SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------------------------
For the Quarter Ended: August 31,1998
Commission File Number N/A
Louisiana Casino Cruises, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-1196619
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
organization or incorporation) Number)
1717 River Road North
Baton Rouge, Louisiana 70802
(Address of principal executive offices, including zip code)
(504) 381-7777
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports).
YES X NO
--------------- ---------------
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
--------------- ---------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value
per share 982,783
- ----------------------------- --------------------------------
Class Outstanding as of October 2, 1998
<PAGE>
LOUISIANA CASINO CRUISES, INC.
INDEX
Part I Financial Information
Balance Sheets.......................................................1
Statements of Operations.............................................2
Statement of Changes in Shareholders' Deficit........................3
Statements of Cash Flows.............................................4
Notes to Financial Statements........................................6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................10
Quantitative and Qualitative Disclosures About
Market Risk.........................................................14
Part II Other Information...................................................15
Signatures...................................................................16
<PAGE>
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands, except per share data)
August 31, November 30,
1998 1997
---------- ----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 5,673 $ 7,924
Restricted cash 5,330 4,807
Receivables, less allowance for doubtful accounts
of $285 and $298, at 1998 and 1997, respectively 614 479
Prepaid and other current assets 1,062 1,103
Inventory 564 443
Deferred tax asset - current 1,364 2,051
---------- ----------
Total current assets 14,607 16,807
Property and equipment, net 40,925 40,872
Prepaid and other assets 1,356 2,078
----------- ----------
Total assets $ 56,888 $ 59,757
=========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,073 $ 2,566
Accrued liabilities 1,532 1,642
Accrued interest 1,260 2,527
First mortgage notes, net of original issue
discount, current portion (Note 2) 43,753 2,932
Notes payable, current portion (Note 2) - 18
Other current liabilities 290 240
Estimated dispute resolution costs (Note 5) - 1,700
---------- ---------
Total current liabilities 48,908 11,625
First mortgage notes, net of original issue
discount (Note 2) - 40,732
Deferred tax liability 2,681 2,186
---------- ---------
Total liabilities 51,589 54,543
---------- ---------
Redeemable preferred stock 1,727 1,628
---------- ---------
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 1998 and 1997, respectively 1 1
Accumulated deficit (805) (791)
----------- ---------
Total shareholders' deficit (804) (790)
----------- ---------
Total liabilities and shareholders' deficit $ 56,888 $ 59,757
=========== =========
The accompanying notes are an integral
part of these financial statements
1
<PAGE>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
------------------ -----------------
1998 1997 1998 1997
---------- ------- ------- ---------
Revenues:
Casino $ 16,895 $17,280 $51,445 $52,470
Food and beverage 407 376 1,066 1,019
Other 47 178 573 538
-------- ------- ------- -------
Net revenues 17,349 17,834 53,084 54,027
-------- ------- ------- -------
Costs and expenses:
Casino 8,428 8,080 25,216 24,285
Food and beverage 482 375 1,158 988
Selling,general and administrative(Note 5) 5,403 5,307 15,739 15,715
-------- ------- ------- -------
Total operating expenses 14,313 13,762 42,113 40,988
-------- ------- ------- -------
Income before depreciation,
amortization and interest 3,036 4,072 10,971 13,039
Depreciation and amortization 1,187 1,089 3,510 3,243
-------- ------- ------- -------
Operating income 1,849 2,983 7,461 9,796
Other income (expense):
Interest income 87 79 298 178
Interest expense (1,497) (1,536) (4,486) (4,467)
-------- ------- ------- -------
Income before provision for income taxes 439 1,526 3,273 5,507
Provision for income taxes (Note 7) 151 497 1,192 2,014
-------- ------- ------- -------
Net income 288 1,029 2,081 3,493
Dividend requirement on redeemable
preferred stock 33 33 99 99
Distributions paid to common stock
warrant holders 107 - 269 65
-------- ------- ------- -------
Net income assigned to common
shareholders $ 148 $ 996 $ 1,713 $ 3,329
======== ======= ======= =======
Earnings per share (Note 4):
Basic earnings per share $ 0.15 $ 1.01 $ 1.74 $ 3.39
======== ======= ======= =======
Diluted earnings per share $ 0.22 $ 0.88 $ 1.75 $ 2.99
======== ======= ======= =======
The accompanying notes are an integral
part of these financial statements
2
<PAGE>
LOUISIANA CASINO CRUISES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
(in thousands, except for shares)
(unaudited)
Common Stock
------------------- (Accumulated
Shares Amount Deficit) Total
--------- --------- ---------- --------
Balance at November 30, 1997 982,783 $ 1 $ (791) $ (790)
Dividend requirement on
redeemable preferred stock - - (99) (99)
Dividends paid to holders of common
stock and distributions to
common stock warrant holders - - (1,996) (1,996)
Net income - - 2,081 2,081
--------- --------- ---------- ---------
Balance at August 31, 1998 982,783 $ 1 $ (805) $ (804)
========= ========= ========== =========
The accompanying notes are an integral
part of these financial statements
3
<PAGE>
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(page 1 of 2)
(in thousands)
(unaudited)
Nine Months Ended
---------------------------
August 31, August 31,
1998 1997
---------- -------------
Net income $ 2,081 $ 3,493
Cash flows from operating activities :
Depreciation and amortization 3,510 3,243
Amortization of deferred costs 832 656
Provision for bad debt 64 68
Increase in receivables (199) (107)
Increase in inventory (121) (87)
Decrease (increase) in prepaid and other assets 56 (4)
Decrease (increase) in deferred tax asset 687 (205)
Decrease in accrued interest (1,267) (1,311)
Increase in deferred tax liability 495 1,091
Decrease in accounts payable and other liabilities (2,253) (23)
--------- -------------
Net cash provided by operating activities 3,885 6,814
--------- -------------
Cash flows from investing activities :
Capital expenditures (3,515) (1,028)
Proceeds from sale of fixed assets 35 22
Decrease in restricted cash 1,482 754
--------- -------------
Net cash used by investing activities (1,998) (252)
--------- -------------
Cash flows from financing activities :
Repayment of first mortgage notes (119) (722)
Increase in restricted cash (2,005) (849)
Repayments of notes payable (18) (1,948)
Dividends paid to common stock holders and
distributions to common stock warrant holders (1,996) (482)
--------- -------------
Net cash used by financing activities (4,138) (4,001)
--------- -------------
Net (decrease) increase in cash and cash equivalents (2,251) 2,561
Cash and cash equivalents, at beginning of period 7,924 4,677
--------- -------------
Cash and cash equivalents, at end of period $ 5,673 $ 7,238
========== =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,047 $ 5,254
========== ============
Cash paid for income taxes $ - $ 1,077
========== ============
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:
Redeemable preferred stock dividends of $99,000 were accrued during
each of the nine month periods ended August 31, 1998 and 1997.
The accompanying notes are an integral
part of these financial statements
5
<PAGE>
LOUISIANA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 market is the Greater Baton
Rouge metropolitan area. In a private placement offering (the "Offering"), the
Company issued $51,000,000 in First Mortgage Notes (the "Notes") 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.
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, 1997 are contained in the audited financial
statements included in the annual report filed on Form 10-K. The accompanying
unaudited financial statements as of August 31, 1998 and for the three and nine
month periods ended August 31, 1998 and 1997 should be read in conjunction with
the 1997 audited financial statements.
The unaudited financial statements as of August 31, 1998 and for the three
and nine month periods ended August 31, 1998 and 1997 and the notes thereto have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal recurring accruals) have
been included to present fairly, in all material respects, the financial
position of the Company at August 31, 1998 and the results of its operations and
its cash flows for the three and nine month periods ended August 31, 1998 and
1997. Operating results for the three and nine month periods ended August 31,
1998 and 1997 are not necessarily indicative of the results that may be expected
for a full year.
Certain amounts in the financial statements for the nine months ended
August 31, 1997 have been reclassified to conform to the presentation of the
financial statements for the nine months ended August 31, 1998.
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 nine months ended August 31, 1998 was $936,000 and $3,167,000 and for the
three and nine months ended August 31, 1997 was $1,310,000 and $4,065,000,
respectively. The cost of providing such complimentary items has been classified
as casino costs (promotional expenses) and totaled $627,000 and $2,077,000 for
the three and nine month periods ended August 31, 1998, and $773,000 and
$2,324,000 for the three and nine month periods ended August 31,1997,
respectively.
Restricted Cash
Cumulative Excess Cash Flow, as defined in the Indenture, is classified as
restricted cash. Restricted cash may only be used to repurchase Notes or for
other limited purposes as specified in the Indenture.
6
<PAGE>
NOTE 2 - NOTES PAYABLE
The Company is presently contemplating various capital improvements to the
Casino Rouge facilities. Financing for any such improvements is anticipated to
be provided by existing cash balances and additional indebtedness permitted by
the Indenture. Effective March 26, 1998, the Company entered into a loan
agreement (the "Loan Agreement") with City National Bank of Baton Rouge (the
"Bank") whereby the Bank will loan the Company up to $5,000,000. Terms of the
Loan Agreement provide for interest at the Prime Rate (as defined) plus 1/2% and
call for principal to be repaid on various dates during 1998, with all amounts
repaid by November 1, 1998 (extendible to December 1, 1998 under circumstances
as defined). Proceeds may be used for capital improvements at the Company's
facilities. The loan is secured by certain furniture, fixtures and equipment
previously conveyed to the Bank pursuant to a credit agreement entered into in
December 1994, as amended and which expired on December 1, 1997, and any
additional furniture, fixtures and equipment acquired with proceeds from the
loan. As of August 31, 1998 the Company had no outstanding principal balance
under the Loan Agreement. All assets not pledged as security under the Loan
Agreement are pledged as security for repayment of the Notes.
Cumulative Excess Cash Flow for the semiannual period ended May 31,
1998 amounted to $4,937,500. Such amount included $2,813,500, equal to the
remaining Cumulative Excess Cash Flow for all semiannual periods through May 31,
1998, and Excess Cash Flow of $2,124,000 for the semiannual period ended May 31,
1998. As required by the Indenture, the Company made an offer on July 29, 1998
to repurchase the Notes at par to the extent of such Cumulative Excess Cash
Flow. The Company's offer to repurchase Notes expired on August 27, 1998 with no
Notes being tendered. Pursuant to the terms of the Indenture, of the $4,937,500
of Cumulative Excess Cash Flow not used to repurchase Notes, $3,875,500 may only
be used for the acquisition of Notes in the open market. The remaining
$1,062,000 is considered Cash Available for Reinvestment and is available for
use for the limited purposes provided in the Indenture.
The Company's ability to satisfy its obligations at December 1, 1998
with respect to the Notes and redeemable common stock warrants will be dependent
on its ability to secure adequate replacement financing. Currently, management
is considering various strategies and alternatives with regard to financing
prospects. Given the profitable operating history of the Company and its
competitive position in the Baton Rouge market, management believes that
adequate financing can be obtained prior to December 1, 1998. However, there can
be no assurance that financing will be obtained in an amount and on terms
satisfactory to the Company. The inability to secure adequate financing prior to
December 1, 1998 will have a material adverse effect on the financial position
of the Company.
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, upon exercising, the Company
is obligated to purchase the warrants on or about December 1, 1998 at the value
of the Company's common stock at that time, as determined by two independent
investment banking firms (see Note 2). 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 August 31, 1998 and November 30, 1997 is $4,376,000.
7
<PAGE>
NOTE 4 - EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share" which requires the Company to present basic earnings per
share (EPS) and diluted EPS, as defined in the standard. The new standard has
been adopted by the Company for fiscal 1998, therefore, for the three and nine
month periods ended August 31, 1998 and 1997, EPS calculations have been made
using the new standard.
For the three and nine month periods ended August 31, 1998 and 1997, basic
EPS is calculated by dividing net income assigned to common shareholders by the
weighted average common shares outstanding (982,783 shares). For the three and
nine month periods ended August 31, 1998 and 1997, diluted EPS is calculated by
dividing net income assigned to common shareholders before distributions to
common stock warrant holders by the weighted average common and common
equivalent shares outstanding (1,135,783 shares). Common equivalent shares
consist of redeemable common stock warrants with the rights to purchase 153,000
shares of the Company's common stock (see Note 3).
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. The Company settled litigation related to
this dispute on May 12, 1998. Pursuant to the settlement, each party entered
into mutual general releases and neither party admitted any liability in
connection with the settlement. As a result of the settlement, the Company has
recognized a net reduction of $400,000 within selling, general and
administrative expenses in the nine month period ended August 31, 1998.
On September 15, 1998, the Louisiana Gaming Control Board approved a
mutually satisfactory resolution to a regulatory inquiry relating to a 1994
stock ownership issue whereby the Company agreed to reimburse the Riverboat
Gaming Enforcement Division of the State Police $50,000, constituting their
costs and expenses of conducting the investigation, and to pay a fine of
$200,000. The Company is to be reimbursed by CRC Holdings, Inc., the Company's
majority shareholder, in the amount of $250,000.
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 the results of operations of the Company.
NOTE 6 - DIVIDENDS
On March 18, 1998 the Board of Directors declared a dividend of $1.05715
per share of common stock and an equivalent distribution per common stock
warrant. Approximately $1,201,000 was paid on March 30, 1998 to holders of
record on March 27, 1998.
On July 1, 1998 the Board of Directors declared a dividend of $0.70 per
share of common stock and an equivalent distribution per common stock warrant.
Approximately $795,000 was paid on July 2, 1998 to holders of record on July 1,
1998.
8
<PAGE>
NOTE 7 - INCOME TAXES
The Company has recorded a provision for income taxes for the three and
nine month periods ended August 31, 1998 and 1997 as follows:
Three Months Ended Nine Months Ended
August 31, August 31,
---------------- -----------------
1998 1997 1998 1997
------- -------- ------- ---------
Current provision (benefit) for income taxes $ 13 $ (149) $ 126 $ 576
Deferred provision for income taxes 138 646 1,066 1,438
------- -------- ------- ---------
Total provision for income taxes $ 151 $ 497 $1,192 $2,014
======= ======== ======= =========
The current and deferred provisions for income taxes for the three and
nine month periods ended August 31, 1997 include adjustments to accounting
estimates for 1996 income taxes.
The current provision for income taxes for the nine months ended August
31, 1998 includes a favorable income tax impact of $507,000 related to the legal
settlement discussed in Note 5. The deferred provision for income taxes for the
nine months ended August 31, 1998 includes a deferred charge of $663,000 related
to a deferred tax asset associated with the legal settlement discussed in Note
5.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
On December 28, 1994 the Company commenced operations of its riverboat
gaming facility in Baton Rouge, Louisiana (the "Casino Rouge"). 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 August 31, 1998 compared to three months ended
-----------------------------------------------------------------------
August 31, 1997.
- ----------------
Taxable gaming win in the two riverboat Baton Rouge gaming market for
the three months ended August 31, 1998 and 1997 was $29,637,000 and $29,356,000,
respectively. Riverboat casino patron counts in Baton Rouge for the same
respective periods were 653,000 and 721,000. The Company's taxable gaming win
increased 1.6% while customer counts declined 6.9% for the three months ended
August 31, 1998 compared to the same period in 1997. The Company's competitor's
taxable gaming win remained at approximately $12.1 million while customer counts
declined 12.3% for the three months ended August 31, 1998 compared to the same
period in 1997. The ability of the Company and its competitor to offset such
declines continues to be limited by competitive constraints to expand into
markets beyond Baton Rouge. The Company's share of the Baton Rouge gaming market
for the three months ended August 31, 1998 and 1997 was 59.2% and 58.8% of
taxable gaming win and 54.7% and 53.2% of admissions, respectively.
The Company's casino revenues were $16,895,000 and $17,280,000 for the
third quarters ended August 31, 1998 and 1997, respectively. Table drop
decreased 17.7% and gaming machine coin-in increased 5.8% while table games hold
percentage increased 6.8% and gaming machine hold percentage decreased 4.7% for
the third quarter of 1998 as compared to 1997. The lower gaming volume resulted
in a 12.2% decrease in table game revenues for the third quarter of 1998
compared to 1997. Management believes the decrease in table drop is reflective
of lower customer visits affecting the entire Baton Rouge gaming market.
Third quarter win per passenger increased 5.1% to $47.33 in 1998
compared to $45.04 in 1997. Revenues were derived 79.0% from gaming machines and
21.0% from table games for the three months ended August 31, 1998 compared to
76.6% and 23.4%, respectively, for the same period in 1997. Such mix of gaming
machine and gaming table win generally conforms to that experienced by
riverboats throughout Louisiana.
Casino expenses for the three months ended August 31, 1998 and 1997
were $8,428,000 and $8,080,000 which represented 50.0% and 46.8% of casino
revenues, respectively. Overall casino expenses increased during the 1998 period
primarily due to the Company's Rouge Arena marketing program implemented in
November 1997. The Rouge Arena was a temporary facility constructed on the
Company's property to provide entertainment events to the Baton Rouge market.
The Rouge Arena closed at the end of July 1998 and is expected to reopen in
December 1998, subject to receipt of the necessary permits by the City of Baton
Rouge.
During the third quarter of 1998, selling, general and administrative
expenses were $5,403,000 compared to $5,307,000 for the same period in 1997.
10
<PAGE>
Net interest expense was $1,410,000 and $1,457,000 for the three months
ended August 31, 1998 and 1997, respectively.
The provision for federal and state income taxes was $151,000 and
$497,000 for the three months ended August 31, 1998 and 1997, respectively.
Nine months ended August 31, 1998 compared to nine months ended August
-----------------------------------------------------------------------
31, 1997.
- ---------
Taxable gaming win in the two riverboat Baton Rouge gaming market for
the nine months ended August 31, 1998 and 1997 was $89,369,000 and $90,769,000,
respectively. Riverboat casino patron counts in Baton Rouge for the same
respective periods were 1,956,000 and 2,171,000. The Company's taxable gaming
win and customer counts declined 0.6% and 9.9%, respectively, for the nine
months ended August 31, 1998 compared to the same period in 1997. The Company's
competitor's taxable gaming win and customer counts declined 2.8% and 9.8%,
respectively, for the nine months ended August 31, 1998 compared to the same
period in 1997. The ability of the Company and its competitor to offset such
declines continues to be limited by competitive constraints to expand into
markets beyond Baton Rouge. The Company's share of the Baton Rouge gaming market
for the nine months ended August 31, 1998 and 1997 was 58.8% and 58.2% of
taxable gaming win and 53.4% and 53.4% of admissions, respectively.
The Company's casino revenues were $51,445,000 and $52,470,000 for the
nine months ended August 31, 1998 and 1997, respectively. Table drop decreased
18.5% and gaming machine coin-in increased 1.6%, while table games and gaming
machine hold percentages increased 6.5% and 0.2%, respectively, for the nine
months ended August 31, 1998 as compared to 1997. The lower gaming volume
resulted in a 13.2% decrease in table game revenues for the nine months ended
August 31, 1998 as compared to 1997. Management believes the decrease in table
drop is reflective of lower customer visits affecting the entire Baton Rouge
gaming market.
For the nine months ended August 31, 1998, win per passenger increased
8.9% to $49.25 compared to $45.22 for the same period in 1997. Revenues were
derived 77.8% from gaming machines and 22.2% from table games for the nine
months ended August 31, 1998 compared to 74.9% and 25.1%, respectively, for the
same period in 1997. Such mix of gaming machine and gaming table win generally
conforms to that experienced by riverboats throughout Louisiana.
Casino expenses for the nine months ended August 31, 1998 and 1997 were
$25,216,000 and $24,285,000, respectively, which represented 49.0% and 46.3% of
casino revenues. Overall casino expenses increased during the 1998 period
primarily due to the Company's Rouge Arena marketing program implemented in
November 1997. The Rouge Arena was a temporary facility constructed on the
Company's property to provide entertainment events to the Baton Rouge market.
The Rouge Arena closed at the end of July 1998 and is expected to reopen in
December 1998, subject to receipt of the necessary permits by the City of Baton
Rouge.
During the nine months ended August 31, 1998, selling, general and
administrative expenses were $15,739,000 compared to $15,715,000 for the same
period in 1997.
Net interest expense was $4,188,000 and $4,289,000 for the nine months
ended August 31, 1998 and 1997, respectively.
The provision for federal and state income taxes was $1,192,000 and
$2,014,000 for the nine months ended August 31, 1998 and 1997, respectively.
11
<PAGE>
Liquidity and Capital Resources
During the nine months ended August 31, 1998 the Company generated
$3,885,000 in cash flows from operations as compared to $6,814,000 for the nine
months ended August 31, 1997. The decrease in cash flows from operations was
primarily due to the settlement of the dispute regarding consulting services as
described in Note 5 to the financial statements and a decrease in net income.
Cash flows used for investing activities were $1,998,000 and $252,000,
respectively, for the nine months ended August 31, 1998 and 1997, net of
$1,482,000 and $754,000, respectively, of restricted cash, as permitted by the
Indenture. The uses of funds for each of the nine month periods were for capital
expenditures for continuing operations.
Financing activities for the nine months ended August 31, 1998 used
cash flows of $4,138,000 due to dividend payments to common shareholders and
distributions to common stock warrant holders of $1,996,000 and an increase in
restricted cash of $2,005,000 as calculated per the Indenture. The net cash used
by financing activities in the nine months ended August 31, 1997 of $4,001,000
related primarily to the $1,948,000 repayment of regularly scheduled principal
amounts due under the Credit Agreement, as amended, an increase in restricted
cash of $849,000 as calculated per the Indenture, the repurchase of $722,000 of
Notes as required by the Indenture, and dividend payments to common shareholders
and distributions to common stock warrant holders of $482,000.
Based on an expectation of continuing profitable operations, the
Company expects to continue to generate sufficient cash flows to meet operating
needs and periodic debt service obligations through November 30, 1998. Pursuant
to the Indenture, on December 1, 1998 all of the outstanding Notes will mature
and become due and payable. Upon payment of the Notes, the Indenture and the
Company's obligations thereunder will terminate. In addition, the warrantholders
have put rights whereby, upon exercising, the Company is obligated to purchase
the warrants on or about December 1, 1998 at the value of the Company's common
stock at that time, as determined by two independent investment banking firms.
There are 153,000 issued and outstanding warrants representing 13.5% of the
Company's ownership on a fully diluted basis. The warrants are classified as
redeemable equity due to the put 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 August 31, 1998 and November 30, 1997 was $4,376,000. The Company
is unable at this time to estimate the value of the common stock warrants at
December 1, 1998.
The Company's ability to satisfy its obligations at December 1, 1998
with respect to the Notes and redeemable common stock warrants will be dependent
on its ability to secure adequate replacement financing. Currently, management
is considering various strategies and alternatives with regard to financing
prospects. Given the profitable operating history of the Company and its
competitive position in the Baton Rouge market, management believes that
adequate financing can be obtained prior to December 1, 1998. However, there can
be no assurance that financing will be obtained in an amount and on terms
satisfactory to the Company. The inability to secure adequate financing prior to
December 1, 1998 will have a material adverse effect on the financial position
of the Company.
12
<PAGE>
As of August 31, 1998 liquidity and capital resources of the Company
included cash and cash equivalents, and restricted cash of approximately
$11,003,000. Current anticipated obligations of the Company over the next year
include, in material part:
i. Payment of the outstanding Notes on December 1, 1998 and payment to
those warrant holders that exercise their put rights, each as
described above.
ii. Payment of Federal and Louisiana income taxes as may be required
from time to time.
iii. 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.
iv. Capital expenditures for the Casino Rouge facilities, including the
Company's September 1998 purchase of approximately five acres of
land adjacent to its docking facilities for a purchase price of
approximately $1.1 million.
v. Repayment of any loan proceeds under the Loan Agreement as defined
below.
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 CRC Holdings, Inc. (formerly known as CSMC-Management
Services, Inc.), 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.
The Company is presently contemplating various capital improvements
to the Casino Rouge facilities. Financing for any such improvements is
anticipated to be provided by existing cash balances and additional indebtedness
permitted by the Indenture. Effective March 26, 1998, the Company entered into a
loan agreement (the "Loan Agreement") with City National Bank of Baton Rouge
(the "Bank") whereby the Bank will loan the Company up to $5,000,000. Terms of
the Loan Agreement provide for interest at the Prime Rate (as defined) plus 1/2%
and call for principal to be repaid on various dates during 1998, with all
amounts repaid by November 1, 1998 (extendible to December 1, 1998 under
circumstances as defined). Proceeds may be used for capital improvements at the
Company's facilities. The loan is secured by certain furniture, fixtures and
equipment previously conveyed to the Bank pursuant to the Credit Agreement, as
amended and which expired December 1, 1997, and any additional furniture,
fixtures and equipment acquired with proceeds from the loan. As of August 31,
1998 the Company had no outstanding principal balance under the Loan Agreement.
All assets not pledged as security under the Loan Agreement are pledged as
security for repayment of the Notes.
13
<PAGE>
Other Matters
Year 2000
The Company is now assessing the potential impact of the year 2000
which concerns the inability of information systems, primarily computer software
programs, to properly recognize and process date sensitive information related
to the year 2000 and beyond. This could result in a system failure of
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions.
Additionally, suppliers and other third parties exchange electronic
information with the Company. The Company does not have any information
concerning the compliance status of its suppliers or such other third parties.
However, because third party failures could have a material impact on the
Company's ability to conduct business, confirmations are being requested from
its suppliers to certify that plans are being developed to address Year 2000
issues. There can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse impact on the Company.
The costs of the project to complete any Year 2000 modifications are
based on management's best estimates, which are being derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved; actual results could
differ materially from those planned. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer programs and microprocessors and similar uncertainties.
Through August 31, 1998 the Company has not incurred or expensed any
amounts directly related to Year 2000 readiness. The Company is currently
evaluating the expected cost to be incurred in connection with the Year 2000
although the Company does not expect that such costs will have a material
adverse impact on its business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
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
Under Item 5, the July 29, 1998 Form 8-K reported the commencement of
the Company's offer to purchase for cash up to $4,937,000 aggregate principal
amount of Notes for 100% of their principal amount plus accrued interest to, but
not including, the payment date of August 27, 1998 (the "Offer"). The Offer was
made pursuant to the Indenture and expired at 5:00 p.m. New York City time on
August 27, 1998.
A current report on Form 8-K dated August 27, 1998 was filed by the
Company with the Securities and Exchange Commission. Under Item 5, the Form 8-K
reported that pursuant to the Offer, no Notes were tendered. The Form 8-K also
reported the settlement of a regulatory inquiry.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
LOUISIANA CASINO CRUISES, INC.
Dated: October 2, 1998
By: /s/ W. Peter Temling
W. Peter Temling
Chief Financial Officer
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Financial Data Schedule
contains summary information
extracted from the unaudited
balance sheet of Louisiana Casino
Cruises, Inc. as of August 31,
1998 and the related statement
of operation for the three month
period ended August 31, 1998 and
is qualified in its entirety by
reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-31-1998
<CASH> 11,003
<SECURITIES> 0
<RECEIVABLES> 899
<ALLOWANCES> 285
<INVENTORY> 564
<CURRENT-ASSETS> 14,607
<PP&E> 40,925
<DEPRECIATION> 14,852
<TOTAL-ASSETS> 56,888
<CURRENT-LIABILITIES> 48,908
<BONDS> 43,753
1,727
0
<COMMON> 1
<OTHER-SE> (805)
<TOTAL-LIABILITY-AND-EQUITY> 56,888
<SALES> 0
<TOTAL-REVENUES> 17,349
<CGS> 0
<TOTAL-COSTS> 15,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 1,497
<INCOME-PRETAX> 439
<INCOME-TAX> 151
<INCOME-CONTINUING> 288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288
<EPS-PRIMARY> .15
<EPS-DILUTED> .22
</TABLE>
