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 31, 1996
--------------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
- --------------------------------------------------------------------------------
Commission File Number: 0-20538
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Casino America, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 41-1659606
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
711 Washington Loop, Second Floor, Biloxi, Mississippi 39530
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(Address of principal executive offices) (Zip Code)
(601) 436-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (a) 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
------ ------
Shares of Common Stock outstanding at November 30, 1996: 23,313,487
--------------
CASINO AMERICA, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
October 31, 1996 (unaudited) and
April 30, 1996 1-2
Consolidated Statements
of Operations for the Three Months
and Six Months Ended
October 31, 1996 and 1995 (unaudited) 3
Consolidated Statements of
Cash Flows for the Six Months
Ended October 31, 1996 and 1995
(unaudited) 4-5
Consolidated Statement of
Stockholders' Equity
(unaudited) 6
Notes to Unaudited Consolidated
Financial Statements 7-11
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12-18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT LIST 21
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 APRIL 30, 1996
---------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 58,034,000 $ 18,585,000
Accounts receivable:
Related parties 161,000 3,171,000
Other 4,080,000 1,764,000
Income Taxes Receivable 8,984,000 --
Deferred income taxes 2,057,000 1,001,000
Prepaid expenses and other assets 4,551,000 2,858,000
------------ ------------
TOTAL CURRENT ASSETS 77,867,000 27,379,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land improvements 33,067,000 25,485,000
Leasehold improvements 94,729,000 50,130,000
Buildings and improvements 8,598,000 6,099,000
Riverboats and floating pavilions 125,044,000 33,591,000
Furniture, fixtures and equipment 78,069,000 35,835,000
Construction in progress 495,000 375,000
------------ ------------
340,002,000 151,515,000
Less: Accumulated depreciation 46,112,000 22,209,000
------------ ------------
Property and equipment, net 293,890,000 129,306,000
------------ ------------
OTHER ASSETS:
Investment in and advances to joint ventures -- 34,281,000
Notes receivable - related party -- 4,700,000
Other investments 2,250,000 2,250,000
Property held for development or sale 15,840,000 15,840,000
Goodwill, net of accumulated amortization of
$1,957,000 and $-0-, respectively 114,657,000 --
Berthing, concession and leasehold rights, net of
accumulated amortization of $1,366,000 and
$1,209,000 respectively 4,903,000 5,060,000
Deferred financing costs, net of accumulated
amortization of $467,000 and $1,229,000,
respectively 12,257,000 4,327,000
Prepaid expenses 862,000 743,000
Deposits and other 4,484,000 2,588,000
------------ ------------
155,253,000 69,789,000
------------ ------------
TOTAL ASSETS $527,010,000 $226,474,000
============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 APRIL 30, 1996
---------------- --------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 12,307,000 $ 8,884,000
Accounts payable:
Trade 6,583,000 6,169,000
Accrued liabilities:
Interest 11,379,000 5,802,000
Payroll and payroll related 16,375,000 6,333,000
Property and other taxes 6,415,000 6,880,000
Progressive jackpots and slot club
awards 5,849,000 1,851,000
Other 2,067,000 2,392,000
------------ ------------
TOTAL CURRENT LIABILITIES 60,975,000 38,311,000
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 374,417,000 130,894,000
------------ ------------
DEFERRED INCOME TAXES 6,999,000 6,999,000
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value;
2,000,000 shares authorized; none
issued -- --
Common stock, $0.01 par value; 45,000,000
shares authorized; shares issued and
outstanding: 23,300,587 and 16,038,882,
respectively 233,000 160,000
Class B common stock, $0.01 par value;
3,000,000 shares authorized; none issued -- --
Additional paid-in capital 62,426,000 13,857,000
Retained earnings 21,960,000 36,253,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 84,619,000 50,270,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $527,010,000 $226,474,000
============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended October 31, Six Months Ended October 31,
1996 1995 1996 1995
------------------------------ -----------------------------
REVENUE:
Casino $ 94,624,000 $29,660,000 $132,098,000 $58,855,000
Rooms 4,256,000 1,488,000 6,440,000 1,488,000
Management fee - joint ventures 98,000 1,553,000 2,110,000 2,768,000
Pari-mutuel commissions and fees 2,277,000 1,764,000 5,664,000 2,825,000
Food, beverage and other 5,784,000 1,226,000 8,847,000 2,173,000
------------ ----------- ------------ -----------
TOTAL REVENUE 107,039,000 35,691,000 155,159,000 68,109,000
------------ ----------- ------------ -----------
OPERATING EXPENSES:
Casino 24,998,000 6,531,000 35,962,000 13,430,000
Rooms 1,543,000 975,000 2,401,000 975,000
Gaming taxes 18,281,000 3,550,000 23,229,000 7,137,000
Pari-mutuel 2,398,000 2,772,000 5,308,000 3,947,000
Food, beverage and other 5,229,000 1,820,000 7,599,000 3,933,000
Marine and facilities 6,445,000 2,434,000 9,420,000 4,509,000
Marketing and administrative 34,181,000 12,270,000 47,347,000 22,540,000
Preopening expenses 516,000 -- 2,500,000 1,290,000
Depreciation and amortization 8,075,000 2,899,000 11,448,000 5,527,000
------------ ----------- ------------ -----------
TOTAL OPERATING EXPENSES 101,666,000 33,251,000 145,214,000 63,288,000
------------ ----------- ------------ -----------
OPERATING INCOME 5,373,000 2,440,000 9,945,000 4,821,000
INTEREST EXPENSE (11,960,000) (3,559,000) (16,644,000) (6,725,000)
INTEREST INCOME:
Related parties -- 406,000 203,000 430,000
Other 174,000 106,000 344,000 386,000
EQUITY IN INCOME OF UNCONSOLIDATED
JOINT VENTURES 255,000 4,574,000 4,534,000 9,276,000
LOSS ON DISPOSAL OF EQUIPMENT -- (312,000) -- (326,000)
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM (6,158,000) 3,655,000 (1,618,000) 7,862,000
INCOME TAX PROVISION (BENEFIT) (1,201,000) 1,611,000 422,000 3,484,000
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (4,957,000) 2,044,000 (2,040,000) 4,378,000
EXTRAORDINARY ITEM (NET OF TAXES) (12,253,000) -- (12,253,000) --
------------ ----------- ------------ -----------
NET INCOME (LOSS) ($17,210,000) $ 2,044,000 ($14,293,000) $ 4,378,000
============ =========== ============ ===========
INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM ($0.21) $0.13 ($0.09) $0.28
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ($0.74) $0.13 ($0.66) $0.28
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 23,229,000 15,774,000 21,669,000 15,884,000
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended October 31,
1996 1995
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (14,293,000) $ 4,378,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,169,000 6,076,000
Deferred income taxes -- 65,000
Equity in income of unconsolidated joint
ventures (4,534,000) (9,276,000)
Extra ordinary loss on retirement of debt
(net of taxes) 12,253,000 --
Loss on disposal of equipment -- 326,000
Changes in current assets and
liabilities:
Accounts receivable 2,363,000 (829,000)
Income tax receivable (2,386,000) 1,189,000
Prepaid expenses and other (451,000) (425,000)
Accounts payable (1,534,000) (4,189,000)
Accrued liabilities 4,821,000 3,794,000
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,408,000 1,109,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (7,596,000) (27,767,000)
Net cash paid for acquisitions (81,168,000) --
Proceeds from disposals of property and equipment 518,000 250,000
Repayments from joint ventures -- 2,300,000
Distributions from joint ventures -- 1,057,000
Decrease in restricted cash -- 12,171,000
Other 1,138,000 517,000
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (87,108,000) (11,472,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 317,698,000 5,251,000
Principal payments on borrowings and cash paid
to retire debt (205,182,000) (4,894,000)
Deferred financing costs (12,724,000) (764,000)
Proceeds from sale of stock and exercise of options 18,357,000 223,000
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 118,149,000 (184,000)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,449,000 (10,547,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,585,000 18,997,000
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 58,034,000 $ 8,450,000
============= ============
(CONTINUED)
4
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended October 31,
1996 1995
----------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest, net of amounts capitalized $ 12,373,000 $6,112,000
Income taxes, net of refunds received 7,390,000 (341,000)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Notes payable and debt issued for:
Land -- 1,726,000
Property and equipment 514,000 3,713,000
Insurance premiums 573,000 339,000
Acquisitions:
Debt assumed (37,142,000) --
Debt issued (90,328,000) --
Stock issued (27,669,000) --
Warrants issued (2,500,000) --
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Shares of Additional Total
Common Common Paid-In Retained Stockholders'
Stock Stock Capital Earnings Equity
---------- -------- ----------- ------------- --------------
Balance, April 30, 1996 16,038,882 $160,000 $13,857,000 $ 36,253,000 $ 50,270,000
Issuance of common
stock 6,495,194 65,000 41,813,000 41,878,000
Issuance of warrants 1,250,000 1,250,000
Exercise of stock
options 30,375 1,000 76,000 77,000
Issuance of common stock
for compensation 8,300 67,000 67,000
Net Income 2,917,000 2,917,000
---------- -------- ----------- ------------ -------------
Balance, July 31, 1996 22,572,751 226,000 57,063,000 39,170,000 96,459,000
Issuance of common
stock 684,786 7,000 3,888,000 3,895,000
Issuance of warrants 1,250,000 1,250,000
Exercise of stock
options 35,250 176,000 176,000
Issuance of common stock
for compensation 7,800 49,000 49,000
Net (Loss) (17,210,000) (17,210,000)
---------- -------- ----------- ------------ -------------
Balance, October 31, 1996 23,300,587 $233,000 $62,426,000 $ 21,960,000 $ 84,619,000
========== ======== =========== ============ =============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
CASINO AMERICA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
---------------------
Casino America, Inc. (the "Company") was incorporated as a Delaware
corporation on February 14, 1990. The Company, through its
subsidiaries, is engaged in the business of developing, owning, and
operating riverboat and dockside casinos and related facilities. The
Company has licenses to conduct gaming operations in Biloxi and
Vicksburg, Mississippi, and in Bossier City and Lake Charles, Louisiana
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, considered necessary for a fair presentation have been
included. Operating results for the three-month period ended October
31, 1996 are not necessarily indicative of the results that may be
expected for the year ending April 30, 1997. 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 year ended
April 30, 1996.
Goodwill
--------
Goodwill principally represents the excess purchase price the Company
paid in acquiring the net identifiable assets of St. Charles Gaming
Company, Inc. ("SCGC"), Grand Palais Riverboat, Inc. ("GPRI") and
Louisiana Riverboat Gaming Partnership ("LRGP"). The Company began
amortizing these costs from the effective date of acquisition or
commencement of operations in the case of GPRI, over a twenty-five-year
period using the straight-line method.
Impact of Recently Issued Accounting Standards
----------------------------------------------
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets carrying amount. Statement 121
also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted Statement 121 in fiscal 1997,
and there was no material effect of adoption.
7
Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform with the
current presentation.
Note 2. Business Acquisitions
---------------------
Purchase of GPRI and SCGC
-------------------------
On May 3, 1996, the Company purchased all of the outstanding shares of
common stock of GPRI in a bankruptcy proceeding (the "GPRI
Acquisition"). Pursuant to the Plan of Reorganization adopted in such
bankruptcy proceeding, the Company purchased 100% of the shares of the
reorganized GPRI, which at the time of closing owned the Grand Palais
Riverboat, gaming equipment, certain other furniture, fixtures and
equipment, all necessary gaming licenses issued by the State of
Louisiana, and other permits and authorizations. Commencing July 12,
1996, the Company began operating the GPRI vessel as part of a two-
riverboat operation with the SCGC vessel (collectively, the two vessel
operation is referred to as the "Isle - Lake Charles"). The aggregate
consideration paid by the Company in connection with the GPRI
Acquisition was approximately $61.5 million, consisting of cash in the
amount of approximately $8.2 million, notes and the assumption of
indebtedness of approximately $37.1 million, 2,250,000 shares of common
stock, and warrants to purchase an additional 500,000 shares of common
stock at an exercise price of $10 per share.
At the time of the GPRI Acquisition, the Company also purchased the
remaining 50% interest in SCGC not already owned by LRGP (the "SCGC
Acquisition"), in exchange for 1,850,000 shares of the Company's common
stock and a five-year warrant. The warrant allows the seller to convert
up to $5,000,000 of its note receivable from the Company to 416,667
shares of common stock of the Company. The purchase agreement also
provides for the restructuring of certain indebtedness owed to the
seller.
LRGP Acquisition
----------------
On August 6, 1996, the Company acquired the remaining 50% interest in
Louisiana Riverboat Gaming Partnership ("LRGP") and LRG Hotels, L.L.C.
held by Louisiana River Site Development, Inc. (the "LRGP
Acquisition"). The consideration for the LRGP Acquisition included (i)
$85 million in cash, (ii) five-year warrants to purchase 500,000 shares
of Common Stock at an exercise price of $10.50 per share and (iii)
$1.5 million per year for seven years, payable monthly beginning on
October 1, 1998.
Pompano Park
------------
On June 30, 1995, the Company acquired 100% of Pompano Park (the
"Pompano Acquisition"), a harness racing track located in Pompano
Beach, Florida, for approximately $8,000,000. If casino gaming is
legally permitted in Florida at the
8
Pompano Park site by June 30, 2001, the Company is required to pay
additional consideration to the seller amounting to $25,000,000 plus 5%
of net gaming win, as defined. The probability of the Company paying
such additional consideration is remote; however, if such payments are
made in the future, they would be accounted for as additional purchase
price and allocated to goodwill. Such goodwill will be amortized over a
period to be determined at date of payment not to exceed 40 years.
The SCGC Acquisition, the LRGP Acquisition, the GPRI Acquisition and
the Pompano Acquisition have been accounted for by the Company using
the purchase method of accounting, and the Company's proportionate
share of the results of operations for each of the acquired companies
has been included in the Company's results of operations from the
respective dates of acquisition. Total goodwill related to the above
acquisitions was approximately $116.1 million. The allocation of the
purchase prices for these acquisitions has been performed on a
preliminary basis and is subject to further analysis and revisions.
Pro forma Information
---------------------
The following unaudited pro forma condensed consolidated financial
information for the six months ended October 31, 1996 gives effect to
the SCGC Acquisition, the LRGP Acquisition, and the GPRI Acquisition,
as if such transactions had occurred on May 1, 1996. The unaudited pro
forma condensed consolidated financial information for the six months
ended October 31, 1995 gives effect to LRGP's purchase of a 50%
interest in SCGC on June 9, 1995, the SCGC Acquisition, the LRGP
Acquisition and the GPRI Acquisition, as if such transactions had
occurred on May 1, 1995.
Six Months Ended October 31,
1996 1995
-----------------------------
Total revenue $220,603,000 $161,757,000
Operating income 20,813,000 18,950,000
Net income (loss) (2,686,000) 787,000
Net income (loss) per common
and common equivalent share $ (.12) $ .04
The pro forma financial information presented above does not purport to
be indicative of the results of operations that actually would have
been achieved if the operations were combined during the periods
presented nor is it intended to be a projection of results or trends.
Because the Company will consolidate LRGP and SCGC for reporting
periods subsequent to the date of the LRGP Acquisition, the pro forma
financial information has been presented on a consolidated basis. The
pro forma operating results presented above do not give effect to the
acquisition of Pompano prior to June 30, 1995 because the pro forma
effect of this acquisition would not be material to the operating
results of the Company.
The pre-bankruptcy business of GPRI consisted entirely of developing
and operating the Grand Palais riverboat casino in New Orleans,
Louisiana. The Grand Palais began gaming operations in New Orleans on
March 29, 1995 and, due to poor operating
9
results, ceased operations on June 6, 1995. GPRI was forced into
involuntary bankruptcy on July 26, 1995 and was completely non-
operational between June 6, 1995 and the subsequent reopening of the
Grand Palais at the Isle-Lake Charles on July 12, 1996. Other than
amortization of the related goodwill and interest on debt incurred to
effect the GPRI Acquisition, adjustments related to the pre-bankruptcy
operations of GPRI have not been included in the pro forma results of
operations for the six months ended October 31, 1995 because the pre-
bankruptcy operations of GPRI were very limited and substantially
different than the post-acquisition operations.
Note 3. Operating Expenses
------------------
The Isle of Capri Casino in Biloxi, Mississippi, (the "Isle-Biloxi"),
which originally opened on August 1, 1992, underwent a substantial
reconfiguration of its existing casino complex and opened a new hotel
and pavilion on August 1, 1995. The Company incurred $1,290,000 of
preopening expenses in connection with the opening of this expanded
facility during the three-month period ended October 31, 1995.
On July 12, 1996, GPRI commenced operations as part of a two-boat
operation and recently expanded pavilion at the Isle-Lake Charles. The
Company incurred $516,000 of preopening expenses in connection with the
opening of GPRI during the three-month period ended October 31, 1996
and $2,500,000 of preopening expenses for the six-month period ended
October 31, 1996.
Note 4. Long-term Debt
--------------
On August 6, 1996, the Company issued $315,000,000 of 12-1/2% Senior
Secured Notes due 2003 (the "Senior Secured Notes"). Interest on the
Senior Secured Notes is payable semiannually on each February 1, and
August 1, commencing February 1, 1997, through maturity.
The Senior Secured Notes are redeemable at the option of the Company,
in whole or in part, on or after August 1, 2000, at the redemption
prices set forth in the indenture pursuant to which the Senior Secured
Notes were issued (the "Indenture"), plus accrued interest.
The Company's obligations under the Senior Secured Notes and the
Indenture are jointly, severally and unconditionally guaranteed (the
"Subsidiary Guarantees" ) on a senior secured basis by all existing and
future Significant Restricted Subsidiaries (as defined in the
Indenture) of the Company, subject to the receipt of the required
approval of any applicable Gaming Authority. The obligations arising
under the Subsidiary Guarantees are guaranteed by the Company.
The Notes are secured by a first priority Lien on substantially all of
the assets of the Company, and the Subsidiary Guarantees are secured by
a first priority Lien on substantially all of the tangible assets of
the Subsidiary Guarantors (as defined in the Indenture), other than (i)
the Isle-Biloxi Hotel, the Grand Palais and Pompano Park, as to which
junior priority liens have been granted, and (ii) excluded assets (as
defined in the Indenture).
10
The Indenture contains certain covenants with respect to, among others,
the following matters: (i) limitation on indebtedness, (ii) limitation
on liens, (iii) limitation on restricted payments, (iv) limitation on
dividends and other payment restrictions affecting affiliates, (v)
limitation on asset sales and events of loss, (vi) limitation on
disposition of stock of Restricted Subsidiaries, (vii) limitation on
transactions with affiliates and (viii) restrictions on consolidations,
mergers and transfers of assets.
Part of the proceeds from the Senior Secured Notes were used to retire
or defease $180,285,000 in long-term debt, including $105,000,000 of
11-1/2% First Mortgage Notes due 2001. The proceeds were also used to
pay accrued interest and other costs of $16,396,000, as well as to
consummate the LRGP Acquisition.
Note 5. Common Stock
------------
The Company's Board of Directors authorized the offering, on a pro-rata
basis, of rights (the "Rights Offering") to purchase shares of the
Company's common stock at a price of $5.875 per share at a ratio of
approximately one share for every four shares owned to certain of its
shareholders of record on March 15, 1996. As of October 31, 1996, the
proceeds from the issuance of 3,079,980 shares of common stock from the
Rights Offering were approximately $18,049,000, net of issuance costs
of approximately $46,000.
Note 6. Extraordinary Item
------------------
The Company incurred extraordinary costs totaling $18,851,000 related
to the refinancing of its 11.5% First Mortgage Notes and other debt in
early August of 1996. The extraordinary cost included early payment
premiums, as well as the write-off of consent fees and debt acquisition
costs. The tax benefit from the extraordinary loss was $6,598,000.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the unaudited consolidated financial statements, including the
notes thereto, included elsewhere 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 Company's plans to make capital investments at its facilities,
including, without limitation, considerations to develop hotels at the Isle-
Bossier City and the Isle-Lake Charles and the expansion of non-gaming amenities
at all facilities, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements 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 and labor and unforeseen delays resultings from a failure
to obtain necessary approvals, and the Company's limited experience in
developing hotel operations. Other important factors that could cause the
Company's actual results to differ materially from expectations are discussed
under "Risk Factors" in the prospectus dated August 1, 1996 relating to the
issuance of the Company's Senior Secured Notes.
GENERAL
The Company's results of operations for the three months ended October 31, 1996
reflect the consolidated operations from all of the Company's subsidiaries,
including the Isle-Biloxi, the Isle-Lake Charles, Isle of Capri Casino in
Vicksburg, Mississippi (the "Isle-Vicksburg"), the Isle of Capri Casino in
Bossier City, Louisiana (the "Isle-Bossier City") and Pompano Park, Inc.
("PPI"). The LRGP Acquisition, consummated August 6, 1996, gave the Company
100% ownership in the Isle-Bossier City and the Isle-Lake Charles, allowing the
Company to consolidate their results of operations in this period. Previously,
the Company reported its interests in the Isle-Bossier City and the Isle-Lake
Charles using the equity method of accounting. The Company believes that its
results of operations for the three and six months ended October 31, 1996 are
not readily comparable to the results of operations for the three and six month
ended October 31, 1995 primarily because of the consolidation of the results of
operations of the Isle-Bossier City and the Isle-Lake Charles. Furthermore, the
historical results of operations reflect the Isle-Lake Charles as a single
riverboat operation, whereas the Isle-Lake Charles operates two riverboats as of
July 12, 1996 as a result of the GPRI Acquisition on May 3, 1996. In addition,
the land-based pavilion at the Isle-Lake Charles was recently expanded, and the
three months ended October 31, 1996 was the first full quarter of operating
results for GPRI. Because of the lack of comparable information on a
consolidated basis, the following discussion will focus on certain events and
trends that affected the Company's consolidated operations during the quarter
ended October 31, 1996 and comparable data on a location basis.
The Company believes that its historical results may not be indicative of future
results of operations because of the substantial present and expected future
increase in gaming competition for gaming customers in each of the Company's
markets as new casinos open and as existing casinos add to or enhance their
facilities. The Company believes that seasonality does not have a significant
effect on its business.
12
RESULTS OF OPERATIONS
Three Months Ended October 31, 1996 - Consolidated Company
Total revenue for the quarter ended October 31, 1996 was $107.0 million which
included $94.6 million of casino revenue, $4.3 million of rooms revenue, $2.3 of
pari-mutuel commissions, and $5.9 million of food, beverage and other revenue.
The consolidated revenue of the Company has been impacted by the inclusion of
the Isle - Bossier City and the Isle - Lake Charles into the Company's
consolidated financial statements and by the GPRI operations for a full quarter.
Revenue does not reflect the retail value of any complimentaries. Also, as a
result of the LRGP Acquisition, management fees are not reported for periods
subsequent to the date of acquisition because these amounts have been
eliminated in consolidation.
Casino operating expenses for the quarter totaled $25.0 million, or 26% of
casino revenue versus $6.5 million, or 22% for the three months ended October
31, 1995. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino.
Operating expenses for the quarter also included room expenses of $1.5 million
from the hotels at the Isle - Biloxi and the Isle - Bossier City. These
expenses were 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.
State and local gaming taxes paid in Mississippi and Louisiana totaled $18.3
million for the quarter which is consistent with the gaming tax rate for
previous periods.
Food and beverage expenses totaled $5.2 million for the quarter. These expenses
are comprised primarily of the cost of goods sold, salaries, wages and benefits,
and the operating expenses of these departments.
Marine and facilities expenses totaled $6.4 million for the three months ended
October 31, 1996 and included salaries, wages and benefits, operating expenses
of the marine crews, insurance, housekeeping and general maintenance of the
riverboats and floating pavilions.
Marketing and administrative expenses totaled $34.2 million for the quarter.
Marketing expenses included salaries, wages and benefits of the marketing and
sales departments as well as promotions, advertising, special events and
entertainment. Administrative expenses included administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes.
Depreciation and amortization expense was $8.1 million for the quarter. These
expenses relate to capital expenditures and acquisition of leasehold
improvements, and berthing and concession rights, as well as the amortization of
goodwill.
Preopening expenses of $.5 million for the quarter represent salaries, wages and
benefits, training, marketing and other non-capitalized costs which were
expensed as incurred in connection with the opening of the Grand Palais
riverboat.
Net interest expense was $11.8 million for the quarter net of interest income of
$.2 million. Interest expense primarily relates to indebtedness incurred in
connection with the acquisition of property, equipment, leasehold improvements
and berthing and concession rights, as well as indebtedness relating to the
purchase of the remaining interest in LRGP.
13
The Company had a loss before extraordinary item of $5.0 million for the quarter
primarily as a result of gearing its Louisiana staffing and marketing
expenditure levels for revenue levels greater than actually experienced, in
addition to increased competition within its markets. In addition, the Company
recorded an extraordinary charge of approximately $12.3 million (net of a tax
benefit of $6.6 million) resulting from the refinancing of its 11.5% first
Mortgage Notes and other indebtedness in August 1996. The Company's effective
tax rate was approximately 31% for the quarter.
Three Months Ended October 31, 1996, Compared to Three Months Ended
October 31, 1995-By Location
Isle - Biloxi
- -------------
For the quarter ended October 31, 1996, the Isle - Biloxi had total revenue of
$22.9 million of which $19.0 million was casino revenue, compared to total
revenue of $18.8 million of which $16.0 million was casino revenue for the
quarter ended October 31, 1995. The increase in revenue relates primarily to
increased occupancy and casino traffic resulting from its 367-room hotel which
opened on August 1, 1995. Operating income for the three months ended October
31, 1996 totaled $4.4 million or 19% of total revenues compared to $3.0 million
or 16% for the three months ended October 31, 1995. Increased operating income
margin is due primarily to improved operating efficiency following the start-up
of hotel operations.
Isle - Vicksburg
- ----------------
For the quarter ended October 31, 1996, the Isle - Vicksburg had total revenue
of $13.5 million of which $12.9 million was casino revenue, compared to total
revenue of $14.1 million of which $13.7 million was casino revenue for the
quarter ended October 31, 1995. Operating Income for the three months ended
October 31, 1996 totaled $1.6 million or 12% of total revenue compared to $3.0
million or 21% for the three months ended October 31, 1995. The decrease in
revenue and operating income relates primarily to the impact of increased
competition within and overall weakness of the market.
Isle - Bossier City
- -------------------
For the quarter ended October 31, 1996, the Isle - Bossier City had total
revenue of $36.8 million of which $34.0 million was casino revenue, compared to
total revenue of $37.6 million of which $35.5 million was casino revenue for the
quarter ended October 31, 1995. Operating income for the three months ended
October 31, 1996 totaled $4.2 million or 11% of total revenue compared to $10.4
million or 28% for the three months ended October 31, 1995. The decrease in
revenue and operating income relates primarily to increased promotional
activities by competitors in the market and the addition of a new competitor in
the market.
Isle - Lake Charles
- -------------------
For the quarter ended October 31, 1996, the Isle - Lake Charles had total
revenue of $33.1 million of which $31.9 million was casino revenue, compared to
total revenue of $17.6 million of which $16.5 million was casino revenue for the
quarter ended October 31, 1995. The increase in revenue relates to the
commencement of a two-boat operation on July 12, 1996. Operating loss before
preopening expenses associated with the opening of the second riverboat of $.5
million for the three months ended October 31, 1996 totaled $.7 million compared
to an operating income of $.8 million before preopening expenses of $1.9 million
for the three months ended October 31, 1995. The operating performance at the
Isle-Lake Charles was adversely impacted by high marketing and labor costs
associated with opening the second riverboat.
14
Six Months Ended October 31, 1996 - Consolidated Company
Total revenue for the six months ended October 31, 1996 was $155.2 million which
included $132.1 million of casino revenue, $6.4 million of rooms revenue, $2.1
million of management fees, $5.7 of pari mutuel commissions, and $9.0 million of
food, beverage and other revenue. The consolidated revenue of the Company has
been impacted by the inclusion of the Isle - Bossier City and the Isle - Lake
Charles into the Company's consolidated financial statements and by the GPRI
operations since July 12, 1996. Revenues do not reflect the retail value of
any complimentaries. Also, as a result of the LRGP Acquisition, management fees
are not reported for the periods subsequent to the date of acquisition
because these amounts have been eliminated in consolidation.
Casino operating expenses for the six-month period totaled $36.0 million, or 27%
of casino revenue versus $13.4 million, or 23% for the six months ended October
31, 1995. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino.
Operating expenses for the six-month period also included room expenses of $2.4
million from the hotels at the Isle - Biloxi and the Isle - Bossier City. These
expenses were 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.
State and local gaming taxes paid in Mississippi and Louisiana totaled $23.2
million for the six-month period, which is consistent with the gaming tax rate
for previous periods.
Food and beverage expenses totaled $7.6 million for the six-month period. These
expenses are comprised primarily of the cost of goods sold, salaries, wages and
benefits, and the operating expenses of these departments.
Marine and facilities expenses totaled $9.4 million for the six-month period
ended October 31, 1996 and include salaries, wages and benefits, operating
expenses of the marine crews, insurance, housekeeping and general maintenance of
the riverboats and floating pavilions.
Marketing and administrative expenses totaled $47.3 million for the six-month
period. Marketing expenses included salaries, wages and benefits of the
marketing and sales departments as well as promotions, advertising, special
events and entertainment. Administrative expenses included administration and
human resource department expenses, rent, new development activities,
professional fees and property taxes.
Depreciation and amortization expense was $11.4 million for the six-month
period. These expenses relate to capital expenditures and acquisition of
leasehold improvements, and berthing and concession rights, as well as the
amortization of goodwill.
Preopening expenses of $2.5 million for the six-month period represent salaries,
wages and benefits, training, marketing and other non-capitalized costs which
were expensed as incurred in connection with the opening of the Grand Palais
riverboat.
Interest expense was $16.1 million for the six-month period net of interest
income of $.5 million. Interest expense relates to indebtedness incurred in
connection with the acquisition of property, equipment, leasehold improvements
and berthing and concession rights, as well as indebtedness relating to the
purchase of the remaining interest in LRGP and the purchase of GPRI.
The Company had a loss before extraordinary item of $2.0 million for the six
months ended October
15
31, 1996, primarily as a result of the adverse performance of its Louisiana
casinos and increased competition within its markets during the three months
ended October 31, 1996. In addition, the Company recorded an extraordinary
charge of $12.3 million (net of a tax benefit of $6.6 million) resulting from
the refinancing of its First Mortgage Notes and other indebtedness in August
1996. The Company's effective tax rate was approximately 30% for the six-month
period.
Six Months Ended October 31, 1996, Compared to Six Months Ended October 31, 1995
- - By Location
Isle - Biloxi
- -------------
For the six months ended October 31, 1996, the Isle - Biloxi had total revenue
of $46.0 million of which $38.1 million was casino revenue, compared to total
revenue of $32.3 million of which $29.1 million was casino revenue for the six
months ended October 31, 1995. The increase in revenue relates to increased
occupancy and a full period of operations of its 367-room hotel which opened on
August 1, 1995. Operating income for the six months ended October 31, 1996
totaled $8.0 million or 17% of total revenue compared to $4.2 million or 13% for
the six months ended October 31, 1995. The increase in operating margin was due
primarily to improved operating efficiencies following the start-up of hotel
operations.
Isle - Vicksburg
- ----------------
For the six months ended October 31, 1996, the Isle - Vicksburg had total
revenue of $28.2 million of which $26.8 million was casino revenue, compared to
total revenue of $30.7 million of which $29.8 million was casino revenue for the
six months ended October 31, 1995. Operating income for the six months ended
October 31, 1996 totaled $3.8 million or 14% of total revenue compared to $6.8
million or 22% for the six months ended October 31, 1995. The decrease in
revenue and operating income is primarily a result of increased competition from
within and overall weakness of the market.
Isle - Bossier City
- -------------------
For the six months ended October 31, 1996, the Isle - Bossier City had total
revenue of $77.2 million of which $71.3 million was casino revenue, compared to
total revenue of $77.9 million of which $73.5 million was casino revenue for the
six months ended October 31, 1995. Operating income for the six months ended
October 31, 1996 totaled $12.2 million or 16% of total revenue compared to $21.3
million or 27% for the six months ended October 31, 1995. The decrease in
revenue and operating margin primarily reflects the impact of increased
promotional activities by competitors in the market and the addition of a new
competitor in the market.
Isle - Lake Charles
- -------------------
For the six months ended October 31, 1996, the Isle - Lake Charles had total
revenue of $62.9 million of which $59.7 million was casino revenue, compared to
total revenue of $18.2 million of which $17.0 million was casino revenue for the
six months ended October 31, 1995. The increase in revenue primarily relates to
the commencement of operations of GPRI on July 12, 1996. Operating income for
the six months ended October 31, 1996 totaled $3.7 million before preopening
expenses associated with a second riverboat of $2.5 million compared to an
operating loss of $5.1 million before preopening expenses of $1.9 million for
the six months ended October 31, 1995. The operating performance of the Isle-
Lake Charles was adversely impacted by high marketing and labor costs associated
with opening the second riverboat.
16
Liquidity and Capital Resources
At October 31, 1996, the Company had cash and cash equivalents of $58.0 million
compared to $18.6 million at April 30, 1996. The increase in cash balances is a
result of the proceeds received from the Rights Offering and Senior Secured
Notes. During the six-month period ended October 31, 1996, the Company's
operating activities provided $8.4 million compared to $1.1 million of cash flow
in the first six months of fiscal 1996. The significant amount of cash used in
operations during the second quarter ended October 31, 1996, relates primarily
to the extraordinary charge, previously discussed.
The Company invested $7.6 million in property and equipment in the first six
months of fiscal 1997, primarily for equipment, as well as in connection with
the completion of the events center at the Isle-Lake Charles and the
construction of a limited stakes poker room at Pompano Park, which is scheduled
to open on or about January 1, 1997.
In July and August, 1996, the Company received an aggregate of $18.1 million
from the issuance of 3,079,980 shares of common stock issued pursuant to the
Rights Offering.
On August 6, 1996, the Company issued $315,000,000 of 12-1/2% Senior Secured
Notes due 2003. Interest on the Senior Secured Notes is payable semiannually on
each February 1 and August 1, commencing February 1, 1997, through maturity.
Part of the proceeds from the Senior Secured Notes were used to retire or
defease $180,285,000 in long-term debt, including $105,000,0000 of 11-1/2%
First Mortgage Notes due 2001. The proceeds were also used to pay accrued
interest and other costs of $16,396,000 and to acquire the remaining 50%
interest in LRGP and LRG Hotels, L.L.C. held by Louisiana River Site
Development, Inc. The consideration for the LRGP Acquisition included
$85,000,000 million in cash, five-year warrants to purchase 500,000 shares of
common stock at an exercise price of $10.50 per share, and $1.5 million per year
for seven years, payable monthly beginning on October 1, 1998.
The Company anticipates that its principal near-term capital requirements will
relate to the expansion of its operations at the Isle-Lake Charles and at the
Isle-Bossier City if the Company is successful in obtaining an additional
license at that location and investments in hotel properties adjacent to the
Isle-Bossier City and the Isle-Lake Charles.
An important component of the Company's operating strategy will be to develop,
open and operate, either directly, through a hotel joint venture or otherwise,
hotel facilities at its gaming facilities in order to attract additional gaming
patrons and encourage longer visits to and a greater level of play at the
Company's casinos. The Company is planning to develop hotel properties adjacent
to the Isle-Bossier City and the Isle-Lake Charles, although no assurance can be
made that all of such investments will be made.
Although the Company is not presently committed to making any significant
capital expenditures or investment in a new gaming market, the Company believes
that, in addition to developing hotels, it will be necessary to make certain
capital improvements to its land-based facilities at the Isle-Bossier City, even
if no additional license is obtained for such location, and the Isle-Vicksburg
and that enhancements to its non-gaming amenities at all facilities will be
important to its operations. The Company may, in the future, also consider
expanding its casino square footage at the Isle-Biloxi. In addition, the
Company may consider making investments in jurisdictions where gaming is not
presently permitted, but in which it believes that gaming may be legalized in
the future.
The Company expects that available cash and cash from future operations will be
adequate to fund planned capital expenditures, debt service and working capital
requirements. However, no assurance
17
can be made that the Company will have sufficient capital resources to make all
of the planned capital expenditures described above or such capital investments
that may be necessary to remain competitive in the Company's markets. In
addition, the Indenture governing the Senior Secured Notes places certain limits
on the Company's ability to incur additional indebtedness and to make certain
investments. The Company is highly leveraged and, as a result may be unable to
obtain additional debt or equity financing on terms acceptable to the Company.
As a result, limitations on the Company's capital resources could delay certain
plans with respect to capital improvements at the Company's existing properties.
Furthermore, the Company will continue to evaluate its planned capital
expenditures at each location in light of the operating performance of the
respective facilities at such locations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in fiscal 1997, and there was no material
effect of adoption.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
-----------------
Item 2. Changes in Securities
---------------------
A. On July 26, 1996, the Company and Fleet National Bank, as Trustee,
entered into the Fourth Supplemental Indenture governing the Company's
11-1/2 % First Mortgage Notes due 2001 (the "Amendment"). The
modification effected by the Amendment set forth the Company's ability
to defease the security covenants and provisions of such First Mortgage
Notes.
B. On August 6, 1996, the Company issued its 12-1/2% Senior Secured Notes
due 2003, in aggregate principal amount of $315 million, and in
connection therewith defeased the covenants pertaining to the Company's
11-1/2% First Mortgage Notes due 2001, including the Company's
covenants as to the provision of security. As a result, the security
formerly securing such First Mortgage Notes now secures, in substantial
part, the newly issued Senior Secured Notes.
Item 3. Defaults upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - None
---------------------------------------------------
Item 5. Other Information - None
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
--------
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.
B. Reports on Form 8-K
-------------------
During the second quarter ended October 31, 1996, the Company filed the
following reports on Form 8-K for the following dates:
1. On August 6, 1996 (date of event reported), the Company reported
the acquisition of the remaining 50% interest in Louisiana
Riverboat Gaming Partnership.
19
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.
CASINO AMERICA, INC.
Dated: December 13, 1996 By: /s/ Rexford A. Yeisley
----------------------
Rexford A. Yeisley
Chief Financial Officer &
Treasurer
(Duly Authorized Officer and
Principal Financial Officer and
Accounting Officer)
20
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1 Employment contract entered into by the
Company and Michael G. Rose, dated as of
September 27,1996
27 Financial Data Schedule