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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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)
<TABLE>
<S> <C>
DELAWARE 62-1650470
(State or other jurisdiction (IRS employer
of incorporation) identification number)
</TABLE>
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 May 5, 2000 were 5,638,314 and 4,452,623,
respectively.
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JCC HOLDING COMPANY AND SUBSIDIARIES
MARCH 31, 2000
INDEX
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PAGE
NUMBER
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS................................................ 1
PART I FINANCIAL INFORMATION...................... 1
Item 1. Financial Statements.............................. 1
Condensed Consolidated Balance Sheets as of March
31, 2000 and December 31, 1999 (Unaudited)........ 2
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and 1999
(Unaudited)....................................... 3
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999
(Unaudited)....................................... 4
Notes to Condensed Consolidated Financial
Statements (Unaudited)............................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk....................................... 12
PART II OTHER INFORMATION......................... 13
Item 6. Exhibits and Reports on Form 8-K.................. 13
SIGNATURES.................................................. 14
</TABLE>
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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) pursuit of new marketing initiatives and (4) funding under the minimum
payment guaranty from Harrah's Entertainment, Inc. and Harrah's Operating
Company possibly exceeding $40 million before December 31, 2000 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 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 by JCC
Holding 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
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JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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ASSETS
Current Assets:
Cash and cash equivalents (includes restricted cash of
$4,068 and $6,382, respectively)........................ $ 22,329 $ 34,687
Accounts receivable, net of allowance for doubtful
accounts of $553 and $228, respectively................. 4,816 3,177
Inventories............................................... 336 354
Prepaids and other assets................................. 3,148 2,760
-------- --------
Total current assets................................ 30,629 40,978
-------- --------
Property and Equipment:
Buildings on leased land.................................. 307,913 307,360
Furniture, fixtures and equipment......................... 43,007 42,403
Property held for development............................. 10,543 10,138
Property available for sale............................... 4,831 4,831
Construction in progress.................................. 165 151
-------- --------
Total............................................... 366,459 364,883
Less -- accumulated depreciation.......................... (8,955) (4,179)
-------- --------
Net property and equipment.......................... 357,504 360,704
-------- --------
Other Assets:
Deferred operating contract cost, net of accumulated
amortization of $1,188 and $494, respectively........... 67,488 68,182
Lease prepayment, net of accumulated amortization of $297
and $124, respectively.................................. 16,688 16,861
Deferred charges and other, net of accumulated
amortization of $757 and $421, respectively............. 19,728 19,677
-------- --------
Total other assets.................................. 103,904 104,720
-------- --------
Total Assets........................................ $492,037 $506,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings..................................... $ 9,500 $ 15,850
Accounts payable -- trade................................. 5,916 2,012
Accrued interest.......................................... 10,320 2,081
Accrued expenses.......................................... 15,672 20,791
Due to affiliates......................................... 18,295 4,648
Preconfirmation contingencies............................. 2,216 3,033
Other..................................................... 2,677 2,009
-------- --------
Total current liabilities........................... 64,596 50,424
-------- --------
Long-term debt (including debt to affiliates of $23,891 and
$23,704, respectively).................................... 369,649 368,222
Deferred income taxes....................................... 37,900 37,900
Due to affiliates........................................... 8,961 4,302
Other long-term liabilities................................. 84 --
Commitments and Contingencies (Note 3)
Stockholders' Equity:
Common Stock:
Unclassified Common Stock (40,000 shares authorized;
none issued and outstanding; par value $.01 per
share)................................................. -- --
Class A Common Stock (20,000 shares authorized; 5,638
shares issued and outstanding; par value $.01 per
share)................................................. 56 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................................ 108,538 108,538
Accumulated deficit....................................... (97,567) (62,817)
Less -- unearned compensation............................. (225) (268)
-------- --------
Total stockholders' equity.......................... 10,847 45,554
-------- --------
Total Liabilities and Stockholders' Equity.......... $492,037 $506,402
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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2000 1999
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REVENUES:
Casino.................................................... $ 58,495 $ --
Food and beverage......................................... 5,013 --
Retail, parking and other................................. 2,198 6
Less -- casino promotional allowances..................... (3,090) --
---------- ----------
Total net revenues................................ 62,616 6
---------- ----------
OPERATING EXPENSES:
Direct:
Casino................................................. 55,080 --
Food and beverage...................................... 3,850 --
Retail, parking and other.............................. 1,157 --
General and administrative................................ 20,841 39
Depreciation and amortization............................. 5,897 171
Pre-opening expenses...................................... -- 2,785
---------- ----------
Total operating expenses.......................... 86,825 2,995
---------- ----------
OPERATING LOSS.............................................. (24,209) (2,989)
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest............. (10,667) --
Interest and other income................................. 126 165
---------- ----------
Total other income (expense)...................... (10,541) 165
---------- ----------
NET LOSS.................................................... $ (34,750) $ (2,824)
========== ==========
BASIC NET LOSS PER SHARE.................................... $ (3.44) $ (0.28)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 10,090,937 10,000,000
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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JCC HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
2000 1999
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Cash Flows From Operating Activities:
Net loss.................................................. $(34,750) $ (2,824)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 5,897 171
Amortization of note discount.......................... 1,241 --
Amortization of unearned compensation.................. 43 --
Deferred rent.......................................... 423 --
Provision for bad debts................................ 355 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,994) --
Inventories............................................ 18 --
Prepaids and other assets.............................. (388) (594)
Accounts payable -- trade.............................. 3,904 (597)
Accrued interest....................................... 8,202 --
Accrued expenses....................................... (5,119) 4,410
Preconfirmation contingencies.......................... (817) (1,054)
Due to affiliates...................................... 8,377 --
Other current liabilities.............................. 668 --
-------- --------
Net cash flows used in operating activities....... (13,940) (488)
-------- --------
Cash Flows From Investing Activities:
Capital expenditures...................................... (1,539) (22,951)
Increase in deferred charges and other assets............. (304) (2,222)
-------- --------
Net cash flows used in investing activities....... (1,843) (25,173)
-------- --------
Cash Flows From Financing Activities:
Net repayments of short-term borrowings................... (6,350) --
Proceeds from notes payable to affiliates................. 9,775 4,000
-------- --------
Net cash flows provided by financing activities... 3,425 4,000
-------- --------
Net decrease in cash and cash equivalents................... (12,358) (21,661)
Cash and cash equivalents, beginning of period.............. 34,687 25,506
-------- --------
Cash and cash equivalents, end of period.................... $ 22,329 $ 3,845
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ 340 $ 1,214
Noncash investing and financing activities:
Amortization of note discount.......................... -- $ 759
Capitalized interest................................... $ 37 $ 4,372
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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JCC HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Business. Our purpose is to develop and 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. RELATED PARTY TRANSACTIONS
HET/JCC Agreement. On February 29, 2000, Harrah's Entertainment, Inc. and
Harrah's Operating Company 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 and have continued to make the payments to
date. As of March 31, 2000, Harrah's Entertainment and Harrah's Operating
Company had funded $9.6 million to the Louisiana Gaming Control Board on our
behalf. Advances by Harrah's Entertainment and Harrah's Operating Company under
the minimum payment guaranty constitute a demand obligation and are first
priority liens on our assets. The principal balance outstanding bears interest
at LIBOR plus 1% (7.13% as of March 31, 2000). Because our drawing under the
minimum payment guaranty could constitute a default under our credit agreement
if our reimbursement obligation to Harrah's Entertainment and Harrah's Operating
Company therewith exceeds $5 million, our lenders granted us a limited waiver of
the default subject to certain conditions. The waiver granted by the lenders
allows funding under this arrangement of up to $40 million. 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.
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
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JCC HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 May 12, 2000, the outstanding
balance under the completion loan was $1.7 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. Under the terms of this
agreement, we have the option to defer until August 1, 2000 certain payments
under the management agreement, the administrative agreement and the master
lease agreement. The limited forbearance agreement also waives any penalties or
late charges assessed on the deferred payments under these agreements. As of
March 31, 2000, we have deferred approximately $6.3 million related to the
payments and fees payable to Harrah's Entertainment or its subsidiaries under
the limited forbearance agreement.
NOTE 3. 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.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a casino and entertainment development 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 had not conducted any operations, generated any revenues or
issued 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 months ended March 31, 2000 are not comparable to our results of
operations for the three months ended March 31, 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
Total Net Revenues. For the three months ended March 31, 2000, we generated
casino revenue of $58.5 million, food and beverage revenue of $5.0 million, and
retail, parking and other revenue of $2.2 million. Casino promotional allowances
amounted to $3.1 million resulting in total net revenues of $62.6 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," we will need to grow
revenues considerably in order to cover all on-going operating expenses as well
as debt service and the repayment of principal and the resulting balance of the
deferrals. To increase revenues, we are aggressively pursuing new marketing
initiatives as well as evaluating the effectiveness of existing initiatives to
grow both slot and table game volume.
Prior to the opening of the casino in October 1999, our revenues of
approximately $6,000 during the three months ended March 31, 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 March 31, 2000, we incurred
casino expenses of $55.0 million resulting in a gaming operating profit of
$325,000. 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 $55.0 million for the three month period
ending March 31, 2000. The high fixed cost component associated with the
business, particularly the minimum daily payments to the Louisiana Gaming
Control Board, adversely affect our ability to generate operating profits.
For the three months ended March 31, 2000, we incurred food and beverage
operating expenses of $3.9 million resulting in a food and beverage operating
profit of $1.2 million. Food and beverage operating expenses primarily consist
of labor costs and food and beverage raw materials costs. The casino food and
beverage operations are limited by restrictions imposed by 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.
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For the three months ended March 31, 2000, we incurred retail, parking and
other expenses of $1.2 million resulting in retail, parking and other operating
profit of $1.0 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 March 31, 2000, we incurred general and
administrative expenses of $20.8 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
March 31, 1999, we incurred general and administrative expenses of $39,000
consisting of franchise tax expenses.
For the three months ended March 31, 2000 and 1999, we incurred
depreciation and amortization expenses of $6.0 million and $171,000,
respectively.
For the three months ended March 31, 1999, we incurred pre-opening expenses
of $2.8 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 March 31, 2000, we
incurred interest charges of $10.7 million. Prior to October 28, 1999, we
capitalized all interest charges. For the three months ended March 31, 1999, we
capitalized approximately $5.1 million of interest expense incurred on
outstanding indebtedness.
For the three months ended March 31, 2000 and 1999, we generated interest
income of $126,000 and $165,000, 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. We estimate that from the date Harrah's Jazz
Company filed for bankruptcy in November 1995, the total cost of completing the
casino was approximately $380.8 million. This amount included, among other
things, hard costs of completing construction of the casino, costs of obtaining
gaming equipment and supplies, reorganization costs related to the bankruptcy,
payments to unsecured creditors and cure payments in connection with the
assumption of certain contracts. Approximately $82.3 million of this amount was
expended and paid prior to the consummation of the third amended plan of
reorganization for hard construction costs to enclose the casino, administrative
costs related to the reorganization process and various obligations under
Harrah's Jazz Company's agreements with the City of New Orleans. As of March 31,
2000, although the casino's construction was complete, all construction and
pre-opening invoices had not yet been received. Based on construction contracts
and purchasing documents, we anticipate that the remaining unbilled costs of
completing the casino will be approximately $9.9 million, including $3.4 million
in hard construction costs and $6.5 million for gaming equipment and supplies
and other pre-opening costs. As of March 31, 2000, $2.8 million of this amount
had been funded and was in escrow.
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 March 31, 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
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Entertainment and Harrah's Operating Company pursuant to their completion
guarantees to fund the balance of the approximately $9.9 million in construction
and pre-opening costs. As of May 12, 2000, we had borrowed $1.7 million of this
amount.
Working capital for operations. For the three months ended March 31, 2000,
we experienced operating losses before depreciation and amortization of
approximately $18.3 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. 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. Under our junior subordinated
credit facility with Harrah's Entertainment and Harrah's Operating Company, if
we do not meet certain EBITDA tests for the contingent payment periods ended on
September 30, 2000 and 2001, or if, subsequent to September 30, 2001, we pay
interest in kind on our senior subordinated notes with contingent payments,
interest will not be paid and will be added to the outstanding principal. In
addition, the scheduled quarterly repayments under our credit agreement 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 and intend to continue
to pay interest in kind rather than in cash for at least the next 12 months. We
estimate that for at least the next 12 months interest on our junior
subordinated credit facility with Harrah's Entertainment, Inc. and Harrah's
Operating Company will be paid in kind and the scheduled quarterly repayments
under our credit agreement as discussed above will be deferred
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 March 31, 2000 and 1999, the
Contingent Payment Measurement Amount was negative $18.2 million and $132,000,
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
$18.2 million and $132,000, 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:
- interest payments under our junior subordinated credit facility with
Harrah's Entertainment and Harrah's Operating Company;
- credit enhancement fees payable as consideration for the guaranty that
Harrah's Entertainment and Harrah's Operating Company have agreed to
provide with respect to certain amounts outstanding under our credit
agreement;
- fees under our minimum payment guaranty agreement with Harrah's
Entertainment and Harrah's Operating Company; and
- management fees under our management agreement with Harrah's New Orleans
Management Company.
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Also 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/or Harrah's New
Orleans Management Company agreed to forbear until August 1, 2000, the payment
of the following additional items that we owe or which will become due prior to
August 1, 2000:
- rent and certain additional charges with respect to certain equipment
used at the casino that we lease from Harrah's Operating Company;
- fees with respect to certain administrative services that Harrah's
Operating Company provides us under an administrative services agreement;
and
- certain costs, expenses and services for which we are required to
reimburse Harrah's New Orleans Management Company under our management
agreement.
As of March 31, 2000, we had deferred approximately $14.6 million related
to the payments and fees payable to Harrah's Entertainment or its subsidiaries
under the contractual agreements as well as under the forbearance agreement
discussed above.
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 March 31, 2000, the outstanding
balance under the revolving line of credit was $9.5 million, with outstanding
letters of credit of $2.1 million.
On February 29, 2000, Harrah's Entertainment and Harrah's Operating Company
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
and has continued to make the payments to date. As of March 31, 2000, Harrah's
Entertainment and Harrah's Operating Company had funded $9.6 million to the
Louisiana Gaming Control Board on our behalf. Advances by Harrah's Entertainment
and Harrah's Operating Company under the minimum payment guaranty constitute our
demand obligation and are first priority liens on our assets. The principal
balance outstanding bears interest at LIBOR plus 1% (7.13% as of March 31,
2000). Because our drawing under the minimum payment guaranty (and any
subsequent minimum payment guaranty) could constitute a default under our credit
agreement if our reimbursement obligation to Harrah's Entertainment in
connection therewith exceeds $5 million, our lenders granted to us a limited
waiver of the default subject to the following conditions (which have been
satisfied subject to certain conditions):
- 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;
- 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;
- the principal amount of unreimbursed payment obligations under this
agreement to Harrah's Entertainment and Harrah's Operating Company may
not exceed $40 million without additional lender waivers; and
- 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.
Based on current revenue levels, funding under the minimum payment guaranty
will likely need to exceed $40 million before December 31, 2000 in order to
maintain sufficient liquidity to cover all operating expenses. There is no
assurance that we will be able to obtain the required lender waiver to allow the
funding to exceed $40 million. As a result, any such funding beyond the $40
million level currently permitted in the existing waiver by our lenders would
constitute a default under our credit agreement. Advances by Harrah's
10
<PAGE> 13
Entertainment under the minimum payment guaranty are first priority liens on our
assets and therefore rank ahead of bank debt and the senior subordinated notes.
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, Harrah's Entertainment, Inc. and Harrah's
Operating Company may decline to renew their minimum payment guaranty beyond
March 31, 2001. Based on the current financial performance of the casino, it
does not appear that Harrah's Entertainment, Inc. and Harrah's Operating Company
would 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 April 1 that the casino is
open. For a 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 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."
Assuming that the requisite lender waivers can be obtained in order for
funding under the minimum payment guaranty to exceed $40 million, the funds
provided by a combination of the sources described above, including funds
provided by Harrah's Entertainment and Harrah's Operating Company under their
completion guaranty and minimum payment guaranty, anticipated cash flows from
operations, and the continued ability to defer beyond August 1, 2000 certain
payment obligations to Harrah's Entertainment Inc. or its subsidiaries 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 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 beyond the
$40 million level currently permitted in the existing waiver by our lenders
would constitute a default under our credit agreement. 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 prevent them 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,
Inc. 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 notes to
become immediately due and payable. Also, we cannot assure that Harrah's
Entertainment or its subsidiaries will continue to forebear after August 1, 2000
until March 31, 2001 the collection of the rent, fees and other items addressed
in the limited forbearance agreement. 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.
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
March 31, 2000, we had deposited $1,000,000 into the interest-bearing capital
reserve account.
11
<PAGE> 14
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. We have spent approximately $1.6
million through March 31, 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 March 31, 2000, we had borrowed $1.4 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.
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 March 31, 2000, the aggregate amount of our
outstanding indebtedness was $473.7 million, of which $221.1 million accrued
interest at variable rates and $252.6 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 $1.1 million annualized increase or decrease in
interest expense based on the outstanding balance of our variable rate
indebtedness as of March 31, 2000.
12
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) We filed no current reports on Form 8-K during the three months ended
March 31, 2000.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JCC HOLDING COMPANY
By: /s/ FREDERICK W. BURFORD
----------------------------------
Frederick W. Burford
President (Principal Executive
Officer
of the Registrant)
Date: May 12, 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)
Date: May 12, 2000
14
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JCC HOLDING
COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED
STATEMENT OF OPERATIONS AS OF MARCH 31, 2000 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,329
<SECURITIES> 0
<RECEIVABLES> 5,369
<ALLOWANCES> (553)
<INVENTORY> 336
<CURRENT-ASSETS> 30,629
<PP&E> 366,459
<DEPRECIATION> (8,955)
<TOTAL-ASSETS> 492,037
<CURRENT-LIABILITIES> 64,596
<BONDS> 369,649
0
0
<COMMON> 101
<OTHER-SE> 10,746
<TOTAL-LIABILITY-AND-EQUITY> 492,037
<SALES> 0
<TOTAL-REVENUES> 62,616
<CGS> 60,087
<TOTAL-COSTS> 86,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,667
<INCOME-PRETAX> (34,750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,750)
<EPS-BASIC> (3.44)
<EPS-DILUTED> (3.44)
</TABLE>
