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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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 Identification No.)
organization)
802 North First Street, St. Louis, Missouri 63102
----------------------------------------------------
Address of principal executive offices-Zip Code
314-622-3000
----------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $.06 par value,
5,033,161 shares outstanding as of January 14, 2005.
==============================================================================
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PRESIDENT CASINOS, INC.
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
as of November 30 and February 29, 2004.............................1
Condensed Consolidated Statements of Operations
and Net Income (Loss) Per Share Information (Unaudited)
for the Three and Nine Months Ended November 30, 2004 and 2003......2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended November 30, 2004 and 2003................3
Notes to Condensed Consolidated Financial Statements (Unaudited)......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................19
Item 3. Quantitative and Qualitative Disclosures About Market Risk....35
Item 4. Controls and Procedures.......................................36
Part II. Other Information
Item 1. Legal Proceedings.............................................36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...36
Item 3. Defaults Upon Senior Securities...............................36
Item 4. Submission of Matters to a Vote of Security Holders...........37
Item 5. Other Information.............................................37
Item 6. Exhibits......................................................37
Signatures...............................................................38
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Part I. Financial Information
Item 1. Financial Statements
PRESIDENT CASINOS, INC.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share per data)
Nov. 30, Feb. 29,
2004 2004
-------- --------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 3,508 $ 6,665
Restricted cash................................ 2,114 2,322
Restricted short-term investments.............. 350 350
Accounts receivable, net of allowance for
doubtful accounts of $40 and $16............. 209 302
Other current assets........................... 2,822 2,082
--------- ---------
Total current assets....................... 9,003 11,721
--------- ---------
Property and equipment, net of accumulated
depreciation of $23,442 and $22,909............ 46,858 53,727
Assets of discontinued operations............... 52,950 51,370
--------- ---------
$108,811 $116,818
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt.............. $ 39,038 $ --
Accounts payable............................... 902 634
Accrued payroll and benefits................... 1,594 2,286
Accrued interest............................... 237 268
Other accrued liabilities...................... 2,218 2,174
Liabilities from discontinued operations....... 8,696 8,735
--------- ---------
Total current liabilities.................. 52,865 14,097
Long-term liabilities............................ -- 45,429
Minority interest................................ 18,673 17,653
--------- ---------
Total liabilities not
subject to compromise.................... 71,358 77,179
Liabilities subject to compromise................ 91,865 91,988
--------- --------
Total liabilities.......................... 163,223 169,167
--------- --------
Commitments and contingencies.................... -- --
Stockholders' deficit:
Preferred Stock, $0.01 par value per share;
150 shares authorized; none issued
and outstanding.............................. -- --
Common Stock, $0.06 par value per share;
14,000 shares authorized; 5,033 shares
issued and outstanding....................... 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (156,443) (154,380)
--------- ---------
Total stockholders' deficit................ (54,412) (52,349)
--------- ---------
$108,811 $116,818
========= =========
See Notes to Condensed Consolidated Financial Statements.
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PRESIDENT CASINOS, INC.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Nine Months
Ended Nov. 30, Ended Nov. 30,
2004 2003 2004 2003
------ ------ ------ ------
OPERATING REVENUES:
Gaming................................... $ 9,002 $ 10,744 $ 31,678 $ 35,474
Food and beverage........................ 1,905 2,388 4,964 7,517
Hotel.................................... 1,293 1,518 6,863 5,806
Retail and other......................... 399 511 1,462 1,838
Less promotional allowances.............. (3,359) (4,054) (12,366) (13,497)
--------- --------- --------- ---------
Net operating revenues................. 9,240 11,107 32,601 37,138
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Gaming................................... 4,881 5,655 16,458 17,744
Food and beverage........................ 922 1,107 3,166 3,384
Hotel.................................... 168 271 638 831
Retail and other......................... 265 284 818 968
Selling, general and administrative...... 3,483 4,021 11,619 12,294
Depreciation and amortization............ 452 499 1,373 1,540
--------- --------- --------- ---------
Total operating costs and expenses..... 10,171 11,837 34,072 36,761
--------- --------- --------- ---------
OPERATING INCOME (LOSS).................... (931) (730) (1,471) 377
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (contractual interest
of $4,096 and $3,964 for the three-
month periods and $12,099 and $11,895
for the nine-month periods)............ (717) (843) (2,189) (2,796)
Interest income.......................... 6 10 23 47
Reorganization items, net................ (273) (47) (677) (22)
Gain on sale of assets................... -- -- 17 13
Other income............................. -- 225 125 225
--------- --------- --------- ---------
Total other income (expense)........... (984) (655) (2,701) (2,533)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST
AND DISCONTINUED OPERATIONS.............. (1,915) (1,385) (4,172) (2,156)
Minority interest.......................... 352 324 1,020 978
--------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS............ (2,267) (1,709) (5,192) (3,134)
--------- --------- --------- ---------
Income (loss) from discontinued operations. 1,499 (885) 3,129 942
--------- --------- --------- ---------
NET LOSS................................... $ (768) $ (2,594) $ (2,063) $ (2,192)
========= ========= ========= =========
Basic and diluted net loss per
share from continuing operations........ $ (0.45) $ (0.34) $ (1.03) $ (0.62)
Basic and diluted net income (loss) per
share from discontinued operations...... $ 0.30 $ (0.18) $ 0.62 $ 0.18
--------- --------- --------- ---------
Basic and diluted net loss per share....... $ (0.15) $ (0.52) $ (0.41) $ (0.44)
========= ========= ========= =========
Weighted average common and dilutive
potential shares outstanding.............. 5,033 5,033 5,033 5,033
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
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PRESIDENT CASINOS, INC.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended Nov. 30,
2004 2003
------ ------
Net cash used in continuing operating activities.. $ (844) $ (203)
--------- ---------
Cash flows from investing activities from
continuing operations:
Expenditures for property and equipment......... (927) (439)
Change in restricted cash....................... 208 2,575
Proceeds from sales of property and equipment... 6,441 13
Purchase of short-term investments.............. -- (2)
Maturity of short-term investments.............. -- 74
--------- ---------
Net cash provided by investing
activities from continuing operations........ 5,722 2,221
--------- ---------
Cash flows from financing activities from
continuing operations:
Repayment of notes payable...................... (6,392) (3,551)
Minority interest payments...................... -- (2)
--------- ---------
Net cash used in financing activities
from continuing operations.................. (6,392) (3,553)
--------- ---------
Net cash provided by (used in)
discontinued operations......................... (1,643) 895
--------- ---------
Net decrease in cash and cash equivalents......... (3,157) (640)
Cash and cash equivalents at beginning of period.. 6,665 6,708
--------- ---------
Cash and cash equivalents at end of period........ $ 3,508 $ 6,068
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest by continuing operations. $ 2,220 $ 2,124
========= =========
See Notes to Condensed Consolidated Financial Statements.
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PRESIDENT CASINOS, INC.
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data and unless otherwise stated)
1. BANKRUPTCY PROCEEDINGS
As used herein, the term "Company" refers to President Casinos, Inc., its
wholly-owned subsidiaries, a 95%-owned limited partnership and a limited
liability company in which a wholly-owned subsidiary of President Casinos,
Inc. owns a Class A ownership interest and in which an entity wholly-owned by
the Chairman of President Casinos, Inc. owns a Class B unit and has a
preferred right to certain cash flows. As described below, President Casinos,
Inc. and certain of its subsidiaries are currently in bankruptcy proceedings.
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," and together with the Mississippi Bankruptcy Court, the
"Bankruptcy Courts,") where the latter proceeding is now pending and being
administered.
The Company and its operating subsidiaries, except President Broadwater
Hotel, LLC, each continue in possession and use of their assets as debtors-in-
possession. The Company and its operating subsidiaries have had their
Missouri Bankruptcy Chapter 11 cases administratively consolidated under the
President Casinos, Inc. 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 Chapter 11
reorganization process, the Company has attempted to notify all known or
potential creditors of the filings for the purpose of identifying certain pre-
petition claims. In the Company's Chapter 11 cases, 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 Courts setting forth the assets and liabilities of the
debtors as of the filing dates 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 Court. 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, 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. 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.
The Company has entered into agreements to sell its St. Louis, Missouri and
Biloxi, Mississippi gaming operations. If consummated under the current terms
of such agreements, the Company would not have any current ongoing business
operations. Under the current terms of such sale agreements, the aggregate
purchase price to be received by the Company in connection with such sales of
its gaming and hotel operations would not fully discharge the Company's
obligations under its existing indebtedness or result in any remaining
proceeds to the Company and, accordingly, the Company would be unable to
continue as a going concern. However, the contract for the sale of the
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Company's Biloxi, Mississippi operations is subject to an overbidding process
that may result in additional proceeds to the Company. Each of the
transactions is subject to numerous closing conditions, including approvals of
gaming regulatory authorities. As a result of the foregoing, at this time the
Company is unable to predict with certainty whether the sale transactions will
be consummated, the amount of sale proceeds to be realized by the Company or
whether such sale proceeds will be sufficient to discharge the Company's
existing indebtedness, and the Company's future ability to continue as a going
concern.
-- St. Louis Casino 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, permitted 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 Noteholders, 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 $50,000. On May 4, 2004, the Company and
Isle of Capri Casinos, Inc. announced they had mutually agreed to terminate
the agreement.
On August 9, 2004, the Company entered into an agreement with Penn National
Gaming, Inc. for the purchase of its St. Louis Operations. The agreement was
submitted to the Missouri Bankruptcy Court for review and was amended on
September 17, 2004. Under the terms of the agreements, the stock of the St.
Louis operations was to be sold for approximately $28,000, subject to working
capital adjustments and subject to a potential overbid. On October 7, 2004,
an auction was held in accordance with Section 363 of the Bankruptcy Code.
Columbia Sussex, Inc. was the winning over-bidder for the St. Louis casino
operations for a purchase price of approximately $57,000, subject to closing
adjustments. On October 13, 2004, the Missouri Bankruptcy Court approved the
terms of the agreement. The closing of the transaction, which is contingent
upon licensing by the Missouri Gaming Commission and other typical closing
conditions, is anticipated to occur not earlier than the Summer of 2005.
The Missouri Gaming Commission announced that it would 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.
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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."
The St. Louis County Council approved a separate Pinnacle Entertainment, Inc.
project in Lemay, Missouri. Various other gaming companies filed proposals.
On September 1, 2004, the Missouri Gaming Commission approved Pinnacle
Entertainment, Inc. for formal license investigations for both the St. Louis
City and St. Louis County projects. Each of the proposals submitted requires
significant construction of new infrastructure for the casino and
entertainment complexes. Management believes that the licensing of a new
casino or casinos in metropolitan St. Louis would have a material adverse
effect on the Company's financial condition and results of operations.
-- Broadwater Hotel Operations
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 $30,000
promissory note and associated $7,000 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. J. Edward Connelly and
Associates, Inc., an entity controlled by John E. Connelly, the Company's
Chairman and Chief Executive Officer, holds a Class B membership interest in
PBLLC. 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 its
secured lender and largest creditor, 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 which would
permit PBLLC to restructure its debt obligations in a manner which was
designed to permit it to continue as a going concern. 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 initiated consummation of the Modified Plan at that
time. The Modified Plan provides that the unsecured creditors of PBLLC will
receive 100% of their claims. Under the Modified Plan, the obligations to its
secured lender were modified with respect to the debt amount, the interest
rate and the due date. See "Note 5. Long-Term Debt and Current Portion of
Long-Term Debt."
-- Mississippi Assets Sale
On November 15, 2004, President Mississippi, Vegas Vegas, Inc. ("Vegas
Vegas"), and PBLLC (collectively with President Mississippi and Vegas Vegas,
the "Sellers"), on the one hand, and Broadwater Properties, LLC (the
"Purchaser"), on the other hand, entered into a Sale and Purchase Agreement
(the "Purchase Agreement") pursuant to which the Purchaser will acquire from
the Sellers substantially all of the real and personal property associated
with the Registrant's Biloxi, Mississippi operations. Under the terms of the
Purchase Agreement, the purchase price for the transaction will be
approximately $66,000, subject to certain adjustments.
The Purchase Agreement represents a "stalking horse" bid under Section 363
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of the Bankruptcy Code that is subject to an overbidding auction, and
subsequent approval of the bankruptcy court. The closing of the transaction
will also be subject to various other closing conditions as set forth in the
Purchase Agreement, including without limitation expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act and Purchaser's receipt of authority from the State of Mississippi to
construct a condominium development on the real property included in the
transaction.
On November 29, 2004, the Sellers and the Purchaser entered into an
Amendment to Sale and Purchase Agreement (the "Amendment"). Under the terms
of the Amendment, certain terms of the Purchase Agreement were amended. The
Amendment established a new auction date of Thursday, January 20, 2005 in St.
Louis, Missouri. Additionally, the Amendment amended the Purchase Agreement
to limit the Sellers' remedy in the event of the Purchaser's failure to
perform the Purchase Agreement to the amount of the escrow deposit ($1,000),
together with all accrued and undistributed earnings. It is anticipated that
the operations will continue in Biloxi with the new owners.
During March 2004, the Company sold the 179-room Broadwater Tower Hotel for
$6,500. The President's other hotel, the 333-room President Broadwater
Resort, was not included in this transaction. The net proceeds were used to
reduce the debt of the Company's subsidiary, President Broadwater Hotel, LLC.
The Company also entered into a lease with the new owners whereby the Company
will continue to operate Broadwater Tower Hotel through September 15, 2004,
with options for additional extensions. The Company has exercised its option
to lease the hotel and the current period extends through January 15, 2005.
The Company anticipates it will further extend the lease option.
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 and Vice
President of Marine and Development; and SunAmerica, Inc. and McKay Shields
LLC (collectively, representing many of 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 bankruptcy
court approval and approval of the Noteholders, who have security interests in
the Assets, approval. The agreement sets forth certain allocations of sale
proceeds between JECA and the Noteholders, but does not address how trade
creditors will be satisfied.
The agreement binds only the parties thereto and establishes priorities
between or among the parties to the agreement 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.
The Missouri Bankruptcy Court entered an order approving the agreement but
indicating expressly that nothing therein affected the rights of its secured
lender. Thereafter, an Examiner (as described below) appointed at the request
of the Noteholders filed a motion to set aside the Court's order, which motion
has been denied by the Missouri Bankruptcy Court.
Vegas Vegas owns the assets related to the Company's proposed development of
Destination Broadwater. 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 $3,300 of funds allocated to the Vegas
Vegas assets shall be paid into the Vegas Vegas bankruptcy estate and shall
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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 among the parties to the agreement as follows:
(i) the first dollars shall be paid to the secured lender of PBLLC, to
satisfy in full the indebtedness due to it;
(ii) the next $10,000 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 $8,000 shall be paid to Noteholders;
(iv) the next $26,000 (twice the remaining amount owing to JECA after
payment of the $5,000 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.
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 the
report for their use.
As a result of the Examiner's report, on June 14, 2004, the Company, along
with certain of its debtor-in-possession subsidiaries (the "Debtors"), entered
into a tolling agreement with Mr. Connelly, Mr. Aylsworth, Karl G. Andren ,
Royal P. Walker, Jr., Mr. Wirginis and J. Edward Connelly Associates, Inc.
("JECA"). Mssrs. Connelly, Aylsworth, Andren, Walker and Wirginis constitute
the Board of Directors of the Company. Under the terms of the tolling
agreement, the period of time from June 14, 2004 to and including July 31,
2004, shall not be relied upon under any statute of limitations in defense of
any lawsuit, action or proceeding that the Debtors could commence against the
Directors or JECA. This agreement was amended and restated during July 2004
to extend the period through December 31, 2004. The agreement expired and no
action was taken by the Debtors.
-- Other
Due to certain debt covenants and cross default provisions associated with
other debt agreements, the Company is also currently in default under the
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terms of its M/V "President Casino-Mississippi" note. See "Note 9.
Discontinued Operations."
The descriptions of the Company's business, financial condition and
prospects contained in this Quarterly Report on Form 10-Q are qualified in
their entirety by the foregoing description of the significant risks
associated with the Company's bankruptcy proceedings.
As of November 30, 2004, the Company had $3,508 of unrestricted cash and
cash equivalents. The Comapny also had $20,115 held in discontinued
operations. Of these amounts, the Company requires a minimum of approximately
$4,000 for the St. Louis operations and $2,500 for the Biloxi operations as
working capital. The Company is heavily dependant on cash generated from
operations to continue to operate as planned in its existing jurisdictions and
to make capital expenditures. Management anticipates that its existing
available cash and cash equivalents and its anticipated cash generated from
operations will be sufficient to fund its ongoing operations during the
bankruptcy proceedings. Payments under the Company's defaulted debt
obligations generally will be stayed during the bankruptcy proceedings. Costs
previously incurred and which will be incurred in the future in connection
with the reorganizations 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 its indebtedness or that its liquidity and capital resources will
be sufficient to maintain its normal operations during the reorganization
period. To the extent cash generated from operations is less than
anticipated, the Company may be required to curtail certain planned
expenditures and/or seek additional financing.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts and
operations of President Casinos, Inc., its wholly-owned subsidiaries, a 95%-
owned limited partnership and a limited liability company in which a wholly-
owned subsidiary of the Company has a Class A ownership interest and in which
an entity wholly-owned by the Chairman of the Board of the Company owns a
Class B Unit and has preferred rights to certain cash flows. All material
intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern, which
assumes continuity of operations, realization of assets and satisfaction of
liabilities in the ordinary course of business. The Company has experienced
operating losses since 1995 and has experienced significant difficulty in
generating sufficient cash flows to meet its obligations and sustain its
operations. As such, the Company has been in default under various of its
financial obligations as described elsewhere herein. Such conditions raise
substantial doubt about its ability to continue as a going concern. The
condensed consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring entries unless otherwise disclosed, necessary to present
fairly the Company's financial information for the interim periods presented
and have been prepared in accordance with accounting principles generally
accepted in the United States of America. The interim results reflected in
the condensed consolidated financial statements are not necessarily indicative
of results for the full year or other periods.
The condensed consolidated financial statements contained herein should be
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read in conjunction with the audited consolidated financial statements and
accompanying notes to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the period ending February 29, 2004.
Accordingly, footnote disclosure which would substantially duplicate the
disclosure in the audited consolidated financial statements has been omitted
in the accompanying unaudited condensed consolidated financial statements.
3. NATURE OF OPERATIONS
The Company owns and operates dockside gaming casinos through its
subsidiaries. The Company conducts dockside gaming operations in Biloxi,
Mississippi through its wholly-owned subsidiary President Mississippi and in
St. Louis, Missouri north of the Gateway Arch through its wholly-owned
subsidiary, President Missouri, which is classified as discontinued
operations. In addition, the Company owns and manages certain hotel and
ancillary facilities associated with its gaming operations. President
Broadwater Hotel, LLC, a limited liability company ("PBLLC") in which
Broadwater Hotel, Inc. ("BHI") has a Class A ownership interest, owns
approximately 240 acres in Biloxi, Mississippi, which includes a 111-slip
marina which contains the mooring site of "President Casino-Broadwater", a
hotel with approximately 333 rooms and an adjacent 18-hole golf course
(collectively, the "Broadwater Property"). BHI is a wholly-owned subsidiary
of the Company.
4. PROPERTY AND EQUIPMENT
On October 7, 2004, an auction was held in accordance with Section 363 of
the Bankruptcy Code for the Company's St. Louis operations. Columbia Sussex,
Inc. was the winning over-bidder for the St. Louis casino operations. On
October 13, 2004, the Missouri Bankruptcy Court approved the terms of the
agreement. As such, property and equipment of the St. Louis operations has
been reclassified to "Assets of Discontinued Operations" as of November 30,
2004 and February 29, 2004. See "Note 9. Discontinued Operations."
On March 16, 2004, the Company sold the 179-room Broadwater Tower Hotel for
$6,500 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 lease through September 15, 2004, with the new
owners whereby the Company will continue to operate the Broadwater Tower Hotel
with options for additional extensions. The Company has exercised its option
to lease the hotel. The current option period is through January 15, 2005 and
the Company anticipates it will further extend it. No gain or loss was
recorded on the sale of the Broadwater Tower.
5. LONG-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
As of November 30, 2004, all of the Company's long-term debt, except the
Broadwater Hotel note, was classified as liabilities subject to compromise.
See "Note 6. Liabilities Subject to Compromise and Reorganization Items,
Net."
Broadwater Hotel Note
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
the sum of $30,000 from a third party lender (the "Original Indebtedness").
Except as set forth in the promissory note and related security documents,
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PBLLC's obligations under the Indebtedness were nonrecourse and secured by the
Broadwater Property, its improvements and leases thereon. The Original
Indebtedness bore interest at a stipulated variable rate per annum equal to
the greater of (i) 8.75% or (ii) 4% plus the LIBOR 30-day rate.
PBLLC was obligated under the Original Indebtedness to make monthly payments
of interest accruing under the Indebtedness, and was obligated to repay the
Indebtedness in full on July 22, 2000. In addition, PBLLC was obligated to
pay to the lender a loan fee in the amount of $7,000 which was fully earned
and non-refundable when the Original Indebtedness was due. Neither the
Original Indebtedness nor the loan fee payments were made on the due date and
the Original Indebtedness was in default through the effective date of the
Modified Plan discussed below. PBLLC continued to make monthly interest
payments accruing on the $30,000 principal through April 19, 2001, when the
Company announced that PBLLC had filed for reorganization under Chapter 11 in
the Mississippi Bankruptcy Court.
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 will receive 100%
of their claims. Under the Modified Plan, the obligations to its secured
lender 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 August 28, 2003, the Company paid its secured lender
$3,551 pursuant to the Modified Plan. As of November 30, 2004, the principal
amount of the Modified Indebtedness was $39,038. The principal amount of the
Modified Indebtedness bears 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 November 30, 2004,
the adjusted loan obligation amount was $36,621. 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.
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, retained its membership interest,
but any payments by PBLLC to JECA shall be restricted until such time as all
outstanding obligations to its secured lender and other creditors receiving
funds under the Modified Plan are discharged.
The Company has been notified that the Modified Indebtedness has been
transferred from the original secured lender to a new third party secured
lender. On September 15, 2004, the Company received a letter on behalf of the
holder of the Modified Indebtedness questioning whether certain insurance
requirements of the note were being met. The Company has responded,
clarifying certain coverage, adding additional coverages and has asked for
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additional time to cure any defaults that may exist. If the Company is unable
reach an accord with the note holder to cure any alleged default, the note
holder may begin default proceedings. The Company subsequently purchased the
required insurance to cure such defaults.
6. LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS, NET
The components of liabilities subject to compromise are as follows:
Nov. 30, Feb. 29,
2004 2004
------ ------
Senior Exchange Notes, 13%...................... $ 56,250 $ 56,250
Secured Notes, 12%.............................. 18,750 18,750
Accrued interest................................ 13,027 13,027
Accounts payable and other accrued expenses..... 3,837 3,961
--------- ---------
Total liabilities subject to compromise...... $ 91,865 $ 91,988
========= =========
Senior Exchange Notes and Secured Notes
The Senior Exchange Notes rank equal in right of payment to all present and
future senior debt, as defined in the indenture governing the Senior Exchange
Notes (the "Note Indenture"), of the Company and its subsidiaries and are
currently due and payable. In addition, the Senior Exchange Notes are
unconditionally guaranteed, jointly and severally on a senior basis, by all of
the Company's then existing restricted subsidiaries (the "Guarantors"), and,
under certain circumstances, the Company's future subsidiaries, although the
subsidiary guarantee from The Connelly Group, LP ("TCG") is limited in amount
and has been zero since fiscal year 1998. As security for the obligations of
the Company and the Guarantors under the Senior Exchange Notes, the Company
and the Guarantors have pledged their equity interests in each Guarantor and
certain indebtedness from, and certain investments in, certain gaming
ventures. The Note Indenture contains certain restrictive covenants which,
among other things, limit the Company's Guarantors' ability to pay dividends,
incur additional indebtedness (exclusive of $15,000 of senior debt), issue
preferred stock, create liens on certain assets, merge or consolidate with
another company and sell or otherwise dispose of all or substantially all of
its properties or assets.
On December 3, 1998, the Company repurchased $25,000 of its Senior Exchange
Notes. The repurchased notes were used to satisfy the $25,000 principal
payment due September 15, 1999 on the Company's $100,000 Senior Exchange
Notes. The repurchase was funded by the issuance of $25,000 of new 12% notes
due September 15, 2001 (the "Secured Notes"). The Secured Notes have no
mandatory redemption obligation and are secured by a mortgage on the
"Admiral", as well as subsidiary guarantees.
See "Note 1. Bankruptcy Proceedings" regarding default of the Senior
Exchange Notes and Secured Notes.
The various agreements governing the notes described above generally limit
borrowings by the Company's affiliates without the respective lenders' prior
consent.
As of November 30, 2004, all reorganization items consist of professional
fees.
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7. STOCK-BASED COMPENSATION
As of November 30, 2004, the Company has three stock Option Plans. The
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans using the
intrinsic value method. Accordingly, no compensation expense is reflected in
net income for stock options, as all options granted had an exercise price
equal to the market value of the underlying common stock on the date of grant.
Substantially all of the Company's stock options were vested as of November
30, 2004. Had compensation cost for the Company's Stock Option Plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," the Company's pro
forma net income (loss) and net income (loss) per share would be the same.
There were no options granted during either the nine-month period ended
November 30, 2004 or fiscal year 2004.
8. COMMITMENTS AND CONTINGENT LIABILITIES
Bankruptcy Actions
On June 20, 2002, President Casinos, Inc. 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. The Company and its subsidiaries each continue in possession
and use of their assets as debtors-in-possession. See "Note 1. Bankruptcy
Proceedings."
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 $30,000
promissory note and associated $7,000 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 Mississippi Bankruptcy Court. On May 28, 2003, PBLLC
emerged from its Chapter 11 protection. See "Note 1. Bankruptcy
Proceedings."
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
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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. The aggregate amount of the Missouri retention agreements,
including corporate, is $505.
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%. The aggregate amount of the Mississippi retention agreements is
$322.
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 were 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 was appealed and
the United States Court of Appeals for the 9th Circuit has affirmed the
decision. The litigation may now proceed as individual actions. 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.
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.
Management of 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 would have any material adverse impact
upon the gaming licenses of the Company's subsidiaries.
Labor Agreement
Certain gaming, service and maintenance employees of President Missouri are
covered by a collective bargaining agreement setting out wages, benefits and
other terms and conditions of employment. The current collective bargaining
agreement expired on October 1, 2004, but was extended through October 17,
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2004. On October 9, 2004, a vote was held to ratify a new labor agreement.
The terms of the new labor agreement were rejected by the covered employees,
who voted in favor of a strike. During the third quarter of fiscal 2005,
management negotiated with the union a satisfactory resolution and the labor
agreement was ratified effective October 1, 2004. The labor agreement covers
approximately 300 of the Company's 700 St. Louis employees. The Company
anticipates that payroll will increase approximately $400 annually as a result
of the new labor agreement.
9. DISCONTINUED OPERATIONS
On August 9, 2004, the Company entered into an agreement with Penn National
Gaming, Inc. for the purchase of its St. Louis Operations. The agreement was
submitted to the Missouri Bankruptcy Court for review and was amended on
September 17, 2004. Under the terms of the agreements, the stock of the St.
Louis operations was to be sold for approximately $28,000, subject to working
capital adjustments and subject to a potential overbid. On October 7, 2004,
an auction was held in accordance with Section 363 of the Bankruptcy Code.
Columbia Sussex, Inc. was the winning over-bidder for the St. Louis casino
operations for a purchase price of approximately $57,000, subject to closing
adjustments. On October 13, 2004, the Missouri Bankruptcy Court approved the
terms of the agreement. The closing of the transaction, which is contingent
upon licensing by the Missouri Gaming Commission and other typical closing
conditions, is anticipated to occur not earlier than the Summer of 2005.
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
holds a Preferred First Fleet Mortgage collateralizing debt owed to them.
In accordance with the Financial Accounting Standards Board SFAS No. 144
"Accounting for the Impairment and Disposal of Long-Lived Assets," the St.
Louis operations and leasing segment are accounted for as discontinued
operations.
The components of assets of and liabilities from discontinued operations are
as follows:
Nov. 30, Feb. 29,
2004 2004
------ ------
Cash and cash equivalents.................. $ 20,115 $ 16,097
Receivables................................ 218 364
Inventories................................ 513 480
Prepaid expenses........................... 1,628 1,791
Property and equipment..................... 30,476 32,638
--------- ---------
$ 52,950 $ 51,370
========= =========
M/V "President Casino-Mississippi"
note payable............................. $ 1,700 $ 2,100
Accounts payable........................... 1,070 751
Accrued payroll and benefits............... 1,874 2,139
Accrued interest payable................... 772 720
Other accrued liabilities.................. 3,280 3,025
-------- ---------
$ 8,696 $ 8,735
======== =========
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As of November 30, 2004, all of the assets from discontinued operations and
$5,303 of the liabilities relate to the St. Louis operations. As of February
29, 2004, $50,970 of the assets from discontinued operations and $5,089 of the
liabilities relate to the St. Louis operations.
The Company's St. Louis segment had operating income of $1,872 consisting of
revenues of $17,044 and operating expenses of $15,172 during the three-month
period ending November 30, 2004, compared to operating income of $775,
consisting of revenues of $16,402 and operating expenses of $15,627 during the
three-month period ending November 30, 2003. The Company's St. Louis segment
had operating income of $4,297, consisting of revenues of $52,135 and
operating expenses of $47,838 during the nine-month period ending November 30,
2004, compared to operating income of $4,238, consisting of revenues of
$53,614 and operating expenses of $49,376 during the nine-month period ending
November 30, 2003.
M/V "President Casino-Mississippi" Note
The Company defaulted under the terms of its M/V "President
Casino-Mississippi" note. The M/V "President Casino-Mississippi" was
previously operated by the Company as a casino in Biloxi, Mississippi. The
vessel and various equipment aboard the M/V "President Casino-Mississippi"
collateralize a term note payable which was also personally guaranteed by Mr.
Connelly. 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, $2,100 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 $1,200. 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
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 $500.
Because the Note was also guaranteed by the Company and President
Mississippi, the payment of the personal guarantee triggered a right of
contribution to Mr. Connelly from both the Company and the President
Mississippi. In addition, Mr. Connelly became partially jointly subrogated to
the lender's right under the Note to collect the payment by him from the
Company's subsidiary that issued the Note. The Note remains outstanding but
has been credited with the payment by Mr. Connelly and will be credited by the
value realized on foreclosure. Thus, while the parties responsible for
payment have shifted, a portion of Mr. Connelly's guarantee has been paid, and
the collateral has been used to satisfy a portion of the Note, the obligation
remains outstanding. It is not possible at this time to determine the amounts
that may be owed by whom or to whom with respect to the above described person
and entities.
In addition, as a part of the settlement agreement with the lender, Mr.
Connelly was assigned a one-half interest in certain claims filed by the
lender in the Missouri Bankruptcy Court. It is not possible to predict
whether these claims will be successful or the amount, if any, that will be
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paid with respect to these claims.
10. SEGMENT INFORMATION
The Company has one reportable segment from continuing operations consisting
of the Biloxi casino and the Broadwater Property. All operating revenues are
generated by the Biloxi segment. See "Note 9. Discontinued Operations" for
the results of the Company's discontinued operations.
The Company has no inter-segment sales and accounts for transfers of
property and inventory at its net book value at the time of such transfer.
Three Months Nine Months
Ended November 30, Ended November 30,
2004 2003 2004 2003
------ ------ ------ ------
OPERATING INCOME (LOSS):
Biloxi operations...................... $ (255) $ (120) $ 447 $ 2,472
Corporate administration............... (676) (610) (1,918) (2,095)
--------- --------- --------- ---------
OPERATING INCOME (LOSS)................ $ (931) $ (730) $ (1,471) $ 377
========= ========= ========= =========
A summary of assets by segment, is as follows:
Nov. 30, Feb. 29,
2004 2004
------ ------
Biloxi operations....................... $ 51,844 $ 59,559
Corporate assets........................ 758 2,630
Development assets...................... 3,259 3,259
Discontinued operations................. 52,950 51,370
--------- ---------
Net assets.......................... $108,811 $116,818
========= =========
A summary of net property and equipment by segment, is as follows:
Nov. 30, Feb. 29,
2004 2004
------ ------
Property and Equipment:
Biloxi operations..................... $ 43,593 $ 50,461
Corporate assets...................... 6 7
Development assets.................... 3,259 3,259
--------- ---------
Net Property and Equipment........ $ 46,858 $ 53,727
========= =========
Substantially all additions to property and equipment were made by the
Biloxi operations.
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11. INSURANCE RISK
The Company was partially self-insured for employee health and workers
compensation claims and third party liability costs through April 1999.
Effective May 1999, the Company became fully insured for workers compensation
claims. The Company continues to be partially self-insured for employee
health and third party liability claims. The self-insurance claim liability
is based on claims reported and claims incurred but not reported using the
Company's historic experience with such matters.
The Company carries business interruption insurance with exclusions for
windstorm and flood for its casino operations. The Company's Broadwater
Property does have business interuption insurance for interuptions caused by
windstorm and flood as required by the Modified Indebtedness.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and the notes thereto
included elsewhere in this report.
President Casinos, Inc., President Riverboat Casino-Missouri, Inc., The
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 I of
this report.
The Company has entered into agreements to sell its St. Louis, Missouri and
Biloxi, Mississippi gaming operations. If consummated under the current terms
of such agreements, the Company would not have any current ongoing business
operations. Under the current terms of such sale agreements, the aggregate
purchase price to be received by the Company in connection with such sales of
its gaming and hotel operations would not fully discharge the Company's
obligations under its existing indebtedness or result in any remaining
proceeds to the Company and, accordingly, the Company would be unable to
continue as a going concern. However, the contract for the sale of the
Company's Biloxi, Mississippi operations is subject to an overbidding process
that may result in additional proceeds to the Company. Each of the
transactions is subject to numerous closing conditions, including approvals of
gaming regulatory authorities. As a result of the foregoing, at this time the
Company is unable to predict with certainty whether the sale transactions will
be consummated, the amount of sale proceeds to be realized by the Company or
whether such sale proceeds will be sufficient to discharge the Company's
existing indebtedness, and the Company's future ability to continue as a going
concern.
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")
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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 November 30, 2003, 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 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.
On August 9, 2004, the Company entered into an agreement with Penn National
Gaming, Inc. for the purchase of its St. Louis Operations. The agreement was
submitted to the Missouri Bankruptcy Court for review and was amended on
September 17, 2004. Under the terms of the agreements, the stock of the St.
Louis operations was to be sold for approximately $28.0 million, subject to
working capital adjustments and subject to a potential overbid. On October 7,
2004, an auction was held in accordance with Section 363 of the Bankruptcy
Code. Columbia Sussex, Inc. was the winning over-bidder for the St. Louis
casino operations for a purchase price of approximately $57.0 million, subject
to closing adjustments. On October 13, 2004, the Missouri Bankruptcy Court
approved the terms of the agreement. The closing of the transaction, which is
contingent upon licensing by the Missouri Gaming Commission and other typical
closing conditions, is anticipated to occur not earlier than the Summer of
2005.
On November 15, 2004, President Mississippi, Vegas Vegas, Inc. ("Vegas
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Vegas"), and PBLLC (collectively with President Mississippi and Vegas Vegas,
the "Sellers"), on the one hand, and Broadwater Properties, LLC (the
"Purchaser"), on the other hand, entered into a Sale and Purchase Agreement
(the "Purchase Agreement") pursuant to which the Purchaser will acquire from
the Sellers substantially all of the real and personal property associated
with the Registrant's Biloxi, Mississippi operations. Under the terms of the
Purchase Agreement, the purchase price for the transaction will be
approximately $66.0 million, subject to certain adjustments.
The Purchase Agreement represents a "stalking horse" bid under Section 363
of the Bankruptcy Code that is subject to an overbidding auction, and
subsequent approval of the bankruptcy court. The closing of the transaction
will also be subject to various other closing conditions as set forth in the
Purchase Agreement, including without limitation expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act and Purchaser's receipt of authority from the State of Mississippi to
construct a condominium development on the real property included in the
transaction.
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 lease through September 15, 2004, with
the new owners whereby the Company will continue to operate the Broadwater
Tower Hotel with options for additional extensions. The Company renewed its
option. The current option period is through January 15, 2005 and the Company
anticipates it will further extend it.
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.
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 economic environment 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.
Since gaming began in Biloxi in August 1992, there has been steadily
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increasing competition along the Mississippi Gulf Coast, in nearby New Orleans
and elsewhere in Louisiana and Mississippi. Several large hotel/casino
complexes have been built in recent years with the largest single resort in
the area opening in March 1999. There are currently twelve casinos operating
on the Mississippi Gulf Coast. 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.
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 docked 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.
The Missouri Gaming Commission announced that it would 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."
The St. Louis County Council approved a separate Pinnacle Entertainment, Inc.
project in Lemay, Missouri. Various other gaming companies filed proposals.
On September 1, 2004, the Missouri Gaming Commission approved Pinnacle
Entertainment, Inc. for formal license investigations for both the St. Louis
City and St. Louis County projects. Each of the proposals submitted requires
significant construction of new infrastructure for the casino and
entertainment complexes. Management believes that the licensing of a new
casino or casinos in metropolitan St. Louis, would have a material adverse
effect on the Company's financial condition and results of operations.
--Regulatory Matters
The Company's Missouri gaming license was renewed on July 8, 2004 for a
period through May 2006. The Company's Mississippi gaming license was renewed
in April 2004 for a period through April 2007.
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 $500 (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
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would be expected to have a positive impact on the Company's St. Louis
operations.
--Economic Environment
The Company's business involves leisure and entertainment. During periods
of recession or economic downturn, consumers may reduce or eliminate spending
on leisure and entertainment activities. In the event that any of the
Company's demographic markets suffer adverse economic conditions, the
Company's revenues may be materially adversely affected.
--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
relocation of the "Admiral" in December 2000 diminished the negative effects
of high water on its St. Louis operations.
The Company's Biloxi operations, along with all other Mississippi Coast
casino operations, were temporarily closed from noon on September 14 until
7:00 a.m. on September 17, 2004, due to Hurricane Ivan. The Company's Biloxi
properties received no significant damage. However, damage caused by
Hurricane Ivan to areas east of Biloxi, representing a significant portion of
Biloxi's feeder market, was significant. As a result of the temporary closure
and the damage in areas east of Biloxi, Biloxi's September gaming revenue
decreased 20% compared to September 2003.
Results of Operations
The results of continuing operations for the three-month and nine-month
periods ended November 30, 2004 and 2003 include the gaming results for the
Company's operations in Biloxi, Mississippi and to a lesser significance, the
hotel operations in Biloxi (the Broadwater Property). The pending sale of the
St. Louis casino requires the Company to classify the St. Louis operations in
discontinued operations. Included in discontinued operations is the Company's
operations in St. Louis, Missouri and, in fiscal 2003, the Company's leasing
operations.
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The following table highlights the results of the Company's operations.
Three Months Nine Months
Ended November 30, Ended November 30,
2004 2003 2004 2003
------ ------ ------ ------
(in millions)
Continuing Operations
Biloxi, Mississippi Segment
Operating revenues $ 9.2 $ 11.1 $ 32.6 $ 37.1
Operating income (loss) (0.2) (0.1) 0.4 2.5
Corporate Administrative and
Development operating loss $ (0.7) $ (0.6) $ (1.9) $ (2.1)
Discontinued Operations
St. Louis, Missouri Segment
Operating revenues $ 17.0 $ 16.4 $ 52.1 $ 53.6
Operating income 1.9 0.8 4.3 4.2
Leasing Segment
Operating revenues $ -- $ -- $ -- $ --
Operating loss -- (0.9) (0.1) (1.6)
The following table highlights cash flows of the Company's operations.
Nine Months
Ended November 30,
2004 2003
------ ------
(in millions)
Cash flows provided by (used in)
operating activities $ (0.8) $ (0.2)
Cash flows provided by
investing activities 5.7 2.2
Cash flows used in
financing activities (6.4) (3.6)
Cash paid for interest 2.2 2.1
Three-month period ended November 30, 2004 Compared to the
Three-month period ended November 30, 2003
Operating revenues. The Company's Biloxi operations generated operating
revenues of $9.2 million during the three-month period ended November 30, 2004
compared to $11.1 million during the three-month period ended November 30,
2003, a decrease of $1.9 million, or 17.1%.
The Company's Biloxi operations, along with all other Mississippi Coast
casino operations, were temporarily closed from noon on September 14 until
7:00 a.m. on September 17, 2004, due to Hurricane Ivan. The Company's Biloxi
properties received no significant damage. However, damage caused by
Hurricane Ivan to areas east of Biloxi, representing a significant portion of
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Biloxi's feeder market, was significant. As a result of the temporary closure
and the damage in areas east of Biloxi, Biloxi's patron count decreased,
resulting in a decline in revenues.
Additionally, the Biloxi property is under capital expenditure constraints.
Gaming revenues have been negatively impacted by certain competitors' slot
product upgrades, specifically multi-denominational games and ticket-in-
ticket-out systems which management believes has resulted in a decrease in
number of guests.
Operating costs and expenses. The Company's Biloxi gaming expenses were
$4.9 million during the three-month period ended November 30, 2004 compared to
$5.7 million during the three-month period ended November 30, 2003, a decrease
of $0.8 million or 14.0%. The decrease was primarily the result of a $0.2
million decrease in gaming taxes resulting from decreased gaming revenues and
a $0.5 million decrease in payroll and benefit costs. As a percentage of
gaming revenues, gaming costs increased to 54.4% during the three-month period
ended November 30, 2004 from 53.3% during the three-month period ended
November 30, 2003.
The Company's Biloxi food and beverage, hotel, retail and other expenses
were $1.4 million during the three-month period ended November 30, 2004,
compared to $1.7 million during the three-month period ended November 30,
2003, a decrease of $0.3 million or 17.6%. The decrease was primarily
attributable to a decrease in the number of guests described above.
The Company's consolidated selling, general and administrative expenses were
$3.5 million during the three-month period ended November 30, 2004, compared
to $4.0 million during the three-month period ended November 30, 2003, a
decrease of $0.5 million, or 12.5%. The decrease is the result of a decrease
in hotel room promotions in Biloxi.
Depreciation and amortization expenses were $0.5 million during both three-
month periods ended November 30, 2004 and 2003.
Operating income. As a result of the foregoing items, the Company had a net
operating loss of $0.9 million during the three-month period ended November
30, 2004, compared to a net operating loss of $0.7 million for the three-month
period ended November 30, 2003.
Interest expense, net. The Company incurred net interest expense of $0.7
million during the three-month period ended November 30, 2004, compared to
$0.8 million during the three-month period ended November 30, 2003. The
decrease is the result of $0.1 million decrease in interest expense related to
the restructuring of the PBLLC debt and the corresponding reduction in the
interest rate.
Reorganization items. The Company incurred reorganization costs of $0.3
million during the three-month period ended November 30, 2004, compared to
less than $0.1 million during the three-month period ended November 30, 2003.
Reorganization expense is largely attributable to legal fees associated with
the Company's bankruptcy proceedings. The increase is the result of increased
efforts to sell the Company's Biloxi assets.
Minority interest expense. The Company accrued $0.4 million minority
interest expense for the three-month period ended November 30, 2004, compared
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to $0.3 million for the three-month period ended November 30, 2003. During
both periods, the minority interest results from the Class B Unit in PBLLC in
which an entity wholly-owned by the Chairman of the Board of the Company owns
and has preferred rights to certain cash flows. Such amounts were accrued but
not paid.
Net loss from continuing operations. The Company incurred a net loss from
continuing operations of $2.3 million during the three-month period ended
November 30, 2004, compared to a net loss from continuing operations of $1.7
million during the three-month period ended November 30, 2003.
Discontinued operations. Discontinued operations consists of the Company's
St. Louis operations segment and the former vessel leasing segment.
On August 9, 2004, the Company entered into an agreement with Penn National
Gaming, Inc. for the purchase of its St. Louis Operations. The agreement was
submitted to the Missouri Bankruptcy Court for review and was amended on
September 17, 2004. Under the terms of the agreements, the stock of the St.
Louis operations was to be sold for approximately $28.0 million, subject to
working capital adjustments and subject to a potential overbid. On October 7,
2004, an auction was held in accordance with Section 363 of the Bankruptcy
Code. Columbia Sussex, Inc. was the winning over-bidder for the St. Louis
casino operations for a purchase price of approximately $57.0 million, subject
to closing adjustments. On October 13, 2004, the Missouri Bankruptcy Court
approved the terms of the agreement. The closing of the transaction, which is
contingent upon licensing by the Missouri Gaming Commission and other typical
closing conditions, is anticipated to occur not earlier than the Summer of
2005.
The Company's St. Louis operating segment had operating income of $1.9
million, consisting of revenues of $17.0 million and operating expenses of
$15.1 million during the three-month period ending November 30, 2004, compared
to operating income of $0.8 million, consisting of revenues of $16.4 million
and operating expenses of $15.6 million during the three-month period ending
November 30, 2003. The most significant contribution to the increase in
operating income is a decrease in depreciation of $1.0 million as a result of
ceasing to depreciate assets effective with the court's approval of the sale
agreement.
The leasing segment was operated by President Riverboat Casino-New York,
Inc., a wholly-owned subsidiary of the Company. Of the two vessels owned by
this segment, the "Surfside Princess" was sold in May 2003. The second
vessel, M/V "President Riverboat Casino-Mississippi," was the original vessel
utilized at its Biloxi casino operations and subsequently utilized as an
auxiliary vessel in other Company operations after it was replaced in Biloxi
by the current larger barge facility. On June 11, 2003, as a result of the
Company's default on the debt that the vessel collateralized, the United
States Marshall's office served a warrant on the "President Riverboat Casino-
Mississippi". On September 22, 2003, the Court entered an order in favor of
the lender and ordered the vessel to be sold.
The Company incurred no expense for the leasing segment during the three-
month period ended November 30, 2004, compared to a net loss from discontinued
operations of $1.5 million during the three-month period ended November 30,
2003. On October 17, 2003, the Mississippi Bankruptcy Court issued an order
dismissing President Riverboat Casino-New York, Inc.'s Chapter 11 bankruptcy
case. As a result of the segment no longer operating under the protection of
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Chapter 11, during the three-month period ending November 30, 2003, the
Company accrued certain contractual obligations under the terms of the debt
agreement collateralized by the M/V "President Riverboat Casino-Mississippi."
Such amounts consist of $0.6 million of default interest arising since the
inception of the bankruptcy filing, $0.5 million in contractual legal fees and
$0.1 million in penalties. Additionally, the Company recognized a $0.3
million valuation allowance on the vessel. The sales proceeds did not cover
the debt obligation. Although the parent company and a subsidiary of the
Company have guaranteed the original note, these two entities are currently
under Chapter 11 bankruptcy protection and, as such, the obligations are
stayed while the entities operate as debtors-in-possession. Management does
not believe that these additional costs will be paid.
Net loss. The Company incurred a net loss of $0.8 million during the three-
month period ended November 30, 2004, compared to a net loss of $2.6 million
during the three-month period ended November 30, 2003.
Nine-month period ended November 30, 2004 Compared to the
Nine-month period ended November 30, 2003
Operating revenues. The Company's Biloxi operations generated operating
revenues of $32.6 million during the nine-month period ended November 30, 2004
compared to $37.1 million during the three-month period ended November 30,
2003, a decrease of $4.5 million, or 12.1%.
The Company's Biloxi operations, along with all other Mississippi Coast
casino operations, were temporarily closed from noon on September 14 until
7:00 a.m. on September 17, 2004, due to Hurricane Ivan. The Company's Biloxi
properties received no significant damage. However, damage caused by
Hurricane Ivan to areas east of Biloxi, representing a significant portion of
Biloxi's feeder market, was significant. As a result of the temporary closure
and the damage in areas east of Biloxi, Biloxi's patron count decreased,
resulting in a decline in revenues.
Additionally, the Biloxi property is under capital expenditure constraints.
Gaming revenues have been negatively impacted by certain competitors' slot
product upgrades, specifically multi-denominational games and ticket-in-
ticket-out systems which management believes has resulted in a decrease in
number of guests.
Operating costs and expenses. The Company's Biloxi gaming costs and
expenses were $16.5 million during the nine-month period ended November 30,
2004, compared to $17.7 million during the nine-month period ended November
30, 2003, a decrease of $1.2 million, or 6.8%. The decrease in gaming costs
and expenses in Biloxi is the result of a decrease of $0.9 million in payroll
and payroll benefits and a decrease of $0.4 million in gaming taxes.
The Company's Biloxi food and beverage, hotel, retail and other expenses
were $4.6 million during the nine-month period ended November 30, 2004,
compared to $5.2 million during the nine-month period ended November 30, 2003,
a decrease of $0.6 million or 11.5%. The decrease was primarily attributable
to a decrease in the number of guests described above.
The Company's selling, general and administrative expenses were $11.6
million during the nine-month period ended November 30, 2004, compared to
$12.3 million during the nine-month period ended November 30, 2003, a decrease
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30
of $0.7 million, or 5.7%. Biloxi's selling, general and administrative
expenses decreased $0.5 million as the result of a decrease in payroll and
payroll benefits of $0.2 million, a decrease in marketing of $0.1 million and
a decrease in hotel room promotions of $0.1 million. Corporate overhead
decreased $0.2 million primarily as the result of a decrease in payroll
benefits.
Depreciation and amortization expense was $1.4 million during the nine-month
period ended November 30, 2004, compared to $1.5 million during the nine-month
period ended November 30, 2003.
Operating (loss) income. As a result of the foregoing items, the Company
had a net operating loss of $1.5 million during the nine-month period ended
November 30, 2004 compared to operating income of $0.4 million during the
nine-month period ended November 30, 2003.
Interest expense, net. The Company incurred net interest expense of $2.2
million during the nine-month period ended November 30, 2004, compared to $2.7
million during the nine-month period ended November 30, 2003, a decrease of
$0.5 million. The decrease is a result of PBLLC having paid its lender $6.4
million on March 15, 2004.
Reorganization items, net. The Company incurred reorganization items of
$0.7 million during the nine-month period ended November 30, 2004, compared to
less than $0.1 million during the nine-month period ended November 30, 2003.
Costs associated with the reorganizations consist of professional fees and
U.S. Bankruptcy Trustee fees. The increase is the result of increased efforts
to sell the Company's Biloxi assets.
Minority interest expense. The Company accrued $1.0 million minority
interest expense during both nine-month periods ended November 30, 2004 and
2003. During both periods the minority interest results from the Class B Unit
in PBLLC in which an entity wholly-owned by the Chairman of the Board of the
Company owns and has preferred rights to certain cash flows. Such amounts
were accrued but not paid.
Net loss from continuing operations. The Company incurred a net loss from
continuing operations of $5.2 million during the nine-month period ended
November 30, 2004, compared to a net loss of $3.1 million during the nine-
month period ended November 30, 2003.
Discontinued operations. Discontinued operations consists of the Company's
St. Louis operations segment and the former vessel leasing segment.
On August 9, 2004, the Company entered into an agreement with Penn National
Gaming, Inc. for the purchase of its St. Louis Operations. The agreement was
submitted to the Missouri Bankruptcy Court for review and was amended on
September 17, 2004. Under the terms of the agreements, the stock of the St.
Louis operations was to be sold for approximately $28.0 million, subject to
working capital adjustments and subject to a potential overbid. On October 7,
2004, an auction was held in accordance with Section 363 of the Bankruptcy
Code. Columbia Sussex, Inc. was the winning over-bidder for the St. Louis
casino operations for a purchase price of approximately $57.0 million, subject
to closing adjustments. On October 13, 2004, the Missouri Bankruptcy Court
approved the terms of the agreement. The closing of the transaction, which is
contingent upon licensing by the Missouri Gaming Commission and other typical
closing conditions, is anticipated to occur not earlier than the Summer of
2005.
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The Company's St. Louis operating segment had operating income of $4.3
million, consisting of revenues of $52.1 million and operating expenses of
$47.8 million during the nine-month period ending November 30, 2004, compared
to operating income of $4.2 million, consisting of revenues of $53.6 million
and operating expenses of $49.4 million during the nine-month period ending
November 30, 2003. Net revenues decreased $1.5 million dollars primarily as a
result in increased promotional allowances in response to the competitive
environment. Operating expenses, other than depreciation, decreased $0.4
million as a result of decreased payroll and benefits and admissions taxes as
a result of decreased volume and decreased gaming taxes as a result of a
decrease in revenue. Depreciation expense decreased $1.0 million as a result
ceasing to depreciate assets effective with the court's approval of the sale
agreement.
The leasing segment was operated by President Riverboat Casino-New York,
Inc., a wholly-owned subsidiary of the Company. Of the two vessels owned by
this segment, the "Surfside Princess" was sold in May 2003. The second
vessel, M/V "President Riverboat Casino-Mississippi," was the original vessel
utilized at its Biloxi casino operations and subsequently utilized as an
auxiliary vessel in other Company operations after it was replaced in Biloxi
by the current larger barge facility. On June 11, 2003, as a result of the
Company's default on the debt that the vessel collateralized, the United
States Marshall's office served a warrant on the "President Riverboat Casino-
Mississippi". On September 22, 2003, the Court entered an order in favor of
the lender and ordered the vessel to be sold.
The Company incurred $0.1 million of expense for the leasing segment during
the nine-month period ended November 30, 2004, compared to a net loss of $2.3
million during the nine-month period ended November 30, 2003. The prior nine-
month period includes $0.4 million of expense for the settlement of a lawsuit
regarding the M/V "Surfside Princess" and $0.2 million in ongoing maintenance
for both vessels prior to their sale. On October 17, 2003, the Mississippi
Bankruptcy Court issued an order dismissing President Riverboat Casino-New
York, Inc.'s Chapter 11 bankruptcy case. As a result of the segment no longer
operating under the protection of Chapter 11, during the three-month period
ending November 30, 2003, the Company accrued certain contractual obligations
under the terms of the debt agreement collateralized by the M/V "President
Riverboat Casino-Mississippi." Such amounts consist of $0.6 million of
default interest arising since the inception of the bankruptcy filing, $0.5
million in contractual legal fees and $0.1 million in penalties.
Additionally, the Company recognized a $0.3 million valuation allowance on the
vessel. The sales proceeds did not cover the debt obligation. Although the
parent company and a subsidiary of the Company have guaranteed the original
note, these two entities are currently under Chapter 11 bankruptcy protection
and, as such, the obligations are stayed while the entities operate as
debtors-in-possession. Management does not believe that these additional
costs will be paid.
Net loss. The Company incurred a net loss of $2.1 million during the nine-
month period ended November 30, 2004, compared to a net loss of $2.2 million
during the nine-month period ended November 30, 2003.
Liquidity and Capital Resources
The Company meets its working capital requirements from a combination of
internally generated sources including cash from operations and the sale of
assets.
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As discussed above, the Company and its operating subsidiaries, with the
exception of PBLLC and President Riverboat Casino-New York, Inc., are
operating their businesses as debtors-in-possession under Chapter 11 of the
Bankruptcy Code. In addition to the cash requirements necessary to fund
ongoing operations, the Company anticipates that it will continue to incur
significant professional fees and other restructuring costs in connection with
the reorganization. As a result of the uncertainty surrounding the Company's
current circumstances, it is difficult to predict the Company's actual
liquidity needs and sources at this time. However, based upon current and
anticipated levels of operations, during the pendency of the bankruptcy,
management believes that its liquidity and capital resources will be
sufficient to maintain its normal operations at current levels. Costs
previously incurred and to be incurred in the future in connection with the
reorganization have been and will continue to be substantial and, in any
event, there can be no assurance that the Company will be able to reorganize
its indebtedness or that its liquidity and capital resources will be
sufficient to maintain its normal operations during the reorganization period.
The Company's access to additional financing is, and for the foreseeable
future will likely continue to be, very limited. Additionally, any
significant interruption or decrease in the revenues derived by the Company
from its operations would have a material adverse effect on the Company's
liquidity and the ability to maintain the Company's operations as presently
conducted.
As a result of the Company's 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. Under the
Indentures pursuant to which the Senior Exchange Notes and Secured Notes were
issued, an Event of Default occurred on April 15, 2000, and is continuing as
of the date hereof. 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 Secured Notes were
notified and instructed the Indenture Trustee to accelerate the Senior
Exchange Notes and Secured Notes and on August 11, 2000, the holders declared
the unpaid principal and interest to be due and payable. As of November 30,
2004, principal due on the Senior and Secured Notes was $56.2 million and
$18.8 million, respectively.
The Company's Biloxi operations require approximately $3.0 million of cash
on hand to fund daily operations. As of November 30, 2004, the Biloxi
operations had $3.0 million of non-restricted cash and $2.1 million of
restricted cash available for operating expenses, capital improvements, debt
service and pre-petition bankruptcy claims of the Broadwater Property as
defined by its loan agreement. The Company's St. Louis operations require
approximately $3.5 million to fund daily operations. As of November 30, 2004
the St. Louis operations had $20.1 million of non-restricted cash which is
included in "Assets of Discontinued Operations."
The Company is heavily dependant on cash generated from operations to
continue to operate as planned in its existing jurisdictions and to make
capital expenditures. Management anticipates that its existing available cash
and cash equivalents and its anticipated cash generated from operations will
be sufficient to fund all of its ongoing operations. The debt obligations
will be stayed during the bankruptcy proceedings. To the extent cash
generated from operations is less than anticipated, the Company may be
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required to curtail certain planned expenditures or seek other sources of
financing.
The Company had $0.4 million in restricted short-term investments as of
November 30, 2004, consisting of certificates of deposit guaranteeing a
certain performance obligation required by the Mississippi Gaming Commission.
The Company used $0.8 million of cash from operating activities during the
nine-month period ending November 30, 2004, compared to $0.2 million used for
the nine-month period ending November 30, 2003.
Investing activities of the Company generated $5.7 million of cash during
the nine-month period ending November 30, 2004. The Company expended $0.9
million on gaming equipment and capital improvements in Biloxi. The Company's
Biloxi operations received proceeds from the sale of the Broadwater Tower
Hotel of $6.4 million which was used to pay principal to the secured lender.
Additionally there was a decrease in restricted cash of $0.2 million which was
the result of the terms of the restructuring of the PBLLC debt.
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
the sum of $30.0 million from a third party lender, evidenced by a non-
recourse promissory note (the "Indebtedness"). PBLLC was obligated under the
Indebtedness to make monthly payments of interest accruing under the
Indebtedness, and was obligated to repay the Indebtedness in full on July 22,
2000. In addition, PBLLC was obligated to pay to the lender a loan fee in the
amount of $7.0 million which was fully earned and non-refundable when the
Indebtedness became due. PBLLC continued to make the monthly interest
payments accruing on the $30.0 million principal through April 19, 2001, when
the Company announced that PBLLC had 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 October 16, 2001, PBLLC filed its plan of reorganization which would
permit PBLLC to restructure its debt obligations in a manner which was
designed to permit it to continue as a going concern. 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 to receive 100%
of their claims. Under the Modified Plan, the obligations to secured lender
were modified with respect to the debt amount, the interest rate and the due
date.
The Company has been advised that the Modified Indebtedness has been
transferred from the original secured lender to a new third party secured
lender. On September 15, 2004, the Company received a letter on behalf of the
holder of the Modified Indebedness note questioning whether certain insurance
requirements of the note were being met. The Company has responded,
clarifying certain coverage, adding additional coverages and has asked for
additional time to cure any defaults that may exist. The Company subsequently
purchased the insurance to cure the default.
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
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of the Company; Terrence L. Wirginis, Vice Chairman of the Board and Vice
President of Marine and Development; and SunAmerica, Inc. and McKay Shields
LLC (collectively, representing many of 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 bankruptcy
court approval and the approval of the Noteholders. The agreement sets forth
certain allocations of sale proceeds between JECA and the Noteholders, but
does not address how trade creditors will be satisfied.
The agreement binds only the parties thereto and establishes priorities
between or among the parties to the agreement 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.
The Missouri Bankruptcy Court entered an order approving the agreement but
indicating expressly that nothing therein affected the rights of its secured
lender. Thereafter, an Examiner (as described below) appointed at the request
of the Noteholders filed a motion to set aside the Court's order, which motion
has been denied by the Missouri Bankruptcy Court.
Vegas Vegas owns the assets related to the Company's proposed development of
Destination Broadwater. 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 $3.3 million 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 among the parties to the agreement as follows:
(i) the first dollars shall be paid to the secured lender of 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.
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
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35
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
its secured lender. Thereafter, an Examiner, as described below, appointed at
the request of the Noteholders filed a motion to set aside the Court's order,
which motion has been denied by the Missouri Bankruptcy Court.
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 the
report for their use.
As a result of the Examiner's report, on June 14, 2004, the Company, along
with certain of its debtor-in-possession subsidiaries (the "Debtors"), entered
into a tolling agreement with Mr. Connelly, Mr. Aylsworth, Karl G. Andren,
Royal P. Walker, Jr., Mr. Wirginis and J. Edward Connelly Associates, Inc.
("JECA"). Mssrs. Connelly, Aylsworth, Andren, Walker and Wirginis constitute
the Board of Directors of the Company. Under the terms of the tolling
agreement, the period of time from June 14, 2004 to and including July 31,
2004, shall not be relied upon under any statute of limitations in defense of
any lawsuit, action or proceeding that the Debtors could commence against the
Directors or JECA. This agreement was amended and restated during July 2004
to extend the period through December 31, 2004. The agreement expired and no
action was taken by the Debtors.
The Company defaulted under the terms of its "M/V "President Casino-
Mississippi" note. The M/V "President Casino-Mississippi" is the vessel
previously operated as a casino in Biloxi, Mississippi and Davenport, Iowa.
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
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
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36
seized and sold. On April 7, 2004, the vessel was auctioned and the lender
offered the highest bid of $0.5 million.
Because the Note was also guaranteed by the Company and President
Mississippi, the payment of the personal guarantee triggered a right of
contribution to Mr. Connelly from both the Company and the President
Mississippi. In addition, Mr. Connelly became partially jointly subrogated to
the lender's right under the Note to collect the payment by him from the
Company's subsidiary that issued the Note. The Note remains outstanding but
has been credited with the payment by Mr. Connelly and will be credited by the
value realized on foreclosure. Thus, while the parties responsible for
payment have shifted, a portion of Mr. Connelly's guarantee has been paid, and
the collateral has been used to satisfy a portion of the Note, the obligation
remains outstanding. It is not possible at this time to determine the amounts
that may be owed by whom or to whom with respect to the above described person
and entities.
In addition, as a part of the settlement agreement with the lender, Mr.
Connelly was assigned a one-half interest in certain claims filed by the
lender in the Missouri Bankruptcy Court. It is not possible to predict
whether these claims will be successful or the amount, if any, that will be
paid with respect to these claims.
Critical Accounting Policies
--Significant Accounting Policies and Estimates
The Company prepares the consolidated financial statements in conformity
with accounting principles generally accepted in the United States. Certain
of the Company's accounting policies, including the determination of bad debt
reserves, the estimated useful lives assigned to property, plant and
equipment, asset impairment, insurance reserves and player point liability
require that management apply significant judgment in defining the appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. Management's
judgments are based on historical experience, terms of existing contracts,
observance of trends in the gaming industry and information available from
other outside sources. There can be no assurance that actual results will not
differ from the Company's estimates. To provide an understanding of the
methodology applied, significant accounting policies and basis of presentation
are discussed where appropriate in this discussion and analysis and in the
notes of the consolidated financial statements.
The carrying values of the Company's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Asset impairment is determined to exist if estimated future
cash flows, undiscounted and without interest charges, are less than the
carrying amount. If it is determined that an impairment loss has occurred,
then an impairment loss is recognized in the statement of operations. The
resulting impairment loss is measured as the amount by which the carrying
amount of the asset exceeds its fair value, estimated using quoted market
prices, if available, or other acceptable valuation methodologies, including
discounted cash flows or comparable sales.
Forward Looking Statements
This Quarterly Report on Form 10-Q and certain information provided
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37
periodically in writing and orally by the Company's designated officers and
agents contain certain statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
The terms "Company," "we," "our" and "us" refer to President Casinos, Inc.
The words "expect," "believe," "goal," "plan," "intend," "estimate," and
similar expressions and variations thereof are intended to specifically
identify forward-looking statements. Those statements appear in this
Quarterly Report on Form 10-Q and the documents incorporated herein by
reference, particularly "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) our financial prospects;
(ii) our financing plans and our ability to meet our obligations under our
debt obligations and obtain satisfactory operating and working capital; (iii)
our operating and restructuring strategy; and (iv) the effect of competition
and regulatory developments on our current and expected future revenues. You
are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in the forward looking
statements as a result of various factors. The factors that might cause such
differences include, among others, the following: (i) continuation of future
operating and net losses by the Company; (ii) the inability of the Company to
restructure its debt obligations; (iii) the inability of the Company to obtain
sufficient cash from its operations and other resources to fund ongoing
obligations and continue as a going concern; (iv) the ability of the Company
to develop, prosecute, confirm and consummate one or more plans of
reorganization with respect to the Chapter 11 cases; (v) risks associated with
third parties proposing and obtaining confirmation of one or more plans of
reorganization, or seeking and obtaining approval for the appointment of a
Chapter 11 trustee or converting the cases to Chapter 7 cases; (vi) the
ability of the Company to obtain trade credit, and shipments and terms with
vendors and service providers; (vii) the Company's ability to maintain
contracts that are critical to its operations; (viii) potential adverse
developments with respect to the Company's liquidity and results of
operations; (ix) developments or new initiatives by our competitors in the
markets in which we compete; (x) our stock price; (xi) adverse governmental or
regulatory changes or actions which could negatively impact our operations;
and (xii) other factors including those identified in the Company's filings
made from time-to-time with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly update or revise forward looking
statements to reflect events or circumstances after the date of this Quarterly
Report on Form 10-Q or to reflect the occurrence of unanticipated events.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of November 30, 2004, the Company had $115.7 million of debt. Of this
amount $75.0 million bears contractual interest at fixed rates and is
classified as liabilities subject to compromise and $1.7 million bears
contractual interest at a fixed rate and is classified as liabilities of
discontinued operations. The remaining $39.0 million bears contractual
interest at a variable rate. The Broadwater Property note bears interest at a
stipulated variable rate at the greater of (i) 7.75% or (ii) 4.0% plus the
LIBOR 30-day rate. As of November 30, 2004, the interest rate applicable to
the debt a carrying variable rate was 7.75%. An increase of one percentage
point in the average interest rate applicable to the variable rate debt
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outstanding as of November 30, 2004, would increase the Company's annual
interest costs by approximately $0.4 million. The Company continues to
monitor interest rate markets, but has not engaged in any hedging transactions
with respect to such risks.
Although the Company manages its short-term cash assets to maximize return
with minimal risk, the Company does not invest in market rate sensitive
instruments for trading or other purposes and the Company is not exposed to
foreign currency exchange risks or commodity price risks in its transactions.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and the
Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report pursuant to Rule 13a-15e of the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic filings with
the Securities and Exchange Commission.
(b) Changes in Internal Control Over Financial Reporting
No changes in the Company's internal control over financial reporting have
come to management's attention during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Information with respect to legal proceedings to which the Company is a
party is disclosed in Note 8 of Notes to Condensed Consolidated Financial
Statements included in Part I of this report and is incorporated herein by
reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
The Company has 13.0% Senior Exchange Notes and 12.0% Secured Notes. The
Company did not 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 Senior Exchange Notes and Secured Notes were
issued, an Event of Default occurred on April 15, 2000, and is continuing as
of the date hereof. Additionally, the Company did not pay the $25.0 million
principal payment due September 15, 2000 on the Senior Exchange Notes. In
November 2000, the Company paid (i) $12.8 million interest and (ii) $18.75
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million and $6.25 million principal on the Senior Exchange Notes and Secured
Notes, respectively. The Company did not make the interest payments due
September 15, 2001 and March 15, 2002. On June 20, 2002, the Company filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
The noteholders of the Senior Exchange Notes and the Secured Notes were deemed
by management to be undersecured and as a result, interest ceased to accrue as
of the date of thereof. Total arrearage as of June 20, 2002, was $56.25
million of principal and $9.3 million of interest on the Senior Exchange Notes
and $18.75 million of principal and $2.8 million of interest on the Secured
Notes.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The exhibits filed as part of this report are listed on Index to exhibits
accompanying this report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
President Casinos, Inc.
-----------------------------
(Registrant)
Date: January 14, 2005 /s/ Ralph J. Vaclavik
-----------------------------
Ralph J. Vaclavik
Senior Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
-----------------
EXHIBIT NO.
2 Riverboat Casino Sale and Purchase Agreement entered into as
of 30th day of September, 2004, by and among President Casinos,
Inc. debtor and debtor-in-possession in a Chapter 11
bankruptcy case, Case No. 02-53005 pending in the United
States Bankruptcy Court for the Eastern District of
Missouri, President Riverboat Casino-Missouri, Inc. and
Columbia Sussex, Inc. (9)
2.1 Sale and Purchase Agreement, dated as of November 15,2004, by
and between The President Riverboat Casino-Mississippi, Inc.,
Vegas, Vegas, Inc. (each a debtor in Case No. 02-53005-172
pending in the United States Bankruptcy Court for the Eastern
District of Missouri), President Broadwater Hotel, LLC, on the
one hand, and Broadwater Properties, LLC, on the other hand. (10)
2.2 Amendment to Sale and Purchase Agreement, dated as of November
29, 2004, by and between The President Riverboat Casino-
Mississippi, Inc., Vegas, Vegas, Inc. (each a debtor in Case No.
02-53005-172 pending in the United States Bankruptcy Court for
the Eastern District of Missouri), President Broadwater Hotel,
LLC, on the one hand, and Broadwater Properties, LLC, on the
other hand. (11)
3.1 Restated Articles of Incorporation of the Company. (8)
3.2 By-Laws of the Company, as amended. (4)
4.1 Indenture dated as of August 26, 1994, by and among the Company,
the Guarantors and United States Trust Company of New York ("U.S.
Trust"). (3)
4.1.1 Form of Senior Exchange Note issued pursuant to Indenture. (2)
4.1.2 Warrant Agreement dated as of September 23, 1993, by and between
the Company and U.S. Trust, as Warrant agent. (1)
4.1.3 Warrant Agreement dated as of August 26, 1994, by and between the
Company and U.S. Trust. (3)
4.1.4 Subsidiary Stock Pledge and Collateral Assignment Agreement dated
as of August 26, 1994, by the Company and Subsidiary Pledgors in
favor of U.S. Trust, as collateral agent. (3)
4.2 Rights Agreement, dated as of November 20, 1997, between the
Company and ChaseMellon Shareholder Services, LLC. (5)
4.3 Agreement to Exchange Securities, dated December 3, 1998 by and
among the Company, President Riverboat Casino-Iowa, Inc.
("President Iowa"), President Riverboat Casino-Missouri, Inc.
("President Missouri"), The President Riverboat Casino-
Mississippi, Inc. ("President Mississippi"), Blackhawk, P.R.C.-
Louisiana, Inc., President Riverboat Casino-New York, Inc.
("President New York"), President Casino New Yorker, Inc., PRC
Holdings Corporation, PRC Management, Inc. ("PRC Management"),
PRCX Corporation, President Riverboat Casino-Philadelphia, Inc.
("President Philadelphia"), Vegas Vegas, Inc., and TCG and each
holder of the Company's 13% Senior Exchange Notes due 2001. (6)
4.3.1 Indenture dated as of December 3, 1998, among The Company,
President Iowa, President Missouri, President Mississippi,
Blackhawk, P.R.C.-Louisiana, Inc., President New York, President
Casino New Yorker, Inc., PRC Holdings Corporation, PRC Management,
PRCX Corporation, President Philadelphia, Vegas Vegas, Inc. and
TCG and U.S. Trust Company of Texas, N.A. (6)
4.4.2 President Casinos, Inc. Supplemental Indenture with respect to
$25,000,000 12% Notes due September 15, 2001. (7)
4.4.3 President Casinos, Inc. Supplemental Indenture with respect to
$75,000,000 13% Senior Notes due September 15, 2001. (7)
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31.1 Certification of Chief Executive Officer Pursuant to 18 Rule
131-14(a) under the Securities Exchange Act of 1934, as amended.
31.2 Certification of Chief Financial Officer Pursuant to 18 Rule
131-14(a) under the Securities Exchange Act of 1934, as amended.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(1) Incorporated by reference from the Company's Registration Statement on
Form S-4 (File No. 33-71332) filed November 5, 1993.
(2) Incorporated by reference from the Company's Registration Statement on
Form S-8 dated June 8, 1994.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-4 (File No. 33-86386) filed November 15, 1994.
(4) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended August 31, 1997 filed October 10,
1997.
(5) Incorporated by reference from the Company's Registration Statement on
Form 8-A dated December 5, 1997.
(6) Incorporated by reference from the Company's Report on Form 8-K
dated December 15, 1998.
(7) Incorporated by reference from the Company's Report on Form 8-K dated
November 22, 2000.
(8) Incorporated by reference from the Company's Registration Statement on
Form S-8 dated October 10, 2001.
(9) Incorporated by reference from the Company's Quarterly Report on Form
10-Q dated August 31, 2004.
(10) Incorporated by reference from the Company's Report on Form 8-K
dated November 15, 2004.
(11) Incorporated by reference from the Company's Report on Form 8-K
dated November 29, 2004.
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