UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 24, 1999
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.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1659606
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
711 Dr. Martin Luther King Jr. Blvd., Biloxi, Mississippi 39530
- ----------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (228) 436-7000
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
--
As of November 30, 1999, the Company had a total of 23,880,814 shares of Common
Stock outstanding.
ISLE OF CAPRI CASINOS, INC.
FORM 10-Q
INDEX
PAGE
PART I FINANCIAL INFORMATION
- ------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, OCTOBER 24, 1999
(UNAUDITED) AND APRIL 25, 1999 . . . . . . . . . . . . . . . . . .1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE AND SIX MONTHS ENDED OCTOBER 24, 1999
AND OCTOBER 25, 1998 (UNAUDITED) . . . . . . . . . . . . . . . . .2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 24, 1999
(UNAUDITED). . . . . . . . . . . . . . . . . . . . . . . . . . . .3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED OCTOBER 24, 1999 AND
OCTOBER 25, 1998 (UNAUDITED) . . . . . . . . . . . . . . . . . . .4
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . .16
PART II OTHER INFORMATION
- -------
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . .23
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . .24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . .24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . .25
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
EXHIBIT LIST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS October 24, April 25,
------
1999 1999
------------ -----------
(Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,841 $ 85,117
Accounts receivable
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,641 5,935
Income tax receivable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800 7,509
Deferred income taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,684 4,684
Prepaid expenses and other assets.. . . . . . . . . . . . . . . . . . . . . . . 7,291 5,771
------------ -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,257 109,016
Property and equipment - net. . . . . . . . . . . . . . . . . . . . . . . . . . . 437,924 411,176
Other assets:
Investment in and advances to joint ventures. . . . . . . . . . . . . . . . . . 2,606 1,851
Property held for development or sale.. . . . . . . . . . . . . . . . . . . . . 3,782 5,532
Licenses and other intangible assets, net of accumulated amortization of
$10,412 and $8,960, respectively. . . . . . . . . . . . . . . . . . . . . . . 61,956 63,408
Goodwill, net of accumulated amortization of $9,331 and $8,144, respectively. . 51,631 52,818
Berthing, concession, and leasehold rights, net of accumulated amortization of
$2,306 and $2,149, respectively.. . . . . . . . . . . . . . . . . . . . . . . 3,963 4,119
Deferred financing costs, net of accumulated amortization of $2,307 and
$1,178, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,330 19,351
Restricted cash.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,840 5,480
Prepaid deposits and other. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,890 3,733
------------ -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 694,179 $ 676,484
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . $ 7,988 $ 5,883
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,394 20,102
Accrued liabilities:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,039 2,033
Payroll and related.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,482 23,867
Property and other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,578 11,700
Progressive jackpots and slot club awards.. . . . . . . . . . . . . . . . . . 6,324 5,351
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,682 9,888
------------ -----------
Total current liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . 83,487 78,824
Long-term debt, less current maturities.. . . . . . . . . . . . . . . . . . . . . 520,023 526,873
Deferred income taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,673 4,689
Minority interest.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,333 4,143
Stockholders' equity:
Preferred stock, $.01 par value; 2,050,000 shares authorized; none issued.. . . - -
Common stock, $.01 par value; 45,000,000 shares authorized; shares issued and
outstanding: 23,705,025 and 23,568,562, respectively. . . . . . . . . . . . . 237 236
Class B common stock, $.01 par value; 3,000,000 shares authorized; none
issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 63,693 63,146
Retained earnings (deficit).. . . . . . . . . . . . . . . . . . . . . . . . . . 11,733 (1,427)
------------ -----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 75,663 61,955
------------ -----------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $ 694,179 $ 676,484
============ ===========
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
October 24, October 25, October 24, October 25,
1999 1998 1999 1998
-------------------- ------------------ ------------- -------------
Revenue
Casino . . . . . . . . . . . . . . . . . . . . . . . . . $ 141,479 $ 95,162 $ 269,813 $ 195,851
Rooms. . . . . . . . . . . . . . . . . . . . . . . . . . 2,838 2,732 5,445 5,821
Pari-mutuel commissions and fees . . . . . . . . . . . . 3,616 3,612 8,349 7,972
Food, beverage and other . . . . . . . . . . . . . . . . 7,062 5,420 13,595 11,361
-------------------- ------------------ ------------- -------------
Total Revenue. . . . . . . . . . . . . . . . . . . . . 154,995 106,926 297,202 221,005
Operating Expenses
Casino . . . . . . . . . . . . . . . . . . . . . . . . . 27,248 17,945 50,204 36,192
Rooms. . . . . . . . . . . . . . . . . . . . . . . . . . 1,331 986 2,448 1,995
Gaming taxes . . . . . . . . . . . . . . . . . . . . . . 27,852 19,653 53,748 40,376
Pari-mutuel. . . . . . . . . . . . . . . . . . . . . . . 2,839 2,787 6,466 6,110
Food and beverage. . . . . . . . . . . . . . . . . . . . 4,231 3,309 8,309 7,167
Marine and facilities. . . . . . . . . . . . . . . . . . 9,582 6,505 18,545 13,350
Marketing and administrative . . . . . . . . . . . . . . 49,073 32,582 91,378 67,074
Preopening expenses. . . . . . . . . . . . . . . . . . . 0 0 3,420 0
Depreciation and amortization. . . . . . . . . . . . . . 9,069 8,475 17,925 17,132
-------------------- ------------------ ------------- -------------
Total operating expenses . . . . . . . . . . . . . . . 131,225 92,242 252,443 189,396
-------------------- ------------------ ------------- -------------
Operating income . . . . . . . . . . . . . . . . . . . . 23,770 14,684 44,759 31,609
Interest expense . . . . . . . . . . . . . . . . . . . . (13,455) (11,409) (25,565) (24,025)
Interest income. . . . . . . . . . . . . . . . . . . . . 835 631 1,543 1,639
Gain on disposal . . . . . . . . . . . . . . . . . . . . 0 0 3,106 0
Minority interest. . . . . . . . . . . . . . . . . . . . (701) 205 (1,191) 527
Equity in income (loss) of unconsolidated joint ventures 585 (362) 637 (661)
-------------------- ------------------ ------------- -------------
Income before income taxes . . . . . . . . . . . . . . . 11,034 3,749 23,289 9,089
Income tax provision . . . . . . . . . . . . . . . . . . 4,402 1,821 10,129 4,469
-------------------- ------------------ ------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 6,632 $ 1,928 $ 13,160 $ 4,620
==================== ================== ============= =============
Net income per common share - basic. . . . . . . . . . . $ 0.28 $ 0.08 $ 0.56 $ 0.20
Net income per common share - assuming dilution. . . . . $ 0.26 $ 0.08 $ 0.53 $ 0.20
Weighted average basic shares. . . . . . . . . . . . . . 23,664 23,569 23,643 23,569
Weighted average diluted shares. . . . . . . . . . . . . 25,109 23,577 24,946 23,622
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(In thousands)
Shares of Additional Retained Total
Common Common Paid-in Earnings Stockholder's
Stock Stock Capital (Deficit) Equity
---------- ----------- --------- ---------- --------------
Balance, April 25, 1999. . . . . . . . . . . . . 23,568,562 $ 236 $ 63,146 $ (1,427) $ 61,955
Exercise of Stock Options. . . . . . . . . . . 136,463 1 547 - 548
Net Income . . . . . . . . . . . . . . . . . . - - - 13,160 13,160
---------- ----------- --------- ---------- --------------
Balance, October 24, 1999 (Unaudited). . . . . . 23,705,025 $ 237 $ 63,693 $ 11,733 $ 75,663
========== =========== ========= ========== ==============
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
October 24, October 25,
1999 1998
------------------ -------------
Operating Activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,160 $ 4,620
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 17,925 17,132
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . 4,984 0
Amortization of bond discount and deferred financing costs 1,021 1,162
(Gain) loss on disposal of assets. . . . . . . . . . . . . (3,104) 31
Equity in loss of unconsolidated joint ventures. . . . . . 637 661
Minority interest. . . . . . . . . . . . . . . . . . . . . 1,190 (527)
Changes in current assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . 1,247 (414)
Income tax receivable. . . . . . . . . . . . . . . . . . 6,709 5,238
Prepaid expenses and other assets. . . . . . . . . . . . (1,410) (71)
Accounts payable and accrued expenses. . . . . . . . . . 1,529 7,508
------------------ -------------
Net cash provided by operating activities. . . . . . . . . . 43,888 35,340
Investing activities:
Purchase of property and equipment . . . . . . . . . . . . . (40,547) (53,827)
Net cash paid for acquisitions . . . . . . . . . . . . . . . 0 500
Proceeds from disposals of property and equipment. . . . . . 4,550 6
Investments in and advances to joint ventures. . . . . . . . (1,392) 0
Decrease in restricted cash. . . . . . . . . . . . . . . . . 1,640 27,249
Deposits and other . . . . . . . . . . . . . . . . . . . . . (220) (2,628)
------------------ -------------
Net cash used in investing activities. . . . . . . . . . . . (35,968) (28,700)
Financing activities:
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . 0 3,921
Principal payments on debt and cash paid to retire debt. . . (4,742) (6,442)
Deferred financing costs . . . . . . . . . . . . . . . . . . 0 (55)
Proceeds from sale of stock and exercise of options. . . . . 547 0
------------------ -------------
Net cash used in financing activites . . . . . . . . . . . . (4,195) (2,576)
Net increase in cash and cash equivalents. . . . . . . . . . 3,724 4,064
Cash and cash equivalents at beginning of period . . . . . . 85,117 52,460
------------------ -------------
Cash and cash equivalents at end of period . . . . . . . . . $ 88,841 $ 56,524
================== =============
Supplemental disclosure of cash flow information:
Cash payments (receipts) for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,537 $ 24,353
Income taxes - net of refunds. . . . . . . . . . . . . . . (2,967) 2,233
Supplemental schedule of noncash investing and financing
activities:
Property and equipment funded through accounts payable . . . 1,008 1,110
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
Isle of Capri Casinos, Inc., (the "Company" or "Isle of Capri"), formerly
known as Casino America, Inc., was incorporated as a Delaware corporation on
February 14, 1990 and changed its name to Isle of Capri Casinos, Inc. on October
1, 1998. The Company, through its subsidiaries, is engaged in the business of
developing, owning and operating riverboat, dockside and land-based casinos and
related facilities. The Company has licenses to conduct and currently conducts
gaming operations in Biloxi, Vicksburg and Tunica, Mississippi, in Bossier City
and Lake Charles, Louisiana, and in Black Hawk, Colorado through its
subsidiaries.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, for the three and six month periods ended
October 24, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ending April 30, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended April 25,
1999.
The consolidated financial statements of the Company include the accounts
of Isle of Capri Casinos, Inc. and its subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily 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 as well as revenues and expenses during the reporting period. Actual
amounts when ultimately realized could differ from those estimates.
Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
October 24, October 25, October 24, October 25,
1999 1998 1999 1998
------------------- ----------------- ------------ ------------
Numerator:
Net income. . . . . . . . . . . . . . . . . . . . . . $ 6,632 $ 1,928 $ 13,160 $ 4,620
=================== ================= ============ ============
Numerator for basic earnings per share -
income available to common stockholders . . . . . . $ 6,632 $ 1,928 $ 13,160 $ 4,620
Effect of diluted securities. . . . . . . . . . . . . - - - -
------------------- ----------------- ------------ ------------
Numerator for diluted earnings per share-
Income available to common stockholders after
assumed conversions. . . . . . . . . . . . . . $ 6,632 $ 1,928 $ 13,160 $ 4,620
=================== ================= ============ ============
Denominator:
Denominator for basic earnings per share -
weighted - average shares . . . . . . . . . . . . . 23,664 23,569 23,643 23,569
Effect of dilutive securities
Employee stock options. . . . . . . . . . . . . . . 1,445 8 1,302 53
------------------- ----------------- ------------ ------------
Dilutive potential common shares. . . . . . . . . . . 1,445 8 1,302 53
------------------- ----------------- ------------ ------------
Denominator for diluted earnings per share - adjusted
weighted - average shares and assumed conversions . 25,109 23,577 24,946 23,622
=================== ================= ============ ============
Basic earnings per share. . . . . . . . . . . . . . . $ 0.28 $ 0.08 $ 0.56 $ 0.20
=================== ================= ============ ============
Diluted earnings per share. . . . . . . . . . . . . . $ 0.26 $ 0.08 $ 0.53 $ 0.20
=================== ================= ============ ============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
Years
-------
Slot Machines. . . . . . . . . . . 3
Furniture, fixtures, and equipment 5-10
Leasehold improvements . . . . . . 10-39.5
Riverboats and floating pavilions. 25
Buildings and improvements . . . . 39.5
Effective April 26, 1999, Isle of Capri increased its estimate of the
useful lives of all land-based buildings and improvements from 25 years to 39.5
years to more appropriately reflect the expected useful lives of those assets.
Isle of Capri also reduced its estimate of the useful lives of slot machines
from 5 years to 3 years due to technological changes. These two changes
decreased net income for the three months ended October 24, 1999 by $339,000,
and decreased both earnings per basic share and earnings per diluted share by
$0.01. For the six months ended October 24, 1999, these two changes increased
net income by $199,000, and increased both earnings per basic share and earnings
per diluted share by $0.01. Excluding the changes in useful lives, net income,
earnings per basic share, and earnings per diluted share would have been
$6,293,000, $0.27, and $0.25, respectively, for the three months ended October
24, 1999. For the six months ended October 24, 1999, net income, earnings per
basic share and earnings per diluted share would have been $13,359,000, $0.57,
and $0.54, respectively, excluding the changes in useful lives.
3. Other Assets
Licenses and other intangible assets
Licenses and other intangible assets principally represent the license
value attributed to the Louisiana gaming licenses acquired through the Company's
acquisition of St. Charles Gaming Company, Inc. ("SCGC"), Grand Palais
Riverboat, Inc. ("GPRI") and Louisiana Riverboat Gaming Partnership ("LRGP").
These assets are being amortized over a twenty-five-year period using the
straight-line method.
Goodwill
Goodwill reflects the excess purchase price the Company paid in
acquiring the net identifiable tangible and intangible assets of SCGC, GPRI and
LRGP. Goodwill is being amortized over a twenty-five-year period using the
straight-line method.
Restricted cash
Restricted cash represents cash proceeds from the 13% First Mortgage Notes
due 2004 with Contingent Interest issued by Isle of Capri Black Hawk, L.L.C.
("Isle-Black Hawk") (the "First Mortgage Notes") held in trust by The Bank of
New York, as trustee for Isle-Black Hawk, a majority-owned subsidiary of the
Company. These funds are held in three separate accounts (Construction
Disbursement, Completion Reserve and Interest Reserve) with usage restricted by
an indenture between Isle-Black Hawk and the trustee, dated August 20, 1997
governing the First Mortgage Notes (the "Indenture"). The amount remaining in
the Construction Disbursement and Completion Reserve accounts as of October 24,
1999, equaled approximately $0.6 million. In addition, the Company has other
restricted cash totaling $3.2 million related to various operating deposits.
4. Isle of Capri Black Hawk, L.L.C.
On April 25, 1997, a wholly-owned subsidiary of the Company, Casino America
of Colorado, formed Isle-Black Hawk, a limited liability company, with Blackhawk
Gold, Ltd., a wholly-owned subsidiary of Nevada Gold & Casinos, Inc. Isle-Black
Hawk owns a casino in Black Hawk, Colorado, which opened on December 30, 1998.
Isle-Black Hawk has begun to construct a hotel containing approximately 235
rooms at the site of the Isle-Black Hawk. The Company has a 57% ownership
interest in Isle-Black Hawk. As a consolidated subsidiary of the Company, the
operating results of Isle-Black Hawk are reflected in the consolidated results
of the Company. Prior to December 30, 1998, Isle-Black Hawk was a Development
Stage Company.
5. Capri Cruises, L.L.C.
On April 20, 1998, the Company signed an agreement with Commodore Holdings
Limited, parent company of Commodore Cruise Line, to create a joint venture
named Capri Cruises to operate cruise ships in strategic markets. Cruise
operations began in early June 1998. As of October 24, 1999, the Company had
invested $3.0 million into this 50/50 unconsolidated joint venture, which is
operating one cruise ship from the Port of New Orleans.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Acquisitions
Isle of Capri - Tunica
----------------------
In March 1999, the Company acquired the original Harrah's casino facility
located in Tunica County, Mississippi for $9.5 million. The Company invested an
additional $24.0 million to equip, renovate and open this facility as an Isle of
Capri casino. The Company opened the Isle-Tunica on July 26, 1999 with
approximately 875 slot machines, 15 table games and its two trademark
restaurants. The Company also plans to invest approximately $40.0 million more
to construct an on-site hotel with up to 250 rooms and two live entertainment
theaters with combined seating for 2,000 people. Construction of the hotel is
currently underway and construction of the theaters is scheduled to begin during
the first half of 2000.
Lady Luck Gaming Corporation
----------------------------
In October 1999, the Company entered into a definitive agreement under
which the Company would acquire Lady Luck Gaming Corporation ("Lady Luck") in a
merger transaction. Under the terms of the agreement, Lady Luck's common
stockholders will receive cash in the amount of $12.00 per share for an
aggregate share consideration of approximately $59 million and the Company will
assume all of Lady Luck's outstanding debt in the amount of approximately $177
million. The agreement also provides for the redemption of Lady Luck's
outstanding preferred stock in the amount of approximately $22 million. Closing
is expected in the first half of 2000 pending the approval of Lady Luck's
stockholders and gaming regulators and other contingencies. Andrew Tompkins,
the owner of approximately 46% of Lady Luck's common stock, has agreed to vote
in favor of the transaction. Lady Luck operates dockside riverboat casinos and
hotels in Coahoma and Natchez, Mississippi; owns a 50% interest in the Lady Luck
Casino and Hotel in Bettendorf, Iowa; and on October 29, 1999, acquired the Miss
Marquette Casino in Marquette, Iowa for $41.7 million. The Company made a
secured loan of approximately $21.0 million to Lady Luck in order to assist Lady
Luck in consummating the Miss Marquette acquisition. Lady Luck also has
agreements to acquire the Lady Luck Casino & Hotel in downtown Las Vegas and
certain intellectual property for $45.5 million. The Company expects to
complete the acquisition of the intellectual property contemporaneously with the
merger and to complete the acquisition of the Las Vegas casino and hotel upon
receipt of regulation approval in Nevada.
BRDC, Inc.
----------
In October 1999, the Company entered into a letter of intent with BRDC,
Inc. ("BRDC") to acquire a 50% interest in Lady Luck's Bettendorf, Iowa facility
that is not owned by Lady Luck and related real estate in exchange for
approximately 6.3 million shares of the Company's common stock, subject to
adjustment in certain circumstances. BRDC is owned by members of the family of
Bernard Goldstein, the Company's Chairman and Chief Executive Officer, including
Robert Goldstein, a member of the Company's board of directors. This
transaction is contingent on execution of a definitive agreement, the completion
of the Company's acquisition of Lady Luck, the approval of the Company's
shareholders and regulatory approval in Iowa. The sellers have the option to
receive up to $10 million of their consideration in cash rather than the
Company's common stock. The Company expects to complete the BRDC acquisition
contemporaneously with the merger.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Long-Term Debt
October 24, April 25,
1999 1999
--------------- ----------
Long-term debt consists of the following: (In thousands)
8 3/4 % senior subordinated notes (described below). . . . . . . . . . . . . . . . . $ 390,000 $ 390,000
Variable rate Term Loan (7.82% at April 25, 1999), due in quarterly installments
ranging from $833,333 to $4,166,667, not including interest, through April 2004. . 48,333 50,000
12 1/2 % note payable, due in monthly installments of $125,000, including interest,
beginning October 1997 through October 2005. . . . . . . . . . . . . . . . . . . . 6,190 6,527
8 % note payable, due in monthly installments of $66,667, including interest,
through July 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,915 2,283
8 % note payable, due in monthly installments of $11,365, including interest,
through December 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,231 1,250
11% note payable, issued by Isle of Capri Black Hawk, L.L.C., due August 2004;
non-recourse to Isle of Capri Casinos, Inc.. . . . . . . . . . . . . . . . . . . . 1,156 1,522
13% First Mortgage Notes, issued by Isle of Capri Black Hawk, L.L.C., due
August 2004; non-recourse to Isle of Capri Casinos, Inc. . . . . . . . . . . . . . 75,000 75,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,186 6,174
--------------- ----------
528,011 532,756
--------------- ----------
Less: current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,988 5,883
--------------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 520,023 $ 526,873
=============== ==========
On April 23, 1999, the Company issued $390,000,000 of 8 3/4 % Senior
Subordinated Notes due 2009 (the "Senior Subordinated Notes"). The Senior
Subordinated Notes are guaranteed by all of the Company's significant
subsidiaries, excluding the subsidiaries that own and operate the Isle-Black
Hawk. Interest on the Senior Subordinated Notes is payable semi-annually on
each April 15 and October 15 through maturity. The 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 Senior Subordinated Notes under an indenture between
the Company, the subsidiary guarantors and a trustee. The indenture, among
other things, restricts 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 restricted 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 Senior Subordinated Notes was
used to prepay long-term debt, including all of the $315,000,000 of 12 1/2 %
Senior Secured Notes due 2003. The proceeds were also used to pay prepayment
Premiums, accrued interest and other transaction fees and costs.
Simultaneously with the issuance of the Senior Subordinated Notes, the
Company entered into a $175.0 million five-year Senior Credit Facility (the
"Senior Credit Facility") comprised of a $50.0 million term loan and a $125.0
million revolver, which had no draws against it as of October 24, 1999. The
Senior 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., Isle-Black Hawk, and their
subsidiaries. The Company used the initial borrowings under the Senior Credit
Facility to repay certain existing debt and for working capital and for other
general corporate purposes. The Company plans to use future borrowings under
the Senior Credit Facility primarily for expansion of its existing casino
facilities and the development of new casino facilities.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On August 20, 1997, Isle-Black Hawk issued $75 million of 13% First
Mortgage Notes due 2004 with Contingent Interest, which is non-recourse debt to
the Company. Interest on the First Mortgage Notes is payable semi-annually on
February 28 and August 31 of each year, commencing February 28, 1998.
Additionally, contingent interest is payable on the First Mortgage Notes on each
interest payment date, in an aggregate principal amount of 5% of the
Consolidated Cash Flow (as defined in the Indenture governing the First Mortgage
Notes). The First Mortgage Notes are redeemable at the option of Isle-Black
Hawk, in whole or in part, at any time on or after August 1, 2001 at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning on August 31 of the years indicated below:
Year Percentage
---- ----------
2001. . . . . . . . 106.500%
2002. . . . . . . . 103.200%
2003 and thereafter 100.000%
Beginning with the first operating year after the Isle-Black Hawk begins gaming
operations, Isle-Black Hawk will be required to offer to purchase, at the price
of 101% of the aggregate principal amount thereof, the maximum principal amount
of the First Mortgage Notes that may be purchased with 50% of the Isle-Black
Hawk's excess cash flow, as defined.
On August 31, 1999, Isle-Black Hawk deferred its first contingent interest
payment totaling $516,000. This amount was fully accrued as of August 31, 1999.
The amount of contingent interest expense recorded for the three and six months
ended October 24, 1999 was $248,000 and $466,000, respectively.
Isle of Capri has $4.5 million available in bank lines of credit other than
the Senior Credit Facility. As of October 24, 1999, Isle of Capri had no
outstanding balances under these lines of credit.
Isle-Black Hawk obtained a letter of credit as a requirement to obtain a
building permit from the City of Black Hawk (the "City"). The letter of credit,
totaling $2.1 million, can be drawn upon by the City if for any reasons
Isle-Black Hawk fails to complete the hotel project. The letter of credit is
secured by a deposit held in trust of $1.1 million, which was funded by Isle of
Capri, and the balance is secured by Isle of Capri's open line of credit with
the bank.
Substantially all of Isle of Capri's assets are pledged as collateral for
long-term debt under the Senior Credit Facility. At October 24, 1999, Isle of
Capri was in compliance with all debt covenants.
8. 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. A motion for certification of the class is currently
pending before the court and no discovery as to the merits of the alleged claims
has begun. The Company is unable at this time to determine what effect, if any,
the suit would have on its financial position or results of operations. However,
the gaming industry defendants are committed to defend vigorously all claims
asserted in the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleged that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by the
plaintiffs. The plaintiffs alleged that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further alleged that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The Company denies any liability;
however, in order to avoid the cost of litigation and the risk of an adverse
judgement, the Company settled this suit, without admitting liability, on
October 13, 1999.
In May 1998, the Company was named as a defendant in an action brought by
several persons who had a contractual right to acquire property in Cripple
Creek, Colorado which they sold to one of the Company's subsidiaries in 1995.
The plaintiffs allege that the Company breached its purported agreement to
construct a casino facility on the property by the end of 1995. In December
1998, the Company's motion to dismiss the complaint was granted by the United
States District Court in Denver, Colorado. The plaintiffs have appealed this
decision to the Tenth Circuit Court of Appeals. The Company intends to
vigorously defend all claims and allegations in the action.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 is currently
pending. The Company intends to vigorously defend this suit.
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 the Company's consolidated financial
position or results of operations.
9. Preopening Expenses
Preopening expenses of $3.4 million represent salaries, benefits, training,
marketing and other costs incurred in connection with the opening of the
Isle-Tunica on July 26, 1999.
10. Subsequent Events
On November 20, 1999, voters in Calcasieu Parish passed a referendum which
allows up to 15,000 square feet of gaming space in which slot machines could be
operated at Delta Downs, a horse racing facility located approximately 25 miles
west of the Isle of Capri - Lake Charles. Prior to commencing operations of
slot machines at Delta Downs, the Louisiana Legislature must pass legislation
assessing a tax on those operations. In addition, Delta Downs and its owners
must be found suitable and licensed by the Gaming Control Board.
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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 million
8 3/4 % Senior Subordinated Notes due 2009. The following table presents the
consolidating condensed financial information of Isle of Capri Casinos, Inc., as
the parent company, its guarantor subsidiaries and its nonguarantor subsidiaries
for the three and six months ended October 24, 1999 and October 25, 1998 and as
of October 24, 1999 and April 25, 1999.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR AND PARENT COMPANY
FINANCIAL INFORMATION
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 24, 1999 AND OCTOBER 25, 1998 AND
BALANCE SHEET AS OF OCTOBER 24, 1999 AND APRIL 25, 1999
(UNAUDITED)
(In Thousands)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- ------------- --------------- --------------
As of October 24, 1999
Balance Sheet
- -------------
Current assets . . . . . . . $ 34,404 $ 55,893 $ 15,960 $ - $ 106,257
Intercompany receivables . . 213,662 95,731 39 (309,432) -
Investments in subsidiaries. 247,416 - - (244,810) 2,606
Property and equipment, net. 6,157 347,607 84,160 - 437,924
Other assets . . . . . . . . 36,722 106,212 4,458 - 147,392
--------------- -------------- ------------- --------------- --------------
Total Assets . . . . . . . . $ 538,361 $ 605,443 $ 104,617 $ (554,242) $ 694,179
=============== ============== ============= =============== ==============
Current liabilities. . . . . $ 13,360 $ 57,553 $ 12,574 $ - $ 83,487
Intercompany payable . . . . 23,891 279,411 6,128 (309,430) -
Long-term debt,
less current maturities 437,082 7,582 75,359 - 520,023
Deferred income taxes. . . . (11,637) 21,310 - - 9,673
Minority interest. . . . . . - - - 5,333 5,333
Stockholders' equity . . . . 75,665 239,587 10,556 (250,145) 75,663
Total Liabilities and --------------- -------------- ------------- --------------- --------------
Stockholders' Equity . . . . $ 538,361 $ 605,443 $ 104,617 $ (554,242) $ 694,179
=============== ============== ============= =============== ==============
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- ------------- --------------- --------------
For the three months ended
October 24, 1999
Statement of Operations
- --------------------------
Revenue:
Casino. . . . . . . . . . . . $ - $120,828 $20,651 $ - $141,479
Room, food, beverage
and other. . . . . . . . 308 12,039 1,169 - 13,516
-------- --------- -------- --------- ---------
Total revenue. . . . . . . . . . . 308 132,867 21,820 - 154,995
Operating expenses:
Casino. . . . . . . . . . . . - 24,411 2,837 - 27,248
Gaming taxes. . . . . . . . . - 23,860 3,992 - 27,852
Rooms, food, beverage
and other. . . . . . . . 1,747 55,154 10,155 - 67,056
Depreciation and
amortization . . . . . . 245 8,342 482 - 9,069
-------- --------- -------- --------- ---------
Total operating expenses . . . . . 1,992 111,767 17,466 - 131,225
-------- --------- -------- --------- ---------
Operating income (loss). . . . . . (1,684) 21,100 4,354 - 23,770
Interest expense, net. . . . . . . (1,383) (8,511) (2,726) - (12,620)
Gain on disposal . . . . . . . . . - - - - -
Minority interest. . . . . . . . . - - - (701) (701)
Equity in income (loss) of
unconsolidated joint venture. 14,097 9,549 - (23,061) 585
-------- --------- -------- --------- ---------
Income (loss) before
income taxes. . . . . . . . . 11,030 22,138 1,628 (23,762) 11,034
Income tax provision . . . . . . . 4,402 - - - 4,402
-------- --------- -------- --------- ---------
Net income (loss). . . . . . . . . $ 6,628 $ 22,138 $ 1,628 $(23,762) $ 6,632
======== ========= ======== ========= =========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- ------------- --------------- --------------
For the six months ended
October 24, 1999
Statement of Operations
- ------------------------
Revenue:
Casino. . . . . . . . . . . . $ - $230,128 $39,685 $ - $269,813
Rooms, food, beverage
and other. . . . . . . . 377 24,648 2,364 - 27,389
-------- --------- -------- --------- ---------
Total revenue. . . . . . . . . . . 377 254,776 42,049 - 297,202
Operating expenses:
Casino. . . . . . . . . . . . - 44,580 5,624 - 50,204
Gaming taxes. . . . . . . . . - 45,945 7,803 - 53,748
Rooms, food, beverage
and other. . . . . . . . 3,199 107,845 19,522 - 130,566
Depreciation and
amortization . . . . . . 475 16,460 990 - 17,925
-------- --------- -------- --------- ---------
Total operating expenses . . . . . 3,674 214,830 33,939 - 252,443
-------- --------- -------- --------- ---------
Operating income (loss). . . . . . (3,297) 39,946 8,110 - 44,759
Interest expense, net. . . . . . . (1,594) (17,087) (5,341) - (24,022)
Gain on disposal . . . . . . . . . 3,106 - - - 3,106
Minority interest. . . . . . . . . - - - (1,191) (1,191)
Equity in income (loss) of
unconsolidated joint venture. 25,071 17,481 - (41,915) 637
-------- --------- -------- --------- ---------
Income (loss) before
income taxes. . . . . . . . . 23,286 40,340 2,769 (43,106) 23,289
Income tax provision . . . . . . . 10,129 - - - 10,129
-------- --------- -------- --------- ---------
Net income (loss). . . . . . . . . $13,157 $ 40,340 $ 2,769 $(43,106) $ 13,160
======== ========= ======== ========= =========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- ------------- --------------- --------------
For the six months ended
October 24, 1999
Statement of Cash Flows
- ------------------------
Net cash provided by (used in)
operating activities. . . 19,004 41,120 7,572 (23,808) 43,888
Net cash provided by (used in)
investing activities. . . (21,477) (35,110) (3,190) 23,808 (35,969)
Net cash used in
financing activities. . . (2,529) (1,300) (366) - (4,195)
--------- --------- -------- --------- ---------
Net increase (decrease) in cash and
cash equivalents. . . . . (5,002) 4,710 4,016 - 3,724
Cash and cash equivalents at
beginning of the period. . . . 35,826 38,374 10,917 - 85,117
Cash and cash equivalents at --------- --------- -------- --------- ---------
end of the period . . . . $ 30,824 $ 43,084 $14,933 $ - $ 88,841
========= ========= ======== ========= =========
For the three months ended
October 25, 1998
Statement of Operations
- --------------------------
Revenue:
Casino. . . . . . . . . . . . $ - $ 95,162 $ - $ - $ 95,162
Rooms, food, beverage
and other. . . . . . . . 65 11,791 - (92) 11,764
-------- --------- ------ --------- ---------
Total revenue. . . . . . . . . . . 65 106,953 - (92) 106,926
Operating expenses:
Casino. . . . . . . . . . . . - 17,945 - - 17,945
Gaming taxes. . . . . . . . . - 19,653 - - 19,653
Rooms, food, beverage
and other. . . . . . . . 1,892 44,369 - (92) 46,169
Depreciation and
amortization . . . . . . 792 7,683 - - 8,475
-------- --------- ------ --------- ---------
Total operating expenses . . . . . 2,684 89,650 - (92) 92,242
-------- --------- ------ --------- ---------
Operating income (loss). . . . . . (2,619) 17,303 - - 14,684
Interest expense, net. . . . . . . (1,516) (8,792) (470) - (10,778)
Minority interest. . . . . . . . . - - - 205 205
Equity in income (loss) of
unconsolidated joint venture. 7,881 6,511 - (14,754) (362)
-------- --------- ------ --------- ---------
Income (loss) before
income taxes. . . . . . . . . 3,746 15,022 (470) (14,549) 3,749
Income tax provision . . . . . . . 1,821 - - - 1,821
-------- --------- ------ --------- ---------
Net income (loss). . . . . . . . . $ 1,925 $ 15,022 $(470) $(14,549) $ 1,928
======== ========= ====== ========= =========
For the six months ended
October 25, 1998
Statement of Operations
- ------------------------
Revenue:
Casino. . . . . . . . . . . . $ - $195,851 $ - $ - $195,851
Rooms, food, beverage
and other. . . . . . . . 123 25,195 - (164) 25,154
-------- --------- -------- --------- ---------
Total revenue. . . . . . . . . . . 123 221,046 - (164) 221,005
Operating expenses:
Casino. . . . . . . . . . . . - 36,192 - - 36,192
Gaming taxes. . . . . . . . . - 40,376 - - 40,376
Rooms, food, beverage
and other. . . . . . . . 3,673 92,187 - (164) 95,696
Depreciation and
amortization . . . . . . 1,579 15,553 - - 17,132
-------- --------- -------- --------- ---------
Total operating expenses . . . . . 5,252 184,308 - (164) 189,396
-------- --------- -------- --------- ---------
Operating income (loss). . . . . . (5,129) 36,738 - - 31,609
Interest expense, net. . . . . . . (3,173) (17,939) (1,274) - (22,386)
Minority interest. . . . . . . . . - - - 527 527
Equity in income (loss) of
unconsolidated joint venture. 17,385 14,191 - (32,237) (661)
-------- --------- -------- --------- ---------
Income (loss) before
income taxes. . . . . . . . . 9,083 32,990 (1,274) (31,710) 9,089
Income tax provision . . . . . . . 4,469 - - - 4,469
-------- --------- -------- --------- ---------
Net income (loss). . . . . . . . . $ 4,614 $ 32,990 $(1,274) $(31,710) $ 4,620
======== ========= ======== ========= =========
For the six months ended
October 25, 1998
Statement of Cash Flows
- ------------------------------
Net cash provided by (used in)
operating activities. . . $ 15,799 $ 35,788 $ 1,902 $(18,149) $ 35,340
Net cash provided by (used in)
investing activities. . . (19,922) (22,997) (3,827) 18,046 (28,700)
Net cash provided by (used in)
financing activities. . . (1,196) (2,914) 1,431 103 (2,576)
--------- --------- -------- --------- ---------
Net increase (decrease) in cash and
cash equivalents. . . . . (5,319) 9,877 (494) - 4,064
Cash and cash equivalents at
beginning of the period . 20,020 31,893 547 - 52,460
Cash and cash equivalents at --------- --------- -------- --------- ---------
end of the period . . . . $ 14,701 $ 41,770 $ 53 $ - $ 56,524
========= ========= ======== ========= =========
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- ------------- --------------- --------------
As of April 25, 1999
Balance Sheet
- --------------------
Current Assets. . . . . . . . . . . . . . . . . $ 36,599 $ 60,679 $11,738 $ - $109,016
Intercompany receivables. . . . . . . . . . . . 220,578 159,361 - (379,939) -
Investments in subsidiaries . . . . . . . . . . 233,541 - - (231,690) 1,851
Property and equipment, net . . . . . . . . . . 6,605 324,194 80,377 - 411,176
Other assets. . . . . . . . . . . . . . . . . . 44,377 103,916 6,148 - 154,441
-------- -------- ------- ---------- --------
Total Assets. . . . . . . . . . . . . . . . . . $541,700 $648,150 $98,263 $(611,629) $676,484
======== ======== ======= ========== ========
Current liabilities . . . . . . . . . . . . . . $ 13,395 $ 56,074 $ 9,419 $ (64) $ 78,824
Intercompany payable. . . . . . . . . . . . . . 24,593 349,994 5,289 (379,876) -
Long-term debt,
less current maturities. . . . . . . . . . 441,757 9,348 75,768 - 526,873
Deferred income taxes . . . . . . . . . . . . . - 4,689 - - 4,689
Minority interest . . . . . . . . . . . . . . . - - - 4,143 4,143
Stockholders' equity. . . . . . . . . . . . . . 61,955 228,045 7,787 (235,832) 61,955
Total Liabilities and -------- -------- ------- ---------- --------
Stockholders' Equity. . . . . . . . . . . . . . $541,700 $648,150 $98,263 $(611,629) $676,484
======== ======== ======= ========== ========
(a) Certain of the Company's wholly owned subsidiaries were guarantors on
the 8 3/4 % Senior Subordinated Notes, including the following: Riverboat
Corporation of Mississippi, Riverboat Corporation of Mississippi Vicksburg, Isle
of Capri-Tunica, Inc., Louisiana Riverboat Gaming Partnership, St.Charles
Gaming Company, Inc., Grand Palais Riverboat, Inc., and PPI, Inc.
(b) The following non-wholly owned subsidiaries were not guarantors on the
8 3/4 % Senior Subordinated Notes: Isle of Capri Black Hawk, L.L.C. and
Isle of Capri Black Hawk Capital Corp.
ITEM 2. 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, the other financial information in this
report.
The following discussion includes "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In particular,
statements concerning the effects of increased competition in the Company's
markets, the effects of regulatory and legislative matters, the Company's plans
to make capital investments at its facilities, including, without limitation,
considerations to acquire Lady Luck Gaming Corporation and other related assets
and to develop hotels or time-share facilities at the Isle-Biloxi, the Isle-Lake
Charles, the Isle-Black Hawk, and the Isle-Tunica and the expansion of
non-gaming amenities at all facilities, are forward-looking statements.
Although the Company believes that the expectations are reasonable, there can be
no assurance that such expectations are reasonable or that they will be correct.
Actual results may vary materially from those expected. Important factors that
could cause actual results to differ with respect to the Company's planned
capital expenditures principally include a lack of available capital resources,
construction and development risks such as shortages of materials or labor and
unforeseen delays resulting from a failure to obtain necessary approvals.
General
Isle of Capri's results of operations for the six fiscal months ended
October 24, 1999 reflect the consolidated operations of all of Isle of Capri's
subsidiaries, including the Isle-Lake Charles, the Isle-Bossier City, the
Isle-Biloxi, the Isle-Vicksburg, the Isle-Tunica and the Isle-Black Hawk.
Isle of Capri believes that its historical results of operations may not be
indicative of its future results of operations because of the substantial
present and expected future increase in competition for gaming customers in each
of Isle of Capri's markets, as new casinos open and existing casinos add to or
enhance their facilities.
Isle of Capri also believes that its operating results are affected by
seasonality. Seasonality has historically caused the operating results for Isle
of Capri's first and fourth fiscal quarters ending in July and April,
respectively, to be notably better than the operating results for the second and
third fiscal quarters ending October and January, respectively.
Results of Operations
Three Fiscal Months Ended October 24, 1999 Compared to Three Fiscal Months Ended
October 25, 1998 - Consolidated Company
Total revenue for the quarter ended October 24, 1999 was $155.0 million,
which included $141.5 million of casino revenue, $2.8 million of room revenue,
$3.6 million of pari-mutuel commissions and $7.1 million of food, beverage and
other revenue. This compares to total revenue for the previous quarter ended
October 25, 1998 of $106.9 million, which included $95.2 million of casino
revenue, $2.7 million of room revenue, $3.6 million of pari-mutuel commissions
and $5.4 million of food, beverage and other revenue. Casino revenue increased
primarily as a result of the commencement of operations at the Isle-Black Hawk
on December 30, 1998 and the Isle-Tunica on July 26, 1999, increased market
share at the Isle-Lake Charles, and the effects of opening a 124-room hotel at
the Isle-Vicksburg and a 305-room hotel at the Isle-Bossier City. Room revenue
increased only slightly despite the opening of new hotel rooms at the
Isle-Vicksburg and the Isle-Bossier City due to increased complimentary room
nights given to the Company's more active data base customers. Food, beverage
and other revenue has increased as a result of the opening of the Isle-Black
Hawk and the Isle-Tunica; and the new hotel rooms at the Isle-Vicksburg and the
Isle-Bossier City. Pari-mutuel commissions and fees remained level compared to
the prior year. Revenue does not reflect the retail value of any
complimentaries.
Casino operating expenses for the quarter ended October 24, 1999 totaled
$27.2 million, or 19.3% of casino revenue, versus $17.9 million, or 18.9% of
casino revenue, for the quarter ended October 25, 1998. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. Casino operating expenses as a percentage of casino revenue have
increased slightly primarily as a result of startup costs associated with the
opening of the Isle-Tunica.
Operating expenses for the quarter ended October 24, 1999 also included
room expenses of $1.3 million from the hotels at the Isle-Lake Charles, the
Isle-Bossier City, the Isle-Biloxi and the Isle-Vicksburg compared to $1.0
million for the quarter ended October 25, 1998. These expenses are those
directly relating to the cost of providing hotel rooms. Other costs of the
hotels are shared with the casinos and are presented in their respective expense
categories. Room expenses increased primarily as a result of the opening of the
Isle-Vicksburg hotel in February 1999 and the opening of the new 305-room deluxe
Isle-Bossier City hotel in late June 1999.
State and local gaming taxes paid in Louisiana, Mississippi and Colorado
totaled $27.9 million for the quarter ended October 24, 1999, compared to $19.7
million for the quarter ended October 25, 1998, which is consistent with each
state's gaming tax rate for the applicable fiscal years.
Food, beverage and other expenses totaled $4.2 million for the quarter
ended October 24, 1999, compared to $3.3 million for the quarter ended
October 25, 1998. These expenses have increased as a result of the opening of
the Isle-Black Hawk and the Isle-Tunica. These expenses consist primarily of
the cost of goods sold, salaries, wages and benefits and operating expenses of
these departments. Food and beverage operating expenses as a percentage of
food, beverage and other revenues decreased from 61.1% for the quarter ending
October 25, 1998 to 60.0% for the quarter ended October 24, 1999. Food and
beverage operating margins have improved as a result of continued payroll
and inventory cost control efforts
Marine and facilities expenses totaled $9.6 million for the quarter ended
October 24, 1999, versus $6.5 million for the quarter ended October 25, 1998.
These expenses include salaries, wages and benefits, operating expenses of the
marine crews, insurance, housekeeping and general maintenance of the riverboats
and floating pavilions. Marine and facilities expenses have increased due to the
opening of the Isle-Black Hawk, the Isle-Tunica and the new hotels at the
Isle-Vicksburg and the Isle-Bossier City.
Marketing and administrative expenses totaled $49.1 million, or 31.7% of
total revenue, for the quarter ended October 24, 1999, versus $32.6 million,
or 30.5% of total revenue, for the quarter ended October 25, 1998. Marketing
expenses include salaries, wages and benefits of the marketing and sales
departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses include administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. Marketing and administrative expenses have increased
due primarily to the opening of the Isle-Black Hawk, the Isle-Tunica and the
new hotel at the Isle-Vicksburg and the Isle-Bossier City. These expenses as
a percentage of total revenue increased slightly as a result of start up
marketing efforts at the Isle-Tunica and increased marketing efforts at the
Isle-Biloxi.
Depreciation and amortization expense was $9.1 million for the quarter
ended October 24, 1999 and $8.5 million for the quarter ended October 25, 1998.
Theses expenses relate to property and equipment, berthing and concession rights
and the amortization of intangible assets. These expenses include depreciation
and amortization expense related to assets placed into service since the quarter
ended October 25, 1998, including the Isle-Black Hawk, the Isle-Tunica and the
new hotels at the Isle-Vicksburg and Isle-Bossier City. Effective April 26,
1999, the first day of fiscal year 2000, the Company changed the estimated
useful lives used for depreciating its slot machines and land-based buildings,
from five years to three years and from twenty-five years to thirty-nine and
one-half years, respectively. The change in estimated useful lives was
implemented to more accurately reflect actual expected useful lives of those
assets based on recent historical data.
Interest expense was $12.6 million for the quarter ended October 24, 1999,
net of capitalized interest of $0.2 million and interest income of $0.8 million,
versus $10.8 million for the six months ended October 25, 1998, net of
capitalized interest of $2.5 million and interest income of $0.6 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 $2.5 million, net of
capitalized interest of $0.1 million and interest income of $0.1 million related
to Black Hawk LLC is included in the quarter ended July 25, 1999. This compares
to interest expense of $0.4 million, net of capitalized interest of $2.1 million
and interest income of $0.1 million, for the quarter ended October 25, 1998.
Isle of Capri's effective tax rate was 39.9% for the quarter ended October
24, 1999 and 48.5% for the quarter ended October 25, 1998, which includes the
effects of non-deductible goodwill amortization for income tax purposes.
Three Fiscal Months Ended October 24, 1999 Compared to Three Fiscal Months Ended
October 25, 1998-By Casino Location
Isle-Lake Charles
For the quarter ended October 24, 1999, the Isle-Lake Charles had total
revenue of $43.7 million, of which $42.3 million was casino revenue, compared to
total revenue of $38.3 million, of which $36.4 million was casino revenue, for
the quarter ended October 25, 1998. Operating income for the quarter ended
October 24, 1999 totaled $8.5 million, or 19.4% of total revenue, compared to
operating income of $6.5 million, or 17.1% of total revenue, for the quarter
ended October 25, 1998. The increase in revenue, operating income and operating
income margin is related primarily to increased market share.
Isle-Bossier City
For the quarter ended October 24, 1999, the Isle-Bossier City had total
revenue of $37.8 million, of which $35.7 million was casino revenue, compared to
total revenue of $29.9 million, of which $28.5 million was casino revenue, for
the quarter ended October 25, 1998. The increase in revenue relates primarily to
the opening of a new 305-room hotel at the Isle-Bossier City in late June 1999.
Operating income for the quarter ended October 24, 1999 totaled $8.3 million, or
22.1% of total revenue, compared to $5.8 million, or 19.3% of total revenue, for
the quarter ended October 25, 1998. The increase in operating income and
operating income margin is primarily a result of the opening of the new 305-room
hotel.
Isle-Biloxi
For the quarter ended October 24, 1999, the Isle-Biloxi had total revenue
of $21.8 million, of which $19.1 million was casino revenue, compared to total
revenue of $22.1 million, of which $18.7 million was casino revenue, for the
quarter ended October 25, 1998. Total revenue decreased slightly compared to
the prior year first quarter primarily due to increased competition from the
opening of a new competitor and expansion of existing competitors in the Biloxi
market. Operating income for the quarter ended October 24, 1999 totaled $4.4
million, or 20.2% of total revenue, compared to $4.8 million, or 21.7% of total
revenue, for the quarter ended October 25, 1998. The decrease in operating
income margin is due primarily to slightly decreased revenue and increased
marketing costs.
Isle-Vicksburg
For the quarter ended October 24, 1999, the Isle-Vicksburg had total
revenue of $15.4 million, of which $14.3 million was casino revenue, compared to
total revenue of $12.2 million, of which $11.5 million was casino revenue, for
the quarter ended October 25, 1998. Casino revenues and total revenues increased
due to the opening of a 124-room hotel at the Isle-Vicksburg in February 1999.
Operating income for the quarter ended October 24, 1999 totaled $3.9 million, or
25.4% of total revenue, compared to $2.1 million, or 17.2% of total revenue, for
the quarter ended October 25, 1998. The increase in operating income and
operating income margin is due primarily to the opening of the Isle-Vicksburg's
new hotel.
Isle-Black Hawk
For the quarter ended October 24, 1999, the Isle-Black Hawk had total
revenue of $21.8 million, of which $20.7 million was casino revenue. Operating
income for the quarter totaled $5.2 million or 23.9% of total revenue. The
Isle-Black Hawk began operations on December 30, 1998 and thus has no comparable
operating results for the quarter ending October 25, 1998.
Isle-Tunica
For the quarter ended October 24, 1999, the Isle-Tunica had total revenue
of $9.8 million, of which $9.4 million was casino revenue. The Isle-Tunica
incurred an operating loss for the quarter of $1.5 million, or 14.9% of total
revenue, due to high operating costs associated with initial start up efforts.
The Isle-Tunica began operations on July 26, 1999 and thus has no comparable
operating results for the quarter ending October 25, 1998.
Six Fiscal Months Ended October 24, 1999 Compared to Six Fiscal Months Ended
October 25, 1998 - Consolidated Company
Total revenue for the six months ended October 24, 1999, was $297.2
million, which included $269.8 million of casino revenue, $5.4 million of room
revenue, $8.3 million of pari-mutuel commissions and $13.6 million of food,
beverage and other revenue. This compares to total revenue for the previous six
months ended October 25, 1998 of $221.0 million, which included $195.9 million
of casino revenue, $5.8 million of room revenue, $8.0 million of pari-mutuel
commissions and $11.4 million of food, beverage and other revenue. Casino
revenue increased primarily as a result of the commencement of operations at the
Isle-Black Hawk on December 30, 1998 and the Isle-Tunica on July 26, 1999,
increased market share at the Isle-Lake Charles, and the effects of opening a
124-room hotel at the Isle-Vicksburg and a 305-room hotel at the Isle-Bossier
City. Room revenue decreased due to increased complimentary room nights given
to the Company's more active data base customers. Food, beverage and other
revenue has increased as a result of the opening of the Isle-Black Hawk and the
Isle-Tunica and the new hotel rooms at the Isle-Vicksburg and the Isle-Bossier
City. Pari-mutuel commissions and fees were up slightly compared to the prior
year as a result of adverse weather conditions experienced in the previous year.
Revenue does not reflect the retail value of any complimentaries.
Casino operating expenses for the six months ended October 24, 1999,
totaled $50.2 million, or 18.6% of casino revenue, versus $36.2 million, or
18.5% of casino revenue, for the six months ended October 25, 1998. These
expenses are primarily comprised of salaries, wages and benefits and other
operating expenses of the casinos. Casino operating expenses as a percentage of
casino revenue have increased slightly primarily as a result of start up costs
associated with the opening of the Isle-Tunica.
Operating expenses for the six months ended October 24, 1999, also included
room expenses of $2.4 million from the hotels at the Isle-Lake Charles, the
Isle-Bossier City, the Isle-Biloxi and the Isle-Vicksburg compared to $2.0
million for the six months ended October 25, 1998. These expenses are those
directly relating to the cost of providing hotel rooms. Other costs of the
hotels are shared with the casinos and are presented in their respective expense
categories. Room expenses increased primarily as a result of the opening of the
Isle-Vicksburg hotel in February 1999 and start up costs incurred in connection
with the opening of the new 305-room deluxe Isle-Bossier City hotel in late June
1999.
State and local gaming taxes paid in Louisiana, Mississippi and Colorado
totaled $53.7 million for the six months ended October 24, 1999, compared to
$40.4 million for the six months ended October 25, 1998, which is consistent
with each state's gaming tax rate for the applicable fiscal years.
Food, beverage and other expenses totaled $8.3 million for the six months
ended October 24, 1999, compared to $7.2 million for the six months ended
October 25, 1998. These expenses have increased as a result of the opening of
the Isle-Black Hawk and the Isle-Tunica. These expenses consist primarily of
the cost of goods sold, salaries, wages and benefits and operating expenses of
these departments. Food and beverage operating expenses as a percentage of
food, beverage and other revenues decreased from 63.1% for the six months ending
October 25, 1998 to 61.1% for the six months ended October 24, 1999. Food and
beverage operating margins have improved as a result of continued payroll and
inventory cost control efforts.
Marine and facilities expenses totaled $18.5 million for the six months
ended October 24, 1999, versus $13.3 million for the six months ended October
25, 1998. These expenses include salaries, wages and benefits, operating
expenses of the marine crews, insurance, housekeeping and general maintenance
of the riverboats and floating pavilions. Marine and facilities expenses have
increased due to the opening of the Isle-Black Hawk, the Isle-Tunica and the
new hotels at the Isle-Vicksburg and the Isle-Bossier City.
Marketing and administrative expenses totaled $91.4 million, or 30.7% of
total revenue, for the six months ended October 24, 1999, versus $67.1 million,
or 30.3% of total revenue, for the quarter ended October 25, 1998. Marketing
expenses include salaries, wages and benefits of the marketing and sales
departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses include administration and human resource
department expenses, rent, new development activities, professional fees and
property taxes. Marketing and administrative expenses have increased due
primarily to the opening of the Isle-Black Hawk, the Isle-Tunica and the new
hotels at the Isle-Vicksburg and the Isle-Bossier City. These expenses as a
percentage of total revenue increased slightly as a result of start up marketing
efforts at the Isle-Tunica and increased marketing efforts at the Isle-Biloxi.
Preopening expenses of $3.4 million for the six months ended October 24,
1999 represent salaries, benefits, training, marketing and other costs incurred
in connection with the opening of the Isle-Tunica on July 26, 1999.
Isle of Capri's results of operations for the six months ended October 24,
1999 include a $3.1 million gain on disposal related to the sale of an option to
purchase 135 acres of land adjacent to the Pompano Park facility.
Depreciation and amortization expense was $17.9 million for the six months
Ended October 24, 1999 and $17.1 million for the six months ended October 25,
1998. These expenses relate to property and equipment, berthing and concession
rights and the amortization of intangible assets. These expenses include
depreciation and amortization expense related to assets placed into service
since the quarter ended October 25, 1998, including the Isle-Black Hawk, the
Isle-Tunica and the new hotels at the Isle-Vicksburg and Isle-Bossier City.
Effective April 26, 1999, the first day of fiscal year 2000, the Company
changed the estimated useful lives used for depreciating its slot machines
and land-based buildings, from five years to three years and from twenty-five
years to thirty-nine and one-half years, respectively. The change in estimated
useful lives was implemented to more accurately reflect actual expected useful
lives of those assets based on recent historical data.
Interest expense was $24.0 million for the six months ended October 24,
1999, net of capitalized interest of $1.1 million and interest income of $1.5
million versus $22.4 million for the six months ended October 25, 1998, net of
capitalized interest of $3.8 million and interest income of $1.6 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 $4.8 million, net of
capitalized interest of $0.4 million and interest income of $0.2 million related
to Isle-Black Hawk, is included in the six months ended October 24, 1999. This
compares to interest expense of $1.2 million, net of capitalized interest of
$3.2 million and interest income of $0.5 million, for the six months ended
October 25, 1998.
Isle of Capri's effective tax rate was 43.5% for the six months ended
October 24, 1999 and 49.2% for the quarter ended October 25, 1998, which
includes the effects of non-deductible goodwill amortization for income
tax purposes.
Six Fiscal Months Ended October 24, 1999 Compared to Six Fiscal Months Ended
October 25, 1998-By Casino Location
Isle-Lake Charles
For the six months ended October 24, 1999, the Isle-Lake Charles had total
revenue of $88.4 million, of which $85.4 million was casino revenue, compared to
total revenue of $77.8 million, of which $73.9 million was casino revenue, for
the six months ended October 25, 1998. Operating income for the six months ended
October 24, 1999 totaled $16.5 million, or 18.7% of total revenue, compared to
operating income of $13.3 million, or 17.1% of total revenue, for the six months
ended October 25, 1998. The increase in revenue, operating income and operating
income margin is related primarily to increased market share which has resulted
partially from construction disruption at a nearby competitor and partially from
the increased use of the Isle-Lake Charles' player database and entertainment
center.
Isle-Bossier City
For the six months ended October 24, 1999, the Isle-Bossier City had total
revenue of $70.5 million, of which $67.0 million was casino revenue, compared to
total revenue of $61.7 million, of which $58.8 million was casino revenue, for
the six months ended October 25, 1998. The increase in revenue relates primarily
to the opening of a new 305-room hotel at the Isle-Bossier City in late June
1999. Operating income for the six months ended October 24, 1999, totaled $15.6
million, or 22.1% of total revenue, compared to $12.6 million, or 20.4% of total
revenue, for the six months ended October 25, 1998. The increase in operating
income and operating income margin is primarily a result of the opening of the
new 305-room hotel.
Isle-Biloxi
For the six months ended October 24, 1999, the Isle-Biloxi had total
revenue of $45.2 million, of which $39.2 million was casino revenue, compared to
total revenue of $46.6 million, of which $38.9 million was casino revenue, for
the six months ended October 25, 1998. Total revenue decreased slightly
compared to the prior year first quarter primarily due to increased competition
from the opening of a new competitor and expansion of existing competitors in
the Biloxi market. Operating income for the six months ended October 24, 1999
totaled $9.4 million, or 20.8% of total revenue, compared to $9.6 million, or
20.6% of total revenue, for the six months ended October 25, 1998.
Isle-Vicksburg
For the six months ended October 24, 1999, the Isle-Vicksburg had total
revenue of $31.2 million, of which $29.0 million was casino revenue, compared to
total revenue of $25.3 million, of which $24.0 million was casino revenue, for
the six months ended October 25, 1998. Casino revenues and total revenues
increased due to the opening of a 124-room hotel at the Isle-Vicksburg in
February 1999. Operating income for the six months ended October 24, 1999,
totaled $7.9 million, or 25.4% of total revenue, compared to $4.9 million,
or 19.3% of total revenue, for the six months ended October 25, 1998. The
increase in operating income and operating income margin is due primarily
to the opening of the Isle-Vicksburg's new hotel.
Isle-Black Hawk
For the six months ended October 24, 1999, the Isle-Black Hawk had total
revenue of $42.0 million, of which $39.7 million was casino revenue. Operating
income for the six months ended October 24, 1999, totaled $9.8 million, or 23.4%
of total revenue. The Isle-Black Hawk began operations on December 30, 1998 and
thus has no comparable operating results for the six months ending October 25,
1998.
Isle-Tunica
For the six months ended October 24, 1999, the Isle-Tunica had total
revenue of $9.8 million, of which $9.4 million was casino revenue. The
Isle-Tunica incurred an operating loss for the six months ended October 24,
1999, that totaled $1.5 million, or 14.9% of total revenue, due to high
operating costs associated with initial start up efforts. The Isle-Tunica began
operations on July 26, 1999, and thus has no comparable operating results for
the six months ending October 25, 1998.
Liquidity and Capital Resources
At October 24, 1999, Isle of Capri had cash and cash equivalents of $88.8
million, compared to $85.1 million at April 25, 1999. The increase in cash is
primarily a result of cash flow from operating activities. During the six months
ended October 24, 1999, Isle of Capri's operating activities provided $43.9
million of cash, compared to $35.3 million of cash provided by operating
activities in the quarter ended October 25, 1998. The increase in cash from
operating activities was primarily due to increased revenues generated from the
openings of the Isle-Black Hawk, the Isle-Tunica and the new hotels at the
Isle-Vicksburg and the Isle-Bossier City.
Isle of Capri invested $40.5 million in property and equipment in the six
months ended October 24, 1999, primarily for the development of the Isle-Tunica,
the development of a 305-room deluxe hotel at the Isle-Bossier City and the
development of a 235-room hotel at the Isle-Black Hawk.
In October 1999, Isle of Capri entered into a definitive agreement to
acquire Lady Luck in a merger transaction. Under the terms of the agreement,
Lady Luck's common stockholders will receive cash in the amount of $12 per
share for an aggregate share consideration of approximately $59 million and
Isle of Capri will assume all of Lady Luck's outstanding debt in the amount of
approximately $177 million. The agreement also provides for the redemption of
Lady Luck's outstanding preferred stock in the amount of approximately $22
million. Closing is expected in the first half of 2000 pending the approval
of Lady Luck's stockholders and gaming regulators and other contingencies.
Subsequent to this agreement Lady Luck completed its acquisition of the Miss
Marquette Casino in Marquette, Iowa for $41.7 million, for which Isle of
Capri provided financing to Lady Luck in the amount of approximately $21
million. Additionally, Lady Luck had entered into an agreement to acquire
the Lady Luck Casino and Hotel in downtown Las Vegas and certain other
intellectual property for $45.5 million. The Company will fund the
acquisition of Lady Luck through an amendment to its existing Senior
Credit Facility, and has received a commitment (the "Commitment") to amend
its Senior Credit Facility in connection with the acquisition.
In conjunction with the Lady Luck acquisition discussed above, Isle
of Capri has entered into a letter of intent to acquire the other 50%
interest in Lady Luck's Bettendorf, Iowa facility not owned by Lady Luck
and related real estate in exchange for approximately 6.3 million shares
of Isle of Capri common stock, subject to adjustment in certain
circumstances. This interest is owned by members of the family of Bernard
Goldstein, Isle of Capri's Chairman and Chief Executive Officer, including
Robert Goldstein, a member of the Company's board of directors. This
transaction is contingent upon the completion of Isle of Capri's acquisition
of Lady Luck, the approval of Isle of Capri shareholders and other
contingencies. The sellers have the option to receive up to $10 million of
their consideration in cash rather than Isle of Capri common stock.
Isle of Capri anticipates that a significant portion of its principal
near-term capital requirements will relate to the expansion of the Isle-Tunica,
the Isle-Lake Charles, the Isle-Black Hawk and the Isle-Biloxi. Isle of Capri
plans to invest an additional amount of approximately $40.0 million to construct
an on-site hotel at the Isle-Tunica with up to 250 rooms and two live
entertainment theaters with combined seating for 2,000 people. The site work
necessary for the construction of the hotel and theaters has begun. Isle of
Capri has also recently begun construction of an on-site 250-room deluxe hotel
at the Isle-Lake Charles, with an estimated cost of approximately $33.0
million. Additionally, the Isle-Black Hawk is continuing the construction
of a hotel containing approximately 235 rooms at the Isle-Black Hawk for
approximately $29.0 million. Isle of Capri is assisting Isle-Black Hawk with
the financing of the development of this hotel and plans to loan $5.0 million
with interest payable in cash and another $5.0 million with interest payable
in kind (with additional notes). Additionally, Isle of Capri has agreed to
contribute up to $10.0 million in additional equity to supplement funds
generated from Isle-Black Hawk operations to complete the hotel.
Subject to certain regulatory approvals, Isle of Capri plans to replace
its existing casino at the Isle-Biloxi and construct an approximately
1,000-space parking garage and a podium containing entertainment and retail
space. Isle of Capri estimates that the total cost of this expansion will be
approximately $62.0 million. The podium will be constructed to support
either a time-share facility, which may be developed by a joint venture,
or additional hotel rooms. Isle of Capri has not entered into, and cannot
be sure that it will be able to enter into, an agreement for development of
the time-share facility.
Isle of Capri has applied to the Missouri Gaming Commission for approval
to develop and operate a riverboat casino in St. Louis County, Missouri. If
Isle of Capri is successful in obtaining this approval, it intends to begin
construction of the facility as soon as possible. The Company intends to fund
the development through an amendment to its existing Senior Credit Facility.
Isle of Capri has applied for a license from the Louisiana Gaming
Commission to develop and operate a riverboat casino in St. Bernard Parish,
Louisiana. If Isle of Capri is successful in obtaining this license, it intends
to begin construction as soon as possible. The Company intends to fund the
development through an amendment to its existing Senior Credit Facility.
In June 1999, PPI, Inc. sold its option to purchase 135 acres of property,
adjacent to its Pompano Park Harness Racing Track, for $16.3 million. The sale
resulted in a gain on disposal of approximately $3.1 million.
All of Isle of Capri's 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 its
plans are preliminary, subject to continuing refinement or otherwise subject to
change.
Isle of Capri anticipates that capital improvements approximating $18.9
million will be made during fiscal 2000 (approximately $6.6 million of which
have been made as of the end of the second quarter) to maintain its existing
facilities and remain competitive in its markets. Isle of Capri expects that
available cash and cash from future operations, as well as borrowings under
its Senior Credit Facility, will be adequate to fund future expansion, planned
capital expenditures, service debt and meet working capital requirements.
There is no assurance that Isle of Capri will have the capital resources to
make all of the expenditures described above or that planned capital investments
will be sufficient to allow Isle of Capri to remain competitive in its existing
markets. In addition, the indenture governing the 8 3/4 % Senior Subordinated
Notes restricts, among other things, Isle of Capri's ability to borrow money,
create liens, make restricted payments and sell assets.
Isle of Capri's Senior Credit Facility limits, among other things, Isle
of Capri's 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, the Senior Credit Facility
requires Isle of Capri 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.
Isle of Capri must repay all amounts borrowed under its Senior Credit
Facility by July 23, 2004. Isle of Capri will be required to make quarterly
principal payments on the $50.0 million term loan portion of its Senior Credit
Facility beginning in July 1999. Such payments will initially be $0.8 million
per quarter and will increase by $0.8 million per quarter in July of each year
that the term loan is outstanding. In addition, Isle of Capri will be required
to make substantial quarterly interest payments on the outstanding balance of
its Senior Credit Facility and interest payments of $17.1 million semi-annually
on its 8 3/4 % Senior Subordinated Notes.
Isle of Capri is highly leveraged and may be unable to obtain additional
debt or equity financing on acceptable terms. As a result, limitations on Isle
of Capri's capital resources could delay or cause Isle of Capri to abandon
certain plans for capital improvements at its existing properties and
development of new properties. Isle of Capri will continue to evaluate its
planned capital expenditures at each of its existing locations in light of the
operating performance of the facilities at such locations.
Year 2000 Compliance
Isle of Capri has completed the evaluation of its information technology
infrastructure for Year 2000 issues. The evaluation process included a detailed
inventory of all computer hardware and software systems, detailed vendor
communication and the creation of a concise Year 2000 plan. All of Isle of
Capri's significant systems infrastructure is currently Year 2000 compliant.
Isle of Capri has received assurances that it believes are reasonable from
vendors of material products used by Isle of Capri that their products are Year
2000 compliant. Isle of Capri is changing to a casino player tracking and table
system which is Year 2000 compliant. The total cost of this change is
approximately $0.4 million. Isle of Capri has not incurred and does not intend
to incur any material costs to modify its information technology infrastructure
in order to be Year 2000 compliant. All software needed will be provided by the
respective information technology vendor at no charge to Isle of Capri. Isle of
Capri has completed all necessary software modifications.
Isle of Capri and its results of operations and financial condition could
be adversely affected by a failure of one or more of the third parties with
which it does business to satisfactorily address and resolve any Year 2000
issues. In addition, Year 2000 difficulties experienced by public utilities,
the banking system, the postal system or other similar infrastructure
enterprises could adversely affect Isle of Capri. However, Isle of Capri
believes that the impact of such problems on Isle of Capri would be the same
as on other businesses in the same area or areas. Isle of Capri believes
these risks range from slight financial malfunctions to, in a worst case
scenario, an extensive and costly inability to communicate with customers and
suppliers. Isle of Capri has completed its programming which it believes to
be effective to resolve all of the Company's significant Year 2000 issues.
PART II - OTHER INFORMATION
ITEM 1. 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. A
motion for certification of the class is currently pending before the court and
no discovery as to the merits of the alleged claims has begun. We are unable at
this time to determine what effect, if any, the suit would have on our financial
position or results of operations. However, the gaming industry defendants are
committed to defend vigorously all claims asserted in the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleged that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by the
plaintiffs. The plaintiffs alleged that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further alleged that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The Company denies any liability;
however, in order to avoid the cost of litigation and the risk of adverse
judgement, the Company settled this suit, without admitting liability, on
October 13, 1999.
In May 1998, we were named as a defendant in an action brought by several
persons who had a contractual right to acquire property in Cripple Creek,
Colorado which they sold to one of our subsidiaries in 1995. The plaintiffs
allege that we breached our purported agreement to construct a casino facility
on the property by the end of 1995. In December 1998, our motion to dismiss the
complaint was granted by the United States District Court in Denver, Colorado.
The plaintiffs have appealed this decision to the Tenth Circuit Court of
Appeals. We intend to vigorously defend all claims and allegations in the
action.
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 is currently
pending. We intend to vigorously defend this suit.
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 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders was held September 22,
1999 at which time the following matters were submitted to a
vote of the stockholders:
(1) To elect seven persons to the Company's Board of Directors;
(2) To approve an amendment to the Company's 1993 Stock Option
Plan to increase the number of shares of the Company's common
stock available for issuance thereunder by 1,150,000 shares; and
(3) To approve the selection of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending
April 30, 2000.
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 disqualification:
Name For Withhold Against
- ---- --- -------- -------
Bernard Goldstein . 19,965,528 18,333 -
John M. Gallaway. . 19,965,528 18,333 -
Allan B. Solomon. . 19,965,528 18,333 -
Robert S. Goldstein 19,958,475 25,386 -
Allan J. Glazer . . 19,965,528 18,333 -
Emanuel Crystal . . 19,965,528 18,333 -
Randolph Baker. . . 19,965,528 18,333 -
The voting on the other matters as ordered at the Annual Meeting of Stockholders
was as follows:
Matter For Withhold Against
- ------ --- -------- ---------
Amendment to 1993 Stock Option Plan 17,010,875 542,329 2,430,657
Selection of Ernst & Young LLP. . . 19,943,389 32,740 7,282
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
--------------------------------------------
1. Exhibits.
--------
A list of the exhibits included as part of this Form 10-Q is set
forth in the Exhibit Index that immediately precedes such exhibits, which is
incorporated herein by reference.
2. Reports on Form 8-K.
-----------------------
During the quarter ended October 24, 1999, the Company filed the following
report on Form 8-K:
Current Report on Form 8-K filed on October 15, 1999, containing the merger
agreement between Lady Luck and Isle of Capri, other agreements related to the
Lady Luck acquisition and the press release announcing the Lady Luck acquisition
agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISLE OF CAPRI CASINOS, INC.
Dated: December 7, 1999 /s/ Rexford A. Yeisley
--------------------------
Rexford A. Yeisley, Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
27 Financial Data Schedule.