Lack of new casinos hurts nation’s No. 2 slot maker

David Strow

Friday, May 5, 2000 | 11:06 a.m.

Alliance Gaming Corp. reported continued financial struggles today, though the nation's second-largest slot maker said it is closing in on the sale of United Coin Co., the largest slot route operator in Nevada.

Alliance reported a net loss of $9.1 million, or 89 cents per share, for the quarter ending March 31. In the year-ago quarter, Alliance recorded net income of $800,000, or 8 cents per share.

The 2000 quarter's results included a $4.1 million charge from restructuring activities.

Alliance's cash flow also declined 26 percent, to $11.4 million. Revenues fell 7 percent to $117.5 million.

The earnings decline was partly slowed by growth in Alliance's slot route operations and casino operations -- both business units put on the sales block by the Las Vegas company. Today, Alliance hinted it was close to a sale of its Nevada slot routes.

"(Alliance) is in the final stages of negotiations for the sale of its Nevada route business unit, United Coin Machine Co.," the company's earnings statement said. "The sale is contingent upon the buyer's completion of due diligence and the approval of various regulatory bodies."

Alliance did not identify the buyer or the price it was willing to pay for United Coin. Proceeds would be used to reduce Alliance's $348 million debt load.

But the other assets for sale, Vicksburg, Miss.-based Rainbow Casino and the Rail City Casino in Sparks, have now been removed from the block, Alliance said.

"The company did not receive any bids that it felt were reasonable given these properties' financial performance," the Alliance release said. "The company will no longer pursue selling these assets at this time."

A key element in Chief Operating Officer Bob Miodunski's strategy to turn around Alliance is the sale of assets to reduce the company's heavy debt load -- a load he believes is the major reason Alliance stock has languished over the past year. The debt resulted in $8.8 million in interest expenses during the quarter, up 8.6 percent from the year-ago period.

The casinos and route operations were a bright spot in an otherwise dismal quarter.

The two casinos produced $7.7 million in cash flow for the company in the quarter, a 26 percent increase over the year-ago period. Revenues rose 18 percent to $19.4 million. These results made the casino unit the most profitable producer for Alliance during the quarter.

Alliance attributed its gains to a 35 percent increase in the number of games at Rainbow Casino, and a 25 percent increase in net win per machine at Rail City.

Route operations, which include United Coin and slot routes in Louisiana, saw a 16 percent increase in revenues, to $53.5 million. Cash flow rose a more modest 1.5 percent, to $6.6 million. Revenues rose as a result of a 20 percent increase in the number of installed games in Nevada. The company now has about 8,000 machines installed throughout the state.

Bally Gaming & Systems, the company's slot manufacturing division, struggled during the quarter, as revenues fell 32 percent to $26 million. Cash flow dropped 85 percent to $700,000, and the unit recorded an operating loss of $1.2 million. Alliance said sales fell as a result of no new casino openings during the quarter.

Bally Wulff, Alliance's German amusement game unit, also continued to struggle, reporting negative cash flow of $100,000 and an operating loss of $1.6 million. Revenues fell 25 percent to $18.7 million. These declines were caused by a 26 percent decline in unit shipments, Alliance said, and fluctuations in the exchange rate between the dollar and the deutschemark.

Alliance said it is starting to cut back on its overseas presence, reducing its workforce in South Africa and Australia in March. The company took a $4 million charge during the quarter as a result.

"The company believes that the limited return on investment potential does not justify and did not warrant the size of the company's operations in these areas," Alliance said.

The company also announced it has sold its rights to develop and manage a tribal casino for the Ewaaiipaayp Tribe of Mission Indians in Southern California. Alliance sold the rights for $10 million and received $3 million upon closing.

Alliance traded unchanged this morning at $1.88, just shy of its 52-week low of $1.63.