<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 November 30, 1999
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,
5,032,978 shares outstanding as of January 14, 2000.
==============================================================================
<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 November 30 and February 28, 1999.............................1
Condensed Consolidated Statements of Operations
and Loss Per Share Information (Unaudited)for the
Three and Nine Months Ended November 30, 1999 and 1998..............2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended November 30, 1999 and 1998................3
Notes to Condensed Consolidated Financial Statements (Unaudited)......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................10
Part II. Other Information
Item 1. Legal Proceedings.............................................24
Item 2. Changes in Securities.........................................24
Item 3. Defaults Upon Senior Securities...............................24
Item 4. Submission of Matters to a Vote of Security Holders...........24
Item 5. Other Information.............................................24
Item 6. Exhibits and Reports on Form 8-K..............................24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....24
Signature................................................................25
<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,
1999 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 10,700 $ 17,110
Restricted cash and cash equivalents........... 3,819 3,370
Accounts receivable, net of allowance for
doubtful accounts of $353 and $357........... 1,451 2,588
Other current assets........................... 4,266 4,345
--------- ---------
Total current assets....................... 20,236 27,413
Property and equipment, net of accumulated
depreciation of $73,259 and $62,987............ 144,668 142,740
Other assets..................................... 1,785 2,705
--------- ---------
$166,689 $172,858
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt........... $ 64,996 $ 1,886
Accrued loan fee............................... 5,372 --
Other current liabilities...................... 20,726 25,337
--------- ---------
Total current liabilities.................. 91,094 27,223
Long-term debt:
Long-term debt, net of current maturities...... 75,419 135,813
Accrued loan fee............................... -- 3,566
--------- ---------
Total long-term liabilities................ 75,419 139,379
--------- ---------
Total liabilities.......................... 166,513 166,602
--------- ---------
Minority interests............................... 12,968 12,464
Commitments and contingencies.................... -- --
Stockholders' deficit:
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............................ (114,823) (108,239)
--------- ---------
Total stockholders' deficit................ (12,792) (6,208)
--------- ---------
$166,689 $172,858
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<PAGE> 4
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,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Gaming and gaming cruise............ $ 45,555 $ 44,539 $139,348 $133,707
Food and beverage................... 6,240 5,816 18,874 17,404
Hotel............................... 1,594 1,964 5,856 6,566
Retail and other.................... 1,589 2,573 7,111 9,950
Less promotional allowances......... (4,747) (3,936) (13,900) (11,000)
--------- --------- --------- ---------
Net operating revenues............. 50,231 50,956 157,289 156,627
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Gaming and gaming cruise............ 27,916 25,972 84,206 77,576
Food and beverage................... 3,655 3,729 11,384 11,464
Hotel............................... 650 681 2,229 2,148
Retail and other.................... 715 662 2,221 2,109
Selling, general and administrative. 12,332 12,691 38,036 41,709
Depreciation and amortization....... 3,676 3,731 10,000 10,759
Loss on sale of assets, net......... 35 4 33 76
Development......................... 29 712 162 4,661
--------- --------- --------- ---------
Total operating costs and expenses. 49,008 48,182 148,271 150,502
--------- --------- --------- ---------
OPERATING INCOME .................... 1,223 2,774 9,018 6,125
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income..................... 105 162 402 496
Interest expense.................... (5,168) (4,995) (14,981) (15,000)
--------- --------- --------- ---------
Total other income (expense)....... (5,063) (4,833) (14,579) (14,504)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTERESTS....... (3,840) (2,059) (5,561) (8,379)
Minority interests................... 332 355 1,023 1,124
--------- --------- --------- ---------
NET LOSS............................. $ (4,172) $ (2,414) $ (6,584) $ (9,503)
========= ========= ========= =========
Basic and diluted net loss per share. $ (0.83) $ (0.48) $ (1.31) $ (1.89)
========= ========= ========= =========
Weighted average common and dilutive
potential shares outstanding........ 5,033 5,033 5,033 5,033
======= ======= ======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
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CONDENSED CONSOLIDATED STATEMENTS
PRESIDENT CASINOS, INC. OF CASH FLOWS (UNAUDITED)
______________________________________________________________________________
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended Nov. 30,
1999 1998
------ ------
<S> <C> <C>
Net cash provided by operating activities......... $ 3,087 $ 917
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment......... (6,895) (7,403)
Change in restricted cash....................... 237 1,081
Proceeds from sales of property and equipment... 140 94
Purchase of lease options....................... -- (482)
Purchase of short-term investments.............. (685) --
Maturity of short-term investments.............. - 2,347
Other........................................... 186 --
--------- ---------
Net cash used in investing activities......... (7,017) (4,363)
--------- ---------
Cash flows from financing activities:
Repayment of notes payable...................... (1,054) (300)
Payments on capital lease obligations........... (904) (12)
Minority interest payment....................... (520) --
--------- ---------
Net cash used in financing activities......... (2,478) (312)
--------- ---------
Net decrease in cash and cash equivalents......... (6,408) (3,758)
Cash and cash equivalents at beginning of period.. 17,110 19,278
--------- ---------
Cash and cash equivalents at end of period........ $ 10,700 $ 15,520
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 14,960 $ 15,670
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Assets acquired in exchange for debt............ $ 5,393 $ --
========= =========
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 a wholly-owned entity of the Chairman of the
Board of the Company has preferred rights to certain cash flows (collectively,
the "Company" or "PCI"). All material inter-company balances and transactions
have been eliminated.
PCI develops, 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 was acquired by the Company in
July 1997 and is owned by the President Broadwater Hotel, LLC, a limited
liability corporation in which the Company has a 100% ownership interest.
TCG/Blackhawk, Inc., the owner of the Blackhawk Hotel in Davenport, is a
wholly-owned subsidiary of the Company.
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, 1999. Accordingly, footnote
disclosure which would substantially duplicate the disclosure in the audited
4
<PAGE> 7
consolidated financial statements has been omitted in the accompanying
unaudited condensed consolidated financial statements.
Certain amounts for fiscal 1999 have been reclassified to conform with
fiscal 2000 financial statement presentation.
2. Property and Equipment
On August 10, 1999, the Company purchased "President Casino-Broadwater"
(formerly the "Biloxi Barge"), the dockside casino utilized at the Company's
Biloxi gaming operation. The Company had previously leased the "President
Casino-Broadwater" since June 1995 from its former owner, American Gaming and
Entertainment, Ltd. ("AGEL"). Under the terms of the agreement, the Company
purchased the "President Casino-Broadwater" for $6,393. In addition, in
connection with the consummation of the transaction, various lawsuits pending
among the Company, AGEL and various third parties related to the barge were
dismissed.
3. Insurance Proceeds
During the three-month period ended August 31, 1999, the St. Louis property
recorded $300 of revenue related to its business interruption insurance
policy. This policy insures the Company against the negative impact on
revenue from prolonged periods of high water levels on the Mississippi River
during the 18-month policy period.
On April 4, 1998, several river barges broke free of their towboat and
struck the Company's St. Louis casino, the "Admiral," resulting in the
severing of several of the vessel's mooring lines and boarding ramps. The
vessel sustained no hull or structural damage and minimal damage to its bow
apron. There were no reports of serious injuries to the approximate 2,300
guests and employees aboard.
The "Admiral" was closed to the public for 26 days, reopening on April 30,
1998. The Company spent approximately $2,714 during the nine-month period
ended November 30, 1998, to repair the vessel, replace the boarding ramps and
prepare the "Admiral" to reopen. Insurance proceeds from the Company's hull
and business interruption coverages recorded in the nine-month period ended
November 30, 1998, were $3,900. Income from insurance proceeds in excess of
the net book value of destroyed assets was $3,616 and is reflected in the
financial statements as "Retail and Other" revenue. The insurance deductibles
relating to the hull and business interruption claims total $1,020. The
insurance claims have not been finalized and claims are being made against the
owners of the towboat to recover insurance deductibles and any damages not
covered by or in excess of the insurance. While the Company believes it has
meritorious claims against the owner of the towboat, there can be no guarantee
that the Company will be successful in recovering such costs.
4. Relocation of the "Admiral"
It is anticipated that the Company and the City of St. Louis will finalize
an agreement before the end of January 2000 for the relocation of the
"Admiral" approximately 1,000 feet north from its current location on the
5
<PAGE> 8
Mississippi River. The new location provides for significantly improved
ingress, egress and parking, and is less susceptible to flooding and more
protected from river traffic.
The aggregate cost to relocate the "Admiral" is expected to be approximately
$7,000. 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. 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 it. Construction
has begun and the move is expected to occur during the summer of 2000, subject
to certain approvals, weather conditions and timely construction. The Company
expects to fund this project from operating cash flow and/or additional
financing.
5. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
Nov. 30, Feb. 28,
1999 1999
------ ------
<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 $344
and $524........................................... $ 74,656 $ 74,476
Secured Notes, 12%, principal payment of
$25,000 due September 2001, net of a gain
on modification of terms of $761 and $1,080........ 25,761 26,080
Broadwater Hotel note payable, variable interest
rate, 9.4% as of November 30, 1999, principal
payment due July 2000.............................. 30,000 30,000
"President Casino-Broadwater" note payable,
monthly combined principal and interest payments
of $290, balance of $3,798 due April 2000.......... 4,691 --
M/V "President Casino-Mississippi" note payable,
variable interest rate, 8.78% as of November 30,
1999, principal payments due quarterly of $100,
with a final payment of $2,000 in November 2002.... 3,100 3,400
Line of credit, prime plus 0.5%, combined
rate of 8.25% as of November 30, 1999.............. 2,200 2,251
Capital lease obligations............................ 7 1,492
--------- ---------
Total long-term debt............................ 140,415 137,699
--------- ---------
Less current maturities:
Senior exchange notes................................ 25,000 --
Broadwater Hotel note payable........................ 30,000 --
"President Casino-Broadwater" note payable........... 4,691 --
M/V "President Casino-Mississippi" note payable...... 3,100 400
Line of credit....................................... 2,200 --
Capital lease obligations............................ 5 1,486
--------- ---------
Total current maturities........................ 64,996 1,886
--------- ---------
Long-term debt.............................. $ 75,419 $135,813
========= =========
</TABLE>
6
<PAGE> 9
Broadwater Hotel Note
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 non-refundable
when the Indebtedness is repaid. As of November 30, 1999, the Company has
accrued $5,372 of this loan fee.
"President Casino-Broadwater" Barge Note
In connection with the purchase of "President Casino-Broadwater" (formerly
the "Biloxi Barge"), the Company paid $1,000 at closing and will make monthly
combined interest and principal payments of $290 through March 2000, and a
final payment of $3,798 in April 2000.
M/V "President Casino-Mississippi" Note
The Company has a $3,100 outstanding term note payable that is
collateralized by the M/V "President Casino-Mississippi" and various equipment
with a net book value of $8,072. The Company made $300 of principal payments
during both nine-month periods ended November 30, 1999 and 1998 on the term
note. The note contains a covenant whereby the Company is required to
maintain a minimum net worth of $40,000. The Company's net worth is below
$40,000. The lender has waived this covenant until September 30, 2000. Since
the fair market value of the vessel is in excess of the outstanding note
balance, management believes that the Company will be able to renegotiate the
terms, pay down a portion of the note or refinance the loan.
Line of Credit
TCG, the Company's 95%-owned partnership, maintains a $2,500 line of credit
provided by Firstar Bank, N.A., of which $300 is unused. The line of credit
reduces by $900 each March 31 and expires September 30, 2000. The line of
credit is available exclusively to TCG. Distributions from TCG to its general
partner are limited by its partnership agreement.
Cash generated from operations during the normal course of business will not
be enough to fund required payments under the notes payable obligations,
including, potentially, the interest payments due on March 15, 2000 on the
Senior Exchange Notes and the Secured Notes. Management is pursuing various
strategic financing alternatives in order to fund these obligations.
Management believes that there is significant intrinsic value in the casino,
hotel, development and other assets owned by the Company. The Company is
7
<PAGE> 10
working with recognized financial advisors in the gaming industry to pursue
various strategic alternatives, including the restructuring and refinancing of
outstanding debt obligations and/or the sale of assets. There can be no
assurance that the Company will be able to restructure successfully or
refinance its debts or sale/charter assets on a timely basis or under
acceptable terms and conditions.
6. 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.
7. Segment Information
Management reviews the results of operations and analyzes certain assets and
additions to property and equipment 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.
The Company's reportable segments, other than the leasing operation, are
similar in operations, but have distinct and separate regional markets. 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 evaluates performance based on EBITDA. EBITDA is earnings
before interest, taxes, depreciation and amortization expense.
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.
8
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<TABLE>
<CAPTION>
Three Months Nine Months
Ended Nov. 30, Ended Nov. 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Biloxi Properties................... $ 14,367 $ 14,339 $ 45,708 $ 44,350
Davenport Properties................ 19,378 19,189 60,348 61,080
St. Louis Properties................ 16,486 16,355 49,413 49,395
--------- --------- --------- ---------
Gaming and ancillary operations..... 50,231 49,883 155,469 154,825
Leasing Operation................... -- 1,073 1,820 1,802
--------- --------- --------- ---------
Net operating revenues......... $ 50,231 $ 50,956 $157,289 $156,627
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Nov. 30, Ended Nov. 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
EBITDA (before development and
impairment expenses and gain/loss
on sale of property and equipment):
Biloxi Properties................... $ 1,809 $ 1,382 $ 5,683 $ 5,587
Davenport Properties................ 2,921 3,896 10,334 13,703
St. Louis Properties................ 1,698 2,028 5,516 4,842
--------- --------- --------- ---------
Gaming and ancillary operations..... 6,428 7,306 21,533 24,132
Leasing Operation................... (309) 964 1,003 1,109
--------- --------- --------- ---------
Operations EBITDA................. 6,119 8,270 22,536 25,241
OTHER COSTS AND EXPENSES:
Corporate expense................... 1,156 1,049 3,323 3,620
Development expense................. 29 712 162 4,661
Depreciation and amortization....... 3,676 3,731 10,000 10,759
Loss on sale of assets.............. 35 4 33 76
Interest, net....................... 5,063 4,833 14,579 14,504
--------- --------- --------- ---------
Total other costs and expenses... 9,959 10,329 28,097 33,620
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST.............. (3,840) (2,059) (5,561) (8,379)
Minority interest................... 332 355 1,023 1,124
--------- --------- --------- ---------
NET LOSS............................. $ (4,172) $ (2,414) $ (6,584) $ (9,503)
========= ========= ========= =========
</TABLE>
9
<PAGE>
<PAGE> 12
<TABLE>
<CAPTION>
Nov. 30, Feb. 28,
1999 1999
------ ------
<S> <C> <C>
Property and Equipment
Biloxi Properties..................... $ 55,283 $ 49,251
Davenport Properties.................. 23,090 24,239
St. Louis Properties.................. 37,804 39,624
--------- ---------
Gaming and ancillary operations..... 116,177 113,114
Leasing Operations.................... 26,547 28,572
--------- ---------
Operating Assets.................... 142,724 141,686
Corporate Assets...................... 62 88
Development Assets.................... 1,882 966
--------- ---------
Net Property and Equipment......... $144,668 $142,740
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nov. 30,
1999 1998
------ ------
<S> <C> <C>
Additions to Property and Equipment:
Biloxi Properties..................... $ 7,724 $ 1,722
Davenport Properties.................. 2,011 1,475
St. Louis Properties.................. 1,629 2,109
--------- ---------
Gaming and ancillary operations..... 11,364 5,306
Leasing Operations.................... -- 1,095
--------- ---------
Operations' Assets.................. 11,364 6,401
Corporate Assets...................... 8 12
Development Assets.................... 916 990
--------- ---------
$ 12,288 $ 7,403
========= =========
</TABLE>
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
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
operating results are not significantly affected by seasonality.
--Competition
Intensified competition for patrons continues to occur at each of the
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<PAGE> 13
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 in Biloxi. 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, Iowa
operation competes with three other casino operations, one of which is located
directly across the Mississippi River in Illinois. Expansion and increased
marketing by these competitors continues to escalate, resulting in increased
promotional and marketing costs for the Company's Davenport operation. One of
the competing Iowa casinos added gaming space, a new hotel and other amenities
in September 1998. On September 23, 1999, the Davenport property received
approval from the Iowa Racing & Gaming Commission to expand its casino by
increasing the number of slot machines on its floor from its then current
level of 925 machines to 1,200. Management plans to complete this increase
over the next one to two years with its current level at 985 machines.
Competition is intense in the St. Louis, Missouri 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.
--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. While Missouri regulations do not require vessels to
actually cruise, simulated cruising requirements were previously imposed which
restricted entry to a vessel to a 45-minute period every two hours.
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 boarding restrictions and the
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" has also enabled the "Admiral" to compete more
effectively with the Missouri operators who have two adjacent casino vessels.
11
<PAGE> 14
The Missouri Gaming Commission has indicated that the pilot program will
become permanent January 31, 2000.
Other Missouri regulations limit the loss per passenger by limiting to $500
the amount of chips or tokens a guest may purchase during each two-hour gaming
session. 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 will have a negative impact
on the Davenport operations since the competitor directly across the
Mississippi River in Rock Island, Illinois is no longer required to cruise.
The elimination of the cruising requirements provides the Rock Island casino
an opportunity to expand its operation beyond its current capacities.
In July 1996, the U.S. Congress enacted a law establishing a National Gaming
Impact and Policy Commission to conduct a comprehensive study of the social
and economic impacts of gaming in the United States and make recommendations
for changes to the policies governing gaming that the Commission may deem
appropriate. A report was issued by the Commission in June 1999 making 13
specific recommendations. While at this time it is too early to predict the
effect of the Commission's report on the Company, the addition of a federal
level of regulation and taxes, or state laws implementing the report's
recommendations, could have a material adverse impact on the Company's future
financial condition and results of operations.
--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. Although the Company
was not forced to suspend its St. Louis operations during either of the nine-
month periods ending November 30, 1999 or 1998 as a result of adverse weather
conditions, high waters caused reduced parking and a general public perception
of diminished access to the casino which combined to negatively impact revenue
during the periods. In addition, the Biloxi property was closed for 6 days
from September 25 to October 1, 1998, during Hurricane Georges.
--St. Louis Barge Accident
On April 4, 1998, the "Admiral" was struck by runaway river barges which
resulted in the severing of several of the vessel's mooring lines and boarding
ramps. Although the boarding ramps were lost and significant costs were
incurred returning the "Admiral" to its mooring site, the vessel sustained no
hull or structural damage and minimal damage to its bow apron. There were no
12
<PAGE> 15
reports of serious injuries to the approximately 2,300 guests and employees
aboard. The "Admiral" was closed to the public for 26 days, reopening on
April 30, 1998. The Company maintains property, liability and business
interruption insurance which minimized the financial impact of the accident.
The deductible that applied against these policies was $1.0 million. The
Company, in conjunction with its various insurance carriers, is pursuing the
owners of the towboat that were involved in the accident to recover any
uninsured losses.
--Potential Growth Opportunities
Biloxi, Mississippi
On July 24, 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 138-slip marina
and the adjacent 18-hole Sun Golf Course (collectively, the "Broadwater
Property"). The marina is currently 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 "Indebtednees") 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 November 30, 1999 was $12.2 million and is included in
minority interest. Cash payments relating to this minority interest have
totaled $0.2 million since its inception.
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 November 30, 1999, the accrued loan
fee of $5.4 million is included in the Company's current liabilities.
The Company is currently developing a master plan for the Broadwater
Property and 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. Destination
Broadwater is planned to be an integrated entertainment resort situated in a
village setting partially surrounded by water. The plans for the resort will
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
13
<PAGE> 16
property is the prime site for such a development in the rapidly growing Gulf
Coast market.
In January 1999, the Company received the approval of the Mississippi
Department of Marine Resources ("DMR") for development of a 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 Company is currently performing environmental impact studies. The two
remaining permit approvals are still pending.
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 the island 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, Mississippi. 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.
New York City, New York
The Company pursued a gaming license for a "cruise-to-nowhere" operation in
New York City utilizing the M/V "New Yorker." In January 1998, the Company
submitted a gaming application to the New York City Gambling Commission and in
April 1998 received notification that the Commission was not prepared to issue
a provisional license which would have allowed the Company to start
operations. The Company incurred $2.5 million in costs pursuing a New York
City license during the nine-month period ending November 30, 1998.
Results of Operations
The results of operations for the three-month and nine-month periods ended
November 30, 1999 and 1998 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 in Davenport (the
Blackhawk Hotel), Biloxi (the Broadwater Property) and St. Louis (Gateway
Riverboat Cruises).
14
<PAGE> 17
The following table highlights the results of the Company's operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Nov. 30, Nov. 30,
1999 1998 1999 1998
------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Davenport, Iowa Operations
Operating revenues................. $ 19.4 $ 19.2 $ 60.3 $ 61.1
Operating income................... 1.8 2.7 7.0 10.2
Biloxi, Mississippi Operations
Operating revenues................. 14.4 14.3 45.7 44.3
Operating income................... 1.0 0.6 4.0 3.4
St. Louis, Missouri Operations
Operating revenues................. 16.5 16.4 49.4 49.4
Operating income................... 0.6 0.7 2.0 0.8
Corporate Leasing Operations
Operating revenues................. -- 1.1 1.8 1.8
Operating income (loss)............ (1.0) 0.6 (0.5) (0.1)
Corporate Administrative and
Development expense................ (1.2) (1.8) (3.5) (8.3)
</TABLE>
The following table highlights certain supplemental measures of the
Company's financial performance.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Nov. 30, Nov. 30,
1999 1998 1999 1998
------ ------ ------ ------
(dollars in millions)
<S> <C> <C> <C> <C>
Davenport, Iowa Operations
EBITDA............................. $ 2.9 $ 3.9 $ 10.3 $ 13.7
EBITDA margin...................... 14.9% 20.3% 17.1% 22.4%
Biloxi, Mississippi Operations
EBITDA............................. $ 1.8 $ 1.4 $ 5.7 $ 5.6
EBITDA margin...................... 12.6% 9.8% 12.5% 13.1%
St. Louis, Missouri Operations
EBITDA............................. $ 1.7 $ 2.0 $ 5.5 $ 4.8
EBITDA margin...................... 10.3% 12.2% 11.1% 9.7%
Corporate Leasing Operations
EBITDA............................. $ (0.3) $ 1.0 $ 1.0 $ 1.1
Corporate Administrative and
Development
EBITDA............................. $ (1.2) $ (1.8) $ (3.5) $ (8.3)
</TABLE>
"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.
15
<PAGE> 18
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.
Three-Month Period Ended November 30, 1999 Compared to the
Three-Month Period Ended November 30, 1998
Operating revenues. The Company generated consolidated operating revenues
of $50.2 million during the three-month period ended November 30, 1999,
compared to $51.0 million during the three-month period ended November 30,
1998, a decrease of $0.8 million, or 1.6%.
Each of the Company's gaming operations experienced small increases in
operating revenues. The combined increase of $0.3 million was offset by a
decrease in operating revenue of $1.1 million by the Company's Leasing
Operations.
The increase in gaming revenues was led by the Company's Biloxi operations
which were positively affected by an increase in the overall gaming market on
the Gulf Coast and the Company's increased promotional efforts.
The Company's revenues from food and beverage, hotel, retail, charter and
other non-gaming activities (net of promotional allowances) decreased to $4.7
million during the three-month period ended November 30, 1999, from $6.4
million during the three-month period ended November 30, 1998, a decrease of
$1.7 million, or 26.6%. The decrease was primarily attributable to: (i) a
decrease in charter revenue of $1.1 million as a result of a charter agreement
ending in June of 1999 and (ii) an increase in promotional allowances at all
three properties in response to the competitive pressures in the markets.
Company-wide food and beverage increases have been offset by the decrease in
Biloxi room revenues.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $27.9 million during the three-month
period ended November 30, 1999, compared to $26.0 million during the
three-month period ended November 30, 1998, an increase of $1.9 million, or
7.3%. As a percentage of gaming revenues, Company-wide gaming and gaming
cruise costs increased to 61.3% during the three-month period ended November
30, 1999, from 58.3% during the three-month period ended November 30, 1998.
The St. Louis operations experienced an increase of $0.5 million in gaming
costs which was attributable primarily to increased admission taxes incurred
with the implementation of continuous boarding in August 1999. The Davenport
operations experienced an increase of $0.8 million in gaming and gaming cruise
16
<PAGE> 19
costs primarily as a result of the additional costs associated with offering a
new slot product and an increase in promotional items. The Biloxi operations
experienced an increase in gaming costs of $0.6 million primarily as a result
of increased promotional costs.
The Company's consolidated selling, general and administrative expenses were
$12.3 million during the three-month period ended November 30, 1999, compared
to $12.7 million for the three-month period ended November 30, 1998, a
decrease of $0.4 million, or 3.1%. As a percentage of consolidated revenues,
selling, general and administrative expenses decreased to 24.6% during the
three-month period ended November 30, 1999 from 24.9% during the three-month
period ended November 30, 1998. The decrease in selling, general and
administrative expenses is primarily due to a decrease of $0.5 million in the
"Biloxi Barge" lease expense which was eliminated with the August 1999
purchase of the barge and a $0.4 million decrease related to property tax
reassessments in St. Louis and Biloxi. These decreases were partially offset
by a $0.3 million increase in Davenport marketing and advertising and $0.2
million increase related to the costs associated with maintaining the M/V "New
Yorker," which is no longer under charter to a third party.
Depreciation and amortization expenses were $3.7 million during both three-
month periods ended November 30, 1999 and 1998.
Development costs were less than $0.1 million during the three-month period
ended November 30, 1999, compared to $0.7 million during the three-month
period ended November 30, 1998. The decrease was primarily the result of $0.6
million of expenses related to the Company's investment in the Philadelphia
lease option during the prior year three-month period. No expenses were
incurred on the project during the three-month period ended November 30, 1999.
Operating income. As a result of the foregoing items, the Company had
operating income of $1.2 million during the three-month period ended November
30, 1999, compared to $2.8 million during the three-month period ended
November 30, 1998.
Interest expense, net. The Company incurred net interest expense of $5.2
million during the three-month period ended November 30, 1999, compared to
$5.0 million during the three-month period ended November 30, 1998, an
increase of $0.2 million, or 4.0%. This increase is related to the purchase
of the "President Casino-Broadwater" in August 1999.
Minority interest expense. The Company incurred $0.3 million minority
interest expense for the three-month period ended November 30, 1999, compared
to $0.4 million during the three-month period ended November 30, 1998, a
decrease of $0.1 million, or 25.0%.
Net loss. The Company incurred a net loss of $4.2 million during the
three-month period ended November 30, 1999, compared to a net loss of $2.4
million during the three-month period ended November 30, 1998, an increase of
$1.8 million, or 75%.
17
<PAGE> 20
Nine-Month Period Ended November 30, 1999 Compared to the
Nine-Month Period Ended November 30, 1998
Operating revenues. The Company generated consolidated operating revenues
of $157.3 million during the nine-month period ended November 30, 1999,
compared to $156.6 million during the nine-month period ended November 30,
1998, an increase of $0.7 million, or 0.4%.
The Company's Biloxi operations experienced an increase in operating
revenues, offset by the Company's Davenport operations which experienced a
decrease in operating revenues. The Company's St. Louis and Corporate Leasing
operations contributed consistent operating revenues for both nine-month
periods ended November 30.
The Company experienced an increase of $1.3 million in Biloxi operating
revenues compared to the prior year. This increase consisted of a $1.9
million increase in operating revenues from casino operations offset by a $0.6
million decrease in operating revenues from its hotel operations. The
Company's Davenport operations experienced a decrease in operating revenues of
$0.7 million, consisting of a decrease in operating revenues of $0.6 million
from casino operations and a $0.1 million decrease from hotel operations.
Gaming revenues increased to $139.3 million for the nine-month period ended
November 30, 1999, compared to $133.7 million for the nine-month period ended
November 30, 1998, an increase of $5.6 million or 4.2%. Gaming revenues from
the Biloxi and St. Louis operations contributed $2.0 million and $3.7 million,
respectively, to the increase, offset by a decrease of $0.1 million in gaming
revenues from the Davenport operations. The increase in gaming revenues in
Biloxi is primarily the result of the growth in the Gulf Coast market over the
comparable period ended November 30, 1998 and Biloxi's increased promotional
efforts. The increase in gaming revenues in St. Louis is primarily the result
of the "Admiral" being closed for 26 days in April 1998 as the result of being
struck by several river barges.
The Company's hotel revenues decreased to $5.9 million for the nine-month
period ended November 30, 1999, from $6.6 million for the nine-month period
ended November 30, 1998, a decrease of $0.7 million or 10.6%. The decrease in
revenues from hotel operations is primarily the result of an increase of
approximately 30% in the number of hotel rooms in the Gulf Coast market.
The Company's revenues from food and beverage increased to $18.9 million
from $17.4 million, an increase of $1.5 million or 8.6%. Each property had an
increase in food and beverage revenue of approximately $0.5 million. The
increase in Biloxi is attributable to increased volume and prices. The
increase in Davenport is primarily attributable to an increase in food and
beverage promotions. The increase in St. Louis is primarily attributable to
the casino being closed 26 days during the nine months ended November 30,
1998, as a result of the barge accident.
Retail and other revenues decreased to $7.1 million for the nine-month
period ended November 30, 1999, from $9.9 million for the nine-month period
ended November 30, 1998, a decrease of $2.8 million or 28.3%. The decrease is
primarily attributable to the inclusion of $0.4 million of insurance proceeds
18
<PAGE> 21
in other revenue for the nine-month period ended November 30, 1999, compared
to the inclusion of $3.6 million of insurance proceeds in other revenue for
the nine-month period ended November 30, 1998. During both nine-month
periods, the revenues relate primarily to business interruption insurance
proceeds in St. Louis resulting from high river stages and to a lesser extent,
insurance proceeds related to damage sustained as the result of Hurricane
Georges in Biloxi.
Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $84.2 million for the nine-month
period ended November 30, 1999, compared to $77.6 million for the nine-month
period ended November 30, 1998, an increase of $6.6 million, or 8.5%. Gaming
costs increased $2.4 million, $2.2 million, and $2.0 million at the Davenport,
St. Louis and Biloxi operations, respectively. The increase at all three
properties is primarily the result of increased promotional costs. The
increase in Davenport is also the result of the introduction of wide area
progressive slot machines and the related rental cost in the current year. As
a percentage of gaming revenues, gaming and gaming cruise costs increased to
60.4% during the nine-month period ended November 30, 1999, from 58.0% during
the nine-month period ended November 30, 1998.
The Company's consolidated selling, general and administrative expenses were
$38.0 million for the nine-month period ended November 30, 1999, compared to
$41.7 million for the nine-month period ended November 30, 1998, a decrease of
$3.7 million, or 8.9%. As a percentage of consolidated revenues, selling,
general and administrative expenses decreased to 24.2% during the nine-month
period ended November 30, 1999 from 26.6% during the nine-month period ended
November 30, 1998. The Biloxi operations experienced a decrease of $0.8
million in selling, general and administrative expenses primarily attributable
to the decrease in lease expense resulting from the purchase of the formerly
leased "President Casino-Broadwater" and a favorable tax reassessment of the
Broadwater Hotel. The St. Louis operations decrease of $3.0 million is
primarily attributable to costs incurred as a result of the "Admiral" accident
which occurred in the nine-month period ended November 30, 1998, and the
favorable resolution of a property tax assessment that included a quarterly
expense reduction of $0.1 million and a refund of $0.3 million during the
nine-month period ended November 30, 1999.
Depreciation and amortization expenses were $10.0 million during the nine-
month period ended November 30, 1999, compared to $10.8 million during the
nine-month period ended November 30, 1998, a decrease of $0.8 million, or
7.4%.
Development costs during the nine-month period ended November 30, 1999 were
$0.2 million, compared to $4.7 million during the nine-month period ended
November 30, 1998, a decrease of $4.5 million. The decrease was primarily
related to $2.5 million the Company incurred pursuing a gaming license in New
York City during the nine-month period ended November 30, 1998 and $2.0
million related to the Company's investment in the Philadelphia lease option
during the prior year nine-month period.
Operating income. As a result of the foregoing items, the Company had
19
<PAGE> 22
operating income of $9.0 during the nine-month period ended November 30, 1999
and $6.1 million during the nine-month period ended November 30, 1998, an
increase of $2.9 million, or 47.5%.
Interest expense, net. The Company incurred net interest expense of $15.0
million during both nine-month periods ended November 30, 1999 and 1998.
Minority interest expense. The Company incurred $1.0 million minority
interest expense for the nine-month period ended November 30, 1999, compared
to $1.1 million for the nine-month period ended November 30, 1998, a decrease
of $0.1 million, or 9.0%. The decrease is the result of a decrease in income
at the Company's Davenport operation.
Net loss. The Company incurred a net loss of $6.6 million during the nine-
month period ended November 30, 1999, compared to a net loss of $9.5 million
during the nine-month period ended November 30, 1998, a decrease of $2.9
million, or 30.5%.
Liquidity and Capital Resources
The Company meets its working capital requirements from a combination of
internally generated sources including cash from operations and the sale or
charter of assets no longer utilized in the Company's operations.
The Company requires approximately $7.7 million of cash in order to fund
daily operations. As of November 30, 1999, the Company had approximately $3.0
million in non-restricted cash in excess of the required $7.7 million. The
Company is heavily dependant on cash generated from operations to continue to
operate as planned in its existing jurisdictions and to fund capital
expenditures. To the extent cash generated from operations is less than
anticipated, the Company may be required to curtail certain planned fiscal
2000 expenditures or seek other sources of financing. The Company may be
limited in its ability to raise cash through additional financing.
The Company experienced a net cash decrease from investing activities of
$7.0 million during the nine-month period ended November 30, 1999, compared to
a decrease of $4.4 million during the nine-month period ended November 30,
1998. The net cash decrease from investing activities during both periods
resulted primarily from expenditures on property and equipment. During the
nine-month period ended November 30, 1999, the Company had fixed asset
additions of approximately $12.3 million, of which, $5.4 million was a non-
cash addition in exchange for debt. The Company spent approximately $2.3
million, $1.6 million and $2.0 million at the Company's Biloxi, St. Louis and
Davenport operations, respectively. Additionally, the Company spent $0.9
million in conjunction with the potential development of the Broadwater
Property into a multi-casino destination resort.
During the three-month period ended November 30, 1999, an additional $29.2
million of long-term debt became current. Of this amount, $25.0 million is
the principal amount due on the Company's Senior Exchange Notes based on the
debt's maturity schedule. As reflected in the balance sheet as of November
20
<PAGE> 23
30, 1999, the Company has current maturities of long-term debt consisting of
the following (in millions):
<TABLE>
<S> <C> <C>
Senior Exchange Notes $ 25.0 Scheduled maturity September 2000
Broadwater Hotel Note 30.0 Scheduled maturity July 2000
"President Casino-
Broadwater" Note 4.7 $0.2 due monthly, balance
of $3.8 due April 2000
M/V "President Casino-
Mississippi" Note 3.1 $0.1 due quarterly, balance
of $2.0 due November 2002
(see below)
Line of Credit 2.2 $0.6 due March 2000, balance
------- of $1.6 due September 2000
Current maturities of
long-term debt $ 65.0
=======
</TABLE>
In conjunction with the purchase of the Broadwater Property, President
Broadwater Hotel, L.L.C. ("PBLLC") borrowed the sum of $30.0 million from a
third party lender, evidenced by a non-recourse promissory note (the
"Broadwater Hotel Note"). Except as set forth in the promissory note and
related security documents, PBLLC's obligations under the Broadwater Hotel
Note are nonrecourse and are secured by the Broadwater Property, its
improvements and leases thereon. The Broadwater Hotel Note 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, 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 non-refundable when
the indebtedness is repaid. As of November 30, 1999, the Company has accrued
$5.4 million of this loan fee.
In August 1999, the Company purchased the barge "President Casino-
Broadwater" (formerly the "Biloxi Barge"), the dockside casino utilized at the
Company's Biloxi gaming operation. The Company had previously leased the
"President Casino-Broadwater" since June 1995 from its former owner. Under
the terms of the agreement, the Company purchased the "President Casino-
Broadwater" for $5.0 million plus the remaining amounts from the current
charter. The Company paid $1.0 million at closing and will make combined
interest and principal payments of $0.3 million monthly through April 15,
2000, at which time the balance of the purchase price will be due.
The Company has a $3.1 million outstanding term note payable that is
collateralized by the M/V "President Casino-Mississippi" and various equipment
with a net book value of $8.1 million. The Company makes $0.1 million
principal payments quarterly. The note contains a covenant whereby the
Company is required to maintain a minimum net worth of $40.0 million. The
Company's net worth is below $40.0 million. The lender has waived this
covenant until September 30. Since the fair market value of the vessel is in
excess of the outstanding note balance, management believes that the Company
will be able to renegotiate the terms, pay down a portion of the note or
refinance the loan.
21
<PAGE> 24
TCG, the Company's 95%-owned partnership, maintains a $2.5 million line of
credit provided by Firstar Bank, N.A., of which $0.3 million is unused. The
line of credit reduces by $0.9 million each March 31 and expires September 30,
2000. The line of credit is available exclusively to TCG. Distributions from
TCG to its general partner are limited by its partnership agreement.
In addition to the aforementioned Broadwater Hotel Note, under the terms of
the purchase agreement for the Broadwater Property, PBLLC is obligated to
redeem the minority interest owned by a company controlled by Mr. Connelly for
a redemption price of $10.0 million on the date on which the Broadwater Hotel
Note is fully and finally discharged and the mortgage securing that note is
released. Mr. Connelly is also entitled 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. As of November 30, 1999, the
Company has expensed $2.4 million of this priority return since its inception,
of which $0.2 million has been paid.
It is anticipated that the Company and the City of St. Louis will finalize
an agreement before the end of January 2000 for the relocation of the
"Admiral" approximately 1,000 feet north from its current location on the
Mississippi River. The new location provides for significantly improved
ingress, egress and parking, and is less susceptible to flooding and more
protected from river traffic.
The aggregate cost to relocate the "Admiral" is expected to be approximately
$7.0 million. Under the terms of the proposed agreement, the City will fund
$3.0 million of the relocation costs, $2.4 million of which 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 in debt from annual
allocations of $0.6 million 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 $2.4 million
bank debt if the City fails to pay it. Construction has begun and the move is
expected to occur during the summer of 2000, subject to certain approvals,
weather conditions and timely construction. The Company expects to fund this
project from operating cash flow and/or additional financing.
Cash generated from operations during the normal course of business will not
be enough to fund all required payments under the notes payable obligations,
including, potentially, the interest payments due on March 15, 2000 on the
Senior Exchange Notes and the Secured Notes. Management is pursuing various
strategic financing alternatives in order to fund these obligations.
Management believes that there is significant intrinsic value in the casino,
hotel and development properties and other assets owned by the Company. The
Company is working with recognized financial advisors in the gaming industry
to pursue various strategic alternatives, including the restructuring and
refinancing of outstanding debt obligations and/or the sale of assets. There
can be no assurance that the Company will be able to restructure successfully
or refinance its debts or sale/charter assets on a timely basis or under
acceptable terms and conditions.
Project financing will be required for any potential growth opportunity.
Capital investments may include all or some of the following: acquisition and
22
<PAGE> 25
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. There can be no assurance that the Company can
effectuate any of the financing strategies discussed above.
--Year 2000
The Company has successfully made the transition to the year 2000 subsequent
to the third quarter ended November 30, 1999, and it appears that the
Company's major IT and non-IT systems are compliant with the Year 2000
requirements. The Company has experienced no adverse consequences as a result
of third parties or external factors being non-compliant. The Company's Year
2000 contingency plan calls for the Company to continue to monitor the status
of all its systems over the year for any potential delayed or suppressed Year
2000 problems.
The Company incurred approximately $0.3 million to become Year 2000
compliant. The majority of this cost related to the acquisition of new
computer hardware and software to replace non-compliant items. These costs
were capitalized and are being depreciated over their expected useful lives.
To the extent existing hardware or software was replaced, the Company
recognized a loss for the undepreciated balance. This loss is included in the
above cost estimate. Furthermore, all costs related to software modification,
as well as all costs associated with the Company's administration of the
Company's Year 2000 project, were expensed as incurred and are likewise
included in the cost above.
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 with respect to the variable-rate debt
maintained.
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
23
<PAGE> 26
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 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; risk that jurisdictions in which the
Company operates or jurisdictions in close proximity thereto, enact
legislation that effect the Company's current operations; 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 6 of Notes to Condensed Consolidated Financial
Statements included in Part I of this report and is incorporated herein by
reference.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed as part of this report are listed on Index to
Exhibits accompanying this report.
(b) Reports on Form 8-K
Not applicable.
Item 7A. 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 with respect to the variable-rate debt
maintained.
24
<PAGE> 27
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, 2000 /s/ James A. Zweifel
-----------------------------
James A. Zweifel
Executive Vice President and
Chief Financial Officer
25
<PAGE>28
INDEX TO EXHIBITS
-----------------
EXHIBIT NO.
27 Financial Data Schedule for the nine-months ended November 30,
1999, as required under EDGAR.
- ----------------------
<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-29-2000
<PERIOD-END> NOV-30-1999
<CASH> 13559
<SECURITIES> 960
<RECEIVABLES> 1804
<ALLOWANCES> 353
<INVENTORY> 1829
<CURRENT-ASSETS> 20236
<PP&E> 217927
<DEPRECIATION> 73259
<TOTAL-ASSETS> 166689
<CURRENT-LIABILITIES> 91094
<BONDS> 100417
0
0
<COMMON> 302
<OTHER-SE> (13094)
<TOTAL-LIABILITY-AND-EQUITY> 166689
<SALES> 0
<TOTAL-REVENUES> 157289
<CGS> 0
<TOTAL-COSTS> 148271
<OTHER-EXPENSES> 1023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14981
<INCOME-PRETAX> (6584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6584)
<EPS-BASIC> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
