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 25, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 0-20538
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ISLE OF CAPRI CASINOS, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1659606
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
711 Dr. Martin Luther King Jr. Blvd., Biloxi, Mississippi 39530
- ---------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (228) 436-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ____
----
As of September 1, 1999, the Company had a total of 23,643,475 shares of Common
Stock outstanding.
ISLE OF CAPRI CASINOS, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
- ------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, JULY 25, 1999 (UNAUDITED)
AND APRIL 25, 1999.................................................. 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JULY 25, 1999 AND JULY 26, 1998 (UNAUDITED)............ 2
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)......................................................... 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS JULY 25, 1999 AND JULY 26, 1998 (UNAUDITED).................. 4
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS.......................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................. 15
PART II OTHER INFORMATION
- -------
ITEM 1. LEGAL PROCEEDINGS................................................... 20
ITEM 2. CHANGES IN SECURITIES............................................... 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 21
ITEM 5. OTHER INFORMATION................................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 21
SIGNATURES..................................................................... 22
EXHIBIT LIST................................................................... 23
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS July 25, April 25,
------
1999 1999
----------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents............................................................. $ 97,673 $ 85,117
Accounts receivable:
Related parties.................................................................... 50 41
Other.............................................................................. 4,623 5,894
Income tax receivable................................................................. 7,012 7,509
Deferred income taxes................................................................. 4,684 4,684
Prepaid expenses and other assets..................................................... 6,324 5,771
-------- --------
Total current assets............................................................. 120,366 109,016
Property and equipment--net............................................................ 425,116 411,176
Other assets:
Investment in and advances to joint ventures.......................................... 1,957 1,851
Property held for development or sale................................................. 3,782 5,532
Licenses and other intangible assets, net of accumulated amortization of
$9,687 and $8,960, respectively.................................................... 62,681 63,408
Goodwill, net of accumulated amortization of $9,196 and $8,644, respectively.......... 52,225 52,818
Berthing, concession, and leasehold rights, net of accumulated amortization of
$2,227 and $2,149, respectively.................................................... 4,041 4,119
Deferred financing costs, net of accumulated amortization of $1,610 and
$1,305, respectively............................................................... 18,920 19,398
Restricted cash....................................................................... 3,936 5,480
Prepaid deposits and other............................................................ 3,630 3,686
-------- --------
Total assets..................................................................... $696,654 $676,484
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt.................................................. $ 7,393 $ 5,883
Accounts payable:
Trade.............................................................................. 16,505 20,102
Related parties.................................................................... 3 --
Accrued liabilities:
Interest........................................................................... 12,882 2,033
Payroll and related................................................................ 23,500 23,867
Property and other taxes........................................................... 13,288 11,700
Progressive jackpots and slot club awards.......................................... 5,804 5,351
Other.............................................................................. 10,798 9,888
-------- --------
Total current liabilities........................................................ 90,173 78,824
Long-term debt, less current maturities................................................ 523,646 526,873
Deferred income taxes.................................................................. 9,672 4,689
Minority interest...................................................................... 4,633 4,143
Stockholders' equity:
Preferred stock, $.01 par value; 2,050,000 shares authorized; none issued............. -- --
Common stock, $.01 par value; 45,000,000 shares authorized; shares issued and
outstanding: 23,583,362 and 23,568,562, respectively................................. 236 236
Class B common stock, $.01 par value; 3,000,000 shares authorized; none
issued............................................................................... -- --
Additional paid-in capital........................................................... 63,193 63,146
Retained earnings (deficit).......................................................... 5,101 (1,427)
-------- --------
Total stockholders' equity..................................................... 68,530 61,955
-------- --------
Total liabilities and stockholders' equity..................................... $696,654 $676,484
======== ========
See notes to consolidated financial statements.
1
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended
July 25, 1999 July 26, 1998
-------------------- --------------------
Revenue:
Casino....................................................... $ 128,334 $ 100,689
Rooms........................................................ 2,607 3,089
Pari-mutuel commissions and fees............................ 4,733 4,360
Food, beverage, and other................................... 6,533 5,941
-------------- -------------
Total revenue............................................ 142,207 114,079
Operating expenses:
Casino...................................................... 22,956 18,247
Rooms........................................................ 1,117 1,009
Gaming taxes................................................ 25,896 20,723
Pari-mutuel................................................. 3,627 3,323
Food and beverage........................................... 4,078 3,858
Marine and facilities....................................... 8,963 6,845
Marketing and administrative................................ 42,305 34,492
Preopening expenses......................................... 3,420 --
Depreciation and amortization............................... 8,856 8,657
-------------- -------------
Total operating expenses................................. 121,218 97,154
-------------- -------------
Operating income.............................................. 20,989 16,925
Interest expense.............................................. (12,110) (12,617)
Interest income............................................... 708 1,009
Gain on disposal.............................................. 3,106 --
Minority interest............................................. (490) 322
Equity in income (loss) of unconsolidated joint ventures...... 52 (299)
-------------- -------------
Income before income taxes.................................... 12,255 5,340
Income tax provision.......................................... 5,727 2,648
-------------- -------------
Net income.................................................... $ 6,528 $ 2,692
============== =============
Net income per common share - basic........................... $ 0.28 $ 0.11
Net income per common share - assuming dilution............... $ 0.26 $ 0.11
Weighted average basic shares................................. 23,583 23,569
Weighted average diluted shares............................... 24,661 23,680
See notes to consolidated financial statements.
2
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands, except per share data)
Shares of Additional Retained Total
Common Common Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
---------- --------- ---------- ------------------ -------------
Balance, April 25, 1999.................. 23,568,562 $236 $63,146 $(1,427) $61,955
Exercise of Stock Options..... 14,800 -- 47 -- 47
Net Income.................... -- -- -- 6,528 6,528
---------- ---- ------- ------- -------
Balance, July 25, 1999................... 23,583,362 $236 $63,193 $ 5,101 $68,530
========== ==== ======= ======= =======
See notes to consolidated financial statements.
3
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
July 25, July 26,
1999 1998
----------------- -----------------
Operating activities:
Net income....................................................................... $ 6,528 $ 2,692
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................................... 8,856 8,657
Deferred Income Taxes....................................................... 4,985 -
Amortization of bond discount and deferred financing costs.................. 431 547
(Gain) loss on disposal of assets........................................... (3,111) 16
Equity in loss of unconsolidated joint ventures............................. 52 299
Minority interest........................................................... 490 (322)
Changes in current assets and liabilities
Accounts receivable..................................................... 1,239 (782)
Income tax receivable................................................... 497 2,328
Prepaid expenses and other assets....................................... (488) 216
Accounts payable and accrued expenses................................... 7,272 17,660
-------- --------
Net cash provided by operating activities........................................ 26,751 31,311
Investing activities:
Purchase of property and equipment............................................... (18,520) (18,485)
Proceeds from disposals of property and equipment................................ 4,543 17
Investments in and advances to joint ventures.................................... (158) -
Decrease in restricted cash...................................................... 1,544 11,627
Deposits and other............................................................... 61 (1,344)
-------- --------
Net cash used in investing activities............................................ (12,530) (8,185)
Financing activities:
Principal payments on debt and cash paid to retire debt.......................... (1,713) (3,214)
Proceeds from sale of stock and exercise of options.............................. 48 -
-------- --------
Net cash used in financing activities............................................ (1,665) (3,214)
-------- --------
Net increase in cash and cash equivalents........................................ 12,556 19,912
Cash and cash equivalents at beginning of period................................. 85,117 52,460
-------- --------
Cash and cash equivalents at end of period....................................... $ 97,673 $ 72,372
======== ========
See notes to consolidated financial statements.
4
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
July 25, July 26,
1999 1998
----------------- ----------------
Supplemental disclosures of cash flow information:
Cash payments (receipts) for:
Interest........................................................................ $1,641 $1,833
Income taxes--net of refunds.................................................... (157) 587
Supplemental schedule of noncash investing and financing
activities:
Notes payable and debt issued for:
Property and equipment.......................................................... - 560
Property and equipment funded through accounts payable............................... 2,564 -
See notes to consolidated financial statements.
5
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
Isle of Capri Casinos, Inc., (the "Company"), formerly known as Casino
America, Inc., was incorporated as a Delaware corporation on February 14, 1990
and changed its name to Isle of Capri Casinos, Inc. on October 1, 1998. The
Company, through its subsidiaries, is engaged in the business of developing,
owning and operating riverboat, dockside and land-based casinos and related
facilities. The Company has licenses to conduct and currently conducts gaming
operations in Biloxi, Vicksburg and Tunica, Mississippi, in Bossier City and
Lake Charles, Louisiana, and in Black Hawk, Colorado through its subsidiaries.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, for the three-month period ended July 25, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending April 30, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended April 25, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as revenues and expenses during the reporting period. Actual
amounts when ultimately realized could differ from those estimates.
Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
July 25, July 26,
1999 1998
----------------- ----------------
(In thousands, except per share data)
Numerator:
Net income.................................................................. $ 6,528 $ 2,692
======= =======
Numerator for basic earnings per share - income available to common
stockholders............................................................... $ 6,528 $ 2,692
Effect of dilutive securities............................................... - -
------- -------
Numerator for diluted earnings per share -
Income available to common stockholders after assumed conversions $ 6,528 $ 2,692
======= =======
Denominator:
Denominator for basic earnings per share - weighted - average shares 23,583 23,569
Effect of dilutive securities
Employee stock options.................................................... 1,077 112
Warrants.................................................................. - -
------- -------
Dilutive potential common shares............................................ 1,077 112
------- -------
Denominator for diluted earnings per share - adjusted weighted - average
shares and assumed conversions............................................ 24,661 23,680
======= =======
Basic earnings per share.................................................... $ 0.28 $ 0.11
======= =======
Diluted earnings per share.................................................. $ 0.26 $ 0.11
======= =======
6
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
Years
-----
Slot Machines............................... 3
Furniture, fixtures, and equipment.......... 5-10
Leasehold improvements...................... 10-31
Riverboats and floating pavilions........... 25
Buildings and improvements.................. 39.5
Effective April 26, 1999, Isle of Capri increased its estimate of the
useful lives of all land-based buildings and improvements from 25 years to 39.5
years to more appropriately reflect the expected useful lives of these assets.
Isle of Capri also reduced its estimate of the useful lives of slot machines
from 5 years to 3 years due to technological changes. These two changes reduced
the net income by $251,000 and the earnings per share by $0.01 for the quarter
ended July 25, 1999. Excluding the changes in useful lives, net income and
earnings per diluted share would have been $6,779,000 and $0.27, respectively.
3. 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 SCGC, GPRI and 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 and intangible assets of SCGC, GPRI and LRGP.
Goodwill is being amortized over a twenty-five-year period using the straight-
line method.
Restricted cash - represents cash proceeds from the 13% First Mortgage
Notes due 2004 with Contingent Interest issued by ICBH (the "First Mortgage
Notes") held in trust by IBJ Whitehall Bank and Trust Company in New York, as
trustee for ICBH, a majority-owned subsidiary of the Company. These funds are
held in three separate accounts (Construction Disbursement, Completion Reserve
and Interest Reserve) with usage restricted by an indenture between ICBH and the
trustee, dated August 20, 1997 governing the First Mortgage Notes (the
"Indenture"). The amount remaining in the Construction Disbursement Account as
of July 25, 1999 equaled approximately $.6 million. In addition, the Company has
other restricted cash totaling $3.3 million related to various operating
deposits.
4. Isle of Capri Black Hawk, L.L.C.
On April 25, 1997, a wholly-owned subsidiary of the Company, Casino America
of Colorado, formed 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 a casino entertainment complex in Black Hawk,
Colorado (the "Isle-Black Hawk"), which opened on December 30, 1998. ICBH has
begun to construct a hotel containing approximately 235 rooms at the site of the
Isle-Black Hawk. The Company has a majority ownership interest in ICBH. As a
consolidated subsidiary of the Company, the operating results of ICBH are
reflected in the consolidated results of the Company. Prior to December 30,
1999, ICBH was a development stage company.
5. Capri Cruises L.L.C.
On April 20, 1998, the Company signed an agreement with Commodore Holdings
Limited, parent company of Commodore Cruise Line, to create a joint venture
named Capri Cruises to operate cruise ships in strategic markets. Cruise
operations began in early June 1998. As of July 25, 1999, the Company had
invested $3.0 million into this 50/50 unconsolidated joint venture, which is
operating one cruise ship from the Port of New Orleans.
6. Acquisitions
Isle of Capri - Tunica
----------------------
In March 1999, the Company acquired the original Harrah's casino facility
located in Tunica County, Mississippi for $9.5 million.
7
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company invested an additional $24.0 million to equip, renovate and open
this facility as an Isle of Capri casino. The Company opened the Isle-Tunica on
July 26, 1999 with approximately 875 slot machines, 15 table games and its two
trademark restaurants. The Company also plans to invest approximately $40.0
million more to construct an on-site hotel with up to 250 rooms and two live
entertainment theaters with combined seating for 2,000 people. Construction of
the hotel is currently underway and construction of the theaters is scheduled to
begin before the end of 1999.
7. Long-Term Debt
July 25, April 25,
Long-term debt consists of the following: 1999 1999
------------- --------------
(In thousands)
8 3/4% senior subordinated notes (described below)................................ $390,000 $390,000
Variable rate Term Loan (7.82% at April 25, 1999), due in quarterly
installments ranging from $833,333 to $4,166,667, not including
interest, through April 2004..................................................... 49,167 50,000
12 1/2% note payable, due in monthly installments of $125,000, including
interest, beginning October 1997 through October 2005............................ 6,368 6,527
8% note payable, due in monthly installments of $66,667, including interest,
through July 2002.............................................................. 2,075 2,283
8% note payable, due in monthly installments of $11,365, including interest,
through December 2015.......................................................... 1,241 1,250
11% note payable, issued by Isle of Capri Black Hawk, L.L.C., due in
monthly installments of $73,692, including interest, through October
2000; non-recourse to Isle of Capri Casinos, Inc.............................. 1,341 1,522
13% First Mortgage Notes, issued by Isle of Capri Black Hawk, L.L.C., due
August 2004; non-recourse to Isle of Capri Casinos, Inc.......................... 75,000 75,000
Other............................................................................. 5,847 6,174
-------- --------
531,039 532,756
Less: current maturities.......................................................... 7,393 5,883
-------- --------
Long-term debt.................................................................... $523,646 $526,873
======== ========
On April 23, 1999, the Company issued $390,000,000 of 8 3/4% Senior
Subordinated Notes due 2009 (the "Senior Subordinated Notes"). The Senior
Subordinated Notes are guaranteed by all of the Company's significant
subsidiaries, excluding the subsidiaries that own and operate the Isle-Black
Hawk. Interest on the Senior Subordinated Notes is payable semiannually on each
April 15 and October 15 through maturity. The Senior Subordinated Notes are
redeemable, in whole or in part, at the Company's option at any time on or after
April 15, 2004 at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest to the applicable
redemption date, if redeemed during the 12-month period beginning on April 15 of
the years indicated below:
Year Percentage
---- ----------
2004.............................. 104.375%
2005.............................. 102.917%
2006.............................. 101.458%
2007 and thereafter............... 100.000%
The Company issued the Senior Subordinated Notes under an indenture between
the Company, the subsidiary guarantors and a trustee. The indenture, among
other things, restricts the Company's ability and the ability of its restricted
subsidiaries to borrow money, make restricted payments, use assets as security
in other transactions, enter into transactions with affiliates, or pay dividends
on or repurchase our stock or our restricted subsidiaries' stock. The Company is
also restricted in its ability to issue and sell capital stock of its
subsidiaries and in its ability to sell assets in excess of specified amounts or
merge with or into other companies.
A substantial part of the proceeds from the Senior Subordinated Notes were
used to prepay long-term debt, including all of the $315,000,000 of 12 1/2%
Senior Secured Notes due 2003. The proceeds were also used to pay prepayment
premiums, accrued interest and other transaction fees and costs.
8
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Simultaneously with the issuance of the Senior Subordinated Notes, the
Company entered into a new $175.0 million five-year Senior Credit Facility (the
"Senior Credit Facility") comprised of a $50.0 million term loan and a $125.0
million revolver, which had no draws against it as of July 25, 1999. The new
Senior Credit Facility is secured by liens on substantially all of the Company's
assets and guaranteed by all of its significant restricted subsidiaries,
excluding Casino America of Colorado, Inc., Isle of Capri Black Hawk, LLC
("ICBH")and their subsidiaries. The Company used the initial borrowings under
the Senior Credit Facility to repay certain existing debt and for working
capital and for other general corporate purposes. The Company plans to use
future borrowings under the Senior Credit Facility primarily for expansion of
its existing casino facilities and the development of new casino facilities.
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 Company. 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). 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......................... 106.500%
2002......................... 103.200%
2003 and thereafter.......... 100.000%
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, as defined.
On August 31, 1999, Isle-Black Hawk deferred its first contingent interest
payment totaling $516,000. This amount was fully accrued as of August 31, 1999.
The amount of contingent interest expense recorded for the quarter ended
July 25, 1999 was $218,000.
The Company has $4.5 million available in bank lines of credit other than
the Senior Credit Facility. As of July 25, 1999, the Company had no outstanding
balances under these lines of credit.
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 hotel 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.
Substantially all of the Company's assets are pledged as collateral for
long-term debt under the Senior Credit Facility. At July 25, 1999, the Company
was in compliance with all debt covenants.
8. Contingencies
One of the Company's subsidiaries has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators, in a consolidated class action lawsuit
pending in Las Vegas, Nevada. These gaming industry defendants are alleged to
have violated the Racketeer Influenced and Corrupt Organizations Act by engaging
in a course of fraudulent and misleading conduct intended to induce people to
play their gaming machines based upon a false belief concerning how those gaming
machines actually operate and the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. A motion for certification of the class is currently
pending before the court and no discovery as to the merits of the alleged claims
has begun. The Company is unable at this time to determine what effect, if any,
the suit would have on its financial position or results of operations. However,
the gaming industry defendants are committed to defend vigorously all claims
asserted in the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleges that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by the
plaintiffs. The plaintiffs allege that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further allege that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The plaintiffs seek compensatory and
punitive damages in the amount of $238.0 million. The Company has denied the
allegations contained in the amended complaint and intends to vigorously defend
all claims and allegations in the action. A trial date has been set for
October 18, 1999.
9
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In May 1998, the Company was named as a defendant in an action brought by
several persons who had a contractual right to acquire property in Cripple
Creek, Colorado which they sold to one of the Company's subsidiaries in 1995.
The plaintiffs allege that the Company breached its purported agreement to
construct a casino facility on the property by the end of 1995. In December
1998, its motion to dismiss the complaint was granted by the United States
District Court in Denver, Colorado. The plaintiffs have appealed this decision
to the Tenth Circuit Court of Appeals. The Company intends to vigorously defend
all claims and allegations in the action.
On August 26, 1997, a lawsuit was filed which seeks to nullify a contract
to which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the city
of Bossier and the Bossier Parish School Board, in lieu of payment of a per-
passenger boarding fee. Summary judgment in favor of Louisiana Riverboat Gaming
Partnership was granted on June 4, 1998. That judgment was not appealed and is
now final. On June 11, 1998, a similar suit was filed and is currently pending.
The Company intends to vigorously defend this suit.
The Company is engaged in various other litigation matters and has a number
of unresolved claims. Although the ultimate liability of this litigation and
these claims cannot be determined at this time, the Company believes that they
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
9. Preopening Expenses
Preopening expenses of $3.4 million represent salaries, benefits, training,
marketing and other costs incurred in connection with the opening of the Isle-
Tunica on July 26, 1999.
10. Subsequent Event
On July 26, 1999 the Company commenced operations of the Isle of Capri
casino in Tunica Mississippi and is currently continuing the development of this
project through the construction of a hotel with up to 250 rooms and two live
entertainment theaters.
During August 1999, the Company submitted a license application to the
Missouri Gaming Commission for the operation of a new casino development south
of St. Louis, Missouri. If successful in obtaining this license, it intends to
request the necessary approvals and to prepare design plans as soon as possible.
10
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Consolidating Condensed Financial Information
Certain of the Company's subsidiaries have fully and unconditionally
guaranteed the payment of all obligations under the Company's $390 million 8
3/4% Senior Subordinated Notes due 2009. The following table presents the
consolidating condensed financial information of Isle of Capri Casinos, Inc., as
the parent company, its guarantor subsidiaries and its nonguarantor subsidiaries
as of and for the three months ended July 25, 1999 and July 26, 1998 and balance
sheet as of April 25, 1999.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR AND PARENT COMPANY FINANCIAL
INFORMATION
AS OF JULY 25, 1999 AND APRIL 25, 1999 AND FOR THE THREE MONTHS ENDED JULY 25,
1999 AND JULY 26, 1998 (UNAUDITED)
(In Thousands)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
-------------------- -------------- --------------- ----------------- ----------------
As of July 25, 1999
Balance Sheet
- -------------
Current assets $ 48,377 $ 55,401 $ 16,588 $ - $120,366
Intercompany receivables 216,646 177,517 18 (394,181) -
Investments in subsidiaries 233,255 - - (231,298) 1,957
Property and equipment, net 6,025 337,326 81,765 - 425,116
Other assets 37,073 107,606 4,536 - 149,215
-------- -------- -------- --------- --------
Total Assets $541,376 $677,850 $102,907 $(625,479) $696,654
======== ======== ======== ========= ========
Current liabilities $ 19,835 $ 57,540 $ 12,798 $ - $ 90,173
Intercompany payables 24,589 363,977 5,615 (394,181) -
Long-term debt, less current
maturities 440,058 8,022 75,566 - 523,646
Deferred income taxes (11,638) 21,310 - - 9,672
Minority interest - - - 4,633 4,633
Stockholders' equity 68,532 227,001 8,928 (235,931) 68,530
-------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity $541,376 $677,850 $102,907 $(625,479) $696,654
======== ======== ======== ========= ========
11
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
------------- ------------ ------------ ------------- --------------
For the three months ended July 25, 1999
Statement of Operations
- -----------------------
Revenue:
Casino $ - $109,300 $19,034 $ - $128,334
Rooms, food, beverage and
other 69 12,609 1,195 - 13,873
------- -------- ------- --------- --------
Total revenue 69 121,909 20,229 - 142,207
Operating expenses:
Casino - 20,169 2,787 - 22,956
Gaming taxes - 22,085 3,811 - 25,896
Rooms, food, beverage and
other 1,452 52,691 9,367 - 63,510
Depreciation and amortization 230 8,118 508 - 8,856
------- -------- ------- --------- --------
Total operating expenses 1,682 103,063 16,473 - 121,218
------- -------- ------- --------- --------
Operating income (loss) (1,613) 18,846 3,756 - 20,989
Interest expense, net (211) (8,576) (2,615) - (11,402)
Gain on disposal 3,106 - - - 3,106
Minority interest - - - (490) (490)
Equity in income (loss) of
unconsolidated joint venture 10,974 7,932 - (18,854) 52
------- -------- ------- --------- --------
Income (loss) before income taxes and
extraordinary item 12,256 18,202 1,141 (19,344) 12,255
Income tax provision 5,727 - - - 5,727
------- -------- ------- --------- --------
Net income (loss) $ 6,529 $ 18,202 $ 1,141 $ (19,344) $ 6,528
======= ======== ======= ========= ========
Statement of Cash Flows
- -----------------------
Net cash provided by (used in)
operating activities $10,516 $21,829 $ 5,280 $(10,874) $ 26,751
Net cash provided by (used in)
investing activities (6,902) (16,035) (467) 10,874 (12,530)
Net cash used in financing activities (812) (672) (181) - (1,665)
Net increase in cash and cash
equivalents 2,802 5,122 4,632 - 12,556
Cash and cash equivalents at
beginning of the period 35,826 38,374 10,917 - 85,117
------- -------- ------- --------- --------
Cash and cash equivalents at
end of the period $38,628 $ 43,496 $15,549 $ - $ 97,673
======= ======== ======= ========= ========
12
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ---------- ------------
As of April 25, 1999
Balance Sheet
- -------------
Current assets $ 36,599 $ 60,679 $11,738 $ - $ 109,016
Intercompany receivables 220,578 159,361 - (379,939) -
Investments in subsidiaries 233,541 - - (231,690) 1,851
Property and equipment, net 6,605 324,194 80,377 - 411,176
Other assets 44,377 103,916 6,148 - 154,441
-------- -------- ------- --------- ---------
Total Assets $541,700 $ 648,150 $98,263 $(611,629) $ 676,484
======== ======== ======= ========= =========
Current liabilities $ 13,395 $ 56,074 $ 9,419 $ (64) $ 78,824
Intercompany payables 24,593 349,994 5,289 (379,876) -
Long-term debt, less current
maturities 441,757 9,348 75,768 - 526,873
Deferred income taxes - 4,689 - - 4,689
Minority interest - - - 4,143 4,143
Stockholders' equity 61,955 228,045 7,787 (235,832) 61,955
-------- --------- ------- --------- ---------
Total Liabilities and
Stockholders' Equity $ 541,700 $ 648,150 $98,263 $(611,629) $ 676,484
========= ========= ======= ========= =========
For the three months ended July 26, 1998
Statement of Operations
- -----------------------
Revenue:
Casino $ - $ 100,689 $ - $ - $ 100,689
Rooms, food, beverage and other 58 13,404 - (72) 13,390
--------- --------- ------- --------- ---------
Total revenue 58 114,093 - (72) 114,079
Operating expenses:
Casino - 18,247 - - 18,247
Gaming taxes - 20,723 - - 20,723
Rooms, food, beverage and other 1,781 47,818 - (72) 49,527
Depreciation and amortization 787 7,870 - - 8,657
--------- --------- ------- --------- ---------
Total operating expenses 2,568 94,658 - (72) 97,154
--------- --------- ------- --------- ---------
Operating income (loss) (2,510) 19,435 - - 16,925
Interest expense, net (1,657) (9,147) (804) - (11,608)
Minority interest - - - 322 322
Equity in income (loss) of
unconsolidated joint venture 9,504 7,680 - (17,483) (299)
--------- --------- ------- --------- ---------
Income (loss) before income taxes and
extraordinary item 5,337 17,968 (804) (17,161) 5,340
Income tax provision 2,648 - - - 2,648
--------- --------- ------- --------- ---------
Net income (loss) $ 2,689 $ 17,968 $ (804) $ (17,161) $ 2,692
========= ========= ======= ========= =========
13
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ------- ------------
For the three months ended July 26, 1998
Statement of Cash Flows
- -----------------------
Net cash provided by (used in)
operating activities $ 20,529 $ 18,373 $ (66) $ (7,525) $ 31,311
Net cash provided by (used in)
investing activities (11,597) (4,183) 177 7,418 (8,185)
Net cash provided by (used in)
financing activities (579) (2,742) - 107 (3,214)
-------- -------- ------- --------- --------
Net increase (decrease) in cash and
cash equivalents 8,353 11,448 111 - 19,912
Cash and cash equivalents at
beginning of the period 20,020 31,893 547 - 52,460
-------- -------- ------- --------- --------
Cash and cash equivalents at
end of the period $ 28,373 $ 43,341 $ 658 $ - $ 72,372
======== ======== ======= ========= ========
(a) Certain of the Company's wholly owned subsidiaries were guarantors on the
8 3/4% Senior Subordinated Notes, including the following: Riverboat Corporation
of Mississippi, Riverboat Corporation of Mississippi Vicksburg, Louisiana
Riverboat Gaming Partnership, St.Charles Gaming Company, Inc., Grand Palais
Riverboat, Inc., and PPI, Inc.
(b) The following non-wholly owned subsidiaries were not guarantors on the
8 3/4% Senior Subordinated Notes: Isle of Capri Black Hawk, L.L.C. and Isle of
Capri Capital Corp.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
You should read the following discussion together with the financial
statements, including the related notes, the other financial information in this
report.
The following discussion includes "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In particular,
statements concerning the effects of increased competition in the Company's
markets, the effects of regulatory and legislative matters, the Company's plans
to make capital investments at its facilities, including, without limitation,
considerations to develop a casino in Coahoma County (Isle-Coahoma) and to
develop hotels or time-share facilities at the Isle-Biloxi, the Isle-Lake
Charles, the Isle-Black Hawk, and the Isle-Tunica and the expansion of non-
gaming amenities at all facilities, are forward-looking statements. Although the
Company believes that the expectations are reasonable, there can be no assurance
that such expectations are reasonable or that they will be correct. Actual
results may vary materially from those expected. Important factors that could
cause actual results to differ with respect to the Company's planned capital
expenditures principally include a lack of available capital resources,
construction and development risks such as shortages of materials or labor and
unforeseen delays resulting from a failure to obtain necessary approvals.
General
Isle of Capri's results of operations for the three fiscal months ended
July 25, 1999 reflect the consolidated operations of all of Isle of Capri's
subsidiaries, including the Isle-Lake Charles, the Isle-Bossier City, the Isle-
Biloxi, the Isle-Vicksburg and the Isle-Black Hawk.
Isle of Capri believes that its historical results of operations may not be
indicative of its future results of operations because of the substantial
present and expected future increase in competition for gaming customers in each
of Isle of Capri's markets, as new casinos open and existing casinos add to or
enhance their facilities.
Isle of Capri also believes that its operating results are affected by
seasonality. Seasonality has historically caused the operating results for Isle
of Capri's first and fourth fiscal quarters ending in July and April,
respectively, to be notably better than the operating results for the second and
third fiscal quarters ending October and January, respectively.
Results of Operations
Three Fiscal Months Ended July 25, 1999 Compared to Three Fiscal Months Ended
July 26, 1998 -- Consolidated Company
Total revenue for the quarter ended July 25, 1999 was $142.2 million, which
included $128.3 million of casino revenue, $2.6 million of room revenue, $4.7
million of pari-mutuel commissions and $6.5 million of food, beverage and other
revenue. This compares to total revenue for the previous quarter ended July 26,
1998 of $114.1 million, which included $100.7 million of casino revenue, $3.1
million of room revenue, $4.4 million of pari-mutuel commissions and $5.9
million of food, beverage and other revenue. Casino revenue increased primarily
as a result of the commencement of operations at the Isle-Black Hawk on December
30, 1998, increased market share at the Isle-Lake Charles, and the effects of
opening a 124-room hotel at the Isle-Vicksburg. Room revenue decreased slightly
due to increased complimentary room nights given to the Company's more active
data base customers. Food, beverage and other revenue have increased as a result
of the opening of the Isle-Black Hawk and the new hotel rooms at the Isle-
Vicksburg. Pari-mutuel commissions and fees have increased slightly compared to
the prior year as a result of adverse weather conditions experienced in the
previous year. Revenue does not reflect the retail value of any complimentaries.
Casino operating expenses for the quarter ended July 25, 1999 totaled $23.0
million, or 17.9% of casino revenue, versus $18.2 million, or 18.1% of casino
revenue, for the quarter ended July 26, 1998. These expenses are primarily
comprised of salaries, wages and benefits and other operating expenses of the
casinos. Casino operating expenses as a percentage of casino revenue have
decreased primarily as a result of continued refinement of Isle of Capri's
payroll and operating cost control programs.
Operating expenses for the quarter ended July 25, 1999 also included room
expenses of $1.1 million from the hotels at the Isle-Lake Charles, Isle-Bossier
City, Isle-Biloxi and the Isle-Vicksburg compared to $1.0 million for the
quarter ended July 26, 1998. These expenses are those directly relating to the
cost of providing hotel rooms. Other costs of the hotels are shared with the
casinos and are presented in their respective expense categories. Room expenses
increased primarily as a result of the opening of the Isle-Vicksburg hotel in
February 1999 and start up costs incurred in connection with the opening of the
new 305 room deluxe Isle-Bossier City hotel in late June 1999.
15
State and local gaming taxes paid in Louisiana, Mississippi and Colorado
totaled $25.9 million for the quarter ended July 25, 1999, compared to $20.7
million for the quarter ended July 26, 1998, which is consistent with each
state's gaming tax rate for the applicable fiscal years.
Food, beverage and other expenses totaled $4.1 million for the quarter
ended July 25, 1999, compared to $3.9 million for the quarter ended July 26,
1998. These expenses have increased as a result of the opening of the Isle-Black
Hawk and were partially offset by Isle of Capri's payroll and inventory cost
reduction efforts. These expenses consist primarily of the cost of goods sold,
salaries, wages and benefits and operating expenses of these departments. Food
and beverage operating expenses as a percentage of food, beverage and other
revenues decreased from 64.9% for the quarter ending July 26, 1998 to 62.4% for
the quarter ended July 25, 1999. Food and beverage operating margins have
improved as a result of continued payroll and inventory cost reduction efforts.
Marine and facilities expenses totaled $9.0 million for the quarter ended
July 25, 1999, versus $6.9 million for the quarter ended July 26, 1998. These
expenses include salaries, wages and benefits, operating expenses of the marine
crews, insurance, housekeeping and general maintenance of the riverboats and
floating pavilions. Marine and facilities expenses have increased due to the
addition of the Isle-Black Hawk and the opening of new hotels at the Isle-
Vicksburg and the Isle-Bossier City.
Marketing and administrative expenses totaled $42.3 million, or 29.7% of
total revenue, for the quarter ended July 25, 1999, versus $34.5 million, or
30.2% of total revenue, for the quarter ended July 26, 1998. Marketing expenses
include salaries, wages and benefits of the marketing and sales departments, as
well as promotions, advertising, special events and entertainment.
Administrative expenses include administration and human resource department
expenses, rent, new development activities, professional fees and property
taxes. Marketing and administrative expenses have increased due primarily to the
opening of the Isle-Black Hawk, while these expenses as a percentage of total
revenue remains level as a result of management's expense containment programs.
Preopening expenses of $3.4 million for the quarter ended July 25, 1999
represent salaries, benefits, training, marketing and other costs incurred in
connection with the opening of the Isle-Tunica on July 26, 1999.
Isle of Capri's results of operations for the quarter ended July 25, 1999
include a $3.1 million Gain on disposal related to the sale of an option to
purchase 135 acres of land adjacent to the Pompano Park, Inc. facility .
Depreciation and amortization expense was $8.9 million for the quarter
ended July 25, 1999 and $8.7 million for the quarter ended July 26, 1998. These
expenses relate to property and equipment, berthing and concession rights and
the amortization of intangible assets. These expenses include depreciation and
amortization expense related to assets placed into service since the quarter
ended July 26, 1998, including the Isle-Black Hawk and the new hotels at the
Isle-Vicksburg and Isle-Bossier City. Effective April 26, 1999, the first day of
fiscal year 2000, the Company changed the estimated useful lives used for
depreciating its slot machines and land-based buildings, from five years to
three years and from twenty-five years to thirty-nine and one-half years,
respectively. The change in estimated useful lives was implemented to more
accurately reflect actual expected useful lives of these assets based on recent
historical data.
Interest expense was $11.4 million for the quarter ended July 25, 1999, net
of capitalized interest of $0.9 million and interest income of $0.7 million,
versus $11.6. million for the year ended July 26, 1998, net of capitalized
interest of $1.3 million and interest income of $1.0 million. Interest expense
primarily relates to indebtedness incurred in connection with the acquisition of
property, equipment, leasehold improvements and berthing and concession rights.
Additionally, interest expense of $2.3 million, net of capitalized interest of
$0.2 million and interest income of $0.1 million related to Black Hawk LLC is
included in the quarter ended July 25, 1999. This compares to interest expense
of $0.8 million, net of capitalized interest of $0.4 million and interest income
of $1.2 million, for the quarter ended July 26, 1998.
Isle of Capri's effective tax rate was 46.7% for the quarter ended July 25,
1999 and 49.6% for the quarter ended July 26, 1998, which includes the effects
of non-deductible goodwill amortization for income tax purposes.
Three Fiscal Months Ended July 25, 1999 Compared to Three Fiscal Months Ended
July 26, 1998--By Casino Location
Isle-Lake Charles
For the quarter ended July 25, 1999, the Isle-Lake Charles had total
revenue of $44.7 million, of which $43.1 million was casino revenue, compared to
total revenue of $39.5 million, of which $37.5 million was casino revenue, for
the quarter ended July 26, 1998. Operating income for the quarter ended July 25,
1999 totaled $8.0 million, or 18.0% of total revenue, compared to operating
income of $6.7 million, or 17.1% of total revenue, for the quarter ended July
26, 1998. The increase in revenue, operating income and operating income margin
are related primarily to increased market share which has resulted partially
from
16
construction disruption at a nearby competitor and partially from the increased
use of the Isle-Lake Charles' player database and entertainment center.
Isle-Bossier City
For the quarter ended July 25, 1999, the Isle-Bossier City had total
revenue of $32.8 million, of which $31.3 million was casino revenue, compared to
total revenue of $31.8 million, of which $30.4 million was casino revenue, for
the quarter ended July 26, 1998. The slight increase in revenue relates
primarily to increased overall market revenues. Operating income for the quarter
ended July 25, 1999 totaled $7.3 million, or 22.3% of total revenue, compared to
$6.8 million, or 21.5% of total revenue, for the quarter ended July 26, 1998.
The increase in operating income and operating income margin are a result of
reduced marketing costs, more efficient management of payroll costs and a
decrease in depreciation expense related to certain assets becoming fully
depreciated.
Isle-Biloxi
For the quarter ended July 25, 1999, the Isle-Biloxi had total revenue of
$23.4 million, of which $20.2 million was casino revenue, compared to total
revenue of $24.4 million, of which $20.2 million was casino revenue, for the
quarter ended July 26, 1998. Total revenue decreased slightly compared to the
prior year first quarter primarily due to increased competition from the opening
of a new competitor and expansion of existing competitors in the Biloxi market.
Operating income for the quarter ended July 25, 1999 totaled $5.0 million, or
21.3% of total revenue, compared to $4.8 million, or 19.6% of total revenue, for
the quarter ended July 26, 1998. Increased operating income margin is due
primarily to reductions in marketing costs and more efficient management of
payroll costs.
Isle-Vicksburg
For the quarter ended July 25, 1999, the Isle-Vicksburg had total revenue
of $15.8 million, of which $14.7 million was casino revenue, compared to total
revenue of $13.1 million, of which $12.5 million was casino revenue, for the
quarter ended July 26, 1998. Casino revenues and total revenues increased due to
the opening of a 124-room hotel at this facility in February 1999. Operating
income for the quarter ended July 25, 1999 totaled $4.0 million, or 25.4% of
total revenue, compared to $2.8 million, or 21.2% of total revenue, for the
quarter ended July 26, 1998. The increase in operating income margin is due
primarily to the opening of the Isle-Vicksburg's new hotel.
Isle-Black Hawk
For the quarter ended July 25, 1999 the Isle-Black Hawk had total revenue
of $20.2 million, of which $19.0 million was casino revenue. Operating income
for the quarter totaled $4.6 million or 22.8% of total revenue. Isle-Black Hawk
began operations on December 30, 1998 and thus has no comparable operating
results for the quarter ending July 26, 1998.
Liquidity and Capital Resources
At July 25, 1999, Isle of Capri had cash and cash equivalents of $97.7
million, compared to $85.1 million at April 25, 1999. The increase in cash is
primarily a result of cash flow from operating activities. During the quarter
ended July 25, 1999, Isle of Capri's operating activities provided $26.8 million
of cash, compared to $31.3 million of cash provided by operating activities in
the quarter ended July 26, 1998. The decrease in cash from operating activities
was primarily due to smaller increases in accounts payable and accrued expenses.
Isle of Capri invested $18.5 million in property and equipment in the
quarter ended July 25, 1999, primarily for the development of the Isle-Tunica,
the development of a 305-room deluxe hotel at the Isle-Bossier City, which was
substantially complete as of the end of the quarter and the development of a
235-room hotel at the Isle-Black Hawk .
Isle of Capri anticipates that a significant portion of its principal near-
term capital requirements will relate to the expansion of the Isle-Tunica, the
Isle-Lake Charles, the Isle-Black Hawk and the Isle-Biloxi, as well as the
development of a new casino and hotel project in Coahoma County,
Mississippi, (the "Isle-Coahoma"). Isle of Capri plans to invest an additional
amount of approximately $40.0 million to construct an on-site hotel at the Isle-
Tunica with up to 250 rooms and two live entertainment theaters with combined
seating for 2,000 people. The site work necessary for the construction of the
hotel and theaters began subsequent to the quarter end. Isle of Capri is
currently in the process of accepting bids for the construction of an on-site
250-room deluxe hotel at the Isle-Lake Charles. This project is expected to
begin construction during the fiscal quarter ended October 1999, with an
estimated cost of approximately $33.0 million. Isle of Capri Black Hawk, LLC is
currently constructing a hotel containing approximately 235 rooms at the Isle-
Black Hawk for approximately $29.0 million.
17
Isle of Capri is assisting Isle of Capri Black Hawk, LLC with the financing of
the development of this hotel and plans to loan $5.0 million with interest
payable in cash and another $5.0 million with interest payable in kind (with
additional notes). Additionally, Isle of Capri has agreed to contribute up to
$10.0 million in additional equity to supplement funds generated from Isle of
Capri Black Hawk, LLC operations to complete the hotel.
Isle of Capri has applied for a license from the Mississippi Gaming
Commission to operate a dockside casino in Coahoma County, Mississippi. Isle of
Capri has received site and development approval from the Mississippi Gaming
Commission and is in the process of seeking other approvals to develop the 138-
acre property and build a casino and related lodging and entertainment facility,
including its three trademark restaurants. Development costs for the Isle-
Coahoma are expected to be approximately $60.0 million, including approximately
$20.0 million related to the transfer of the current Isle-Biloxi casino barge.
The actual cash expenditures for the Isle-Coahoma are expected to be
approximately $40.0 million.
Subject to amending the existing lease with the City of Biloxi, Isle of
Capri plans to replace its existing casino at the Isle-Biloxi and construct an
approximately 1,000-space parking garage and a podium containing entertainment
and retail space. Isle of Capri estimates that the total cost of this expansion
will be $62.0 million. The podium will be constructed to support either a time-
share facility, which may be developed by a joint venture, or additional hotel
rooms. Isle of Capri has not entered into, and cannot be sure that it will be
able to enter into, an agreement for development of the time-share facility. The
existing casino barge at the Isle-Biloxi is planned to be relocated to Coahoma
County, Mississippi as part of the Isle-Coahoma.
Isle of Capri has applied for a license from the Missouri Gaming Commission
to operate a riverboat casino in St. Louis County, Missouri. If Isle of Capri is
successful in obtaining this license, it intends to request the necessary
approvals and prepare design plans as soon as possible.
In June 1999, PPI, Inc. sold its option to purchase 135 acres of property,
adjacent to its Pompano Park Harness Racing Track, for $16.3 million. The sale
resulted in a Gain on Disposal of approximately $3.1 million.
All of Isle of Capri's development plans are subject to obtaining permits,
licenses and approvals from appropriate regulatory and other agencies and, in
certain circumstances, negotiating acceptable leases. In addition, many of its
plans are preliminary, subject to continuing refinement or otherwise subject to
change.
Isle of Capri anticipates that capital improvements approximating $18.9
million will be made during fiscal 2000 (approximately $1.8 million of which
have been made as of the end of the first quarter) to maintain its existing
facilities and remain competitive in its markets. Isle of Capri expects that
available cash and cash from future operations, as well as borrowings under its
new Senior Credit Facility, will be adequate to fund future expansion, planned
capital expenditures, service debt and meet working capital requirements. There
is no assurance that Isle of Capri will have the capital resources to make all
of the expenditures described above or that planned capital investments will be
sufficient to allow Isle of Capri to remain competitive in its existing markets.
In addition, the indenture governing the 8 3/4% Senior Subordinated Notes
restricts, among other things, Isle of Capri's ability to borrow money, create
liens, make restricted payments and sell assets.
Isle of Capri's new senior credit facility limits, among other things, Isle
of Capri's ability to borrow money, make capital expenditures, use assets as
security in other transactions, make restricted payments or restricted
investments, incur contingent obligations, sell assets and enter into leases and
transactions with affiliates. In addition, the new senior credit facility
requires Isle of Capri to meet certain financial ratios and tests, including: a
minimum consolidated net worth test, a maximum consolidated total leverage test,
a maximum consolidated senior leverage test and a minimum consolidated fixed
charge coverage test.
Isle of Capri must repay all amounts borrowed under its new senior credit
facility by July 23, 2004. Isle of Capri will be required to make quarterly
principal payments on the $50.0 million term loan portion of its new senior
credit facility beginning in July 1999. Such payments will initially be $0.8
million per quarter and will increase by $0.8 million per quarter in July of
each year that the term loan is outstanding. In addition, Isle of Capri will be
required to make substantial quarterly interest payments on the outstanding
balance of its new senior credit facility and interest payments of $17.1 million
semi-annually on its 8 3/4% Senior Subordinated Notes.
Isle of Capri is highly leveraged and may be unable to obtain additional
debt or equity financing on acceptable terms. As a result, limitations on Isle
of Capri's capital resources could delay or cause Isle of Capri to abandon
certain plans for capital improvements at its existing properties and
development of new properties. Isle of Capri will continue to evaluate its
planned capital expenditures at each of its existing locations in light of the
operating performance of the facilities at such locations.
Year 2000 Compliance
18
Isle of Capri has completed the evaluation of its information technology
infrastructure for Year 2000 issues. The evaluation process included a detailed
inventory of all computer hardware and software systems, detailed vendor
communication and the creation of a concise Year 2000 plan. Most of Isle of
Capri's systems infrastructure is currently Year 2000 compliant. Isle of Capri
has received assurances that it believes are reasonable from vendors of material
products used by Isle of Capri that their products are Year 2000 compliant. Isle
of Capri is changing to a casino player tracking and table system which is Year
2000 compliant. The total cost of this change is approximately $0.4 million.
Isle of Capri has not incurred and does not intend to incur any material costs
to modify its information technology infrastructure in order to be Year 2000
compliant. All software needed will be provided by the respective information
technology vendor at no charge to Isle of Capri. Isle of Capri expects to have
all software modifications in place by the end of September 1999.
Isle of Capri and its results of operations and financial condition could
be adversely affected by a failure of one or more of the third parties with
which it does business to satisfactorily address and resolve any Year 2000
issues. In addition, Year 2000 difficulties experienced by public utilities, the
banking system, the postal system or other similar infrastructure enterprises
could adversely affect Isle of Capri. However, Isle of Capri believes that the
impact of such problems on Isle of Capri would be the same as on other
businesses in the same area or areas. Isle of Capri believes these risks range
from slight financial malfunctions to, in a worst case scenario, an extensive
and costly inability to communicate with customers and suppliers. Isle of Capri
believes that it has an effective program in place to resolve all Year 2000
issues. Isle of Capri has no contingency plans in the event it does not complete
all phases of its Year 2000 program, as program completion is currently on
schedule.
19
PART II
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ITEM 1. LEGAL PROCEEDINGS.
One of our subsidiaries has been named, along with numerous manufacturers,
distributors and gaming operators, including many of the country's largest
gaming operators, in a consolidated class action lawsuit pending in Las Vegas,
Nevada. These gaming industry defendants are alleged to have violated the
Racketeer Influenced and Corrupt Organizations Act by engaging in a course of
fraudulent and misleading conduct intended to induce people to play their gaming
machines based upon a false belief concerning how those gaming machines actually
operate and the extent to which there is actually an opportunity to win on any
given play. The suit seeks unspecified compensatory and punitive damages. A
motion for certification of the class is currently pending before the court and
no discovery as to the merits of the alleged claims has begun. We are unable at
this time to determine what effect, if any, the suit would have on our financial
position or results of operations. However, the gaming industry defendants are
committed to defend vigorously all claims asserted in the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleges that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by the
plaintiffs. The plaintiffs allege that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further allege that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The plaintiffs seek compensatory and
punitive damages in the amount of $238.0 million. We have denied the allegations
contained in the amended complaint and intend to vigorously defend all claims
and allegations in the action. A trial date has been set for October 18, 1999.
In May 1998, we were named as a defendant in an action brought by several
persons who had a contractual right to acquire property in Cripple Creek,
Colorado which they sold to one of our subsidiaries in 1995. The plaintiffs
allege that we breached our purported agreement to construct a casino facility
on the property by the end of 1995. In December 1998, our motion to dismiss the
complaint was granted by the United States District Court in Denver, Colorado.
The plaintiffs have appealed this decision to the Tenth Circuit Court of
Appeals. We intend to vigorously defend all claims and allegations in the
action.
In August 1997, a lawsuit was filed which seeks to nullify a contract to
which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the city
of Bossier and the Bossier Parish School Board, in lieu of payment of a per-
passenger boarding fee. Summary judgment in favor of Louisiana Riverboat Gaming
Partnership was granted on June 4, 1998. That judgment was not appealed and is
now final. On June 11, 1998, a similar suit was filed and is currently pending.
We intend to vigorously defend this suit.
We are engaged in various other litigation matters and have a number of
unresolved claims. Although the ultimate liability of this litigation and these
claims cannot be determined at this time, we believe that they will not have a
material adverse effect on our consolidated financial position or results of
operations.
20
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) Documents Filed as Part of this Report.
--------------------------------------
1. Exhibits.
--------
A list of the exhibits included as part of this Form 10-Q is set
forth in the Exhibit Index that immediately precedes such
exhibits, which is incorporated herein by reference.
2. Reports on Form 8-K.
-------------------
During the quarter ended July 25, 1999, the Company filed the
following reports on Form 8-K for the following dates:
None.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISLE OF CAPRI CASINOS, INC.
Dated: September 7, 1999 /s/ Rexford A. Yeisley
---------------------------------------------
Rexford A. Yeisley, Chief Financial Officer
(Principal Financial and Accounting Officer)
22
INDEX TO EXHIBITS
Exhibit
Number Exhibit
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27 Financial Data Schedule
23