<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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-4281
ALLIANCE GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0104066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6601 S. BERMUDA RD.
LAS VEGAS, NEVADA 89119
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: (702) 270-7600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The number of shares of Common Stock, $0.10 par value, outstanding as of
November 6, 2000, according to the records of the registrant's registrar and
transfer agent was 10,155,580.
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<PAGE> 2
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
I N D E X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Unaudited Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2000
and September 30, 2000 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended September 30, 1999 and 2000 4
Unaudited Condensed Consolidated Statements of Stockholders' Deficiency
for the three months ended September 30, 2000 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 1999 and 2000 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
</TABLE>
2
<PAGE> 3
PART 1
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In 000's, except share data)
<TABLE>
<CAPTION>
June 30, Sept. 30,
2000 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,044 $ 41,279
Short term investments 2,000 2,000
Accounts and notes receivable, net of allowance for doubtful
accounts of $19,255 and $18,949 82,444 66,569
Inventories, net of reserves of $6,660 and $6,103 32,019 34,112
Other current assets 11,198 10,729
--------- ---------
Total current assets 159,705 154,689
--------- ---------
Long-term notes receivable, net of allowance for doubtful
accounts of $954 and $958 4,043 3,772
Leased equipment, net of accumulated depreciation of $10,713 and $11,486 16,959 18,557
Property, plant and equipment, net of accumulated depreciation
of $60,028 and $61,582 76,823 75,931
Excess of costs over net assets of acquired businesses, net of
accumulated amortization of $5,946 and $6,185 54,994 53,596
Intangible assets, net of accumulated amortization of $20,609 and $21,601 21,850 20,561
Other assets, net of reserves of $1,813 and $1,788 16,913 16,309
--------- ---------
Total assets $ 351,287 $ 343,415
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 10,367 $ 13,488
Accrued liabilities 32,323 30,826
Current maturities of long-term debt 1,036 1,000
--------- ---------
Total current liabilities 43,726 45,314
--------- ---------
Long-term debt, net 344,023 335,795
Other liabilities 12,972 12,656
--------- ---------
Total liabilities 400,721 393,765
--------- ---------
Minority interest 1,361 1,362
Commitments and contingencies
Stockholders' deficiency:
Special Stock, 10,000,000 shares authorized: Series E, $100
liquidation value; 46,242 shares and 46,242 shares issued
and outstanding 4,624 4,624
Common Stock, $.10 par value; 50,000,000 shares authorized;
10,355,000 and 10,335,000 shares issued and outstanding 1,034 1,034
Treasury stock at cost, 83,000 shares and 83,000 shares (508) (508)
Additional paid-in capital 141,130 141,130
Accumulated other comprehensive loss (21,790) (26,072)
Accumulated deficit (175,285) (171,920)
--------- ---------
Total stockholders' deficiency (50,795) (51,712)
--------- ---------
Total liabilities and stockholders' deficiency $ 351,287 $ 343,415
========= =========
</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
September 30,
-------------------------
1999 2000
--------- ---------
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 39,784 $ 33,661
Wall machines and amusement games 14,676 14,860
Route operations 46,052 52,903
Casino operations 16,690 18,592
--------- ---------
117,202 120,016
--------- ---------
Costs and expenses:
Cost of gaming equipment and systems 22,093 15,368
Cost of wall machines and amusement games 9,954 8,295
Cost of route operations 36,648 42,616
Cost of casino operations 6,619 7,481
Selling, general and administrative 23,618 23,435
Research and development 3,549 3,183
Depreciation and amortization 6,324 6,507
--------- ---------
108,805 106,885
--------- ---------
Operating income 8,397 13,131
Other income (expense):
Interest income 114 155
Interest expense (7,777) (9,039)
Minority interest (468) (543)
Other, net 256 121
--------- ---------
Income before income taxes 522 3,825
Income tax provision (77) (460)
--------- ---------
Net income $ 445 $ 3,365
========= =========
Basic earnings per share $ 0.04 $ 0.33
========= =========
Diluted earnings per share $ 0.04 $ 0.32
========= =========
Weighted average common shares outstanding 10,156 10,252
========= =========
Weighted average common and common
share equivalents outstanding 10,396 10,479
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Three Months Ended September 30, 2000
(In 000's)
<TABLE>
<CAPTION>
Total
Accumulated Stock-
Common Stock Additional Other holders'
---------------- Series E Treasury Paid-in Comprehensive Accum. Equity
Shares Dollars Special Stock Stock Capital Loss Deficit (Deficiency)
------ ------- ------------- -------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 2000 10,335 $1,034 $4,624 $(508) $141,130 $(21,790) $(175,285) $(50,795)
Net income -- -- -- -- -- -- 3,365 3,365
Foreign currency translation
adjustment -- -- -- -- -- (4,282) -- (4,282)
------ ------ ------ ----- -------- -------- --------- --------
Balances at September 30, 2000 10,335 $1,034 $4,624 $(508) $141,130 $(26,072) $(171,920) $(51,712)
====== ====== ====== ===== ======== ======== ========= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
ALLIANCE GAMING CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In 000's)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 445 $ 3,365
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 6,324 6,507
Amortization of debt discounts 13 13
Write down of other assets 407 --
(Gain) loss on sale of assets (18) (137)
Provision for losses on doubtful receivables 523 1,234
Other (596) 150
Net change in operating assets and liabilities:
Accounts and notes receivable (1,873) 11,941
Inventories (7,778) (5,407)
Other current assets 118 351
Accounts payable 2,246 3,260
Accrued liabilities (5,896) (938)
-------- --------
Net cash provided by (used in) operating activities (6,085) 20,339
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (4,502) (3,928)
Proceeds from disposal of property and equipment and other assets 27 --
Additions to other long term assets (1,187) (231)
-------- --------
Net cash used in investing activities (5,662) (4,159)
-------- --------
Cash flows from financing activities:
Reduction of long-term debt (387) (1,444)
Net increase (decrease) in revolving credit facility 17,221 (5,096)
Proceeds from exercise of stock options 10 --
-------- --------
Net cash provided by (used in) financing activities 16,844 (6,540)
-------- --------
Effect of exchange rate changes on cash 167 (405)
Cash and cash equivalents:
Increase for period 5,264 9,235
Balance, beginning of period 16,930 32,044
-------- --------
Balance, end of period $ 22,194 $ 41,279
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring
adjustments, which management believes are necessary to present fairly
the financial position, results of operations and cash flows of Alliance
Gaming Corporation ("Alliance" or the "Company") for the respective
periods presented. The results of operations for an interim period are
not necessarily indicative of the results which may be expected for any
other interim period or for the year as a whole. The accompanying
unaudited interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
in the Company's annual report on Form 10-K as amended for the year
ended June 30, 2000. All intercompany accounts and transactions have
been eliminated in consolidation.
The accompanying condensed consolidated financial statements at June 30,
2000, were derived from audited consolidated financial statements, but
do not include all disclosures required under generally accepted
accounting principles.
2. INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. Cost elements included for work-in-process
and finished goods include raw materials, freight, direct labor and
manufacturing overhead.
Inventories, net of reserves, consist of the following:
<TABLE>
<CAPTION>
June 30, Sept. 30,
2000 2000
-------- ---------
(in 000's)
<S> <C> <C>
Raw materials $14,143 $13,377
Work-in-process 948 1,637
Finished goods 16,928 19,098
------- -------
Total inventories $32,019 $34,112
======= =======
</TABLE>
3. DEBT, REVOLVING CREDIT FACILITY
Long-term debt consists of the following (in 000s):
<TABLE>
<CAPTION>
June 30, Sept. 30,
2000 2000
-------- --------
<S> <C> <C>
10% Senior Subordinated Notes due 2007, net of
unamortized discount of $649 and $636 $149,351 $149,364
Term loan facilities:
Tranche B Term Loan 70,641 69,936
Tranche C Term Loan 37,776 37,388
Delayed Draw Term Facility 23,789 23,552
Revolving Credit Facility 62,360 55,610
Other, secured by related equipment 1,142 945
-------- --------
345,059 336,795
Less current maturities 1,036 1,000
-------- --------
Long-term debt, less current maturities $344,023 $335,795
======== ========
</TABLE>
7
<PAGE> 8
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
The Company's bank debt consists of: (i) term loans with an original principal
balance in August 1997 of $140 million, comprised of a $75 million tranche with
a 7 1/2-year term (the "Tranche B Term Loan"), a $40 million tranche with an
8-year term (the "Tranche C Term Loan"), and a $25 million tranche with a 7
1/2-year term (the "Delayed Draw Term Facility" and together with the Tranche B
Term Loan and the Tranche C Term Loan, the "Term Loan Facilities"); and (ii) an
$80 million revolving credit facility (the "Revolving Credit Facility") with a
6-year term. Each of the term loans and credit facility require variable rate
borrowings with interest rates which are based on a credit grid. The interest
rates which are currently at the highest level of the credit grid and maturity
dates are as follows:
<TABLE>
<CAPTION>
Interest Maturity
Rates Date
------------- ----------------
<S> <C> <C>
Tranche B Term Loan LIBOR + 4.25% January 31, 2005
Tranche C Term Loan LIBOR + 4.50% July 31, 2005
Delayed Draw Term Facility LIBOR + 4.25% January 31, 2005
Revolving Credit Facility LIBOR + 3.75% July 31, 2003
</TABLE>
The Revolving Credit Facility also allows for German Deutschemark borrowings at
the Euro-deutschemark rate plus 3.75% (or 8.8% at September 30, 2000).
At September 30, 2000, borrowings under the $80.0 million Revolving Credit
Facility totaled $55.6 million, of which $18.6 million were German Deutschemark
borrowings. Based on the terms of the revolving credit facility, the Company
would have been able to borrow an additional $2.2 million as of September 30,
2000. The borrowing base for the revolving credit facility includes eligible
receivables and inventory (as defined).
The bank facility is collateralized by substantially all domestic property and
is guaranteed by each domestic subsidiary of the U.S. Borrower and German
Subsidiaries (both as defined), other than the entity which holds the Company's
interest in its Louisiana operations and other non-material subsidiaries (as
defined), and secured by both a U.S. and German Pledge Agreement (both as
defined). The bank facility contains a number of maintenance covenants and it
and the indenture have other significant covenants that, among other things,
restrict the ability of the Company and certain of its subsidiaries to dispose
of assets, incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, enter into certain acquisitions,
repurchase equity interests or subordinated indebtedness, issue or sell equity
interests of the Company's subsidiaries, engage in mergers or acquisitions, or
engage in certain transactions with subsidiaries and affiliates, and that
otherwise restrict corporate activities. The Company is in compliance with the
credit agreement debt covenants as of September 30, 2000. The Company is also in
compliance with the operational covenants contained in the indenture for the
Senior Subordinated Notes.
The Senior Subordinated Notes bear interest at 10%, are due in 2007, and are
general unsecured obligations of the Company, ranking subordinate in right of
payment to all Senior Debt (as defined) of the Company, including indebtedness
under the bank facility. The Senior Subordinated Notes are fully and
unconditionally guaranteed on a joint and several, senior subordinated basis by
all existing and future domestic Restricted Subsidiaries of the Company, subject
to certain exceptions including the partially-owned entities through which its
Mississippi casino and Louisiana route operations are conducted. The Subsidiary
Guarantees are general unsecured obligations of the Guarantors, ranking
subordinate in right of payment to all Senior Debt of the Guarantors.
8
<PAGE> 9
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
4. INCOME TAXES
The Company's effective tax rate for the three months ended September
30, 1999, and 2000, differs from the statutory rate of 35% due to state
income taxes and the impact of taxes applicable to earnings of Bally
Wulff. In addition, no tax expense has been recorded for the taxable
income produced by the Companies' domestic subsidiaries as such earnings
were offset against net operating loss carryforwards.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the unaudited
condensed consolidated statements of cash flows.
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------
1999 2000
------- ------
(In 000's)
<S> <C> <C>
Non-cash transactions:
Reclassify other assets to property, plant and equipment $ 93 $2,332
Dividends for Series E Special Stock 442 --
Reclassify inventory to equipment 3,694 --
Translation rate adjustment 1,511 3,880
Conversion of Series E Special Stock into common shares 11,098 --
</TABLE>
6. COMPREHENSIVE INCOME (LOSS)
As of July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which requires the changes in the Company's cumulative
translation adjustment account (which is a component of stockholders'
deficiency) to be included as a component of other comprehensive income
(loss).
During the three months ended September 30, 1999, and 2000, total
comprehensive income (loss) amounted to $2.1 million and $(0.9) million
respectively.
7. SHARE REPURCHASE PLAN
In January 1999 the Company's Board of Directors approved a share
repurchase plan for up to 1.18 million shares of its Common Stock. Under
the plan, subject to price and market conditions, purchases of shares
are made from time to time in the open market or in privately negotiated
transactions. As of September 30, 1999, the Company had approximately
83,000 shares of common stock in treasury at a cost of $508,000. During
the quarter ended September 30, 2000, the Company announced its
intention to resume its share repurchase plan. Subsequent to September
30, 2000, and prior to the filing of this Form 10-Q, the Company
repurchased an additional 104,000 shares at an average price of $4.19.
The Company has from time to time used the acquired common stock to
satisfy obligations pursuant to the exercise of stock options under the
Company's stock option plans.
9
<PAGE> 10
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
8. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing income (loss)
applicable to common shares (the numerator) by the weighted-average
number of common shares outstanding (the denominator) for the period.
The computation of Diluted EPS is similar to Basic EPS, except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potentially dilutive
common shares had been issued. Stock options and warrants are reflected
in Diluted EPS by application of the "Treasury Stock Method" which
reduces the dilutive effect by assuming that any proceeds from the
exercise of the options and warrants would be used to purchase common
shares at the average market price during the period. Series E Special
Stock is reflected in Diluted EPS by application of the "If-Converted
Method" which assumes full conversion at the beginning of the period.
The computation of Basic and Diluted EPS is as follows:
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------
1999 2000
------- -------
(In 000's except per share data)
<S> <C> <C>
Net income $ 445 $ 3,365
Wt. average common shares outstanding 10,156 10,252
Dilutive effect of stock options outstanding 15 2
Dilutive effect of Series E Special Stock 225 225
------- -------
Wt. average common and potential shares outstanding 10,396 10,479
Basic earnings per share $ 0.04 $ 0.33
======= =======
Diluted earnings per share $ 0.04 $ 0.32
======= =======
</TABLE>
Stock options and warrants outstanding that were potentially convertible
into approximately 2.4 million common shares as of September 30, 2000,
were not included in the computation of Diluted EPS because either (i)
the exercise price was greater than the average market price of the
common shares during the period or (ii) the contingent issue price was
greater that the market price of the common shares at the end of the
period.
In June 1996, the Company issued 113,160 shares of Series E Special
Stock to certain holders of the Company's 7 1/2% Convertible
Subordinated Debentures who, as part of an exchange offer, elected to
receive such stock in lieu of receiving common stock. The holders of
shares of Series E Special Stock have no voting rights except as
required by law. Each share of Series E Special Stock accrued non-cash
dividends at an annual rate of 11 1/2%, however the dividend requirement
concluded on July 1, 1999. The Series E Special Stock is convertible
into common stock at a conversion rate of 4.859 shares of common stock
per share of Series E Special Stock, subject to adjustment under certain
circumstances. During the fiscal year ended June 30, 2000, approximately
112,000 shares of Series E Special Stock were converted into
approximately 544,000 shares of common stock, and no such conversions
have occurred during the three months ended September 30, 2000. Upon
full conversion of the remaining shares of Series E Special stock, an
additional 224,690 shares of common stock will be issued.
10
<PAGE> 11
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
9. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in four business segments: (i) Gaming Equipment and
Systems designs, manufactures and distributes gaming machines and
computerized monitoring systems for gaming machines, (ii) Wall Machines
and Amusement Games designs, manufactures and distributes wall-mounted
gaming machines and distributes third party manufactured amusement
games, (iii) Route Operations owns and manages a significant installed
base of gaming machines, and (iv) Casino Operations owns and operates
two casinos. Operating income is the primary measure used in assessing
segment performance. Corporate office costs are generally not allocated
except where those costs can be specifically identified with a segment.
The table below presents information as to the Company's revenues and
operating income:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1999 2000
--------- ---------
(In $000's)
<S> <C> <C>
Revenues:
Gaming equipment and systems $ 39,784 $ 33,661
Wall machines and amusement games 14,676 14,860
Route operations 46,052 52,903
Casino operations 16,690 18,592
--------- ---------
Total revenues $ 117,202 $ 120,016
========= =========
Intersegment revenues:
Gaming equipment and systems $ 5,427 $ 2,433
Wall machines and amusement games 16 13
Route operations -- --
Casino operations -- --
--------- ---------
Total intersegment revenues $ 5,443 $ 2,446
========= =========
Operating income (loss):
Gaming equipment and systems $ 5,003 $ 5,673
Wall machines and amusement games (1,830) 534
Route operations 3,029 3,743
Casino operations 5,964 6,155
Corporate and unusual items (3,769) (2,974)
--------- ---------
Total operating income $ 8,397 $ 13,131
========= =========
</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.
11
<PAGE> 12
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
The table below presents information as to the Company's revenues and
operating income by geographic region:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1999 2000
----------- -----------
(In $000's)
<S> <C> <C>
Revenues:
United States $ 94,580 $101,246
Germany 16,946 16,710
Other foreign 5,676 2,060
--------- --------
Total revenues $ 117,202 $120,016
========= ========
Operating income (loss):
United States $ 10,482 $ 12,003
Germany (1,980) 380
Other foreign (105) 748
--------- --------
Total operating income $ 8,397 $ 13,131
========= ========
</TABLE>
10. ASSETS HELD FOR SALE
The company has entered into a definitive agreement for the sale of its
Nevada Route Operations for approximately $118 million. This transaction
is expected to close before June 2001. The following table presents the
net assets held for sale of the Nevada Route:
<TABLE>
<CAPTION>
June 30, Sept. 30,
2000 2000
------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (a) $13,639 $12,948
Accounts and notes receivable, net 3,923 3,985
Other current assets 5,332 4,331
------- -------
Total current assets 22,894 21,264
------- -------
Long-term notes receivable 1,310 1,269
Property, plant and equipment, net 17,891 17,805
Intangible assets, net 12,186 11,580
Other assets, net 3,910 3,981
------- -------
Total assets $58,191 $55,899
======= =======
LIABILITIES
Current liabilities:
Accounts payable $ 1,590 $ 943
Accrued liabilities 2,583 2,925
Current maturities of long-term debt 521 317
------- -------
Total Liabilities 4,694 4,185
------- -------
Net Asset $53,497 $51,714
======= =======
</TABLE>
(a) The definitive agreement requires certain minimum levels of cash be placed
into vaults, change banks and gaming devices at the time of the consummation
of the transaction. Therefore, the cash balances shown may differ from the
amounts actually transferred at the time of sale.
12
<PAGE> 13
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
11. UNAUDITED CONSOLIDATING FINANCIAL STATEMENTS
The following unaudited condensed consolidating financial statements are
presented to provide certain financial information regarding
guaranteeing and non-guaranteeing subsidiaries in relation to the
Company's Senior Subordinated Notes (see note 2). The financial
information presented includes Alliance Gaming Corporation (the
"Parent") and its wholly-owned guaranteeing subsidiaries (together the
"Parent and Guaranteeing Subsidiaries"), and the non-guaranteeing
subsidiaries Video Services, Inc., United Gaming Rainbow, BGI Australia
Pty. Limited, Bally Gaming de Puerto Rico, Inc., and Alliance Automaten
GmbH & Co. KG (the subsidiary that holds the Company's German interests)
(together the "Non-Guaranteeing Subsidiaries"). The notes to
consolidating financial statements should be read in conjunction with
these consolidating financial statements.
13
<PAGE> 14
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
June 30, 2000
(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 $ 19,528 $ 12,516 $ -- $ 32,044
Short term investments -- 2,000 -- 2,000
Accounts and notes receivable, net 44,889 41,603 (4,048) 82,444
Inventories, net 18,452 13,567 32,019
Other current assets 8,831 2,367 11,198
--------- --------- --------- ---------
Total current assets 91,700 72,053 (4,048) 159,705
--------- --------- --------- ---------
Long-term notes receivable, net 104,342 942 (101,241) 4,043
Leased equipment, net 9,618 7,341 16,959
Property, plant and equipment, net 42,152 34,671 76,823
Excess of costs over net assets of acquired
businesses, net 37,845 17,149 54,994
Intangible assets, net 21,567 283 21,850
Investments in subsidiaries 70,933 (70,933) --
Other assets, net 39,425 (18,600) (3,912) 16,913
--------- --------- --------- ---------
$ 417,582 $ 113,839 $(180,134) $ 351,287
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 8,232 $ 2,135 $ $ 10,367
Accrued liabilities 20,743 12,707 (1,127) 32,323
Current maturities of long-term debt 4,488 3,498 (6,950) 1,036
--------- --------- --------- ---------
Total current liabilities 33,463 18,340 (8,077) 43,726
--------- --------- --------- ---------
Long term debt 421,328 23,897 (101,202) 344,023
Other liabilities 12,225 879 (132) 12,972
--------- --------- --------- ---------
Total liabilities 467,016 43,116 (109,411) 400,721
--------- --------- --------- ---------
Minority interest 1,361 1,361
Commitments and contingencies
Stockholders' equity (deficiency):
Series E Special Stock 4,624 4,624
Common Stock 1,034 17,832 (17,832) 1,034
Treasury stock (508) (508)
Additional paid-in capital 141,130 7,862 (7,862) 141,130
Accumulated other comprehensive loss (21,790) (21,810) 21,810 (21,790)
Retained earnings (accumulated deficit) (175,285) 66,839 (66,839) (175,285)
--------- --------- --------- ---------
Total stockholders' equity (deficiency) (50,795) 70,723 (70,723) (50,795)
--------- --------- --------- ---------
$ 417,582 $ 113,839 $(180,134) $ 351,287
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
14
<PAGE> 15
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS
September 30, 2000
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,642 $ 14,637 $ -- $ 41,279
Short term investments 2,000 2,000
Accounts and notes receivable, net 33,286 36,999 (3,716) 66,569
Inventories, net 23,985 10,127 -- 34,112
Other current assets 8,341 2,388 -- 10,729
--------- --------- --------- ---------
Total current assets 92,254 66,151 (3,716) 154,689
--------- --------- --------- ---------
Long-term notes receivable, net 105,653 687 (102,568) 3,772
Leased equipment, net 11,848 6,709 -- 18,557
Property, plant and equipment, net 41,746 34,185 -- 75,931
Excess of costs over net assets of acquired
businesses, net 37,587 16,009 -- 53,596
Intangible assets, net 20,323 238 -- 20,561
Investment in subsidiaries 69,661 -- (69,661) --
Other assets, net 37,287 (17,402) (3,576) 16,309
--------- --------- --------- ---------
$ 416,359 $ 106,577 $(179,521) $ 343,415
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 11,086 $ 2,402 $ -- $ 13,488
Accrued liabilities 20,510 11,260 (944) 30,826
Current maturities of long-term debt 4,196 3,269 (6,465) 1,000
--------- --------- --------- ---------
Total current liabilities 35,792 16,931 (7,409) 45,314
--------- --------- --------- ---------
Long term debt 418,900 19,454 (102,559) 335,795
Other liabilities 12,017 739 (100) 12,656
--------- --------- --------- ---------
Total liabilities 466,709 37,124 (110,068) 393,765
--------- --------- --------- ---------
Minority interest 1,362 -- -- 1,362
Commitments and contingencies Stockholders'
equity (deficiency):
Series E Special Stock 4,624 -- -- 4,624
Common Stock 1,034 17,832 (17,832) 1,034
Treasury stock (508) -- -- (508)
Additional paid-in capital 141,130 7,862 (7,862) 141,130
Accumulated other comprehensive income (26,072) (26,092) 26,092 (26,072)
Retained earnings (accumulated deficit) (171,920) 69,850 (69,850) (171,920)
--------- --------- --------- ---------
Total stockholders' equity (deficiency) (51,712) 69,452 (69,452) (51,712)
--------- --------- --------- ---------
$ 416,359 $ 106,576 $(179,520) $ 343,415
========= ========= ========= =========
</TABLE>
See accompanying unaudited note.
15
<PAGE> 16
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 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 $37,524 $ 7,284 $(5,024) $39,784
Wall machines and amusement games 14,676 14,676
Route operations 41,231 4,821 46,052
Casino operations 4,128 12,562 16,690
------- ------- ------- -------
82,883 39,343 (5,024) 117,202
Costs and expenses:
Cost of gaming equipment and systems 21,056 6,061 (5,024) 22,093
Cost of wall machines and amusement games 9,954 9,954
Cost of route operations 33,532 3,116 36,648
Cost of casino operations 2,112 4,507 6,619
Selling, general and administrative 14,736 8,882 23,618
Research and development 2,811 738 3,549
Depreciation and amortization 4,417 1,907 6,324
------- ------- ------- -------
78,664 35,165 (5,024) 108,805
Operating income 4,219 4,178 8,397
Earnings in consolidated subsidiaries 1,947 (1,947)
Other income (expense):
Interest income 135 107 (128) 114
Interest expense (7,465) (438) 126 (7,777)
Rainbow royalty 1,475 (1,475)
Minority interest (468) (468)
Other, net 315 (59) 256
------- ------- ------- -------
Income before income taxes 158 2,313 (1,949) 522
Income tax benefit (provision) 289 (366) (77)
------- ------- ------- -------
Net income $ 447 $1,947 $(1,949) $ 445
====== ======= ======== ======
</TABLE>
See accompanying unaudited note.
16
<PAGE> 17
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2000
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
Revenues:
Gaming equipment and systems $ 32,102 $ 3,911 $ (2,352) $ 33,661
Wall machines and amusement games -- 14,860 -- 14,860
Route operations 48,553 4,350 -- 52,903
Casino operations 4,300 14,292 -- 18,592
-------- -------- --------- ---------
84,955 37,413 (2,352) 120,016
Costs and expenses:
Cost of gaming equipment and systems 15,312 2,408 (2,352) 15,368
Cost of wall machines and amusement games -- 8,295 -- 8,295
Cost of route operations 39,829 2,787 -- 42,616
Cost of casino operations 2,343 5,138 -- 7,481
Selling, general and administrative 14,340 9,095 -- 23,435
Research and development 2,580 603 -- 3,183
Depreciation and amortization 4,554 1,953 -- 6,507
-------- -------- --------- ---------
78,958 30,279 (2,352) 106,885
-------- -------- --------- ---------
Operating income 5,997 7,134 -- 13,131
Earnings in consolidated subsidiaries 3,926 -- (3,926) --
Other income (expense):
Interest income 154 77 (76) 155
Interest expense (8,599) (516) 76 (9,039)
Rainbow royalty 1,703 (1,703) -- --
Minority interest (543) -- -- (543)
Other, net 482 (361) -- 121
-------- -------- --------- ---------
Income before income taxes 3,120 4,631 (3,926) 3,825
Income tax benefit (provision) 245 (705) -- (460)
-------- -------- --------- ---------
Net income $ 3,365 $ 3,926 $ (3,926) $ 3,365
======== ======== ========= =========
</TABLE>
See accompanying unaudited note.
17
<PAGE> 18
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 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 $(10,996) $ 5,587 $ (676) $(6,085)
-------- ------- ------ -------
Cash flows from investing activities:
Additions to property and equipment (2,794) (1,708) (4,502)
Proceeds from disposal of property and equipment 27 27
Additions to other long term assets (1,158) (29) (1,187)
-------- ------- ------ -------
Net cash used in investing activities (3,952) (1,710) (5,662)
-------- ------- ------ -------
Cash flows from financing activities:
Reduction of long-term debt (251) (812) 676 (387)
Net increase in revolving credit facility 14,500 2,721 17,221
Proceeds from exercise of stock options 10 10
Dividends received (paid) 3,700 (3,700)
-------- ------- ------ -------
Net cash provided by (used in) financing
activities 17,959 (1,791) 676 16,844
-------- ------- ------ -------
Effect of exchange rate changes on cash 2 165 167
Cash and cash equivalents:
Increase for period 3,013 2,251 5,264
Balance, beginning of period 6,065 10,865 16,930
-------- ------- ------ -------
Balance, end of period $ 9,078 $13,116 $ $22,194
======== ======= ======== =======
</TABLE>
See accompanying unaudited note.
18
<PAGE> 19
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2000
(In 000's)
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ ------- -------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $12,362 $ 8,704 $(727) $20,339
------- ------- ----- -------
Cash flows from investing activities:
Additions to property and equipment (1,599) (2,329) (3,928)
Proceeds from disposal of property and
equipment and other assets -- -- --
Additions to other long term assets (228) (3) (231)
------- ------- ----- -------
Net cash used in investing activities (1,827) (2,332) (4,159)
------- ------- ----- -------
Cash flows from financing activities:
Reduction of long-term debt (1,330) (841) 727 (1,444)
Net decrease in revolving credit facility (3,002) (2,094) (5,096)
Dividends received (paid) 915 (915)
------- ------- ----- -------
Net cash provided by (used in)
financing activities (3,417) (3,850) 727 (6,540)
------- ------- ----- -------
Effect of exchange rate changes on cash (4) (401) (405)
Cash and cash equivalents:
Increase for period 7,114 2,121 9,235
Balance, beginning of period 19,528 12,516 32,044
------- ------- ----- -------
Balance, end of period $26,642 $14,637 $ $41,279
======= ======= ===== =======
</TABLE>
See accompanying unaudited note.
19
<PAGE> 20
ALLIANCE GAMING CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DEBT AND REVOLVING CREDIT FACILITY
Long-term debt and lines of credit at June 30, 2000 consisted of the following :
<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 $ 149,351 $ $ $ 149,351
Term loan facilities:
Tranche B Term Loan 70,641 70,641
Tranche C Term Loan 37,776 37,776
Delayed Draw Term Facility 23,789 23,789
Revolving Credit Facility 40,000 22,360 62,360
Intercompany notes payable 104,256 3,939 (108,195)
Other 1,142 1,142
--------- --------- --------- ---------
425,813 27,441 (108,195) 345,059
Less current maturities 8,508 3,498 (10,970) 1,036
--------- --------- --------- ---------
Long-term debt, less current
maturities $ 417,305 $ 23,943 $ (97,225) $ 344,023
========= ========= ========= =========
</TABLE>
Long-term debt and lines of credit at September 30, 2000 consisted of the
following:
<TABLE>
<CAPTION>
Alliance
Gaming
Parent and Non- Corporation
Guaranteeing Guaranteeing Adjust- and
Subsidiaries Subsidiaries ments Subsidiaries
------------ ------------ --------- ------------
(in 000's)
<S> <C> <C> <C> <C>
10% Senior Subordinated Notes due
2007, net of unamortized discount $ 149,364 $ 149,364
Term loan facilities:
Tranche B Term Loan 69,936 69,936
Tranche C Term Loan 37,388 37,388
Delayed Draw Term Facility 23,552 23,552
Revolving Credit Facility 37,000 18,610 55,610
Intercompany notes payable 105,856 3,168 (109,024)
Other - 945 945
--------- --------- --------- ---------
423,096 22,723 (109,024) 336,795
Less current maturities 539 3,269 (2,808) 1,000
--------- --------- --------- ---------
Long-term debt, less current
maturities $ 422,557 $ 19,454 $(106,216) $ 335,795
========= ========= ========= =========
</TABLE>
20
<PAGE> 21
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, based on the terms of the amended $80.0 million revolving
credit facility, the Company would have been able to borrow $57.8 million under
the facility, of which the Company had borrowings of approximately $55.6 million
outstanding. As of September 30, 2000, the unborrowed availability on the
revolving credit facility was approximately $2.2 million. The borrowing base for
the revolving credit facility consists of eligible receivables and inventory, as
defined in the credit agreement.
At September 30, 2000, the Company had $41.3 million in cash and cash
equivalents. Consolidated cash and cash equivalents at September 30, 2000,
includes approximately $20.6 million of cash and cash equivalents used in casino
and route operations and held in vaults, cages or change banks.
The Company is in compliance with the financial and maintenance covenants under
both the credit agreement for the Bank Facility, as amended, and the indenture
for the Senior Subordinated Notes.
Consistent with the Company's plan to expand the proprietary gaming operations
of its Bally Gaming and Systems business unit, the Company has increased its
investment in leased gaming equipment during the three months ended September
30, 2000. The Company will continue the roll out of, and thus increase its
investment in, these proprietary games and wide area progressive games in the
future. Due in part to the lower level of revenues from Bally Gaming and Systems
and increased collections on accounts receivable, the borrowing base for the
Company's revolving line of credit had declined by $9.2 million from June 30,
2000, to September 30, 2000. The Company is actively managing its working
capital and other assets. The fifth amendment to the bank credit agreement
allows the Company to obtain third party financing for up to $15 million for is
proprietary gaming operations of Bally Gaming and Systems. This financing may be
in the form of traditional secured borrowings or lease type financing. While
management believes that cash flow from operating activities, cash and cash
equivalents held and the remaining borrowing availability under the revolving
credit facility will provide the Company with sufficient capital resources and
liquidity for ongoing operating needs, it will continue to actively manage its
working capital by continuing its active collections on accounts receivable and
managing levels of raw material and finished goods inventories. At September 30,
2000, the Company did not have any significant commitments for capital
expenditures.
In October 1999, the Company received consents from its bank group to pursue the
sale of certain route and casino assets. In August 2000, the Company signed a
definitive agreement with UC Acquisitions Company, LLC, an independent
third-party gaming operator, for the sale of its Nevada-based route operations.
The gross selling price, which is based on a multiple of cash flows for the 12
month period prior to closing, is estimated to be approximately $118 million,
consisting of $6 million in preferred stock and $112 million in cash, which will
be used to pay down certain lease obligations, pay transactional fees and
expenses, with the remainder (estimated to be approximately $95 million) to be
used to reduce the Term Loans. This transaction is contingent on the buyer
obtaining suitable financing and obtaining approvals from various regulatory
bodies, a process which the Company expects will be completed before June 2001.
21
<PAGE> 22
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
WORKING CAPITAL
During the three months ended September 30, 2000, working capital decreased $6.6
million to $109.4 million compared to $116.0 million at June 30, 2000. The
primary fluctuations in working capital were an increase in cash and cash
equivalents due to cash received from reductions in accounts receivable,
increases in finished goods inventories, offset by increases in current
liabilities.
CASH FLOWS
During the three months ended September 30, 2000, the Company generated $20.3
million of cash flows from operating activities, which included an $11.9 million
net decrease in accounts and notes receivable, $5.4 million net increase in
inventories and a $3.3 million net increase in accounts payable.
During the three months ended September 30, 2000, the Company used $4.2 million
of cash in investing activities resulting primarily from approximately $3.9
million in capital expenditures and $0.3 million in additions to other long-term
assets.
During the three months ended September 30, 2000, $6.5 million was used in
financing activities primarily resulting from reductions in the Company's
revolving credit facility of $5.1 million and $1.4 million of scheduled
reductions of the Company's term debt.
The Bank Facility is collateralized by substantially all domestic property and
is guaranteed by each domestic subsidiary of the U.S. Borrower and German
Subsidiaries (both as defined), other than the entity which holds the Company's
interest in its Louisiana operations and other non-material subsidiaries, and is
secured by both a U.S. and German Pledge Agreement. The Bank Facility contains a
number of maintenance covenants, and it and the Indenture have other significant
covenants that, among other things, restrict the ability of the Company and
certain of its subsidiaries to dispose of assets, incur additional indebtedness,
issue preferred stock, pay dividends or make other distributions, enter into
certain acquisitions, repurchase equity interests or subordinated indebtedness,
issue or sell equity interests of the Company's subsidiaries, engage in mergers
or acquisitions, or engage in certain transactions with subsidiaries and
affiliates, and that otherwise restrict corporate activities.
CUSTOMER FINANCING
Management believes that customer financing terms and leasing have become an
increasingly important competitive factor for the Bally Gaming and Systems and
Bally Wulff subsidiaries, respectively. Competitive conditions sometimes require
the Company 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.
22
<PAGE> 23
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
EURO CURRENCY CONVERSION
The Company's Bally Wulff subsidiary uses the German Deutschemark as its
functional currency. The new Euro currency will replace the deutschmark as well
as most other European currencies after a phase-in period which began January 1,
1999. As most of Bally Wulff's transactions are within Germany, the switch to
the Euro is not expected to have a material impact on revenues, expenses or
income. The new Euro coins and bills will become the official currency in
January 2002. The Company's products can be brought into Euro compliance by
moving a switch inside the wall machine, replacing the coin tubes, and modifying
the front glass to indicate Euros. Management believes the cost of the
implementing the Euro conversion will be borne by the customers.
The Company currently has borrowings outstanding on its line of credit facility,
a portion of which has a floating rate of interest tied to the Euro 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 cannot be quantified at this time.
23
<PAGE> 24
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
RESULTS OF OPERATIONS:
GENERAL
The following tables set forth the earnings (loss) before interest, taxes,
depreciation and amortization (EBITDA) and operating income (loss) for the four
business units excluding unusual charges, for the following periods:
<TABLE>
<CAPTION>
Three Months Ending
September 30,
--------------------------
1999 2000
-------- --------
(In $000's)
<S> <C> <C>
EBITDA BY BUSINESS UNIT:
Bally Gaming and Systems $ 6,785 $ 7,668
Wall Machines and Amusement Games (610) 1,907
Route Operations 5,423 5,930
Casino Operations 6,473 6,703
Corporate Administrative Expenses (3,350) (2,570)
-------- --------
EBITDA $ 14,721 $ 19,638
======== ========
OPERATING INCOME (LOSS):
Bally Gaming and Systems $ 5,003 $ 5,673
Wall Machines and Amusement Games (1,830) 534
Route Operations 3,029 3,743
Casino Operations 5,964 6,155
Corporate Administrative Expenses (3,769) (2,974)
-------- --------
Total Operating Income $ 8,397 $ 13,131
======== ========
</TABLE>
The Company believes that the analysis of EBITDA is a useful tool; however, this
information should not be construed as an alternative to net income (loss) or
any other GAAP measure of performance as an indicator of the Company's
performance or GAAP-defined cash flows generated by operating, investing and
financing activities as an indicator of cash flows or a measure of liquidity.
EBITDA may not be comparable to similarly titled measures reported by other
companies.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
BALLY GAMING AND SYSTEMS
For the quarter ended September 30, 2000, Bally Gaming and Systems reported
revenues of $33.7 million, a decrease of 15% compared to $39.8 million in the
prior year quarter. New unit sales totaled 2,100 units, a 30% decrease compared
to 3,000 in the prior year period. This decrease was a result of declining
demand for the Company's core products and delays in bringing new products to
market. The average new unit selling price remained unchanged from the prior
year quarter. Bally Systems reported sales of $9.6 million of revenue compared
to $15.2 million in the prior year's record quarter. The current quarter
shipments for Bally Gaming included approximately 300 units to the Nevada and
Atlantic City markets, 550 to Canada, 770 units to international markets, and
480 units to riverboats, Native American casinos and other domestic markets.
Systems reported shipments of 6,000 units, a 63% decrease compared to 16,200 in
the prior year period.
24
<PAGE> 25
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
The overall gross margin percentage for the current quarter improved to 54%
compared to 45% in the prior year quarter. The improvement was due primarily to
a change in product mix to higher margin gaming machines and greater revenues
from higher margin recurring revenue machines, partially offset by an increase
in royalty expenses.
At September 30, 2000, the Company's Bally Gaming and Systems business unit had
an installed base of approximately 2,700 units earning recurring revenues
compared to approximately 1,560 units at September 30, 1999. During the current
quarter, Bally Gaming and Systems recorded $7.0 million of revenues from the
proprietary gaming operations, and a total of $8.7 million from all recurring
revenue sources, up 102% from the prior year quarter. Recurring revenues include
revenue received from the operation of the wide-area progressive systems, fees
received from the operation of certain proprietary and niche games, and SDS
hardware and software maintenance fees. The gaming operations of Bally Gaming
and Systems achieved a 64% gross margin compared to 56% in the prior year
quarter.
Bally Gaming and Systems reported operating income of $5.7 million compared to
operating income of $5.0 million in the prior year quarter. The increase in
operating income was primarily attributed to an increase in proprietary gaming
revenues and the effects of the reduced overhead cost structure of this business
unit.
WALL MACHINES AND AMUSEMENT GAMES
For the quarter ended September 30, 2000, the Wall Machines and Amusement Games
business unit reported revenues of $14.9 million, a 1% increase from the prior
year quarter. The slight increase in revenues resulted from a 33% increase in
shipments of new wall machines, a 3% increase in amusement game distribution
revenues and an 8% increase in leased machine revenues, offset by an 8% decrease
in the average selling price of new wall machines. The prior period benefited
from the sales of a niche game with higher than traditional margins, sales of
which did not occur in the current quarter. The foreign currency fluctuation
between the dollar and the Deutschemark decreased revenues by $2.4 million in
the current quarter.
Gross margin for the quarter, was 44% compared to 32% in the prior year quarter.
This increase was primarily due to higher unit sales volumes which enhanced the
absorption of the fixed overhead costs.
Wall Machines and Amusement Games reported operating income of $0.5 million
compared to an operating loss of $(1.8) million in the prior year quarter, due
primarily to the increase in gross margins and lower selling, general and
administrative expenses, offset by an increase in depreciation and amortization
expense.
ROUTE OPERATIONS
For the quarter ended September 30, 2000, the Route Operations business unit
reported revenues of $52.9 million, an increase of 15% compared to revenues of
$46.1 million in the prior year quarter. Revenues for the Nevada operations
increased 18% as net win per gaming machine per day increased to $65.40 from
$58.30 in the prior year quarter, while the average number of gaming machines
increased to 8,000 from 7,600 in the prior year quarter resulting primarily from
machines added as a result of new locations and taking over the contracts to
operate locations previously served by competitors. Revenues for the Louisiana
operations decreased 10% due primarily to the proliferation of truck stops in
the metropolitan New Orleans area as well as the impact of a land-based casino
in New Orleans. Net win per day per gaming machine declined to $70.70 from
$77.40 in the prior year quarter, and the average number of gaming devices
deployed remained unchanged from the prior year quarter.
25
<PAGE> 26
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
As a percentage of revenues, cost of revenues increased slightly to 81%,
primarily as a result of additional game rental costs. The Route Operations unit
reported operating income of $3.7 million, an increase of 24% compared to
operating income of $3.0 million in the prior year quarter. The increase in
operating income resulted primarily from higher revenues and lower depreciation
expense, partially offset by higher selling, general and administrative
expenses, primarily increased promotion and marketing costs at the Nevada route
operation.
CASINO OPERATIONS
For the quarter ended September 30, 2000, the Casino Operations business unit
reported revenues of $18.6 million, an increase of 11% compared to revenues of
$16.7 million in the prior year quarter. This increase was a result of a 4%
increase at the Rail City Casino and a 14% increase at the Rainbow Casino. The
revenue improvement at the Rail City Casino to $4.3 million from $4.1 million in
the prior year quarter was attributable to an increase in the average gaming
machine net win per day of 14% to $80 from $70 in the prior year quarter with
approximately the same number of gaming devices on the casino floor. Rainbow
Casino revenues increased to $14.3 million from $12.6 in the prior year quarter
as a result of an 39% increase in the average number of gaming machines and
higher table game revenue, partially offset by a 18% decrease in net win per day
per gaming machine to $141 from $175 in the prior year quarter. As a result of
the casino expansion, the Rainbow Casino now has 990 gaming machines on the
casino floor, compared to 710 in the prior year quarter.
For the quarter ended September 30, 2000, the cost of revenues for Casino
Operations, as a percentage of revenues, remained constant at 40% between
quarters. The Casino Operations business unit reported operating income of $6.2
million, an improvement of 3% compared to operating income of $6.0 million in
the prior year quarter. Rainbow Casino operating income increased 4% to $5.2
million due primarily to the increase in revenues and improved operating
margins, partially offset by an increase in selling, general and administrative
costs, principally marketing costs. Rail City Casino operating income increased
slightly 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 rental expense.
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense in the three months ended September 30, 2000 increased to
$8.9 million from $7.7 million in the prior year quarter due to a higher average
amount of working capital borrowings in the current quarter and the increased
interest rates on the credit facility.
The Company recorded an income tax provision of $0.5 million in the September
30, 2000 quarter compared to $0.1 million in the prior year quarter. The current
quarter provision is primarily due to deferred tax charges recorded in Germany.
* * * * *
26
<PAGE> 27
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
The information contained in this Form 10-Q may contain "forward-looking"
statements within the meaning of section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Act of 1933, as amended, and is
subject to the safe harbor created thereby. Such information involves important
risks and uncertainties that could significantly affect results in the future
and, accordingly, such results may differ from those expressed in any forward
looking statements herein. Future operating results may be adversely affected as
a result of a number of factors such as the Company's high leverage, its holding
company structure, its operating history and recent losses, competition, risks
of product development, customer financing, sales to non-traditional gaming
markets, foreign operations, dependence on key personnel, strict regulation by
gaming authorities, gaming taxes and value added taxes, and other risks, as
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
27
<PAGE> 28
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Part 1, Item 7A, of the Company's annual report on Form 10-K, for the
fiscal year ended June 30, 2000. There have been no material changes in market
risks since the prior fiscal year end.
PART II
ITEM 1. LEGAL PROCEEDINGS
Refer to Part 1, Item 3, of the Company's annual report on Form 10-K for
the fiscal year ended June 30, 2000. There have been no material changes
in any legal proceedings since the prior fiscal year end.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
28
<PAGE> 29
ALLIANCE GAMING CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
ALLIANCE GAMING CORPORATION
(Registrant)
By /s/ Robert Miodunski
-------------------------------------------
President and Chief Operating Officer
(Principal Executive Officer)
By /s/ Robert L. Saxton
-------------------------------------------
Sr. Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
29