<PAGE> 1
==============================================================================
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, 2000
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,
5,032,988 shares outstanding as of June 30, 2000.
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<PAGE> 2
PRESIDENT CASINOS, INC.
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
as of May 31 and February 29, 2000..................................1
Condensed Consolidated Statements of Operations (Unaudited)
for the Three Months Ended May 31, 2000 and 1999....................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended May 31, 2000 and 1999....................3
Notes to Condensed Consolidated Financial Statements (Unaudited)......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....25
Part II. Other Information
Item 1. Legal Proceedings.............................................25
Item 2. Changes in Securities.........................................25
Item 3. Defaults Upon Senior Securities...............................25
Item 4. Submission of Matters to a Vote of Security Holders...........25
Item 5. Other Information.............................................25
Item 6. Exhibits and Reports on Form 8-K..............................26
Signature................................................................27
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
PRESIDENT CASINOS, INC. (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) May 31, Feb. 29,
2000 2000
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 11,140 $ 12,408
Restricted cash................................ 2,986 2,780
Restricted short-term investments.............. 975 960
Accounts receivable, net of allowance for
doubtful accounts of $284 and $331........... 950 1,401
Inventories.................................... 1,716 1,728
Prepaid expenses and other current assets...... 2,824 2,218
--------- ---------
Total current assets....................... 20,591 21,495
Property and equipment, net of accumulated
depreciation of $84,526 and $81,027............ 142,645 142,490
Other assets..................................... 1,129 1,409
--------- ---------
$164,365 $165,394
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term debt................................ $ 3,403 $ 4,513
Current maturities of long-term debt........... 135,656 135,577
Accrued loan fee............................... 6,631 5,996
Accounts payable............................... 3,416 3,969
Accrued payroll and benefits................... 6,405 7,499
Other accrued expenses......................... 17,880 14,201
--------- ---------
Total current liabilities.................. 173,391 171,755
Long-term liabilities:
Notes payable................................. 219 --
--------- ---------
Total liabilities.......................... 173,610 171,755
--------- ---------
Minority interest................................ 13,565 13,220
Commitments and contingencies.................... -- --
Stockholders' deficit:
Preferred Stock, none issued and outstanding... -- --
Common Stock, $0.06 par value per share;
100,000 shares authorized; 5,033 shares
issued and outstanding....................... 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (124,841) (121,612)
--------- ---------
Total stockholders' deficit................ (22,810) (19,581)
--------- ---------
$164,365 $165,394
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS
PRESIDENT CASINOS, INC. OF OPERATIONS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands, except share data) Three Months Ended May 31,
2000 1999
------ ------
<S> <C> <C>
OPERATING REVENUES:
Gaming......................................... $ 45,672 $ 47,536
Food and beverage.............................. 5,585 6,176
Hotel.......................................... 1,907 2,011
Retail and other............................... 1,536 2,997
Less promotional allowances.................... (4,249) (4,365)
--------- ---------
Net operating revenues....................... 50,451 54,355
--------- ---------
OPERATING COSTS AND EXPENSES:
Gaming and gaming cruise....................... 27,291 28,260
Food and beverage.............................. 3,712 3,894
Hotel.......................................... 787 726
Retail and other............................... 670 763
Selling, general and administrative............ 12,013 12,850
Depreciation and amortization.................. 3,582 3,664
Development costs.............................. 68 95
--------- ---------
Total operating costs and expenses........... 48,123 50,252
--------- ---------
OPERATING INCOME................................. 2,328 4,103
--------- ---------
OTHER INCOME (EXPENSE):
Interest income................................ 98 132
Interest expense............................... (5,285) (4,879)
--------- ---------
Total other income (expense)................. (5,187) (4,747)
--------- ---------
LOSS BEFORE MINORITY INTEREST.................... (2,859) (644)
Minority interest................................ 370 332
--------- ---------
NET LOSS......................................... $ (3,229) $ (976)
========= =========
Basic and diluted net loss per share............. $ (0.64) $ (0.19)
========= =========
Weighted average common and dilutive
potential shares outstanding.................... 5,033 5,033
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS
PRESIDENT CASINOS, INC. OF CASH FLOWS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) Three Months Ended May 31,
2000 1999
------ ------
<S> <C> <C>
Net cash provided by operating activities......... $ 3,474 $ 4,735
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment......... (2,811) (1,626)
Change in restricted cash....................... (206) (172)
Payment of minority interest.................... (25) (250)
Other........................................... (12) 52
--------- ---------
Net cash used in investing activities....... (3,054) (1,996)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable...................... (1,687) (100)
Payments on capital lease obligations........... (1) (3)
--------- ---------
Net cash used in financing activities....... (1,688) (103)
--------- ---------
Net increase (decrease) in cash
and cash equivalents........................ (1,268) 2,636
Cash and cash equivalents at beginning of period.. 12,408 17,110
--------- ---------
Cash and cash equivalents at end of period........ $ 11,140 $ 19,746
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 1,031 $ 6,524
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Assets acquired in exchange for debt............ $ 923 $ --
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED
PRESIDENT CASINOS, INC. FINANCIAL STATEMENTS (UNAUDITED)
______________________________________________________________________________
(dollars in thousands)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and operations of
President Casinos, Inc., its wholly-owned subsidiaries, a 95%-owned limited
partnership and a limited liability company in which the Company has a 100%
ownership interest and in which an entity wholly-owned by the Chairman of the
Board of the Company has preferred rights to certain cash flows (collectively,
the "Company" or "PCI"). All material intercompany balances and transactions
have been eliminated.
PCI owns and operates riverboat and/or dockside gaming casinos through its
subsidiaries. The Company conducts riverboat and/or dockside gaming
operations in Davenport, Iowa; in Biloxi, Mississippi through its wholly-owned
subsidiary The President Riverboat Casino-Mississippi, Inc. ("President
Mississippi"); and in St. Louis near the base of the Arch through its wholly-
owned subsidiary, President Riverboat Casino-Missouri, Inc. ("President
Missouri"). The Davenport operations are managed by the Company's wholly-
owned subsidiary, President Riverboat Casino-Iowa, Inc. ("PRC Iowa"), which is
the general partner of the 95% Company-owned operating partnership, The
Connelly Group, L.P. ("TCG"). The Company also operates two nongaming 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 in Biloxi and
Davenport. The Broadwater Property in Biloxi is owned by the President
Broadwater Hotel, LLC, a limited liability corporation in which the Company
has a 100% ownership interest. The Blackhawk Hotel in Davenport is a wholly-
owned subsidiary of the Company.
Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is experiencing
difficulty generating sufficient cash flow to meet its obligations and sustain
its operations. However, because of the Company's relatively high degree of
leverage and the need for significant capital expenditures at its St. Louis
property, management determined that, pending a restructuring of its
indebtedness, it would not be in the best interest of the Company to make the
regularly scheduled interest payments on its $75,000 Senior Exchange Notes and
$25,000 Secured Notes. Accordingly, the Company has not paid the regularly
scheduled interest payment of $6,375 that was due and payable March 15, 2000.
Under the Indentures pursuant to which the Senior Exchange Notes and Secured
Notes were issued, an Event of Default occurred on April 15, 2000, and is
continuing as of the date hereof. No action has been taken by either the
Indenture Trustee or holders of at least 25% of the Senior Exchange Notes and
Secured Notes to accelerate the Senior Exchange Notes and Secured Notes and
declare the unpaid principal and interest to be due and payable.
An informal committee (the "Committee"), representing holders of a majority
in interest of the Senior Exchange Notes and Secured Notes, has been formed.
The Committee has retained legal counsel, certain costs of which are being
borne by the Company. The Company has initiated and is continuing discussions
4
<PAGE> 7
with representatives of the Committee concerning a restructuring of the
Company's indebtedness that may include the sale of some of the Company's
properties. The Company believes that the market value of its properties and
assets substantially exceeds the amount of its debt. Management believes this
market value is the key factor in the Company's program to resolve this matter
with the bond holders. There can be no assurances that the Company will be
successful in this restructuring, and the Company believes that the success of
such restructuring will depend in large part upon the cooperation and the
willingness of the creditors to work with the Company.
By suspending the interest payments on the Senior Exchange Notes and Secured
Notes until such time as a restructuring plan has been negotiated and
implemented, the Company believes that its liquidity and capital resources
will be sufficient to maintain its normal operations at current levels during
the restructuring period and does not anticipate any adverse impact on its
operations, customers or employees. However, costs incurred and to be
incurred in connection with any restructuring plan have been and will continue
to be substantial and, in any event, there can be no assurance that the
Company will be able to restructure successfully its indebtedness or that its
liquidity and capital resources will be sufficient to maintain its normal
operations during the restructuring period. The Company remains current with
all its vendors and suppliers.
As of May 31, 2000, the Company has $11,140 of unrestricted cash and cash
equivalents. Of this amount, the Company requires approximately $8,000 to
$9,500 of cash to fund daily operations. The Company is heavily dependant on
cash generated from operations to continue to operate as planned in its
existing jurisdictions and to make 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 its
ongoing operating properties but not meet all its obligations for borrowed
money. To the extent cash generated from operations is less than anticipated,
the Company may be required to curtail certain planned expenditures.
Due to cross default provisions associated with other debt agreements, the
Company is also in default on certain other debts. These debts include the
$30,000 note and the associated $7,000 loan fee related to the Broadwater
Property and the $2,900 "President Casino-Mississippi" note. These debts are
also currently due and classified in current liabilities as of May 31, 2000.
Additionally, the Company did not pay the $3,966 note which was due April 15,
2000, associated with the purchase of the Biloxi casino barge and the note is
in default. A payment of $325 was made on that date and further payments of
$306 and $344 were made on May 16 and June 15, 2000, respectively. The
Company has reached an agreement in principle under this note and is
finalizing the documentation. The extended note is expected to have monthly
payments of $325 and mature in March 2001. In the event that these notes are
accelerated, at this time the Company does not have the resources available to
repay such indebtedness.
Management is pursuing various strategic financing alternatives in order to
fund these obligations and the Company's continuing operations. The Company
is working with recognized financial advisors in the gaming industry to pursue
these alternatives, including the restructuring and refinancing of outstanding
debt obligations and/or the sale of a portion of its assets. The Company's
ability to continue as a going concern is dependent on the ability of the
Company to restructure successfully, refinance its debts or sell/charter
assets on a timely basis under acceptable terms and conditions and the ability
of the Company to generate sufficient cash to fund future operations. There
5
<PAGE> 8
can be no assurance in this regard or that the Company will continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainly.
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 accounting principles generally
accepted in the United States of America. 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 29, 2000. Accordingly, footnote
disclosure which would substantially duplicate the disclosure in the audited
consolidated financial statements has been omitted in the accompanying
unaudited condensed consolidated financial statements.
Certain amounts for fiscal 2000 have been reclassified to conform with
fiscal 2001 financial statement presentation.
2. Short-term Debt and Notes Payable
Short-term is summarized as follows:
<TABLE>
<CAPTION>
May 31, Feb. 29,
2000 2000
------ ------
<S> <C> <C>
"President Casino-Broadwater" note payable...... $ 3,038 $ 3,966
Various short-term non-interest bearing notes... 365 547
--------- ---------
Short-term debt............................ $ 3,403 $ 4,513
========= =========
</TABLE>
"President Casino-Broadwater" Barge Note
In August 1999, the Company purchased "President Casino-Broadwater," the
vessel on which the Company conducts its Biloxi gaming operations. The
Company had previously leased the "President Casino-Broadwater" since June
1995. The Company paid $1,000 at closing and $5,393 was financed by the
seller. Under the terms of the agreement, the Company made monthly combined
interest and principal payments of $290 through March 2000. The Company made
the scheduled payment of $145 on April 1, 2000. The balloon payment due April
15, 2000 of $3,652 was not made and the note is in default. Instead payment
of $325, $306 and $344 were made April 15, May 16 and June 15, 2000,
respectively. The Company has reached an agreement in principle to extend the
payment obligations under the note and is finalizing the documentation. The
extended note is expected to have a restructuring fee of $67, monthly payments
of $325 and mature in March 2001.
Various Non-Interest Bearing Notes
TCG and President Missouri purchased various gaming and office equipment on
payment terms ranging from six to sixteen months. The terms are non-interest
6
<PAGE> 9
bearing and payments are generally due monthly. The notes are collateralized
by gaming and office equipment with a net book value of $815 as of May 31,
2000.
Current and non-current portions of long-term notes payable are summarized
as follows:
<TABLE>
<CAPTION>
May 31, Feb.29,
2000 2000
------ ------
<S> <C> <C>
Senior Exchange notes, 13%, principal
payments of $25,000 due September 2000 and
$50,000 due September 2001, net of discount
of $224 and $284.............................. $ 74,776 $ 74,716
Secured Notes, 12%, principal payment of
$25,000 due September 2001, net of a gain
on modification of terms of $549 and $655..... 25,549 25,655
Broadwater Hotel note payable, variable
interest rate, 10.1875% and 9.875% as of
May 31 and February 29, 2000, respectively,
principal payment due July 2000............... 30,000 30,000
M/V "President Casino-Mississippi" note payable,
variable interest rate, 9.67% and 9.29% as of
May 31 and February 29, 2000, respectively,
principal payments due quarterly of $100,
with a final payment of $2,000 due
in fiscal 2003................................. 2,900 3,000
Line of credit, prime plus 0.5%, combined
rate of 9.25% and 9.0% as of May 31 and
February 29, 2000, respectively................ 1,800 2,200
Gaming equipment note payable, 11.0%, monthly
combined principal and interest payments of
$10 due through August 2000, monthly
combined principal and interest payments of
$74 due September 2000 through August 2001..... 845 --
--------- ---------
Total notes payable.......................... 135,870 135,571
Less: Current maturities....................... (135,651) (135,571)
--------- ---------
$ 219 $ --
========= =========
</TABLE>
Senior Exchange Notes
In April 1995, the Company exchanged $100,000 of Senior Notes for an equal
principal amount of 13% Senior Exchange Notes due 2001 ("Senior Exchange
Notes") registered under the Securities Act of 1933. The Senior Exchange
Notes rank equal in right of payment to all present and future senior debt (as
defined in the indenture governing the Senior Exchange Notes (the "Note
Indenture")) of the Company and its subsidiaries and were payable as follows:
25% of the outstanding principal amount on each of September 15, 1999 and
September 15, 2000 and the remainder of the outstanding principal amount on
September 15, 2001. In addition, the Senior Exchange Notes are
unconditionally guaranteed, jointly and severally on a senior basis, by all of
the Company's then existing wholly-owned subsidiaries (the "Guarantors"), and,
under certain circumstances, the Company's future subsidiaries, although the
subsidiary guarantee from TCG is limited in amount. As security for the
obligations of the Company and the Guarantors under the Senior Exchange Notes,
the Company and the Guarantors have pledged their equity interests in each
Guarantor and all of their rights in certain management agreements with,
certain indebtedness from, and certain investments in, certain gaming
7
<PAGE> 10
ventures. The Note Indenture contains certain restrictive covenants which,
among other things, limit the Company's Guarantors' ability to pay dividends,
incur additional indebtedness (exclusive of $15,000 of senior debt), issue
preferred stock, create liens on certain assets, merge or consolidate with
another company and sell or otherwise dispose of all or substantially all of
its properties or assets.
Secured Notes
On December 3, 1998, the Company repurchased $25,000 of its Senior Exchange
Notes. The repurchased notes were used to satisfy the $25,000 principal
payment due September 15, 1999 on the Company's $100,000 Senior Exchange
Notes. The repurchase was funded by the issuance of $25,000 of new 12% notes
due September 15, 2001 (the "Secured Notes"). Under the repurchase agreement,
the Company incurs a 1% annual loan fee on the principal balance of $25,000
until maturity. The Secured Notes have no mandatory redemption obligation and
are secured by mortgages on the "Admiral" and the "New Yorker," as well as
subsidiary guarantees.
Broadwater Hotel Note-10.1875%
In conjunction with the purchase of the Broadwater Property, President
Broadwater, L.L.C. ("PBLLC") 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,
PBLLC'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.
PBLLC 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, PBLLC is obligated to pay to the lender a
loan fee in the amount of $7,000 which will be fully earned and nonrefundable
when the Indebtedness is repaid. As of May 31, 2000, the Company has accrued
$6,631 of this loan fee. The Company has continued to make the monthly
interest payments related to this note and is in negotiations with the lender
regarding extending the note past its July 2000 maturity date, as management
believes the Company will not have the resources available at that time to pay
such indebtedness.
M/V "President Casino-Mississippi" Note-9.67%
The 9.67% term note payable is collateralized by the vessel "President
Casino-Mississippi" and various equipment with a net book value of $7,363 as
of May 31, 2000, and is personally guaranteed by Mr. Connelly. This note also
contains certain covenants which, among other things, require the Company to
maintain a minimum tangible net worth of $40,000. The Company received a
waiver of the net worth covenant through the period ended September 30, 2000,
at which time the Company's net worth requirement will return to $40,000.
The aforementioned default on the Company's Senior Exchange Notes and Secured
Notes also constituted a default under this vessel note. The Company has
continued to make the quarterly principal and interest payments related to
this note. No action has been taken by the lender to accelerate the note and
declare the unpaid principal due and payable.
8
<PAGE> 11
Line of Credit
TCG, the Company's 95%-owned partnership, maintains a line of credit
provided by Firstar Bank, N.A., collateralized by a first mortgage on the M/V
"President" and first mortgages on the Blackhawk Hotel with net book values as
of May 31, 2000, of $5,690 and $3,883, respectively, various personal property
and an assignment of various contracts. As of May 31, 2000, the line of
credit was $1,800. The line of credit terminates in September 2000. The line
of credit is available exclusively to TCG. Distributions from TCG to its
general partner are limited by its partnership agreement. The Company has
continued to make the principal and interest payment required under the line
including the $400 principal payment that was due and paid in March 2000.
The various agreements governing the notes described above generally limit
borrowings by the Company's affiliates without the respective lenders' prior
consent.
3. Commitments And Contingent Liabilities
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.
4. Segment Information
The Company evaluates performance based on operations EBITDA. Operations
EBITDA is earnings before interest, taxes, depreciation and amortization
expense of each of the reportable segments. Corporate and development
expenses and gain/loss on sale of assets are not allocated to the reportable
segments and are therefore excluded from operations EBITDA.
Operations 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 operations EBITDA solely as a
supplemental disclosure to facilitate a more complete analysis of the
Company's financial performance. The Company believes that this disclosure
enhances the understanding of the financial performance of a company with
substantial interest, depreciation and amortization.
The Company had no inter-segment sales and accounts for transfers of
property and inventory at its net book value at the time of such transfer.
The Company's reportable segments are based on its three geographic gaming
operations and its leasing operation. The Biloxi Properties consists of the
Biloxi casino and Broadwater Property; the Davenport Properties consists of
the Davenport casino and the Blackhawk Hotel; and the St. Louis Properties
consists of the St. Louis casino and Gateway Riverboat Cruises.
9
<PAGE> 12
The Company's reportable segments, other than the leasing operation, are
similar in operations, but have distinct and separate regional markets.
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
------ ------
<S> <C> <C>
OPERATING REVENUES:
Biloxi Properties...................... $ 14,887 $ 15,342
Davenport Properties................... 18,920 20,935
St. Louis Properties................... 16,644 16,650
--------- ---------
Gaming and ancillary operations....... 50,451 52,927
Leasing Operation...................... -- 1,428
--------- ---------
Net operating revenues............. $ 50,451 $ 54,355
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
------ ------
<S> <C> <C>
EBITDA (before development and
impairment expenses and gain/loss
on sale of property and equipment):
Biloxi Properties...................... $ 2,500 $ 1,971
Davenport Properties................... 3,177 3,517
St. Louis Properties................... 1,874 2,114
--------- ---------
Gaming and ancillary operations....... 7,551 7,602
Leasing Operation...................... (333) 1,257
--------- ---------
Operations EBITDA.................. 7,283 8,859
OTHER COSTS AND EXPENSES:
Corporate expense...................... 1,245 992
Development expense.................... 68 95
Depreciation and amortization.......... 3,582 3,664
(Gain)/loss on sale of assets.......... (5) 5
Other expense, net..................... 5,187 4,747
--------- ---------
Total other costs and expenses....... 10,077 9,503
--------- ---------
LOSS BEFORE MINORITY INTEREST.......... (2,859) (644)
Minority interest...................... 370 332
--------- ---------
NET LOSS............................... $ (3,229) $ (976)
========= =========
</TABLE>
10 <PAGE> 13
<TABLE>
<CAPTION>
May 31, Feb. 29,
2000 2000
------ ------
<S> <C> <C>
Property and Equipment
Biloxi Properties..................... $ 54,183 $ 54,638
Davenport Properties.................. 22,085 22,873
St. Louis Properties.................. 38,240 36,496
--------- ---------
Gaming and ancillary operations.... 114,508 114,007
Leasing Operations.................... 25,050 25,685
--------- ---------
Operations Assets................... 139,558 139,692
Corporate Assets...................... 49 54
Development Assets.................... 3,038 2,744
--------- ---------
Net Property and Equipment........ $142,645 $142,490
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended May 31,
2000 1999
------ ------
<S> <C> <C>
Additions to Property and Equipment:
Biloxi Properties..................... $ 321 $ 1,020
Davenport Properties.................. 329 175
St. Louis Properties.................. 2,788 148
--------- ---------
Gaming and ancillary operations.... 3,438 1,343
Leasing Operations.................... -- (10)
--------- ---------
Operations Assets................... 3,438 1,333
Corporate Assets...................... 2 8
Development Assets.................... 294 285
--------- ---------
$ 3,734 $ 1,626
========= =========
</TABLE>
Included in additions to property and equipment is $923 of assets acquired
in exchange for debt.
5. Relocation of the "Admiral"
During July 1998, the Company and the City of St. Louis reached an agreement
for the relocation of the "Admiral," approximately 1,000 feet north from its
current location on the Mississippi River. It is anticipated that the new
location will enhance access to the casino, provide better parking and be less
susceptible to flooding.
The aggregate cost to relocate the "Admiral" and construct ancillary
facilities is expected to be approximately $7,900. Under the terms of the
proposed agreement, the City will fund $3,000 of the relocation costs, $2,400
of which will be financed through bank debt. The Company will pay for the
remaining costs. Under the terms of the agreement, the Company has placed
$500 in escrow to be used to fund a portion of these costs. It is anticipated
that the City will repay the $2,400 in debt from annual allocations of $600
from the City's annual home dock city public safety fund that is funded by
admission taxes from the "Admiral." The Company has guaranteed completion of
the project and repayment of the $2,400 bank debt if the City fails to pay the
11
<PAGE> 14
obligation. Construction has begun and the move is expected to occur during
the fall of 2000, subject to certain approvals, weather conditions and timely
construction. The Company expects to fund this project from operating cash
flow (see Note 1).
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this report.
The Company is experiencing difficulty generating sufficient cash flow to
meet its obligations and sustain its operations. The Company's management
determined that, pending a restructuring of its indebtedness, it would not be
in the best interest of the Company to make the regularly scheduled interest
payments on its Senior Exchange Notes and Secured Notes. Accordingly, the
Company has not paid the regularly scheduled interest payment of $6.4 million
that was due and payable March 15, 2000. Under the Indentures pursuant to
which the Senior Exchange Notes and Secured Notes were issued, an Event of
Default occurred on April 15, 2000, and is continuing as of the date hereof.
No action has been taken by either the Indenture Trustee or holders of at
least 25% of the Senior Exchange Notes and Secured Notes to accelerate the
Senior Exchange Notes and Secured Notes and declare the unpaid principal and
interest to be due and payable.
An informal committee (the "Committee"), representing holders of a majority
in interest of the Senior Exchange Notes and Secured Notes, has been formed.
The Committee has retained legal counsel, certain costs of which are being
borne by the Company. The Company has initiated and is continuing discussions
with representatives of the Committee concerning a restructuring of the
Company's indebtedness that may include the sale of some of the Company's
properties. The Company believes that the market value of its properties and
assets substantially exceeds the amount of its debt. Management believes this
market value is the key factor in the Company's program to resolve this matter
with the bond holders. There can be no assurances that the Company will be
successful in this restructuring, and the Company believes that the success of
such restructuring will depend in large part upon the cooperation and the
willingness of the creditors to work with the Company.
Due to cross default provisions associated with other debt agreements, the
Company is also in default on certain other debts. These debts include the
$30.0 million note and the associated $7.0 million loan fee related to the
Broadwater Property and the $2.9 million "President Casino-Mississippi" note.
These debts are also currently due and classified in current liabilities as of
May 31, 2000. Additionally, the Company did not pay the $3.7 million note
which was due April 15, 2000, associated with the purchase of the Biloxi
casino barge. The Company has reached an agreement in principle to extend the
payment obligations under this note and is finalizing the documentation. In
the event that these notes are accelerated, at this time the Company does not
have the resources available to repay such indebtedness. See Liquidity and
Capital Resources.
Management is pursuing various strategic financing alternatives in order to
fund these obligations and the Company's continuing operations. The Company
is working with recognized financial advisors in the gaming industry to pursue
these alternatives, including the restructuring and refinancing of outstanding
debt obligations and/or the sale of a portion of its assets. The Company's
12
<PAGE> 15
ability to continue as a going concern is dependent on the ability of the
Company to restructure successfully, refinance its debts or sell/charter
assets on a timely basis under acceptable terms and conditions and the ability
of the Company to generate sufficient cash to fund future operations. There
can be no assurance in this regard.
Overview
The Company's operating results are affected by a number of factors,
including competitive pressures, changes in regulations governing the
Company's activities, the results of pursuing various development
opportunities 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. The Company's
operations are not significantly affected by seasonality.
--Competition
Intensified competition for patrons continues to occur at each of the
Company's properties.
Since gaming began in Biloxi in August 1992, there has been steadily
increasing competition along the Mississippi Gulf Coast, in nearby New Orleans
and elsewhere in Louisiana and Mississippi. Several large hotel/casino
complexes have been built in recent years with the largest single resort in
the area opening in March 1999. There are currently twelve casinos operating
on the Mississippi Gulf Coast. See "Potential Growth Opportunities" regarding
a master plan for a destination resort the Company is developing in Biloxi,
Mississippi.
Within a 45-mile radius of the Quad Cities, the Company's Davenport casino
operations compete with three other casino operations. Expansion and
increased marketing by these competitors and changes in the Illinois gaming
laws has resulted in increased promotional and marketing costs for the
Company's Davenport operation.
Competition is intense in the St. Louis market area. There are presently
five other casino companies operating eight casinos in the market area. Two
of these are Illinois casino companies operating single casino vessels on the
Mississippi River, one directly across the Mississippi from the "Admiral" and
the second 20 miles upriver. There are three Missouri casino companies, each
of which operates two casino vessels approximately 20 miles west of St. Louis
on the Missouri River, one in the City of St. Charles, Missouri and two in
Maryland Heights, Missouri. The two casino companies in Maryland Heights
opened in March 1997. In April 2000, one of these two casino companies
purchased the other so that all four casinos will be operated under the same
name.
Applications have been submitted to the Missouri Gaming Commission for
approval of potential new licenses at four different locations within the St.
Louis Metropolitan area along the Mississippi River, three of which are within
20 miles of the "Admiral." The Gaming Commission has not set a time line for
their decision on whether or not to award additional licenses. Management
believes that the opening of one or more additional casinos in the St. Louis
market would have a negative impact on the Company. And, depending upon the
site location of any potential new licensee, could increase competition to the
extent that revenues would fall below the level needed to sustain the
Company's St. Louis operation.
13
<PAGE> 16
--Regulatory Matters
Differences in gaming regulations in the St. Louis market between Illinois
and Missouri operators have given competitive advantages/disadvantages to the
various operators. Missouri regulations formerly did not require vessels to
actually cruise, however, simulated cruising requirements were imposed which
restricted entry to a vessel to a 45-minute period every two hours. Those
competitors having two casino vessels could alternate hourly boarding times
and provide virtually continuous boarding for their guests. Thus, they had a
distinct competitive advantage over the Company, which has only one vessel,
the "Admiral." Illinois casino vessels were formerly required to cruise,
thereby limiting ingress and egress to their casinos. On June 25, 1999,
legislation was enacted eliminating the Illinois cruising requirements. This
change immediately gave the Illinois operators an advantage over the Missouri
operators as Illinois patrons could enter and exit the vessel at any time.
However, this advantage was negated on August 16, 1999, when the Missouri
Gaming Commission allowed "continuous boarding" by establishing a temporary
pilot program eliminating the boarding restrictions for the "Admiral" and
other casinos in eastern Missouri. This change to "continuous boarding" also
enabled the "Admiral" to compete more effectively with the Missouri operators
who have two adjacent casino vessels. At this time, the Missouri Gaming
Commission has not given any indication as to the length of the pilot program
or as to whether it will become permanent.
Other Missouri regulations limit the loss per cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to $500. The "dual" casinos that some Missouri operators
use allows a guest who reaches the cruise loss limit to move to the sister
casino and continue to play. The lack of a statutory loss limit on Illinois
casinos allows them to attract higher stake players; additionally, their
guests are not burdened with the administrative requirements related to the
loss limits. Any easing of the loss limits in Missouri would be expected to
have a positive impact on the Company's St. Louis operation.
In Iowa, an excursion gaming boat must operate at least one excursion each
day for 100 days during the April 1 through October 31 excursion season.
Excursions must last a minimum of two hours. While an excursion gaming boat
is docked, passengers may embark or disembark at any time. As discussed
above, Illinois boats were required to cruise until June 1999 when such
cruising requirements were eliminated. The Company believes that the
elimination of cruising requirements in Illinois has had a negative impact on
the Davenport operations. As a result of the change in Illinois legislation,
the competitor directly across the Mississippi River in Rock Island, Illinois
is no longer required to cruise. The elimination of the cruising requirements
has provided the Rock Island casino an opportunity to expand its operation,
increasing its slot machine total from 397 to 596.
--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.
14
<PAGE> 17
--Potential Growth Opportunities
Biloxi, Mississippi
In July 1997, the Company, through a newly created subsidiary, President
Broadwater Hotel, LLC ("PBLLC"), purchased for $40.5 million certain real
estate and improvements located on the Gulf Coast in Biloxi, Mississippi from
an entity which was wholly-owned by John E. Connelly, Chairman, Chief
Executive Officer and principal stockholder of the Company. The property
comprises approximately 260 acres and includes two hotels, a 111-slip marina
and the adjacent 18-hole Sun Golf Course (collectively, the "Broadwater
Property"). The marina is the site of the Company's casino operations in
Biloxi and was formerly leased by the Company under a long-term lease
agreement. The Company invested $5.0 million in PBLLC.
PBLLC financed the purchase of the Broadwater Property with $30.0 million of
financing from a third party lender, evidenced by a non-recourse promissory
note (the "Indebtedness") and issued a $10.0 million membership interest to
the seller. Except as set forth in the promissory note and related security
documents, PBLLC'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 membership interest
grows at the same rate. The accrued balance of the membership account and
unpaid growth as of May 31, 2000 was $12.8 million and is included on the
balance sheet in minority interest. Cash payments relating to this membership
interest have totaled $0.2 million since its inception.
PBLLC is obligated to make monthly payments of interest accruing under the
Indebtedness, and to repay the Indebtedness in full on July 22, 2000. In
addition, PBLLC is obligated to pay to the lender a loan fee in the amount of
$7.0 million which will be fully earned and nonrefundable when the
Indebtedness is repaid. As of May 31, 2000, the accrued loan fee of $6.6
million is included in current liabilities. See Liquidity and Capital
Resources for a discussion of the repayment of this obligation.
The Company has developed a master plan for the Broadwater Property.
Management believes that this site is ideal for the development of
"Destination Broadwater," a full-scale luxury destination resort offering an
array of entertainment attractions in addition to gaming. The plans for the
resort feature a village which will include a cluster of casinos, hotels,
restaurants, theaters and other entertainment attractions. Management
believes that with its beachfront location and contiguous golf course, the
property is the best site for such a development in the rapidly growing Gulf
Coast market.
In January 1999, the Company received the permit from the Mississippi
Department of Marine Resources ("DMR") for development of the full-scale
destination resort. This is the first of three permit approvals required of
the Joint Permit Application submitted in August 1998 to the DMR, the U.S.
Army Corps of Engineers and the Mississippi Department of Environment Quality.
The two remaining permit approvals are still pending and awaiting the
finalization of the Environmental Impact Statement ("EIS"). The Company has
received the draft of the EIS, the notice of which was posted in the Federal
Register in early June for public comment.
15 <PAGE> 18
In March 1999, to facilitate its proposed master plan development, the
Company entered into contracts with the State of Mississippi and the owners of
Deer Island to purchase for $15.0 million and convey title to the island to
the State of Mississippi. Deer Island encompasses approximately 500 acres and
is located just offshore of Biloxi. It is primarily a wilderness which the
state would preserve for use by the people of Mississippi. This transaction
completes another essential step towards securing the necessary agreements and
approvals from the State of Mississippi for the Company's "Destination
Broadwater" development plans. The purchase and conveyance of the title are
contingent on the occurrence of various events, including the issuance to the
Company of all required federal, state and local permits and the issuance by
the State of Mississippi of the tidelands and fast lands leases and casino
licenses necessary for development of Destination Broadwater.
In connection with the Company's proposed "Destination Broadwater"
development plan, to date, the Company has not identified any specific
financing alternatives or sources as the necessary regulatory approvals have
not been obtained. There can be no assurance that the Company will be able to
obtain the regulatory approvals or the requisite financing. Should the
Company fail to raise the required capital, such failure would materially and
adversely impact the Company's business plan.
St. Louis, Missouri
Slot Upgrade Machines and Loss Limit Card Tracking System
During the summer of 1998, all Missouri casinos in the St. Louis market,
except the "Admiral," migrated from a manual/paper system of regulating the
Missouri $500 loss limit to an electronic system. This paperless loss
tracking system is more guest friendly and allows for the use of bill
validators on slot machines, a convenience that the "manual/paper" system does
not allow.
The slot machines currently offered by the "Admiral" lack bill validators
since prior to introduction of the electronic loss tracking system, bill
validators were not permitted in Missouri. As a result, the Company cannot
currently provide guests the convenience of using bill validators nor adapt to
the paperless loss tracking system, putting the "Admiral" at a significant
competitive disadvantage with the other casinos in the St. Louis market.
This competitive disadvantage will soon escalate. Effective August 28,
2000, Missouri will begin to allow credits generated through use of the bill
validators to go directly to the slot "credit meter" for use by the customer.
Presently in Missouri, a customer using a bill validator receives tokens in
the tray and then must feed these tokens into the machine. The regulatory
change will provide a significant added convenience to slot players.
In March 2000, the Company purchased 850 previously owned slot machines that
are equipped with bill validators and are fitted to operate with an electronic
loss limit system that the Company is installing. It is anticipated that the
installation of these slot machines and the new system will be completed
during the fall of 2000. Management believes that when completed, the Company
will be better positioned to compete in the St. Louis market.
16 <PAGE> 19
Relocation of the "Admiral"
The Company has received the appropriate regulatory and city approvals to
relocate the "Admiral" 1,000 feet north from its current location (the
"Laclede's Landing area"). It is anticipated that the new location will
provide for an improved operation with better ingress/egress, provide better
parking and be less susceptible to flooding. The Company believes that this
move will result in increased revenues for the "Admiral" and increased rent
and tax revenues for the City of St. Louis. The City has agreed to fund the
first $3.0 million of the estimated $7.9 million in costs to relocate and
improve the "Admiral." Of the $3.0 million City-funded relocation costs, $2.4
million will be financed through bank debt. The Company will pay for the
remaining costs. It is anticipated that the City will repay the $2.4 million
debt from gaming taxes it receives based upon gaming revenues of the
"Admiral." The Company has guaranteed completion of the project and repayment
of the $2.4 million bank debt if the City fails to pay it. The Company
expects to fund this project from operating cash flow. See Liquidity and
Capital Resources.
The platform construction on the levee began in September 1999. As of the
end of May 2000, the Company has spent approximately $2.9 million on the
relocation, of which the City has reimbursed the Company $2.2 million.
It is anticipated that the move will be completed by the fall of 2000, river
conditions permitting. The river height must be below 10 feet to allow the
"Admiral" to maneuver under two bridges to its new location. It is
anticipated the "Admiral" will be closed approximately two weeks to effectuate
the move, including the physical move of the "Admiral," utility hook up and
re-installation of the slot machines.
The anticipated benefits of relocating the "Admiral" include:
Ingress/Egress -- Traffic ingress to and egress from the casino, at its
present location, is difficult. Access from the major highways has
historically been poor. Significant improvements in exit and entrance ramps
to the Laclede's Landing area off the main highway have been recently
completed. In addition, road improvements within the Laclede's Landing area
are underway or completed. Four roads to and from the main highway will
provide improved ingress/egress at the new location.
Guest Parking -- Parking in the current location is limited and not
controlled by the Company. Currently, all parking facilities, including the
valet parking areas, are operated by third parties. Directly across the
street from the casino is a large flood wall, which limits parking. Guests
must either use the parking garages in the proximity of the casino and walk
considerable distances or park on the levee. The new location provides the
potential for significantly improved parking facilities with parking garages
and lots conveniently located, and the potential to expand and control the
parking.
Flooding -- Flooding and high water on the Mississippi River has negatively
impacted the financial results of the "Admiral" operations every year since it
has opened. The impact first occurs as the river rises and reduces or totally
eliminates parking on the levee, which is currently the closest parking to the
casino. Periodically the river level has reached levels that have made the
construction of costly scaffolding necessary to keep access to the casino
open. The new location is four feet higher and will be much less susceptible
to flooding. Historically, if the "Admiral" had been at its new location
17
<PAGE> 20
since it opened for gaming in 1994, it is unlikely that the casino would have
been forced to close due to flooding.
Laclede's Landing Entertainment District -- Laclede's Landing is a historic
area located north of the Arch on the Mississippi River and is an
entertainment destination. The "Admiral" is currently located "next to" the
Laclede's Landing area. The casino is not visible from the downtown area,
major highways or the Laclede's Landing entertainment area due to a flood wall
and other infrastructure. The relocated "Admiral" will be centrally
positioned in the entertainment district, readily visible to those coming to
the Laclede's Landing area.
Commercial Development -- There has been significant commercial development
in recent years in the Laclede's Landing area. The number of conventions and
entertainment at the nearby convention center and TWA Dome continues to be a
catalyst for business in the area. Management believes that the relocated
"Admiral" will serve as a catalyst for further commercial and entertainment
growth in the Laclede's Landing area.
While the management believes both the slot upgrade and relocation of the
"Admiral" should enhance St. Louis operations, there can be no assurances that
these expected benefits will be realized.
Results of Operations
Three-Month Period Ended May 31, 2000 Compared to the
Three-Month Period Ended May 31, 1999
The results of operations for the three-month periods ended May 31, 2000 and
1999 include the gaming results for the Company's operations in Davenport,
Iowa, Biloxi, Mississippi and St. Louis, Missouri and of much lesser
significance, the non-gaming operations for Davenport (the Blackhawk Hotel),
Biloxi (the Broadwater Property) and St. Louis (Gateway Riverboat Cruises).
18
<PAGE> 21
The following table highlights the results of the Company's operations.
Three Months Ended May 31,
2000 1999
------ ------
(in millions)
Davenport, Iowa Operations
Operating revenues $ 18.9 $ 20.9
Operating income $ 2.1 $ 2.4
Biloxi, Mississippi Operations
Operating revenues $ 15.0 $ 15.4
Operating income $ 1.7 $ 1.2
St. Louis, Missouri Operations
Operating revenues $ 16.6 $ 16.7
Operating income $ 0.8 $ 0.7
Corporate Leasing Operations
Operating revenues $ -- $ 1.4
Operating income (loss) $ (1.0) $ 0.9
Corporate Administrative
and Development
Operating loss $ (1.3) $ (1.1)
The following table highlights certain supplemental measures of the
Company's financial performance.
Three Months Ended May 31,
2000 1999
------ ------
(dollars in millions)
Davenport, Iowa Operations
EBITDA $ 3.2 $ 3.5
EBITDA margin 16.9% 16.7%
Biloxi, Mississippi Operations
EBITDA $ 2.5 $ 2.0
EBITDA margin 16.7% 13.0%
St. Louis, Missouri Operations
EBITDA $ 1.9 $ 2.1
EBITDA margin 11.4% 12.6%
Corporate Leasing Operations
EBITDA $ (0.3) $ 1.2
Corporate Administrative
and Development
EBITDA $ (1.3) $ (1.1)
"EBITDA" consists of earnings from operations before interest, income taxes,
depreciation and amortization. For the purposes of this presentation, EBITDA
margin is calculated as EBITDA divided by operating revenue.
19 <PAGE> 22
EBITDA and EBITDA margin are not determined in accordance with generally
accepted accounting principles. Since not all companies calculate these
measures in the same manner, the Company's EBITDA measures may not be
comparable to similarly titled measures reported by other companies.
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 performance. The Company
believes that this disclosure enhances the understanding of the financial
performance of a company with substantial interest, depreciation and
amortization.
Operating revenues. The Company generated consolidated operating revenues
of $50.5 million during the three-month period ended May 31, 2000 compared to
$54.4 million during the three-month period ended May 31, 1999, a decrease of
$3.9 million, or 7.2%. While the St. Louis operations experienced relatively
the same revenue during both three-month periods, the Davenport and Biloxi
operations experienced decreases in operating revenues of $2.0 million and
$0.4 million, respectively. Additionally, the corporate leasing operation
experienced a $1.4 million decrease in operating revenues as a result of a
charter agreement with a third party terminating in July 1999.
Gaming revenues from the Company's Davenport operations decreased $1.8
million during the three-month period ended May 31, 2000, compared to the
three-month period ended May 31, 1999, primarily as a result of the change in
Illinois legislation in July 1999 eliminating the requirement of Illinois
riverboat casinos to cruise, which has allowed Davenport's Illinois competitor
to gain a larger share of the market. Gaming revenues in the Company's Biloxi
and St. Louis operations remained relatively stable during both three-month
periods.
The Company's revenues from food and beverage, hotel, retail and other (net
of promotional allowances) were $4.8 million during the three-month period
ended May 31, 2000, compared to $6.8 million during the three-month period
ended May 31, 1999, a decrease of $2.0 million or 29.4%. The decrease was
largely attributable to (i) a combined $0.6 million decline in food and
beverage at the operating properties and (ii) a decrease in charter revenues
of $1.4 million as a result of a charter agreement with a third party
terminating in July 1999.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $27.3 million during the three-month
period ended May 31, 2000, compared to $28.3 million during the three-month
period ended May 31, 1999, a decrease of $1.0 million or 3.5%. The decrease
in gaming costs was primarily attributable to (i) the $1.9 million decrease in
gaming revenues and those costs directly affected by the decreased revenue
levels, such as gaming and admission taxes and (ii) the reduction of wide area
progressive slot machine rentals. As a percentage of gaming revenues, gaming
and gaming cruise costs increased to 59.7% in the three-month period ended May
31, 2000 from 59.4% during the three-month period ended May 31, 1999.
The Company's consolidated selling, general and administrative expenses were
$12.0 million during the three-month period ended May 31, 2000, compared to
$12.9 million during the three-month period ended May 31, 1999, a decrease of
$0.9 million or 7.0%. The decrease in selling, general and administrative
expense is primarily due to a $0.6 million reduction in lease expense
20
<PAGE> 23
resulting from the purchase of the "President Casino-Broadwater," the
Company's Biloxi casino barge which was formerly leased, and a combined
decrease of $0.5 million at the Company's Davenport and St. Louis operations,
offset by increases of $0.2 million primarily related Corporate legal expense
related to debt restructuring efforts and $0.2 million of leasing operations
expense resulting from the ongoing maintenance of the Company's vessels which
are no longer used in the Company's operations. As a percentage of
consolidated revenues, selling, general and administrative expenses were 23.8%
during both three-month periods ended May 31, 2000 and 1999.
Operating income. As a result of the foregoing items, the Company had
operating income of $2.3 million during the three-month period ended May 31,
2000, compared to operating income of $4.1 million during the three-month
period ended May 31, 1999.
Interest expense, net. The Company incurred net interest expense of $5.2
million during the three-month period ended May 31, 2000, compared to $4.7
million during the three-month period ended May 31, 1999 an increase of $0.5
million or 10.6%. The increase is primarily the result of interest incurred
on debt associated with the purchase of the "President Casino-Broadwater"
barge, an increase in the interest rate on the Broadwater Property note and
compounding interest on the notes in default.
Minority interest expense. The Company incurred $0.4 million minority
interest expense for the three-month period ended May 31, 2000, compared to a
$0.3 million expense for the three-month period ended May 31, 1999.
Net loss. The Company incurred a net loss of $3.2 million during the three-
month period ended May 31, 2000, compared to a net loss of $1.0 million during
the three-month period ended May 31, 1999.
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 believes that it has adequate sources of liquidity to meet its
normal operating requirements. However, because of the Company's relatively
high degree of leverage and the need for significant capital expenditures at
its St. Louis property, management determined that, pending a restructuring of
its indebtedness, it would not be in the best interest of the Company to make
the regularly scheduled interest payments on its Senior Exchange Notes and
Secured Notes. Accordingly, the Company has not made the regularly scheduled
interest payment of $6.4 million due and payable on March 15, 2000. An Event
of Default under the Indenture pursuant to which the Senior Exchange Notes and
Secured Notes were issued occurred on April 15, 2000, and is continuing as of
the date hereof. No action has been taken by either the Indenture Trustee or
holders of at least 25% of the Senior Exchange Notes and Secured Notes to
accelerate the Senior Exchange Notes and Secured Notes and declare the unpaid
principal and interest to be due and payable. In the event the Senior
Exchange Notes and Secured Notes are accelerated, the Company would not have
the resources available to repay such indebtedness. The Company has initiated
and is continuing discussions with representatives of the Committee concerning
a restructuring of the Company's indebtedness that may include the sale of
some of the Company's properties.
21 <PAGE> 24
By suspending the interest payments on the Senior Exchange Notes and Secured
Notes until such time as a restructuring plan has been negotiated and
implemented, the Company believes that its liquidity and capital resources
will be sufficient to maintain its normal operations at current levels during
the restructuring period and does not anticipate any adverse impact on its
operations, customers or employees. However, costs incurred and to be
incurred in connection with any restructuring plan have been and will continue
to be substantial and, in any event, there can be no assurance that the
Company will be able to successfully restructure its indebtedness or that its
liquidity and capital resources will be sufficient to maintain its normal
operations during the restructuring period. The Company remains current with
all its vendors and suppliers.
As of May 31, 2000, the Company has $11.1 million of unrestricted cash and
cash equivalents. Of this amount, the Company requires approximately $8.0
million to $9.5 million of cash to fund daily operations. The Company is
heavily dependant on cash generated from operations to continue to operate as
planned in its existing jurisdictions and to make 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 its
ongoing operating properties but not meet all its obligations for borrowed
money. To the extent cash generated from operations is less than anticipated,
the Company may be required to curtail certain planned expenditures.
The $3.0 million of the Company's restricted cash relates to the Broadwater
Property. Pursuant to debt agreement for the Broadwater Property, revenues
are deposited in lockboxes that are controlled by the lender. Such revenues
include the operations of the hotels and golf course and $2.9 million annually
of proceeds from rental of the Biloxi casino's mooring site. Expenditures
from the lockboxes are limited to the operating expenses, capital improvements
and debt service of the Broadwater Property as defined by such agreements.
The $1.0 million restricted short-term investments consists of certificates of
deposit guaranteeing certain obligations of the Company.
The Company generated cash flow from operating activities of $3.5 million
during the three-month period ended May 31, 2000, compared to $4.7 million
during the three-month period ended May 31, 1999.
The Company experienced a net cash decrease from investing activities of
$3.1 million during the three-month period ended May 31, 2000, compared to a
decrease of $2.0 million during the three-month period ended May 31, 1999.
The net cash decrease from investing activities during both periods resulted
primarily from expenditures on property and equipment. During the three-month
period ended May 31, 2000, the Company had fixed asset additions of
approximately $3.7 million, of which, $0.9 million was a non-cash addition in
exchange for debt. The Company spent approximately $0.3 million, $1.9 million
and $0.3 million at the Company's Biloxi, St. Louis and Davenport operations,
respectively. Additionally, the Company spent $0.3 million in conjunction
with Destination Broadwater.
The indenture governing the Company's Senior Exchange Notes due 2001 (the
"Indenture"), restricts the ability of PCI, TCG and PCI's wholly-owned
subsidiaries which are guarantors of the Senior Exchange Notes (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 and may borrow additional funds for certain uses. The
Indenture also provides that the Guarantors must use cash proceeds from the
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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). In the event such proceeds are not so
utilized, the Company must make an offer to all holders of Senior Exchange
Notes to repurchase at par value an aggregate principal amount of Senior
Exchange Notes equal to the amount by which such proceeds exceeds $5.0
million. Certain provisions of the Indenture do not apply to the Company's
consolidated entities which do not guarantee the Senior Exchange Notes.
On December 3, 1998, the Company repurchased $25.0 million of its Senior
Exchange Notes for $23.8 million. The repurchased notes were used to satisfy
the $25.0 million principal payment due September 15, 1999 on the Company's
$100.0 million Senior Exchange Notes. The repurchase was funded by the
issuance of $25.0 million of new 12% notes due September 15, 2001 (the
"Secured Notes"). Under the repurchase agreement, the Company incurs a 1%
annual loan fee on the principal balance of $25.0 million until maturity. The
Secured Notes have no mandatory redemption obligation and are secured by
mortgages on the "Admiral" and the "New Yorker," as well as subsidiary
guarantees.
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
$30.0 million 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, PBLLC'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.
PBLLC 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, PBLLC is obligated to pay to the lender a
loan fee in the amount of $7.0 million which will be fully earned and
nonrefundable when the Indebtedness is repaid. As of May 31, 2000, the
Company has accrued $6.6 million of this loan fee. The aforementioned default
on the Company's Senior Exchange Notes and Secured Notes also constituted a
default under this note. The Company has continued to make the monthly
interest payments related to this note and is in negotiations with the lender
regarding extending the note past its July 2000 maturity date as management
believes the Company will not have the resources available at that time to pay
such indebtedness. No action has been taken by the lender to accelerate the
note and declare the unpaid principal and loan fee due and payable.
In August 1999, the Company purchased "President Casino-Broadwater," the
vessel on which the Company conducts its Biloxi gaming operations. The
Company paid $1.0 million at closing and financed $5.4 million. Under the
terms of the agreement, the Company made monthly combined interest and
principal payments of $0.3 million through March 2000. The Company made the
scheduled payment of $0.1 million on April 1, 2000. The balloon payment due
of $3.7 million was not made on April 15, 2000 and the note is in default.
Instead a payment of $0.3 million was made at that date and subsequent
payments of $0.3 million was made in May and June 2000. The Company has
reached an agreement in principle to extend the payment obligations under this
note and is finalizing the documentation. The extended note is expected to
have a restructuring fee of $0.1 million, monthly payments of $0.3 million and
mature in March 2001.
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The 9.67% term note payable is collateralized by the vessel "President
Casino-Mississippi" and various equipment with a net book value of $7.4
million as of May 31, 2000, and is personally guaranteed by Mr. Connelly.
This note also contains certain covenants which, among other things, require
the Company to maintain a minimum tangible net worth of $40.0 million. The
Company received a waiver of the net worth covenant through the period ended
September 30, 2000, at which time the Company's net worth requirement will
return to $40.0 million. The aforementioned default on the Company's Senior
Exchange Notes and Secured Notes also constituted a default under this note.
The Company has continued to make the quarterly principal and interest
payments related to this note. No action has been taken by the lender to
accelerate the note and declare the unpaid principal due and payable.
TCG, the Company's 95%-owned partnership, maintains a line of credit
provided by Firstar Bank, N.A., collateralized by first mortgages on the M/V
"President" and the Blackhawk Hotel, with net book values as of May 31, 2000,
of $5.7 million and $3.9 million, respectively, various personal property and
an assignment of various contracts. As of May 31, 2000, the line of credit
was $1.8 million. The line of credit terminates in September 2000. The line
of credit is available exclusively to TCG. Distributions from TCG to its
general partner are limited by its partnership agreement. The Company has
continued to make the principal and interest payment required under the line
including the $0.4 million principal payment that was due and paid in March
2000.
In connection with the Company's proposed "Destination Broadwater"
development plan, to date, the Company has not identified any particular
financing alternatives or sources as the necessary regulatory approvals have
not been obtained. There can be no assurance that the Company will be able to
obtain the regulatory approvals or the requisite financing. Should the
Company fail to raise the required capital, such failure would materially and
adversely impact the Company's business plan.
Prospective Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which, after being amended by
SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133," is effective for
fiscal years beginning after June 15, 2000. The statement establishes
accounting and reporting standards for derivative instruments. The Company is
currently evaluating the impact of this new standard, but management believes
it will not materially impact the Company as the Company does not engage in
hedging activities or utilize derivative instruments.
Forward Looking Statements
This quarterly report on Form 10-Q and certain information provided
periodically in writing and orally by the Company's designated officers and
agents contain certain statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
The terms "Company," "we," "our" and "us" refer to President Casinos, Inc.
The words "expect," "believe," "goal," "plan," "intend," "estimate," and
similar expressions and variations thereof are intended to specifically
identify forward-looking statements. Those statements appear in this
quarterly report on Form 10-Q and the documents incorporated herein by
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reference, particularly "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) our financial prospects;
(ii) our financing plans and our ability to meet our obligations under our
debt obligations and obtain satisfactory operating and working capital; (iii)
our operating and restructuring strategy; and (iv) the effect of competition
and regulatory developments on our current and expected future revenues. You
are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in the forward looking
statements as a result of various factors. The factors that might cause such
differences include, among others, the following: (i) continuation of future
operating and net losses by the Company; (ii) the inability of the Company to
restructure its debt obligations; (iii) the inability of the Company to obtain
sufficient cash from its operations and other resources to fund ongoing
obligations; (iv) developments or new initiatives by our competitors in the
markets in which we compete; (v) our stock price; (vi) adverse governmental or
regulatory changes or actions which could negatively impact our operations;
and (vii) other factors including those identified in the Company's filings
made from time-to-time with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly update or revise forward looking
statements to reflect events or circumstances after the date of this quarterly
report on Form 10-Q or to reflect the occurrence of unanticipated events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Although the majority of debt carries a fixed interest rate, the Company is
exposed to interest rate risk in respect to the variable-rate debt maintained,
which risk may be material. The Company has not engaged in any hedging
transactions with respect to such risks.
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 3 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.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed as part of this report are listed on Index to
Exhibits accompanying this report.
(b) Reports on Form 8-K
On March 7, 2000, the Company filed a Current Report on Form 8-K
dated March 7, 2000, reporting under Item 5 that the Company
would not be able to meet its obligation to pay the $6.4 million
interest with respect to its $75.0 million Senior Notes and $25.0
million Secured Notes due March 15, 2000. Under the Indentures
pursuant to which the Senior Exchange Notes and Secured Notes
were issued, an Event of Default occurred on April 15, 2000.
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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: June 30, 2000 /s/ James A. Zweifel
-----------------------------
James A. Zweifel
Executive Vice President and
Principal Financial Officer
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INDEX TO EXHIBITS
-----------------
EXHIBIT NO.
27 Financial Data Schedule for the three-months ended May 31, 2000.
28
