UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 15, 1999
FITZGERALDS GAMING CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation)
0-26518 88-0329170
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(Commission File Number) (IRS Employer Identification No.)
301 FREMONT STREET, LAS VEGAS, NEVADA 89101
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(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code): (702) 388-2400
NA
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
Fitzgeralds Gaming Corporation (the "Company"), pursuant to an
Indenture dated as of December 30, 1997 (the "Indenture"), issued $205 million
of 12 1/4% Senior Secured Notes due 2004 (the "Notes"). The Indenture provides
that the failure to pay interest when due and payable, which failure continues
for 30 days, constitutes an Event of Default under the Indenture, which gives
rise to certain remedies in favor of the holders of the Notes. On May 13, 1999,
the Company's Board of Directors determined that, pending a restructuring of its
indebtedness, it would not be in the best interest of the Company to make the
regularly scheduled interest payments on the Notes and, as of July 15, 1999, the
Company had not made the regularly scheduled interest payment on the Notes which
was due and payable on June 15, 1999. Accordingly, an Event of Default under the
Indenture has occurred and is continuing.
The Company has been advised that an informal committee (the
"Committee"), representing holders of a majority in interest of the Notes, has
been formed and that the Committee has retained both a financial adviser and
legal counsel, certain costs of which will be borne by the Company. As discussed
further below, the Company has initiated discussions with representatives of the
Committee concerning a restructuring of the Company's indebtedness. The Company
believes that its liquidity and capital resources are sufficient to maintain all
of its normal operations at current levels during the anticipated restructuring
period and does not anticipate any adverse impact on its operations, customers
or employees.
In connection with the discussions with the Committee relating to a
proposed restructuring of the Company's indebtedness and capital structure (the
"Plan"), the Company has provided certain non-public and proprietary information
regarding its business, operations, assets and liabilities and certain
projections relating thereto (the "Evaluation Material"). The Evaluation
Material has not been examined or reviewed by independent public accountants in
accordance with standards promulgated by the American Institute of Certified
Public Accountants (the "AICPA"). The Evaluation Material is not considered
"forecasts" or "projections" as those terms are defined by the AICPA. The
Company provided such Evaluation Material as it believed to be relevant to the
proposed Plan. However, the Company did not and does not make any representation
or warranty, express or implied, as to the accuracy or completeness of any of
the information contained in the Plan or Evaluation Material.
It is management's belief that the proposed Plan will (i) reduce
excessive levels of indebtedness that have restricted the Company's ability to
make strategic capital expenditures to maintain or improve the competitive
advantages of its facilities and build value; (ii) equitably distribute the
economic interests in the Company; and (iii) provide management incentives tied
to future performance.
The central strategic component of the Company's proposed Plan
involves, in addition to the restructuring of its indebtedness and capital
structure, making substantial capital expenditures at both its Black Hawk and
Tunica properties. The Black Hawk expenditures are currently expected to total
approximately $12.7 million and to be completed by the end of the year 2000. The
expenditures would include an expansion of the existing casino facility to
accommodate approximately 250 additional gaming machines, acquisition of land
for the casino expansion and additional parking and the addition of
approximately 200 additional parking spaces and modifications to the existing
parking garage. The Tunica expenditures are expected to total approximately
$17.3 million and would also be expected to be completed by the end of the year
2000. The Tunica expenditures would include a reconfiguration of the existing
casino with the addition of approximately 300 gaming machines, accelerated
replacement of approximately 200 gaming machines, construction of a covered
400-space parking garage and the expansion and improvement of the food outlets.
These expenditures would be financed by a combination of cash on hand, free cash
flow during the restructuring period and additional borrowings of approximately
<PAGE>
$15.0 million. The proposed Plan does not contemplate any material sales of
assets by the Company.
The timing and success of any capital expenditure program is subject
to numerous risks and attendant uncertainties. Nonetheless, to enable the
bondholders and their representatives to develop a frame of reference to assess
the proposal, the Company provided them the following summary projections. The
summary projections include a Base Case, that assumes the Company makes only
such capital expenditures as are necessary to maintain its properties in their
current condition, and a Cap Ex Case, that assumes that the capital expenditure
program described above is undertaken:
FITZGERALDS GAMING CORPORATION
SUMMARY CONSOLIDATED PROJECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
EBITDA
(in millions)
Years Ending December 31,
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2000 2001 2002 2003
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Base Case $26.5 - $28.5 $27.0 - $29.0 $26.9 - $28.9 $27.4 - $29.4
Cap Ex Case $27.7 - $29.7 $37.9 - $39.9 $37.5 - $39.5 $37.7 - $39.7
Variance $1.2 $10.9 $10.6 $10.3
</TABLE>
The proposed Plan represents only the Company's initial proposal
concerning the terms of a restructuring of its indebtedness and capital
structure. The proposed Plan will be subject to extensive negotiation with
holders of the Notes and others and will likely change as such negotiations
progress. It is likely that such changes will materially alter the initial
proposal. Moreover, there can be no assurance that the Company will be able to
reach agreement with a sufficient number of holders of the Notes on the Plan or
any similar proposal for restructuring its indebtedness and capital structure.
Subject to the foregoing, and the caveats, risks and other
cautionary factors discussed below, the major elements of the proposed Plan
include the following:
o Holders of the Notes would receive, in exchange for the Notes, new notes in
an aggregate principal amount of $110.0 million (the "New Notes").
o The New Notes would bear interest at the rate of 11% per annum, commencing
May 1, 2000, payable semi-annually on December 31 and June 30 each year,
commencing December 31, 2000.
o The New Notes would have a maturity date of June 30, 2005.
o The New Notes would not be redeemable prior to June 30, 2003; thereafter,
the New Notes would be redeemable by the Company at a redemption premium
starting at 102.75% and reducing to par on June 30, 2004.
<PAGE>
o The collateral for, guarantees of and covenants with respect to the New Notes
would be substantially identical to the Notes.
o Holders of the New Notes would receive approximately 95% of the equity in the
Company, with the approximately 5% balance of the equity available for other
claimants.
o Management of the Company would receive warrants tied to the future
performance of the Company. None of the warrants would vest or become
exercisable unless there is a material increase in the Company's EBITDA. The
vested warrants would be exercisable in increments, each at $0.01 per share
of common stock, until March 31, 2004 if the Company reaches specified levels
of EBITDA for any year; provided, however, that if the Company's EBITDA has
not reached $39.0 million in any year by the year ending December 31, 2002,
50% of the warrants for EBITDA levels of $39.0 million or less that had not
then vested would expire. The percentage of the Company's equity that would
be represented by the warrants and the EBITDA levels at which they vest are
as follows:
<TABLE>
<CAPTION>
Percentage Of Company's
Common Stock Represented EBITDA Level
BY WARRANTS (%) (IN MILLIONS)
-------------------------- ---------------
<S> <C> <C>
5% $33.0
5% 35.0
5% 37.0
6% 39.0
4% 41.0
3% 43.0
2% 45.0
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Total 30%
</TABLE>
The proposed Plan and the Evaluation Material are comprised of
forward-looking statements and are based on the Company's estimates of the
results it expects based on certain assumptions as of the date hereof. The
Company has not updated or otherwise revised the proposed Plan or the Evaluation
Material since their preparation and disclaims any obligation to update the
proposed Plan or the Evaluation Material or to publicly announce the results of
any revisions to the Plan or any of the forward-looking statements contained
herein or therein to reflect future events or developments, except as required
by applicable law. The proposed Plan and the Evaluation Material may contain
financial items, including projections of revenues, income and earnings, capital
expenditures, capital structure and other forward-looking statements, including
statements containing the words "believes," "anticipates," "expects" and words
of similar import, that involve known and unknown risks, uncertainties and other
factors that will cause the actual results or performance of the Company to be
materially different from any future results or performance expressed or implied
by such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those described below. Given
these uncertainties, investors are cautioned not to place undue reliance on such
forward-looking statements.
The proposed Plan and the Evaluation Material assume, among other
things, that the Company will be able to restructure its indebtedness and
capital structure to allow the Company to meet its operating and debt service
<PAGE>
obligations and to make capital improvements deemed necessary to successfully
compete in its markets. The proposed Plan and the Evaluation Material
necessarily are based upon a number of estimates and assumptions that, while
presented with numerical specificity and considered reasonable by the Company,
are inherently subject to significant business, economic and competitive
uncertainties, contingencies and risks, many of which are beyond the Company's
control, and upon assumptions with respect to future business decisions which
are subject to change. Accordingly, there can be no assurance that the results
presented in the proposed Plan and the Evaluation Material will be achieved and
actual results will vary, and those variations may be material. In compliance
with the Private Securities Litigation Reform Act of 1995, the Company urges
careful consideration of the following important factors that could cause actual
results to differ materially from those in the proposed Plan and the Evaluation
Material and any other forward-looking statements, including, without
limitation, the following:
o Additional Factors Affecting Proposed Plan and Evaluation Material
The nature of the gaming industry makes forecasts of future results
such as the Evaluation Material inherently more uncertain and subject to a
higher degree of risk than for many other industries that are more directly tied
to the general performance of the economy or related to macroeconomics factors
such as interest rates. These uncertainties are exacerbated for gaming operators
such as the Company that derive the majority of their revenues from emerging
gaming markets. Moreover, although the United States economy is enjoying what
may be the longest peacetime expansion in its history, the Company's assumption
that this trend will continue may prove to be inaccurate. An economic slowdown
or inflationary pressures could have a material adverse effect on the gaming
industry in general and the Company in particular.
The proposed Plan and, therefore, the Evaluation Material make
certain additional assumptions with regard to the timing of the adoption of the
proposed Plan and the proposed strategic capital expenditures at Fitzgeralds
Black Hawk and Fitzgeralds Tunica. There are numerous risks associated with the
timing of the adoption of the proposed Plan, including (i) the need to obtain
the requisite approval of the holders of the Notes; (ii) the likely need for the
Company to commence a proceeding under Chapter 11 of the Bankruptcy Code in
connection with the proposed Plan; and (iii) the need for bankruptcy court
approval to confirm the proposed Plan. Moreover, there are numerous risk
associated with the proposed capital expenditure projects, including (i) cost
overruns (which could be caused by shortages of materials or labor,
environmental or engineering problems, work stoppages, fire or other natural
disasters, construction delays and weather); (ii) the need to obtain required
permits, licenses and approvals; (iii) the disruptive effects of construction on
existing operations; and (iv) the need to acquire land to complete the Black
Hawk project. Any delays in the timing of such matters or unanticipated costs
incurred will adversely affect the Company's results and such effects may be
material.
Although the Company has also made certain assumptions concerning
the approval of the proposed Plan and its confirmation in a bankruptcy
proceeding, there can be no assurance concerning the timing of the adoption of
the proposed Plan, the costs of implementing and confirming the proposed Plan,
the effect on operations of a bankruptcy proceeding, the completion of any
capital expenditure projects or, if undertaken and completed, that the projects
will achieve the goals of attracting new customers or increasing gaming or other
revenues or operating profits.
The proposed Plan and Evaluation Material assume significant ongoing
competition in the Company's markets (see - Competition and Risks of Expanded
Legalization of Gaming). However, they do not make any assumptions with regard
<PAGE>
to the opening of additional new or expansion of other existing competitive
facilities in any of the Company's markets beyond the publicly announced Paris
and Resort at Sommerlin in Las Vegas, the Isle of Capri in Tunica and Mardi Gras
and Riviera in Black Hawk. Although the Company cannot predict with any degree
of certainty, it is highly likely that additional competition will develop.
Additional competition could have a material adverse effect on actual results
from those contemplated by the Plan and the Evaluation Material.
o High Level of Indebtedness
The Company is highly leveraged. At July 4, 1999, the Company's
total indebtedness was approximately $212.5 million and the Company had an
accumulated deficit of approximately $83.0 million. The Company's relatively
high level of indebtedness has already resulted in the Company curtailing
previously planned capital expenditures and could result in additional
significant adverse consequences to the Company. Although the level of
indebtedness of the Company would be significantly reduced were the Plan to be
consummated, the Company would continue to have a significant level of
indebtedness.
o Historical Net Losses
The Company historically has experienced net losses in its operating
results. In the five years from 1994 to 1998, the Company experienced net losses
of $6.0 million, $4.3 million, $13.5 million, $31.5 million and $8.7 million.
For the quarter ended April 4, 1999, the Company had a net loss of $2.8 million
and an accumulated deficit of approximately $79.1 million. There can be no
assurance that the Company will not continue to incur net losses in its
operating results.
o Fresh Start Accounting
Future reported results may be affected by "fresh start" accounting.
It is not possible at this time to determine what affect fresh start accounting
will have on such results.
o Competition and Risks of Expanded Legalization of Gaming
The Company faces intense competition in each of the markets in
which its gaming facilities are located. Many of the competitors have
significantly greater name recognition and financial and marketing resources
than the Company. Such competition results, in part, from the geographic
concentration of competitors. All of the Company's casinos primarily compete
with other casinos in their immediate and surrounding geographic areas. New
expansion and development activity is occurring in each of the markets in which
the Company operates, which may be expected to intensify competitive pressures.
All of the Company's casinos also compete to a lesser extent with casinos in
other locations, including Indian lands, riverboats and cruise ships, and with
other forms of legalized gaming in the United States, including state-sponsored
lotteries, on- and off-track wagering and card parlors. Several states have
considered legalized casino gaming and others may in the future. Legalization of
large-scale, unlimited casino gaming in or near any major metropolitan area or
increased gaming in other areas could have a material adverse effect on the
business of any or all of the Company's gaming facilities.
NEVADA OPERATIONS
-----------------
Fitzgeralds Las Vegas competes primarily with other downtown casino
properties, casino properties located near the Nevada/California state line and
<PAGE>
certain facilities located on the Las Vegas Strip. The Company also believes
that it competes, to a lesser extent, with the local neighborhood casinos and
casino-hotels on the Boulder Strip and in the Laughlin market.
The Las Vegas market is highly competitive. The Company has
experienced competition from new and existing Las Vegas casino-hotels which have
sought to attract some of the same "middle-market" players, and tour and travel
visitors targeted by Fitzgeralds Las Vegas. The Company anticipates continuing
increased competition for these customers. Moreover, on the Las Vegas Strip,
Bellagio, with approximately 3,000 rooms, opened in September 1998; Mandalay
Bay, with approximately 3,700 rooms, opened in March 1999; Venetian, with
approximately 3,000 rooms, opened in April 1999; and two additional resort
properties, with a total of approximately 3,500 rooms, are also scheduled to
open in July and September 1999. In addition, casinos catering to local
residents also compete for business from the Company's targeted segment. These
new properties, as well as any other major additions, expansions or enhancements
to existing properties by the Company's competitors, could have a material
adverse effect on the Company's business.
Fitzgeralds Reno encounters strong competition from other hotel and
casino facilities in the Reno area as well as competition from gaming
establishments in other areas of Nevada and, to a lesser extent, other
jurisdictions in the United States where gaming has been legalized (including
Indian gaming establishments). Fitzgeralds Reno competes with other properties
principally on the basis of location and direct marketing. Additional
competition may come from the expansion or construction of other hotel and
casino properties or the upgrading of other existing facilities in the Reno
area. There can be no assurance that such growth will not adversely affect the
pricing policies at Fitzgeralds Reno, including the room pricing policies. In
addition, the Company recently completed the sale of the Nevada Club (which the
Company closed in December 1997) and portions of Harolds Club, and Harrah's
Entertainment, Inc., the entity that purchased the property, may elect to open a
new gaming facility on the site.
Moreover, the Company's management believes that the introduction of
casino gaming, or the expansion of presently conducted gaming activities
(particularly at Indian establishments) in areas in or close to Nevada, such as
California, Oregon, Washington, Arizona and western Canada, could have a
material adverse effect on operations at the Company's Las Vegas and Reno
properties and, depending on the nature, location and extent of such operations,
such effect could be material.
In October 1998, the Reno City Counsel approved a special assessment
district to finance a portion of the costs to lower the railroad tracks that run
through downtown Reno, Nevada (the "ReTRAC Project"). Preliminary plans for the
ReTRAC Project provide for the construction of a temporary rail bypass that will
be used to divert rail traffic around the main railroad during construction. The
City estimates that a period of approximately two and one-half years will be
required to complete the ReTRAC Project. The southern boundary of the bypass
will extend out into the middle of Commercial Row, the street adjacent to the
Fitzgeralds Reno hotel entrance, valet parking area and hotel loading zone.
On November 30, 1998, the Company filed a lawsuit against the City
of Reno to challenge the method by which the special assessment to be levied
against the Company was determined. Based on preliminary plans prepared by the
City of Reno, Fitzgeralds Reno would expect to lose several parking spaces, the
current valet parking area, an outdoor billboard structure advertising available
rooms and a building used to house administrative offices, and be required to
relocate the hotel entrance on Commercial Row. The City of Reno has also
subsequently indicated that the ReTRAC Project might require the demolition of
the Fitzgeralds Reno Rainbow Skyway. Implementation of the ReTRAC Project as
currently proposed would cause the Company to suffer significant and permanent
<PAGE>
loss in business revenue and income; certain operating efficiencies from
demolished or impaired physical structures; and a portion of its existing
customer base as a result of the construction and operation of the proposed rail
bypass. The City of Reno filed an answer to the Company's lawsuit on January 19,
1999. The case is expected to proceed in the nature of a judicial review of the
Reno City Council's administrative record relating to the creation of the ReTRAC
Project special assessment district. It is anticipated that a decision on the
merits of the Company's claims will be decided subsequent to the filing of
opening and reply briefs; however, oral arguments may be requested, in which
case, a hearing will be held. A hearing date has not yet been set.
The Company has received no assurance as to whether and when the
City of Reno will negotiate mitigation measures and whether such measures could
or would fully compensate the Company for the fair market value of its property
and anticipated operating losses.
In November 1998, Proposition 5, an initiative relating to Indian
gaming, was adopted in the State of California. Proposition 5 would permit
Indian gaming in California, subject to specified limitations. The limitations
include provisions requiring that Indian casinos: (i) may be located only on
Tribal lands; (ii) may only continue to offer games in effect prior to the
adoption of Proposition 5; and (iii) may only offer lottery-style gaming in
which prizes come from a pool of wagered money rather than the casino. As a
result, Indian casino gaming permitted under Proposition 5 would include
player-pool card games, pari-mutual betting on horse racing and video gaming
machines with lottery style prize structures; however, slot machines that take
and dispense coins and are operated by a handle, or games such as craps,
roulette or baccarat, would not be permitted by Proposition 5. Following the
adoption of Proposition 5, several lawsuits have been filed in the California
Supreme Court challenging the constitutionality of the initiative. Although the
Company cannot predict the outcome of the challenges to Proposition 5, there are
currently in excess of 16,000 gaming devices operating in Indian casinos in
California. The continued operation of such machines and the validation of
Proposition 5 by the California Supreme Court will have an adverse effect on
casino gaming in Nevada. Moreover, in the event that Proposition 5 is validated
by the California Supreme Court, it is likely to lead to substantial expansion
of Indian gaming in California which could have a material adverse effect on
casino gaming in Nevada, particularly in Reno.
The Company's ability to maintain its competitive position in Las
Vegas and Reno will require the expenditure of sufficient funds for such items
as updating slot machines to reflect changing technology, periodic refurbishing
of rooms and public service areas, and replacing obsolete equipment on an
ongoing basis. As discussed above, because the Company is highly leveraged,
lacks financial flexibility and may not generate sufficient funds internally,
there can be no assurance that the Company will be able to complete any such
capital improvements.
MISSISSIPPI OPERATIONS
----------------------
Fitzgeralds Tunica competes primarily with eight other dockside
gaming facilities in the Tunica area, five of which are approximately one mile
north of Fitzgeralds Tunica and three of which are approximately four miles
south of Fitzgeralds Tunica. A fourth gaming facility located approximately four
miles south of Fitzgeralds Tunica, originally operated by Harrah's and closed in
1997, was recently acquired by an experienced casino operator and is expected to
re-open as the Isle of Capri in the summer of 1999.
In addition to the substantial competition in the immediate vicinity
of Fitzgeralds Tunica, the Company competes with other Mississippi operations
<PAGE>
and may have to compete with surrounding areas for customers in Memphis,
Tennessee and Little Rock, Arkansas. There can be no assurance that the State of
Tennessee or the State of Arkansas will not legalize casino gaming in the
future.
In November 1992, and again in November 1996, De Soto County, the
northwestern-most Mississippi county and the one nearest to Memphis, voted
against authorizing gaming activities. Arkansas voters also voted against gaming
in the November 1996 election. Because Fitzgeralds Tunica is heavily dependent
upon the patronage of Memphis residents and tourists, the opening of gaming
casinos in Tennessee or in other locations closer to Memphis could have a
material adverse effect on the Company's operations.
COLORADO OPERATIONS
-------------------
Competition is intensifying in Black Hawk with the opening of The
Lodge and the Isle of Capri in 1998. Two additional projects are scheduled to
open in the latter part of 1999 or early 2000. All of these projects are larger
than Fitzgeralds Black Hawk, will be operated by companies with greater
resources and will be located at the eastern (closest to Denver) end of Black
Hawk at the first major intersection off State Highway 119, which may give such
projects a competitive advantage over Fitzgeralds Black Hawk since they will
have the initial opportunity to capture visitors to Black Hawk and Central City
from the Denver metropolitan area. The increased competition may have a material
adverse effect on Fitzgeralds Black Hawk operations and may continue to do so;
moreover, the concentration of these properties on the south end of the street
has shifted the center of gaming activity away from Fitzgeralds Black Hawk,
which is located at the north end of the street. The Company will be required to
make substantial capital expenditures to increase the presence of Fitzgeralds
Black Hawk in the face of increasing competition. Because the Company is highly
leveraged, lacks financial flexibility and may not generate sufficient funds
internally, there can be no assurance that the Company will be able to undertake
any such capital improvements. Moreover, there is a fundamental issue concerning
the size of the Black Hawk market and the ability to expand the market because
of its mountain location and the availability of adequate roads and other
infrastructure.
Although initiatives to expand gaming venues in Colorado have thus
far been unsuccessful, initiatives, legislation or regulations could be
introduced in the future. The enactment of any initiative, legislation or
regulation legalizing gaming elsewhere in Colorado could and, if such legalized
gaming was closer to Denver, would have a material adverse effect on Fitzgeralds
Black Hawk.
o Government Regulation and Licensing
The ownership and operation of gaming facilities are subject to
extensive state and local regulation. The gaming authorities in the
jurisdictions in which the Company operates have broad authority and discretion
to require the Company and its officers, directors, employees and certain
security holders to obtain various licenses, registrations, permits, findings of
suitability and other approvals. To enforce applicable gaming regulations, such
gaming authorities may, among other things, limit, suspend or revoke the
licenses of any gaming entity or individual, and may levy fines or forfeiture of
assets against the Company or individuals for violations of gaming laws or
regulations. The suspension or revocation of any of the Company's licenses or
the levy on the Company of substantial fines or forfeiture of assets would have
a material adverse effect on the Company.
To date, the Company has obtained all governmental licenses,
certifications, registrations, permits, findings of suitability and approvals
necessary for the operation of its gaming activities. Any future public offering
<PAGE>
of debt or equity securities by the Company will require the prior approval of
gaming authorities in Colorado, Mississippi and Nevada. Gaming licenses and
related approvals are deemed to be privileges under state law, and no assurance
can be given that any new licenses, permits or approvals that may be required in
the future will be given or that existing ones will not be revoked.
In August 1996, President Clinton signed a bill creating the
National Gambling Impact Study Commission ("NGISC"), composed of individuals
with ties to the gaming industry as well as individuals who are openly opposed
to legalized gaming, to examine the economic and social impact of gaming. The
NGISC began a series of hearings on June 20, 1997, and released its report on
its findings, together with recommended legislation and administrative action,
in June 1999. Although the NGISC's findings and recommendations principally
involved proposals for future federal and local research on the costs and
benefits of legal gambling, any additional regulation of the gaming industry
resulting from the NGISC's recommendations or otherwise could have a material
adverse effect on the gaming industry, including the Company.
o Future Growth and Financing
The Company's growth strategy includes strengthening its existing
properties, which may include future development, construction and renovation
projects. The extent and timing of any such projects will depend upon various
factors, including available cash flow or the ability to obtain additional
financing. The Company has already curtailed spending on certain capital
improvements and because the Company is highly leveraged, lacks financial
flexibility and may not generate sufficient funds internally, there can be no
assurance that the Company will be able to complete any such future capital
development, construction or renovation projects. Moreover, the Company will be
subject to the risks inherent in any construction activity, including, but not
limited to, disruption of existing operations, delays in receipt of permits,
licenses or other regulatory approvals, shortages of materials or skilled labor,
work stoppages, and weather interferences, any of which could delay construction
or result in substantial cost increases to the Company. Although the Company has
no current intention to expand into additional jurisdictions, any decision to do
so in the future would be subject to similar risks and financing issues.
o State Gaming Taxes
The Company believes that the prospect of significant tax revenue is
one of the primary reasons that many jurisdictions have legalized gaming. As a
result, gaming operators are typically subject to significant taxes and fees, in
addition to corporate income taxes, where applicable, and such taxes and fees
are subject to increase at any time. Any material increase in these taxes or
fees could adversely affect the gaming industry, including the Company. The
Company pays and expects to continue to pay substantial taxes and fees in
Nevada, Mississippi and Colorado.
o Seasonality; Severe Weather; and Absence of Insurance Coverage
The gaming operations of the Company in certain locations may be
seasonal and, depending on the location and other circumstances, the effects of
such seasonality could be significant. At Fitzgeralds Las Vegas, business levels
are generally weaker from Thanksgiving through the middle of January (except
during the week between Christmas and New Years) and throughout the summer, and
generally stronger from mid-January through Easter and from mid-September
through Thanksgiving. At each of the three other Fitzgeralds-brand properties,
business levels are typically weaker from Thanksgiving through the end of the
spring and typically stronger from mid-June to mid-November. As a result, the
Company's revenues, operating income and net income historically have been lower
in the first and fourth quarters than in the second and third quarters.
<PAGE>
Consequently, interim results are not necessarily indicative of the full fiscal
year, and quarterly results may vary substantially, both within a fiscal year
and between comparable fiscal years.
The Company's results also are affected by inclement weather in the
relevant markets. For example, the Company's Tunica site, located on the
Mississippi River, is subject to flooding, especially in late-winter and
early-spring, as well as hurricanes and tornadoes. The Fitzgeralds Black Hawk
site, located in the mountains of Colorado, and the Fitzgeralds Reno site,
located in the foothills of the Sierra Nevada mountains in Nevada, are subject
to snow and icy road conditions during the winter months. Any such severe
weather conditions may discourage potential customers from visiting the
Company's facilities. It is unlikely that the Company will be able to obtain
business interruption coverage for casualties resulting from severe weather, and
there can be no assurance that the Company will be able to obtain casualty
insurance coverage at affordable rates for casualties resulting from severe
weather.
o Availability and Retention of Key Management
The Company's operations and development are dependent upon the
efforts and experience of its executive officers. The Company has employment
agreements with Messrs. Philip D. Griffith, President and CEO, Paul H. Manske,
Senior Vice President, and Max L. Page, Executive Vice President, which expire
on June 28, 2003, December 31, 1999 and December 31, 1999, respectively. Mr.
Michael E. McPherson's employment agreement as Senior Vice President and Chief
Financial Officer expired on February 28, 1999. Mr. McPherson is currently
employed on a month-to-month basis under the same terms and conditions of such
agreement, and is in the process of negotiating a new agreement. However, there
can be no assurance that the Company will be able to successfully enter into a
new employment agreement with Mr. McPherson or otherwise retain the services of
its other executive officers, and the loss of the services of any one of these
individuals could materially and adversely affect the Company.
o Application of Environmental Regulations
Generally, the Company and its subsidiaries are subject to a variety
of federal, state and local governmental laws and regulations relating to the
use, storage, discharge, emission and disposal of hazardous materials. While the
Company believes that it and its subsidiaries are presently in material
compliance with all environmental laws, failure to comply with such laws could
result in the imposition of severe penalties or restrictions on operations by
government agencies or courts that could adversely affect operations. In
addition, although the Company is not aware of any environmental contamination
at its properties, it has not conducted environmental investigations of all such
properties. The Company does not have insurance to cover environmental
liabilities, if any.
Specifically, the Black Hawk and Central City gaming districts,
including the Fitzgeralds Black Hawk site, are located within the 400-square
mile area that was designated in 1983 as the Central City/Clear Creek Superfund
site (the "Site") by the Environmental Protection Agency (the "EPA"), pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"). The Site includes numerous specifically identified
areas of mine tailings and other waste piles caused by historical mining
activity in the area that are the subject of ongoing investigation and clean-up
by the EPA and the Colorado Department of Public Health and Environment. CERCLA
requires remediation of sites from which there has been a release or threatened
release of hazardous substances and authorizes the EPA to take any necessary
response actions at Superfund sites, including authorizing potentially
responsible parties ("PRPs") to clean up or contribute to the clean-up of a
Superfund site. PRPs are broadly defined under CERCLA, and include past and
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present owners and operators of a site. CERCLA imposes strict liability on PRPs,
and courts have commonly held PRPs to be jointly and severally liable for all
response costs.
Fitzgeralds Black Hawk is not within any of the specific areas of
the Site currently identified by the EPA for investigation or remediation. The
property on which Fitzgeralds Black Hawk casino is situated was not an
historical mining site but rather was the location of a general store. The
casino and parking complex, however, are situated over an historical mining
site. Through an independent environmental consultant, Phase I and other limited
environmental assessments of the real property underlying Fitzgeralds Black Hawk
were prepared in connection with the development of the property. Although test
borings have been recommended only in connection with any future construction on
an additional parcel adjoining Fitzgeralds Black Hawk, to date no remediation
requirements have been recommended or required with regard to any portion of the
property. Based on the assessments to date, management is not aware of any
environmental problems affecting Fitzgeralds Black Hawk which are likely to
result in material costs to the Company. No assurance can be given, however,
that environmental problems will not be subsequently discovered. Furthermore,
the EPA or other governmental authorities could broaden their investigations and
identify additional areas within the Site for remediation. If Fitzgeralds Black
Hawk were included in additional areas of concern within the Site, the Company
could be identified as a PRP and any liability related thereto could have a
material adverse effect on the Company.
o Computerized Operations and the Year 2000
In 1997 the Company initiated an investigation to identify and
ensure that all significant applications will be Year 2000 compliant. The
Company is conducting its investigation and is in the process of obtaining
assurances from its vendors that timely updates will be made available to ensure
that all purchased applications are Year 2000 compliant. However, there can be
no guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
The Company is utilizing both internal and external resources to
test, program and/or replace applications to ensure that they are Year 2000
compliant. Completion of this project is anticipated not later than October 31,
1999, with the costs associated with the Year 2000 project expected to be
approximately $1.0 million for the four properties.
Although, based on its investigation to date the Company does not
believe that it will experience any significant adverse effects or material
unbudgeted costs associated with the Year 2000 project, the Company cannot
provide any assurance in this regard, and any such cause or effect could
materially and adversely affect the Company.
* * *
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this report,
including the Evaluation Material (as well as information included in oral
statements or other written statements made or to be made by the Company),
contains statements that are forward-looking, such as statements relating to
financial items, including projections, revenues, income and earnings, capital
expenditures and capital structure, management's statements concerning future
business plans and objectives, including plans for future expansion and other
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business development activities, as well as other capital spending, financing
sources and the effects of regulation (including gaming and tax regulation) and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those discussed above. For more
information, review the Company's filings with the Securities and Exchange
Commission, including the Company's annual report on Form 10-K for the year
ended December 31, 1998 and certain registration statements of the Company.
SIGNATURE
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 duly authorized.
Date: July 22, 1999 FITZGERALDS GAMING CORPORATION
(Registrant)
By: /s/ Michael E. McPherson
------------------------------------
Michael E. McPherson
Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
