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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 November 30, 1997
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.
------------------------------------------------------
(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
----------------------------------------------------
Address of principal executive offices-Zip Code
314-622-3000
----------------------------------------------------
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, $.06 par value,
5,032,900 shares outstanding as of January 14, 1998.
==============================================================================
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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 November 30 and February 28, 1997...........................1
Condensed Consolidated Statements of Operations
and Loss Per Share Information (Unaudited) for the
Three and Nine Months Ended November 30, 1997 and 1996............2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended November 30, 1997 and 1996..............3
Notes to Condensed Consolidated Financial Statements................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................7
Part II. Other Information
Item 1. Legal Proceedings...........................................16
Item 2. Changes in Securities.......................................16
Item 3. Defaults Upon Senior Securities.............................16
Item 4. Submission of Matters to a Vote of Security Holders.........16
Item 5. Other Information...........................................16
Item 6. Exhibits and Reports on Form 8-K............................17
Signature..............................................................18
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
PRESIDENT CASINOS, INC. (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) Nov. 30, Feb. 28,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 20,224 $ 25,115
Restricted cash................................ 4,736 --
Short-term investments......................... 2,600 600
Accounts receivable, net of allowance for
doubtful accounts of $414 and $393........... 1,133 982
Other current assets........................... 7,714 8,172
--------- ---------
Total current assets....................... 36,407 34,869
Property and equipment, net of accumulated
depreciation of $55,138 and $45,851............ 150,590 117,163
Other assets..................................... 2,833 3,872
--------- ---------
$189,830 $155,904
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 5,408 $ 1,772
Other current liabilities...................... 27,638 25,284
--------- ---------
Total current liabilities.................. 33,046 27,056
Long-term debt, net of current maturities........ 131,309 104,862
--------- ---------
Total liabilities.......................... 164,355 131,918
--------- ---------
Minority interest................................ 10,663 265
Commitments and contingencies.................... -- --
Stockholders' equity:
Preferred Stock, none issued and outstanding... -- --
Common Stock, 5,033 shares issued
and outstanding.............................. 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (87,219) (78,310)
--------- ---------
Total stockholders' equity................. 14,812 23,721
--------- ---------
$189,830 $155,904
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PRESIDENT CASINOS, INC. AND LOSS PER SHARE INFORMATION (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands, except share data) Three Months Nine Months
Ended Nov. 30, Ended Nov. 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Gaming and gaming cruise............. $ 40,813 $ 42,843 $127,421 $130,719
Food and beverage.................... 5,185 5,162 15,597 15,152
Hotel................................ 1,706 457 3,257 1,348
Retail and other..................... 1,590 1,364 4,771 5,949
Less promotional allowances.......... (3,169) (3,298) (9,739) (9,525)
--------- --------- --------- ---------
Net operating revenues.............. 46,125 46,528 141,307 143,643
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Gaming and gaming cruise............. 24,434 25,323 74,866 76,037
Food and beverage.................... 3,497 3,417 10,406 9,839
Hotel................................ 507 181 1,036 514
Retail and other..................... 667 451 1,644 1,396
Selling, general and administrative.. 12,608 12,337 37,426 38,434
Depreciation and amortization........ 3,417 3,716 10,840 11,650
Loss (gain) on sale of assets, net... 13 (444) (457) (1,420)
Development.......................... 595 -- 1,792 598
--------- --------- --------- ---------
Total operating costs and expenses.. 45,738 44,981 137,553 137,048
--------- --------- --------- ---------
OPERATING INCOME...................... 387 1,547 3,754 6,595
Interest expense, net................. 4,755 3,326 12,109 10,332
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST................... (4,368) (1,779) (8,355) (3,737)
Income tax benefit.................... -- 275 -- 275
Minority interest..................... (314) (70) (554) (232)
--------- --------- --------- ---------
NET LOSS.............................. $ (4,682) $ (1,574) $ (8,909) $ (3,694)
========= ========= ========= =========
Net loss per common and
common equivalent share.............. $ (0.93) $ (0.31) $ (1.77) $ (0.73)
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding....... 5,033 5,033 5,033 5,033
====== ====== ====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED
PRESIDENT CASINOS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended Nov. 30,
1997 1996
------ ------
<S> <C> <C>
Net cash provided by operating activities......... $ 5,109 $ 5,714
-------- ---------
Cash flows from investing activities:
Expenditures for property and equipment......... (32,722) (8,469)
Changes in restricted cash...................... (4,736) --
Proceeds from the sale of property and equipment 1,077 13,794
Purchase of lease options....................... (1,200) (2,169)
Purchase of short-term investments.............. (2,000) --
Maturity of short-term investments.............. -- 408
Minority interest............................... (103) --
Other........................................... (59) --
--------- ---------
Net cash provided by (used in)
investing activities........................ (39,743) 3,564
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable..................... 30,000 --
Proceeds from a capital lease refund............ 108 --
Repayment of notes payable...................... (300) (300)
Payments on capital lease obligations........... (65) (722)
--------- ---------
Net cash provided by (used in)
financing activities........................ 29,743 (1,022)
--------- ---------
Net increase (decrease) in
cash and cash equivalents....................... (4,891) 8,256
Cash and cash equivalents at beginning of period.. 25,115 19,756
--------- ---------
Cash and cash equivalents at end of period........ $ 20,224 $ 28,012
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 14,313 $ 13,459
Cash paid for income taxes, net
of amounts recovered.......................... $ -- $ (1,184)
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Issuance of Class B Unit of LLC................. $ 10,000 $ --
Related party notes and interest thereon
applied against purchase of Biloxi Property... $ 2,016 $ --
Assets acquired under capital leases............ $ 156 $ --
Minority interest distribution.................. $ 53 $ --
Retirement of capital lease obligations......... $ 48 $ --
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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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 ("TCG"). 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,
including the Broadwater Property that was acquired by the Company in July
1997. 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 included in the Company's Annual Report on
Form 10-K for the period ending February 28, 1997. Accordingly, footnote
disclosure which would substantially duplicate the disclosure in the audited
consolidated financial statements has been omitted.
All share information has been adjusted to reflect a one-for-six reverse
stock split effective August 8, 1997 which reduced the outstanding shares of
common stock from 30,194,700 to approximately 5,032,900 shares and increased
the par value of the Company's common stock from $.01 to $.06 per share.
Certain amounts for fiscal 1997 have been reclassified to conform with
fiscal 1998 financial statement presentation.
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2. PROPERTY, PLANT AND EQUIPMENT
On July 24, 1997, the Company acquired certain real estate and improvements
from a wholly-owned entity of John E. Connelly, Chairman, Chief Executive
Officer and principal stockholder of the Company located on the Gulf Coast in
Biloxi, Mississippi for $40,500. See Note 4. The property comprises
approximately 260 acres and includes a marina, two hotels and an adjacent 18-
hole golf course (collectively, the "Broadwater Property"). The following
purchase price allocation is based upon the valuation of an independent
appraisal performed:
Land and land held for future development... $ 40,732
Machinery and equipment..................... 156
---------
$ 40,888
=========
The marina is currently the site of the Company's casino operations in
Biloxi and had been leased by the Company under a long-term lease agreement.
3. LEASE OPTIONS
In September 1997, the Company further modified its lease and option
agreements for its lease rights to 18 acres of river front property in the
Penn's Landing area of Philadelphia, Pennsylvania. Pursuant to the second
modification of the lease agreement, the Company remitted $1,200 for the
second preliminary term extension for the period from January 1, 1998 through
September 30, 1998. This term extension may be extended at the election of
the Company through December 31, 1998 on a month to month basis for $100 per
month beginning October 1998. The Company also extended its right to secure
additional option periods through December 31, 2000. The remaining terms and
conditions of the agreements were substantially unchanged.
4. MINORITY INTEREST AND LONG-TERM DEBT
Minority Interest
To effectuate the acquisition of the Broadwater Property as discussed in
Note 2, the Company entered into a Redemption Agreement dated as of July 22,
1997 (the "Redemption Agreement") by and among J. Edward Connelly Associates,
Inc., a company controlled by Mr. Connelly ("JECA"), Broadwater Hotel, Inc., a
wholly-owned subsidiary of the Company ("BHI"), and President Broadwater
Hotel, L.L.C., a limited liability company formed by JECA and BHI for purposes
of the transaction (the "LLC").
BH Acquisition Corporation ("BH"), a company wholly-owned by Mr. Connelly,
was the sole owner of the Broadwater Property. Prior to the closing of the
transactions, JECA, the successor by merger to BH became the sole owner of the
Broadwater Property. In connection with the formation of the LLC, JECA
transferred its interest in the Broadwater Property to the LLC as a capital
contribution in exchange for the sole outstanding membership interest in the
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LLC. Pursuant to the Redemption Agreement, BHI made a capital contribution of
$5,000 to the LLC in exchange for the Class A Unit of the LLC as described in
the Amended and Restated Limited Liability Company Operating Agreement of the
LLC (the "Amended Operating Agreement"). The Class A Unit affords BHI control
of the LLC. Simultaneously with BHI's acquisition of the Class A Unit, the
LLC redeemed JECA's existing membership interest in the LLC in exchange for
(i) the cash payment by the LLC to JECA of $28,484, (ii) redemption of the
$2,016 debt owed by BH to the Company and (iii) the issuance by the LLC to
JECA of the Class B Unit of the LLC as described in the Amended Operating
Agreement.
The LLC is obligated to redeem the Class B Unit from JECA for a redemption
price of $10,000 (the "Redemption Price") on the date on which the
Indebtedness (as hereinafter defined) is fully and finally discharged and the
mortgage securing the Indebtedness is released. In addition, the Class B Unit
entitles JECA to a priority return based on a percentage per annum equal to
the greater of (i) 8.75% or (ii) 4.0% plus LIBOR, as defined by the Redemption
Agreement.
Long-term Debt
In order to finance the LLC's redemption of JECA's existing membership
interest, the LLC borrowed the sum of $30,000 from a third party lender,
evidenced by a non-recourse promissory note (the "Indebtedness"). Except as
set forth in the promissory note and related security documents, the LLC's
obligations under the Indebtedness are nonrecourse and are secured by the
Broadwater Property, its improvements and leases thereon. The Indebtedness
bears interest at a variable rate per annum equal to the greater of (i) 8.75%
or (ii) 4% plus the LIBOR 30-day rate.
The LLC is obligated under the Indebtedness to make monthly payments of
interest accruing under the Indebtedness, and to repay the Indebtedness in
full on July 22, 2000. In addition, the LLC is obligated pay to the lender a
loan fee in the amount of $7,000 (the "Loan Fee") which will be fully earned
and nonrefundable when the Indebtedness is repaid; provided, however, that if
the Indebtedness is repaid in full on or before September 30, 1998, then the
Loan Fee will be reduced to $5,500.
Pursuant to loan agreements pertinent to the Broadwater Property, revenues
are deposited to lockboxes that are controlled by the lender. Expenditures
from the lockboxes are limited to the operating expenses, capital improvements
and debt service of the Broadwater Property as defined by such agreements.
Accordingly, the cash and cash equivalents of the Broadwater Property have
been classified as restricted cash.
5. COMMITMENTS AND CONTINGENT LIABILITIES
William H. Poulos, et al. v. Caesars World, Inc., et al., United States
District Court for the District of Nevada, Case No. CV-S-94-1126 DAE. As
previously disclosed, William H. Poulos filed a class-action lawsuit against
over thirty-eight (38) casino operators, including the Company, and certain
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suppliers and distributors of video poker and electronic slot machines. This
lawsuit was followed by several additional lawsuits of the same nature against
the same and other defendants, all of which have now been consolidated into a
single class-action pending in the United States District Court for the
District of Nevada.
Following a court order dismissing all pending pleadings and allowing the
plaintiffs to re-file a single complaint, a complaint has been filed
containing substantially identical claims, alleging that defendants
fraudulently marketed and operated casino video poker machines and electronic
slot machines, and asserting common law fraud and deceit, unjust enrichment
and negligent misrepresentation. Various motions were filed by the defendants
seeking to have this new complaint dismissed or otherwise limited. These were
recently in the main denied. It is anticipated that the discovery phase will
now commence. Although the outcome of litigation is inherently uncertain,
management believes the action is without merit.
The Company is from time to time a 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's subsidiaries.
6. SUBSEQUENT EVENT
On January 12, 1998, the Company sold its interest in a joint venture with
the St. Regis Mohawk Tribe to Massena Management Corp. ("MMC") for $375 and
certain contingent payments. Under the terms of the agreement, MMC will pay
the Company an additional $625 upon the opening of a proposed casino on the
Tribe's reservation near Massena, New York and up to an additional $1,000 out
of certain cash flows, if any, from the casino.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included elsewhere in
this report.
Overview
On July 24, 1997, the Company purchased for $40.5 million certain real
estate and improvements located on the Gulf Coast in Biloxi, Mississippi from
an entity which is wholly-owned by John E. Connelly, Chairman, Chief Executive
Officer and principal stockholder of the Company. The property comprises
approximately 260 acres and includes the Broadwater Resort and the Broadwater
Tower, the 138-slip Broadwater Marina and the adjacent 18-hole Sun Golf Course
(collectively, the "Broadwater Property"). The Broadwater Marina is currently
the site of the Company's casino operations in Biloxi and had been leased by
the Company under a long-term lease agreement. The Company invested $5.0
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million in President Broadwater Hotel, LLC (the "LLC"), which owns the
Broadwater Property. This entity financed the purchase with $30.0 million of
outside financing and issued a $10.0 million membership interest to the
seller. Such financing is non-recourse to the Company.
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
development 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
Intensified competition for patrons continues to occur at each of the
Company's properties.
Within a 25-mile radius of the Quad Cities, the Company's Davenport
operation competes with three other casino operations. Expansion and
increased marketing by these competitors continues to escalate causing
increased operating costs.
Competition continues to expand in the St. Louis market with the March 1997
opening of two new casinos in Maryland Heights, a suburb twenty miles west of
the Company's St. Louis operations.
--Regulatory Matters
The Company temporarily removed its casino vessel, "The President," from
service in Davenport (from November 12, 1995 to April 3, 1996) for its Coast
Guard mandated five-year hull inspection and to make certain improvements to
the facility. During such period, the Company temporarily replaced "The
President" with a smaller vessel, "The President Casino-Mississippi", thereby
reducing Davenport's gaming square footage from approximately 37,000 square
feet to 21,000 square feet for 34 days during the three-month period ended May
31, 1996.
A recent ruling by the Missouri Supreme Court has brought into question the
legality of certain Missouri riverboat gaming operations. Several of the
Company's St. Louis competitors have developed their gaming facilities in
shallow basins filled with piped-in river water, commonly referred to as
"boats in moats." The recent ruling requires gaming boats to be "solely over
and in contact with the surface" of the rivers on which they operate. At this
time it is not evident what effect, if any, the ruling may have on competitors
of the Company located in Missouri. The Company's St. Louis operation on "The
Admiral" does meet the new standard, and its gaming license is not affected by
this ruling.
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--Weather Conditions
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. The Davenport casino
operations were temporarily suspended for thirteen days during April 1997, as
a result of flooding on the Mississippi River. Also as a result of flood
conditions, the Company temporarily suspended operations aboard "The Admiral"
in St. Louis for three days in May and eight days in June of 1996. Although
the Company was not forced to suspend its St. Louis operations during the
nine-month period ended November 30, 1997, high waters caused reduced parking
and a general public perception of diminished access to the casino which
combined to negatively impact revenue during the period.
Results of Operations
The following table highlights the results of operations for the Company's
gaming and non-gaming cruise operating subsidiaries. Certain
reclassifications have been made to fiscal year 1997 to conform to the fiscal
1998 presentation (dollars in millions).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Biloxi, Mississippi
Operating revenues................. $ 8.9 $ 10.4 $ 30.2 $ 33.5
Loss from operations............... $ (0.8) $ (1.3) $ (1.2) $ (1.2)
EBITDA (a)......................... $ (0.1) $ (0.6) $ 1.0 $ 0.9
EBITDA margin...................... N/A N/A 3.3% 2.7%
Davenport, Iowa
Operating revenues................. $ 17.6 $ 16.4 $ 52.6 $ 50.4
Income from operations............. $ 2.7 $ 2.7 $ 7.9 $ 8.9
EBITDA (a)......................... $ 3.8 $ 3.7 $ 11.1 $ 11.9
EBITDA margin...................... 21.6% 22.6% 21.1% 23.6%
St. Louis, Missouri
Operating revenues................. $ 16.3 $ 18.2 $ 51.5 $ 53.8
Income from operations............. $ 0.4 $ 1.3 $ 2.7 $ 2.1
EBITDA (a)......................... $ 1.7 $ 2.5 $ 6.6 $ 5.8
EBITDA margin...................... 10.4% 13.7% 12.8% 10.8%
</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
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<PAGE> 12
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.
Three-Month Period Ended November 30, 1997 Compared to the
Three-Month Period Ended November 30, 1996
Operating revenues. The Company generated consolidated operating revenues
of $46.1 million during the three-month period ended November 30, 1997,
compared to $46.5 million during the three-month period ended November 30,
1996, a decrease of $0.4 million or 0.9%. The Davenport casino's revenues
increased $1.1 million, benefitting by an increase in market share and the
completion of various construction projects that had limited the access to the
casino during the prior year's three-month period. Continued competitive
pressures at the Biloxi and St. Louis casinos accounted for the decreases in
operating revenues during the period of $1.5 million and $1.9 million,
respectively. These decreases were offset by $2.0 million in revenue
generated by the Broadwater Property in Biloxi, which was acquired in July
1997.
The Company's revenues from food and beverage, hotel, retail, charter and
other non-gaming activities (net of promotional allowances) increased to $5.3
million during the three-month period ended November 30, 1997, from $3.7
million during the three-month period ended November 30, 1996, an increase of
$1.6 million or 43.2%. The increase was substantially attributable to $2.0
million revenue contributed by the Broadwater Property offset by a $0.2
million decrease in charter revenues during the three-month period ended
November 30, 1997.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $24.4 million during the three-month
period ended November 30, 1997, compared to $25.3 million during the three-
month period ended November 30, 1996, a decrease of $0.9 million or 3.6%. The
decrease was primarily attributable to reduced gaming taxes resulting from
reduced revenue and the ongoing operational efficiencies experienced at all
three properties. As a percentage of gaming revenues, gaming and gaming
cruise costs were 59.9% during the three-month period ended November 30, 1997,
compared to 59.1% during the three-month period ended November 30, 1996.
The Company's consolidated selling, general and administrative expenses were
$12.6 million during the three-month period ended November 30, 1997, compared
to $12.3 million for the three-month period ended November 30, 1996, an
increase of $0.3 million or 2.4%. As a percentage of consolidated revenues,
selling, general and administrative expenses increased to 27.3% during the
three-month period ended November 30, 1997 from 26.5% during the three-month
period ended November 30, 1996. The increase was primarily attributable to
the acquisition of the Broadwater Property which added a net $0.4 million to
the cost after allowing for the effect of elimination of the marina lease
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<PAGE> 13
expense costs for the Biloxi casino incurred prior to the acquisition.
Depreciation and amortization expenses were $3.4 million during the three-
month period ended November 30, 1997, compared to $3.7 million during the
three-month period ended November 30, 1996, a decrease of $0.3 million, or
8.1%. The decrease is primarily attributable to the sale in the prior year of
a vessel owned by the Company.
Development costs during the three-month period ended November 30, 1997 were
$0.6 million compared to no development costs during the three-month period
ended November 30, 1996. The increase was primarily related to the
amortization of the Company's lease option on property located in
Philadelphia, Pennsylvania.
Operating income. As a result of the foregoing items, the Company had
operating income of $0.4 million during the three-month period ended November
30, 1997, compared to $1.5 million during the three-month period ended
November 30, 1996.
Interest expense, net. The Company incurred net interest expense of $4.8
million during the three-month period ended November 30, 1997, compared to
$3.3 million during the three-month period ended November 30, 1996, an
increase of $1.5 million or 45.5%. The increase was attributable to an
additional $30.0 million of debt incurred by the Company in conjunction with
the purchase of the Broadwater Property in July 1997.
Minority interest expense. The Company incurred $0.3 million minority
interest expense during the three-month period ended November 30, 1997,
compared to $0.1 million during the three-month period ended November 30,
1996, an increase of $0.2 million. The increase is primarily attributable to
the acquisition of the Broadwater Property.
Net loss. The Company incurred a net loss of $4.7 million during the three-
month period ended November 30, 1997, compared to a net loss of $1.6 million
during the three-month period ended November 30, 1996.
Nine-Month Period Ended November 30, 1997 Compared to the
Nine-Month Period Ended November 30, 1996
Operating revenues. The Company generated consolidated operating revenues
of $141.3 million during the nine-month period ended November 30, 1997,
compared to $143.6 million during the nine-month period ended November 30,
1996, a decrease of $2.3 million or 1.6%. While the Davenport casino
experienced a $2.2 million increase in revenues, the Biloxi and St. Louis
casinos experienced decreases of $3.3 million and $2.3 million, respectively,
as a result of continued competitive pressures. On a consolidated basis, the
three gaming properties experienced a decrease in revenue $3.3 million.
Additionally, a non-gaming subsidiary experienced a $2.4 million decrease in
charter revenues as a result of the sale of two of the Company's vessels that
in the prior year had been under charter. Such decrease was offset by $3.1
million of revenue contributed by the Broadwater Property.
11
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Operating revenues from the Company's Davenport operations were positively
affected by an increase in market share (excluding the period that operations
were suspended) for the nine-month period ended November 30, 1997 compared to
the nine-month-period ended November 30, 1996. This was offset, in part, by
flood conditions which caused the temporary suspension of operations for
thirteen days during April 1997. During the nine-month period ended November
30, 1996, the Davenport operations were negatively affected by construction
which adversely affected parking and ingress to the casino (which construction
was substantially completed in fiscal 1997) and by the substitution of a
smaller vessel for one month of the first quarter.
The Company's revenues from food and beverage, hotel, retail, charter and
other non-gaming activities (net of promotional allowances) were $13.9 million
during the nine-month period ended November 30, 1997, compared to $12.9
million during the nine-month period ended November 30, 1996, an increase of
$1.0 million or 7.8%. The increase was largely attributable to $3.1 million
in revenue contributed by the Broadwater Property, which was acquired in July
1997, and $0.5 million of business interruption insurance proceeds related to
the temporary suspension of operations in St. Louis during the prior year that
was recognized in the three-month period ended May 31, 1997. Such increase
was partially offset by a $2.4 million dollar decrease in charter revenues as
a result of the sale of the two vessels discussed above.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $74.9 million during the nine-month
period ended November 30, 1997, compared to $76.0 million during the nine-
month period ended November 30, 1996, a decrease of $1.1 million or 1.4%.
This decrease in gaming costs was primarily attributable to operating
efficiencies and those costs directly affected by the reduced revenue levels,
such as gaming and boarding taxes. As a percentage of gaming revenues, gaming
and gaming cruise costs increased to 58.8% during the nine-month period ended
November 30, 1997 from 58.2% during the nine-month period ended November 30,
1996.
The Company's consolidated selling, general and administrative expenses were
$37.4 million during the nine-month period ended November 30, 1997, compared
to $38.4 million during the nine-month period ended November 30, 1996, a
decrease of $1.0 million or 2.6%. As a percentage of consolidated revenues,
selling, general and administrative expenses decreased to 26.5% during the
nine-month period ended November 30, 1997, from 26.8% during the nine-month
period ended November 30, 1996. The decrease was primarily attributable to
the successful challenge with respect to the St. Louis property of a tax
assessment that reduced its current annual taxes by $0.6 million.
Accordingly, the Company recorded $0.5 million of savings related to the nine-
month period ended November 30, 1997 and additionally recorded income of $0.7
million related to refunds and to the relief of prior period accruals. The
addition of the costs from the newly acquired Broadwater Property was
partially offset by the elimination of the marina lease costs.
During the nine-month period ended November 30, 1997 the Company recognized
a net gain on the sale and disposal of assets of $0.5 million. This gain was
12
<PAGE> 15
primarily related to the sale of an unused vessel. During the nine-month
period ended November 30, 1996, the Company recognized a net gain on the sale
and disposal of assets of $1.4 million. This gain was primarily related to
the exercise of a purchase option by the charterer of one of the Company's
casino vessels.
Depreciation and amortization expenses were $10.8 million during the nine-
month period ended November 30, 1997, compared to $11.7 million during the
nine-month period ended November 30, 1996, a decrease of $0.9 million or 7.7%.
The decrease was primarily attributable to the sale of two vessels in the
prior year.
During the nine-month period ended November 30, 1997, the Company incurred
development costs of $1.8 million primarily related to the Company's lease
option in Philadelphia, Pennsylvania and other potential gaming jurisdictions.
During the nine-month period ended November 30, 1996, the Company incurred
development costs of $0.6 million related to the proposed and since abandoned
application and implementation of a second gaming vessel in St. Louis.
Operating income. As a result of the items discussed above, the Company had
operating income of $3.8 million during the nine-month period ended November
30, 1997, compared to operating income of $6.6 million during the nine-month
period ended November 30, 1996.
Interest expense, net. The Company incurred net interest expense of $12.1
million during the nine-month period ended November 30, 1997, compared to
$10.3 million during the nine-month period ended November 30, 1996, an
increase of $1.8 million or 17.5%. The increase was attributable to an
additional $30.0 million of debt incurred by the Company in conjunction with
the purchase of the Broadwater Property in July 1997.
Minority interest expense. The Company incurred $0.6 million minority
interest expense for the nine-month period ended November 30, 1997, compared
to $0.2 million for the nine-month period ended November 30, 1996. The
increase is primarily attributable to the acquisition of the Broadwater
Property in late July 1997.
Net loss. The Company incurred a net loss of $8.9 during the nine-month
period ended November 30, 1997, compared to a net loss of $3.7 million during
the nine-month period ended November 30, 1996.
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 casino operations.
The Company requires approximately $9.0 million of cash in order to fund
daily operations. As of November 30, 1997, the Company had approximately
$13.8 million in non-restricted cash and short-term investments available in
excess of the approximately $9.0 million required to fund operations. The
13
<PAGE> 16
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 expenditures or seek other sources of
financing. The Company may be limited in its ability to raise cash through
additional financing.
Pursuant to loan agreements pertinent to the Broadwater Property, revenues
are deposited to lockboxes that are controlled by the lender. Expenditures
from the lockboxes are limited to the operating expenses, capital improvements
and debt service of the Broadwater Property as defined by such agreements.
Investing activities of the Company used $39.7 million of cash during the
nine-month period ended November 31, 1997, compared to the $3.6 million
provided by investing activities during the nine-month period ended November
30, 1996. During the nine-month period ended November 30, 1997, the Company
spent $32.7, primarily on the acquisition of the Broadwater Property, and
spent $1.2 million related to certain lease options in Philadelphia, offset by
the receipt of $1.1 million of proceeds primarily from the sale of two vessels
that the Company did not intend to use in future operations. During the nine-
month period ended November 30, 1996, $13.8 million of proceeds from the sale
of a vessel were partially offset by $8.5 million for expenditures for
property and equipment and $2.2 million related to the purchase of certain
lease options in Philadelphia.
During the nine-month period ended November 30, 1997, the Company made $0.4
million of principal payments, compared to $1.0 million during the nine-month
period ended November 30, 1996.
The indenture governing the Company's Senior Notes due 2001 (the
"Indenture"), restricts the ability of PCI, TCG and PCI's wholly-owned
subsidiaries which are guarantors of the Senior Notes due 2001 (collectively,
the "Guarantors"), among other things, to dispose of or create liens on
certain assets, to make certain investments and to pay dividends. Under the
Indenture, the Guarantors have the ability to seek to borrow additional funds
of $15.0 million. The Indenture also provides that the Guarantors 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 proceeds in accordance with the Indenture. In the
event such proceeds are not so utilized, the Company must make an offer to all
holders of Senior Notes to repurchase at par value an aggregate principal
amount of Senior Notes equal to the amount by which such proceeds exceeds $5.0
million. The Company does not believe that the unutilized proceeds will
exceed $5.0 million. Certain provisions of the Indenture do not apply to
PCI's consolidated entities which do not guarantee the Senior Notes due 2001.
14
<PAGE> 17
In September 1997, the Company further modified its lease and option
agreements for its lease rights to 18 acres of river front property in the
Penn's Landing area of Philadelphia, Pennsylvania. Pursuant to the second
modification of the lease agreement, the Company remitted $1.2 million for the
second preliminary term extension for the period from January 1, 1998 through
September 30, 1998. This term extension may be extended at the election of
the Company through December 31, 1998 on a month to month basis for $0.1
million per month beginning in October 1998. The Company also extended its
right to secure additional option periods through December 31, 2000. The
remaining terms and conditions of the agreements were substantially unchanged.
On January 12, 1998, the Company submitted the requisite applications to the
New York City Gambling Control Commission to operate a "cruise to nowhere"
vessel from New York City. The proposed operation would conduct gaming
cruises sailing the required three miles from New York City into international
waters. The Company intends to use its 308-foot long deep-water vessel,
currently named the "Majestic Star," which is scheduled to be released from
its charter to an unrelated third party in early Spring 1998.
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 or on a stand-alone project basis, financing through lease
agreements, selling equity securities and selling assets 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.
The Company has a $3.9 million outstanding term note payable that is
collateralized by a boat and various equipment with a net book value of $8.5
million. The note contains a covenant whereby the Company must maintain a
minimum net worth of $20.0 million during fiscal 1998. The Company's net
worth is currently below $20.0 million. During the three-month period ended
August 31, 1997, the Company received a waiver of the covenant through
February 28, 1998. Since the fair market value of the vessel is in excess of
the outstanding note balance, management believes that the Company will be
15
<PAGE> 18
able to either renegotiate the terms, buy down a portion of the note or
refinance the loan at such time as the waiver terminates.
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.
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 5 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.
16
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
Not applicable.
17
<PAGE> 20
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: January 14, 1998 /s/ James A. Zweifel
--------------------------
James A. Zweifel
Executive Vice President and
Principal Financial Officer
18
<PAGE> 21
EXHIBIT INDEX
---------------
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule for the nine-month period ended
November 30, 1997, as required under EDGAR.
19
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT
OF INCOME OF PRESIDENT CASINOS INC. FILED AS A PART OF THE QUARTERLY REPORT ON
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY
REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 20224
<SECURITIES> 2600
<RECEIVABLES> 1547
<ALLOWANCES> 414
<INVENTORY> 1927
<CURRENT-ASSETS> 36407
<PP&E> 205728
<DEPRECIATION> 55138
<TOTAL-ASSETS> 189830
<CURRENT-LIABILITIES> 33046
<BONDS> 99043
0
0
<COMMON> 302
<OTHER-SE> 14510
<TOTAL-LIABILITY-AND-EQUITY> 189830
<SALES> 0
<TOTAL-REVENUES> 141307
<CGS> 0
<TOTAL-COSTS> 137553
<OTHER-EXPENSES> 554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12109
<INCOME-PRETAX> (8909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8909)
<EPS-PRIMARY> (1.77)
<EPS-DILUTED> (1.77)
</TABLE>
