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: February 28,1999
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)
(225) 709-7777
(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 996,883
- ----------------------------- --------------------------------
Class Outstanding as of April 14, 1999
LOUISIANA CASINO CRUISES, INC.
INDEX
Part I Financial Information
Balance Sheets.......................................................1
Statements of Operations.............................................2
Statement of Changes in Shareholders' (Deficit) Equity...............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.........................................................13
Part II Other Information...................................................14
Signatures...................................................................15
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands, except share data)
February 28, November 30,
1999 1998
---------- ----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 19,009 $ 13,525
Receivables, less allowance for doubtful accounts
of $145 and $123, respectively 481 332
Prepaid and other current assets 2,289 756
Inventory 458 452
Deferred tax asset - current 1,034 1,466
---------- ----------
Total current assets 23,271 16,531
Property and equipment, at cost, less accumulated
depreciation of $17,223 and $15,980, respectively 40,435 41,504
Prepaid and other assets 1,960 3,988
----------- ----------
Total assets $ 65,666 $ 62,023
=========== ==========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 721 $ 2,428
Accrued liabilities 2,968 2,028
Accrued interest 594 102
Other current liabilities 4,183 332
---------- ---------
Total current liabilities 8,466 4,890
First mortgage notes (Note 2) 55,000 50,000
Deferred tax liability 2,743 2,994
---------- ---------
Total liabilities 66,209 57,884
---------- ---------
Redeemable common stock warrants (Note 2) - 4,131
Shareholders' (deficit) equity :
Common stock, no par value:
10,000,000 shares authorized, 996,883 and 982,783
issued and outstanding, respectively (Note 2) 1 1
Additional paid-in capital 381 -
Accumulated (deficit) equity (925) 7
----------- ---------
Total shareholders' (deficit) equity (543) 8
----------- ---------
Total liabilities and shareholders' (deficit) equity $ 65,666 $ 62,023
=========== =========
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
February 28,
------------------
1999 1998
---------- --------
Revenues:
Casino $ 19,296 $16,765
Food and beverage 379 330
Other 119 188
-------- -------
Net revenues 19,794 17,283
-------- -------
Costs and expenses:
Casino 9,166 8,391
Food and beverage 400 381
Selling,general and administrative 5,796 5,217
-------- -------
Total operating expenses 15,362 13,989
-------- -------
Income before depreciation,
amortization and interest 4,432 3,294
Depreciation and amortization 1,266 1,097
-------- -------
Operating income 3,166 2,197
Other income (expense):
Interest income 288 96
Interest expense (2,147) (1,491)
-------- -------
Income before income taxes
and extraordinary item 1,307 802
Provision for income taxes (Note 6) 508 285
-------- -------
Net income before extraordinary loss 799 517
Extraordinary loss on early extinguishment
of debt, net 1,731 -
-------- -------
Net (loss) income (932) 517
Dividend requirement on redeemable
preferred stock - 33
-------- -------
Net (loss) income assigned to common
shareholders $ (932) $ 484
======== =======
Earnings (loss) per share (Note 3):
Basic earnings (loss)per share $ (0.93) $ 0.49
======== =======
Diluted earnings (loss)per share $ (0.93) $ 0.43
======== =======
Weighted average common shares outstanding 996,883 982,783
======== =======
Weighted average common equivalent
shares outstanding 996,883 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) EQUITY
(in thousands, except share data)
(unaudited)
Common Stock Additional
------------------- Paid-in Accumulated
Shares Amount Capital (Deficit)Equity Total
--------- -------- -------- ------------- --------
Balance at November 30, 1998 982,783 $ 1 $ - $ 7 $ 8
Warrants converted to
common shares 14,100 - 381 - 381
Net loss - - - (932) (932)
--------- --------- ------- ---------- ---------
Balance at February 28, 1999 996,883 $ 1 $ 381 $ (925) $ (543)
======== ========= ======= ========== =========
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)
Three Months Ended
---------------------------
February 28, February 28,
1999 1998
---------- -------------
Net (loss) income $ (932) $ 517
Cash flows from operating activities :
Extraordinary loss on early extinguishment of debt 1,731 -
Depreciation and amortization 1,266 1,097
Amortization of deferred costs 83 164
Provision for bad debt 22 27
(Increase) decrease in receivables (171) 93
(Increase) decrease in prepaid and other assets (420) 3
Decrease (increase) in deferred tax asset 432 (163)
Increase (decrease) in accrued interest 492 (1,264)
(Decrease) increase in deferred tax liability (251) 311
Decrease in accounts payable and other liabilities (667) (179)
--------- -------------
Net cash provided by operating activities 1,585 606
--------- -------------
Cash flows from investing activities :
Capital expenditures (175) (566)
Decrease in restricted cash - 472
--------- -------------
Net cash used by investing activities (175) (94)
--------- -------------
Cash flows from financing activities :
Proceeds from first mortgage notes 55,000 -
Repayment of first mortgage notes (50,000) (119)
Payment of deferred financing costs (926) -
Decrease in restricted cash - 214
Repayment of notes payable - (18)
--------- -------------
Net cash provided by financing activities 4,074 77
--------- -------------
Net increase in cash and cash equivalents 5,484 589
Cash and cash equivalents, at beginning of period 13,525 7,924
--------- -------------
Cash and cash equivalents, at end of period $ 19,009 $ 8,513
========== =============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,563 $ 2,527
========== ============
Cash paid for income taxes $ 168 $ -
========== ============
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 $0 and$33,000 were accrued
during the three month periods ended February 28, 1999 and 1998. The redeemable
preferred stock was redeemed on November 30, 1998.
On December 1, 1998, holders of 14,100 redeemable common stock
warrants exercised their right to purchase 14,100 shares of the Company's common
stock for a price of one cent per share, which warrants had an accreted value
of $381,000. Also on December 1, 1998, holders of 138,900 warrants exercised
their put rights obligating the Company to purchase 138,900 warrants at a price
based on the value of the Company's common stock on December 1, 1998.
Accordingly, the Company's redeemable common stock warrant obligation of
$3,749,000 was reclassed to other current liabilities (see Note 2).
The accompanying notes are an integral
part of these financial statements
5
LOUISIANA CASINO CRUISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Louisiana Casino Cruises, Inc. (the Company), a Louisiana corporation,
was formed in August 1991 for the purpose of developing and operating gaming
activities in Louisiana. For the period March 26, 1993, when the Company
obtained preliminary regulatory approval to construct a riverboat casino based
in Baton Rouge, Louisiana, through December 28, 1994, the commencement date of
operations, the Company's activities consisted of applying for the license
necessary to operate the riverboat; designing, planning and constructing the
Baton Rouge riverboat and land-based facility; negotiating and securing
financing for construction; negotiating contracts; and training for gaming
operations. On July 19, 1994, the Louisiana Riverboat Gaming Enforcement
Division granted the Company a license to conduct riverboat gaming activities
for a period of five years.
Financing for the project included an issuance of common stock for
$3,000,000 to Carnival Management Services, Inc. (renamed CRC Holdings, Inc.,
"CRC"), a credit facility from CRC for $2,000,000 (subsequently converted to
equity), pre-opening expenditures by Synura, Inc. of $2,200,000 (converted to
redeemable preferred stock and equity), secured bank financing of approximately
$6,000,000 and an offering of $51,000,000 in first mortgage notes (the "1993
Notes"). The 1993 Notes were issued with detachable warrants to purchase up to
an aggregate amount of 153,000 shares of the Company's common stock at a price
of $0.01 per share. On November 25, 1998 the Company issued $50,000,000 of
Senior Secured Increasing Rate Notes (the "1998 Notes"), the proceeds from which
were used to repay the 1993 Notes (see Note 2). The 1998 Notes were defeased on
January 27, 1999 and redeemed on February 24, 1999 from the proceeds of a
$55,000,000 offering of 11% Senior Secured Notes due December 1, 2005 (the "1999
Notes") (see Note 2).
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, 1998 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 months ended February 28, 1999 and
1998 should be read in conjunction with the 1998 audited financial statements.
The unaudited financial statements as of February 28, 1999 and for the
three month periods ended February 28, 1999 and 1998, 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 as of February 28, 1999 and the results of its
operations and its cash flows for the three month periods ended February 28,
1999 and 1998. Operating results for the three month periods ended February 28,
1999 and 1998 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 and promotional basis to customers. The estimated retail value of
these complimentary and promotional items for the three months ended February
28, 1999 and 1998 was $1,186,000 and $1,152,000, respectively. The estimated
costs of such complimentary and promotional items have been classified as casino
costs and totaled $732,000 and $743,000 for the three month periods ended
February 28, 1999 and 1998, respectively.
6
NOTE 2- FIRST MORTGAGE NOTES, NOTES PAYABLE AND REDEEMABLE COMMON STOCK WARRANTS
1999 NOTES
On January 27,1999, the Company issued in a private placement
$55,000,000 of the 1999 Notes with interest due semi-annually beginning June 1,
1999. The Company used the proceeds to defease and redeem the 1998 Notes (see
below) and for general corporate purposes.
The 1999 Notes are secured by substantially all of the Company's
assets, other than certain excluded assets. The indenture dated as of January
27, 1999 (the "1999 Indenture") includes certain covenants which limit the
ability of the Company and its restricted subsidiaries, subject to certain
exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or other
distributions, repurchase capital stock or other equity interest or subordinated
indebtedness; (iii) enter into certain transactions with affiliates; (iv) create
certain liens or sell certain assets; and (v) enter into certain mergers and
consolidations
Under the terms of the 1999 Indenture, after December 1, 2002, the
Company may, at its option, redeem all or some of the notes at a premium that
will decrease over time from 105.5% to 100% of their face amount, plus interest.
Prior to December 1, 2001, if the Company publicly offers certain equity
securities the Company may, at its option, apply certain of the net proceeds
from those transactions to the redemption of up to one-third of the principal
amount of the notes at 111% of their face amount, plus interest. If the Company
goes through a change in control, it must give holders of the notes the
opportunity to sell their notes to the Company at 101% of their face amount,
plus interest.
The Company filed a registration statement on Form S-4 with the
Securities and Exchange Commission on March 24, 1999. The registration relates
to the Company's upcoming offer to exchange all of its outstanding 1999 Notes
for an equal amount of 11% Series B Secured Notes due December 1, 2005, all as
contemplated by a registration rights agreement dated January 27, 1999.
1998 NOTES
Pursuant to the indenture, dated as of November 15, 1998 between the
Company and U.S. Bank Trust National Association, as Trustee (the "1998
Indenture"), the Company issued in a private placement $50,000,000 of 1998 Notes
due December 1, 2001. On November 25, 1998 the proceeds from this issuance were
placed in escrow with The Bank of New York, as successor Trustee of the 1993
Notes, to repay upon maturity the aggregate principal amount of $43,827,000 and
accrued interest outstanding on the 1993 Notes (see below).
The 1998 Notes were collateralized by substantially all assets of the
Company, bore interest at an initial increasing rate of 12.25% and were defeased
on January 27, 1999 and redeemed on February 24, 1999 from the proceeds of the
offering of the 1999 Notes. The Company incurred an extraordinary loss from
early extinguishment of the 1998 Notes of $1,731,000, net of a tax benefit of
$1,106,000.
1993 NOTES AND REDEEMABLE COMMON STOCK WARRANTS
The 1993 Notes were issued with 153,000 detachable warrants to purchase
one share each of the Company's no par value common stock at a price of $.01 per
share. The warrantholders had put rights whereby the Company had an obligation
to purchase the warrants at the value of the Company's common stock as of
December 1, 1998 as determined by two independent investment banking firms. The
warrants are classified as redeemable equity at November 30, 1998 due to the
put right feature and were accreted to the amount at which the Company has an
obligation to repurchase these warrants. The accreted value attributed to
the redeemable common stock warrants as of November 30,1998 was $4,131,000.
Of the 153,000 warrants, holders of 14,100 warrants elected to convert to an
equivalent number of common shares while holders of 138,900 warrants elected
to have the Company purchase the warrants.
On March 1, 1999, the Company received valuations from the two
investment banking firms. Based upon the average of the values determined by the
investment banking firms, on March 8, 1999 the Company paid $3,749,000
(included in other current liabilities at February 28, 1999) to the holders of
138,900 warrants who exercised their put rights. The holders of the remaining
14,100 warrants elected to exercise their rights to purchase an equal number of
shares of the Company's common stock at a price of $.01 per share on December 1,
1998.
7
NOTE 3 - 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 was
adopted by the Company for fiscal 1998, therefore for the three months ended
February 28, 1999 and 1998 EPS calculations have been made using the new
standard.
For the three month periods ended February 28, 1999 and 1998, basic EPS
is calculated by dividing net income assigned to common shareholders by the
weighted average common shares outstanding. Diluted EPS is calculated by
dividing net income assigned to common shareholders before distributions to
common stock warrantholders by the weighted average common and common equivalent
shares outstanding. During the three month period ended February 28, 1998,
common equivalent shares consisted of redeemable common stock warrants with the
rights to purchase 153,000 shares of the Company's common stock (see Note 2).
NOTE 4 - CONTINGENCIES
On February 17, 1999, CRC announced that it had signed a definitive
agreement to merge with Jackpot Enterprises, Inc. (NYSE: J), which presently
operates one of the largest gaming machine route operations in Nevada
aggregating approximately 4,300 gaming machines at approximately 400 locations.
Gaming machine route operations include the operation of machines at retail
stores (supermarkets, drug stores, merchandise stores, and convenience stores),
bars and restaurants. If the merger were consummated, Jackpot Enterprises, Inc.,
as a successor to CRC, would succeed to CRC's ownership interest of the Company,
and responsibility for handling all aspects of the Casino Rouge's management.
There are no assurances, however, when such merger will be consummated, if ever.
Riverboat gaming licenses in Louisiana are issued for an initial
five-year term with annual renewals thereafter. The Company's original five-year
gaming license for the Casino Rouge is up for renewal in July 1999. Each of the
Company and its officers, directors, managers, principal shareholders and their
officers and directors and key gaming employees will be subject to strict
scrutiny and full suitability and approval by the Louisiana Board in connection
with the Company's renewal application. The factors that the Louisiana Board has
stated it will consider, among others, in order to renew the Company's license,
include the Company's compliance with all the requirements of the Louisiana
Riverboat Economic Development and Gaming Control Act, the approval of various
systems and procedures, the demonstration of good character (including an
examination of criminal and civil records) and methods of business practice. The
Louisiana Board may also seek to impose, as a condition of the license renewal,
certain Louisiana, minority and female employment and procurement goals. The
Company believes it will be successful in receiving a renewal of its license
from the Louisiana Board, but no assurance can be given as to whether or when
the license will be extended, or the extent of any restrictions that may be
imposed as a condition to the issuance thereof. The loss, suspension or failure
to obtain a renewal of such license would have a material adverse effect on the
Company.
The Company is also involved in various legal proceedings, however, 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.
8
NOTE 5 - DIVIDENDS
On April 9, 1999 the Board of Directors declared a dividend of $1.74
per share of common stock. Approximately $1,735,000 will be paid on April
15, 1999 to holders of record on April 9, 1999.
NOTE 6 - INCOME TAXES
The Company has recorded a provision for income taxes of $508,000 and
$285,000 for the three months ended February 28, 1999 and 1998, respectively.
The current tax provision is $257,000 and $93,000 for the three months ended
February 28, 1999 and 1998, respectively. The provision for deferred income
taxes recorded for the three months ended February 28, 1999 and 1998 is $251,000
and $192,000, respectively.
The provision components discussed above exclude the tax benefit of
$1,106,000 derived from the early extinguishment of 1998 Notes
discussed in Note 2.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Louisiana Casino Cruises, Inc. (the "Company") owns and operates a
riverboat gaming facility in Baton Rouge, Louisiana (the "Casino Rouge"). The
Casino Rouge is one of two riverboat gaming facilities in Baton Rouge. Current
Louisiana legislation authorizes 15 riverboat casinos statewide and one
land-based casino in New Orleans. In addition, three casinos operate in
Louisiana on Native American land under compact agreements with the state. The
Casino Rouge opened on December 28, 1994. The Casino Rouge is managed by CRC
Holdings, Inc., doing business as Carnival Resorts and Casinos ("CRC"), an
experienced operator of gaming facilities and owner of approximately 59% of the
Company's common stock, no par value per share.
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) secured equipment financing, (iv) a December 1993 debt
offering of 51,000 units, each unit consisting of $1,000 principal amount of a
Senior Secured Note (the "1993 Notes") and three warrants to purchase one share
each of the Company's common stock, (v) a November 1998 offering consisting of
$50,000,000 of Senior Secured Increasing Rate Notes (the "1998 Notes"), which
proceeds were used to repay the 1993 Notes, and (vi) a January 1999 offering
consisting of $55,000,000 of Senior Secured Notes due December 1, 2005 (the
"1999 Notes"), which proceeds were used to defease and redeem the 1998 Notes.
Results of Operations
Three months ended February 28, 1999 compared to three months ended
February 28, 1998.
Taxable casino revenues, as defined by statute, for the two boats in
the Baton Rouge riverboat gaming market for the three months ended February 28,
1999 and 1998 were $32,003,000 and $29,065,000, respectively. Riverboat casino
patron counts in the Baton Rouge gaming market for the three months ended
February 28, 1999 and 1998 were 646,000 and 635,000, respectively. The Company's
taxable casino revenues increased to approximately $19.6 million from $17.4
million, while those of the other Baton Rouge riverboat increased to $12.4
million from $11.9 million for the three months ended February 28, 1999 as
compared to the same period in 1998. The Company's share of the Baton Rouge
gaming market for the three months ended February 28, 1999 and 1998 was 61.2%
and 60.0% of taxable casino revenues and 57.5% and 54.1% of admissions,
respectively.
The Company's casino revenues were $19,296,000 for the first quarter of
1999 compared to $16,765,000 for the first quarter of 1998. Table drop decreased
4% and slot coin-in increased 15%, while table games hold percentages increased
1.0% and slot hold percentages increased 4.4% for the first quarter of 1999 as
compared to 1998. Although table game revenues declined 2.8%, slot revenues
increased 20.5% for the first quarter of 1999 compared to 1998. Management
believes this reflects a growing market and a shift in gaming volume from table
games to gaming machines. First quarter win per passenger increased 6.6% to
$51.96 in 1999 compared to $48.74 in 1998. Revenues from casino operations were
80.9% from slot machines and 19.1% from table games for the three months ended
February 28, 1999 compared to 77.4% and 22.6%, respectively, for the same period
in 1998. 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 February 28, 1999 and 1998
were $9,166,000 and $8,391,000, respectively, which represented 47.5% and 50.1%
of casino revenues. Overall casino expenses increased during the 1999 period
primarily due to increased gaming taxes of $672,000 directly related to
increased casino revenues noted above.
10
In the first quarter of 1999, selling, general and administrative
expenses were $5,796,000 compared to $5,217,000 in the first quarter of 1998.
Net interest expense was $1,859,000 and $1,394,000 for the three months
ended February 28, 1999 and 1998, respectively. The increase in interest expense
is related to the defeasance of the 1998 Notes.
The provision for federal and state income taxes was $508,000 and
$285,000 for the three months ended February 28, 1999 and 1998, respectively.
The increase was primarily due to improved operating results.
Liquidity and Capital Resources
During the three months ended February 28, 1999 the Company generated
$1,585,000 of cash flows from operations as compared to $606,000 for the three
months ended February 28, 1998. The increase in cash flows from operations was
primarily due to an increase in income before extraordinary loss and payment in
November 1998 of accrued interest due on the 1993 Notes.
Cash flows used by investing activities were $175,000 and $94,000,
respectively, for the three months ended February 28, 1999 and 1998. The uses of
funds for each of the three month periods were for capital expenditures for
continuing operations.
Financing activities for the three months ended February 28, 1999
provided cash flows of $4,074,000 which was due to the
issuance of the 1999 Notes.
Management believes that cash on hand and cash generated from
operations will be sufficient to satisfy working capital requirements and
maintenance capital expenditures for the foreseeable future. Historically, the
Company has incurred annual maintenance capital expenditures of approximately
$2,000,000. The Company anticipates maintenance capital expenditures in 1999 of
$3,000,000, inclusive of approximately $300,000 of expenditures associated with
an underwater hull inspection and $400,000 of expenditures associated with year
2000 readiness.
In addition to capital expenditures noted above, the Company is
presently contemplating various capital improvements to the Casino Rouge
facilities. Financing for any such improvements is anticipated to be provided by
cash flow from operations and future borrowings.
In January 1999, the Company issued the 1999 Notes. The Company used
the proceeds to defease and redeem the 1998 Notes and for general corporate
purposes. The Indenture pursuant to which the 1999 Notes were issued includes
certain covenants which limit the ability of the Company and its restricted
subsidiaries, subject to certain exceptions, to: (i) incur additional
indebtedness; (ii) pay dividends or other distributions, repurchase capital
stock or other equity interests or subordinated indebtedness; (iii) enter into
certain transactions with affiliates; (iv) create certain liens or sell certain
assets; and (v) enter into certain mergers and consolidations. As a result of
the restrictions, the ability of the Company to incur additional indebtedness to
fund operations or to make capital expenditures is limited. To the extent that
cash flow from operations is insufficient to cover cash requirements, the
Company would be required to curtail or defer certain capital expenditures under
these circumstances, which could have an adverse effect on the Company's
operations.
YEAR 2000
As the year 2000 approaches, all companies that use computers must
address "Year 2000" issues. Year 2000 issues result from the past practice in
the computer industry of using two digits rather than four to identify the
applicable year. This practice can create breakdowns or erroneous results when
computers perform operations involving years later than 1999.
11
The Company has devised and commenced an extensive compliance plan with
the objective of bringing all of the Company's information technology ("IT")
systems and its non-IT systems into Year 2000 compliance by the end of fiscal
1999. The IT systems include the Company's computer equipment and software and
non-IT systems include the Company's communication systems, alarm and security
systems, gaming equipment and shipboard equipment (e.g. shipboard navigation,
control and power generation and distribution systems). Each system will be
evaluated and brought into compliance in three phases:
Phase I -- Evaluate and assess compliance of the system
Phase II -- Commit and assign resources needed to
implement compliance plan
Phase III -- Modify or replace non-compliant system
The Company's systems used to maintain financial records and other
critical systems have completed Phases I and II, with completion of Phase III
scheduled by the end of fiscal 1999. Approximately 98% of the Company's
non-critical systems have completed Phase II. The Company anticipates the
non-critical systems will be evaluated and brought into compliance by the end of
the third quarter of 1999.
The Company has also commenced efforts to determine the extent to which
it may be impacted by year 2000 issues of third parties, including its material
vendors and suppliers and certain agencies and regulatory organizations. Year
2000 correspondence was sent to third parties, with continued follow-up for
those that failed to respond and where risks have been identified. The Company
estimates that the process of identifying and evaluating third party risks is
98% complete.
Through February 28, 1999 the Company has not incurred or expensed any
material amounts directly related to year 2000 readiness. The Company is
continuing to evaluate the expected remaining costs to be incurred in connection
with the year 2000 project, with approximately $400,000 estimated and included
in the 1999 capital expenditure budget. The project is being funded by cash on
hand and internally generated funds, which the Company expects to be adequate to
complete the project.
The failure to correct a material year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the year
2000 readiness of third parties, the Company is unable to determine at this time
whether the consequences of year 2000 failures will have a material impact on
the Company's results of operations, liquidity or financial condition. The year
2000 project is expected to significantly reduce the Company's level of
uncertainty about year 2000 problems, including the year 2000 compliance and
readiness of its material third parties. The Company believes that completion of
the project as scheduled will reduce the possibility of significant
interruptions of normal operations. A contingency plan has not been developed
for dealing with the most reasonably likely worst case scenario, and such
scenario has not yet been clearly identified. The Company currently plans to
complete such analysis and develop and implement any necessary contingency plans
by the end of fiscal year 1999.
The costs of the Company's year 2000 project and the dates on which the
Company believes it will complete the various phases of this project are based
upon management's best estimates, which were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources, third-party remediation plans and other factors. There can be no
assurance that these estimates will prove to be accurate and actual results
could differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in year 2000 issues, the ability to
identify, assess, remediate and test all relevant computer code and embedded
technology, the performance of new systems and equipment, the reduction of
productivity pending completion of employee training and similar uncertainties.
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, the matters
discussed herein are forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to local
and regional economic and business conditions, changes or developments in laws,
regulations or taxes, actions taken or to be taken by third parties,
competition, the loss of any licenses or permits or the Company's failure to
obtain an unconditional renewal of its gaming license on a timely basis, or
other factors discussed elsewhere in this report and the documents filed by the
Company with the Securities and Exchange Commission. These factors may cause the
Company's results to differ materially from the statements made in this report
or otherwise made by or on behalf of the Company.
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 - Exhibit 27 Financial Data Schedule as of
February 28, 1999 and for the three months then ended
(b) Reports on Form 8-K - None
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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: April 14, 1999
By: /s/ W. Peter Temling
W. Peter Temling
Chief Financial Officer
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