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, 1997
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 11, 1997
<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.........................9
Part II Other Information..........................................14
Signatures..........................................................15
<PAGE>
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands)
May 31, November 30,
1997 1996
-------- --------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents .......................... $ 6,074 $ 4,677
Restricted cash (Notes 1 and 2) .................... 4,410 3,052
Receivables, less allowance for doubtful accounts
of $282 and $236, respectively .................. 372 424
Prepaid and other current assets ................... 897 797
Inventory .......................................... 529 439
Deferred tax asset ................................. 1,986 2,241
-------- --------
Total current assets .......................... 14,268 11,630
Property and equipment, at cost, less accumulated
depreciation of $9,475 and $7,484, respectively ...... 42,267 43,888
Prepaid and other assets ............................... 2,506 2,920
-------- --------
Total assets .................................. $ 59,041 $ 58,438
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable ..................................... $ 2,551 $ 2,681
Accrued liabilities .................................. 1,055 1,601
Accrued interest ..................................... 2,572 2,578
First mortgage notes, current portion (Note 2) ....... 3,098 1,526
Notes payable, current portion (Note 2) .............. 956 2,223
Other current liabilities ............................ 267 303
Estimated dispute resolution costs ................... 1,700 1,700
-------- --------
Total current liabilities ..................... 12,199 12,612
First mortgage notes, net of original issue
discount (Note 2) .................................. 41,153 42,638
Notes payable (Note 2) ................................. - 18
Deferred tax liability ................................. 1,518 981
-------- --------
Total liabilities ............................. 54,870 56,249
-------- --------
Redeemable preferred stock ............................. 1,562 1,496
-------- --------
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, 1997 and
November 30, 1996 .................................. 1 1
Accumulated deficit .................................... (1,768) (3,684)
-------- --------
Total shareholders' deficit ............................ (1,767) (3,683)
-------- --------
Total liabilities and shareholders' deficit ............ $ 59,041 $ 58,438
======== ========
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 Six Months Ended
May 31, May 31,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Casino ............................ $ 17,857 $ 20,258 $ 35,190 $ 39,141
Food and beverage ................. 353 345 643 662
Other ............................. 175 200 313 410
---------- ---------- ---------- ----------
Net revenues ...................... 18,385 20,803 36,146 40,213
---------- ---------- ---------- ----------
Costs and expenses:
Casino ............................ 8,027 8,944 16,205 17,236
Food and beverage ................. 329 338 613 649
Selling, general and administrative 5,359 5,473 10,408 10,857
---------- ---------- ---------- ----------
Total operating expenses .............. 13,715 14,755 27,226 28,742
---------- ---------- ---------- ----------
Income before depreciation,
amortization and interest ......... 4,670 6,048 8,920 11,471
Depreciation and amortization ......... 1,063 1,017 2,107 2,026
---------- ---------- ---------- ----------
Operating income .................. 3,607 5,031 6,813 9,445
Other income (expense):
Interest income ................... 72 47 99 112
Interest expense .................. (1,531) (1,763) (2,931) (3,608)
---------- ---------- ---------- ----------
Income before income taxes ............ 2,148 3,315 3,981 5,949
Provision for income taxes (Note 7) ... 790 (91) 1,517 (91)
---------- ---------- ---------- ----------
Net income ............................ 1,358 3,406 2,464 6,040
Dividend requirement on redeemable
preferred stock ................... 33 33 66 66
Distributions to common stock
warrant holders ................... 65 243 65 243
---------- ---------- ---------- ----------
Net income assigned to common
shareholders ...................... $ 1,260 $ 3,130 $ 2,333 $ 5,731
========== ========== ========== ==========
Earnings per common and
common equivalent share (Note 4) .. $ 1.17 $ 2.97 $ 2.11 $ 5.26
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding(Note 4) 1,135,783 1,135,783 1,135,783 1,135,783
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
2
<PAGE>
<TABLE>
<CAPTION>
LOUISIANA CASINO CRUISES, INC.
STATEMENT 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> <C> <C>
Balance at November 30, 1996 .................... 982,783 $ 1 $ - $(3,684) $(3,683)
Dividend requirements on
redeemable preferred stock .................. - - - (66) (66)
Dividends paid to holders of common stock and
distributions to common stock warrant holders - - - (482) (482)
Net income ...................................... - - - 2,464 2,464
------- ----- ------- ------- -------
Balance at May 31, 1997 ......................... 982,783 $ 1 $ - $(1,768) $(1,767)
======= ===== ======= ======= =======
</TABLE>
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)
Six Months Ended
------------------
May 31, May 31,
1997 1996
------- -------
Net income ......................................... $ 2,464 $ 6,040
Net cash flows from operating activities :
Depreciation and amortization .................... 2,107 2,026
Amortization of deferred costs ................... 377 707
Loss on sale of fixed assets ..................... 47 -
Provision for bad debt ........................... 48 58
Decrease (increase) in receivables ............... 4 (154)
Increase in inventory ............................ (90) (28)
Increase in prepaid and other assets ............. (42) (645)
Decrease (increase) in deferred tax asset ........ 255 (760)
Decrease in accrued interest ..................... (6) (247)
Increase in deferred tax liability ............... 536 -
Decrease in accounts payable and other liabilities (712) (740)
------- -------
Net cash provided by operating activities .... 4,988 6,257
------- -------
Cash flows from investing activities :
Capital expenditures ............................. (488) (293)
Proceeds from sale of fixed assets ............... 22 -
Decrease in restricted cash ...................... 214 62
------- -------
Net cash used by investing activities ........ (252) (231)
------- -------
Cash flows from financing activities :
Proceeds from issuance of note payable ........... - 440
Repayment of first mortgage notes ................ - (4,222)
(Increase) decrease in restricted cash ........... (1,572) 2,112
Repayments of notes payable ...................... (1,285) (1,167)
Dividends paid to holders of common stock and
distributions to common stock warrant holders (482) (1,803)
------- -------
Net cash used by financing activities ........ (3,339) (4,640)
------- -------
Net increase in cash ............................... 1,397 1,386
Cash at beginning of period ........................ 4,677 5,010
------- -------
Cash at end of period .............................. $ 6,074 $ 6,396
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest ............................. $ 2,648 $ 3,236
======= =======
Cash paid for income taxes ......................... $ 682 $ 793
======= =======
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 warrant liability was
estimated at $4,376,000 at May 31, 1997, November 30, 1996 and May 31, 1996.
During the six months ended May 31, 1997 and 1996 the estimated liability
remained unchanged. (See Note 3).
Redeemable preferred stock dividends of $66,000 were accrued during each
of the six month periods ended May 31, 1997 and 1996.
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. The Company commenced operations of the Casino Rouge, a
riverboat casino located on the Mississippi River in downtown Baton Rouge, on
December 28, 1994. The Casino Rouge's principal trading area is the Greater
Baton Rouge metropolitan area.
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, 1996, are contained in the audited financial
statements included in the annual report filed on Form 10-K. The accompanying
unaudited financial statements for the three and six month periods ended May 31,
1997 and 1996 should be read in conjunction with the 1996 audited financial
statements.
The unaudited financial statements as of May 31, 1997 and for the six
months ended May 31, 1997 and 1996 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, 1997 and the results of its operations and its cash flows for the six
months ended May 31, 1997 and 1996.
Certain amounts in the financial statements for the six months ended May
31, 1996 have been reclassified to conform to the presentation of the financial
statements for the six months ended May 31, 1997.
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, 1997 and 1996 was $1,389,000, $2,755,000,
$1,162,000 and $2,539,000, respectively. The cost of providing such
complimentary items has been classified as casino and selling, general, and
administrative costs (promotional expenses) for the three and six month periods
ended May 31, 1997 and 1996 and totaled $761,000, $1,551,000, $758,000 and
$1,444,000, respectively.
Restricted Cash
In accordance with 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") Cumulative Excess Cash Flow, not previously used to
repurchase Notes pursuant to an offer by the Company or for other uses permitted
under the Indenture, is classified as restricted cash.
6
<PAGE>
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
If 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 its outstanding 11.5% First Mortgage Notes due December 1, 1998 (the
"Notes"), issued pursuant to the Indenture, at par to the extent of such
Cumulative Excess Cash Flow.
Cumulative Excess Cash Flow for the semiannual period ended November 30,
1996 amounted to $3,052,000. As required by the Indenture, the Company made an
offer on January 29, 1997 to repurchase the Notes at par to the extent of such
Cumulative Excess Cash Flow. The Company's offer to repurchase Notes expired on
February 27, 1997 with no Notes being tendered. Pursuant to the Indenture, 50%
of such Cumulative Excess Cash Flow must be used for the acquisition of Notes in
the open market or included in the determination of Cumulative Excess Cash Flow
for the semiannual period ended May 31, 1997. The remaining 50% of such
Cumulative Excess Cash Flow for the semiannual period ended November 30, 1996 is
considered Cash Available for Reinvestment, and is available to the Company for
use in limited purposes as defined in the Indenture (see Restricted Cash - Note
1).
As of May 31, 1997 the Company has reclassified to a current liability
$3,098,000 of Notes based upon Cumulative Excess Cash Flow, (including 50% of
the Cumulative Excess Cash Flow as of November 30, 1996) generated during the
semiannual period ended May 31, 1997. This amount is to be used by the Company
to make an offer in July 1997 to the holders of the Notes to repurchase up to
$3,098,000 of Notes at par, plus accrued interest. The repurchase, if any, is
anticipated to be completed in August 1997.
NOTE 3 - REDEEMABLE COMMON STOCK WARRANTS
On December 1, 1993, the Company issued $51,000,000 in Notes in a private
placement offering ("Offering"). The Offering was made in units, each consisting
of Notes in the principal amount of $1,000 and three detachable 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 warrant holders 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, 1997 and November 30, 1996 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 in the manner that is more dilutive using the equity or
debt method 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, 1997 and 1996 are calculated using the equity method by
dividing net income, reduced by dividend requirements on redeemable preferred
stock, by the weighted average number of common and common equivalent shares
outstanding during the period. The common equivalent shares for the three and
six months ended May 31, 1997 and 1996 consist of redeemable common stock
warrants for 153,000 shares.
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. 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, 1997 and November 30, 1996 for costs associated with eventual
resolution of the matter. Trial for this matter has been set for October 1997.
Accordingly, the accrued estimated costs of resolution has been classified as a
current liability on the balance sheet as of May 31, 1997 and November 30, 1996.
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.
NOTE 6 - DIVIDENDS
On March 26, 1997 the Board of Directors declared a dividend of $0.424377
per share of common stock and per common stock warrant. The aggregate dividend
of $482,000 was paid on March 28, 1997 to holders of record on March 26, 1997.
NOTE 7 - INCOME TAXES
The Company has recorded a provision for income taxes of $790,000 and
$1,517,000, respectively for the three and six months ended May 31, 1997. The
Company recorded a net tax benefit of $91,000 for the three and six month
periods ended May 31, 1996. The current tax provision for the three and six
months ended May 31, 1997 was $382,000 and $725,000, respectively, and for the
three and six month periods ended May 31, 1996 was $658,000 and $1,008,000,
respectively. The provision for deferred tax liability recorded for the three
and six month periods ended May 31, 1997 was $408,000 and $792,000,
respectively. The Company recorded a deferred tax benefit for the three and six
month periods ended May 31, 1996 of $749,000 and $1,099,000, respectively. The
deferred tax benefit for the 1996 periods was due to the release of the balance
of the remaining deferred tax valuation allowance of $1,435,000 and $2,399,000,
respectively, for the three and six month periods ended May 31, 1996. The
benefit of releasing the valuation allowance was offset by the provision for
deferred tax liability of $686,000 and $1,300,000, respectively, for the three
and six month periods ended May 31, 1996. Since May 31, 1996 the Company has had
no 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
27, 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) cash
flow from operations, ii) equity and other capital contributions of the
shareholders, iii) 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, and (iv) 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.
Results of Operations
Three months ended May 31, 1997 compared to three months ended May 31, 1996.
Taxable casino revenues for the two boats in the Baton Rouge riverboat
gaming market for the three months ended May 31, 1997 and 1996 were $32,101,000
and $35,315,000, respectively. Riverboat casino patron counts in the Baton Rouge
gaming market for the three months ended May 31, 1997 and 1996 were 773,000 and
756,000, respectively. Management believes the principal factors contributing to
the 9.1% decline in taxable casino revenues for the Baton Rouge market are i)
the clean-up operation on the Mississippi River in Baton Rouge, from March 17,
1997 through March 28, 1997, of an accident involving an overturned barge
containing benzene which resulted in an overall reduction in normal business
levels in the Baton Rouge market and the Company discontinuing operations for
approximately twenty-four hours due to the possibility of a hazardous material
condition at the Company's and its competitor's riverboat terminals and ii) a
decline in the Company's casino revenues as discussed below. The Company's
taxable casino revenues and customer counts declined 13.3% and 8.6%,
respectively, in the three months ended May 31, 1997 compared to the same period
in 1996. The Company's competitor riverboat taxable casino revenue decreased 3%
as its customer counts increased 17% in the three months ended May 31, 1997
compared to the same period in 1996. The Company's share of the Baton Rouge
gaming market for the three months ended May 31, 1997 and 1996, respectively,
was 56.6% and 59.3% of casino revenues and 51.4% and 57.5% of admissions.
Management believes the decrease in the Company's market share of gaming
revenues and admissions is attributable to i) the Company's competition having
made product improvements, consisting of a new parking garage and an enclosed
entertainment/retail shopping area, which opened during the second quarter of
1996, and extensive food and cash promotions by such competitor and ii) a
decrease in the Company's table and slot hold percentages and winnings from
premium player activity, all as discussed below.
The Company's casino revenues were $17,857,000 for the second quarter
of 1997 compared to $20,258,000 for the second quarter of 1996. Table revenues,
excluding poker, decreased 19.5% in the second quarter of 1997 compared to 1996
due to i) winnings from premium player activity in the second quarter of 1996
that did not occur in 1997 and ii) a decrease in table game hold percentage of
2.7 percentage points (19.4 vs 22.1) excluding premium player activity,
partially offset by iii) a 4.1% increase in table drop, excluding premium player
activity. Slot revenues decreased 7.5% in the second quarter of 1997 compared to
the second quarter of 1996 due to a decrease in slot hold percentage of 0.3
percentage points (6.6 vs 6.9) and a 3.3% decline in slot coin in, principally
in dollar and quarter slot denominations. Poker win for the three months ended
May 31, 1997 and 1996 was $70,000 and $314,000, respectively, as the Company
9
<PAGE>
first reduced then eliminated its hours of poker operations. Slot product
offerings will be installed in the former poker space. Management believes the
decrease in table game hold percentage, excluding premium player activity in
1996, is due to its changes in odds on craps tables and increased skill of
blackjack players in the market combined with the randomness of games of chance.
Management believes the decrease in slot hold percentage is due to a decrease in
the relative percentage of coin in from dollar and quarter denominations and
losses in twenty-five and one-hundred dollar denominations because of random
jackpots won by customers while the decrease in slot coin in is reflective of
lower slot play affecting the entire Baton Rouge marketplace. Second quarter win
per passenger decreased 3.3% to $45.03 in 1997 compared to $46.57 in 1996.
Revenues from casino operations were 74.8% from slot machines and 25.2% from
table games for the three months ended May 31, 1997 compared to 71.3% and 28.7%,
respectively, for the same period in 1996. Such mix of slot machine and gaming
table win generally conforms to that experienced by riverboats throughout
Louisiana.
Casino expenses for the three months ended May 31, 1997 and 1996 were
$8,027,000 and $8,944,000, respectively, which represented 45% and 44% of casino
revenues. Overall casino expenses are down due to i) decreased taxes associated
with casino revenues, ii) lower payroll and related costs in the gaming and
casino marketing departments and iii) decreases in costs of promotional expenses
and casino support departments offset by an increase in costs associated with
selling and administering bus marketing programs.
In the second quarter of 1997, selling, general and administrative
expenses were $5,359,000 compared to $5,473,000 in the second quarter of 1996.
Lower management fees, land lease expenses and general and administrative
expenses were offset by increased marketing expense.
Net interest expense was $1,459,000 and $1,716,000 for the three months
ended May 31, 1997 and 1996, respectively. The reduction in interest expense is
due to a decline in outstanding debt due to the 1996 mandatory Note repurchases
and the continuing amortization of principal under the Credit Agreement.
The provision (benefit) for federal and state income taxes, net of the
valuation allowance release, was $790,000 and ($91,000) for the three months
ended May 31, 1997 and 1996 respectively. The valuation allowance released for
the three months ended May 31, 1997 and 1996 was $0 and $1,435,000,
respectively.
Six months ended May 31, 1997 compared to six months ended May 31, 1996.
Taxable casino revenues for the two boats in the Baton Rouge riverboat
gaming market for the six months ended May 31, 1997 and 1996 were $61,413,000
and $67,214,000, respectively. Riverboat casino patron counts in the Baton Rouge
gaming market for the six months ended May 31, 1997 and 1996 were 1,450,000 and
1,453,000, respectively. Management believes the principal factors contributing
to the 8.6% decline in taxable casino revenues for the Baton Rouge market are i)
milder weather in the first quarter of 1997 compared to the same period in 1996,
allowing persons to become more involved in alternative forms of outdoor leisure
activities, ii) the negative impact of an accident involving an overturned barge
containing benzene on the Mississippi River in Baton Rouge on March 17, 1997
(see "Results of Operations: Three months ended May 31, 1997 compared to three
months ended May 31, 1996") and iii) a decline in the Company's casino revenues
as discussed below. The Company's taxable casino revenues and customer counts
declined 11.6% and 8.8%, respectively, in the six months ended May 31, 1997
compared to the same period in 1996. The Company's competitor riverboat taxable
casino revenue decreased 4.3% as its customer counts increased 11.8% in the six
months ended May 31, 1997 compared to the same period in 1996. The Company's
share of the Baton Rouge gaming market for the six months ended May 31, 1997 and
1996, respectively, was 58.0% and 59.9% of casino revenues and 53.5% and 58.6%
of admissions. Management believes the decrease in the Company's market share of
gaming revenues and admissions is attributable to i) the Company's competition
having made product improvements, consisting of a new parking garage and an
enclosed entertainment/retail shopping area, which opened during the second
10
<PAGE>
quarter of 1996 and extensive food and cash promotions by such competitor and
ii) a decrease in the Company's table and slot hold percentages and winnings
from premium player activity, all as discussed below.
The Company's casino revenues were $35,190,000 for the six months ended
May 31, 1997 compared to $39,141,000 for the same period of 1996. Table
revenues, excluding poker, decreased 17.8% in the 1997 period compared to 1996
due to i) winnings from premium player activity in the 1996 period that did not
occur in 1997 and ii) a decrease in table game hold percentage of 2.2 percentage
points (19.9 vs 22.1) excluding premium player activity, partially offset by
iii) a 3.5% increase in table drop, excluding premium player activity. Slot
revenues decreased 6.3% in the second quarter of 1997 compared to the second
quarter of 1996 due to a decrease in slot hold percentage of 0.2 percentage
points (6.7 vs 6.9) and a 3.7% decline in slot coin in, principally in dollar
and quarter slot denominations. Poker win for the six months ended May 31, 1997
and 1996 was $299,000 and $604,000, respectively, as the Company first reduced
then eliminated its hours of poker operations. Slot product offerings will be
installed in the former poker space. Management believes the decrease in table
game hold percentage, excluding premium player activity in 1996, is due to its
changes in odds on craps tables and increased skill of blackjack players in the
market combined with the randomness of games of chance. Management believes the
decrease in slot hold percentage is due to a decrease in the relative percentage
of coin in from dollar and quarter denominations and decrease in the hold
percentage in twenty-five and one-hundred dollar denominations because of random
jackpots won by customers, while the decrease in slot coin in is reflective of
lower slot play affecting the entire Baton Rouge marketplace. For the six months
ended May 31, 1997 win per passenger decreased 1.5% to $45.31 compared to $45.99
in the same period of 1996. Revenues from casino operations were 74.1% from slot
machines and 25.9% from table games for the six months ended May 31, 1997
compared to 71.1% and 28.9%, respectively, for the same period in 1996. Such mix
of slot machine and gaming table win generally conforms to that experienced by
riverboats throughout Louisiana.
Casino expenses for the six months ended May 31, 1997 and 1996 were
$16,205,000 and $17,236,000, respectively, which represented 46% and 44% of
casino revenues. Overall casino expenses are down reflecting i) decreased taxes
associated with gaming revenues and ii) lower expenses for payroll and related
costs in the gaming and casino marketing departments which were offset by iii)
increased costs for promotional expenses, casino support departments and selling
and administering bus marketing programs.
In the six months ended May 31, 1997, selling, general and
administrative expenses were $10,408,000 compared to $10,857,000 in the same
period of 1996. Overall selling, general and administrative expenses for the six
months ended May 31, 1997 are lower than the same period in 1996 due to i)
decreased management fees and land lease expenses that result from lower
revenues, ii) decreased insurance premiums and deductible expenses, and iii) the
one time expenses for marine repair and maintenance of approximately $275,000
incurred in 1996. These lower expenses were partially offset by increased
marketing, security and facility department expenses for the six months ended
May 31, 1997 compared to the same period in 1996.
Net interest expense was $2,832,000 and $3,496,000 for the six months
ended May 31, 1997 and 1996, respectively. The reduction in interest expense is
due to a decline in outstanding debt due to the 1996 mandatory Note repurchases
and the continuing amortization of principal under the Credit Agreement.
The provision (benefit) for federal and state income taxes, net of the
valuation allowance release, was $1,517,000 and ($91,000) for the six months
ended May 31, 1997 and 1996, respectively. The valuation allowance released for
the six months ended May 31, 1997 and 1996 was $0 and $2,399,000, respectively.
11
<PAGE>
Liquidity and Capital Resources
During the six months ended May 31, 1997 the Company generated
$4,988,000 in cash flows from operations as compared to $6,257,000 for the six
months ended May 31, 1996. The decrease in cash flows from operations was
primarily due to a decrease in net income.
Cash flows used for investing activities were $252,000 and $231,000,
respectively, for the six months ended May 31, 1997 and 1996. The use of funds
for each of the six month periods were for capital expenditures for continuing
operations. A portion of the 1997 period expenditures was funded by the use of
restricted cash as permitted by the Indenture.
Financing activities for the six months ended May 31, 1997 and 1996
used cash of $3,339,000 and $4,640,000, respectively. The use of funds in 1997
were related to i) regularly scheduled principal amounts due under the Credit
Agreement, as amended, ii) payment of dividends to shareholders and
distributions to warrant holders aggregating $482,000 and iii) an increase in
restricted cash of $1,572,000 related to Cumulative Excess Cash Flow for the
semiannual period ended May 31, 1997. The primary uses of funds in 1996 were i)
the February 28, 1996 repurchase of Notes in the principal amount of $4,222,000
as required by the Indenture, ii) $1,167,000 for the repayment of regularly
scheduled principal amounts due under the Credit Agreement, as amended and iii)
payment of dividends to shareholders and distributions to warrant holders
aggregating $1,803,000. The primary sources of cash in 1996 were i) reduction in
restricted cash that represented Cumulative Excess Cash Flow for the semiannual
period ended November 30, 1995, and ii) additional borrowing of $440,000 under
the Credit Agreement, as amended.
As of May 31, 1997 liquidity and capital resources of the Company
included cash and cash equivalents, and restricted cash aggregating $10,484,000,
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, 1997, the
Company has reclassified to a current liability $3,098,000 representing the
Cumulative Excess Cash Flow for the six months ended May 31, 1997. Such
amount includes $1,526,000 of Cumulative Excess Cash Flow for the six
months ended November 30, 1996. This amount is to be used by the Company to
make an offer in July 1997 to the holders of the Notes to repurchase up to
$3,098,000 of Notes at par, plus accrued interest. The repurchase, if any,
is anticipated to be completed in August 1997. Based on an expectation of
continuing profitable operations, the Company expects to generate
Cumulative Excess Cash Flow for the semiannual period ending November 30,
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 period
ending November 30, 1997 or whether the amount of Cumulative Excess Cash
Flow would cause the Company to make offers to repurchase Notes. Should any
mandatory offer 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 state income taxes as required.
iv. Cash dividends to the holders of the Company's common stock and cash
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.
12
<PAGE>
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 twelve months.
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 Management Services, Inc. ("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.
On March 13, 1997 the Louisiana Gaming Control Board (the "Louisiana
Board") granted preliminary approval for issuance of the remaining Louisiana
riverboat gaming license to a partnership between entities controlled by
Hollywood Casino Corporation and DeBartolo Entertainment ("DeBartolo") for a
proposed project to be developed in Bossier City, Louisiana. On June 20, 1997
the Louisiana Board canceled the preliminary approval granted for the proposed
project in Bossier City due to the withdrawal of DeBartolo from the partnership.
The Louisiana Board is accepting applications for the remaining Louisiana
riverboat gaming license until August 14, 1997. The Company is currently
evaluating resubmitting its application for the remaining license.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company was the subject of a lawsuit filed on April 12, 1993 in
Louisiana by Robert S. Miller (No. C393232, Parish of East Baton Rouge),
claiming breach of an alleged employment contract. Mr. Miller sought damages of
$60,000 in cash and $150,000 in common stock plus termination benefits. Trial of
this matter was held in July 1995 and a judgment was rendered August 9, 1995,
awarding Mr. Miller $60,000 plus legal interest and denying all other claims.
Costs of the proceedings were ordered to be divided between the parties. The
Company posted a bond and appealed the judgment, which has been affirmed. On May
28, 1997 the Company paid $81,000 in satisfaction of the judgment plus legal
interest from the date of judicial demand. A satisfaction of judgment was duly
recorded in the records of the 19th Judicial District Court on May 29, 1997.
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
None
(b) Reports on Form 8-K
A current report on Form 8-K, dated June 2, 1997 was filed by the
Company with the Securities and Exchange Commission. Under Item 5, the Form 8-K
reported that three individual shareholders of the Company (Tom Meehan, Jerry
Bayles, and Dan Meadows) (the "Individual Shareholders") and CSMC, a
wholly-owned subsidiary of CHC International, Inc. ("CHC"), have mutually
terminated their previously announced stock purchase agreement. The agreement
had provided for the purchase by CSMC of the interests of the Individual
Shareholders, consisting of 40% of the Company's common stock and all of its
preferred stock. CSMC owns 59.8% of the Company's common stock.
As part of its proposed financing of the stock purchase agreement, CHC
had intended to seek additional financing in an amount sufficient to permit the
redemption of the Company's outstanding Notes. After the termination of the
stock purchase agreement, the Company and CHC will continue to evaluate whether
to redeem the Notes, in whole or in part, although no assurance can be given
that any Notes will be redeemed.
14
<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 11, 1997
By: /s/ W. Peter Temling
-------------------------
W. Peter Temling, Acting
Chief Financial Officer
15
<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 May 31,1997
and the related statement of
operations for the six month
period ended May 31, 1997 and is
qualified in its entirety by
reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> May-31-1997
<CASH> 10,484
<SECURITIES> 0
<RECEIVABLES> 654
<ALLOWANCES> 282
<INVENTORY> 529
<CURRENT-ASSETS> 14,268
<PP&E> 51,742
<DEPRECIATION> 9,475
<TOTAL-ASSETS> 59,041
<CURRENT-LIABILITIES> 12,199
<BONDS> 41,153
1,562
0
<COMMON> 1
<OTHER-SE> (1,767)
<TOTAL-LIABILITY-AND-EQUITY> 59,041
<SALES> 0
<TOTAL-REVENUES> 36,146
<CGS> 0
<TOTAL-COSTS> 29,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 48
<INTEREST-EXPENSE> 2,931
<INCOME-PRETAX> 3,981
<INCOME-TAX> 1,517
<INCOME-CONTINUING> 2,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,464
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
</TABLE>
