----------------------------------------------------------------------
----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(AMENDMENT NO. 1)
------------------------
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-10410
HARRAH'S ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE I.R.S. NO. 62-1411755
(State of Incorporation) (I.R.S. Employer Identification No.)
------------------------
ONE HARRAH'S COURT
LAS VEGAS, NEVADA 89119
(Address of principal executive offices) (zip code)
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 407-6000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------------------------------ ------------------------------------------
Common Stock, Par Value $0.10 per share* NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
PACIFIC EXCHANGE
PHILADELPHIA STOCK EXCHANGE
7 7/8% Senior Subordinated Notes Due 2005 NONE
of Harrah's Operating Company, Inc.**
7 1/2% Senior Notes Due 2009 NONE
of Harrah's Operating Company, Inc.**
------------------------
* Common Stock also has special stock purchase rights listed on each of the
same exchanges
** Securities guaranteed by Registrant
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of January 31, 2001, based upon the
closing price of $29.38 for the Common Stock on the New York Stock Exchange on
that date, was $3,297,773,877.
As of January 31, 2001, the Registrant had 116,241,792 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders, which will be filed within 120 days after the end of the fiscal
year, are incorporated by reference into Part III hereof and portions of the
Company's Annual Report to Stockholders for the year ended December 31, 2000
(the "Annual Report") are incorporated by reference into Parts I and II hereof.
----------------------------------------------------------------------
----------------------------------------------------------------------
The following items were the subject of a Form 12b-25 and are included
herein: Item 14(a)2. The undersigned registrant hereby amends the following
items, financial statements, exhibits or other portions of its Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, as set forth below:
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
CASINO ENTERTAINMENT
GENERAL
Paragraph 2 of this section shall be deleted in its entirety and restated as
follows:
As of December 31, 2000, we operated a total of approximately 1,258,220
square feet of casino space, 36,858 slot machines, 1,099 table games, 11,562
hotel rooms or suites, approximately 294,844 square feet of convention space, 86
restaurants, 30 snack bars, 11 showrooms and four cabarets.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 2. Financial information filed pursuant to Item 14(d) (including related
notes to consolidated financial statements) filed as part of this report are
listed below:
Financial Information of JCC Holding Company and Subsidiaries
Report of Independent Public Accountants.
Consolidated Balance Sheets of JCC Holding Company and Subsidiaries.
Consolidated Statements of Operations of JCC Holding Company and
Subsidiaries.
Consolidated Statements of Cash Flows of JCC Holding Company and
Subsidiaries.
Consolidated Statements of Stockholders' Equity of JCC Holding
Company and
Subsidiaries.
Notes to Consolidated Financial Statements of JCC Holding Company and
Subsidiaries.
Financial Information of National Airlines, Inc.
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of JCC Holding Company
New Orleans, LA
We have audited the accompanying consolidated balance sheets of JCC Holding
Company and subsidiaries (the "Company") (Successor to "Harrah's Jazz Company")
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 2000 and 1999 and for the period from October 30, 1998 to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on October 13, 1998, the
Bankruptcy Court entered an order confirming a plan of reorganization which
became effective after the close of business on October 29, 1998. Accordingly,
the accompanying financial statements have been prepared in conformity with
AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the successor company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods.
As further discussed in Note 1, the Company filed for reorganization under
Chapter 11 of the Federal Bankruptcy Code on January 4, 2001. The Bankruptcy
Court entered an order confirming the plan of reorganization which became
effective on March 29, 2001. The consequences of this bankruptcy proceeding will
be reflected in the financial statements as of the effective date.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of JCC Holding Company and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999
and for the period from October 30, 1998 to December 31, 1998 in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Memphis, Tennessee
March 30, 2001
2
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents (includes restricted cash of
$2,113 and $6,382, respectively)........................ $ 26,626 $ 34,687
Accounts receivable, net of allowance for doubtful
accounts of $1,958 and $228, respectively............... 6,272 3,177
Inventories............................................... 685 354
Prepaids and other assets................................. 3,678 2,760
Property available for sale............................... - 4,831
-------- --------
Total current assets.................................... 37,261 45,809
-------- --------
Property and Equipment:
Buildings on leased land.................................. 128,936 306,129
Furniture, fixtures and equipment......................... 22,492 43,634
Property held for development............................. 15,520 10,138
Leasehold improvements.................................... 245 -
Construction in progress.................................. 89 151
-------- --------
Total................................................... 167,282 360,052
Less--accumulated depreciation............................ (25,561) (4,179)
-------- --------
Net property and equipment.............................. 141,721 355,873
-------- --------
Other Assets:
Deferred operating contract cost, net of accumulated
amortization of $3,269 and $494, respectively........... 25,536 68,182
Lease prepayment, net of accumulated amortization of $816
and $124, respectively.................................. 6,312 16,861
Deferred charges and other, net of accumulated
amortization of $1,567 and $421, respectively........... 10,631 19,677
-------- --------
Total other assets...................................... 42,479 104,720
-------- --------
Total Assets............................................ $221,461 $506,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liablities:
Short-term borrowings..................................... $ 23,250 $ 15,850
Accounts payable--trade................................... 844 2,012
Accrued interest.......................................... 7,025 2,081
Accrued expenses.......................................... 12,301 20,791
Due to affiliates......................................... 64,806 4,648
Preconfirmation contingencies............................. 2,212 3,033
Other..................................................... 1,977 2,009
-------- --------
Total current liabilities............................... 112,415 50,424
-------- --------
Long-term debt (including debt to affiliates of $31,947 and
$23,704, respectively).................................... 396,412 368,222
Deferred income taxes....................................... - 37,900
Due to affiliates........................................... 20,968 4,302
Other long-term liabilities................................. 339 -
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common Stock:
Unclassified Common Stock (40,000 shares authorized;
none issued and outstanding; par value $.01 per
share)................................................. - -
Class A Common Stock (20,000 shares authorized; 5,778
shares and 5,638 shares, respectively, issued and
outstanding; par value $.01 per share)................. 58 56
Class B Common Stock (20,000 shares authorized; 4,453
shares issued and outstanding; par value $.01 per
share)................................................. 45 45
Additional paid-in capital................................ 108,269 108,538
Accumulated deficit....................................... (417,045) (62,817)
Less--unearned compensation............................... - (268)
-------- --------
Total stockholders' equity (deficit).................... (308,673) 45,554
-------- --------
Total Liabilities and Stockholders' Equity.............. $221,461 $506,402
======== ========
See Notes to Consolidated Financial Statements.
3
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
TWO-MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
REVENUES:
Casino.............................................. $ 245,473 $ 38,005 $ --
Food and beverage................................... 20,356 3,693 --
Retail, parking and other........................... 9,821 1,819 14
Less--casino promotional allowances................. (14,545) (2,361) --
----------- ----------- -----------
Total net revenues................................ 261,105 41,156 14
----------- ----------- -----------
OPERATING EXPENSES:
Direct:
Casino............................................ 215,176 35,013 --
Food and beverage................................. 16,131 2,875 --
Retail, parking and other......................... 4,133 1,200 --
General and administrative.......................... 86,387 16,046 310
Depreciation and amortization....................... 26,339 5,107 111
Provision for asset impairment...................... 258,812 -- --
Pre-opening expenses................................ -- 35,160 3,580
----------- ----------- -----------
Total operating expenses.......................... 606,978 95,401 4,001
----------- ----------- -----------
OPERATING LOSS........................................ (345,873) (54,245) (3,987)
----------- ----------- -----------
REORGANIZATION ITEM................................... -- 1,562 --
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest....... (46,668) (6,869) --
Interest and other income........................... 413 412 310
----------- ----------- -----------
Total other income (expense)...................... (46,255) (6,457) 310
----------- ----------- -----------
LOSS BEFORE TAXES..................................... (392,128) (59,140) (3,677)
INCOME TAX BENEFIT.................................... 37,900 -- --
----------- ----------- -----------
NET LOSS.............................................. $ (354,228) $ (59,140) $ (3,677)
=========== =========== ===========
BASIC NET LOSS PER SHARE.............................. $ (34.79) $ (5.88) $ (0.37)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING................... 10,180,505 10,055,140 10,000,000
=========== =========== ===========
See Notes to Consolidated Financial Statements.
4
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
TWO-MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Cash Flows From Operating Activities:
Net loss.................................................. $(354,228) $ (59,140) $ (3,677)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 26,339 5,107 111
Provision for asset impairment.......................... 258,812 -- --
Deferred income taxes................................... (37,900) -- --
Amortization of note discount........................... 5,369 765 --
Amortization of unearned compensation................... -- 259 --
Deferred rent........................................... 1,624 226 --
Provision for bad debts................................. 1,770 -- --
Write-off of preconfirmation contingencies.............. -- (1,562) --
Loss on sale of property and equipment.................. -- 27 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (4,865) (3,134) (43)
Inventories............................................. (331) (354) --
Prepaids and other assets............................... (918) (1,062) (1,634)
Accounts payable--trade................................. (1,168) 1,369 643
Accrued interest........................................ 19,523 (5,855) --
Accrued expenses........................................ (7,652) 16,336 4,455
Preconfirmation contingencies........................... (821) (2,084) (68,750)
Due to affiliates....................................... 34,090 8,224 500
Other current liabilities............................... (31) 2,009 --
--------- --------- ---------
Net cash flows used in operating activities............. (60,387) (38,869) (68,395)
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures...................................... (3,408) (130,552) (27,026)
Proceeds from sale of property............................ -- 6,042 --
Increase in deferred charges and other assets............. (1,218) (8,492) (5,700)
--------- --------- ---------
Net cash flows used in investing activities............. (4,626) (133,002) (32,726)
--------- --------- ---------
Cash Flows From Financing Activities:
Net borrowings (repayments) of short-term borrowings...... 7,400 15,850 --
Proceeds from notes payable to affiliates................. 49,552 -- --
Proceeds from issuance of long-term debt.................. -- 165,202 --
--------- --------- ---------
Net cash flows provided by financing activities......... 56,952 181,052 --
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (8,061) 9,181 (101,121)
Cash and cash equivalents, beginning of period.............. 34,687 25,506 126,627
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 26,626 $ 34,687 $ 25,506
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 15,519 $ 10,473 --
Noncash investing and financing activities:
Increase in long-term debt for payment-in-kind interest
payments.............................................. $ 14,578 $ 14,013 --
Capitalized interest.................................... $ 140 $ 18,924 $ 3,025
Issuance of restricted stock awards..................... $ 199 $ 527 --
Amortization of note discount........................... -- $ 2,771 $ 506
See Notes to Consolidated Financial Statements.
5
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
(IN THOUSANDS)
COMMON STOCK
-----------------------------------------
CLASS A CLASS B ADDITIONAL
------------------- ------------------- PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
-------- -------- -------- -------- ---------- ----------- ------------ ---------
Balance--October 30,
1998..................... 5,547 $55 4,453 $45 $107,987 $ -- $ -- $ 108,087
Net loss................... (3,677) (3,677)
----- --- ----- --- -------- --------- ----- ---------
Balance--December 31,
1998..................... 5,547 55 4,453 45 107,987 (3,677) -- 104,410
----- --- ----- --- -------- --------- ----- ---------
Restricted stock
activity................. 92 1 526 (268) 259
Other...................... (1) 25 25
Net loss................... (59,140) (59,140)
----- --- ----- --- -------- --------- ----- ---------
Balance--December 31,
1999..................... 5,638 56 4,453 45 108,538 (62,817) (268) 45,554
----- --- ----- --- -------- --------- ----- ---------
Restricted stock
activity................. 140 2 (269) 268 1
Net loss................... (354,228) (354,228)
----- --- ----- --- -------- --------- ----- ---------
Balance--December 31,
2000..................... 5,778 $58 4,453 $45 $108,269 $(417,045) $ -- $(308,673)
===== === ===== === ======== ========= ===== =========
See Notes to Consolidated Financial Statements.
6
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
NOTE 1. ORGANIZATION, BASIS OF PRESENTATION AND BANKRUPTCY IN JANUARY 2001
ORGANIZATION. JCC Holding Company ("JCC Holding") was incorporated under
Delaware law on August 20, 1996 in contemplation of succeeding to all of the
assets and liabilities of Harrah's Jazz Company, a general partnership, which
filed for relief under the United States Bankruptcy Code on November 22, 1995.
JCC Holding conducts business through its wholly-owned subsidiaries, Jazz Casino
Company, L.L.C., a Louisiana limited liability company ("Jazz Casino"), JCC
Development Company, L.L.C., a Louisiana limited liability company ("JCC
Development"), JCC Canal Development, L.L.C., a Louisiana limited liability
company formerly known as CP Development, L.L.C. ("Canal Development")and JCC
Fulton Development, L.L.C., a Louisiana limited liability company, formerly
known as FP Development, L.L.C. ("Fulton Development" and, together with JCC
Holding, Jazz Casino, JCC Development and Canal Development, the "Company").
Except as otherwise noted for purposes of this report, references to the words
"we", "us" and "our" refer to JCC Holding Company together with each of its
subsidiaries.
On October 30, 1998, in accordance with the Harrah's Jazz Company Joint Plan
of Reorganization confirmed by the United States Bankruptcy Court, we became the
successor to the operations of Harrah's Jazz Company. In connection with the
Harrah's Jazz Company plan of reorganization, JCC Holding issued an aggregate of
10 million shares of its capital stock consisting of both Class A and Class B
Common Stock. The former bondholders of Harrah's Jazz Company received Class A
Common Stock, which constituted approximately 52% of the issued and outstanding
Class A and Class B Common Stock. In addition, the former bondholders also
received their pro rata share of (i) $187.5 million in aggregate principal
amount of Jazz Casino's senior subordinated notes with contingent payments, and
(ii) Jazz Casino's senior subordinated contingent notes (see Note 6). Harrah's
Entertainment, Inc. ("Harrah's Entertainment") acquired beneficial ownership of
Class B Common Stock which constitutes approximately 43% of the issued and
outstanding Class A and Class B Common Stock.
Our purpose is to develop and operate an exclusive land-based casino
entertainment facility (the "Casino") in New Orleans, Louisiana. The Casino
commenced operations on October 28, 1999. Through certain of its subsidiaries,
JCC Holding also plans to develop approximately 130,000 square feet of
multipurpose non-gaming entertainment space on the second floor of the Casino
and develop various adjacent properties for entertainment uses supporting the
Casino. Currently, we have not obtained financing to fund these developments.
BASIS OF PRESENTATION--1998 REORGANIZATION. As of October 30, 1998, the
Company's consolidated financial statements have been prepared in accordance
with the American Institute of Certified Public Accountants' ("AICPA") Statement
of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code" ("SOP 90-7").
In accordance with the SOP 90-7, we established its reorganization value and
adopted "fresh start" reporting as of October 30, 1998. We adopted "fresh start"
reporting because owners immediately before filing and confirmation of the
Harrah's Jazz Company plan of reorganization received less than
7
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
50% of the voting shares of the emerging entity, and its reorganization value is
less than the postpetition liabilities and allowed claims, as shown below:
(IN THOUSANDS)
--------------
Post-petition current liabilities........................... $ 83,777
Liabilities deferred pursuant to Chapter 11 proceedings..... 523,468
--------
Total postpetition liabilities and allowed claims........... 607,245
Reorganization value........................................ 331,000
--------
Excess of liabilities over reorganization value............. $276,245
========
Pursuant to SOP 90-7, the total reorganization value of the reorganized
Company's assets was determined using several factors and by reliance on various
valuation methods, including discounting cash flow, as well as by analyzing
market cash flow multiples applied to our forecasted cash flows. The factors
considered by the Company included: (1) forecasted cash flow results which gave
effect to the estimated impact of the restructuring; (2) the discounted residual
value at the end of the forecast period; (3) competition and general economic
considerations; and (4) future potential profitability. Based on this analysis,
we, after consultation with an independent firm specializing in reorganizations,
established our reorganization value as follows:
(IN THOUSANDS)
--------------
Reorganization value as of October 30, 1998 based upon
independent appraisal..................................... $ 495,000
Financing to occur post bankruptcy but prior to opening..... (164,000)
---------
Reorganization value........................................ $ 331,000
=========
Under the principles of "fresh start" reporting, our total net assets were
recorded at this assumed reorganization value, which was then allocated to
identifiable tangible assets on the basis of their estimated fair value. In
accordance with "fresh start" reporting, the difference between the assumed
reorganization value and the aggregate fair value of the identifiable tangible
assets resulted in a reduction in the value assigned to intangible deferred
operating contract costs and lease prepayments. In addition, our accumulated
deficit was eliminated.
8
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
The effect of the Harrah's Jazz Company plan of reorganization and the
application of "fresh start" reporting to our condensed (unaudited) balance
sheet as of October 30, 1998 was as follows:
(PREDECESSOR)
HARRAH'S JAZZ (SUCCESSOR)
COMPANY JCC HOLDING
PRE-FRESH START PLAN OF COMPANY
BALANCE SHEET REORGANIZATION FAIR VALUE FRESH START
OCTOBER 30, ADJUSTMENTS ADJUSTMENTS BALANCE SHEET
1998 (A) (B) OCTOBER 30, 1998
--------------- -------------- ----------- -----------------
(IN THOUSANDS)
Cash and cash equivalents............ $ 14,339 $ 112,288 $ -- $126,627
Prepaids and other assets............ 65 -- -- 65
---------- ---------- --------- --------
Total current assets......... 14,404 112,288 -- 126,692
Property and equipment............... 199,967 -- (11,795) 188,172
Deferred operating contract cost..... 122,222 -- (53,546) 68,676
Lease prepayment..................... 30,263 -- (13,278) 16,985
Other assets......................... 2,084 -- 3,820 5,904
---------- ---------- --------- --------
Total........................ $ 368,940 $ 112,288 $ (74,799) $406,429
========== ========== ========= ========
Liabilities not subject to
compromise......................... $ 83,777 $ (8,348) $ -- $ 75,429
Liabilities subject to compromise.... 523,468 (523,468) -- --
Long-term debt....................... -- 185,013 -- 185,013
Other long-term obligations.......... -- 37,900 -- 37,900
Partners' deficit/stockholders'
equity............................. (238,305) 421,191 (74,799) 108,087
---------- ---------- --------- --------
Total........................ $ 368,940 $ 112,288 $ (74,799) $406,429
========== ========== ========= ========
------------------------
(A) To record the transactions consummated pursuant to the Harrah's Jazz Company
plan of reorganization and eliminate partners' deficit. These adjustments
include a $15 million direct infusion of equity to JCC Holding from Harrah's
Crescent City Investment Company.
(B) To record the adjustment to state assets and liabilities at fair value and
adjust for the difference between the assumed reorganization value and the
fair value of the identifiable tangible and intangible assets by reducing
the value assigned to deferred operating contract cost and lease
prepayments.
Preconfirmation contingencies represent amounts owed to creditors of the
predecessor company, Harrah's Jazz Company, which were transferred to the
Company under the Harrah's Jazz Company Plan of Reorganization. During 1999,
preconfirmation contingencies were reduced by $1.6 million due to a change in
estimate. This amount is included as a reorganization item on the consolidated
statements of operations.
Bankruptcy in January 2001. On January 4, 2001, we filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code in order to
allow restructuring of our obligations to the State of Louisiana and the City of
New Orleans, long-term debt, bank credit facilities, and trade and other
obligations. The filing was made in the U.S. Bankruptcy Court for the Eastern
District of Louisiana in
9
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
New Orleans (the "Bankruptcy Court"). After the Petition Date, we continued to
operate as debtors-in-possession subject to the Bankruptcy Court's supervision
and orders.
The consummation of a plan of reorganization was our primary objective. The
plan, which was approved by the bankruptcy court on March 19, 2001 and was
effective on March 29, 2001 (the "Effective Date"), resulted in, among other
things, elimination of existing common stock and the issuance of new securities
to creditors. The consequences of this bankruptcy proceeding will be reflected
in the financial statements as of the Effective Date. The cancellation of
non-affiliate debt and related accrued interest will result in an extraordinary
gain as of the Effective Date. In addition, the cancellation of affiliate debt
and other obligations will result in an increase to additional paid in capital
as of the Effective Date. The Company did not meet the requirements to utilize
fresh start reporting.
The plan includes the reduction of Jazz Casino's annual minimum payment
obligations to the Louisiana Gaming Control Board to the greater of 21.5% of
gross gaming revenue or a minimum payment of $50 million commencing April 1,
2001, through March 31, 2002, and $60 million each fiscal year thereafter. Under
the plan, Harrah's Entertainment and Harrah's Operating Company, Inc. ("Harrah's
Operating Company"), will provide a new minimum payment guaranty to the
Louisiana Gaming Control Board (the "New Minimum Payment Guaranty"), which
guaranty will secure Jazz Casino's annual minimum payment obligation to the
Louisiana Gaming Control Board pursuant to a new HET/JCC Agreement among
Harrah's Entertainment and Harrah's Operating Company and Jazz Casino (the "New
HET/JCC Agreement"). In exchange for providing a New Minimum Payment Guaranty,
Harrah's Entertainment and Harrah's Operating Company (and any substitute
guarantor) will receive from Jazz Casino an annual guaranty fee. The obligations
under the New HET/JCC Agreement will be secured by, among other things, a first
lien on substantially all of our assets (except the Second and Third Amendments
to the Amended and Renegotiated Casino Operating Contract and the Gross Revenue
Share Payments) (as defined in Note 10). The plan further calls for a reduction
of at least $5 million in the amounts required to be paid under Jazz Casino's
agreements with the City of New Orleans and the Rivergate Development
Corporation.
On the Effective Date, the outstanding Common Stock of JCC Holding consisted
of 12,386,200 shares of new common stock ("New Common Stock"). Under the Plan of
Reorganization, in consideration of, among other things, Harrah's
Entertainment's and Harrah's Operating Company's consent to the cancellation and
extinguishment of all claims against us arising under the Revolving Credit
Facility, the Tranche A-2 Term Loan, the Tranche B-2 Term Loan, the Slot Lease,
the Junior Subordinated Credit Facility, the Completion Loan Guarantee, and the
JCC Development promissory note, it and its affiliates' agreement to waive all
claims relating to existing defaults under the Management Agreement, the
Administrative Services Agreement, the Forbearance Agreement, the Warrant
Agreement, and any other pre-petition claims against us, and Harrah's Operating
Company's agreement to contribute the Slot Machines to JCC Holding, Harrah's
Entertainment will receive 6,069,238 shares (49%) of the New Common Stock of JCC
Holding; holders of claims arising under the Tranche B-1 of the Bank Credit
Facilities will receive 1,734,068 shares (14%) of the New Common Stock of JCC
Holding; and holders of claims arising under the Senior Subordinated Notes will
receive 4,582,894 shares (37%) of the New Common Stock of JCC Holding.
In addition, Jazz Casino issued term notes (the "New Notes") in the
aggregate amount of $124.5 million (face value), which will mature 7 years from
their issuance and bear interest at The
10
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
London Interbank Offered Rate ("LIBOR") plus 275 basis points. The holders of
claims arising under Tranches A-1, A-3 and B-1 of the Bank Credit Facilities
received $55.0 million in New Notes; Harrah's Entertainment and its affiliates,
as holders of claims arising under the HET/JCC Agreement and Tranche A-2 of the
Bank Credit Facilities received $51.6 million in New Notes; and holders of
claims arising under the Senior Subordinated Notes received $17.9 million in New
Notes.
Under the Plan of Reorganization, all holders of Casino Operation-Related
Unsecured Claims will be paid, in cash, the full amount of their claims.
Jazz Casino will have up to $35 million available for working capital
purposes under a new revolving line of credit (the "New Revolving Credit
Facility"), to be provided by Harrah's Entertainment. The New Revolving Credit
Facility bears interest at a rate of LIBOR plus 3.00% per annum and will mature
in 2006. The obligations under the New Revolving Credit Facility are secured by
substantially all of our assets (except the Second and Third Amendments to the
Amended and Renegotiated Casino Operating Contract, the Casino's bankroll and
the Gross Revenue Share Payments (as defined in Note 10)). The New Revolving
Credit Facility will be secured on a second lien priority basis, junior only to
a lien securing certain obligations of Jazz Casino under the New HET/JCC
Agreement pursuant to which Harrah's Entertainment will agree to provide a
Minimum Payment Guaranty. The New Notes will be secured by junior liens on the
same assets.
Harrah's New Orleans Management Company ("Manager") will continue to manage
the Casino pursuant to the third amended management agreement (the "Amended
Management Agreement"). Under the Amended Management Agreement, Jazz Casino will
have the right to terminate the Amended Management Agreement if the Casino fails
to achieve adjusted earnings before interest, income taxes, depreciation,
amortization and management fees ("EBITDAM") of not less than 85% for 2001, 84%
for 2002, and 83% for 2003 and thereafter, of the adjusted EBITDAM forecast by
the Manager. The amount of the management fee currently paid to Manager will be
adjusted under the Amended Management Agreement, and certain fees now charged to
the Casino by the Manager and its affiliates will be eliminated.
Upon the filing of our Chapter 11 cases, we required funds to meet certain
postpetition financial obligations, including the Minimum Daily Payments
required under the casino operating contract and the payment obligations arising
under the Rivergate Development Corporation Lease. To meet those cash needs, we
arranged for a debtor-in-possession financing facility provided by Harrah's
Entertainment and its affiliates, the terms of which were negotiated with
Harrah's Entertainment prior to the date of filing our bankruptcy petition.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of JCC Holding Company and its subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS. For purposes of the consolidated statements of
cash flows and consolidated balance sheets, cash and cash equivalents include
highly liquid investments with original maturities of three months or less. As
of December 31, 2000, restricted cash includes approximately $1.9 million of
unused contributions to the capital replacement fund (see Notes 9 and 10),
$184,000 of
11
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
contributions to the Open Access Program public support efforts (see Note 10)
and $8,000 of construction escrow funds. As of December 31, 1999, restricted
cash includes approximately $501,000 of contributions to the capital replacement
fund (see Notes 9 and 10), $126,000 of contributions to the Open Access Program
public support efforts (see Note 10) and $5.8 million of construction escrow
funds.
INVENTORIES. Inventories, which consist primarily of food, beverage,
operating supplies and retail items, are stated at average cost.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, except
for adjustments related to fresh start reporting (see Note 1) and adjustments
related to asset impairment (See Note 3). Improvements and repairs that extend
the life of the asset are capitalized. Maintenance and repairs are expensed as
incurred. Interest is capitalized on constructed assets at the Company's overall
weighted average rate of interest. Capitalized interest amounted to $140,000 and
$21.7 million in 2000 and 1999, respectively.
Depreciation is calculated using the straight-line method over the shorter
of the estimated useful lives of the assets, the related lease term, or the life
of the amended casino operating contract as follows:
Buildings on leased land.................................... 25 years
Leasehold improvements...................................... 9 years
Furniture, fixtures and equipment........................... 3 to 7 years
Property held for development is valued at the lower of cost or estimated
fair value. Costs incurred in developing these properties, not in excess of
their fair values, are capitalized.
Property available for sale consists of land owned by Canal Development of
$4.8 million as of December 31, 1999. The land is valued at the lower of cost or
estimated fair value. In addition, costs incurred in developing the Canal
Development property prior to offering the property for sale, not in excess of
its fair value, have been capitalized. On February 14, 2000, we entered into a
contract to sell this property to Wyndham International, a hotel developer, for
$6.5 million. However, on March 29, 2001, we rejected this contract in
connection with our Plan of Reorganization. Thus, the development property was
reclassified as property held for development.
DEFERRED OPERATING CONTRACT COST. Deferred operating contract cost consists
of payments, net of adjustments related to asset impairment (see Note 3) and of
adjustments related to fresh start reporting (see Note 1), to the Louisiana
Economic Development and Gaming Corporation (see Note 10) required under the
original casino operating contract between Harrah's Jazz Company and the
Louisiana Economic Development and Gaming Corporation, which commenced on
July 15, 1994, and is being amortized on the straight-line basis over the period
from October 28, 1999 through July 24, 2024, the life of the amended and
renegotiated casino operating contract dated October 30, 1998 among Harrah's
Jazz Company, Jazz Casino and the State of Louisiana, by and through the
Louisiana Gaming Control Board. The amended and renegotiated casino operating
contract, which was entered into in connection with the Harrah's Jazz Company
plan of reorganization, modified the original casino operating contract between
Harrah's Jazz Company and the Louisiana Economic
12
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
Development and Gaming Corporation and is referred to herein as the amended
casino operating contract. This contract will be subject to further revisions as
a result of our recent Plan of Reorganization.
LEASE PREPAYMENT. Lease prepayment includes a non-refundable initial
payment, net of adjustments related to fresh start reporting (see Note 1) and
adjustments related to asset impairment (See Note 3), required under the
original ground lease for the site on which the Casino has been constructed (see
Note 9) and is being amortized on a straight-line basis over 25 years, the life
of the amended casino operating contract.
REVENUE RECOGNITION AND PROMOTIONAL ALLOWANCES. Jazz Casino recognizes the
net win from gaming activities (the difference between gaming wins and losses)
as casino revenues. Casino revenues are net of accruals for anticipated payouts
of progressive slot machine jackpots and certain progressive table game payouts.
Such anticipated jackpots and payouts are reflected as other current liabilities
on the accompanying consolidated balance sheets. Food and beverage, parking,
retail, and other revenues are recognized as services are provided. The
estimated value of beverages, food, parking, retail and other items, which are
provided to customers without charge or in exchange for earned total reward
points, has been included in revenues and a corresponding amount has been
deducted as promotional allowances.
The estimated costs of providing such complimentary services are included in
casino costs and expenses and for the year ended December 31, 2000 amounted to
$5.7 million, $1.9 million, $1.1 million, and $474,000 for beverages, food,
parking and retail items, respectively. From October 28, 1999 to December 31,
1999 these same estimated costs amounted to $893,000, $235,000 and $39,000, for
beverages, parking and retail items, respectively.
Under the terms of the amended casino operating contract, in effect for the
years ended December 31, 2000 and 1999, Jazz Casino is not allowed to give away
or subsidize food from the Casino's buffet and is prohibited from developing
on-site lodging. In order to compensate for these limitations and offer its
patrons the integrated Casino, dining and entertainment experience, the Casino
offers its patrons complimentary meals, hotel rooms, transportation,
entertainment, and other amenities at various local establishments. The expense
related to providing these external complimentary services are included in
casino costs and expenses and totaled $20.8 million in 2000 and $4.5 million for
the period from October 28, 1999 to December 31, 1999.
PREOPENING COSTS. Preopening costs represent primarily the direct salaries
and other operating costs incurred by us prior to the opening of the Casino on
October 28, 1999. We account for start-up activities under provisions of the
AICPA SOP 98-5, "Reporting on the Costs of Start-Up Activities," which provides
guidance on the financial reporting of start-up costs and organization costs. It
requires costs of start-up activities and organization costs to be expensed as
incurred.
AMORTIZATION OF NOTE DISCOUNT. The discount associated with Jazz Casino's
senior subordinated notes with contingent payments (see Note 6) is amortized
using the interest method. Our interest expense for 2000, 1999 and 1998 includes
amortization of the note discount of $5.4 million, $3.5 million and $506,000,
respectively.
13
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
INCOME TAXES. We account for income taxes under the provisions of Statement
of Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income
Taxes." Under SFAS No. 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
NET INCOME PER SHARE. We account for net income per share under the
provisions of SFAS No. 128, "Earnings Per Share." This standard requires dual
presentation of net income per common share and net income per share assuming
dilution on the face of the statement of operations. Basic net income per common
share is computed by dividing the net income attributable to common stockholders
by the weighted average number of shares outstanding during the period. Diluted
earnings per common share assume that any dilutive convertible debentures
outstanding at the beginning of each year were converted at those dates, with
related interest and outstanding common shares adjusted accordingly. Jazz
Casino's convertible junior subordinated debentures (see Note 6) were not
included in the computation of diluted earnings per common share for 2000, 1999
and 1998 because it would have resulted in an antidilutive effect. Diluted
earnings per common share also assumes that outstanding common shares were
increased by shares issuable upon exercise of those stock warrants and stock
options for which market price exceeds exercise price, less shares which could
have been purchased by us with related proceeds. Since the exercise price
associated with the warrant issued to Harrah's Crescent City Investment Company
(see Note 12) is above the market price of the Class A Common Stock, it was not
dilutive in 2000, 1999 and 1998.
STOCK-BASED COMPENSATION. In 1999, we adopted the disclosure-only
provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." SFAS
No. 123 encourages, but does not require, companies to adopt a fair value based
method for determining expense related to stock-based compensation. We continue
to account for stock-based compensation using the intrinsic value method as
prescribed under Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and related interpretations.
USE OF ESTIMATES. Financial statements prepared in accordance with
accounting principles generally accepted in the United States of America require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
LONG-LIVED ASSETS. We periodically evaluate whether events and
circumstances have occurred that indicate that certain assets may not be
recoverable. When factors indicate that long-lived assets should be evaluated
for impairment, we use an estimate of undiscounted net cash flow over the
shorter of the remaining life of the related lease, contract, or asset, as
applicable, in determining whether the assets are recoverable. See Note 3 for a
discussion of asset impairment adjustments recorded during the fourth quarter of
2000 as a result of our asset impairment evaluation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments", requires certain disclosures regarding the fair
value of financial instruments. Current assets and current liabilities,
including due to affiliates, are reflected in the consolidated financial
statements at fair value because of the short-term maturity of these
instruments, except for short-term
14
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
borrowings, due to affiliates and accrued interest which has a fair value of
$17.6 million, $50.0 million and $2.3 million, respectively, based on the Plan
of Reorganization. The fair value of long-term other assets and liabilities,
excluding debt and due to affiliates, closely approximates their carrying value
(see Note 6). We use quoted market prices, when available, or discounted cash
flows to calculate these fair values.
RISK OF COMPETITION. The Casino faces significant competition on a
national, regional and local scale from gaming operations in Mississippi and, on
a regional level and local scale, from gaming operations in the State of
Louisiana. The Casino also competes for patrons on a national and international
scale with large casino hotel facilities in Las Vegas, Nevada and Atlantic City,
New Jersey.
SEGMENT INFORMATION. Our principal line of business is casino and
entertainment development.
RECENTLY ISSUED PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", amended in June 2000 by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
which requires the recognition of all derivatives as assets or liabilities in
the statement of financial position and measures those instruments at fair
value. Changes in fair value derivatives are recorded in earnings or other
comprehensive income depending upon the intended use of the derivative and the
resulting designation. The effective date of this statement has been delayed to
fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 on
January 1, 2001, as amended by SFAS No. 138, had no material impact on the
consolidated financial position and results of operations.
RECLASSIFICATIONS. Certain reclassifications have been made in prior year's
financial statements to conform to classifications used in the current year.
NOTE 3. ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS
We account for impairment of long lived assets in accordance with SFAS
No. 121, "Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed of". On December 27, 2000, we received notice from
Harrah's Entertainment, Inc. and Harrah's Operating Company that they would not
provide the minimum payment guaranty required under the terms of our casino
operating contract. Accordingly, management reviewed its long-lived assets and
identifiable intangibles and determined an impairment had occurred. The
estimated fair value of the assets was determined by management using judgment
and a reorganization value determined in consultation with an independent firm
specializing in reorganizations. During the fourth quarter of 2000, we recorded
an impairment charge and wrote down approximately $255.9 million of impaired
long-lived assets. The write down included $177.4 million of buildings on leased
land, $19.2 million of furniture, fixtures and equipment, $293,000 of leasehold
improvements, $138,000 of construction in progress, $39.9 million of deferred
operating contract costs, $9.9 million of lease prepayments and $9.1 million of
deferred charges and other long lived assets. Generally, fair value represents
our expected future cash flows from the use of the long-term assets, discounted
at a rate commensurate with the risks involved. Considerable management judgment
is necessary to estimate the fair value of our long-lived assets. Accordingly,
actual results may vary from management's estimates. In addition for the year
ending
15
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
December 31, 2000, we recorded asset impairment adjustments of $2.9 million to
write down furniture, fixtures and equipment to be disposed of to their net
realizable value.
NOTE 4. ACCRUED EXPENSES
Accrued expenses as of December 31 consist of the following:
2000 1999
-------- --------
Payroll and related benefits.............................. $ 6,996 $ 5,048
Orleans Parish School Board contribution.................. 2,000 333
State gaming taxes........................................ 1,096 548
Professional fees......................................... 457 2,593
Hotel rooms and catering.................................. 412 1,942
Construction costs........................................ 8 8,577
Other..................................................... 1,332 1,750
------- -------
Total................................................... $12,301 $20,791
======= =======
NOTE 5. SHORT-TERM BORROWINGS
Pursuant to the credit agreement dated as of October 29, 1998 among Jazz
Casino, as borrower, JCC Holding, as guarantor, and a syndicate of lenders led
by Bankers Trust Company, Jazz Casino obtained a $25 million revolving line of
credit, which terminates in January 2006, to cover short-term working capital
requirements. Letters of credit could be drawn on the available balance under
this credit facility up to $10 million. Under the revolving line of credit, the
interest rate on the Eurodollar loans ranged from LIBOR plus 2.50% to LIBOR plus
3.50% and the interest rate on the base rate loans was prime plus 1.0% less than
the applicable margin on the Eurodollar loans. As of December 31, 2000, Jazz
Casino had outstanding borrowings of $23.3 million and outstanding letters of
credit of $1.7 million under this revolving line of credit. The weighted average
interest rates on our outstanding short-term borrowings during the years ended
December 31, 2000 and 1999 were 9.56% and 9.13%, respectively. Refer to Note 6
for a discussion of the guaranty related to the revolving line of credit.
On the Effective Date, this revolving line of credit was cancelled. The New
Revolving Credit Facility provided on the Effective Date by Harrah's
Entertainment will provide Jazz Casino with up to $35 million of availability to
meet working capital requirements, including up to $10 million of availability
for letters of credit. The New Revolving Credit Facility bears interest at a
rate of LIBOR plus 3.00% per annum and will mature in 2006. The New Revolving
Credit Facility is secured by substantially all of our assets (except the Second
and Third Amendments to the Amended and Renegotiated Casino Operating Contract,
the Casino bankroll and the Gross Revenue Share Payments (as defined in
Note 10)). The New Revolving Credit Facility is secured on a second lien
priority basis, junior only to a lien securing obligations of Jazz Casino under
the New HET/JCC Agreement (see Note 1).
16
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
NOTE 6. LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS
Long-term debt consisted of the following as of December 31:
2000 1999
-------- --------
(IN THOUSANDS)
Term loans:
Tranche A-1, 8.00% (a).................................... $ 10,000 $ 10,000
Tranche A-2, 9.75% (a).................................... 20,000 20,000
Tranche A-3, 8.00% (a).................................... 30,000 30,000
Tranche B-1, 9.50% (a).................................... 30,000 30,000
Tranche B-2, 9.75% (a).................................... 121,500 121,500
-------- --------
211,500 211,500
-------- --------
Senior subordinated notes with contingent payments, 6.10%
(a)....................................................... 211,305 199,143
Unamortized note discount................................... (90,365) (95,734)
-------- --------
120,940 103,409
-------- --------
Senior subordinated contingent notes........................ -- --
Convertible junior subordinated debentures, 8.00% (a)....... 32,025 29,609
Junior subordinated credit facility-affiliate, 8.00% (a).... 25,167 22,500
Completion Loan--affiliate, 8.00% (a)....................... 5,127
Promissory note--affiliate, 9.00% (a)....................... 1,653 1,204
-------- --------
Total long-term debt.................................... $396,412 $368,222
======== ========
------------------------
(a) Represents the interest rate for the respective debt agreements in effect as
of December 31, 2000.
TERM LOANS
Pursuant to the credit agreement dated as of October 29, 1998 among Jazz
Casino, as borrower, JCC Holding, as guarantor, and a syndicate of lenders led
by Bankers Trust Company, Jazz Casino obtained a construction financing
commitment of $211.5 million under various term loans and up to $25 million of
available working capital under a revolving line of credit (see Note 5). The
term loans and the revolving line of credit were a single combined credit
facility.
Under our credit agreement, we had up to $25 million available for working
capital purposes under our revolving line of credit, which was used to partially
cover operating losses. Our credit agreement required that we satisfy certain
Earnings Before Interest, Taxes, Depreciation, Amortization ("EBITDA")
maintenance requirements on a quarterly basis. We did not meet the required
EBITDA test for the quarter ended June 30, 2000. However, at our request, the
bank lenders under the credit agreement granted a temporary waiver of our
failure to comply with this covenant. That waiver, which also placed a temporary
limit on our revolver borrowing, expired on August 31, and was replaced with an
amendment to our credit agreement, which (1) amended our credit agreement to,
among other things, change the EBITDA maintenance requirements with which we are
required to comply through
17
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
the quarter ended December 31, 2000; (2) subject to certain limitations,
re-established our $25 million revolving line of credit; (3) granted additional
waivers to allow Harrah's Entertainment and Harrah's Operating Company to
advance up to an additional $10 million to a total of $50 million under their
minimum payment guaranty of the $100 million minimum annual payment that we were
required to pay to the Louisiana Gaming Control Board under our casino operating
contract, subject to certain limitations, including the requirement that we must
first borrow all of the $25 million available under our revolving line of credit
before additional amounts may be advanced under the minimum payment guaranty;
and (4) extended until February 28, 2001, the date by which a notice by Harrah's
Entertainment to the banks or the Louisiana Gaming Control Board that the
minimum payment guaranty will not be extended, would constitute an event of
default.
In conjunction with the amendment to our credit agreement discussed above,
on September 1, 2000, Harrah's Operating Company purchased from our bank lenders
approximately $145.5 million of our present obligations to the bank lenders,
which amount it had previously guaranteed under the Guaranty and Loan Purchase
Agreement, and agreed to provide the funding for the balance of our $25 million
revolving line of credit as it is drawn from the banks.
The interest rates on the term loans assuming that they were maintained as
Eurodollar loans, were as follows:
INTEREST RATE
----------------------------------------------
Tranche A-1........................... LIBOR plus 1%
Tranche A-2........................... LIBOR plus 2.5% to LIBOR plus 3.5%
Tranche A-3........................... LIBOR plus 1%
Tranche B-1........................... LIBOR plus 2.5%
Tranche B-2:
LIBOR plus Harrah's Entertainment's applicable
Up to $10 Million................. margin then in effect*
In Excess of $10 Million.......... LIBOR plus 2.5% to LIBOR plus 3.5%
------------------------
* Represents Harrah's Entertainment's current interest rate on its credit
facility.
The interest rate on the term loans maintained as base rate loans was the
sum of (i) the applicable base interest rate and (ii) that percentage (not below
1.0%) which was 1.0% less than the margin for loans of such tranche maintained
as Eurodollar loans.
18
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
The term loans have the following repayment terms:
Tranche A-1 and A-2 (Combined) Quarterly installments of $100,000
beginning July 31, 2000 with a $27.8
million lump sum payment due at April
2006.
Tranche A-3 Quarterly installments of $1 million in
year one, $1.5 million in years two and
three and $1.75 million in years four
and five.
Tranche B-1 and B-2 (Combined) Quarterly installments beginning July 31,
2000 of $1.5 million in year one,
$2.5 million in years two through five,
$2.125 million in year six with a
$97 million lump sum payment due at
January 2006.
The scheduled quarterly repayments were deferred for any of the first six
semi-annual interest payment periods if interest on Jazz Casino's senior
subordinated notes with contingent payments (see below) was paid in kind and the
Manager had deferred its fees under the terms of its management agreement with
Jazz Casino (see Note 8) and under the agreement (the "HET/JCC Agreement") among
Jazz Casino, Harrah's Entertainment and Harrah's Operating Company, a wholly
owned subsidiary of Harrah's Entertainment, pursuant to which Harrah's
Entertainment and Harrah's Operating Company had provided an initial guaranty in
favor of the State of Louisiana by and through the Louisiana Gaming Control
Board of a $100 million annual payment due to the State of Louisiana under the
amended casino operating contract (see Note 10). Jazz Casino has included $13.4
million and $5.2 million of repayments due in 2001 and 2000 as long-term debt
due to its intent to defer these repayments.
The tranche A term loans generally rank senior to all existing and future
indebtedness of Jazz Casino except certain obligations of Jazz Casino under the
HET/JCC Agreement (see Note 8).
The term loans and the revolving line of credit were secured by liens on
substantially all of the assets of each of Jazz Casino (excluding the amended
casino operating contract, funds deposited in the house bank maintained at the
Casino and the Gross Gaming Revenue Share Payments (as defined in Note 10)), JCC
Holding, JCC Development, Canal Development and Fulton Development. The credit
agreement contained affirmative covenants with respect to, among other things,
the maintenance of certain leverage ratios, coverage ratios and levels of
tangible net worth, limitations on indebtedness, changes in Jazz Casino's
business, the sale of all or substantially all of Jazz Casino's assets, mergers,
acquisitions, reorganizations and recapitalizations, liens, guarantees, the
payment of management fees, dividends and other distribution, investments, debt
prepayments, sale-leasebacks, capital expenditures, lease expenditures and
transactions with affiliates, and financial reporting.
The obligations of Jazz Casino under its credit agreement were guaranteed on
a senior basis by JCC Holding, JCC Development, Canal Development and Fulton
Development.
The tranche A-2 and B-2 term loans along with the revolving line of credit
were also guaranteed by Harrah's Entertainment and Harrah's Operating Company.
As consideration for this guaranty,
19
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
Harrah's Entertainment received an annual credit support fee from Bankers Trust
Company and Jazz Casino equal to 2% and approximately 0.75%, respectively, of
the average aggregate principal amount of loans and/or stated amount of letters
of credit outstanding under tranche A-2 and B-2 term loans and the revolving
line of credit (in the case of tranche B-2 term loans only to the extent of the
aggregate principal amount thereof from time to time in excess of $10 million).
During the year ended December 31, 2000 and 1999, Jazz Casino incurred annual
credit support fees of approximately $1.1 million and $388,000, which were
deferred under the terms of the HET/JCC Agreement.
On the Effective Date, this credit facility was cancelled and New Notes and
New Common Stock were issued in the amount of $55.0 million (face value) and 1.7
million shares, respectively, to the syndicate of lenders and New Notes of $21.0
(face value) and 2.5 million shares to Harrah's Entertainment and its affiliates
(see Note 1).
SENIOR SUBORDINATED NOTES AND CONTINGENT NOTES
In connection with the Harrah's Jazz Company plan of reorganization, in 1998
Jazz Casino issued (1) $187.5 million aggregate principal amount of senior
subordinated notes with contingent payments maturing in 2009, and (2) senior
subordinated contingent notes maturing in 2009 pursuant to indentures, dated as
of October 30, 1998, by and among Jazz Casino, as obligor, JCC Holding, JCC
Development, Canal Development and Fulton Development, as guarantors, and
Norwest Bank Minnesota, National Association, as Trustee.
As of December 30, 1998, the stated interest rate on the senior subordinated
notes with contingent payments was considered by the Company to be lower than
prevailing interest rates for debt with similar terms and credit ratings. In
accordance with fresh start reporting, the senior subordinated notes with
contingent payments were valued based on discounting concepts to approximate
their fair value (16% discount rate).
The fixed interest rate on the senior subordinated notes with contingent
payments was 5.867% per year, increasing over the first three years to a rate of
6.214% in the fourth and fifth years and increasing to 8% after the first five
years and was payable semiannually in arrears on each May 15 and November 15,
beginning May 15, 1999. Jazz Casino had the option to pay the first six
semi-annual payments of fixed interest on its senior subordinated notes with
contingent payments in kind rather than in cash; provided, however, that Jazz
Casino must pay the first four semi-annual payments of fixed interest in kind if
tranche A-1 and/or tranche A-2 term loans were outstanding when such payments
were due. Jazz Casino had the option to pay the fifth and sixth semi-annual
payments of fixed interest in kind and was required to do so by its credit
agreement under certain circumstances. Jazz Casino paid the first four interest
payments amounting to $23.8 million on its senior subordinated notes with
contingent payments in kind rather than in cash.
As of December 31, 2000 and 1999, there were no amounts outstanding under
the senior subordinated contingent notes or the contingent payments under the
senior subordinated notes.
The senior subordinated notes with contingent payments and the senior
subordinated contingent notes were secured on an equal and ratable basis by
liens on substantially all of the assets of Jazz Casino, JCC Holding, JCC
Development, Canal Development and Fulton Development (excluding the amended
casino operating contract, funds deposited in the house bank maintained at the
Casino and
20
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
the Gross Gaming Revenue Share Payments (as defined in Note 10)). See Note 13
for guarantor condensed financial information.
Each of the indentures governing the notes contained certain restrictions
on, among other things, restricted payments, liens, incurrence of additional
indebtedness, payment of management fees, subsidiary dividend restrictions,
asset sales, transactions with affiliates, mergers and consolidations.
On the Effective Date, the senior subordinated notes with contingent
payments and the senior subordinated contingent notes were cancelled. The senior
subordinated noteholders received New Notes and New Common Stock in the amount
of $17.9 million (face value) and 4.6 million shares, respectively. The senior
subordinated contingent noteholders did not receive any New Notes or New Common
Stock for the cancellation of this debt (see Note 1).
CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
On October 30, 1998, Jazz Casino issued to Bankers Trust Company, Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc., BT Alex.
Brown Incorporated and Bank One, $27,287,500 aggregate principal amount of its
convertible junior subordinated debentures due 2010. The convertible junior
subordinated debentures mature in May 2010. The convertible junior subordinated
debentures bear interest at the rate of 8% per year, payable semi-annually in
cash; provided, however, that Jazz Casino had the option of paying the interest
on the debentures, in whole or in part, in kind rather than in cash (1) at any
time on or prior to October 30, 2003, and (2) at any time thereafter if Jazz
Casino did not make contingent payments with respect to the senior subordinated
contingent notes on the immediately preceding interest payment date for the
senior subordinated contingent notes. Jazz Casino has paid the first four
interest payments amounting to $4.7 million in kind. The convertible junior
subordinated debentures were unsecured obligations of Jazz Casino. The
convertible junior subordinated debentures were convertible at the option of the
holders, in whole or in part, at any time after October 1, 2002, into Class A
Common Stock or, after the Transition Date (as defined in the agreement),
Unclassified Common Stock of JCC Holding at a conversion price of $25.00 per
share, subject to dilution and other appropriate adjustments.
The indenture under which the convertible junior subordinated debentures
were issued restricts mergers and consolidations involving, and the sale,
transfer, lease or conveyance of all or substantially all of the assets of Jazz
Casino and JCC Holding. The obligations of Jazz Casino to the holders of the
convertible junior subordinated debentures were guaranteed on a subordinated
basis by JCC Holding.
On the Effective Date, the convertible junior subordinated debentures were
cancelled. The holders of the convertible junior subordinated debentures did not
receive any New Notes or New Common Stock for the cancellation of this debt (see
Note 1).
JUNIOR SUBORDINATED CREDIT FACILITY
On October 30, 1998, Jazz Casino entered into a junior subordinated credit
facility with Harrah's Entertainment and Harrah's Operating Company whereby
Harrah's Operating Company agreed to make available to Jazz Casino up to $22.5
million of subordinated indebtedness to fund project costs to the extent that
such costs exceeded amounts available under the term loans (excluding the
tranche A-2 and tranche B-2 term loans), the proceeds from the issuance of the
convertible junior subordinated
21
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
debentures and the $15 million equity investment by Harrah's Crescent City
Investment Company in JCC Holding on October 30, 1998. As of December 31, 1999,
Jazz Casino has drawn $22.5 million under this facility.
The junior subordinated credit facility was unsecured. Amounts owed under
the junior subordinated credit facility were due and payable six months
following the maturity of the senior subordinated notes with contingent
payments. Outstanding principal under the junior subordinated credit facility
bore interest at the rate of 8% per year. Interest would be paid in cash and
would be added to the outstanding principal amount if certain EBITDA tests were
not met for the contingent payment periods or if Jazz Casino paid interest in
kind on its senior subordinated notes with contingent payments after
September 30, 2000. Jazz Casino paid the first interest payment due on
September 30, 2000 amounting to $2.7 million under this facility in kind. As of
December 31, 2000, the outstanding balance amounted to $25.2 million.
On the Effective Date the junior subordinated credit facility was cancelled.
The holders of the junior subordinated credit facility did not receive any New
Notes or New Common Stock for the cancellation of this debt (see Note 1).
COMPLETION LOAN AGREEMENT
On October 30, 1998, Jazz Casino entered into an amended and restated
subordinated completion loan agreement with Harrah's Entertainment and Harrah's
Operating Company under which any expenditure made by Harrah's Entertainment and
Harrah's Operating Company under its completion guarantees, which were not also
expenditures under our amended and restated construction lien indemnity
agreement with Harrah's Operating Company, were deemed unsecured loans. The
loans under the completion loan agreement bear interest at a rate of 8% per
annum and will mature on April 30, 2010. No fees are payable to Harrah's
Entertainment and Harrah's Operating Company in connection with the completion
guarantees. As of December 31, 2000, the outstanding balance under the
completion loan was $5.1 million.
On the Effective Date, the completion loan agreement was cancelled. The
holders of the completion loan agreement did not receive any New Notes or New
Common Stock for the cancellation of this debt (see Note 1).
PROMISSORY NOTE
On October 26, 1999, JCC Development entered into a promissory note with
Harrah's Operating Company that provides for borrowings up to $2 million.
Borrowings under this loan accrued interest at 9% per year, and, at JCC
Development's option, could be paid in cash or in kind. The entire unpaid
balance of principal and interest is due on October 26, 2004. As of
December 31, 2000 and 1999, JCC Development had outstanding borrowings under
this note of $1.7 million and $1.2 million, respectively, and had incurred
interest costs of $140,000 and $19,000, respectively, which were capitalized in
connection with its development activities.
On the Effective Date, the promissory note was cancelled. The holder of this
promissory note did not receive any New Notes or New Common Stock for the
cancellation of this debt (see Note 1).
22
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
As of December 31, 2000, maturities of long-term debt (by their original
terms) are as follows:
(IN THOUSANDS)
2001........................................................ $ --
2002........................................................ 16,400
2003........................................................ 22,027
2004........................................................ 19,053
2005........................................................ 15,650
Thereafter.................................................. 323,282
--------
Total Long-term Debt...................................... $396,412
========
On the Effective Date, the long-term debt was cancelled. New Notes were
issued in the aggregate principal (face) amount of $124.5 million that will
mature seven years after the Effective Date (see Note 1) in connection with the
cancellation of long-term debt and certain other obligations (see Note 9). The
New Notes will pay interest semi-annually at LIBOR plus 2.75% per annum. In the
first year, one half of the interest payments on the New Notes may be paid in
kind and added to the principal at our option. Principal payments on the New
Notes will be amortized as follows: zero in the first year; 50% of free cash
flow (as defined in the New Note agreement) in the second through fourth years;
and $6 million annually in the fifth through seventh years, with all remaining
unpaid principal payable at maturity.
FAIR VALUE
The estimated fair values and carrying amounts of long-term debt and due to
affiliates are as follows (in thousands):
2000 1999
---------------------------- ----------------------------
FAIR VALUE CARRYING VALUE FAIR VALUE CARRYING VALUE
---------- --------------- ---------- ---------------
Senior subordinated notes with
contingent payments................. $46,182 $120,940 $113,539 $103,409
Term loans............................ 72,238 211,500 211,500 211,500
Convertible junior subordinated
debentures.......................... -- 32,025 29,595 29,609
Junior subordinated credit facility--
affiliate........................... -- 25,167 19,422 22,500
Completion loan--affiliate............ -- 5,127 -- --
Promissory note--affiliate............ -- 1,653 1,191 1,204
Long-Term due to affiliates........... -- 20,968 4,302 4,302
The fair value of Jazz Casino's long-term debt and due to affiliates was
determined using valuation techniques that considered cash flows discounted at
current market rates and management's best estimate for instruments without
quoted market prices.
23
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
NOTE 7. FEDERAL INCOME TAXES
As of December 31, 2000 and 1999 the effective income tax rate differs from
the statutory federal income tax rate as follows:
2000 1999
-------- --------
Statutory federal rate.................................... 38.00% 38.00%
State income taxes, net of federal income tax benefit..... -- --
Valuation allowance....................................... (28.73) (38.23)
Permanent items........................................... 0.40 0.23
------ ------
Effective tax rate........................................ 9.67% 0.00%
====== ======
Significant components of net deferred tax liabilities as of December 31
consisted of the following:
2000 1999
--------- ---------
(IN THOUSANDS)
Deferred Tax Liabilities:
Discount on debt..................................... $ (34,339) $ (36,379)
Capitalized Interest................................. (410) (1,902)
Original issue discount.............................. (1,717) (134)
--------- ---------
Total.............................................. (36,466) (38,415)
--------- ---------
Deferred Tax Assets:
Net operating loss................................... 76,936 22,991
Basis difference in fixed assets..................... 88,288 19,380
Basis difference in intangible assets................ 22,393 36
Accrued reserves..................................... 1,354 868
Contribution carryover............................... 709 118
Stock compensation cost.............................. 85 102
Work opportunity and welfare-to-work credit.......... 226 98
Self Insurance....................................... 753 --
Valuation allowance.................................. (154,278) (43,078)
--------- ---------
Total.............................................. 36,466 515
--------- ---------
Net deferred tax liability......................... $ -- $ (37,900)
========= =========
The impairment charge recorded during 2000 created a deferred tax asset
available to offset our deferred tax liabilities. As of December 31, 2000, the
valuation allowance was adjusted to reduce the Company's net deferred taxes to
zero resulting in an income tax benefit of $37.9 million. At December 31, 1999,
the Company had a valuation allowance to reduce the deferred tax assets.
As of December 31, 2000, the Company has a net operating loss carryforward
for both regular tax and alternative minimum tax of $202.5 million, expiring as
follows: $3.4 million in 2018; $60.2 million in 2019; and $138.9 million in
2020.
24
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
In addition, the Company has a charitable contribution carryforward of
approximately $1.8 million expiring as follows: $242,000 in 2004; and $1.6
million in 2005.
The Company also has tax credit carryforwards for the Work Opportunity
Credit of $167,000 and the Welfare to Work Credit of $58,000. The Work
Opportunity Credit expires as follows: $18,000 in 2019; and $149,000 in 2020.
The Welfare to Work Credit expires as follows: $5,000 in 2019; and $53,000 in
2020.
For state income tax purposes, Jazz Casino has a net operating loss
carryforward of $201.4 million which expires as follows: $3.1 million in 2013;
$60.1 million in 2014; and $138.2 million in 2015. In addition, JCC Holding has
a state net operating loss carryforward of $1.1 million which expires as
follows: $297,000 in 2013; $162,000 in 2014; and $627,000 in 2015.
NOTE 8. RELATED PARTY TRANSACTIONS
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENTS
The Casino's operations are managed by Harrah's New Orleans Management
Company (the "Manager"), a wholly-owned subsidiary of Harrah's Entertainment,
pursuant to the second amended and restated management agreement. Under the
terms of the management agreement, the Manager is entitled to receive a
management fee having two components. The first component is equal to 3% of
annual gross revenues of the Casino. The second component is an incentive based
fee that is equal to 7% of certain consolidated EBITDA targets. In addition, the
Manager is entitled to receive a travel fee equal to $100,000 per year, subject
to adjustment based on changes in the Consumer Price Index and a "marketing
contribution," which as of December 31, 2000, 1999, and 1998 was an amount equal
to 1.5%, 1.5%, and 0.4% of the Casino's net revenues, respectively. The Manager
may increase this marketing contribution from time to time to ensure that it
generally equals the fee charged to other participating casinos owned or managed
by Harrah's Entertainment's affiliates. Under the terms of the management
agreement, the management fee has been deferred until such time as Jazz Casino
meets certain interest payment requirements under its various debt agreements.
Jazz Casino has also contracted with Harrah's Operating Company to perform
various administrative services pursuant to an administrative services
agreement. The administrative service agreement, dated October 30, 1998, is
renewable each year and may be cancelled by either party 30 days after written
notice. Services to be provided under this agreement include accounting,
computer processing, risk management, marketing and administration of certain
human resource matters. The fees under the administrative agreement are
negotiated annually and are to be paid monthly.
During 2000 and 1999, Jazz Casino leased certain employees from Harrah's
Entertainment or its affiliates for approximately $174,000 and $913,000,
respectively.
For the years ending December 31, 2000 and 1999, Jazz Casino incurred costs
of $21.9 million and $9.0 million, respectively, under the above agreements. For
the year ending December 31, 1998, Jazz Casino incurred costs of $4.2 million
consisting primarily of reimbursements for pre-reorganization amounts.
25
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
On the Effective Date, all fees under the management agreement were waived
and Jazz Casino entered into the Amended Management Agreement. Under the Amended
Management Agreement, the Manager will continue to be responsible for and have
authority over, among other things:
- hiring, supervising and establishing labor policies with respect to
employees of the Casino;
- gaming and entertainment operations including security and internal
control procedures;
- public relations and promotions;
- retaining certain suppliers;
- all accounting, budgeting, financial and treasury functions in the Casino;
and
- performing certain system services generally performed at casinos owned or
operated by Harrah's Entertainment and its affiliates.
In addition, the Manager and Harrah's Operating Company shall continue to
provide the administrative services currently provided by Harrah's Operating
Company under the Administrative Service Agreement, which is being terminated on
the Effective Date, at no additional costs (other than insurance and risk
management services).
Under the Amended Management Agreement on the Effective Date, as
consideration for managing the Casino, the Manager will be entitled to receive a
management fee equal to thirty percent of EBITDAM. Under the Amended Management
Agreement, Jazz Casino shall reimburse Harrah's Entertainment for the cost of
property level executive salaries currently being funded by Harrah's
Entertainment and shall reimburse Harrah's Entertainment for insurance related
to the Casino and previously funded by Harrah's Entertainment on Jazz Casino's
behalf. Neither the Manager or any of its affiliates shall be entitled to
receive fees for services currently provided under the Administrative Service
Agreement, which services shall be provided at no additional cost (see Note 1).
HET/JCC AGREEMENT
On October 30, 1998, Jazz Casino entered into the HET/JCC Agreement with
Harrah's Entertainment and Harrah's Operating Company, under which Harrah's
Entertainment and Harrah's Operating Company had posted an initial payment
guaranty for the benefit of the State of Louisiana by and through the Louisiana
Gaming Control Board to assure payment of the minimum $100 million annual
payment due to the State of Louisiana under Jazz Casino's amended casino
operating contract. Any amounts funded by Harrah's Entertainment to the
Louisiana Gaming Control Board under this agreement take the form of a demand
obligation by Jazz Casino to Harrah's Entertainment, and are first priority
liens on our assets.
For the years ending December 31, 2000 and 1999, Jazz Casino incurred
minimum payment guaranty fees of approximately $6.0 million and $1.1 million,
respectively.
Under the terms of the minimum payment guaranty, on February 29, 2000, upon
notice by the Louisiana Gaming Control Board that we had failed to make a daily
payment, Harrah's Operating Company, Inc., began making the minimum daily
payments of approximately $274,000 due to the Louisiana Gaming Control Board
under the terms of our casino operating contract. As of
26
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
December 31, 2000, Harrah's Entertainment and Harrah's Operating Company had
advanced $44.1 million to the Louisiana Gaming Control Board on our behalf under
the minimum payment guaranty which is included in current due to affiliates. The
principal balance outstanding bears interest at LIBOR plus 1% (8.00% as of
December 31, 2000).
Because funding under the minimum payment guaranty would constitute a
default under our credit agreement with our bank lenders if our reimbursement
obligation to Harrah's Entertainment and Harrah's Operating Company under the
HET/JCC agreement exceeded $5 million, at our request, our bank lenders granted
us a limited waiver of the default subject to certain conditions. The waiver
granted by the bank lenders allowed funding under the HET/JCC agreement of up to
$40 million. This limit was reached on July 20, 2000, at which time we resumed
making the minimum daily payments. On August 31, 2000, the credit agreement was
amended to include additional waivers to allow Harrah's Entertainment and
Harrah's Operating Company to advance up to an additional $10 million under the
HET/JCC agreement, subject to certain limitations, including the requirement
that we must first borrow all of the $25 million available under our revolving
line of credit before additional amounts may be advanced under the minimum
payment guaranty.
On the Effective Date, the minimum payment loan along with the guaranty fees
and related interest charges were cancelled and Harrah's Entertainment and
Harrah's Operating Company received New Notes and New Common Stock in the amount
of $30.6 million (face value) and approximately 3.1 million shares,
respectively. In addition, Jazz Casino entered into the New HET/JCC Agreement
pursuant to which Harrah's Entertainment will provide a minimum payment guaranty
to the Louisiana Gaming Control Board. Jazz Casino will procure an initial
rolling, four-year minimum payment guaranty guaranteeing the minimum payment
required to be made to the Louisiana Gaming Control Board under the Second and
Third Amendments to the Amended and Renegotiated Casino Operating Contract, and
will provide rolling, three year minimum payment guaranties thereafter. The
initial minimum payment guaranty will be provided by Harrah's Entertainment, and
will guarantee the following amounts payable to the Louisiana Gaming Control
Board:
- $50 million in the period April 1, 2001 to March 31, 2002;
- $60 million in the period April 1, 2002 to March 31, 2003;
- $60 million in the period April 1, 2003 to March 31, 2004; and
- $60 million in the period April 1, 2004 to March 31, 2005.
Harrah's Entertainment and Harrah's Operating Company will receive an annual
guaranty fee in the amount of two percent of the total amount at risk at such
time under the minimum payment guaranty. The guaranty fees for the period
through March 31, 2002 shall be deferred and become payable in four equal
installments due on March 31, 2002, March 31, 2003, March 31, 2004, and
March 31, 2005, provided that any then unpaid installments of the deferred
guaranty fee for the period through March 31, 2002 shall be due and payable in
full upon any termination of the Amended Management Agreement. For any periods
after March 31, 2002, the guaranty fee for the period April 1, 2002 to
March 31, 2003 shall be due and payable on March 31, 2002; the guaranty fee for
the period from April 1, 2003 to March 31, 2004 shall be due and payable on
March 31, 2003; and the guaranty fee for the period from April 1, 2004 to
March 31, 2005 shall be due and payable on
27
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
March 31, 2004. Advances made by Harrah's Entertainment on Jazz Casino's behalf
pursuant to the New HET/JCC Agreement shall bear interest at the rate specified
for loans under the New Revolving Credit Facility (LIBOR plus 3.00% per annum)
and shall be secured on a first lien priority basis by substantially all of the
Debtors' assets (except the Second and Third Amendments to the Amended and
Renegotiated Casino Operating Agreement, the Casino bankroll and the Gross
Revenue Share Payments (as defined in Note 10)).
JUNIOR SUBORDINATED CREDIT FACILITY
Harrah's Entertainment and Harrah's Operating Company have provided Jazz
Casino with the $22.5 million junior subordinated credit facility (see Note 6).
On the Effective Date, this Junior Subordinated credit facility was cancelled
(see Note 1).
PROMISSORY NOTE
Harrah's Operating Company has provided JCC Development with a $2 million
promissory note (see Note 6). On the Effective Date, this promissory note was
cancelled (see Note 1).
HARRAH'S ENTERTAINMENT LOAN GUARANTEE
Harrah's Entertainment and Harrah's Operating Company have provided a
payment guaranty with respect to the tranche A-2 and B-2 term loans and the
revolving line of credit (see Notes 5 and 6). On the Effective Date, this
payment guaranty was cancelled (see Note 1).
COMPLETION GUARANTEE
Harrah's Entertainment and Harrah's Operating Company entered into a series
of completion guarantees in favor of the State of Louisiana and others pursuant
to which Harrah's Entertainment and Harrah's Operating Company guaranteed, among
other things, the completion of the Casino and the payment of all obligations of
Jazz Casino up to and through the completion of the Casino's construction. This
included the duty to complete, equip and open the Casino if Jazz Casino failed
to commence or complete the Casino's construction and to pay certain of Jazz
Casino's costs and expenses until the Casino opened prior to the termination of
the construction date.
AMENDED COMPLETION LOAN AGREEMENT
Harrah's Entertainment and Harrah's Operating Company provided Jazz Casino
with draws on the available completion loan totaling $5.1 million (see Note 6).
On the Effective Date, this completion loan was cancelled (see Note 1).
EQUIPMENT LEASES
During 1999, Jazz Casino entered into a master lease agreement for
approximately 1,900 slot machines with Harrah's Operating Company (see Note 9).
On the Effective Date, this master lease was cancelled (see Note 1).
28
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
LIMITED FORBEARANCE AGREEMENT
On February 29, 2000, Jazz Casino entered into a limited forbearance
agreement with Harrah's Operating Company and Harrah's New Orleans Management
Company, the Manager of our casino. This agreement was subsequently amended on
August 31, 2000. Under this amended forbearance agreement, Harrah's Operating
Company and Harrah's New Orleans Management Company each agreed to forbear until
April 1, 2001 certain payments under the management agreement, the
administrative agreement and the master lease agreement that we owed or which
become due prior to April 1, 2001. The amended limited forbearance agreement
also waived any penalties or late charges assessed on the deferred payments
under these agreements. As of December 31, 2000, pursuant to the amended limited
forbearance agreement, we had deferred approximately $18.0 million related to
the payments and fees payable to Harrah's Operating Company or Harrah's New
Orleans Management Company.
On the Effective Date, the limited forbearance agreement was cancelled and
Harrah's Operating Company and Harrah's New Orleans Management Company will not
receive New Notes or New Common Stock related to this agreement (see Note 1).
NOTE 9. LEASES
We lease real estate, office space, and equipment for use in our business
through operating leases. In addition to minimum rentals, certain leases provide
for contingent rents based on percentages of revenue. Real estate operating
leases range from 12 months to 30 years with options for extensions for up to an
additional 30 years. The average remaining term for non-real estate leases
ranges from one to five years.
THE CASINO SITE
Jazz Casino entered into an amended and restated ground lease agreement
dated October 29, 1998 with the Rivergate Development Corporation, as landlord,
and the City of New Orleans, as intervenor, for the site on which the Casino is
located. The initial term of the amended and restated ground lease is for 30
years beginning October 29, 1998, with three consecutive ten-year renewal
options.
Under the terms of the original ground lease, Harrah's Jazz Company was
required to make an initial payment of $30 million. The amended and restated
ground lease required payments of $736,000 per month until the Casino opened.
These monthly payments were capitalized during the construction of the Casino
until opening and are being amortized over the life of the amended casino
operating contract. Subsequent to October 28, 1999, the minimum lease payment
increased to $12.5 million per year. The amended and restated ground lease
provides for additional rents based on various percentages of gross gaming and
non-gaming revenues. Jazz Casino is also required to make a $2.0 million annual
contribution to the Orleans Parish School Board as well as certain additional
non-recurring rental payments totaling $2.25 million over the lease term of
which $875,000 was paid during the year ended December 31, 1999. The remaining
non-recurring payments were scheduled to be paid during 2001. The amended and
restated ground lease also requires annual payments of approximately
$1.25 million contingent upon gross gaming revenues equaling $350 million. Jazz
Casino is required to fund this initial amount on a monthly basis in the first
fiscal year of operations. At the end of the first
29
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
fiscal year of operations, if Jazz Casino's gross gaming revenue is less than
$350 million, no additional amounts are required to be paid, and the initial
funded amount of $1.25 million, which was funded in 2000 and 1999, will be
utilized as a credit in the first fiscal year that gross gaming revenue equals
or exceeds $350 million. Jazz Casino is further obligated to pay contingent rent
in the event a dividend is declared or if the Manager is paid a termination fee.
Under certain conditions, the Rivergate Development Corporation has a one-time
right to receive additional rent based on the net market appreciation of JCC
Holdings' Common Stock as computed by a defined formula. Jazz Casino is also
required to contribute $1.0 million each year to the City of New Orleans for a
joint marketing fund and to make monthly payments to a capital replacement fund.
The annual aggregate payments to the capital replacement fund are $3.0 million
in the first year of the Casino's operations and increase $1.0 million in year
two and three and in each succeeding year the payments are based on 2.0% of
gross gaming and non-gaming revenues to be paid 10 days in arrears on a monthly
basis. For the years ended December 31, 2000, 1999 and 1998, Jazz Casino has
contributed $1 million to the City of New Orleans for the joint marketing fund,
respectively. In addition, for the years ended December 31, 2000 and 1999, Jazz
Casino has contributed $2.8 million and $500,000 in an interest-bearing account
to fund the capital replacement reserve. In connection with the development of
the second floor of the Casino, Jazz Casino is also required to pay the
Rivergate Development Corporation rent equal to 50% of net operating cash income
generated from operations on the second floor of the Casino.
On the Effective Date, Jazz Casino entered into a New Amended and Restated
Ground Lease, which provides for a $5 million reduction in overall payments to
the Rivergate Development Corporation and the City of New Orleans.
SLOT LEASES
In October 1999, Jazz Casino entered into a master lease agreement with
Harrah's Operating Company pursuant to which Jazz Casino leases approximately
1,900 slot machines, including the 1,085 slot machines sold to Harrah's
Operating Company as discussed below. The terms of the various slot machines
leased under the master lease agreement range from 3 years to 3.7 years.
In October 1999, Jazz Casino sold approximately 1,085 slot machines for $6.0
million to Harrah's Operating Company. These slot machines are being leased back
under an operating lease from Harrah's Operating Company for a term of 3.7 years
pursuant to the terms of the master lease described above. The master lease is
being accounted for as an operating lease. The master lease agreement grants
Jazz Casino an option to purchase the underlying slot machines at prices
approximating fair value in 2001, 2002 and at lease termination.
On the Effective Date, the master lease agreement was cancelled. Harrah's
Operating Company contributed the slot machines under the master lease agreement
to us in exchange for receiving New Common Stock of approximately 500,000 shares
(see Note 1).
30
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
FUTURE MINIMUM RENTAL COMMITMENTS
The aggregate contractual future minimum rental commitments, excluding
contingent rentals related to the amended and restated ground lease and after
the Effective Date of the New Amended and Restated Ground Lease as of
December 31, 2000, are as follows:
(IN THOUSANDS)
--------------
2001........................................................ $ 18,736
2002........................................................ 18,768
2003........................................................ 15,685
2004........................................................ 13,230
2005........................................................ 13,160
Thereafter.................................................. 265,422
--------
Total Minimum Lease Payments................................ $345,001
========
Scheduled rent increases are amortized on a straight-line basis primarily
over the life of the applicable lease. Lease expense for the years ended
December 31, 2000 and 1999 and the period from October 30, 1998 to December 31,
1998 was approximately $22.5 million, $6.3 million and $139,000, respectively.
NOTE 10. COMMITMENTS AND CONTINGENCIES
CASINO OPERATING CONTRACT
Pursuant to the original casino operating contract, which commenced on
July 15, 1994, the Louisiana Economic Development and Gaming Corporation granted
Harrah's Jazz Company the right to conduct gaming operations at the Casino. On
October 30, 1998, all of Harrah's Jazz Company's right, title and interest in
and to the original casino operating contract revested in Harrah's Jazz Company,
and the original casino operating contract was modified by the amended casino
operating contract and assigned to Jazz Casino in accordance with applicable
Louisiana law and the agreement of the parties thereto. The term of the amended
casino operating contract is 20 years, commencing in July 1994, with one
automatic ten year renewal option.
Under the original casino operating contract, Harrah's Jazz Company paid the
Louisiana Economic Development and Gaming Corporation an initial payment of $125
million in installments as well as certain percentage payments based on the
gross gaming revenues from the operations of a temporary casino operated by
Harrah's Jazz Company. Under Jazz Casino's amended casino operating contract,
during each fiscal year of the Casino's operation, Jazz Casino is required to
pay to the State of Louisiana, by and through the Louisiana Gaming Control
Board, an amount equal to the greater of (i) $100 million or (ii) the sum of the
following percentages of gross gaming revenue from the Casino in a fiscal year
(the "Gross Gaming Revenue Share Payments"):
18.5% of gross gaming revenue up to $600 million
20.0% of gross gaming revenue in excess of $600 million up to
$700 million
22.0% of gross gaming revenue in excess of $700 million up to
$800 million
31
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
24.0% of gross gaming revenue in excess of $800 million up to
$900 million
25.0% of gross gaming revenue in excess of $900 million
Under the amended casino operating contract, Jazz Casino was required to
advance the Louisiana Gaming Control Board up to $3.5 million to reimburse the
Louisiana Gaming Control Board for its actual personnel costs (to include
Louisiana Gaming Control Board, the Louisiana State Police and Louisiana
Attorney General personnel and contract staff appropriate to the suitability
process) that were incurred in connection with the suitability findings
necessary for the execution of the amended casino operating contract and the
opening of the Casino. Harrah's Jazz Company paid $500,000 of this amount prior
to October 30, 1998, and Jazz Casino advanced $3 million of this amount on
October 30, 1998. On October 19, 1999, Jazz Casino was notified through an
amendment to the amended casino operating contract by the Louisiana Gaming
Control Board that the $3.5 million advance discussed above would not be
sufficient to pay the suitability costs and that an additional $1.7 million
would be required. The amendment provided for the $1.7 million to be deducted
from the $4.8 million credit due from the Louisiana Gaming Control Board to Jazz
Casino. As of December 31, 2000, the remaining credit of $3.1 million is in
long-term other assets. Jazz Casino is entitled to offset this credit against
daily payments to the Louisiana Gaming Control Board on or after April 1, 2003
subject to certain stipulations under the Second and Third Amendments to the
Amended and Renegotiated Casino Operating Contract as described below.
The amended casino operating contract obligates Jazz Casino to maintain a
capital replacement fund. The capital replacement fund is the same as that
required pursuant to Jazz Casino's amended and restated ground lease with the
Rivergate Development Corporation and the City of New Orleans and its management
agreement with the Manager and is not meant to duplicate the capital replacement
fund obligations under those agreements (see Note 9).
Under the amended casino operating contract, the Casino is prohibited from
engaging in certain activities related to food, lodging and retail, which also
applies to our operations on the second floor of the Casino. The amended casino
operating contract also imposes certain financial stability requirements on Jazz
Casino relating to its ability to meet ongoing operating expenses, casino
bankroll requirements, projected debt payments and capital maintenance
requirements.
On September 27, 2000, we received a notice from the Louisiana Gaming
Control Board that we were in default of Section 9.5(c) of the Amended and
Renegotiated Casino Operating Contract dated October 30, 1998, with the State of
Louisiana.
The Gaming Control Board informed us of the Board's determination that we
have failed, as required by the casino operating contract, to demonstrate by
clear and convincing evidence that we have the continuing ability to pay,
exchange, refinance or extend our debt that will mature or otherwise become due
and payable during the twelve-month period commencing on July 1, 2001, primarily
due to the lack of a minimum payment guarantor for the period beyond March 31,
2001. Pursuant to the casino operating contract, we had six months after receipt
of the Board's notice, or until March 27, 2001, to cure such a default.
On the Effective Date, Jazz Casino will operate under a Third Amendment to
the Amended and Renegotiated Casino Operating Contract establishing the payments
to the Louisiana Gaming Control
32
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
Board at the greater of (i) 21.5% of gross gaming revenues from the casino in
the applicable casino operating contract fiscal year or (ii) $50 million for the
period from April 1, 2001 to March 31, 2002, and $60 million for each annual
period thereafter. In addition, Jazz Casino will pay an override on gross gaming
revenues equal to (i) 1.5% of gross gaming revenues in excess of $500 million,
up to $700 million, (ii) 3.5% for gross gaming revenues in excess of
$700 million, up to $800 million, (iii) 5.5% for gross gaming revenues in excess
of $800 million, up to $900 million, and (iv) 7.5% for gross gaming revenues in
excess of $900 million.
Jazz Casino must procure an initial rolling, four-year minimum payment
guaranty guaranteeing the minimum payments required to be made to the Louisiana
Gaming Control Board under the Third Amendment to the Amended and Renegotiated
Casino Operating Contract, and must provide rolling, three-year minimum payment
guaranties thereafter. By March 31 of each year (beginning with March 31, 2003),
Jazz Casino must obtain a minimum payment guaranty (or extension thereof)
extending the minimum payment guaranty to the third anniversary of such date, so
that three years of future payments to the Louisiana Gaming Control Board are
guaranteed. Jazz Casino need not procure the guaranty if its gross gaming income
exceeds $350 million.
In addition, certain restrictions previously imposed on food and restaurant
facilities and service, lodging or the sale of products not directly related to
gaming operations have been modified (see Note 1).
GENERAL DEVELOPMENT AGREEMENT
The general development agreement entered into with the Rivergate
Development Corporation sets forth the obligations of the parties and the
procedures to be followed relating to the design, development and construction
of the Casino and certain related facilities. Jazz Casino is obligated to
reimburse the Rivergate Development Corporation for certain costs incurred
during the construction of the Casino and certain of its parking facilities,
totaling approximately $280,000. During 2000 and 1999, Jazz Casino reimbursed
the Rivergate Development Corporation for approximately $248,000 of these costs.
AMENDED OPEN ACCESS PROGRAM AND PLANS
The amended open access program and plans require Jazz Casino to form a
special purpose corporation to foster new and existing businesses owned and
controlled by minorities, women and disadvantaged people. Harrah's Jazz Company
was required to capitalize this corporation with $500,000. Jazz Casino will
underwrite its operations at a minimum of $250,000 per year for five years. The
first $250,000 payment was required to be paid on October 30, 1998 with
subsequent annual payments payable quarterly in equal installments of $62,500.
Jazz Casino must also contribute an additional $500,000 per year for five years
to promote similar public support efforts, in accordance with standards to be
established by the Company. The first annual installment was due on October 28,
1999, with the remaining installments to be funded quarterly in equal
installments of $125,000. Jazz Casino is required to deposit these amounts into
a separate account and then fund contributions to qualified recipients based
upon certain criteria. For the years ended December 31, 2000 and 1999, Jazz
Casino has contributed $750,000 and $187,500 related to the amended open access
program and plans.
33
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
AUDUBON INSTITUTE AGREEMENT
On October 30, 1998, Jazz Casino assumed the obligations related to a ticket
purchase agreement with the Audubon Institute whereby Jazz Casino has agreed to
purchase tickets from the Audubon Institute for a minimum of $375,000 per year
for the first six years of Casino operations. This amount is subject to increase
based on increasing gross gaming revenue levels achieved by Jazz Casino. For the
years ended December 31, 2000 and 1999, Jazz Casino has contributed $375,000 and
$125,000 related to the ticket purchase agreement.
OTHER CONTINGENCIES
We have various commitments to Harrah's Entertainment and its affiliates
(see Note 8).
The enactment and implementation of gaming legislation in the State of
Louisiana and the development of the Casino, and related facilities have been
subject to lawsuits, claims and delays brought about by various parties.
Additional lawsuits and the uncertain political environment may result in claims
or actions, any of which could have a material adverse effect on the Company.
We are involved in various inquiries and administrative proceedings arising
in the normal course of business. While any proceeding has an element of
uncertainty, we believe that the final outcome of these matters will not have a
material adverse effect upon our consolidated financial position or our results
of operations.
NOTE 11. EMPLOYEE BENEFIT PLANS
We have established the following employee and non-employee programs.
JAZZ CASINO COMPANY 401(K) PLAN. On November 27, 1998, we established a
defined contribution savings and retirement plan, which among other things,
allows pretax and after-tax contributions to be made by employees to the plan.
Under the plan, participating employees may elect to contribute up to 16 percent
of their eligible earnings, the first six percent of which is fully matched by
us. Under the terms of the plan, we may also elect to make an additional
discretionary contribution. Amounts contributed to the plan are invested at the
participant's direction in a money market fund, a bond fund, two balanced funds,
a small capitalization stock fund, a Standard and Poor's 500 Index Fund, or an
international stock fund. Participants become vested in the matching
contribution over five years of credited service. Our contribution expense for
the years ended December 31, 2000 and 1999 and the period from October 30, 1998
to December 31, 1998 was approximately $626,000, $46,000, and $4,400,
respectively.
1998 LONG-TERM INCENTIVE PLAN. On October 29, 1998, the board of directors
adopted the JCC Holding 1998 Long-Term Incentive Plan, which received
stockholder approval on May 13, 1999. Under the terms of the long-term incentive
plan, the following can be awarded to employees, officers, consultants and
directors: restricted cash awards, stock options, stock appreciation rights,
performance units, restricted stock, dividend equivalents, other stock-based
awards or any other right or interest relating to Class A Common Stock. JCC
Holding has reserved for issuance upon the grant or exercise of the above
awards, 750,000 shares of the authorized but unissued shares of Class A Common
Stock. During the year ended December 31, 2000, we granted 145,000 shares of
restricted Class A Common Stock under the long-term incentive plan. During the
year ended December 31, 1999, JCC Holding granted options to purchase an
aggregate of 214,835 shares of Class A Common Stock and 24,664 shares of
restricted Class A Common Stock under the long-term incentive plan.
34
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. On March 4, 1999, the board
of directors adopted the 1999 Non-Employee Director Stock Option Plan, which
received stockholder approval on May 13, 1999. Under the terms of JCC Holding's
director stock option plan, options to purchase Class A Common Stock may be
awarded to certain non-employee directors of JCC Holding. JCC Holding has
reserved for issuance upon the exercise of stock options granted under JCC
Holding's director stock option plan an aggregate of 150,000 shares of the
authorized but unissued shares of Class A Common Stock. During the year ended
December 31, 1999, JCC Holding granted options to purchase an aggregate of
20,000 shares of Class A Common Stock under JCC Holding's director stock option
plan. On the Effective Date, the director stock options were cancelled (see
Note 1).
STOCK OPTION AWARDS. A stock option grant under JCC Holding's long-term
incentive plan typically vests in equal installments over a four year period and
allows the option holder to purchase stock over specified periods of time,
generally ten years from the date of grant, at a fixed price equal to the market
value at the date of grant. Options granted under JCC Holding's director stock
option plan are immediately exercisable.
As of December 31, 2000, there were 208,889 outstanding stock options with
exercise prices ranging from $3.50 to $7.56 and weighted average remaining
contractual lives of 8.7 years. As of December 31, 2000, there were 158,250
exercisable stock options with a weighted average exercise price of $4.04. The
weighted average fair value per share of options granted during 1999 was $5.59.
On the Effective Date, the stock options were cancelled (see Note 1).
RESTRICTED STOCK AWARDS. Restricted stock awards have full voting and
dividend rights during the restricted period; however, the shares are restricted
as to transfer and subject to forfeiture during a specified period or periods
prior to vesting. The compensation arising from a grant of restricted stock
awards is based upon the market price at the grant date. Such expense is
deferred and amortized to expense over the vesting period.
On the Effective Date, the restricted stock awards were cancelled (see
Note 1).
DEFERRED COMPENSATION PLANS. On November 18, 1999, JCC Holding's board of
directors approved two deferred compensation plans under which certain
executives and employees may defer a portion of their compensation. Amounts
deposited into these plans are our unsecured liabilities and earn interest at
rates approved by the compensation committee of the board of directors. The
first plan year for each of these plans commenced on January 1, 2000 and the
liability related to deferred compensation as of December 31, 2000 was
approximately $11,000.
NOTE 12. STOCKHOLDERS' EQUITY
Pursuant to the Harrah's Jazz Company 1998 plan of reorganization, the
capital stock of JCC Holding consisted of shares of Class A Common Stock,
Class B Common Stock, and Unclassified Common Stock. With certain exceptions,
including the election of directors and the right to separate class voting with
respect to certain amendments to JCC Holding's Certificate of Incorporation and
Bylaws, each share of Class A, Class B and Unclassified Common Stock had
identical rights and privileges, and ranked equally, shared ratably and was
identical in every respect and as to all matters, including rights in
liquidation, and was entitled to vote upon all matters submitted to a vote of
the
35
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
common stockholders, was entitled to one vote for each share held, and, except
as otherwise required by law, the holders of shares of Class A, Class B and
Unclassified Common Stock generally voted together as one class on all matters
submitted to a vote of stockholders.
HARRAH'S ENTERTAINMENT WARRANTS. Pursuant to a warrant agreement between
JCC Holding and Harrah's Crescent City Investment Company dated October 30,
1998, Harrah's Crescent City Investment Company received warrants entitling it
to purchase additional shares of JCC Holding Unclassified Common Stock such
that, upon exercise of the warrant in its entirety, Harrah's Entertainment and
its subsidiaries, including Harrah's Crescent City Investment Company, will own
in the aggregate 50.0% of the then outstanding shares of Unclassified Common
Stock, subject to certain adjustments. On the Effective Date, these warrants
were eliminated as a result of the Plan of Reorganization.
On the Effective Date, JCC Holding's Class A Common Stock and Class B Common
Stock was cancelled. The Class A Common Stockholders and Class B Common
Stockholders did not receive any distributions for their respective stock. On
the Effective Date, the outstanding New Common Stock of JCC Holding consisted of
12,386,200 shares of New Common Stock. In consideration of, among other things,
Harrah's Entertainment's and Harrah's Operating Company's consent to the
cancellation and extinguishment of all claims against us arising under the
revolving credit facility, the Tranche A-2 term loan, the Tranche B-2 term loan,
the slot lease, the junior subordinated credit facility, the completion loan
agreement and the promissory note, it and its affiliates' agreement to waive all
claims relating to existing defaults under the management agreement, the
administrative services agreement, the forbearance agreement, the warrant
agreement, and any other pre-petition claims against us, and Harrah's Operating
Company's agreement to contribute the slot machines to the Company, Harrah's
Entertainment received 6,069,238 shares (49%) of the New Common Stock; holders
of claims arising under the Tranche B-1 term loan of the bank credit facilities
received 1,734,068 shares (14%) of the New Common Stock; and holders of claims
arising under the senior subordinated notes will receive 4,582,894 shares (37%)
of our New Common Stock (see Note 1).
The Board of Directors of JCC Holding Company shall initially consist of
seven directors. Four of the initial directors will be selected by the
noteholders committee and Bankers Trust Company and three of the initial
directors will be selected by Harrah's Entertainment. The three directors
selected by Harrah's Entertainment shall initially have one one-year, one
two-year and one three-year term, and the four directors elected by the
noteholders committee and Bankers Trust Company will initially have one
one-year, one two-year and two three-year terms.
NOTE 13. GUARANTOR FINANCIAL INFORMATION
JCC Holding and all of its other wholly owned subsidiaries (the "Guarantor
Subsidiaries") have fully and unconditionally guaranteed on a joint and several
basis Jazz Casino's obligations under the senior subordinated notes described in
Note 6. The Guarantor Subsidiaries and Jazz Casino comprise all of the direct
and indirect subsidiaries of the Company. All of the assets of JCC Holding's
subsidiaries are restricted and may not be transferred to JCC Holding in the
form of loans, cash or dividends without the consent of a third party. The
following consolidating schedules present condensed
36
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
financial information on a combined basis as of and for the years ended
December 31, 2000 and 1999 and the period from October 28, 1998 to December 31,
1998:
BALANCE SHEET DATA:
DECEMBER 31, 2000
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents............ $ 26,602 $ 14 $ 10 $ -- $ 26,626
Accounts receivable, net of allowance
for doubtful accounts.............. 8,017 -- 1 (1,746) 6,272
Inventories.......................... 685 -- -- -- 685
Prepaids and other assets............ 3,678 -- -- -- 3,678
---------- ---------- -------- ---------- ----------
Total current assets............... 38,982 14 11 (1,746) 37,261
---------- ---------- -------- ---------- ----------
Property and Equipment............... 151,735 -- 15,547 -- 167,282
Less--accumulated depreciation....... (25,561) -- -- -- (25,561)
---------- ---------- -------- ---------- ----------
Net property and equipment......... 126,174 -- 15,547 -- 141,721
---------- ---------- -------- ---------- ----------
Other assets:
Deferred operating contract.......... 25,536 -- -- -- 25,536
Lease prepayments.................... 6,312 -- -- -- 6,312
Deferred charges and other........... 10,589 -- 42 -- 10,631
---------- ---------- -------- ---------- ----------
Total other assets................. 42,437 -- 42 -- 42,479
---------- ---------- -------- ---------- ----------
Total assets....................... $ 207,593 $ 14 $ 15,600 $ (1,746) $ 221,461
========== ========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings................ $ 23,250 $ -- $ -- $ -- $ 23,250
Accounts payable--trade.............. 845 757 988 (1,746) 844
Accrued interest..................... 7,025 -- -- -- 7,025
Accrued expenses..................... 12,270 30 1 -- 12,301
Due to affiliate..................... 64,806 -- -- -- 64,806
Preconfirmation contingencies........ 2,212 -- -- -- 2,212
Other................................ 1,977 -- -- -- 1,977
---------- ---------- -------- ---------- ----------
Total current liabilities.......... 112,385 787 989 (1,746) 112,415
---------- ---------- -------- ---------- ----------
Long-term Debt......................... 394,759 -- 1,653 -- 396,412
Due to affiliate....................... 20,943 -- 25 -- 20,968
Other long-term liabilities............ 339 -- -- -- 339
Investment in subsidiaries............. -- 307,900 -- (307,900) --
Stockholder's equity (deficit):
Class A common stock................. -- 58 -- -- 58
Class B common stock................. -- 45 -- -- 45
Additional paid in capital........... 94,926 108,268 13,187 (108,113) 108,268
Accumulated deficit.................. (415,759) (417,044) (254) 416,013 (417,044)
Less: Unearned compensation.......... -- -- -- -- --
---------- ---------- -------- ---------- ----------
Total Stockholder's equity
(deficit)........................ (320,833) (308,673) 12,933 307,900 (308,673)
---------- ---------- -------- ---------- ----------
Total liabilities and stockholders'
equity........................... $ 207,593 $ 14 $ 15,600 $ (1,746) $ 221,461
========== ========== ======== ========== ==========
37
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
DECEMBER 31, 1999
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents......... $ 34,681 $ 4 $ 2 $ -- $ 34,687
Accounts receivable, net of
allowance for doubtful
accounts........................ 4,356 63 22 (1,264) 3,177
Inventories....................... 354 -- -- -- 354
Prepaids and other assets......... 2,760 -- -- -- 2,760
Property available for sale....... -- -- 4,831 -- 4,831
-------- --------- --------- --------- --------
Total current assets............ 42,151 67 4,855 (1,264) 45,809
-------- --------- --------- --------- --------
Property and Equipment.............. 349,764 -- 10,288 -- 360,052
Less--accumulated depreciation...... (4,179) -- -- -- (4,179)
-------- --------- --------- --------- --------
Net property and equipment...... 345,585 -- 10,288 -- 355,873
-------- --------- --------- --------- --------
Other assets:
Deferred operating contract....... 68,182 -- -- -- 68,182
Lease prepayments................. 16,861 -- -- -- 16,861
Deferred charges and other........ 19,630 -- 47 -- 19,677
Investment In subsidiaries........ -- 46,042 -- (46,042) --
-------- --------- --------- --------- --------
Total other assets.............. 104,673 46,042 47 (46,042) 104,720
-------- --------- --------- --------- --------
Total assets.................... $492,409 $ 46,109 $ 15,190 $ (47,306) $506,402
======== ========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings............. $ 15,850 $ -- $ -- $ -- $ 15,850
Accounts payable--trade........... 2,057 462 757 (1,264) 2,012
Accrued interest.................. 2,081 -- -- -- 2,081
Accrued expenses.................. 20,761 30 -- -- 20,791
Due to affiliate.................. 4,648 -- -- -- 4,648
Preconfirmation contingencies..... 3,033 -- -- -- 3,033
Other............................. 2,009 -- -- -- 2,009
-------- --------- --------- --------- --------
Total current liabilities....... 50,439 492 757 (1,264) 50,424
-------- --------- --------- --------- --------
Long-term debt...................... 367,018 -- 1,204 -- 368,222
Deferred income taxes............... 37,900 -- -- -- 37,900
Due to affiliate.................... 4,283 -- 19 -- 4,302
Other long-term liabilities......... -- -- -- --
Stockholder's equity (deficit):
Class A common stock.............. -- 56 -- -- 56
Class B common stock.............. -- 45 -- -- 45
Additional paid in capital........ 94,926 108,539 13,185 (108,112) 108,538
Accumulated deficit............... (62,095) (62,817) 25 62,070 (62,817)
Less: Unearned compensation....... (62) (206) -- -- (268)
-------- --------- --------- --------- --------
Total stockholder's equity
(deficit)..................... 32,769 45,617 13,210 (46,042) 45,554
-------- --------- --------- --------- --------
Total liabilities and
stockholders' equity.......... $492,409 $ 46,109 $ 15,190 $ (47,306) $506,402
======== ========= ========= ========= ========
38
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
DECEMBER 31, 1998
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents........ $ 25,506 $ -- $ -- $ -- $ 25,506
Accounts receivable, net of
allowance for doubtful
accounts....................... 127 -- -- (84) 43
Inventories...................... -- -- -- -- --
Prepaids and other assets........ 1,666 -- 32 -- 1,698
Property available for sale...... -- -- -- -- --
-------- --------- -------- ---------- --------
Total current assets........... 27,299 -- 32 (84) 27,247
-------- --------- -------- ---------- --------
Property and Equipment............. 205,529 -- 13,200 -- 218,729
Less--accumulated depreciation..... (71) -- -- -- (71)
-------- --------- -------- ---------- --------
Net property and equipment..... 205,458 -- 13,200 -- 218,658
-------- --------- -------- ---------- --------
Other assets:
Deferred operating contract...... 68,676 -- -- -- 68,676
Lease prepayments................ 16,985 -- -- -- 16,985
Deferred Charges and other....... 11,512 -- 53 -- 11,565
Investment In subsidiaries....... 104,720 (104,720) --
-------- --------- -------- ---------- --------
Total other assets............. 97,173 104,720 53 (104,720) 97,226
-------- --------- -------- ---------- --------
Total assets................... $329,930 $ 104,720 $ 13,285 $ (104,804) $343,131
======== ========= ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable--trade.......... $ 643 $ -- $ 84 $ (84) $ 643
Accrued interest................. 3,025 -- -- -- 3,025
Accrued expenses................. 4,145 310 -- -- 4,455
Due to affiliate................. 500 -- -- -- 500
Preconfirmation Contingencies.... 6,679 -- -- -- 6,679
-------- --------- -------- ---------- --------
Total current liabilities...... 14,992 310 84 (84) 15,302
-------- --------- -------- ---------- --------
Long-term debt..................... 185,519 -- -- -- 185,519
Deferred income taxes.............. 37,900 -- -- -- 37,900
Stockholder's equity (deficit):
Class A common stock............. -- 55 -- -- 55
Class B common stock............. -- 45 -- -- 45
Additional paid in capital....... 94,900 107,987 13,187 (108,087) 107,987
Accumulated deficit.............. (3,381) (3,677) 14 3,367 (3,677)
-------- --------- -------- ---------- --------
Total Stockholder's equity
(deficit).................... 91,519 104,410 13,201 (104,720) 104,410
-------- --------- -------- ---------- --------
Total liabilities and
stockholders' equity......... $329,930 $ 104,720 $ 13,285 $ (104,804) $343,131
======== ========= ======== ========== ========
39
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
STATEMENT OF OPERATIONS DATA:
FOR THE YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
Revenues:
Casino........................... $ 245,473 $ -- $ -- $ -- $ 245,473
Food and beverage................ 20,356 -- -- -- 20,356
Retail, parking, and other....... 9,798 -- 23 -- 9,821
Less: Casino promotional
allowances..................... (14,545) -- -- -- (14,545)
---------- ---------- --------- ---------- ----------
Total net revenues............. 261,082 -- 23 -- 261,105
---------- ---------- --------- ---------- ----------
Operating expenses:
Direct:
Casino......................... 215,176 -- -- -- 215,176
Food and beverage.............. 16,131 -- -- -- 16,131
Retail, parking and other...... 4,123 -- 10 -- 4,133
General and administrative....... 85,951 286 150 -- 86,387
Depreciation and amortization.... 26,334 -- 5 -- 26,339
Provision for asset impairment... 258,674 -- 138 -- 258,812
Equity in subsidiary losses...... -- 353,942 -- (353,942) --
---------- ---------- --------- ---------- ----------
Total operating expenses....... 606,389 354,228 303 (353,942) 606,978
---------- ---------- --------- ---------- ----------
Operating loss..................... (345,307) (354,228) (280) 353,942 (345,873)
---------- ---------- --------- ---------- ----------
Other income (expense):
Interest expense, net of
capitalized interest........... (46,668) -- -- -- (46,668)
Interest and other income........ 411 -- 2 -- 413
---------- ---------- --------- ---------- ----------
Total other income (expense)... (46,257) -- 2 -- (46,255)
---------- ---------- --------- ---------- ----------
Loss before taxes.................. (391,564) (354,228) (278) 353,942 (392,128)
Income tax benefit............... 37,900 -- -- -- 37,900
---------- ---------- --------- ---------- ----------
Net loss........................... $ (353,664) $ (354,228) $ (278) $ 353,942 $ (354,228)
========== ========== ========= ========== ==========
40
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
Revenues:
Casino............................ $ 38,005 $ -- $ -- $ -- $ 38,005
Food and beverage................. 3,693 -- -- -- 3,693
Retail, parking, and other........ 1,796 -- 23 -- 1,819
Less: Casino promotional
allowances........................ (2,361) -- -- -- (2,361)
--------- --------- ---- --------- ---------
Total net revenues.............. 41,133 -- 23 -- 41,156
--------- --------- ---- --------- ---------
Operating expenses:
Direct:
Casino.......................... 35,013 -- -- -- 35,013
Food and beverage............... 2,875 -- -- -- 2,875
Retail, parking and other....... 1,200 -- -- -- 1,200
General and administrative........ 15,602 437 7 -- 16,046
Depreciation and amortization..... 5,102 -- 5 -- 5,107
Pre-opening Expenses.............. 35,160 -- -- -- 35,160
Equity in subsidiary losses....... -- 58,703 -- (58,703) --
--------- --------- ---- --------- ---------
Total operating expenses........ 94,952 59,140 12 (58,703) 95,401
--------- --------- ---- --------- ---------
Operating loss...................... (53,819) (59,140) 11 58,703 (54,245)
--------- --------- ---- --------- ---------
Reorganization item................. 1,562 -- -- -- 1,562
Other income (expense):
Interest expense, net of
capitalized interest............ (6,869) -- -- -- (6,869)
Interest and other income......... 412 -- -- -- 412
--------- --------- ---- --------- ---------
Total other income (expense).... (6,457) -- -- -- (6,457)
--------- --------- ---- --------- ---------
Net loss............................ $ (58,714) $ (59,140) $ 11 $ 58,703 $ (59,140)
========= ========= ==== ========= =========
41
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
FOR THE PERIOD FROM OCTOBER 28, 1998 TO DECEMBER 31, 1998
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
Revenues:
Retail, parking, and other........ $ -- $ -- $ 14 $ -- $ 14
-------- -------- ---- ------- --------
Total net revenues.............. -- -- 14 -- 14
-------- -------- ---- ------- --------
Operating expenses:
General and administrative........ -- 310 -- -- 310
Depreciation and amortization..... 110 -- 1 -- 111
Pre-opening Expenses.............. 3,580 -- -- -- 3,580
Equity in subsidiary losses....... -- 3,367 -- (3,367) --
-------- -------- ---- ------- --------
Total operating expenses........ 3,690 3,677 1 (3,367) 4,001
-------- -------- ---- ------- --------
Operating loss...................... (3,690) (3,677) 13 3,367 (3,987)
-------- -------- ---- ------- --------
Other income (expense):
Interest expense, net of
capitalized interest............ -- -- -- -- --
Interest and other income......... 310 -- -- -- 310
-------- -------- ---- ------- --------
Total other income (expense).... 310 -- -- -- 310
-------- -------- ---- ------- --------
Net loss............................ $ (3,380) $ (3,677) $ 13 $ 3,367 $ (3,677)
======== ======== ==== ======= ========
42
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
STATEMENT OF CASH FLOW DATA:
FOR THE YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
Cash Flows From Operating Activities:
Net Loss............................. $ (353,664) $ (354,228) $ (278) $ 353,942 $ (354,228)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 26,334 -- 5 -- 26,339
Provision for asset impairment..... 258,674 -- 138 -- 258,812
Deferred income taxes.............. (37,900) -- -- -- (37,900)
Amortization of note discount...... 5,369 -- -- -- 5,369
Deferred rent...................... 1,624 -- -- -- 1,624
Provision for bad debts............ 1,770 -- -- -- 1,770
Equity in subsidiary losses........ -- 353,942 -- (353,942) --
Changes in operating assets and
liabilities:
Accounts receivable................ (5,368) -- 21 482 (4,865)
Inventories........................ (331) -- -- -- (331)
Prepaids and other assets.......... (918) -- -- -- (918)
Accounts payable--trade............ (1,075) 296 93 (482) (1,168)
Accrued interest................... 19,523 -- -- -- 19,523
Accrued expenses................... (7,653) -- 1 -- (7,652)
Preconfirmation contingencies...... (821) -- -- -- (821)
Due to affiliates.................. 34,084 -- 6 -- 34,090
Other current liabilities.......... (31) -- -- -- (31)
---------- ---------- ------ --------- ----------
Net cash flows used in operating
activities..................... (60,383) 10 (14) -- (60,387)
---------- ---------- ------ --------- ----------
Cash Flows From Investing Activities:
Capital expenditures................. (2,981) -- (427) -- (3,408)
Increase in deferred charges and
other assets....................... (1,218) -- -- -- (1,218)
---------- ---------- ------ --------- ----------
Net cash flows used in investing
activities..................... (4,199) -- (427) -- (4,626)
---------- ---------- ------ --------- ----------
Cash Flows From Financing Activities:
Net borrowings (repayments) of short-
term borrowings.................... 7,400 -- -- -- 7,400
Proceeds from notes payable to
affiliate.......................... 49,103 -- 449 -- 49,552
---------- ---------- ------ --------- ----------
Net cash flows provided by
financing activities........... 56,503 -- 449 -- 56,952
---------- ---------- ------ --------- ----------
Net increase (decrease) in cash and
cash equivalents..................... (8,079) 10 8 -- (8,061)
Cash and cash equivalents, beginning of
period............................... 34,681 4 2 -- 34,687
---------- ---------- ------ --------- ----------
Cash and cash equivalents, end of
period............................... $ 26,602 $ 14 $ 10 $ -- $ 26,626
========== ========== ====== ========= ==========
43
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
Cash Flows From Operating Activities:
Net Loss............................. $ (58,714) $ (59,140) $ 11 $ 58,703 $ (59,140)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 5,102 -- 5 -- 5,107
Amortization of note discount...... 765 -- -- -- 765
Amortization of unearned
compensation..................... -- 259 -- -- 259
Deferred rent...................... 226 -- -- -- 226
Write-off of preconfirmation
contingencies.................... (1,562) -- -- -- (1,562)
Loss on sale of property and
equipment........................ 27 -- -- -- 27
Equity in subsidiary losses........ -- 58,703 -- (58,703) --
Changes in operating assets and
liabilities:
Accounts receivable................ (3,134) -- -- -- (3,134)
Inventories........................ (354) -- -- -- (354)
Prepaids and other assets.......... (1,062) -- -- -- (1,062)
Accounts payable--trade............ 907 462 -- -- 1,369
Accrued interest................... (5,855) -- -- -- (5,855)
Accrued expenses................... 16,616 (280) -- -- 16,336
Preconfirmation contingencies...... (2,084) -- -- -- (2,084)
Due to affiliates.................. 8,224 -- -- -- 8,224
Other current liabilities.......... 2,009 -- -- -- 2,009
--------- --------- ------- -------- ---------
Net cash flows used in operating
activities..................... (38,889) 4 16 -- (38,869)
--------- --------- ------- -------- ---------
Cash Flows From Investing Activities:
Capital expenditures................. (129,334) -- (1,218) -- (130,552)
Proceeds from sale of property....... 6,042 -- -- -- 6,042
Increase in deferred charges and
other assets....................... (8,492) -- -- -- (8,492)
--------- --------- ------- -------- ---------
Net cash flows used in investing
activities..................... (131,784) -- (1,218) -- (133,002)
--------- --------- ------- -------- ---------
Cash Flows From Financing Activities:
Net borrowings (repayments) of short-
term borrowings.................... 15,850 -- -- -- 15,850
Proceeds from notes payable to
affiliate.......................... -- -- 1,204 -- --
Proceeds from issuance of long-term
debt............................... 163,998 -- -- -- 165,202
--------- --------- ------- -------- ---------
Net cash flows provided by
financing activities........... 179,848 -- 1,204 -- 181,052
--------- --------- ------- -------- ---------
Net increase (decrease) in cash and
cash equivalents..................... 9,175 4 2 -- 9,181
Cash and cash equivalents, beginning of
period............................... 25,506 -- -- -- 25,506
--------- --------- ------- -------- ---------
Cash and cash equivalents, end of
period............................... $ 34,681 $ 4 $ 2 $ -- $ 34,687
========= ========= ======= ======== =========
44
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
FOR THE PERIOD FROM OCTOBER 28, 1998 TO DECEMBER 31, 1998
----------------------------------------------------------------------
JAZZ CASINO JCC HOLDING GUARANTOR CONSOLIDATED
COMPANY COMPANY SUBSIDIARIES ELIMINATIONS TOTAL
----------- ----------- ------------ ------------ ------------
Cash Flows From Operating
Activities:
Net Loss......................... $ (3,380) $ (3,677) $ 13 $ 3,367 $ (3,677)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. 110 -- 1 -- 111
Equity in subsidiary losses.... -- 3,367 -- (3,367) --
Changes in operating assets and
liabilities:
Accounts receivable.............. (128) -- -- 85 (43)
Prepaids and other assets........ (1,603) -- (31) -- (1,634)
Accounts payable--trade.......... 643 -- 85 (85) 643
Accrued expenses................. 4,145 310 -- -- 4,455
Preconfirmation contingencies.... (68,750) -- -- -- (68,750)
Due to affiliates................ 500 -- -- -- 500
---------- -------- ---- ------- ----------
Net cash flows used in
operating activities......... (68,463) -- 68 -- (68,395)
---------- -------- ---- ------- ----------
Cash Flows From Investing
Activities:
Capital expenditures............. (27,011) -- (15) (27,026)
Increase in deferred charges and
other assets................... (5,647) -- (53) -- (5,700)
---------- -------- ---- ------- ----------
Net cash flows used in
investing activities....... (32,658) -- (68) -- (32,726)
---------- -------- ---- ------- ----------
Cash Flows From Financing
Activities:
Net borrowings (repayments) of
short-term borrowings.......... -- -- -- -- --
Proceeds from issuance of
long-term debt................. -- -- -- -- --
---------- -------- ---- ------- ----------
Net cash flows provided by
financing activities..... -- -- -- -- --
---------- -------- ---- ------- ----------
Net increase (decrease) in cash and
cash equivalents................. (101,121) -- -- -- (101,121)
Cash and cash equivalents,
beginning of period.............. 126,627 -- -- -- 126,627
---------- -------- ---- ------- ----------
Cash and cash equivalents, end of
period........................... $ 25,506 $ -- $ -- $ -- $ 25,506
========== ======== ==== ======= ==========
45
JCC HOLDING COMPANY AND SUBSIDIARIES
(SUCCESSOR TO HARRAH'S JAZZ COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND THE PERIOD
FROM OCTOBER 30, 1998 TO DECEMBER 31, 1998
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Prior to October 28, 1999, we did not have any gaming operations and most of
our activities related to completing the construction of the Casino and hiring
and training employees. Our operating results for the four quarters of 2000 and
1999 were as follows:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ----------
(IN THOUSANDS)
Fiscal 2000
Revenues....................................... $ 62,616 $ 64,314 $ 69,925 $ 64,250
Loss from operations........................... $ (24,209) $ (21,073) $ (19,616) $ (280,975)
Net loss....................................... $ (34,750) $ (32,125) $ (31,355) $ (255,998)
Basic loss per share........................... $ (3.44) $ (3.16) $ (3.06) $ (25.13)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ----------
(IN THOUSANDS)
Fiscal 1999
Revenues....................................... $ 6 $ 4 $ 93 $ 41,053
Loss from operations........................... $ (2,989) $ (6,697) $ (11,331) $ (33,228)
Net loss....................................... $ (2,824) $ (6,627) $ (11,270) $ (38,419)
Basic loss per share........................... $ (0.28) $ (0.66) $ (1.12) $ (3.82)
The fourth quarter 2000 included a $255.9 million impairment charge (see
Note 3). The impairment charge recorded in the fourth quarter 2000 created a
deferred tax asset available to offset our deferred tax liability. As of
December 31, 2000, the valuation allowance was adjusted to reduce our net
deferred taxes to zero resulting in an income tax benefit of $37.9 million (see
Note 7).
46
NATIONAL AIRLINES, INC., FINANCIAL INFORMATION
Our Company holds an approximate 48% interest in National Airlines, Inc.
("NAI"), an airline company based in Las Vegas, Nevada, that began operations in
May 1999. NAI filed a voluntary petition for reorganization relief under Chapter
11 of the U.S. Bankruptcy Code in December 2000. As a result of the bankruptcy
filing, we recorded write-downs and reserves in 2000 totaling $39.4 million for
our remaining investment in and loans to NAI and our net estimated exposure
under certain letters of credit. These reserves were in addition to
$9.3 million in losses we recorded during 2000 to reflect our pro rata share of
NAI's operating losses.
Due to its current operating status, we have not been provided full
financial statements and footnotes for NAI for the year ended December 31, 2000.
As a result of the write-downs and reserves recorded in 2000 as discussed above,
our investment in and remaining exposure for NAI issues as of December 31, 2000,
are immaterial, and we do not expect NAI to have a material effect on our future
operations. In recognition of these circumstances, the Securities and Exchange
Commission has agreed to accept our request to fulfill our disclosure
requirements relative to this nonconsolidated subsidiary by presenting the
summarized NAI financial information included in Note 15 to our 2000
consolidated financial statements in lieu of complete audited financial
statements.
47
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
HARRAH'S ENTERTAINMENT, INC.
Dated: April 12, 2001 By: /s/ JUDY T. WORMSER
-----------------------------------------
Judy T. Wormser
CONTROLLER AND PRINCIPAL ACCOUNTING
OFFICER
48
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-57214, 333-56266, and 333-39840 of Harrah's Entertainment, Inc. on
Form S-8, Form S-4, and Form S-8, respectively, of our report dated March 30,
2001 (relating to the financial statements of JCC Holding Company presented
separately herein, which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the accounting for the confirmed plan of
reorganization in 1998 and an emphasis paragraph relating to the confirmed plan
of reorganization which became effective in March 2001), appearing in this
Annual Report on Form 10-K of Harrah's Entertainment, Inc. for the year ended
December 31, 2000.
/s/ DELOITTE & TOUCHE LLP
Memphis, Tennessee
April 12, 2001
49