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, 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 July 15, 1998
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..................................9
Quantitative and Qualitative Disclosures About
Market Risk.........................................................13
Part II Other Information...................................................14
Signatures...................................................................15
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands, except per share data)
May 31, November 30,
1998 1997
------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 7,071 $ 7,924
Restricted cash 5,330 4,807
Receivables, less allowance for doubtful accounts
of $326 and $298, at 1998 and 1997, respectively 365 479
Prepaid and other current assets 1,012 1,103
Inventory 484 443
Deferred tax asset - current 1,546 2,051
------- --------
Total current assets 15,808 16,807
Property and equipment, net 41,254 40,872
Prepaid and other assets 1,599 2,078
------- --------
Total assets $58,661 $ 59,757
======= ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,472 $ 2,566
Accrued liabilities 1,279 1,642
Accrued interest 2,527 2,527
First mortgage notes, net of original issue
discount, current portion (Note 2) 43,682 2,932
Notes payable, current portion (Note 2) - 18
Other current liabilities 287 240
Estimated dispute resolution costs (Note 5) - 1,700
------- --------
Total current liabilities 50,247 11,625
First mortgage notes, net of original issue
discount (Note 2) - 40,732
Deferred tax liability 2,609 2,186
------- --------
Total liabilities 52,856 54,543
------- --------
Redeemable preferred stock 1,694 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 (266) (791)
------- -------
Total shareholders' deficit (265) (790)
------- -------
Total liabilities and shareholders' deficit $58,661 $59,757
======= ========
The accompanying notes are an integral
part of these financial statements
1
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
May 31, May 31,
------------------ ----------------
1998 1997 1998 1997
------ ------ ------ ------
Revenues:
Casino $17,785 $17,857 $34,550 $35,190
Food and beverage 330 353 660 643
Other 233 175 421 313
------ ------ ------ ------
Net revenues 18,348 18,385 35,631 36,146
------ ------ ------ -------
Costs and expenses:
Casino 8,398 8,027 16,789 16,205
Food and beverage 294 329 675 613
Selling, general and administrative 5,119 5,359 10,336 10,408
(Note 5)
------ ------ ------ ------
Total operating expenses 13,811 13,715 27,800 27,226
------ ------ ------ ------
Income before depreciation,
amortization and interest 4,537 4,670 7,831 8,920
Depreciation and amortization 1,122 1,063 2,219 2,107
------ ------ ------ ------
Operating income 3,415 3,607 5,612 6,813
Other income (expense):
Interest income 114 72 211 99
Interest expense (1,498) (1,531) (2,989) (2,931)
------- ------ ----- ------
Income before provision for income taxes 2,031 2,148 2,834 3,981
Provision for income taxes (Note 7) 756 790 1,041 1,517
------ ------ ------ ------
Net income 1,275 1,358 1,793 2,464
Dividend requirement on redeemable
preferred stock 33 33 66 66
Distributions paid to common stock
warrant holders 162 65 162 65
------ ------ ------ ------
Net income assigned to common
shareholders $ 1,080 $ 1,260 $1,565 $2,333
======= ======= ====== ======
Earnings per share (Note 4):
Basic earnings per share $ 1.10 $ 1.28 $ 1.59 $ 2.37
======= ======= ====== ======
Diluted earnings per share $ 1.09 $ 1.17 $ 1.52 $ 2.11
======= ======= ====== ======
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 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 - - (66) (66)
Dividends paid to holders of common
stock and distributions to
common stock warrant holders - - (1,202) (1,202)
Net income - - 1,793 1,793
--------- --------- ---------- ---------
Balance at May 31, 1998 982,783 $ 1 $ (266) $ (265)
========= ========= ========== =========
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)
Six Months Ended
May 31, May 31,
1998 1997
------- -------
Net income $1,793 $2,464
Cash flows from operating activities :
Depreciation and amortization 2,219 2,107
Amortization of deferred costs 338 377
Loss on sale of fixed assets 104 47
Provision for bad debt 42 48
Decrease in receivables 72 4
Increase in inventory (41) (90)
Decrease (increase) in prepaid and other assets 236 (42)
Decrease in deferred tax asset 505 255
Decrease in accrued interest - (6)
Increase in deferred tax liability 423 536
Decrease in accounts payable and other liabilities (2,110) (712)
------ -------
Net cash provided by operating activities 3,581 4,988
------ -------
Cash flows from investing activities :
Capital expenditures (2,607) (488)
Proceeds from sale of fixed assets 35 22
Decrease in restricted cash 1,482 214
------ -------
Net cash used by investing activities (1,090) (252)
------- -------
Cash flows from financing activities :
Repayment of first mortgage notes (119) -
Increase in restricted cash (2,005) (1,572)
Repayments of notes payable (18) (1,285)
Dividends paid to common stock holders and
distributions to common stock warrant holders (1,202) (482)
------ -------
Net cash used by financing activities (3,344) (3,339)
------ -------
Net (decrease) increase in cash and cash equivalents (853) 1,397
Cash and cash equivalents, at beginning of period 7,924 4,677
------ -------
Cash and cash equivalents, at end of period $7,071 $6,074
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $2,527 $2,648
======= =======
Cash paid for income taxes $ - $ 682
======= =======
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:
Redeemable preferred stock dividends of $66,000 were accrued during
each of the six month periods ended May 31, 1998 and 1997.
The accompanying notes are an integral
part of these financial statements
5
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 trading area 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 for the three and six month periods ended May 31,
1998 and 1997 should be read in conjunction with the 1997 audited financial
statements.
The unaudited financial statements as of May 31, 1998 and for the three
and six months ended May 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 May 31, 1998 and the results of its operations and its cash flows
for the three and six month periods ended May 31, 1998 and 1997. Operating
results for the three and six month periods ended May 31, 1998 and 1997 are not
necessarily indicative of the results that may be expected for a full year.
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, 1998 was $1,079,000 and $2,231,000 and for the
three and six months ended May 31, 1997 was $1,389,000 and $2,755,000,
respectively. The cost of providing such complimentary items has been classified
as casino costs (promotional expenses) and totaled $707,000 and $1,450,000 for
the three and six month periods ended May 31, 1998, and $761,000 and $1,551,000
for the three and six month periods ended May 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
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 May 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.
If the Company has Cumulative Excess Cash Flow equal to or greater than
$2,000,000 at the end of any semiannual period, as defined in the Indenture, the
Company is required to offer to repurchase the Notes at par to the extent of
such Cumulative Excess Cash Flow.
Cumulative Excess Cash Flow for the semiannual period ended November 30,
1997 amounted to $3,795,000. Such amount included $1,951,000, equal to the
remaining Cumulative Excess Cash Flow for all semiannual periods through May 31,
1997, and Excess Cash Flow of $1,844,000 for the semiannual period ended
November 30, 1997. As required by the Indenture, the Company made an offer on
January 28, 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 February
26, 1998 with $119,000 of Notes being tendered. Pursuant to the terms of the
Indenture, of the $3,676,000 of Cumulative Excess Cash Flow not used to
repurchase Notes, $2,813,500 must be included in the calculation of Cumulative
Excess Cash Flow for the semiannual period ended May 31, 1998 and is classified
as a current liability at November 30, 1997 and May 31, 1998. The remaining
$862,500 was added to the $1,012,000 of Cash Available for Reinvestment (as
defined) balance at November 30, 1997.
As of May 31, 1998 the Company has classified $2,124,000 of Excess Cash
Flow generated during the semiannual period ended May 31, 1998 as restricted
cash. This amount in addition to the $2,813,500 noted above is to be used by the
Company to make an offer in July 1998 to the holders of the Notes to repurchase
up to $4,937,500 of Notes at par, plus accrued interest. The offer to repurchase
is anticipated to be completed in August 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.
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 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
(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 May 31, 1998 and
November 30, 1997 is $4,376,000.
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 six
month periods ended May 31, 1998 and 1997, EPS calculations have been made using
the new standard.
For the three and six month periods ended May 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
six month periods ended May 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.
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, in the three and
six month periods ended May 31, 1998 the Company has recognized a net reduction
of $400,000 within selling, general and administrative expenses.
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 $1,202,000 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.
NOTE 7 - INCOME TAXES
The Company has recorded a provision for income taxes of $756,000 and
$1,041,000, respectively, for the three and six months ended May 31, 1998, and a
provision for income taxes of $790,000 and $1,517,000, respectively, for the
three and six months ended May 31,1997. The current tax provision for the three
and six months ended May 31, 1998 is $20,000 and $113,000, respectively, and for
the three and six months ended May 31, 1997 is $382,000 and $725,000,
respectively. The provision for deferred income taxes recorded for the three and
six months ended May 31, 1998 is $736,000 and $928,000, respectively, and for
the three and six months ended May 31, 1997 is $408,000 and $792,000,
respectively.
The current tax benefit for the three and six months ended May 31, 1998
includes a favorable tax impact of $507,000 related to the legal settlement
discussed in Note 5. The deferred tax provision for the same periods includes a
deferred charge of $663,000 related to a deferred tax asset associated with the
legal settlement discussed in Note 5.
8
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 May 31, 1998 compared to three months ended May 31,
1997.
Casino revenues in the two riverboat Baton Rouge gaming market for the
three months ended May 31, 1998 and 1997 were $30,667,000 and $32,101,000,
respectively. Riverboat casino patron counts in Baton Rouge for the same
respective periods were 668,000 and 773,000. The Company's casino revenues and
customer counts declined 3.3% and 13.5%, respectively, for the three months
ended May 31, 1998 compared to the same period in 1997. The Company's
competitor's riverboat casino revenues and customer counts declined 5.9% and
13.7%, respectively, for the three months ended May 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 May 31, 1998 and 1997 was 57.2% and 56.6% of casino
revenues and 51.5% and 51.4% of admissions, respectively.
The Company's casino revenues were $17,785,000 and $17,857,000 for the
second quarters ended May 31, 1998 and 1997, respectively. Table drop and slot
coin-in decreased 21.9% and 2.8%, respectively, while table games and slot hold
percentages increased 15.8% and 5.6%, respectively, for the second quarter of
1998 as compared to 1997. The lower gaming volume resulted in a 9.5% decrease in
table game revenues for the second quarter of 1998 compared to 1997. Management
believes the decrease in table drop is reflective of lower customer visits
affecting the entire Baton Rouge marketplace.
Second quarter win per passenger increased 14.9% to $51.75 in 1998
compared to $45.03 in 1997. Revenues were derived 77.1% from slot machines and
22.9% from table games for the three months ended May 31, 1998 compared to 74.8%
and 25.2%, respectively, for the same period in 1997. 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, 1998 and 1997 were
$8,398,000 and $8,027,000, respectively, which represented 47.2% and 45.0% 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 is currently a temporary facility constructed on
the Company's property to provide entertainment events to the Baton Rouge
market. The Rouge Arena is scheduled to close 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.
In the second quarter of 1998, selling, general and administrative
expenses were $5,119,000 compared to $5,359,000 in thesecond quarter of 1997.
Net interest expense was $1,384,000 and $1,459,000 for the three months
ended May 31, 1998 and 1997, respectively.
The provision for federal and state income taxes was $756,000 and
$790,000 for the three months ended May 31, 1998 and 1997, respectively.
9
Six months ended May 31, 1998 compared to six months ended May 31,
1997.
Casino revenues in the two riverboat Baton Rouge gaming market for the
six months ended May 31, 1998 and 1997 were $59,732,000 and $61,413,000,
respectively. Riverboat casino patron counts in Baton Rouge for the same
respective periods were 1,303,000 and 1,450,000. The Company's casino revenues
and customer counts declined 1.7% and 11.4%, respectively, for the six months
ended May 31, 1998 compared to the same period in 1997. The Company's
competitor's riverboat casino revenues and customer counts declined 4.2% and
8.6%, respectively, for the six months ended May 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 six months ended May 31, 1998 and 1997 was 58.6% and 58.0% of casino
revenues and 52.8% and 53.5% of admissions, respectively.
The Company's casino revenues were $34,550,000 and $35,190,000 for the
six months ended May 31, 1998 and 1997, respectively. Table drop decreased 18.9%
and slot coin-in remained unchanged, while table games and slot hold percentages
remained unchanged for the first six months of 1998 as compared to 1997. The
lower gaming volume resulted in a 13.6% decrease in table game revenues for the
first six months of 1998 compared to 1997. Management believes the decrease in
table drop is reflective of lower customer visits affecting the entire Baton
Rouge marketplace.
For the first six months of 1998, win per passenger increased 10.9% to
$50.24 compared to $45.31 for the same period in 1997. Revenues were derived
77.2% from slot machines and 22.8% from table games for the six months ended May
31, 1998 compared to 74.1% and 25.9%, respectively, for the same period in 1997.
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, 1998 and 1997 were
$16,789,000 and $16,205,000, respectively, which represented 48.6% and 46.1% 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 is currently a temporary facility constructed on
the Company's property to provide entertainment events to the Baton Rouge
market. The Rouge Arena is scheduled to close 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 first six months of 1998, selling, general and
administrative expenses were $10,336,000 compared to $10,408,000 for the same
period in 1997.
Net interest expense was $2,778,000 and $2,832,000 for the six months
ended May 31, 1998 and 1997, respectively.
The provision for federal and state income taxes was $1,041,000
and $1,517,000 for the six months ended May 31, 1998 and 1997, respectively.
10
Liquidity and Capital Resources
During the six months ended May 31, 1998 the Company generated
$3,581,000 in cash flows from operations as compared to $4,988,000 for the six
months ended May 31, 1997. The decrease in cash flows from operations was
primarily due to the settlement of the dispute described in Note 5 to the
financial statements and a decrease in net income.
Cash flows used for investing activities were $1,090,000 and $252,000,
respectively, for the six months ended May 31, 1998 and 1997, net of $1,482,000
and $214,000, respectively, of restricted cash, as permitted by the Indenture.
The uses of funds for each of the six month periods were for capital
expenditures for continuing operations.
Financing activities for the six months ended May 31, 1998 used cash
flows of $3,344,000 due to dividend payments to shareholders and distributions
to common stock warrant holders of $1,202,000 and an increase in restricted cash
of $2,005,000 as calculated per the Indenture. The net cash used by financing
activities in the six months ended May 31, 1997 of $3,339,000 related primarily
to the $1,285,000 repayment of regularly scheduled principal amounts due under
the Credit Agreement, as amended, and an increase in restricted cash of
$1,572,000 as calculated per the Indenture.
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 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. 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 May 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.
11
As of May 31, 1998 liquidity and capital resources of the Company
included cash and cash equivalents, and restricted cash of approximately
$12,401,000. 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. 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.
Cumulative Excess Cash Flow for the semiannual period ended November
30, 1997 amounted to $3,795,000. As required by the Indenture, the
Company made an offer to repurchase Notes at par to the extent of such
Cumulative Excess Cash Flow on January 28, 1998. The Company's offer
expired on February 26, 1998 with $119,000 of principal amount of Notes
being tendered. A cash payment of approximately $122,000 (principal
plus accrued interest) was made on February 27, 1998. Pursuant to the
terms of the Indenture, of the $3,676,000 of Cumulative Excess Cash
Flow not used to repurchase Notes, $2,813,500 must be used for the
acquisition of Notes in the open market or be included in the
calculation of Cumulative Excess Cash Flow for the semiannual period
ended May 31, 1998. This amount, in addition to the $2,124,000 of
excess cash flow generated during the semiannual period ended May 31,
1998, as calculated per the Indenture, is classified as restricted
cash and is to be used by the Company to make an offer in July 1998 to
the holders of the Notes to repurchase up to $4,937,500 of Notes at
par, plus accrued interest. The offer to repurchase is anticipated to
be completed in August 1998.
iii. Payment of Federal and Louisiana 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. 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 $1,202,000 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.
v. Capital expenditures for the Casino Rouge facilities. The Company
has currently committed to capital expenditures totaling $2,050,000
for remodeling projects, and has expended $1,889,000 under these
commitments during the six months ended May 31, 1998. In addition, the
Company has a $1.1million option to purchase approximately five acres
of land adjacent to its docking facilities.
vi. 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 CCR International, 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.
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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 December 1, 1997, and any additional
furniture, fixtures and equipment acquired with proceeds from the loan. As of
May 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.
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. Although the Company is currently evaluating the
expected cost to be incurred in connection with the year 2000, the Company does
not expect that such costs will have a material adverse impact on its business.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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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
A current report on Form 8-K dated May 28, 1998 was filed by the
Company with the Securities and Exchange Commission. Under Item 5, the Form 8-K
reported the settlement of the lawsuit filed by BRH Consultants, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUISIANA CASINO CRUISES, INC.
Dated: July 15, 1998
By: /s/ W. Peter Temling
W. Peter Temling
Chief Financial Officer
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