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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
----------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-12095
JCC HOLDING COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 62-1650470
(State or other jurisdiction (IRS employer
of incorporation) identification number)
</TABLE>
512 South Peters Street
New Orleans, Louisiana
(Address of principal executive offices)
Registrant's telephone number (504) 533-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of May 13, 1999 a total of 5,547,377 shares of Class A Common
Stock, par value $.01 per share, and a total of 4,452,623 shares of Class B
Common Stock, par value $.01 per share, of JCC Holding Company were outstanding.
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JCC HOLDING COMPANY
MARCH 31, 1999
INDEX
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PAGE
NUMBER
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS 2
PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 (Predecessor) 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (Predecessor) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II OTHER INFORMATION 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q which are not
historical fact, including in particular statements regarding (1) the plans,
objectives, expectations and prospects of JCC Holding Company ("JCC Holding")
and its subsidiaries and (2) the construction and opening by a subsidiary of JCC
Holding of a land-based casino in New Orleans, Louisiana (the "Casino"), are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions identify forward-looking statements. Important factors that could
cause actual results to differ materially from the results anticipated by the
forward-looking statements include, without limitation, the inability of JCC
Holding's subsidiary to construct and open, and the timing of the construction
and opening of, the Casino and the other risks detailed in JCC Holding's Annual
Report on Form 10-K under the heading "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Factors Affecting
Future Performance" and other filings by JCC Holding with the Securities and
Exchange Commission.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
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<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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Current assets:
Cash and cash equivalents (includes restricted cash of $1,010 and $605,
respectively) $ 3,845 $ 25,506
Prepaids and other assets 2,335 1,741
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Total current assets 6,180 27,247
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Property and equipment:
Property held for development 13,559 13,200
Construction in progress (includes restricted cash of $9,453 and
$9,218, respectively) 220,730 192,917
Furniture, fixtures and equipment, net of accumulated depreciation
of $181 and $71, respectively 12,430 12,541
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Net property and equipment 246,719 218,658
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Deferred assets, net of amortization:
Deferred operating contract costs 68,676 68,676
Lease prepayments 16,985 16,985
Other 13,727 11,565
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Total deferred assets, net of amortization 99,388 97,226
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$352,287 $343,131
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46 $ 643
Accrued expenses 22,477 14,659
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Total current liabilities 22,523 15,302
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Long-Term Debt 190,278 185,519
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Deferred Income Taxes 37,900 37,900
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Commitments and Contingencies
Stockholders' Equity:
Common Stock:
Unclassified Common Stock (40,000 shares authorized; none issued
and outstanding; par value $.01 per share) -- --
Class A Common Stock (20,000 shares authorized; 5,547 issued
and outstanding; par value $.01 per share) 55 55
Class B Common Stock (20,000 shares authorized; 4,453 issued
and outstanding; par value $.01 per share) 45 45
Additional paid-in capital 107,987 107,987
Accumulated deficit (6,501) (3,677)
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Total stockholders' equity 101,586 104,410
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$352,287 $343,131
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</TABLE>
See notes to condensed consolidated financial statements.
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS ENDED
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MARCH 31, MARCH 31,
1999 1998
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JCC HOLDING HARRAH'S JAZZ
COMPANY COMPANY
(SUCCESSOR) (PREDECESSOR)
<S> <C> <C>
MISCELLANEOUS REVENUES $ 6 $ 24
OPERATING EXPENSES:
General and administrative 2,824 2,882
Depreciation and amortization 171 149
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Total operating expenses 2,995 3,031
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Loss from operations (2,989) (3,007)
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REORGANIZATION ITEMS -- (574)
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OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest -- (676)
Interest income 165 --
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Total other income (expense) 165 (676)
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NET LOSS $(2,824) $(4,257)
======= =======
BASIC LOSS PER SHARE $ (0.28) N/A
=======
WEIGHTED AVERAGE SHARES OUTSTANDING 10,000 N/A
=======
</TABLE>
See notes to condensed consolidated financial statements.
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
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MARCH 31, MARCH 31,
1999 1998
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JCC HOLDING HARRAH'S JAZZ
COMPANY COMPANY
(SUCCESSOR) (PREDECESSOR)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,824) $(4,257)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 171 149
Changes in operating assets and liabilities:
Prepaids and other assets (594) 1
Accounts payable (597) 71
Accrued expenses 4,410 241
Pre-confirmation contingencies (1,054) --
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CASH FLOWS USED IN OPERATIONS (488) (3,795)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,951) (203)
Payments for other deferred assets (2,222) --
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CASH FLOWS USED IN INVESTING ACTIVITIES (25,173) (203)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 4,000 --
Proceeds received from Debtor-in-Possession borrowings -- 4,041
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 4,000 4,041
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (21,661) 43
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,506 3,755
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,845 $ 3,798
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION -
Interest paid $ 1,214 $ --
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
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JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Business
JCC Holding's purpose is to develop and operate the Casino in downtown
New Orleans, Louisiana at the foot of Canal and Poydras Streets on the site of
New Orleans' former convention center. The Casino is scheduled to open by
October 30, 1999 (the "Opening Date"). Through certain of its subsidiaries, JCC
Holding also plans to develop approximately 130,000 square feet of multipurpose
non-gaming entertainment space on the second floor of the Casino premises and
develop various adjacent properties for entertainment uses supportive of the
Casino. Currently, financing has not been obtained to fund the second floor
construction or the development of these adjacent properties.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of JCC Holding, a Delaware Corporation, and its subsidiaries, have been prepared
in accordance with the instructions to Form 10-Q, and therefore do not include
all information and notes necessary for complete financial statements in
conformity with generally accepted accounting principles. The results for the
periods indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a fair
presentation of operating results. Results of operations for interim periods are
not necessarily indicative of a full year of operations. These condensed
consolidated financial statements and related notes should be read in
conjunction with the financial statements and notes for the period from October
30, 1998 to December 31, 1998 included in JCC Holding's Annual Report on Form
10-K for the year ended December 31, 1998.
Separate financial statements and other disclosures with respect to JCC
Holding's subsidiaries are omitted as such separate financial statements and
other disclosures are not deemed material.
Organization
JCC Holding was incorporated under Delaware law on August 20, 1996 in
contemplation of succeeding to all of the assets and liabilities of Harrah's
Jazz Company ("HJC" or "Predecessor"), a general partnership, which filed for
relief under the United States Bankruptcy Code on November 22, 1995. HJC's
general partners included a wholly-owned subsidiary of Harrah's Entertainment,
Inc. ("HET"). JCC Holding conducts business through its wholly-owned
subsidiaries, Jazz Casino Company, L.L.C., a Louisiana limited liability company
("JCC"), JCC Development Company, L.L.C., a Louisiana limited liability company
("JCC Development"), CP Development, L.L.C., a Louisiana limited liability
company ("CP Development"), and FP Development, L.L.C., a Louisiana limited
liability company ("FP Development" and, together with JCC Holding, JCC, JCC
Development and CP Development, the "Company").
On October 30, 1998 (the "Effective Date") in accordance with the Third
Amended Joint Plan of Reorganization (the "Plan" or the "Plan of
Reorganization"), which was confirmed by the United States Bankruptcy Court (the
"Bankruptcy Court") on October 13, 1998, the Company became the successor to the
operations of HJC. Except for certain real property which vested in CP
Development and FP Development, all of the assets of HJC vested in JCC. On the
Effective Date in connection with the Plan of Reorganization, JCC Holding issued
an aggregate of 10 million shares of its Common Stock consisting of both Class A
and Class B stock. The former bondholders of HJC received an aggregate of
5,197,377 shares of Class A Common Stock which constitutes approximately 52% of
the issued and outstanding Common Stock. In addition, the former bondholders
also received their pro rata share of (i) $187.5 million in aggregate principal
amount of JCC's Senior Subordinated
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Notes With Contingent Payments due 2009 (the "New Notes") and (ii) JCC's Senior
Subordinated Contingent Notes due 2009 (the "New Contingent Notes"). HET,
through a wholly-owned subsidiary, acquired beneficial ownership of the Class B
Common Stock and currently is the beneficial owner of 4,302,623 shares, which
constitutes approximately 43% of the issued and outstanding Common Stock. These
shares were acquired in consideration of, among other things, an equity
investment of $15 million and the conversion to equity, and contribution to JCC
Holding on the Effective Date of $60 million in debtor-in-possession financing
that had been provided to HJC by HET or its affiliates over the course of the
reorganization. Harrah's Crescent City Investment Company, an indirect
wholly-owned subsidiary of HET ("HCCIC"), originally acquired 4,802,623 shares
of Class B Common Stock under the Plan. However, under certain settlement
agreements entered into in connection with the Plan, HCCIC transferred from its
acquired shares of Class B Common Stock (i) options to purchase 300,000 shares
to the stockholders of New Orleans Louisiana Development Company, (ii) options
to purchase 150,000 shares to Bank One, Louisiana, N.A., formerly known as First
National Bank of Commerce ("Bank One") and (iii) its right to receive 350,000
shares to the senior secured bond holders of Grand Palais. Because the senior
secured bond holders of Grand Palais are not permitted to own Class B Common
Stock under JCC Holding's Restated Certificate of Incorporation, the shares
received by them automatically converted into shares of Class A Common Stock.
Subsequent to the Effective Date, Bank One exercised its options.
NOTE 2. CONTINGENCIES
The Company is involved in various inquiries and administrative
proceedings arising in the normal course of business. While any proceeding has
an element of uncertainty, the Company believes that the final outcome of these
matters will not have a material adverse effect upon the Company's consolidated
financial position or its results of operations.
The enactment and implementation of gaming legislation in the State of
Louisiana and the development of the Casino and related facilities have been the
subject of lawsuits, claims and delays brought about by various parties.
Additional lawsuits and the uncertain political environment may result in
further delays, all of which could have a material adverse effect on the
Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
JCC Holding was incorporated under Delaware law on August 20, 1996 to
succeed to all of the assets and liabilities of HJC, a general partnership,
which filed for relief under the Bankruptcy Code on November 22, 1995. JCC
Holding conducts business through its wholly-owned subsidiaries, JCC, JCC
Development, CP Development and FP Development and, through JCC, is constructing
the Casino in downtown New Orleans, Louisiana at the foot of Canal and Poydras
Streets on the site of New Orleans' former convention center. On the Effective
Date, the Company became the successor to the operations of HJC in accordance
with the Plan of Reorganization as confirmed by the Bankruptcy Court.
FRESH-START REPORTING
As of the Effective Date, the Company applied "fresh start" reporting,
which included adjustments of approximately $75 million to certain noncurrent
assets. As a result, the financial condition and results of operations of the
Company after giving effect to the Plan of Reorganization and the transactions
contemplated thereby are not comparable to the financial condition and results
of operations of either the Company or HJC as of any dates and for any periods
prior to the Effective Date.
DEVELOPMENT ACTIVITIES
As redesigned pursuant to the Plan of Reorganization, the Casino will
contain five themed areas named The Jazz Court, The Mardi Gras Court, The
Smuggler's Court, The Court of the Mansion and The Court of Good Fortune. The
remaining space will be used for additional gaming activities, a food service
area, casino support facilities, and multi-function, special event and
meeting-room space. The Jazz Court will have a raised domed ceiling and occupy
the center of the Casino. Parking for approximately 400 cars and approximately
145,000 square feet of back-of-house and support areas will be provided
underneath the main gaming floor. Across Poydras Street and connected to the
Casino by an underground tunnel (the "Poydras Tunnel Area") will be a newly
constructed parking facility which will contain approximately 1,550 parking
spaces.
The Casino is scheduled to open and commence operations by October 30,
1999 and will include 100,000 square feet of gaming space, a 250-seat buffet,
two parking garages, the Poydras Tunnel Area and approximately 12,000 square
feet of multi-function, special event, food service and meeting-room space on
the first floor of the premises (the "Initial Casino Facilities"). Concurrently
with construction of the Initial Casino Facilities, the Company expects that
approximately 130,000 square feet of multipurpose non-gaming entertainment space
on the second floor of the Casino premises will be constructed to the point at
which the shell of the structure is complete as of the opening of the Casino
(the "Second Floor Shell Construction"). On October 30, 1998, instructions to
proceed with resuming construction of the Casino were given to the Casino
construction contractors and construction of the Casino has since resumed.
Under the Plan of Reorganization, on the Effective Date, title to the
real property owned by HJC at 3 Canal Place in New Orleans, adjacent to the
Canal Place shopping center (the "3CP Property") vested in CP Development, and
title to the real property owned by HJC on Fulton and Poydras Streets in New
Orleans adjacent to the Casino parking facilities (the "Fulton Property") vested
in FP Development. The Company currently intends that CP Development and FP
Development will develop the properties, possibly with the assistance of a third
party developer, for entertainment uses that support the Casino.
LIQUIDITY AND CAPITAL RESOURCES
The Company estimates that from the date HJC filed for bankruptcy, the
total cost of completing the project was approximately $367.8 million. This
amount included, among other things, hard costs of completing construction of
the Casino, costs of obtaining gaming equipment and supplies, reorganization
costs related to the
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bankruptcy, payments to unsecured creditors and cure payments in connection with
the assumption of certain contracts. As of March 31, 1999, the remaining costs
of completing the project were approximately $158.7 million, including $79.7
million in hard construction costs and $79 million for gaming equipment and
supplies and other pre-opening costs. The above estimate of total construction
and other costs does not include costs associated with the build-out of
non-gaming tenant improvements on the second floor of the Casino beyond the
Second Floor Shell Construction and the development of the 3CP Property and
Fulton Property. The Company has not obtained financing to fund this build-out
or the development of the 3CP Property and Fulton Property, and the Company
cannot assure that it will obtain such financing. Without financing, the Company
will be unable to affect this build-out and development.
The funds necessary to complete the development and construction of the
Casino (including the installation of certain gaming equipment and other
furniture, fixtures and equipment, but excluding the build-out of the non-gaming
improvements on the second floor of the Casino beyond the Second Floor Shell
Construction and the development of the 3CP Property and Fulton Property) and
fund the Company's working capital needs during this time are being, and are
expected to continue to be, derived from a combination of (1) the $15 million
new equity investment from HCCIC made on the Effective date in connection with
the Plan of Reorganization, (2) the $211.5 million of term loans (the "Term
Loans") from a syndicate of lenders led by Bankers Trust Company (the "Bank
Lenders") under the terms of a Credit Agreement ("Credit Agreement") among JCC,
as borrower, JCC Holding, as guarantor, and the Bank Lenders, (3) the $22.5
million of subordinated indebtedness under a credit facility (the "Junior
Subordinated Credit Facility") among JCC, HET and Harrah's Operating Company,
Inc. ("HOCI"), and (4) the issuance of $27.3 million aggregate principal amount
of 8% Convertible Junior Subordinated Debentures due 2010 (the "Convertible
Junior Subordinated Debentures") of JCC. In addition, JCC has up to $25 million
available for working capital purposes under a working capital line of credit
(the "Working Capital Facility"). However, subject to certain exceptions, JCC
must repay any amounts outstanding under the Working Capital Facility on the
termination of construction date, which generally will occur when the Casino
construction is complete, the Casino is fully equipped and the Initial Casino
Facilities have opened for business as a casino gaming operation (the
"Termination of Construction Date"). The Term Loans consist of a $60 million A
Term Loan (the "A Term Loan") comprised of (1) a $10 million tranche ("Tranche
A-1"); (2) a $20 million tranche ("Tranche A-2"); and (3) a $30 million tranche
("Tranche A-3") and a $151.5 million B Term Loan (the "B Term Loan") comprised
of (1) a $30 million tranche ("Tranche B-1"); and (2) a $121.5 million tranche
("Tranche B-2"). The $10 million Tranche A-1, the $30 million Tranche A-3, the
$30 million Tranche B-1 and the $27.3 million in Convertible Junior Subordinated
Debentures were fully funded on the Effective Date. As of March 31, 1999, $4
million of the $22.5 million Junior Subordinated Credit Facility was funded.
During April 1999, the remainder of the Junior Subordinated Credit Facility was
funded. The $121.5 million Tranche B-2 and the $20 million Tranche A-2 will be
funded as required for the construction of the Casino with Tranche B-2 to be
drawn prior to Tranche A-2. As of May 12, 1999, $20 million of the Tranche B-2
had been drawn to pay for construction costs. If any amount of Tranche B-2
remains undrawn upon completion of the construction of the Casino, it will be
drawn to pay down Tranche A-1. In addition, on the Effective Date, HET and HOCI
(the "Completion Guarantors") entered into a series of completion guarantees
pursuant to which HET and HOCI have guaranteed, among other things, the
completion of the Casino and the payment of all obligations of JCC up to and
through the completion of the Casino construction. This includes the duty to
complete, equip and open the Casino if JCC fails to commence or complete the
Casino construction and to pay JCC costs and expenses until the Casino opens
prior to the Termination of Construction Date.
JCC has the option to pay the first six semi-annual payments of fixed
interest on the New Notes in kind rather than in cash; provided, however, that
JCC must pay the first four semi-annual payments of fixed interest in kind if
Tranche A-1 and/or Tranche A-2 is outstanding when such payments are due. JCC
also has the option of paying the interest on the Convertible Junior
Subordinated Debentures, in whole or in part, in kind rather than in cash (1) at
any time on or prior to October 30, 2003, and (2) at any time thereafter if JCC
did not make contingent payments with respect to the New Contingent Notes on the
immediately preceding interest payment date for the New Contingent Notes.
Because borrowings under Tranche A-1 are currently outstanding, JCC intends to
pay the first semi-annual payment of fixed interest on the New Notes due on May
15, 1999 in kind rather than cash. JCC also intends to pay the first semi-annual
interest payment on the Convertible Junior Subordinated Debentures due on May
15, 1999 in kind rather than cash.
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After the opening of the Initial Casino Facilities, JCC expects that
its working capital needs will be funded by a combination of up to $25 million
of borrowing availability under the Working Capital Facility and any operating
cash flows remaining after application of the excess cash flow sweep required by
the Credit Agreement. The Completion Guarantors have agreed to ensure that, upon
the completion of the Casino construction, JCC will have $5.0 million in cash
and up to $25 million under the Working Capital Facility.
The Company expects that the capital expenditures necessary to operate
the Casino after the Opening Date will be funded by a capital replacement fund
JCC is required to establish pursuant to (1) the Amended Ground Lease, among
JCC, Rivergate Development Corporation, as landlord, and the City of New
Orleans, as intervenor, (2) the Amended Management Agreement (the "Management
Agreement") among JCC and Harrah's New Orleans Management Agreement (the
"Manager"), and (3) the Amended and Renegotiated Casino Operating Contract among
HJC, JCC and the State of Louisiana, by and through the Louisiana Gaming Control
Board (the "LGCB"). JCC will be required to fund monthly payments into the
capital replacement fund in an aggregate amount equal to $3 million for the
first 12 months following the Opening Date, $4 million for the second 12 months
following the Opening Date, $5 million for the third 12 months following the
Opening Date, and 2% of the gross revenues of the Casino for each fiscal month
thereafter.
Funds provided by a combination of these sources are expected to be
sufficient to satisfy the Company's financial obligations, other than paying
interest in cash on the New Notes and on the Convertible Junior Subordinated
Debentures, during the next 12 months, including developing and commencing
operations at the Casino up through the opening of the Initial Casino Facilities
and completing the Second Floor Shell Construction, assuming no delays or
construction cost overruns. JCC intends to pay interest on the New Notes and on
the Convertible Junior Subordinated Debentures in kind rather than in cash (thus
deferring cash interest payments) for at least the next 12 months. In the event
that the Company's sources of working capital are not sufficient to fund the
Company's working capital and other liquidity needs, under certain circumstances
JCC may also defer amortization payments under the Term Loans and defer certain
fees payable under the Management Agreement. The Company cannot assure that
additional financing, if needed, will be available to JCC, or that, if
available, the financing will be on terms favorable to the Company. In addition,
the Company cannot assure that JCC's estimate of its reasonably anticipated
liquidity needs is accurate or that new business developments or other
unforeseen events will not occur resulting in the need to raise additional
funds.
RESULTS OF OPERATIONS
Prior to consummation of the Plan of Reorganization, the Company had
not (1) conducted any operations, (2) generated any revenues or (3) issued any
capital stock. During the three months ended March 31, 1999, the Company's
activities consisted primarily of administering the construction of the Casino
and preparing for opening the Casino in October 1999. In addition, prior to
consummation of the Plan of Reorganization and during the three months ended
March 31, 1998, the Predecessor's activities consisted of administering the
bankruptcy case, preparing the Plan of Reorganization and related Disclosure
Statement, negotiating with interested parties with respect to the Plan of
Reorganization, and related issues. The Predecessor's primary source of
operating funds was debtor-in-possession financing provided by HET and its
affiliates and its largest expenses were general and administrative expenses and
reorganization costs. Due to the application of "fresh start" reporting and
because neither the Company nor the Predecessor had any gaming operations and
all of their activities were related to the Chapter 11 reorganization during the
three months ended March 31, 1998, the Company believes that comparisons between
the quarters ended March 31, 1999 and March 31, 1998 are not meaningful.
Because the Casino is not expected to be open for operation until
October 1999, the Company's revenues of approximately $6,000 during the three
months ended March 31, 1999 and the Predecessor's revenues of approximately
$24,000 during the three months ended March 31, 1998 were generated primarily
from the rental income generated from a parking lot located on the 3CP Property.
During the three months ended March 31, 1999, the Company incurred
general and administrative expenses of approximately $2.8 million, consisting
primarily of salaries and wages, legal and professional fees,
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property taxes, recruiting employees to work in the casino and pre-opening
marketing. During the same period in 1998, the Predecessor incurred general and
administrative expenses of approximately $2.9 million, consisting primarily of
rent paid by HJC to the City of New Orleans relating to the lease of the site on
which the Casino is located and salaries, wages and other costs associated with
safeguarding the assets of the bankrupt estate.
During the three months ended March 31, 1999, the Company incurred
depreciation and amortization expenses of approximately $171,000, an increase
from approximately $149,000 incurred by the Predecessor during the same period
in 1998. This increase resulted primarily from the additional assets being
placed into service during 1999.
During the three months ended March 31, 1999, the Company capitalized
approximately $5.2 million of interest expense incurred on outstanding
indebtedness and generated approximately $165,000 of interest income on amounts
funded in connection with the Plan of Reorganization which had not been spent
during this period. During the three months ended March 31, 1998, the
Predecessor incurred approximately $676,000 of interest expense incurred on
borrowings under its debtor-in-possession financing.
YEAR 2000 ISSUE
The "Year 2000 issue" is the result of potential problems with computer
systems or any equipment with computer chips that use dates that have been
stored as two digits rather than four (e.g., "98" for 1998). On January 1, 2000,
any clock or date recording mechanism, including date sensitive software, which
uses only two digits to represent the year may recognize a date using "00" as
the year 1900 rather than the year 2000. If not corrected, this could result in
system failures or miscalculations causing disruption of operations, including,
among other things, a temporary inability to process transactions, or perform
similar tasks, as well as an interruption of the Company's gaming operations.
The Company's Readiness Status. Following the consummation of the
transactions contemplated by the Plan of Reorganization, the Company commenced
development operations. Accordingly, the Company has not yet fully evaluated its
state of readiness with respect to Year 2000 issues, the costs that may be
incurred to address any Year 2000 issues which may arise or the effect on the
Company of any such Year 2000 issues.
The Company operates principally through JCC's construction and
operation of the Casino. Under the terms of the Amended Management Agreement,
the Manager has the sole and exclusive right to manage and operate the Casino.
In connection with its management of the Casino, JCC and the Manager entered
into an agreement pursuant to which the Manager is required to prepare and
deliver to JCC Holding reports ("Year 2000 Reports") regarding certain Year 2000
issues relating to the operation of computer systems at the Casino, including,
imbedded chips of any nature, security systems, electrical systems, gaming
equipment and heating, ventilation and air conditioning systems. The Year 2000
Reports are required to be delivered quarterly with a final report to be
delivered no later than ten days prior to the Opening Date, and are required to
outline (i) the procedures implemented by the Manager to assess whether any Year
2000 issues affect or are reasonably likely to affect Casino operations,
including the identity of any independent consulting firm engaged by the Manager
to evaluate Year 2000 issues, (ii) the extent to which any Year 2000 issues are
reasonably likely to exist and/or have been identified by the Manager, together
with a summary of any written reports prepared and (iii) the remedial measures
taken or proposed to be taken by the Manager. The Company anticipates that it
will rely primarily on the Year 2000 Reports to evaluate the Casino's, JCC's and
JCC Holding's Year 2000 state of readiness. JCC received the first Year 2000
Report on January 29, 1999 in which the Manager identified the critical business
systems and leased proprietary systems that it has evaluated, or is in the
process of evaluating, to determine such systems' Year 2000 readiness. On April
30, 1999, JCC received the second Year 2000 Report in which the Manager reported
which of these systems are ready, which are not ready, and for which systems it
is still evaluating Year 2000 readiness. The Manager has also identified the
measures that it will take, or has taken, to remedy systems that are not Year
2000 ready including, upgrades, replacement and renovation.
The Company and the Manager have also sought to identify those third
parties whose operations may be impacted by the Year 2000 issue and on which the
Company's operations rely. This includes the contractors who
12
<PAGE> 14
the Company has retained to complete the Casino construction (including
sub-contractors), and HET and its affiliates (from whom gaming equipment and
other systems have been and will be acquired), the Manager, financial
institutions that have provided financing and other services to the Company,
utility providers, and other suppliers. The Company and the Manager are
endeavoring to incorporate Year 2000 certifications, representations and
warranties in their agreements, bids and purchase orders from such third
parties. In addition, the Company and the Manager also are gathering written
materials published by such third parties or are otherwise communicating
directly with such third parties in order to determine their Year 2000 readiness
and the readiness of the products or services they supply to the Company. While
the Company and the Manager have collected many responses and other materials
from such third parties regarding Year 2000 readiness, the process is ongoing
and is expected to continue up to and through the date when the Casino opens for
operations. The Company is not certain that the Year 2000 issue will be properly
and timely resolved with respect to all of these third parties and, if not
resolved by any such third party, this could materially and adversely affect the
Company's business, financial condition and results of operations.
Costs to Address the Year 2000 Issue. As of March 31, 1999, the Company
had not incurred any costs to address the Year 2000 issue in addition to the
amounts previously budgeted for equipping and constructing the Casino. In both
Year 2000 Reports, the Manager indicated that it had not identified any Year
2000 issues that will result in cost increases over its current budget for
equipping the Casino. However, because this assessment is not complete, the
Manager reported that Year 2000 issues may arise that could result in additional
expenditures by the Company, including expenditures that may exceed the
Manager's budget for equipping the Casino. Accordingly, because neither the
Company nor the Manager has fully evaluated the Company's state of readiness
with respect to the Year 2000 issue, the Company cannot currently estimate the
costs that may be incurred to address or remedy any such Year 2000 issues. In
addition, if the costs of addressing or remedying the Company's Year 2000 issues
or problems resulting from Year 2000 issues of others prove to be significant,
it may materially and adversely affect the Company's business, financial
condition and results of operations.
Risks. When open to the public, the Casino is expected to be heavily
dependent on the Manager, as well as financial institutions and the constant
availability of utilities. As a result, the Company currently believes that the
most reasonably likely worst case Year 2000 scenario would involve the Manager's
inability to operate the Casino, the inability of financial institutions to
supply the Casino funds and services, or the temporary interruption of electric
power, telephone or other utilities supplied to the Casino due to a failure of
the Manager, a financial institution, or a utility supplier to be Year 2000
compliant. In addition, if the Company and/or its significant suppliers fail to
timely address and correct material Year 2000 issues, or if corrections made by
such suppliers to address Year 2000 issues are incompatible with the Company's
systems, the Year 2000 issue could materially and adversely affect the Company's
business, financial condition and results of operations.
Contingency Plans. The Company is in the process of establishing a
contingency plan to address the most reasonably likely worst case scenarios
described above. Because the Company and the Manager have not completed the
testing of those internal systems which are available for testing or which it
can test feasibly and practically, and since the Company and the Manager are
still in the process of choosing suppliers, finalizing bid proposals as well as
collecting responses regarding Year 2000 readiness from existing suppliers, the
Company has not fully assessed its potential Year 2000 exposure. Accordingly,
the Company has not yet completed its Year 2000 contingency plans. The Company
expects that it will complete developing these plans by September 1999 as it
installs computer hardware and software in the Casino and negotiates contracts
with its remaining significant suppliers.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company intends to adopt SFAS 133 effective
January 1, 2000. Management does
13
<PAGE> 15
not expect the adoption of SFAS 133 to have a significant impact on the
financial position or results of operations of the Company because the Company
has limited derivative use.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in trading market risk sensitive
instruments. The Company also does not purchase, for investment, hedging or for
purposes "other than trading," instruments that are likely to expose it to
market risk, whether interest rate, foreign currency exchange, commodity price
or equity price risk, except as discussed in the following paragraph. The
Company has not entered into any forward or futures contracts, purchased any
options or entered into any swaps. The Company has no foreign operations and
currently does not deal in foreign currencies. Thus, the Company does not
believe that it has any material exposure to foreign currency exchange rate
risk.
The Company has a significant amount of indebtedness which accrues
interest at fixed and variable rates. As of March 31, 1999, the aggregate amount
of the Company's outstanding indebtedness was $288.8 million, of which $70.0
million accrued interest at variable rates and $218.8 accrued interest at fixed
rates. The interest rate of the Company's variable rate indebtedness will
fluctuate with changes in the base rate and the LIBOR rate applicable under the
Credit Agreement. A change in either the base rate or LIBOR under the Credit
Agreement will affect the interest rate at which indebtedness outstanding under
the Credit Agreement accrues. As a result, a significant increase in either the
base rate or LIBOR could materially and adversely affect the Company's business,
financial position and results of operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
27.01 Financial Data Schedule (for SEC use only).
</TABLE>
(b) The Company filed no current reports on Form 8-K during the
three months ended March 31, 1999.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C>
JCC HOLDING COMPANY
Date: May 12, 1999 By:/S/ Frederick W. Burford
----------------------------------------------
Frederick W. Burford, President
(Principal Executive Officer of the Registrant)
Date: May 12, 1999 By: /S/ L. Camille Fowler
----------------------------------------------
L. Camille Fowler, Vice President-Finance,
Treasurer and Secretary
(Principal Financial Officer and Principal
Accounting Officer of the Registrant)
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JCC HOLDING
COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,845
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,180
<PP&E> 246,900
<DEPRECIATION> 181
<TOTAL-ASSETS> 352,287
<CURRENT-LIABILITIES> 22,523
<BONDS> 190,278
0
0
<COMMON> 100
<OTHER-SE> 101,486
<TOTAL-LIABILITY-AND-EQUITY> 352,287
<SALES> 0
<TOTAL-REVENUES> 6
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,824)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,824)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,824)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
