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 31, 1996
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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
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(State of Incorporation) (IRS Employer Identification No.)
711 Washington Loop, Second Floor, Biloxi, Mississippi 39530
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(Address of principal executive offices) (Zip Code)
(601) 436-7000
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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 (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Shares of Common Stock outstanding at September 9, 1996: 23,257,537
----------
CASINO AMERICA, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
July 31, 1996 (unaudited) and
April 30, 1996 1-2
Consolidated Statements of
Income for the Three Months
Ended July 31, 1996 and 1995
(unaudited) 3
Consolidated Statements of
Cash Flows for the Three Months
Ended July 31, 1996 and 1995
(unaudited) 4-5
Notes to Unaudited Consolidated
Financial Statements 6-12
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13-16
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 APRIL 30, 1996
------------- --------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 22,279,000 $ 18,585,000
Accounts receivable:
Related parties 1,259,000 3,171,000
Other 3,130,000 1,764,000
Deferred income taxes 1,001,000 1,001,000
Prepaid expenses and other assets 2,591,000 2,858,000
------------ ------------
TOTAL CURRENT ASSETS 30,260,000 27,379,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and improvements 25,497,000 25,485,000
Leasehold improvements 50,813,000 50,130,000
Buildings and improvements 6,282,000 6,099,000
Riverboats and floating pavilions 66,830,000 33,591,000
Furniture, fixtures and equipment 48,299,000 35,835,000
Construction in progress 33,000 375,000
------------ ------------
197,754,000 151,515,000
Less: Accumulated depreciation 25,435,000 22,209,000
------------ ------------
Property and equipment net 172,319,000 129,306,000
------------ ------------
OTHER ASSETS:
Investment in and advances to joint ventures 51,647,000 34,281,000
Notes receivable - related party 4,700,000 4,700,000
Other investments 2,250,000 2,250,000
Property held for development or sale 15,840,000 15,840,000
Goodwill, net of accumulated amortization of
$36,000 and $-0-, respectively 16,652,000 --
Berthing, concession and leasehold rights, net of
accumulated amortization of $1,288,000 and
$1,209,000 respectively 4,981,000 5,060,000
Deferred financing costs, net of accumulated amortization
of $1,416,000 and $1,229,000, respectively 5,509,000 4,327,000
Prepaid expenses 915,000 743,000
Deposits and other 1,136,000 2,588,000
------------ ------------
103,630,000 69,789,000
------------ ------------
TOTAL ASSETS $306,209,000 $226,474,000
============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 APRIL 30, 1996
------------- --------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 16,923,000 $ 8,884,000
Accounts payable:
Trade 7,510,000 6,169,000
Related parties 3,013,000 --
Accrued liabilities:
Interest 2,887,000 5,802,000
Payroll and payroll related 6,849,000 6,333,000
Property and other taxes 5,529,000 6,880,000
Progressive jackpots and slot
club awards 1,851,000 1,851,000
Other 2,377,000 2,392,000
------------ ------------
TOTAL CURRENT LIABILITIES 46,939,000 38,311,000
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 155,812,000 130,894,000
------------ ------------
DEFERRED INCOME TAXES 6,999,000 6,999,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 2,000,000
shares authorized; none issued -- --
Common stock, $0.01 par value; 45,000,000
shares authorized; shares issued and
outstanding: 22,572,751 and
16,038,882, respectively 226,000 160,000
Class B common stock, $0.01 par value;
3,000,000 shares authorized; none issued -- --
Additional paid-in capital 57,063,000 13,857,000
Retained earnings 39,170,000 36,253,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 96,459,000 50,270,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $306,209,000 $226,474,000
============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended July 31
1996 1995
------------- -------------
REVENUE:
Casino $37,474,000 $29,195,000
Rooms 2,183,000 --
Management fee - joint ventures 2,012,000 1,215,000
Pari-mutuel commissions and fees 3,386,000 --
Food, beverage and other 3,062,000 2,008,000
----------- -----------
TOTAL REVENUE 48,117,000 32,418,000
----------- -----------
OPERATING EXPENSES:
Casino 14,466,000 10,428,000
Rooms 858,000 --
Gaming taxes 4,948,000 3,587,000
Pari-mutuel 2,910,000 --
Food and beverage 2,110,000 1,909,000
Marine and facilities 2,975,000 2,075,000
Marketing and administrative 9,870,000 8,134,000
Preopening expenses 1,984,000 1,290,000
Depreciation and amortization 3,373,000 2,628,000
----------- -----------
TOTAL OPERATING EXPENSES 43,494,000 30,051,000
----------- -----------
OPERATING INCOME 4,623,000 2,367,000
INTEREST EXPENSE (4,684,000) (3,166,000)
INTEREST INCOME:
Related parties 203,000 24,000
Other 119,000 280,000
EQUITY IN INCOME OF UNCONSOLIDATED JOINT VENTURES 4,279,000 4,702,000
----------- -----------
INCOME BEFORE INCOME TAXES 4,540,000 4,207,000
INCOME TAX PROVISION 1,623,000 1,873,000
----------- -----------
NET INCOME $ 2,917,000 $ 2,334,000
=========== ===========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $0.14 $0.15
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 20,666,000 15,995,000
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended July 31
1996 1995
--------------------------
Cash flows from operating activities
Net income $ 2,917,000 $ 2,334,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,627,000 3,408,000
Deferred income taxes 383,000
Equity in income of unconsolidated joint ventures (4,279,000) (4,702,000)
Other 67,000 14,000
Changes in current assets and liabilities:
Accounts receivable 546,000 1,535,000
Prepaid expenses and other assets 665,000 (389,000)
Accounts payable 4,354,000 254,000
Accrued liabilities (3,765,000) (3,297,000)
----------- ------------
Net cash provided by (used in) operating activities 4,132,000 (460,000)
----------- ------------
Cash flows from investing activities
Purchases of property and equipment (1,131,000) (19,165,000)
Cash paid for acquisitions (8,192,000) --
Proceeds from disposals of property and equipment -- 60,000
Repayments from joint ventures 2,788,000
Decrease in restricted cash -- 8,364,000
Deposits and other - net 1,443,000 174,000
----------- ------------
Net cash used in investing activities (7,880,000) (7,779,000)
----------- ------------
Cash flows from financing activities
Proceeds from borrowings 1,000,000 2,000,000
Principal payments on borrowings (6,292,000) (1,615,000)
Deferred financing costs (1,369,000) (1,333,000)
Proceeds from sale of stock and exercise of options 14,103,000 190,000
----------- ------------
Net cash provided by (used in) financing activities 7,442,000 (758,000)
----------- ------------
Net increase (decrease) in cash and cash equivalents 3,694,000 (8,997,000)
Cash and cash equivalents at beginning of period 18,585,000 18,997,000
----------- ------------
Cash and cash equivalents at end of period $22,279,000 $ 10,000,000
=========== ============
(CONTINUED)
4
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended July 31
1996 1995
-------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest, net of amounts capitalized $ 7,345,000 $5,322,000
Income taxes, net of refunds received 3,185,000 656,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Notes payable and debt issued for:
Land -- 1,726,000
Property and equipment 467,000 1,426,000
Insurance premiums 573,000
Acquisitions:
Debt assumed (37,142,000) --
Stock issued (27,852,000) --
Warrants issued (1,250,000) --
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Shares of Additional Total
Common Common Paid-In Retained Stockholders'
Stock Stock Capital Earnings Equity
Balance, April 30, 1996 16,038,882 $ 160,000 $13,857,000 $36,253,000 $50,270,000
Issuance of common
stock 6,495,194 65,000 41,813,000 41,878,000
Issuance of warrants 1,250,000 1,250,000
Exercise of stock
options 30,375 1,000 76,000 77,000
Issuance of common stock
for compensation 8,300 67,000 67,000
Net income 2,917,000 2,917,000
---------- --------- ----------- ----------- -----------
Balance, July 31, 1996 22,572,751 $ 226,000 $57,063,000 $39,170,000 $96,459,000
========== ========= =========== =========== ===========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
CASINO AMERICA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation:
Casino America, Inc. (the "Company") was incorporated as a Delaware
corporation on February 14, 1990. The Company, through its
subsidiaries, is engaged in the business of developing, owning, and
operating riverboat and dockside casinos and related facilities. The
Company has licenses to conduct gaming operations in Biloxi and
Vicksburg, Mississippi through its subsidiaries, and in Bossier City
and Lake Charles, Louisiana through unconsolidated joint ventures.
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 31, 1996 are not necessarily indicative of the results that may
be expected for the year ending April 30, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended April 30, 1996.
Goodwill
Goodwill principally represents the excess purchase price the Company
paid in acquiring the net identifiable assets of Grand Palais
Riverboat, Inc. ("GPRI"). The Company began amortizing these costs
effective July 12, 1996 (commencement of operations) over a twenty-
five-year period using the straight-line method.
Impact of Recently Issued Accounting Standards:
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets carrying amount. Statement 121
also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted Statement 121 in the first
quarter of fiscal 1997, and there was no material effect of adoption.
Note 2. Business Acquisitions
Purchase of GPRI and St. Charles Gaming Company ("SCGC")
7
On May 3, 1996, the Company purchased all of the outstanding shares of
common stock of GPRI in a bankruptcy proceeding (the "GPRI
Acquisition"). Pursuant to the Plan of Reorganization adopted in such
bankruptcy proceeding, the Company purchased 100% of the shares of the
reorganized GPRI, which at the time of closing owned the Grand Palais
Riverboat, gaming equipment, certain other furniture, fixtures and
equipment, all necessary gaming licenses issued by the State of
Louisiana, and other permits and authorizations. Commencing July 12,
1996, the Company began operating the Grand Palais vessel as part of a
two-riverboat operation with SCGC (the "Isle -- Lake Charles"). The
aggregate consideration paid by the Company in connection with the
GPRI Acquisition was approximately $60.8 million, consisting of
approximately $7.5 million in cash, and $37.1 million in promissory
notes and assumed indebtedness. The Company also issued 2,250,000
shares of its common stock, and five-year warrants to purchase an
additional 500,000 shares of common stock at an exercise price of $10
per share, to GPRI's former secured debt holders.
At the time of the GPRI Acquisition, the Company also purchased the
remaining 50% interest in SCGC not already owned by Louisiana
Riverboat Gaming Partnership ("LRGP") (the "SCGC Acquisition"), in
exchange for 1,850,000 shares of the Company's common stock and a
five-year warrant. The warrant allows the seller to convert up to
$5,000,000 of its note payable to LRGP to 416,667 shares of common
stock of the Company. The purchase agreement also provides for the
restructuring of certain indebtedness owed to the seller.
LRGP Acquisition
On August 6, 1996, the Company acquired the remaining 50% interest in
LRGP held by Louisiana River Site Development, Inc. The consideration
for the LRGP Acquisition included (i) $85 million in cash, (ii) five-
year warrants to purchase 500,000 shares of Common Stock at an
exercise price of $10.50 per share and (iii) $1.5 million per year for
seven years, payable monthly beginning on October 1, 1998.
Pompano Park
On June 30, 1995, the Company acquired 100% of Pompano Park
the ("Pompano") acquisition, a harness racing track, for approximately
$8,000,000 (the "Pompano Acquisition"). If casino gaming is legally
permitted in Florida at the Pompano Park site by June 30, 2001, the
Company is required to pay additional consideration to the seller
amounting to $25,000,000 plus 5% of net gaming win, as defined. The
probability of the Company paying such additional consideration is
remote; however, if such payments are made in the future, they would
be accounted for as additional purchase price and allocated to
goodwill. Such goodwill will be amortized over a period to be
determined at date of payment not to exceed 40 years.
Proforma Information
The SCGC Acquisition, the LRGP Acquisition, the GPRI Acquisition and
the Pompano Acquisition have been accounted for by the Company using
the purchase method of accounting, and the Company's proportionate
share of the results of operations for each of the acquired companies
has been included in the Company's results of operations from the
respective dates of acquisition.
The following unaudited pro forma condensed consolidated financial
information for the three months ended July 31, 1996 gives effect to
the SCGC Acquisition, the LRGP Acquisition and the GPRI Acquisition,
as if such transactions had occurred on May 1, 1996. The unaudited
pro forma condensed consolidated financial information for the three
months ended July 31, 1995 gives effect to LRGP's purchase of a 50%
interest in SCGC on
8
June 9, 1995, the SCGC Acquisition, the LRGP Acquisition and the GPRI
Acquisition, as if such transactions had occurred on May 1, 1995.
Three Months Ended July 31,
1996 1995
---------------------------
Total revenue $110,732,000 $72,351,000
Operating income $ 14,919,000 $ 5,637,000
Net income (loss) $ 2,313,000 ($3,210,000)
Net income (loss) per common and
common equivalent share $0.11 ($0.16)
The pro forma financial information presented above does not purport
to be indicative of the results of operations that actually would have
been achieved if the operations were combined during the periods
presented nor is it intended to be a projection of results or trends.
Because the Company will consolidate LRGP and SCGC for reporting
periods subsequent to the date of the LRGP Acquisition, the pro forma
financial information has been presented on a consolidated basis. The
pro forma operating results presented above do not give effect to the
acquisition of Pompano because the pro forma effect of this
acquisition would not be material to the operating results of the
Company.
The pre-bankruptcy business of GPRI consisted entirely of developing
and operating the Grand Palais riverboat casino in New Orleans,
Louisiana. The Grand Palais began gaming operations in New Orleans on
March 29, 1995 and, due to poor operating results, ceased operations
on June 6, 1995. GPRI was forced into involuntary bankruptcy on July
26, 1995 and was completely non-operational between June 6, 1995 and
the subsequent reopening of the Grand Palais at the Isle-Lake Charles
on July 12, 1996. Other than amortization of the related goodwill and
interest on debt incurred to effect the GPRI Acquisition, adjustments
related to the pre-bankruptcy operations of GPRI have not been
included in the pro forma results of operations for the three months
ended July 31, 1995 because the pre-bankruptcy operations of GPRI were
very limited and substantially different than the post-acquisition
operations.
Note 3. Operating Expenses
The Isle of Capri Casino in Biloxi, Mississippi (the "Isle-Biloxi"),
which originally opened on August 1, 1992, underwent a substantial
reconfiguration of its existing casino complex and opened a new hotel
and pavilion on August 1, 1995. The Company incurred $1,290,000 of
preopening expenses in connection with the opening of this expanded
facility during the three month period ended July 31, 1995.
On July 12, 1996, GPRI commenced operations as part of a two-boat
operation and recently expanded pavilion at the Isle-Lake Charles. The
Company incurred $1,984,000 of preopening expenses in connection with
the opening of GPRI during the three month period ended July 31, 1996.
Note 4. Operating Results of Unconsolidated Joint Ventures
9
The following are combined summarized operating results for the LRGP
"Isle-Bossier City" and LRG Hotels, L.L.C. for the three month periods
ended:
July 31, 1996 July 31, 1995
-------------- --------------
Total Revenue $40,357,000 $40,253,000
Operating Income $ 8,048,000 $10,970,000
Net Income $ 7,938,000 $ 9,404,000
The following are summarized operating results for the Isle-Lake
Charles for the three month periods ended:
July 31, 1996 July 31, 1995
-------------- --------------
Total Revenue $24,270,000 $ 537,000
Operating Income (loss) $ 3,915,000 ($4,287,000)
Net Income (loss) $ 268,000 ($1,880,000)
Results for the quarter ended July 31, 1996, reflect income of
$1,249,000 allocated to the Isle-Lake Charles under a Joint Operating
Agreement between SCGC and GPRI. Under the May 3, 1996 agreement,
income of the joint operation is allocated at 52.5% to GPRI and 47.5%
to SCGC. Results for the quarter ended July 31, 1995 include
preopening expenses of $4,196,000.
Note 5. Long-term Debt
On August 6, 1996, the Company issued $315,000,000 of 12 1/2% Senior
Secured Notes due 2003 (the "Senior Secured Notes"). Interest on the
Senior Secured Notes is payable semiannually on each February 1, and
August 1, commencing February 1, 1997, through maturity.
The Senior Secured Notes are redeemable at the option of the Company,
in whole or in part, on or after August 1, 2000, at the redemption
prices set forth in the indenture pursuant to which the Senior Secured
Notes were issued (the "Indenture"), plus accrued interest.
In the event of an adverse vote on the continuation of gaming in
Bossier Parish or Calcasieu Parish, the Isle-Bossier City Cash Flow
(as defined in the Indenture) and the Isle-Lake Charles Cash Flow (as
defined in the Indenture), respectively, will be deposited into a
collateral account pursuant to the Cash Sweep (as defined in the
Indenture). At each such time as the Excess Louisiana Cash (as
defined in the Indenture) in the collateral account equals $10
million, the Company will be obligated to make an offer to purchase,
at 100% of the principal amount of the Senior Secured Notes, plus
accrued and unpaid interest, if any, to the date of repurchase, an
amount of Senior Secured Notes equal to the Excess Louisiana Cash less
the accrued and unpaid interest on such Senior Secured Notes.
10
The Company's obligations under the Senior Secured Notes and the
Indenture are jointly, severally and unconditionally guaranteed (the
"Subsidiary Guarantees") on a senior secured basis by all existing and
future Significant Restricted Subsidiaries (as defined in the
Indenture) of the Company, subject to the receipt of the required
approval of any applicable Gaming Authority. The obligations of the
Restricted Subsidiaries under the Subsidiary Guarantees are guaranteed
by the Company
The Notes are secured by a first priority Lien on substantially all of
the assets of the Company, and the Subsidiary Guarantees are secured
by a first priority Lien on substantially all of the assets of the
Subsidiary Guarantors, other than (i) the Isle-Biloxi Hotel, the Grand
Palais and Pompano Park, as to which junior priority liens have been
granted, and (ii) excluded assets (as defined in the Indenture).
The Indenture contains certain covenants with respect to, among
others, the following matters: (i) limitation on indebtedness, (ii)
limitation on liens, (iii) limitation on restricted payments, (iv)
limitation on dividends and other payment restrictions affecting
affiliates, (v) limitation on asset sales and events of loss, (vi)
limitation on disposition of stock of Restricted Subsidiaries, (vii)
limitation on transactions with affiliates and (viii) restrictions on
consolidations, mergers and transfers of assets.
Part of the proceeds from the Senior Secured Notes were used to retire
or defease $180,285,000 in long-term debt, including $105,000,000 of
11 1/2% First Mortgage Notes due 2001, and accrued interest and other
costs of $16,396,000, as well as to consummate the LRGP Acquisition.
Note 6. Common Stock
The Company's Board of Directors authorized the offering, on a pro-
rata basis, of rights (the "Rights Offering") to purchase shares of
the Company's common stock at a price of $5.875 per share at a ratio
of approximately one share for every four shares owned to certain of
its shareholders of record on March 15, 1996. At July 31, 1996,
proceeds from the issuance of 2,395,194 shares of common stock from
the Rights Offering totaled approximately $14,026,000, net of issuance
costs of approximately $46,000.
Employees exercised options to purchase 30,375 shares of the Company's
common stock at prices between $0.89 and $5.33, for an aggregate
amount of $77,000.
On August 6, 1996 Crown Casino Corporation exercised rights to
purchase 684,786 shares of the Company's common stock, for aggregate
proceeds of approximately $4,023,000.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the unaudited consolidated financial statements, including the
notes thereto, included elsewhere in this report.
GENERAL
The Company's results of operations for the three months ended July 31, 1996
reflect the Company's equity in the income of the Isle-Bossier City and the
Isle-Lake Charles, which commenced operations on July 29, 1995. In addition,
the results of operations for the three months ended July 31, 1996 were impacted
by the substantial expansion of the Isle-Biloxi, which included adding a hotel
and enhancements to the land-based pavilion and the casino, completed in August
1995, the acquisition of Pompano Park in June 1995, and the acquisition of GPRI
on May 3, 1996.
The Company believes that the results of operations for the three months ended
July 31, 1996 and 1995 may not be indicative of the results of operations for
future periods primarily because, in the past, the Company has reported its
interests in the Isle-Bossier City and the Isle-Lake Charles using the equity
method of accounting. As a result of the LRGP Acquisition on August 6, 1996,
the Company will consolidate the results of operations of the Isle-Bossier City
and the Isle-Lake Charles. In addition, the Company believes that its
historical results may not be comparable to 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. Furthermore, the
historical results of operations reflect the Isle-lake Charles as a single
riverboat operation, whereas the Isle-Lake Charles operates two riverboats as of
July 12, 1996. In addition, the land-based pavilion at the Isle-Lake Charles
was recently expanded. The Company believes that seasonality does not have a
significant effect on its business.
RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 Compared to Three Months Ended July 31, 1995
Total revenue was $48.1 million for the three months ended July 31, 1996, as
compared to $32.4 million for the three months ended July 31, 1995, representing
an increase of 48%. Casino revenue, in total, increased by 28% to $37.5 million
from $29.2 million compared to the prior year, due mainly to a $6.0 million
increase in casino revenue at the Isle-Biloxi attributable primarily to
increased casino traffic as a result of the opening of a 367-room hotel on site,
and $4.5 million in casino revenue for GPRI at the Isle-Lake Charles during 20
days of operations through July 31, 1996, partially offset by a $2.2 million
decrease in casino revenue at the Isle of Capri Casino - Vicksburg (the "Isle-
Vicksburg) attributable to increased promotional activity by competitors in that
market. The Company has not consolidated the revenue of the Isle-Bossier City
and Isle-Lake Charles, which totaled $40.4 million and $24.3 million,
respectively, for the first quarter of fiscal year 1997, compared to $40.3
million and $0.5 million, respectively, in the prior fiscal year, but will
consolidate that revenue following the LRGP Acquisition.
Revenue for the quarter ended July 31, 1996, includes room revenue of $2.2
million for the new hotel and entertainment pavilion at the Isle-Biloxi. Room
revenue does not reflect the value of any complementaries.
The Company received management fees of $2.0 million for the three months ended
July 31, 1996, compared to $1.2 million for the same period in the prior year,
representing an increase of 66%. In
12
addition to fees under the Company's management agreement with LRGP with respect
to the Isle-Bossier City, $0.8 million in fees were received under the Company's
management agreement with SCGC with respect to the Isle-Lake Charles in the
first quarter of fiscal 1997. As a result of the LRGP acquisition and SCGC
acquisition, future fees from its management agreements will not be reported
because such amounts will be eliminated in consolidation.
Fiscal 1996 revenue includes pari-mutuel commissions, simulcast fees and
admissions of $3.4 million generated by Pompano Park.
Food, beverage and other revenue was $3.1 million for the first quarter of
fiscal 1997, compared to $2.0 million for the same period in fiscal 1996,
representing an increase of 52%. Food, beverage and other revenue does not
reflect the value of any complementaries. Of the $1.1 million increase, $0.3
million is attributable to revenue generated at Pompano Park. The remainder of
the increase in food, beverage and other revenue is primarily attributable to
the opening of the new hotel at the Isle-Biloxi on August 1, 1995.
Casino expenses for the three months ended July 31, 1996 totaled $14.5 million,
as compared to $10.4 million for the three months ended July 31, 1995. Casino
expenses consist primarily of salaries, wages, and benefits, and operating and
certain promotional expenses of the casinos. Casino expenses as a percentage of
casino revenues increased from 36% to 39% in the first quarter of fiscal 1997
due to the cost of complementaries.
Operating expenses for the quarter ended July 31, 1996 also include room
expenses of $0.9 million from the new hotel at the Isle-Biloxi. These expenses
are those directly relating to the cost of providing hotel rooms. Other costs
of the hotel are shared with the casino and are presented in their respective
expense categories.
Gaming taxes paid to the States of Mississippi and Louisiana, cities and
counties totaled $4.9 million for the quarter ended July 31, 1996, as compared
to $3.6 million in the same period in the prior year, and are consistent with
the aforementioned increase in casino revenue.
Pari-mutuel operating costs of Pompano Park totaled $2.9 million in the first
quarter of fiscal 1997. Such costs consist primarily of compensation, benefits,
purses, simulcast fees and other direct costs of track operations.
Food and beverage expenses of $2.1 million in the first quarter of fiscal 1997
reflect an 11% increase over the same period in fiscal 1996, consistent with the
percentage increase in food and beverage revenues. The increase was attributable
to Pompano Park and the opening of the new hotel at the Isle-Biloxi.
Marine and facilities expenses totaled $3.0 million in the three months ended
July 31, 1996, representing an increase of 43% over the $2.1 million reported in
the prior year. Of the $0.9 million increase, $0.5 million relates to
facilities and maintenance costs of Pompano Park, while an additional $0.2
million relates to the expansion at the Isle-Biloxi and the associated labor,
rent expense, utility and maintenance costs of that expanded facility.
Marketing and administrative expenses totaled $9.9 million for the three months
ended July 31, 1996, a 21% increase over the $8.1 million for the same period in
the prior fiscal year. The $1.7 million increase is due primarily to additional
promotions at the Isle-Biloxi and the Isle-Vicksburg in response to increased
competition in those markets.
Depreciation and amortization expense was $3.4 million for the quarter ended
July 31, 1996, representing a 28% increase over depreciation and amortization
expense of $2.6 million in the prior
13
period. The increase was primarily attributable to the new hotel and
entertainment pavilion at the Isle-Biloxi.
Preopening expenses of $2.0 million in the three months ended July 31, 1996
represent salaries, benefits, training, marketing and other non-capitalizable
costs which were expensed as incurred in connection with the opening of the
Grand Palais Riverboat. Preopening expenses in the prior period of $1.3 million
relate to the opening of the new hotel at the Isle-Biloxi.
Interest expense was $4.7 million in the quarter ended July 31, 1996, as
compared to $3.2 million, net of capitalized interest of $1.0 million, in the
same period in the prior year. This $1.5 million increase was primarily due to
additional debt incurred to finance the new hotel and pavilion and furniture,
fixtures and equipment at the Isle-Biloxi, as well as additional indebtedness
relating to land purchased for new development and the acquisition of Pompano
Park.
The Company had net income of $2.9 million for the quarter ended July 31, 1996,
as compared to net income of $2.3 million for the same period in the prior year,
representing an increase of 25%. The Company's net income for the quarter ended
July 31, 1996 includes $4.3 million, representing the Company's equity in the
income of LRGP and SCGC compared to $4.7 million for the same period in the
prior year. The Company's effective income tax rate was 36% for the three months
ended July 31, 1996 as compared to 45% for the three months ended July 31, 1995.
The decrease in the effective tax rate was due to the exclusion of the Company's
share of the net income of SCGC in its calculation of income taxes. Earnings per
share decreased 7% from $0.14 in the first quarter of fiscal 1997 to $0.15 in
fiscal 1996.
Liquidity and Capital Resources
At July 31, 1996, the Company had cash and cash equivalents of $22.3 million
compared to $18.6 million at July 31, 1995. During the three month period ended
July 31, 1996, operating activities provided $4.1 million of cash flow to the
Company as compared to $0.5 million of cash flow used in operating activities in
the first quarter of fiscal 1996.
The Company invested $1.1 million in property and equipment in the first quarter
of fiscal 1997, primarily for equipment, as well as in connection with the
construction of limited stakes poker rooms at Pompano Park Harness Track, which
are scheduled to open January 1, 1997, subject to county approval.
On May 3, 1996, the Company purchased all of the common stock of GPRI. The
aggregate consideration paid by the Company in the GPRI Acquisition was
approximately $61.5 million, consisting of cash in the amount of approximately
$8.2 million, notes and the assumption of indebtedness of approximately $37.1
million, 2,250,000 shares of common stock and warrants to purchase an additional
500,000 shares of common stock at an exercise price of $10.00 per share. On the
same date, the Company consummated the SCGC Acquisition for 1,850,000 shares of
common stock and restructured the terms of an existing $20.0 million note
previously issued to Crown Casino.
Through August 6, 1996, the Company had received an aggregate of $18.1 million
from the issuance of 3,079,980 shares of common stock issued pursuant to the
Rights Offering.
The Company anticipates that its principal near-term capital requirements will
relate to the expansion of its operations at the Isle-Lake Charles in connection
with the GPRI Acquisition and at the Isle-Bossier City if the Company is
successful in obtaining an additional license at that location and investments
in hotel properties adjacent to the Isle-Bossier City and the Isle-Lake Charles.
On August 6, 1996, the
14
Company issued $315,000,000 of 12 1/2% Senior Secured Notes due 2003. Interest
on the Senior Secured Notes is payable semiannually on each February 1 and
August 1, commencing February 1, 1997, through maturity. Part of the proceeds
from the Senior Secured Notes were used to retire or defease $180,285,000 in
long-term debt, including $105,000,0000 of 11 1/2% First Mortgage Notes due
2001, accrued interest and other costs of $16,396,000 and to acquire the
remaining 50% interest in LRGP held by Louisiana River Site Development, Inc.
The consideration for the LRGP Acquisition included $85,000,000 million in cash,
five-year warrants to purchase 500,000 shares of common stock at an exercise
price of $10.50 per share, and $1.5 million per year for seven years, payable
monthly beginning on October 1, 1998.
Although the Company is not presently committed to making any significant
capital expenditures or investment into a new gaming market, net proceeds from
the aforementioned transactions are intended to provide capital for making
improvements and enhancements to the Company's existing facilities and other
general corporate purposes. The Company also believes that it will be necessary
to make certain capital improvements to its land-based facilities at the Isle-
Bossier City and the Isle-Vicksburg and that enhancements to its non-gaming
amenities at all facilities will be important to its operations. The Company
may, in the future, also consider expanding its casino square footage at the
Isle-Biloxi. In addition, the Company may consider making investments in
jurisdictions where gaming is not presently permitted, but in which it believes
that gaming may be legalized in the future.
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 expects that available cash, net proceeds from the rights offering
and the 12 1/2% Senior Secured Notes and cash from future operations will be
adequate to fund the aforementioned transactions, planned capital expenditures,
debt service and working capital requirements. In addition, the Indenture
governing the Senior Secured Notes will place certain limits on the Company's
ability to incur additional indebtedness and to make certain investments. As a
result of the issuance of the Senior Secured Notes, the Company will be highly
leveraged and, as a result may be unable to obtain debt or equity financing on
terms acceptable to the Company. No assurance can be made that the Company will
have sufficient capital resources to expand into new gaming markets or make
significant capital expenditures at its existing properties beyond those
discussed above.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of fiscal 1997, and there was
no material effect of adoption.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
-----------------
Item 2. Changes in Securities
---------------------
A. On July 26, 1996 the Company and Fleet National Bank, as Trustee,
entered into the Fourth Supplement Indenture governing the
Company's 11-1/2% First Mortgage Notes due 2001 (the"Amendment").
The modification effected by the Amendment set forth the Company's
ability to defease the Security covenants and provisions of such
First Mortgage Notes.
B. On August 6, 1996, the Company issued its 12-1/2% Senior Secured
Notes due 2003, in aggregate principal amount of $315 million, and
in connection therewith defeased the covenants pertaining to the
Company's 11-1/2 First Mortgage Notes due 2001, including the
Company's covenants as to the provision of security. As a result,
the Security formerly securing such First Mortgage Notes now
secures, in substantial point, the newly issued Senior Secured
Notes.
Item 3. Defaults upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - None
---------------------------------------------------
Item 5. Other Information
-----------------
A. On August 5, 1996 the Company announced that it had hired Edward
F. Reese to serve as its new Vice President of Construction and
Design. Mr. Reese assumed his position on August 5, 1996.
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 31, 1996, the Company filed the
following reports on Form 8-K for the following dates:
1. July 12, 1996 (date of event reported), the Company reported the
acceptance of the resignations of Juris Basens, Chief Operating
Officer, and David Palik, Vice President of Marketing.
2. July 3, 1996 (date of event reported), the Company reported that
it agreed to purchase from Louisiana Downs, Inc. the 50% interest
not owned by the Company in the partnership that owned (i) the
Isle of Capri Casino in Bossier City, Louisiana and (ii) a 50%
interest in the Isle of Capri Casino in Lake Charles, Louisiana.
The Company also made available in such 8-K Report its audited
financial statements for the fiscal year ended April 30, 1996.
3. May 3, 1996 (date of event reported), the Company reported the
acquisition of all of the common stock of Grand Palais Riverboat,
Inc (the "GPRI Acquisition") and the acquisition of a 50%
interest in the St. Charles Gaming Company, Inc. (the "SCGC
Acquisition"). The Company filed two amendments to such 8-K
Report, both dated May 3, 1996 (date of event reported), to
provide financial statements of St. Charles Gaming Company, Inc.
and pro forma financial information related to the SCGC
Acquisition.
16
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 16, 1996 By:/s/ Rexford A. Yeisley
----------------------
Rexford A. Yeisley
Chief Financial Officer &
Treasurer
(Duly Authorized Officer and
Principal Financial Officer and
Accounting Officer)
17
Exhibit Number Description
- -------------- -----------
10.1 Employment Agreement, dated July 19, 1996 by
and between Casino America, Inc. and Edward F.
Reese, Jr.
27 Financial Data Schedule