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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 25, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-20538
ISLE OF CAPRI CASINOS, INC.
(Exact name of registrant as specified in its charter)
41-1659606
Delaware (I.R.S. Employer-
(State or other jurisdiction of Identification No.)
incorporation or organization)
39530
711 Washington Loop, Biloxi, (Zip Code)
Mississippi
(Address of principal executive
offices)
Registrant's telephone number, including area code (228) 436-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 Par Value Per Share
(Title of Class)
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting and non-voting stock held by non-
affiliates/1/ of the Company is $125,555,481, based on the last reported sale
price of $6.750 per share on June 25, 1999 on The Nasdaq Stock Market;
multiplied by 18,600,812 shares of Common Stock outstanding and held by non-
affiliates of the Company on such date.
As of June 25, 1999, the Company had a total of 23,579,662 shares of Common
Stock outstanding.
Part of Form 10-K
Document into which Incorporated
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Isle of Capri Casinos, Inc.'s Definitive Proxy
Statement for its Annual Meeting of Stockholders
to be held Part III
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/1/ Affiliates for the purpose of this item refer to the directors, executive
officers and/or persons owning 10% or more of the Company's common stock, both
of record and beneficially; however, this determination does not constitute an
admission of affiliate status for any of these individual stockholders.
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INDEX
PAGE
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PART I.................................................................... 1
ITEM 1. Business........................................................ 1
ITEM 2. Properties...................................................... 24
ITEM 3. Legal Proceedings............................................... 26
ITEM 4. Submission of Matters to a Vote of Security Holders............. 26
PART II................................................................... 27
ITEM 5. Market for Registrant's Common Equity and Related Stockholder's
Matters................................................................ 27
ITEM 6. Selected Financial Data......................................... 28
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 30
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk..... 39
ITEM 8. Index to Consolidated Financial Statements...................... 40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 69
PART III.................................................................. 69
ITEM 10. Director and Executive Officers of the Registrant.............. 69
ITEM 11. Executive Compensation......................................... 69
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management............................................................. 69
ITEM 13. Certain Relationships and Related Transactions................. 69
PART IV................................................................... 69
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.................................................................... 69
Signatures................................................................ 70
PART I
ITEM 1. Business
Overview
We are a leading developer, owner and operator of branded gaming and related
lodging and entertainment facilities in growing markets in the United States.
We wholly own and operate four gaming facilities located in Lake Charles and
Bossier City, Louisiana and Biloxi and Vicksburg, Mississippi. We also own a
57% interest in and operate a gaming facility in Black Hawk, Colorado, which
opened on December 30, 1998. Each of these five gaming facilities operates
under the name "Isle of Capri" and features our distinctive tropical island
theme. In addition, we wholly own and operate a pari-mutuel harness racing
facility in Pompano Beach, Florida and own a 50% interest in and operate
gaming activities aboard a cruise ship based in New Orleans, Louisiana. For
the fiscal year ended April 25, 1999, we had total revenue of $480.4 million
and EBITDA of $109.2 million. We were incorporated in Delaware in February
1990 under the name of Kana Corporation, and in 1992 our name was changed to
Casino America, Inc. On September 28, 1998, our name was changed to Isle of
Capri Casinos, Inc.
Strategy
Our business strategy, which has been implemented in our existing
operations, emphasizes the standardized operation and development of value-
oriented gaming facilities and complementary amenities with a tropical island
theme using the "Isle of Capri Casino" brand name. We believe that the
consistent use of the Isle of Capri Casino name and associated theme has
created a readily identifiable brand image connoting excitement, quality and
value, complemented by an emphasis on customer service and non-gaming
entertainment amenities. We seek to identify slot-oriented customers and
active casino patrons through the use of database marketing and generate
repeat visitors to our gaming facilities. We believe that our strategy fosters
customer loyalty, enhances our ability to compete effectively in existing
markets, and facilitates the consistent, efficient and cost-effective
development of gaming facilities in new markets. We also believe that good
community relations are fundamental to our success and, as a result, we take
an active role in community activities in each jurisdiction in which we have
gaming facilities.
We have historically identified and entered new gaming markets which we
believe provide attractive long-term opportunities. We anticipate that most of
our near-term focus will be expanding existing facilities and pursuing new
development opportunities. We have recently added hotels at the Isle-Bossier
City and the Isle-Vicksburg in order to compete effectively in our markets and
provide customers with a complete resort experience designed to increase a
customer's length of stay at and use of our facilities. We are currently
developing casino and hotel facilities in Tunica County, Mississippi and
Coahoma County, Mississippi, and we currently plan to construct additional
lodging facilities or other amenities at the Isle-Black Hawk, the Isle-Lake
Charles and the Isle-Biloxi. We also expect to continue reviewing gaming
opportunities in new markets on the basis of demographic, regulatory,
competitive and other factors.
Marketing
We attract customers to our casinos by designing and implementing marketing
and promotional programs that emphasize our Isle Style tropical island theme
and generate loyal customers. We have developed an extensive proprietary
database of primarily slot-oriented customers that allows us to create
effective targeted marketing and promotional programs, merchandise giveaways,
game tournaments and other special events, such as Capri Cruises. These
programs are designed to reward customer loyalty, attract new customers to our
properties and maintain high recognition of our "Isle of Capri" brand.
As of April 25, 1999, our database contained approximately 2.9 million
members, of whom approximately 1.8 million receive regular mailings. To
develop this database, we offer all of our customers membership in the
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Island Gold Players Club, which allows them to earn points based on play and
redeem these points for casino cash tokens, prizes and complimentary services
at any Isle of Capri casino. Island Gold Players Club members receive a card
that, when inserted into a slot machine or presented at a gaming table at the
issuing facility, allows us to track their gaming preferences, maximum,
minimum and total amount wagered and frequency of visits. Players are
classified in groups according to these characteristics. Our database is used
for direct mailings, giveaways and other promotional events that are tailored
to these specific groups of players. We have effectively used our database to
encourage repeat visits, increase customers' length of stay and improve our
operating results.
We place significant emphasis on attracting local residents and seek to
maintain a strong local identity in each market in which we operate by
initiating and supporting community and special events. We use radio and
television media to promote the "Isle of Capri" brand name and attract
customers to our properties. To further enhance Isle Style, we have engaged a
well-known actor to narrate our radio and television advertisements.
Current Operations
Here is an overview of our existing casino properties:
Isle-Lake Charles Isle-Bossier City Isle-Biloxi Isle-Vicksburg Isle-Black Hawk
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Date opened............. July 29, 1995 May 20, 1994 August 1, 1992 August 9, 1993 December 30, 1998
Casino square footage... 48,900 20,000 32,500 27,000 43,000
Slot machines........... 1,836 1,079 1,212 793 1,089
Table games............. 90 45 40 28 14
Hotel rooms............. 241 539 367 124 --
Parking spaces.......... 2,000 1,200 1,300 1,100 1,100
The Isle-Lake Charles
The Isle-Lake Charles, which commenced operations on July 29, 1995, is one
of two riverboat gaming facilities that operates two riverboats in the Lake
Charles, Louisiana market and one of three gaming facilities in southwest
Louisiana. Lake Charles is the closest gaming market to Houston, Texas, a
metropolitan area with a population of approximately 4.2 million that is
located approximately 140 miles west of Lake Charles.
The Isle-Lake Charles is located on a 19-acre site along the Calcasieu River
adjacent to Interstate 10 in Calcasieu Parish, one mile from the City of Lake
Charles. Our Crown riverboat has 24,700 square feet of gaming space with 892
slot machines and 41 table games on three levels. Our Grand Palais riverboat
has 24,200 square feet of gaming space with 944 slot machines and 49 table
games on two levels. Each of our riverboats has a large bar and foyer and the
Grand Palais riverboat has a top level which is not yet utilized. Lake Charles
is the only market in which we are required to cruise. However, because we
have two riverboats, one riverboat is always dockside, allowing us to offer
our customers continuous boarding.
The Isle-Lake Charles offers on-site accommodations to our customers through
the Inn at the Isle, a 241-room hotel, and provides free valet and self-
parking for more than 2,000 vehicles, including approximately 1,400 spaces in
an attached parking garage from which patrons can access the pavilion by
elevator. The lighted rooftop rotunda of the Isle-Lake Charles' pavilion is
topped by the Isle of Capri parrot which is 145 feet above the ground and
visible from Interstate 10. We believe that these amenities help us attract a
significant portion of the overnight visitors from Texas.
The Isle-Lake Charles also includes a 105,000 square foot land-based
pavilion. The pavilion is based on a tropical island theme and includes rock
formations, waterfalls, water arches with jets of water shooting up to 30 feet
in the air, ponds with porcelain sea life, flower beds landscaped in the shape
of playing card suits and an arcade. The pavilion provides panoramic views of
the lake and the city of Lake Charles and has separate entrances to the
riverboats. The pavilion offers customers a wide variety of non-gaming
amenities, including an 80-seat Farraddays' restaurant, a 489-seat Calypso's
buffet, a 40-seat Tradewinds deli, Caribbean Cove, which
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features free, live entertainment and can accommodate 180 customers, a Banana
Cabana souvenir gift shop and an Island Gold Players Club booth. The pavilion
also has a 16,000 square foot activity center comprised of a 1,100-seat
special events center designed for live boxing, televised pay-per-view events,
concerts, banquets and other events, meeting facilities and administrative
offices.
The Lake Charles market, excluding a nearby Native American-owned casino,
had gaming revenues of $299.7 million in 1998. We believe that the Isle-Lake
Charles attracts customers primarily from southeast Texas, including Houston,
Beaumont, Galveston, Orange and Port Arthur and local area residents.
Approximately 490,000 and 1.6 million people live within 50 and 100 miles,
respectively, of the Isle-Lake Charles.
We plan to begin construction of a new on-site 250-room deluxe hotel in the
second half of calendar 1999. We believe the availability of quality overnight
accommodations will attract a different segment of customers and increase
their length of stay at our facility.
The Isle-Bossier City
The Isle-Bossier City, which commenced operations on May 20, 1994, is one of
four dockside gaming facilities currently operating in the Bossier
City/Shreveport, Louisiana market. Bossier City/Shreveport is the closest
gaming market to Dallas/Ft. Worth, Texas, a metropolitan area with a
population of approximately 4.5 million that is located approximately 190
miles west of Bossier City/Shreveport.
The Isle-Bossier City is located on a 38-acre site along the Red River
approximately one-quarter mile off Interstate 20 and has a dockside riverboat
casino, a land-based entertainment pavilion and a parking garage. We opened
our new on-site 305-room deluxe hotel in late June 1999. We also own and
operate a 234-room hotel two miles from the Isle-Bossier City. The casino has
approximately 20,000 square feet of gaming space on three levels with 1,079
slot machines, 45 table games and a video poker bar. The approximately 72,200
square foot land-based pavilion features towering palm trees, exotic rock
formations and a waterfall. The pavilion offers a wide variety of non-gaming
amenities, including a 107-seat Farraddays' restaurant, a 352-seat Calypso's
buffet, a 40-seat Tradewinds deli, Caribbean Cove, which features free, live
entertainment and can accommodate 550 customers, a Banana Cabana souvenir gift
shop, an entertainment lounge area, a large nine-screen television wall
featuring sporting events, an Island Gold Players Club booth and
administrative offices. The Isle-Bossier City has on-site parking for 1,200
cars, of which 940 are accommodated in an attached parking garage. Additional
overflow parking is available nearby on weekends.
The 305-room Isle of Capri Casino Bossier City Hotel facility is directly
accessible from the casino through the atrium. The hotel offers spacious rooms
and provides amenities, including banquet facilities, arcade, child care
facilities, meeting rooms, a heated pool and exercise facilities with a hot
tub.
The Bossier City/Shreveport market had gaming revenue of $594.4 million in
1998. We believe that the Isle-Bossier City attracts customers primarily from
the local area, northeastern Texas and the Dallas/Ft. Worth metropolitan area.
Approximately 540,000 and 1.8 million people live within 50 and 100 miles,
respectively, of the Isle-Bossier City.
The Isle-Biloxi
The Isle-Biloxi, which commenced operations on August 1, 1992, was the first
gaming facility to open in Mississippi. Biloxi is the closest gaming market to
Mobile, Alabama, a metropolitan area with a population of approximately
600,000, that is located approximately 60 miles east of Biloxi. The Isle-
Biloxi is located at the eastern end of a cluster of facilities known as
"Casino Row" and is the first property reached by visitors coming from
Alabama, Florida and Georgia via Highway 90.
The Isle-Biloxi's eight-acre facility consists of a 50,000 square foot
dockside casino containing 32,500 square feet of gaming space with 1,212 slot
machines and 40 table games on two levels, an adjacent land-based
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pavilion, a 367-room hotel and on-site parking for 1,300 vehicles. The 32,000
square foot, 50-foot high pavilion offers a wide variety of non-gaming
amenities, including a 119-seat Farraddays' restaurant, a 280-seat Calypso's
buffet, an 88-seat Tradewinds deli, Caribbean Cove, an open-air lounge area
that can accommodate 116 customers and a Fantasy Isle Arcade of arcade games
for all ages. Calypso's and Farraddays' provide panoramic views of the Gulf of
Mexico and Deer Island. Caribbean Cove is located at the center of the
pavilion and is surrounded by a dramatic fountain and an entertainment stage.
The entertainment area features a stage and sound system used for special
events. Musical performances in the pavilion are scheduled six days a week
providing a Caribbean feel to Calypso's, Tradewinds and the hotel lobby.
Headliner entertainment appears monthly in the Flamingo Bay Ballroom with a
portion of the seating reserved for loyal customers.
The 367-room Isle of Capri Crowne Plaza Resort hotel facility is directly
accessible from the casino through the atrium. The hotel is included in the
Crowne Plaza and Holiday Inn Worldwide reservation system. The hotel offers
spacious rooms, most with balconies overlooking a marina, and provides
amenities, including meeting rooms, full room service, a heated pool and
exercise facilities with a hot tub, a dry sauna and massage therapy.
The Mississippi Gulf Coast market had gaming revenue of $813.2 million in
1998. On February 5, 1999, Beau Rivage Resort and AirTran announced that the
two companies entered a joint marketing partnership to provide daily non-stop
jet service between the Gulfport/Biloxi Regional Airport and southeastern
cities, including Dallas/Fort Worth, Houston, Ft. Lauderdale, Tampa and
AirTran's hub, Atlanta. The new service began on March 15, 1999 and increased
the daily flights arriving at the Gulfport/Biloxi Regional Airport from 21 to
28. The additional flights have increased the amount of incoming seat
availability from approximately 1,224 to approximately 1,950 per day, an
approximately 60% increase in daily seat availability.
We believe that the Isle-Biloxi attracts customers from the local area,
Alabama, Florida, Georgia and southeastern Louisiana, including New Orleans
and Baton Rouge. There are approximately 660,000 and 2.9 million people
residing within 50 to 100 miles, respectively, of the Isle-Biloxi.
The Mississippi Gulf Coast hotel market consists of approximately 16,000
hotel/motel rooms. The Isle-Biloxi's hotel occupancy is consistently in excess
of 90%. A number of our competitors in the Mississippi Gulf Coast market have
purchased existing hotels in the area, have built or are presently building or
upgrading their facilities or have announced plans to build or upgrade
additional hotels. More than 4,000 additional hotel/motel rooms have been
added over the past year or are currently under construction in this market.
Subject to amending our existing lease with the City of Biloxi, our
expansion plans for the Isle-Biloxi include replacing our existing casino and
constructing an approximately 1,000-space parking garage and a podium
containing entertainment and retail space. The podium will be constructed to
support either a time-share facility, which may be developed by a joint
venture, or additional hotel rooms.
The Isle-Vicksburg
The Isle-Vicksburg, which commenced operations on August 9, 1993, was the
first of four dockside gaming facilities to open in the Vicksburg, Mississippi
market. Vicksburg is the closest gaming market to Jackson, Mississippi, a
metropolitan area with a population of approximately 420,000 that is located
approximately 40 miles east of Vicksburg.
The Isle-Vicksburg is located on an 18-acre site along the Mississippi
River, approximately one mile north of Interstate 20, and consists of a 27,000
square foot dockside casino, a new on-site 124-room hotel and a 12,000 square
foot land-based pavilion. The casino has two levels with a total of 793 slot
machines and 28 table games. The Isle-Vicksburg provides on-site parking for
900 vehicles.
The land-based pavilion offers customers a wide variety of non-gaming
amenities, including a 67-seat Farraddays' restaurant, a 277-seat Calypso's
buffet, a Tradewinds deli, live entertainment, a Banana Cabana souvenir gift
shop, an Island Gold Players Club booth and a reception area. Customers have
easy access to the
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second level of the casino from the land-based pavilion by either escalator or
a wide stairway, both of which provide panoramic views of the Mississippi
River through a wall of windows.
In February 1999, we opened a new on-site 124-room hotel at the Isle-
Vicksburg, which has 69 deluxe rooms with balconies overlooking the
Mississippi River. The hotel is located on the bank of the Mississippi River,
adjacent to the casino. The Isle-Vicksburg's 67-space recreational vehicle
park is located approximately one-half mile from the casino and provides off-
site parking for 200 vehicles.
The Vicksburg market had gaming revenue of $202.2 million in 1998. We
believe that the Isle-Vicksburg attracts customers primarily from Vicksburg
and Jackson, Mississippi, northeastern Louisiana and tourists from other
locales. Approximately 530,000 and 1.5 million people live within 50 and 100
miles, respectively, of the Isle-Vicksburg. Vicksburg, a river port city best
known as the site of an historic Civil War battle and the home of the
Vicksburg National Military Park and Cemetery, drew more than 1.0 million
visitors in 1998.
The Isle-Black Hawk
On December 30, 1998, we opened our 57%-owned Isle-Black Hawk. This land-
based casino is the first casino reached by customers arriving from Denver,
Colorado, a metropolitan area with a population of approximately 2.2 million
that is located approximately 40 miles east of Black Hawk/Central City. The
Isle-Black Hawk is the largest of the 29 gaming facilities currently operating
in the Black Hawk/Central City market.
The Isle-Black Hawk is located on an approximately 9.4-acre site which is
readily accessible from Highway 119 and contains 43,000 square feet of gaming
space on a single floor with 1,089 slot machines, 14 table games and on-site
covered parking for 1,100 vehicles. The Isle-Black Hawk offers customers a
wide variety of non-gaming amenities, including a 52-seat Farraddays'
restaurant, a 254-seat Calypso's buffet, a 36-seat Tradewinds deli, a Banana
Cabana souvenir gift shop and a 4,000 square foot event center that can be
used for meetings and entertainment.
Isle of Capri Casinos, Inc. manages the Isle-Black Hawk for a fee which is
equal to two percent of revenue (after deducting one-half of gaming taxes)
plus ten percent of operating income, not to exceed four percent of revenue,
as defined.
The Black Hawk/Central City market had gaming revenue of $366.0 million in
1998. We believe that the Isle-Black Hawk's customers are primarily "day
trippers" from Denver, Boulder, Fort Collins and Golden, Colorado and
Cheyenne, Wyoming.
There are less than 200 hotel rooms in the Black Hawk/Central City market.
We plan to begin construction of an on-site 235-room hotel in the summer of
1999. The hotel is expected to be funded through operating cash flow, loans
and equity contributions from us and perhaps the minority owner.
Other Operations
Pompano Park
In 1995, we acquired Pompano Park, a harness racing track located in Pompano
Beach, Florida, midway between Miami and West Palm Beach. Pompano Park is the
only racetrack licensed to conduct harness racing in Florida. During 1998,
Pompano Park conducted 182 live racing programs. Pompano Park also offers
daily "full card" simulcasting and wagering on other harness races and
operates a 15-table limited stakes poker room with a $10 maximum win.
Pompano Park is conveniently located off of Interstate 95 and the Florida
Turnpike on a 220-acre owned facility. Pompano Park can accommodate up to
14,500 customers and has 4,000 parking spaces and 980 horse stalls. The six-
story, air-conditioned facility includes a box seat area, a 218,400 square
foot clubhouse, a large
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grandstand, a 1,200-seat dining area from which the races can be viewed, five
concession stands, five bars and a 165-seat Player's Lounge cafeteria.
We believe that Pompano Park would be an attractive location for casino-
style gaming if such gaming were to be legalized in Florida.
Capri Cruises
On April 20, 1998, we formed Capri Cruises, a joint venture with Commodore
Cruise Lines. We own a 50% interest in the joint venture and operate the
casino on the Enchanted Capri cruise ship, which is based in the Port of New
Orleans. The cruise ship offers two and five night cruises for up to 550
passengers. We provide discounted and complimentary cruises on the Enchanted
Capri to many of our Island Gold Players Club members.
Competition
General
We face intense competition in each of the markets in which we operate. Our
existing gaming facilities compete directly with other gaming properties in
Louisiana, Mississippi and Colorado. We expect this competition to increase as
new gaming operators enter our markets, existing competitors expand their
operations, gaming activities expand in existing jurisdictions and gaming is
legalized in new jurisdictions. Several of our competitors have substantially
better name recognition, marketing and financial resources than we do. We
cannot predict with any certainty the effects of existing and future
competition on our operating results.
We also compete with other forms of gaming and entertainment such as online
computer gambling, bingo, pull tab games, card parlors, sports books, pari-
mutuel or telephonic betting on horse racing and dog racing, state-sponsored
lotteries, jai-alai, video lottery terminals, video poker terminals and, in
the future, may compete with in-flight gaming or gaming at other venues.
We also compete with gaming operations in other gaming jurisdictions such as
Las Vegas, Nevada and Atlantic City, New Jersey. Our competition also includes
casinos located on Native American reservations throughout the United States,
which have the advantages of being land-based and exempt from certain state
and federal taxes. Some Native American tribes are either in the process of
establishing or are considering the establishment of gaming at additional
locations. Expansion of existing gaming jurisdictions and the development of
new gaming jurisdictions and casinos on Native American-owned lands will
increase competition for our existing and future operations. In addition,
increased competition could limit new opportunities for us or result in the
saturation of certain gaming markets.
Louisiana Markets
Louisiana, unlike certain other jurisdictions, does not permit license
holders to operate a second boat out of the same location without a gaming
license for each boat. In addition to existing competition, the granting of
additional gaming licenses in the Lake Charles or Bossier City/Shreveport
market or the relocation of existing licenses from elsewhere in the state of
Louisiana to either market would increase competition for us. The last
available gaming license in Louisiana could be awarded to an operator in
either the Lake Charles or Bossier City/Shreveport market. The Chairman of the
Louisiana Gaming Control Board has indicated that he plans to ask the
Louisiana Gaming Control Board to consider accepting applications for this
license. If the Louisiana Gaming Control Board begins accepting applications
for this license, the last gaming license would likely be awarded before the
first half of calendar 2000. Because a significant number of the Isle-Lake
Charles' and the Isle-Bossier City's customers reside in Texas, legalization
of casino gaming in Texas would have a material adverse effect on our
operating results.
The Isle-Lake Charles
The Isle-Lake Charles is one of two riverboat gaming facilities in the Lake
Charles, Louisiana market that each operates two riverboats from a single
facility. The Isle-Lake Charles, with its location at the western end of
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the Lake Charles gaming market, is the first gaming facility reached by
patrons arriving from Texas. The Isle-Lake Charles' riverboat competitor,
Players International, operates two riverboats and a 268-room hotel at a
facility approximately two miles from the Isle-Lake Charles. A land-based,
Native American-owned casino with approximately 71,000 square feet of gaming
space, a 223-room hotel and 150 recreational vehicle parking spaces is
operating in Kinder, Louisiana, approximately 35 miles northeast of the Isle-
Lake Charles. Customers from Texas must travel a total of approximately 70
miles more per round trip to visit the casino in Kinder. Riverboats in the
Lake Charles market are subject to cruising requirements, which makes the
land-based casino in Kinder more desirable to many gaming customers. However,
one of our boats at the Isle-Lake Charles is dockside at all times, allowing
us to offer continuous boarding.
The Isle-Bossier City
The Isle-Bossier City is one of four facilities currently operating in the
Bossier City/Shreveport market, a non-cruising gaming market. Despite opening
a new on-site hotel, the Isle-Bossier City will face increased competition
from existing competitors if they add to or enhance their existing facilities.
All of the facilities were opened between April 1994 and October 1996. In
January 1998, Horseshoe Gaming opened a 606-room hotel at its casino and
replaced its riverboat with a larger vessel. This 62,400 square foot, four-
deck riverboat has approximately 30,000 square feet of gaming space, making it
the largest in the Bossier City/Shreveport market. Hollywood Park, through its
Casino Magic subsidiary, opened a 188-room hotel in December 1998 and operates
a 20,000 square foot riverboat casino. Harrah's recently began construction on
a 500-room hotel at its property in Shreveport where it currently operates a
20,000 square foot riverboat casino. Hollywood Casino recently received
approval for a $185 million riverboat casino, hotel and entertainment complex
in Shreveport, although no financing for the project has been announced.
Legislation was adopted in the 1997 legislative session and approved by the
voters in Bossier Parish, Louisiana that, subject to passage of tax
legislation, would allow up to 15,000 square feet of slot machines at
Louisiana Downs, a thoroughbred racing facility located approximately six
miles east of the Isle-Bossier City. In the 1998 legislative session, the
legislature failed to adopt a tax rate. However, during the 1999 legislative
session a bill was passed which, through the creation of a special taxing
district, purports to satisfy the requirement for assessment of a tax on slot
operations at Louisiana Downs prior to the commencement of slot operations. If
slot operations open at Louisiana Downs, the Isle-Bossier City's operating
results could be adversely affected.
Mississippi Markets
Because Mississippi law does not limit the number of gaming licenses that
may be granted, there may be increases in the number of gaming facilities,
which could have a material adverse effect on our Mississippi properties.
The Isle-Biloxi
Twelve gaming facilities are located along the Mississippi Gulf Coast. Nine
gaming facilities are located in Biloxi, two gaming facilities are located in
Gulfport, approximately 10 miles east of Biloxi, and one gaming facility is
located in Bay St. Louis, approximately 30 miles east of Biloxi.
Intense competition on the Mississippi Gulf Coast has already contributed to
the permanent closure of four gaming facilities and reorganizations at two
other gaming facilities in the area. On March 16, 1999, Mirage Resorts, Inc.,
opened Beau Rivage, a $680.0 million, 1,780 room resort and casino with 78,000
square feet of gaming space and a 50,000 square foot meeting center. Beau
Rivage is located approximately two miles west of the Isle-Biloxi. Full House
Resorts has entered into a licensing agreement with Hard Rock Cafe for the
development of a Hard Rock Hotel & Casino adjacent to the Beau Rivage. Full
House Resorts has announced that it expects the facility to open in 2001 and
to include a 400 to 450-room hotel, a Hard Rock Live concert venue and a
signature Hard Rock Cafe.
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Because a significant number of the Isle-Biloxi's customers reside in
Alabama, legalization of gaming in Alabama would increase competition and have
a material adverse effect on the Isle-Biloxi.
We believe that the location of the Isle-Biloxi has several significant
competitive advantages. The Isle-Biloxi is located on "Casino Row", a cluster
of three casinos at the eastern end of Highway 90, affording visitors the
convenience and visual impact of three gaming facilities located within
walking distance. "Casino Row" is the first area reached by visitors from
Alabama, Florida and Georgia.
The Isle-Vicksburg
The Isle-Vicksburg is one of four gaming facilities currently operating in
the Vicksburg, Mississippi area. The Isle-Vicksburg is the second largest
casino in the Vicksburg area. We opened a 124-room on-site hotel in February
1999. Two of our competitors have an on-site hotel and our third competitor
has a hotel adjacent to its site. Lady Luck Gaming owns a site in Vicksburg
and has at various times announced plans to develop a casino and hotel at the
site.
Other local casino competition includes one gaming facility in Natchez,
Mississippi, two gaming facilities in Greenville, Mississippi and a land-
based, Native American-owned casino near Philadelphia, Mississippi. These
casinos are located within a range of 60-125 miles from Vicksburg and 70-90
miles from Jackson.
Mississippi statutes limit gaming to the Mississippi River and navigable
waters within counties bordering the Mississippi River. However, there have
been several attempts to expand gaming as far east of the Mississippi River as
possible. We expect these efforts to continue. An appeal of the Mississippi
Gaming Commission's decision denying site approval of Horseshoe Gaming's
proposed casino in eastern Warren County on the Big Black River, between the
Isle-Vicksburg and its primary market of Jackson, is pending in the
Mississippi Supreme Court. If gaming sites are approved in the eastern part of
Warren County, the Isle-Vicksburg would be materially adversely affected.
We believe that the Isle-Vicksburg enjoys certain competitive advantages in
the Vicksburg gaming market based on its convenient location and its new 124-
room on-site hotel, which has 69 deluxe rooms with balconies overlooking the
Mississippi River. The Isle-Vicksburg is located approximately one mile from
an exit off Interstate 20 that provides easy access from Jackson and the
surrounding areas. Only one competitor is located closer to Interstate 20 than
the Isle-Vicksburg. The Isle-Vicksburg also offers ample parking both on-site
and immediately adjacent to the facility. We also believe that the Isle-
Vicksburg's gaming and non-gaming facilities and distinctive tropical island
theme provide one of the most exciting and spacious gaming environments in the
Vicksburg market.
The Isle-Black Hawk
Competition in the Black Hawk/Central City, Colorado market is intense. Of
the 29 gaming facilities currently operating in the Black Hawk/Central City
market, seven have over 400 gaming positions and two offer a variety of hotel
accommodations. These seven gaming facilities all have on-site parking and
have established high-profile brand names in the local market.
New construction, development projects and expansion plans are in process at
other casino facilities. Riviera Black Hawk acquired a 300,000 square foot
site next to the Isle-Black Hawk and is developing a facility and has
announced that it will have 1,000 slot machines and a 550-space covered
parking garage. This facility is scheduled to open in early 2000. Another
competitor is constructing a nearby casino, which is also scheduled to open in
2000.
We believe that the Isle-Black Hawk's large casino, covered self-service
parking, dining amenities and unique tropical island theme give us an
advantage in the Black Hawk/Central City market. Our casino is the closest
casino in Black Hawk to the highway and is the largest casino in the Black
Hawk/Central City market.
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Recent Transactions
We recently refinanced substantially all of our existing debt, other than
certain non-recourse debt incurred by the subsidiaries that own and operate
the Isle-Black Hawk, in order to reduce borrowing rates, extend debt
maturities and improve our financial flexibility. The refinancing consisted of
the following:
. Offering of Senior Subordinated Notes. On April 23, 1999, we issued
$390.0 million principal amount of 8 3/4% senior subordinated notes
due 2009. We used the net proceeds of this offering to fund the
repurchase of our existing 12 1/2% senior secured notes due 2003 and
to repay certain other indebtedness. In connection with the offering
and sale of these notes, we entered into an amendment to the
indenture governing our 12 1/2% Senior Secured Notes due 2003, to
eliminate most of the financial and restrictive covenants in the
indenture. We effected a covenant defeasance of the remaining 12 1/2%
senior secured notes by depositing sufficient funds with the trustee
to redeem the remaining outstanding notes on August 1, 2000, the
earliest possible redemption date. The first priority liens that
secure the 12 1/2% senior secured notes were released as a result of
the defeasance of those notes.
. New Senior Credit Facility. Simultaneously with the $390 million note
offering, we entered into a new $175.0 million, five-year senior
credit facility comprised of a $50.0 million term loan and a $125.0
million undrawn revolver. Our new senior credit facility is secured
by liens on substantially all of our assets and guaranteed by all of
our significant restricted subsidiaries. We used the initial
borrowings under our new senior credit facility to repay certain
existing debt, for working capital and for other general corporate
purposes. We plan to use future borrowings under our new senior
credit facility to finance expansion projects and for working capital
and general corporate purposes.
Recent Developments
Tunica County, Mississippi
In March 1999, we acquired, for $9.5 million, the original Harrah's casino
facility located in Tunica County, Mississippi. The Tunica gaming market
generated gaming revenue of $966.7 million in 1998 and is the fifth largest
gaming market in the United States. It is the closest gaming market to the
Memphis, Tennessee metropolitan area, which has a population of approximately
1.1 million and is located approximately 30 miles northeast of Tunica County.
We are in the process of investing an additional amount of approximately $24.0
million to equip, renovate and open this facility as an Isle of Capri casino.
We plan to open the Isle-Tunica in July 1999 with approximately 875 slot
machines, 15 table games and our three trademark restaurants. We also plan to
invest approximately $40.0 million to construct an on-site hotel with up to
250 rooms and two live entertainment theaters with combined seating for 2,000
people. Construction of the hotel and theaters is scheduled to begin in the
second half of calendar 1999. We have entered into a letter of intent with a
company affiliated with entertainer Wayne Newton to form a joint venture to
operate the theaters.
The Tunica gaming market is extremely competitive. We will compete with nine
dockside gaming facilities in this market. Of these facilities, six are closer
to the Memphis, Tennessee metropolitan area, from which most customers come.
The Isle-Tunica will be the smallest facility in the Tunica gaming market in
terms of gaming square footage and number of positions and, at the time we
open the Isle-Tunica, the Isle-Tunica will be the only facility without a
hotel.
Coahoma County, Mississippi
In 1998, we acquired an option to purchase approximately 138 acres of land
in Coahoma County, Mississippi, which is readily accessible from Highway 49,
and have received site and development approval from the Mississippi Gaming
Commission to develop a gaming entertainment facility on this site. We plan to
invest approximately $60.0 million to develop, in phases, a casino and related
lodging and entertainment facilities containing approximately 930 slot
machines, 24 table games, our three trademark restaurants and a hotel with
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approximately 225 rooms. We must obtain additional permits to develop this
site, including approval from the Army Corps of Engineers, and plan to
commence operations at the Isle-Coahoma in 2000.
Coahoma County, Mississippi is located approximately 130 miles southeast of
Little Rock, Arkansas and 70 miles south of Memphis, Tennessee, across the
river from Helena, Arkansas. Lady Luck Gaming is the only gaming operator
currently in Coahoma County and operates two casinos having a total of
approximately 50,000 square feet of gaming space. Lady Luck Gaming also owns
and operates a 173-room hotel and a 314-room hotel at its site, and a 120-room
hotel in Helena, Arkansas.
This property will also compete to a lesser extent with gaming facilities in
Tunica County. Because a number of this property's customers will be drawn
from Arkansas, legalization of gaming in Arkansas would have a material
adverse effect on this project.
Future Developments
We recently adopted an expansion program, which we refer to as the
Millennium Expansion Plan, which we believe will be instrumental in driving
our continued growth. In addition to development of the Isle-Tunica and the
Isle-Coahoma, the Millennium Expansion Plan includes continued development of
additional Isle Style amenities at our existing facilities, including the
following:
. Construction of an on-site 250-room deluxe hotel at the Isle-Lake
Charles;
. Construction of a larger casino, an approximately 1,000 space parking
garage and podium containing entertainment and retail space at the
Isle-Biloxi. The podium will be constructed to support the future
development of a proposed time-share facility, which may be developed
through a joint venture, or additional hotel rooms; and
. Construction of an on-site 235-room hotel at the Isle-Black Hawk.
Subject to obtaining necessary approvals, including amending our lease with
the City of Biloxi, we expect that the components of the Millennium Expansion
Plan will be completed over the next 24 months.
Employees
As of April 25, 1999, we employed approximately 6,000 people. None of our
employees are subject to a collective bargaining agreement. We believe that
our relationship with our employees is satisfactory.
Regulatory Matters
Louisiana
In July 1991, Louisiana enacted legislation permitting certain types of
gaming activity on certain rivers and waterways in Louisiana. The legislation
granted authority to supervise riverboat gaming activities to the Louisiana
Riverboat Gaming Commission and the Riverboat Gaming Enforcement Division of
the Louisiana State Police. The Louisiana Riverboat Gaming Commission was
authorized to hear and determine all appeals relative to the granting,
suspension, revocation, condition or renewal of all licenses, permits and
applications. In addition, the Louisiana Riverboat Gaming Commission
established regulations concerning authorized routes, duration of excursions,
minimum levels of insurance, construction of riverboats and periodic
inspections. The Riverboat Gaming Enforcement Division of the Louisiana State
Police was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities.
In May 1996, regulatory oversight of riverboat gaming was transferred to the
Louisiana Gaming Control Board, which is comprised of nine voting members
appointed by the governor. The Louisiana Gaming Control Board now oversees all
licensing matters for riverboat casinos, land-based casinos, video poker and
certain aspects of Native American gaming other than those responsibilities
reserved to the Louisiana State Police.
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The Louisiana Gaming Control Board is empowered to issue up to 15 licenses
to conduct gaming activities on a riverboat of new construction in accordance
with applicable law. However, no more than six licenses may be granted to
riverboats operating from any one parish.
The Louisiana State Police continues to be involved broadly in gaming
enforcement and reports to the Louisiana Gaming Control Board. Louisiana law
permits the Louisiana State Police, among other things, to continue to (1)
conduct suitability investigations, (2) audit, investigate and enforce
compliance with standing regulations, (3) initiate enforcement and
administrative actions and (4) perform "all other duties and functions
necessary for the efficient, efficacious, and thorough regulation and control
of gaming activities and operations under the Louisiana Gaming Control Board's
jurisdiction."
Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following:
. except in Bossier City/Shreveport, gaming is not permitted while a
riverboat is docked, other than the 45 minutes between excursions and
during times when dangerous weather or water conditions exist;
. except in Bossier City/Shreveport, each round-trip riverboat cruise
may not be less than three nor more than eight hours in duration,
subject to specific exceptions;
. agents of the Louisiana State Police are permitted on board at any
time during gaming operations;
. gaming devices, equipment and supplies may only be purchased or
leased from permitted suppliers;
. gaming may only take place in the designated gaming area while the
riverboat is on a designated river or waterway;
. gaming equipment may not be possessed, maintained or exhibited by any
person on a riverboat except in the specifically designated gaming
area or in a secure area used for inspection, repair or storage of
such equipment;
. wagers may be received only from a person present on a licensed
riverboat;
. persons under 21 are not permitted in designated gaming areas;
. except for slot machine play, wagers may be made only with tokens,
chips or electronic cards purchased from the licensee aboard a
riverboat;
. licensees may only use docking facilities and routes for which they
are licensed and may only board and discharge passengers at the
riverboat's licensed berth;
. licensees must have adequate protection and indemnity insurance;
. licensees must have all necessary federal and state licenses,
certificates and other regulatory approvals prior to operating a
riverboat; and
. gaming may only be conducted in accordance with the terms of the
license and Louisiana law.
To receive a gaming license in Louisiana, an applicant must be found to be a
person of good character, honesty and integrity and a person whose prior
activities, criminal record, if any, reputation, habits and associations do
not (1) pose a threat to the public interest of the State of Louisiana or to
the effective regulation and control of gaming or (2) create or enhance the
dangers of unsuitable, unfair or illegal practices, methods and activities in
the conduct of gaming or the carrying on of business and financial
arrangements of gaming activities. In addition, the Louisiana Gaming Control
Board will not grant a license unless it finds that:
. the applicant can demonstrate the capability, either through
training, education, business experience or a combination of the
preceding, to operate a gaming operation;
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. the proposed financing of the riverboat and the gaming operations is
adequate for the nature of the proposed operation and is from a
suitable and acceptable source;
. the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat so as to
ensure the safety of its passengers;
. the applicant submits with its application for a license a detailed
plan of design of the riverboat;
. the applicant designates the docking facilities to be used by the
riverboat;
. the applicant shows adequate financial ability to construct and
maintain a riverboat; and
. the applicant has a good faith plan to recruit, train and upgrade
minorities in all employment classifications.
An initial license to conduct riverboat gaming operations is valid for a
term of five years and legislation passed in the 1999 legislative session,
provides for renewals every five years thereafter. Legislation was passed
during the 1999 regular legislative session, which, if not vetoed by the
governor, would increase the license renewal terms to five years. A gaming
license is deemed to be a privilege under Louisiana law and, as such, may be
denied, revoked, suspended, conditioned or limited at any time by the
Louisiana Gaming Control Board.
The Isle-Bossier City was issued its initial gaming license by the Riverboat
Gaming Enforcement Division of the Louisiana State Police on December 22, 1993
and the Isle-Lake Charles was issued its initial gaming license by the
Louisiana Gaming Control Board on March 14, 1995. The license to operate the
Grand Palais was issued to a previous owner and the Grand Palais ceased
operations as a result of its bankruptcy. Isle of Capri acquired the Grand
Palais and has been advised by the chief counsel to the Louisiana Gaming
Control Board that it will treat the running of the five-year license period
as having been suspended from June 6, 1995 until July 12, 1996, the date on
which gaming operations recommenced on the Grand Palais. The legal effect of
this communication is unclear. Louisiana gaming law provides that a renewal
application for the period succeeding the initial five-year term of an
operator's license must be made to the Louisiana Gaming Control Board on an
annual basis. The application for renewal consists of a statement under oath
of any and all changes in information, including financial information,
provided in the previous application. The transfer of a license or an interest
in a license is prohibited.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding 5% or
greater interests in the licensee and persons exercising influence over a
licensee, are subject to the application and suitability requirements of
Louisiana gaming law.
The sale, purchase, assignment, transfer, pledge or other hypothecation,
lease, disposition or acquisition by any person of securities which represent
5% or more of the total outstanding shares issued by a licensee is subject to
the approval of the Louisiana Gaming Control Board. A security issued by a
licensee must generally disclose these restrictions. Prior approval from the
Louisiana Gaming Control Board is required for the sale, purchase, assignment,
transfer, pledge or other hypothecation, lease, disposition or acquisition of
any ownership interest of 5% or more of any non-corporate licensee or for the
transfer of any "economic interest" of 5% or more of any licensee or
affiliated gaming person. An "economic interest" is defined as any interest
whereby a person receives or is entitled to receive, by agreement or
otherwise, a profit, gain, thing of value, loan, credit, security interest,
ownership interest or other benefit.
Fees payable to the state for conducting gaming activities on a riverboat
include (1) $50,000 per riverboat for the first year of operation and $100,000
per year per riverboat thereafter, plus (2) 18.5% of net gaming proceeds. A
statute also authorizes local governing authorities to levy boarding fees.
Isle of Capri has development agreements with the local governing authorities
in the jurisdictions in which it operates pursuant to which it makes payments
in lieu of boarding fees.
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A licensee must notify and/or seek approval from the Louisiana Gaming
Control Board in connection with any withdrawals of capital, loans, advances
or distributions in excess of 5% of retained earnings for a corporate
licensee, or of capital accounts for a partnership or limited liability
company licensee, upon completion of any such transaction. The Louisiana
Gaming Control Board may issue an emergency order for not more than ten days
prohibiting payment of profits, income or accruals by, or investments in, a
licensee. Riverboat gaming licensees and their affiliated gaming persons must
notify the Louisiana Gaming Control Board 60 days prior to the receipt by any
such persons of any loans or extensions of credit or modifications thereof.
The Louisiana Gaming Control Board is required to investigate the reported
loan, extension of credit or modification thereof and to determine whether an
exemption exists on the requirement of prior written approval and, if such
exemption is not applicable, to either approve or disapprove the transaction.
If the Louisiana Gaming Control Board disapproves of a transaction, the
transaction cannot be entered into by the licensee or affiliated gaming
person. Isle of Capri is an affiliated gaming person of its subsidiaries which
hold the licenses to conduct riverboat gaming at the Isle-Bossier City and the
Isle-Lake Charles.
The failure of a licensee to comply with the requirements set forth above
may result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Louisiana Gaming Control Board finds that the individual
owner or holder of a security of a corporate license or intermediary company
or any person with an economic interest in a licensee is not qualified under
Louisiana law, the Louisiana Gaming Control Board may require, under penalty
of suspension or revocation of the license, that the person not:
. receive dividends or interest on securities of the corporation;
. exercise directly or indirectly a right conferred by securities of
the corporation;
. receive remuneration or economic benefit from the licensee; or
. continue its ownership or economic interest in the licensee.
A licensee must periodically report the following information to the
Louisiana Gaming Control Board, which is not confidential and is available for
public inspection: (1) the licensee's net gaming proceeds from all authorized
games, (2) the amount of net gaming proceeds tax paid and (3) all quarterly
and annual financial statements presenting historical data, including annual
financial statements that have been audited by an independent certified public
auditor.
During the 1996 special session of the Louisiana legislature, legislation
was passed which provided for local option elections to be held in November
1996 which gave voters in each parish within the state the opportunity to
decide whether the various forms of gaming permitted under Louisiana law,
including riverboat gaming, were permissible in each parish. In November 1996,
voters in Calcasieu and Bossier parishes, the parishes in which the Isle-Lake
Charles and Isle-Bossier City are located, voted favorably to permit the
continuation of riverboat gaming.
During the 1996 special session of the Louisiana legislature, legislation
was also enacted placing on the ballot for a state-wide election a
constitutional amendment limiting the expansion of gaming. In October 1996,
voters passed the constitutional amendment. As a result, local option
elections are required before new or additional forms of gaming can be brought
into a parish.
Proposals to amend or supplement Louisiana's riverboat gaming statute are
frequently introduced in the Louisiana State legislature. There is no
assurance that changes in Louisiana gaming law will not occur or that such
changes will not have a material adverse effect on Isle of Capri's business in
Louisiana.
Mississippi
In June 1990, Mississippi enacted legislation legalizing dockside casino
gaming for counties along the Mississippi River, which is the western border
for most of the state, and the Gulf Coast, which is the southern
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border for most of the state. The legislation gave each of those counties the
opportunity to hold a referendum on whether to allow dockside casino gaming
within its boundaries.
Gaming vessels in Mississippi must be located on the Mississippi River, on
navigable waters in eligible counties along the Mississippi River or in the
waters lying south of the counties along the Mississippi Gulf Coast.
Mississippi law permits unlimited stakes gaming on permanently moored vessels
on a 24-hour basis and does not restrict the percentage of space which may be
utilized for gaming. There are no limitations on the number of gaming licenses
which may be issued in Mississippi.
The ownership and operation of gaming facilities in Mississippi are subject
to extensive state and local regulation intended to:
. prevent unsavory or unsuitable persons from having any direct or
indirect involvement with gaming at any time or in any capacity;
. establish and maintain responsible accounting practices and
procedures for gaming operations;
. maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record
keeping and making periodic reports;
. provide a source of state and local revenues through taxation and
licensing fees;
. prevent cheating and fraudulent practices; and
. ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted
in Mississippi and such changes, if enacted, could have an adverse effect on
Isle of Capri and its Mississippi gaming operations.
Isle of Capri is registered as a publicly traded holding company under the
Mississippi Gaming Control Act. Isle of Capri's gaming operations in
Mississippi are subject to regulatory control by the Mississippi Gaming
Commission, the state tax commission and various other local, city and county
regulatory agencies (collectively referred to as the "Mississippi Gaming
Authorities"). Subsidiaries of Isle of Capri have obtained gaming licenses
from the Mississippi Gaming Authorities to operate the Isle-Biloxi and the
Isle-Vicksburg and have applications pending for gaming licenses for the Isle-
Tunica and the Isle-Coahoma. Isle of Capri's future gaming operations outside
of Mississippi are also subject to approval by the Mississippi Gaming
Commission.
The licenses held by Isle of Capri's Mississippi gaming operations have
terms of two years and are not transferable. The Isle-Biloxi received a third
gaming license in April 1998 and the Isle-Vicksburg obtained a third gaming
license in January 1999. There is no assurance that new licenses can be
obtained at the end of each two-year period of a license. The Isle-Tunica and
the Isle-Coahoma will have to obtain licenses before gaming operations can
begin at these locations. Moreover, the Mississippi Gaming Commission may, at
any time, and for any cause it deems reasonable, revoke, suspend, condition,
limit or restrict a license or approval to own shares of stock in the
subsidiaries of Isle of Capri that operate in Mississippi.
Substantial fines for each violation of Mississippi's gaming laws or
regulations may be levied against Isle of Capri, its subsidiaries and the
persons involved. A violation under a gaming license held by a subsidiary of
Isle of Capri operating in Mississippi may be deemed a violation of all the
other licenses held by Isle of Capri.
Isle of Capri and each of its Mississippi gaming subsidiaries must
periodically submit detailed financial, operating and other reports to the
Mississippi Gaming Commission and/or the state tax commission. Numerous
transactions, including substantially all loans, leases, sales of securities
and similar financing transactions entered into by any subsidiary of Isle of
Capri operating a casino in Mississippi, must be reported to or approved by
the
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Mississippi Gaming Commission. In addition, the Mississippi Gaming Commission
may, in its discretion, require additional information about the operations of
Isle of Capri.
Certain officers and employees of Isle of Capri and the officers, directors
and certain key employees of Isle of Capri's Mississippi gaming subsidiaries
must be found suitable or be licensed by the Mississippi Gaming Commission.
Isle of Capri believes that all required findings of suitability related to
the Isle-Biloxi and the Isle-Vicksburg have been applied for or obtained,
although the Mississippi Gaming Commission in its discretion may require
additional persons to file applications for findings of suitability. Isle of
Capri will have to obtain findings of suitability related to the Isle-Tunica
and the Isle-Coahoma. In addition, any person having a material relationship
or involvement with Isle of Capri may be required to be found suitable or
licensed, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems
reasonable. Changes in certain licensed positions must be reported to the
Mississippi Gaming Commission. In addition to its authority to deny an
application for a finding of suitability, the Mississippi Gaming Commission
has jurisdiction to disapprove a change in a licensed position. The
Mississippi Gaming Commission has the power to require Isle of Capri and any
of its Mississippi gaming subsidiaries to suspend or dismiss officers,
directors and other key employees or to sever relationships with other persons
who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Gaming
Commission will refuse to issue a work permit to a person who has been
convicted of a felony, committed certain misdemeanors or knowingly violated
the Mississippi Gaming Control Act, and it may refuse to issue a work permit
to a gaming employee for any other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial stockholder
of Isle of Capri. Mississippi law requires any person who individually or in
association with others acquires, directly or indirectly, beneficial ownership
of more than 5% of Isle of Capri's common stock to report the acquisition to
the Mississippi Gaming Commission, and such person may be required to be found
suitable. In addition, any person who, individually or in association with
others, becomes, directly or indirectly, a beneficial owner of more than 10%
of Isle of Capri's common stock, as reported to the U.S. Securities and
Exchange Commission, must apply for a finding of suitability by the
Mississippi Gaming Commission and must pay the costs and fees that the
Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered publicly-traded holding company's stock. However, the Mississippi
Gaming Commission has adopted a policy that generally permits certain
institutional investors to own beneficially up to 10% of a registered public
company's stock without a finding of suitability. If a stockholder who must be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Isle of Capri believes that compliance by
Isle of Capri with the licensing procedures and regulatory requirements of the
Mississippi Gaming Commission will not affect the marketability of Isle of
Capri's securities. Any person found unsuitable and who holds, directly or
indirectly, any beneficial ownership of Isle of Capri's securities beyond such
time as the Mississippi Gaming Commission prescribes may be guilty of a
misdemeanor. Isle of Capri is subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have
any other relationship with Isle of Capri or its subsidiaries operating
casinos in Mississippi, Isle of Capri:
. pays the unsuitable person any dividend or other distribution upon
its voting securities;
. recognizes the exercise, directly or indirectly, of any voting rights
conferred by its securities;
15
. pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific
circumstances; or
. fails to pursue all lawful efforts to require the unsuitable person
to divest himself of the securities, including, if necessary, the
immediate purchase of the securities for cash at a fair market value.
Isle of Capri may be required to disclose to the Mississippi Gaming
Commission upon request the identities of the holders of any of Isle of
Capri's debt securities. In addition, under the Mississippi Gaming Control
Act, the Mississippi Gaming Commission may, in its discretion, (1) require
holders of Isle of Capri's securities, including the notes, to file
applications, (2) investigate such holders and (3) require such holders to be
found suitable to own such securities. Although the Mississippi Gaming
Commission generally does not require the individual holders of obligations
such as the notes to be investigated and found suitable, the Mississippi
Gaming Commission retains the discretion to do so for any reason, including
but not limited to a default, or where the holder of the debt instrument
exercises a material influence over the gaming operations of the entity in
question. Any holder of debt securities required to apply for a finding of
suitability must pay all investigative fees and costs of the Mississippi
Gaming Commission in connection with such an investigation.
The Mississippi regulations provide that a change in control of Isle of
Capri may not occur without the prior approval of the Mississippi Gaming
Commission. Mississippi law prohibits Isle of Capri from making a public
offering of its securities without the approval of the Mississippi Gaming
Commission if any part of the proceeds of the offering is to be used to
finance the construction, acquisition or operation of gaming facilities in
Mississippi, or to retire or extend obligations incurred for one or more such
purposes. The Mississippi Gaming Commission has the authority to grant a
continuous approval of securities offerings and has granted such approval for
Isle of Capri, subject to an annual renewal.
Regulations of the Mississippi Gaming Commission prohibit certain
repurchases of securities of publicly traded corporations registered with the
Mississippi Gaming Commission, including holding companies such as Isle of
Capri, without prior approval of the Mississippi Gaming Commission.
Transactions covered by these regulations are generally aimed at discouraging
repurchases of securities at a premium over market price from certain holders
of greater than 3% of the outstanding securities of the registered publicly
traded corporation. The regulations of the Mississippi Gaming Commission also
require prior approval for a "plan of recapitalization" as defined in such
regulations.
Isle of Capri must maintain in the State of Mississippi current stock
ledgers, which may be examined by the Mississippi Gaming Authorities at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Mississippi Gaming Authorities. A failure to make such disclosure may
be grounds for finding the record holder unsuitable. Isle of Capri must render
maximum assistance in determining the identity of the beneficial owner.
Mississippi law requires that certificates representing shares of Isle of
Capri common stock bear a legend to the general effect that the securities are
subject to the Mississippi Gaming Control Act and regulations of the
Mississippi Gaming Commission. The Mississippi Gaming Commission has the
authority to grant a waiver from the legend requirement, which Isle of Capri
has obtained. The Mississippi Gaming Authorities, through the power to
regulate licenses, have the power to impose additional restrictions on the
holders of Isle of Capri's securities at any time.
The Mississippi Gaming Commission has enacted a regulation requiring that,
as a condition to licensure or license renewal, an applicant must provide a
plan to develop infrastructure facilities amounting to 25% of the cost of the
casino and a parking facility capable of accommodating 500 cars. In 1999, the
Mississippi Gaming Commission approved amendments to this regulation that
increased the infrastructure development requirement from 25% to 100% for new
casinos (or upon acquisition of a closed casino), but grandfathered existing
licensees and development plans approved prior to the effective date of the
new regulation (including the Isle-Tunica and the Isle-Coahoma).
"Infrastructure facilities" include any of the following:
16
. a 250-room or larger hotel of at least a two-star rating as defined
by the current edition of the Mobil Travel Guide;
. theme parks;
. golf courses;
. marinas;
. entertainment facilities;
. tennis complexes; and
. any other facilities approved by the Mississippi Gaming Commission.
Parking facilities, roads, sewage and water systems or civic facilities are
not considered "infrastructure facilities." The Mississippi Gaming Commission
may reduce the number of rooms required in a hotel if it is satisfied that
sufficient rooms are available to accommodate the anticipated number of
visitors.
License fees and taxes are payable to the State of Mississippi and to the
counties and cities in which a Mississippi Gaming Subsidiary's respective
operations will be conducted. The license fee payable to the state of
Mississippi is based upon gross revenue of the licensee (generally defined as
gaming receipts less payout to customers as winnings) and equals 4% of gross
revenue of $50,000 or less per month, 6% of gross revenue over $50,000 and
less than $134,000 per calendar month, and 8% of gross revenue over $134,000
per calendar month. The foregoing license fees are allowed as a credit against
the licensee's Mississippi income tax liability for the year paid.
Additionally, a licensee must pay a $5,000 annual license fee and an annual
fee based upon the number of games it operates. The gross revenue imposed by
the Mississippi communities and counties in which Isle of Capri's casino
operations are located equals 0.4% of gross revenue of $50,000 or less per
calendar month, 0.6% of gross revenue over $50,000 and less than $134,000 per
calendar month and 0.8% of gross revenue over $134,000 per calendar month.
These fees have been imposed in, among other cities and counties, Biloxi,
Vicksburg, Tunica County and Coahoma County. Certain Local and Private Laws of
the State of Mississippi may impose fees or taxes on the Mississippi Gaming
Subsidiaries in addition to the fees described above.
The Mississippi Gaming Commission requires, as a condition of licensure or
license renewal, that casino vessels on the Mississippi Gulf Coast that are
not self-propelled must be moored to withstand a Category 4 hurricane with 155
mile-per-hour winds and 15-foot tidal surge. Isle of Capri believes that all
of its Mississippi Gaming Subsidiaries currently meet this requirement. A 1996
Mississippi Gaming Commission regulation prescribes the hurricane emergency
procedure to be used by the Mississippi Gulf Coast casinos.
The sale of food or alcoholic beverages at Isle of Capri's Mississippi
gaming locations is subject to licensing, control and regulation by the
applicable state and local authorities. The agencies involved have full power
to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse
effect upon the operations of the affected casino or casinos. Certain officers
and managers of Isle of Capri and its Mississippi gaming subsidiaries must be
investigated by the Alcoholic Beverage Control Division of the State Tax
Commission in connection with liquor permits that have been issued. The
Alcoholic Beverage Control Division of the State Tax Commission must approve
all changes in licensed positions.
During 1998, certain anti-gaming groups proposed referenda that, if adopted,
would have banned gaming in Mississippi and required that gaming entities
cease operations within two years after the ban. The referenda were declared
illegal by Mississippi courts on constitutional and procedural grounds. A
revised initiative has been submitted to the Secretary of State and could be
placed on the ballot for the November 2000 election.
Colorado
The State of Colorado created the Division of Gaming (the "Division") within
the Department of Revenue to license, implement, regulate and supervise the
conduct of limited gaming under the Colorado Limited Gaming
17
Act. The Director of the Division, under the supervision of a five-member
Colorado Limited Gaming Control Commission (the "Colorado Commission"), has
been granted broad power to ensure compliance with the Colorado gaming
regulations (the "Colorado Regulations"). The Director may inspect, without
notice, impound or remove any gaming device. He may examine and copy any
licensee's records, may investigate the background and conduct of licensees
and their employees, and may bring disciplinary actions against licensees and
their employees. He may also conduct detailed background investigations of
persons who loan money to Isle of Capri or its Colorado gaming subsidiaries.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses. The licenses are revocable and non-transferable. The
failure or inability of Isle of Capri or any of its Colorado gaming
subsidiaries to maintain necessary gaming licenses will have a material
adverse effect on the operating results of Isle of Capri. All persons employed
by Isle of Capri and its Colorado gaming subsidiaries and involved, directly
or indirectly, in gaming operations in Colorado also are required to obtain a
Colorado gaming license. All licenses must be renewed annually, except those
for key and support employees, which must be renewed every two years.
As a general rule, under the Colorado Regulations, it is a criminal
violation for any person to have a legal, beneficial, voting or equitable
interest, or right to receive profits, in more than three retail gaming
licenses in Colorado. The Colorado Commission has ruled that a person does not
have an interest in a licensee for purposes of the multiple license
prohibition if:
. such person has less than a five percent (5%) interest in an
institutional investor which has an interest in a publicly traded
licensee or publicly traded company affiliated with a licensee (such
as Isle of Capri);
. a person has a five percent (5%) or more financial interest in an
institutional investor, but the institutional investor has less than
a five percent (5%) interest in a publicly traded licensee or
publicly traded company affiliated with a licensee;
. an institutional investor has less than a five percent (5%) financial
interest in a publicly traded licensee or publicly traded company
affiliated with a licensee;
. an institutional investor possesses securities in a fiduciary
capacity for another person, and does not exercise voting control
over five percent (5%) or more of the outstanding voting securities
of a publicly traded licensee or of a publicly traded company
affiliated with a licensee;
. a registered broker or dealer retains possession of securities of a
publicly traded licensee or of a publicly traded company affiliated
with a licensee for its customers in street name or otherwise, and
exercises voting rights for less than five percent (5%) of the
publicly traded licensee's voting securities or of a publicly traded
company affiliated with a licensee;
. a registered broker or dealer acts as a market maker for the stock of
a publicly traded licensee or of a publicly traded company affiliated
with a licensee and possesses a voting interest in less than five
percent (5%) of the stock of the publicly traded licensee or of a
publicly traded company affiliated with a licensee;
. an underwriter is holding securities of a publicly traded licensee or
of a publicly traded company affiliated with a licensee as part of an
underwriting for no more than 90 days if it exercises voting rights
of less than five percent (5%) of the outstanding securities of a
publicly traded licensee or of a publicly traded company affiliated
with a licensee;
. a stock clearinghouse holds voting securities for third parties, if
it exercises voting rights with respect to less than five percent
(5%) of the outstanding securities of a publicly traded licensee or
of a publicly traded company affiliated with a licensee; or
. a person owns less than five percent (5%) of the voting securities of
the publicly traded licensee or publicly traded company affiliated
with a licensee.
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Hence, Isle of Capri's and its stockholders' business opportunities in
Colorado are limited to such interests that comply with the statute and the
Colorado Commission's rule.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines may have an interest in any casino operator,
allow any of its officers to have such an interest, employ any person if such
person is employed by a casino operator, or allow any casino operator or
person with a substantial interest therein to have an interest in a
manufacturer's or distributor's business. The Colorado Commission has ruled
that a person does not have a "substantial interest" if it directly or
indirectly has less than five percent (5%) of such voting securities of a
publicly traded licensee or publicly traded affiliated company of a licensee.
In other contexts, counsel for the Division has informed counsel for Isle of
Capri that, for purposes of the manufacturer/operator vertical integration
rule and the horizontal three-license rule described above, the Division has
taken the position that only a person deemed to have "beneficial ownership"
(as defined in the rules and regulations of the U.S. Securities and Exchange
Commission under Section 13(d) of the U.S. Securities Exchange Act of 1934) of
shares of the publicly traded holding company (or licensee) will be deemed to
have an "interest" under the vertical integration rule or "ownership interest"
under the horizontal rule. However, the Division has not passed on this issue
with respect to Isle of Capri, and neither the Colorado Commission nor the
Colorado legislature has addressed this issue. As a result, there is no
assurance that the Division, the Colorado Commission or the Colorado
legislature will not apply a more restrictive interpretation in this instance.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, without limitation, Isle of Capri and its stockholders, may be
required to supply the Colorado Commission with substantial information,
including background information, source of funding information, a sworn
statement that such person or entity is not holding his interest for any other
party, and fingerprints. Such information, investigation and licensing as an
"associated person" automatically will be required of all persons (other than
certain institutional investors discussed below) which directly or indirectly
own ten percent (10%) or more of a direct or indirect legal, beneficial or
voting interest in Black Hawk LLC, through their ownership in Isle of Capri.
Such persons must report their interest and file appropriate applications
within 45 days after acquiring such interest.
Persons directly or indirectly having a five percent (5%) or more interest
(but less than 10%) in Black Hawk LLC, through their ownership in Isle of
Capri, must report their interest to the Colorado Commission within ten (10)
days after acquiring such interest and may be required to provide additional
information and to be found suitable. If certain institutional investors
provide certain information to the Colorado Commission, such investors, at the
Colorado Commission's discretion, may be permitted to own up to 14.99% of
Black Hawk LLC, through their ownership in Isle of Capri, before being
required to be found suitable. All licensing and investigation fees will have
to be paid by the person in question. The associated person investigation fee
currently is $53 per hour.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and
to investigate the moral character, honesty, integrity, prior activities,
criminal record, reputation, habits and associations of (1) all persons
licensed pursuant to the Colorado Limited Gaming Act; (2) all officers,
directors and stockholders of a licensed privately held corporation; (3) all
officers, directors and stockholders holding either a five percent (5%) or
greater interest or a controlling interest in a licensed publicly traded
corporation; (4) all general partners and all limited partners of a licensed
partnership; (5) all persons which have a relationship similar to that of an
officer, director or stockholder of a corporation (such as members and
managers of a limited liability company); (6) all persons supplying financing
or loaning money to any licensee connected with the establishment or operation
of limited gaming and (7) all persons having a contract, lease or ongoing
financial or business arrangement with any licensee, where such contract,
lease or arrangement relates to limited gaming operations, equipment, devices
or premises.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" with an applicant for a license, or with a licensee, upon
the request of the Colorado Commission or the Director, must
19
promptly provide to the Colorado Commission or Director all information which
may be requested concerning financial history, financial holdings, real and
personal property ownership, interests in other companies, criminal history,
personal history and associations, character, reputation in the community and
all other information which might be relevant to a determination whether a
person would be suitable to be licensed by the Colorado Commission. Failure to
provide all information requested constitutes sufficient grounds for the
Director or the Colorado Commission to require a licensee or applicant to
terminate its "gaming contract" (as defined below) with any person who failed
to provide the information requested. In addition, the Director or the
Colorado Commission may require changes in "gaming contracts" before an
application is approved or participation in the contract is allowed. A "gaming
contract" is defined as an agreement in which a person does business with or
on the premises of a licensed entity.
The Colorado Commission and the Division have interpreted the statute and
regulations to permit the Colorado Commission to investigate and license any
lenders to Isle of Capri or its Colorado gaming subsidiaries. In any event,
such lenders may not be able to exercise certain of their rights and remedies
without prior approval of the Colorado gaming authorities.
An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Director, as appropriate.
Specifically, the Colorado Commission and the Director must deny a license to
any applicant who (1) fails to prove by clear and convincing evidence that the
applicant is qualified; (2) fails to provide information and documentation
requested; (3) fails to reveal any fact material to qualification, or supplies
information which is untrue or misleading as to a material fact pertaining to
qualification; (4) has been, or is any director, officer, general partner,
stockholder, limited partner or other person who has a financial or equity
interest in the applicant who has been, convicted of certain crimes, including
the service of a sentence upon conviction of a felony in a correctional
facility, city or county jail, or community correctional facility or under the
state board of parole or any probation department within ten years prior to
the date of the application, gambling-related offenses, theft by deception or
crimes involving fraud or misrepresentation, is under current prosecution for
such crimes (during the pendency of which license determination may be
deferred), is a career offender or a member or associate of a career offender
cartel, or is a professional gambler or (5) has refused to cooperate with any
state or federal body investigating organized crime, official corruption or
gaming offenses.
If the Colorado Commission determines that a person or entity is unsuitable
to own interests in Isle of Capri, then Isle of Capri and any of its Colorado
gaming subsidiaries may be sanctioned, which may include the loss by Isle of
Capri and its Colorado gaming subsidiaries of their respective approvals and
licenses.
The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to such public offering prior to such public offering.
Under the regulations, the Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.
In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as Isle of Capri, from paying dividends, interest or
other remuneration to any unsuitable person, or recognizing the exercise of
any voting rights by any unsuitable person. Further, Isle of Capri may
repurchase the shares of anyone found unsuitable at the lesser of the cash
equivalent to the original investment in Isle of Capri or the current market
price. The Colorado Regulations also require anyone with a material
involvement with a licensee, including a director or officer of a holding
company such as Isle of Capri, to file for a finding of suitability if
required by the Colorado Commission.
In addition to its authority to deny an application for a license or
suitability, the Colorado Commission has jurisdiction to disapprove a change
in corporate position of a licensee and may have such authority with respect
to any entity which is required to be found suitable by the Colorado
Commission. The Colorado Commission has the power to require Isle of Capri and
its Colorado gaming subsidiaries to suspend or dismiss managers, officers,
directors and other key employees or sever relationships with other persons
who refuse to file appropriate applications or whom the authorities find
unsuitable to act in such capacities; and may have such power with respect to
any entity which is required to be found suitable.
20
A person or entity may not sell, lease, purchase, convey or acquire a
controlling interest in Isle of Capri without the prior approval of the
Colorado Commission. Isle of Capri may not sell any interest in its Colorado
gaming subsidiaries without the prior approval of the Colorado Commission.
The Isle-Black Hawk must meet certain architectural requirements, fire
safety standards and standards for access for disabled persons. The Isle-Black
Hawk also must not exceed certain gaming square footage limits as a total of
each floor and the full building. The casino at the Isle-Black Hawk may
operate only between 8:00 a.m. and 2:00 a.m. and may permit only individuals
21 years or older to gamble in the casino. It may permit only slot machines,
blackjack and poker, with a maximum single bet of $5.00. The Isle-Black Hawk
may not provide credit to its gaming patrons.
The Colorado Regulations permit gaming only in a limited number of cities
and certain commercial districts.
The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds. Effective July 1, 1999, the Colorado Commission has set
a gaming tax rate of .25% on adjusted gross gaming proceeds of up to and
including $2 million, 2% over $2 million up to and including $4 million, 4%
over $4 million up to and including $5 million, 11% over $5 million up to and
including $10 million, 16% over $10 million up to and including $15 million
and 20% on adjusted gross gaming proceeds in excess of $10 million. Black Hawk
has imposed an annual device fee of $750 per gaming device and may revise the
same from time to time. The Colorado Commission may revise the gaming tax or
device fee at any time, but has been considering such provisions only
annually.
The sale of alcoholic beverages is subject to licensing, control and
regulation by the Colorado Liquor Agencies. All persons who directly or
indirectly own 10% or more of Black Hawk LLC, through their ownership of Isle
of Capri, must file applications and possibly be investigated by the Colorado
Liquor Agencies. The Colorado Liquor Agencies also may investigate those
persons who, directly or indirectly, loan money to or have any financial
interest in liquor licensees. All licenses are revocable and not transferable.
The Colorado Liquor Agencies have the full power to limit, condition, suspend
or revoke any such license and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operating results of
Isle of Capri. The Isle-Black Hawk holds a retail gaming tavern license.
Accordingly, a person with an interest in Black Hawk LLC may not have an
interest in a hotel and restaurant license.
Florida
On June 15, 1995, the Florida Department of Business and Professional
Regulation, acting through its division of pari-mutuel wagering (the "Florida
Division"), issued its final order approving Pompano Park as a pari-mutuel
wagering permit holder for harness and quarter horse racing at Pompano Park.
The Florida Division approved Pompano Park's license to conduct a total of 184
live evening races for the season beginning July 1, 1998 to June 30, 1999.
Although Isle of Capri does not presently intend to conduct quarter horse
racing operations at Pompano Park, it may do so in the future, subject to
Florida Division approval. The Florida Division must approve any transfer of
10% or more of stock of a pari-mutuel racing permit holder such as Pompano
Park.
Chapter 550 of the Florida Statute and the applicable rules and regulations
thereunder (the "Florida Statute") establishes license fees, the tax structure
on pari-mutuel permit holders and minimum purse requirements for breeders and
owners. The Florida Division may revoke or suspend any permit or license upon
the willful violation by the permit holder or licensee of any provision of the
Florida Statute. Instead of suspending or revoking a permit or license, the
Florida Division may impose various civil penalties on the permit holder or
licensee. Penalties may not exceed $1,000 for each count or separate offense.
Pursuant to a Florida Division order and recent enactments to the Florida
Statute, Pompano Park is also authorized to conduct full-card pari-mutuel
wagering on: (1) simulcast harness races from outside Florida throughout the
racing season and (2) night thoroughbred races within Florida if the
thoroughbred permit holder
21
has decided to simulcast night races. Pompano Park has been granted the
exclusive right in Florida to conduct full-card simulcasting of harness racing
on days during which no live racing is held at Pompano Park. However, on non-
race days, Pompano Park must offer to rebroadcast its simulcast signals to
pari-mutuel facilities that are not thoroughbred parks. In addition, Pompano
Park may transmit its live races into any dog racing or jai alai facility in
Florida, including Dade and Broward counties, for intertrack wagering. The
Florida Statute establishes the percentage split between Pompano Park and the
other facilities receiving such signals. Recent legislation in Florida
provided certain reductions in applicable tax and license fees related to
intertrack wagering on broadcasts of simulcast harness racing and thoroughbred
racing. Isle of Capri believes that simulcast rights at Pompano Park and the
recent changes in the Florida Statute are important to Pompano Park's
operating results.
Effective January 1, 1997, the Florida Statute permits pari-mutuel
facilities to be licensed by the Florida Division to operate card rooms in
those counties in which a majority vote of the County Commission has been
obtained and a local ordinance has been adopted. Card rooms can only be
operated at pari-mutuel facilities on days that the facility is running live
races. The hours of operation extend from two hours before post time of the
first live race to two hours after the conclusion of the last live race.
Thoroughbred racing facilities must choose between operating card rooms or
simulcasting night races from outside the state, but may not do both. If
racing facilities elect to simulcast night races, they are required to
retransmit the night simulcast signal to certain other pari-mutuel facilities,
including Pompano Park.
The card room operator is the "house" and must deal the cards. The house can
charge a fee per player or establish a "rake" for each game. The only card
games that have been authorized are "nonbanking" games, such as games in which
the house is not allowed to play against the players. The winnings of any
player in a single round, hand or game may not exceed $10.00 and all card
games must be played with tokens or chips.
Card rooms may be operated and managed on behalf of the pari-mutuel permit
holder by card room management companies that hold a special license from the
Florida Division. All employees of the card room management company and the
card room operator need to obtain a specific $50.00 occupational license from
the Florida Division before they can work in the card room. There is no
statutory limit on the number of card tables allowed in a card room. However,
the annual license fee for the first card table is $1,000 and $500 for each
table thereafter. A card room's annual occupational license fee is $250.
Each card room operator is required to pay a tax of 10% of his monthly gross
receipts from card room operations. "Gross receipts" is defined as the total
amount of money received by a card room from any person to participate in
authorized games. At least 50% of the monthly "net proceeds," if any, at
Pompano Park must be distributed as follows: 47% to supplement purses for
harness racing and 3% to supplement breeders' awards during the next ensuing
race meet. "Net proceeds" are the total amount of gross receipts received by a
card room operator from card room operations, less direct operating expenses
as defined in the Florida Statute.
Non-Gaming Regulation
Isle of Capri is subject to certain federal, state and local safety and
health, employment and environmental laws, regulations and ordinances that
apply to non-gaming businesses generally, such as the Clean Air Act, Clean
Water Act, Occupational Safety and Health Act, Resource Conservation Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
and the Oil Pollution Act of 1990. Isle of Capri has not made, and does not
anticipate making, material expenditures with respect to such environmental
laws and regulations. However, the coverage and attendant compliance costs
associated with such laws, regulations and ordinances may result in future
additional costs to Isle of Capri's operations. For example, in 1990 the U.S.
Congress enacted the Oil Pollution Act of 1990 to consolidate and rationalize
mechanisms under various oil spill response laws. The Department of
Transportation has promulgated regulations requiring owners and operators of
certain vessels to establish through the Coast Guard evidence of financial
responsibility for clean-up of oil pollution. This requirement has been
satisfied by proof of adequate insurance.
The riverboats operated by the Isle-Lake Charles and the Isle-Bossier City
must comply with U.S. Coast Guard requirements as to boat design, on-board
facilities, equipment, personnel and safety and hold U.S. Coast
22
Guard Certificates of Documentation and Inspection. The U.S. Coast Guard
requirements also set limits on the operation of the riverboats and require
licensing of certain personnel involved with the operation of the riverboats.
Loss of a riverboat's Certificate of Documentation and Inspection could
preclude its use as a riverboat casino. Each of Isle of Capri's riverboats is
inspected annually and, every five years, is subject to drydocking for
inspection of its hull, which could result in a temporary loss of service.
Permanently moored vessels such as the Isle-Biloxi's and the Isle-
Vicksburg's casino barges are not required to hold Certificates of
Documentation and Inspection from the U.S. Coast Guard. However, the
Mississippi Gaming Commission has engaged third parties to inspect and certify
all casino barges with respect to stability and single compartment flooding
integrity. Isle of Capri's casino barges in Mississippi must be inspected
every two years. Isle of Capri's casino barges in Mississippi must also meet
the fire safety standards of the Mississippi Fire Prevention Code and the Life
Safety Code and the Standards for the Construction and Fire Protection of
Marine Terminals, Piers and Wharfs of the National Fire Protection
Association. Isle of Capri would incur additional costs if either of its
Mississippi gaming facilities were not in compliance with one or more of these
regulations.
Isle of Capri is also subject to certain federal, state and local
environmental laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Clean Water Act, Resource
Conservation Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act and the Oil Pollution Act of 1990. The coverage
and attendant compliance costs associated with these laws, regulations and
ordinances may result in future additional costs to our operations.
Regulations adopted by the Financial Crimes Enforcement Network of the U.S.
Treasury Department require us to report currency transactions in excess of
$10,000 occurring within a gaming day, including identification of the patron
by name and social security number. Substantial penalties can be imposed
against Isle of Capri if it fails to comply with these regulations.
All shipboard employees of Isle of Capri, even those who have nothing to do
with its operation as a vessel, such as dealers, waiters and security
personnel, may be subject to the Jones Act which, among other things, exempts
those employees from state limits on workers' compensation awards.
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ITEM 2. Properties.
Isle-Lake Charles
We own approximately 2.7 acres and lease approximately 16.25 acres of land
in Calcasieu Parish, Louisiana for use in connection with the Isle-Lake
Charles. The initial term of this lease expires in March 2000 and we have the
option to renew it for seventeen additional terms of five years each. Rent
under the Isle-Lake Charles lease is currently $1.2 million per year and is
subject to increases based on the Consumer Price Index and construction of
hotel facilities on the property.
Isle-Bossier City
We own approximately 38 acres of land in Bossier City, Louisiana for use in
connection with the Isle-Bossier City and own a 234-room hotel on
approximately 10.5 acres of land located 2.5 miles east of the Isle-Bossier
City.
Isle-Biloxi
We lease the Biloxi berth from the Biloxi Port Commission at an annual rent
of the greater of $500,000 or 1% of the gross gaming revenue net of state and
local gaming taxes. The lease terminates on July 1, 2004 and we have the
option to renew it for seven additional terms of five years each subject to
increases based on the cost of living index.
We lease our land-based facilities from the City of Biloxi at an annual rent
of $500,000 per year, plus 3% of the Isle-Biloxi's gross gaming revenues, net
of state and local gaming taxes and fees, in excess of $25.0 million. The
lease terminates on July 1, 2004, but it is renewable at our option for five
additional terms of five years each and a sixth option renewal term,
concluding on January 31, 2034, subject to rent increases based on the
Consumer Price Index. In April 1994, we entered into an addendum to this lease
which requires us to pay 4% of our gross non-gaming revenue, net of sales tax,
complimentaries and discounts.
In April 1994, in connection with the construction of a hotel, we entered
into a lease for additional land adjoining the Isle-Biloxi. This lease with
the City of Biloxi is for an initial term of 25 years, with options to renew
for six additional terms of ten years each and a final option period
concluding December 31, 2085. Annual rent is $404,000, plus 4% of gross non-
gaming revenue, as defined in the lease, and renewals are subject to rent
increases based on the Consumer Price Index.
We are a party to a lease for the exclusive use of approximately 133 parking
spaces and the additional use of 169 spaces in another parking lot on property
adjacent to the Isle-Biloxi. This lease expires on November 30, 2000. We have
also entered into a joint venture arrangement to sublease property containing
a two-level parking garage next to the Isle-Biloxi. The annual rent under this
lease is currently approximately $169,000. This lease terminates on November
30, 2000.
Isle-Vicksburg
We own approximately 13.1 acres of land in Vicksburg, Mississippi for use in
connection with the Isle-Vicksburg. We own an additional 13 acres of land in
Vicksburg on which we operate off-site parking and a recreational vehicle
park. We also entered into a lease for approximately five acres of land
adjacent to the Isle-Vicksburg to be used for additional parking.
Isle-Black Hawk
Black Hawk LLC owns approximately 9.1 acres of land in Black Hawk, Colorado
for use in connection with the Isle-Black Hawk. Black Hawk LLC also leases one
quarter acre from us.
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Pompano Park
We own approximately 220 acres at Pompano Park.
Isle-Tunica
We lease approximately 122 acres of land in Tunica County, Mississippi for
use in connection with the Isle-Tunica. The initial lease term is five years
and we have the option to renew the lease for seven additional terms of five
years. Base rent for each lease year equals the greater of 2% of gross gaming
revenue or $800,000. Once gross gaming revenue exceeds $40.0 million during
any lease year, the base rent in the following months of such year shall be
increased by an amount equal to 2% of such excess. The landlord is entitled to
receive additional rent based on excess available cash, as defined in the
lease.
Isle-Coahoma
In June 1998, we acquired an option to purchase approximately 138 acres of
land in Coahoma County, Mississippi for the development of the Isle-Coahoma.
The option expires in October 2000.
Other
We own 1.6 acres and lease 1.3 acres of land in Cripple Creek, Colorado. The
lease has an initial term of 25 years and expires in February 2020, with
options to renew for seven additional terms of ten years each. Annual rent
under this lease is currently $280,000 and will increase at a rate of $10,000
per year with a maximum increase of $300,000, subject to periodic increases
thereafter based on the Consumer Price Index. We also have an option to
purchase the leased land.
We own one additional riverboat casino and one floating pavilion that are
currently held for development or sale. We own or lease all of our gaming and
non-gaming equipment.
25
ITEM 3. Legal Proceedings.
One of our subsidiaries has been named, along with numerous manufacturers,
distributors and gaming operators, including many of the country's largest
gaming operators, in a consolidated class action lawsuit pending in Las Vegas,
Nevada. These gaming industry defendants are alleged to have violated the
Racketeer Influenced and Corrupt Organizations Act by engaging in a course of
fraudulent and misleading conduct intended to induce people to play their
gaming machines based upon a false belief concerning how those gaming machines
actually operate and the extent to which there is actually an opportunity to
win on any given play. The suit seeks unspecified compensatory and punitive
damages. A motion for certification of the class is currently pending before
the court and no discovery as to the merits of the alleged claims has begun.
We are unable at this time to determine what effect, if any, the suit would
have on our financial position or results of operations. However, the gaming
industry defendants are committed to defend vigorously all claims asserted in
the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleges that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by
the plaintiffs. The plaintiffs allege that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further allege that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The plaintiffs seek compensatory and
punitive damages in the amount of $238.0 million. We have denied the
allegations contained in the amended complaint and intend to vigorously defend
all claims and allegations in the action. A trial date has been set for
October 18, 1999.
In May 1998, we were named as a defendant in an action brought by several
persons who had a contractual right to acquire property in Cripple Creek,
Colorado which they sold to one of our subsidiaries in 1995. The plaintiffs
allege that we breached our purported agreement to construct a casino facility
on the property by the end of 1995. In December 1998, our motion to dismiss
the complaint was granted by the United States District Court in Denver,
Colorado. The plaintiffs have appealed this decision to the Tenth Circuit
Court of Appeals. We intend to vigorously defend all claims and allegations in
the action.
In August 1997, a lawsuit was filed which seeks to nullify a contract to
which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the
city of Bossier and the Bossier Parish School Board, in lieu of payment of a
per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat
Gaming Partnership was granted on June 4, 1998. That judgment was not appealed
and is now final. On June 11, 1998, a similar suit was filed and is currently
pending. We intend to vigorously defend this suit.
We are engaged in various other litigation matters and have a number of
unresolved claims. Although the ultimate liability of this litigation and
these claims cannot be determined at this time, we believe that they will not
have a material adverse effect on our consolidated financial position or
results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders.
In April 1999, we completed a tender offer for our outstanding $315.0
million principal amount of 12 1/2% senior secured notes due 2003. We
solicited consents to amend the indenture relating to the 12 1/2% senior
secured notes. Holders of more than 99% of the outstanding 12 1/2% senior
secured notes tendered their notes to us and consented to amendments to the
indenture governing those notes. An amended indenture was executed on April
21, 1999 upon consummation of the tender offer and eliminated most of the
financial and restrictive covenants in the indenture governing the 12 1/2%
senior secured notes.
26
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. The following table presents the high and low bid
quotations for our Common Stock as reported on the Nasdaq National Market for
the fiscal periods indicated. The quotations reflect interdealer prices,
without retail mark-up or commissions, and may not necessarily represent
actual transactions.
High Low
---- ----
Fiscal Year Ended April 26, 1998
First Quarter................................................. 2.81 1.94
Second Quarter................................................ 3.66 1.97
Third Quarter................................................. 3.19 2.38
Fourth Quarter................................................ 3.31 2.56
Fiscal Year Ended April 25, 1999
First Quarter................................................. 4.13 3.00
Second Quarter................................................ 3.63 1.75
Third Quarter................................................. 4.25 2.44
Fourth Quarter................................................ 6.50 3.88
Fiscal Year Ending April 30, 2000
First Quarter (through June 25, 1999)......................... 7.69 5.75
(b) Holders of Common Stock. As of June 25, 1999, there were 1,013 holders
of record of the Common Stock.
(c) Dividends. Isle of Capri has never paid any dividends with respect to
its Common Stock and the current policy of the Board of Directors is to retain
earnings to provide for the growth of the company. In addition, our senior
credit facility and the indenture governing our senior subordinated notes
limits our ability to pay dividends. See "Item 8--Index to Consolidated
Financial Statements--Isle of Capri Casinos, Inc.--Notes to Consolidated
Financial Statements--Note 7." Consequently, no cash dividends are expected to
be paid on our Common Stock in the foreseeable future. Further, there can be
no assurance that our current and proposed operations will generate the funds
needed to declare a cash dividend or that we will have legally available funds
to pay dividends. In addition, we may fund part of our operations in the
future from indebtedness, the terms of which may prohibit or restrict the
payment of cash dividends. If a holder of Common Stock is disqualified by the
regulatory authorities from owning such shares, such holder will not be
permitted to receive any dividends with respect to such stock. See "Item
1--Business--Regulatory Matters."
27
ITEM 6. Selected Financial Data.
The following table presents our selected consolidated financial data for
the five most recent fiscal years. This data is from our audited consolidated
financial statements and the notes to those statements. Because the data in
this table does not provide all of the data contained in our financial
statements, including the related notes, you should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, including the related notes, contained
elsewhere in this document, and other data we have filed with the U.S.
Securities and Exchange Commission.
Fiscal Year Ended
----------------------------------------------------
April 30, April 30, April 27, April 26, April 25,
1995(1) 1996(1) 1997(1) 1998 1999
--------- --------- --------- --------- ---------
(dollars in millions)
Income Statement Data:
Revenue:
Casino..................... $ 117.6 $ 123.9 $ 322.7 $ 388.2 $ 424.4
Pari-mutuel commissions and
fees...................... -- 15.1 19.4 22.6 21.4
Rooms, food, beverage and
other..................... 9.9 19.0 31.3 30.0 34.6
------- -------- -------- -------- --------
Total revenue............ 127.5 158.0 373.4 440.8 480.4
Operating expenses:
Gaming taxes............... 13.9 15.1 61.8 78.6 86.9
Casino, rooms, food,
beverage and other........ 84.1 115.3 246.5 267.5 284.3
Valuation charge(2)........ -- 9.3 7.0 -- 5.1
Restructuring charge(3).... -- 2.5 -- -- --
Accrued litigation
settlement (reversal)(4) -- -- -- -- (4.2)
Preopening expenses(5)..... 0.5 1.3 2.5 -- 3.3
Depreciation and
amortization.............. 8.9 12.1 27.1 33.6 36.3
------- -------- -------- -------- --------
Total operating
expenses................ 107.4 155.6 344.9 379.7 411.7
------- -------- -------- -------- --------
Operating income............. 20.1 2.4 28.5 61.1 68.7
Interest expense............. (14.0) (15.3) (40.3) (51.6) (48.6)
Interest income.............. 4.0 1.4 1.6 4.7 2.9
Minority interest............ -- -- -- 0.8 2.2
Equity in income (loss) of
unconsolidated joint
ventures(6)................. 19.9 16.4 (0.2) -- (1.3)
------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item........................ 30.0 4.9 (10.4) 15.0 23.9
Income tax provision
(benefit)................... 11.9 3.3 (1.6) 7.5 11.8
------- -------- -------- -------- --------
Net income (loss) before
extraordinary item.......... 18.1 1.6 (8.8) 7.5 12.1
Extraordinary loss on
extinguishment of debt, net
of applicable income tax
benefit..................... -- -- (12.3) -- (36.3)
------- -------- -------- -------- --------
Net income (loss)............ $ 18.1 $ 1.6 $ (21.1) $ 7.5 $ (24.2)
======= ======== ======== ======== ========
Other Data:
EBITDA(7).................... $ 29.6 $ 27.6 $ 65.1 $ 94.7 $ 109.2
Net cash provided (required)
by:
Operating.................. 8.5 11.8 17.8 65.3 65.2
Investing.................. (20.8) (13.5) (97.4) (119.7) (52.0)
Financing.................. 6.1 1.4 112.9 55.0 19.5
Capital expenditures......... $ 46.6 $ 22.2 $ 21.5 $ 65.5 $ 95.5
Casino square footage(8)..... 86,500 104,200 128,400 128,400 171,400
Number of slot machines(8)... 2,744 3,680 4,856 4,912 6,009
Number of table games(8)..... 146 196 281 236 217
Number of hotel rooms(8)..... 242 601 601 842 966
Balance Sheet Data:
Cash and cash equivalents.... $ 19.0 $ 18.6 $ 51.8 $ 52.5 $ 85.1
Total assets................. 211.9 226.5 528.4 615.7 676.5
Long-term debt, including
current portion............. 138.9 139.8 379.5 442.1 532.8
Stockholders' equity......... 42.0 50.3 78.0 86.1 62.0
Footnotes on following page
28
- --------
(1) The operating results for fiscal years prior to fiscal 1998 are not
comparable to other periods presented because the Isle-Bossier City and
Isle-Lake Charles were accounted for under the equity method until August
6, 1996, when the remaining interests in these facilities were acquired by
Isle of Capri. In addition, fiscal periods prior to 1996 do not include
the operating results of one of the two Lake Charles riverboats, as it was
acquired in May 1996.
(2) The valuation charge of $9.3 million in fiscal 1996 and $7.0 million in
fiscal 1997 related to the write-down of two riverboats, a barge and
certain gaming equipment, all of which were classified as held for sale.
The valuation charge of $5.1 million for the fiscal year ended April 25,
1999 includes (a) $2.4 million for the write-down of two original
riverboat casino vessels and land that Isle of Capri was planning to
develop in Cripple Creek, Colorado and (b) $2.7 million for future
obligations under an operating lease related to land leased by Isle of
Capri in Cripple Creek, Colorado.
(3) The restructuring charge of $2.5 million in fiscal 1996 includes (a) $2.0
million related to costs associated with a change in executive management
and (b) $0.5 million related to costs associated with certain abandoned
projects.
(4) The reversal of an accrued litigation settlement of $4.2 million for the
fiscal year ended April 25, 1999 related to an accrued boarding tax
liability at the Isle-Bossier City for which it was determined that the
Isle-Bossier City was not liable.
(5) Preopening expenses of $0.5 million in fiscal 1995 related to costs
incurred in connection with the opening of the new floating pavilion
facility at the Isle-Vicksburg. Preopening expenses of $1.3 million in
fiscal 1996 related to costs incurred in connection with the opening of
the hotel at the Isle-Biloxi. Preopening expenses of $2.5 million in
fiscal 1997 related to costs incurred in connection with the opening of
the Grand Palais riverboat in Lake Charles. Preopening expenses of $3.3
million for the fiscal year ended April 25, 1999 related to costs incurred
in connection with the opening of the Isle-Black Hawk on December 30,
1998.
(6) The equity in income (loss) of unconsolidated joint ventures represents
the unconsolidated operations of the Isle-Bossier for fiscal 1995, 1996
and 1997 and the Isle-Lake Charles for fiscal 1996 and 1997. For the
fiscal year ended April 25, 1999, the equity in income (loss) of
unconsolidated joint ventures represents the loss from Isle of Capri's 50%
ownership interest in Capri Cruises.
(7) EBITDA, or "earnings before interest, income taxes, depreciation and
amortization," is a supplemental financial measurement used by Isle of
Capri in the evaluation of its business. EBITDA is defined as net income
(loss) plus (a) income taxes, (b) interest expense (net of interest
income), (c) depreciation and amortization and (d) intercompany management
fees. Additionally, EBITDA has been adjusted for the following non-
recurring items: (a) accrued litigation settlement reversal, (b) valuation
charge, (c) restructuring charge and (d) preopening expenses as reflected
in our consolidated financial statements and notes to those statements.
EBITDA also excludes equity in income (loss) of unconsolidated joint
ventures and minority interest. These adjustments to EBITDA are allocated
to Isle of Capri and its subsidiaries based on the entity giving rise to
the adjustment. However, EBITDA should only be read in conjunction with
all of our financial data summarized above and our consolidated financial
statements and notes to those statements prepared in accordance with GAAP
appearing elsewhere in this offering memorandum. EBITDA is presented not
as an alternative measure of operating results or cash flow from
operations (as determined in accordance with GAAP), but because it is a
widely accepted financial indicator of a company's ability to incur and
service debt.
(8) This data is as of the end of the respective period.
29
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion together with the financial
statements, including the related notes, the other financial information in
this Form 10-K.
The following discussion includes "forward-looking statements" within the
meaning of section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In particular,
statements concerning the effects of increased competition in the Company's
markets, the effects of regulatory and legislative matters, the Company's
plans to make capital investments at its facilities, including, without
limitation, considerations to develop casinos as the Isle-Tunica and Isle-
Coahoma in Tunica County and Coahoma County, Mississippi, respectively, and to
develop hotels or time-share facilities at the Isle-Bossier City, the Isle-
Lake Charles, the Isle-Black Hawk, and the Isle-Biloxi and the expansion of
non-gaming amenities at all facilities, are forward-looking statements.
Although the Company believes that the expectations are reasonable, there can
be no assurance that such expectations are reasonable or that they will be
correct. Actual results may vary materially from those expected. Important
factors that could cause actual results to differ with respect to the
Company's planned capital expenditures principally include a lack of available
capital resources, construction and development risks such as shortages of
materials and labor and unforeseen delays resulting from a failure to obtain
necessary approvals, and the Company's limited experience in developing hotel
operations.
General
Isle of Capri's results of operations for the fiscal years ended April 25,
1999, April 26, 1998 and a portion of the fiscal year ended April 27, 1997
reflect the consolidated operations of all of Isle of Capri's subsidiaries,
including the Isle-Lake Charles, the Isle-Bossier City, the Isle-Biloxi, the
Isle-Vicksburg and the Isle-Black Hawk. On May 3, 1996, Isle of Capri acquired
a 50% interest in St. Charles Gaming Corporation and a 100% interest in Grand
Palais Riverboat, Inc., both of which operate a riverboat casino at the Isle-
Lake Charles. The remaining 50% of St. Charles Gaming Corporation was owned by
Louisiana Riverboat Gaming Partnership, of which Isle of Capri owned a 50%
partnership interest. Louisiana Riverboat Gaming Partnership owns the Isle-
Bossier City. On August 6, 1996, Isle of Capri acquired the remaining 50%
partnership interest of Louisiana Riverboat Gaming Partnership, which gave
Isle of Capri 100% ownership of both the Isle-Lake Charles and the Isle-
Bossier City, allowing Isle of Capri to consolidate its results of operations
for these facilities beginning in the fiscal quarter ended October 31, 1996.
Isle of Capri believes that its results of operations for the periods
subsequent to its acquisition of the remaining 50% partnership interest in
Louisiana Riverboat Gaming Partnership are not readily comparable to its
results of operations from prior periods primarily because of the
consolidation of the operating results of the Isle-Lake Charles and the Isle-
Bossier City. Further, the historical results of operations reflect the Isle-
Lake Charles as a single riverboat operation, whereas the Isle-Lake Charles
has operated two riverboats since July 12, 1996. In addition, the land-based
pavilion at the Isle-Lake Charles was expanded in May 1996.
Because of the lack of comparable information for fiscal 1998 and 1997 on a
consolidated basis, the following discussion focuses on certain events that
affected Isle of Capri's consolidated operations during the fiscal year ended
April 26, 1998 and comparable data by location. The comparable data for the
fiscal year ended April 27, 1997 related to the Isle-Lake Charles and the
Isle-Bossier City has been presented giving pro forma effect to the
acquisitions discussed above.
Isle of Capri believes that its historical results of operations may not be
indicative of its future results of operations because of the substantial
present and expected future increase in competition for gaming customers in
each of Isle of Capri's markets, as new casinos open and existing casinos add
to or enhance their facilities.
Isle of Capri also believes that its operating results are affected by
seasonality. Seasonality has historically caused the operating results for
Isle of Capri's first and fourth fiscal quarters ending in July and April,
respectively, to be notably better than the operating results for the second
and third fiscal quarters ending October and January, respectively.
30
Results of Operations
Fiscal Year Ended April 25, 1999 Compared to Fiscal Year Ended April 26,
1998--Consolidated Company
Total revenue for the fiscal year ended April 25, 1999 was $480.4 million,
which included $424.4 million of casino revenue, $10.8 million of rooms
revenue, $21.4 million of pari-mutuel commissions and $23.8 million of food,
beverage and other revenue. This compares to total revenue for the previous
fiscal year ended April 26, 1998 of $440.8 million, which included $388.2
million of casino revenue, $9.5 million of room revenue, $22.6 million of
pari-mutuel commissions and $20.5 million of food, beverage and other revenue.
Casino revenue increased primarily as a result of increased market share at
the Isle-Lake Charles, the commencement of operations at the Isle-Black Hawk
on December 30, 1998 and the opening of a 124-room hotel at the Isle-
Vicksburg. Room revenue and food, beverage and other revenue have increased as
a result of the increased number of hotel rooms and the development of Isle of
Capri's themed restaurant, branded Farraddays', which opened at each of Isle
of Capri's casino properties during fiscal 1998 and were open a full year in
fiscal 1999. Pari-mutuel commissions and fees have decreased slightly compared
to the prior year as a result of adverse weather conditions and increased
competition for simulcasting contracts at Pompano Park. Revenue does not
reflect the retail value of any complimentaries.
Casino operating expenses for the fiscal year ended April 25, 1999 totaled
$77.7 million, or 18.3% of casino revenue, versus $76.1 million, or 19.6% of
casino revenue, for the fiscal year ended April 26, 1998. These expenses are
primarily comprised of salaries, wages and benefits and other operating
expenses of the casinos. Casino operating expenses have decreased primarily as
a result of continued refinement of Isle of Capri's payroll and operating cost
control programs.
Operating expenses for the fiscal year ended April 25, 1999 also included
room expenses of $3.9 million from the hotels at the Isle-Lake Charles, Isle-
Bossier City, Isle-Biloxi and the Isle-Vicksburg. These expenses are those
directly relating to the cost of providing hotel rooms. Other costs of the
hotels are shared with the casinos and are presented in their respective
expense categories. Rooms operating expenses as a percentage of rooms revenue
increased from 34.3% for the fiscal year ended April 26, 1998 to 36.1% for the
fiscal year ended April 25, 1999. Room expenses as a percentage of rooms
revenue increased primarily as a result of start up costs related to the
opening of the Isle-Vicksburg hotel in February 1999 and increased competition
for the old Isle-Bossier City hotel.
State and local gaming taxes paid in Louisiana, Mississippi and Colorado
totaled $86.9 million for the fiscal year ended April 25, 1999, compared to
$78.6 million for the fiscal year ended April 26, 1998, which is consistent
with each state's gaming tax rate for the applicable fiscal years.
Pari-mutuel operating costs of Pompano Park totaled $15.7 million in fiscal
1999 compared to $16.3 million in fiscal 1998. Such costs consist primarily of
compensation, benefits, purses, simulcast fees and other direct costs of track
operations. Pari-mutuel operating costs as a percentage of pari-mutuel
revenues have increased from 72.3% for the fiscal year ended April 26, 1998 to
73.7% for the fiscal year ended April 25, 1999. The increase is primarily
related to the decrease in revenues from simulcasting.
Food, beverage and other expenses totaled $14.2 million for the fiscal year
ended April 25, 1999, compared to $13.4 million for the fiscal year ended
April 26, 1998. These expenses have increased as a result of the opening of
the Isle-Black Hawk and were partially offset by Isle of Capri's payroll and
inventory cost reduction efforts. These expenses consist primarily of the cost
of goods sold, salaries, wages and benefits and operating expenses of these
departments. Food and beverage operating expenses as a percentage of food,
beverage and other revenues decreased from 65.3% for the fiscal year ending
April 26, 1998 to 59.6% for the fiscal year ended April 25, 1999. Food and
beverage operating margins have improved as a result of payroll and inventory
cost reduction efforts.
Marine and facilities expenses totaled $28.2 million for the fiscal year
ended April 25, 1999, versus $26.2 million for the fiscal year ended April 26,
1998. These expenses include salaries, wages and benefits, operating expenses
of the marine crews, insurance, housekeeping and general maintenance of the
riverboats and floating
31
pavilions. Marine and facilities expenses have increased due to the addition
of the Isle-Black Hawk and the maturity of Isle of Capri's vessels and
facilities.
Marketing and administrative expenses totaled $144.5 million, or 30.1% of
total revenue, for the fiscal year ended April 25, 1999, versus $132.3
million, or 30.0% of total revenue, for the fiscal year ended April 26, 1998.
Marketing expenses include salaries, wages and benefits of the marketing and
sales departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses include administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. Marketing and administrative expenses have increased
due primarily to the opening of the Isle-Black Hawk, while these expenses as a
percentage of total revenue remains level as a result of management's expense
containment programs.
Preopening expenses of $3.3 million for the fiscal year ended April 25, 1999
represent salaries, benefits, training, marketing and other non-capitalizable
costs, which were expensed in connection with the opening of the Isle-Black
Hawk.
Isle of Capri's results of operations for the fiscal year ended April 25,
1999 include the reversal of an accrued litigation settlement of $4.2 million
related to the boarding tax liability at the Isle-Bossier City, for which the
courts have determined Isle of Capri is not liable. Isle of Capri has also
recorded a write-down of the assets held for development or sale of $2.4
million related to its two original riverboat casino vessels and land that
Isle of Capri was planning to develop in Cripple Creek, Colorado. During the
third fiscal quarter of 1999, Isle of Capri entered into an agreement to sell
one of its two original riverboats for less than the recorded value. This sale
had not closed as of the fiscal year ended 1999. Based on the agreed upon
sales price, Isle of Capri has adjusted the valuation allowance related to
both original riverboats to reflect the fair value. Because Isle of Capri has
delayed its plans to develop a casino on the land it owns in Cripple Creek,
Isle of Capri has established a valuation allowance on the land to reflect the
fair value of the land as the carrying value. Isle of Capri also established a
reserve for a future obligation under an operating lease related to its
Cripple Creek project at the discounted present value of $2.7 million. These
items occurred during the third quarter of fiscal 1999.
Depreciation and amortization expense was $36.3 million for the fiscal year
ended April 25, 1999 and $33.6 million for the fiscal year ended April 26,
1998. These expenses relate to property and equipment, berthing and concession
rights and the amortization of intangible assets. The increase in depreciation
and amortization expense is consistent with the increase in fixed assets
placed into service, including the assets placed into service upon the
commencement of operations at the Isle-Black Hawk.
Interest expense was $45.7 million for the fiscal year ended April 25, 1999,
net of capitalized interest of $7.2 million and interest income of $2.9
million, versus $46.9 million for the year ended April 26, 1998, net of
capitalized interest of $2.7 million and interest income of $4.7 million.
Interest expense primarily relates to indebtedness incurred in connection with
the acquisition of property, equipment, leasehold improvements and berthing
and concession rights. Additionally, interest expense of $5.0 million, net of
capitalized interest of $4.8 million and interest income of $.8 million
related to Black Hawk LLC is included in the fiscal year ended April 25, 1999.
This compares to interest expense of $2.0 million, net of capitalized interest
of $2.3 million and interest income of $3.0 million, for the fiscal year ended
April 26, 1998.
Isle of Capri's effective tax rate was 49.3% prior to extraordinary items
for the fiscal year ended April 25, 1999 and 49.8% for the fiscal year ended
April 26, 1998, which includes the effects of non-deductible goodwill
amortization for income tax purposes.
Fiscal Year Ended April 25, 1999 Compared to Fiscal Year Ended April 26,
1998--By Casino Location
Isle-Lake Charles
For the fiscal year ended April 25, 1999, the Isle-Lake Charles had total
revenue of $162.5 million, of which $155.5 million was casino revenue,
compared to total revenue of $145.7 million, of which $140.9 million was
32
casino revenue, for the fiscal year ended April 26, 1998. Operating income for
the fiscal year ended April 25, 1999 totaled $30.3 million, or 18.7% of total
revenue, compared to operating income of $23.4 million, or 16.1% of total
revenue, for the fiscal year ended April 26, 1998. The increase in revenue,
operating income and operating income margin are related primarily to
increased market share which has resulted from the addition of the 241-room
hotel at the Isle-Lake Charles in September 1997, increased use of the Isle-
Lake Charles' player database and entertainment center and lowered cost of
sales related to food and beverage.
Isle-Bossier City
For the fiscal year ended April 25, 1999, the Isle-Bossier City had total
revenue of $124.9 million, of which $119.5 million was casino revenue,
compared to total revenue of $126.1 million, of which $120.3 million was
casino revenue, for the fiscal year ended April 26, 1998. The decrease in
revenue relates primarily to increased competition from the opening of various
competitors' new hotels and an expanded gaming facility for one of these
competitors. Operating income for the fiscal year ended April 25, 1999 totaled
$26.0 million, or 20.8% of total revenue, compared to $24.5 million, or 19.4%
of total revenue, for the fiscal year ended April 26, 1998. The increase in
operating income and operating income margin are a result of reduced marketing
costs and more efficient management of payroll costs.
Isle-Biloxi
For the fiscal year ended April 25, 1999, the Isle-Biloxi had total revenue
of $91.6 million, of which $78.0 million was casino revenue, compared to total
revenue of $91.9 million, of which $78.5 million was casino revenue, for the
fiscal year ended April 26, 1998. Casino revenue and total revenue were flat
compared to the prior year primarily due to the closing of this location for
one week due to Hurricane Georges, offset by an overall increase in hotel,
food and beverage revenue. Operating income for the fiscal year ended April
25, 1999 totaled $19.0 million, or 20.8% of total revenue, compared to $15.8
million, or 17.2% of total revenue, for the fiscal year ended April 26, 1998.
Increased operating income margin is due primarily to reduced marketing costs,
more efficient management of payroll costs and decreased depreciation expense
as a result of certain assets becoming fully depreciated.
Isle-Vicksburg
For the fiscal year ended April 25, 1999, the Isle-Vicksburg had total
revenue of $53.2 million, of which $50.4 million was casino revenue, compared
to total revenue of $50.4 million, of which $48.2 million was casino revenue,
for the fiscal year ended April 26, 1998. Casino revenues and total revenues
increased due to the opening of a 124-room hotel at this facility in February
1999. Operating income for the fiscal year ended April 25, 1999 totaled $10.5
million, or 19.7% of total revenue, compared to $10.4 million, or 20.7% of
total revenue, for the fiscal year ended April 26, 1998. The slight decrease
in operating income margin is due primarily to increased competition from the
opening of a competitor's new hotel and start up costs incurred with the
opening of the Isle-Vicksburg's new hotel.
Isle-Black Hawk
Isle-Black Hawk began operation on December 30, 1998 and thus only had
operating results for four fiscal months in the fiscal year ending April 25,
1999. For this period the Isle-Black Hawk had total revenue of $22.0 million,
of which $20.7 million was casino revenue. Operating income before preopening
expenses of $3.3 million for the fiscal year ended April 25, 1999 totaled $4.1
million or 18.7% of total revenue.
Fiscal Year Ended April 26, 1998 Compared to Fiscal Year Ended April 27,
1997--By Casino Location
Isle-Lake Charles
For the fiscal year ended April 26, 1998, the Isle-Lake Charles had total
revenue of $145.7 million, of which $140.9 million was casino revenue,
compared to total revenue of $128.2 million, of which $124.2 million was
33
casino revenue, for the fiscal year ended April 27, 1997. The increase of
$17.5 million, or 13.7% in total revenue, relates to a full year of operations
of the Grand Palais riverboat, which commenced operation on July 12, 1996, and
the addition of the 241-room hotel at the Isle-Lake Charles. Operating income
before management fees for the fiscal year ended April 26, 1998 totaled $23.4
million, or 16.1% of total revenue, compared to operating income of $15.0
million, or 11.7% of total revenue, which includes a settlement charge of $0.7
million related to the Louisiana Double Jackpot Dispute but does not include
preopening expenses of $2.5 million, for the fiscal year ended April 27, 1997.
The increase in operating income of $8.4 million, or 56.0%, is due primarily
to the addition of the second riverboat casino, the new hotel and management's
continued efforts to reduce operating expenses combined with improved direct
response marketing.
Isle-Bossier City
For the fiscal year ended April 26, 1998, the Isle-Bossier City had total
revenue of $126.1 million, of which $120.3 million was casino revenue,
compared to total revenue of $143.9 million, of which $136.2 million was
casino revenue, for the fiscal year ended April 27, 1997. The decrease in
total revenue of $17.8 million, or 12.4%, is due primarily to increased
competition among existing competitors and new competitors in the market and
the addition of amenities at existing competitors. Operating income before
management fees for the fiscal year ended April 26, 1998 totaled $24.5
million, or 19.4% of total revenue, which includes $1.2 million related to the
Bossier City Head Tax Case, compared to $16.7 million, or 11.6% of total
revenue, which includes a settlement charge of $7.4 million related to the
Louisiana Double Jackpot Dispute and $2.4 million of expenses related to the
Bossier City Head Tax Case. The increase in operating income margin, before
charges related to the Louisiana Double Jackpot Dispute and the Bossier City
Head Tax Case, from 18.4% for the fiscal year ended April 27, 1997 to 20.4%
for the fiscal year ended April 26, 1998, relates to management's continued
expense reduction efforts and more effective direct response marketing.
Isle-Biloxi
For the fiscal year ended April 26, 1998, the Isle-Biloxi had total revenue
of $91.9 million, of which $78.5 million was casino revenue, compared to total
revenue of $89.5 million, of which $75.3 million was casino revenue, for the
fiscal year ended April 27, 1997. The increase of $2.4 million, or 2.7% in
total revenue, relates to increased casino traffic due to improved use of Isle
of Capri's database for managing the occupancy of the Isle-Biloxi's hotel.
Operating income before management fees for the fiscal year ended April 26,
1998 totaled $15.8 million, or 17.2% of total revenue, compared to $14.4
million, or 16.1% of total revenue, for the fiscal year ended April 27, 1997.
The increase of $1.4 million, or 9.7%, in operating income and operating
income margin is due primarily to continuing cost reduction efforts and
improved direct response marketing.
Isle-Vicksburg
For the fiscal year ended April 26, 1998, the Isle-Vicksburg had total
revenue of $50.4 million, of which $48.2 million was casino revenue, compared
to total revenue of $53.0 million, of which $50.5 million was casino revenue,
for the fiscal year ended April 27, 1997. The decrease of $2.6 million, or
4.9% in total revenue, relates primarily to the impact of increased
competition and the overall weakness of the market. Operating income before
management fees for the fiscal year ended April 26, 1998 totaled $10.4
million, or 20.6% of total revenue, compared to $9.1 million, or 17.2% of
total revenue, for the fiscal year ended April 27, 1997. The increase of $1.3
million, or 14.3%, in operating income and operating income margin is
primarily a result of management's efforts to reduce operating expenses and
more effective direct response marketing efforts.
Fiscal Year Ended April 26, 1998--Consolidated Company
Total revenue for the fiscal year ended April 26, 1998 was $440.8 million,
which included $388.2 million of casino revenue, $9.5 million of rooms
revenue, $22.6 million of pari-mutuel commissions, simulcast fees and
admissions and $20.5 million of food, beverage and other revenue. The
consolidated revenue of Isle of Capri has
34
been impacted by the inclusion of the Isle-Lake Charles and the Isle-Bossier
City into Isle of Capri's consolidated financial statements and the inclusion
of the Grand Palais Riverboat, Inc.'s operating results for a complete fiscal
year. Revenues do not reflect the retail value of any complimentaries. In
addition, as a result of the acquisition of the remaining 50% partnership
interest in Louisiana Riverboat Gaming Partnership, management fees were not
reported because these amounts are eliminated in consolidation.
Casino operating expenses for the fiscal year ended April 26, 1998 totaled
$76.1 million, or 19.6% of casino revenue. These expenses are primarily
comprised of salaries, wages and benefits and other operating expenses of the
casinos. The improvement in operating expenses as a percentage of casino
revenue is due to Isle of Capri's continued expense reduction efforts.
Operating expenses for the fiscal year ended April 26, 1998 also included
room expenses of $3.3 million from the hotels at the Isle-Lake Charles, the
Isle-Bossier City and the Isle-Biloxi. These expenses are those directly
relating to the cost of providing hotel rooms. Other costs of the hotels are
shared with the casinos and are presented in their respective expense
categories. Room expenses as a percentage of rooms revenue increased from
24.4% for the fiscal year ended April 27, 1997 to 34.3% for the fiscal year
ended April 26, 1998. This increase is related primarily to an increase in the
rooms given to casino patrons as complimentaries.
State and local gaming taxes paid in Louisiana, Mississippi and Colorado
totaled $78.6 million for the fiscal year ended April 26, 1998, which is
consistent with each state's applicable gaming tax rate for previous fiscal
years.
Pari-mutuel operating costs of Pompano Park totaled $16.3 million for the
fiscal year ended April 26, 1998. Such costs consist primarily of
compensation, benefits, purses, simulcast fees and other direct costs of track
operations. Pari-mutuel operating costs as a percentage of pari-mutuel
revenues have decreased from 82.4% for the fiscal year ended April 27, 1997 to
72.3% for the fiscal year ended April 26, 1998. The decrease is related
primarily to the increase in revenues from simulcasting.
Food, beverage and other expenses totaled $13.4 million for the fiscal year
ended April 26, 1998. These expenses consist primarily of cost of goods sold,
salaries, wages and benefits and operating expenses of these departments.
Food, beverage and other expenses as a percentage of food, beverage and other
revenue decreased from 72.4% for the fiscal year ended April 27, 1997 to 65.3%
for the fiscal year ended April 26, 1998. This decrease primarily relates to
management's expense reduction efforts, particularly with regard to product
costs and more efficient management of personnel.
Marine and facilities expenses totaled $26.2 million for the fiscal year
ended April 26, 1998. These expenses include salaries, wages and benefits,
operating expenses of the marine crews, insurance, housekeeping and general
maintenance of the riverboats and floating pavilions.
Marketing and administrative expenses totaled $132.3 million for the fiscal
year ended April 26, 1998. Marketing expenses include salaries, wages and
benefits of the marketing and sales departments, as well as promotions,
advertising, special events and entertainment. Administrative expenses include
administration and human resource department expenses, rent, new development
activities, professional fees, property taxes and franchise taxes. Marketing
and administrative operating expenses as a percentage of total revenue have
decreased from 34.5% for the fiscal year ended April 27, 1997 to 30.0% for the
fiscal year ended April 26, 1998. This decrease is due substantially to Isle
of Capri's continued expense reduction efforts, combined with a complete year
of direct response marketing.
Depreciation and amortization expense was $33.6 million for the fiscal year
ended April 26, 1998. These expenses relate to capital expenditures and
acquisition of leasehold improvements, berthing and concession rights and the
amortization of intangible assets.
Interest expense was $46.9 million for the fiscal year ended April 26, 1998,
net of interest income of $4.7 million and $2.7 million of capitalized
interest. Interest expense primarily relates to indebtedness incurred in
35
connection with the acquisition of property, equipment, leasehold improvements
and berthing and concession rights, including indebtedness incurred by Isle of
Capri's consolidated subsidiary, Black Hawk LLC, related to the development of
the Isle-Black Hawk, as well as indebtedness relating to the purchase of the
remaining interest in Louisiana Riverboat Gaming Partnership and the purchase
of Grand Palais Riverboat, Inc.
For the fiscal year ended April 26, 1998, Isle of Capri recorded income tax
expense of $7.5 million. Isle of Capri's effective tax rate for the fiscal
year ended April 26, 1998 was approximately 49.8%, which is higher than the
statutory rate due to non-deductible amortization of certain intangible assets
for income tax purposes.
Fiscal Year Ended April 27, 1997--Consolidated Company
Total revenue for the fiscal year ended April 27, 1997 was $373.4 million,
which included $322.7 million of casino revenue, $9.5 million of rooms
revenue, $2.1 million of management fees, $19.4 million of pari-mutuel
commissions, simulcast fees and admissions and $19.7 million of food, beverage
and other revenue. The total revenue of Isle of Capri for this period was
impacted by the inclusion of the Isle-Lake Charles and the Isle-Bossier City
into Isle of Capri's consolidated financial statements beginning on August 6,
1996 and the operations of the Grand Palais riverboat beginning on July 12,
1996. Revenue does not reflect the retail value of any complimentaries. In
addition, as a result of the acquisition of the remaining 50% partnership
interest in Louisiana Riverboat Gaming Partnership, management fees were not
reported for the periods subsequent to the date of acquisition because these
amounts are eliminated in consolidation.
Casino operating expenses for the fiscal year ended April 27, 1997 totaled
$64.3 million, or 19.9% of casino revenue, versus $26.5 million, or 21.4% of
casino revenue, for the fiscal year ended April 30, 1996. These expenses are
primarily comprised of salaries, wages and benefits and other operating
expenses of the casinos. The improvement in operating expenses as a percentage
of casino revenue is due to Isle of Capri's expense reduction efforts combined
with a shift to direct response marketing.
Operating expenses for the fiscal year ended April 27, 1997 also included
room expenses of $2.3 million from the hotels at the Isle-Bossier City and the
Isle-Biloxi. These expenses are those directly relating to the cost of
providing hotel rooms. Other costs of the hotels are shared with the casinos
and are presented in their respective expense categories.
State and local gaming taxes paid in Louisiana and Mississippi totaled $61.8
million for the fiscal year ended April 27, 1997, which is consistent with
each state's applicable gaming tax rate for previous periods.
Pari-mutuel operating costs of Pompano Park totaled $16.0 million for the
fiscal year ended April 27, 1997. Such costs consist primarily of
compensation, benefits, purses, simulcast fees and other direct costs of track
operations.
Food, beverage and other expenses totaled $14.3 million for the fiscal year
ended April 27, 1997. These expenses consist primarily of cost of goods sold,
salaries, wages and benefits and operating expenses of these departments.
Marine and facilities expenses totaled $20.7 million for the fiscal year
ended April 27, 1997. These expenses include salaries, wages and benefits,
operating expenses of the marine crews, insurance, housekeeping and general
maintenance of the riverboats and floating pavilions.
Marketing and administrative expenses totaled $128.8 million for the fiscal
year ended April 27, 1997. 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, property taxes and franchise taxes.
36
Depreciation and amortization expense was $27.1 million for the fiscal year
ended April 27, 1997. These expenses relate to capital expenditures and
acquisition of leasehold improvements, berthing and concession rights and the
amortization of intangible assets.
Preopening expenses of $2.5 million for the fiscal year ended April 27, 1997
represent salaries, wages and benefits, training, marketing and other non-
capitalized costs which were expensed as incurred in connection with the
opening of the Grand Palais Riverboat.
Interest expense was $38.7 million for the fiscal year ended April 27, 1997,
net of interest income of $1.6 million. There was no capitalized interest for
the fiscal year ended April 27, 1997. Interest expense primarily relates to
indebtedness incurred in connection with the acquisition of property,
equipment, leasehold improvements and berthing and concession rights, as well
as indebtedness relating to the purchase of the remaining interest in
Louisiana Riverboat Gaming Partnership and the purchase of Grand Palais
Riverboat, Inc.
Isle of Capri had a loss before extraordinary item of $8.8 million for the
fiscal year ended April 27, 1997, primarily due to the settlement of the
Louisiana Double Jackpot dispute which resulted in a charge of $2.4 million,
net of taxes, and a valuation charge of $4.1 million, net of taxes, taken
against Isle of Capri's property held for development or sale and the
increased competition within Isle of Capri's markets beginning in the quarter
ended October 31, 1996. In addition, Isle of Capri recorded an extraordinary
after-tax charge of $12.3 million primarily resulting from the issuance of its
12 1/2% senior secured notes in August 1996. The tax benefit resulting from
this extraordinary loss was $6.6 million. Isle of Capri's effective tax rate
for the fiscal year ended April 27, 1997 was approximately 27.9%, which was
less than the statutory rate due primarily to non-deductible goodwill
amortization of certain intangible assets and the valuation allowance.
Liquidity and Capital Resources
At April 25, 1999, Isle of Capri had cash and cash equivalents of $85.1
million, compared to $52.5 million at April 26, 1998. The increase in cash is
primarily a result of cash flow from operating activities and excess proceeds
from our April 1999 refinancing. During the fiscal year ended April 25, 1999,
Isle of Capri's operating activities provided $65.2 million of cash, compared
to $65.3 million of cash provided by operating activities in the fiscal year
ended April 26, 1998.
Isle of Capri invested $95.0 million in property and equipment in the fiscal
year ended April 25, 1999, primarily for the development of the Isle-Black
Hawk, which was under construction as of the beginning of the fiscal year and
commenced operations on December 30, 1998, the development of a 124-room hotel
at the Isle-Vicksburg which opened in February 1999, cost approximately $11.5
million and was funded through Isle of Capri's operating cash flow and the
development of a 305-room deluxe hotel at the Isle-Bossier City, which was
still under construction as of the fiscal year ended April 25, 1999.
Isle of Capri anticipates that a significant portion of its principal near-
term capital requirements will relate to the completion of the 305-room deluxe
hotel at the Isle-Bossier City, which has an expected total cost of
approximately $43.0 million. Construction of this hotel began in January 1998
and approximately $35.5 million was expended as of April 25, 1999. The hotel
opened in late June 1999. Also in late June 1999, the Isle-Bossier City
purchased a seven-acre parcel of property next to its facility for $2.0
million. This property is planned to be used for additional parking.
In March 1999, Isle of Capri acquired a closed casino facility in Tunica
County, Mississippi. Isle of Capri intends to re-open this casino facility as
an Isle of Capri casino in July 1999. The total estimated cost to renovate,
equip and re-open this facility is approximately $33.5 million, including the
purchase price of $9.5 million. Isle of Capri also plans to invest an
additional amount of approximately $40.0 million to construct an on-site hotel
at the Isle-Tunica with up to 250 rooms and two live entertainment theaters
with combined seating for 2,000 people. Construction of the hotel and theaters
is scheduled to begin in the second half of calendar 1999.
37
Subject to amending the existing lease with the City of Biloxi, Isle of
Capri plans to replace its existing casino at the Isle-Biloxi and construct an
approximately 1,000-space parking garage and a podium containing entertainment
and retail space. Isle of Capri estimates that the total cost of this
expansion will be $62.0 million. The podium will be constructed to support
either a time-share facility, which may be developed by a joint venture, or
additional hotel rooms. Isle of Capri has not entered into, and cannot be sure
that it will be able to enter into, an agreement for development of the time-
share facility. The existing casino barge at the Isle-Biloxi is planned to be
relocated to Coahoma County, Mississippi as part of the Isle-Coahoma, at a
value of approximately $20.0 million.
Isle of Capri has applied for a license from the Mississippi Gaming
Commission to operate a dockside casino in Coahoma County, Mississippi. Isle
of Capri has received site and development approval from the Mississippi
Gaming Commission and is in the process of seeking other approvals to develop
the 138-acre property and build a casino and related lodging and entertainment
facility, including our three trademark restaurants. Development costs for the
Isle-Coahoma are expected to be approximately $60.0 million, including
approximately $20.0 million related to the transfer of the current Isle-Biloxi
casino barge. The actual cash expenditures for the Isle-Coahoma are expected
to be approximately $40.0 million.
Isle of Capri Black Hawk, LLC plans to construct a hotel containing
approximately 235 rooms at the Isle-Black Hawk for approximately $29.0
million. Isle of Capri is assisting Isle of Capri Black Hawk, LLC by financing
the development of this hotel and plans to loan $5.0 million with interest
payable in cash and another $5.0 million with interest payable in kind (with
additional notes). Additionally, Isle of Capri will contribute up to $10.0
million in additional equity to supplement funds generated from Isle of Capri
Black Hawk, LLC operations to complete the hotel.
Isle of Capri is in the planning stages of constructing an on-site 250-room
deluxe hotel at the Isle-Lake Charles. This project is estimated to cost $33.0
million.
Isle of Capri exercised an option to purchase 146 acres at Pompano Park for
$13.0 million and in June 1999 sold 135 acres of this property for $16.3
million.
On April 20, 1998, Isle of Capri and Commodore Cruise Lines created a 50/50
joint venture named Capri Cruises to operate cruise ships. As of April 25,
1999, Isle of Capri had invested $3.0 million in this joint venture, which is
operating one cruise ship from the Port of New Orleans. Isle of Capri owns a
50% interest in and operates the gaming facilities aboard the ship.
All of Isle of Capri's development plans are subject to obtaining permits,
licenses and approvals from appropriate regulatory and other agencies and, in
certain circumstances, negotiating acceptable leases. In addition, many of our
plans are preliminary, subject to continuing refinement or otherwise subject
to change.
Isle of Capri anticipates that capital improvements approximating $14.0
million will be made during fiscal 2000 to maintain its existing facilities
and remain competitive in its markets. Isle of Capri expects that available
cash and cash from future operations, as well as borrowings under the new
senior credit facility, will be adequate to fund future expansion, planned
capital expenditures, service debt and meet working capital requirements.
There is no assurance that Isle of Capri will have the capital resources to
make all of the expenditures described above or that planned capital
investments will be sufficient to allow Isle of Capri to remain competitive in
its existing markets. In addition, the indenture restricts, among other
things, Isle of Capri's ability to borrow money, create liens, make restricted
payments and sell assets.
Isle of Capri's new senior credit facility limits, among other things, Isle
of Capri's ability to borrow money, make capital expenditures, use assets as
security in other transactions, make restricted payments or restricted
investments, incur contingent obligations, sell assets and enter into leases
and transactions with affiliates. In addition, the new senior credit facility
requires Isle of Capri to meet certain financial ratios and tests, including:
.a minimum consolidated net worth test;
38
.a maximum consolidated total leverage test;
.a maximum consolidated senior leverage test; and
.a minimum consolidated fixed charge coverage test.
Isle of Capri must repay all amounts borrowed under its new senior credit
facility by April 23, 2004. Isle of Capri will be required to make quarterly
principal payments on the $50.0 million term loan portion of its new senior
credit facility beginning in July 1999. Such payments will initially be $0.8
million per quarter and will increase by $0.8 million per quarter in July of
each year that the term loan is outstanding. In addition, Isle of Capri will
be required to make substantial quarterly interest payments on the outstanding
balance of its new senior credit facility and interest payments of $17.1
million semi-annually on its Senior Subordinated Notes.
Isle of Capri is highly leveraged and may be unable to obtain additional
debt or equity financing on acceptable terms. As a result, limitations on Isle
of Capri's capital resources could delay or cause Isle of Capri to abandon
certain plans for capital improvements at its existing properties and
development of new properties. Isle of Capri will continue to evaluate its
planned capital expenditures at each of its existing locations in light of the
operating performance of the facilities at such locations.
Year 2000 Compliance
Isle of Capri has completed the evaluation of its information technology
infrastructure for Year 2000 issues. The evaluation process included a
detailed inventory of all computer hardware and software systems, detailed
vendor communication and the creation of a concise Year 2000 plan. Most of
Isle of Capri's systems infrastructure is currently Year 2000 compliant. Isle
of Capri has received assurances that it believes are reasonable from vendors
of material products used by Isle of Capri that their products are Year 2000
compliant. Isle of Capri is changing to a casino player tracking and table
system which is Year 2000 compliant. The total cost of this change is
approximately $0.4 million. Isle of Capri has not incurred and does not intend
to incur any material costs to modify its information technology
infrastructure in order to be Year 2000 compliant. All software needed will be
provided by the respective information technology vendor at no charge to Isle
of Capri. Isle of Capri expects to have all software modifications in place by
September 1999.
Isle of Capri and its results of operations and financial condition could be
adversely affected by a failure of one or more of the third parties with which
it does business to satisfactorily address and resolve any Year 2000 issues.
In addition, Year 2000 difficulties experienced by public utilities, the
banking system, the postal system or other similar infrastructure enterprises
could adversely affect Isle of Capri. However, Isle of Capri believes that the
impact of such problems on Isle of Capri would be the same as on other
businesses in the same area or areas. Isle of Capri believes these risks range
from slight financial malfunctions to, in a worst case scenario, an extensive
and costly inability to communicate with customers and suppliers. Isle of
Capri believes that it has an effective program in place to resolve all Year
2000 issues. Isle of Capri has no contingency plans in the event it does not
complete all phases of its Year 2000 program, as program completion is
currently on schedule.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a result of the variable interest rates on the Senior Term Loan of $50
million and Senior Revolving Note of $125 million under the Senior Credit
Facility, the Isle of Capri's earnings are exposed to changes in short-term
interest rates. At June 1999, no amounts were drawn on the Senior Revolving
Note. Isle of Capri does not use interest rate derivative instruments to
manage exposure to interest rate changes.
39
ITEM 8. Index to Consolidated Financial Statements.
Page
----
Isle of Capri Casinos, Inc.
Report of Independent Auditors........................................... 41
Consolidated Balance Sheets, April 25, 1999 and April 26, 1998........... 42
Consolidated Statements of Operations, Years ended April 25, 1999, April
26, 1998 and April 27, 1997............................................. 43
Consolidated Statements of Stockholders' Equity, Years ended April 25,
1999, April 26, 1998 and April 27, 1997................................. 44
Consolidated Statements of Cash Flows, Years ended April 25, 1999, April
26, 1998 and April 27, 1997............................................. 45
Notes to Consolidated Financial Statements............................... 47
40
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Isle of Capri Casinos, Inc.
We have audited the accompanying consolidated balance sheets of Isle of
Capri Casinos, Inc. as of April 25, 1999 and April 26, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years ended April 25, 1999, April 26, 1998 and April 27, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Isle of Capri
Casinos, Inc. at April 25, 1999 and April 26, 1998, and the consolidated
results of its operations and its cash flows for the years ended April 25,
1999, April 26, 1998 and April 27, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
June 10, 1999
41
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 25, April 26,
ASSETS 1999 1998
------ --------- ---------
Current assets:
Cash and cash equivalents..................................... $ 85,117 $ 52,460
Accounts Receivable:
Related parties............................................. 41 79
Other....................................................... 5,894 5,636
Income tax receivable......................................... 7,509 3,563
Deferred income taxes......................................... 4,684 3,279
Prepaid expenses and other assets............................. 5,771 4,240
-------- --------
Total current assets...................................... 109,016 69,257
Property and equipment--net..................................... 411,176 333,811
Other assets:
Investment in and advances to joint ventures.................. 1,851 1,709
Property held for development or sale......................... 5,532 7,943
Licenses and other intangible assets, net of accumulated
amortization of $8,960 and $6,058, respectively.............. 63,408 66,311
Goodwill, net of accumulated amortization of $8,644 and
$6,023, respectively......................................... 52,818 60,550
Berthing, concession, and leasehold rights, net of accumulated
amortization of $2,149 and $1,836, respectively.............. 4,119 4,432
Deferred financing costs, net of accumulated amortization of
$1,305 and $3,073, respectively.............................. 19,398 15,313
Restricted cash............................................... 5,480 50,341
Prepaid deposits and other 3,686 6,068
-------- --------
Total assets.............................................. $676,484 $615,735
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt.......................... $ 5,883 $ 12,453
Accounts payable--trade....................................... 20,102 14,365
Accrued liabilities:
Interest.................................................... 2,033 11,771
Payroll and related......................................... 23,867 17,854
Property and other taxes.................................... 11,700 10,095
Progressive jackpots and slot club awards................... 5,351 3,505
Other....................................................... 9,888 7,912
-------- --------
Total current liabilities................................. 78,824 77,955
Long-term debt, less current maturities......................... 526,873 429,642
Deferred income taxes........................................... 4,689 16,155
Minority interest............................................... 4,143 5,852
Stockholders' equity:
Preferred stock, $.01 par value; 2,050,000 shares authorized;
none issued.................................................. -- --
Common stock, $.01 par value; 45,000,000 shares authorized;
shares issued and outstanding: 23,568,562 236 236
Class B common stock, $.01 par value; 3,000,000 shares
authorized; none issued...................................... -- --
Additional paid-in capital.................................... 63,146 63,146
Retained earnings (deficit)................................... (1,427) 22,749
-------- --------
Total stockholders' equity................................ 61,955 86,131
-------- --------
Total liabilities and stockholders' equity................ $676,484 $615,735
======== ========
See notes to consolidated financial statements.
42
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Fiscal Year Ended
-------------------------------
April 25, April 26, April 27,
1999 1998 1997
--------- --------- ---------
Revenue:
Casino...................................... $424,379 $388,223 $322,677
Rooms....................................... 10,829 9,528 9,483
Pari-mutuel commissions and fees............ 21,351 22,565 19,405
Food, beverage, and other................... 23,818 20,500 19,716
Management fee--unconsolidated joint ven-
tures...................................... -- -- 2,110
-------- -------- --------
Total revenue............................. 480,377 440,816 373,391
Operating expenses:
Casino...................................... 77,679 76,072 64,301
Rooms....................................... 3,914 3,271 2,316
Gaming taxes................................ 86,855 78,586 61,769
Pari-mutuel................................. 15,741 16,315 15,987
Food and beverage........................... 14,204 13,379 14,280
Marine and facilities....................... 28,218 26,203 20,717
Marketing and administrative................ 144,541 132,300 128,849
Valuation charge............................ 5,097 -- 7,000
Accrued litigation settlement (reversal).... (4,215) -- --
Preopening expenses......................... 3,320 -- 2,500
Depreciation and amortization............... 36,277 33,588 27,149
-------- -------- --------
Total operating expenses.................. 411,631 379,714 344,868
-------- -------- --------
Operating income.............................. 68,746 61,102 28,523
Interest expense.............................. (48,638) (51,579) (40,332)
Interest income:
Unconsolidated joint ventures............... -- -- 203
Other....................................... 2,907 4,702 1,418
Minority interest............................. 2,209 819 --
Equity in loss of unconsolidated joint
ventures..................................... (1,340) -- (166)
-------- -------- --------
Income (loss) before income taxes and
extraordinary item........................... 23,884 15,044 (10,354)
Income tax provision (benefit)................ 11,775 7,497 (1,560)
-------- -------- --------
Income (loss) before extraordinary item....... 12,109 7,547 (8,794)
Extraordinary loss on extinquishment of debt,
net of applicable income tax benefit of
$19,538, $0, $6,600, respectively............ (36,285) -- (12,257)
-------- -------- --------
Net income (loss)............................. $(24,176) $ 7,547 $(21,051)
======== ======== ========
Earnings (loss) per share of common stock:
Earnings (loss) per common share:
Income (loss) before extraordinary item..... $ 0.51 $ 0.32 $ (0.39)
Extraordinary loss, net..................... $ (1.54) $ -- $ (0.55)
-------- -------- --------
Net income (loss)........................... $ (1.03) $ 0.32 $ (0.94)
======== ======== ========
Earnings (loss) per common share--assuming
dilution:
Income (loss) before extraordinary item..... $ 0.51 $ 0.32 $ (0.39)
Extraordinary loss, net..................... $ (1.52) $ -- $ (0.55)
-------- -------- --------
Net income (loss)........................... $ (1.01) $ 0.32 $ (0.94)
======== ======== ========
Weighted average diluted shares............... 23,859 23,465 22,483
See notes to consolidated financial statements.
43
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Shares of Additional Retained Total
Common Common Paid-in Earnings Stockholders'
Stock Stock Capital (Deficit) Equity
---------- ------ ---------- --------- -------------
Balance, April 30, 1996... 16,038,882 $160 $13,857 $36,253 $50,270
Issuance of common stock
for Rights Offering.... 3,079,980 31 17,850 -- 17,881
Issuance of common stock
for acquisitions....... 4,100,000 41 27,074 -- 27,115
Issuance of warrants for
acquisitions........... -- -- 3,333 -- 3,333
Exercise of stock
options................ 65,625 1 165 -- 166
Issuance of stock for
compensation........... 60,800 -- 259 -- 259
Net loss................ -- -- -- (21,051) (21,051)
---------- ---- ------- ------- -------
Balance, April 27, 1997... 23,345,287 233 62,538 15,202 77,973
Exercise of stock
options................ 8,438 -- 8 -- 8
Issuance of stock for
deferred financing
costs.................. 174,337 2 498 -- 500
Issuance of stock for
compensation........... 40,500 1 102 -- 103
Net income.............. -- -- -- 7,547 7,547
---------- ---- ------- ------- -------
Balance, April 26, 1998... 23,568,562 236 63,146 22,749 86,131
Net loss................ -- -- -- (24,176) (24,176)
---------- ---- ------- ------- -------
Balance, April 25, 1999... 23,568,562 $236 $63,146 $(1,427) $61,955
========== ==== ======= ======= =======
See notes to consolidated financial statements.
44
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
-------------------------------
April 25, April 26, April 27,
1999 1998 1997
--------- --------- ---------
Operating activities:
Net income (loss).............................. $(24,176) $ 7,547 $(21,051)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 36,277 33,588 27,149
Amortization of bond discount and deferred
financing costs............................. 2,317 1,926 1,294
Valuation charge............................. 5,097 -- 7,000
Deferred income taxes........................ (7,763) 5,303 (1,837)
Gain on disposal of assets................... 659 -- --
Equity in loss of unconsolidated joint
ventures.................................... 1,340 -- 166
Extraordinary item (net of taxes)............ 36,285 -- 12,257
Minority interest............................ (2,209) (819) --
Other........................................ -- -- 445
Changes in current assets and liabilities,
net of acquisitions:
Accounts Receivable........................ (278) 6,324 (4,971)
Income tax receivable...................... 15,592 -- --
Prepaid expenses and other assets.......... (1,126) 1,168 (854)
Accounts payable and accrued expenses...... 3,203 10,272 (1,843)
-------- -------- --------
Net cash provided by operating activities...... 65,218 65,309 17,755
Investing activities:
Purchase of property and equipment............. (94,996) (65,455) (21,490)
Net cash paid for acquisitions................. -- -- (80,495)
Proceeds from disposals of property and
equipment..................................... 202 251 739
Investments in and advances to joint ventures.. (1,482) (2,628) 1,845
(Increase) decrease in restricted cash......... 44,861 (50,341) --
Deposits and other............................. (601) (1,555) 1,976
-------- -------- --------
Net cash used in investing activities.......... (52,016) (119,728) (97,425)
Financing activities:
Proceeds from borrowings....................... 447,088 75,000 318,168
Principal payments on debt and cash paid to
retire debt................................... (414,136) (17,823) (210,341)
Deferred financing costs....................... (13,497) (2,152) (12,943)
Proceeds from sale of stock and exercise of
options....................................... -- 8 18,047
-------- -------- --------
Net cash provided by financing activities...... 19,455 55,033 112,931
-------- -------- --------
Net increase in cash and cash equivalents...... 32,657 614 33,261
Cash and cash equivalents at beginning of
year.......................................... 52,460 51,846 18,585
-------- -------- --------
Cash and cash equivalents at end of year....... $ 85,117 $ 52,460 $ 51,846
======== ======== ========
See notes to consolidated financial statements.
45
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
-----------------------------
April 25, April 26, April 27,
1999 1998 1997
--------- --------- ---------
Supplemental disclosures of cash flow
information:
Cash payments (receipts) for:
Interest...................................... $63,297 $50,479 $37,092
Income taxes--net of refunds.................. 3,140 (4,840) 9,328
Supplemental schedule of noncash investing and
financing activities:
Notes Payable and Debt issued for:
Property and equipment........................ 8,369 -- --
Capital Contributions:
Land, net of mortgage of $396,000............. -- 7,504 --
Financing costs............................... -- -- 1,073
Property and equipment........................ -- 1,615 514
Acquisitions:
Debt assumed.................................. -- -- (37,142)
Stock issued.................................. -- -- (27,115)
Warrants issued............................... -- -- (3,333)
Other:
Deferred financing costs funded through
issuance of common stock..................... -- 500 --
Construction costs funded through accounts
payable...................................... 2,401 1,614 --
See notes to consolidated financial statements.
46
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
Isle of Capri Casinos, Inc., (the "Company") formerly known as Casino
America, Inc. was incorporated as a Delaware corporation on February 14, 1990
and changed its name to Isle of Capri Casinos, Inc. on October 1, 1998. The
Company, through its subsidiaries, is engaged in the business of developing,
owning and operating riverboat, dockside and land-based casinos and related
facilities. The Company has licenses to conduct and currently conducts gaming
operations in Biloxi and Vicksburg, Mississippi, in Bossier City and Lake
Charles, Louisiana, and in Black Hawk, Colorado through its subsidiaries. On
May 3, 1996, the Company acquired 100% of Grand Palais Riverboat, Inc.
("GPRI") and a 50% interest in St. Charles Gaming Company, Inc. ("SCGC"). On
August 6, 1996 the Company acquired the 50% interests in Louisiana Riverboat
Gaming Partnership ("LRGP") and LRG Hotels, LLC and LRGP's 50% interest in
SCGC, which were owned by outside parties. As of August 6, 1996, LRGP, LRG
Hotels, LLC and SCGC became wholly-owned subsidiaries of the Company. Prior to
this date, the Company's investments in these subsidiaries were accounted for
using the equity method of accounting. On April 25, 1997, Isle of Capri Black
Hawk, L.L.C. ("ICBH"), a Colorado limited liability company, was formed. ICBH
is owned by Casino America of Colorado, Inc. ("Casino America of Colorado"), a
wholly-owned subsidiary of the Company and a third party. As of April 25,
1999, Casino America of Colorado owned 57% of ICBH, making it a consolidated
subsidiary of the Company. As such the operating results of ICBH are reflected
in the consolidated operating results of the Company. All material
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior-year financial
statements to conform to the fiscal 1999 presentation.
The Company is engaged in the business of developing, owning and operating
riverboat, dockside and land-based casinos and related facilities. The Company
commenced operations in Biloxi, Mississippi and Vicksburg, Mississippi, on
August 1, 1992 and August 9, 1993, respectively. LRGP commenced operations in
Bossier City, Louisiana on May 20, 1994 and SCGC and GPRI commenced operations
in Lake Charles, Louisiana on July 29, 1995 and July 12, 1996, respectively.
ICBH commenced operations in Black Hawk, Colorado on December 30, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses during the reporting
period. Actual amounts when ultimately realized could differ from those
estimates.
Fiscal Year End
Effective April 27, 1997, the Company changed from an April 30 fiscal year
end to a fiscal year consisting of four, thirteen week quarters, which is also
known as a "four-five-four" fiscal year. This "four-five-four" fiscal year
creates more comparability of the Company's quarterly operations, by having an
equal number of weeks (13) and week-end days (26) in each quarter. Fiscal 1999
commenced on April 27, 1998 and ended April 25, 1999.
Cash Equivalents
The Company considers all highly liquid investments with a maturity at the
time of purchase of three months or less to be cash equivalents. Cash
equivalents are placed primarily with a high-credit-quality financial
institution. At April 25, 1999, cash equivalents were invested primarily in
short-term commercial paper and U.S. Treasury Bills. The carrying amount of
cash equivalents approximates fair value because of the short maturity of
these instruments.
47
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
Years
------
Furniture, fixtures, and equipment................................. 5--10
Leasehold improvements............................................. 10--31
Buildings and improvements......................................... 25
Riverboats and floating pavilions.................................. 25
Interest capitalized during the fiscal years ended April 25, 1999, April 26,
1998 and April 27, 1997 totaled $7.2 million, $2.7 million and $0,
respectively. Depreciation expense for the fiscal years ended April 25, 1999,
April 26, 1998 and April 27, 1997 totaled $30.4 million, $27.1 million and
$22.7 million, respectively.
Long-lived Assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including excess of cost over net assets acquired, in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" (SFAS 121). SFAS 121 requires impairment losses to be
recorded on long-lived assets used in operations, including related excess of
cost over net assets acquired, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts. In that event, a loss is recognized based
on the amount by which the carrying amount exceeds the fair market value of
the long-lived assets. Loss on long-lived assets to be disposed of is
determined in a similar manner, except that fair market values are reduced for
the cost of disposal.
Deferred Financing Costs
The costs of issuing long-term debt have been capitalized and are being
amortized using the effective interest method over the term of the related
debt.
Berthing, Concession, and Leasehold Rights
Berthing, concession and leasehold rights are recorded at cost and are being
amortized over approximately twenty years using the straight-line method.
Other Assets
Licenses and other intangible assets--principally represent the license
value attributed to the Louisiana gaming licenses acquired through the
Company's acquisition of SCGC, GPRI and LRGP. These assets are being amortized
over a twenty-five-year period using the straight-line method.
Goodwill--reflects the excess purchase price the Company paid in acquiring
the net identifiable tangible and intangible assets of SCGC, GPRI and LRGP.
Goodwill is being amortized over a twenty-five-year period using the straight-
line method.
Restricted cash--represents cash proceeds from the 13% First Mortgage Notes
due 2004 with Contingent Interest issued by ICBH (the "First Mortgage Notes")
held in trust by IBJ Whitehall Bank and Trust Company in New York, as trustee
for ICBH, a majority-owned subsidiary of the Company. These funds are held in
three
48
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
separate accounts (Construction Disbursement, Completion Reserve and Interest
Reserve) with usage restricted by an indenture between ICBH and the trustee,
dated August 20, 1997 governing the ICBH First Mortgage Notes (the
"Indenture"). Amounts remaining in the Construction Disbursement Account as of
April 25, 1999, $1.2 million, will be used to complete the construction of a
casino entertainment complex by ICBH in Black Hawk, Colorado. Amounts in the
Completion Reserve Account, $0.8 million, will be used in the event there are
insufficient funds in the Construction Disbursement Account to complete the
casino entertainment complex. In addition, the Company has other restricted
cash totaling $3.5 million related to various operating deposits.
Revenue and Promotional Allowances
Casino revenue is the net win from gaming activities which is the difference
between gaming wins and losses. Casino revenues are net of accruals for
anticipated payouts of progressive electronic gaming device jackpots.
Revenue does not include the retail amount of food, beverage and other items
provided gratuitously to customers, which totaled $49.7 million, $37.0
million, and $30.3 million for the years ended April 25, 1999, April 26, 1998
and April 27, 1997, respectively. The estimated cost of providing such
complimentary services, which is included in casino expense, was $33.1
million, $32.6 million and $24.9 million for the years ended April 25, 1999,
April 26, 1998 and April 27, 1997, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the
years ended April 25, 1999, April 26, 1998 and April 27, 1997 totaled $10.8
million, $10.7 million and $15.7 million, respectively.
49
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Fiscal Year Ended
------------------------------------
April 25, April 26, April 27,
1999 1998 1997
----------- ----------- -----------
(In thousands, except share data)
------------------------------------
Numerator:
Income (loss) before extraordinary
item.................................. $ 12,109 $ 7,547 $ (8,794)
Extraordinary loss, net................ (36,285) -- (12,257)
----------- ----------- -----------
Net income (loss)...................... (24,176) 7,547 (21,051)
Numerator for basic earnings (loss) per
share--income (loss) available to
common stockholders................... (24,176) 7,547 (21,051)
Effect of dilutive securities.......... -- -- --
----------- ----------- -----------
Numerator for diluted earnings (loss)
per share--income (loss) available to
common stockholders after assumed
conversions........................... $ (24,176) $ 7,547 $ (21,051)
=========== =========== ===========
Denominator:
Denominator for basic earnings (loss)
per share--weighted-average shares.... 23,568,562 23,455,338 22,483,270
Effect of dilutive securities
Employee stock options............... 290,317 9,508 --
Warrants............................. -- -- --
----------- ----------- -----------
Dilutive potential common shares....... 290,317 9,508 --
----------- ----------- -----------
Denominator for diluted earnings (loss)
per share--adjusted weighted-average
shares and assumed conversions........ 23,858,879 23,464,846 22,483,270
=========== =========== ===========
Basic earnings (loss) per share
Income (loss) before extraordinary
item.................................. $ 0.51 $ 0.32 $ (0.39)
Extraordinary loss, net................ (1.54) -- (0.55)
----------- ----------- -----------
Net income (loss)...................... $ (1.03) $ 0.32 $ (0.94)
=========== =========== ===========
Diluted earnings (loss) per share
Income (loss) before extraordinary
item.................................. $ 0.51 $ 0.32 $ (0.39)
Extraordinary loss, net................ (1.52) -- (0.55)
----------- ----------- -----------
Net income (loss)...................... $ (1.01) $ 0.32 $ (0.94)
=========== =========== ===========
Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the market value of the shares at the date of
grant. The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock
option plans and accordingly, does not recognize compensation cost.
50
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on its results of
operations or financial position.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-5, "Reporting the Costs of Start-up Activities". The SOP
is effective for years beginning after December 15, 1998, and requires that
start-up costs capitalized prior to adoption be written-off and any future
start-up costs be expensed as incurred. Management does not anticipate that
the adoption of the new Statement will have a significant effect on its
results of operations or financial position.
2. Acquisitions
Isle of Capri--Tunica
In March 1999, the Company acquired the original Harrah's casino facility
located in Tunica County, Mississippi for $9.5 million. The Company estimates
that it will invest an additional $24.0 million to equip, renovate and open
this facility as an Isle of Capri casino. The Company plans to open the Isle-
Tunica in July 1999 with approximately 875 slot machines, 15 table games and
its three trademark restaurants. The Company also plans to invest
approximately $40.0 million to construct an on-site hotel with up to 250 rooms
and two live entertainment theaters with combined seating for 2,000 people.
Construction of the hotel and theaters is scheduled to begin in the second
half of 1999.
Louisiana Riverboat Gaming Partnership
On August 6, 1996, the Company acquired the remaining 50% interest in LRGP
held by outside parties (the "LRGP Acquisition"). The consideration for the
acquisition was $85 million in cash, five-year warrants to purchase 500,000
shares of the Company's common stock at an exercise price of $10.50 per share
and $1.5 million per year for seven years, payable monthly beginning on
October 1, 1998. The acquisition was accounted for as a purchase, and as a
result, the operating results of LRGP and SCGC from the acquisition date
forward are consolidated in the Company's statements of operations.
St. Charles Gaming Company, Inc.
On May 3, 1996, the Company purchased the remaining 50% interest in SCGC not
already owned by LRGP (the "SCGC Acquisition"), in exchange for 1,850,000
shares of the Company's common stock and a five-year warrant. The warrant
allows the seller to convert its note payable from LRGP (up to a maximum of
$5.0 million) to 416,667 shares of common stock of the Company at an exercise
price of $12 per share. The purchase agreement also provided for the
restructuring of certain indebtedness owed to the seller. The acquisition was
accounted for as a purchase, however, the operating results of SCGC were still
accounted for under the equity method of accounting as the Company did not
obtain a controlling interest in SCGC.
Grand Palais Riverboat, Inc.
On May 3, 1996, the Company purchased all of the outstanding shares of
common stock of GPRI in a bankruptcy proceeding. Pursuant to the Plan of
Reorganization adopted in such bankruptcy proceeding, the Company purchased
100% of the shares of the reorganized GPRI, which at the time of closing owned
the Grand Palais Riverboat, gaming equipment, certain other furniture,
fixtures and equipment, all necessary gaming
51
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
licenses issued by the State of Louisiana, and other permits and
authorizations. The acquisition was accounted for as a purchase, and the
operating results of GPRI have been included in the Company's consolidated
statements of operations from the date operations commenced. GPRI commenced
operations on July 12, 1996 as part of a two-riverboat operation with SCGC.
The aggregate consideration paid by the Company in connection with the GPRI
acquisition was approximately $60.8 million, consisting of $7.5 million in
cash, approximately $37.1 million in promissory notes and assumed
indebtedness. The Company also issued 2,250,000 shares of its common stock,
and five-year warrants to purchase an additional 500,000 shares of common
stock at an exercise price of $10 per share, to GPRI's former secured debt
holders. Additionally, in connection with the Grand Palais Acquisition,
Bernard Goldstein, the Chairman of the Company, and three of his sons
(including Robert Goldstein, a director of the Company) pledged certain of
their assets for the issuance of a letter of credit to secure the repayment of
a portion of the principal of certain notes issued to effect the Grand Palais
Acquisition. The Company issued to two of Mr. Goldstein's sons (other than
Robert Goldstein) a five-year warrant to purchase 12,500 shares of Common
Stock at an exercise price of $5.875 per share.
3. Isle of Capri Black Hawk, L.L.C.
On April 25, 1997, a subsidiary of the Company, Casino America of Colorado,
formed ICBH, a limited liability company, with Blackhawk Gold, Ltd., a wholly-
owned subsidiary of Nevada Gold and Casino, Inc. The primary purpose of ICBH
is to develop a casino entertainment complex in Black Hawk, Colorado (the
"Isle-Black Hawk"), which opened on December 30, 1998. ICBH plans to construct
a hotel containing approximately 235 rooms at the site of the Isle-Black Hawk.
The Company has a majority ownership interest in ICBH. As a consolidated
subsidiary of the Company, the operating results of ICBH are reflected in the
consolidated results of the Company. ICBH was a development stage company in
fiscal 1998.
4. Capri Cruises L.L.C.
On April 20, 1998, the Company signed an agreement with Commodore Holdings
Limited, parent company of Commodore Cruise Line, to create a joint venture
named Capri Cruises to operate cruise ships in strategic markets. Cruise
operations began in early June 1998. As of April 25, 1999, the Company had
invested $3.0 million into this 50/50 unconsolidated joint venture, which is
operating one cruise ship from the Port of New Orleans.
5. Property and Equipment
Property and equipment consists of the following:
April 25, April 26,
1999 1998
--------- ---------
(In thousands)
Property and equipment:
Land and land improvements............................. $ 60,776 $ 55,800
Leasehold improvements................................. 98,120 97,692
Buildings and improvements............................. 123,845 49,668
Riverboats and floating pavilions...................... 97,332 92,974
Furniture, fixtures, and equipment..................... 98,145 87,902
Construction in progress............................... 42,966 33,969
-------- --------
521,184 418,005
Less: accumulated depreciation......................... 110,008 84,194
-------- --------
$411,176 $333,811
======== ========
52
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash equivalents--The carrying amounts approximate fair value because of
the short maturity of these instruments.
Restricted cash--The carrying amounts approximate fair value because of
the short maturity of these instruments.
Long-term debt--The fair value of the company's long-term debt is
estimated based on the quoted market price of the underlying debt issue or
the discounted cash flow of future payments utilizing current rates
available to the company for debt of similar remaining maturities. Debt
obligations with a short remaining maturity are valued at the carrying
amount.
The estimated carrying amounts and fair values of the Company's financial
instruments are as follows:
April 25, 1999 April 26, 1998
------------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- --------
(In thousands)
Financial assets:
Cash equivalents....................... $ 85,117 $ 85,117 $ 52,460 $ 52,460
Restricted cash........................ 5,480 5,480 50,341 50,341
Financial liabilities:
Senior secured notes................... $ -- $ -- $315,000 $351,225
First mortgage notes................... 75,000 81,375 75,000 76,125
Other long-term debt................... 67,756 67,756 52,095 52,095
Senior subordinated notes.............. 390,000 390,000 -- --
53
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Long-Term Debt
Long-term debt consists of the following:
April April
25, 1999 26, 1998
-------- --------
(In thousands)
8 3/4% senior subordinated notes (described below)......... $390,000 $ --
Variable rate Term Loan (7.82% at April 25, 1999), due in
quarterly installments ranging from $833,333 to
$4,166,667, not including interest, through April 2004.... 50,000 --
12 1/2% note payable, due in monthly installments of
$125,000, including interest, beginning October 1997
through October 2005...................................... 6,527 6,692
8% note payable, due in monthly installments of $66,667,
including interest, through July 2002..................... 2,283 2,874
8% note payable, due in monthly installments of $11,365,
including interest, through December 2015................. 1,250 1,285
11% note payable, issued by Isle of Capri Black Hawk,
L.L.C., due in monthly installments of $73,692, including
interest, through October 2000; non-recourse to Isle of
Capri Casinos, Inc........................................ 1,522 --
13% First Mortgage Notes, issued by Isle of Capri Black
Hawk, L.L.C., due August 2004; non-recourse to Isle of
Capri Casinos, Inc........................................ 75,000 75,000
Other...................................................... 6,174 5,346
Notes paid in full during fiscal 1999:
12 1/2% senior secured notes........................... -- 315,000
Variable rate notes.................................... -- 23,619
11 1/2% note payable................................... -- 7,647
9 1/4% notes payable................................... -- 3,669
6% note payable........................................ -- 963
-------- --------
532,756 442,095
Less: current maturities................................. 5,883 12,453
-------- --------
Long-term debt........................................... $526,873 $429,642
======== ========
On April 23, 1999, the Company issued $390,000,000 of 8 3/4% Senior
Subordinated Notes due 2009 (the "Senior Subordinated Notes"). The Senior
Subordinated Notes are guaranteed by all of the Company's significant
subsidiaries, excluding the subsidiaries that own and operate the Isle-Black
Hawk. Interest on the Senior Subordinated Notes is payable semiannually on
each April 15 and October 15 through maturity. The Senior Subordinated Notes
are redeemable, in whole or in part, at the Company's option at any time on or
after April 15, 2004 at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest to the
applicable redemption date, if redeemed during the 12-month period beginning
on April 15 of the years indicated below:
Year Percentage
---- ----------
2004.................. 104.375%
2005.................. 102.917%
2006.................. 101.458%
2007 and
thereafter........... 100.000%
The Company issued the Senior Subordinated Notes under an indenture between
the Company, the subsidiary guarantors and a trustee. The indenture, among
other things, restricts the Company's ability and the
54
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ability of its restricted subsidiaries to borrow money, make restricted
payments, use assets as security in other transactions, enter into
transactions with affiliates, or pay dividends on or repurchase our stock or
our restricted subsidiaries' stock. The Company is also restricted in its
ability to issue and sell capital stock of its subsidiaries and in its ability
to sell assets in excess of specified amounts or merge with or into other
companies.
At April 25, 1999, no dividends were permitted to be paid under these
restrictions.
A substantial part of the proceeds from the Senior Subordinated Notes were
used to prepay long-term debt, including all of the $315,000,000 of 12 1/2%
Senior Secured Notes due 2003. The proceeds were also used to pay accrued
interest and other transaction fees and costs.
Simultaneously with the issuance of the Senior Subordinated Notes, the
Company entered into a new $175.0 million five-year Senior Credit Facility
(the "Senior Credit Facility") comprised of a $50.0 million term loan and a
$125.0 million undrawn revolver. The new Senior Credit Facility is secured by
liens on substantially all of the Company's assets and guaranteed by all of
its significant restricted subsidiaries, excluding Casino America of Colorado,
Inc., Black Hawk LLC and their subsidiaries. The Company used the initial
borrowings under the Senior Credit Facility to repay certain existing debt and
for working capital and for other general corporate purposes. The Company
plans to use future borrowings under the Senior Credit Facility primarily for
expansion of its existing casino facilities and the development of new casino
facilities.
On August 20, 1997, ICBH issued $75 million of 13% First Mortgage Notes due
2004 with Contingent Interest (the "ICBH First Mortgage Notes"), which is non-
recourse debt to the Company. Interest on the ICBH First Mortgage Notes is
payable semiannually on February 28 and August 31 of each year, commencing
February 28, 1998. Additionally, contingent interest is payable on the ICBH
First Mortgage Notes on each interest payment date, in an aggregate principal
amount of 5% of the Consolidated Cash Flow (as defined in the Indenture). The
ICBH First Mortgage Notes are redeemable at the option of ICBH, in whole or in
part, at any time on or after August 1, 2001 at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest to the redemption date, if redeemed during the 12-month
period beginning on August 31 of the years indicated below:
Year Percentage
---- ----------
2001.................. 106.500%
2002.................. 103.200%
2003 and thereafter... 100.000%
Beginning with the first operating year after the Isle-Black Hawk begins
gaming operations, ICBH will be required to offer to purchase, at the price of
101% of the aggregate principal amount thereof, the maximum principal amount
of the ICBH First Mortgage Notes that may be purchased with 50% of the Isle-
Black Hawk's excess cash flow, as defined.
The Company has $6.5 million available in bank lines of credit. As of April
25, 1999, the Company had no outstanding balances under these lines of credit.
ICBH obtained a letter of credit as a requirement to obtain a building
permit from the City of Black Hawk (the "City"). The letter of credit,
totaling $2.1 million, can be drawn upon by the City if for any reasons ICBH
fails to complete the construction project. The letter of credit is secured by
a deposit held in trust of $1.1 million, which was funded by the Company and
the balance is secured by the Company's open line of credit with the bank.
55
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Substantially all of the Company's assets are pledged as collateral for
long-term debt. At April 25, 1999, the Company was in compliance with all debt
covenants.
The aggregate principal payments due on total long-term debt over the next
five fiscal years and thereafter are as follows:
For the Fiscal Year Ending
(In thousands)
--------------
2000........................................................... $ 5,883
2001........................................................... 10,120
2002........................................................... 12,109
2003........................................................... 14,893
2004........................................................... 18,135
Thereafter..................................................... 471,616
--------
$532,756
========
8. Lease Commitments
The Company has an agreement with the Biloxi Port Commission which provides
the Company with certain docking rights. This agreement expires in July 1999,
with eight renewal options of five years each. Annual rentals are the greater
of $500,000 or 1% of gross monthly gaming revenue, as defined. Annual rent
during each renewal term is adjusted for increases in the Consumer Price
Index, limited to 6% for each renewal period.
In addition, the Company leases certain land, buildings, and other
improvements from the City of Biloxi under a lease and concession agreement.
This agreement expires in July 1999, with options to renew for seven
additional terms of five years each. Annual rent is $500,000 plus 3% of gross
gaming revenue, as defined, in excess of $25.0 million. Annual rent during
each renewal term is adjusted for increases in the Consumer Price Index,
limited to 6% for each renewal period. This agreement also allows rent credits
to be amortized over the initial term of the lease, for costs and expenses
incurred by the Company for construction of certain improvements to the leased
assets.
In April 1994, the Company entered an Addendum to the lease with the City of
Biloxi, which requires the Company to pay 4% of gross non-gaming revenues
received as defined, net of sales tax, comps and discounts. Additional rent
will be due to the City of Biloxi for the amount of any increase from and
after January 1, 2016 in the rent due to the State Institutions of Higher
Learning under a lease between the City of Biloxi and the State Institutions
of Higher Learning (the "IHL Lease") and for any increases in certain
tidelands leases between the City of Biloxi and the State of Mississippi.
In April 1994, in connection with the construction of a hotel, the Company
entered a lease for additional land.
The Company first acquired the leasehold interest of Sea Harvest, Inc., the
original lessee, for consideration of $8,000 per month for a period of ten
years. The Company's lease is with the City of Biloxi, Mississippi, for an
initial term of 25 years, with options to renew for six additional terms of 10
years each and a final option period with a termination date commensurate with
the termination date of the IHL Lease, but in no event later than December 31,
2085. Annual rent (which includes payments to be made pursuant to the purchase
of a related leasehold interest) is $404,000, plus 4% of gross non-gaming
revenue, as defined. The annual rent is adjusted after each five-year period
based on increases in the Consumer Price Index, limited to a 10% increase in
any
56
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
five-year period. The annual rent will increase 10 years after the
commencement of payments pursuant to a termination of lease and settlement
agreement, to an amount equal to the sum of annual rent as if it had been
$500,000 annually plus adjustments thereto based on the Consumer Price Index.
In February 1995, in conjunction with its planned Cripple Creek Colorado
operation, the Company entered into a land lease. The lease has an initial
term of 25 years, with options to renew for seven additional terms of 10 years
each. The base rent is $250,000 per year increased by $10,000 each year until
the annual rent is $300,000. After seven years, and every two years
thereafter, the annual rent is adjusted based on increases in the Consumer
Price Index, limited to a 4% increase in any two-year period.
The Company leases approximately 16.25 acres of land in Calcasieu Parish,
Louisiana for use in connection with the Isle-Lake Charles. The initial term
of this lease expires in March 2000 and we have the option to renew it for
seventeen additional terms of five years each. Rent under the Isle-Lake
Charles lease is currently $1.2 million per year and is subject to increases
based on the Consumer Price Index and construction of hotel facilities on the
property.
In March 1999, the Company entered into a lease for land in Tunica County,
Mississippi for use in connection with the Isle-Tunica. The initial lease term
is five years with the option to renew the lease for seven additional terms of
five years. Base rent for each lease year equals the greater of 2% of gross
gaming revenue or $800,000. Once gross gaming revenue exceeds $40.0 million
during any lease year, the base rent in the following months of such year
shall be increased by an amount equal to 2% of such excess. The landlord is
entitled to receive additional rent based on excess available cash, as defined
in the lease.
Minimum rental obligations under all noncancelable operating leases with
terms of one year or more as of April 25, 1999, are as follows:
Fiscal Year Ending
(In thousands)
--------------
2000............................................................. $8,624
2001............................................................. 6,930
2002............................................................. 5,517
2003............................................................. 2,962
2004............................................................. 1,648
Rent expense for operating leases was approximately $10.8 million, $6.8
million and $7.1 million for the years ended April 25, 1999, April 26, 1998
and April 27, 1997, respectively. Such amounts include contingent rentals of
$2.6 million, $2.7 million and $2.5 million for the years ended April 25,
1999, April 26, 1998 and April 27, 1997, respectively.
9. Related Party Transactions
On January 2, 1998, the Company acquired approximately 0.7 acres of property
(the "Acquired Property") contiguous to the property being developed by ICBH.
The acquired property will be used for the expansion of the entrance and the
signage of the Isle-Black Hawk. On January 2, 1998, ICBH, as Lessee, entered
into a lease agreement with the Company for the Acquired Property and will
utilize the Acquired Property in developing the Isle-Black Hawk. The lease
payment consists of $102,000 paid upon the inception of the lease and $17,000
per month, commencing July 15, 1998, and continuing until December 31, 2002,
and thereafter on a year to year basis. During the term of the lease, ICBH has
the right to purchase the property for $1.5 million plus all interest and out-
of-pocket costs that the Company incurred in connection with the purchase and
ownership of the land, less any payments made by ICBH, as lessee.
57
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company provides management services to all of its wholly-owned
riverboat casino entities, pursuant to respective management agreements.
Management fees for these services are based upon a percentage of each
entity's revenue and operating income, as defined in the management
agreements. The revenue under the management agreements is eliminated through
consolidation. However, the management services provided by the Company to
LRGP and SCGC prior to these entities becoming wholly-owned subsidiaries of
the Company as of the August 6, 1996 acquisition date, are reflected as
Management fee--unconsolidated joint ventures in the accompanying consolidated
statements of operations.
10. Income Taxes
Income tax expense (benefit) consist of the following:
Fiscal Year Ended
------------------------------
April 25, April 26, April 27,
1999 1998 1997
--------- --------- ---------
(In thousands)
Current:
Federal......................................... $ (485) $1,131 $(6,219)
State........................................... 485 1,063 (104)
-------- ------ -------
-- 2,194 (6,323)
Deferred:
Federal......................................... (8,558) 4,841 (1,569)
State........................................... 795 462 (268)
-------- ------ -------
(7,763) 5,303 (1,837)
-------- ------ -------
$(7,763) $7,497 $(8,160)
======== ====== =======
A reconciliation of income tax expense (benefit) to the statutory corporate
federal tax rate of 35% is as follows:
Fiscal Year Ended
------------------------------
April 25, April 26, April 27,
1999 1998 1997
--------- --------- ---------
(In thousands)
Statutory tax expense (benefit)................. $(11,178) $5,265 $(10,224)
Effects of:
State taxes................................... 591 991 (68)
Goodwill...................................... 1,185 1,327 834
Valuation allowance........................... -- -- 903
Other--net.................................... 1,639 (86) 395
-------- ------ --------
$ (7,763) $7,497 $ (8,160)
======== ====== ========
58
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's net deferred income tax liability
are as follows:
April 25, April 26,
1999 1998
--------- ---------
(In thousands)
Deferred tax liabilities:
Property and equipment.................................... $28,996 $29,078
Other..................................................... 1,290 1,402
------- -------
Total deferred tax liabilities.............................. 30,286 30,480
Deferred tax assets:
Dividends................................................. 258 350
Write-down of assets held for sale........................ 7,440 5,690
Preopening costs.......................................... (1,012) 291
Accrued expenses.......................................... 5,035 3,837
Charitable contribution carryover......................... 433 434
Alternative minimum tax credit............................ 4,732 3,353
Net operating losses...................................... 21,797 16,218
Other..................................................... (518) 493
------- -------
Total deferred tax assets................................... 38,165 30,666
Valuation allowance on deferred tax assets.................. (7,884) (13,062)
------- -------
Net deferred tax assets..................................... 30,281 17,604
------- -------
Net deferred tax liabilities................................ $ 5 $12,876
======= =======
At April 25, 1999, the Company had alternative minimum tax credits which can
be carried forward indefinitely to reduce future regular tax liabilities.
Additionally, as of April 25, 1999, the Company has federal net operating loss
carry-forwards of $56.0 million for income tax purposes, with expiration dates
from 2008 to 2018. Approximately $22.0 million of net operating losses are
subject to limitation under the income tax regulations, which may limit the
amount ultimately utilized.
The utilization of pre-acquisition net operating losses resulted in a
reduction to goodwill of $5.1 million in fiscal 1999 and $3.3 million in
fiscal 1998.
11. Common Stock
Stock-based compensation.
Under the Company's 1992 and 1993 Stock Option Plans, as amended, a maximum
of 1,058,750 and 1,200,000 options, respectively, may be granted to directors,
officers and employees. The plans provide for the issuance of incentive stock
options and nonqualified options which have a maximum term of 10 years and
are, generally, exercisable in yearly installments ranging from 20% to 25%,
commencing one year after the date of grant.
59
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock options outstanding are as follows:
Weighted Weighted
Average Average
1999 Exercise 1998 Exercise 1997
Options Price Options Price Options
--------- -------- --------- -------- ---------
Outstanding options at
beginning of fiscal year.. 2,718,199 $5.24 1,980,138 $6.49 1,518,188
Options granted............ 1,342,500 3.05 1,096,500 3.41 777,500
Options exercised.......... -- -- (8,438) 0.89 (65,625)
Options canceled........... (101,212) 6.10 (350,001) 6.78 (249,925)
--------- --------- ---------
Outstanding options at end
of fiscal year............ 3,959,487 $4.48 2,718,199 $5.24 1,980,138
========= ========= =========
Weighted average fair value of options granted during fiscal 1999 and 1998
was $2.18 and $2.35, respectively.
The following table summarizes information about stock options outstanding
at April 25, 1999:
Options Outstanding Options Exercisable
------------------------------- --------------------------
Weighted Average Weighted Weighted
Ranges of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
$ .89-$ 5.70 3,198,437 8.36 years $ 3.35 556,787 $ 4.07
5.88- 11.25 519,300 6.46 years 7.02 341,581 7.29
11.56- 18.00 241,750 4.53 years 13.94 241,750 13.94
--------- ---------
$ .89-$18.00 3,959,487 7.88 years $ 4.48 1,140,118 $ 7.13
========= =========
Pro forma information regarding net income and earnings per share is required
by Statement of Financial Accounting Standard No. 123, Accounting for Stock-
based Compensation. Had compensation costs for the Company's two stock option
plans been determined based on the fair value at the grant dates for awards in
fiscal years 1999, 1998 and 1997 consistent with the provisions of SFAS 123,
the Company's net earnings and earnings per share would have been reduced to
the pro forma amounts disclosed below:
Fiscal Year Ended
April 25, April 26, April 27,
1999 1998 1997
--------- --------- ---------
(In thousands, except per
share data)
Net income (loss)
As reported................................... $(24,176) $7,547 $(21,051)
Pro forma..................................... $(25,153) $6,798 $(21,527)
Earnings (loss) per common share
Basic
As reported................................... $ (1.03) $ 0.32 $ (0.94)
Pro forma..................................... $ (1.07) $ 0.29 $ (0.96)
Diluted
As reported................................... $ (1.01) $ 0.32 $ (0.94)
Pro forma..................................... $ (1.05) $ 0.29 $ (0.96)
60
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in fiscal 1999, 1998 and 1997: options vest at 20% per year for five
years beginning with the grant date for fiscal 1999 and 1998; and 25% per year
for four years in fiscal 1997; dividend yield of 0%; weighted average expected
volatility of .70, .74, and .85, respectively; risk-free interest rate of
5.2%, 5.3% and 7.1%, respectively; and expected lives of 6 years.
The pro forma effect on net income (loss) for fiscal 1999, 1998 and 1997 is
not representative of the pro forma effect on net income for future years
because it does not take into account pro forma compensation expense related
to grants made prior to fiscal 1996 or the potential for issuance of
additional stock options in future years.
Warrants
The Company has the following outstanding warrants:
Expiration Number of Exercise
Date Issued Date Warrants Shares Price
- ----------- ---------- -------- ------- --------
June 1995.............................. June 9, 2001 1 416,667 $12.00
May 1996............................... May 3, 2001 1 12,500 $ 5.88
May 1996............................... May 3, 2001 500,000 500,000 $10.00
May 1996............................... May 3, 2001 1 416,667 $12.00
August 1996............................ August 6, 2001 500,000 500,000 $10.50
Rights Offering
On March 11, 1996, the Company sold an aggregate of 1,020,940 shares of its
common stock at a price of $5.875 per share to the Chairman and Chief
Executive Officer of the Company and three members of his family. On March 1,
1996, when the Board adopted resolutions authorizing the Company's officers to
consummate the sale of these shares, the last reported sales price on NASDAQ
was $5.75 per share. Proceeds from the sale totaled $5,998,000.
The Company's board of directors authorized the offering (the "Offering"),
on a pro rata basis, of rights to purchase shares of the Company's common
stock at a price of $5.875 per share at a ratio of approximately one share for
every four shares owned to its shareholders of record on March 15, 1996. The
primary purpose of the Offering was to ensure that all shareholders had the
same opportunity to purchase shares of the Company's common stock as had been
afforded to the Chairman and Chief Executive Officer of the Company and his
family.
The Offering expired on July 26, 1996. The number of shares sold through the
Offering was 3,079,980, resulting in proceeds totaling $17,881,000.
12. Stockholder Rights Plan
In February 1997, the Company adopted a Stockholder Rights Plan. The Plan is
designed to preserve the long-term value of the shareholders' investment in
the Company. Under the Plan, each shareholder will receive a distribution of
one Right for each share of the Company's outstanding common stock. The Rights
were distributed to shareholders of record on March 3, 1997 and will expire
ten years thereafter. Each right entitles the holder to purchase one one-
thousandth (1/1,000) of a share of a new series of participating preferred
stock at an initial exercise price of $12.50. Initially the rights are
represented by the Company's common stock certificates and are not
exercisable. The rights become exercisable shortly after a person or group
acquires
61
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
beneficial ownership of 15% or more of the Company or publicly announces its
intention to commence a tender or exchange offer that would result in the 15%
beneficial ownership level. Under certain circumstances involving a buyer's
acquisition of a 15% position in the Company, all Rights holders except the
buyer will be entitled to purchase common stock at half price. If the Company
is acquired through a merger, after such an acquisition, all Rights holders
except the buyer will be entitled to purchase stock in the buyer at half
price. The Company may redeem the rights at one cent each at any time before a
buyer acquires 15% of the Company's stock.
13. Preopening Expenses
Preopening expenses of $3.3 million in fiscal 1999 and $2.5 million in
fiscal 1998 represent salaries, benefits, training, marketing and other
noncapitalizable costs, which were incurred prior to and expensed in
connection with the opening of the Isle-Black Hawk in fiscal 1999 and the
opening of GPRI in fiscal 1997.
14. Valuation Charge
During fiscal 1996 the Company recorded a valuation charge of $9.3 million
related to the write-down of two riverboats, a barge and certain gaming
equipment, which were not being used in operations and were reclassified as
assets held for sale. The assets were written down based upon written and oral
purchase/lease option agreements at that time. During fiscal 1997, the Company
did not place any of these assets into service, nor sell any of these assets
and the purchase/lease agreements that were in effect at the end of fiscal
1996 expired. As a result, the Company revised its estimate of fair value less
cost to sell these assets, and has recorded an additional write down of $6.0
million based on negotiations with potential buyers.
Additionally, during fiscal 1997, the Company wrote off $1.0 million of
design and development costs related to a project for which the Company
revised the original scope.
During fiscal 1999 the Company recorded a valuation charge totaling $5.1
million. The valuation charge reflects the write-down of assets held for
development or sale of $2.4 million related to its two original riverboat
casino vessels and land the Company was planning to develop in Cripple Creek,
Colorado. During the third quarter ended January 24, 1999, the Company entered
an agreement to sell one of its two original riverboats for less than the
recorded value. This sale had not closed as of the end of the fiscal year
ended April 25, 1999. However, the Company has adjusted the valuation
allowance related to both riverboats to reflect the fair value, based on the
agreed upon sales price. Also, management has delayed its plans to develop a
casino on land it owns in Cripple Creek, Colorado. Accordingly, management has
established a valuation allowance on the land it owns in Cripple Creek to
reflect the fair value as the carrying value. Additionally, the valuation
charge includes $2.7 million related to future obligations under an operating
lease related to its Cripple Creek, Colorado project.
15. Extraordinary Item
The Company incurred a pre-tax extraordinary loss totaling $55.8 million
related to the refinancing of its 12 1/2% Senior Secured Notes and other debt
on April 23, 1999. The extraordinary loss included early payment premiums, as
well as the write-off of consent fees and debt acquisition costs. The tax
benefit from the extraordinary loss was approximately $19.5 million.
16. Employee Benefit Plan
The Company has a defined-contribution, profit-sharing plan, including
401(k) plan provisions, covering substantially all of its employees. The
Company's contribution expense related to this plan was approximately
$635,000, $609,000 and $633,000 for the years ended April 25, 1999, April 26,
1998 and April 27, 1997, respectively. The Company's contribution is based on
a percentage of employee contributions and may include an additional
discretionary amount.
62
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Litigation
One of the Company's subsidiaries has been named, along with numerous
manufacturers, distributors and gaming operators, including many of the
country's largest gaming operators, in a consolidated class action lawsuit
pending in Las Vegas, Nevada. These gaming industry defendants are alleged to
have violated the Racketeer Influenced and Corrupt Organizations Act by
engaging in a course of fraudulent and misleading conduct intended to induce
people to play their gaming machines based upon a false belief concerning how
those gaming machines actually operate and the extent to which there is
actually an opportunity to win on any given play. The suit seeks unspecified
compensatory and punitive damages. A motion for certification of the class is
currently pending before the court and no discovery as to the merits of the
alleged claims has begun. The Company is unable at this time to determine what
effect, if any, the suit would have on its financial position or results of
operations. However, the gaming industry defendants are committed to defend
vigorously all claims asserted in the consolidated action.
In February 1998, the Isle-Vicksburg was named as a defendant in an action
brought by an individual who owns property adjacent to the Big Black River in
the eastern part of Warren County, Mississippi and several other parties. Also
named as defendants in the action are two other operators in the Vicksburg
market and one of the largest banks in the State of Mississippi. The amended
complaint alleges that the defendants entered into an agreement to conduct a
campaign opposing a gaming application for a site next to property owned by
the plaintiffs. The plaintiffs allege that because of this agreement trade was
improperly restrained and competition in the gaming business was reduced. The
plaintiffs further allege that the defendants conspired for the purpose of
injuring the plaintiffs' property rights. The plaintiffs seek compensatory and
punitive damages in the amount of $238.0 million. The Company has denied the
allegations contained in the amended complaint and intends to vigorously
defend all claims and allegations in the action.
In May 1998, the Company was named as a defendant in an action brought by
several persons who had a contractual right to acquire property in Cripple
Creek, Colorado which they sold to one of the Company's subsidiaries in 1995.
The plaintiffs allege that the Company breached its purported agreement to
construct a casino facility on the property by the end of 1995. In December
1998, its motion to dismiss the complaint was granted by the United States
District Court in Denver, Colorado. The plaintiffs have appealed this decision
to the Tenth Circuit Court of Appeals. The Company intends to vigorously
defend all claims and allegations in the action.
On August 26, 1997, a lawsuit was filed which seeks to nullify a contract to
which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the
city of Bossier and the Bossier Parish School Board, in lieu of payment of a
per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat
Gaming Partnership was granted on June 4, 1998. That judgment was not appealed
and is now final. On June 11, 1998, a similar suit was filed and is currently
pending. The Company intends to vigorously defend this suit.
The Company is engaged in various other litigation matters and has a number
of unresolved claims. Although the ultimate liability of this litigation and
these claims cannot be determined at this time, the Company believes that they
will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
63
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Consolidating Condensed Financial Information
The Company's subsidiaries (excluding certain subsidiaries) have fully and
unconditionally guaranteed the payment of all obligations under the Company's
$390 million 8 3/4% Senior Subordinated Notes due 2009. The following table
presents the consolidating condensed financial information of Isle of Capri
Casinos, Inc., as the parent company, its guarantor subsidiaries and its
nonguarantor subsidiaries as of April 25, 1999 and April 26, 1998.
Consolidating condensed financial information for guarantor subsidiaries has
been omitted for fiscal 1997 as the parent had no operations or assets
separate from its investments in its subsidiaries and registered debt was
guaranteed by all direct and indirect subsidiaries of the parent.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR AND PARENT COMPANY FINANCIAL
INFORMATION
AS OF AND FOR THE YEARS ENDED APRIL 25, 1999 AND APRIL 26, 1998
(In Thousands)
(b)
Isle of Capri (a) Non-Wholly Isle of
Casinos, Inc. Wholly Owned Consolidating Capri
Guarantor Owned Non- and Casinos,
(Parent Guarantor Guarantor Eliminating Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
------------- ------------ ------------ ------------- ------------
As of April 25, 1999
Balance Sheet
Current assets.......... $ 36,599 $ 60,679 $11,738 $ -- $109,016
Intercompany
receivables............ 220,578 159,361 -- (379,939) --
Investments in
subsidiaries........... 233,541 -- -- (231,690) 1,851
Property and equipment,
net.................... 6,605 324,194 80,377 -- 411,176
Other assets............ 44,377 103,916 6,148 -- 154,441
-------- -------- ------- --------- --------
Total Assets............ $541,700 $648,150 $98,263 $(611,629) $676,484
======== ======== ======= ========= ========
Current liabilities..... $ 13,395 $ 56,074 $ 9,419 $ (64) $ 78,824
Intercompany payables... 24,593 349,994 5,289 (379,876) --
Long-term debt, less
current maturities..... 441,757 9,348 75,768 -- 526,873
Deferred income taxes... -- 4,689 -- -- 4,689
Minority interest....... -- -- -- 4,143 4,143
Stockholders' equity.... 61,955 228,045 7,787 (235,832) 61,955
-------- -------- ------- --------- --------
Total Liabilities and
Stockholders' Equity... $541,700 $648,150 $98,263 $(611,629) $676,484
======== ======== ======= ========= ========
64
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b)
Isle of Capri (a) Non-Wholly Isle of
Casinos, Inc. Wholly Owned Consolidating Capri
Guarantor Owned Non- and Casinos,
(Parent Guarantor Guarantor Eliminating Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
------------- ------------ ------------ ------------- ------------
For the year ended April
25, 1999
Statement of Operations
Revenue:
Casino................ $ -- $403,700 $20,679 $ -- $424,379
Rooms, food, beverage
and other............ 429 54,561 1,367 (359) 55,998
-------- -------- ------- -------- --------
Total revenue........... 429 458,261 22,046 (359) 480,377
Operating expenses:
Casino................ -- 74,793 2,886 -- 77,679
Gaming taxes.......... -- 82,925 3,930 -- 86,855
Rooms, food, beverage
and other............ 4,390 192,565 14,224 (359) 210,820
Depreciation and
amortization......... 3,439 31,853 985 -- 36,277
-------- -------- ------- -------- --------
Total operating
expenses............... 7,829 382,136 22,025 (359) 411,631
-------- -------- ------- -------- --------
Operating income
(loss)................. (7,400) 76,125 21 -- 68,746
Interest expense, net... (5,671) (34,853) (5,207) -- (45,731)
Minority interest....... -- -- -- 2,209 2,209
Equity in income (loss)
of unconsolidated joint
venture 36,955 -- -- (38,295) (1,340)
-------- -------- ------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 23,884 41,272 (5,186) (36,086) 23,884
Income tax provision
(benefit).............. 11,775 2,374 -- (2,374) 11,775
-------- -------- ------- -------- --------
Income (loss) before
extraordinary item..... 12,109 38,898 (5,186) (33,712) 12,109
Extraordinary loss on
extinguishment of debt
(net of applicable
income tax benefit).... (36,285) -- -- -- (36,285)
-------- -------- ------- -------- --------
Net income (loss)....... $(24,176) $ 38,898 $(5,186) $(33,712) $(24,176)
======== ======== ======= ======== ========
Statement of Cash Flows
Net cash provided by
(used in) operating
activities............. $(33,503) $ 94,689 $ 2,757 $ 1,275 $ 65,218
Net cash provided by
(used in) investing
activities............. (7,465) (49,368) 6,092 (1,275) (52,016)
Net cash provided by
(used in) financing
activities............. 56,773 (38,840) 1,522 -- 19,455
-------- -------- ------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 15,805 6,481 10,371 -- 32,657
Cash and cash
equivalents at
beginning of year...... 20,021 31,892 547 -- 52,460
-------- -------- ------- -------- --------
Cash and cash
equivalents at end of
year................... $ 35,826 $ 38,373 $10,918 $ -- $ 85,117
======== ======== ======= ======== ========
65
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b)
Isle of Capri (a) Non-Wholly Isle of
Casinos, Inc. Wholly Owned Consolidating Capri
Guarantor Owned Non- and Casinos,
(Parent Guarantor Guarantor Eliminating Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
------------- ------------ ------------ ------------- ------------
As of April 26, 1998
Balance Sheet
Current assets.......... $ 20,732 $ 46,913 $ 1,612 $ -- $ 69,257
Intercompany
receivables............ 190,117 122,536 -- (312,653) --
Investments in
subsidiaries........... 196,208 -- -- (194,499) 1,709
Property and equipment,
net.................... 3,194 289,675 40,942 -- 333,811
Other assets............ 42,239 115,396 53,323 -- 210,958
-------- -------- ------- --------- --------
Total Assets............ $452,490 $574,520 $95,877 $(507,152) $615,735
======== ======== ======= ========= ========
Current liabilities..... $ 19,393 $ 50,969 $ 7,904 $ (311) $ 77,955
Intercompany payables... 23,892 288,450 -- (312,342) --
Long-term debt, less
current maturities..... 323,074 31,568 75,000 -- 429,642
Deferred income taxes... -- 16,155 -- -- 16,155
Minority interest....... -- -- -- 5,852 5,852
Stockholders' equity.... 86,131 187,378 12,973 (200,351) 86,131
-------- -------- ------- --------- --------
Total Liabilities and
Stockholders' Equity... $452,490 $574,520 $95,877 $(507,152) $615,735
======== ======== ======= ========= ========
For the year ended April
26, 1998
Statement of Operations
Revenue:
Casino................ $ -- $388,223 $ -- $ -- $388,223
Rooms, food, beverage
and other............ 268 52,729 -- (404) 52,593
-------- -------- ------- --------- --------
Total revenue........... 268 440,952 -- (404) 440,816
Operating expenses:
Casino................ -- 76,072 -- -- 76,072
Gaming taxes.......... -- 78,586 -- -- 78,586
Rooms, food, beverage
and other............ (645) 192,517 -- (404) 191,468
Depreciation and
amortization......... 1,575 32,013 -- -- 33,588
-------- -------- ------- --------- --------
Total operating
expenses............... 930 379,188 -- (404) 379,714
-------- -------- ------- --------- --------
Operating income
(loss)................. (662) 61,764 -- -- 61,102
Interest expense, net... (6,990) (37,855) (2,032) -- (46,877)
Minority interest....... -- -- -- 819 819
Equity in income (loss)
of unconsolidated joint
venture................ 22,696 -- -- (22,696) --
-------- -------- ------- --------- --------
Income (loss) before
income taxes and
extraordinary item..... 15,044 23,909 (2,032) (21,877) 15,044
Income tax provision
(benefit).............. 7,497 (556) -- 556 7,497
-------- -------- ------- --------- --------
Income (loss) before
extraordinary item..... 7,547 24,465 (2,032) (22,433) 7,547
Extraordinary loss on
extinguishment of debt
(net of applicable
income tax benefit).... -- -- -- -- --
-------- -------- ------- --------- --------
Net income (loss)....... $ 7,547 $ 24,465 $(2,032) $ (22,433) $ 7,547
======== ======== ======= ========= ========
66
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b)
Isle of Capri (a) Non-Wholly Isle of
Casinos, Inc. Wholly Owned Consolidating Capri
Guarantor Owned Non- and Casinos,
(Parent Guarantor Guarantor Eliminating Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
------------- ------------ ------------ ------------- ------------
For the year ended April
26, 1998
Statement of Cash Flows
Net cash provided by
(used in) operating
activities............. $ 5,975 $48,323 $ 3,596 $7,415 $ 65,309
Net cash provided by
(used in) investing
activities............. (4,618) (34,683) (80,096) (331) (119,728)
Net cash provided by
(used in) financing
activities............. (2,730) (12,200) 77,047 (7,084) 55,033
------- ------- ------- ------ --------
Net increase (decrease)
in cash and cash
equivalents............ (1,373) 1,440 547 -- 614
Cash and cash
equivalents at
beginning of year...... 21,394 30,452 -- -- 51,846
------- ------- ------- ------ --------
Cash and cash
equivalents at end of
year................... $20,021 $31,892 $ 547 $ -- $ 52,460
======= ======= ======= ====== ========
- --------
(a) The following wholly owned subsidiaries were guarantors on the 8 3/4%
Notes: Riverboat Corporation of Mississippi, Riverboat Corporation of
Mississippi Vicksburg, Louisiana Riverboat Gaming Partnership, St. Charles
Gaming Company, Inc., Grand Palais Riverboat, Inc., and PPI, Inc.
(b) The following non-wholly owned subsidiaries were not guarantors on the
8 3/4% Notes: Isle of Capri Black Hawk, L.L.C. and Isle of Capri Capital
Corp.
19. Selected Quarterly Financial Information (Unaudited)
Fiscal Quarters Ended 1999
---------------------------------------
(In thousands)
July 26 October 25 January 24 April 25
-------- ---------- ---------- --------
Revenue.............................. $114,079 $106,926 $115,120 $144,252
Operating income..................... 16,925 14,684 11,902 25,235
Net income (loss) before
extraordinary item.................. 2,692 1,928 1,045 6,444
Extraordinary item, net.............. -- -- -- (36,285)
Net income (loss).................... 2,692 1,928 1,045 (29,841)
Net income (loss) per share before
extraordinary item
Basic.............................. 0.11 0.08 0.04 0.27
Diluted............................ 0.11 0.08 0.04 0.27
Net income (loss) per common share
Basic.............................. 0.11 0.08 0.04 (1.27)
Diluted............................ 0.11 0.08 0.04 (1.23)
67
ISLE OF CAPRI CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Quarters Ended 1998
---------------------------------------
(In thousands)
July 27 October 26 January 25 April 26
-------- ---------- ---------- --------
Revenue................................ $111,737 $106,273 $105,819 $116,987
Operating income....................... 16,027 13,932 12,219 18,924
Net income (loss)...................... 2,948 1,077 260 3,262
Net income (loss) per common share
Basic................................ 0.13 0.05 0.01 0.14
Diluted.............................. 0.13 0.05 0.01 0.14
Quarterly data may not necessarily sum to the full year data reported in the
Company's consolidated financial statements.
The first two quarters of fiscal 1998 earnings per common share have been
restated to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
The third quarter of fiscal 1999 includes the following non-recurring items:
a valuation charge of $5.1 million related to the write-down of certain assets
held for sale or development, a $4.2 million reversal of an accrued litigation
settlement and preopening expenses related to the opening of the Isle-Black
Hawk in December 1998 totaling $3.3 million.
The fourth quarter of fiscal 1999 includes an extraordinary after-tax charge
of $36.3 related to the refinancing of the Company's 12 1/2% Senior Secured
Notes and other debt on April 23, 1999.
68
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
ITEM 10. "Directors and Executive Officers of the Registrant,"
ITEM 11. "Executive Compensation,"
ITEM 12. "Security Ownership of Certain Beneficial Owners and Management" and
ITEM 13. "Certain Relationships and Related Transactions" have been omitted
from this report and are incorporated by reference to Isle of Capri's
definitive proxy statement to be filed with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year
covered by this report.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents Filed as Part of this Report.
1. Financial Statements.
The following financial statements and report of independent auditors
are included on pages 41 to 68 of this Form 10-K:
Isle of Capri Casinos, Inc.
Report of Independent Auditors
Consolidated Balance Sheets--April 25, 1999 and April 26, 1998
Consolidated Statements of Operations--Years ended April 25, 1999,
April 26, 1998 and April 27, 1997
Consolidated Statements of Stockholders' Equity--Years ended April
25, 1999, April 26, 1998 and April 27, 1997
Consolidated Statements of Cash Flows--Years ended April 25, 1999,
April 26, 1998 and April 27, 1997
Notes to Consolidated Financial Statements
2. Financial Statements Schedules.
None required or applicable.
3. Exhibits.
A list of the exhibits included as part of this Form 10-K is set
forth in the Exhibit Index that immediately precedes such exhibits,
which is incorporated herein by reference.
(b) Reports on Form 8-K. Isle of Capri filed a Current Report on Form 8-K on
March 15, 1999 containing the press release announcing the commencement of
Isle of Capri's tender offer and consent solicitation for its outstanding
12 1/2% Senior Subordinated Notes due 2003.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Isle of Capri Casinos, Inc.,
Dated: June 30, 1999 By: /s/ Bernard Goldstein
----------------------------------
Bernard Goldstein
Chairman of the Board, Chief
Executive Officer, and Director
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Bernard Goldstein Chairman of the June 30, 1999
- ----------------------------------- Board, Chief
Bernard Goldstein Executive Officer
and Director
(Principal
Executive Officer)
/s/ John M. Gallaway President, Chief June 30, 1999
- ----------------------------------- Operating Officer
John M. Gallaway and Director
/s/ Rexford A. Yeisley Chief Financial June 30, 1999
- ----------------------------------- Officer (Principal
Rexford A. Yeisley Financial and
Accounting Officer)
/s/ Allan B. Solomon Executive Vice June 30, 1999
- ----------------------------------- President,
Allan B. Solomon Secretary, General
Counsel and Director
/s/ Emauel Crystal Director June 30, 1999
- -----------------------------------
Emauel Crystal
/s/ Robert S. Goldstein Director June 30, 1999
- -----------------------------------
Robert S. Goldstein
/s/ Alan J. Glazer Director June 30, 1999
- -----------------------------------
Alan J. Glazer
/s/ W. Randolph Baker Director June 30, 1999
- -----------------------------------
Randolph Baker
70
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
3.1 Certificate of Incorporation of Casino America, Inc., as amended.(5)
3.1A Amendment to the Company's Certificate of Incorporation dated
September 28, 1998.
3.2 Bylaws of Casino America, Inc., as amended.(5)
3.2A Amendments to Bylaws of Casino America, Inc. dated as of February 7,
1997.(14)
4.1 Specimen Certificate of Common Stock.(2)
4.3A Specimen Warrant Agreement with respect to warrants to purchase
900,000 shares of Isle of Capri Casinos, Inc. Common Stock.(3)
4.3B Form of Warrant Agreement with respect to warrants to purchase 500,000
shares of Isle of Capri Casinos, Inc. Common Stock.(13)
4.4A Warrant, dated June 9, 1995, of Crown Casino Corporation to purchase
up to 416,667 shares of Common Stock of Isle of Capri Casinos, Inc.(7)
4.4B Warrant, dated May 3, 1996, of Crown Casino Corporation to purchase up
to 416,667 shares of Common Stock of Isle of Capri Casinos, Inc.(8)
4.5 Indenture dated November 1, 1993 between Casino America, Inc. and
Shawmut Bank Connecticut, National Association, as Trustee.(4)
4.5A First Supplemental Indenture dated as of April 29, 1994 between Casino
America, Inc. and Shawmut Bank Connecticut, National Association, as
Trustee.(4)
4.5B Second Supplemental Indenture dated as of March 8, 1995 between Casino
America, Inc. and Shawmut Bank Connecticut, National Association, as
Trustee.(7)
4.5C Third Supplemental Indenture dated as of May 3, 1996 between Casino
America, Inc. and Fleet National Bank, as Trustee.(8)
4.5D Fourth Supplemental Indenture, dated as of July 26, 1996 between
Casino America, Inc. and Fleet National Bank, as Trustee.(8)
4.6A Indenture dated as of August 1, 1996 between Casino America, Inc. and
Fleet National Bank, as Trustee.(8)
4.6B First Supplemental Indenture, dated as of April 21, 1999, between Isle
of Capri Casinos, Inc. and Fleet National Bank, as trustee.
4.7 Isle of Capri Casinos, Inc. hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the instruments defining
the rights of holders of long-term debt where the total amount of
securities authorized thereunder does not exceed 10% of Isle of Capri
Casinos, Inc.'s total consolidated assets.
4.8 Rights Agreement dated as of February 7, 1997 between Casino America,
Inc. and Norwest Bank Minnesota, N.A., as Rights Agent.(13)
4.9 Indenture, dated as of April 23, 1999, among the Company, the
Subsidiary Guarantors named therein and State Street Bank and Trust
Company, as trustee.
4.10 Registration Rights Agreement, dated as of April 23, 1999, among Isle
of Capri Casinos, Inc., the Subsidiary Guarantors named therein and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wasserstein
Perella Securities, Inc., for themselves and on behalf of the other
initial purchasers.
10.1 Amended and Restated Berth Rental Agreement dated May 12, 1992 between
the Biloxi Port Commission and Riverboat Corporation of
Mississippi.(2)
71
Exhibit
Number Exhibit
------- -------
10.2 Biloxi Waterfront Project Lease dated May 12, 1986 with Point Cadet
Development Corporation.(2)
10.3 Addendum to Lease Agreement, dated August 1, 1992, between the City of
Biloxi, Mississippi, Point Cadet Development Corporation, and
Riverboat Corporation of Mississippi.(4)
10.3A Second Addendum to Lease, dated April 9, 1994, by and between the City
of Biloxi, Mississippi, Point Cadet Development Corporation, the
Biloxi Port Commission and Riverboat Corporation of Mississippi.(4)
10.3B Third Addendum to Casino Lease, dated April 26, 1995, by and between
the City of Biloxi, Mississippi, Point Cadet Development Corporation,
the Biloxi Port Commission and Riverboat Corporation of
Mississippi.(7)
10.4 Declaration of Shared Facilities Agreement for the Isle of Capri
Casino and Hotel, Biloxi, Mississippi, dated as of April 26, 1995,
made by Riverboat Corporation of Mississippi.(7)
10.5 Intercreditor Agreement, dated as of May 1, 1995, by and among The
Peoples Bank, Shawmut Bank of Connecticut, N.A. and Riverboat
Corporation of Mississippi.(7)
10.6 Agreement for Sale and Purchase by and between Casino America, Inc.
and Pompano Park Associates, Limited Partnership, dated as of November
8, 1994.(7)
10.6A Variable Gaming Adjustment Covenant made as of June 30, 1995 by PPI,
Inc. in favor of Pompano Park Associates, Limited Partnership.(7)
*10.7 Casino America, Inc. 1992 Stock Option Plan.(1)
*10.8 Casino America, Inc. 1992 Stock Option Plan Amendment.(3)
*10.9 Casino America, Inc. 1993 Stock Option Plan, as amended.(7)
*10.10 Casino America, Inc. description of Employee Bonus Plan.(3)
10.11 Partnership Agreement dated January 4, 1993 of Louisiana Riverboat
Gaming Partnership.(3)
10.11A First Amendment to Partnership Agreement of Louisiana Riverboat Gaming
Partnership dated August 31, 1993.(5)
10.11B Second Amendment to Partnership Agreement of Louisiana Riverboat
Gaming Partnership dated April 20, 1995.(7)
10.12 Management Agreement dated January 4, 1993 between Riverboat Services,
Inc. and Louisiana Riverboat Gaming Partnership.(3)
10.13 Management Agreement dated as of March 2, 1995 between Riverboat
Services, Inc. and St. Charles Gaming Company, Inc.(7)
*10.14 Casino America, Inc. Retirement Trust and Savings Plan.(3)
10.15 Deed of Trust, Leasehold Deed of Trust, Assignment of Rents, Fixture
Filing, Security Agreement and Financing Statement, dated as of
November 15, 1993, in a Principal Amount of $105,000,000 by Riverboat
Corporation of Mississippi to J. Morton Matrick, as trustee for the
benefit of Shawmut Bank Connecticut, National Association, as
Indenture Trustee.(4)
72
Exhibit
Number Exhibit
------- -------
10.15A Deed of Trust, Leasehold Deed of Trust, Assignment of Rents, Fixture
Filing, Security Agreement and Financing Statement, dated as of
November 15, 1993, in a Principal Amount of $105,000,000 by Riverboat
Corporation of Mississippi to J. Morton Matrick, as trustee for the
benefit of Shawmut Bank Connecticut, National Association, as
Indenture Trustee.(4)
10.16 Security Agreement, dated November 16, 1993, from Casino America, Inc.
and The Collateral Grantors Party thereto to Shawmut Bank Connecticut,
National Association, as Trustee.(4)
10.17 First Preferred Fleet Mortgage, dated November 15, 1993, by Riverboat
Corporation of Mississippi to Shawmut Bank Connecticut, National
Association, as Trustee.(4)
10.18 Security Agreement Supplement No. 2, dated January 4, 1994, between
Casino America, Inc. and Shawmut Bank Connecticut, National
Association, as Trustee.(4)
10.19 First Amendment to First Preferred Fleet Mortgage, dated January 6,
1994, by Riverboat Corporation of Mississippi to Shawmut Bank
Connecticut, National Association, as Trustee.(4)
*10.20 Director's Option Plan.(6)
10.21 Biloxi Waterfront Project Lease dated April 9, 1994 by and between the
City of Biloxi, Mississippi and Riverboat Corporation of
Mississippi.(4)
10.21A First Amendment to Biloxi Waterfront Project Lease (Hotel Lease),
dated April 26, 1995, by and between Riverboat Corporation of
Mississippi and the City of Biloxi, Mississippi.(7)
10.22 Settlement Agreement, dated April 14, 1994, by and between the City of
Biloxi, Mississippi, Point Cadet Development Corporation, Riverboat
Corporation of Mississippi, the Company, Sea Harvest, Inc. and Wayne
Hicks and Terryss Hicks.(4)
10.23 Management Agreement dated December 23, 1994 between Riverboat
Corporation of Mississippi and Mississippi Innkeepers, Inc.(7)
10.24 Amended Stock Purchase Agreement dated as of June 2, 1995, among Crown
Casino Corporation, St. Charles Gaming Company, Inc. and Louisiana
Riverboat Gaming Partnership.(7)
10.25 Crowne Plaza Resort New Development License Agreement between Holiday
Inns Franchising, Inc. and Riverboat Corporation of Mississippi, dated
December 30, 1994.(7)
10.26 Security Agreement--Pledge dated as of June 9, 1995, between Louisiana
Riverboat Gaming Partnership and Crown Casino Corporation.(7)
10.27 Shareholders Agreement, dated as of June 9, 1995 by and between Crown
Casino Corporation and Louisiana Riverboat Gaming Partnership.(7)
10.28 Amended and Restated Lease between Port Resources, Inc. and CRU, Inc.,
as landlords and St. Charles Gaming Company, Inc., as tenant, of
certain land in Calcasieu Parish, Louisiana, dated April 19, 1999.
10.29 Bareboat Charter Party Agreement dated as of March 20, 1995, between
Riverboat Chartering Company, L.C., and Riverboat Corporation of
Mississippi.(7)
10.30 Purchase Option Agreement, dated as of March 20, 1995, between
Riverboat Chartering Company, L.C. and Riverboat Corporation of
Mississippi.(7)
73
Exhibit
Number Exhibit
------- -------
10.31 Guaranty Agreement, dated as of March 20, 1995, between Riverboat
Chartering Company, L.C. and Riverboat Corporation of Mississippi.(7)
10.32 Development Agreement between St. Charles Gaming Company, Inc. and
Calcasieu Parish Police Jury dated June 5, 1995.(7)
10.33 Note Purchase Agreement, dated as of July 20, 1995, by and among
Louisiana Riverboat Gaming Partnership, St. Charles Gaming Company,
Inc., Nomura Holding America Inc. and First National Bank of
Commerce.(7)
10.34 Lease between Pompano Park Associates, Inc., as Lessor, and Casino
America, Inc., as Lessee, dated as of July 1, 1995.(7)
10.35 Ground Lease with Option to Purchase, dated February 9, 1995, between
Iron Dukes, Inc. and Isle of Capri Casino Colorado, Inc.(7)
10.36 Promissory Note dated June 29, 1995 by and between PPI, Inc. and
Capital Bank.(9)
10.37 Florida Real Estate Mortgage, Assignment of Rents, and Security
Agreement dated June 29, 1995 by and between PPI, Inc. and Capital
Bank.(9)
*10.38 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and John M. Gallaway.
*10.39 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Allan B. Solomon.
*10.40 Employment Agreement dated January 6, 1999 by and between Isle of
Capri Casinos, Inc. and Rexford A. Yeisley.
10.41 Stock Purchase Agreement dated February 27, 1996 by and between Casino
America, Inc., on the one hand, and Bernard Goldstein, Robert
Goldstein, Richard Goldstein and Jeffrey Goldstein, on the other
hand.(10)
10.42 Stock Purchase and Sale Agreement pursuant to a Plan of Reorganization
dated December 29, 1995 between Casino America, Inc. and Grand Palais
Riverboat, Inc. with exhibits.(10)
10.43 Form of Stock Purchase Agreement dated January 19, 1996 by and among
Casino America, Inc. and Crown Casino Corporation, without
exhibits.(10)
10.44 Purchase Agreement, dated July 2, 1996, by and between CSNO, Inc.,
LRGP Holdings, Inc. and Louisiana River Site Development, Inc.(12)
10.45 Escrow Agreement, dated July 2, 1996, by and among LRGP Holdings,
Inc., Casino America, Inc., Louisiana River Site Development, Inc.,
Louisiana Downs, Inc. and Boult, Cummings, Conners & Berry, PLC.(12)
*10.46 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Edward Reese.
*10.47 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Robert Boone.
*10.48 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and James Guay.
*10.49 Employment Agreement dated January 6, 1999 by and between Isle of
Capri Casinos, Inc. and Timothy M. Hinkley.
10.50 Management Agreement dated April 28, 1997 between Casino America, Inc.
and Riverboat Corporation of Mississippi.(14)
74
Exhibit
Number Exhibit
------- -------
10.51 Management Agreement dated as of April 28, 1997 between Casino
America, Inc. and Riverboat Corporation of Mississippi--Vicksburg.(14)
10.52 Management Agreement dated April 25, 1997 between Casino America, Inc.
and ICB, L.L.C.(15)
10.53 Operating Agreement of ICB, L.L.C. dated as of April 25, 1997 between
Casino America of Colorado, Inc. and Blackhawk Gold, Ltd.(14)
10.54 Amended Casino America, Inc. 1992 Stock Option Plan.(11)
10.55 Amended Casino America, Inc. l993 Stock Option Plan.(11)
10.56 Management Agreement dated July 29, 1997 between Casino America, Inc.
and Isle of Capri Black Hawk, L.L.C.(16)
10.57 Joint Venture Agreement of Capri Cruises between Commodore Cruises
Limited and Isle of Capri Casino Corporation.(19)
*10.58 Amended Casino America, Inc. 1993 Stock Option Plan.(15)
*10.59 Amended Casino America, Inc. 1993 Stock Option Plan.(17)
10.60 Lease by and among R. M. Leatherman, Jr., et al. and Isle of Capri -
Tunica, Inc. dated March 1, 1999.(18)
10.61 Asset Purchase Agreement by and between Tunica Partners, LP and Isle
of Capri Casino--Tunica, Inc. and Isle of Capri Casinos, Inc. dated
October 7, 1998.(18)
10.62 Amendment No. 1 to Asset Purchase Agreement dated December 7,
1998.(18)
10.63 Amendment No. 2 to Asset Purchase Agreement dated February 24,
1999.(18)
*10.64 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Bernard Goldstein.
*10.65 Employment Agreement dated January 25, 1999 between Isle of Capri
Casinos, Inc. and Gregory D. Guida.
*10.66 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and William C. Kilduff, Jr.
*10.67 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Roger Deaton.
*10.68 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Mark Fulton.
*10.69 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Mike Howard.
*10.70 Employment Agreement dated January 6, 1999 between Isle of Capri
Casinos, Inc. and Robert S. Fiore.
*10.71 Employment Agreement dated March 1, 1999 between Isle of Capri
Casinos, Inc. and Robert Griffin.
10.72 Credit Agreement, dated as of April 23, 1999, among Isle of Capri
Casinos, Inc., the lenders listed therein, Canadian Imperial Bank of
Commerce, as administrative agent and issuing lender, Bank One of
Louisiana, N.A., as syndication agent and Wells Fargo Bank, N.A., as
documentation agent.
10.73 Purchase Agreement, dated as of April 20, 1999, among Isle of Capri
Casinos, Inc., the Subsidiary Guarantors named therein and Merrill
Lynch & Co., Merrill Lynch, Pierce Fenner & Smith Incorporated and
Wasserstein Perella Securities, Inc., for themselves and as
representatives of the other initial purchasers.
21 Subsidiaries of Isle of Capri Casinos, Inc.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
75
- --------
(1) Filed as an exhibit to Casino America, Inc.'s Current Report on Form 8-K
filed June 17, 1992 (File No. 0-20538), and incorporated into the Casino
America, Inc.'s Form 10-K for the year ended April 27, 1997, by reference.
(2) Filed as an exhibit to the Casino America, Inc.'s Annual Report on Form
10-K for the fiscal year ended April 30, 1992 (File No. 0-20538), and
incorporated into the Casino America, Inc.'s Form 10-K for the year ended
April 27, 1997, by reference.
(3) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 30, 1993 (File No. 0-20538), and
incorporated into Casino America, Inc.'s Form 10-K for the year ended
April 27, 1997, by reference.
(4) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 30, 1994 (File No. 0-20538), and
incorporated into Casino America, Inc.'s Form 10-K for the year ended
April 27, 1997, by reference.
(5) Filed as an exhibit to Casino America, Inc.'s Registration Statement on
Form S-1 filed September 3, 1993, as amended (File No. 33-68434), and
incorporated into Casino America, Inc.'s Form 10-K for the year ended
April 27, 1997, by reference.
(6) Filed as an exhibit to Casino America, Inc.'s Registration Statement on
Form S-8 filed June 30, 1994 (File No. 33-80918), and incorporated into
Casino America, Inc.'s Form 10-K for the year ended April 27, 1997, by
reference.
(7) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 30, 1995 (File No. 0-20538), and
incorporated into Casino America, Inc.'s Form 10-K for the year ended
April 26, 1998, by reference.
(8) Filed as an exhibit to Casino America, Inc.'s Registration Statement on
Form S-3 filed on March 21, 1996 (No. 333-02610), and incorporated into
Casino America, Inc.'s Form 10-K for the year ended April 27, 1997, by
reference.
(9) Filed as an exhibit to Casino America, Inc.'s Quarterly Report on Form
10-Q for the fiscal quarter ended October 31, 1995, and incorporated into
Casino America, Inc.'s Form 10-K for the fiscal year ended April 27, 1997,
by reference.
(10) Filed as an exhibit to Casino America, Inc.'s Quarterly Report on Form
10-Q for the fiscal quarter ended January 31, 1996, and incorporated into
Casino America, Inc.'s Form 10-K for the fiscal year ended April 27,
1997, by reference.
(11) Filed as an exhibit to Casino America, Inc.'s Proxy Statement for the
fiscal year ended April 30, 1996, by reference.
(12) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 30, 1996, by reference.
(13) Filed as an exhibit to Casino America, Inc.'s Current Report on Form 8-K
filed on February 24, 1997, and incorporated into the Company's Form 10-K
for the fiscal year ended April 27, 1997, by reference.
(14) Filed as an exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 27, 1997, by reference.
(15) Filed as an exhibit to Casino America, Inc.'s Proxy Statement for the
fiscal year ended April 27, 1997, by reference.
(16) Filed as an exhibit to the Isle of Capri Black Hawk L.L.C./Isle of Capri
Black Hawk Capital Corp. Registration Statement on Form S-4 (registration
number 333-38093), and incorporated into Casino America, Inc.'s Form 10-K
for the year ended April 26, 1998, by reference.
(17) Filed as an Exhibit to the Casino America, Inc.'s Proxy Statement for the
fiscal year ended April 26, 1998, by reference.
(18) Filed as an Exhibit to the Isle of Capri Casinos, Inc.'s Quarterly Report
on Form 10-Q for the fiscal quarter ended January 24, 1999, by reference.
(19) Filed as an Exhibit to Casino America, Inc.'s Annual Report on Form 10-K
for the fiscal year ended April 26, 1998, by reference.
* Management contract or compensatory plan.
76