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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 JANUARY 26, 2003
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 February 28, 2003, the Company had a total of 29,097,206 shares of Common
Stock outstanding (which excludes 3,305,498 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, JANUARY 26, 2003 (UNAUDITED)
AND APRIL 28, 2002 . . . . . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED JANUARY 26, 2003 AND JANUARY 27, 2002 (UNAUDITED) 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE
MONTHS ENDED JANUARY 26, 2003 (UNAUDITED). . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED JANUARY 26, 2003 AND JANUARY 27, 2002 (UNAUDITED). . . . 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . 27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . 37
ITEM 4. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . 37
PART II OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . . . . 40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . 40
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . 40
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . 40
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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 JANUARY 26, APRIL 28,
- ----------------------------------------------------------------------------------------------- 2003 2002
------------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,329 $ 76,597
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,591 9,857
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,125 -
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,950 10,235
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,474 15,113
Property held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,021 24,572
------------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,490 136,374
Property and equipment - net.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792,946 803,507
Other assets:
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305,850 305,850
Other intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,744 58,744
Deferred financing costs, net of accumulated amortization of $10,587
and $7,984, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,643 23,730
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,383 3,677
Prepaid deposits and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,019 4,944
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,810 8,812
------------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,310,885 $1,345,638
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,076 $ 14,176
Accounts payable trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,252 22,541
Accrued liabilities:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,365 5,276
Payroll and related.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,884 47,186
Property and other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,104 15,673
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,887 13,993
Progressive jackpots and slot club awards.. . . . . . . . . . . . . . . . . . . . . 13,109 11,903
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,801 27,862
------------- -----------
Total current liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . . . 166,478 158,610
Long-term debt, less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 919,858 995,123
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,415 5,415
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,861 16,302
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,091 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: 32,658 at January 26, 2003 and 31,826 at April 28, 2002. . . . . . . 325 314
Class B common stock, $.01 par value; 3,000 shares authorized; none issued . . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,338 135,432
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,667) (1,352)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,108 54,753
Accumulated other comprehensive loss, net of income tax benefit of $3,077
and $2,364, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,202) (4,061)
------------- -----------
214,902 185,086
Treasury stock, 3,305 shares at January 26, 2003 and 3,107 shares at April 28, 2002. (28,720) (25,888)
------------- -----------
Total stockholders' equity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,182 159,198
------------- -----------
Total liabilities and stockholders' equity.. . . . . . . . . . . . . . . . . . . . . $ 1,310,885 $1,345,638
============= ===========
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 Nine Months Ended
-------------------- -------------------
January 26, January 27, January 26, January 27,
2003 2002 2003 2002
-------------------- ------------------- ------------- -------------
Revenues:
Casino . . . . . . . . . . . . . . . . . . . . . $ 252,221 $ 255,704 $ 779,400 $ 770,990
Rooms. . . . . . . . . . . . . . . . . . . . . . 9,742 11,592 38,377 41,551
Pari-mutuel commissions and fees . . . . . . . . 6,205 6,975 15,848 15,390
Food, beverage and other . . . . . . . . . . . . 32,610 35,948 105,550 112,017
-------------------- ------------------- ------------- -------------
Gross revenues. . . . . . . . . . . . . . . 300,778 310,219 939,175 939,948
Less promotional allowances.. . . . . . . . 47,700 48,084 149,321 154,371
-------------------- ------------------- ------------- -------------
Net revenues. . . . . . . . . . . . 253,078 262,135 789,854 785,577
Operating expenses:
Casino . . . . . . . . . . . . . . . . . . . . . 46,539 51,080 143,658 152,019
Gaming taxes . . . . . . . . . . . . . . . . . . 55,567 55,904 170,630 165,280
Rooms. . . . . . . . . . . . . . . . . . . . . . 2,026 2,791 9,162 9,584
Pari-mutuel. . . . . . . . . . . . . . . . . . . 4,467 4,814 11,475 11,025
Food, beverage and other.. . . . . . . . . . . . 7,103 8,735 24,890 26,166
Marine and facilities. . . . . . . . . . . . . . 14,720 16,445 50,112 51,937
Marketing and administrative.. . . . . . . . . . 66,807 65,479 209,448 201,759
Accrued litigation award.. . . . . . . . . . . . - - 1,800 -
Preopening expenses. . . . . . . . . . . . . . . - 2,334 - 3,871
Gain on disposal of asset. . . . . . . . . . . . - - - (125)
Depreciation and amortization. . . . . . . . . . 19,778 18,647 56,039 53,083
-------------------- ------------------- ------------- -------------
Total operating expenses. . . . . . . . . . 217,007 226,229 677,214 674,599
-------------------- ------------------- ------------- -------------
Operating income. . . . . . . . . . . . . . . . . . . 36,071 35,906 112,640 110,978
Interest expense . . . . . . . . . . . . . . . . (20,449) (21,133) (62,222) (68,130)
Interest income. . . . . . . . . . . . . . . . . 117 113 200 641
Minority interest. . . . . . . . . . . . . . . . (2,386) (1,962) (7,296) (5,624)
-------------------- ------------------- ------------- -------------
Income before income taxes and extraordinary item.. . 13,353 12,924 43,322 37,865
Income tax provision . . . . . . . . . . . . . . 4,958 4,842 15,967 13,494
-------------------- ------------------- ------------- -------------
Income before extraordinary item. . . . . . . . . . . 8,395 8,082 27,355 24,371
Extraordinary loss on extinguishment of debt, net of
applicable income tax benefit of $1,420. . . . . - (2,438) - (2,438)
-------------------- ------------------- ------------- -------------
Net income .. . . . . . . . . . . . . . . . . . . . . $ 8,395 $ 5,644 $ 27,355 $ 21,933
==================== =================== ============= =============
Earnings per share of common stock:
Earnings per common share - basic:
Income before extraordinary item. . . . . . . . . . $ 0.29 $ 0.29 $ 0.95 $ 0.87
Extraordinary loss, net.. . . . . . . . . . . . . . - (0.09) - (0.09)
-------------------- ------------------- ------------- -------------
Net income. . . . . . . . . . . . . . . . . . . . . $ 0.29 $ 0.20 $ 0.95 $ 0.78
==================== =================== ============= =============
Earnings per common share - assuming dilution:
Income before extraordinary item. . . . . . . . . . $ 0.28 $ 0.27 $ 0.90 $ 0.82
Extraordinary loss, net.. . . . . . . . . . . . . . - (0.08) - (0.08)
-------------------- ------------------- ------------- -------------
Net income. . . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.19 $ 0.90 $ 0.74
==================== =================== ============= =============
Weighted average basic shares. . . . . . . . . . 29,148 27,750 28,915 28,107
Weighted average diluted shares. . . . . . . . . 30,317 29,652 30,558 29,588
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- Retained hensive
Stock Stock Capital sation Earnings Loss
------------ ------------ ---------- --------- --------- ---------
Balance, April 28, 2002.. . . . . . . . . . . . 31,826 $ 314 $ 135,432 $ (1,352) $ 54,753 $ (4,061)
Net income.. . . . . . . . . . . . . . . . - - - - 27,355 -
Unrealized loss on interest
rate swap contract. . . . . . . . . . - - - - - (1,141)
------------ ------------ ---------- --------- --------- ---------
Comprehensive loss, net of
income taxes of $3,077. . . . . . . . . - - - - - (5,202)
Exercise of stock
options . . . . . . . . . . . . . . . . 984 13 5,152 - - -
Treasury stock retired . . . . . . . . . . (152) (2) (2,009) - - -
Grant of nonvested stock . . . . . . . . . - - 763 (763) - -
Amortization of unearned
compensation . . . . . . . . . . . . . - - - 448 - -
------------ ------------ ---------- --------- --------- ---------
Balance, January 26, 2003 . . . . . . . . . . . 32,658 $ 325 $ 139,338 $ (1,667) $ 82,108 $ (5,202)
============ ============ ========== ========= ========= =========
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Total
Treasury Stockholders'
Stock Equity
---------- ---------------
Balance, April 28, 2002.. . . . . . . . . . . . $ (25,888) $ 159,198
Net income.. . . . . . . . . . . . . . . . - 27,355
Unrealized loss on interest
rate swap contract. . . . . . . . . . - (1,141)
---------- ---------------
Comprehensive loss, net of
income taxes of $3,077. . . . . . . . . - 185,412
Exercise of stock
options . . . . . . . . . . . . . . . . (4,843) 322
Treasury stock retired . . . . . . . . . . 2,011 -
Grant of nonvested stock . . . . . . . . . - -
Amortization of unearned
compensation . . . . . . . . . . . . . - 448
---------- ---------------
Balance, January 26, 2003 . . . . . . . . . . . $ (28,720) $ 186,182
========== ===============
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
-------------------
January 26, January 27,
2003 2002
------------------- -------------
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,355 $ 21,933
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 56,039 53,083
Amortization of deferred financing costs . . . . . . . . . 2,791 3,036
Amortization of unearned compensation. . . . . . . . . . . 448 307
Gain on disposal of assets . . . . . . . . . . . . . . . . - (125)
Deferred income taxes. . . . . . . . . . . . . . . . . . . - 2,454
Extraordinary item (net of taxes). . . . . . . . . . . . . - 2,438
Minority interest. . . . . . . . . . . . . . . . . . . . . 7,296 5,624
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . 1,268 185
Income tax receivable . . . . . . . . . . . . . . . . - 4,700
Prepaid expenses and other assets.. . . . . . . . . . (1,769) (1,088)
Accounts payable and accrued liabilities. . . . . . . 4,522 10,164
------------------- -------------
Net cash provided by operating activities.. . . . . . . . . . . 97,950 102,711
INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . . . . . . (41,731) (80,377)
Proceeds from sales of assets . . . . . . . . . . . . . . . . . 11,741 125
Investments in and advances to joint ventures . . . . . . . . . (861) (1,055)
Restricted cash.. . . . . . . . . . . . . . . . . . . . . . . . 294 619
Prepaid deposits and other. . . . . . . . . . . . . . . . . . . (533) (1,135)
------------------- -------------
Net cash used in investing activities.. . . . . . . . . . . . . (31,090) (81,823)
FINANCING ACTIVITIES:
Proceeds from debt. . . . . . . . . . . . . . . . . . . . . . . - 130,000
Net reduction in lines of credit and revolving lines of credit. (56,623) (42,400)
Principal payments on debt. . . . . . . . . . . . . . . . . . . (13,636) (91,906)
Deferred financing costs. . . . . . . . . . . . . . . . . . . . (704) (1,950)
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . (2,011) (8,113)
Proceeds from exercise of stock options . . . . . . . . . . . . 2,334 1,182
Cash distribution to minority partner.. . . . . . . . . . . . . (4,488) (7,524)
------------------- -------------
Net cash used in financing activities . . . . . . . . . . . . . (75,128) (20,711)
Net (decrease) increase in cash and cash equivalents. . . . . . (8,268) 177
Cash and cash equivalents at beginning of period. . . . . . . . 76,597 76,659
------------------- -------------
Cash and cash equivalents at end of period. . . . . . . . . . . $ 68,329 $ 76,836
=================== =============
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
------------------
January 26, anuary 27,
2003 2002
------------------ -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash payments (receipts) for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 44,412 $ 65,701
Income taxes . . . . . . . . . . . . . . . . . . . . . 17,074 (7,630)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Other:
Construction costs funded through accrued liabilities. 298 1,509
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
eleven gaming facilities located in Bossier City and Lake Charles, Louisiana;
Biloxi, Lula, Natchez and Vicksburg, Mississippi; Boonville and Kansas City,
Missouri; and Bettendorf, Marquette and Davenport, Iowa. The Company also owns
a 57% interest in, and receives a management fee for operating, a gaming
facility in Black Hawk, Colorado. All but one 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 and
nine months ended January 26, 2003 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.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, representing the excess of the cost over the net identifiable tangible
and intangible assets of acquired businesses, is stated at cost. Other
intangible assets represent the license value attributed to the Louisiana gaming
licenses acquired through the Company's acquisition of St. Charles Gaming
Company, Grand Palais Riverboat, Inc. and Louisiana Riverboat Gaming
Partnership.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
("SFAS 4"). SFAS 145 will be effective for fiscal years beginning after May
15, 2002. The Company will adopt SFAS 145 at the beginning of fiscal 2004,
April 28, 2003. Losses on extinguishment of debt previously classified as
extraordinary charges will be reclassified to conform to the provisions of
SFAS 145.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or 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.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") to
provide alternative methods for an entity that voluntarily changes to the fair
value based method of accounting for stock-based compensation, amends the
disclosure provisions of SFAS 123 and amends APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure about those effects in interim
financial information. The transition guidance and annual disclosure provisions
of SFAS 148 are effective for fiscal years ending after December 15, 2002. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002. The
Company has adopted SFAS 148 transition guidance and annual disclosure
provisions for the fiscal year ending April 27, 2003. The Company will adopt
SFAS 148 interim disclosure provisions for the fiscal quarter ending July 27,
2003, which is the first interim reporting period beginning after December 15,
2002. The Company is currently assessing the impact of the various alternative
methods under SFAS 148 and has not yet determined the effect of the adoption of
this statement.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY HELD FOR SALE
Property held for sale at January 26, 2003, includes land in Cripple Creek,
Colorado, a riverboat, a floating pavilion and several barges.
During fiscal 2002, the Company recorded a valuation charge totaling $59.2
million related to the write-down of the Company's assets at the Isle-Tunica and
the Lady Luck-Las Vegas representing the difference between the Isle-Tunica's
and the Lady Luck-Las Vegas' carrying values of $80.7 million and their
estimated fair values, less estimated costs to sell, of $21.5 million. Fair
values were based on the Company's estimate of the likely sale price for these
assets.
On July 16, 2002, the Company entered into an agreement to sell the Lady
Luck-Las Vegas, subject to certain conditions. On October 30, 2002, the Company
completed the sale of the Lady Luck-Las Vegas and received a cash payment of
$4.4 million and $6.8 million in notes receivable due October 2003. A
subsidiary of the Company will continue to operate the casino for up to six
months pending the receipt of regulatory approval by the purchaser's designated
gaming operator. The pretax proceeds from the sale approximated the carrying
value of the assets.
On July 29, 2002, the Company entered into an agreement to sell the Isle-Tunica.
The agreement provided that the Company would receive a cash payment of $7.5
million and would be entitled to retain certain personal property, including all
gaming equipment, valued at approximately $4.7 million. The Isle-Tunica ceased
casino operations on September 4, 2002. The hotel and support facilities
remained open until the closing of the transaction on October 7, 2002. The
pretax proceeds from the sale approximated the carrying value of the assets.
The following table presents the results of operations for the Isle-Tunica and
the Lady Luck-Las Vegas for the three and nine months ended January 26, 2003,
and January 27, 2002, respectively:
Isle-Tunica
-------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
January 26, January 27, January 26, January 27,
2003 2002 2003 2002
------------- -------------- ------------- -------------
Net revenues . $ - $ 6,383 $ 8,901 $ 22,356
Operating loss $ - $ (869) $ (2,310) $ (2,130)
Lady Luck-Las Vegas
--------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
January 26, January 27, January 26, January 27,
2003 2002 2003 2002
-------------------- -------------- ------------- -------------
Net revenues . $ 4,744 $ 6,794 $ 20,645 $ 25,083
Operating loss $ - $ (2,180) $ (935) $ (4,054)
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY HELD FOR SALE (CONTINUED)
In connection with the property dispositions, approximately 600 employees were
terminated at the Isle-Tunica. Approximately 400 employees of the Lady Luck-Las
Vegas became employees of the new company on October 30, 2002. Employee
termination costs were estimated at $0.4 million. These costs were accrued
during the first quarter 2003 and were recorded in "Operating expenses" for the
appropriate department in the accompanying consolidated statements of
operations. In addition, the disposition plan included lease termination and
other business exit costs estimated at $1.4 million. These costs were accrued
during the first quarter 2003 and were recorded in "Operating expenses-marketing
and administrative" in the accompanying consolidated statements of operations.
The following table shows the expenditures incurred for the disposition plan as
of January 26, 2003:
Disposition 2003 2003 Disposition
Reserve at Disposition Cash Reserve at
April 28, 2002 Charges Payments January 26, 2003
------------ --------- ---------------- -------
(In thousands)
Severance and other employee costs.. . . . . $ - $ 367 $ 367 $ -
Lease terminations and business exit costs.. - 1,367 780 587
------------ --------- ----------------- ----
Total disposition costs. . . . . . . . $ - $ 1,734 $ 1,147 $587
============ ========= ================= ====
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
January 26, April 28,
2003 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 . . . . . . . . . . . . . . . . . . . . . . . . . . 248,125 250,000
Revolver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 75,000
Isle-Black Hawk Secured Credit Facility, non-recourse to Isle of Capri
Casinos, Inc. (described below):
Variable rate term loan Tranche A . . . . . . . . . . . . . . . . . . . . . 30,527 38,000
Variable rate term loan Tranche B . . . . . . . . . . . . . . . . . . . . . 38,005 39,900
Variable rate TIF Bonds due to City of Bettendorf (described below). . . . . . 5,625 5,929
12.5 % note payable, due in monthly installments of $125,000, including
interest, beginning October 1997 through October 2005.. . . . . . . . . . . 3,297 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088 1,124
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,267 5,142
--------------- ----------
938,934 1,009,299
Less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,076 14,176
--------------- ----------
Long-term debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 919,858 $ 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 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 9% Senior Subordinated
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
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. 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 1.50% or (2) a rate tied to a LIBOR rate plus an applicable margin of
up to 2.50%.
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., the Isle-Black Hawk, and their subsidiaries.
The weighted average effective interest rate of total debt outstanding under the
Senior Secured Credit Facility at January 26, 2003 was 6.70%.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
ISLE-BLACK HAWK SECURED CREDIT FACILITY
On November 16, 2001, the Isle-Black Hawk entered into a $90.0 million secured
credit facility (the "Isle-Black Hawk, Secured Credit Facility"), that is
non-recourse debt to the Isle of Capri. The Isle-Black Hawk 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 Isle-Black Hawk 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. In addition to regular principal payments, the Isle-Black Hawk
is required to make quarterly payments of a percentage of excess cash flow as
defined in the Isle Black Hawk Secured Credit Facility. Such payments are
included in current maturities of long-term debt.
At the 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 the
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%.
The Isle-Black Hawk Secured Credit Facility provides for certain covenants,
including those of a financial nature. Isle-Black Hawk was in compliance with
these covenants as of January 26, 2003. The Isle-Black Hawk 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
Isle-Black Hawk Secured Credit Facility at January 26, 2003 was 6.80%.
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 75.8% of the Isle of Capri's variable rate term
loans as of January 26, 2003. 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.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
For the three and nine months ended January 26, 2003, comprehensive income was
$8.6 million and $26.2 million, respectively, compared to $6.3 million and $17.8
million for the three and nine months ended January 27, 2002, respectively. At
January 26, 2003, other comprehensive loss consists of $5.2 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 $8.3 million, of which $0.4 million is recorded in other accrued
current liabilities and $7.9 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 January 26, 2003, 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 of Bettendorf ("the City") issued $9.5 million in tax incremental financing
bonds ("TIF Bonds"), $7.5 million of which was used by the 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, the 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 the Isle-Bettendorf and over 100 other tax paying
entities. As the TIF District will repay the TIF Bonds, the Isle-Bettendorf may
not be required to fully repay the $7.5 million. In the event that the taxes
generated by the + and other qualifying developments in the redevelopment
district do not fund the repayment of the total TIF Bonds prior to their
scheduled maturity, the Isle-Bettendorf will pay the City $0.25 per person for
each person entering the boat until the remaining balance has been repaid.
OTHER
As of January 26, 2003, the Company had $18.4 million outstanding under its
lines of credit leaving $245.6 million available.
At January 26, 2003, the Company was in compliance with all debt covenants.
4. STOCK REPURCHASE
On October 25, 2002, the Company's Board of Directors approved a stock
repurchase program allowing for the purchase of up to 1.5 million shares of the
Company's outstanding common stock. As of January 26, 2003, the Company
repurchased and retired 151,900 shares of common stock under this program.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES
One of the Company's subsidiaries has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators, in a consolidated class action lawsuit
pending in Las Vegas, Nevada. These gaming industry defendants are alleged to
have violated the Racketeer Influenced and Corrupt Organizations Act by engaging
in a course of fraudulent and misleading conduct intended to induce people to
play their gaming machines based upon a false belief concerning how those gaming
machines actually operate and the extent to which there is actually an
opportunity to win on any given play. The suit seeks unspecified compensatory
and punitive damages. The district court recently denied the Motion for Class
Certification, but this decision has been appealed. Therefore, the Company is
still unable at this time to determine what effect, if any, the suit would have
on its consolidated financial position or results of operations. The gaming
industry defendants are committed to continuing a vigorous defense of all claims
asserted in this matter.
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 the Company's 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 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. The Company believes the claims are without merit and
intends 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 through its Minister of Tourism (now Development) and
Finance. 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 6.5 million Euros (which was approximately $7.1 million as of
January 26, 2003 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 action. The
Athens Civil Court of First Instance granted judgment in the Company's 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. Also, the Ministry of Tourism
is proceeding with an appeal from a dismissal of its action by the Athens
Administrative Court of First Instance. An appeal of this matter was heard on
January 22, 2003. No announcement has been made regarding this appeal.
Accordingly, the outcome of this matter is still in doubt and cannot be
predicted with any degree of certainty. The Company believes the claims against
it to be without merit and intends to continue a vigorous and appropriate
defense to the claims asserted in this matter.
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued an
award that the Company was liable for $4.5 million in damages in connection with
a lease of real estate located near Kimmswick, Jefferson County, Missouri. The
Company has filed a motion in the United States District Court for the
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES (CONTINUED)
Eastern District of Missouri seeking to vacate the arbitration award. The
Company recognized an additional $1.8 million in expense during the second
quarter ended October 27, 2002, in order to bring the total amount accrued for
this loss contingency to $4.5 million, notwithstanding the motion to vacate.
On December 30, 2002, the County of Jefferson, Missouri initiated a lawsuit in
the Circuit Court of Jefferson County, Missouri, against the Company and a
subsidiary, alleging a breach of a 1993 contract entered into by the County,
that subsidiary and guaranteed by Lady Luck Gaming Corporation (now a wholly
owned subsidiary of the Company) relating to the development of a casino-site
near Kimmswick, Missouri. The suit alleges damages in excess of $10.0 million.
The case is in the early stages, no discovery has been conducted and;
accordingly, the outcome of this matter cannot be predicted with any degree of
certainty. The Company believes the claims against it to be without merit and
intends to vigorously and appropriately defend the claims asserted in this
matter.
The Company is engaged in various other litigation matters and has a number of
unresolved claims. Although the ultimate liability of this litigation and these
claims cannot be determined at this time, the
Company believes that they will not have a material adverse effect on its
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. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
------------------- -------------------
January 26, January 27, January 26, January 27,
2003 2002 2003 2002
------------------- ------------------- ------------ -------------
(In thousands, except per share data)
Numerator:
Income before extraordinary item. . . . . . . . . . $ 8,395 $ 8,082 $ 27,355 $ 24,371
Extraordinary loss, net . . . . . . . . . . . . . . - (2,438) - (2,438)
------------------- ------------------- ------------ -------------
Net income. . . . . . . . . . . . . . . . . . . . . $ 8,395 $ 5,644 $ 27,355 $ 21,933
=================== =================== ============ =============
Numerator for basic earnings per share - income
available to common stockholders . . . . . . . $ 8,395 $ 5,644 $ 27,355 $ 21,933
Effect of diluted securities. . . . . . . . . . . . - - - -
------------------- ------------------- ------------ -------------
Numerator for diluted earnings per share-
income available to common stockholders after
assumed conversions . . . . . . . . . . . $ 8,395 $ 5,644 $ 27,355 $ 21,933
=================== =================== ============ =============
Denominator:
Denominator for basic earnings per share -
weighted - average shares. . . . . . . . . . . 29,148 27,750 28,915 28,107
Effect of dilutive securities
Employee stock options, and
nonvested restricted stock. . . . . . . . . 1,169 1,902 1,643 1,481
------------------- ------------------ ------------ ------------
Dilutive potential common shares. . . . . . . . . . 1,169 1,902 1,643 1,481
------------------- ------------------- ------------ -------------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions . . . . . . . . . . . 30,317 29,652 30,558 29,588
=================== =================== ============ =============
BASIC EARNINGS PER SHARE
Income before extraordinary item. . . . . . . . . . $ 0.29 $ 0.29 $ 0.95 $ 0.87
Extraordinary loss, net . . . . . . . . . . . . . . - (0.09) - (0.09)
------------------- ------------------- ------------ -------------
Net income. . . . . . . . . . . . . . . . . . . . . $ 0.29 $ 0.20 $ 0.95 $ 0.78
=================== =================== ============ =============
DILUTED EARNINGS PER SHARE
Income before extraordinary item. . . . . . . . . . $ 0.28 $ 0.27 $ 0.90 $ 0.82
Extraordinary loss, net . . . . . . . . . . . . . . - (0.08) - (0.08)
------------------- ------------------- ------------ -------------
Net income. . . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.19 $ 0.90 $ 0.74
=================== =================== ============ =============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 and nine months ended January 26, 2003
and January 27, 2002 and balance sheet as of January 26, 2003 and April 28,
2002.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR, AND PARENT COMPANY
FINANCIAL INFORMATION
AS OF JANUARY 26, 2003 (UNAUDITED) AND APRIL 28, 2002 AND FOR
THE THREE AND NINE MONTHS ENDED JANUARY 26, 2003 AND JANUARY 27, 2002
(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 January 26, 2003
Balance Sheet
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 2,880 $ 97,474 $ 12,136 $ - $ 112,490
Intercompany receivables . . . . . . . . . 905,319 109,054 (16,038) (998,335) -
Investments in subsidiaries. . . . . . . . 192,380 280,887 438 (471,788) 1,917
Property and equipment, net. . . . . . . . 3,204 672,359 117,383 - 792,946
Other assets . . . . . . . . . . . . . . . 22,300 346,519 34,713 - 403,532
--------------- ------------- ------------- --------------- ---------------
Total assets.. . . . . . . . . . . . . . . $ 1,126,083 $ 1,506,293 $ 148,632 $ (1,470,123) $ 1,310,885
=============== ============= ============= =============== ===============
Current liabilities. . . . . . . . . . . . $ 41,617 $ 92,355 $ 34,191 $ (1,685) $ 166,478
Intercompany payables. . . . . . . . . . . 38,792 942,960 14,900 (996,652) -
Long-term debt,
less current maturities.. . . . . . . . 851,625 7,274 60,959 - 919,858
Deferred state income taxes. . . . . . . . - 5,392 23 - 5,415
Other accrued liabilities. . . . . . . . . 6,727 1,000 12,134 - 19,861
Minority interest. . . . . . . . . . . . . - - - 13,091 13,091
Stockholders' equity . . . . . . . . . . . 187,322 457,312 26,425 (484,877) 186,182
--------------- ------------- ------------- --------------- ---------------
Total liabilities and stockholders' equity $ 1,126,083 $ 1,506,293 $ 148,632 $ (1,470,123) $ 1,310,885
=============== ============= ============= =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 January 26, 2003
Statement of Operations
- --------------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . . . $ - $ 225,231 $ 26,990 $ - $ 252,221
Rooms, food, beverage and other. . . . . . . 519 43,198 4,840 - 48,557
--------------- -------------- -------------- --------------- ---------------
Gross revenues . . . . . . . . . . . . . . . 519 268,429 31,830 - 300,778
Less promotional allowances. . . . . . . . . - 42,238 5,462 - 47,700
--------------- -------------- -------------- --------------- ---------------
Net revenues . . . . . . . . . . . . . . . . 519 226,191 26,368 - 253,078
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . . . - 42,902 3,637 - 46,539
Gaming taxes . . . . . . . . . . . . . . . . - 50,336 5,231 - 55,567
Rooms, food, beverage and other. . . . . . . 2,608 82,520 9,995 - 95,123
Management fee expense (revenue).. . . . . . (8,536) 7,329 1,207 - -
Depreciation and amortization. . . . . . . . 322 17,829 1,627 - 19,778
--------------- -------------- -------------- --------------- ---------------
Total operating expenses . . . . . . . . . . (5,606) 200,916 21,697 - 217,007
--------------- -------------- -------------- --------------- ---------------
Operating income.. . . . . . . . . . . . . . 6,125 25,275 4,671 - 36,071
Interest expense . . . . . . . . . . . . . . (19,758) (28,710) (1,660) 29,679 (20,449)
Interest income. . . . . . . . . . . . . . . 28,324 1,450 22 (29,679) 117
Minority interest. . . . . . . . . . . . . . - - - (2,386) (2,386)
Equity in income of
unconsolidated joint venture.. . . . . . (1,338) (1) 1,533 (194) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes. . . . . . 13,353 (1,986) 4,566 (2,580) 13,353
Income tax provision . . . . . . . . . . . . 4,958 - - - 4,958
--------------- -------------- -------------- --------------- ---------------
Net income (loss). . . . . . . . . . . . . . $ 8,395 $ (1,986) $ 4,566 $ (2,580) $ 8,395
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 Nine Months Ended January 26, 2003
Statement of Operations
- -------------------------------------------
Revenues:
Casino. . . . . . . . . . . . . . . . . . . $ - $ 698,395 $ 81,005 $ - $ 779,400
Rooms, food, beverage and other . . . . . . 486 143,894 15,395 - 159,775
--------------- -------------- -------------- --------------- ---------------
Gross revenues. . . . . . . . . . . . . . . 486 842,289 96,400 - 939,175
Less promotional allowances.. . . . . . . . - 132,388 16,933 - 149,321
--------------- -------------- -------------- --------------- ---------------
Net revenues. . . . . . . . . . . . . . . . 486 709,901 79,467 - 789,854
Operating expenses:
Casino. . . . . . . . . . . . . . . . . . . - 132,120 11,538 - 143,658
Gaming taxes. . . . . . . . . . . . . . . . - 154,791 15,839 - 170,630
Rooms, food, beverage and other.. . . . . . 12,511 268,572 25,804 - 306,887
Management fee expense (revenue). . . . . . (26,291) 22,767 3,524 - -
Depreciation and amortization . . . . . . . 817 51,062 4,160 - 56,039
--------------- -------------- -------------- --------------- ---------------
Total operating expenses. . . . . . . . . . (12,963) 629,312 60,865 - 677,214
--------------- -------------- -------------- --------------- ---------------
Operating income. . . . . . . . . . . . . . 13,449 80,589 18,602 - 112,640
Interest expense. . . . . . . . . . . . . . (59,848) (85,856) (5,155) 88,637 (62,222)
Interest income.. . . . . . . . . . . . . . 84,599 4,222 16 (88,637) 200
Minority interest.. . . . . . . . . . . . . - - - (7,296) (7,296)
Equity in income of
unconsolidated joint venture. . . . . . 5,122 7,544 13 (12,679) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes.. . . . . 43,322 6,499 13,476 (19,975) 43,322
Income tax provision. . . . . . . . . . . . 15,967 - - - 15,967
--------------- -------------- -------------- --------------- ---------------
Net income (loss) . . . . . . . . . . . . . $ 27,355 $ 6,499 $ 13,476 $ (19,975) $ 27,355
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 Nine Months Ended January 26, 2003
Statement of Cash Flows
- -------------------------------------------
Net cash provided by (used in)
operating activities.. . . . . . . . . . $ 60,653 $ 29,974 $ 20,933 $ (13,610) $ 97,950
Net cash provided by (used in)
investing activities.. . . . . . . . . . (3,261) (31,643) (4,047) 7,861 (31,090)
Net cash provided by (used in )
financing activities.. . . . . . . . . . (61,271) 457 (20,105) 5,791 (75,128)
--------------- -------------- -------------- --------------- ---------------
Net increase (decrease) in cash and
cash equivalents.. . . . . . . . . . . . (3,879) (1,212) (3,219) 42 (8,268)
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. . . . . . . . . . . . $ (1,189) $ 57,100 $ 7,826 $ 4,592 $ 68,329
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 January 27, 2002
Statement of Operations
- --------------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . . . $ - $ 228,674 $ 27,030 $ - $ 255,704
Rooms, food, beverage and other. . . . . . . 12 49,376 5,127 - 54,515
--------------- -------------- -------------- --------------- ---------------
Gross revenues . . . . . . . . . . . . . . . 12 278,050 32,157 - 310,219
Less promotional allowances. . . . . . . . . - 42,414 5,670 - 48,084
--------------- -------------- -------------- --------------- ---------------
Net revenues . . . . . . . . . . . . . . . . 12 235,636 26,487 - 262,135
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . . . - 47,001 4,079 - 51,080
Gaming taxes . . . . . . . . . . . . . . . . - 50,578 5,326 - 55,904
Rooms, food, beverage and other. . . . . . . 4,016 88,607 7,975 - 100,598
Management fee expense (revenue).. . . . . . (6,252) 5,072 1,180 - -
Depreciation and amortization. . . . . . . . 161 17,390 1,096 - 18,647
--------------- -------------- -------------- --------------- ---------------
Total operating expenses . . . . . . . . . . (2,075) 208,648 19,656 - 226,229
--------------- -------------- -------------- --------------- ---------------
Operating income.. . . . . . . . . . . . . . 2,087 26,988 6,831 - 35,906
Interest expense . . . . . . . . . . . . . . (19,492) (21,389) (2,294) 22,042 (21,133)
Interest income. . . . . . . . . . . . . . . 21,107 1,025 23 (22,042) 113
Minority interest. . . . . . . . . . . . . . - - - (1,962) (1,962)
Equity in income of
unconsolidated joint venture.. . . . . . 5,354 6,412 - (11,766) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes and
extraordinary item.. . . . . . . . . . . 9,056 13,036 4,560 (13,728) 12,924
Income tax provision . . . . . . . . . . . . 4,842 - - - 4,842
--------------- -------------- -------------- --------------- ---------------
Income (loss) before extraordinary item. . . 4,214 13,036 4,560 (13,728) 8,082
Extraordinary loss on extinguishment of
debt, net of tax . . . . . . . . . . . . - - (6,769) 4,331 (2,438)
Net income (loss). . . . . . . . . . . . . . $ 4,214 $ 13,036 $ (2,209) $ (9,397) $ 5,644
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 Nine Months Ended January 27, 2002
Statement of Operations
- -------------------------------------------
Revenues:
Casino. . . . . . . . . . . . . . . . . . . $ - $ 688,125 $ 82,865 $ - $ 770,990
Rooms, food, beverage and other . . . . . . 329 152,923 15,706 - 168,958
--------------- -------------- -------------- --------------- ---------------
Gross revenues. . . . . . . . . . . . . . . 329 841,048 98,571 - 939,948
Less promotional allowances.. . . . . . . . - 137,214 17,157 - 154,371
--------------- -------------- -------------- --------------- ---------------
Net revenues. . . . . . . . . . . . . . . . 329 703,834 81,414 - 785,577
Operating expenses:
Casino. . . . . . . . . . . . . . . . . . . - 139,931 12,088 - 152,019
Gaming taxes. . . . . . . . . . . . . . . . - 148,946 16,334 - 165,280
Rooms, food, beverage and other.. . . . . . 11,791 267,614 24,937 - 304,342
Management fee expense (revenue). . . . . . (19,057) 15,441 3,616 - -
Gain on disposal of asset.. . . . . . . . . (125) - - - (125)
Depreciation and amortization . . . . . . . 584 49,393 3,106 - 53,083
--------------- -------------- -------------- --------------- ---------------
Total operating expenses. . . . . . . . . . (6,807) 621,325 60,081 - 674,599
--------------- -------------- -------------- --------------- ---------------
Operating income. . . . . . . . . . . . . . 7,136 82,509 21,333 - 110,978
Interest expense. . . . . . . . . . . . . . (61,556) (73,933) (8,418) 75,777 (68,130)
Interest income.. . . . . . . . . . . . . . 73,067 3,185 166 (75,777) 641
Minority interest.. . . . . . . . . . . . . - - - (5,624) (5,624)
Equity in income of
unconsolidated joint venture. . . . . . 15,353 18,528 - (33,881) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes and
extraordinary item. . . . . . . . . . . 34,000 30,289 13,081 (39,505) 37,865
Income tax provision. . . . . . . . . . . . 13,494 - - - 13,494
--------------- -------------- -------------- --------------- ---------------
Income (loss) before extraordinary item.. . 20,506 30,289 13,081 (39,505) 24,371
Extraordinary loss on extinguishment of
debt, net of tax. . . . . . . . . . . . - - (6,769) 4,331 (2,438)
Net income (loss) . . . . . . . . . . . . . $ 20,506 $ 30,289 $ 6,312 $ (35,174) $ 21,933
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 Nine Months Ended January 27, 2002
Statement of Cash Flows
- -------------------------------------------
Net cash provided by
operating activities. . . . . . . . . . . . $ 11,399 $ 114,543 $ 11,328 $ (34,559) $ 102,711
Net cash provided by (used in)
investing activities. . . . . . . . . . . . 3,255 (106,855) (2,807) 24,584 (81,823)
Net cash used in
financing activities. . . . . . . . . . . . (15,553) (2,051) (13,082) 9,975 (20,711)
--------------- -------------- -------------- --------------- ---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . (899) 5,637 (4,561) - 177
Cash and cash equivalents at
beginning of the period . . . . . . . . . . 159 58,908 13,042 4,550 76,659
--------------- -------------- -------------- --------------- ---------------
Cash and cash equivalents at
end of the period . . . . . . . . . . . . . $ (740) $ 64,545 $ 8,481 $ 4,550 $ 76,836
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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
--------------- -------------- -------------- --------------- --------------
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 . . . . . . . . . . . . . . . 22,630 346,831 35,240 - 404,701
--------------- -------------- -------------- --------------- --------------
Total assets.. . . . . . . . . . . . . . . $ 1,148,110 $ 1,519,311 $ 152,643 $ (1,474,426) $ 1,345,638
=============== ============== ============== =============== ==============
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
Deferred state income taxes. . . . . . . . - 5,392 23 - 5,415
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 $ 1,519,311 $ 152,643 $ (1,474,426) $ 1,345,638
=============== ============== ============== =============== ==============
(a) Certain of the Company's wholly owned subsidiaries are guarantors on the
8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes and the Senior
Secured Credit Facility, including the following: the subsidiaries operating
the Isle-Biloxi, the Isle-Vicksburg, the Isle-Tunica, the Isle-Bossier City and
the Isle-Lake Charles as well as PPI, Inc., IOC Holdings, L.L.C. and Riverboat
Services, Inc. The subsidiaries operating 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 subsidiaries operating 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. Each of the subsidiary
guarantors is joint and several with the guarantees of the other subsidiaries.
(b) The following non-wholly owned subsidiaries are 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. and IOC Development, LLC., 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 LLC, Lady
Luck Bettendorf Marina Corp., Water Street Redevelopment Corporation, Casino
Parking, Inc., IOC-Black Hawk Distribution Company, LLC, 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 January 26, 2003, 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 that
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 January 26, 2003, we had a net property and equipment balance of $792.9
million, representing 60% of total assets. We capitalize the cost of property
and equipment. Maintenance and repairs that neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Costs incurred in connection with the Company's "all properties other
capital improvements," program includes individual capital expenditures related
to the purchase of furniture and equipment and upgrade of hotel rooms,
restaurants and other areas of our properties. We depreciate property and
equipment on a straight-line basis over its 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 and nine months ended January 26,
2003, 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-Tunica ceased casino operations on
September 3, 2002, which was 33 days prior to the sale of assets to Boyd Casino
Strip, LLC on October 7, 2002. On October 30, 2002, we completed the sale of
the Lady Luck-Las Vegas but will continue to operate the casino until the
purchaser's designated gaming operator receives regulatory approval.
Our results of operations for the three and nine months ended January 27,
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-Bettendorf, the Isle-Marquette,
the Rhythm City-Davenport, the Isle-Black Hawk, the Lady Luck-Las Vegas and
Pompano Park. Results also include the Isle-Boonville subsequent to its opening
on December 6, 2001.
On December 24, 2002, the Isle-Black Hawk entered into definitive
agreements to acquire the Colorado casino operations of International Game
Technology, Inc. ("IGT") for $84.0 million. The Colorado casino operations of
IGT consist of the Colorado Central Station Casino, located in Black Hawk, and
the Colorado Grande Casino, located in Cripple Creek. Upon consummation of the
acquisition, the Isle-Black Hawk plans to invest approximately $75.0 million in
Black Hawk to significantly increase covered parking for both properties; add
additional casino space, hotel rooms and restaurants; and connect the properties
by means of a skywalk that can service both the Isle-Black Hawk and the Colorado
Central Station Casino.
The agreements are subject to the satisfaction of several conditions,
including financing and the approval of the Colorado Gaming Commission. It is
anticipated that the transaction will close in the spring of 2003.
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 expand or
enhance their facilities.
We believe that our operating results are affected by the economy,
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 January 26, 2003 Compared to Three Fiscal Months Ended
January 27, 2002
Gross revenue for the quarter ended January 26, 2003 was $300.8 million,
which included $252.2 million of casino revenue, $9.8 million of rooms revenue,
$6.2 million of pari-mutuel commissions and $32.6 million of food, beverage and
other revenue. This compares to gross revenue for the prior year quarter ended
January 27, 2002 of $310.2 million, which included $255.7 million of casino
revenue, $11.6 million of rooms revenue, $7.0 million of pari-mutuel commissions
and $35.9 million of food, beverage and other revenue.
Casino revenue decreased $3.5 million, or 1.4% primarily as a result of the
decrease in revenue at the Isle-Lake Charles caused by increased competition and
road construction disruptions. Casino revenue also decreased due to the sale of
the Isle-Tunica. These decreases were partially offset by the first full year
of operations of the Isle-Boonville. Room revenue decreased $1.9 million, or
16.0% due primarily to the sale of our hotels at the Isle-Tunica and the Lady
Luck-Las Vegas. Food, beverage and other revenue declined $3.3 million, or 9.3%.
The decline was mainly caused by the sale of the Isle-Tunica and the Lady
Luck-Las Vegas. The decline was partially offset by a full year of food and
beverage operations at the Isle-Boonville and increased food and beverage
revenue at the Isle-Kansas City resulting from increased marketing efforts.
Casino operating expenses for the quarter ended January 26, 2003, totaled
$46.5 million, or 18.5% of casino revenue, versus $51.1 million, or 20.0% of
casino revenue, for the quarter ended January 27, 2002. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. The decrease in casino operating expenses is primarily
attributable to closing the casino at the Isle-Tunica. The decrease was
partially offset by a full year of operations at the Isle-Boonville.
For the quarter ended January 26, 2003, state and local gaming taxes were
paid in Louisiana, Mississippi, Colorado, Iowa, Missouri and Nevada totaling
$55.6 million, or 22.0% of casino revenue, compared to $55.9 million, or 21.9%
of casino revenues for the three months ended January 27, 2002, which is
consistent with each state's gaming tax rate for the applicable fiscal quarters.
Legislation was passed April 1, 2001 that allowed Louisiana riverboats, which
had been required to conduct cruises, including the riverboats at the Isle-
Lake Charles, to remain permanently dockside beginning April 1, 2001. The
legislation also increased the gaming tax for operators from 18.5% to 21.5% for
the Isle-Lake Charles. The legislation increased the gaming tax for the
Isle-Bossier City by 1% each year until 21.5% is reached.
Operating expenses for the quarter ended January 26, 2003, also included
room expenses of $2.0 million or 20.8% of room revenue from the hotels at the
Isle-Biloxi, the Isle-Vicksburg, the Isle-Natchez, the Isle-Bossier City, the
Isle-Lake Charles, the Isle-Lula, the Isle-Black Hawk, the Isle-Bettendorf, the
Rhythm City-Davenport and the Isle-Marquette compared to $2.8 million or 24.1%
of room revenue for the quarter ended January 27, 2002. The decrease in room
expenses is consistent with the decline in room revenue. 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.
Food, beverage and other expenses totaled $7.1 million for the quarter
ended January 26, 2003, compared to $8.7 million for the quarter ended January
27, 2002. Food and beverage and other operating expenses as a percentage of
food, beverage and other revenues decreased to 21.8% for the quarter ended
January 26, 2003, from 24.3% for the quarter ending January 27, 2002. These
expenses consist primarily of the cost of goods sold, salaries, wages and
benefits and other operating expenses of these departments. The decrease
resulted from the discontinuing of hotel and related food and beverage
operations at the Lady Luck-Las Vegas and with ongoing cost containment program
that has reduced purchasing costs at the Rhythm City-Davenport.
Marine and facilities expenses totaled $14.7 million for the quarter ended
January 26, 2003, versus $16.4 million for the quarter ended January 27, 2002.
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. These expenses have decreased primarily due to
ceasing hotel operations at the Isle-Tunica and the Lady Luck-Las Vegas.
Marketing and administrative expenses totaled $66.8 million, or 26.4% of
net revenue, for the quarter ended January 26, 2003, versus $65.5 million, or
25.0% of net revenue, for the quarter ended January 27, 2002. 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. For the quarter ended January 27, 2002, marketing and
administrative expenses are net of business interruption insurance proceeds of
$2.2 million for the Rhythm City-Davenport and $0.2 million for the
Isle-Marquette related to flooding which had occurred at those properties. The
increases were offset by the sale of the Isle-Tunica and the Lady Luck-Las
Vegas.
Preopening expenses of $2.3 million for the quarter ended January 27, 2002,
represent salaries, benefits, training, marketing and other costs incurred in
connection with the opening of the Isle-Boonville in December 2001.
Depreciation and amortization expense was $19.8 million for the quarter
ended January 26, 2003 and $18.6 million for the quarter ended January 27, 2002.
Depreciation expense increased by $1.2 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 no longer depreciated 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 January 26, 2003.
Interest expense was $20.3 million for the quarter ended January 26, 2003,
net of capitalized interest of $0.04 million and interest income of $0.1 million
versus $21.0 million for the quarter ended January 27, 2002, net of capitalized
interest of $0.5 million and interest income of $0.1 million. Interest expense
primarily relates to indebtedness incurred in connection with the acquisition of
property, equipment, leasehold improvements and berthing and concession rights.
Additionally, net interest expense of $1.3 million related to the Isle-Black
Hawk is included in net interest expense in the quarter ended January 26, 2003.
This compares to net interest expense of $2.3 million for the quarter ended
January 27, 2002.
Our effective tax rate was 37.1% for the quarter ended January 26, 2003,
compared to 37.5% for the quarter ended January 27, 2002.
On December 18, 2001, the Isle-Black Hawk redeemed all of its outstanding
13% First Mortgage Notes in the principal amount of $75.0 million. A net
extraordinary loss of $2.4 million was recorded by the Isle of Capri for the
extinguishment of the First Mortgage Notes related to early payment premiums and
the write-off of debt acquisition costs.
Nine Fiscal Months Ended January 26, 2003 Compared to Nine Fiscal Months Ended
January 27, 2002
Gross revenue for the nine months ended January 26, 2003 was $939.2
million, which included $779.4 million of casino revenue, $38.4 million of rooms
revenue, $15.8 million of pari-mutuel commissions and $105.6 million of food,
beverage and other revenue. This compares to gross revenue for the nine months
ended January 27, 2002 of $939.9 million, which included $771.0 million of
casino revenue, $41.5 million of rooms revenue, $15.4 million of pari-mutuel
commissions and $112.0 million of food, beverage and other revenue.
Casino revenue increased $8.4 million or 1.1% primarily as a result of a
full nine months of operations of the Isle-Boonville, which opened in December
2001, partially offset by decreases at the Isle-Lake Charles due to additional
competition and road construction and the closing of the Isle-Tunica. Room
revenue decreased $3.2 million, or 7.6% due to the sale of the Isle-Tunica and
the Lady Luck-Las Vegas. Additionally, food, beverage and other revenue
decreased by $6.5 million, or 5.8% attributable to the sale of the Isle-Tunica
and the Lady Luck-Las Vegas partially offset by a full year of operations at the
Isle-Boonville.
Casino operating expenses for the nine months ended January 26, 2003
totaled $143.7 million, or 18.4% of casino revenue, versus $152.0 million, or
19.7% of casino revenue, for the nine months ended January 27, 2002. 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 the sale of the Isle-Tunica and the Lady Luck-Las Vegas
partially offset by a full year of operations at the Isle-Boonville.
Operating expenses for the nine months ended January 26, 2003 also included
room expenses of $9.2 million, or 23.9% of room revenue from the hotels at the
Isle-Biloxi, the Isle-Vicksburg, the Isle-Natchez, the Isle-Bossier City, the
Isle-Lake Charles, the Isle-Tunica, the Isle-Lula, the Isle-Black Hawk, the
Isle-Bettendorf, the Rhythm City-Davenport, the Isle-Marquette and the Lady
Luck-Las Vegas compared to $9.6 million, or 23.1% of room revenue for the nine
months ended January 27, 2002. 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 nine months ended January 26, 2003, state and local gaming taxes
were paid in Louisiana, Mississippi, Colorado, Iowa, Missouri and Nevada
totaling $170.6 million, or 21.9% of casino revenue, compared to $165.3 million,
or 21.4% of casino revenues for the nine months ended January 27, 2002, which is
consistent with each state's gaming tax rate for the applicable fiscal quarters.
Legislation was passed April 1, 2001 that allowed Louisiana riverboats which had
been required to conduct cruises, including the riverboats at the Isle-Lake
Charles, to remain permanently dockside beginning April 1, 2001. The
legislation also increased the gaming tax for operators from 18.5% to 21.5% for
the Isle-Lake Charles. The legislation increased the gaming tax for the
Isle-Bossier City by 1% each year until 21.5% is reached.
Food, beverage and other expenses totaled $24.9 million for the nine months
ended January 26, 2003, compared to $26.2 million for the nine months ended
January 27, 2002. Food and beverage and other operating expenses as a
percentage of food, beverage and other revenues increased to 23.6% for the nine
months ended January 26, 2003 from 23.4% for the nine months ended January 27,
2002. These expenses consist primarily of the cost of goods sold, salaries,
wages and benefits and other operating expenses of these departments. These
expenses have decreased as a result of the sale of the Isle-Tunica and the Lady
Luck-Las Vegas partially offset by a full year of operations at the
Isle-Boonville.
Marine and facilities expenses totaled $50.1 million for the nine months
ended January 26, 2003, versus $51.9 million for the nine months ended January
27, 2002. 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. These expenses have increased as a
result of the expansion in the number of properties we operate.
Marketing and administrative expenses totaled $209.4 million, or 26.5% of
net revenue, for the nine months ended January 26, 2003, versus $201.8 million,
or 25.7% of net revenue, for the nine months ended January 27, 2002. Marketing
expenses include salaries, wages and benefits of the marketing and sales
departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses include administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. Marketing and administrative expenses have increased
as a result of increased competition in the markets in which we operate.
Marketing and administrative expenses for the nine months ended January 27, 2002
are net of business interruption proceeds of $3.4 million for the Rhythm
City-Davenport and $0.7 million for the Isle-Marquette related to flooding which
had occurred at those properties.
Preopening expenses of $3.9 million represent salaries, benefits, training,
marketing and other costs incurred in connection with the opening of the
Isle-Boonville in December 2001.
Depreciation and amortization expense was $56.0 million for the nine months
ended January 26, 2003 and $53.1 million for the nine months ended January 27,
2002. Depreciation expense increased by $2.9 million compared to the prior
year. 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 no longer depreciated these assets. We estimate that the benefit from
suspending depreciation associated with the assets held for sale was
approximately $6.0 million for the nine months ended January 26, 2003.
Interest expense was $62.0 million for the nine months ended January 26,
2003, net of capitalized interest of $0.07 million and interest income of $0.2
million versus $67.5 million for the nine months ended January 27, 2002, net of
capitalized interest of $1.3 million and interest income of $0.6 million.
Interest expense primarily relates to indebtedness incurred in connection with
the acquisition of property, equipment, leasehold improvements and berthing and
concession rights. The decrease in interest expense relates to the pay down of
debt of $70.3 million during the period. Additionally, net interest expense of
$4.2 million related to the Isle-Black Hawk is included in net interest expense
in the nine months ended January 26, 2003. This compares to net interest
expense of $8.3 million net of interest income of $0.2 million for the nine
months ended January 27, 2002. The $4.1 million decrease in net interest
expense relates to the redemption of the 13% First Mortgage Notes that was
funded by the $90.0 million Secured Credit Facility in November 2001.
Our effective tax rate was 36.9% for the nine months ended January 26,
2003, compared to 35.6% for the nine months ended January 27, 2002. The nine
fiscal months ended January 27, 2002, is 1.3% lower than the nine fiscal months
ended January 26, 2003, due to a revision in the estimate of deferred income
taxes.
DISPOSITION 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 October 30,
2002, we completed the sale of the Lady Luck-Las Vegas. Our subsidiary will
continue to operate the casino for up to six months pending receipt of
regulatory approval by the purchaser's designated gaming operator. On July 29,
2002, we entered into an agreement to sell the Isle-Tunica. The agreement
provided that we would receive a cash payment of $7.5 million and would be
entitled to retain certain personal property, including all gaming equipment,
valued at approximately $4.7 million. We ceased casino operation on September
4, 2002. The hotel and support facilities remained open until the closing of
the transaction on October 7, 2002.
In connection with the disposition plan, approximately 600 employees were
terminated at the Isle-Tunica. Approximately 400 employees of the Lady Luck-Las
Vegas became employees of the new company on October 30, 2002. Estimated
employee termination costs of $0.4 million were accrued in the first quarter of
fiscal 2003. In addition, the disposition plan includes lease termination and
other business exit costs estimated at $1.4 million that were accrued in the
first quarter of fiscal 2003. We have funded $1.2 million of these exit costs
as of January 26, 2003. We expect to fund the remaining costs through existing
cash flows from operations before the end of fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
At January 26, 2003, we had cash and cash equivalents of $68.3 million
compared to $76.6 million in cash and cash equivalents at April 28, 2002. The
$8.3 million decrease in cash is the net result of $97.9 million net cash
provided by operating activities, offset by $31.1 million net cash used in
investing activities primarily related to the purchase of property and
equipment, and $75.1 million net cash used in financing activities primarily
related to the paydown of debt. In addition, we had $245.6 million in available
lines of credit.
INVESTING ACTIVITIES
We invested $41.7 million in property and equipment during the nine months
ended January 26, 2003 primarily for the implementation of a company-wide slot
program. Approximately $18.5 million was expended on capital improvements,
which enhanced the value of the properties or prolonged their useful life. The
following table reflects expenditures for property and equipment on major
projects and an estimate of such expenditures for the three months ending April
27, 2003.
ACTUAL ESTIMATED SPENDING
--------------------- -------------------
FISCAL YEAR NINE MONTHS THREE MONTHS
ENDED 4/28/02 ENDED 01/26/03 ENDING 4/27/03
------------- -------------- -------------
(IN MILLIONS)
PROPERTY PROJECT
- ------------------------ ----------------------------------------
Isle-Biloxi . . . . . . . . Construct hotel & parking facility . . . . $ - $ 1.6 $ 1.5
Isle-Bossier City . . . . . Construct hotel & entertainment center . . - 2.6 4.1
Isle-Marquette. . . . . . . Construct hotel. . . . . . . . . . . . . . - 0.1 0.1
Isle-Lake Charles . . . . . Construct hotel. . . . . . . . . . . . . . 0.4 - -
Isle-Kansas City. . . . . . Renovations. . . . . . . . . . . . . . . . 1.5 - -
Isle-Boonville. . . . . . . Develop casino . . . . . . . . . . . . . . 35.7 0.9 -
Rhythm City-Davenport . . . Renovations. . . . . . . . . . . . . . . . 1.6 - -
All . . . . . . . . . . . . Slot program . . . . . . . . . . . . . . . 32.7 18.0 10.0
All . . . . . . . . . . . . Other capital improvements . . . . . . . . 26.4 18.5 14.9
------------------- --------------- -----
Total $ 98.3 $ 41.7 $30.6
================== =============== =====
As of the nine months ended January 26, 2003, we have spent $18.5 million
on capital improvements and $18.0 million on our slot program. The $18.5
million of other capital improvements at all of our properties consists of
numerous capital expenditures related to the purchase of furniture and equipment
and upgrade of hotel rooms, restaurants and other areas of our properties.
In August 2002, we announced plans for a $135.0 million multi-property
expansion at three of our casinos of which $20.1 million is scheduled to be
spent during fiscal 2003. 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 began this winter
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 began in
October 2002 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, planned to begin in spring 2003, will last approximately 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 nine months ended January 26, 2003, we used net cash of $75.1
million primarily in the following financing activities:
- - We made net reductions to our Revolving Credit Facilities and lines of
credit of $56.6 million.
- - We made principal payments on our Senior Secured Credit Facility and other
debt of $13.6 million.
- - We made cash distributions to a minority partner totaling $4.5 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.
We expect that available cash and cash from future operations, as well as
borrowings under our existing Senior Secured Credit Facility and lines of credit
will be sufficient to fund future expansion and planned capital expenditures,
service senior debt, and meet working capital requirements. As of January 26,
2003, we had $234.0 million of unused credit capacity with the revolving loan
commitment on our Senior Secured Credit Facility, $10.0 million of unused credit
capacity with the Isle-Black Hawk's Secured Credit Facility and $1.6 million of
available credit from other lines of credit. The revolving loan commitment is a
variable rate instrument based on, at our option, either LIBOR or our lender's
prime rate plus the applicable interest rate spread, and is effective through
April 2007. Our lines of credit are also at variable rates based on our
lender's prime rate and are subject to annual renewal in April 2003. There is
no assurance that these sources will in fact provide adequate funding for the
expenditures described above or that planned capital investments will be
sufficient to allow us to remain competitive in our existing markets.
We are currently in compliance with all covenants contained in our senior
and subordinated debt instruments as of January 26, 2003. If we do not maintain
compliance with these covenants, the lenders under the Senior Secured Credit
Facility have the option (in some cases, after the expiration of contractual
grace periods), but not the obligation, to demand immediate repayment of all or
any portion of the obligations outstanding under the Senior Secured Credit
Facility. Any significant deterioration of earnings could affect certain of our
covenants. Adverse changes in our credit rating or stock price would not impact
our borrowing costs or covenant compliance under existing debt instruments.
Future events, such as a significant increase in interest rates can be expected
to increase our costs of borrowing under our amended and restated senior credit
facility. The indentures governing our 8.75% notes and our 9.0% 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 April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical
Corrections," ("SFAS 145"). SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from
continuing operations rather than as extraordinary items as previously
required under SFAS No. 4 "Reporting Gains and Losses from Extinguishment
of Debt," ("SFAS 4"). SFAS 145 will be effective for fiscal years beginning
after May 15, 2002. We will adopt SFAS 145 at the beginning of fiscal 2004,
April 28, 2003. Losses on extinguishment of debt previously classified as
extraordinary charges will be reclassified to conform to the provisions
of SFAS 145.
In July 2002, the FASB issued SFAS 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.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock
- -Based Compensation - Transition and Disclosure," ("SFAS 148"). SFAS 148
amends FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
("SFAS 123") to provide alternative methods for an entity that voluntarily
changes to the fair value based method of accounting for stock-based
compensation, amends the disclosure provisions of SFAS 123 and amends APB
Opinion No. 28, "Interim Financial Reporting," to require disclosure about
those effects in interim financial information. The transition guidance and
annual disclosure provisions of SFAS 148 are effective for fiscal years ending
after December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. We have adopted SFAS 148 transition guidance and
annual disclosure provisions for the fiscal year ending April 27, 2003.
We will adopt SFAS 148 interim disclosure provisions for the fiscal quarter
ending July 27, 2003, which is the first interim reporting period beginning
after December 15, 2002. We are currently assessing the impact of the various
alternative methods under SFAS 148 and have not yet determined the effect
of the adoption of this statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from what we reported in our Form 10-K for
the year ended April 28, 2002.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation. There were no significant deficiencies or material
weaknesses, and therefore no corrective actions were taken.
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. This
district court recently denied the Motion for Class Certification, but this
decision has been appealed. Therefore, we are still unable at this time to
determine what effect, if any, the suit would have on our consolidated financial
position or results of operations. The gaming industry defendants are committed
to continuing a vigorous defense of all claims asserted in this matter.
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 through its Minister of Tourism (now
Development) and Finance. 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 6.5 million Euros (which was approximately $7.1 million as of
January 26, 2003 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 action. The
Athens Civil Court of First Instance granted 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. Also, the Ministry of Tourism is proceeding with
an appeal from a dismissal of its action by the Athens Administrative Court of
First Instance. An appeal of this matter was heard on January 22, 2003. No
announcement has been made regarding this appeal. Accordingly, the outcome of
this matter 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 a vigorous and appropriate defense to the claims asserted in this
matter.
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued
an award that we were liable for $4.5 million in damages in connection with a
lease of real estate located near Kimmswick, Jefferson County, Missouri. We
have filed a motion in the United States District Court for the Eastern District
of Missouri seeking to vacate the arbitration award. We recognized an
additional $1.8 million in expense during the second quarter ended October 27,
2002, in order to bring the total amount accrued for this loss contingency to
$4.5 million, notwithstanding the motion to vacate.
On December 30, 2002, the County of Jefferson, Missouri initiated a lawsuit
in the Circuit Court of Jefferson County, Missouri, against us and a subsidiary,
alleging a breach of a 1993 contract entered into by the County, that
subsidiary, and guaranteed by Lady Luck Gaming Corporation (now our wholly owned
subsidiary) relating to the development of a casino-site near Kimmswick,
Missouri. The suit alleges damages in excess of $10.0 million. The case is in
the early stages, no discovery has been conducted and, accordingly, the outcome
of this matter cannot be predicted with any degree of certainty. We believe the
claims against us to be without merit and we intend to vigorously and
appropriately defend the claims asserted in this matter.
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 January 26, 2003, the Company filed the
following reports on Form 8-K:
Current Report on Form 8-K filed on December 10, 2002, regarding
Item 5 that announced the decision reached by a panel of arbitrators regarding
the Company's lease of real estate located in Jefferson County, Missouri.
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: March 11, 2003 /s/ Rexford A. Yeisley
--------------------------
Rexford A. Yeisley, Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 11, 2003 /s/ Bernard Goldstein
-----------------------
Bernard Goldstein
Chief Executive Officer
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;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 11, 2003 /s/ Rexford A. Yeisley
-------------------------
Rexford A. Yeisley
Chief Financial Officer
INDEX TO EXHIBITS
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.