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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ X / Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended February 29, 2004
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 organization) Identification No.)
802 North First Street, St. Louis, Missouri 63102
Address of principal executive offices
314-622-3000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.06 par value
Preferred Stock Purchase Rights
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
amendment to this Form 10-K. / /
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes / / No /X/
As of June 1, 2004, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $503,023.*
As of June 1, 2004, the number of shares outstanding of the Registrant's
Common Stock was approximately 5,033,161.
* Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers and directors of the Registrant, without conceding
that all such persons are "affiliates" of the Registrant for purposes of the
federal securities laws.
DOCUMENTS INCORPORATED BY REFERENCE - None.
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PART I
Item 1. and Item 2. Business and Properties.
General
President Casinos, Inc. owns, operates and develops dockside gaming casinos
through its subsidiaries (collectively, the "Company"). The Company's current
gaming facilities and operations are summarized as follows:
Biloxi, Mississippi
Operating entity - The President Riverboat Casino-
Mississippi, Inc.
Vessel - "President Casino-Broadwater"
Slots - 860
Gaming tables - 41
Opening of casino - August 13, 1992
Opening of current facility - June 30, 1995
St. Louis, Missouri
Operating entity - President Riverboat Casino-
Missouri, Inc.
Vessel - "Admiral"
Slots - 1,354
Gaming tables - 33
Opening of casino without slots - May 27, 1994
Opening of casino with slots - December 9, 1994
In addition to its gaming operations, the Company owns and manages certain
hotel and ancillary facilities associated with its casino operations in
Biloxi, Mississippi.
The Company was incorporated in the State of Delaware in June 1992 and
completed the initial public offering of its Common Stock in December 1992.
The Company is the successor to businesses operated in St. Louis, Missouri
since 1985 and Biloxi, Mississippi since August 1992. The Company's principal
executive offices are located in an approximately 36,000 square foot building
owned by the Company at 802 North First Street, St. Louis, Missouri 63102, of
which the Company occupies approximately 30,800 square feet and leases the
remainder to an unrelated party. The Company's telephone number is (314) 622-
3000. Copies of the Company's filings with the Securities and Exchange
Commission and other important information regarding the Company is available
free of charge on the Company's web page www.presidentcasino.com.
Substantial Indebtedness; Bankruptcy Proceedings
The Company continues to experience difficulty generating sufficient cash
flow to meet its debt obligations and sustain its operations. As a result of
the Company's relatively high degree of leverage and the need for significant
capital expenditures at its St. Louis property, the Company was unable to make
the regularly scheduled interest payments of $6.4 million that were each due
and payable March 15, and September 15, 2000 on its $75.0 million 13% Senior
Exchange Notes (the "Senior Exchange Notes") and $25.0 million 12% Secured
Notes (the "Secured Notes," and collectively with the Senior Exchange Notes,
the "Notes"). Under the Indentures pursuant to which the Notes were issued,
an Event of Default occurred on April 15, 2000, and is continuing as of the
date hereof. Additionally, the Company did not pay the $25.0 million
principal payment due September 15, 2000 on the Senior Exchange Notes. The
holders of at least 25% of the Senior Exchange Notes and the Secured Notes
were notified of the defaults and the Indenture Trustee has accelerated the
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Notes and declared the unpaid principal and interest to be due and payable.
On November 22, 2000, the Company entered into an agreement with a majority
of the holders of the Senior Exchange Notes and a majority of the holders of
the Secured Notes. The agreement, which was not fully implemented, provided
for a proposed restructuring of the Company's debt obligations under the Notes
and the application of certain of the proceeds received by the Company from
the sale of the Company's Davenport, Iowa assets. Approximately $43.0 million
of the proceeds from the sale were deposited with a trustee. Of this amount,
$12.8 million was used to pay missed interest payments due March 15, 2000 and
September 15, 2000 on the Notes; $25.0 million was used to partially redeem
the Notes; and $5.2 million was used to pay interest due March 15, 2001 on the
Notes.
Subsequently, the Company was unable to make the principal and interest
payments due September 15, 2001 and interest payments due March 15, 2002, on
its Notes. As of February 29, 2004, principal due on the Senior and Secured
Notes was $56.2 million and $18.8 million, respectively.
On June 20, 2002, President Casinos, Inc. together with its subsidiary,
President Riverboat Casino-Missouri, Inc. ("President Missouri"), which owns
and operates the St. Louis operations, filed voluntary petitions for
reorganization under Chapter 11 of Title 11, United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of Mississippi (the "Mississippi Bankruptcy Court"). Subsequently,
on July 9, 2002, President Casinos, Inc.'s subsidiary The President Riverboat
Casino-Mississippi, Inc. ("President Mississippi") filed a voluntary
reorganization petition in the same Court. On July 11, 2002, substantially
all of President Casinos, Inc.'s other operating subsidiaries filed voluntary
reorganization petitions under Chapter 11 in the same Mississippi Bankruptcy
Court. Subsequently, orders were entered by the Mississippi Bankruptcy Court
transferring venue of all of the bankruptcy cases, except President Riverboat
Casino-New York, Inc. and President Broadwater Hotel, LLC, to the United
States Bankruptcy Court for the Eastern District of Missouri (the "Missouri
Bankruptcy Court") where they are now pending and being administered.
The Company and its subsidiaries each continue in possession and use of
their assets as debtors-in-possession. The Company and its subsidiaries have
had their Missouri Chapter 11 cases administratively consolidated under the
Company's case.
Prior to any of the cases being transferred to the Missouri Bankruptcy
Court, the Mississippi Bankruptcy Court established "bar dates" all of which
have expired, by which all claimants were required to submit and characterize
claims against the Company. As part of the Company's and its subsidiaries'
Chapter 11 reorganization process, the Company has attempted to notify all
known or potential creditors of the filing for the purpose of identifying all
pre-petition claims. In the Company's Chapter 11 case, substantially all of
the Company's liabilities as of the filing date are subject to adjustment
under a plan of reorganization. Generally, actions to enforce or otherwise
effect repayment of all pre-petition liabilities as well as all pending
litigation against the Company are stayed while the Company continues its
business operations as debtors-in-possession. Schedules have been filed by
the Company with the Bankruptcy Court setting forth the assets and liabilities
of the debtors as of the filing date as reflected in the Company's accounting
records. Differences between amounts reflected in such schedules and claims
filed by creditors will be investigated and amicably resolved or adjudicated
before the Bankruptcy Courts. The ultimate amount and settlement terms for
such liabilities are subject to a plan of reorganization, and accordingly, are
not presently determinable. Under the Bankruptcy Code, the Company may elect
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to assume or reject real estate leases, employment contracts, personal
property leases, service contracts and other executory pre-petition contracts
and unexpired leases, subject to Bankruptcy Court review. The Company cannot
presently determine or reasonably estimate the ultimate liability that may
result from rejecting leases or from filing of claims for any rejected
contracts, and no provisions have been made for these items.
The consummation of a plan or plans of reorganization (a "Plan") is the
principal objective of the Company's Chapter 11 filings. A Plan would, among
other things, set forth the means for satisfying claims against and interests
in the Company and its subsidiaries, including setting forth the potential
distributions on account of such claims and interests, if any. Pursuant to
the Bankruptcy Code, the Company had the exclusive right for 120 days from the
filing date to file a Plan, and for 180 days from the filing date to solicit
and receive the votes necessary to confirm a Plan. The Company was unable to
have a plan confirmed prior to the expiration of these exclusivity periods,
and the Missouri Bankruptcy Court denied the Company's motion to further
extend the exclusivity period. Accordingly, in addition to the Company, any
party-in-interest, including a creditor, an equity holder, a committee of
creditors or equity holders, or an indenture trustee, may file its own Plan
for the Company. Confirmation of a Plan is subject to certain statutory
findings by the Bankruptcy Court. Subject to certain exceptions as set forth
in the Bankruptcy Code, confirmation of a Plan requires, among other things, a
vote on the Plan by certain classes of creditors and equity holders whose
rights or interests are impaired under the Plan. If any impaired class of
creditors or equity holders does not vote to accept the Plan, but all of the
other requirements of the Bankruptcy Code are met, the proponent of the Plan
may seek confirmation of the Plan pursuant to the "cram down" provisions of
the Bankruptcy Code. Under these provisions, the Bankruptcy Court may still
confirm a Plan notwithstanding the non-acceptance of the Plan by an impaired
class, if, among other things, no claim or interest receives or retains any
property under the Plan until each holder of a claim senior to such claim or
interest has been paid in full. There can be no assurance that a Plan will be
confirmed by the Bankruptcy Court, or that any such Plan will be consummated.
It is not possible to predict the length of time the Company will operate
under the protection of Chapter 11 and the supervision of the Bankruptcy
Court, the outcome of the bankruptcy proceedings in general, or the effect of
the proceedings on the business of the Company or on the interest of the
various creditors and stakeholders. Since the filing date, the Company has
operated in the ordinary course of business. Management is in the process of
evaluating their operations as part of the development of a Plan. During the
pendency of the Chapter 11 filings, the Company may, with Bankruptcy Court
approval, sell assets and settle liabilities, including for amounts other than
those reflected in the financial statements. The administrative and
reorganization expenses resulting from the Chapter 11 filings will unfavorably
affect the Company's results of operations. In addition, under the priority
scheme established by the Bankruptcy Code, most, if not all, post-petition
liabilities must be satisfied before most other creditors or interest holders,
including stockholders, can receive any distribution on account of such claim
or interest.
On April 27, 2003, the Missouri Bankruptcy Court granted a motion for
approval of a key employee retention plan for certain corporate and Missouri
casino employees (the "Retention Plans"). The motion does not affect any pre-
petition employment agreements as to assumption or rejection of pre-petition
executory contracts, with the exception that any claim asserted by a key
employee on account of a pre-petition employment agreement shall be reduced
dollar for dollar by the amounts paid or payable under the retention plan.
Under the terms of the Retention Plans for certain Missouri key casino
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employees, certain key employees will receive 50% of their then salary which
will be due and payable on the earlier of the following dates: (i) the date on
which all or substantially all of President Missouri's assets are sold or (ii)
the date on which the Company terminates substantially all of its ordinary
Missouri business operations. Under the terms of the Retention Plans for
corporate employees, the Chief Financial Officer will receive one year of his
then salary on the date he is discharged from employment and the other named
key employees will receive 50% of their then salary. If at any time prior
thereto the corporate key employees' salaries are reduced or he or she is
required to move his or her residence from the St. Louis, Missouri
metropolitan area, he or she will also receive such payment. In the event of
the sale of the Missouri assets, an amount shall be set aside to fund such
payments.
On April 1, 2004, the Missouri Bankruptcy Court granted a motion for
approval of a key employee retention plan for certain Mississippi key casino
employees. The terms and conditions are the same as the Missouri key casino
employee Retention Plan except the assets and operations refer to those of
Mississippi and one key employee receiving his then twelve month salary rather
than 50%.
--St. Louis Operations
On May 15, 2003, the Missouri Bankruptcy Court issued an order approving a
joint motion filed by the Company, the unsecured creditors' committee (the
"Committee") and certain noteholders of the Company (the "Noteholders") with
respect to a timetable and process for the Company's reorganization
proceedings. The joint motion sought entry of an order approving a timetable
and process set forth in a Term Sheet, dated March 25, 2003 (the "Term
Sheet"), with respect to either (i) the refinancing of the Company by July 18,
2003, or (ii) a sale of the assets related to the Company's St. Louis gaming
operations. In addition, the Court approved motions by the Company to approve
the appointment of Libra Securities LLC ("Libra") to serve as the Company's
investment banker in connection with any sale of the St. Louis operations.
The Term Sheet outlined a process and timetable under which the Company's
St. Louis operations would be sold in the event that a recapitalization of the
Company was not completed as set forth in the Term Sheet. As part of such
process, the Company was required to meet certain benchmarks which, if not
met, would permit the Committee to file a motion with the Court for the sale
of the Company's St. Louis operations and to appoint a chief restructuring
officer to manage the sale process.
Pursuant to the Term Sheet provisions and the agreement of the Company, the
Committee and the Bondholders, on September 25, 2003, the Company entered into
an agreement with Isle of Capri Casinos, Inc. to sell the assets of its St.
Louis operations for approximately $50.0 million.
On December 23, 2003, the Company filed with the Missouri Bankruptcy Court
an amended motion for orders (a) authorizing sale of assets free and clear of
all liens, claims and encumbrances, subject to higher and better offers, (b)
approving the assumption and assignment of certain executory contracts and
unexpired leases, (c) establishing sale and bidding procedures, and (d)
approving breakup compensation and expense reimbursement. The motion
requested that the Missouri Bankruptcy Court issue an order approving the
foregoing and establishing sale and bidding procedures as well scheduling a
hearing to approve the sale of the Company's St. Louis assets.
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The closing was contingent upon the selection of a subsidiary of Isle of
Capri Casinos, Inc. ("Isle of Capri") as the winner of certain requests for a
proposal issued by the City of St. Louis and St. Louis County (or the waiver
thereof), which would afford the winning party the rights to develop and
operate a casino and gaming facilities in the City and Counties of St. Louis
as well as the approval of the Missouri Gaming Commission.
Isle of Capri was not selected by the City of St. Louis to operate a casino
at a downtown St. Louis location. On May 4, 2004, the Company and Isle of
Capri entered into an agreement to terminate the purchase agreement for the
St. Louis operations. Libra continues to seek a buyer for the St. Louis
operations.
--Biloxi, Mississippi
President Broadwater Hotel, LLC Reorganization
President Broadwater Hotel, LLC ("PBLLC"), a limited liability company in
which Broadwater Hotel, Inc., a wholly-owned subsidiary of the Company
("BHI"), has a Class A ownership interest, was in default under a $30.0
million promissory note and associated $7.0 million loan fee incurred in
connection with the July 1997 purchase by PBLLC of the real estate and
improvements utilized in the Company's operations in Biloxi, Mississippi. On
April 19, 2001, PBLLC filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Southern District of Mississippi. PBLLC continued in possession and use
of its assets as a debtor-in-possession and had an agreement with Lehman
Brothers Holdings Inc., its lender and largest creditor ("Lehman"), approved
by the Mississippi Bankruptcy Court which allowed PBLLC's use of its cash
collateral.
On October 16, 2001, PBLLC filed its plan of reorganization. Subsequently,
on February 28, 2003, PBLLC filed Modifications to Debtor's Plan of
Reorganization (together with the reorganization plan, the "Modified Plan").
On May 14, 2003, the Mississippi Bankruptcy Court entered the confirmation
order confirming the Modified Plan. The Modified Plan became effective on May
28, 2003 and the Company consummated the Modified Plan at that time. The
Modified Plan provides that the unsecured creditors of PBLLC receive 100% of
their claims. Under the Modified Plan, the obligations to Lehman were
modified with respect to the debt amount, the interest rate and the due date,
and was re-documented substantially along the lines of the Original
Indebtedness, including the non-recourse provision, (the "Modified
Indebtedness"). On May 28, 2003, the Company paid Lehman $3.6 million
pursuant to the Modified Plan. As of February 29, 2004, the principal amount
of the Modified Indebtedness was $45.4 million. The principal amount of the
Modified Indebtedness earns interest at a rate of 12.75% per annum until the
obligation is satisfied. The maturity date of the Modified Indebtedness is
June 1, 2005. Interest is payable during the term of the Modified
Indebtedness on the adjusted loan obligation amount. As of February 29, 2004,
the adjusted loan obligation amount was $43.0 million. PBLLC is required to
pay interest earned on the adjusted loan obligation monthly from May 28, 2003
at a rate of the greater of 7.75% per annum or LIBOR plus 4% per annum
floating through the term of the Modified Indebtedness.
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In the event that payment in full of the Modified Indebtedness is made after
November 1, 2003 but prior to June 2, 2005, interest on the Modified
Indebtedness will be calculated at a lower rate as set forth in the Modified
Plan.
The Modified Plan contains an express waiver of rights by PBLLC to seek
future bankruptcy protection. J. Edward Connelly Associates, Inc. ("JECA"),
the holder of a Class B interest in PBLLC, retains its membership interest,
but any payments by PBLLC to JECA shall be restricted until such time as all
outstanding obligations to Lehman and other creditors receiving funds under
the Modified Plan are discharged.
Mississippi Assets Sale Term Sheet
An agreement has been entered into among the Company, President Mississippi;
Vegas Vegas, Inc. ("Vegas Vegas"); PBLLC; JECA, the owner of the Class B Unit
in PBLLC; John S. Aylsworth, President, Chief Operating Officer and Director
of the Company; Terrence L. Wirginis, Vice Chairman of the Board, Vice
President of Marine and Development and Director of the Company; and
SunAmerica, Inc. and McKay Shields LLC (collectively, representing the
Noteholders). It provides that various assets owned by President Mississippi,
Vegas Vegas and PBLLC (the "Assets") will be marketed for sale, such sale to
be subject to the Noteholders, who have security interests in the Assets,
approval.
Vegas Vegas owns the assets related to the Company's proposed development
of Destination Broadwater. See "Potential Opportunities." To the extent that
the sale includes the Vegas Vegas assets, the buyers shall allocate the amount
of purchase price attributable to the Vegas Vegas assets. The first
$3,250,000 of funds allocated to the Vegas Vegas assets shall be paid into the
Vegas Vegas bankruptcy estate and shall not be subject to the distribution
priorities provided in the agreement.
In the event of a sale of all or substantially all of the Assets, the
proceeds (gross proceeds less typical closing adjustments including brokerage
commission) from the sale, other than the amount to be paid to Vegas Vegas,
shall be allocated as follows:
(i) the first dollars shall be paid to Lehman, the secured lender to
PBLLC, to satisfy in full the indebtedness due to it;
(ii) the next $10.0 million shall be allocated equally between JECA and the
Noteholders on a dollar for dollar basis. If President Mississippi
assets are sold separately and the proceeds are paid to the
Noteholders, then such dollars shall be a credit on the amount payable
to Noteholders under this provision;
(iii) the next $8.0 million shall be paid to Noteholders;
(iv) the next $26.0 million (twice the remaining amount owing to JECA after
payment of the $5.0 million above) shall be split on a dollar for
dollar basis between the Noteholders and JECA;
(v) the next dollars shall be paid to the Noteholders until their debt is
satisfied in full;
(vi) the remaining dollars shall be paid to President Mississippi.
JECA has entered into an agreement with Messrs. Aylsworth, Wirginis and
Ralph J. Vaclavik, the Chief Financial Officer of the Company, pursuant to
which upon receipt of funds by JECA, JECA will use its best efforts to pay a
percentage of such funds to Messrs. Aylsworth, Wirginis and Vaclavik based on
the total sales proceeds to JECA.
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The process and time for the sale of assets shall be reflected in documents
and pleadings to be drafted and may include a sale pursuant to Section 363 of
the Bankruptcy Code and/or the confirmation of a Plan of Reorganization for
President Mississippi and/or Broadwater Hotel, Inc. and/or the Company. The
agreement binds only the parties thereto and establishes priorities between or
among the parties to the agreement and third parties and shall not be binding
on any holder of claims or interests against anyone that is not a party to the
agreement. The term of the agreement is from March 1, 2004 to March 1, 2005.
This agreement becomes effective upon its approval by the Missouri Bankruptcy
Court, provided, however that the marketing of the assets for sale commenced
immediately upon its execution.
Subsequently, the Missouri Bankruptcy Court entered an order approving the
agreement but indicating expressly that nothing therein affected the rights of
Lehman. Thereafter, an Examiner appointed at the request of the Noteholders
filed a motion to set aside the Court's order. That motion is currently set
for hearing on July 19, 2004.
In March 2004, the Missouri Bankruptcy Court appointed an Examiner for the
purpose of investigating and issuing a report concerning whether any
prohibited direct or indirect transfers have been made from the Company or its
subsidiaries that may be avoided or which were otherwise improper or
actionable under the Bankruptcy Code or other applicable law. The examination
concerned the purchase of the Broadwater Property from an entity owned by Mr.
Connelly, Chairman and Chief Executive of the Company, the financing of the
project, the process of the purchase and the operation of the complementary
rooms program, among other items. The Examiner's report was issued on May 28,
2004 and contains various findings and recommendations to be considered by the
various parties in interest. The Noteholders and other creditors now have a
report for their use. No prediction is possible as to what action, if any,
they may take.
--Discontinued Operations (formerly "Leasing Operations")
President Riverboat Casino-New York, Inc. filed a voluntary petition for
reorganization under the Bankruptcy Code in the Mississippi Bankruptcy Court
on July 11, 2002. During October 2003, the case was dismissed by the court.
See "Discontinued Operations."
The descriptions of the Company's business, financial condition and
prospects contained in this Annual Report on Form 10-K are qualified in their
entirety by the foregoing description of the significant risks associated with
the Company's bankruptcy proceedings.
Current Operations
Management is pursuing various strategic financing alternatives in order to
fund its debt obligations and the Company's continuing operations. The
Company is pursuing alternatives, including the restructuring and refinancing
of outstanding debt obligations and/or the sale of all or a portion of its
assets. The Company's ability to continue as a going concern is dependent on
its ability to restructure successfully, including refinancing its debts,
selling 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.
The Company's management views its current operations in three operating
segments: Biloxi Operations, St. Louis Operations and, to a much lesser
extent, Corporate Leasing Operations, each of which is discussed more fully
below. Prior to the sale of the Company's Davenport properties in fiscal
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2001, Davenport operations were considered to be a fourth operating segment.
Revenues, results of operations and identifiable assets of each of these
segments can be found in Note 20 of the accompanying consolidated financial
statements.
--St. Louis, Missouri Operations
In May 1994, the Missouri Gaming Commission licensed the Company to conduct
dockside gaming operations on the Company-owned vessel, "Admiral," in St.
Louis through its wholly-owned subsidiary, President Missouri. The Company's
initial license was subsequently renewed and was last renewed in May 2002 for
a period of two years. As a result of additional meetings required by the
Missouri Gaming Commission to examine expansion of the St. Louis Metropolitan
area market, the Commission will not conduct usual public meetings during May
and June, 2004. On April 27, 2004, the Commission passed a resolution whereby
all five Class A licensees whose licenses are due to expire during May and
June will be granted temporary licenses until July 31, 2004, at which time a
vote on re-licensing will occur. A temporary Class A license was issued
effective May 27, 2004, under the same terms and conditions as the regular
license.
The "Admiral" is approximately 400 feet long, continuously docked north of
the base of the Gateway Arch in Laclede's Landing, at a mooring site subleased
by the Company from the City of St. Louis Port Commission (the "Port
Commission").
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
former location on the Mississippi River. The new location provides guests
with improved parking and valet service, and better ingress/egress including
improved access from major highways into St. Louis. This site is also less
susceptible to the negative economic impact of high water than the previous
mooring site.
The aggregate cost to relocate the "Admiral" and construct ancillary
facilities was approximately $8.7 million. Under the terms of the agreement,
the City funded $3.0 million of the relocation costs, $2.4 million of which
amount was financed through bank debt. The Company paid for the remaining
$5.7 million of relocation costs. It is anticipated that the City will repay
the 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 repayment of the bank debt if the City
fails to pay the obligation. As of February 29, 2004, the Company's
guaranteed balance was $0.6 million. The City makes annual payments of $0.6
million in June of each year.
Rent under the terms of the lease consists of base rent plus a percent of
adjusted gross receipts. The base rent was $27,000 annually through December
31 ,2003 and is subject to rate change every five years based on the
recommendation of the Port Commission. Effective January 1, 2004, the annual
base rent was adjusted to $29, 250. The percentage rent is 2% of adjusted
gross receipts for any lease year equal to or less than $80.0 million, plus 3%
of that portion of adjusted gross receipts for such lease year which exceed
$80.0 million but which are equal to or less than $100.0 million, plus 4% of
that portion of adjusted gross receipts for such lease year, if any, which
exceed $100.0 million.
Competition is intense in the St. Louis market area. There are presently
four other casino companies operating five casinos in the market area. Many
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of these competitors have significantly greater name recognition and financial
and marketing resources than the Company. Two of these are Illinois casino
companies operating single casino vessels on the Mississippi River, one across
the Mississippi River from the "Admiral" and the second 20 miles upriver.
There are two Missouri casino companies, each of which operates casino vessels
approximately 20 miles west of St. Louis on the Missouri River. One company
operates two casinos in Maryland Heights, Missouri and the other company
operates one casino in the City of St. Charles, Missouri. The operator of the
St. Charles casino replaced its facility and reopened with nearly double its
prior gaming positions in August 2002.
Applications were 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 were within 20
miles of the "Admiral." In July 2000, the Gaming Commission announced its
decision to award an additional license to the applicant proposing a site at
the greatest distance from the "Admiral" of the proposed locations. The
Commission's decision was challenged by one of the applicants whose proposal
was not selected and by other entities. In September 2001, the applicant
selected by the Gaming Commission announced it would not proceed with the
development of the project.
Subsequently, the Gaming Commission announced that it will consider
licensing additional casinos in the St. Louis market. In September 2003, the
City of St. Louis and St. Louis County, which are separate political and
geographic subdivisions, announced that they were both issuing Requests for
Proposals for a new casino in each jurisdiction.
A project proposed by Pinnacle Entertainment, Inc. was selected and approved
by the City of St. Louis as its recommendation before the Missouri Gaming
Commission. Its proposal includes a casino two blocks from the Admiral. St.
Louis County has chosen a separate Pinnacle Entertainment project in Lemay,
Missouri. Various other gaming companies have filed proposals. The Missouri
Gaming Commission is expected to narrow the field in July 2004. The final
decision on whether to issue one or more licenses is up to the Missouri Gaming
Commission. In addition, each company proceeding with its proposal is subject
to approval by the Missouri Gaming Commission. Each of the proposals
submitted requires significant construction of new infrastructure for the
casino and entertainment complexes. Were there to be a new casino or casinos
in metropolitan St. Louis, there would be a material adverse effect on the
Company's St. Louis operations.
Missouri regulations limit the loss per simulated cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to five hundred dollars. The company that operates
adjacent casinos is able to offer guests who reach the two-hour loss limit the
ability to move to the adjacent casino and continue to play. The lack of a
statutory loss limit on Illinois casinos allows them to attract higher stake
players and guests who do not want to be burdened with the administrative
requirements related to the loss limits.
--Biloxi, Mississippi Operations
The Company manages its Biloxi gaming operations through its wholly-owned
subsidiary, President Mississippi. Biloxi is located on the Gulf of Mexico 75
miles east of New Orleans. The Mississippi Gulf Coast area has a population
of approximately 364,000. The Company's Mississippi gaming license was last
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renewed in April 2004 for a three-year period.
Since gaming began in Mississippi in August 1992, competition has steadily
increased. There are currently twelve casinos operating in the Mississippi
Gulf Coast area. The twelfth casino opened in March 1999 and is the largest
casino in the market. A thirteenth casino and hotel complex is expected to
open in late Summer 2005 on the Gulf Coast and an additional casino operator
has obtained necessary licenses and approval to open an additional casino
facility, although an opening date has not been announced. The Company also
faces competition from gaming operations in the metropolitan New Orleans area
and elsewhere in Louisiana and Mississippi. The New Orleans metropolitan area
currently has four casinos in operation.
Management believes the Mississippi Gulf Coast has become a major
destination point for gaming entertainment. The area is becoming more widely
known with many guests coming long distances to enjoy the weather, beaches,
golfing and other entertainment. Several large gaming companies have built
large hotel/casino complexes and have captured a significant portion of the
Mississippi Gulf Coast market. Many of these competitors have substantially
greater name recognition and financial and marketing resources than the
Company. Management believes that as newer and larger casino complexes have
entered the market, it has become increasingly more difficult to compete and
maintain market share. Thus, management continues to study strategic
alternatives for its Biloxi operations. See "Potential Opportunities-Biloxi,
Mississippi Development."
The Company began dockside gaming operations in Biloxi on August 13, 1992.
Prior to July 1997, the Company was party to an operating lease with BH
Acquisition Corporation ("BHAC") for its Biloxi mooring site, parking
facilities, offices and a warehouse. BHAC was a wholly-owned entity of Mr.
Connelly. Rent under the operating lease agreement was approximately $3.0
million annually, on a triple net basis. In July 1997, President Broadwater
Hotel, LLC ("PBLLC"), a limited liability company in which the Company has a
Class A ownership interest, and a wholly-owned entity of Mr. Connelly which
has a Class B ownership interest and certain preferred rights to certain cash
flows, acquired the real estate and improvements from BHAC for $40.5 million.
The property comprises approximately 260 acres and includes a 111-slip marina
which contains the mooring site of the barge "President Casino-Broadwater,"
two hotels with approximately 500 rooms and an adjacent 18-hole golf course
(collectively, the "Broadwater Property").
The Company has entered into a contract to sell to an unrelated party the
Broadwater Property golf course. The golf course purchase price is $13.0
million before closing adjustments. The prospective purchaser has applied for
re-zoning of the property and been rejected. It is pursuing an appeal in
court. The contract was amended to make the obtaining of re-zoning a
precondition to closing and extending the closing period for a six-month
period from November 1, 2003 through April 30, 2004 for an option fee of
$25,000 for each month the contract is extended. The agreement was further
amended extending the closing period from May 1, 2004 through August 31, 2004
for an option fee of $25,000 for each month the contract is extended.
Additionally, this amendment increases the sale price by $50,000 for each of
the first two months of the extension period and $75,000 for each of the last
two months of the extension period. It is not possible to predict whether re-
zoning will be obtained. It is anticipated that the net proceeds from the
sale of the golf course will be used to partially pay down the principal on
the Indebtedness of PBLLC.
On March 16, 2004, the Company sold the 179-room Broadwater Tower Hotel for
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$6.5 million to Ocean Beach Club at Biloxi, LLC. The Company's other hotel,
the 333-room President Broadwater Resort, was not included in this
transaction. The net proceeds of the transaction were used to reduce the debt
of the Company's subsidiary, PBLLC. In connection with the transaction the
Company also entered into an initial seven-month lease with the new owners
whereby the Company will continue to operate the Broadwater Tower Hotel with
options for additional extensions.
The marina at the Broadwater Property consists of both "tidelands" and "fast
lands" under the Mississippi Trust Tidelands Act (the "Tidelands Act"). The
Tidelands Act provides that land designated as tidelands is deemed to be owned
by the State of Mississippi in trust. Under Mississippi law, riparian owners
of land designated as tidelands or fast lands are provided the first
opportunity to negotiate with the State of Mississippi for a lease on the
property.
During August 1992, BHAC entered into a ten-year lease agreement with the
State of Mississippi for the tidelands (the "Tidelands Lease") for an annual
rental fee of $295,000, with an option for a renewal term of five years,
subject to renegotiation of the annual rent. In November 1993, the Tidelands
Lease was amended to allow a new or second vessel to be moored, among other
items, for an annual rent of $525,000. Effective in August 1995, BHAC
exercised its rights under the agreement and the Company's annual rent
increased to $525,000. Effective August 1997, the state adjusted the annual
rent to $598,000 in accordance with the terms of the lease. Effective August
2002, the Company renewed its lease for a term of five years and the state
adjusted the annual rent to $670,000 in accordance with the terms of the
lease.
During December 1996, BHAC entered into a 40-year lease agreement (the "Fast
Lands Lease") with the State of Mississippi for the fast lands for an annual
rental fee of $21,000, adjustable every five years as defined in the lease
agreement. Concurrent with the purchase of PBLLC, BHAC sold its interest in
the Tidelands Lease and the Fast Lands Lease to PBLLC.
Discontinued Operations
Discontinued operations were formerly reported as the Company's leasing
segment, President Riverboat Casino-New York, Inc. ("President New York") .
In addition to the vessels currently owned and utilized in its gaming
operations, the Company owned the M/V "President Casino-Mississippi." The M/V
"President Casino-Mississippi" was previously utilized at the Company's Biloxi
and Davenport operations.
The vessel and various equipment aboard the M/V "President Casino-
Mississippi" collateralize a term note payable which was also personally
guaranteed by John E. Connelly, Chairman and Chief Executive Officer of the
Company. The Company continued to make the quarterly principal and interest
payments on the note prior to the Company's bankruptcy filing. Under the
terms of the note agreement, $2.1 million principal became due and payable in
August 2002 together with interest and costs (the "Note"). In November 2002,
the lender brought an action against Mr. Connelly for breach of contract under
his personal guarantee. In December 2003, Mr. Connelly satisfied his personal
guarantee paying the lender $1.2 million. In January 2003, the Mississippi
Bankruptcy Court granted a motion to relieve the lender from the automatic
stay in order to enforce its rights under the Preferred Fleet Ship Mortgage,
including but not limited to the right of the lender to seize and sell the
vessel. In May 2003, the lender filed a motion with the United States
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District Court for the Southern District of Illinois for an order directing
the Clerk of Court to issue a warrant for the arrest of the M/V "President
Casino-Mississippi" pursuant to rules of admiralty and maritime claims. On
May 20, 2003, the Court executed the warrant, which allowed the vessel to be
seized and sold. On April 7, 2004, the vessel was auctioned and the lender
offered the highest bid of $0.5 million.
On March 29, 2001, the Company executed an installment sale agreement for
the M/V "Surfside Princess" (formerly, the "New Yorker"). Under the terms of
the agreement, the Company would receive an aggregate of $9.0 million
principal installment payments over a period of thirty months commencing on
March 29, 2001, which included a final principal balloon payment of $4.4
million due October 2003. The note bore an annual interest rate of 10.5%. On
October 3, 2001, the Company terminated the installment sale agreement and
repossessed the M/V "Surfside Princess," due to the inability of the
purchasing party to meet the terms of the agreement.
During the fourth quarter of fiscal 2003, the Company held a sealed bid
auction of the "Surfside Princess" in accordance with Section 363 of the
United States Bankruptcy Code. In February 2003, the auction closed and the
winning bid was $1.5 million. On May 2, 2003, the purchase agreement on the
vessel was consummated, at which time the liens against the vessel attached to
the proceeds from the sale which are held in an escrow account. The Company
took a $1.2 million valuation allowance on the vessel in February to reduce
the net book value to the bid price.
Former Operations
On October 10, 2000, the Company sold the assets of its former Davenport,
Iowa casino and hotel operations for aggregate consideration of $58.2 million
in cash. The Company recognized a gain of approximately $34.5 million on the
transaction. The Davenport casino operations were 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 Blackhawk Hotel operations in
Davenport, which were also sold in the transaction, were managed by a wholly-
owned subsidiary of the Company.
On April 30, 2001, the Company executed an agreement to sell the assets of
Gateway Riverboat Cruises, the Company's non-gaming cruise operations which
provided dinner cruise, excursion and sightseeing on two riverboats on the
Mississippi River. The transaction was consummated on July 17, 2001. The
Company recognized a gain of $0.8 million on the sale of these assets.
Potential Opportunities
--Biloxi, Mississippi Development
As discussed in "Current Operations-Biloxi, Mississippi," PBLLC owns the
Broadwater Property in Biloxi, Mississippi. The property comprises
approximately 260 acres and includes two hotels, an adjacent 18-hole golf
course and a 111-slip marina. One of the two hotels was sold subsequent to
year end. The marina is the site of the Company's Biloxi casino operations
and was formerly leased by the Company under a long-term lease agreement.
The Company has developed a master plan for the Broadwater Property.
Management believes that this site is ideal for 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,
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restaurants, theaters and other entertainment attractions.
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 was 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 (the "Corps") and the Mississippi Department of
Environment Quality. The two remaining permit approvals are still pending and
awaiting the completion of the Final Environmental Impact Statement ("EIS").
The Draft EIS has been completed, notice of which was posted in the Federal
Register in June 2000 for public comment. The current permit application to
the Corps was cancelled on June 10, 2002 pending re-submission of a revised
project design that reflects the changes resulting from the Company's work
with the Corps. The cancellation is an administrative measure which will
allow the Corps to remove the application from the Corps' pending action list,
and should not affect future evaluation of the permit request. The Company
anticipates submitting a revised plan. At that time, a new application number
will be assigned, and the evaluation of the permit request will resume.
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.
The Company has entered into a contract to sell to an unrelated party the
Broadwater Property golf course. The golf course purchase price is $13.1
million before closing adjustments. The prospective purchaser has applied for
re-zoning of the property and been rejected. It is pursuing an appeal in
court. The contract was amended to make the obtaining of re-zoning a
precondition to closing and extending the closing period for a six-month
period from November 1, 2003 through April 30, 2004 for an option fee of
$25,000 for each month the contract is extended. The agreement was further
amended extending the closing period from May 1, 2004 through August 31, 2004
for an option fee of $25,000 for each month the contract is extended.
Additionally, this amendment increases the sale price by $50,000 for each of
the first two months of the extension period and $75,000 for each of the last
two months of the extension period. It is not possible to predict whether re-
zoning will be obtained. It is anticipated that the net proceeds from the
sale of the golf course will be used to partially pay down the principal on
the Indebtedness of PBLLC.
On March 16, 2004, the Company sold the 179-room Broadwater Tower Hotel for
$6.5 million to Ocean Beach Club at Biloxi, LLC. The Company's other hotel,
the 333-room President Broadwater Resort, was not included in this
transaction. The net proceeds of the transaction were used to reduce the debt
of the Company's subsidiary, PBLLC. In connection with the transaction the
Company also entered into an initial seven-month lease with the new owners
whereby the Company will continue to operate the Broadwater Tower Hotel with
options for additional extensions.
Marketing and Sales
The Company targets its marketing efforts at middle income, recreational
gaming customers. The Company relies on a mix of billboards, television,
radio and print advertisements in both the local and regional markets to
attain a high recognition level. The Company also has preferred slot player
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programs, together with electronic slot player tracking, a table player
tracking and rating system, hosts, gaming tournaments, special events, direct
mailing, telemarketing and other casino marketing techniques to identify,
recognize and cultivate frequent and better casino customers. This effort is
supported by direct marketing, a targeted trade advertising schedule and
attendance at industry trade shows and sales gatherings. The Company also
utilizes its web site at www.presidentcasino.com to enhance its marketing
programs.
Regulatory Matters
--Gaming Regulations
General. The ownership and operation of gaming facilities are subject to
extensive state and local regulation. The Company's Biloxi gaming operations
are regulated by the Mississippi Gaming Commission and its St. Louis gaming
operations are regulated by the Missouri Gaming Commission. As a condition to
obtaining and maintaining a gaming license, the Company must pay fees and
taxes, observe stringent regulations on operations, submit and update
comprehensive applications and submit detailed financial, operating and other
reports to each such Commission. Each such Commission has broad powers to
suspend or revoke licenses in which event operations would be terminated or
suspended. In addition, substantially all of the Company's material
transactions are subject to prior notice to review, and in some instances,
approval by such Commission. Any person acquiring 5% or more of the Common
Stock or equity securities of any gaming entity must be found suitable by the
appropriate regulatory body.
Various license fees and taxes are payable to the jurisdictions in which the
Company conducts gaming operations. These taxes are calculated in various
ways, and may be based upon (i) a percentage of the gross gaming revenues
received by the casino operation, (ii) the number of slot machines operated by
the casino, (iii) the number of table games operated by the casino and/or (iv)
passenger counts. A casino entertainment tax may also paid be by the licensee
where entertainment is furnished in connection with the selling of food or
refreshments. In addition, certain other fees are imposed.
The Company, its subsidiaries, its employees and other individuals or
entities having material relationships with the Company are required to obtain
and hold various licenses and approvals in Mississippi and Missouri and will
most likely be required to do so in each other jurisdiction in which the
Company may conduct a gaming operation. If a gaming authority were to find a
director, officer or key employee unsuitable for licensing or unsuitable to
continue to have a relationship with the Company, the Company would have to
suspend or dismiss such person. The failure of the Company, or any of its key
personnel, to obtain or retain a license in any jurisdiction could have a
material adverse effect on the Company and its prospects or its ability to
obtain or retain licenses in other jurisdictions. Generally, regulatory
authorities have broad discretion in granting, renewing and revoking licenses.
Moreover, any jurisdiction into which the Company may seek to expand its
gaming operations may require the Company to apply for and obtain regulatory
approvals with respect to the construction, design and operational features of
the structure it intends to utilize. Obtaining such licenses and approvals
may be costly, time consuming and cannot be assured.
The Company may be subject to substantial fines for each violation of a
gaming law or regulation. In addition, a violation of a gaming law or
regulation may subject a license to suspension or revocation. Limitation,
conditioning or suspension of a gaming license could (and revocation of any
gaming license would) materially adversely affect the financial position and
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results of operations of the Company.
Missouri Gaming Regulations. Gaming on the Missouri and Mississippi Rivers
in the State of Missouri was originally authorized pursuant to a statewide
referendum on November 3, 1992. On April 29, 1993, Missouri enacted revised
legislation (as amended, the "Missouri Gaming Law") which amended the existing
legislation. The Missouri Gaming Law also established the Missouri Gaming
Commission (the "Missouri Commission"), which is responsible for the licensing
and regulation, and enforcement with respect to some aspects of gaming in
Missouri.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
On November 25, 1997, the Missouri Supreme Court overturned a state lower
court and held that a portion of the Missouri Gaming Law that authorized
excursion gaming facilities in "artificial basins" up to 1,000 feet from the
Mississippi or Missouri rivers was unconstitutional. This ruling created
uncertainty as to the legal status of several excursion gaming riverboat
facilities in the state; however, as President Missouri facilities were fully
on the Mississippi River, they did not appear to be affected. On November 3,
1998, a statewide referendum was held, whereby the voters amended the
constitution to allow "artificial basins" for existing facilities, effectively
overturning the above Missouri Supreme Court decision. There can be no
assurances that any future challenges, if brought, would not further interfere
with full-scale gaming operations in Missouri, including the operations of
President Missouri.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities are subject to extensive state and local regulation. The
Company, its parent, subsidiaries and certain of its officers and employees
are subject to various regulations.
President Missouri must be licensed by the Missouri Commission in order to
conduct its operations. Licenses issued by the Missouri Commission to conduct
gaming operations are subject to two year renewals and may not be transferred
or pledged as collateral. In addition to the information required of the
operator, the operator's directors, officers and other key persons (which
include individuals and related companies designated by the Missouri
Commission) must submit applications which include detailed personal and
financial information and are subject to thorough investigations and
licensing. Also, all gaming employees must obtain an occupational license
issued by the Missouri Commission. Each applicant has an ongoing duty to
update the information provided to the Missouri Commission in the application.
Applications filed with the Missouri Commission are continuously "pending" and
any issue may be reopened at any time. President Missouri was re-licensed by
the Missouri Commission in May 2002. As a result of additional meetings
required by the Missouri Gaming Commission to examine expansion of the St.
Louis Metropolitan area market, the Commission will not conduct usual public
meetings during May and June, 2004. On April 27, 2004, the Commission passed
a resolution whereby all five Class A licensees whose licenses are due to
expire during May and June will be granted temporary licenses until July 31,
2004, at which time a vote on re-licensing will occur. A temporary Class A
license was issued effective May 27, 2004, under the same terms and conditions
as the regular license.
The Missouri Gaming Law regulations impose restrictions on the use and
transfer of the gaming licenses as well as limitations on transactions engaged
in by licensees. The Missouri Gaming Law regulations bar a licensee from
taking any of the following actions without prior notice to, and approval by,
the Missouri Commission: any transfer or issuance of an ownership interest of
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five percent or more of the issued and outstanding ownership interest, any
private incurrence of debt by the licensee or any holding company of $1.0
million or more, any public issuance of debt by a licensee or its holding
company, and certain defined "significant related party transactions." In
addition, the licensee must notify the Missouri Commission of other
transactions, including the transfer of five percent or more of an ownership
interest in the licensee or holding company, and any transaction of at least
$1.0 million. The restrictions on transfer of ownership apply to the parent
as well as the direct licensee, President Missouri. Gaming equipment and
corporate stock of some licensees may not be pledged except in narrow
circumstances and subject to regulatory conditions.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer per excursion
that licensees must pay to the Missouri Commission, a 20% tax on adjusted
gross receipts (in addition to other state taxes and license fees),
requirements regarding minimum payouts, prohibitions against providing credit
to gaming customers (except for the use of credit cards and cashing checks)
and a requirement that each licensee reimburse the Missouri Commission for all
costs of all Missouri Commission staff, including Missouri Highway Patrol
Officers, necessary to protect the public on the licensee's riverboat.
Licensees must also submit monthly, quarterly and annual reports of
financial and statistical data and quarterly and annual audited financial
information and compliance reports to the Missouri Commission and pay the
associated auditing fees.
Other areas of operation which are subject to regulation under the Missouri
Gaming Law rules are the color, denomination and handling of chips and tokens;
the surveillance methods and computer monitoring of electronic games;
accounting and audit methods and procedures; and approval of an extensive
internal control system. The internal operating procedures and controls of
each facility are subject to the approval of the Missouri Commission. The
purchase and sale of slot machines and other gaming equipment are subject to
regulation, and must be purchased from a licensed supplier. The Missouri
Commission requires comprehensive safety inspections and compliance with local
ordinances and federal safety requirements. The Missouri Commission regulates
security and surveillance, and the control of cash and chips. Liquor licenses
are issued and regulated by the Missouri Commission, rather than local or
other state agencies.
The Missouri Commission has the authority to investigate any potential
violation of the Missouri Gaming Law. In addition, the Missouri Commission
may take enforcement action against a licensee for the failure of that
licensee to comply with any other law.
The Missouri Commission has the power and broad discretion in exercising
this power to revoke or suspend gaming or occupational licenses and impose
other penalties for violation of the Missouri Gaming Law and the rules and
regulations promulgated thereunder. These penalties may include forfeiture of
all gaming equipment used for improper gaming and fines of up to three times a
licensee's highest daily gross receipts during the preceding twelve months.
Although the Missouri Gaming Law does not limit the amount of riverboat
space that may be used for gaming, the Missouri Commission is empowered to
impose such space limitations through the adoption of rules and regulations.
The Missouri Gaming Law provides for a loss limit of five hundred dollars per
person per each two-hour gaming session. In order to establish an excursion
schedule which allows patrons to enter and exit the gaming floor at any time
during the excursion, the licensee must prove to the Missouri Commission that
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it can enforce the five hundred dollar loss limit.
Mississippi Gaming Regulations. Gaming was authorized in Mississippi in
June 1990 but gaming operations did not commence until August 1992. The
ownership and operation of casino gaming facilities in Mississippi are subject
to extensive state and local regulation. The Company is registered as a
publicly traded corporation under the Mississippi Gaming Control Act and its
gaming operations are subject to the licensing and regulatory control of the
Mississippi Gaming Commission (the "Mississippi Commission") and various
local, city and county regulatory agencies.
Licenses to conduct gaming operations in the State of Mississippi are not
transferable and are required to be renewed on a periodic basis. The
Mississippi Commission may at any time revoke, suspend, condition, limit or
restrict a license or deny approval to own shares of stock in the Company or
President Mississippi for any cause it deems reasonable.
The Mississippi Gaming Law imposes state and local gaming taxes of
approximately 12% of gaming revenues. In addition, certain other fees are
imposed.
The Mississippi Commission has the authority to require a finding of
suitability with respect to any Company or President Mississippi stockholder
regardless of such stockholder's percentage of ownership. The stockholder is
required to pay all costs of investigation. In this regard, the Company's
Restated Certificate of Incorporation provides that the Company may redeem any
shares of the Company's capital stock held by any person or entity whose
holding of shares may cause the loss or non-reinstatement of a governmental
license held by the Company. Such redemption shall be at fair market value,
as defined in the Company's Restated Certificate of Incorporation, regardless
of the price the stockholder paid for the shares. Mississippi law also
contains a provision which requires any Company or President Mississippi
stockholder found unsuitable by the Mississippi Commission to immediately
offer its shares to the Company/President Mississippi for purchase and the
Company/President Mississippi to purchase the shares for cash within ten days
of the offer. In addition, any individual who is found to have a material
relationship to, or material involvement with, the Company or President
Mississippi may be required to be investigated in order to be found suitable
or to be licensed as a business associate. Key employees, controlling persons
or others who exercise significant influence upon the management or affairs of
the Company or President Mississippi may be deemed to have such a relationship
or involvement.
In connection with President Mississippi's license, the Company and
President Mississippi are required to submit detailed financial, operating and
other reports to the Mississippi Commission. Substantially all loans, leases,
sales of securities and similar financing transactions entered into by
President Mississippi and the Company must be reported to and/or approved by
the Mississippi Commission. In addition, the Mississippi Commission regulates
the Company's ability to engage in certain types of transactions. For
example, a change in control of the Company or a plan of reorganization (as
defined in the Mississippi Commission regulations) by the Company may not
occur without the prior approval of the Mississippi Commission. Similarly,
Mississippi gaming legislation requires that each person employed by President
Mississippi as a gaming employee obtain a valid work permit issued by the
Mississippi Commission.
The Mississippi Commission has the authority to waive certain Mississippi
Gaming Control Act provisions to allow the Company to conduct gaming
operations outside of Mississippi. On May 24, 1993, the Company received all
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requisite approvals from the Mississippi Commission to conduct gaming
operations in the jurisdictions in which it was then operating or proposing to
operate without further action by the Mississippi Commission. Mississippi law
requires that the Company notify the Mississippi Commission of any proposed
gaming operations in any additional jurisdictions, provide certain
documentation to the Mississippi Commission relating to those gaming
operations, and obtain the necessary statutory waiver from the Mississippi
Commission before beginning those proposed gaming operations.
A Mississippi Commission regulation requires as a condition of site
development plan approval that a gaming establishment's development plan
include a 500-car or larger parking facility in close proximity to the casino
complex and infrastructure facilities, the expenditures for which will amount
to at least 100% of the higher of the appraised value or construction cost of
the casino. A Mississippi Commission regulation formerly required
infrastructure expenditures amounting to 25% of the casino cost. Such
infrastructure facilities shall include any of the following: a 250-room or
larger hotel of at least a two-star rating as defined by the current edition
of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis
complex, entertainment facilities, or any other such facility as approved by
the Mississippi Commission as infrastructure. Parking facilities, roads,
sewage and water systems, or facilities normally provided by cities and/or
counties are excluded. The Mississippi Commission may in its discretion
reduce the number of rooms required, where it is shown to the Mississippi
Commission's satisfaction that sufficient rooms are available to accommodate
the anticipated visitor load, and parking spaces may also be reduced as needed
for small casinos, provided that the infrastructure rule is otherwise met.
Non-Gaming Regulations
The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Americans with Disabilities Act, the Clean Air Act,
Clean Water Act, Occupational Safety and Health Act, Resource and Conservation
Recovery Act and the Comprehensive Environmental Response, Compensation and
Liability Act. The Company has not made material expenditures with respect to
such laws and regulations. However, the coverage and attendant compliance
costs associated with such laws, regulations and ordinances may result in
future additional costs to the Company's operations. For example, in 1990 the
U.S. Congress enacted the Oil Pollution Act to consolidate and rationalize
mechanisms under various oil spill response laws. The Department of
Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of
financial responsibility in the amount of $5.5 million for clean-up of oil
pollution. This requirement would be satisfied by either proof of adequate
insurance (including self-insurance) or the posting of a surety bond or
guaranty.
Applicable provisions of the Local Option Alcoholic Beverage Control Law of
the State of Mississippi require that each employee of a licensed retailer who
handles alcoholic beverages obtain a valid permit issued by the Alcoholic
Beverage Control Division of the Mississippi State Tax Division. All
employees of President Mississippi who are required to obtain such permits
have either obtained such permits or have completed applications therefore and
are permitted to act in the positions for which they were hired pending
approval of such applications.
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Employees
As of February 29, 2004, the Company had approximately 1,550 employees.
In April 1999, certain gaming, service and maintenance employees of
President Missouri ratified a three-year collective bargaining agreement
setting out wages, benefits and other terms and conditions of employment. The
labor agreement was renegotiated and ratified for a one year period effective
April 2002. The April 2003 labor agreement is in effect until October 2004.
The labor agreement covers approximately 300 of the Company's 675 St. Louis
employees.
Item 3. Legal Proceedings.
Pending Bankruptcy Proceedings
On June 20, 2002, the Company together with its subsidiary, President
Missouri, which owns and operates the St. Louis operations, filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of Mississippi. On
July 9, 2002, the Company's subsidiary President Mississippi filed a voluntary
reorganization petition in the same Court. On July 11, 2002, substantially
all of the Company's other operating subsidiaries filed voluntary
reorganization petitions under Chapter 11 in the same Court. Subsequently,
orders were entered by the Mississippi Bankruptcy Court transferring venue of
all of the Chapter 11 cases, except President Riverboat Casino-New York, Inc.
and PBLLC, to the United States Bankruptcy Court for the Eastern District of
Missouri, where they are now pending and being administered. On May 28, 2003,
PBLLC's Debtor's Modified Plan of Reorganization was confirmed by the
Mississippi Bankruptcy Court and the Company initiated consummation of the
Modified Plan. In October 2003, the bankruptcy case of President Riverboat
Casino-New York, Inc. was dismissed. The Company and its subsidiaries each
continue in possession and use of their assets as debtors-in-possession. The
Company and its subsidiaries have had their Missouri Bankruptcy Chapter 11
cases administratively consolidated under the Company's case.
On May 15, 2003, the Missouri Bankruptcy Court issued an order approving a
joint motion filed by the Company, the unsecured creditors' committee (the
"Committee") and certain bondholders of the Company (the "Bondholders") with
respect to a timetable and process for the Company's reorganization
proceedings. The joint motion sought entry of an order approving a timetable
and process set forth in a Term Sheet, dated March 25, 2003 (the "Term
Sheet"), with respect to either (i) the refinancing of the Company by July 18,
2003, or (ii) a sale of the assets related to the Company's St. Louis gaming
operations. In addition, the Court approved motions by the Company to approve
the appointment of Libra Securities LLC ("Libra") to serve as the Company's
investment banker in connection with any sale of the St. Louis operations.
The Term Sheet outlined a process and timetable under which the Company's
St. Louis operations would be sold in the event that a recapitalization of the
Company was not completed as set forth in the Term Sheet. As part of such
process, the Company was required to meet certain benchmarks which, if not
met, would permit the Committee to file a motion with the Court for the sale
of the Company's St. Louis operations and to appoint a chief restructuring
officer to manage the sale process.
Pursuant to the Term Sheet provisions and the agreement of the Company, the
Committee and the Bondholders, on September 25, 2003, the Company entered into
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an agreement with Isle of Capri Casinos, Inc. to sell the assets of its St.
Louis operations for approximately $50.0 million. On May 4, 2004, the Company
and Isle of Capri Casinos, Inc. announced they had mutually agreed to
terminate the agreement. Libra continues to seek a buyer for the St. Louis
operations.
On April 27, 2003, the Missouri Bankruptcy Court granted a motion for
approval of a key employee retention plan for certain corporate and Missouri
casino employees (the "Retention Plans"). The motion does not affect any pre-
petition employment agreements as to assumption or rejection of pre-petition
executory contracts, with the exception that any claim asserted by a key
employee on account of a pre-petition employment agreement shall be reduced
dollar for dollar by the amounts paid or payable under the retention plan.
Under the terms of the Retention Plans for certain Missouri key casino
employees, certain key employees will receive 50% of their then salary which
will be due and payable on the earlier of the following dates: (i) the date on
which all or substantially all of President Missouri's assets are sold or (ii)
the date on which the Company terminates substantially all of its ordinary
Missouri business operations. Under the terms of the Retention Plans for
corporate employees, the Chief Financial Officer will receive one year of his
then salary on the date he is discharged from employment and the other named
key employees will receive 50% of their then salary. If at any time prior
thereto the corporate key employees' salaries are reduced or he or she is
required to move his or her residence from the St. Louis, Missouri
metropolitan area, he or she will also receive such payment. In the event of
the sale of the Missouri assets, an amount shall be set aside to fund such
payments.
On April 1, 2004, the Missouri Bankruptcy Court granted a motion for
approval of a key employee retention plan for certain Mississippi casino
employees. The terms and conditions are the same as the Missouri key casino
employee Retention Plan except the assets and operations refer to those of
Mississippi and one key employee receiving his then twelve month salary rather
than 50%.
PBLLC was in default under a $30.0 million promissory note and associated
$7.0 million loan fee incurred in connection with the July 1997 purchase by
PBLLC of the real estate and improvements utilized in the Company's operations
in Biloxi, Mississippi. On April 19, 2001, PBLLC filed a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of Mississippi. PBLLC
continued in possession and use of its assets as a debtor-in-possession and
had an agreement with Lehman Brothers Holdings Inc., its lender and largest
creditor ("Lehman"), approved by the Mississippi Bankruptcy Court which
allowed PBLLC's use of its cash collateral.
On October 16, 2001, PBLLC filed its plan of reorganization. Subsequently,
on February 28, 2003, PBLLC filed Modifications to Debtor's Plan of
Reorganization (together with the plan of reorganization, the "Modified
Plan"). On May 14, 2003, the Mississippi Bankruptcy Court entered the
confirmation order confirming the Modified Plan. The Modified Plan became
effective on May 28, 2003 and the Company consummated the Modified Plan at
that time. The Modified Plan provided the unsecured creditors of PBLLC
receive 100% of their claims. Under the Modified Plan, the obligations to
Lehman were modified with respect to the debt amount, the interest rate and
the due date. In addition, the obligation was re-documented substantially
along the lines of the Original Indebtedness, including the non-recourse
provision, (the "Modified Indebtedness"). On the effective date, $3.6 million
was paid to Lehman pursuant to the Modified Plan. The principal amount of the
Modified Indebtedness is $45.4 million plus interest at the rate of 12.75% per
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annum until the obligation is satisfied. The maturity date of the Lehman
obligation is June 1, 2005. Interest is payable during the term of the
Modified Indebtedness on an adjusted loan obligation amount. As of February
29, 2004, the adjusted loan obligation amount was $43.0 million. PBLLC is
required to pay interest earned on the Modified Indebtedness monthly from May
28, 2003 at a rate of the greater of 7.75% per annum or LIBOR plus 4% per
annum floating.
The Modified Plan contains an express waiver by PBLLC of rights to seek
future bankruptcy protection. J. Edward Connelly Associates, Inc. ("JECA"),
the holder of a Class B interest in PBLLC, retains its membership interest,
but any payments by PBLLC to JECA shall be restricted until such time as all
outstanding obligations to Lehman and other creditors receiving funds under
the Modified Plan are discharged.
Mississippi Assets Sale Term Sheet
An agreement has been entered into among the Company, President Mississippi;
Vegas Vegas, Inc. ("Vegas Vegas"); PBLLC; JECA, the owner of the Class B Unit
in PBLLC; John S. Aylsworth, President, Chief Operating Officer and Director
of the Company; Terrence L. Wirginis, Vice Chairman of the Board, Vice
President of Marine and Development and Director of the Company; and
SunAmerica, Inc. and McKay Shields LLC (collectively, representing the
Noteholders). It provides that various assets owned by President Mississippi,
Vegas Vegas and PBLLC (the "Assets") will be marketed for sale, such sale to
be subject to the Noteholders, who have security interests in the Assets,
approval.
Vegas Vegas owns the assets related to the Company's proposed development
of Destination Broadwater. See "Potential Opportunities." To the extent that
the sale includes the Vegas Vegas assets, the buyers shall allocate the amount
of purchase price attributable to the Vegas Vegas assets. The first
$3,250,000 of funds allocated to the Vegas Vegas assets shall be paid into the
Vegas Vegas bankruptcy estate and shall not be subject to the distribution
priorities provided in the agreement.
In the event of a sale of all or substantially all of the Assets, the
proceeds (gross proceeds less typical closing adjustments including brokerage
commission) from the sale, other than the amount to be paid to Vegas Vegas,
shall be allocated as follows:
(i) the first dollars shall be paid to Lehman, the secured lender to
PBLLC, to satisfy in full the indebtedness due to it;
(ii) the next $10.0 million shall be allocated equally between JECA and the
Noteholders on a dollar for dollar basis. If President Mississippi
assets are sold separately and the proceeds are paid to the
Noteholders, then such dollars shall be a credit on the amount payable
to Noteholders under this provision;
(iii) the next $8.0 million shall be paid to Noteholders;
(iv) the next $26.0 million (twice the remaining amount owing to JECA after
payment of the $5.0 million above) shall be split on a dollar for
dollar basis between the Noteholders and JECA;
(v) the next dollars shall be paid to the Noteholders until their debt is
satisfied in full;
(vi) the remaining dollars shall be paid to President Mississippi.
JECA has entered into an agreement with Messrs. Aylsworth, Wirginis and
Ralph J. Vaclavik, the Chief Financial Officer of the Company, pursuant to
which upon receipt of funds by JECA, JECA will use its best efforts to pay a
percentage of such funds to Messrs. Aylsworth, Wirginis and Vaclavik based on
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the total sales proceeds to JECA.
The process and time for the sale of assets shall be reflected in documents
and pleadings to be drafted and may include a sale pursuant to Section 363 of
the Bankruptcy Code and/or the confirmation of a Plan of Reorganization for
President Mississippi and/or Broadwater Hotel, Inc. and/or the Company. The
agreement binds only the parties thereto and establishes priorities between or
among the parties to the agreement and third parties and shall not be binding
on any holder of claims or interests against anyone that is not a party to the
agreement. The term of the agreement is from March 1, 2004 to March 1, 2005.
This agreement becomes effective upon its approval by the Missouri Bankruptcy
Court, provided, however that the marketing of the assets for sale commenced
immediately upon its execution.
Subsequently, the Missouri Bankruptcy Court entered an order approving the
agreement but indicating expressly that nothing therein affected the rights of
Lehman. Thereafter, an Examiner appointed at the request of the Noteholders
filed a motion to set aside the Court's order. That motion is currently set
for hearing on July 19, 2004.
In March 2004, the Missouri Bankruptcy Court appointed an Examiner for the
purpose of investigating and issuing a report concerning whether any
prohibited direct or indirect transfers have been made from the Company or its
subsidiaries that may be avoided or which were otherwise improper or
actionable under the Bankruptcy Code or other applicable law. The examination
concerned the purchase of the Broadwater Property from an entity owned by Mr.
Connelly, Chairman and Chief Executive of the Company, the financing of the
project, the process of the purchase and the operation of the complementary
rooms program, among other items. The Examiner's report was issued on May 28,
2004 and contains various findings and recommendations to be considered by the
various parties in interest. The Noteholders and other creditors now have a
report for their use. No prediction is possible as to what action, if any,
they may take.
Litigation
--Poulos, McElmore and Shreier, et al. v. Caesar's World, Inc. et al.
In 1994, William H. Poulos filed a class-action lawsuit in the United States
District Court for the Middle District of Florida against over thirty-eight
(38) casino operators, including the Company, and certain suppliers and
distributors of video poker and electronic slot machines. This lawsuit was
followed by several additional lawsuits of the same nature against the same
and as well as additional defendants, all of which have now been consolidated
into a single class-action in the United States District Court for the
District of Nevada. The complaint alleges that the defendants fraudulently
marketed and operated casino video poker machines and electronic slot
machines, and asserts common law fraud and deceit, unjust enrichment and
negligent misrepresentation. The plaintiffs sought class certification and
the defendants opposed it. On June 21, 2002, the Court entered an order
holding the action could not proceed as a class action. The decision has been
appealed to the 9th Circuit Court of Appeals. A motion to stay pending the
Company's bankruptcy proceedings has been filed. Although the outcome of
litigation is inherently uncertain, management, after consultation with
counsel, believes the action will not have a material adverse effect on the
Company's financial position or results of operations.
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--Other
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.
General
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. As a condition to obtaining and
maintaining a gaming license, the Company must submit detailed financial,
operating and other reports to state gaming commissions, all of which have
broad powers to suspend or revoke licenses. In addition, substantially all of
the Company's material transactions are subject to review and/or approval by
the various regulatory bodies. Any person acquiring 5% or more of the Common
Stock or of the equity securities of any gaming entity must be found suitable
by the appropriate regulatory body. The Biloxi license was last renewed in
April of 2004 and expires in April 2007. The St. Louis license was last
renewed in May 2002 for a period of two years. As a result of additional
meetings required by the Missouri Gaming Commission to examine expansion of
the St. Louis Metropolitan area market, the Commission will not conduct usual
public meetings during May and June, 2004. On April 27, 2004, the Commission
passed a resolution whereby all five Class A licensees whose licenses are due
to expire during May and June 2004 will be granted temporary licenses until
July 31, 2004, at which time a vote on re-licensing will occur. A temporary
Class A license was issued effective May 27, 2004, under the same terms and
conditions as the regular license.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 2004.
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
The Company's Common Stock was delisted from the Nasdaq National Market
effective the close of business November 19, 1998, because the Company no
longer met certain listing requirements. The stock continues to trade on the
OTC Bulletin Board under the symbol "PREZQ.OB." The following table sets
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forth, for the fiscal quarters indicated, the high and low sale or bid prices
for the Common Stock, as reported by the OTC Bulletin Board:
High Low
------ -----
Fiscal 2004
First Quarter................ $ 0.4000 $ 0.2500
Second Quarter............... $ 0.4500 $ 0.3100
Third Quarter................ $ 0.5100 $ 0.1700
Fourth Quarter............... $ 0.2200 $ 0.1100
Fiscal 2003
First Quarter................ $ 1.0500 $ 0.7000
Second Quarter............... $ 0.8400 $ 0.2000
Third Quarter................ $ 0.5100 $ 0.2000
Fourth Quarter............... $ 0.4000 $ 0.2600
The market bid quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not necessarily represent actual
transactions. Bid quotations are derived from Commodity Systems, Inc. through
Yahoo.com Historical Quotes.
On June 1, 2004, there were approximately 1,077 holders of record of the
Company's Common Stock.
The Company has never paid any dividends on its Common Stock. The Company
anticipates that for the foreseeable future all earnings, if any, will be used
for the repayment of debt or retained for the operations and expansion of its
business. Accordingly, the Company does not anticipate paying any cash
dividends in the foreseeable future. The payment of dividends by the Company
is restricted under the terms of the indenture governing the Company's Senior
Exchange Notes. See "Management's Discussion and Analysis of Financial
Position and Results of Operations."
Item 6. Selected Consolidated Financial Data.
The following selected financial data of the Company is qualified by
reference to and should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein. The selected consolidated statement of operations and balance sheet
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data are derived from the Company's consolidated financial statements which
are included elsewhere herein.
Years Ended February 28/29,
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
(in thousands, except share data)
Consolidated Statement of Operations Data:
Total operating revenues (1).............. $119,296 $123,721 $129,184 $152,098 $188,516
Operating income (loss)
before (gain)/loss on disposal
of property and equipment.............. $ 5,731 $ 4,316 $ 3,400 $ (2,891) $ 7,623
Gain/(loss) on disposal of property
and equipment (2)...................... $ (117) $ (117) $ 771 $ 33,985 $ (99)
Income (loss) from
continuing operations................... $ (342) $ (6,215) $(12,888) $ 15,191 $(11,473)
Loss from discontinued operations (3)..... $ (2,393) $ (2,864) $ (7,860) $(15,397) $ (1,900)
Net loss.................................. $ (2,735) $ (9,079) $(20,748) $ (206) $(13,373)
Basic and dilutive income (loss) per share
from continuing operations............... $ (0.07) $ (1.23) $ (2.56) $ 3.02 $ (2.28)
Basic and dilutive loss per share
from discontinued operations............. $ (0.47) $ (0.57) $ (1.56) $ (3.06) $ (0.38)
-------- -------- -------- -------- --------
Basic and diluted net loss per share...... $ (0.54) $ (1.80) $ (4.12) $ (0.04) $ (2.66)
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
Total assets.............................. $116,818 $120,834 $120,450 $135,744 $172,744
Current liabilities....................... 14,097 58,429 145,237 141,657 27,109
Long-term debt............................ 45,429 -- -- -- 139,379
Minority interest (4)..................... 17,653 679 15,102 13,874 13,220
Liabilities subject to compromise (5)..... 107,657 111,340 646 -- --
Stockholders' deficit..................... (52,439) (49,614) (40,535) (19,787) (6,208)
(1) Accounting guidance issued in and effective for fiscal year 2001 (EITF
00-22) requires that the cost of the cash-back component of the Company's
players' programs be treated as a reduction of revenue. Further guidance
(EITF 00-25), which the Company elected during fiscal 2001, requires
that coupons which are redeemed for tokens be similarly classified as a
reduction of revenue. This guidance impacts only the income statement
classification of these costs. The prior years' results have been
restated to reflect the impact of implementing this guidance.
(2) On October 10, 2000, the assets of the Company's Davenport hotel and
casino operations were sold. A gain of $34,465 was recognized on
the transaction. On July 17, 2001, the assets of Gateway Riverboat
Cruises, the Company's non-gaming cruise operations in St. Louis were
sold. A gain of $778 was recognized on the transaction.
(3) The Company sold one of two vessels accounted for in its leasing segment
during May 2003 and the second vessel was foreclosed on by the lender
which held a Preferred First Fleet Mortgage collateralizing debt owed
to the lender during April 2004. With the disposal of both vessels,
representing all of the operating assets of the segment, the segment is
accounted for as discontinued operations in accordance with Financial
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Accounting Standards Board SFAS No. 144 "Accounting for the Impairment
and Disposal of Long-Lived Assets."
Management's evaluation of the net realizable value of its assets, based
on their intended future use and current market conditions, resulted in
impairments of long-lived assets of $288, $1,167, $7,068 and $12,709,
respectively, during fiscal years 2004, 2003, 2002 and 2001, on two
casino vessels held for sale. The assets are accounted for in the
Company's discontinued operations.
(4) As of February 28, 2003, $15,669 of minority interest related to
J. Edward Connelly Associates, Inc.'s Class B Unit of PBLLC was
classified as liabilities subject to comprise.
(5) PBLLC did not pay the $30,000 note and the associated $7,000 loan fee
due July 22, 2000 related to the Broadwater Property. PBLLC is the
owner of the marina in which the Company operates its Biloxi casino
operations barge. On April 19, 2001, PBLLC filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Mississippi.
On June 20, 2002, President Casinos, Inc. together with its subsidiary,
President Riverboat Casino-Missouri, Inc. filed voluntary petitions for
reorganization under Chapter 11 of Title 11, United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of Mississippi (the "Mississippi Bankruptcy Court").
Subsequently, on July 9, 2002, President Casinos, Inc.'s subsidiary The
President Riverboat Casino-Mississippi, Inc. filed a voluntary
reorganization petition in the same Court. On July 11, 2002,
substantially all of President Casinos, Inc.'s other operating
subsidiaries filed voluntary reorganization petitions under Chapter 11
in the same Mississippi Bankruptcy Court. Subsequently, orders were
entered by the Mississippi Bankruptcy Court transferring venue of all
of the bankruptcy cases, except President Riverboat Casino-New York,
Inc. and President Broadwater Hotel, LLC, to the United States
Bankruptcy Court for the Eastern District of Missouri where they are
now pending and being administered. On May 28, 2003, President
Broadwater Hotel, LLC's Debtor's Modified Plan of Reorganization was
confirmed by the Mississippi Bankruptcy Court and the Company initiated
consummation of the Modified Plan. In October 2003, the bankruptcy case
of President Riverboat Casino-New York, Inc. was dismissed. See Item 1.
"Substantial Indebtedness; Bankruptcy Proceedings."
Gaming operations commenced in Davenport, Iowa on April 1, 1991, in Biloxi,
Mississippi on August 13, 1992 and in St. Louis, Missouri on May 27, 1994.
Hotel operations commenced in Davenport, Iowa on October 30, 1990 and in
Biloxi, Mississippi on July 27, 1997. The assets of the Davenport operations
were sold on October 10, 2000. The assets of Gateway Riverboat Cruises, the
Company's non-gaming cruise operations in St. Louis, were sold on July 17,
2001.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion, which covers fiscal years 2002 through 2004,
should be read in conjunction with the consolidated financial statements of
the Company and the notes thereto included elsewhere in this report.
President Casinos, Inc., President Riverboat Casino-Missouri, Inc., The
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President Riverboat Casino-Mississippi, Inc., Broadwater Hotel, Inc., PRC
Management, Inc., PRC Holdings Corporation, TCG/Blackhawk, Inc. and Vegas
Vegas, Inc. have each filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code. See "Note 1. Bankruptcy Proceedings" of
the Notes to Condensed Consolidated Financial Statements included in Part IV
of this report.
As a result of the Company's relatively high degree of leverage and the need
for significant capital expenditures at its St. Louis property, the Company
was unable to pay the regularly scheduled interest payments of $6.4 million
that were each due and payable March 15 and September 15, 2000. Under the
indentures pursuant to which the $75.0 million 13.0% Senior Exchange Notes
(the "Senior Exchange Notes") and the $25.0 million 12% Secured Notes (the
"Secured Notes" and collectively with the Senior Exchange Notes, the "Notes")
were issued, an Event of Default occurred on April 15, 2000, and is continuing
as of the date hereof. Additionally, the Company was unable to pay the $25.0
million principal payment due September 15, 2000 on the Senior Exchange Notes.
The holders of at least 25% of the Senior Exchange Notes and the Secured Notes
were notified of the defaults and instructed the Indenture Trustee to
accelerate the Notes and on August 11, 2000, the holders declared the unpaid
principal and interest to be due and payable.
On October 10, 2000, the Company sold the assets of its Davenport, Iowa
operations for aggregate consideration of $58.2 million in cash. On November
22, 2000, the Company entered into an agreement with a majority of the holders
of the Senior Exchange Notes and a majority of the holders of the Secured
Notes. The agreement provided for a proposed restructuring of the Company's
debt obligations under the Notes and the application of certain of the
proceeds received by the Company from the sale of the Company's Davenport
assets. Approximately $43.0 million of the proceeds from the sale were
deposited with a trustee. Of this amount, $12.8 million was used to pay
missed interest payments due March 15, 2000 and September 15, 2000 on the
Notes; $25.0 million was used to partially redeem the Notes; and $5.2 million
was used to pay interest due March 15, 2001 on the Notes.
Subsequently, the Company was unable to make the principal and interest
payments due September 15, 2001 and has not made any subsequent principal or
interest payments on the Notes. As of February 29, 2004, principal due on the
Senior and Secured Notes was $56.2 million and $18.8 million, respectively.
Due to certain debt covenants and cross default provisions associated with
other debt agreements, the Company is also currently in default under its $2.1
million M/V "President Casino-Mississippi" note. See Liquidity and Capital
Resources.
On May 2, 2003, the Company consummated the sale of the M/V "Surfside
Princess" under the terms of a Section 363 sale of the Bankruptcy Code for
$1.5 million. Liens on the vessel were transferred to the proceeds from the
sale, which were distributed after the settlement of certain litigation.
Pursuant to the Term Sheet provisions and the agreement of the Company, the
Committee and the Bondholders, on September 25, 2003, the Company entered into
an agreement with Isle of Capri Casinos, Inc. to sell the assets of its St.
Louis operations for approximately $50.0 million. The agreement was
terminated by mutual consent on May 4, 2004.
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The Company has entered into a contract to sell to an unrelated party the
Broadwater Property golf course. The golf course purchase price is $13.1
million before closing adjustments. The prospective purchaser has applied for
re-zoning of the property and been rejected. It is pursuing an appeal in
court. The contract was amended to make the obtaining of re-zoning a
precondition to closing and extending the closing period for a six-month
period from November 1, 2003 through April 30, 2004 for an option fee of
$25,000 for each month the contract is extended. The agreement was further
amended extending the closing period from May 1, 2004 through August 31, 2004
for an option fee of $25,000 for each month the contract is extended.
Additionally, this amendment increases the sale price by $50,000 for each of
the first two months of the extension period and $75,000 for each of the last
two months of the extension period. It is not possible to predict whether re-
zoning will be obtained. It is anticipated that the net proceeds from the
sale of the golf course will be used to partially pay down the principal on
the Indebtedness of PBLLC.
On March 16, 2004, the Company sold the 179-room Broadwater Tower Hotel for
$6.5 million to Ocean Beach Club at Biloxi, LLC. The Company's other hotel,
the 333-room President Broadwater Resort, was not included in this
transaction. The net proceeds of the transaction were used to reduce the debt
of the Company's subsidiary, PBLLC. In connection with the transaction the
Company also entered into an initial seven-month lease with the new owners
whereby the Company will continue to operate the Broadwater Tower Hotel with
options for additional extensions.
Management believes the Company's liquidity and capital resources will be
sufficient to maintain its normal operations at current levels and does not
anticipate any adverse impact on its operations, customers or employees during
the ongoing bankruptcy proceedings. However, costs previously incurred and
which will be incurred in the future in connection with restructuring the
Company's debt obligations and the bankruptcy proceedings 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's ability to continue as a going concern is dependent on its
ability to restructure successfully, including refinancing its debts, 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 both of the
Company's properties.
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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 with the largest single resort in the area opening
in March 1999. There are currently twelve casinos operating on the
Mississippi Gulf Coast. A thirteenth casino and hotel complex is expected to
open in late Summer 2005 on the Gulf Coast and an additional casino operator
has obtained necessary licenses and approval to open an additional casino
facility, although an opening date has not been announced. See "Potential
Growth Opportunities" regarding a master plan for a destination resort the
Company is developing in Biloxi, Mississippi.
Competition is intense in the St. Louis market area. There are presently
four other casino companies operating five casinos in the market area. Many
of these competitors have significantly greater name recognition and financial
and marketing resources than the Company. Two of these are Illinois casino
companies operating single casino vessels on the Mississippi River, one across
the Mississippi River from the "Admiral" and the second 20 miles upriver.
There are two Missouri casino companies, each of which operates casino vessels
approximately 20 miles west of St. Louis on the Missouri River. One company
operates two casinos in Maryland Heights, Missouri and the other company
operates one casino in the City of St. Charles, Missouri. The operator of the
St. Charles casino replaced its facility and reopened with nearly double its
prior gaming positions in August 2002.
Applications were 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 were within 20
miles of the "Admiral." In July 2000, the Gaming Commission announced its
decision to award an additional license to the applicant proposing a site at
the greatest distance from the "Admiral" of the proposed locations. The
Commission's decision was challenged by one of the applicants whose proposal
was not selected and by other entities. In September 2001, the applicant
selected by the Gaming Commission announced it would not proceed with the
development of the project.
Subsequently, the Gaming Commission announced that it will consider
licensing additional casinos in the St. Louis market. In September 2003, the
City of St. Louis and St. Louis County, which are separate political and
geographic subdivisions, announced that they were both issuing Requests for
Proposals for a new casino in each jurisdiction.
A project proposed by Pinnacle Entertainment, Inc. was selected and approved
by the City of St. Louis as its recommendation before the Missouri Gaming
Commission. Its proposal includes a casino two blocks from the Admiral. St.
Louis County has chosen a separate Pinnacle Entertainment project in Lemay,
Missouri. Various other gaming companies have filed proposals. The Missouri
Gaming Commission is expected to narrow the field in July 2004. The final
decision on whether to issue one or more licenses is up to the Missouri Gaming
Commission. In addition, each company proceeding with its proposal is subject
to approval by the Missouri Gaming Commission. Each of the proposals
submitted requires significant construction of new infrastructure for the
casino and entertainment complexes. Were there to be a new casino or casinos
in metropolitan St. Louis, there would be a material adverse effect on the
Company's St. Louis operations.
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--Regulatory Matters
Missouri regulations limit the loss per "simulated" cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to five hundred dollars (the "loss limit"). The company
that operates adjacent casinos is able to offer guests who reach the two-hour
loss limit the ability to move to the adjacent 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, which includes the
presentation of government issued identification. Any easing of the loss
limits in Missouri would be expected to have a positive impact on the
Company's St. Louis operations.
--Weather Conditions
The Company's operating results are susceptible to the effects of floods,
hurricanes and adverse weather conditions. Historically, the Company has
temporarily suspended operations on various occasions as a result of such
adversities. Under less severe conditions, high river levels in St. Louis
cause reduced parking and a general public perception of diminished access to
the casino resulting in decreased revenues. Management believes the move of
the "Admiral" diminished the negative effects of high water on operations.
However, on May 13, 2002, at 4:00 a.m. the St. Louis operations were
temporarily suspended due to high water levels. The "Admiral" was reopened on
May 20, 2002 at 6:00 p.m. During the same period for the prior year, the
Company recorded $1.4 million in St. Louis gaming revenue.
On September 25, 2002, all Mississippi Gulf Coast casinos, including the
Company's Biloxi casino, were temporarily closed at 10:00 a.m. by the
Mississippi Gaming Commission in anticipation of Tropical Storm Isidore. The
Company's Biloxi casino reopened on September 27, 2002 at 5:00 a.m. On
October 2, 2002, all Mississippi Gulf Coast casinos, including the Company's
Biloxi casino, were temporarily closed at 10:00 p.m. by the Mississippi Gaming
Commission in anticipation of Hurricane Lili. The Company's Biloxi casino
reopened on October 3, 2002 at 3:00 p.m. The Company's Biloxi hotel
operations remained open during both periods.
--Potential Opportunities
Biloxi, Mississippi
President Broadwater Hotel, LLC ("PBLLC") owns approximately 260 acres which
includes two hotels, a 111-slip marina and an adjacent 18-hole golf course
(collectively, the "Broadwater Property"). One of the two hotels was sold
subsequent to year end. 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 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.
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In January 1999, the Company received a permit from the Mississippi
Department of Marine Resources (the "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 (the "Corps") and the Mississippi Department of
Environment Quality. The two remaining permit approvals are still pending and
awaiting the completion of the Final Environmental Impact Statement ("EIS").
The Draft EIS has been completed, notice of which was posted in the Federal
Register in June 2000 for public comment. The current permit application to
the Corps was cancelled on June 10, 2002 pending re-submission of a revised
project design that reflects the changes resulting from the Company's work
with the Corps. The cancellation is an administrative measure which will
allow the Corps to remove the application from the Corps' pending action list,
and should not affect future evaluation of the permit request. The Company
anticipates submitting a revised plan. At that time, a new application number
will be assigned, and the evaluation of the permit request will resume.
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.
The Company has entered into a contract to sell to an unrelated party the
Broadwater Property golf course. The golf course purchase price is $13.1
million before closing adjustments. The prospective purchaser has applied for
re-zoning of the property and been rejected. It is pursuing an appeal in
court. The contract has been amended to make the obtaining of re-zoning a
precondition to closing and to extend the closing period for a six-month
period from November 1, 2003 through April 30, 2004 for an option fee of
$25,000 for each month the contract is extended. The agreement was further
amended extending the closing period from May 1, 2004 through August 31, 2004
for an option fee of $25,000 for each month the contract is extended.
Additionally, this amendment increases the sale price by $50,000 for each of
the first two months of the extension period and $75,000 for each of the last
two months of the extension period. It is not possible to predict whether re-
zoning will be obtained. It is anticipated that the net proceeds from the
sale of the golf course will be used to partially pay down the principal on
the Indebtedness of PBLLC.
Results of Operations
The results of operations for the years ended February 29,2004 and February
28, 2003 and 2002 include the gaming results for the Company's operations in
St. Louis, Missouri and Biloxi, Mississippi and, of much lesser significance,
the hotel operations in Biloxi (the Broadwater Property) and the non-gaming
cruise operations in St. Louis (Gateway Riverboat Cruises) through the date of
sale. The assets of Gateway Riverboat Cruises ("Gateway") were sold July 17,
2001.
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The following table highlights the results of the Company's operations
during the periods presented.
Twelve Months Ended February 29/28,
2004 2003 2002
------ ------ ------
(in millions)
St. Louis, Missouri Operations
Operating revenues $ 70.8 $ 73.9 $ 79.1
Operating income 5.6 4.9 6.1
Biloxi, Mississippi Operations
Operating revenues 48.5 49.8 50.1
Operating income 3.0 2.9 1.9
Corporate Administration
and Development
Operating loss (2.9) (3.5) (4.6)
St. Louis operating margin 7.9% 6.6% 7.7%
Biloxi operating margin 6.2% 5.8% 3.8%
The following table highlights cash flows of the Company's operations.
Twelve Months Ended February 29/28,
2004 2003 2002
------ ------ ------
(in millions)
Cash flows provided by
operating activities $ 6.2 $ 10.1 $ 3.8
Cash flows provided by (used in)
investing activities 0.9 (4.0) 0.5
Cash flows used in
financing activities (3.6) (0.1) (2.7)
Cash paid for interest 3.0 0.1 6.4
Fiscal 2004 Compared to Fiscal 2003
Operating revenues. The Company generated consolidated operating revenues
of $119.3 million during fiscal 2004 compared to $123.7 million during fiscal
2003, a decrease of $4.4 million, or 3.6%. The St. Louis operations
experienced a decrease in revenue of $3.1 million and the Biloxi operations
experienced a decrease in revenue of $1.3 million.
Gaming revenues in the Company's St. Louis operations decreased $1.9
million, or 2.5%, during fiscal 2004, compared to fiscal 2003. The St. Louis
market share decreased to approximately 8.6% during fiscal 2004 from
approximately 9.2% in fiscal 2003. Management believes this decrease is
primarily attributable to increased competition resulting from expansion by a
competitor in the St. Louis market. Gaming revenues at the Company's Biloxi
operations decreased $1.8 million, or 3.7%, during 2004 compared to prior
year, primarily as a result of individual guests spending less per visit.
The Company's revenues from food and beverage were $13.4 million during
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fiscal 2004, compared to $13.3 million during fiscal 2003, an increase of $0.1
million. St. Louis food and beverage revenue decreased $0.4 million due to a
decrease in patron volume and a change in the direct mail program which
resulted in a decrease in buffet complimentaries. Biloxi food and beverage
revenue increased $0.5 million as a result of price adjustments and an
increase in volume.
The Company's revenues from hotel, retail and other were $11.4 million
during fiscal 2004, compared to $10.4 million during fiscal 2003, an increase
of $1.0 million. The increase was primarily attributable to a $0.3 million
increase in hotel revenue in Biloxi as a result of an increase in
complimentary hotel rooms offered by the casino.
Promotional allowances were $24.9 million during fiscal 2004 compared to
$23.1 million during fiscal 2003, an increase of $1.8 million, or 7.8%.
Promotional allowances in St. Louis increased $0.8 million and promotional
allowances in Biloxi increased $1.0 million during fiscal 2004. St. Louis
contributed to the $0.8 million increase in promotional allowances primarily
as the result of changes made in the types of promotional items offered to
guests. The $1.0 million increase in Biloxi is the result of an increase in
room promotions in response to the competitive environment.
Operating costs and expenses. The Company's consolidated gaming costs and
expenses were $66.4 million during fiscal 2004, compared to $70.4 million
during fiscal 2003, a decrease $4.0 million, or 5.7%. The decrease in gaming
costs was primarily attributable to a $3.2 million decrease in gaming costs in
St. Louis as a result of a (i) $0.7 million decrease in gaming and admissions
taxes which was attributable to d