SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_______________TO___________________
Commission file number N/A
LOUISIANA CASINO CRUISES, INC.
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(Exact name of registrant as specified in its charter)
LOUISIANA 72-1196619
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1717 River Road North
Baton Rouge, Louisiana 70802
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (225) 709-7777
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Registration S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of February 25, 1999 the aggregate market value of the voting stock
held by non-affiliates of the registrant was $0. (Calculated by excluding all
shares that may be deemed to be beneficially owned by executive officers,
directors and greater than 10% shareholders of the registrant, without conceding
that all such persons are "affiliates" of the registrant for purposes of the
federal securities laws.)
As of February 25, 1999 the number of outstanding shares of the
registrant's common stock was 996,883.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. BUSINESS.
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 contract 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 was incorporated in Louisiana in August 1991. From the date
of incorporation until opening of the Casino Rouge on December 28, 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.
FACILITIES
The Casino Rouge features a four-story, 47,000 square foot riverboat
casino, replicating a 19th century Mississippi River paddlewheel steamboat, and
a two-story, 58,000 square foot dockside embarkation building. The riverboat has
a capacity of 1,800 customers and emphasizes spaciousness and excitement with
its ample aisle space, 15-foot ceilings, a large central atrium and specially
designed lighting. The overall effect avoids the cramped atmosphere found in
many riverboat casinos. Patrons are offered a selection of 925 gaming machines
and 43 table games in 28,000 square feet of gaming space spread over three
decks. The dockside embarkation facility, which has recently undergone a $2.3
million renovation, offers a panoramic view of the Mississippi River and
features a variety of amenities, including (i) the new 268-seat "International
Marketplace Buffet," (ii) an array of food, bar and lounge areas, (iii) a new
meeting and planning center and (iv) a gift shop. All of the facilities are open
seven days a week, 24 hours a day, with eight cruises scheduled daily.
The 23-acre site is located on the east bank of the Mississippi River
in the East Baton Rouge Downtown Development District less than one-quarter mile
from the state capital complex. The site is within approximately one mile of
both Interstate 10 and Interstate 110. In addition, the site has convenient
parking for approximately 1,100 cars adjacent to the embarkation facility with
potential capacity for a total of 1,550 spaces.
COMPETITION
GENERAL. The Louisiana Riverboat Economic Development and Gaming
Control Act (the "Louisiana Act") limits the number of gaming casinos in
Louisiana to fifteen riverboat casinos statewide and one land-based casino in
New Orleans. Absent further state legislation and local option referenda,
additional licenses cannot be granted. Fourteen of the fifteen available
riverboat licenses are currently issued and outstanding: two for Baton Rouge;
three for the greater New Orleans area; four for the Shreveport/Bossier City
area in the northwest part of the state, approximately 235 miles from Baton
Rouge; four for Lake Charles in the southwest part of the state, approximately
120 miles from Baton Rouge; and one granted to a riverboat casino which
discontinued operations in New Orleans in October 1997 and whose owners received
the approval of the Louisiana Gaming Control Board (the "Louisiana Board") to
relocate the riverboat casino for what will be the fifth license in the
Shreveport/Bossier City area.
BATON ROUGE CASINOS. The Company's principal competitor is the other
Baton Rouge riverboat casino, the Belle of Baton Rouge (the "Belle"), which
opened on September 30, 1994 and is owned and operated by Argosy Gaming Company
("Argosy"). Since commencing operations on December 28, 1994, the Casino Rouge
has achieved an average of 57% of the market-share of gaming win on Baton Rouge
riverboats as reported by the Louisiana State Police. Argosy constructed a
retail, restaurant and entertainment center called "Catfish Town" as an integral
part of its land-based facility which commenced operations in April 1996.
NEW ORLEANS CASINOS. New Orleans has three riverboats and one
land-based casino. During November 1995, the controlling partnership which owned
the right to operate the only land-based casino in New Orleans closed its
temporary casino, temporarily halted construction on its permanent casino and
filed for bankruptcy protection under Chapter 11. Construction of the land-based
casino under changed ownership has recently resumed and operations are expected
to begin in late 1999.
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NATIVE AMERICAN CASINOS. Gaming is also permitted on Native American
lands in Louisiana and other states, and there are currently three such
operating Native American casinos in Louisiana. Although the closest such casino
is a land-based facility located on the Chitimacha reservation in Charenton,
Louisiana, approximately 45 miles southwest of Baton Rouge, it is not accessible
by a major highway. The closest Native American casino to Baton Rouge with major
highway accessibility is a land-based facility located on the Tunica-Biloxi
reservation in Mansura, Louisiana, approximately 65 miles northwest of Baton
Rouge.
MISSISSIPPI CASINOS. An emerging trend in Mississippi gaming,
particularly on the Gulf Coast (approximately 125 miles from Baton Rouge), is
the development of large-scale destination resort projects. The Imperial Palace,
the largest gaming facility on the Gulf Coast, commenced operations in December
1997 and several projects of similar size have been proposed for development. As
of December 31, 1998, the Mississippi Gaming Commission had granted 45 gaming
licenses. Of these, 29 of the licensees have opened and are operating casinos,
one licensee anticipates opening in the immediate future and the remaining
licensees represent entities that have either consolidated or closed casinos.
OTHER COMPETITION. Proposals have been introduced into the Louisiana
legislature to increase the number of gaming facilities permitted in Louisiana.
However, to date no such legislation has been approved and currently there are
no proposals in the legislature to issue new licenses. Alternative forms of
gaming are available to potential customers. Louisiana state law allows the
operation of a state lottery, betting on horse racing and charitable bingo. In
July 1991, Louisiana also authorized operation of video poker terminals at
various types of facilities in the state, including taverns, restaurants,
hotels/motels, truckstops, and racing facilities. As of June 30, 1998,
approximately 15,000 video poker terminals at approximately 3,600 non-casino
locations were in operation throughout the state. These facilities are widely
distributed throughout the state and have had no greater impact on the Baton
Rouge riverboat casinos than on other Louisiana riverboats.
Competition in the gaming industry is intense in the market where the
Company operates its gaming facility. As new gaming opportunities arise in
existing gaming jurisdictions, in new gaming jurisdictions and on Native
American-owned lands, new or expanded operations by others can be expected to
increase competition for the Company's operations and could limit new
opportunities for the Company or result in the saturation of certain gaming
markets. Casino gaming does not have a long operating history in the
jurisdiction where the Company operates its gaming facility and other nearby
jurisdictions and, therefore, the effects of competition in these jurisdictions
cannot be predicted with any degree of certainty. Many of the Company's
competitors outside of the greater Baton Rouge area have more gaming industry
experience, are larger and have greater financial resources than the Company. In
addition, Native American casinos have advantages because they do not pay
Louisiana gaming taxes or admission fees. As a result, increased competition
both inside and outside of the Company's market could have a material adverse
effect on the Company.
MANAGEMENT AGREEMENT
CRC and the Company are parties to a Casino Consulting and Management
Agreement, dated December 11, 1992, as amended (the "Management Agreement"),
pursuant to which, prior to the opening of the Casino Rouge, CRC provided
consulting and technical services to the Company in connection with the
planning, development and equipping of the Casino Rouge. CRC assisted the
Company in preparing the Casino Rouge for operations, including hiring a staff
of employees, designing the Casino Rouge, establishing accounting systems, and
developing marketing and casino operations concepts. Upon opening of the Casino
Rouge, CRC commenced handling all aspects of Casino Rouge's management pursuant
to the terms of the Management Agreement. The Management Agreement expires in
December 2004, subject to extension at the option of CRC for an additional
10-year period. CRC is entitled to an annual management fee equal to 2% of gross
revenues plus 5% of total operating income (as such terms are defined in the
Management Agreement). By separate agreement, CRC has agreed to pay one-half of
its 5% fee of total operating income to Dan S. Meadows, Jerry L. Bayles and
Thomas L. Meehan, aggregate holders of approximately 39% of the Company's Common
Stock. Mr. Meadows also serves as the Company's President and Vice Chairman of
the Board and Mr. Meehan serves as a director of the Company. For the fiscal
years ended November 30, 1998, 1997 and 1996, the amount earned by CRC pursuant
to the Management Agreement was $2,195,000, $2,214,000 and $2,567,000,
respectively. For the fiscal years ended November 30, 1998, 1997 and 1996, the
aggregate amount paid by CRC to Messrs. Meadows, Bayles and Meehan was $369,000,
$407,000 and $516,000, respectively.
In addition to the Casino Rouge, CRC operates Casino Rama, located
north of Toronto, Canada, for the Chippewas of Rama First Nations and the
Ontario Casino Corporation. CRC also develops other casinos and hotels including
a hotel/casino, retail and condominium project near Las Vegas, Nevada, and a
casino development project near Spokane, Washington for the Kalispel Tribe of
Indians.
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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.
EMPLOYEES
The Company maintains a staff of approximately 800 full-time equivalent
employees. None of the employees is covered by a collective bargaining
agreement. In 1995, two separate union elections involving a total of less than
5% of all employees were held and both initiatives were defeated. The Company
believes that its employee relations are good.
REGULATORY MATTERS
General
The Company is subject to regulation by the State of Louisiana and, to
a lesser extent, by federal law. The Company is subject to regulations that
apply specifically to the gaming industry and casinos and regulations that apply
specifically to operators of cruising riverboats, in addition to regulations
applicable to businesses generally. Below is a description of certain
regulations to which the Company is subject. Legislative or administrative
changes in applicable legal requirements have been proposed from time to time.
It is possible that the applicable requirements to operate a Louisiana gaming
facility will become more stringent and burdensome, and that taxes, fees and
expenses may increase, as the state gains further experience in regulating
gaming. Failure to comply with detailed regulatory requirements may be grounds
for the suspension or revocation of a license, which would have a materially
adverse effect upon the Company.
Louisiana Riverboat Gaming Regulation
In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
Since May 1, 1996, gaming activities have been regulated by the Louisiana Board.
Under the Louisiana Act, local authorities may impose an admission fee of up to
$2.50 per passenger. Currently, Baton Rouge authorities are imposing the full
$2.50 per passenger fee at the two Baton Rouge riverboats.
The Louisiana Act authorized the issuance of up to fifteen licenses to
conduct gaming activities on a riverboat of new construction in accordance with
applicable law. However, no more than six licenses may be granted to riverboats
operating from any one parish. Of the fifteen available licenses, currently
thirteen are in operation, one is being relocated and one has been returned to
the state.
In issuing or renewing a license, the Louisiana Board must find that
the applicant is a person of good character, honesty and integrity and that the
applicant is a person whose prior activities, criminal record, if any,
reputation, habits and associations do not pose a threat to the public interest
of the State of Louisiana or to the effective regulation and control of gaming,
or create or enhance the dangers of unsuitable, unfair or illegal practices,
methods and activities in the conduct of gaming or the carrying on of business
and financial arrangements in connection therewith. The Louisiana Board will
grant or renew a license if it finds that: (a) the applicant can demonstrate the
capability, either through training, education, business experience, or a
combination of the above, to operate a gaming casino; (b) the proposed financing
of the riverboat and the gaming operations is adequate for the nature of the
proposed operation and from a source suitable and acceptable to the Louisiana
Board; (c) the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat so as to ensure the
safety of its passengers, with each employee being appropriately Coast Guard
certified; (d) the applicant submits a detailed plan of design of the riverboat
in its application for a license; (e) the applicant designates the docking
facilities to be used by the riverboat; (f) the applicant shows adequate
financial ability to construct and maintain a riverboat; and (g) the applicant
has a good faith plan to recruit, train and upgrade minorities in all employment
classifications.
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 Act,
the approval of various systems
4
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. As a result of
the Justice Department's recent indictments of former Louisiana Governor Edwin
Edwards and certain other persons on charges relating to, among other things,
gaming licenses in Louisiana, the Louisiana regulators are applying greater
scrutiny to the suitability and business practices of the licensees. 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.
Other regulations imposed by the Louisiana Act or rules adopted
pursuant thereto include, but are not limited to, the following: (a) the Company
must periodically submit financial and operating reports to the Louisiana Board;
(b) owners holding greater than a 5% interest must be found suitable by the
Louisiana Board; (c) any individual who is found to have a material relationship
to, or involvement with, the Company may be required to be investigated for
suitability; (d) if a director, officer, or key employee were found to be
unsuitable, the Company would have to sever all relationships with that person;
(e) the transfer of a license or permit or an interest in a license or permit is
prohibited without prior approval; (f) the Company must notify the Louisiana
Board of any withdrawals of capital, loans, advances, or distributions in excess
of 5% of retained earnings upon completion of such transaction; and (g) the
Company must give prior notification to the Louisiana Board if it applies or
receives, accepts or modifies the terms of any loan or other financing
transaction. In some cases, the Louisiana Board will be required to investigate
the reported transaction and to either approve or disapprove the transaction.
The Louisiana Act or rules adopted pursuant thereto specify certain
restrictions and conditions relating to the operation of riverboat gaming,
including the following: (a) gaming is not permitted while a riverboat is
docked, other than the forty-five minutes between excursions, and during times
when dangerous weather or water conditions exist as certified by the riverboat's
master; (b) each round-trip riverboat cruise may not be less than three nor more
than eight hours in duration, subject to specified exceptions; (c) agents of the
Louisiana Board are permitted on board at any time during gaming operations; (d)
gaming devices, equipment and supplies may only be purchased or leased from
permitted suppliers; (e) gaming may only take place in the designated gaming
area while the riverboat is upon a designated river or waterway; (f) gaming
equipment may not be possessed, maintained or exhibited by any person on a
riverboat except in the specifically designated gaming area, or a secure area
used for inspection, repair or storage of such equipment; (g) wagers may be
received only from a person present on a licensed riverboat; (h) persons under
21 are not permitted on gaming vessels; (i) except for slot machine play, wagers
may be made only with tokens, chips or electronic cards purchased from the
licensee aboard a riverboat; (j) licensees may only use docking facilities and
routes for which they are licensed and may only board and discharge passengers
at the riverboat's licensed berth; (k) licensees must have adequate protection
and indemnity insurance; (l) licensees must have all necessary federal and state
licenses, certificates and other regulatory approvals prior to operating a
riverboat; and (m) gaming may only be conducted in accordance with the terms of
the license, the Louisiana Act and the rules and regulations adopted by the
Louisiana Board.
Fees for conducting gaming activities on a riverboat pursuant to the
Louisiana Act include (i) $50,000 per riverboat for the first year of operation
and $100,000 per year per riverboat thereafter plus (ii) 18.5% of net gaming
proceeds. The Louisiana Act also authorizes the local governing body to assess a
boarding fee up to $2.50 in East Baton Rouge Parish. The City of Baton Rouge has
imposed an admission fee of $2.50 for each patron boarding the vessel. For
fiscal year ended November 30, 1998, the Company's boarding fee expense was
$3,480,000. For competitive reasons, the Company and its Baton Rouge competitor
have elected not to collect boarding fees from patrons.
Proposals to amend or supplement the Louisiana Act are frequently
introduced in the Louisiana state legislature. In addition, the state
legislature from time to time considers proposals to repeal the Louisiana Act,
which would effectively prohibit riverboat gaming in the State of Louisiana.
Although the Company does not believe that a prohibition of riverboat gaming in
Louisiana is likely, no assurance can be given that changes in the Louisiana
gaming law will not occur or that such changes will not have a material adverse
affect on the Company's business. On November 5, 1996, in the six parishes in
which riverboats are currently located, including East Baton Rouge Parish,
voters approved the continuation of riverboat gaming. In East Baton Rouge Parish
and the six parishes as a whole, the vote in favor of riverboat gaming was 59%
and 66%, respectively.
At the present time, gaming is authorized between cruising excursions
if the vessel is docked for less than forty-five minutes between such excursions
and at such other times as the master of the vessel certifies in writing that
existing weather or water conditions present a danger to the riverboat,
passengers or crew. Legislation may be proposed that could involve the expansion
of cruising requirements; the creation of "phantom" cruises; the establishment
of a minimum number of annual cruises a vessel must take; or the authorization
of unrestricted dockside gaming. An expansion of cruising requirements could
have a negative impact on future gaming revenue and state tax revenue.
5
The Company is currently undergoing a scheduled state audit review of
its accounting procedures and reporting of revenue from its Caribbean Stud poker
table games. The review could result in the Company being required to remit
additional taxes for the audit period or receiving a refund for over payment. In
either case a finding in favor of or adverse to the Company is not anticipated
to have a material impact on the Company's operations.
In August 1996, President Clinton signed a bill creating the National
Gambling Impact Study Commission (the "NGISC"), composed of individuals
associated with the gaming industry as well as individuals who are openly
opposed to legalized gaming, to examine the economic and social impact of
gaming. The NGISC began a series of hearings on June 20, 1997 and is scheduled
to release a report on its findings, together with recommended legislation and
administrative action, on or before June 20, 1999. Any additional regulation of
the gaming industry resulting from the NGISC's recommendations could have a
material adverse impact on the gaming industry, including the Company.
United States Coast Guard
Each cruising riverboat also is regulated by the United States Coast
Guard, whose regulations affect boat design and stipulate on-board facilities,
equipment and personnel (including requirements that each vessel be operated by
a minimum complement of licensed personnel) in addition to restricting the
number of persons who can be aboard the boat at any one time. The Company's
riverboat must hold, and currently possesses, a Certificate of Inspection. Loss
of the Certificate of Inspection of a vessel would preclude its use as an
operating riverboat. For vessels of the Company's type, the inspection cycle is
every five years. The Company's riverboat is scheduled to be inspected no later
than December 1999. Although the vessel may be dry-docked periodically for
inspection of the hull, which would result in a temporary loss of service of up
to two weeks, the Company believes that it will be able to avoid a dry-dock
inspection and the potential closure associated with such inspection by
utilizing an alternative underwater inspection.
All shipboard employees of the Company, even those who have nothing to
do with the actual operation of the vessel, such as dealers, cocktail hostesses
and security personnel, may be subject to the Merchant Marine Act of 1920,
which, among other things, exempts those employees from state limits on workers'
compensation awards. The Company believes that it has adequate insurance to
cover employee claims.
The Shipping Act of 1916; The Merchant Marine Act of 1936.
The Shipping Act of 1916, as amended, and the Merchant Marine Act of
1936, as amended, and applicable regulations thereunder contain provisions which
would prevent persons who are not citizens of the United States from holding in
the aggregate more than 25% of the outstanding shares of common stock. The
Company's By-Laws provide that, in the event a shareholder's ownership prevents
the Company from complying with the foreign shareholder limits imposed by these
Acts, such shareholder will be required, within 30 days, to cure such problem,
including through the sale of a requisite percentage of its ownership interest
in the Company, or the Company will be entitled to purchase such requisite
percentage from such shareholder at the price the shareholder paid to acquire
it. Such payment from the Company may be made in cash, notes or preferred stock
which, in the opinion of a nationally recognized investment banking firm, have a
value equal to the amount required to be paid.
General Non-Gaming Regulation
The Company is subject to federal, state and local environmental and
safety and health laws, regulations and ordinances that apply to non-gaming
business generally, such as the Clean Air Act, Federal Water Pollution Control
Act, Occupational Safety and Health Act, Resource Conservation Recovery Act, Oil
Pollution Act and Comprehensive Environmental Response, Compensation and
Liability Act, each as amended. The Company has not incurred, and does not
expect to incur material expenditures with respect to such laws. There can be no
assurances, however, that the Company will not incur material liability pursuant
to such laws in the future.
Paid Advertising and Marketing
The Federal Communications Commission ("FCC") prohibits broadcasters
from accepting advertising that actively promotes gaming, although the FCC does
not ban all advertising for casinos. Federal regulation also restricts the
circulation of certain materials related to gaming through the United States
mail.
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Discouragement of Share Accumulations
Louisiana state law requiring approval of shareholders over certain
thresholds may discourage accumulations over such limits and therefore may
discourage changes in control of the Company. The federal laws referred to above
may also discourage ownership by shareholders that are not United States
citizens.
ITEM 2. PROPERTIES.
The Casino Rouge is located on the east bank of the Mississippi River
in Baton Rouge, Louisiana on an 18-acre leased site. The Company leases the site
pursuant to a 10-year lease entered into in January 1994, the term of which may
be extended at the Company's option for four successive five-year periods. The
annual rent is equal to the greater of (a) 1.25% of all revenue generated on or
by the leased premises or any riverboat docked there or (b) $33,333 per month.
In addition, the Company prepaid rent of approximately $1,756,000 in connection
with the lessor's acquisition of nine acres of the 18-acre site subject to the
lease. Pursuant to the lease, the Company must also pay all property taxes. For
the year ended November 30, 1998 the rental expense for the casino site was
$909,000 (excludes amortization of prepaid rent of $180,000). The Company has
the option to purchase the entire 18-acre site on or after the fifteenth
anniversary of the date of the lease for a purchase price equal to the then
appraised value of the original nine acres subject to the lease (excluding
improvements). In addition, in September 1998 the Company purchased
approximately five acres of land adjacent to its docking facilities for $1.1
million.
The Company also leases a total of approximately 81,600 square feet for
general warehousing, office use and employee parking pursuant to two separate
two-year leases. The rents are $7,476 per month for one lease and $8,190 per
month for the other. Each lease is a triple net lease, has two two-year renewal
options and grants the Company a right of first refusal to purchase the
properties. The Company has agreed, subject to due diligence, to purchase such
properties for $1.4 million, to be evidenced by a purchase money note and
mortgage to be held by the seller of the properties. For the year ended November
30, 1998, the rental expense for the general warehousing, office use and
employee parking sites was $177,000.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to pending legal proceedings arising in the
normal course of business, none of which the Company believes is material to its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's Common
Stock. Over ninety-eight percent of the outstanding Common Stock is currently
owned by CRC and three individual shareholders. See "Security Ownership of
Certain Beneficial Owners and Management" and "Certain Relationships and Related
Transactions."
On January 27, 1999, the Company issued $55 million of its 11% Senior
Secured Notes due December 1, 2005 (the "1999 Notes") to qualified institutional
buyers and institutional accredited investors in reliance on Rule 144A and
pursuant to exemptions from registration under Section 4(2) of the Securities
Act of 1933, as amended. The initial purchaser for the Senior Secured Notes sold
to the qualified institutional buyers and institutional accredited investors was
Jefferies & Company, Inc.
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 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
Under the terms of the 1999 Indenture, after December 1, 2002, the
Company may, at its option, redeem all or some of the 1999 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 1999 Notes at 111% of their face amount, plus interest.
If the Company goes through a change in control, it must give holders of the
1999 Notes the opportunity to sell their 1999 Notes to the Company at 101% of
their face amount, plus interest.
During the year ended November 30, 1998 the Board of Directors
authorized, and the Company paid, a total of $1,996,000 in dividends to the
holders of the Company's common stock and distributions to common stock
warrantholders. The Company intends to declare and pay dividends to the extent
permitted based on future earnings, the 1999 Indenture, legal limitations and
available cash balances.
REQUIRED DIVESTITURE OF COMMON STOCK
As noted herein, there are various state and federal regulations on the
ownership of the Company's common stock. The Company's By-laws provide that if
any governmental commission, regulatory authority, entity, agency or
instrumentality (collectively, an "Authority") having jurisdiction over the
Company or any affiliate of the Company that has granted a license, certificate
of authority, franchise or similar approval (collectively, a "License") to the
Company or any affiliate of the Company orders or requires any shareholder to
divest any or all of the shares owned by such shareholder (a "Divestiture
Order") and the shareholder fails to do so by the date required by the
Divestiture Order (unless the Divestiture Order is stayed), the Company will
have the right to acquire from the shareholder the shares that the shareholder
failed to divest as required by such Divestiture Order. If, after reasonable
notice and an opportunity for affected parties to be heard, any Authority
determines that continued ownership of the Company's common stock by any
shareholder shall be grounds for the revocation, cancellation, non-renewal,
restriction or withholding of any License granted to or applied for by the
Company or any affiliate of the Company, such shareholder shall divest the
shares that provide the basis for such determination, and if such shareholder
fails to divest such shares within 10 days after the date the Authority's
determination becomes effective (unless the determination is stayed), the
Company shall have the right to acquire such shares from the shareholder.
If the Company determines that persons who are not citizens of the
United States as determined under the Shipping Act of 1916 or the Merchant
Marine Act of 1936 (the "Foreign Citizens") own more than 25% of the Company's
outstanding Common Stock, the Company may require the Foreign Citizen(s) who
most recently acquired the shares that bring total foreign ownership to more
than 25% of the outstanding Common Stock (the "Excess Shares") to divest the
Excess Shares to persons who are United States citizens. If the Foreign
Citizen(s) so directed fail to divest the Excess Shares to United States
citizens within 30 days after the date on which the Company gives a written
notice to the Foreign Citizen(s) to divest the Excess Shares, the Company shall
have the right to acquire the shares that the Foreign Citizen(s) failed to
divest as required by the Company's notice. Such acquisition from the Foreign
Citizen(s) need not be preceded by an order or requirement by an Authority, nor
is there any requirement for notification within a specified period.
Whenever the Company has the right to acquire shares of common stock
from a shareholder pursuant to the provisions described in the preceding
paragraphs, the Company will pay the shareholder a price per share equal to the
price
8
per share paid by the shareholder to acquire such common stock. Such payment
from the Company may be made cash, notes or preferred stock which, in the
opinion of a nationally recognized banking firm, have a value equal to the
amount required to be paid.
When any Divestiture Order is entered or when the Company tenders the
consideration for which it may acquire shares, as described above, the shares in
question shall no longer be entitled to any voting, dividend or other rights
until such time as they have been appropriately divested. The foregoing
provisions of the By-laws relating to required divestiture are in addition to,
and not in replacement of, any applicable requirements.
The provisions of the By-Laws described above are uncommon and no
controlling precedent has been found to determine how such By-Laws (or
comparable provisions in the Articles of Incorporation) would be enforced or
whether they are enforceable.
REDEEMABLE PREFERRED STOCK
The Company's Articles of Incorporation authorize 50,000 shares of
preferred stock, of which 11,000 shares of redeemable preferred stock were
issued and outstanding and held by Thomas L. Meehan as of November 30, 1997. On
November 30, 1998, the redeemable preferred stock was redeemed and all accrued
and unpaid dividends were paid. The redeemable preferred stock received non-cash
cumulative dividends at the rate of 12% per annum.
9
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for each of the fiscal
years presented below has been derived from the Company's financial statements,
which have been audited by PricewaterhouseCoopers LLP, independent accountants.
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, through
the fiscal year ended November 30, 1994, the Company reported net operating
losses and had no earnings from continuing operations. The information presented
below should be read in conjunction with, and is qualified in its entirety by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's financial statements and the notes
thereto appearing elsewhere herein.
FISCAL YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Casino $ - $65,187 $74,615 $67,694 $68,845
Food and beverage - 1,382 1,351 1,345 1,407
Other - 514 794 705 593
----------- ----------- ----------- ----------- -----------
Net revenues - 67,083 76,760 69,744 70,485
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Casino - 29,849 33,947 31,826 33,302
Food and beverage - 1,619 1,293 1,318 1,538
Selling, general and administrative - 18,085 21,954 21,039 20,948
Pre-opening expenses 4,389 1,625 - - -
----------- ----------- ----------- ----------- -----------
Total operating expenses 4,389 51,178 57,194 54,183 55,788
----------- ----------- ----------- ----------- -----------
Income (loss) before depreciation, amortization and interest (4,389) 15,905 19,566 15,561 15,057
Depreciation and amortization 34 3,584 4,162 4,334 4,762
----------- ----------- ----------- ----------- -----------
Operating income (loss) (4,423) 12,321 15,404 11,227 10,295
Other income (expense):
Interest income 1,357 344 241 280 428
Interest expense (5,180) (6,675) (7,002) (5,955) (6,376)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (8,246) 5,990 8,643 5,552 4,347
Provision for income taxes - - 1,340 2,045 1,666
----------- ----------- ----------- ----------- -----------
Net income (loss) $(8,246) $5,990 $7,303 $3,507 $2,681
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges(a) - 1.60 x 2.25 x 1.95 x 1.83 x
Share and Per Share Data (b):
Basic earnings per share $(8.84) $2.71 $6.70 $3.37 $2.57
Diluted earnings per share (8.84) 2.70 6.31 2.97 2.46
Cash dividends declared on common stock
and common equivalent shares - 2.67 3.82 0.42 1.76
Weighted average common shares outstanding 980,333 982,783 982,783 982,783 982,783
Weighted average common equivalent shares
outstanding 1,133,333 1,135,783 1,135,783 1,135,783 1,135,783
10
AT NOVEMBER 30,
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998
-------------- --------------- -------------- --------------- --------------
Balance Sheet Data:
Current assets $8,647 $12,059 $11,630 $16,807 $16,531
Total assets 59,030 62,692 58,438 59,757 62,023
Current liabilities(c) 7,995 13,863 12,612 11,625 4,890
Long-term obligations (d) 54,802 49,609 42,656 40,732 50,000
Redeemable preferred stock and common
stock warrants (e) 2,818 5,740 5,872 6,004 4,131
Shareholders' equity (deficit) (6,585) (6,520) (3,683) (790) 8
<FN>
(a) As indicated above, through November 30, 1994 the Company had no earnings
while in the development stage; accordingly, earnings were not adequate to cover
fixed charges. For fiscal year ended November 30, 1994, the deficiency was
approximately $9,877. For the fiscal years ended November 30, 1995, 1996, 1997
and 1998, fixed charges were $9,756, $7,002, $5,955 and $5,208, respectively.
Fixed charges include interest charges, amortization of debt expense and
discounts, and the change to the accreted value of the warrants.
(b) Earnings per share amounts have been restated to conform to the Financial
Accounting Standards Board Statement No. 128 "Earnings per Share." Basic
earnings per share is calculated by dividing net income (loss) assigned to
common shareholders by weighted average common shares outstanding. Diluted
earnings per share is calculated by dividing net income (loss) assigned to
common shareholders before distributions to warrantholders by weighted average
common equivalent shares outstanding.
(c) Amounts as of November 30, 1996 and 1997 include $1,700 for estimated
dispute resolution cost.
(d) Amounts as of November 30, 1994 and 1995 also include $1,700 for estimated
dispute resolution cost.
(e) Such amounts include preferred stock of $1,232, $1,364, $1,496 and $1,628 as
of November 30, 1994, 1995, 1996 and 1997, respectively, and the assigned value
of the warrants of $1,586 as of November 30, 1994, $4,376 as of November 30,
1995, 1996 and 1997 and $4,131 as of November 30, 1998.
</FN>
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
On December 28, 1994, the Company commenced operations of its riverboat
gaming facility in Baton Rouge, Louisiana. 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) the 1999 Notes, which proceeds were used to defease and
redeem the 1998 Notes.
RESULTS OF OPERATIONS
Year ended November 30, 1998 compared to year ended November 30, 1997.
Casino revenues in the two-riverboat Baton Rouge gaming market for the
years ended November 30, 1998 and 1997 were $118,806,000 and $117,058,000,
respectively. Riverboat casino patron counts in Baton Rouge for the same
respective periods were 2,571,000 and 2,768,000. Management believes the
principal factors contributing to the minimal increase in revenues were due to
(i) a reduced number of patron visits and (ii) the maturation of the customer
base which resulted in an increased win per patron from $42.29 to $46.21 per
patron for the years ended November 30, 1997 and 1998, respectively. The
Company's casino revenue increased 1.7% while customer counts declined 6.1% in
1998 compared to 1997. The Company's competitor's riverboat casino revenues
remained flat as its customer counts decreased 8.4%, 1998 compared to 1997. The
Company's share of the Baton Rouge gaming market was 59.3% and 58.6% of casino
revenues and 54.2% and 53.5% of admissions for the years ended November 30, 1998
and 1997, respectively.
Casino revenues for the Company were $68,845,000 and $67,694,000 for
the years ended November 30, 1998 and 1997, respectively. Table revenues,
excluding poker, decreased 11.2% in 1998 compared to 1997 due to a 16.7%
decrease in table game drop offset by an improvement of the hold percentage from
20.1% to 21.7% on an annual basis. Gaming machine revenues increased 5.5% in
1998 compared to 1997 primarily due to a 5.6% increase in coin in. Poker win for
1998 and 1997 was $494,000 and $300,000, respectively. Management believes that
the decline in table game drop is a direct result of patrons converting to
gaming machines due to new, exciting and innovative gaming equipment being
introduced by the casino industry.
For the year ended November 30, 1998 the Company's win per passenger
increased 8.3% to $49.46 compared to $45.69 in the same period of 1997. Revenues
from casino operations were 78.0% from gaming machines and 22.0% from table
games in 1998 compared to 75.2% and 24.8%, respectively, for 1997. Such mix for
gaming machines and gaming table win is attributable to the continuing
popularity of gaming machines among the Company's base casino patrons and
generally conforms to that experienced by riverboats throughout Louisiana.
Casino expenses for the year ended November 30, 1998 and 1997 were
$33,302,000 and $31,826,000, respectively, which represents 48.4% and 47.0% of
casino revenues in each period. Overall casino expenses increased primarily due
to the introduction of the Company's Rouge Arena, a temporary facility used for
concerts, sporting activities, customer parties and other promotional
activities. The facility was in use through July 1998.
Selling, general and administrative expenses were $20,948,000 and
$21,039,000 for the years ended November 30, 1998 and 1997, respectively.
Overall selling, general and administrative expenses for 1998 are lower than
1997 due primarily to a decrease in risk management costs partially offset by an
increase in legal expenses.
Income before depreciation, amortization and interest was $15,057,000
and $15,561,000 for the years ended November 30, 1998 and 1997, respectively.
Such amounts, as a percentage of net revenues (or operating margins), were 21.3%
and 22.3% for 1998 and 1997, respectively. Management believes the decrease in
operating margins was primarily due to the Rouge Arena noted above.
Net interest expense was $5,948,000 and $5,675,000 for the years ended
November 30, 1998 and 1997, respectively. The increase in interest expense is
primarily due to interest and related financing costs being charged on both the
1993 Notes and the 1998 Notes for a six day period during which proceeds from
the 1998 Notes were escrowed to repay the 1993 Notes.
12
The Company recorded a provision for income taxes of $1,666,000 and
$2,045,000 for the years ended November 30, 1998 and 1997, respectively. For the
year ended November 30, 1998, the Company recorded a current tax provision of
$273,000 and a deferred tax provision of $1,393,000. For the year ended November
30, 1997, the Company recorded a current tax provision of $650,000 and deferred
tax provision of $1,395,000.
The Company recorded a market value warrant adjustment of $245,000 for
the year ended November 30, 1998 to reduce the accreted value of redeemable
common stock warrants to $4,131,000. Pursuant to the terms of the warrants the
Company is obligated to purchase the warrants during fiscal 1999 to the extent
the holders exercised their put rights. Holders of 138,900 warrants exercised
their put rights obligating the Company to purchase such warrants. The actual
purchase price for the 138,900 warrants, as determined by two independent
investment banking firms in accordance with the original agreements issued in
1993, has been established at $3,750,000.
Year ended November 30, 1997 compared to year ended November 30, 1996.
Casino revenues in the two-riverboat Baton Rouge gaming market for the
years ended November 30, 1997 and 1996 were $117,058,000 and $127,491,000,
respectively. Riverboat casino patron counts in Baton Rouge for the same periods
were 2,768,000 and 2,910,000. Management believes the principal factors
contributing to the 8.2% 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 winning from premium player activity, and
(iv) the additional reasons discussed below. The Company's casino revenues and
customer counts declined 9.6% and 10.5% respectively, in 1997 compared to 1996.
The Company's competitor's riverboat casino revenues decreased 6.1% as its
customer counts increased 2.5% in 1997 compared to 1996. The Company's share of
the Baton Rouge gaming market was 58.6% and 59.5% of casino revenues and 53.5%
and 56.9% of admissions for the years ended November 30, 1997 and 1996,
respectively. 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.
Casino revenues for the Company were $67,694,000 and $74,615,000 for
the years ended November 30, 1997 and 1996, respectively. Table revenues,
excluding poker, decreased 17.8% in 1997 compared to 1996 due to winnings from
premium player activity in he 1996 period that did not occur in 1997, a decrease
in table game hold percentage and a decrease in table drop. Slot revenues
decreased 4.8% in 1997 compared to 1996 primarily due to a 3.7% decline in slot
coin in. Poker win for 1997 and 1996 was $300,000 and $1,103,000, respectively,
as the Company initially eliminated its poker operations in March 1997 and the
reintroduced them for competitive reasons in December 1997. Management believes
the decrease in table drop and slot coin in is reflective of lower customer
visits affecting the entire Baton Rouge marketplace. 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 associated with games of chance.
For the year ended November 30, 1997 win per passenger increased 1.3%
to $45.69 compared to $45.09 in the same period of 1996. Revenues from casino
operations were 75.2% from slot machines and 24.8% for table games in 1997
compared to 71.6% and 28.4%, respectively, for 1996. Such mix of slot machine
gaming table win is attributable to the continuing popularity of slot machines
among the Company's base of casino patrons and generally conforms to that
experienced by riverboats throughout Louisiana.
Casino expenses for the years ended November 30, 1997 and 1996 were
$31,826,000 and $33,947,000, respectively, which represented 47.0% and 45.5% of
casino revenues in each period. Overall casino expenses are down reflecting (i)
decreased taxes associated with gaming revenues, (ii) lower expenses for payroll
and related costs in the gaming and casino marketing departments, and (iii)
lower costs for selling and administering the bus program. These decreases in
expenses were partially offset by increased costs for promotional expenses and
casino support departments.
Selling, general and administrative expenses were $21,039,000 and
$21,954,00 for the years ended November 30, 1997 and 1996, respectively. Overall
selling, general and administrative expenses for 1997 were lower than 1996 due
to (i) one time expenses incurred in 1996 related to a campaign in support of
riverboat gaming in Baton Rouge, (ii) decreased insurance premiums and
deductible expenses, and (iii) decreased management fees and land lease expenses
that resulted from lower revenues. These lower expenses were partially offset by
increased marketing, security, human resources and facility department expenses
for 1997 and compared to 1996.
13
Income before depreciation, amortization and interest was $15,561,000
and $19,566,000 for the years ended November 30, 1997 and 1996, respectively.
Such amounts as a percentage of net revenues (or operating margins) were 22.3%
and 25.5% for the 1997 and 1996 periods, respectively. Management believes the
decrease in operating margins was due to (i) winnings from premium player
activity in the 1996 period that did not occur in 1997, and (ii) the decline of
gaming revenues in the Baton Rouge market without a proportionate decline in
expenses.
Net interest expense was $5,675,000 and $6,761,000 for the years ended
November 30, 1997 and 1996, respectively. The reduction in interest expense is
due to a decline in outstanding debt due to the 1997 and 1996 mandatory 1993
Note repurchases.
The Company recorded a provision for income taxes of $2,045,000 and
$1,340,000 for the years ended November 30, 1997 and 1996, respectively. For the
year ended November 30, 1997, the Company recorded a current tax provision of
$650,000 and a deferred tax provision of $1,395,000. For the year ended November
30, 1996, the Company released the remaining balance of a deferred tax valuation
allowance of $2,399,000 in accordance with SFAS 109. The release of the
valuation allowance partially offset the current tax provision of $1,663,000 and
the deferred tax provision of $2,076,000 for the year ended November 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended November 30, 1998, the Company generated
$6,693,000 in cash flows from operations as compared to $9,621,000 for the year
ended November 30, 1997. The decrease in cash flows from operations was
primarily due to the settlement of the dispute regarding consulting services
described in Note 7 to the November 30, 1998 financial statements included
elsewhere herein, early payment of interest related to the 1993 Notes and a
decrease in net income.
Cash flows used for investing activities were $472,000 and $253,000,
respectively, for the years ended November 30, 1998 and 1997, net of $4,807,000
and $939,000, respectively, of restricted cash, as permitted by the indenture
under which the 1993 Notes were issued (the "1993 Indenture"). The uses of funds
for each of the periods were primarily for capital expenditures for continuing
operations. In addition, in 1998 the Company acquired approximately five acres
of land adjacent to its docking facility for approximately $1,100,000.
Financing activities for the year ended November 30, 1998 used cash
flows of $620,000 for dividend payments to common shareholders and distributions
to warrantholders of $1,996,000, repayment of the 1993 Notes of $43,946,000, and
redemption of preferred stock and payment of related accrued dividends of
$1,760,000, offset by the net proceeds of $47,100,000 from the issuance of the
1998 Notes. The net cash used by financing activities in the year ended November
30, 1997 of $6,121,000 related primarily to the $2,223,000 repayment of
regularly scheduled principal amounts due under the Company's credit agreement,
as amended (which credit agreement subsequently expired on December 1, 1998), an
increase in restricted cash of $2,694,000 as calculated pursuant to the 1993
Indenture, the repurchase of $722,000 of 1993 Notes as required by the 1993
Indenture, and dividend payments to common shareholders and distributions to
warrantholders of $482,000.
Certain warrantholders recently exercised their rights under 14,100
warrants to purchase an equal number of shares of the Company's common stock at
a price per share of $.01. The remaining warrantholders exercised 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, as determined by two
investment banking firms, one selected by the Company and the other selected by
the warrantholders. The Company has retained Jefferies & Company, Inc. while the
warrantholders have retained Lehman Brothers, Inc. to determine such value. The
purchase price of the warrants is based upon the average of the values
determined by the two investment banking firms. The actual purchase price of
$3,750,000 for the 138,900 warrants will be funded in the first half of fiscal
1999 from available cash.
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 November 1998, the Company sold $50,000,000 principal amount of 1998
Notes. The net proceeds from such
14
offering, approximately $47.5 million, were used to repay the outstanding 1993
Notes and redeem the Company's redeemable preferred stock.
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.
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 November 30, 1998 the Company has not incurred or expensed any
material amounts directly related to year 2000 readiness. The Company is
currently evaluating 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 December 31, 1999.
The costs of the Company's year 2000 project and the dates on which the
Company believes it will complete the
15
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Financial Statements on page 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
PART III
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the directors and
executive officers of the Company.
NAME AGE POSITION
- ---- --- --------
Sherwood M. Weiser....... 67 Chairman of the Board of Directors
Dan S. Meadows........... 52 President and Vice Chairman of the Board of Directors
Thomas L. Meehan......... 54 Director
Leon R. Tarver II........ 56 Director
W. Peter Temling......... 51 Chief Financial Officer, Secretary, Treasurer and Director
Dale A. Darrough......... 51 General Manager
The following information summarizes the business experience during at least the
past five years of each director and executive officer of the Company.
SHERWOOD M. WEISER has been the Chairman of the Board of Directors of
the Company since September 1998. Mr. Weiser also is Chairman of the Board of
Directors, President and Chief Executive Officer of CRC and held the same
positions with CHC International, Inc. ("CHC"), a predecessor of CRC, from March
1994 until June 1998. From 1990 to March 1994, Mr. Weiser served as Chairman and
Chief Executive Officer of TCC, a predecessor of CHC. Mr. Weiser is a member of
the Board of Directors of Carnival Corp. (NYSE:CCL) and serves as a member of
the Nominating Committee and Chairman of the Compensation Committee and Plan
Administration Committee of the Board of Directors of Carnival Corp. Mr. Weiser
is also a member of the Board of Directors of Mellon United National Bank, a
subsidiary of Mellon Bank (NYSE:MEL), Winsloew Furniture, Inc. (NASDAQ:WLFI) and
Wyndham International, Inc. (NYSE:PAH) and a trustee of the University of Miami.
DAN S. MEADOWS has been President and a director of the Company since
October 1993 and Vice Chairman of the Board of Directors since September 1998.
From the incorporation of the Company until October 1993, he served as
Secretary/Treasurer. He was elected a director in July 1993. From April 1993 to
April 1995, Mr. Meadows was based in Baton Rouge and was directly responsible
for the development and licensing of the Casino Rouge. Mr. Meadows and Mr.
Thomas L. Meehan are the co-owners of Synura, Inc. ("Synura"), which provided
funding for two corporations in which they own a significant interest:
Sportlite, Inc., an Arizona corporation involved in the development and
marketing of energy saving lighting, and the Company. Prior to co-founding
Synura, Mr. Meadows was involved in real estate development and marketing for 19
years.
THOMAS L. MEEHAN has been a director of the Company since September
1998. Mr. Meehan also served as the Chairman of the Board of Directors of the
Company from its inception until October 1993. Mr. Meehan is President and
Chairman of the Board of Sportlite, Inc. and Chairman of the Board of Synura. In
1979, Mr. Meehan co-founded National Electric, Inc. ("NEI") and served as
President and Director from 1979 until 1989. In 1987, NEI merged its business
with Westinghouse Electric Corporation to become Aptus. Mr. Meehan presently is
a member of the Board of Directors of Manchester Commercial Finance and
Intergenerational Living and Health Care.
LEON R. TARVER II has been a director of the Company since December
1994. Since January 1997, he has been President, and since January 1992,
Professor of Public Administration, of Southern University in Baton Rouge. From
February 1994 through December 1996, Mr. Tarver was Chancellor for
Administration of Southern University. From August 1989 to January 1992, Mr.
Tarver served as the Secretary of the Louisiana Department of Revenue and
Taxation.
W. PETER TEMLING has been Chief Financial Officer, Secretary and
Treasurer of the Company since May 1998 and became a director of the Company in
September 1998. From October 1993 to May 1998 he was Acting Chief Financial
Officer of the Company. He was a director of the Company from November 1993
through November 1994. He also is Executive Vice President/Finance and Chief
Financial Officer and a director of CRC and held the same positions with CHC
from 1994 until June 1998. Prior to the formation of CHC in March 1994, Mr.
Temling held similar positions with TCC. Mr. Temling joined TCC in 1981 after
serving 12 years with the Sheraton Corporation, where his responsibilities
included business planning for more than 100 hotels, the opening of hotels
worldwide and directing the financial functions for the franchise division
consisting of 400 hotels and inns. Mr. Temling also is a certified public
accountant.
17
DALE A. DARROUGH has been General Manager of the Company since February
1996. From October 1995 to February 1996, he served as Executive Vice President,
Operations, with Shuffle Master Gaming, Inc. Prior thereto, from August 1995,
Mr. Darrough was a Consultant to Hyatt Development Corp. He held positions with
Bally's Casino Resort from April 1991 to July 1995, most recently as Senior Vice
President, Casino Operations.
ITEM 11 EXECUTIVE COMPENSATION
The following table provides a summary of the compensation for the
fiscal years ended November 30, 1998, 1997 and 1996 of the Chairman of the Board
and President of the Company and the other executive officers who received cash
compensation in excess of $100,000 during fiscal 1998 from the Company.
SUMMARY COMPENSATION TABLE
OTHER ANNUAL
NAME AND POSITION YEAR SALARY BONUS COMPENSATION (1)
- ----------------- ---- ------ ----- ----------------
Sherwood M. Weiser (2) 1998 $-- $-- $--
Chairman of the Board
Robert B. Sturges (3) 1998 $-- $-- $--
Chairman of the Board 1997 $-- $-- $--
1996 $-- $-- $--
Dan S. Meadows (4) 1998 $-- $-- $--
President and Vice 1997 $-- $-- $--
Chairman of the Board 1996 $-- $-- $--
Dale A. Darrough 1998 $181,557 $40,000 $--
General Manager 1997 $161,000 $50,000 $--
1996 $120,785 $-- $--
(1) Aggregate amount of other annual compensation does not exceed the lesser of
$50,000 or 10% of executive officer's salary and bonuses.
(2) Mr. Weiser became Chairman of the Board in September 1998.
(3) Mr. Sturges resigned from the position of Chairman of the Board in September
1998.
(4) Mr. Meadows together with Mr. John R. Rauen, Senior Vice
President/Operations of CRC, serve as the only members of the Executive
Committee of the Board of Directors. They do not receive any compensation from
the Company. They are reimbursed their reasonable expenses for Board of
Directors meetings attended as explained below in "Compensation of Directors".
See "Security Ownership of Certain Beneficial Owners and Management" and
"Certain Relationships and Related Transactions."
COMPENSATION OF DIRECTORS
Directors of the Company who are either employees of the Company or
elected pursuant to the Shareholder Agreement, dated October 8, 1993, by and
among the Company, CRC, Jerry L. Bayles, Dan S. Meadows, Leon R. Tarver II and
Thomas L. Meehan (the "Shareholder Agreement"), are reimbursed their reasonable
expenses for meetings attended but do not receive any separate compensation. As
a director, Mr. Tarver receives an annual retainer of $10,000 and reimbursement
of reasonable expenses for meetings attended. On December 1, 1994, the Company
issued 2,450 shares of common stock to Mr. Tarver, which are now fully vested.
In addition, Mr. Tarver receives $24,000 annually to serve as Chairman of the
Company's Minority Business and Economic Advisory Committee. The Company's Audit
Committee consists of Messrs. Meadows, Rauen, Temling, Meehan and Tarver.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no standing Compensation Committee of the Board of
Directors; therefore, all members of the Board of Directors participate in
deliberations concerning executive officer compensation.
18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of February 25, 1999 (a) by each
person who beneficially owned more than five percent of the Company's common
stock, (b) by each of the Company's directors, (c) by each executive officer
listed in the Summary Compensation Table who is not a director, and (d) by all
executive officers and directors as a group.
COMMON STOCK PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
- ------------------------------------ ---------------------- --------
CRC Holdings, Inc., (3).................. 588,200 59.0%
d/b/a Carnival Resorts and Casinos
3250 Mary Street
Miami, FL 33133
Dan S. Meadows........................... 130,711 13.1%
2422 E. Solano
Phoenix, AZ 85016
Jerry L. Bayles.......................... 130,711 13.1%
2236 Estate Road
Baton Rouge, LA 70808
Thomas L. Meehan......................... 130,711 13.1%
7331 Tilden Lane
Naples, FL 34108
Sherwood M. Weiser (3)................... -- --
CRC Holdings, Inc.
3250 Mary Street
Miami, FL 33133
W. Peter Temling (3)..................... -- --
CRC Holdings, Inc.
3250 Mary Street
Miami, FL 33133
Leon R. Tarver, II....................... 2,450 (2)
16215 Chadsford Avenue
Baton Rouge, LA 70817
Dale A. Darrough......................... -- --
Louisiana Casino Cruises, Inc.
1717 River Road North
Baton Rouge, LA 70802
All directors and executive officers
as a group (six persons)(3).............. 263,872 26.5%
(1) The voting and investment power with regard to the shares of common stock
beneficially owned by all shareholders is restricted by the Shareholder
Agreement.
(2) Less than 1%.
(3) Mr. Weiser and Mr. Temling are principal shareholders and officers of CRC.
Mr. Weiser has the right to vote in excess of 50% of the outstanding common
stock of CRC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CRC and the Company are parties to the Management Agreement, , pursuant
to which, prior to the opening of the Casino Rouge, CRC provided consulting and
technical services to the Company in connection with the planning,
19
development and equipping of the Casino Rouge. CRC assisted the Company in
preparing the Casino Rouge for operations, including hiring a full staff of
employees, designing the Casino Rouge, establishing accounting systems, and
developing marketing and casino operations concepts. Upon opening of the Casino
Rouge, CRC commenced handling all aspects of Casino Rouge's management pursuant
to the terms of the Management Agreement. The Management Agreement expires in
December 2004, subject to extension at the option of CRC for an additional
10-year period. CRC is entitled to an annual management fee equal to 2% of gross
revenues plus 5% of total operating income (as such terms are defined in the
Management Agreement). By separate agreement, CRC has agreed to pay one-half of
its 5% fee of total operating income to Dan S. Meadows, Jerry L. Bayles and
Thomas L. Meehan, aggregate holders of approximately 39% of the Company's common
stock. Mr. Meadows also serves as the Company's President and Vice Chairman of
the Board and Mr. Meehan serves as a director of the Company. For the fiscal
years ended November 30, 1998, 1997 and 1996, the amount earned by CRC pursuant
to the Management Agreement was $2,195,000, $2,214,000 and $2,567,000,
respectively. For the fiscal years ended November 30, 1998, 1997 and 1996, the
aggregate amount paid by CRC to Messrs. Meadows, Bayles and Meehan was $369,000,
$407,000 and $516,000, respectively.
On September 22, 1993, CRC extended a $2 million credit facility to the
Company. At the closing of the issuance of the 1993 Notes, CRC converted all of
the $2 million of indebtedness then outstanding under such facility into 20% of
the common stock. In October 1993, the Company issued and sold to CRC 40% of the
then issued and outstanding common stock for $3 million pursuant to a Stock
Purchase Agreement (the "Stock Purchase Agreement") among the Company, CRC and
Messrs. Meadows, Bayles and Meehan. The Company and Messrs. Meadows, Bayles and
Meehan, on the one hand, and CRC on the other, agreed to indemnify each other in
the event of certain breaches of the Stock Purchase Agreement. The Company and
Messrs. Meadows, Bayles and Meehan further agreed to indemnify CRC in the event
of certain liabilities arising out of activities prior to the date of the Stock
Purchase Agreement.
Other than warrantholders who exercised warrants to purchase common
stock, all shareholders are parties to the Shareholder Agreement with regard to
the ongoing operation, management and financing of the Company. Pursuant to the
Shareholder Agreement, all actions by the Board of Directors require the
majority approval of the directors. The Shareholder Agreement also provides for
an Executive Committee of the Board, consisting of one nominee of CRC and one
nominee of the individual shareholders, who currently are Mr. Rauen and Mr.
Meadows, respectively. All actions of the Executive Committee require the
unanimous approval of both members. Unless rescinded by a vote of the holders of
51% of the outstanding common stock, the Shareholder Agreement provides that the
Executive Committee is delegated all of the duties and responsibilities of the
Board of Directors. The Shareholder Agreement also provides that certain actions
cannot be taken without the approval of the holders of either 51% or 67% of the
outstanding common stock, as the case may be, including: (a) the authorization
or issuance of any additional common stock (or any securities convertible into
or rights to acquire common stock); (b) the sale, lease, transfer, mortgage,
pledge or other disposition of or the acquisition of any assets of the Company,
other than in the ordinary course of developing or operating the Casino Rouge;
(c) the authorization or execution of contracts for major landsite improvements,
any amendment to the landsite lease and contracts for acquiring additional land
as part of the Casino Rouge; (d) all submissions to the Louisiana Board and any
modification or amendment of any approvals or licenses; (e) the redemption,
retirement, purchase or other acquisition by the Company of any common stock and
the declaration of any dividend or distribution on account of any capital stock
or any merger, consolidation, split, reverse split or other change of the
capitalization of the Company; (f) the election of any additional members of the
Board of Directors; (g) the approval of the operational budget for the Casino
Rouge presented by CRC pursuant to the Management Agreement; (h) the resolution
of any deadlock between the members of the Executive Committee; (i) any
amendment to the Articles of Incorporation or By-laws of the Company; and (j)
the initiation or settlement of any material litigation or other dispute by or
against the Company.
The Shareholder Agreement also limits the transfer of the common stock
owned by the shareholders party thereto. The shares of common stock to be issued
in connection with the recent exercise of certain warrants are not subject to
the transfer or other restrictions contained in the Shareholder Agreement. Such
restrictions will also lapse upon the consummation of a public offering of
common stock. Additionally, any transfer must be subject to any required
regulatory approvals. The transferee must agree to hold its shares subject to
the terms of the Shareholder Agreement and must be of such character and
reputation so as not to jeopardize any regulatory approval held by the Company
or the shareholders and affiliates thereof. Any transfer, other than to
Permitted Transferees (as defined in the Shareholder Agreement), is subject to a
right of first refusal by the other parties. If the Management Agreement
terminates for any reason, CRC shall have the right to make an offer to sell to
the other shareholders, party to the Shareholder Agreement, all its common stock
or to purchase from such other shareholders all their common stock on the terms
set forth in the offer. The Shareholder Agreement also requires CRC, to the
extent required by any individual vendor or supplier, to negotiate and enter
into a guaranty of the Company's payment obligations under agreements to lease
or purchase gaming equipment. The terms of such guaranties shall be subject to
the approval of CRC.
20
On September 15, 1998, the Company resolved a regulatory inquiry from
the Louisiana Board relating to a 1994 stock ownership issue whereby the Company
agreed to reimburse the Louisiana Riverboat Gaming Enforcement Division of the
State Police (the "Division") $50,000, constituting the Division's costs and
expenses of conducting the investigation, pay a fine of $200,000 and comply with
a decree to establish a regulatory compliance committee. CRC has reimbursed the
Company for such fine and costs.
On November 30, 1998, the Company redeemed from Thomas L. Meehan the
11,000 outstanding shares of the Company's redeemable preferred stock for an
aggregate payment of $1,760,000, including all accrued dividends. Such
redemption was in accordance with the terms of such preferred stock.
21
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a. (1) Financial Statements
The following financial statements of the Company and report of
independent accountants are included on pages 26 through 39 hereto.
Report of Independent Accountants
Balance Sheets- November 30, 1998 and 1997.
Statements of Operations- Years ended November 30, 1998, 1997 and 1996.
Statements of Changes in Shareholders' Equity (Deficit )- Years ended
November 30, 1996, 1997 and 1998.
Statements of Cash Flows- Years ended November 30, 1998, 1997 and 1996.
Notes to Financial Statements
(2) Financial Statement Schedules.
The following schedule and report of independent accountants are
included on pages 40 through 41 attached hereto and should be read in
conjunction with the related financial statements and notes thereto.
Schedule II- Valuation and Qualifying Accounts
(3) Exhibits.
3.1 Amended and Restated Articles of Incorporation of the Company,
as of September 15, 1998.
3.2 By-laws of the Company, as amended as of September 15, 1998
4.1 Warrant Agreement, dated as of November 15, 1993, between the
Company and The Bank of New York, as successor Warrant Agent.
(1)
4.2 Form of Warrant Certificate. (2)
4.3 Form of Certificate for Common Stock. (2)
4.4 Indenture, dated January 27, 1999, by and between the Company
and U.S. Bank Trust National Association, as Trustee.
4.5 Registration Rights Agreement, dated January 27, 1999, by and
between the Company and Jefferies & Company, Inc., as the
Initial Purchaser.
22
10.1 Shareholder Agreement, dated October 8, 1993, among the
Company, Jerry L. Bayles, Dan S. Meadows, Thomas L. Meehan,
Leon R. Tarver II and CSMC- Management Services, Inc., as
amended. (1)
10.2 Ground Lease Agreement between the Company and Capital Lake
Properties, Inc., dated June 16, 1993, as amended. (1)
10.3 Lease Agreement, dated July 29, 1994 between Anvil Realty,
Inc. and the Company. (3)
10.4 Lease Agreement, dated July 29, 1994, between Anvil Realty,
Inc. and the Company. (3)
10.5 Mortgage, Leasehold Mortgage, Assignment of Rents, Fixture
Filing, Security Agreement and Financing Statement, dated
January 27, 1999, by and between the Company and U.S. Bank
Trust National Association, as Trustee.
10.6 First Preferred Ship Mortgage, dated January 27, 1999, by and
between the Company and U.S. Bank Trust National Association,
as Trustee.
10.7 Security Agreement dated January 27, 1999, by and between the
Company and U.S. Bank Trust National Association, as Trustee.
b. Reports on Form 8-K.
1.) Report dated November 25, 1998.
2.) Report dated January 27, 1999.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-4 (No. 33-73536).
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (No. 33-73534).
(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1994.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: MARCH 1, 1999 By: /s/ Dan S. Meadows
-----------------------------
Dan S. Meadows, President and
Vice Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and on the dates indicated.
Dated: MARCH 1, 1999 /s/ Sherwood M. Weiser
-------------------------
Sherwood M. Weiser
Chairman of the Board of Directors
Dated: MARCH 1, 1999 /s/ Dan S. Meadows
------------------------
Dan S. Meadows, President and
Vice Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Thomas L. Meehan
Dated: MARCH 1, 1999 ------------------------
Thomas L. Meehan, Director
/s/ Leon R. Tarver, II
-------------------------
Leon R. Tarver, II, Director
Dated: MARCH 1, 1999 /s/ W. Peter Temling
-------------------------
W. Peter Temling, Chief
Financial Officer, Secretary, Treasurer
and Director (Principal Financial and
Accounting Officer)
24
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants................................... 26
Balance Sheets- November 30, 1998 and 1997.......................... 27
Statements of Operations-
Years ended November 30, 1998, 1997 and 1996........................ 28
Statements of Changes in Shareholders' Equity (Deficit)-
Years ended November 30, 1996, 1997 and 1998........................ 29
Statements of Cash Flows-
Years ended November 30, 1998, 1997 and 1996........................ 30
Notes to Financial Statements....................................... 32
25
Report of Independent Accountants
To the Board of Directors and Shareholders
of Louisiana Casino Cruises, Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14(a) 1 present fairly, in all material respects, the financial
position of Louisiana Casino Cruises, Inc. at November 30, 1998 and 1997, and
the results of its operations and its cash flows for each of the three years in
the period ended November 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
December 11, 1998, except for
Note 12 which is as of March 1, 1999.
26
LOUISIANA CASINO CRUISES, INC.
BALANCE SHEETS
(in thousands, except share data)
NOVEMBER 30,
--------------------------------------------------
1998 1997
------------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,525 $ 7,924
Restricted cash (Notes 1 and 3) - 4,807
Receivables, less allowance for doubtful accounts
of $123 and $298 at 1998 and 1997, respectively 332 479
Prepaid and other current assets 756 1,103
Inventories 452 443
Deferred tax asset (Note 8) 1,466 2,051
------------------------- ----------------------
Total current assets 16,531 16,807
Property and equipment, net 41,504 40,872
Prepaid and other assets 3,988 2,078
------------------------- ----------------------
Total assets $ 62,023 $ 59,757
========================= ======================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,428 $ 2,566
Accrued liabilities 2,028 1,642
Accrued interest 102 2,527
First mortgage notes, net of original issue
discount, current portion (Note 3) - 2,932
Notes payable, current portion (Note 3) - 18
Other current liabilities 332 240
Estimated dispute resolution costs (Note 7) - 1,700
------------------------ ----------------------
Total current liabilities 4,890 11,625
First mortgage notes, net of original issue
discount (Note 3) 50,000 40,732
Deferred tax liability (Note 8) 2,994 2,186
------------------------- ----------------------
Total liabilities 57,884 54,543
------------------------- ----------------------
Redeemable preferred stock (Note 4) - 1,628
------------------------- ----------------------
Redeemable common stock warrants (Note 3) 4,131 4,376
------------------------- ----------------------
Commitments and contingencies (Note 7)
Shareholders' equity (deficit):
Common stock, no par value:
10,000,000 shares authorized: 982,783 shares issued
and outstanding at 1998 and 1997, respectively 1 1
Accumulated equity (deficit) 7 (791)
------------------------- ---------------------
Total shareholders' equity (deficit) 8 (790)
------------------------- ---------------------
Total liabilities and shareholders' equity (deficit) $ 62,023 $ 59,757
========================= =====================
The accompanying notes are an integral
part of these financial statements.
27
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share data)
YEAR ENDED NOVEMBER 30,
-------------------------------------------------
1998 1997 1996
---------------- -------------- ---------------
Revenues:
Casino $ 68,845 $ 67,694 $ 74,615
Food and beverage 1,407 1,345 1,351
Other 593 705 794
---------------- -------------- ---------------
Net revenues 70,845 69,744 76,760
---------------- -------------- ---------------
Costs and expenses:
Casino 33,302 31,826 33,947
Food and beverage 1,538 1,318 1,293
Selling, general and administrative 20,948 21,039 21,954
---------------- -------------- ---------------
Total operating expenses 55,788 54,183 57,194
---------------- -------------- ---------------
Income before depreciation,
amortization and interest 15,057 15,561 19,566
Depreciation and amortization 4,762 4,334 4,162
---------------- -------------- ---------------
Operating income 10,295 11,227 15,404
Other income (expense):
Interest income 428 280 241
Interest expense (6,376) (5,955) (7,002)
---------------- -------------- ---------------
Income before provision for income taxes 4,347 5,552 8,643
Provision for income taxes (Note 8) 1,666 2,045 1,340
---------------- -------------- ---------------
Net income 2,681 3,507 7,303
Dividend requirement on redeemable
preferred stock (Note 4) 132 132 132
Market value warrant adjustment (245) - -
Distributions paid to common stock
warrantholders 269 65 584
---------------- -------------- ---------------
Net income assigned to common
shareholders $ 2,525 $ 3,310 $ 6,587
================ ============== ===============
Earnings Per Share (Note 5):
Basic earnings per share $ 2.57 $ 3.37 $ 6.70
================ ============== ===============
Diluted earnings per share $ 2.46 $ 2.97 $ 6.31
================ ============== ===============
Weighted average common shares outstanding 982,783 982,783 982,783
================ ============== ===============
Weighted average common equivalent shares
outstanding 1,135,783 1,135,783 1,135,783
================ ============== ===============
The accompanying notes are an integral
part of these financial statements.
28
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
COMMON STOCK ACCUMULATED
SHARES AMOUNT EQUITY (DEFICIT) TOTAL
-------------- --------------- ------------------ -----------
Balance at November 30, 1995 982,783 $ 1 $ (6,521) $ (6,520)
Dividend requirements on
redeemable preferred stock - - (132) (132)
Dividends paid to holders of common
stock and distributions to common
stock warrantholders - - (4,334) (4,334)
Net income - - 7,303 7,303
-------------- --------------- ------------------ -----------
Balance at November 30, 1996 982,783 1 (3,684) (3,683)
-------------- --------------- ------------------ -----------
Dividend requirements on
redeemable preferred stock - - (132) (132
Dividends paid to holders of common
stock and distributions to common
stock warrantholders - - (482) (482)
Net income - - 3,507 3,507
-------------- --------------- ------------------ -----------
Balance at November 30, 1997 982,783 1 (791) (790)
-------------- --------------- ------------------ -----------
Dividend requirements on
redeemable preferred stock - - (132) (132)
Market value warrant adjustment 245 245
Dividends paid to holders of common
stock and distributions to common
stock warrantholders - - (1,996) (1,996)
Net income - - 2,681 2,681
-------------- --------------- ------------------ -----------
Balance at November 30, 1998 982,783 $ 1 $ 7 $ 8
============== =============== ================== ===========
The accompanying notes are an integral part of
these financial statements.
29
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
Page 1 of 2
(in thousands)
YEAR ENDED NOVEMBER 30,
-------------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
Net income $ 2,681 $ 3,507 $ 7,303
Net cash flows from operating activities:
Depreciation and amortization 4,762 4,334 4,162
Amortization of deferred costs 958 917 1,404
Loss on note repurchase and warrant valuation reserve 282 - -
Provision for doubtful accounts 52 94 258
Decrease (increase) in receivables 95 (149) (260)
(9) (4) (54)
Decrease (increase) in prepaid and other assets 264 (285) 843
Decrease (increase) in deferred tax assets 585 190 (1,649)
Decrease in accrued interest (2,425) (51) (372)
(Increase) decrease in accounts payable and other liabilities (552) 1,068 1,073
-------------- -------------- ---------------
Net cash provided by operating activities 6,693 9,621 12,708
-------------- -------------- ---------------
Cash flows from investing activities:
Capital expenditures (5,321) (1,214) (1,655)
Proceeds from sale of fixed assets 42 22 8
Decrease in restricted cash 4,807 939 62
-------------- -------------- ---------------
Net cash used by investing activities (472) (253) (1,585)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of note payable - 440
Repayment of first mortgage notes (43,946) (722) (6,332)
Proceeds from issuance of first mortgage notes 50,000 - -
Payment of deferred financing costs (2,900) - -
(Increase) decrease in restricted cash - (2,694) 1,170
Redemption of preferred stock and payment of accrued dividends (1,760) - -
Repayments of notes payable (18) (2,223) (2,400)
Dividends paid to holders of common stock and
distributions to common stock warrantholders (1,996) (482) (4,334)
-------------- -------------- ---------------
Net cash used by financing activities (620) (6,121) (11,456)
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents 5,601 3,247 (333
Cash and cash equivalents at beginning of year 7,924 4,677 5,010
-------------- -------------- ---------------
Cash and cash equivalents at end of year $13,525 $ 7,924 $ 4,677
============== ============== ===============
The accompanying notes are an integral
part of these financial statements.
30
LOUISIANA CASINO CRUISES, INC.
STATEMENTS OF CASH FLOWS
Page 2 of 2
(in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
YEAR ENDED NOVEMBER 30,
---------------------------------------------
1998 1997 1996
-------------- ------------- ------------
Cash paid for interest $7,567 $5,264 $6,146
============== ============= ============
Cash paid for income taxes $30 $1,077 $2,053
============== ============= ============
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING, INVESTING AND FINANCING
ACTIVITIES:
Redeemable preferred stock dividends of $132,000 were accrued in each of the
years ended November 30, 1998, 1997 and 1996 (see Note 4).
The accompanying notes are an integral part of
these financial statements.
31
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 a private placement 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 3). The 1998
Notes were redeemed on January 27, 1999 from the proceeds of a $55,000,000
offering of 11% Senior Secured Notes due December 1, 2005 (the "1999" Notes")
(see Note 12).
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
complimentary and promotional items were $4,174,000, $5,216,000 and $5,180,000
for years ended November 30, 1998, 1997 and 1996, respectively. The estimated
costs of such complimentary and promotional items have been classified as casino
costs and totaled $2,793,000, $3,090,000 and $2,979,000 for the years ended
November 30, 1998, 1997 and 1996, respectively.
RESTRICTED CASH
In accordance with the terms of the indenture dated as of November 15,
1993 (the "1993 Indenture") (see Note 3), Cumulative Excess Cash Flow, as
defined, not previously used to repurchase Notes, and Cash Available For
Reinvestment, as defined, , are classified as restricted cash.
INVENTORIES
Inventories consist of food, beverage and supplies and are stated at
the lower of cost or market. Cost is determined on a first-in, first-out basis.
LICENSING AND FINANCING COSTS
All costs incurred which relate to obtaining the regulatory approval of
the Baton Rouge riverboat facility are recorded as deferred licensing charges
and are amortized over the license period, which is five years. Costs incurred
in connection with debt offerings are recorded as deferred offering costs and
are being amortized on the effective interest method over the term of the
related debt. Deferred licensing charges and offering costs are classified under
prepaid and other assets in the accompanying balance sheets.
32
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense of
$4,522,000, $4,162,000 and $4,010,000 for the years ended November 30, 1998,
1997 and 1996, respectively, is calculated on the straight-line basis over the
estimated useful lives of the assets or the expected term of the land lease
(including renewals), whichever is shorter. Useful lives range from four to
thirty years. Expenditures for repairs and maintenance are charged to expenses
as incurred. Expenditures for major renewals and betterments, which
significantly extend the useful lives of existing equipment, are capitalized and
depreciated.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
restricted cash, notes payable and warrants. The fair value of the 1998 Notes,
was approximately $50,000,000 at November 30, 1998. The fair value of the 1993
Notes was approximately $44,166,000 at November 30, 1997. The fair value of cash
and cash equivalents, restricted cash, other notes payable and warrants
approximates carrying value.
INCOME TAXES
The Company accounts for income taxes using the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
which recognizes the amount of taxes payable or refundable for the current year
and recognizes deferred tax liabilities and assets for future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns based on currently enacted rates.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the financial statements for the years ended
November 30, 1997 and 1996 have been reclassed to conform to the presentation of
the financial statements for the year ended November 30, 1998. These
reclassifications have no impact on net income, accumulated equity (deficit) or
cash flows for the years ended November 30, 1997 and 1996.
NOTE 2- PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
ESTIMATED AS OF NOVEMBER 30,
USEFUL LIFE 1998 1997
----------------- ---------------- -------------
Vessel 18 years $16,839 $16,673
Building 30 years 20,140 19,062
Furniture and fixtures 5-10 years 6,060 6,025
Gaming equipment 5-15 years 9,468 8,790
Other equipment 4-7 years 4,977 1,918
---------------- -------------
57,484 52,468
Less: accumulated depreciation (15,980) (11,596)
---------------- -------------
$41,504 $40,872
================ =============
Capitalized interest included in the cost of property and equipment at
November 30, 1998 and 1997 was $1,628,000. Unamortized capitalized interest at
November 30, 1998 and 1997 is $1,206,000 and $1,313,000, respectively.
33
NOTE 3- FIRST MORTGAGE NOTES, NOTES PAYABLE AND REDEEMABLE COMMON STOCK WARRANTS
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 the offering were
placed in escrow with The Bank of New York, as successor Trustee, 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 a
$55,000,000 private placement offering of Senior Secured Notes (see Note 12).
1993 NOTES AND REDEEMABLE COMMON STOCK WARRANTS
Pursuant to the 1993 Indenture), between the Company and The Bank of
New York, as successor trustee, the Company issued $51,000,000 of 11 1/2% First
Mortgage Notes due December 1, 1998 in a private placement offering on December
1, 1993. These notes were exchanged in April 1994 for $51,000,000 in aggregate
principal of the Company's 1993 Notes which were registered under the Securities
Act of 1933. The proceeds from the offering were used to finance the development
and construction of the Baton Rouge riverboat facility. Interest was payable
each June 1 and December 1, commencing June 1, 1994. The 1993 Notes were freely
transferable by the holders thereof. The1993 Notes were redeemable at the option
of the Company, in whole or in part after December 1, 1997 at par as provided in
the 1993 Indenture. The aggregate principal amount of the 1993 Notes outstanding
as of November 30, 1997 was $43,946,000.
The private placement offering was made in units, consisting of first
mortgage 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 private placement offering was
$1,301,000, the amount assigned to the value of the warrants at December 1,
1993. The amortization of the original issue discount was $281,000, $253,000,and
$234,000 for the years ended November 30, 1998, 1997, and 1996, respectively. In
addition to original issue discount amortization, for the years ended November
30, 1997 and 1996 the Company recorded a credit of $30,000 and an additional
$134,000, respectively, of the original issue discount as interest expense
relating to the 1993 Notes repurchased by the Company. The unamortized original
issue discount balance at November 30, 1998 and 1997 was $0 and $281,000,
respectively.
As required by the 1993 Indenture the Company made tender offers to
repurchase 1993 Notes at par from Cumulative Excess Cash Flow (as defined). The
repurchased amounts for the years ended November 30, 1998, 1997 and 1996 were
$119,000, $722,000 and $6,332,000, respectively.
The warrantholders had 153,000 put rights whereby the Company has an
obligation to purchase the 153,000 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 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 November 30, 1998
and 1997 is $4,131,000 and $4,376,000, respectively. 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.
NOTES PAYABLE
On January 2, 1996, the Company obtained a loan in the amount of
$440,000 from City National Bank of Baton Rouge. The loan amount was payable in
24 equal principal payments plus interest commencing January 1996. The loan bore
interest at 10.5% per annum, payable monthly in arrears, on the outstanding
balance of the loan. The loan agreement required the Company to maintain a
certain cash flow ratio. The loan was collateralized by gaming and other
equipment and limited the sale or encumbrance of such equipment. The outstanding
principal balance as of November 30, 1998 and 1997 was $0 and $18,000,
respectively.
NOTE 4- REDEEMABLE PREFERRED STOCK
The Company has authorized 50,000 shares of preferred stock, of which
11,000 shares of 12% cumulative redeemable preferred stock was issued and
outstanding at November 30, 1997 at a carrying value of $1,628,000, including
accrued non-cash dividends. The preferred stock was redeemed on November 30,
1998 for $1,760,000, including all accrued dividends.
34
NOTE 5- 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 years ended
November 30, 1998, 1997 and 1996, EPS calculations have been made using the new
standard.
For the years ended November 30, 1998, 1997 and 1996, basic EPS is
calculated by dividing net income assigned to common shareholders by the
weighted average common shares outstanding (982,783 shares); 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 (1,135,783 shares). Common equivalent
shares consist of redeemable common stock warrants with the rights to purchase
153,000 shares of the Company's common stock (see Note 3).
NOTE 6- RELATED PARTY TRANSACTIONS
The Company and CRC are party to a separate consulting and management
agreement dated December 11, 1992, as amended, whereby CRC provides consulting
and technical services to the Company in connection with the planning and
development of the riverboat facility and management of the casino operations.
CRC receives an annual management fee of 2% of gross revenues, plus 5% of total
operating income, as such terms are defined in the agreement. The term of the
agreement is ten years from the commencement of casino operations, renewable for
an additional ten years at the option of CRC. CRC entered into a separate
agreement with three individual shareholders whereby the three individual
shareholders receive half of the fee of 5% of total operating income. The amount
earned by CRC under the management agreement and expensed for management fees by
the Company was $2,195,000, $2,214,000 and $2,567,000 for the years ended
November 30, 1998, 1997 and 1996, respectively. Of the amount earned and
expensed, $165,000 and $157,000 was payable and included in current liabilities
at November 30, 1998 and 1997, respectively.
NOTE 7-COMMITMENTS AND 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. As a result of the settlement, the Company has
recognized a net reduction of $400,000 within selling, general and
administrative expenses in the year ended November 30, 1998.
On September 15, 1998, the Louisiana Gaming Control Board (the
"Louisiana Board") approved a mutually satisfactory resolution to a regulatory
inquiry relating to a 1994 stock ownership issue whereby the Company agreed to
reimburse the Riverboat Gaming Enforcement Division of the State Police $50,000,
constituting their costs and expenses of conducting the investigation, and to
pay a fine of $200,000. The Company was reimbursed by CRC, the Company's
majority shareholder, in the amount of $250,000.
The Company is also involved in other legal proceedings. In the opinion
of management, the resolution of these matters will not have a material effect
on the financial statements or the results of operations of the Company.
LEASE AGREEMENTS
The Company has an operating lease agreement for property on which the
Company constructed the riverboat facility and parking facility. The initial
lease term is ten years beginning January 1994. The terms of the lease include
payment of minimum monthly rent of $7,500 through October 1, 1994, increasing to
the greater of $33,333 or 1.25% of the gross revenue for the remainder of the
lease term. The Company subsequently entered into an amendment to the lease
agreement to lease an additional parcel of land from the lessor. The Company
prepaid rent of $1,755,707 for this additional property. The prepaid rent is
being amortized over the initial lease term.
The Company has the option to purchase the entire site on or after
fifteen years for the then appraised value of the original site, excluding
improvements. The Company also leases a total of approximately 81,600 square
feet for general warehousing, office use and employee parking pursuant to two
separate two-year leases. The rents are $7,476 per month for one lease and
$8,190 per month for the other. Each lease is a triple net lease, has two
two-year renewal options and grants
35
the Company a right of first refusal to purchase the properties. The Company has
agreed, subject to due diligence, to purchase such properties for $1.4 million,
for a purchase money note and mortgage to be held by the seller of the
properties.
Rental expense for the years ended November 30, 1998, 1997 and 1996
was $1,266,000, $1,216,000 and $1,316,000, respectively. Rental expense for the
years ended November 30, 1998, 1997 and 1996 includes $509,000, $464,000 and
$574,000, respectively, of contingent rental payments above the monthly minimum
rent with respect to the land lease for the riverboat and parking facilities.
Future minimum lease payments for all leases with non-cancelable terms in excess
of one year are as follows:
YEAR ENDING
NOVEMBER 30,
------------
1999 $ 588,000
2000 557,000
2001 400,000
2002 400,000
2003 400,000
Thereafter 33,000
-------------
Total $ 2,378,000
=============
RELICENSING
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 "Louisiana 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.
NOTE 8- INCOME TAXES
The provision for income taxes attributable to continuing operations is
comprised of the following:
YEAR ENDED NOVEMBER 30,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- --------------
Current tax expense:
Federal $ 271,000 $ 720,000 $ 1,478,000
State 2,000 (70,000) 185,000
---------------- ---------------- --------------
Total current tax expense 273,000 650,000 1,663,000
Deferred tax provision (benefit) 1,393,000 1,395,000 (323,000)
---------------- ---------------- --------------
Total provision for income taxes $ 1,666,000 $ 2,045,000 $ 1,340,000
================ ================ ==============
36
The following is a summary of the components of the provision (benefit)
for deferred income taxes:
YEAR ENDED NOVEMBER 30,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- --------------
Depreciation $ 434,000 $ 1,191,000 $ 1,801,000
Amortization of deferred pre-opening costs 602,000 602,000 602,000
Alternative minimum tax credit carry forward (371,000) (358,000) (408,000)
Accrued litigation costs 663,000 - 213,000
Other, net 65,000 (40,000) (132,000)
---------------- ---------------- --------------
Provision for deferred income taxes 1,393,000 1,395,000 2,076,000
Release valuation allowance - - (2,399,000)
---------------- ---------------- --------------
Total provision (benefit) for deferred income taxes $ 1,393,000 $ 1,395,000 $ (323,000)
================ ================ ==============
The difference between the taxes provided for continuing operations at
the United States federal statutory rate and the Company's actual tax provision
is reconciled below for the year ended November 30:
YEAR ENDED NOVEMBER 30,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- --------------
Taxes provided at statutory rate $ 1,478,000 $1,888,000 $ 2,939,000
State tax expense, net of federal benefit 217,000 278,000 432,000
Release of valuation allowance - - (2,399,000)
Nondeductible lobbying costs - - 366,000
Other, net (29,000) (121,000) 2,000
---------------- ---------------- --------------
Total provision for income taxes $ 1,666,000 $2,045,000 $ 1,340,000
================ ================ ==============
The approximate effect of temporary differences and carryforwards that
give rise to deferred tax balances at November 30 were as follows:
YEAR ENDED NOVEMBER 30,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- --------------
Deferred pre-openingcosts $ 602,000 $ 602,000 $ 602,000
Accrued litigation costs - 663,000 663,000
Alternative minimum tax credit carry forward 414,000 306,000 526,000
Other, net 450,000 480,000 450,000
---------------- ---------------- --------------
Current deferred tax asset $ 1,466,000 $ 2,051,000 $ 2,241,000
================ ================ ==============
Depreciation $(4,084,000) $(3,650,000) $(2,459,000)
Deferred pre-opening costs 50,000 653,000 1,255,000
Alternative minimum tax credit carry forward 1,064,000 801,000 223,000
Other, net (24,000) 10,000 -
---------------- ---------------- --------------
Noncurrent deferred tax liability $(2,994,000) $(2,186,000) $ (981,000)
================ ================ ==============
In accordance with SFAS 109, the Company recorded a valuation allowance
for a portion of the deferred tax asset at November 30, 1995 because of
uncertainty regarding the realization of the related tax benefits. The net
decrease in the valuation allowance of $2,399,000 from November 30, 1995 to
November 30, 1996 was due to realization of future tax benefits.
The Company has approximately $182,000 of general business credits
generated by the work opportunity credit and the employee tips credit that are
scheduled to expire in the year ending November 30, 2012. The Company has not
recorded a benefit for the credits because of uncertainty regarding the use of
the credits.
NOTE 9-DIVIDENDS
On March 18 and July 1, 1998 the Board of Directors declared a dividend
of $1.057515 and $0.70, respectively, per share of common stock and an
equivalent distribution per common stock warrant, payable to the holders of
record on March 27 and July 1, 1998, respectively. Aggregate payments of
$1,201,000 and $795,000 were disbursed on March 30 and July 2, 1998,
respectively.
37
On March 26, 1997 the Board of Directors declared a dividend of
$0.424377 per share of common stock and an equal distribution per common stock
warrant. An aggregate payment of $482,000 was paid on March 28, 1997 to holders
of record on March 26, 1997.
On March 27, July 29 and October 15, 1996 the Board of Directors
declared a dividend of $1.587450, $1.610345 and $0.618080, respectively, per
share of common stock and an equal distribution per common stock warrant,
payable to the holders of record on March 27, July 29 and October 15, 1996,
respectively. Aggregate payments of $1,803,000, $1,829,000 and $702,000 were
disbursed on March 28, July 31 and October 18, 1996, respectively.
NOTE 10- EMPLOYEE BENEFIT PLAN
In January 1996, the Company established a defined contribution plan
(the "Plan") for all employees, qualified under Section 401(k) of the Internal
Revenue Code. The Plan was terminated June 30, 1997, and plan assets and
participant amounts were transferred to the Carnival Resorts and Casinos 401K
Plan-Casino Rouge (the "CRC Plan") effective July 1, 1997 at their then current
value. The provisions of the CRC Plan are substantially the same as those of the
Plan. Contributions to the plans by the Company are based on the participants'
contributions. For the years ended November 30, 1998, 1997 and 1996, the Company
contributed $114,000, $129,000 and $134,000, respectively. The Company paid
certain expenses associated with plan administration.
Effective December 1, 1998, the Company adopted a non-qualified
deferred compensation arrangement for employees earning in excess of $80,000.
NOTE 11-SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER
---------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------------------------------------------------------
(in thousands, except per share data)
Fiscal 1998:
Income assigned to common shareholders $ 484 $1,080 $ 148 $ 813 $2,525
Basic earnings per share (Note 5) $ 0.49 $ 1.10 $ 0.15 $ 0.83 $ 2.57
Diluted earnings per share (Note 5) $ 0.43 $ 1.09 $ 0.15 $ 0.72 $ 2.46
Fiscal 1997:
Income (loss) assigned to common shareholders $1,073 $1,260 $ 996 $ (19) $3,310
Basic earnings (loss) per share (Note 5) $ 1.09 $ 1.28 $ 1.01 $(0.01) $ 3.37
Diluted earnings (loss) per share (Note 5) $ 0.94 $ 1.17 $ 0.88 $(0.02) $ 2.97
Fiscal 1996:
Income (loss) assigned to common shareholders $2,601 $3,131 $1,124 $ (269) $6,587
Basic earnings (loss) per share (Note 5) $ 2.65 $ 3.19 $ 1.14 $(0.28) $ 6.70
Diluted earnings (loss) per share (Note 5) $ 2.29 $ 2.97 $ 1.14 $(0.28) $ 6.31
38
NOTE 12- SUBSEQUENT EVENTS
1999 NOTES
On January 27,1999, the Company issued in a private placement the 1999
Notes with interest due semi-annually beginning June 1, 1999. The Company used
the proceeds to defease and redeem the 1998 Notes 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.
CRC MERGER
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, 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.
REDEEMABLE COMMON STOCK WARRANTS
On March 1, 1999, the Company received valuations from the two
investment banking firms (see Note 3). Based upon the average of the values
determined by the investment banking firms the Company will pay $3,750,000 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 per share of
$.01.
39
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of
Louisiana Casino Cruises, Inc.
Our report on the financial statements of Louisiana Casino Cruises,
Inc. is included in this Form 10-K. In connection with our audits of such
financial statements, we have also audited the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
PricewaterhouseCoopers LLP
December 11, 1998, except for
Note 12 which is as of March 1, 1999.
40
SCHEDULE II
LOUISIANA CASINO CRUISES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
BALANCE AT ADDITIONS CHARGED TO BALANCE AT
BEGINNING OF PERIOD COSTS AND EXPENSE DEDUCTION END OF PERIOD
---------------------- ------------------- ---------------- ------------------
YEAR ENDED NOVEMBER 30, 1996
- ----------------------------------------
Deferred tax asset valuation allowance $ 2,399 $ - $ (2,399) $ -
Allowance for doubtful accounts 97 258 (119) 236
----------------------- ------------------- ---------------- ------------------
TOTAL $ 2,496 $ 258 $ (2,518) $ 236
======================= =================== ================ ==================
YEAR ENDED NOVEMBER 30, 1997
- ----------------------------------------
Allowance for doubtful accounts $ 236 $ 94 $ (32) $ 298
======================= =================== ================ ==================
YEAR ENDED NOVEMBER 30, 1998
- ----------------------------------------
Allowance for doubtful accounts $ 298 $ 52 $ (227) $ 123
======================= =================== ================ ==================
41
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company,
as of September 15, 1998.
3.2 By-laws of the Company, as amended as of September 15, 1998
4.4 Indenture, dated January 27, 1999, by and between the Company
and U.S. Bank Trust National Association, as Trustee.
4.5 Registration Rights Agreement, dated January 27, 1999, by and
between the Company and Jefferies & Company, Inc., as the
Initial Purchaser.
10.5 Mortgage, Leasehold Mortgage, Assignment of Rents, Fixture
Filing, Security Agreement and Financing Statement, dated
January 27, 1999, by and between the Company and U.S. Bank
Trust National Association, as Trustee.
10.6 First Preferred Ship Mortgage, dated January 27, 1999, by and
between the Company and U.S. Bank Trust National Association,
as Trustee.
10.7 Security Agreement dated January 27, 1999, by and between the
Company and U.S. Bank Trust National Association, as Trustee.
27 Financial Data Schedule.