1998 and 1999 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 36
Item 4. Submission of Matters to a Vote of Security Holders 36
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURES 37
</TABLE>
2
<PAGE> 3
PART 1
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's, except share data)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,930 $ 27,952
Accounts and notes receivable, net of allowance for doubtful
accounts of $12,705 and $13,369 92,665 84,232
Inventories, net of reserves of $7,077 and $6,192 46,138 47,209
Other current assets 11,423 11,381
--------- ---------
Total current assets 167,156 170,774
--------- ---------
Long-term notes receivable, net of allowance for doubtful
accounts of $991 and $945 5,782 5,005
Leased equipment, net of accumulated depreciation of $5,111 and $7,256 10,981 17,822
Property, plant and equipment, net of accumulated depreciation
of $51,686 and $56,235 74,159 77,351
Excess of costs over net assets of acquired businesses, net of
accumulated amortization of $4,604 and $5,555 57,593 56,494
Intangible assets, net of accumulated amortization of $18,351 and $20,946 26,854 24,888
Other assets, net reserves of $3,468 and $1,883 13,782 13,571
--------- ---------
Total assets $ 356,307 $ 365,905
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 17,372 $ 17,853
Accrued liabilities 39,196 33,573
Current maturities of long-term debt 1,927 1,055
--------- ---------
Total current liabilities 58,495 52,481
--------- ---------
Term loan facilities 134,096 131,937
Senior Subordinated Notes due 2007, net 149,298 149,324
Other long-term debt, less current maturities 33,385 59,970
Other liabilities 9,458 9,321
--------- ---------
Total liabilities 384,732 403,033
--------- ---------
Minority interest 1,983 1,338
Commitments and contingencies
Stockholders' deficiency:
Special Stock, 10,000,000 shares authorized:
Series E, $100 liquidation value; 153,802 shares and 47,242
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) (17,765)
Accumulated deficit (160,250) (166,981)
--------- ---------
Total stockholders' deficiency (30,408) (38,466)
--------- ---------
Total liabilities and stockholders' deficiency $ 356,307 $ 365,905
========= =========
</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
December 31,
-------------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 22,499 $ 30,591
Wall machines and amusement games 23,769 19,542
Route operations 42,750 48,240
Casino operations 14,892 16,114
--------- ---------
103,910 114,487
--------- ---------
Costs and expenses:
Cost of gaming equipment and systems 13,394 17,893
Cost of wall machines and amusement games 14,674 11,157
Cost of route operations 33,516 38,007
Cost of casino operations 6,504 6,562
Selling, general and administrative 27,866 27,867
Research and development 3,976 3,329
Depreciation and amortization 5,757 6,701
Unusual items -- 526
--------- ---------
105,687 112,042
--------- ---------
Operating (loss) income (1,777) 2,445
Other income (expense):
Interest income 141 112
Interest expense (7,502) (8,715)
Minority interest (509) (459)
Other, net (355) (381)
--------- ---------
Loss before income taxes (10,002) (6,998)
Income tax benefit (provision) 245 (178)
--------- ---------
Net loss (9,757) (7,176)
Special Stock dividends (418) --
--------- ---------
Net loss applicable to common shares $ (10,175) $ (7,176)
========= =========
Basic and diluted loss per share: $ (1.04) $ (0.70)
========= =========
Weighted average common shares outstanding 9,789 10,252
========= =========
Weighted average common and common
share equivalents outstanding 9,789 10,252
========= =========
</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>
Six Months Ended
December 31,
-------------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 44,441 $ 70,375
Wall machines and amusement games 44,380 34,218
Route operations 82,754 94,292
Casino operations 31,106 32,804
--------- ---------
202,681 231,689
--------- ---------
Costs and expenses:
Cost of gaming equipment and systems 25,234 39,986
Cost of wall machines and amusement games 26,742 21,111
Cost of route operations 64,645 74,655
Cost of casino operations 13,320 13,181
Selling, general and administrative 48,903 51,485
Research and development 8,145 6,878
Depreciation and amortization 11,159 13,025
Unusual items -- 526
--------- ---------
198,148 220,847
--------- ---------
Operating income 4,533 10,842
Other income (expense):
Interest income 373 226
Interest expense (15,405) (16,492)
Minority interest (1,048) (927)
Other, net (547) (125)
--------- ---------
Loss before income taxes (12,094) (6,476)
Income tax (provision) benefit 61 (255)
--------- ---------
Net loss (12,033)
(6,731)
Special Stock dividends (824) --
--------- ---------
Net loss applicable to common shares $ (12,857) $ (6,731)
========= =========
Basic and diluted loss per share:
$ (1.34) $ (0.66)
Weighted average common shares outstanding 9,607 10,204
========= =========
Weighted average common and common
share equivalents outstanding 9,607 10,204
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Six Months Ended December 31, 1999
(In 000's)
<TABLE>
<CAPTION>
Total
Accumulated Stock-
Common Stock Series E Additional Other holders'
----------------- Special Treasury Paid-in Comprehensive Accumulated 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 -- -- -- -- -- -- (6,731) (6,731)
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 -- -- -- -- -- (1,779) -- (1,779)
------ ------ -------- ----- --------- -------- --------- --------
Balances at December 31, 1999 10,335 $1,034 $ 4,624 $(508) $ 141,130 $(17,765) $(166,981) $(38,466)
====== ====== ======== ===== ========= ======== ========= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In 000's)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------
1998 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,033) $ (6,731)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 11,159 13,025
Amortization of debt discounts 26 26
Write down of other assets 523 591
Gain on sale of assets (25) (1,056)
Provision for losses on doubtful receivables 922 2,433
Other 1,293 (656)
Net change in operating assets and liabilities:
Accounts and notes receivable 13,949 5,549
Inventories (6,551) (11,687)
Other current assets 3,394 (32)
Accounts payable 2,603 525
Accrued liabilities (4,422) (5,422)
-------- --------
Net cash provided by (used in) operating activities 10,838 (3,435)
Cash flows from investing activities:
Additions to property, plant and equipment (5,476) (9,769)
Proceeds from disposal of property and equipment and other assets 83 1,082
Proceeds from sale/leaseback transaction -- 971
Additions to other long term assets (3,216) (1,928)
-------- --------
Net cash used in investing activities (8,609) (9,644)
Cash flows from financing activities:
Reduction of long-term debt (4,099) (3,291)
Net change in lines of credit (6,200) 27,511
Proceeds from exercise of stock options and warrants 4,778 10
-------- --------
Net cash (used in) provided by financing activities (5,521) 24,230
Effect of exchange rate changes on cash 323 (130)
Cash and cash equivalents:
(Decrease) increase for period (2,969) 11,022
Balance, beginning of period 23,487 16,930
-------- --------
Balance, end of period $ 20,518 $ 27,952
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
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
December 31, 1999:
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1999
------- -------
(in 000's)
<S> <C> <C>
Raw materials $16,676 $17,906
Work-in-process 2,057 1,060
Finished goods 27,405 28,243
------- -------
Total inventories $46,138 $47,209
======= =======
</TABLE>
8
<PAGE> 9
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
3. DEBT, LINES OF CREDIT
Long-term debt at June 30, 1999 and December 31, 1999 consists of the
following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1999
-------- --------
(in 000's)
<S> <C> <C>
10% Senior Subordinated Notes due 2007, net of unamortized
discount of $702,000 and $676,000 $149,298 $149,324
Term loan facilities:
Tranche B Term Loan 72,380 70,775
Tranche C Term Loan 38,744 37,869
Delayed Draw Term Facility 24,372 23,833
Revolving Credit Facility 32,200 59,069
Other, secured by related equipment 1,712 1,416
-------- --------
318,706 342,286
Less current maturities 1,927 1,055
-------- --------
Long-term debt, less current maturities $316,779 $341,231
======== ========
</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 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 $90 million revolving
credit facility (the "Revolving Credit Facility") with a 6-year term. Each
of these credit facilities are variable rate borrowings in accordance with
a credit grid. The interest rates 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 + 3.25% January 31, 2005
Tranche C Term Loan LIBOR + 3.50% July 31, 2005
Delayed Draw Term Facility LIBOR + 3.25% January 31, 2005
Revolving Credit Facility LIBOR + 2.75% July 31, 2003
</TABLE>
The Revolving Credit Facility also allows for German Deutschemark
borrowings at the euro deutschmark rate plus 2.75% (or 6.0% at December 31,
1999). 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.
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 acquisitions,
repurchase equity interests (as defined) or subordinated indebtedness,
issue or sell equity interests of the Company's subsidiaries (as defined),
engage in mergers or acquisitions, or engage in certain transactions with
subsidiaries and affiliates, and that otherwise restrict corporate
activities.
9
<PAGE> 10
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
To facilitate the disposition of non-core businesses, the Company has
obtained an amendment to its bank credit agreement. The amendment provides
the lenders' consent to sell the businesses at specified minimum prices by
December 31, 2000 and provides other financial flexibility to the Company.
The bank amendment also provides that if the Company should elect to sell
any of its non-core 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 bank amendment provides that any restructuring charges that
may be incurred at Bally Wulff or 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 Senior Subordinated Notes bear interest at 10%, are due in 2007, and
are general unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt (as defined) of the Company, including
indebtedness under the bank 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 will
have the right to require the Company to purchase their notes at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest to the date of such purchase.
4. INCOME TAXES
The Company's effective tax rate for the three and six months ended
December 31, 1998 and 1999 differs from the statutory rate of 35% due to
state income taxes and the impact of taxes applicable to earnings of Bally
Wulff. In addition, earnings at the Company's domestic subsidiaries cannot
be fully offset by the utilization of net operating loss carryforwards, and
there has been no tax benefit recorded for the Company's domestic
subsidiaries with net operating losses.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the unaudited
condensed consolidated statements of cash flows. For the six months ended
December 31, 1998 and 1999, the Company recorded the following significant
non-cash items:
<TABLE>
<CAPTION>
Six months ended
December 31,
-------------------
1998 1999
------ -------
(In 000's)
<S> <C> <C>
Reclassify other assets to property, plant and
equipment $ 242 $ 217
Dividends for Series E Special Stock 824 442
Reclassify inventory to equipment 2,842 10,170
Translation rate adjustment 5,911 1,649
Capitalized obligation incurred in acquisition of route asset 652 --
Conversion of Series E Special Stock into common shares -- 11,198
Deferred gain on sale/leaseback transaction -- 484
</TABLE>
10
<PAGE> 11
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
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 Thrillions wide-area progressive
system in Atlantic City. The lawsuit sought declaratory and injunctive
relief, compensatory damages, 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,
effectively preventing United Coin, though not a party to the lawsuit, from
operating its machines there pursuant to its contract with Raley's. After
the federal court granted the preliminary injunction, Anchor Gaming moved
to intervene and to have the preliminary injunction extended to prohibit
Raley's from removing Anchor's slot machines at four other stores that
Albertson's sold to Raley's. The federal court granted the motion, allowing
Anchor to intervene. United Coin likewise moved to intervene, but the court
denied the motion. Raley's and Albertson's motions for summary judgment
were heard on November 10, 1999, and trial was set on an expedited basis
for December 7, 1999. United Coin appealed the federal court's denial of
its motion to intervene to the Ninth Circuit Court of Appeals, but the
court of appeals did not act before the case was settled (see below). On
September 23, 1999, United Coin sued Cardivan Company and Anchor Gaming in
Nevada state court for interference with contractual relations and
Albertson's and Raley's for breach of contract. In January 2000, the
parties announced a settlement resolving all claims between the
litigants--Albertson's, Anchor Gaming, Jackpot Enterprises, Raley's, and
United Coin Machine Company. Under the terms of the settlement agreement,
United Coin will begin 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 will receive cash and
other consideration prior to February 1.
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.
11
<PAGE> 12
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
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 six months ended December 31, 1998 and 1999, total comprehensive
loss amounted to $6.8 million and $8.5 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 December 31, 1999, 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.
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 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.
12
<PAGE> 13
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
The computation of Basic and Diluted EPS is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
--------------------- ----------------------
1998 1999 1998 1999
------- ------- ------- --------
(In 000's except share data)
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common shares (10,175) (7,176) (12,857) (6,731)
Wt. average common shares outstanding 9,789 10,252 9,607 10,204
Dilutive effect of stock options outstanding -- -- -- --
Wt. average common and potential shares
Outstanding 9,789 10,252 9,607 10,204
Basic and diluted earnings per share $(1.04) $ (0.70) $ (1.34) $ (0.66)
</TABLE>
Options to purchase 9,000 and 56,000 at December 31, 1998 and 1999,
respectively, were not included in the computation of diluted EPS for the
respective quarters because those options' exercise prices were greater
than the average market price of the common shares for those quarters.
Options to purchase 9,000 and 58,000 at December 31, 1998 and 1999,
respectively, were not included in the computation of the year-to-date
diluted EPS for the respective periods because those options' exercise
prices were greater than the average market price of the common shares.
Additionally, stock options and warrants outstanding to purchase
approximately 3.7 million common shares and 2.4 million shares as of
December 31, 1998 and 1999, respectively, 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.
11. UNUSUAL ITEMS
During the quarter ended December 31, 1999, the Company incurred unusual
items of $0.5 million, which consists of $1.5 million of restructuring
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.
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 regional
casinos. Operating income is the primary measure used in assessing segment
performance. Corporate office costs are generally not allocated except
where those costs can be specifically identified with a segment.
The tables below presents information as to the Company's revenues and
operating income:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------------
1998 1999
-------- --------
(In $000's)
<S> <C> <C>
Revenues:
Gaming Equipment and Systems $ 44,441 $ 70,375
Wall Machines and Amusement Games 44,380 34,218
Route Operations 82,754 94,292
Casino Operations 31,106 32,804
-------- --------
</TABLE>
13
<PAGE> 14
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<S> <C> <C>
Total revenues $202,681 $231,689
======== ========
Intersegment revenues:
Gaming Equipment and Systems $ 319 $ 743
Wall Machines and Amusement Games 46 32
Route Operations -- --
Casino Operations -- --
------- --------
Total intersegment revenues $ 365 $ 775
======= ========
Operating income (loss):
Gaming Equipment and Systems $(4,307) $ 2,875
Wall Machines and Amusement Games 2,279 (995)
Route Operations 6,437 6,986
Casino Operations 8,885 10,595
Corporate/other (8,761) (8,619)
------- --------
Total operating income $ 4,533 $ 10,842
======= ========
</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>
Six Months Ended
December 31, 1999
-------------------------------
1998 1999
--------- ---------
(In $000's)
<S> <C> <C>
Revenues:
United States $ 148,985 $ 183,884
Germany 49,827 39,331
Other foreign 3,869 8,474
--------- ---------
Total revenues $ 202,681 $ 231,689
========= =========
Operating income (loss):
United States $ 2,762 $ 12,513
Germany 1,918 (1,217)
Other foreign (147) (454)
--------- ---------
Total operating income $ 4,533 $ 10,842
========= =========
</TABLE>
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
14
<PAGE> 15
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
Subsidiaries"). The notes to consolidating financial statements should be
read in conjunction with these consolidating financial statements.
15
<PAGE> 16
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.
16
<PAGE> 17
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
December 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>
ASSETS
Current assets:
Cash and cash equivalents $ 13,619 $ 14,333 $ $ 27,952
Accounts and notes receivable, net 42,711 45,620 (4,099) 84,232
Inventories, net 29,727 18,011 (529) 47,209
Other current assets 7,940 3,441 11,381
--------- --------- --------- ---------
Total current assets 93,997 81,405 (4,628) 170,774
--------- --------- --------- ---------
Long-term notes receivable, net 102,685 1,130 (98,810) 5,005
Leased equipment, net 9,753 8,069 17,822
Property, plant and equipment, net 42,124 35,227 77,351
Excess of costs over net assets of acquired
businesses, net 38,375 18,119 56,494
Intangible assets, net 24,535 353 24,888
Investment in subsidiaries 81,898 (81,898)
Other assets, net 32,145 (14,555) (4,022) 13,571
--------- --------- --------- ---------
$ 425,515 $ 129,748 $(189,358) $ 365,905
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 15,869 $ 1,984 $ $ 17,853
Accrued liabilities 22,615 12,851 (1,893) 33,573
Current maturities of long-term debt 3,814 3,395 (6,154) 1,055
--------- --------- --------- ---------
Total current liabilities 42,298 18,230 (8,047) 52,481
--------- --------- --------- ---------
Term loan facilities 131,937 131,937
Senior Subordinated Notes due 2007, net 149,324 149,324
Other long-term debt, less current maturities 131,790 26,895 (98,715) 59,970
Other liabilities 7,179 2,330 (188) 9,321
--------- --------- --------- ---------
Total liabilities 462,528 47,455 (106,950) 403,033
--------- --------- --------- ---------
Minority interest 1,338 1,338
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 68,715 (68,715) 141,130
Accumulated other comprehensive income (17,624) (17,786) 17,645 (17,765)
Retained earnings (accumulated deficit) (167,007) 13,352 (13,506) (166,981)
--------- --------- --------- ---------
Total stockholders' equity (deficiency) (38,351) 82,293 (82,408) (38,466)
--------- --------- --------- ---------
$ 425,515 $ 129,748 $(189,358) $ 365,905
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
17
<PAGE> 18
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1998
(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 $ 20,295 $ 3,005 $ (2,467) $ 22,499
Wall machines and amusement games 23,769 23,769
Route operations 37,370 5,380 42,750
Casino operations 3,553 11,339 14,892
-------- -------- --------- ---------
61,544 43,493 (2,467) 103,910
Costs and expenses:
Cost of gaming equipment and systems 11,917 2,365 (2,467) 13,394
Cost of wall machines and amusement games 14,674 14,674
Cost of route operations 29,894 3,622 33,516
Cost of casino operations 2,123 4,381 6,504
Selling, general and administrative 15,931 11,935 27,866
Research and development 3,178 798 3,976
Depreciation and amortization 3,739 2,018 5,757
-------- -------- --------- ---------
66,782 41,372 (2,467) 105,687
Operating income (loss) (5,564) 3,787 (1,777)
Earnings in consolidated subsidiaries 2,056 (2,056)
Other income (expense):
Interest income 228 104 (191) 141
Interest expense (7,268) (425) 191 (7,502)
Rainbow royalty 1,333 (1,333)
Minority interest (509) (509)
Other, net (177) (178) (355)
-------- -------- --------- ---------
Income (loss) before income taxes (9,901) 1,955 (2,056) (10,002)
Income tax benefit 144 101 245
-------- -------- --------- ---------
Net income (loss) (9,757) 2,056 (2,056) (9,757)
Special Stock dividends (418) (418)
-------- -------- --------- ---------
Net income (loss) applicable to common shares $(10,175) $ 2,056 $ (2,056) $ (10,175)
======== ======== ========= =========
</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 December 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 $ 29,695 $ 6,303 $ (5,407) $ 30,591
Wall machines and amusement games 19,542 19,542
Route operations 43,490 4,750 48,240
Casino operations 4,365 11,749 16,114
-------- -------- -------- ---------
77,550 42,344 (5,407) 114,487
Costs and expenses:
Cost of gaming equipment and systems 18,174 5,126 (5,407) 17,893
Cost of wall machines and amusement
games 11,157 11,157
Cost of route operations 34,984 3,023 38,007
Cost of casino operations 2,203 4,359 6,562
Selling, general and administrative 16,844 11,023 27,867
Research and development 2,622 707 3,329
Depreciation and amortization 4,496 2,205 6,701
Unusual items (165) 691 526
-------- -------- -------- ---------
79,158 38,291 (5,407) 112,042
-------- -------- -------- ---------
Operating income (loss) (1,608) 4,053 2,445
Earnings in consolidated subsidiaries 1,465 (1,465)
Other income (expense):
Interest income 133 99 (120) 112
Interest expense (8,348) (489) 122 (8,715)
Rainbow royalty 1,372 (1,372)
Minority interest (459) (459)
Other, net 65 (446) (381)
-------- -------- -------- ---------
Income (loss) before income taxes (7,308) 1,845 (1,463) (6,998)
Income tax benefit (provision) 202 (380) (178)
-------- -------- -------- ---------
Net income (loss) applicable to
common shares $ (7,178) $ 1,465 $ (1,463) $ (7,176)
======== ======== ======== =========
</TABLE>
See accompanying unaudited note.
19
<PAGE> 20
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1998
(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 $ 40,310 $ 9,316 $ (5,185) $ 44,441
Wall machines and amusement games 44,391 (11) 44,380
Route operations 72,259 10,495 82,754
Casino operations 6,860 24,246 31,106
--------- -------- -------- ---------
119,429 88,448 (5,196) 202,681
--------- -------- -------- ---------
Costs and expenses:
Cost of gaming equipment and systems 22,970 7,449 (5,185) 25,234
Cost of wall machines and amusement games 26,753 (11) 26,742
Cost of route operations 57,710 6,935 64,645
Cost of casino operations 4,162 9,158 13,320
Selling, general and administrative 27,648 21,255 48,903
Research and development 6,589 1,446 8,145
Depreciation and amortization 7,408 3,744 11,159
--------- -------- -------- ---------
126,487 76,857 (5,185) 198,148
--------- -------- -------- ---------
Operating income (loss) (7,058) 11,591 4,533
Earnings in consolidated subsidiaries 7,304 (7,304)
Other income (expense):
Interest income 543 208 (378) 373
Interest expense (14,969) (814) 378 (15,405)
Rainbow royalty 2,840 (2,840)
Minority interest (1,048) (1,048)
Other, net (66) (481) (547)
--------- -------- -------- ---------
Income (loss) before income taxes (12,454) 7,664 (7,304) (12,094)
Income tax benefit (provision) 421 (360) 61
--------- -------- -------- ---------
Net income (loss) (12,033) 7,304 (7,304) (12,033)
Special Stock dividends (824) (824)
--------- -------- -------- ---------
Net income (loss) applicable to
common shares $ (12,857) $ 7,304 $ (7,304) $ (12,857)
========= ======== ======== =========
</TABLE>
See accompanying unaudited note.
20
<PAGE> 21
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Six Months Ended December 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 $ 67,219 $ 13,587 $ (10,431) $ 70,375
Wall machines and amusement games 34,218 34,218
Route operations 84,271 9,571 94,292
Casino operations 8,493 24,311 32,804
--------- --------- --------- ---------
160,433 81,687 (10,431) 231,689
Costs and expenses:
Cost of gaming equipment and systems 39,230 11,187 (10,431) 39,986
Cost of wall machines and amusement games 21,111 21,111
Cost of route operations 68,516 6,139 74,655
Cost of casino operations 4,315 8,866 13,181
Selling, general and administrative 31,580 19,905 51,485
Research and development 5,433 1,445 6,878
Depreciation and amortization 8,913 4,112 13,025
Unusual items (165) 691 526
--------- --------- --------- ---------
157,822 73,456 (10,431) 220,847
--------- --------- --------- ---------
Operating income 2,611 8,231 10,842
Earnings in consolidated subsidiaries 3,412 (3,412)
Other income (expense):
Interest income 268 206 (248) 226
Interest expense (15,813) (927) 248 (16,492)
Rainbow royalty 2,847 (2,847)
Minority interest (927) (927)
Other, net 380 (505) (125)
--------- --------- --------- ---------
Income (loss) before income taxes (7,222) 4,158 (3,412) (6,476)
Income tax benefit (provision) 491 (746) (255)
--------- --------- --------- ---------
Net income (loss) applicable to
common shares $ (6,731) $ 3,412 $ (3,412) $ (6,731)
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
21
<PAGE> 22
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1998
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ------- ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (9,751) $ 21,275 $(1,286) $ 10,838
-------- -------- ------- --------
Cash flows from investing activities:
Additions to property and equipment (4,219) (1,257) (5,476)
Proceeds from disposal of property
and equipment 54 29 83
Additions to other long term assets (3,135) (81) (3,216)
-------- -------- ------- --------
Net cash used in investing activities (7,300) (1,309) (8,609)
-------- -------- ------- --------
Cash flows from financing activities:
Repayments of long-term debt (3,858) (1,527) 1,286 (4,099)
Net change in lines of credit (6,200) (6,200)
Proceeds from exercise of stock
options and warrants 4,778 4,778
Dividends received (paid) 18,600 (18,600) --
-------- -------- ------- --------
Net cash provided by (used in)
financing activities 13,320 (20,127) 1,286 (5,521)
-------- -------- ------- --------
Effect of exchange rate changes
on cash 323 323
-------- -------- ------- --------
Cash and cash equivalents:
Increase (decrease) for period (3,731) 762 (2,969)
Balance, beginning of period 8,577 14,910 23,487
-------- -------- ------- --------
Balance, end of period $ 4,846 $ 15,672 $ -- $ 20,518
======== ======== ======= ========
</TABLE>
See accompanying unaudited note.
22
<PAGE> 23
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended December 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 $(10,516) $ 8,443 $ (1,362) $ (3,435)
-------- -------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (5,383) (4,386) (9,769)
Proceeds from disposal of property
and equipment and other assets 1,056 26 1,082
Proceeds from sale/leaseback transaction 971 971
Additions to other long term assets (1,888) (40) (1,928)
-------- -------- -------- --------
Net cash used in investing activities (5,244) (4,400) (9,644)
-------- -------- -------- --------
Cash flows from financing activities:
Reduction of long-term debt (3,020) (1,633) 1,362 (3,291)
Net change in lines of credit 22,600 4,911 27,511
Proceeds from exercise of stock options
and warrants 10 10
Dividends received (paid) 4,550 (4,550)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 24,140 (1,272) 1,362 24,230
-------- -------- -------- --------
Effect of exchange rate changes on cash (130) (130)
Cash and cash equivalents:
Increase for period 8,379 2,643 11,022
Balance, beginning of period 5,240 11,690 16,930
-------- -------- -------- --------
Balance, end of period $ 13,619 $ 14,333 $ $ 27,952
======== ======== ======== ========
</TABLE>
See accompanying unaudited note.
23
<PAGE> 24
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 consist 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 December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ -------- ------------
(in 000's)
<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2007, net of unamortized
discount $149,324 $149,324
Term loan facilities:
Tranche B Term Loan 70,775 70,775
Tranche C Term Loan 37,869 37,869
Delayed Draw Term Facility 23,833 23,833
Revolving Credit Facility 25,500 23,569 59,069
Intercompany notes payable 99,564 5,304 (104,868)
Other 1,416 1,416
-------- --------- -------- --------
416,865 30,289 (104,868) 342,286
Less current maturities 3,814 3,395 (6,154) 1,055
-------- --------- -------- --------
Long-term debt, less current
maturities $414,131 $ 26,894 $(98,714) $341,231
======== ========= ======== ========
</TABLE>
24
<PAGE> 25
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, based on the terms of the $90.0 million revolving credit
facility, the Company would have been able to borrow $67.5 million under the
facility, of which the Company had borrowings of approximately $59.1 million
outstanding. The borrowing base for the revolving credit facility consists of
eligible receivables and inventory, as defined in the credit agreement.
At December 31, 1999, the Company had $28.0 million in cash and cash equivalents
and $8.4 million in unborrowed availability on its revolving credit facility
pursuant to the borrowing base limitations contained in the credit agreement. In
addition, the Company had working capital of approximately $118.3 million, an
increase of approximately $9.6 million from June 30, 1999, which is explained
below. Consolidated cash and cash equivalents at December 31, 1999 includes
approximately $22.2 million of cash which is utilized in Casino and Route
Operations which is 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 enlarge the installed base of recurring
revenues gaming machines at its Bally Gaming and Systems business unit, the
Company has increased its investment in leased gaming equipment during the six
months ended December 31, 1999. 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 December 31, 1999, 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
declined by $6.9 million from September 30, 1999 to December 31, 1999. The
Company is actively managing its working capital and other assets. As part of
these efforts, during the three months ended December 31, 1999 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 and entered into a sale and
leaseback transaction for $1.0 million for gaming machines deployed in its
Nevada Route Operation. As part of this plan, similar dispositions of other
non-core assets are likely to continue. 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 materials and finished
goods inventories and obtaining extended payment terms with certain vendors. At
December 31, 1999 the Company did not have any significant commitments for
capital expenditures.
Working Capital
During the six months ended December, 1999, working capital increased $9.6
million to $118.3 million. The primary fluctuations in working capital were: (i)
a net decrease in accounts receivable resulting from cash collections partially
offset by improved revenues at the Bally Gaming and Systems business unit, (ii)
an increase in inventory due to a larger number of product platforms to support
at Bally Gaming and Systems, (iii) a decrease in accrued liabilities due to
decreases in certain payroll related accrued expenses, (v) the impact of foreign
exchange fluctuations between the dollar and the deutschemark on all working
capital categories, (vi) increases in accounts payable based on the increase in
inventory levels and timing of payments, (vii) a decrease in current maturities
of long-term debt due to certain amounts reclassified to long-term debt and
(viii) the corresponding impact of the above listed items on cash and cash
equivalents.
Cash Flow
During the six months ended December 31, 1999 the Company used $3.4 million of
cash in operating activities resulting from the net loss, an increase in
inventory and a decrease in accrued liabilities, partially offset by a net
decreases in accounts receivable, and increases in depreciation and
amortization, provision for doubtful receivables and accounts payable.
During the six months ended December 31, 1999 the Company used $9.6 million of
cash in investing activities resulting primarily from $9.8 million in capital
expenditures and $1.9 million in additions to other long-term assets including
$0.3 million of payments made in acquiring the rights to manufacture and
distribute several gaming
25
<PAGE> 26
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
products, and $0.6 million of payments in acquiring gaming rights of route
locations, 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. During the six months ended December 31, 1999, $24.2
million was provided by financing activities primarily resulting from additional
borrowings from the Company's revolving credit facility of $27.5 million,
partially offset by $3.3 million used to reduce the Company's long-term debt.
The following is a summary of the Company's earnings before interest, taxes,
depreciation and amortization (EBITDA) by business unit:
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
December 31, December 31,
--------------------- -----------------------
1998 1999 1998 1999
------- ------- -------- --------
(In $000's)
<S> <C> <C> <C> <C>
EBITDA by Business Unit:
Bally Gaming and Systems $(3,532) $ (159) $ (2,572) $ 6,626
Wall Machines and Amusement Games 1,287 2,361 4,432 1,751
Route Operations 6,035 6,229 11,713 11,652
Casino Operations 4,605 5,150 10,047 11,623
Corporate Administrative Expenses (4,415) (3,909) (7,928) (7,259)
Unusual Items -- (526) -- (526)
------- ------- -------- --------
EBITDA $ 3,980 $ 9,146 $ 15,692 $ 23,867
======= ======= ======== ========
</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.
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 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 (as defined) or subordinated indebtedness, issue or sell equity
interests of the Company's subsidiaries (as defined), engage in mergers or
acquisitions, or engage in certain transactions with subsidiaries and
affiliates, and that otherwise restrict corporate activities.
Sale of Route and Casino Businesses, Bally Wulff matters and bank amendments
The Company has retained investment bankers to explore the sale of its Nevada
and Louisiana Route businesses and its Mississippi and Nevada Casino businesses
which will enable management to focus on its core gaming machine and systems
businesses. The sale process for each of the businesses is proceeding and the
Board of Directors should have final offers to consider in the March 2000
quarter for the Casinos and the Nevada Route Operations. The sales depend on
receiving offers acceptable to the Company. The net proceeds from the sale of
these non-core assets will be used to repay the Company's bank debt. To
facilitate the disposition of the businesses, the Company has obtained an
26
<PAGE> 27
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
amendment to its bank credit agreement. The amendment provides the lenders'
consent to sell the businesses and provides other financial flexibility to the
Company. In addition, the bank amendment provides that if the Company should
elect to sell any of its non-core 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.
The Company is also exploring various alternatives to return its Bally Wulff
operations to higher levels of profitability. The amendment to the credit
agreement provides the lenders' consent to a restructuring of the Bally Wulff
legal entities. In addition, the bank amendment provides that any restructuring
charges that may be incurred at Bally Wulff or 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.
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 begins 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.
27
<PAGE> 28
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
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 combined revenues and operating income (loss)
for the four business units for the three and six months ended December 31, 1998
and 1999:
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
December 31, December 31,
--------------------------- ---------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
(In $000's)
<S> <C> <C> <C> <C>
REVENUES:
Bally Gaming and Systems $ 22,499 $ 30,591 $ 44,441 $ 70,375
Wall Machines and Amusement Games 23,769 19,542 44,380 34,218
Route Operations 42,750 48,240 82,754 94,292
Casino Operations 14,892 16,114 31,106 32,804
---------- ---------- ---------- ----------
TOTAL REVENUES $ 103,910 $ 114,487 $ 202,681 $ 231,689
========== ========== ========== ==========
OPERATING INCOME (LOSS):
Bally Gaming and Systems $ (4,454) $ (2,128) $ (4,307) $ 2,875
Wall Machines and Amusement Games 122 835 2,279 (995)
Route Operations 3,361 3,957 6,437 6,986
Casino Operations 4,023 4,631 8,885 10,595
Corporate Administrative Expenses (4,829) (4,324) (8,761) (8,093)
Unusual items(a) -- (526) -- (526)
---------- ---------- ---------- ----------
TOTAL OPERATING INCOME (LOSS) $ (1,777) $ 2,445 $ 4,533 $ 10,842
========== ========== ========== ==========
</TABLE>
- ----------
(a) The unusual items consist of approximately $1.5 million of restructuring
charges, partially offset by a $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.
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1999
BALLY GAMING AND SYSTEMS
For the quarter ended December 31, 1999, Bally Gaming and Systems reported
revenues of $30.6 million, a 36% increase compared to revenues of $22.5 million
in the prior year quarter. The improvement was due primarily to a $4.9 million
increase in recurring revenue sources which is more fully described below, and
increases in units shipped and the average selling price of new gaming machines.
Bally Gaming reported unit sales of approximately 2,300 new gaming machines, an
increase of 29% compared to unit sales of approximately 1,800 in the prior year
quarter, due primarily to an overall increase in market demand and the
successful introduction of new products recently licensed in more jurisdictions.
By market segment, Bally Gaming's unit sales for the quarter consisted of
approximately 450 units to the Nevada and Atlantic City markets, 1,350 units to
international markets and 500 units
28
<PAGE> 29
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
to riverboats, Native American and other domestic markets. Bally Gaming reported
revenues from the sale of new gaming machines of $13.8 million, an increase of
55% compared to $8.9 million in the prior year quarter, due to higher unit
volume and a 21% increase in average selling prices over the prior year quarter.
Bally Systems reported revenues from SDS 6000 game monitoring unit sales of $5.9
million, an increase of 5% compared to revenues of $5.6 million in the prior
year quarter. In addition, revenues from recurring revenue sources were $6.4
million, an increase of 333% compared to revenues of $1.5 million in the prior
year quarter as the installed base of such gaming machines continued to
increase.
Gross margin for the quarter ended December 31, 1999 improved to 42% compared to
41% in the prior year quarter. The improvement was due primarily to a change in
product mix to higher margin gaming machines and larger revenues from higher
margin recurring revenue units, partially offset by an increase in royalty
expense and higher cost of goods sold.
For the quarter ended December 31, 1999, Bally Gaming and Systems reported an
operating loss of $2.1 million compared to an operating loss of $4.5 million in
the prior year quarter. The improvement resulted from higher revenues, improved
gross margins and lower research and development costs, partially offset by a
higher provision for doubtful accounts and higher depreciation and amortization
expense resulting from the larger installed base of recurring revenue units.
Research and development costs totaled $2.6 million, a decrease of 18 percent
over the prior year quarter.
WALL MACHINES AND AMUSEMENT GAMES
For the quarter ended December 31, 1999, the Wall Machines and Amusement Games
business unit reported revenues of $19.5 million, an 18% decrease compared to
the prior year quarter. The lower revenues resulted from a 6% decrease in
shipments of new wall machines, a 12% decrease in the average selling price of
new wall machines and a 37% decrease in amusement game distribution revenues,
partially offset by a 16% increase in leased machine revenues. The foreign
currency fluctuation between the dollar and the deutschmark decreased revenues
by $2.6 million and EBITDA by $0.3 million in the quarter ended December 31,
1999. The Company believes that the soft demand for new wall machines is due toe
potential changes in the laws regulating wall machines that are being reviewed
by the German government. 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.
Wall Machines and Amusement Games continued to expand its leasing program
whereby new wall machines are leased to customers pursuant to operating leases.
These leases provide Wall Machines and Amusement Games with a stream of revenues
and cash flow over the life of the leases, which range from six months to three
and one half years. The increase in lease revenues compared to the prior year
quarter was due primarily to a 21% increase in the average monthly lease rate
and an increase in the installed base of leased machines.
For the quarter ended December 31, 1999, gross profit margin increased to 43%
compared to 38% in the prior year quarter. This improvement was due to sales of
higher margin progressive jackpot machines and the increase in lease revenues,
partially offset by the unfavorable impact of a lower fixed cost absorption rate
from a decrease in production. Wall Machines and Amusement Games reported
operating income of $0.8 million compared to operating income of $0.1 million in
the prior year quarter, due primarily to the increase in gross margins and lower
selling, general and administrative expenses, principally a decrease in salary
and wages and marketing expenses, partially offset by a decrease in revenues and
an increase in depreciation expense.
29
<PAGE> 30
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
ROUTE OPERATIONS
For the quarter ended December 31, 1999, the Route Operations business unit
reported revenues of $48.2 million, an increase of 13% compared to revenues of
$42.8 million in the prior year quarter. Revenues for the Nevada operations
increased 16% as net win per gaming machine per day increased to $61.00 from
$55.50 in the prior year quarter, while the average number of gaming machines
increased to 7,670 from 7,250 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 continue to be
strong in Southern Nevada, particularly in Gamblers Bonus locations. Revenues
for the Louisiana operations decreased 12% due primarily to the closing of two
OTB's that, pursuant to a prior vote, effective July 1, 1999 were required to
close. This resulted in a 10% decrease in the average number of gaming units
deployed. Additionally, there was a decrease in net win per day per gaming
machine to $76.10 from $78.90 in the prior year quarter.
For the quarter ended December 31, 1999, cost of revenues increased 13% to $38.0
million compared to $33.5 million in the prior year quarter. As a percentage of
revenues, cost of revenues increased slightly to 79% from 78% in the prior year
quarter. Nevada route operations cost of revenues as a percentage of revenues
increased to 81% from 80% in the prior year quarter, due primarily to lower
margins in the Southern Nevada route operations, partially offset by improved
margins in the Northern Nevada route operations. The lower margins in Southern
Nevada resulted primarily from increased gaming machine rental costs and
participation payments. Louisiana operations cost of revenues as a percentage of
revenues improved to 64% from 67% in the prior year quarter. The Route
Operations business unit reported operating income of $4.0 million, an increase
of 18% compared to operating income of $3.4 million in the prior year quarter.
The increase in operating income resulted primarily from higher revenues and
lower depreciation expense, partially offset higher operating costs and 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 December 31, 1999, the Casino Operations business unit
reported revenues of $16.1 million, an increase of 8% compared to revenues of
$14.9 million in the prior year quarter. This increase was a result of a 23%
increase at the Rail City Casino and a 4 percent increase at the Rainbow Casino.
The revenue improvement at the Rail City Casino to $4.4 million from $3.6
million in the prior year quarter was attributable to an increase in the average
gaming machine net win per day of 18% to $77 from $65 in the prior year quarter
and an 11% increase in the average number of gaming machines. Rainbow Casino
revenues increased to $11.7 million from $11.4 in the prior year quarter as a
result of a 6% increase in the average number of gaming machines and higher
table game revenue, partially offset by a 4% decrease in net win per day per
gaming machine to $141 from $147 in the prior year quarter. The increase in
revenues at the Rainbow Casino was despite the adverse impact of temporarily
removing machines as part of the casino expansion and internal remodeling
projects. The expansion space at the Rainbow Casino opened in late November and
the casino now has over 1,000 gaming machines.
For the quarter ended December 31, 1999, the cost of revenues for Casino
Operations increased to $6.6 million compared to $6.5 million in the prior year
quarter and, as a percentage of revenues, improved to 41% from 44% in the prior
year quarter. The Casino Operations business unit reported operating income of
$4.6 million, an improvement of 15% compared to operating income of $4.0 million
in the prior year quarter. Rainbow Casino operating income increased 5% to $3.6
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
30
<PAGE> 31
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
income increased by 81% to $1.0 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 rent.
CONSOLIDATED
Total revenues for the quarter ended December 31, 1999 were $114.5 million, an
increase of 10% compared to revenues of $103.9 million in the prior year
quarter. The increase is due primarily to the aforementioned increases at the
Bally Gaming and Systems, Route Operations and Casino Operations business units,
partially offset by a decrease at the Wall Machines and Amusement Games business
unit.
Cost of revenues for the quarter ended December 31, 1999 was $73.6 million, an
increase of 8% compared to $68.1 million in the prior year quarter. Cost of
revenues as a percentage of total revenues improved to 64% from 65% in the prior
year quarter. The increase was due primarily to the improvements in costs as a
percentage of revenues at the Bally Gaming and Systems, the Wall Machines and
Amusement Games and the Casino Operations business units, partially offset by an
increase in costs as a percentage of revenues at Route Operations business unit.
Selling, general and administrative expenses for the quarter ended December 31,
1999 remained constant at $27.9 million between quarters. Increases in expenses
at the Route Operations and Casino Operations business units and an increase in
the provision for doubtful accounts, were offset by a decrease in Corporate
expenses, primarily professional and consulting fees, and decreases in expenses
at the Wall Machines and Amusement Games business unit.
Research and development costs for the quarter ended December 31, 1999 were
approximately $3.3 million, a decrease of 16% compared to costs of $4.0 million
in the prior year quarter. This decrease is due to decreases in costs at the
Bally Gaming and Systems and the Wall Machines and Amusement Games business
units.
Depreciation and amortization for the quarter ended December 31, 1999 was
approximately $6.7 million, an increase of 16% compared to $5.8 million in the
prior year quarter. The increase was due primarily to increases at the Bally
Gaming and Systems and the Wall Machines and Amusement Games business units,
partially offset by decreases at the Route Operations and Casino Operations
business units.
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the three months ended December 31, 1999 increased to
$8.6 million from $7.4 million in the prior year quarter due to a $0.5 million
fee in connection with obtaining an amendment to 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 $0.2 million in the 1999 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.
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
BALLY GAMING AND SYSTEMS
For the six months ended December 31, 1999, Bally Gaming and Systems reported
revenues of $70.4 million, a 58% increase compared to revenues of $44.4 million
in the prior year period. The improvement was due primarily
31
<PAGE> 32
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
to a $10.4 million increase in SDS 6000 game monitoring unit sales, an $8.0
million increase in recurring revenue sources and increases in units shipped and
the average selling price of new gaming machines. Bally Gaming reported unit
sales of approximately 5,300 new gaming machines, an increase of 33% compared to
unit sales of approximately 4,000 in the prior year period, due primarily to an
overall increase in market demand and the successful introduction of new
products recently licensed in more jurisdictions. By market segment, Bally
Gaming's unit sales for the six month period consisted of approximately 700
units to the Nevada and Atlantic City markets, 3,300 units to international
markets and 1,300 units to riverboats, Native American and other domestic
markets. Bally Gaming reported revenues from the sale of new gaming machines of
$32.1 million, an increase of 54% compared to $20.9 million in the prior year
period, due to higher unit volume and a 16% increase in average selling prices
over the prior year quarter. Bally Systems reported revenues from SDS 6000 game
monitoring unit sales of $20.1 million, an increase of 108% compared to revenues
of $9.6 million in the prior year period. In addition, revenues from recurring
revenue sources were $10.6 million, an increase of 312% compared to revenues of
$2.6 million in the prior year period. At December 31, 1999 Bally Gaming and
Systems had an installed base of over 2,000 gaming machines that earn revenue on
a recurring basis compared to approximately 100 gaming machines at December 31,
1998.
Gross margin for the six months ended December 31, 1999 remained constant at 43%
between periods. A change in product mix to higher margin gaming machines
coupled with greater revenues from recurring revenue units and SDS 6000 game
monitoring unit sales, were offset by an increase in royalty expense, a greater
provision for inventory obsolescence and higher cost of goods sold.
For the six months ended December 31, 1999, Bally Gaming and Systems reported
operating income of $2.9 million compared to an operating loss of $4.3 million
in the prior year period. The improvement resulted from higher revenues and
lower research and development costs, partially offset by higher selling,
general and administrative costs including a higher provision for doubtful
accounts, higher costs to support the recurring revenue units, higher costs from
the start of commercial sales in Australia and higher depreciation and
amortization expense resulting from the larger installed base of recurring
revenue units. Research and development costs totaled $5.4 million, a decrease
of 18% over the prior year period.
WALL MACHINES AND AMUSEMENT GAMES
For the six months ended December 31, 1999, the Wall Machines and Amusement
Games business unit reported revenues of $34.2 million, a 23% decrease compared
to the prior year period. The lower revenues resulted from a 16% decrease in
shipments of new wall machines, a 14% decrease in the average selling price of
new wall machines and a 39% decrease in amusement game distribution revenues,
partially offset by a 4% increase in leased machine revenues. The foreign
currency fluctuation between the dollar and the deutschmark decreased revenues
by $3.1 million and EBITDA by $0.2 million in the six months ended December 31,
1999. 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.
Wall Machines and Amusement Games continued to expand its leasing program
whereby new wall machines are leased to customers pursuant to operating leases.
These leases provide Wall Machines and Amusement Games with a stream of revenues
and cash flow over the life of the leases, which range from six months to three
and one half years. As of December 31, 1999 a total of 5,320 machines were
deployed in the leasing plan compared to 4,760 deployed at December 31, 1998, an
increase of 12%. The average monthly lease rate increased by 4% compared to the
prior year period.
32
<PAGE> 33
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
For the six months ended December 31, 1999, gross profit margin decreased to 38%
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, partially offset by sales of higher margin
progressive jackpot machines. Wall Machines and Amusement Games reported an
operating loss of $1.0 million compared to operating income of $2.3 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 six months ended December 31, 1999, the Route Operations business unit
reported revenues of $94.3 million, an increase of 14% compared to revenues of
$82.8 million in the prior year quarter. Revenues for the Nevada operations
increased 17% as net win per gaming machine per day increased to $59.60 from
$54.00 in the prior year period, while the average number of gaming machines
increased to 7,640 from 7,190 in the prior year period resulting primarily from
machines added as a result of new locations and taking over the contracts to
operate locations previously served by competitors. Revenues continue to be
strong in Southern Nevada, particularly in Gamblers Bonus locations. As of
December 31, 1999, the Gamblers Bonus product was installed in over 3,000 gaming
machines at approximately 300 locations statewide or 39% of the installed base
of gaming machines. Revenues for the Louisiana operations decreased 9% compared
to the prior year period due primarily to the July 1, 1999 closing of two OTB's
that, pursuant to a prior vote, effective July 1, 1999 were required to close.
This resulted in a 9% decrease in the average number of gaming units deployed
and a decrease in net win per day per gaming machine to $76.80 from $77.90 in
the prior year period.
As a percentage of revenues, cost of revenues increased slightly to 79% from 78%
in the prior year quarter. Nevada route operations cost of revenues increased as
a percentage of revenues to 81% from 80% in the prior year quarter, due
primarily to the lower margins in the Southern Nevada route operations,
partially offset by improved margins in the Northern Nevada route operations.
The lower margins resulted primarily from the impact of the start-up costs for
the Raley's stores where the Company was not able to operate until February 1,
2000 and increased gaming machine rental and participation costs. Louisiana
operations cost of revenues decreased as a percentage of revenues to 64% from
66% in the prior year quarter. The Route Operations business unit reported
operating income of $7.0 million, an increase of 9% compared to operating income
of $6.4 million in the prior year period. The increase in operating income
resulted primarily from higher revenues and lower depreciation expense,
partially offset higher operating costs and higher selling, general and
administrative expenses, principally increases in salary and wages and promotion
and marketing costs at the Nevada route operation.
CASINO OPERATIONS
For the six months ended December 31, 1999, the Casino Operations business unit
reported revenues of $32.8 million, an increase of 6% compared to revenues of
$31.1 million in the prior year period. This increase was a result of a 24%
increase at the Rail City Casino. The revenue improvement at the Rail City
Casino to $8.5 million from $6.9 million in the prior year period was
attributable to an increase in the average gaming machine net win per day of 19%
to $74 from $62 in the prior year period and an 11% increase in the average
number of gaming machines. Rainbow Casino revenues remained constant at $24.3
million between periods as a 2% increase in net win per day per gaming machine
to $155 from $152 in the prior year period was offset by a 2% decrease in the
average number of gaming machines. Revenues at the Rainbow Casino impacted from
temporarily removing machines as part of the casino expansion and internal
remodeling projects which are now complete.
33
<PAGE> 34
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
For the six months ended December 31, 1999, the cost of revenues for Casino
Operations decreased to $13.2 million compared to $13.3 million in the prior
year quarter and, as a percentage of revenues, improved to 40% from 43% in the
prior year quarter. The Casino Operations business unit reported operating
income of $10.6 million, an improvement of 19% compared to operating income of
$8.9 million in the prior year period. Rainbow Casino operating income increased
9% to $8.7 million due primarily to improved operating margins and a decrease in
selling, general and administrative costs. Rail City Casino operating income
increased by 113% to $1.9 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 rent and participation
payments.
CONSOLIDATED
Total revenues for the six months ended December 31, 1999 were $231.7 million,
an increase of 14% compared to revenues of $202.7 million in the prior year
period. The increase is due primarily to the aforementioned increases at the
Bally Gaming and Systems, Route Operations and Casino Operations business units,
partially offset by a decrease at the Wall Machines and Amusement Games business
unit.
Cost of revenues for the six months ended December 31, 1999 was $148.9 million,
an increase of 15% compared to $129.9 million in the prior year period. Cost of
revenues as a percentage of total revenues remained constant at 64% between
periods. Improvements in costs as a percentage of revenues at the Casino
Operations business unit, were offset by an increase in costs as a percentage of
revenues at Wall Machines and Amusement Games and the Route Operations business
units. Bally Gaming and Systems costs as a percentage of revenues remained
constant between periods.
Selling, general and administrative expenses for the six months ended December
31, 1999 were $51.5 million an increase of 5% compared to $48.9 million in the
prior year period. The increase was due primarily to increases in expenses at
the Bally Gaming and Systems, Route Operations and Casino Operations business
units and an increase in the provision for doubtful accounts, partially offset
by a decrease in Corporate expenses, principally salary and wages and consulting
fees, and decreases in expenses at the Wall Machines and Amusement Games
business unit.
Research and development costs for the six months ended December 31, 1999 were
approximately $6.9 million, a decrease of 16% compared to costs of $8.1 million
in the prior year period. This decrease is due to decreases in costs at the
Bally Gaming and Systems and the Wall Machines and Amusement Games business
units.
Depreciation and amortization for the six months ended December 31, 1999 was
approximately $13.0 million, an increase of 17% compared to $11.1 million in the
prior year period. The increase was due primarily to increases at the Bally
Gaming and Systems and the Wall Machines and Amusement Games business units,
partially offset by decreases at the Route Operations and Casino Operations
business units.
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the six months ended December 31, 1999 increased to
$16.3 million from $15.0 million in the prior year period due to a $0.5 million
fee in connection with obtaining an amendment to 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 $0.3 million in the current year
period compared to an income tax benefit of less than $0.1 million in the prior
year period. The current year period provision is due to various
34
<PAGE> 35
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
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.
35
<PAGE> 36
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Part 1, Item 7A of the Company's annual report on Form 10-K, as
amended, for the fiscal year ended June 30, 1999. There have been no material
changes in market risks since the prior fiscal year end.
PART II
ITEM 1. LEGAL PROCEEDINGS
See "Notes to Unaudited Condensed Consolidated Financial Statements-
5. Legal Proceedings" for a description of certain legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 3, 2000, the Company held its annual shareholders meeting
at which the shareholders were asked to vote on the election of two
directors. Of the 10,252,380 shares of common stock outstanding,
5,676,327 shares were voted for, and 3,423,624 withheld from Mr.
Anthony DiCesare; and 5,676,327 shares were voted for, and 3,423,624
withheld from Mr. Joel Kirschbaum.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4.6 Fourth 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 December 16, 1999.
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
36
<PAGE> 37
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
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
-----------------------------------
Chief Operating Officer
(Principal Executive Officer)
By /s/ Scott D. Schweinfurth
-----------------------------------
Sr. Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
37
<PAGE> 1
EXHIBIT 4.6
FOURTH AMENDMENT
FOURTH AMENDMENT (this "Amendment"), dated as of December 16th,
1999, 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.
WITNESSETH:
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 further amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. The definition of "Consolidated EBITDA" appearing in Section
11 of the Credit Agreement is hereby amended by deleting the last sentence of
said definition and inserting the following sentence in lieu thereof:
"For the purposes of calculating Consolidated EBITDA for (A) any
period ending on or prior to December 31, 2000, any determination of
Consolidated Net Income shall be adjusted by adding thereto (A) the amount of
any restructuring charges taken during such period at Bally Gaming, Inc., (B)
the amount of any restructuring charges taken during such period in connection
with the RCVP Sale, the Nevada Route Operations Sale, the Rail City Sale, the
Louisiana Route Operations Sale or any of the transactions contemplated in
Section 1 of Article I of the Third Amendment and (C) any ancillary transaction
costs incurred in connection with the RCVP Sale, the Nevada Route Operations
Sale, the Rail City Sale or the Louisiana Route Operations Sale, provided that
(x) the sum of the charges described in clause (A) shall not exceed $1,500,000,
and (y) the sum of the charges described in clauses (A) and (B) taken together
shall not exceed $7,000,000."
2. This Amendment shall become effective on the date (the "Fourth
Amendment Effective Date") when each Borrower, each other Credit Party 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.
<PAGE> 2
3. 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 Fourth 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
Fourth Amendment Effective Date both before and after giving effect to this
Amendment.
4. 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.
5. 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.
6. 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.
7. From and after the Fourth 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.
* * *
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 /s/
------------------------------------
Name:
Title:
2
<PAGE> 3
BALLY WULFF VERTRIEBS GMBH
By /s/
------------------------------------
Name:
Title:
BALLY WULFF AUTOMATEN GMBH
By /s/
------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON,
Individually and as Administrative
Agent
By /s/
------------------------------------
Name:
Title:
By /s/
------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By /s/
------------------------------------
Name:
Title:
3
<PAGE> 4
KZH ING-1 LLC
By /s/
------------------------------------
Name:
Title:
SUMITOMO BANK OF CALIFORNIA
By /s/
------------------------------------
Name:
Title:
THE MITSUBISHI TRUST AND BANKING CORP.
By /s/
------------------------------------
Name:
Title:
SOUTHERN PACIFIC BANK
By /s/
------------------------------------
Name:
Title:
4
<PAGE> 5
CRESCENT/MACH I PARTNERS
By: TCW Asset Management Company, Its
Investment Advisor
By /s/
------------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By /s/
------------------------------------
Name:
Title:
TCW LEVERAGED INCOME TRUST, L.P.
By /s/
------------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/
------------------------------------
Name:
Title:
5
<PAGE> 6
VAN KAMPEN CLO I, LIMITED
By: VAN KAMPEN MANAGEMENT INC., as
Collateral Manager
By /s/
------------------------------------
Name:
Title:
INDOSUEZ CAPITAL FUNDING III, LIMITED
By: Indosuez Capital, as Portfolio
Advisor
By /s/
------------------------------------
Name:
Title:
DEEPROCK & COMPANY
By: Eaton Vance Management As
Investment Advisor
By /s/
------------------------------------
Name:
Title:
ML CLO XII PILGRIM AMERICA
(Cayman) LTD.
By: Pilgrim Investments, Inc. as its
Investment Manager
By /s/
------------------------------------
Name:
Title:
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER PRIME INCOME
TRUST
By /s/
------------------------------------
Name:
Title:
DELANO COMPANY
By: Pacific Investment Management
Company, as its Investment Advisor
By /s/
------------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research as
Investment Advisor
By /s/
------------------------------------
Name:
Title:
KZH-CRESCENT CORP.
By /s/
------------------------------------
Name:
Title:
7
<PAGE> 8
PAMCO CAYMAN LTD.
By /s/
------------------------------------
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS I,
LTD.,
By: Cypresstree Investment Management
Company, Inc., as Portfolio
Manager
By /s/
------------------------------------
Name:
Title:
TEXAS COMMERCE BANK
By /s/
------------------------------------
Name:
Title:
ARCHIMEDES FUNDING, L.L.C.
By: ING Capital Advisors, Inc., as
Collateral Manager
By /s/
------------------------------------
Name:
Title:
8
<PAGE> 9
GENERAL ELECTRIC CAPITAL CORPORATION
By /s/
------------------------------------
Name:
Title:
MASSMUTUAL HIGH YIELD
PARTNERS I, LLC
By: HYP Management, Inc., as Managing
Member
By /s/
------------------------------------
Name:
Title:
Its:
----------------------------------
CALIFORNIA BANK & TRUST
By /s/
------------------------------------
Name:
Title:
9
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<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
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