UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE |
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For the quarterly period ended December 31, 2003 |
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OR |
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE |
For the transition period from to
Commission File Number 0-4281
ALLIANCE GAMING CORPORATION
(Exact name of registrant as specified in its charter)
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NEVADA |
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88-0104066 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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6601 S. Bermuda Rd. |
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(Address of principal executive offices) (Zip Code) |
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Registrant’s telephone number: (702) 270-7600 |
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Registrant’s internet: www.alliancegaming.com |
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act). Yes ý No o
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.
ý Yes o No
The number of shares of Common Stock, $0.10 par value, outstanding as of February 2, 2003, according to the records of the registrant’s registrar and transfer agent was 50,482,000.
ALLIANCE GAMING CORPORATION
FORM 10-Q
For the Quarter Ended December 31, 2003
INDEX
PART I. |
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FINANCIAL INFORMATION |
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Item 1. |
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Unaudited Financial Statements |
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Unaudited Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2003 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART II. |
OTHER INFORMATION |
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2
PART 1
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(In 000’s, except share data)
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June 30, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
38,884 |
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$ |
72,254 |
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Accounts and notes receivable, net of allowance for doubtful accounts of $6,962 and $7,427 |
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98,368 |
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106,731 |
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Inventories, net of reserves of $6,503 and $6,498 |
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32,102 |
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39,274 |
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Deferred tax assets, net |
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44,821 |
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38,061 |
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Other current assets |
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8,010 |
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9,383 |
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Total current assets |
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222,185 |
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265,703 |
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Long-term investments (restricted) |
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864 |
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2,611 |
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Long-term receivables, net of allowance for doubtful accounts of $15 and $10 |
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14,865 |
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7,173 |
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Notes receivable from Sierra Design Group (Note 8) |
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— |
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61,025 |
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Leased gaming equipment, net of accumulated depreciation of $15,703 and $19,647 |
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25,792 |
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30,221 |
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Property, plant and equipment, net of accumulated depreciation and amortization of $20,495 and $23,737 |
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56,894 |
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59,876 |
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Goodwill, net of accumulated amortization of $5,941 and $5,941 |
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63,040 |
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66,225 |
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Intangible assets, net of accumulated amortization of $12,109 and $8,152 |
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26,631 |
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29,083 |
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Assets of discontinued operations held for sale |
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114,314 |
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106,886 |
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Other assets, net of reserves of $1,788 and $1,788 |
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580 |
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6,235 |
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Total assets |
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$ |
525,165 |
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$ |
635,038 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
22,726 |
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$ |
20,633 |
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Accrued liabilities |
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30,183 |
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23,868 |
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Jackpot liabilities |
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10,588 |
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12,785 |
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Current maturities of long-term debt |
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3,537 |
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3,069 |
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Liabilities of discontinued operations held for sale |
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16,186 |
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16,647 |
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Total current liabilities |
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83,220 |
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77,002 |
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Long-term debt, net |
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341,678 |
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422,217 |
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Deferred tax liabilities |
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3,920 |
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6,006 |
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Other liabilities |
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3,387 |
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5,048 |
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Minority interest |
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1,330 |
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1,216 |
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Total liabilities |
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433,535 |
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511,489 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Special Stock, 10,000,000 shares authorized: Series E, $100 liquidation value; 115 shares issued and outstanding |
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12 |
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12 |
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Common Stock, $.10 par value; 100,000,000 shares authorized; 49,933,000 and 50,295,000 shares issued |
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4,996 |
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5,033 |
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Treasury stock at cost, 513,000 shares |
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(501 |
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(501 |
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Additional paid-in capital |
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163,267 |
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167,724 |
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Accumulated other comprehensive income |
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1,287 |
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3,940 |
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Accumulated deficit |
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(77,431 |
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(52,659 |
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Total stockholders’ equity |
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91,630 |
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123,549 |
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Total liabilities and stockholders’ equity |
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$ |
525,165 |
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$ |
635,038 |
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See notes to unaudited condensed consolidated financial statements.
3
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In 000’s, except per share data)
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Three Months Ended December 31, |
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2002 |
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2003 |
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Revenues: |
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Gaming equipment and systems |
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$ |
86,627 |
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$ |
96,319 |
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Casino operations |
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11,600 |
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12,312 |
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98,227 |
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108,631 |
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Costs and expenses: |
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Cost of gaming equipment and systems |
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39,663 |
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38,780 |
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Cost of casino operations |
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5,223 |
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4,884 |
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Selling, general and administrative |
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22,095 |
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24,248 |
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Research and development costs |
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5,158 |
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6,740 |
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Depreciation and amortization |
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4,847 |
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6,445 |
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76,986 |
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81,097 |
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Operating income |
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21,241 |
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27,534 |
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Other income (expense): |
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Interest income |
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79 |
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83 |
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Interest expense |
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(6,554 |
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(3,869 |
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Minority interest |
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(309 |
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(541 |
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Other, net |
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266 |
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(545 |
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Income from continuing operations before income taxes |
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14,723 |
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22,662 |
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Income tax expense |
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6,147 |
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8,444 |
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Net income from continuing operations |
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8,576 |
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14,218 |
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Discontinued operations: |
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Income from discontinued operations of wall machines and amusement games business unit, net |
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895 |
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— |
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Income from discontinued operations of Nevada Route, net |
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1,325 |
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3,077 |
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Income from discontinued operations of Louisiana Route, net |
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284 |
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420 |
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Income from discontinued operations of Rail City Casino |
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773 |
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1,029 |
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Income from discontinued operations |
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3,277 |
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4,526 |
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Net income |
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$ |
11,853 |
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$ |
18,744 |
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Basic earnings per share: |
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Continuing operations |
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$ |
0.17 |
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$ |
0.29 |
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Discontinued operations |
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0.07 |
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0.09 |
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$ |
0.24 |
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$ |
0.38 |
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Diluted earnings per share: |
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Continuing operations |
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$ |
0.17 |
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$ |
0.28 |
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Discontinued operations |
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0.07 |
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0.09 |
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$ |
0.24 |
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$ |
0.37 |
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Weighted average common shares outstanding |
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49,208 |
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49,741 |
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Weighted average common and common share equivalents outstanding |
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50,316 |
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50,930 |
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See notes to unaudited condensed consolidated financial statements.
4
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In 000’s, except per share data)
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Six Months Ended December 31, |
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2002 |
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2003 |
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Revenues: |
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Gaming equipment and systems |
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$ |
150,166 |
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$ |
184,787 |
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Casino operations |
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24,267 |
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25,067 |
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174,433 |
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209,854 |
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Costs and expenses: |
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Cost of gaming equipment and systems |
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65,921 |
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72,017 |
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Cost of casino operations |
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10,520 |
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9,887 |
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Selling, general and administrative |
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42,195 |
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53,313 |
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Research and development costs |
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9,133 |
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12,703 |
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Depreciation and amortization |
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9,153 |
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12,467 |
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136,922 |
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160,387 |
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Operating income |
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37,511 |
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49,467 |
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Other income (expense): |
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Interest income |
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127 |
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126 |
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Interest expense |
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(13,195 |
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(9,598 |
) |
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Minority interest |
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(754 |
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(1,027 |
) |
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Refinancing charge |
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— |
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(12,293 |
) |
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Other, net |
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366 |
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(899 |
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Income from continuing operations before income taxes |
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24,055 |
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25,776 |
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Income tax expense |
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9,956 |
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9,710 |
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Net income from continuing operations |
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14,099 |
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16,066 |
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Discontinued operations: |
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Loss from discontinued operations of wall machines and amusement games business unit, net |
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(726 |
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— |
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Income from discontinued operations of Nevada Route, net |
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2,690 |
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6,209 |
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Income from discontinued operations of Louisiana Route, net |
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559 |
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730 |
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Income from discontinued operations of Rail City Casino |
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1,489 |
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1,767 |
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Income from discontinued operations |
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4,012 |
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8,706 |
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Net income |
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$ |
18,111 |
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$ |
24,772 |
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Basic earnings per share: |
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Continuing operations |
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$ |
0.29 |
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$ |
0.32 |
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Discontinued operations |
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0.08 |
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0.18 |
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$ |
0.37 |
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$ |
0.50 |
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Diluted earnings per share: |
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Continuing operations |
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$ |
0.29 |
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$ |
0.32 |
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Discontinued operations |
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0.08 |
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0.17 |
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$ |
0.37 |
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$ |
0.49 |
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Weighted average common shares outstanding |
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48,461 |
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49,660 |
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Weighted average common and common share equivalents outstanding |
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49,560 |
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50,814 |
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See notes to unaudited condensed consolidated financial statements.
5
ALLIANCE GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Six Months Ended December 31, 2003
(In 000’s)
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Series E |
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Treasury |
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Additional |
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Accumulated |
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Accum. |
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Total |
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Common Stock |
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Shares |
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Dollars |
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Balances at June 30, 2003 |
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49,933 |
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$ |
4,996 |
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$ |
12 |
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$ |
(501 |
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$ |
163,267 |
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$ |
1,287 |
|
$ |
(77,431 |
) |
$ |
91,630 |
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Net income |
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— |
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— |
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— |
|
— |
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— |
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— |
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24,772 |
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24,772 |
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Foreign currency translation adjustment |
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— |
|
— |
|
— |
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— |
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— |
|
2,653 |
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— |
|
2,653 |
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Total comprehensive income |
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27,425 |
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Shares issued upon exercise of options |
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362 |
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37 |
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— |
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— |
|
2,870 |
|
— |
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— |
|
2,907 |
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Tax benefit of employee stock option exercises |
|
— |
|
— |
|
— |
|
— |
|
1,587 |
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— |
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— |
|
1,587 |
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Balances at December 31, 2003 |
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50,295 |
|
$ |
5,033 |
|
$ |
12 |
|
$ |
(501 |
) |
$ |
167,724 |
|
$ |
3,940 |
|
$ |
(52,659 |
) |
$ |
123,549 |
|
See notes to unaudited condensed consolidated financial statements.
6
ALLIANCE
GAMING CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In 000’s)
|
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Six Months Ended December 31, |
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2002 |
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2003 |
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Cash flows from operating activities of continuing operations: |
|
|
|
|
|
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Net income |
|
$ |
18,111 |
|
$ |
24,772 |
|
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Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: |
|
|
|
|
|
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Income from discontinued operations |
|
(4,012 |
) |
(8,706 |
) |
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|
Depreciation and amortization |
|
9,153 |
|
12,467 |
|
||
|
Refinancing charge |
|
— |
|
12,293 |
|
||
|
Deferred income taxes |
|
7,507 |
|
10,433 |
|
||
|
Provision for losses on receivables |
|
628 |
|
526 |
|
||
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Other |
|
531 |
|
(1,099 |
) |
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|
Change in operating assets and liabilities: |
|
|
|
|
|
||
|
Accounts and notes receivable |
|
(32,540 |
) |
(2,019 |
) |
||
|
Inventories |
|
(847 |
) |
(2,493 |
) |
||
|
Other current assets |
|
(800 |
) |
(1,023 |
) |
||
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Accounts payable |
|
1,806 |
|
(2,072 |
) |
||
|
Accrued liabilities and jackpot liabilities |
|
4,647 |
|
(2,924 |
) |
||
|
Net cash provided by operating activities of continuing operations |
|
4,184 |
|
40,155 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities of continuing operations: |
|
|
|
|
|
||
|
Advances and notes receivable due from Sierra Design Group |
|
— |
|
(61,025 |
) |
||
|
Additions to property, plant and equipment |
|
(4,901 |
) |
(3,815 |
) |
||
|
Additions to leased gaming equipment |
|
(10,010 |
) |
(15,957 |
) |
||
|
Additions to other long-term assets |
|
(1,879 |
) |
(10,414 |
) |
||
|
Acquisitions, net of cash acquired |
|
(3,038 |
) |
(3,879 |
) |
||
|
Proceeds from sale of assets of discontinued operations |
|
— |
|
16,500 |
|
||
|
Net cash used in investing activities of continuing operations |
|
(19,828 |
) |
(78,590 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities of continuing operations: |
|
|
|
|
|
||
|
Debt issuance costs |
|
— |
|
(6,954 |
) |
||
|
Premium and consent fees paid on redemption of subordinated notes |
|
— |
|
(5,399 |
) |
||
|
Proceeds from issuance of long-term debt |
|
— |
|
350,000 |
|
||
|
Net change in revolving credit facility |
|
— |
|
70,000 |
|
||
|
Payoff of debt from refinancing |
|
— |
|
(337,625 |
) |
||
|
Reduction of long-term debt |
|
(1,991 |
) |
(1,349 |
) |
||
|
Proceeds from exercise of stock options |
|
1,792 |
|
2,907 |
|
||
|
Net cash (used in) provided by financing activities of continuing operations |
|
(199 |
) |
71,580 |
|
||
|
|
|
|
|
|
|
||
|
Effect of exchange rate changes on cash |
|
93 |
|
130 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents provided by discontinued operations |
|
8,444 |
|
95 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents: |
|
|
|
|
|
||
|
(Decrease) increase for the period |
|
(7,306 |
) |
33,370 |
|
||
|
Balance, beginning of period |
|
31,800 |
|
38,884 |
|
||
|
Balance, end of period |
|
$ |
24,494 |
|
$ |
72,254 |
|
See notes to unaudited condensed consolidated financial statements.
7
ALLIANCE
GAMING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Principles of consolidation
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 that 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 for the year ended June 30, 2003.
The accompanying consolidated financial statements include the accounts of Alliance Gaming Corporation, and its wholly owned and partially owned, controlled subsidiaries. In the case of Video Services, Inc. (“VSI”), the Company owns 100% of the voting stock. The Company is entitled to receive 71% of dividends declared by VSI, if any, at such time that dividends are declared.
The Company, through a wholly-owned subsidiary, is the general partner of Rainbow Casino Vicksburg Partnership, L.P. (“RCVP”), the limited partnership that operates the Rainbow Casino. The limited partner, Rainbow Corporation, an independent third party, is entitled to receive 10% of the net available cash flows after debt service and other items, as defined (which amount increases to 20% of such amount for the proportional revenues above $35.0 million) each year through December 31, 2010. The Company holds the remaining economic interest in the partnership and consolidates the partnership.
The Company records minority interest expense to reflect the portion of earnings of VSI and RCVP attributable to the minority shareholders.
During the fiscal year ended June 30, 2003, the Company acquired 100 percent of the stock of three companies: Casino Management Systems Software Company (“CMS”) on November 13, 2002, Micro Clever Consulting Systems Company (“MCC”) on April 9, 2003 and Honeyframe Systems Company (“HSC”) on May 28, 2003.
On December 31, 2003, the Company acquired 100% of the assets of U.K. based Crown Gaming from Crown Leisure Limited (“Crown”). The total purchase price in cash was $3.9 million of which approximately $1.0 million was allocated to goodwill. The acquisition, which includes Crown’s distributorship agreements for a wide variety of automated table games and video bingo machines, strategically builds on the Company’s focus towards future growth projected in England.
All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.
Revenue recognition
Revenue from sales of gaming machines is generally recognized at the time products are shipped and title has passed to the customer. Games placed with customers on a trial basis are not recognized as revenue until the trial period ends and the customer accepts the games. The Company sells gaming equipment on normal credit terms (generally 2%, net 30) and offers financing to qualified customers for periods generally between 6 and 48 months.
Revenue from sales of computerized monitoring systems is recognized in accordance with the AICPA’s Statement of Position 97-2 (“SOP 97-2”) “Software Revenue Recognition.” In accordance with the provisions of SOP 97-2, the contracts for the sales of computerized monitoring units are considered to have “multiple elements” because they include hardware, software, installation, supervision, training, and post-contract customer support. Accordingly, revenues from the sale of systems are deferred and begin to be recognized at the point when the
8
system is deemed to be functionally operational, and the residual method is used to recognize revenue for the remaining elements as they are delivered, each having vendor-specific objective evidence of relative fair values. Post-contract customer support revenues are recognized over the period of the support agreement (generally one year).
Our Bally Gaming and Systems business unit earns revenues from recurring revenue sources that consist of the operations of the wide-area progressive jackpot systems and revenues from gaming machines placed in a casino on a daily lease or rental basis. Revenue from these sources is recognized based on the contractual terms of the participation or rental agreements and is generally based on a share of money wagered, a share of the net winnings, or on a fixed daily rental rate basis.
In accordance with industry practice, the Company recognizes gaming revenues in its route and casino operations as the net win from gaming machine operations, which is the difference between coins and currency deposited into the machines and payments to customers and, for other games, the difference between gaming wins and losses. The Company recognizes, total net win from gaming machines as revenues for route operations, which the Company operates pursuant to revenue-sharing arrangements, and revenue-sharing payments (either fixed or variable) as a cost of route operations.
The Company continuously monitors its exposure for credit losses and maintains allowances for anticipated losses.
Capitalized Costs
During fiscal year 2004, Bally Gaming and Systems has experienced an almost four fold increase in the volume of product submissions to the various domestic regulatory bodies, each of which charge fees for testing and approval of each product. Product testing costs are capitalized once technological feasibility has been established and are amortized, generally over three year period once the product is placed in service. Product testing costs related to projects that are discontinued are expensed when such determination is made. The year to date fees incurred for such regulatory approvals exceeded $5.1 million. Of these amounts incurred, for the quarter ended December 31, 2003, the Company capitalized a total of $2.4 million that was directly attributable to products that have been approved.
Recently Issue Accounting Pronouncements
In December 2003, the FASB published FASB Interpretation No. 46, Consolidation of Variable Interest Entities (revised December 2003) (“FIN46-R”), clarifying FIN 46 and exempting certain entities from the provisions of FIN 46. Generally, application of FIN 46-R is required in financial statements of public entities that have interests in structures commonly referred to as special-purpose entities for periods ending after December 15, 2003, and, for other types of VIEs, for periods ending after March 15, 2004. The Company has reviewed this pronouncement and determined it is not applicable.
In December 2003, the FASB issued Statement of Financial Accounting Standard No. 132-R “Employers’ Disclosures about Pensions and Other Postretirement Benefits – an amendment of FASB Statements No. 87,88, and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. The Company has reviewed this pronouncement and determined it is not applicable.
9
2. EARNINGS PER SHARE
The following computation of basic and diluted earnings per share and weighted average common and common share equivalents outstanding, are as follows (in 000’s except per share amounts):
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income from continuing operations |
|
$ |
8,576 |
|
$ |
14,218 |
|
$ |
14,099 |
|
$ |
16,066 |
|
|
Net income from discontinued operations |
|
3,277 |
|
4,526 |
|
4,012 |
|
8,706 |
|
||||
|
Net income |
|
$ |
11,853 |
|
$ |
18,744 |
|
$ |
18,111 |
|
$ |
24,772 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares outstanding |
|
49,208 |
|
49,741 |
|
48,461 |
|
49,660 |
|
||||
|
Effect of dilutive securities |
|
1,108 |
|
1,189 |
|
1,099 |
|
1,154 |
|
||||
|
Weighted average common and common share equivalents outstanding |
|
50,316 |
|
50,930 |
|
49,560 |
|
50,814 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per basic share: |
|
|
|
|
|
|
|
|
|
||||
|
Income from continued operations |
|
$ |
0.17 |
|
$ |
0.29 |
|
$ |
0.29 |
|
$ |
0.32 |
|
|
Income from discontinued operations |
|
0.07 |
|
0.09 |
|
0.08 |
|
0.18 |
|
||||
|
|
|
$ |
0.24 |
|
$ |
0.38 |
|
$ |
0.37 |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per diluted share: |
|
|
|
|
|
|
|
|
|
||||
|
Income from continued operations |
|
$ |
0.17 |
|
$ |
0.28 |
|
$ |
0.29 |
|
$ |
0.32 |
|
|
Income from discontinued operations |
|
0.07 |
|
0.09 |
|
0.08 |
|
0.17 |
|
||||
|
|
|
$ |
0.24 |
|
$ |
0.37 |
|
$ |
0.37 |
|
$ |
0.49 |
|
Diluted earnings per share represent the potential dilution that could occur if all dilutive securities outstanding were exercised. Certain securities do not have a dilutive effect because their exercise price exceeds the average fair market value of the underlying stock during the respective period. Such securities are excluded from the diluted earnings per share calculation and consist of the following (in 000’s):
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
|
Stock options |
|
486 |
|
3 |
|
572 |
|
56 |
|
The Company accounts for its stock-based employee compensation awards in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under APB 25, because the exercise price of the Company’s employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized.
In 1998, the Company adopted FASB No. 123 “Accounting for Stock-Based Compensation” (“FASB No. 123”). Under FASB No. 123 companies may continue to account for employee stock-based compensation under APB 25, but are required to disclose historical pro-forma net income and earnings per share that would have resulted from the use of the fair value method described in FASB No. 123.
In December 2002, the FASB issued FASB No.148, “Accounting for Stock-Based Compensation-Transition and Disclosure”. This Statement amends FASB No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of FASB No. 123 and APB Opinion No. 28 “Interim Financial Reporting” to require prominent disclosures in both annual and interim financial statements about the method of
10
accounting for stock-based employee compensation and the effect of the method used on reported results. Under the fair value method, compensation costs are measured using an options pricing model and amortized over the estimated life of the option, which is generally three to ten years, with option forfeitures accounted for at the time of the forfeiture, and all amounts are reflected net of tax. The historical and pro forma net income (assuming an after-tax charge for stock-based compensation) and related per share data are as follows (in 000’s, except per share data):
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income |
|
|
|
|
|
|
|
|
|
||||
|
As reported |
|
$ |
11,853 |
|
$ |
18,744 |
|
$ |
18,111 |
|
$ |
24,772 |
|
|
Stock-based compensation under FASB No. 123 |
|
(1,032 |
) |
(1,021 |
) |
(1,649 |
) |
(1,893 |
) |
||||
|
Pro forma net income |
|
$ |
10,821 |
|
$ |
17,723 |
|
$ |
16,462 |
|
$ |
22,879 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
||||
|
Basic – As reported |
|
0.24 |
|
0.38 |
|
$ |
0.37 |
|
$ |
0.50 |
|
||
|
Basic – Pro forma |
|
0.22 |
|
0.36 |
|
$ |
0.34 |
|
$ |
0.46 |
|
||
|
Diluted – As reported |
|
0.24 |
|
0.37 |
|
$ |
0.37 |
|
$ |
0.49 |
|
||
|
Diluted – Pro forma |
|
0.22 |
|
0.35 |
|
$ |
0.33 |
|
$ |
0.45 |
|
||
On the date of grant using the Black-Scholes option-pricing model, the following assumptions were used to value the options in the periods indicated:
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-fee interest rate |
|
3.5 |
% |
3.5 |
% |
3.5 |
% |
3.5 |
% |
|
Expected volatility |
|
0.28 |
|
0.26 |
|
0.28 |
|
0.26 |
|
|
Expected dividend yield |
|
0 |
|
0 |
|
0 |
|
0 |
|
|
Expected life |
|
3-10 years |
|
3-10 years |
|
3-10 years |
|
3-10 years |
|
The resulting fair values applied to the options granted were $2.84 and $3.14 per share for the quarter ended December 31, 2002 and 2003 and were $2.73 and $3.10 per share for the six month periods ended December 31, 2002 and 2003, respectively.
3. DISCONTINUED OPERATIONS
In July 2003 the Company announced it had entered into definitive sale agreements for of its route operations segment consisting of United Coin Machine Co. (“UCMC”) and Video Services, Inc. (“VSI”) and its German wall machine and amusement games segment (Alliance Automaten GmbH & Co. KG dba Bally Wulff).
On June 30, 2003 the Company entered into a definitive agreement for the sale of Bally Wulff to a third party equity investor. The sale was consummated on July 18, 2003, at which time the Company received $16.5 million in cash consideration. Pursuant to the sale agreement, the Company used $5.6 million of the sale proceeds to purchase a 5 million Euro certificate of deposit as collateral for a tax claim currently being negotiated with the German tax authorities, for which the Company has indemnified the buyer. The certificate of deposit is included in Other Assets in the accompanying unaudited financial statements.
The Company has entered into a definitive agreement for the sale of UCMC to the privately held Century Gaming, Inc. based in Montana. The sales price is based on a multiple of EBITDA (as defined in the sale agreement). The closing of this transaction is subject to customary closing conditions including that the business achieve a minimum EBITDA of $21.0 million during a defined period of time prior to closing and that the buyer obtain the necessary gaming licenses. This transaction is expected to close in fiscal 2004.
Through a wholly owned subsidiary, Alliance owns 100 percent of the class B voting shares of VSI. Alliance and the owners of the class A shares have entered into a definitive agreement to sell 100 percent of VSI’s stock to
11
Gentilly Gaming, LLC. The all-cash transaction is subject to customary closing conditions and is expected to close on June 30, 2004. Concurrent with the sale agreement, VSI has entered into a 12-month operating agreement extension under terms and conditions that are the same as the existing agreement with the Fair Grounds Corporation.
On December 8, 2003 the Company announced that it had entered into an agreement for the sale of its Rail City Casino for consideration consisting of $35 million in cash and a $3.0 million note. The sale is expected to close in early to mid calendar 2004.
As a result of the transactions described above, each of the four businesses are treated as discontinued operations, and their results are presented net of applicable income taxes below income from continuing operations in the accompanying consolidated statements of operations. In accordance with generally accepted accounting principles, depreciation and amortization for these discontinued operations ceased as of July 1, 2003 for UCMC and VSI and as of December 8, 2003 for Rail City Casino as a result of their designation as assets held for sale. The assets and liabilities of the businesses are now classified as held for sale in the accompanying consolidated balance sheets. The prior year results have been reclassified to conform to the current year presentation.
Summary operating results for the discontinued operations for UCMC, VSI, Bally Wulff and Rail City Casino are as follows (in 000’s):
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net revenues |
|
$ |
75,399 |
|
$ |
64,179 |
|
$ |
145,925 |
|
$ |
123,533 |
|
|
Operating income |
|
4,212 |
|
7,947 |
|
6,163 |
|
14,746 |
|
||||
|
Income tax expense |
|
1,299 |
|
2,437 |
|
2,581 |
|
4,724 |
|
||||
|
Income from discontinued operations |
|
$ |
3,277 |
|
$ |
4,526 |
|
$ |
4,012 |
|
$ |
8,706 |
|
The following net assets held for sale are included in the accompanying consolidated balance sheets (in 000’s):
|
|
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
|
|
$ |
28,918 |
|
$ |
32,081 |
|
|
Accounts and contracts receivable |
|
|
|
21,627 |
|
6,042 |
|
||
|
Other current assets |
|
|
|
5,200 |
|
4,146 |
|
||
|
Property, plant and equipment |
|
|
|
33,316 |
|
40,623 |
|
||
|
Intangible assets |
|
|
|
21,695 |
|
20,295 |
|
||
|
Other |
|
|
|
3,558 |
|
3,699 |
|
||
|
Total assets |
|
|
|
114,314 |
|
106,886 |
|
||
|
|
|
|
|
|
|
|
|
||
|
Current liabilities |
|
|
|
11,913 |
|
12,346 |
|
||
|
Long-term liabilities |
|
|
|
4,273 |
|
4,301 |
|
||
|
Total liabilities |
|
|
|
16,186 |
|
16,647 |
|
||
|
Net assets of discontinued operations |
|
|
|
$ |
98,128 |
|
$ |
90,239 |
|
12
4. 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 (in 000’s):
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
|
|
|
|
||
|
Raw materials |
|
$ |
13,720 |
|
$ |
19,446 |
|
|
Work-in-process |
|
789 |
|
1,348 |
|
||
|
Finished goods |
|
17,593 |
|
18,480 |
|
||
|
Total |
|
$ |
32,102 |
|
$ |
39,274 |
|
5. DEBT
Long-term debt and lines of credit consisted of the following (in 000’s):
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
|
|
|
|
||
|
Term loan facility |
|
$ |
187,625 |
|
$ |
350,000 |
|
|
Revolving credit facility |
|
— |
|
70,000 |
|
||
|
10% Sr. Subordinated Notes, net of unamortized discount |
|
149,663 |
|
— |
|
||
|
Other subordinated debt |
|
495 |
|
— |
|
||
|
Other, secured by related equipment |
|
7,432 |
|
5,286 |
|
||
|
|
|
345,215 |
|
425,286 |
|
||
|
Less current maturities |
|
3,537 |
|
3,069 |
|
||
|
Long-term debt, net of current maturities |
|
$ |
341,678 |
|
$ |
422,217 |
|
The Company’s debt structure at June 30, 2003 consisted primarily of a $190 million term loan facility and a $23.7 million undrawn revolving credit facility and $150 million 10% Senior Subordinated Notes (“Subordinated Notes”). The term loan had an interest rate of LIBOR plus 3.25% (or 4.45% as of June 30, 2003).
On September 5, 2003, the Company completed a senior bank debt refinancing transaction (the “Refinancing”) whereby the Company entered into a new $275 million term loan facility and a $125 million revolving credit facility. Proceeds from the new loans were used to repay the existing bank term loans totaling approximately $188 million, repay the Subordinated Notes, and to pay transaction fees and expenses. The new term loan has an interest rate of LIBOR plus 2.75% (or 3.96% as of December 31, 2003), has a 1% per year mandatory principal amortization after the first year, and a 6-year maturity. The revolving credit facility has an interest rate of LIBOR plus 2.50% (or 3.71% as of December 31, 2003), and the commitment decreases ratably over its 5-year term to a 60% balloon. As of September 5, 2003, the initial outstanding on the revolving credit facility totaled $70.0 million.
On August 13, 2003, the Company initiated a tender offer and consent solicitation for all of the outstanding Subordinated Notes at a price of 103.33% plus a .25% tender premium which was contingent on the closing of the new bank facility. On September 10, 2003, the tender offer period expired, with $78.6 million of the notes having been tendered. On September 11, 2003, the Company initiated redemption of the remaining Notes at a price of 103.33%, which was completed on September 16, 2003, at which time the Subordinated Notes were fully redeemed.
13
As a result of the Refinancing described above, the Company recorded a pre-tax charge in the quarter ended September 30, 2003 of $12.3 million, which includes a $5.0 million charge for the early extinguishment of the Subordinated Notes, $7.0 million for the non-cash write off of deferred financing costs, and $0.3 million in fees and expenses.
During the December 2003 quarter the Company increased the Term Loan by $75 million, to a total of $350 million outstanding. The proceeds were used primarily to fund loans made to Sierra Design Group (“SDG”) of $61.0 million in advance of the previously announced acquisition of SDG that is anticipated to close in the first half of calendar 2004 (See Note 8). As a result the Company incurred additional $1.3 million in debt issuance costs, which have been capitalized and will be amortized over the remaining term of the loan.
The new bank facility is collateralized by substantially all domestic property and is guaranteed by each domestic subsidiary of the Company, other than the entity that holds the Company’s interest in its Louisiana and Mississippi operations, and is secured by a Pledge Agreement. The bank facility contains a number of maintenance covenants and other significant covenants that, among other things, restrict the ability of the Company and the ability of 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. As of December 31, 2003, the Company is in compliance with these covenants.
6. SEGMENTS AND GEOGRAPHICAL INFORMATION
The Company currently operates in two business segments (exclusive of the two business segments included in discontinued operations): (i) Gaming Equipment and Systems which designs, manufactures and distributes gaming machines and computerized monitoring systems for gaming machines, and (ii) Casino Operations which owns and operates one regional casino. The accounting policies of these segments are consistent with Company’s policies for the Consolidated Financial Statements.
The table below presents information as to the Company’s revenues, intersegment revenues and operating income by segment (in 000’s):
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
||||
|
Gaming Equipment and Systems |
|
$ |
86,627 |
|
$ |
96,319 |
|
$ |
150,166 |
|
$ |
184,787 |
|
|
Casino Operations |
|
11,600 |
|
12,312 |
|
24,267 |
|
25,067 |
|
||||
|
Total revenues |
|
$ |
98,227 |
|
$ |
108,631 |
|
$ |
174,433 |
|
$ |
209,854 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Intersegment revenues: |
|
|
|
|
|
|
|
|
|
||||
|
Gaming Equipment and Systems |
|
$ |
265 |
|
$ |
212 |
|
$ |
1,223 |
|
$ |
341 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
||||
|
Gaming Equipment and Systems |
|
$ |
21,775 |
|
$ |
27,217 |
|
$ |
36,910 |
|
$ |
48,575 |
|
|
Casino Operations |
|
2,631 |
|
3,814 |
|
6,545 |
|
7,828 |
|
||||
|
Corporate/other |
|
(3,165 |
) |
(3,497 |
) |
(5,944 |
) |
(6,936 |
) |
||||
|
Total operating income |
|
$ |
21,241 |
|
$ |
27,534 |
|
$ |
37,511 |
|
$ |
49,467 |
|
The Company has operations based primarily in the United States with a significant sales and distribution office based in Germany.
14
The table below presents information as to the Company’s revenues and operating income by geographic region (in 000’s):
|
|
|
Three
Months Ended |
|
Six Months
Ended |
|
||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
||||
|
United States |
|
$ |
85,946 |
|
$ |
97,728 |
|
$ |
156,467 |
|
$ |
190,340 |
|
|
Germany |
|
10,031 |
|
5,762 |
|
14,417 |
|
11,794 |
|
||||
|
Other foreign |
|
2,250 |
|
5,141 |
|
3,549 |
|
7,720 |
|
||||
|
Total revenues |
|
$ |
98,227 |
|
$ |
108,631 |
|
$ |
174,433 |
|
$ |
209,854 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating income: |
|
|
|
|
|
|
|
|
|
||||
|
United States |
|
$ |
20,333 |
|
$ |
25,819 |
|
$ |
35,926 |
|
$ |
46,978 |
|
|
Germany |
|
773 |
|
926 |
|
1,567 |
|
1,950 |
|
||||
|
Other foreign |
|
135 |
|
789 |
|
18 |
|
539 |
|
||||
|
Total operating income |
|
$ |
21,241 |
|
$ |
27,534 |
|
$ |
37,511 |
|
$ |
49,467 |
|
7. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the unaudited condensed consolidated statements of cash flows (in 000’s).
|
|
|
Six Months
Ended |
|
||||
|
|
|
2002 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
13,157 |
|
$ |
15,227 |
|
|
Cash paid for income taxes |
|
925 |
|
1,638 |
|
||
|
|
|
|
|
|
|
||
|
Non-cash transactions: |
|
|
|
|
|
||
|
Reclassify property, plant and equipment to inventory |
|
$ |
1,402 |
|
$ |
2,517 |
|
|
(Favorable) unfavorable translation rate adjustment |
|
(2,786 |
) |
(2,524 |
) |
||
|
Notes payable issued in acquisition |
|
3,000 |
|
— |
|
||
8. COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits relating to routine matters incidental to its business. Management does not believe that the outcome of such litigation, in the aggregate, will have a material adverse effect on the Company.
On November 11, 2003, the Company announced an agreement to purchase 100 percent of the outstanding shares of Sierra Design Group (“SDG”) for approximately $45 million of consideration consisting of $27 million of cash and 736,000 shares of Alliance Gaming Common Stock (valued at $18 million) to be paid at closing and up to $95 million of contingent consideration payable in equal portions of cash and stock payable over the three years following the acquisition upon SDG achieving certain financial objectives. In addition, the Company has made loan commitments to SDG totaling $74 million, of which $61 million has been advanced as of December 31, 2003, which has been used by SDG to repay existing creditors. The acquisition, which is subject to regulatory approvals and certain other customary closing conditions, is expected to close in the first half of calendar 2004.
15
9. 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 new bank credit agreement. The financial information presented includes Alliance Gaming Corporation (the “Parent”), its wholly-owned guaranteeing subsidiaries (“Guaranteeing Subsidiaries”), and the non-guaranteeing subsidiaries Video Services, Inc., the Rainbow Casino Vicksburg Partnership, L.P. (dba Rainbow Casino) and the Company’s non-domestic subsidiaries (together the “Non-Guaranteeing Subsidiaries”). The notes to the unaudited consolidating financial statements should be read in conjunction with these unaudited consolidating financial statements.
16
UNAUDITED CONSOLIDATING BALANCE SHEETS
June 30, 2003
(In 000’s)
|
|
|
Parent |
|
Guaranteeing |
|
Non- |
|
Reclas- |
|
Alliance |
|
|||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash and cash equivalents |
|
$ |
12,730 |
|
$ |
18,036 |
|
$ |
8,118 |
|
$ |
— |
|
$ |
38,884 |
|
|
Accounts and notes receivable, net |
|
738 |
|
70,880 |
|
27,496 |
|
(746 |
) |
98,368 |
|
|||||
|
Inventories, net |
|
— |
|
29,801 |
|
2,518 |
|
(217 |
) |
32,102 |
|
|||||
|
Deferred tax assets, net |
|
33,182 |
|
11,639 |
|
— |
|
— |
|
44,821 |
|
|||||
|
Other current assets |
|
404 |
|
7,110 |
|
496 |
|
— |
|
8,010 |
|
|||||
|
Total current assets |
|
47,054 |
|
137,466 |
|
38,628 |
|
(963 |
) |
222,185 |
|
|||||
|
Long-term investments (restricted) |
|
— |
|
864 |
|
— |
|
— |
|
864 |
|
|||||
|
Long-term receivables, net |
|
159,723 |
|
15,113 |
|
12 |
|
(159,983 |
) |
14,865 |
|
|||||
|
Leased gaming equipment, net |
|
— |
|
25,792 |
|
— |
|
— |
|
25,792 |
|
|||||
|
Property, plant and equipment, net |
|
74 |
|
20,394 |
|
36,426 |
|
— |
|
56,894 |
|
|||||
|
Goodwill, net |
|
(900 |
) |
48,293 |
|
15,647 |
|
— |
|
63,040 |
|
|||||
|
Intangible assets, net |
|
7,049 |
|
14,550 |
|
5,032 |
|
— |
|
26,631 |
|
|||||
|
Investments in subsidiaries |
|
294,513 |
|
74,990 |
|
— |
|
(369,503 |
) |
— |
|
|||||
|
Deferred tax assets, net |
|
3,394 |
|
— |
|
— |
|
(3,394 |
) |
— |
|
|||||
|
Assets of discontinued operations held for sale |
|
16,539 |
|
93,672 |
|
4,103 |
|
— |
|
114,314 |
|
|||||
|
Other assets, net |
|
(84,406 |
) |
99,918 |
|
(14,933 |
) |
1 |
|
580 |
|
|||||
|
|
|
$ |
443,040 |
|
$ |
531,052 |
|
$ |
84,915 |
|
$ |
(533,842 |
) |
$ |
525,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts payable |
|
$ |
1,295 |
|
$ |
19,507 |
|
$ |
1,924 |
|
$ |
— |
|
$ |
22,726 |
|
|
Accrued liabilities |
|
7,378 |
|
18,188 |
|
5,368 |
|
(751 |
) |
30,183 |
|
|||||
|
Jackpot liabilities |
|
— |
|
10,446 |
|
142 |
|
— |
|
10,588 |
|
|||||
|
Current maturities of long-term debt |
|
2,395 |
|
1,124 |
|
18 |
|
— |
|
3,537 |
|
|||||
|
Liabilities of disc. operations held for sale |
|
1,000 |
|
14,358 |
|
828 |
|
— |
|
16,186 |
|
|||||
|
Total current liabilities |
|
12,068 |
|
63,623 |
|
8,280 |
|
(751 |
) |
83,220 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Long term debt, net |
|
335,388 |
|
166,013 |
|
— |
|
(159,723 |
) |
341,678 |
|
|||||
|
Deferred tax liabilites |
|
— |
|
5,679 |
|
1,635 |
|
(3,394 |
) |
3,920 |
|
|||||
|
Other liabilities |
|
2,624 |
|
753 |
|
10 |
|
— |
|
3,387 |
|
|||||
|
Minority interest |
|
1,330 |
|
— |
|
— |
|
— |
|
1,330 |
|
|||||
|
Total liabilities |
|
351,410 |
|
236,068 |
|
9,925 |
|
(163,868 |
) |
433,535 |
|
|||||
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Special Stock Series E |
|
12 |
|
— |
|
— |
|
— |
|
12 |
|
|||||
|
Common Stock |
|
4,996 |
|
478 |
|
1,027 |
|
(1,505 |
) |
4,996 |
|
|||||
|
Treasury stock |
|
(501 |
) |
— |
|
— |
|
— |
|
(501 |
) |
|||||
|
Additional paid-in capital |
|
163,267 |
|
190,449 |
|
33,415 |
|
(223,864 |
) |
163,267 |
|
|||||
|
Accumulated other comprehensive income (loss) |
|
1,287 |
|
1,290 |
|
1,267 |
|
(2,557 |
) |
1,287 |
|
|||||
|
Retained earnings (accumulated deficit) |
|
(77,431 |
) |
102,767 |
|
39,281 |
|
(142,048 |
) |
(77,431 |
) |
|||||
|
Total stockholders’ equity |
|
91,630 |
|
294,984 |
|
74,990 |
|
(369,974 |
) |
91,630 |
|
|||||
|
|
|
$ |
443,040 |
|
$ |
531,052 |
|
$ |
84,915 |
|
$ |
(533,842 |
) |
$ |
525,165 |
|
See accompanying unaudited notes.
17
December 31, 2003
(In 000’s)
|
|
|
Parent |
|
Guaranteeing |
|
Non- |
|
Reclas- |
|
Alliance |
|
|||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cash and cash equivalents |
|
$ |
44,883 |
|
$ |
18,897 |
|
$ |
8,474 |
|
$ |
— |
|
$ |
72,254 |
|
|
Accounts and notes receivable, net |
|
674 |
|
80,005 |
|
26,705 |
|
(653 |
) |
106,731 |
|
|||||
|
Inventories, net |
|
— |
|
34,473 |
|
5,195 |
|
(394 |
) |
39,274 |
|
|||||
|
Deferred tax assets, net |
|
26,423 |
|
11,638 |
|
— |
|
— |
|
38,061 |
|
|||||
|
Other current assets |
|
844 |
|
7,367 |
|
1,172 |
|
— |
|
9,383 |
|
|||||
|
Total current assets |
|
72,824 |
|
152,380 |
|
41,546 |
|
(1,047 |
) |
265,703 |
|
|||||
|
Long-term investments (restricted) |
|
— |
|
2,611 |
|
— |
|
— |
|
2,611 |
|
|||||
|
Long-term receivables, net |
|
167,287 |
|
5,933 |
|
— |
|
(166,047 |
) |
7,173 |
|
|||||
|
Notes receivables from Sierra Design Group |
|
61,025 |
|
— |
|
— |
|
— |
|
61,025 |
|
|||||
|
Leased gaming equipment, net |
|
— |
|
30,221 |
|
— |
|
— |
|
30,221 |
|
|||||
|
Property, plant and equipment, net |
|
73 |
|
22,480 |
|
37,323 |
|
— |
|
59,876 |
|
|||||
|
Goodwill, net |
|
(900 |
) |
48,333 |
|
18,792 |
|
— |
|
66,225 |
|
|||||
|
Intangible assets, net |
|
6,923 |
|
17,416 |
|
4,744 |
|
— |
|
29,083 |
|
|||||
|
Investments in subsidiaries |
|
346,011 |
|
77,724 |
|
— |
|
(423,735 |
) |
— |
|
|||||
|
Deferred tax assets, net |
|
1,309 |
|
— |
|
— |
|
(1,309 |
) |
— |
|
|||||
|
Assets of discontinued operations held for sale |
|
39 |
|
102,866 |
|
3,981 |
|
— |
|
106,886 |
|
|||||
|
Other assets, net |
|
(106,940 |
) |
130,181 |
|
(16,980 |
) |
(26 |
) |
6,235 |
|
|||||
|
|
|
$ |
547,651 |
|
$ |
590,145 |
|
$ |
89,406 |
|
$ |
(592,164 |
) |
$ |
635,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Accounts payable |
|
$ |
260 |
|
$ |
18,162 |
|
$ |
2,211 |
|
$ |
— |
|
$ |
20,633 |
|
|
Accrued liabilities |
|
1 |
|
17,903 |
|
6,655 |
|
(691 |
) |
23,868 |
|
|||||
|
Jackpot liabilities |
|
— |
|
12,614 |
|
171 |
|
— |
|
12,785 |
|
|||||
|
Current maturities of long-term debt |
|
1,563 |
|
1,500 |
|
6 |
|
— |
|
3,069 |
|
|||||
|
Liabilities of disc operations held for sale |
|
— |
|
15,638 |
|
1,009 |
|
— |
|
16,647 |
|
|||||
|
Total current liabilities |
|
1,824 |
|
65,817 |
|
10,052 |
|
(691 |
) |
77,002 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Long term debt, net |
|
418,438 |
|
169,566 |
|
— |
|
(165,787 |
) |
422,217 |
|
|||||
|
Deferred tax liabilites |
|
— |
|
5,680 |
|
1,635 |
|
(1,309 |
) |
6,006 |
|
|||||
|
Other liabilities |
|
2,624 |
|
2,424 |
|
— |
|
— |
|
5,048 |
|
|||||
|
Minority interest |
|
1,216 |
|
— |
|
— |
|
— |
|
1,216 |
|
|||||
|
Total liabilities |
|
424,102 |
|
243,487 |
|
11,687 |
|
(167,787 |
) |
511,489 |
|
|||||
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Special Stock Series E |
|
12 |
|
— |
|
— |
|
— |
|
12 |
|
|||||
|
Common Stock |
|
5,033 |
|
478 |
|
1,027 |
|
(1,505 |
) |
5,033 |
|
|||||
|
Treasury stock |
|
(501 |
) |
— |
|
— |
|
— |
|
(501 |
) |
|||||
|
Additional paid-in capital |
|
167,724 |
|
190,449 |
|
33,415 |
|
(223,864 |
) |
167,724 |
|
|||||
|
Accumulated other comprehensive income (loss) |
|
3,940 |
|
3,944 |
|
3,921 |
|
(7,865 |
) |
3,940 |
|
|||||
|
Retained earnings (accumulated deficit) |
|
(52,659 |
) |
151,787 |
|
39,356 |
|
(191,143 |
) |
(52,659 |
) |
|||||
|
Total stockholders’ equity |
|
123,549 |
|
346,658 |
|
77,719 |
|
(424,377 |
) |
123,549 |
|
|||||
|
|
|
$ |
547,651 |
|
$ |
590,145 |
|
$ |
89,406 |
|
$ |
(592,164 |
) |
$ |
635,038 |
|
See accompanying unaudited notes.
18
UNAUDITED CONSOLIDATING STATEMENTS OF OPERATIONS
Three months ended December 31, 2002
(In 000’s)
|
|
|
Parent |
|
Guaranteeing |
|
Non- |
|
Reclas- |
|
Alliance |
|
|||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Gaming equipment and systems |
|
$ |
— |
|
$ |
83,616 |
|
$ |
12,304 |
|
$ |
(9,293 |
) |
$ |
86,627 |
|
|
Casino operations |
|
— |
|
— |
|
13,186 |
|
(1,586 |
) |
11,600 |
|
|||||
|
|
|
— |
|
83,616 |
|
25,490 |
|
(10,879 |
) |
98,227 |
|
|||||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Cost of gaming equipment and systems |
|
— |
|
39,835 |
|
9,076 |
|
(9,248 |
) |
39,663 |
|
|||||
|
Cost of casino operations |
|
— |
|
— |
|
5,223 |
|
— |
|
5,223 |
|
|||||
|
Selling, general and administrative |
|
2,623 |
|
15,440 |
|
5,641 |
|
(1,609 |
) |
22,095 |
|
|||||
|
Research and development costs |
|
— |
|
4,159 |
|
999 |
|
— |
|
5,158 |
|
|||||
|
Depreciation and amortization |
|
542 |
|
3,766 |
|
539 |
|
— |
|
4,847 |
|
|||||
|
|
|
3,165 |
|
63,200 |
|
21,478 |
|
(10,857 |
) |
76,986 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Operating income (loss) |
|
(3,165 |
) |
20,416 |
|
4,012 |
|
(22 |
) |
21,241 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Earnings in consolidated subsidiaries |
|
17,590 |
|
954 |
|
— |
|
(18,544 |
) |
— |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Interest income |
|
3,099 |
|
— |
|
11 |
|
(3,031 |
) |
79 |
|
|||||
|
Interest expense |
|
(6,501 |
) |
(3,064 |
) |
(20 |
) |
3,031 |
|
(6,554 |
) |
|||||
|
Rainbow royalty |
|
1,458 |
|
— |
|
(1,458 |
) |
— |
|
— |
|
|||||
|
Minority interest |
|
(309 |
) |
— |
|
— |
|
— |
|
(309 |
) |
|||||
|
Other, net |
|
665 |
|
(58 |
) |
(341 |
) |
— |
|
266 |
|
|||||
|
Income (loss) from continuing operations before income taxes |
|
12,837 |
|
18,248 |
|
2,204 |
|
(18,566 |
) |
14,723 |
|
|||||
|
Income tax expense |
|
4,261 |
|
636 |
|
1,250 |
|
— |
|
6,147 |
|
|||||
|
Net income (loss) from continuing operations |
|
8,576 |
|
17,612 |
|
954 |
|
(18,566 |
) |
8,576 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||