<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 Number)
incorporation or organization)
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 [x] NO [ ]
Shares outstanding of each of the registrant's classes of common stock as of
May 10, 1996
Class Outstanding as of August 10, 1996
----- ----------------------------------
Common stock, $.01 par value 4,012,846
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FITZGERALDS GAMING CORPORATION
FORM 10-Q
INDEX
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND 4
DECEMBER 31, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTER
AND TWO QUARTERS ENDED JUNE 30, 1996 AND JULY 2, 1995 6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWO
QUARTERS ENDED JUNE 30, 1996 AND JULY 2, 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 17
SIGNATURES 19
</TABLE>
2
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PART I
FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS
3
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FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,941 $ 19,844
Restricted cash - 471
Accounts and notes receivable 1,878 3,007
Inventories 1,405 1,028
Prepaid expenses 5,165 3,106
-------- --------
Total current assets 25,389 27,456
-------- --------
PROPERTY AND EQUIPMENT, NET 125,363 103,803
-------- --------
OTHER ASSETS
Restricted cash-construction 25,148 49,100
Restricted investment 1,000 1,000
Long-term accounts and notes receivable
related parties, net of current portion 2,195 1,902
Advances receivable - 2,500
Investment in 101 Main Street 2,935 -
Investment in Fremont Street Experience 2,707 2,786
Debt offering costs 7,084 7,358
Other assets 1,558 1,308
-------- --------
Total other assets 42,627 65,954
-------- --------
TOTAL $193,379 $197,213
======== ========
</TABLE>
See notes to consolidated financial statements
4
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FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 9,179 $ 10,498
Current portion of notes payable - related parties 679 728
Accounts payable 8,131 5,939
Accrued expenses 9,067 10,859
Deferred tax liability 64 63
-------- --------
27,120 28,087
--------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 138,132 137,660
NOTES PAYABLE-RELATED PARTIES, NET OF CURRENT PORTION 1,773 1,808
DEFERRED TAX LIABILITY 1,420 1,420
-------- --------
Total liabilities 168,445 168,975
-------- --------
MINORITY INTEREST 388 225
COMMITMENTS AND CONTINGENCIES -------- --------
CUMULATIVE REDEEMABLE PREFERRED STOCK,
recorded at liquidation preference value, net of
unamortized offering costs and discounts. 13,635 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 (13,640) (8,434)
-------- --------
Total stockholders' equity 10,911 16,061
-------- --------
TOTAL $193,379 $197,213
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND TWO QUARTERS ENDED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
--------------------- -----------------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
1996 1995 1996 1995
---------------------- -----------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ 27,343 $29,106 $ 54,249 $57,170
Food and beverage 4,571 4,575 9,257 9,300
Rooms 3,063 3,507 6,090 6,635
Other 1,696 1,437 3,415 3,190
---------- ------- ---------- -------
Total 36,673 38,625 73,011 76,295
Less promotional allowances (2,837) (2,898) (5,810) (6,043)
--- ------ ------- ---------- -------
Net 33,836 35,727 67,201 70,252
---------- ------- ---------- -------
OPERATING COSTS AND EXPENSES:
Casino 13,970 13,519 27,911 28,097
Food and beverage 3,185 3,154 6,235 6,336
Rooms 2,020 1,786 3,914 3,507
Other operating 391 447 797 891
Selling, general and administrative 10,706 11,293 20,736 21,132
Depreciation and amortization 1,981 2,244 3,910 4,421
---------- ------- ---------- -------
Total 32,253 32,443 63,503 64,384
---------- ------- ---------- -------
INCOME FROM OPERATIONS 1,583 3,284 3,698 5,868
---------- ------- ---------- -------
OTHER INCOME (EXPENSE):
Interest Income 615 - 1,427 99
Other income (expense) (21) (1) 45 -
Interest expense (4,793) (3,555) (10,159) (7,201)
Gain on sale of assets 123 350 272 452
Equity in loss of unconsolidated affiliate (312) - (184) -
Minority interest in (income) loss of (79) (7) (163) (119)
---------- ------- ---------- -------
INCOME (LOSS) BEFORE TAXES (2,884) 71 (5,064) (901)
INCOME TAX (PROVISION) BENEFIT 982 (3,026) 1,715 (3,173)
---------- ------- ---------- -------
NET LOSS $ (1,902) $(2,955) $ (3,349) $(4,074)
========== ======= ========== =======
PREFERRED STOCK DIVIDENDS (874) (1,682)
---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK $ (2,776) $ (5,031)
---------- ----------
NET LOSS PER COMMON SHARE $(0.69) $ (1.25)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
4,012,846 4,012,846
========== ==========
</TABLE>
See notes to consolidated financial statements
6
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FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS AND TWO QUARTERS ENDED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
-------------------------
JUNE 30, JULY 2,
1996 1995
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES: $ 12 $ 3,696
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 305 9,374
Repayments from related parties 83 121
Acquisition of property and equipment (23,957) (1,487)
Increase in advance receivable - (1,632)
Decrease in restricted cash 23,952 -
Investment in Fremont Street Experience (539) -
------- -------
Net cash provided (used) in investing activities (156) 6,376
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit - 600
Advances from related parties - 733
Cash paid to reduce long-term debt (6,680) (13,001)
Dividends (174) (915)
Other (8) (194)
Decrease (Increase) in restricted cash 472 (99)
Proceeds from issuance of debt 3,631 -
Purchase of treasury stock - -
------- -------
Net cash (used) by financing activities (2,759) (12,876)
------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2,903) (2,804)
CASH AND EQUIVALENTS BEGINNING OF PERIOD 19,844 11,886
------- -------
CASH AND EQUIVALENTS END OF PERIOD $16,941 $9,082
======= =======
CASH PAID FOR INTEREST $10,511 $ 7,077
SUMMARY OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment acquired through the issuance of debt 1,423 4,718
Accretion of discount on preferred stock 140 -
Accrual of preferred stock dividends 1,543 -
Advances receivable transferred to investment in 101 Main Street 2,500 -
</TABLE>
See notes to consolidated financial statements.
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 June 30,
1996 and for the quarter and two quarters ended June 30, 1996 and July 2, 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 two quarters ended June 30, 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
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS 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.
BASIS FOR ANALYSIS
The Statement of Operations includes financial information for 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 the Company's 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 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) 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)
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 two quarters
ended June 30, 1996 (the Company's first two fiscal quarters), "1995 Cumulative
Period" means the two quarters ended July 2, 1995, "1996 Period" means the
quarter ended June 30, 1996 (the Company's second fiscal quarter), and "1995
Period" means the quarter ended July 2, 1995.
GENERAL
The Company owns and operates Fitzgeralds-brand casino-hotels in 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
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RECENT EVENTS
On July 15, 1996, the Company's 652-room hotel in Las Vegas began operating
under a thirteen-year exclusive franchise agreement with Holiday Inn Worldwide.
Prior thereto, the hotel was not "branded". For the 1996 Cumulative Period, the
Las Vegas Hotel operated at a 97.3% occupancy rate1 and recorded an average
daily room rate ("ADR") of $33, compared with a 97.1% occupancy rate and a $30
ADR for the equivalent period in 1995. In implementing the Holiday Inn
franchise at the Las Vegas Hotel, management aims to achieve higher ADR while
maintaining historical occupancy levels. The Company is in the process of
expanding and significantly upgrading its Las Vegas property. The Company
expects to complete the Las Vegas renovation and expansion by October 1996.
The Company is also in the process of constructing a 507-room hotel (the
"Tunica Hotel") and other amenities at Fitzgeralds Tunica. The Company expects
to complete the Tunica expansion by September 1996. On July 23, 1996, the
Company opened the first 100 rooms of its Tunica Hotel. Through August 10,
1996 the Tunica Hotel opened 253 rooms and had operated at a 100% occupancy.
In July 1996, Cliff Castle Casino in Camp Verde, Arizona completed the first
phase of the expansion of its facility. The expansion increased the number of
slot machines to 445, expands the restaurant, and, upon approval of the
National Indian Gaming Commission, will allow the casino to add 6 poker tables.
In July 1996, Fitzgeralds Black Hawk completed the first phase of the expansion
of its facility in this old mining town. The expansion creates a new,
six-table poker parlor and increases the number of slot machines to 490.
In August 1996, the Company retained Southcoast Capital Corporation to explore
transactions aimed at enhancing the Company's access to capital. Southcoast will
examine all alternatives, including a merger, recapitalization of the Company,
or possibly joint venture arrangements.
The Company anticipates that operating results for the quarter ending September
29, 1996 (its third fiscal quarter) might be somewhat lower than those recorded
for the quarter ended October 1, 1995, the equivalent year-earlier period, for
principally the same reasons set forth below in the comparison of 1996 Period
performance with that of the 1995 Period performance and that operating results
for the quarter ending December 31, 1996 (its fourth fiscal quarter) might be
higher than those recorded for the equivalent year-earlier period due to the
completion of the expansion and renovations programs at Fitzgeralds Las Vegas
and Fitzgeralds Tunica.
SUMMARY
For the 1996 Cumulative Period, the Company recorded net revenues of $67.2
million, a 2.2% decline from the $68.7 million recorded for the 1995 Cumulative
Period. Income from Opera-
- ----------------------------------
1 Occupancy figures are based on rooms in services. Since mid-May 1996 a
certain number of rooms were out of service each week to accommodate the rooms
remodeling schedule.
10
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tions and EBITDA were, respectively, $3.7 million and $7.6 million for the 1996
Cumulative Period, respectively, representing 53.8% and 39.1% declines,
respectively, from the $8.0 million and $12.5 million, respectively, recorded
for the 1995 Cumulative Period.
- -------------------------------------------------------------------------------
OPERATING RESULTS FOR THE FISCAL QUARTERS
ENDED JUNE 30, 1996 AND JULY 2, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FITZGERALDS FITZGERALDS FITZGERALDS
LAS VEGAS TUNICA RENO OTHER TOTAL
<S> <C> <C> <C> <C> <C>
Net Revenues
1996 Period $11,050 $10,153 $9,732 $2,901 $33,836
1995 Period 10,453 11,088 11,491 2,682 35,714
EBITDA
1996 Period $952 $(9) $1,603 $1,018 $3,564
1995 Period 1,159 2,110 2,480 834 6,583
</TABLE>
- -------------------------------------------------------------------------------
In the above table, "Other" includes management fees from the Oneida Contract,
Fitzgeralds Black Hawk and Cliff Castle Casino, as well as results for the
Nevada Club, and corporate overhead costs which were not allocated to each Core
Property and, therefore, recorded as an operating expense. It excludes,
however, the Company's 22% interest in the EBITDA reported by Fitzgeralds Black
Hawk.
TWO QUARTERS ENDED JUNE 30, 1996 COMPARISON TO TWO QUARTERS ENDED JULY 2, 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.
REVENUES
For the 1996 Cumulative Period, the Company recorded Net Revenues of $67.2
million, a 2.2% decline from the $68.7 million recorded for the 1995 Cumulative
Period. Casino revenues represented 74.3% and 74.6% of Total Revenues
respectively for the 1996 Cumulative Period and the 1995 Cumulative Period.
The reasons for these declines in net revenues are property-specific and are
discussed below under the comparison of the 1996 Period to the 1995 Period.
OPERATING EXPENSES
Operating expenses increased 4.6% from $60.7 million recorded for the 1995
Cumulative Period to $63.5 million recorded for the 1996 Cumulative Period.
The increase in operating expenses occurred in casino operations (a 4.5%
increase), rooms operations (a 11.6% increase) and general & administrative
activities (a 7.8% increase) resulting from increased corporate staff,
competitive
11
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increases in salaries and wages, and the hiring of hotel and other personnel in
Tunica in anticipation of the opening of the Tunica Hotel.
INCOME FROM OPERATIONS
Income from Operations for the 1996 Cumulative Period was $3.7 million, a 53.8%
decline from the $8.0 million recorded for the 1995 Cumulative Period.
Inasmuch as the Company's business involves a high level of fixed costs,
declines in revenues are typically magnified at the Income from Operations
level. The opposite is also generally true, that is, incremental revenues,
above an existing base, produce much higher operating margins.
INTEREST EXPENSE AND INCOME TAX PROVISION OR BENEFIT
Interest expense, net of interest income, rose 30.4%, from $6.7 million for the
1995 Cumulative Period to $8.7 million for the 1996 Cumulative Period due to
the December 1995 issuance of the 13% Senior Secured Notes due 2002. For the
1995 Cumulative Period, the Company recorded a tax provision of $3.7 million,
while for the 1996 Cumulative Period it recorded a tax benefit of $1.7 million.
Income before taxes decreased from $1.5 million to a loss of $5.1 million,
reflecting the lower level of Income from Operations and higher interest costs.
NET INCOME
Net Income declined from a net loss of $2.1 million to a net loss of $3.4
million for the various reasons discussed above.
The Company reminds the reader that the above discussion as it relates to the
1995 Cumulative Period excludes Harolds Club.
QUARTER ENDED JUNE 30, 1996 COMPARISON TO QUARTER ENDED JULY 2, 1995
The table below sets forth Net Revenues and EBITDA for each of the Core
Properties for the 1996 Period and the 1995 Period.
REVENUES
For the 1996 Period the Company recorded net revenues of $33.8 million, a 5.3%
decline from the $35.7 million recorded for the 1995 Period. This decline in
net revenues resulted from lower net revenues at Fitzgeralds Tunica and
Fitzgeralds Reno, partially offset by higher revenues at Fitzgeralds Las Vegas,
all as described below. The comparisons below are between the 1996 Period and
the 1995 Period unless otherwise stated:
In general, revenue levels at Fitzgeralds Las Vegas were partially
hindered by interior construction work but were enhanced by the
Fremont Street Experience. Net revenues at Fitzgeralds Las Vegas
increased 5.7%, to $11.1 million.
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Overall revenue increases in the Tunica market were offset by
increased competition (such as the opening of Bally's Harrah's Mardi
Gras casinos) and more intensive marketing efforts by all market
participants. At Fitzgeralds Tunica, net revenues decreased 8.4%, to
$10.2 million.
The Reno gaming market suffered from general softness during the 1996
Period, caused by the absence of national bowling tournaments (which
were in place during the 1995 Period and which will be in place during
the equivalent periods in 1997and 1998) and excess capacity resulting
from the opening of the Silver Legacy and a 400-room Hampton Inn. At
Fitzgeralds Reno, net revenues decreased 15.3%, to $9.7 million.
Net Revenues from sources other than the Core Properties were $2.8 million for
the 1996 Period, essentially unchanged from the 1995 Period. Net Revenue
figures for the 1996 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 a loss of $0.6 million and income of $0.3
million, respectively, for the 1996 Period.
OPERATING EXPENSES
Total Operating Expenses increased 1.9%, from $31.6 million for the 1995 Period
to $32.3 million for the 1996 Period, due to company-wide increases in costs,
mostly driven my competitive pressures, other than General and Administrative
Costs, which were essentially flat.
Casino expenses were $14.0 million for the 1996 Period, a 4.3% increase over
the 1995 Period as the result of increased personnel and other costs in
response to market conditions. Food and Beverage expenses increased 1.2% from
$3.1 million for the 1995 Period to $3.2 million for the 1996 Period, as the
result of union-mandated wage increases, partially offset by cost controls.
Rooms expenses increased 13.2%, from $1.8 million for the 1995 Period to $2.0
million for the 1996 Period as a result of higher personnel costs at
Fitzgeralds Reno and Fitzgeralds Las Vegas and the hiring of personnel for the
Tunica Hotel.
Depreciation and Amortization expense declined 6.7% from $2.1 million for the
1995 Period to $2.0 million for the 1996 Period. However, such expense is
expected to rise over the near future as approximately $55 million in
construction in progress assets are put into service.
The three largest cross-departmental operating expense categories of the
Company are personnel, promotional allowances, and marketing. The Company
continues to experience a tightening of the Reno labor market, with a resulting
increase in average payroll cost per employee, and expects increased
competition for qualified personnel in Tunica through the end of the year. The
Company anticipates further increases in personnel cost as Fitzgeralds Tunica
opens its hotel and related facilities and its expanded casino, and as
Fitzgeralds Las Vegas opens its expanded casino and related facilities.
Marketing Expenses, which includes advertising, promotional material, special
events and the operations of the Fitzgeralds Card, have increased significantly
from the 1995 Period to the 1996 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 oper-
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ates, 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
Income From Operations for the 1996 Period was $1.6 million, a 61.1% decline
from $4.1 million for the 1995 Period. EBITDA, which the Company uses as a
reasonable 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 45.9%, from $6.6 million for the 1995 Period to $3.6
million for the 1996 Period.
INTEREST EXPENSE AND INCOME TAX PROVISION OR BENEFIT
Interest Expense, net of interest income, for the 1996 Period was $4.2 million,
a 23.8% increase over the $3.4 million recorded for the 1995 Period. The
principal reason for the increase was the December 1995 issuance of the 13%
Senior Secured Notes due 2002.
Income Before Taxes was $0.9 million for the 1995 Period while a Loss Before
Taxes of $2.9 million was recorded for the 1996 Period. While the Company
recorded $3.3 million in income tax provision for the 1995 Period, it recorded
a $1.0 million income tax benefit for the 1996 Period.
NET INCOME
Due to the above factors, and particularly the change in tax liability, Net
Income improved from a net loss of $2.4 million for the 1995 Period to a net
loss of $1.9 million for the 1996 Period.
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had unrestricted cash of $16.9 million,
compared with $19.8 million at December 31, 1995. The unrestricted cash
balances at June 30, 1996 included approximately $6.5 million in bankroll, $0.5
million in cash earmarked for capital improvements at Fitzgeralds Reno and $4.0
million earmarked as contingency reserves for the capital improvement projects
at Fitzgeralds Las Vegas and Fitzgeralds Tunica. As of June 30, 1996, the
Company had $25.1 million in cash held by a trustee for the completion of
construction improvements at Fitzgeralds Tunica and Fitzgeralds Las Vegas. The
Company believes that the cash held by the trustee, together with the
aforementioned construction reserves held by the Company, will be adequate to
complete the planned construction improvements at its Tunica and Las Vegas
properties.
Cash provided by operating activities was $13,000 for the 1996 Cumulative
Period which compares with cash provided by operating activities of $3.7
million for the 1995 Cumulative Period. The primary reasons for the decrease
in cash generation were the reported net loss of $3.3 million, increases in
prepaid expenses of $2.1 million and a decrease in accrued and other
liabilities of $1.9 million, partially offset by an increase of $2.3 million in
accounts payable and a decrease of $1.0 million in accounts receivable.
Cash used in investing activities was $0.2 million for the 1996 Cumulative
Period, compared with cash provided by investing activities of $6.4 million for
the 1995 Cumulative Period. The cash used in investing activities for the 1996
Cumulative Period was due primarily to the acquisition of property and
equipment of $23.96 million in the 1996 Cumulative Period offset by a decrease
in restricted cash of $23.95 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 $2.8 million for
the 1996 Cumulative Period, compared with $12.9 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 $6.7 million offset by
proceeds from the issuance of debt of $3.6 million. The cash used in financing
activities for the 1995 Cumulative Period was primarily due to the repayment of
long-term debt of $13 million and the payment of dividends of $0.9 million,
offset by proceeds from the issuance of debt of $0.6 million.
The Company has substantial fixed costs, including debt service on the 13%
Senior Secured Notes due 2002, as well as a continuing need for funds to
finance on-going capital requirements at each of its facilities. During the
1996 Period, the Company has experienced certain adverse trends described
above which may continue. Certain other events are anticipated, including
competitive pressures in the Tunica market; disruption at Fitzgeralds Las
Vegas, including the temporary loss of casino space and a portion of its hotel
rooms, during the Las Vegas renovation and expansion (the principal effects of
which the Company intends to confine to July-September period) and increasing
competition as a result of the completion or major renovation of additional
Las Vegas casino-hotels; and competitive pressures associated with the
current excess room capacity in the Reno market. If such adverse trends
continue, reductions in revenues or increases in
15
<PAGE> 16
expenses associated with the foregoing or other factors not currently
anticipated would reduce the Company's unrestricted cash resources and could
affect the Company's ability to meet debt service and other obligations as they
become due.
16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 31, 1995 Fitzgeralds Reno, Inc., ("FRI"), a wholly-owned subsidiary of
the Company, sold the closed Harolds Club Casino in Reno to an unrelated party
who subsequently sold the same casino to a company whose assets are under
control of the Bankruptcy Court in the Northern District of New York. Under
the terms of certain agreements, FRI is contingently obligated for certain land
lease payments in the amount of approximately $650,000 annually, in addition to
certain property-related costs, such as taxes and insurance, if 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 FRI and from
another, unrelated obligor. On or about August 2, 1996 the land lessors filed
suit in District Court seeking payment of approximately $319,280 in unpaid
lease payments plus interest, attorneys' fees and costs. FRI intends to
vigorously defend these suits and does not believe that any ultimate result
will have a material adverse financial impact in its operations.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
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 orally from the required majority holders of
the Notes and is in the process of documenting the modification. Upon
completion of the consent solicitation, the disbursement agreements will allow
the Company to utilize up to $2.4 million in funds previously allocated to
construction costs (which costs are being 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.
17
<PAGE> 18
None
18
<PAGE> 19
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: August 14, 1996
FITZGERALDS GAMING CORPORATION
Fernando Bensuaski
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer, Principal
Financial Officer and Principal
Accounting Officer)
19
<PAGE> 20
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: August 14, 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)
20
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