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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ X / Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended February 28, 2005
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-20840
PRESIDENT CASINOS, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0341200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
802 North First Street, St. Louis, Missouri 63102
Address of principal executive offices
314-622-3000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.06 par value
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
amendment to this Form 10-K. /X/
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes / / No /X/
As of August 31, 2004, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $314,389.*
As of May 31, 2005, the number of shares outstanding of the Registrant's
Common Stock was approximately 5,033,161.
* Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers and directors of the Registrant, without conceding
that all such persons are "affiliates" of the Registrant for purposes of the
federal securities laws.
DOCUMENTS INCORPORATED BY REFERENCE - None.
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PART I
Item 1. and Item 2. Business and Properties.
General
President Casinos, Inc. owns and operates dockside gaming casinos through
its subsidiaries (collectively, the "Company"). The Company's current gaming
facilities and operations in St. Louis, Missouri are summarized as follows:
Operating entity - President Riverboat Casino-
Missouri, Inc.
Vessel - "Admiral"
Slots - 1,354
Gaming tables - 33
Opening of casino without slots - May 27, 1994
Opening of casino with slots - December 9, 1994
The Company owned and operated gaming facilities in Biloxi, Mississippi,
through the date of the sale of the assets on April 15, 2005. The operations
are summarized as following:
Operating entity - The President Riverboat Casino-
Mississippi, Inc.
Vessel - "President Casino-Broadwater"
Slots - 860
Gaming tables - 41
Opening of casino - August 13, 1992
Opening of current facility - June 30, 1995
In addition to its Biloxi gaming operations, the Company owned and managed
certain hotel and ancillary facilities associated with its casino operations
in Biloxi, which were included in the sale of the Biloxi assets.
The Company was incorporated in the State of Delaware in June 1992 and
completed the initial public offering of its Common Stock in December 1992.
The Company is the successor to businesses operated in St. Louis, Missouri
since 1985 and Biloxi, Mississippi since August 1992. The Company's principal
executive offices are located in an approximately 36,000 square foot building
owned by the Company at 802 North First Street, St. Louis, Missouri 63102, of
which the Company occupies approximately 30,800 square feet and leases the
remainder to an unrelated party. The building is subject to a sale contract
for a purchase price of $1.8 million, subject to closing adjustments. The
Company's telephone number is (314) 622-3000. Copies of the Company's filings
with the Securities and Exchange Commission and other important information
regarding the Company is available free of charge on the Company's web page
www.presidentcasino.com.
Substantial Indebtedness; Bankruptcy Proceedings
- --Overview
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,
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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.
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 $6.375 million
which were each due and payable March 15, and September 15, 2000. Under the
indentures pursuant to which the $75.0 million 13% Senior Exchange Notes (the
"Senior Exchange Notes") and $25.0 million 12% Secured Notes (the "Secured
Notes" and, collectively with the Senior Exchange Notes, the "Notes") were
issued, an Event of Default occurred on April 15, 2000, and is continuing as
of the date hereof. Additionally, PCI 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. As of February 28, 2005, the
outstanding principal consists of $56.25 million of Senior Exchange Notes and
$18.75 million of Secured Notes.
On June 20, 2002, President Casinos, Inc. and 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"). 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. ("President New York") 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 and President New York, 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
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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. Under the
Bankruptcy Code, the Company may elect 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 consummation of a plan 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. Confirmation of a Plan is subject to
certain statutory findings by the Bankruptcy Court. Before a Plan may be
distributed for balloting the Court must approve a Disclosure Statement by
determining that the Disclosure Statement adequately describes the Plan.
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 whose rights or interests are impaired under the
Plan. If any impaired class of creditors 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.
On April 15, 2005, the Company sold its Biloxi operations for approximately
$82.0 million. In addition, the Company has an agreement to sell its St.
Louis operations for $57.0 million. If the sale of the Company's St. Louis
operations is consummated under the agreed upon terms, the Company would not
have any current ongoing business operations. At this time management is
unable to predict with certainty whether the sale of its St. Louis operations
will be consummated and whether the Company will be able to continue as a
going concern or will be liquidated.
In light of the sale of the Company's Biloxi assets and leasing operations
assets, and the pending contract for sale of the St. Louis operations, the
Company has one reportable segment from continuing operations consisting of
corporate administration. See Note 18 of the accompanying financial
statements. The descriptions of the Company's business, financial condition
and prospects contained in this Annual Report on Form 10-K are qualified in
their entirety by the foregoing description of the significant risks
associated with the Company's bankruptcy proceedings.
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- -- Biloxi Casino and Hotel Operations
President Mississippi, Vegas, Vegas, Inc. ("Vegas, Vegas") and President
Broadwater Hotel, L.L.C. ("PBLLC") (collectively, the "Mississippi
Affiliates") agreed, with the prior approval of the Bankruptcy Court, to sell
substantially all of the real and personal property associated with the
Company's Biloxi, Mississippi operations (the "Mississippi Properties") to
Broadwater Development, LLP, a Mississippi limited liability partnership (or
the assignee or designee thereof) for $82.0 million, and otherwise on the
terms and conditions of a certain Sale and Purchase Agreement dated November
15, 2004 and executed by and among Broadwater Properties, LLC, as purchaser,
and the Mississippi Affiliates, as sellers, as amended by an Amendment to Sale
and Purchase Agreement dated as of November 29, 2004, assigned on or about
January 13, 2005 by Broadwater Properties to Broadwater Development, LLP
("BDLLP", and together with any assignees or designees thereof, the
"Mississippi Purchaser"), further modified by a certain Second Amendment to
Sale and Purchase Agreement dated January 20, 2005 (as modified and amended,
the "Mississippi Asset Sale Agreement"). The Mississippi Asset Sale Agreement
further provides that the Mississippi Affiliates shall retain certain excluded
assets as therein defined (the "Mississippi Excluded Assets"), consisting
primarily of cash in bank accounts. Pursuant to a separate Agreement
Concerning Assignment dated March 30, 2005 ("Agreement Concerning Assignment")
made by and between the Mississippi Affiliates, BDLLP and Silver Slipper
Casino Venture, LLC, it was agreed, with the approval of the Bankruptcy Court,
that the assets associated with the Company's Mississippi casino would be
transferred at the closing of the transaction to Silver Slipper on certain
terms and conditions therein stated.
The sale of the Mississippi Properties closed effective April 15, 2005 and
on May 27, 2005 the Missouri Bankruptcy Court confirmed a Plan of Liquidation
(the "Mississippi Plan of Liquidation") for the Mississippi Affiliates that
was jointly developed by the Company and its creditors SunAmerica Inc. and
McKay Shields LLC in the Company's bankruptcy case. The Mississippi Plan of
Liquidation became final on June 7, 2005. Pursuant to the Mississippi Plan of
Liquidation, the proceeds of the sale of the Mississippi Properties, following
adjustments required under the Mississippi Asset Sale Agreement, together with
the proceeds of the liquidation of the Mississippi Excluded Assets, are being
allocated and distributed to the creditors of the Mississippi Affiliates,
including the holders of the Company's Senior Exchange Notes and Secured Notes
in the aggregate outstanding principal amount of $75.0 million (the
"Noteholders") and to J. Edward Connelly Associates, Inc. ("JECA") and certain
assignees of JECA. JECA, an entity controlled by John E. Connelly, the
Company's Chairman and Chief Executive Officer, holds a Class B membership
interest in PBLLC. The Company anticipates that under the Mississippi Plan of
Liquidation, creditors of the Mississippi Affiliates, with the exception of
the Noteholders, will be paid in full. While final distributions under the
Mississippi Plan of Liquidation are subject to final determination and
settlement of claims and expenses, the Company currently estimates that the
proceeds of the sale of the Mississippi Properties and the anticipated sale of
the Company's St. Louis operations (if completed in accordance with its
present terms) will be sufficient to repay the Noteholders the outstanding
indebtedness under the Notes and, in addition, to satisfy JECA's liquidation
preference of its Class B membership interest in PBLLC.
JECA has entered into an agreement (the "JECA Proceeds Distribution
Agreement") with John S. Aylsworth, President, Chief Operating Officer and
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Director of the Company, Terrence L. Wirginis, Vice Chairman of the Board and
Ralph J. Vaclavik, the Chief Financial Officer of the Company, pursuant to
which upon receipt of funds by JECA toward payment of the liquidation
preference of its Class B membership interest in PBLLC, 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. While the amount of final
distributions to JECA under the Mississippi Plan of Liquidation is subject to
final determination and settlement of claims and expenses, in the event the
proceeds of the sale of the Mississippi Properties and the anticipated sale of
the Company's St. Louis operations (if completed in accordance with its
present terms) will be sufficient to repay the Noteholders the outstanding
indebtedness under the Notes and, in addition, to satisfy JECA's liquidation
preference of its Class B membership interest in PBLLC, Messrs. Aylsworth,
Wirginis and Vaclavik would be entitled to receive approximately $4.8 million,
$4.8 million and $0.3 million, respectively, pursuant to the JECA Proceeds
Distribution Agreement.
- --St. Louis Casino Operations
On September 25, 2003, the Company entered into an agreement with Isle of
Capri Casinos, Inc. to sell the assets of its St. Louis operations for
approximately $50.0 million. On 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 agreement, the stock of President
Missouri was to be sold for approximately $28.0 million, subject to working
capital adjustments and subject to higher and better offers. On October 7,
2004, an auction was held in accordance with Section 363 of the Bankruptcy
Code. Pursuant to an agreement submitted September 30, 2004, Columbia Sussex,
Inc. ("Columbia Sussex") was the winning over-bidder for the St. Louis casino
operations for a purchase price of approximately $57.0 million, subject to
closing adjustments. The Company and Columbia Sussex have entered into a
Riverboat Casino Sale and Purchase Agreement dated as of September 30, 2004
(as amended, the "President Missouri Sale Agreement"). On October 13, 2004,
the Missouri Bankruptcy Court entered an order approving the sale of the stock
of President Missouri to Columbia Sussex pursuant to the President Missouri
Sale Agreement. The closing of the transaction is contingent upon approval by
the Missouri Gaming Commission and other closing conditions. As more
particularly described in the President Missouri Sale Agreement, certain
assets of President Missouri are excluded from the transaction, including,
among other things, an office building located in Laclede's Landing in the
City of St. Louis, Missouri, and certain specified causes of action, cash on
hand, tax refunds, insurance coverages and receivables, and certain inventory
(the "Missouri Excluded Assets"). The President Missouri Sale Agreement calls
for the sale to be closed on or before August 1, 2005, and any extension of
such date will require the consent of both parties.
The sale of the stock of President Missouri is subject to, among other
things, the confirmation by the Missouri Bankruptcy Court of a Plan of
Reorganization of President Missouri under Chapter 11 of the Bankruptcy Code.
On May 25, 2005, the Company filed with the Missouri Bankruptcy Court a
disclosure statement (the "Disclosure Statement") setting forth the terms of a
Plan of Reorganization (the "Missouri Plan of Reorganization") that was
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jointly developed by the Company, its creditors SunAmerica Inc. and McKay
Shields LLC, and the Official Unsecured Creditors' Committee in the Company's
bankruptcy case. The Missouri Bankruptcy Court has scheduled a hearing on the
sufficiency of the Disclosure Statement for June 16, 2005. If the Disclosure
Statement is approved, then the Missouri Bankruptcy Court will schedule a date
for a hearing on confirmation of the Missouri Plan of Reorganization. Once
confirmed, the Missouri Plan of Reorganization will not become effective
unless and until all the other conditions to the closing of the sale to
Columbia Sussex are satisfied, including, without limitation, approval of the
Missouri Gaming Commission.
Management estimates that the proceeds from the sale of the stock of
President Missouri and the Missouri Excluded Assets would, if the sale is
consummated on its present terms, provide sufficient funds to discharge all of
the Company's remaining indebtedness, including the remaining balance due to
the Noteholders. In the event the sale agreement is consummated on its terms
and proceeds are sufficient to discharge the Company's indebtedness, the Board
of Directors will determine whether to liquidate the Company or engage in
further business activities, including activities other than gaming. At this
time it is not possible to predict whether the sale of the St. Louis
operations will be consummated or whether the Company will liquidate or
continue business operations in some form.
- --President Broadwater Hotel, LLC 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 $30.0
million promissory note and associated $7.0 million loan fee incurred in
connection with the July 1997 purchase by PBLLC of the real estate and
improvements utilized in the Company's operations in Biloxi, Mississippi.
JECA, 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 the
secured lender were modified with respect to the debt amount, the interest
rate and the due date. On April 15, 2005, the Modified Indebtedness and
accrued interest thereon were fully satisfied by PBLLC from the proceeds of
the sale of the Company's Biloxi assets.
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Discontinued Operations
Prior to the decision and the Bankruptcy Court approval to sell the business
discussed in the preceding section, management previously viewed its
operations in three operating segments: Biloxi Operations, St. Louis
Operations and, to a much lesser extent, Corporate Leasing Operations, each of
which is discussed more fully below. Prior to the sale of the Company's
Davenport properties in fiscal 2001, Davenport operations were considered to
be a fourth operating segment. Revenues, results of operations and
identifiable assets of each of the Company's discontinued operations can be
found in Note 10 of the accompanying consolidated financial statements.
--St. Louis, Missouri Segment
In May 1994, the Missouri Gaming Commission licensed the Company to conduct
dockside gaming operations on the Company-owned vessel, "Admiral," in St.
Louis through its wholly-owned subsidiary, President Missouri. The Company's
initial license was subsequently renewed and was last renewed in May 2004 for
a period of two years.
The "Admiral" is approximately 400 feet long, continuously docked north of
the base of the Gateway Arch in Laclede's Landing, at a mooring site subleased
by the Company from the City of St. Louis Port Commission (the "Port
Commission").
During July 1998, the Company and the City of St. Louis reached an agreement
for the relocation of the "Admiral" approximately 1,000 feet north from its
former location on the Mississippi River. The new location provides guests
with improved parking and valet service, and better ingress/egress including
improved access from major highways into St. Louis. This site is also less
susceptible to the negative economic impact of high water than the previous
mooring site.
The aggregate cost to relocate the "Admiral" and construct ancillary
facilities was approximately $8.7 million. Under the terms of the agreement,
the City funded $3.0 million of the relocation costs, $2.4 million of which
amount was financed through bank debt. The Company paid for the remaining
$5.7 million of relocation costs. The Company guaranteed repayment of the
bank debt if the City fails to pay the obligation. On August 2, 2004 the City
paid the remaining outstanding obligation and the Company's guarantee was
concluded.
Rent under the terms of the mooring site lease consists of base rent plus a
percent of adjusted gross receipts. The base rent was $27,000 annually
through December 31, 2003 and is subject to rate change every five years based
on the recommendation of the Port Commission. Effective January 1, 2004, the
annual base rent was adjusted to $29,250. The percentage rent is 2% of
adjusted gross receipts for any lease year equal to or less than $80.0
million, plus 3% of that portion of adjusted gross receipts for such lease
year which exceed $80.0 million but which are equal to or less than $100.0
million, plus 4% of that portion of adjusted gross receipts for such lease
year, if any, which exceed $100.0 million.
Competition is intense in the St. Louis market area. There are presently
four other casino companies operating five casinos in the market area. Many
of these competitors have significantly greater name recognition and financial
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and marketing resources than the Company. Two of these are Illinois casino
companies operating single casino vessels on the Mississippi River, one across
the Mississippi River from the "Admiral" and the second 20 miles upriver.
There are two Missouri casino companies, each of which operates casino vessels
approximately 20 miles west of St. Louis on the Missouri River. One company
operates two casinos in Maryland Heights, Missouri and the other company
operates one casino in the City of St. Charles, Missouri. The operator of the
St. Charles casino replaced its facility and reopened with nearly double its
prior gaming positions in August 2002.
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.
Missouri regulations limit the loss per simulated cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to five hundred dollars. The company that operates
adjacent casinos in Missouri is able to offer guests who reach the two-hour
loss limit the ability to move to the adjacent casino and continue to play.
The lack of a statutory loss limit on Illinois casinos allows them to attract
higher stake players and guests who do not want to be burdened with the
administrative requirements related to the loss limits.
--Biloxi, Mississippi Operations
See "Substantial Indebtedness; Bankruptcy Proceedings--Biloxi Operations"
regarding the sale of the Biloxi operations.
The Company managed its Biloxi gaming operations through its wholly-owned
subsidiary, President Mississippi. Biloxi is located on the Gulf of Mexico 75
miles east of New Orleans. The Mississippi Gulf Coast area has a population
of approximately 364,000.
The Company began dockside gaming operations in Biloxi on August 13, 1992.
Prior to July 1997, the Company was party to an operating lease with BH
Acquisition Corporation ("BHAC") for its Biloxi mooring site, parking
facilities, offices and a warehouse. BHAC was a wholly owned entity of Mr.
Connelly. In July 1997, President Broadwater Hotel, LLC ("PBLLC"), a limited
liability company in which the Company has a Class A ownership interest, and a
wholly-owned entity of Mr. Connelly which has a Class B ownership interest and
certain preferred rights to certain cash flows, acquired the real estate and
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improvements from BHAC for $40.5 million. The property was comprised of
approximately 260 acres and included a 111-slip marina which contained the
mooring site of the barge "President Casino-Broadwater," two hotels with
approximately 500 rooms and an adjacent 18-hole golf course.
--Leasing Operations
In addition to the vessels currently owned and utilized in its gaming
operations, the Company owned the M/V "President Casino-Mississippi." The M/V
"President Casino-Mississippi" was previously utilized at the Company's Biloxi
and Davenport operations.
The vessel and various equipment aboard the M/V "President Casino-
Mississippi" collateralized 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, $2.1 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 seized and sold. On April 7, 2004, the vessel was auctioned and
the lender offered the highest bid of $0.5 million. The Company, President
Mississippi, Mr. Connelly and the lender entered into an agreement whereby the
Company would satisfy its obligations under the indebtedness, and related
costs, for $0.8 million. Additionally, Mr. Connelly agreed to forego his
rights and assignments. The terms are incorporated in the Plan of Liquidation
for the Company's Biloxi assets, which was confirmed May 27, 2005, and became
effective on June 7, 2005, at which time the Company paid the lender $0.8
million in satisfaction for its obligations. Pursuant to the terms of the
agreement between the Company and other parties involved, the Company wrote
down the outstanding obligation by $2.6 million during the fourth quarter of
2005.
On March 29, 2001, the Company executed an installment sale agreement for
the M/V "Surfside Princess" (formerly, the "New Yorker"). Under the terms of
the agreement, the Company would receive an aggregate of $9.0 million
principal installment payments over a period of thirty months commencing on
March 29, 2001, which included a final principal balloon payment of $4.4
million due October 2003. The note bore an annual interest rate of 10.5%. On
October 3, 2001, the Company terminated the installment sale agreement and
repossessed the M/V "Surfside Princess," due to the inability of the
purchasing party to meet the terms of the agreement.
During the fourth quarter of fiscal 2003, the Company held a sealed bid
auction of the "Surfside Princess" in accordance with Section 363 of the
United States Bankruptcy Code. In February 2003, the auction closed and the
winning bid was $1.5 million. On May 2, 2003, the purchase agreement on the
vessel was consummated, at which time the liens against the vessel attached to
the proceeds from the sale.
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Former Operations
On October 10, 2000, the Company sold the assets of its former Davenport,
Iowa casino and hotel operations for aggregate consideration of $58.2 million
in cash. The Company recognized a gain of approximately $34.5 million on the
transaction. The Davenport casino operations were managed by the Company's
wholly-owned subsidiary, President Riverboat Casino-Iowa, Inc. ("PRC Iowa"),
which is the general partner of the 95% Company-owned operating partnership,
The Connelly Group, L.P. ("TCG"). The Blackhawk Hotel operations in
Davenport, which were also sold in the transaction, were managed by a wholly-
owned subsidiary of the Company.
On April 30, 2001, the Company executed an agreement to sell the assets of
Gateway Riverboat Cruises, the Company's non-gaming cruise operations which
provided dinner cruise, excursion and sightseeing on two riverboats on the
Mississippi River. The transaction was consummated on July 17, 2001. The
Company recognized a gain of $0.8 million on the sale of these assets.
Marketing and Sales
The Company targets its marketing efforts at middle income, recreational
gaming customers. The Company relies on a mix of billboards, television,
radio and print advertisements in both the local and regional markets to
attain a high recognition level. The Company also has preferred slot player
programs, together with electronic slot player tracking, a table player
tracking and rating system, hosts, gaming tournaments, special events, direct
mailing, telemarketing and other casino marketing techniques to identify,
recognize and cultivate frequent and better casino customers. This effort is
supported by direct marketing, a targeted trade advertising schedule and
attendance at industry trade shows and sales gatherings. The Company also
utilizes its web site at www.presidentcasino.com to enhance its marketing
programs.
Regulatory Matters
--Gaming Regulations
General. The ownership and operation of gaming facilities are subject to
extensive state and local regulation. The Company's former Biloxi gaming
operations were regulated by the Mississippi Gaming Commission and its St.
Louis gaming operations are regulated by the Missouri Gaming Commission. As a
condition to obtaining and maintaining a gaming license, the Company must pay
fees and taxes, observe stringent regulations on operations, submit and update
comprehensive applications and submit detailed financial, operating and other
reports to each such Commission. Each such Commission has broad powers to
suspend or revoke licenses in which event operations would be terminated or
suspended. In addition, substantially all of the Company's material
transactions are subject to prior notice to review, and in some instances,
approval by such Commission. Any person acquiring 5% or more of the Common
Stock or equity securities of any gaming entity must be found suitable by the
appropriate regulatory body.
Various license fees and taxes are payable to the jurisdictions in which the
Company conducts or conducted gaming operations. These taxes are calculated
in various ways, and may be based upon (i) a percentage of the gross gaming
revenues received by the casino operation, (ii) the number of slot machines
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operated by the casino, (iii) the number of table games operated by the casino
and/or (iv) passenger counts. A casino entertainment tax may also be paid by
the licensee where entertainment is furnished in connection with the selling
of food or refreshments. In addition, certain other fees are imposed.
The Company, its subsidiaries, its employees and other individuals or
entities having material relationships with the Company are required to obtain
and hold various licenses and approvals in Missouri. If a gaming authority
were to find a director, officer or key employee unsuitable for licensing or
unsuitable to continue to have a relationship with the Company, the Company
would have to suspend or dismiss such person. The failure of the Company, or
any of its key personnel, to obtain or retain a license in any jurisdiction
could have a material adverse effect on the Company and its prospects or its
ability to obtain or retain licenses in other jurisdictions. Generally,
regulatory authorities have broad discretion in granting, renewing and
revoking licenses.
The Company may be subject to substantial fines for each violation of a
gaming law or regulation. In addition, a violation of a gaming law or
regulation may subject a license to suspension or revocation. Limitation,
conditioning or suspension of a gaming license could (and revocation of any
gaming license would) materially adversely affect the financial position and
results of operations of the Company.
Missouri Gaming Regulations. Gaming on the Missouri and Mississippi Rivers
in the State of Missouri was originally authorized pursuant to a statewide
referendum on November 3, 1992. On April 29, 1993, Missouri enacted revised
legislation (as amended, the "Missouri Gaming Law") which amended the existing
legislation. The Missouri Gaming Law also established the Missouri Gaming
Commission (the "Missouri Commission"), which is responsible for the licensing
and regulation, and enforcement with respect to some aspects of gaming in
Missouri.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
On November 25, 1997, the Missouri Supreme Court overturned a state lower
court and held that a portion of the Missouri Gaming Law that authorized
excursion gaming facilities in "artificial basins" up to 1,000 feet from the
Mississippi or Missouri rivers was unconstitutional. This ruling created
uncertainty as to the legal status of several excursion gaming riverboat
facilities in the state; however, as President Missouri facilities were fully
on the Mississippi River, they did not appear to be affected. On November 3,
1998, a statewide referendum was held, whereby the voters amended the
constitution to allow "artificial basins" for existing facilities, effectively
overturning the above Missouri Supreme Court decision. There can be no
assurances that any future challenges, if brought, would not further interfere
with full-scale gaming operations in Missouri, including the operations of
President Missouri.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities are subject to extensive state and local regulation. The
Company, its parent, subsidiaries and certain of its officers and employees
are subject to various regulations.
President Missouri must be licensed by the Missouri Commission in order to
conduct its operations. Licenses issued by the Missouri Commission to conduct
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gaming operations are subject to two year renewals and may not be transferred
or pledged as collateral. In addition to the information required of the
operator, the operator's directors, officers and other key persons (which
include individuals and related companies designated by the Missouri
Commission) must submit applications which include detailed personal and
financial information and are subject to thorough investigations and
licensing. Also, all gaming employees must obtain an occupational license
issued by the Missouri Commission. Each applicant has an ongoing duty to
update the information provided to the Missouri Commission in the application.
Applications filed with the Missouri Commission are continuously "pending" and
any issue may be reopened at any time. President Missouri was re-licensed by
the Missouri Commission in May 2002. The license was renewed in May 2004 on a
temporary basis and was renewed again in July 2004 for a period through May
2006.
The Missouri Gaming Law regulations impose restrictions on the use and
transfer of the gaming licenses as well as limitations on transactions engaged
in by licensees. The Missouri Gaming Law regulations bar a licensee from
taking any of the following actions without prior notice to, and approval by,
the Missouri Commission: any transfer or issuance of an ownership interest of
five percent or more of the issued and outstanding ownership interest, any
private incurrence of debt by the licensee or any holding company of $1.0
million or more, any public issuance of debt by a licensee or its holding
company, and certain defined "significant related party transactions." In
addition, the licensee must notify the Missouri Commission of other
transactions, including the transfer of five percent or more of an ownership
interest in the licensee or holding company, and any transaction of at least
$1.0 million. The restrictions on transfer of ownership apply to the parent
as well as the direct licensee, President Missouri. Gaming equipment and
corporate stock of some licensees may not be pledged except in narrow
circumstances and subject to regulatory conditions.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer per excursion
that licensees must pay to the Missouri Commission, a 20% tax on adjusted
gross receipts (in addition to other state taxes and license fees),
requirements regarding minimum payouts, prohibitions against providing credit
to gaming customers (except for the use of credit cards and cashing checks)
and a requirement that each licensee reimburse the Missouri Commission for all
costs of all Missouri Commission staff, including Missouri Highway Patrol
Officers, necessary to protect the public on the licensee's riverboat.
Licensees must also submit monthly, quarterly and annual reports of
financial and statistical data and quarterly and annual audited financial
information and compliance reports to the Missouri Commission and pay the
associated auditing fees.
Other areas of operation which are subject to regulation under the Missouri
Gaming Law rules are the color, denomination and handling of chips and tokens;
the surveillance methods and computer monitoring of electronic games;
accounting and audit methods and procedures; and approval of an extensive
internal control system. The internal operating procedures and controls of
each facility are subject to the approval of the Missouri Commission. The
purchase and sale of slot machines and other gaming equipment are subject to
regulation, and must be purchased from a licensed supplier. The Missouri
Commission requires comprehensive safety inspections and compliance with local
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ordinances and federal safety requirements. The Missouri Commission regulates
security and surveillance, and the control of cash and chips. Liquor licenses
are issued and regulated by the Missouri Commission, rather than local or
other state agencies.
The Missouri Commission has the authority to investigate any potential
violation of the Missouri Gaming Law. In addition, the Missouri Commission
may take enforcement action against a licensee for the failure of that
licensee to comply with any other law.
The Missouri Commission has the power and broad discretion in exercising
this power to revoke or suspend gaming or occupational licenses and impose
other penalties for violation of the Missouri Gaming Law and the rules and
regulations promulgated thereunder. These penalties may include forfeiture of
all gaming equipment used for improper gaming and fines of up to three times a
licensee's highest daily gross receipts during the preceding twelve months.
Although the Missouri Gaming Law does not limit the amount of riverboat
space that may be used for gaming, the Missouri Commission is empowered to
impose such space limitations through the adoption of rules and regulations.
The Missouri Gaming Law provides for a loss limit of five hundred dollars per
person per each two-hour gaming session. In order to establish an excursion
schedule which allows patrons to enter and exit the gaming floor at any time
during the excursion, the licensee must prove to the Missouri Commission that
it can enforce the five hundred dollar loss limit.
Mississippi Gaming Regulations. Gaming was authorized in Mississippi in
June 1990 but gaming operations did not commence until August 1992. The
ownership and operation of casino gaming facilities in Mississippi are subject
to extensive state and local regulation. Prior to the sale of the Biloxi
operations, the Company was registered as a publicly traded corporation under
the Mississippi Gaming Control Act and its gaming operations were subject to
the licensing and regulatory control of the Mississippi Gaming Commission (the
"Mississippi Commission") and various local, city and county regulatory
agencies.
Non-Gaming Regulations
The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Americans with Disabilities Act, the Clean Air Act,
Clean Water Act, Occupational Safety and Health Act, Resource and Conservation
Recovery Act and the Comprehensive Environmental Response, Compensation and
Liability Act. The Company has not made material expenditures with respect to
such laws and regulations. However, the coverage and attendant compliance
costs associated with such laws, regulations and ordinances may result in
future additional costs to the Company's operations. For example, in 1990 the
U.S. Congress enacted the Oil Pollution Act to consolidate and rationalize
mechanisms under various oil spill response laws. The Department of
Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of
financial responsibility in the amount of $5.5 million for clean-up of oil
pollution. This requirement would be satisfied by either proof of adequate
insurance (including self-insurance) or the posting of a surety bond or
guaranty.
13 15
Employees
As of February 28, 2005, the Company had approximately 1,500 employees.
In April 1999, certain gaming, service and maintenance employees of
President Missouri ratified a three-year collective bargaining agreement
setting out wages, benefits and other terms and conditions of employment. The
labor agreement was renegotiated and ratified for a one year period effective
April 2002. The April 2003 labor agreement was in effect until October 2004.
A new labor agreement was renegotiated and ratified and is effective until
October 2005. The labor agreement covers approximately 250 of the Company's
650 St. Louis employees.
Item 3. Legal Proceedings.
Pending Bankruptcy Proceedings
For information regarding the Company's bankruptcy proceedings, see the
disclosures under "Item 1 and Item 2. Business and Properties Substantial
Indebtedness; Bankruptcy Proceedings."
Other 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. On March 23, 2005, the Company was dismissed from this
lawsuit with prejudice by stipulation of the parties and order of the Court.
The Company is from time to time a party to litigation, which may or may not
be covered by insurance, arising in the ordinary course of its business. The
Company does not believe that the outcome of any such litigation will have a
material adverse effect on the Company's financial condition or results of
operations, or which would have any material adverse impact upon the gaming
licenses of the Company's subsidiaries.
General
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulation. As a condition to obtaining and
maintaining a gaming license, the Company must submit detailed financial,
operating and other reports to state gaming commissions, all of which have
broad powers to suspend or revoke licenses. In addition, substantially all of
the Company's material transactions are subject to review and/or approval by
the various regulatory bodies. Any person acquiring 5% or more of the Common
Stock or of the equity securities of any gaming entity must be found suitable
by the appropriate regulatory body. The St. Louis license was last renewed
in May 2004 on a temporary basis due to the Gaming Commission's schedule and
was renewed in July 2004 for a period through May 2006.
14 16
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 2005.
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
The Company's Common Stock trades on the OTC Bulletin Board under the symbol
"PREZQ.OB." The following table sets forth, for the fiscal quarters
indicated, the high and low sale or bid prices for the Common Stock, as
reported by the OTC Bulletin Board:
High Low
------ -----
Fiscal 2005
First Quarter................ $ 0.20 $ 0.07
Second Quarter............... $ 0.14 $ 0.09
Third Quarter................ $ 0.40 $ 0.10
Fourth Quarter............... $ 0.30 $ 0.15
Fiscal 2004
First Quarter................ $ 0.40 $ 0.25
Second Quarter............... $ 0.45 $ 0.31
Third Quarter................ $ 0.51 $ 0.17
Fourth Quarter............... $ 0.22 $ 0.11
The market bid quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not necessarily represent actual
transactions. Bid quotations are derived from Commodity Systems, Inc. through
Yahoo.com Historical Quotes.
On June 13, 2005, there were approximately 1,077 holders of record of the
Company's Common Stock.
The Company has never paid any dividends on its Common Stock. Currently,
all earnings, if any, are used for the repayment of debt and the operation of
its business. The payment of dividends by the Company is restricted under the
terms of the indenture governing the Company's Senior Exchange Notes and the
Company's pending bankruptcy reorganization proceedings. See "Management's
Discussion and Analysis of Financial Position and Results of Operations."
15 17
Item 6. Selected Consolidated Financial Data.
The following selected financial data of the Company is qualified by
reference to and should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein. The selected consolidated statement of operations and balance sheet
data are derived from the Company's consolidated financial statements which
are included elsewhere herein.
Years Ended February 28/29,
2005 2004 2003 2002 2001
------ ------ ------ ------ ------
(in thousands, except share data)
Consolidated Statement of Operations Data:
Total operating revenues (1).............. $ -- $ -- $ -- $ -- $ 41,703
Operating income (loss)................... $ (2,644) $ (2,904) $ (3,248) $ (4,506) $ 1,206
Gain on disposal of property
and equipment (2)....................... $ -- $ -- $ -- $ -- $ 34,465
Income (loss) from
continuing operations................... $ (5,742) $ (4,535) $ (8,580) $(15,493) $ 19,547
Income (loss) from discontinued
operations (3).......................... $ 15,934 $ 1,800 $ (499) $ (5,255) $(19,753)
Net income (loss)......................... $ 10,192 $ (2,735) $ (9,079) $ (20,748) $ (206)
Basic and dilutive income (loss) per share
from continuing operations............... $ (1.14) $ (0.90) $ (1.70) $ (3.08) $ 3.88
Basic and dilutive loss per share
from discontinued operations............. $ 3.17 $ 0.36 $ (0.10) $ (1.04) $ (3.92)
-------- -------- -------- -------- --------
Basic and diluted net income
(loss) per share......................... $ 2.03 $ (0.54) $ (1.80) $ (4.12) $ (0.04)
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
Cash and cash equivalents................. $ 20,706 $ 18,362 $ 11,720 $ 5,710 $ 4,159
Restricted cash and short-term investments 2,584 2,672 5,404 7,717 10,342
Assets of discontinued operations......... 93,237 95,568 102,734 106,752 119,366
Total assets.............................. 116,705 116,818 120,834 120,450 135,744
Current liabilities....................... 47,992 14,096 58,429 145,237 141,657
Long-term debt............................ -- 45,429 -- -- --
Minority interest (4)..................... 19,020 17,653 679 15,102 13,874
Liabilities subject to compromise......... 91,850 91,989 111,340 646 --
Stockholders' deficit..................... (45,157) (52,349) (49,614) (40,535) (19,787)
(1) Fiscal 2001 revenue is that of the Davenport operations, which were
subsequently sold. See item (3) regarding discontinued operations.
(2) On October 10, 2000, the assets of the Company's Davenport hotel and
casino operations were sold. A gain of $34,465 was recognized on
the transaction.
(3) On April 15, 2005, the Biloxi operations were sold for approximately
$82,000 pursuant to an auction and sale approved by the United States
Bankruptcy Court for the Eastern District of Missouri.
On August 9, 2004, the Company entered into an agreement with Penn
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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 late 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. Management's evaluation of the net realizable value of
its assets, based on their intended future use and current market
conditions, resulted in impairments of long-lived assets of $288,
$1,167, $7,068 and $12,709, respectively, during fiscal years 2004,
2003, 2002 and 2001, on the two casino vessels accounted for in the
leasing segment.
In accordance with Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment and Disposal of Long-Lived
Assets," the St. Louis and Biloxi operations and leasing segment are
accounted for as discontinued operations. The results for fiscal 2001,
2002, 2003 and 2004 have been revised to reflect these
reclassifications.
(4) As of February 28, 2003, $15,669 of minority interest related to
J. Edward Connelly Associates, Inc.'s Class B Unit of PBLLC was
classified as liabilities subject to comprise.
Gaming operations commenced in Davenport, Iowa on April 1, 1991, in Biloxi,
Mississippi on August 13, 1992 and in St. Louis, Missouri on May 27, 1994.
Hotel operations commenced in Davenport, Iowa on October 30, 1990 and in
Biloxi, Mississippi on July 27, 1997. The assets of the Davenport operations
were sold on October 10, 2000. The assets of Gateway Riverboat Cruises, the
Company's non-gaming cruise operations in St. Louis, were sold on July 17,
2001. The assets of the Biloxi operations were sold April 15, 2005.
17 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion, which covers fiscal years 2003 through 2005,
should be read in conjunction with the consolidated financial statements of
the Company and the notes thereto included elsewhere in this report.
President Casinos, Inc., President Riverboat Casino-Missouri, Inc., The
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 entered into agreements to sell its St. Louis, Missouri and
Biloxi, Mississippi gaming operations. The agreement to sell the Biloxi
operations was consummated on April 15, 2005. If the St. Louis agreement is
consummated under the current terms, the Company would not have any current
ongoing business operations. The sale of the St. Louis operation 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 of St. Louis operations 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")
were issued, an Event of Default occurred on April 15, 2000, and is continuing
as of the date hereof. Additionally, the Company was unable to pay the $25.0
million principal payment due September 15, 2000 on the Senior Exchange Notes.
The holders of at least 25% of the Senior Exchange Notes and the Secured Notes
were notified of the defaults and instructed the Indenture Trustee to
accelerate the Notes and on August 11, 2000, the holders declared the unpaid
principal and interest to be due and payable.
On October 10, 2000, the Company sold the assets of its Davenport, Iowa
operations for aggregate consideration of $58.2 million in cash. On November
22, 2000, the Company entered into an agreement with a majority of the holders
of the Senior Exchange Notes and a majority of the holders of the Secured
Notes. The agreement provided for a proposed restructuring of the Company's
debt obligations under the Notes and the application of certain of the
proceeds received by the Company from the sale of the Company's Davenport
assets. Approximately $43.0 million of the proceeds from the sale were
deposited with a trustee. Of this amount, $12.8 million was used to pay
missed interest payments due March 15, 2000 and September 15, 2000 on the
Notes; $25.0 million was used to partially redeem the Notes; and $5.2 million
was used to pay interest due March 15, 2001 on the Notes.
Subsequently, the Company was unable to make the principal and interest
payments due September 15, 2001 and has not made any subsequent principal or
interest payments on the Notes. As of February 28, 2005, principal due on the
Senior and Secured Notes was $56.2 million and $18.8 million, respectively.
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Due to certain debt covenants and cross default provisions associated with
other debt agreements, the Company was also 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 agreement, the stock of the
Company was to be sold for approximately $28.0 million, subject to working
capital adjustments and subject to higher and better offers. On October 7,
2004, an auction was held in accordance with Section 363 of the Bankruptcy
Code. Pursuant to an agreement submitted September 30, 2004, Columbia Sussex,
Inc. was the winning over-bidder for the purchase of all of the Company's
outstanding stock for a purchase price of approximately $57.0 million, subject
to closing adjustments. On October 13, 2004, the Missouri Bankruptcy Court
entered an order approving the sale of the stock of the Company to Columbia
Sussex. The closing of the transaction, is contingent upon approval by the
Missouri Gaming Commission and other closing conditions. The sale agreement
contract calls for the sale to be closed on or before August 1, 2005, and any
extension of such date will require the consent of both parties.
The purchase of the stock of President Missouri is also subject to the
confirmation by the Missouri Bankruptcy Court of a plan of reorganization of
the Company under Chapter 11 of the Bankruptcy Code (a "Plan of
Reorganization"). On May 25, 2005, the Company filed with the Missouri
Bankruptcy Court a disclosure statement (the "Disclosure Statement") setting
forth the terms of a Plan of Reorganization that was jointly developed by the
Company, its creditors SunAmerica Inc. and McKay Shields LLC, and the Official
Unsecured Creditors' Committee in the Company's bankruptcy case. The Missouri
Bankruptcy Court has scheduled a hearing on the sufficiency of the Disclosure
Statement for June 16, 2005. If the Disclosure Statement is approved, then
the Missouri Bankruptcy Court would set a date for a hearing on confirmation
of the Plan of Reorganization. Once confirmed, the Plan of Reorganization
will not become effective unless and until all the other conditions to the
closing of the sale to Columbia Sussex are satisfied, including, without
limitation, approval of the Missouri Gaming Commission.
On April 15, 2005, the Company consummated the sale of its Biloxi,
Mississippi operations to Broadwater Properties, LLP for approximately $82.0
million, subject to certain post-closing adjustments. The sale was pursuant to
an auction and sale process approved by the Missouri Bankruptcy Court. From
the proceeds, the Company paid $37.1 million to the lender of the PBLLC debt,
to satisfy the outstanding principal and interest in full. The Company
invested $45.7 million in certificates of deposit pending approval of the Plan
of Reorganization by the Bankruptcy Court.
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
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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 would continue to operate the Broadwater
Tower Hotel with options for additional extensions. The Company renewed its
option through the date of the aforementioned sale.
Management believes the Company's liquidity and capital resources will be
sufficient to maintain its current operations until the St. Louis operations
are sold. 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.
Management estimates that the sale agreement for the St. Louis operations
would, if consummated on its present terms, provide sufficient funds to
discharge the Company's indebtedness. In the event the sale agreement is
consummated on its terms and proceeds are sufficient to discharge the
Company's indebtedness, the Board of Directors will determine whether to
liquidate the Company or engage in further business activities, including
activities other than gaming. At this time it is not possible to predict
whether the sale of the St. Louis operations will be consummated or whether
the Company will liquidate or continue business operations in some form.
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.
As a result of the sale of the Biloxi operations in April 2005 and the
pending sale agreement for the St. Louis operations, discussed above the, the
results of operations for these segments are classified in discontinued
operations.
--Competition
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
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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. 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 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 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 2004 gaming revenue decreased 20% compared to September 2003.
21 23
Results of Operations
The results of continuing operations for the years ended February 28, 2005,
February 29, 2004 and February 28,2003 include only those expenses resulting
from corporate administration. The gaming results for the Company's
operations in Biloxi, Mississippi and to a lesser significance, the hotel
operations in Biloxi (the Broadwater Property) are classified as discontinued
operations as a result of the sale of the assets in April 2005. The pending
sale of the St. Louis casino requires the Company to classify the St. Louis
operations in discontinued operations. Also included in discontinued
operations is the Company's former leasing operations.
The following table highlights the results of the Company's operations
during the periods presented.
Twelve Months Ended February 28/29,
2005 2004 2003
------ ------ ------
(in millions)
Continuing Operations
Corporate Administration
and Development
operating loss $ (2.6) $ (2.9) $ (3.2)
Discontinued Operations
St. Louis, Missouri Segment
Operating revenues 69.8 70.8 73.9
Operating income 7.9 5.6 4.9
Biloxi, Mississippi Segment
Operating revenues 43.2 48.5 49.8
Operating income 1.2 3.0 2.9
Leasing Segment
Operating loss (0.1) (1.6) (2.8)
St. Louis operating margin 11.3% 7.9% 6.6%
Biloxi operating margin 2.8% 6.2% 5.8%
The following table highlights cash flows of the Company's operations.
Twelve Months Ended February 28/29,
2005 2004 2003
------ ------ ------
(in millions)
Cash flows provided by
operating activities $ 6.4 $ 7.8 $ 10.1
Cash flows provided by (used in)
investing activities 2.3 2.4 (3.9)
Cash flows used in
financing activities (6.4) (3.6) (0.3)
Cash paid for interest 2.9 3.0 0.1
22 24
Fiscal 2005 Compared to Fiscal 2004
Operating revenues from continuing operations. As of February 28, 2005, the
Company had entered into purchase agreements for the sale of the Company's St.
Louis and Biloxi operations which were each approved by the Bankruptcy Court.
As such, all revenues are classified in discontinued operations.
Operating costs and expenses of continuing operations. The Company's
consolidated selling, general and administrative expenses were $2.6 million
during the year ended February 28, 2005 compared to $2.9 million for the year
ended February 29, 2004. Corporate overhead decreased $0.3 million primarily
as the result of a decrease in payroll and payroll benefits.
Operating income. As a result of the foregoing items, the Company had an
operating loss of $2.6 million during fiscal 2005, compared to an operating
loss of $2.9 million during fiscal 2004.
Reorganization items. The Company incurred reorganization items of $1.7
million during the year ended February 28, 2005, compared to $0.3 million
during the year ended February 29, 2004. Reorganization expense is largely
attributable to legal fees associated with the Company's bankruptcy
proceedings. The increase in reorganization costs is a result of the costs
resulting from legal representation of the noteholders.
Minority interest expense. The Company incurred $1.4 million in minority
interest expense during the year ended February 28, 2005, compared to $1.3
million during the year ended February 29, 2004. During both periods the
minority interest arises from Mr. Connelly's Class B Unit of the Broadwater
Property.
Net loss from continuing operations. As a result of foregoing items, the
Company incurred a net loss from continuing operations of $5.7 during fiscal
year 2005 compared to a net loss from continuing operations of $4.5 million
during fiscal year 2004.
Discontinued operations. Discontinued operations consists of the Company's
St. Louis segment, Biloxi segment and the former vessel leasing segment.
St. Louis 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 late summer of 2005.
The Company's St. Louis operating segment had operating income of $7.9
million, consisting of revenues of $69.8 million and operating expenses of
$61.9 million, during the year ended February 28, 2005, compared to operating
income of $5.6 million, consisting of revenues of $70.8 million and operating
expenses of $65.2 million, during the year ended February 29, 2004. Net
revenues decreased $1.0 million primarily as a result in increased promotional
allowances in response to the competitive environment. Operating expenses,
23
25
other than depreciation, decreased $0.5 million. The decrease is primarily
the result of a decrease in payroll and benefits and admissions taxes due to a
decrease in volume, and decreased gaming taxes as a result of a decrease in
revenue. Depreciation expense decreased $2.6 million as a result of ceasing
to depreciate assets, in accordance with SFAS 144, effective with the
Bankruptcy Court's approval of the sale agreement. The St. Louis segment had
net income of $7.1 million for the year ended February 28, 2005, compared to
net income of $4.6 million for the year ended February 29, 2004.
Biloxi segment. On April 15, 2005, the Company consummated the sale of
substantially all of the assets utilized in its Biloxi operations to
Broadwater Development, LLP (the "Purchaser"). The sale was consummated
pursuant to the terms and conditions of a Sale and Purchase Agreement, dated
as of November 15, 2004, by and between President Mississippi, Vegas Vegas,
Inc., PBLLC, (collectively, with President Mississippi and Vegas Vegas, the
"Sellers") and Purchaser, as amended by the Amendment to Sale and Purchase
Agreement dated as of November 19, 2004, and the Second Amendment to Sale and
Purchase Agreement dated as of November 29, 2004 (collectively, the "Sale
Agreement"). Pursuant to the Sale Agreement, the Purchaser acquired from the
Sellers substantially all of the real and personal property associated with
the Company's Biloxi, Mississippi operations. Under the terms of the Sale
Agreement, the purchase price was approximately $82.0 million, subject to
certain post-closing adjustments. Approximately $6.8 million of the purchase
price was paid by Silver Slipper Casino Venture LLC, which acquired the right
to purchase the gaming casino assets under a separate transaction with the
Purchaser.
The Company's Biloxi operating segment had operating income of $1.2 million,
consisting of revenues of $43.2 million and operating expenses of $42.0
million during the year ended February 28, 2005, compared to operating income
of $3.0 million, consisting of revenues of $48.5 million and operating
expenses of $45.5 million during the year ended February 29, 2004. The
Company's Biloxi operations were closed from noon on September 14, 2004 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, principally Alabama and Florida,
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.
Operating expenses, other than depreciation, decreased $3.0 million as a
result of decreased payroll and benefits due to a decrease in number of guests
and decreased gaming taxes as a result of a decrease in revenue. Depreciation
expense decreased $0.5 million as a result of ceasing to depreciate assets, in
accordance with SFAS 144, effective with the Bankruptcy Court's approval of
the sale agreement. The Biloxi segment had net income of $6.4 million for the
year ended February 28, 2005, compared to a net loss of $0.4 million for the
year ended February 29, 2004. Included in fiscal year 2005 net income is a
$2.4 million gain resulting from the write down of the PBLLC debt to net
realizable value due to the Court approved Mississippi Plan of Liquidation.
As a result of the sale of the Company's Biloxi operations on April 15, 2005,
and the gain that resulted from the transaction, the Company recorded a
reduction of the income tax valuation allowance resulting in a $5.7 million
tax benefit during fiscal year 2005.
Leasing segment. 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.
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," the second vessel owned by the
24
26
leasing segment. On April 7, 2004, the vessel was auctioned and the lender
offered the highest bid.
The Company incurred a net loss of $0.1 million, before a gain on
restructuring debt of $2.6 million, from the leasing segment during the year
ended February 28, 2005, compared to a net loss of $2.4 million during the
year ended February 29, 2004. 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, 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 $0.7
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. Subsequent to
February 28, 2005, the Company and lender reached an agreement whereby the
parties mutually agreed that all obligations related to the indebtedness and
penalties for default thereon would be satisfied for $0.8 million. As a
result of this agreement, the Company recognized a gain of $2.6 million on
restructuring of debt.
Net loss. The Company generated net income of $4.5 million during the year
ended February 28, 2005, compared to a net loss of $2.7 million during the
year ended February 28, 2004.
Fiscal 2004 Compared to Fiscal 2003
Operating revenues from continuing operations. As of February 28, 2005, the
Company had entered into purchase agreements for the sale of the Company's St.
Louis and Biloxi operations which were each approved by the Bankruptcy Court.
As such, revenues are classified in discontinued operations.
Operating costs and expenses of continuing operations. The Company's
consolidated selling, general and administrative expenses were $2.9 million
during the year ended February 29, 2004 compared to $3.2 million for the year
ended February 28, 2003. Corporate overhead decreased $0.3 million primarily
as the result of a severance agreement with a former executive accrued during
fiscal year 2003 of $0.3 million.
Operating income. As a result of the foregoing items, the Company had an
operating loss of $2.9 million during fiscal 2004, compared to an operating
loss of $3.2 million during fiscal 2003.
Interest expense, net. The Company incurred net interest expense of $17,000
during fiscal 2004, compared to $3.3 million during fiscal 2003. The decrease
is the result of $3.3 million decrease in interest expense resulting from June
20, 2002 voluntary petition under Chapter 11 of the Bankruptcy Code, whereby
the Noteholders of the Senior Exchange Notes and the Secured Notes were deemed
by management to be under-secured and as a result, interest ceased to accrue
as of the date thereof.
Reorganization items. The Company incurred reorganization items of $0.3
million during the year ended February 29, 2004, compared to $0.8 million
during the year ended February 28, 2003. Reorganization expense is largely
attributable to legal fees associated with the Company's bankruptcy
proceedings. The decrease in reorganization costs is a result of the costs
associated with the process of selling assets of the Company which were
directly attributable to each of the discontinued operations.
25
27
Minority interest expense. The Company incurred $1.3 million in minority
interest expense during both fiscal years 2004 and 2003. During both periods
the minority interest relates to Mr. Connelly's Class B Unit of the Broadwater
Property.
Net loss from continuing operations. As a result of foregoing items, the
Company incurred a net loss from continuing operations of $4.5 during fiscal
year 2004 compared to a net loss from continuing operations of $8.6 million
during fiscal year 2003.
Discontinued operations. Discontinued operations consists of the Company's
St. Louis segment, Mississippi segment and the former vessel leasing segment.
St. Louis 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 late summer of 2005.
The Company's St. Louis operating segment had operating income of $5.6
million, consisting of revenues of $70.8 million and operating expenses of
$65.2 million during the year ended February 29, 2004, compared to operating
income of $4.9 million, consisting of revenues of $73.9 million and operating
expenses of $69.0 million during the year ended February 28, 2003. Net
revenues decreased $3.1 million primarily as a result in increased promotional
allowances in response to the competitive environment. Operating expenses,
other than depreciation, decreased $1.3 million as a result of decreased
payroll and benefits as a result of a decrease in number of guests and
decreased gaming taxes as a result of a decrease in revenue. The St. Louis
segment had net income of $4.6 million for both years ended February 29, 2004,
and February 28, 2003.
Biloxi segment. On April 15, 2005, the Company announced that it had
consummated the sale of substantially all of the assets utilized in its Biloxi
operations to Broadwater Development, LLP (the "Purchaser"). The sale was
consummated pursuant to the terms and conditions of a Sale and Purchase
Agreement, dated as of November 15, 2004, by and between President
Mississippi, Vegas Vegas, Inc., PBLLC, (collectively, with President
Mississippi and Vegas Vegas, the "Sellers") and Purchaser, as amended by that
certain Amendment to Sale and Purchase Agreement dated as of November 19,
2004, and that certain Amendment to Sale and Purchase Agreement dated as of
November 29, 2004 (collectively, the "Sale Agreement"). Pursuant to the Sale
Agreement, the Purchaser acquired from the Sellers substantially all of the
real and personal property associated with the Company's Biloxi, Mississippi
operations. Under the terms of the Sale Agreement, the purchase price for the
was approximately $82.0 million, subject to certain post-closing adjustments.
Approximately $6.8 million of the purchase price was paid by Silver Slipper
Casino Venture LLC, which acquired the right to purchase the gaming casino
assets under a separate transaction with the Purchaser.
26
28
The Company's Biloxi operating segment had operating income of $3.0 million,
consisting of revenues of $48.5 million and operating expenses of $45.5
million during the year ended February 29, 2004, compared to operating income
of $2.9 million, consisting of revenues of $49.8 million and operating
expenses of $46.9 million during the year ended February 28, 2003. Operating
expenses decreased $1.2 million as a result of decreased payroll and benefits
as a result of a decrease in number of guests and decreased gaming taxes as a
result of a decrease in revenue. The Biloxi segment had a net loss of $0.4
million for the year ended February 28, 2004, compared to a net loss of $2.1
million for the year ended February 28, 2003.
Leasing segment. 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.
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," the second vessel owned by the
leasing segment. On April 7, 2004, the vessel was auctioned and the lender
offered the highest bid.
The Company incurred a net loss of $2.4 million from the leasing segment
during the year ended February 29, 2004, compared to a net loss of $2.9
million during the year ended February 28, 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 Chapter 11, 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 $0.7 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. During fiscal 2003, the Company
recognized a $1.2 million asset impairment, $0.6 million of depreciation
expense and $1.0 million of selling, general and administrative expense
related to the cost of maintaining the two vessels it then owned.
Net loss. The Company incurred a net loss of $2.7 million during fiscal
2004, compared to a net loss of $9.1 million during fiscal 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.
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 St. Louis operations at current levels until the
27
29
pending sale of the property. 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 February 28,
2005, principal due on the Senior and Secured Notes was $56.2 million and
$18.8 million, respectively.
The Company's St. Louis operations require approximately $3.5 million to
fund daily operations. As of February 28, 2005, the St. Louis operations had
$21.9 million of non-restricted cash of which $3.0 million is included in
"Assets of Discontinued Operations."
The Company is heavily dependent on cash generated from operations to
continue to operate as planned in its existing jurisdiction 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
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
February 28, 2005, consisting of certificates of deposit guaranteeing a
certain performance obligation required by the Mississippi Gaming Commission.
The Company generated $6.4 million of cash from operating activities during
the year ended February 28, 2005, compared to $7.8 million for the year ended
February 29, 2004.
Investing activities of the Company generated $2.3 million of cash during
the year ended February 28, 2005, primarily as a result of proceeds from the
sale of the Broadwater Tower of $6.4 million offset by expenditures for
property and equipment of $4.3 million.
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
28
30
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 receive 100% of
their claims. Under the Modified Plan, the obligations to the secured lender
were modified with respect to the debt amount, the interest rate and the due
date. On April 15, 2005, the Modified Indebtedness and accrued interest
thereon were paid in full with the proceeds from the sale of the Broadwater
Property.
The sale of the Company's Biloxi operations closed effective April 15, 2005
and on May 27, 2005 the Missouri Bankruptcy Court confirmed a Plan of
Liquidation (the "Mississippi Plan of Liquidation") for President Mississippi,
Vegas, Vegas and PBLLC (the "Mississippi Affiliates") that was jointly
developed by the Company and its creditors SunAmerica Inc. and McKay Shields
LLC in the Company's bankruptcy case. The Mississippi Plan of Liquidation
became final on June 7, 2005. Pursuant to the Mississippi Plan of
Liquidation, the proceeds of the sale of the Mississippi Properties, following
adjustments required under the Mississippi Asset Sale Agreement, are being
allocated and distributed to the creditors of the Mississippi Affiliates,
including the holders of the Company's Senior Exchange Notes and Secured Notes
in the aggregate outstanding principal amount of $75.0 million (the
"Noteholders") and to J. Edward Connelly Associates, Inc. ("JECA") and certain
assignees of JECA. JECA, an entity controlled by John E. Connelly, the
Company's Chairman and Chief Executive Officer, holds a Class B membership
interest in PBLLC. The Company anticipates that under the Mississippi Plan of
Liquidation, creditors of the Mississippi Affiliates, with the exception of
the Noteholders, will be paid in full. While final distributions under the
Mississippi Plan of Liquidation are subject to final determination and
settlement of claims and expenses, the Company currently estimates that (i)
approximately $27.9 million of the indebtedness due the Noteholders could be
paid, (ii) in respect of the liquidation preference of its Class B membership
interest in PBLLC, JECA could receive approximately $16.6 million of the
proceeds from the sale of the Mississippi Properties plus accrued interest,
and approximately an additional $2.8 million of the proceeds of the sale of
the Company's St. Louis operations (assuming the sale of the St. Louis
operations is consummated in accordance with its present terms as described
below and the Noteholders are paid in full).
29 31
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
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 remained outstanding at
year end. The Company, President Mississippi, Mr. Connelly and the lender
entered into an agreement whereby the Company would satisfy its obligations
under the indebtedness, and related costs, for $0.8 million. Additionally,
Mr. Connelly agreed to forego his rights and assignments. The terms are
incorporated in the Plan of Reorganization for President Mississippi, which
was confirmed on May 27, 2005, and became effective on June 7, 2005, at which
time the Company paid the lender $0.8 million in satisfaction of its
obligations. Pursuant to the agreement between the Company and other parties
involved, the Company wrote down its obligations related to the M/V "President
Casino-Mississippi" by $2.6 million in the fourth quarter of fiscal 2005,
which is included in discontinued operations.
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
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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.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based
Payment ("SFAS 123R"). SFAS 123R replaced SFAS No. 123, Accounting for Stock-
Based Compensation ("SFAS 123"), and superseded Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25").
Statement 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the consolidated
financial statements based on their fair values and eliminates the alternative
method of accounting for employee share-based payments previously available
under APB 25. Historically, the Company has elected to follow the guidance of
APB 25 which allowed the Company to use the intrinsic value method of
accounting to value its share-based payment transactions with employees.
Based on this method, the Company did not recognize compensation expense in
its consolidated financial statements as the stock options granted had an
exercise price equal to the fair market value of the underlying common stock
on the date of the grant. SFAS 123R requires measurement of the cost of
share-based payment transactions to employees at the fair value of the award
on the grant date and recognition of expense over the required service or
vesting period. The provisions of SFAS 123R are required to be adopted by the
Company beginning March 1, 2006. The Company does not expect adoption of this
standard to have a material impact, if any, on the Company's results of
operations and such impact is contingent upon the number of future options
granted, the selected transition method and the selection between acceptable
valuation methodologies for valuing options.
Forward Looking Statements
This Annual Report on Form 10-K and certain information provided
periodically in writing and orally by the Company's designated officers and
agents contain certain statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
The terms "Company," "we," "our" and "us" refer to President Casinos, Inc.
The words "expect," "believe," "goal," "plan," "intend," "estimate," and
similar expressions and variations thereof are intended to specifically
identify forward-looking statements. Those statements appear in this Annual
Report on Form 10-K and the documents incorporated herein by reference,
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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 and operations;
(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 Annual
Report on Form 10-K or to reflect the occurrence of unanticipated events.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As of February 28, 2005, the Company had $112.4 million of debt. Of this
amount $75.0 million bears contractual interest at fixed rates and is
classified as liabilities subject to compromise and $0.8 million bears
contractual interest at a fixed rate and is classified as liabilities of
discontinued operations. The remaining $36.6 million bears contractual
interest at a variable rate. The $36.6 million 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 February 28, 2005, the interest rate
applicable to the debt carried a variable rate of 7.75%. An increase of one
percentage point in the average interest rate applicable to the variable rate
debt outstanding as of February 28, 2005, would increase the Company's annual
contractual interest costs by approximately $0.4 million. The $39.0 million
Broadwater Property note was paid in full during April 2005. The Company
continues to monitor interest rate markets, but has not engaged in any hedging
transactions with respect to such risks.
As of February 28, 2005, the Company is obligated to pay under the Class B
Unit of Mr. Connelly in PBLLC a priority return based on a percentage per
annum equal to the greater of (i) 7.75% or (ii) 4.0% plus LIBOR, as defined by
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the terms of the agreement, for PBLLC. As of February 28, 2005, the minority
interest on the balance sheet is comprised of $19.0 million, related to its
obligation to redeem the Class B Unit for $10.0 million, plus any priority
return accrued but not paid. As of February 28, 2005, the interest rate
applicable to the debt carried a variable rate of 7.75%. An increase of one
percentage point in the average interest rate applicable to the variable rate
debt outstanding as of February 28, 2005, would increase the Company's annual
contractual interest costs by approximately $0.2 million.
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 8. Financial Statements and Supplementary Data.
Reference is made to the Index to Financial Statements and Schedules on page
F-1.
Item 9. Changes in and Disagreements with Independent Registered Public
Accounting Firm on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) of the Securities and Exchange Act of 1934. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures as of February
28, 2005 were effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission's rules and forms.
There were no changes in the Company's internal control over financial
reporting that occurred during the quarter ended February 28, 2005 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
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Part III
Item 10. Directors and Executive Officers of the Registrant.
As of the date hereof, the directors and executive officers of the Company,
together with certain information about them, are set forth below.
Name Age Director Since Positions with the Company
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