<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1995
------------------------------------------------
[_] 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: 1-9481
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SAHARA GAMING CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0304348
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2535 LAS VEGAS BLVD. SOUTH, LAS VEGAS, NEVADA 89109
--------------------------------------------------------------------------------
(Address of principal executive office and zip code)
(702) 737-2111
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
------ -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,194,433 as of August 10, 1995
---------------------------------- ---------------------------------------
Amount Outstanding Date
<PAGE>
SAHARA GAMING CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance sheets at June 30, 1995
(unaudited) and September 30, 1994 2
Statements of Operations for the three and nine
months ended June 30, 1995 and 1994
(unaudited) 3
Statement of Changes in Stockholders' Equity
for the nine months ended June 30, 1995
(unaudited) 4
Statements of Cash Flows for the nine months
ended June 30, 1995 and 1994 (unaudited) 5
Notes to Consolidated Condensed Financial
Statements (unaudited) 6
Independent Accountants' Review Report 16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
PART II. OTHER INFORMATION 32
1
<PAGE>
Sahara Gaming Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1995 1994
------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 28,522,584 $ 55,582,503
Accounts receivable, net 7,236,991 7,907,050
Accounts receivable, officer 532,537 500,525
Inventories 2,712,634 2,787,397
Prepaid expenses & other 7,361,706 7,323,786
------------ ------------
Total current assets 46,366,452 74,101,261
Restricted cash - less current portion 19,148,156 23,079,791
Property and equipment, net 307,150,377 314,470,366
Goodwill 47,855,067 48,835,414
Deferred income taxes 5,865,665 0
Other assets 16,826,053 18,068,605
------------ ------------
Total assets $443,211,770 $478,555,437
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 46,882,936 $ 23,238,239
Accounts payable 8,591,578 6,790,785
Interest payable 4,185,155 11,589,574
Accrued and other liabilities 14,190,597 15,970,810
------------ ------------
Total current liabilities 73,850,266 57,589,408
Deferred income taxes 0 4,945,335
Long-term debt - less current portion 354,731,508 379,092,885
Stockholders' Equity:
Common Stock, $.01 par value; authorized-100,000,000
shares; issued and outstanding-6,194,433 shares 61,944 61,944
Preferred stock, exchangeable, redeemable 8% cumulative,
stated at $2.14 liquidation value, authorized-10,000,000
shares; issued and outstanding-7,570,895 shares at
Sept. 30, 1994 and 7,873,223 at June 30, 1995 16,848,697 16,201,715
Additional paid-in capital 51,513,504 51,513,504
Accumulated deficit (53,706,375) (30,761,580)
------------ ------------
Total 14,717,770 37,015,583
Less treasury stock - 4,875 shares, at cost (87,774) (87,774)
------------ ------------
Total stockholders' equity 14,629,996 36,927,809
------------ ------------
Total liabilities and stockholders' equity $443,211,770 $478,555,437
============ ============
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
Sahara Gaming Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Casino $38,549,416 $39,578,592 $116,098,061 $116,663,568
Hotel 10,723,398 9,914,779 30,904,657 29,368,802
Food and beverage 8,295,366 8,361,174 24,021,492 24,250,536
Other revenues 5,972,648 6,890,470 18,490,308 20,100,556
----------- ----------- ------------ ------------
Total revenues 63,540,828 64,745,015 189,514,518 190,383,462
----------- ----------- ------------ ------------
Operating expenses:
Casino 18,621,432 17,061,649 54,012,108 51,345,432
Hotel 4,735,177 4,746,107 13,192,624 13,313,472
Food and beverage 10,716,256 10,335,860 30,640,753 29,212,907
Other operating expenses 3,388,588 3,176,465 10,390,944 10,138,273
Selling, general & administrative 7,866,806 7,370,051 23,137,043 22,201,529
Utilities & property expenses 6,369,613 6,046,967 18,827,301 17,353,208
Depreciation & amortization 7,331,441 6,698,845 21,374,234 20,078,580
Write-down of development costs 14,898,317 0 14,898,317 0
----------- ----------- ------------ ------------
Total operating expenses 73,927,630 55,435,944 186,473,324 163,643,401
----------- ----------- ------------ ------------
Operating income (10,386,802) 9,309,071 3,041,194 26,740,061
Interest expense 11,360,754 11,067,400 33,730,521 32,061,789
------------ ----------- ------------ ------------
Net loss before income tax benefit
and extraordinary item (21,747,556) (1,758,329) (30,689,327) (5,321,728)
Federal income tax benefit (7,246,000) (450,000) (9,965,000) (1,400,000)
------------ ----------- ------------ ------------
Net loss before extraordinary item (14,501,556) (1,308,329) (20,724,327) (3,921,728)
Extraordinary item-loss on early
extinguishment of debt, net of tax
benefit of $846,000 1,572,330 0 1,572,330 0
----------- ----------- ------------ ------------
Net loss (16,073,886) (1,308,329) (22,296,657) (3,921,728)
Dividends on preferred shares 336,974 311,584 985,112 910,784
------------ ----------- ------------ ------------
Net loss applicable to common shares ($16,410,860) ($1,619,913) ($23,281,769) ($4,832,512)
============ =========== ============ ============
Average common shares outstanding 6,189,558 6,189,558 6,189,558 6,189,558
============ =========== ============ ============
Loss per common share ($2.65) ($0.26) ($3.76) ($0.78)
============ =========== ============ ============
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
Sahara Gaming Corporation and Subsidiaries
Consolidated Condensed Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
------- ----------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1994 $61,944 $16,201,715 $51,513,504 ($30,761,580) ($87,774) $36,927,809
Net loss (22,296,657) (22,296,657)
Preferreed stock dividend 646,982 (648,138) (1,156)
------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1995 $61,944 $16,848,697 $51,513,504 ($53,706,375) ($87,774) $14,629,996
======= =========== =========== ============ ======== ===========
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
Sahara Gaming Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Cash and short-term investments
provided by operations $17,859,999 $17,343,210
Increase (decrease) in accounts payable 1,585,793 (1,815,348)
Decrease in inventories 74,763 252,081
Increase in prepaid expenses & other (16,728) (186,815)
Decrease in deferred income taxes (10,811,000) (1,400,000)
Decrease in interest payable (6,621,851) (2,409,898)
Increase (decrease) in other current liabilities (3,104,923) 1,765,106
Decrease (increase) in accounts receivable, net 670,059 (712,874)
Decrease (increase) in due from officer (32,012) 1,974,237
Increase in other assets (1,138,870) (2,012,148)
----------- -----------
Net cash provided by operating activities (1,534,770) 12,797,551
----------- -----------
Cash flows from investing activities:
Decrease (increase) in restricted cash 3,910,440 (23,104,500)
Investments in subsidiaries (10,000,000)
Capital expenditures (23,305,588) (31,544,781)
----------- -----------
Net cash used in investing activities (19,395,148) (64,649,281)
----------- -----------
Cash flows from financing activities:
Cash proceeds of long-term debt 1,800,000 130,000,000
Cash paid on long-term debt (7,930,001) (50,505,136)
Loan issue cost 0 (5,727,799)
----------- -----------
Net cash provided by (used in) financing activities (6,130,001) 73,767,065
----------- -----------
Increase (decrease) in cash and short-term investment (27,059,919) 21,915,335
Cash and short-term investments,
beginning of year 55,582,503 29,177,866
----------- -----------
Cash and short-term investments,
end of period $28,522,584 $51,093,201
=========== ===========
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
SAHARA GAMING CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL INFORMATION
Sahara Gaming Corporation (the "Company" or "Sahara Gaming"), a publicly traded
Nevada corporation, is the successor corporation of two affiliates, Sahara
Resorts and Sahara Casino Partners, L.P., which combined in a business
combination in September, 1993. The Company's primary business operations are
conducted through four wholly owned subsidiary corporations, Sahara Nevada Corp.
("SNC"), Hacienda Hotel Inc. ("HHI"), Santa Fe Hotel Inc. ("SFHI") and Pioneer
Hotel Inc. ("PHI") (the "Operating Companies"). The Operating Companies in turn
own the Sahara Hotel and Casino (the "Sahara"), the Hacienda Resort Hotel and
Casino (the "Hacienda"), and the Santa Fe Hotel and Casino (the "Santa Fe"),
each located in Las Vegas, Nevada, and the Pioneer Hotel & Gambling Hall (the
"Pioneer") in Laughlin, Nevada, respectively.
These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to stockholders for the year ended September 30, 1994.
The results of operations for the three and nine month periods ended June 30,
1995 are not necessarily indicative of the results to be expected for the entire
year.
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company at
June 30, 1995, the results of its operations for the three and nine month
periods ended June 30, 1995 and 1994, the changes in stockholders' equity for
the nine month period ended June 30, 1995, and cash flows for the nine month
periods ended June 30, 1995 and 1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pre-Opening Expenses: All pre-opening expenses directly related to development
of gaming operations are capitalized as incurred and included in Property, Plant
and Equipment, net.
Capitalization of Interest: Interest costs are capitalized on funds disbursed
during the development phase of projects and included in Property, Plant and
Equipment, net.
6
<PAGE>
Reclassifications: Certain balances in the 1994 financial statements have been
reclassified to conform with current year classifications.
NOTE 3 - CASH AND SHORT-TERM INVESTMENTS
Approximately $2.3 million of the Company's consolidated cash and short-term
invest-ments is held by PHI and is subject to certain restrictions, including
restrictions on its availability for distribution to the Company, by the terms
of an indenture pursuant to which $120.0 million principal amount of 13-1/2%
First Mortgage Bonds due 1998 ("13-1/2% Notes") of Pioneer Finance Corp. was
issued, the proceeds of which were loaned to PHI.
In addition, approximately $8.6 million of the Company's consolidated cash and
short term investments is held by SFHI and is subject to certain restrictions,
including restrictions on its availability for distribution to the Company, by
the terms of an indenture pursuant to which $115.0 million principal amount of
11% First Mortgage Notes due 2000 ("11% Notes") of SFHI was issued.
In June 1995, SFHI repaid in full an $18 million affiliate note owed to SNC. SNC
then loaned $8 million to SFHI pursuant to a new affiliate note on substantially
the same terms and conditions as the original affiliate note. As of June 30,
1995, approximately $10 million, reflecting the net balance of the repayment of
the original SFHI affiliate note, was held at SNC and is restricted in use
pursuant to an indenture pursuant to which $116.2 million principal amount of
12-1/8% First Mortgage Notes ("12-1/8% Notes") of Sahara Finance Corp. were
issued.
NOTE 4 - RESTRICTED CASH
Sahara Parkville, Inc., an indirect wholly-owned subsidiary of the Company
("Parkville Inc."), borrowed from SFHI $32.0 million of proceeds from the
offering of the 11% Notes. The proceeds are restricted for use in connection
with the development and construction of a proposed dockside riverboat gaming
facility in Parkville, Missouri. As of June 30, 1995, approximately $19.2
million remained available from the $32.0 million dedicated to the Parkville
development. Approximately $6.1 million had been used in connection with the
purchase of a riverboat for the site and approximately $6.7 million had been
spent in connection with other expenses associated with developing the proposed
Parkville project, including approximately $5.4 million in interim interest.
In July 1995, in accordance with the indenture governing the 11% Notes, SFHI
commenced an offer to repurchase $21.5 million principal amount of 11% Notes,
representing that principal amount of 11% Notes that can be purchased with funds
remaining in the Parkville Collateral Account and to be received upon
liquidation of the Parkville assets. (See Notes 6 and 8)
7
<PAGE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
In December 1994, the Company completed construction of an expansion of the
Santa Fe. The cost of construction and equipment was approximately $14.4
million. During the ninemonth period ended June 30, 1995, the Company recorded
approximately $12.0 million in construction costs associated with the expansion
of the Santa Fe.
In December 1994, the Company completed construction of an expansion of the
Pioneer. The cost of construction and equipment was approximately $4.1 million.
During the nine month period ended June 30, 1995, the Company recorded
approximately $2.2 million in construction costs associated with the expansion
of the Pioneer.
In January 1995, the Company entered into an agreement to sell substantially all
of the assets of the Hacienda for $80 million in an all cash transaction. The
sale is subject to the buyer's obtaining all appropriate regulatory licenses and
approvals. The Company has been advised that the buyer submitted applications
for Nevada licensing approvals related to the acquisition of the Hacienda
assets in March 1995. In the event the sale has not been consummated by October
10, 1995, either the Company or the buyer may terminate the agreement. If the
buyer terminates the agreement for any reason other than the buyer's inability
to obtain necessary licenses or approvals from the Nevada Gaming Authorities or
as a result of a misrepresentation, or a default or breach of the agreement by
the Company, a $5 million earnest money deposit will be released to the Company.
The buyer has the option to extend the October 10, 1995 date to April 10, 1996,
in which event the $5 million earnest money deposit will be released to the
Company. The deposit, if released in connection with an extension of such date,
would be applied against the purchase price if the sale is consummated on or
prior to April 10, 1996, or retained by the Company if the sale is not
consummated by that date.
In May 1995, the Company entered into an agreement to sell substantially all of
the assets of the Sahara for $128 million in cash and to exchange 22 acres of
land, a portion of which is currently utilized by the Sahara as a parking lot,
for 26 acres of land just south of the Sahara on Las Vegas Boulevard, currently
occupied by a water park. The sale is subject to the buyer's obtaining all
appropriate regulatory licenses and approvals and to termination or expiration
of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of
1976. The Company has been advised that the buyer submitted applications for
Nevada licensing approvals related to the acquisition of the Sahara assets in
June 1995. In the event the sale has not been consummated by February 28, 1996,
either the Company or the buyer may terminate the agreement. If the buyer
terminates the agreement for any reason other than the buyer's inability to
obtain necessary licenses or approvals from the Nevada Gaming Authorities or as
a result of a misrepresentation, or a default or breach of the agreement by the
Company, a $10 million earnest money deposit will be released to the Company.
The buyer has the option to extend the February 28, 1996 date to May 31, 1996,
in which
8
<PAGE>
event the $10 million earnest money deposit will be released to the Company.
The deposit, if released in connection with an extension of such date, would be
applied against the purchase price if the sale is consummated on or prior to May
31, 1996, or retained by the Company if the sale is not consummated by that
date.
During the nine month period ended June 30, 1995, a wholly-owned subsidiary of
the Company capitalized approximately $1.2 million in connection with the
development of a proposed casino-hotel complex in Henderson, Nevada. As of June
30, 1995, the Company had recorded $19.1 million in connection with the
development of the proposed casino-hotel complex, of which $15.1 million
represents costs associated with the purchase of a 40 acre parcel of land,
approximately $1.7 million represents preliminary engineering and development
costs and $2.3 million represents capitalized interest costs. (See Notes 6
and 9)
In the three month period ended June 30, 1995, the Company recorded a $14.9
million charge against income in connection with its development of a proposed
dockside riverboat gaming facility in Parkville, Missouri. The Missouri Gaming
Commission has not yet advised Parkville Inc. as to when or if it will be
investigated for licensure and the Missouri gaming authorities publicly
announced in May 1995 that new licensing investigations are not expected to be
initiated during the 12 to 18 month period following May 1995. As of June 30,
1995, the Company had incurred $16.9 million in connection with the development
of the proposed Parkville project. Of this amount, approximately $8.0 million
was used to purchase a riverboat for the site, approximately $3.7 million
represents preliminary engineering and development expenses and approximately
$5.2 million represents capitalized interest costs. In accordance with the terms
of the indenture governing the 11% Notes, SFHI commenced a repurchase offer with
respect to $21.5 million principal amount of 11% Notes, representing the
principal amount of 11% Notes that can be purchased with the funds that have
been dedicated to the Parkville development. Should the Company determine to
pursue the Parkville development, it would be necessary to obtain new financing.
(See Notes 4, 6 and 8)
NOTE 6 - LONG-TERM DEBT
Hacienda Sale: If the sale of substantially all of the assets of the Hacienda
-------------
is consummated, $22.0 million of the proceeds will be required to be used to
repay a note secured by a first deed of trust ("PERS Note") on the Hacienda;
$3.0 million of the proceeds will be used to satisfy other costs of closing;
$15.5 million from the proceeds will be used to acquire $20 million principal
amount of 13-1/2% Notes, pursuant to an agreement described below; and $32.0
million of proceeds will be used to satisfy an affiliate note (see below) in
favor of SNC related to the 12-1/8% Notes .
The Company has entered into an agreement, contingent upon the consummation of
the sale of the Hacienda before December 31, 1995, to use $15.5 million in
proceeds from the Hacienda sale to acquire $20.0 million principal amount of the
13-1/2% Notes. The 13-1/2% Notes, if acquired pursuant to this agreement, would
be submitted to the trustee for cancellation and would satisfy in full the
Company's $12.75 million sinking fund payment due in December 1996 on the 13-
1/2% Notes.
9
<PAGE>
On March 31, 1994, a wholly-owned subsidiary of the Company issued $15 million
principal amount 12% First Mortgage Notes guaranteed by the Company and HHI (12%
Notes) and secured by, among other things, a first priority lien on a 40 acre
parcel of real property located in Henderson, Nevada. The 12% Notes mature on
the earlier of September 30, 1995 or five days after the consummation of a sale
of substantially all of the assets of the Hacienda. (See Notes 5 and 9)
Affiliate notes in the principal amounts of $32 million issued by HHI and $8
million issued by SFHI, each in favor of SNC, mature simultaneously with the
maturity of the 12-1/8% Notes and may be prepaid under the terms of the 12-1/8%
Notes indenture. If either the Hacienda or the Santa Fe is sold earlier than the
August 1996 maturity date, the affiliate note related to the property sold will
be accelerated and will become immediately due and payable. Therefore, upon
consummation of the sale of substantially all of the assets of the Hacienda, the
$32 million affiliate note will become due and will be paid out of the proceeds
of the sale. Such funds may then be used by SNC for capital expenditures at the
Sahara, or may be loaned to wholly-owned subsidiaries of the Company, pursuant
to comparable affiliate notes that would mature in August 1996. The Company
expects to use all or a portion of the $32 million received by SNC upon
repayment of the Hacienda affiliate note to make loans to wholly-owned
subsidiaries of the Company for the purposes either of consummating the purchase
of 13-1/2% Notes and/or to repay the 12% Notes discussed above.
Sahara Sale: If the sale of substantially all of the assets of the Sahara is
-----------
consummated, approximately $121 million cash proceeds of the sale will be used
to fund the cost of defeasance of the 12-1/8% Notes. The remaining cash proceeds
of approximately $7 million will be used to pay the costs associated with the
transaction and for working capital purposes.
Any affiliate notes that evidence loans that may be made by SNC to wholly-owned
subsidiaries of the Company from the proceeds of the repayment of the existing
$32 million affiliate note owed by HHI to SNC for the purposes of retiring
the 12% Notes or acquiring $20 million principal amount of 13-1/2%
Notes are expected to be forgiven upon defeasance of the 12-1/8% Notes.
Santa Fe Offer to Repurchase: In July 1995, in accordance with the indenture
-----------------------------
governing the 11% Notes, SFHI commenced an offer to repurchase $21.5 million
principal amount of 11% Notes, representing that principal amount that can be
purchased with funds remaining in the Parkville collateral account dedicated to
use in the development of a proposed dockside riverboat casino and to be
received upon liquidation of the Parkville assets. The repurchase offer is
required to be made because the proposed casino in Parkville, Missouri that SFHI
intended to develop was not operating by June 30, 1995. In satisfaction of the
obligation to liquidate the Parkville assets, SFHI intends to acquire the
Parkville assets for $2.99 million, which the Company and SFHI
10
<PAGE>
believe to be the fair market value of such assets. Thereafter, upon the
earlier of the consummation of the sale of substantially all of the assets of
the Hacienda or June 30, 1996, the Company or an affiliate will acquire the
Parkville assets from SFHI for $2.99 million, provided SFHI has not previously
sold the Parkville assets to a third party.
Pursuant to the offer to repurchase, SFHI is offering to purchase for cash up to
$21.5 million principal amount of the 11% Notes, including up to $11.5 million
in principal amount of 11% Notes that may be issued upon exercise of outstanding
warrants to acquire additional 11% Notes, at a price of $1,010 per $1,000
principal amount, plus accrued interest. As a result of the commencement of the
offer to repurchase, the outstanding warrants are exercisable for no additional
consideration until September 11, 1995.
As an alternative to the repurchase offer, SFHI is soliciting consents to
amendments to the indenture governing the 11% Notes to modify the requirements
of the repurchase offer. The amendments would permit SFHI to retain a portion of
the cash that would otherwise be used to make the repurchase offer and to use
the retained cash for certain permitted uses, including the development of a
casino-hotel in Henderson, Nevada. (See Notes 5, 6 and 9) SFHI is conditioning
the consent solicitation upon receipt of consents from the holders of all
outstanding Notes other than Notes in the aggregate principal amount of $10
million. In the event holders of more than $10 million of Notes do not consent
to the amendments, SFHI will consummate the repurchase offer as originally
contemplated. If the consents become effective, SFHI is offering to pay to each
holder of the Notes validly consenting to the amendments a consent payment equal
to $15 for each $1,000 principal amount of Notes for which a valid consent is
received, and SFHI will consummate the repurchase offer with respect to up to a
maximum $10 million principal amount of Notes. Additionally, if the consents
become effective and the Sahara Sales is consummated, Sahara Gaming will cause a
subsidiary to grant a subordinated security interest for the benefit of the 11%
Noteholders in certain real property on the Las Vegas Strip.
The Company has recorded a non-recurring charge to earnings in the amount of
approximately $2.4 million, less income tax benefit of $846,000, related to debt
premium payments, debt issue costs and debt discount, in connection with the
repurchase offer.
NOTE 7 - INCOME TAXES
For the nine months ended June 30, 1995, a tax benefit of $10,811,000 was
recognized. All of the benefit was a deferred tax benefit. The tax benefit for
federal income taxes differs from the amounts computed by applying the federal
income tax rate of 35% to income before benefit for federal income taxes for the
following items (dollars in thousands):
11
<PAGE>
<TABLE>
<CAPTION>
% of Pretax
Amount Income
------------ --------
<S> <C> <C>
Expected benefit for federal
income taxes $11,587 35%
Amortization of goodwill (392) (1%)
Other (384) (1%)
------- --
Benefit for federal income taxes $10,811 33%
======= ==
</TABLE>
The Company, as of September 30, 1994, had federal net operating loss credit
carryforwards of approximately $36.8 million expiring at various dates through
2009.
12
<PAGE>
NOTE 8 - SUPPLEMENTAL INFORMATION
Supplemental statement of cash flows information for the nine month period ended
June 30, 1995 and 1994 is presented below:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
Operating Activities:
<S> <C> <C>
Cash paid during the period
for interest, net of amount
capitalized of $4,194,406
for 1995 $39,669,169 $35,871,998
=========== ===========
Investing Activities:
Purchase accounting adjustments
to property due to adoption of
SFAS 109 $11,062,602
===========
</TABLE>
13
<PAGE>
NOTE 9 - Subsidiary Information
The Company's primary operations are in the hotel/casino industry and are
conducted through SNC, HHI, PHI and SFHI. The operations by subsidiary for the
nine months and three months ending June 30, 1995 and June 30, 1994 were as set
forth in the following tables (dollars in thousands):
<TABLE>
<CAPTION>
For the nine months ending June 30, 1995 and June 30, 1994
----------------------------------------------------------------
Year SNC HHI PHI SFHI Other TOTAL
---- -------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues 1995 $62,483 $41,465 $35,244 $50,095 $228 $189,515
======== ======= ======== ======== ======= ========
1994 $64,477 $40,436 $38,131 $47,508 ($169) $190,383
======== ======= ======== ======== ======= ========
Operating Income (loss) 1995 $4,043 $1,756 $4,877 ($6,810) ($825) $3,041
======== ======= ======== ======== ======= ========
1994 $5,029 $2,792 $8,304 $11,459 ($844) $26,740
======== ======= ======== ======== ======= ========
Interest Expense 1995 $6,090 $5,035 $10,405 $10,125 $2,076 $33,731
======== ======= ======== ======== ======= ========
1994 $6,068 $5,237 $10,409 $8,246 $2,102 $32,062
======== ======= ======== ======== ======= ========
Depreciation and Amortization 1995 $5,913 $4,264 $3,836 $6,863 $498 $21,374
======== ======= ======== ======== ======= ========
1994 $6,171 $3,941 $3,830 $5,645 $492 $20,079
======== ======= ======== ======== ======= ========
Capital Expenditures 1995 $1,015 $211 $3,644 $17,174 $1,262 $23,306
======== ======= ======== ======== ======= ========
1994 $1,855 $912 $627 $13,033 $15,118 $31,545
======== ======= ======== ======== ======= ========
Identifiable Assets 1995 $112,716 $76,237 $98,233 $117,131 $38,895 $443,212
======== ======= ======== ======== ======= ========
1994 $109,125 $83,219 $104,120 $152,054 $34,734 $483,252
======== ======= ======== ======== ======= ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
For the three months ending June 30, 1995 and June 30, 1994
---------------------------------------------------------------------
Year SNC HHI PHI SFHI Other TOTAL
---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues 1995 $20,701 $13,987 $11,734 $16,945 $174 $63,541
======= ======= ======= ======= ======= =======
1994 $21,968 $13,626 $12,641 $16,865 ($355) $64,745
======= ======= ======= ======= ======= =======
Operating Income (loss) 1995 $593 $431 $1,184 ($12,448) ($147) ($10,387)
======= ======= ======= ======= ======= =======
1994 $2,086 $417 $3,047 $4,276 ($517) $9,309
======= ======= ======= ======= ======= =======
Interest Expense 1995 $2,069 $1,683 $3,468 $3,456 $685 $11,361
======= ======= ======= ======= ======= =======
1994 $2,015 $1,720 $3,470 $3,388 $474 $11,067
======= ======= ======= ======= ======= =======
Depreciation and Amortization 1995 $1,921 $1,494 $1,372 $2,382 $162 $7,331
======= ======= ======= ======= ======= =======
1994 $2,060 $1,352 $1,237 $1,884 $166 $6,699
======= ======= ======= ======= ======= =======
Capital Expenditures 1995 $265 $33 $357 $2,375 $509 $3,539
======= ======= ======= ======= ======= =======
1994 $625 $402 $146 $2,512 $446 $4,131
======= ======= ======= ======= ======= =======
</TABLE>
15
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Sahara Gaming Corporation:
We have reviewed the accompanying consolidated condensed balance sheet of Sahara
Gaming Corporation and subsidiaries (the "Company") as of June 30, 1995, the
related consolidated condensed statements of operations for the three and nine
months ended June 30, 1995 and 1994, of cash flows for the nine-month periods
ended June 30, 1995 and 1994 and stockholders' equity for the nine-month period
ended June 30, 1995, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the Company's management.
A review of interim financial information consists principally of inquiries of
Company personnel and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements in order for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Sahara Gaming Corporation and
subsidiaries as of September 30, 1994, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated December 16, 1994 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of September 30, 1994 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
As discussed in Notes 6 and 9, the Company's note secured by a first deed of
trust on the Hacienda Resort Hotel and Casino (the "Hacienda") and the Company's
12% notes used to acquire certain land in Henderson, Nevada (collectively, the
"Notes") mature December 23, 1995 and September 30, 1995, respectively. The
current portion of long-term debt includes $38,700,000 relating to these Notes.
The Company intends to pay these amounts from the proceeds of the sale of the
Hacienda. The sale of the Hacienda is subject to approvals required from the
Nevada gaming authorities. A nonpayment under the Notes would, under cross-
default provisions, constitute a default under substantially all of the
Company's long-term debt agreements. Although the outcome of these matters is
not certain, management believes that the Company will be able to satisfy its
obligations under the Notes through the sale of the Hacienda or by other means.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 11, 1995
16
<PAGE>
SAHARA GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Nine Months Ended June 30, 1995 and 1994
----------------------------------------
Revenues - Sahara Gaming Corporation (the "Company") recorded revenues of
--------
$189.5 million for the nine months ended June 30, 1995 as compared to $190.4
million in the same period in the prior year. The Santa Fe Hotel and Casino
("Santa Fe") and the Hacienda Hotel and Casino ("Hacienda") recorded revenue
increases of $2.6 million, or 5.4%, and $1.0 million, or 2.6%, respectively,
when comparing the 1995 period with the prior year. The Pioneer Hotel and
Gambling Hall ("Pioneer") and the Sahara Hotel and Casino ("Sahara") reported
revenue decreases of $2.9 million, or 7.6%, and $2.0 million, or 3.1%,
respectively, when comparing the two periods.
The Company's casino revenues totaled $116.1 million during the current nine
month period, a 0.5% decrease from the $116.7 million recorded for the same
period in the prior fiscal year. Increases in casino revenues of $2.0 million,
or 5.6%, at the Santa Fe, and $500,000, or 2.3%, at the Hacienda were offset by
decreases in casino revenues at the Pioneer of $2.4 million, or 7.1%, and at the
Sahara of $700,000, or 2.6%. Management believes that the increase in casino
revenues at the Santa Fe is primarily due to the addition of a race book in
December 1994. The rate of growth in other casino revenues is lower than the
23.8% growth rate in the same nine month period of 1994, which management
believes is due primarily to the opening of a competing facility within four
miles of the Santa Fe in December 1994 and the opening and expansion of other
casinos targeting the local population in the Las Vegas valley. Another
competing facility within 4 miles of the Santa Fe opened in July 1995. In
addition, management believes that Santa Fe casino revenues were impacted during
construction of the Santa Fe expansion completed during December 1994 and to a
lesser extent, by restricted access to the property from February 1995 to April
1995 during construction on an interchange next to the facility. The increase in
casino revenues at the Hacienda is the result of increased table game play in
the current period. The decrease in casino revenues at the Pioneer is believed
to be primarily due to the competitive gaming market environment in and around
Laughlin, including Indian gaming facilities opened in southern Nevada, Arizona
and California, coupled with disruption of operations related to the
construction of the expansion which was completed in December 1994. The decrease
in casino revenues at the Sahara is the result of decreased slot play in the
current period, which management believes is associated with the decrease in
occupied room nights.
The Company's hotel revenues increased $1.5 million, or 5.2%, during the nine
months
17
<PAGE>
ended June 30, 1995 from the corresponding 1994 period on a net decrease of
36,561 occupied room nights. Increases in hotel revenues of $1.0 million, or
12.2%, at the Hacienda and $700,000, or 3.8%, at the Sahara, were partially
offset by a decrease at the Pioneer of $100,000, or 1.8%. The increases are
believed to be primarily the result of an increase in the average room rate
associated with tour and travel contracts at the Sahara and Hacienda. The
increased average room rate at the Sahara was offset by a decrease in occupied
room nights which resulted primarily from a change in strategy regarding filling
rooms with low room rates. Room occupancy percentages were 87.1% at the Sahara,
94.2% at the Hacienda, 96.4% at the Santa Fe and 86.6% at the Pioneer for the
nine months ended June 30, 1995. This compares to 92.9%, 94.7%, 96.4% and
90.0% for each of the hotel/casinos for the nine months ended June 30, 1994,
respectively.
The Company's food and beverage revenues decreased $200,000, or 0.9%, in the
current nine month period as compared to the same period in the prior fiscal
year. An increase in food and beverage revenues at the Santa Fe of $1.1
million, or 21.0%, was offset by decreases at the Sahara of $1.1 million, or
10.7%, at the Hacienda of $100,000, or 1.8%.and at the Pioneer of $100,000, or
3.6%. The increase at the Santa Fe is believed to be primarily due to the
opening of additional food and beverage facilities in December 1994. The
decreases at the Sahara, Hacienda and Pioneer are considered to be related to
fewer occupied room nights at the hotel/casinos.
Other revenues decreased $1.6 million, or 8.0%, in the current nine month period
as compared to the same period in the prior fiscal year, with decreases of
$900,000, or 10.7%, $600,000, or 12.7%, $300,000, or 4.4%, and $300,000, or
22.4%, recorded at the Sahara, Santa Fe, Hacienda, and Pioneer, respectively.
The decrease at the Sahara is primarily due to a decrease in revenues from
timeshare contract sales. Management believes that this decrease is largely due
to a change in the profile of the Sahara's customer base from leisure to
convention and increased repeat business, two customer groups which are not,
traditionally, timeshare customers. At the Hacienda, a decrease in revenues
from timeshare contract sales of $1.2 million was partially offset by an
increase in entertainment revenue of $800,000. The Company discontinued
timeshare contract sales at the Hacienda Hotel in January 1995, and at the
Sahara in June 1995. The decrease at the Santa Fe is due to approximately
$700,000 recorded in the prior year from a management agreement for which
revenues were not recorded in the current period.
Operating expenses totaled $186.5 million in the current nine month period,
------------------
including a charge of $14.9 million to write down development costs related to
Parkville Inc. Excluding this write down, operating expenses increased $7.9
million, or 4.8%, when compared to the same prior year period. The Santa Fe,
Hacienda and Pioneer recorded operating expense increases of $5.9 million, $2.1
million and $500,000, respectively, when compared to the prior year period. The
Sahara reported a decrease of $1.0 million compared to the prior year period.
Casino expenses were $2.7 million, or 5.2%, higher for the Company's current
nine month
18
<PAGE>
period, with the Hacienda reporting a relatively small increase. The Santa Fe
reported an increase of $2.5 million, or 19.7%, primarily due to increased
payroll and other costs associated with operating an additional 15,000 square
feet of casino space, which includes a new race book. The Sahara reported an
increase of $400,000, or 3.2%, primarily due to increased reserves associated
with credit play. Casino expenses at the Pioneer decreased $400,000, or 2.4%,
for the nine months ended June 30, 1995, over the comparable 1994 period,
primarily associated with the decrease in casino revenues.
Food and beverage expenses increased $1.4 million, or 4.9%. Increases of $1.3
million, or 20.3%, at the Santa Fe and $500,000, or 7.0%, at the Hacienda were
partially offset by decreases of $200,000, or 4.7%, at the Pioneer and $200,000,
or 2.1%, at the Sahara. The increase at the Santa Fe is related to the increase
in revenues and increased payroll and other costs associated with the expansion
of food and beverage facilities. The increase at the Hacienda was due to
increased food costs and union wage increases. The decrease at the Pioneer was
volume related. A volume related decrease at the Sahara was partially offset by
union wage increases.
Selling, general and administrative expenses for the Company increased $900,000,
or 4.2%, in the 1995 period. Increases of $100,000, or 1.2%, and $600,000, or
10.8%, at the Hacienda and Santa Fe, respectively, were primarily related to
increased advertising and promotional costs. At the Pioneer, the increase in
the covered period was $300,000, or 10.7%, and was primarily attributed to
payroll costs. The increases were offset by a decrease of $400,000, or 4.4%,
at the Sahara related to reduced advertising costs in the period related to a
change in marketing strategy.
Utilities and property expenses for the Company increased $1.5 million or 9% in
the nine months ended June 30, 1995 as compared to the same period in the prior
year, primarily due to a $500,000 loss on sale of gaming equipment recorded at
the Pioneer, incurred in connection with expansion of casino space completed in
December 1994.
Depreciation and amortization expense for the Company increased $1.3 million, or
6.5%, in the nine months ended June 30, 1995 as compared to the prior year
period, primarily at the Santa Fe, due to increased depreciation related to the
expansion project.
Operating income for the nine months ended June 30, 1995 was $3.0 million, which
----------------
includes a $14.9 million charge against earnings to write down development costs
related to Parkville Inc. Excluding this write down, operating income was $17.9
million, a $8.8 million decrease from the 1994 period. Period to period changes
for the four hotel/casinos before the write-down of the investment in Parkville
were as follows: the Sahara had operating income of $3.2 million for the 1995
period as compared to $4.2 million for the nine month period in 1994, a 23.7%
decrease; the Santa Fe had operating income of $8.1 million in the current
period as compared to $11.5 million in the prior year period, a 29.4% decrease;
the Pioneer experienced operating income of $4.9 million in 1995 compared to
$8.3 million in 1994, a 41.3% decrease; and the Hacienda's operating income was
$1.8 million in the nine month period of this year compared to income of
$2.8million last year, a 37.1% decrease.
Interest expense increased $1.7 million in the fiscal 1995 period to $33.7
----------------
million as compared to $32.1 million for the nine month period ended June 30,
1994. The increase
19
<PAGE>
in interest expenses is primarily the result of the issuance of $115 million
principal amount of 11% First Mortgage Notes due 2000 (the "11% Notes") in
December 1993.
Loss before federal income tax and extraordinary item - The Company recorded a
-----------------------------------------------------
loss before federal income tax and extraordinary item of $30.7 million for the
nine months ended June 30, 1995 as compared to a loss of $5.3 million for the
same period in fiscal 1994.
Three Months Ended June 30, 1995 and 1994
-----------------------------------------
Revenues - The Company recorded revenues of $63.5 million for the quarter ended
--------
June 30, 1995, as compared to $64.7 million in the prior year quarter, a $1.2
million, or 1.9% decrease. The Santa Fe recorded revenue increases of $100,000
to $16.9 million, or 0.5%, compared to the same period in the 1994 fiscal year.
This increase is significantly less than the 28.4% increase in revenues achieved
during the 1994 fiscal period. The Hacienda experienced a revenue increase of
$400,000, or 2.7%, when compared to the 1995 period with the prior year. The
Sahara reported a decrease of $1.3 million, or 5.8%, when comparing the two
periods. In the third quarter of 1995, the Pioneer's revenues decreased
$900,000 to $11.7 million, or 7.2%, compared to the same period in the 1994
fiscal year.
The Company's casino revenues totaled $38.5 million, a $1.0 million, or 2.6%,
decrease from the prior year's quarter. A $400,000, or 3.2%, increase in casino
revenues at the Santa Fe and a $200,000, or 3.8%, increase in casino revenues at
the Hacienda in the current year's quarter over that of the prior year were
offset by a decrease in casino revenues at the Pioneer of $700,000, or 6.1%, and
at the Sahara of $1.2 million, or 10.4%, when comparing the two fiscal periods.
management believes that the increase in casino revenues at the Santa Fe is
primarily due to the addition of a race book in December 1994. The rate of
growth in other casino revenues is lower than the 22.7% growth rate in the same
three month period of 1994, due primarily to the opening of a competing facility
within four miles of the Santa Fe in December 1994. Another competing facility
within the same area opened in July 1995. In addition, management believes that
Santa Fe casino revenues were impacted, to a lesser extent, by restricted access
to the property from February 1995 to April 1995 during construction on an
interchange next to the facility. The increase in casino revenues at the
Hacienda is the result of increased table game play in the current period. The
decrease in casino revenues at the Pioneer is believed to be primarily due to
the competitive gaming market environment in and around Laughlin, including
Indian gaming facilities opened in southern Nevada, Arizona and California. The
decrease in casino revenues at the Sahara is primarily the result of decreased
slot play in the current period, which Management believes is associated with
the decrease in occupied room nights.
20
<PAGE>
The Company's hotel revenues increased $800,000, or 8.2%, during the three
months ended June 30, 1995 from the corresponding 1994 period on a net decrease
of 7,435 occupied room nights. The Sahara recorded increased hotel revenues of
$500,000, or 7.8%, with a decrease in occupied rooms of 7,455, or 4.2%. This is
believed to be primarily the result of an increase in the average room rate
associated with tour and travel contracts and increased convention business
offset by a decrease in occupied room nights which is primarily the result of a
change in strategy regarding filling rooms with low room rates. The Hacienda
recorded increased hotel revenues of $400,000, or 14.2%, primarily as the result
of an increase in the average room rate associated with tour and travel
contracts. Room occupancy percentages were 91.7% at the Sahara, 95.6% at the
Hacienda, 97.0% at the Santa Fe and 90.0% at the Pioneer for the three months
ended June 30, 1995. This compares to 95.8%, 96.5%, 98.4% and 90.6% for each of
the hotel/casinos for the quarter ended June 30, 1994, respectively.
The Company's food and beverage revenues decreased $100,000, or 0.8%, in the
current three month period compared to the same period in the prior fiscal year.
The increase in food and beverage revenues of $500,000, or 26.4%, at the Santa
Fe was partially offset by decreases at the Sahara of $400,000, or 11.0%, and at
the Hacienda of $100,000, or 6.4%. The increase at the Santa Fe is due to the
opening of additional food and beverage facilities in December 1994. The
decrease at the Sahara is considered to be primarily the result of fewer
occupied room nights.
Other revenues decreased $900,000, or 13.3%, in the current three month period
compared to the same period in the prior fiscal year, with decreases of
$300,000, or 13.8%, $100,000, or 6.3%, $800,000, or 38.8%, and $200,000, or
37.6%, recorded at the Sahara, Hacienda, Santa Fe and Pioneer, respectively.
The decrease at the Sahara is primarily due to a decrease in revenues from
timeshare contract sales. Management believes that this decrease is largely due
to a change in the profile of the Sahara's customer base from leisure to
convention and increased repeat business, two customer groups which are not,
traditionally, timeshare customers. At the Hacienda, a decrease in revenues
from timeshare contract sales of $500,000 was partially offset by an increase in
entertainment revenues of $300,000. The Company discontinued timeshare contract
sales at the Hacienda Hotel in January 1995, and the Sahara in June 1995. The
decrease at the Santa Fe is due to approximately $700,000 recorded in the prior
year from a management agreement for which revenues were not recorded in the
current period.
Operating expenses totaled $73.9 million in the current quarter, including a
------------------
charge of $14.9 million to write down development costs. Excluding this write
down, operating expenses increased $3.6 million, or 6.5%. Operating expenses
increased $200,000, $300,000, $2.1 million and $1.0 million at the Sahara,
Hacienda, Santa Fe and Pioneer, respectively.
Casino expenses were $1.6 million, or 9.1%, higher for the Company's current
three month period. The Santa Fe reported an increase of $900,000, or 19.4%,
primarily due to the
21
<PAGE>
increase in the Santa Fe's promotional costs due to increased competition and
increased payroll and other costs associated with operating an additional 15,000
square feet of casino space, which includes a new race book. The Sahara's
increase was primarily due to losses associated with credit play. The Hacienda's
increase was primarily volume related. Increased casino expenses at the Pioneer
were primarily due to expenses associated with additional slot tournaments and
other promotional expenses.
Food and beverage expenses increased $400,000, or 3.7%. An increase at the
Santa Fe of $600,000, or 23.8%, is related to the increase in revenues and
increased payroll and other costs associated with the expansion of food and
beverage facilities. The Sahara's and Hacienda's food and beverage expenses did
not decrease in proportion to the decrease in food and beverage revenues,
primarily due to union wage increases.
Selling, general and administrative expenses for the Company increased $500,000,
or 6.7%, in the 1995 period. Increases of $500,000, or 20.1%, and $100,000, or
4.8%, at the Sahara and Santa Fe, respectively, were primarily related to
increased advertising and promotional costs. An increase of $100,000, or 11.4%,
at the Pioneer is attributed to increased payroll costs. The increases
described above were offset by a decrease of $300,000, or 18.9%, at the
Hacienda, primarily due to reduced advertising and promotional costs and a
reduction in hotel bad debt expense.
Utilities and property expenses for the Company increased $600,000 or 9% in the
three months ended as compared to the same period in the prior year, primarily
due to a $220,000 loss on sale of gaming equipment at The Pioneer, incurred in
connection with the expansion of casino space completed in December 1994.
Depreciation and amortization expense for the Company increased $600,000, or
9.4%, in the quarter ended June 30, 1995 as compared to the prior year period,
with an increase of $500,000, or 26.4%, at the Santa Fe, primarily due to
increased depreciation related to the expansion completed in December 1994.
Operating income(loss) for the three months ended June 30, 1995 was a $10.4
----------------------
million loss, which includes a $14.9 million charge against earnings to write
down development costs related to the Parkville development. Excluding this
write down, operating income was $4.5 million, a $4.8 million decrease from the
1994 period. Period to period changes for the four hotel/casinos were as
follows: the Sahara had operating income of $300,000 for the 1995 period as
compared to $1.8 million for the quarter in 1994, a 82.9% decrease; the Santa Fe
had operating income of $2.4 million in the current period as compared to $4.3
million in the prior year period, a 42.7% decrease; the Pioneer experienced
operating income of $1.2 million in 1995 compared to $3.0 million in 1994, a
61.2% decrease; and the Hacienda's operating income was $400,000 in the three
month period of this year compared to income of $400,000 last year.
Interest expense increased $300,000 in the fiscal 1995 period to $11.4 million
----------------
as compared to $11.1 million for the period ended June 30, 1994.
22
<PAGE>
Loss before federal income tax and extraordinary item - The Company recorded a
------------------------------------------------------
loss before federal income tax and extraordinary item of $2.7 million for the
three months ended June 30, 1995 as compared to a loss of $1.8 million for the
same period in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
The Company has entered into agreements for the sale of substantially all of the
assets of the Hacienda and the Sahara, which if consummated, will result in
aggregate cash proceeds to the Company of $208 million and if consumated,
receipt by the Company of a parcel of real property valued at $22 million. The
Company is committed to use approximately $178 million of the cash proceeds to
be received upon consummation of the two sales to retire approximately $182
million of indebtedness. The balance of cash proceeds from the sale
transactions, approximately $30 million, is available for working capital
purposes, of which $15 million has been committed for capital contributions to
Pioneer Hotel Inc. See "Asset Sale-Hacienda; Asset Sale-Sahara."
The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") was ($3.1) million and $24.4 million for the three and nine months
ended June 30, 1995, which includes a $14.9 million charge against earnings to
write down development costs related to Parkville. Excluding this write down,
EBITDA was $11.8 million and $39.3 million for the three and nine month periods,
as compared to $16.0 million and $46.8 million for the prior year periods.
EBITDA is presented to enhance the understanding of the financial performance of
the Company and its ability to service its indebtedness, but should not be
construed as an alternative to operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of the Company's
operating performance, or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity. As of June 30, 1995, the outstanding amount of the Company's long-
term debt in relation to its stockholders' equity (27:1) or as a percent of
total assets (91%) categorizes the Company as highly leveraged.
The Company's principal uses of funds generated from operations are for interest
payments on indebtedness and capital expenditures. Interest expense for the nine
month period ended June 30, 1995 and 1994 was $33.7 million and $32.1 million,
respectively. Interest expense attributable to the 11% First Mortgage Notes due
2000 (the "11% Notes") issued by Santa Fe Hotel Inc. ("Santa Fe Inc.") is
expected to increase as a result of the Santa Fe repurchase offer described
below. Capital expenditures for the nine months ended June 30, 1995 and
1994 were $23.3 million and $31.5 million, respectively. Future capital
expenditures required to maintain the facilities are generally expected to be
financed with cash flows from operations. Management believes capital
expenditures to maintain the facilities will be significantly less than that
expended in the nine months ended June 30, 1995, in which expansion projects
were undertaken. (See Capital Expenditures below) Additionally, the Company has
used funds generated from operations to satisfy the $2.2 million annual sinking
fund requirement due on its 10-1/4% Subordinated Sinking Fund Debentures due
1998 and to meet principal payments due under
23
<PAGE>
equipment financing amortization schedules.
The Company historically generated sufficient cash liquidity from operations to
finance operations, meet existing debt service obligations, complete capital
improvements to maintain existing facilities, and provide working capital to the
parent company. However, indenture restrictions on Santa Fe Hotel Inc. ("Santa
Fe Inc.") and Pioneer Hotel Inc. ("Pioneer Inc.") restrict the distribution of
working capital to the parent company, and cash flow of these subsidiaries is
not currently available for distribution to the Company. Therefore, the Company
must rely on existing cash resources and cash flow generated by Sahara Nevada
Corp. ("Sahara Nevada") and Hacienda Hotel Inc. ("Hacienda Inc."), the
subsidiaries of the Company that own the Sahara and Hacienda, respectively, to
provide liquidity to fund cash requirements of the parent company. The Company
has entered into agreements to sell all or substantially all of the assets of
the Sahara and Hacienda. See "Liquidity," "Asset Sale-Hacienda," and "Asset
Sale-Sahara" and "Debt Obligations". In the event the sale of either the
Hacienda or the Sahara is not consummated, the Company will be required to
attempt to refinance or renegotiate the terms of some or a significant portion
of its outstanding indebtedness. No assurance can be given that the Company
would be successful in refinancing or renegotiating its indebtedness, if
necessary. (See "Debt Obligations" below.)
Liquidity - Sahara Nevada, Hacienda and Other - Approximately $30.2 million of
---------------------------------------------
the Company's current assets at June 30, 1995, including approximately $17.6
million of cash and short-term investments, was held by Sahara Nevada, Hacienda
Inc., the Company and its subsidiaries other than Pioneer Inc. and Santa Fe Inc.
(collectively the "Other Entities"), which amounts are not subject to indenture
restrictions limiting the availability of such funds to the Company. Excluding
the working capital of Pioneer Inc. and Santa Fe Inc. and $16.8 million of
indebtedness that matures in September 1995 and $21.9 million indebtedness that
matures in December 1995 reported in the current portion of long-term debt,
which are expected to be satisfied with proceeds received upon the consummation
of the sales of the Hacienda and the Sahara, (see "Debt Obligations"), the
Company had a working capital balance of approximately $12.5 million at June 30,
1995.
Results of operations of the Other Entities for the twelve months ended June 30,
1995, provided EBITDA of $21.0 million, approximately 1.18 times interest
expense during the same period. Based on current operations and available
resources, management believes that, barring unforeseen circumstances, the Other
Entities will have sufficient cash resources to meet operating requirements and
debt service requirements other than the debt maturities discussed above in
September 1995 and December 1995, through the twelve month period ending June
30, 1996, although no assurance can be given to that effect. (see Debt
Obligations below) The Company has entered into agreements to sell
substantially all of the assets of the Hacienda and Sahara. (See "Asset
Sale-Hacienda; Asset Sale-Sahara.")
Liquidity - Santa Fe - The indenture under which the 11% Notes were issued
--------------------
contains restrictions on payments to and investments in affiliates by Santa Fe
Inc., including the Company. As a result of these restrictions, all of the cash
flow generated by Santa Fe Inc.
24
<PAGE>
is not currently, and is not expected during the next twelve months to be,
available for distribution to the Company. Approximately $11.1 million of the
Company's current assets, including approximately $8.6 million of cash and short
term investments, was held by Santa Fe Inc. at June 30, 1995. (See "Capital
Expenditures" and "Asset Sale - Sahara" below)
Results of operations at the Santa Fe for the twelve months ended June 30, 1995,
excluding the $14.9 million charge against earnings to write down development
costs regarding Parkville, provided EBITDA of $20.1 million, approximately 1.47
times interest expense during the same period. (See Results of Operations -
Revenues; Operating Expenses) Management believes that, based on current
operations and available resources, barring unforeseen circumstances, Santa Fe
Inc. will have sufficient cash resources to meet its operating requirements and
debt service requirements through the twelve month period ending June 30, 1996.
(See Debt Obligations)
Liquidity - Pioneer - The indenture under which the $120.0 million principal
-------------------
amount of First Mortgage Notes due 1998 ("13-1/2% Notes") of Pioneer Finance
Corp. were issued contain restrictions on payments to and investments in
affiliates by Pioneer Inc., including to the Company. As a result of these
restrictions, all of the cash flow generated by Pioneer Inc. is not currently,
and is not expected during the next twelve months to be, available for
distribution to the Company. Approximately $5.0 million of the Company's
current assets, including approximately $2.3 million of cash and short term
investments, was held by Pioneer Inc. at June 30, 1995.
Results from operations at the Pioneer for the twelve months ended June 30, 1995
provided EBITDA of $11.1 million, approximately .80 times interest expense
during the same period. (See Results of Operations - Revenues and Operating
Expenses) Management believes that, based on current operations and available
and expected resources, primarily equipment financing permitted under the 13-
1/2% Note indenture and anticipated proceeds from the sales of the Hacienda and
the Sahara, barring unforeseen circumstances, the Pioneer will have sufficient
cash resources to meet its operating requirements and debt service requirements
through the 12 months ending June 30, 1996, although no assurance can be given
to that effect. If the Hacienda and Sahara sales are consummated, among other
items, the Company will acquire $20 million principal amount of 13-1/2% Bonds
for $15.5 million and submit such 13-1/2% Bonds to the trustee for cancellation,
and the Company will contribute $15 million in cash to Pioneer Inc. (See Asset
Sale - Hacienda and Sahara below)
In the event Pioneer Inc. is unable to meet debt service payments through
current operations and available resources, Pioneer Inc. will explore financing
alternatives, including but not limited to refinancing or modification of
existing indebtedness, and the
25
<PAGE>
incurrence of additional permitted indebtedness.
Capital Expenditures - In December 1994, the Company completed construction of
---------------------
an expansion at the Santa Fe. The cost of construction and equipment was
approximately $14.4 million. During the nine month period ended June 30, 1995,
the Company recorded approximately $12.0 million in construction costs
associated with the expansion of the Santa Fe.
In December 1994, the Company completed construction of an expansion of the
Pioneer. The cost of construction and equipment was approximately $4.1 million.
During the nine month period ended June 30, 1995, the Company recorded
approximately $2.2 million in construction costs associated with the expansion
of the Pioneer.
Asset Sale - Hacienda: In January 1995, the Company entered into an agreement to
----------------------
sell substantially all of the assets of Hacienda for $80 million in an all cash
transaction. The sale is subject to the buyer's obtaining all appropriate
regulatory licenses and approvals. The Company has been advised that the buyer
submitted applications for Nevada licensing approvals related to the acquisition
of the Hacienda assets in March 1995. In the event the sale has not been
consummated by October 10, 1995, either the Company or the buyer may terminate
the agreement. Additionally, the agreement may be terminated as a result of
failure to meet certain conditions or due to breaches or defaults. If the
buyer terminates the agreement for any reason other than the buyer's inability
to obtain necessary licenses or approvals from the Nevada Gaming Authorities or
as a result of a misrepresentation, or a default or breach of the agreement by
the Company, a $5 million earnest money deposit will be released to the Company.
The buyer has the option to extend the October 10, 1995 date to April 10, 1996,
in which event the $5 million earnest money deposit will be released to the
Company. The deposit, if released in connection with an extension of such date,
would be applied against the purchase price if the sale is consummated on or
prior to April 10, 1996, or retained by the Company if the sale is not
consummated by that date.
Proceeds from the sale, if consummated, will be used as follows: (i)
approximately $22.0 million will be used to repay a note secured by a first deed
of trust on the Hacienda ("PERS Note") , (ii) approximately $3.0 million will be
used to satisfy other costs of closing, and (iii) $32.0 million of proceeds will
be used to satisfy an affiliate note in favor of Sahara Nevada. (See affiliate
notes discussed below) Remaining proceeds of approximately $23 million may be
utilized for working capital purposes, including the development of proposed
projects, expansion or renovation of existing facilities and reduction of
outstanding indebtedness.
Asset Sale - Sahara: In May 1995, the Company entered into an agreement to sell
-------------------
substantially all of the assets of the Sahara for $128 million in cash and to
exchange 22 acres of land, a portion of which is currently utilized by the
Sahara as a parking lot, for 26
26
<PAGE>
acres of land just south of the Sahara on Las Vegas Boulevard, currently
occupied by a water park. The sale is subject to the buyer's obtaining all
appropriate regulatory licenses and approvals and termination or expiration of
the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of
1976. The Company has been advised that the buyer submitted applications for
Nevada licensing approvals related to the acquisition of the Sahara assets in
June 1995. In the event the sale has not been consummated by February 28, 1996,
either the Company or the buyer may terminate the agreement. If the buyer
terminates the agreement for any reason other than the buyer's inability to
obtain necessary licenses or approvals from the Nevada Gaming Authorities or as
a result of a misrepresentation, or a default or breach of the agreement by the
Company, a $10 million earnest money deposit will be released to the Company.
The buyer has the option to extend the February 28, 1996 date to May 31, 1996,
in which event the $10 million earnest money deposit will be released to the
Company. The deposit, if released in connection with an extension of such date,
would be applied against the purchase price if the sale is consummated on or
prior to May 31, 1996, or retained by the Company if the sale is not consummated
by that date.
If the sale of substantially all of the assets of the Sahara is consummated,
approximately $121 million cash proceeds of the sale will be used to fund the
cost of defeasance of the 12-1/8% Notes. The remaining cash proceeds of
approximately $7 million will pay the costs associated with the transaction and
will be retained for working capital purposes.
In June 1995, the Company reached an agreement with the holders of the 13-1/2%
Notes in connection with the holders consenting to the proposed sales of the
Sahara and Hacienda. Pursuant to this agreement, upon consummation of the sale
of the Hacienda, the Company will cause the $20 million principal amount of 13-
1/2% Notes to be acquired for $15.5 million to be contributed as equity to PHI
and submitted to the trustee for cancellation. Upon consummation of the sale of
the Sahara, the Company will cause the capital stock of a wholly-owned
subsidiary, which owns a 40-acre parcel of land in Henderson, Nevada, to be
contributed as equity to Pioneer Inc. and will cause $15 million in cash to be
contributed to Pioneer Inc. Such funds may be utilized for debt service on the
13-1/2% Notes, capital expenditures at the Pioneer, and with respect to $10
million, contribution to capital for development of the Henderson, Nevada
project or repurchase of 13-1/2% Notes. In addition, the Company will grant a
security interest in the real property to be acquired in the Sahara sale located
on the Las Vegas Boulevard to secure a contingent $10 million obligation.
Debt Obligations - The PERS Note, with respect to which approximately $21.9
----------------
million was outstanding at June 30, 1995, matures in December 1995. The
Company anticipates satisfying the PERS Note from the proceeds of the sale of
the Hacienda. (See Asset Sale above)
On March 31, 1994, a wholly-owned subsidiary of the Company issued $15 million
principal amount 12% First Mortgage Notes guaranteed by the Company and secured
by, among other things, a first priority lien on the real property pursuant to
the deed of trust relating thereto ("12% Notes"). The principal amount of the
12% Notes and all accrued
27
<PAGE>
interest were originally payable on March 31, 1995. The 12% Notes were amended
in March 1995 to (i) extend the maturity date to the earlier of September 30,
1995 or five days after the consummation of a sale of substantially all of the
assets of the Hacienda, and (ii) provide for monthly cash interest payments on
the principal amount of the 12% Notes and interest accrued on the 12% Notes
through March 31, 1995 ($16.8 million in the aggregate). Additionally, in
connection with the amendment, HHI guaranteed the indebtedness evidenced by the
12% Notes.
The Company has entered into an agreement, contingent upon the consummation of
the sale of the assets of the Hacienda before December 31, 1995, to use $15.5
million in proceeds from the Hacienda sale to acquire $20.0 million principal
amount of the 13-1/2% Notes. The 13-1/2% Notes, if acquired pursuant to this
agreement, would be submitted to the trustee for cancellation and would satisfy
in full the Company's $12.75 million sinking fund payment remaining due in
December 1996 on the 13-1/2% Notes.
Affiliate notes in the principal amounts of $32 million issued by HHI and $8
million issued by the SFHI, each in favor of SNC, mature simultaneously with the
maturity of the 12-1/8% Notes and may be repaid under the terms of the 12-1/8%
Notes indenture. If either the Hacienda or the Santa Fe is sold earlier than
the August 1996 maturity date, the affiliate note related to the property sold
will be accelerated and will become immediately due and payable. Therefore,
upon consummation of the sale of substantially all of the assets of the
Hacienda, the $32 million affiliate note will become due and will be paid out of
the proceeds of the sale. Such funds may then be used by SNC for capital
expenditures at the Sahara, or may be loaned to wholly-owned subsidiaries of the
Company, pursuant to comparable affiliate notes that would mature in August
1996. The Company expects to use all or a portion of the $32 million received
by SNC upon repayment of the Hacienda affiliate note to make loans to a wholly-
owned subsidiaries of the Company for the purposes either of consummating the
purchase of 13-1/2% Notes and/or to repay the 12% Notes discussed above.
If the sale of substantially all of the assets of the Sahara is consummated,
approximately $121 million cash proceeds of the sale will be used to fund the
cost of defeasance of the 12-1/8% Notes. The remaining cash proceeds of
approximately $7 million will be used to pay the costs associated with the
transaction and for working capital purposes.
Any affiliate notes that evidence loans that may be made by SNC to wholly-owned
subsidiaries of the Company from the proceeds of the repayment of the existing
$32 million affiliate note owed by Hacienda Inc. to Sahara Nevada for the
purposes of retiring the 12% Notes or acquiring $20 million principal amount of
13-1/2% Notes are expected to be forgiven upon defeasance of the 12-1/8% Notes.
Santa Fe Offer to Repurchase: In July 1995, in accordance with the indenture
-----------------------------
governing the 11% Notes, SFHI commenced an offer to repurchase $21.5 million
principal amount of 11% Notes, representing that principal amount that can be
purchased with funds
28
<PAGE>
remaining in the Parkville collateral account dedicated to use in the
development of a proposed dockside riverboat casino and to be received upon
liquidation of the Parkville assets. The repurchase offer is required to be made
because the proposed casino in Parkville, Missouri that SFHI intended to develop
was not operating by June 30, 1995. In satisfaction of the obligation to
liquidate the Parkville assets, SFHI intends to acquire the Parkville assets for
$2.99 million, which Sahara Gaming and SFHI believe to be the fair market value
of such assets. Thereafter, upon the earlier of the consummation of the sale of
substantially all of the assets of the Hacienda or June 30,1996, Sahara Gaming
or an affiliate will acquire the Parkville assets from SFHI for $2.99 million,
provided SFHI has not previously sold the Parkville assets to a third party.
Pursuant to the offer to repurchase, SFHI is offering to purchase for cash up to
$21.5 million principal amount of the 11% Notes, including up to $11.5 million
in principal amount of 11% Notes that may be issued upon exercise of outstanding
warrants to acquire additional 11% Notes, at a price of $1,010 per $1,000
principal amount, plus accrued interest. As a result of the commencement of the
offer to repurchase, the outstanding warrants are exercisable for no additional
consideration until September 11, 1995.
As an alternative to the repurchase offer, SFHI is soliciting consents to
amendments to the indenture governing the 11% Notes to modify the requirements
of the repurchase offer. The amendments would permit SFHI to retain a portion of
the cash that would otherwise be used to make the repurchase offer and to use
the retained cash for certain permitted uses, including the development of a
casino-hotel in Henderson, Nevada. (See Notes 5, 6 and 9) SFHI is conditioning
the consent solicitation upon receipt of consents from the holders of all
outstanding Notes other than Notes in the aggregate principal amount of $10
million. In the event holders of more than $10 million of Notes do not consent
to the amendments, SFHI will consummate the repurchase offer as originally
contemplated. If the consents become effective, SFHI is offering to pay to each
holder of the Notes validly consenting to the amendments a consent payment equal
to $15 for each $1,000 principal amount of Notes for which a valid consent is
received, and SFHI will consummate the repurchase offer with respect to up to a
maximum $10 million principal amount of Notes. Additionally, if the consents
become effective, and the sale of the Sahara and the Hacienda are consummated,
Sahara Gaming will cause a subsidiary to grant a subordinated security interest
for the benefit of the 11% Noteholders in certain real property on the Las
Vegas Strip.
The Company has recorded a non-recurring charge to earnings in the amount of
$2.4 million, less income tax benefit of $846,000, related to debt premium
payments, debt issue costs and debt discount, in connection with the repurchase
offer.
29
<PAGE>
Treasure Bay The Company is incurring and expects to continue to incur
------------
professional expenses and other expenses associated with legal proceedings
involving Treasure Bay and the Company's investment in Treasure Bay. The
Company included an estimate of such expenses in the charge against income
relating to the investment in Treasure Bay recorded in the fourth quarter of
fiscal 1994. The Company expects to review the status of the legal proceedings
involving Treasure Bay periodically in order to evaluate the adequacy of the
previously recorded charge against income.
Related Parties LICO, a company wholly-owned by Mr. Lowden, Chairman of the
---------------
Board, Chief Executive Officer and 51% stockholder of the Company, borrowed
$476,000 from Hacienda Inc., pursuant to an unsecured demand loan. The
outstanding balance of the loan including accrued interest was $533,000 as of
June 30, 1995. The demand loan to LICO bears interest at 2% over the prime rate.
As of September 30, 1993, Mr. Lowden had borrowed an aggregate of $1.9 million
from the Company. The unsecured demand loans were evidenced by promissory notes
and accrued interest at a rate equal to 2% over the prime rate. On January 4,
1994, Mr. Lowden repaid the loans from the Company in full, together with
accrued interest.
In November 1993, Mr. Lowden and Bank of America entered into a personal loan
agreement whereby the principal balance (approximately $3,614,917 as of June
30, 1995) of the loan is amortized through quarterly principal payments through
April 1998, with any remaining principal balance due July 31, 1998. The loan is
secured by substantially all of the common stock of the Company owned by Mr.
Lowden (the "Pledged Shares"). Mr. Lowden's loan agreement provides that in the
event the market value of the Pledged Shares is less than three times the
outstanding loan balance, the bank, at its sole option, may require either an
immediate reduction in the outstanding balance or the pledging of additional
collateral acceptable to the bank such that the value of the pledged collateral
is at least three times the outstanding loan balance. If an event of default
were to occur under Mr. Lowden's personal loan with the bank, and if the bank
acquired the Pledged Shares upon foreclosure, Mr. Lowden's ownership of the
Company's outstanding common stock would be reduced to below 50%. If Mr. Lowden
ceases to own more than 50% of the outstanding shares of the Company's common
stock, an event of default would result under certain of the Company's long-term
indebtedness, which could result in cross-defaults under substantially all of
the Company's other long-term indebtedness.
Effects of Inflation
--------------------
30
<PAGE>
The Company has been generally successful in recovering costs associated with
inflation through price adjustments in its hotel and contract sales operations.
Any such increases in costs associated with casino operations and maintenance of
properties may not be completely recovered by the Company.
31
<PAGE>
SAHARA GAMING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Certain legal proceedings were disclosed in the Company's annual report on Form
10-K for the year ended September 30, 1994. Except as set forth below, there
were no material developments in any material legal proceeding during the
quarter ended June 30, 1995.
On December 12, 1994, the Company and Santa Fe Inc. filed a lawsuit in the
United States District Court, District of Nevada, naming Treasure Bay officers
A. Clay Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer
Francis L. Miller as defendants in matters involving violations of Section 10(b)
and Rule 10(b)-5 of the Securities Exchange Act, violation of Nevada state
securities laws, fraud and negligent misrepresentation in connection with the
Company's investment of $10 million in exchange for a 20% interest in Treasure
Bay, and the Company's guarantee of $4.5 million of Treasure Bay's indebtedness.
The defendants have filed answers to the complaint and discovery is continuing.
On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and Santa Fe Inc.
as well as Paul W. Lowden and Suzanne Lowden, alleging, among other things, that
the Company made certain misrepresentations which induced Francis Miller to
entrust the management of his investments in Treasure Bay's two Mississippi
casinos to the Company and Santa Fe Inc. and to sell the Company and Santa Fe
Inc. a 20% ownership interest in Treasure Bay. The Company and Santa Fe Inc.
believe that the suit is without merit and are defending themselves vigorously
while pursuing their own lawsuit. The Company and Santa Fe Inc. moved to
dismiss, stay or transfer it to the federal court in Nevada, on the grounds that
it should have been asserted, if at all, as a counterclaim in the Nevada action
described above. That motion was granted in June 1994, and the action was
subsequently transferred to the federal court in Nevada.
On or about January 17, 1995, the Company and Santa Fe commenced an adversary
proceeding in Treasure Bay's bankruptcy case in the United States Bankruptcy
Court for the Southern District of Mississippi. The adversary proceeding seeks
the return of bankroll or cage cash at Treasure Bay's casinos on the grounds
that such funds are held by Treasure Bay in constructive trust for the Company
and SFHI. The complaint alleges that Treasure Bay fraudulently induced the
Company to execute the guarantees of the loans by which Treasure Bay obtained
the bankroll or cage cash. The complaint also seeks an injunction from the
Bankruptcy Court requiring the bankroll or cage cash to be held intact pending
32
<PAGE>
the litigation. Treasure Bay filed an answer to the complaint denying Sahara's
claim. On March 18, 1995, the U.S. Bankruptcy Court granted the Company's
request for a preliminary injunction prohibiting Treasure Bay from using the
bankroll or cage cash except in the ordinary course of business until further
order of the Court. Sahara is vigorously pursuing its constructive trust claim.
Subsequent to the U.S. Bankruptcy Court's entry of an injunction to preserve the
bankroll proceeds pending the constructive trust litigation, Treasure Bay
successfully urged the Court to lift the injunction for the limited purpose of
allowing the bankroll proceeds to be used as collateral for specific interim
financing by Treasure Bay. However, the Court conditioned the use of the
bankroll as collateral upon approval by the Mississippi Gaming Commission of the
proposed interim financing. Upon review, Treasure Bay's interim financing plan
was not approved by the Mississippi Gaming Commission and Treasure Bay
subsequently announced that it was withdrawing its plans for interim financing.
Accordingly, the injunction regarding the bankroll is still in place.
On March 31, 1995, Treasure Bay Corp. commenced an adversary proceeding in its
bankruptcy case by filing a complaint for a preliminary and permanent injunction
pursuant to 11 U.S.C. Sec. 105 and Sec. 362 against the Company and Santa Fe.
The Complaint alleges that the filing of the action against Bernie Burkholder,
an officer of Treasure Bay Corp., in Nevada federal court violated the automatic
stay imposed by 11 U.S.C. Sec. 362, or alternatively, that the Bankruptcy Court
should issue an injunction pursuant to 11 U.S.C. Sec. 105 preventing Sahara from
proceeding with its action as against Burkholder. In addition to an injunction,
the complaint seeks actual and punitive damages and attorneys' fees. In a
hearing on this complaint, Treasure Bay abandoned its claims for damages and
violation of the stay. However, the bankruptcy court granted Treasure Bay's
request for a stay of discovery against Bernie Burkholder that will expire after
the confirmation hearing on Treasure Bay's bankruptcy plan.
The Company is vigorously pursuing its claims and defenses in all proceedings
involving its current and prior relationship with Treasure Bay.
In addition, the Company is subject to various lawsuits relating to routine
matters incidental to its business. The Company does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a vote of Security Holders
None
Item 5 - Other Information
None
33
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits:
10.111 Third Amendment to Development Agreements dated June 30,
1995 by Sahara Parkville, Inc. And the City of Parkville,
Missouri
10.112 Sixth Amendment to Lease Agreement dated June 30, 1995 by
Sahara Parkville, Inc., and the City of Parkville,
Missouri
23 Consent of Deloitte & Touche
27 Financial Data Schedule
B. Reports:
1. The Registrant filed a Current Report on Form 8-K dated May
31, 1995 under Item 5. Other Events, reporting certain
information relating to the sale of assets of the Sahara
Hotel and Casino.
34
<PAGE>
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 authorized.
SAHARA GAMING CORPORATION, Registrant
By: s/ Thomas K. Land
-----------------------------------------
Thomas K. Land, Chief Financial Officer
Dated: August 14, 1995
35
<PAGE>
Sahara Gaming Corporation
Las Vegas, Nevada
We have made a review, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants, of the unaudited interim financial information of Sahara Gaming
Corporation and subsidiaries for the periods ended June 30, 1995 and 1994, as
indicated in our report dated August 11, 1995 (which includes an explanatory
paragraph regarding the Company's ability to repay certain indebtedness);
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 is
incorporated by reference In Registration Statement No. 33-44700 on Form S-8 and
in post-effective Amendment No. 1 to Registration Statement No. 33-7053 on Form
S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that act.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
August 11, 1995
36
<PAGE>
EXHIBIT 10.111
THIRD AMENDMENT TO DEVELOPMENT AGREEMENT
----------------------------------------
THIS AMENDMENT to Development Agreement is made this 30th day of June, 1995
by Sahara Parkville, Inc., a Missouri corporation ("SP") and the City of
Parkville, Missouri, a Missouri municipal corporation (the "City").
RECITALS
--------
A. SP and the City entered into a Development Agreement dated December
27, 1993 ("Agreement"), which was later amended by the Amendment to Development
Agreement ("First Amendment") and Second Amendment to Development Agreement
("Second Amendment") (the Agreement, the First Amendment and the Second
Amendment are collectively, the "Development Agreement").
B. The Missouri Gaming Commission recently announced that it would not
investigate any other applicants for a riverboat gaming license, other than
those already named, for twelve to eighteen months.
C. SP has been working with the City for over three years with respect to
the Development and the parties desire to continue to work together.
D. The parties now desire to amend the Development Agreement as set forth
in this Amendment.
E. Except as provided in this Amendment, all defined terms, as indicated
by their capitalization, shall have the same meanings in this Amendment as they
do in the Development Agreement.
F. Section 11.12 of the Development Agreement requires all amendments to
the Development Agreement to be in writing.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the forgoing and the covenants,
agreements and warranties of the parties contained in this Amendment and the
Development Agreement, and other good and valuable consideration, the parties
agree that the Development Agreement is amended as follows:
1. If the Missouri Gaming Commission has not announced, by June 30, 1997,
that SP will be selected for investigation, the Development Agreement shall
terminate.
2. The first paragraph of subsection a of Section 3.2 is amended to read,
in its entirety, as follows:
a. Development/Lease Contingencies Waiver. Unless the parties agree
--------------------------------------
in writing to a different date or time, and assuming all conditions have
been satisfied or waived as
<PAGE>
provided herein for continuation of the Development and the Lease, the
"Contingencies Waiver Date" or "Closing Date," "closing" or "Closing" for
all purposes related to this Agreement and the Lease (to be evidenced by
the parties' execution of the "Contingencies Waiver Addendum" to this
Agreement and the Lease prepared by Developer and reasonably approved by
the City) shall be on that business day selected by Developer within twenty
(20) business days after the date upon which Developer has received the
last of its Gaming Licenses, Occupational Licenses and Construction
Permits.
3. The parties agree to work together to effectuate the intent of this
Agreement and the Lease and to resolve any issues which may arise regarding the
Development or the Riverboat Casino.
4. This Amendment may be executed in counterparts, each of which shall
be deemed an original.
5. Except as modified by this Amendment, the Development Agreement shall
remain in full force and effect.
6. The parties agree that each will accept, as an original, a facsimile
copy of this Amendment, with proper facsimile signature; provided that this
Amendment, with original signature, is delivered within seven (7) business days
thereafter.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
"SP"
SAHARA PARKVILLE, INC.,
a Missouri corporation
By: /s/ THOMAS K. LAND
________________________
Thomas K. Land
Title: Assistant Secretary
____________________
ACKNOWLEDGMENT
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
BEFORE ME, a Notary Public in and for the county and state aforesaid,
personally appeared Thomas K. Land, Assistant Secretary of Sahara Parkville,
Inc., a Missouri corporation, who is known to me to be the same person who
executed the foregoing instrument on behalf of Sahara Parkville, Inc., a
Missouri corporation, and acknowledged the execution of the same as the free and
voluntary act and deed of Sahara Parkville, Inc., a Missouri corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal this 6th day of July, 1995.
Judy A. Coder
_______________________________
NOTARY PUBLIC
My Commission Expires:
1-26-96
______________________
3
<PAGE>
"CITY"
CITY OF PARKVILLE, MISSOURI
[SEAL] By: William M. Quitmeier
_______________________
Title: Mayor
____________________
Barbara J. Lance
___________________
CITY CLERK
ACKNOWLEDGMENT
STATE OF MISSOURI )
) ss.
COUNTY OF PLATTE )
BEFORE ME, a Notary Public in and for the county and state aforesaid,
personally appeared William M. Quitmeier, Mayor of the City of Parkville,
-------------------- -----
Missouri, a public corporation, who is known to me to be the same person who
executed the foregoing instrument on behalf of the City of Parkville, and
acknowledged the execution of the same as the free and voluntary act and deed of
the City of Parkville.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal this 30th day of June, 1995.
---- -----
Barbara R. Bailey
_______________________________
NOTARY PUBLIC
My Commission Expires:
2/16/97
______________________
4
<PAGE>
EXHIBIT 10.112
SIXTH AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS AMENDMENT to Lease Agreement is made as of this 30th day of June, 1995
by Sahara Parkville, Inc., a Missouri corporation ("SP") and the City of
Parkville, Missouri, a Missouri municipal corporation (the "City").
RECITALS
--------
A. Sahara Casino Partners, L.P., a Delaware limited partnership ("SCP"),
and the City entered into a Lease Agreement (the "Lease Agreement") dated May
26, 1993 which has been amended by the Amendment to Lease Agreement (the "First
Amendment") dated September 7, 1993, the Second Amendment to Lease Agreement
dated December 27, 1993 ("Second Amendment"), the Landlord Consent, Estoppel
Certificate and Third Amendment to Lease Agreement dated December 27, 1993 (the
"Third Amendment"), the Fourth Amendment to Lease Agreement dated January 18,
1994 ("Fourth Amendment") and the Fifth Amendment to Lease Agreement dated
October 28, 1994 ("Fifth Amendment") (the Lease Agreement, First Amendment,
Second Amendment, Third Amendment, Fourth Amendment and Fifth Amendment are
collectively referred to as the "Lease").
B. SCP, the City and Sahara Gaming Corporation ("SGC") entered into an
Assignment of Lease and Landlord's Consent dated September 30, 1993 under which
all of SCP's rights and obligations pursuant to the Lease were assigned to SGC.
C. SGC, the City and SP entered into an Assignment of Lease and
Landlord's Consent dated December 27, 1993 under which all of SGC's rights and
obligations pursuant to the Lease were assigned to SP.
D. The Missouri Gaming Commission recently announced that it would not
investigate any other applicants for a riverboat gaming license, other than
those already named, for twelve to eighteen months.
E. SP has been working with the City for over three years with respect to
the Development and the parties desire to continue to work together.
F. The parties desires to amend the Lease as set forth in this Amendment.
G. Except as provided in this Amendment, all defined terms, as indicated
by their capitalization, shall have the same meanings in this Amendment as they
do in the Lease.
H. Section 27.13 of the Lease requires all amendments to the Lease to be
in writing.
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the forgoing and the covenants,
agreements and warranties of the parties contained in this Amendment, the
Development Agreement and the Lease, and other good and valuable consideration,
the parties agree that the Lease is amended as follows:
1. The first, second, third and fourth sentences of Section 2.01 of Article II
are deleted and in their place are inserted the following:
The Initial Term of this Lease (the "Initial Term") shall commence on
the date hereof (the "Commencement Date") and shall terminate on the
earlier of the Opening Date or the date this Lease terminates. The
Extended Term of this Lease (the "Extended Term") shall commence on
the Opening Date and shall terminate on the Termination Date (as
defined herein), except as renewed or earlier terminated as provided
herein (the "initial Term" and the "Extended Term" are collectively
referred to as the "Term"). The date upon which the Term shall
terminate (the "Termination Date") shall be thirty (30) years after
the date upon which Tenant begins operation of the Riverboat Casino
("Opening Date") on and adjacent to the Demised Premises unless the
Term is renewed as provided herein; provided, however, that (i) Tenant
may terminate this Lease, in its sole discretion, prior to the earlier
of June 30, 1997 or the date Tenant is selected for investigation by
the Missouri Gaming Commission, upon ninety (90) days written notice
to the City, and (ii) the Term of this Lease shall be terminated and,
except as provided herein with regard to the Riverboat Demised
Premises, never deemed to have commenced nor shall Tenant be
considered to have been a Tenant of or in possession of the Demised
Premises if the Development Agreement terminates or the Conditions
Precedent (as defined herein) to the effectiveness of this Lease shall
not have been fulfilled by the Closing Date or the Extended Closing
Date as set out in the Development Agreement. Notwithstanding
anything contained in this Section 2.01 to the contrary, from the
Commencement Date to the earlier of the Termination Date or the
Opening Date, Tenant shall pay Landlord the Interim Fixed Rent as set
forth in Section 4.02 and Tenant shall comply with all applicable
provisions of Article VII throughout the Term.
2. The period at the end of the first sentence of Section 4.02 of Article IV
is deleted and the following is inserted:
2
<PAGE>
; provided, however, beginning July 1, 1995, the Interim Fixed Rent shall
be reduced to $5,000 per month and shall remain $5,000 per month until the
earlier of June 30, 1997 or Opening Date (if the Opening Date occurs prior
to June 30, 1997). If this Lease is not terminated on or before June 30,
1997, the Interim Fixed Rent from July 1, 1997 until Opening Date shall be
$10,000 per month.
3. The parties agree to work together to effectuate the intent of the
Lease and the Development Agreement and to resolve any issues which may arise
regarding the Development or the Riverboat Casino.
4. This Amendment may be executed in counterparts, each of which shall
be deemed an original.
5. Except as modified by this Amendment, the Lease shall remain in full
force and effect.
6. The parties agree that each will accept, as an original, a facsimile
copy of this Amendment, with proper facsimile signature; provided that this
Amendment, with original signature, is delivered within seven (7) business days
thereafter.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
"SP"
SAHARA PARKVILLE, INC.,
a Missouri corporation
By: /s/ THOMAS K. LAND
________________________
Thomas K. Land
Title: Assistant Secretary
_____________________
ACKNOWLEDGMENT
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
BEFORE ME, a Notary Public in and for the county and state aforesaid,
personally appeared Thomas K. Land, Assistant Secretary of Sahara Parkville,
Inc., a Missouri corporation, who is known to me to be the same person who
executed the foregoing instrument on behalf of Sahara Parkville, Inc., a
Missouri corporation, and acknowledged the execution of the same as the free and
voluntary act and deed of Sahara Parkville, Inc., a Missouri corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal this 6th day of July, 1995.
Judy Coder
_______________________________
NOTARY PUBLIC
My Commission Expires:
1-26-96
______________________
4
<PAGE>
"CITY"
CITY OF PARKVILLE, MISSOURI
[SEAL] By: /s/ William M. Quitmeier
________________________
Title: Mayor
____________________
Barbara J. Lance
_______________________
CITY CLERK
ACKNOWLEDGMENT
STATE OF MISSOURI )
) ss.
COUNTY OF PAITTE )
BEFORE ME, a Notary Public in and for the county and state aforesaid,
personally appeared William M. Quitmeier, Mayor of the City of Parkville,
-------------------- -----
Missouri, a public corporation, who is known to me to be the same person who
executed the foregoing instrument on behalf of the City of Parkville, and
acknowledged the execution of the same as the free and voluntary act and deed of
the City of Parkville.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal this 30th day of June, 1995.
---- -----
Barbara R. Bailey
_______________________________
NOTARY PUBLIC
My Commission Expires:
2-16-97
______________________
5
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