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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20840
PRESIDENT CASINOS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0341200
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
802 North First Street, St. Louis, Missouri 63102
----------------------------------------------------
Address of principal executive offices-Zip Code
314-622-3000
----------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, $.06 par
value, 5,033,161 shares outstanding as of October 15, 2002.
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PRESIDENT CASINOS, INC.
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
as of August 31 and February 28, 2002...............................1
Condensed Consolidated Statements of Operations (Unaudited)
for the Three and Six Months Ended August 31, 2002
and 2001............................................................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended August 31, 2002 and 2001...................3
Notes to Condensed Consolidated Financial Statements (Unaudited)......4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk....31
Item 4. Controls and Procedures.......................................32
Part II. Other Information
Item 1. Legal Proceedings.............................................32
Item 2. Changes in Securities and Use of Proceeds.....................32
Item 3. Defaults Upon Senior Securities...............................32
Item 4. Submission of Matters to a Vote of Security Holders...........33
Item 5. Other Information.............................................33
Item 6. Exhibits and Reports on Form 8-K..............................33
Signatures...............................................................34
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Part I. Financial Information
Item 1. Financial Statements
PRESIDENT CASINOS, INC.
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except per share data)
Aug. 31, Feb. 28,
2002 2002
-------- --------
ASSETS:
CURRENT ASSETS
Cash and cash equivalents...................... $ 11,888 $ 10,110
Restricted cash................................ 6,443 6,942
Restricted short-term investments.............. 712 775
Accounts receivable, net of allowance for
doubtful accounts of $185 and $236........... 792 823
Other current assets........................... 5,392 3,193
--------- ---------
Total current assets....................... 25,227 21,843
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $54,975 and $50,736............ 97,123 98,607
--------- ---------
$122,350 $120,450
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES NOT SUBJECT TO COMPROMISE
Short-term debt................................ $ -- $ 5
Current maturities of long-term debt........... 30,000 107,200
Accrued loan fee............................... 7,000 7,000
Accounts payable............................... 1,411 2,980
Accrued payroll and benefits................... 3,931 5,183
Accrued interest............................... 7,587 15,558
Other accrued expenses......................... 5,929 7,311
--------- ---------
Total liabilities not subject to compromise 55,858 145,237
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE................ 111,661 646
--------- ---------
Total liabilities.......................... 167,519 145,883
--------- ---------
MINORITY INTEREST................................ 5 15,102
COMMITMENTS AND CONTINGENCIES.................... -- --
STOCKHOLDERS' DEFICIT
Preferred Stock, $.01 par value per share;
150 shares authorized; none issued
and outstanding.............................. -- --
Common Stock, $0.06 par value per share;
14,000 shares authorized; 5,033 shares
issued and outstanding....................... 302 302
Additional paid-in capital..................... 101,729 101,729
Accumulated deficit............................ (147,205) (142,535)
--------- ---------
Total stockholders' deficit................ (45,174) (40,535)
--------- ---------
$122,350 $120,450
========= =========
See Notes to Condensed Consolidated Financial Statements.
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PRESIDENT CASINOS, INC.
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Six Months
Ended August 31, Ended August 31,
2002 2001 2002 2001
------ ------ ------ ------
OPERATING REVENUES:
Gaming................................... $ 31,370 $ 31,643 $ 63,944 $ 63,265
Food and beverage........................ 3,461 3,676 7,009 7,401
Hotel.................................... 1,817 1,526 3,471 2,990
Retail and other......................... 1,060 1,351 2,352 3,035
Less promotional allowances.............. (5,753) (5,435) (11,440) (10,829)
--------- --------- --------- ---------
Net operating revenues................. 31,955 32,761 65,336 65,862
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Gaming................................... 18,073 18,315 36,127 36,495
Food and beverage........................ 2,296 2,451 4,623 4,995
Hotel.................................... 374 405 749 838
Retail and other......................... 412 523 869 1,120
Selling, general and administrative...... 8,024 8,148 16,249 15,973
Depreciation and amortization............ 2,165 2,110 4,400 4,211
Development costs........................ 73 34 120 73
--------- --------- --------- ---------
Total operating costs and expenses..... 31,417 31,986 63,137 63,705
--------- --------- --------- ---------
OPERATING INCOME........................... 538 775 2,199 2,157
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income.......................... 61 352 114 625
Interest expense (contractual interest of
$3,873 and $7,715 for the three and six
month periods ending August 31, 2002).. (1,762) (3,726) (5,603) (7,539)
Reorganization items, net................ (469) (167) (687) (217)
Gain (loss) on disposal of property
and equipment.......................... -- 777 (23) 787
--------- --------- --------- ---------
Total other expense.................... (2,170) (2,764) (6,199) (6,344)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST.............. (1,632) (1,989) (4,000) (4,187)
Minority interest.......................... 324 307 639 595
--------- --------- --------- ---------
NET LOSS................................... $ (1,956) $ (2,296) $ (4,639) $ (4,782)
========= ========= ========= =========
Basic and diluted net loss per share
from continuing operations.............. $ (0.39) $ (0.46) $ (0.92) $ (0.95)
========= ========= ========= =========
Weighted average common and dilutive
potential shares outstanding.............. 5,033 5,033 5,033 5,033
========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements.
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PRESIDENT CASINOS, INC.
(DEBTOR IN POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Six Months Ended August 31,
2002 2001
------ ------
Net cash provided by (used in)
operating activities............................ $ 4,328 $ (2,504)
--------- ---------
Cash flows from investing activities:
Expenditures for property and equipment......... (2,946) (2,795)
Maturity of short-term investments.............. 63 5,438
Purchase of short-term investments.............. -- (275)
Payment of minority interest.................... (68) --
Change in restricted cash....................... 499 879
Proceeds from sales of property and equipment... 7 1,696
Proceeds from installment sale.................. -- 624
--------- ---------
Net cash provided by (used in)
investing activities...................... (2,445) 5,567
--------- ---------
Cash flows from financing activities:
Repayment of notes payable...................... (105) (1,958)
Payments on capital lease obligation............ -- (1)
--------- ---------
Net cash used in financing activities....... (105) (1,959)
--------- ---------
Net increase in cash and cash equivalents......... 1,778 1,104
Cash and cash equivalents at beginning of period.. 10,110 8,559
--------- ---------
Cash and cash equivalents at end of period........ $ 11,888 $ 9,663
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 82 $ 6,267
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Assets acquired in exchange for debt............ $ -- $ 2
========= =========
See Notes to Condensed Consolidated Financial Statements.
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PRESIDENT CASINOS, INC.
(DEBTOR IN POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in
thousands, except share data and unless otherwise stated)
1. Bankruptcy Proceedings
On June 20, 2002, President Casinos, Inc. together with its subsidiary,
President Riverboat Casino-Missouri, Inc. ("President Missouri"), which owns
and operates the St. Louis operations, filed voluntary petitions for
reorganization under Chapter 11 of Title 11, United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of Mississippi (the "Bankruptcy Court"). Subsequently, on July 9,
2002, President Casinos, Inc.'s subsidiary The President Riverboat Casino-
Mississippi, Inc. ("President Mississippi") filed a voluntary reorganization
petition in the same Court. On July 11, 2002, substantially all of President
Casinos, Inc.'s other operating subsidiaries filed voluntary reorganization
petitions under Chapter 11 in the same Bankruptcy Court. As used herein, the
term "Company" refers to President Casinos, Inc., its wholly-owned
subsidiaries, a 95%-owned limited partnership and a limited liability
company in which a wholly-owned subsidiary of President Casinos, Inc. owns a
Class A ownership interest and in which an entity wholly-owned by the
Chairman of President Casinos, Inc. owns a Class B unit and has a preferred
right to certain cash flows.
The Company and its subsidiaries each continue in possession and use of
their assets as debtors in possession. The Company and its subsidiaries have
filed a motion for the administrative consolidation of their Chapter 11
cases under the Company's case. To date, the Bankruptcy Court has not ruled
on the motion.
The Bankruptcy Court established October 21, 2002 as the "bar date" as of
which all claimants are required to submit and characterize claims against
the Company. The amount of the claims filed by the creditors could be
significantly different than the amount of the liabilities recorded by the
Company.
The consummation of a plan or plans of reorganization (a "Plan") is the
principal objective of the Company's Chapter 11 filings. A Plan would, among
other things, set forth the means for satisfying claims against and
interests in the Company and its subsidiaries, including setting forth the
potential distributions on account of such claims and interests, if any.
Pursuant to the Bankruptcy Code, the Company has the exclusive right for 120
days from the filing date to file a Plan, and for 180 days from the filing
date to solicit and receive the votes necessary to confirm a Plan. Both of
these exclusivity periods may be further extended by the Bankruptcy Court
for cause. If the Company fails to file a Plan during the exclusive
solicitation period, any party-in-interest, including a creditor, an equity
holder, a committee of creditors or equity holders, or an indenture trustee,
may file its own Plan for the Company. Confirmation of a Plan is subject to
certain statutory findings by the Bankruptcy Court. Subject to certain
exceptions as set forth in the Bankruptcy Code, confirmation of a Plan
requires, among other things, a vote on the Plan by certain classes of
creditors and equity holders whose rights or interests are impaired under
the Plan. If any impaired class of creditors or equity holders does not vote
to accept the Plan, but all of the other requirements of the Bankruptcy Code
are met, the proponent of the Plan
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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 proposed by the Company or confirmed by the Bankruptcy Court, or that any
such Plan will be consummated.
It is not possible to predict the length of time the Company will operate
under the protection of Chapter 11 and the supervision of the Bankruptcy
Court, the outcome of the bankruptcy proceedings in general, or the effect
of the proceedings on the business of the Company or on the interest of the
various creditors and stakeholders. Since the filing date, the Company has
operated in the ordinary course of business. Management is in the process of
evaluating their operations as part of the development of a Plan. During the
pendency of the Chapter 11 Filings, the Company may, with Bankruptcy Court
approval, sell assets and settle liabilities, including for amounts other
than those reflected in the financial statements. The administrative and
reorganization expenses resulting from the Chapter 11 Filings will
unfavorably affect the Company's results of operations. In addition, under
the priority scheme established by the Bankruptcy Code, most, if not all,
post-petition liabilities must be satisfied before most other creditors or
interest holders, including stockholders, can receive any distribution on
account of such claim or interest.
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, is in default under a $30,000
promissory note and associated $7,000 loan fee incurred in connection with
the July 1997 purchase by PBLLC of the real estate and improvements utilized
in the Company's operations in Biloxi, Mississippi. On April 19, 2001, PBLLC
filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of Mississippi. PBLLC continues in possession and use of its assets
as a debtor in possession and has entered into an agreement with its lender
approved by the Bankruptcy Court which allows PBLLC 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. The
Bankruptcy Court has recently been presented with a Restructuring Term
Sheet, which includes revised terms from the plan of reorganization filed
October 16, 2001, representing an agreement in principal between PBLLC and
the lender, its only secured creditor. The Restructuring Term Sheet
provides, among other things, that (i) the maturity date for PBLLC's debt to
the lender shall be extended to the earlier of 30 months after the effective
date of the reorganization plan or June 1, 2005, (ii) reduction of the
various LIBOR-based variable interest rates for the indebtedness, including
a reduction in the interest rate floor from 8.75% to 7.75% prior to
maturity, (iii) discounts for the possible early retirement of debt, and
(iv) certain waivers by PBLLC of its right to seek further bankruptcy
relief. On September 30, 2002, the Court requested that an amended
disclosure statement be filed as well as an amended plan of reorganization.
It further requested that notice be given to all creditors, parties and
other entities including most of the Company's subsidiaries. The Company is
reviewing this matter and will proceed in an appropriate manner. There can
be no assurance that PBLLC will be able to restructure its debt
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obligations and emerge from bankruptcy or continue as a going concern. See
"Note 7. Commitments and Contingent Liabilities."
As part of the Company's and its subsidiaries' Chapter 11 reorganization
process, the Company will attempt to notify all known or potential creditors
of the filing for the purpose of identifying all pre-petition claims. In the
Company's Chapter 11 case, substantially all of the Company's liabilities as
of the filing date are subject to adjustment under a plan of reorganization.
Generally, actions to enforce or otherwise effect repayment of all pre-
petition liabilities as well as all pending litigation against the Company
are stayed while the Company continues its business operations as
debtors-in- possession. Schedules have been filed by the Company with the
Bankruptcy Court setting forth the assets and liabilities of the debtors as
of the filing date as reflected in the Company's accounting records.
Differences between amounts reflected in such schedules and claims filed by
creditors will be investigated and amicably resolved or adjudicated before
the Bankruptcy Court. The ultimate amount and settlement terms for such
liabilities are subject to a plan of reorganization, and accordingly, are
not presently determinable. Under the Bankruptcy Code, the Company may elect
to assume or reject real estate leases, employment contracts, personal
property leases, service contracts and other executory pre-petition
contracts, subject to Bankruptcy Court review. The Company cannot presently
determine or reasonably estimate the ultimate liability that may result from
rejecting leases or from filing of claims for any rejected contracts, and no
provisions have been made for these items.
The Company continues to experience difficulty generating sufficient cash
flow to meet its debt obligations. 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 which were each due and payable March
15, and September 15, 2000. Under the indentures pursuant to which the
$75,000 13% Senior Exchange Notes (the "Senior Exchange Notes") and $25,000
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 $25,000 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 Senior Exchange Notes and
the Secured Notes and on August 11, 2000, the holders declared the unpaid
principal and interest to be due and payable. As of August 31, 2002, the
outstanding principal consists of $56,250 of Senior Exchange Notes and
$18,750 of Secured Notes.
As of August 31, 2002, the Company had $11,888 of unrestricted cash and
cash equivalents. Of this amount, the Company requires approximately $6,500
of cash to fund daily operations. The Company is heavily dependant on cash
generated from operations to continue to operate as planned in its existing
jurisdictions and to make capital expenditures. Management anticipates that
its existing available cash and cash equivalents and its anticipated cash
generated from operations will be sufficient to fund its ongoing operations
during the bankruptcy proceedings. Payments under the Company's defaulted
debt obligations generally will be stayed during the bankruptcy proceedings.
Costs previously incurred and which will be incurred in the future in
connection with the reorganizations have been and will continue to be
substantial and, in any event, there can be no assurance that the Company
will
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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. To the extent cash generated from operations is less
than anticipated, the Company may be required to curtail certain planned
expenditures and/or seek additional financing.
2. Basis of Presentation
The consolidated financial statements include the accounts and operations
of President Casinos, Inc., its wholly-owned subsidiaries, a 95%-owned
limited partnership and a limited liability company in which a wholly-owned
subsidiary of the Company has a Class A ownership interest and in which an
entity wholly- owned by the Chairman of the Board of the Company owns a
Class B Unit and has preferred rights to certain cash flows. All material
intercompany balances and transactions have been eliminated.
The accompanying consolidated financial statements are presented in
accordance with American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under
the Bankruptcy Code," assuming that the Company will continue as a going
concern. The Company is currently operating under the jurisdiction of
Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and continuation
of the Company as a going concern is contingent upon, among other things,
its ability to formulate a reorganization which will gain approval of the
requisite parties under the Bankruptcy Code and confirmation by the
Bankruptcy Court, its ability to return to profitability, generate
sufficient cash flows from operations, and obtain financing sources to meet
future obligations. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to
the outcome of these uncertainties.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only
of normal recurring entries unless otherwise disclosed, necessary to present
fairly the Company's financial information for the interim periods presented
and have been prepared in accordance with accounting principles generally
accepted in the United States of America. The interim results reflected in
the condensed consolidated financial statements are not necessarily
indicative of results for the full year or other periods.
The accompanying unaudited consolidated balance sheet as of August 31,
2002, segregates liabilities subject to compromise, such as unsecured
claims, from liabilities not subject to compromise, such as fully secured
liabilities and liabilities arising subsequent to filing bankruptcy. A plan
of reorganization could materially change the amounts currently recorded in
the consolidated financial statements. The consolidated statements that
might result from the outcome of this uncertainty may be materially
different than those presented herein.
Reorganization items represent expenses incurred by the Company as a
result of the bankruptcy filings and proceedings which are required to be
expensed as incurred.
The financial statements contained herein should be read in conjunction
with the audited consolidated financial statements and accompanying notes to
the consolidated financial statements included in the Company's Annual
Report on
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Form 10-K for the period ending February 28, 2002. Accordingly, footnote
disclosure which would substantially duplicate the disclosure in the audited
consolidated financial statements has been omitted in the accompanying
unaudited condensed consolidated financial statements.
Certain amounts for fiscal 2002 have been reclassified to conform with
fiscal 2003 financial statement presentation.
3. Nature of Operations
The Company owns and operates dockside gaming casinos through its
subsidiaries. The Company conducts dockside gaming operations in Biloxi,
Mississippi through its wholly-owned subsidiary President Mississippi and in
St. Louis, Missouri north of the Gateway Arch through its wholly-owned
subsidiary, President Missouri. In addition, the Company owns and manages
certain hotel and ancillary facilities associated with its gaming
operations. PBLLC, in which BHI has a Class A ownership interest, owns
approximately 260 acres in Biloxi, Mississippi, which includes a 111-slip
marina which contains the mooring site of "President Casino-Broadwater," two
hotels with approximately 500 rooms and an adjacent 18-hole golf course
(collectively, the "Broadwater Property"). BHI is a wholly-owned subsidiary
of the Company. Prior to July 2001, the Company also operated two non-gaming
dinner cruise, excursion and sightseeing vessels in St. Louis near the base
of the Gateway Arch. The assets of the non-gaming cruise operations were
sold July 17, 2001.
See "Note 4. Property and Equipment."
On October 10, 2000, the Company sold the assets of its Davenport casino
and hotel operations. 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
in Davenport was owned by a wholly-owned subsidiary of the Company. The
operating results of the Davenport casino and hotel operations have been
included in the consolidated operating results of the Company.
4. Property and Equipment
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.
5. Current Portion of Long-Term Debt
As of August 31, 2002, all of the Company's long-term debt, except the
Broadwater note, were classified as liabilities subject to compromise. See
"Note 6. Liabilities Subject to Compromise and Reorganization Items." Long-
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term debt payable, all of which was classified as current liabilities as of
February 28, 2002, are summarized as follows:
Aug. 30 Feb. 28,
2002 2002
------- ------
Senior Exchange Notes, 13%...................... $ -- $ 56,250
Secured Notes, 12%,............................. -- 18,750
Broadwater Hotel note payable, variable
interest rate, 12.75%......................... 30,000 30,000
M/V "President Casino-Mississippi" term note
payable, variable interest rate, 5.7.%........ -- 2,200
--------- ---------
Total notes payable.......................... $ 30,000 $107,200
========= =========
Senior Exchange Notes and Secured Notes
The Senior Exchange Notes rank equal in right of payment to all present
and future senior debt, as defined in the indenture governing the Senior
Exchange Notes (the "Note Indenture"), of the Company and its subsidiaries
and were payable as follows: 25% of the outstanding principal amount on each
of September 15, 1999 and September 15, 2000 and the remainder of the
outstanding principal amount on September 15, 2001. In addition, the Senior
Exchange Notes are unconditionally guaranteed, jointly and severally on a
senior basis, by all of the Company's subsidiaries (the "Guarantors"), and,
under certain circumstances, the Company's future subsidiaries, although the
subsidiary guarantee from TCG is limited in amount. As security for the
obligations of the Company and the Guarantors under the Senior Exchange
Notes, the Company and the Guarantors have pledged their equity interests in
each Guarantor. The Note Indenture contains certain restrictive covenants
which, among other things, limit the Company's Guarantors' ability to pay
dividends, incur additional indebtedness (exclusive of $15,000 of senior
debt), issue preferred stock, create liens on certain assets, merge or
consolidate with another company and sell or otherwise dispose of all or
substantially all of its properties or assets.
On December 3, 1998, the Company repurchased $25,000 of its Senior
Exchange Notes. The repurchased notes were used to satisfy the $25,000
principal payment due September 15, 1999 on the Company's $100,000 Senior
Exchange Notes. The repurchase was funded by the issuance of $25,000 of new
12% notes due September 15, 2001 (the "Secured Notes"). The Secured Notes
have no mandatory redemption obligation and are secured by mortgages on the
"Admiral" and the M/V "Surfside Princess," as well as subsidiary guarantees.
See "Note 1. Bankruptcy Proceedings" regarding default of the Senior
Exchange Notes and Secured Notes.
Broadwater Hotel Note
In conjunction with the purchase of the Broadwater Property, PBLLC borrowed
the sum of $30,000 from a third party (the "Indebtedness"). Except as set
forth in the promissory note and related security documents, PBLLC's
obligations under the Indebtedness are nonrecourse and are secured by the
Broadwater Property, its improvements and leases thereon. The Indebtedness
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bears interest at a stipulated variable rate per annum equal to the greater
of (i) 8.75% or (ii) 4.0% plus the LIBOR 30-day rate.
PBLLC is 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 $7,000 which was fully earned
and non-refundable when the Indebtedness was due. Neither the Indebtedness
nor the loan fee payments were made on the due date and the Indebtedness is
in default. In accordance with the terms of the loan, effective on the
default date, penalty interest of 4.0% is accrued in addition to interest at
the stipulated rate on the $30,000 principal. Additionally, PBLLC has
accrued, but not paid, interest on the unpaid loan fee at the stipulated
rate since the date of default. PBLLC continued to make the monthly interest
payments accruing on the $30,000 principal through April 19, 2001, when the
Company announced that PBLLC had filed for reorganization under Chapter 11
of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of Mississippi. See "Note 7. Commitments and Contingent
Liabilities" regarding the Chapter 11 petition filed by PBLLC.
M/V President Casino-Mississippi Note
The term note payable is collateralized by the vessel M/V "President
Casino- Mississippi" and various equipment and is personally guaranteed by
Mr. Connelly. This note also contains certain covenants which, among other
things, require the Company to maintain a minimum tangible net worth of
$40,000. The aforementioned default on the Company's Senior Exchange Notes
and Secured Notes also constituted a default under this note. The Company
continued to make the quarterly principal and interest payments on this note
prior to the bankruptcy. No action has been taken by the lender to
accelerate the note and declare the unpaid principal due and payable. Under
the terms of the term note payable, $2,100 principal became due and payable
in August 2002. The bankruptcy proceedings have stayed the payments.
Other
The various agreements governing the notes described above generally limit
borrowings by the Company's affiliates without the respective lenders' prior
consent.
The noteholders of the Senior Exchange Notes, the Secured Notes and the
M/V President Casino-Mississippi Note were deemed by management to be
undersecured and as a result, interest ceased to accrue as of June 20, 2002
with respect to the Senior Exchange Notes and Secured Notes and July 11,
2002 with respect to the M/V President Casino-Mississippi Note.
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6. Liabilities Subject to Compromise and Reorganization Items
Liabilities subject to compromise consists of the following:
Aug. 31, Feb. 28,
2002 2002
------ ------
Senior Exchange Notes, 13%...................... $ 56,250 $ --
Secured Notes, 12%,............................. 18,750 --
M/V "President Casino-Mississippi" note payable,
variable interest rate, 5.28%................. 2,100 --
Minority interest............................... 15,669 --
Accrued interest................................ 13,530 9
Accounts payable and other accrued expenses..... 5,362 637
--------- ---------
Total liabilities subject to compromise...... $111,661 $ 646
========= =========
As of August 31, 2002, all reorganization items consist of professional
fees.
7. Commitments and Contingent Liabilities
--Bankruptcy Actions
On June 20, 2002, the Company together with its subsidiary, President
Missouri, which owns and operates the St. Louis operations, filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of Mississippi. On
July 9, 2002, the Company's subsidiary President Mississippi filed a
voluntary reorganization petition in the same Court. On July 11, 2002,
substantially all of the Company's other operating subsidiaries filed
voluntary reorganization petitions under Chapter 11 in the same Court. The
Company and its subsidiaries each continue in possession and use of their
assets as debtors in possession.
On April 19, 2001, PBLLC (the "Debtor") filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code. That same day, the
Bankruptcy Court authorized the Debtor's interim use of cash collateral
pursuant to a Cash Collateral Stipulation and Agreement between the Debtor
and its largest creditor. Subsequent orders of the Bankruptcy Court have
extended the Debtor's authorized use of cash collateral indefinitely until
further order of the Court. The Debtor is operating its businesses and
managing its properties as a debtor-in-possession, and no trustee has been
appointed in the Debtor's case. The first meeting of creditors was held on
June 21, 2001, and an official committee of unsecured creditors (the
"Creditors Committee") has been appointed in the case. The Bankruptcy Court
fixed August 20, 2001 as the final date for creditors to file proofs of
claim in the Debtor's case, except that October 16, 2001 was fixed as the
final date for governmental units to file proofs of claim. The Debtor is
current with the filings of its monthly operating reports in the case, with
the report for June 2002 having been filed on July 15, 2002. Within its
exclusive period for filing a disclosure statement and plan of
reorganization as set by the Bankruptcy Court, the Debtor filed its Debtor's
Plan of Reorganization on October 16, 2001 (the "Plan") and its First
Amended Disclosure Statement on February 7, 2002 (the
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"Disclosure Statement"). The Bankruptcy Court has recently been presented
with a Restructuring Term Sheet, which includes revised terms from the plan
of reorganization filed October 16, 2001, representing an agreement in
principal between PBLLC and its lender, its only secured creditor. The
Restructuring Term Sheet provides, among other things, that (i) the maturity
date for PBLLC's debt to the lender shall be extended to the earlier of 30
months after the effective date of the reorganization plan or June 1, 2005,
(ii) reduction of the various LIBOR-based variable interest rates for the
indebtedness, including a reduction in the interest rate floor from 8.75% to
7.75% prior to maturity, (iii) discounts for the possible early retirement
of debt, and (iv) certain waivers by PBLLC of its right to seek further
bankruptcy relief. On September 30, 2002, the Court requested that an
amended disclosure statement be filed as well as an amended plan of
reorganization. It further requested that notice be given to all creditors,
parties and other entities including most of the company's subsidiaries. The
Company is reviewing this matter and will proceed in an appropriate manner.
There can be no assurance that PBLLC will be able to restructure its debt
obligations and emerge from bankruptcy or continue as a going concern.
--Poulos, McElmore and Shreier, et al. v. Caesar's
World, Inc. et al. Lititgation
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, as well as additional, defendants, all of which have now
been consolidated into a single class-action pending in the United States
District Court for the District of Nevada. Following a court order
dismissing all pending pleadings and allowing the plaintiffs to re-file a
single complaint, a complaint has been filed containing substantially
identical claims, alleging that the defendants fraudulently marketed and
operated casino video poker machines and electronic slot machines, and
asserting common law fraud and deceit, unjust enrichment and negligent
misrepresentation. Various motions were filed by the defendants seeking to
have this new complaint dismissed or otherwise limited. On December 19,
1997, the Court, in general, ruled on all motions in favor of the
plaintiffs. The plaintiffs then filed a motion seeking class certification
and the defendants have opposed it. On June 21, 2002 the Court entered an
order denying class certification, and the plaintiffs have appealed this
order to the 9th Circuit Court of Appeals. Although the outcome of
litigation is inherently uncertain, management, after consultation with
counsel, believes the action will not have a material adverse effect on the
Company's financial position or results of operations.
--"Surfside Princess" Litigation
On October 12, 2001, the Company's subsidiary which owned the M/V
"Surfside Princess," formerly known as the M/V "New Yorker," initiated an
action in the United States District Court for the Middle District of
Florida against Southern Gaming, LLC and its assignee for breach of a
Bareboat Charter and Purchase Agreement dated March 29, 2001 pursuant to
which the M/V "Surfside Princess" was chartered from the Company. The suit
alleges breach of the charter. Subsequent proceedings followed at which
various parties claimed various rights with respect to the vessel and its
contents. The matter is currently pending before the Court.
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On October 19, 2001, Southern Gaming filed suit in the United States
District for Middle District of Florida seeking damages in connection with
the charter of the "Surfside Princess." Subsequently this proceeding was
consolidated with the prior proceeding involving Southern Gaming. Other
suits and claims exist with respect to the vessel. While the Company
currently believes it will ultimately recover the vessel, it has not done so
at this time. It is not possible to predict when the Company will recover
the vessel and be able to use or charter it.
The Company has also filed an action in the United States District Court
for the Eastern District of Missouri against the principals of Southern
Gaming who guaranteed the payment of amounts under the charter agreement
that were or could become liens against the vessel. The Company has served a
motion for summary judgment which is in the briefing stage. The case is set
for trial in March 2003.
--Other
The Company is from time to time a party to litigation, which may or may
not be covered by insurance, arising in the ordinary course of its business.
The Company does not believe that the outcome of any such litigation will
have a material adverse effect on the Company's financial condition or
results of operations, or which would have any material adverse impact upon
the gaming licenses of the Company's subsidiaries.
Missouri Gaming Commission
On May 1, 2001, the Missouri Gaming Commission issued a preliminary order
of discipline in DC-01-004 - DC-01-012 proposing that the Company be
assessed administrative penalties totaling $129 for numerous alleged
violations of internal gaming control standards and one alleged violation of
making political contributions prohibited by an ordinance of the City of St.
Louis. None of the alleged violations of internal control standards involved
any loss of funds or affect the integrity of gaming. In August 2002, the
Company settled the alleged internal control standard violations for $55.
The Company continues to contest the proposed discipline for the alleged
violation of making political contributions prohibited by an ordinance of
the City of St. Louis. Management anticipates that this matter will be
resolved with no material impact on its financial position.
8. Segment Information
The Company evaluates performance based on operations EBITDA. Operations
EBITDA is earnings before interest, taxes, depreciation and amortization of
each of the reportable segments. Corporate and development expenses,
gain/loss on sale of assets, impairment of long-lived assets and
reorganization costs are not allocated to the reportable segments and are
therefore excluded from operations EBITDA.
The Company has no inter-segment sales and accounts for transfers of
property and inventory at its net book value at the time of such transfer.
The Company's reportable segments, other than the leasing operation, are
similar in operations, but have distinct and separate regional markets. The
Company's reportable segments are based on its two geographic gaming
operations and its leasing operation. The Biloxi operations consist of the
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Biloxi casino and the Broadwater Property and the St. Louis operations
consist of the St. Louis casino and Gateway Riverboat Cruises ("Gateway").
On July 17, 2001, the assets of Gateway were sold and operations ceased. The
Company formerly reported Davenport operations as a third geographic gaming
segment. The Davenport operations consisted of the Davenport casino and the
Blackhawk Hotel, the assets of which were sold, and operations ceased, on
October 10, 2000. Management views the residual costs and expenses incurred
after the sale of, and related to, the Davenport operations as a component
of Corporate EBITDA.
Three Months Six Months
Ended August 31, Ended August 31,
2002 2001 2002 2001
------ ------ ------ ------
OPERATING REVENUES:
St. Louis Properties................... $ 18,612 $ 19,588 $ 38,507 $ 39,683
Biloxi Properties...................... 13,343 13,173 26,829 26,179
--------- --------- --------- ---------
Net operating revenues............... $ 31,955 $ 32,761 $ 65,336 $ 65,862
========= ========= ========= =========
Three Months Six Months
Ended August 31, Ended August 31,
2002 2001 2002 2001
------ ------ ------ ------
EBITDA (before corporate, development
and impairment expenses and gain/loss
on sale of property and equipment):
St. Louis Properties................... $ 2,275 $ 2,540 $ 5,743 $ 5,494
Biloxi Properties...................... 1,950 1,454 3,838 3,019
--------- --------- --------- ---------
Gaming and ancillary operations....... 4,225 3,994 9,581 8,513
Leasing Operation...................... (309) (91) (711) (196)
--------- --------- --------- ---------
Operations EBITDA.................... 3,916 3,903 8,870 8,317
OTHER COSTS AND EXPENSES:
Corporate expense...................... 1,140 984 2,151 1,876
Development expense.................... 73 34 120 73
Depreciation and amortization.......... 2,165 2,110 4,400 4,211
--------- --------- --------- ---------
Total other costs and expenses....... 3,378 3,128 6,671 6,160
--------- --------- --------- ---------
OPERATING INCOME (LOSS)................ 538 775 2,199 2,157
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net.................. (1,701) (3,374) (5,489) (6,914)
Gain/(loss) on sale of assets.......... -- 777 (23) 787
Reorganization costs................... (469) (167) (687) (217)
--------- --------- --------- ---------
Total other expense.................. (2,170) (2,764) (6,199) (6,344)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST.......... (1,632) (1,989) (4,000) (4,187)
Minority interest...................... 324 307 639 595
--------- --------- --------- ---------
NET LOSS............................... $ (1,956) $ (2,296) $ (4,639) $ (4,782)
========= ========= ========= =========
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A summary of assets by segment, is as follows:
Aug. 31, Feb. 28,
2002 2002
------ ------
St. Louis operations.................... $ 47,073 $ 46,281
Biloxi operations....................... 63,692 61,623
--------- ---------
Gaming and ancillary operations....... 110,765 107,904
Leasing operations...................... 3,710 4,001
--------- ---------
Operations' assets.................... 114,475 111,905
Corporate assets........................ 4,367 3,626
Development assets...................... 3,262 3,238
Davenport assets........................ 246 1,681
--------- ---------
Total assets........................ $122,350 $120,450
========= =========
A summary of net property and equipment and additions to property and
equipment, by segment, is as follows:
Aug. 31, Feb. 28,
2002 2002
------ ------
Property and Equipment:
St. Louis Properties.................. $ 37,920 $ 38,534
Biloxi Properties..................... 52,219 52,812
--------- ---------
Gaming and ancillary operations..... 90,139 91,346
Leasing Operations.................... 3,708 4,000
--------- ---------
Operations Assets................... 93,847 95,346
Corporate Assets...................... 17 23
Development Assets.................... 3,259 3,238
--------- ---------
Net Property and Equipment.......... $ 97,123 $ 98,607
========= =========
Six Months Ended Aug. 31,
2002 2001
------ ------
Additions to Property and Equipment:
St. Louis Properties.................. $ 2,324 $ 1,232
Biloxi Properties..................... 601 1,546
--------- ---------
Gaming and ancillary operations.... 2,925 2,778
Leasing Operations.................... -- --
--------- ---------
Operations Assets................... 2,925 2,778
Corporate Assets...................... -- 5
Development Assets.................... 21 14
--------- ---------
$ 2,946 $ 2,797
========= =========
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Included in additions to property and equipment is $2 of assets acquired
in exchange for debt for the six-month period ended August 31, 2001.
9. Guarantee of City Obligation
During 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. Under the terms of an agreement,
the City funded $3,000 of the relocation costs, $2,400 of which was financed
through bank debt. It is anticipated that the City will repay the debt from
annual allocations of $600 from the City's annual home dock city public
safety fund that is funded by admission taxes from the "Admiral." The
Company has guaranteed repayment of the bank debt if the City fails to pay
the obligation. As of August 31, 2002, the Company's guarantee was of
$1,023.
10. Insurance Risk
The Company was partially self-insured for employee health and workers
compensation claims and third party liability costs through April 1999.
Effective May 1999, the Company became fully insured for workers
compensation claims. The Company continues to be partially self-insured for
third party liability claims and certain employee health claims. The
self-insurance claim liability is based on claims reported and claims
incurred but not reported using the Company's historic experience with such
matters.
The Company does carry "Business Interruption" insurance, but due to the
current insurance market, the current policy does not cover interruption
from either windstorm or flood.
As of October 10, 2002, insurance on the M/V "Surfside Princess" lapsed.
The Company applied to the Bankruptcy Court to fund President Riverboat
Casino-New York, Inc., the owner of the vessel, for the cost of the
insurance. The Bankruptcy Court has denied the request.
11. Subsequent Events
On September 25, 2002, all Mississippi Gulf Coast casinos, including the
Company's Biloxi casino, were temporarily closed at 10:00 a.m. by the
Mississippi Gaming Commission in anticipation of Tropical Storm Isidore. The
Company's casino reopened on September 27, 2002 at 5:00 a.m.
On October 2, 2002, all Mississippi Gulf Coast casinos, including the
Company's Biloxi casino, were temporarily closed at 10:00 p.m. by the
Mississippi Gaming Commission in anticipation of Hurricane Lili. The
Company's casino reopened on October 3, 2002 at 3:00 p.m.
The Company's Biloxi hotel operations remained open during both periods.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
consolidated financial statements of the Company included elsewhere in this
report.
President Casinos, Inc., President Riverboat Casino-Missouri, Inc., The
President Riverboat Casino-Mississippi, Inc., President Broadwater Hotel, LLC,
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Broadwater Hotel, Inc., President Riverboat Casino-New York, 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 continues to experience difficulty generating sufficient cash
flow to meet its debt obligations and sustain its operations. As a result of
the Company's relatively high degree of leverage and the need for
significant capital expenditures at its St. Louis property, the Company was
unable to 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 Senior Exchange Notes and the Secured 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
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, Iowa assets. Approximately $43.0 million of the proceeds from the
sale were deposited with a trustee. Of this amount, $12.8 million was used
to pay missed interest payments due March 15, 2000 and September 15, 2000 on
the Senior Exchange Notes and the Secured Notes; $25.0 million was used to
partially redeem the Senior Exchange Notes and the Secured Notes; and $5.2
million was used to pay interest due March 15, 2001 on the Senior Exchange
Notes and the Secured Notes.
Subsequently, the Company was unable to make the principal and interest
payments due September 15, 2001 and its interest payment due March 15, 2002,
on its Senior and Secured Notes. As of September 31, 2002, principal due on
the Senior and Secured Notes was $56.2 million and $18.8 million,
respectively.
In July 2001, the Company completed the sale of its non-gaming cruise
operations in St. Louis, Missouri for $1.7 million. On March 29, 2001, the
Company executed an installment sale agreement for the M/V "Surfside
Princess" (formerly, the "New Yorker"). On October 3, 2001, as a result of
the purchasing party's inability to comply with the terms of the agreement,
the Company terminated the agreement and repossessed the vessel. Management
intends to continue to aggressively seek another buyer or find other uses
for the vessel. Until the Company is able to do so, the Company will
continue to incur legal fees, insurance and maintenance costs on the vessel.
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In addition to the foregoing, President Broadwater Hotel, LLC ("PBLLC"), a
limited liability company in which a wholly-owned subsidiary of the Company
has a Class A ownership interest, is in default under a $30.0 million
promissory note and associated $7.0 million loan fee incurred in connection
with the July 1997 purchase by PBLLC of the real estate and improvements
utilized in the Company's operations in Biloxi, Mississippi. On April 19,
2001, PBLLC filed a voluntary petition for reorganization under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of Mississippi in Biloxi, Mississippi. PBLLC continues its
possession and use of its assets as a debtor in possession and has entered
into an agreement with its lender approved by the Bankruptcy Court which
allows PBLLC use of its cash collateral. On October 16, 2001, PBLLC filed a
Debtors' Plan of Reorganization (the "Plan") which was designed to permit
PBLLC to restructure its debt obligations in a manner which will permit it
to continue as a going concern. The Bankruptcy Court has recently been
presented with a Restructuring Term Sheet, which includes revised terms from
the plan of reorganization filed October 16, 2001, representing an agreement
in principal between PBLLC and its lender, its only secured creditor. The
Restructuring Term Sheet provides, among other things, that (i) the maturity
date for PBLLC's debt to the lender shall be extended to the earlier of 30
months after the effective date of the reorganization plan or June 1, 2005,
(ii) reduction of the various LIBOR-based variable interest rates for the
indebtedness, including a reduction in the interest rate floor from 8.75% to
7.75% prior to maturity, (iii) discounts for the possible early retirement
of debt, and (iv) certain waivers by PBLLC of its right to seek further
bankruptcy relief. On September 30, 2002, the Court requested that an
amended disclosure statement be filed as well as an amended plan of
reorganization. It further requested that notice be given to all creditors,
parties and other entities including most of the company's subsidiaries. The
Company is reviewing this matter and will proceed in an appropriate manner.
The Plan of PBLLC provides that, following the confirmation of the Plan,
PBLLC and the Company will enter into a loan agreement under which the
Company will be obligated to loan to PBLLC such amounts as shall be
necessary for PBLLC to make certain payments due under the Plan.
Additionally, if the Plan is confirmed, the Class B membership interest of
PBLLC held by JECA (an entity controlled by John E. Connelly, the Company's
Chairman and Chief Executive Officer) will, with respect of its payment
right against PBLLC of approximately $15.3 million, be entitled to receive
in satisfaction thereof a cash payment of $1.5 million and a one-year
interest bearing promissory note from PBLLC in the principal amount of $1.5
million. The Company would be required to loan such amounts to PBLLC to the
extent that PBLLC is unable to fund such amounts. There can be no assurance
that PBLLC will be able to restructure its debt obligations and emerge from
bankruptcy or continue as a going concern.
Due to certain debt covenants and cross default provisions associated with
other debt agreements, the Company is also currently in default under its
$2.1 million M/V "President Casino-Mississippi" note. See Liquidity and
Capital Resources.
Management believes the Company's liquidity and capital resources will be
sufficient to maintain its normal operations at current levels and does not
anticipate any adverse impact on its operations, customers or employees.
However, costs previously incurred and which will be incurred in the future
in connection with restructuring the Company's debt obligations and the
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bankruptcy proceedings have been and will continue to be substantial and, in
any event, there can be no assurance that the Company will be able to
restructure successfully its indebtedness or that its liquidity and capital
resources will be sufficient to maintain its normal operations during the
restructuring period.
The Company's ability to continue as a going concern is dependent on its
ability to restructure successfully, including refinancing its debts, and
the ability of the Company to generate sufficient cash to fund future
operations. There can be no assurance in this regard.
Overview
The Company's operating results are affected by a number of factors,
including competitive pressures, changes in regulations governing the
Company's activities, the results of pursuing various development
opportunities and general weather conditions. Consequently, the Company's
operating results may fluctuate from period to period and the results for
any period may not be indicative of results for future periods. The
Company's operations are not significantly affected by seasonality.
--Competition
Intensified competition for patrons continues to occur at each of the
Company's properties.
Since gaming began in Biloxi in August 1992, there has been steadily
increasing competition along the Mississippi Gulf Coast, in nearby New
Orleans and elsewhere in Louisiana and Mississippi. Several large
hotel/casino complexes have been built in recent years with the largest
single resort in the area opening in March 1999. There are currently twelve
casinos operating on the Mississippi Gulf Coast. See "Potential Growth
Opportunities" regarding a master plan for a destination resort the Company
is developing in Biloxi, Mississippi.
Competition is intense in the St. Louis market area. There are presently
four other casino companies operating five casinos in the market area. Many
of these competitors have significantly greater name recognition and
financial and marketing resources than the Company. Two of these are
Illinois casino companies operating single casino vessels on the Mississippi
River, one across the Mississippi River from the "Admiral" and the second 20
miles upriver. There are two Missouri casino companies, each of which
operates casino vessels approximately 20 miles west of St. Louis on the
Missouri River. One company operates one casino in the City of St. Charles,
Missouri and the other company operates two casinos in Maryland Heights,
Missouri.
Applications were submitted to the Missouri Gaming Commission for approval
of potential new licenses at four different locations within the St. Louis
Metropolitan area along the Mississippi River, three of which were within 20
miles of the "Admiral." In July 2000, the Gaming Commission announced its
decision to award an additional license to the applicant proposing a site at
the greatest distance from the "Admiral" of the proposed locations. The
Commission's decision was being challenged by one of the applicants whose
proposal was not selected and by other entities. In September 2001, the
applicant selected by the Gaming Commission announced it would not proceed
with the development of the project. The Gaming Commission recently
announced
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that it would consider licensing an additional casino in the St. Louis
market. No such application has been filed. The opening of a new casino in
the St. Louis market would have a material adverse impact on the St. Louis
operations under most possible conditions.
--Regulatory Matters
Missouri regulations limit the loss per "simulated" cruise per passenger
by limiting the amount of chips or tokens a guest may purchase during each
two- hour gaming session to $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.
--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 cause reduced
parking and a general public perception of diminished access to the casino
resulting in decreased revenues. Management believes the move of the
"Admiral" diminished the negative effects of high water on operations.
However, on May 13, 2002, at 4:00 a.m. the St. Louis operations were
temporarily suspended due to high water levels. The "Admiral" was reopened
on May 20, 2002 at 6:00 p.m. During the same period for the prior year, the
Company recorded $1.4 million in St. Louis gaming revenue.
On September 25, 2002, all Mississippi Gulf Coast casinos, including the
Company's Biloxi casino, were temporarily closed at 10:00 a.m. by the
Mississippi Gaming Commission in anticipation of Tropical Storm Isidore. The
Company's Biloxi casino reopened on September 27, 2002 at 5:00 a.m. On
October 2, 2002, all Mississippi Gulf Coast casinos, including the Company's
Biloxi casino, were temporarily closed at 10:00 p.m. by the Mississippi
Gaming Commission in anticipation of Hurricane Lili. The Company's Biloxi
casino reopened on October 3, 2002 at 3:00 p.m. The Company's Biloxi hotel
operations remained open during both periods.
--Potential Growth Opportunities
Biloxi, Mississippi
In July 1997, the Company, through a newly created subsidiary, President
Broadwater Hotel, LLC ("PBLLC"), purchased for $40.5 million certain real
estate and improvements located on the Gulf Coast in Biloxi, Mississippi
from an entity which was wholly-owned by Mr. Connelly. The property
comprises approximately 260 acres and includes two hotels, a 111-slip marina
and the adjacent 18-hole Sun Golf Course (collectively, the "Broadwater
Property"). The marina is the site of the Company's casino operations in
Biloxi and was formerly leased by the Company under a long-term lease
agreement. Broadwater
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Hotel, Inc. a wholly-owned subsidiary of the Company ("BHI"), invested $5.0
million in PBLLC.
PBLLC financed the purchase of the Broadwater Property with $30.0 million
of financing from a third party lender, evidenced by a non-recourse
promissory note (the "Indebtedness") and issued a $10.0 million membership
interest to the seller. PBLLC is obligated 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 became
fully earned and nonrefundable when the Indebtedness was due. See Liquidity
and Capital Resources for a discussion of the repayment of this obligation.
The Company has developed a master plan for the Broadwater Property.
Management believes that this site is ideal for the development of
"Destination Broadwater," a full-scale luxury destination resort offering an
array of entertainment attractions in addition to gaming. The plans for the
resort feature a village which will include a cluster of casinos, hotels,
restaurants, theaters and other entertainment attractions. Management
believes that with its beachfront location and contiguous golf course, the
property is the best site for such a development in the Gulf Coast market.
In January 1999, the Company received the permit from the Mississippi
Department of Marine Resources (the "DMR") for development of the full-scale
destination resort. This is the first of three permit approvals required of
the Joint Permit Application submitted in August 1998 to the DMR, the U.S.
Army Corps of Engineers (the "Corps") and the Mississippi Department of
Environment Quality. The two remaining permit approvals are still pending
and awaiting the completion of the Final Environmental Impact Statement
("EIS"). The Draft EIS has been completed, notice of which was posted in the
Federal Register in June 2000 for public comment. The comment period has
been closed and the Company is currently working with the Corps to resolve
the comments in order to facilitate the completion of the Final EIS. The
comment period has been closed and the Company has worked with the Corps to
revise the plan in order to resolve the comments and to facilitate the
completion of the Final EIS. The current permit application to the Corps was
cancelled on June 10, 2002 pending re-submission of a revised project design
that reflects the changes resulting from the Company's work with the Corps.
The cancellation is an administrative measure which will allow the Corps to
remove the application from the Corps' pending action list, and should not
affect future evaluation of the permit request. The Company anticipates
submitting a revised plan. At that time, a new application number will be
assigned, and the evaluation of the permit request will resume.
In connection with the Company's proposed Destination Broadwater
development plan, to date, the Company has not identified any specific
financing alternatives or sources as the necessary regulatory approvals have
not been obtained. There can be no assurance that the Company will be able
to obtain the regulatory approvals or the requisite financing. Should the
Company fail to raise the required capital, such failure would materially
and adversely impact the Company's business plan.
Results of Operations
The results of operations for the three-month and six-month periods ended
August 31, 2002 and 2001 include the gaming results for the Company's
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operations in Biloxi, Mississippi and St. Louis, Missouri and of much lesser
significance, the hotel operations in Biloxi (the Broadwater Property) and
the non-gaming operations in St. Louis (Gateway Riverboat Cruises) through
the date of sale. The assets of Gateway Riverboat Cruises ("Gateway") were
sold July 17, 2001.
The following table highlights the results of the Company's operations.
Three Months Six Months
Ended August 31, Ended August 31,
2002 2001 2002 2001
------ ------ ------ ------
(in millions)
St. Louis, Missouri Operations
Operating revenues $ 18.6 $ 19.6 $ 38.5 $ 39.7
Operating income 0.8 1.1 2.8 2.6
Biloxi, Mississippi Operations
Operating revenues $ 13.3 $ 13.2 $ 26.8 $ 26.2
Operating income 1.4 0.8 2.7 1.7
Corporate Leasing Operations
Operating revenues $ -- $ -- $ -- $ --
Operating loss (0.5) (0.1) (1.0) (0.2)
Corporate Administrative and
Development operating loss $ (1.2) $ (1.0) $ (2.3) $ (1.9)
The following table highlights cash flows of the Company's operations.
Six Months
Ended August 31,
2002 2001
------ ------
(in millions)
Cash flows provided by (used in)
operating activities $ 4.3 $ (2.5)
Cash flows provided by (used in)
investing activities (2.4) 5.6
Cash flows used in
financing activities (0.1) (2.0)
Cash paid for interest 0.1 6.3
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The following table highlights certain supplemental measures of the
Company's financial performance.
Three Months Six Months
Ended August 31, Ended August 31,
2002 2001 2002 2001
------ ------ ------ ------
(dollars in millions)
St. Louis, Missouri Operations
EBITDA * $ 2.3 $ 2.5 $ 5.8 $ 5.5
EBITDA margin 12.4% 12.8% 14.8% 13.9%
Biloxi, Mississippi Operations
EBITDA * $ 1.9 $ 1.5 $ 3.8 $ 3.0
EBITDA margin 14.3% 11.4% 14.2% 11.5%
Corporate Leasing Operations
EBITDA * $ (0.3) $ (0.1) $ (0.7) $ (0.2)
Corporate Administrative and
Development EBITDA * $ (1.2) $ (1.0) $ (2.3) $ (1.9)
* "EBITDA" consists of earnings from operations before interest, income
taxes, depreciation and amortization and gain (loss) on disposal of
property and equipment. For the purposes of this presentation, EBITDA
margin is calculated as EBITDA divided by operating revenue. EBITDA
and EBITDA margin are not determined in accordance with generally
accepted accounting principles. Since not all companies calculate
these measures in the same manner, the Company's EBITDA measures may
not be comparable to similarly titled measures reported by other
companies.
EBITDA should not be construed as an alternative to operating income
as an indicator of the Company's operating performance, or as an
alternative to cash flows from operational activities as a measure of
liquidity. The Company has presented EBITDA solely as a supplemental
disclosure to facilitate a more complete analysis of the Company's
financial performance. The Company believes that this disclosure
enhances the understanding of the financial performance of a company
with substantial interest, depreciation and amortization.
Three-Month Period Ended August 31, 2002 Compared to the Three-Month Period
Ended August 31, 2001
Operating revenues. The Company generated consolidated operating revenues
of $32.0 million during the three-month period ended August 31, 2002
compared to $32.8 million during the three-month period ended August 31,
2001. The St. Louis combined operations experienced a decrease in revenue of
$1.0 million and the Biloxi combined operations experienced an increase in
revenue of $0.2 million.
Gaming revenues from the Company's St. Louis operations decreased $0.5
million, or 4.3%, during the three-month period ended August 31, 2002,
compared to the same period of the prior year. The decrease in gaming
revenue was primarily attributable to increased competition resulting from
expansion by a competitor in the St. Louis in the St. Louis market and
initial customer
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apprehension following the Company's bankruptcy filing. The St. Louis
operations have experienced a decrease in market share to approximately
9.12% from approximately 9.83% during the same three-month period of the
prior year. Management believes the decrease is primarily due to negative
public relations caused by the bankruptcy filing and increased competition
from the expansion of a local competitor. Gaming revenues at the Company's
Biloxi operations increased $0.2 million, or 1.7%, during the three-month
period ended August 31, 2002 compared to the three-month period ended August
31, 2001, primarily as a result of increased volume.
The Company's revenues from food and beverage were $3.5 million during the
three-month period ended August 31, 2002, compared to $3.8 million during
the three-month period ended August 31, 2001. Excluding the Company's former
non- gaming cruise operations, the revenues from food and beverage were $3.5
million during both three-month periods.
The Company's revenues from hotel, retail and other were $2.9 million
during both three-month periods ended August 31, 2002 and 2001. Excluding
the former non-gaming cruise operations, the Company's revenues from hotel,
retail and other were $2.7 million during the three-month period ended
August 31, 2001. The increase was primarily attributable to an increase of
hotel revenue of approximately $0.3 million as a result of an increase in
hotel promotions offered by the casino.
Promotional allowances were $5.7 million during the three-month period
ended August 31, 2002, compared to $5.4 million during the three-month
period ended August 31, 2001. Promotional allowances in St. Louis decreased
$0.1 million and Biloxi increased approximately $0.4 million. In St. Louis,
the decrease is primarily the result of a decrease in volume in the buffet
due to its being temporarily closed for two weeks in July for remodeling. In
Biloxi, promotional allowances increased primarily as a result of responding
to the competitive pressures in the market.
Operating costs and expenses. The Company's consolidated gaming costs and
expenses were $18.1 million during the three-month period ended August 31,
2002 compared to $18.3 million during the three-month period ended August
31, 2001. The decrease in gaming costs was primarily attributable to a $0.2
million decrease in gaming costs in St. Louis as a result of a $0.3 million
decrease in gaming and admissions taxes resulting from decreased gaming
revenues, offset by a $0.2 million increase in payroll and benefit costs. As
a percentage of gaming revenues, gaming costs decreased to 57.6% during the
three-month period ended August 31, 2002 from 57.9% during the three-month
period ended August 31, 2001.
The Company's consolidated food and beverage expenses were $2.3 million
during the three-month period ended August 31, 2002, compared to $2.5
million during the three-month period ended August 31, 2001. Excluding the
Company's former non-gaming cruise operations, the Company's consolidated
food and beverage expenses were $2.3 million during both three-month periods
ended August 31, 2002 and 2001.
The Company's consolidated hotel, retail and other expenses were $0.8
million during the three-month period ended August 31, 2002, compared to
$0.9 million during the three-month period ended August 31, 2001. Excluding
the Company's former non-gaming cruise operations, the Company's
consolidated hotel, retail and other expenses were $0.8 million during both
three-month
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periods ended August 31, 2002 and 2001.
The Company's consolidated selling, general and administrative expenses
were $8.0 million during the three-month period ended August 31, 2002,
compared to $8.1 million during the three-month period ended August 31,
2001. Selling, general and administrative expenses at the St. Louis casino
operations decreased $0.3 million primarily as a result of a decrease in
payroll and payroll benefit expenses and a decrease of other expenses
related to decreased revenues. The Biloxi operations experienced a decrease
in selling, general and administrative expenses of $0.2 million, primarily
due to decreases in repairs and maintenance expense, insurance and
utilities. These decreases were partially offset by increases of $0.2
million in corporate overhead and $0.2 million in leasing operations.
Corporate overhead increased primarily as a result of a severance agreement
with a former executive. The leasing operations increase was the result of
the termination of an installment sale agreement on the "Surfside Princess,"
executed on March 29, 2001 and terminated in October 2001.
Depreciation and amortization expenses were $2.2 million for the
three-month period ended August 31, 2002, compared to $2.1 million for the
three-month period ended August 31, 2001.
Operating income. As a result of the foregoing items, the Company had
operating income of $0.5 million for the three-month period ended August 31,
2002, compared to operating income of $0.8 million for the three-month
period ended August 31, 2001.
Interest expense, net. The Company incurred net interest expense of $1.7
million during the three-month period ended August 31, 2002, compared to
$3.4 million during the three-month period ended August 31, 2001. The
decrease is the result of $2.1 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 undersecured and as a
result, interest ceased to accrue as of the date thereof.
Reorganization items. The Company incurred reorganization costs of $0.5
million during the three-month period ended August 31, 2002, compared to
$0.2 million during the three-month period ended August 31, 2001. On April
19, 2001, PBLLC filed a voluntary bankruptcy petition for bankruptcy and
began incurring costs associated with its reorganization. On June 20, 2002,
the Company's parent company and PRC-Missouri filed voluntary petitions and
in July 2002, substantially all of the Company's other operating
subsidiaries filed voluntary petitions. Costs associated with the
reorganizations consist of professional fees.
Gain (loss) on disposal of property and equipment. The Company recorded a
gain on disposal of assets of $0.8 million during the three-month period
ended August 31, 2001, primarily as a result of the sale of the assets of
the Company's former non-gaming cruise operations, with no comparable sale
during the three-month period ended August 31, 2002.
Minority interest expense. The Company incurred $0.3 million minority
interest expense for both three-month periods ended August 31, 2002 and
August 31, 2001.
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Net loss. The Company incurred a net loss of $2.0 million during the
three- month period ended August 31, 2002, compared to a net loss of $2.3
million during the three-month period ended August 31, 2001.
Six-Month Period Ended August 31, 2002 Compared to the Six-Month Period
Ended August 31, 2001
Operating revenues. The Company generated net consolidated operating
revenues of $65.3 million during the six-month period ended August 31, 2002
compared to $65.9 million during the six-month period ended August 31, 2001.
Excluding the Company's former non-gaming cruise operations, operating
revenues were $65.1 million during the six-month period ended August 31,
2001. St. Louis casino operations contributed a decrease in operating
revenues of $0.4 million, offset by an increase in operating revenues of
$0.6 million in Biloxi.
Gaming revenues from the Company's St. Louis casino operations decreased
$0.1 million during the six-month period ended August 31, 2002, compared to
the six-month period ended August 31, 2001. The St. Louis operations were
temporarily suspended from May 13, 2002 to May 20, 2002, due to flood
conditions on the Mississippi River. However, the seven days of lost
revenues from flooding were partially offset by the overall increases in
revenues. The key reasons for the increased St. Louis revenues include an
increase in downtown sporting events and the resulting influx of tourists, a
change in the mix of slot machines to table games and increased promotions
during the six- month period ended August 31, 2002. During the two months
prior to the flood, the Company had captured 77% of the 5.7% market growth.
Gaming revenues at the Company's Biloxi operations increased $0.8 million
during the six-month period ended August 31, 2002 compared to the prior year
period primarily as a result of increased volume resulting from successful
promotional campaigns.
The Company's revenues from food and beverage were $7.0 million during the
six-month period ended August 31, 2002, compared to $7.4 million during the
six-month period ended August 31, 2001. Excluding the Company's former non-
gaming cruise operations, the Company's revenues from food and beverage were
$7.1 million during the six-month period ended August 31, 2001.
The Company's revenues from hotel, retail and other were $5.8 million
during the six-month period ended August 31, 2002, compared to $6.0 million
during the six-month period ended August 31, 2001. Excluding the Company's
former non-gaming cruise operations, the Company's revenues from hotel,
retail and other were $5.6 million during the six-month period ended August
31, 2001.
Promotional allowances were $11.4 million during the six-month period
ended August 31, 2002, compared to $10.8 million during the six-month period
ended August 31, 2001. Promotional allowances in St. Louis decreased $0.2
million and Biloxi increased $0.8 million. In St. Louis, the decrease is
primarily the result of the casino being temporarily closed for seven days
due to flooding on the Mississippi. In Biloxi, promotional allowances
increased primarily as a result of responding to the competitive pressures
in the market.
Operating costs and expenses. The Company's consolidated gaming costs and
expenses were $36.1 million during the six-month period ended August 31,
2002, compared to $36.5 million during the six-month period ended August 31,
2001.
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The Company's consolidated food and beverage expenses were $4.6 million
during the six-month period ended August 31, 2002, compared to $5.0 million
during the six-month period ended August 31, 2001. Excluding the Company's
former non-gaming cruise operations, food and beverage expenses were $4.8
million for the six-month period ending August 31, 2001, a decrease of 4.2%.
The Company's consolidated hotel, retail and other expenses were $1.6
million during the six-month period ended August 31, 2002, compared to $2.0
million during the six-month period ended August 31, 2001. Excluding the
Company's former non-gaming cruise operations, hotel, retail and other
expenses were $1.7 million during the six-month period ended August 31,
2001.
The Company's consolidated selling, general and administrative expenses
were $16.3 million during the six-month period ended August 31, 2002,
compared to $16.0 million during the six-month period ended August 31, 2001.
Excluding the Company's former non-gaming cruise operations, selling,
general and administrative expenses were $15.8 million during the six-month
period ended August 31, 2001. The Company's St. Louis casino operations
experienced a decrease of $0.4 million in selling, general and
administrative expense primarily due to a decrease in advertising expense
resulting from prior year promotions relating to the new location of the
"Admiral," and a decrease in valet and parking expense. The Company's Biloxi
operations had an increase of $0.1 million primarily as the result of
primarily as a result of aggressive hotel promotions. The Company's leasing
operation experienced a $0.5 million increase in selling, general and
administrative expenses as a result of the termination of the installment
sale agreement for the "Surfside Princess" and a $0.3 million increase in
corporate overhead primarily related to a severance agreement with a former
executive.
Depreciation and amortization expense was $4.4 million during the
six-month period ended August 31, 2002, compared to $4.2 million during the
six-month period ended August 31, 2001, an increase of $0.2 million. The
leasing operations ceased depreciating assets as of August 31, 2000 based on
management's decision to sell the assets and resumed depreciation in March
of fiscal 2003. The leasing operations contributed depreciation expense of
$0.3 million for the six-month period ended August 31, 2002.
Operating (loss) income. As a result of the foregoing items, the Company
had operating income of $2.2 million during both six-month periods ended
August 31, 2002 and 2001.
Interest expense, net. The Company incurred net interest expense of $5.5
million during the six-month period ended August 31, 2002, compared to $6.9
million during the six-month period ended August 31, 2001. The decrease is
the result of $2.1 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 undersecured and as a result, interest ceased to
accrue as of the date thereof.
Restructuring costs. The Company incurred restructuring costs of $0.7
million during the six-month period ended August 31, 2002, compared to $0.2
million during the six-month period ended August 31, 2001. On April 19,
2001, PBLLC filed a voluntary bankruptcy petition for bankruptcy and began
incurring costs associated with its reorganization. On June 20, 2002, the
Company's parent company and PRC-Missouri filed voluntary petitions and in
July 2002,
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substantially all of the Company's other operating subsidiaries filed
voluntary petitions. Costs associated with the reorganizations consist of
professional fees.
Gain (loss) on disposal of property and equipment. The Company recorded a
gain on disposal of assets of $0.8 million for the six-month period ended
August 31, 2001, primarily as a result of the sale of the assets of the
Company's former non-gaming cruise operations, with no comparable sale
during the six-month period ended August 31, 2002.
Minority interest expense. The Company incurred $0.6 million minority
interest expense during both six-month periods ended August 31, 2002 and
August 31, 2001.
Net loss. The Company incurred a net loss of $4.6 million during the six-
month period ended August 31, 2002, compared to a net loss of $4.8 million
during the six-month period ended August 31, 2001.
Liquidity and Capital Resources
The Company meets its working capital requirements from a combination of
internally generated sources including cash from operations and the sale or
charter of assets no longer used in the Company's casino operations.
As discussed above, the Company and its subsidiaries 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 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,
management believes that its liquidity and capital resources will be
sufficient to maintain all of its normal operations at current levels and
does not anticipate any adverse impact on its operations, customers or
employees. 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
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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.
The Company was unable to make the principal and interest payments due
September 15, 2001 and the interest payment due March 15, 2002, on its
Senior and Secured Notes. As of August 31, 2002, principal due on the Senior
and Secured Notes was $56.2 million and $18.8 million, respectively.
The Company requires approximately $6.5 million of cash on hand to fund
daily operations. As of August 31, 2002, the Company had $5.4 million of
non- restricted cash in excess of the $6.5 million. The Company is heavily
dependant on cash generated from operations to continue to operate as
planned in its existing jurisdictions and to make capital expenditures.
Management anticipates that its existing available cash and cash equivalents
and its anticipated cash generated from operations will be sufficient to
fund all of its ongoing operations. The debt obligations will be stayed
during the bankruptcy proceedings. To the extent cash generated from
operations is less than anticipated, the Company may be required to curtail
certain planned expenditures or seek other sources of financing.
The Company had $6.4 million in restricted cash as of August 31, 2002. Of
that amount, $4.7 million relates to the Broadwater Property. Prior to the
PBLLC filing for reorganization under Chapter 11, PBLLC deposited revenues
into lockboxes that were controlled by its lender. Expenditures from the
lockboxes were limited to the operating expenses, capital improvements and
debt service of the Broadwater Property as defined by its loan agreement.
The lender continues to control the capital improvements lockbox. PBLLC
currently operates under a cash collateral stipulation and agreement, which
allows PBLLC to use its cash collateral for normal operations in accordance
with certain terms as defined by the cash collateral agreement. Revenues of
PBLLC include the operations of the hotels and golf course and $3.2 million
annually of proceeds from rental of the Biloxi casino's mooring site.
Pursuant to the bankruptcy reorganization plan submitted by PBLLC, the
Company will be obligated to loan to PBLLC certain amounts necessary to make
payments under the Plan. The Company had $1.7 million restricted for payment
as a partial redemption of its obligation under PBLLC's plan of
reorganization.
The Company had $0.7 million in restricted short-term investments as of
August 31, 2002, consisting of certificates of deposit guaranteeing certain
performance obligations of the Company.
The Company generated $4.3 million of cash from operating activities
during the three-month period ending August 31, 2002.
Investing activities of the Company used $2.4 million of cash during the
six-month period ending August 31, 2002. The Company expended $2.9 million
on gaming equipment and capital improvements, of which approximately $2.3
million and $0.6 million was expended in St. Louis and Biloxi, respectively.
The indenture governing the Company's Senior Exchange Notes (the
"Indenture"), restricts the ability of PCI, TCG and PCI's wholly-owned
subsidiaries which are guarantors of the Senior Exchange Notes
(collectively, the "Guarantors"), among other things, to dispose of or
create liens on certain assets, to make certain investments and to pay
dividends. Under the Indenture, the Guarantors have the ability to seek to
borrow additional funds
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of $15.0 million and may borrow additional funds for certain uses. The
Indenture also provides that the Guarantors must use cash proceeds from the
sale of certain assets within 180 days to either (i) permanently reduce
certain indebtedness or (ii) contract with an unrelated third party to make
investments or capital expenditures or to acquire long-term tangible assets,
in each case, in gaming and related businesses (provided any such investment
is substantially complete in 270 days.) In the event such proceeds are not
so utilized, the Company must make an offer to all holders of Senior
Exchange Notes to repurchase at par value an aggregate principal amount of
Senior Exchange Notes equal to the amount by which such proceeds exceeds
$5.0 million. Certain provisions of the Indenture do not apply to the
Company's consolidated entities which do not guarantee the Senior Exchange
Notes.
In conjunction with the purchase of the Broadwater Property, PBLLC
borrowed the sum of $30.0 million from a third party lender, evidenced by a
non- recourse promissory note (the "Indebtedness"). Except as set forth in
the promissory note and related security and guarantee documents, PBLLC's
obligations under the Indebtedness are nonrecourse and are secured by the
Broadwater Property, its improvements and leases thereon. The Indebtedness
bears interest at a variable rate per annum equal to the greater of (i)
8.75% or (ii) 4% plus the LIBOR 30-day rate.
PBLLC is obligated under the Indebtedness to make monthly payments of
interest accruing under the Indebtedness, and 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. As of the
default date, the PBLLC is accruing, but has not paid, interest on the
unpaid loan fee at the stipulated rate. 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. The Bankruptcy Court has
recently been presented with a Restructuring Term Sheet representing an
agreement in principal between PBLLC and its lender, its only secured
creditor. On September 30, 2002, the Court requested that an amended
disclosure statement be filed as well as an amended plan of reorganization.
It further requested that notice be given to all creditors, parties and
other entities including most of the Company's subsidiaries. The Company is
reviewing this matter and will proceed in an appropriate manner.
The term note payable is collateralized by the vessel M/V "President
Casino- Mississippi" and various equipment and is personally guaranteed by
Mr. Connelly. This note also contains certain covenants which, among other
things, require the Company to maintain a minimum tangible net worth of
$40.0 million. The aforementioned default on the Company's Senior Exchange
Notes and Secured Notes also constituted a default under this note. The
Company continued to make the quarterly principal and interest payments
related to this note prior to the bankruptcy filing on July 10, 2002. No
action has been taken by the lender to accelerate the note and declare the
unpaid principal due and payable. Payments have been stayed by the
bankruptcy proceeding.
In connection with the Company's proposed "Destination Broadwater"
development plan, to date, the Company has not identified any particular
financing alternatives or sources as the necessary regulatory approvals have
not been obtained. There can be no assurance that the Company will be able
to
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obtain the regulatory approvals or the requisite financing. Should the
Company fail to raise the required capital, such failure would materially
and adversely impact the Company's business plan.
Forward Looking Statements
This Quarterly Report on Form 10-Q and certain information provided
periodically in writing and orally by the Company's designated officers and
agents contain certain statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934, as
amended. The terms "Company," "we," "our" and "us" refer to President
Casinos, Inc. The words "expect," "believe," "goal," "plan," "intend,"
"estimate," and similar expressions and variations thereof are intended to
specifically identify forward-looking statements. Those statements appear in
this Quarterly Report on Form 10-Q and the documents incorporated herein by
reference, particularly "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) our financial prospects;
(ii) our financing plans and our ability to meet our obligations under our
debt obligations and obtain satisfactory operating and working capital;
(iii) our operating and restructuring strategy; and (iv) the effect of
competition and regulatory developments on our current and expected future
revenues. You are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward looking statements as a result of various factors. The factors that
might cause such differences include, among others, the following: (i)
continuation of future operating and net losses by the Company; (ii) the
inability of the Company to restructure its debt obligations and facilitate
PBLLC's successful emergence from bankruptcy; (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 case; (v) risks
associated with third parties seeking and obtaining court approval to
terminate or shorten the exclusivity period for the Company to propose and
confirm one or more plans of reorganization, for the appointment of a
Chapter 11 trustee or to convert the cases to Chapter 7 cases; (vi) the
ability of the Company to obtain trade credit, and shipments and terms with
vendors and service providers; (vii) the Company's ability to maintain
contracts that are critical to its operations; (viii) potential adverse
developments with respect to the Company's liquidity and results of
operations; (ix) developments or new initiatives by our competitors in the
markets in which we compete; (x) our stock price; (xi) adverse governmental
or regulatory changes or actions which could negatively impact our
operations; and (xii) other factors including those identified in the
Company's filings made from time-to-time with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or
revise forward looking statements to reflect events or circumstances after
the date of this Quarterly Report on Form 10-Q or to reflect the occurrence
of unanticipated events.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of August 31, 2002, the Company had $114.1 million of debt, including a
loan fee of $7.0 million associated with the $30.0 million note related to
the
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Broadwater Property. Of this amount $75.0 million bears contractual interest
at fixed rates and is classified as liabilities subject to compromise. The
remaining $39.1 million bears contractual interest at variable rates. Of
this amount, $2.1 million is classified as liabilities subject to
compromise. The $30.0 million Broadwater Property note payable and
associated $7.0 million loan fee bear interest at a stipulated variable rate
at the greater of (i) 8.75% or (ii) 4.0% plus the LIBOR 30-day rate. The M/V
"President Casino- Mississippi" note payable of $2.1 million bears interest
at 2.0% over the prime rate of J.P. Morgan Chase & Company. As of August 31,
2002, the average interest rate applicable to the debt carrying variable
rates was 11.63%. An increase of one percentage point in the average
interest rate applicable to the variable rate debt outstanding as of August
31, 2002, would increase the Company's annual interest costs by
approximately $0.4 million. The Company continues to monitor interest rate
markets, but has not engaged in any hedging transactions with respect to
such risks.
Although the Company manages its short-term cash assets to maximize return
with minimal risk, the Company does not invest in market rate sensitive
instruments for trading or other purposes and the Company is not exposed to
foreign currency exchange risks or commodity price risks in its
transactions.
Item 4. Controls and Procedures
Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and participation of the Company's
management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required
to be included in the Company's periodic filings with the United States
Securities and Exchange Commission.
Part II. Other Information
Item 1. Legal Proceedings
Information with respect to legal proceedings to which the Company is a
party is disclosed in Note 7 of Notes to Condensed Consolidated Financial
Statements included in Part I of this report and is incorporated herein by
reference.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
The Company has 13.0% Senior Exchange Notes and 12.0% Secured Notes. The
Company did not pay the regularly scheduled interest payments of $6.4
million that were each due and payable March 15 and September 15, 2000.
Under the Indentures pursuant to which the Senior Exchange Notes and Secured
Notes were issued, an Event of Default occurred on April 15, 2000, and is
continuing as of the date hereof. Additionally, the Company did not pay the
$25.0 million
32
35
principal payment due September 15, 2000 on the Senior Exchange Notes. In
November 2000, the Company paid (i) $12.8 million interest and (ii) $18.75
million and $6.25 million principal on the Senior Exchange Notes and Secured
Notes, respectively. The Company did not make the interest payments due
September 15, 2001 and March 15, 2002. On June 20, 2002, the Company filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy
Code. The noteholders of the Senior Exchange Notes and the Secured Notes
were deemed by management to be undersecured and as a result, interest
ceased to accrue as of the date of thereof. Total arrearage as of June 20,
2002, was $56.25 million of principal and $9.7 million of interest on the
Senior Exchange Notes and $18.75 million of principal and $3.1 million of
interest on the Secured Notes.
Additionally, PBLLC did not pay the $30.0 million note and the associated
$7.0 million loan fee due July 22, 2000, related to the Broadwater Property.
PBLLC is obligated under the Indebtedness to make monthly payments of
interest accruing under the Indebtedness at a variable rate per annum equal
to the greater of (i) 8.75% or (ii) 4% plus the LIBOR 30-day rate. PBLLC
continued to make the monthly interest payments related to the $30.0 million
note through April 19, 2001, at which time 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.
In order to be in compliance with accounting principles generally accepted
in the United States of America, PBLLC continues to accrue interest under
the terms of the Indebtedness. Management believes that actual interest and
penalties that will be determined by the bankruptcy judge may be an amount
less than that being accrued. Total accrued arrearage as of October 15,
2002, is $37.0 million of principal and $8.1 million of interest and fees.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
On June 21, 2002, the Company filed a Current Report on Form
8-K dated June 20, 2002, reporting under Item 3 that the
Company and its wholly-owned subsidiary, President Riverboat
Casino- Missouri, Inc. filed voluntary petitions for relief
under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of Mississippi.
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36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
President Casinos, Inc.
-----------------------------
(Registrant)
Date: October 15, 2002 /s/ Ralph J. Vaclavik
-----------------------------
Ralph J. Vaclavik
Senior Vice President and
Chief Financial Officer
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37
CERTIFICATION
I, John E. Connelly, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of President
Casinos, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period for which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Effective Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
35
38
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 15, 2002 /s/ John E. Connelly
-------------------------------------------
John E. Connelly
Chief Executive Officer of
President Casinos, Inc.
36
39
CERTIFICATION
I, Ralph J. Vaclavik, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of President
Casinos, Inc.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period for which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Effective Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
37
40
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 15, 2002 /s/ Ralph J. Vaclavik
-------------------------------------------
Ralph J. Vaclavik
Chief Financial Officer of
President Casinos, Inc.
41
INDEX TO EXHIBITS
-----------------
EXHIBIT NO.
3.1 Restated Articles of Incorporation of the Company. (8)
3.2 By-Laws of the Company, as amended. (4)
4.1 Indenture dated as of August 26, 1994, by and among the Company,
the Guarantors and United States Trust Company of New York ("U.S.
Trust"). (3)
4.1.1 Form of Senior Exchange Note issued pursuant to Indenture. (2)
4.1.2 Warrant Agreement dated as of September 23, 1993, by and between
the Company and U.S. Trust, as Warrant agent. (1)
4.1.3 Warrant Agreement dated as of August 26, 1994, by and between the
Company and U.S. Trust. (3)
4.1.4 Subsidiary Stock Pledge and Collateral Assignment Agreement dated
as of August 26, 1994, by the Company and Subsidiary Pledgors in
favor of U.S. Trust, as collateral agent. (3)
4.2 Rights Agreement, dated as of November 20, 1997, between the
Company and ChaseMellon Shareholder Services, LLC. (5)
4.3 Agreement to Exchange Securities, dated December 3, 1998 by and
among the Company, President Riverboat Casino-Iowa, Inc.
("President Iowa"), President Riverboat Casino-Missouri, Inc.
("President Missouri"), The President Riverboat Casino-
Mississippi, Inc. ("President Mississippi"), Blackhawk, P.R.C.-
Louisiana, Inc., President Riverboat Casino-New York, Inc.
("President New York"), President Casino New Yorker, Inc., PRC
Holdings Corporation, PRC Management, Inc. ("PRC Management"),
PRCX Corporation, President Riverboat Casino-Philadelphia, Inc.
("President Philadelphia"), Vegas Vegas, Inc., and TCG and each
holder of the Company's 13% Senior Exchange Notes due 2001. (6)
4.3.1 Indenture dated as of December 3, 1998, among The Company,
President Iowa, President Missouri, President Mississippi,
Blackhawk, P.R.C.-Louisiana, Inc., President New York, President
Casino New Yorker, Inc., PRC Holdings Corporation, PRC
Management, PRCX Corporation, President Philadelphia, Vegas
Vegas, Inc. and TCG and U.S. Trust Company of Texas, N.A. (6)
4.4.2 President Casinos, Inc. Supplemental Indenture with respect to
$25,000,000 12% Notes due September 15, 2001. (7)
4.4.3 President Casinos, Inc. Supplemental Indenture with respect to
$75,000,000 13% Senior Notes due September 15, 2001. (7)
10.1 Employment Agreement effective the 1st day of March, 2002 by and
between President Casinos, Inc. and Ralph J. Vaclavik.
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
(1) Incorporated by reference from the Company's Registration Statement on
Form S-4 (File No. 33-71332) filed November 5, 1993.
(2) Incorporated by reference from the Company's Registration Statement on
Form S-8 dated June 8, 1994.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-4 (File No. 33-86386) filed November 15, 1994.
(4) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarterly period ended August 31, 1997 filed October 10,
1997.
(5) Incorporated by reference from the Company's Registration Statement on
Form 8-A dated December 5, 1997.
42
(6) Incorporated by reference from the Company's Report on Form 8-K dated
December 15, 1998.
(7) Incorporated by reference from the Company's Report on Form 8-K dated
November 22, 2000.
(8) Incorporated by reference from the Company's Registration Statement on
Form S-8 dated October 10, 2001.