<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 JUNE 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 August 11, 2000 were 5,783,314 and 4,452,623,
respectively.
<PAGE> 2
JCC HOLDING COMPANY AND SUBSIDIARIES
JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD- 2
LOOKING STATEMENTS
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 (Unaudited) 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 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 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 23
</TABLE>
<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 under the minimum payment guaranty from Harrah's Entertainment, Inc.
and Harrah's Operating Company, Inc., possibly exceeding $40 million before
December 31, 2000, (4) the likelihood of Harrah's Entertainment, Inc., and
Harrah's Operating Company renewing the minimum payment guaranty on March 31,
2001, (5) Harrah's Entertainment, Inc., or its subsidiaries agreeing to continue
to forbear after December 31, 2000, 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 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 written or oral 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
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes restricted
cash of $4,243 and $6,382, respectively) $ 22,964 $ 34,687
Accounts receivable, net of allowance for doubtful
accounts of $762 and $228, respectively 3,554 3,177
Inventories 490 354
Prepaids and other assets 2,395 2,760
--------- ---------
Total current assets 29,403 40,978
--------- ---------
Property and Equipment:
Buildings on leased land 306,656 306,129
Furniture, fixtures and equipment 43,892 43,634
Property held for development 10,615 10,138
Construction in progress 702 151
--------- ---------
Total 361,865 360,052
Less - accumulated depreciation (15,416) (4,179)
--------- ---------
Net property and equipment 346,449 355,873
--------- ---------
Other Assets:
Deferred operating contract cost, net of accumulated
amortization of $1,882 and $494, respectively 66,794 68,182
Lease prepayment, net of accumulated
amortization of $470 and $124, respectively 16,515 16,861
Deferred charges and other, net of accumulated
amortization of $1,030 and $421, respectively 19,806 19,677
Property available for sale 4,831 4,831
--------- ---------
Total other assets 107,946 109,551
--------- ---------
Total Assets $ 483,798 $ 506,402
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 250 $ 15,850
Current portion of long-term debt 211,500 --
Accounts payable - trade 2,481 2,012
Accrued interest 6,442 2,081
Accrued expenses 13,287 20,791
Due to affiliates 44,029 4,648
Preconfirmation contingencies 2,207 3,033
Other 1,904 2,009
--------- ---------
Total current liabilities 282,100 50,424
--------- ---------
Long-term debt (including debt to affiliates of $27,862 and $23,704, respectively) 170,541 368,222
Deferred income taxes 37,900 37,900
Due to affiliates 14,298 4,302
Other long-term liabilities 169 --
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; 5,783 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 108,736 108,538
Accumulated deficit (129,692) (62,817)
Less - unearned compensation (357) (268)
--------- ---------
Total stockholders' equity (deficit) (21,210) 45,554
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 483,798 $ 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Casino $ 60,265 $ -- $ 118,760 $ --
Food and beverage 4,978 -- 9,991 --
Retail, parking and other 2,572 4 4,770 10
Less - casino promotional allowances (3,501) -- (6,591) --
------------ ------------ ------------ ------------
Total net revenues 64,314 4 126,930 10
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Direct:
Casino 52,552 -- 107,632 --
Food and beverage 3,867 -- 7,717 --
Retail, parking and other 967 -- 2,124 --
General and administrative 20,399 129 41,240 168
Depreciation and amortization 7,602 236 13,499 407
Pre-opening expenses -- 6,336 -- 9,121
------------ ------------ ------------ ------------
Total operating expenses 85,387 6,701 172,212 9,696
------------ ------------ ------------ ------------
OPERATING LOSS (21,073) (6,697) (45,282) (9,686)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest (11,138) -- (21,805) --
Interest and other income 86 70 212 235
------------ ------------ ------------ ------------
Total other income (expense) (11,052) 70 (21,593) 235
------------ ------------ ------------ ------------
NET LOSS $ (32,125) $ (6,627) $ (66,875) $ (9,451)
============ ============ ============ ============
BASIC NET LOSS PER SHARE $ (3.16) $ (0.66) $ (6.60) $ (0.94)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 10,164,234 10,054,692 10,127,585 10,027,497
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(66,875) $( 9,451)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 13,499 407
Amortization of note discount 2,515 --
Amortization of unearned compensation 110 77
Deferred rent 847 --
Provision for bad debts 564 --
Changes in operating assets and liabilities:
Accounts receivable (941) --
Inventories (136) --
Prepaids and other assets 365 (1,147)
Accounts payable - trade 469 (594)
Accrued interest 11,507 (2,425)
Accrued expenses (7,504) 2,949
Preconfirmation contingencies (826) (1,688)
Due to affiliates 14,113 (120)
Other current liabilities (105) --
-------- -------
Net cash flows used in operating activities (32,398) (11,992)
-------- -------
Cash Flows From Investing Activities:
Capital expenditures (1,747) (82,084)
Proceeds from sale of property -- 42
Increase in deferred charges and other assets (657) (4,435)
-------- -------
Net cash flows used in investing activities (2,404) (86,477)
-------- -------
Cash Flows From Financing Activities:
Net repayments of short-term borrowings (15,600) --
Proceeds from notes payable to affiliates 38,679 --
Proceeds from long-term borrowings -- 82,500
-------- -------
Net cash flows provided by financing activities 23,079 82,500
-------- -------
Net decrease in cash and cash equivalents (11,723) (15,969)
Cash and cash equivalents, beginning of period 34,687 25,506
-------- -------
Cash and cash equivalents, end of period $ 22,964 $ 9,537
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 5,522 $ 2,558
Noncash investing and financing activities:
Increase in long-term debt for payment-in-kind interest payments $ 7,146 $ 7,142
Capitalized interest $ 66 $ 11,117
Issuance of restricted stock awards $ 199 $ 464
Amortization of note discount -- $ 1,647
</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. 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.
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 PRONOUNCEMENTS
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. The Company has
not completed the process of evaluating the impact that will result from
adopting SFAS No. 133, as amended by SFAS No. 138. The Company is 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
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 June 30, 2000,
Harrah's Entertainment and Harrah's Operating Company had advanced $34.5 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% (7.13% as of June 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, March 31, 2001.
Based on the current financial condition of the company, 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 $40 million. Any
such funding beyond the $40 million level currently permitted in the existing
waiver 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 $40 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 $40 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 permit advances under the minimum payment
guaranty in excess of $40 million, 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.
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 $5
million to $8 million will be required under the completion guaranty to pay the
remaining costs of completing the project. As of June 30, 2000, the outstanding
balance under the completion loan was $3.8 million.
7
<PAGE> 9
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. Under this forbearance
agreement, Harrah's Operating Company and Harrah's New Orleans Management
Company each initially agreed to forbear until August 1, 2000 certain payments
under the management agreement, the administrative agreement and the master
lease agreement that we owed or which became due prior to August 1, 2000. The
limited forbearance agreement also waives any penalties or late charges assessed
on the deferred payments under these agreements. As of June 30, 2000, we have
deferred approximately $9.8 million related to the payments and fees payable to
Harrah's Operating Company or Harrah's New Orleans Management Company under the
limited forbearance agreement. At our request, Harrah's New Orleans Management
Company and Harrah's Operating Company agreed to extend the forbearance period
for the balance owed as of August 1, 2000, until December 31, 2000. For monthly
amounts that become due between August 1, 2000 and December 31, 2000, they have
agreed to forbear the payment only on amounts due under the master lease
agreement, and will require us to pay currently the approximately $1 million due
monthly under the management and administrative services agreements. If Harrah's
New Orleans Management Company and Harrah's Operating Company do not continue to
forbear the payment of the deferred items beyond December 31, 2000, 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 additional financing or that we will be able to obtain
additional financing 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 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 proceedings and litigation, we do not expect that the final outcome
of these matters will materially and adversely affect our results of operations,
cash flows, or financial condition.
NOTE 5. DEBT
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 the covenant.
The waiver expires August 21, 2000, at 6:00 pm (EDT) and they have imposed a
funding limit of $7 million under our revolving line of credit. We are in
discussions with the bank lenders to adopt new EBITDA maintenance requirements
and to re-establish our $25 million line of credit. We cannot assure you that
our bank lenders will agree to change our EBITDA maintenance requirements or
re-establish our $25 million revolver. Either of such events could result in our
inability to borrow money under our revolving line of credit or an event of
default under our credit agreement. In addition, even if our bank lenders agreed
to change our EBITDA maintenance requirements, due to our significant operating
expenses, we cannot assure you that we will be able to comply with any such new
requirements. See note 6 regarding the classification of the outstanding
principal balance under our credit agreement and cross-acceleration provisions
in our respective debt agreements.
8
<PAGE> 10
NOTE 6. 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
six months ended June 30, 2000, the Company incurred net losses of $32.1 million
and $66.9 million, respectively, and, as of that date, the Company's current
liabilities exceeded its current assets by $252.7 million, and its total
liabilities exceeded its total assets by $21.2 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.
The condensed consolidated financial Statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As described in
Note 5, the Company is not in compliance with provisions of its credit agreement
and, because the lender has only temporarily waived this noncompliance, the
outstanding balance of $211.5 under the credit agreement has been classified as
a current liability. The Senior Subordinated Notes, the Junior Subordinated
Credit Facility, and the Convertible Junior Subordinated Debentures contain
cross acceleration provisions whereby, in the event of a default under the
credit agreement with our bank lenders, which is not cured within the allowed
cure period and is acted upon by the bank lenders, the parties to these
agreements may also accelerate the demand for principal and interest repayments
under these respective agreements. The outstanding principal balances related to
these agreements as of June 30, 2000, was $258.4 million and is reflected in
Long-term debt, net of unamortized note discount. Continued noncompliance of the
provisions under the credit agreement, may require these balances to be
classified as current liabilities in the future.
In view of the uncertainties relating to the future of the casino and
the company, we have engaged the services of the investment banking firm
Jefferies and Company, Inc., to assist us in evaluating the means by which we
can attempt to restructure our financial obligations and, as a result, continue
operations. We will likely begin 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. Undoubtedly these discussions will disclose the need to revisit the
$100 million annual minimum payment to the State required under our operating
contract, as that payment 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.
9
<PAGE> 11
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 six months ended June 30, 2000 are not comparable to our results of
operations for the three and six months ended June 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 JUNE 30, 2000 TO THREE MONTHS ENDED JUNE 30,
1999
Total Net Revenues. For the three months ended June 30, 2000, we
generated casino revenue of $60.3 million, food and beverage revenue of $5.0
million, and retail, parking and other revenue of $2.5 million. Casino
promotional allowances amounted to $3.5 million resulting in total net revenues
of $64.3 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 $4,000 during the three months ended June 30, 1999, included
rental income generated primarily by the parking facilities located on our
property located at 3 Canal Place in New Orleans.
Operating Expenses. For the three months ended June 30, 2000, we
incurred casino expenses of $52.6 million resulting in a gaming operating profit
of $4.2 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 $24.9 million of the $52.6 million for the three-month period
ending June 30, 2000. The high fixed cost component associated with the
business, particularly the minimum daily payments of $274,000 to the Louisiana
Gaming Control Board, adversely affects our ability to generate operating
profits and maintain adequate liquidity for ongoing operations.
10
<PAGE> 12
For the three months ended June 30, 2000, we incurred food and beverage
operating expenses of $3.9 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 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 June 30, 2000, we incurred retail, parking
and other expenses of $1.0 million 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 June 30, 2000, we incurred general and
administrative expenses of $20.4 million consisting primarily of City rental
payments, salaries and wages of administrative staff, advertising expenses,
entertainment costs, and legal and professional fees. For the three months ended
June 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 June 30, 2000, and 1999, we incurred
depreciation and amortization expenses of $7.6 million and $236,000,
respectively.
For the three months ended June 30, 1999, we incurred pre-opening
expenses of $6.3 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 June 30, 2000, we
incurred interest charges of $11.1 million. Prior to October 28, 1999, we
capitalized all interest charges. For the three months ended June 30, 1999, we
capitalized approximately $6.0 million of interest expense incurred on
outstanding indebtedness.
For the three months ended June 30, 2000, and 1999, we generated
interest income of $86,000 and $70,000, respectively, attributable primarily to
overnight repurchase investments of balances in our operating and capital
reserve accounts.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO SIX MONTHS ENDED JUNE 30, 1999
Total Net Revenues. For the six months ended June 30, 2000, we
generated casino revenue of $118.8 million, food and beverage revenue of $10.0
million, and retail, parking and other revenue of $4.8 million. Casino
promotional allowances amounted to $6.6 million resulting in total net revenues
of $127.0 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 $10,000 during the six months ended June 30, 1999, included rental
income generated primarily by the parking facilities located on our property
located at 3 Canal Place in New Orleans.
11
<PAGE> 13
Operating Expenses. For the six months ended June 30, 2000, we incurred
casino expenses of $107.6 million resulting in a gaming operating profit of $4.6
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 $49.9 million of the $107.6 million for the six-month period
ending June 30, 2000. The high fixed cost component associated with the
business, particularly the minimum daily payments of $274,000 to the Louisiana
Gaming Control Board, adversely affects our ability to generate operating
profits and maintain adequate liquidity for ongoing operations.
For the six months ended June 30, 2000, we incurred food and beverage
operating expenses of $7.7 million resulting in a food and beverage operating
profit of $2.3 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 six months ended June 30, 2000, we incurred retail, parking and
other expenses of $2.1 million resulting in retail, parking and other operating
profit of $2.7 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 six months ended June 30, 2000, we incurred general and
administrative expenses of $41.2 million consisting primarily of City rental
payments, salaries and wages of administrative staff, advertising expenses,
entertainment costs, and legal and professional fees. For the six months ended
June 30, 1999, we incurred general and administrative expenses of $168,000
consisting of franchise taxes and compensation expense related to restricted
stock awards.
For the six months ended June 30, 2000, and 1999, we incurred
depreciation and amortization expenses of $13.5 million and $407,000,
respectively.
For the six months ended June 30, 1999, we incurred pre-opening
expenses of $9.1 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 six months ended June 30, 2000, we
incurred interest charges of $21.8 million. Prior to October 28, 1999, we
capitalized all interest charges. For the six months ended June 30, 1999, we
capitalized approximately $11.1 million of interest expense incurred on
outstanding indebtedness.
For the six months ended June 30, 2000 and 1999, we generated interest
income of $212,000 and $235,000, respectively, attributable primarily to
overnight repurchase investments of balances in our operating and capital
reserve accounts.
12
<PAGE> 14
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 June 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 will be approximately $6.5 million, including $2.8 million in hard
construction costs and $3.7 million for gaming equipment and supplies,
pre-opening costs and unresolved creditor claims from the bankruptcy. We are
currently in arbitration with the general contractor who constructed the casino
over a dispute relating to certain final construction costs. This arbitration is
expected to be completed within the next three months. As of June 30, 2000, $2.7
million had been funded and was in 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 June 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 borrow a total amount
ranging from $5 million to $8 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 the approximately $6.5 million in
construction and pre-opening costs, to the extent they have not previously been
funded and escrowed. As of August 11, 2000, we had borrowed $4.7 million of this
amount.
Working capital for operations. For the six months ended June 30, 2000,
we experienced operating losses before depreciation and amortization of
approximately $31.8 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.
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.
13
<PAGE> 15
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 $2.6 million in principal repayments under our credit
agreement that were scheduled to be paid on July 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 June 30, 2000 and 1999, the
Contingent Payment Measurement Amount was negative $13.3 million and negative
$3,000, 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 $13.3 million and negative $45,000, 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 June 30, 2000, $12.8 million has been deferred under these contracts and
is owed to Harrah's Entertainment or its subsidiaries.
On February 29, 2000, we entered into a limited forbearance agreement
with Harrah's New Orleans Management Company and Harrah's Operating Company.
Under this forbearance agreement, Harrah's Operating Company and Harrah's New
Orleans Management Company each initially agreed to forbear until August 1,
2000, the payment of the following additional items that we owe or which become
due prior to August 1, 2000:
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.
14
<PAGE> 16
As of June 30, 2000, we had deferred a total of $9.8 million related to
the payments payable to Harrah's New Orleans Management Company or Harrah's
Operating Company under the limited forbearance agreement. At our request,
Harrah's New Orleans Management Company and Harrah's Operating Company agreed to
extend the forbearance period for the balance owed as of August 1, 2000, until
December 31, 2000. For monthly amounts that become due between August 1, 2000
and December 31, 2000, they have agreed to forbear the payment only on amounts
due under the equipment lease, and will require us to pay the approximately $1
million that is due each month under the administrative services agreement and
the reimbursable costs under the management 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 August 1, 2000 and continue to defer the payment
of the amounts due under the administrative services agreement and the
reimbursable costs under the management agreement beyond December 31, 2000, 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 June 30, 2000, the outstanding
balance under the revolving line of credit was $2.1 million, including
outstanding letters of credit of $1.9 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 the covenant. The waiver expires August 21,
2000, at 6:00 pm (EDT)and they have imposed a funding limit of $7 million under
our revolving line of credit. We are in discussions with the bank lenders to
adopt new EBITDA maintenance requirements and to re-establish our $25 million
line of credit. We cannot assure you that our bank lenders will agree to change
our EBITDA maintenance requirements, or re-establish our $25 million revolver.
Either of such events could result in our inability to borrow money under our
revolving line of credit or an event of default under our credit agreement. In
addition, even if our bank lenders agreed to change our EBITDA maintenance
requirements, due to our significant operating expenses, we cannot assure you
that we will be able to comply with any such new requirements.
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 June 30, 2000, Harrah's
Entertainment and Harrah's Operating Company had advanced $34.5 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% (7.13% as of June 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 to
us a limited waiver of the default subject to the following conditions:
o that 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;
15
<PAGE> 17
o with respect to up to $40 million of the amount that Harrah's
Entertainment and Harrah's Operating Company may pay 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 June 30, 2000, these conditions have been 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. Any such funding beyond the $40 million level currently permitted in
the existing waiver 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 funding of more than $40 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 $40 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 permit advances under the minimum payment
guaranty in excess of $40 million, under 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.
Assuming (1) that the requisite lender waivers can be obtained in order
for funding under the minimum payment guaranty to exceed $40 million, (2) our
ability to continue borrowing under our $25 million revolving line of credit,
and (3) that Harrah's New Orleans Management Company and Harrah's Operating
Company agree to extend the limited forbearance agreement until at least March
31, 2001, the funds provided by a combination of the sources described above,
including (i) funds provided by Harrah's Entertainment and Harrah's Operating
Company under their completion guaranty and minimum payment guaranty, (ii)
anticipated cash flows from operations, and (iii) the continued ability to defer
until March 31, 2001, certain of our payment obligations to Harrah's New Orleans
Management Company and Harrah's Operating Company as described above, are
expected to be sufficient to satisfy our financial obligations, including
capital expenditures and working capital for operations, through March 31, 2001.
We cannot assure you that (1) requisite lender waivers can be obtained in order
for funding under the minimum payment guaranty to exceed $40 million, (2) we
will continue to be able to borrow under our $25 million revolving line of
credit, or (3) that Harrah's New Orleans Management Company and Harrah's
Entertainment Company will agree to extend the limited forbearance agreement
until at least March 31, 2001, or (4) that cash flows from operations will be as
anticipated.
Under the present circumstances and based on financial results to date,
it does not appear likely 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
16
<PAGE> 18
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 structure. If we cannot find a guarantor
on satisfactory terms, our business, financial condition and results of
operations would be materially and adversely affected because the casino
operating contract provides that it would terminate (with no cure period) and
the casino would have to be closed. For a more detailed description of Harrah's
Entertainment's minimum payment guaranty, certain conditions under which the
minimum 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 occur, 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 that 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; and
o there is no declaration of default in any of our agreements.
We cannot assure you that all of these events will occur timely, nor can we
assure you that the Louisiana Gaming Control Board will not take regulatory
action, 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
guaranty beyond the $40 million level currently permitted in the existing waiver
by our lenders would constitute a default under our credit agreement. In
addition, we could be in default under our credit agreement if our lenders do
not agree to change our EBITDA maintenance requirements, if we cannot comply
with any new EBITDA requirements that our lenders agree to impose, or if our
lenders do not agree to grant us any extension of the temporary waiver of our
failure to comply with these EBITDA maintenance requirements. Our credit
agreement provides that in the event of default, our lenders may pursue various
remedies, including declaring the entire indebtedness due and payable. If this
were to occur, we would seek an agreement with the lenders to forbear from
exercising this remedy. However, we cannot assure you that such an agreement
could be reached outside of bankruptcy or what the final terms of such an
agreement would be. In addition, an event of default under the credit agreement
could trigger an event of default under other agreements to which we are a
party, including our casino operating contract, the indentures governing our
senior subordinated notes with contingent payments and 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 Louisiana Gaming Control Board. 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 notes to
become immediately due and payable.
17
<PAGE> 19
Also, we cannot assure you that Harrah's New Orleans Management Company
or Harrah's Operating Company will extend the forbearance period and continue to
forbear after December 31, 2000 until March 31, 2001 the collection of the rent,
fees and other items agreed to in the limited forbearance agreement. If Harrah's
New Orleans Management Company and Harrah's Operating Company do not continue to
forbear the payment of the items beyond December 31, 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 and 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.
In view of the uncertainties relating to the future of the casino, we
have engaged the services of the investment banking firm Jefferies and Company,
Inc., to assist us in evaluating the means by which we can attempt to
restructure our financial obligations and, as a result, continue operations. We
will likely begin 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. Undoubtedly
these discussions will disclose the need to revisit the $100 million annual
minimum payment to the State required under our operating contract, as that
payment 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.
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
June 30, 2000, we had deposited $1.8 million into the interest-bearing capital
reserve account and expended appropriately $700,000.
Capital resources for development activities. In addition to the gaming
related entertainment offered at the casino, 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 ultimately will consist of approximately 130,000 square feet of
multipurpose non-gaming entertainment space.
18
<PAGE> 20
We have spent approximately $1.6 million through June 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 second floor of the casino. As of June 30, 2000, we had
borrowed $1.5 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 also own the City block of historical buildings across the street
from the casino and its garages, which we plan 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 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 to Wyndham International, a hotel developer,
this property 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 management additional
time to obtain the necessary waivers and consents.
19
<PAGE> 21
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 it 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 it has 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 June 30, 2000, the aggregate amount of our
outstanding indebtedness was $509.8 million, of which $246.0 million accrued
interest at variable rates and $263.8 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 $1.2 million annualized increase or decrease in
interest expense based on the outstanding balance of our variable rate
indebtedness as of June 30, 2000.
20
<PAGE> 22
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of the Stockholders held on May 16, 2000, the
following matters were brought before and voted upon by our stockholders:
1. A proposal to elect the following group II directors to the board of
directors to serve until the 2003 Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
WITHHOLD BROKER
FOR AGAINST AUTHORITY ABSTAIN NON-VOTES
--------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Eddie N. Williams 4,302,623 -- -- -- --
Edwin Jacobson 4,206,004 21,813 -- -- --
</TABLE>
The following members of our board of directors will continue in office after
the annual meeting:
Colin V. Reed (group I director to serve until the 2002 Annual Meeting of
Stockholders)
Seth E. Lemler (group I director to serve until the 2002 Annual Meeting of
Stockholders)
Philip G. Satre (group III director to serve until the 2001 Annual Meeting of
Stockholders)
Rudy J. Cerone (group III director to serve until the 2001 Annual Meeting of
Stockholders)
2. A proposal to ratify the appointment of Deloitte & Touche LLP to
serve as our independent accountants
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ----------
<S> <C> <C> <C>
8,508,711 20,058 1,671 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
27.01 Financial Data Schedule (for SEC use only).
4.14 Waiver to Credit Agreement, dated June 29, 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.
21
<PAGE> 23
4.15 Waiver to Credit Agreement, dated July 20, 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
4.16 Waiver to Credit Agreement, dated July 27, 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.
4.17 Waiver to Credit Agreement, dated August 10, 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
10.53 Amendment to Agreement to Purchase and Sell, dated February 14, 2000 by
and between JCC Fulton Development, L.L.C. and WI Acquisition
Corporation.
10.54 Minimum Payment Guaranty by Harrah's Entertainment, Inc. and Harrah's
Operating Company, Inc. dated March 31, 2000
10.55 Letter from Harrah's New Orleans Management Company and Harrah's
Operating Company, Inc. agreeing to extend until August 15, 2000, the
forbearance period under the Limited Forbearance Agreement, dated July
24, 2000, by and among Harrah's New Orleans Management Company,
Harrah's Operating Company, Inc., and Jazz Casino Company, L.L.C.
10.56 Letter from Harrah's New Orleans Management Company and Harrah's
Operating Company, Inc. agreeing to extend until December 31, 2000, the
forbearance period under the Limited Forbearance Agreement, dated
August 3, 2000, by and among Harrah's New Orleans Management Company,
Harrah's Operating Company, Inc., and Jazz Casino Company, L.L.C.
(b) Reports on Form 8-K.
(1) On May 16, 2000, we filed a Current Report on Form 8-K filing the
presentation made by Frederick W. Burford, our President and Chief Executive
Officer, at our Annual Meeting of Stockholders held in New Orleans, Louisiana on
May 16, 2000. The date of the earliest event reported was May 16, 2000.
(2) On July 25, 2000, we filed a Current Report on Form 8-K filing a certificate
filed with the State of Louisiana under our casino operating contract
establishing compliance with the requirements of Sections 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. The
date of the earliest event reported was July 24, 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: August 11, 2000 By: /s/ Frederick W. Burford
------------------------
Frederick W. Burford, President
(Principal Executive Officer of the Registrant)
Date: August 11, 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
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.01 Financial Data Schedule (for SEC use only).
4.14 Waiver to Credit Agreement, dated June 29, 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.
4.15 Waiver to Credit Agreement, dated July 20, 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
4.16 Waiver to Credit Agreement, dated July 27, 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.
4.17 Waiver to Credit Agreement, dated August 10, 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
10.53 Amendment to Agreement to Purchase and Sell, dated February
14, 2000 by and between JCC Fulton Development, L.L.C. and WI
Acquisition Corporation.
10.54 Minimum Payment Guaranty by Harrah's Entertainment, Inc. and
Harrah's Operating Company, Inc. dated March 31, 2000
10.55 Letter from Harrah's New Orleans Management Company and
Harrah's Operating Company, Inc. agreeing to extend until
August 15, 2000, the forbearance period under the Limited
Forbearance Agreement, dated July 24, 2000, by and among
Harrah's New Orleans Management Company, Harrah's Operating
Company, Inc., and Jazz Casino Company, L.L.C.
10.56 Letter from Harrah's New Orleans Management Company and
Harrah's Operating Company, Inc. agreeing to extend until
December 31, 2000, the forbearance period under the Limited
Forbearance Agreement, dated August 3, 2000, by and among
Harrah's New Orleans Management Company, Harrah's Operating
Company, Inc., and Jazz Casino Company, L.L.C.
</TABLE>
