<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM_______________ TO _______________
COMMISSION FILE NUMBER: 0-26518
FITZGERALDS GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0329170
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
301 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of principal executive offices) (Zip Code)
(702) 388-2224
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [ ] NO [x]
Shares outstanding of each of the registrant's classes of common stock as of
November 10, 1996
Class Outstanding as of November 10, 1996
----- -----------------------------------
Common stock, $.01 par value 4,012,846
<PAGE> 2
FITZGERALDS GAMING CORPORATION
FORM 10-Q/A
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 29,
1996 AND DECEMBER 31, 1995 4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTERS
AND THREE QUARTERS ENDED SEPTEMBER 29, 1996 AND
OCTOBER 1, 1995 6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
QUARTERS ENDED SEPTEMBER 29, 1996 AND
OCTOBER 1, 1995 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION 19
SIGNATURES 21
2
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PART I
FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 29, 1996 DECEMBER 31, 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $17,130 $19,844
Restricted cash - 471
Accounts and notes receivable 2,170 3,007
Inventories 1,659 1,028
Prepaid expenses 3,044 3,106
--------------- ---------------
Total current assets 24,003 27,456
--------------- ---------------
PROPERTY AND EQUIPMENT, NET 146,765 103,803
--------------- ---------------
OTHER ASSETS
Restricted cash-construction 5,770 49,100
Restricted investment 1,000 1,000
Long-term accounts and notes receivable
related parties, net of current portion 2,231 1,902
Advances receivable - 2,500
Investment in 101 Main Street 3,057 -
Investment in Fremont Street Experience 2,784 2,786
Debt offering costs 6,911 7,358
Other assets 1,572 1,308
--------------- ---------------
Total other assets 23,325 65,954
--------------- ---------------
TOTAL $194,093 $197,213
=============== ===============
</TABLE>
See notes to consolidated financial statements
(continued)
4
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FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 29, 1996 DECEMBER 31, 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $8,801 $10,498
Current portion of notes payable - related parties 357 728
Accounts payable 6,267 5,939
Accrued expenses 15,799 10,859
Deferred tax liability 63 63
--------------- ---------------
31,287 28,087
--------------- ---------------
LONG-TERM DEBT, NET OF CURRENT PORTION 138,817 137,660
NOTES PAYABLE-RELATED PARTIES, NET OF CURRENT PORTION 1,807 1,808
DEFERRED TAX LIABILITY 380 1,420
--------------- ---------------
Total liabilities 172,291 168,975
--------------- ---------------
MINORITY INTEREST 511 225
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE PREFERRED STOCK,
recorded at liquidation preference value, net of
unamortized offering costs and discounts. 14,545 11,952
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 29,200,000 shares
4,012,846 shares and 3,956,816 shares, issued
Additional paid-in capital 24,511 24,455
Accumulated deficit (17,805) (8,434)
--------------- ---------------
Total stockholders' equity 6,746 16,061
--------------- ---------------
TOTAL $194,093 $197,213
=============== ===============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND THREE QUARTERS ENDED
SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
----------------------- -------------------------
SEP. 29, OCT. 1, SEP. 29, OCT. 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $28,254 $29,976 $82,503 $87,147
Food and beverage 4,631 4,671 13,888 13,972
Rooms 4,386 3,296 10,476 9,932
Other 2,027 1,673 5,442 4,862
------------- ------------- ------------- -------------
Total 39,298 39,616 112,309 115,913
Less promotional allowances (3,208) (3,023) (9,017) (9,067)
------------- ------------- ------------- -------------
Net 36,090 36,593 103,292 106,846
------------- ------------- ------------- -------------
OPERATING COSTS AND EXPENSES:
Casino 14,675 14,740 42,587 42,838
Food and beverage 3,252 3,234 9,487 9,570
Rooms 2,773 1,803 6,686 5,309
Other operating 367 445 1,163 1,336
Selling, general and administrative 11,216 10,332 31,953 31,464
Depreciation and amortization 2,170 1,933 6,080 6,354
------------- ------------- ------------- -------------
Total 34,453 32,487 97,956 96,871
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS 1,637 4,106 5,336 9,975
OTHER INCOME (EXPENSE):
Interest Income 394 154 1,821 252
Other income (expense) 36 - 81 -
Interest expense (4,664) (3,469) (14,823) (10,670)
Gain on sale of assets 14 4 285 456
Equity in income of unconsolidated affiliate 243 - 59 -
Minority interest in income of subsidiaries (123) (46) (286) (165)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE TAXES (2,463) 749 (7,527) (152)
INCOME TAX (PROVISION) BENEFIT (675) (260) 1,040 (3,433)
------------- ------------- ------------- -------------
NET INCOME (LOSS) (3,138) $489 (6,487) $(3,585)
============= ============= ============= =============
PREFERRED STOCK DIVIDENDS (910) (2,592)
------------- -------------
NET LOSS APPLICABLE TO COMMON STOCK $(4,048) $(9,079)
------------- -------------
NET LOSS PER COMMON SHARE ($1.01) ($2.26)
============= =============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 4,012,846 4,012,846
============= =============
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE QUARTERS ENDED
SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
-----------------------------
<S> <C> <C>
SEP. 29, OCT. 1,
1996 1995
NET CASH PROVIDED BY OPERATING ACTIVITIES: $4,821 $3,807
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 359 9,376
Repayments from related parties 85 150
Acquisition of property and equipment (47,162) (2,255)
Distributions from 101 Main Street 352 -
Increase in advance receivable - (615)
Decrease in restricted cash 43,330 -
Investment in Fremont Street Experience (848) -
----------- -----------
Net cash provided (used) in investing activities (3,884) 6,656
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit - 500
Advances from related parties - 868
Cash paid to reduce long-term debt (7,489) (14,078)
Dividends (293) (915)
Other (319) (2,894)
(Increase) Decrease in restricted cash 472 (149)
Proceeds from issuance of debt 3,978 2,700
----------- -----------
Net cash (used) by financing activities (3,651) (13,968)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2,714) (3,505)
CASH AND EQUIVALENTS BEGINNING OF PERIOD 19,844 11,886
----------- -----------
CASH AND EQUIVALENTS END OF PERIOD $17,130 $8,381
=========== ===========
CASH PAID FOR INTEREST $11,032 $11,867
SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired through the issuance of debt $1,954 $4,743
Accretion of discount on preferred stock 238
Accrual of preferred stock dividends 2,354
Advances receivable transferred to investment in 101 Main Street 2,500
See notes to consolidated financial statements.
</TABLE>
7
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FITZGERALDS GAMING CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company as of
September 29, 1996 and for the quarter and three quarters ended September 29,
1996 and October 1, 1995, respectively, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the interim
consolidated financial statements have been included. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995. The results of operations
for the three quarters ended September 29, 1996 are not necessarily indicative
of the results to be expected for the year ending December 31, 1996.
2. INVESTMENT IN 101 MAIN STREET
On February 16, 1996, the Company received approval from the Colorado Limited
Gaming Commission to purchase a 22% equity interest in 101 Main Street LLC, the
owner of Fitzgeralds Black Hawk Casino. The purchase became effective on
February 26, 1996 and the Company began accounting for this investment using
the equity method as of such date. The Company had advanced $2,500,000 to 101
Main Street, which amount was reclassified as an investment upon the
acquisition of the 22% equity interest.
3. RECENTLY-ISSUED ACCOUNTING STANDARD ADOPTED
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which was adopted by the Company during the first quarter of
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the required
pro-forma effect on net income and earnings per share.
8
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified
in its entirety by, the Consolidated Financial Statements and the Notes thereto
included in this report. The following discussion contains certain
forward-looking statements. The forward-looking statements are necessarily
based upon a number of estimates and assumptions that, while considered
reasonable by management, are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond the control of the Company, and relate, in certain cases, to future
business decisions which are subject to change. Accordingly, actual results
could differ materially from those contemplated by such forward-looking
statements.
BASIS FOR ANALYSIS
The Statement of Operations includes financial information for Harolds Club
Casino ("Harolds Club"), which the Company closed on March 31, 1995 and sold on
May 31, 1995. However, the discussion below, as it relates to the 1995
Cumulative Period (as defined), excludes figures for Harolds Club because such
property was not operational from and after April 1, 1995. The closure of
Harolds Club is not meaningful in the discussion below as it relates to the
1995 Quarter Period (as defined) because Harolds Club was not operational in
such period.
Certain other changes in operations affecting the period-to-period comparisons
below include (a) the commencement of the Company's management of the
Fitzgeralds Black Hawk Casino on May 23, 1995 (under an exclusive ten-year
management agreement) for a monthly management fee payable from that date on;
(b) the commencement of the Company's management of the Cliff Castle Casino
also on May 23, 1995 (under an exclusive five- year management contract) for a
monthly management fee and other consideration payable from that date on; and
(c) the receipt by the Company of approval from the Colorado Limited Gaming
Commission on February 16, 1996 to purchase a 22% equity interest in the owner
of Fitzgeralds Black Hawk Casino, which purchase became effective on February
26, 1996.
In the text which follows, "1996 Cumulative Period" means the three quarters
ended September 29, 1996 (the Company's first three fiscal quarters), "1995
Cumulative Period" means the three quarters ended October 1, 1995, "1996
Quarter Period" means the quarter ended September 29, 1996 (the Company's third
fiscal quarter), and "1995 Quarter Period" means the quarter ended October 1,
1995.
GENERAL
The Company owns and operates a Fitzgeralds-brand casino-hotel in each of Las
Vegas and Reno, Nevada and in Tunica, Mississippi (these three casino-hotels
are hereinafter called the "Core Properties") and owns and operates the Nevada
Club casino in Reno, Nevada. Additionally, the Company holds a 22% equity
interest in and manages the Fitzgeralds Casino in Black Hawk, Colorado and
manages the Indian-owned Cliff Castle Casino in Camp Verde, Arizona.
9
<PAGE> 10
RECENT EVENTS
On July 15, 1996, the Company's 652-room hotel in Las Vegas (the "Las Vegas
Hotel") began operating under a thirteen-year exclusive franchise agreement
with Holiday Inn Worldwide. Prior thereto, the Las Vegas Hotel was not part of
a national reservation system. For the 1996 Cumulative Period, the Las Vegas
Hotel operated at a 96.2% occupancy rate and recorded an average daily room
rate ("ADR") of $33, compared with a 95.8% occupancy rate and a $29 ADR for the
1995 Cumulative Period. The Holiday Inn reservation system generated occupancy
representing less than 3% of the total rooms sold during the 1996 Quarter
Period. In implementing the Holiday Inn franchise at the Las Vegas Hotel,
management aims to achieve a higher ADR while maintaining historical occupancy
levels. There can be no assurance that such goals will be achieved or that,
even as a Holiday Inn franchisee, occupancy levels or ADR (or both) will not
decline in future periods.
With the exception of the conversion of eighteen rooms into nine suites and the
completion of normal punch list items, the Company has completed the renovation
and expansion project at its Las Vegas property. The project included
renovation of the building's facade, the renovation of all of the hotel rooms,
the remodeling and expansion of the two-floor casino and the construction of
four new restaurants.
With the exception of the completion of normal punch list items, the Company
has also completed construction of a 507-room hotel tower (the "Tunica Hotel")
and other amenities, such as two new restaurants and a special events center,
at Fitzgeralds Tunica. The Tunica Hotel operated for nearly all of the 1996
Quarter Period at an 89% average occupancy rate (based on the average of 250
rooms available for guest use during the 1996 Quarter Period) and a $53 ADR.
In July 1996, Fitzgeralds Black Hawk completed the first phase of the expansion
of its facility in Black Hawk, Colorado. The expansion creates a new,
six-table poker parlor and increases the number of slot machines to 490 from
410.
10
<PAGE> 11
THREE QUARTERS ENDED SEPTEMBER 29, 1996 COMPARISON TO THREE QUARTERS ENDED
OCTOBER 1, 1995
The following table sets forth Net Revenues and EBITDA for each of the Core
Properties for the 1996 Cumulative Period and the 1995 Cumulative Period.
(EBITDA or earnings before interest, income taxes, depreciation and
amortization is a supplemental financial measurement used by the Company in the
evaluation of its gaming business and by many gaming industry analysts. EBITDA
is calculated by adding Depreciation and Amortization expense to Income from
operations. However, EBITDA should only be read in conjunction with all of the
Company's financial data presented herein, and should not be construed as an
alternative to either Income From Operations as an indicator of the Company's
financial performance or to Cash Flows from Operating Activities as a measure
of liquidity.) The "Other" column includes management fees from the Oneida
Contract, Fitzgeralds Black Hawk and Cliff Castle Casino, results for the
Nevada Club, and the portion of corporate overhead costs not allocated to each
Core Property and, therefore, recorded as an operating expense. No recognition
is given in the Other column, however, to the Company's 22% interest in the
EBITDA recorded by Fitzgeralds Black Hawk because the Company's equity interest
in the Black Hawk facility is recorded as a minority interest in the net income
of an unconsolidated subsidiary after the calculation of EBITDA. Fitzgeralds
Black Hawk recorded, in total, $7.5 million in EBITDA for the 1996 Cumulative
Period. In addition, the Other column excludes approximately $611,000 in cash
distributions (representing 22% of all cash distributions made) received by the
Company during the 1996 Cumulative Period from the owner of Fitzgeralds Black
Hawk. Because Harolds Club was closed on March 31, 1995 and sold on May 31,
1995, the following financial information and discussion excludes Harolds Club
financial information, although such financial information is included in the
Consolidated Statements of Operations included elsewhere herein.
OPERATING RESULTS FOR THE THREE FISCAL QUARTERS
ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FITZGERALDS FITZGERALDS FITZGERALDS
LAS VEGAS TUNICA RENO OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Net Revenues
1996 Cumulative Period $32,579 $33,533 $28,571 $8,609 $103,292
1995 Cumulative Period 31,823 34,639 30,833 8,019 105,314
EBITDA
1996 Cumulative Period $2,165 $2,315 $4,327 $2,608 $11,415
1995 Cumulative Period 3,001 7,711 5,629 2,186 18,527
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NET REVENUES
11
<PAGE> 12
For the 1996 Cumulative Period, the Company recorded Net Revenues of $103.3
million, a 1.9% decline from the $105.3 million recorded for the 1995
Cumulative Period. Casino revenues represented 79.9% and 81.4% of Net Revenues
for the 1996 Cumulative Period and the 1995 Cumulative Period, respectively.
The reasons for the declines in net revenues are property-specific and are
discussed below under the comparison of the 1996 Quarter Period to the 1995
Quarter Period.
OPERATING EXPENSES
Operating expenses increased 5.1% from $93.2 million recorded for the 1995
Cumulative Period to $98.0 million recorded for the 1996 Cumulative Period.
The increase in operating expenses occurred in casino operations (a 2.7%
increase), rooms operations (a 25.9% increase) and selling, general &
administrative activities (a 8.1% increase) resulting from higher marketing
costs in Tunica, increased corporate staffing and the hiring of hotel and other
additional personnel at Fitzgeralds Tunica in anticipation of the opening of
the Tunica Hotel, the hiring of additional Food & Beverage personnel at
Fitzgeralds Las Vegas and Fitzgeralds Tunica in anticipation of the opening of
additional food outlets, and market increases in salaries and wages. Some or
all of such expenses may continue to increase for competitive or other reasons.
INCOME FROM OPERATIONS
Income from Operations for the 1996 Cumulative Period was $5.3 million, a 56.0%
decline from the $12.1 million recorded for the 1995 Cumulative Period.
Because the Company's business involves a high level of fixed costs, declines
in revenues are typically magnified at the Income from Operations level.
INTEREST EXPENSE AND INCOME TAX PROVISION OR BENEFIT
Interest expense, net of interest income, rose 30.0%, from $10.0 million for
the 1995 Cumulative Period to $13.0 million for the 1996 Cumulative Period due
to the Company's December 1995 issuance of $123 million principal amount of 13%
Senior Secured Notes due 2002 with Contingent Interest (the "Senior Secured
Notes"). Income before taxes decreased from $2.3 million to a loss of $7.5
million, reflecting the lower level of Income from Operations and higher
interest costs. For the 1995 Cumulative Period, the Company recorded a tax
provision of $3.9 million, while for the 1996 Cumulative Period it recorded a
tax benefit of $1.0 million.
NET INCOME
Net Income declined from a net loss of $1.7 million to a net loss of $6.5
million for the various reasons discussed above.
12
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QUARTER ENDED SEPTEMBER 29, 1996 COMPARISON TO QUARTER ENDED OCTOBER 1, 1995
The following table sets forth Net Revenues and EBITDA for each of the Core
Properties for the 1996 Quarter Period and the 1995 Quarter Period. The
"Other" column includes management fees from the Oneida Contract, Fitzgeralds
Black Hawk and Cliff Castle Casino, results for the Nevada Club, and corporate
overhead costs not allocated to each Core Property and, therefore, recorded as
an operating expense. No recognition is given in the Other column, however, to
the Company's 22% interest in the EBITDA recorded by Fitzgeralds Black Hawk
because the Company's equity interest in the Black Hawk facility is recorded as
a minority interest in the net income of an unconsolidated subsidiary after the
calculation of EBITDA. Fitzgeralds Black Hawk recorded, in total, $2.8 million
in EBITDA for the 1996 Quarter Period. In addition, the Other column excludes
approximately $176,000 in cash distributions (representing 22% of all cash
distributions made) received by the Company during the 1996 Quarter Period from
the owner of Fitzgeralds Black Hawk. Because Harolds Club was closed on March
31, 1995 and sold on May 31, 1995, the following financial information and
discussion excludes Harolds Club, although such financial information is
included in the Consolidated Statements of Operations included elsewhere
herein.
- -------------------------------------------------------------------------------
OPERATING RESULTS FOR THE THIRD FISCAL QUARTERS
ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FITZGERALDS FITZGERALDS FITZGERALDS
LAS VEGAS TUNICA RENO OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Net Revenues
1996 Quarter Period $9,371 $12,980 $10,348 $3,391 $36,090
1995 Quarter Period 10,108 12,475 11,032 2,978 36,593
EBITDA
1996 Quarter Period $(284) $1,217 $2,114 $760 $3,807
1995 Quarter Period 404 2,753 2,025 845 6,027
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NET REVENUES
For the 1996 Quarter Period, the Company recorded net revenues of $36.1
million, a 1.4% decline from the $36.6 million recorded for the 1995 Quarter
Period. Revenues declined in all operating areas other than Rooms revenues,
which recorded a 33.1% increase due to the opening of the Tunica Hotel and
stronger room rates at the Las Vegas Hotel, partially offset by lower rooms
revenues, due to both lower occupancy and lower ADR, at Fitzgeralds Reno.
Although Fitzgeralds Las Vegas benefited during the 1996 Quarter
Period from the traffic generated by the new Fremont Street
Experience, revenues were significantly constrained
13
<PAGE> 14
during such period by construction activity inside the casino which
impaired access to, and detracted from the environment of, the casino
throughout the 1996 Quarter Period (as well as in October 1996).
Additionally, construction activity caused the number of slot machines
available to the public to decline from the 1,000-level during most of
1995 to as low as 600 machines during certain periods of construction
activity. Net revenues at Fitzgeralds Las Vegas declined 7.3% to $9.4
million, with only the rooms department recording higher revenues.
At Fitzgeralds Tunica, net revenues increased 4.0% to $13.0 million in
the 1996 Quarter Period compared to $12.5 million in the 1995 Quarter
Period, due largely to nearly $1.1 million in Rooms revenues recorded
during the 1996 Quarter Period. The Tunica Hotel opened in July 1996
with 100 rooms which number increased to the full 507 rooms by
November 3, 1996. The increase in Rooms revenues was partially offset
by a decline in Casino revenues to $11.6 million for the 1996 Quarter
Period from $12.1 million for the 1995 Quarter Period. Casino
revenues declined despite modest growth in the Tunica gaming market
because of greater competition resulting from the opening of three new
casino properties, Bally's, Harrah's Mardi Gras and Grand Casino, in
1996. According to published industry figures, while gaming revenues
for Tunica County for the month of September 1996 increased 14.0% over
those in September 1995, the number of gaming positions in the market
increased by a much larger 64.2%, resulting is a 30.5% decline in
daily revenue per gaming position. In addition to the increase in
competition, Fitzgeralds Tunica was also impacted by more intensive
marketing efforts by all market participants.
The Reno gaming market continued to suffer from general softness
during the 1996 Quarter Period, caused by excess capacity resulting
from the opening of the Silver Legacy in July 1995 and subsequent
hotel expansions at other gaming facilities. At Fitzgeralds Reno, net
revenues decreased 6.2%, to $10.3 million. However, the property
posted an increase in EBITDA due largely to controlled decreases in
non-payroll operating costs but also due, in part, to one-time
reversals of accrued costs.
Net Revenues from sources other than the Core Properties were $3.4 million for
the 1996 Quarter Period, essentially unchanged from the 1995 Quarter Period.
Net Revenue figures for the 1996 Quarter Period do not include any equity in
the net income (or loss) of unconsolidated subsidiaries, such as the Fremont
Street Experience LLC and 101 Main Street LLC (the owner of Fitzgeralds Black
Hawk) for which the Company recorded, as Other Income, loss-before-taxes of
$232,000 and income-before-taxes of $474,000, respectively, for the 1996
Quarter Period. Losses at Fremont Street Experience LLC are expected to
continue indefinitely.
OPERATING EXPENSES
Total Operating Expenses increased 6.1%, from $32.5 million for the 1995
Quarter Period to $34.5 million for the 1996 Quarter Period, due primarily to
increases in Rooms operating expenses, increases in Selling, General &
Administrative expenses and increases in Depreciation and Amortization
expenses.
Casino expenses were $14.7 million for the 1996 Quarter Period, essentially
unchanged from the 1995 Quarter Period. Food and Beverage expenses increased
0.5%, from $3.2 million for the 1995 Quarter Period to $3.3 million for the
1996 Quarter Period, as the result of union-mandated wage increases, partially
offset by increased cost controls implemented in July 1996. Rooms ex-
14
<PAGE> 15
penses increased 53.8%, from $1.8 million for the 1995 Quarter Period to $2.8
million for the 1996 Quarter Period, as a result of the opening of the Tunica
Hotel and higher personnel costs at both Fitzgeralds Reno and Fitzgeralds Las
Vegas for the reasons described in the quarterly comparison.
Selling, General & Administrative expenses increase 8.7% from the $10.3 million
recorded for the 1995 Quarter Period to $11.2 million recorded for the 1996
Quarter Period. This increase reflects primarily increased marketing costs,
especially at Fitzgeralds Tunica, due to competitive factors.
Depreciation and Amortization expense increased 12.2% from $1.9 million for the
1995 Quarter Period to $2.2 million for the 1996 Quarter Period. Such expense
is expected to rise in subsequent quarters as approximately $55 million in
construction-in-progress assets are put into service. All but approximately
$6.0 million in such assets were put into service by the end of the 1996
Quarter Period.
The Company's three largest cross-departmental operating expense categories are
personnel, promotional allowances and marketing. The Company continues to
experience a tightening of the labor markets in which it operates, with a
resulting increase in average payroll cost per employee. The Company
anticipates that such costs will continue to rise with increasing competition
for qualified personnel. The Company continually evaluates its staffing needs
as a means of controlling this, its largest expense segment. Increases in the
number of hours worked during the 1996 Quarter Period, compared with the 1995
Quarter Period, reflect the addition of personnel at Fitzgeralds Tunica to
prepare for the opening of and to staff the new hotel and related facilities
and its expanded casino. Similarly, additional personnel were hired at
Fitzgeralds Las Vegas in connection with the opening of its expanded casino and
additional restaurants.
Marketing expenses, which includes advertising, promotional material, special
events and the operations of the Fitzgeralds Card, increased significantly from
the 1995 Quarter Period to the 1996 Quarter Period. The increase reflects more
intensive marketing efforts at each property undertaken in response to
increasing competitive activity in each of the markets in which the Company
operates, particularly in Tunica. The Company's strategy is to utilize its
expanded and renovated facilities as additional marketing elements and to
continue to adjust marketing expense levels as needed to respond to the market.
INCOME FROM OPERATIONS
As a result of the foregoing, Income From Operations for the 1996 Quarter
Period was $1.6 million, a 60.2% decline from $4.1 million for the 1995 Quarter
Period. EBITDA, which the Company also uses as a measure of its ability to
generate cash from operating activities and as a means to compare the Company's
performance with that of its competitors, declined 36.8%, from $6.0 million for
the 1995 Quarter Period to $3.8 million for the 1996 Quarter Period.
INTEREST EXPENSE AND INCOME TAX PROVISION OR BENEFIT
Interest Expense, net of interest income, for the 1996 Quarter Period was $4.3
million, a 28.9% increase over the $3.3 million recorded for the 1995 Quarter
Period. The principal reason for the increase was the December 1995 issuance
of the Senior Secured Notes.
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<PAGE> 16
Income Before Taxes was $0.7 million for the 1995 Quarter Period while a Loss
Before Taxes of $2.5 million was recorded for the 1996 Quarter Period. The
Company recorded $0.3 million in income tax provision for the 1995 Quarter
Period, and a $0.7 million income tax provision for the 1996 Quarter Period.
NET INCOME
Due to the above factors, Net Income declined from net income of $0.5 million
for the 1995 Quarter Period to a net loss of $3.1 million for the 1996 Quarter
Period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 29, 1996, the Company had unrestricted cash of $17.1 million,
compared with $19.8 million at December 31, 1995. The unrestricted cash
balance at September 29, 1996 included $6.8 million in bankroll and $2.3
million in construction contingency reserves.
Additionally, as of September 29, 1996, the Company had restricted cash of $5.8
million held by a trustee for the completion of construction improvements at
Fitzgeralds Tunica and Fitzgeralds Las Vegas. While the Company has not
completed its review and approval of certain billings for work performed, it
believes that the cash held by the trustee, together with the contingency
reserves held by the Company, will be adequate to pay such billings once
finalized.
Cash provided by operating activities was $4.8 million for the 1996 Cumulative
Period which compares with cash provided by operating activities of $3.8
million for the 1995 Cumulative Period. The primary reasons for the increase
in cash generation, despite the $2.9 million decrease in net income, were a
$1.1 million decrease in accounts receivable in the 1996 Cumulative Period
versus a $1.6 million increase in the 1995 Cumulative Period; a $3.3 million
increase in accounts payable and accruals in the 1996 Cumulative Period versus
a decrease of $0.7 million in the 1995 Cumulative Period; a $1.0 million
decrease in deferred income taxes in the 1996 Cumulative Period versus a $3.0
million increase in the 1995 Cumulative Period; and an increase in discount
amortization of $0.5 million.
Cash used in investing activities was $3.9 million for the 1996 Cumulative
Period, compared with cash provided by investing activities of $6.7 million for
the 1995 Cumulative Period. Cash used in investing activities for the 1996
Cumulative Period was due primarily to the acquisition of property and
equipment of $47.2 million offset by a decrease in restricted cash of $43.3
million. Cash provided by investing activities for the 1995 Cumulative Period
was due primarily to the sale of Harolds Club.
The Company recorded net cash used in financing activities of $3.7 million for
the 1996 Cumulative Period, compared to $14.0 million in the 1995 Cumulative
Period. The cash used in financing activities for the 1996 Cumulative Period
was due primarily to the repayment of long-term debt of $7.5 million, which was
partially offset by proceeds from the issuance of debt of $4.0 million. The
cash used in financing activities for the 1995 Cumulative Period was primarily
due to the repayment of long-term debt of $14.1 million and the payment of debt
to related parties in the amount of $2.9 million, which was partially offset by
proceeds from the issuance of debt of $2.7 million.
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<PAGE> 17
The Company has realized lower than expected cash flows in 1996 as a result of
construction disruption, increased competition and other factors discussed
herein which had a greater adverse effect than anticipated on business levels
at the Company's properties. The Company believes that operating performance
at Fitzgeralds Las Vegas will improve now that the expanded and renovated
facilities are fully opened and the disruption from construction activity has
terminated. In addition, the opening of the Tunica Hotel has resulted in
increases in revenues at Fitzgeralds Tunica. However, inclement weather during
the winter season can have a significant adverse impact on the performance of
the Company's properties. In addition, competitive and other market factors
over which the Company has no or limited control are expected to continue to
affect the performance of such properties.
The Company anticipates lower Income From Operations and EBITDA for the fiscal
quarter ending December 31, 1996, compared to the equivalent quarter of 1995,
as the result of construction at Fitzgeralds Las Vegas during the month of
October, traditionally among the best revenue months for the Company's
properties, as well as due to the increases in personnel and marketing costs
discussed herein. Although, as a result of the completion of construction,
costs controls and other operational matters, the Company anticipates increases
in Net Revenues at its properties for 1997 and, in turn, higher Income From
Operations and EBITDA, no assurance can be given that management will meet its
objectives.
The Company has considerable fixed costs associated with the operation of its
properties. In addition, the Company's annual interest expense on the Senior
Secured Notes currently aggregates $15,990,000, payable in equal installments
on June 30 and December 31 of each year.
Based on the Company's current cash position, anticipated cash flows and
expenses, and in light of the uncertainties associated with the impact of
weather conditions on operating performance for the first quarter of 1997,
management believes that in order to maintain prudent levels of cash reserves
while remaining current on all obligations, including the Senior Secured Notes,
the Company requires additional funding. Accordingly, the Company has reached
an oral agreement in principle for a two-year loan (the "New Loan"), subject to
the consent of all of the holders of the Senior Secured Notes and the
completion of satisfactory documentation. The Company and new lenders are in
the process of preparing documentation for the New Loan as well as that for the
solicitation of written consent of the holders of the Senior Secured Notes.
The parties are attempting to accomplish a funding of the New Loan by December
31, 1996. There can be no assurance, however, that the holders of the Senior
Secured Notes will consent to the New Loan or that the transaction will be
consummated.
The New Loan will provide approximately $4.9 million in net proceeds to the
Company and will be repayable, without pre-payment penalty, at any time through
maturity at the option of the Company. Repayment of the New Loan will be
guaranteed by the Company's subsidiaries, as is the case of the Senior Secured
Notes. The New Loan and related guaranteed will be secured, directly or
indirectly, by some or all of the same assets of the Company and its
subsidiaries which serve as collateral for the Senior Secured Notes. However,
the New Loan will rank senior to the Senior Secured Notes pursuant to a
subordination agreement to be entered into between the new lender(s) and the
holders of the Senior Secured Notes, or, in each case, their representatives.
As a result of such subordination, the new lender(s) will be entitled to have
the New Loan paid from the proceeds obtained upon liquidation of the Company's
assets before such proceeds are used to pay the Senior Secured Notes.
Similarly, in the event of a sale of assets requiring the application of net
cash proceeds to repurchase Senior Secured Notes, the new lenders will be
entitled to have
17
<PAGE> 18
their New Loan repaid first. Except as described above, the covenants, events
of default and other provisions imposed under the New Loan will be
substantially the same as those contained in the Indenture governing the Senior
Secured Notes.
In the event that the Company is unable to consummate the New Loan or to do so
by December 31, 1996, it believes that it will not pay in a timely fashion
interest due on the Senior Secured Notes on such date. A failure to pay
interest on the Senior Secured Notes when due which is not cured within 30 days
thereafter would constitute an event of default under the Senior Secured Notes
Indenture. Such an event of default would permit the holders of at least 25%
in principal amount of the Senior Secure Notes to cause all of such notes to be
accelerated so as to become immediately due and payable in full.
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<PAGE> 19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Harolds Club
On May 31, 1995 Fitzgeralds Reno, Inc. ("FRI"), a wholly-owned subsidiary of
the Company, sold the closed Harolds Club in Reno to an unrelated
publicly-traded company which subsequently sold Harolds Club to a company the
assets of which are now under control of the United States Bankruptcy Court for
the Northern District of New York. Under the terms of certain indemnification
agreements executed in connection with the sale of Harolds Club, FRI is
contingently obligated for certain land lease payments in the amount of
approximately $650,000 annually and certain property-related costs, such as
taxes and insurance, if said lease payments and costs are not paid for by the
current owner of Harolds Club.
The current owner of Harolds Club has not met its obligations with respect to
the land leases and the lessors have demanded payment from the current lessor,
FRI and from another, unrelated guarantor. On or about August 2, 1996, each of
the five land lessors filed separate actions in the Second Judicial District
Court (Washoe County), State of Nevada, seeking payment from FRI and the other
guarantor of an aggregate of approximately $319,280 in unpaid lease payments
plus interest, attorneys' fees and costs. On October 31, 1996, four of the land
lessors entered into a Stipulation with each of the named defendants pursuant
to which the parties agreed to stay all action in the suits until April 15,
1997 in order to, among other things, allow the current owners an opportunity
to find a buyer for the property and to allow FRI time to attempt to preserve
the right to operate unrestricted gaming in the property.
The one land lessor who failed to join in the Stipulation has indicated an
intention to dismiss FRI and all other defendants except one, from its lawsuit.
However, that dismissal has not yet occurred. On October 31, 1996, one of the
named defendants filed a cross-claim against FRI and the other defendants for
indemnification and has threatened to make further claims against FRI. FRI
intends to vigorously defend this action as well as the other four actions
should Harolds Club not be sold by April 15, 1997.
John G. Metzker
In November 1994, John Metzker ("Metzker"), a former stockholder of FRI, filed
a complaint in the Second Judicial District Court in Washoe County, Nevada.
The complaint, which arose out of the sale of plaintiff's stock to FRI, alleges
that the plaintiff is entitled to additional consideration in connection
therewith based on certain valuations of Harolds Club and for damages for his
failure to be released from certain bank guarantees. Harolds Club was sold in
May 1995, which released the former stockholder from his bank guarantees. On
September 13, 1996, after a trial, the Court ordered (i) an increase in the
principal amount of a seven-year promissory note payable by FRI to Metzker in
partial payment of his interest in FRI from $4.97 million to $5.74 million (the
"FRI Note"); and (ii) the immediate payment by Metzker to FRI of an
approximately $600,000 promissory note made by Metzker (the "Metzker Note").
The Court has not yet for-
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<PAGE> 20
malized its order into a final judgment, nor has the Court ruled on motions
made by both Metzker and FRI to be awarded costs and attorneys fees. The
parties are engaged in ongoing discussions to find a solution to the disputes
involving the FRI Note and the Metzker Note. If a resolution cannot be
reached, FRI intends to appeal the trial Court's judgment. If FRI does not
appeal or does not prevail on appeal, the monthly payments due under the FRI
Note will be adjusted on a pro-rata basis and will become payable retroactively
to May 1994.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
On July 9, 1996, the Company asked the holders of its 13% Senior Secured Notes
due 2002 (the "Notes") to consent to the modification of the disbursement
agreements regulating the use of certain proceeds from the sale of the Notes.
The Company has received consent from the required majority holders of the
Notes and has amended the disbursement agreements to allow the Company to
utilize up to $2.4 million in funds previously allocated to construction costs
(which costs were either deferred or funded through alternative financing) for
the payment of construction-period interest.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 23, 1996
FITZGERALDS GAMING CORPORATION
/s/ Fernando Bensuaski
----------------------------------------
Fernando Bensuaski
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer, Principal
Financial Officer and Principal
Accounting Officer)
21
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<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
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