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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 27, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________
Commission File Number 0-20538
-------
ISLE OF CAPRI CASINOS, INC.
---------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 41-1659606
- ---------------------------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1641 Popps Ferry Road, Biloxi, Mississippi 39532
- ---------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (228) 396-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--
As of December 3, 2002, the Company had a total of 29,230,188 shares of Common
Stock outstanding (which excludes 3,163,350 shares held by us in treasury).
ISLE OF CAPRI CASINOS, INC.
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, OCTOBER 27, 2002 (UNAUDITED)
AND APRIL 28, 2002 . . . . . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX
MONTHS ENDED OCTOBER 27, 2002 AND OCTOBER 28, 2001 (UNAUDITED) 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX
MONTHS ENDED OCTOBER 27, 2002 (UNAUDITED). . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED OCTOBER 27, 2002 AND OCTOBER 28, 2001 (UNAUDITED). . . . 5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . . . . . 36
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . 36
PART II OTHER INFORMATION
- --------------------------------------------------------------------------------
37
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . . . . 39
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . . . 39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . 39
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . 40
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
CERTIFICATIONS .. . . . . . . . . . . . . . . . 41
EXHIBIT LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical or current facts
included in this report on Form 10-Q or incorporated by reference herein,
including, without limitation, statements regarding our future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations, are forward-looking statements.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe" or "continue" or the negative thereof or
variations thereon or similar terminology. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct. All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS OCTOBER 27, APRIL 28,
2002 2002
------------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,530 $ 76,597
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,536 9,857
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,073 10,235
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,096 15,113
Property held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,274 24,572
------------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,509 136,374
Property and equipment - net.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794,237 803,507
Other assets:
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305,850 305,850
Other intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,744 58,744
Deferred financing costs, net of accumulated amortization of $9,686
and $7,984, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,615 23,730
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,227 3,677
Prepaid deposits and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,760 4,944
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,784 8,812
------------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,318,726 $1,345,638
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,085 $ 14,176
Accounts payable trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,895 22,541
Accrued liabilities:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,177 5,276
Payroll and related.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,481 47,186
Property and other taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,486 15,673
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,761 13,993
Progressive jackpots and slot club awards.. . . . . . . . . . . . . . . . . . . . . 13,218 11,903
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,014 27,862
------------- -----------
Total current liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . . . 171,117 158,610
Long-term debt, less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 931,034 995,123
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,415 5,415
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,858 16,302
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,140 10,990
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized; none issued. . . . . . . . - -
Common stock, $.01 par value; 45,000 shares authorized; shares issued and
outstanding: 32,165 at October 27, 2002 and 31,826 at April 28, 2002. . . . . . . 320 314
Class B common stock, $.01 par value; 3,000 shares authorized; none issued . . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,218 135,432
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,836) (1,352)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,713 54,753
Accumulated other comprehensive loss, net of income tax benefit of $3,174
and $2,364, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,368) (4,061)
------------- -----------
206,047 185,086
Treasury stock, 3,163 shares at October 27, 2002 and 3,107 shares at April 28, 2002. (26,885) (25,888)
------------- -----------
Total stockholders' equity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,162 159,198
------------- -----------
Total liabilities and stockholders' equity.. . . . . . . . . . . . . . . . . . . . . $ 1,318,726 $1,345,638
============= ===========
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
-------------------- ------------------
October 27, October 28, October 27, October 28,
2002 2001 2002 2001
-------------------- ------------------ ------------- -------------
Revenues:
Casino . . . . . . . . . . . . . . $ 257,094 $ 257,698 $ 527,179 $ 515,286
Rooms. . . . . . . . . . . . . . . 13,898 14,792 28,635 29,959
Pari-mutuel commissions and fees . 4,038 3,125 9,643 8,415
Food, beverage and other . . . . . 35,847 36,934 72,940 76,069
-------------------- ------------------ ------------- -------------
Gross revenues. . . . . . . . 310,877 312,549 638,397 629,729
Less promotional allowances.. 50,764 52,043 101,621 106,287
-------------------- ------------------ ------------- -------------
Net revenues. . . . . 260,113 260,506 536,776 523,442
Operating expenses:
Casino . . . . . . . . . . . . . . 47,133 49,521 97,119 100,939
Gaming taxes . . . . . . . . . . . 56,414 54,892 115,063 109,376
Rooms. . . . . . . . . . . . . . . 3,473 3,330 7,136 6,793
Pari-mutuel. . . . . . . . . . . . 2,948 2,116 7,008 6,211
Food, beverage and other.. . . . . 8,482 8,519 17,787 17,431
Marine and facilities. . . . . . . 17,136 17,602 35,392 35,492
Marketing and administrative.. . . 70,789 65,656 142,641 136,280
Accrued litigation award . . . . . 1,800 - 1,800 -
Preopening expenses. . . . . . . . - 1,147 - 1,537
Gain on disposal of assets . . . . - - - (125)
Depreciation and amortization. . . 18,277 17,143 36,261 34,436
-------------------- ------------------ ------------- -------------
Total operating expenses. . . 226,452 219,926 460,207 448,370
-------------------- ------------------ ------------- -------------
Operating income. . . . . . . . . . . . 33,661 40,580 76,569 75,072
Interest expense . . . . . . . . . (20,668) (22,630) (41,773) (46,997)
Interest income. . . . . . . . . . 18 295 83 528
Minority interest. . . . . . . . . (2,352) (1,991) (4,910) (3,662)
-------------------- ------------------ ------------- -------------
Income before income taxes. . . . . . . 10,659 16,254 29,969 24,941
Income tax provision . . . . . . . 3,872 5,819 11,009 8,652
-------------------- ------------------ ------------- -------------
Net income. . . . . . . . . . . . . . . $ 6,787 $ 10,435 $ 18,960 $ 16,289
==================== ================== ============= =============
Net income per common share-basic . . $ 0.24 $ 0.37 $ 0.66 $ 0.58
Net income per common share-diluted . $ 0.22 $ 0.35 $ 0.62 $ 0.55
Weighted average basic shares. . . 28,862 28,110 28,801 28,286
Weighted average diluted shares. . 30,637 29,431 30,680 29,556
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Accumulated
Other
Shares of Additional Unearned Compre-
Common Common Paid-in Compen- hensive Treasury Retained
Stock Stock Capital sation Loss Stock Earnings
----------- ----------- --------- --------- --------- ---------- ---------
Balance, April 28, 2002.. . . . . . . . . . . . 31,826 $ 314 $ 135,432 $ (1,352) $ (4,061) $ (25,888) $ 54,753
Net income.. . . . . . . . . . . . . . . . - - - - - - 18,960
Unrealized loss on interest
rate swap contract. . . . . . . . . . - - - - (1,307) - -
----------- ----------- --------- --------- --------- ---------- ---------
Comprehensive loss, net of
income taxes of $3,174. . . . . . . . . - - - - (5,368) - -
Exercise of stock
options and warrants. . . . . . . . . . 339 6 3,023 - - (997) -
Grant of nonvested stock . . . . . . . . . - - 763 (763) - - -
Amortization of unearned
compensation . . . . . . . . . . . . . - - - 279 - - -
----------- ----------- --------- --------- --------- ---------- ---------
Balance, October 27, 2002 . . . . . . . . . . . 32,165 $ 320 $ 139,218 $ (1,836) $ (5,368) $ (26,885) $ 73,713
=========== =========== ========= ========= ========= ========== =========
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Total
Stockholders'
Equity
---------------
Balance, April 28, 2002.. . . . . . . . . . . . $ 159,198
Net income.. . . . . . . . . . . . . . . . 18,960
Unrealized loss on interest
rate swap contract. . . . . . . . . . (1,307)
---------------
Comprehensive loss, net of
income taxes of $3,174. . . . . . . . . 176,851
Exercise of stock
options and warrants. . . . . . . . . . 2,032
Grant of nonvested stock . . . . . . . . . -
Amortization of unearned
compensation . . . . . . . . . . . . . 279
---------------
Balance, October 27, 2002 . . . . . . . . . . . $ 179,162
===============
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
------------------
October 27, October 28,
2002 2001
------------------ -------------
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,960 $ 16,289
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 36,261 34,436
Amortization of deferred financing costs . . . . . . . . . 1,879 1,958
Amortization of unearned compensation. . . . . . . . . . . 279 145
Gain on disposal of assets . . . . . . . . . . . . . . . . - (125)
Deferred income taxes. . . . . . . . . . . . . . . . . . . - 2,480
Minority interest. . . . . . . . . . . . . . . . . . . . . 4,910 3,662
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . 321 (519)
Income tax receivable . . . . . . . . . . . . . . . . - 4,700
Prepaid expenses and other assets.. . . . . . . . . . (3,579) (3,843)
Accounts payable and accrued liabilities. . . . . . . 9,824 2,776
------------------ -------------
Net cash provided by operating activities.. . . . . . . . . . . 68,855 61,959
INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . . . . . . (22,962) (57,121)
Proceeds from sales of assets . . . . . . . . . . . . . . . . . 7,500 125
Investments in and advances to joint ventures . . . . . . . . . (860) (659)
Restricted cash.. . . . . . . . . . . . . . . . . . . . . . . . 450 25
Prepaid deposits and other. . . . . . . . . . . . . . . . . . . 44 (12)
------------------ -------------
Net cash used in investing activities.. . . . . . . . . . . . . (15,828) (57,642)
FINANCING ACTIVITIES:
Proceeds from debt. . . . . . . . . . . . . . . . . . . . . . . - 50,000
Net reduction in lines of credit and revolving lines of credit. (53,000) (13,186)
Principal payments on debt. . . . . . . . . . . . . . . . . . . (10,179) (11,388)
Deferred financing costs. . . . . . . . . . . . . . . . . . . . (764) (522)
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . - (8,113)
Proceeds from exercise of stock options. . . . . . . . . . . . 2,032 309
Cash distributions to minority partner. . . . . . . . . . . . . (3,183) (2,150)
------------------ -------------
Net cash (used in) provided by financing activities . . . . . . (65,094) 14,950
Net (decrease) increase in cash and cash equivalents. . . . . . (12,067) 19,267
Cash and cash equivalents at beginning of period. . . . . . . . 76,597 76,659
------------------ -------------
Cash and cash equivalents at end of period. . . . . . . . . . . $ 64,530 $ 95,926
================== =============
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
-----------------
October 27, October 28,
2002 2001
----------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash payments (receipts) for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 38,025 $ 47,686
Income taxes . . . . . . . . . . . . . . . . . . . . . 3,802 (8,903)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Other:
Construction costs funded through accrued liabilities. - 1,616
See notes to consolidated financial statements.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Isle of Capri Casinos, Inc. (the "Company" or "Isle of Capri") was incorporated
as a Delaware corporation on February 14, 1990. The Company, through its
subsidiaries, is engaged in the business of developing, owning and operating
branded gaming facilities and related lodging and entertainment facilities in
growing markets in the United States. The Company wholly owns and operates
twelve gaming facilities located in Bossier City and Lake Charles, Louisiana;
Biloxi, Lula, Natchez and Vicksburg, Mississippi; Boonville and Kansas City,
Missouri; Bettendorf, Marquette and Davenport, Iowa; and Las Vegas, Nevada. The
Company also owns a 57% interest in, and receives a management fee for
operating, a gaming facility in Black Hawk, Colorado. All but two of these
gaming facilities operate under the name "Isle of Capri" and feature our
distinctive tropical island theme. In addition, the Company wholly owns and
operates a pari-mutuel harness racing facility in Pompano Beach, Florida.
FISCAL YEAR-END
The Company's fiscal year ends on the last Sunday in April. This fiscal year
creates more comparability of the Company's quarterly operations, by generally
having an equal number of weeks (13) and week-end days (26) in each quarter.
Periodically, this system necessitates a 53-week year and fiscal 2000 was one
such year. Fiscal 2003 commenced on April 29, 2002 and ends on April 27, 2003.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments considered necessary for
a fair presentation have been included. Operating results for the three and six
months ended October 27, 2002 are not necessarily indicative of the results that
may be expected for the nine months ending January 26, 2003, or for the fiscal
year ending April 27, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended April 28, 2002.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, representing the excess of the cost over the net identifiable tangible
and intangible assets of acquired businesses, is stated at cost. Other
intangible assets represent the license value attributed to the Louisiana gaming
licenses acquired through the Company's acquisition of St. Charles Gaming
Company, Grand Palais Riverboat, Inc. and Louisiana Riverboat Gaming Partnership
and the value of the Lady Luck trademarks and player databases acquired in the
acquisition of Lady Luck Gaming Corporation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS 145"). SFAS
No. 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS No. 4. SFAS 145 will be
effective for fiscal years beginning after May 15, 2002. The Company will adopt
SFAS 145 at the beginning of fiscal 2004, April 28, 2003. Losses on
extinguishment of debt previously classified asextraordinary charges will be
reclassified to conform to the provisions of SFAS No. 145.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," ("SFAS 146") which requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to exit or disposal plan. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY HELD FOR SALE
Property held for sale at October 27, 2002, consists primarily of the Lady
Luck-Las Vegas. The balance also includes land in Cripple Creek, Colorado, a
riverboat, a floating pavilion and several barges.
During fiscal 2002, the Company recorded a valuation charge totaling $59.2
million related to the write-down of the Company's assets at the Isle-Tunica and
the Lady Luck-Las Vegas representing the difference between the Isle-Tunica's
and the Lady Luck-Las Vegas's carrying values of $80.7 million and their
estimated fair values, less estimated costs to sell of $21.5 million. Fair
values were based on the Company's estimate of the likely sale price for these
assets.
On July 16, 2002, the Company entered into an agreement to sell the Lady
Luck-Las Vegas, subject to certain conditions. On October 30, 2002, the Company
completed the sale of the Lady Luck-Las Vegas. A subsidiary of the Company will
continue to operate the casino for up to six months pending the receipt of
regulatory approval by the purchaser's designated gaming operator. The pretax
proceeds from the sale approximated the carrying value of the assets.
On July 29, 2002, the Company entered into an agreement to sell the Isle-Tunica.
The agreement provided that the Company would receive a cash payment of $7.5
million and would be entitled to retain certain personal property, including all
gaming equipment, valued at approximately $4.7 million. The Company ceased
casino operations on September 4, 2002. The hotel and support facilities
remained open until the closing of the transaction on October 7, 2002. The
pretax proceeds from the sale approximated the carrying value of the assets.
The following table presents the results of operations for the Isle-Tunica and
the Lady Luck-Las Vegas for the three and six months ended October 27, 2002:
Isle-Tunica Lady Luck-Las Vegas
-------------- -------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
October 27, October 27, October 27, October 27,
2002 2002 2002 2002
-------------- --------------------- -------------- -------------
Net revenues . . . $ 2,105 $ 8,892 $ 7,843 $ 15,901
Operating loss . . $ (2,115) $ (2,310) $ (303) $ (935)
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY HELD FOR SALE (CONTINUED)
In connection with the property dispositions, approximately 600 employees were
terminated at the Isle-Tunica. The approximately 400 employees of the Lady
Luck-Las Vegas became employees of the new company on October 30, 2002.
Employee termination costs were estimated at $0.4 million. These costs were
accrued during the first quarter 2003 and were recorded in the "Operating
expenses" for the appropriate department in the accompanying consolidated
statements of operations. In addition, the disposition plan included lease
termination and other business exit costs estimated at $1.4 million. These
costs were accrued during the first quarter 2003 and were recorded in "Operating
expenses-marketing and administrative" in the accompanying consolidated
statements of operations. The following table shows the expenditures incurred
for the disposition plan as of October 27, 2002:
Disposition 2003 2003 Disposition
Reserve at Disposition Cash Reserve at
April 28, 2002 Charges Payments October 27, 2002
- -------------------------------------------- ------------ --------- -----------------
(In thousands)
Severance and other employee costs.. . . . . $ - $ 367 $ 108 $ 259
Lease terminations and business exit costs.. - 1,367 281 1,086
------------ --------- ----------------- ------
Total disposition costs. . . . . . . . $ - $ 1,734 $ 389 $1,345
============ ========= ================= ======
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT
October 27, April 28,
2002 2002
--------------- ----------
Long-term debt consists of the following: (In thousands)
8.75 % Senior Subordinated Notes (described below) . . . . . . . . . . . . . . $ 390,000 $ 390,000
9.00 % Senior Subordinated Notes (described below) . . . . . . . . . . . . . . 200,000 200,000
Senior Secured Credit Facility (described below):
Variable rate term loan . . . . . . . . . . . . . . . . . . . . . . . . . . 248,750 250,000
Revolver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 75,000
Isle-Black Hawk Secured Credit Facility, non-recourse to Isle of Capri
Casinos, Inc. (described below):
Variable rate term loans Tranche A. . . . . . . . . . . . . . . . . . . . . 32,664 38,000
Variable rate term loans Tranche B. . . . . . . . . . . . . . . . . . . . . 38,223 39,900
Variable rate TIF Bonds due to City of Bettendorf (described below). . . . . . 5,625 5,929
12.5 % note payable, due in monthly installments of $125,000, including
interest, beginning October 1997 through October 2005.. . . . . . . . . . . 3,563 4,072
8 % note payable, due in monthly installments of $66,667, including interest,
through July 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 132
8 % note payable, due in monthly installments of $11,365, including interest,
through November 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 1,124
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,194 5,142
--------------- ----------
946,119 1,009,299
Less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,085 14,176
--------------- ----------
Long-term debt.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 931,034 $ 995,123
=============== ==========
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
8.75% SENIOR SUBORDINATED NOTES
On April 23, 1999, the Company issued $390.0 million of 8.75% Senior
Subordinated Notes due 2009 (the "8.75% Senior Subordinated Notes"). The 8.75%
Senior Subordinated Notes are guaranteed by all of the Company's significant
subsidiaries, excluding the subsidiaries that own and operate the Isle-Black
Hawk. Interest on the 8.75% Senior Subordinated Notes is payable semi-annually
on each April 15 and October 15 through maturity. The 8.75% Senior Subordinated
Notes are redeemable, in whole or in part, at the Company's option at any time
on or after April 15, 2004 at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest to the
applicable redemption date, if redeemed during the 12-month period beginning on
April 15 of the years indicated below:
Year Percentage
- -------------------- -----------
2004.. . . . . . . . 104.375%
2005.. . . . . . . . 102.917%
2006.. . . . . . . . 101.458%
2007 and thereafter. 100.000%
The Company issued the 8.75% Senior Subordinated Notes under an indenture
between the Company, the subsidiary guarantors and a trustee. The indenture,
among other things, restricts the ability of the Company and its restricted
subsidiaries to borrow money, make restricted payments, use assets as security
in other transactions, enter into transactions with affiliates, or pay dividends
on or repurchase its stock or its restricted subsidiaries' stock. The Company
is also restricted in its ability to issue and sell capital stock of its
subsidiaries and in its ability to sell assets in excess of specified amounts or
merge with or into other companies.
A substantial part of the proceeds from the 8.75% Senior Subordinated Notes was
used to prepay long-term debt, including all of the $315.0 million of 12.5%
Senior Secured Notes due 2003. The proceeds were also used to pay prepayment
premiums, accrued interest and other transaction fees and costs.
9% SENIOR SUBORDINATED NOTES
On March 27, 2002, the Company issued $200.0 million of 9% Senior Subordinated
Notes due 2012 (the "9% Senior Subordinated Notes"). The 9% Senior Subordinated
Notes are guaranteed by all of the Company's significant subsidiaries, excluding
the subsidiaries that own and operate the Isle-Black Hawk. The 9% Senior
Subordinated Notes are general unsecured obligations and rank junior to all
existing and future senior indebtedness, senior to any subordinated indebtedness
and equally with all of existing and future senior subordinated debt, including
the $390.0 million in aggregate principal amount of the existing 8.75% Senior
Subordinated Notes. Interest on the 9% Senior Subordinated Notes is payable
semi-annually on each March 15 and September 15 through maturity. The 9% Senior
Subordinated Notes are redeemable, in whole or in part, at the Company's option
at any time on or after March 15, 2007 at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest to the applicable redemption date, if redeemed during the 12-month
period beginning on March 15 of the years indicated below:
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
Year Percentage
- -------------------- -----------
2007.. . . . . . . . 104.500%
2008.. . . . . . . . 103.000%
2009.. . . . . . . . 101.500%
2010 and thereafter. 100.000%
Additionally, the Company may redeem a portion of the Notes with the proceeds of
specified equity offerings.
The Company issued the 9% Senior Subordinated Notes under an indenture between
the Company, the subsidiary guarantors and a trustee. The indenture, among
other things, restricts the ability of the Company and its restricted
subsidiaries to borrow money, make restricted payments, use assets as security
in other transactions, enter into transactions with affiliates, or pay dividends
on or repurchase its stock or its restricted subsidiaries' stock. The Company is
also restricted in its ability to issue and sell capital stock of its
subsidiaries and in its ability to sell assets in excess of specified amounts or
merge with or into other companies.
A substantial part of the proceeds from the 9% Senior Subordinated Notes was
used to prepay long-term debt, including $195.0 million outstanding under the
Amended and Restated Senior Credit Facility. The proceeds were also used to pay
accrued interest and other transaction fees and costs.
SENIOR SECURED CREDIT FACILITY
Senior Credit Facility
Simultaneously with the issuance of the 8.75% Senior Subordinated Notes, the
Company entered into a $175.0 million five-year credit facility (the "Senior
Credit Facility") comprised of a $50.0 million term loan and a $125.0 million
revolver. On March 2, 2000, the Company amended and restated the Senior Credit
Facility in connection with the acquisition of Lady Luck and BRDC, as well as,
to provide financing for the pending acquisitions of the Flamingo Hilton
Riverboat Casino in Kansas City, Missouri and of Davis Gaming Boonville, Inc.
The previous $175.0 million Senior Credit Facility was expanded under the
amended and restated agreement to a $600.0 million facility ("Amended and
Restated Senior Credit Facility"). On June 18, 2001, Isle of Capri exercised an
option under its existing $600.0 million Amended and Restated Credit Agreement
to add $50.0 million of additional term loans under the same terms, conditions
and covenants to bring the total Amended and Restated Senior Credit Facility to
$650.0 million.
Amended and Restated Senior Credit Facility
The $650.0 million Amended and Restated Senior Credit Facility was comprised of
a $125.0 million revolving credit facility, a $100.0 million Tranche A term loan
maturing on March 2, 2005, a $226.7 million Tranche B term loan maturing on
March 2, 2006, and a $198.3 million Tranche C term loan maturing on March 2,
2007. On April 26, 2002, the Company amended the existing $650.0 million
Amended and Restated Senior Credit Facility with a $500.0 million Senior Secured
Credit Facility (the "Senior Secured Credit Facility").
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
Senior Secured Credit Facility
The Senior Secured Credit Facility provides for a $250.0 million revolving
credit facility maturing on April 25, 2007 and a $250.0 million term loan
facility maturing on April 25, 2008. The proceeds were
used to refinance $336.8 million of the existing Amended and Restated Senior
Credit Facility with the remainder being available for general corporate
purposes.
At the Company's option, the revolving credit facility may bear interest at (1)
the higher of 0.05% in excess of the federal funds effective rate or the rate
that the bank group announces from time to time as its prime lending rate plus
an applicable margin of up to 1.75%, or (2) a rate tied to a LIBOR rate plus an
applicable margin of up to 2.75%. The term loan may bear interest at the
Company's option at (1) the higher of 0.05% in excess of the federal funds
effective rate or the rate that the bank group announces from time to time as
its prime lending rate plus an applicable margin of up to 1.5% or (2) a rate
tied to a LIBOR rate plus an applicable margin of up to 2.5%.
The Senior Secured Senior Credit Facility provides for certain covenants,
including those of a financial nature. The Amended and Restated Senior Credit
Facility is secured by liens on substantially all of the Company's assets and
guaranteed by all of its significant restricted subsidiaries, excluding Casino
America of Colorado, Inc., the Isle-Black Hawk, and their subsidiaries.
The weighted average effective interest rate of total debt outstanding under the
Senior Secured Credit Facility at October 27, 2002 was 6.68%.
ISLE-BLACK HAWK SECURED CREDIT FACILITY
On November 16, 2001, the Isle-Black Hawk entered into a $90.0 million secured
credit facility (the "Secured Credit Facility"), that is non-recourse debt to
the Isle of Capri, primarily for the purpose of funding the redemption of the
13% First Mortgage Notes. The Secured Credit Facility provides for a $10.0
million revolving credit facility, a $40.0 million Tranche A term loan maturing
on November 16, 2005 and a $40.0 million Tranche B term loan maturing on
November 16, 2006.
Isle-Black Hawk is required to make quarterly principal payments on the term
loan portions of the Secured Credit Facility that commenced in March 2002. Such
payments on the Tranche A term loan initially will be $2.0 million per quarter
with scheduled increases to $2.5 million per quarter commencing March 2003 and
to $3.0 million per quarter commencing March 2005. Such payments on the Tranche
B term loan initially will be $0.1 million per quarter with a scheduled increase
to $9.6 million per quarter commencing March 2006.
At the Isle-Black Hawk's option, the revolving credit facility and the Tranche A
term loan may bear interest at (1) the higher of 0.05% in excess of the federal
funds effective rate or the rate that the bank group announces from time to time
as its prime lending rate plus an applicable margin of up to 2.50%, or (2) a
rate tied to a LIBOR rate plus an applicable margin of up to 3.50%. At the
Isle-Black Hawk's option, the Tranche B term loan may bear interest at (1) the
higher of 0.05% in excess of the federal funds effective rate or the rate that
the bank group announces from time to time as its prime lending rate plus an
applicable margin of up to 3.00%, or (2) a rate tied to a LIBOR rate plus an
applicable margin of up to 4.00%.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
The Secured Credit Facility provides for certain covenants, including those of a
financial nature. Isle-Black Hawk was in compliance with these covenants as of
October 27, 2002. The Secured Credit Facility is secured by liens on the
Isle-Black Hawk's assets.
The weighted average effective interest rate of total debt outstanding under the
Secured Credit Facility at October 27, 2002 was 6.98%.
INTEREST RATE SWAPS
The Company entered into three interest rate swap agreements in the fourth
quarter of fiscal 2001 and four interest rate swap agreements in fiscal 2002
that effectively convert portions of the floating rate term loans to a
fixed-rate, thus reducing the impact of interest-rate changes on future interest
expense. The notional value of the swaps, which were designated as cash flow
hedges, was $240.0 million or 75.1% of the Isle of Capri's variable rate term
loans as of October 27, 2002. The interest rate swaps terminate as follows:
$50.0 million in fiscal 2003, $150.0 million in fiscal 2004 and $40.0 million in
fiscal 2005.
For the three and six months ended October 27, 2002, comprehensive income was
$8.2 million and $18.8 million, respectively, compared to $5.7 million and $11.5
million for the three and six months ended October 28, 2001, respectively. At
October 27, 2002, other comprehensive loss included $5.4 million for changes in
the fair value of derivative instruments for cash flow hedges. The fair value
of the estimated interest differential between the applicable future variable
rates and the interest rate swap contracts, expressed in present value terms
totals $8.5 million, of which $0.7 million is recorded in other accrued current
liabilities and $7.8 million is recorded in other accrued long-term liabilities
in the accompanying consolidated balance sheets. There was no effect on income
related to hedge ineffectiveness.
At October 27, 2002, the Company does not expect to reclassify any net gains
(losses) on derivative instruments from accumulated other comprehensive income
to earnings during the next twelve months due to the payment of variable
interest associated with the floating rate debt.
VARIABLE RATE TIF BONDS
As part of the City of Bettendorf Development Agreement dated June 17, 1997, the
City of Bettendorf ("the City") issued $9.5 million in tax incremental financing
bonds ("TIF Bonds"), $7.5 million of which was used by the Isle-Bettendorf to
construct an overpass, parking garage, related site improvements and pay for
disruption damages caused by construction of the overpass. To enable financing
of the City's obligations, the Isle-Bettendorf will pay incremental property
taxes on the developed property assessed at a valuation of not less than $32.0
million until the TIF Bonds mature. Additionally, the TIF Bonds will also be
repaid from the incremental taxes on the developed property within the defined
"TIF District" which includes the Isle-Bettendorf and over 100 other tax paying
entities. As the TIF District will repay the TIF Bonds, the Isle-Bettendorf may
not be required to fully repay the $7.5 million. In the event that the taxes
generated by the project and other qualifying developments in the redevelopment
district do not fund the repayment of the total TIF Bonds prior to their
scheduled maturity, the Isle-Bettendorf will pay the City $0.25 per person for
each person entering the boat until the remaining balance has been repaid.
OTHER
As of October 27, 2002, the Company had $22.0 million outstanding under its
lines of credit leaving $242.0 million available.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT (CONTINUED)
At October 27, 2002, the Company was in compliance with all debt covenants.
4. STOCK REPURCHASE
On October 25, 2002, the Company's Board of Directors approved a stock
repurchase program allowing for the purchase of up to 1.5 million shares of the
Company's outstanding common stock. As of October 27, 2002, the Company has not
repurchased any common stock under this program.
5. CONTINGENCIES
One of our subsidiaries has been named, along with numerous manufacturers,
distributors and gaming operators, including many of the country's largest
gaming operators, in a consolidated class action lawsuit pending in Las Vegas,
Nevada. These gaming industry defendants are alleged to have violated the
Racketeer Influenced and Corrupt Organizations Act by engaging in a course of
fraudulent and misleading conduct intended to induce people to play their gaming
machines based upon a false belief concerning how those gaming machines actually
operate and the extent to which there is actually an opportunity to win on any
given play. The suit seeks unspecified compensatory and punitive damages. This
district court recently denied the Motion for Class Certification, but this
decision has been appealed. Therefore, we are still unable at this time to
determine what effect, if any, the suit would have on our financial position or
results of operations. The gaming industry defendants are committed to
continuing a vigorous defense of all claims asserted in this matter.
In August 1997, a lawsuit was filed which seeks to nullify a contract to which
Louisiana Riverboat Gaming Partnership is a party. Pursuant to the contract,
Louisiana Riverboat Gaming Partnership pays a fixed amount plus a percentage of
revenue to various local governmental entities, including the City of Bossier
and the Bossier Parish School Board, in lieu of payment of a per-passenger
boarding fee. Summary judgment in favor of Louisiana Riverboat Gaming
Partnership was granted on June 4, 1998. That judgment was not appealed and is
now final. On June 11, 1998, a similar suit was filed and the lower court
rendered judgment in our favor on September 16, 1999. The case was reversed on
appeal and remanded to the lower court for further proceedings; however, on
October 8, 2001, the trial court dismissed the case again, this time on the
basis that the plaintiffs lack standing. The plaintiffs have amended the
petition and continue to pursue this matter. We intend to vigorously defend this
suit. In addition, a similar action was recently filed against the City of
Bossier City, challenging the validity of its contracts with Louisiana Riverboat
Gaming Partnership and other casinos. Exceptions have been filed requiring
joinder of all interested parties, including Louisiana Riverboat Gaming
Partnership. We believe the claims are without merit and we intend to continue
to vigorously defend this suit along with the other interested parties.
Lady Luck and several joint venture partners are defendants in a lawsuit brought
by the country of Greece through its Minister of Tourism (Now Development) and
Finance. The action alleges that the defendants failed to make specified
payments in connection with the gaming license bid process for Patras, Greece.
The payment we are alleged to have been required to make aggregates
approximately 2.2 billion drachmae or 7.5 million Euro (which was approximately
$7.5 million as of October 27, 2002 based on published exchange rates). Although
it is difficult to determine the damages being sought from the lawsuit, the
action may seek damages up to that aggregate amount plus interest from the date
of the action. The Athens Civil Court of First Instance granted judgment in our
favor and dismissed the lawsuit, but the Ministry of Tourism has appealed the
matter and the appeal was heard in April 2002. There has
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CONTINGENCIES (CONTINUED)
been no announcement as to whether there has been a decision on the appeal.
Also, the Ministry of Tourism is proceeding with an appeal from a dismissal of
its action by the Athens Administrative Court of First Instance. An appeal of
this matter will be heard in January 2003. Accordingly, the outcome of this
matter is still in doubt and cannot be predicted with any degree of certainty.
We believe the claims against us to be without merit and we intend to continue a
vigorous and appropriate defense to the claims asserted in this matter.
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued
an award that the Company was liable for $4.5 million in damages in conjunction
with a lease of real estate located in Jefferson County, Missouri. The Company
has filed a motion in the United States District Court for the Eastern District
of Missouri seeking to vacate the arbitration award. This loss contingency is
accrued at October 27, 2002, notwithstanding the motion to vacate.
The Company is engaged in various other litigation matters and has a number of
unresolved claims. Although the ultimate liability of this litigation and these
claims cannot be determined at this time, we believe that they will not have a
material adverse effect on our consolidated financial position or results of
operations.
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, and is subject to cleanup requirements at certain of its
facilities as a result thereof. The Company has not made, and does not
anticipate making, material expenditures or incurring delays with respect to
environmental remediation or protection. However, in part because the Company's
present and future development sites have, in some cases, been used as
manufacturing facilities or other facilities that generate materials that are
required to be remediated under environmental laws and regulations, there can be
no guarantee that additional pre-existing conditions will not be discovered and
that the Company will not experience material liabilities or delays.
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Six Months Ended
------------------- -----------------
October 27, October 28, October 27, October 28,
2002 2001 2002 2001
------------------- ----------------- ------------ ------------
(In thousands, except per share data)
Numerator:
Net income. . . . . . . . . . . . . . . . . . . . . $ 6,787 $ 10,435 $ 18,960 $ 16,289
=================== ================= ============ ============
Numerator for basic earnings per share - income
available to common stockholders . . . . . . . $ 6,787 $ 10,435 $ 18,960 $ 16,289
Effect of diluted securities. . . . . . . . . . . . - - - -
------------------- ----------------- ------------ ------------
Numerator for diluted earnings per share-
income available to common stockholders after
assumed conversions . . . . . . . . . . . $ 6,787 $ 10,435 $ 18,960 $ 16,289
=================== ================= ============ ============
Denominator:
Denominator for basic earnings per share -
weighted - average shares. . . . . . . . . . . 28,862 28,110 28,801 28,286
Effect of dilutive securities
Employee stock options, warrants
and nonvested restricted stock. . . . . . . 1,775 1,321 1,879 1,270
------------------- ----------------- ------------ ------------
Dilutive potential common shares. . . . . . . . . . 1,775 1,321 1,879 1,270
------------------- ----------------- ------------ ------------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions . . . . . . . . . . . 30,637 29,431 30,680 29,556
=================== ================= ============ ============
Basic earnings per share. . . . . . . . . . . . . . $ 0.24 $ 0.37 $ 0.66 $ 0.58
=================== ================= ============ ============
Diluted earnings per share. . . . . . . . . . . . . $ 0.22 $ 0.35 $ 0.62 $ 0.55
=================== ================= ============ ============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION
Certain of the Company's subsidiaries have fully and unconditionally guaranteed
the payment of all obligations under the Company's $390.0 million 8.75% Senior
Subordinated Notes due 2009, $200.0 million 9% Senior Subordinated Notes due
2012 and $500.0 million Senior Secured Credit Facility. The following tables
present the consolidating condensed financial information of Isle of Capri
Casinos, Inc., as the parent company, its guarantor subsidiaries and its
non-guarantor subsidiaries for the three and six months ended October 27, 2002
and October 28, 2001 and balance sheet as of October 27, 2002 and April 28,
2002.
ISLE OF CAPRI CASINOS, INC.
CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR, AND PARENT COMPANY
FINANCIAL INFORMATION
AS OF OCTOBER 27, 2002 (UNAUDITED) AND APRIL 28, 2002 AND FOR
THE THREE AND SIX MONTHS ENDED OCTOBER 27, 2002 AND OCTOBER 28, 2001
(UNAUDITED)
(IN THOUSANDS)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- -------------- --------------- --------------
As of October 27, 2002
Balance Sheet
- ------------------------------------------
Current assets . . . . . . . . . . . . . . $ 2,953 $ 103,274 $ 12,282 $ - $ 118,509
Intercompany receivables . . . . . . . . . 901,277 113,099 (16,320) (998,056) -
Investments in subsidiaries. . . . . . . . 195,368 279,382 410 (473,244) 1,916
Property and equipment, net. . . . . . . . 2,470 674,483 117,284 - 794,237
Other assets . . . . . . . . . . . . . . . 22,628 346,331 35,105 - 404,064
--------------- -------------- -------------- --------------- --------------
Total assets.. . . . . . . . . . . . . . . $ 1,124,696 $ 1,516,569 $ 148,761 $ (1,471,300) $ 1,318,726
=============== ============== ============== =============== ==============
Current liabilities. . . . . . . . . . . . $ 38,891 $ 103,625 $ 30,086 $ (1,485) $ 171,117
Intercompany payables. . . . . . . . . . . 38,792 942,878 14,900 (996,570) -
Long-term debt,
less current maturities.. . . . . . . . 858,250 7,661 65,123 - 931,034
Deferred state income taxes. . . . . . . . - 5,392 23 - 5,415
Other accrued liabilities. . . . . . . . . 6,828 1,000 12,030 - 19,858
Minority interest. . . . . . . . . . . . . - - - 12,140 12,140
Stockholders' equity . . . . . . . . . . . 181,935 456,013 26,599 (485,385) 179,162
--------------- -------------- -------------- --------------- --------------
Total liabilities and stockholders' equity $ 1,124,696 $ 1,516,569 $ 148,761 $ (1,471,300) $ 1,318,726
=============== ============== ============== =============== ==============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- -------------- --------------- ---------------
For the Three Months Ended October 27, 2002
Statement of Operations
- --------------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . . . $ - $ 230,378 $ 26,716 $ - $ 257,094
Rooms, food, beverage and other. . . . . . . (45) 48,606 5,222 - 53,783
--------------- -------------- -------------- --------------- ---------------
Gross revenues . . . . . . . . . . . . . . . (45) 278,984 31,938 - 310,877
Less promotional allowances. . . . . . . . . - 44,945 5,819 - 50,764
--------------- -------------- -------------- --------------- ---------------
Net revenues . . . . . . . . . . . . . . . . (45) 234,039 26,119 - 260,113
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . . . - 43,224 3,909 - 47,133
Gaming taxes . . . . . . . . . . . . . . . . - 51,157 5,257 - 56,414
Rooms, food, beverage and other. . . . . . . 5,145 91,675 7,808 - 104,628
Management fee expense (revenue).. . . . . . (8,752) 7,617 1,135 - -
Depreciation and amortization. . . . . . . . 271 16,716 1,290 - 18,277
--------------- -------------- -------------- --------------- ---------------
Total operating expenses . . . . . . . . . . (3,336) 210,389 19,399 - 226,452
--------------- -------------- -------------- --------------- ---------------
Operating income.. . . . . . . . . . . . . . 3,291 23,650 6,720 - 33,661
Interest expense . . . . . . . . . . . . . . (19,848) (29,025) (1,704) 29,909 (20,668)
Interest income. . . . . . . . . . . . . . . 28,566 1,345 16 (29,909) 18
Minority interest. . . . . . . . . . . . . . - - - (2,352) (2,352)
Equity in income of
unconsolidated joint venture.. . . . . . (1,350) - 1,618 (268) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes. . . . . . 10,659 (4,030) 6,650 (2,620) 10,659
Income tax provision . . . . . . . . . . . . 3,872 - - - 3,872
--------------- -------------- -------------- --------------- ---------------
Net income (loss). . . . . . . . . . . . . . $ 6,787 $ (4,030) $ 6,650 $ (2,620) $ 6,787
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- -------------- --------------- ---------------
For the Six Months Ended October 27, 2002
Statement of Operations
- ------------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . . $ - $ 473,164 $ 54,015 $ - $ 527,179
Rooms, food, beverage and other. . . . . . (33) 100,696 10,555 - 111,218
--------------- -------------- -------------- --------------- ---------------
Gross revenues . . . . . . . . . . . . . . (33) 573,860 64,570 - 638,397
Less promotional allowances. . . . . . . . - 90,150 11,471 - 101,621
--------------- -------------- -------------- --------------- ---------------
Net revenues . . . . . . . . . . . . . . . (33) 483,710 53,099 - 536,776
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . . - 89,218 7,901 - 97,119
Gaming taxes . . . . . . . . . . . . . . . - 104,455 10,608 - 115,063
Rooms, food, beverage and other. . . . . . 9,903 186,052 15,809 - 211,764
Management fee expense (revenue).. . . . . (17,755) 15,438 2,317 - -
Depreciation and amortization. . . . . . . 495 33,234 2,532 - 36,261
--------------- -------------- -------------- --------------- ---------------
Total operating expenses . . . . . . . . . (7,357) 428,397 39,167 - 460,207
--------------- -------------- -------------- --------------- ---------------
Operating income.. . . . . . . . . . . . . 7,324 55,313 13,932 - 76,569
Interest expense . . . . . . . . . . . . . (40,090) (57,146) (3,495) 58,958 (41,773)
Interest income. . . . . . . . . . . . . . 56,275 2,751 15 (58,958) 83
Minority interest. . . . . . . . . . . . . - - - (4,910) (4,910)
Equity in income of
unconsolidated joint venture.. . . . . 6,460 6,040 (15) (12,485) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes. . . . . 29,969 6,958 10,437 (17,395) 29,969
Income tax provision . . . . . . . . . . . 11,009 - - - 11,009
--------------- -------------- -------------- --------------- ---------------
Net income (loss). . . . . . . . . . . . . $ 18,960 $ 6,958 $ 10,437 $ (17,395) $ 18,960
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- -------------- --------------- ---------------
For the Six Months Ended October 27, 2002
Statement of Cash Flows
- --------------------------------------------
Net cash provided by (used in)
operating activities. . . . . . . . . . . $ 54,203 $ 14,076 $ 14,377 $ (13,801) $ 68,855
Net cash provided by (used in)
investing activities. . . . . . . . . . . (5,811) (17,690) (2,497) 10,170 (15,828)
Net cash provided by (used in )
financing activities. . . . . . . . . . . (52,431) (1,640) (14,655) 3,632 (65,094)
--------------- -------------- -------------- --------------- ---------------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . (4,039) (5,254) (2,775) 1 (12,067)
Cash and cash equivalents at
beginning of the period . . . . . . . . . 2,690 58,312 11,045 4,550 76,597
--------------- -------------- -------------- --------------- ---------------
Cash and cash equivalents at
end of the period . . . . . . . . . . . . $ (1,349) $ 53,058 $ 8,270 $ 4,551 $ 64,530
=============== ============== ============== =============== ===============
For the Three Months Ended October 28, 2001
Statement of Operations
- --------------------------------------------
Revenue:
Casino . . . . . . . . . . . . . . . . . . . $ - $ 228,913 $ 28,785 $ - $ 257,698
Rooms, food, beverage and other. . . . . . . 305 49,169 5,377 - 54,851
--------------- -------------- -------------- --------------- ---------------
Gross revenue. . . . . . . . . . . . . . . . 305 278,082 34,162 - 312,549
Less promotional allowances. . . . . . . . . - 46,093 5,950 - 52,043
--------------- -------------- -------------- --------------- ---------------
Net revenue. . . . . . . . . . . . . . . . . 305 231,989 28,212 - 260,506
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . . . - 45,469 4,052 - 49,521
Gaming taxes . . . . . . . . . . . . . . . . - 49,253 5,639 - 54,892
Rooms, food, beverage and other. . . . . . . (2,745) 91,261 9,854 - 98,370
Depreciation and amortization. . . . . . . . 189 15,934 1,020 - 17,143
--------------- -------------- -------------- --------------- ---------------
Total operating expenses . . . . . . . . . . (2,556) 201,917 20,565 - 219,926
--------------- -------------- -------------- --------------- ---------------
Operating income.. . . . . . . . . . . . . . 2,861 30,072 7,647 - 40,580
Interest expense . . . . . . . . . . . . . . (20,203) (26,369) (3,080) 27,022 (22,630)
Interest income. . . . . . . . . . . . . . . 26,156 1,089 72 (27,022) 295
Minority interest. . . . . . . . . . . . . . - - - (1,991) (1,991)
Equity in income (loss) of
unconsolidated joint venture. . . . . . . 7,440 6,165 - (13,605) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes. . . . . . 16,254 10,957 4,639 (15,596) 16,254
Income tax provision . . . . . . . . . . . . 5,819 - - - 5,819
--------------- -------------- -------------- --------------- ---------------
Net income (loss). . . . . . . . . . . . . . $ 10,435 $ 10,957 $ 4,639 $ (15,596) $ 10,435
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- -------------- --------------- ---------------
For the Six Months Ended October 28, 2001
Statement of Operations
- ------------------------------------------
Revenues:
Casino . . . . . . . . . . . . . . . . . . $ - $ 459,451 $ 55,835 $ - $ 515,286
Rooms, food, beverage and other. . . . . . 317 103,547 10,579 - 114,443
--------------- -------------- -------------- --------------- ---------------
Gross revenues . . . . . . . . . . . . . . 317 562,998 66,414 - 629,729
Less promotional allowances. . . . . . . . - 94,800 11,487 - 106,287
--------------- -------------- -------------- --------------- ---------------
Net revenues . . . . . . . . . . . . . . . 317 468,198 54,927 - 523,442
Operating expenses:
Casino.. . . . . . . . . . . . . . . . . . - 92,930 8,009 - 100,939
Gaming taxes . . . . . . . . . . . . . . . - 98,368 11,008 - 109,376
Rooms, food, beverage and other. . . . . . (5,030) 189,376 19,398 - 203,744
Gain on disposal of asset. . . . . . . . . (125) - - - (125)
Depreciation and amortization. . . . . . . 423 32,003 2,010 - 34,436
--------------- -------------- -------------- --------------- ---------------
Total operating expenses . . . . . . . . . (4,732) 412,677 40,425 - 448,370
--------------- -------------- -------------- --------------- ---------------
Operating income.. . . . . . . . . . . . . 5,049 55,521 14,502 - 75,072
Interest expense . . . . . . . . . . . . . (42,064) (52,544) (6,124) 53,735 (46,997)
Interest income. . . . . . . . . . . . . . 51,960 2,160 143 (53,735) 528
Minority interest. . . . . . . . . . . . . - - - (3,662) (3,662)
Equity in income (loss) of
unconsolidated joint venture. . . . . . 9,999 12,116 - (22,115) -
--------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes. . . . . 24,944 17,253 8,521 (25,777) 24,941
Income tax provision . . . . . . . . . . . 8,652 - - - 8,652
--------------- -------------- -------------- --------------- ---------------
Net income (loss). . . . . . . . . . . . . $ 16,292 $ 17,253 $ 8,521 $ (25,777) $ 16,289
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(b)
Isle of Capri (a) Non-Wholly
Casinos, Inc. Wholly Owned Consolidating
Guarantor Owned Non- and Isle of Capri
(Parent Guarantor Guarantor Eliminating Casinos, Inc.
Obligor) Subsidiaries Subsidiaries Entries Consolidated
--------------- -------------- -------------- --------------- ---------------
For the Six Months Ended October 28, 2001
Statement of Cash Flows
- -------------------------------------------
Net cash provided by (used in)
operating activities.. . . . . . . . . . $ (10,047) $ 86,101 $ 12,841 $ (26,936) $ 61,959
Net cash provided by (used in)
investing activities.. . . . . . . . . . (1,783) (78,909) (1,035) 24,085 (57,642)
Net cash provided by (used in)
financing activities.. . . . . . . . . . 18,860 (1,484) (5,277) 2,851 14,950
--------------- -------------- -------------- --------------- ---------------
Net increase in cash and
cash equivalents.. . . . . . . . . . . . 7,030 5,708 6,529 - 19,267
Cash and cash equivalents at
beginning of the period. . . . . . . . . 159 58,908 13,042 4,550 76,659
--------------- -------------- -------------- --------------- ---------------
Cash and cash equivalents at
end of the period. . . . . . . . . . . . $ 7,189 $ 64,616 $ 19,571 $ 4,550 $ 95,926
=============== ============== ============== =============== ===============
As of April 28, 2002
Balance Sheet
- -------------------------------------------
Current assets. . . . . . . . . . . . . . . $ 7,475 $ 113,900 $ 14,999 $ - $ 136,374
Intercompany receivables. . . . . . . . . . 925,523 97,986 (12,183) (1,011,326) -
Investments in subsidiaries.. . . . . . . . 190,389 273,342 425 (463,100) 1,056
Property and equipment, net . . . . . . . . 2,093 687,252 114,162 - 803,507
Other assets. . . . . . . . . . . . . . . . 22,630 346,831 35,240 - 404,701
--------------- -------------- -------------- --------------- ---------------
Total assets. . . . . . . . . . . . . . . . $ 1,148,110 $ 1,519,311 $ 152,643 $ (1,474,426) $ 1,345,638
=============== ============== ============== =============== ===============
Current liabilities . . . . . . . . . . . . $ 32,391 $ 98,919 $ 27,302 $ (2) $ 158,610
Intercompany payables . . . . . . . . . . . 38,791 956,216 16,319 (1,011,326) -
Long-term debt,
less current maturities. . . . . . . . . 912,500 8,731 73,892 - 995,123
Deferred state income taxes.. . . . . . . . - 5,392 23 - 5,415
Other accrued liabilities.. . . . . . . . . 5,027 1,000 10,275 - 16,302
Minority interest.. . . . . . . . . . . . . - - - 10,990 10,990
Stockholders' equity. . . . . . . . . . . . 159,401 449,053 24,832 (474,088) 159,198
--------------- -------------- -------------- --------------- ---------------
Total liabilities and stockholders' equity. $ 1,148,110 $ 1,519,311 $ 152,643 $ (1,474,426) $ 1,345,638
=============== ============== ============== =============== ===============
ISLE OF CAPRI CASINOS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONSOLIDATING CONDENSED FINANCIAL INFORMATION (CONTINUED)
(a) Certain of the Company's wholly owned subsidiaries are guarantors on the
8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes and the Senior
Secured Credit Facility, including the following: the subsidiaries operating
the Isle-Biloxi, the Isle-Vicksburg, the Isle-Tunica, the Isle-Bossier City and
the Isle-Lake Charles as well as PPI, Inc., IOC Holdings, L.L.C. and Riverboat
Services, Inc. The subsidiaries operating the Isle-Natchez, the Isle-Lula, the
Isle-Bettendorf, and the Isle-Marquette became guarantors as of March 2, 2000,
the date of the acquisition. The subsidiaries operating the Isle-Boonville, the
Isle-Kansas City, the Lady Luck-Las Vegas and the Isle-Davenport became
guarantors as of their respective dates of acquisition. Each of the subsidiary
guarantors is joint and several with the guarantees of the other subsidiaries.
(b) The following non-wholly owned subsidiaries are not guarantors on the 8.75%
Senior Subordinated Notes nor the 9% Senior Subordinated Notes: Isle of
Capri Black Hawk L.L.C., Isle of Capri Black Hawk Capital Corp., Capri Air,
Inc., Lady Luck Gaming Corp., Lady Luck Gulfport, Inc., Lady Luck Vicksburg,
Inc., Lady Luck Biloxi, Inc., Lady Luck Central City, Inc., IOC-Coahoma, Inc.,
Pompano Park Holdings, L.L.C., Casino America of Colorado, Inc., ASMI
Management, Inc. and IOC Development, LLC., Casino America, Inc., ICC Corp.,
International Marco Polo Services, Inc., IOC-St. Louis County, Inc., IOC,
L.L.C., Isle of Capri Casino Colorado, Inc., Isle of Capri of Michigan LLC, Lady
Luck Bettendorf Marina Corp., Water Street Redevelopment Corporation, Casino
Parking, Inc., IOC-Black Hawk Distribution Company, LLC, Isle of Capri of
Jefferson County, Inc., Lady Luck Scott City, Inc., and Louisiana Horizons,
L.L.C.
8. SUBSEQUENT EVENT
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued
an award that the Company was liable for $4.5 million in damages in conjunction
with a lease of real estate located in Jefferson County, Missouri. The Company
has filed a motion in the United States District Court for the Eastern District
of Missouri seeking to vacate the arbitration award. This loss contingency is
accrued at October 27, 2002, notwithstanding the motion to vacate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
You should read the following discussion together with the financial
statements, including the related notes and the other financial information in
this Form 10-Q.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States that require our
management to make estimates and assumptions about the effects of matters that
are inherently uncertain. We have summarized our significant accounting
policies in Note 1 to our consolidated financial statements. Of our accounting
policies, we believe the following may involve a higher degree of judgment and
complexity:
GOODWILL
At October 27, 2002, we had a net goodwill and other intangible asset
balance of $364.6 million, representing 28% of total assets. Effective April
30, 2002, we elected to adopt Statement of Financial Accounting Standards No.142
"Goodwill and Other Intangible Assets" ("SFAS 142"), which established a new
method of testing goodwill and other intangible assets using a fair-value based
approach and does not permit amortization of goodwill as was previously
required. Upon adoption, amortization of goodwill and other intangible assets
ceased.
SFAS 142 requires that goodwill and other intangible assets be tested for
impairment annually or if an event occurs or circumstances change that may
reduce the fair value of the Company below its book value. Should circumstances
change or events occur to indicate that the fair market value of the Company has
fallen below its book value, management must then compare the estimated fair
value of goodwill and other intangible assets to book value. If the book value
exceeds the estimated fair value, an impairment loss would be recognized in an
amount equal to that excess. Such an impairment loss would be recognized as a
non-cash component of operating income. We completed our impairment test as
required under SFAS 142 and determined that goodwill and other intangible assets
are not impaired. This test required comparison of our estimated fair value at
April 28, 2002 to our book value, including goodwill and other intangible
assets. The estimated fair value includes estimates of future cash flows which
are based on reasonable and supportable assumptions and represent our best
estimates of the cash flows expected to result from the use of the assets and
their eventual disposition.
PROPERTY AND EQUIPMENT
At October 27, 2002, we had a net property and equipment balance of $794.2
million, representing 60% of total assets. We depreciate property and equipment
on a straight-line basis over its estimated useful lives. The estimated useful
lives are based on the nature of the assets as well as our current operating
strategy. Future events such as property expansions, new competition and new
regulations could result in a change in the manner in which we are using certain
assets requiring a change in the estimated useful lives of such assets. In
assessing the recoverability of the carrying value of property and equipment, we
must make assumptions regarding future cash flows and other factors. If these
estimates or the related assumptions change in the future, we may be required to
record impairment loss for these assets. Such an impairment loss would be
recognized as a non-cash component of operating income.
SELF INSURANCE LIABILITIES
We are self-funded up to a maximum amount per claim for our
employee-related health care benefits program, workers' compensation insurance
and general liability insurance. Claims in excess of this maximum are fully
insured through a stop-loss insurance policy. We accrue for these liabilities
based on claims filed and estimates of claims incurred but not reported. While
the total cost of claims incurred depends on future developments, such as
increases in health care costs, in our opinion, recorded reserves are adequate
to cover future claims payments.
SLOT CLUB AWARDS
We reward our slot customers for their loyalty based on the dollar amount of
play on slot machines. We accrue for these slot club awards based on an
estimate of the outstanding value of the awards utilizing the age and prior
history of redemptions. Future events such as a change in our marketing
strategy or new competition could result in a change in the value of the awards.
Such a change would be recognized as a non-cash component of net revenues.
GENERAL
Our results of operations for the six months ended October 27, 2002 reflect
the consolidated operations of all of our subsidiaries and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Kansas City, the Isle-Boonville, the Isle-Bettendorf,
the Isle-Marquette, the Rhythm City-Davenport, the Isle-Black Hawk, the Lady
Luck-Las Vegas, and Pompano Park.
Our results of operations for the six months ended October 28, 2001 reflect
the consolidated operations of all of our subsidiaries and includes the
following properties: the Isle-Bossier City, the Isle-Lake Charles, the
Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the
Isle-Vicksburg, the Isle-Kansas City, the Isle-Bettendorf, the Isle-Marquette,
the Rhythm City-Davenport, the Isle-Black Hawk, the Lady Luck-Las Vegas, and
Pompano Park. Isle-Boonville opened December 6, 2001.
We believe that our historical results of operations may not be indicative
of our future results of operations because of the substantial present and
expected future increase in competition for gaming customers in each of our
markets, as new gaming facilities open and existing gaming facilities expanded
or enhanced their facilities.
We believe that our operating results are affected by the economy,
seasonality and weather. Seasonality has historically caused the operating
results for our first and fourth fiscal quarters ending in July and April,
respectively, to be better than the operating results for the second and third
fiscal quarters ending October and January, respectively.
RESULTS OF OPERATIONS
Three Fiscal Months October 27, 2002 Compared to Three Fiscal Months Ended
October 28, 2001
Gross revenue for the quarter ended October 27, 2002 was $310.9 million,
which included $257.1 million of casino revenue, $13.9 million of rooms revenue,
$4.0 million of pari-mutuel commissions and $35.9 million of food, beverage and
other revenue. This compares to gross revenue for the quarter ended October 28,
2001 of $312.5 million, which included $257.7 million of casino revenue, $14.8
million of rooms revenue, $3.1 million of pari-mutuel commissions and $36.9
million of food, beverage and other revenue.
Casino revenue remained flat year over year despite the addition of the
Isle-Boonville, which generated $15.6 million of casino revenue in the current
year. Casino revenue at the Isle-Lake Charles was down 16.8% or $8.3 million.
Revenues were negatively affected by the addition of a racino, opened in
February 2001, to the Lake Charles market, construction on I-10, the main access
highway from Houston and a series of tropical storms that impacted the Isle-Lake
Charles and its feeder markets. Casino revenue also declined at the Isle-Tunica
and the Lady Luck-Las Vegas. Operations at both were negatively impacted by the
impending sales of those locations. Casino revenue at the Isle-Black Hawk
decreased by 7.2% or $2.1 million primarily due to road construction hampering
access to the property and the opening of a new competitor in the market in
December 2001. Room revenue decreased $0.9 million or 6.0% primarily due to
reduced occupancy at the Isle-Tunica, which was in the process of closing.
Rhythm City-Davenport occupancy levels also decreased. The decrease in the
Rhythm City-Davenport's occupancy levels resulted from the fine-tuning of
complimentary policy to ensure optimum marketing expenditures. Food, beverage
and other revenues decreased $1.1 million or 2.9%. Ending operations at the
Isle-Tunica caused much of the decline.
Casino operating expenses for the quarter ended October 27, 2002 totaled
$47.1 million, or 18.3% of casino revenue, versus $49.5 million, or 19.2% of
casino revenue, for the quarter ended October 28, 2001. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. The decrease in casino operating expenses is attributable to
continued refinement of cost containment policies. The addition of our
Boonville property, with its lower than average casino expense margin, lead to
the improved flow through and lower overall casino expense margin, due in part
to the lower than average payroll and related expense per casino full time
equivalent. Room expenses of $3.5 million or 25.0% of room revenue from the
hotels at the Isle-Lake Charles, the Isle-Bossier City, the Isle-Biloxi, the
Isle-Vicksburg, the Isle-Natchez, the Isle-Lula, the Isle-Bettendorf, the
Isle-Marquette, the Isle-Tunica, the Isle-Black Hawk, the Lady Luck-Las Vegas
and the Rhythm City-Davenport compared to $3.3 million or 22.5% of room revenue
for the quarter ended October 28, 2001. These expenses directly relate to the
cost of providing hotel rooms. Other costs of the hotels are shared with the
casinos and are presented in their respective expense categories.
For the quarter ended October 27, 2002, state and local gaming taxes were
paid in Louisiana, Mississippi, Colorado, Iowa, Missouri and Nevada totaling
$56.4 million, or 21.9% of casino revenue, compared to $54.9 million, or 21.3%
of casino revenues for the three months ended October 28, 2001, which is
consistent with each state's gaming tax rate for the applicable fiscal quarters.
The increase in state and local gaming taxes as a percentage of casino revenue
is due to the 1% increase in gaming tax rate on net gaming proceeds at the
Isle-Bossier City. On April 1, 2002, the gaming tax rate at the Isle-Bossier
City increased from 19.5% to 20.5% and will increase from 20.5% to 21.5% on
April 1, 2003.
Food, beverage and other expenses totaled $8.5 million for the quarter
ended October 27, 2002, compared to $8.5 million for the quarter ended October
28, 2001. Food, beverage and other operating expenses as a percentage of food,
beverage and other revenues increased to 23.7% for the quarter ended October 27,
2002 from 23.1% for the quarter ending October 28, 2001. These expenses consist
primarily of the cost of goods sold, salaries, wages and benefits and other
operating expenses of these departments. These expenses have increased as a
result of the addition of the Isle-Boonville, with a corresponding increase in
margin due to lower food and beverage revenue during the quarter.
Marine and facilities expenses totaled $17.1 million for the quarter ended
October 27, 2002, versus $17.6 million for the quarter ended October 28, 2001.
These expenses include salaries, wages and benefits, operating expenses of the
marine crews, insurance, public areas, housekeeping and general maintenance of
the riverboats and pavilions.
Marketing and administrative expenses totaled $70.8 million, or 27.2% of
net revenue, for the quarter ended October 27, 2002, versus $65.7 million, or
25.2% of net revenue, for the quarter ended October 28, 2001. Marketing
expenses include salaries, wages and benefits of the marketing and sales
departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses include administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. The increase in marketing and administrative expenses
is commensurate with the increase in gross revenues. The 1.7% increase in
marketing and administrative expenses approximates the 3.3% increase in gross
revenues. In absolute terms, the marketing and administrative expense increase
of $1.2 million was driven by the $3.7 million expended at the Isle-Boonville,
partially offset by the overall ongoing efforts to optimize marketing
expenditures.
Depreciation and amortization expense was $18.3 million for the quarter
ended October 27, 2002 and $17.1 million for the quarter ended October 28, 2001.
Depreciation and amortization expense increased by $1.2 million compared to the
prior year quarter. The increase is consistent with an increase in fixed assets
placed into service or acquired but was offset by the lack of depreciation
expense at the Isle-Tunica and the Lady Luck -Las Vegas. During fiscal 2002, we
reclassified the Isle-Tunica's and the Lady Luck-Las Vegas' property and
equipment as assets held for sale under Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" due to the impairment of the assets. Under
this classification, we will no longer depreciate these assets. We estimate that
the benefit from suspending depreciation associated with the assets held for
sale was approximately $2.0 million for the three months ended October 27, 2002.
Interest expense was $20.7 million for the quarter ended October 27, 2002
as compared to interest expense of $22.3 million for the quarter ended October
28, 2001. Interest expense primarily relates to indebtedness incurred in
connection with the acquisition of property, equipment, leasehold improvements
and berthing and concession rights. Additionally, interest expense of $1.5
million related to the Isle-Black Hawk is included in interest expense in the
quarter ended October 27, 2002. This compares to interest expense of $3.0
million for the quarter ended October 28, 2001.
Our effective tax rate was 36.3% for the quarter ended October 27, 2002
compared to 35.8% for the quarter ended October 28, 2001.
Six Fiscal Months Ended October 27, 2002 Compared to Six Fiscal Months Ended
October 28, 2001
Gross revenue for the six fiscal months ended October 27, 2002 was $638.4
million, which included $527.2 million of casino revenue, $28.6 million of rooms
revenue, $9.6 million of pari-mutuel commissions and $72.9 million of food,
beverage and other revenue. This compares to gross revenue for the prior year
six months ended October 28, 2001 was $629.7 million, which included $515.3
million of casino revenue, $30.0 million of rooms revenue, $8.4 million of
pari-mutuel commissions and $76.1 million of food, beverage and other revenue.
Casino revenue increased $11.9 million or 2.3% primarily as a result of a
full six months of operations of the Isle-Boonville. This increase was
partially offset by decreases in casino revenue at the Isle-Lake Charles caused
by severe weather and by a decrease in casino revenue at the Isle-Tunica
resulting from the disruption of closing the casino. Room revenue decreased $1.3
million or 4.4% due to decreased occupancy levels at the Rhythm City-Davenport
resulting from the fine-tuning of our complimentary policy. Isle-Tunica also
produced less room revenue as this operation was prepared for closure. Food,
beverage and other revenue increased by $3.1 million or 4.1% as a result of
similar factors to room revenue.
Casino operating expenses for the six fiscal months ended October 27, 2002
totaled $97.1 million, or 18.4% of casino revenue, versus $100.9 million, or
19.6% of casino revenue, for the six fiscal months ended October 28, 2001.
These expenses are primarily comprised of salaries, wages and benefits and other
operating expenses of the casinos. The increase in casino operating expenses
created by the addition of the Isle-Boonville was more than offset by decreases
in operating expenses at the Isle-Tunica and the Lady Luck-Las Vegas.
Operating expenses for the six fiscal months ended October 27, 2002 also
included room expenses of $7.1 million or 24.9% of room revenue from the hotels
at the Isle-Biloxi, the Isle-Vicksburg, the Isle-Natchez, the Isle-Bossier City,
the Isle-Lake Charles, the Isle-Tunica, the Isle-Lula, the Isle-Black Hawk, the
Isle-Bettendorf, the Rhythm City-Davenport, the Isle-Marquette and the Lady
Luck-Las Vegas compared to $6.7 million or 22.7% of room revenue for the six
fiscal months ended October 28, 2001. These expenses directly relate to the
cost of providing hotel rooms. Other costs of the hotels are shared with the
casinos and are presented in their respective expense categories.
For the six fiscal months ended October 27, 2002, state and local gaming
taxes were paid in Louisiana, Mississippi, Colorado, Iowa, Missouri and Nevada
totaling $115.1 million, or 21.8% of casino revenue, compared to $109.4 million,
or 21.2% of casino revenues for the six fiscal months ended October 28, 2001,
which is consistent with each state's gaming tax rate for the applicable fiscal
quarters. For the six fiscal months ended October 28, 2001, state and local
gaming taxes were paid in Louisiana, Mississippi, Colorado, Iowa, Nevada and
Missouri. On April 1, 2002, the gaming tax rate at the Isle-Bossier City
increased from 19.5% to 20.5% and will increase from 20.5% to 21.5% on April 1,
2003.
Food, beverage and other expenses totaled $17.8 million for the six fiscal
months ended October 27, 2002, compared to $17.4 million for the six fiscal
months ended October 28, 2001. Food and beverage and other operating expenses
as a percentage of food, beverage and other revenues increased to 24.4% for the
six fiscal months ended October 27, 2002 from 22.9% for the six fiscal months
ending October 28, 2001. These expenses consist primarily of the cost of goods
sold, salaries, wages and benefits and other operating expenses of these
departments. These expenses have increased as a result of the expansion in the
number of properties operated by the Isle and continued expansion of the
original Isle facilities.
Marine and facilities expenses totaled $35.4 million for the six fiscal
months ended October 27, 2002, versus $35.5 million for the six fiscal months
ended October 28, 2001. These expenses include salaries, wages and benefits,
operating expenses of the marine crews, insurance, public areas, housekeeping
and general maintenance of the riverboats and pavilions. These expenses have
decreased slightly despite the addition of the Isle-Boonville.
Marketing and administrative expenses totaled $142.6 million, or 26.6% of
net revenue, for the six fiscal months ended October 27, 2002, versus $136.3
million, or 26.0% of net revenue, for the six fiscal months ended October 28,
2001. Marketing expenses include salaries, wages and benefits of the marketing
and sales departments, as well as promotions, advertising, special events and
entertainment. Administrative expenses include administration and human
resource department expenses, rent, new development activities, professional
fees and property taxes. Marketing and administrative expenses have increased as
a result of the addition of the Isle-Boonville.
Depreciation and amortization expense was $36.3 million for the six months
ended October 27, 2002 and $34.4 million for the six fiscal months ended October
28, 2001. The increase is consistent with an increase in fixed assets placed
into service or acquired but was offset by the lack of depreciation expense at
the Isle-Tunica and the Lady Luck -Las Vegas. During fiscal 2002, we
reclassified the Isle-Tunica's and the Lady Luck-Las Vegas' property and
equipment as assets held for sale under Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" due to the impairment of the assets. Under
this classification, we will no longer depreciate these assets. We estimate that
the benefit from suspending depreciation associated with the assets held for
sale was approximately $4.0 million for the six months ended October 27, 2002.
Interest expense was $41.7 million for the six fiscal months ended October
27, 2002 versus $46.5 million for the six fiscal months ended October 28, 2001.
Interest expense primarily relates to indebtedness incurred in connection with
the acquisition of property, equipment, leasehold improvements and berthing and
concession rights. The decrease in interest expenses relates to the paydown of
debt of $63.2 million during the period. Additionally, interest expense of $2.9
million related to the Isle-Black Hawk is included in interest expense in the
six fiscal months ended October 27, 2002. This compares to interest expense of
$6.1 million for the six fiscal months ended October 28, 2001.
Our effective tax rate was 36.7% for the six fiscal months ended October
27, 2002 compared to 34.7% for the six fiscal months ended October 28, 2001.
The six fiscal months ended October 28, 2001, is 2.0% lower than the six fiscal
months ended October 27, 2002, due to a revision in the estimate of deferred
income taxes.
DISPOSITION CHARGES
During fiscal 2002, we announced that our Board of Directors authorized us
to embark on plans to sell or otherwise dispose of the Isle-Tunica and the Lady
Luck-Las Vegas properties. On July 16, 2002, we entered into an agreement to
sell the Lady Luck-Las Vegas, subject to certain conditions. On October 30,
2002, the Company completed the sale of the Lady Luck-Las Vegas. Our subsidiary
will continue to operate the casino for up to six months pending receipt of
regulatory approval by the purchaser's designated gaming operator. On July 29,
2002, we entered into an agreement to sell the Isle-Tunica. The agreement
provided that we would receive a cash payment of $7.5 million and would be
entitled to retain certain personal property, including all gaming equipment,
valued at approximately $4.7 million. We ceased casino operation on September 4,
2002. The hotel and support facilities remained open until the closing of the
transaction on October 7, 2002.
In connection with the disposition plan, approximately 600 employees were
terminated at the Isle-Tunica. The approximately 400 employees of the Lady
Luck-Las Vegas became employees of the new company on October 30, 2002.
Estimated employee termination costs of $0.4 million were accrued in the first
quarter of fiscal 2003. In addition, the disposition plan includes lease
termination and other business exit costs estimated at $1.4 million that were
accrued in the first quarter of fiscal 2003. We have funded $0.4 million of
these exit costs as of October 27, 2002. We expect to fund the remaining costs
through existing cash flows from operations before the end of calendar 2002.
LIQUIDITY AND CAPITAL RESOURCES
At October 27, 2002, we had cash and cash equivalents of $64.5 million
compared to $76.6 million in cash and cash equivalents at April 28, 2002. The
$12.1 million decrease in cash is the net result of $68.8 million net cash
provided by operating activities, offset by $15.8 million net cash used in
investing activities primarily related to the purchase of property and
equipment, and $65.1 million net cash used in financing activities primarily
related to the paydown of debt. In addition, we had $242.0 million in available
lines of credit.
INVESTING ACTIVITIES
We invested $23.0 million in property and equipment during the six months
ended October 27, 2002 primarily for the implementation of a company-wide slot
enhancement program. Approximately $10.2 million was expended on capital
expenditures, which enhanced the value of the properties or prolonged their
useful life. The following table reflects expenditures for property and
equipment on major projects:
ACTUAL REMAINDER OF
------------------------------ ------------
FISCAL YEAR SIX MONTHS FISCAL YEAR
ENDED 4/28/02 ENDED 10/27/02 ENDING 4/27/03
---------------- -------------- ---------------
(DOLLARS IN MILLIONS)
PROPERTY PROJECT
- --------------------------- ------------------------------------------
Isle-Biloxi Construct hotel & parking facility $ - $ 0.2 $ 8.9
Isle-Bossier City . . . . . Construct hotel & entertainment center . - 0.3 9.8
Isle-Lake Charles . . . . . Construct hotel. 0.4 - -
Isle-Tunica. Construct hotel & 2 theaters 1.0 - -
Isle-Kansas City Renovations 1.5 - -
Isle-Boonville. . . . . . . Develop casino. 35.7 0.9 -
Rhythm City-Davenport. Renovations 1.6 - -
Isle-Marquette. . . . . . . Construct hotel. - - 0.8
Lady Luck Properties Convert to Isle 2.7 - -
Lady Luck-Las Vegas . . . . Renovations. 1.4 - -
All . . . . . . . . . . . . Slot program 32.7 11.4 18.9
All Enhancement 21.3 10.2 23.2
--------------- --------------- -----
Total $ 98.3 $ 23.0 $61.6
=============== =============== =====
We anticipate that capital improvements approximating $33.4 million will be
made during fiscal 2003 to maintain our existing facilities and remain
competitive in our markets in addition to $30.3 for our slot enhancement
program. As of the six months ended October 27, 2002, we have spent $10.2
million on capital improvements and $11.4 million on our slot enhancement
program.
In August 2002, we announced plans for a $135.0 million multi-property
expansion at three of our casinos of which $20.0 million is scheduled to be
spent during fiscal 2003. The plan will include upgraded and additional
amenities at the Isle-Biloxi, the Isle-Bossier City and the Isle-Marquette.
This plan, which will utilize cash flow from operations, reinforces our
commitment to develop our portfolio of properties to feature a more
resort-oriented product.
The Isle-Biloxi plan, estimated at $79.0 million, will include an
additional 400 hotel rooms, an Isle-branded Kitt's Kitchen restaurant, a 12,000
square-foot multi-purpose center, an expanded pool and spa area and a
1,000-space parking facility. The parking garage will provide a podium for
future expansion for an additional hotel tower. Construction will begin this
winter with a projected construction period of approximately 24 months.
The Isle-Bossier City plan, estimated at $50.0 million, features a hotel
tower, with 265 rooms, a Kitt's Kitchen restaurant, a new pool and deck, and a
12,000-square-foot convention/entertainment center. Construction began in
October 2002 and will span about 18 months.
The Isle-Marquette property phase of the plan will include $6.0 million in
improvements including a 60-room Inn-at-the-Isle and improved parking. The
construction, planned to begin in spring 2003, will last approximately 16
months.
All of our development plans are subject to obtaining permits, licenses and
approvals from appropriate regulatory and other agencies and, in certain
circumstances, negotiating acceptable leases. In addition, many of the plans
are preliminary, subject to continuing refinement or otherwise subject to
change.
FINANCING ACTIVITIES
During the six months ended October 27, 2002, we used net cash of $65.1
million in the following financing activities:
- - We made net reductions to our Revolving Credit Facilities and lines of
credit of $31.0 million.
- - We made principal payments on our Senior Secured Credit Facility and other
debt of $32.2 million.
On April 26, 2002, we entered into a Senior Secured Credit Facility which
refinanced our prior facility. This Senior Secured Credit Facility consists of
a $250.0 million revolving credit facility maturing on April 25, 2007, and a
$250.0 million term loan facility maturing on April 25, 2008. We are required
to make quarterly principal payments on the $250.0 million term loan portion of
our amended and restated Senior Secured Credit Facility. Such payments are
initially $625,000 per quarter starting in June 2002 and increase to $59.4
million per quarter beginning in June 2007. In addition, we are required to
make substantial quarterly interest payments on the outstanding balance of our
Senior Secured Credit Facility. The proceeds were used to refinance $336.8
million of the prior facility.
Our Senior Secured Credit Facility, among other things, restricts our
ability to borrow money, make capital expenditures, use assets as security in
other transactions, make restricted payments or restricted investments, incur
contingent obligations, sell assets and enter into leases and transactions with
affiliates. In addition, our credit facility requires us to meet certain
financial ratios and tests, including: a minimum consolidated net worth test, a
maximum consolidated total leverage test, a maximum consolidated senior leverage
test, and a minimum consolidated fixed charge coverage test. As of October 27,
2002, we were in compliance with all debt covenants.
We expect that available cash and cash from future operations, as well as
borrowings under our existing amended and restated senior credit facility and
lines of credit will be sufficient to fund future expansion and planned capital
expenditures, service senior debt, and meet working capital requirements. As of
October 27, 2002, we had $228.0 million of unused credit capacity with the
revolving loan commitment on our amended and restated senior credit facility,
$10.0 million of unused credit capacity with the Isle-Black Hawk secured credit
facility and $4.0 million of available credit with our lines of credit. The
revolving loan commitment is a variable rate instrument based on, at our option,
either LIBOR or our lender's prime rate plus the applicable interest rate
spread, and is effective through April 2007. Our lines of credit are also at
variable rates based on our lender's prime rate and are subject to annual
renewal in April 2003. There is no assurance that these sources will in fact
provide adequate funding for the expenditures described above or that planned
capital investments will be sufficient to allow us to remain competitive in our
existing markets.
We are currently in compliance with all covenants contained in our senior
and subordinated debt instruments as of October 27, 2002 from SEC. If we do not
maintain compliance with these covenants, the lenders under the amended and
restated senior credit facility have the option (in some cases, after the
expiration of contractual grace periods), but not the obligation, to demand
immediate repayment of all or any portion of the obligations outstanding under
the amended and restated senior credit facility. Any significant deterioration
of earnings could affect certain of our covenants. Adverse changes in our
credit rating or stock price would not impact our borrowing costs or covenant
compliance under existing debt instruments. Future events, such as a
significant increase in interest rates can be expected to increase our costs of
borrowing under our amended and restated senior credit facility. The indentures
governing our 8.75% notes and our 9.0% notes restrict, among other things, our
ability to borrow money, create liens, make restricted payments, and sell
assets.
We are highly leveraged and may be unable to obtain additional debt or
equity financing on acceptable terms. As a result, limitations on our capital
resources could delay or cause us to abandon certain plans for capital
improvements at our existing properties and development of new properties. We
will continue to evaluate our planned capital expenditures at each of our
existing locations in light of the operating performance of the facilities at
such locations.
SUBSEQUENT EVENT
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued
an award that we are liable for $4.5 million in damages in conjunction with a
lease of real estate located in Jefferson County, Missouri. We have filed a
motion in the United States District Court for the Eastern District of Missouri
seeking to vacate the arbitration award. This loss contingency is accrued at
October 27, 2002, notwithstanding the motion to vacate. If the motion to vacate
is not granted, we intend to fund this award from cash flows from operations
during the third fiscal quarter of 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB No. 13, and Technical Corrections," ("SFAS 145").
SFAS No. 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS No. 4. SFAS 145 will be
effective for fiscal years beginning after May 15, 2002. We will adopt SFAS 145
at the beginning of fiscal 2004, April 28, 2003. Losses on extinguishment of
debt previously classified as extraordinary charges will be reclassified to
conform to the provisions of SFAS No. 145.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit of Disposal Activities," ("SFAS 146") which requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to exit or disposal plan. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from what we reported in our Form 10-K for
the year ended April 28, 2002.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation. There were no significant deficiencies or material
weaknesses, and therefore no corrective actions were taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
One of our subsidiaries has been named, along with numerous manufacturers,
distributors and gaming operators, including many of the country's largest
gaming operators, in a consolidated class action lawsuit pending in Las Vegas,
Nevada. These gaming industry defendants are alleged to have violated the
Racketeer Influenced and Corrupt Organizations Act by engaging in a course of
fraudulent and misleading conduct intended to induce people to play their gaming
machines based upon a false belief concerning how those gaming machines actually
operate and the extent to which there is actually an opportunity to win on any
given play. The suit seeks unspecified compensatory and punitive damages. This
district court recently denied the Motion for Class Certification, but this
decision has been appealed. Therefore, we are still unable at this time to
determine what effect, if any, the suit would have on our financial position or
results of operations. The gaming industry defendants are committed to
continuing a vigorous defense of all claims asserted in this matter.
In August 1997, a lawsuit was filed which seeks to nullify a contract to
which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the
contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a
percentage of revenue to various local governmental entities, including the City
of Bossier and the Bossier Parish School Board, in lieu of payment of a
per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat
Gaming Partnership was granted on June 4, 1998. That judgment was not appealed
and is now final. On June 11, 1998, a similar suit was filed and the lower court
rendered judgment in our favor on September 16, 1999. The case was reversed on
appeal and remanded to the lower court for further proceedings; however, on
October 8, 2001, the trial court dismissed the case again, this time on the
basis that the plaintiffs lack standing. The plaintiffs have amended the
petition and continue to pursue this matter. We intend to vigorously defend this
suit. In addition, a similar action was recently filed against the City of
Bossier City, challenging the validity of its contracts with Louisiana Riverboat
Gaming Partnership and other casinos. Exceptions have been filed requiring
joinder of all interested parties, including Louisiana Riverboat Gaming
Partnership. We believe the claims are without merit and we intend to continue
to vigorously defend this suit along with the other interested parties.
Lady Luck and several joint venture partners are defendants in a lawsuit
brought by the country of Greece through its Minister of Tourism (Now
Development) and Finance. The action alleges that the defendants failed to make
specified payments in connection with the gaming license bid process for Patras,
Greece. The payment we are alleged to have been required to make aggregates
approximately 2.2 billion drachmae or 7.5 million Euro (which was approximately
$7.5 million as of October 27, 2002 based on published exchange rates). Although
it is difficult to determine the damages being sought from the lawsuit, the
action may seek damages up to that aggregate amount plus interest from the date
of the action. The Athens Civil Court of First Instance granted judgment in our
favor and dismissed the lawsuit, but the Ministry of Tourism has appealed the
matter and the appeal was heard in April 2002. There has been no announcement
as to whether there has been a decision on the appeal. Also, the Ministry of
Tourism is proceeding with an appeal from a dismissal of its action by the
Athens Administrative Court of First Instance. An appeal of this matter will be
heard in January 2003. Accordingly, the outcome of this matter is still in
doubt and cannot be predicted with any degree of certainty. We believe the
claims against us to be without merit and we intend to continue a vigorous and
appropriate defense to the claims asserted in this matter.
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued
an award that we are liable for $4.5 million in damages in conjunction with a
lease of real estate located in Jefferson County, Missouri. We have filed a
motion in the United States District Court for the Eastern District of Missouri
seeking to vacate the arbitration award. This loss contingency is accrued at
October 27, 2002, notwithstanding the motion to vacate.
We are engaged in various other litigation matters and have a number of
unresolved claims. Although the ultimate liability of this litigation and these
claims cannot be determined at this time, we believe that they will not have a
material adverse effect on our consolidated financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Annual Meeting of Stockholders
- ---------------------------------
The Annual Meeting of Stockholders was held October 8, 2002 at which time
the following matters were submitted to a vote of the stockholders:
(1) To elect eight persons to the Board of Directors; and
(2) To ratify the Company's selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending April 27, 2003.
At the Annual Meeting of Stockholders, each of the following individuals
were elected to serve as directors of the Company until his successor is elected
and qualified or until his earlier death, resignation, removal or
disqualifications:
NAME FOR WITHHOLD AGAINST
- ------------------- ---------- --------- -------
Bernard Goldstein . 24,257,694 2,066,374 -
John M. Gallaway. . 24,422,803 1,901,265 -
Allan B. Solomon. . 24,422,803 1,901,265 -
Robert S. Goldstein 25,524,083 799,985 -
Alan J. Glazer. . . 25,491,303 832,765 -
Emanuel Crystal . . 25,524,083 799,985 -
Randolph Baker. . . 25,491,303 832,765 -
Jeffrey Goldstein.. 25,491,303 832,765 -
The voting on the other matters as ordered at the Annual Meeting of Stockholders
was as follows:
MATTER FOR WITHHOLD AGAINST
- ------------------------------ ---------- -------- -------
Selection of Ernst & Young LLP 25,674,308 5,899 641,231
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report.
--------------------------------------------
1. Exhibits.
--------
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
2. Reports on Form 8-K.
-----------------------
During the quarter ended October 27, 2002, the Company filed the
following reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ISLE OF CAPRI CASINOS, INC.
Dated: December 10, 2002 /s/ Rexford A. Yeisley
--------------------------
Rexford A. Yeisley, Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, Bernard Goldstein, Chief Executive Officer of Isle of Capri Casinos, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Isle of Capri Casinos,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Isle of
Capri Casinos, Inc. and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to Isle of Capri Casinos, Inc., including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of Isle of Capri Casinos, Inc.'s disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to Isle of Capri
Casinos, Inc.'s auditors and the audit committee of Isle of Capri Casinos,
Inc.'s board of directors:
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect Isle of Capri Casinos, Inc.'s ability to record,
process, summarize and report financial data and have identified for Isle of
Capri Casinos, Inc.'s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Isle of Capri Casinos, Inc.'s internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 10, 2002 /s/ Bernard Goldstein
-----------------------
Bernard Goldstein
Chief Executive Officer
I, Rexford A. Yeisley, Chief Financial Officer of Isle of Capri Casinos, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Isle of Capri Casinos,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Isle of
Capri Casinos, Inc. and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to Isle of Capri Casinos, Inc., including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of Isle of Capri Casinos, Inc.'s disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to Isle of Capri
Casinos, Inc.'s auditors and the audit committee of Isle of Capri Casinos,
Inc.'s board of directors:
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect Isle of Capri Casinos, Inc.'s ability to record,
process, summarize and report financial data and have identified for Isle of
Capri Casinos, Inc.'s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Isle of Capri Casinos, Inc.'s internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 10, 2002 /s/ Rexford A. Yeisley
------------------------
Rexford A. Yeisley
Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- --------------- -----------
99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.