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, 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 October 15, 1997
LOUISIANA CASINO CRUISES, INC.
--------------------------------
INDEX
PAGE NO.
Part I Financial Information
Balance Sheets......................................................1
Statements of Operations............................................2
Statement of Changes in Shareholders' Deficit.......................3
Statements of Cash Flows............................................4
Notes to Financial Statements.......................................6
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................10
Part II Other Information..................................................15
Signatures..................................................................16
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands,except share data)
(unaudited)
August 31, November 30,
1997 1996
---------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 7,237 $ 4,677
Restricted cash (Notes 1 and 2) 3,148 3,052
Receivables, less allowance for doubtful accounts
of $288 and $236, respectively 463 424
Prepaid and other current assets 861 797
Inventory 526 439
Deferred tax asset 2,446 2,241
---------- ------------
Total current assets 14,681 11,630
Property and equipment, at cost, less accumulated
depreciation of $10,531 and $7,484, respectively 41,751 43,888
Prepaid and other assets 2,262 2,920
---------- ------------
Total assets $ 58,694 $ 58,438
========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,955 $ 2,681
Accrued liabilities 1,429 1,601
Accrued interest 1,267 2,578
First mortgage notes, current portion (Note 2) 2,506 1,526
Notes payable, current portion (Note 2) 293 2,223
Other current liabilities 178 303
Estimated dispute resolution costs 1,700 1,700
---------- -----------
Total current liabilities 10,328 12,612
First mortgage notes, net of original issue
discount (Note 2) 41,094 42,638
Notes payable (Note 2) - 18
Deferred income taxes payable 2,072 981
---------- ------------
Total liabilities 53,494 56,249
---------- ------------
Redeemable preferred stock 1,595 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 August 31, 1997 and
November 30, 1996 1 1
Accumulated deficit (772) (3,684)
---------- ------------
Total shareholders' deficit (771) (3,683)
---------- ------------
Total liabilities and shareholders' deficit $ 58,694 $ 58,438
========== ============
The accompanying notes are an integral
part of these financial statements
1
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended Nine Months Ended
August 31, August 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
Revenues:
Casino ............................ $ 17,280 $ 18,839 $ 52,470 $ 57,980
Food and beverage ................. 376 362 1,019 1,024
Other ............................. 178 205 491 615
----------- ----------- ----------- -----------
Net revenues ...................... 17,834 19,406 53,980 59,619
----------- ----------- ----------- -----------
Costs and expenses:
Casino ............................ 8,080 8,490 24,285 25,726
Food and beverage ................. 375 314 988 963
Selling, general and administrative 5,307 5,646 15,715 16,503
----------- ----------- ----------- -----------
Total operating expenses .............. 13,762 14,450 40,988 43,192
----------- ----------- ----------- -----------
Income before depreciation,
amortization and interest ......... 4,072 4,956 12,992 16,427
Depreciation and amortization ......... 1,089 1,028 3,196 3,054
----------- ----------- ----------- -----------
Operating income .................. 2,983 3,928 9,796 13,373
Other income (expense):
Interest income ................... 79 83 178 195
Interest expense .................. (1,536) (1,710) (4,467) (5,318)
----------- ----------- ----------- -----------
Income before income taxes ............ 1,526 2,301 5,507 8,250
Provision for income taxes (Note 7) ... 497 897 2,014 806
----------- ----------- ----------- -----------
Net income ............................ 1,029 1,404 3,493 7,444
Dividend requirement on redeemable
preferred stock ................... 33 33 99 99
Distributions to common stock
warrrant holders .................. - 246 65 489
----------- ----------- ----------- -----------
Net income assigned to common
shareholders ...................... $ 996 $ 1,125 $ 3,329 $ 6,856
=========== =========== =========== ===========
Earnings per common and
common equivalent share (Note 4) .. $ 0.88 $ 1.14 $ 2.99 $ 6.47
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding(Note 4) 1,135,783 982,783 1,135,783 1,135,783
=========== =========== =========== ===========
The accompanying notes are an integral
part of these financial statements
2
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
------- ----- ------- -------- --------
Balance at November 30, 1996 ................ 982,783 $ 1 $ - $(3,684) $(3,683)
Dividend requirements on
redeemable preferred stock .............. - - - (99) (99)
Dividends paid to holders of common stock and
distributions to common stock warrant holders - - - (482) (482)
Net income .................................. - - - 3,493 3,493
------- ----- ------- -------- --------
Balance at August 31, 1997 .................. 982,783 $ 1 $ - $ (772) $ (771)
======= ===== ======= ======== ========
The accompanying notes are an integral
part of these financial statements
3
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
(page 1 of 2)
(in thousands)
(unaudited)
Nine Months Ended
-----------------------
August 31, August 31,
1997 1996
--------- ---------
Net income ......................................... $ 3,493 $ 7,444
Net cash flows from operating activities :
Depreciation and amortization .................... 3,196 3,054
Amortization of deferred costs ................... 656 1,044
Loss on sale of fixed assets ..................... 47 -
Provision for bad debt ........................... 68 86
Increase in receivables .......................... (107) (261)
Increase in inventory ............................ (87) (87)
(Increase) decrease in prepaid and other current
assets ........................................ (4) 854
Increase in deferred tax asset ................... (205) (1,179)
Decrease in accrued interest ..................... (1,311) (1,655)
Increase in deferred tax liability ............... 1,091 -
Decrease in accounts payable and other liabilities (23) (480)
--------- ---------
Net cash provided by operating activities 6,814 8,820
--------- ----------
Cash flows from investing activities :
Capital expenditures ............................. (1,028) (479)
Proceeds from sale of fixed assets ............... 22 -
Decrease in restricted cash ...................... 754 62
--------- ---------
Net cash used by investing activities ........ (252) (417)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of note payable ........... - 440
Repayment of first mortgage notes ................ (722) (6,332)
(Increase) decrease in restricted cash ........... (850) 4,222
Repayments of notes payable ...................... (1,948) (1,776)
Dividends paid to holders of common stock and
distributions to common stock warrant holder.. (482) (3,632)
--------- ---------
Net cash used by financing activities ........ (4,002) (7,078)
--------- ---------
Net increase in cash ............................... 2,560 1,325
Cash at beginning of period ........................ 4,677 5,010
--------- ---------
Cash at end of period $ 7,237 $ 6,335
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................. $ 5,254 $ 6,061
========= =========
Cash paid for income taxes ......................... $ 1,077 $ 1,903
========= =========
The accompanying notes are an integral
part of these financial statements
4
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 to be $4,376,000 at August 31, 1997 and 1996, and November 30, 1996.
During the nine months ended August 31, 1997 and 1996 the estimated liability
remained unchanged (See Note 3).
Redeemable preferred stock dividends of $99,000 were accrued during each
of the nine month periods ended August 31, 1997 and 1996.
5
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 and for the year then ended 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 nine
month periods ended August 31, 1997 and 1996 should be read in conjunction with
the 1996 audited financial statements.
The unaudited financial statements as of August 31, 1997 and 1996 and for
the three and nine month periods then ended 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, 1997 and 1996 and the results of its operations and
its cash flows for the three and nine month periods then ended.
Certain amounts in the financial statements for the nine months ended
August 31, 1996 have been reclassified to conform to the presentation of the
financial statements for the nine months ended August 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 nine months ended August 31, 1997 was $1,310,000 and $4,065,000 and for the
three and nine months ended August 31, 1996 was $1,411,000 and
$3,950,000,respectively. The cost of providing such complimentary items has been
classified as casino costs and selling, general, and administrative costs
(promotional expenses) which totaled $773,000 and $2,324,000 for the three and
nine months ended August 31, 1997, and $766,000 and $2,210,000 for the three and
nine months ended August 31, 1996, 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, 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
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 monthly in arrears plus interest
commencing January 1996 and bears interest at 10.5 % per annum. 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 a portion of 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 was $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 (as defined in the Indenture), and is available
to the Company for limited purposes as provided in the Indenture.
Cumulative Excess Cash Flow for the semiannual period ended May 31, 1997
was $3,098,000, including 50% ($1,526,000) of the Cumulative Excess Cash Flow
for the semiannual period ended November 30, 1996. As required by the Indenture,
the Company made an offer on July 30, 1997 to repurchase the Notes at par to the
extent of such Cumulative Excess Cash Flow. This offer expired on August 28,
1997 with $722,000 of Notes being tendered. Pursuant to the terms of the
Indenture, of the $2,376,000 of Cumulative Excess Cash Flow not used to
repurchase Notes, $1,951,000 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 ending November 30, 1997. The remaining $425,000 is
considered Cash Available for Reinvestment and together with 50% ($1,526,000) of
the Cumulative Excess Cash Flow for the semiannual period ended November 30,
1996 is available to the Company for limited purposes as provided in the
Indenture. Cash Available for Reinvestment in the amount of $754,000 has been
used for capital expenditures from March 1 through August 31, 1997.
As of August 31, 1997 the Company has reclassified to a current liability
$2,506,000 of Notes. Such amount includes $1,951,000 equal to Cumulative Excess
Cash Flow for all semiannual periods through May 31, 1997 and an estimate of
Cumulative Excess Cash Flow of $555,000 for the three months ended August 31,
1997. At the present time, the Company is unable to predict the amount of
Cumulative Excess Cash Flow that may be realized for the semiannual period
ending November 30, 1997 or whether the level of Cumulative Excess Cash Flow
would require the Company to make offers to repurchase Notes. Should any
mandatory offers to repurchase Notes be required, the Company believes existing
cash balances and cash generated from continuing operations will be sufficient
to meet such cash requirements.
7
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 the right to ratably participate in all
distributions to holders of the Company's common stock. 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 August 31, 1997 and November 30, 1996 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 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
warrantholders during the period. Accordingly, earnings per share for the three
and nine months ended August 31, 1997 and the nine months ended August 31, 1996
is calculated using the equity method by dividing net income, reduced by
dividend requirements on redeemable preferred stock, by the weighted average
number of common shares and common equivalent shares outstanding during the
period. The common equivalent shares for the three and nine months ended August
31, 1997 and for the nine months ended August 31, 1996 consist of redeemable
common stock warrants for 153,000 shares.
Earnings per share for the three months ended August 31, 1996 is
calculated using the debt method by dividing net income, reduced by dividend
requirements or redeemable preferred stock, distributions paid to common stock
warrant holders and the market value warrant adjustment for the period, by the
weighted average number of common shares outstanding during the period.
As a result of using the different methods, the sum of earnings per share
for the quarters ended February 28, May 31, and August 31, 1996, does not equal
the amount calculated for the nine months ended August 31, 1996.
8
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 is an appropriate
estimate at August 31, 1997 and November 30, 1996 for costs associated with the
eventual resolution of the matter. Trial for this matter has been set for
November 1998, with a possible early trial date of April 1998. Accordingly, the
accrued estimated costs of resolution has been classified as a current liability
on the balance sheets as of August 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 $497,000 and
$2,014,000, respectively, for the three and nine month periods ended August 31,
1997, and a provision for income taxes of $897,000 and $806,000, respectively,
for the three and nine month periods ended August 31, 1996. The current tax
provision (credit) for the three and nine month periods ended August 31, 1997
was ($149,000) and $576,000, respectively, and for the three and nine month
periods ended August 31, 1996 was $195,000 and $1,203,000, respectively. The
provision for deferred tax liability for the three and nine month periods ended
August 31, 1997 was $646,000 and $1,438,000, respectively. For the three month
period ended August 31,1996 a provision for deferred tax liability of $702,000
was recorded. A deferred tax benefit of $397,000 for the nine months ended
August 31, 1996 was due to the release of the balance of a deferred tax
valuation allowance of $2,399,000 offset by a provision for deferred income
taxes of $2,002,000 for the period then ended.
9
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 August 31, 1997 compared to three months ended August 31,1996
Casino revenues for the two boats in the Baton Rouge riverboat gaming
market for the three months ended August 31, 1997 and 1996 were $29,356,000 and
$31,561,000, respectively. Riverboat casino patron counts in the Baton Rouge
gaming market for the three months ended August 31, 1997 and 1996 were 721,000
and 788,000,respectively. Management believes the principal factors contributing
to the 7.0% decline in casino revenues for the Baton Rouge market continue to
be, as previously reported, a decline in winnings from premium player activity
and the additional reasons discussed below. 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 casino
revenues and customer counts declined 7.6% and 10.4%, respectively, in the three
months ended August 31, 1997 compared to the same period in 1996. The Company's
competitor riverboat casino revenues and customer counts declined 6.0% and 6.1%,
respectively, in the three months ended August 31, 1997 compared to the same
period in 1996. The Company's share of the Baton Rouge gaming market for the
three months ended August 31, 1997 and 1996, respectively, was 58.8% and 59.2%
of casino revenues and 53.2% and 54.4% of admissions. Management believes the
decrease in the Company's market share of casino revenues and admissions is
attributable to a decrease in premium player activity and the general decline in
customer visits impacting the Company.
The Company's casino revenues were $17,280,000 for the third quarter of
1997 compared to $18,839,000 for the third quarter of 1996. Table games
revenues, excluding poker, decreased 19.4% in the third quarter of 1997 compared
to 1996 due to an 11.4% decrease in table drop and a 0.4 percentage point (19.5
vs 19.9) decrease in table game hold percentage, in each case excluding premium
player activity, and winnings from premium player activity in the third quarter
of 1996 that did not occur in 1997. Slot revenues decreased 2.3% in the third
quarter of 1997 compared to the third quarter of 1996 due to a 4.0% decrease in
slot coin in, principally in dollar and quarter slot denominations, which was
partially offset by an increase in slot hold percentage of 0.2 percentage points
(7.0 vs 6.8). Poker win for the three months ended August 31, 1997 and 1996 was
$1,000 and $281,000, respectively, as the Company discontinued its poker
operations. Slot product offerings installed in the former poker space commenced
operations in October 1997. Management believes the decrease in table drop and
slot coin in is reflective of lower customer visits affecting the entire Baton
Rouge marketplace and that the change in hold percentages of table games and
slots is due to normal fluctuations associated with games of chance and is not
indicative of a continuing trend. Third quarter win per passenger increased 2.4%
to $45.04 in 1997 compared to $43.98 in 1996. Revenues from casino operations
were 76.6% from slot machines and 23.4% from table games for the three months
ended August 31, 1997 compared to 71.9% and 28.1%, respectively, for the same
period in 1996. Such mix of slot machine and gaming table win is attributable to
the continuing popularity of slot machines by the Company's base of casino
patrons and generally conforms to that experienced by riverboats throughout
Louisiana.
10
Casino expenses for the three months ended August 31, 1997 and 1996
were $8,080,000 and $8,490,000, respectively, which represented 46.8% and 45.1%
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) a decrease in costs associated
with selling and administering bus marketing programs offset by an increase in
costs of promotional expenses.
In the third quarter of 1997, selling, general and administrative
expenses were $5,307,000 compared to $5,646,000 in the third quarter of 1996. In
the third quarter of 1996 the Company recorded expenditures of $321,000 related
to a campaign in support of riverboat gaming in Baton Rouge as a general and
administrative expense; no such expenditures were made during the 1997 period.
Variances in ongoing operating expenses included lower management fees and land
lease expenses, attributable to decreased revenues and earnings levels, which
were offset by increased marketing expenses.
Net interest expense was $1,457,000 and $1,627,000 for the three months
ended August 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 for federal and state income taxes was $497,000 and
$897,000 for the three months ended August 31, 1997 and 1996, respectively. The
decrease in the provision for federal and state income taxes is due to lower
income before taxes during the third quarter of 1997 compared to 1996.
Nine months ended August 31, 1997 compared to nine months ended August 31, 1996
Casino revenues for the two boats in the Baton Rouge riverboat gaming
market for the nine months ended August 31, 1997 and 1996 were $90,769,000 and
$98,775,000, respectively. Riverboat casino patron counts in the Baton Rouge
gaming market for the nine months ended August 31, 1997 and 1996 were 2,171,000
and 2,241,000, respectively. Management believes the principal factors
contributing to the 8.1% decline in 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
during March 1997, iii)a decline in winnings from premium player activity and
iv) the additional reasons discussed below. 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 casino
revenues and customer counts declined 10.3% and 9.3%, respectively, in the nine
months ended August 31, 1997 compared to the same period in 1996. The Company's
competitor riverboat casino revenues decreased 4.8% as its customer counts
increased 5.1% in the nine months ended August 31, 1997 compared to the same
period in 1996. The Company's share of the Baton Rouge gaming market for the
nine months ended August 31, 1997 and 1996, respectively, was 58.2% and 59.7% of
casino revenues and 53.4% and 57.1% 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, ii) a decrease in the Company's table and slot
hold percentages and winnings from premium player activity, all as discussed
below, and iii) the general decline in customer visits impacting the Company.
11
The Company's casino revenues were $52,470,000 for the nine months ended
August 31, 1997 compared to $57,980,000 for the same period of 1996. Table
revenues, excluding poker, decreased 18.3% in the 1997 period compared to 1996
due to winnings from premium player activity in the 1996 period that did not
occur in 1997, and a decrease in table game hold percentage of 1.6 percentage
points (19.7 vs 21.3) and a 1.8% decrease in table drop, excluding premium
player activity. Slot revenues decreased 5.0% in the 1997 period compared to the
same period of 1996 due to a decrease in slot hold percentage of 0.1 percentage
points (6.8 vs 6.9) and a 3.8% decline in slot coin in, principally in dollar
and quarter slot denominations. Poker win for the nine months ended August 31,
1997 and 1996 was $300,000 and $884,000, respectively, as the Company first
reduced then eliminated its poker operations. Slot product offerings installed
in the former poker space commenced operations in October 1997. Management
believes the decrease in table drop and slot coin in is reflective of lower
customer visits affecting the entire Baton Rouge marketplace and that 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 level 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 a
decrease in the hold percentage in twenty-five dollar denomination because of
random jackpots won by customers. For the nine months ended August 31, 1997 win
per passenger decreased 0.2% to $45.22 compared to $45.32 in the same period of
1996. Revenues from casino operations were 74.9% from slot machines and 25.1%
from table games for the nine months ended August 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 is attributable to the continuing popularity of slot machines
by the Company's base of casino patrons and generally conforms to that
experienced by riverboats throughout Louisiana.
Casino expenses for the nine months ended August 31, 1997 and 1996 were
$24,285,000 and $25,726,000, respectively, which represented 46.3% and 44.4% 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
increased costs for promotional expenses, casino support departments and selling
and administering bus marketing programs.
In the nine months ended August 31, 1997, selling, general and
administrative expenses were $15,715,000 compared to $16,503,000 for the same
period of 1996. Overall selling, general and administrative expenses for the
nine months ended August 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) one
time expenses incurred in the 1996 period for marine repair and maintenance of
approximately $275,000 and $321,000 related to a campaign in support of
riverboat gaming in Baton Rouge. These lower expenses were partially offset by
increased marketing, security and facility department expenses for the nine
months ended August 31, 1997 compared to the same period in 1996.
Net interest expense was $4,289,000 and $5,123,000 for the nine months
ended August 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 for federal and state income taxes, net of the valuation
allowance release, was $2,014,000 and $806,000 for the nine months ended August
31, 1997 and 1996, respectively. The valuation allowance released for the nine
months ended August 31, 1997 and 1996 was $0 and $2,399,000, respectively.
12
Liquidity and Capital Resources
During the nine months ended August 31, 1997 the Company generated
$6,814,000 in cash flows from operations as compared to $8,820,000 for the nine
months ended August 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 $417,000,
respectively, for the nine months ended August 31, 1997 and 1996. The use of
funds for the nine month periods ended August 31, 1997 and 1996 was for capital
expenditures for continuing operations of $1,028,000 and $479,000, respectively.
For the nine months ended August 31, 1997, $754,000 of restricted cash was used
to fund capital expenditures as permitted by the Indenture.
Financing activities for the nine months ended August 31, 1997 and 1996
used cash of $4,001,000 and $7,078,000, respectively. The use of funds in 1997
was 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, iii) an increase in
restricted cash of $849,000 related to Cumulative Excess Cash Flow for the
semiannual period ended May 31, 1997 and iv) the repurchase of $722,000 of Notes
on August 29, 1997 as required by the Indenture. The uses of funds in 1996 were
i) the February 28 and August 29, 1996 repurchases of Notes in the principal
amounts of $4,222,000 and $2,110,000, respectively, as required by the
Indenture, ii) the payment of dividends to shareholders and distributions to
warrant holders aggregating $3,632,000 and iii) the payment of regularly
scheduled principal amounts due under the Credit Agreement, as amended. 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 August 31, 1997 liquidity and capital resources of the Company
included cash and cash equivalents, and restricted cash of approximately
$10,385,000, 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, as amended.
ii. Mandatory offers to repurchase Notes as required by the Indenture
should the Company, in any semiannual period, exceed $2,000,000
in Cumulative Excess Cash Flow as set forth in the Indenture. As
of August 31, 1997, the Company has reclassified to a current
liability $2,506,000 of Notes. Such amount includes $1,951,000
equal to Cumulative Excess Cash Flow for all semiannual periods
through May 31, 1997 and an estimate of Cumulative Excess Cash
Flow of $555,000 for the three months ended August 31, 1997.
Based upon 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 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
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.
13
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.
14
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 June 2, 1997 Form 8-K reported that three individual
shareholders of the Company and CSMC Management Services, Inc. ("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.
Under Item 5, the July 30, 1997 Form 8-K reported the commencement of
the Company's offer to purchase for cash up to $3,098,000 aggregate principal
amount of Notes for 100% of their principal amount plus accrued interest to, but
not including, the payment date of August 29, 1997 (the "Offer"). The Offer was
made pursuant to the terms of the Indenture and expired at 5:00 p.m. New York
City time on August 28, 1997.
Under Item 5, the August 29, 1997 Form 8-K reported that pursuant to
the Offer, of the $44,668,000 aggregate principal amount of Notes outstanding,
holders tendered $722,000 aggregate principal amount. As a result of the offer,
there currently are $43,946,000 aggregate principal amount of Notes outstanding.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
LOUISIANA CASINO CRUISES, INC.
Dated: October 15, 1997
By: /s/ W. Peter Temling
------------------------
W. Peter Temling, Acting
Chief Financial Officer
16