SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 27, 1997
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
-----------------------------------------------------
CASINO AMERICA, INC.
Delaware 41-1659606
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
711 Washington Loop, Biloxi, Mississippi 39530
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 436-7000
Securities Registered Pursuant To Section 12(b) Of The Act: None
Securities Registered Pursuant To Section 12(g) Of The Act:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Company is $39,258,318, based on the last reported sale price of $2.06 per
share on July 18, 1997 on the Nasdaq National Market, multiplied by 19,057,436
shares of Common Stock outstanding and held by non-affiliates of the Company on
such date.
As of July 18, 1997, the Company had a total of 23,360,187 shares of Common
Stock outstanding.
___________________
(1) Affiliates for the purpose of this item refer to the directors, executive
officers and/or persons owning 10% or more of the Company's common stock,
both of record and beneficially; however, this determination does not
constitute an admission of affiliate status for any of these individual
stockholders.
DOCUMENT INCORPORATED BY REFERENCE:
Document Part of Form 10-K into which Incorporated
-------- -----------------------------------------
Casino America's Definitive Proxy Statement for its Part III
Annual Meeting of Stockholders to be held
September 25, 1997
INDEX
PAGE
----
PART I................................................................... 2
ITEM 1. BUSINESS..................................................... 2
ITEM 2. PROPERTIES................................................... 23
ITEM 3. LEGAL PROCEEDINGS............................................ 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 26
PART II.................................................................. 27
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER'S MATTERS........................................ 27
ITEM 6. SELECTED FINANCIAL DATA...................................... 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 29
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 63
PART III................................................................. 63
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 63
ITEM 11. EXECUTIVE COMPENSATION....................................... 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ............. 63
PART IV.................................................................. 63
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K..................................................... 63
SIGNATURES............................................................. 64
1
PART I
------
ITEM 1. BUSINESS.
GENERAL
Casino America is a leading developer, owner and operator of dockside and
riverboat casinos and related facilities in the United States. The Company owns
100% of, and operates, four dockside or riverboat casino facilities. All of the
Company's casino properties are based on a tropical island theme and operate
under the "Isle of Capri Casino" name. The Company owns and operates a dockside
casino and hotel in Biloxi, Mississippi (the "Isle-Biloxi"), a dockside casino
and recreational vehicle park in Vicksburg, Mississippi (the "Isle-Vicksburg"),
a dockside riverboat casino and hotel in Bossier City, Louisiana (the "Isle-
Bossier City"), and two riverboat casinos operating from a single facility on a
site approximately one mile from Lake Charles, Louisiana (the "Isle - Lake
Charles"). In August 1996, the Company consolidated its ownership interest in
the Isle-Bossier City and the Isle-Lake Charles and expanded its operations at
the Isle-Lake Charles by adding a second riverboat casino. See "--Recent
Acquisitions--LRGP Acquisition," "--Recent Acquisitions--SCGC-- Acquisition,"
"--Recent Acquisitions--Grand Palais Acquisition" and "--Recent Developments--
Senior Secured Notes Offering and Retirement of Mortgage Notes." The Company
also owns and operates Pompano Park, a harness racing track in Pompano Beach,
Florida, midway between Miami and West Palm Beach off of Interstate 95.
The Company was incorporated in Delaware in February 1990 under the name of
Kana Corporation as a vehicle to raise capital for the acquisition of or
investment in a business enterprise. In April 1992 the name of the Company was
changed to Anubis II Corporation ("Anubis"). In June 1992, Riverboat
Corporation of Mississippi (the "Biloxi Gaming Subsidiary"), Riverboat Services,
Inc. (the "Consulting Subsidiary") and Casino Career Training Center, Inc. (the
"Training Subsidiary") became wholly owned subsidiaries of Anubis via stock-for-
stock exchanges (collectively, the "Reorganization"). Prior to the
Reorganization, the Biloxi Gaming Subsidiary and the Consulting Subsidiary were
owned by Bernard Goldstein and members of his family and the Training Subsidiary
was owned by Messrs. James E. Ernst and Allan B. Solomon. In connection with
the Reorganization, Anubis changed its name to Casino America, Inc., and Messrs.
Goldstein, Ernst and Solomon took over management of the Company.
At the time of the Reorganization, the Biloxi Gaming Subsidiary was
developing the Isle-Biloxi; the Consulting Subsidiary provided riverboat and
dockside casino consulting services to a related party; and the Training
Subsidiary provided training for casino employees in connection with gaming
activities.
The Biloxi Gaming Subsidiary currently owns and operates the Isle-Biloxi.
Riverboat Corporation of Mississippi-Vicksburg, a wholly owned subsidiary of the
Company, currently owns and operates the Isle-Vicksburg. Louisiana Riverboat
Gaming Partnership ("LRGP"), a general partnership in which wholly owned
subsidiaries of the Company are the sole partners, owns and operates the Isle-
Bossier City. St. Charles Gaming Company ("SCGC") and Grand Palais Riverboat,
Inc. ("GPRI") each own a riverboat casino and operate jointly at the Isle-Lake
Charles. The Consulting Subsidiary provides riverboat and dockside casino
consulting and management services. The Company and its operating subsidiaries
now train their casino employees on an ongoing basis and the Training Subsidiary
is inactive.
2
STRATEGY
The Company's business strategy, which has been implemented in its existing
operations, emphasizes the operation and development of value-oriented gaming
facilities and complementary amenities with a tropical island theme using the
"Isle of Capri Casino" brand name. Management believes that the consistent use
of the Isle of Capri Casino name and associated theme has created a readily
identifiable brand image connoting excitement, quality and value, complemented
by the Company's emphasis on customer service and non-gaming entertainment
amenities. The Company seeks to identify slot-oriented customers and active
casino patrons through its use of database marketing and generate repeat
visitors to the Company's gaming facilities. Management believes that its
strategy fosters customer loyalty, enhances the Company's ability to compete
effectively in its existing markets, and facilitates the efficient and cost-
effective development of gaming facilities in new markets. The Company also
believes that good community relations are fundamental to its success and, as a
result, takes an active role in community activities in each jurisdiction in
which it has gaming facilities.
The Company has historically identified and entered new gaming markets which
it believes provide attractive long-term opportunities, sometimes entering those
markets with the assistance of a joint venture partner. The Company has
consolidated its ownership interests in its existing facilities and anticipates
that most of its near-term focus will be on expanding those facilities and
pursuing other development opportunities. The Company anticipates adding
complementary amenities, such as hotels and additional restaurants at its
existing facilities, in order to compete effectively in its markets and provide
customers with a complete entertainment and resort experience designed to
increase a customer's length of stay at and use of the Company's facilities. The
Company also expects to continue reviewing gaming opportunities in new markets
on the basis of demographic, regulatory, competitive and other factors. The
Company's strategy when entering new markets has been to develop its projects in
phases when appropriate. By reducing the amount of its initial capital
commitment, the Company is able to utilize cash flow from operations to help
fund subsequent phases and increase the funds available for its other projects.
Phased development also allows the Company to better assess market size,
customer preferences and competitive factors and adapt the nature and scope of
new facilities accordingly. The Company's strategy of making investments through
joint ventures may be implemented in connection with the development of its
existing properties and the entry into new gaming markets if the Company
believes that such a strategy is appropriate, and if it is able to identify
suitable joint venture partners which provide supplemental expertise and
resources. In that regard, the Company has formed a joint venture with Nevada
Gold & Casinos, Inc. for the development of a casino facility in Black Hawk,
Colorado. The joint venture, subject to certain conditions and pending the
obtaining of satisfactory financing, intends to develop a facility containing
approximately 1,100 slot machines, 25 blackjack and poker tables, restaurants, a
parking garage containing in excess of 1,000 spaces and other related amenities.
The Company will own approximately 55% of the joint venture and has entered into
an agreement to manage the facility developed by the joint venture for a fee.
MARKETING
The Company attracts customers to its casinos by designing and implementing
marketing strategies and promotions that emphasize their tropical island theme
and promote repeat visitation and customer loyalty. For example, the Company
offers membership in its Island Gold Players Club to its customers and "V.I.P."
services to higher wagering and repeat gaming patrons. The Island Gold Players
Club is a promotional activity in which members accumulate points that can be
exchanged for benefits such as casino cash tokens, prizes and complimentary
services. In addition, Island Gold Players Club members receive tournament
priority and monthly newsletters and a daily "free pull" on a slot machine
offering awards up to $100,000. Further, the Company uses the Island Gold
Players Club to track patron slot play and develop a customer database, which
the Company utilizes in its marketing programs. As of April 27, 1997, the
Company had enrolled approximately 2.2 million members in the Island Gold
Players Club.
The Company intends to emphasize food and entertainment amenities to enhance
its customer-friendly
3
atmosphere with a view toward attracting repeat customers. In that regard, the
Company has developed Farraddays', a branded restaurant featuring steak and
seafood and offering upscale dining in a casual, nautical setting designed to
promote an atmosphere of exploration and adventure. The Company has recently
opened a Farraddays' at the Isle-Bossier City and, during fiscal 1998, plans to
open additional Farraddays' facilities at the Isle-Lake Charles, the Isle-
Vicksburg and the Isle-Biloxi. In addition, during fiscal 1997, the Company
opened a 14,000 square foot entertainment facility at the Isle-Lake Charles
which has enabled the Company to offer performances by entertainers including
Wayne Newton and events including live boxing. The Company has also enhanced the
Isle-Vicksburg's non-gaming amenities by expanding an outdoor entertainment area
located at the edge of the Mississippi River. The location of the entertainment
area is such that it offers an exceptional view of the river and enables the
Isle-Vicksburg to offer live performances by entertainers as well as other
events.
To encourage group sales, the Company utilizes bus programs, corporate and
hotel sales programs and golf package programs with hotels and golf courses
located near its casinos. The Company's Biloxi hotel is included in the Holiday
Inn worldwide reservations system which the Company believes provides the hotel
with significant marketing benefits.
The Company has increased its reliance on database marketing in order to best
identify the segments of the population that are most likely to be attracted to
the Company's facilities. Database marketing helps the Company to identify those
customers and potential customers that are most likely to be attracted by the
Company's emphasis on slot machine play. The Company also places significant
emphasis on attracting local residents and seeks to maintain a strong local
identity in each market in which it operates by staging and supporting special
events. The Company further enhances its facilities' appeal to local patrons by
encouraging enrollment in the Island Gold Players Club and offering its members
attractive amenities.
The Company uses television, radio, outdoor and print media to promote its
services and to achieve greater name recognition. To further enhance the Isle of
Capri Casino tropical theme, the Company engaged a well-known actor to narrate
the Company's television and radio advertisements.
CURRENT OPERATIONS
The Isle-Bossier City
The Isle-Bossier City, which commenced operations on May 20, 1994, is one of
only four licensed gaming facilities currently operating in the
Shreveport/Bossier City market, the closest gaming market to the Dallas/Ft.
Worth, Texas metropolitan area. The Isle-Bossier City is located on a 38-acre
site along the Red River approximately 1/4 mile from the Isle of Capri Boulevard
exit off Interstate 20. The Isle-Bossier City consists of a dockside riverboat
casino, a land-based entertainment and support pavilion and parking on-site for
1,200 cars, of which 940 are accommodated in an attached parking garage.
Additional overflow parking is available nearby on weekends. The Isle-Bossier
City features the Company's festive tropical island theme throughout the
facility. The features of the land-based pavilion include towering palm trees,
exotic rock formations and a waterfall. The riverboat also features a tropical
decor, including signage and lighting fixtures. To enhance the tropical island
experience, patrons are served by friendly, attentive support staff dressed in
tropical attire.
The riverboat offers 30,000 square feet of gaming space on three levels with
1,038 slot machines and 52 table games and video poker bars. The approximately
72,200 square-foot land-based pavilion offers a variety of non-gaming amenities,
including three restaurants, a gift shop, an entertainment lounge area, a large
nine-screen television wall featuring sporting events, an Island Gold Players
Club Booth and administrative offices. During fiscal 1997, the Company spent
approximately $4.5 million on improvements at the pavilion which included the
expansion of existing restaurant and entertainment facilities, the addition of a
new water feature and the addition of Farraddays', a 107-seat, nautically themed
restaurant developed by the Company. In addition to Farraddays', restaurant
offerings at the Isle-Bossier City include Calypso's, a 352-seat buffet style
restaurant, and Tradewinds,
4
a 40-seat delicatessen and fast food outlet. In addition, live entertainment is
featured in the Caribbean Cove Showroom, an entertainment facility which can
accommodate up to 500 guests.
The Isle-Bossier City is readily accessible from an exit off Interstate 20
onto Isle of Capri Boulevard, a four-lane road leading directly to the entrance
of the facility. Approaching the Isle-Bossier City, customers enter a multi-lane
porte cochere providing convenient access to free valet parking, an attached
parking garage or surface parking lots.
The Shreveport/Bossier City market is among the leading riverboat gaming
markets in the United States. The Company believes that the Isle-Bossier City
attracts customers from three primary groups: (a) local residents; (b) residents
of northeastern Texas; and (c) residents of the Dallas/Ft. Worth metropolitan
area which has a population of approximately 4.5 million and is located
approximately 180 miles west on Interstate 20. Approximately 550,000 and 1.8
million people live within 50 and 100 miles, respectively, of the Isle-Bossier
City.
The Isle-Bossier City is one of four comparably sized facilities currently
operating in the Shreveport/Bossier City market, all of which opened between
April, 1994 and October, 1996. Overall, there is currently an aggregate of
approximately 120,000 square feet of casino floor space in use in the
Shreveport/Bossier City market.
The Company owns and operates the 234-room Isle of Capri Hotel, located
approximately 2.5 miles east of the Isle-Bossier City on Interstate 20, from
which the Company offers shuttle service to the Isle-Bossier City.
The Shreveport/Bossier City hotel market consists of approximately 5,350
hotel/motel rooms. Hotel occupancy during 1993, prior to the introduction of
gaming, averaged approximately 43.1%. During 1994, occupancy rates rose to
approximately 70.2% with the heaviest demand during the peak summer months.
During 1995, occupancy increased to 72.5% and in 1996, occupancy was
approximately 91.1%. One of the Isle-Bossier City's competitors is currently
constructing a 606-room all-suite hotel, and several of the area's hotels have
incorporated upgrades to their facilities due to the increasing demand for
quality, overnight accommodations. The Company believes that the Isle of Capri
Hotel is well positioned to take advantage of increasing demand in the
Shreveport/Bossier City hotel market.
The Isle-Lake Charles
The Isle-Lake Charles, which commenced operations on July 29, 1995, is one of
two riverboat gaming facilities (each comprised of two licensed riverboats) in
the Lake Charles, Louisiana market and one of three gaming facilities in
southwest Louisiana (a land-based Indian-owned casino is located in Kinder,
Louisiana 35 miles northeast of Lake Charles). On July 12, 1996, the Isle-Lake
Charles began operating its second riverboat casino, the Grand Palais, which
became the fourth licensed riverboat casino in the Lake Charles market. Lake
Charles is currently the closest casino gaming market to Houston, Texas, a
metropolitan area with a population of approximately 4.2 million located
approximately 145 miles west on Interstate 10. The Isle-Lake Charles is located
on a 16-acre site along the Calcasieu River adjacent to Interstate 10 in
Calcasieu Parish, one mile from the City of Lake Charles. The Isle-Lake Charles
commenced operations in July of 1995 with an approximately 27,500 square-foot
riverboat casino which presently contains approximately 24,700 square feet of
gaming space with 892 slot machines and 46 table games on three levels. A
fourth level of that riverboat contains approximately 9,000 square feet of
entertainment space. The Grand Palais consists of an approximately 41,700
square foot riverboat casino containing approximately 24,200 square feet of
gaming space with 944 slot machines and 48 table games on two levels. The Grand
Palais offers a large bar and foyer when customers enter the boat and a spacious
third level where the Company may provide a variety of non-gaming and
entertainment amenities.
The Isle-Lake Charles opened a new $30 million, 105,000 square foot land-based
pavilion in May 1996. The new pavilion is based on a tropical theme, including
rock formations, waterfalls, water arches with jets of water shooting up to 30
feet in the air, ponds with porcelain sea life and flower beds landscaped in the
shape of playing
5
card suits. The expansion of the Isle-Lake Charles' land-based non-gaming
amenities is intended to attract Texas patrons previously drawn to similar
amenities at the land-based casino in Kinder. The pavilion provides panoramic
views of the lake and the city of Lake Charles with separate entrances to each
of the riverboats. In addition, the lighted rooftop rotunda is topped by the
Isle of Capri parrot, reaching approximately 145 feet above the ground and
visible from the interstate.
The new pavilion offers a wide variety of non-gaming amenities, including
Calypso's, a 489-seat buffet style restaurant; Tradewinds grill and restaurant
and Caribbean Cove, which share 220 seats in the pavilion and feature a free,
live Caribbean-themed revue entitled "Island Fever"; the Tropics bar; the Banana
Cabana gift shop and the Island Gold Players Club booth. The pavilion includes a
14,000 square foot activity center, designed for special events, including live
boxing, televised pay-per-view events, concerts, banquets and also includes
meeting facilities and administrative offices. The Isle-Lake Charles provides
free valet parking or free self-parking for more than 2,000 vehicles, including
approximately 1,400 spaces in an attached parking garage from which patrons can
access the pavilion by elevator. The Company is currently developing the Inn at
the Isle, a 240-room hotel, at the Isle-Lake Charles. The hotel is scheduled to
open in September, 1997. The Company is also currently constructing a
Farraddays' restaurant at the Isle-Lake Charles which is scheduled to open in
September 1997.
The Company believes that the Isle-Lake Charles attracts customers from three
primary groups: (a) residents of southeast Texas, particularly from the Houston
metropolitan area which has a population of approximately 4.2 million people,
and is located 145 miles to the west on Interstate 10, and the population
centers of Beaumont, Galveston, Orange and Port Arthur, Texas; (b) local area
residents; and (c) tourists. Approximately 480,000 and 1.6 million people live
within 50 and 100 miles, respectively, of the Isle-Lake Charles. Like the Isle-
Bossier City, a significant portion of the business of the Isle-Lake Charles is
(and will continue to be) derived from residents of Texas, where casino gaming
has not been legalized. See "Regulatory Matters."
The Isle-Lake Charles was the second gaming facility to enter the Lake
Charles, Louisiana market and the third gaming facility to enter the southwest
Louisiana market. Two riverboats, containing an aggregate of approximately
55,000 square feet of casino floor space, are currently operated by Players
International from a single location in the City of Lake Charles approximately
two miles from the site of the Isle-Lake Charles. In addition, a land-based,
Indian-owned casino opened in January 1995 in Kinder, Louisiana, approximately
35 miles northeast of the site of the Isle-Lake Charles. Management believes
that the Isle-Lake Charles has several competitive advantages in the Lake
Charles gaming market. The Isle-Lake Charles, with its location at the western
end of the Lake Charles gaming market, is the first gaming facility reached by
patrons arriving from the west, including Texas. The Company believes that the
Inn at the Isle, once completed, will enable the Company to attract patrons from
Texas, and more effectively compete in the Lake Charles market. Moreover,
management believes that its convenient, free on-site parking facilities further
enhance the advantages of the Isle-Lake Charles' location. The Company believes
that the addition of the Grand Palais to the site of the Isle-Lake Charles has
enabled the Company to more effectively compete with the existing two-boat
operation in Lake Charles and the land-based casino in Kinder. In addition,
although land-based casinos are generally preferred by gaming customers to
riverboat casinos (because of, among other things, the requirement of cruising),
the two-boat operation at the Isle-Lake Charles provides at least one boat at
dockside at all times. Moreover, the land-based casino in Kinder requires a
total of approximately 70 miles more per round trip for patrons from Texas.
The Isle-Biloxi
The Isle-Biloxi, which commenced operations on August 1, 1992, was the first
gaming facility to open in Mississippi. The Isle-Biloxi currently consists of a
50,000 square-foot dockside casino containing 32,500 square feet of gaming space
with 1,200 slot machines and 42 table games on two levels, an adjacent land-
based pavilion, a 367-room hotel and on-site parking for more than 1,100
vehicles. The Company has continuously expanded and upgraded the Isle-Biloxi in
order to enhance its long-term competitive position in the Mississippi Gulf
Coast market. The major components of the expansion and upgrading have been the
addition of a 367-room, 15-story
6
hotel tower and a 32,000 square-foot land-based pavilion providing a variety of
non-gaming amenities and enhancements to the casino. The improvements, which
were completed during fiscal 1996, focused on the transformation of the Isle-
Biloxi into a more customer-friendly resort destination that the Company
believes has resulted in a significant increase in the number of its casino
visitors. The enhancement of the island-themed decor in the casino and the
themed amenities are designed to further increase identification of the Isle of
Capri Casino brand name and distinguish the Isle-Biloxi from its competitors,
most of which offer a distinctive theme in the Mississippi Gulf Coast market.
The 367-room Isle of Capri Casino Crowne Plaza hotel facility and the casino
are directly accessible through the pavilion. The Company believes that the
hotel fills an important niche in the Mississippi Gulf Coast market, which has
been believed to suffer from a lack of quality hotel rooms. The hotel is
included in the Crowne Plaza and Holiday Inn Worldwide reservation system. Named
Crowne Plaza Resort of the Year for 1995, the hotel offers spacious rooms, most
with balconies overlooking Point Cadet Marina, and provides amenities including
meeting rooms, full room service, a heated pool and access to exercise
facilities (which include a jacuzzi, dry sauna and massage facility). The
Company reserves a portion of the rooms for selected casino patrons at all
times. The Isle-Biloxi directly markets to organizations to attract convention
and group traffic, which the Company believes accounted for approximately 10% of
the Isle-Biloxi's casino revenue. The hotel offers more than 15,000 square feet
of meeting space for such events.
The 32,000 square-foot, 50-foot high atrium-style pavilion offers a wide
variety of non-gaming amenities. The pavilion features three dining facilities:
Calypso's, a 280-seat buffet style restaurant; Coral Reef, a 146-seat fine
dining facility; and Tradewinds Grill, where visitors can enjoy a "Cheeseburger
in Paradise," and Caribbean Cove, which together share 88 seats. Calypso's and
Coral Reef provide panoramic views of the Gulf of Mexico and Deer Island. The
Caribbean Cove is an open-air lounge area located at the center of the pavilion,
surrounded by a dramatic fountain and an entertainment stage, which offers
seating for an additional 116 people. The pavilion's entertainment area features
a Las Vegas-style revue, performances of which are scheduled several times
daily. Musical performances by other groups and artists are also scheduled
throughout the day. The pavilion also features Banana Cabana, a gift shop, and a
lounge area designed to provide a comfortable waiting area for bus patrons.
The casino provides customers with the impression of a traditional land-based
casino, rather than that of a floating pavilion casino. Guests approach the
facility on a four-lane ramp divided by a series of cascading waterfalls
featuring four sculptured dolphins and enter a four-lane porte cochere, which
serves as the main valet parking and bus drop off area. The casino is also
directly accessible through an entrance which is situated adjacent to the
primary self-parking areas. The casino is highly visible and directly accessible
from the pavilion and features 40-foot high ceilings and a dramatic waterfall to
enhance the visual experience. Further enhancing the tropical ambiance, music
from the pavilion's entertainment area, which features steel drums and
Caribbean-oriented melodies, is audible throughout the casino.
The Company believes that the Isle-Biloxi attracts customers from four primary
groups: (a) local area residents; (b) Alabama, Florida and Georgia residents,
primarily from along the Gulf Coast; (c) tourists; and (d) residents of
southeastern Louisiana, including those from the New Orleans and Baton Rouge
metropolitan areas. There are approximately 660,000 and 2.9 million people
residing within 50 and 100 miles, respectively, of Biloxi and the Company
believes that this population base has provided a significant portion of the
Isle-Biloxi's business. Biloxi is the easternmost city on the Mississippi Gulf
Coast where casino gaming is presently permitted. As a result, Biloxi is
currently the closest gaming market to Mobile, Alabama, located approximately 45
miles east of Biloxi on Interstate 10. The Company believes that approximately
23% of the Isle-Biloxi's customer base is derived from Alabama, particularly the
Mobile metropolitan area. The Mississippi Gulf Coast, with its 26 miles of white
sand beaches and approximately 18 golf courses open to the public, is a major
regional tourist destination which attracted approximately six million visitors
in 1996. The tourist season is heaviest from May to September, which the Company
believes contributes to some seasonality in the Isle-Biloxi's business.
7
At present, 11 gaming facilities (including the Isle-Biloxi), comprising
approximately 540,000 square feet of casino floor space, are located along the
Mississippi Gulf Coast. Eight facilities are located in Biloxi and collectively
account for approximately 370,000 square feet of casino floor space. Two other
facilities are located in Gulfport, approximately 10 miles west of Biloxi, and
one is located in Bay St. Louis, approximately 30 miles west of Biloxi.
Management believes that the location of the Isle-Biloxi affords it several
significant competitive advantages. The Isle-Biloxi is located on Casino Row, a
cluster of four casinos at the eastern end of U.S. Highway 90, affording
visitors the convenience and visual impact of four gaming facilities located
within walking distance. With its location at the eastern end of Biloxi, Casino
Row is the first area reached by visitors from Alabama, Florida and Georgia. The
facilities at the Isle-Biloxi allow it to more fully realize the benefits of its
superior location. The Company believes that the Isle-Biloxi offers customers a
resort destination, instead of a day-trip site, where customers can extend their
use of the casino.
A number of the Company's competitors in the Mississippi Gulf Coast have
either purchased existing hotels in the area, are presently building, or have
announced plans to build, additional hotels. The Mississippi Gulf Coast hotel
market consists of approximately 9,500 hotel/motel rooms, with the greatest
concentration located in Biloxi and Gulfport. More than 4,000 additional
hotel/motel rooms have been proposed or are currently under construction in the
Mississippi Gulf Coast market, including 1,800 rooms due to open in December,
1998 at the site of the Beau Rivage approximately two miles from the Isle-
Biloxi, and 1,100 rooms due to open in early 1998 at the Imperial Palace,
approximately three miles from the Isle-Biloxi. In addition, Grand Casinos is
in the process of adding a second, 500-room hotel to its Biloxi facility, and
Casino Magic, located next door to the Isle-Biloxi, is presently constructing a
370-room hotel at its property. (See "Risk Factors - Competition"). Hotel
occupancy is generally highest in the peak tourist months between May and
September. In calendar 1996, hotel occupancy rates in the market averaged
approximately 69%. Occupancy at the Isle-Biloxi since the opening of its hotel
in August 1995 has averaged approximately 90%.
The Isle-Vicksburg
The Isle-Vicksburg, which commenced operations on August 9, 1993, was the
first of four gaming facilities to open in the Vicksburg, Mississippi area. The
Isle-Vicksburg is located on a site consisting of approximately 18 acres along
the Mississippi River, approximately one mile north of Interstate 20. The Isle-
Vicksburg originally opened with a riverboat and barge casino containing
approximately 21,000 square feet of gaming space and a temporary land-based
facility. The temporary facilities were subsequently replaced in May 1994 with a
32,000 square-foot dockside casino, a 12,000 square-foot land-based pavilion
containing a variety of non-gaming amenities and administrative offices. The
Isle-Vicksburg provides on-site parking for 900 vehicles, and a 13-acre site
located approximately 1/2 mile from the casino provides off-site parking for 200
vehicles and a 67-space recreational vehicle park.
The land-based pavilion features Calypso's, a 206-seat buffet-style restaurant
(as well as 36 seats on a patio overlooking the Mississippi River), and the
Tradewinds delicatessen, which includes seating for 60 people and live
entertainment. The Company plans to open a Farraddays' restaurant at the site
of the Isle-Vicksburg during fiscal 1998. In addition, other amenities include
a reception area, an Island Gold Club Players booth and a Banana Cabana gift
shop. Patrons are provided easy access to the second level of the floating
pavilion casino from the land-based pavilion by means of either escalator or a
wide stairway which offers patrons panoramic views of the Mississippi River
through a wall of windows. The floating pavilion casino provides a spacious and
exciting gaming environment on two levels containing 802 slot machines and 36
table games, including a poker room with seven tables. The casino features a
tropical island theme and decor including exotic rock formations, cascading
waterfalls, towering palm trees and tropical-themed slot machine signage and
lighting fixtures, the Caribbean's Sports Bar and the High Roller Hut (with $5,
$25 and $100 slots).
The 67-space recreational vehicle park features amenities including a 1,200
square-foot guest services facility, swimming pool and hot tub, shower and
laundry facilities, cable television and telephone capability and a
8
message, fax and mail center. Recreational vehicle park guests receive a
complimentary breakfast, free shuttle service to the Isle-Vicksburg and a casino
coupon book. The recreational vehicle park is heavily marketed through the
casino, an outdoor billboard campaign on major interstates and monthly and
annual advertisements in recreational vehicle park publications. The
recreational vehicle park frequently is fully occupied on weekends and holidays
and offers the Isle-Vicksburg a substitute to a hotel facility.
The Company believes that the Isle-Vicksburg attracts customers from three
primary groups: (a) local and area residents, primarily from Vicksburg and
Jackson, Mississippi; (b) northeastern Louisiana residents; and (c) tourists.
Vicksburg is approximately 45 miles west of Jackson, Mississippi, a metropolitan
area with a population of approximately 420,000. The Isle-Vicksburg is directly
accessible from Jackson on Interstate 20, and a significant portion of the Isle-
Vicksburg's business comes from Jackson residents. Approximately 530,000 and 1.5
million people live within 50 and 100 miles, respectively, of the Isle-
Vicksburg. Vicksburg, a river port city best known as the site of an historic
Civil War battle and the home of the Vicksburg National Military Park and
Cemetery, drew approximately 900,000 visitors in 1996.
The Isle-Vicksburg is one of four gaming facilities currently operating an
aggregate of approximately 105,000 square feet of casino floor space in the
Vicksburg area. The Isle-Vicksburg is the second largest casino in the Vicksburg
area. Other regional casino competition includes one dockside gaming facility in
Natchez, Mississippi (approximately 60 miles south of Vicksburg and 80 miles
southwest of Jackson); three dockside gaming facilities in Greenville,
Mississippi, (approximately 80 miles north of Vicksburg and 90 miles northwest
of Jackson); and a land-based, Indian-owned casino near Philadelphia,
Mississippi (approximately 115 miles northeast of Vicksburg and 70 miles
northeast of Jackson). Management believes that the Isle-Vicksburg enjoys
certain competitive advantages in the Vicksburg gaming market based on its
convenient location. The Isle-Vicksburg is located approximately one mile from
an exit off Interstate 20 which provides easy access from Jackson and the
surrounding areas. Only one other competitor in Vicksburg is located closer to
Interstate 20 than the Isle-Vicksburg. The Isle-Vicksburg also offers ample
parking on-site and immediately adjacent to the facility. Management further
believes that the gaming and non-gaming facilities and the distinctive tropical
theme provide one of the most exciting and spacious gaming environments in the
Vicksburg market.
Pompano Park
On June 30, 1995, the Company acquired Pompano Park, a harness racing track
located in Pompano Beach, Florida, midway between Miami and West Palm Beach.
Pompano Park is the only racetrack licensed to conduct harness racing in
Florida. Pompano Park also broadcasts its racing events through simulcast and
off-track betting facilities. Pompano Park is comprised of approximately 180
acres of owned land used for harness racing operations and 143 acres of leased
land used for training operations. The Company has a four-year option to
purchase the leased land at a cost of $12 million, plus cost of living
adjustments. The Company believes that, because of its size and location,
Pompano Park would be an attractive location for casino gaming if casino gaming
is ever legalized in Florida and the site is available for gaming under
applicable law. Pompano Park competes against numerous other pari-mutuel
facilities, including thoroughbred and dog race tracks and jai alai frontons,
located throughout south Florida. During fiscal 1997, Pompano Park conducted
approximately 187 live racing programs.
In connection with the acquisition of Pompano Park, the Company agreed to pay
to the sellers specified additional consideration if, and for so long as (i)
casino gaming may legally be conducted by the Company at Pompano Park or (ii) as
a result of the purchase of the pari-mutuel license acquired in connection with
the acquisition of Pompano Park, the Company may legally conduct casino gaming
at any other location. The additional consideration would be an amount equal to
$25 million plus 5% of the gaming net win (as defined), payable monthly. The $25
million portion of such amount would be payable $10 million at such time as the
Company receives all licenses, permits or approvals necessary to conduct such
casino gaming operations and $15 million at such time as the Company opens such
a casino gaming facility to the public. The Company's obligation
9
to pay any such additional consideration will terminate if casino gaming has not
been legally permitted at Pompano Park within six years after the closing of the
acquisition of Pompano Park.
Pompano Park can accommodate up to 14,500 customers and parking for up to
4,000 automobiles. The six-story, air-conditioned facility includes a box seat
area, clubhouse and dining room accommodations, a large grandstand area and food
and beverage facilities which range from fast food stands to indoor dining
areas. The grandstand building also contains the Company's executive and
administrative offices. The grounds surrounding the grandstand are extensively
landscaped and the track is easily accessible from surrounding communities from
an extensive freeway system.
Effective January 1, 1997, the Company began operating a limited stakes (with
a maximum $10 pot) poker room at Pompano Park. Such activities do not constitute
casino gaming or create any obligation for additional consideration in
connection with the acquisition of Pompano Park. The Company operates 23 tables
from 5 p.m. to 2 a.m. on each evening that live racing is held at Pompano Park.
The Company must distribute at least 50% of the net proceeds (reflecting its
direct costs of operating poker rooms) to supplement its purses for harness
races and breeders' awards. See "Regulatory Matters--Florida."
Effective July 1, 1996, Pompano Park offers "full card" simulcasting of
harness races from any harness track outside of Florida for wagering at Pompano
Park, even on days in which no races are held at Pompano Park. Florida recently
reduced both its tax rate on retransmission of its simulcast signal from 3.3% to
2.4% of "handle" (i.e., the aggregate contributions to pari-mutuel pools) and
the surcharge applied to simulcast races from $100 per race to a fixed fee of
$500 per day, regardless of the number of races. See "Regulatory
Matters--Florida."
COMPETITION
General
Competition in the gaming industry is intense in the markets where the Company
operates gaming facilities. As new gaming opportunities arise in existing
gaming jurisdictions, in new gaming jurisdictions and on Indian-owned lands, new
or expanded operations by others can be expected to increase competition for the
Company's existing and future operations and could limit new opportunities for
the Company or result in the saturation of certain gaming markets. Casino
gaming does not have a long operating history in the jurisdictions where the
Company operates gaming facilities and, therefore, the effects of competition in
these jurisdictions cannot be predicted with any degree of certainty. Many of
the Company's competitors have more gaming industry experience, are larger and
have greater financial resources than the Company. As a result, increased
competition could have a material adverse effect on the Company. In addition,
management believes that large, well-financed gaming facility operators have
become attracted to Biloxi, and may take interest in other of the Company's
markets as well.
Bossier City Operations
The Isle-Bossier City is one of four comparably sized gaming facilities
currently licensed and operating in the Shreveport/Bossier City market, each of
which has comparable amenities. The Isle-Bossier City will face increased
competition from existing competitors to the extent that they add to or enhance
existing amenities. In that regard, Binion's Horseshoe Casino is currently
constructing a 606-room all-suites hotel at its dockside riverboat casino
location in Bossier City, and a larger riverboat. In addition to existing
competition, the granting of additional gaming licenses in the
Shreveport/Bossier City market or the relocation of existing licenses to that
market from elsewhere in the State of Louisiana would increase competition for
the Isle-Bossier City. In that regard, Hilton recently received approval to
relocate its riverboat from New Orleans to Shreveport to operate as part of a
joint venture with Harrah's. In addition, a joint venture involving Hollywood
Casinos was awarded the
10
last available license to develop a casino in Bossier City. Although the
Louisiana Gaming Control Board subsequently re-opened the application period
with respect to the Hollywood Casinos' license, management believes that the
license will likely be awarded to an operator in the Shreveport/Bossier City
market. Therefore, it is likely, in management's opinion, that up to six
dockside riverboat casinos eventually will be operating in the
Shreveport/Bossier City market, where only four currently operate. In addition,
legislation was passed during the 1997 legislative session which permits up to
15,000 square feet of slot machines to operate at Louisiana Downs, a
thoroughbred racing facility located approximately 6 miles east of the Isle-
Bossier City. Prior to commencing operation of slot machines at the facility,
voter approval in a parish-wide election is required, and the Louisiana
Legislature must pass legislation during a fiscal session assessing a tax on the
slot operations. However, if ultimately approved, such operations may have an
adverse effect on the Isle-Bossier City. Moreover, the legalization of casino
gaming in Texas could have a material adverse effect on the Isle-Bossier City.
Lake Charles Operations
The Isle-Lake Charles is one of two riverboat gaming facilities operating in
the Lake Charles, Louisiana market. The Isle-Lake Charles' riverboat
competitor, Players International, operates two riverboats and a 134-room hotel
facility from a single location in the City of Lake Charles approximately two
miles from the site of the Isle-Lake Charles. In addition, a land-based,
Indian-owned casino with approximately 68,500 square feet of gaming space is
operating in Kinder, Louisiana, approximately 35 miles to the northeast of the
Isle-Lake Charles. Riverboats in the Lake Charles market are subject to
cruising requirements, which makes a land-based casino more desirable to many
gaming customers. Players International and the Company each hold two gaming
licenses and operate two riverboats from a single facility. (Louisiana, unlike
certain other jurisdictions, does not permit license holders to operate a second
boat out of the same location without a gaming license for each boat.) In
addition to existing competition, the granting of additional gaming licenses in
the Lake Charles market or the relocation of existing licenses from elsewhere in
the State of Louisiana to that market would increase competition for the Isle-
Lake Charles. In addition, legislation was passed during the 1997 legislative
session which permits up to 15,000 square feet of slot machines to operate at
Delta Downs, a quarterhorse racing facility located approximately 25 miles west
of the Isle-Lake Charles. Prior to commencing operation of slot machines at the
facility, voter approval in a parish-wide election is required, and the
Louisiana Legislature must pass legislation during a fiscal session assessing a
tax on the slot operations. However, if ultimately approved, such operations
may have an adverse effect on the Isle-Lake Charles. Moreover, the legalization
of casino gaming in Texas would have a material adverse effect on the Isle-Lake
Charles.
Biloxi Operations
Eleven gaming facilities (including the Isle-Biloxi), with an aggregate of
approximately 540,000 square feet of casino floor space, are located along the
Mississippi Gulf Coast. Eight facilities are located in Biloxi and collectively
account for approximately 370,000 square feet of casino floor space. Two of the
other three facilities are located in Gulfport, approximately 10 miles from
Biloxi, and the other is located in Bay St. Louis approximately 30 miles from
Biloxi. Because Mississippi law does not limit the number of gaming licenses
that may be granted, there may be increases in the number of gaming facilities
along the Mississippi Gulf Coast and the surrounding areas, which could have a
material adverse effect on the Isle-Biloxi. In addition, the Company believes
that many of its competitors will add to or enhance their existing amenities and
new competitors will enter the Mississippi Gulf Coast market. Mirage Resorts,
Inc. is currently developing, and has received a gaming license to open, a
casino and resort in Biloxi, at a site approximately two miles from the Isle-
Biloxi. The project, which the Company believes will include an 1,800-room
hotel, is scheduled to open in late 1998. In addition, an "Imperial Palace"
casino and hotel is currently being built and will be located on the Back Bay in
Biloxi, approximately three miles from the Isle-Biloxi. This development is
expected to include a hotel facility containing approximately 1,100 rooms.
Similarly, Grand Casinos is currently constructing a second 500-room hotel at
its site in Biloxi, and Casino Magic is constructing a 370-room hotel at its
location immediately adjacent to the Isle-
11
Biloxi. Furthermore, two gaming companies are seeking the necessary approvals to
develop casinos adjacent to Interstate 10, which if developed, could have an
adverse affect on the Isle-Biloxi's operation. Certain existing and future
competitors have more extensive financial resources than does the Company.
Intense competition on the Mississippi Gulf Coast has contributed to the closure
of three gaming facilities in that area and one other is operating under
bankruptcy protection. In addition, the legalization of casino gaming in Alabama
would increase competition for, and would have a material adverse effect on, the
Isle-Biloxi.
Vicksburg Operations
The Isle-Vicksburg is one of four gaming facilities currently operating an
aggregate of approximately 105,000 square feet of casino floor space in the
Vicksburg area. The Isle-Vicksburg is the second largest casino in the
Vicksburg area. Two competitors have hotels on their site and the competitor
closest to the Isle-Vicksburg has a hotel within 1/2 mile of its casino. (The
Isle-Vicksburg does not contain a hotel, but operates a 67-space recreational
vehicle park located 1/2 mile from its facilities.) Other local casino
competition includes one gaming facility in Natchez, Mississippi (approximately
60 miles south of Vicksburg and 80 miles southwest of Jackson); three gaming
facilities in Greenville, Mississippi (approximately 80 miles north of Vicksburg
and 90 miles northwest of Jackson); and a land-based, Indian-owned casino near
Philadelphia, Mississippi (approximately 115 miles northeast of Vicksburg and 70
miles northeast of Jackson). Because Mississippi does not limit the number of
gaming licenses that may be granted, there may be increases in the number of
gaming facilities in Vicksburg and elsewhere in counties bordering the
Mississippi River, which could have a material adverse effect on the Isle-
Vicksburg. There have been recent reports that Horseshoe Gaming is considering
the development of a casino and hotel in Vicksburg on property currently owned
by Lady Luck Gaming. While the Mississippi statutes specify that gaming may
only be held on the Mississippi River and on navigable waters within counties
bordering the Mississippi River, several controversies have arisen concerning
the exact permissible locations of casinos within this statutory language.
Specifically, there have been several attempts to expand gaming as far east of
the Mississippi River as possible. It is likely that these controversies and
efforts to expand gaming east of the Mississippi River will continue. There is
currently an action pending in a Mississippi state court involving an appeal of
a decision by the Mississippi Gaming Commission denying site approval in
connection with a proposed casino development by Horseshoe Gaming in the eastern
part of Warren County, the county in which the Isle-Vicksburg is located,
between the Isle-Vicksburg and its primary market of Jackson, Mississippi. In
the event sites are approved in the eastern part of Warren County, the Isle-
Vicksburg would be adversely affected.
RECENT DEVELOPMENTS
Issuance of Senior Secured Notes and Debt Refinancing
On August 6, 1996, the Company issued $315 million in aggregate principal
amount of its 12-1/2% Senior Secured Notes due 2003 (the "Notes"). The proceeds
of the issuance of the Notes were used, in part, to retire or defease all of the
Company's 11-1/2% First Mortgage Notes due 2001 in the aggregate principal
amount of $105 million, refinance other indebtedness, and finance the purchase
by the Company of the 50% interest not owned by it in LRGP, which at the time of
purchase owned 50% of the common stock of SCGC.
Management Changes
Effective July 24, 1996, the Company's Chief Operating Officer, Juris Basens,
and its Vice President of Marketing, David Paltzik, resigned from the Company.
In addition, the general manager of the Isle-Vicksburg resigned effective July
23, 1996. President John Gallaway assumed the position of Chief Operating
Officer following Mr. Basens' resignation. Effective August 5, 1996, Edward
Reese joined the Company as Vice President - Construction & Design; effective
March 17, 1997, James Guay joined the Company
12
as Vice President of Marketing; and effective April 7, 1997, Timothy Hinkley,
who had previously been the General Manager of the Isle-Biloxi, became the
Company's Senior Vice President of Operations.
Goldstein Family Equity Purchase and Rights Offering
On March 11, 1996, the Company sold an aggregate of 1,020,940 shares of its
Common Stock, at a price of $5.875 per share, to Bernard Goldstein, the Chairman
and Chief Executive Officer of the Company, and three members of his family (the
"Goldstein Family Equity Purchase"). Proceeds from the sale totaled
approximately $6.0 million. A portion of the proceeds was used to retire
approximately $1.6 million in loans payable to Mr. Goldstein and a related
party, which amount includes accrued interest.
In connection with the Goldstein Family Equity Purchase, the Company issued to
its shareholders (other than those shareholders participating in the Goldstein
Family Equity Purchase), and certain other of its securityholders, rights
("Rights") to purchase up to 4,296,085 shares of Common Stock at the same price,
and in the same pro rata amount, as shares purchased in the Goldstein Family
Equity Purchase (the "Rights Offering"). A total of 3,079,980 shares of Common
Stock were issued in connection with the Rights Offering, resulting in net
proceeds to the Company of approximately $18.1 million.
RECENT ACQUISITIONS
The Company has recently completed the following acquisitions as part of its
overall strategy to consolidate its ownership interests in its gaming
facilities.
LRGP Acquisition
On August 6, 1996, the Company acquired (the "LRGP Acquisition") the remaining
50% interest in LRGP not owned by it from Louisiana River Site Development, Inc.
The consideration for the LRGP Acquisition included (i) $85 million in cash,
(ii) five-year warrants to purchase 500,000 shares of the Company's common stock
at an exercise price of $10.50 per share and (iii) $1.5 million in cash per year
for seven years, payable monthly beginning on October 1, 1998.
Grand Palais Acquisition
On May 3, 1996, the Company purchased all of the outstanding common stock of
GPRI in a bankruptcy proceeding under Chapter 11 of the United States Bankruptcy
Code. GPRI owns the Grand Palais, gaming equipment, certain other furniture,
fixtures and equipment, all necessary gaming licenses issued by the State of
Louisiana, and other permits and authorizations. The aggregate consideration
paid by the Company in connection with the Grand Palais Acquisition was
approximately $60.8 million, consisting of cash in the amount of approximately
$7.5 million, approximately $37.1 million in notes and assumed indebtedness and
2,250,000 shares of Common Stock and five-year warrants to purchase an
additional 500,000 shares of Common Stock at an exercise price of $10.00 per
share. In connection with the acquisition of the Grand Palais, Bernard
Goldstein, the Chairman of the Company, and three of his sons (including Robert
Goldstein, a director of the Company) pledged certain of their assets for the
issuance of a letter of credit to secure the repayment of a portion of the
principal of certain notes issued to effect the Grand Palais Acquisition. The
Company issued to two of Mr. Goldstein's sons (other than Robert Goldstein) a
five-year warrant to purchase 12,500 shares of Common Stock at an exercise price
of $5.875 per share. On July 12, 1996, the Louisiana Gaming Control Board
authorized the commencement of gaming on the Grand Palais and, pursuant to such
approval, the Grand Palais opened on such date.
13
SCGC Acquisition
On May 3, 1996, the Company purchased from Crown Casino Corporation ("Crown
Casino") the remaining 50% interest in SCGC (the other 50% of which is owned by
LRGP), in exchange for 1,850,000 shares of Common Stock, a five-year warrant to
purchase an additional 416,667 shares of Common Stock at an exercise price of
$12.00 per share which can be exercised only by exchanging up to $5 million
principal amount of indebtedness owed to Crown Casino for any such shares, and
the restructuring of certain indebtedness owed to Crown Casino.
FUTURE DEVELOPMENT OPPORTUNITIES
Although the Company intends to focus primarily on the development of its
existing properties in the near term, the Company also intends to continue to
pursue new development opportunities in jurisdictions where gaming has been
legalized and may be legalized in the future. There can be no assurance if or
when necessary approvals for existing or future development opportunities will
be obtained. In addition, there are significant regulatory, financial, business
and other risks inherent in the development, construction and operation of any
new gaming facility. There can be no assurance that the Company will be
successful in dealing with such matters. The Company believes that its operating
experience and its ability to enter new markets quickly will enable it to
compete for new gaming opportunities.
Black Hawk, Colorado
The Company has formed a joint venture with Nevada Gold & Casinos, Inc. for
the development of a casino in Black Hawk, Colorado. The joint venture, subject
to certain conditions and obtaining financing, intends to develop a facility
containing approximately 1,100 slot machines, 25 blackjack and poker tables,
restaurants, a parking garage containing approximately 1,000 spaces and other
related amenities. The Company will own approximately 55% of the joint venture
and will manage the facility developed by the joint venture for a fee. The
project is estimated to cost approximately $100 million and is contingent upon
finding funding for the project that is non-recourse to the Company (other than
with respect to a limited completion guarantee and certain indemnity
obligations) on acceptable terms. The development is expected to take
approximately eighteen months to complete from the commencement of excavation
activities. If the project financing is obtained, the Company currently
anticipates making capital investments into the project totaling approximately
$9 million. Additionally, the Company plans to provide a completion capital
commitment of up to $5 million, if required to enable the facility to commence
operations by April 1, 1999. Gaming in Colorado is subject to significant
limitations, including hours of operation and a $5 betting limit.
Hotel Development Activities
The Company is currently developing the Inn at the Isle, a 240-room hotel
located at the Isle-Lake Charles. The Company presently intends, subject to its
ability to obtain suitable financing, to pursue the construction and
development, either alone or with one or more business partners, of additional
hotel facilities adjacent to the Isle-Bossier City and the Isle-Lake Charles.
In June 1996, the Company entered into a letter of intent, which has since
expired according to its terms, to form a joint venture with a developer of
hotel properties for the purpose of developing, owning and operating hotel
properties. The Company may seek other business partners to assist in
developing and operating hotels at one or more of its gaming facilities or, in
the event the Company does not enter an arrangement to develop, own and operate
hotels with a business partner, the Company intends to develop, own and operate
such facilities alone, provided that the Company is able to obtain acceptable
financing. There can be no assurance that acceptable financing can be obtained,
and the Company's efforts to obtain such financing or joint venture partners, on
terms acceptable to it, have, to date, not been successful.
14
Cripple Creek, Colorado
The Company owns 1.6 acres of land and leases an additional 1.3 acres of land
in Cripple Creek, Colorado for use in connection with a possible gaming
development in Cripple Creek. The property is located at the eastern end of the
Cripple Creek gaming market, and would be the first gaming facility reached by
patrons from Colorado Springs and other areas to the east. The Company may
develop the property with a joint venture partner or alone or sell its interest
in the property.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 6,000 employees. A
marine crew at the Isle-Lake Charles has elected union representation by the
Seafarer's International Union. None of the Company's other employees is subject
to a collective bargaining agreement. The Company believes that its relationship
with its employees is satisfactory.
REGULATORY MATTERS
Mississippi
In June 1990, Mississippi enacted legislation legalizing dockside casino
gaming for counties along the Mississippi River, which is the western border for
most of the state, and the Gulf Coast, which is the southern border for most of
the state. The legislation gave each of those counties the opportunity to hold a
referendum on whether to allow dockside casino gaming within its boundaries.
Mississippi law permits gaming licensees to offer unlimited stakes gaming on a
24-hour basis and to issue house credit for qualifying patrons. The minimum
legal age for gaming is 21. The law does not restrict the amount or percentage
of space on a vessel that may be utilized for gaming.
The legislation also does not limit the number of licenses that the
Mississippi Gaming Commission can grant for a particular area and does not
impose different conditions on different licensees.
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation. The Company was required to
register as a publicly traded holding company under the Mississippi Act. The
Company's gaming operations are subject to regulatory control by the Mississippi
Gaming Commission, the state tax commission (the "Tax Commission") and various
other local, city and county regulatory agencies (hereinafter collectively
referred to as the "Mississippi Gaming Authorities"). Subsidiaries of the
Company (the "Gaming Subsidiaries") have obtained gaming licenses from the
Mississippi Gaming Authorities to operate the Isle-Biloxi and the Isle-
Vicksburg. Effective October 29, 1991, the Mississippi Gaming Commission adopted
gaming regulations applicable to the Company and the Gaming Subsidiaries.
The licenses held by the Gaming Subsidiaries have terms of two years and are
not transferable. New licenses will need to be obtained at the end of each two-
year period. There can be no assurance that new licenses can be obtained. The
Isle-Biloxi received a second license in April 1996 and the Isle-Vicksburg
obtained a second license in February 1997. The Mississippi Gaming Commission
may at any time revoke, suspend, condition, limit or restrict a license or
approval to own shares of stock in the Gaming Subsidiaries for any cause deemed
reasonable by such agency. Substantial fines for each violation of gaming laws
or regulations may be levied against the Gaming Subsidiaries, the Company and
the persons involved. A violation under the gaming license held by a Gaming
Subsidiary may be deemed a violation of all the other licenses held by the
Company.
A Gaming Subsidiary must submit detailed financial, operating and other
reports to the Mississippi Gaming
15
Commission and/or the Tax Commission periodically. Numerous transactions,
including without limitation, substantially all loans, leases, sales of
securities and similar financing transactions entered into by a Gaming
Subsidiary must be reported to or approved by the Mississippi Gaming Commission.
The Company is also required to periodically submit detailed financial and
operating reports to the Mississippi Gaming Commission and furnish any other
information which the Mississippi Gaming Commission may require.
The directors, officers and key employees of the Company and its subsidiaries
who are actively and directly engaged in the administration or supervision of
gaming, or who have any other significant involvement with or influence over the
activities of a Gaming Subsidiary, must be found suitable therefor and may be
required to be licensed by the Mississippi Gaming Commission. The finding of
suitability is comparable to licensing, and both require submission of detailed
personal financial information followed by a thorough investigation. The
applicant is required to pay all costs of investigation. There can be no
assurance that such persons will be found suitable by such commission. An
application for a finding of suitability of an individual may be denied for any
cause deemed reasonable by the issuing agency. Changes in licensed positions
must be reported to the issuing agency. In addition to its authority to deny an
application for a finding of suitability, the Mississippi Gaming Commission has
jurisdiction to disapprove a change in corporate position. If the Mississippi
Gaming Commission were to find a director, officer or key employee unsuitable
for licensing or unsuitable to continue having a relationship with a Gaming
Subsidiary, the Gaming Subsidiary would have to suspend, dismiss and sever all
relationships with such person. The Gaming Subsidiary would have similar
obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a work permit which may be
revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship to, or material
involvement with, the Company may be required to be investigated in order to be
found suitable or be licensed as a business associate of a Gaming Subsidiary.
Key employees, controlling persons or others who exercise significant influence
upon the management or affairs of the Company may also be deemed to have such a
relationship or involvement.
Beneficial owners of more than 5% of the Company's voting securities must be
found suitable by the Mississippi Gaming Commission. Any person who acquires
more than 5% of the voting securities of the Company must report the acquisition
to the Mississippi Gaming Commission. Any beneficial owner of the Company's
voting securities (whether or not a controlling stockholder) may be required to
be found suitable if such commission has reason to believe that such ownership,
without a finding of suitability, would be inconsistent with the declared policy
of the State of Mississippi. If the stockholder who is required to be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners.
Any stockholder found unsuitable and who holds, directly or indirectly, any
beneficial ownership of shares of Common Stock beyond such period of time as may
be prescribed by the Mississippi Gaming Commission may be guilty of a
misdemeanor. Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do so by the
Mississippi Gaming Commission may be found unsuitable. The Company is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder of or to have any other relationship with it, a Gaming
Subsidiary or the Company (a) pays the unsuitable person any dividends or
interest upon any securities of the Gaming Subsidiary or any payments or
distribution of any kind whatsoever, (b) recognizes the exercise, directly or
indirectly, of any voting rights in its securities by the unsuitable person, or
(c) pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances. In
addition, if the Mississippi Gaming Commission finds any stockholder unsuitable,
such stockholder must immediately divest himself of all of such stockholder's
securities in the Gaming Subsidiary and/or the Company.
The regulations provide that a change in control of the Company may not occur
without the prior approval of the Mississippi Gaming Commission. Mississippi law
prohibits the Company from making a public offering of its securities without
the approval of the Mississippi Gaming Commission if any part of the proceeds of
the offering
16
is to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi, or to retire or extend obligations incurred for one
or more such purposes. The Mississippi Gaming Commission has the authority to
grant a continuous approval of securities offerings and has granted such
approval for the Company, subject to an annual renewal thereof.
Regulations of the Mississippi Gaming Commission prohibit certain repurchases
of securities of publicly traded corporations registered with the Mississippi
Gaming Commission, including holding companies such as the Company, without
prior approval of the Mississippi Gaming Commission. Transactions covered by
these regulations are generally aimed at discouraging repurchases of securities
at a premium over market price from certain holders of greater than 3% of the
outstanding securities of the registered publicly traded corporation. The
regulations of the Mississippi Gaming Commission also require prior approval for
a "plan of recapitalization" as defined in such regulations.
The Company is required to maintain in the State of Mississippi current stock
ledgers, which may be examined by the Mississippi Gaming Authorities at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Mississippi Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company also is required
to render maximum assistance in determining the identity of the beneficial
owner.
The Mississippi Act requires that certificates representing shares of Common
Stock bear a legend to the general effect that the securities are subject to the
Mississippi Act and regulations of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has the authority to grant a waiver from the
legend requirement, which the Company has obtained. The Mississippi Gaming
Authorities, through the power to regulate licenses, have the power to impose
additional restrictions on the holders of the Company's securities at any time.
The Mississippi Gaming Commission has enacted regulations requiring that, as a
condition to licensure or subsequent licensure, an applicant provide a plan to
develop infrastructure facilities amounting to 25% of the cost of the casino and
a parking facility capable of accommodating 500 cars. "Infrastructure
facilities" include any of the following: a 250-room hotel, theme park, golf
course, marina, tennis complex, or any other facilities approved by the
Mississippi Gaming Commission, but do not include parking facilities, roads,
sewage and water systems or civic facilities. The Mississippi Gaming Commission
may reduce the number of rooms required in a hotel, where it is shown to the
satisfaction of the Mississippi Gaming Commission that sufficient rooms are
available to accommodate the anticipated number of visitors.
The Company's future gaming operations outside of Mississippi are also subject
to approval by the Mississippi Gaming Commission.
Gaming taxes aggregating 12% of the gross gaming revenues of the Company with
respect to its Biloxi operations and Vicksburg operations are payable to the
State of Mississippi and the cities of Biloxi and Vicksburg. These taxes are
payable monthly. Additionally, license fees and annual fees based on the number
of games made available for play are payable to the State of Mississippi and the
City of Vicksburg and Biloxi.
The laws and regulations permitting and governing Mississippi casino gaming
were recently adopted. Consequently, the interpretation and application of such
Mississippi laws and regulations will evolve over time. Changes in such laws or
regulations could have a material adverse effect on the Company.
Louisiana
In July 1991, the Louisiana legislature adopted legislation permitting certain
types of gaming activity on certain rivers and waterways in Louisiana. The
legislation granted authority to supervise riverboat gaming
17
activities to the Louisiana Riverboat Gaming Commission and the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Louisiana Enforcement
Division"). The Louisiana Riverboat Gaming Commission was authorized to hear and
determine all appeals relative to the granting, suspension, revocation,
condition or renewal of all licenses, permits and applications. In addition, the
Louisiana Riverboat Gaming Commission established regulations concerning
authorized routes, duration of excursions, minimum levels of insurance,
construction of riverboats and periodic inspections. The Louisiana Enforcement
Division was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities.
However, in May 1996, the regulatory oversight of riverboat gaming was
transferred to the Gaming Board. In a special legislative session held in March
and April of 1996, the Louisiana legislature adopted the Louisiana Gaming
Control Law (the "Gaming Control Law"), which is designed to consolidate the
regulatory oversight of four forms of gaming--riverboat, video poker, the land-
based casino in New Orleans, and Indian gaming--into one board, this being the
Gaming Board. The Gaming Board will now oversee all licensing matters for
riverboat casinos, the land-based casino, video poker, and certain aspects of
Indian gaming other than those limited responsibilities reserved to the
Louisiana State Police (the "Louisiana State Police"). The Gaming Board will be
composed of nine voting members appointed by the governor, five of whom have
been appointed. The Gaming Board held its first meeting on July 10, 1996, at
which it adopted a set of emergency rules conferring certain authority to the
Chairman. On July 12, 1996, the Gaming Board (acting through the Chairman)
issued all necessary approvals to operate the Grand Palais and formally
authorized the commencement of gaming on the Grand Palais. Pursuant to that
approval, the Grand Palais opened on July 12, 1996.
The Gaming Control Law abolished the Louisiana Riverboat Gaming Commission,
effective May 1, 1996. Likewise, the Gaming Control Law removed all riverboat
licensing authority from the Louisiana Enforcement Division, reserving to the
Louisiana State Police only the authority to license "non-key gaming employees"
and "nongaming vendors." The Gaming Board will now make all licensing and
permitting determinations--whether for operators, key employees, or
manufacturers and supplier--with regard to riverboat gaming. However, the
Louisiana State Police will continue to be involved broadly in gaming
enforcement, reporting to the Gaming Board. The Gaming Control Law provides that
the Louisiana State Police will continue to conduct suitability investigations,
will continue to audit, investigate, and enforce compliance with standing
regulations, will initiate enforcement and administrative actions, and will
perform "all other duties and functions necessary for the efficient,
efficacious, and thorough regulation and control of gaming activities and
operations under the [Gaming] Board's jurisdiction."
The Gaming Control Law did not abolish the Louisiana Riverboat Economic
Development and Gaming Control Act, which is the 1991 statute that authorized
gaming on certain rivers and waterways in Louisiana (the "Riverboat Act"). The
Gaming Control Law has amended the Riverboat Act to the extent that it has
transferred licensing and regulatory authority to the Gaming Board; otherwise,
the Riverboat Act remains in effect, with the Gaming Board now being authorized
to enforce the Riverboat Act. (For instance, the fifteen licenses that the
Riverboat Act authorizes remain unaffected; the statutory terms of those
licenses remain unaffected; the taxation terms of the Riverboat Act remain
unaffected.) The Gaming Control Law also provides that any rules or regulations
"promulgated by entities whose powers have been transferred to the [Gaming]
Board shall be considered valid and remain in effect until repealed by the
[Gaming] Board...." Accordingly, the rules that the Louisiana Riverboat Gaming
Commission previously adopted still remain in effect. Meantime, the Louisiana
State Police continues to enforce the rules and regulations that the Louisiana
Enforcement Division previously adopted.
The Riverboat Act continues to authorize issuance of up to 15 licenses to
conduct gaming activities on riverboats of new construction in accordance with
applicable law. However, no more than six licenses may be granted to riverboats
operating from any one parish.
In issuing a license, the applicant must be found to be a person of good
character, honesty and integrity and a person whose prior activities, criminal
record, if any, reputation, habits, and associations do not pose a threat to
18
the public interest of the State of Louisiana or to the effective regulation and
control of gaming, or create or enhance the dangers of unsuitable, unfair or
illegal practices, methods and activities in the conduct of gaming or the
carrying on of business and financial arrangements in connection therewith. The
Gaming Board will not grant a license unless it finds that: (i) the applicant is
capable of conducting gaming operations, which means that the applicant can
demonstrate the capability, either through training, education, business
experience, or a combination of the above, to operate a gaming casino; (ii) the
proposed financing of the riverboat and the gaming operations is adequate for
the nature of the proposed operation and from a source suitable and acceptable
to the Gaming Board; (iii) the applicant demonstrates a proven ability to
operate a vessel of comparable size, capacity and complexity to a riverboat so
as to ensure the safety of its passengers; (iv) the applicant submits a detailed
plan of design of the riverboat in its application for a license; (v) the
applicant designates the docking facilities to be used by the riverboat; (vi)
the applicant shows adequate financial ability to construct and maintain a
riverboat; and (vii) the applicant has a good faith plan to recruit, train and
upgrade minorities in all employment classifications.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding 5% or
greater interests in the licensee, and persons exercising influence over a
licensee ("Affiliated Gaming Persons"), are subject to the application and
suitability requirements of the Louisiana gaming law.
The Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following: (i) except in
Shreveport/Bossier City, gaming is not permitted while a riverboat is docked,
other than the 45 minutes between excursions, and during times when dangerous
weather or water conditions exist; (ii) except in Shreveport/Bossier City, each
round-trip riverboat cruise may not be less than three nor more than eight hours
in duration, subject to specific exceptions; (iii) agents of the Louisiana State
Police are permitted on board at any time during gaming operations; (iv) gaming
devices, equipment and supplies may only be purchased or leased from permitted
suppliers; (v) gaming may only take place in the designated gaming area while
the riverboat is upon a designated river or waterway; (vi) gaming equipment may
not be possessed, maintained or exhibited by any person on a riverboat except in
the specifically designated gaming area, or a secure area used for inspection,
repair or storage of such equipment; (vii) wagers may be received only from a
person present on a licensed riverboat; (viii) persons under 21 are not
permitted in designated gaming areas; (ix) except for slot machine play, wagers
may be made only with tokens, chips or electronic cards purchased from the
licensee aboard a riverboat; (x) licensees may only use docking facilities and
routes for which they are licensed and may only board and discharge passengers
at the riverboat's licensed berth; (xi) licensees must have adequate protection
and indemnity insurance; (xii) licensees must have all necessary federal and
state licenses, certificates and other regulatory approvals prior to operating a
riverboat; and (xiii) gaming may only be conducted in accordance with the terms
of the license and the rules and regulations adopted by the Louisiana
Enforcement Division.
An initial license to conduct riverboat gaming operations is valid for a term
of five years. LRGP was issued an initial operator's license by the Louisiana
Enforcement Division with respect to the Isle-Bossier City on December 22, 1993,
and SCGC was issued an initial operator's license by the Gaming Board with
respect to the Isle-Lake Charles on March 14, 1995. The license to operate the
Grand Palais was issued to a previous owner and the Grand Palais ceased
operations as a result of the bankruptcy of GPRI. The Company acquired the Grand
Palais and has been advised by the chief counsel to the Gaming Board that it
will treat the running of the five-year license period as having been suspended
from June 6, 1995 until the date gaming operations commenced on the Grand Palais
(July 12, 1996). The Louisiana gaming law provides that a renewal application
for the period succeeding the initial five-year term of the operator's license
must be made to the Gaming Board on an annual basis. The application for renewal
consists of a statement under oath of any and all changes in information,
including financial information, provided in the previous application.
The transfer of a license or permit or an interest in a license or permit is
prohibited. The sale, purchase, assignment, transfer, pledge or other
hypothecation, lease, disposition or acquisition (a "Transfer") by any person of
securities which represents 5% or more of the total outstanding shares issued by
a corporation that holds a license is subject to Gaming Board approval. A
security issued by a corporation that holds a
19
license must generally disclose these restrictions. Prior Gaming Board approval
is required for the Transfer of any ownership interest of 5% or more in any non-
corporate licensee or for the Transfer of any "economic interest" of 5% or more
in any licensee or Affiliated Gaming Person. An "economic interest" is defined
for purposes of a Transfer as any interest whereby a person receives or is
entitled to receive, by agreement or otherwise, a profit, gain, thing of value,
loan, credit, security interest, ownership interest or other benefit.
Accordingly, approval is being sought with respect to the LRGP Acquisition.
Fees for conducting gaming activities on a riverboat include (i) $50,000 per
riverboat for the first year of operation and $100,000 per year per riverboat
thereafter, plus (ii) 18-1/2% of net gaming proceeds.
A licensee must notify and/or seek approval from the Gaming Board in
connection with any withdrawals of capital, loans, advances or distributions in
excess of 5% of retained earnings for a corporate licensee, or of capital
accounts for a partnership or limited liability company licensee, upon
completion of any such transaction. The Gaming Board may issue an emergency
order for not more than 10 days prohibiting payment of profits, income or
accruals by, or investments in a licensee. Riverboat gaming licensees and their
affiliated gaming persons must notify the Louisiana Gaming Control Board sixty
(60) days prior to the receipt by any such persons of any loans or extensions of
credit, or modifications thereof. The Board is required to investigate the
reported loan, extension of credit, or modification thereof, and to determine
whether an exemption exists on the requirement of prior written approval, and if
not such exemption is applicable, to either approve or disapprove the
transaction. If the Board disapproves, the transaction cannot be entered into
by the licensee or affiliated gaming person. The Company is an affiliated
gaming person of its subsidiaries which hold the licenses to conduct riverboat
gaming at the Isle-Bossier City and the Isle-Lake Charles.
During the 1996 special session of the Louisiana legislature, legislation was
passed which provided for local option elections to be held in November 1996
which gave voters in each parish within the state the opportunity to decide
whether the various forms of gaming permitted under Louisiana law, including
riverboat gaming, were permissible in each parish. In November 1996, voters in
Calcasieu and Bossier parishes, the parishes in which the Isle-Lake Charles and
Isle-Bossier City are located, respectively, voted favorably to permit the
continuation of riverboat gaming.
During the 1996 special session of the Louisiana legislature, legislation was
also enacted placing a constitutional amendment limiting the expansion of gaming
on the ballot for a state-wide election. In October 1996, voters passed the
constitutional amendment. As a result, local option elections are required
before new or additional forms of gaming can be brought into a parish.
During the 1997 regular session of the Louisiana legislature, a bill was
passed which, subject to favorable parish-wide local option elections and
passage of legislation assessing a tax, would permit the operation of up to
15,000 square feet of slot machines at three (3) horse racing facilities in
Louisiana, two of which are located in the parishes in which the Isle-Lake
Charles and the Isle-Bossier City are located. See "Competition - Bossier City
Operations" and "Competition - Lake Charles Operations."
Proposals to amend or supplement Louisiana's riverboat gaming statute are
frequently introduced in the Louisiana state legislature. No assurance can be
given that changes in Louisiana gaming law will not occur or that such changes
will not have a material adverse effect on the Company's business in Louisiana.
Florida
On June 15, 1995, the Florida Department of Business and Professional
Regulation, acting through its division of pari-mutuel wagering (the
"Division"), issued its final order (the "Order") approving PPI, Inc. ("PPI"), a
wholly owned subsidiary of the Company, as a pari-mutuel wagering permit holder
with respect to
20
harness and quarter horse racing at Pompano Park. Pursuant to the Order and the
relevant provisions of Chapter 550 of the Florida Statutes and the applicable
rules and regulations thereunder (the "Florida Statute"), PPI also was granted a
license to conduct harness racing at Pompano Park for the racing season
commencing July 1, 1995 and ending June 30, 1996 on a total of 198 evening
racing dates. The Division has approved PPI's license to conduct a total of 183
live evening racing performances for the season beginning July 1, 1996 to June
30, 1997. PPI intends to seek approval to increase the number of live evening
races. Although PPI does not presently intend to conduct quarter horse racing
operations at Pompano Park, it may do so in the future, subject to Division
approval. The transfer of 10% or more of stock of a pari-mutuel racing permit
holder such as PPI would require the prior approval of the Division.
The Florida Statute establishes minimum purse requirements for breeders and
owners, license fees and the tax structure on pari-mutuel permit holders. The
Division may revoke or suspend any permit or license upon the willful violation
by the permit holder or licensee of any provision of the Florida Statute. In
lieu of suspending or revoking a permit or license, the Division may impose
various civil penalties against the permit holder or licensee. Penalties so
imposed may not exceed $1,000 for each count or separate offense.
Pursuant to Division order and recent enactments to the Florida Statute, PPI
is also authorized to conduct full-card pari-mutuel wagering at Pompano Park on
simulcast harness races from outside Florida throughout the racing season and on
night thoroughbred races within Florida if the thoroughbred permitholder has
decided to simulcast night races. Pompano Park has been granted the exclusive
right in Florida to conduct full-card simulcasting of harness racing on days in
which no live racing is held at Pompano Park, although, on such days, Pompano
Park must offer to rebroadcast its simulcast signals to other pari-mutuel
facilities (other than thoroughbred parks). In addition, Pompano Park may
transmit its live races into any dog racing or jai alai facility throughout
Florida, including Dade and Broward counties, for intertrack wagering. The
Florida Statute establishes the percentage split between Pompano Park and the
other facilities receiving such signals. Recent legislation in Florida provided
certain reductions in applicable tax and license fees related to intertrack
wagering on broadcasts of simulcast harness racing and thoroughbred racing. The
Company believes that simulcast rights at Pompano Park and the recent changes in
the Florida Statute are important to the results of operations of PPI.
Effective January 1, 1997, the Florida Statute permits pari-mutuel facilities
to be licensed by the Division to operate card rooms in those counties in which
a majority vote of the County Commission has been obtained and a local ordinance
has been adopted. Card rooms can only be operated at pari-mutuel facilities on
days that the facility is running live races. The hours of operation extend from
two hours before the post time of the first live race and continue until two
hours after the conclusion of the last live race at the racing facility.
Thoroughbred racing facilities must choose between operating card rooms or
simulcasting night races from outside the state, but cannot do both (and if
electing to simulcast night races, they will be required to retransmit the night
simulcast signal to certain other pari-mutuel facilities, including Pompano
Park).
The card room operator is the "house" and will deal the cards. The house can
charge a fee per player or establish a "rake" for each game. The only card games
that have been authorized are "nonbanking" games (i.e., those in which the house
is not allowed to play against the players). The winnings of any player in a
single round, hand or game may not exceed $10.00 and all card games must be
played with tokens or chips.
Card rooms may be operated and managed on behalf of the parimutuel permit
holder by card room management companies, which specifically require a special
license from the Division. Similarly, all employees of the card room management
company or the card room operator need to obtain a specific occupational license
($50 per license) from the Division before they can work in the card room. There
is no statutory limit on the number of card tables allowed in a card room,
however, the annual license fee for the first card table is $1,000 and $500 for
each table thereafter. The card room's annual occupational license fee is $250.
Each card room operator is required to pay a tax of 10% of the card room
operator's monthly gross receipts from card room operations. "Gross receipts"
is defined as the total amount of money received by a card room from any person
for participation in authorized games. At least 50% of the monthly "net
proceeds," if any, at
21
Pompano Park must be distributed as follows: 47% to supplement purses for
harness racing, and 3% to supplement breeders' awards during the next ensuring
race meet. "Net proceeds" are the total amount of gross receipts received by a
card room operator from card room operations, less direct operating expenses as
defined in the statute.
The Division is currently promulgating rules to give effect to the foregoing
provisions of the Florida Statute.
Texas and Alabama Legalization Potential
Casino gaming is currently prohibited in several jurisdictions adjacent to
Louisiana and Mississippi. As a result, residents of these jurisdictions,
principally Texas and Alabama, comprise a significant portion of the customers
of the Isle-Bossier City and the Isle-Biloxi, respectively. It is anticipated
that residents of Texas will comprise a significant portion of the customers of
the Isle-Lake Charles.
Although casino gaming is not currently permitted in Texas and the Texas
Attorney General has issued an opinion that gaming in Texas would require an
amendment to the Texas Constitution, the Texas legislature has considered
various proposals to authorize casino gaming. No gaming legislation was enacted
in the most recent legislative session ended May 29, 1995. If the Texas
legislature (which meets every two years in odd-numbered years) does not enact
legislation to amend the Texas Constitution in a special session, the next
opportunity for the enactment of such legislation would be in 1997. Although
special sessions may be called by the Texas Governor for matters that were
pending in the preceding regular legislative session, Texas Governor George Bush
has publicly opposed the legalization of gaming in Texas. A constitutional
amendment would require a two-thirds vote of those present and voting in each
house of the Texas legislature and approval by the electorate in a referendum.
The legalization of casino gaming in Texas at or near the primary market areas
of the Isle-Bossier City or the Isle-Lake Charles, including the Dallas/Ft.
Worth and Houston areas, would have a material adverse effect on the Company.
Casino gaming is currently illegal in Alabama due to a constitutional
prohibition against lotteries. Several attempts have been made to pass a
resolution of the Alabama legislature providing for a statewide referendum on
the repeal of the pertinent section of the Alabama Constitution prohibiting
lotteries. This action would require a three-fifths vote of each house of the
legislature, followed by a statewide referendum. Both the Governor and the
Attorney General of Alabama have stated their opposition to legalized casino
gaming, even though pari-mutuel wagering and limited charitable bingo exist
within the state. The legalization of casino gaming in Alabama would have a
material adverse effect on the Isle-Biloxi, both because the Mobile metropolitan
area is a major market for the Isle-Biloxi and because a substantial portion of
the Isle-Biloxi's customers are residents of areas east of Mobile, including
Florida and Georgia, and pass though the Mobile area when traveling to Biloxi.
NON-GAMING REGULATION
The Company is subject to certain federal, state and local safety and health,
employment and environmental laws, regulations and ordinances that apply to non-
gaming businesses generally, such as the Clean Air Act, Clean Water Act,
Occupational Safety and Health Act, Resource Conservation Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act and the Oil
Pollution Act of 1990. The Company has not made, and does not anticipate making,
material expenditures with respect to such environmental laws and regulations.
However, the coverage and attendant compliance costs associated with such laws,
regulations and ordinances may result in future additional costs to the
Company's operations. For example, in 1990 the U.S. Congress enacted the Oil
Pollution Act of 1990 to consolidate and rationalize mechanisms under various
oil spill response laws. The Department of Transportation has promulgated
regulations requiring owners and operators of certain vessels to establish
through the Coast Guard evidence of financial responsibility for clean-up of oil
pollution. This requirement has been satisfied by proof of adequate insurance.
22
The riverboats operated by the Company in Louisiana must comply with U.S.
Coast Guard requirements as to boat design, on-board facilities, equipment,
personnel and safety. The riverboats must hold Certificates of Documentation and
Inspection issued by the U.S. Coast Guard. The U.S. Coast Guard requirements
also set limits on the operation of the riverboats and require individual
licensing of certain personnel involved with the operation of the riverboats.
Loss of a riverboat's Certificate of Documentation and Inspection could preclude
its use as a riverboat casino.
Any permanently moored vessel used for casino operations in Mississippi must
meet the fire safety standards of the Mississippi Fire Prevention Code and the
Life Safety Code and the Standards for the Construction and Fire Protection of
Marine Terminals, Piers and Wharfs of the National Fire Protection Association.
Additionally, any establishment to be constructed for dockside gaming must meet
the Southern Building Code or the local building code, if such a local building
code has been implemented at the casino's site.
While permanently moored vessels, such as the Isle-Biloxi and the Isle-
Vicksburg casino barges, are not required to hold Certificates of Inspection
from the U.S. Coast Guard, the Mississippi Gaming Commission has engaged the
American Bureau of Shipping (the "ABS") to inspect and certify all casino barges
with respect to stability and single compartment flooding integrity, in
accordance with Mississippi regulations. All casino barges must be inspected
prior to licensing every two years. Inspections subsequent to initial licensing
must be performed by the ABS or other company approved by the Gaming Commission.
All shipboard employees of the Company, even those who have nothing to do with
its operation as a vessel, such as dealers, waiters and security personnel, may
be subject to the Jones Act which, among other things, exempts those employees
from state limits on workers' compensation awards.
ITEM 2. PROPERTIES.
The Company owns the three floating pavilions at the Isle-Biloxi location as
well as the floating pavilion at the Isle-Vicksburg location. LRGP owns the
riverboat casino at the Isle-Bossier City location. SCGC and GPRI, respectively,
own the riverboat casinos at the Isle-Lake Charles. The Company also owns or
leases all of its gaming and non-gaming equipment.
The Company leases its executive offices in Biloxi, Mississippi pursuant to
two leases. The first term of the first lease terminates on July 20, 1997.
Monthly rent is $2,442 plus an annual increase of 4%. The Company has the option
to renew for two additional three-year periods. The first term of the second
lease terminates on May 17, 1997. Monthly rent is $3,333 plus an annual increase
of 4%. The Company has the option to renew for two additional three-year terms.
The Company leases the Biloxi berth (the "Berth Lease") from the Biloxi Port
Commission at an initial annual rent of the greater of $500,000 (the "Minimum
Rent") or 1% of the gross gaming revenues received from the operations at the
site, net of state and local gaming taxes. The lease terminates on July 1, 1999,
but is renewable at the option of the Company for eight additional terms of five
years each. For each of the renewal terms, the amount of the Minimum Rent is
adjusted to reflect any increase in the cost of living index, limited to 6% for
each renewal period.
The Company leases land-based facilities in Biloxi from the City of Biloxi
(the "Casino Lease") at an annual rent of (i) $500,000 per year (the "Base
Rent"), plus (ii) 3% of the gross gaming revenues received from the operations
at the site, net of state and local gaming taxes and fees, in excess of $25
million. The lease terminates on July 1, 1999 but is renewable at the option of
the Company for six additional terms of five years each and a seventh option
renewal term, concluding on January 31, 2034. For each of the renewal terms, the
amount of the Base Rent is adjusted to reflect any increase in the Consumer
Price Index limited to 6% for each renewal period. The Company was required to
make certain parking, landscaping, utilities and other related improvements,
23
amounting to $1.4 million, the payments for which are being applied as a rent
credit ratably over the initial term of the Casino Lease. In addition, in order
to lease the property subject to the Casino Lease, the Company acquired the
leasehold interest of Coastal Cruise Lines, Inc. and The Factory, Inc., the
original lessee, for consideration of $1,000,000 per year for ten years
resulting in monthly installments of $83,333.
In April 1994, the Company entered an Addendum to the Casino Lease, which
requires the Company to pay 4% of gross non-gaming revenues received from
operations at the Isle-Biloxi, net of sales tax, comps and discounts. Additional
rent will be due to the City of Biloxi for the amount of any increase from and
after January 1, 2016 in the rent due to the State Institutions of Higher
Learning under a lease between the City of Biloxi and the State Institutions of
Higher Learning (the "IHL Lease") and for any increases in certain tidelands
leases between the City of Biloxi and the State of Mississippi.
In April 1994, in connection with the construction of a hotel, the Company
entered a lease for additional land adjoining the Isle-Biloxi. The Company first
acquired the leasehold interest of Sea Harvest, Inc., the original lessee, for
consideration of $8,000 per month for a period of ten years. The Company's lease
is with the City of Biloxi, Mississippi, for an initial term of 25 years, with
options to renew for six additional terms of 10 years each and a final option
period with a termination date commensurate with the termination date of the IHL
Lease, but in no event later than December 31, 2085. Annual rent (which includes
payments to be made pursuant to the purchase of a related leasehold interest) is
$404,000, plus 4% of gross non-gaming revenue, as defined. The annual rent is
adjusted after each five-year period based on increases in the Consumer Price
Index, limited to a 10% increase in any five-year period. The annual rent will
increase 10 years after the commencement of payments pursuant to a termination
of lease and settlement agreement to an amount equal to the sum of annual rent
had it been $500,000 annually plus adjustments thereto based on the Consumer
Price Index.
In June 1993, the Company entered into a lease for the exclusive use of
approximately 133 parking spaces and the additional use of 169 spaces in another
parking lot from the hours of 6:00 p.m. to 6:00 a.m. daily on property adjacent
to the Isle-Biloxi. The rent is $50,000 per year and the lease expires in June
1997. The Company has also entered a joint venture arrangement to sub-lease
property for the construction of a two-level parking garage next to the Isle-
Biloxi. The Company pays 50% of the rent, which is (i) $96,000 per year until
November 2000 to acquire the leasehold interest of the original lessee of the
property, plus (ii) $25,000 per month to the City of Biloxi, the lessor, plus
annual increases attributable to the Consumer Price Index (limited to 3% per
rental year) until the first option renewal period ends on November 30, 1995
and, thereafter, $25,000 per month, plus annual increases attributable to the
Consumer Price Index (limited to 3% per rental year) until the second option
renewal period ends on November 30, 2000. If the property is leased to a third
party, with the consent of the Company and its joint venture partner, for use of
the property as a gaming site, certain expenses, up to a maximum of $940,000,
will be refunded.
The Company owns approximately 13.1 acres of land in the City of Vicksburg,
Mississippi for use in connection with the Isle-Vicksburg. The Company owns an
additional 13 acres in Vicksburg on which it has off-site parking for 260
vehicles and operates a 67-vehicle recreational vehicle park. The Company
entered a lease for approximately five acres of land adjacent to the Isle-
Vicksburg to be used for additional parking.
The Company owns approximately 38 acres in Bossier City, Louisiana for use in
connection with the Isle-Bossier City, and owns a 234-room hotel located on
approximately 10.5 acres of land on Interstate 20 in Bossier City, Louisiana.
The hotel is located 2.5 miles east of the Isle-Bossier City and five miles west
of the Louisiana Downs horse racing track.
The Company owns approximately 180 acres, and leases an additional 143 acres,
at Pompano Park. The lease ends on July 1, 1999. The annual rent is $1.00 plus
all maintenance and operating expenses of the premises. The Company has the
exclusive option to purchase the premises during the term of the lease for not
less than $12 million.
The Company also owns two additional riverboat casinos and one floating
pavilion that are currently held for
24
sale. The riverboat casinos and the floating pavilions were previously used by
the Company at the Isle-Biloxi and one of the riverboats and the floating
pavilion were previously used by the Company at the Isle-Vicksburg.
SCGC owns approximately 2.7 acres and leases approximately 10.5 acres of land
in Calcasieu Parish, Louisiana for use in connection with the Isle-Lake Charles,
which it also intends to use in connection with the Grand Palais. The lease
commenced on March 24, 1995 and has an initial term of five years. The annual
rent on the leased property is $750,000 for the first four years and $900,000
for the fifth year of the initial term. The Company has the option to renew the
lease for seven additional terms of five years each. For the first renewal term,
the rent increases each year by 5% or the percentage increase in the average
consumer price index for Calcasieu Parish, Louisiana for the previous 12 month
period, whichever is higher. Rent for the second and all subsequent renewal
terms will be no less than the rent for the last year of the preceding term,
subject to market adjustments upward based upon the rent paid by other riverboat
gaming operators in Louisiana and Mississippi for comparable property usages.
The rent for the fourth and all subsequent renewal terms will not be less than
$1.5 million per year. The Company also leases an additional 5.75 acres of land
in Calcasieu Parish. The lease commenced on July 17, 1995 and has an initial
term of five years. The annual rent on the leased property is $100,000 for the
initial term. The Company has the option to renew the lease for seven additional
terms of five years each. For the first renewal term, the rent increases each
year by 5% or the percentage increase in the average consumer price index for
Calcasieu Parish, Louisiana for the previous 12-month period, which ever is
higher. Rent for the second and all subsequent renewal terms will be no less
then the rent for the last year of the preceding term, subject to market
adjustments upward based upon the rent paid by other riverboat gaming operators
in Louisiana and Mississippi for comparable property usage.
The Company owns 1.6 acres and leases 1.3 acres of land in Cripple Creek,
Colorado. The lease has an initial term of 25 years, with options to renew for
seven additional terms of 10 years each. Annual rent under the lease for the
first year of the lease is $250,000 and increases at the rate of $10,000 per
year to a maximum annual rent of $300,000. The amount of the rent is also
adjusted seven years after the rent commencement date and every two years
thereafter to reflect any increase in the Consumer Price Index (limited to 4%
for each year), applied cumulatively and in the aggregate. The Company has an
option to purchase the leased land at a price, depending on the date of
exercise, of $3.2 million to $5.0 million, or $5.0 million as adjusted by
increases in the Consumer Price Index if exercised after the year 2009.
Substantially all of the Company's property is presently pledged as collateral
for the Senior Secured Notes. See Note 4 of Notes to Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named, along with two gaming equipment suppliers, 41 of
the country's largest gaming operators and four gaming distributors (the "Gaming
Industry Defendants") in a consolidated class action lawsuit pending in Las
Vegas, Nevada. The suit alleges that the Gaming Industry Defendants 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, as well as the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. The actions are in the early stages of discovery and
preliminary motions. 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.
The Company has challenged a Louisiana statute which, effective January 1,
1996, would permit the Bossier Parish Police Jury to levy an additional 50 cent
boarding fee per passenger against LRGP. The Company's challenge of the statute
was denied at the state trial court level, however, the Company has appealed
that decision.
25
No briefing schedule has been set by the appellate court; therefore, the Company
is unable at this time to determine whether it will ultimately be successful in
its appeal. If the Company is ultimately unsuccessful in its appeal, it would
have a liability, as of April 27, 1997, of approximately $2.3 million for prior
unpaid boarding fees, plus a continuing 50 cent fee per passenger at the Isle-
Bossier City. As of April 27, 1997, the Company has fully accrued for this
contingent liability, and the Company is continuing to accrue for these boarding
fees as incurred.
The Company and its Chairman, Bernard Goldstein, were named as defendants in a
lawsuit entitled "Martin B. Greenberg v. Casino America, Inc. and Bernard
Goldstein, individually" which was filed on January 23, 1997 in the United
States District Court for the Southern District of Florida, Fort Lauderdale
Division. The lawsuit alleges that the Company breached a contract of
employment between Mr. Greenberg and the Company in connection with Mr.
Greenberg's employment as chairman of the Company's Pompano Park subsidiary.
The suit makes a claim for damages against the Company, and against its
Chairman, in an unspecified amount. The action is in the early stages of
discovery and preliminary motions; therefore, the Company is unable to determine
at this time what effect, if any, the suit would have on its financial position
or results of operations.
The Company is engaged in various matters of litigation and has a number of
unresolved claims pending. While the ultimate liability with respect to such
litigation and claims cannot be determined at this time, it is the opinion of
management that such liability is not likely to be material to the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the Company's 1997 fiscal year.
26
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information. The following table sets forth, for the calendar
periods indicated, (a) the high and low bid quotations for the Common Stock as
reported on the Nasdaq Small-Cap Market until May 10, 1993 and (b) the high and
low sale prices on the Nasdaq National Market thereafter. The quotations
reflect interdealer prices, without retail mark-up or commissions, and may not
necessarily represent actual transactions. All prices listed have been adjusted
to reflect the Company's three-for-two stock dividend distributed in June 1993
and the Company's three-for-two stock dividend distributed in April 1994.
Fiscal Year Ended April 30, 1996
First Quarter.................... 17.50 13.25
Second Quarter................... 16.00 6.50
Third Quarter.................... 8.00 5.12
Fourth Quarter................... 8.38 5.38
Fiscal Year Ended April 27, 1997
First Quarter.................... 9.75 5.75
Second Quarter................... 7.38 4.38
Third Quarter.................... 5.13 2.56
Fourth Quarter................... 3.38 1.75
Fiscal Year Ending April 28, 1998
First Quarter (through July18, 1997).. 2.82 1.94
(b) Holders of Common Stock. As of July 18, 1997, there were 712 holders of
record of the Common Stock.
(c) Dividends. The Company has never paid any dividends with respect to its
Common Stock and the current policy of the Board of Directors is to retain
earnings to provide for the growth of the Company. In addition, the
Company's indenture with respect to the Senior Secured Notes limits, and
the indenture with respect to the Notes will limit, the Company's ability
to pay dividends. See "Item 8 -- Financial Statements and Supplementary
Data -- Casino America, Inc. -- Notes to Consolidated Financial Statements
-- Note 4." Consequently, no cash dividends are expected to be paid on the
Common Stock in the foreseeable future. Further, there can be no assurance
that the current and proposed operations of the Company will generate the
funds needed to declare a cash dividend or that the Company will have
legally available funds to pay dividends. In addition, the Company may
fund part of its operations in the future from indebtedness, the terms of
which may prohibit or restrict the payment of cash dividends. If a holder
of Common Stock is disqualified by the regulatory authorities from owning
such shares, such holder will not be permitted to receive any dividends
with respect to such stock. See "Item 1--Business--Regulatory Matters."
27
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial information has been derived from
the consolidated financial statements of the Company and should be read in
conjunction with the consolidated financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K.
Year Year Year Year Year
ended ended ended ended ended
April 27, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $ 375,602 $ 157,963 $ 127,537 $ 144,633 $ 58,664
Operating income 28,523 2,378 20,154 39,915 17,587
Income (loss) before
income taxes and extra-
ordinary item (10,354) 4,888 30,012 31,555 15,451
Net income (loss) (21,051) 1,555 18,069 20,353 10,042
Net income (loss) before
before extraordinary item per
common and common equivalent share
Primary (.39) .10 1.16 1.28 .71
Fully diluted (.39) .10 1.15 1.28 .68
- -------------------------------------------------------------------------------------------------------------------------
April 27, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (IN THOUSANDS)
Total Assets $ 528,421 $ 226,474 $ 211,899 $ 176,538 $ 58,484
Long-term debt including
current portion 379,522 139,778 138,857 126,649 34,051
Stockholders' equity 77,973 50,270 42,015 23,650 14,945
28
ITEM 7. 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 consolidated financial statements, including the notes
thereto, included elsewhere in this Form 10-K.
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 develop a casino as the Isle-Black Hawk in Black Hawk,
Colorado and 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 resulting from a failure to obtain necessary approvals, and
the Company's limited experience in developing hotel operations. Other
important factors that could cause the 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 fiscal year ended April 27, 1997
reflect the consolidated operating results from all of the Company's
subsidiaries, including the Isle-Biloxi, the Isle-Vicksburg, the Isle-Bossier
City, the Isle-Lake Charles and Pompano Park, Inc. ("PPI"). The LRGP
Acquisition consummated on 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 beginning in the quarter ended October
31, 1996. 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 periods subsequent to
the LRGP Acquisition are not readily comparable to the results of operations
from periods prior to the LRGP Acquisition 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 has operated two riverboats since July 12, 1996 as a result of the GPRI
Acquisition. In addition, the land-based pavilion at the Isle-Lake Charles was
expanded in May of 1996. Because of the lack of comparable information on a
consolidated basis, the following discussion will focus on certain events that
affected the Company's consolidated operations during the fiscal year ended
April 27, 1997 and comparable data on a location basis. The Company's results
of operations for the fiscal year ended April 30, 1996 reflect the Company's
equity in income of the Isle-Bossier City and the Isle-Lake Charles, which
commenced operations on May 20, 1994 and July 29, 1995, respectively. In
addition, the fiscal 1996 results of operations were impacted by the substantial
expansion of the Isle-Biloxi, which included the addition of a hotel and
enhancements to the land-based pavilion and the casino, completed in August 1995
and the acquisition of Pompano Park in June 1995.
The Company believes that the results of operations for the fiscal years ended
April 27, 1997, April 30, 1996 and April 30, 1995 may not be indicative of the
results of operations for future periods primarily 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.
29
RESULTS OF OPERATIONS
Fiscal Year Ended April 27, 1997 - Consolidated Company
Total revenue for the fiscal year ended April 27, 1997 was $375.6 million
which included $322.7 million of casino revenue, $11.7 million of rooms revenue,
$2.1 million of management fees, $19.4 million of pari-mutuel commissions,
simulcast fees and admissions, and $19.7 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 since August 6, 1996 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
were not reported for the periods subsequent to the date of acquisition because
these amounts were eliminated in consolidation.
Casino operating expenses for the fiscal year ended April 27, 1997 totaled
$64.3 million, or 19.9% of casino revenue versus 21.4% for the fiscal year ended
April 30, 1996. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino. The
improvement in operating expenses as a percentage of casino revenues is
attributed to the Company's expense reduction efforts combined with a shift to
direct response marketing.
Operating expenses for the fiscal year ended April 27, 1997 also included room
expenses of $4.5 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 $61.8
million for the fiscal year ended April 27, 1997, which is consistent with the
each states' applicable gaming tax rate for previous periods.
Pari-mutuel operating costs of Pompano Park totaled $16.0 million in fiscal
1997. Such costs consist primarily of compensation, benefits, purses, simulcast
fees and other direct costs of track operations.
Food and beverage expenses totaled $14.3 million for the fiscal year ended
April 27, 1997. These expenses are comprised primarily of the salaries, wages
and benefits, and the operating expenses of these departments.
Marine and facilities expenses totaled $20.7 million for the fiscal year ended
April 27, 1997 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 $128.8 million for the fiscal
year ended April 27, 1997. 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, property taxes and franchise taxes.
Depreciation and amortization expense was $27.1 million for the fiscal year
ended April 27, 1997. These expenses relate to capital expenditures and
acquisition of leasehold improvements, and berthing and concession rights, as
well as the amortization of intangible assets.
Preopening expenses of $2.5 million for the fiscal year ended April 27, 1997
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.
30
Interest expense was $38.7 million for the fiscal year ended April 27, 1997
net of interest income of $1.6 million. There was no capitalized interest
during fiscal 1997. Interest expense relates to the 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, SCGC and the purchase of GPRI.
The Company had a loss before extraordinary item of $8.8 million for the
fiscal year ended April 27, 1997, primarily as a result of the settlement of the
Louisiana Double Jackpot dispute which resulted in a charge of $4.1 million, a
valuation charge of $7.0 million taken against the Company's property held for
development or sale and the increased competition within the Company's markets
beginning in the quarter ended October 31, 1996. In addition, the Company
recorded an extraordinary after-tax charge of $12.3 million primarily resulting
from the issuance of the Senior Secured Notes in August 1996. The tax benefit
resulting from this extraordinary loss was $6.6 million. The Company's
effective tax rate of approximately 27.9% for the fiscal year ended April 27,
1997 was less than the statutory rate primarily due to non-deductible goodwill
amortization and the valuation allowance.
Fiscal Year Ended April 27, 1997 Compared to Fiscal Year Ended April 30, 1996 -
Operating Results - By Location
Isle-Biloxi
For the fiscal year ended April 27, 1997 the Isle-Biloxi had total revenue of
$89.5 million of which $75.3 million was casino revenue, compared to total
revenue of $74.8 million of which $66.3 million was casino revenue for fiscal
year 1996. The increase in revenues relates to increased occupancy and a full
period of operations of its 367-room hotel which opened on August 1, 1995.
Operating income before management fees for fiscal year 1997 totaled $14.5
million or 16.2% of total revenue, compared to $10.4 million or 13.9%, before
preopening expenses of $1.3 million, for fiscal year 1996. The increases in
operating income and operating income margin are primarily due to full period
operations and improved operating efficiencies following the start up of hotel
operations.
Isle-Vicksburg
For fiscal year 1997, the Isle-Vicksburg had total revenue of $53.0 million of
which $50.5 million was casino revenue, compared to total revenue of $59.6
million of which $57.7 million was casino revenue for fiscal year 1996.
Operating income before management fees for fiscal year 1997 totaled $9.1
million or 17.2% of total revenue, compared to $12.1 million or 20.3%, for
fiscal year 1996. The decrease in revenue and operating income is primarily a
result of increased competition and overall weakness of the market.
Isle-Bossier City
For fiscal year 1997, the Isle-Bossier City had total revenue of $146.1
million of which $136.2 million was casino revenue, compared to total revenue of
$154.6 million of which $145.6 million was casino revenue for fiscal year 1996.
Operating income before management fees for fiscal year 1997, which includes a
settlement charge of $7.4 million related to the Louisiana Double Jackpot
Dispute and $2.4 million of expenses related to the Bossier City Head Tax Case,
totaled $16.7 million or 11.4% of total revenue, compared to $43.1 million or
27.9%, for fiscal year 1996. The general decrease in revenue and operating
margin primarily reflects the impact of the changes described above, increased
promotional activities by the Isle-Bossier City and its competitors in the
market and the addition of a new competitor into the market in October 1996.
31
Isle-Lake Charles
For fiscal year 1997, the Isle-Lake Charles had total revenue of $128.2
million of which $124.2 million was casino revenue, compared to total revenue of
$57.3 million of which $56.6 million was casino revenue for fiscal year 1996.
The increase in revenues relates to the opening of its expanded land-based
pavilion in May 1996 and the commencement of operations of GPRI on July 12,
1996. Operating income before management fees for fiscal year 1997 totaled
$15.0 million or 11.7% of total revenue, before preopening expenses associated
with a second riverboat of $2.5 million compared to an operating income of $4.6
million or 8.0%, before preopening expenses of $4.2 million, for fiscal year
1996. The operating performance at the Isle-Lake Charles has been positively
impacted by the addition of the second riverboat casino and the Company's
efforts to reduce operating expenses.
Pompano Park
For fiscal year 1997, the Pompano Park had total revenue of $23.4 million of
which $19.4 million was pari-mutuel commissions, simulcast fees and admissions,
compared to total revenue of $17.5 million of which $15.1 million was pari-
mutuel commissions, simulcast fees and admissions for fiscal year 1996. The
increase in revenues was substantially due to the beginning of dark day
simulcasting in May 1996 and the addition of a limited stakes poker room in
January 1997. Operating income for fiscal year 1997 totaled $0.1 million or
0.4% of total revenue, compared to $0.3 million or 1.7%, for fiscal year 1996.
Fiscal Year Ended April 30, 1996 - Consolidated Company
Total revenue for the fiscal year ended April 30, 1996 was $158.0 million
which included $123.9 million of casino revenue, $4.4 million of rooms revenue,
$6.3 million of management fees, $15.1 million of pari-mutuel commissions,
simulcast fees and admissions, and $8.2 million of food, beverage and other
revenue. The total revenue of the Company had been impacted by the acquisition
of Pompano Park in June 1995 and the opening of a 367-room hotel at the Isle-
Biloxi offset slightly by a decrease in casino revenues at the Isle-Vicksburg
attributed to increased promotional activity by competitors in the market.
Casino operating expenses for the fiscal year ended April 30, 1996 totaled
$26.5 million, or 21.4% of casino revenue versus 22.1% for the fiscal year ended
April 30, 1995. These expenses were primarily comprised of salaries, wages and
benefits, and operating and promotional expenses of the casino.
Operating expenses for the fiscal year ended April 30, 1996 also included room
expenses of $2.9 million from the hotel at the Isle - Biloxi. 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 totaled $15.1 million for the
fiscal year ended April 30, 1996, which is consistent with the applicable gaming
tax rate for previous periods.
Pari-mutuel operating costs of Pompano Park totaled $11.4 million in fiscal
1996. Such costs consist primarily of compensation, benefits, purses, simulcast
fees and other direct costs of track operations.
Food and beverage expenses totaled $5.7 million for the fiscal year ended
April 30, 1996. These expenses are comprised primarily of the salaries, wages
and benefits, and the operating expenses of these departments.
Marine and facilities expenses totaled $10.1 million in fiscal 1996 and
include salaries, wages and benefits, operating expenses of the marine crews,
insurance, housekeeping and general maintenance of the riverboats and floating
pavilions.
32
Marketing and administrative expenses totaled $57.4 million for fiscal 1996.
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, property taxes and franchise taxes. The administrative expenses also
include a $1.5 million charge for costs associated with the September 1995
withdrawal of the Company's registration statement and cancellation of its
previously planned public offering of securities and $2.5 million in
administrative and promotional expenses for Pompano Park.
Depreciation and amortization expense was $12.1 million for fiscal 1996.
These expenses relate to capital expenditures and acquisition of leasehold
improvements, and berthing and concession rights, as well as the amortization of
intangible assets.
Preopening expenses of $1.3 million in fiscal 1996 represent salaries,
benefits, training, marketing and other non-capitalizable costs which were
expensed as incurred in connection with the opening of the new hotel at the
Isle-Biloxi. Fiscal 1995 preopening expenses of $0.5 million relate to the
expansion of facilities at the Isle-Vicksburg.
Interest expense was $13.9 million, net of interest income of $1.4 million and
net of capitalized interest of $1.5 million, in fiscal 1996. Interest expense
relates to the indebtedness incurred in connection with the acquisiton of
property, equipment, leasehold improvements and berthing and concession rights
including debt incurred to finance the new hotel and pavilion and furniture,
fixtures and equipment at the Isle-Biloxi, as well as additional indebtedness
relating to land purchased for new development and the acquisition of Pompano
Park.
The Company had net income of $1.6 million for fiscal 1996. This included an
$11.8 million pretax one-time charge which included $9.3 million related to the
write-down of two riverboats, a barge and certain gaming equipment, all of which
were reclassified during the year as being held for sale, as well as $2.5
million related to abandoned projects and certain other costs associated with a
change in executive management. In addition, the Company incurred a $0.3 million
charge in connection with accounting for deferred taxes related to its
investment in SCGC and a $1.2 million pretax loss on disposal of an airplane and
other equipment. The Company's net income for fiscal 1996 includes $16.4
million, representing the Company's equity in the income of LRGP and SCGC (which
includes $1.3 million for the Company's share of the net losses of SCGC). The
Company also incurred a pretax charge of approximately $1.5 million for legal,
printing and accounting costs associated with the September 1995 withdrawal of
the Company's registration statement and the proposed transactions relating
thereto. The Company's effective income tax rate was 73% for fiscal 1996. The
high effective tax rate was due to a $0.7 million fourth quarter adjustment to
prior years' taxes and the exclusion of the Company's share of the net loss of
SCGC in its calculation of income taxes. Earnings per share were $0.10 in
fiscal 1996.
Fiscal Year Ended April 30, 1996 Compared to Fiscal Year Ended April 30, 1995 -
Operating Results - By Location
Isle-Biloxi
For the fiscal year ended April 30, 1996 the Isle-Biloxi had total revenue of
$74.8 million of which $66.3 million was casino revenue, compared to total
revenue of $57.6 million of which $54.2 million was casino revenue for fiscal
year 1995. The increase in revenues relates primarily to the addition of a 367-
room hotel which opened on August 1, 1995. Operating income for fiscal year
1996 totaled $10.4 million before preopening expenses of $1.3 million, or 13.9%
of total revenue, compared to $9.1 million or 16.0% for the prior year. The
decrease in operating income margin was primarily due to lower margins from the
operations of the non-gaming amenities added to the property during fiscal 1996.
33
Isle-Vicksburg
For fiscal year 1996, the Isle-Vicksburg had total revenue of $59.6 million of
which $57.7 million was casino revenue, compared to total revenue of $66.4
million of which $63.4 million was casino revenue for fiscal year 1995.
Operating income for fiscal year 1996 totaled $12.1 million or 20.3% of total
revenue, compared to $17.9 million, before preopening expenses of $0.5 million,
or 26.5%, for fiscal year 1995. The decrease in revenue, operating income and
operating margin is primarily a result of increased competition within the
market.
Isle-Bossier City
For fiscal year 1996, the Isle-Bossier City had total revenue of $154.6
million of which $145.6 million was casino revenue, compared to total revenue of
$151.1 million of which $142.3 million was casino revenue for fiscal year 1995.
Operating income before management fees for fiscal year 1996 totaled $43.1
million or 27.9% of total revenue, compared to $51.9 million or 34.3%, for
fiscal year 1995. The decrease in revenue, operating income and operating
margin reflects the impact of increased promotional activities by the Isle-
Bossier City and its competitors in the market.
Isle-Lake Charles
For fiscal year 1996, the Isle-Lake Charles had total revenue of $57.3 million
of which $56.6 million was casino revenue. Operating income before management
fees for fiscal year 1996 totaled $4.6 million or 8.0% of total revenue, before
preopening expenses of $4.2 million. The Isle-Lake Charles commenced operations
on July 29, 1995.
Pompano Park
For fiscal year 1996, the Pompano Park had total revenue of $17.5 million of
which $15.1 million was pari-mutuel commissions, simulcast fees and admissions.
Operating income for fiscal year 1996 totaled $0.3 million or 1.7% of total
revenue. Pompano Park was acquired by the Company in June 1995.
LIQUIDITY AND CAPITAL RESOURCES
At April 27, 1997, the Company had cash and cash equivalents of $51.8 million
compared to $18.6 million at April 30, 1996 and approximately $5.5 million
available under lines of credit. The increase in cash is primarily a result of
the proceeds received from the Rights Offering and issuance of the Senior
Secured Notes. Fiscal 1997 operating activities provided $17.5 million of cash
flow to the Company as compared to $11.8 million in fiscal 1996.
The Company invested $21.5 million in property and equipment in fiscal 1997,
primarily for the completion of land-based facilities at the Isle-Lake Charles,
the purchase of equipment and the construction of a limited stakes poker room at
Pompano Park, which opened in January 1997.
On May 3, 1996, the Company purchased all of the common stock of GPRI. The
aggregate consideration paid by the Company in the Grand Palais Acquisition was
approximately $60.8 million, consisting of cash in the amount of approximately
$7.5 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 $10.00 per share. On the
same date, the Company consummated the SCGC Acquisition for 1,850,000 shares of
Common Stock and restructured the terms of an existing $20.0 million note
previously issued to Crown Casino.
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.
34
On August 6, 1996, the Company issued $315.0 million 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 long-term debt, including the 11-1/2% First Mortgage Notes due 2001. The
proceeds were also used to pay accrued interest and other costs of $16.4 million
and to acquire the remaining 50% interest in LRGP and LRG Hotels, L.L.C. held by
Louisiana Riverside Development, Inc. The consideration for the LRGP Acquisition
included $85 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 October 1, 1998.
The Company anticipates that its principal near-term capital requirements will
relate to the completion of a 241-room hotel at the Isle-Lake Charles,
renovations to the land-based facilities at the Isle-Bossier City and the Isle-
Vicksburg, additional hotel projects adjacent to the Isle-Bossier City and the
Isle-Lake Charles, the development of a Farradday's restaurant at each the
Company's casino locations and the purchase of land and other costs related to
the development of a casino in Black Hawk, Colorado. The Company also
anticipates that capital improvements approximating $11.5 million will be made
during fiscal 1998 to maintain its existing facilities and remain competitive in
its markets.
An important component of the Company's operating strategy will be to develop,
open and operate, either directly, through the 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 began construction of a $10.5 million, 241-room
hotel facility at the Isle-Lake Charles in March 1997. This hotel is expected
to open in September 1997. The Company is currently seeking financing and/or a
joint venture partner or partners for a hotel adjacent to the Isle-Bossier City,
and another hotel adjacent to the Isle-Lake Charles. Construction of these two
hotel facilities will not begin until such financing and/or joint venture
partner or partners are obtained.
Although the Company is not presently committed to making any significant
capital expenditures or investment into a new gaming market, the Company
believes that, in addition to the developing hotels, it will be necessary to
make certain capital improvements to its land-based facilities at the Isle-
Bossier City and the Isle-Vicksburg and that enhancements to its non-gaming
amenities will be important to its operations. The Company may, in the future,
also consider expanding its casino square footage and hotel capacity 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 the aforementioned transactions, planned capital
expenditures, debt service and working capital requirements. However, no
assurance can be made that the Company will have sufficient capital resources to
make all of the 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 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 its 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.
35
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
("SFAS") No. 128, "Earnings per Share", which will become effective for both
interim and annual periods ending after December 15, 1997. SFAS No. 128 will
require companies to disclose basic and diluted earnings per share. Basic
earnings per share will be calculated based on the weighted average common
shares outstanding and would exclude common stock equivalents from the
calculation. The requirements of SFAS No. 128, based on current circumstances,
will not have a significant effect on the Company's earnings per share
calculations.
36
ITEM 8. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CASINO AMERICA, INC.
Report of Independent Auditors............................................ 38
Consolidated Balance Sheets, April 27, 1997 and April 30, 1996............ 39
Consolidated Statements of Operations, Years ended April 27, 1997,
April 30, 1996 and 1995.................................................. 41
Consolidated Statements of Stockholders' Equity, Years ended
April 27, 1997, April 30, 1996 and 1995.................................. 42
Consolidated Statements of Cash Flows, Years ended
April 27, 1997, April 30, 1996 and 1995.................................. 43
Notes to Consolidated Financial Statements................................ 45
37
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Casino America, Inc.
We have audited the accompanying consolidated balance sheets of Casino
America, Inc. as of April 27, 1997 and April 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended April 27, 1997, April 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Casino America,
Inc. at April 27, 1997 and April 30, 1996, and the consolidated results of its
operations and its cash flows for the years ended April 27, 1997, April 30, 1996
and 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
June 17, 1997
38
CASINO AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS APRIL 27 APRIL 30
------ ------------ ------------
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents............. $ 51,846,000 $ 18,585,000
Accounts receivable:
Related parties..................... 315,000 3,171,000
Other............................... 4,793,000 1,764,000
Income tax receivable................. 11,014,000 --
Deferred income taxes................. 5,350,000 1,001,000
Prepaid expenses and other assets..... 5,097,000 2,858,000
------------ ------------
Total current assets.............. 78,415,000 27,379,000
Property and equipment--Net............. 285,234,000 129,306,000
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. 7,943,000 15,840,000
Licenses and other intangible
assets, net of accumulated
amortization of $2,894,000.......... 69,997,000 --
Goodwill, net of accumulated
amortization of $2,963,000........... 66,297,000 --
Berthing, concession, and
leasehold rights, net of
accumulated amortization
of $1,522,000 and $1,209,000,
respectively......................... 4,746,000 5,060,000
Deferred financing costs, net of
accumulated amortization of
$1,378,000 and $1,229,000,
respectively......................... 11,565,000 4,327,000
Prepaid expenses, deposits and other.. 1,974,000 3,331,000
------------ ------------
164,772,000 69,789,000
------------ ------------
Total assets...................... $528,421,000 $226,474,000
============ ============
See notes to consolidated financial statements.
39
CASINO AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 27 APRIL 30
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
Current liabilities:
Current maturities of long-term debt........ $ 14,905,000 $ 8,884,000
Accounts payable--Trade..................... 10,871,000 6,169,000
Accrued liabilities:
Interest.................................. 9,898,000 5,802,000
Payroll and payroll related............... 16,238,000 6,333,000
Property and other taxes.................. 6,669,000 6,880,000
Progressive jackpots and slot club awards. 5,566,000 1,851,000
Other..................................... 5,391,000 2,392,000
------------ ------------
Total current liabilities............... 69,538,000 38,311,000
Long-term debt, less current maturities....... 364,617,000 130,894,000
Deferred income taxes......................... 16,293,000 6,999,000
Stockholders' equity:
Preferred stock, $.01 par value;
2,050,000 shares and 2,000,000 shares,
respectively authorized; none issued....... -- --
Common stock, $.01 par value;
45,000,000 shares authorized; shares
issued and outstanding: 23,345,287 and
16,038,882, respectively................... 233,000 160,000
Class B common stock, $.01 par value;....... -- --
3,000,000 shares authorized; none issued
Additional paid-in capital.................. 62,538,000 13,857,000
Retained earnings........................... 15,202,000 36,253,000
------------ ------------
Total stockholders' equity.............. 77,973,000 50,270,000
------------ ------------
Total liabilities and stockholders'
equity................................. $528,421,000 $226,474,000
============ ============
See notes to consolidated financial statements.
40
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED
--------------------------------------------
APRIL 27 APRIL 30 APRIL 30
1997 1996 1995
-------------- ------------- -------------
Revenue:
Casino................................ $322,677,000 $123,936,000 $117,613,000
Rooms................................. 11,694,000 4,422,000 --
Management fee--Joint ventures........ 2,110,000 6,308,000 4,613,000
Pari-mutuel commissions and fees...... 19,405,000 15,063,000 --
Food, beverage, and other............. 19,716,000 8,234,000 5,311,000
------------ ------------ ------------
Total revenue...................... 375,602,000 157,963,000 127,537,000
Operating expenses:
Casino................................ 64,301,000 26,484,000 26,044,000
Rooms................................. 4,527,000 2,911,000 --
Gaming taxes.......................... 61,769,000 15,116,000 13,924,000
Pari-mutuel........................... 15,987,000 11,375,000 --
Food and beverage..................... 14,280,000 5,745,000 3,516,000
Marine and facilities................. 20,717,000 10,109,000 6,407,000
Marketing and administrative.......... 128,777,000 57,408,000 47,886,000
Valuation charge...................... 7,000,000 9,257,000 --
Restructuring charge.................. -- 2,541,000 --
Preopening expenses................... 2,500,000 1,311,000 483,000
Loss on disposal of equipment......... 72,000 1,217,000 178,000
Depreciation and amortization......... 27,149,000 12,111,000 8,945,000
------------ ------------ ------------
Total operating expenses........... 347,079,000 155,585,000 107,383,000
------------ ------------ ------------
Operating income........................ 28,523,000 2,378,000 20,154,000
Interest expense........................ (40,332,000) (15,293,000) (14,029,000)
Interest income:
Unconsolidated joint ventures......... 203,000 747,000 2,961,000
Other................................. 1,418,000 622,000 1,022,000
Equity in income (loss) of
unconsolidated joint ventures.......... (166,000) 16,434,000 19,904,000
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item..................... (10,354,000) 4,888,000 30,012,000
Income tax provision (benefit).......... (1,560,000) 3,333,000 11,943,000
------------ ------------ ------------
Income (loss) before extraordinary item. (8,794,000) 1,555,000 18,069,000
Extraordinary loss on extinquishment
of debt, net of applicable tax
benefit of $6,600,000.................. (12,257,000) -- --
------------ ------------ ------------
Net income (loss)....................... $(21,051,000) $ 1,555,000 $ 18,069,000
============ ============ ============
Income (loss) before extraordinary item
per common and common equivalent share. $ (0.39) $ 0.10 $ 1.16
Extraordinary loss per common and
common equivalent share................ (0.55) -- --
------------ ------------ ------------
Net income (loss) per common and common
equivalent share....................... $ (0.94) $ 0.10 $ 1.16
============ ============ ============
Weighted average common and common
equivalent shares...................... 22,481,000 15,721,000 15,604,000
See notes to consolidated financial statements.
41
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SHARES ADDITIONAL TOTAL
OF COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
---------------------------------------------------------------
Balance, April 30, 1994................. 14,782,489 $148,000 $ 6,873,000 $ 16,629,000 $ 23,650,000
Exercise of stock options............. 64,715 1,000 220,000 -- 221,000
Issuance of stock for services........ 5,920 -- 75,000 -- 75,000
Net income............................ -- -- -- 18,069,000 18,069,000
---------- -------- ----------- ------------ ------------
Balance, April 30, 1995................. 14,853,124 149,000 7,168,000 34,698,000 42,015,000
Issuance of common stock for Rights 1,020,940 10,000 5,988,000 -- 5,998,000
Offering.............................
Exercise of stock options............. 145,218 1,000 566,000 -- 567,000
Issuance of stock for compensation.... 18,100 -- 115,000 -- 115,000
Issuance of stock for services........ 1,500 -- 20,000 -- 20,000
Net income............................ -- -- -- 1,555,000 1,555,000
---------- -------- ----------- ------------ ------------
Balance, April 30, 1996................. 16,038,882 160,000 13,857,000 36,253,000 50,270,000
Issuance of common stock
for Rights Offering.................. 3,079,980 31,000 17,850,000 -- 17,881,000
Issuance of common stock for
acquisitions.......................... 4,100,000 41,000 27,074,000 -- 27,115,000
Issuance of warrants for acquisitions. -- -- 3,333,000 -- 3,333,000
Exercise of stock options............. 65,625 1,000 165,000 -- 166,000
Issuance of stock for compensation.... 60,800 -- 259,000 -- 259,000
Net loss.............................. -- -- -- (21,051,000) (21,051,000)
---------- -------- ----------- ------------ ------------
Balance, April 27, 1997................. 23,345,287 $233,000 $62,538,000 $ 15,202,000 $ 77,973,000
========== ======== =========== ============ ============
See notes to consolidated financial statements.
42
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED
--------------------------------------------
APRIL 27 APRIL 30 APRIL 30
1997 1996 1995
-------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ (21,051,000) $ 1,555,000 $ 18,069,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 27,149,000 12,111,000 8,945,000
Amortization of bond discount and
deferred financing costs.............. 1,294,000 705,000 786,000
Deferred income taxes........................ (1,837,000) (1,440,000) 5,544,000
Equity in (income) loss of
unconsolidated joint ventures............... 166,000 (16,434,000) (19,904,000)
Write-down of assets held for sale........... 7,000,000 9,257,000 --
Extraordinary item (net of taxes)............ 12,257,000 -- --
Other........................................ 445,000 1,346,000 308,000
Changes in current assets and liabilities,
net of acquisitions:
Receivables............................... (5,231,000) 179,000 (3,952,000)
Prepaid expenses and other assets......... (854,000) 675,000 (932,000)
Accounts payable and accrued expenses..... (1,843,000) 3,802,000 (321,000)
------------- ------------ ------------
Net cash provided by operating activities...... 17,495,000 11,756,000 8,543,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (21,490,000) (22,201,000) (46,584,000)
Net cash paid for acquisitions................. (80,495,000) (7,959,000) --
Increase in notes receivable and other
investments................................... -- -- (6,950,000)
Proceeds from disposals of property and
equipment..................................... 739,000 2,767,000 1,408,000
Advances to joint ventures..................... -- -- (10,553,000)
Repayments and distributions from joint
ventures...................................... 1,845,000 3,014,000 43,413,000
(Increase) decrease in restricted cash......... -- 12,171,000 (499,000)
Deposits and other............................. 2,236,000 (1,332,000) (986,000)
------------- ------------ ------------
Net cash used in investing activities.......... (97,165,000) (13,540,000) (20,751,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings....................... 318,168,000 10,500,000 15,000,000
Principal payments on borrowings and
cash paid to retire debt...................... (210,341,000) (14,908,000) (7,941,000)
Deferred financing costs....................... (12,943,000) (785,000) (1,226,000)
Proceeds from sale of stock and
exercise of options........................... 18,047,000 6,565,000 221,000
------------- ------------ ------------
Net cash provided by financing
activities.................................... 112,931,000 1,372,000 6,054,000
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.............................. 33,261,000 (412,000) (6,154,000)
Cash and cash equivalents at beginning
of year....................................... 18,585,000 18,997,000 25,151,000
------------- ------------ ------------
Cash and cash equivalents at end of year $ 51,846,000 $ 18,585,000 $ 18,997,000
============= ============ ============
See notes to consolidated financial statements.
43
CASINO AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments for:
Interest, net of amounts
capitalized...................... $ 37,092,000 $14,417,000 $13,259,000
Income taxes--net................. 9,328,000 (341,000) 7,758,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Debt issued for:
Land.............................. $ -- $ -- $ 2,290,000
Property and equipment............ 514,000 4,316,000 2,125,000
Insurance premiums................ 1,073,000 855,000 --
Acquisitions:
Debt assumed...................... (37,142,000) -- --
Stock issued...................... (27,115,000) -- --
Warrants issued................... (3,333,000) -- --
See notes to consolidated financial statements.
44
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Casino America,
Inc. and its wholly owned subsidiaries (the Company). On May 3, 1996, the
Company acquired 100% of Grand Palais Riverboat, Inc. (GPRI) and a 50% interest
in St. Charles Gaming Company, Inc. (SCGC). On August 6, 1996 the Company
acquired the 50% interests in Louisiana Riverboat Gaming Partnership (LRGP) and
LRG Hotels, LLC and LRGP's 50% interest in SCGC, which were owned by outside
parties. As of August 6, 1996, LRGP, LRG Hotels, LLC and SCGC became wholly
owned subsidiaries of the Company. Prior to this date, the Company's
investments in these subsidiaries were accounted for using the equity method of
accounting. All material intercompany balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the prior-year financial
statements to conform to the 1997 presentation.
The Company is engaged in the business of developing, owning, and operating
riverboat and dockside casinos and related facilities. The Company commenced
operations in Biloxi, Mississippi, and Vicksburg, Mississippi, on August 1, 1992
and August 9, 1993, respectively. LRGP commenced operations in Bossier City,
Louisiana on May 20, 1994 and SCGC and GPRI commenced operations in Lake
Charles, Louisiana on July 29, 1995 and July 12, 1996, respectively.
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.
Fiscal Year End
Effective April 27, 1997, the Company changed from an April 30 fiscal year end
to a fiscal year consisting of four, thirteen week quarters, which is also known
as a "four-five-four" fiscal year. This "four-five-four" fiscal year creates
more comparability of the Company's quarterly operations, by having an equal
number of weeks (13) and week-end days (26) in each quarter. Fiscal 1998
commenced on April 28, 1997 and will end April 26, 1998.
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments with a maturity
at the time of purchase of three months or less to be cash equivalents. Cash and
cash equivalents are placed primarily with a high-credit-quality financial
institution. At April 27, 1997, cash equivalents were invested primarily in
short-term commercial paper and treasuries. The carrying amount of cash and cash
equivalents approximates fair value because of the short maturity of these
instruments.
45
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
-----
Leasehold improvements................. 10--31
Buildings and land improvements........ 25
Riverboats and floating pavilions...... 25
Furniture, fixtures, and equipment..... 5--10
Interest capitalized during the years ended April 27, 1997, April 30, 1996 and
1995 totaled $0, $1,525,000 and $1,006,000, respectively. Depreciation expense
for the years ended April 27, 1997, April 30, 1996 and 1995 totaled $22,740,000,
$11,788,000 and $8,632,000, respectively.
Debt Acquisition Costs
The costs of issuing long-term debt have been capitalized and are being
amortized using the effective interest method over the term of the related debt.
Berthing, Concession, and Leasehold Rights
Berthing, concession, and leasehold rights are recorded at cost and are being
amortized over approximately twenty years using the straight-line method.
Licenses, Goodwill and Other Intangible Assets
Licenses, goodwill and other intangible assets principally represent the
excess purchase price the Company paid in acquiring the net identifiable
tangible assets of SCGC, GPRI and LRGP. The license costs included in this line
reflect the value attributed to the Louisiana gaming licenses acquired through
these purchases. The remaining intangible assets balance has been classified as
goodwill and other intangible assets. These assets are being amortized over a
twenty-five year period using the straight-line method.
Revenue and Promotional Allowances
Casino revenue is the net win from gaming activities which is the difference
between gaming wins and losses. Casino revenues are net of accruals for
anticipated payouts of progressive electronic gaming device jackpots.
Revenue does not include the retail amount of food, beverage, and other items
provided gratuitously to customers, which totaled $30,259,000, $13,797,000, and
$9,987,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively. The estimated cost of providing such complimentary services, which
is included in casino expense, was $24,911,000, $11,608,000, and $7,960,000 for
the years ended April 27, 1997, April 30, 1996 and 1995, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years
ended April 27, 1997, April 30, 1996 and 1995 totaled $15,696,000, $7,085,000
and $5,665,000, respectively.
46
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preopening Expenses
Preopening expenses, which consist principally of payroll and marketing costs,
are expensed as incurred.
Net income (loss) per Common Share
Net income (loss) per common and common equivalent share is based on the
weighted-average number of common shares outstanding during the period plus, in
periods in which they have a dilutive effect, the effect of common shares
contingently issuable upon the exercise of warrants and stock options.
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share," which
will become effective for both interim and annual periods ending after December
15, 1997. SFAS No. 128 will require companies to disclose basic and diluted
earnings per share. Basic earnings per share will be calculated based on the
weighted average common shares oustanding and would exclude common stock
equivalents from the calculation. The requirements of SFAS No. 128, based on
current circumstances, will not have a significant effect on the Company's
earnings per share calculations.
Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock
option plans and accordingly, does not recognize compensation cost.
2. ACQUISITIONS
Pompano Park
On June 30, 1995, the Company acquired 100% of Pompano Park ("Pompano Park"),
a harness racing track located in Pompano, Florida, for approximately
$8,000,000. The acquisition was accounted for as a purchase, and the results of
operations of Pompano Park have been included in the consolidated income
statement from the date of acquisition. Pro forma operating results giving
effect to the Pompano Park acquisition have not been provided because the pro
forma effect of the acquisition was not material to the operating results of the
Company. If casino gaming is legally permitted in Florida at the 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.
Grand Palais Riverboat, Inc.
On May 3, 1996, the Company purchased all of the outstanding shares of common
stock of Grand Palais Riverboat, Inc. (GPRI) in a bankruptcy proceeding.
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,
47
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
all necessary gaming licenses issued by the State of Louisiana, and other
permits and authorizations. The acquisition was accounted for as a purchase,
and the operating results of GPRI have been included in the Company's
consolidated income statement from the date operations commenced. GPRI
commenced operations on July 12, 1996 as part of a two-riverboat operation with
SCGC. The aggregate consideration paid by the Company in connection with the
GPRI acquisition was approximately $60.8 million, consisting of $7.5 million in
cash, approximately $37.1 million in promissory notes and assumed indebtedness.
The Company also issued 2,250,000 shares of its common stock, and five-year
warrants to purchase an additional 500,000 shares of common stock at an exercise
price of $10 per share, to GPRI's former secured debt holders. Additionally, in
connection with the Grand Palais Acquisition, Bernard Goldstein, the Chairman of
the Company, and three of his sons (including Robert Goldstein, a director of
the Company) pledged certain of their assets for the issuance of a letter of
credit to secure the repayment of a portion of the principal of certain notes
issued to effect the Grand Palais Acquisition. The Company issued to two of Mr.
Goldstein's sons (other than Robert Goldstein) a five-year warrant to purchase
12,500 shares of Common Stock at an exercise price of $5.875 per share.
St. Charles Gaming Company, Inc.
On May 3, 1996, the Company also purchased the remaining 50% interest in SCGC
not already owned by LRGP (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 its note payable to LRGP (up to a maximum of $5,000,000) to
416,667 shares of common stock of the Company at an exercise price of $12 per
share. The purchase agreement also provided for the restructuring of certain
indebtedness owed to the seller. The acquisition was accounted for as a
purchase, however, the operating results of SCGC were still accounted for under
the equity method of accounting as the Company did not obtain a controlling
interest in SCGC.
Louisiana Riverboat Gaming Partnership
On August 6, 1996, the Company acquired the remaining 50% interest in LRGP
held by outside parties (LRGP Acquisition). The consideration for the
acquisition was $85 million in cash, five-year warrants to purchase 500,000
shares of the Company's 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 acquisition was accounted for as a purchase, and as a result of
this acquisition, the operating results of LRGP and SCGC, from the acquisition
date forward are consolidated in the Company's income statement.
48
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Information
The following unaudited consolidated pro forma information shows the 1997 and
1996 results of the Company's operations as though the SCGC Acquisition, LRGP
Acquisition and the acquisition of GPRI had occurred at May 1, 1995. Other than
amortization of the related intangible assets and interest on debt incurred to
effect the GPRI Acquisiton, adjustments related to the pre-bankruptcy operations
of GPRI have not been included in the pro forma results of operations for the
fiscal year ended April 30, 1996 because the pre-bankruptcy operations of GPRI
were very limited and substantially different than the post-acquisition
operations. The pro forma results are not necessarily indicative of the future
results or actual results that would have occurred had the purchase been made at
the beginning of the period presented.
FOR THE FISCAL YEAR ENDED
APRIL 27,1997 APRIL 30,1996
-------------- -------------
Total revenue $ 440,439,000 $ 363,473,000
Loss before extraordinary item (13,907,000) (9,647,000)
Net loss (26,164,000) (9,647,000)
Net loss per common and common
equivalent share $ (1.17) $ (0.42)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
APRIL 27 APRIL 30
------------ ------------
1997 1996
------------ ------------
Property and equipment:
Land and land improvements.......... $ 35,468,000 $ 25,485,000
Leasehold improvements.............. 98,388,000 50,130,000
Buildings and improvements.......... 32,358,000 6,099,000
Riverboats and floating pavilions... 92,876,000 33,591,000
Furniture, fixtures, and equipment.. 81,214,000 35,835,000
Construction in progress........... 3,269,000 375,000
------------ ------------
343,573,000 151,515,000
Less: Accumulated depreciation. 58,339,000 22,209,000
------------ ------------
$285,234,000 $129,306,000
============ ============
49
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
APRIL 27 APRIL 30
------------ -------------
1997 1996
------------ -------------
12-1/2% senior secured notes............ $315,000,000 $ -
11-1/2% note payable, due in quarterly
installments of $588,235, including
interest, through June 2001............ 10,000,000 -
Variable rate note (9-1/2% at April 27,
1997), due in monthly installments of
$196,500, including interest, through
February 2000.......................... 6,678,000 -
Variable rate note (9-1/2% at April 27,
1997), due in monthly installments of
$137,283, including interest, with the
remaining principal and interest
due September 1999.................... 3,437,000 -
9-1/4% note payable, due in monthly
installments of $128,545, including
interest, through July 1998............ 2,994,000 -
6% note payable, due in monthly
installments of $165,729, including
interest, through July 1999............ 2,833,000 -
12-1/2% note payable due, in monthly
installments of $125,000, including
interest, beginning October 1997
through October 2004................... 5,909,000 -
11-1/2% first mortgage notes, less
unamortized discount of $1,727,000, due
November 2001................. - $ 103,273,000
Variable rate note (10-1/4% at April 30,
1996 and 10-1/2% at April 27, 1997),
due in monthly installments of
$188,000, including interest, with the
remaining principal and interest due
October 2000........................... 13,912,000 14,670,000
8% note payable, due in monthly
installments of $83,334, including
interest, through July 2002............ 3,420,000 4,906,000
12% note payable, principal due in
November 1996.......................... - 3,625,000
9-1/4% note payable to bank, due in
February 1997.......................... - 1,664,000
8% note payable due in monthly
installments of $11,365, including
interest, through December 2015........ 1,317,000 1,347,000
Variable rate note (9-1/4% at April 30,
1996 and April 27, 1997), due in
monthly installments ranging from
$11,458 to $34,722, including
interest, with the remaining principal
and interest due June 2000............. 4,445,000 4,861,000
9-1/4% note payable, due in monthly
installments ranging from $46,045 to
$97,595, including interest, through
October 1999........................... 2,706,000 3,354,000
Other................................... 6,871,000 2,078,000
------------ -------------
379,522,000 139,778,000
Less: Current maturities................ 14,905,000 8,884,000
------------ -------------
Long-term debt.......................... $364,617,000 $ 130,894,000
============ =============
50
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 through maturity.
The Senior Secured Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after August 1, 2000 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 1 of the years indicated below:
Year Percentage
---- ----------
2000................................... 106.250%
2001................................... 103.125%
2002 and thereafter.................. 100.000%
The Senior Secured Notes restrict, among other things: (i) the incurrence of
additional debt, except under certain circumstances including meeting certain
pro forma coverage tests; (ii) the payment of dividends on and redemptions of
capital stock; (iii) the businesses in which the Company may engage; (iv) the
use of proceeds from the sale of assets; (v) transactions with affiliates; (vi)
the creation of liens; and (vii) sale and leaseback transactions. At April 27,
1997, no dividends were permitted to be paid under these restrictions.
Part of the proceeds from the Senior Secured Notes were used to prepay or
defease long-term debt, including the $105,000,000 of 11-1/2% First Mortgage
Notes due 2001. The proceeds were also used to pay accrued interest and other
costs, as well as to consummate the LRGP Acquisition.
The Company has $5,500,000 available in bank lines of credit. As of April 27,
1997, the Company had no outstanding balances under these lines of credit.
Substantially all of the Company's assets are pledged as collateral for long-
term debt. At April 27, 1997, the Company was either in compliance with all
debt covenants or waivers had been obtained.
The aggregate principal payments due on total long-term debt over the next
five years and thereafter are as follows:
For the Fiscal Year Ending
1998................. $ 14,905,000
1999................. 12,318,000
2000................. 9,859,000
2001................. 17,913,000
2002................. 2,925,000
Thereafter........... 321,602,000
------------
$379,522,000
============
The fair value of the 12-1/2% Senior Secured Notes, estimated based on quoted
market prices, was approximately $315,000,000 at April 27, 1997. The carrying
value of the Company's other short-term and long-term obligations approximates
fair value at April 27, 1997.
51
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LEASE COMMITMENTS
The Company has an agreement with the Biloxi Port Commission which provides
the Company with certain docking rights. This agreement expires July 1999, with
eight renewal options of five years each. Annual rentals are the greater of
$500,000 or 1% of gross monthly gaming revenue, as defined. Annual rent during
each renewal term is adjusted for increases in the Consumer Price Index, limited
to 6% for each renewal period.
In addition, the Company leases certain land, buildings, and other
improvements from the City of Biloxi under a lease and concession agreement.
This agreement expires on July 1999, with options to renew for seven additional
terms of five years each. Annual rent is $500,000 plus 3% of gross gaming
revenue, as defined, in excess of $25,000,000. Annual rent during each renewal
term is adjusted for increases in the Consumer Price Index, limited to 6% for
each renewal period. This agreement also allows rent credits to be amortized
over the initial term of the lease, for costs and expenses incurred by the
Company for construction of certain improvements to the leased assets. Such rent
credits, net of accumulated amortization, are included in prepaid expenses in
the consolidated balance sheet.
In April 1994, the Company entered an Addendum to the lease with the City of
Biloxi, which requires the Company to pay 4% of gross non-gaming revenues
received as defined, net of sales tax, comps and discounts. Additional rent will
be due to the City of Biloxi for the amount of any increase from and after
January 1, 2016 in the rent due to the State Institutions of Higher Learning
under a lease between the City of Biloxi and the State Institutions of Higher
Learning (the "IHL Lease") and for any increases in certain tidelands leases
between the City of Biloxi and the State of Mississippi.
In April 1994, in connection with the construction of a hotel, the Company
entered a lease for additional land. The Company first acquired the leasehold
interest of Sea Harvest, Inc., the original lessee, for consideration of $8,000
per month for a period of ten years. The Company's lease is with the City of
Biloxi, Mississippi, for an initial term of 25 years, with options to renew for
six additional terms of 10 years each and a final option period with a
termination date commensurate with the termination date of the IHL Lease, but in
no event later than December 31, 2085. Annual rent (which includes payments to
be made pursuant to the purchase of a related leasehold interest) is $404,000,
plus 4% of gross non-gaming revenue, as defined. The annual rent is adjusted
after each five-year period based on increases in the Consumer Price Index,
limited to a 10% increase in any five-year period. The annual rent will increase
10 years after the commencement of payments pursuant to a termination of lease
and settlement agreement to an amount equal to the sum of annual rent had it
been $500,000 annually plus adjustments thereto based on the Consumer Price
Index.
In February 1995, in conjunction with its planned Colorado operation, the
Company entered into a lease agreement for the use of land. The lease has an
initial term of 25 years, with options to renew for seven additional terms of 10
years each. The base rent is $250,000 per year increased by $10,000 each year
until the annual rent is $300,000. After seven years, and every two years
thereafter, the annual rent is adjusted based on increases in the Consumer Price
Index, limited to a 4% increase in any two-year period.
In March and July 1995, the Company entered into agreements to lease the two
parcels of land that comprise the Calcasieu Parish riverboat casino site. The
lease has an initial term of five years with seven five-year renewal options.
During the initial term, the leases require annual aggregate rental payments of
$850,000 in years one through four, and $1,000,000 in year five, payable
monthly. During the first renewal term, the rent will be increased annually by
the greater of 5% or the percentage increase in the average Consumer Price Index
for Calcasieu Parish, Louisiana for the previous twelve-month period. During
the second through seventh renewal terms, the lessor and the Company will
attempt to set the rent equal to 100% of the rent paid by other riverboat gaming
operators in Louisiana and Mississippi for the comparable property usage, or if
no agreement can be made, then the parties will appoint real estate appraisers
to set the rent for each renewal term. However in no
52
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
event shall the annual rent be less than $1,600,000 during the fourth and all
subsequent renewal terms. In addition, the Company will pay all real estate
taxes, except for taxes due on the unimproved value of the property.
Minimum rental obligations under all noncancelable operating leases with terms
of one year or more as of April 27, 1997, are as follows:
For the Fiscal Year Ending
1998................. $ 4,148,000
1999................. 3,798,000
2000................. 2,880,000
2001................. 1,821,000
2002................. 1,603,000
Thereafter........... 17,879,000
-----------
$32,129,000
===========
Rent expense for operating leases was approximately $7,140,000, $4,076,000,
and $3,085,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively. Such amounts include contingent rentals of $2,543,000, $1,288,000,
and $833,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively.
6. RELATED PARTY TRANSACTIONS
During the years ended April 30, 1996 and 1995, the Company incurred
construction costs of approximately $2,391,000 and $3,501,000, respectively,
which were paid to related parties. As of April 27, 1997, there were no
outstanding amounts owed to related parties for construction services.
During the year ended April 30, 1996, the Company repaid $1,556,000 in loans
and interest payable to the Chairman and Chief Executive Officer and a related
party.
The Company provides management services to all of its wholly owned riverboat
casino entities, pursuant to respective management agreements. Management fees
for these services are based upon a percentage of each entity's revenue and
operating income, as defined in the management agreements. The revenue under the
management agreements is eliminated through consolidation. However, the
management services provided by the Company to LRGP and SCGC prior to these
entities becoming wholly owned subsidiaries of the Company as of the August 6,
1996 acquisition date, are reflected as management fee--joint ventures in the
accompanying consolidated income statements.
53
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
Income tax expense (benefit) consist of the following:
For the Fiscal Year Ended
April 27 April 30 April 30
------------ ------------ ------------
1997 1996 1995
Current:
Federal........... $(6,219,000) $ 3,976,000 $ 4,501,000
State............. (104,000) 797,000 1,898,000
----------- ----------- -----------
(6,323,000) 4,773,000 6,399,000
Deferred:
Federal........... (1,569,000) (1,561,000) 5,599,000
State............. (268,000) 121,000 (55,000)
----------- ----------- -----------
(1,837,000) (1,440,000) 5,544,000
----------- ----------- -----------
$(8,160,000) $ 3,333,000 $11,943,000
=========== =========== ===========
A reconciliation of income tax expense (benefit) to the statutory corporate
federal tax rate of 35% is as follows:
For the Fiscal Year Ended
April 27 April 30 April 30
------------ ------------ ------------
1997 1996 1995
Statutory tax expense (benefit)...... $(10,224,000) $ 1,181,000 $ 10,477,000
Effects of:
State taxes....................... (68,000) 1,048,000 1,225,000
Goodwill.......................... 834,000 -- --
Valuation allowance............... 903,000 -- --
Adjustment to prior years' taxes.. -- 720,000 --
Other--Net........................ 395,000 384,000 241,000
------------ ----------- ------------
$ (8,160,000) $ 3,333,000 $ 11,943,000
============ =========== ============
54
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's net deferred income tax liability are
as follows:
April 27 April 30
------------- ------------
1997 1996
Deferred tax liabilities:
Property and equipment......... $ 30,646,000 $12,866,000
LRGP........................... -- 940,000
Other.......................... 1,042,000 59,000
------------ -----------
Total deferred tax liabilities... 31,688,000 13,865,000
Deferred tax assets:
Dividends...................... 496,000 680,000
Write-down of assets held for 5,690,000 3,240,000
sale..........................
Preopening costs............... 2,514,000 1,500,000
Accrued expenses............... 5,836,000 1,600,000
Alternative minimum tax credit. 3,775,000 1,186,000
Net operating losses........... 17,591,000 --
Other.......................... 1,600,000 341,000
------------ -----------
Total deferred tax assets........ 37,502,000 8,547,000
Valuation allowance on (16,757,000) (680,000)
deferred tax assets............. ------------ -----------
Net deferred tax asset........... 20,745,000 7,867,000
------------ -----------
Net deferred tax liability....... $ 10,943,000 $ 5,998,000
============ ===========
At April 27, 1997, the Company's alternative minimum tax credit can be carried
forward indefinitely to reduce future regular tax liabilities. Additionally, as
of April 27, 1997, the Company has net operating loss carry-forwards of
$17,591,000 for income tax purposes, with expiration dates from 2008 to 2012.
Approximately $16,500,000 of net operating losses are subject to limitation
under the consolidated tax return regulation, which may limit the amount
ultimately utilized.
55
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK
Stock-based compensation.
Under the Company's 1992 and 1993 Stock Option Plans, as amended, a maximum of
1,058,750 and 1,200,000 options, respectively, may be granted to directors,
officers, and employees. The plans provide for the issuance of incentive stock
options and nonqualified options which have a maximum term of 10 years and are,
generally, exercisable in yearly installments of 25%, commencing one year after
the date of grant.
Stock options outstanding are as follows:
WEIGHTED
1997 AVERAGE EXERCISE 1996 1995
OPTIONS PRICE OPTIONS OPTIONS
Outstanding options at beginning of fiscal year... 1,518,188 $8.30 1,327,599 1,120,814
fiscal year
Options granted................................... 777,500 3.56 493,375 308,750
Options exercised................................. (65,625) 3.86 (145,218) (64,715)
Options canceled.................................. (249,925) 9.06 (157,568) (37,250)
--------- ---------- ---------
Outstanding options at end of fiscal yeasr....... 1,980,138 $6.49 1,518,188 1,327,599
========= ========== =========
Weighted average fair value of options granted during fiscal 1997 was $4.54.
The following table summarizes information about stock options outstanding at
April 27, 1997:
Options Outstanding Options Exercisable
---------------------------------- -----------------------------
Weighted average Weighted Weighted Weighted
Ranges of Number remaining average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
- --------------- ----------- ---------------- -------------- ----------- ---------------
$ .89-$5.69 966,001 8.56 $ 3.70 258,501 $ 4.99
5.88-11.25 684,262 8.38 6.97 253,506 7.32
11.56-18.00 329,875 6.53 13.67 290,813 13.67
--------- ---------
$.89-$18.00 1,980,138 8.16 $ 6.49 802,820 $ 8.87
========= =========
56
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proforma information regarding net income and earnings per share is required by
SFAS 123, (Accounting for Stock-based Compensation). Had compensation costs for
the Company's two stock option plans been determined based on the fair value at
the grant dates for awards in fiscal 1996 and 1997 consistent with the
provisions of SFAS 123, the Company's net earnings and earnings per share would
have been reduced to the pro forma amounts disclosed below:
For the Fiscal Year Ended
APRIL 27, 1997 APRIL 30, 1996
--------------- --------------
Net income (loss) - as reported $ (21,051,000) $ 1,555,000
Net income (loss) - pro forma $ (21,527,000) $ 1,470,000
Income (loss) per share - as reported $ (0.94) $ 0.10
Income (loss) per share - pro forma $ (0.96) $ 0.09
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in fiscal 1997 and 1996: options vest at 25% per year for four years
beginning with the grant date dividend yield of 0%; expected volatility of .85;
risk-free interest rate of 7.1% and 6.9%, respectively; and expected lives of 6
years.
The pro forma effect on net income (loss) for fiscal 1997 and fiscal 1996 is
not representative of the pro forma effect on net income for future years
because it does not take into account pro forma compensation expense related to
grants made prior to fiscal 1996 or the potential for issuance of additional
stock options in future years.
Warrants
The Company has the following outstanding warrants:
NUMBER OF
----------------- EXERCISE
DATE ISSUED EXPIRATION DATE WARRANTS SHARES PRICE
---------------- --------- ------- --------
February 1993........ October 31, 1997 900,000 900,000 $ 5.33
June 1995............ June 9, 2001 1 416,667 $12.00
May 1996............. May 3, 2001 1 12,500 $ 5.88
May 1996............. May 3, 2001 500,000 500,000 $10.00
May 1996............. May 3, 2001 1 416,667 $12.00
August 1996.......... August 6, 2001 500,000 500,000 $10.50
Rights Offering
On March 11, 1996, the Company sold an aggregate of 1,020,940 shares of its
common stock at a price of $5.875 per share to the Chairman and Chief Executive
Officer of the Company and three members of his family. On March 1, 1996, when
the Board adopted resolutions authorizing the Company's officers to consummate
the sale of these shares, the last reported sales price on NASDAQ was $5.75 per
share. Proceeds from the sale totaled $5,998,000.
57
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's board of directors authorized the offering (the "Offering"), on
a pro rata basis, of rights 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 its shareholders of record on March 15, 1996. The primary
purpose of the Offering was to ensure that all shareholders have the same
opportunity to purchase shares of the Company's common stock as has been
afforded to the Chairman and Chief Executive Officer of the Company and his
family.
The Offering expired on July 26, 1996. The number of shares sold through the
Offering was 3,079,980, resulting in proceeds totaling $17,881,000.
9. STOCKHOLDER RIGHTS PLAN
In February 1997, the Company adopted a Stockholder Rights Plan. The Plan is
designed to preserve the long-term value of the shareholders' investment in the
Company. Under the Plan, each shareholder will receive a distribution of one
Right for each share of the Company's outstanding common stock. The Rights were
distributed to shareholders of record on March 3, 1997 and will expire ten years
thereafter. Each right entitles the holder to purchase one one-thousandth
(1/1,000) of a share of a new series of participating preferred stock at an
initial exercise price of $12.50. Initially the rights are represented by the
Company's common stock certificates and are not exercisable. The rights become
exercisable shortly after a person or group acquires beneficial ownership of 15%
or more of the Company or publically announces its intention to commence a
tender or exchange offer that would result in the 15% beneficial ownership
level. Under certain circumstances involving a buyer's acquisition of a 15%
position in the Company, all Rights holders except the buyer will be entitled to
purchase common stock at half price. If the Company is acquired through a
merger, after such an acquisition, all Rights holders except the buyer will be
entitled to purchase stock in the buyer at half price. The Company may redeem
the rights at one cent each at any time before a buyer acquires 15% of the
Company's stock.
10. RESTRUCTURING CHARGE
During January 1996, the Company recorded an $2,541,000 pretax restructuring
charge. The components of the restructuring charge include $1,991,000 related to
costs associated with the change in executive management and $550,000 related to
costs associated with certain abandoned projects.
11. VALUATION CHARGE
During fiscal 1996 the Company recorded a valuation charge of $9,257,000
related to the write-down of two riverboats, a barge and certain gaming
equipment, which were not being used in operations and were reclassified as
assets held for sale. The assets were written down based upon written and oral
purchase/lease option agreements at that time. During fiscal 1997, the Company
did not place any of these assets into service, nor sell any of these assets and
the purchase/lease agreements that were in effect at the end of fiscal 1996
expired. As a result, the Company has revised its estimate of fair value less
cost to sell these assets, and has recorded an additional write down of
$6,000,000 based on current negotiations with potential buyers. After these
charges, these assets have a net carrying value of approximately $5,000,000.
The Company is actively marketing these assets for sale.
Additionally, the Company wrote off $1,000,000 of design and development
costs related to a project for which the Company revised the original scope.
58
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. EXTRAORDINARY ITEM
The Company incurred a pre-tax extraordinary loss totaling $18,857,000 related
to the refinancing of its 11-1/2% First Mortgage Notes and other debt in early
August of 1996. The extraordinary loss 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 approximately $6,600,000.
13. INVESTMENTS IN LRGP AND SCGC
On January 4, 1993, LRGP was formed with the Company as a 50% owner. LRGP
commenced operations on May 20, 1994 in Bossier City, Louisiana. In August
1996, as previously discussed, the Company acquired the other 50% interest in
LRGP, causing LRGP to become a wholly-owned subsidiary of the Company.
Summarized results of operations of LRGP are as follows:
Year Ended April 30
--------------------------
1996 1995
------------ ------------
Total revenue..................... $150,846,000 147,012,000
Operating income.................. 38,381,000 44,097,000
Net income........................ 34,453,000 40,162,000
Summarized balance sheet information for LRGP is as follows:
APRIL 30
------------
1996
------------
Current assets................................. $ 6,950,000
Property and equipment, net.................... 49,204,000
Investment in and advances to affiliates....... 67,832,000
Other assets................................... 335,000
------------
Total assets................................ $124,321,000
============
Other current liabilities...................... $ 27,834,000
Long-term debt, less current maturities........ 27,500,000
Partners' capital.............................. 68,987,000
------------
Total liabilities and partners' capital..... $124,321,000
============
On June 9, 1995, LRGP acquired a 50% interest in SCGC, which operates a
riverboat casino in Lake Charles, Louisiana, for $1,000,000 cash and a
$20,000,000 note payable ($10,000,000 outstanding at April 27, 1997) to the
seller. The note bears interest at 11 1/2% and requires equal quarterly
principal payments commencing June 1996 through June 2000 with interest payable
monthly. Additionally, the Company has issued a warrant that allows the seller
to convert 50% of the outstanding principal balance of the note payable (up to a
maximum of $5,000,000) into 416,667 shares of common stock of the Company at $12
per share. The difference between the carrying amount of the investment and
LRGP's equity in SCGC's net assets is being amortized on a straight-line basis
over 25 years.
59
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Also, as discussed previously, on May 3, 1996, the Company purchased the 50%
of SCGC not owned by LRGP and in August 1996, in conjunction with the Company's
acquisition of LRGP, the Company acquired the 50% interest in SCGC owned by
LRGP, making SCGC a wholly owned subsidiary of the Company.
Summarized results of operations of SCGC from the date of LRGP's acquisition
of SCGC to April 30, 1996 are as follows:
Total revenue.............. $57,263,000
Operating loss............. (643,000)
Net loss................... (5,346,000)
Summarized balance sheet information for SCGC as of April 30, 1996 is as
follows:
APRIL 30
-----------
1996
-----------
Current assets.................... $ 7,142,000
Property and equipment, net....... 69,919,000
Other assets........... 10,126,000
-----------
Total assets................ $87,187,000
===========
Current liabilities:
Advances from and notes
payable to related parties.... $48,787,000
Other.......................... 44,357,000
Long-term debt, less current
maturities....................... 637,000
Partners' deficit................. (6,594,000)
-----------
Total liabilities and
partners' deficit.......... $87,187,000
===========
14. EMPLOYEE BENEFIT PLAN
The Company has a defined-contribution, profit-sharing plan, including 401(k)
plan provisions, covering substantially all of its employees. The Company's
contribution expense related to this plan was approximately $633,000, $328,000,
and $203,000 for the years ended April 27, 1997, April 30, 1996 and 1995,
respectively. The Company's contribution is based on a percentage of employee
contributions and may include an additional discretionary amount.
60
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. LITIGATION
The Company has challenged a statute that permits the Bossier Parish Police
Jury to levy an additional $.50 boarding fee per passenger against LRGP
begininng January 1, 1996 (Boarding Fee Case). The Company's challenge has been
denied at the state court level, however, the Company believes there are
grounds for appeal and has appealed the decision. If the ruling is upheld the
Company would have a liability, as of April 27, 1997, of approximately
$2,300,000 for prior unpaid boarding fees plus a continuing $.50 fee per
passenger at LRGP. This liability has been fully recorded as of fiscal year end
1997, however, because a portion of these disputed boarding fees were incurred
in the period prior to the LRGP Acquisition, the Company capitalized the portion
of the pre-acquisition contingency that would have been recorded by the third
party's interests, as additional purchase price, which will be amortized as an
intangible asset over 25 years. Therefore, only $1,801,000 of this liability is
reflected as an expense in the Company's 1997 income statement.
In April 1997, the Company settled a dispute with the Louisiana Gaming Control
Board and the Louisiana State Police, Riverboat Gaming Division, concerning the
deductability of double jackpots at LRGP and SCGC for the purposes of
determining the amount of gaming taxes owed (Double Jackpot Settlement). As a
result the Company recorded a liability of approximately $8,100,000, however,
because the dispute related to occurrences in the period prior to the SCGC
Acquisition and the LRGP Acquisition, the Company capitalized the portion of the
pre-acquisition contingency that would have been recorded by the third party's
interest, as additional purchase price, which will be amortized as an intangible
asset over 25 years. Therefore, $4,045,000 of this liability is reflected as an
expense in the Company's 1997 income statement.
The Company has been named, along with two gaming equipment suppliers, 41 of
the country's largest gaming operators, and four gaming distributors (the
"Gaming Industry Defendants") in a consolidated class action lawsuit pending in
Las Vegas, Nevada. The suits alleges that the Gaming Industry Defendants
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, as well as the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. The actions are in the early stages of discovery and
preliminary motions. 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.
The Company is engaged in various matters of litigation and has a number of
unresolved claims pending. While the ultimate liability with respect to such
litigation and claims cannot be determined at this time, it is the opinion of
management that such liability is not likely to be material to the Company's
consolidated financial position or results of operations.
16. SUBSEQUENT EVENTS
Black Hawk, Colorado
In June 1997, the Company entered into a joint venture agreement to develop a
casino facility in Black Hawk, Colorado. The project is estimated to cost
approximately $100 million and is contingent upon finding funding for the
project that is non-recourse to the Company (other than with respect to a
limited completion guarantee and certain imdemnity obligations) on acceptable
terms. The development is expected to take approximately eighteen months to
complete from the commencement of excavation activities. If the project
financing is obtained, the joint venture agreement requires the Company to make
capital investments into the project totaling approximately $9 million.
Additionally, the Company plans to provide a completion capital commitment of
up to $5 million if required to enable the facility to commence operations by
April 1, 1999.
61
CASINO AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters Ended
1996
----------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
----------- ------------- ------------- ---------------
Revenue................................. $32,418,000 $ 35,691,000 $ 42,960,000 $ 46,436,000
Operating income (loss)................. 2,112,000 2,185,000 (7,570,000) 5,651,000
Net income (loss)....................... 2,334,000 2,044,000 (6,547,000) 3,724,000
Net income (loss) per common and
common equivalent share................ 0.15 0.13 (0.44) 0.23
Quarters Ended
1997
-------------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 27
----------- ------------ ------------ --------------
Revenue................................. $48,117,000 $107,039,000 $110,385,000 $110,058,000
Operating income (loss)................. 4,205,000 4,954,000 12,861,000 6,503,000
Net income (loss) before extraordinary
item................................... 2,917,000 (4,957,000) 769,000 (7,527,000)
Net income (loss)....................... 2,917,000 (17,210,000) 769,000 (7,527,000)
Net income (loss) before extraordinary
item per common and common equivalent
share.................................. 0.14 (0.21) 0.03 (0.32)
Net income (loss) per common and common
equivalent share..................... 0.14 (0.74) 0.03 (0.32)
The second quarter of fiscal 1997 includes an extraordinary after-tax charge
of $12,257,000 related to the refinancing of the Company's 11-1/2% First
Mortgage Notes and other debt in early August 1996.
The fourth quarter of fiscal 1997 was adversely affected by $5,846,000 in
charges related to the Double Jackpot Settlement and the Boarding Fee Case and a
$1,600,000 adjustment to taxes related to the reversal of tax benefits related
to previous losses which are not recognizable under generally accepted
accounting principles according to FASB 109. The tax benefits from these losses
will be recognizable when the related entities become taxable. Also, in the
fourth quarter of fiscal 1997, the Company recorded a $7,000,000 valuation
charge related to the write down of property held for development or sale.
The Company recorded a $11,798,000 valuation and restructuring charge in the
third quarter of fiscal 1996.
62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
--------
ITEM 10, "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT," ITEM 11,
"EXECUTIVE COMPENSATION," ITEM 12, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" and ITEM 13, "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" have been omitted from this report and incorporated by reference
into a definitive proxy statement to be filed with the Commission within 120
days after the end of the fiscal year covered by this report.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
1. Financial Statements.
The following financial statements of the Company and reports of
independent auditors are included on pages 37 to 62 of this Form
10-K:
CASINO AMERICA, INC.
Report of Independent Auditors
Consolidated Balance Sheets - April 27, 1997 and
April 30, 1996
Consolidated Statements of Operations - Years ended
April 27, 1997 and April 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years
ended April 27, 1997 and April 30, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended
April 27, 1997 and April 30, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statements Schedules.
None required or applicable.
3. Exhibits.
A list of the exhibits included as part of this Form 10-K is set
forth in the Exhibit Index that immediately precedes such exhibits,
which is incorporated herein by reference.
(b) Reports on Form 8-K. Current report on Form 8-K was filed on February
24, 1997 in connection with a shareholders rights plan adopted by the Company.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CASINO AMERICA, INC.
Dated: July 25, 1997 By: /s/ Bernard Goldstein
----------------------
Bernard Goldstein,
Chairman of the Board, Chief
Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: July 25, 1997 /s/ Bernard Goldstein
-------------------------------------
Bernard Goldstein, Chairman of the
Board, Chief Executive Officer and
Director (Principal Executive
Officer)
Dated: July 25, 1997 /s/ John M. Gallaway
-------------------------------------
John M. Gallaway, President,
Chief Operating Officer and Director
Dated: July 25, 1997 /s/ Rexford A. Yeisley
-------------------------------------
Rexford A. Yersley, Chief Financial
Officer (Principal Financial
and Accounting Officer)
Dated: July 25, 1997 /s/ Allan B. Solomon
-------------------------------------
Allan B. Solomon, Executive Vice
President, Secretary, General
Counsel and Director
Dated: July 25, 1997 /s/ Emanuel Crystal
-------------------------------------
Emanuel Crystal, Director
Dated: July 25, 1997 /s/ Robert S. Goldstein
-------------------------------------
Robert S. Goldstein, Director
Dated: July 25, 1997 /s/ Alan J. Glazer
-------------------------------------
Alan J. Glazer, Director
64
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
3.1 Certificate of Incorporation of Casino America, Inc., as
amended.(5)
3.2 Bylaws of Casino America, Inc., as amended.(5)
3.2A Amendment to Bylaws of Casino America, Inc.
Dated February 7, 1997
4.1 Specimen Certificate of Common Stock.(2)
4.3A Specimen Warrant Agreement with respect to warrants to purchase
900,000 shares of the Company's Common Stock.(3)
4.3B Form of Warrant Agreement with respect to warrants to purchase
500,000 shares of the Company's Common Stock.(13)
4.4A Warrant, dated June 9, 1995, of Crown Casino Corporation to
purchase up to 416,667 shares of Common Stock of Casino America,
Inc.(7)
4.4B Warrant, dated May 3, 1996, of Crown Casino Corporation to
purchase up to 416,667 shares of Common Stock of Casino America,
Inc.(8)
4.5 Indenture dated November 1, 1993 between the Company and Shawmut
Bank Connecticut, National Association, as Trustee.(4)
4.5A First Supplemental Indenture dated as of April 29, 1994 between
the Company and Shawmut Bank Connecticut, National Association,
as Trustee.(4)
4.5B Second Supplemental Indenture dated as of March 8, 1995 between
the Company and Shawmut Bank Connecticut, National Association,
as Trustee.(7)
4.5C Third Supplemental Indenture dated as of May 3, 1996 between the
Company and Fleet National Bank, as Trustee.(8)
4.5D Fourth Supplemental Indenture, dated as of July 26, 1996 between
the Company and Fleet National Bank, as Trustee.(8)
4.6 Indenture dated as of August 1, 1996 between the Company and
Fleet National Bank, as Trustee.(8)
4.7 Casino America, Inc. hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the instruments
defining the rights of holders of long term debt where the total
amount of securities authorized thereunder does not exceed 10% of
Casino America, Inc.'s total consolidated assets.
4.8 Rights Agreement dated as of February 7, 1997 between Casino
America, Inc. and Norwest Bank Minnesota, N.A., as Rights
Agent.(14)
10.1 Amended and Restated Berth Rental Agreement dated May 12, 1992
between the Biloxi Port Commission and Riverboat Corporation of
Mississippi.(2)
65
10.2 Biloxi Waterfront Project Lease dated May 12, 1986 with Point
Cadet Development Corporation.(2)
10.3 Addendum to Lease Agreement, dated August 1, 1992, between the
City of Biloxi, Mississippi, Point Cadet Development Corporation,
and Riverboat Corporation of Mississippi.(4)
10.3A Second Addendum to Lease, dated April 9, 1994, by and between the
City of Biloxi, Mississippi, Point Cadet Development Corporation,
the Biloxi Port Commission and Riverboat Corporation of
Mississippi.(4)
10.3B Third Addendum to Casino Lease, dated April 26, 1995, by and
between the City of Biloxi, Mississippi, Point Cadet Development
Corporation, the Biloxi Port Commission and Riverboat Corporation
of Mississippi.(7)
10.4 Declaration of Shared Facilities Agreement for the Isle of Capri
Casino and Hotel, Biloxi, Mississippi, dated as of April 26,
1995, made by Riverboat Corporation of Mississippi.(7)
10.5 Intercreditor Agreement, dated as of May 1, 1995, by and among
The Peoples Bank, Shawmut Bank of Connecticut, N.A. and Riverboat
Corporation of Mississippi.(7)
10.6 Agreement for Sale and Purchase by and between the Company and
Pompano Park Associates, Limited Partnership, dated as of
November 8, 1994.(7)
10.6A Variable Gaming Adjustment Covenant made as of June 30, 1995 by
PPI, Inc. in favor of Pompano Park Associates, Limited
Partnership.(7)
*10.7 Casino America, Inc. 1992 Stock Option Plan.(1)
*10.8 Casino America, Inc. 1992 Stock Option Plan Amendment.(3)
*10.9 Casino America, Inc. 1993 Stock Option Plan, as amended.(7)
*10.10 Casino America, Inc. description of Employee Bonus Plan.(3)
10.11 Partnership Agreement dated January 4, 1993 of Louisiana
Riverboat Gaming Partnership.(3)
10.11A First Amendment to Partnership Agreement of Louisiana Riverboat
Gaming Partnership dated August 31, 1993.(5)
66
10.11B Second Amendment to Partnership Agreement of Louisiana Riverboat
Gaming Partnership dated April 20, 1995.(7)
10.12 Management Agreement dated January 4, 1993 between Riverboat
Services, Inc. and Louisiana Riverboat Gaming Partnership.(3)
10.13 Management Agreement dated as of March 2, 1995 between Riverboat
Services, Inc. and St. Charles Gaming Company, Inc.(7)
*10.14 Casino America, Inc. Retirement Trust and Savings Plan.(3)
10.15 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents,
Fixture Filing, Security Agreement and Financing Statement, dated
as of November 15, 1993, in a Principal Amount of $105,000,000 by
Riverboat Corporation of Mississippi to J. Morton Matrick, as
trustee for the benefit of Shawmut Bank Connecticut, National
Association, as Indenture Trustee.(4)
10.15A Deed of Trust, Leasehold Deed of Trust, Assignment of Rents,
Fixture Filing, Security Agreement and Financing Statement, dated
as of November 15, 1993, in a Principal Amount of $105,000,000 by
Riverboat Corporation of Mississippi to J. Morton Matrick, as
trustee for the benefit of Shawmut Bank Connecticut, National
Association, as Indenture Trustee.(4)
10.16 Security Agreement, dated November 16, 1993, from Casino America,
Inc. and The Collateral Grantors Party Thereto to Shawmut Bank
Connecticut, National Association, as Trustee.(4)
10.17 First Preferred Fleet Mortgage, dated November 15, 1993, by
Riverboat Corporation of Mississippi to Shawmut Bank Connecticut,
National Association, as Trustee.(4)
10.18 Security Agreement Supplement No. 2, dated January 4, 1994,
between the Company and Shawmut Bank Connecticut, National
Association, as Trustee.(4)
10.19 First Amendment to First Preferred Fleet Mortgage, dated January
6, 1994, by Riverboat Corporation of Mississippi to Shawmut Bank
Connecticut, National Association, as Trustee.(4)
*10.20 Director's Option Plan.(6)
67
10.21 Biloxi Waterfront Project Lease dated April 9, 1994 by and
between the City of Biloxi, Mississippi and Riverboat Corporation
of Mississippi.(4)
10.21A First Amendment to Biloxi Waterfront Project Lease (Hotel Lease),
dated April 26, 1995, by and between Riverboat Corporation of
Mississippi and the City of Biloxi, Mississippi.(7)
10.22 Settlement Agreement, dated April 14, 1994, by and between the
City of Biloxi, Mississippi, Point Cadet Development Corporation,
Riverboat Corporation of Mississippi, the Company, Sea Harvest,
Inc. and Wayne Hicks and Terry Hicks.(4)
10.23 Management Agreement dated December 23, 1994 between Riverboat
Corporation of Mississippi and Mississippi Innkeepers, Inc.(7)
10.24 Amended Stock Purchase Agreement dated as of June 2, 1995, among
Crown Casino Corporation, St. Charles Gaming Company, Inc. and
Louisiana Riverboat Gaming Partnership.(7)
10.25 Crowne Plaza Resort New Development License Agreement between
Holiday Inns Franchising, Inc. and Riverboat Corporation of
Mississippi, dated December 30, 1994.(7)
10.26 Security Agreement - Pledge dated as of June 9, 1995, between
Louisiana Riverboat Gaming Partnership and Crown Casino
Corporation.(7)
10.27 Shareholders Agreement, dated as of June 9, 1995 by and between
Crown Casino Corporation and Louisiana Riverboat Gaming
Partnership.(7)
10.28 Agreement of Lease between Port Resources, Inc. and CRU, Inc., as
landlords and St. Charles Gaming Company, Inc., as tenant, of
certain land in Calcasieu Parish, Louisiana, dated March 24,
1995, and amended by Amendment to Lease, dated May 3, 1995,
Second Amendment to Lease, dated May 16, 1995 and Third Amendment
to Lease, dated June 6, 1995, along with related Memorandum of
Lease.(7)
68
10.28A Agreement of Lease between Port Resources, Inc. and CRU, Inc., as
landlords and St. Charles Gaming Company, Inc., as tenant, of
certain land in Calcasieu Parish, Louisiana, dated July 17, 1995,
and amended by Amendment to Lease, dated July 17, 1995.(7)
10.29 Bareboat Charter Party Agreement dated as of March 20, 1995,
between Riverboat Chartering Company, L.C., and Riverboat
Corporation of Mississippi.(7)
10.30 Purchase Option Agreement, dated as of March 20, 1995, between
Riverboat Chartering Company, L.C. and Riverboat Corporation of
Mississippi.(7)
10.31 Guaranty Agreement, dated as of March 20, 1995, between Riverboat
Chartering Company, L.C. and Riverboat Corporation of
Mississippi.(7)
10.32 Development Agreement between St. Charles Gaming Company, Inc.
and Calcasieu Parish Police Jury dated June 5, 1995.(7)
10.33 Note Purchase Agreement, dated as of July 20, 1995, by and among
Louisiana Riverboat Gaming Partnership, St. Charles Gaming
Company, Inc., Nomura Holding America Inc. and First National
Bank of Commerce.(7)
10.34 Lease between Pompano Park Associates, Inc., as Lessor, and the
Company, as lessee, dated as of July 1, 1995.(7)
10.35 Ground Lease with Option to Purchase, dated February 9, 1995,
between Iron Dukes, Inc. and Isle of Capri Casino Colorado,
Inc.(7)
10.36 Promissory Note dated June 29, 1995 by and between PPI, Inc. and
Capital Bank.(9)
10.37 Florida Real Estate Mortgage, Assignment of Rents, and Security
Agreement dated June 29, 1995 by and between PPI, Inc. and
Capital Bank.(9)
*10.38 Employment Agreement dated December 11, 1995 between Casino
America, Inc. and John M. Gallaway.(9)
*10.39 Employment Agreement dated December 11, 1995 between Casino
America, Inc. and Allan B. Solomon.(9)
*10.40 Employment Agreement dated December 22, 1995 by and between
Casino America, Inc. and Rexford A. Yeisley.(10)
69
10.41 Stock Purchase Agreement dated February 27, 1996 by and between
Casino America, Inc., on the one hand, and Bernard Goldstein,
Robert Goldstein, Richard Goldstein and Jeffrey Goldstein, on the
other hand.(10)
10.42 Stock Purchase and Sale Agreement pursuant to a Plan of
Reorganization dated December 29, 1995 between Casino America,
Inc. and Grand Palais Riverboat, Inc. with exhibits.(10)
10.43 Form of Stock Purchase Agreement dated January 19, 1996 by and
among Casino America, Inc. and Crown Casino Corporation, without
exhibits.(10)
10.44 Purchase Agreement, dated July 2, 1996, by and between CSNO,
Inc., LRGP Holdings, Inc. and Louisiana River Site Development,
Inc.(13)
10.45 Escrow Agreement, dated July 2, 1996, by and among LRGP Holdings,
Inc., Casino America, Inc., Louisiana River Site Development,
Inc., Louisiana Downs, Inc. and Boult, Cummings, Conners & Berry,
PLC.(13)
10.46 Employment Agreement dated July 19, 1996 between Casino America,
Inc. and Edward Reese.(11)
10.47 Employment Agreement dated July 25, 1995 between Casino America,
Inc. and Robert Boone.
10.48 Employment Agreement dated March 17, 1997 between Casino America,
Inc. and James Guay.
10.49 Employment Agreement dated April 7, 1997 by and between Casino
America, Inc. and Timothy M. Hinkley.
10.50 Management Agreement dated April 28, 1997 between
Casino America, Inc. and Riverboat Corporation of Mississippi.
10.51 Management Agreement dated as of April 28, 1997 between Casino
America, Inc. and Riverboat Corporation of Mississippi -
Vicksburg.
10.52 Management Agreement dated April 25, 1997 between Casino America,
Inc. and ICB, L.L.C.
10.53 Operating Agreement of ICB, L.L.C. dated as of April 25, 1997
between Casino America of Colorado, Inc. and Blackhawk Gold, Ltd.
70
10.54 Amended Casino America, Inc. 1992 Stock Option Plan(12).
10.55 Amended Casino America, Inc. 1993 Stock Option Plan(12).
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
- ----------------------------
(1) Filed as an exhibit to the Company's Current Report on Form 8-K filed
June 16, 1992 (File No. 0-20538), and incorporated into the Company's Form
10-K for the year ended April 27, 1997, by reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1992 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1993 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1994 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(5) Filed as an exhibit to the Company's Registration Statement on
Form S-1 filed September 3, 1993, as amended (File No. 33-68434), and
incorporated into the Company's Form 10-K for the year ended April 27,
1997, by reference.
(6) Filed as an exhibit to the Company's Registration Statement on
Form S-8 filed June 30, 1994 (File No. 33-80918), and incorporated into the
Company's Form 10-K for the year ended April 27, 1997, by reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1995 (File No. 0-20538), and incorporated
into the Company's Form 10-K for the year ended April 27, 1997, by
reference.
(8) Filed as an exhibit to the Company's Registration Statement on
Form S-3 (No. 333-2610), and incorporated into the Company's Form 10-K for
the year ended April 27, 1997, by reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 1995, and incorporated into the
Company's Form 10-K for the fiscal year ended April 27, 1997, by reference.
71
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended January 30, 1996, and incorporated into the
Company's Form 10-K for the fiscal year ended April 27, 1997, by reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 1996, and incorporated into the Company's
form 10-K for the fiscal year ended April 27, 1997, by reference.
(12) Filed as an exhibit to the Company's Proxy Statement for the year
ended April 30, 1996, with respect to the Annual Meeting of Shareholders
held on November 14, 1996.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1996, by reference.
(14) Filed as an exhibit to the Company's current report on Form 8-K filed
on February 24, 1997, and incorporated into the Company's Form 10-K for the
fiscal year ended April 27, 1997, by reference.
* Management contract or compensatory plan.
72