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: May 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 July 12, 1996
<PAGE>
LOUISIANA CASINO CRUISES, INC.
INDEX
PAGE NO.
Part I Financial Information
Balance Sheets.....................................................1
Statements of Operations...........................................2
Statements 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................................9
Part II Other Information.................................................16
Signatures.................................................................17
<PAGE>
<TABLE>
<CAPTION>
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands)
May 31, November 30,
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 8,506 $ 9,232
Restricted cash .................................... - 62
Receivables, less allowance for doubtful accounts
of $155 and $97, respectively ................... 518 422
Prepaid and other current assets ................... 2,006 1,697
Inventory .......................................... 413 385
Deferred tax asset - current, less valuation
allowance of $0 and $602, respectively ........... 1,021 261
-------- --------
Total current assets .......................... 12,464 12,059
Property and equipment, at cost, less accumulated
depreciation of $5,453 and $3,490, respectively ...... 44,601 46,271
Prepaid and other assets ............................... 4,114 4,362
-------- --------
Total assets .................................. $ 61,179 $ 62,692
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable ..................................... $ 2,231 $ 2,823
Accrued liabilities .................................. 1,226 1,440
Accrued interest ..................................... 2,703 2,950
First mortgage notes, current portion (Note 2) ....... 2,110 4,222
Notes payable, current portion (Note 2) .............. 2,519 2,198
Other current liabilities ............................ 296 230
-------- --------
Total current liabilities ..................... 11,085 13,863
First mortgage notes, net of original issue
discount (Note 2) .................................. 43,982 45,906
Notes payable (Note 2) ................................. 955 2,003
Estimated dispute resolution cost ...................... 1,700 1,700
-------- --------
Total liabilities ............................. 57,722 63,472
-------- --------
Redeemable preferred stock ............................. 1,430 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 May 31, 1996 and
November 30, 1995, respectively .................... 1 1
Accumulated deficit .................................... (2,350) (6,521)
-------- --------
Total shareholders' deficit ............................ (2,349) (6,520)
-------- --------
Total liabilities and shareholders' deficit ............ $ 61,179 $ 62,692
======== ========
The accompanying notes are an integral
part of these financial statements
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Casino ............................... $ 20,258 $ 18,499 $ 39,141 $ 30,499
Food and beverage .................... 345 431 662 589
Other ................................ 200 96 410 187
--------- --------- --------- ---------
Net revenues ......................... 20,803 19,026 40,213 31,275
--------- --------- --------- ---------
Costs and expenses:
Casino ............................... 8,944 8,327 17,236 14,107
Food and beverage .................... 338 537 649 764
Selling, general and administrative .. 5,473 4,831 10,857 8,284
Pre-opening expenses ................. - 211 - 1,565
--------- --------- --------- ---------
Total operating expenses ................. 14,755 13,906 28,742 24,720
--------- --------- --------- ---------
Income before depreciation,
amortization and interest ............ 6,048 5,120 11,471 6,555
Depreciation and amortization ............ 1,017 929 2,026 1,625
--------- --------- --------- ---------
Operating income ..................... 5,031 4,191 9,445 4,930
Other income (expense):
Interest income ...................... 47 94 112 195
Interest expense ..................... (1,763) (1,761) (3,608) (3,131)
--------- --------- --------- ---------
Income before income taxes ............... 3,315 2,524 5,949 1,994
Net benefit for income taxes (Note 7) .... (91) - (91) -
--------- --------- --------- ---------
Net income ............................... 3,406 2,524 6,040 1,994
Dividend requirement on redeemable
preferred stock ...................... 33 33 66 66
Market value warrant adjustment .......... - 856 - 1,711
Distributions paid to common stock
warrant holders ....................... 243 - 243 -
--------- --------- --------- ---------
Net income assigned to
common shareholders .................. $ 3,130 $ 1,635 $ 5,731 $ 217
========= ========= ========= =========
Earnings per common and
common equivalent share (Note 4) ..... $ 2.97 $ 1.66 $ 5.26 $ 0.22
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding (Note 4) 1,135,783 982,783 1,135,783 982,783
========= ========= ========= =========
The accompanying notes are an integral
part of these financial statements
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
(in thousands, except share data)
(unaudited)
Common Stock Additional
----------------- Paid-In Accumulated
Shares Amount Capital Deficit) Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1995 ........ 982,783 $ - $ - $(6,521) $(6,520)
Dividend requirements on
redeemable preferred stock ...... - - - (66) (66)
Dividends paid to holders of common
stock and distributions to common
stock warrant holders ........... - - - (1,803) (1,803)
Net income .......................... - - - 6,040 6,040
------- ------- ------- ------- -------
Balance at May 31, 1996 ............. 982,783 $ - $ - $(2,350) $(2,349)
======= ======= ======= ======= =======
The accompanying notes are an integral
part of these financial statements
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(page 1 of 2)
(in thousands)
(unaudited)
Six Months Ended
May 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net income .............................................. $ 6,040 $ 1,994
Net cash flows from operating activities :
Depreciation and amortization ......................... 2,026 1,625
Amortization of deferred costs ........................ 707 450
Provision for bad debt ................................ 58 60
Increase in receivables ............................... (154) (218)
Increase in inventory ................................. (28) (454)
Increase in prepaid and other assets .................. (645) (1,919)
Increase in deferred tax asset - current .............. (760) -
Decrease in accrued interest .......................... (247) (2,909)
(Decrease) increase in accounts payable and other ..... (740) 264
liabilities
-------- --------
Net cash provided (used) by operating activities .. 6,257 (1,107)
-------- --------
Cash flows from investing activities :
Capital expenditures .................................. (293) (10,851)
Decrease in restricted cash ........................... 62 15,943
-------- --------
Net cash (used) provided by investing activities .. (231) 5,092
-------- --------
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 ..................... (4,222) -
Repayments of notes payable ........................... (1,167) (332)
Dividends paid ........................................ (1,803) -
-------- --------
Net cash (used) provided by financing activities .. (6,752) 573
-------- --------
Net (decrease) increase in cash ......................... (726) 4,558
Cash at beginning of period ............................. 9,232 2
-------- --------
Cash at end of period ................................... $ 8,506 $ 4,560
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................. $ 3,236 $ 5,982
======== ========
Cash paid for income taxes .............................. $ 793 $ -
======== ========
The accompanying notes are an integral
part of these financial statements
4
<PAGE>
<FN>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(page 2 of 2)
(in thousands)
(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 May 31, 1996 and November 30, 1995 and $3,296,000 at
May 31, 1995. During the six months ended May 31, 1996 and 1995 the estimated
liability was increased by $0 and $1,711,000, respectively.
Redeemable preferred stock dividends of $66,000 were accrued during each of
the six-month periods ended May 31, 1996 and 1995.
</FN>
The accompanying notes are an integral
part of these financial statements
5
</TABLE>
<PAGE>
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
six months ended May 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
six-month periods ended May 31, 1996 and 1995 should be read in conjunction with
the 1995 audited financial statements.
The unaudited financial statements as of May 31, 1996 and for the three and
six months ended May 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 May 31, 1996 and the results of its operations and its cash flows
for the three and six-month periods ended May 31, 1996 and 1995.
Certain amounts in the financial statements for the three and six months
ended May 31, 1995 have been reclassified to conform to the presentation of the
financial statements for the three and six months ended May 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
and six months ended May 31, 1996 and 1995 was $1,162,000 and $2,539,000 and
$1,261,000 and $2,413,000, respectively. The cost of providing such
6
<PAGE>
complimentary items has been classified as casino costs (promotional expenses)
and totaled $758,000 and $1,444,000 and $622,000 and $1,115,000 for the three
and six month periods ended May 31, 1996 and 1995, respectively.
NOTE 2 - NOTES PAYABLE
On January 2, 1996 the Company obtained an additional loan in the amount of
$440,020 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 period ended November 30, 1995
amounted to $4,222,000. As required by the Indenture, on January 29, 1996 the
Company made an offer to holders of the Notes to repurchase up to $4,222,000 of
Notes at par plus interest to, but not including, the payment date of February
28, 1996. A cash payment of $4,339,000 (principal plus accrued interest) was
made by the Company on February 28, 1996.
As of May 31, 1996, the Company has reclassified to a current liability
$2,110,000 of Notes based upon an estimate of Cumulative Excess Cash Flow
generated during the semiannual period ended May 31, 1996. This amount is to be
used by the Company to make an offer in July 1996 to holders of the Notes to
repurchase up to $2,110,000 of Notes at par, plus accrued interest. The
repurchase, if any, is anticipated to be completed in August 1996.
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 to the amount at which the Company
expects to repurchase these warrants. The estimated accreted value attributed to
the redeemable common stock warrants as of May 31, 1996 and November 30, 1995 is
$4,376,000.
NOTE 4 - EARNINGS PER COMMON SHARE
In accordance with Emerging Issues Task Force Issue 88-9, primary earnings
per share is calculated in the manner that is most dilutive giving consideration
to the effect of changes to the balance of the Company's redeemable common stock
warrants and distributions paid to warrant holders during the period.
Accordingly, earnings per share for the three and six months ended May 31, 1996
is calculated 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 stock equivalents for
the three and six months ended May 31, 1996 consist of redeemable common stock
warrants for 153,000 shares.
7
<PAGE>
Earnings per share for the three and six months ended May 31, 1995 has been
calculated by dividing net income reduced by dividend requirements on redeemable
preferred stock and the market value warrant adjustment for the period by the
weighted average number of common shares outstanding during the period.
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. 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 May 31, 1996 and November 30, 1995 for costs associated
with eventual resolution of the matter.
The Company is also 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 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 East Baton Rouge Parish when
its license expires in December 1999.
NOTE 6 - DIVIDENDS
On March 27, 1996 the Board of Directors declared a dividend of $1.58745
per share of common stock and per common stock warrant, payable to holders of
record on March 27, 1996. An aggregate dividend of $1,803,000 was paid on March
28, 1996.
NOTE 7 - INCOME TAXES
The Company has recorded a net benefit of $91,000 for the three and
six-month periods ended May 31, 1996. The current tax provision for the six
months ended May 31, 1996 is $1,008,000. The deferred tax benefit for the
six-month period is $1,099,000. The deferred tax benefit results from the
release of the remaining balance of the deferred tax valuation allowance of
$2,399,000 in accordance with SFAS 109. The benefit of releasing the valuation
allowance was offset by the provision of $1,300,000 of deferred tax liability.
As of May 31, 1996 the Company no longer has recorded a valuation allowance
for deferred taxes as it is management's belief that the tax benefit of this
reversal of deductible temporary differences will be realized.
No tax provision was recorded for the three and six months ended May 31,
1995. The tax provision for those periods was fully offset by the release of a
portion of the deferred tax valuation allowance.
8
<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 May 31, 1996 compared to three months ended May 31, 1995.
The Casino Rouge is one of two riverboat casinos operating in Baton Rouge.
The two riverboat casinos comprise the principal competitive gaming market in
which the Company operates. Casino taxable gaming revenues in the Baton Rouge
gaming market for the three months ended May 31, 1996 and 1995 were $35,314,000
and $31,109,000, respectively. Riverboat Casino patron counts in the Baton Rouge
gaming market for the three months ended May 31, 1996 and 1995 were 756,000 and
802,000, respectively. Management believes the growth in casino taxable gaming
revenues of 13.5% is attributable to the impact of the marketing efforts of the
two riverboat casinos whereas the casino patron count has declined due to
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.
The Casino Rouge commenced operations on December 28, 1994. During the
three months ended May 31, 1995 the Company was in its early stage of initial
operations and had just completed substantially all its development activity in
February 1995. Therefore, the quarterly periods for the three months ended May
31, 1996 and 1995 represent the Company's first comparable quarterly results.
The Company's net income was $3,406,000 and $2,524,000 for the three months
ended May 31, 1996 and 1995, respectively.
Second quarter casino revenues for the Company were $20,258,000 in 1996
compared to $18,499,000 in 1995. The increase in casino revenues is attributable
to growth in slot and table revenues and the addition of the Company's poker
room in November 1995. Slot revenues increased 7.1% as an increase in average
daily slot handle of 13.7% was partially offset by a lower slot hold percentage
experienced in the second quarter of 1996. Management believes the increase in
slot handle 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. Slot win per passenger for the second quarter was up 21.4%
in 1996 compared to 1995. Second quarter table revenues in 1996 (excluding
poker) were up 9.8% compared to 1995 due to an above normal increase in the
table hold percentage and the offering of new game types in 1996 not offered by
the Company during 1995. Table drop was down 6.8% for the three months ended May
31, 1996 compared to the same period in 1995. Management believes this decrease
is due to casino competition from the Mississippi Gulf Coast and Indian casinos
operating in Louisiana which can market additional amenities targeted to table
game players. Table win per passenger for the second quarter was up 24.6% in
1996 compared to 1995. Other gaming revenue from the Company's poker room was
$314,000 in the second quarter of 1996. Revenues from casino operations were
9
<PAGE>
71.0% from slot machines and 29.0% from table games for the three months ended
May 31, 1996 compared to 73.0% and 27.0%, respectively, during the three months
ended May 31, 1995. Such mix of slot machine and gaming table win generally
conforms to that experienced by riverboats throughout Louisiana.
Second quarter average win per passenger increased 24.2% to $46.57 in 1996
compared to $37.50 in 1995. The total passenger count was 435,000 and 493,000
for the three months ended May 31, 1996 and 1995, respectively. Based on public
reports issued by the Louisiana State Police, the Company's share of the Baton
Rouge gaming market was 57.5% of admissions and 59.3% of casino win in the
second quarter of 1996 compared to 61.6% and 60.5%, respectively, in the second
quarter of 1995. Management believes the decrease in market share 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 second quarter of 1995.
Second quarter food and beverage revenues, which include revenues from the
Buffet Carnivale restaurant, a snack bar and bar in the land based facility, and
all casino bars and the food carts on the riverboat, were $345,000 in 1996
compared to $431,000 in 1995. Food revenues were $100,000 less in the second
quarter of 1996 than 1995 due to lower total patron counts which impacted sales
volume in the Buffet Carnivale. The Company reduced food operating losses by
$111,000 in the second quarter of 1996 compared to 1995, as food service, cost
controls, and pricing strategies were implemented to better service its regular
gaming customers and improve profits.
Other revenues for the three months ended May 31, 1996 consisted of $90,000
of commissions, $56,000 for valet parking fees, $43,000 for gift shop, and
$11,000 of miscellaneous income. For the three months ended May 31, 1995 other
revenues included $83,000 in commissions, and $13,000 miscellaneous income as
the valet and gift shop concessions were not then directly operated by Casino
Rouge.
Casino expenses for the three months ended May 31, 1996 and 1995 were
$8,944,000 and $8,327,000, respectively, which included gaming taxes of
$3,848,000 and $3,447,000 based on a state tax of 18.5% of casino revenues;
$1,842,000 and $1,781,000 of casino payroll and related costs; $1,088,000 and
$1,233,000 of admission fees payable to the City of Baton Rouge at $2.50 per
passenger; $782,000 and $683,000 of promotional expenses; $200,000 and $178,000
of other direct expenses; and $1,185,000 and $1,005,000 of payroll, taxes,
benefits and other costs of casino support departments. Support departments
include cashiering, credit, surveillance and casino marketing. Casino expenses
were 47% and 45% of casino revenues for the three months ended May 31, 1996 and
1995, respectively. The increase in operating cost as a percentage of revenue is
attributable to i) a higher effective state gaming tax rate due to certain
payments, related to slot revenues, which cause a permanent difference between
gaming revenues for financial reporting and state gaming tax purposes and ii)
increased casino marketing costs of frequent player club reward programs; prize,
food and valet parking promotions; and tour bus programs offset by iii) a lower
effective admission fee tax rate due to increased win per passenger.
Food and beverage costs, including payroll, the cost of food and beverage
sold and related expenses were $338,000 and $537,000 for the three months ended
May 31, 1996 and 1995, respectively. Food expenses decreased $211,000 in the
second quarter of 1996 compared to 1995. To attract patronage to the casino,
food outlets offer "value oriented" retail prices. Food and beverage costs
equaled 98% and 125% of food and beverage revenues for the three months ended
May 31, 1996 and 1995, respectively. This improvement is due to efforts towards
cost reduction and profit improvement discussed above.
In the second quarter of 1996, selling, general and administrative expenses
were $5,473,000 compared to $4,831,000 in the second quarter of 1995. Expenses
included in selling, general and administrative expenses in 1996 and 1995,
respectively, were principally $891,000 and $694,000 for marketing (the increase
is due to expenses of i) prize, food and valet parking promotions, ii)
television and outdoor advertising and iii) personnel administering and selling
the tour bus program); $758,000 and $811,000 for capital expenses (consisting of
property taxes, ground lease payments and insurance coverage for property,
general liability and business interruption); $720,000 and $600,000 for general
and administrative expenses (the increase is due to amounts paid or reserved for
10
<PAGE>
outstanding insurance claims); $738,000: and $661,000 for management fees; and
$706,000 and $703,000 for marine operations. For the three months ended May 31,
1996 and 1995 the costs of the Company's valet parking and gift shop operations
included in selling, general and administrative expenses were $89,000 and $0,
respectively, as these services were operated by third parties during the second
quarter of 1995.
Depreciation and amortization was $1,017,000 and $929,000 for the three
months ended May 31, 1996 and 1995, respectively.
Net interest expense was $1,716,000 and $1,667,000 for the three months
ended May 31, 1996 and 1995, respectively. Second quarter interest expense for
1996 includes an additional $158,000 of bond offering costs partially offset by
a reduction in interest expense of approximately $123,000 associated with the
$4,222,000 of Notes repurchased by the Company.
Results of Operations
Six months ended May 31, 1996 compared to six months ended May 31, 1995
Casino taxable gaming revenues for the two riverboat casinos in the Baton
Rouge gaming market for the six months ended May 31, 1996 and 1995 were
$67,214,000 and $56,224,000, respectively. Riverboat casino patron counts for
the same respective periods were 1,453,000 and 1,461,000. Management believes
the 19.5% growth in casino taxable gaming revenues is attributable to i) an
additional twenty-nine days (183 vs. 154) 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 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.
The Casino Rouge commenced operations on December 28, 1994 and the Company
was in both the developmental and initial operating stages during the six months
ended May 31, 1995. Therefore the six month periods ended May 31, 1996 and 1995
are not fully comparable. All operating revenues and expenses for the six months
ended May 31, 1995 were earned and incurred during the period of December 28,
1994 through May 31, 1995 and the Company did not open its Buffet Carnivale
restaurant outlet until February 1995. The Company had net income of $6,040,000
and $1,994,000 for the six months ended May 31, 1996 and 1995, respectively.
Casino revenues were $39,141,000 and $30,499,000 for the six months ended
May 31, 1996 and 1995, respectively. The increase is primarily attributable to
twenty-nine more days (183 vs. 154) of operating results included in the six
months of 1996 compared to 1995 because of the Company's commencement of
operations on December 28, 1994. Increases in average daily table revenue
(excluding poker) and daily slot revenue of 8.9% and 5.4%, respectively, and the
opening of the Company's poker room in November of 1995 also contributed to the
rise in casino revenues for the period presented. The increase in daily table
revenue is due to an above normal increase in table hold percentage which was
mitigated by the impact of a 9.2% decrease in table drop. Management believes
this decrease is due to casino competition from the Mississippi Gulf Coast and
Indian casinos operating in Louisiana, which can market additional amenities
targeted to table game players. Daily slot revenues increased due to higher
daily slot handle volume of 13.7% which management believes is due to 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. The
increase in daily slot revenue would have been greater if it had not been
negatively impacted by a lower slot hold percentage experienced during the six
month period ended May 31, 1996, compared to 1995.
Average win per passenger was $45.99 and $36.07 for the six months ended
May 31, 1996 and 1995, respectively. Total passenger count was 851,000 and
845,000 for the six months ended May 31, 1996 and 1995, respectively. Measures
of the Company's market share of admissions and casino win for the six months
ended May 31, 1996 and 1995 are not comparable as the Company did not operate a
11
<PAGE>
full six months in the period ended May 31, 1995 due to the casino opening on
December 28, 1994. The Company's share of the Baton Rouge gaming market was
58.6% of admissions and 59.9% of casino win in the six months ended May 31,
1996. The Company's share of the Baton Rouge gaming market was 58.0% of
admissions and 54.5% of casino win in the six months ended May 31, 1995.
Food and beverage revenues were $662,000 and $589,000 for the six months
ended May 31, 1996 and 1995, respectively. Food revenues increased $47,000 due
to the increased number of days of operations and food operating losses were
reduced $170,000, as food service, cost control, and pricing strategies were
implemented to better service the Company's regular gaming customer and improve
profits.
Other revenues for the six months ended May 31, 1996 and 1995 were $410,000
and $187,000, respectively, which included valet parking revenues of $114,000
and $0; gift shop revenues of $94,000 and $2,000; commissions of $180,000 and
$142,000; and miscellaneous income of $23,000 and $43,000. The valet parking and
gift shop concessions were operated by third parties during the six months ended
May 31, 1995.
Casino expenses for the six months ended May 31, 1996 and 1995 were
$17,236,000 and $14,107,000, respectively, which included gaming taxes of
$7,437,000 and $5,668,000 based on a state tax of 18.5% of casino revenues;
$3,600,000 and $3,134,000 of casino payroll and related costs; $2,128,000 and
$2,111,000 of admission fees payable to the City of Baton Rouge at $2.50 per
passenger; $1,512,000 and $1,229,000 of promotional expenses; $400,000 and
$260,000 of other direct expenses; and $2,159,000 and $1,646,000 of payroll,
taxes, benefits and other costs of casino support departments. Support
departments include cashiering, credit, surveillance and casino marketing. The
increase in casino expenses for the period is primarily attributable to the
increased number of days of operations. Casino expenses were 44% and 46% of
casino revenues for the six months ended May 31, 1996 and 1995, respectively.
The decrease in operating cost as a percentage of revenue is attributable to i)
a lower effective admission fee tax rate due to increased win per passenger and
ii) a greater percentage growth in casino revenue than casino payroll and
related costs offset by iii) a greater percentage growth in promotion and casino
marketing costs (due to frequent player club reward programs; prize, food and
valet parking promotions; and tour bus programs) than casino revenue.
Food and beverage costs, including payroll, the cost of food and beverage
sold and related expenses were $649,000 and $764,000 for the six months ended
May 31, 1996 and 1995, respectively. Food operating expenses decreased $122,000
in the first six months of 1996 compared to 1995. To attract patronage to the
casino, food outlets offer "value oriented" retail prices. Food and beverage
costs equaled 98% and 130% of food and beverage revenues for the six months
ended May 31, 1996 and 1995, respectively. This improvement is due to efforts
towards cost reduction and profit improvement discussed above.
Selling, general and administrative expenses were $10,857,000 and
$8,284,000 for the six months ended May 31, 1996 and 1995, respectively. The
increase in selling, general and administrative expenses is primarily
attributable to the increased number of days of operations in the six months
ended May 31, 1996 compared to 1995. Expenses included in selling, general and
administrative expenses in 1996 and 1995, respectively, were principally
$1,760,000 and $1,315,000 for marketing (the increase is due to expenses of i)
advertising production and placement costs, ii) prize, food, and valet parking
promotions, iii) entertainment and special events and iv) personal administering
and selling the tour bus program.); $1,497,000 and $1,364,000 for capital
expenses (consisting of property taxes, ground lease payments and insurance
coverage for property, general liability and business interruption); $1,437,000
and $1,119,000 for general and administrative expenses (the increase is due to
increases in insurance expenses and legal fees); $1,412,000 and $1,053,000 for
management fees; and $1,608,000 and $1,148,000 for marine operations. For the
six months ended May 31, 1996 and 1995 the costs of the Company's valet parking
and gift shop operations included in selling, general and administrative
expenses were $184,000 and $0, respectively, as these services were operated by
third parties during the first six months of 1995. Marine operations expenses
for the six months ended May 31, 1996 included approximately $275,000 of
maintenance and repair expenditures that are not expected to be recurring.
12
<PAGE>
Depreciation and amortization was $2,026,000 and $1,625,000 for the six
months ended May 31, 1996 and 1995, respectively. The increase is due to the
additional days of operations in 1996 and the completion of construction in 1995
after opening on December 28, 1994.
Net interest expense was $3,496,000 and $2,936,000 for the six months ended
May 31, 1996 and 1995, respectively. This increase in net interest expense
resulted from 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 $225,000 of original issue discount and
bond offering costs partially offset by a reduction in interest expense of
approximately $123,000 associated with the $4,222,000 of Notes repurchased by
the Company.
Liquidity and Capital Resources
During the six months ended May 31, 1996 the Company generated $6,257,000
in cash flows from operations as compared to an operating cash deficit of
$(1,107,000) for the six months ended May 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 daily table and slot
revenues, ii) pre-opening expenses paid in 1995 and iii) the timing of interest
payments of which $3,148,000 and $5,982,000 was paid in the six months ended May
31, 1996 and 1995, respectively.
Cash flows from investing activities were $(231,000) and $5,092,000,
respectively, for the six months ended May 31, 1996 and 1995. Results for the
six months ended May 31, 1996 reflects capital expenditures for continuing
operations whereas results for the six months ended May 31, 1995 were
attributable to the reduction of restricted cash utilized for construction,
equipment and pre-opening expenses.
Financing activities for the six months ended May 31, 1996 used cash of
$6,752,000, due to i) the February 1996 repurchase of Notes in the principal
amount of $4,222,000 as required by the Indenture, ii) the payment of dividends
to shareholders and distributions to warrant holders in March 1996 aggregating
$1,803,000 and iii) the repayment of regularly scheduled principal amounts due
under the Credit Agreement, as amended. For the six months ended May 31, 1995,
financing activities provided cash in the amount of $573,000 principally due to
the Company obtaining proceeds available under the Credit Agreement and the use
of such proceeds to pay obligations for the acquisition of gaming and other
equipment.
As of May 31, 1996 liquidity and capital resources of the Company included
existing cash balances of approximately $8,506,000, 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 May 31, 1996, the Company has
reclassified to a current liability $2,110,000 of Notes based upon an estimate
of Cumulative Excess Cash Flow generated during the six months ended May 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
13
<PAGE>
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 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.
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 Louisiana legislature recently 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 referendum election
on a proposition to allow such gaming is held in the parish and approved by a
majority of those voting. This amendment will be considered by the voters on
September 21, 1996 and requires a two-thirds majority to be adopted.
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 these elections, 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 were to relocate to another parish it could have a
14
<PAGE>
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.
15
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company was the subject of a lawsuit filed on January 5, 1994 in
Louisiana by Richard F. Dohoney and Robert Reardon (No. F401974, Parish of East
Baton Rouge), claiming breach of an alleged nonexclusive loan brokerage
agreement in connection with the Offering. The plaintiffs' claim was for
$510,000, or 1% of the amount raised in the Offering. In March 1995, the court
rendered judgment for the plaintiffs in the amount of $510,000 plus interest.
The Company included $561,000 in professional fees for the year ended November
30, 1994 to reflect the judgment. The Company posted a bond of an equal amount
and appealed the judgment, which has been affirmed. The Company has made payment
of $613,000 to satisfy the judgment, interest and costs and the bond has been
released. Such bond amount is reflected under the caption "Prepaid and other
current assets" on the Company's financial statements as of May 31, 1996 and
November 30, 1995.
The Company's contract with Bender Shipyard, Inc. ("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 March 1, 1996, the
Company agreed to pay Bender an additional $362,500 upon Bender's completion of
further work on the riverboat and Bender's payment of all unpaid subcontractors
and suppliers to effect release of any pending or threatened liens on the
vessel.
As of May 31, 1996 Bender had made payment to Communicore, Inc. d/b/a
Multicom and both the Company and Bender have been released from all claims by
Multicom in connection with the lien filed by Multicom on May 25, 1995 in the
amount of $161,318.
As of July 12, 1996, final payment by the Company of the $362,500 to Bender
has not been made pending performance by Bender.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
None
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: July 15, 1996 by: /s/ W. Peter Temling
-----------------------
W. Peter Temling, Acting
Chief Financial Officer
17
<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 May 31,1996 and the related statement of
operation for the six month period ended May 31, 1996 and the
audited balance sheet as of November 30, 1995 and the related
statement of operation for the year then ended and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> NOV-30-1995 NOV-30-1996
<PERIOD-END> NOV-30-1995 MAY-31-1996
<CASH> 9,232 8,506
<SECURITIES> 0 0
<RECEIVABLES> 519 673
<ALLOWANCES> 97 155
<INVENTORY> 385 413
<CURRENT-ASSETS> 12,059 12,464
<PP&E> 49,761 50,054
<DEPRECIATION> 3,490 5,453
<TOTAL-ASSETS> 62,692 61,179
<CURRENT-LIABILITIES> 13,863 11,085
<BONDS> 47,909 44,937
1,364 1,430
0 0
<COMMON> 1 1
<OTHER-SE> (6,521) (2,350)
<TOTAL-LIABILITY-AND-EQUITY> 62,692 61,179
<SALES> 0 0
<TOTAL-REVENUES> 67,083 40,213
<CGS> 0 0
<TOTAL-COSTS> 54,762 30,768
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 97 58
<INTEREST-EXPENSE> 6,675 3,608
<INCOME-PRETAX> 5,990 5,949
<INCOME-TAX> 0 (91)
<INCOME-CONTINUING> 5,990 6,040
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,990 6,040
<EPS-PRIMARY> 2.71 5.26
<EPS-DILUTED> 2.71 5.26
</TABLE>
