QuickLinks-- Click here to rapidly navigate through this documentUNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the
quarterly period ended: SEPTEMBER 30, 2000 ---------------------------------Quarterly Period Ended March 31, 2001OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from: To ------------- -------------fromtoCommission file
number:number 333-49715------------------------------------------ALADDIN GAMING ENTERPRISES, INC.
- -------------------------------------------------------------------------------- (Exact
(Exact name of registrant as specified in its charter)NEVADA 88-0379695 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3667 Las Vegas Boulevard South, Las Vegas, Nevada 89109 - ---------------------------------------------------------- ------------------ (Address of principal executive offices) (Zip Code)
Nevada
(State or other jurisdiction of
incorporation or organization)88-0379695
(I.R.S. Employer
Identification No.)
3667 Las Vegas Boulevard South
Las Vegas, Nevada
(Address of principal executive offices)
89109
(Zip Code)(702) 785-5555
- -------------------------------------------------------------------------------- (Registrant's
(Registrant's telephone number, including area code)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.
YES X NO --------- ---------Yes /X/ No / /Indicate the number of shares outstanding of the issuer's classes of common stock, as of
September 30, 2000.the latest practicable date.
Class A Common Stock, no par value, 2,000,000 shares authorized 1,107,500 issued Class B Common Stock, no par value, Non-voting, 8,000,000 shares authorized 2,215,000 issued
ALADDIN GAMING ENTERPRISES, INC.
INDEX
PAGE NO. ------------PARTPage No. Part I FINANCIAL INFORMATION
Item 1.
Financial Statements
1
Balance SheetsSeptember 30, 2000
March 31, 2001 and December 31,1999.......................................2000
1
Statements of Operations
For the threeand ninemonths endedSeptember 30,March 31, 2001 and March 31, 2000and 1999................
2
Statements of Cash Flows
For theninethree months endedSeptember 30,March 31, 2001 and March 31, 2000and 1999..........................
3
Notes to the Consolidated FinancialStatements...................................Statements
4
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results ofOperations.......................................................... 6Operations
9
Item 3.
Quantitative and Qualitative Disclosures About MarketRisk....................... 9 PARTRisk
14
Part II
OTHER INFORMATIONItem 1. Legal Proceedings................................................................ 11 Item 6. Exhibits and Reports on Form 8-K................................................. 11
15
Signatures................................................................................. 12
16
Exhibit Index................................................................................. 13
17i
PART
II. FINANCIAL INFORMATIONITEM 1 FINANCIAL STATEMENTSItem 1. Financial Statements
ALADDIN GAMING ENTERPRISES, INC.
BALANCE SHEETSAS OF SEPTEMBER 30, 2000
MARCH 31, 2001 AND DECEMBER 31,1999 (In2000
(In Thousands)
SEPTEMBER 30, 2000 DECEMBER 31, 1999 ---------------------- ---------------------- (unaudited)ASSETS Cash $ 1 $ 1 Investment in unconsolidated affiliate -- 8,562 ---------------------- ---------------------- 1 8,563 ====================== ====================== LIABILITIES AND MEMBERS' EQUITY Payable to related party $ 6 $ 4 Common Stock: Class A, no par value, 2,000,000 shares authorized, 1,107,500 shares issued and outstanding as of September 30, 2000 and December 31, 1999. Class B, no par value and non-voting 8,000,000 shares authorized, 2,215,000 shares issued and outstanding, and 2,215,000 shares reserved pursuant to the warrant agreement as of September 30, 2000 and December 31, 1999. 13,247 13,247 Additional paid-in capital 14,420 14,420 Deficit accumulated during the development stage (27,672) (19,108) ---------------------- ---------------------- 1 8,563 ====================== ======================
March 31, 2001 December 31, 2000 (unaudited) ASSETS Cash and cash equivalents $ 1 $ 1 Investment in unconsolidated affiliate — — $ 1 $ 1 LIABILITIES AND STOCKHOLDER'S
EQUITY/(DEFICIT)
Payable to related party
$
6
$
6
Common Stock:
Class A, no par value, 2,000 shares authorized, 1,107,500 shares issued and outstanding as of March 31, 2001 and December 31, 2000 Class B, no par value and non-voting 8,000,000 shares authorized, 2,215,000 shares issued and outstanding, and 2,215,000 shares reserved pursuant to the warrant agreement as of March 31, 2001 and December 31, 2000 13,247 13,247
Additional paid-in capital
14,420
14,420
Accumulated deficit
(27,672
)
(27,672
)$ 1 $ 1 The accompanying notes to financial statements are an integral part of these financial statements.
1
ALADDIN GAMING ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREEAND NINEMONTHS ENDEDSEPTEMBER 30,MARCH 31, 2001 AND MARCH 31, 2000AND 1999 (In
(In Thousands exceptpershare data)
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 (UNAUDITED) ( UNAUDITED) (UNAUDITED) (UNAUDITED) ------------------ ---------------- ----------------- ----------------Other (income) expense $ - $ - $ 1 $ 1 Equity in loss of unconsolidated affiliate 4,715 1,882 8,563 5,730 ------------------ ---------------- ----------------- ---------------- Net loss accumulated during the development stage 4,715 1,882 8,564 5,731 ------------------ ---------------- ----------------- ---------------- Basic and diluted loss per share $ (1.42) $ (.57) $ (2.58) $ (1.72) Shares used in per share calculation 3,322,500 3,322,500 3,322,500 3,322,500
For the three
months ended
March 31, 2001For the three
months ended
March 31, 2000(unaudited) (unaudited) Other expense $ — $ (1 )
Equity in loss of unconsolidated
—
(2,382
)
Income tax expense (benefit)
—
—
Net loss
$
—
$
(2,383
)
Basic and diluted loss per share
$
—
$
(.72
)
Shares used in per share calculation
3,322,500
3,322,500
The accompanying notes to financial statements are an integral part of these financial statements.
2
ALADDIN GAMING ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
FOR THENINETHREE MONTHS ENDEDSEPTEMBER 30,MARCH 31, 2001 AND MARCH 31, 2000AND 1999 (In
(In Thousands)
FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30 2000 SEPTEMBER 30, 1999 (UNAUDITED) (UNAUDITED) ------------------- ----------------------Cash flows used for investing activities: Investment in unconsolidated affiliate - - Cash flows from financing activities: Proceeds from the issuance of stock - - Proceeds from the issuance of warrants - - ------------------- ---------------------- Increase in cash and cash equivalents - - Cash and cash equivalents at beginning of period 1 1 ------------------- ---------------------- Cash and cash equivalents at end of period $ 1 $ 1 =================== ======================
For the Three
months ended
March 31, 2001For the Three
months ended
March 31, 2000(unaudited) (unaudited) Cash flows from operating activities: Net loss $ — $ (2,383 ) Loss of unconsolidated affiliate — 2,382 Increase in related party payable — 1
Net cash used in operating activities
—
—
Cash flows used for investing activities: Investment in unconsolidated affiliate — —
Cash flows from financing activities:
Proceeds from the issuance of stock — — Proceeds from the issuance of warrants — — Net cash provided by financing activities — — Net increase in cash and cash equivalents — —
Cash and cash equivalents at beginning of period
1
1
Cash and cash equivalents at end of period $ 1 $ 1 The accompanying notes to these financial statements are an integral part of these financial statements.
3
ALADDIN GAMING ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2000
March 31, 20011.
ORGANIZATION AND BUSINESSOrganization and BusinessAladdin Gaming Enterprises, Inc., a Nevada corporation ("Gaming Enterprises"),
was formed on December 3, 1997. Enterprises owns a 25% interesthas no other business activity other than its investment in Aladdin Gaming Holdings, LLC ("Gaming Holdings") and Gaming Enterprises' sole material asset is 25% of the common membership interests of Gaming Holdings ("Holdings Common Membership Interests").EnterprisesGaming Holdings iswholly owned by Sommer Enterprises,a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is aNevada limited liability companywholly-owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of the Gaming Holdings 131/2% Senior Discount Notes ("Sommer Enterprises"Notes"). Capital does not have any material operations or assets and has no revenues.Aladdin Holdings, LLC, a Delaware limited liability company ("
Holdings"AHL"), indirectly holds a majority interest inSommer Enterprises.Gaming Holdings. The members ofHoldingsAHL are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust"), which holds a 95% interest inHoldings,AHL, and GW Vegas, LLC, a Nevada limited liability company,("GW"),a wholly owned subsidiary of the Trust Company of the West,("TCW"),which holds a 5% interest in AHL.As of March 31, 2001, Holdings Common Membership Interests were held 39.953125% by London Clubs Nevada Inc ("LCNI"), a subsidiary of London Clubs International plc ("London Clubs"); 31.859375% by Sommer Enterprises, LLC, a Nevada limited liability company ("Sommer Enterprises"), which is a subsidiary of AHL; 25.0% by Gaming Enterprises, which is a subsidiary of Sommer Enterprises; 3.0% by GAI, LLC, a Nevada limited liability company, which is owned by Richard J. Goeglein, the President and Chief Executive Officer of Gaming Holdings; and 0.1875% by Jose Rueda, a former executive of Gaming Holdings.
Except where the context otherwise requires, Gaming Holdings and its subsidiaries are collectively referred to herein as "Company."
Much of the following information relates to Gaming Holdings and its subsidiaries and is included due to the relative significance of Gaming Holdings to Gaming Enterprises.
Until August 18, 2000, the operations of the Company had been primarily limited to the design, development and construction of the new Aladdin Resort and Casino ("Aladdin"). The Aladdin, which commenced operations on August 18, 2000, is the centerpiece of an approximately 35-acre world-class resort, casino and entertainment complex ("Complex") located at the center of Las Vegas Boulevard. The Aladdin includes a luxury themed hotel of approximately 2,600 rooms, an approximately 116,000 square foot casino and six restaurants.
The Complex is comprised of: (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (iv) an approximately 4,800 space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project is separately owned in part by an affiliate of the Sommer Trust.
Enterprises' interest in Gaming Holdings has been accounted for under the equity method. However, Enterprises has discontinued applying the equity method as the investment in Gaming Holdings has been reduced to zero. Enterprises will resume applying the equity method after cumulative net income exceeds the unrecognized losses.
Enterprises has no other business or activities other than its investment in Gaming Holdings, which is a development stage company. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC, ("Gaming"). Gaming developed, constructed and operates a new hotel and casino, the Aladdin Resort and Casino as the centerpiece of an approximately 35-acre resort, casino and entertainment complex in Las Vegas, Nevada. The resort is located at the center of Las Vegas Boulevard. Gaming Holdings has evaluated its options in connection with an approximately 5-acre parcel of land which evaluation included: (a) seeking a joint venture partner and financing the Aladdin Music Project; or (b) selling the parcel to a third party. In October, 2000, Gaming entered into a non-binding term sheet to sell the parcel to a third party who plans on developing a 350-room five-star non-gaming hotel as well as an approximately 800,000-square-foot luxury condominium development.4
This information should be read in conjunction with the financial statements set forth in Enterprises' Annual Report on Form 10-K for the year ended December 31,
1999 and the Form 10-Q, for the quarters ended March 31 and June 30,2000.Accounting policies utilized in the preparation of the financial information herein presented are the same as set forth in Enterprises' annual financial statements except as modified for interim accounting policies. The interim consolidated financial information is unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the results for the interim periods have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year.
Certain prior period amounts have been reclassified to conform with the current period's presentation.
2.
INCOME TAXESIncome TaxesEnterprises accounts for income taxes using the liability method as set forth in the Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES.Accounting for Income Taxes. Under the liability method, deferred taxes are provided based on the temporary differences between the financial reporting basis and the tax basis of Enterprises' assets and liabilities.4There was no income tax expense or benefit recorded for the period from January 1,
20002001, throughSeptember 30, 2000March 31, 2001, as Enterprises is a development stage company and the realization of any deferred tax asset is uncertain.3.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDSImpact of Recently Issued Accounting StandardsEnterprises does not hold any derivative instruments as of March 31, 2001.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that entities record all derivatives as assets or liabilities measured at fair value, with the change in fair value recognized in earnings or in other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 amends or supercedes several current accounting statements. In July, 1999, the FASB issued SFAS No. 137 which
delaysdelayed the effective date of SFAS No. 133 from fiscal year 2000 to fiscal year 2001.Enterprises isIn June 2000, the FASB issued SFAS 138 which amended certain sections of SFAS 133. During the quarter ended March 31, 2001, Gaming changed its method of accounting for interest rate collars to comply with SFAS 133. Gaming's interest rate collars do not qualify for accounting hedges according to SFAS 133, and accordingly, changes to the fair market value of the interest rate collars are recognized in earnings. On January 1, 2001, Gaming recorded a liability of $10.7 million for the fair market value of its interest rate collars at that date with a corresponding cumulative effect adjustment in theprocessCondensed Consolidated Statements ofanalyzing SFAS No. 133 and the impact on its consolidated financial position and results of operations. 4. OtherOperations. As ofNovember 9, 2000,March 31, 2001, the fair value of Gaming's interest rate collars was a liability of $19.2 million, and Gaming recorded the change in fair market value of $8.5 million to Interest Rate Collars Expense and corresponding liability in the Condensed Consolidated Financial Statements.5
4. Other
As of May 7, 2001, the Company had unrestricted funds available of approximately
$10.3$9.0 million. The estimatednext twelve months ofprincipal and interest payments pursuant to the Bank Credit Facility for the next twelve months are as follows:
12/29/00 Principal $ 5.0 million 2/1/01 Interest 11.7 million 3/29/01 Principal 5.0 million 5/1/01 Interest 11.3 millionDue Date Form Amount 6/29/01 Principal 5.0$ 4.8 million 8/1/6/29/01 Interest 11.0$ 0.1 million 7/31/01 Interest $ 8.8 million 9/28/01 Principal 6.0$ 5.8 million 9/28/01 Interest $ 0.1 million 10/31/01 Interest $ 8.8 million 12/31/01 Principal $ 5.8 million 12/31/01 Interest $ 0.1 million 1/31/02 Interest $ 8.5 million 3/31/02 Principal $ 5.8 million 3/31/02 Interest $ 0.1 million 5/1/02 Interest $ 8.3 million TOTAL $55.0$ 57.0 million =============CashThe estimated principal and interest payments pursuant to the FF&E Facility for the next twelve months are as follows:
Due Date Form Amount 6/1/01 Principal $ .65 million 6/1/01 Lease Payment $ 3.35 million 6/1/01 Interest $ .47 million 9/3/01 Principal $ .65 million 9/3/01 Lease Payment $ 3.25 million 9/3/01 Interest $ .42 million 12/1/01 Principal $ .70 million 12/1/01 Lease Payment $ 3.24 million 12/1/01 Interest $ .40 million 3/1/02 Principal $ .70 million 3/1/02 Lease Payment $ 3.23 million 3/1/02 Interest $ .38 million TOTAL $ 17.44 million The Company estimates that unrestricted cash on hand and projected internally generated funds
may notwill be sufficient to fund the Company's current operations,and futurehowever, such amounts will not be sufficient to fund all the principal and interest payments on the Company's debt for the next twelve months. The Company and the Sponsors are seeking alternatives to improve the Company'splanned capital improvements. The Company is seeking,current liquidity, which may include incurring additional indebtedness, to the extent permitted under theNotes IndentureCompany's various credit facilities, sale of an adjacent 5-acre parcel of undeveloped land, reaching an agreement with the Company's creditors reducing the Company's liquidity needs and/or cash equity infusions. In order for the Company to fund all the principal and interest payments, the Company will6
continue to rely on payments by the Sponsors pursuant to the Keep-Well Agreement. However, there can be no assurances that the Company or the Sponsors will be able to improve the Company's current liquidity or that the Sponsors will continue to perform pursuant to the Keep-Well Agreement. In the event the Company's liquidity does not improve or that the Sponsors do not perform under the Keep-Well Agreement or that the Company is unable to reach agreements with its creditors reducing the Company's liquidity needs, there would be serious doubt as to whether or not the Company and/or Enterprises will be able to continue as going concerns. The Company's and Enterprises' auditors have included an explanatory paragraph in their opinion for the year ended December 31, 2000, which expresses substantial doubt about the Company's and Enterprises' ability to continue as going concerns.
On March 30, 2001, Gaming and the
terms ofvarious lenders under the Bank Credit Facility amended the Bank Credit Facility. This amendment provided: (a) a waiver of Gaming's compliance with the Total Debt to EBITDA Ratio, the Interest Coverage Ratio and the EBITDA covenants required pursuant to the Bank Credit Facility for the fiscal quarters ending on or prior to March 31, 2001; (b) a waiver until August 18, 2001 of the requirement to fund the FF&Efinancing, additional sourcesReserve, provided that Gaming cannot make certain Restricted Payments until the FF&E Reserve is funded as otherwise required by the Bank Credit Facility; (c) a waiver offinancing, if needed, through additional bank borrowing or debt or equity financingthe default that otherwise would have occurred as a result of a "going concern" qualification to the Company's auditor's report in respect of the Company's financial statements for the fiscal year ended December 31, 2000; (d) amendments to Gaming's following financial covenants (i) Total Debt to EBITDA Ratio: Quarter ended March 31, 2001, 6.4:1.0; Quarter ended June 30, 2001, 6.0:1.0; Quarter ended September 30, 2001, 6.0:1.0; and Quarter ended December 31, 2001, 5.1:1.0; (ii) Interest Coverage Ratio: Quarter ended March 31, 2001, 1.6:1.0; Quarter ended June 30, 2001, 1.6:1.0; Quarter ended September 30, 2001, 1.6:1.0; and Quarter ended December 31, 2001, 1.7:1.0; (iii) EBITDA: Quarter ended March 31, 2001, $75 million; Quarter ended June 30, 2001, $80 million; Quarter ended September 30, 2001, $80 million; and Quarter ended December 31, 2001 $90 million; and (e) for certain other technical and/or definitional amendments to further the above waivers and amendments. The foregoing is qualified in its entirety by the "Sixth Amendment to Credit Agreement," dated March 30, 2001. There can be no assurances that Gaming can comply with the revised financial covenant levels. Absent an improvement in Gaming's operating results or cash equity contributionsby London Clubs and the Sommer Trustto Gaming pursuant to the Keep-Well Agreement,and/or Completion Guaranty, discussed below. However, there canGaming estimates that, based on its results year-to-date, it may not beno assurance thatin compliance with theCompany will be able to secure alternative sources of financing, or if able to do so, that such financing will be sufficient to meetrevised financial covenant levels for theCompany's anticipated needs.quarter ended June 30, 2001.London Clubs International plc ("London Clubs"), the Sommer Trust,
andAladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is indirectly owned 99% by the Sommer Trust, Jack Sommer, the Company's Chairman of the Board, andJack andhis spouse Laura Sommerindividually, have entered intoare guarantors under a completion guaranty ("Bank Completion Guaranty") for the benefit of theLenderslenders under the Bank Credit Facility, under which they have agreed to guarantee, among other things, the completion of the Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar limitations. For payments made pursuanttoof the Bank Completion Guaranty, Gaming Holdings issues (i) Series A Preferred Shares in exchange for the contribution of such payments and (ii) Series D Preferred Shares representing a profits-only interest in Gaming Holdings. The holders of the Notes are nota partyentitled to the benefit of the Bank Completion Guaranty, however, London Clubs, the Sommer Trust and Bazaar Holdings have entered into a limited completion guaranty for the benefit of the Noteholders ("Noteholder Completion Guaranty") under which they guarantee completion of the Aladdin, subject to certain important exceptions, limitations and qualifications. The Noteholder Completion Guaranty contains certain intercreditor provisions which significantly limit the rights of the Trustee under the Noteholder Completion Guaranty. There can be no assurance that the parties to either the Bank Completion Guaranty or the Noteholder Completion Guaranty will be able to make such payments to the Company if required pursuant to these agreements.7
AHL,
AladdinBazaar HoldingsLLC ("Bazaar Holdings"),and London Clubsand Sommer Trust haveentered into the Keep-Well Agreement ("Keep-Well Agreement") in favor of theLenderslenders under theGamingBank5Credit Facility. The Sommer Trust joined and became a party to the Keep-Well Agreement in July, 2000 (collectively, AHL, Bazaar Holdings, London Clubs and the Sommer Trust, "Sponsors"). The Keep-Well Agreement is the joint and several agreement of the partiesSponsors to make certain quarterly cash equity contributions tothe CompanyGaming ifthe CompanyGaming fails to comply with the Minimum Fixed Charge Coverage Ratio set forth in the Bank Credit Facility, but in no event shall the aggregate cash equity contributions required to be made in any fiscal year ofthe CompanyGaming exceed $30.0 million. Based on Gaming's financial results for the quarter ended March 31, 2001, it is estimated that approximately $13.3 million will be due from the Sponsors under the Keep-Well Agreement ("First Quarter 2001 Keep-Well Payment"). During May, 2001, the Sponsors partially funded the First Quarter 2001 Keep-Well Payment as follows: $1.9 million Sommer Trust; andsuch obligations continue until the satisfaction of certain conditions. In exchange for such cash equity contributions, the Company will issue Series A or B Preferred Membership Interests. The Company's Operating Agreement makes provision for adjustment of the proportion of Gaming Holdings' Common Membership Interests held by the Sommer Trust and London Clubs for circumstances where the portion of payment made by either party is in excess of 25% with respect to$1.5 million London Clubs and75% with respect to Sommer Enterprises.the Sponsors collectively had previously pre-funded $1.2 million on March 30, 2001. The $8.7 million remaining balance of the First Quarter 2001 Keep-Well Payment is due on or before May 29, 2001. There can be noassuranceassurances thatAHL, Bazaar Holdings, Sommer Trust and/the Sponsors will, orLondon Clubswill be able to, makesuchfurther cash equity contributions tothe CompanyGaming if required pursuant to the Keep-Well Agreement.6ITEM8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion should be read in conjunction with, and is qualified in its entirety by, the various other reports which have been
previouslyby Aladdin Gaming Enterprises, Inc., and Aladdin Gaming Holdings, LLC filed with the United States Securities and Exchange Commission ("SEC"), which may be inspected, without charge, at the Public Reference Section of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 or the SEC internet site address: http://www.sec.gov.DEVELOPMENT ACTIVITIESGeneral
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), was formed on December 3, 1997. Enterprises owns a 25% interest in Aladdin Gaming Holdings, LLC (and including its subsidiaries, "Gaming Holdings"). Enterprises is wholly owned by Sommer Enterprises, LLC, a Nevada limited liability company ("Sommer Enterprises"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings") holds a majority interest in Sommer Enterprises. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly-owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings.
Enterprises has no business or activities other than its investment in Gaming Holdings, which is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred membership interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is a wholly-owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of Gaming Holdings 13
1/2%1/2% Senior Discount Notes ("Notes"). Capital does not have any material operations or assets and does not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music").Until August, 2000, theThe operations of Gaming Holdings
havehad been primarily limited to the design, development, financing and construction, and as of August 18, 2000, the operation of the new Aladdin Resort and Casino ("Aladdin"), which opened August 18, 2000.. The Aladdin is the centerpiece of an approximately 35-acre resort, casino and entertainment complex ("Complex"). The Aladdin includes aluxury-themedhotel of approximately 2,567 rooms ("Hotel"), an approximately 116,000 square foot casino ("Casino"), five restaurants and one leasedrestaurant which began operations on November 4, 2000. As of November 6, 2000, therestaurant. The Casino's main gaming area contains approximately2,5712,165 slot machines, 68 table games, keno and a race and sports book facility. Included on a separate level of the Casino is a 15,000 square foot luxurious gaming section ("The London Club at Aladdin") that contains an additional2830 high denomination table games and approximately8085 high denomination slot machines. The Hotel will contain an approximately 32,000 square foot spa, which is currently being constructed, and will be operated, by a subsidiary of Steiner Leisure Limited, and is expected to be completed in the fourth quarter, 2001. The Complex comprises: (i) the Aladdin; (ii) the themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) the 7,000-seat Theater of the Performing Arts ("Theater"); and (iv) the approximately 4,800-space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project is separately owned in part by an affiliate ofGaming Holdings.the Sommer Trust.Except where the context otherwise requires, Gaming Holdings
has evaluatedand itsoptions in connection with an approximately 5-acre parcel of land which evaluation included: (a) seeking a joint venture partner and financing for a second hotel casino; or (b) selling the parcelsubsidiaries are collectively referred toa third party. In October, 2000, Gaming entered into a non-binding term sheet to sell the parcel to a third party who plans on developing a 350-room five-star non-gaming hotelherein aswell as an approximately 800,000-square-foot luxury condominium development. There can be no assurance that Gaming will reach definitive agreement on the terms of such sale. In October, 2000, Gaming entered into a fifteen-year lease with an 7option to renew for an additional five years with a subsidiary of Steiner Leisure Limited ("SLL"), wherein SLL shall construct, equip and operate an approximately 32,000 square foot spa and fitness center at the Aladdin. RESULTS OF OPERATIONS"Company."Enterprises has no business or activities or material assets other than its investment in Gaming Holdings. Because Enterprises' only material asset is its 25% interest in Gaming Holdings, Enterprises records 25% of Gaming Holdings' losses and preferred dividends in arrears as equity in loss of unconsolidated affiliate.
9
Results of Operations
Three Months Ended March 31, 2001Until August 18, 2000,
Gaming Holdingsthe Company was in the development stage and did not have any historical operating income as there were no operating revenues.Gaming Holdings'Prior to August 18, 2000, the Company's operating expenses primarilyhaveconsisted of interest, amortization costs, expenses related to the Notes and pre-opening costs. Due to the short operating period, there will not be a comparative discussion of prior periods included in this Form 10-Q. Historical results may not be indicative of future operating results.THREE MONTHS ENDED SEPTEMBER 30, 2000 Gaming Holdings operated forty-four days duringFor the
thirdquarterof 2000 producingended March 31, 2001, the Aladdin produced gross revenues of$40.6$82.5 million. Casino revenue (which includes both the maincasinoCasino and The London Club at Aladdin) represented48%40% of gross revenue, hotel28%,34% of gross revenue, food and beverage21%,22% of gross revenue, and entertainment and other revenue 4%.of gross revenue. The net loss for the quarter was$40.2$47.2 millioninclusiveincluding the recording ofpre-opening expenses totaling $19.2 million. REVENUESan Accumulated effect of change in accounting principle expense of $10.7 million and an Interest rate collar expense of $8.5 million related to the adoption of SFAS No. 133.Revenues
The Casino revenues (inclusive of The London Club at Aladdin) of
$19.4$33.1 million were derived$11.0$15.8 million from slot operations,$8.2$16.8 million from table games and$.2$.5 million from other sources of gaming revenue. The London Club at Aladdin produced$4.0$7.3 million ofcasinoCasino revenues,$3.1$6.7 million from table games and$.9$.6 million from slot operations.The overall table games gross win percentage was
15.7%14.5% for theforty-four day periodquarter ended March 31, 2001, while the average daily win per table game was$1,658. This trend improved during October, 2000, as$2,115. The Company expects thetable gamesnormal gross win percentageincreasedto be approximately34% and the17.5% for table games. The overall average slot gross dailywin per table game increased to approximately $5,200. The London Club at Aladdin produced table game revenue of $10.9 million while the main casino provided $4.9 million during October, 2000. The average daily slotwin per unit was$90$86 during theforty-four day period.quarter ended March 31, 2001.During
October, 2000,March 2001, theaverageCompany hired two new Casino marketing executives, who have been focused on slot and table games marketing. Casino marketing efforts have been focused on enhancing the customer data base, implementing an aggressive direct mail program and increasing the number of entertainment events in the Theater for Performing Arts and Casino events and promotions. The Company also completed a reconfiguration of the slot gaming floor. The Company believes such redesign has improved the competitiveness of the slot machine product and has enhanced customer traffic flow. Currently, the Company operates approximately 2,250 slot machines and 98 table games. Slot gross dailyslotwin per unitdecreasedimproved during the quarter from $72 in January, 2001, to$80. Gaming Holdings has implemented$101 in March, 2001. The Company estimates the new programs andpromotions aimed at improvingslot gaming floor reconfiguration will continue to improve Casino revenuesand increasingduring thesize of its database.second quarter 2001. There can be no assurances that such improvement will be significant or that other negative factors could arise offsetting such improvement.The
slot floor layout is also in the process of being redesigned with the intention to enhance traffic flow and customer satisfaction. Management anticipates the number of slot machines to be reduced from approximately 2,800 to 2,400. At 2,800 slot machines, Gaming Holdings had a substantially higher ratio of slot machines to hotel rooms than its competition. In an effort to capitalize on the unique gaming and dining facilities located within The London Club at Aladdin, Gaming Holdings has aggressively pursued the premium customer markets both internationally and domestically. Gaming Holdings offers competitive incentives to specific premium customers in their markets. 8Gaming HoldingsCompany experienced hotel occupancy of77%89.5% at an average daily rate of$130$139 during theforty-four day period.quarter ended March 31, 2001. During the quarter ended March 31, 2001, the Company completed organizational changes to its marketing and advertising functions with the implementation of new media and advertising campaigns. The Companydid not book any substantial convention groups until October, 2000. In addition,increased occupancy from 78% in January, 2001, to 90% and 99% for February and March, 2001, respectively. Occupancy trends are expected to continue in theproperty experienced normal issues relating to95% range during theinitial occupancy of the facilities. These issues were resolved during September, 2000. Gaming Holdings believes the occupancysecond quarter 2001.Costs and
average daily rate were negatively impacted by the lack of free and independent traveler demand and the lack of booking convention room occupancy. This trend improved significantly during October, 2000, as hotel occupancy increased to 94% and the average daily rate increased to approximately $135.ExpensesThe Company
has experienced an improvement in convention occupancy, freecontinued its cost containment andindependent traveler demand and casino room night bookings beginning the first quarter of 2001. OTHER FACTORS AFFECTING EARNINGS Gaming Holdings incurred pre-opening expenses of $19.2 million during the first forty-four days of operations. Gaming Holdings expenses pre-opening costs as incurred. Gaming Holdings has implementedprofit enhancement programsfocusingduring the quarter ended March 31, 2001. The programs primarily focused onthe generation of additional revenues while improving operational efficiency.labor efficiency and procurement activities.10
The
full-timeCompany reduced its full time equivalent number of employeeshas decreasedfrom approximately 4,500atupon opening of the Aladdin to approximately3,5003,050 as ofNovember 5, 2000.May 7, 2001, which the Company believes will result in approximately $10.0 million of annual labor cost savings. There can be no assurances that savings realized will be significant or that other negative factors could arise off setting such improvement.Other Factors Affecting Earnings
On January 1, 2001, the
measures implemented will significantly improve Gaming Holdings' resultsCompany adopted the SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." The Company recorded a liability ofoperations. NINE MONTHS ENDED SEPTEMBER 30, 2000 As indicated above, Gaming Holdings operated forty-four days$19.2 million representing the fair market value of its interest rate collars at March 31, 2001. Corresponding to the adoption of SFAS No. 133, the Company recorded a $10.7 million accumulated effect of change in accounting principle and $8.5 million interest rate collar expense on the Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2001.Liquidity and Capital Resources
During the quarter ended March 31, 2001, the Company generated net cash of approximately $1.1 million from operating activities and raised $10.8 million from the Sponsor's contributions pursuant to the Keep-Well Agreement requirement related to the quarter ended December 31, 2000. The combined funds were utilized primarily to fund principal payments of $5.6 million. The unrestricted cash balance during the
entire nine month period. Accordingly, operating revenues wereperiod increased approximately $5.3 million to $25.5 million as of March 31, 2001. On May 3, 2001, thesame as indicated forCompany made its scheduled interest payment of approximately $11.3 million related to thethree months ended and the net loss was $52.6 million, inclusive of pre-opening expenses totaling $31.6 million. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 2000, approximately $356.1 million had been expended primarily on the development of the Aladdin, of which approximately $332.6 million has been expended in construction, furniture, fixtures and equipment, and capitalized interest, approximately $4.1 million in debt issuance and member equity costs, and approximately $19.4 million in pre-opening costs, net interest expense, and other current assets.Bank Credit Facility.As of
November 9, 2000, Gaming HoldingsMarch 31, 2001, the Company estimated that remaining project construction payables were $11.6 million. During May, 2001, the Company utilized restricted funds to pay approximately $8.0 million toward the project construction costs, The Company anticipates utilizing $3.6 million of restricted funds during the second quarter 2001 to satisfy all remaining construction related payables.As of May 7, 2001, the Company had unrestricted funds available of
$10.3approximately $9.0 million. The estimatednext twelve months ofprincipal and interest payments pursuant to the Bank Credit Facility for the next twelve months are as follows:
12/29/00 Principal $ 5.0 million 2/1/01 Interest 11.7 million 3/29/01 Principal 5.0 million 5/1/01 Interest 11.3 millionDue Date Form Amount 6/29/01 Principal 5.0$4.8 million 8/1/6/29/01 Interest 11.0$0.1 million 7/31/01 Interest $8.8 million 9/28/01 Principal 6.0$5.8 million 9/28/01 Interest $0.1 million 10/31/01 Interest $8.8 million 12/31/01 Principal $5.8 million 12/31/01 Interest $0.1 million 1/31/02 Interest $8.5 million 3/31/02 Principal $5.8 million 3/31/02 Interest $0.1 million 5/01/02 Interest $8.3 million TOTAL $55.0$57.0 million =============Cash11
The estimated principal and interest payments pursuant to the FF&E Facility for the next twelve months are as follows:
Due Date Form Amount 6/1/01 Principal $.65 million 6/1/01 Lease Payment $3.35 million 6/1/01 Interest $.47 million 9/3/01 Principal $.65 million 9/3/01 Lease Payment $3.25 million 9/3/01 Interest $.42 million 12/1/01 Principal $.70 million 12/1/01 Lease Payment $3.24 million 12/1/01 Interest $.40 million 3/1/02 Principal $.70 million 3/1/02 Lease Payment $3.23 million 3/1/02 Interest $.38 million TOTAL $17.44 million The Company estimates that unrestricted cash on hand and projected internally generated funds
maywill be sufficient to fund the Company's current operations, however, such amounts will not be sufficient to fundGaming Holdings' operations and futureall the principal and interest payments onGaming Holdings'the Company's debt for the next twelve months. The Company andGaming Holdings' planned capital improvements. Gaming Holdings isthe Sponsors are seeking alternatives to improve the Company's current liquidity, which may include incurring additional indebtedness, to the extent permitted under theNotes IndentureCompany's various credit facilities, sale of an adjacent 5-acre parcel of undeveloped land, reaching an agreement with the Company's creditors reducing the Company's liquidity needs and/or cash equity infusions. In order for the Company to fund all the principal and interest payments, the Company will continue to rely on payments by the Sponsors pursuant to the Keep-Well Agreement. However, there can be no assurances that the Company or the Sponsors will be able to improve the Company's current liquidity or that the Sponsors will continue to perform pursuant to the Keep-Well Agreement. In the event the Company's liquidity does not improve or that the Sponsors do not perform under the Keep-Well Agreement or that the Company is unable to reach agreements with its creditors reducing the Company's liquidity needs, there would be serious doubt as to whether or not the Company and/or Enterprises will be able to continue as going concerns. The Company's and Enterprises' auditors have included an explanatory paragraph in their opinion for the year ended December 31, 2000, which expresses substantial doubt about the Company's and Enterprises' ability to continue as going concerns.On March 30, 2001, Gaming and the
terms ofvarious lenders under the Bank Credit Facility amended the Bank Credit Facility. This amendment provided: (a) a waiver of Gaming's compliance with the total debt to EBITDA ratio, the interest coverage ratio and the EBITDA covenants required pursuant to the Bank Credit Facility for the fiscal quarters ending on or prior to March 31, 2001; (b) a waiver until August 18, 2001, of the requirement to fund the FF&Efinancing, additional sourcesreserve, provided that Gaming cannot make certain restricted payments until the FF&E reserve is funded as otherwise required by the Bank Credit Facility; (c) a waiver offinancing, if needed, through additional bank borrowingthe default that otherwise would have occurred as a result of a "going concern" qualification to the Company's auditor's report in respect of the Company's financial statements for the fiscal year ended December 31, 2000; (d) amendments to certain of Gaming's financial covenants. The foregoing is qualified in its entirety by the "Sixth Amendment to Credit Agreement," dated March 30, 2001. There can be no assurances that Gaming can comply with the revised financial covenant levels. Absent an improvement in Gaming's operating results ordebt orcash equityfinancing and/orcontributionsby London Clubs and the Sommer Trustto Gaming pursuant to the Keep-Well Agreement,and/or Completion Guaranty, discussed below. However, there canas defined below, Gaming estimates that, based on its results year-to-12
date, it may not be
no assurance that Gaming Holdings will be ablein compliance with the revised financial covenant levels for the quarter ended June 30, 2001. Corresponding amendments and waivers have been made tosecure alternative sources of financing, or if able to do so, that such financing will be sufficient to meet Gaming Holdings' anticipated needs.the FF&E Facility.London Clubs International plc ("London Clubs"), the Sommer Trust,
andAladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is indirectly owned 99% by the Sommer Trust, Jack Sommer, the Company's Chairman of the Board, andJack andhis spouse Laura Sommerindividually, have entered intoare guarantors under a completion guaranty ("Bank Completion Guaranty") for the benefit of theLenderslenders under the Bank Credit Facility, under which they have agreed to guarantee, among other things, the completion of the Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar limitations. For payments made pursuanttoof the Bank Completion Guaranty, Gaming Holdings issues (i) Series A Preferred Shares in exchange for the contribution of such payments and (ii) Series D Preferred Shares representing a profits-only interest in Gaming Holdings. The holders of the Notes are nota partyentitled to the benefit of the Bank Completion Guaranty, however, London Clubs, the Sommer Trust and Bazaar Holdings have entered into a limited completion guaranty for the benefit of the Noteholders ("Noteholder Completion Guaranty") under which they guarantee completion of the Aladdin, subject to certain important exceptions, limitations and qualifications. The Noteholder Completion Guaranty contains certain intercreditor provisions which significantly limit the rights of the Trustee under the Noteholder Completion Guaranty. There can be no assurance that the parties to either the Bank Completion Guaranty or the Noteholder Completion Guaranty will be able to make such payments to the Company if required pursuant to these agreements.AHL, Bazaar Holdings and London Clubs entered into the Keep-Well Agreement ("Keep-Well Agreement") in favor of the lenders under the Bank Credit Facility. The Sommer Trust joined and became a party to the Keep-Well Agreement in July, 2000 (collectively, AHL, Bazaar Holdings, London Clubs and the Sommer Trust,
have entered into the Keep-Well Agreement in favor of the Lenders under the Gaming Bank Credit Facility."Sponsors"). The Keep-Well Agreement is the joint and several agreement of thepartiesSponsors to make certain quarterly cash equity contributions to GamingHoldingsif GamingHoldingsfails to comply with the Minimum Fixed Charge Coverage Ratio set forth in the Bank Credit Facility, but in no event shall the aggregate cash equity9contributions required to be made in any fiscal year of Gaming Holdingsexceed $30.0 million. Based on Gaming's financial results for the quarter ended March 31, 2001, it is estimated that approximately $13.3 million will be due from the Sponsors under the Keep-Well Agreement ("First Quarter 2001 Keep-Well Payment"). During May, 2001, the Sponsors partially funded the First Quarter 2001 Keep-Well Payment as follows: $1.9 million Sommer Trust; andsuch obligations continue until the satisfaction of certain conditions. In exchange for such cash equity contributions, Gaming Holdings will issue Series A or B Preferred Membership Interests. Gaming Holdings' Operating Agreement makes provision for adjustment of the proportion of Gaming Holdings' Common Membership Interests held by the Sommer Trust and London Clubs for circumstances where the portion of payment made by either party is in excess of 25% with respect to$1.5 million London Clubs and75% with respect to Sommer Enterprises.the Sponsors collectively pre-paid $1.2 million on March 30, 2001. The $8.7 million remaining balance of the First Quarter 2001 Keep-Well Payment is due on or before May 29, 2001. There can be noassuranceassurances thatAHL, Bazaar Holdings, Sommer Trust and/the Sponsors will, orLondon Clubswill be able to, makesuchfurther cash equity contributions to GamingHoldingsif required pursuant to the Keep-Well Agreement.CERTAIN FORWARD LOOKING STATEMENTSMarket Risk
Beginning July 20, 2000, Gaming has the following interest rate derivative financial instruments in effect: (i) an interest rate collar with an amortizing notional amount of $245.7 million ($232.8 million at March 31, 2001), a maximum and minimum interest rate of 8.00% and 6.25%, respectively, and a maturity date of June 30, 2005, (ii) an interest rate collar with an amortizing notional amount of $159.2 million ($158.0 million at March 31, 2001), a maximum rate of 8.00%, a minimum rate of 6.25% and a maturity date of June 30, 2005; (iii) an interest rate collar with a notional amount of $50 million, a maximum rate of 8.00%, a minimum rate of 6.25%, and a maturity of June 30, 2005. All rates noted above are the three-months LIBOR equivalents only and do not include the impact of the basis point additions to LIBOR that are used in calculating interest expense on Gaming's term loans. The fair market value of Gaming's interest rate derivative financial instruments as provided by the counterparty, is a net payable of approximately $19.2 million at March 31, 2001, which is included in the Company's Condensed Consolidated Financial Statements.
13
The notional amounts do not represent amounts exchanged by the parties, and thus are not a measure of exposure of Gaming. The amounts exchanged are based on the notional amounts and other terms of the swaps. The variable rates are subject to change over time as LIBOR fluctuates.
Neither Gaming nor the counterparty, which is a prominent financial institution, is required to collateralize their respective obligations under these swaps. Gaming is exposed to loss if the counterparty defaults. However, the Company considers the risk of non-performance to be minimal as the counterparty is a member of the Bank Credit Facility.
Gaming has a credit facility with various financial institutions which consists of four separate term loans. Gaming pays interest on each term loan at LIBOR plus between 150 and 300 basis points. Gaming has entered into the collar instruments discussed above to assist in managing interest variability on its long-term debt. If the notional amounts on the collar differs from the long-term debt balances, Gaming may be exposed to additional interest rate variability. On the aforementioned collar instruments, Gaming will pay the hedge counterparty to the extent that the three-month LIBOR drops below 6.25% and will receive payments from the hedge counterparty to the extent the three-month LIBOR exceeds 8.0% on the then outstanding notional amount of such instruments.
Certain Forward Looking Statements
Certain information included in this Form 10-Q and other materials filed or to be filed by Enterprises with the United States Securities and Exchange Commission (as well as information included in oral statements or other written statements made, or to be made, by Enterprises) contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include, without limitation, those relating to the Bank Credit Facility, FF&E Facility, the Keep-Well Agreement and other agreements, plans for future operations, current
operating activities,operations, other business development activities, capital spending, financing sources and the effect of regulation (including gaming and tax regulations) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by, or on behalf of, Enterprises. These risks and uncertainties include, but are not limited to, those relating to the current development andfutureoperations, the Company's liquidity and the extent of the Company's alternatives thereto, the sources and extent offinancing,the Sponsors' liquidity and the Sponsors' payments under the Keep-Well Agreement, dependence on existing management, leverage and debt service,(including sensitivity to fluctuations in interest rates),domestic or international economic conditions,(including sensitivity to fluctuations in foreign currencies),changes in federal or state tax laws or the administration of such laws, changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions) andapplication forretention of licenses and approvals under applicable jurisdictional laws and regulations (including gaming laws and regulations).ITEMItem 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 10Effective July 20, 2000, Gaming restructured its interest rate collar arrangementsQuantitative and Qualitative Disclosures About Market RiskThere is incorporated by reference the information appearing under the caption "Market Risk" in
an effort to reduce future expenditures for interest. Gaming has entered into these agreements to manage interest expense, which is subject to fluctuations due to the variable natureItem 2 ofthe London Interbank Offered Rate ("LIBOR"). In exchange for entering into the transaction, Gaming received $1,000,000 from the counterparty in July, 2000. Beginning July 20, 2000, Gaming has the following interest rate ceilings and floor caps, and related notional amounts in effect: (i) an interest rate collar with a notional amount of $245.7 million, a maximum and minimum interest rate of 8.00% and 6.25%, respectively, and a maturity date of June 30, 2005, (ii) an interest rate collar with a notional amount of $159.2 million, a maximum rate of 8.00%, a minimum rate of 6.25% and a maturity date of June 30, 2005; (iii) an interest rate collar with a notional amount of $50 million, a maximum rate of 8.00%, a minimum rate of 6.25%, and a maturity of June 30, 2005 All rates noted above are LIBOR equivalents only and do not include the impact of the basis point additions to LIBOR that are used in calculating interest expense on Gaming's term loans. The fair market value of the Gaming's interest rate ceilings and floor caps as provided by the counterparty, is a net payable of approximately $3.2 million at September 30, 2000. The notional amounts do not represent amounts exchanged by the parties, and thus are not a measure of exposure of Gaming. The amounts exchanged are normally based on the notional amounts and other terms of the swaps. The variable rates are subject to change over time as LIBOR fluctuates. Neither Gaming nor the counterparty, which is a prominent financial institution, is required to collateralize their respective obligations under these swaps. Gaming is exposed to loss if the counterparty defaults. However, Gaming Holdings considers the risk of non-performance to be minimal as the counterparty is a member of the Bank Credit Facility. 11this Form 10-Q. 14
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS In August, 2000, GamingItem 6. Exhibits and
Fluor Daniel, Inc. ("Fluor"), the design/builder of the Aladdin, entered into an agreement with regard to the arbitration between the parties previously reported in Gaming Holdings's Form 10-K for the year ended December 31, 1999. The agreement provided as follows: (a) Gaming and Fluor cease all further action against each other set forth in the arbitration between the parties except for claims against certain of Fluor's subcontractors, which Aladdin and Fluor will jointly pursue; (b) Fluor released Gaming from any claims Fluor may have against Gaming arising prior to the settlement agreement; (c) Gaming generally released Fluor from claims Gaming may have against Fluor arising prior to the settlement agreement, while Gaming preserved (i) any claims covered under applicable warranties and (ii) certain claims against Fluor but limited Gaming's recovery to that which is recovered from either certain of Fluor's subcontractors or other third parties; (d) Fluor will provide Gaming with $8 million of enumerated work at no charge to Gaming; (e) Gaming and Fluor reached agreement on various outstanding changes, and costs thereof, which represented a substantial reduction in the initial amounts claimed by Fluor for such work; and (f) payment by Gaming to Fluor of $11.1 million upon the opening of the Aladdin. Mr. Jack Sommer, the Chairman of the Gaming Holdings Board and the Gaming Board and a trustee of the Sommer Trust, and the other trustees of the Sommer Trust, are co-defendants in a legal action relating to the then existing Aladdin hotel and casino. The suit was commenced by members of the Aronow family ("Aronow Plaintiffs") in May 1995 in the Supreme Court of the State of New York, County of New York. In their complaint, the Aronow Plaintiffs alleged that Mr. Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire and develop the Aladdin hotel and casino and that Mr. Sommer breached such alleged agreement when the Sommer Trust acquired an interest in the Aladdin hotel and casino in December, 1994. The Aronow Plaintiffs are seeking (among other remedies) to impress a constructive trust upon the Sommer Trust's interest in the Aladdin hotel and casino, an accounting, compensatory damages of not less than $200 million and punitive damages of not less than $500 million. On January 27, 2000, each of the Aronow Plaintiffs' claims against the trustees was dismissed. On or about October 17, 2000, the appellate court affirmed the dismissal of the Aronow Plaintiffs' claims. If this decision stands, there can be no liability as a result of the Aronow Plaintiffs' lawsuit. It is not known at this time whether the Aronow Plaintiffs will decide to attempt to reargue or decide to seek permission to appeal, or whether any reargument or appeal would be successful. As such there is no way to evaluate the likelihood of success of any appeal. An adverse decision could have a material and adverse affect on Gaming Holdings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.01 Amendment No. 3 to the Employment Agreement of Jose Rueda, dated August 31, 2000 27.01 Financial Data Schedule (b)Reports on Form 8-K
- (a)
- Exhibits
10.01 Sixth Amendment to Credit Agreement, dated as of March 30, 2001, between Aladdin Gaming, LLC and The Bank of Nova Scotia, as the Administrative Agent for Various Financial Institutions. 10.02 First Amendment to Keep-Well Agreement, dated as of March 30, 2001, between London Clubs International plc, The Trust under Article Sixth under the will of Sigmund Sommer, Aladdin Bazaar Holdings, LLC, and Aladdin Holdings LLC and The Bank of Nova Scotia, as the Administrative Agents for Various Financial Institutions. 10.03 Agreement of Amendment No. 5, dated the 30th day of March, 2001 among General Electric Capital Corporation, for itself and as agent for certain participants, GMAC Commercial Mortgage Corporation and Aladdin Gaming, LLC.
- (b)
- Reports on Form 8-K: None.
1215
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 duly authorized.
ALADDIN GAMING ENTERPRISES, INC.
May 15, 2001
By:
/s/ THOMAS A. LETTERO
Thomas A. Lettero
Treasurer16
Exhibit
No.Description Page
No.10.01 Sixth Amendment to Credit Agreement, dated as of March 30, 2001, between Aladdin Gaming, LLC and The Bank of Nova Scotia, as the Administrative Agent for Various Financial Institutions. 10.02 First Amendment to Keep-Well Agreement, dated as of March 30, 2001, between London Clubs International plc, The Trust under Article Sixth under the will of Sigmund Sommer, Aladdin Bazaar Holdings, LLC, and Aladdin Holdings LLC and The Bank of Nova Scotia, as the Administrative Agents for Various Financial Institutions. 10.03 Agreement of Amendment No. 5, dated the 30th day of March, 2001 among General Electric Capital Corporation, for itself and as agent for certain participants, GMAC Commercial Mortgage Corporation and Aladdin Gaming, LLC. ALADDIN GAMING ENTERPRISES, INC.November 14,INDEX
ALADDIN GAMING ENTERPRISES, INC. BALANCE SHEETS MARCH 31, 2001 AND DECEMBER 31, 2000By: /s/ THOMAS A. LETTERO ------------------------------------ Thomas A. Lettero, Treasurer 13(In Thousands)
ALADDIN GAMING ENTERPRISES, INC. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 (In Thousands except share data)
ALADDIN GAMING ENTERPRISES, INC. STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 (In Thousands)
ALADDIN GAMING ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001
SIGNATURES
EXHIBIT INDEX
PAGE NO. EXHIBIT NO. DESCRIPTION - ----------- -----------10.01 Amendment No. 3 to the Employment Agreement of Jose Rueda, dated August 31, 2000 27.01 Financial Data Schedule14