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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20840
PRESIDENT CASINOS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 51-0341200
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
802 North First Street, St. Louis, Missouri 63102
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Address of principal executive offices-Zip Code
314-622-3000
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.01 par value,
30,194,700 shares outstanding as of July 15, 1996.
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<PAGE>
PRESIDENT CASINOS, INC.
INDEX TO FORM 10-Q
Part I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
as of May 31 and February 29, 1996................................1
Condensed Consolidated Statements of Operations
and Loss Per Share Information (Unaudited) for the
Three Months Ended May 31, 1996 and 1995..........................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended May 31, 1996 and 1995..................3
Notes to Condensed Consolidated Financial Statements................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................8
Part II. Other Information
Item 1. Legal Proceedings...........................................14
Item 2. Changes in Securities.......................................14
Item 3. Defaults Upon Senior Securities.............................14
Item 4. Submission of Matters to a Vote of Security Holders.........14
Item 5. Other Information...........................................14
Item 6. Exhibits and Reports on Form 8-K............................14
Signature..............................................................15
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
PRESIDENT CASINOS, INC. (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) May 31, Feb. 29,
1996 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 17,162 $ 19,756
Short-term investments......................... 710 1,008
Accounts receivable, net of allowance for
doubtful accounts of $498 and $423........... 911 1,943
Other current assets........................... 4,339 4,410
--------- ---------
Total current assets....................... 23,122 27,117
Property and equipment, net of accumulated
depreciation of $43,085 and $39,125............ 134,135 135,630
Other assets..................................... 7,322 5,277
--------- ---------
$164,579 $168,024
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 3,989 $ 1,769
Other current liabilities...................... 24,923 27,634
--------- ---------
Total current liabilities.................. 28,912 29,403
Long-term debt, net of current maturities........ 103,034 105,677
Other liabilities................................ 642 405
--------- ---------
Total liabilities.......................... 132,588 135,485
--------- ---------
Minority interest................................ 110 33
Commitments and contingencies.................... -- --
Stockholders' equity:
Preferred Stock, none issued and outstanding... -- --
Common Stock, 30,195 shares issued
and outstanding.............................. 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (70,150) (69,525)
--------- ---------
Total stockholders' equity................. 31,881 32,506
--------- ---------
$164,579 $168,024
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PRESIDENT CASINOS, INC. AND LOSS PER SHARE INFORMATION (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands, except share data) Three Months Ended May 31,
1996 1995
------ ------
<S> <C> <C>
OPERATING REVENUES:
Gaming and gaming cruise....................... $ 45,161 $ 45,094
Food and beverage.............................. 4,955 3,950
Hotel, retail and other........................ 2,641 2,146
Less promotional allowances.................... (3,164) (2,465)
--------- ---------
Net operating revenues....................... 49,593 48,725
--------- ---------
OPERATING COSTS AND EXPENSES:
Gaming and gaming cruise....................... 25,812 25,431
Food and beverage.............................. 3,052 2,655
Hotel, retail and other........................ 628 628
Selling, general and administrative............ 13,096 12,408
Depreciation and amortization.................. 4,001 3,827
Impairment of long-lived assets................ -- 11,000
--------- ---------
Total operating costs and expenses........... 46,589 55,949
--------- ---------
OPERATING INCOME (LOSS) FROM
CONSOLIDATED SUBSIDIARIES...................... 3,004 (7,224)
Equity loss in unconsolidated entities........... -- (1,124)
--------- ---------
OPERATING INCOME (LOSS).......................... 3,004 (8,348)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income................................ 198 288
Interest expense............................... (3,750) (4,054)
--------- ---------
Total other income (expense)................. (3,552) (3,766)
--------- ---------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST... (548) (12,114)
Income tax benefit............................... -- 2,577
Minority interest................................ 77 --
--------- ---------
NET LOSS......................................... $ (625) $ (9,537)
========= =========
Net loss per common and common equivalent share.. $ (0.02) $ (0.32)
======== ========
Weighted average common and common
equivalent shares outstanding.................. 30,195 30,195
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
CONDENSED CONSOLIDATED
PRESIDENT CASINOS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) Three Months Ended May 31,
1996 1995
------ ------
<S> <C> <C>
Net cash provided by operating activities......... $ 614 $ 293
Cash flows from investing activities:
Expenditures for property and equipment......... (2,506) (2,399)
Investment in unconsolidated entities........... -- (179)
Purchase of lease options....................... (500) --
Purchase of short-term investments.............. -- (207)
Maturity of short-term investments.............. 298 --
--------- ---------
Net cash used in investing activities...... (2,708) (2,785)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable...................... (100) (2,139)
Payments on capital lease obligations........... (400) (66)
--------- ---------
Net cash used in financing activities....... (500) (2,205)
--------- ---------
Net decrease in cash and cash equivalents......... (2,594) (4,697)
Cash and cash equivalents at beginning of period.. 19,756 24,715
--------- ---------
Cash and cash equivalents at end of period........ $ 17,162 $ 20,018
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest, net
of amounts capitalized.......................... $ 6,721 $ 5,096
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Lease options acquired on contracts which were
accrued but not yet paid ....................... $ 1,500 $ --
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
NOTES TO CONDENSED
PRESIDENT CASINOS, INC. CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the accounts and
operations of President Casinos, Inc. ("PCI"), its wholly owned subsidiaries
and a 95% owned limited partnership (collectively, the "Company"). The Company
develops, owns and operates riverboat and/or dockside gaming casinos through
its subsidiaries. The Company conducts gaming operations in Davenport, Iowa,
Biloxi, Mississippi and St. Louis, Missouri. The Davenport operations are
managed by a wholly owned subsidiary which is the general partner of the 95%
Company owned operating partnership. The Company also operates two non-gaming
dinner cruise, excursion and sightseeing vessels on the Mississippi River in
St. Louis, Missouri. In addition, the Company owns and manages certain hotel
and ancillary facilities associated with its gaming operations. All material
intercompany accounts and transactions have been eliminated.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring entries unless otherwise disclosed, necessary to present
fairly the Company's financial information for the interim periods presented
and have been prepared in accordance with generally accepted accounting
principles. The interim results reflected in the condensed consolidated
financial statements are not necessarily indicative of results for the full
year or other periods.
The financial statements contained herein should be read in conjunction with
the audited consolidated financial statements and accompanying notes to the
consolidated financial statements for the fiscal year ended February 29, 1996
included in the Company's 1996 Annual Report on Form 10-K. Accordingly,
footnote disclosure which would substantially duplicate the disclosure in the
audited consolidated financial statements has been omitted.
Certain amounts for fiscal 1996 have been reclassified to conform with
fiscal 1997 financial statement presentation. These reclassifications had no
effect on the Company's net income.
2. PHILADELPHIA LEASE OPTIONS
During May 1996, the Company, in anticipation of the enactment of
legislation permitting gaming in Pennsylvania, entered into an agreement for
the rights to utilize certain property located in Philadelphia, Pennsylvania,
via a long-term lease on the property. During the option period and the lease
period, the Company will be obligated to pay all maintenance costs, taxes and
insurance with respect to the property.
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<PAGE>
The lessor of the property also assigned to the Company all of the lessor's
rights, title and interest under an option agreement with the City of
Philadelphia which provides that the lessor may enter into a 99-year lease for
a pier adjacent to the property. Pursuant to the assignment, the Company is
obligated to pay option fee payments of between $93 and $200 annually. If the
Company exercises the option it will be required to make a single lease
payment to an affiliate of the City of Philadelphia of between $2,378 and
$3,346, depending on the period in which the Company exercises the option.
As part of the agreement, the Company paid $500 and is required to pay an
additional $1,500 to secure the right to purchase options for five separate
periods extending from January 1, 1997 through December 31, 1999. The first
option must be purchased no later than December 1, 1996 and is for a period of
twelve months (beginning January 1, 1997) and each of the remaining options is
for a six-month period. Each option period requires the Company to pay $277
per month through the option period. Upon the exercise of any option, the
Company would begin a ten-year lease with five 5-year extensions available.
If the Company exercises an option, the Company will be obligated to pay
annual rent based upon a combination of fixed minimum payments or a percentage
of the Company's "net gaming win" (as defined in the lease agreement), but in
no event will such minimum annual rent be less than $3,500. During the option
period and the lease period, the Company will be obligated to pay all
maintenance costs, taxes and insurance with respect to the property.
3. PROPERTY, EQUIPMENT AND INVESTMENTS IN UNCONSOLIDATED ENTITIES
During the three-month period ended May 31, 1995, the Company wrote-down
$12,145 of long-lived assets and investments. Such write-downs were related
to the Company's decision to withdraw from a Gary, Indiana, joint venture, the
then resulting uncertainty regarding the future use of the "Majestic Star" and
market conditions at that time. Accordingly, the Company wrote-off its $1,145
investment in Gary, Indiana and reduced the carrying value of the "Majestic
Star" by $7,000 to its then estimated fair value. During the same period,
the Company wrote-down the value of "The President Casino-IV" by $4,000 based
upon negotiations that ultimately lead to the sale of the vessel.
Pursuant to withdrawal agreements between the Company and its former Gary
joint venture partner, Barden Development, Inc. ("Barden"), the Company
subsequently entered into a charter agreement with Barden to lease the
"Majestic Star," without gaming equipment, for a five-year term (which term is
cancelable at any time by Barden upon 180 days advance written notice) at an
annual rental fee of $1,500 for the first two years and for fair market value
thereafter.
4. COMMITMENTS AND CONTINGENT LIABILITIES
Regulatory Matters
During June, 1996, the gaming licenses of both President Riverboat Casino-
Mississippi, Inc. ("PRC-Mississippi") and President Riverboat Casino-Missouri,
Inc. ("PRC-Missouri") were renewed for two-year periods without conditions.
5
<PAGE>
The Missouri Gaming Commission met on June 19, 1996 and unanimously voted to
renew the license of PRC-Missouri for the period May 27, 1996 to May 26, 1998.
The Mississippi Gaming Commission met on June 20, 1996 and unanimously voted
to renew the license of PRC-Mississippi for the period June 30, 1996 to June
29, 1998.
Litigation
In the Spring of 1994, William Ahern and William H. Poulos filed class
action lawsuits in the United States District Court for the Middle District of
Florida, Orlando Division, against over 38 casino operators, including the
Company, and certain suppliers and distributors of video poker and electronic
slot machines. The lawsuits contain substantially identical claims alleging
that the defendants fraudulently marketed and operated casino video poker
machines and electronic slot machines, and assert common law fraud and deceit,
unjust enrichment and negligent misrepresentation. The Company, as well as
the other defendants, filed motions to dismiss the lawsuits and/or transfer
the actions to Nevada and in opposition to the class certification. The two
lawsuits, "Poulos v. Caesar's World et. al." and "Ahern v. Caesar's World et.
al.," have been consolidated into a single action, and have been transferred
to the United States District Court for the District of Nevada without ruling
on the dismissal or the class certification motions. On September 26, 1995,
Larry Schreier, on behalf of himself and others similarly situated, filed a
class action lawsuit captioned "Schreier v. Caesar's World et. al." in the
United States District Court for the District of Nevada against the Company
and approximately 45 other casino operators and gaming equipment manufacturers
and distributors alleging substantially identical claims to the claims
asserted in the "Poulos" and "Ahern" class actions. On April 15, 1996, the
Court in the "Poulos" and "Ahern" actions granted the defendants' motions to
dismiss, and granted the plaintiffs' leave to file an amended petition. In
May 1996, the plaintiffs filed an amended complaint and the defendants renewed
their motion to dismiss the complaint. Both motions are currently pending
before the court. Although the outcome of litigation is inherently uncertain,
management, after consultation with legal counsel, believes that the "Poulos,"
"Ahern" and "Schreier" actions are without merit and does not expect that the
lawsuits will have a material adverse effect on the Company's financial
position or results of operations.
A suit seeking status as a class action captioned "Paul Winklemen, Scott
Mayberry and Mr. and Mrs. Jeff Knoerle, Individually and as Class
Representatives v. President Casino-Missouri, Inc. and St. Charles Riverfront
Station, Inc." Cause No. 963-00682, was filed on February 26, 1996 in the
Circuit Court of the City of St. Louis naming as defendants President Missouri
and St. Charles Riverfront Station, Inc. The lawsuit seeks to recover gaming
losses that occurred within three months of the filing of the suit under
Section 434.030 of the Revised Statutes of Missouri which purports to permit
the recovery of gaming losses. Plaintiffs allege that they are entitled to
judgment in their favor consisting of (a) the amount of their individual
wagers lost, (b) the total adjusted gross gambling revenues collected by each
defendant within three months of the filing of the petition for distribution
to the class based on their amount of loss, (c) their attorney's fees based on
6
<PAGE>
a percentage of the common fund created, and (d) their court costs. After
consulting with its legal counsel, management believes that the application of
Section 434.030 against the Company has been superseded by an amendment to the
Constitution of the State of Missouri that was passed on November 9, 1994, and
by the Missouri Gaming Law, each of which permit riverboat gaming. Management
believes that the claims are without merit and does not expect that the
lawsuit will have a material adverse effect on the Company's financial
position or results of operations.
The Company has been notified that the Environmental Protection Agency and
the U.S. Attorney's Office for the Eastern District of Missouri are conducting
a federal criminal investigation with respect to compliance by President
Missouri with federal environmental laws in connection with the operation of
"The Admiral" in St. Louis. The Company is cooperating fully with the
investigation and has provided certain information regarding "The Admiral's"
operations to the Environmental Protection Agency and the U.S. Attorney's
Office. In the event that the Company is charged with violating federal
environmental laws, the Company may be subject to substantial civil and
criminal penalties, including monetary fines. Based upon the Company's
preliminary discussions with the U.S. Attorney's Office and the results of the
Company's internal investigation of this matter, management does not believe
that the investigation will result in any monetary or other penalties which
would have a material adverse effect on the Company's financial condition or
results of operations, or which would have any material adverse impact upon
the gaming licenses of the Company or its subsidiaries.
The Company serves alcoholic beverages at its gaming facilities and has from
time to time been the subject of claims related thereto. Although the Company
believes it maintains adequate insurance to cover these types of claims, it is
often difficult to predict the outcome of such litigation and the amount of
damages which may be awarded in these types of cases. The Company does not
believe that the outcome of any pending litigation related to the Company's
serving of alcoholic beverages will have a material adverse effect on its
financial position or results of operations.
The Company is also from time to time party to litigation, which may or may
not be covered by insurance, arising in the ordinary course of its business.
The Company does not believe that the outcome of any such litigation will have
a material adverse effect on the Company's financial condition or results of
operations, or which would have any material adverse impact upon the gaming
licenses of the Company or its subsidiaries.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the condensed consolidated financial statements
and the notes thereto included elsewhere in the report.
Overview
The Company's operating results are affected by a variety of factors,
including competitive pressures, changes in regulations governing the
Company's activities, the seasonal nature of the Company's business, the
timing of the commencement of its proposed gaming operations, the amount of
pre-opening expenses incurred by the Company and general weather conditions.
Consequently, the Company's operating results may fluctuate from period to
period and the results for any period may not be indicative of results for
future periods.
Competition has had a significant impact on the results of operations at
each of the Company's three casino properties. Since gaming began in Biloxi
in August 1992, steadily increasing competition along the Mississippi Gulf
Coast, New Orleans and elsewhere in Louisiana and Mississippi has had an
adverse effect on the results of operations for Biloxi. Several large
hotel/casino complexes have been built in recent years and several new large
projects are under construction. The "Gold Coast Casino," which was placed in
service in June 1995 replacing "The President Casino-Mississippi," improved
the Company's presence in Biloxi and has allowed the Company to increase the
size of its casino from 20,500 to 38,000 square feet. However, it is apparent
that it will continue to be more and more difficult to compete as larger
casino complexes enter the Biloxi market, many being built by competitors
having substantially greater name recognition and financial and marketing
resources than the Company.
In April 1995, a new casino commenced gaming operations in the Davenport
market. Despite such new competition, results of the Company's Davenport
operations were the second strongest in its six-year history. In addition,
during November 1995, the Company temporarily removed its casino vessel "The
President" from service in Davenport for its Coast Guard mandated five-year
hull inspection and to make certain improvements to the facility. "The
President" was out of service from November 1995 until April 3, 1996. During
such period the Company temporarily replaced "The President" with a smaller
vessel, "The President Casino-Mississippi."
The Company's operating results are susceptible to the effects of floods and
adverse weather conditions. On various occasions, the Company has temporarily
suspended operations as a result of such adversities. As a result of flood
conditions along the Mississippi River, the Company temporarily suspended
operations aboard "The Admiral" in St. Louis for three days in May and eight
days in June of 1996 and from May 11 to June 21, 1995.
8
<PAGE>
Results of Operations
Three-Month Period Ended May 31, 1996 Compared to the
Three-Month Period Ended May 31, 1995
The following table highlights the results of operations for the Company's
operating subsidiaries (dollars in millions). The table does not include
results of operations for the Company's non-gaming subsidiaries or reflect the
effect of write-downs of certain of the Company's investments and non-income
producing assets unrelated to such operating subsidiaries.
<TABLE>
<CAPTION>
Three Months Ended
May 31, Positive (Negative)
1996 1995 Change
------ ------ ----------
<S> <C> <C> <C> <C>
Biloxi, Mississippi
Operating revenues................. $ 11.3 $ 8.6 $ 2.7 31.4%
Income (loss) from operations...... $ (0.1) $ 0.1 $(0.2) (b)
EBITDA (a)......................... $ 0.6 $ 0.8 $(0.2) (25.0%)
Operating margin................... (b) 1.2% (b)
Davenport, Iowa
Operating revenues................. $ 16.9 $ 21.4 $(4.5) (21.0%)
Income from operations............. $ 3.2 $ 5.6 $(2.4) (42.9%)
EBITDA (a)......................... $ 4.2 $ 6.8 $(2.6) (38.2%)
Operating margin................... 18.9% 26.2% (7.3)
St. Louis, Missouri
Operating revenues................. $ 19.1 $ 17.5 $ 1.6 9.1%
Income from operations............. $ 1.4 $ 0.9 $ 0.5 55.6%
EBITDA (a)......................... $ 2.6 $ 2.2 $ 0.4 18.8%
Operating margin................... 7.3% 5.1% 2.2
</TABLE>
(a) "EBITDA" consists of earnings from operations before income taxes,
depreciation and amortization for each of the operating subsidiaries.
However, it does not include corporate operating expenses. EBITDA should not
be construed as an alternative to operating income as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operational activities as a measure of liquidity. The Company has presented
EBITDA solely as a supplemental disclosure to facilitate a more complete
analysis of the Company's financial position. The Company believes that this
disclosure enhances the understanding of the financial performance of a
company with substantial depreciation and amortization.
(b) Not meaningful.
Operating revenues. The Company generated consolidated operating revenues
of $49.6 million during the three-month period ended May 31, 1996 compared to
9
<PAGE>
$48.7 million during the three-month period ended May 31, 1995, an increase of
$0.9 million or 1.8%. This increase was primarily attributable to the
additional charter fee revenue generated by the leases of the "Majestic Star"
and the "Diamond Jo." Operating revenues from the Company's three casino
properties remained flat with the decreases from the Davenport property being
offset by the increases at the St. Louis and Biloxi properties. During both
three-month periods, operating revenues from the Company's St. Louis
operations were adversely affected by high water and flooding conditions on
the Mississippi River. High water conditions adversely affects the parking
availability for casino patrons and further flooding conditions caused the
Company to suspend its gaming operations for three days during May 1996 and
for the last 21 days of May 1995. The increase in operating revenues at the
Biloxi property was primarily attributable to the expansion of its facility in
July 1995. The Davenport property experienced a decrease in operating revenue
during the period primarily as a result of increased competition in the
Davenport market with the addition of a third casino in April 1995 and the
reduced capacity of its temporary casino during "The President's" Coast Guard
mandated hull inspection. "The President" was placed back in service on April
3, 1996.
The Company's revenues from food and beverage, hotel, retail, charter and
other non-gaming activities (net of promotional allowances) increased to $4.4
million during the three-month period ended May 31, 1996, from $3.6 million
during the three-month period ended May 31, 1995, an increase of $0.8 million
or 22.2%. This increase was primarily attributable to the aforementioned
increase in charter revenues generated by the leases of the "Majestic Star"
and the "Diamond Jo."
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $25.8 million during the three-month
period ended May 31, 1996, compared to $25.4 million during the three-month
period ended May 31, 1995, an increase of $0.4 million or 1.6%. As a
percentage of gaming revenues, gaming and gaming cruise costs increased to
57.2% during the three-month period ended May 31, 1996 from 56.4% during the
three-month period ended May 31, 1995. This decrease in gaming margin was
attributable to the decrease in gaming revenues at the Davenport operation and
its related contribution towards the fixed portion of gaming costs.
The Company's consolidated selling, general and administrative expenses were
$13.1 million during the three-month period ended May 31, 1996, compared to
$12.4 million during the three-month period ended May 31, 1995, an increase of
$0.7 million or 5.6%. Such increase was primarily attributable to the lease
payments related to the "Gold Coast" barge used at the Biloxi property, which
commenced in June 1995. As a percentage of consolidated revenues, selling,
general and administrative expenses increased to 26.5% during the three-month
period ended May 31, 1996 from 25.5% during the three- month period ended May
31, 1995.
Depreciation and amortization expenses were $4.0 million during the three-
month period ended May 31, 1996, compared to $3.8 million during the three-
month period ended May 31, 1995, an increase of $0.2 million or 5.3%. This
10
<PAGE>
increase was primarily attributable to depreciation expense related to placing
the "Majestic Star" in service at the beginning of its charter in May 1996.
During the three-month period ended May 31, 1995, the Company wrote-down
$11.0 million of long-lived assets related to reevaluated development
projects. There was no comparable expense during the three-month period ended
May 31, 1996.
The Company incurred a $1.1 million loss in unconsolidated entities during
the three-month period ended May 31, 1995, primarily related to the write-off
of the Company's Gary, Indiana investment. There was no comparable expense
during the three-month period ended May 31, 1996.
Operating income (loss). As a result of the items discussed above, the
Company had operating income of $3.0 million during the three-month period
ended May 31, 1996, compared to a loss of $8.3 million during the three-month
period ended May 31, 1995.
Interest expense, net. The Company incurred net interest expense of $3.6
million during the three-month period ended May 31, 1996, compared to $3.8
million during the three-month period ended May 31, 1995, a decrease of $0.2
million or 5.3%. Such decrease was primarily related to the early retirement
of various debt instruments.
Income taxes. Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," requires the recognition of deferred tax assets
related to certain temporary differences between the Company's tax and
accounting records and net operating loss carryforwards to the extent that
realization of such benefit is "more likely than not." In fiscal year 1995,
management believed that the Company would return to profitability and that it
was more likely than not that the Company would be able to generate sufficient
taxable income to recognize fully these assets over the carryforward period.
This belief was based upon the Company's history of prior earnings, the fact
that the 1995 losses suffered by the Company were attributable, in large part,
to certain unprofitable operations which were terminated and the then recent
regulatory changes which enhanced the Company's earnings prospects. During
fiscal 1996, given the then current level of operations, the increased
competition and the overall uncertainty as to the Company's ability to return
to profitability, management determined that the deferred tax benefits did not
continue to satisfy the recognition requirements of SFAS No. 109. Accordingly,
based on the uncertainty regarding the Company's ability to generate future
taxable income, the Company established a valuation allowance for its deferred
tax assets. Management continues to assess the recognition requirements of
SFAS No. 109, and, as a result, there was no income tax benefit recorded for
the three-month period ended May 31, 1996, compared to an income tax benefit
of $2.6 million during the three-month period ended May 31, 1995.
Net loss. The Company incurred a net loss of $0.6 during the three-month
period ended May 31, 1996, compared to a net loss of $9.5 million during the
three-month period ended May 31, 1995.
11
<PAGE>
Liquidity and Capital Resources.
The Company meets its working capital requirements from a combination of
internally generated sources including cash from operations and the sale or
charter of assets no longer utilized in the Company's operations.
The Company requires approximately $9.0 million of cash in order to fund
daily operations. As of May 31, 1996, the Company had approximately $17.9
million in cash and short-term investments available. The Company is heavily
dependant on cash generated from operations to continue to operate as planned
in its existing jurisdictions and to make major capital expenditures. The
Company anticipates that its existing available cash and cash equivalents and
its anticipated cash generated from operations will be sufficient to fund all
of its ongoing operations. To the extent cash generated from operations is
less than anticipated, the Company may be required to curtail certain planned
1997 expenditures or seek other sources of financing. The Company may be
limited in its ability to raise cash through additional financing.
The Company generated cash flow from operating activities of $0.6 million
during the three-month period ended May 31, 1996, compared to $0.3 million in
the three-month period ended May 31, 1995.
The Company experienced a net cash decrease from investing activities of
$2.7 million during the three-month period ended May 31, 1996, compared to
$2.8 million in the three-month period ended May 31, 1995. The net cash
decrease from investing activities during both periods resulted primarily from
expenditures in property and equipment. In addition, the Company paid $0.5
million and committed an additional $1.5 million relating to options to lease
property in Philadelphia, Pennsylvania, during the three-month period ending
May 31, 1996.
The Company expended $0.5 million in connection with financing activities
during the three-month period ended May 31, 1996, compared to $2.2 million in
the three-month period ended May 31, 1995. The decrease was attributable to
the early extinguishment of certain notes and capital lease obligations during
fiscal year 1996, subsequent to the first quarter.
The Indenture governing the Company's Senior Notes due 2001 (the
"Indenture"), restricts the Company's ability, among other things, to dispose
of or create liens on certain assets, to make certain investments and to pay
dividends. Under the Indenture, the Company has the ability to seek to borrow
additional funds of $14.4 million. The Indenture also provides that the
Company must use cash proceeds from the sale of certain assets within 180 days
to either (i) permanently reduce certain indebtedness or (ii) contract with an
unrelated third party to make investments or capital expenditures or to
acquire long-term tangible assets, in each case, in gaming and related
businesses (provided any such investment is substantially complete in 270
days). The Company intends to utilize all such cash proceeds in accordance
with the Indenture. In the event such cash proceeds are not so utilized, the
Company must make an offer to all holders of Senior Notes to repurchase at par
an aggregate principal amount of Senior Notes equal to the amount by which
12
<PAGE>
such cash proceeds exceeds $5.0 million. As of May 31, 1996, approximately
$2.5 million of cash proceeds must be utilized between July and November 1996.
The Company believes it will utilize all such proceeds within the appropriate
time period.
In the event the Company identifies a potential growth opportunity, project
financing will be required. Capital investments may include all or some of
the following: acquisition and development of land; acquisition of vessels and
lease options on land and other facilities; and construction of vessels and
other facilities in anticipation of the approval of gaming operations in
potential new jurisdictions. In connection with development activities
relating to potential jurisdictions, the Company also makes expenditures for
professional services which are expensed as incurred. The Company's financing
requirements would depend upon actual development costs, the amounts and
timing of such expenditures, the amount of available cash flow from operations
and the availability of other financing arrangements.
In such case, the Company could pursue a number of alternatives to avail
itself of additional capital, including borrowing additional funds either
directly (the Indenture currently permits the Company to borrow up to $14.4
million) or on a stand-alone project basis, financing through lease
agreements, selling equity securities and selling assets (including gaming
vessels) which are not currently generating revenues. The Company may also
consider strategic combinations or alliances. Although there can be no
assurance that the Company can effectuate any of the financing strategies
discussed above, the Company believes that if it determines to seek any
additional licenses to operate gaming in other potential jurisdictions it will
be able to raise sufficient capital to pursue its strategic plan.
Forward Looking Statements
The statements contained herein include forward-looking statements based on
management's current expectations of the Company's future performance.
Predictions relating to future performance are inherently uncertain and
subject to a number of risks. Consequently, the Company's actual results
could differ materially from the expectations expressed in the preceding
paragraphs. Factors that could cause the Company's actual results to differ
materially from the expected results include, among other things: the
intensely competitive nature of the riverboat and dockside casino gaming
industry; increases in the number of competitors in the markets in which the
Company operates; the seasonality of the riverboat and dockside casino gaming
industry in certain markets in which the Company operates; the susceptibility
of the Company's operating results to floods, adverse weather conditions and
natural disasters; the risk that jurisdictions in which the Company proposes
to operate do not enact legislation permitting riverboat or dockside casino
gaming or do not enact such legislation in a timely manner; changes in
governmental regulations governing the Company's activities and other risks
detailed in the Company's filings with the Securities and Exchange Commission.
13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Information with respect to legal proceedings to which the Company is a
party is disclosed in Note 4 of Notes to Condensed Consolidated Financial
Statements included in Part I of this report and is incorporated herein by
reference.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the three-month period
ended May 31, 1996.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
President Casinos, Inc.
--------------------------
(Registrant)
Date: July 15, 1996 /s/ James A. Zweifel
--------------------------
James A. Zweifel
Duly Authorized Officer and
Principal Financial Officer
15
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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