<PAGE> 1
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 SEPTEMBER 30, 2000
------------------
[ ] 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)
Delaware 62-1650470
-------- ----------
(State or other jurisdiction (IRS employer
of incorporation) identification number)
One Canal Place
365 Canal Street, Suite 900
New Orleans, Louisiana, 70130
----------------------------------------
(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.
The number of shares of the registrant's class A common stock and class
B common stock outstanding at November 10, 2000 were 5,779,572 and 4,452,623,
respectively.
<PAGE> 2
JCC HOLDING COMPANY AND SUBSIDIARIES
SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS 2
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 (Unaudited) 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and 1999 4
(Unaudited)
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II OTHER INFORMATION 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
1
<PAGE> 3
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including in particular the statements about (1) our plans,
objectives, expectations and prospects, (2) the development of non-gaming
entertainment space on the second floor of our casino in New Orleans, Louisiana
and of various adjacent properties for entertainment uses supporting our casino,
(3) funding of our minimum payment obligation to the State of Louisiana under
the minimum payment guaranty provided by Harrah's Entertainment, Inc. and
Harrah's Operating Company, Inc., possibly exceeding the maximum $50 million,
(4) the possibility of Harrah's Entertainment, Inc., and Harrah's Operating
Company renewing the minimum payment guaranty on March 31, 2001, (5) the
possibility of Harrah's Entertainment, Inc., or its subsidiaries agreeing to
continue to forbear after April 1, 2001, the collection of rent, fees and other
items addressed in the forbearance agreement, (6) the possibility of a reduction
in the $100 million minimum payment that we are required to make to the
Louisiana Gaming Control Board under our casino operating contract, (7) our
ability to obtain adjustments to our operating expenses, debt and capital
structure, and (8) our ability to continue operations, included in this Report
under the heading "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this document. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions identify forward-looking statements. Although we believe that the
plans, objectives, expectations and prospects reflected in or suggested by such
forward-looking statements are reasonable, such statements involve uncertainties
and risks, and we cannot assure that such plans, objectives, expectations and
prospects will be achieved. Important factors that could cause actual results to
differ materially from the results anticipated by the forward-looking statements
include our ability to reach agreement with third parties on such matters as (1)
granting us waivers for our failure to comply with certain agreements with them,
(2) reducing the $100 million minimum annual payment that we are required to
make, to the Louisiana Gaming Control Board and (3) adjusting our operating
expenses, debt and capital structure, as well as other factors that are set
forth in our 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 our other filings with the
Securities Exchange Commission. All forward-looking statements attributable to
us are expressly qualified in their entirety by these cautionary statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE> 4
JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (includes restricted cash of
$4,195 and $6,382, respectively)........................ $ 24,436 $ 34,687
Accounts receivable, net of allowance for doubtful
accounts of $1,193 and $228, respectively............... 6,819 3,177
Inventories............................................... 705 354
Prepaids and other assets................................. 2,093 2,760
Property available for sale............................... 4,831 4,831
-------- --------
Total current assets............................... 38,884 45,809
-------- --------
Property and Equipment:
Buildings on leased land.................................. 305,955 306,129
Furniture, fixtures and equipment......................... 41,349 43,634
Property held for development............................. 10,651 10,138
Leasehold improvements.................................... 495 --
Construction in progress.................................. 1,209 151
-------- --------
Total.............................................. 359,659 360,052
Less -- accumulated depreciation.......................... (20,389) (4,179)
-------- --------
Net property and equipment......................... 339,270 355,873
-------- --------
Other Assets:
Deferred operating contract cost, net of accumulated
amortization of $2,575 and $494, respectively........... 66,101 68,182
Lease prepayment, net of accumulated amortization of $643
and $124, respectively.................................. 16,342 16,861
Deferred charges and other, net of accumulated
amortization of $1,299 and $421, respectively........... 19,852 19,677
-------- --------
Total other assets................................. 102,295 104,720
-------- --------
Total Assets....................................... $480,449 $506,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings..................................... $ 5,500 $ 15,850
Accounts payable -- trade................................. 3,392 2,012
Accrued interest.......................................... 8,211 2,081
Accrued expenses.......................................... 14,984 20,791
Due to affiliates......................................... 53,322 4,648
Preconfirmation contingencies............................. 2,195 3,033
Other..................................................... 2,236 2,009
-------- --------
Total current liabilities.......................... 89,840 50,424
-------- --------
Long-term debt (including debt to affiliates of $29,243 and
$23,704, respectively).................................... 384,769 368,222
Deferred income taxes....................................... 37,900 37,900
Due to affiliates........................................... 20,198 4,302
Other long-term liabilities................................. 254 --
Commitments and Contingencies
Stockholders' Equity (Deficit):
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; 5,780
shares and 5,638 shares, respectively, issued and
outstanding; par value $.01 per share)................. 58 56
Class B Common Stock (20,000 shares authorized; 4,453
shares issued and outstanding; par value $.01 per
share)................................................. 45 45
Additional paid-in capital................................ 108,718 108,538
Accumulated deficit....................................... (161,047) (62,817)
Less -- unearned compensation............................. (286) (268)
-------- --------
Total stockholders' equity (deficit)............... (52,512) 45,554
-------- --------
Total Liabilities and Stockholders' Equity......... $480,449 $506,402
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 5
JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Casino................................. $ 66,298 $ -- $ 185,058 $ --
Food and beverage...................... 5,351 -- 15,342 --
Retail, parking and other.............. 2,403 93 7,173 103
Less -- casino promotional
allowances.......................... (4,127) -- (10,718) --
----------- ----------- ----------- -----------
Total net revenues............. 69,925 93 196,855 103
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Direct:
Casino.............................. 54,183 -- 161,815 --
Food and beverage................... 4,195 -- 11,912 --
Retail, parking and other........... 871 -- 2,995 --
General and administrative............. 24,182 129 65,422 297
Depreciation and amortization.......... 6,110 371 19,609 778
Pre-opening expenses................... -- 10,924 -- 20,045
----------- ----------- ----------- -----------
Total operating expenses....... 89,541 11,424 261,753 21,120
----------- ----------- ----------- -----------
OPERATING LOSS........................... (19,616) (11,331) (64,898) (21,017)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized
interest............................ (11,822) -- (33,627) --
Interest and other income.............. 83 61 295 296
----------- ----------- ----------- -----------
Total other income (expense)... (11,739) 61 (33,332) 296
----------- ----------- ----------- -----------
NET LOSS................................. $ (31,355) $ (11,270) $ (98,230) $ (20,721)
=========== =========== =========== ===========
BASIC NET LOSS PER SHARE................. $ (3.06) $ (1.12) $ (9.67) $ (2.06)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING...... 10,235,188 10,079,000 10,163,715 10,044,853
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $(98,230) $ (20,721)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 19,609 778
Amortization of note discount.......................... 3,862 --
Amortization of unearned compensation.................. 164 193
Deferred rent.......................................... 1,270 --
Provision for bad debts................................ 995 --
Write down of assets to be disposed of................. 1,600 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (4,637) --
Inventories............................................ (351) --
Prepaids and other assets.............................. 667 762
Accounts payable -- trade.............................. 1,380 (66)
Accrued interest....................................... 13,175 --
Accrued expenses....................................... (5,807) 347
Preconfirmation contingencies.......................... (838) (1,998)
Due to affiliates...................................... 23,554 --
Other current liabilities.............................. 226 --
-------- ---------
Net cash flows used in operating activities....... (43,361) (20,705)
-------- ---------
Cash Flows From Investing Activities:
Capital expenditures...................................... (1,106) (115,443)
Proceeds from sale of property............................ -- 42
Increase in deferred charges and other assets............. (973) (6,642)
-------- ---------
Net cash flows used in investing activities....... (2,079) (122,043)
-------- ---------
Cash Flows From Financing Activities:
Net repayments of short-term borrowings................... (10,350) --
Proceeds from notes payable to affiliates................. 45,539 --
Proceeds from long-term borrowings........................ -- 127,500
-------- ---------
Net cash flows provided by financing activities... 35,189 127,500
-------- ---------
Net decrease in cash and cash equivalents................... (10,251) (15,248)
Cash and cash equivalents, beginning of period.............. 34,687 25,506
-------- ---------
Cash and cash equivalents, end of period.................... $ 24,436 $ 10,258
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 12,404 $ 4,662
Noncash investing and financing activities:
Increase in long-term debt for payment-in-kind interest
payments.............................................. $ 7,146 $ 7,142
Capitalized interest................................... $ 102 $ 19,024
Issuance of restricted stock awards.................... $ 199 $ 464
Amortization of note discount.......................... -- $ 2,505
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 7
JCC HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Business. We operate an exclusive land-based casino
entertainment facility in New Orleans, Louisiana, on the site of the former
Rivergate Convention Center. Our casino commenced operations on October 28,
1999. As funding and circumstances may permit, we also plan to develop
approximately 130,000 square feet of multipurpose non-gaming entertainment space
on the second floor of the casino and develop various adjacent properties for
entertainment uses supporting the casino. We have not obtained financing to fund
these developments, and do not expect to obtain such funding if ever, unless and
until we restructure our obligations as set forth below.
JCC Holding Company 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, a general partnership, which filed for relief under the
United States Bankruptcy Code on November 22, 1995. Harrah's Jazz Company's
general partners included a wholly-owned subsidiary of Harrah's Entertainment,
Inc. We conduct business through our wholly-owned subsidiaries, Jazz Casino
Company, L.L.C., a Louisiana limited liability company, JCC Development Company,
L.L.C., a Louisiana limited liability company, JCC Canal Development, L.L.C., a
Louisiana limited liability company formerly known as CP Development, L.L.C.,
and JCC Fulton Development, L.L.C., a Louisiana limited liability company
formerly known as FP Development, L.L.C. Except as otherwise noted, for purposes
of this report, references to the words "we", "us", and "our" refer to JCC
Holding Company together with each of its subsidiaries.
Basis of Presentation. The accompanying unaudited condensed
consolidated financial statements 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 primarily of normal recurring
accruals and reclassifying previously reported amounts to conform to current
classifications), which management considers necessary for a fair presentation
of operating results for the interim periods presented. However, the results of
operations for the interim periods presented should not be used as a basis for
estimating results of operations for a full year. These condensed consolidated
financial statements and related notes should be read in conjunction with the
financial statements and notes included in our Annual Report on Form 10-K for
the year ended December 31, 1999.
NOTE 2. RECENTLY ISSUED PRONOUCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended in June 2000 by SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities", which requires the recognition of all derivatives as assets or
liabilities in the statement of financial position and measures those
instruments at fair value. Changes in fair value of derivatives are recorded in
earnings or other comprehensive income depending upon the intended use of the
derivative and the resulting designation. The effective date of this statement
has been delayed to fiscal years beginning after June 15, 2000. We have not
completed the process of evaluating the impact that will result from adopting
SFAS No. 133, as amended by SFAS No. 138. We are therefore unable to disclose
the impact that adopting SFAS No. 133 will have on its financial position and
results of operations when such a statement is adopted.
6
<PAGE> 8
NOTE 3. RELATED PARTY TRANSACTIONS
HET/JCC Agreement. Under the HET/JCC agreement, advances by Harrah's
Entertainment and Harrah's Operating Company under the minimum payment guaranty
of the $100 million minimum annual payment to the Louisiana Gaming Control Board
constitute a demand obligation of JCC and are secured by a first priority lien
on our assets. Under the terms of the minimum payment guaranty, on February 29,
2000, upon notice by the Louisiana Gaming Control Board that we had failed to
make a daily payment, Harrah's Operating Company, Inc., began making the minimum
daily payments of approximately $274,000 due to the Louisiana Gaming Control
Board under the terms of our casino operating contract. As of September 30,
2000, Harrah's Entertainment and Harrah's Operating Company had advanced $40
million to the Louisiana Gaming Control Board on our behalf under the minimum
payment guaranty. The principal balance outstanding bears interest at The London
Interbank Offered Rate ("LIBOR") plus 1% (8.00% as of September 30, 2000).
Because funding under the minimum payment guaranty could constitute a
default under our credit agreement with our bank lenders if our reimbursement
obligation to Harrah's Entertainment and Harrah's Operating Company under the
HET/JCC Agreement exceeds $5 million, at our request, our bank lenders granted
us a limited waiver of the default subject to certain conditions. The waiver
granted by the bank lenders allowed funding under the HET/JCC agreement of up to
$40 million. This limit was reached on July 20, 2000, at which time we resumed
making the minimum daily payments. According to the terms of this waiver,
Harrah's Entertainment and Harrah's Operating Company have agreed not to demand
repayment of, and we may not repay, the principal or accrued interest owed on
the principal, until, at the earliest, April 1, 2001. On August 31, 2000, the
credit agreement was amended to include additional waivers to allow Harrah's
Entertainment, Inc. and Harrah's Operating Company to advance up to an
additional $10 million under the HET/JCC agreement, subject to certain
limitations, including the requirement that we must first borrow all of the $25
million available under our revolving line of credit before additional amounts
may be advanced under the minimum payment guaranty.
Based on our current financial condition, we may not be able to make
the minimum daily payment to the Louisiana Gaming Control Board and advances
under the HET/JCC agreement will likely need to exceed $50 million for us to
continue operations. Any such funding beyond the $50 million level currently
permitted in the existing waivers by our bank lenders would constitute a default
under our bank credit agreement unless we are able to obtain an additional
waiver from our lenders that permits advances of more than $50 million under the
minimum payment guaranty. We cannot assure you that we will be able to obtain
such a waiver. If Harrah's Entertainment and Harrah's Operating Company make
advances under the minimum payment guaranty in excess of $50 million, they will
have the right to demand prompt payment of this excess amount, including
interest due on the excess. Moreover, even if our lenders would permit advances
under the minimum payment guaranty in excess of $50 million without a
declaration of default, in accordance with the terms of the minimum payment
guaranty, Harrah's Entertainment and Harrah's Operating Company may decline to
renew their minimum payment guaranty beyond March 31, 2001. We do not believe
the minimum payment guaranty will be renewed under our existing circumstances.
7
<PAGE> 9
Completion Loan Agreement. On October 30, 1998, we entered into an
amended and restated subordinated completion loan agreement with Harrah's
Entertainment and Harrah's Operating Company under which any expenditures made
by Harrah's Entertainment and Harrah's Operating Company under its completion
guarantees, which are not also expenditures under our amended and restated
construction lien indemnity agreement with Harrah's Operating Company, are
deemed unsecured loans. The loans under the completion loan agreement bear
interest at a rate of 8% per annum and will mature on April 30, 2010. No fees
are payable to Harrah's Entertainment and Harrah's Operating Company in
connection with the completion guarantees. We estimate that approximately $6
million will be required under the completion guaranty to pay the remaining
costs of completing the project. As of September 30, 2000, the outstanding
balance under the completion loan was $5.1 million.
Limited Forbearance Agreement. On February 29, 2000, we entered into a
limited forbearance agreement with Harrah's Operating Company and Harrah's New
Orleans Management Company, the manager of our casino. This agreement was
subsequently amended on August 31, 2000. Under this amended forbearance
agreement, Harrah's Operating Company and Harrah's New Orleans Management
Company each agreed to forbear until April 1, 2001 certain payments under the
management agreement, the administrative agreement and the master lease
agreement that we owed or which become due prior to April 1, 2001. The amended
limited forbearance agreement also waives any penalties or late charges assessed
on the deferred payments under these agreements. As of September 30, 2000,
pursuant to the amended limited forbearance agreement, we have deferred
approximately $14.2 million related to the payments and fees payable to Harrah's
Operating Company or Harrah's New Orleans Management Company. If Harrah's New
Orleans Management Company and Harrah's Operating Company do not continue to
forbear the payment of the deferred items beyond April 1, 2001, we will need to
obtain additional financing to fund the repayment of the amounts that Harrah's
New Orleans Management Company and Harrah's Operating Company agreed to forbear
under their limited forbearance agreement and to fund payment of all our
non-deferrable operating expenses as they come due. We cannot assure you that we
will be able to obtain such additional financing or that we will be able to
obtain additional financing for this purpose on terms that are acceptable to us.
NOTE 4. CONTINGENCIES
The enactment and implementation of gaming legislation in the State of
Louisiana and the development of the casino and related facilities generally
have been the subject of lawsuits, claims and delays brought about by various
parties. In addition, we are involved in a number of legal proceedings and
claims arising in the normal course of business. While we cannot predict the
outcome of such legislative and legal proceedings and litigation, we do not
expect that the final outcome of these particular matters will materially and
adversely affect our results of operations, cash flows, or financial condition.
NOTE 5. DEBT
Under our credit agreement, we have up to $25 million available for
working capital purposes under our revolving line of credit, which has been used
to partially cover operating losses. As of September 30, 2000, the outstanding
balance under the revolving line of credit was $7.3 million, including
outstanding letters of credit of $1.8 million. Our credit agreement requires
that we satisfy certain Earnings Before Interest, Taxes, Depreciation,
Amortization ("EBITDA") maintenance requirements on a quarterly basis. We did
not meet the required EBITDA test for the quarter ended June 30, 2000. However,
at our request, the bank lenders under the credit agreement granted a temporary
waiver of our failure to comply with this covenant. That waiver, which also
placed a temporary limit on our revolver borrowing, expired on August 31, and
was replaced with an amendment to our credit agreement, which (1) amends our
credit agreement to, among other things, change the EBITDA maintenance
requirements with which we are required to comply through the quarter ended
December 31, 2000; (2) subject to certain limitations, re-establishes our
8
<PAGE> 10
$25 million revolving line of credit; (3) grants additional waivers to allow
Harrah's Entertainment, Inc. and Harrah's Operating Company to advance up to an
additional $10 million to a total of $50 million under their minimum payment
guaranty of the $100 million minimum annual payment that we are required to pay
to the Louisiana Gaming Control Board under our casino operating contract,
subject to certain limitations, including the requirement that we must first
borrow all of the $25 million available under our revolving line of credit
before additional amounts may be advanced under the minimum payment guaranty;
and (4) extends until February 28, 2001, the date by which a notice by Harrah's
Entertainment to the banks or the Louisiana Gaming Control Board that the
minimum payment guarantee will not be extended, will constitute an event of
default.
In conjunction with the amendment to our credit agreement discussed
above, on September 1, 2000, Harrah's Operating Company, Inc. purchased from our
bank lenders approximately $145.5 million of our present obligations to the bank
lenders, which amount it had previously guaranteed under the Guaranty and Loan
Purchase Agreement, and agreed to provide the funding for the balance of our $25
million revolving line of credit as it is drawn from the banks.
NOTE 6. NOTICE OF DEFAULT UNDER THE AMENDED AND RENEGOTIATED CASINO OPERATING
CONTRACT
On September 27, 2000, we received a notice from the Louisiana Gaming
Control Board that we are in default of Section 9.5(c) of the Amended and
Renegotiated Casino Operating Contract dated October 30, 1998, with the State of
Louisiana.
The Gaming Control Board informed us of the Board's determination that
we have failed, as required by the casino operating contract, to demonstrate by
clear and convincing evidence that we have the continuing ability to pay,
exchange, refinance or extend our debt that will mature or otherwise become due
and payable during the twelve month period commencing on July 1, 2001, primarily
due to the lack of a minimum payment guarantor for the period beyond March 31,
2001. Refer to Note 3 for a discussion regarding the renewal of the minimum
payment guarantee. Pursuant to the casino operating contract, we have six months
after receipt of the Board's notice, or until March 27, 2001, to cure such a
default.
In order to address timely the Board's finding of default and provide
for continued operations, we believe it will be necessary to implement a
significant restructuring of our arrangements with our securities holders, our
lenders, Harrah's Entertainment, Inc., Harrah's Operating Company, Harrah's New
Orleans Management Company (the manager of the casino and a wholly controlled
affiliate of Harrah's Entertainment, Inc.), the State of Louisiana, and other
parties to whom we have contractual or legal obligations.
We have commenced discussions with these parties and will expand those
discussions to include other parties as required to attempt the necessary
restructuring. We expect such negotiations to be ongoing for the foreseeable
future. We believe that if we do not obtain significant economic concessions
from numerous parties, it is likely that we will not be able to address the
Board's findings or to assure continued operations as a viable business. In
particular, we believe one of the necessary concessions will be a substantial
reduction, authorized by the Louisiana legislature, in our $100 million minimum
payment obligation to the State of Louisiana under the terms of our casino
operating contract with the State.
While our efforts to obtain the necessary concessions are underway, no
assurance can be given that we may be successful in such efforts. Even if such
concessions can be obtained, it is possible that they may need to be implemented
through a bankruptcy proceeding and there is no assurance that such a proceeding
will satisfactorily implement such concessions.
9
<PAGE> 11
NOTE 7. FINANCIAL DEVELOPMENTS
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As shown
in the condensed consolidated financial statements, during the three and nine
months ended September 30, 2000, the Company incurred net losses of $31.4
million and $98.2 million, respectively, and, as of that date, the Company's
current liabilities exceeded its current assets by $51.0 million, and its total
liabilities exceeded its total assets by $52.5 million. These factors among
others may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.
Absent restructuring, unless each of the following events occurs, we
will not have sufficient liquidity to satisfy our financial obligations,
including capital expenses and working capital for operations beyond March 31,
2001:
o a minimum payment guaranty is timely posted in accordance with the
terms of the casino operating contract on or before March 31, 2001 for
the period from April 1, 2001 to March 31, 2002;
o the minimum payment guarantor under the April 1, 2001 through March
31, 2002 guaranty continues to make daily payments;
o the minimum payment guarantor continues to defer repayment by us of
monies advanced to pay the daily payment;
o there is no declaration of default in any of our agreements; and
o Harrah's New Orleans Management Company and Harrah's Operating Company
continue to forbear the collection of the rent, fees and other items
agreed to in their limited forbearance agreement with us.
We cannot assure you that any of these events will occur, nor can we assure you
that the Louisiana Gaming Control Board will not take regulatory actions prior
to March 31, 2001, which might prohibit or limit our ability to continue gaming
operations based on the Company's financial condition.
We cannot assure you that required lender waivers or additional
financing will be available to us, or that, if available; the financing will be
on favorable terms. As a result, any such funding under the minimum payment
guarantee beyond the $50 million level currently permitted under the existing
waivers by our lenders will constitute a default under our credit agreement.
If Harrah's New Orleans Management Company and Harrah's Operating
Company do not continue to forbear the payment of the items beyond April 1, we
will need to obtain additional financing to fund the repayment of amounts that
Harrah's New Orleans Management Company and Harrah's Operating Company agreed to
forbear under their limited forbearance agreement and to fund payment of all our
non-deferrable operating expenses as they come due. If we cannot obtain
additional financing to fund such expenses, our failure to pay such expenses may
trigger events of default under certain other agreements to which we are a
party, including our credit agreement, our casino operating contract, the
indentures governing our senior subordinated notes with contingent payments, our
senior subordinated contingent notes, and the agreement pursuant to which
Harrah's Entertainment and Harrah's Operating Company have agreed to guarantee
our $100 million payment to the State of Louisiana. An event of default under
any of these agreements could materially and adversely affect our business,
financial condition and results of operations by, among other things, resulting
in our closing the casino and/or causing the entire indebtedness under our
credit agreement and our notes to become immediately due and payable. In
addition, we cannot assure that our estimate of our 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.
10
<PAGE> 12
In view of the uncertainties relating to the future of the casino, we
have engaged the services of the investment banking firm Jefferies & Company,
Inc., to assist us in evaluating the means by which we may attempt to
restructure our financial obligations and, as a result, possibly continue
operations. We have begun discussions with the holders of our senior
subordinated notes with contingent payments and our senior subordinated
contingent notes, our bank lenders under our credit agreement and Harrah's
Entertainment to discuss adjustments to our operating expenses, debt and capital
structure to restructure our financial obligations and, as a result, continue
operations. The evaluation by Jefferies & Company has determined the need to
restructure the $100 million annual minimum payment to the State required under
our operating contract, as that payment by itself and apart from our other
obligations materially and fundamentally affects our financial viability. We
cannot assure you that we will be successful in our efforts to obtain
adjustments to our operating expenses, debt and capital structure or that there
will be a reduction in the $100 million payment due to the Louisiana Gaming
Control Board under our casino operating contract.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a casino and entertainment company. JCC Holding Company was
incorporated under Delaware law on August 20, 1996, and conducts business
through its wholly-owned subsidiaries, Jazz Casino Company, JCC Development
Company, JCC Canal Development and JCC Fulton Development. We began operations
in October 1998, when we assumed the business operations formerly owned by
Harrah's Jazz Company, a general partnership, and its subsidiary, Harrah's Jazz
Finance Corporation, which filed for relief under the United States Bankruptcy
Code on November 22, 1995. On October 30, 1998, in accordance with the third
amended plan of reorganization of Harrah's Jazz Company and its subsidiary,
Harrah's Jazz Finance Corporation, we became the successor to the operations of
Harrah's Jazz Company.
Although JCC Holding Company was incorporated on August 20, 1996, prior
to October 30, 1998, we did not conduct any operations, generate any revenues or
issue any capital stock. During the period from October 30, 1998 to October 27,
1999, our activities consisted primarily of administering the construction of
our casino and preparing for opening the casino on October 28, 1999. Because the
casino did not open until October 28, 1999, our results of operations for the
three and nine months ended September 30, 2000 are not comparable to our results
of operations for the three and nine months ended September 30, 1999. As a
result, the discussion regarding operating results during the periods presented
in this report addresses only the various significant components of revenue and
expense line items contributing to net losses for the respective periods.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Total Net Revenues. For the three months ended September 30, 2000, we
generated casino revenue of $66.3 million, food and beverage revenue of $5.3
million, and retail, parking and other revenue of $2.4 million. Casino
promotional allowances amounted to $4.1 million resulting in total net revenues
of $69.9 million. Revenues continue to be below the level necessary to satisfy
our liquidity needs. Despite the deferrals under certain of our contractual
agreements as discussed below under "Liquidity and Capital Resources," our
obligations, including the $100 million minimum annual payment required under
our casino operating contract, continue to exceed revenues on a monthly basis.
11
<PAGE> 13
Prior to the opening of the casino in October 1999, our revenues of
approximately $93,000 during the three months ended September 30, 1999, included
rental income generated primarily by the parking facilities located on our
properties.
Operating Expenses. For the three months ended September 30, 2000, we
incurred casino expenses of $54.2 million resulting in a gaming operating profit
of $8.0 million. Gaming operating expenses primarily consist of the minimum
daily payments to the Louisiana Gaming Control Board required under our casino
operating contract with the State of Louisiana, labor costs, player development
and entertainment costs, promotional costs, and security and surveillance
related expenses. The minimum daily payments to the Louisiana Gaming Control
Board totaled $25.2 million of the $54.2 million of casino operating expenses
for the three months ended September 30, 2000. The high fixed cost components
associated with the business, particularly the minimum daily payments of
$274,000 to the Louisiana Gaming Control Board, adversely affect our ability to
generate operating profits and maintain adequate liquidity for ongoing
operations.
For the three months ended September 30, 2000, we incurred food and
beverage operating expenses of $4.2 million resulting in a food and beverage
operating profit of $1.1 million. Food and beverage operating expenses primarily
consist of labor costs and food and beverage raw materials costs. The casino's
food and beverage operations are limited by restrictions imposed by the
Louisiana Gaming Act and the regulations of the Louisiana Gaming Control Board.
For example, the casino is prohibited from offering seated restaurant facilities
with table food services for patrons. However, the casino may offer
cafeteria-style food services for employees and a buffet for patrons with
seating for up to 250 people. In addition, the Louisiana Gaming Control Board
permits the casino to contract with local food preparers to provide food from
kiosks in specific locations on the gaming floor.
For the three months ended September 30, 2000, we incurred retail,
parking and other expenses of $871,000 resulting in retail, parking and other
operating profit of $1.5 million. Retail, parking and other operating expenses
primarily consist of the cost of retail merchandise sold and expenses related to
operating the casino's two parking facilities and providing an employee
cafeteria.
For the three months ended September 30, 2000, we incurred general and
administrative expenses of $24.2 million consisting primarily of City rental
payments, salaries and wages of administrative staff, advertising expenses,
entertainment costs, write-downs of equipment, and legal and professional fees.
For the three months ended September 30, 1999, we incurred general and
administrative expenses of $129,000 consisting of franchise taxes and
compensation expense related to restricted stock awards.
For the three months ended September 30, 2000, and 1999, we incurred
depreciation and amortization expenses of $6.1 million and $371,000,
respectively.
For the three months ended September 30, 1999, we incurred pre-opening
expenses of $10.9 million consisting primarily of salaries and wages, legal and
professional fees, costs incurred to recruit employees to work in the casino and
pre-opening marketing expenses.
Other Income (Expense). For the three months ended September 30, 2000,
we incurred interest charges of $11.8 million. Prior to October 28, 1999, we
capitalized all interest charges. For the three months ended September 30, 1999,
we capitalized approximately $7.9 million of interest expense incurred on
outstanding indebtedness.
For the three months ended September 30, 2000, and 1999, we generated
interest income of $83,000 and $61,000, respectively, attributable primarily to
overnight repurchase investments of balances in our operating and capital
reserve accounts.
12
<PAGE> 14
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Total Net Revenues. For the nine months ended September 30, 2000, we
generated casino revenue of $185.1 million, food and beverage revenue of $15.3
million, and retail, parking and other revenue of $7.2 million. Casino
promotional allowances amounted to $10.7 million resulting in total net revenues
of $196.9 million. Revenues continue to be below the level necessary to satisfy
our liquidity needs. Despite the deferrals under certain of our contractual
agreements, as discussed below under "Liquidity and Capital Resources," our
obligations, including the $100 million minimum annual payment required under
our casino operating contract, continue to exceed revenues on a monthly basis.
Prior to the opening of the casino in October 1999, our revenues of
approximately $103,000 during the nine months ended September 30, 1999, included
rental income generated primarily by the parking facilities located on our
properties.
Operating Expenses. For the nine months ended September 30, 2000, we
incurred casino expenses of $161.8 million resulting in a gaming operating
profit of $12.6 million. Gaming operating expenses primarily consist of the
minimum daily payments to the Louisiana Gaming Control Board required under our
casino operating contract with the State of Louisiana, labor costs, player
development and entertainment costs, promotional costs, and security and
surveillance related expenses. The minimum daily payments to the Louisiana
Gaming Control Board totaled $75.1 million of the $161.8 million of casino
operating expenses for the nine months ended September 30, 2000. The high fixed
cost components associated with the business, particularly the minimum daily
payments of $274,000 to the Louisiana Gaming Control Board, adversely affect our
ability to generate operating profits and maintain adequate liquidity for
ongoing operations.
For the nine months ended September 30, 2000, we incurred food and
beverage operating expenses of $11.9 million resulting in a food and beverage
operating profit of $3.4 million. Food and beverage operating expenses primarily
consist of labor costs and food and beverage raw materials costs. The casino's
food and beverage operations are limited by restrictions imposed by the Gaming
Act and the regulations of the Louisiana Gaming Control Board. For example, the
casino is prohibited from offering seated restaurant facilities with table food
services for patrons. However, the casino may offer cafeteria-style food
services for employees and a buffet for patrons with seating for up to 250
people. In addition, the Louisiana Gaming Control Board permits the casino to
contract with local food prepares to provide food from kiosks in specific
locations on the gaming floor.
For the nine months ended September 30, 2000, we incurred retail,
parking and other expenses of $3.0 million resulting in retail, parking and
other operating profit of $4.2 million. Retail, parking and other operating
expenses primarily consist of the cost of retail merchandise sold and expenses
related to operating the casino's two parking facilities and providing an
employee cafeteria.
For the nine months ended September 30, 2000, we incurred general and
administrative expenses of $65.4 million consisting primarily of City rental
payments, salaries and wages of administrative staff, advertising expenses,
entertainment costs, write-downs of equipment, and legal and professional fees.
For the nine months ended September 30, 1999, we incurred general and
administrative expenses of $297,000 consisting of franchise taxes and
compensation expense related to restricted stock awards.
13
<PAGE> 15
For the nine months ended September 30, 2000, and 1999, we incurred
depreciation and amortization expenses of $19.6 million and $778,000,
respectively.
For the nine months ended September 30, 1999, we incurred pre-opening
expenses of $20.0 million consisting primarily of salaries and wages, legal and
professional fees, costs incurred to recruit employees to work in the casino and
pre-opening marketing expenses.
Other Income (Expense). For the nine months ended September 30, 2000,
we incurred interest charges of $33.6 million. Prior to October 28, 1999, we
capitalized all interest charges. For the nine months ended September 30, 1999,
we capitalized approximately $19.0 million of interest expense incurred on
outstanding indebtedness.
For the nine months ended September 30, 2000 and 1999, we generated
interest income of $295,000 and $296,000, respectively, attributable primarily
to overnight repurchase investments of balances in our operating and capital
reserve accounts.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources for construction projects. From October 30, 1998
until the casino's opening on October 28, 1999, our principal capital
requirements related to constructing the casino. As of September 30, 2000,
although the casino's construction was complete, all construction and
pre-opening invoices had not yet been paid. Based on construction contracts and
purchasing documents, we anticipate that the remaining unpaid costs of
completing the casino project will be approximately $3.5 million, including
$900,000 in hard construction costs and $2.6 million for gaming equipment and
supplies, pre-opening costs and unresolved creditor claims from the bankruptcy.
On October 26, 2000, we received the final decision from the American
Arbitration Association regarding our dispute with the general contractor over
certain final construction costs, and on October 27, 2000, we paid approximately
$661,000 to the general contractor in settlement of that dispute. As of
September 30, 2000, $2.5 million had been funded into escrow to cover final
construction costs, including but not limited to the arbitrated amounts.
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) were derived from a combination of the $15
million new equity investment from Harrah's Crescent City Investment Company
made in connection with Harrah's Jazz Company's reorganization, the $211.5
million of term loans under our credit agreement, the $22.5 million under our
junior subordinated credit facility and the issuance of approximately $27.3
million of convertible junior subordinated debentures, all of which had been
funded as of September 30, 2000. In addition, to finance the loading of the
casino's slot machines with approximately $6 million in coins, in a sale and
leaseback transaction on October 20, 1999, we sold 1,085 of our slot machines to
a subsidiary of Harrah's Entertainment, Inc. This subsidiary is leasing the slot
machines back to us, and we used the proceeds from the sale to fill the slot
machines with coins. Further, we estimate that we will have borrowed
approximately $6 million under the completion loan agreement with Harrah's
Entertainment and Harrah's Operating Company pursuant to their completion
guarantees to fund the balance of approximately $3.5 million in construction and
pre-opening costs, to the extent they have not previously been funded and
escrowed. As of November 10, 2000, we had borrowed $5.1 million of the
anticipated $6 million.
Working capital for operations. For the nine months ended September 30,
2000, we experienced operating losses before depreciation and amortization of
approximately $45.3 million. A number of our contractual agreements contain
provisions that allow us to defer payment of certain operating expenses to help
absorb these initial operating losses. Despite these deferrals, our obligations
continue to exceed our revenues on a monthly basis. A description of the various
deferral arrangements follows.
14
<PAGE> 16
We have the option to pay the first six semi-annual payments of fixed
interest on our senior subordinated notes with contingent payments in kind
rather than in cash. We also have the option of paying the interest on our
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 we do not make contingent payments with respect to our senior
subordinated contingent notes on the immediately preceding interest payment date
for the senior subordinated contingent notes.
In addition, the scheduled quarterly repayments under our credit
agreement with the banks will be deferred for any of the first six semi-annual
interest payment periods if we pay interest on our senior subordinated notes
with contingent payments in kind and Harrah's New Orleans Management Company,
the manager of our casino, has deferred its fees under the terms of its
management agreement with us and its agreement to provide us a minimum payment
guaranty to the State of Louisiana as required by the casino operating contract.
During 1999, we paid the first and second interest payments on our
senior subordinated notes with contingent payments and convertible junior
subordinated debentures in kind rather than in cash, which amounted to $11.7
million and $2.3 million, respectively. In May, 2000, we paid interest in kind
rather than in cash on both of these obligations, which amounted to $6.0 million
and $1.2 million, respectively. We estimate that for at least the next twelve
months interest on the senior subordinated notes and the convertible junior
subordinated debentures will be paid in kind rather than in cash. We have
deferred an aggregate of $5.2 million in principal repayments under our credit
agreement that were scheduled to be paid on July 31, 2000 and October 31, 2000,
in accordance with the terms of that agreement.
No fixed interest is payable on our senior subordinated contingent
notes. Contingent payments with respect to our senior subordinated notes with
contingent payments and our senior subordinated contingent notes, to the extent
they are due and owing, are payable on each interest payment date based on the
Contingent Payment Measurement Amount, as such term is defined in the indentures
governing these notes. For the three months ended September 30, 2000 and 1999,
the Contingent Payment Measurement Amount was negative $12.4 million and
$71,000, respectively. During these same periods, our Consolidated EBITDA, as
such term is defined in the indentures governing our senior subordinated notes
with contingent payments and our senior subordinated contingent notes, was
negative $12.4 million and $71,000 respectively. During these periods, no
contingent payments were accrued or were paid on either the senior subordinated
notes with contingent payments or the senior subordinated contingent notes.
Additionally, in accordance with the terms of the applicable agreement,
we are deferring the following amounts owed to Harrah's Entertainment or its
subsidiaries:
o interest payments under our junior subordinated credit facility and
our completion loan agreement;
o credit enhancement fees payable as consideration for the guaranty that
they have agreed to provide with respect to certain amounts
outstanding under our bank credit agreement;
o fees under the HET/JCC agreement relating to our minimum payment
guaranty agreement; and
o management fees under our management agreement with Harrah's New
Orleans Management Company.
As of September 30, 2000, $17.5 million has been deferred under these contracts
and is owed to Harrah's Entertainment or its subsidiaries.
15
<PAGE> 17
On February 29, 2000, we entered into a limited forbearance agreement
with Harrah's New Orleans Management Company and Harrah's Operating Company,
which was subsequently amended on August 31, 2000. Under this amendment to the
forbearance agreement, Harrah's Operating Company and Harrah's New Orleans
Management Company each agreed to forbear until April 1, 2001, the payment of
the following additional items that we owe or which become due prior to April 1,
2001:
o rent and certain additional charges with respect to certain equipment
used at the casino that we lease from Harrah's Operating Company;
o fees with respect to certain administrative services that Harrah's
Operating Company provides us under an administrative services
agreement; and
o certain costs, expenses and services for which we are required to
reimburse Harrah's New Orleans Management Company under our management
agreement.
As of September 30, 2000, we had deferred a total of $14.2 million of
payments to Harrah's New Orleans Management Company or Harrah's Operating
Company under the limited forbearance agreement. If Harrah's New Orleans
Management Company and Harrah's Operating Company do not extend the forbearance
period on the balance due as of April 1, 2001 and continue to defer the payment
of the amounts due under the administrative services agreement and the
reimbursable costs under the management agreement beyond April 1, 2001, we will
need to obtain additional financing to fund the repayment of these amounts and
to fund payment of all our non-deferrable operating expenses as they come due.
We cannot assure you that we will be able to obtain additional financing or that
we will be able to obtain additional financing on terms that are acceptable to
us.
Under our credit agreement, we also have up to $25 million available
for working capital purposes under our revolving line of credit which has been
used to partially cover operating losses. As of September 30, 2000, the
outstanding balance under the revolving line of credit was $7.3 million,
including outstanding letters of credit of $1.8 million. Our credit agreement
requires that we satisfy certain EBITDA maintenance requirements on a quarterly
basis. We did not meet the required EBITDA test for the quarter ended June 30,
2000. However, at our request, the bank lenders under the credit agreement
granted a temporary waiver of our failure to comply with this covenant. That
waiver, which also placed a temporary limit on our revolver borrowing, expired
on August 31, and was replaced with an amendment to our credit agreement as
discussed below.
Under the HET/JCC agreement, advances by Harrah's Entertainment and
Harrah's Operating Company under the minimum payment guaranty constitute a
demand obligation of JCC and are secured by first priority liens on our assets.
Under the terms of the minimum payment guaranty, on February 29, 2000, upon
notice by the Louisiana Gaming Control Board that we had failed to make a daily
payment, Harrah's Operating Company, Inc., began making the minimum daily
payments of approximately $274,000 due to the Louisiana Gaming Control Board
under the terms of our casino operating contract. As of September 30, 2000,
Harrah's Entertainment and Harrah's Operating Company had advanced $40 million
to the Louisiana Gaming Control Board on our behalf under the minimum payment
guaranty. The principal balance outstanding bears interest at The London
Interbank Offered Rate ("LIBOR") plus 1% (8.0% as of September 30, 2000).
Because funding under the minimum payment guaranty (and any subsequent minimum
payment guaranty) could constitute a default under our credit agreement with
the banks if our reimbursement obligation to Harrah's Entertainment and
Harrah's Operating Company in connection therewith exceeds $5 million, our bank
lenders granted us a limited waiver of the default subject to the following
conditions:
16
<PAGE> 18
o Harrah's Entertainment and Harrah's Operating Company agree to renew
their minimum payment guaranty for the full fiscal year beginning
April 1, 2000 through March 31, 2001;
o with respect to the $40 million that Harrah's Entertainment and
Harrah's Operating Company paid to the Louisiana Gaming Control Board
on our account under the minimum payment guaranty, they will not
demand repayment of, and we may not repay, the principal or accrued
interest owed on the principal, until, at the earliest, March 31,
2001;
o the principal amount of un-reimbursed payment obligations under this
agreement to Harrah's Entertainment and Harrah's Operating Company may
not exceed $40 million without additional lender waivers; and
o the waiver is terminated when Harrah's Entertainment or Harrah's
Operating Company demands repayment of the principal and accrued
interest on the advances under the minimum payment guaranty.
As of September 30, 2000, these conditions were met.
On July 20, 2000, funding under the minimum payment guaranty reached
$40 million, at which time we resumed making the daily payments directly to the
Louisiana Gaming Control Board because of the bank imposed $40 million limit.
However, based on the current financial condition of the Company, we may not be
able to make the minimum payment to the Louisiana Gaming Control Board and
advances under the minimum payment guaranty will likely need to exceed $40
million.
On August 31, 2000, we entered into the Amendment to Credit Agreement;
Modifications to Third Waiver and Related Documents; Amendment to Manager
Subordination Agreement; and Other Agreements Amongst the Parties. The terms of
this agreement provide for the following amendments and modifications to certain
of our existing agreements:
o The agreement (1) amends our credit agreement to, among other things,
change the EBITDA maintenance requirements with which we are required to comply
through the quarter ended December 31, 2000; (2) subject to certain limitations,
re-establishes our $25 million revolving line of credit; (3) grants additional
waivers to allow Harrah's Entertainment, Inc. and Harrah's Operating Company to
advance up to an additional $10 million for a total of $50 million under their
minimum payment guaranty of the $100 million minimum annual payment that we are
required to pay to the Louisiana Gaming Control Board under our casino operating
contract, subject to certain limitations, including the requirement that we must
first borrow all of the $25 million available under our revolving line of credit
before additional amounts may be advanced under the minimum payment guaranty;
and (4) extends until February 28, 2001, the date by which a notice by Harrah's
Entertainment, Inc. to the banks or the Louisiana Gaming Control Board that the
minimum payment guarantee will not be extended, will constitute an event of
default.
o The agreement amends our limited forbearance agreement (as discussed
above) with Harrah's New Orleans Management Company and Harrah's Operating
Company to permit us to continue to forbear until April 1, 2001, the payment of
certain amounts, including amounts presently due and becoming due under the
administrative services agreement, reimbursable costs due under our management
agreement and the rent and certain additional charges with respect to certain
equipment that we lease from Harrah's Operating Company. The previous expiration
date of the forbearance agreement had been August 31, 2000.
o Harrah's Operating Company, Inc. purchased from our bank lenders
approximately $145.5 million of our present obligations to the bank lenders,
which it had previously guaranteed under the Guaranty and Loan Purchase
Agreement, and agreed to provide the funding for the balance of our $25 million
revolving line of credit as it is drawn from the banks.
17
<PAGE> 19
On July 24, 2000, in accordance with Section 9.5 of the Amended and
Renegotiated Casino Operating Contract with the State of Louisiana, Harrah's New
Orleans Management Company and we submitted a Certificate establishing
compliance with the requirements of Section 9.5(a) through 9.5(d) of the casino
operating contract relating to the maintenance of a casino bankroll, the
performance and payment of operating expenses, the performance and payment of
debt obligations and the payment of capital maintenance expenses.
On September 27, 2000, we received a notice from the Louisiana Gaming
Control Board that we are in default of Section 9.5(c) of the Amended and
Renegotiated Casino Operating Contract dated October 30, 1998, with the State of
Louisiana.
The Gaming Control Board informed us of the Board's determination that
we have failed, as required by the casino operating contract, to demonstrate by
clear and convincing evidence that we have the continuing ability to pay,
exchange, refinance or extend debt that will mature or otherwise become due and
payable during the twelve month period commencing on July 1, 2001, primarily due
to the lack of a minimum payment guarantor for the period beyond March 31,
2001. See below for a discussion regarding the renewal of the minimum payment
guarantee. Pursuant to the casino operating contract, we have six months after
receipt of the Board's notice, or until March 27, 2001, to cure such a default.
In order to address timely the Board's finding of default and provide
for continued operations, we believe it will be necessary to implement a
significant restructuring of our arrangements with our securities holders, our
lenders, Harrah's Entertainment, Inc., Harrah's Operating Company, Harrah's New
Orleans Management Company (the manager of the casino and a wholly controlled
affiliate of Harrah's Entertainment, Inc.), the State of Louisiana, and other
parties to whom we have contractual or legal obligations.
We have commenced discussions with these parties and will expand those
discussions to include other parties as required to attempt the necessary
restructuring. We expect such negotiations to be ongoing for the foreseeable
future. We believe that if we do not obtain significant economic concessions
from numerous parties, it is likely that we will not be able to address the
Board's findings or to assure continued operations as a viable business. In
particular, we believe one of the necessary concessions will be a substantial
reduction, authorized by the Louisiana legislature, in our $100 million minimum
payment obligation to the State of Louisiana under the terms of our casino
operating contract with the State.
While our efforts to obtain the necessary concessions are underway, no
assurance can be given that we may be successful in such efforts. Even if such
concessions can be obtained, it is possible that they may need to be implemented
through a bankruptcy proceeding.
Under the present circumstances and based on financial results to date,
we do not believe that under the HET/JCC Agreement Harrah's Entertainment and
Harrah's Operating Company will be required to renew the minimum payment
guaranty on March 31, 2001. The casino operating contract requires that the
minimum daily payments to the State of Louisiana be guaranteed for each year
beginning on April 1 of the year that the casino is open and if there is no
guaranty the casino operating contract is deemed automatically terminated. At
this time, it appears unlikely that any third party, including Harrah's
Entertainment, will post the April 1, 2001, through March 31, 2002 guaranty,
unless and until there is a reduction of the $100 million minimum annual payment
due to the Louisiana Gaming Control Board under our casino operating contract,
along with other changes to our capital and debt structure. If we cannot find a
guarantor on satisfactory terms, our business, financial condition and results
of operations will be materially and adversely affected because the casino
operating contract provides that it will terminate (with no cure period),
including any rights to operate the casino. For a more detailed description of
Harrah's Entertainment's minimum payment guaranty, certain conditions under
which the minimum
18
<PAGE> 20
payment guaranty may be terminated, and the consequences if we are unable to
find a substitute guarantor on satisfactory terms, refer to our Annual Report on
Form 10-K for the year ended December 31, 1999, under the headings "Factors
Affecting Future Performance--Jazz Casino May Not be Able to Renew its Minimum
Payment Guaranty" and "The Company May Not be Able to Service its Significant
Debt and Other Payment Obligations."
Absent restructuring, unless each of the following events occurs, we
will not have sufficient liquidity to satisfy our financial obligations,
including capital expenses and working capital for operations beyond March 31,
2001:
o a minimum payment guaranty is timely posted in accordance with the
terms of the casino operating contract on or before March 31, 2001 for
the period from April 1, 2001 to March 31, 2002;
o the minimum payment guarantor under the April 1, 2001 through March
31, 2002 guaranty continues to make daily payments;
o the minimum payment guarantor continues to defer repayment by us of
monies advanced to pay the daily payment;
o there is no declaration of default in any of our agreements; and
o Harrah's New Orleans Management Company and Harrah's Operating Company
continue to forbear the collection of the rent, fees and other items
agreed to in their limited forbearance agreement with us.
We cannot assure you that any of these events will occur, nor can we assure you
that the Louisiana Gaming Control Board will not take regulatory actions prior
to March 31, 2001, which might prohibit or limit our ability to continue gaming
operations based on the Company's financial condition.
We cannot assure you that required lender waivers or additional
financing will be available to us, or that, if available; the financing will be
on favorable terms. As a result, any such funding under the minimum payment
guarantee beyond the $50 million level currently permitted under the existing
waivers by our lenders will constitute a default under our credit agreement.
If Harrah's New Orleans Management Company and Harrah's Operating
Company do not continue to forbear the payment of the items covered by the
forbearance agreement beyond April 1, we will need to obtain additional
financing to fund the repayment of amounts that Harrah's New Orleans Management
Company and Harrah's Operating Company agreed to forbear under their limited
forbearance agreement and to fund payment of all our non-deferrable operating
expenses as they come due. If we cannot obtain additional financing to fund such
expenses, our failure to pay such expenses may trigger events of default under
certain other agreements to which we are a party, including our credit
agreement, our casino operating contract, the indentures governing our senior
subordinated notes with contingent payments, our senior subordinated contingent
notes, and the agreement pursuant to which Harrah's Entertainment and Harrah's
Operating Company have agreed to guarantee our $100 million payment to the State
of Louisiana. An event of default under any of these agreements could materially
and adversely affect our business, financial condition and results of operations
by, among other things, resulting in our closing the casino and/or causing the
entire indebtedness under our credit agreement and our notes to become
immediately due and payable. In addition, we cannot assure that our estimate of
our 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.
19
<PAGE> 21
In view of the uncertainties relating to the future of the casino, we
have engaged the services of the investment banking firm Jefferies & Company,
Inc., to assist us in evaluating the means by which we may attempt to
restructure our financial obligations and, as a result, possibly continue
operations. We have begun discussions with the holders of our senior
subordinated notes with contingent payments and our senior subordinated
contingent notes, our bank lenders under our credit agreement and Harrah's
Entertainment to discuss adjustments to our operating expenses, debt and capital
structure to restructure our financial obligations and, as a result, continue
operations. The evaluation by Jefferies & Company has determined the need to
restructure the $100 million annual minimum payment to the State required under
our operating contract, as that payment, by itself and apart from our other
obligations, materially and fundamentally affects our financial viability. We
cannot assure you that we will be successful in our efforts to obtain
adjustments to our operating expenses, debt and capital structure or that there
will be a reduction in the $100 million payment due to the Louisiana Gaming
Control Board under our casino operating contract.
On September 20, 2000, The Mayor of the City of New Orleans appointed
the Casino Tax Advisory Committee. The eighteen-member citizen's committee was
charged by the Mayor to study various issues related to the casino, including,
but not limited to, the tax burden on the casino and other financial issues
related to the long-term viability of the casino.
The Committee held three meetings during the week beginning on October
16, 2000 to accept comments and information from numerous participants. The
Committee is currently scheduled to meet again on November 13, 2000 to accept
additional information.
It is anticipated that the Committee will issue a report to the Mayor
on or before November 20, 2000. It is also anticipated that the Committee's
report will be presented to various Committees of the Louisiana legislature and
other interested parties.
Capital expenditures. Pursuant to our amended and restated ground lease
with the Rivergate Development Corporation and the City of New Orleans, our
management agreement with Harrah's New Orleans Management Company and our casino
operating contract, we have established a capital replacement fund to fund the
capital expenditures necessary to operate the casino. We are contractually
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
casino's opening, $4 million for the second 12 months following the casino's
opening, $5 million for the third 12 months following the casino's opening, and
2% of the gross revenues of the casino for each fiscal year thereafter. As of
September 30, 2000, we had deposited $2.5 million into the interest-bearing
capital reserve account and expended approximately $1.4 million.
Capital resources for development activities. In addition to the gaming
related entertainment offered at the casino, as funding and circumstances may
permit, we plan to develop additional real estate in New Orleans for
entertainment uses that support the casino. The second floor of our casino was
constructed to the point at which the shell of the structure was complete when
the casino opened in October 1999. The casino's second floor was planned to
ultimately consist of approximately 130,000 square feet of multipurpose
non-gaming entertainment space.
We have spent approximately $1.6 million through September 30, 2000
towards developing a master plan for the build out and leasing of the second
floor of the casino for non-gaming uses and for construction-related work that
needed to take place on the second floor of the casino prior to opening the
casino in order to prevent disruption to the casino's gaming operations. We have
arranged to borrow up to $2 million from a subsidiary of Harrah's Entertainment
to fund these items. Borrowings under this loan bear interest at 9% per year,
and, at our option, may be paid in cash or in kind. Principal and interest under
this loan must be paid out of the permanent financing ultimately obtained for
the completion of the
20
<PAGE> 22
second floor of the casino. As of September 30, 2000, we had borrowed $1.6
million under this loan. We presented a preliminary master plan governing the
use of the second floor of the casino to the City of New Orleans on February 22,
2000 and are currently considering alternatives for financing of the remainder
this development. Without additional financing, we will be unable to build-out
and develop the second floor of the casino. We have not obtained financing to
fund these developments, and do not expect to obtain such funding if ever,
unless and until we restructure our contractual obligations.
We also own the city block of historical buildings across the street
from the casino and its garages, which we have planned to develop into other
entertainment uses that support the casino. At this time, we have not completed
our plans and have not obtained financing for this development. We do not expect
to obtain such financing if ever, unless and until we restructure our
contractual obligations.
We also own the parcel of land across from the casino located at 3
Canal Place, adjacent to the Canal Place Shopping Center. On February 14, 2000,
we entered into a contract to sell this property to Wyndham International, a
hotel developer for $6.5 million. As a condition to this sale, Wyndham must
begin construction of a hotel (300 room minimum) within two years of closing or
we will have the option to repurchase the property for $6.5 million plus
interest on the purchase price equal to 7% per year. We are currently evaluating
alternatives for the use of the proceeds generated from this sale. The sale is
contingent upon obtaining certain third party approvals and Wyndham
International completing its due diligence. Because the sale of the 3 Canal
Place property would violate certain of the covenants under our credit
agreement, among the required third party approvals, we must obtain certain
waivers and consents of the lenders under the credit agreement to sell the
property to Wyndham International. As a result, the sales contract was amended
to extend the diligence period to June 30, 2001 to allow us additional time to
obtain the necessary waivers and consents.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in trading market risk sensitive instruments. We also
do not purchase, for investment, hedging or for purposes "other than trading,"
instruments that are likely to expose us to market risk, whether interest rate,
foreign currency exchange, commodity price or equity price risk, except as
discussed in the following paragraph. We have not entered into any forward or
futures contracts, purchased any options or entered into any swaps. We have no
foreign operations and currently do not deal in foreign currencies. Thus, we do
not believe that we have any material exposure to foreign currency exchange rate
risk.
We have a significant amount of indebtedness, which accrues interest at
fixed and variable rates. As of September 30, 2000, the aggregate amount of our
outstanding indebtedness was $516.6 million, of which $251.5 million accrued
interest at variable rates and $265.1 million accrued interest at fixed rates.
The interest rate of our variable rate indebtedness will fluctuate with changes
in the base rate and the LIBOR rate applicable under our credit agreement. A
change in either the base rate or LIBOR under our 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 our financial position and results of
operations. For example, a 50 basis point movement in interest rates would
result in an approximate $1.3 million annualized increase or decrease in
interest expense based on the outstanding balance of our variable rate
indebtedness as of September 30, 2000.
21
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits either (i) are filed herewith or (ii) have
previously been filed with the Securities and Exchange Commission and are
incorporated herein by reference to such prior filings. Previously filed
registration statements and reports which are incorporated herein by reference
are identified in the column captioned "SEC Document Reference." The Company
will furnish any exhibit upon request to L. Camille Fowler, Vice President -
Finance, Treasurer and Secretary of the Company, One Canal Place, 365 Canal
Street, Suite 900, New Orleans, Louisiana 70130. There is a charge of $.50 per
page to cover expenses of copying and mailing.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
3.01 Certificate of Incorporation of JCC Holding Company 1-12095
Exhibit 3.02 to Pre-Effective Amendment No.
2 to JCC Holding Company's Registration
Statement on Form 10
3.02 Second Amended and Restated Bylaws of JCC Holding 1-12095
Company Exhibit 3.05 to Pre-Effective Amendment No.
2 to JCC Holding Company's Registration
Statement on Form 10
3.03 Amendment No. 1 to Second Amended and Restated Bylaws 1-12095
of JCC Holding Company Exhibit 3.03 to JCC
Holding Company's Annual Report on
Form 10-K for the Year Ended
December 31, 1998
27.01 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K.
(1) On August 22, 2000, we filed a Current Report on Form 8-K filing a Waiver to
the Credit Agreement, dated August 18, 2000, by and among JCC Holding Company,
Jazz Casino Company, L.L.C., various lending institutions party to the Credit
Agreement and Bankers Trust Company, as Administrative Agent. The date of the
earliest event reported was August 18, 2000.
(2) On September 1, 2000, we filed a Current Report on Form 8-K filing an
Amendment to Credit Agreement; Modifications to Third Waiver and Related
Documents; Amendment to Manager Subordination Agreement; and other agreements
among the parties, dated as of August 31, 2000, among Harrah's Entertainment,
Inc., Harrah's Operating Company, Inc., Harrah's New Orleans Management Company,
JCC Holding Company, Jazz Casino Company, L.L.C., various lending institutions
party to the Credit Agreement referred to below and Bankers Trust Company, as
Administrative Agent. The date of the earliest event reported was August 31,
2000.
(3) On October 6, 2000, we filed a Current Report on Form 8-K filing a Letter
from the Louisiana Gaming Control Board to Jazz Casino Company, LLC dated
September 27, 2000, and a Resolution of the Louisiana Gaming Control Board dated
September 19, 2000, both of which noted that Jazz Casino is in default of
section 9.5(c) of the Amended and Renegotiated Casino Operating Contract dated
October 30, 1998, between the State of Louisiana and Jazz Casino. The date of
the earliest event reported was September 27, 2000.
22
<PAGE> 24
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.
JCC HOLDING COMPANY
Date: November 10, 2000 By: /s/ FREDERICK W. BURFORD
-------------------------------
Frederick W. Burford, President
(Principal Executive Officer of
the Registrant)
Date: November 10, 2000 By: /s/ L. CAMILLE FOWLER
-------------------------------
L. Camille Fowler, Vice
President-Finance, Treasurer and
Secretary (Principal Financial
Officer and Principal Accounting
Officer of the Registrant)
23
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
3.01 Certificate of Incorporation of JCC Holding Company 1-12095
Exhibit 3.02 to Pre-Effective Amendment No.
2 to JCC Holding Company's Registration
Statement on Form 10
3.02 Second Amended and Restated Bylaws of JCC Holding 1-12095
Company Exhibit 3.05 to Pre-Effective Amendment No.
2 to JCC Holding Company's Registration
Statement on Form 10
3.03 Amendment No. 1 to Second Amended and Restated Bylaws 1-12095
of JCC Holding Company Exhibit 3.03 to JCC
Holding Company's Annual Report on
Form 10-K for the Year Ended
December 31, 1998
27.01 Financial Data Schedule (for SEC use only).
</TABLE>
