UNITED STATES
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 APRIL 27, 2003
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 0-20538
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ISLE OF CAPRI CASINOS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-1659606
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1641 Popps Ferry Road, Biloxi, Mississippi 39532
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (228) 396-7000
Securities Registered Pursuant to Section 12(b) Of The Act: None
Securities Registered Pursuant to Section 12(g) Of The Act:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--
Indicate by check mark if the registrant is an accelerated file (as defined in
Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of the voting and non-voting stock held by
non-affiliates(1) of the Company is $190,681,101, based on the last reported
sale price of $13.00 per share on October 27, 2002 on the NASDAQ Stock Market;
multiplied by 14,667,777 shares of Common Stock outstanding and held by
non-affiliates of the Company on such date.
As of June 12, 2003, the Company had a total of 29,102,281 shares of Common
Stock outstanding (which excludes 3,293,223 shares held by us in treasury).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation 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]
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(1) Affiliates for the purpose of this item refer to the directors,
named executive officers and/or persons owning 10% or more of the Company's
common stock, both of record and beneficially; however, this determination
does not constitute an admission of affiliate status for any of the
individual stockholders.
DOCUMENT INCORPORATED BY REFERENCE:
Document Part of Form 10-K into which Incorporated
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Isle of Capri Casinos, Inc.'s Definitive Proxy Statement
for its Annual Meeting of Stockholders to be held October 7, 2003. Part III
ISLE OF CAPRI CASINOS, INC.
FORM 10-K
INDEX
PAGE
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 35
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 41
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . 42
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA. . . . . . . 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . 59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . 112
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
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ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . 112
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . 112
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . 112
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . 112
ITEM 14. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . 113
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 114
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical or current facts
included in this annual report of form 10-K or incorporated by reference herein,
including, without limitation, statements regarding our future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations, are forward-looking statements.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe" or "continue" or the negative thereof or
variations thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from our
expectations ("cautionary statements") are disclosed under "Risk Factors" and
elsewhere in this annual report on form 10-K, including, without limitation, in
conjunction with the forward-looking statements included in this annual report
on form 10-K.
We urge you to review carefully the section "Risk Factors" beginning on
page 10 in this annual report of form 10-K for a more complete discussion of the
risks of purchasing our common stock. All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the cautionary statements.
PART I
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ITEM 1. BUSINESS.
OVERVIEW
We were incorporated in Delaware in February 1990. We are a leading
developer, owner and operator of branded gaming facilities and related lodging
and entertainment facilities in growing markets in the United States. We wholly
own and operate eleven gaming facilities located in Lake Charles and Bossier
City, Louisiana; Lula, Biloxi, Vicksburg and Natchez, Mississippi; Kansas City
and Boonville, Missouri; Bettendorf, Davenport and Marquette, Iowa. We also own
a 57% interest in and receive management fees for operating two gaming
facilities in Black Hawk, Colorado and a gaming facility in Cripple Creek,
Colorado. All but three of our gaming facilities operate under the name "Isle
of Capri" and feature our distinctive tropical island theme. In addition, we
wholly own and operate a pari-mutuel harness racing facility in Pompano Beach,
Florida.
Our Internet website is http://www.islecorp.com. We make our filings
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available free of charge on our Internet website as soon as reasonably practical
after we electronically file such reports with, or furnish them to, the SEC.
COMPETITIVE STRENGTHS
Strong Brand Identity. All of our casino properties, with the exception of
our Davenport, Cripple Creek and one of our Black Hawk properties, operate under
the "Isle of Capri" name, and the facilities were designed to incorporate our
distinctive tropical island theme. Most of our gaming facilities contain
similar amenities, including hotels, one or more of our trademark restaurants
(Farraddays' fine dining restaurant, Calypso's buffet, Kitt's Kitchen restaurant
and Tradewinds Marketplace), a Banana Cabana gift shop, an entertainment
center for performances and meetings and ample parking. Each of our uniquely
branded facilities also offers all customers membership in their themed rewards
program, which rewards loyal customers with points and complimentaries
which can be redeemed at any of our properties by using a players club card.
These programs are named IsleOne Players Club, the Fan Club, and the Fast Track
Club at the Isle of Capri properties, Rhythm City-Davenport and Colorado Central
Station properties, respectively. We believe our brand name conveys excitement,
entertainment, consistent high-quality service and value to our customers.
Standardized Quality and Services. We have developed and implemented
standardized procedures for operating our casinos, hotels, restaurants and other
non-gaming amenities, which has allowed us to fully and effectively integrate
the ten properties we have developed or acquired during the past three years.
We utilize management development and employee training programs to implement
these procedures throughout our facilities, which we believe help us efficiently
operate our facilities. This standardization encourages high quality service
and provides our customers with a consistent experience.
Superior Locations in Geographically Diverse Markets. We operate our
gaming facilities in five states and eleven distinct geographic markets,
allowing us to maintain diverse sources of revenue and cash flow. Most of our
gaming facilities are conveniently located near major highways. We have located
our facilities so that, in most cases, they are either the first casino reached
by customers arriving from major nearby cities or are within a cluster of
facilities, allowing us to generate significant customer traffic.
Substantial Capital Investment in Our Properties. We completed five years
of expansion with the most recent acquisitions of the Colorado Central
Station-Black Hawk and the Colorado Grande-Cripple Creek on April 22, 2003, by
the Isle-Black Hawk. During that time, Isle of Capri grew from four to
fourteen gaming facilities. Although we sold two gaming facilities during the
fiscal year ended April 27, 2003, the Isle-Black Hawk also acquired the
two additional facilities in Colorado. We believe the substantial investment
in our properties has improved the competitive position of many of our
properties.
Effective Utilization of Proprietary Database. We have developed an
extensive proprietary database of primarily slot-oriented customers that allows
us to create effective targeted marketing and promotional programs, merchandise
giveaways, game tournaments and other special events. To date, we have
implemented the first and second phases of our IsleOne marketing system. Phase
I allows our customers to use our players club card at all of our properties
other than Colorado Grande-Cripple Creek. Phase II of our IsleOne marketing
system was implemented in June 2002, and includes our IsleMiles program, which
includes rewards through a partnership with Carnival Cruise Lines. These
promotional programs are designed to reward customer loyalty and maintain high
recognition of our Isle of Capri brand. As of April 27, 2003, our database
contained approximately 4.7 million members, of whom approximately 1.4 million
receive regular communications from us. We have effectively used our database
to encourage repeat visits, increase customers' length of stay and improve our
operating results.
Experienced, Stable Management Team. We are an experienced gaming operator
and opened our first gaming facility approximately eleven years ago. Each
member of our senior management team has been with us for at least seven years
and has extensive gaming or related industry experience.
CASINO PROPERTIES
Here is an overview of our existing casino properties as of April 27, 2003:
DATE OPENED OR SLOT TABLE HOTEL PARKING
PROPERTY ACQUIRED MACHINES GAMES ROOMS SPACES
- ------------------------------------------------- -------------- -------- ----- ----- -------
Louisiana
Isle-Bossier City . . . . . . . . . . . . . . . May 1994 1,090 34 530 2,005
Isle-Lake Charles.. . . . . . . . . . . . . . . July 1995 1,512 70 493 2,200
Mississippi
Isle-Biloxi . . . . . . . . . . . . . . . . . . August 1992 1,177 28 367 709
Isle-Lula.. . . . . . . . . . . . . . . . . . . March 2000 1,560 29 486 1,780
Isle-Natchez. . . . . . . . . . . . . . . . . . March 2000 687 13 143 908
Isle-Vicksburg. . . . . . . . . . . . . . . . . August 1993 767 18 122 1,100
Missouri
Isle-Boonville. . . . . . . . . . . . . . . . . December 2001 899 27 - 1,101
Isle-Kansas City. . . . . . . . . . . . . . . . June 2000 1,149 25 - 2,054
Iowa
Isle-Bettendorf.. . . . . . . . . . . . . . . . March 2000 1,065 36 256 1,539
Isle-Marquette. . . . . . . . . . . . . . . . . March 2000 750 13 25 750
Rhythm City-Davenport.. . . . . . . . . . . . . October 2000 1,003 19 191 984
Colorado
Isle-Black Hawk (57% owned) . . . . . . . . . . December 1998 1,119 14 237 1,100
Colorado Central Station-Black Hawk (57% owned) April 2003 754 9 - 546
Colorado Grande-Cripple Creek (57% owned).. . . April 2003 223 - 4 44
LOUISIANA
The Isle-Bossier City
The Isle-Bossier City, which commenced operations in May 1994, is located
on a 38-acre site along the Red River approximately one-quarter mile off
Interstate 20, the main highway connecting Dallas/Ft. Worth, Texas to Bossier
City/Shreveport, Louisiana. The property consists of a dockside casino offering
1,090 slot machines and 34 table games, a 305-room on-site deluxe hotel, a
225-room off-site hotel located approximately two miles from the casino, a
39,000 square foot land-based pavilion and entertainment center, and 2,005
parking spaces including approximately 900 spaces in an attached parking garage.
The pavilion and entertainment center offer a wide variety of non-gaming
amenities, including a 77-seat Farraddays' restaurant, a 301-seat Calypso's
buffet, a 30-seat Tradewinds Marketplace and Caribbean Cove, which features free
live entertainment and can accommodate 563 customers. We are in the process of
constructing an additional 265 rooms, a multi-purpose room which can accommodate
1,100 guests, a resort swimming pool and a rum bar restaurant called Kitt's
Kitchen , all of which are expected to be completed by March 2004.
The Bossier City/Shreveport market consists of five dockside gaming
facilities, which, in the aggregate, generated gaming revenues of approximately
$824.0 million in calendar 2002. Among the other operators of dockside gaming
facilities in this market are Harrah's Entertainment, Hollywood Casinos,
Horseshoe Gaming, and Pinnacle Entertainment (branded Boomtown). Additionally,
Louisiana Downs, a pari-mutuel facility located six miles east of the
Isle-Bossier City, was purchased by Harrah's Entertainment in December 2002 and
opened 900 slot machines in May 2003. Bossier City/Shreveport is the closest
gaming market to the Dallas/Ft. Worth, Texas metropolitan area, which has a
population of approximately 5.2 million and is located approximately 190 miles
west of Bossier City/Shreveport. We believe that the Isle-Bossier City attracts
customers primarily from the local area, northeastern Texas and the Dallas/Ft.
Worth metropolitan area. Approximately 550,000 and 1.8 million people reside
within 50 and 100 miles, respectively, of the Isle-Bossier City.
The Isle-Lake Charles
The Isle-Lake Charles, which commenced operations in July 1995, is located
on a 19-acre site along Interstate 10, the main thoroughfare connecting Houston,
Texas to Lake Charles, Louisiana. The property consists of two dockside casinos
offering 1,512 slot machines and 70 table games, a 252-room deluxe hotel, a
separate 241-room hotel, a 105,000 square foot land-based pavilion and
entertainment center, and 2,200 parking spaces, including approximately 1,400
spaces in an attached parking garage. The pavilion and entertainment center
offers customers a wide variety of non-gaming amenities, including a 97-seat
Farraddays' restaurant, a 360-seat Calypso's buffet, a 165 seat Tradewinds
Marketplace, a 140-seat Kitt's Kitchen restaurant, a 64-seat Lucky Wins oriental
restaurant and Caribbean Cove, which features free live entertainment and can
accommodate 180 customers. The pavilion also has a 14,750 square foot
activity center comprised of a 1,100-seat special events center designed
for live boxing, televised pay-per-view events, concerts, banquets and other
events, meeting facilities and administrative offices.
The Lake Charles market consists of two dockside gaming facilities (the
other of which is operated by Harrah's Entertainment), a Native American casino
and a pari-mutuel facility (which is operated by Boyd Gaming) that operates
1,494 slot machines. In addition, the last remaining license in Louisiana was
awarded to Pinnacle Entertainment for a new development which is expected to be
operational in the first half of 2005. The two dockside gaming facilities, in
the aggregate, generated gaming revenues of approximately $439.5 million in
calendar 2002. Lake Charles is the closest gaming market to the Houston
metropolitan area, which has a population of approximately 4.7 million and is
located approximately 140 miles west of Lake Charles. We believe that the
Isle-Lake Charles attracts customers primarily from southeast Texas, including
Houston, Beaumont, Galveston, Orange and Port Arthur and from local area
residents. Approximately 490,000 and 1.6 million people reside within 50 and
100 miles, respectively, of the Isle-Lake Charles.
MISSISSIPPI
The Isle-Biloxi
The Isle-Biloxi, which commenced operations in August 1992, is located on a
17-acre site at the eastern end of a cluster of facilities known as "Casino Row"
in Biloxi, Mississippi, and is the first property reached by visitors coming
from Alabama, Florida and Georgia via Highway 90. The property consists of a
dockside casino offering 1,177 slot machines and 28 table games, a 367-room
hotel, a 90-seat Farraddays' restaurant, a 425-seat Calypso's buffet, a 64-seat
Tradewinds Marketplace and 709 parking spaces. An estimated $ 79.0 million will
be spent over the next 24 months to expand and enhance the Isle- Biloxi. Plans
include an additional 400 hotel rooms, an Isle-branded Kitt's Kitchen
restaurant, a 12,000 square-foot multi-purpose center, and expanded pool and spa
area and a 1,000-space parking garage, which will provide a podium for future
expansion for an additional hotel tower. Construction commenced earlier this
fiscal year.
The Mississippi Gulf Coast market (which includes Biloxi, Gulfport and Bay
St. Louis) is one of the largest gaming markets in the United States and
consists of 12 dockside gaming facilities which, in the aggregate, generated
gaming revenues of approximately $1.2 billion in calendar 2002. Among the other
operators of dockside gaming facilities in this market are MGM Mirage, Park
Place Entertainment, Penn National Gaming and Pinnacle Entertainment. The
Mississippi Gulf Coast, a regional tourist destination, is the closest gaming
market to the Mobile, Alabama metropolitan area, which has a population of
approximately 540,000 and is located approximately 60 miles east of Biloxi. We
believe that the Isle-Biloxi attracts customers from the local area, Alabama,
Florida, Georgia and southeastern Louisiana, including New Orleans and Baton
Rouge. Approximately 800,000 and 2.9 million people reside within 50 to 100
miles, respectively, of the Isle-Biloxi.
The Isle-Lula
The Isle-Lula, which was acquired in March 2000, is strategically located
off of Highway 49, the only road crossing the Mississippi River from Mississippi
to Arkansas for more than 50 miles in either direction. The property consists of
two dockside casinos containing 1,560 slot machines and 29 table games, two
on-site hotels with a total of 486 rooms, a land-based pavilion and
entertainment center, and 1,780 parking spaces. The pavilion and entertainment
center offer a wide variety of non-gaming amenities, including a 100-seat
Farraddays' restaurant, a 300-seat Calypso's buffet and a 48-seat Tradewinds
Marketplace.
The Isle-Lula is the only gaming facility in the Coahoma County,
Mississippi market and generated gaming revenues of approximately $95.0 million
in calendar 2002. The Isle-Lula is the closest gaming facility to the Little
Rock, Arkansas metropolitan area, which has a population of approximately
580,000 and is located approximately 120 miles northwest of the property.
Coahoma County is also located approximately 60 miles southwest of Memphis,
Tennessee, which is primarily served by 10 casinos in Tunica, Mississippi.
Approximately 850,000 people reside within 150 miles of the property's primary
target market.
The Isle-Natchez
The Isle-Natchez, which was acquired in March 2000, is located off of
Highways 84 and 85 in western Mississippi. The property consists of a dockside
casino offering 687 slot machines and 13 table games, a 143-room hotel located
approximately one mile from the casino, a 150-seat Calypso's buffet and 908
parking spaces.
The Isle-Natchez is the only gaming facility in the Natchez market and
generated gaming revenues of approximately $34.3 million in calendar 2002. We
believe that the Isle-Natchez attracts customers primarily from among the
110,000 people residing within 50 miles of the Isle-Natchez.
The Isle-Vicksburg
The Isle-Vicksburg, which commenced operations in August 1993, is located
on an 18-acre site approximately one-mile north of Interstate 20, the main road
connecting Jackson, Mississippi to Vicksburg, Mississippi. The property
consists of a dockside casino offering 767 slot machines and 18 table games, a
122-room hotel, a 12,483 square foot land-based pavilion and entertainment
center, 1,100 parking spaces and a 67-space recreational vehicle park, a
68-seat Farraddays' restaurant, a 340-seat Calypso's buffet, a Tradewinds
Marketplace and live entertainment.
The Vicksburg market consists of four dockside gaming facilities that, in
the aggregate, generated gaming revenues of approximately $243.7 million in
calendar 2002. Among the other operators of dockside gaming facilities in this
market are Alliance Gaming, Ameristar Casinos and Harrah's Entertainment. The
Jackson metropolitan area is also served by a Native American gaming facility.
Vicksburg is the closest gaming market to the Jackson, Mississippi metropolitan
area, which has a population of approximately 440,000 and is located
approximately 40 miles east of Vicksburg. We believe that the Isle-Vicksburg
attracts customers primarily from the local area, Jackson and northeastern
Louisiana. Approximately 530,000 people reside within 50 miles of the
Isle-Vicksburg.
MISSOURI
The Isle-Boonville
The Isle-Boonville, which opened on December 6, 2001, is located off of
Interstate 70, approximately halfway between Kansas City and St. Louis. The
property consists of a dockside casino offering 899 slot machines and 27 table
games, a 32,396 square foot pavilion and entertainment center and 1,101 parking
spaces. The pavilion and entertainment center offers customers a wide variety of
non-gaming amenities, including a 60-seat Farraddays' restaurant, a 282-seat
Calypso's buffet, a 36-seat Tradewinds Marketplace and a historic display area.
The Isle-Boonville is the only gaming facility in the Boonville market and
generated gaming revenues of approximately $62.0 million in calendar 2002.We
believe the Isle-Boonville attracts most of its customers from the approximately
733,000 persons living within a 75-mile radius in central Missouri, including
Jefferson City and Columbia.
The Isle-Kansas City
We acquired the Isle-Kansas City in June 2000. The facility is the closest
facility to downtown Kansas City and consists of a dockside casino offering
1,149 slot machines and 25 table games, a 72-seat Farraddays' restaurant, a
325-seat Calypso's buffet, a 24-seat Tradewinds Marketplace and 2,054 parking
spaces.
The Kansas City market consists of four dockside gaming facilities that, in
the aggregate, generated gaming revenues of approximately $612.1 million in
calendar 2002. Among the other operators of dockside gaming facilities in this
market are Ameristar Casinos, Argosy Gaming and Harrah's Entertainment. We
believe that the Isle-Kansas City attracts customers primarily from the Kansas
City metropolitan area, which has approximately 1.7 million residents.
IOWA
The Isle-Bettendorf
The Isle-Bettendorf, which we acquired in March 2000, is located off of
Interstate 74, an interstate highway serving the Quad Cities metropolitan area.
The property consists of a riverboat casino offering 1,065 slot machines and 36
table games, a 256-room hotel, approximately 104,056 square feet of
convention/banquet space, a 140-seat Farraddays' restaurant, a 320-seat
Calypso's buffet, a 30-seat Tradewinds Marketplace and 1,539 parking spaces.
The Quad Cities metropolitan area, consisting of Bettendorf and Davenport,
Iowa and Moline and Rock Island, Illinois, currently has three gaming
operations; Our two gaming facilities, the Isle-Bettendorf and the Rhythm City-
Davenport, and one smaller operator. The three operations in the Quad Cities
generated, in the aggregate, gaming revenues of approximately $201.7 million in
calendar 2002. In addition to the Quad Cities metropolitan area, our operations
in the Quad Cities also compete with gaming operations in Peoria, Illinois;
Dubuque, Clinton and Des Moines, Iowa; and to a lesser extent, gaming operations
in Chicago, Illinois.
The Isle-Marquette
The Isle-Marquette, which we acquired in March 2000, is located in
Marquette, Iowa, which is 60 miles north of Dubuque, Iowa, which has two gaming
facilities. The property consists of a riverboat casino offering 750 slot
machines and 13 table games, a land-based facility including a 25-room hotel, a
160-seat Calypso's buffet restaurant, a Tradewinds Marketplace and an
entertainment showroom, a marina and 750 parking spaces.
The Isle-Marquette is the only gaming facility in the Marquette, Iowa
market, and generated gaming revenues of approximately $40.3 million in calendar
2002. We believe the Isle-Marquette draws most of its customers from northeast
Iowa and Wisconsin and to some extent, competes for those customers with another
riverboat facility and a racetrack with slot machines, both of which are in the
Dubuque area.
The Rhythm City-Davenport
The Rhythm City-Davenport, which we acquired in October 2000, is located
between Interstates 74, 80 and 280. The property consists of a riverboat gaming
facility offering 1,003 slot machines and 19 table games, a 191-room hotel
located approximately four blocks from the casino, a 290-seat Hit Parade buffet,
a 76-seat Rock Around the Clock diner and 984 parking spaces.
COLORADO
The Isle-Black Hawk
The Isle-Black Hawk, which commenced operation in December 1998, is located
on an approximately 10-acre site and is one of the first gaming facilities
reached by customers arriving from Denver via Highway 119, the main thoroughfare
connecting Denver to Black Hawk. The property currently consists of a land-based
casino with 1,119 slot machines and 14 table games, a 237-room hotel and 1,100
parking spaces in an attached parking garage. The Isle-Black Hawk also offers
customers a wide variety of non-gaming amenities, including a 78-seat
Farraddays' restaurant, a 228-seat Calypso's buffet, a 32-seat Tradewinds
Marketplace and a 4,000 square foot event center that can be used for meetings
and entertainment. We own 57% of the Isle-Black Hawk through an unrestricted
subsidiary and receive a management fee for operating the facility.
The Black Hawk/Central City market consists of 25 gaming facilities (nine
of which have more than 600 slot machines), which, in aggregate, generated
gaming revenues of approximately $577.0 million in calendar 2002. Black Hawk is
the closest gaming market to the Denver, Colorado metropolitan area, which has a
population of approximately 2.5 million and is located approximately 40 miles
east of Black Hawk. We believe that the Isle-Black Hawk attracts customers
primarily from Denver, Boulder, Fort Collins and Golden, Colorado and Cheyenne,
Wyoming.
The Colorado Central Station-Black Hawk
The Colorado Central Station-Black Hawk, which we acquired in April 2003,
is located across the intersection of Main Street and Mill Street from the
Isle-Black Hawk. The property currently consists of a land-based casino with
754 slot machines, 9 table games and 546 parking spaces across two parking
areas. The property also offers guests three dining options including the
Whistle Stop buffet, Fire Box restaurant, and the Chew Chew deli. We own 57% of
the Colorado Central Station-Black Hawk through an unrestricted subsidiary and
receive a management fee for operating the facility.
The Colorado Grande-Cripple Creek
The Colorado Grande-Cripple Creek, which we acquired in April 2003, is
located at a primary intersection, near the center of the Cripple Creek market.
The property currently consists of a land-based casino with 223 slot machines,
no table games, a 4-room hotel and 44 parking spaces. The property offers
guests dining at Maggie's restaurant. We own 57% of the Colorado Grande-Cripple
Creek through an unrestricted subsidiary and receive a management fee for
operating the facility.
The Cripple Creek market consists of 17 gaming facilities and generated
gaming revenues of approximately $142.4 million in calendar 2002. Cripple Creek
is 40 miles west of Colorado Springs, Colorado, which is 30 miles south of
Denver, Colorado, a metropolitan area that has a population of approximately 2.5
million. We believe that the Colorado Grande-Cripple Creek attracts customers
primarily from Colorado Springs, Fort Carson and smaller areas south of Denver.
POMPANO PARK
In 1995, we acquired Pompano Park, a harness racing track located in
Pompano Beach, Florida. Pompano Park is conveniently located off of Interstate
95 and the Florida Turnpike on a 220-acre owned facility, midway between Miami
and West Palm Beach. Pompano Park is the only racetrack licensed to conduct
harness racing in Florida. Pompano Park can accommodate up to 14,500 customers
and has 4,000 parking spaces and 1,040 horse stalls. The six-story,
air-conditioned facility includes a box seat area, a 260,000 square foot
clubhouse, a large grandstand, a 1,250-seat dining area from which the races can
be viewed, five concession stands, five bars and a 180-seat Player's Lounge
cafeteria.
We believe that Pompano Park would be an attractive location for
casino-style gaming if such gaming were to be legalized in Florida. Pompano Park
would be one of nine facilities in south Florida to benefit from legislation.
This facility draws most of its customers from the 2.6 million people residing
within a 25-mile radius.
MARKETING
We attract customers to our casinos by designing and implementing marketing
and promotional programs that emphasize our Isle of Capri, Rhythm City and
Colorado Central Station brands and reward loyal customers. We have developed an
extensive proprietary database of primarily slot-oriented customers that allows
us to create effective targeted marketing and promotional programs, merchandise
giveaways, game tournaments and other special events. These programs are
designed to reward customer loyalty, attract new customers to our properties and
maintain high recognition of our brands. Also phase II of our IsleOne marketing
system was implemented in June 2002, and includes our IsleMiles program, which
includes rewards through a partnership with Carnival Cruise Lines.
As of April 27, 2003, our database contained approximately 4.7 million
members, of whom approximately 1.4 million receive regular mailings. To develop
this database, we offer all of our customers membership in the IsleOne Players
Club at Isle of Capri properties, the Fan Club at the Rhythm City-Davenport and
the Fast Track Club at the Colorado Central Station properties. These programs
reward loyal customers with IsleOne points that can be redeemed at our casinos
by using our players club card. Currently, the players club card allows us
to track the members' gaming preferences, maximum, minimum and total amount
wagered and frequency of visits. Players are classified in groups according
to these characteristics. Our database is used for direct mailings, giveaways
and other promotional events that are tailored to these specific groups of
players. We have effectively used our database to encourage repeat visits,
increase customers' length of stay and improve our operating results.
We place significant emphasis on attracting local residents and seek to
maintain a strong local identity in each market in which we operate by
initiating and supporting community and special events. We use radio and
television media to promote the Isle of Capri brand name and attract customers
to our properties. To further enhance our tropical theme, we have engaged actor
Ricardo Montalban to narrate our radio and television advertisements.
EMPLOYEES
As of April 27, 2003, we employed approximately 11,000 people. None of our
employees are subject to a collective bargaining agreement. We believe that our
relationship with our employees is satisfactory.
SEASONALITY
We typically generate the major portion of our income in our first and
fourth fiscal quarters that end in July and April, respectively.
RISK FACTORS
WE FACE SIGNIFICANT COMPETITION FROM OTHER GAMING OPERATIONS THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FUTURE OPERATIONS.
We face intense competition in the markets in which we operate. We have
numerous competitors, including land-based casinos, dockside casinos, riverboat
casinos, casinos located on Native American reservations and at racing and
pari-mutuel operations. Several of our competitors have substantially better
name recognition, marketing and financial resources than we do. Legalized gaming
is currently permitted in various forms throughout the United States. Certain
states have recently legalized, and other states are currently considering
legalizing, casino gaming in designated areas. In addition, many Native American
tribes conduct casino gaming on reservations throughout the United States that
have the advantages of being land-based and exempt from certain state and
federal taxes. Some Native American tribes are either in the process of
establishing, or are considering the establishment of, gaming at additional
locations. There is no limit on the number of gaming licenses that may be
granted in several of the markets in which we operate. As a result, new licenses
could be awarded to gaming facilities in such markets, which could have an
adverse effect on our operating results. In particular, we face significant new
competition in the Lake Charles, Louisiana market. In February 2002, Boyd Gaming
opened a casino with 15,000 square feet of gaming space with approximately 1,500
slot machines at Delta Downs, a horse racing facility. Delta Downs is 25 miles
closer to Houston than the Isle-Lake Charles, making it the closest gaming
facility to Houston. In addition, the last available Louisiana gaming license
was awarded to Pinnacle Entertainment for a new development in the Lake Charles
market. Expansion of existing gaming facilities and the development of new
gaming facilities and casinos on Native American reservations will increase
competition for our existing and future operations.
We also compete with other forms of legalized gaming and entertainment such
as online computer gambling, bingo, pull tab games, card parlors, sports books,
pari-mutuel or telephonic betting on horse racing and dog racing,
state-sponsored lotteries, jai-alai, video lottery terminals and video poker
terminals. For example, there currently is legislation pending in Florida that,
if passed, would legalize video poker, electronic games of chance or video
lottery terminal gaming at pari-mutuel gaming facilities, including our facility
in Pompano Beach, which could have an adverse effect on the operations of the
Isle-Biloxi.
Our existing gaming facilities compete directly with other gaming
properties in Louisiana, Mississippi, Missouri, Iowa and Colorado. We also
compete with gaming operators in other gaming jurisdictions such as Atlantic
City, New Jersey. Our existing casinos attract a significant number of their
customers from Houston and Dallas/Fort Worth, Texas; Mobile, Alabama; Jackson,
Mississippi; Memphis, Tennessee; Little Rock, Arkansas and Denver, Colorado. Our
continued success depends upon drawing customers from each of these geographic
markets. Legalization of gaming in jurisdictions closer to these geographic
markets than the jurisdictions in which our facilities are located would have a
material adverse effect on our operating results. We expect competition to
increase as new gaming operators enter our markets, existing competitors expand
their operations, gaming activities expand in existing jurisdictions and gaming
is legalized in new jurisdictions. We cannot predict with any certainty the
effects of existing and future competition on our operating results.
WE ARE SUBJECT TO EXTENSIVE REGULATION FROM GAMING AUTHORITIES THAT COULD
ADVERSELY AFFECT US.
Licensing Requirements.
As owners and operators of gaming facilities, we are subject to extensive
state and local regulation. State and local authorities require us and our
subsidiaries to demonstrate suitability to obtain and retain various licenses
and require that we have registrations, permits and approvals to conduct gaming
operations. The regulatory authorities in the jurisdictions in which we operate
may, for any reasonable cause, limit, condition, suspend or revoke a license to
conduct gaming operations or prevent us from owning the securities of any of our
gaming subsidiaries. In addition, regulatory authorities in certain
jurisdictions must approve, in advance, any restrictions on, transfers of,
agreements not to encumber or pledges of equity securities that are issued by a
corporation that is registered as an intermediary company with such state, or
holds a gaming license. If these restrictions, transfers, agreements or pledges
are not approved in advance, they will be invalid. Like all gaming operators in
the jurisdictions in which we operate, we must periodically apply to renew our
gaming licenses. We cannot assure you that we will be able to obtain such
renewals. Regulatory authorities may also levy substantial fines against us or
seize our assets, or the assets of our subsidiaries. Any of these events could
have a material adverse effect on our business.
We have demonstrated suitability to obtain and have obtained all
governmental licenses, registrations, permits and approvals necessary for us to
operate our existing gaming facilities. We cannot assure you that we will be
able to retain them or continue to demonstrate suitability to obtain any new
licenses, registrations, permits or approvals. If we expand our gaming
operations in the jurisdictions in which we currently operate or to new
jurisdictions, we will have to meet suitability requirements and obtain
additional licenses, registrations, permits and approvals from gaming
authorities in these jurisdictions. The approval process can be time-consuming
and costly and there is no assurance that we will be successful.
Potential Changes in Regulatory Environment.
From time to time, legislators and special interest groups have proposed
legislation that would expand, restrict or prevent gaming operations in the
jurisdictions in which we operate. In addition, from time to time, certain
anti-gaming groups propose referenda that, if adopted, would limit our ability
to continue to operate in those jurisdictions in which such referenda are
adopted. Any expansion of gaming or restriction on or prohibition of our gaming
operations could have a material adverse effect on our operating results.
WE ARE SUBJECT TO THE POSSIBILITY OF AN INCREASE IN GAMING TAXES.
State and local authorities raise a significant amount of revenue through
taxes and fees on gaming activities. We believe that the prospect of
significant revenue is one of the primary reasons that jurisdictions permit
legalized gaming. As a result, gaming companies are typically subject to
significant taxes and fees in addition to normal federal, state, local and
provincial income taxes, and such taxes and fees are subject to increase at any
time. We pay substantial taxes and fees with respect to our operations. From
time to time, federal, state, local and provincial legislators and officials
have proposed changes in tax laws, or in the administration of such laws,
affecting the gaming industry. In addition, worsening economic conditions could
intensify the efforts of state and local governments to raise revenues through
increases in gaming taxes. For example, in June 2002 and again in June 2003,
the state legislature in Illinois, a state in which we do not own or operate any
casinos, voted to increase gaming taxes to fund a budget shortfall. Some of the
states in which we own or operate casinos also have budget shortfalls and may
increase gaming taxes to raise more revenue. It is not possible to determine
with certainty the likelihood of changes in tax laws or in the administration of
such laws. Such changes, if adopted, could have a material adverse effect on
our business, financial condition and results of operations.
WE ARE SUBJECT TO NON-GAMING REGULATION THAT COULD ADVERSELY AFFECT US.
Several of our riverboats must comply with U.S. Coast Guard requirements as
to boat design, on-board facilities, equipment, personnel and safety and must
hold U.S. Coast Guard Certificates of Documentation and Inspection. The U.S.
Coast Guard requirements also set limits on the operation of the riverboats and
mandate licensing of certain personnel involved with the operation of the
riverboats. Loss of a riverboat's Certificate of Documentation and Inspection
could preclude its use as a riverboat casino. Each of our riverboats is
inspected annually and, every five years, is subject to dry-docking for
inspection of its hull, which could result in a temporary loss of service.
We are required to have third parties periodically inspect and certify all
of our casino barges for stability and single compartment flooding integrity.
Our casino barges must also meet local fire safety standards. We would incur
additional costs if any of our gaming facilities were not in compliance with one
or more of these regulations.
We are also subject to certain federal, state and local environmental laws,
regulations and ordinances that apply to non-gaming businesses generally, such
as the Clean Air Act, the Clean Water Act, the Resource Conservation Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
and the Oil Pollution Act of 1990. Under various federal, state and local laws
and regulations, an owner or operator of real property may be held liable for
the costs of removal or remediation of certain hazardous or toxic substances or
wastes located on its property, regardless of whether or not the present owner
or operator knows of, or is responsible for, the presence of such substances or
wastes. We have not identified any issues associated with our properties that
could reasonably be expected to have an adverse effect on us or the results of
our operations. However, several of our properties are located in industrial
areas or were used for industrial purposes for many years. As a consequence, it
is possible that historical or neighboring activities have affected one or more
of our properties and that, as a result, environmental issues could arise in the
future, the precise nature of which we cannot now predict. The coverage and
attendant compliance costs associated with these laws, regulations and
ordinances may result in future additional costs.
Regulations adopted by the Financial Crimes Enforcement Network of the U.S.
Treasury Department require us to report currency transactions in excess of
$10,000 occurring within a gaming day, including identification of the patron by
name and social security number. Substantial penalties can be imposed against us
if we fail to comply with these regulations.
We are also subject to a variety of other local rules and regulations,
including zoning, environmental, construction and land-use laws and regulations
governing the serving of alcoholic beverages.
IF OUR KEY PERSONNEL LEAVE US, OUR BUSINESS WILL BE SIGNIFICANTLY ADVERSELY
AFFECTED.
Our continued success will depend, among other things, on the efforts and
skills of a few key executive officers and the experience of our property
managers as well as our ability to attract and retain additional highly
qualified personnel with gaming industry experience and qualifications to obtain
the requisite licenses. On January 22, 2003, we announced that Timothy M.
Hinkley, currently our Senior Vice President of Operations, would succeed
President and Chief Operating Officer John M. Gallaway upon his retirement
effective July 1, 2003. We do not maintain ''key man'' life insurance for any
of our employees. There is no assurance that we would be able to attract and
hire suitable replacements for any of our key employees. We need qualified
executives, managers and skilled employees with gaming industry experience to
continue to successfully operate our business. We believe a shortage of skilled
labor in the gaming industry may make it increasingly difficult and expensive to
attract and retain qualified employees. We expect that increased competition in
the gaming industry will intensify this problem.
INCLEMENT WEATHER AND OTHER CONDITIONS COULD SERIOUSLY DISRUPT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Dockside and riverboat facilities are subject to risks in addition to those
associated with land-based casinos, including loss of service due to casualty,
mechanical failure, extended or extraordinary maintenance, flood, hurricane or
other severe weather. Our riverboats and barges face additional risks from the
movement of vessels on waterways.
Reduced patronage and the loss of a dockside or riverboat casino from
service for any period of time could adversely affect our results of operations.
For example, as a result of flooding of the Mississippi River, we closed the
Isle-Marquette from April 18 to May 2, 2001, and the Rhythm City-Davenport from
April 18 to May 20, 2001. While our business interruption insurance provided
sufficient coverage for those losses, we cannot assure you that the proceeds
from any future claim will be sufficient to compensate us if one or more of our
casinos experiences a closure.
Access to a number of our facilities may also be affected by road
conditions, such as construction and traffic. In addition, severe weather such
as high winds and blizzards occasionally limits access to the Isle-Black Hawk
and the Colorado Central Station-Black Hawk.
WE EXPERIENCE QUARTERLY FLUCTUATIONS IN RESULTS OF OPERATIONS.
Our quarterly operating results fluctuate because of seasonality and other
factors. We typically generate the major portion of our income in our first and
fourth fiscal quarters, which end in July and April, respectively.
ENERGY AND FUEL PRICE INCREASES MAY ADVERSELY AFFECT OUR COSTS OF OPERATIONS AND
OUR REVENUES.
Our casino properties use significant amounts of electricity, natural gas
and other forms of energy. While no shortages of energy have been experienced,
the recent substantial increases in the cost of electricity in the United States
will negatively affect our results of operations. In addition, energy and fuel
price increases in cities that constitute a significant source of customers for
our properties could result in a decline in disposable income of potential
customers and a corresponding decrease in visitation to our properties, which
would negatively impact our revenues. The extent of the impact is subject to the
magnitude and duration of the energy and fuel price increases, but this impact
could be material.
A DOWNTURN IN GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
Our business operations are subject to changes in international, national
and local economic conditions, including changes in the economy related to
future security alerts in connection with threatened or actual terrorist
attacks, such as those that occurred on September 11, 2001, and related to the
war with Iraq, which may affect our customers' willingness to travel. A
recession or downturn in the general economy, or in a region constituting a
significant source of customers for our properties, could result in fewer
customers visiting our properties, which would adversely affect our results of
operations.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We now have a significant amount of indebtedness. As of April 27, 2003, we
had $1.03 billion of total debt outstanding.
Our significant indebtedness could have important consequences, such as:
- - limiting our ability to obtain additional financing to fund our working
capital requirements, capital expenditures, debt service, general corporate or
other obligations, including our obligations with respect to the notes;
- - limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a significant portion of these funds to make
principal and interest payments on our indebtedness;
- - increasing our interest expense if there is a rise in interest rates,
because a portion of our borrowings under our senior secured credit facility are
subject to interest rate periods with short-term durations (typically 30 to 180
days) that require ongoing refunding at the then current rates of interest;
- - causing our failure to comply with the financial and restrictive covenants
contained in the indenture and agreements
governing the notes, and the indenture and agreements governing the 8.75% senior
subordinated notes due 2009, the 9.00% senior subordinated notes due 2012, our
senior secured credit facility and our other indebtedness which could cause
a default under those instruments and which, if not cured or waived, could
have a material adverse effect on us;
- - placing us at a competitive disadvantage to our competitors who are not as
highly leveraged; and
- - increasing our vulnerability to and limiting our ability to react to
changing market conditions, changes in our industry and economic downturns.
Any of the factors listed above could have a material adverse effect on our
business, financial condition and results of operations. In addition, as of
April 27, 2003, we had the capacity to issue additional indebtedness, including
the ability to incur additional indebtedness under all of our lines of credit,
of approximately $288.1 million, subject to the limitations imposed by the
covenants in the senior secured credit facility and the indentures governing our
notes. The indenture governing our notes and the senior secured credit facility
contain financial and other restrictive covenants, but will not fully prohibit
us from incurring additional debt. If new debt is added to our current level of
indebtedness, related risks that we and you now face could increase.
We have made and will need to make significant capital expenditures at our
existing facilities to remain competitive with current and future competitors in
our markets. Our senior secured credit facility and the indentures governing
our notes contain operating and financial restrictions that may limit our
ability to obtain the financing to make these capital expenditures.
Our agreements governing our indebtedness, among other things, limit our
ability to:
- - borrow money;
- - make capital expenditures;
- - use assets as security in other transactions;
- - make restricted payments or restricted investments;
- - incur contingent obligations; and
- - sell assets and enter into leases and transactions with affiliates.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulations. We are required to obtain and maintain
gaming licenses in each of the jurisdictions in which we conduct gaming. The
limitation, conditioning or suspension of gaming licenses could (and the
revocation or non-renewal of gaming licenses, or the failure to reauthorize
gaming in certain jurisdictions, would) materially adversely affect our
operation in that jurisdiction. In addition, changes in law that restrict or
prohibit our gaming operations in any jurisdiction could have a material adverse
effect on us.
LOUISIANA
In July 1991, Louisiana enacted legislation permitting certain types of
gaming activity on certain rivers and waterways in Louisiana. The legislation
granted authority to supervise riverboat gaming activities to the Louisiana
Riverboat Gaming Commission and the Riverboat Gaming Enforcement Division of the
Louisiana State Police. The Louisiana Riverboat Gaming Commission was authorized
to hear and determine all appeals relative to the granting, suspension,
revocation, condition or renewal of all licenses, permits and applications. In
addition, the Louisiana Riverboat Gaming Commission established regulations
concerning authorized routes, duration of excursions, minimum levels of
insurance, construction of riverboats and periodic inspections. The Riverboat
Gaming Enforcement Division of the Louisiana State Police was authorized to
investigate applicants and issue licenses, investigate violations of the statute
and conduct continuing reviews of gaming activities.
In May 1996, regulatory oversight of riverboat gaming was transferred to
the Louisiana Gaming Control Board, which is comprised of nine voting members
appointed by the governor. The Louisiana Gaming Control Board now oversees all
licensing matters for riverboat casinos, land-based casinos, video poker and
certain aspects of Native American gaming other than those responsibilities
reserved to the Louisiana State Police.
The Louisiana Gaming Control Board is empowered to issue up to 15 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 designated waterway.
The Louisiana State Police continues to be involved broadly in gaming
enforcement and reports to the Louisiana Gaming Control Board. Louisiana law
permits the Louisiana State Police, among other things, to continue to (1)
conduct suitability investigations, (2) audit, investigate and enforce
compliance with standing regulations, (3) initiate enforcement and
administrative actions and (4) perform "all other duties and functions necessary
for the efficient, efficacious, and thorough regulation and control of gaming
activities and operations" under the Louisiana Gaming Control Board's
jurisdiction.
Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following:
- - agents of the Louisiana State Police are permitted on board at any time
during gaming operations;
- - gaming devices, equipment and supplies may only be purchased or leased
from permitted suppliers and, with respect to gaming equipment, from permitted
manufacturers;
- - gaming may only take place in the designated gaming area while the
riverboat is docked on a designated river or waterway;
- - gaming equipment may not be possessed, maintained or exhibited by any
person on a riverboat except in the specifically designated gaming area or in a
secure area used for inspection, repair or storage of such equipment;
- - wagers may be received only from a person present on a licensed riverboat;
- - persons under 21 are not permitted in designated gaming areas;
- - except for slot machine play, wagers may be made only with tokens, chips
or electronic cards purchased from the licensee aboard a riverboat;
- - 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;
- - licensees must have adequate protection and indemnity insurance;
- - licensees must have all necessary federal and state licenses, certificates
and other regulatory approvals prior to operating a riverboat; and
- - gaming may only be conducted in accordance with the terms of the license
and Louisiana law.
To receive a gaming license in Louisiana, an applicant must be found to be
a person of good character, honesty and integrity and a person whose prior
activities, criminal record, if any, reputation, habits and associations do not
(1) pose a threat to the public interest of the State of Louisiana or to the
effective regulation and control of gaming or (2) 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 of
gaming activities. In addition, the Louisiana Gaming Control Board will not
grant a license unless it finds that, among other things:
- - the applicant can demonstrate the capability, either through training,
education, business experience or a combination of the preceding, to operate a
gaming operation;
- - the proposed financing of the riverboat and the gaming operations is
adequate for the nature of the proposed operation and is from a suitable and
acceptable source;
- - 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;
- - the applicant submits with its application for a license a detailed plan
of design of the riverboat;
- - the applicant designates the docking facilities to be used by the
riverboat;
- - the applicant shows adequate financial ability to construct and maintain a
riverboat; and
- - the applicant has a good faith plan to recruit, train and upgrade
minorities in all employment classifications.
An initial license to conduct riverboat gaming operations is valid for a
term of five years and legislation passed in the 1999 legislative session
provides for renewals every five years thereafter. Louisiana gaming law provides
that a renewal application for the period succeeding the initial five-year term
of an operator's license must be made to the Louisiana Gaming Control Board and
must include a statement under oath of any and all changes in information,
including financial information, provided in the previous application. The
transfer of a license or an interest in a license is prohibited. A gaming
license is deemed to be a privilege under Louisiana law and, as such, may be
denied, revoked, suspended, conditioned or limited at any time by the Louisiana
Gaming Control Board. The Isle-Bossier City and the Isle-Lake Charles each
received a five-year renewal of their license on July 20, 1999.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding 5% or
greater interests in the licensee and persons exercising influence over a
licensee, are subject to the application and suitability requirements of
Louisiana gaming law.
The sale, purchase, assignment, transfer, pledge or other hypothecation,
lease, disposition or acquisition by any person of securities which represent 5%
or more of the total outstanding shares issued by a licensee is subject to the
approval of the Louisiana Gaming Control Board. A security issued by a licensee
must generally disclose these restrictions. Prior approval from the Louisiana
Gaming Control Board is required for the sale, purchase, assignment, transfer,
pledge or other hypothecation, lease, disposition or acquisition of any
ownership interest of 5% or more of any non-corporate licensee or for the
transfer of any "economic interest" of 5% or more of any licensee or affiliated
gaming person. An "economic interest" is defined as any interest whereby a
person receives or is entitled to receive, by agreement or otherwise, a profit,
gain, thing of value, loan, credit, security interest, ownership interest or
other benefit.
Fees payable to the state for conducting gaming activities on a riverboat
include (1) $50,000 per riverboat for the first year of operation and $100,000
per year per riverboat thereafter, plus (2) 21.5% of net gaming proceeds.
Legislation was passed during the 2001 legislative session that allowed those
riverboats that had been required to conduct cruises, including the riverboats
at the Isle-Lake Charles, to remain permanently dockside beginning April 1,
2001. The legislation also increased the gaming tax for operators from 18.5% to
21.5%. A statute also authorizes local governing authorities to levy boarding
fees. We have development agreements with the local governing authorities in the
jurisdictions in which we operate pursuant to which we make payments in lieu of
boarding fees.
A licensee must notify and/or seek approval from the Louisiana Gaming
Control Board in connection with any withdrawals of capital, loans, advances or
distributions in excess of 5% of retained earnings for a corporate licensee, or
of capital accounts for a partnership or limited liability company licensee,
upon completion of any such transaction. The Louisiana Gaming Control Board may
issue an emergency order for not more than ten days prohibiting payment of
profits, income or accruals by, or investments in, a licensee. Unless excepted
or waived by the Louisiana Gaming Control Board, riverboat gaming licensees and
their affiliated gaming persons must notify the Louisiana Gaming Control Board
60 days prior to the receipt by any such persons of any loans or extensions of
credit or modifications thereof. The Louisiana Gaming Control Board is required
to investigate the reported loan, extension of credit or modification thereof
and to determine whether an exemption exists on the requirement of prior written
approval and, if such exemption is not applicable, to either approve or
disapprove the transaction. If the Louisiana Gaming Control Board disapproves of
a transaction, the transaction cannot be entered into by the licensee or
affiliated gaming person. We are an affiliated gaming person of our subsidiaries
that hold the licenses to conduct riverboat gaming at the Isle-Bossier City and
the Isle-Lake Charles.
The failure of a licensee to comply with the requirements set forth above
may result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Louisiana Gaming Control Board finds that the individual
owner or holder of a security of a corporate license or intermediary company or
any person with an economic interest in a licensee is not qualified under
Louisiana law, the Louisiana Gaming Control Board may require, under penalty of
suspension or revocation of the license, that the person not:
- - receive dividends or interest on securities of the corporation;
- - exercise directly or indirectly a right conferred by securities of the
corporation;
- - receive remuneration or economic benefit from the licensee;
- - exercise significant influence over activities of the licensee; or
- - continue its ownership or economic interest in the licensee.
A licensee must periodically report the following information to the
Louisiana Gaming Control Board, which is not confidential and is available for
public inspection: (1) the licensee's net gaming proceeds from all authorized
games, (2) the amount of net gaming proceeds tax paid and (3) all quarterly and
annual financial statements presenting historical data, including annual
financial statements that have been audited by an independent certified public
auditor.
During the 1996 special session of the Louisiana legislature, legislation
was enacted placing on the ballot for a statewide election a constitutional
amendment limiting the expansion of gaming, which was subsequently passed by the
voters. As a result, local option elections are required before new or
additional forms of gaming can be brought into a parish.
Proposals to amend or supplement Louisiana's riverboat gaming statute are
frequently introduced in the Louisiana State legislature. There is no assurance
that changes in Louisiana gaming law will not occur or that such changes will
not have a material adverse effect on our business in Louisiana.
MISSISSIPPI
In June 1990, Mississippi enacted legislation legalizing dockside casino
gaming for counties along the Mississippi River, which is the western border for
most of the state, and the Gulf Coast, which is the southern border for most of
the state. The legislation gave each of those counties the opportunity to hold a
referendum on whether to allow dockside casino gaming within its boundaries.
Gaming vessels in Mississippi must be located on the Mississippi River, on
navigable waters in eligible counties along the Mississippi River or in the
waters lying south of the counties along the Mississippi Gulf Coast. Mississippi
law permits unlimited stakes gaming on permanently moored vessels on a 24-hour
basis and does not restrict the percentage of space that may be utilized for
gaming. There are no limitations on the number of gaming licenses that may be
issued in Mississippi.
The ownership and operation of gaming facilities in Mississippi are subject
to extensive state and local regulation intended to:
- - prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- - establish and maintain responsible accounting practices and procedures for
gaming operations;
- - maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports;
- - provide a source of state and local revenues through taxation and
licensing fees;
- - prevent cheating and fraudulent practices; and
- - ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted
in Mississippi and such changes, if enacted, could have an adverse effect on us
and our Mississippi gaming operations.
We are registered as a publicly traded corporation under the Mississippi
Gaming Control Act. Our gaming operations in Mississippi are subject to
regulatory control by the Mississippi Gaming
Commission, the State Tax Commission and various other local, city and county
regulatory agencies (collectively referred to as the "Mississippi Gaming
Authorities"). Our subsidiaries have obtained gaming licenses from the
Mississippi Gaming Authorities. Any proposed gaming operations outside of
Mississippi are also subject to approval by the Mississippi Gaming Commission.
The licenses held by our Mississippi gaming operations have terms of three years
and are not transferable. The Isle-Biloxi received a renewal gaming license in
May 2000, and the Isle-Vicksburg obtained a renewal gaming license in February
2001. The Isle-Tunica obtained a renewal gaming license in May 2001 and
surrendered that license in October 2002. The Isle-Natchez received its current
license in June 2000, and the Isle-Lula received its current license in July
2000. There is no assurance that new licenses can be obtained at the end of each
three-year period of a license. Moreover, the Mississippi Gaming Commission may,
at any time, and for any cause it deems reasonable, revoke, suspend, condition,
limit or restrict a license or approval to own shares of stock in our
subsidiaries that operate in Mississippi.
Substantial fines for each violation of Mississippi's gaming laws or
regulations may be levied against us, our subsidiaries and the persons involved.
A violation under a gaming license held by a subsidiary of ours operating in
Mississippi may be deemed a violation of all the other licenses held by us.
We, along with each of our Mississippi gaming subsidiaries, must
periodically submit detailed financial, operating and other reports to the
Mississippi Gaming Commission and/or the State Tax Commission. Numerous
transactions, including substantially all loans, leases, sales of securities and
similar financing transactions entered into by any of ours operating a casino in
Mississippi must be reported to or approved by the Mississippi Gaming
Commission. In addition, the Mississippi Gaming Commission may, at its
discretion, require additional information about our operations.
Certain of our officers and employees and the officers, directors and
certain key employees of our Mississippi gaming subsidiaries must be found
suitable or be licensed by the Mississippi Gaming Commission. We believe that
all required findings of suitability related to all of our Mississippi
properties have been applied for or obtained, although the Mississippi Gaming
Commission at its discretion may require additional persons to file applications
for findings of suitability. In addition, any person having a material
relationship or involvement with us may be required to be found suitable or
licensed, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi Gaming
Commission. In addition to its authority to deny an application for a finding
of suitability, the Mississippi Gaming Commission has jurisdiction to disapprove
a change in a licensed position. The Mississippi Gaming Commission has the
power to require us and any of our Mississippi gaming subsidiaries to suspend
or dismiss officers, directors and other key employees or to sever relationships
with other persons who refuse to file appropriate applications or whom
the authorities find unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Gaming
Commission will refuse to issue a work permit to a person who has been convicted
of a felony, committed certain misdemeanors or knowingly violated the
Mississippi Gaming Control Act, and it may refuse to issue a work permit to a
gaming employee for any other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial stockholder
of ours. The Mississippi Gaming Control Act requires any person who individually
or in association with others acquires, directly or indirectly, beneficial
ownership of more than 5% of our common stock to report the acquisition to the
Mississippi Gaming Commission, and such person may be required to be found
suitable. In addition, the Mississippi Gaming Control Act requires any person
who, individually or in association with others, becomes, directly or
indirectly, a beneficial owner of more than 10% of our common stock, as reported
to the U.S. Securities and Exchange Commission, to apply for a finding of
suitability by the Mississippi Gaming Commission and pay the costs and fees that
the Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered publicly traded corporation's stock. However, the Mississippi Gaming
Commission has adopted a regulation that may permit certain "institutional"
investors to obtain waivers that allow them to beneficially own, directly or
indirectly, up to 15% (19% in certain specific instances) of the voting
securities of a registered publicly traded corporation without a finding of
suitability. If a stockholder who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial
information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. We believe that compliance by us with the
licensing procedures and regulatory requirements of the Mississippi Gaming
Commission will not affect the marketability of our securities. Any person found
unsuitable who holds, directly or indirectly, any beneficial ownership of our
securities beyond such time as the Mississippi Gaming Commission prescribes may
be guilty of a misdemeanor. We are subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or our subsidiaries operating casinos in Mississippi,
we:
- - pay the unsuitable person any dividend or other distribution upon its
voting securities;
- - recognize the exercise, directly or indirectly, of any voting rights
conferred by its securities;
- - pay the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances; or
- - fail to pursue all lawful efforts to require the unsuitable person to
divest itself of the securities, including, if necessary, our immediate purchase
of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Gaming Commission upon
request the identities of the holders of any of our debt securities. In
addition, under the Mississippi Gaming Control Act, the Mississippi Gaming
Commission may, in its discretion, (1) require holders of our securities,
including the notes, to file applications, (2) investigate such holders and (3)
require such holders to be found suitable to own such securities. Although the
Mississippi Gaming Commission generally does not require the individual holders
of obligations such as the notes to be investigated and found suitable, the
Mississippi Gaming Commission retains the discretion to do so for any reason,
including but not limited to a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with such an investigation.
The Mississippi regulations provide that a change in control of us may not
occur without the prior approval of the Mississippi Gaming Commission.
Mississippi law prohibits us from making a public offering of our securities
without the approval of the Mississippi Gaming Commission if any part of the
proceeds of the offering is to be used to finance the construction, acquisition
or operation of gaming facilities in Mississippi, or to retire or extend
obligations incurred for one or more such purposes. The Mississippi Gaming
Commission has the authority to grant a continuous approval of securities
offerings and has granted such approval for us, subject to renewal every two
years.
Regulations of the Mississippi Gaming Commission prohibit certain
repurchases of securities of publicly traded corporations registered with the
Mississippi Gaming Commission, including holding companies such as ours, without
prior approval of the Mississippi Gaming Commission. Transactions covered by
these regulations are generally aimed at discouraging repurchases of securities
at a premium over market price from certain holders of greater than 3% of the
outstanding securities of the registered publicly traded corporation. The
regulations of the Mississippi Gaming Commission also require prior approval for
a "plan of recapitalization" as defined in such regulations.
We must maintain in the State of Mississippi current stock ledgers, which
may be examined by the Mississippi Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Mississippi
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. We must render maximum assistance in determining
the identity of the beneficial owner.
Mississippi law requires that certificates representing shares of our
common stock bear a legend to the general effect that the securities are subject
to the Mississippi Gaming Control Act and regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the authority to grant a
waiver from the legend requirement, which we have obtained. The Mississippi
Gaming Commission, through the power to regulate licenses, has the power to
impose additional restrictions on the holders of our securities at any time.
The Mississippi Gaming Commission enacted a regulation requiring that, as a
condition to licensure or license renewal, an applicant must provide a plan to
develop infrastructure facilities amounting to 25% of the cost of the casino and
a parking facility capable of accommodating 500 cars. In 1999, the Mississippi
Gaming Commission approved amendments to this regulation that increased the
infrastructure development requirement from 25% to 100% for new casinos (or upon
acquisition of a closed casino), but grandfathered existing licensees and
development plans approved prior to the effective date of the new regulation
(including the Isle-Tunica and the Isle-Lula). "Infrastructure facilities"
include any of the following:
- - a 250-room or larger hotel of at least a two-star rating as defined by the
current edition of the Mobil Travel Guide;
- - theme parks;
- - golf courses;
- - marinas;
- - entertainment facilities;
- - tennis complexes; and
- - any other facilities approved by the Mississippi Gaming Commission.
Parking facilities, roads, sewage and water systems or civic facilities are
not considered "infrastructure facilities." The Mississippi Gaming Commission
may reduce the number of rooms required in a hotel if it is satisfied that
sufficient rooms are available to accommodate the anticipated number of
visitors.
License fees and taxes are payable to the State of Mississippi and to the
counties and cities in which a Mississippi gaming subsidiary's respective
operations will be conducted. The license fee payable to the state of
Mississippi is based upon gross revenue of the licensee (generally defined as
gaming receipts less
payout to customers as winnings) and equals 4% of gross revenue of $50,000 or
less per month, 6% of gross revenue in excess of $50,000 but less than $134,000
per calendar month, and 8% of gross revenue in excess of $134,000 per calendar
month. The foregoing license fees are allowed as a credit against the licensee's
Mississippi income tax liability for the year paid. Additionally, a licensee
must pay a $5,000 annual license fee and an annual fee based upon the number of
games it operates. The gross revenue tax imposed by the Mississippi communities
and counties in which our casino operations are located equals 0.4% of gross
revenue of $50,000 or less per calendar month, 0.6% of gross revenue over
$50,000 and less than $134,000 per calendar month and 0.8% of gross revenue
greater than $134,000 per calendar month. These fees have been imposed in, among
other cities and counties, Biloxi, Vicksburg, Tunica County and Coahoma County.
Certain local and private laws of the state of Mississippi may impose fees or
taxes on the Mississippi gaming subsidiaries in addition to the fees described
above.
The Mississippi Gaming Commission requires, as a condition of licensure or
license renewal, that casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile-per-hour winds and 15-foot tidal surge. We believe that all of our
Mississippi gaming locations currently meet this requirement. A 1996 Mississippi
Gaming Commission regulation prescribes the hurricane emergency procedure to be
used by the Mississippi Gulf Coast casinos.
The sale of food or alcoholic beverages at our Mississippi gaming locations
is subject to licensing, control and regulation by the applicable state and
local authorities. The agencies involved have full power to limit, condition,
suspend or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operations of the
affected casino or casinos. Certain of our officers and managers and our
Mississippi gaming subsidiaries must be investigated by the Alcoholic Beverage
Control Division of the State Tax Commission in connection with liquor permits
that have been issued. The Alcoholic Beverage Control Division of the State Tax
Commission must approve all changes in licensed positions.
On three separate occasions since 1998, certain anti-gaming groups have
proposed referenda that, if adopted, would have banned gaming in Mississippi and
required that gaming entities cease operations within two years after the ban.
All three referenda were declared invalid by Mississippi courts because each
lacked a required government revenue impact statement.
MISSOURI
Conducting gambling games and operating an excursion gambling boat in
Missouri are subject to extensive regulation under Missouri's Riverboat Gambling
Act and the rules and regulations promulgated thereunder. The Missouri Gaming
Commission was created by the Missouri Riverboat Gambling Act and is charged
with regulatory authority over riverboat gaming operations in Missouri,
including the issuance of riverboat gaming licenses. In June 2000, IOC-Kansas
City, Inc., a subsidiary of ours, was issued a riverboat gaming license in
connection with our Kansas City operation. Additionally, in December 2001,
IOC-Boonville, Inc., a subsidiary of ours, was issued a riverboat gaming license
for our Boonville operation.
In order to obtain a riverboat gaming license, the proposed operating
business entity must complete a Class A Riverboat Gaming Application, comprised
of comprehensive application forms, including corroborating attachments, and
undergo an extensive background investigation by the Missouri Gaming Commission.
In addition, each key person associated with the applicant (including directors,
officers, managers and owners of a significant direct or indirect interest in
the applicant) must complete a Riverboat Gaming Application Form I and undergo a
background investigation. Certain key business entities closely related to the
applicant or "business entity key persons" must undergo a similar application
process and background check. An applicant will not receive a license to
conduct gambling games and to operate an excursion gambling boat if the
applicant and its key persons have not established
good repute and moral character and no licensee shall either employ or contract
with any person who has pled guilty to, or been convicted of, a felony, to
perform any duties directly connected with the licensee's privileges under a
license granted by the Commission. Each license granted entitles a licensee to
conduct gambling games on an excursion gambling boat or to operate an excursion
gambling boat and the equipment thereon from a specific location. The duration
of the license initially runs for two one-year terms; thereafter, two-year
terms. The Commission also licenses the serving of alcoholic beverages on
riverboats and related facilities.
In determining whether to grant a license, the Commission considers the
following factors, among others: (i) the integrity of the applicants; (ii) the
types and variety of games the applicant may offer; (iii) the quality of the
physical facility, together with improvements and equipment, and how soon the
project will be completed; (iv) the financial ability of the applicant to
develop and operate the facility successfully; (v) the status of governmental
actions required by the facility; (vi) management ability of the applicant;
(vii) compliance with applicable statutes, rules, charters and ordinances;
(viii) the economic, ecological and social impact of the facility as well as the
cost of public improvements; (ix) the extent of public support or opposition;
(x) the plan adopted by the home dock city or county; and (xi) effects on
competition.
A licensee is subject to the imposition of penalties, suspension or
revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the State of
Missouri, or that would discredit or tend to discredit the Missouri gaming
industry or the State of Missouri, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rules, order or ruling of the Missouri Gaming
Commission or its agents pertaining to gaming; (iii) receiving goods or services
from a person or business entity who does not hold a supplier's license but who
is required to hold such license by the legislation or the rules; (iv) being
suspended or ruled ineligible or having a license revoked or suspended in any
state of gaming jurisdiction; (v) associating with, either socially or in
business affairs, or employing persons of notorious or unsavory reputation or
who have extensive police records, or who have failed to cooperate with any
officially constituted investigatory or administrative body and would adversely
affect public confidence and trust in gaming; (vi) employing in any Missouri
gaming operation any person known to have been found guilty of cheating or using
any improper device in connection with any gambling game; (vii) use of fraud,
deception, misrepresentation or bribery in securing any license or permit issued
pursuant to the legislation; (viii) obtaining any fee, charge, or other
compensation by fraud, deception or misrepresentation; and (ix) incompetence,
misconduct, gross negligence, fraud, misrepresentation or dishonesty in the
performance of the functions or duties regulated by the Missouri Riverboat
Gambling Act.
Any transfer or issuance of ownership interest in a publicly held gaming
licensee or its holding company that results in an entity owning, directly or
indirectly, an aggregate ownership interest of 5% or more in the
gaming licensee must be reported to the Missouri Gaming Commission within seven
days. Further, any pledge or hypothecation of five percent or more of the
ownership interest in a publicly held gaming licensee or its holding company
must be reported to the Missouri Gaming Commission within seven days.
Every employee participating in a riverboat gaming operation must hold an
occupational license. In addition, the Missouri Gaming Commission issues
supplier's licenses, which authorize the supplier licensee to sell or lease
gaming equipment and supplies to any licensee involved in the operation of
gaming operations.
Riverboat gaming operations may only be conducted on the Missouri River or
Mississippi River. Although, all of the excursion gambling boats in Missouri are
permanently moored boats or barges, a two hour simulated cruise is imposed in
order to ensure the enforcement of loss limit restrictions. Missouri
law imposes a maximum loss per person per cruise of $500. Minimum and maximum
wagers on games are set by the licensee and wagering may be conducted only with
a cashless wagering system, whereby money is converted to tokens, electronic
cards or chips that can only be used for wagering. No person under the age of 21
is permitted to wager, and wagers may only be taken from a person present on a
licensed excursion gambling boat.
The Missouri Riverboat Gambling Act imposes a 20% wagering tax on adjusted
gross receipts (generally defined as gross receipts less winnings paid to
wagerers) from gambling games. The tax imposed is to be paid by the licensee to
the Commission on the day after the day when the wagers were made. Of the
proceeds of that tax, 10% goes to the local government where the home dock is
located, and the remainder goes to the State of Missouri.
The Missouri Riverboat Gambling Act also requires that licensees pay a
$2.00 admission tax to the Missouri Gaming Commission for each person admitted
to a gaming cruise. The licensee is required to maintain public books and
records clearly showing amounts received from admission fees, the total amount
of gross receipts and the total amount of adjusted gross receipts. In addition,
all local income, earnings, use, property and sales taxes are applicable to
licensees. There are currently pending before the Missouri General Assembly
several proposed bills which individually or in combination would, if adopted,
(1) remove the loss limit restriction, (2) adjust the amount of wagering tax
imposed on adjusted gross receipts of licensees and/or (3) adjust the amount of
admission tax paid by the licensee for each person admitted for a gaming cruise.
The Missouri General Assembly concludes its current session in June 2003.
IOWA
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi
River and other waterways located in Iowa. The legislation authorized the
granting of licenses to non-profit corporations that, in turn, are permitted
to enter into operating agreements with qualified persons who also actually
conduct riverboat gaming operations. Such operators must likewise be approved
and licensed by the Iowa Racing and Gaming Commission (the "Iowa Gaming
Commission").
The Isle-Bettendorf has the right to renew its operator's contract with the
Riverbend Regional Authority, a non-profit corporation organized for the
purpose of facilitating riverboat gaming in Bettendorf, Iowa, for succeeding
three-year periods as long as Scott County voters approve gaming in the
jurisdiction. Under the operator's contract, the Isle-Bettendorf pays the
Riverbend Regional Authority a fee equal to 4.1% of the adjusted gross receipts.
Further, the Isle-Bettendorf generally must pay a fee to the City of Bettendorf
equal to 1.65% of adjusted gross receipts.
In June 1994, Upper Mississippi Gaming Corporation, a non-profit
corporation organized for the purpose of facilitating riverboat gaming in
Marquette, Iowa, entered into an operator's agreement for the Isle-Marquette for
a period of twenty-five years. Under the management agreement, the non-profit
organization is to be paid a fee of $0.50 per passenger. Further, pursuant to a
dock site agreement (which also has a term of twenty-five years), the
Isle-Marquette is required to pay a fee to the City of Marquette in the amount
of $1.00 per passenger, plus a fixed amount of $15,000 per month and 2.5% of
gaming revenues (less state wagering taxes) in excess of $20.0 million but less
than $40.0 million; 5% of gaming revenues (less state wagering taxes) in excess
of $40.0 million but less than $60.0 million; and 7.5% of gaming revenues (less
state wagering taxes) in excess of $60.0 million.
On October 2000, the Riverboat Development Authority, a non-profit
corporation organized for the purpose of facilitating riverboat gaming in
Davenport, Iowa, entered into an operator's agreement with the Isle-Davenport to
conduct riverboat gaming in Davenport, Iowa. The operating agreement requires
the Isle-Davenport to make weekly payments to the qualified sponsoring
organization equal to 4.1% of each week's adjusted gross receipts (as defined in
the enabling legislation) or $38,461.54, whichever is greater.
This agreement will remain in effect through March 31, 2009 and may be extended
by the Isle-Davenport so long as it holds a license to conduct gaming. In
addition, the Isle-Davenport pays a docking fee, gaming tax and a payment in
lieu of taxes to the City of Davenport. Pursuant to a development agreement with
the City, the Isle-Davenport has exclusive docking privileges in the City of
Davenport until March 31, 2017 in consideration of this docking fee. The docking
fee has both a fixed base and a per passenger increment. The fixed fee commenced
April 1, 1994 at $111,759 and increases annually by 4%. The incremental
component is a $0.10 charge for each passenger in excess of 1,117,579 passengers
(which charge also increases by 4% per year). The City is also guaranteed an
annual gaming tax of $558,789.50 per year (based on a minimum passenger floor
count of 1,117,579 passengers at $0.50 per passenger). Finally, the
Isle-Davenport is obligated to pay a payment in lieu of taxes to support the
downtown development district. This annual lump sum payment is in the amount of
$123,516 plus $0.20 per passenger in excess of 1,117,579 passengers. This
payment in lieu of taxes is further subject to a minimum $226,179 per year
payment.
Iowa law permits gaming licensees to offer unlimited stakes gaming on games
approved by the Iowa Gaming Commission on a 24-hour basis. Dockside casino
gaming is authorized by the Iowa Gaming Commission although the licensed vessel
is required to conduct at least one two-hour excursion cruise each day for at
least 100 days during the excursion season. The legal age for gaming is 21.
All Iowa licenses were approved for renewal at the March 6, 2003, Iowa
Gaming Commission meeting. These licenses are not transferable and will need to
be renewed in March 2004 and prior to the commencement of each subsequent annual
renewal period.
The ownership and operation of gaming facilities in Iowa are subject to
extensive state laws, regulations of the Iowa Gaming Commission and various
county and municipal ordinances (collectively, the "Iowa Gaming Laws"),
concerning the responsibility, financial stability and character of gaming
operators and persons financially interested or involved in gaming operations,
Iowa Gaming Laws seek to: (1) prevent unsavory or unsuitable persons from having
direct or indirect involvement with gaming at any time or in any capacity; (2)
establish and maintain responsible accounting practices and procedures; (3)
maintain effective control over the financial practices of licensees (including
the establishment of minimum procedures for internal fiscal affairs, the
safeguarding of assets and revenues, the provision of reliable record keeping
and the filing of periodic reports with the Iowa Gaming Commission); (4) prevent
cheating and fraudulent practices; and (5) provide a source of state and local
revenues through taxation and licensing fees. Changes in Iowa Gaming Laws could
have a material adverse effect on the Iowa gaming operations.
Gaming licenses granted to individuals must be renewed every year, and
licensing authorities have broad discretion with regard to such renewals.
Licenses are not transferable. The Iowa gaming operations must submit detailed
financial and operating reports to the Iowa Gaming Commission. Certain contracts
of licensees in excess of $100,000 must be submitted to and approved by the Iowa
Gaming Commission.
Certain officers, directors, managers and key employees of the Iowa gaming
operations are required to be licensed by the Iowa Gaming Commission. Employees
associated with gaming must obtain work permits that are subject to immediate
suspension under specific circumstances. In addition, anyone having a material
relationship or involvement with the Iowa gaming operations may be required to
be found suitable or to be licensed, in which case those persons would be
required to pay the costs and fees of the Iowa Gaming Commission in connection
with the investigation. The Iowa Gaming Commission may deny an application for a
license for any cause deemed reasonable. In addition to its authority to deny an
application for license, the Iowa Gaming Commission has jurisdiction to
disapprove a change in position by officers or key employees and the power to
require the Iowa gaming operations to suspend or dismiss officers, directors or
other key employees or sever relationships with other persons who refuse to file
appropriate applications or whom the Iowa Gaming Commission finds unsuitable to
act in such capacities.
The Iowa Gaming Commission may revoke a gaming license if the licensee:
- - has been suspended from operating a gaming operation in another
jurisdiction by a board or commission of that jurisdiction;
- - has failed to demonstrate financial responsibility sufficient to meet
adequately the requirements of the gaming enterprise;
- - is not the true owner of the enterprise;
- - has failed to disclose ownership of other persons in the enterprise;
- - is a corporation 10% of the stock of which is subject to a contract or
option to purchase at any time during the period for which the license was
issued, unless the contract or option was disclosed to the Iowa Gaming
Commission and the Iowa Gaming Commission approved the sale or transfer during
the period of the license;
- - knowingly makes a false statement of a material fact to the Iowa Gaming
Commission;
- - fails to meet a monetary obligation in connection with an excursion gaming
boat;
- - pleads guilty to, or is convicted of a felony;
- - loans to any person, money or other thing of value for the purpose of
permitting that person to wager on any game of chance;
- - is delinquent in the payment of property taxes or other taxes or fees or a
payment of any other contractual obligation or debt due or owed to a city or
county; or
- - assigns, grants or turns over to another person the operation of a
licensed excursion boat (this provision does not prohibit assignment of a
management contract approved by the Iowa Gaming Commission) or permits another
person to have a share of the money received for admission to the excursion
boat.
If it were determined that the Iowa Gaming Laws were violated by a
licensee, the gaming licenses held by a licensee could be limited, made
conditional, suspended or revoked. In addition, the licensee and the persons
involved could be subject to substantial fines for each separate violation of
the Iowa Gaming Laws in the discretion of the Iowa Gaming Commission.
Limitations, conditioning or suspension of any gaming license could (and
revocation of any gaming license would) have a material adverse effect on
operations.
The Iowa Gaming Commission may also require any individual who has a
material relationship with the Iowa gaming operations to be investigated and
licensed or found suitable. The Iowa Gaming Commission, prior to the
acquisition, must approve any person who acquires 5% or more of a licensee's
equity securities. The applicant stockholder is required to pay all costs of
this investigation.
Gaming taxes approximating 20% of the adjusted gross receipts will be
payable by each licensee on its operations to the State of Iowa. In addition,
there are costs that include a $50,000 initial application fee, yearly
operations fees and all costs associated with monitoring and enforcement by the
Iowa Gaming Commission and the Iowa Department of Criminal Investigation.
COLORADO
The State of Colorado created the Division of Gaming (the "Colorado
Division") within the Department of Revenue to license, implement, regulate and
supervise the conduct of limited gaming under the Colorado Limited Gaming Act.
The Director of the Colorado Division (the "Colorado Director"), pursuant to
regulations promulgated by, and subject to the review of, a five-member Colorado
Limited Gaming Control Commission (the "Colorado Commission"), has been granted
broad power to ensure compliance with the Colorado gaming laws and regulations
(collectively, the "Colorado Regulations"). The Colorado Director may inspect,
without notice, impound or remove any gaming device. The Colorado Director may
examine and copy any licensee's records, may investigate the background and
conduct of licensees and their employees, and may bring disciplinary actions
against licensees and their employees. The Colorado Director may also conduct
detailed background investigations of persons who loan money to, or otherwise
provide financing to, a licensee.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses, and has delegated authority to the Colorado Director to
issue certain types of licenses and approve certain changes in ownership. The
licenses are revocable and non-transferable. The failure or inability of the
Isle-Black Hawk, the Colorado Central Station-Black Hawk or the Colorado
Grande-Cripple Creek (the "Colorado Casino" or collectively, the "Colorado
Casinos"), or the failure or inability of others associated with any of the
Colorado Casinos, including us, to maintain necessary gaming licenses or
approvals would have a material adverse effect on our operations. All persons
employed by any of the Colorado Casinos, and involved, directly or indirectly,
in gaming operations in Colorado also are required to obtain a Colorado gaming
license. All licenses must be renewed annually, except those for key and support
employees, which must be renewed every two years.
As a general rule, under the Colorado Regulations, no person may have an
"ownership interest" in more than three retail gaming licenses in Colorado. The
Colorado Commission has ruled that a person does not have an ownership interest
in a retail gaming licensee for purposes of the multiple license prohibition if:
- - that person has less than a 5% ownership interest in an institutional
investor that has an ownership interest in a publicly traded licensee or
publicly traded company affiliated with a licensee;
- - a person has a 5% or more ownership interest in an institutional investor,
but the institutional investor has less than a 5% ownership interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
- - an institutional investor has less than a 5% ownership interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
- - an institutional investor possesses voting securities in a fiduciary
capacity for another person, and does not exercise voting control over 5% or
more of the outstanding voting securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee;
- - a registered broker or dealer retains possession of voting securities of a
publicly traded licensee or of a publicly traded company affiliated with a
licensee for its customers and not for its own account, and exercises voting
rights for less than 5% of the outstanding voting securities of a publicly
traded licensee or publicly traded company affiliated with a licensee;
- - a registered broker or dealer acts as a market maker for the stock of a
publicly traded
licensee or of a publicly traded company affiliated with a licensee and
exercises voting rights in less than 5% of the outstanding voting securities of
the publicly traded licensee or publicly traded company affiliated with a
licensee;
- - an underwriter is holding securities of a publicly traded licensee or
publicly traded company affiliated with a licensee as part of an underwriting
for no more than 90 days after the beginning of such underwriting if it
exercises voting rights of less than 5% of the outstanding voting securities of
a publicly traded licensee or publicly traded company affiliated with a
licensee;
- - a book entry transfer facility holds voting securities for third parties,
if it exercises voting rights with respect to less than 5% of the outstanding
voting securities of a publicly traded licensee or publicly traded company
affiliated with a licensee; or
- - a person's sole ownership interest is less than 5% of the outstanding
voting securities of the publicly traded licensee or publicly traded company
affiliated with a licensee.
Because we own the Colorado Casinos, our business opportunities, and those
of persons with an "ownership interest" in us, or any of the Colorado Casinos,
are limited to interests that comply with the Colorado Regulations and the
Colorado Commission's rule.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines or associated equipment may, without notification
being provided to the Colorado Division within ten days, knowingly have an
interest in any casino operator, allow any of its officers or any other person
with a substantial interest in such business to have such an interest, employ
any person if that person is employed by a casino operator, or allow any casino
operator or person with a substantial interest therein to have an interest in a
manufacturer's or distributor's business. A "substantial interest" means the
lesser of (i) as large an interest in an entity as any other person or (ii) any
financial or equity interest equal to or greater than 5%. The Colorado
Commission has ruled that a person does not have a "substantial interest" if
such person's sole ownership interest in such licensee is through the ownership
of less than 5% of the outstanding voting securities of a publicly traded
licensee or publicly traded affiliated company of a licensee.
We are a "publicly traded corporation" under the Colorado Regulations.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, us, Casino America of Colorado, Inc., IC Holdings
Colorado, Inc., CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc. or any
of the three Colorado Casinos and their security holders, may be required to
supply the Colorado Commission with substantial information, including, but not
limited to, background information, source of funding information, a sworn
statement that such person or entity is not holding his or her interest for any
other party, and fingerprints. Such information, investigation and licensing (or
finding of suitability) as an "associated person" automatically will be required
of all persons (other than certain institutional investors discussed below)
which directly or indirectly beneficially own 10% or more of a direct or
indirect beneficial ownership or interest in any of the three Colorado Casinos,
through their beneficial ownership of any class of voting securities of us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., CCSC/Blackhawk,
Inc., Colorado Grande Enterprises, Inc. or any of the three Colorado Casinos.
Those persons must report their interest within 10 days and file appropriate
applications within 45 days after acquiring that interest. Persons who directly
or indirectly beneficially own 5% or more (but less than 10%) of a direct or
indirect beneficial ownership or interest in any of the three Colorado Casinos,
through their beneficial ownership of any class of voting securities of us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., CCSC/Blackhawk,
Inc., Colorado Grande Enterprises, Inc. or any of the three Colorado Casinos,
must report their interest to the Colorado Commission within 10 days
after acquiring that interest and may be required to provide additional
information and to be found suitable. (It is the current practice of the gaming
regulators to require findings of suitability for persons beneficially owning 5%
or more of a direct or indirect beneficial ownership or interest, other than
certain institutional investors discussed below.) If certain institutional
investors provide specified information to the Colorado Commission and are
holding for investment purposes only, those investors, in the Colorado
Commission's discretion, may be permitted to own up to 14.99% of the Colorado
Casinos through their beneficial ownership in any class of voting of securities
of us, Casino America of Colorado, Inc., IC Holdings Colorado, Inc.,
CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc. or any of the three
Colorado Casinos, before being required to be found suitable. All licensing and
investigation fees will have to be paid by the person in question. The
associated person investigation fee currently is $62 per hour.
The Colorado Regulations define a "voting security" to be a security the
holder of which is entitled to vote generally for the election of a member or
members of the board of directors or board of trustees of a corporation or a
comparable person or persons of another form of business organization.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of: (1) all persons licensed
pursuant to the Colorado Limited Gaming Act; (2) all officers, directors and
stockholders of a licensed privately held corporation; (3) all officers,
directors and stockholders holding either a 5% or greater interest or a
controlling interest in a licensed publicly traded corporation; (4) all general
partners and all limited partners of a licensed partnership; (5) all persons
that have a relationship similar to that of an officer, director or stockholder
of a corporation (such as members and managers of a limited liability company);
(6) all persons supplying financing or loaning money to any licensee connected
with the establishment or operation of limited gaming; (7) all persons having a
contract, lease or ongoing financial or business arrangement with any licensee,
where such contract, lease or arrangement relates to limited gaming operations,
equipment devices or premises; and (8) all persons contracting with or supplying
any goods and services to the gaming regulators.
Certain public officials and employees are prohibited from having any
direct or indirect interest in a license or limited gaming.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" (as defined below) or lease with an applicant for a license,
or with a licensee, upon the request of the Colorado Commission or the Colorado
Director, must promptly provide the Colorado Commission or Colorado Director all
information which may be requested concerning financial history, financial
holdings, real and personal property ownership, interests in other companies,
criminal history, personal history and associations, character, reputation in
the community and all other information which might be relevant to a
determination of whether a person would be suitable to be licensed by the
Colorado Commission. Failure to provide all information requested constitutes
sufficient grounds for the Colorado Director or the Colorado Commission to
require a licensee or applicant to terminate its "gaming contract" or lease with
any person who failed to provide the information requested. In addition, the
Colorado Director or the Colorado Commission may require changes in "gaming
contracts" before an application is approved or participation in the contract is
allowed. A "gaming contract" is defined as an agreement in which a person does
business with or on the premises of a licensed entity.
The Colorado Commission and the Colorado Division have interpreted the
Colorado Regulations to permit the Colorado Commission to investigate and find
suitable persons or entities providing financing to or acquiring securities from
us, Casino America of Colorado, Inc., IC Holdings Colorado, Inc.,
CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc. or any of the three
Colorado Casinos. As noted above, any person or entity required to file
information, be licensed or found suitable would be required by us to pay the
costs thereof and of any investigation. Although the Colorado Regulations do
not require the prior approval for the execution of credit facilities or
issuance of debt securities, the Colorado regulators reserve the right to
approve, require changes to or require the termination of any financing,
including if a person or entity is required to be found suitable and is not
found suitable. In any event, lenders, note holders, and others providing
financing will not be able to exercise certain rights and remedies without the
prior approval of the Colorado gaming authorities. Information regarding lenders
and holders of securities will be periodically reported to the Colorado gaming
authorities.
Except under certain limited circumstances relating to slot machine
manufacturers and distributors, every person supplying goods, equipment, devices
or services to any licensee in return for payment of a percentage, or calculated
upon a percentage, of limited gaming activity or income must obtain an operator
license or be listed on the retailer's license where such gaming will take
place.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Colorado Director, as
appropriate. Specifically, the Colorado Commission and the Colorado Director
must deny a license to any applicant who, among other things: (1) fails to prove
by clear and convincing evidence that the applicant is qualified; (2) fails to
provide information and documentation requested; (3) fails to reveal any fact
material to qualification, or supplies information which is untrue or misleading
as to a material fact pertaining to qualification; (4) has been convicted of, or
has a director, officer, general partner, stockholder, limited partner or other
person who has a financial or equity interest in the applicant who has been
convicted of, specified crimes, including the service of a sentence upon
conviction of a felony in a correctional facility, city or county jail, or
community correctional facility or under the state board of parole or any
probation department within ten years prior to the date of the application,
gambling-related offenses, theft by deception or crimes involving fraud or
misrepresentation, is under current prosecution for such crimes (during the
pendency of which license determination may be deferred), is a career offender
or a member or associate of a career offender cartel, or is a professional
gambler; or (5) has refused to cooperate with any state or federal body
investigating organized crime, official corruption or gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to directly or indirectly own interests in us, Casino America of Colorado, Inc.,
IC Holdings Colorado, Inc., CCSC/Blackhawk, Inc., Colorado Grande Enterprises,
Inc. or any of the three Colorado Casinos, one or more of the Colorado Casinos
may be sanctioned, which may include the loss of our approvals and licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to a public offering of voting securities prior to such
public offering. The Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as us, Casino America of Colorado, Inc., IC Holdings
Colorado, Inc., CCSC/Blackhawk, Inc., or Colorado Grande Enterprises, Inc., from
paying any unsuitable person any dividends or interest upon any voting
securities or any payments or distributions of any kind (except as set forth
below), or paying any unsuitable person any remuneration for services or
recognizing the exercise of any voting rights by any unsuitable person. Further,
under the Colorado Regulations, each of the Colorado Casinos may repurchase its
voting securities from anyone found unsuitable at the lesser of the cash
equivalent to the original investment in any of the three Colorado Casinos or
the current market price as of the date of the finding of unsuitability unless
such voting securities are transferred to a suitable person (as determined by
the Colorado Commission) within sixty (60) days after the finding of
unsuitability. A licensee or affiliated company must pursue all lawful efforts
to require an unsuitable person to relinquish all voting securities, including
purchasing such voting securities. The staff of Colorado Division has taken the
position that a licensee or affiliated company may not pay any unsuitable person
any interest, dividends or other payments with respect to non-voting securities,
other than with respect to pursuing all lawful efforts to require an unsuitable
person to relinquish non-voting securities, including by purchasing or redeeming
such securities. Further, the regulations require anyone with a material
involvement with a licensee, including a director or officer of a holding
company, such as us, Casino America of Colorado, Inc., IC Holdings Colorado,
Inc., CCSC/Blackhawk, Inc., or Colorado Grande Enterprises, Inc. or any of the
three Colorado Casinos, to file for a finding of suitability if required by the
Colorado Commission.
Because of their authority to deny an application for a license or
suitability, the Colorado Commission and the Colorado Director effectively can
disapprove a change in corporate position of a licensee and with respect to any
entity which is required to be found unsuitable, or indirectly can cause us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., CCSC/Blackhawk,
Inc., or Colorado Grande Enterprises, Inc. or the applicable Colorado Casino to
suspend or dismiss managers, officers, directors and other key employees or
sever relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in such capacities.
The sale, lease, purchase and conveyance or acquisition of a controlling
interest in a Colorado Casino is subject to the approval of the Colorado
Commission. Under some circumstances, we may not sell any interest in our
Colorado gaming operations without the prior approval of the Colorado
Commission. On April 1, 2002, the Colorado Division requested comments with
respect to a proposed amendment to the Colorado Gaming Regulations. Under the
proposed regulation, a publicly traded corporation could not directly or
indirectly acquire control of a licensed publicly traded corporation or of a
publicly traded corporation which is an affiliated company, without a
determination by the Colorado Division as to whether prior approval by the
Colorado Commission would be required. Under the proposal, information would
need to be submitted to the Division within ten business days after the signing
or completion of a contract or proposed offer with respect to the changes in
management, and general source of funding. Within fifteen business days after
receipt of the documentation, the Colorado Division would notify the licensee
whether the acquisition would require the prior approval of the Colorado
Commission. There is no assurance that the proposal will be adopted or that it
will not be amended, for example to include any person, in addition to a
publicly traded corporation, seeking to acquire control of a licensee or to
include additional information to be submitted to the Colorado Division.
Each Colorado Casino must meet specified architectural requirements, fire
safety standards and standards for access for disabled persons. Each Colorado
Casino also must not exceed specified gaming square footage limits as a total of
each floor and the full building. Each Colorado Casino may operate only between
8:00 a.m. and 2:00 a.m., and may permit only individuals 21 or older to gamble
in the casino. It may permit slot machines, blackjack and poker, with a maximum
single bet of $5.00. No Colorado Casino may provide credit to its gaming
patrons.
A licensee is required to provide information and file periodic reports
with the Colorado Division, including identifying those who have a 5% or greater
ownership, financial or equity interest in the licensee, or who have the ability
to control the licensee, or who have the ability to exercise significant
influence over the licensee, or who loan money or other things of value to a
licensee, or who have the right to share in revenues of limited gaming, or to
whom any interest or share in profits of limited gaming has been pledged as
security for a debt or performance of an act. A licensee, and any parent company
or subsidiary of a licensee, who has applied to a foreign jurisdiction for
licensure or permission to conduct gaming, or who possesses a license to conduct
foreign gaming, is required to notify the Colorado Division. Any person licensed
by the Colorado Commission and any associated person of a licensee must report
criminal convictions and criminal charges to the Colorado Division.
The Colorado Commission has broad authority to sanction, fine, suspend and
revoke a license for violations of the Colorado Regulations. Violations of many
provisions of the Colorado Regulations also can result in criminal penalties.
The Colorado Constitution currently permits gaming only in a limited number
of cities and certain commercial districts in such cities.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds, and authorizes the Colorado Commission to change the rate
annually. The current gaming tax rate is 0.25% on adjusted gross gaming proceeds
of up to and including $2.0 million, 2% over $2.0 million up to and including
$4.0 million, 4% over $4.0 million up to and including $5.0 million, 11% over
$5.0 million up to and including $10.0 million, 16% over $10.0 million up to and
including $15.0 million and 20% on adjusted gross gaming proceeds in excess of
$15.0 million. The City of Black Hawk has imposed an annual device fee of $750
per gaming device and may revise it from time to time. Cripple Creek has
imposed an annual device fee of $1,200 per gaming device and may revise it from
time to time.
Colorado participates in multi-state lotteries.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado liquor agencies. All persons who directly or
indirectly hold a 10% or more interest in, or 10% or more of the issued and
outstanding capital stock of, any of the Colorado Casinos, through their
ownership of us, Casino America of Colorado, Inc., IC Holdings Colorado, Inc.,
CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc. or any of the three
Colorado Casinos, must file applications and possibly be investigated by the
Colorado liquor agencies. The Colorado liquor agencies also may investigate
those persons who, directly or indirectly, loan money to or have any financial
interest in liquor licensees. In addition, there are restrictions on
stockholders, directors and officers of liquor licensees from being a
stockholder, director, officer or otherwise interested in some persons lending
money to liquor licensees or from making loans to other liquor licensees. All
licenses are revocable and transferable only in accordance with all applicable
laws. The Colorado liquor agencies have the full power to limit, condition,
suspend or revoke any liquor license and any disciplinary action could (and
revocation would) have a material adverse effect upon the operations of us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., CCSC/Blackhawk,
Inc., Colorado Grande Enterprises, Inc. or the applicable Colorado Casino. Each
Colorado Casino holds a retail gaming tavern liquor license for its casino,
hotel and restaurant operations.
NEVADA
Accordingly, no person directly or indirectly interested in any of the
Colorado Casinos may be directly or indirectly interested in most other types of
liquor licenses. Further, no person can hold more than three retail gaming
tavern liquor licenses. The remedies of certain lenders may be limited by
applicable liquor laws and regulations.
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulations and
ordinances. We are subject to the licensing and regulatory control of the Nevada
Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board
("Nevada Board") and the City of Las Vegas. The Nevada Commission, the Nevada
Board and the City of Las Vegas are collectively referred to as the "Nevada
Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) the provision of a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on our gaming operations.
FLORIDA
On June 15, 1995, the Florida Department of Business and Professional
Regulation, acting through its division of pari-mutuel wagering (the "Florida
Division"), issued its final order approving Pompano Park as a pari-mutuel
wagering permit holder for harness and quarter horse racing at Pompano Park. The
Florida Division approved Pompano Park's license to conduct a total of 155 live
evening performances for the season beginning July 1, 2002 to June 30, 2003.
Although we do not presently intend to conduct quarter horse racing operations
at Pompano Park, we may do so in the future, subject to Florida Division
approval. The Florida Division must approve any transfer of 10% or more of stock
of a pari-mutuel racing permit holder such as Pompano Park.
The Florida Statute and the applicable rules and regulations thereunder
(the "Florida Statute") establishes license fees, the tax structure on
pari-mutuel permit holders and minimum purse requirements for breeders and
owners. The Florida Division may revoke or suspend any permit or license upon
the willful violation by the permit holder or licensee of any provision of the
Florida Statute. Instead of suspending or revoking a permit or license, the
Florida Division may impose various civil penalties on the permit holder or
licensee. Penalties may not exceed $1,000 for each count or separate offense.
Pursuant to a Florida Division order and recent enactments to the Florida
Statute, Pompano Park is also authorized to conduct full-card pari-mutuel
wagering on: (1) simulcast harness races from outside Florida throughout
the racing season and (2) night thoroughbred races within Florida if the
thoroughbred permit holder has decided to simulcast night races. Pompano Park
has been granted the exclusive right in Florida to conduct full-card
simulcasting of harness racing on days during which no live racing is held at
Pompano Park. However, on non-race days, Pompano Park must offer to
rebroadcast its simulcast signals to pari-mutuel facilities that are not
thoroughbred parks in Pompano Park's market area. In addition, Pompano Park may
transmit its live races into any dog racing or jai alai facility in Florida,
including Dade and Broward counties, for intertrack wagering. The Florida
Statute establishes the percentage split between Pompano Park and the other
facilities receiving such signals. Recent legislation in Florida provided
certain reductions in applicable tax and license fees related to intertrack
wagering on broadcasts of simulcast harness racing and thoroughbred racing. We
believe that simulcast rights at Pompano Park and the recent changes in the
Florida Statute are important to Pompano Park's operating results.
The Florida Statute permits pari-mutuel facilities licensed by the Florida
Division to operate card rooms in those counties in which a majority vote of the
County Commission has been obtained and a local ordinance has been adopted.
Pompano Park closed its card room in fiscal 2001 due to lack of profits.
NON-GAMING REGULATION
We are subject to certain federal, state and local safety and health,
employment and environmental laws, regulations and ordinances that apply to
non-gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act and the Oil
Pollution Act of 1990. We have not made, and do not anticipate making, material
expenditures with respect to such environmental laws and regulations. However,
the coverage and attendant compliance costs associated with such laws,
regulations and ordinances may result in future additional costs to our
operations. For example, the Department of Transportation has promulgated
regulations under the Oil Pollution Act of 1990 requiring owners and operators
of certain vessels to establish through the Coast Guard evidence of financial
responsibility for clean up of oil pollution. This requirement has been
satisfied by proof of adequate insurance.
Our riverboats operated in Louisiana and Iowa must comply with U.S. Coast
Guard requirements as to boat design, on-board facilities, equipment, personnel
and safety and hold U.S. Coast Guard Certificates of Documentation and
Inspection. The U.S. Coast Guard requirements also set limits on the operation
of the riverboats and requires licensing of certain personnel involved with the
operation of the riverboats. Loss of a riverboat's Certificate of Documentation
and Inspection could preclude its use as a riverboat casino. Each of our
riverboats is inspected annually and, every five years, is subject to
dry-docking for inspection of its hull, which could result in a temporary loss
of service.
The barges are inspected by third parties and certified with respect to
stability and single compartment flooding integrity. Our casino barges
must also meet local fire safety standards. We would incur additional costs
if any of our gaming facilities were not in compliance with one or more
of these regulations.
Regulations adopted by the Financial Crimes Enforcement Network of the U.S.
Treasury Department require us to report currency transactions in excess of
$10,000 occurring within a gaming day, including identification of the patron by
name and social security number. Substantial penalties can be imposed against us
if we fail to comply with these regulations.
All of our shipboard employees, even those who have nothing to do with our
operation as a vessel, such as dealers, waiters and security personnel, may be
subject to the Jones Act which, among other things, exempts those employees from
state limits on workers' compensation awards.
ITEM 2. PROPERTIES.
The Isle-Bossier City
We own approximately 38 acres of land in Bossier City, Louisiana for use in
connection with the Isle-Bossier City and we own a 225-room hotel on
approximately 10.5 acres of land located 2.5 miles east of the Isle-Bossier
City.
The Isle-Lake Charles
We own approximately 2.7 acres and lease approximately 16.25 acres of land
in Calcasieu Parish, Louisiana for use in connection with the Isle-Lake Charles.
This lease currently expires in March 2005 and we have the option to renew it
for sixteen additional terms of five years each. Rent under the Isle-Lake
Charles lease is currently $1.5 million per year and is subject to increases
based on the Consumer Price Index (CPI) and the construction of additional
hotel facilities on the property.
The Isle-Biloxi
We lease the Biloxi berth from the Biloxi Port Commission at an annual rent
of the greater of $500,000 or 1% of the gross gaming revenue net of state and
local gaming taxes. The lease terminates on July 1, 2004 and we have the option
to renew it for seven additional terms of five years each subject to increases
based on the CPI, limited to 6% for each renewal period.
We lease our land-based facilities from the City of Biloxi and the
Mississippi Secretary of State at an annual rent of $530,000 per year, plus 3%
of the Isle-Biloxi's gross gaming revenues, net of state and local gaming taxes
and fees, in excess of $25.0 million. The lease terminates on July 1, 2004, but
it is renewable at our option for five additional terms of five years each and a
sixth option renewal term, concluding on January 31, 2034, subject to rent
increases based on the CPI, limited to 6% for each renewal period. In April
1994, we entered into an addendum to this lease that requires us to pay 4% of
our gross non-gaming revenue, net of sales tax, complimentaries and discounts.
Additional rent will be due to the City of Biloxi for the amount of any increase
from and after January 1, 2016, in the rent due to the State Institutions of
Higher Learning under a lease between the City of Biloxi and the State
Institutions of Higher Learning and for any increases in certain tidelands
leases between the City of Biloxi and the State of Mississippi.
In April 1994, in connection with the construction of a hotel, we entered
into a lease for additional land adjoining the Isle-Biloxi. This lease with the
City of Biloxi and the Mississippi Secretary of State is for an initial term of
25 years, with options to renew for six additional terms of ten years each and a
final option period concluding December 31, 2085. Annual rent is $444,000 plus
4% of gross non-gaming revenue, as defined in the lease, and renewals are
subject to rent increases based on the CPI. The annual rent is adjusted
after each five-year period based on increases in the CPI, limited to a 10%
increase in any five-year period. The annual rent will increase 10 years after
the commencement of payments pursuant to a termination of lease and settlement
agreement, to an amount equal to the sum of annual rent as if it had been
$500,000 annually plus adjustments thereto based on the CPI.
In August 2002, we entered into a lease for two additional parcels of land
adjoining the Isle-Biloxi and also the hotel. On the parcel adjoining the
Isle-Biloxi, we are constructing a multi-level parking garage that will have
approximately 1,000 parking spaces. We expect that this garage will be
completed and in operation by early 2004. There is additional ground level
parking on a parcel of land in front of the garage, also subject to this lease,
with approximately 600 parking spaces. We plan to construct a 400 room addition
to the existing hotel on the parcel leased next to the existing hotel. In
addition, we may construct a hotel above the parking garage. This lease with
the City of Biloxi and the Mississippi
Secretary of State is for an initial term of 40 years, with one option to renew
for an additional 25 years and additional options thereafter, with the consent
of the Mississippi Secretary of State, consistent with the term of the lease
described in the preceding paragraph. When combined with the base and
percentage rents described for the leases in the preceding two paragraphs,
annual rent under those two leases and this lease initially will be at least
a minimum amount of $2,500,000 for the lease year ending July 31, 2003, such
minimum to increase thereafter over time in accordance with a formula
based on anticipated timing for completion of the parking garage construction
and the hotel construction, up to a minimum rent of $3,733,000. Such amounts
are subject to decreases due to market adjustments and increases based on the
CPI. Also, we are responsible for annual rent equal to 4% of gross retail
revenue and gross cash revenue (as defined in the lease), but without
double counting. If the rent minimum described in the preceding sentences is
not otherwise satisfied from other rents, then this percentage rent is not in
addition to the minimum rent, but rather is to be applied to that minimum.
We have a further annual rent obligation under this lease capped at $125,000
(although it may be a lesser amount) for up to two years; this rent obligation
is not included in the minimum rent calculations.
In connection with and pursuant to a settlement between the City of Biloxi
and the State of Mississippi concerning the control and management area where
the Isle-Biloxi is located, we also have agreed to pay the City of Biloxi's
lease obligations to the State of Mississippi. This amount is $500,000 per
year, payable on June 30, subject to increases based on the CPI and decreases if
there are other tenants of the subject property. This obligation ends after
June 2018, but may be renewed for 30 years.
We have also entered into a joint venture arrangement to sublease
property containing a two-level parking garage next to the Isle-Biloxi. Our
annual rent under this lease is approximately $200,000. The current term is
for two years expiring December 31, 2004, with a renewal option for another
two years (under which our annual rent would increase to approximately
$212,500).
The Isle-Lula
We lease approximately 1,000 acres of land in Coahoma County, Mississippi
and utilize approximately 50 acres in connection with the operations of the
Isle-Lula. Unless terminated by us at an earlier date, the lease expires in
2033. Rent under the lease is currently 5.5% of gross gaming revenue as
established by the Mississippi Gaming Commission, as well as $3,333 per month
for the hotel. We also own approximately 100 acres in Coahoma County, which may
be utilized for future development.
The Isle-Natchez
Through numerous lease agreements, we lease approximately 64 acres of land
in Natchez, Mississippi that is used in connection with the operations of the
Isle-Natchez. Unless terminated by us at an earlier date, the lease expiration
dates vary from 2002-2037. Rents under the leases currently total approximately
$97,000 per month. We also lease approximately 7.5 acres of land that is
utilized for parking at the facility. We own approximately 6 acres of
property in Natchez, Mississippi, as well as the property upon which our hotel
is located.
The Isle-Vicksburg
We own approximately 13.1 acres of land in Vicksburg, Mississippi for use
in connection with the Isle-Vicksburg. We own an additional 13 acres of land in
Vicksburg on which we operate off-site parking and a recreational vehicle park.
We also entered into a lease for approximately five acres of land adjacent to
the Isle-Vicksburg to be used for additional parking.
The Isle-Boonville
We lease the site from the City of Boonville under a lease agreement, which
has a term of 99 years. We were required to pay $1.7 million to the City of
Boonville as a lump sum rent payment during construction of the casino. There
was no rent due after the casino opening date.
In addition, in the first year after the casino opened, we were required to
pay the City of Boonville a minimum of $0.8 million based on a 3.5% tax on
gaming revenue. For every dollar in excess of the minimum $0.8 million in tax
payments received by the City of Boonville, up to a maximum of $1.0 million, the
City of Boonville would be required to pay a dollar for dollar rebate up to $0.2
million. We received the $0.2 million rebate from the City of Boonville during
the fiscal year ended April 27, 2003, from the admission fees.
The Isle-Kansas City
We lease approximately 28 acres from the Kansas City Port Authority in
connection with the operation of the Isle-Kansas City facility. The term of the
lease is 5 years and we have the option to renew the lease for 8 additional
terms of 5 years each. Rent under the lease is currently $3.0 million per year,
subject to the higher of $3.0 million (minimum rent) per year, or 3.25% of gross
revenues, less complimentaries.
The Isle-Bettendorf
We own approximately 24.6 acres of land in Bettendorf, Iowa used in
connection with the operations of the Isle-Bettendorf. We also lease
approximately 8 acres of land on a month-to-month basis from an entity owned by
members of Bernard Goldstein's family, including Robert S. Goldstein and Jeffrey
D. Goldstein, which we utilize for parking and warehouse space. The initial
term of the lease expires 60 days after written notice is given to either party
and rent under the lease is currently $23,360 per month.
The Isle-Marquette
We lease the dock site in Marquette, Iowa that is used in connection with
the operations of the Isle-Marquette. The lease expires in 2019, and rent under
the lease is currently $15,000 per month, plus $0.50 per passenger, plus 2.5% of
gaming revenues (less state wagering taxes) in excess of $20.0 million but less
than $40.0 million; 5% of gaming revenues (less state wagering taxes) in excess
of $40.0 million but less than $60.0 million; and 7.5% of gaming revenues (less
state wagering taxes) in excess of $60.0 million. We also rent approximately 5
acres of land used for the employee parking lot. That is a month-to-month
rental of $833. We also own approximately 25 acres of land for the pavilion,
hotel, satellite offices, warehouse, lots by the marina, and other property.
The Rhythm City-Davenport
We lease approximately 12 acres of land in Davenport, Iowa used in
connection with the operations of Rhythm City-Davenport and own a 191-room hotel
on approximately one acre of land located several blocks northeast of the Rhythm
City-Davenport.
The Isle-Black Hawk
We own approximately 10.1 acres of land in Black Hawk, Colorado for use in
connection with the Isle-Black Hawk.
The Colorado Central Station-Black Hawk
We own and lease approximately 7.1 acres of land in Black Hawk, Colorado
for use in connection with the Colorado Central Station-Black Hawk. We lease
additional parcels of land adjoining the Colorado Central Station-Black Hawk for
parking. This lease is for an initial term of ten years with options to renew
for nine additional terms of ten years each with the final option period
concluding June 1, 2094. Annual rent is $370,000 and renewals are subject to 20%
rent increases over the rate of the previous term. We also entered into a lease
for additional parking. This lease is for an initial term of nine years with
options to renew for eighteen additional terms of five years each with the final
option period concluding June 1, 2094. Annual rent is $1.5 million indexed to
correspond to any rise or fall in the cost of living at one-year intervals
beginning June 1, 1996, not to exceed 3% difference from the previous year's
rate.
The Colorado Grande-Cripple Creek
We lease approximately 0.57 acres of land in Cripple Creek, Colorado for
use in connection with our land-based facilities. We lease this land at an
annual rent at the greater of $144,000 or 5% of Colorado Grande-Cripple Creek's
adjusted gross gaming revenues, as defined, with an annual cap of $400,000. This
lease is for an initial term of sixteen years with an option to renew for
fifteen years with the final option period concluding January 31, 2021.
Pompano Park
We own approximately 220 acres at Pompano Park.
Other
We own all of the riverboats and barges utilized at our facilities. We
also own or lease all of our gaming and non-gaming equipment.
We lease our corporate office in Biloxi and our corporate office in Boca
Raton, Florida.
We have various property leases and options to either lease or purchase
property which are not directly related to our existing operations which may be
utilized in the future in connection with expansion projects at our existing
facilities or development of new projects.
ITEM 3. LEGAL PROCEEDINGS.
One of our subsidiaries has been named, along with numerous manufacturers,
distributors and gaming operators, including many of the country's largest
gaming operators, in a consolidated class action lawsuit pending in Las Vegas,
Nevada. These gaming industry defendants are alleged to have violated the
Racketeer Influenced and Corrupt Organizations Act by engaging in a course of
fraudulent and misleading conduct intended to induce people to play their gaming
machines based upon a false belief concerning how those gaming machines actually
operate and the extent to which there is actually an opportunity to win on any
given play. The suit seeks unspecified compensatory and punitive damages. This
district court recently denied the Motion for Class Certification, but this
decision has been appealed. Therefore, we are still unable at this time to
determine what effect, if any, the suit would have on our consolidated financial
position or results of operations. The gaming industry defendants are committed
to continuing a vigorous defense of all claims asserted in this matter.
In August 1997, a lawsuit was filed which seeks to nullify a contract to
which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the City
of Bossier and the Bossier Parish School Board, in lieu of payment of a
per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat
Gaming Partnership was granted on June 4, 1998. That judgment was not appealed
and is now final. On June 11, 1998, a similar suit was filed and the lower court
rendered judgment in our favor on September 16, 1999. The case was reversed on
appeal and remanded to the lower court for further proceedings; however, on
October 8, 2001, the trial court dismissed the case again, this time on the
basis that the plaintiffs lack standing. The plaintiffs have amended the
petition and continue to pursue this matter. We intend to vigorously defend this
suit. In addition, a similar action was recently filed against the City of
Bossier City, challenging the validity of its contracts with Louisiana Riverboat
Gaming Partnership and other casinos. Exceptions have been filed requiring
joinder of all interested parties, including Louisiana Riverboat Gaming
Partnership. We believe the claims are without merit and we intend to continue
to vigorously defend this suit along with the other interested parties.
Lady Luck and several joint venture partners are defendants in a lawsuit
brought by the country of Greece through its Minister of Tourism (now
Development) and Finance. The action alleges that the defendants failed to make
specified payments in connection with the gaming license bid process for Patras,
Greece. The payment we are alleged to have been required to make aggregates
approximately 6.5 million Euros (which was approximately $7.2 million as of
April 27, 2003 based on published exchange rates). Although it is difficult to
determine the damages being sought from the lawsuit, the action may seek damages
up to that aggregate amount plus interest from the date of the action. The
Athens Civil Court of First Instance granted judgment in our favor and dismissed
the lawsuit, but the Ministry of Tourism has appealed the matter and the appeal
was heard in April 2002. There has been no announcement as to whether there has
been a decision on the appeal. Also, the Ministry of Tourism is proceeding with
an appeal from a dismissal of its action by the Athens Administrative Court of
First Instance. An appeal of this matter was heard on January 22, 2003, which
has been rejected. A further appeal is possible. Accordingly, the outcome of
this matter is still in doubt and cannot be predicted with any degree of
certainty. We believe the claims against us to be without merit and we intend to
continue a vigorous and appropriate defense to the claims asserted in this
matter.
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued
an award that we were liable for $4.5 million in damages in connection with a
lease of real estate located near Kimmswick, Jefferson County, Missouri. We
have filed a motion in the United States District Court for the Eastern District
of Missouri seeking to vacate the arbitration award. The case has been moved to
the state court. We recognized an additional $1.8 million in expense during the
second quarter ended October 27, 2002, in order to bring the total amount
accrued for this loss contingency to $4.5 million, notwithstanding the motion to
vacate.
On December 30, 2002, the County of Jefferson, Missouri initiated a lawsuit
in the Circuit Court of Jefferson County, Missouri, against us and a subsidiary,
alleging a breach of a 1993 contract entered into by the County, that
subsidiary, and guaranteed by Lady Luck Gaming Corporation (now our wholly owned
subsidiary) relating to the development of a casino-site near Kimmswick,
Missouri. The suit alleges damages in excess of $10.0 million. The case has
been moved to the state court. The outcome of this matter cannot be predicted
with any degree of certainty. We believe the claims against us to be without
merit and we intend to vigorously and appropriately defend the claims asserted
in this matter.
We are engaged in various other litigation matters and have a number of
unresolved claims. Although the ultimate liability of this litigation and these
claims cannot be determined at this time, we believe that they will not have a
material adverse effect on our consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Annual Meeting of Stockholders
- ---------------------------------
The Annual Meeting of Stockholders was held October 8, 2002 at which time
the following matters were submitted to a vote of the stockholders:
(1) To elect eight persons to the Board of Directors; and
(2) To ratify the Company's selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending April 27, 2003.
At the Annual Meeting of Stockholders, each of the following individuals
were elected to serve as directors of the Company until his successor is elected
and qualified or until his earlier death, resignation, removal or
disqualifications:
NAME FOR WITHHOLD AGAINST
- ------------------- ---------- --------- -------
Bernard Goldstein . 24,257,694 2,066,374 -
John M. Gallaway. . 24,422,803 1,901,265 -
Allan B. Solomon. . 24,422,803 1,901,265 -
Robert S. Goldstein 25,524,083 799,985 -
Alan J. Glazer. . . 25,491,303 832,765 -
Emanuel Crystal . . 25,524,083 799,985 -
Randolph Baker. . . 25,491,303 832,765 -
Jeffrey Goldstein.. 25,491,303 832,765 -
The voting on the other matters as ordered at the Annual Meeting of Stockholders
was as follows:
MATTER FOR WITHHOLD AGAINST
- ------------------------------ ---------- -------- -------
Selection of Ernst & Young LLP 25,674,308 5,899 641,231
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information. Our common stock is traded on the NASDAQ National
-------------------
Market under the symbol "ISLE". The following table presents the high and low
closing sales prices for our common stock as reported by the NASDAQ National
Market for the fiscal periods indicated.
HIGH LOW
------ ------
Fiscal Year Ended April 25, 2004
First Quarter (through June 12, 2003) $14.54 $12.83
Fiscal Year Ended April 27, 2003
First Quarter . . . . . . . . . . . . $22.89 $16.00
Second Quarter. . . . . . . . . . . . 22.65 12.05
Third Quarter . . . . . . . . . . . . 14.06 11.75
Fourth Quarter. . . . . . . . . . . . 13.01 11.14
Fiscal Year Ended April 28, 2002
First Quarter . . . . . . . . . . . . $10.25 $ 7.75
Second Quarter. . . . . . . . . . . . 9.24 6.49
Third Quarter . . . . . . . . . . . . 16.17 8.82
Fourth Quarter. . . . . . . . . . . . 21.50 14.42
(b) Holders of Common Stock. As of June 12, 2003, there were 1,526 holders
------------------------
of record of our common stock.
(c) Dividends. We have never declared or paid any dividends with respect to
---------
our common stock and the current policy of our board of directors is to retain
earnings to provide for the growth of the company. In addition, our Senior
Secured Credit Facility and the indentures governing our 8.75% Senior
Subordinated Notes and our 9.00% Senior Subordinated Notes limit our ability to
pay dividends. See "Item 8-Financial Statements and Supplementary Data-Isle of
Capri Casinos, Inc.-Notes to Consolidated Financial Statements-Note 9."
Consequently, no cash dividends are expected to be paid on our common stock in
the foreseeable future. Further, there can be no assurance that our current and
proposed operations will generate the funds needed to declare a cash dividend or
that we will have legally available funds to pay dividends. In addition, we may
fund part of our operations in the future from indebtedness, the terms of which
may prohibit or restrict the payment of cash dividends. If a holder of common
stock is disqualified by the regulatory authorities from owning such shares,
such holder will not be permitted to receive any dividends with respect to such
stock. See "Item 1-Business-Regulation and Licensing."
(d) Equity Compensation Plans. Information concerning our equity
-------------------------
compensation plans is contained in "Item 12 - Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA.
The following table presents our selected consolidated financial data for
the five most recent fiscal years, which is derived from our audited
consolidated financial statements and the notes to those statements. Because
the data in this table does not provide all of the data contained in our
consolidated financial statements, including the related notes, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our consolidated financial statements, including the related notes
contained elsewhere in this document and other data we have filed with the U.S.
Securities and Exchange Commission.
FISCAL YEAR ENDED (1)
---------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
--------------------------------------------- ----------- -----------
INCOME STATEMENT DATA: (dollars in millions, except per share data)
Operating revenues:
Casino. . . . . . . . . . . . . . . . . . . $ 1,051.5 $ 1,057.0 $ 957.1
Rooms . . . . . . . . . . . . . . . . . . . 49.2 56.0 50.7
Pari-mutuel commissions and fees. . . . . . 23.9 23.5 22.2
Food, beverage and other. . . . . . . . . . 140.8 152.1 148.3
--------------------------------------------- ----------- -----------
Gross revenues. . . . . . . . . . . . . . 1,265.4 1,288.6 1,178.3
Less promotional allowances . . . . . . . 199.7 203.3 195.5
--------------------------------------------- ----------- -----------
Net revenues. . . . . . . . . . . . . . 1,065.7 1,085.3 982.8
Operating costs and expenses:
Casino. . . . . . . . . . . . . . . . . . . 191.8 203.9 192.2
Gaming taxes. . . . . . . . . . . . . . . . 229.5 227.0 192.6
Rooms.. . . . . . . . . . . . . . . . . . . 11.6 13.3 12.1
Pari-mutuel.. . . . . . . . . . . . . . . . 16.9 16.8 16.2
Food, beverage and other. . . . . . . . . . 34.1 35.8 32.0
Marine and facilities . . . . . . . . . . . 65.9 70.0 63.6
Marketing and administrative. . . . . . . . 273.6 277.0 249.6
Valuation charge. . . . . . . . . . . . . . 1.9 61.4 1.0
Preopening expenses . . . . . . . . . . . . - 3.9 0.2
Other charges . . . . . . . . . . . . . . . - - 8.2
Depreciation and amortization.. . . . . . . 76.6 72.1 69.1
--------------------------------------------- ----------- -----------
Total operating expenses. . . . . . . . . 901.9 981.2 836.8
--------------------------------------------- ----------- -----------
Operating income. . . . . . . . . . . . . . . 163.8 104.1 146.0
Interest expense. . . . . . . . . . . . . . (82.6) (89.2) (98.9)
Interest income . . . . . . . . . . . . . . 0.6 0.9 5.1
Minority interest . . . . . . . . . . . . . (9.5) (7.7) (6.4)
Equity in income (loss) of
unconsolidated joint ventures . . . . . . - - (0.2)
--------------------------------------------- ----------- -----------
Income before income taxes and
extraordinary loss. . . . . . . . . . . . . 72.3 8.1 45.6
Income tax provision. . . . . . . . . . . 26.7 3.8 20.5
--------------------------------------------- ----------- -----------
Income before extraordinary loss. . . . . . . 45.6 4.3 25.1
Extraordinary loss on extinguishment
of debt, net of applicable income tax
benefit . . . . . . . . . . . . . . . . . - (4.3) -
--------------------------------------------- ----------- -----------
Net income (loss).. . . . . . . . . . . . . . $ 45.6 $ - $ 25.1
============================================= =========== ===========
Adjusted income before extraordinary loss (2) N/A N/A $ 35.0
===========
Adjusted net income (loss) (2). . . . . . . . N/A N/A $ 35.0
===========
(Footnotes follow table)
APRIL 30, APRIL 25,
2000 1999
----------- -----------
INCOME STATEMENT DATA:
Operating revenues:
Casino. . . . . . . . . . . . . . . . . . . $ 619.4 $ 424.4
Rooms . . . . . . . . . . . . . . . . . . . 24.8 19.1
Pari-mutuel commissions and fees. . . . . . 22.0 21.4
Food, beverage and other. . . . . . . . . . 93.6 65.2
----------- -----------
Gross revenues. . . . . . . . . . . . . . 759.8 530.1
Less promotional allowances . . . . . . . 113.1 73.2
----------- -----------
Net revenues. . . . . . . . . . . . . . 646.7 456.9
Operating costs and expenses:
Casino. . . . . . . . . . . . . . . . . . . 116.1 77.7
Gaming taxes. . . . . . . . . . . . . . . . 122.6 86.9
Rooms.. . . . . . . . . . . . . . . . . . . 5.8 3.9
Pari-mutuel.. . . . . . . . . . . . . . . . 16.4 15.7
Food, beverage and other. . . . . . . . . . 19.1 14.2
Marine and facilities . . . . . . . . . . . 39.9 28.2
Marketing and administrative. . . . . . . . 164.5 116.9
Valuation charge. . . . . . . . . . . . . . - 5.1
Preopening expenses . . . . . . . . . . . . 3.4 3.3
Other charges . . . . . . . . . . . . . . . - -
Depreciation and amortization.. . . . . . . 42.3 36.3
----------- -----------
Total operating expenses. . . . . . . . . 530.1 388.2
----------- -----------
Operating income. . . . . . . . . . . . . . . 116.6 68.7
Interest expense. . . . . . . . . . . . . . (60.4) (48.6)
Interest income . . . . . . . . . . . . . . 4.7 2.9
Minority interest . . . . . . . . . . . . . (3.7) 2.2
Equity in income (loss) of
unconsolidated joint ventures . . . . . . 0.3 (1.3)
----------- -----------
Income before income taxes and
extraordinary loss. . . . . . . . . . . . . 57.5 23.9
Income tax provision. . . . . . . . . . . 25.4 11.8
----------- -----------
Income before extraordinary loss. . . . . . . 32.1 12.1
Extraordinary loss on extinguishment
of debt, net of applicable income tax
benefit . . . . . . . . . . . . . . . . . (1.0) (36.3)
----------- -----------
Net income (loss).. . . . . . . . . . . . . . $ 31.1 $ (24.2)
=========== ===========
Adjusted income before extraordinary loss (2) $ 37.7 N/A
===========
Adjusted net income (loss) (2). . . . . . . . $ 36.7 N/A
===========
(Footnotes follow table)
FISCAL YEAR ENDED (1)
---------------------------------------------
APRIL 27, APRIL 28, APRIL 29, APRIL 30,
2003 2002 2001 2000
--------------------------------------------- ----------- ----------- -----------
INCOME STATEMENT DATA (CONTINUED): (dollars in millions, except per share data)
Income (loss) per common share:
Basic. . . . . . . . . . . . . . . . . . $ 1.57 $ - $ 0.84 $ 1.18
Diluted. . . . . . . . . . . . . . . . . $ 1.50 $ - $ 0.80 $ 1.11
Adjusted income per common share before
extraordinary loss:
Basic (2). . . . . . . . . . . . . . . . $ 1.57 $ 0.15 $ 1.17 $ 1.43
Diluted (2). . . . . . . . . . . . . . . $ 1.50 $ 0.15 $ 1.11 $ 1.35
Adjusted income per common share:
Basic (2). . . . . . . . . . . . . . . . $ 1.57 $ - $ 1.17 $ 1.40
Diluted (2). . . . . . . . . . . . . . . $ 1.50 $ - $ 1.11 $ 1.32
OTHER DATA:
Net cash provided by (used in):
Operating activities . . . . . . . . . . $ 138.2 $ 153.6 $ 74.2 $ 130.5
Investing activities.. . . . . . . . . . $ (140.6) $ (100.5) $ (225.4) $ (258.0)
Financing activities . . . . . . . . . . $ 6.4 $ 53.2 $ 59.9 $ 210.3
Capital expenditures . . . . . . . . . . . $ 58.4 $ 98.3 $ 159.3 $ 104.6
OPERATING DATA:
Number of slot machines (3). . . . . . . . 13,755 14,649 13,604 12,018
Number of table games (3). . . . . . . . . 335 383 395 413
Number of hotel rooms (3). . . . . . . . . 2,854 3,869 3,912 2,538
Average daily occupancy rate(4). . . . . . 78.9% 85.0% 85.3% 84.9%
BALANCE SHEET DATA:
Cash and cash equivalents. . . . . . . . . $ 80.6 $ 76.6 $ 76.7 $ 168.0
Total assets.. . . . . . . . . . . . . . . 1,408.2 1,345.6 1,382.9 1,305.5
Long-term debt, including current portion. 1,028.0 1,009.3 1,039.1 962.9
Stockholders' equity.. . . . . . . . . . . 203.9 159.2 166.0 155.5
APRIL 25,
1999
-----------
INCOME STATEMENT DATA (CONTINUED):
Income (loss) per common share:
Basic. . . . . . . . . . . . . . . . . . $ (1.03)
Diluted. . . . . . . . . . . . . . . . . $ (1.01)
Adjusted income per common share before
extraordinary loss:
Basic (2). . . . . . . . . . . . . . . . N/A
Diluted (2). . . . . . . . . . . . . . . N/A
Adjusted income per common share:
Basic (2). . . . . . . . . . . . . . . . N/A
Diluted (2). . . . . . . . . . . . . . . N/A
OTHER DATA:
Net cash provided by (used in):
Operating activities . . . . . . . . . . $ 65.2
Investing activities.. . . . . . . . . . $ (52.0)
Financing activities . . . . . . . . . . $ 19.5
Capital expenditures . . . . . . . . . . . $ 95.0
OPERATING DATA:
Number of slot machines (3). . . . . . . . 6,009
Number of table games (3). . . . . . . . . 217
Number of hotel rooms (3). . . . . . . . . 1,271
Average daily occupancy rate.. . . . . . . 93.4%
BALANCE SHEET DATA:
Cash and cash equivalents. . . . . . . . . $ 85.1
Total assets.. . . . . . . . . . . . . . . 676.5
Long-term debt, including current portion. 532.8
Stockholders' equity.. . . . . . . . . . . 62.0
(1) The operating results and data presented for fiscal year 1999 are not
comparable to other fiscal years presented because they do not include
the operating results of the Isle-Tunica that opened July 26, 1999 and the
Isle-Natchez, the Isle-Lula, the Isle-Bettendorf, and the Isle-Marquette that
we acquired on March 2, 2000. The operating results and data presented for
fiscal years prior to fiscal 2001 are not comparable to other fiscal
years presented because they do not include the operating results of the
Isle-Kansas City that we acquired on June 6, 2000, the Lady Luck-Las Vegas
that we acquired on September 12, 2000, and the Rhythm City-Davenport that
we acquired on October 10, 2000. The operating results and data presented for
fiscal years prior to fiscal 2002 are not comparable to other fiscal years
presented because they do not include the operating results of the Isle-
Boonville that opened on December 6, 2001. The operating results and data
presented for fiscal years prior to fiscal 2003 are not comparable to other
fiscal years presented as we ceased operations at the Isle-Tunica on September
3, 2002, and acquired the Colorado Central Station-Black Hawk and the
Colorado Grande-Cripple Creek on April 22, 2003.
(2) Excludes amortization of goodwill and other indefinite lived intangible
assets.
(3) This data is as of the end of the respective period.
(4) The data presented for fiscal years prior to 2003 is not comparable to
other fiscal years presented due to the exclusion of the 227 Isle-Tunica and
the 792 Lady Luck-Las Vegas hotel rooms.
N/A Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
You should read the following discussion together with the financial
statements, including the related notes and the other financial information in
this Form 10-K.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States that require our
management to make estimates and assumptions about the effects of matters that
are inherently uncertain. We have summarized our significant accounting
policies in Note 1 to our consolidated financial statements. Of our accounting
policies, we believe the following may involve a higher degree of judgment and
complexity:
GOODWILL
At April 27, 2003, we had goodwill and other intangible assets of $401.7
million, representing 29% of total assets. Effective April 30, 2001, we adopted
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), which established a new method of testing
goodwill and other intangible assets using a fair-value based approach and does
not permit amortization of goodwill as was previously required. Upon adoption,
amortization of goodwill and other intangible assets ceased.
SFAS 142 requires that goodwill and other intangible assets be tested for
impairment annually or if an event occurs or circumstances change that may
reduce the fair value of the Company below its book value. Should circumstances
change or events occur to indicate that the fair market value of the Company has
fallen below its book value, management must then compare the estimated fair
value of goodwill and other intangible assets to book value. If the book value
exceeds the estimated fair value, an impairment loss would be recognized in an
amount equal to that excess. Such an impairment loss would be recognized as a
non-cash component of operating income. We completed our annual impairment test
as required under SFAS 142 in the fourth quarter of fiscal 2003 and determined
that goodwill and other indefinite lived intangible assets were not impaired.
This test required comparison of the estimated fair value of each property to
book value, including goodwill and other intangible assets. The estimated fair
value includes estimates of future cash flows that are based on reasonable and
supportable assumptions and represent our best estimates of the cash flows
expected to result from the use of the assets and their eventual disposition.
Changes in estimates or application of alternative assumptions and definitions
could produce significantly different results.
PROPERTY AND EQUIPMENT
At April 27, 2003, we had property and equipment of $841.3 million,
representing 60% of total assets. We capitalize the cost of property and
equipment. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Costs incurred in connection with the Company's "all properties other
capital improvements," program include individual capital expenditures related
to the purchase of furniture and equipment and upgrade of hotel rooms,
restaurants and other areas of our properties. We depreciate property and
equipment on a straight-line basis over their estimated useful lives. The
estimated useful lives are based on the nature of the assets as well as our
current operating strategy. Future events such as property expansions, new
competition and new regulations could result in a change in the manner in which
we are using certain assets requiring a change in the estimated useful lives of
such assets. Effective April 29, 2002, we adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supercedes
SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations for a Disposal of a Segment of a Business." In
assessing the recoverability of the carrying value of property and equipment, we
make assumptions regarding future cash flows and other factors. If these
estimates or the related assumptions change in the future, we may be required to
record impairment loss for these assets. Such an impairment loss would be
recognized as a non-cash component of operating income.
SELF-INSURANCE LIABILITIES
We are self-funded up to a maximum amount per claim for our
employee-related health care benefits program, workers' compensation insurance
and general liability insurance. Claims in excess of this maximum are fully
insured through a stop-loss insurance policy. We accrue for these liabilities
based on claims filed and estimates of claims incurred but not reported. We
also rely on independent consultants to assist in the determination of estimated
accruals. While the total cost of claims incurred depends on future
developments, such as increases in health care costs, in our opinion, recorded
reserves are adequate to cover future claims payments.
INCOME TAX ASSETS AND LIABILITIES
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires that we recognize a current tax asset or liability for the
estimated taxes payable or refundable based upon application of the enacted tax
rates to taxable income in the current year. Additionally, we are required to
recognize a deferred tax liability or asset for the estimated future tax effects
attributable to temporary differences. Temporary differences occur when
differences arise between: (a) the amount of taxable income and pretax financial
income for a year and (b) the tax bases of assets or liabilities and their
reported amounts in financial statements. SFAS 109 also requires that any
deferred tax asset recognized must be reduced by a valuation allowance for any
tax benefits that, in our judgment and based upon available evidence, may not be
realizable.
The deferred tax assets and liabilities, as well as the need for a
valuation allowance, are evaluated on a quarterly basis and adjusted if
necessary. We use forecasted future operating results and consider enacted tax
laws and rates in determining if the valuation allowance is sufficient. We
operate in multiple taxing jurisdictions and are therefore subject to varying
tax laws and potential audits, which could impact our assessments and estimates.
CONTINGENCIES
We are involved in various legal proceedings and have identified certain
loss contingencies. We record liabilities related to these contingencies when
it is determined that a loss is probable and reasonably estimable. These
assessments are based on our knowledge and experience as well as the advice of
legal counsel regarding current and past events. Any such estimates are also
subject to future events, court rulings, negotiations between the parties and
other uncertainties. If an actual loss differs from our estimate, or the actual
outcome of any of the legal proceedings differs from expectations, operating
results could be impacted.
The Company routinely faces challenges from federal and other tax
authorities regarding the amount of taxes due. These challenges include
questions regarding the timing and amount of deductions and the allocation of
income among various tax jurisdictions. The Company records reserves for
probable exposures associated with the various filing positions.
SLOT CLUB AWARDS
We reward our slot customers for their loyalty based on the dollar amount of
play on slot machines. We accrue for these slot club awards based on an
estimate of the outstanding value of the awards utilizing the age and prior
history of redemptions. Future events such as a change in our marketing
strategy or new competition could result in a change in the value of the awards.
GENERAL
Our results of operations for the twelve months ended April 27, 2003,
reflect the consolidated operations of all of our subsidiaries, and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Kansas City, the Isle-Boonville, the Isle-Bettendorf,
the Isle-Marquette, the Rhythm City-Davenport, the Isle-Black Hawk, the Lady
Luck-Las Vegas and Pompano Park. Isle-Tunica ceased casino operations on
September 3, 2002, which was 33 days prior to the sale of assets to Boyd Casino
Strip, LLC on October 7, 2002. On October 30, 2002, we completed the sale of
the Lady Luck-Las Vegas but will continue to operate the casino until the
purchaser's designated gaming operator receives regulatory approval. Results
also include the Colorado Central Station-Black Hawk and the Colorado
Grande-Cripple Creek subsequent to their acquisition on April 22, 2003.
Our results of operations for the twelve months ended April 28, 2002,
reflect the consolidated operations of all of our subsidiaries, and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Kansas City, the Isle-Bettendorf, the Isle-Marquette,
the Rhythm City-Davenport, the Isle-Black Hawk, the Lady Luck-Las Vegas and
Pompano Park. Results also include the Isle-Boonville subsequent to its opening
on December 6, 2001.
Our results of operations for the fiscal year ended April 29, 2001 reflect
the consolidated operations of all of our subsidiaries and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Bettendorf, the Isle-Marquette, the Isle-Black Hawk and
Pompano Park. Results also include the Isle-Kansas City subsequent to its
purchase in June 2000, the Lady Luck-Las Vegas subsequent to its purchase in
September 2000 and the Rhythm City-Davenport subsequent to its purchase in
October 2000.
On April 22, 2003, the Isle-Black Hawk acquired the Colorado casino
operations of International Game Technology, Inc. ("IGT") for $84.0 million
adjusted for certain working capital adjustments. The Colorado casino
operations of IGT consist of the Colorado Central Station-Black Hawk, located in
Black Hawk, and the Colorado Grande-Cripple Creek, located in Cripple Creek.
The Isle-Black Hawk plans to invest approximately $75.0 million in Black Hawk to
significantly increase covered parking for both properties; add additional
casino space, hotel rooms and restaurants; and connect the properties by means
of a skywalk that can service both the Isle-Black Hawk and the Colorado Central
Station-Black Hawk. This expansion has been delayed until after the outcome of
a proposed statewide referendum on Video Lottery Terminals ("VLTs") at
racetracks in Colorado has been determined in November 2003.
We believe that our historical results of operations may not be indicative
of our future results of operations because of the substantial present and
expected future increase in competition for gaming customers in each of our
markets, as new gaming facilities open and existing gaming facilities expand or
enhance their facilities.
We believe that our operating results are affected by the economy,
seasonality and weather. Seasonality has historically caused the operating
results for our first and fourth fiscal quarters ending in July and April,
respectively, to be better than the operating results for the second and third
fiscal quarters ending October and January, respectively.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 27, 2003 COMPARED TO FISCAL YEAR ENDED APRIL 28, 2002
Gross revenues for the fiscal year ended April 27, 2003, were $1.3 billion,
which included $1.1 billion of casino revenue, $49.2 million of rooms revenue,
$23.9 million of pari-mutuel commissions and $140.9 million of food, beverage
and other revenue. This compares to gross revenues for the fiscal year ended
April 28, 2002 of $1.3 billion, which included $1.1 billion of casino revenue,
$56.0 million of rooms revenue, $23.5 million of pari-mutuel commissions and
$152.2 million of food, beverage and other revenue.
Casino revenue remained constant year over year on a company-wide basis. A
$38.4 million increase in revenue attributable to a full year of operations at
the Isle-Boonville was offset by a $23.0 million decrease in revenue at the
Isle-Lake Charles due to new competition and a $22.7 million decrease at the
Isle-Tunica attributable to closing the property on September 3, 2002.
Rooms revenue decreased $6.7 million or 12.0% compared to prior year. The
decrease was primarily attributed to a decrease of 1,019 hotel rooms resulting
from the sale of the Isle-Tunica and the Lady Luck-Las Vegas.
Food, beverage, pari-mutuel and other revenue decreased $11.0 million or
6.2% when compared to the prior year primarily as a result of the sale of the
Isle-Tunica and the Lady Luck-Las Vegas.
Casino operating expenses for the fiscal year ended April 27, 2003 totaled
$191.8 million, or 18.2% of casino revenue, versus $203.9 million, or 19.3% of
casino revenue, for the fiscal year ended April 28, 2002. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. The decrease in casino operating expenses is primarily the
result of closing the Isle-Tunica, a low margin property.
For the fiscal year ended April 27, 2003, state and local gaming taxes
totaled $229.5 million, or 21.8% of casino revenue, compared to $227.1 million,
or 21.5% of casino revenue, for the fiscal year ended April 28, 2002, which is
consistent with each state's gaming tax rate for the applicable fiscal years.
Gaming taxes increased because a larger percentage of our casino revenue was
earned in Missouri, a higher gaming tax jurisdiction, than in the previous year
due to the opening of the Isle-Boonville and a 1.0% increase in the tax rate at
the Isle-Bossier City effective April 1, 2002. An additional 1.0% increase in
the tax rate at the Isle-Bossier City became effective on April 1, 2003.
Operating expenses for the fiscal year ended April 27, 2003, also included
room expenses of $11.6 million, or 23.5% of gross room revenue compared to $13.3
million or 23.8% of gross room revenue for the fiscal year ended April 28, 2002.
The $1.8 million or 13.3% decrease in rooms expense was comparable to the
decrease in rooms revenue.
Pari-mutuel operating costs of Pompano Park totaled $16.9 million for the
fiscal year ended April 27, 2003, compared to $16.8 million for the fiscal year
ended April 28, 2002. Such costs consist primarily of compensation, benefits,
purses, simulcast fees and other direct costs of track operations. Pari-mutuel
operating costs as a percentage of pari-mutuel revenues have remained relatively
stable at 70.7% for the fiscal year ended April 27, 2003, compared to 71.4% in
the prior fiscal year.
Food, beverage and other expenses totaled $34.1 million for the fiscal year
ended April 27, 2003, compared to $35.8 million for the fiscal year ended April
28, 2002. These expenses consist primarily of the cost of goods sold, salaries,
wages and benefits and other operating expenses. Food, beverage and other
operating expenses as a percentage of gross food, beverage and other revenues
increased from 23.5% for the fiscal year ended April 28, 2002, to 24.2% for the
fiscal year ended April 27, 2003 as a result of the start up costs of the
restaurants at the Isle-Boonville.
Marine and facilities expenses totaled $65.9 million, or 6.2% of net
revenue, for the fiscal year ended April 27, 2003, versus $70.0 million, or 6.5%
of net revenue for the fiscal year ended April 28, 2002. These expenses
included salaries, wages and benefits, operating expenses of the marine crews,
insurance, housekeeping and general maintenance of the riverboats and floating
pavilions. The $4.1 million, or 5.9% decrease was primarily the result of the
sale of the Isle-Tunica and the Lady Luck-Las Vegas.
Marketing and administrative expenses totaled $273.6 million, or 25.7% of
net revenue for the fiscal year ended April 27, 2003, versus $277.0 million, or
25.5% of net revenue for the fiscal year ended April 28, 2002. Marketing
expenses included salaries, wages and benefits of the marketing and sales
departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses included administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. The $3.4 million decrease in marketing and
administrative expenses, or 0.3% of net revenue, is primarily due to a $2.6
million litigation settlement at the Isle-Lake Charles that was expensed in
fiscal 2002 and recovered as income in fiscal 2003, offset by a $1.7 million
increase due to increased competition.
The valuation charge for the fiscal year ended April 27, 2003, totaling
$1.9 million is a reserve for a loss contingency against the investment to date
in Ardent Gaming, L.L.C., an unrelated third party. The system being developed
under the joint venture is substantially past due and we believe it is probable
that we will not recover our investment. The valuation charge for the fiscal
year ended April 28, 2002, totaling $61.4 million reflects the impairment charge
of $59.2 million related to the write-down of our assets at the Isle-Tunica and
the Lady Luck-Las Vegas. On March 14, 2002, our Board of Directors resolved to
sell or otherwise dispose of the property and equipment at the Isle-Tunica and
the Lady Luck-Las Vegas. As such, we recorded an impairment write-down of $59.2
million, representing the difference between the Isle-Tunica's and the Lady
Luck-Las Vegas' carrying values of $80.7 million and their estimated fair values
(less estimated costs to sell) of $21.5 million. We ceased casino operations at
the Isle-Tunica on September 3, 2002, which was 33 days prior to the sale of
assets to Boyd Casino Strip, LLC on October 7, 2002. On October 30, 2002, we
completed the sale of the Lady Luck-Las Vegas but will continue to operate the
casino until the purchaser's designated gaming operator receives regulatory
approval. As a result, the results of operations include the gaming operations
for the Lady Luck-Las Vegas for the periods presented. Also included in fiscal
2002 was an impairment charge of $2.2 million relating to marine assets that
have been in storage for future development and are currently offered for sale.
Depreciation and amortization expense was $76.6 million for the fiscal year
ended April 27, 2003, and $72.1 million for the fiscal year ended April 28,
2002. These expenses relate to property and equipment. Depreciation expense
increased by $4.6 million in fiscal 2003 as compared to the prior year
consistent with an increase in fixed assets placed into service or acquired.
During the fourth quarter of fiscal 2002, we reclassified the Isle-Tunica's and
the Lady Luck-Las Vegas' property and equipment as assets held for sale under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" due
to the impairment of the assets. Under this classification, we ceased
depreciating these assets. We estimate that the benefit from suspending
depreciation associated with the assets held for sale was approximately $7.1
million in fiscal 2003.
Interest expense was $82.0 million for the fiscal year ended April 27, 2003
net of capitalized interest of $0.2 million and interest income of $0.6 million
versus $88.3 million for the fiscal year ended April 28, 2002 net of capitalized
interest of $1.3 million and interest income of $0.9 million. Interest expense
primarily relates to indebtedness incurred in connection with the acquisition of
property, equipment, leasehold improvements and berthing and concession rights.
Additionally, interest expense of $5.6 million net of interest income of $0.1
million related to the Isle-Black Hawk is included in interest expense for the
fiscal year ended April 27, 2003. This compares to interest expense of $9.7
million net of interest income of $0.2 million for the fiscal year ended April
28, 2002.
Our effective tax rate was 37.0% for the fiscal year ended April 27, 2003,
as compared to 46.5% prior to extraordinary items for the fiscal year ended
April 28, 2002, which includes the effects of non-deductible goodwill
amortization for income tax purposes. The effective tax rate for the fiscal year
ended April 28, 2002, was high as a result of the relatively lower pretax book
earnings related to the valuation charge for the Isle-Tunica and the Lady
Luck-Las Vegas and low state income tax benefit rate related to the
impairment of these assets.
FISCAL YEAR ENDED APRIL 28, 2002 COMPARED TO FISCAL YEAR ENDED APRIL 29, 2001
Gross revenues for the fiscal year ended April 28, 2002, were $1.3 billion,
which included $1.1 billion of casino revenue, $56.0 million of rooms revenue,
$23.5 million of pari-mutuel commissions and $152.2 million of food, beverage
and other revenue. This compares to gross revenues for the fiscal year ended
April 29, 2001, of $1.2 billion, which included $957.1 million of casino
revenue, $50.7 million of rooms revenue, $22.2 million of pari-mutuel
commissions and $148.3 million of food, beverage and other revenue.
Casino revenue increased $99.8 million or 10.4% when compared to the prior
year. This is the result of the $31.2 million increase in casino revenue at the
Isle-Kansas City due to the renovations that improved the property in the prior
year and a full year of operations (the Isle-Kansas City was acquired in June
2000), $28.7 million increase in casino revenue at the Rhythm City-Davenport,
which was acquired in October 2000, and the addition of $25.0 million in casino
revenue from the Isle-Boonville which opened in December 2001. These positive
variances from the prior year were partially offset by the $16.2 million decline
in casino revenue at the Isle-Bossier City, primarily attributable to the
heightened competition in that market resulting from the opening of Hollywood
Casino's gaming facility and additional hotel rooms at Harrah's gaming facility
during our 2001 fiscal third quarter.
The rooms revenue increase of $5.2 million or 10.3% over the prior year was
the result of new hotels being completed in the prior year at the Isle-Black
Hawk in August 2000, and the Isle-Tunica and the Isle-Lake Charles in November
2000. Additionally, the Lady Luck-Las Vegas had a full year of operations in the
current year. The Lady Luck-Las Vegas property was acquired in September 2000.
Food, beverage, pari-mutuel and other revenue increased $3.9 million when
compared to the prior year primarily as a result of a $3.5 million increase in
food, beverage and other revenue at the Rhythm City-Davenport due to the full
year of operations, $3.0 million in such revenue generated by the Isle-Boonville
that opened in the third fiscal quarter of this year, partially offset by the
$2.2 million decline in such revenue at the Isle-Biloxi. Pari-mutuel
commissions and fees have remained relatively stable compared to the prior year.
Casino operating expenses for the fiscal year ended April 28, 2002, totaled
$203.9 million, or 19.3% of casino revenue, versus $192.2 million, or 20.1% of
casino revenue, for the fiscal year ended April 29, 2001. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. The increase in casino operating expenses is commensurate with
the increase in casino revenue.
For the fiscal year ended April 28, 2002, state and local gaming taxes
totaled $227.1 million, or 21.5% of casino revenue, compared to $192.6 million,
or 20.1% of casino revenue, for the fiscal year ended April 29, 2001, which is
consistent with each state's gaming tax rate for the applicable fiscal years.
The increase of $34.5 million in gaming taxes or 17.9% was primarily the result
of the increases in casino revenue at the Isle-Kansas City, the Rhythm
City-Davenport and the Isle-Boonville. The increase was also due to higher tax
rates at our Louisiana properties. Legislation was passed during the 2001
Louisiana legislative session that increased the gaming tax for operators from
18.5% to 21.5%. This 3% increase was effective immediately in the Lake Charles
market and at the rate of 1% per year in the Bossier City market.
Operating expenses for the fiscal year ended April 28, 2002, also included
room expenses of $13.3 million or 23.8% of gross room revenue from the hotels at
all casino properties except the Isle-Boonville compared to $12.1 million or
23.8% of gross room revenue for the fiscal year ended April 29, 2001, for the
same properties. The $1.3 million or 10.5% increase in rooms expense was
comparable to the increase in rooms revenue.
Pari-mutuel operating costs of Pompano Park totaled $16.8 million for the
fiscal year ended April 28, 2002, compared to $16.2 million for the fiscal year
ended April 29, 2001. Such costs consist primarily of compensation, benefits,
purses, simulcast fees and other direct costs of track operations. Pari-mutuel
operating costs as a percentage of pari-mutuel revenues have remained relatively
stable at 71.4% for the fiscal year ended April 28, 2002, compared to 73.2% for
the fiscal year ended April 29, 2001.
Food, beverage and other expenses totaled $35.8 million for the fiscal year
ended April 28, 2002, compared to $32.0 million for the fiscal year ended April
29, 2001. These expenses consist primarily of the cost of goods sold, salaries,
wages and benefits and other operating expenses. Food, beverage and other
operating expenses as a percentage of gross food, beverage and other revenues
increased from 21.6% for the fiscal year ended April 29, 2001, to 23.5% for the
fiscal year ended April 28, 2002 as a result of the start up costs of the
restaurants at Isle-Boonville which opened December 6, 2001, and a full year of
operating results of Lady Luck-Las Vegas, acquired in September 2000 in the
prior fiscal year. Lady Luck-Las Vegas's food and beverage cost expressed as a
percentage of food and beverage revenue is significantly higher than other Isle
properties.
Marine and facilities expenses totaled $70.0 million, or 6.5% of net
revenue, for the fiscal year ended April 28, 2002, versus $63.6 million, or 6.5%
of net revenue, for the fiscal year ended April 29, 2001. These expenses
included salaries, wages and benefits, operating expenses of the marine crews,
insurance, housekeeping and general maintenance of the riverboats and floating
pavilions. The $6.4 million or 10.0% increase in marine and facility expenses
are in line with the 10.4% increase in net revenue during the same period.
Marine and facilities expenses as a percentage of net revenue have remained
stable at 6.5% for the fiscal years ended April 28, 2002, and April 29, 2001.
Marketing and administrative expenses totaled $277.0 million, or 25.5% of
net revenue, for the fiscal year ended April 28, 2002, versus $249.9 million, or
25.4% of net revenue, for the fiscal year ended April 29, 2001. Marketing
expenses included salaries, wages and benefits of the marketing and sales
departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses included administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. The $24.7 million or 9.9% increase in marketing and
administrative expense is comparable with the increase in net revenue. A $2.6
million litigation settlement was expenses at the Isle-Lake Charles. Marketing
and administrative expenses as a percentage of net revenue have remained stable.
During the fourth quarter of fiscal 2002, we recorded a valuation
charge totaling $61.4 million that reflects the impairment charge of $59.2
million related to the write-down of our assets at the Isle-Tunica and the Lady
Luck-Las Vegas. We acquired the Isle-Tunica in fiscal 2000 and the Lady
Luck-Las Vegas in connection with the purchase of Lady Luck Gaming Corporation
in fiscal 2001. These properties were marginal performers since the date of
their acquisition; however, we continued to invest in these properties,
primarily the Isle-Tunica where we invested in a hotel and theaters at the
casino location. Although some improvement in the operations was realized as a
result of these actions, these properties were not projected to have substantial
growth in profits as compared to other Isle properties. Further, these
properties required substantial amounts of management resources and additional
capital investments to achieve the earnings levels that were originally
envisioned when we purchased these properties. As a result, we began a process
of evaluating our options, including retaining an advisor to assist in the
assessment, as disclosed in our third quarter 2002 Form 10-Q.
During the time we held these properties, while the operating results were
marginal, management continued to believe that these properties were not
impaired. In addition, we had considered whether indicators of impairment of
long-lived assets at the Isle-Tunica and the Lady Luck-Las Vegas were present.
We considered operating losses and negative cash flows at these properties as
indicators of impairment and further evaluated the sum of the estimated
undiscounted future cash flows attributable to the assets in question to
determine if these cash flows were less than their carrying amounts. Some of
the assumptions that were used in connection with the estimate of undiscounted
cash flows included current operating results, costs associated with the ongoing
maintenance and improvements of the assets, other operating expenses trends, and
prospects, as well as the effect of obsolescence, demand, competition and other
economic factors. Based on this evaluation and other factors considered, we
determined that a lower valuation of these properties was not appropriate prior
to the write-off in the fourth quarter of fiscal 2002.
At the end of our fiscal 2002 third quarter, we continued to be committed
to turning both of these properties around and had begun the process resulting
in modest positive cash flow at the Isle-Tunica and reduced losses at the Lady
Luck-Las Vegas during the fourth quarter of fiscal 2002. Our efforts to
increase these properties' performance included focused marketing campaigns and
extensive cost reductions. However, on March 14, 2002, our Board of Directors
resolved to sell or otherwise dispose of the property and equipment at the
Isle-Tunica and the Lady Luck-Las Vegas. This decision was made in
consideration of the substantial and disproportionate amount of management
resources devoted to the turnaround of these properties, the lack of significant
growth potential, current tax benefits to be derived from a sale or disposition
and the additional capital required to improve these properties in Tunica and
Las Vegas.
Under the provisions of SFAS No. 121, we determined in connection with the
Board's directive that we would not be able to recover the carrying values of
the Isle-Tunica or the Lady Luck-Las Vegas based on current real estate and
market conditions in these markets. As such, we recorded an impairment
write-down of $59.2 million, representing the difference between the
Isle-Tunica's and the Lady Luck-Las Vegas' carrying values of $80.7 million and
their estimated fair values less estimated costs to sell of $21.5 million.
Fair values were based on our estimate of the likely sale price for these
assets, in response to our Board's decision. In addition, we committed to a
disposal plan in the fourth quarter of 2002 and began aggressively seeking a
buyer of the Isle-Tunica and the Lady Luck-Las Vegas.
Also included in fiscal 2002 was an impairment charge of $2.2 million
relating to marine assets that have been in storage for future development
that will be offered for sale in fiscal 2003. The valuation charge for the
fiscal year ended April 29, 2001 totaling $1.0 million consisted of the
write-down of certain marine assets held for development or sale to their
estimated fair value less estimated costs to sell.
Preopening expenses of $3.9 million for the fiscal year ended April 28,
2002, and $0.2 million for the fiscal year ended April 29, 2001, represent
salaries, benefits, training, marketing and other non-capitalizable costs, which
were expensed in connection with the opening of the Isle-Boonville in December
2001.
For the prior fiscal year ended April 29, 2001, other charges totaling $8.2
million included a $3.0 million loss due to the write-off of abandoned expansion
projects assets at the Isle-Biloxi, a $2.9 million loss due to the termination
of the Enchanted Capri joint venture as a result of Bankruptcy Court filings by
Commodore Holdings, Ltd., the operator of the Enchanted Capri and owner of the
remaining 50% interest in the joint venture, a $1.4 million buyout of the Crowne
Plaza license at the Isle-Biloxi, and a $0.9 million loss relating to the
write-off of the theater production contracts at the Isle-Tunica.
Depreciation and amortization expense was $72.1 million for the fiscal year
ended April 28, 2002, and $69.1 million for the fiscal year ended April 29,
2001. These expenses relate to property and equipment. Depreciation expense
increased by $17.7 million compared to the prior year consistent with an
increase in fixed assets placed into service or acquired. This increase was
partially offset by the elimination of the amortization of goodwill and other
intangible assets of $14.7 million in 2002 due to our early adoption of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets," effective April 30, 2001. During the fourth quarter of fiscal 2002, we
reclassified the Isle-Tunica's and the Lady Luck-Las Vegas' property and
equipment as assets held for sale under Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" due to the impairment of the assets. Under
this classification, we no longer depreciated these assets. We estimate that
the benefit from suspending depreciation associated with the assets held for
sale was approximately $7.1 million in fiscal 2002.
Interest expense was $88.3 million for the fiscal year ended April 28,
2002, net of capitalized interest of $1.3 million and interest income of $0.9
million, versus $93.8 million for the fiscal year ended April 29, 2001, net of
capitalized interest of $3.8 million and interest income of $5.1 million.
Interest expense primarily relates to indebtedness incurred in connection with
the acquisition of property, equipment, leasehold improvements and berthing and
concession rights. Additionally, interest expense of $9.7 million net of
interest income of $0.2 million related to the Isle-Black Hawk is included in
interest expense for the fiscal year ended April 28, 2002. This compares to
interest expense of $11.1 million net of capitalized interest of $0.7 million
and interest income of $0.2 million for the fiscal year ended April 29, 2001.
Our effective tax rate was 46.5% prior to extraordinary items for the
fiscal year ended April 28, 2002, and 44.9% for the fiscal year ended April 29,
2001, which includes the effects of non-deductible goodwill amortization for
income tax purposes. The effective tax rate for the fiscal year ended April 28,
2002, was high as a result of the relatively lower pretax book
earnings related to the valuation charge for the Isle-Tunica and the Lady
Luck-Las Vegas and low state income tax benefit rate related to the impairment
of these assets.
LIQUIDITY AND CAPITAL RESOURCES
At April 27, 2003, we had cash and cash equivalents of $80.6 million,
compared to cash and cash equivalents of $76.6 million at April 28, 2002. The
$4.0 million increase in cash and cash equivalents is the net result of $138.2
million net cash provided by operating activities, $140.6 million net cash used
in investing activities and $6.4 million net cash provided by financing
activities.
INVESTING ACTIVITIES
We invested $58.4 million in property and equipment during the fiscal year
ended April 27, 2003. The following table reflects expenditures for
property and equipment on major projects in fiscal 2003 and 2002 and projected
expenditures for these projects.
ACTUAL PROJECTED
------------------------------ -------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED 4/28/02 ENDED 4/27/03 ENDING 4/25/04 REMAINING
----------------------------- ---------- ----------
(DOLLARS IN MILLIONS)
PROPERTY PROJECT
- --------------------------- -----------------------------------------
Isle-Biloxi . . . . . . . . Construct hotel & parking facility . . . . $ - $ 6.0 $ 25.7 $45.8
Isle-Bossier City . . . . . Construct hotel & entertainment center . . - 6.4 43.6 -
Isle-Bossier City . . . . . Renovate casino. . . . . . . . . . . . . . - - 2.0 3.0
Isle-Marquette. . . . . . . Construct hotel. . . . . . . . . . . . . . - 0.1 0.8 5.2
Isle-Lake Charles . . . . . Construct hotel. . . . . . . . . . . . . . 0.4 1.0 - -
Isle-Lake Charles . . . . . Renovate & expand casino . . . . . . . . . - - 12.1 2.9
Isle-Kansas City. . . . . . Renovate & expand casino . . . . . . . . . 1.5 - 10.0 -
Isle-Boonville. . . . . . . Develop casino . . . . . . . . . . . . . . 35.7 0.9 - -
Rhythm City-Davenport . . . Renovations . . . . . . . . . . . . . . . 1.6 - - -
Isle-Black Hawk(57% owned). Expansion . . . . . . . . . . . . . . . . - 1.4 8.4 64.7
All . . . . . . . . . . . . Slot program . . . . . . . . . . . . . . . 32.7 24.1 32.4 -
All . . . . . . . . . . . . Other capital improvements . . . . . . . . 26.4 18.5 34.2 -
-------------- -------------- ---------- -----
Total . . . . . . . . . . . . . . . . . . . . . . $ 98.3 $ 58.4 $ 169.2 $121.6
============== ============== =========== =====
For the twelve months ended April 27, 2003, we spent $18.5 million on other
capital improvements and $24.1 million on our slot program. The other capital
improvements at all of our properties consists of numerous capital expenditures
related to the purchase of furniture and equipment and upgrade of hotel rooms,
restaurants and other areas of our properties. We expect to make $34.2 million
in capital improvements to maintain our existing facilities and remain
competitive in our markets; $32.4 million for our slot program; and $30.0
million for renovations and/or expansion to our casino areas at the Isle-Bossier
City, the Isle-Lake Charles and the Isle-Kansas City.
In August 2002, we announced plans for a $135.0 million expansion at three
of our casinos of which $12.5 million was spent during fiscal 2003. The plan
will include upgraded and additional amenities at the Isle-Biloxi, the
Isle-Bossier City and the Isle-Marquette. This plan, which will utilize cash
flow from operations, reinforces our commitment to develop our portfolio of
properties to feature a more resort-oriented product.
The Isle-Biloxi plan, estimated at $79.0 million, will include an
additional 400 hotel rooms, an Isle-branded Kitt's Kitchen restaurant, a 12,000
square-foot multi-purpose center, an expanded pool and spa area and a
1,000-space parking facility. The parking garage will provide a podium for
future expansion for an additional hotel tower. Construction began this winter
with a projected construction period of approximately 24 months.
The Isle-Bossier City plan, estimated at $50.0 million, features a hotel
tower, with 265 rooms, a Kitt's Kitchen restaurant, a new pool and deck, and a
12,000 square-foot convention/entertainment center. Construction began in
October 2002 and will span about 18 months.
The Isle-Marquette property phase of the plan will include $6.0 million in
improvements including a 60-room Inn-at-the-Isle and improved parking. The
construction will commence once we have received local and regulatory permits
and will last approximately 16 months.
The Isle-Black Hawk plans to invest approximately $75.0 million in Black
Hawk to significantly increase covered parking for both properties; add
additional casino space, hotel rooms and restaurants; and connect the properties
by means of a skywalk that can service both the Isle-Black Hawk and the Colorado
Central Station-Black Hawk. It is expected that approximately $22.0 million of
special improvement bonds will be issued by a business improvement district of
the City of Black Hawk to fund public improvements which include extending Main
Street to connect directly to Colorado Route 119, approximately one half mile
closer to Denver. These bonds will be paid from increased property taxes on
each of the casinos benefiting from the improvements. This expansion has been
delayed until after the outcome of a proposed statewide referendum on VLTs at
racetracks in Colorado has been determined in November 2003.
On July 29, 2002, we entered into an agreement to sell the Isle-Tunica for
a cash payment of $7.5 million and were entitled to retain certain personal
property valued at $4.7 million. We ceased operation at the Isle-Tunica on
September 3, 2002.
On October 30, 2002, we completed the sale of the Lady Luck-Las Vegas and
received a cash payment of $4.4 million and notes receivable of $6.8 million,
which were paid in May 2003. A subsidiary of the Company will continue to
operate the casino pending the receipt of regulatory approval by the purchaser's
designated gaming operator. As a result, the results of operations for fiscal
2003 include the gaming operations of the Lady Luck-Las Vegas.
The proceeds from these sales approximated the carrying value of the
assets. We have presented the sales of the Isle-Tunica and the Lady Luck-Las
Vegas in accordance with SFAS 121 as the Company's commitment to a plan of sale
was initiated prior to the effective date of SFAS 144.
On April 22, 2003, the Isle-Black Hawk acquired the Colorado casino
operations of International Game Technology, Inc. ("IGT") for $84.0 million
adjusted for certain working capital adjustments. The Colorado casino
operations of IGT consist of the Colorado Central Station-Black Hawk, located in
Black Hawk, and the Colorado Grande-Cripple Creek, located in Cripple Creek.
All of our development plans are subject to obtaining permits, licenses and
approvals from appropriate regulatory and other agencies and, in certain
circumstances, negotiating acceptable leases. In addition, many of the plans
are preliminary, subject to continuing refinement or otherwise subject to
change.
FINANCING ACTIVITIES
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table provides information at April 27, 2003, about our
contractual obligations and commercial commitments. The table presents
contractual obligations (in millions) by due dates and related contractual
commitments by expiration dates.
PAYMENTS DUE BY PERIOD
(dollars in millions)
-----------------------
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
----------------------- ------------------- --------- --------- ------------
Long-Term Debt (1) $ 1,025.6 $24.7 $38.9 $368.8 $ 593.2
------------------- ----- ----- ------ --------
Capital Lease Obligations (2) 2.4 0.1 0.1 0.2 2.0
------------------- ----- ----- ------ --------
Operating Leases (2) 1,163.7 14.3 26.9 22.3 1,100.2
------------------- ----- ----- ------ --------
Total Contractual Cash Obligations. $ 2,191.7 $39.1 $65.9 $391.3 $1,695.4
- ----------------------------------------------------------- --------------- ----- ------ --------
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
(dollars in millions)
-------------------------------------------
OTHER COMMERCIAL COMMITMENTS TOTAL AMOUNTS COMMITTED LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS OVER 5 YEARS
------------------------- ---------------- --------- --------- ------------
Lines of Credit (1) $ 294.0 $ 4.0 $ - $290.0 $-
------------------------- ---------------- --------- --------- ------------
Standby Letters of Credit (3) 9.0 9.0 - - -
------------------------- ---------------- --------- --------- ------------
Total Commercial Commitments $ 303.0 $13.0 $ - $290.0 $-
------------------------- ---------------- --------- --------- ------------
(1) See Note 9, Long-Term Debt, in the accompanying notes to consolidated
financial statements.
(2) See Note 10, Commitments, in the accompanying notes to consolidated
financial statements.
(3) Standby letters of credit consists of the following: $3.7 million for
gaming taxes, $4.5 million for workers' compensation and $0.8 million for
other.
During the twelve months ended April 27, 2003, we received net cash
of $6.4 million primarily in the following financing activities:
- - We received proceeds from the issuance of new debt of $105.0 million.
- - We made net reductions to our Revolving Credit Facilities and lines of
credit of $69.1 million.
- - We made principal payments on our Senior Secured Credit Facility and other
debt of $18.0 million.
- - We purchased and retired 0.5 million shares of our common stock at a total
cost of $5.4 million.
- - We made cash distributions to a minority partner totaling $5.6 million.
On April 26, 2002, we entered into a Senior Secured Credit Facility, which
refinanced our prior facility. This Senior Secured Credit Facility consists of
a $250.0 million revolving credit facility maturing on April 25, 2007, and a
$250.0 million term loan facility maturing on April 25, 2008. We are required
to make quarterly principal payments on the $250.0 million term loan portion of
our amended and restated Senior Secured Credit Facility. Such payments are
initially $625,000 per quarter which started in June 2002 and will increase to
$59.4 million per quarter beginning in June 2007. In addition, we are required
to make substantial quarterly interest payments on the outstanding balance of
our Senior Secured Credit Facility. The proceeds were used to refinance $336.8
million of the prior facility.
Our Senior Secured Credit Facility, among other things, limits our
ability to borrow money, make capital expenditures, use assets as security in
other transactions, make restricted payments or restricted investments, incur
contingent obligations, sell assets and enter into leases and transactions with
affiliates. In addition, our credit facility requires us to meet certain
financial ratios and tests, including: a minimum consolidated net worth test, a
maximum consolidated total leverage test, a maximum consolidated senior leverage
test, and a minimum consolidated fixed charge coverage test.
We expect that available cash and cash from future operations, as well as
borrowings under our Senior Secured Credit Facility and lines of credit will be
sufficient to fund future expansion and planned capital expenditures, service
senior debt, and meet working capital requirements. As of April 27, 2003, we
had $247.0 million of unused credit capacity with the revolving loan commitment
on our Senior Secured Credit Facility, $40.0 million of unused credit capacity
with the Isle-Black Hawk's Senior Secured Credit Facility and $1.1 million of
available credit from other lines of credit. The revolving loan commitment is a
variable rate instrument based on, at our option, either LIBOR or our lender's
prime rate plus the applicable interest rate spread, and is effective through
April 2007. Our lines of credit are also at variable rates based on our
lender's prime rate and are subject to annual renewal. There is no assurance
that these sources will in fact provide adequate funding for the expenditures
described above or that planned capital investments will be sufficient to allow
us to remain competitive in our existing markets.
We are currently in compliance with all covenants contained in our senior
and subordinated debt instruments as of April 27, 2003. If we do not maintain
compliance with these covenants, the lenders under the Senior Secured Credit
Facility have the option (in some cases, after the expiration of contractual
grace periods), but not the obligation, to demand immediate repayment of all or
any portion of the obligations outstanding under the Senior Secured Credit
Facility. Any significant deterioration of earnings could affect certain of our
covenants. Adverse changes in our credit rating or stock price would not impact
our borrowing costs or covenant compliance under existing debt instruments.
Future events, such as a significant increase in interest rates can be expected
to increase our costs of borrowing under our Senior Secured Credit Facility.
The indentures governing our 8.75% notes and our 9.0% notes limit, among
other things, our ability to borrow money, create liens, make restricted
payments, and sell assets.
We are highly leveraged and may be unable to obtain additional debt or
equity financing on acceptable terms. As a result, limitations on our capital
resources could delay or cause us to abandon certain plans for capital
improvements at our existing properties and development of new properties. We
will continue to evaluate our planned capital expenditures at each of our
existing locations in light of the operating performance of the facilities at
such locations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical
Corrections," ("SFAS 145"). SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4 "Reporting Gains and Losses from Extinguishment of Debt," ("SFAS 4").
SFAS 145 will be effective for fiscal years beginning after May 15, 2002. We
will adopt SFAS 145 at the beginning of fiscal 2004, April 28, 2003. Losses on
extinguishment of debt previously classified as extraordinary charges will be
reclassified to conform to the provisions of SFAS 145. Upon adoption, the
extraordinary loss on extinguishment of debt recorded in fiscal 2002 of $4.3
million, net of income tax benefit of $2.7 million, would be reclassified and
included in income from operation on a pre-tax basis. As a result, operating
income for fiscal 2002 would decrease from $104.1 million to $97.1 million. Net
income and earnings per share for fiscal 2002 will remain unchanged.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") to
provide alternative methods for an entity that voluntarily changes to the fair
value based method of accounting for stock-based compensation, amends the
disclosure provisions of SFAS 123 and amends APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure about those effects in interim
financial information. The transition guidance and annual disclosure provisions
of SFAS 148 are effective for fiscal years ending after December 15, 2002. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. We
have adopted SFAS 148 transition guidance and annual disclosure provisions for
the fiscal year ending April 27, 2003. We will adopt SFAS 148 interim
disclosure provisions for the fiscal quarter ending July 27, 2003, which is the
first interim reporting period beginning after December 15, 2002. We are
currently assessing the impact of the various alternative methods under SFAS 148
and have not yet determined the effect of the adoption of this statement.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This Interpretation addresses
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The disclosure requirements
of FIN 45 are effective for financial statements of interim or annual periods
ending after December 15, 2002. Additionally, the Interpretation clarifies the
requirements related to the recognition of a liability, for the fair market
value of an obligation, by a guarantor at the inception of a guarantee,
including the required disclosures of that information in its interim and annual
financial statements. If applicable, the initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of FIN 45
is not expected to have a material impact on our consolidated results of
operations, financial position or cash flows.
In January 2003, the FASB issued Interpretation No. 46, " Consolidation of
Variable Interest Entities" ("FIN 46"). This Interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements" ("ARB 51"), which currently requires inclusion in consolidated
financial statements of subsidiaries in which an enterprise has a majority
voting interest. FIN 46 broadens application of ARB 51 to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. For the first fiscal year or interim
period beginning after June 15, 2003, the enterprise must apply the
Interpretation to variable interest entities in which it holds a variable
interest acquired prior to February 1, 2003. We do not expect FIN 46 to have a
significant effect on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss arising from adverse changes in market
rates and prices, including interest rates, foreign currency exchange rates,
commodity prices and equity prices. Our primary exposure to market risk is
interest rate risk associated with our Senior Secured Credit Facility and the
Isle-Black Hawk Senior Secured Credit Facility.
SENIOR SECURED CREDIT FACILITY
We entered into three interest rate swap agreements in the fourth quarter
of fiscal 2001 and one interest rate swap agreement in the first quarter of
fiscal 2002 that effectively convert portions of our variable rate debt to a
fixed-rate basis for the next year, thus reducing the impact of interest rate
changes on future interest expense. The notional value of the swaps that were
designated as cash flow hedges was $150.0 million or 60.6% of our variable rate
term debt outstanding under our Senior Secured Credit Facility as of April 27,
2003. We evaluate the effectiveness of these hedged transactions on a quarterly
basis. We terminated $50.0 million of interest rate swaps in fiscal 2003. The
remaining $150.0 million in interest rate swaps terminate in 2004. We found no
portion of the hedging instruments to be ineffective during the fiscal year
ended April 27, 2003. Accordingly, no gains or losses have been recognized on
these cash flow hedges.
ISLE-BLACK HAWK SENIOR SECURED CREDIT FACILITY
The Isle-Black Hawk entered into three interest rate swap agreements in the
fourth quarter of fiscal 2002 that effectively convert portions of their
variable rate debt to a fixed-rate basis for the next two years, thus reducing
the impact of interest rate changes on future interest expense. The notional
value of the swaps that were designated as cash flow hedges was $40.0 million or
23.4% of their variable rate term debt outstanding under the Isle-Black Hawk
Senior Secured Credit Facility as of April 27, 2003. The interest rate swaps
terminate in 2005. We evaluate the effectiveness of these hedged transactions
on a quarterly basis. We found no portion of the hedging instruments to be
ineffective during the fiscal year ended April 27, 2003. Accordingly, no
gains or losses have been recognized on these cash flow hedges.
The following table provides information at April 27, 2003, about our
financial instruments that are sensitive to changes in interest rates. The
table presents principal cash flows (in millions) and related weighted average
interest rates by expected maturity dates.
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE
FISCAL YEAR
(dollars in millions) 2004 2005 2006 2007 2008 THEREAFTER
- --------------------------------------------------------------- ------------ ------ ------ ------- ------- ----------
LIABILITIES
Long-term debt, including current portion
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.8 $ 2.5 $ 1.5 $ 0.9 $ 1.0 $ 595.2
Average interest rate. . . . . . . . . . . . . . . . . . . . 8.8% 8.8% 8.8% 8.8% 8.8% 8.9%
Variable rate. . . . . . . . . . . . . . . . . . . . . . . . $ 22.0 $14.5 $20.6 $129.6 $237.5 $ -
Average interest rate (1). . . . . . . . . . . . . . . . . . 4.3% 4.7% 5.5% 6.3% 6.5% $ -
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO DEBT
Interest rate swaps
Pay fixed/receive variable . . . . . . . . . . . . . . . . . $ 150.0 $40.0 $ - $ - $ - -
Average pay rate . . . . . . . . . . . . . . . . . . . . . . 4.8% 4.2% - - - -
Average receive rate . . . . . . . . . . . . . . . . . . . . 1.2% 1.6% - - - -
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE
FISCAL YEAR FAIR VALUE
(dollars in millions) TOTAL 4/27/2003
- --------------------------------------------------------------- ------- ----------
LIABILITIES
Long-term debt, including current portion
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . $ 603.9 $633.8
Average interest rate. . . . . . . . . . . . . . . . . . . .
Variable rate. . . . . . . . . . . . . . . . . . . . . . . . $ 424.1 $424.1
Average interest rate (1). . . . . . . . . . . . . . . . . .
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO DEBT
Interest rate swaps
Pay fixed/receive variable . . . . . . . . . . . . . . . . . $ 190.0 $ (5.9)
Average pay rate . . . . . . . . . . . . . . . . . . . . . .
Average receive rate . . . . . . . . . . . . . . . . . . . .
(1) Represents the annual average LIBOR from the forward yield curve at April
27, 2003, plus the weighted average margin above LIBOR on all consolidated
variable rate debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
-----
ISLE OF CAPRI CASINOS, INC.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 61
Consolidated Balance Sheets, April 27, 2003 and April 28, 2002 . . . . . . 62
Consolidated Statements of Operations, Years ended April 27, 2003,
April 28, 2002 and April 29, 2001 . . . . . . . . . . . . . . . . . . 63
Consolidated Statements of Stockholders' Equity, Years ended
April 27, 2003, April 28, 2002 and April 29, 2001. . . . . . . . 64
Consolidated Statements of Cash Flows, Years ended April 27, 2003,
April 28, 2002 and April 29, 2001 . . . . . . . . . . . . . . . . . . 65
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 67
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Isle of Capri Casinos, Inc.
We have audited the accompanying consolidated balance sheets of Isle of
Capri Casinos, Inc. as of April 27, 2003 and April 28, 2002, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended April 27, 2003, April 28, 2002 and April 29, 2001. Our
audits also included the financial statement schedule listed in the index at
Item 15(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Isle of Capri
Casinos, Inc. at April 27, 2003 and April 28, 2002, and the consolidated results
of its operations and its cash flows for the years ended April 27, 2003, April
28, 2002 and April 29, 2001 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Isle
of Capri Casinos, Inc. adopted Statement of Financial Accounting Standards No.
142 in the year ended April 28, 2002.
ERNST & YOUNG LLP
New Orleans, Louisiana
June 12, 2003
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS APRIL 27, APRIL 28,
2003 2002
----------- -----------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,639 $ 76,597
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,987 -
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,786 9,857
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,658 -
Income tax receivable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,260 -
Deferred income taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,433 10,235
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,361 15,113
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 -
Property held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 24,572
----------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,745 136,374
Property and equipment - net.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841,332 803,507
Other assets:
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,309 305,850
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,344 58,744
Deferred financing costs, net of accumulated amortization of $11,500 in 2003 and
$7,984 in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,962 23,730
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,551 3,677
Prepaid deposits and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,961 4,944
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8,812
----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,408,204 $1,345,638
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,757 $ 14,176
Accounts payable trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,630 22,541
Accrued liabilities:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,132 5,276
Payroll and related.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,578 47,186
Property and other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,852 15,673
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13,993
Progressive jackpots and slot club awards.. . . . . . . . . . . . . . . . . . . . 15,583 11,903
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,639 27,862
----------- -----------
Total current liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . . 156,171 158,610
Long-term debt, less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,230 995,123
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,700 -
Deferred state income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,675 5,415
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,347 16,302
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,177 10,990
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized; none issued. . . . . . . - -
Common stock, $.01 par value; 45,000 shares authorized; shares issued and
outstanding: 32,377 at April 27, 2003 and 31,826 at April 28, 2002. . . . . . . 322 314
Class B common stock, $.01 par value; 3,000 shares authorized; none issued . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,542 135,432
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,498) (1,352)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,346 54,753
Accumulated other comprehensive loss, net of income tax benefit of $2,527 in 2003
and $2,364 in 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,284) (4,061)
----------- -----------
232,428 185,086
Treasury stock, 3,293 shares at April 27, 2003 and 3,107 shares at April 28, 2002 (28,524) (25,888)
----------- -----------
Total stockholders' equity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,904 159,198
----------- -----------
Total liabilities and stockholders' equity.. . . . . . . . . . . . . . . . . . . . $1,408,204 $1,345,638
=========== ===========
See notes to consolidated financial statements
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED
-------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------- ----------- -----------
Revenues:
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,051,485 $1,056,967 $ 957,147
Rooms . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,217 55,957 50,734
Pari-mutuel commissions and fees. . . . . . . . . . . . . . 23,894 23,534 22,152
Food, beverage and other. . . . . . . . . . . . . . . . . . 140,862 152,187 148,315
------------------- ----------- -----------
Gross revenues . . . . . . . . . . . . . . . . . . . . 1,265,458 1,288,645 1,178,348
Less promotional allowances. . . . . . . . . . . . . . 199,727 203,334 195,547
------------------- ----------- -----------
Net revenues . . . . . . . . . . . . . . . . . 1,065,731 1,085,311 982,801
Operating expenses:
Casino. . . . . . . . . . . . . . . . . . . . . . . . . . . 191,826 203,855 192,209
Gaming taxes. . . . . . . . . . . . . . . . . . . . . . . . 229,477 227,067 192,571
Rooms . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,573 13,345 12,072
Pari-mutuel . . . . . . . . . . . . . . . . . . . . . . . . 16,889 16,806 16,212
Food, beverage and other. . . . . . . . . . . . . . . . . . 34,149 35,774 31,988
Marine and facilities . . . . . . . . . . . . . . . . . . . 65,915 70,024 63,644
Marketing and administrative. . . . . . . . . . . . . . . . 273,584 277,035 249,617
Valuation charge. . . . . . . . . . . . . . . . . . . . . . 1,923 61,362 1,032
Preopening expenses . . . . . . . . . . . . . . . . . . . . - 3,871 176
Other charges . . . . . . . . . . . . . . . . . . . . . . . - - 8,165
Depreciation and amortization . . . . . . . . . . . . . . . 76,626 72,064 69,112
------------------- ----------- -----------
Total operating expenses . . . . . . . . . . . . . . . 901,962 981,203 836,798
------------------- ----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . 163,769 104,108 146,003
Interest expense. . . . . . . . . . . . . . . . . . . . . . (82,565) (89,177) (98,943)
Interest income . . . . . . . . . . . . . . . . . . . . . . 562 850 5,107
Minority interest.. . . . . . . . . . . . . . . . . . . . . (9,451) (7,676) (6,357)
Equity in loss of unconsolidated joint ventures.. . . . . . - (38) (162)
------------------- ----------- -----------
Income before income taxes and extraordinary loss. . . . . . . . 72,315 8,067 45,648
Income tax provision. . . . . . . . . . . . . . . . . . . . 26,722 3,753 20,504
------------------- ----------- -----------
Income before extraordinary loss . . . . . . . . . . . . . . . . 45,593 4,314 25,144
Extraordinary loss on extinguishment of debt, net of income tax
benefit of $2,672 in 2002 . . . . . . . . . . . . . . . . . - (4,349) -
------------------- ----------- -----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 45,593 $ (35) $ 25,144
=================== =========== ===========
Earnings (loss) per common share - basic:
Income before extraordinary loss . . . . . . . . . . . . . . . $ 1.57 $ 0.15 $ 0.84
Extraordinary loss, net of income taxes. . . . . . . . . . . . - (0.15) -
------------------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.57 $ 0.00 $ 0.84
=================== =========== ===========
Earnings (loss) per common share - assuming dilution:
Income before extraordinary loss . . . . . . . . . . . . . . . $ 1.50 $ 0.15 $ 0.80
Extraordinary loss, net of income taxes. . . . . . . . . . . . - (0.15) -
------------------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ 0.00 $ 0.80
=================== =========== ===========
Weighted average basic shares. . . . . . . . . . . . . . . . . 28,984 28,162 29,894
Weighted average diluted shares. . . . . . . . . . . . . . . . 30,452 29,765 31,513
See notes to consolidated financial statements
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUM.
OTHER
SHARES OF ADDITIONAL UNEARNED RETAINED COMPRE-
COMMON COMMON PAID-IN COMPEN- EARNINGS HENSIVE
STOCK STOCK CAPITAL SATION (DEFICIT) LOSS
---------- ------------ ---------- ---------- ---------- ---------
Balance, April 30, 2000. . . . . . . . . . . . . 30,369 $ 304 $ 125,572 $ - $ 29,644 $ -
Net income . . . . . . . . . . . . . . . . . . . - - - - 25,144 -
Exercise of stock options. . . . . . . . . . . . 246 2 1,136 - - -
Grant of nonvested stock . . . . . . . . . . . . - - 2,700 (2,700) - -
Purchase of treasury stock . . . . . . . . . . . - - - - - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - - - 900 - -
---------- ------------ ---------- ---------- ---------- ---------
Balance, April 29, 2001. . . . . . . . . . . . . 30,615 306 129,408 (1,800) 54,788 -
Net loss . . . . . . . . . . . . . . . . . . . . - - - - (35) -
Unrealized loss on interest
rate swap contracts.. . . . . . . . . . . . . - - - - - (4,061)
Comprehensive loss, net of
income taxes of $2,364. . . . . . . . . . . . - - - - - -
Exercise of stock options, net of
income tax benefit of $891. . . . . . . . . . 1,211 8 6,096 - - -
Grant of nonvested stock . . . . . . . . . . . . - - (72) 72 - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - - - 376 - -
Purchase of treasury stock . . . . . . . . . . . - - - - - -
---------- ------------ ---------- ---------- ---------- ---------
Balance, April 28, 2002. . . . . . . . . . . . . 31,826 314 135,432 (1,352) 54,753 (4,061)
Net income.. . . . . . . . . . . . . . . . . . . - - - - 45,593 -
Unrealized loss on interest
rate swap contract. . . . . . . . . . . . . . - - - - - (223)
Comprehensive income, net of
income taxes of $2,527. . . . . . . . . . . . - - - - - -
Exercise of stock options, net of
income tax benefit of $1,611. . . . . . . . . 998 12 6,772 - - -
Purchase of treasury stock . . . . . . . . . . . - - - - - -
Treasury stock retired . . . . . . . . . . . . . (447) (4) (5,425) - - -
Grant of nonvested stock . . . . . . . . . . . . - - 763 (763) - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - - - 617 - -
---------- ------------ ---------- ---------- ---------- ---------
Balance, April 27, 2003. . . . . . . . . . . . . 32,377 $ 322 $ 137,542 $ (1,498) $ 100,346 $ (4,284)
========== ============ ========== ========== ========== =========
See notes to consolidated financial statements
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
TOTAL
TREASURY STOCKHOLDERS'
STOCK EQUITY
---------- ---------------
Balance, April 30, 2000. . . . . . . . . . . . . $ - $ 155,520
Net income . . . . . . . . . . . . . . . . . . . 25,144
Exercise of stock options. . . . . . . . . . . . 1,138
Grant of nonvested stock
Purchase of treasury stock . . . . . . . . . . . (16,661) (16,661)
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - 900
---------- ---------------
Balance, April 29, 2001. . . . . . . . . . . . . (16,661) 166,041
Net loss . . . . . . . . . . . . . . . . . . . . - (35)
Unrealized loss on interest
rate swap contracts.. . . . . . . . . . . . . - (4,061)
----------
Comprehensive loss, net of
income taxes of $2,364. . . . . . . . . . . . - (4,096)
Exercise of stock options, net of
income tax benefit of $891. . . . . . . . . . (1,205) 4,899
Grant of nonvested stock . . . . . . . . . . . . - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - 376
Purchase of treasury stock . . . . . . . . . . . (8,022) (8,022)
---------- ---------------
Balance, April 28, 2002. . . . . . . . . . . . . (25,888) 159,198
Net income.. . . . . . . . . . . . . . . . . . . - 45,593
Unrealized loss on interest
rate swap contract. . . . . . . . . . . . . . - (223)
---------------
Comprehensive income, net of
income taxes of $2,527. . . . . . . . . . . . - 45,370
Exercise of stock options, net of
income tax benefit of $1,611. . . . . . . . . (2,636) 4,148
Purchase of treasury stock . . . . . . . . . . . (5,429) (5,429)
Treasury stock retired . . . . . . . . . . . . . 5,429 -
Grant of nonvested stock . . . . . . . . . . . . - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - 617
---------- ---------------
Balance, April 27, 2003. . . . . . . . . . . . . $ (28,524) $ 203,904
========== ===============
See notes to consolidated financial statements
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED
---------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
------------------- ----------- -----------
2003 2002 2001
------------------- ----------- -----------
OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . $ 45,593 $ (35) $ 25,144
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 76,626 72,064 69,112
Amortization of deferred financing costs. . . . . . 3,704 3,863 4,388
Amortization of unearned compensation . . . . . . . 617 376 900
Gain on disposal of assets. . . . . . . . . . . . . - (125) (271)
Other charges.. . . . . . . . . . . . . . . . . . . - - 8,165
Valuation charge. . . . . . . . . . . . . . . . . . 1,923 61,362 1,032
Deferred income taxes . . . . . . . . . . . . . . . 23,574 12,291 11,068
Equity in loss of unconsolidated joint venture. . . - 38 162
Extraordinary loss (net of income taxes). . . . . . - 4,349 -
Minority interest . . . . . . . . . . . . . . . . . 9,451 7,676 6,358
Changes in current assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . 2,200 (654) (2,020)
Income tax receivable. . . . . . . . . . . . . (2,260) 4,700 (4,700)
Prepaid expenses and other assets. . . . . . . (1,045) 1,246 (6,475)
Accounts payable and accrued liabilities.. . . (22,196) (13,536) (38,713)
------------------- ----------- -----------
Net cash provided by operating activities. . . . . . . . 138,187 153,615 74,150
INVESTING ACTIVITIES:
Purchase of property and equipment.. . . . . . . . . . . (58,358) (98,344) (159,326)
Net cash paid for acquisitions . . . . . . . . . . . . . (80,313) - (111,399)
(Purchase) sale of short-term investments. . . . . . . . (13,987) - 39,044
Proceeds from sales of assets. . . . . . . . . . . . . . 11,961 125 271
Investments in and advances to joint ventures. . . . . . (927) (1,055) (1,324)
Restricted cash. . . . . . . . . . . . . . . . . . . . . 855 623 1,256
Prepaid deposits and other . . . . . . . . . . . . . . . (569) (1,827) 6,100
Net payments on notes receivable . . . . . . . . . . . . 753 - -
------------------- ----------- -----------
Net cash used in investing activities. . . . . . . . . . (140,585) (100,478) (225,378)
FINANCING ACTIVITIES:
Proceeds from debt . . . . . . . . . . . . . . . . . . . 105,030 580,000 2,238
Net proceeds from (reduction in) line of credit. . . . . (69,086) (18,000) 93,000
Principal payments on debt and cash paid to retire debt. (17,967) (596,697) (19,021)
Deferred financing costs . . . . . . . . . . . . . . . . (2,936) (7,631) (779)
Purchase of treasury stock . . . . . . . . . . . . . . . (5,429) (8,022) (16,659)
Proceeds from exercise of stock options and warrants . . 2,383 4,830 1,136
Cash distribution to minority partner. . . . . . . . . . (5,555) (7,679) -
------------------- ----------- -----------
Net cash (used in) provided by financing activities. . . 6,440 (53,199) 59,915
Net increase (decrease) in cash and cash equivalents . . 4,042 (62) (91,313)
Cash and cash equivalents at beginning of period . . . . 76,597 76,659 167,972
------------------- ----------- -----------
Cash and cash equivalents at end of period . . . . . . . $ 80,639 $ 76,597 $ 76,659
=================== =========== ===========
See notes to consolidated financial statements
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
FISCAL YEAR ENDED
---------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash payments (receipts) for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $ 77,172 $ 77,821 $ 99,620
Income taxes. . . . . . . . . . . . . . . . . . . . . . 18,066 (7,711) 21,523
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Other:
Construction costs funded through accounts payable
and notes payable. . . . . . . . . . . . . . . . . 2,875 - 2,809
Acquisitions of businesses:
Fair value of assets acquired. . . . . . . . . . . . 86,065 - 189,772
Less fair value of liabilities assumed . . . . . . . (5,752) - (78,373)
------------------- ----------- -----------
Net cash payment . . . . . . . . . . . . . . . . . . 80,313 - 111,399
Sale of businesses:
Fair value of assets disposed. . . . . . . . . . . . 11,870 - -
Less fair value of liabilities sold. . . . . . . . . - - -
------------------- ----------- -----------
Net cash received. . . . . . . . . . . . . . . . . . 11,870 - -
See notes to consolidated financial statements
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Isle of Capri Casinos, Inc. (the "Company" or "Isle of Capri") was incorporated
as a Delaware corporation on February 14, 1990. The Company, through its
subsidiaries, is engaged in the business of developing, owning and operating
branded gaming facilities and related lodging and entertainment facilities in
growing markets in the United States. The Company wholly owns and operates
eleven gaming facilities located in Bossier City and Lake Charles, Louisiana;
Biloxi, Lula, Natchez and Vicksburg, Mississippi; Boonville and Kansas City,
Missouri; and Bettendorf, Marquette and Davenport, Iowa. The Company also owns
a 57% interest in and receives a management fee for operating two gaming
facilities in Black Hawk, Colorado, and a gaming facility in Cripple Creek,
Colorado. All but three of these gaming facilities operate under the name "Isle
of Capri" and feature our distinctive tropical island theme. In addition, the
Company wholly owns and operates a pari-mutuel harness racing facility in
Pompano Beach, Florida.
FISCAL YEAR-END
The Company's fiscal year ends on the last Sunday in April. This fiscal year
creates more comparability of the Company's quarterly operations, by generally
having an equal number of weeks (13) and week-end days (26) in each quarter.
Periodically, this system necessitates a 53-week year and fiscal 2000 was one
such year. Fiscal 2003 commenced on April 29, 2002 and ended on April 27, 2003.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Investments in unconsolidated affiliates that are 50% or less
owned are accounted for under the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CAGE CASH
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less as cash equivalents. Cash equivalents are
placed primarily with high-credit-quality financial institutions. The carrying
amount of cash equivalents approximates fair value because of the short maturity
of these instruments. Cash includes the minimum cash balances required by
state regulatory bodies which totaled approximately $29.4 million and
$29.9 million at April 27, 2003, and April 28, 2002, respectively.
INVENTORIES
Inventories generally consist of food and beverage and retail merchandise, and
are stated at the lower of cost or market. Cost is determined by the weighted
average method.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company capitalizes the cost of
purchases of property and equipment and capitalizes the cost of improvements to
property and equipment which increases the value or extends the useful lives of
the assets. Costs of normal repairs and maintenance are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are
included in the determination of income. Depreciation is computed using the
straight-line method over the following estimated useful lives of the assets:
YEARS
-------
Slot machines, software and computers. 3
Furniture, fixtures and equipment. . . 5-10
Leasehold improvements . . . . . . . . 10-39.5
Riverboats and floating pavilions. . . 25
Buildings and improvements . . . . . . 39.5
Capital leases are depreciated over the estimated useful life of the assets or
the life of the lease, whichever is shorter.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, representing the excess of the cost over the net identifiable tangible
and intangible assets of acquired businesses, is stated at cost. Other
intangible assets represent the license value attributed to the Louisiana gaming
licenses acquired through the Company's acquisition of St. Charles Gaming
Company, Grand Palais Riverboat, Inc. and Louisiana Riverboat Gaming Partnership
(the "Licenses"), the value of the Lady Luck trademarks and player databases
acquired in the acquisition of Lady Luck Gaming Corporation and the value of the
Colorado Central Station trademarks acquired in the acquisition of
CCSC/Blackhawk, Inc. and Colorado Grande Enterprises, Inc. Prior to fiscal
2002, the Company estimated that the Licenses had a useful life of 25 years.
Beginning in fiscal year 2002, the Company concluded that the Licenses had
indefinite lives as the Company determined that there are no legal, regulatory,
contractual, economic or other factors that would limit the useful life of the
Licenses, and the Company intends to renew and operate the Licenses
indefinitely. In addition, other key factors in the Company's assessment that
these Licenses have an indefinite life include: (1) the Company's license
renewal experience confirmed that the renewal process is perfunctory and
renewals would not be withheld except under extraordinary circumstances; (2) the
renewals related to these Licenses confirmed the Company's belief that the
renewal process could be completed without substantial cost and without material
modification of the Licenses; (3) the economic performance of the operations
related to the Licenses support the Company's intention of operating the
Licenses indefinitely; and (4) the continued limitation of gaming licenses in
the State of Louisiana limits competition in the jurisdictions where these
Licenses are maintained.
Effective April 30, 2001, the Company adopted Statements of Financial
Accounting Standards No. 141, "Business Combinations," ("SFAS 141") and No. 142,
"Goodwill and Other Intangible Assets," ("SFAS 142").
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Under SFAS 142, goodwill
and intangible assets with indefinite useful lives are no longer subject to
amortization. SFAS 142 requires that these assets be reviewed for impairment at
least annually. Based on its review, the Company believes that, as of April 27,
2003, there were no impairments of its goodwill and other indefinite lived
intangible assets. However, the Company intends to continue to evaluate
intangible assets that are not being amortized at least annually to determine
whether events and circumstances continue to support an indefinite useful life.
If these assets are subsequently determined to have a finite useful life, they
will be tested for impairment, and then amortized prospectively over the
estimated remaining useful lives and accounted for in the same manner as other
intangible assets that are subject to amortization.
LONG-LIVED ASSETS
Effective April 29, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. Based on its
review, other than the asset impairment write-downs noted in Note 15, the
Company believes that, as of April 27, 2003, there were no significant
impairments of its long-lived assets.
DEFERRED FINANCING COSTS
The costs of issuing long-term debt are capitalized and are being amortized over
the term of the related debt.
SELF INSURANCE
The Company is self-insured for various levels of general liability, workers'
compensation, and employee medical and life insurance coverage. Self-insurance
liabilities are estimated based on the Company's claims experience and are
included in current accrued liabilities on the consolidated balance sheets.
SLOT CLUB AWARDS
The Company provides slot patrons with incentives based on the dollar amount of
play on slot machines. A liability has been established based on an estimate of
the outstanding value of these incentives, utilizing the age and prior history
of redemptions. This amount is reflected as a current accrued liability on the
consolidated balance sheets.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective April 30, 2001, the Company adopted FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133") as amended. The Company utilizes derivative financial
instruments to manage interest rate risk associated with variable rate
borrowings. Derivative financial instruments are intended to reduce the
company's exposure to interest rate risk. The Company accounts for changes in
the fair value of a derivative instrument depending on the intended use of the
derivative and the resulting designation, which is established at the inception
of a derivative. SFAS 133 requires that a company formally document, at the
inception of a hedge, the hedging relationship and the entity's risk management
objective and strategy for undertaking the hedge, including identification of
the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged, the method used to assess effectiveness and the method that will
be used to measure hedge ineffectiveness of derivative instruments that receive
hedge accounting treatment. For derivative instruments designated as cash flow
hedges, changes in fair value, to the extent the hedge is effective, are
recognized in other comprehensive income until the hedged item is recognized in
earnings. Hedge effectiveness is assessed quarterly based on the total change
in the derivative's fair value.
REVENUE RECOGNITION
In accordance with gaming industry practice, the Company recognizes casino
revenues as the net win from gaming activities, which is the difference between
gaming wins and losses. Casino revenues are net of accruals for anticipated
payouts of progressive slot jackpots and certain table games. Such anticipated
jackpot payments are reflected as current liabilities in the accompanying
balance sheets. Revenues from the hotel, food, beverage, entertainment, and the
gift shop are recognized at the time the related service or sale is
performed/made.
NET REVENUES
Net revenues do not include the retail amount of food, beverage and other items
provided gratuitously to customers. These amounts, that are included in
promotional allowances, were as follows:
FISCAL YEAR ENDED
------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------ ---------- ----------
(In thousands)
Rooms . . . . . . . . . . . . . . $ 26,139 $ 30,569 $ 25,856
Food and beverage . . . . . . . . 86,188 93,192 95,325
Other . . . . . . . . . . . . . . 2,915 3,336 3,555
Customer loyalty programs . . . . 84,485 76,237 70,811
Total promotional allowances. $ 199,727 $ 203,334 $ 195,547
================== ========== ==========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated cost of providing such complimentary services that is included in
casino expense was as follows:
FISCAL YEAR ENDED
------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------ ---------- ----------
(In thousands)
Rooms . . . . . . . . . . . . . . . . . . $ 12,753 $ 15,315 $ 12,620
Food and beverage . . . . . . . . . . . . 66,420 72,052 72,166
Other . . . . . . . . . . . . . . . . . . 807 1,100 1,263
Total cost of complimentary services. $ 79,980 $ 88,467 $ 86,049
================== ========== ==========
The Company records the redemption of coupons and points for cash as a reduction
of revenue.
ADVERTISING
Advertising costs are expensed the first time such advertisement appears. Total
advertising costs (including direct mail marketing) were $10.8 million in fiscal
2003, $18.7 million in fiscal 2002 and $21.1 million in fiscal 2001.
PREOPENING EXPENSE
Preopening, pre-operating and organizational costs are expensed as incurred.
CAPITALIZED INTEREST
The interest cost associated with major development and construction projects is
capitalized and included in the cost of the project. When no debt is incurred
specifically for a project, interest is capitalized on amounts expended on the
project using the weighted-average cost of the Company's outstanding borrowings.
Capitalization of interest ceases when the project is substantially complete or
development activity is suspended for more than a brief period.
EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS
Investments in companies in which the Company has a 20% to 50% interest are
carried at cost, adjusted for the Company's proportionate share of their
operating and financial activities.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for in accordance with the provisions of FASB
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
of a change in tax rates related to deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
The Company routinely faces challenges from federal and other tax authorities
regarding the amount of taxes due. These challenges include questions regarding
the timing and amount of deductions and the allocation of income among various
tax jurisdictions. The Company records reserves for probable exposures
associated with the various filing positions.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
In accordance with the provisions of FASB Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), basic earnings (loss) per
share ("EPS") is computed by dividing net income (loss) applicable to common
stock by the weighted average common shares outstanding during the period.
Diluted EPS reflects the additional dilution for all potentially dilutive
securities such as stock options.
STOCK-BASED COMPENSATION
The Company has three stock-based employee compensation plans, which are
described more fully in Note 12. The Company applies the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for those plans. No
stock-based employee compensation expense is reflected in net income as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share as if the Company
had applied the fair value recognition provisions of FASB Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), to stock-based employee compensation.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
FISCAL YEAR ENDED
APRIL 27, 2003 APRIL 28, 2002 APRIL 29, 2001
-------------------------------------- ---------------- ----------------
(In thousands, except per share data)
Net income (loss), as reported. . . . . . . . . $ 45,593 $ (35) $ 25,144
Deduct: total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects. . . . . . . . . . . . $ (5,332) $ (3,370) $ (1,503)
-------------------------------------- ---------------- ----------------
Pro forma net income (loss).. . . . . . . . . . $ 40,261 $ (3,405) $ 23,641
====================================== ================ ================
Earnings (loss) per common share:
Basic - as reported . . . . . . . . . . . . . $ 1.57 $ - $ 0.84
====================================== ---------------- ================
Basic - pro forma . . . . . . . . . . . . . . $ 1.39 $ (0.12) $ 0.79
====================================== ================ ================
Diluted - as reported . . . . . . . . . . . . $ 1.50 $ - $ 0.80
====================================== ---------------- ================
Diluted - pro forma . . . . . . . . . . . . . $ 1.32 $ (0.11) $ 0.75
====================================== ================ ================
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
RISK-FREE ORIGINAL EXPECTED EXPECTED
FISCAL YEAR INTEREST RATE EXPECTED LIFE VOLALITY DIVIDENDS
------------ ------------- -------------- -------- ---------
2003 2.97% 6.14 years 58.4% None
2002 4.49% 5.00 years 70.0% None
2001 5.06% 5.00 years 70.0% None
The pro forma effect on net income (loss) for fiscal 2003, fiscal 2002 and
fiscal 2001 is not representative of the pro forma effect on net income for
future years because it does not take into account pro forma compensation
expense related to grants made prior to fiscal 1996 or the potential for
issuance of additional stock options in future years or future forfeitures.
CERTAIN RISKS AND UNCERTAINTIES
The Company's operations are dependent on the continued licensing or
qualification of the Company. Such licensing and qualification are reviewed
periodically by the gaming authorities in the state of operation.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CERTAIN RISKS AND UNCERTAINTIES (CONTINUED)
The Company receives a significant amount of its revenue from patrons within 50
miles of the properties. If economic conditions in these areas were to decline
materially or additional casino licenses were awarded in these locations, the
Company's results of operations could be materially affected.
RECLASSIFICATION
The consolidated financial statements for prior years reflect certain
reclassifications to conform with the current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical
Corrections," ("SFAS 145"). SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under SFAS
No. 4 "Reporting Gains and Losses from Extinguishment of Debt," ("SFAS 4").
SFAS 145 will be effective for fiscal years beginning after May 15, 2002. We
will adopt SFAS 145 at the beginning of fiscal 2004. Losses on extinguishment
of debt previously classified as extraordinary charges will be reclassified to
conform to the provisions of SFAS 145. Upon adoption, the extraordinary loss on
extinguishment of debt recorded in fiscal 2002 of $4.3 million, net of income
tax benefit of $2.7 million, will be reclassified and included in income from
operation on a pre-tax basis. As a result, operating income for fiscal 2002
will decrease from $104.1 million to $97.1 million. Net income and earnings per
share for fiscal 2002 will remain unchanged.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit of Disposal Activities" ("SFAS 146") which requires that a
liability for a cost associated with an exit or disposal activity must be
recognized and initially measured at its fair value as incurred versus the date
of an entity's commitment to an exit plan. This Statement was effective for
exit or disposal activities initiated after December 31, 2002. The adoption of
SFAS 146 had no material impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") to
provide alternative methods for an entity that voluntarily changes to the fair
value based method of accounting for stock-based compensation, amends the
disclosure provisions of SFAS 123 and amends APB Opinion No. 28, "Interim
Financial Reporting,"
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
to require disclosure about those effects in interim financial information. The
transition guidance and annual disclosure provisions of SFAS 148 are effective
for fiscal years ending after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. We have adopted SFAS 148
transition guidance and annual disclosure provisions for the fiscal year ending
April 27, 2003. We will adopt SFAS 148 interim disclosure provisions for the
fiscal quarter ending July 27, 2003, which is the first interim reporting period
beginning after December 15, 2002. We are currently assessing the impact of the
various alternative methods under SFAS 148 and have not yet determined the
effect of the adoption of this statement.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. The disclosure requirements
of FIN 45 are effective for financial statements of interim or annual periods
ending after December 15, 2002. Additionally, FIN 45 clarifies the requirements
related to the recognition of a liability, for the fair market value of an
obligation, by a guarantor at the inception of a guarantee, including the
required disclosures of that information in its interim and annual financial
statements. If applicable, the initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The adoption of FIN 45 is not expected to
have a material impact on our consolidated results of operations, financial
position or cash flows.
In January 2003, the FASB issued Interpretation No. 46, " Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB
51"), which currently requires inclusion in consolidated financial statements of
subsidiaries in which an enterprise has a majority voting interest. FIN 46
broadens application of ARB 51 to certain entities in which equity investors do
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. For the first fiscal year or interim period beginning after June 15,
2003, the enterprise must apply the Interpretation to variable interest entities
in which it holds a variable interest acquired prior to February 1, 2003. We do
not expect FIN 46 to have a significant effect on our consolidated financial
statements.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SHORT-TERM INVESTMENTS
Short-term investments consist primarily of short-term commercial paper at the
Isle of Capri Black Hawk, L.L.C. (the "Isle-Black Hawk"). The carrying amount of
short-term investments approximates fair value because of the short maturity of
these instruments.
3. RESTRICTED CASH
Long-term restricted cash includes workers' compensation deposits in the amount
of $0.2 million and various other deposits totaling $2.4 million.
4. PROPERTY HELD FOR SALE
During fiscal 2002, the Company recorded a valuation charge totaling $59.2
million related to the write-down of the Company's assets at the Isle-Tunica and
the Lady Luck-Las Vegas representing the difference between the Isle-Tunica's
and the Lady Luck-Las Vegas' carrying values of $80.7 million and their
estimated fair values, less estimated costs to sell, of $21.5 million. Fair
values were based on the Company's estimate of the likely sale price for these
assets.
On July 16, 2002, the Company entered into an agreement to sell the Lady
Luck-Las Vegas, subject to certain conditions. On October 30, 2002, the Company
completed the sale of the Lady Luck-Las Vegas and received a cash payment of
$4.4 million and $6.8 million in notes receivable due October 2003. These notes
were paid in May 2003. A subsidiary of the Company will continue to operate the
casino pending the receipt of regulatory approval by the purchaser's designated
gaming operator. As a result, the results of operations for fiscal 2003
includes the gaming operations of the Lady Luck-Las Vegas. Property held for
sale at April 27, 2003, includes the gaming equipment at the Lady Luck-Las
Vegas.
On July 29, 2002, the Company entered into an agreement to sell the Isle-Tunica.
The agreement provided that the Company would receive a cash payment of $7.5
million and would be entitled to retain certain personal property, including all
gaming equipment, valued at approximately $4.7 million. The Isle-Tunica ceased
casino operations on September 3, 2002. The hotel and support facilities
remained open until the closing of the transaction on October 7, 2002.
The proceeds from these sales approximated the carrying value of the assets.
We have presented the sales of the Isle-Tunica and the Lady Luck-Las Vegas
in accordance with SFAS 121 as the Company's commitment to a plan of sale
was initiated prior to the effective date of SFAS 144.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY HELD FOR SALE (CONTINUED)
The table below presents the results of operations for the Isle-Tunica for
the following:
Fiscal Year Ended
--------------------------------------------
April 27, April 28, April 29,
2003 2002 2001
------------------- ----------- -----------
Net revenues . $ 8,900 $ 30,350 $ 28,175
Operating loss $ (3,408) $ (58,380) $ (13,995)
In connection with the property dispositions, approximately 600 employees were
terminated at the Isle-Tunica and approximately 400 employees of the Lady
Luck-Las Vegas became employees of the new company on October 30, 2002.
Employee termination costs were estimated at $0.4 million. These costs were
accrued during the first quarter 2003 and were recorded in "Operating expenses"
for the appropriate department in the accompanying consolidated statements of
operations. In addition, the disposition plan included lease termination and
other business exit costs estimated at $1.4 million. These costs were also
accrued during the first quarter 2003 and were recorded in "Operating
expenses-marketing and administrative" in the accompanying consolidated
statements of operations. The following table shows the expenditures incurred
for the disposition plan as of April 27, 2003:
Disposition 2003 2003 Disposition
Reserve at Disposition Cash Reserve at
April 28, 2002 Charges Payments April 27, 2003
--------------- --------- --------------- ----
(In thousands)
Severance and other employee costs.. . . . . $ - $ 367 $ 367 $ -
Lease terminations and business exit costs.. - 1,367 838 529
------------ --------- --------------- ----
Total disposition costs. . . . . . . . $ - $ 1,734 $ 1,205 $529
============ ========= =============== ====
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
APRIL 27, APRIL 28,
2003 2002
---------- ----------
(In thousands)
Property and equipment:
Land and land improvements . . . . . . . . . . . $ 154,989 $ 126,456
Leasehold improvements.. . . . . . . . . . . . . 120,858 117,849
Buildings and improvements.. . . . . . . . . . . 390,708 372,933
Riverboats and floating pavilions. . . . . . . . 163,980 163,399
Furniture, fixtures and equipment. . . . . . . . 312,663 259,201
Construction in progress . . . . . . . . . . . . 13,381 6,261
---------- ----------
Total property and equipment . . . . . . . . . . 1,156,579 1,046,099
Less accumulated depreciation and amortization.. 315,247 242,592
---------- ----------
Property and equipment, net. . . . . . . . . . . $ 841,332 $ 803,507
========== ==========
Interest capitalized totaled $0.2 million in fiscal 2003, $1.3 million in fiscal
2002 and $3.8 million in fiscal 2001. Depreciation and amortization expense for
property and equipment and capital leases totaled $76.6 million in fiscal
2003, $72.1 million in fiscal 2002 and $54.7 million in fiscal 2001.
6. ISLE OF CAPRI BLACK HAWK, L.L.C.
On April 25, 1997, a wholly owned subsidiary of the Company, Casino America of
Colorado, formed the Isle-Black Hawk, with Blackhawk Gold, Ltd., a wholly owned
subsidiary of Nevada Gold & Casinos, Inc. The Isle-Black Hawk owns a casino in
Black Hawk, Colorado which opened on December 30, 1998. Additionally, on April
22, 2003, the Isle-Black Hawk through its wholly owned subsidiary, IC Holdings
Colorado, Inc., acquired CCSC/Blackhawk, Inc. (the "Colorado Central
Station-Black Hawk") and Colorado Grand Enterprises, Inc., (the "Colorado
Grande-Cripple Creek"). The Company has a 57% indirect ownership interest in
the Isle-Black Hawk. The Company manages all three casinos under separate
management agreements. The management fee in each case is equal to two percent
of revenues, as defined in the management agreements, plus ten percent of
of operating income, but not to exceed four percent of revenues.
Colorado Central Station-Black Hawk
On April 22, 2003, the Company, through the Isle-Black Hawk, acquired a 57%
indirect ownership interest in CCSC/Blackhawk, Inc., which owns and operates the
Colorado Central Station-Black Hawk, for $74.0 million adjusted for certain
working capital adjustments of approximately $0.1 million.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ISLE OF CAPRI BLACK HAWK, L.L.C. (CONTINUED)
Colorado Grande-Cripple Creek
On April 22, 2003, the Company, through the Isle-Black Hawk, acquired a 57%
indirect ownership interest in Colorado Grande Enterprises, Inc., which owns and
operates the Colorado Grande-Cripple Creek, for $10.0 million adjusted for
certain working capital adjustments.
These acquisitions were accounted for as purchase business combinations with the
purchase price preliminarily allocated to the fair values of the assets acquired
and liabilities assumed resulting in preliminary goodwill of $20.5 million and
other intangible assets of $16.6 million for the value of certain trademarks
acquired with the properties. Preliminary goodwill will be fully deductible for
income tax purposes. The results of operations of the Colorado Central
Station-Black Hawk and the Colorado Grande-Cripple Creek are included in the
consolidated statements of operations since the acquisition date.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. We are in the process of
obtaining third party valuations of certain assets and expect to finalize the
allocation during fiscal 2004; thus the allocation is subject to change.
COLORADO
CCSC/ GRANDE
BLACKHAWK, INC. ENTERPRISES, INC.
---------------- -------------------
Current assets . . . . . . . . . . . . . . . . . . . . . . . $ 5,674 $ 844
Property and equipment, net. . . . . . . . . . . . . . . . . 44,608 2,460
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 15,463 4,996
Intangible assets. . . . . . . . . . . . . . . . . . . . . . 14,100 2,500
Prepaid deposits and other . . . . . . . . . . . . . . . . . 113 -
---------------- -------------------
Total assets acquired.. . . . . . . . . . . . $ 79,958 $ 10,800
Current liabilities. . . . . . . . . . . . . . . . . . . . . 4,959 793
---------------- -------------------
Net assets acquired . . . . . . . . . . . . . $ 74,999 $ 10,007
================ ===================
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. GOODWILL
The changes in the carrying amount of goodwill are as follows (in thousands):
Balance at April 30, 2001. . . . . . . . . . . . . . . . . . . . . . $319,534
Adjustments to goodwill:
Final purchase accounting adjustments related to the Lady Luck-
Las Vegas , the Isle-Boonville and the Rhythm City-Davenport
and elimination of valuation allowance. . . . . . . . . . . . . 10,602
--------
Balance at April 28, 2002. . . . . . . . . . . . . . . . . . . . . . $330,136
Acquired goodwill . . . . . . . . . . . . . . . . . . . . . . . 20,459
--------
Balance at April 27, 2003. . . . . . . . . . . . . . . . . . . . . . $350,595
========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. GOODWILL (CONTINUED)
Through April 29, 2001, goodwill and other intangible assets were being
amortized over a twenty-five year period using the straight-line method. The
following table sets forth the pro forma effect of adoption of SFAS 142, which
became effective April 30, 2001, for the period prior to its effective date:
APRIL 29,
2001
----------
Reported income before extraordinary loss. $ 25,144
Amortization expense, net of income taxes. $ 9,852
Adjusted income before extraordinary loss. $ 34,996
==========
Reported net income (loss) . . . . . . . . $ 25,144
Amortization expense, net of taxes . . . . $ 9,852
Adjusted net income (loss).. . . . . . . . $ 34,996
==========
Reported income per common share
before extraordinary loss:
Basic. . . . . . . . . . . . . . . . . $ 0.84
==========
Diluted. . . . . . . . . . . . . . . . $ 0.80
==========
Reported net income per common share:
Basic . . . . . . . . . . . . . . . . $ 0.84
==========
Diluted . . . . . . . . . . . . . . . $ 0.80
==========
Adjusted income per common share
before extraordinary loss:
Basic. . . . . . . . . . . . . . . . . $ 1.17
==========
Diluted. . . . . . . . . . . . . . . . $ 1.11
==========
Adjusted net income per common share:
Basic . . . . . . . . . . . . . . . . $ 1.17
==========
Diluted.. . . . . . . . . . . . . . . $ 1.11
==========
8. SELF INSURANCE LIABILITIES
The Company's employee-related health care benefits program, workers'
compensation insurance and general liability insurance are self-funded up to a
maximum amount per claim. Claims in excess of this maximum are fully insured
through a stop-loss insurance policy. The liabilities are based on claims filed
and estimates of claims incurred but not reported. For the fiscal years ended
April 27, 2003 and April 28, 2002, the Company's liabilities for unpaid and
incurred but not reported claims totaled $16.2 million and $17.7 million,
respectively, and are included in "Accrued liabilities - payroll and related"
for health care benefits and workers' compensation insurance and in "Accrued
liabilities - other" for general liability insurance in the accompanying
consolidated balance sheets. While the total cost of claims incurred depends on
future developments, in management's opinion, recorded reserves are adequate to
cover future claims' payments.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT
APRIL 27, APRIL 28,
2003 2002
--------------- ----------
(In thousands)
Long-term debt consists of the following:
8.75 % Senior Subordinated Notes (described below) . . . . . . . . . . . . . . $ 390,000 $ 390,000
9.00 % Senior Subordinated Notes (described below) . . . . . . . . . . . . . . 200,000 200,000
Senior Secured Credit Facility (described below):
Variable rate term loan . . . . . . . . . . . . . . . . . . . . . . . . . . 247,500 250,000
Revolver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 75,000
Isle-Black Hawk Senior Secured Credit Facility, non-recourse to Isle of Capri
Casinos, Inc. (described below):
Variable rate term loan Tranche A. . . . . . . . . . . . . . . . . . . . 27,922 38,000
Variable rate term loan Tranche B. . . . . . . . . . . . . . . . . . . . 142,732 39,900
Special Assessment BID Bonds (described below) . . . . . . . . . . . . . . . . 816 -
Variable rate TIF Bonds due to City of Bettendorf (described below). . . . . . 5,306 5,929
12.5 % note payable, due in monthly installments of $125,000, including
interest, beginning October 1997 through October 2005.. . . . . . . . . . . 3,022 4,072
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,689 6,398
--------------- ----------
1,027,987 1,009,299
Less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,757 14,176
Long-term debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,003,230 $ 995,123
=============== ==========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
8.75% SENIOR SUBORDINATED NOTES
On April 23, 1999, the Company issued $390.0 million of 8.75% Senior
Subordinated Notes due 2009 (the "8.75% Senior Subordinated Notes"). The 8.75%
Senior Subordinated Notes are guaranteed by all of the Company's significant
subsidiaries, excluding the subsidiaries that own and operate the Isle-Black
Hawk, the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple
Creek. Interest on the 8.75% Senior Subordinated Notes is payable semi-annually
on each April 15 and October 15 through maturity. The 8.75% Senior Subordinated
Notes are redeemable, in whole or in part, at the Company's option at any time
on or after April 15, 2004 at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest to the
applicable redemption date, if redeemed during the 12-month period beginning on
April 15 of the years indicated below:
YEAR PERCENTAGE
- -------------------- -----------
2004.. . . . . . . . 104.375%
2005.. . . . . . . . 102.917%
2006.. . . . . . . . 101.458%
2007 and thereafter. 100.000%
The Company issued the 8.75% Senior Subordinated Notes under an indenture
between the Company, the subsidiary guarantors and a trustee. The indenture,
among other things, limits the ability of the Company and its restricted
subsidiaries to borrow money, make restricted payments, use assets as security
in other transactions, enter into transactions with affiliates or pay dividends
on or repurchase its stock or its restricted subsidiaries' stock. The Company
is also limited in its ability to issue and sell capital stock of its
subsidiaries and in its ability to sell assets in excess of specified amounts or
merge with or into other companies.
A substantial part of the proceeds from the 8.75% Senior Subordinated Notes was
used to prepay long-term debt, including all of the $315.0 million of 12.5%
Senior Secured Notes due 2003. The proceeds were also used to pay prepayment
premiums, accrued interest and other transaction fees and costs.
9% SENIOR SUBORDINATED NOTES
On March 27, 2002, the Company issued $200.0 million of 9% Senior Subordinated
Notes due 2012 (the "9% Senior Subordinated Notes"). The 9% Senior Subordinated
Notes are guaranteed by all of the Company's significant subsidiaries, excluding
the subsidiaries that own and operate the Isle-Black Hawk, the Colorado Central
Station-Black Hawk and the Colorado Grande-Cripple Creek. The 9% Senior
Subordinated Notes are general unsecured obligations and rank junior to all
existing and future senior indebtedness, senior to any subordinated indebtedness
and equally with all existing and future senior subordinated debt, including the
$390.0 million in aggregate principal amount of the existing 8.75% Senior
Subordinated Notes. Interest on the 9% Senior Subordinated Notes is payable
semi-annually on each March 15 and September 15 through maturity. The 9% Senior
Subordinated Notes are redeemable, in whole or in part, at the Company's option
at any time on or after March 15, 2007 at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest to the applicable redemption date, if redeemed during the 12-month
period beginning on March 15 of the years indicated below:
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
YEAR PERCENTAGE
- -------------------- -----------
2007.. . . . . . . . 104.500%
2008.. . . . . . . . 103.000%
2009.. . . . . . . . 101.500%
2010 and thereafter. 100.000%
Additionally, the Company may redeem a portion of the 9% Senior Subordinated
Notes with the proceeds of specified equity offerings.
The Company issued the 9% Senior Subordinated Notes under an indenture between
the Company, the subsidiary guarantors and a trustee. The indenture, among
other things, limits the ability of the Company and its restricted
subsidiaries to borrow money, make restricted payments, use assets as security
in other transactions, enter into transactions with affiliates or pay dividends
on or repurchase its stock or its restricted subsidiaries' stock. The Company is
also limited in its ability to issue and sell capital stock of its
subsidiaries and in its ability to sell assets in excess of specified amounts or
merge with or into other companies.
A substantial part of the proceeds from the 9% Senior Subordinated Notes was
used to prepay long-term debt, including $195.0 million outstanding under the
Company's previous Amended and Restated Senior Credit Facility. The proceeds
were also used to pay accrued interest and other transaction fees and costs.
SENIOR SECURED CREDIT FACILITY
The Senior Secured Credit Facility provides for a $250.0 million revolving
credit facility maturing on April 25, 2007 and a $250.0 million term loan
facility maturing on April 25, 2008. At the Company's option, the revolving
credit facility may bear interest at (1) the higher of 0.05% in excess of the
federal funds effective rate or the rate that the bank group announces from time
to time as its prime lending rate plus an applicable margin of up to 1.75%, or
(2) a rate tied to a LIBOR rate plus an applicable margin of up to 2.75%. The
term loan may bear interest at the Company's option at (1) the higher of 0.05%
in excess of the federal funds effective rate or the rate that the bank group
announces from time to time as its prime lending rate plus an applicable margin
of up to 1.50% or (2) a rate tied to a LIBOR rate plus an applicable margin of
up to 2.50%.
The Senior Secured Credit Facility provides for certain covenants, including
those of a financial nature. The Senior Secured Credit Facility is secured by
liens on substantially all of the Company's assets and guaranteed by all of its
significant restricted subsidiaries, excluding Casino America of Colorado, Inc.,
the Isle-Black Hawk, the Colorado Central Station-Black Hawk, the Colorado
Grande-Cripple Creek and their subsidiaries.
The weighted average effective interest rate of total debt outstanding under the
Senior Secured Credit Facility at April 27, 2003 was 6.03%.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
ISLE-BLACK HAWK SENIOR SECURED CREDIT FACILITY
Isle-Black Hawk Secured Credit Facility
On November 16, 2001 the Isle-Black Hawk entered into a $90.0 million secured
credit facility (the "Isle-Black Hawk Secured Credit Facility"), that was
non-recourse debt to the Isle of Capri. The Isle-Black Hawk Secured Credit
Facility provided for a $10.0 million revolving credit facility, a $40.0 million
Tranche A term loan maturing on November 16, 2005 and a $40.0 million Tranche B
term loan maturing on November 16, 2006. On April 22, 2003, the Isle-Black Hawk
amended the Isle-Black Hawk Secured Credit Facility with a $210.7 million Senior
Secured Credit Facility (the "Isle-Black Hawk Senior Secured Credit Facility").
Isle-Black Hawk Senior Secured Credit Facility
The Isle-Black Hawk Senior Secured Credit Facility provides for a $40.0 million
revolving credit facility maturing on November 16, 2005, a $27.9 million Tranche
A term loan maturing on November 16, 2005, and a $142.8 million Tranche B term
loan maturing on November 16, 2006. The proceeds from the $105.0 million
increase of the Tranche B term loan were used to provide financing for the
acquisitions of the CCSC/Blackhawk, Inc. casino in Black Hawk, Colorado and the
Colorado Grande Enterprises, Inc. casino in Cripple Creek, Colorado. The
Isle-Black Hawk is required to make quarterly principal payments on the term
loan portions of the Isle-Black Hawk Senior Secured Credit Facility that will
commence in June 2003. Such payments on the Tranche A term loan initially will
be $2.5 million per quarter with scheduled increases to $3.0 million per quarter
commencing March 2005 with a balloon payment of $1.4 million due upon maturity.
Such payments on the Tranche B term loan initially will be $362,500 per quarter
with a scheduled increase to $9.9 million per quarter commencing March 2006 with
a balloon payment of $109.2 million due upon maturity.
At the Isle-Black Hawk's option, the revolving credit facility and the Tranche A
term loan may bear interest at (1) the highest of 0.05% in excess of the
federal funds effective rate or the rate that the bank group announces from time
to time as its prime lending rate plus an applicable margin of up to 3.00%, or
(2) a rate tied to a LIBOR rate plus an applicable margin of up to 4.00%. At
the Isle-Black Hawk's option, the Tranche B term loan may bear interest at (1)
the highest of 0.05% in excess of the federal funds effective rate or the rate
that the bank group announces from time to time as its prime lending rate plus
an applicable margin of up to 3.00%, or (2) a rate tied to a LIBOR rate plus an
applicable margin of up to 4.00%.
The Isle-Black Hawk Senior Secured Credit Facility provides for certain
covenants, including those of a financial nature. The Isle-Black Hawk was in
compliance with these covenants as of April 27, 2003. The Isle-Black Hawk
Senior Secured Credit Facility is secured by liens on the assets of the
Isle-Black Hawk, including the Colorado Central Station-Black Hawk and the
Colorado Grande-Cripple Creek.
The weighted average effective interest rate of total debt outstanding under the
Isle-Black Hawk Senior Secured Credit Facility at April 27, 2003 was 5.94%.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
INTEREST RATE SWAPS
The Company entered into three interest rate swap agreements in the fourth
quarter of fiscal 2001 and four interest rate swap agreements in fiscal 2002
that effectively convert portions of the floating rate term loans to a
fixed-rate, thus reducing the impact of interest-rate changes on future interest
expense. The notional value of the swaps, which were designated as cash flow
hedges, was $190.0 million or 45.4% of the Isle of Capri's variable rate term
loans as of April 27, 2003. The interest rate swaps terminate as follows:
$150.0 million in fiscal 2004 and $40.0 million in fiscal 2005. $50.0 million
of interest rate swaps terminated in fiscal 2003.
For the fiscal year ended April 27, 2003, comprehensive income was $45.4 million
compared to a $4.1 million comprehensive loss for the fiscal year ended April
28, 2002. At April 27, 2003, other comprehensive income consists of $4.3
million for changes in the fair value of derivative instruments for cash flow
hedges. The fair value of the estimated interest differential between the
applicable future variable rates and the interest rate swap contracts, expressed
in present value terms totals $6.8 million, of which $5.7 million is recorded in
other accrued current liabilities and $1.1 million is recorded in other accrued
long-term liabilities in the accompanying consolidated balance sheets. There
was no effect on income related to hedge ineffectiveness.
At April 27, 2003, the Company does not expect to reclassify any net gains
(losses) on derivative instruments from accumulated other comprehensive income
to earnings during the next twelve months due to the payment of variable
interest associated with the floating rate debt.
ISLE-BLACK HAWK SPECIAL ASSESSMENT BID BONDS
In July 1998, the Black Hawk Business Improvement District (the "BID"), issued
$2.9 million in 6.00% bonds due on December 1, 2009. The proceeds from the sale
of the bonds were used to fund road and utility improvements in the Special
Improvement District 1997-1 (the "SID"), of which the Isle-Black Hawk is a
member. The total costs of the improvements amounted to $2.2 million with the
excess proceeds being returned to the bondholders by the BID. Isle-Black Hawk is
responsible for 50% of this amount plus interest, and in April 2000 made the
first of twenty semi-annual payments of $0.1 million in the form of special
property tax assessments levied on the improvement project. This amount is
calculated by amortizing $1.1 million or 50% of the net bond proceeds, over
twenty periods at an interest rate of 6.25%. The difference between the bond
rate of 6.00% and the 6.25% assessed is to cover administrative costs of the BID
related to the issuance.
BETTENDORF TIF BONDS
As part of the City of Bettendorf Development Agreement dated June 17, 1997, the
City of Bettendorf ("the City") issued $9.5 million in tax incremental financing
bonds ("TIF Bonds"), $7.5 million of which was used by the Isle-Bettendorf to
construct an overpass, parking garage, related site improvements and pay for
disruption damages caused by construction of the overpass. To enable financing
of the City's obligations, the Isle-Bettendorf will pay incremental property
taxes on the developed property assessed at a valuation of not less than $32.0
million until the TIF Bonds mature. Additionally, the TIF Bonds will also be
repaid from the incremental taxes on the developed property within the defined
"TIF District" which includes the Isle-Bettendorf and over 100 other tax paying
entities. As the TIF District will repay the TIF Bonds, the Isle-Bettendorf may
not be required to fully repay the $7.5 million. In the event that the taxes
generated by the project and other qualifying developments in the redevelopment
district do not fund the repayment of the total TIF Bonds prior to their
scheduled maturity, the Isle-Bettendorf will pay the City $0.25 per person for
each person entering the boat until the remaining balance has been repaid.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
OTHER
The aggregate principal payments due on total long-term debt over the next five
fiscal years and thereafter are as follows:
FISCAL YEAR ENDING
-------------------
(In thousands)
2004. . . . . . . . $ 24,757
2005. . . . . . . . 16,977
2006. . . . . . . . 22,045
2007. . . . . . . . 130,489
2008. . . . . . . . 238,515
Thereafter. . . . . 595,204
-----------
$1,027,987
===========
As of April 27, 2003, the Company had $5.9 million outstanding under its lines
of credit leaving $288.1 million available.
At April 27, 2003, the Company was in compliance with all debt covenants.
10. COMMITMENTS
Isle-Lake Charles
The Company leases approximately 16.25 acres of land in Calcasieu Parish,
Louisiana for use in connection with the Isle-Lake Charles. The initial term of
this lease expires in March 2005 and we have the option to renew it for sixteen
additional terms of five years each. Rent under the Isle-Lake Charles lease is
currently $1.5 million per year and is subject to increases based on the
Consumer Price Index ("CPI") and the construction of an additional hotel
Facility on the property.
Isle-Biloxi
The Company has an agreement with the Biloxi Port Commission that provides the
Company with certain docking rights. This agreement expires in July 2004, with
seven renewal options of five years each. Annual rentals are the greater of
$500,000 or 1% of gross gaming revenue, as defined. Annual rent during each
renewal term is adjusted for increases in the CPI, limited to 6% for each
renewal period.
In addition, the Company leases certain land, buildings, and other improvements
from the City of Biloxi under a lease and concession agreement. This agreement
expires in July 2004, with options to renew for six additional terms of five
years each. Annual rent is $530,000 plus 3% of gross gaming revenue, as defined,
in excess of $25.0 million. Annual rent during each renewal term is adjusted for
increases in the CPI, limited to 6% for each renewal period.
In April 1994, the Company entered an Addendum to the lease with the City of
Biloxi, which requires the Company to pay 4% of gross non-gaming revenues
received as defined, net of sales tax, comps and discounts. Additional rent will
be due to the City of Biloxi for the amount of any increase from and after
January 1, 2016 in the rent due to the State Institutions of Higher Learning
under a lease between the City of
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS (CONTINUED)
Biloxi and the State Institutions of Higher Learning (the "IHL Lease") and for
any increases in certain tidelands leases between the City of Biloxi and the
State of Mississippi.
In April 1994, in connection with the construction of a hotel, the Company
entered a lease for additional land. The Company first acquired the leasehold
interest of Sea Harvest, Inc., the original lessee, for consideration of $8,000
per month for a period of ten years. The Company's lease is with the City of
Biloxi, Mississippi, for an initial term of 25 years, with options to renew for
six additional terms of 10 years each and a final option period with a
termination date commensurate with the termination date of the IHL Lease, but in
no event later than December 31, 2085. Annual rent (which includes payments to
be made pursuant to the purchase of a related leasehold interest) is $444,400,
plus 4% of gross non-gaming revenue, as defined. The annual rent is adjusted
after each five-year period based on increases in the CPI, limited to a 10%
increase in any five-year period. The annual rent will increase 10 years after
the commencement of payments pursuant to a termination of lease and settlement
agreement, to an amount equal to the sum of annual rent as if it had been
$500,000 annually plus adjustments thereto based on the CPI.
Isle-Lula
The Company leases approximately 1,000 acres of land in Coahoma County,
Mississippi and utilizes approximately 50 acres in connection with the
operations of the Isle-Lula. Unless terminated by the Company at an earlier
date, the lease expires in 2033. Rent under the lease is currently 5.5 % of
gross gaming revenue as established by the Mississippi Gaming Commission, as
well as $3,333 per month for the Rhythm & Blues hotel.
Isle-Natchez
Through numerous lease agreements, the Company leases approximately 64 acres of
land in Natchez, Mississippi, which is used in connection with the operation of
the Isle-Natchez. Unless terminated by the Company at an earlier date, the
lease expiration dates vary from 2002-2037. Rents under the leases currently
total approximately $97,000 per month. The Company also leases approximately
7.5 acres of land, which is utilized for parking at the facility.
Isle-Boonville
The Company entered into a lease agreement with the City of Boonville. Under
the terms of agreement, the Company leases the site for a period of 99 years.
The Company was required to pay $1.7 million to the City of Boonville as lump
sum rent payment during construction of the casino. There was no rent due after
casino opening date.
In addition, in the first year after the casino opened, we were required to pay
the City of Boonville a minimum of $0.8 million based on a 3.5% tax on gaming
revenue. For every dollar in excess of the minimum $0.8 million in tax payments
received by the City of Boonville, up to a maximum of $1.0 million, the City of
Boonville would be required to pay a dollar for dollar rebate up to $0.2
million. The Company received a $0.2 million rebate from the City of Boonville
during the fiscal year ended April 27, 2003, from the admission fees.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS (CONTINUED)
Isle-Kansas City
The Company leases approximately 28 acres from the Kansas City Port Authority in
connection with the operation of the Isle-Kansas City. The term of the lease is
5 years and we have the option to renew the lease for 8 additional terms of 5
years each. Rent under the lease is currently $3.0 million per year, subject to
the higher of $3.0 million (minimum rent) per year, or 3.25% of gross revenues,
less complimentaries.
Isle-Davenport
The Company leases approximately 12 acres of land from the City of Davenport in
connection with the operations of Rhythm City-Davenport through a docking fee.
Pursuant to a development agreement with the City, the Isle-Davenport has
exclusive docking privileges in the City of Davenport until March 31, 2017, in
consideration of this docking fee. The docking fee has both a fixed base and a
per passenger increment. The fixed fee commenced April 1, 1994 at $111,759 and
increases annually by 4%. The incremental component is a $0.10 charge for each
passenger in excess of 1,117,579 passengers (which charge also increases by 4%
per year).
Isle-Marquette
The Company leases riverfront land from the City of Marquette, Iowa, under a
lease agreement. This agreement expires in December 2019. Annual rent is
$180,000 payable in equal monthly installments due on the first of each month.
In addition to the base rent, the Company must also pay the following amounts:
(1) $0.50 per customer per day due the 15th day following each month and (2)
2.5% of net gambling receipts, as defined, from $20.0 million to $40.0 million,
plus 5% of net gambling receipts, as defined, from $40.0 million to $60.0
million, plus 7.5% of net gambling receipts, as defined, in excess of $60.0
million, due annually.
Colorado Central Station-Black Hawk
We lease additional parcels of land adjoining the Colorado Central Station-Black
Hawk for parking. This lease is for an initial term of ten years with options to
renew for nine additional terms of ten years each with the final option period
concluding June 1, 2094. Annual rent is $370,000 and renewals are subject to 20%
rent increases over the rate of the previous term. We also entered into a lease
for additional parking. This lease is for an initial term of nine years with
options to renew for eighteen additional terms of five years each with the final
option period concluding June 1, 2094. Annual rent is $1.5 million indexed to
correspond to any rise or fall in the cost of living at one-year intervals
beginning June 1, 1996, not to exceed 3% difference from the previous year's
rate.
Colorado Grande-Cripple Creek
We lease approximately 0.57 acres of land in Cripple Creek, Colorado for use in
connection with our land-based facilities. We lease this land at an annual rent
of the greater of $144,000 or 5% of Colorado Grande-Cripple Creek's adjusted
gross gaming revenues, as defined, with an annual cap of $400,000. This lease is
for an initial term of sixteen years with an option to renew for fifteen years
with the final option period concluding January 31, 2021.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS (CONTINUED)
Other
In February 1995, in conjunction with a planned Cripple Creek Colorado
development, the Company entered into a land lease. The lease has an initial
term of 25 years, with options to renew for seven additional terms of 10 years
each. The base rent is $300,000. After seven years, and every two years
thereafter, the annual rent is adjusted based on increases in the CPI, limited
to a 4% increase in any two-year period.
Future minimum payments under capital leases and noncancelable operating leases
with initial terms of one year or more consisted of the following at April 27,
2003:
CAPITAL OPERATING
LEASES LEASES
--------------- ----------
(In thousands)
2004 . . . . . . . . . . . . . . . . . . . . $ 316 $ 14,308
2005 . . . . . . . . . . . . . . . . . . . . 312 13,720
2006 . . . . . . . . . . . . . . . . . . . . 312 13,180
2007 . . . . . . . . . . . . . . . . . . . . 312 11,383
2008 . . . . . . . . . . . . . . . . . . . . 312 10,993
Thereafter . . . . . . . . . . . . . . . . . 3,692 1,100,155
--------------- ----------
Total minimum lease payments . . . . . . . . $ 5,256 $1,163,739
==========
Amounts representing interest. . . . . . . . (2,851)
---------------
Present value of net minimum lease payments. $ 2,405
===============
All future operating minimum lease payments include long-term land lease
payments which have various renewal options varying between 5 to 10 years. The
Company expects that the Company's properties will continue in operation and
these leases will be renewed for the next 80 to 90 years. Rent expense for
operating leases was approximately $34.6 million in fiscal 2003, $39.8 million
in fiscal 2002 and $36.6 million in fiscal 2001. Such amounts include contingent
rentals of $9.4 million in fiscal 2003, $12.1 million in fiscal 2002 and $8.5
million in fiscal 2001.
11. RELATED PARTY TRANSACTIONS
The Company leases approximately eight acres of land on a month-to-month basis
from an entity owned by members of Bernard Goldstein's family, including Robert
S. Goldstein and Jeffrey D. Goldstein, which is used for parking and warehouse
space by the Isle-Bettendorf. The initial term of the lease expires 60 days
after written notice is given to either party and rent under the lease is
currently $23,360 per month.
The Company reimburses Alter Trading Corporation, a company owned by Robert S.
Goldstein, Jeffrey D. Goldstein and other members of the Goldstein family, for
annual lease payments of approximately $99,000 with respect to property leased
by Alter Trading Corporation. The land was leased at the Company's request in
order to secure a site for possible casino operations.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
In November 2002, the Company, through its wholly owned subsidiary, Isle of
Capri Bettendorf, L.C., awarded a contract to dredge the Bettendorf Marina, the
location of the Isle-Bettendorf property, to Blackhawk Fleet of Davenport, Iowa.
Blackhawk Fleet is an affiliate of the Alter Company, which is owned by Robert
S. Goldstein, Jeffrey D. Goldstein and other members of the Goldstein family.
The dredging contract was awarded based on competitive bids submitted by four
qualified bidders, with Blackhawk Fleet's bid of $118,750 being the lowest.
In March 2003, the Company, through its wholly owned subsidiary, Lady Luck
Vicksburg, Inc., sold three barges to the Alter Company, which is owned by
Robert S. Goldstein, Jeffrey D. Goldstein and other members of the Goldstein
family. The barges were previously classified as property held for sale and
sold for $100,000.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMON STOCK
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
FISCAL YEAR ENDED
-----------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------ ----------- ----------
(In thousands, except per share data)
Numerator:
Income before extraordinary loss . . . . . . . . . . . . . $ 45,593 $ 4,314 $ 25,144
Extraordinary loss, net. . . . . . . . . . . . . . . . . . - (4,349) -
------------------ ----------- ----------
Net income (loss). . . . . . . . . . . . . . . . . . . . . $ 45,593 $ (35) $ 25,144
================== =========== ==========
Numerator for basic earnings (loss) per share - income
(loss) available to common stockholders . . . . . . . $ 45,593 $ (35) $ 25,144
Effect of diluted securities.. . . . . . . . . . . . . . . - - -
------------------ ----------- ----------
Numerator for diluted earnings (loss) per share-
income (loss) available to common stockholders after
assumed conversions. . . . . . . . . . . . . . . $ 45,593 $ (35) $ 25,144
================== =========== ==========
Denominator:
Denominator for basic earnings (loss) per share -
weighted - average shares . . . . . . . . . . . . . . 28,984 28,162 29,894
Effect of dilutive securities
Employee stock options
and nonvested restricted stock . . . . . . . . . . 1,468 1,603 1,619
------------------ ----------- ----------
Denominator for diluted earnings (loss) per share -
adjusted weighted - average shares and
assumed conversions. . . . . . . . . . . . . . . 30,452 29,765 31,513
================== =========== ==========
BASIC EARNINGS (LOSS) PER SHARE
Income before extraordinary loss.. . . . . . . . . . . . . $ 1.57 $ 0.15 $ 0.84
Extraordinary loss, net. . . . . . . . . . . . . . . . . . - (0.15) -
------------------ ----------- ----------
Net income.. . . . . . . . . . . . . . . . . . . . . . . . $ 1.57 $ - $ 0.84
================== =========== ==========
DILUTED EARNINGS (LOSS) PER SHARE
Income before extraordinary loss.. . . . . . . . . . . . . $ 1.50 $ 0.15 $ 0.80
Extraordinary loss, net. . . . . . . . . . . . . . . . . . - (0.15) -
------------------ ----------- ----------
Net income.. . . . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ - $ 0.80
================== =========== ==========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMON STOCK (CONTINUED)
STOCK-BASED COMPENSATION - STOCK OPTION PLANS
Under the Company's 1992, 1993 and 2000 Stock Option Plans, as amended, a
maximum of 1,058,750,
4,650,000 and 1,000,000 options, respectively, may be granted to directors,
officers and employees. The plans provide for the issuance of incentive stock
options and nonqualified options which have a maximum term of 10 years and are,
generally, exercisable in yearly installments ranging from 20% to 25%,
commencing one year after the date of grant.
Stock options outstanding are as follows:
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
2003 EXERCISE 2002 EXERCISE 2001 EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
- ----------------------------------------- ----------- --------- ------------ --------- ---------- ----------
Outstanding options at beginning of
fiscal year. . . . . . . . . . . . . 3,944,851 $ 7.32 4,166,184 $ 6.72 3,920,498 $ 5.29
Options granted . . . . . . . . . . . . . 780,148 15.06 1,345,384 7.15 611,250 15.47
Options exercised.. . . . . . . . . . . . (997,717) 4.23 (1,202,357) 5.05 (246,374) 4.65
Options canceled. . . . . . . . . . . . . (155,199) 9.07 (364,360) 7.34 (119,190) 8.87
----------- ------------ ----------
Outstanding options at end of fiscal year 3,572,083 $ 9.80 3,944,851 $ 7.32 4,166,184 $ 6.72
=========== ============ ==========
Weighted average fair value of
options granted. . . . . . . . . . . $ 8.82 $ 4.21 $ 11.62
The following table summarizes information about stock options outstanding at
April 27, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGES OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ------------------- ------------------- -------------- ------------ --------------
$ 2.11 - $4.21 605,929 5.0 years $ 3.15 383,629 $ 3.21
4.21 - 6.32 25,125 2.9 years 6.25 25,125 6.25
6.32 - 8.42 1,192,094 7.7 years 6.67 326,094 7.13
8.42 - 10.53 330,902 6.4 years 10.25 165,382 10.25
10.53 - 12.63 64,003 4.4 years 12.20 64,003 12.20
12.63 - 14.74 181,145 2.6 years 13.74 181,145 13.74
14.74 - 16.84 1,150,216 8.3 years 15.54 229,466 15.63
16.84 - 18.95 5,966 3.0 years 18.03 5,966 18.03
18.95 - 21.05 16,703 4.7 years 20.80 16,703 20.80
------------------- --------------
$ 2.11 - $21.05 3,572,083 6.9 years $ 9.80 1,397,513 $ 9.10
=================== ==============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMON STOCK (CONTINUED)
STOCK-BASED COMPENSATION - DEFERRED BONUS PLAN
In the fiscal 2001, the Company's stockholders approved the Deferred Bonus Plan.
The Plan provides for the issuance of nonvested stock to eligible officers and
employees who agree to receive a deferred bonus in the form of nonvested stock.
The vesting of the stock is dependent upon continued service to the Company for
a period of five years. At April 27, 2003, the nonvested stock issued in
connection with the Plan totaled 375,307 shares, of which 46,477 shares were
issued during fiscal year ended April 27, 2003, at $20.19, the weighted-average
fair value of the nonvested stock at the grant date. For the fiscal year ended
April 27, 2003, the Company recorded an unearned compensation contra account in
consolidated stockholders' equity equal to the fair value of the nonvested award
and recorded compensation expense for the portion of unearned compensation that
had been earned through April 27, 2003. Compensation expense related to
stock-based compensation under the Deferred Bonus Plan totaled $617,000 in
fiscal 2003, $376,000 in fiscal 2002, and $900,000 in fiscal 2001.
STOCK REPURCHASE
On October 25, 2002, the Company's Board of Directors approved a stock
repurchase program allowing for the purchase of up to 1.5 million shares of the
Company's outstanding common stock. As of April 27, 2003, the Company
repurchased and retired 447,300 shares of common stock under this program.
STOCKHOLDER RIGHTS PLAN
In February 1997, the Company adopted a Stockholder Rights Plan. The Plan is
designed to preserve the long-term value of the shareholders' investment in the
Company. Under the Plan, each shareholder will receive a distribution of one
right for each share of the Company's outstanding common stock. The rights were
distributed to shareholders of record on March 3, 1997, and will expire ten
years thereafter. Each right entitles the holder to purchase one one-
thousandth (1/1,000) of a share of a new series of participating preferred
stock at an initial exercise price of $12.50. Initially the rights are
represented by the Company's common stock certificates and are not exercisable.
The rights become exercisable shortly after a person or group acquires
beneficial ownership of 15% or more of the Company or publicly announces its
intention to commence a tender or exchange offer that would result in the 15%
beneficial ownership level. Under certain circumstances involving a buyer's
acquisition of a 15% position in the Company, all rights holders except the
buyer will be entitled to purchase common stock at half price. If the Company
is acquired through a merger, after such an acquisition, all rights holders
except the buyer will be entitled to purchase stock in the buyer at half price.
The Company may redeem the rights at one cent each at any time before a buyer
acquires 15% of the Company's stock.
13. EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company has a 401(k) plan covering substantially all of its employees. The
Company's contribution expense related to the 401(k) plan was approximately $1.5
million in fiscal 2003, $2.0 million in fiscal 2002 and $1.8 million in fiscal
2001. The Company's contribution is based on a percentage of employee
contributions and may include an additional discretionary amount. The 401(k)
plan allows employees to invest no more than 5% of their contribution in the
Company's common stock.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS (CONTINUED)
INSURANCE PLAN
The Company has a qualified employee insurance plan covering all employees who
work an average of 32 hours or more per week on a regular basis. The plan,
which is self-funded by the Company with respect to claims below a certain
maximum amount, requires contributions from eligible employees and their
dependents. The Company's contribution expense for the plan was approximately
$37.9 million in fiscal 2003, $40.3 million in fiscal 2002 and $28.8 million in
fiscal 2001.
14. BUSINESS INTERRUPTION INSURANCE RECOVERIES
During the fiscal year ended April 28, 2002, the Isle of Capri recorded $4.2
million in business interruption insurance proceeds. These amounts are recorded
in the accompanying consolidated statements of operations in the line item
"Marketing and Administrative Operating Expenses." All of the business
interruption insurance proceeds relate to the flooding of the Mississippi River
that closed the Isle-Marquette from April 18, 2001, through May 2, 2001, and the
Rhythm City-Davenport from April 18, 2001, through May 20, 2001.
15. VALUATION CHARGE
The valuation charge for fiscal April 27, 2003, totaling $1.9 million is a
reserve for a loss contingency against the investment to date in Ardent Gaming,
L.L.C., an unrelated third party. The system being developed under the joint
venture is substantially past due and the Company believes it is probable that
it will not recover its investment.
During the fourth quarter of fiscal 2002, the Company recorded a valuation
charge totaling $59.2 million related to the write-down of the assets at the
Isle-Tunica and the Lady Luck-Las Vegas. Although both properties had been
operating with losses, the Company was committed to improving the results at
these properties with additional capital spending and had begun the process
resulting in modest positive cash flow at the Isle-Tunica and reduced losses at
the Lady Luck-Las Vegas during the fourth quarter of fiscal 2002. Isle of
Capri's efforts to increase these properties' performance included focused
marketing campaigns and extensive cost reductions. However, on March 14, 2002,
the Board resolved to sell or otherwise dispose of the property and equipment at
the Isle-Tunica and the Lady Luck-Las Vegas. Under the provisions of SFAS 121,
the Company then determined that it would not be able to recover the carrying
value of the Isle-Tunica or the Lady Luck-Las Vegas based on current real estate
and market conditions in these markets. As such, the Company recorded in the
line item "Valuation charge" in the accompanying consolidated statements of
operations an impairment write-down of $59.2 million, representing the
difference between the Isle-Tunica's and the Lady Luck-Las Vegas' carrying
values of $80.7 million and their estimated fair values less estimated costs to
sell of $21.5 million. Fair values were based on the most recent offer to
purchase the assets. In addition, as the Company committed to a disposal plan
in the fourth quarter of 2002 and begun aggressively seeking a buyer of the
Isle-Tunica and the Lady Luck-Las Vegas, the Company reclassified the carrying
value of these properties to "Property held for sale" in the accompanying
consolidated balance sheets as of April 28, 2002. The Company completed the
disposal of the Isle-Tunica and the Lady Luck-Las Vegas in fiscal 2003.
In addition, the Company recorded a valuation allowance totaling $2.2 million in
fiscal 2002 and $1.0 million in fiscal 2001 to reflect the write-down of marine
assets held for sale.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. PREOPENING EXPENSES
Preopening expenses of $3.9 million in fiscal 2002 and $0.2 million in fiscal
2001 represent salaries, benefits, training, marketing and other costs incurred
in connection with the opening of the Isle-Boonville on December 6, 2001.
17. OTHER CHARGES
During fiscal 2001, other charges of $8.2 million included a $3.0 million loss
due to the write-off of abandoned expansion projects assets at the Isle-Biloxi,
a $2.9 million loss due to the termination of the joint venture as a result of
Bankruptcy Court filings by Commodore Holdings, Ltd., the operator of the
Enchanted Capri and owner of the remaining 50% interest in the joint venture, a
$1.4 million buyout of the Crowne Plaza license at the Isle-Biloxi, and a $0.9
million loss relating to the write-off of the theater production contracts at
the Isle-Tunica.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXES
Income tax provision consists of the following:
FISCAL YEAR ENDED
------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------ ----------- ----------
(In thousands)
Current:
Federal . . . . . . $ 2,001 $ (13,176) $ 10,430
State . . . . . . . 1,147 1,966 506
------------------ ----------- ----------
3,148 (11,210) 10,936
Deferred:
Federal . . . . . . 22,552 12,307 8,705
State . . . . . . . 1,022 (16) 863
------------------ ----------- ----------
23,574 12,291 9,568
------------------ ----------- ----------
26,722 1,081 20,504
Extraordinary loss. - (2,672) -
------------------ ----------- ----------
$ 26,722 $ 3,753 $ 20,504
================== =========== ==========
A reconciliation of income tax provision to the statutory corporate federal tax
rate of 35% is as follows:
FISCAL YEAR ENDED
---------------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2003 2002 2001
------------------- ----------- -----------
(In thousands)
Statutory tax provision. . $ 25,278 $ 364 $ 16,033
Effects of :
State taxes . . . . . . 1,410 1,267 890
Goodwill. . . . . . . . - - 3,355
Fines and penalties.. . 105 439 120
Employment tax credits. (391) (1,164) (148)
Other . . . . . . . . . 320 175 254
------------------- ----------- -----------
$ 26,722 $ 1,081 $ 20,504
=================== =========== ===========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. INCOME TAXES (CONTINUED)
Significant components of the Company's net deferred state and federal
income tax liabilities are as follows:
FISCAL YEAR ENDED
--------------------------------
APRIL 27, APRIL 28,
2003 2002
------------------ -----------
(In thousands)
Deferred tax liabilities:
Property and equipment . . . . . . . $ 66,280 $ 48,586
Other. . . . . . . . . . . . . . . . 2,882 (6,647)
------------------ -----------
Total deferred tax liabilities . . . 69,162 41,939
Deferred tax assets:
Hedging transactions . . . . . . . . 2,527 2,364
Accrued expenses . . . . . . . . . . 10,452 12,771
Charitable contribution carryover. . 116 116
Alternative minimum tax credit . . . 3,787 3,787
Employment tax credits . . . . . . . 2,040 1,163
Net operating losses . . . . . . . . 30,426 30,463
Other. . . . . . . . . . . . . . . . 9,872 4,907
------------------ -----------
Total deferred tax assets. . . . . . 59,220 55,571
------------------ -----------
Net deferred tax (asset)/ liability. $ 9,942 $ (13,632)
================== ===========
At April 28, 2002, the valuation allowance on the deferred tax assets was no
longer required. Goodwill related to the Isle-Lake Charles acquisition was
reduced in fiscal 2002 to reflect the elimination of the valuation allowance in
2002.
At April 27, 2003, the Company had alternative minimum tax credits that can be
carried forward indefinitely to reduce future regular tax liabilities.
Additionally, as of April 27, 2003, the Company had federal net operating loss
carryforwards of $86.9 million for income tax purposes, with expiration dates
from 2008 to 2023. The net operating losses are subject to limitation under the
income tax regulations, which may limit the amount ultimately utilized; however,
the Company believes that all net operating losses will be utilized prior to
expiration.
The Internal Revenue Service ("IRS") has completed examinations of our federal
consolidated income tax returns for fiscal years ending April 1994-1997 and
currently is examining the returns for fiscal years ending April 1998-2001. The
IRS has proposed adjustments in connection with the examinations for the April
1994-1998 returns but a final determination has not been made. We believe that
the Company's positions comply with the applicable tax law and intend to defend
the Company's positions vigorously. The ultimate disposition of these matters
could require the Company to make additional payments to the IRS. Nonetheless,
we believe that the Company has adequately provided for any foreseeable payments
related to these matters and consequently do not anticipate any material
earnings impact from the ultimate resolution of these matters.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. EXTRAORDINARY LOSS
The Company incurred pre-tax extraordinary losses totaling $7.0 million in
fiscal 2002. These losses related to the extinguishment of debt in connection
with the refinancing of the Isle-Black Hawk's $75.0 million 13% First Mortgage
Notes on December 18, 2001, and the refinancing of the Isle of Capri's Amended
and Restated Credit Facility on March 27, 2002. These losses included early
payment premiums as well as the write-off of debt acquisition costs. The income
tax benefit from the extraordinary losses was approximately $2.7 million.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents - The carrying amounts approximate fair value
because of the short maturity of these instruments.
Short-term investments - The carrying amounts approximate fair value because
of the short maturity of these instruments.
Restricted cash - The carrying amounts approximate fair value because of
the short maturity of these instruments.
Long-term debt - The fair value of the Company's long-term debt is
estimated based on the quoted market price of the underlying debt issue or,
when a quoted market price is not available, the discounted cash flow of
future payments utilizing current rates available to the Company for debt
of similar remaining maturities. Debt obligations with a short remaining
maturity are valued at the carrying amount.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated carrying amounts and fair values of the Company's financial
instruments are as follows:
APRIL 27, 2003 APRIL 28, 2002
---------------- ---------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------- --------------- -------- -----------
(IN THOUSANDS)
FINANCIAL ASSETS:
Cash and cash equivalents. . . . . . . . . . . $ 80,639 $ 80,639 $ 76,597 $ 76,597
Short-term investments . . . . . . . . . . . . 13,987 13,987 - -
Restricted cash. . . . . . . . . . . . . . . . 2,922 2,922 3,677 3,677
FINANCIAL LIABILITIES:
8.75% Senior subordinated notes. . . . . . . . $ 390,000 $ 407,550 $390,000 $ 401,700
9.00% Senior subordinated notes. . . . . . . . 200,000 212,000 200,000 206,000
Senior secured credit facility . . . . . . . . 250,500 250,500 325,000 326,625
Isle-Black Hawk senior secured credit facility 170,654 170,654 77,900 77,900
TIF bonds. . . . . . . . . . . . . . . . . . . 5,306 5,667 5,929 5,929
BID bonds. . . . . . . . . . . . . . . . . . . 816 828 - -
Other long-term debt . . . . . . . . . . . . . 10,711 10,711 10,470 10,470
21. CONTINGENCIES
One of the Company's subsidiaries has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators, in a consolidated class action lawsuit
pending in Las Vegas, Nevada. These gaming industry defendants are alleged to
have violated the Racketeer Influenced and Corrupt Organizations Act by engaging
in a course of fraudulent and misleading conduct intended to induce people to
play their gaming machines based upon a false belief concerning how those gaming
machines actually operate and the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. The district court recently denied the Motion for Class
Certification, but this decision has been appealed. Therefore, the Company is
still unable at this time to determine what effect, if any, the suit would have
on its consolidated financial position or results of operations. The gaming
industry defendants are committed to continuing a vigorous defense of all claims
asserted in this matter.
In August 1997, a lawsuit was filed which seeks to nullify a contract to which
Louisiana Riverboat Gaming Partnership is a party. Pursuant to the contract,
Louisiana Riverboat Gaming Partnership pays a fixed amount plus a percentage of
revenue to various local governmental entities, including the City of
Bossier and the Bossier Parish School Board, in lieu of payment of a
per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat
Gaming Partnership was granted on June 4, 1998. That judgment was not appealed
and is now final. On June 11, 1998, a similar suit was filed and the lower
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. CONTINGENCIES (CONTINUED)
court rendered judgment in the Company's favor on September 16, 1999. The case
was reversed on appeal and remanded to the lower court for further proceedings;
however, on October 8, 2001, the trial court dismissed the case again, this time
on the basis that the plaintiffs lack standing. The plaintiffs have amended the
petition and continue to pursue this matter. The Company intends to vigorously
defend this suit. In addition, a similar action was recently filed against the
City of Bossier City, challenging the validity of its contracts with Louisiana
Riverboat Gaming Partnership and other casinos. Exceptions have been filed
requiring joinder of all interested parties, including Louisiana Riverboat
Gaming Partnership. The Company believes the claims are without merit and
intends to continue to vigorously defend this suit along with the other
interested parties.
Lady Luck and several joint venture partners are defendants in a lawsuit brought
by the country of Greece through its Minister of Tourism (now Development) and
Finance. The action alleges that the defendants failed to make specified
payments in connection with the gaming license bid process for Patras, Greece.
The payment the Company is alleged to have been required to make aggregates
approximately 6.5 million Euros (which was approximately $7.2 million as of
April 27, 2003, based on published exchange rates). Although it is difficult to
determine the damages being sought from the lawsuit, the action may seek damages
up to that aggregate amount plus interest from the date of the action. The
Athens Civil Court of First Instance granted judgment in the Company's favor and
dismissed the lawsuit, but the Ministry of Tourism has appealed the matter and
the appeal was heard in April 2002. There has been no announcement as to
whether there has been a decision on the appeal. Also, the Ministry of Tourism
is proceeding with an appeal from a dismissal of its action by the Athens
Administrative Court of First Instance. An appeal of this matter was heard on
January 22, 2003, which has been rejected. A further appeal is possible.
Accordingly, the outcome of this matter is still in doubt and cannot be
predicted with any degree of certainty. The Company believes the claims against
it to be without merit and intends to continue a vigorous and appropriate
defense to the claims asserted in this matter.
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri, issued an
award that the Company was liable for $4.5 million in damages in connection with
a lease of real estate located near Kimmswick, Jefferson County, Missouri. The
Company has filed a motion in the United States District Court for the
Eastern District of Missouri seeking to vacate the arbitration award. The case
has now been moved to the state court. The Company recognized an additional
$1.8 million in expense during the second quarter ended October 27, 2002, in
order to bring the total amount accrued for this loss contingency to $4.5
million, notwithstanding the motion to vacate.
On December 30, 2002, the County of Jefferson, Missouri, initiated a lawsuit in
the Circuit Court of Jefferson County, Missouri, against the Company and a
subsidiary, alleging a breach of a 1993 contract entered into by the County,
that subsidiary and guaranteed by Lady Luck Gaming Corporation (now a wholly
owned subsidiary of the Company) relating to the development of a casino-site
near Kimmswick, Missouri. The suit alleges damages in excess of $10.0 million.
The case has now been moved to the state court. The outcome of this matter
cannot be predicted with any degree of certainty. The Company believes the
claims against it to be without merit and intends to vigorously and
appropriately defend the claims asserted in this matter.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. CONTINGENCIES (CONTINUED)
The Company is engaged in various other litigation matters and has a number of
unresolved claims. Although the ultimate liability of this litigation and these
claims cannot be determined at this time, the
Company believes that they will not have a material adverse effect on its
consolidated financial position or results of operations.
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, and is subject to cleanup requirements at certain of its
facilities as a result thereof. The Company has not made, and does not
anticipate making, material expenditures or incurring delays with respect to
environmental remediation or protection. However, in part because the Company's
present and future development sites have, in some cases, been used as
manufacturing facilities or other facilities that generate materials that are
required to be remediated under environmental laws and regulations, there can be
no guarantee that additional pre-existing conditions will not be discovered and
that the Company will not experience material liabilities or delays.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Certain of the Company's subsidiaries have fully and unconditionally guaranteed
the payment of all obligations under the Company's $390.0 million 8.75% Senior
Subordinated Notes due 2009, $200.0 million 9% Senior Subordinated Notes due
2012 and $500.0 million Senior Secured Credit Facility. The following table
presents the consolidating condensed financial information of Isle of Capri
Casinos, Inc., as the parent company, its guarantor subsidiaries and its
non-guarantor subsidiaries as of April 27, 2003, April 28, 2002 and April 29,
2001.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR AND PARENT COMPANY FINANCIAL
INFORMATION
AS OF APRIL 27, 2003 AND APRIL 28, 2002 AND FOR THE YEARS ENDED APRIL 27, 2003,
APRIL 28, 2002 AND APRIL 29, 2001
(IN THOUSANDS)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
----------------------- -------------- -------------- ---------------
AS OF APRIL 27, 2003
BALANCE SHEET
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 14,611 $ 89,199 $ 33,604 $ (1,669)
Intercompany receivables . . . . . . . . . (173,730) 206,680 (32,950) -
Investments in subsidiaries. . . . . . . . 253,227 282,930 170,276 (706,433)
Property and equipment, net. . . . . . . . 3,760 668,683 168,889 -
Other assets . . . . . . . . . . . . . . . 972,264 369,438 140,962 (1,051,537)
----------------------- -------------- -------------- ---------------
Total assets.. . . . . . . . . . . . . . . $ 1,070,132 $ 1,616,930 $ 480,781 $ (1,759,639)
======================= ============== ============== ===============
Current liabilities. . . . . . . . . . . . $ 24,691 $ 90,777 $ 42,372 $ (1,669)
Intercompany payables. . . . . . . . . . . 14,900 936,731 99,906 (1,051,537)
Long-term debt,
less current maturities.. . . . . . . . 835,000 6,581 161,649 -
Deferred state income taxes. . . . . . . . - 7,557 118 -
Other accrued liabilities. . . . . . . . . (9,503) 53,375 (20,825) -
Minority interest. . . . . . . . . . . . . - - - 14,177
Stockholders' equity . . . . . . . . . . . 205,044 521,909 197,561 (720,610)
----------------------- -------------- -------------- ---------------
Total liabilities and stockholders' equity $ 1,070,132 $ 1,616,930 $ 480,781 $ (1,759,639)
======================= ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
--------------
BALANCE SHEET
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 135,745
Intercompany receivables . . . . . . . . . -
Investments in subsidiaries. . . . . . . . -
Property and equipment, net. . . . . . . . 841,332
Other assets . . . . . . . . . . . . . . . 431,127
--------------
Total assets.. . . . . . . . . . . . . . . $ 1,408,204
==============
Current liabilities. . . . . . . . . . . . $ 156,171
Intercompany payables. . . . . . . . . . . -
Long-term debt,
less current maturities.. . . . . . . . 1,003,230
Deferred state income taxes. . . . . . . . 7,675
Other accrued liabilities. . . . . . . . . 23,047
Minority interest. . . . . . . . . . . . . 14,177
Stockholders' equity . . . . . . . . . . . 203,904
--------------
Total liabilities and stockholders' equity $ 1,408,204
==============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
------------------------------------------ -------------- -------------- ---------------
FOR THE FISCAL YEAR ENDED APRIL 27, 2003
STATEMENT OF OPERATIONS
- -----------------------------------
Revenues:
Casino. . . . . . . . . . . . . . . $ - $ 942,695 $ 108,790 $ -
Rooms, food, beverage and other . . 839 192,331 20,803 -
------------------------------------------ -------------- -------------- ---------------
Gross revenues. . . . . . . . . . . 839 1,135,026 129,593 -
Less promotional allowances.. . . . - 176,575 23,152 -
------------------------------------------ -------------- -------------- ---------------
Net revenues. . . . . . . . . . . . 839 958,451 106,441 -
Operating expenses:
Casino. . . . . . . . . . . . . . . - 176,210 15,616 -
Gaming taxes. . . . . . . . . . . . - 208,697 20,780 -
Rooms, food, beverage and other.. . 19,501 348,629 33,980 -
Valuation charge. . . . . . . . . . 1,923 - - -
Management fee expense (revenue). . (34,570) 31,164 3,406 -
Depreciation and amortization . . . 1,174 69,285 6,167 -
------------------------------------------ -------------- -------------- ---------------
Total operating expenses. . . . . . (11,972) 833,985 79,949 -
------------------------------------------ -------------- -------------- ---------------
Operating income. . . . . . . . . . 12,811 124,466 26,492 -
Interest expense. . . . . . . . . . (78,483) (113,008) (8,656) 117,582
Interest income.. . . . . . . . . . 112,875 3,650 1,619 (117,582)
Minority interest.. . . . . . . . . - - - (9,451)
Dividend Income.. . . . . . . . . . 6,441 - - (6,441)
Equity in income (loss) of
unconsolidated joint venture. . 12,489 9,586 (160) (21,915)
------------------------------------------ -------------- -------------- ---------------
Income (loss) before income taxes.. 66,133 24,694 19,295 (37,807)
Income tax provision. . . . . . . . 20,540 5,971 211 -
------------------------------------------ -------------- -------------- ---------------
Net income (loss) . . . . . . . . . $ 45,593 $ 18,723 $ 19,084 $ (37,807)
========================================== ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
---------------
STATEMENT OF OPERATIONS
- -----------------------------------
Revenues:
Casino. . . . . . . . . . . . . . . $ 1,051,485
Rooms, food, beverage and other . . 213,973
---------------
Gross revenues. . . . . . . . . . . 1,265,458
Less promotional allowances.. . . . 199,727
---------------
Net revenues. . . . . . . . . . . . 1,065,731
Operating expenses:
Casino. . . . . . . . . . . . . . . 191,826
Gaming taxes. . . . . . . . . . . . 229,477
Rooms, food, beverage and other.. . 402,110
Valuation charge. . . . . . . . . . 1,923
Management fee expense (revenue). . -
Depreciation and amortization . . . 76,626
---------------
Total operating expenses. . . . . . 901,962
---------------
Operating income. . . . . . . . . . 163,769
Interest expense. . . . . . . . . . (82,565)
Interest income.. . . . . . . . . . 562
Minority interest.. . . . . . . . . (9,451)
Dividend Income.. . . . . . . . . . -
Equity in income (loss) of
unconsolidated joint venture. . -
---------------
Income (loss) before income taxes.. 72,315
Income tax provision. . . . . . . . 26,722
---------------
Net income (loss) . . . . . . . . . $ 45,593
===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
------------------------------------------ -------------- -------------- ---------------
FOR THE FISCAL YEAR ENDED APRIL 27, 2003
STATEMENT OF CASH FLOWS
- ------------------------------------
Net cash provided by (used in)
operating activities . . . . . . . . . . $147,708 $44,508 $28,437 $(82,466)
Net cash provided by (used in)
investing activities . . . . . . . . . . (66,434) (49,889) (101,065) 76,803
Net cash provided by (used in )
financing activities . . . . . . . . . . (78,263) 336 77,084 7,283
------------------------------------------ -------------- -------------- ---------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . 3,011 (5,045) 4,456 1,620
Cash and cash equivalents at
beginning of the period . . . . . . . . 2,690 58,312 15,738 (143)
------------------------------------------ -------------- -------------- ---------------
Cash and cash equivalents at
end of the period . . . . . . . . . . . $5,701 $53,267 $20,194 $1,477
========================================== ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
---------------
STATEMENT OF CASH FLOWS
- ------------------------------------
Net cash provided by (used in)
operating activities . . . . . . . . $138,187
Net cash provided by (used in)
investing activities . . . . . . . . (140,585)
Net cash provided by (used in )
financing activities . . . . . . . . 6,440
---------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . 4,042
Cash and cash equivalents at
beginning of the period . . . . . . 76,597
---------------
Cash and cash equivalents at
end of the period . . . . . . . . . $80,639
===============
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
---------------------- -------------- -------------- ---------------
AS OF APRIL 28, 2002
BALANCE SHEET
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 7,475 $ 113,900 $ 14,999 $ -
Intercompany receivables . . . . . . . . . 925,523 97,986 (12,183) (1,011,326)
Investments in subsidiaries. . . . . . . . 190,389 273,342 425 (463,100)
Property and equipment, net. . . . . . . . 2,093 687,252 114,162 -
Other assets . . . . . . . . . . . . . . . 22,630 346,831 35,240 -
---------------------- -------------- -------------- ---------------
Total assets.. . . . . . . . . . . . . . . $ 1,148,110 $ 1,519,311 $ 152,643 $ (1,474,426)
====================== ============== ============== ===============
Current liabilities. . . . . . . . . . . . $ 32,391 $ 98,919 $ 27,302 $ (2)
Intercompany payables. . . . . . . . . . . 38,791 956,216 16,319 (1,011,326)
Long-term debt,
less current maturities.. . . . . . . . 912,500 8,731 73,892 -
Deferred state income taxes. . . . . . . . - 5,392 23 -
Other accrued liabilities. . . . . . . . . 5,027 1,000 10,275 -
Minority interest. . . . . . . . . . . . . - - - 10,990
Stockholders' equity . . . . . . . . . . . 159,401 449,053 24,832 (474,088)
---------------------- -------------- -------------- ---------------
Total liabilities and stockholders' equity $ 1,148,110 $ 1,519,311 $ 152,643 $ (1,474,426)
====================== ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
--------------
BALANCE SHEET
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 136,374
Intercompany receivables . . . . . . . . . -
Investments in subsidiaries. . . . . . . . 1,056
Property and equipment, net. . . . . . . . 803,507
Other assets . . . . . . . . . . . . . . . 404,701
--------------
Total assets.. . . . . . . . . . . . . . . $ 1,345,638
==============
Current liabilities. . . . . . . . . . . . $ 158,610
Intercompany payables. . . . . . . . . . . -
Long-term debt,
less current maturities.. . . . . . . . 995,123
Deferred state income taxes. . . . . . . . 5,415
Other accrued liabilities. . . . . . . . . 16,302
Minority interest. . . . . . . . . . . . . 10,990
Stockholders' equity . . . . . . . . . . . 159,198
--------------
Total liabilities and stockholders' equity $ 1,345,638
==============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED
GUARANTOR OWNED NON-
(PARENT GUARANTOR GUARANTOR
OBLIGOR) SUBSIDIARIES SUBSIDIARIES
------------------------------------------ -------------- --------------
FOR THE FISCAL YEAR ENDED APRIL 28, 2002
STATEMENT OF OPERATIONS
- ----------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . $ - $ 946,689 $ 110,278
Rooms, food, beverage and other. . . . . 737 207,915 23,026
------------------------------------------ -------------- --------------
Gross revenues . . . . . . . . . . . . . 737 1,154,604 133,304
Less promotional allowances. . . . . . . - 180,647 22,687
------------------------------------------ -------------- --------------
Net revenues . . . . . . . . . . . . . . 737 973,957 110,617
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . - 187,513 16,342
Gaming taxes . . . . . . . . . . . . . . - 205,358 21,709
Rooms, food, beverage and other. . . . . 16,131 364,780 35,944
Valuation charge . . . . . . . . . . . . - 61,282 80
Management fee expense (revenue) . . . . (36,315) 31,556 4,759
Depreciation and amortization. . . . . . 785 66,820 4,459
------------------------------------------ -------------- --------------
Total operating expenses . . . . . . . . (19,399) 917,309 83,293
------------------------------------------ -------------- --------------
Operating income.. . . . . . . . . . . . 20,136 56,648 27,324
Interest expense . . . . . . . . . . . . (81,016) (98,625) (11,157)
Interest income. . . . . . . . . . . . . 98,013 4,242 216
Minority interest. . . . . . . . . . . . - - -
Dividend income. . . . . . . . . . . . . 26,000 - -
Equity in income (loss) of
unconsolidated joint venture.. . . . (46,376) 16,830 (30)
------------------------------------------ -------------- --------------
Income (loss) before income taxes and
extraordinary loss . . . . . . . . . 16,757 (20,905) 16,353
Income tax provision (benefit) . . . . . 18,209 (14,456) -
------------------------------------------ -------------- --------------
Income before extraordinary loss.. . . . (1,452) (6,449) 16,353
Extraordinary loss on extinguishment of
debt (net of income tax benefit) . . 1,417 (1,908) (6,769)
------------------------------------------ -------------- --------------
Net income (loss). . . . . . . . . . . . $ (35) $ (8,357) $ 9,584
========================================== ============== ==============
CONSOLIDATING
AND ISLE OF CAPRI
ELIMINATING CASINOS, INC.
ENTRIES CONSOLIDATED
--------------- ---------------
STATEMENT OF OPERATIONS
- ----------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . $ - $ 1,056,967
Rooms, food, beverage and other. . . . . - 231,678
--------------- ---------------
Gross revenues . . . . . . . . . . . . . - 1,288,645
Less promotional allowances. . . . . . . - 203,334
--------------- ---------------
Net revenues . . . . . . . . . . . . . . - 1,085,311
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . - 203,855
Gaming taxes . . . . . . . . . . . . . . - 227,067
Rooms, food, beverage and other. . . . . - 416,855
Valuation charge . . . . . . . . . . . . - 61,362
Management fee expense (revenue) . . . . - -
Depreciation and amortization. . . . . . - 72,064
--------------- ---------------
Total operating expenses . . . . . . . . - 981,203
--------------- ---------------
Operating income.. . . . . . . . . . . . - 104,108
Interest expense . . . . . . . . . . . . 101,621 (89,177)
Interest income. . . . . . . . . . . . . (101,621) 850
Minority interest. . . . . . . . . . . . (7,676) (7,676)
Dividend income. . . . . . . . . . . . . (26,000) -
Equity in income (loss) of
unconsolidated joint venture.. . . . 29,538 (38)
--------------- ---------------
Income (loss) before income taxes and
extraordinary loss . . . . . . . . . (4,138) 8,067
Income tax provision (benefit) . . . . . - 3,753
--------------- ---------------
Income before extraordinary loss.. . . . (4,138) 4,314
Extraordinary loss on extinguishment of
debt (net of income tax benefit) . . 2,911 (4,349)
--------------- ---------------
Net income (loss). . . . . . . . . . . . $ (1,227) $ (35)
=============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
------------------------------------------ -------------- -------------- ---------------
FOR THE FISCAL YEAR ENDED APRIL 28, 2002
STATEMENT OF CASH FLOWS
- ------------------------------------
Net cash provided by
operating activities. . . . . . . $ 2,450 $ 110,392 $ 32,083 $ 8,690
Net cash provided by (used in)
investing activities. . . . . . . 38,360 (108,299) (27,154) (3,385)
Net cash used in
financing activities. . . . . . . (38,279) (2,764) (7,075) (5,081)
------------------------------------------ -------------- -------------- ---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . 2,531 (671) (2,146) 224
Cash and cash equivalents at
beginning of the year . . . . . . 159 59,005 13,170 4,325
------------------------------------------ -------------- -------------- ---------------
Cash and cash equivalents at
end of the year . . . . . . . . . $ 2,690 $ 58,334 $ 11,024 $ 4,549
========================================== ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
---------------
STATEMENT OF CASH FLOWS
- ------------------------------------
Net cash provided by
operating activities. . . . . . . $ 153,615
Net cash provided by (used in)
investing activities. . . . . . . (100,478)
Net cash used in
financing activities. . . . . . . (53,199)
---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . (62)
Cash and cash equivalents at
beginning of the year . . . . . . 76,659
---------------
Cash and cash equivalents at
end of the year . . . . . . . . . $ 76,597
===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
------------------------------------------ -------------- -------------- ---------------
FOR THE FISCAL YEAR ENDED APRIL 29, 2001
STATEMENT OF OPERATIONS
- ---------------------------------
Revenues:
Casino. . . . . . . . . . . . . . $ - $ 855,150 $ 101,997 $ -
Rooms, food, beverage and other . 528 202,883 17,790 -
------------------------------------------ -------------- -------------- ---------------
Gross revenues. . . . . . . . . . 528 1,058,033 119,787 -
Less promotional allowances.. . . - 175,879 19,668 -
------------------------------------------ -------------- -------------- ---------------
Net revenues. . . . . . . . . . . 528 882,154 100,119 -
Operating expenses:
Casino. . . . . . . . . . . . . . - 177,392 14,817 -
Gaming taxes. . . . . . . . . . . - 172,489 20,082 -
Rooms, food, beverage and other.. (1,409) 348,719 35,596 -
Depreciation and amortization . . 1,179 64,597 3,336 -
------------------------------------------ -------------- -------------- ---------------
Total operating expenses. . . . . (230) 763,197 73,831 -
Operating income. . . . . . . . . 758 118,957 26,288 -
Interest expense. . . . . . . . . (92,129) (96,415) (11,688) 101,289
Interest income.. . . . . . . . . 100,688 5,524 184 (101,289)
Minority interest.. . . . . . . . - - - (6,357)
Dividend income . . . . . . . . . - 14,819 - (14,819)
Equity in income (loss) of
unconsolidated joint venture.. 31,236 29,046 - (60,444)
------------------------------------------ -------------- -------------- ---------------
Income (loss) before income taxes 40,553 71,931 14,784 (81,620)
Income tax provision. . . . . . . 15,418 5,086 - -
------------------------------------------ -------------- -------------- ---------------
Net income (loss).. . . . . . . . $ 25,135 $ 66,845 $ 14,784 $ (81,620)
========================================== ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
---------------
STATEMENT OF OPERATIONS
- ---------------------------------
Revenues:
Casino. . . . . . . . . . . . . . $ 957,147
Rooms, food, beverage and other . 221,201
---------------
Gross revenues. . . . . . . . . . 1,178,348
Less promotional allowances.. . . 195,547
---------------
Net revenues. . . . . . . . . . . 982,801
Operating expenses:
Casino. . . . . . . . . . . . . . 192,209
Gaming taxes. . . . . . . . . . . 192,571
Rooms, food, beverage and other.. 382,906
Depreciation and amortization . . 69,112
---------------
Total operating expenses. . . . . 836,798
Operating income. . . . . . . . . 146,003
Interest expense. . . . . . . . . (98,943)
Interest income.. . . . . . . . . 5,107
Minority interest.. . . . . . . . (6,357)
Dividend income . . . . . . . . . -
Equity in income (loss) of
unconsolidated joint venture.. (162)
---------------
Income (loss) before income taxes 45,648
Income tax provision. . . . . . . 20,504
---------------
Net income (loss).. . . . . . . . $ 25,144
===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(B)
ISLE OF CAPRI (A) NON-WHOLLY
CASINOS, INC. WHOLLY OWNED CONSOLIDATING
GUARANTOR OWNED NON- AND
(PARENT GUARANTOR GUARANTOR ELIMINATING
OBLIGOR) SUBSIDIARIES SUBSIDIARIES ENTRIES
------------------------------------------ -------------- -------------- ---------------
FOR THE FISCAL YEAR ENDED APRIL 29, 2001
STATEMENT OF CASH FLOWS
Net cash provided by (used in)
operating activities. . . . . . . $ (183,107) $ 439,057 $ 14,802 $ (196,602)
Net cash provided by (used in)
investing activities. . . . . . . 41,265 (453,984) (8,570) 195,911
Net cash provided by (used in)
financing activities. . . . . . . 63,056 (4,129) 297 691
------------------------------------------ -------------- -------------- ---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . (78,786) (19,056) 6,529 -
Cash and cash equivalents at
beginning of the year . . . . . . 78,945 82,514 6,513 -
------------------------------------------ -------------- -------------- ---------------
Cash and cash equivalents at
end of the year . . . . . . . . . $ 159 $ 63,458 $ 13,042 $ -
========================================== ============== ============== ===============
ISLE OF CAPRI
CASINOS, INC.
CONSOLIDATED
---------------
STATEMENT OF CASH FLOWS
Net cash provided by (used in)
operating activities. . . . . . . $ 74,150
Net cash provided by (used in)
investing activities. . . . . . . (225,378)
Net cash provided by (used in)
financing activities. . . . . . . 59,915
---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . (91,313)
Cash and cash equivalents at
beginning of the year . . . . . . 167,972
---------------
Cash and cash equivalents at
end of the year . . . . . . . . . $ 76,659
===============
(a) Certain of the Company's wholly owned subsidiaries were guarantors on
the 8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes and the
Senior Secured Credit Facility including the following: the Isle-Biloxi, the
Isle-Vicksburg, the Isle-Tunica, the Isle-Bossier City, and the Isle-Lake
Charles as well as PPI, Inc., IOC Holdings, L.L.C. and Riverboat Services, Inc.
The subsidiaries operating the Isle-Natchez, the Isle-Lula, the Isle-Bettendorf,
and the Isle-Marquette became guarantors as of March 2, 2000, the date of their
acquisition. The subsidiaries operating the Isle-Boonville, the Isle-Kansas
City, the Lady Luck-Las Vegas and the Isle-Davenport became guarantors as of
their respective dates of acquisition. Each of the subsidiaries guarantors is
joint and several with the guarantees of the other subsidiaries.
(b) The following non-wholly owned subsidiaries were not guarantors on the
8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes nor the Senior
Secured Credit Facility: Isle of Capri Black Hawk, L.L.C., Isle of Capri Black
Hawk Capital Corp., IC Holdings Colorado, Inc., CCSC/Blackhawk, Inc., Colorado
Grande Enterprises, Inc., Capri Air, Inc., Lady Luck Gaming Corp., Lady Luck
Gulfport, Inc., Lady Luck Vicksburg, Inc., Lady Luck Biloxi, Inc., Lady Luck
Central City, Inc., IOC-Coahoma, Inc., Pompano Park Holdings, L.L.C., Casino
America of Colorado, Inc., ASMI Management, Inc. and IOC Development, L.L.C.,
Casino America, Inc., ICC Corp., International Marco Polo Services, Inc.,
IOC-St. Louis County, Inc., IOC, L.L.C., Isle of Capri Casino Colorado, Inc.,
Isle of Capri of Michigan L.L.C., Lady Luck Bettendorf Marina Corp., Water
Street Redevelopment Corporation, Casino Parking, Inc., IOC-Black Hawk
Distribution Company, L.L.C., Isle of Capri of Jefferson County, Inc., Lady Luck
Scott City, Inc., and Louisiana Horizons, L.L.C.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FISCAL QUARTERS ENDED
----------------------------------------------------------------
JULY 28, OCTOBER 27, JANUARY 26, APRIL 27,
2002 2002 2003 2003
---------------------- ------------ ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues . . . . . . . . . . . . . . . . . $ 276,663 $ 260,113 $ 253,078 $ 275,877
Operating income . . . . . . . . . . . . . . . 42,908 33,661 36,071 51,129
Net income . . . . . . . . . . . . . . . . . . 12,173 6,787 8,395 18,238
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . 0.42 0.24 0.29 0.62
Diluted. . . . . . . . . . . . . . . . . . . . 0.40 0.22 0.28 0.60
FISCAL QUARTERS ENDED
----------------------------------------------------------------
JULY 29, OCTOBER 28, JANUARY 27, APRIL 28,
2001 2001 2002 2002
---------------------- ------------ ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues . . . . . . . . . . . . . . . . . $ 262,936 $ 260,506 $ 262,135 $ 299,734
Operating income (loss). . . . . . . . . . . . 34,492 40,580 35,906 (6,870)
Income (loss) before extraordinary loss. . . . 5,854 10,435 8,082 (20,057)
Extraordinary loss, net of income tax benefit. - - (2,438) (1,911)
Net income (loss). . . . . . . . . . . . . . . 5,854 10,435 5,644 (21,968)
Net income (loss) per common share before
extraordinary loss:
Basic. . . . . . . . . . . . . . . . . . . . . 0.21 0.37 0.29 (0.71)
Diluted. . . . . . . . . . . . . . . . . . . . 0.20 0.35 0.27 (0.71)
Net income (loss) per common share:
Basic. . . . . . . . . . . . . . . . . . . . . 0.21 0.37 0.20 (0.78)
Diluted. . . . . . . . . . . . . . . . . . . . 0.20 0.35 0.19 (0.78)
Quarterly data may not necessarily sum to the full year data reported in the
Company's consolidated financial statements.
The fourth quarter of fiscal 2003 includes $2.6 million related to insurance
proceeds for a litigation settlement that was expensed in the fourth quarter of
fiscal 2002 at the Isle-Lake Charles. Also included in the fourth quarter of
fiscal 2003, is a $1.9 million valuation charge related to a write-off of the
investment to date in Ardent Gaming, L.L.C., an unrelated third party. In
connection with its analysis of estimated accruals, the Company adjusted
reserves related to its health, workers' compensation and general liability
insurance programs which resulted in a $3.5 million increase to net income.
The first quarter of fiscal 2002 includes $0.25 million related to business
interruption proceeds at the Isle-Marquette and $0.4 million related to
preopening expenses incurred in preparation for the opening of the
Isle-Boonville on December 6, 2001.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
The second quarter of fiscal 2002 includes $1.25 million and $0.25 million
related to business interruption proceeds at the Rhythm City-Davenport and the
Isle-Marquette, respectively. The second quarter of fiscal 2002 also includes
$1.1 million related to preopening expenses incurred in preparation for the
opening of the Isle-Boonville on December 6, 2001.
The third quarter of fiscal 2002 includes $2.15 million and $0.25 million
related to business interruption proceeds at the Rhythm City-Davenport and the
Isle-Marquette, respectively. The third quarter of fiscal 2002 also includes
$2.3 million related to preopening expenses incurred in preparation for the
opening of the Isle-Boonville on December 6, 2001.
The fourth quarter of fiscal 2002 includes $59.2 million related to a valuation
charge for the difference between net book value and estimated fair value less
estimated costs to sell at the Isle-Tunica and the Lady Luck-Las Vegas. Also
included in the fourth quarter of fiscal 2002, is a valuation charge of $2.2
million for a barge and hulls that have been in storage for future development,
which are offered for sale, and $2.6 million related to a litigation settlement
that was expensed at the Isle-Lake Charles.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
This item has been omitted from this report and is incorporated by
reference to Isle of Capri's definitive proxy statement to be filed with the
U.S. Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
This item has been omitted from this report and is incorporated by
reference to Isle of Capri's definitive proxy statement to be filed with the
U.S. Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table provides information about securities authorized for
issuance under our 1992, 1993 and 2000 Employee Stock Option Plans, and our
Deferred Bonus Plan, for the fiscal year ended April 27, 2003.
(a) (b) (c)
- -------------------------------------------------------------------------------------------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, warrants options, warrants and future issuance under
and rights rights equity compensation plans
(excluding securities
reflected in column (a))
- -------------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders . . . . . . . . . 3,947,390 $ 9.70 -
- -------------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders . . . . . . . - - -
- -------------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . 3,947,390 $ 9.70 -
- -------------------------------------------------------------------------------------------------------------
The remaining information required by this item has been omitted from this
report and is incorporated by reference to Isle of Capri's definitive proxy
statement to be filed with the U.S. Securities and Exchange Commission
within 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This item has been omitted from this report and is incorporated by
reference to Isle of Capri's definitive proxy statement to be filed with the
U.S. Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this report.
ITEM 14. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on the foregoing, our
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation. There were no significant deficiencies or material
weaknesses, and therefore no corrective actions were taken.
PART IV
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
--------------------------------------------
1. Financial Statements.
---------------------
The following financial statements and report of independent
auditors are included on pages 61 to 111 of this Form 10-K:
ISLE OF CAPRI CASINOS, INC.
Report of Independent Auditors
Consolidated Balance Sheets - April 27, 2003 and
April 28, 2002
Consolidated Statements of Operations - Fiscal Years ended
April 27, 2003, April 28, 2002 and April 29, 2001
Consolidated Statements of Stockholders' Equity - Fiscal
Years ended
April 27, 2003, April 28, 2002 and April 29, 2001
Consolidated Statements of Cash Flows - Fiscal
Years ended April 27, 2003, April 28, 2002 and April 29,2001
Notes to Consolidated Financial Statements
2. Financial Statements Schedule.
--------------------------------
The following financial statement schedule is filed on page 118
of this Form 10-K and should be read in conjunction with the
financial statements included under Item 8.
Schedule II- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required or because the required information is
included in the Consolidated Financial Statements or Notes.
3. Exhibits.
--------
A list of the exhibits included as part of this Form 10-K is set
forth in the Exhibit Index that immediately precedes such
exhibits, which is incorporated herein by reference.
(b) Reports on Form 8-K.
----------------------
During the year ended April 27, 2003, the Company filed the
following reports on Form 8-K:
Current Report on Form 8-K filed on December 10, 2002,
regarding Item 5 that announced the decision reached by a panel
of arbitrators regarding the Company's lease of real estate
located in Jefferson County, Missouri.
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.
ISLE OF CAPRI CASINOS, INC.
Dated: July 1, 2003 By: /s/ Bernard Goldstein
-------------------------
Bernard Goldstein, Chairman of the Board,
Chief Executive Officer, and Director
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 in the capacities and on the dates indicated.
Dated: July 1, 2003 /s/ Bernard Goldstein
------------------------
Bernard Goldstein, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
Dated: July 1, 2003 /s/ John M. Gallaway
------------------------
John M. Gallaway, President,
Chief Operating Officer and Director
Dated: July 1, 2003 /s/ Rexford A. Yeisley
--------------------------
Rexford A. Yeisley, Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: July 1, 2003 /s/ Allan B. Solomon
------------------------
Allan B. Solomon, Executive Vice President,
Secretary, General Counsel and Director
Dated: July 1, 2003 /s/ Robert S. Goldstein
---------------------------
Robert S. Goldstein, Director
Dated: July 1, 2003 /s/ Alan J. Glazer
----------------------
Alan J. Glazer, Director
Dated: July 1, 2003 /s/ Emanuel Crystal
----------------------
Emanuel Crystal, Director
Dated: July 1, 2003 /s/ W. Randolph Baker
-------------------------
W. Randolph Baker, Director
Dated: July 1, 2003 /s/ Jeffrey Goldstein
------------------------
Jeffrey Goldstein, Director
CERTIFICATIONS
I, Bernard Goldstein, Chief Executive Officer of Isle of Capri Casinos, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Isle of Capri Casinos,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors or persons performing the equivalent
functions:
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 1, 2003 /s/ Bernard Goldstein
-----------------------
Bernard Goldstein
Chief Executive Officer
I, Rexford A. Yeisley, Chief Financial Officer of Isle of Capri Casinos, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Isle of Capri Casinos,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors or persons performing the equivalent
functions:
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: July 1, 2003 /s/ Rexford A. Yeisley
-------------------------
Rexford A. Yeisley
Chief Financial Officer
SCHEDULE II
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT BEGINNING OF PERIOD CHARGED TO COSTS AND EXPENSES
------------------------------- -------------------------------
YEAR ENDED APRIL 27, 2003
Allowance for doubtful accounts . . . . . . . . $ 3,192 $ -
Reserve against investments in and advances
to non-consolidated affiliates (1) . . . . $ - $ 1,923
Reserve for impairment of long-lived assets (2) $ 78,873 $ -
YEAR ENDED APRIL 28, 2002
Allowance for doubtful accounts . . . . . . . . $ 2,855 $ 337
Reserve against investments in and advances
to non-consolidated affiliates . . . . . . $ - $ -
Reserve for impairment of long-lived assets (2) $ 17,511 $ 61,362
YEAR ENDED APRIL 29, 2001
Allowance for doubtful accounts . . . . . . . . $ 2,539 $ 316
Reserve against investments in and advances
to non-consolidated affiliates . . . . . . $ - $ -
Reserve for impairment of long-lived assets (3) $ 16,479 $ 1,032
SCHEDULE II
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
CHARGED TO OTHER ACCOUNTS DEDUCTIONS FROM RESERVES BALANCE AT END OF PERIOD
-------------------------- ------------------------- -------------------------
Allowance for doubtful accounts . . . . . . . . $ - $ 589 $ 2,603
Reserve against investments in and advances
to non-consolidated affiliates (1) . . . . $ - $ - $ 1,923
Reserve for impairment of long-lived assets (2) $ - $ 61,362 $ 17,511
YEAR ENDED APRIL 28, 2002
Allowance for doubtful accounts . . . . . . . . $ - $ - $ 3,192
Reserve against investments in and advances
to non-consolidated affiliates . . . . . . .$ - $ - $ -
Reserve for impairment of long-lived assets (2) $ - $ - $ 78,873
YEAR ENDED APRIL 29, 2001
Allowance for doubtful accounts . . . . . . . . $ - $ - $ 2,855
Reserve against investments in and advances
to non-consolidated affiliates . . . . . . .$ - $ - $ -
Reserve for impairment of long-lived assets (3) $ - $ - $ 17,511
(1) Valuation charge for the fiscal year ended April 27, 2003, represents an
amount that is fully reserved as a loss contingency against the investment to
date in Ardent Gaming, L.L.C., an unrelated third-party. The system being
developed under the joint venture is substantially past due and management
believes it is probable that it will not recover its investment.
(2) Valuation charge for the fiscal year ended April 28, 2002, consists of
impairment charges of $59.2 million for the difference between net book value of
the Lady Luck-Las Vegas and the Isle-Tunica and fair value less any costs to
sell, and $2.2 million for a barge and hulls that had been in storage for future
development and offered for sale. These assets were sold in fiscal 2003, and
the valuation charge was reversed against the asset accounts.
(3) Valuation charge for the fiscal year ended April 29, 2001, reflects the
write-down of marine assets held for sale.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1A Certificate of Incorporation of Casino America, Inc. (4)
3.1B Amendment to Certificate of Incorporation of Casino America, Inc. (13)
3.2A By-laws of Casino America, Inc. (4)
3.2B Amendments to By-laws of Casino America, Inc., dated February 7, 1997
(10)
4.1 Specimen Certificate of common Stock (1)
4.2 Isle of Capri Casinos, Inc. agrees to furnish to the Securities and
Exchange Commission, upon its request, the instruments defining the
rights of holders of long term debt where the total amount of
securities authorized thereunder does not exceed 10% of the Isle of
Capri Casinos, Inc.'s total consolidated assets (16)
4.3 Indenture, dated as of March 27, 2002 among Isle of Capri Casinos, Inc.,
the subsidiary guarantors named therein and State Street Bank and Trust
company, as trustee (16)
4.4 Registration Rights Agreement, dated as of March 27, 2002 among Isle of
Capri Casinos, Inc., the subsidiary guarantors named therein and
Dresdner Kleinwort Wasserstein-Grantschester, Inc. for itself and as
representative of the other initial purchasers (16)
4.5A Indenture, dated as of April 23, 1999, among Isle of Capri Casinos,
Inc. the subsidiary guarantors named therein and State Street Bank and
Trust Company, as trustee (10)
4.5B First Supplemental Indenture, dated as of September 16,1999, among Isle
of Capri Casinos, Inc. the subsidiary guarantors named therein and State
Street Bank and Trust Company, as trustee (13)
4.5C Second Supplemental Indenture, dated as of April 30, 2001, among Isle
of Capri Casinos, Inc., as trustee (16)
4.6.1 Registration Rights Agreement, dated as of April 23, 1999, among Isle
of Capri Casinos, Inc., the subsidiary guarantors named therein and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wasserstein
Perella Securities, Inc., for themselves and on behalf of the
other initial purchasers (10)
4.6.2 Rights Agreement, dated as of February 7,1997, between Casino America,
Inc. and Norwest Bank Minnesota, N.A., as rights agent (9)
10.1 Casino America, Inc. 1992 Stock Option Plan (2)
10.2 Casino America, Inc. 1992 Stock Option Plan Amendment (3)
10.3 Casino America, Inc. 1993 Stock Option Plan, as amended (7)
10.4 Casino America, Inc. description of Employee Bonus Plan (3)
10.5 Casino America, Inc. Retirement Trust and Savings Plan (3)
10.6 Director's Option Plan (6)
10.7 Biloxi Waterfront Project Lease dated as of April 9, 1994 by and
between the City of Biloxi, Mississippi and Riverboat Corporation of
Mississippi (5)
10.8 First Amendment to Biloxi Waterfront Project Lease (Hotel Lease), dated
as of April 26, 1995, by and between Riverboat Corporation of
Mississippi (7)
10.9 Amended and Restated Lease, dated as of April 19, 1999, among Port
Resources, Inc. and CRU, Inc., as landlords and St. Charles Gaming
Company, Inc., as tenant (13)
10.10 Amended Casino America, Inc. 1992 Stock Option Plan (8)
10.11 Amended Casino America, Inc. 1993 Stock Option Plan (8)
10.12 Amended Casino America, Inc. 1993 Stock Option Plan (11)
10.13 Amended Casino America, Inc. 1993 Stock Option Plan (12)
10.14 Lease of property in Coahoma, Mississippi dated as of November 16,
1993 by and among Roger Allen Johnson, Jr., Charles Bryant Johnson and
Magnolia Lady, Inc. (17)
10.15 Addendum to Lease dated as of June 22, 1994 by and among Roger
Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc.
(14)
10.16 Second addendum to Lease dated as of October 17, 1995 by and among
Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia Lady,
Inc. (14)
10.17 Amended and Restated Operating Agreement of Isle of Capri Black Hawk,
L.L.C., dated as of July 29, 1997, between Casino America of Colorado,
Inc. and Blackhawk Gold, Ltd. as amended (17)
10.18 Development Agreement dated as of June 17, 1997, between City of
Bettendorf, Lady Luck Bettendorf, Lady Luck Quad Cities, Inc. and
Bettendorf Riverboat Development, LC (17)
10.19 Operator's Contract, dated as of December 28, 1989, between Riverboat
Development Authority and the Connelley Group, LP, as amended on
February 9, 1990, March 1, 1990, January 1, 1991, September 30, 1994
and March 1, 1998 (17)
10.20 Isle of Capri Casinos, Inc. 2000 Long-Term Stock Incentive Plan (15)
10.21 Isle of Capri Casinos, Inc. Deferred Bonus Plan (15)
10.22 Employment Agreement dated as of January 1, 2002 between Isle of Capri
Casinos, Inc. and John M. Gallaway (17)
10.23 Employment Agreement dated as of January 1, 2002 between Isle of Capri
Casinos, Inc. and Allan B. Solomon (17)
10.24 Employment Agreement dated as of January 1, 2002 between Isle of Capri
Casinos, Inc. and Rexford A. Yeisley (17)
10.25 Employment Agreement dated as of January 1, 2002 between Isle of Capri
Casinos, Inc. and Timothy M. Hinkley (17)
10.26 Employment Agreement dated as of January 1, 2002 between Isle of Capri
Casinos, Inc. and Bernard Goldstein (17)
10.27 Second Amended and restated Credit Agreement, dated as of April 26,
2002, among Isle of Capri Casinos, Inc., the lenders listed therein,
Canadian Imperial Bank of Commerce, as administrative agent and issuing
lender, Dresdner Bank AG, New York and Grand Cayman Branches and
Deutsche Bank Trust Company Americas, as co-syndication agents, Credit
Lyonnais Los Angeles Branch, Wells Fargo Bank, N.A. and The CIT Group/
Equipment Financing, Inc., as co-documentation agents and CIBC
World Market Corp., as lead arranger (16)
21.1 Subsidiaries of Isle of Capri Casinos, Inc.
23.1 Consent of Ernst & Young LLP
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-
Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002.
(1) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 30, 1992 (File No. 0-20538) and
incorporated herein by reference.
(2) Filed as an exhibit to Casino America, Inc.'s Current Report on Form 8-k
filed June 17, 1992 (File No. 0-20538) and incorporated herein by
reference.
(3) Filed as an exhibit to Casino America, Inc.'s Annual Report on form 10-k
for the fiscal year ended April 30, 1993 (File No. 0-20538) and
incorporated herein by reference.
(4) Filed as an exhibit to Casino America, Inc.'s Registration Statement on
Form S-1 filed September 3, 1993, as amended (Reg. No. 33-68434),
and incorporated herein by reference.
(5) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for fiscal year ended April 30, 1994 (File No. 0-20538) and incorporated
herein by reference.
(6) Filed as an exhibit to Casino America, Inc.'s Registration Statement on
Form S-8 filed June 30, 1994 (File No. 33-80918) and incorporated
herein by reference.
(7) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for fiscal year ended April 30, 1995 (File No. 0-20538) and incorporated
herein by reference.
(8) Filed as an exhibit to Casino America, Inc.'s Proxy Statement for the
fiscal year ended April 30, 1996 (File No. 0-20538) and incorporated
herein by reference.
(9) Filed as an exhibit to Casino America, Inc.'s Current Report on Form 8-K
filed on February 14, 1997 (File No. 0-20538) and incorporated herein
by reference.
(10) Filed as an exhibit to Isle of Capri Casinos, Inc.'s Annual Report on
Form 10-K for the fiscal year ended April 27, 1997 (File No. 0-20538)
and incorporated herein by reference.
(11) Filed as an exhibit to Casino America, Inc.'s Proxy Statement for the
fiscal year ended April 27, 1997 (File No. 0-20538) and incorporated
herein by reference.
(12) Filed as an exhibit to Casino America, Inc.'s Proxy Statement for the
fiscal year ended April 26, 1998 (File No. 0-20538) and incorporated
herein by reference.
(13) Filed as an exhibit to Isle of Capri Casinos, Inc.'s Annual Report on
Form 10-K for the fiscal year ended April 25, 1999 (File No. 0-20538)
and incorporated herein by reference.
(14) Filed as an exhibit to Isle of Capri Casinos, Inc.'s Annual Report on
Form 10-K for the fiscal year ended April 30, 2000 (File No. 0-20538)
and incorporated herein by reference.
(15) Filed as an exhibit to Isle of Capri Casinos, Inc.'s Proxy Statement
for the fiscal year ended April 30, 2000 (File No. 0-20538) and
incorporated herein by reference.
(16) Filed as an exhibit to Isle of Capri Casinos, Inc.'s Registration
Statement on S-4 filed on May 22, 2002 (File No. 333-88802) and
incorporated herein by reference.
(17) Filed as an exhibit to Isle of Capri Casinos, Inc.'s Amendment No. 1 to
Registration Statement on Form S-4 filed on June 19, 2002
(File No. 333-88802) and incorporated herein by reference.