Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report 35 177K
2: EX-2.1 Plan of Acquisition, Reorganization, Arrangement, 38 134K
Liquidation or Succession
3: EX-10.1 Material Contract 20 90K
4: EX-27 Financial Data Schedule (Pre-XBRL) 1 7K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20840
PRESIDENT CASINOS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0341200
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
802 North First Street, St. Louis, Missouri 63102
----------------------------------------------------
Address of principal executive offices-Zip Code
314-622-3000
----------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $0.06 par
value, 5,032,450 shares outstanding as of October 19, 2000.
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PRESIDENT CASINOS, INC.
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
as of August 31 and February 29, 2000...............................1
Condensed Consolidated Statements of Operations (Unaudited)
for the Three and Six Months Ended August 31, 2000
and 1999............................................................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended August 31, 2000 and 1999...................3
Notes to Condensed Consolidated Financial Statements (Unaudited)......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk....30
Part II. Other Information
Item 1. Legal Proceedings.............................................30
Item 2. Changes in Securities.........................................30
Item 3. Defaults Upon Senior Securities...............................30
Item 4. Submission of Matters to a Vote of Security Holders...........31
Item 5. Other Information.............................................31
Item 6. Exhibits and Reports on Form 8-K..............................31
Signature................................................................32
Part I. Financial Information
Item 1. Financial Statements
PRESIDENT CASINOS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except per share data)
[Download Table]
Aug. 31, Feb. 29,
2000 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 10,213 $ 12,408
Restricted cash................................ 2,894 2,780
Restricted short-term investments.............. 975 960
Accounts receivable, net of allowance for
doubtful accounts of $256 and $331........... 989 1,401
Inventories.................................... 1,742 1,728
Prepaid expenses and other current assets...... 3,424 2,218
--------- ---------
Total current assets....................... 20,237 21,495
Property and equipment, net of accumulated
depreciation of $76,407 and $81,027............ 131,558 142,490
Other assets..................................... 851 1,409
--------- ---------
$152,646 $165,394
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt................................ $ 2,728 $ 4,513
Current maturities of long-term debt........... 135,657 135,577
Accrued loan fee............................... 7,000 5,996
Accounts payable............................... 4,010 3,969
Accrued payroll and benefits................... 6,927 7,499
Accrued interest............................... 13,220 6,445
Other accrued expenses......................... 7,799 7,756
--------- ---------
Total current liabilities.................. 177,341 171,755
Long-term liabilities:
Notes payable................................. -- --
--------- ---------
Total liabilities.......................... 177,341 171,755
--------- ---------
Minority interest................................ 13,857 13,220
Commitments and contingencies.................... -- --
Stockholders' deficit:
Preferred Stock, none issued and outstanding... -- --
Common Stock, $0.06 par value per share;
100,000 shares authorized; 5,033 shares
issued and outstanding....................... 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (140,583) (121,612)
--------- ---------
Total stockholders' deficit................ (38,552) (19,581)
--------- ---------
$152,646 $165,394
========= =========
See Notes to Condensed Consolidated Financial Statements.
1
PRESIDENT CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
[Enlarge/Download Table]
Three Months Six Months
Ended August 31, Ended August 31,
2000 1999 2000 1999
------ ------ ------ ------
OPERATING REVENUES:
Gaming................................... $ 41,958 $ 46,257 $ 87,630 $ 93,793
Food and beverage........................ 5,956 6,458 11,541 12,634
Hotel.................................... 2,246 2,252 4,153 4,263
Retail and other......................... 1,648 2,524 3,184 5,521
Less promotional allowances.............. (4,525) (4,788) (8,774) (9,153)
--------- --------- --------- ---------
Net operating revenues................. 47,283 52,703 97,734 107,058
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Gaming and gaming cruise................. 25,656 28,031 52,947 56,291
Food and beverage........................ 3,719 4,042 7,431 7,936
Hotel.................................... 821 853 1,608 1,579
Retail and other......................... 662 742 1,332 1,505
Selling, general and administrative...... 12,523 12,645 24,536 25,495
Depreciation and amortization............ 2,806 2,660 6,388 6,324
Impairment of long-lived assets.......... 11,400 -- 11,400 --
Development costs........................ 96 38 164 133
--------- --------- --------- ---------
Total operating costs and expenses..... 57,683 49,011 105,806 99,263
--------- --------- --------- ---------
OPERATING INCOME (LOSS).................... (10,400) 3,692 (8,072) 7,795
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income.......................... 112 165 210 296
Interest expense......................... (5,088) (4,934) (10,373) (9,812)
--------- --------- --------- ---------
Total other income (expense)........... (4,976) (4,769) (10,163) (9,516)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST.............. (15,376) (1,077) (18,235) (1,721)
Minority interest.......................... 366 359 736 691
--------- --------- --------- ---------
NET LOSS................................... $(15,742) $ (1,436) $(18,971) $ (2,412)
========= ========= ========= =========
Basic and diluted net loss per share
From continuing operations............ $ (3.13) $ (0.29) $ (3.77) $ (0.48)
========= ========= ========= =========
Weighted average common and dilutive
potential shares outstanding.............. 5,033 5,033 5,033 5,033
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
2
PRESIDENT CASINOS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
[Download Table]
Six Months Ended August 31,
2000 1999
------ ------
Net cash provided by operating activities......... $ 6,513 $ 5,960
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment......... (5,532) (4,060)
Change in restricted cash....................... (114) 98
Payment of minority interest.................... (100) (250)
Proceeds from sales of property and equipment... 2 129
Other........................................... (14) 87
--------- ---------
Net cash used in investing activities....... (5,758) (3,996)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable...................... (2,948) (251)
Payments on capital lease obligations........... (2) (904)
--------- ---------
Net cash used in financing activities....... (2,950) (1,155)
--------- ---------
Net increase (decrease) in cash
and cash equivalents........................ (2,195) 809
Cash and cash equivalents at beginning of period.. 12,408 17,110
--------- ---------
Cash and cash equivalents at end of period........ $ 10,213 $ 17,919
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 2,109 $ 7,444
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Assets acquired in exchange for debt............ $ 1,338 $ 5,393
========= =========
See Notes to Condensed Consolidated Financial Statements.
3
PRESIDENT CASINOS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and operations of
President Casinos, Inc., its wholly-owned subsidiaries, a 95%-owned limited
partnership and a limited liability company in which the Company has a 100%
ownership interest and in which an entity wholly-owned by the Chairman of the
Board of the Company has preferred rights to certain cash flows (collectively,
the "Company" or "PCI"). All material intercompany balances and transactions
have been eliminated.
PCI owns and operates riverboat and dockside gaming casinos through its
subsidiaries. As of August 31, 2000, the Company conducted riverboat and/or
dockside gaming operations in Davenport, Iowa; in Biloxi, Mississippi through
its wholly-owned subsidiary The President Riverboat Casino-Mississippi, Inc.
("President Mississippi"); and in St. Louis near the base of the Arch through
its wholly-owned subsidiary, President Riverboat Casino-Missouri, Inc.
("President Missouri"). In addition, the Company owns and manages certain
hotel and ancillary facilities associated with its gaming operations. The
Broadwater Property in Biloxi is owned by the President Broadwater Hotel, LLC,
a limited liability corporation in which the Company has a 100% ownership
interest. The Company also operates two nongaming dinner cruise, excursion
and sightseeing vessels on the Mississippi River in St. Louis, Missouri. On
October 10, 2000, the Company sold the assets of its Davenport casino and
hotel operations (see Note 7). The Davenport casino operations were managed
by the Company's wholly-owned subsidiary, President Riverboat Casino-Iowa,
Inc. ("PRC Iowa"), which is the general partner of the 95% Company-owned
operating partnership, The Connelly Group, L.P. ("TCG"). The Blackhawk Hotel
in Davenport was a wholly-owned subsidiary of the Company.
Basis of Presentation
The Company is experiencing difficulty generating sufficient cash flow to
meet its obligations and sustain its operations. As a result of the Company's
relatively high degree of leverage and the need for significant capital
expenditures at its St. Louis property, management 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 its $75,000
Senior Exchange Notes and $25,000 Secured Notes. Accordingly, the Company has
not paid the regularly scheduled interest payments of $6,375 that were each
due and payable March 15, and September 15, 2000, respectively. Under the
Indentures pursuant to which the Senior Exchange Notes and Secured Notes were
issued, an Event of Default occurred on April 15, 2000, and is continuing as
of the date hereof. Additionally, the Company did not pay the $25,000
principal payment due September 15, 2000 on the Senior Exchange Notes. The
holders of at least 25% of the Senior Exchange Notes and Secured Notes have
been notified of the defaults and have instructed the Indenture Trustee to
accelerate the Senior Exchange Notes and Secured Notes and declare the unpaid
principal and interest to be due and payable.
On October 10, 2000, the Company and its principal subsidiaries entered into
an agreement with holders of certain of its 13% Senior Exchange Notes due
4
September 15, 2001 of which $75,000 are currently outstanding and with all of
the holders of its 12% Secured Notes due September 15, 2001, of which $25,000
are outstanding. The note holders constitute an unofficial committee
comprised of certain holders of the Company's notes.
The agreement was entered into in contemplation of the sale of the Davenport
operations. The agreement contemplates that a portion of the proceeds will be
placed in an escrow account as collateral for the notes and that this amount
shall be used to purchase certain of the notes at par, following a joint
consent solicitation and tender offer to the note holders to waive certain
defaults and amend the indentures, to pay missed interest payments and to
purchase certain notes. The receipt of consents and waivers by holders of at
least 98% in aggregate principal amount of the Senior Exchange Notes will be a
condition precedent to the consummation of the repurchase. The escrowed
portion of the Davenport sale proceeds will be applied to the notes at the
earlier of the closing of the repurchase or November 30, 2000. If the
repurchase does not occur by November 30, 2000, and the noteholders have
received the net proceeds, then upon satisfaction of certain additional
conditions, the Company has until May 30, 2001 to effectuate the restructuring
through a confirmed reorganization plan.
The agreement also contemplates the sale of the Company-owned vessel, the
"New Yorker," prior to December 31, 2000.
While the agreement contemplates the preparation and execution of definitive
documents to accomplish the terms of an attached term sheet, there can be no
assurance that such agreements will be prepared in acceptable form such that
they will be executed by all necessary parties. The term sheet anticipates
that the proceeds from the Davenport sale shall pay outstanding interest due
under both the Senior Exchange Notes and the Secured Notes, that principal and
interest will be paid on the Biloxi casino barge obligation, which has been
done, and working capital will be made available to the Company in an amount
not to exceed $2,000.
In addition, $4,900 will be placed in an escrow account and pledged as
collateral for the notes to be applied to the interest payment due note
holders on March 15, 2001. The remainder shall be applied to purchase the
notes at par on a pro rata basis with the two issuances as follows: 75% to
the holders of the Senior Exchange Notes and 25% to the holders of the Secured
Notes.
The maturity of the Secured Notes will be extended to September 15, 2003, if
the Company meets a certain interest coverage ratio.
The 13% Senior Exchange Notes shall be amended to provide for a sinking fund
payment of $15,000 on July 31, 2001 in lieu of the $25,000 redemption
scheduled for September 15, 2000, assuming the "Admiral" is relocated and
opened and new slot product is operational by November 30, 2000. If there are
delays there are provisions for an extension. The sinking fund payment
schedule shall be excused if the St. Louis operations meet a performance test
based on EBITDA. The maturity date on the 13% Senior Exchange Notes shall be
extended to September 15, 2003 if the Company meets a certain interest
coverage ratio. To secure the Senior Exchange Notes, the Company will grant
security interests on virtually all of its remaining assets, including a
subordinate security interest in the Biloxi casino barge after a $4,000 pledge
to another creditor.
5
The Company will issue to the note holders on a pro rata basis warrants to
purchase 10% of the common stock of the Company at an exercise price of $2.625
per share. The warrants will have a 5-year period. Registration rights will
be granted.
All agreements are contingent upon due diligence, the absence of material
adverse change and documentation being in form and substance satisfactory to
the committee and its counsel. The full text of the agreement and the term
sheet incorporated therein are attached hereto as Exhibit 10.1 and
incorporated herein by reference.
The Company did not pay the $3,966 note which was due April 15, 2000,
associated with the purchase of the Biloxi casino barge and the note was in
default as of August 31, 2000. A payment of $325 was made April 15, 2000 and
the Company has continued to make monthly combined principal and interest each
month thereafter. On October 10, 2000, the Company paid the then outstanding
principal balance of $1,853, interest of $16 and a restructuring fee of $67
from the proceeds of the sale of its Davenport operations.
Additionally, the Company did not pay the $30,000 note and the associated
$7,000 loan fee due July 22, 2000 related to the Broadwater Property. The
Company is currently in negotiations with the lender to restructure this debt.
Also in default, due to cross default provisions associated with other debt
agreements, is the Company's $2,800 "President Casino-Mississippi" note. This
debt is currently due and classified in current liabilities. See Note 3 -
Short-Term Debt and Notes Payable.
By suspending certain interest and principal payments until such time as a
restructuring plan has been negotiated and implemented, the Company believes
that its liquidity and capital resources will be sufficient to maintain its
normal operations at current levels during the restructuring period and does
not anticipate any adverse impact on its operations, customers or employees.
However, costs incurred and to be incurred in connection with the
restructuring plan have been and will continue to be substantial and, in any
event, there can be no assurance that the Company will be able to restructure
successfully its indebtedness or that its liquidity and capital resources will
be sufficient to maintain its normal operations during the restructuring
period. The Company remains current with all its vendors and suppliers.
Management is pursuing various strategic financing alternatives in order to
fund these obligations and the Company's continuing operations. The Company
is working with recognized financial advisors in the gaming industry to pursue
these alternatives, including the restructuring and refinancing of outstanding
debt obligations and/or the sale of a portion of its assets. The Company's
ability to continue as a going concern is dependent on the ability of the
Company to restructure successfully, refinance its debts or sell/charter
assets on a timely basis under acceptable terms and conditions and the ability
of the Company to generate sufficient cash to fund future operations. There
can be no assurance in this regard or that the Company will continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainly.
As of August 31, 2000, the Company has $10,213 of unrestricted cash and cash
equivalents. Of this amount, the Company requires approximately $8,000 to
$9,500 of cash to fund daily operations. The subsequent sale of the Davenport
casino and hotel operations reduced this requirement by approximately $2,500.
The Company is heavily dependant on cash generated from operations to continue
to operate as planned in its existing jurisdictions and to make capital
6
expenditures. The Company anticipates that its existing available cash and
cash equivalents and its anticipated cash generated from operations will be
sufficient to fund its ongoing operating properties but not meet all its
obligations for borrowed money. To the extent cash generated from operations
is less than anticipated, the Company may be required to curtail certain
planned expenditures.
On October 10, 2000, the Company sold the assets of its Davenport operations
for aggregate consideration of $58,200 in cash. An allocation of $56,100 has
been made to the assets of TCG and $2,100 to the assets of the Blackhawk
Hotel. The Company anticipates it will recognize a gain of approximately
$33,000 on the transaction. The Company made combined principal and interest
payments of $1,851 and $1,953 to pay off TCG's line of credit and the
"President Casino-Broadwater" note, respectively. The Company is continuing
negotiations with its bond holders and lenders as to the use of proceeds from
the sale as it relates to the restructuring of its indebtedness. See Note 5 -
Segment Information, for results of operations of the Davenport property.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring entries unless otherwise disclosed, necessary to present
fairly the Company's financial information for the interim periods presented
and have been prepared in accordance with accounting principles generally
accepted in the United States of America. The interim results reflected in
the condensed consolidated financial statements are not necessarily indicative
of results for the full year or other periods.
The financial statements contained herein should be read in conjunction with
the audited consolidated financial statements and accompanying notes to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the period ending February 29, 2000. Accordingly, footnote
disclosure which would substantially duplicate the disclosure in the audited
consolidated financial statements has been omitted in the accompanying
unaudited condensed consolidated financial statements.
Certain amounts for fiscal 2000 have been reclassified to conform with
fiscal 2001 financial statement presentation.
2. Property and Equipment
During August 2000, management evaluated the net realizable value of its
assets based on their intended future use and current market conditions.
Specifically, during the quarter, the Company entered into an option to sell
one vessel and with the sale of the Davenport properties, the need to maintain
a reserve vessel for the upcoming hull inspection was eliminated. As a
result, the Company recorded an impairment of long-lived assets of $11,400 on
two casino vessels not currently used by the Company's operations and
accounted for in the Company's leasing segment. The net realizable value was
determined primarily by current offers on the vessels.
7
3. Short-Term Debt and Notes Payable
Short-term debt is summarized as follows:
[Download Table]
Aug. 31, Feb. 29,
2000 2000
------ ------
"President Casino-Broadwater" note payable...... $ 2,135 $ 3,966
Construction note payable....................... 237 --
Various equipment notes payable................. 356 547
--------- ---------
Short-term debt............................ $ 2,728 $ 4,513
========= =========
"President Casino-Broadwater" Barge Note
In August 1999, the Company purchased "President Casino-Broadwater," the
vessel on which the Company conducts its Biloxi gaming operations. The
Company had previously leased the "President Casino-Broadwater" since June
1995. The Company paid $1,000 at closing and $5,393 was financed by the
seller. Under the terms of the agreement, the Company made monthly combined
interest and principal payments of $290 through March 2000. The Company made
the scheduled payment of $145 on April 1, 2000. The balloon payment due April
15, 2000 of $3,652 was not made and the note was in default. Instead payments
of $325 were made April 15, 2000, and each month thereafter. On October 10,
2000, the Company paid the then outstanding principal balance of $1,853,
interest of $16 and a restructuring fee of $67 from the proceeds of the sale
of its Davenport operations.
Construction Note Payable
In conjunction with the relocation of the "Admiral" (see Note 6), the
Company has negotiated extended payments with a vendor providing certain
services related to the new site development. Under the terms of the
agreement, the Company pays $250 against progress billings and any unpaid
outstanding balance bears an interest rate of 9.75%. As of August 31, 2000,
the Company had paid $500 against $737 invoiced.
Various Equipment Notes Payable
TCG and President Missouri purchased various gaming and office equipment on
payment terms ranging from six to twelve months. The terms are non-interest
bearing and payments are generally due monthly. The notes are collateralized
by gaming and office equipment with a net book value of $937 as of August 31,
2000.
8
Current and non-current portions of long-term notes payable are summarized
as follows:
[Download Table]
August 31, Feb.29,
2000 2000
------ ------
Senior Exchange notes, 13%, principal
payments of $25,000 due September 2000 and
$50,000 due September 2001, net of discount
of $163 and $284.............................. $ 74,837 $ 74,716
Secured Notes, 12%, principal payment of
$25,000 due September 2001, net of a gain
on modification of terms of $443 and $655..... 25,443 25,655
Broadwater Hotel note payable, variable
interest rate, 10.625% and 9.875% as of
August 31 and February 29, 2000, respectively,
principal payment due July 2000............... 30,000 30,000
M/V "President Casino-Mississippi" note payable,
variable interest rate, 9.67% and 9.29% as of
August 31 and February 29, 2000, respectively,
principal payments due quarterly of $100,
with a final payment of $2,100 due
August 2002.................................... 2,800 3,000
Line of credit, prime plus 0.5%, combined
rate of 10.0% and 9.0% as of August 31 and
February 29, 2000, respectively................ 1,800 2,200
Gaming equipment note payable, 11.0%, monthly
combined principal and interest payments of
$10 due through August 2000, monthly
combined principal and interest payments of
$74 due September 2000 through August 2001..... 774 --
--------- ---------
Total notes payable.......................... 135,654 135,571
Less: Current maturities....................... (135,654) (135,571)
--------- ---------
$ -- $ --
========= =========
Senior Exchange Notes
In April 1995, the Company exchanged $100,000 of Senior Notes for an equal
principal amount of 13% Senior Exchange Notes due 2001 ("Senior Exchange
Notes") registered under the Securities Act of 1933. The Senior Exchange
Notes rank equal in right of payment to all present and future senior debt (as
defined in the indenture governing the Senior Exchange Notes (the "Note
Indenture")) of the Company and its subsidiaries and were payable as follows:
25% of the outstanding principal amount on each of September 15, 1999 and
September 15, 2000 and the remainder of the outstanding principal amount on
September 15, 2001. In addition, the Senior Exchange Notes are
unconditionally guaranteed, jointly and severally on a senior basis, by all of
the Company's then existing wholly-owned subsidiaries (the "Guarantors"), and,
under certain circumstances, the Company's future subsidiaries, although the
subsidiary guarantee from TCG is limited in amount. As security for the
obligations of the Company and the Guarantors under the Senior Exchange Notes,
the Company and the Guarantors have pledged their equity interests in each
Guarantor and all of their rights in certain management agreements with,
certain indebtedness from, and certain investments in, certain gaming
ventures. The Note Indenture contains certain restrictive covenants which,
among other things, limit the Company's Guarantors' ability to pay dividends,
incur additional indebtedness (exclusive of $15,000 of senior debt), issue
preferred stock, create liens on certain assets, merge or consolidate with
9
another company and sell or otherwise dispose of all or substantially all of
its properties or assets. On October 10, 2000, the Company and its principal
subsidiaries entered into an agreement with holders of certain of its Senior
Exchange Notes and with all of the holders of the Secured Notes. See Note 1-
Basis of Presentation.
Secured Notes
On December 3, 1998, the Company repurchased $25,000 of its Senior Exchange
Notes. The repurchased notes were used to satisfy the $25,000 principal
payment due September 15, 1999 on the Company's $100,000 Senior Exchange
Notes. The repurchase was funded by the issuance of $25,000 of new 12% notes
due September 15, 2001 (the "Secured Notes"). Under the repurchase agreement,
the Company incurs a 1% annual loan fee on the principal balance of $25,000
until maturity. The Secured Notes have no mandatory redemption obligation and
are secured by mortgages on the "Admiral" and the "New Yorker," as well as
subsidiary guarantees.
Broadwater Hotel Note-10.625%
In conjunction with the purchase of the Broadwater Property, President
Broadwater, L.L.C. ("PBLLC") borrowed the sum of $30,000 from a third party
lender, evidenced by a non-recourse promissory note (the "Indebtedness").
Except as set forth in the promissory note and related security documents,
PBLLC's obligations under the Indebtedness are nonrecourse and are secured by
the Broadwater Property, its improvements and leases thereon. The
Indebtedness bears interest at a variable rate per annum equal to the greater
of (i) 8.75% or (ii) 4% plus the LIBOR 30-day rate.
PBLLC is obligated under the Indebtedness to make monthly payments of
interest accruing under the Indebtedness, and was obligated to repay the
Indebtedness in full on July 22, 2000. In addition, PBLLC was obligated to
pay to the lender a loan fee in the amount of $7,000 which was fully earned
and nonrefundable when the Indebtedness was due. The Company has continued to
make the monthly interest payments related to this note and is in negotiations
with the lender regarding restructuring this debt under acceptable terms.
There can be no assurances that such negotiations will be successful.
M/V "President Casino-Mississippi" Note-9.67%
The 9.67% term note payable is collateralized by the vessel "President
Casino-Mississippi" and various equipment and is personally guaranteed by Mr.
Connelly. This note also contains certain covenants which, among other
things, require the Company to maintain a minimum tangible net worth of
$40,000. The Company received a waiver of the net worth covenant through the
period ended September 30, 2000, at which time the Company's net worth
requirement returned to $40,000. The aforementioned default on the Company's
Senior Exchange Notes and Secured Notes also constituted a default under this
vessel note. The Company has continued to make the quarterly principal and
interest payments related to this note. No action has been taken by the
lender to accelerate the note and declare the unpaid principal due and
payable.
Line of Credit
TCG, the Company's 95%-owned partnership, maintained a line of credit
provided by Firstar Bank, N.A., collateralized by a first mortgage on the M/V
"President" and first mortgages on the Blackhawk Hotel with net book values as
10
of August 31, 2000, of $5,433 and $3,825, respectively, various personal
property and an assignment of various contracts. Principal of $1,800 and
interest of $51 were paid from the proceeds of the sale of the assets of the
Davenport casino operations and the line of credit was terminated on October
10, 2000.
The various agreements governing the notes described above generally limit
borrowings by the Company's affiliates without the respective lenders' prior
consent.
4. Commitments And Contingent Liabilities
The Company is from time to time a party to litigation, which may or may not
be covered by insurance, arising in the ordinary course of its business. The
Company does not believe that the outcome of any such litigation will have a
material adverse effect on the Company's financial condition or results of
operations, or which would have any material adverse impact upon the gaming
licenses of the Company's subsidiaries.
5. Segment Information
The Company evaluates performance based on operations EBITDA. Operations
EBITDA is earnings before interest, taxes, depreciation and amortization of
each of the reportable segments. Corporate and development expenses,
gain/loss on sale of assets and impairment of long-lived assets are not
allocated to the reportable segments and are therefore excluded from
operations EBITDA.
The Company has no inter-segment sales and accounts for transfers of
property and inventory at its net book value at the time of such transfer.
The Company's reportable segments are based on its three geographic gaming
operations and its leasing operation. The Biloxi Properties consists of the
Biloxi casino and the Broadwater Property; the Davenport Properties consists
of the Davenport casino and the Blackhawk Hotel; and the St. Louis Properties
consists of the St. Louis casino and Gateway Riverboat Cruises.
The Company's reportable segments, other than the leasing operation, are
similar in operations, but have distinct and separate regional markets.
[Download Table]
Three Months Six Months
Ended August 31, Ended August 31,
2000 1999 2000 1999
------ ------ ------ ------
OPERATING REVENUES:
Biloxi Properties...................... $ 14,221 $ 15,999 $ 29,108 $ 31,341
Davenport Properties................... 17,930 20,036 36,850 40,971
St. Louis Properties................... 15,132 16,276 31,776 32,926
--------- --------- --------- ---------
Gaming and ancillary operations....... 47,283 52,311 97,734 105,238
Leasing Operation...................... -- 392 -- 1,820
--------- --------- --------- ---------
Net operating revenues............... $ 47,283 $ 52,703 $ 97,734 $107,058
========= ========= ========= =========
[Download Table]
11
Three Months Six Months
Ended August 31, Ended August 31,
2000 1999 2000 1999
------ ------ ------ ------
EBITDA (before development and
impairment expenses and gain/loss
on sale of property and equipment):
Biloxi Properties...................... $ 1,640 $ 1,904 $ 4,140 $ 3.875
Davenport Properties................... 2,825 3,896 6,002 7,413
St. Louis Properties................... 827 1,704 2,701 3,818
--------- --------- --------- ---------
Gaming and ancillary operations....... 5,292 7,504 12,843 15,106
Leasing Operation...................... (267) 55 (600) 1,312
--------- --------- --------- ---------
Operations EBITDA.................. 5,025 7,559 12,243 16,418
OTHER COSTS AND EXPENSES:
Corporate expense...................... 1,106 1,175 2,351 2,168
Development expense.................... 96 38 164 133
Depreciation and amortization.......... 2,806 2,660 6,388 6,324
Impairment of long-lived assets........ 11,400 -- 11,400 --
(Gain)/loss on sale of assets.......... 17 (6) 12 (2)
--------- --------- --------- ---------
Total other costs and expenses....... 15,425 3,867 20,315 8,623
--------- --------- --------- ---------
OPERATING INCOME (LOSS)................ (10,400) 3,692 (8,072) 7,795
--------- --------- --------- ---------
Interest expense, net.................. 4,976 4,769 10,163 9,516
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST.......... (15,376) (1,077) (18,235) (1,721)
Minority interest...................... 366 359 736 691
--------- --------- --------- ---------
NET LOSS............................... $(15,742) $ (1,436) $(18,971) $ (2,412)
========= ========= ========= =========
[Download Table]
Aug. 31, Feb. 29,
2000 2000
------ ------
Property and Equipment:
Biloxi Properties..................... $ 53,751 $ 54,638
Davenport Properties.................. 22,021 22,873
St. Louis Properties.................. 39,446 36,496
--------- ---------
Gaming and ancillary operations..... 115,218 114,007
Leasing Operations.................... 13,023 25,685
--------- ---------
Operations Assets................... 128,241 139,692
Corporate Assets...................... 43 54
Development Assets.................... 3,274 2,744
--------- ---------
Net Property and Equipment.......... $131,558 $142,490
========= =========
[Download Table]
12
Six Months Ended Aug. 31,
2000 1999
------ ------
Additions to Property and Equipment:
Biloxi Properties..................... $ 532 $ 7,322
Davenport Properties.................. 636 924
St. Louis Properties.................. 5,170 540
--------- ---------
Gaming and ancillary operations.... 6,338 8,786
Leasing Operations.................... -- -
--------- ---------
Operations Assets................... 6,338 8,786
Corporate Assets...................... 2 8
Development Assets.................... 530 659
--------- ---------
$ 6,870 $ 9,453
========= =========
Included in additions to property and equipment is $1,338 of assets acquired
in exchange for debt.
6. Relocation of the "Admiral"
During July 1998, the Company and the City of St. Louis reached an agreement
for the relocation of the "Admiral" approximately 1,000 feet north from its
current location on the Mississippi River. It is anticipated that the new
location will enhance access to the casino, provide better parking and be less
susceptible to flooding.
The aggregate cost to relocate the "Admiral" and construct ancillary
facilities is expected to be approximately $8,500. Under the terms of the
agreement, the City funded $3,000 of the relocation costs, $2,400 of which was
financed through bank debt. The Company will pay for the remaining costs.
Under the terms of the agreement, the Company has placed $500 in escrow to be
used to fund a portion of these costs. It is anticipated that the City will
repay the $2,400 in debt from annual allocations of $600 from the City's
annual home dock city public safety fund that is funded by admission taxes
from the "Admiral." The Company has guaranteed completion of the project and
repayment of the $2,400 bank debt if the City fails to pay the obligation.
Construction began in September 1999 and the move is anticipated to occur
during November 2000, subject to weather and river conditions. The Company
expects to fund this project from operating cash flow (see Note 1).
7. SUBSEQUENT EVENT
On October 10, 2000, the Company sold the assets of its Davenport casino and
hotel operations for aggregate consideration of $58,200 in cash. An
allocation of $56,100 has been made to the assets of TCG and $2,100 to the
assets of the Blackhawk Hotel. The Company anticipates it will recognize a
gain of approximately $33,000 on the transaction. See Note 5-Segment
Information, for results of operations of the Davenport properties. The
Company made combined principal and interest payments of $1,851 and $1,953 to
pay off its line of credit and the "President Casino-Broadwater" note,
respectively. The Company is continuing negotiations with its bond holders
and lenders as to the use of proceeds from the sale as it relates to the
restructuring of its indebtedness. See Note 1-Basis of Presentation.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this report.
The Company is experiencing difficulty generating sufficient cash flow to
meet its obligations and sustain its operations. As a result of the Company's
high degree of leverage and the need for significant capital expenditures at
its St. Louis property, management 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 its Senior Exchange Notes and
Secured Notes. Accordingly, the Company has not paid the regularly scheduled
interest payments of $6.4 million that were each due and payable March 15,
2000 and September 15, 2000, respectively. Under the Indentures pursuant to
which the Senior Exchange Notes and Secured Notes were issued, an Event of
Default occurred on April 15, 2000, and is continuing as of the date hereof.
Additionally the Company did not pay the $25.0 million principal payment due
September 15, 2000 on the Senior Exchange Notes. The holders of at least 25%
of the Senior Exchange Notes and Secured Notes have instructed the Indenture
Trustee to accelerate the Senior Exchange Notes and Secured Notes and declare
the unpaid principal and interest to be due and payable.
The Company did not pay the $4.0 million note which was due April 15, 2000,
associated with the purchase of the Biloxi casino barge and the note was in
default. Instead, a payment of $0.3 million was made on that date and the
Company has continued to make monthly combined principal and interest payments
of $0.3 million each month thereafter. On October 10, 2000, the Company paid
the then outstanding principal balance of $1.9 million and a restructuring fee
of $0.1 million from the proceeds of the sale of its Davenport operations.
Additionally, the Company did not pay the $30.0 million note and the
associated $7.0 million loan fee due July 22, 2000 related to the Broadwater
Property. The Company continues to make monthly interest payments and is
currently negotiating with the lender for restructuring the debt. Also in
default, due to cross default provisions associated with other debt
agreements, is the Company's $2.8 million "President Casino-Mississippi" note.
The Company continues to make quarterly principal and interest payments.
These debts are currently due and classified in current liabilities. In the
event that these notes are accelerated, at this time the Company does not have
the resources available to repay such indebtedness. See Liquidity and Capital
Resources.
Management is pursuing various strategic financing alternatives in order to
fund these obligations and the Company's continuing operations. The Company
is working with recognized financial advisors in the gaming industry to pursue
these alternatives, including the restructuring and refinancing of outstanding
debt obligations and/or the sale of a portion of its assets. The Company's
ability to continue as a going concern is dependent on the ability of the
Company to restructure successfully, refinance its debts or sell/charter
assets on a timely basis under acceptable terms and conditions and the ability
of the Company to generate sufficient cash to fund future operations. There
can be no assurance in this regard.
On October 10, 2000, the Company sold the assets of its Davenport operations
for aggregate consideration of $58.2 million in cash. An allocation of $56.1
million has been made to the assets of TCG and $2.1 million to the assets of
14
the Blackhawk Hotel. The Company anticipates it will recognize a gain of
approximately $33.0 million on the transaction. The Company made combined
principal and interest payments of $1.9 million and $2.0 million to pay off
its line of credit and the "President Casino-Broadwater" note, respectively.
The Company is continuing negotiations with its lenders as to the use of the
balance of the proceeds from the sale as it relates to the restructuring of
its indebtedness.
On October 10, 2000, the Company and its principal subsidiaries entered into
an agreement with holders of certain of its Senior Exchange Notes due
September 15, 2001 of which $75.0 million are currently outstanding and with
all of the holders of its Secured Notes due September 15, 2001, of which $25.0
million are outstanding. The note holders constitute an unofficial committee
comprised of certain holders of the Company's notes.
The agreement was entered into in contemplation of the sale of the Davenport
operations. The agreement contemplates that a portion of the proceeds will be
placed in an escrow account as collateral for the notes and that this amount
shall be used to purchase certain of the notes at par, following a joint
consent solicitation and tender offer to the note holders to waive certain
defaults and amend the indentures, to pay missed interest payments and to
purchase certain notes. The receipt of consents and waivers by holders of at
least 98% in aggregate principal amount of the Senior Exchange Notes will be a
condition precedent to the consummation of the repurchase. The escrowed
portion of the Davenport sale proceeds will be applied to the notes at the
earlier of the closing of the repurchase or November 30, 2000. If the
repurchase does not occur by November 30, 2000, and the noteholders have
received the net proceeds, then upon satisfaction of certain additional
conditions, the Company has until May 30, 2001 to effectuate the restructuring
through a confirmed reorganization plan.
The agreement also contemplates the sale of the Company-owned vessel, the
"New Yorker," prior to December 31, 2000.
While the agreement contemplates the preparation and execution of definitive
documents to accomplish the terms of an attached term sheet, there can be no
assurance that such agreements will be prepared in acceptable form such that
they will be executed by all necessary parties. The term sheet anticipates
that the proceeds from the Davenport sale shall pay outstanding interest due
under both the Senior Exchange Notes and the Secured Notes, that principal and
interest will be paid on the Biloxi casino barge obligation, which has been
done, and working capital will be made available to the Company in an amount
not to exceed $2.0 million.
In addition, $4.9 million will be placed in an escrow account and pledged as
collateral for the notes to be applied to the interest payment due note
holders on March 15, 2001. The remainder shall be applied to purchase the
notes at par on a pro rata basis with the two issuances as follows: 75% to
the holders of the Senior Exchange Notes and 25% to the holders of the Secured
Notes.
The maturity of the Secured Notes will be extended to September 15, 2003, if
the Company meets a certain interest coverage ratio.
The Senior Exchange Notes shall be amended to provide for a sinking fund
payment of $15.0 million on July 31, 2001 in lieu of the $25.0 million
redemption scheduled for September 15, 2000, assuming the "Admiral" is
relocated and opened and new slot product is operational by November 30, 2000.
15
If there are delays there are provisions for an extension. The sinking fund
payment schedule shall be excused if the St. Louis operations meet a
performance test based on EBITDA. The maturity date on the Senior Exchange
Notes shall be extended to September 15, 2003 if the Company meets a certain
interest coverage ratio. To secure the Senior Exchange Notes, the Company
will grant security interests on virtually all of its remaining assets,
including a subordinate security interest in the Biloxi casino barge after a
$4.0 million pledge to another creditor.
The Company will issue to the noteholders on a pro rata basis warrants to
purchase 10% of the common stock of the Company at an exercise price of $2.625
per share. The warrants will have a 5-year period. Registration rights will
be granted.
All agreements are contingent upon due diligence, the absence of material
adverse change and documentation being in form and substance satisfactory to
its committee and its counsel. The full text of the agreement and the term
sheet incorporated therein are attached hereto as Exhibit 10.1 and
incorporated herein by reference.
Overview
The Company's operating results are affected by a number of factors,
including competitive pressures, changes in regulations governing the
Company's activities, the results of pursuing various development
opportunities and general weather conditions. Consequently, the Company's
operating results may fluctuate from period to period and the results for any
period may not be indicative of results for future periods. The Company's
operations are not significantly affected by seasonality.
--Competition
Intensified competition for patrons continues to occur at each of the
Company's properties.
Since gaming began in Biloxi in August 1992, there has been steadily
increasing competition along the Mississippi Gulf Coast, in nearby New Orleans
and elsewhere in Louisiana and Mississippi. Several large hotel/casino
complexes have been built in recent years with the largest single resort in
the area opening in March 1999. There are currently twelve casinos operating
on the Mississippi Gulf Coast. See "Potential Growth Opportunities" regarding
a master plan for a destination resort the Company is developing in Biloxi,
Mississippi.
Within a 45-mile radius of the Quad Cities, the Company's Davenport casino
operations compete with three other casino operations. Expansion and
increased marketing by these competitors and changes in the Illinois gaming
laws has resulted in a decrease in market share and an increase promotional
and marketing costs for the Company's Davenport operations. The assets of the
Davenport operations were sold on October 10, 2000.
Competition is intense in the St. Louis market area. There are presently
four other casino companies operating eight casinos in the market area. Two
of these are Illinois casino companies operating single casino vessels on the
Mississippi River, one directly across the Mississippi from the "Admiral" and
the second 20 miles upriver. There were three Missouri casino companies in
the market area, each of which operated two casino vessels approximately 20
16
miles west of St. Louis on the Missouri River, one in the City of St. Charles,
Missouri and two in Maryland Heights, Missouri. In April 2000, one of these
two casino companies purchased the other resulting in all four casinos being
operated by the same company.
Applications were submitted to the Missouri Gaming Commission for approval
of potential new licenses at four different locations within the St. Louis
Metropolitan area along the Mississippi River, three of which are within 20
miles of the "Admiral." In July 2000, the Gaming Commission announced its
decision to award an additional license to the applicant proposing a site in
the farthest location in proximity to the "Admiral" of the four proposed
locations. The Commission's decision is being challenged by one of the
applicants whose proposal was not selected and certain other entities.
Management believes that the opening of one or more additional casinos in the
St. Louis market would have a negative impact on the Company's results of
operations, with the currently selected location having the least impact.
--Regulatory Matters
Differences in gaming regulations in the St. Louis market between Illinois
and Missouri operators have given both competitive advantages and
disadvantages to the various operators. Missouri regulations formerly did not
require vessels to actually cruise, however, simulated cruising requirements
were imposed which restricted entry to a vessel to a 45-minute period every
two hours. Those competitors having two adjacent casino vessels could
alternate hourly boarding times and provide virtually continuous boarding for
their guests. Thus, they had a distinct competitive advantage over the
Company, which has a single casino vessel. Illinois casino vessels were
formerly required to cruise, thereby limiting ingress and egress to their
casinos. On June 25, 1999, legislation was enacted eliminating the Illinois
cruising requirements. This change immediately gave the Illinois operators an
advantage over the Missouri operators as Illinois patrons could enter and exit
the vessel at any time. However, this advantage was negated on August 16,
1999, when the Missouri Gaming Commission allowed "continuous boarding" by
establishing a program eliminating the boarding restrictions for the "Admiral"
and other casinos in eastern Missouri. This change to "continuous boarding"
also enabled the "Admiral" to compete more effectively with the Missouri
operators who have two adjacent casino vessels. The program was subsequently
extended to all casinos in the state of Missouri.
Other Missouri regulations limit the loss per cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to $500. Companies that operate adjacent casinos enable
guests who reach the cruise loss limit to move to the adjacent casino and
continue to play. The lack of a statutory loss limit on Illinois casinos
allows them to attract higher stake players; additionally, their guests are
not burdened with the administrative requirements related to the loss limits.
Any easing of the loss limits in Missouri would be expected to have a positive
impact on the Company's St. Louis operations.
In Iowa, an excursion gaming boat must operate at least one excursion each
day for 100 days during the April 1 through October 31 excursion season.
Excursions must last a minimum of two hours. While an excursion gaming boat
is docked, passengers may embark or disembark at any time. As discussed
above, Illinois boats were required to cruise until June 1999 when such
cruising requirements were eliminated. The Company believes that the
elimination of cruising requirements in Illinois has had a negative impact on
the Davenport operations. As a result of the change in Illinois legislation,
17
the competitor directly across the Mississippi River in Rock Island, Illinois
is no longer required to cruise. The elimination of the cruising requirements
has provided the Rock Island casino an opportunity to expand its operations,
increasing its slot machine total from approximately 400 to approximately 600.
--Weather Conditions
The Company's operating results are susceptible to the effects of floods and
adverse weather conditions. Historically, the Company has temporarily
suspended operations on various occasions as a result of such adversities.
Under less severe conditions, high river levels cause reduced parking and a
general public perception of diminished access to the casino resulting in
decreased revenues.
--Potential Growth Opportunities
Biloxi, Mississippi
In July 1997, the Company, through a newly created subsidiary, President
Broadwater Hotel, LLC ("PBLLC"), purchased for $40.5 million certain real
estate and improvements located on the Gulf Coast in Biloxi, Mississippi from
an entity which was wholly-owned by John E. Connelly, Chairman, Chief
Executive Officer and principal stockholder of the Company. The property
comprises approximately 260 acres and includes two hotels, a 111-slip marina
and the adjacent 18-hole Sun Golf Course (collectively, the "Broadwater
Property"). The marina is the site of the Company's casino operations in
Biloxi and was formerly leased by the Company under a long-term lease
agreement. The Company invested $5.0 million in PBLLC.
PBLLC financed the purchase of the Broadwater Property with $30.0 million of
financing from a third party lender, evidenced by a non-recourse promissory
note (the "Indebtedness") and issued a $10.0 million membership interest to
the seller. Except as set forth in the promissory note and related security
documents, PBLLC's obligations under the Indebtedness are nonrecourse and are
secured by the Broadwater Property, its improvements and leases thereon. The
Indebtedness bears interest at a variable rate per annum equal to the greater
of (i) 8.75%, or (ii) 4% plus the LIBOR 30-day rate. The membership interest
grows at the same rate. The accrued balance of the membership account and
unpaid growth as of August 31, 2000 was $13.1 million and is included on the
balance sheet in minority interest. Cash payments relating to this membership
interest have totaled $0.2 million since its inception.
PBLLC is obligated to make monthly payments of interest accruing under the
Indebtedness, and was obligated to repay the Indebtedness in full on July 22,
2000. In addition, PBLLC was obligated to pay to the lender a loan fee in the
amount of $7.0 million which was fully earned and nonrefundable when the
Indebtedness was due. See Liquidity and Capital Resources for a discussion of
the repayment of this obligation.
The Company has developed a master plan for the Broadwater Property.
Management believes that this site is ideal for the development of
"Destination Broadwater," a full-scale luxury destination resort offering an
array of entertainment attractions in addition to gaming. The plans for the
resort feature a village which will include a cluster of casinos, hotels,
restaurants, theaters and other entertainment attractions. Management
believes that with its beachfront location and contiguous golf course, the
property is the best site for such a development in the Gulf Coast market.
18
In January 1999, the Company received the permit from the Mississippi
Department of Marine Resources ("DMR") for development of the full-scale
destination resort. This is the first of three permit approvals required of
the Joint Permit Application submitted in August 1998 to the DMR, the U.S.
Army Corps of Engineers and the Mississippi Department of Environment Quality.
The two remaining permit approvals are still pending and awaiting the
finalization of the Environmental Impact Statement ("EIS"). The Company has
received the draft of the EIS, the notice of which was posted in the Federal
Register in early June for public comment. The comment period has been closed
and the finalized EIS is currently pending.
In March 1999, to facilitate its proposed master plan development, the
Company entered into contracts with the State of Mississippi and the owners of
Deer Island to purchase for $15.0 million and convey title to the island to
the State of Mississippi. Deer Island encompasses approximately 500 acres and
is located just offshore of Biloxi. It is primarily wilderness which the
state would preserve for use by the people of Mississippi. This transaction
completes another essential step towards securing the necessary agreements and
approvals from the State of Mississippi for the Company's Destination
Broadwater development plans. The purchase and conveyance of the title are
contingent on the occurrence of various events, including the issuance to the
Company of all required federal, state and local permits and the issuance by
the State of Mississippi of the tidelands and fast lands leases and casino
licenses necessary for development of Destination Broadwater.
In connection with the Company's proposed Destination Broadwater development
plan, to date, the Company has not identified any specific financing
alternatives or sources as the necessary regulatory approvals have not been
obtained. There can be no assurance that the Company will be able to obtain
the regulatory approvals or the requisite financing. Should the Company fail
to raise the required capital, such failure would materially and adversely
impact the Company's business plan.
St. Louis, Missouri
Slot Upgrade Machines and Loss Limit Card Tracking System
During the summer of 1998, all Missouri casinos in the St. Louis market,
except the "Admiral," migrated from a manual/paper system of regulating the
Missouri $500 loss limit to an electronic system. This paperless loss
tracking system is more accommodating to guests and allows for the use of bill
validators on slot machines, a convenience that the "manual/paper" system does
not allow.
The slot machines offered by the "Admiral" until the end of August 2000
lacked bill validators. As a result, the Company could not provide guests the
convenience of using bill validators nor adapt to the paperless loss tracking
system, putting the "Admiral" at a significant competitive disadvantage with
the other casinos in the area market.
Effective August 28, 2000, Missouri began to allow credits generated through
use of the bill validators to go directly to the slot "credit meter" for use
by the customer. Previously in Missouri, a customer using a bill validator
received tokens in the tray and fed these tokens into the machine. The
regulatory change provided a significant added convenience to slot players.
In March 2000, the Company purchased 850 previously owned slot machines that
are equipped with bill validators and are fitted to operate with an electronic
19
loss limit system. Effective August 28, approximately 700 of these machines
were installed on the "Admiral," 600 of which are currently operational with
the electronic loss limit system. It is anticipated that the installation of
these slot machines and the new system will be completed during the fall of
2000. Management believes that when completed, the Company will be better
positioned to compete in the St. Louis market.
Relocation of the "Admiral"
The Company has received the appropriate regulatory and city approvals to
relocate the "Admiral" 1,000 feet north from its current location (the
"Laclede's Landing area"). It is anticipated that the new location will
provide for an improved operation with better ingress/egress, provide better
parking and be less susceptible to flooding. The Company believes that this
move will result in increased revenues for the "Admiral" and increased rent
and tax revenues for the City of St. Louis. The City agreed to fund the first
$3.0 million of the estimated $8.5 million in costs to relocate and improve
the "Admiral." Of the $3.0 million City-funded relocation costs, $2.4 million
was financed through bank debt. The Company will pay for the remaining costs.
It is anticipated that the City will repay the $2.4 million debt from gaming
taxes it receives based upon gaming revenues of the "Admiral." The Company
has guaranteed completion of the project and repayment of the $2.4 million
bank debt if the City fails to pay it. The Company expects to fund this
project from operating cash flow. See Liquidity and Capital Resources.
The platform construction on the new levee site began in September 1999. As
of the end of August 2000, the Company has spent approximately $4.3 million on
the relocation, of which the City has reimbursed the Company $3.0 million.
It is anticipated that the move will be completed in the fall of 2000, river
conditions permitting. The river stage must be below 10 feet to allow the
"Admiral" to maneuver under two bridges to its new location. It is
anticipated the "Admiral" will be closed approximately one week to effectuate
the move, including the physical move of the "Admiral," utility hook up and
re-verification of the slot machines by regulatory officials.
The anticipated benefits of relocating the "Admiral" include:
Ingress/Egress -- Traffic ingress to and egress from the casino, at its
present location, is difficult. Access from the major highways has
historically been poor. Significant improvements in exit and entrance ramps
to the Laclede's Landing area off the main highway have been recently
completed. In addition, road improvements within the Laclede's Landing area
are underway or completed. Four roads to and from the main highway will
provide improved ingress to and egress from the new location.
Guest Parking -- Parking in the current location is limited and not
controlled by the Company. Currently, all parking facilities, including the
valet parking areas, are operated by third parties. Directly across the
street from the casino is a large flood wall, which limits parking. Guests
must either use the parking garages in the proximity of the casino and walk
considerable distances or park on the levee. The new location provides the
potential for significantly improved parking facilities with parking garages
and lots conveniently located, and the potential to expand and control the
parking.
Flooding -- Flooding and high water on the Mississippi River has negatively
impacted the financial results of the "Admiral" operations every year since it
20
has opened. The impact first occurs as the river rises and reduces or totally
eliminates parking on the levee, which is currently the closest parking to the
casino. Periodically the river level has reached levels that have made the
construction of costly scaffolding necessary to keep access to the casino
open. The new location is four feet higher and will be much less susceptible
to flooding. Historically, if the "Admiral" had been at its new location
since it opened for gaming in 1994, it is unlikely that the casino would have
been forced to close due to flooding.
Laclede's Landing Entertainment District -- Laclede's Landing is a historic
area located north of the Arch on the Mississippi River and is an
entertainment destination. The "Admiral" is currently located "next to" the
Laclede's Landing area. The casino is not visible from the downtown area,
major highways or the Laclede's Landing entertainment area due to a flood wall
and other infrastructure. The relocated "Admiral" will be centrally
positioned in the entertainment district, readily visible to those coming to
the Laclede's Landing area.
Commercial Development -- There has been significant commercial development
in recent years in the Laclede's Landing area. The number of conventions and
entertainment at the nearby convention center and TWA Dome continues to be a
catalyst for business in the area. Management believes that the relocated
"Admiral" will serve as a catalyst for further commercial and entertainment
growth in the Laclede's Landing area.
While management believes both the slot upgrade and relocation of the
"Admiral" should enhance St. Louis operations, there can be no assurances that
these expected benefits will be realized.
Results of Operations
The results of operations for the three-month and six-month periods ended
August 31, 2000 and 1999 include the gaming results for the Company's
operations in Davenport, Iowa, Biloxi, Mississippi and St. Louis, Missouri and
of much lesser significance, the non-gaming operations for Davenport (the
Blackhawk Hotel), Biloxi (the Broadwater Property) and St. Louis (Gateway
Riverboat Cruises).
21
The following table highlights the results of the Company's operations.
Three Months Six Months
Ended August 31, Ended August 31,
2000 1999 2000 1999
------ ------ ------ ------
(in millions)
Davenport, Iowa Operations
Operating revenues............ $ 17.9 $ 20.0 $ 36.8 $ 41.0
Operating income.............. 2.4 2.8 4.5 5.2
Biloxi, Mississippi Operations
Operating revenues............ $ 14.2 $ 16.0 $ 29.1 $ 31.3
Operating income.............. 1.0 1.8 2.7 3.1
St. Louis, Missouri Operations
Operating revenues............ $ 15.1 $ 16.3 $ 31.8 $ 32.9
Operating income (loss)....... (0.3) 0.6 0.5 1.3
Corporate Leasing Operations
Operating revenues............ $ - $ 0.4 $ -- $ 1.8
Operating income (loss)....... (12.3) (0.3) (13.3) 0.5
Corporate Administrative and
Development operating loss.... $ (1.2) $ (1.2) $ (2.5) $ (2.3)
The following table highlights certain supplemental measures of the
Company's financial performance.
Three Months Six Months
Ended August 31, Ended August 31,
2000 1999 2000 1999
------ ------ ------ ------
(dollars in millions)
Davenport, Iowa Operations
EBITDA....................... $ 2.8 $ 3.9 $ 6.0 $ 7.4
EBITDA margin................ 15.6% 19.5% 16.3% 18.0%
Biloxi, Mississippi Operations
EBITDA....................... $ 1.6 $ 1.9 $ 4.1 $ 3.9
EBITDA margin................ 11.3% 11.9% 14.1% 12.5%
St. Louis, Missouri Operations
EBITDA....................... $ 0.8 $ 1.7 $ 2.7 $ 3.8
EBITDA margin................ 5.3% 10.4% 8.5% 11.6%
Corporate Leasing Operations
EBITDA....................... $(11.7) $ 0.1 $(12.0) $ 1.3
Corporate Administrative and
Development EBITDA........... $ (1.2) $ (1.2) $ (2.5) $ (1.2)
"EBITDA" consists of earnings from operations before interest, income taxes,
depreciation and amortization. For the purposes of this presentation, EBITDA
margin is calculated as EBITDA divided by operating revenue.
22
EBITDA and EBITDA margin are not determined in accordance with generally
accepted accounting principles. Since not all companies calculate these
measures in the same manner, the Company's EBITDA measures may not be
comparable to similarly titled measures reported by other companies.
EBITDA should not be construed as an alternative to operating income as an
indicator of the Company's operating performance, or as an alternative to cash
flows from operational activities as a measure of liquidity. The Company has
presented EBITDA solely as a supplemental disclosure to facilitate a more
complete analysis of the Company's financial performance. The Company
believes that this disclosure enhances the understanding of the financial
performance of a company with substantial interest, depreciation and
amortization.
Three-Month Period Ended August 31, 2000 Compared to the Three-Month Period
Ended August 31, 1999
Operating revenues. The Company generated consolidated operating revenues
of $47.3 million during the three-month period ended August 31, 2000 compared
to $52.7 million during the three-month period ended August 31, 1999, a
decrease of $5.4 million, or 10.2%. The Davenport, Biloxi and St. Louis
operations experienced decreases in operating revenues of $2.1 million, $1.8
million and $1.2 million, respectively. Additionally, the corporate leasing
operation experienced a $0.4 million decrease in operating revenues.
Gaming revenues from the Company's Davenport and Biloxi operations
decreased $2.2 million and $1.2 million, respectively, during the three-month
period ended August 31, 2000, compared to the three-month period ended August
31, 1999, primarily as a result of increased competition. In Davenport the
change in Illinois legislation in July 1999 eliminating the requirement of
Illinois riverboat casinos to cruise allowed Davenport's Illinois competitor
to gain a larger share of the market. In Biloxi, changes in marketing
campaigns of competitors negatively impacted market share. Gaming revenues in
St. Louis decreased $1.0 million, or 6.3%, primarily due to decreased market
share resulting from the St. Louis area competition having more modern slot
product than the "Admiral." Effective August 28, 2000, 700 comparable
machines were placed into service on the "Admiral." During the transition
period, many banks of machines were out of service from time to time.
The Company's revenues from food and beverage, hotel, retail and other (net
of promotional allowances) were $5.3 million during the three-month period
ended August 31, 2000, compared to $6.4 million during the three-month period
ended August 31, 1999, a decrease of $1.1 million or 17.2%. The decrease was
largely attributable to (i) a combined $0.5 million decline in food and
beverage at the operating properties, (ii) business interruption insurance
proceeds recognized during the second quarter of fiscal 2000 in St. Louis, and
(iii) a decrease in charter revenues of $0.4 million as a result of a charter
agreement with a third party terminating in July 1999.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $25.7 million during the three-month
period ended August 31, 2000, compared to $28.0 million during the three-month
period ended August 31, 1999, a decrease of $2.3 million or 8.2%. The
decrease in gaming costs was primarily attributable to the $4.3 million
decrease in gaming revenues and those costs directly affected by the decreased
revenue levels, such as gaming and admission taxes. As a percentage of gaming
23
revenues, gaming and gaming cruise costs increased to 61.1% in the three-month
period ended August 31, 2000 from 60.6% during the three-month period ended
August 31, 1999.
The Company's consolidated selling, general and administrative expenses were
$12.5 million during the three-month period ended August 31, 2000, compared to
$12.6 million during the three-month period ended August 31, 1999, a decrease
of $0.1 million. The decrease in selling, general and administrative expense
is primarily due to a $0.5 million reduction in lease expense resulting from
the purchase of the "President Casino-Broadwater," the Company's Biloxi casino
barge which was formerly leased, offset by an increase of $0.3 million
resulting from a personal property tax assessment resolution during the three-
month period ended August 31, 1999. Increase in corporate legal expense as a
result of costs incurred associated with the restructuring plan have been
offset by other reductions in corporate overhead. As a percentage of
consolidated revenues, selling, general and administrative expenses were 26.5%
for the three-month period ended August 31, 2000, compared to 24.0% for the
three-month period ended August 31, 1999.
Depreciation and amortization expense was $2.8 million for the three-month
period ended August 31, 2000, compared to $2.7 million for the three-month
period ended August 31, 1999, an increase of $0.1 million.
During the three-month period ended August 31, 2000, the Company incurred
$11.4 million expense for impairment of long-lived assets, and incurred no
comparable expense during the three-month period ended August 31, 1999.
During August 2000, management evaluated the net realizable value of its
assets based on their intended future use, market conditions and current
offers made to purchase such assets. Specifically, during the quarter, the
Company entered into an option to sell one vessel and with the sale of the
Davenport properties, the need to maintain a reserve vessel for the upcoming
hull inspection was eliminated. As a result, the Company recorded an
impairment of long-lived assets of $11.4 million on two casino vessels not
currently used by the Company's operations and accounted for in the Company's
leasing segment.
Operating income/loss. As a result of the foregoing items, the Company had
operating loss of $10.4 million during the three-month period ended August 31,
2000, compared to operating income of $3.7 million during the three-month
period ended August 31, 1999.
Interest expense, net. The Company incurred net interest expense of $5.0
million during the three-month period ended August 31, 2000, compared to $4.8
million during the three-month period ended August 31, 1999 an increase of
$0.2 million or 4.2%. The increase is primarily the result of interest
incurred on debt associated with the purchase of the "President Casino-
Broadwater" barge and an increase in the variable interest rate on the
Broadwater Property note.
Minority interest expense. The Company incurred $0.4 million minority
interest expense for each of the three-month periods ended August 31, 2000,
and August 31, 1999, respectively.
Net loss. The Company incurred a net loss of $15.7 million during the
three-month period ended August 31, 2000, compared to a net loss of $1.4
million during the three-month period ended August 31, 1999.
24
Six-Month Period Ended August 31, 2000 Compared to the Six-Month Period Ended
August 31, 1999
Operating revenues. The Company generated consolidated operating revenues
of $97.7 million during the six-month period ended August 31, 2000 compared to
$107.1 million during the six-month period ended August 31, 1999, a decrease
of $9.4 million, or 8.8%. Davenport, Biloxi and St. Louis operations
experienced decreases in operating revenues of $4.2 million, $2.2 million and
$1.1 million, respectively. Additionally, the corporate leasing operation
experienced a $1.8 million decrease in operating revenues as a result.
Gaming revenues from the Company's Davenport operations decreased $4.0
million during the six-month period ended August 31, 2000, compared to the
six-month period ended August 31, 1999, primarily as a result of the change in
Illinois legislation in July 1999 eliminating the requirement Illinois
riverboat casinos cruise, which has allowed Davenport's Illinois competitor to
gain a larger share of the market. Gaming revenues from the Company's Biloxi
operations and St. Louis operations decreased $1.3 million and $0.9 million,
respectively, for the six-month period ended August 31, 2000, compared to the
six-month period ended August 31, 1999. In Biloxi, changes in marketing
campaigns of competitors negatively impacted market share.
The Company's revenues from food and beverage, hotel, retail and other (net
of promotional allowances) were $10.1 million during the six-month period
ended August 31, 2000, compared to $13.3 million during the six-month period
ended August 31, 1999, a decrease of $3.2 million or 24.1%. The decrease was
largely attributable to (i) a combined $1.1 million decline in food and
beverage at the operating properties and (ii) a decrease in charter revenues
of $1.8 million as a result of a charter agreement with a third party
terminating in July 1999.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $52.9 million during the six-month
period ended August 31, 2000, compared to $56.3 million during the six-month
period ended August 31, 1999, a decrease of $3.4 million or 6.0%. The
decrease in gaming costs was primarily attributable to (i) the $6.2 million
decrease in gaming revenues and those costs directly affected by the decreased
revenue levels, such as gaming and admission taxes and (ii) the reduction of
wide area progressive slot machine rentals. As a percentage of gaming
revenues, gaming and gaming cruise costs increased to 60.4% during the six-
month period ended August 31, 2000 from 60.0% during the six-month period
ended August 31, 1999.
The Company's consolidated selling, general and administrative expenses were
$24.5 million during the six-month period ended August 31, 2000, compared to
$25.5 million during the six-month period ended August 31, 1999, a decrease of
$1.0 million or 3.9%. The decrease in selling, general and administrative
expense is primarily due to a $0.9 million reduction in lease expense
resulting from the purchase of the "President Casino-Broadwater," the
Company's Biloxi casino barge which was formerly leased, offset by increases
of $0.2 million primarily related Corporate legal expense resulting from debt
restructuring efforts and $0.1 million of leasing operations expense resulting
from the ongoing maintenance of the Company's vessels which are no longer used
in the Company's operations. As a percentage of consolidated revenues,
selling, general and administrative expenses were 25.1% during the six-month
period ended August 31, 2000, compared to 23.8% during the six-month period
ended August 31, 1999.
25
Depreciation and amortization expense was $6.4 million for the six-month
period ended August 31, 2000, compared to $6.3 million for the three-month
period ended August 31, 1999, an increase of $0.1 million.
During the six-month period ended August 31, 2000, the Company incurred
$11.4 million expense for impairment of long-lived assets, and incurred no
comparable expense during the six-month period ended August 31, 1999. During
August 2000, management evaluated the net realizable value of its assets based
on their intended future use future use, market conditions and current offers
made to purchase such assets. Specifically, during the quarter, the Company
entered into an option to sell one vessel and with the sale of the Davenport
properties, the need to maintain a reserve vessel for the upcoming hull
inspection was eliminated. As a result, the Company recorded an impairment of
long-lived assets of $11.4 million on two casino vessels not currently used by
the Company's operations and accounted for in the Company's leasing segment.
Operating (loss) income. As a result of the foregoing items, the Company
had an operating loss of $8.1 million during the six-month period ended August
31, 2000, compared to operating income of $7.8 million during the six-month
period ended August 31, 1999.
Interest expense, net. The Company incurred net interest expense of $10.2
million during the six-month period ended August 31, 2000, compared to $9.5
million during the six-month period ended August 31, 1999 an increase of $0.7
million or 7.4%. The increase is primarily the result of interest incurred on
debt associated with the purchase of the "President Casino-Broadwater" barge
and an increase in the interest rate on the Broadwater Property note.
Minority interest expense. The Company incurred $0.7 million minority
interest expense for each of the six-month periods ended August 31, 2000 and
1999.
Net loss. The Company incurred a net loss of $19.0 million for the six-
month period ended August 31, 2000, compared to a net loss of $2.4 million for
the six-month period ended August 31, 1999.
Liquidity and Capital Resources
The Company meets its working capital requirements from a combination of
internally generated sources including cash from operations and the sale or
charter of assets no longer utilized in the Company's casino operations.
The Company believes that it has adequate sources of liquidity to meet its
normal operating requirements. However, because of the Company's relatively
high degree of leverage and the need for significant capital expenditures at
its St. Louis property, management 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 its Senior Exchange Notes and
Secured Notes. Accordingly, the Company did not make the regularly scheduled
interest payments of $6.4 million that were each due and payable on March 15
and September 15, 2000, respectively. Under the Indenture pursuant to which
the Senior Exchange Notes and Secured Notes were issued, an Event of Default
occurred on April 15, 2000, and is continuing as of the date hereof.
Additionally, the Company did not pay the $25.0 million principal payment due
September 15, 2000 on the Senior Exchange Notes. The holders of at least 25%
of the Senior Exchange Notes and Secured Notes have been notified of the
defaults and have instructed the Indenture Trustee to accelerate the Senior
26
Exchange Notes and Secured Notes and declare the unpaid principal and interest
to be due and payable. The Company does not have the resources available to
repay such indebtedness.
By suspending certain interest and principal payments until such time as a
restructuring plan has been negotiated and implemented, the Company believes
that its liquidity and capital resources will be sufficient to maintain its
normal operations at current levels during the restructuring period and does
not anticipate any adverse impact on its operations, customers or employees.
However, costs incurred and to be incurred in connection with any
restructuring plan have been and will continue to be substantial and, in any
event, there can be no assurance that the Company will be able to successfully
restructure its indebtedness or that its liquidity and capital resources will
be sufficient to maintain its normal operations during the restructuring
period. The Company remains current with all its vendors and suppliers.
On October 10, 2000, the Company sold the assets of its Davenport operations
for an aggregate consideration of $58.2 million in cash. An allocation of
$56.1 million has been made to the assets of TCG and $2.1 million to the
assets of the Blackhawk Hotel. The Company is continuing negotiations with
its bond holders and lenders as to the use of the balance of the proceeds from
the sale as it relates to the restructuring of its indebtedness.
As of August 31, 2000, the Company has $10.2 million of unrestricted cash
and cash equivalents. Of this amount, the Company requires approximately $8.0
million to $9.5 million of cash to fund daily operations. The subsequent sale
of the Davenport casino and hotel operations reduced this requirement by
approximately $2.5 million. The Company is heavily dependant on cash
generated from operations to continue to operate as planned in its existing
jurisdictions and to make capital expenditures. The Company anticipates that
its existing available cash and cash equivalents and its anticipated cash
generated from operations will be sufficient to fund its ongoing operating
properties but not meet all its obligations for borrowed money. To the extent
cash generated from operations is less than anticipated, the Company may be
required to curtail certain planned expenditures.
The $2.9 million of the Company's restricted cash relates to the Broadwater
Property. Pursuant to debt agreement for the Broadwater Property, revenues
are deposited in lockboxes that are controlled by the lender. Such revenues
include the operations of the hotels and golf course and $2.9 million annually
of proceeds from rental of the Biloxi casino's mooring site. Expenditures
from the lockboxes are limited to the operating expenses, capital improvements
and debt service of the Broadwater Property as defined by such agreements.
The $1.0 million restricted short-term investments consists of certificates of
deposit guaranteeing certain obligations of the Company.
The Company generated cash flow from operating activities of $6.5 million
during the six-month period ended August 31, 2000, compared to $6.0 million
during the six-month period ended August 31, 1999.
The Company experienced a net cash decrease from investing activities of
$5.8 million during the six-month period ended August 31, 2000, compared to a
decrease of $4.0 million during the six-month period ended August 31, 1999.
The net cash decrease from investing activities during both periods resulted
primarily from expenditures on property and equipment. During the six-month
period ended August 31, 2000, the Company had fixed asset additions of
approximately $6.9 million, of which, $1.3 million were non-cash additions in
27
exchange for debt. The Company spent approximately $0.5 million, $0.6 million
and $4.0 million at the Company's Biloxi, Davenport and St. Louis operations,
respectively. Additionally, the Company spent $0.5 million in conjunction
with Destination Broadwater.
The indenture governing the Company's Senior Exchange Notes due 2001 (the
"Indenture"), restricts the ability of PCI, TCG and PCI's wholly-owned
subsidiaries which are guarantors of the Senior Exchange Notes (collectively,
the "Guarantors"), among other things, to dispose of or create liens on
certain assets, to make certain investments and to pay dividends. Under the
Indenture, the Guarantors have the ability to seek to borrow additional funds
of $15.0 million and may borrow additional funds for certain uses. The
Indenture also provides that the Guarantors must use cash proceeds from the
sale of certain assets within 180 days to either (i) permanently reduce
certain indebtedness or (ii) contract with an unrelated third party to make
investments or capital expenditures or to acquire long-term tangible assets,
in each case, in gaming and related businesses (provided any such investment
is substantially complete in 270 days). In the event such proceeds are not so
utilized, the Company must make an offer to all holders of Senior Exchange
Notes to repurchase at par value an aggregate principal amount of Senior
Exchange Notes equal to the amount by which such proceeds exceeds $5.0
million. Certain provisions of the Indenture do not apply to the Company's
consolidated entities which do not guarantee the Senior Exchange Notes.
On December 3, 1998, the Company repurchased $25.0 million of its Senior
Exchange Notes for $23.8 million. The repurchased notes were used to satisfy
the $25.0 million principal payment due September 15, 1999 on the Company's
$100.0 million Senior Exchange Notes. The repurchase was funded by the
issuance of $25.0 million of new 12% notes due September 15, 2001 (the
"Secured Notes"). Under the repurchase agreement, the Company incurs a 1%
annual loan fee on the principal balance of $25.0 million until maturity. The
Secured Notes have no mandatory redemption obligation and are secured by
mortgages on the "Admiral" and the "New Yorker," as well as subsidiary
guarantees.
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
$30.0 million from a third party lender, evidenced by a non-recourse
promissory note (the "Indebtedness"). Except as set forth in the promissory
note and related security documents, PBLLC's obligations under the
Indebtedness are nonrecourse and are secured by the Broadwater Property, its
improvements and leases thereon. The Indebtedness bears interest at a
variable rate per annum equal to the greater of (i) 8.75% or (ii) 4% plus the
LIBOR 30-day rate.
Under the terms of the Indebtedness, PBLLC is required to make monthly
payments of interest, and was to repay the Indebtedness in full and a $7.0
million loan fee on July 22, 2000. The Company defaulted on the principal and
loan fee payments on July 22, 2000. The Company has continued to make the
monthly interest payments related to this note and is in negotiations with the
lender. The lender accelerated the note and has declared the unpaid principal
and loan fee due and payable. The Company is continuing its discussions with
the lender concerning the restructuring of the note.
In August 1999, the Company purchased "President Casino-Broadwater," the
vessel on which the Company conducts its Biloxi gaming operations. The
Company paid $1.0 million at closing and financed $5.4 million. Under the
terms of the agreement, the Company made monthly combined interest and
principal payments of $0.3 million through March 2000. The Company made the
28
scheduled payment of $0.1 million on April 1, 2000. The balloon payment due
of $3.7 million was not made on April 15, 2000 and the note was in default.
Instead a payment of $0.3 million was made on that date and the Company
continued to make monthly combined interest and principal payments of $0.3
million each month thereafter. On October 10, 2000, the Company paid the then
outstanding principal balance of $1.9 million and a restructuring fee of $0.1
million from the proceeds of the sale of its Davenport operations.
The 9.67% term note payable is collateralized by the vessel "President
Casino-Mississippi" and various equipment and is personally guaranteed by Mr.
Connelly. This note also contains certain covenants which, among other
things, require the Company to maintain a minimum tangible net worth of $40.0
million. The Company received a waiver of the net worth covenant through the
period ended September 30, 2000, at which time the Company's net worth
requirement returned to $40.0 million. The aforementioned default on the
Company's Senior Exchange Notes and Secured Notes also constituted a default
under this note. The Company has continued to make the quarterly principal
and interest payments related to this note. No action has been taken by the
lender to accelerate the note and declare the unpaid principal due and
payable.
TCG, the Company's 95%-owned partnership, maintained a line of credit
provided by Firstar Bank, N.A., collateralized by first mortgages on the M/V
"President" and the Blackhawk Hotel, with net book values as of August 31,
2000, of $5.4 million and $3.8 million, respectively, various personal
property and an assignment of various contracts. The principal and interest
on the line of credit were paid from the proceeds of the sale of the assets of
the Davenport casino operations and the line of credit was terminated.
In connection with the Company's proposed "Destination Broadwater"
development plan, to date, the Company has not identified any particular
financing alternatives or sources as the necessary regulatory approvals have
not been obtained. There can be no assurance that the Company will be able to
obtain the regulatory approvals or the requisite financing. Should the
Company fail to raise the required capital, such failure would materially and
adversely impact the Company's business plan.
Prospective Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which, after being amended by
SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133," is effective for
fiscal years beginning after June 15, 2000. The statement establishes
accounting and reporting standards for derivative instruments. The Company is
currently evaluating the impact of this new standard, but management believes
it will not materially impact the Company as the Company does not engage in
hedging activities or utilize derivative instruments.
Forward Looking Statements
This quarterly report on Form 10-Q and certain information provided
periodically in writing and orally by the Company's designated officers and
agents contain certain statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
The terms "Company," "we," "our" and "us" refer to President Casinos, Inc.
29
The words "expect," "believe," "goal," "plan," "intend," "estimate," and
similar expressions and variations thereof are intended to specifically
identify forward-looking statements. Those statements appear in this
quarterly report on Form 10-Q and the documents incorporated herein by
reference, particularly "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) our financial prospects;
(ii) our financing plans and our ability to meet our obligations under our
debt obligations and obtain satisfactory operating and working capital; (iii)
our operating and restructuring strategy; and (iv) the effect of competition
and regulatory developments on our current and expected future revenues. You
are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in the forward looking
statements as a result of various factors. The factors that might cause such
differences include, among others, the following: (i) continuation of future
operating and net losses by the Company; (ii) the inability of the Company to
restructure its debt obligations; (iii) the inability of the Company to obtain
sufficient cash from its operations and other resources to fund ongoing
obligations; (iv) developments or new initiatives by our competitors in the
markets in which we compete; (v) our stock price; (vi) adverse governmental or
regulatory changes or actions which could negatively impact our operations;
and (vii) other factors including those identified in the Company's filings
made from time-to-time with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly update or revise forward looking
statements to reflect events or circumstances after the date of this quarterly
report on Form 10-Q or to reflect the occurrence of unanticipated events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Although the majority of debt carries a fixed interest rate, the Company is
exposed to interest rate risk in respect to the variable-rate debt maintained,
which risk may be material. The Company has not engaged in any hedging
transactions with respect to such risks.
Part II. Other Information
Item 1. Legal Proceedings
Information with respect to legal proceedings to which the Company is a
party is disclosed in Note 3 of Notes to Condensed Consolidated Financial
Statements included in Part I of this report and is incorporated herein by
reference.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
The Company has $75.0 million 13.0% Senior Exchange Notes and $25.0 million
12.0% Secured Notes. The Company has not paid the regularly scheduled
interest payments of $6.4 million that were each due and payable March 15, and
September 15, 2000, respectively. Under the Indentures pursuant to which the
Senior Exchange Notes and Secured Notes were issued, an Event of Default
occurred on April 15, 2000, and is continuing as of the date hereof.
Additionally, the Company did not pay the $25.0 million principal payment due
30
September 15, 2000 on the Senior Exchange Notes. Total arrearage as of
October 19, 2000, is $75.0 million of principal and $11.1 million of interest
on the Senior Exchange Notes and $25.0 million of principal and %3.4 million
interest on the Secured Notes.
Additionally, the Company did not pay the $30.0 million note and the
associated $7.0 million loan fee due July 22, 2000, related to the Broadwater
Property. The Company is obligated under the Indebtedness to make monthly
payments of interest accruing under the Indebtedness at a variable rate per
annum equal to the greater of (i) 8.75% or (ii) 4% plus the LIBOR 30-day rate.
The Company has continued to make the monthly interest payments related to the
$30.0 million note. Total arrearage as of October 19, 2000, is $37.0 million
of principal and $0.2 million of interest.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed as part of this report are listed on Index to
Exhibits accompanying this report.
(b) Reports on Form 8-K
On July 24, 2000, the Company filed a Current Report on Form 8-K
dated July 19, 2000, reporting under Item 5 that the Company had
entered into a definitive agreement to sell its Davenport
operations to Isle of Capri Casinos, Inc. for aggregate
consideration of $58.2 million in cash.
31
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.
President Casinos, Inc.
-----------------------------
(Registrant)
Date: October 19, 2000 /s/ Ralph J. Vaclavik
-----------------------------
Ralph J. Vaclavik
Senior Vice President and
Chief Financial Officer
32
INDEX TO EXHIBITS
-----------------
EXHIBIT NO.
2.1 Asset Sale Agreement, dated as of July 19, 2000, by and among The
Connelly Group, L.P., TCG/Blackhawk, Inc. ("Sellers"), and IOC-
Davenport, Inc. and Isle of Capri Casinos, Inc. ("Purchasers").
10.1 Agreement, dated as of October 10, 2000, entered into by and among
President Casinos, Inc., PRC Holdings Corporation, PRC Management,
Inc., PRCX, Inc., President Riverboat Casino-Philadelphia, Inc.,
P.R.C. Louisiana, Inc., Vegas Vegas, Inc., President Riverboat
Casino-New York, Inc., President Mississippi Charter Corp.,
President Riverboat Casino-Missouri, Inc., President Riverboat
Casino-Mississippi, Inc., Broadwater Hotel, Inc., President
Riverboat Casino-Iowa, Inc., TCG Blackhawk, Inc., President Casino
New Yorker, Inc., The Connelly Group, L.P., and President Broadwater
Hotel, LLC, (the "Company"), and each of the undersigned holders
of the US $100.0 million 13% Senior Notes, due September 15, 2001
issued pursuant to that certain indenture dated as of August 26,
1994 by and between the Company and United States Trust Company of
New York, as trustee (the "13% Notes Indenture" and the "13% Notes
Trustee"), of which US $75,000,000 in principal amount is
outstanding (the "13% Notes"), and holders of the US $25.0 million
12% Notes, due September 15, 2001 issued pursuant to that certain
indenture dated as of December 3, 1998 (the "12% Indenture" and
together with the 13% Notes Indenture, the "Indentures"), by and
between the Company and U.S. Trust Company of Texas, N.A., as
trustee (together with the 13% Notes Trustee, the "Indenture
Trustees"), (the "12% Notes"), (the 13% Notes and the 12% Notes are
collectively referred to as the "Notes").
27 Financial Data Schedule for the six-months ended August 31, 2000.
33
Dates Referenced Herein and Documents Incorporated by Reference
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