UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
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. 0-22436
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Delaware Lady Luck Gaming Corporation 88-0295602
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
206 North Third Street, Las Vegas, Nevada 89101
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (702) 477-3000
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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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of November 9,
1998, there were 4,880,613 shares of common stock, $.006 par value per share,
outstanding.
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
ASSETS
September 30, December 31,
1998 1997
Current assets:
Cash and cash equivalents.............. $ 18,191 $ 19,552
Restricted cash........................ 15,230 15,388
Marketable securities.................. 15,469 -
Accounts receivable, net............... 1,069 786
Inventories............................ 1,014 957
Assets held for sale................... - 2,791
Prepaid expenses....................... 1,534 2,456
--------- ---------
Total current assets................ 52,507 41,930
--------- ---------
Property and equipment, net of
accumulated depreciation and
amortization of $29,883 and $26,525
as of September 30, 1998 and
December 31, 1997, respectively........ 116,149 128,375
Other assets:
Deferred financing fees and costs,
net of accumulated amortization of
$3,996 and $3,347 as of
September 30, 1998 and
December 31, 1997, respectively..... 2,091 2,740
Investment in unconsolidated
affiliates, net..................... 13,196 9,313
Other.................................. 3,281 2,948
--------- ---------
18,568 15,001
--------- ---------
TOTAL ASSETS.............................. $ 187,224 $ 185,306
========= =========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
2
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30, December 31,
1998 1997
Current liabilities:
Current portion of long-term debt...... $ 417 $ 4,481
Accrued interest....................... 1,828 1,846
Accounts payable....................... 3,606 5,178
Construction and retention payables.... 1,952 1,957
Accrued property taxes................. 995 1,476
Other accrued liabilities.............. 8,040 7,320
--------- ---------
Total current liabilities........... 16,838 22,258
--------- ---------
Long-term debt:
Mortgage notes payable................. 173,500 173,500
Other long-term debt................... 2,939 3,314
--------- ---------
Total long-term debt................ 176,439 176,814
--------- ---------
Total liabilities................ 193,277 199,072
--------- ---------
Commitments and contingencies
(Notes 5 through 11)
Series A mandatory cumulative redeemable
preferred stock, $46.21 and $42.44,
as of September 30, 1998 and
December 31, 1997, respectively
per share liquidation value,
1,800,000 shares authorized, 433,638
shares issued and outstanding.......... 20,036 18,402
--------- ---------
Stockholders' deficit:
Common stock, $.006 par value,
75,000,000 shares authorized,
4,880,613 shares issued and
outstanding......................... 29 29
Additional paid-in capital............. 31,382 31,382
Accumulated deficit.................... (57,500) (63,579)
--------- ---------
Total stockholders' deficit......... (26,089) (32,168)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT.................. $ 187,224 $ 185,306
========= =========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
3
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
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Revenues:
Casino.......................................... $ 28,907 $ 32,404 $ 97,509 $ 104,246
Food and beverage............................... 3,368 4,261 12,298 12,851
Hotel........................................... 1,109 1,102 3,204 3,208
Equity in net income of
unconsolidated affiliates................... 787 1,768 3,884 4,144
Other........................................... 960 1,328 2,865 4,190
--------- --------- --------- ---------
Gross revenues.............................. 35,131 40,863 119,760 128,639
Less: Promotional allowances................... (2,812) (3,258) (10,318) (9,748)
--------- --------- --------- ---------
Net revenues................................ 32,319 37,605 109,442 118,891
--------- --------- --------- ---------
Costs and expenses:
Casino.......................................... 11,613 13,603 40,857 42,802
Food and beverage............................... 1,115 1,580 3,974 5,064
Hotel........................................... 245 535 1,210 1,701
Other........................................... 20 60 120 202
Selling, general and administrative............. 9,915 12,763 35,260 39,252
Related party management/license fees........... 255 314 780 1,250
Depreciation and amortization................... 2,156 2,970 6,760 8,899
Loss on sale of investment in
unconsolidated affiliate.................... - 1,912 - 1,912
Project development cost write-downs
and reserves................................ - 50 - 50
Gain on sale of assets.......................... - - (2,848) -
--------- --------- --------- ---------
Total costs and expenses.................... 25,319 33,787 86,113 101,132
--------- --------- --------- ---------
Operating income .................................... 7,000 3,818 23,329 17,759
Other income (expense):
Interest income................................. 584 173 1,341 543
Interest expense................................ (5,481) (5,355) (16,570) (16,750)
Other........................................... - 25 (342) 113
--------- --------- --------- ---------
Total other expense......................... (4,897) (5,157) (15,571) (16,094)
--------- --------- --------- ---------
Income (loss) before income tax provision............ 2,103 (1,339) 7,758 1,665
Income tax provision (benefit)....................... 15 (46) 45 59
--------- --------- --------- ---------
NET INCOME (LOSS).................................... 2,088 (1,293) 7,713 1,606
Preferred stock dividends............................ 561 500 1,634 1,458
--------- --------- --------- ---------
Income (loss) applicable to
common stockholders............................. $ 1,527 $ (1,793) $ 6,079 $ 148
========= ========= ========= =========
NET INCOME (LOSS)PER SHARE
Applicable to common stockholders.................... $ 0.31 $ (0.37) $ 1.25 $ 0.03
========= ========= ========= =========
Weighted average number of common shares
outstanding..................................... 4,880,613 4,880,613 4,880,613 4,880,613
========= ========= ========= =========
The accompanying notes are an integral part of these
condensed consolidated statements.
4
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net income.................... $ 7,713 $ 1,606
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization. 6,760 8,899
Amortization of bond offering
fees and costs.............. 649 649
Loss on sale of investment in
unconsolidated affiliate.... - 1,912
Gain on sale of assets........ (2,848) -
Project development cost
write-downs and reserves.... - 50
Equity in net income of
unconsolidated affiliates... (3,883) (4,144)
(Increase) decrease in assets:
Accounts receivable......... (285) (459)
Inventories................. (57) 20
Prepaid expenses............ 1,112 744
Increase (decrease) in
liabilities:
Accounts payable............ (1,572) 783
Other accrued liabilities... (1,870) (955)
-------- --------
Net cash provided by (used in)
operating activities.......... 5,719 9,105
-------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................... (4,583) (2,716)
Proceeds from sale of
operating assets............ 15,127 -
Restricted cash............... 158 -
Purchases of marketable
securities.................. (15,455) -
Other......................... (663) 405
-------- --------
Net cash provided by (used in)
investing activities.......... (5,416) (2,311)
-------- --------
The accompanying notes are an integral part of these
condensed consolidated statements.
5
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands, except supplemental schedule)
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Cash flows from financing activities:
Payments on debt and
slot contracts................. (1,664) (2,950)
-------- --------
Net cash provided by (used in)
financing activities.............. (1,664) (2,950)
-------- --------
Net increase (decrease) in cash and
cash equivalents.................. (1,361) 3,844
Cash and cash equivalents,
beginning of period............... 19,552 15,490
-------- --------
Cash and cash equivalents,
end of period..................... $ 18,191 $ 19,334
======== ========
Supplemental disclosures of cash
flow information:
Cash paid during the period for
interest.................. $ 15,939 $ 16,094
======== ========
Cash paid during the period for
taxes..................... $ - $ 80
======== ========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The liquidation value of the Series A mandatory cumulative redeemable preferred
stock increased by approximately $1,634,000 and $1,458,000 in unpaid accrued
dividends for the nine month periods ended September 30, 1998 and 1997,
respectively.
The Company entered into several contracts with manufacturers for the purchase
of slot machines and other assets which totaled approximately $689,000 and
$618,000 for the nine month periods ended September 30, 1998 and 1997,
respectively.
Effective February 19, 1998, a subsidiary of the Company sold substantially all
of its real property and operating assets to the holder of a mortgage note in
exchange for forgiveness of the $2,750,000 mortgage note and the assumption of
certain liabilities.
The Company entered into an agreement to sell its equity investment in the
Bally's Joint Venture effective September 30, 1997 for $15,250,000. On November
3, 1997, after receiving certain regulatory approvals, such sales price was
remitted as cash to the Company and the account receivable was satisfied.
The accompanying notes an integral part of these
condensed consolidated statements.
6
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Basis of Presentation
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The results for the three and nine
month periods ended September 30, 1998 and 1997 are not necessarily indicative
of future financial results. The preparation of financial statements in
conformity with generally accepted accounting principles requires 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 the amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Among the
estimates made by management is the evaluation of the recoverability of the
carrying values of the land held for development and the reserve for disposition
costs related to the sale of Lady Luck Biloxi's operating assets as more fully
described below. The Company made certain financial statement reclassifications
for the three and nine month periods ended September 30, 1997 in order to
classify amounts in a manner consistent with the three and nine month periods
ended September 30, 1998.
The consolidated financial statements of Lady Luck Gaming Corporation
("LLGC"), a Delaware corporation, include the accounts of LLGC and its
subsidiaries (collectively the "Company"). For the periods presented in the
financial statements, the Company's operations primarily include those of LLGC,
Lady Luck Gaming Finance Corporation ("LLGFC"), a Delaware corporation; Lady
Luck Mississippi, Inc. ("LLM"), Magnolia Lady, Inc. ("MLI"), and Lady Luck
Tunica ("LLT"), each a Mississippi corporation (collectively the "Mississippi
Companies"); and, L.L. Gaming Reservations, Inc. ("LLGR"), a Nevada corporation.
The Company also owns an interest in a joint venture with Bettendorf Riverfront
Development Company ("BRDC") which is and has been accounted for under the
equity method. LLGC and its subsidiaries were organized to develop and operate
gaming and hotel properties in emerging jurisdictions.
LLGC and LLGFC were formed in February 1993. LLM began dockside casino
operations on February 26, 1993 in Natchez, Mississippi and acquired and took
over operation of the 147-room River Park Hotel in Natchez, Mississippi on April
15, 1996; Lady Luck Central City, Inc., formerly Gold Coin Incorporated
("LLCC"), a Delaware corporation and subsidiary of the Company, opened on May
28, 1993 and sold its real property and operating assets and ceased operations
effective February 19, 1998 (see Note 10); Lady Luck Biloxi, Inc. ("LLB"), a
Mississippi corporation, began dockside casino operations on December 13, 1993
in Biloxi, Mississippi and sold its real property and operating assets and
ceased operations effective June 7, 1998 (see Note 9); MLI, which does business
as Lady Luck Rhythm & Blues, commenced dockside gaming operations on June 27,
1994 in Coahoma County, Mississippi, commenced operation of a 173-room hotel on
August 16, 1994, commenced gaming operations of Country Casino and the Pavilion
on May 21, 1996 and acquired and took over operation of the 120-room Riverbluff
Hotel in Helena, Arkansas on July 3, 1996; LLT which currently leases a gaming
vessel to Lady Luck Bettendorf, L.C., an Iowa Limited Liability Company (see
below); LLGR began operating a central reservations center for the Company's
hotels on September 3, 1996; Lady Luck Quad Cities, Inc. ("LLQC"), a Delaware
corporation and subsidiary of the Company; LLQC formed a joint venture with
BRDC, Lady Luck Bettendorf, L.C., (the "Bettendorf Joint Venture") to operate a
casino in Bettendorf, Iowa which commenced operation on April 21, 1995 and
commenced operation of a 256-room hotel on August 29, 1998 (see Note 4); and,
Old River Development, Inc., a subsidiary of the Company, commenced operation of
a 240-room hotel on August 24, 1994, contributed it to the Bally's Joint Venture
in March 1995 and sold its equity investment to Bally's effective September 30,
1997 (see Note 4). Lady Luck Vicksburg, Inc. ("LLV"), a subsidiary of the
Company and Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned subsidiary of the
Company and a Missouri corporation, are in various stages of development and
have no operating history.
7
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Certain Risks and Uncertainties
The Company's operations in Mississippi and Iowa are dependent on the
continued licensability or qualifications of the Company and its subsidiaries
that hold the gaming licenses in these jurisdictions. Such licensing and
qualifications are reviewed periodically by the gaming authorities in these
states.
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Coahoma County, Mississippi casino
operations. These casinos are highly dependent on patronage by residents in
Arkansas. A change in general economic conditions, the addition of nearby
competitive facilities, closure of the Helena Bridge or a change in the extent
and nature of regulations enabling casino gaming in Arkansas could adversely
affect these casinos' future operating results.
3. Reverse Stock Split, NASDAQ Market Listing and Net Income Per Share
Effective June 4, 1998, the Company's shareholders approved a one-for-six
reverse stock split with regard to its Common Stock (the "Reverse Split"). The
effects of the Reverse Split were to reduce the number of issued and outstanding
shares of Common Stock from 29,285,698 to 4,880,613 and to increase the par
value of these shares from $0.001 to $0.006 per share. In lieu of fractional
shares resulting from the Reverse Split, stockholders received a cash payment
from the sale of the aggregate fractional shares on the open market. The Reverse
Split did not change the number of authorized shares of the Company's Common
Stock and had no effect on the Company's Preferred Stock. All references in the
financial statements to number of shares, per share amounts and market prices of
the Company's Common Stock have been retroactively restated to reflect the
decreased number of shares of Common Stock outstanding.
On October 19, 1998, the Company was informed by the Nasdaq Stock Market
("NASDAQ") that, based upon its staff's review, the Company's common stock
failed to maintain market value of public float, comprised of total shares
outstanding reduced by those held by directors and officers as defined, greater
than or equal to $15.0 million, in accordance with Marketplace Rule 4450(b)3
under Maintenance Standard 2. NASDAQ indicated that it will provide the Company
90 days, or until January 21, 1999, to demonstrate compliance. If the Company is
unable to demonstrate such compliance, the Company's common stock may be
delisted as of January 26, 1999. In the event that the Company is unable to
achieve compliance, it may seek further procedural remedies, but the Company can
provide no assurances that it will be successful in the employment of any such
remedies. The Company believes, notwithstanding the foregoing, that it would be
eligible for listing on the Nasdaq Small-Cap tier; however, no assurance can be
provided that the Company is in fact eligible for such listing.
As of September 30, 1998, options to purchase 68,000 and 43,000 shares of
Common Stock at exercise prices ranging from $15.00 to $18.72 per share were
outstanding and exercisable, respectively, and could potentially dilute earnings
per share in future periods. The related weighted average number of shares of
Common Stock were not included in the computations of earnings per share because
the options' exercise prices were greater than the average market prices of
Common Stock during the three and nine month periods ended September 30, 1998
and 1997 and any effect would be antidilutive.
4. Investment in Unconsolidated Affiliates
The Company's investment in the joint ventures with BRDC and its former
investment in the joint venture with Bally's are accounted for under the equity
method and the Company's portion of income or loss from the joint ventures is
included in Equity in Net Income of Unconsolidated Affiliates in the
accompanying Condensed Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1998 and 1997.
8
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Bettendorf Joint Venture
In December 1994, the Company entered the Bettendorf Joint Venture with
BRDC to develop and operate a casino in Bettendorf, Iowa ("Lady Luck
Bettendorf"). The joint venture agreement required that the Company and BRDC
each contribute cash to the Bettendorf Joint Venture of $3.0 million in return
for a 50% ownership interest. In addition, BRDC is leasing certain real property
to the Bettendorf Joint Venture at a lease rate equal to $150,000 per month. The
Company is leasing a gaming vessel with a cost of $21,635,000 and a carrying
value net of accumulated depreciation as of September 30, 1998 of $19,540,000 to
the Bettendorf Joint Venture for approximately $189,000 per month, which amount
was determined based upon arms-length negotiations between the Company and BRDC.
In addition, from inception of the Bettendorf Joint Venture through December 31,
1997, the Company had been leasing certain gaming equipment to the Bettendorf
Joint Venture with a cost of $3,705,000 for approximately $122,000 per month,
its fair market rental value. Pursuant to such equipment lease, effective
January 1, 1998, the Company sold the equipment to the Bettendorf Joint Venture
for a negotiated amount of $712,000 cash.
The Company's rental income relating to these leases for the three and nine
month periods ended September 30, 1998 and 1997 are as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Gaming vessel lease $ 567 $ 566 $1,700 $1,699
Gaming equipment lease - 367 - 1,099
------ ------ ------ ------
Total Bettendorf lease
rental income $ 567 $ 933 $1,700 $2,798
====== ====== ====== ======
Lady Luck Bettendorf commenced operations on April 21, 1995. All net
profits and losses from all operations of Lady Luck Bettendorf are allocated
equally between the Company and BRDC. Effective January 1, 1996, the Company was
granted the right to manage Lady Luck Bettendorf pursuant to a contract with
substantially the same terms and fees as the Company's wholly-owned casinos,
less $37,500 abated per month, with up to $325,000 annually of the fees received
by the Company paid to BRDC as consultants.
The Company received management fees from Lady Luck Bettendorf for the
three and nine month periods ended September 30, 1998 and 1997 as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Lady Luck Bettendorf
management fees $ 584 $ 416 $1,673 $1,212
====== ====== ====== ======
The Bettendorf Joint Venture recently constructed an expansion project
pursuant to its master-plan (See Note 8).
9
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summarized balance sheet information for the Bettendorf Joint Venture as of
September 30, 1998 and December 31, 1997 is as follows (in thousands):
September 30, December 31,
1998 1997
Current assets $ 8,511 $ 4,758
Other 706 732
Property and equipment, net 50,198 25,459
------- --------
Total assets $59,415 $ 30,949
======= ========
Current liabilities $ 6,898 $ 12,276
Long-term liabilities 26,124 48
Members' equity 26,393 18,625
------- --------
Total liabilities and
members' equity $59,415 $ 30,949
======= ========
Summarized results of operations for the Bettendorf Joint Venture for the
three and nine month periods ended September 30, 1998 and 1997 are as follows
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net revenues $21,446 $17,954 $62,168 $54,427
Costs and expenses 19,873 15,791 54,401 48,734
------ ------ ------ ------
Net income $ 1,573 $ 2,163 $ 7,767 $ 5,693
======= ======= ======= =======
A summary of changes in the Company's investment in the Bettendorf Joint
Venture for each of the nine month periods ended September 30, 1998 and 1997 are
as follows (in thousands):
1998 1997
---- ----
Investment, beginning of period $ 9,313 $ 5,886
Equity in net income
of unconsolidated affiliate 3,883 2,846
------- --------
Investment, end of period $13,196 $ 8,732
======= ========
Included in the Company's Retained Earnings at September 30, 1998 is $10,196
of undistributed earnings of the Bettendorf Joint Venture.
Bally's Joint Venture
The Company entered an agreement effective September 30, 1997 to sell its
35% minority interest in Bally's Saloon, Gambling Hall and Hotel in Tunica,
Mississippi to Hilton Hotels Corporation, the majority owner and manager of the
property (the "Partnership Interest Redemption Agreement") (See Note 5).
10
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Long-term Debt
At September 30, 1998 and December 31, 1997, long-term debt consisted of
the following (in thousands):
September 30, December 31,
1998 1997
11 7/8% First Mortgage Notes; quarterly
payments of interest only; due
March 2001; collateralized by
substantially all assets of the
Company and guaranteed by LLGC.......... $ 173,500 $ 173,500
Note payable to a corporation; monthly
payments of interest only at 10%;
principal due July 2001, collateralized
by a deed of trust (See Note 10)........ - 2,750
Notepayable to a corporation; annual
payments of principal of $119 plus
accrued interest at 8%; due
June 2003; collateralized by a land
deed of trust (See Note 9).............. - 714
Notes payable to corporations; monthly
payments of principal and interest at
rates up to 12 1/2% due through
February 1999 secured by the equipment. 228 1,122
Mortgage note payable to a corporation;
quarterly payments of principal and
interest at prime plus 1 1/2% based
on a 20 year amortization; due
April 2006; collateralized by a
deed of trust........................... 2,660 2,773
Mortgage note payable to an individual;
monthly payments of principal and
interest at 8 1/2% based on a
20 year amortization; due March 2018;
collateralized by a deed of trust....... 346 -
Note payable to a corporation; quarterly
payments of principal and accrued
interest at 9%; due October 1998,
collateralized by a deed of trust....... - 110
Other........................................ 122 326
--------- ---------
176,856 181,295
Less: current portion................... (417) (4,481)
--------- ---------
Total long-term debt......................... $ 176,439 $ 176,814
========= =========
The Indenture, as amended and supplemented (the "Indenture"), covering the
Company's 11 7/8% First Mortgage Notes due 2001 (the "2001 Notes") provides for,
among other things, restrictions on the Company's and certain of its
subsidiaries' abilities (a) to pay dividends or other distributions on its
capital stock, (b) to incur additional indebtedness, (c) to make asset sales,
(d) to engage in other lines of business, and (e) to maintain a minimum
consolidated net worth, as defined in the Indenture. The Company believes it is
in compliance with the Indenture, as amended and supplemented, as of September
30, 1998.
11
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The 2001 Notes bear interest at the rate of 11 7/8% per annum effective
October 15, 1995 (prior to that time they bore interest at the rate of 10 1/2%
per annum). Interest on the 2001 Notes held by each holder who consented to
certain amendments to and waivers of continuing defaults under the Indenture in
1996 (the "Amendments and Waivers") will be payable quarterly on each March 1,
June 1, September 1 and December 1, so long as the 2001 Notes are outstanding
(interest on the notes held by each holder who did not consent to the Amendments
and Waivers will continue to be payable semiannually on March 1 and September
1). In addition, the Company is obligated within 180 days after the end of each
year, commencing with the year ended December 31, 1996, to purchase on the open
market, or to make an offer to purchase from the holders at par, 2001 Notes with
a principal amount equal to Excess Cash Flow (as defined in the Indenture) for
such year. However, the Company will be able to credit toward the amount of 2001
Notes required to be purchased in any year any amount of 2001 Notes it has
purchased since January 1, 1996 which it has not previously used as a credit in
any prior year. There was no Excess Cash Flow for the years ended December 31,
1997 and 1996. The Company may also repurchase a portion of the 2001 Notes from
time to time in early satisfaction of any required repurchase expected pursuant
to the Indenture or otherwise, the amount of which and the timing of repurchase
cannot currently be estimated and is dependent on adequate cash availability and
market conditions.
The Company continues to explore various options to refinance the 2001
Notes. However, there can be no assurance as to the timing of any such
refinancing or that the Company will continue these pursuits and, if pursued,
that terms acceptable to the Company can be negotiated.
Sale of Biloxi Operating Assets
Pursuant to an Asset Purchase Agreement dated June 2, 1998, on June 11,
1998, the Company received approximately $15.1 million from Grand Casinos of
Mississippi, Inc. and Grand Casinos, Inc. (collectively "Grand Casinos") for the
sale of substantially all of the assets, excluding gaming equipment and certain
noncontiguous real property, associated with its Lady Luck Biloxi casino which
ceased operations June 7, 1998. In accordance with the Indenture, the Company
has 180 days after receiving the $15.1 million (until December 8, 1998) to
invest the money and any earnings thereon in a Related Business (as defined in
the Indenture). If the Company does not invest the funds in a Related Business
before such time, under certain circumstances, the Company must make an offer to
repurchase a portion of the 2001 Notes at a price of 101% of par for the amount
of funds that was not invested in a Related Business. Accordingly, the proceeds
from the sale and earnings thereon have been classified as Restricted Cash (as
defined in the Indenture) as of September 30, 1998. Any remaining funds not used
to repurchase the 2001 Notes tendered, if any, will become unrestricted and
available to the Company for general purposes.
Sale of Interest in Bally's Joint Venture
Pursuant to a Partnership Interest Redemption Agreement, on November 3,
1997, the Company received approximately $15.3 million cash for its investment
in the Bally's Joint Venture. The Company invested $5.7 million of the proceeds
from the sale of its interest in the Bally's Joint Venture in a Related Business
(as defined in the Indenture). Also in accordance with the Indenture, the
Company, on April 16, 1998, offered to repurchase up to $9.6 million principal
amount of the 2001 Notes (the "Tender Offer") at a price of 101% of par plus
accrued and unpaid interest thereon. The Tender Offer expired on May 14, 1998
and none of the 2001 Notes were tendered. The remaining proceeds from the sale
and interest earned thereon became unrestricted and available to the Company for
general purposes at that time.
6. Employment Agreements
On October 24, 1994, LLGC entered Letter Agreements with Alain J. Uboldi,
LLGC's President, Chief Operating Officer and Director, and Rory J. Reid, LLGC's
Senior Vice-President, General Counsel, Secretary and Director (the
"Agreements"). The Agreements provide that in the event of a Change of Control
during their employ, as defined in the Agreements, and the subsequent
termination of the employment of either Mr. Uboldi or Mr. Reid, under certain
12
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
circumstances, LLGC would be required to pay to Mr. Uboldi and Mr. Reid a lump
sum severance payment equal to 2.99 times the sum of their respective annual
base salary plus the amount of any bonus paid in the year preceding such
termination. In the event of such termination, Mr. Uboldi and Mr. Reid would
also receive in cash an amount equal to the product of the difference between
subtracting the exercise price of each option held by Mr. Uboldi or Mr. Reid
(whether or not fully exercisable) from the current price of LLGC's Common
Stock, as defined. Further, in connection with the Agreements, Mr. Uboldi and
Mr. Reid would receive life, disability, accident and health insurance benefits
substantially similar to those they are receiving immediately prior to their
termination for a 36-month period after such termination.
7. Litigation
Shareholder Class Action Lawsuits
The Company has been named as a defendant in a purported shareholder class
action lawsuit alleging violations by the Company of the Securities Exchange Act
of 1933 and the Securities Exchange Act of 1934 for alleged material
misrepresentations and omissions in connection with the Company's 1993
prospectus and initial public offering of Common Stock. The complaint seeks,
inter alia, injunctive relief, rescission and unspecified compensatory damages.
In addition to the Company, the complaint also names as defendants Andrew H.
Tompkins, Chairman and Chief Executive Officer of LLGC, Alain Uboldi, President,
Director and Chief Operating Officer of LLGC, Michael Hlavsa, the former Chief
Financial Officer of LLGC, Bear Stearns & Co., Inc. and Oppenheimer & Co., Inc.,
who acted as lead underwriters for the initial public offering. The Company has
retained outside counsel to respond to the complaint. On October 8, 1997, the
Company was served with an order of the court dismissing all of the Plaintiff's
Section 10(b) and eleven of the Plaintiff's sixteen Section 11, 12 and 15
allegations with prejudice for failing to adequately state a claim. The court
also ordered the Plaintiffs to and the Plaintiffs have filed an amended
complaint regarding the five Section 11, 12 and 15 claims which were not
dismissed with prejudice. The Company subsequently moved to dismiss such
allegations. On November 5, 1998, the Company was served with an order of the
court dismissing one additional Section 11, 12 and 15 claim. While the outcome
of this matter cannot presently be determined, the Company believes based in
part on advice of counsel, that it has meritorious defenses.
Greek Lawsuits
The Company and certain of its joint venture partners (the "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism before the Greek Multi-Member Court of First Instance. The action
alleges that the Defendants failed to make certain payments in connection with
the gaming license bid process for Patras, Greece. The payments the Company is
alleged to have been required to make aggregate approximately 2.1 billion
drachma (which was approximately $7.4 million as of October 14, 1998 based upon
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to such aggregate
amount. The cases are still in their preliminary stages and their outcome cannot
be predicted with any degree of certainty; however, the Company believes, based
in part on advice of counsel, that it has meritorious defenses.
A Greek architect filed an action against the Company alleging that he was
retained by the Company to provide professional services with respect to a
casino in Loutraki, Greece. The plaintiff in such action sought damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter. The Greek
Court entered judgment against the Company in the amount of approximately 87.1
million drachma (which was approximately $308,000 as of October 14, 1998 based
upon published exchange rates) plus interest. The Company has appealed the
Court's decision. During the fourth quarter of 1997, the Company's Greek counsel
informed the Company that it is more likely than not that the appellate court
will not overturn the Athens Court of First Instance's decision. A reserve has
been provided during the fourth quarter of 1997 and interest is accrued monthly;
however, the Company intends to continue to defend itself in this matter.
13
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other Matters
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47.0 million,
of which approximately $3.4 million was alleged for additional construction work
on Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
8. Commitments and Contingencies
Lease Commitments
LLGC on its own or through its operating subsidiaries, has entered into a
series of leases and options to lease in various locations where it is operating
or intends to develop and operate dockside casinos. The leases are primarily for
a term of 40 years from the date of execution and are cancelable at the option
of LLGC with a maximum period of notice of 60 days with the exception of certain
leases entered into by LLB and Lady Luck Gulfport, Inc., also a subsidiary of
the Company, which are cancelable upon six months notice on the fifth
anniversary of the commencement date of such leases and upon six months notice
on any fifth anniversary date thereafter. In addition, LLGC, on its own or
through its operating subsidiaries, has entered into certain options to either
lease or purchase additional property in other states. Most of the leases are
contingent upon regulatory approval of the lease and all leases contain certain
periodic rent adjustments.
Construction Commitments
Bettendorf Joint Venture
The Bettendorf Joint Venture recently constructed an expansion project
pursuant to its master-plan at a cost of approximately $37.0 million. The
project includes a 256-room hotel with a fully enclosed walkway to the riverboat
casino, a 500-car parking garage and a bypass over the nearby railroad to
improve access. The hotel opened August 29, 1998 with the other amenities
opening prior to that date. In addition, the project includes a 40-50 slip
marina, construction of which is expected to be completed during the first
quarter of 1999 at a cost not expected to exceed $1.0 million. During April
1998, the Iowa Racing and Gaming Commission approved the addition of up to 230
new slot machines and six table games at Lady Luck Bettendorf, many of which
were installed prior to the opening of the hotel. The expansion project
financing is non-recourse to the Company and includes a $17.5 million bank first
mortgage note, allowed for up to a $5.0 million second mortgage from an
affiliated company of BRDC, and includes $7.5 million in tax increment financing
from the City of Bettendorf to be repaid from property taxes and in exchange for
deeding the overpass to the City of Bettendorf. During October 1998, the Company
repaid the balance of the second mortgage to the affiliated company of BRDC. As
of September 30, 1998, the Bettendorf Joint Venture had outstanding the full
amount of the bank first mortgage note and had received $7.2 million of the tax
increment financing proceeds. The balance of the expansion project's costs were
paid from the Bettendorf Joint Venture's cash on hand and from operations.
14
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Service Marine Vessel
The Company has entered into an agreement for the construction of a
cruising gaming vessel in the amount of $16.0 million and as of September 30,
1998, approximately $6.0 million has been expended under this contract and
approximately $1.9 million is included in construction payables. Construction
has been discontinued and is not anticipated to resume until such time as a
suitable development project proceeds.
Natchez Site
Pursuant to its lease, LLM paid the lessor of the Natchez site $500,000 in
liquidated damages as the Company did not make certain improvements to the site
required by lease. In addition, Lady Luck Natchez was required under its lease
to move its casino barge several hundred feet to another docking facility on
land subject to the lease by February 1998. On August 21, 1998, management and
the lessor amended the lease to allow the barge to remain in its current
location. Pursuant to such agreement, the lessor agreed to allow the barge to
remain at its current location in consideration of the Company's agreement to
pay liquidated damages of $1.2 million in the event it terminates the lease at
any time during the 10 year period following the execution of the lease
amendment and the Company's payment of $250,000 to construct additional parking
spaces on the leased property.
Country Hotel
During August 1998, MLI entered into an agreement for and began the
construction of a new 305-room hotel adjacent to its Country Casino. The project
is expected to be complete by March 31, 1999 at a cost estimated not to exceed
$17.0 million. The Company intends to fund the construction primarily with the
proceeds from the sale of substantially all of LLB's operating assets.
Development Stage Projects
In addition to its operating casinos, the Company has riverboat, dockside
or land-based casino projects in various stages of development in Kimmswick,
Missouri; Vicksburg, Mississippi; and Vancouver, British Columbia (the
"Development Stage Projects"). The current status of each of these Development
Stage Projects is described below.
Kimmswick, Missouri
The first two phases of the project, as planned, include a land-based
hotel and casinos onboard two separate vessels (the "Missouri Project"). The
proposed site is located on an approximately 45-acre parcel of land in Jefferson
County, Missouri, approximately 25 miles south of St. Louis (the "Kimmswick
Site"). LLK has entered into an option to lease the Kimmswick Site.
As of September 30, 1998, the Company has invested approximately $8.7
million ($200,000 of which was invested during the nine months ended September
30, 1998) in the Missouri Project, including the vessel construction noted
above, in the Missouri Project. Development costs have been fully reserved and
the vessel construction costs have been reduced by a $3.0 million write-down
recognized during 1997. The Missouri Project is estimated to cost an additional
$105.0 million to complete. The proposed project has received the appropriate
zoning approval from the Jefferson County Planning Commission and has received a
U.S. Army Corps of Engineers 404 permit. However, a new permit might be
necessary due to changes in the proposed project design subsequent to receiving
the permit.
15
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company has continued its efforts towards obtaining a gaming license
for the Missouri Project and provided updated information to the Missouri Gaming
Commission. The Missouri Gaming Commission investigates applicants at its
discretion and has not yet selected the Company to be investigated. Furthermore,
there can be no assurance that the Company will be selected or obtain such
approvals from the Missouri Gaming Commission. While the Company intends to
continue seeking license approval by the Missouri Gaming Commission, the
eventual development of the Missouri Project may also be subject to: (i)
satisfactory resolution of a November 1997 Missouri Supreme Court ruling that
several existing Missouri gaming facilities are illegal due to not being located
upon the Mississippi or Missouri rivers (the Kimmswick Site is located upon the
Mississippi River, but resolution of the decision could delay selection of
additional applicants for licensing investigation); (ii) the selection of three
new Missouri Gaming Commission members, which the Company believes may not be
familiar with the Company's application; (iii) gaming revenues in the major
metropolitan areas of Missouri have not increased commensurate with recent
increases in capacity, causing concerns of potential competitive saturation;
and, (iv) regulatory factors, including loss limits, have generally caused
gaming operations to underperform relative to facilities in neighboring
jurisdictions without such restrictions.
The Vicksburg Project
The development as planned will include a riverboat casino, an approximate
200-room hotel, an 800-car parking garage, and additional amenities (the
"Vicksburg Project"). The Vicksburg Project is expected to be located on
approximately 23.9 acres of land owned by the Company immediately south of the
I-20 bridge along the Mississippi River, with access to Washington Street, in
Vicksburg, Mississippi.
During 1997, the Company entered into an agreement (the "Horseshoe Joint
Venture Agreement") with Horseshoe Gaming, LLC ("Horseshoe") to form a joint
venture to complete and operate the Vicksburg Project. During October 1998, the
Company terminated the Horseshoe Joint Venture Agreement.
A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed through July 2000. As of September 30, 1998, the Company has
invested approximately $14.5 million ($200,000 of which was invested during the
nine months ended September 30, 1998) in the Vicksburg Project with a net
investment remaining of approximately $8.4 million after project development
cost write-downs and reserves for assets which may not be usable in the project
as currently contemplated. Management's estimate of net realizable value is
based upon assumptions regarding future economic, market and gaming regulatory
conditions including the viability of the Vicksburg Site for the development of
a casino project and the ability of the Company to obtain a replacement joint
venture partner and capital to develop the project. Changes in these assumptions
could result in changes in the estimated net realizable value of the property.
The total cost of the project is initially estimated to be approximately $100.0
million.
Casino developments on the Big Black River could significantly adversely
affect operating casinos in Vicksburg, as well as the viability of the Vicksburg
Project. The Big Black River is located about 13 miles from Vicksburg, between
Vicksburg and Jackson, the major population base from which Vicksburg casinos
draw their customers. During the fourth quarter of 1996, the Mississippi Gaming
Commission found a proposed casino site on the Big Black River unsuitable.
However, an affected landowner on the Big Black River sued the Mississippi
Gaming Commission after it rejected the site, and in the fourth quarter of 1997,
a circuit court found the site suitable. The Mississippi Gaming Commission and
City of Vicksburg have appealed the circuit court decision to the State Supreme
Court. Once the appeal has been perfected, then the Supreme Court must rule on
it within 270 days. In addition, on July 16, 1998, the Mississippi Gaming
Commission adopted a regulation that prohibits developments such as projects on
the Big Black River. While the Company believes that adoption of this regulation
will increase the prospects of a favorable ruling for the Mississippi Gaming
Commission and the City of Vicksburg with respect to the appeal, which is
currently being held in abeyance pending related rulings, there can be no
assurances that the circuit court ruling will be overturned.
16
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Lady Luck Vancouver
The Province of British Columbia (the "Province"), through its Lotteries
Advisory Committee (the "LAC") invited interested parties to respond to a
Request for Proposal ("RFP") relating to a planned expansion of gaming in the
Province. The gaming expansion is intended to include destination-style casinos,
limited to 30 table games and 300 slots, with the slot machines being provided
and owned by the Province. Pursuant to the RFP, the Provincial government will
participate in the revenue and net income generated by gaming operations, with
an initial licensing period of ten years. In addition, local host governments
will participate in the net income generated by projects in their respective
jurisdictions for providing requisite services.
The Company responded to the RFP during the fourth quarter of 1997, with a
proposed project to be developed on Tsawwassen First Nation Band Reserve lands
(the "Vancouver Project"), located about 20 miles south of downtown Vancouver.
The Vancouver Project, which is expected to cost approximately $25.0 to $30.0
million, includes a 55,000 square foot gaming and entertainment facility and an
11,000 square foot Aboriginal cultural center, all to be located on
approximately 20 acres. The proposed gaming facility will also include an
800-seat bingo hall. During the second quarter of 1998, the Company finalized
its development agreement with the Tsawwassen First Nation as host community and
has an option to lease property on which the Vancouver Project is to be
constructed. As of September 30, 1998, the Company has invested approximately
$800,000 ($300,000 of which was invested during the nine months ended September
30, 1998) of capital in the Vancouver Project (which was expensed when incurred)
and does not anticipate investing additional material amounts of capital prior
to licensing.
Out of the 49 original casino proposals submitted last fall, seven have
been approved in principal by the B.C. Government, 35 have been rejected, and
seven remain on the government's short list. The Vancouver Project is one of the
seven on the government's short list, that continues to be reviewed. The B.C.
Government's Gaming Minister has publically said that additional casino
approvals will be announced in the near future. After a proponent is selected,
it then must negotiate the various operating agreements with the Provincial
government and obtain financing for the project. While the Company believes that
it may be selected for a gaming license, there can be no assurances that it will
be selected, nor that an agreement with the Province of British Columbia can be
successfully negotiated or that financing can be obtained.
Environmental Matters
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes.
Although the Company knows of no pre-existing conditions at the intended
sites for the Development Stage Projects that will result in any material
environmental liability or delay, there can be no assurance that pre-existing
conditions will not be discovered and result in material liability or delay to
the Company.
The Company has not made, and does not anticipate making, material
expenditures with respect to such environmental protection, and health and
safety laws and regulations. However, the compliance or cleanup costs associated
with such laws, regulations and ordinances may result in future additional costs
to the Company's operations.
Leverage
The Company is highly leveraged. As of September 30, 1998, the Company's
total indebtedness was approximately $176.4 million and its stockholders'
deficit was approximately $26.1 million. This level of indebtedness could have
important consequences to stockholders. While management believes the Company
will have sufficient cash flow to meet its debt service and other cash outflow
17
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
requirements and maintain compliance with the covenants of the Indenture as
supplemented, to the extent that a substantial portion of the Company's cash
flow from operations remains dedicated to the payment of principal and interest
on its indebtedness, such cash flow is not available for other purposes such as
general operations, maintenance and improvement of casino and hotel facilities
or expansion of existing sites or into other gaming markets. Furthermore, the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures or acquisitions may be limited and the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its industry.
9. Sale of Biloxi Operating Assets
Pursuant to an Asset Purchase Agreement, on June 11, 1998, the Company sold
to Grand Casinos substantially all of the assets, excluding gaming equipment and
certain noncontiguous real property, associated with its Lady Luck Biloxi casino
which ceased operations June 7, 1998. The sale resulted in an approximately $2.8
million gain, net of reserves for disposition costs. Consideration received from
Grand Casinos included the following: (i) base sales price of $15.0 million;
(ii) forgiveness by Grand Casinos of the $714,000 balance of a mortgage note
plus accrued interest which had been owed to it by the Company; and, (iii)
certain other prorations and assumptions of liabilities and leasehold
obligations by Grand Casinos.
10. Sale of Lady Luck Central City
Effective February 19, 1998, LLCC sold substantially all of its real
property and operating assets, associated with its Lady Luck Central City casino
to the holder of a mortgage note in exchange for forgiveness of the $2.8 million
note and the assumption of certain liabilities. During 1997, the Company
recorded a reserve of $7.3 million to write-down LLCC's assets held for sale to
fair market value less closing costs, to reserve for operating losses in 1998
prior to the effective sale date and to reserve for estimated future lease
payments and write-downs on its parking lot leases which were not assumed by the
purchaser of the assets sold. During March 1998, LLGC acquired a portion of
LLCC's leased property with the remainder to be acquired in 1999.
11. Marketable Securities
The Company's marketable securities are comprised of federal agency and
corporate obligations, all classified as trading securities as of September 30,
1998, under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Accordingly, net unrealized
holding gains and losses for trading securities were included in net income for
the three and nine month periods ended September 30, 1998. Unrealized holding
gains and losses are determined as the difference between cost and fair value
based on quoted market prices or valuation methods from services believed to be
reliable.
12. Statement of Position 98-5
During April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities" effective for fiscal years beginning after December 15, 1998. The
new standard requires that all companies expense costs of "start-up" activities
as those costs are incurred. The term "start-up" includes pre-opening,
pre-operating and organization activities. Previously, the Company had
capitalized these items until the property opened at which time these cumulative
costs were expensed. Although the Company has no capitalized "start-up" costs as
of September 30, 1998, any "start-up" costs related to projects in the
development stage will be required to be expensed as incurred beginning January
1, 1999.
18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts,
including but not limited to, statements regarding the Company's current
business strategy, the Company's prospective joint ventures, asset sales and
expansions of existing projects, and the Company's plans for future development
and operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Generally, the words "anticipates," "believes," "estimates," "expects" and
similar expressions as they relate to the Company and its management are
intended to identify forward looking statements. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as legalization of gaming in jurisdictions from which the Company
draws significant numbers of patrons and an increase in the number of casinos
serving the markets in which the Company's casinos are located; changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated joint ventures on terms satisfactory to the Company and to obtain
necessary regulatory approvals therefor; changes in regulations affecting the
gaming industry; the ability of the Company to comply with the Company's
Indenture covering the 2001 Notes; the ability of the Company to retain or
obtain Nasdaq listings; future acquisitions or strategic partnerships; general
business and economic conditions; the Company's ability to become year 2000
compliant in a timely manner and within its cost estimates including the risk
that one or more of the representations provided to the Company by its suppliers
could ultimately prove false if such suppliers fail to provide upgrades in a
timely manner or such upgrades are not functional; and other factors described
from time to time in the Company's reports filed with the Securities and
Exchange Commission. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared To The
Three Months Ended September 30, 1997
For the three month periods ended September 30, 1997 and 1998,
consolidated gross revenues decreased from $40.9 million to $35.1 million,
respectively, a decrease of $5.8 million or 14%.
Comparisons of the Company's consolidated gross revenues between
periods may not be meaningful to the extent they reflect several changes related
to the Company's strategy to rationalize its asset base and dispose of its
underperforming investments. In this pursuit, since September 30, 1997 and prior
to the three months ended September 30, 1998, the Company sold: (i)
substantially all of the assets, excluding gaming equipment and certain
non-contiguous real property, associated with its Lady Luck Biloxi casino
effective June 11, 1998;(ii) substantially all of the operating assets of Lady
Luck Central City effective February 19, 1998; (iii) certain gaming equipment
effective January 1, 1998 which the Company had been leasing to the Bettendorf
Joint Venture prior to that date; and, (iv) its 35% partnership interest in the
Bally's Joint Venture effective September 30, 1997. The Company recognized gross
revenues from operations for these items for the three months ended September
30, 1997 as follows (in millions):
Lady Luck Biloxi................. $ 8.3
Lady Luck Central City........... 1.4
Equipment Lease Income from
Equipment Sold.............. 0.4
Equity in Net Income of the Bally's
Joint Venture............... 0.7
Comparisons of the Company's consolidated gross revenues between
periods have also been affected by the $1.2 million negative impact (the
Company's 50% share of which is $600,000) of pre-opening expenses, related to
the opening of the Lady Luck Bettendorf hotel on August 29, 1998, on the
Bettendorf Joint Venture's net income which resulted in the Company's 50% share
of such net income during the three month periods ended September 30, 1997 and
1998 to decrease from $1.1 million to $800,000, respectively, a decrease of
19
<PAGE>
$300,000 or 27%. During the three month periods ended September 30, 1997 and
1998, the Bettendorf Joint Venture's total gross revenues increased from $18.9
million to $22.6 million, an increase of $3.7 million or 20% despite some
disruption of business due to construction and expansion at the facility. This
increase in gross revenues was due primarily to a $3.1 million increase in
casino revenues driven by a $2.5 million increase in slot machine revenues.
Average daily net win per slot machine increased 4% despite a constant win
percentage and a 13% increase in the average number of slot machines in
operation. Lady Luck Bettendorf's market share was 48%, the largest of the three
competitors in its market, during the three month period ended September 30,
1998. Moreover, Lady Luck Bettendorf's gross gaming revenues during the month of
September 1998, the first full month of operating its new hotel, represented the
second highest grossing riverboat in the State of Iowa. In addition to the new
hotel and increase in the average number of slot machines in operation during
the three month period ended September 30, 1998 compared to the three month
period ended September, the Bettendorf Joint Venture: (i) furnished additional
food complimentaries to its patrons to stimulate casino revenues; (ii) provided
improved parking to patrons with the completion in November 1997 of a 500-space
parking garage; (iii) provided improved access to patrons with the opening of a
bypass over the nearby railroad; and, (iv) reduced rent expense by purchasing
certain gaming equipment from the Company effective January 1, 1998 which it had
been leasing.
In addition, comparisons of the Company's consolidated gross revenues
between periods have also been affected by a severe access restriction at the
Lady Luck Rhythm & Blues/Country Casino Complex from July 16, 1997 through
August 3, 1997 which has not been suffered at any time since. During the dates
noted above, access was restricted by a temporary closure of the Helena Bridge
by the Arkansas Department of Transportation due to structural damage caused
when a barge with a large boom attachment hit the bridge. During the three month
periods ended September 30, 1997 and 1998, gross revenues at the Lady Luck
Rhythm & Blues/Country Casino Complex increased from $20.7 million to $25.2
million, respectively, an increase of $4.5 million or 22% which partially offset
the decreases in consolidated gross revenues which resulted from the asset sales
and incurrence of pre-opening expenses as noted above.
The effects of items which decreased consolidated gross revenues were
also offset partially by a $700,000 or 9% increase in gross revenues at Lady
Luck Natchez from $7.8 million to $8.5 million, respectively, during the three
month periods ended September 30, 1997 and 1998. Lady Luck Natchez's gross
revenues increased primarily due to a $500,000 increase in slot machine revenues
and a $300,000 increase in food and beverage revenues. These increases were due
to the following: (i) changes in marketing strategies including a shift from
advertising to increased offerings of hotel rooms, food and beverage to patrons
on a complimentary basis; (ii) modest improvement in the local economy between
periods; and, (iii) the addition of a nearby off-site full-service restaurant.
Casino operating expenses as a percentage of casino revenues decreased
from 42% in the three month period ended September 30, 1997 to 40% in the three
month period ended September 30, 1998 and food and beverage costs and expenses,
prior to reclassifying the cost of complementaries, as a percentage of related
revenues decreased from 91% for the three month period ended September 30, 1997
to 86% for the three month period ended September 30, 1998. These increases in
operating margins were primarily due to the absence of operations of the
comparatively underperforming properties of Lady Luck Biloxi and Lady Luck
Central City which historically operated at less favorable margins than the
Company's average margin and the effects on the prior year operating results at
the Lady Luck Rhythm & Blues/Country Casino Complex resulting from the access
restriction July 16, 1997 through August 3, 1997 as described above.
Gross room revenues for the River Park Hotel remained approximately
constant during the three month period ended September 30, 1998 compared with
the prior year three month period. Approximately 40% of the hotel's rooms were
undergoing remodeling during a portion of the current year three month period
which caused some inconvenience to guests and resulted in a decrease in average
daily room rates from $43 to $39, a decrease of $4 or 9%. The lower number of
available rooms and increased offerings of hotel rooms to patrons on a
complimentary basis to customers caused the River Park Hotel's occupancy rate to
increase from 69% to 85%. Combined gross room revenues at the Riverbluff Hotel
and the 173-room hotel adjacent to Lady Luck Rhythm & Blues were affected by the
access restriction from July 16, 1997 through August 3, 1997 as described above;
however, during the three month period ended September 30, 1998 compared with
the prior year three month period, combined gross room revenues remained
approximately constant. Between comparative periods, the Riverbluff's occupancy
rate decreased from 82% to 76% while average daily room rates remained
relatively unchanged at $26. The Rhythm & Blues' occupancy rate increased from
89% to 93% between comparative periods and average daily room rates increased
20
<PAGE>
slightly from $33 to $34. Increased offerings of hotel rooms at these facilities
to patrons on a complimentary basis positively affected occupancy rates. The
Lady Luck Bettendorf hotel experienced an occupancy rate of 73% from its opening
on August 29, 1998 through September 30, 1998 and achieved an average daily room
rate of $48.
Selling, general and administrative expenses as a percentage of total
gross revenues decreased from 31% to 28% during the three month periods ended
September 30, 1997 and 1998, respectively. The decrease was primarily due to the
following: (i) the absence of operations of the comparatively underperforming
properties of Lady Luck Biloxi and Lady Luck Central City which historically
operated at less favorable margins than the Company's average margin; (ii) a
relative decrease in casino marketing expenses at the Lady Luck Rhythm &
Blues/Country Casino Complex as revenues increased over the prior year period
during which time it had suffered the effects of access restrictions as
described above and which had required abnormally high marketing expenditures
after access was restored to regenerate customer patronage to previous levels;
(iii) a relative decrease in casino marketing expenses at Lady Luck Natchez;
and, (iv) a $600,000 downward adjustment to certain of Lady Luck Biloxi's
accruals including cash incentives to slot players, chip liabilities, and other
accruals which had arisen in the normal course of business based on estimates
and for which actual liabilities were calculated upon expiration of required
redemption periods.
Operating income was $7.0 million and $3.8 million for the three month
periods ended September 30, 1998 and 1997, respectively, an increase of $3.2
million or 84%. The net income applicable to common stockholders was $1.5
million or $0.31 per share for the three month period ended September 30, 1998
compared with the net loss applicable to common stockholders of $1.8 million or
$0.37 per share for the three month period ended September 30, 1997. In addition
to the changes described above, the increases in operating income and income
applicable to common stockholders were due to the following: (i) a $1.9 million
loss on the sale of the Bally's Joint Venture to Hilton Hotels Corporation
during the three month period ended September 30, 1997; (ii) a decrease in
depreciation expense which was primarily due to an absence of depreciation at
Lady Luck Biloxi and Lady Luck Central City due to selling substantially all of
their assets (more fully described below - see Liquidity); and, (iii) a $400,000
increase in interest income due to increases in cash and restricted cash
received from assets sales (also more fully described below - see Liquidity).
Nine Months Ended September 30, 1998 Compared To The
Nine Months Ended September 30, 1997
For the nine month periods ended September 30, 1997 and 1998,
consolidated gross revenues decreased from $128.6 million to $119.8 million,
respectively, a decrease of $8.8 million or 7%.
Comparisons of the Company's consolidated gross revenues between
periods may not be meaningful to the extent they reflect several changes related
to the Company's strategy to rationalize its asset base and dispose of its
underperforming investments. In this pursuit, since September 30, 1997, the
Company sold: (i) substantially all of the assets, excluding gaming equipment
and certain non-contiguous real property, associated with its Lady Luck Biloxi
casino effective June 11, 1998;(ii) substantially all of the operating assets of
Lady Luck Central City effective February 19, 1998; (iii) certain gaming
equipment effective January 1, 1998 which the Company had been leasing to the
Bettendorf Joint Venture prior to that date; and, (iv) its 35% partnership
interest in the Bally's Joint Venture effective September 30, 1997. The
Company's gross revenues from operations decreased during the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997 as
follows (in millions):
Lady Luck Biloxi................. $ 13.1
Lady Luck Central City........... 3.7
Equipment Lease Income from
Equipment Sold.............. 1.1
Equity in Net Income of the Bally's
Joint Venture............... 1.3
21
<PAGE>
Comparisons of the Company's consolidated gross revenues between
periods have also been affected by the $1.2 million negative impact (the
Company's 50% share of which is $600,000) of pre-opening expenses, related to
the opening of the Lady Luck Bettendorf hotel on August 29, 1998 on the
Bettendorf Joint Venture's net income. Nevertheless, the Company's 50% share of
such net income during the nine month periods ended September 30, 1997 and 1998
increased from $2.8 million to $3.9 million, respectively, an increase of $1.1
million or 39%. During the nine month periods ended September 30, 1997 and 1998,
the Bettendorf Joint Venture's total gross revenues increased from $57.6 million
to $65.7 million, an increase of $8.1 million or 14% despite some disruption of
business due to construction and expansion at the facility. This increase in
gross revenues was due primarily to a $7.4 million increase in casino revenues
driven by a $6.4 million increase in slot machine revenues. Average daily net
win per slot machine increased 2% despite a constant win percentage and a 12%
increase in the average number of slot machines in operation. In addition to its
new hotel and increase in the average number of slot machines in operation
during the nine month period ended September 30, 1998 compared to the nine month
period ended September 30, 1997, the Bettendorf Joint Venture: (i) furnished
additional food complimentaries to its patrons to stimulate casino revenues;
(ii) provided improved parking to patrons with the completion in November 1997
of a 500-space parking garage; (iii) provided improved access to patrons with
the opening of a bypass over the nearby railroad during the third quarter of
1998; and, (iv) reduced rent expense by purchasing certain gaming equipment from
the Company effective January 1, 1998 which it had been leasing.
In addition, comparisons of the Company's consolidated gross revenues
between periods have also been affected by a severe access restriction at the
Lady Luck Rhythm & Blues/Country Casino Complex from July 16, 1997 through
August 3, 1997 which has not been suffered at any time since. During the dates
noted above, access was restricted by a temporary closure of the Helena Bridge
by the Arkansas Department of Transportation due to structural damage caused
when a barge with a large boom attachment hit the bridge. During the nine month
periods ended September 30, 1997 and 1998, gross revenues at the Lady Luck
Rhythm & Blues/Country Casino Complex increased from $70.2 million to $76.5
million, respectively, an increase of $6.3 million or 9% which partially offset
the decreases in consolidated gross revenues which resulted from the asset sales
and incurrence of pre-opening expenses as noted above.
The effects of items which decreased consolidated gross revenues were
also offset partially by a $2.9 million or 13% increase in gross revenues at
Lady Luck Natchez from $23.1 million to $26.0 million, respectively, during the
nine month periods ended September 30, 1997 and 1998. Lady Luck Natchez's gross
revenues increased primarily due to a $1.8 million increase in slot machine
revenues and a $900,000 increase in food and beverage revenues. These increases
were due to the following: (i) an absence of 18 days business interruption and
continuing disruption due to adverse weather and river conditions which had
occurred during the nine months ended September 30, 1997; (ii) changes in
marketing strategies including a shift from advertising to increased offerings
of hotel rooms, food and beverage to patrons on a complimentary basis; (iii)
modest improvement in the local economy between periods; and, (iv) the addition
of a nearby off-site full-service restaurant.
Casino operating expenses as a percentage of casino revenues increased
from 41% in the nine month period ended September 30, 1997 to 42% in the nine
month period ended September 30, 1998, primarily due to the following: (i)
decreases in casino revenues at Lady Luck Biloxi in 1998 prior to its closure on
June 7, 1998 which caused fixed costs such as gaming device license fees and
certain labor charges to be spread over a lower revenue base; (ii) an increase
in the cost of complimentary rooms, food and beverage furnished to casino
customers in relation to casino revenues; and, (iii) an increase in cash
incentives for slot machine players in relation to slot revenues. These
decreases in operating margins were offset partially by the following: (i) the
ceasing of operations during February 1998 and June 1998 of Lady Luck Central
City and Lady Luck Biloxi, respectively, which properties historically operated
at less favorable margins than the Company's average margin; and, (iii) the
negative effects on the prior year operating results at the Lady Luck Rhythm &
Blues/Country Casino Complex resulting from the access restriction July 16, 1997
through August 3, 1997, as described above.
Food and beverage costs and expenses, prior to reclassifying the cost
of complementaries, as a percentage of related revenues decreased from 93% for
the nine month period ended September 30, 1997 to 89% for the nine month period
ended September 30, 1998. This decrease was primarily due to reductions in labor
and food and beverage costs relative to food and beverage revenues at Lady Luck
Natchez and the Lady Luck Rhythm & Blues/Country Casino Complex offset partially
22
<PAGE>
by increases at Lady Luck Biloxi prior to closing the facility. Relative costs
also decreased due to Lady Luck Central City ceasing operations February 19,
1998 which historically operated at less favorable margins than the Company's
other properties.
Gross room revenues for the River Park Hotel increased approximately 3%
during the nine month period ended September 30, 1998 compared with the prior
year nine month period. Approximately 40% of the hotel's rooms were undergoing
remodeling during a portion of the current year nine month period which caused
some inconvenience to guests and resulted in a decrease in average daily room
rates from $43 to $37, a decrease of $6 or 14%. The lower number of available
rooms, lower room rates and increased offerings of hotel rooms to patrons on a
complimentary basis to customers caused the River Park Hotel's occupancy rate to
increase from 67% to 84%. Combined gross room revenues at the Riverbluff Hotel
and the 173-room hotel adjacent to Lady Luck Rhythm & Blues were affected by the
access restriction from July 16, 1997 through August 3, 1997 as described above;
however, during the nine month period ended September 30, 1998 compared with the
prior year nine month period, combined gross room revenues decreased slightly at
approximately 2%. Between comparative periods, the Riverbluff's occupancy rate
decreased from 84% to 73% while average daily room rates increased from $22 to
$26. The Rhythm & Blues' occupancy rate increased from 76% to 91% between
comparative periods and average daily room rates decreased from $41 to $32.
Increased offerings of hotel rooms at these facilities to patrons on a
complimentary basis positively affected occupancy rates. The Rhythm & Blues'
decrease in average daily room rate was primarily due to competitive pressures
from properties which have added a significant number of rooms in nearby Tunica
County, Mississippi. The Lady Luck Bettendorf hotel experienced an occupancy
rate of 73% from its opening on August 29, 1998 through September 30, 1998 and
achieved an average daily room rate of $48.
Selling, general and administrative expenses as a percentage of total
gross revenues decreased from 31% to 29% during the nine month periods ended
September 30, 1997 and 1998, respectively. The decrease was primarily due to the
following: (i) the absence of operations of the comparatively underperforming
properties of Lady Luck Biloxi and Lady Luck Central City which historically
operated at less favorable margins than the Company's average margin; (ii) a
relative decrease in casino marketing expenses at the Lady Luck Rhythm &
Blues/Country Casino Complex as revenues increased over the prior year period
during which time it had suffered the effects of access restrictions as
described above and which had required abnormally high marketing expenditures
after access was restored to regenerate customer patronage to previous levels;
(iii) reductions in casino marketing and entertainment costs and an increase in
gross revenues at Lady Luck Natchez compared to the prior year period when
additional advertising and marketing had been necessary to recapture customers
subsequent to the casino reopening as described above; and (iv) a $600,000
downward adjustment to certain of Lady Luck Biloxi's accruals including cash
incentives to slot players, chip liabilities, and other accruals which had
arisen in the normal course of business based on estimates for which actual
liabilities were calculated upon expiration of required redemption periods.
These decreases were partially offset by the following: (i) increased insurance
costs associated with employee medical claims; and, (ii) an increase in
development costs related primarily to the Company's pursuit of a license in
Vancouver and negotiating the ancillary development agreement.
Operating income was $23.3 million and $17.8 million for the nine month
periods ended September 30, 1998 and 1997, respectively, an increase of $5.5
million or 31%. The net income applicable to common stockholders was $6.1
million or $1.25 per share for the nine month period ended September 30, 1998
compared with the net income applicable to common stockholders of $100,000 or
$0.03 per share for the nine month period ended September 30, 1997. In addition
to the changes described above, the increases in operating income and income
applicable to common stockholders were due to the following: (i) a $1.9 million
loss on the sale of the Bally's Joint Venture to Hilton Hotels Corporation
during the nine month period ended September 30, 1997; (ii) a $2.8 million gain,
net of reserves for disposition costs, recognized on the sale of substantially
all of the assets associated with the Lady Luck Biloxi casino during June 1998;
(iii) a decrease in depreciation expense at LLB, both prior to and after the
aforementioned sale (the reduction prior to the sale was the result of a
substantial asset impairment write-down recognized during December 1997); (iv)
an absence of depreciation expense at LLCC, both prior to and after the
aforementioned sale ( the absence prior to the sale was due to recording 1998's
depreciation expense as part of the loss on sale recorded as of December 31,
1997); (v) an $800,000 increase in interest income due to increases in cash and
restricted cash received from assets sales; and, (vi) reduced net related party
license/management fees due primarily to an increase in management fees received
from the Bettendorf Joint Venture based on its improved operating results as
described above.
23
<PAGE>
Operating Casinos
Amounts shown in the following tables are in millions except
percentage, unit and per unit amounts. Operating margin is calculated
as operating income divided by net revenues.
<TABLE>
Lady Luck Rhythm & Blues/County Casino Complex (a)
% Increase % Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1998 vs. September 30, 1998 vs.
1998 1997 1997 1998 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $25.2 $20.7 22 $76.5 $70.2 9
Net revenues...................... 23.1 19.0 22 69.7 64.7 8
Management/license fee............ 0.9 0.6 50 2.5 2.2 14
Operating income.................. 5.0 3.6 39 16.0 15.1 6
Operating margin.................. 22% 19% 3pts 23% 23% -
Average daily net win per
table game.................... $ 603 $ 517 17 $ 633 $ 584 8
Average number of
tables in operation........... 49 50 (2) 50 51 (2)
Average daily net win per
slot machine.................. $ 141 $ 125 13 $ 153 $ 142 8
Average number of slot
machines in operation......... 1,468 1,326 11 1,375 1,347 2
(a) Amounts may not be comparable as access to the Lady Luck Rhythm &
Blues/Country Casino Complex's two casinos, hotel and pavilion
was severely restricted from July 16, 1997 through August 3,
1997.
</TABLE>
<TABLE>
Lady Luck Natchez
% Increase % Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1998 vs. September 30, 1998 vs.
1998 1997 1997 1998 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $ 8.5 $ 7.8 9 $26.0 $23.1 13
Net revenues...................... 7.8 7.2 8 23.8 21.5 11
Management/license fee............ 0.3 0.2 50 0.8 0.7 14
Operating income.................. 0.8 1.0 (20) 3.0 2.1 43
Operating margin.................. 10% 14% (4)pts 13% 10% 3pts
Average daily net win per
table game.................... $ 515 $ 556 (7) $ 661 $ 620 7
Average number of
tables in operation........... 16 16 - 16 16 -
Average daily net win per
slot machine.................. $ 111 $ 98 13 $ 111 $ 106 5
Average number of slot
machines in operation......... 611 627 (3) 613 612 -
</TABLE>
24
<PAGE>
<TABLE>
Lady Luck Bettendorf (a)
% Increase % Increase
Three months ended (Decrease) Nine months ended (Decrease)
September 30, 1998 vs. September 30, 1998 vs.
1998 1997 1997 1998 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $22.6 $18.9 20 $65.7 $57.6 14
Net revenues...................... 21.4 18.0 19 62.2 54.4 14
Management/license fee 0.6 0.4 50 1.7 1.2 42
Operating income.................. 2.0 2.1 (5) 8.1 5.7 42
Operating margin.................. 9% 12% (3)pts 13% 10% 3pts
Average daily net win per
table game.................... $ 747 $629 19 $ 763 $ 680 12
Average number of
tables in operation........... 39 38 3 38 38 -
Average daily net win per
slot machine.................. $ 183 $176 4 $ 189 $ 185 2
Average number of slot
machines in operation......... 1,040 922 13 995 889 12
(a) Lady Luck Bettendorf is 50% owned by LLQC. The Company
includes 50% of its net income as equity in net income of
affiliates using the equity method of accounting.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
During the nine month period ended September 30, 1998, the Company
generated $5.7 million in cash from operations. Also during this period, the
Trustee under the Company's Indenture released and distributed to the Company
$5.7 million of the formerly restricted proceeds from the sale of the Company's
interest in the Bally's Joint Venture. The releases enabled the Company to use
these proceeds for investment in a Related Business (as defined in the
Indenture). In addition, $9.8 million was released from the restricted
classification upon expiration, on May 14, 1998, of a tender offer which had
been made by the Company to repurchase up to $9.6 million principal amount of
the 2001 Notes, but for which no amount of the 2001 Notes were tendered. In
addition, the $15.1 million proceeds received from the sale of substantially all
of Lady Luck Biloxi's operating assets, as described below, have been classified
as restricted as of September 30, 1998. Effective February 19, 1998, LLCC sold
substantially all of its real property and operating assets to the holder of a
mortgage note in exchange for forgiveness of the approximately $2.8 million
mortgage note and the assumption of certain liabilities. These cash and non-cash
sources and cash on hand at the beginning of the period were the primary sources
of cash and non-cash resources during the nine month period ended September 30,
1998. The primary uses of cash and non-cash resources during the nine month
period ended September 30, 1998, other than restriction of the Lady Luck Biloxi
sale proceeds, operating expenditures, the forgiveness of LLCC's approximately
$2.8 million mortgage note and the assumption of certain of its liabilities and
forgiveness by Grand Casinos of LLB's $700,000 mortgage note plus accrued
include:
A. $15.5 million for the purchase of marketable securities.
B. $4.6 million in cash and $700,000 in slot contracts for the
purchase of property and equipment and leasehold, including
the following: (i) addition of a nearby off-site
full-service restaurant at Lady Luck Natchez; (ii)
replacement of the Country Casino's food court with a
full-service restaurant; (iii) certain remodeling of the
casinos at Lady Luck Natchez and the Rhythm & Blues/Country
Casino Complex; (iv) a portion of the costs related to
replacement of the property-wide phone system for more
efficient communications and lower operating costs at the
Rhythm & Blues/Country Casino Complex; (v) site-work for a
hotel addition at the Country Casino including modification
of traffic patterns and additional paved parking areas for
360 automobiles and 15 tractor-trailers; (vi) remodeling of
25
<PAGE>
approximately 40% of the rooms at the River Park Hotel in
Natchez; (vii) deposit to construct additional parking
spaces in Natchez; and (vii) the acquisition of slot
machines.
C. $1.7 million cash for payment of debt and slot contracts.
Pursuant to an Asset Purchase Agreement dated June 2, 1998, on June
11, 1998, the Company sold to Grand Casinos substantially all of the assets,
excluding gaming equipment and certain non-contiguous real property, associated
with its Lady Luck Biloxi casino which ceased operations June 7, 1998. The sale
resulted in an approximately $2.8 million gain, net of reserves for disposition
costs. Consideration received from Grand Casinos included the following: (i)
base sales price of $15.0 million; (ii) forgiveness by Grand Casinos of the
$700,000 balance of a mortgage note plus accrued interest which had been owed to
it by the Company; and, (iii) certain other prorations and assumptions of
liabilities and leasehold obligations by Grand Casinos. In accordance with the
Indenture, the Company has 180 days after June 11, 1998, the date which it
received the approximately $15.1 million (until December 8, 1998), to invest the
money and any earnings thereon in a Related Business (as defined in the
Indenture). The Company intends to invest these funds in the construction of a
305- room hotel adjacent to the Country Casino at the Rhythm & Blues/Country
Casino Complex. If the Company does not invest the funds in a Related Business
before such time, under certain circumstances, the Company must make an offer to
repurchase a portion of the 2001 Notes at a price of 101% of par for the amount
of the funds that was not invested in a Related Business. Any remaining funds
not used to repurchase the 2001 Notes tendered, if any, will become unrestricted
and available to the Company for general purposes.
In anticipation of the sale of LLCC's assets as described above, the
Company recorded during 1997, a reserve of $7.3 million to write-down LLCC's
assets held for sale to fair market value less closing costs, to reserve for
operating losses in 1998 prior to the effective sale date and to reserve for
estimated future lease payments and write-downs on its parking lot leases which
were not assumed by the purchaser of the assets sold. During March 1998, LLGC
acquired a portion of LLCC's leased property with the remainder to be acquired
in 1999. LLCC required cash to fund its operating cash shortfall during the nine
month period ended September 30, 1998; required additional cash infusions
related to these leases and property acquisitions through the nine month period
ended September 30, 1998 and will continue to require approximately $35,000 cash
infusions related to these properties in 1998 and between $200,000 and $1.0
million in 1999 depending whether the remaining leases are purchased for cash or
are financed by the lessors as provided in the leases.
Effective January 1, 1998, pursuant to an existing gaming equipment
lease, the gaming equipment that the Bettendorf Joint Venture had been leasing
from the Company since April 1995 was sold to the Bettendorf Joint Venture. The
negotiated sale price of $712,000 was received during the nine month period
ended September 30, 1998. Accordingly, the Company will no longer receive rental
income from such equipment.
The Bettendorf Joint Venture recently constructed an expansion
project pursuant to its master-plan at a cost of approximately $37.0 million.
The project includes a 256-room hotel with a fully enclosed walkway to the
riverboat casino, a 500-car parking garage and a bypass over the nearby railroad
to improve access. The hotel opened August 29, 1998 with the other amenities
opening prior to that date. In addition, the project includes a 40-50 slip
marina, construction of which is expected to be completed during the first
quarter of 1999 at a cost not expected to exceed $1.0 million. The expansion
project financing is non-recourse to the Company and includes a $17.5 million
bank first mortgage note, up to a $5.0 million second mortgage from an
affiliated company of BRDC and $7.5 million in tax increment financing from the
City of Bettendorf to be repaid from property taxes. The Bettendorf Joint
Venture is expected to deed the overpass to the City of Bettendorf during the
fourth quarter of 1998. During October 1998, the Company repaid the balance of
the second mortgage to the affiliated company of BRDC. As of September 30, 1998,
the Bettendorf Joint Venture had outstanding the full amount of the bank first
mortgage note and had received $7.2 million of the tax increment financing
proceeds. The balance of the expansion project's costs were paid from the
Bettendorf Joint Venture's cash on hand and from operations.
26
<PAGE>
Additionally, during April 1998, the Iowa Racing and Gaming
Commission approved the addition of up to 230 new slot machines and six table
games at the Bettendorf Joint Venture, many of which were installed prior to the
opening of the hotel. The Company anticipates further development of a
restaurant at a cost yet to be determined and offices at the Bettendorf Joint
Venture's conference center which are not expected to exceed $500,000 during
1999 using cash from the Bettendorf Joint Venture's operations. Notwithstanding
these planned expenditures, the Company anticipates the Bettendorf Joint Venture
will begin distributing up to 45% of its excess cash flows beginning in 1999 to
its owners in relation to their relative ownership percentages.
Pursuant to its lease, LLM paid the lessor of the Natchez site
$500,000 in liquidated damages as the Company did not make certain improvements
to the site required by lease. In addition, Lady Luck Natchez was required under
its lease to move its casino barge several hundred feet to another docking
facility on land subject to the lease by February 1998. On August 21, 1998,
management and the lessor amended the lease to allow the barge to remain in its
current location. Pursuant to such agreement, the lessor agreed to allow the
barge to remain at its current location in consideration of the Company's
agreement to pay liquidated damages of $1.2 million in the event it terminates
the lease at any time during the 10 year period following the execution of the
lease amendment. The amendment also required the Company to pay $250,000 which
the Company remitted to the lessor during the quarter ended September 30, 1998
to construct additional parking spaces on the leased property.
Approximately $7.0 million of cash is expected to be used during the
remainder of 1998 for the construction of a 305-room hotel adjacent to Country
Casino Lady Luck Rhythm & Blues/Country Casino Complex. The $10.0 million
balance of the cost of this project is expected to be paid during the first
quarter of 1999. The Company currently intends to fund construction primarily
with the proceeds from the sale of certain of LLB's assets as noted above.
In addition, the Company is remodeling the rooms at its existing
hotel adjacent to the Rhythm & Blues Casino at its Lady Luck Rhythm &
Blues/Country Casino Complex. The remodeling is not expected to exceed $500,000
and is anticipated to be completed by April 1999.
The Company responded to an RFP during the fourth quarter of 1997,
with a proposed project to be developed on Tsawwassen First Nation Band Reserve
lands (the "Vancouver Project"), located about 20 miles south of downtown
Vancouver. The Vancouver Project is expected to cost approximately $25.0 to
$30.0 million. During the second quarter of 1998, the Company finalized its
development agreement with the Tsawwassen First Nation as host community and has
an option to lease property on which the Vancouver Project is to be constructed.
As of September 30, 1998, the Company has invested approximately $800,000
($300,000 of which was invested during the nine months ended September 30, 1998)
of capital in this project (which was expensed when incurred) and does not
anticipate investing additional material amounts of capital prior to licensing.
The Vancouver Project is one of the seven on the government's short list, that
continues to be reviewed. The B.C. Government's Gaming Minister has publicly
said that additional casino approvals will be announced in the near future.
After a proponent is selected, it then must negotiate the various operating
agreements with the Provincial government and obtain financing for the project.
While the Company believes that it may be selected for a gaming license, there
can be no assurances that it will be selected, nor that an agreement with the
Province of British Columbia can be successfully negotiated or that financing
can be obtained. The Company intends to fund any such development of the project
through a combination of cash on hand, earnings from operations, cash remaining
from the sale of its interest in Bally's, remaining proceeds, if any, from the
sale of LLB's assets after any repurchase of 2001 Notes or construction of hotel
rooms at the Lady Luck Rhythm & Blues/Country Casino Complex, and external
financing. In any case, there can be no assurance that sufficient cash, proceeds
or financing will be available or, if available, that it will be available on
terms acceptable to the Company. In addition, any such financing may require
consent of the holders of the 2001 Notes.
The first two phases of another project, as planned, include a
land-based hotel and casinos onboard two separate vessels (the "Missouri
Project"). The proposed site is located on an approximately 45-acre parcel of
land in Jefferson County, Missouri, approximately 25 miles south of St. Louis
(the "Kimmswick Site"). LLK has entered into an option to lease the Kimmswick
Site. The Company has an agreement for the construction of a cruising gaming
vessel in the amount of $16.0 million and as of September 30, 1998,
approximately $6.0 million has been paid by the Company under this contract and
27
<PAGE>
approximately $1.9 million is included in construction payables. It is
anticipated that this vessel will be utilized by LLK. However, construction has
been discontinued and is not anticipated to resume until such time as a suitable
development project proceeds. As of September 30, 1998, the Company has invested
approximately $8.7 million ($200,000 of which was invested during the nine
months ended September 30, 1998), including the vessel construction noted above,
in the Missouri Project. Development costs have been fully reserved and the
vessel construction costs have been reduced by a $3.0 million write-down
recognized during 1997. The Missouri Project is estimated to cost an additional
$105.0 million to complete. The Company does not intend to make additional
substantial expenditures with regard to this project prior to being selected for
investigation. The Company has continued its efforts towards obtaining a gaming
license for the Missouri Project and provided updated information to the
Missouri Gaming Commission. The Missouri Gaming Commission investigates
applicants at its discretion and has not yet selected the Company to be
investigated. Furthermore, there can be no assurance that the Company will be
selected or obtain such approvals from the Missouri Gaming Commission. While the
Company intends to continue seeking license approval by the Missouri Gaming
Commission, the eventual development of the Missouri Project may also be subject
to: (i) satisfactory resolution of a November 1997 Missouri Supreme Court ruling
that several existing Missouri gaming facilities are illegal due to not being
located upon the Mississippi or Missouri rivers (the Kimmswick Site is located
upon the Mississippi River, but resolution of the decision could delay selection
of additional applicants for licensing investigation); (ii) the selection of
three new Missouri Gaming Commission members, which the Company believes may not
be familiar with the Company's application; (iii) gaming revenues in the major
metropolitan areas of Missouri have not increased commensurate with recent
increases in capacity, causing concerns of potential competitive saturation;
and, (iv) regulatory factors, including loss limits, have generally caused
gaming operations to underperform relative to facilities in neighboring
jurisdictions without such restrictions. There can be no assurances that the
Company will be selected for a gaming license. The Company intends to fund any
such development of the project through a combination of cash on hand, earnings
from operations and external financing. In any case, there can be no assurance
that sufficient cash or financing will be available or, if available, that it
will be available on terms acceptable to the Company. In addition, any such
financing may require consent of the holders of the 2001 Notes.
A third development project as planned will include a riverboat
casino, an approximate 200-room hotel, an 800-car parking garage, and additional
amenities (the "Vicksburg Project"). The Vicksburg Project is expected to be
located on approximately 23.9 acres of land owned by the Company immediately
south of the I-20 bridge along the Mississippi River, with access to Washington
Street, in Vicksburg, Mississippi. A gaming license was granted to LLV on August
18, 1994 and has subsequently been renewed through July 2000. As of September
30, 1998, the Company has invested approximately $14.5 million ($200,000 of
which was invested during the nine months ended September 30, 1998) in the
Vicksburg Project with a net investment remaining of approximately $8.4 million
after project development cost write-downs and reserves. The remaining
investment primarily includes land and barges to be used in the development. The
total cost of the project is initially estimated to be approximately $100.0
million. The Company does not intend to make additional substantial expenditures
with regard to this project prior to the resolution of various litigation
related to possible casino developments on the Big Black River as they could
significantly adversely affect operating casinos in Vicksburg, as well as the
viability of the Vicksburg Project. The Big Black River is located about 13
miles from Vicksburg, between Vicksburg and Jackson, the major population base
from which Vicksburg casinos draw their customers. During the fourth quarter of
1996, the Mississippi Gaming Commission found a proposed casino site on the Big
Black River unsuitable. However, an affected landowner on the Big Black River
sued the Mississippi Gaming Commission after it rejected the site, and in the
fourth quarter of 1997, a circuit court found the site suitable. The Mississippi
Gaming Commission and City of Vicksburg have appealed the circuit court decision
to the State Supreme Court. Once the appeal has been perfected, then the Supreme
Court must rule on it within 270 days. In addition, on July 16, 1998, the
Mississippi Gaming Commission adopted a regulation that prohibits developments
such as projects on the Big Black River. While the Company believes that
adoption of this regulation will increase the prospects of a favorable ruling
for the Mississippi Gaming Commission and the City of Vicksburg with respect to
the appeal, which is currently being held in abeyance pending related rulings,
there can be no assurances that the circuit court ruling will be overturned.
In addition, various amounts of cash and non-cash resources may be
used during the remainder of 1998 and in 1999 for other capital improvements,
expansions or acquisitions which cannot currently be estimated and may be
contingent upon market conditions and other factors. If other significant cash
or other resources become available, the Company may make additional capital
28
<PAGE>
expenditures. In any case, the amount of capital expenditures will be based upon
cash available and market conditions at the time any commitment is made.
However, no future significant expenditures for projects under development are
anticipated to be made by the Company from existing cash or cash flow from
operations. If the Company determines it needs additional funds, there can be no
assurance that such funds, whether from equity or debt financing or other
sources, will be available, or if available, will be on terms satisfactory to
the Company.
The Company is obligated within 180 days after the end of each year,
commencing with the year ended December 31, 1996, to purchase on the open
market, or to make an offer to purchase from the holders at par, 2001 Notes with
a principal amount equal to Excess Cash Flow (as defined in the Indenture) for
such year. However, the Company will be able to credit toward the amount of 2001
Notes required to be purchased in any year any amount of 2001 Notes it has
purchased since January 1, 1996 which it has not previously used as a credit in
any prior year. There was no Excess Cash Flow for the years ended December 31,
1997 and 1996 and the Company does not anticipate any Excess Cash Flow for the
year ending December 31, 1998. The Company may also repurchase a portion of the
2001 Notes from time to time in early satisfaction of any required repurchase
expected pursuant to the Indenture or otherwise, the amount of which and the
timing of repurchase cannot currently be estimated and is dependent on adequate
cash availability and market conditions.
The Company continues to explore various options to refinance the
2001 Notes. Such refinancing may include the sale of its marketable securities
to increase liquidity. However, there can be no assurance as to the timing of
any such refinancing or sales or that the Company will continue to pursue
refinancing and, if pursued, that terms acceptable to the Company can be
negotiated.
On October 19, 1998, the Company was informed by the Nasdaq Stock
Market ("NASDAQ") that, based upon its staff's review, the Company's common
stock failed to maintain market value of public float, comprised of total shares
outstanding reduced by those held by directors and officers as defined, greater
than or equal to $15.0 million, in accordance with Marketplace Rule 4450(b)3
under Maintenance Standard 2. NASDAQ indicated that it will provide the Company
90 days, or until January 21, 1999, to demonstrate compliance. If the Company is
unable to demonstrate such compliance, the Company's common stock may be
delisted as of January 26, 1999. In the event that the Company is unable to
achieve compliance, it may seek further procedural remedies, but the Company can
provide no assurances that it will be successful in the employment of any such
remedies. The Company believes, notwithstanding the foregoing, that it would be
eligible for listing on the Nasdaq Small-Cap tier; however, no assurance can be
provided that the Company is in fact eligible for such listing.
The Company is involved in several lawsuits which if adversely
decided could have a material adverse effect upon the Company's financial
position and results of operations (see Note 7 to the Condensed Consolidated
Financial Statements included in Item 1, Part 1).
The Company is subject to certain federal, state and local
environmental protection, health and safety laws, regulations and ordinances
that apply to businesses generally, such as the Clean Air Act, the Clean Water
Act, the Resource Conservation and Recovery Act, CERCLA, the Occupational Safety
and Health Act, and similar state statutes. Although the Company knows of no
pre-existing conditions at the intended sites for the Development Stage Projects
that will result in any material environmental liability or delay, there can be
no assurance that pre-existing conditions will not be discovered and result in
material liability or delay to the Company. The Company has not made, and does
not anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations. However, the compliance
or cleanup costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations.
A significant portion of the Company's consolidated revenues and
operating income are generated by the Company's Rhythm & Blues and Country
Casino gaming operations in Coahoma County, Mississippi. These casinos are
highly dependent on patronage by residents of Arkansas. A change in general
economic conditions, the addition of nearby competitive facilities, closure of
the Helena Bridge or a change in the extent and nature of regulations enabling
casino gaming in Arkansas could adversely affect these casinos' future operating
results. In addition, casino and hotel capacity has been added to the nearby
29
<PAGE>
Tunica, Mississippi market, which competition the Company believes has adversely
affected revenues and operating results at MLI which trend is expected to
continue although the extent, materiality and permanence of which cannot be
definitively measured.
The Company is highly leveraged. As of September 30, 1998, the
Company's total indebtedness was approximately $176.4 million and its
stockholders' deficit was approximately $26.1 million. This level of
indebtedness could have important consequences to stockholders. While management
believes the Company will have sufficient cash flow to meet its debt service and
other cash outflow requirements and maintain compliance with the covenants of
the Indenture as supplemented, to the extent that a substantial portion of the
Company's cash flow from operations remains dedicated to the payment of
principal and interest on its indebtedness, such cash flow is not available for
other purposes such as general operations, maintenance and improvement of casino
and hotel facilities or expansion of existing sites or into other gaming
markets. Furthermore, the Company's ability to obtain additional financing in
the future for working capital, capital expenditures or acquisitions may be
limited and the Company's level of indebtedness could limit its flexibility in
planning for, or reacting to, changes in its industry.
YEAR 2000
The Company's computer systems may not be year 2000 compliant. The
year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year, which may result in
systems failures and disruptions to operations on or after January 1, 2000. In
order to address this issue, the Company has retained an outside consultant to
help it to assess the computer systems used in the Company's business that are
not year 2000 compliant, and prepare and implement its year 2000 computer
compliance program.
The Company has divided the systems located at each of its properties
and corporate offices into two categories: (i) systems that would have a
significant effect on operations or financial statements (the "mission critical
systems") such as slot systems and lodging and gaming systems and (ii) low
priority systems (such as individual personal computers or workstations). Each
category included both IT Systems (e.g. network software and hardware systems)
and Non-IT Systems (e.g. devices that are potentially date sensitive due to
their dependency on a built in computer chip or proprietary software developed
by a third party). The Company relied exclusively upon representations of the
suppliers of its systems to determine whether a system was year 2000 compliant.
As of October 30, 1998, the Company has determined that the total costs related
to the repair and replacement of the mission critical systems that it has
evaluated which are not yet year 2000 compliant would not have a material
adverse effect on the Company. In making this determination, the Company has
relied upon written representations from certain of the Company's computer
system suppliers that such suppliers will provide the Company with applicable
software upgrades in a timely manner. As of September 30, 1998, the Company has
not expended significant funds on year 2000 compliance and expects expenditures
not in excess of $300,000 will be necessary to complete remediation. The Company
expects to fund such costs through operating cash flows. If such suppliers fail
to provide upgrades in a timely manner or such upgrades are not functional, such
failure or non-functionality may have a material adverse effect on the Company,
including the loss of the authority to operate electronic gaming devices in one
or more jurisdictions if the electronic monitoring systems were to become
non-functional and waivers not be granted by the licensing authorities. The
Company has not yet evaluated approximately 37% of the Company's mission
critical systems and if such systems are not year 2000 compliant and cannot be
year 2000 compliant in a cost efficient or timely manner, such costs or
non-compliance may have a material adverse effect on the Company. The Company
has not adopted a written contingency plan in the event of a worst-case
scenario; however, based on the timing of completing evaluations of critical
systems and the successful implementation of repairs and replacements,
management will continue to evaluate the need for a formal contingency plan.
In addition, the Company estimates that neither the costs related to
the repair and replacement of the low priority systems that are not yet year
2000 complaint nor the costs, if any, related to not using such systems until
they are year 2000 compliant will have a material adverse effect on the Company.
30
<PAGE>
IMPACT OF INFLATION
Absent changes in competitive and economic conditions or in specific
prices affecting the industry, management does not expect that inflation will
have a significant impact on the Company's operations. Changes in specific
prices (such as fuel and transportation prices) relative to the general rate of
inflation may materially affect the hotel-casino industry. There has been no
material impact from inflation during the periods covered by the accompanying
financial statements.
SEASONALITY AND WEATHER
A flood or other severe weather condition could cause the Company to
lose the use of one or more dockside facilities for an extended period. The
inability to use a dockside facility during any period could materially
adversely affect the Company's financial results. Seasonal revenue fluctuations
may occur at the Company's existing and proposed casinos in Mississippi, Iowa,
Missouri and British Columbia.
31
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in a purported
shareholder class action lawsuit alleging violations by the
Company of the Securities Exchange Act of 1933 and the
Securities Exchange Act of 1934 for alleged material
misrepresentations and omissions in connection with the
Company's 1993 prospectus and initial public offering of
Common Stock. The complaint seeks, inter alia, injunctive
relief, rescission and unspecified compensatory damages. In
addition to the Company, the complaint also names as
defendants Andrew H. Tompkins, Chairman and Chief Executive
Officer of LLGC, Alain Uboldi, President, Director and Chief
Operating Officer of LLGC, Michael Hlavsa, the former Chief
Financial Officer of LLGC, Bear Stearns & Co., Inc. and
Oppenheimer & Co., Inc., who acted as lead underwriters for
the initial public offering. The Company has retained outside
counsel to respond to the complaint. On October 8, 1997, the
Company was served with an order of the court dismissing all
of the Plaintiff's Section 10(b) and eleven of the
Plaintiff's sixteen Section 11, 12 and 15 allegations with
prejudice for failing to adequately state a claim. The court
also ordered the Plaintiffs to and the Plaintiffs have filed
an amended complaint regarding the five Section 11, 12 and 15
claims which were not dismissed with prejudice. The Company
subsequently moved to dismiss such allegations. On November
5, 1998, the Company was served with an order of the court
dismissing one additional Section 11, 12 and 15 claim. While
the outcome of this matter cannot presently be determined,
the Company believes based in part on advice of counsel, that
it has meritorious defenses.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b) None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 5. OTHER INFORMATION
None
32
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lady Luck Gaming Corporation
DATE: November 13, 1998 Registrant
By: /s/James D. Bowen
Its: Vice President Finance and
Principal Accounting Officer and
duly authorized officer
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at June 30, 1998
(Unaudited) and the Condensed Consolidated Statement of Income for the Six
Months Ended June 30, 1998 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000906527
<NAME> Lady Luck Gaming Corporation
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<CASH> 18,191
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20,036
0
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