SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------
For the Quarter Ended: August 31, 1996
Commission File Number N/A
Louisiana Casino Cruises, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-1196619
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
organization or incorporation) Number)
1717 River Road North
Baton Rouge, Louisiana 70802
----------------------------
(Address of principal executive offices, including zip code)
(504) 381-7777
-------------
(Registrant's telephone number, including area code)
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).
YES X NO
-------- -------
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value
per share 982,783
- -------------------------- ----------------------------------
Class Outstanding as of October 11, 1996
<PAGE>
LOUISIANA CASINO CRUISES, INC.
INDEX
PAGE NO.
Part I Financial Information
Balance Sheets....................................................1
Statements of Operations..........................................2
Statement of Changes in Shareholders' Deficit.....................3
Statements of Cash Flows..........................................4
Notes to Financial Statements.....................................6
Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................10
Part II Other Information................................................15
Signatures................................................................17
<PAGE>
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands, except share data)
August 31, November 30,
1996 1995
--------- --------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents .......................... $ 6,335 $ 9,232
Restricted cash .................................... - 62
Receivables, less allowance for doubtful accounts
of $167 and $97, respectively ................... 597 422
Prepaid and other current assets ................... 1,167 1,697
Inventory .......................................... 472 385
Deferred tax asset - current, less valuation
allowance of $0 and $602, respectively ........... 1,440 261
-------- --------
Total current assets .......................... 10,011 12,059
Property and equipment, at cost, less accumulated
depreciation of $6,445 and $3,490, respectively ...... 43,795 46,271
Prepaid and other assets ............................... 3,169 4,362
-------- --------
Total assets .................................. $ 56,975 $ 62,692
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable ..................................... $ 2,345 $ 2,823
Accrued liabilities .................................. 1,388 1,440
Accrued interest ..................................... 1,295 2,950
First mortgage notes, current portion (Note 2) ....... 1,773 4,222
Notes payable, current portion (Note 2) .............. 2,573 2,198
Other current liabilities ............................ 280 230
-------- --------
Total current liabilities ..................... 9,654 13,863
First mortgage notes, net of original issue
discount (Note 2) .................................. 42,297 45,906
Notes payable (Note 2) ................................. 292 2,003
Estimated dispute resolution cost ...................... 1,700 1,700
-------- --------
Total liabilities ............................. 53,943 63,472
-------- --------
Redeemable preferred stock ............................. 1,463 1,364
-------- --------
Redeemable common stock warrants (Note 3) .............. 4,376 4,376
-------- --------
Shareholders' deficit :
Common stock, no par value:
10,000,000 shares authorized: 982,783 issued
and outstanding at August 31, 1996 and
November 30, 1995 .................................. 1 1
Accumulated deficit .................................... (2,808) (6,521)
-------- --------
Total shareholders' deficit ............................ (2,807) (6,520)
-------- --------
Total liabilities and shareholders' deficit ............ $ 56,975 $ 62,692
======== ========
The accompanying notes are an integral
part of these financial statements
1
<PAGE>
<TABLE>
<CAPTION>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- ---------- ---------
Revenues:
<S> <C> <C> <C> <C>
Casino ............................... $ 18,839 $ 18,862 $ 57,980 $ 49,361
Food and beverage .................... 362 405 1,024 994
Other ................................ 205 155 615 342
--------- --------- --------- ---------
Net revenues ......................... 19,406 19,422 59,619 50,697
--------- --------- --------- ---------
Costs and expenses:
Casino ............................... 8,490 8,275 25,726 22,383
Food and beverage .................... 314 446 963 1,210
Selling, general and administrative .. 5,646 5,082 16,503 13,365
Pre-opening expenses ................. - 60 - 1,625
--------- --------- --------- ---------
Total operating expenses ................. 14,450 13,863 43,192 38,583
--------- --------- --------- ---------
Income before depreciation,
amortization and interest ............ 4,956 5,559 16,427 12,114
Depreciation and amortization ............ 1,028 984 3,054 2,609
--------- --------- --------- ---------
Operating income ..................... 3,928 4,575 13,373 9,505
Other income (expense):
Interest income ...................... 83 65 195 260
Interest expense ..................... (1,710) (1,769) (5,318) (4,900)
--------- --------- --------- ---------
Income before income taxes ............... 2,301 2,871 8,250 4,865
Provision for income taxes (Note 7) ...... 897 - 806 -
--------- --------- --------- ---------
Net income ............................... 1,404 2,871 7,444 4,865
Dividend requirement on redeemable
preferred stock ...................... 33 33 99 99
Market value warrant adjustment .......... - 539 - 2,250
Distributions paid to common stock
warrant holders ....................... 246 217 489 217
--------- --------- --------- ---------
Net income assigned to
common shareholders .................. $ 1,125 $ 2,082 $ 6,856 $ 2,299
========= ========= ========= =========
Earnings per common and
common equivalent share (Note 4) ..... $ 1.14 $ 2.12 $ 6.47 $ 2.34
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding (Note 4) 982,783 982,783 1,135,783 982,783
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements
2
<PAGE>
LOUISIANA CASINO CRUISES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(in thousands, except share data)
(unaudited)
Common Stock
----------------- Accumulated
Shares Amount Deficit Total
------- ------- ------- --------
Balance at November 30, 1995 ......... 982,783 $ 1 $(6,521) $(6,520)
Dividend requirements on
redeemable preferred stock ....... - - (99) (99)
Dividends paid to holders of common
stock and distributions to common
stock warrant holders ............ - - (3,632) (3,632)
Net income ........................... - - 7,444 7,444
------- ------- ------- -------
Balance at August 31, 1996 ........... 982,783 $ 1 $(2,808) $(2,807)
======= ======= ======= =======
The accompanying notes are an integral
part of these financial statements
3
<PAGE>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(page 1 of 2)
(in thousands)
(unaudited)
Nine Months Ended
August 31,
--------------------
1996 1995
-------- --------
Net income .............................................. $ 7,444 $ 4,865
Net cash flows from operating activities :
Depreciation and amortization ......................... 3,054 2,609
Amortization of deferred costs ........................ 1,044 685
Loss on sale of fixed assets .......................... - 15
Provision for bad debt ................................ 86 64
Increase in receivables ............................... (261) (340)
Increase in inventory ................................. (87) (432)
Decrease (increase) in prepaid and other assets ....... 854 (2,926)
Increase in deferred tax asset - current .............. (1,179) -
Decrease in accrued interest .......................... (1,655) (1,446)
(Decrease) increase in accounts payable and other
liabilities.......................................... (480) 863
-------- --------
Net cash provided by operating activities ......... 8,820 3,957
-------- --------
Cash flows from investing activities :
Capital expenditures .................................. (479) (11,144)
Proceeds from sale of fixed assets .................... - 83
Decrease in restricted cash ........................... 62 15,943
-------- --------
Net cash (used) provided by investing activities .. (417) 4,882
-------- --------
Cash flows from financing activities :
Proceeds from issuance of note payable ................ 440 5,559
Repayment of obligations for gaming and other equipment - (4,654)
Repayment of first mortgage notes ..................... (6,332) -
Repayments of notes payable ........................... (1,776) (840)
Dividends paid to holders of common stock and
distributions to common stock warrant holders........ (3,632) (1,609)
-------- --------
Net cash (used) by financing activities ........... (11,300) (1,544)
-------- --------
Net (decrease) increase in cash and cash equivalents .... (2,897) 7,295
Cash and cash equivalents at beginning of period ........ 9,232 2
-------- --------
Cash and cash equivalents at end of period .............. $ 6,335 $ 7,297
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................. $ 6,061 $ 6,097
======== ========
Cash paid for income taxes .............................. $ 1,903 $ 264
======== ========
The accompanying notes are an integral
part of these financial statements
4
<PAGE>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(page 2 of 2)
(unaudited)
Supplemental disclosure of noncash investing and financing activities:
The accreted value of the redeemable common stock warrants liability was
estimated at $4,376,000 at August 31, 1996 and November 30, 1995 and $3,836,000
at August 31, 1995. During the nine months ended August 31, 1996 and 1995 the
estimated liability was increased by $0 and $2,250,000, respectively.
Redeemable preferred stock dividends of $99,000 were accrued during each of
the nine-month periods ended August 31, 1996 and 1995.
The accompanying notes are an integral
part of these financial statements
5
<PAGE>
LOUISIANA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Louisiana Casino Cruises, Inc. (the "Company"), a Louisiana corporation,
was formed in August 1991 for the purpose of developing and operating gaming
activities in Louisiana. For the period March 26, 1993, when the Company
obtained preliminary regulatory approval to construct a riverboat casino based
in Baton Rouge, Louisiana, through December 28, 1994, the commencement date of
operations, the Company's activities consisted of applying for the license
necessary to operate the riverboat; designing, planning and constructing the
Baton Rouge riverboat and land-based facility; negotiating and securing
financing for construction; negotiating contracts; and training for gaming
operations. These costs are included in pre-opening expenses in the statements
of operations. Financing for the project has included an issuance of common
stock for $3,000,000 to Carnival Management Services, Inc. (renamed
CSMC-Management Services, Inc. "CSMC" on April 8, 1994), a credit facility from
CSMC for $2,000,000 (subsequently converted to equity), $2,214,000 advanced to
the Company by minority shareholders (subsequently converted to $1,100,000 of
redeemable preferred stock and a $1,114,000 capital contribution), secured bank
financing of approximately $6,000,000 and a private placement offering
("Offering") of $51,000,000 in first mortgage notes ("Notes") issued pursuant to
the Indenture dated as of November 15, 1993 (the "Indenture") between the
Company and The Bank of New York, as successor trustee (the "Trustee"). The
Notes were issued with detachable warrants to purchase up to an aggregate amount
of 153,000 shares of the Company's common stock at a price of $0.01 per share.
On December 28, 1994, the Louisiana Riverboat Gaming Enforcement Division
granted the Company a permanent license to conduct riverboat gaming activities
for a period of five years.
Prior to commencement of gaming activities, the Company accounted for its
operations as a development stage enterprise, as defined by Statement of
Financial Accounting Standards ("SFAS") No. 7. The financial statements for the
nine months ended August 31, 1995 reflect both developmental and initial
operating stages and therefore should not be viewed as being representative of a
normal period of operations.
A description of the organization and operations of the Company, the
significant accounting policies followed and the financial condition and results
of operations as of November 30, 1995, are contained in the audited financial
statements included in the annual report filed on Form 10-K, as amended on May
3, 1996. The accompanying unaudited financial statements for the three and
nine-month periods ended August 31, 1996 and 1995 should be read in conjunction
with the 1995 audited financial statements.
The unaudited financial statements as of August 31, 1996 and for the three
and nine months ended August 31, 1996 and 1995 and the notes thereto have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. In the opinion of
management, all adjustments (consisting of normal recurring accruals) have been
included to present fairly, in all material respects, the financial position of
the Company at August 31, 1996 and the results of its operations and its cash
flows for the three and nine-month periods ended August 31, 1996 and 1995.
Certain amounts in the financial statements for the three and nine months
ended August 31, 1995 have been reclassified to conform to the presentation of
the financial statements for the three and nine months ended August 31, 1996.
Casino Revenue and Promotional Allowances
Casino revenue represents the net win from gaming wins and losses. Food and
beverage and other revenues are recorded at amounts collected from guests and
exclude the retail value of food, beverage and other items provided on a
complimentary basis. The retail value of these complimentary items for the three
6
<PAGE>
and nine months ended August 31, 1996 and 1995 was $1,411,000 and $3,950,000 and
$1,265,000 and $3,679,000, respectively. The cost of providing such
complimentary items has been classified as casino costs (promotional expenses)
and totaled $766,000 and $2,210,000 and $777,000 and $1,892,000 for the three
and nine month periods ended August 31, 1996 and 1995, respectively.
NOTE 2 - NOTES PAYABLE
On January 2, 1996 the Company obtained an additional loan in the amount of
$440,000 from City National Bank of Baton Rouge. The additional loan amount is
payable in 24 equal principal payments plus interest commencing January 1996.
The loan bears interest at 10.5 % per annum, payable monthly in arrears, on the
outstanding balance of the loan. The loan agreement requires the Company to
maintain a certain cash flow ratio. The loan is secured by gaming and other
equipment and limits the sale or encumbrance of such equipment.
Mandatory Offer to Repurchase Notes
When the Company has Cumulative Excess Cash Flow, as defined in the
Indenture, equal to or greater than $2,000,000 at the end of any semiannual
period, as defined in the Indenture, the Company is required to offer to
repurchase the Notes at par to the extent of such Cumulative Excess Cash Flow.
Cumulative Excess Cash Flow for the semiannual periods ended November 30, 1995
and May 31, 1996 was $4,222,000 and $2,110,000, respectively. As required by the
Indenture, on January 29, and July 30, 1996, the Company made offers to holders
of the Notes to repurchase up to $4,222,000 and $2,110,000, respectively, of
Notes at par plus interest to, but not including, the payment dates of February
28, and August 29, 1996. Cash payments of $4,339,000 and $2,169,000 (principal
plus accrued interest) were made by the Company on February 28, and August 29,
1996, respectively.
As of August 31, 1996, the Company has reclassified to a current liability
$1,773,000 of Notes based upon an estimate of Cumulative Excess Cash Flow
generated during the three months ended August 31, 1996. The Company anticipates
generating Cumulative Excess Cash Flow for the semiannual periods ending
November 30, 1996 and May 31, 1997. At the present time, the Company is unable
to predict the amount of Cumulative Excess Cash Flow that may be realized for
such semiannual periods or whether the level of Cumulative Excess Cash Flow
would require the Company to make offers to repurchase Notes. Should any
mandatory offers to repurchase Notes be required, the Company believes existing
cash balances and cash generated from continuing operations will be sufficient
to meet such cash requirements.
NOTE 3 - REDEEMABLE COMMON STOCK WARRANTS
On December 1, 1993, the Company issued $51,000,000 in Notes pursuant to
the Offering. The Offering was made in units, each consisting of Notes in the
principal amount of $1,000 and three warrants to purchase one share each of the
Company's no par value common stock at the price of .01 per share. The original
issue discount on the Notes was $1,300,578, the amount assigned to the value of
the redeemable common stock warrants at December 1, 1993.
The warrantholders have put rights whereby the Company is obligated to
purchase the warrants on December 1, 1998 at the value of the Company's common
stock at that time, as determined by two independent investment banking firms.
The warrants are classified as redeemable equity due to the put right feature
and, at each balance sheet date, are accreted towards the amount at which the
Company expects to repurchase these warrants. The estimated accreted value
attributed to the redeemable common stock warrants as of August 31, 1996 and
November 30, 1995 is $4,376,000.
7
<PAGE>
NOTE 4 - EARNINGS PER COMMON SHARE
In accordance with Emerging Issues Task Force Issue 88-9, primary earnings
per share is calculated under the more dilutive of the equity or debt methods,
giving consideration to the effect of changes to the accreted value of the
Company's redeemable common stock warrants and distributions paid to warrant
holders during the period. Accordingly, earnings per share for the nine months
ended August 31, 1996 is calculated using the equity method by dividing net
income, reduced by dividend requirements on redeemable preferred stock, by the
weighted average of common and common equivalent shares outstanding for the
period. The common equivalent shares for the three and nine months ended August
31, 1996 consist of redeemable common stock warrants for 153,000 shares.
Earnings per share for the three months ended August 31, 1996 and the three
and nine months ended August 31, 1995 has been calculated using the debt method
by dividing net income reduced by dividend requirements on redeemable preferred
stock, distributions paid to common stock warrant holders and the market value
warrant adjustment for the period by the weighted average number of common
shares outstanding during the period.
As a result of using the different methods, the sum of earnings per share
for the quarters ended February 28, May 31 and August 31, 1996 does not equal
the amount calculated for the nine month period ended August 31, 1996.
NOTE 5 - CONTINGENCIES
Legal Matters
At November 30, 1993, the Company was involved in a dispute regarding
consulting services. Although a formal demand had not been made to the Company,
management believed the dispute could lead to litigation and accrued $1,700,000
for the estimated cost of resolution. In July 1994, an action was filed against
the Company with regard to the matter and has been set for trial on December 17,
1996. Management and legal counsel intend to vigorously defend the Company's
position, however, because of the inherent uncertainties of litigation,
management is unable to predict the ultimate outcome of this matter and believes
the accrued liability of $1,700,000 an appropriate estimate at August 31, 1996
and November 30, 1995 for costs associated with eventual resolution of the
matter.
The Company is involved in other legal proceedings. In the opinion of
management, the resolution of these matters will not have a material effect on
the financial statements or continuing operations of the Company.
Other Events
The Louisiana legislature passed a statute which provides for local option
elections to be held in each parish on November 5, 1996 on the continuation of
authorized gaming operations in such parish. In the event that voters of East
Baton Rouge Parish vote against the continuation of riverboat gaming operations,
the Company would have to cease its riverboat gaming operations in Baton Rouge,
Louisiana when its license expires in December 1999.
The Company is unable to predict the outcome of this election, which
outcome could have a material adverse effect on the financial condition of the
Company. An adverse result in the local option election could result in the
termination of the Company's operations at the expiration of its existing
license. If the Company was permitted to transfer its riverboat gaming license
to another parish it could have a material adverse effect from the loss of
existing customers, the incurring of relocation costs, potential impairment to
the value of existing assets and uncertainties associated with the start up of
business operations in an alternative market.
8
<PAGE>
NOTE 6 - DIVIDENDS
On March 27, and July 29, 1996 the Board of Directors declared a dividend
of $1.587450 and $1.610345, respectively, per share of common stock and an equal
distribution per common stock warrant, payable to holders of record on March 27,
and July 29, 1996, respectively. Aggregate payments of $1,803,000 and $1,829,000
were disbursed on March 28, and July 31, 1996, respectively.
The Company's Board of Directors (the "Board") is considering declaring a
dividend of $0.618080 per share of common stock and an equal distribution per
common stock warrant. An aggregate payment of $702,000, to the holders of record
on a date determined by the Board, is expected to be made in October 1996.
NOTE 7 - INCOME TAXES
The Company has recorded a provision for income taxes of $897,000 and
$806,000, respectively, for the three and nine months ended August 31, 1996. The
current tax provision is $195,000 and $1,203,000 for the three and nine months
ended August 31, 1996, respectively. A provision of $702,000 for deferred tax
liability was recorded for the three month period ended August 31, 1996. A
deferred tax benefit of $397,000 for the nine months ended August 31, 1996
resulted from the release of all remaining balances of the deferred tax
valuation allowance of $2,399,000, in accordance with SFAS 109, which has been
reduced by the provision of $2,002,000 for deferred tax liability for the
period.
No tax provision was recorded for the three and nine months ended August
31, 1995. The tax provision for those periods was fully offset by the release of
a portion of the deferred tax valuation allowance.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
On December 28, 1994 the Company commenced operations of its riverboat
gaming facility in Baton Rouge, Louisiana (the "Casino Rouge"). Prior to that
date, the Company was in the development stage engaged in the development and
construction of the Casino Rouge. From inception in August 1991 through December
28, 1994, the Company devoted substantially all of its efforts to evaluating
gaming opportunities in Louisiana, including seeking a Louisiana gaming license,
the development and construction of the Casino Rouge and the financing thereof.
Accordingly, prior to December 28, 1994 the Company had no earnings.
The Company's activities from inception have been financed from (i) equity
and other capital contributions of the shareholders, (ii) the Offering of 51,000
units, each unit consisting of $1,000 principal amount of Notes and three
warrants to purchase one share each of Common Stock, (iii) secured equipment
financing pursuant to the terms of a bank loan agreement dated December 13, 1994
(the "Credit Agreement"), as amended on December 20, 1995 and (iv) cash flow
from operations.
Results of Operations
Three months ended August 31 1996 compared to three months ended August 31 1995
Casino revenues in the Baton Rouge gaming market for the three months ended
August 31, 1996 and 1995 were $31,561,000 and $32,276,000, respectively.
Riverboat casino patron counts in the Baton Rouge gaming market for the three
months ended August 31, 1996 and 1995 were 788,000 and 801,000, respectively.
Management believes that a principal factor contributing to the 2.2% decline in
casino revenues for the Baton Rouge market, is that the 1995 period benefited
from an extended Fourth of July holiday. The Company's casino revenues declined
0.7% while those of its competitor declined 4.3% in the three months ended
August 31, 1996, compared to the same period in 1995. The Company's share of the
Baton Rouge gaming market for the three months ended August 31, 1996 and 1995,
respectively, was 59.2% and 58.3% of casino revenues and 54.4% and 59.3% of
admissions. Management believes the decrease in its market share of admissions
is attributable to the Company's competition having made product improvements,
consisting of a new parking garage and an enclosed entertainment/retail shopping
area, which opened subsequent to the third quarter of 1995, and prize and free
point promotions offered by its competitor in the third quarter of 1996.
Casino revenues of $18,839,000 for the third quarter of 1996 were
essentially flat compared to those of the third quarter of 1995 of $18,862,000.
Table drop and slot coin-in increased 4.7% and 4.2%, respectively, which offset
decreases in table games and slot hold percentages of 1.8% and 0.3%,
respectively. Management believes the decrease in the hold percentages of table
games and slots is due to normal fluctuations associated with games of chance
and is not indicative of a continuing trend. The combination of higher gaming
volume and lower hold percentages resulted in a 3.6% decrease in table game
revenues (excluding poker) and a 0.8% decrease in slot revenue for the third
quarter of 1996 compared to 1995. Poker revenues were $281,000 in the third
quarter of 1996 whereas the Company did not offer poker in the comparable
quarter of 1995. Management believes the increase in table drop is primarily due
to an increase in play from certain premium customers while the increase in slot
coin-in is due to the marketing of a frequent player reward program; prize, food
and valet parking promotions; and an increase in patrons from tour bus marketing
programs. Third quarter average win per passenger increased 10.7% to $43.98 in
1996 compared to $39.72 in 1995. Revenues from casino operations were 71.9% from
slot machines and 28.1% from table games for the three months ended August 31,
1996 compared to 72.4% and 27.6%, respectively, for the same period in 1995.
Such mix of slot machine and gaming table win generally conforms to that
experienced by riverboats throughout Louisiana.
10
<PAGE>
Casino expenses for the three months ended August 31, 1996 and 1995 were
$8,490,000 and $8,275,000, respectively, which represented 45% and 44% of casino
revenues in each period. The increase is mainly due to the expansion of the bus
program; increased payroll in the cashiering, surveillance and VIP services
departments; and the cost of check guarantee fees due to higher check cashing
volumes.
In the third quarter of 1996, selling, general and administrative expenses
were $5,646,000 compared to $5,082,000 in the third quarter of 1995. In the
current quarter the Company has included $321,000 related to a campaign in
support of riverboat casinos in Baton Rouge (see Notes To Financial Statements,
Note 5 - Contingencies); no such costs were incurred in the comparable 1995
period. Marketing expenses included in selling, general and administrative
expenses increased approximately $201,000 in the 1996 period due to the costs of
i) prize, food and valet parking promotions, ii) television and outdoor
advertising and iii) personnel administering and selling of the tour bus
program.
Net interest expense was $1,627,000 and $1,704,000 for the three months
ended August 31, 1996 and 1995, respectively. Third quarter interest expense for
1996 includes an additional $95,000 of offering costs and original issue
discount associated with the $2,110,000 of Notes repurchased by the Company on
August 29,1996. Interest expense on the Company's Notes was approximately
$121,000 less in the third quarter of 1996 compared to 1995 because of the
$4,222,000 of Notes repurchased by the Company on February 28, 1996 (see Notes
To Financial Statements, Note 2 - Notes Payable).
Results of Operations
Nine months ended August 31, 1996 compared to nine months ended August 31, 1995
Casino revenues in the Baton Rouge gaming market for the nine months ended
August 31, 1996 and 1995 were $98,775,000 and $88,501,000, respectively.
Riverboat casino patron counts for the same respective periods were 1,279,000
and 1,322,000. Management believes the 11.6% growth in casino revenues is
attributable to i) an additional twenty-nine days (275 vs. 246) of gaming
operations for the Casino Rouge in the 1996 period compared to the 1995 period
and ii) the impact of the marketing efforts of the two riverboat casinos whereas
the casino patron count has declined due to i) patrons having visited both
casinos in 1995, during the early months of operations of each facility, out of
curiosity and to reach a decision as to which riverboat they preferred and ii)
casino competition from the Mississippi Gulf Coast and Indian casinos operating
in Louisiana, which benefit from the payment of lower taxes on casino revenues
and therefore can market additional amenities to gaming customers. Measures of
the Company's market share of admissions and casino revenue for the nine months
ended August 31, 1996 and 1995 are not comparable as the Company did not operate
a full nine months in the period ended August 31, 1995 due to the casino opening
on December 28, 1994. The Company's share of the Baton Rouge gaming market was
57.1% and 58.4% of admissions and 59.7% and 55.9% of casino revenues in the nine
months ended August 31, 1996 and 1995, respectively.
The Casino Rouge commenced operations on December 28, 1994 and the Company
was in both the developmental and initial operating stages during the nine
months ended August 31, 1995. Therefore the nine month periods ended August 31,
1996 and 1995 are not fully comparable.
Casino revenues were $57,980,000 and $49,361,000 for the nine months ended
August 31, 1996 and 1995, respectively. The increase is primarily attributable
to twenty-nine more days (275 vs. 246) of operating results included in the nine
months of 1996 compared to 1995 because of the Company's commencement of
operations on December 28, 1994. Average daily table drop decreased 4.5% and
slot coin-in increased 10.1% while the hold percentage of table games increased
1.9% and the hold percentage of slots decreased 0.5%. Management believes the
change in the hold percentages of table games and slots is due to normal
11
<PAGE>
fluctuations associated with games of chance and is not indicative of a
continuing trend. The combination of changes in gaming volume and hold
percentages resulted in increases to average daily table games and slot revenues
of 4.3% and 3.2%, respectively. Management believes these increases are due to
the table play of certain premium customers; the marketing of a frequent player
reward program; prize, food and valet parking promotions; and an increase in
patrons from a tour bus marketing program. Average win per passenger was $45.32
and $37.38 for the nine months ended August 31, 1996 and 1995, respectively
Casino expenses for the nine months ended August 31, 1996 and 1995 were
$25,726,000 and $22,383,000, respectively, which represented 44% and 45% of
casino revenues in each period. A principal reason for the increase in casino
expenses is the increased number of days of operations in the nine months ended
August 31, 1996 compared to 1995.
Selling, general and administrative expenses were $16,503,000 and
$13,365,000 for the nine months ended August 31, 1996 and 1995, respectively. A
principal reason for the increase in selling, general and administrative
expenses is the increased number of days of operations in the nine months ended
August 31, 1996 compared to 1995. The Company has included $321,000 related to a
campaign in support of riverboat casinos in Baton Rouge (see Notes To Financial
Statements, Note 5 - Contingencies); no such costs were incurred in the 1995
period. Selling, general and administrative expenses for the nine months ended
August 31, 1996 includes approximately $275,000 of maintenance and repair
expenditures for marine operations that are not expected to be recurring.
Marketing expenses included in selling, general and administrative expenses in
1996 compared to 1995 increased approximately $640,000 due to additional
advertising production and placement costs; prize, food, and valet parking
promotions; entertainment and special events; and personnel administering and
selling of the tour bus program.
Net interest expense was $5,123,000 and $4,640,000 for the nine months
ended August 31, 1996 and 1995, respectively. This increase is the result of i)
a decrease in interest income as invested funds were expended on construction
and development costs, ii) an increase in interest expense as a portion of the
interest was no longer capitalized after the commencement of operations and iii)
the expensing of $319,000 of offering costs and original issue discount
partially offset by a reduction in interest expense of approximately $244,000
associated with the $4,222,000 and $2,110,00 of Notes repurchased by the Company
on February 28, and August 29, 1996, respectively.
Liquidity and Capital Resources
During the nine months ended August 31, 1996 the Company generated
$8,820,000 in cash flows from operations as compared to $3,957,000 for the nine
months ended August 31, 1995. The improvement in cash flow from operations was
primarily due to i) increased net income in 1996 due to a) an increased number
of days of operations and b) growth in table and slot revenues, and ii)
pre-opening expenses paid in 1995.
Cash flows from investing activities were $(417,000) and $4,882,000,
respectively, for the nine months ended August 31, 1996 and 1995. Results for
the nine months ended August 31, 1996 reflect capital expenditures for
continuing operations whereas results for the nine months ended August 31, 1995
were attributable to the reduction of restricted cash utilized for construction,
equipment and pre-opening expenses.
Financing activities for the nine months ended August 31, 1996 used cash of
$11,300,000, due to i) the February 28, and August 29, 1996 repurchase of Notes
in the principal amounts of $4,222,000 and $2,110,000, respectively, as required
by the Indenture, ii) the payment of dividends to shareholders and distributions
to warrant holders aggregating $3,632,000, and iii) the repayment of regularly
scheduled principal amounts due under the Credit Agreement, as amended. For the
nine months ended August 31, 1995, financing activities used cash in the amount
of $1,544,000 principally due to the payment of dividends to shareholders and
distributions to warrant holders aggregating $1,609,000.
12
<PAGE>
As of August 31, 1996 liquidity and capital resources of the Company
included existing cash balances of approximately $6,335,000, which the Company
deems sufficient for continuing operations, including the maintenance of an
appropriate casino bankroll. Current anticipated obligations of the Company over
the next year include, in material part:
i. Debt service, including periodic payment of interest on the Notes and
principal and interest payments required by the Credit Agreement.
ii. Mandatory offers to repurchase Notes as required by the Indenture should
the Company, in any semiannual period, exceed $2,000,000 in Cumulative
Excess Cash Flow as set forth in the Indenture. As of August 31, 1996, the
Company has reclassified to a current liability $1,773,000 of Notes based
upon an estimate of Cumulative Excess Cash Flow generated during the three
months ended August 31, 1996. Based on an expectation of continuing
profitable operations, the Company anticipates generating Cumulative Excess
Cash Flow for the semiannual periods ending November 30, 1996 and May 31,
1997. At the present time, the Company is unable to predict the amount of
Cumulative Excess Cash Flow that may be realized for the semiannual periods
ending November 30, 1996 and May 31, 1997 or whether the amount of
Cumulative Excess Cash Flow would cause the Company to make offers to
repurchase Notes. Should any of these mandatory offers to repurchase Notes
be required, the Company believes existing cash balances and cash generated
from continuing operations will be sufficient to meet such cash
requirements.
iii. Payment of Federal and Louisiana state income taxes as may be required from
time to time.
iv. Cash dividends to the holders of the Company's common stock and
distributions to the holders of the Company's common stock warrants as may
be declared from time to time. The Company intends to declare and pay
dividends to the extent permitted based on future earnings, the Indenture,
legal limitations and available cash balances. The Company's Board of
Directors (the "Board") is considering declaring a dividend of $0.618080
per share of common stock and an equal distribution per common stock
warrant. An aggregate payment of $702,000, to the holders of record on a
date determined by the Board, is expected to be made in October 1996.
In the opinion of management, the Company will continue to generate
sufficient cash flows to meet operating needs and debt service requirements,
including those listed above, for the next year.
Certain covenants in the Indenture limit the ability of the Company to,
among other things, incur indebtedness, grant liens, sell assets, amend the
Management Agreement with CSMC, enter into sale-leaseback transactions and
engage in transactions with affiliates. In the event of a Change of Control (as
defined in the Indenture), the Company is required to offer to purchase all
outstanding Notes at a redemption price of 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the redemption date.
All amounts borrowed under the Credit Agreement, as amended, were used to
finance furniture, fixtures and equipment for the Casino Rouge. All items
financed by the Credit Agreement, as amended, are pledged as security for
amounts due thereunder. All of the remaining assets of the Company, including
the riverboat and land-based facilities, are pledged as security for repayment
of the Notes.
The Company has filed an application with the Louisiana Gaming Control
Board (the "Louisiana Board") to be issued a license and to operate a riverboat
casino in Shreveport. There are a number of other applicants for this license
and no assurance can be given that it will be issued to the Company or, if
issued to the Company, that, subject to approval by the Louisiana Board, it will
not be transferred to another company.
13
<PAGE>
The Louisiana legislature passed two bills which may have a direct effect
on the business of the Company. The bills relate to the holding of parish
elections to determine whether various forms of gaming will be permitted in that
parish. One bill is to amend the Louisiana Constitution to provide that no
gaming will be licensed or relicensed in a parish unless a one-time referendum
election on a proposition to allow such gaming is held in the parish and
approved by a majority of those voting. This amendment was adopted by the voters
on September 21, 1996, receiving 73% and 66% of the vote statewide and in East
Baton Rouge Parish, respectively.
The second bill provides for local option elections in parishes at which
voters can separately determine whether to allow in that parish riverboat
gaming, video poker or land based casinos. In each parish voters will approve or
disapprove, in separate votes, the specific forms of gaming currently permitted
in that parish. This bill does not seek to amend the Louisiana Constitution and
has been enacted into law. Unless a specific form of gaming activity is approved
by a majority of voters in a parish, a licensee will be required to discontinue
such activity at the expiration of its license (except for licenses for video
poker which may be renewed twice). In addition, if voters in a parish determine
to discontinue riverboat gaming, the license for a riverboat in such parish may
only be reissued or transferred to a location in a parish in which riverboat
gaming is conducted. If a majority of the voters in a parish approve a specific
form of gaming it can continue in that parish unaffected. The Company's current
gaming license expires in December 1999. Local elections pursuant to this
statute will be held on November 5, 1996.
The Company is unable to predict the outcome of this election, which
outcome could have a material adverse effect on the financial condition of the
Company. An adverse result in the local option election could result in the
termination of the Company's operations at the expiration of its existing
license. If the Company was permitted to transfer its riverboat gaming license
to another parish it could have a material adverse effect from the loss of
existing customers, the incurring of relocation costs, potential impairment to
the value of existing assets and uncertainties associated with the start up of
business operations in an alternative market.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company was the subject of three lawsuits filed by subcontractors and
material suppliers of Bender Shipyard, Inc. ("Bender") in regard to the
construction of the Company's riverboat vessel. The Company's contract with
Bender to construct its riverboat, the M/V Casino Rouge, specified that the cost
of construction would be $14,000,000 which amount has been paid by the Company.
In addition, the Company has paid approximately $315,000 to Bender for contract
change orders issued during the course of the construction project. On September
13, 1996 the Company paid Bender an additional $329,200 for the completion of
further work on the riverboat performed by Bender, and after Bender provided
documentation of payment to, and/or a release from, all previously unpaid
subcontractors and material suppliers. As a result all pending or threatened
liens on the vessel have been released. The Company and Bender have executed a
Settlement Agreement and Release, dated September 13, 1996, mutually dismissing
all Demands for Arbitration previously filed with the American Arbitration
Association. As of September 13, 1996 the Company and Bender have been released
from all claims by three subcontractors and material suppliers of Bender that
had filed lawsuits and all bonds posted by the Company have been released by the
court. The three lawsuits dismissed were i) Jamestown Metal Marine Sales, Inc.
filed April 27, 1995 in the amount of $243,867; ii) Communicore, Inc. d/b/a
Multicom filed May 25, 1995 in the amount of $161,318; and iii) Thrustmaster of
Texas, Inc. filed June 6, 1995 in the amount of $27,000.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting Of Shareholders, held on September 6, 1996, the
shareholders of 100% of the Company's outstanding common stock voted in person
or by proxy to retain the existing Board of Directors of the Company by electing
Mr. Robert B. Sturges, Mr. Dan S. Meadows and Mr. Leon R. Tarver as Directors.
Item 5. Other Information
None
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Current Reports on Form 8-K, dated July 30, 1996 and August 28, 1996, were
filed by the Company with the Securities and Exchange Commission.
Under Item 5, the July 30, 1996 Form 8-K reported the commencement of the
Company's offer to purchase for cash up to $2,110,000 aggregate principal amount
of Notes for 100% of their principal amount plus accrued interest to, but not
including, the payment date of August 29, 1996 (the "Offer"). The Offer was made
pursuant to the terms of the Indenture dated as of November 15, 1993 (the
"Indenture") between the Company and The Bank of New York as successor Trustee
(the "Trustee") and expired at 5:00 p.m. New York City time on August 28, 1996.
Under Item 5, the August 28, 1996 Form 8-K reported that pursuant to the
Offer, holders tendered $41,777,000 aggregate principal amount of Notes. The
Trustee selected $2,110,000 aggregate principal amount of Notes to be purchased
as provided by the Indenture. The Company expended $2,169,000 to purchase the
Notes and pay accrued interest. As a result of the repurchase, there currently
are $44,668,000 aggregate principal amount of Notes outstanding.
16
<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
LOUISIANA CASINO CRUISES, INC.
Dated: October 15, 1996
By: /s/ W. Peter Temling
------------------------
W. Peter Temling, Acting
Chief Financial Officer
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Financial Data Schedule contains summary
information extracted from the unaudited balance
sheet of Louisiana Casino Cruises, Inc. as of
August 31,1996 and the related statement of
operation for the nine month period ended August
31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> AUG-31-1996
<CASH> 6,335
<SECURITIES> 0
<RECEIVABLES> 764
<ALLOWANCES> 167
<INVENTORY> 472
<CURRENT-ASSETS> 10,011
<PP&E> 50,240
<DEPRECIATION> 6,445
<TOTAL-ASSETS> 56,975
<CURRENT-LIABILITIES> 9,654
<BONDS> 42,589
1,463
0
<COMMON> 1
<OTHER-SE> (2,808)
<TOTAL-LIABILITY-AND-EQUITY> 56,975
<SALES> 0
<TOTAL-REVENUES> 59,619
<CGS> 0
<TOTAL-COSTS> 46,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 86
<INTEREST-EXPENSE> 5,318
<INCOME-PRETAX> 8,250
<INCOME-TAX> 806
<INCOME-CONTINUING> 7,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,444
<EPS-PRIMARY> 6.47
<EPS-DILUTED> 6.47
</TABLE>
