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: March 31, 1999
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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
------------------- --------------------
Commission file number: 333-49717 and 333-49717-01
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ALADDIN GAMING HOLDINGS, LLC
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0379607
- ---------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
831 Pilot Road, Las Vegas, Nevada 89119
- --------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(702) 736-7114
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(Registrant's telephone number, including area code)
ALADDIN CAPITAL CORP.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0379606
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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) 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
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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 March 31, 1999.
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998................................. 1
Consolidated Statements of Operations
For the three months ended March 31, 1999 and 1998 and for the
period from inception (December 1, 1997) through March 31, 1999...... 2
Consolidated Statements of Members' Equity
For the period from inception (December 1, 1997) through March 31,
1999................................................................. 3
Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 and for the
period from inception (December 1, 1997) through March 31, 1999...... 4-5
Notes to the Consolidated Financial Statements......................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 8-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 13
Item 2. Changes in Securities and Use of Proceeds.............................. 13
Item 3. Defaults upon Senior Securities........................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.................... 13
Item 5. Other Information...................................................... 13
Item 6. Exhibits and Reports on Form 8-K....................................... 13
Signatures ....................................................................... 14
Exhibit Index ....................................................................... 15
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS)
March 31, 1999 December 31, 1998
-------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash $ 26 $ 1,248
Restricted land 6,842 6,842
Other current assets 972 1,021
---------------------- ----------------------
Total current assets 7,840 9,111
---------------------- ----------------------
Property and equipment:
Land 33,407 33,407
Furniture and equipment 304 272
Construction in progress 123,808 86,557
Capitalized interest 12,977 8,213
---------------------- ----------------------
170,496 128,449
Less accumulated depreciation 37 17
---------------------- ----------------------
170,459 128,432
---------------------- ----------------------
Other assets
Restricted cash 198,037 227,983
Other assets 3,270 2,920
Debt issuance costs, net of accumulated amortization of
$3,701 and $2,831 33,441 34,315
---------------------- ----------------------
Total other assets 234,748 265,218
---------------------- ----------------------
$ 413,047 $ 402,761
---------------------- ----------------------
---------------------- ----------------------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable 3,636 3,394
Construction payable 23,244 12,063
Obligation to transfer land 6,842 6,842
Accrued expenses 2,987 1,847
---------------------- ----------------------
Total current liabilities 36,709 24,146
---------------------- ----------------------
Long-term debt, net of discount 392,972 388,353
Related party payables and other liabilities 5,102 4,122
Members' equity:
Common membership interest 28,608 28,608
Deficit accumulated during the development stage (50,344) (42,468)
---------------------- ----------------------
Total members' equity (21,736) (13,860)
---------------------- ----------------------
$ 413,047 $ 402,761
---------------------- ----------------------
---------------------- ----------------------
The accompanying notes are an integral part of these financial statements.
1
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1999
(IN THOUSANDS)
For the period
December 1,
1997
For the three For the three (inception)
months ended months ended through
March 31, 1999 March 31, 1998 March 31, 1999
(unaudited) (unaudited) (unaudited)
---------------- ----------------- ----------------
Pre-opening costs $ 2,297 $ 11,463 $ 27,034
Other (income) expense:
Interest income (2,548) (1,585) (15,020)
Interest expense 12,891 4,388 51,307
Less: Interest capitalized (4,764) (544) (12,977)
---------------- ----------------- -----------------
Total other (income) expense 5,579 2,259 23,310
---------------- ----------------- -----------------
Net loss accumulated during the development stage $ 7,876 $ 13,722 $ 50,344
---------------- ----------------- -----------------
---------------- ----------------- -----------------
The accompanying notes are an integral part of these financial statements.
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 MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
Aladdin London
Sommer Gaming Clubs
Enterprises, Enterprises, Nevada,
LLC LLC Inc. GAI, LLC Total
------------ ------------ ------------ ----------- -----------
BALANCE, DECEMBER 1, 1997 $ - $ - $ - $ - $ -
Members' contribution 1 - - 2 3
------------ ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1997 1 - - 2 3
Net loss for the period (19,960) (10,617) (10,617) (1,274) (42,468)
Members' contributions (43,317) 28,247 50,000 - 30,930
Members' equity costs (1,093) (581) (581) (70) (2,325)
------------ ------------ ------------ ----------- -----------
BALANCE, DECEMBER 31, 1998 (68,369) 17,049 38,802 (1,342) (13,860)
Net loss for the period (3,702) (1,969) (1,969) (236) (7,876)
------------ ------------ ------------ ----------- -----------
BALANCE, MARCH 31, 1999 $ (72,071) $ 15,080 $ 36,833 $ (1,578) $ (21,736)
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
The accompanying notes are an integral part of these financial statements.
3
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1999
(IN THOUSANDS)
For the period
December 1, 1997
For the three For the three (inception)
months ended months ended through March 31,
March 31, 1999 March 31, 1998 1999
(unaudited) (unaudited) (unaudited)
------------------- ---------------------- --------------------
Cash used in operating activities $ (303) $ (9,300) $ (20,962)
------------------- ---------------------- --------------------
Cash flows from investing activities:
Payments for construction in
progress, furniture, equipment and
capitalized interest (30,865) (7,037) (105,534)
Decrease (increase) in restricted cash 29,947 (308,293) (198,036)
------------------- ---------------------- --------------------
Net cash used in investing activities (918) (315,330) (303,570)
------------------- ---------------------- --------------------
Cash flows from financing activities:
Proceeds from issuance of notes - 100,047 100,047
Proceeds from long-term debt - 274,000 274,000
Repayment of long-term debt - (45) (547)
Debt issuance costs - (37,170) (37,146)
Members' contributions - 65,000 65,003
Payment of debt on contributed land - (74,477) (74,477)
Members' equity costs - (2,325) (2,325)
Payable to related parties (1) - -
Advances to purchase membership
interests - - 3
------------------- ---------------------- --------------------
Net cash provided by financing activities (1) 325,030 324,558
------------------- ---------------------- --------------------
Net (decrease)/increase in cash (1,222) 400 26
Cash and cash equivalents at the beginning
of the period 1,248 7 26
------------------- ---------------------- --------------------
------------------- ---------------------- --------------------
Cash and cash equivalents at the end of the
period $ 26 $ 407 $ 26
------------------- ---------------------- --------------------
------------------- ---------------------- --------------------
The accompanying notes are an integral part of these financial statements.
4
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1999 -- (CONTINUED)
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest, net of amount
capitalized $ 832 $ 365 $ 12,164
Non-cash investing and financing activities:
Members' contributions - book value
Land - 33,407 33,407
Construction in progress - 7,000 7,000
Equipment acquired equal to assumption
of debt - 547 547
Increase in construction payables 11,182 - 11,182
The accompanying notes are an integral part of these financial statements.
5
ALADDIN GAMING HOLDINGS, LLC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Aladdin Gaming Holdings, LLC, a Nevada limited liability company
("Gaming Holdings"), through its wholly-owned subsidiary Aladdin Gaming, LLC
("Gaming"), is developing, constructing and will operate a new hotel and
casino, the Aladdin Hotel and Casino ("Aladdin"), 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.
The consolidated financial statements include the accounts of Gaming
Holdings and all of its subsidiaries. This information should be read in
conjunction with the financial statements set forth in Gaming Holdings'
Annual Report on Form 10-K for the year ended December 31, 1998 and the Form
8-K, dated April 27, 1999.
Accounting policies utilized in the preparation of the financial
information herein presented are the same as set forth in Gaming Holdings'
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. AMENDMENTS TO THE CREDIT AGREEMENT
On April 2, 1999, pursuant to the Bank Completion Guaranty, London
Clubs International, plc ("London Clubs") funded approximately $18.5 million
in order to bring the Main Project Budget "In Balance" (as defined in the
Credit Agreement) and the Lenders funded Gaming's March 1999 funding draw
("March Draw") under the Credit Agreement. Upon receipt of the March Draw on
April 2, 1999, Gaming immediately paid the outstanding March 1999 payment to
the Design/Builder.
On April 16, 1999, the Lenders under the Credit Agreement approved,
effective as of March 10, 1999, the Second Amendment to the Credit Agreement,
which cured or waived the events of default discussed in Gaming Holdings'
Form 10-K for the year ended December 31, 1998. Specifically, the Second
Amendment to the Credit Agreement provides: (i) the indebtedness incurred in
connection with the Aladdin Music Project has been paid by or on behalf of
Aladdin Music and this event of default has now been waived by the Lenders;
(ii) a capital contribution in the amount of approximately $18.5 million has
been made to bring the Main Project Budget "In Balance;" (iii) the
approximately $6.5 million of letters of credit, which had been previously
posted by London Clubs and the Trust Under Article Sixth u/w/o Sigmund Sommer
("Sommer Trust") to fund a
6
prior increase in the Main Project Budget (and resulting imbalance), have
been drawn and the proceeds deposited in Gaming's guaranty deposit account;
(iv) amending certain definitions of the Credit Agreement, including,
"Available Funds," "Indebtedness," and "Realized Savings;" (v) any costs in
excess of $36 million for completing the carpark associated with the project
will be funded by the Sommer Trust and London Clubs; (vi) requiring that
Gaming maintain a minimum "Net Worth" at the close of each calendar month,
until the end of the fiscal quarter during which the project opens (and then
reverting to the Credit Agreement's requirement to maintain the minimum Net
Worth on a fiscal quarterly basis thereafter), of not less than $100 million
plus 85% of positive Net Income (as defined in the Credit Agreement); and
(vii) other technical amendments to the Credit Agreement.
3. INCOME TAXES
Gaming Holdings will file federal information tax returns only. Each
member reports taxable income or loss on their respective tax returns.
4. 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,
which becomes effective in the Year 2000, but may be adopted earlier,
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. Gaming Holdings is in the process of
analyzing SFAS No. 133 and the impact on its consolidated financial position
and results of operations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with 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 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., a Nevada corporation
(25%), Sommer Enterprises, LLC, a Nevada limited liability company (72%), and
GAI, LLC, a Nevada limited liability company (3%). 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 ("Gaming Holdings
Common Membership Interests"). Sommer Enterprises, LLC ("Sommer Enterprises")
contributed a portion of land for Gaming Holdings Common Membership
Interests. Aladdin Gaming Enterprises, Inc. ("Gaming Enterprises"), which is
owned 100% by Sommer Enterprises, contributed a portion of land, $7 million
of predevelopment costs and $15 million in cash for Gaming Holdings Common
Membership Interests. 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. On November 30, 1998, the Trust Under Article Sixth u/w/o Sigmund
Sommer ("Sommer Trust") and its affiliates agreed that they shall vote their
respective Gaming Holdings Common Membership Interests and cause Gaming
Enterprises to vote its Gaming Holdings Common Membership Interests so that
(taking into account Gaming Holdings Common Membership Interests held by
London Clubs or its affiliates) London Clubs controls fifty percent of the
voting power of Gaming Holdings.
Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"),
indirectly holds a majority interest in Gaming Holdings. The members of AHL
are the Sommer Trust, which holds a 95% interest in AHL, 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 Gaming Holdings 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, a Nevada limited liability company ("Aladdin Music").
Gaming Holdings and its subsidiaries are collectively referred to herein as
"Company."
The operations of the Company have been limited to the design,
development, financing and construction of a new Aladdin 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 on Las Vegas Boulevard. The Aladdin has been designed to
include a luxury themed hotel of approximately 2,600 rooms ("Hotel"), an
approximately 116,000 square foot casino ("Casino"), an approximately
1,400-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
8
level of the Casino will be a 15,000 square foot luxurious gaming section
("The London Club") 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 the Company and Aladdin Music is currently seeking a joint
venture partner and financing for the Aladdin Music Project. The Company
believes that the completion of the Aladdin will occur during the second
quarter of the year 2000.
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. 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. Capitalized costs
include approximately $2.3 million related to the Aladdin Music Project for
necessary predevelopment costs and expenses of the Aladdin Music Project. The
Company's operating expenses primarily have consisted of interest,
amortization costs and expenses related to the Notes and pre-opening costs.
The Company 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 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 its debt payment
obligations, including the Notes and other indebtedness, and its other
obligations, there can be no assurance with respect thereto.
The Company recorded a net loss of approximately $7.9 million for
the three months ended March 31, 1999 as compared to a net loss of
approximately $13.7 million for the three month period ended March 31, 1998.
The cumulative loss for the period of inception (December 1, 1997) to March
31, 1999 was approximately $50.3 million. The Company had no operations for
the period of inception (December 1, 1997) to March 31, 1999. The losses were
due to the pre-opening costs, interest expense, amortization costs and
expenses related to the Notes. The pre-opening costs include approximately
$.5 million related to the Aladdin Music Project.
MATERIAL CHANGES IN FINANCIAL CONDITION
Through March 31, 1999, approximately $241.0 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 the Company, approximately $105.5 million in construction,
furniture, fixtures and equipment, and capitalized interest, approximately
$39.5 million in debt issuance and member equity costs, and approximately
$21.5 million in pre-opening costs, net interest expense, and other current
assets.
9
LIQUIDITY AND CAPITAL RESOURCES
On February 26, 1998, Gaming Holdings and Capital issued $221.5
million aggregate principal amount of their 13 1/2% Senior Discount Notes due
2010 ("Notes"). The proceeds to the Company from the Notes were approximately
$115.0 million. For further details on the Notes, including the covenants,
restrictions and limitations on the Company pursuant to the Notes Indenture,
see Exhibit 4.1 to the Company's Form 10-K for the year ended December 31,
1998.
Gaming has a $410 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 (collectively,
"Lenders"). The Credit Agreement consists of three separate term loans. Term
A Loan comprises a term loan of $136 million and matures seven years after
the initial borrowing date. Term B Loan comprises a term loan of $114 million
and matures eight and one-half years after the initial borrowing date. Term C
Loan comprises a term loan of $160 million and matures ten years after the
initial borrowing date. As of March 31, 1999, approximately $69.4 million of
the Term B Loan proceeds, plus accrued interest, and approximately $115.4
million of the Term C Loan proceeds, plus accrued interest, is available. The
Term A Loan has not been funded. For further details on the Bank Credit
Facility, including the covenants, restrictions and limitations on Gaming
pursuant to the Bank Credit Facility, see Exhibit 10.7 to the Company's Form
10-K for the year ended December 31, 1998 and Exhibit 10.01 to the Company's
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 10.35 to the Company's 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 the Company 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. 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.
On April 5, 1999, effective as of March 10, 1999, the Sommer Trust,
London Clubs, Bazaar Holdings and The Bank of Nova Scotia, as administrative
agent for the Lenders, entered into the First Amendment to the Completion
Guaranty, which requires the Sommer Trust, London Clubs and Bazaar Holdings
to guarantee Gaming's minimum net worth as required by the amended Credit
Agreement. Gaming Holdings
10
estimates, and has advised the Sommer Trust, London Clubs and Bazaar Holdings
that additional capital contributions of approximately $33 million will be
required to maintain such minimum net worth prior to the opening of the
Aladdin.
In connection with the development of the Mall Project, Aladdin
Bazaar will 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 is obligated to spend
no more than $36 million for the Carpark. 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: (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 Carpark; and (ii) the
Company's proportionate share of the operating costs associated with the
Carpark and other common areas.
It is anticipated that Aladdin Music will carry out an approximately
$8 million renovation to the Theater. However, because Gaming has an
obligation to have the Theater renovated and operational by the opening of
the Aladdin, to the extent a joint venture partner and financing have not
been secured for the Aladdin Music Project in time to meet this obligation,
Gaming will be required to renovate the Theater. Under the Credit Agreement,
$8 million has been designated for the Theater renovation.
The Company 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, assuming no future delays or additional
construction cost overruns, which: (i) are not covered by the $31.8 million
contingency funds, of which amount $6.8 million is provided for under the
Design/Build Contract and $25 million is provided for under the Credit
Agreement; or (ii) Fluor Corporation and/or its subsidiary Fluor Daniel, Inc.
are not responsible for pursuant to the Fluor Guaranty and the Design/Build
Contract, respectively. As of March 31, 1999, the Company has utilized
approximately $10.1 million of the $31.8 million contingency. 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, the Company
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. Although no additional financing is
contemplated, the Company 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 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.
11
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 SEC (as well as information
included in oral statements or other written statements made, or to be made,
by the Company) 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
and budgets), 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 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).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 1999, there have been no material changes in the
information which the Company reported in its Form 10-K for the year ended
December 31, 1999, regarding its market risk.
12
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Amendment No. 2 to the Employment Agreement between Aladdin Gaming,
LLC, Aladdin Gaming Holdings, LLC and James H. McKennon, dated
January 27, 1999.
10.02 Amendment No. 2 to the Employment Agreement between Aladdin Gaming,
LLC, Aladdin Gaming Holdings, LLC and Cornelius T. Klerk, dated
January 27, 1999.
10.03 Amendment No. 2 to the Employment Agreement between Aladdin Gaming,
LLC, Aladdin Gaming Holdings, LLC and Jose A. Rueda, dated
January 27, 1999.
10.04 Amendment No. 2 to the Employment Agreement between Aladdin Gaming,
LLC, Aladdin Gaming Holdings, LLC and Lee Galati, dated
January 27, 1999.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
On April 28, 1999, the Company filed a Form 8-K, dated April 27,
1999, with the United States Securities and Exchange Commission. The Form 8-K
reported on certain amendments to the Company's credit agreement and attached
revised consolidated financial statements for Aladdin Gaming Holdings, LLC
and its subsidiaries.
13
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
May 13, 1999 By: /s/ Richard J. Goeglein
---------------------------------------------------
Richard J. Goeglein, President and Chief
Executive Officer
May 13, 1999 By: /s/ Cornelius T. Klerk
---------------------------------------------------
Cornelius T. Klerk, Senior Vice President and
Chief Financial Officer
ALADDIN CAPITAL CORP.
May 13, 1999 By: /s/ Richard J. Goeglein
---------------------------------------------------
Richard J. Goeglein, Chief Executive Officer
May 13, 1999 By: /s/ Cornelius T. Klerk
---------------------------------------------------
Cornelius T. Klerk, Senior Vice President and
Chief Financial Officer
14
EXHIBIT INDEX
PAGE NO.
--------
EXHIBIT NO. DESCRIPTION
10.01 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC
and James H. McKennon, dated January 27, 1999.
10.02 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC
and Cornelius T. Klerk, dated January 27, 1999
10.03 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC
and Jose A. Rueda, dated January 27, 1999
10.04 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC
and Lee Galati, dated January 27, 1999
27.01 Financial Data Schedule
15