UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 333-49717 and 333-49717-01
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ALADDIN GAMING HOLDINGS, LLC
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(Exact name of registrant as specified in its charter)
NEVADA 88-0379607
- ----------------------------- ---------------------------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
831 Pilot Road, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
(702) 736-7114
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(Registrant's telephone number, including area code)
ALADDIN CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA 88-0379606
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(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
831 Pilot Road, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
(702) 736-7114
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(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 NO X
------- -------
Indicate the number of shares outstanding of the issuer's
classes of common stock, as of the latest practicable date.
ALADDIN GAMING HOLDINGS, LLC
Not applicable
ALADDIN CAPITAL CORPORATION
2,500 shares of common stock, no par value as of July 30, 1998.
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE
NO.
PART I FINANCIAL INFORMATION ------
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997.............. 1
Consolidated Statements of Operations -
For the three and six months ended June 30, 1998
and for the period from inception
(December 1, 1997) through June 30, 1998......... 2
Consolidated Statements of Members'Equity -
For the six months ended June 30, 1998 and for
the period from inception (December 1, 1997)
through June 30, 1998............................ 3
Consolidated Statements of Cash Flows -
For the six months ended June 30, 1998 and for
the period from inception (December 1, 1997)
through June 30, 1998............................ 4
Notes to the Consolidated Financial Statements.... 5 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 8 - 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................. 14
Item 2. Changes in Securities and Use of Proceeds......... 14
Item 3. Defaults upon Senior Securities................... 14
Item 4. Submission of Matters to a Vote of Security
Holders.......................................... 14
Item 5. Other Information................................. 14
Item 6. Exhibits and Reports on Form 8-K.................. 14
Signatures .................................................. 15
Exhibit Index .................................................. 16
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
June 30, 1998 December 31, 1997
--------------- -----------------
(unaudited)
ASSETS
Current assets:
Cash $ 4,146,216 $ 6,895
Other current assets 676,732 -
--------------- ---------------
Total current assets 4,822,948 6,895
Property and equipment:
Land 33,407,500 -
Furniture and equipment 608,340 -
Construction in progress 41,242,822 -
Capitalized interest 2,413,929 -
--------------- ---------------
Total property and equipment 77,672,591 -
--------------- ---------------
Other assets:
Restricted cash 274,741,353 -
Restricted land 6,842,500 -
Other assets 1,995,433 -
Debt issuance costs, net of accumulated
amortization of $1,125,088 as of
June 30, 1998 35,999,019 -
--------------- ---------------
Total other assets 319,578,305 -
--------------- ---------------
Total assets $ 402,073,844 $ 6,895
=============== ===============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 165,711 $ -
Accounts payable 4,064,976 1,245
Payable to related parties 1,351,656 -
Obligation to transfer land 6,842,500 -
Accured expenses 2,848,756 -
--------------- ---------------
Total current liabilities 15,273,599 1,245
--------------- ---------------
Long-term debt 379,881,190 -
Advances to purchase membership interests 2,850 2,850
Members' equity:
Common membership interest 28,607,979 2,800
Deficit Accumulated during the
development stage (21,691,774) -
--------------- ---------------
Total members' equity 6,916,205 2,800
--------------- ---------------
Total liabilities and
members' equity $ 402,073,844 $ 6,895
=============== ===============
The accompanying notes are an integral part of this financial statement.
-1-
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH JUNE 30, 1998
For the period
For the three For the six December 31, 1997
months ended months ended (inception) through
June 30, 1998 June 30, 1998 June 30, 1998
(Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -----------------
Pre-opening costs $ 2,821,277 $ 14,284,205 $ 14,284,205
Other (income) expense:
Interest income (4,052,767) (5,637,705) (5,637,705)
Interest expense 11,071,474 15,459,203 15,459,203
Less: Interest capitalized (1,869,646) (2,413,929) (2,413,929)
-------------- -------------- ----------------
Total other (income) expense 5,149,061 7,407,569 7,407,569
-------------- -------------- ----------------
Net loss accumulated during the
development stage $ (7,970,338) $ (21,691,774) $ (21,691,774)
============== ============== ================
The accompanying notes are an integral part of this financial statement.
-2-
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997)
THROUGH JUNE 30, 1998
(UNAUDITED)
Sommer Aladdin Gaming London Clubs
Enterprises, LLC Enterprises, LLC Nevada, Inc. GAI, LLC Total
---------------- ---------------- ------------ ------------ -------------
BALANCE, DECEMBER 3, 1997 $ - $ - $ - $ - $ -
Members' contribution 669 331 - 1,800 2,800
------------- -------------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 669 331 - 1,800 2,800
Net loss accumulated during the
development stage (10,195,133) (5,422,944) (5,422,944) (650,753) (21,691,774)
Members' contributions (47,317,023) 28,247,202 50,000,000 - 30,930,179
Members' equity costs (1,092,750) (581,250) (581,250) (69,750) (2,325,000)
-------------- -------------- ------------ ------------ ------------
BALANCE, JUNE 30, 1998 $ (58,604,237) $ 22,243,339 $43,995,806 $ (718,703) $ 6,916,205
============== ============== ============ ============ ============
The accompanying notes are an integral part of this financial statement.
-3-
ALADDIN GAMING HOLDINGS, LLC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH JUNE 30, 1998
For the period
December 1, 1997
For the six month (inception) through
ended June 30, 1998 June 30, 1998
(Unaudited) (Unaudited)
--------------------- ---------------------
Cash Flows used for investing activities:
Cash used in operating activities $ (9,433,601) $ (9,433,601)
------------------ -----------------
Cash flows from investing activities:
Payments for construction in progress, furniture,
equipment and capitalized interest (36,718,115) (36,718,115)
Increase in restricted cash (274,741,353) (274,741,353)
------------------ -----------------
Net cash used in investing activities (311,459,468) (311,459,468)
------------------ -----------------
Cash flows from financing activities:
Proceeds from issuance of notes 100,047,100 100,047,100
Proceeds from long-term debt 274,000,000 274,000,000
Repayment of long-term debt (88,282) (88,282)
Debt issuance costs (37,124,107) (37,124,107)
Members' contributions 65,000,000 65,002,800
Payment of debt on contributed land (74,477,321) (74,477,321)
Members' equity costs (2,325,000) (2,325,000)
Payable to related parties - 1,245
Advances to purchase membership
Interests - 2,850
------------------ -----------------
Net cash provided by financing activities 325,032,390 325,039,285
------------------ -----------------
Net increase in cash 4,139,321 4,146,216
Cash at the beginning of the period 6,895 -
------------------ -----------------
Cash at the end of the period $ 4,146,216 $ 4,146,216
================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 3,935,793 $ 3,935,793
Non-cash investing and financing activities:
Members' contributions - book value
Land 33,407,500 33,407,500
Construction in progress 7,000,000 7,000,000
Equipment acquired equal to assumption of debt 546,976 546,976
The accompanying notes are an integral part of this financial statement.
-4-
ALADDIN GAMING HOLDINGS, LLC
and SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Holdings, LLC, a Nevada limited-liability
company ("Gaming Holdings"), was established on December 1, 1997.
Gaming Holdings was initially owned by Aladdin Gaming
Enterprises, Inc. (25%), a Nevada corporation, Sommer
Enterprises, LLC (72%), a Nevada limited-liability company, and
GAI, LLC (3%), a Nevada limited-liability company. On February
26, 1998, London Clubs International plc, through its subsidiary
London Clubs Nevada, Inc. ("LCNI"), contributed $50.0 million for
a 25% interest of Gaming Holdings common membership interests.
Sommer Enterprises, LLC contributed a portion of land for common
membership interests in Gaming Holdings. Aladdin Gaming
Enterprises, Inc. ("Gaming Enterprises") contributed a portion of
land, $7.0 million of predevelopment costs and $15.0 million in
cash for common membership interests in Gaming Holdings. After
the additional contributions, Sommer Enterprises, LLC owns 47% of
Gaming Holdings, LCNI owns 25% of Gaming Holdings, Gaming
Enterprises owns 25% of Gaming Holdings and GAI, LLC owns 3% of
Gaming Holdings.
Aladdin Holdings, LLC, a Delaware limited liability company
("Holdings"), indirectly holds a majority interest in Gaming
Holdings. The members of Holdings are the Trust Under Article
Sixth u/w/o Sigmund Sommer (the "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.
Distributions shall be made in accordance with the
respective ownership interests subject to the Company's operating
agreement.
Gaming Holdings, through its subsidiaries, plans to develop,
construct and operate a new hotel and casino, the Aladdin Hotel
and Casino (the "Aladdin"), as the centerpiece of an
approximately 35 acre world-class resort, casino and
entertainment complex in Las Vegas, Nevada. The resort will be
located at the center of Las Vegas Boulevard.
2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts
of Gaming Holdings and its subsidiaries. All significant
intercompany accounts and transactions are eliminated in
consolidation.
Gaming Holding's wholly owned subsidiaries are Aladdin
Capital Corp., a Nevada corporation, and Aladdin Gaming, LLC
("Gaming") a Nevada limited-liability company.
3. PREOPENING COSTS
Preopening costs are expensed in the period during which
they are incurred. Preopening costs include, but are not limited
to, salary related expenses for new employees and management
opening team, travel and lodging expenses, training costs,
advertising and marketing and all temporary facilities costs
(i.e. rent, insurance, utilities, etc.).
-5-
4. INCOME TAXES
The Company will file federal information tax returns only.
Each member reports taxable income or loss on their respective
tax returns.
5. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of Gaming Holdings' executive management
have purchased unvested restricted membership interests, in
aggregate, of 4.75% of Gaming Holdings. These membership
interests will vest 25% on the opening of the Aladdin and 25% on
each successive annual anniversary. As of June 30, 1998, none of
these membership interests had vested.
6. PRIVATE OFFERING
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp.
("Capital" together with Gaming Holdings, "Issuers") and Gaming
Enterprises consummated a private offering ("Offering") under
Rule 144A of the Securities Act of 1933. The private offering
consisted of 221,500 units ("Units"), each unit consisting of (i)
$1,000 principal amount of maturity of 13 1/2% Senior Discount
Notes due 2010 ("Notes") of Gaming Holdings and Capital and
(ii) 10 Warrants ("Warrants") to purchase 10 shares of Class B
non-voting Common Stock, no par value, of Gaming Enterprises.
The initial accreted value of the Notes was $519.40 per
$1,000 principal amount at maturity of the Notes. The Notes will
mature on March 1, 2010. The Notes will accrete at
13 1/2% (computed on a semi-annual bond equivalent basis) based
on the initial accreted value, calculated from February 26, 1998.
Cash interest on the Notes will not accrue prior to March 1,
2003. Thereafter, cash interest on the Notes will accrue at the
rate of 13 1/2% per annum based on the accreted value at maturity
of the Notes and will be payable semi-annually in arrears on
March 1 and September 1 of each year, commencing on September
1, 2003.
The Notes are secured by a first priority pledge of all
amounts held in a segregated construction disbursement account
(the "Note Construction Disbursement Account") and by a first
priority pledge of all the issued and outstanding Series A
Preferred Interests of Aladdin Gaming, LLC held by Gaming
Holdings. As of June 30, 1998, all of the funds in the Note
Construction Disbursement Account had been disbursed to pay
certain previously existing indebtedness, certain fees, expenses
and construction costs.
The Indenture to the Notes contains certain covenants that
(subject to certain exceptions) restrict the ability of the
Issuers and certain of their subsidiaries to, among other things:
(i) make restricted payments; (ii) incur additional indebtedness
and issue preferred stock; (iii) incur liens; (iv) pay dividends
or make other distributions; (v) enter into mergers or
consolidations; (vi) enter into certain transactions with
affiliates or (vii) enter into new lines of business.
7. LONG-TERM DEBT
On February 26, 1998, Aladdin Gaming, LLC entered into a
$410.0 million Credit Agreement ("Bank Credit Facility" or
"Credit Agreement") with various financial institutions and the
Bank of Nova Scotia as the administrative agent for the lenders.
The Credit Agreement consists of three separate term loans. Term
A Loan comprises a term loan of $136.0 million and matures seven
years after the initial borrowing date. Term B Loan comprises a
term loan of $114.0 million and matures eight and one-half years
after the initial borrowing date. Term C Loan comprises a term
loan of $160.0 million and matures ten years after the borrowing
date. The Term B Loan and the Term C Loan were funded by the
lenders on February 26, 1998 and the funds are held by Gaming for
the future development of the Aladdin. The
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Term B Loan and the Term C Loan proceeds could not be utilized
until the proceeds from the Notes were completely exhausted. As
of June 30, 1998, 100% of the Note proceeds had been utilized
and approximately $2.0 million had been drawn down on the Term
B loan and $2.8 million had been drawn down on the Term C loan.
The Term A loan has not been funded.
The Company pays interest on the term loans as follows:
Term A Loan, LIBOR plus 300 basis points until the Aladdin
commences operations, then LIBOR plus an amount between 150 basis
points and 275 basis points depending upon the Company's EBITDA
results; Term B Loan, LIBOR plus 200 basis points while the funds
are held in the cash collateral account and LIBOR plus 350 basis
points once the funds are utilized for the construction of the
Aladdin; and Term C Loan, LIBOR plus 200 basis points while the
funds are held in the cash collateral account and LIBOR plus 400
basis points once the funds are utilized for the construction of
the Aladdin. The Company has entered into various hedge
arrangements for the LIBOR as follows: (a) until Aladdin
commences operation, for the Term A Loan and the Term B Loan
LIBOR is fixed at 5.883% and for the Term C Loan LIBOR is fixed
at 6.485%; and (b) once the Aladdin has commenced operations, for
the Term A Loan and Term B Loan, the maximum LIBOR is 7.00% and
the minimum is 5.65%, and for the Term C Loan, the LIBOR has been
fixed at 6.485%. The hedge arrangements for the Term A Loan and
Term B Loan are in place until the respective loan maturity date
and for the Term C Loan the hedge arrangements are cancelable at
the call date of March 2003. No principal repayments are
required prior to the opening of the Aladdin.
On June 30, 1998, the Company entered into FF&E financing
which provides for operating lease financing of up to $60.0
million and term loan facility of $20.0 million to obtain gaming
equipment and other specified equipment. Funding under the FF&E
financing is available beginning six months prior to the
construction completion date of the Aladdin. Repayment of
principal and interest is due in quarterly installments upon the
construction completion date of the Aladdin. The term of the
operating lease financing is 36 months (with the Company having
two, one year options to renew) and the term of the loan facility
is five years. The interest rate from the funding date until the
construction of the Aladdin is completed is either 30-day LIBOR
plus 478 basis points or Prime Rate plus 275 basis points. After
the construction completion date, the interest rate shall be the
90-day LIBOR plus 478 basis points.
8. RESTRICTED LAND
Approximately 12.4 acres of land was deeded to Aladdin
Gaming, LLC on February 26, 1998, with an obligation to transfer
such land to Aladdin Bazaar, LLC at a future date. Aladdin
Bazaar, LLC intends to construct and operate a themed
entertainment shopping mall and a 4,800-space car parking
facility (the "Mall Project"). The Mall Project is expected to
be an integral part of the Aladdin entertainment complex.
9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity sections of a statement
of financial position, and is effective for financial statements
issued for fiscal years beginning after December 15, 1997. The
Company has adopted SFAS No. 130, during the three-month period
ended March 31,1998 and has determined that such adoption will
not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes additional standards for segment reporting in
financial
-7-
statements and is effective for fiscal years beginning after
December 15, 1997. The Company currently operates as one segment.
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
DEVELOPMENT ACTIVITIES
Aladdin Gaming Holdings, LLC, a Nevada limited-liability
company ("Gaming Holdings"), was established on December 1, 1997.
Gaming Holdings was initially owned by Aladdin Gaming
Enterprises, Inc. (25%), a Nevada corporation, Sommer
Enterprises, LLC (72%), a Nevada limited-liability company, and
GAI, LLC (3%), a Nevada limited-liability company. On February
26, 1998, London Clubs International plc ("London Clubs"),
through its subsidiary London Clubs Nevada, Inc. ("LCNI"),
contributed $50.0 million for a 25% interest of Gaming Holdings
common membership interests. Sommer Enterprises, LLC contributed
a portion of land for common membership interests in Gaming
Holdings. Aladdin Gaming Enterprises, Inc. ("Gaming
Enterprises") contributed a portion of land, $7.0 million of
predevelopment costs and $15.0 million in cash for common
membership interests in Gaming Holdings. After the additional
contributions, Sommer Enterprises, LLC owns 47% of Gaming
Holdings, LCNI owns 25% of Gaming Holdings, Gaming Enterprises
owns 25% of Gaming Holdings and GAI, LLC owns 3% of Gaming
Holdings.
Aladdin Holdings, LLC, a Delaware limited-liability company
("Holdings"), indirectly holds a majority interest in Gaming
Holdings. 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.
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"). Aladdin Capital Corporation ("Capital")
is a wholly owned subsidiary of Gaming Holdings and was
incorporated solely for the purpose of serving as a co-issuer of
the 13 1/2% Senior Discount Notes ("Notes"). Capital will not
have any material operations or assets and will not have any
revenues.
The operations of Gaming Holdings and its subsidiaries,
collectively known as "the Company", have been limited to the
design, development, financing and construction of a new hotel
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 at the center of the Las Vegas Boulevard ("Strip"). The
Aladdin has been designed to include a luxury themed hotel of
approximately 2,600 rooms, an approximately 116,000 square foot
casino, an approximately 1,400-seat production showroom and seven
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
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 522,000
square feet of retail space ("Desert Passage"); (iii) a second
hotel and casino with a music and entertainment theme, expected
to be known as "Sound Republic Hotel Casino" ("Sound Republic");
(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 will be
-8-
separately owned by an affiliate of the Company and Sound
Republic is expected to be owned 49% by the Company, with an
option to acquire 50% of the project. The grand opening date for
the Aladdin and the Mall Project is currently anticipated to
occur during the spring of the year 2000, with the opening of the
Sound Republic expected to occur within six months after the
opening of the Aladdin.
RESULTS OF OPERATIONS
The Company is in the development stage and has no
significant operations to date. The Company has capitalized all
qualifying construction costs except for a portion of the
interest expense incurred during the period. Accordingly, the
Company 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. The Company's operating expenses primarily have
consisted of interest, amortization costs and expenses related to
the Notes and the preopening costs of the Aladdin.
The Company anticipates that its results of operations from
inception to the grand 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 the Company are subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many
of which are beyond the Company's control. While the Company
believes that the Aladdin will be able to attract a sufficient
number of patrons and achieve the level of activity necessary to
permit the Company to meet their payment obligations, including
the Notes and other indebtedness, there can be no assurance with
respect thereto.
The Company recorded a net loss of approximately $8.0
million for the three months ended June 30, 1998 and
approximately $21.7 million for the six months ended June 30,
1998. The loss was due to the preopening costs of the Aladdin
and the interest, amortization costs and expenses related to the
Notes.
MATERIAL CHANGES IN FINANCIAL CONDITION
The $826.2 million necessary to fund the development,
financing, construction and opening of the Aladdin will be
derived from a combination of (i) borrowings of up to $410.0
million under the Bank Credit Facility (as defined below); (ii)
operating lease and loan obligations aggregating $80 million
under FF&E financing; (iii) equity contribution by LCNI of $50.0
million in cash, $7.0 million in pre-development costs incurred
and $150.0 million appraised fair market value in land by
Holdings and $115.0 million of gross proceeds from the Notes
offering; and (iv) anticipated site work reimbursement of $14.2
million.
The uses of such funds are budgeted at $826.2 million, which
includes $295.6 million for the Aladdin's construction, $107.5
million for furniture, fixtures and equipment and gaming
equipment, $135.0 million for land, $74.5 million to retire
existing debt, and the balance for other preopening costs,
working capital and financing costs. The uses of such funding
are estimates, which the Company reviews on a periodic basis.
There can be no assurances that these estimates will not change.
The Company believes that the construction budget is reasonable
and the Company has entered into a fixed or guaranteed maximum
price contract (which is subject to price adjustments if the
plans and specifications are changed) for the construction of a
substantial portion of the Aladdin. Given the risks inherent in
the construction process, however, actual construction costs may
be higher.
Through June 30, 1998 approximately $160.2 million had been
expended on development of the Aladdin, of which approximately
$74.5 million had been expended on repayment of debt associated
with the land contributed to the Company, approximately $36.7
million in construction and capitalized interest,
-9-
approximately $39.4 million in debt issuance and member equity
costs, and approximately $9.6 million in preopening costs and net
interest expense.
On February 26, 1998, Gaming Holdings, Capital ("Issuers")
and Gaming Enterprises, consummated a private offering
("Offering") under Rule 144A of the Securities Act of 1933. The
private offering consisted of 221,500 units ("Units"), each unit
consisting of (i) $1,000 principal amount of maturity of
13 1/2% Senior Discount Notes due 2010 ("Notes") of Gaming
Holdings and Capital and (ii) 10 Warrants ("Warrants") to
purchase 10 shares of Class B non-voting Common Stock, no par
value, of Gaming Enterprises.
The initial accreted value of the Notes was $519.40 per
$1,000 principal amount at maturity of the Notes. The Notes will
mature on March 1, 2010. The Notes will accrete at
13 1/2% (computed on a semi-annual bond equivalent basis) based
on the initial accreted value, calculated from February 26, 1998.
Cash interest on the Notes will not accrue prior to March 1,
2003. Thereafter, cash interest on the Notes will accrue at the
rate of 13 1/2% per annum based on the accreted value at
maturity of the Notes and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on
September 1, 2003.
The Notes are secured by a first priority pledge of all of
the issued and outstanding Series A preferred member interests of
Aladdin Gaming. As of June 30, 1998, all of the proceeds from
the Offering have been distributed to repay certain previously
existing indebtedness, construction costs and certain fees and
expenses.
The Indenture to the Notes contains certain covenants that
(subject to certain exceptions) restrict the ability of the
Issuers and certain of their subsidiaries to, among other things:
(i) make restricted payments; (ii) incur additional indebtedness
and issue preferred stock; (iii) incur liens; (iv) pay dividends
or make other distributions; (v) enter into mergers or
consolidations; (vi) enter into certain transactions with
affiliates or (vii) enter into new lines of business.
On February 26, 1998, Aladdin Gaming, LLC entered into a
$410.0 million Credit Agreement ("Bank Credit Facility" or
"Credit Agreement") with various financial institutions and the
Bank of Nova Scotia as the administrative agent for the lenders.
The Credit Agreement consists of three separate term loans. Term
A Loan comprises a term loan of $136.0 million and matures seven
years after the initial borrowing date. Term B Loan comprises a
term loan of $114.0 million and matures eight and one-half years
after the initial borrowing date. Term C Loan comprises a term
loan of $160.0 million and matures ten years after the borrowing
date. The Term B Loan and the Term C Loan were funded by the
lenders on February 26, 1998 and the funds are held by Gaming in
a cash collateral account for the future development of the
Aladdin. The Term B Loan and the Term C Loan proceeds could not
be utilized until the proceeds from the Notes were completely
exhausted. As of June 30, 1998 all of the $115.0 million of the
Note proceeds had been utilized. The proceeds from the Term B
Loan and Term C Loan have been funded and the funds placed in a
cash collateral account from which the Company withdraws amounts
monthly. As of June 30, 1998, approximately $2.0 million of the
Term B Loan had been drawn down from the cash collateral account
and approximately $2.8 million of the Term C Loan had been drawn
down from the cash collateral account; and Term A loan had not
been funded.
The Company pays interest on the term loans as follows:
Term A Loan, LIBOR plus 300 basis points until the Aladdin
commences operations, then LIBOR plus an amount between 150 basis
points and 275 basis points depending upon the Company's EBITDA
results; Term B Loan, LIBOR plus 200 basis points while the funds
are held in the cash collateral account and LIBOR plus 350 basis
points once the funds are utilized for the construction of the
Aladdin; and Term C Loan, LIBOR plus 200 basis points while the
funds are held in the cash collateral account and LIBOR plus 400
basis points once the funds are
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utilized for the construction of the Aladdin. The Company
has entered into various hedge arrangements for the LIBOR
as follows: (a) until Aladdin commences operation, for the
Term A Loan and the Term B Loan LIBOR is fixed at 5.883% and
for the Term C Loan LIBOR is fixed at 6.485%; and (b) once the
Aladdin has commenced operations, for the Term A Loan and Term B
Loan, the maximum LIBOR is 7.00% and the minimum is 5.65%, and
for the Term C Loan, the LIBOR has been fixed at 6.485%.
The hedge arrangements for the Term A Loan and Term B Loan are in
place until the respective loan maturity date and for the Term C
Loan the hedge arrangements are cancelable at the call date of
March 2003. No principal repayments are required prior to the
opening of the casino.
On June 30, 1998, the Company entered into FF&E financing
which provides for operating lease financing of up to $60.0
million and term loan facility of $20.0 million to obtain gaming
equipment and other specified equipment. Funding under the FF&E
financing is available beginning six months prior to the
construction completion date of the Aladdin. Repayment of
principal and interest is due in quarterly installments upon the
construction completion date of the Aladdin. The term of the
operating lease financing is 36 months (with the Company having
two, one year options to renew) and the term of the loan facility
is five years. The interest rate from the funding date until the
construction of the Aladdin is completed is either the 30-day
LIBOR plus 478 basis points or the Prime Rate (as defined) plus
275 basis points. After the construction completion date, the
interest rate shall be the 90-day LIBOR plus 478 basis points.
London Clubs, the Sommer Trust, and Aladdin Bazaar Holdings,
LLC ("Bazaar Holdings"), a subsidiary of 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. The holders of
the Notes are not party to the Bank Completion Guaranty, however,
London Clubs, the Sommer Trust and Bazaar Holdings have entered
into a limited completion guarantee 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.
London Clubs, Holdings and Bazaar Holdings have entered into
the Keep-Well Agreement for the benefit of the bank lenders.
Pursuant to the Keep-Well Agreement, London Clubs, Holdings and
Bazaar Holdings have agreed to contribute funds to the Company to
ensure the Company's compliance with certain financial ratios and
other requirements under the Bank Credit Facility for the period
up to the earlier of the date on which the Company complies with
all the financial covenants set forth in the Bank Credit Facility
for six consecutive quarterly periods from and after the
Conversion Date or the date on which the aggregate outstanding
principal amounts of the Bank Credit Facility are reduced below
certain amounts and prior to certain dates, subject to certain
conditions.
In connection with the development of the Mall Project,
Aladdin Bazaar, LLC, will only reimburse the Company
approximately $14.2 million for the construction of certain areas
shared by the Aladdin and the Mall Project and the facade to the
Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to spend
no more than $36.0 million for a car park associated with the
Aladdin project. Therefore, any cost overruns associated with
these items will be borne by the Company. In addition, the
Company is obligated to pay to Aladdin Bazaar, LLC (i) a $3.2
million fee per year for a term of 99 years, which is adjusted
annually pursuant to a consumer price index-based formula, for
usage of the car park and (ii) the Company's proportionate share
of the operating costs associated therewith.
The funds provided by the funding transactions are expected
to be sufficient to develop, complete and commence operations of
the Aladdin, assuming no delays or construction cost overruns,
which are not
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covered by the $31.8 million contingency or Fluor Corporation
and/or its subsidiary Fluor Daniel, the design/builder for
the Aladdin. As of June 30, 1998, the Company expended
approximately $1.8 million of the contingency. It is not expected
that additional external funding will need to be obtained in
order to develop and commence the operations of the Aladdin.
However, there can be no assurance that such funds will be
sufficient for the development, construction and commencement of
the Aladdin.
Following the commencement of operations of the Aladdin, the
Company expects to fund its operating, debt service and capital
needs, as currently contemplated, with $15.0 million of working
capital from the funding transactions and operating cash flows.
In addition, upon the opening of the Aladdin, the Company is
expected to have an aggregate of $10.0 million available under a
working capital facility. Although no additional financing is
contemplated, the Company will seek, if necessary and to the
extent permitted under the Note Indenture and the terms of the
Bank Credit Facility, 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 the Company, or that, if available, the financing will be on
terms favorable to the Company. There can also be no assurance
that estimates by the Company 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
The Company and its subsidiaries are development stage
companies that are developing, constructing, and upon completion
(currently anticipated to occur in the spring of the year 2000),
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 e-mail
system that are Year 2000 compliant. Accordingly, it is not
expected that the Company will incur significant amounts, if any,
to modify its systems for Year 2000 compliance.
The Company has requested representations regarding Year
2000 compliance from Fluor Corporation and/or its subsidiary
Fluor Daniel, the design/builder for the Aladdin (the
"Design/Builder"), and through Design/Builder will seek similar
representations of the other contractors and subcontractors for
the construction of the Aladdin (collectively, the "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 the Company.
Notwithstanding, the Company has entered into a guaranteed
maximum price contract with the Design/Builder for the
construction of the Aladdin that contains liquidated damages
provisions in the event that the substantial completion of the
construction of the Aladdin is not completed by the contract
time, as defined by, and adjusted pursuant to, the Design/Build
Contract. 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 the Company's operations.
START-UP ACTIVITIES
In April 1998, the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 REPORTING ON THE COSTS OF START-UP
ACTIVITIES ("SOP 98-5). The provisions of SOP 98-5 are effective
for fiscal years beginning after December 15, 1998 and require
that the costs associated with start-up activities (including
preopening costs of casinos) be expensed as incurred. SOP 98-5
permits early adoption in fiscal years for which annual financial
statements have not yet been issued.
Effective January 1, 1998 the Company has adopted the
provisions of SOP 98-5.
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CERTAIN FORWARD LOOKING STATEMENTS
Certain information included in this Form 10-Q and other
materials filed or to be filed by the Company with the Securities
and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the
Company) contains 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 relating to plans for future
operations, construction and development, other business
development activities, capital spending, financing sources, 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 the Company. These risks and
uncertainties include, but are not limited to, those relating to
development and construction activities, 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).
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
As of June 30, 1998, the Company did not hold any
investments in market risk sensitive instruments.
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PART II Other Information
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) On July 24, 1998, Aladdin Gaming Holdings, LLC and
Aladdin Capital Corp. (collectively, "Company") offered
("Exchange Offer"), subject to certain terms and conditions, to
exchange $1,000 in principal amount of its 13 1/2% Series B
Senior Discount Notes due 2010 ("New Notes") for each $1,000 in
principal amount of its outstanding 13 1/2% Series A Senior
Discount Noted due 2010 ("Old Notes"), of which an aggregate
principal amount of $221.5 million is outstanding.
Under the terms of the Exchange Offer, the Company agreed to
accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on August 25,
1998, unless extended. The Exchange Offer is subject to the
terms and provisions of the Note Registration Rights Agreement,
dated February 26, 1998, among the Company, Merrill Lynch, Pierce
Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation, CIBC Oppenheimer Corp. and Scotia Capital Market
(USA) Inc.
The Old Notes were, and the New Notes will also be, issued
pursuant to an Indenture, dated February 26, 1998, among the
Company and State Street Bank and Trust Company, as trustee. The
terms of the New Notes are identical in all material respects to
the Old Notes, except that the Old Notes (but not the New Notes)
provide that the certain liquidated damages if a registration
statement has not been filed or is not effective by a certain
deadline, liquidated damages will accrue.
Item 3. DEFAULTS UPON SENIOR SECURTITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Facilities Agreement between General Electric
Capital Corporation and Aladdin Gaming, LLC
dated June 26, 1998.
10.02 Intercreditor Agreement by and among The Bank
of Nova Scotia, General Electric Capital
Corporation and Aladdin Gaming, LLC dated as
of June 30, 1998.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrants have duly caused this report to
be signed on their behalf by the undersigned thereunto duly
authorized.
ALADDIN GAMING HOLDINGS, LLC
August 14, 1998 By: /s/ Richard J. Goeglein
-------------------------
Richard J. Goeglein,
President and Chief
Executive Officer
August 14, 1998 By: /s/ Cornelius T. Klerk
-------------------------
Cornelius T. Klerk,
Senior Vice President and
Chief Financial Officer
ALADDIN CAPITAL CORPORATION
August 14, 1998 By: /s/ Richard J. Goeglein
-------------------------
Richard J. Goeglein,
Chief Executive Officer
August 14, 1998 By: /s/ Cornelius T. Klerk
-------------------------
Cornelius T. Klerk,
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
PAGE
EXHIBIT NO. DESCRIPTION NO.
- ----------- ----------- ---
10.01 Facilities Agreement between General Electric 17
Capital Corporation and Aladdin Gaming, LLC
dated June 26, 1998.
10.02 Intercreditor Agreement by and among The Bank 200
of Nova Scotia, General Electric Capital
Corporation and Aladdin Gaming, LLC dated as
of June 30, 1998.
27.01 Financial Data Schedule. 235
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