UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 26, 1998
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission File Number: 0-20538
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Casino America, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 41-1659606
- - ------------------------------------- --------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
711 Washington Loop, Second Floor, Biloxi, Mississippi 39530
- - --------------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(228) 436-7000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (a) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (b) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Shares of Common Stock outstanding at September 8, 1998: 23,568,562
CASINO AMERICA, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
July 26, 1998 (unaudited) and
April 26, 1998 1-2
Consolidated Statements of
Operations for the Three Months
Ended July 26, 1998
and July 27, 1997 (unaudited) 3
Consolidated Statement of
Stockholders' Equity (unaudited) 4
Consolidated Statements of
Cash Flows for the Three Months
Ended July 26, 1998 and
July 27,1997 (unaudited) 5-6
Notes to Unaudited Consolidated
Financial Statements 7-11
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12-16
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of 18
Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT LIST 20
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JULY 26, APRIL 26,
1998 1998
---------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 72,372 $ 52,460
Accounts receivable 5,692 5,715
Income taxes receivable 2,040 3,563
Deferred income taxes 3,279 3,279
Prepaid expenses and other assets 4,027 4,240
-------- --------
TOTAL CURRENT ASSETS 87,410 69,257
-------- --------
Property and equipment, net 345,645 333,811
-------- --------
OTHER ASSETS:
Other investments 2,207 1,709
Property held for development or sale 7,943 7,943
Licenses, and other intangible assets
net of accumulated amortization of
$6,784 and $6,058, respectively 65,585 66,311
Goodwill, net of accumulated amortization of
$6,721 and $6,023, respectively 59,851 60,550
Berthing, concession and leasehold rights,
net of accumulated amortization of $1,915 and
$1,836, respectively 4,354 4,432
Deferred financing costs, net of accumulated
amortization of $3,654 and $3,073,
respectively 14,755 15,313
Restricted Cash 38,714 50,341
Prepaid expenses, deposits and other 6,087 6,068
-------- --------
199,496 212,667
-------- --------
TOTAL ASSETS $632,551 $615,735
======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JULY 26, APRIL 26,
1998 1998
----------- ---------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 12,595 $ 12,453
Accounts payable - Trade 13,952 14,365
Accrued liabilities:
Interest 23,896 11,771
Payroll and related 17,459 17,854
Property and other taxes 13,317 10,095
Progressive jackpots and slot club awards 3,716 3,505
Other 10,262 7,912
-------- -------
TOTAL CURRENT LIABILITIES 95,197 77,955
-------- -------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 426,846 429,642
DEFERRED INCOME TAXES 16,155 16,155
MINORITY INTEREST 5,530 5,852
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 2,050,000 shares
authorized; none issued --- ---
Common stock, $0.01 par value; 45,000,000
shares authorized; shares issued and
outstanding:
23,568,562 and 23,345,287, respectively 236 236
Class B common stock, $0.01 par value; 3,000,000
shares authorized; none issued --- ---
Additional paid-in capital 63,146 63,146
Retained earnings 25,441 22,749
-------- -------
TOTAL STOCKHOLDERS' EQUITY 88,823 86,131
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $632,551 $615,735
======== =======
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
JULY 26 JULY 27
1998 1997
-------- --------
REVENUE
Casino $100,689 $ 99,147
Rooms 3,089 3,078
Pari-mutuel commissions and fees 4,360 4,487
Food, beverage and other 5,941 5,025
-------- --------
TOTAL REVENUE 114,079 111,737
-------- --------
OPERATING EXPENSES:
Casino 18,247 18,821
Rooms 1,009 1,129
Gaming taxes 20,723 19,698
Pari-mutuel 3,323 3,764
Food, beverage and other 3,858 3,474
Marine and facilities 6,845 5,841
Marketing and administrative 34,492 34,704
Depreciation and amortization 8,657 8,279
-------- --------
TOTAL OPERATING EXPENSES 97,154 95,710
-------- --------
OPERATING INCOME 16,925 16,027
INTEREST EXPENSE, NET OF CAPITALIZED INTEREST
OF $1,341 AND $94, RESPECTIVELY (12,617) (11,564)
INTEREST INCOME 1,009 451
MINORITY INTEREST 322 ---
EQUITY IN LOSS OF UNCONSOLIDATED
JOINT VENTURES (299) ---
-------- --------
INCOME BEFORE TAXES 5,340 4,914
INCOME TAX PROVISION 2,648 1,966
-------- --------
NET INCOME $ 2,692 $ 2,948
======== ========
NET INCOME PER SHARE - BASIC/DILUTED $ 0.11 $ 0.13
WEIGHTED AVERAGE COMMON SHARES - DILUTED 23,680 23,361
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
SHARES OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ---------- --------- -------- -------------
BALANCE, APRIL 26, 1998 23,569 $ 236 $63,146 $22,749 $86,131
Net Income - - - 2,692 2,692
------- ------- ------- ------- -------
BALANCE, JULY 26, 1998 23,569 $ 236 $63,146 $25,441 $88,823
======= ======= ======= ======= =======
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
JULY 26 JULY 27
1998 1997
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,692 $ 2,948
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,657 8,279
Amortization of bond discount and deferred
financing costs 547 324
Equity in loss of unconsolidated joint ventures 299 ---
Loss on disposal of assets 16
Changes in current assets and liabilities:
Accounts receivable (782) 173
Income tax receivable 2,328 4,167
Prepaid expenses and other 216 (285)
Accounts payable and accrued liabilities 17,660 11,682
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,633 27,288
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (18,485) (9,981)
Proceeds from disposals of property and equipment 17 ---
Minority interest (322) ---
Decrease in restricted cash 11,627 ---
Other (1,344) (590)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (8,507) (10,571)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings --- 30
Principal payments on borrowings and cash paid
to retire debt (3,214) (4,363)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (3,214) (4,333)
-------- --------
Net increase in cash and cash equivalents 19,912 12,384
Cash and cash equivalents at beginning of period 52,460 51,846
-------- --------
Cash and cash equivalents at end of period $ 72,372 $ 64,230
======== ========
(CONTINUED)
5
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
JULY 26 JULY 27
1998 1997
-------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $1,833 $ 1,570
Income taxes, net of refunds received 587 (2,649)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Notes Payable and debt issued for:
Property and Equipment $ 560 $ 30
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
CASINO AMERICA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
Casino America, Inc. (the "Company") was incorporated as a Delaware
corporation on February 14, 1990. The Company, through its
subsidiaries, is engaged in the business of developing, owning and
operating riverboat, dockside and land based casinos and related
facilities. The Company has licenses to conduct gaming operations in
Biloxi and Vicksburg, Mississippi, and in Bossier City and Lake
Charles, Louisiana through its subsidiaries. The Company, through its
subsidiary, Casino America of Colorado, Inc., has applied for a
Colorado gaming license.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation
have been included. Operating results for the three-month period
ended July 26, 1998 are not necessarily indicative of the results that
may be expected for the fiscal year ending April 25, 1999. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended April 26, 1998.
Other Assets
Licenses and other intangible assets - principally represent the
license value attributed to the Louisiana gaming licenses acquired
through the Company's acquisition of St. Charles Gaming Company, Inc.
("SCGC"), Grand Palais Riverboat, Inc. ("GPRI") and Louisiana
Riverboat Gaming Partnership ("LRGP"). These assets are being
amortized over a twenty-five-year period using the straight-line
method.
Goodwill - reflects the excess purchase price the Company paid in
acquiring the net identifiable tangible assets of SCGC, GPRI and LRGP.
Goodwill is being amortized over a twenty-five-year period using the
straight line method.
Restricted cash - represents cash proceeds from the 13% First Mortgage
Notes due 2004 with Contingent Interest issued by Isle of Capri Black
Hawk L.L.C. (the "First Mortgage Notes") held in trust by IBJ Schroder
Bank and Trust in New York, as trustee for Isle of Capri Black Hawk
L.L.C. ("ICBH"), a majority owned subsidiary of the Company. These
funds are held in three separate accounts (Construction Disbursement,
Completion Reserve, Interest Reserve) with usage restricted by an
indenture between ICBH and the trustee, dated August 20, 1997 in
connection with issuance of the ICBH First Mortgage Notes (the
"Indenture"). Amounts in the Construction Disbursement Account as of
July 26, 1998, approximately $22.8 million, will be used for the
development, construction and opening of a casino entertainment
complex by ICBH in Colorado. Amounts in the Completion Reserve
Account, approximately $5.2 million, will be used in the event there
are insufficient funds in the Construction Disbursement Account to
complete the casino entertainment complex. Amounts in the Interest
Reserve Account, approximately $9.1 million, will be used to pay the
first three fixed interest payments on the ICBH First Mortgage Notes
(the first of which
7
was made on February 28, 1998) which were issued pursuant to the
Indenture. In addition, the Company has other restricted cash
totaling $1.6 million.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to
the previously reported fully diluted earnings per share. Earnings per
share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements.
THREE MONTHS ENDED
07/26/98 07/27/97
-------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Numerator:
Income (loss) before extraordinary item........................... $ 2,692 $ 2,948
Extraordinary loss................................................ -- --
Net income (loss)................................................. 2,692 2,948
Numerator for basic earnings per share - income available to
common stockholders.............................................. 2,692 2,948
Effect of dilutive securities -- --
---------- ----------
Numerator for diluted earnings per share - income available to
common stockholders after assumed conversions.................... $ 2,692 $ 2,948
========== ==========
Denominator:
Denominator for basic earnings per share -
weighted - average shares........................................ 23,569 23,353
Effect of dilutive securities
Employee stock options........................................... 112 9
Warrants......................................................... -- --
---------- ----------
Dilutive potential common shares.................................. 112 9
Denominator for diluted earnings per share - adjusted weighted -
average shares and assumed conversions........................... 23,680 23,361
========== ==========
BASIC EARNINGS PER SHARE
Income (loss) before extraordinary item........................... $ 0.11 $ 0.13
Extraordinary loss................................................ -- --
Net income (loss)................................................. $ 0.11 $ 0.13
========== ==========
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary item........................... $ 0.11 $ 0.13
Extraordinary loss................................................ -- --
Net income (loss)................................................. $ 0.11 $ 0.13
========== ==========
Reclassifications
- - -----------------
Certain prior period amounts have been reclassified to conform with the current
presentation.
8
Note 2. Isle of Capri Black Hawk L.L.C.
On April 25, 1997, a subsidiary of the Company, Casino America of
Colorado, Inc., formed ICBH, a limited liability company, with
Blackhawk Gold, Ltd., a wholly-owned subsidiary of Nevada Gold and
Casino, Inc. The primary purpose of ICBH is to develop the Isle-Black
Hawk, which is anticipated to open in late 1998 or early 1999. The
Company's interest in the net loss of ICBH for fiscal 1998 was
approximately $1.2 million, net of minority interest of $0.8 million.
The net loss is comprised solely of interest expense on the
$75,000,000, 13% First Mortgage Notes, net of interest income on the
restricted cash. ICBH is continuing to evaluate constructing a hotel
at the site of, the Isle-Black Hawk, and the Company is assisting ICBH
in its efforts to secure financing for the development of a hotel;
however, as of the date of this filing, no definitive arrangements
have been made, and it is expected that ICBH will commence operations
without a hotel.
Note 3. Capri Cruises L.L.C.
On April 20, 1998, the Company signed an agreement with Commodore
Holdings Limited, parent company of Commodore Cruise Line, to create a
joint venture named Capri Cruises that will operate cruise ships
in strategic markets. As of July 26, 1998, the Company had invested
$2.2 million into this joint venture, which is operating one cruise
ship from the Port of New Orleans.
Note 4. Long-term Debt
On August 6, 1996, the Company issued $315,000,000 of 12 1/2% Senior
Secured Notes due 2003 (the "Senior Secured Notes"). Interest on the
Senior Secured Notes is payable semiannually on each February 1 and
August 1 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 July 26, 1998,
no dividends were permitted to be paid under these restrictions.
The Company has $5,500,000 available in bank lines of credit. As of
July 26, 1998, 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 July 26, 1998, the Company was in compliance
with all debt covenants.
9
On August 20, 1997, ICBH issued $75 million of 13% First Mortgage
Notes due 2004 with Contingent Interest (the "ICBH First Mortgage
Notes"), which is non-recourse debt to the joint venture partners.
Interest on the ICBH First Mortgage Notes is payable semiannually on
February 28 and August 31 of each year, commencing February 28, 1998.
Additionally, contingent interest is payable on the ICBH First
Mortgage Notes on each interest payment date, in an aggregate
principal amount of 5% of the Consolidated Cash Flow (as defined in
the Indenture), provided that no Contingent Interest is payable prior
to commencement of the facility's operations. The ICBH First Mortgage
Notes are redeemable at the option of ICBH, in whole or in part, at
any time on or after August 1, 2001 at the redemption prices
(expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest to the redemption date, if redeemed during
the 12-month period beginning on August 31 of the years indicated
below:
Year Percentage
---- ----------
2001................. 106.5%
2002................. 103.2%
2003 and thereafter.. 100.0%
Beginning with the first operating year after the Isle-Black Hawk
begins gaming operations, ICBH will be required to offer to purchase,
at the price of 101% of the aggregate principal amount thereof, the
maximum principal amount of the ICBH First Mortgage Notes that may be
purchased with 50% of the Isle-Black Hawk's excess cash flow.
Substantially all of ICBH's assets are pledged as collateral for long-
term debt.
ICBH obtained a letter of credit as a requirement to obtain a building
permit from the City of Black Hawk (the "City"). The letter of
credit, totaling $2.1 million, can be drawn upon by the City if for
any reasons ICBH fails to complete the construction project. The
letter of credit is secured by a deposit held in trust of $1.1
million, which was funded by the Company, and the balance is secured
by the Company's open line of credit with the bank.
As of April 26, 1998, the Company had secured financing to fund the
development of an all-suite hotel at the Isle-Bossier City, not to
exceed $19 million, of which $0.3 million had been drawn as of July
26, 1998. The Company plans to fund the balance of the Bossier City
hotel project from existing cash flows.
Note 5. Contingencies
A subsidiary of the Company has been named, along with numerous
manufacturers, distributors and gaming operators, including many of
the country's largest gaming operators (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 discovery and preliminary motion stages. The
Company is unable at this time to determine what effect, if any, the
suit would have on its financial position or results of operations.
However, the Defendants are committed to vigorously defend all claims
asserted in the consolidated action.
LRGP has challenged a statute that purportedly permits the Bossier
Parish Police Jury to levy an additional $.50 boarding fee per
passenger against LRGP beginning January 1, 1996. The
10
Company's challenge was denied at the state trial court level, and the
Company appealed the decision. On June 26, 1998, a Louisiana State
Court of Appeals reversed the trial court's decision. However, the
Bossier Parish Police Jury has filed an application for a writ of
certiorari to the Supreme Court of Louisiana. If the Police Jury
ultimately prevails, the Company would have to pay the Bossier Parish
Police Jury approximately $3.9 million as of July 26, 1998, for prior
unpaid boarding fees, plus a continuing $.50 fee per passenger at the
Isle-Bossier City. This potential liability has been fully recorded.
On June 11, 1998, a lawsuit was filed which seeks to nullify a
contract to which LRGP is a party. Pursuant to the contract, LRGP
pays a fixed amount plus a percent of revenue to various local
governmental entities, including the City of Bossier (the "City") and
the Bossier Parish School Board (the "School Board"), in lieu of
payment of a boarding fee per passenger. The Company intends to
vigorously defend the action.
In February 1998, the Isle-Vicksburg was named as a defendant in an
action brought by an individual who owns property adjacent to the Big
Black River in the eastern part of Warren County and several other
parties. Also named as defendants in the action are two other
operators in the Vicksburg market and one of the largest banks in the
State of Mississippi. As amended, the Complaint alleges that the
defendants entered into an agreement, the effect of which was to
improperly restrain trade and hinder competition in the gaming
business by conducting a campaign in opposition to a gaming
application for a site adjacent to property owned by the Plaintiffs
(the "Proposed Project"). The Plaintiffs further allege that the
Defendants conspired for the purpose of injuring the property rights
of the Plaintiffs. The Plaintiffs seek compensatory and punitive
damages in the amount of $238 million from the Defendants. The Company
denies the allegations contained in the Amended Complaint and intends
to vigorously defend all claims and allegations in the action.
On May 29, 1998, the Company was named as a defendant in an action
brought by several persons who owned property in Cripple Creek,
Colorado which they sold to a subsidiary of the Company in 1995. The
Plaintiffs allege that the Company breached its purported agreement
to construct a casino facility on the property by the end of 1995. The
Company denies the allegations contained in the Complaint, and it
intends to vigorously defend all claims and allegations in the action.
The Company is engaged in various other 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.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the unaudited consolidated financial statements, including the
notes thereto, included elsewhere in this report.
The following discussion includes "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In particular,
statements concerning the effects of increased competition in the Company's
markets, the 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 and hotel at the Isle-Black Hawk in Black
Hawk, Colorado and to develop hotels at the Isle-Lake Charles, the Isle-
Vicksburg, the Isle-Bossier City and the Isle-Biloxi 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 and the prospectus dated December 22, 1997
relating to an exchange offer with respect to the ICBH First Mortgage Notes.
GENERAL
The Company's results of operations for the three fiscal months ended July 26,
1998 and July 27, 1997 reflect the consolidated operations of all of the
Company's subsidiaries, including Isle of Capri Casino in Biloxi, Mississippi
(the "Isle-Biloxi"), Isle of Capri Casino in Vicksburg, Mississippi (the "Isle-
Vicksburg"), Isle of Capri Casino in Bossier City, Louisiana (the "Isle-Bossier
City"), Isle of Capri Casino in Lake Charles, Louisiana (the "Isle-Lake
Charles"), Pompano Park, Inc. ("PPI") and the Isle-Black Hawk. The following
discussion relates to the period for the three fiscal months ended July 26, 1998
and will be compared with the three month period ending July 27, 1997.
The Company believes that its historical results may not be indicative of future
results of operations because of the substantial present and expected future
increase in gaming competition for gaming customers in each of the Company's
markets as new casinos open and as existing casinos add to or enhance their
facilities. As the markets in which the Company operates have matured, it has
become apparent to management that the Company's operating results are affected
by seasonality. Seasonality causes the operating results for the Company's
first and fourth fiscal quarters ending July and April, respectively, to be
notably better than the second and third fiscal quarters ending October and
January, respectively.
RESULTS OF OPERATIONS
Three Fiscal Months Ended July 26, 1998 Compared to the Three Fiscal Months
Ended July 27, 1997 - Consolidated Company
Total revenue for the quarter ended July 26, 1998 was $114.1 million which
included $100.7 million of casino revenue, $3.1 million of rooms revenue, $4.4
of pari-mutuel commissions, and $5.9 million of food, beverage and other
revenue. Comparably, total revenue for the quarter ended July 27, 1997 was
$111.7 million which included $99.1 million of casino revenue, $3.1 million of
rooms revenue, $4.5 million of pari-mutuel commissions, and $5.0 million of
food, beverage and other revenue. Casino revenue increased primarily
as a result of the addition of the 241-room Inn at the Isle in Lake Charles,
which opened in September 1997. Room revenue and food, beverage and other
revenue have increased as a result of the increased number of
12
hotel rooms and the development of the Company's themed restaurant, branded
Farraddays', which opened at each of the Company's casino properties during
fiscal 1998. Revenue does not reflect the retail value of any complimentaries.
Casino operating expenses for the quarter ended July 26, 1998 totaled $18.2
million, or 18% of casino revenue versus $18.9 million, or 19% of casino revenue
for the three months ended July 27, 1997. These expenses were primarily
comprised of salaries, wages and benefits, and other operating expenses of the
casinos. Casino operating expenses have decreased primarily as a result of
continued refinement of the Company's payroll and operating cost control
programs.
Operating expenses for the quarter ended July 26, 1998 also included room
expenses of $1.0 million from the hotels at the Isle-Biloxi (the "Isle-Biloxi
Hotel"), the Isle-Bossier City (the "Isle-Bossier City Hotel") and the Isle-Lake
Charles (the "Inn at the Isle"). Comparably, operating expenses for the three
months ended July 27, 1997 included $1.1 million of room expenses 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. Room expenses decreased as a result of an increase in rooms given
to patrons as complimentaries, the cost of which has been reclassified as a
casino operating expense. This treatment is consistent for the cost of all
complimentaries.
State and local gaming taxes paid in Mississippi and Louisiana totaled $20.7
million for the quarter ended July 26, 1998 versus $19.7 million for the three
months ended July 27, 1997. The increase is consistent with the increase in
casino revenues, relative to each state's applicable gaming tax rate.
Food, beverage and other expenses totaled $3.9 million, or 66% of food, beverage
and other revenues, for the quarter ended July 26, 1998 versus $3.5 million, or
70% of food, beverage and other revenues, for the quarter ended July 27, 1997.
These expenses are comprised primarily of the cost of goods sold, salaries,
wages and benefits, and the operating expenses of these departments. Food,
beverage and other expenses have increased as a result of increased revenues,
while these expenses as a percentage of revenues have decreased as a result of
payroll and inventory cost control measures put into effect by management.
Marine and facilities expenses totaled $6.8 million for the three fiscal months
ended July 26, 1998 versus $5.8 million for the quarter ended July 27, 1997.
These expenses included salaries, wages and benefits, operating expenses of the
marine crews, insurance, housekeeping and general maintenance of the riverboats
and floating pavilions. Marine and facilities expenses have increased due to
the maturity of the Company's vessels and facilities.
Marketing and administrative expenses totaled $34.5 million, or 30% of total
revenues, for the quarter ended July 26, 1998 versus $34.7 million, or 31% of
total revenues, for the quarter ended July 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 and property
taxes. Marketing and administrative expenses have decreased as a result of the
Company's refinement of its direct response marketing and other expense
reduction efforts.
Depreciation and amortization expense was $8.7 million for the quarter ended
July 26, 1998, and $8.3 million for the quarter ended July 27, 1997. These
expenses relate to property and equipment, berthing and concession rights, and
intangible assets. The increase in depreciation and amortization expense is
consistent with the increase in fixed assets placed into service.
Interest expense was $11.6 million for the quarter ended July 26, 1998, net of
capitalized interest of $1.3 million and interest income of $1.0 million, versus
$11.1 million for the quarter ended July 27, 1997, net of capitalized interest
of $0.1 million and interest income of $0.5 million. Interest expense primarily
relates to indebtedness incurred in connection with the acquisition of property,
equipment, leasehold improvements
13
and berthing and concession rights, as well as indebtedness relating to the
purchase of the remaining interest in LRGP. Additionally, interest expense,
capitalized interest and interest income of $2.4 million, $1.2 million and $0.5
million respectively, related to the Isle of Capri Black Hawk L.L.C. are
included in the quarter ended July 26, 1998. This compares to $0 in the
comparable prior year quarter.
The Company's effective tax rate for the quarter was approximately 49.7%,
which includes the effects of non-deductible goodwill amortization.
The Company had net income of $2.7 million for the quarter ended July 26, 1998,
which includes a $0.3 million charge, net of taxes, related to the Company's
share of net interest expense at the Isle of Capri Black Hawk L.L.C. and a $0.2
charge, net of taxes, related to startup losses on the Capri Cruises joint
venture. This compares to net income of $2.9 million in the comparable quarter
in fiscal 1997.
Three Fiscal Months Ended July 26, 1998, Compared to Three Months Ended July 27,
1997-By Casino Location
Isle-Biloxi
For the quarter ended July 26, 1998, the Isle-Biloxi had total revenue of $24.4
million of which $20.2 million was casino revenue, compared to total revenue of
$23.6 million of which $19.8 million was casino revenue for the quarter ended
July 27, 1997. The increase in total revenue relates to the Company's improved
direct response marketing efforts. Operating income for the three fiscal months
ended July 26, 1998 totaled $4.8 million or 20% of total revenues compared to
$4.2 million or 18% of total revenues for the three months ended July 27, 1997.
Increased operating income margin is due primarily to decreased depreciation
expense, as a result of certain assets becoming fully depreciated.
Isle-Vicksburg
For the quarter ended July 26, 1998, the Isle-Vicksburg had total revenue of
$13.1 million of which $12.5 million was casino revenue, compared to total
revenue of $13.3 million of which $12.7 million was casino revenue for the
quarter ended July 27, 1997. Operating income for the three fiscal months ended
July 26, 1998 totaled $2.8 million or 21% of total revenue compared to $2.9
million or 22% of total revenues for the three months ended July 27, 1997. The
slight decrease in revenues and operating income margin is due primarily to
increased competition from the opening of a competitor's new hotel in the
market.
Isle-Bossier City
For the quarter ended July 26, 1998, the Isle-Bossier City had total revenue of
$31.8 million of which $30.3 million was casino revenue, compared to total
revenue of $34.4 million of which $32.1 million was casino revenue for the
quarter ended July 27, 1997. The decrease in revenue relates primarily to
increased competition from the opening of a competitor's new hotel and expanded
gaming facility in the market. Operating income for the three fiscal months
ended July 26, 1998 totaled $6.8 million or 21% of total revenue compared to
$6.5 million or 19% of total revenue for the three months ended July 27, 1997.
Increased operating income margin is due primarily to a continued reduction in
operating expenses combined with improved direct response marketing efforts.
Isle-Lake Charles
For the quarter ended July 26, 1998, the Isle-Lake Charles had total revenue of
$39.6 million of which $37.5 million was casino revenue, compared to total
revenue of $35.3 million of which $34.5 million was casino revenue for the
quarter ended July 27, 1997. Operating income for the three months ended July
26, 1998 totaled $6.7 million or 17% of total revenue compared to operating
income of $6.1 million or 17% of total revenue for the three months ended July
27, 1997. The increase in revenue and operating income has resulted from the
addition of the 241-room Inn at the Isle, increased use of the casino's player
database, and the increased utilization of the Isle-Lake Charles' entertainment
center.
14
Liquidity and Capital Resources
At July 26, 1998, the Company had cash and cash equivalents of $72.3 million
compared to $52.5 million at April 26, 1998. The increase in cash is primarily
a result of increased cash flows from operating activities. During the three-
month period ended July 26, 1998, the Company's operating activities provided
$31.6 million of cash compared to $27.2 million of cash used in operating
activities in the first three months of fiscal 1997.
The Company invested $18.4 million in property and equipment in the first three
months of fiscal 1999, primarily for the development of the Isle-Black Hawk,
which is currently under construction and scheduled to open in late 1998 or
early 1999. Additionally, the Company has also incurred capital expenditures
related to the construction of a 305-room all suite hotel at the Isle-Bossier
City and a 124-room hotel at the Isle-Vicksburg, which are expected to open
late spring 1999 and late 1998, respectively.
On August 20, 1997, Isle of Capri Black Hawk L.L.C., a joint venture of which
the Company owns 57%, issued $75 million of 13% First Mortgage Notes due 2004
with Contingent Interest, which is non-recourse debt to the Company. Interest
is payable semiannually on each February 28 and August 31, commencing February
28, 1998. Additionally, contingent interest is payable on the First Mortgage
Notes on each interest payment date, in an aggregate principal amount equal to
5% of the Company's Consolidated Cash Flow (as defined in the Indenture),
provided that no Contingent Interest is payable prior to commencement of
operations and may be deferred under certain circumstances. The net proceeds of
the issuance are being used to fund the development of the Isle of Capri casino
complex in Black Hawk, Colorado. Interest payments due on February 28, 1998 and
August 31, 1998 have been made and an interest payment due February 28, 1999 has
been placed in escrow at the discounted amount. Additionally, the Company has
provided a completion capital commitment of up to $5.0 million, which is
required to be paid if the facility has not commenced operations by April 1,
1999 it is not expected that this commitment will be drawn upon.
On April 20, 1998, the Company signed an agreement with Commodore Holdings
Limited, parent company of Commodore Cruise Line to create a joint venture to be
named Capri Cruises that will operate cruise ships in strategic markets. As of
July 26, 1998, the Company had invested $2.2 million into this joint venture
which is operating one cruise ship from the Port of New Orleans.
The Company anticipates that its principal near-term capital requirements will
relate to the completion of a 305-room hotel at the Isle-Bossier City, a 124-
room hotel at the Isle-Vicksburg, and the completion of the Isle-Black Hawk.
The Company also anticipates that capital improvements approximating $9.2
million will be made during fiscal 1999 to maintain its existing facilities and
remain competitive in its markets. Additionally, ICBH is continuing to evaluate
constructing a 248-room hotel in conjunction with the Isle-Black Hawk, and the
Company is assisting ICBH in its efforts to secure financing for the development
of the hotel, however, as of the date of this filing, no definitive arrangements
have been made.
An important component of the Company's operating strategy will be to develop,
open and operate, either directly, through a hotel joint venture or otherwise,
hotel facilities at its gaming facilities in order to attract additional gaming
patrons and encourage longer visits to and a greater level of play at the
Company's casinos. The Company has secured financing, not to exceed $19
million, (of which $0.3 million has been drawn as of July 26, 1998), for and is
currently constructing a 305-room all suite hotel, at an anticipated cost of
$42.8 million, at the Isle-Bossier City. Construction of this hotel facility
began on January 29, 1998, and the hotel is expected to open in the late spring
of 1999. Additionally, the Company began construction of a 124-room hotel at the
Isle-Vicksburg on April 9, 1998, which is expected to open by the end of 1998.
The hotel at the Isle-Vicksburg is expected to cost approximately $10.5 million.
The Company is currently seeking financing and/or a joint venture partner or
partners, among other alternatives, for the development of additional hotels,
and is exploring other financing alternatives with respect to its existing hotel
properties. Construction on these additional hotel facilities are not expected
to begin until such financing and/or a joint venture partner or partners are
obtained.
Although the Company is not presently committed to making any significant
capital expenditures at certain of its existing properties or investment into
new gaming markets, the Company believes that, in addition to
15
developing hotels, 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 is considering making investments in other gaming opportunities as well
as in jurisdictions in which 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, as well
as current financing arrangements, will be adequate to fund the hotel expansion
at the Isle-Bossier City and the Isle-Vicksburg, 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
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.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A subsidiary of the Company has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators (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 discovery and
preliminary motion stages. The Company is unable at this time to determine
what effect, if any, the suit would have on its financial position or
results of operations. However, the Defendants are committed to vigorously
defend all claims asserted in the consolidated action.
LRGP has challenged a statute that purportedly permits the Bossier Parish
Police Jury to levy an additional $.50 boarding fee per passenger against
LRGP beginning January 1, 1996. The Company's challenge was denied at the
state trial court level, and the Company appealed the decision. On June
26, 1998, a Louisiana State Court of Appeals reversed the trial court's
decision. However, the Bossier Parish Police Jury has filed an application
for a writ of certiorari to the Supreme Court of Louisiana. If the Police
Jury ultimately prevails, the Company would have to pay the Bossier Parish
Police Jury approximately $3.9 million as of July 26, 1998, for prior
unpaid boarding fees, plus a continuing $.50 fee per passenger at the Isle-
Bossier City. This potential liability has been fully recorded.
On June 11, 1998, a lawsuit was filed which seeks to nullify a contract to
which LRGP is a party. Pursuant to the contract, LRGP pays a fixed amount
plus a percent of revenue to various local governmental entities, including
the City of Bossier (the "City") and the Bossier Parish School Board (the
"School Board"), in lieu of payment of a boarding fee per passenger. The
Company intends to vigorously defend the action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River
in the eastern part of Warren County and several other parties. Also named
as defendants in the action are two other operators in the Vicksburg market
and one of the largest banks in the State of Mississippi. As amended, the
Complaint alleges that the defendants entered into an agreement, the effect
of which was to improperly restrain trade and hinder competition in the
gaming business by conducting a campaign in opposition to a gaming
application for a site adjacent to property owned by the Plaintiffs (the
"Proposed Project"). The Plaintiffs further allege that the Defendants
conspired for the purpose of injuring the property rights of the
Plaintiffs. The Plaintiffs seek compensatory and punitive damages in the
amount of $238 million from the Defendants. The Company denies the
allegations contained in the Amended Complaint and intends to vigorously
defend all claims and allegations in the action.
On May 29, 1998, the Company was named as a defendant in an action brought
by several persons who owned property in Cripple Creek, Colorado which they
sold to a subsidiary of the Company in 1995. The Plaintiffs allege that the
Company breached its purported agreement to construct a casino facility on
the property by the end of 1995. The Company denies the allegations
contained in the Complaint, and it intends to vigorously defend all claims
and allegations in the action.
The Company is engaged in various other 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.
17
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
A list of the exhibits included as part of this Form 10-Q is set
forth in the Exhibit Index that immediately precedes such exhibits,
which is incorporated herein by reference.
B. Reports on Form 8-K
During the first quarter ended July 26, 1998, the Company filed the
following reports on Form 8-K for the following dates:
None
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASINO AMERICA, INC.
Dated: September 9, 1998 By: /s/ Rexford A. Yeisley
----------------------
Rexford A. Yeisley
Chief Financial Officer & Treasurer
(Duly Authorized Officer and
Principal Financial Officer
and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
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27 Financial Data Schedule
20