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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 28, 2002
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
-------
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)
1641 Popps Ferry Road, Biloxi, Mississippi . . . . . 39532
- ---------------------------------------------------- ----------------------
(Address of principal executive offices) . . . . . . (Zip Code)
Registrant's telephone number, including area code:. (228) 396-7000
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 August 30, 2002, the Company had a total of 28,969,020 shares of Common
Stock outstanding (which excludes 3,106,640 shares held by us in treasury).
ISLE OF CAPRI CASINOS, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
- ------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, JULY 28, 2002 (UNAUDITED)
AND APRIL 28, 2002. . . . . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JULY 28, 2002 AND JULY 29, 2001 (UNAUDITED). . . 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE
MONTHS ENDED JULY 28, 2002 (UNAUDITED). . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED JULY 28, 2002 AND JULY 29, 2001 (UNAUDITED) . . . . . . 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . 24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . 31
PART II OTHER INFORMATION
- ------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 32
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. . . . . . . . . . . . . . 33
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . 33
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . 33
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CERTIFICATIONS .. . . . . . . . . . . . . . . 35
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical or current facts
included in this report on form 10-Q or incorporated by reference herein,
including, without limitation, statements regarding our future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations, are forward-looking statements.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe" or "continue" or the negative thereof or
variations thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct. All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS JULY 28, APRIL 28,
2002 2002
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,143 $ 76,597
Accounts receivable .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,891 9,857
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,681 10,235
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . . . 14,072 15,113
Property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,697 24,572
----------- -----------
Total current assets.. . . . . . . . . . . . . . . . . . . . . . . . . 131,484 136,374
Property and equipment - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793,338 803,507
Other assets:
Goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305,850 305,850
Other intangible assets, net.. . . . . . . . . . . . . . . . . . . . . . . . . . 58,744 58,744
Deferred financing costs, net of accumulated amortization of $8,935
and $7,984, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . 23,273 23,730
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100 3,677
Prepaid deposits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,314 4,944
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,927 3,397
----------- -----------
Total assets.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,325,030 $1,340,223
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt.. . . . . . . . . . . . . . . . . . . . . . $ 16,300 $ 14,176
Accounts payable trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,135 22,541
Accrued liabilities:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,849 5,276
Payroll and related. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,617 47,186
Property and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . 19,563 15,673
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,295 13,993
Progressive jackpots and slot club awards. . . . . . . . . . . . . . . . . 12,351 11,903
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,305 27,862
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 180,415 158,610
Long-term debt, less current maturities.. . . . . . . . . . . . . . . . . . . . . . . 944,238 995,123
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,366 16,302
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,908 10,990
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized; none issued.. . . - -
Common stock, $.01 par value; 45,000 shares authorized; shares issued and
outstanding: 31,859 at July 28, 2002 and 31,826 at April 28, 2002. . . . 315 314
Class B common stock, $.01 par value; 3,000 shares authorized; none issued. - -
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 136,482 135,432
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,078) (1,352)
Retained earnings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,926 54,753
Accumulated other comprehensive loss, net of income tax benefit of $3,340
and $2,364, respectively. . . . . . . . . . . . . . . . . . . . . . . . . (5,654) (4,061)
----------- -----------
195,991 185,086
Treasury stock, 3,107 shares. . . . . . . . . . . . . . . . . . . . . . . . (25,888) (25,888)
----------- -----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 170,103 159,198
----------- -----------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $1,325,030 $1,340,223
=========== ===========
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
--------------------
July 28, July 29,
2002 2001
-------------------- ----------
Revenues:
Casino. . . . . . . . . . . . . . $ 270,085 $ 257,588
Rooms . . . . . . . . . . . . . . 14,737 15,167
Pari-mutuel commissions and fees. 5,605 5,290
Food, beverage and other. . . . . 37,093 39,135
-------------------- ----------
Gross revenues . . . . . . . 327,520 317,180
Less promotional allowances. 50,857 54,244
-------------------- ----------
Net revenues.. . . . 276,663 262,936
Operating expenses:
Casino. . . . . . . . . . . . . . 49,986 51,418
Gaming taxes. . . . . . . . . . . 58,649 54,484
Rooms . . . . . . . . . . . . . . 3,663 3,463
Pari-mutuel . . . . . . . . . . . 4,060 4,095
Food, beverage and other. . . . . 9,305 8,912
Marine and facilities . . . . . . 18,256 17,890
Marketing and administrative. . . 71,852 70,624
Preopening expenses . . . . . . . - 390
Depreciation. . . . . . . . . . . 17,984 17,293
-------------------- ----------
Total operating expenses . . 233,755 228,569
-------------------- ----------
Operating income . . . . . . . . . . . 42,908 34,367
Interest expense. . . . . . . . . (21,105) (24,367)
Interest income . . . . . . . . . 65 233
Gain on disposal of assets. . . . - 125
Minority interest.. . . . . . . . (2,558) (1,671)
-------------------- ----------
Income before income taxes.. . . . . . 19,310 8,687
Income tax provision. . . . . . . 7,137 2,833
-------------------- ----------
Net income . . . . . . . . . . . . . . $ 12,173 $ 5,854
==================== ==========
Net income per common share-basic. . $ 0.42 $ 0.21
Net income per common share-diluted. $ 0.40 $ 0.20
Weighted average basic shares . . 28,739 28,461
Weighted average diluted shares . 30,722 29,681
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Accumulated
Other
Shares of Additional Unearned Compre-
Common Common Paid-in Compen- hensive Treasury
Stock Stock Capital sation Loss Stock
--------- ----------- --------- --------- --------- ----------
Balance, April 28, 2002. . . . . . . . . . . . . . . . 31,826 $ 314 $ 135,432 $ (1,352) $ (4,061) $ (25,888)
Net income. . . . . . . . . . . . . . . . . . . . - - - - - -
Unrealized loss on interest
rate swap contract.. . . . . . . . . . . . . - - - - (1,593) -
--------- ----------- --------- --------- --------- ----------
Comprehensive loss, net of income taxes of $3,340 - - - - (5,654) -
Exercise of stock
options and warrants . . . . . . . . . . . . . 33 1 192 - - -
Grant of nonvested stock. . . . . . . . . . . . . - - 858 (858) - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - - - 132 - -
--------- ----------- --------- --------- --------- ----------
Balance, July 28, 2002 . . . . . . . . . . . . . . . . 31,859 $ 315 $ 136,482 $ (2,078) $ (5,654) $ (25,888)
========= =========== ========= ========= ========= ==========
Total
Retained Stockholders'
Earnings Equity
--------- ---------------
Balance, April 28, 2002. . . . . . . . . . . . . . . . $ 54,753 $ 159,198
Net income. . . . . . . . . . . . . . . . . . . . 12,173 12,173
Unrealized loss on interest
rate swap contract.. . . . . . . . . . . . . - (1,593)
--------- ---------------
Comprehensive loss, net of income taxes of $3,340 - 169,778
Exercise of stock
options and warrants . . . . . . . . . . . . . - 193
Grant of nonvested stock. . . . . . . . . . . . . - -
Amortization of unearned
compensation. . . . . . . . . . . . . . . . . - 132
--------- ---------------
Balance, July 28, 2002 . . . . . . . . . . . . . . . . $ 66,926 $ 170,103
========= ===============
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
--------------------
July 28, July 29,
2002 2001
-------------------- ----------
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,173 $ 5,854
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 17,984 17,293
Amortization of deferred financing costs. . . . . . . . . 951 1,146
Amortization of unearned compensation . . . . . . . . . . 132 139
Gain on disposal of assets. . . . . . . . . . . . . . . . - (125)
Minority interest . . . . . . . . . . . . . . . . . . . . 2,558 1,671
Changes in current assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . (34) 183
Income tax receivable. . . . . . . . . . . . . . . . - 4,700
Prepaid expenses and other assets. . . . . . . . . . 1,041 1,789
Accounts payable and accrued liabilities.. . . . . . 17,907 15,402
-------------------- ----------
Net cash provided by operating activities. . . . . . . . . . . 52,712 48,052
INVESTING ACTIVITIES:
Purchase of property and equipment.. . . . . . . . . . . . . . (7,127) (29,401)
Proceeds from sales of assets. . . . . . . . . . . . . . . . . - 125
Investments in and advances to joint ventures. . . . . . . . . (285) (663)
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . 577 (118)
Prepaid deposits and other . . . . . . . . . . . . . . . . . . (85) 209
-------------------- ----------
Net cash used in investing activities. . . . . . . . . . . . . (6,920) (29,848)
FINANCING ACTIVITIES:
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . - 50,000
Net reduction in lines of credit and revolving lines of credit (43,290) (48,000)
Principal payments on debt . . . . . . . . . . . . . . . . . . (5,468) (5,592)
Deferred financing costs . . . . . . . . . . . . . . . . . . . (494) (500)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . - (2,202)
Proceeds from exercise of stock options and warrants . . . . . 193 72
Cash distribution to minority partner. . . . . . . . . . . . . (1,187) -
-------------------- ----------
Net cash used in financing activities. . . . . . . . . . . . . (50,246) (6,222)
Net increase (decrease) in cash and cash equivalents . . . . . (4,454) 11,982
Cash and cash equivalents at beginning of period . . . . . . . 76,597 76,659
-------------------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . $ 72,143 $ 88,641
==================== ==========
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
-------------------
July 28, July 29,
2002 2001
------------------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash payments (receipts) for:
Interest. . . . . . . . . . . . . . . . . . . . . . . $ 5,593 $ 12,615
Income taxes. . . . . . . . . . . . . . . . . . . . . 4,167 (10,233)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Other:
Construction costs funded through accrued liabilities - 546
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Isle of Capri Casinos, Inc. (the "Company" or "Isle of Capri") 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
branded gaming facilities and related lodging and entertainment facilities in
growing markets in the United States. The Company wholly owns and operates
thirteen gaming facilities located in Bossier City and Lake Charles, Louisiana;
Biloxi, Lula, Natchez, Vicksburg and Tunica, Mississippi; Boonville and Kansas
City, Missouri; Bettendorf, Marquette and Davenport, Iowa; and Las Vegas,
Nevada. The Company also owns a 57% interest in and receives a management fee
for operating a gaming facility in Black Hawk, Colorado. All but two of these
gaming facilities operate under the name "Isle of Capri" and feature our
distinctive tropical island theme. In addition, the Company wholly owns and
operates a pari-mutuel harness racing facility in Pompano Beach, Florida.
FISCAL YEAR-END
The Company's fiscal year ends on the last Sunday in April. This fiscal year
creates more comparability of the Company's quarterly operations, by generally
having an equal number of weeks (13) and week-end days (26) in each quarter.
Periodically, this system necessitates a 53-week year and fiscal 2000 was one
such year. Fiscal 2003 commenced on April 29, 2002 and ends on April 27, 2003.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United
States 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 months
ended July 28, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending April 27, 2003. 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 fiscal year ended April 28,
2002.
RECLASSIFICATION
The consolidated financial statements for prior years reflect certain
reclassifications to conform with the current year presentation.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
Effective April 29, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," ("SFAS 144") which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations" for a disposal of a segment of a business.
SFAS 144 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 amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair value of the long-lived assets. Loss
on long-lived assets to be disposed of is determined in a similar manner, except
that fair values are reduced for the cost of disposal. The Company periodically
evaluates the carrying value of long-lived assets to be held and used in
accordance with SFAS 144. Based on its review, the Company believes that, as of
July 28, 2002, there were no significant impairments of its long-lived assets,
other than those assets impaired as of April 28, 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB No. 13, and Technical Corrections," ("SFAS 145") which
all but eliminates the presentation in income statements of debt extinguishments
as extraordinary items. SFAS 145 will be effective for fiscal years beginning
after May 15, 2002. The Company plans to implement SFAS 145 at the beginning of
fiscal 2004, April 28, 2003.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit of Disposal Activities," ("SFAS 146") which requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to exit or disposal plan. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. PROPERTY HELD FOR SALE
Property held for sale at April 28, 2002, consists primarily of the Isle-Tunica
and the Lady Luck-Las Vegas. The balance also includes land in Cripple Creek,
Colorado, a riverboat, a floating pavilion and several barges.
During fiscal 2002, Isle of Capri announced that the Board of Directors
authorized the Company to embark on plans to sell or otherwise dispose of the
Isle-Tunica and the Lady Luck-Las Vegas properties. Under provision of SFAS No.
121, the Company determined that it would not be able to recover the net book
value of the Isle-Tunica or the Lady Luck-Las Vegas based on current real estate
and market conditions in Tunica, Mississippi and recent offers to purchase the
properties. As such, the Company recorded an impairment write-down of $59.2
million, representing the difference between the Isle-Tunica's and the Lady
Luck-Las Vegas' net book values of $80.7 million and their estimated fair value
less estimated costs to sell. Fair values were based on the most recent offer to
purchase the assets.
On July 16, 2002, the Company entered into an agreement subject to certain
conditions, to sell the Lady Luck-Las Vegas. The agreement is subject to
contingencies. On July 29, 2002, the Company entered into an agreement to sell
the Isle-Tunica. The agreement provides that the Company will receive a cash
payment of $7.5 million and will be entitled to retain certain personal
property, including all gaming equipment, valued at approximately $4.7 million.
The Company ceased casino operations on September 4, 2002. The hotel and
support facilities will remain open pending the closing of the transaction which
is expected within the next approximately 30 days. The pretax proceeds from the
sales approximate the carrying value of these assets at July 28, 2002.
In connection with the restructuring plan, approximately 600 employees will be
terminated at the Isle-Tunica. The approximately 400 employees of the Lady
Luck-Las Vegas will become employees of the new company. Employee termination
costs are estimated at $0.4 million. These costs have been accrued during the
first quarter 2003 and are recorded in the "Operating expenses" for the
appropriate department in the accompanying consolidated statements of
operations. In addition, the restructuring plan includes lease termination and
other business exit costs estimated at $1.4 million. These costs have been
accrued during the first quarter 2003 and are recorded in "Operating
expenses-marketing and administrative" in the accompanying consolidated
statements of operations.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT
JULY 28, APRIL 28,
2002 2002
--------------- ----------
Long-term debt consists of the following:. . . . . . . . . . . . . . . . . . . (In thousands)
8.75 % Senior Subordinated Notes (described below) . . . . . . . . . . . . . . $ 390,000 $ 390,000
9.00 % Senior Subordinated Notes (described below) . . . . . . . . . . . . . . 200,000 200,000
Senior Secured Credit Facility (described below):
Variable rate term loan . . . . . . . . . . . . . . . . . . . . . . . . . . 249,375 250,000
Revolver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 75,000
Isle-Black Hawk Secured Credit Facility, non-recourse to Isle of Capri
Casinos, Inc. (described below):
Variable rate term loans Tranche A. . . . . . . . . . . . . . . . . . . . . 35,040 38,000
Variable rate term loans Tranche B. . . . . . . . . . . . . . . . . . . . . 38,739 39,900
Variable rate TIF Bonds due to City of Bettendorf (described below). . . . . . 5,929 5,929
12.5 % note payable, due in monthly installments of $125,000, including
interest, beginning October 1997 through October 2005.. . . . . . . . . . . 3,822 4,072
8 % note payable, due in monthly installments of $66,667, including interest,
through July 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 132
8 % note payable, due in monthly installments of $11,365, including interest,
through November 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,112 1,124
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,521 5,142
--------------- ----------
960,538 1,009,299
Less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,300 14,176
--------------- ----------
Long-term debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944,238 $ 995,123
=============== ==========
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT (CONTINUED)
8.75% SENIOR SUBORDINATED NOTES
On April 23, 1999, the Company issued $390.0 million of 8.75% Senior
Subordinated Notes due 2009 (the "8.75% Senior Subordinated Notes"). The 8.75%
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 8.75% Senior Subordinated Notes is payable semi-annually
on each April 15 and October 15 through maturity. The 8.75% 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 8.75% Senior Subordinated Notes under an indenture
between the Company, the subsidiary guarantors and a trustee. The indenture,
among other things, restricts the ability of the Company and 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 its stock or its 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 8.75% Senior Subordinated Notes was
used to prepay long-term debt, including all of the $315.0 million of 12.5%
Senior Secured Notes due 2003. The proceeds were also used to pay prepayment
premiums, accrued interest and other transaction fees and costs.
9% SENIOR SUBORDINATED NOTES
On March 27, 2002, the Company issued $200.0 million of 9% Senior Subordinated
Notes due 2012 (the "9% Senior Subordinated Notes"). The 9% Senior Subordinated
Notes are guaranteed by all of the Company's significant subsidiaries, excluding
the subsidiaries that own and operate the Isle-Black Hawk. The 9% Senior
Subordinated Notes are general unsecured obligations and rank junior to all
existing and future senior indebtedness, senior to any subordinated indebtedness
and equally with all of existing and future senior subordinated debt, including
the $390.0 million in aggregate principal amount of the existing 8.75% Senior
Subordinated Notes. Interest on the 9% Senior Subordinated Notes is payable
semi-annually on each March 15 and September 15 through maturity. The 9% Senior
Subordinated Notes are redeemable, in whole or in part, at the Company's option
at any time on or after March 15, 2007 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 March 15 of the years indicated below:
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT (CONTINUED)
Year . . . . . . . . Percentage
- -------------------- -----------
2007.. . . . . . . . 104.500%
2008.. . . . . . . . 103.000%
2009.. . . . . . . . 101.500%
2010 and thereafter. 100.000%
Additionally, the Company may redeem a portion of the Notes with the proceeds of
specified equity offerings.
The Company issued the 9% Senior Subordinated Notes under an indenture between
the Company, the subsidiary guarantors and a trustee. The indenture, among
other things, restricts the ability of the Company and 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 its stock or its 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 9% Senior Subordinated Notes was
used to prepay long-term debt, including $195.0 million outstanding under the
Amended and Restated Senior Credit Facility. The proceeds were also used to pay
accrued interest and other transaction fees and costs.
SENIOR SECURED CREDIT FACILITY
Senior Credit Facility
Simultaneously with the issuance of the 8.75% Senior Subordinated Notes, the
Company entered into a $175.0 million five-year credit facility (the "Senior
Credit Facility") comprised of a $50.0 million term loan and a $125.0 million
revolver. On March 2, 2000, the Company amended and restated the Senior Credit
Facility in connection with the acquisition of Lady Luck and BRDC, as well as,
to provide financing for the pending acquisitions of the Flamingo Hilton
Riverboat Casino in Kansas City, Missouri and of Davis Gaming Boonville, Inc.
The previous $175.0 million Senior Credit Facility was expanded under the
amended and restated agreement to a $600.0 million facility ("Amended and
Restated Senior Credit Facility"). On June 18, 2001, Isle of Capri exercised an
option under its existing $600.0 million Amended and Restated Credit Agreement
to add $50.0 million of additional term loans under the same terms, conditions
and covenants to bring the total Amended and Restated Senior Credit Facility to
$650.0 million.
Amended and Restated Senior Credit Facility
The $650.0 million Amended and Restated Senior Credit Facility was comprised of
a $125.0 million revolving credit facility, a $100.0 million Tranche A term loan
maturing on March 2, 2005, a $226.7 million Tranche B term loan maturing on
March 2, 2006, and a $198.3 million Tranche C term loan maturing on March 2,
2007. On April 26, 2002, the Company amended the existing $650.0 million
Amended and Restated Senior Credit Facility with a $500.0 million Senior Secured
Credit Facility (the "Senior Secured Credit Facility").
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT (CONTINUED)
Senior Secured Credit Facility
The Senior Secured Credit Facility provides for a $250.0 million revolving
credit facility maturing on April 25, 2007 and a $250.0 million term loan
facility maturing on April 25, 2008. The proceeds were used to refinance $336.8
million of the existing Amended and Restated Senior Credit Facility with the
remainder being available for general corporate purposes.
At the Company's option, the revolving credit facility may bear interest at (1)
the higher of 0.05% in excess of the federal funds effective rate or the rate
that the bank group announces from time to time as its prime lending rate plus
an applicable margin of up to 1.75%, or (2) a rate tied to a LIBOR rate plus an
applicable margin of up to 2.75%. The term loan may bear interest at the
Company's option at (1) the higher of 0.05% in excess of the federal funds
effective rate or the rate that the bank group announces from time to time as
its prime lending rate plus an applicable margin of up to 1.5% or (2) a rate
tied to a LIBOR rate plus an applicable margin of up to 2.5%.
The Senior Secured Credit Facility provides for certain covenants, including
those of a financial nature. The Amended and Restated 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-Black Hawk and their subsidiaries.
The weighted average effective interest rate of total debt outstanding under the
Senior Secured Credit Facility at July 28, 2002 was 6.5%.
ISLE-BLACK HAWK SECURED CREDIT FACILITY
On November 16, 2001, Isle-Black Hawk entered into a $90.0 million secured
credit facility (the "Secured Credit Facility"), that is non-recourse debt to
the Isle of Capri, primarily for the purpose of funding the redemption of the
13% First Mortgage Notes. The Secured Credit Facility provides for a $10.0
million revolving credit facility, a $40.0 million Tranche A term loan maturing
on November 16, 2005 and a $40.0 million Tranche B term loan maturing on
November 16, 2006.
Isle-Black Hawk is required to make quarterly principal payments on the term
loan portions of the Secured Credit Facility that commenced in March 2002. Such
payments on the Tranche A term loan initially will be $2.0 million per quarter
with scheduled increases to $2.5 million per quarter commencing March 2003 and
to $3.0 million per quarter commencing March 2005. Such payments on the Tranche
B term loan initially will be $0.1 million per quarter with a scheduled increase
to $9.6 million per quarter commencing March 2006.
At Isle-Black Hawk's option, the revolving credit facility and the Tranche A
term loan may bear interest at (1) the higher of 0.05% in excess of the federal
funds effective rate or the rate that the bank group announces from time to time
as its prime lending rate plus an applicable margin of up to 2.50%, or (2) a
rate tied to a LIBOR rate plus an applicable margin of up to 3.50%. At
Isle-Black Hawk's option, the Tranche B term loan may bear interest at (1) the
higher of 0.05% in excess of the federal funds effective rate or the rate that
the bank group announces from time to time as its prime lending rate plus an
applicable margin of up to 3.00%, or (2) a rate tied to a LIBOR rate plus an
applicable margin of up to 4.00%.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT (CONTINUED)
The Secured Credit Facility provides for certain covenants, including those of a
financial nature. Isle-Black Hawk was in compliance with these covenants as of
July 28, 2002. The Secured Credit Facility is secured by liens on the
Isle-Black Hawk's assets.
The weighted average effective interest rate of total debt outstanding under the
Secured Credit Facility at July 28, 2002 was 7.0%.
INTEREST RATE SWAPS
The Company entered into three interest rate swap agreements in the fourth
quarter of fiscal 2001 and four interest rate swap agreements in fiscal 2002
that effectively convert portions of the floating rate term loans to a
fixed-rate, thus reducing the impact of interest-rate changes on future interest
expense. The notional value of the swaps, which were designated as cash flow
hedges, was $240.0 million or 74.3% of the Isle of Capri's variable rate term
loans as of July 28, 2002. The interest rate swaps terminate as follows: $50.0
million in fiscal 2003, $150.0 million in fiscal 2004 and $40.0 million in
fiscal 2005.
At July 28, 2002, other comprehensive loss included $5.7 million for changes in
the fair value of derivative instruments for cash flow hedges. The fair value
of the estimated interest differential between the applicable future variable
rates and the interest rate swap contracts, expressed in present value terms
totals $9.0 million, of which $2.4 million is recorded in other accrued current
liabilities and $6.6 million is recorded in other accrued long-term liabilities
in the accompanying consolidated balance sheets. There was no effect on income
related to hedge ineffectiveness.
At July 28, 2002, the Company does not expect to reclassify any net gains
(losses) on derivative instruments from accumulated other comprehensive income
to earnings during the next twelve months due to the payment of variable
interest associated with the floating rate debt.
VARIABLE RATE TIF BONDS
As part of the City of Bettendorf Development Agreement dated June 17, 1997, the
City issued $9.5 million in tax incremental financing bonds ("TIF Bonds"), $7.5
million of which was used by Isle-Bettendorf to construct an overpass, parking
garage, related site improvements and pay for disruption damages caused by
construction of the overpass. To enable financing of the City's obligations,
Isle-Bettendorf will pay incremental property taxes on the developed property
assessed at a valuation of not less than $32.0 million until the TIF Bonds
mature. Additionally, the TIF Bonds will also be repaid from the incremental
taxes on the developed property within the defined "TIF District" which includes
Isle-Bettendorf and over 100 other tax paying entities. As the TIF District will
repay the TIF Bonds, Isle-Bettendorf may not be required to fully repay the $7.5
million. In the event that the taxes generated by the project and other
qualifying developments in the redevelopment district do not fund the repayment
of the total TIF Bonds prior to their scheduled maturity, Isle-Bettendorf will
pay the City $0.25 per person for each person entering the boat until the
remaining balance has been repaid.
OTHER
The Isle of Capri has $264.0 million in bank lines of credit including the
Senior Secured Credit Facility and the Secured Credit Facility. As of July 28,
2002, Isle of Capri had $31.7 million outstanding under these lines of credit.
At July 28, 2002, the Isle of Capri was in compliance with all debt covenants.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
THREE MONTHS ENDED
------------------
JULY 28, JULY 29,
2002 2001
--------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income. . . . . . . . . . . . . . . . . . . . . $ 12,173 $ 5,854
========= =========
Numerator for basic earnings per share - income
available to common stockholders . . . . . . . $ 12,173 $ 5,854
Effect of diluted securities. . . . . . . . . . . . - -
--------- ---------
Numerator for diluted earnings per share-
income available to common stockholders after
assumed conversions . . . . . . . . . . . $ 12,173 $ 5,854
========= =========
Denominator:
Denominator for basic earnings per share -
weighted - average shares. . . . . . . . . . . 28,739 28,461
Effect of dilutive securities
Employee stock options, warrants
and nonvested restricted stock. . . . . . . 1,983 1,220
--------- ---------
Dilutive potential common shares. . . . . . . . . . 1,983 1,220
--------- ---------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions . . . . . . . . . . . 30,722 29,681
========= =========
Basic earnings per share. . . . . . . . . . . . . . $ 0.42 $ 0.21
========= =========
Diluted earnings per share. . . . . . . . . . . . . $ 0.40 $ 0.20
========= =========
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. CONTINGENCIES
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. The Company is
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 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 the lower court
rendered judgment in our favor on September 16, 1999. The case was reversed on
appeal and remanded to the lower court for further proceedings; however, on
October 8, 2001, the trial court dismissed the case again, this time on the
basis that the plaintiffs lack standing. The plaintiffs have amended the
petition and continue to pursue this matter. The Company intends to vigorously
defend this suit. In addition, a similar action was recently filed against the
City of Bossier, challenging the validity of its contracts with Louisiana
Riverboat Gaming Partnership and other casinos. Exceptions have been filed
requiring joinder of all interested parties, including Louisiana Riverboat
Gaming Partnership. The Company believes the claims are without merit and to
continue to vigorously defend this suit along with the other interested parties.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. CONTINGENCIES (CONTINUED)
Lady Luck and several joint venture partners are defendants in a lawsuit brought
by the country of Greece and its Minister of Tourism before the Greek
Multi-Member Court of First Instance. The action alleges that the defendants
failed to make specified payments in connection with the gaming license bid
process for Patras, Greece. The payment the Company is alleged to have been
required to make aggregates approximately 2.1 billion drachmae or 6.2 million
Euro (which was approximately $6.3 million as of July 28, 2002 based on
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to that aggregate
amount plus interest from the date of the alleged breach. The court granted
summary judgment in our favor and dismissed the lawsuit, but the Ministry of
Tourism has appealed the matter and the appeal was heard in April 2002. There
has been no announcement as to whether there has been a decision on the appeal.
Accordingly, the outcome is still in doubt and cannot be predicted with any
degree of certainty. The Company believes the claims against us to be without
merit and the Company intends to continue vigorously defending the claims
asserted in this action.
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, we believe that they will not have a
material adverse effect on our consolidated financial position or results of
operations.
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, and is subject to cleanup requirements at certain of its
facilities as a result thereof. The Company has not made, and does not
anticipate making, material expenditures or incurring delays with respect to
environmental remediation or protection. However, in part because the Company's
present and future development sites have, in some cases, been used as
manufacturing facilities or other facilities that generate materials that are
required to be remediated under environmental laws and regulations, there can be
no guarantee that additional pre-existing conditions will not be discovered and
that the Company will not experience material liabilities or delays.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Certain of the Company's subsidiaries have fully and unconditionally guaranteed
the payment of all obligations under the Company's $390.0 million 8.75% Senior
Subordinated Notes due 2009, $200.0 million 9% Senior Subordinated Notes due
2012 and $500.0 million Senior Secured Credit Facility. The following tables
present the consolidating condensed financial information of Isle of Capri
Casinos, Inc., as the parent company, its guarantor subsidiaries and its
non-guarantor subsidiaries for the three months ended July 28, 2002 and July 29,
2001 and balance sheets as of July 28, 2002 and April 28, 2002.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR, AND PARENT COMPANY
FINANCIAL INFORMATION
AS OF JULY 28, 2002 (UNAUDITED) AND APRIL 28, 2002 AND FOR
THE THREE MONTHS ENDED JULY 28, 2002 AND JULY 29, 2001
(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 28, 2002
Balance Sheet
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 4,246 $ 113,762 $ 13,476 $ - $ 131,484
Intercompany receivables . . . . . . . . . 905,359 119,106 (12,768) (1,011,697) -
Investments in subsidiaries. . . . . . . . 196,912 277,755 418 (473,744) 1,341
Property and equipment, net. . . . . . . . 2,343 676,974 114,021 - 793,338
Other assets . . . . . . . . . . . . . . . 22,903 340,822 35,142 - 398,867
--------------- -------------- -------------- --------------- --------------
Total assets.. . . . . . . . . . . . . . . $ 1,131,763 $ 1,528,419 $ 150,289 $ (1,485,441) $ 1,325,030
=============== ============== ============== =============== ==============
Current liabilities. . . . . . . . . . . . $ 49,351 $ 104,089 $ 28,376 $ (1,401) $ 180,415
Intercompany payables. . . . . . . . . . . 38,792 956,605 14,900 (1,010,297) -
Long-term debt,
less current maturities.. . . . . . . . 866,875 8,332 69,031 - 944,238
Other accrued liabilities. . . . . . . . . 5,827 1,000 11,539 - 18,366
Minority interest. . . . . . . . . . . . . - - - 11,908 11,908
Stockholders' equity . . . . . . . . . . . 170,918 458,393 26,443 (485,651) 170,103
--------------- -------------- -------------- --------------- --------------
Total liabilities and stockholders' equity $ 1,131,763 $ 1,528,419 $ 150,289 $ (1,485,441) $ 1,325,030
=============== ============== ============== =============== ==============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (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 28, 2002
Statement of Operations
- -----------------------------------------
Revenues:
Casino. . . . . . . . . . . . . . . . . . $ - $ 242,786 $ 27,299 $ - $ 270,085
Rooms, food, beverage and other . . . . . 12 52,090 5,333 - 57,435
----------- -------------- -------------- ------------- ---------------
Gross revenues. . . . . . . . . . . . . . 12 294,876 32,632 - 327,520
Less promotional allowances.. . . . . . . - 45,205 5,652 - 50,857
----------- -------------- -------------- ------------- ---------------
Net revenues. . . . . . . . . . . . . . . 12 249,671 26,980 - 276,663
Operating expenses:
Casino. . . . . . . . . . . . . . . . . . - 45,994 3,992 - 49,986
Gaming taxes. . . . . . . . . . . . . . . - 53,298 5,351 - 58,649
Rooms, food, beverage and other.. . . . . 4,758 94,377 8,001 - 107,136
Management fee expense (revenue). . . . . (9,003) 7,821 1,182 - -
Depreciation. . . . . . . . . . . . . . . 224 16,518 1,242 - 17,984
----------- -------------- -------------- ------------- ---------------
Total operating expenses. . . . . . . . . (4,021) 218,008 19,768 - 233,755
----------- -------------- -------------- ------------- ---------------
Operating income. . . . . . . . . . . . . 4,033 31,663 7,212 - 42,908
Interest expense. . . . . . . . . . . . . (20,242) (28,121) (1,791) 29,049 (21,105)
Interest income.. . . . . . . . . . . . . 27,709 1,385 20 (29,049) 65
Minority interest.. . . . . . . . . . . . - - - (2,558) (2,558)
Equity in income of
unconsolidated joint venture. . . . . 7,810 4,414 (7) (12,217) -
----------- -------------- -------------- ------------- ---------------
Income before income taxes. . . . . . . . 19,310 9,341 5,434 (14,775) 19,310
Income tax provision. . . . . . . . . . . 7,137 - - - 7,137
----------- -------------- -------------- ------------- ---------------
Net income (loss) . . . . . . . . . . . . $ 12,173 $ 9,341 $ 5,434 $ (14,775) $ 12,173
=========== ============== ============== ============= ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (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 28, 2002
Statement of Cash Flows
- -------------------------------------------
Net cash provided by (used in)
operating activities. . . . . . . . . . . . $ 49,058 $ 9,430 $ 5,234 $ (11,003) $ 52,719
Net cash provided by (used in)
investing activities. . . . . . . . . . . . (6,957) (9,503) (1,104) 10,644 (6,920)
Net cash provided by (used in )
financing activities. . . . . . . . . . . . (45,771) 1,122 (7,044) 1,440 (50,253)
----------- -------------- -------------- ------------- ---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . (3,670) 1,049 (2,914) 1,081 (4,454)
Cash and cash equivalents at
beginning of the period . . . . . . . . . . 2,690 58,312 11,045 4,550 76,597
----------- -------------- -------------- ------------- ---------------
Cash and cash equivalents at
end of the period . . . . . . . . . . . . . $ (980) $ 59,361 $ 8,131 $ 5,631 $ 72,143
=========== ============== ============== ============= ===============
As of April 28, 2002
Balance Sheet
- -------------------------------------------
Current assets. . . . . . . . . . . . . . . $ 7,475 $ 113,900 $ 14,999 $ - $ 136,374
Intercompany receivables. . . . . . . . . . 925,523 97,986 (12,183) (1,011,326) -
Investments in subsidiaries.. . . . . . . . 190,389 273,342 425 (463,100) 1,056
Property and equipment, net . . . . . . . . 2,093 687,252 114,162 - 803,507
Other assets. . . . . . . . . . . . . . . . 22,630 341,439 35,217 - 399,286
----------- -------------- -------------- ------------- ---------------
Total assets. . . . . . . . . . . . . . . . $1,148,110 $ 1,513,919 $ 152,620 $ (1,474,426) $ 1,340,223
=========== ============== ============== ============= ===============
Current liabilities . . . . . . . . . . . . $ 32,391 $ 98,919 $ 27,302 $ (2) $ 158,610
Intercompany payables . . . . . . . . . . . 38,791 956,216 16,319 (1,011,326) -
Long-term debt,
less current maturities. . . . . . . . . 912,500 8,731 73,892 - 995,123
Other accrued liabilities.. . . . . . . . . 5,027 1,000 10,275 - 16,302
Minority interest.. . . . . . . . . . . . . - - - 10,990 10,990
Stockholders' equity. . . . . . . . . . . . 159,401 449,053 24,832 (474,088) 159,198
----------- -------------- -------------- ------------- ---------------
Total liabilities and stockholders' equity. $1,148,110 $ 1,513,919 $ 152,620 $ (1,474,426) $ 1,340,223
=========== ============== ============== ============= ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (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 29, 2001
Statement of Operations
- ----------------------------------------
Revenue:
Casino . . . . . . . . . . . . . . . . . $ - $ 230,538 $ 27,050 $ - $ 257,588
Rooms, food, beverage and other. . . . . 12 54,378 5,202 - 59,592
----------- -------------- -------------- ------------- ---------------
Gross revenue. . . . . . . . . . . . . . 12 284,916 32,252 - 317,180
Less promotional allowances. . . . . . . - 48,707 5,537 - 54,244
----------- -------------- -------------- ------------- ---------------
Net revenue. . . . . . . . . . . . . . . 12 236,209 26,715 - 262,936
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . - 47,461 3,957 - 51,418
Gaming taxes . . . . . . . . . . . . . . - 49,115 5,369 - 54,484
Rooms, food, beverage and other. . . . . (2,282) 98,112 9,544 - 105,374
Depreciation . . . . . . . . . . . . . . 234 16,069 990 - 17,293
----------- -------------- -------------- ------------- ---------------
Total operating expenses . . . . . . . . (2,048) 210,757 19,860 - 228,569
----------- -------------- -------------- ------------- ---------------
Operating income.. . . . . . . . . . . . 2,060 25,452 6,855 - 34,367
Gain on sale of assets.. . . . . . . . . 125 - - - 125
Interest expense, net. . . . . . . . . . (21,861) (26,175) (3,044) 26,713 (24,367)
Interest income. . . . . . . . . . . . . 25,804 1,071 71 (26,713) 233
Minority interest. . . . . . . . . . . . - - - (1,671) (1,671)
Equity in income (loss) of
unconsolidated joint venture . . . . . 2,559 5,951 - (8,510) -
----------- -------------- -------------- ------------- ---------------
Income (loss) before income taxes. . . . 8,687 6,299 3,882 (10,181) 8,687
Income tax provision . . . . . . . . . . 2,833 - - - 2,833
----------- -------------- -------------- ------------- ---------------
Net income (loss). . . . . . . . . . . . $ 5,854 $ 6,299 $ 3,882 $ (10,181) $ 5,854
=========== ============== ============== ============= ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (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 29, 2001
Statement of Cash Flows
- -----------------------------------------
Net cash provided by (used in)
operating activities. . . . . . . . . . . $ (2,979) $ 51,440 $ 8,256 $ (8,665) $ 48,052
Net cash provided by (used in)
investing activities. . . . . . . . . . . 6,937 (44,998) (452) 8,665 (29,848)
Net cash provided by (used in)
financing activities. . . . . . . . . . . (5,442) (641) (139) - (6,222)
--------------- -------------- -------------- --------------- ---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . (1,484) 5,801 7,665 - 11,982
Cash and cash equivalents at
beginning of the period . . . . . . . . . 159 63,458 13,042 - 76,659
--------------- -------------- -------------- --------------- ---------------
Cash and cash equivalents at
end of the period . . . . . . . . . . . . $ (1,325) $ 69,259 $ 20,707 $ - $ 88,641
=============== ============== ============== =============== ===============
(a) Certain of the Company's wholly owned subsidiaries were guarantors on
the 8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes and the
Senior Secured Credit Facility including the following: the Isle-Biloxi, the
Isle-Vicksburg, the Isle-Tunica, the Isle-Bossier City, the Isle-Lake Charles
and PPI, Inc., IOC Holdings, L.L.C. and Riverboat Services, Inc. The
Isle-Natchez, the Isle-Lula, the Isle-Bettendorf, and the Isle-Marquette became
guarantors as of March 2, 2000, the date of the acquisition. The Isle-Boonville,
the Isle-Kansas City, the Lady Luck-Las Vegas and the Isle-Davenport became
guarantors as of their respective dates of acquisition.
(b) The following non-wholly owned subsidiaries were not guarantors on the
8.75% Senior Subordinated Notes nor the 9% Senior Subordinated Notes: Isle of
Capri Black Hawk L.L.C., Isle of Capri Black Hawk Capital Corp., Capri Air,
Inc., Lady Luck Gaming Corp., Lady Luck Gulfport, Inc., Lady Luck Vicksburg,
Inc., Lady Luck Biloxi, Inc., Lady Luck Central City, Inc., IOC-Coahoma, Inc.,
Pompano Park Holdings, L.L.C., Casino America of Colorado, Inc., ASMI
Management, Inc., IOC Development, L.L.C., Casino America, Inc., ICC Corp.,
International Marco Polo Services, Inc., IOC-St. Louis County, Inc., IOC,
L.L.C., Isle of Capri Casino Colorado, Inc., Isle of Capri of Michigan L.L.C.,
Lady Luck Bettendorf Marina Corp., Water Street Redevelopment Corporation,
Casino Parking, Inc., IOC-Black Hawk Distribution Company, L.L.C., Isle of Capri
of Jefferson County, Inc., Lady Luck Scott City, Inc., and Louisiana Horizons,
L.L.C.
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 and the other financial information in
this Form 10-Q.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States that require our
management to make estimates and assumptions about the effects of matters that
are inherently uncertain. We have summarized our significant accounting
policies in Note 1 to our consolidated financial statements. Of our accounting
policies, we believe the following may involve a higher degree of judgment and
complexity:
GOODWILL
At July 28, 2002, we had a net goodwill and other intangible asset balance
of $364.6 million, representing 28% of total assets. Effective April 30, 2002,
we elected to adopt Statement of Financial Accounting Standards No.142 "Goodwill
and Other Intangible Assets" ("SFAS 142"), which established a new method of
testing goodwill and other intangible assets using a fair-value based approach
and does not permit amortization of goodwill as was previously required. Upon
adoption, amortization of goodwill and other intangible assets ceased.
SFAS 142 requires that goodwill and other intangible assets be tested for
impairment annually or if an event occurs or circumstances change that may
reduce the fair value of the Company below its book value. Should circumstances
change or events occur to indicate that the fair market value of the Company has
fallen below its book value, management must then compare the estimated fair
value of goodwill and other intangible assets to book value. If the book value
exceeds the estimated fair value, an impairment loss would be recognized in an
amount equal to that excess. Such an impairment loss would be recognized as a
non-cash component of operating income. We completed our impairment test as
required under SFAS 142 and determined that goodwill and other intangible assets
are not impaired. This test required comparison of our estimated fair value at
April 28, 2002 to our book value, including goodwill and other intangible
assets. The estimated fair value includes estimates of future cash flows which
are based on reasonable and supportable assumptions and represent our best
estimates of the cash flows expected to result from the use of the assets and
their eventual disposition.
PROPERTY AND EQUIPMENT
At July 28, 2002, we had a net property and equipment balance of $793.3
million, representing 60% of total assets. We depreciate the property and
equipment on a straight-line basis over their estimated useful lives. The
estimated useful lives are based on the nature of the assets as well as our
current operating strategy. Future events such as property expansions, new
competition and new regulations, could result in a change in the manner in which
we are using certain assets requiring a change in the estimated useful lives of
such assets. In assessing the recoverability of the carrying value of property
and equipment, we must make assumptions regarding future cash flows and other
factors. If these estimates or the related assumptions change in the future, we
may be required to record impairment loss for these assets. Such an impairment
loss would be recognized as a non-cash component of operating income.
SELF INSURANCE LIABILITIES
We are self-funded up to a maximum amount per claim for our
employee-related health care benefits program, workers' compensation insurance
and general liability insurance. Claims in excess of this maximum are fully
insured through a stop-loss insurance policy. We accrue for these liabilities
based on claims filed and estimates of claims incurred but not reported. While
the total cost of claims incurred depends on future developments, such as
increases in health care costs, in our opinion, recorded reserves are adequate
to cover future claims payments.
SLOT CLUB AWARDS
We reward our slot customers for their loyalty based on the dollar amount of
play on slot machines. We accrue for these slot club awards based on an
estimate of the outstanding value of the awards utilizing the age and prior
history of redemptions. Future events such as a change in our marketing
strategy or new competition could result in a change in the value of the awards.
Such a change would be recognized as a non-cash component of net revenues.
GENERAL
Our results of operations for the three months ended July 28, 2002 reflect
the consolidated operations of all of our subsidiaries and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Kansas City, the Isle-Boonville, the Isle-Bettendorf,
the Isle-Marquette, the Rhythm City-Davenport, the Isle-Black Hawk, the Lady
Luck-Las Vegas, and Pompano Park. Isle-Boonville opened December 6, 2001.
Our results of operations for the three months ended July 29, 2001 reflect
the consolidated operations of all of our subsidiaries and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Kansas City, the Isle-Bettendorf, the Isle-Marquette,
the Rhythm City-Davenport, the Isle-Black Hawk, the Lady Luck-Las Vegas, and
Pompano Park.
We believe that our historical results of operations may not be indicative
of our future results of operations because of the substantial present and
expected future increase in competition for gaming customers in each of our
markets, as new gaming facilities open and existing gaming facilities add to or
enhance their facilities.
We believe that our operating results are affected by seasonality and
weather. Seasonality has historically caused the operating results for our
first and fourth fiscal quarters ending in July and April, respectively, to be
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 28, 2002 COMPARED TO THREE FISCAL MONTHS ENDED
JULY 29, 2001
Gross revenue for the quarter ended July 28, 2002 was $327.5 million, which
included $270.1 million of casino revenue, $14.7 million of rooms revenue, $5.6
million of pari-mutuel commissions and $37.1 million of food, beverage and other
revenue. This compares to gross revenue for the quarter ended July 29, 2001 of
$317.2 million, which included $257.6 million of casino revenue, $15.2 million
of rooms revenue, $5.3 million of pari-mutuel commissions and $39.1 million of
food, beverage and other revenue.
Casino revenue increased $12.5 million or 4.9% primarily as a result of the
addition of the Isle-Boonville which generated $15.1 million of casino revenue
in the current year. Casino revenue also increased $3.5 million or 28.5% at the
Rhythm City-Davenport. The property rebounded from the lingering effects of the
flooding of the Mississippi River that caused the casino to be closed for three
weeks at the beginning of the first quarter of fiscal year 2002. These
increases were partially offset by a $4.2 million decrease in casino revenue
generated by the Isle-Lake Charles, and the $1.8 million decline in casino
revenue at the Isle-Tunica. The decrease at the Isle-Lake Charles was primarily
due to the addition of a competitor, Delta Downs. The decline in casino revenue
at the Isle-Tunica was the result of negative market growth and the announcement
of our intention to sell the property. Room revenue decreased $0.4 million or
2.8% primarily due to reduced occupancy at the Rhythm City-Davenport and the
Isle-Lula. Food, beverage and other revenue decreased by $2.0 million or 5.2%.
The decrease in room, food, beverage and other revenue were the result of a
decrease in the level of complimentary rooms, food and beverage provided to our
guests, the result of fine-tuning our comping policy to ensure optimum marketing
expenditures.
Casino operating expenses for the quarter ended July 28, 2002 totaled $50.0
million, or 18.5% of casino revenue, versus $51.4 million, or 20.0% of casino
revenue, for the quarter ended July 29, 2001. These expenses are primarily
comprised of salaries, wages and benefits and other operating expenses of the
casinos. The decrease in casino operating expenses is attributable to continued
refinement of cost containment policies. The addition of our Boonville
property, with its lower than average casino expense margin, lead to the
improved flow through and lower overall casino expense margin, due in part to
the lower than average payroll and related expense per casino full time
equivalent. Additionally, both Isle-Tunica and Lady Luck-Las Vegas exhibited
casino operating expense margin improvement when compared to prior year's high
expense margins as a result of the continued monitoring of expenses. Room
expenses of $3.7 million or 24.9% of room revenue from the hotels at the
Isle-Lake Charles, the Isle-Bossier City, the Isle-Biloxi, the Isle-Vicksburg,
the Isle-Natchez, the Isle-Lula, the Isle-Bettendorf, the Isle-Marquette, the
Isle-Tunica, the Isle-Black Hawk, the Lady Luck-Las Vegas and the Rhythm
City-Davenport compared to $3.5 million or 22.8% of room revenue for the quarter
ended July 29, 2001. These expenses directly relate 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.
For the quarter ended July 28, 2002, state and local gaming taxes were paid
in Louisiana, Mississippi, Colorado, Iowa, Missouri and Nevada totaling $58.6
million, or 21.7% of casino revenue, compared to $54.5 million, or 21.2% of
casino revenues for the three months ended July 29, 2001, which is consistent
with each state's gaming tax rate for the applicable fiscal quarters. The
increase in state and local gaming taxes as a percentage of casino revenue is
due to the 1% increase in gaming tax rate on net gaming proceeds at the
Isle-Bossier City. On April 1, 2002, the gaming tax rate at the Isle-Bossier
City increased from 19.5% to 20.5%.
Food, beverage and other expenses totaled $9.3 million for the quarter
ended July 28, 2002, compared to $8.9 million for the quarter ended July 29,
2001. Food, beverage and other operating expenses as a percentage of food,
beverage and other revenues increased to 25.1% for the quarter ended July 28,
2002 from 22.8% for the quarter ending July 29, 2001. These expenses consist
primarily of the cost of goods sold, salaries, wages and benefits and other
operating expenses of these departments. These expenses have increased as a
result of the addition of Isle-Boonville, with a corresponding increase in
margin due to lower food and beverage revenue during the quarter.
Marine and facilities expenses totaled $18.3 million for the quarter ended
July 28, 2002, versus $17.9 million for the quarter ended July 29, 2001. These
expenses include salaries, wages and benefits, operating expenses of the marine
crews, insurance, public areas, housekeeping and general maintenance of the
riverboats and pavilions. The 2.0% increase in marine and facilities expenses
approximated the 3.3% increase in gross revenues.
Marketing and administrative expenses totaled $71.9 million, or 26.0% of
net revenue, for the quarter ended July 28, 2002, versus $70.6 million, or 26.9%
of net revenue, for the quarter ended July 29, 2001. 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. The increase
in marketing and administrative expenses is commensurate with the increase in
gross revenues. The 1.7% increase in marketing and administrative expenses
approximates the 3.3% increase in gross revenues. In absolute terms, the
marketing and administrative expense increase of $1.2 million was driven by the
$3.7 million expended at Isle-Boonville, partially offset by the overall ongoing
efforts to optimize marketing expenditures.
Depreciation expense was $18.0 million for the quarter ended July 28, 2002
and $17.3 million for the quarter ended July 29, 2001. Depreciation expense
increased by $0.7 million compared to the prior year quarter. The increase is
consistent with an increase in fixed assets placed into service or acquired but
was offset by the lack of depreciation expense at the Isle-Tunica and the Lady
Luck -Las Vegas. During fiscal 2002, we reclassified the Isle-Tunica's and the
Lady Luck-Las Vegas' property and equipment as assets held for sale under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" due
to the impairment of the assets. Under this classification, we will no longer
depreciate these assets. We estimate that the benefit from suspending
depreciation associated with the assets held for sale was approximately $2.0
million for the three months ended July 28, 2002.
Interest expense was $21.1 million for the quarter ended July 28, 2002 as
compared to interest expense of $24.4 million for the quarter ended July 29,
2001. 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 $1.5 million related
to the Isle-Black Hawk is included in interest expense in the quarter ended July
28, 2002. This compares to interest expense of $3.0 million for the quarter
ended July 29, 2001.
Our effective tax rate was 37.0% for the quarter ended July 28, 2002
compared to 32.6% for the quarter ended July 29, 2001. The quarter ended July
29, 2001, is 4.4% lower than the quarter ended July 28, 2002, due to a revision
in the estimate of deferred income taxes.
RESTRUCTURING CHARGES
During fiscal 2002, we announced that our Board of Directors authorized us
to embark on plans to sell or otherwise dispose of the Isle-Tunica and the Lady
Luck-Las Vegas properties. On July 16, 2002, we entered into an agreement to
sell the Lady Luck-Las Vegas subject to certain conditions. On July 29, 2002, we
entered into an agreement to sell the Isle-Tunica. The agreement provides that
we will receive a cash payment of $7.5 million and will be entitled to retain
certain personal property, including all gaming equipment, valued at
approximately $4.7 million. We ceased casino operations on September 4, 2002.
The hotel and support facilities will remain open pending the closing of the
transaction which is expected within the next approximately 30 days.
In connection with the restructuring plan, approximately 600 employees will
be terminated at the Isle-Tunica and approximately 400 employees of the Lady
Luck-Las Vegas will become employees of the new company. Estimated employee
termination costs of $0.4 million have been accrued in the first quarter of
fiscal 2003. In addition, the restructuring plan includes lease termination and
other business exit costs estimated at $1.4 million which have been accrued in
the first quarter of fiscal 2003. We expect to fund these costs through
existing cash flows from operations before the end of calendar 2002.
LIQUIDITY AND CAPITAL RESOURCES
At July 28, 2002, we had cash and cash equivalents of $72.1 million
compared to $76.6 million in cash and cash equivalents at April 28, 2002. The
$4.5 million decrease in cash is the net result of $52.7 million net cash
provided by operating activities, $6.9 million net cash used in investing
activities, and $50.3 million net cash used in financing activities.
INVESTING ACTIVITIES
We invested $7.0 million in property and equipment during the three months
ended July 28, 2002 primarily for the implementation of a company-wide slot
enhancement program. Approximately $1.9 million was expended on capital
expenditures which enhanced the value of the properties or prolonged their
useful life. The following table reflects expenditures for property and
equipment on major projects:
ACTUAL REMAINDER OF
------ ------------
FISCAL YEAR THREE MONTHS FISCAL YEAR
ENDED 4/28/02 ENDED 7/28/02 ENDING 4/27/03
-------------- ------------- --------------
(DOLLARS IN MILLIONS)
PROPERTY PROJECT
- ---------------------------- ------------------------------------------
Isle-Biloxi . . . . . . . . . Construct hotel & parking facility. . . . . $ - $ - $ 9.1
Isle-Bossier City. . . . . . .Construct hotel & entertainment center. . . - 0.1 10.1
Isle-Lake Charles. . . . . . .Construct hotel. . . . . . . . . . . . . . . 0.4 - -
Isle-Tunica. . . . . . . . . .Construct hotel & 2 theaters. . . . . . . . 1.0 - -
Isle-Kansas City . . . . . . .Renovations. . . . . . . . . . . . . . . . . 1.5 - -
Isle-Boonville. . . . . . . . Develop casino. . . . . . . . . . . . . . . 35.7 1.0 -
Rhythm City - Davenport. . . .Renovations. . . . . . . . . . . . . . . . . 1.6 - -
Isle-Marquette. . . . . . . . Construct hotel. . . . . . . . . . . . . . . - - 0.8
Lady Luck Properties. . . . . Convert to Isle. . . . . . . . . . . . . . . 2.7 0.3 -
Lady Luck Las Vegas. . . . . .Renovations. . . . . . . . . . . . . . . . . 1.4 - -
All. . . . . . . . . . . . . .Slot program. . . . . . . . . . . . . . . . 32.7 3.6 26.7
All. . . . . . . . . . . . . .Enhancement. . . . . . . . . . . . .. . . . 21.3 2.0 31.5
-------------- --------------- -----
Total. . . . . . . . . . . . . . . .$ 98.3 $ 7.0 $78.2
============== =============== =====
We anticipate that capital improvements approximating $33.4 million will be
made during fiscal 2003 to maintain our existing facilities and remain
competitive in our markets and $30.3 for our slot enhancement program. As of
the three months ended July 28, 2002, we have spent $2.0 million on maintenance
capital improvements and $3.6 million on our slot enhancement program.
In August 2002, we announced plans for a $135.0 million multi-property
expansion at three of our casinos. The plan will include upgraded and
additional amenities at the Isle-Biloxi, the Isle-Bossier City and the
Isle-Marquette. This plan, which will utilize cash flow from operations,
reinforces our commitment to develop our portfolio of properties to feature a
more resort-oriented product.
The Isle-Biloxi plan, estimated at $79.0 million, will include an
additional 400 hotel rooms, an Isle-branded Kitt's Kitchen restaurant, a 12,000
square-foot multi-purpose center, an expanded pool and spa area and a
1,000-space parking facility. The parking garage will provide a podium for
future expansion for an additional hotel tower. Construction will begin this
fall with a projected construction period of approximately 24 months.
The Isle-Bossier City plan, estimated at $50.0 million, features a hotel
tower, with 265 rooms, a Kitt's Kitchen restaurant, a new pool and deck, and a
12,000-square-foot convention/entertainment center. Construction will also
begin this fall and will span about 18 months.
The Isle-Marquette property phase of the plan will include $6.0 million in
improvements including a 60-room Inn-at-the-Isle and improved parking. The
construction, beginning in spring 2003, will last 16 months.
All of our 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 the plans
are preliminary, subject to continuing refinement or otherwise subject to
change.
FINANCING ACTIVITIES
During the three months ended July 28, 2002, we used net cash of $50.3
million in the following financing activities:
- - We made net reductions to our Revolving Credit Facilities and lines of
credit of $43.3 million.
- - We made principal payments on our Senior Secured Credit Facility and other
debt of $5.5 million.
On April 26, 2002, we entered into a Senior Secured Credit Facility which
refinanced our prior facility. This Senior Secured Credit Facility consists of
a $250.0 million revolving credit facility maturing on April 25, 2007, and a
$250.0 million term loan facility maturing on April 25, 2008. We are required
to make quarterly principal payments on the $250.0 million term loan portion of
our amended and restated Senior Secured Credit Facility. Such payments are
initially $625,000 per quarter starting in June 2002 and increase to $59.4
million per quarter beginning in June 2007. In addition, we are required to
make substantial quarterly interest payments on the outstanding balance of our
Senior Secured Credit Facility. The proceeds were used to refinance $336.8
million of the prior facility.
Our Senior Secured Credit Facility, among other things, restricts our
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, our credit facility requires us 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. As of July 28,
2002, we were in compliance with all debt covenants.
We expect that available cash and cash from future operations, as well as
borrowings under our Senior Secured Credit Facility, will be sufficient to fund
future expansion and planned capital expenditures, service senior debt and meet
working capital requirements. There is no assurance that we will have the
capital resources to make all of the expenditures described above or that
planned capital investments will be sufficient to allow us to remain competitive
in our existing markets. In addition, the indentures governing our 8.75% notes
and our 9% notes restrict, among other things, our ability to borrow money,
create liens, make restricted payments and sell assets.
We are highly leveraged and may be unable to obtain additional debt or
equity financing on acceptable terms. As a result, limitations on our capital
resources could delay or cause us to abandon certain plans for capital
improvements at our existing properties and development of new properties. We
will continue to evaluate our planned capital expenditures at each of our
existing locations in light of the operating performance of the facilities at
such locations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143") which requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. SFAS 143 will be effective for fiscal years beginning after
June 15, 2002. We believe the adoption of SFAS 143 will not have a material
impact on our financial position or results of consolidated operations.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB No. 13, and Technical Corrections," ("SFAS 145") which
all but eliminates the presentation in income statements of debt extinguishments
as extraordinary items. SFAS 145 will be effective for fiscal years beginning
after May 15, 2002. We plan to implement SFAS 145 at the beginning of fiscal
2004, April 28, 2003.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit of Disposal Activities," ("SFAS 146") which requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to exit or disposal plan. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
rates and prices, including interest rates, foreign currency exchange rates,
commodity prices and equity prices. Our primary exposure to market risk is
interest rate risk associated with our senior credit facility and the Isle-Black
Hawk's secured credit facility.
SENIOR CREDIT FACILITY
We entered into three interest rate swap agreements in the fourth quarter
of fiscal 2001 and one interest rate swap agreement in the first quarter of
fiscal 2002 that effectively convert portions of our variable rate debt to a
fixed-rate basis for the next one to two years, thus reducing the impact of
interest rate changes on future interest expense. The notional value of the
swaps that were designated as cash flow hedges was $200.0 million or 71.6% of
our variable rate term debt outstanding under our senior credit facility as of
July 28, 2002. We evaluate the effectiveness of these hedged transactions on a
quarterly basis. The interest rate swaps terminate as follows: $50.0 million
in 2003 and $150.0 million in 2004. We found no portion of the hedging
instruments to be ineffective during the fiscal quarter ended July 28, 2002.
Accordingly, no gain or losses have been recognized on these cash flow hedges.
ISLE-BLACK HAWK'S SECURED CREDIT FACILITY
The Isle-Black Hawk entered into three interest rate swap agreements in the
fourth quarter of fiscal 2002 that effectively convert portions of their
variable rate debt to a fixed-rate basis for the next three years, thus reducing
the impact of interest rate changes on future interest expense. The notional
value of the swaps that were designated as cash flow hedges was $40.0 million or
54.2% of their variable rate term debt outstanding under the Isle-Black Hawk's
secured credit facility as of July 28, 2002. The interest rate swaps terminate
in 2005. We evaluate the effectiveness of these hedged transactions on a
quarterly basis. We found no portion of the hedging instruments to be
ineffective during the fiscal year quarter July 28, 2002. Accordingly, no gain
or losses have been recognized on these cash flow hedges.
The following table provides information at April 28, 2002, about our
financial instruments that are sensitive to changes in interest rates. The
table presents principal cash flows (in millions) and related weighted average
interest rates by expected maturity dates.
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE
FISCAL YEAR
(dollars in millions) 2003 2004 2005 2006 2007
- --------------------------------------------------------------- ------------ ------- ------ ------ ------
LIABILITIES
Long-term Debt, including Current Portion
Fixed Rate . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.8 $ 2.8 $ 2.5 $ 1.5 $ 1.3
Average interest rate. . . . . . . . . . . . . . . . . . . . 8.9% 8.8% 8.8% 8.8% 8.8%
Variable Rate. . . . . . . . . . . . . . . . . . . . . . . . $ 11.4 $ 12.9 $13.4 $21.4 $31.3
Average interest rate. . . . . . . . . . . . . . . . . . . . 5.4% 7.3% 8.2% 8.6% 8.8%
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO DEBT
Interest Rate Swaps
Pay Fixed/Receive Variable . . . . . . . . . . . . . . . . . $ 50.0 $150.0 $40.0 $ - $ -
Average Pay Rate . . . . . . . . . . . . . . . . . . . . . . 4.8% 4.8% 4.2% - -
Average Receive Rate . . . . . . . . . . . . . . . . . . . . 2.6% 4.6% 5.4% - -
FISCAL YEAR
Fair Value
(dollars in millions) THEREAFTER TOTAL 4/28/2002
- --------------------------------------------------------------- ------- ----------
LIABILITIES
Long-term Debt, including Current Portion
Fixed Rate . . . . . . . . . . . . . . . . . . . . . . . . . $596.0 $ 606.4 $624.7
Average interest rate. . . . . . . . . . . . . . . . . . . . 8.9%
Variable Rate. . . . . . . . . . . . . . . . . . . . . . . . $312.5 $ 402.9 $404.5
Average interest rate. . . . . . . . . . . . . . . . . . . . 8.9%
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS RELATED TO DEBT
Interest Rate Swaps
Pay Fixed/Receive Variable . . . . . . . . . . . . . . . . . $ - $ 240.0 $ (5.2)
Average Pay Rate . . . . . . . . . . . . . . . . . . . . . . -
Average Receive Rate . . . . . . . . . . . . . . . . . . . . -
PART II - OTHER INFORMATION
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 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 the lower court
rendered judgment in our favor on September 16, 1999. The case was reversed on
appeal and remanded to the lower court for further proceedings; however, on
October 8, 2001, the trial court dismissed the case again, this time on the
basis that the plaintiffs lack standing. The plaintiffs have amended the
petition and continue to pursue this matter. We intend to vigorously defend this
suit. In addition, a similar action was recently filed against the City of
Bossier City, challenging the validity of its contracts with Louisiana Riverboat
Gaming Partnership and other casinos. Exceptions have been filed requiring
joinder of all interested parties, including Louisiana Riverboat Gaming
Partnership. We believe the claims are without merit and we intend to continue
to vigorously defend this suit along with the other interested parties.
Lady Luck and several joint venture partners are defendants in a lawsuit
brought by the country of Greece and its Minister of Tourism before the Greek
Multi-Member Court of First Instance. The action alleges that the defendants
failed to make specified payments in connection with the gaming license bid
process for Patras, Greece. The payment we are alleged to have been required to
make aggregates approximately 2.1 billion drachmae or 6.2 million Euro (which
was approximately $6.3 million as of July 28, 2002 based on published exchange
rates). Although it is difficult to determine the damages being sought from the
lawsuit, the action may seek damages up to that aggregate amount plus interest
from the date of the alleged breach. The court granted summary judgment in our
favor and dismissed the lawsuit, but the Ministry of Tourism has appealed the
matter and the appeal was heard in April 2002. There has been no announcement
as to whether there has been a decision on the appeal. Accordingly, the
outcome is still in doubt and cannot be predicted with any degree of certainty.
We believe the claims against us to be without merit and we intend to continue
vigorously defending the claims asserted in this action.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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.
--------
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
2. Reports on Form 8-K.
-----------------------
During the quarter ended July 28, 2002, the Company filed the
following reports on Form 8-K:
None.
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 hereunto duly authorized.
ISLE OF CAPRI CASINOS, INC.
Dated: September 6, 2002 /s/ Rexford A. Yeisley
--------------------------
Rexford A. Yeisley, Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION
I, Bernard Goldstein, Chief Executive Officer of Isle of Capri Casinos, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Isle of Capri Casinos,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 6, 2002
__/s/ Bernard Goldstein__________________________
Bernard Goldstein
Chief Executive Officer
CERTIFICATION
I, Rexford A. Yeisley, Chief Financial Officer of Isle of Capri Casinos, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Isle of Capri Casinos,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 6, 2002
_/s/ Rexford A. Yeisley_________________________
Rexford A. Yeisley
Chief Financial Officer
EXHIBIT NUMBER DESCRIPTION
- --------------- -----------
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.