SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X)( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999March 31, 2000
--------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: _________________ To -------------- ----------------_________________
Commission file number: 333-49715
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ALADDIN GAMING ENTERPRISES, INC.
- -------------------------------------------------------------------------------
(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)
831 Pilot Road, Las Vegas, Nevada 89119
- ------------------------------------------------------------------------------------------------------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
(702) 736-7114
- -------------------------------------------------------------------------------
(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)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
------ -------------- -------
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of September 30, 1999.March 31, 2000.
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.
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE NO.
------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
September 30, 1999March 31, 2000 and December 31, 1998.......................................11999................................. 1
Statements of Operations
For the three and nine months ended September 30,March 31, 2000 and 1999 and 1998 and for the
period from inception (December 3, 1997) through September
30, 1999.......................................................................2March 31, 2000...... 2
Statements of Stockholders' Equity
For the period from inception (December 3, 1997) through September
30, 1999.......................................................................3March 31,
2000................................................................. 3
Statements of Cash Flows
For the ninethree months ended September 30,March 31, 2000 and 1999 and 1998 and for the
period from inception (December 3, 1997) through September 30, 1999............4March 31, 2000...... 4
Notes to the Consolidated Financial Statements.................................5-6Statements......................... 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................7-11Operations................................................ 7-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................11-12Risk............. 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................138-K....................................... 11
Signatures ................................................................................14....................................................................... 12
Exhibit Index................................................................................15Index ....................................................................... 13
i
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF SEPTEMBER 30, 1999MARCH 31, 2000 AND DECEMBER 31, 19981999
(IN THOUSANDS)
September 30, 1999March 31, 2000 December 31, 19981999
-------------- -----------------
(unaudited)
ASSETS
ASSETS
Cash $ 1 $ 1
Investment in unconsolidated affiliate 11,319 17,049
----------- -----------
11,320 17,050
----------- -----------
----------- -----------6,181 8,562
============== =================
$ 6,182 $ 8,563
============== =================
LIABILITIES AND MEMBERS' EQUITY
Payable to related party $ 46 $ 34
Common Stock:
Class A, no par value, 2,000,000 shares authorized, 1,107,500
shares issued and outstanding as of September 30, 1999March 31, 2000 and
December 31, 1998.1999.
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, 1999March 31, 2000 and December 31, 19981999. 13,247 13,247
Additional paid-in capital 14,420 14,420
Deficit accumulated during the development stage (16,351) (10,620)
----------- -----------
11,320 17,050
----------- -----------
----------- -----------(21,491) (19,108)
============== =================
$ 6,182 $ 8,563
============== =================
The accompanying notes are an integral part of these financial statements.
1
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2000 AND 1999 AND 1998
AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH SEPTEMBER 30, 1999MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the threeperiod
December 3, 1997
For the three For the nine For the ninethree (inception)
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,through
March 31, 2000 March 31, 1999 1998 1999 1998March 31, 2000
(unaudited) (unaudited) (unaudited)
(unaudited)
--------------- ------------- ------------- -------------- -------------- ----------------
Other (income) expense $ -- $ ---1 $ 1 $ 25
Equity in loss of unconsolidated affiliate 1,882 2,791 5,730 8,2142,382 1,969 21,486
Income tax expense -- -- -- --
--------------- ------------- -------------- - -
-------------- -------------- ----------------
Net loss accumulated during the
development stage 1,882 2,791 5,731 8,216
--------------- ------------- -------------$ 2,383 $ 1,970 $ 21,491
-------------- -------------- ----------------
Basic and diluted loss per share $ (.57)(0.72) $ (.84)(0.59) $ (1.72) $ (3.01)(6.47)
Shares used in per share calculation 3,322,500 3,322,500 3,322,500 2,726,154
For the period
December 3,
1997
(inception)
through
September 30,
1999
(unaudited)
---------------
Other (income) expense $ 5
Equity in loss of unconsolidated affiliate 16,346
Income tax expense --
---------------
Net loss accumulated during the development stage 16,351
---------------
Basic and diluted loss per share $ (5.56)
Shares used in per share calculation 2,938,367
The accompanying notes are an integral part of these financial statements.
2
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
THROUGH SEPTEMBER 30, 1999MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
Common
Stock Additional
Class A Paid-in Retained
and Class B Capital Earnings Total
------------ ----------- ---------- --------- --------------------
BALANCE, DECEMBER 3, 1997 $ --- $ --- $ --- $ ---
Issuance of Class A common stock,
1 share issued --- 1 --- 1
------------ ----------- ---------- --------- --------------------
BALANCE, DECEMBER 31, 1997 --- 1 --- 1
Net loss for the period -- --- - (10,620) (10,620)
Issuance of Class A common stock,
1,107,499 shares issued, and
Class B common stock, 2,215,000
shares issued 13,247 -- --- - 13,247
Issuance of Warrants to purchase
Class B common stock, 2,215,000
Warrants issued --- 15,000 --- 15,000
Equity costs from unconsolidated
affiliate --- (581) --- (581)
------------ ----------- ---------- --------- --------------------
BALANCE, DECEMBER 31, 1998 13,247 14,420 (10,620) 17,047
Net loss for the period -- -- (5,731) (5,731)
------------- - (8,488) (8,488)
----------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1999 13,247 14,420 (19,108) 8,559
Net loss for the period - - (2,383) (2,383)
----------- ---------- --------- ---------
BALANCE, SEPTEMBER 30, 1999MARCH 31, 2000 $13,247 $14,420 $(21,491) $ 13,247 $ 14,420 $(16,351) $ 11,316
------------ ----------- --------- -----------
------------ ----------- --------- -----------6,176
=========== ========== ========= =========
The accompanying notes are an integral part of these financial statements.
3
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2000 AND 1999
AND 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH SEPTEMBER 30, 1999MARCH 31, 2000
(IN THOUSANDS)
For the period
December 3, 1997
For the ninethree For the ninethree (inception)
Monthsmonths ended months ended through
September 30,March 31, 2000 March 31, 1999 September 30, 1998 September 30, 1999March 31, 2000
(unaudited) (unaudited) (unaudited)
------------------- ------------------ --------------------------------- -------------- ----------------
Cash flows used for investing activities:
Investment in unconsolidated affiliate -- (15,000)- - (15,000)
Cash flows from financing activities:
Proceeds from the issuance of stock -- --- - 1
Proceeds from the issuance of warrants --- - 15,000
15,000
------------------- ------------------ --------------------------------- -------------- ----------------
Increase in cash and cash equivalents -- --- - 1
Cash and cash equivalents at beginning of
period 1 1 --
------------------- ------------------ --------------------
-------------- -------------- ----------------
Cash and cash equivalents at end of period $1 $ 1 $ 1
$ 1
------------------- ------------------ -------------------
------------------- ------------------ -------------------============== ============== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Equity contributions - non-cash -- $ 13,247- - $ 13,247
The accompanying notes are an integral part of these financial statements.
4
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999MARCH 31, 2000
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"),
was formed on December 3, 1997. Enterprises owns a 25% interest in Aladdin
Gaming Holdings, LLC ("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' interest in Gaming Holdings has been accounted for under
the equity method.
Enterprises has no other business or activities other than its
investment in Gaming Holdings, which is a development stage company. Gaming
Holdings through its wholly-owned subsidiary,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 is developing,
constructing and will operate 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 will be located at the
center of Las Vegas Boulevard. Gaming Holdings, through its subsidiaries,
also owns 100% of Aladdin Music, LLC ("Aladdin Music"). Aladdin Music plans
to construct a second hotel and casino with a music and entertainment theme
("Aladdin Music Project") on the southeast corner of the 35-acre parcel.
Aladdin Music is currently seeking a joint venture partner and financing for
the Aladdin Music Project.
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, 1998, the Form 8-K, dated April 27, 1999, and the Form 10-Qs
for the quarters ended March 31, 1999 and June 30, 1999.
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 TAXES
Enterprises accounts for income taxes using the liability method as set
forth in the Statement of Financial Accounting Standards No. 109, 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.
5
There was no income tax expense or benefit recorded for the period from
inception (December 3, 1997) through September 30, 1999 as Enterprises is a
development stage company and the realization of any deferred tax asset is
uncertain.
3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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
delays the effective date of SFAS No. 133 from fiscal year 2000 to fiscal
year 2001. Enterprises is in the process of analyzing SFAS No. 133 and the
impact on its consolidated financial position and results of operations.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the various other reports which have been
previously 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 ACTIVITIES
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"),
was formed on December 3, 1997. Enterprises owns a 25% interest in Aladdin
Gaming Holdings, LLC ("Gaming Holdings"). Enterprise 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 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
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 1/13-1/2% 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").
The operations of Gaming Holdings and its subsidiaries have been
primarily limited to the design, development, financing and construction of a
new Aladdin Resort and Casino ("Aladdin"). The Aladdin will be the
centerpiece of an approximately 35-acre world-class resort, casino and
entertainment complex ("Complex") located on the site of the former Aladdin
hotel and casino in Las Vegas, Nevada, a premier location on Las Vegas
Boulevard. The Aladdin has been designed to include a luxury themed hotel of
approximately 2,6002,567 rooms ("Hotel"), an approximately 116,000 square foot
casino ("Casino") an approximately 1,200 seat production showroom and six
restaurants. The Casino's main gaming area will contain approximately 2,800
slot machines, 87 table games, keno and a race and sports book facility.
Included on a separate level of the Casino will be a 15,000 square foot
luxurious gaming section ("The London Club"Club at Aladdin") that is expected to
contain an additional 20 to 30 high denomination table games and
approximately 100 high denomination slot machines. The Complex, which has
been designed to promote casino traffic and to provide customers with a wide
variety of entertainment alternatives, will comprise: (i) the Aladdin; (ii)
the themed entertainment shopping mall with approximately 496,000 square feet
of retail space ("Desert Passage"); (iii) a planned second hotel and casino
with a music and entertainment theme ("Aladdin Music Project"); (iv) the
newly renovated 7,000-seat Theater of the Performing Arts ("Theater"); and
(v) 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 of Gaming Holdings and
Aladdin Music is currently seeking a joint venture partner and financing for
the Aladdin Music Project. Gaming Holdings currently believes that the
completion and opening of the Aladdin will occur during the second quarter of the yearAugust 2000.
7
RESULTS OF OPERATIONS
Enterprises has no business or activities or material assets other than
its investment in Gaming Holdings, which is a development stage company and
has no significant operations to date.
Gaming Holdings has capitalized all qualifying construction costs.
Accordingly, Gaming Holdings does not have any historical operating income.
The capitalized costs consist primarily of land contributed by certain
members of Gaming Holdings, design fees, financing and commitment fees,
construction costs and interest on qualifying assets. Capitalized costs
include approximately $2.2 million related to the Aladdin Music Project for necessary
predevelopment costs and expenses of the Aladdin Music Project. Gaming
Holdings' operating expenses primarily have consisted of interest,
amortization costs, expenses related to the Notes and pre-opening costs.
Gaming Holdings anticipates that its results of operations from
inception to the opening of the Aladdin will be adversely affected by the
expensing of pre-opening costs and interest not qualifying for capitalization
and should not be indicative of future operations. Accordingly, historical
results will not be indicative of future operating results. Future operating
results of Gaming Holdings are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond Gaming Holdings' control. While Gaming Holdings believes that the
Aladdin will be able to attract a sufficient number of patrons and achieve
the level of activity necessary to permit Gaming Holdings to meet its debt
payment obligations, including the Notes and other indebtedness, and its
other obligations, there can be no assurance with respect thereto.
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.
Enterprises recorded a net loss of approximately $1.9 million and $5.7$2.4 million for the
three and nine months ended September 30, 1999, respectively,March 31, 2000, as compared to approximately $2.8 million and $8.2$2.0 million
for the three and nine
month periodmonths ended September 30, 1998, respectively.March 31, 1999. Enterprises' cumulative loss for
the period of inception (December 3, 1997) to September 30, 1999March 31, 2000 was
approximately $16.4$21.5 million. Gaming Holdings' losses were due to the
pre-opening costs, interest expense, amortization costs and expenses related
to the Notes.
MATERIAL CHANGES IN FINANCIAL CONDITION
Through September 30, 1999,March 31, 2000, approximately $365.5$468.0 million had been expended
primarily on the development of the Aladdin, of which approximately $74.5
million had been expended on repayment of debt associated with the land
contribution to Gaming Holdings, approximately $230.7$351.0 million in
construction, furniture, fixtures and equipment, and capitalized interest,
approximately $39.5 million in debt issuance and member equity costs, and
approximately $20.8$3.0 million in pre-opening costs, net interest expense, and
other current assets.
LIQUIDITY AND CAPITAL RESOURCES
On February 26, 1998, Gaming Holdings and Capital issued $221.5 million
aggregate principal amount of their 13 1/13-1/2% Senior Discount Notes due 2010
("Notes"). The proceeds to Gaming Holdings from the Notes were approximately
$115.0 million and all the proceeds have been utilized by Gaming Holdings for
the 8
development and construction of the Aladdin. For further details on the
Notes, including the
8
covenants, restrictions and limitations on Enterprises pursuant to the Notes
Indenture, see Exhibit 10.1 to Enterprises' Form 10-K for the year ended
December 31, 1998.1999.
Gaming has a credit facility ("Bank Credit Facility" or "Credit
Agreement") with various financial institutions and The Bank of Nova Scotia
as the administrative agent for the lenders (collectively, "Lenders"). The
Credit Agreement consists of three separate term loans. The Term A Loan
comprises a term loan of $129.7 million and matures sevenfive and one-half years
after the initial borrowing date. The Term B Loan comprises a term loan of
$114 million and matures eight and one-half years after the initial borrowing
date. The Term C Loan comprises a term loan of $160 million and matures ten
years after the initial borrowing date. As of September 30, 1999,March 31, 2000, approximately
$26.1 million of the
Term B Loan proceeds, plus accrued interest, and approximately $72.1$42.3 million of the Term C Loan proceeds, plus accrued interest, is
available. The Term A
Loan has not been funded. Under the Credit Agreement,As of March 31, 2000, Gaming had $21.3
million available for its investment in Aladdin Music. However, during the
Third Quarter of 1999, pursuant to the Credit Agreement, Gaming could, and
did, allocate $15.0approximately $20.5 million of
such funds to the Theater renovation and
reducedinterest income that has been earned as the Term AB and Term C Loan by the remaining $6.3 million.proceeds
that is also available. For further details on the Bank Credit Facility,
including the covenants, restrictions and limitations on Gaming pursuant to
the Bank Credit Facility, see Exhibit 10.12 to Enterprises' Form 10-K for the
year ended December 31, 1998 and Exhibit
10.01 to Enterprises' Form 8-K, dated April 27, 1999.
Gaming has operating lease financing of up to $60 million and a term
loan facility of $20 million to obtain gaming equipment and other specified
equipment (collectively, "FF&E Financing"). For further details on the
operating lease financing and term loan facility, including the covenants,
restrictions and limitations on Gaming pursuant to the FF&E Financing, see
Exhibit 10.40 to Enterprises' Form 10-K for the year ended December 31, 1998.
Upon the later of (a) the transfer of the real property under the Mall
Project by Gaming to Aladdin Bazaar, LLC ("Aladdin Bazaar") or (b) the
commencement of Aladdin's operations, Aladdin Bazaar will execute a
promissory note of approximately $16.7 million to Gaming. Principal and
interest on the note is payable by Aladdin Bazaar to Gaming in the amount of
$2 million per year. The required payments are subordinated to various
restrictions under the Aladdin Bazaar operating agreement. Due to the
restrictions upon the payments, there can be no assurances that Gaming will
receive any payments under this note.
London Clubs, the Sommer Trust, and Aladdin Bazaar Holdings, LLC
("Bazaar Holdings"), which is owned 99% by the Sommer Trust, have entered
into a completion guaranty ("Bank Completion Guaranty") for the benefit of
the Lenders 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. From
January 1, 19992000 to September 30, 1999,March 31, 2000, there has been a total of approximately
$46.2$20.6 million in payments pursuant to the Bank Completion Guaranty, which has
been funded approximately $41.8 million by London Clubs
and approximately $4.4 million by the Sommer Trust. Pursuant to a
contribution agreement ("Contribution Agreement"), dated as of February 26,
1998, the Sommer Trust and London Clubs agreed to share all obligations under
theClubs. Gaming Holdings issued for these Bank Completion
Guaranty 75%payments (i) Series A Preferred Shares in exchange for the
contribution of such payments and 25%, respectively, and to the extent
that one of the parties could not fund its proportionate amount under the
Contribution Agreement, the other party could fund the non-contributing
party's proportionate amount.(ii) Series D Preferred Shares representing
a profits only interest in Gaming Holdings. The holders of the Notes are not
a party to 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.
During the Third Quarter of 1999, Gaming Holdings increased the Main
Project Budget by approximately $10.2 million, of which $6.2 million was
funded in the Fourth Quarter of 1999. This amount reflected an increase in
construction costs of approximately $7.6 million, an increase in pre-opening
costs of approximately $1.6 million and an increase in capitalized interest
of $1 million. Pursuant to the Bank Completion Guaranty, the Sommer Trust and
London Clubs
9
funded to Gaming approximately $1 million and $9.2 million, respectively, to
fund the Main Project Budget increase.
As required by Gaming Holdings' Operating Agreement upon advances
under the Bank Completion Guaranty, Gaming Holdings will issue, effective as
of the dates of the respective fundings, Series A Preferred Shares in the
names of Sommer Enterprises and London Clubs Nevada, Inc. in the amounts
specified in Gaming Holdings' Operating Agreement. All said shares are
required to be pledged in favor of the Lenders, and, on a subordinated basis,
the shares issued in the name of Sommer Enterprises (as well as its Common
Shares in Gaming Holdings) are required to be pledged in favor of London
Clubs.
In connection with the development of the Mall Project, Aladdin Bazaar
willagreed to reimburse Gaming approximately $14.2 million for the construction
of certain areas shared by the Aladdin and the Mall Project and the facade to
the Aladdin.Aladdin and, as of March 31, 2000, Aladdin Bazaar has paid the Company
approximately $12.0 million of this amount. Additionally, Aladdin Bazaar is
obligated to spend no more than $36 million for the Carpark. Therefore, any
cost overruns associated with these items will be
9
borne by Gaming. In addition, Gaming is obligated to pay to Aladdin Bazaar:
(i) a $3.2 million fee per year for a term of 99 years, which is adjusted
every fifth year pursuant to a consumer price index-based formula, for usage
of the Carpark; and (ii) Gaming's proportionate share of the operating costs
associated with the Carpark and other common areas.
Gaming Holdings is evaluating the amount of additional increases to
the Main Project Budget which will be necessary to complete and open the
Aladdin. The Bank Completion Guaranty requires that increases to the Main
Project Budget be funded by the Sommer Trust and London Clubs.
Gaming Holdings believes that the funds provided by the Notes, Bank
Credit Facility, FF&E Financing, London Clubs' equity contribution and
contributions pursuant to the Bank Completion Guaranty (collectively,
"Funding Transactions") will be sufficient to develop, complete and commence
operation of the Aladdin. However, there can be no assurance that the Funding
Transactions will be sufficient for the development, construction and
commencement of the Aladdin.
Following the commencement of operations of the Aladdin, Gaming Holdings
expects to fund its operating, debt service and capital needs, as currently
contemplated, with $15 million of working capital from the Funding
Transactions and operating cash flows. In addition, upon the opening of the
Aladdin, Gaming Holdings is
expected to have an aggregate of $10.0seeking a $10 million
available under a working capital facility; however, there can be no
assurance such facility will be available to Gaming Holdings, or that, if
available, the facility will be on terms favorable to Gaming Holdings.
Although no additional financing is contemplated, Gaming Holdings will
seek, if necessary and to the extent permitted under the Notes Indenture and
the terms of the Bank Credit Facility and the FF&E Financing, additional
financing through additional bank borrowings or debt or equity financings.
There can be no assurance that additional financing, if needed, will be
available to Gaming Holdings, or that, if available, the financing will be on
terms favorable to Gaming Holdings. There can also be no assurance that
estimates by Gaming Holdings of its reasonably anticipated liquidity needs
are accurate or that new business developments or other unforeseen events
will not occur, resulting in the need to raise additional funds.
YEAR 2000
Gaming Holdings and its subsidiaries are development stage companies
that are developing, constructing, and upon completion, will operate a hotel
casino. The selection of software applications, hardware and other technology
currently in use principally occurred within the last twelve months. The only
computer systems in place at the current time are several financial
applications, word processing and an internal email system that are Year 2000
compliant. Accordingly, it is not expected that Gaming Holdings will incur
significant amounts, if any, to modify its systems for Year 2000 compliance.
Further, Gaming Holdings has requested representation for software applications,
hardware or other technology
10
regarding the Year 2000 compliance by the vendors from whom Gaming Holdings
has purchased or will purchase such products.
Gaming Holdings has requested representations regarding the Year 2000
compliance from Fluor Corporation and/or its subsidiary, Fluor Daniel, the
design/builder for the Aladdin ("Design/Builder"), and has requested
Design/Builder to seek similar representations of the other contractors and
subcontractors for the construction of the Aladdin (collectively, "Contractors")
to assess the impact of Year 2000 noncompliance on the construction of the
Aladdin. Construction delays will have a significant impact on the financial
results of Gaming Holdings. There can be no assurance that the systems of the
Contractors or other companies on which the company may rely, such as vendors,
will be properly converted before the Year 2000 and that failure to convert by
another company will not have an adverse effect on Gaming Holdings' operations.
CERTAIN FORWARD LOOKING STATEMENTS
Certain information included in this Form 10-Q and other materials filed
or to be filed by Enterprises with the SECUnited 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 plans for future operations, current construction and development
activities (including completion dates, budgets and cost estimates), other
business development activities, capital spending, financing sources, the Year 2000 compliance, 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 and construction activities and costs and timing thereof,
the sources and extent of financing for the project, 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)
and application for licenses and approvals under applicable jurisdictional
laws and regulations (including gaming laws and regulations).
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Effective June 30, 1999, Gaming restructured its interest rate swap
arrangements 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 nature of the London Interbank
Offered Rate ("LIBOR"). In exchange for entering into the transaction, Gaming
received $500,000 from the counterparty in July, 1999.
Beginning June 30, 1999, Gaming has the following interest rate swaps,
interest rate ceilings and floor caps, and related notional amounts in
effect: (i) an interest rate swap with an original notional amount of $114
million increasing to a maximum of $222.5 million whereby interest is fixed
at 5.50% through March 31, 2000; (ii) after March 31, 2000, an interest rate
collar with a notional amount of $250 million, a maximum and minimum interest
rate of 7.5% and 5.15%, respectively, will go into effect and mature on
September 30, 2006; and (iii) an interest rate collar with a notional amount
of $160 million, a maximum rate of 8.00%, a minimum rate of 5.15% and a
maturity date of March 31, 2003. All rates 11
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 LIBOR
applicable to these agreements is adjusted every three months and on September 30, 1999March
31, 2000 was set at 5.51%6.18%. The fair market value of Gaming's interest rate
swaps, interest rate ceilings and floor caps as provided by the counterparty,
is a net receivable of approximately $4.6$4.1 million at October 22, 1999.March 31, 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. Gaming does
not hold or issue rate agreements for trading purposes.
12
However,
the Company considers the risk of non-performance to be minimal as the
counterparty is a member of the Bank Credit Facility.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
13On February 1, 2000, Enterprises filed a Form 8-K, dated January 28,
2000 with the United States Securities and Exchange Commission. The Form 8-K
reported the extension of the Outside Completion Deadline for the Aladdin.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALADDIN GAMING ENTERPRISES, INC.
NovemberMay 15, 19992000 By: /s/ RONALD DICTROW
--------------------------Ronald Dictrow
----------------------------------
Ronald Dictrow, Secretary
NovemberMay 15, 19992000 By: /s/ CORNELIUS T. KLERK
--------------------------
Cornelius T. Klerk,Thomas A. Lettero
----------------------------------
Thomas A. Lettero, Treasurer
1412
EXHIBIT INDEX
PAGE
EXHIBIT DESCRIPTION NO. NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
27.01 Financial Data Schedule
15
13