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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 27, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________
Commission File Number 0-20538
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ISLE OF CAPRI CASINOS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-1659606
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1641 Popps Ferry Road, Biloxi, Mississippi 39532
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (228) 396-7000
Securities Registered Pursuant to Section 12(b) Of The Act: None
Securities Registered Pursuant to Section 12(g) Of The Act:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--
Indicate by check mark if the registrant is an accelerated file (as defined in
Rule 12b-2 of the Act). Yes [X] No [ ]
The aggregate market value of the voting and non-voting stock held by
non-affiliates(1) of the Company is $190,681,101, based on the last reported
sale price of $13.00 per share on October 27, 2002 on the NASDAQ Stock Market;
multiplied by 14,667,777 shares of Common Stock outstanding and held by
non-affiliates of the Company on such date.
As of June 12, 2003, the Company had a total of 29,102,281 shares of Common
Stock outstanding (which excludes 3,293,223 shares held by us in treasury).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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(1) Affiliates for the purpose of this item refer to the directors,
named executive officers and/or persons owning 10% or more of the Company's
common stock, both of record and beneficially; however, this determination
does not constitute an admission of affiliate status for any of the
individual stockholders.
DOCUMENT INCORPORATED BY REFERENCE:
Document Part of Form 10-K into which Incorporated
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Isle of Capri Casinos, Inc.'s Definitive Proxy Statement
for its Annual Meeting of Stockholders to be held October 7, 2003. Part III
ISLE OF CAPRI CASINOS, INC.
FORM 10-K
INDEX
PAGE
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
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ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . 35
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 41
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . 42
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA. . . . . . . 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . 59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . 112
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
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ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . 112
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . 112
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . 112
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . 112
ITEM 14. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . 113
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 114
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical or current facts
included in this annual report of form 10-K 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.
Important factors that could cause actual results to differ materially from our
expectations ("cautionary statements") are disclosed under "Risk Factors" and
elsewhere in this annual report on form 10-K, including, without limitation, in
conjunction with the forward-looking statements included in this annual report
on form 10-K.
We urge you to review carefully the section "Risk Factors" beginning on
page 10 in this annual report of form 10-K for a more complete discussion of the
risks of purchasing our common stock. 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.
PART I
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ITEM 1. BUSINESS.
OVERVIEW
We were incorporated in Delaware in February 1990. We are a leading
developer, owner and operator of branded gaming facilities and related lodging
and entertainment facilities in growing markets in the United States. We wholly
own and operate eleven gaming facilities located in Lake Charles and Bossier
City, Louisiana; Lula, Biloxi, Vicksburg and Natchez, Mississippi; Kansas City
and Boonville, Missouri; Bettendorf, Davenport and Marquette, Iowa. We also own
a 57% interest in and receive management fees for operating two gaming
facilities in Black Hawk, Colorado and a gaming facility in Cripple Creek,
Colorado. All but three of our gaming facilities operate under the name "Isle
of Capri" and feature our distinctive tropical island theme. In addition, we
wholly own and operate a pari-mutuel harness racing facility in Pompano Beach,
Florida.
Our Internet website is http://www.islecorp.com. We make our filings
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available free of charge on our Internet website as soon as reasonably practical
after we electronically file such reports with, or furnish them to, the SEC.
COMPETITIVE STRENGTHS
Strong Brand Identity. All of our casino properties, with the exception of
our Davenport, Cripple Creek and one of our Black Hawk properties, operate under
the "Isle of Capri" name, and the facilities were designed to incorporate our
distinctive tropical island theme. Most of our gaming facilities contain
similar amenities, including hotels, one or more of our trademark restaurants
(Farraddays' fine dining restaurant, Calypso's buffet, Kitt's Kitchen restaurant
and Tradewinds Marketplace), a Banana Cabana gift shop, an entertainment
center for performances and meetings and ample parking. Each of our uniquely
branded facilities also offers all customers membership in their themed rewards
program, which rewards loyal customers with points and complimentaries
which can be redeemed at any of our properties by using a players club card.
These programs are named IsleOne Players Club, the Fan Club, and the Fast Track
Club at the Isle of Capri properties, Rhythm City-Davenport and Colorado Central
Station properties, respectively. We believe our brand name conveys excitement,
entertainment, consistent high-quality service and value to our customers.
Standardized Quality and Services. We have developed and implemented
standardized procedures for operating our casinos, hotels, restaurants and other
non-gaming amenities, which has allowed us to fully and effectively integrate
the ten properties we have developed or acquired during the past three years.
We utilize management development and employee training programs to implement
these procedures throughout our facilities, which we believe help us efficiently
operate our facilities. This standardization encourages high quality service
and provides our customers with a consistent experience.
Superior Locations in Geographically Diverse Markets. We operate our
gaming facilities in five states and eleven distinct geographic markets,
allowing us to maintain diverse sources of revenue and cash flow. Most of our
gaming facilities are conveniently located near major highways. We have located
our facilities so that, in most cases, they are either the first casino reached
by customers arriving from major nearby cities or are within a cluster of
facilities, allowing us to generate significant customer traffic.
Substantial Capital Investment in Our Properties. We completed five years
of expansion with the most recent acquisitions of the Colorado Central
Station-Black Hawk and the Colorado Grande-Cripple Creek on April 22, 2003, by
the Isle-Black Hawk. During that time, Isle of Capri grew from four to
fourteen gaming facilities. Although we sold two gaming facilities during the
fiscal year ended April 27, 2003, the Isle-Black Hawk also acquired the
two additional facilities in Colorado. We believe the substantial investment
in our properties has improved the competitive position of many of our
properties.
Effective Utilization of Proprietary Database. We have developed an
extensive proprietary database of primarily slot-oriented customers that allows
us to create effective targeted marketing and promotional programs, merchandise
giveaways, game tournaments and other special events. To date, we have
implemented the first and second phases of our IsleOne marketing system. Phase
I allows our customers to use our players club card at all of our properties
other than Colorado Grande-Cripple Creek. Phase II of our IsleOne marketing
system was implemented in June 2002, and includes our IsleMiles program, which
includes rewards through a partnership with Carnival Cruise Lines. These
promotional programs are designed to reward customer loyalty and maintain high
recognition of our Isle of Capri brand. As of April 27, 2003, our database
contained approximately 4.7 million members, of whom approximately 1.4 million
receive regular communications from us. We have effectively used our database
to encourage repeat visits, increase customers' length of stay and improve our
operating results.
Experienced, Stable Management Team. We are an experienced gaming operator
and opened our first gaming facility approximately eleven years ago. Each
member of our senior management team has been with us for at least seven years
and has extensive gaming or related industry experience.
CASINO PROPERTIES
Here is an overview of our existing casino properties as of April 27, 2003:
DATE OPENED OR SLOT TABLE HOTEL PARKING
PROPERTY ACQUIRED MACHINES GAMES ROOMS SPACES
- ------------------------------------------------- -------------- -------- ----- ----- -------
Louisiana
Isle-Bossier City . . . . . . . . . . . . . . . May 1994 1,090 34 530 2,005
Isle-Lake Charles.. . . . . . . . . . . . . . . July 1995 1,512 70 493 2,200
Mississippi
Isle-Biloxi . . . . . . . . . . . . . . . . . . August 1992 1,177 28 367 709
Isle-Lula.. . . . . . . . . . . . . . . . . . . March 2000 1,560 29 486 1,780
Isle-Natchez. . . . . . . . . . . . . . . . . . March 2000 687 13 143 908
Isle-Vicksburg. . . . . . . . . . . . . . . . . August 1993 767 18 122 1,100
Missouri
Isle-Boonville. . . . . . . . . . . . . . . . . December 2001 899 27 - 1,101
Isle-Kansas City. . . . . . . . . . . . . . . . June 2000 1,149 25 - 2,054
Iowa
Isle-Bettendorf.. . . . . . . . . . . . . . . . March 2000 1,065 36 256 1,539
Isle-Marquette. . . . . . . . . . . . . . . . . March 2000 750 13 25 750
Rhythm City-Davenport.. . . . . . . . . . . . . October 2000 1,003 19 191 984
Colorado
Isle-Black Hawk (57% owned) . . . . . . . . . . December 1998 1,119 14 237 1,100
Colorado Central Station-Black Hawk (57% owned) April 2003 754 9 - 546
Colorado Grande-Cripple Creek (57% owned).. . . April 2003 223 - 4 44
LOUISIANA
The Isle-Bossier City
The Isle-Bossier City, which commenced operations in May 1994, is located
on a 38-acre site along the Red River approximately one-quarter mile off
Interstate 20, the main highway connecting Dallas/Ft. Worth, Texas to Bossier
City/Shreveport, Louisiana. The property consists of a dockside casino offering
1,090 slot machines and 34 table games, a 305-room on-site deluxe hotel, a
225-room off-site hotel located approximately two miles from the casino, a
39,000 square foot land-based pavilion and entertainment center, and 2,005
parking spaces including approximately 900 spaces in an attached parking garage.
The pavilion and entertainment center offer a wide variety of non-gaming
amenities, including a 77-seat Farraddays' restaurant, a 301-seat Calypso's
buffet, a 30-seat Tradewinds Marketplace and Caribbean Cove, which features free
live entertainment and can accommodate 563 customers. We are in the process of
constructing an additional 265 rooms, a multi-purpose room which can accommodate
1,100 guests, a resort swimming pool and a rum bar restaurant called Kitt's
Kitchen , all of which are expected to be completed by March 2004.
The Bossier City/Shreveport market consists of five dockside gaming
facilities, which, in the aggregate, generated gaming revenues of approximately
$824.0 million in calendar 2002. Among the other operators of dockside gaming
facilities in this market are Harrah's Entertainment, Hollywood Casinos,
Horseshoe Gaming, and Pinnacle Entertainment (branded Boomtown). Additionally,
Louisiana Downs, a pari-mutuel facility located six miles east of the
Isle-Bossier City, was purchased by Harrah's Entertainment in December 2002 and
opened 900 slot machines in May 2003. Bossier City/Shreveport is the closest
gaming market to the Dallas/Ft. Worth, Texas metropolitan area, which has a
population of approximately 5.2 million and is located approximately 190 miles
west of Bossier City/Shreveport. We believe that the Isle-Bossier City attracts
customers primarily from the local area, northeastern Texas and the Dallas/Ft.
Worth metropolitan area. Approximately 550,000 and 1.8 million people reside
within 50 and 100 miles, respectively, of the Isle-Bossier City.
The Isle-Lake Charles
The Isle-Lake Charles, which commenced operations in July 1995, is located
on a 19-acre site along Interstate 10, the main thoroughfare connecting Houston,
Texas to Lake Charles, Louisiana. The property consists of two dockside casinos
offering 1,512 slot machines and 70 table games, a 252-room deluxe hotel, a
separate 241-room hotel, a 105,000 square foot land-based pavilion and
entertainment center, and 2,200 parking spaces, including approximately 1,400
spaces in an attached parking garage. The pavilion and entertainment center
offers customers a wide variety of non-gaming amenities, including a 97-seat
Farraddays' restaurant, a 360-seat Calypso's buffet, a 165 seat Tradewinds
Marketplace, a 140-seat Kitt's Kitchen restaurant, a 64-seat Lucky Wins oriental
restaurant and Caribbean Cove, which features free live entertainment and can
accommodate 180 customers. The pavilion also has a 14,750 square foot
activity center comprised of a 1,100-seat special events center designed
for live boxing, televised pay-per-view events, concerts, banquets and other
events, meeting facilities and administrative offices.
The Lake Charles market consists of two dockside gaming facilities (the
other of which is operated by Harrah's Entertainment), a Native American casino
and a pari-mutuel facility (which is operated by Boyd Gaming) that operates
1,494 slot machines. In addition, the last remaining license in Louisiana was
awarded to Pinnacle Entertainment for a new development which is expected to be
operational in the first half of 2005. The two dockside gaming facilities, in
the aggregate, generated gaming revenues of approximately $439.5 million in
calendar 2002. Lake Charles is the closest gaming market to the Houston
metropolitan area, which has a population of approximately 4.7 million and is
located approximately 140 miles west of Lake Charles. We believe that the
Isle-Lake Charles attracts customers primarily from southeast Texas, including
Houston, Beaumont, Galveston, Orange and Port Arthur and from local area
residents. Approximately 490,000 and 1.6 million people reside within 50 and
100 miles, respectively, of the Isle-Lake Charles.
MISSISSIPPI
The Isle-Biloxi
The Isle-Biloxi, which commenced operations in August 1992, is located on a
17-acre site at the eastern end of a cluster of facilities known as "Casino Row"
in Biloxi, Mississippi, and is the first property reached by visitors coming
from Alabama, Florida and Georgia via Highway 90. The property consists of a
dockside casino offering 1,177 slot machines and 28 table games, a 367-room
hotel, a 90-seat Farraddays' restaurant, a 425-seat Calypso's buffet, a 64-seat
Tradewinds Marketplace and 709 parking spaces. An estimated $ 79.0 million will
be spent over the next 24 months to expand and enhance the Isle- Biloxi. Plans
include an additional 400 hotel rooms, an Isle-branded Kitt's Kitchen
restaurant, a 12,000 square-foot multi-purpose center, and expanded pool and spa
area and a 1,000-space parking garage, which will provide a podium for future
expansion for an additional hotel tower. Construction commenced earlier this
fiscal year.
The Mississippi Gulf Coast market (which includes Biloxi, Gulfport and Bay
St. Louis) is one of the largest gaming markets in the United States and
consists of 12 dockside gaming facilities which, in the aggregate, generated
gaming revenues of approximately $1.2 billion in calendar 2002. Among the other
operators of dockside gaming facilities in this market are MGM Mirage, Park
Place Entertainment, Penn National Gaming and Pinnacle Entertainment. The
Mississippi Gulf Coast, a regional tourist destination, is the closest gaming
market to the Mobile, Alabama metropolitan area, which has a population of
approximately 540,000 and is located approximately 60 miles east of Biloxi. We
believe that the Isle-Biloxi attracts customers from the local area, Alabama,
Florida, Georgia and southeastern Louisiana, including New Orleans and Baton
Rouge. Approximately 800,000 and 2.9 million people reside within 50 to 100
miles, respectively, of the Isle-Biloxi.
The Isle-Lula
The Isle-Lula, which was acquired in March 2000, is strategically located
off of Highway 49, the only road crossing the Mississippi River from Mississippi
to Arkansas for more than 50 miles in either direction. The property consists of
two dockside casinos containing 1,560 slot machines and 29 table games, two
on-site hotels with a total of 486 rooms, a land-based pavilion and
entertainment center, and 1,780 parking spaces. The pavilion and entertainment
center offer a wide variety of non-gaming amenities, including a 100-seat
Farraddays' restaurant, a 300-seat Calypso's buffet and a 48-seat Tradewinds
Marketplace.
The Isle-Lula is the only gaming facility in the Coahoma County,
Mississippi market and generated gaming revenues of approximately $95.0 million
in calendar 2002. The Isle-Lula is the closest gaming facility to the Little
Rock, Arkansas metropolitan area, which has a population of approximately
580,000 and is located approximately 120 miles northwest of the property.
Coahoma County is also located approximately 60 miles southwest of Memphis,
Tennessee, which is primarily served by 10 casinos in Tunica, Mississippi.
Approximately 850,000 people reside within 150 miles of the property's primary
target market.
The Isle-Natchez
The Isle-Natchez, which was acquired in March 2000, is located off of
Highways 84 and 85 in western Mississippi. The property consists of a dockside
casino offering 687 slot machines and 13 table games, a 143-room hotel located
approximately one mile from the casino, a 150-seat Calypso's buffet and 908
parking spaces.
The Isle-Natchez is the only gaming facility in the Natchez market and
generated gaming revenues of approximately $34.3 million in calendar 2002. We
believe that the Isle-Natchez attracts customers primarily from among the
110,000 people residing within 50 miles of the Isle-Natchez.
The Isle-Vicksburg
The Isle-Vicksburg, which commenced operations in August 1993, is located
on an 18-acre site approximately one-mile north of Interstate 20, the main road
connecting Jackson, Mississippi to Vicksburg, Mississippi. The property
consists of a dockside casino offering 767 slot machines and 18 table games, a
122-room hotel, a 12,483 square foot land-based pavilion and entertainment
center, 1,100 parking spaces and a 67-space recreational vehicle park, a
68-seat Farraddays' restaurant, a 340-seat Calypso's buffet, a Tradewinds
Marketplace and live entertainment.
The Vicksburg market consists of four dockside gaming facilities that, in
the aggregate, generated gaming revenues of approximately $243.7 million in
calendar 2002. Among the other operators of dockside gaming facilities in this
market are Alliance Gaming, Ameristar Casinos and Harrah's Entertainment. The
Jackson metropolitan area is also served by a Native American gaming facility.
Vicksburg is the closest gaming market to the Jackson, Mississippi metropolitan
area, which has a population of approximately 440,000 and is located
approximately 40 miles east of Vicksburg. We believe that the Isle-Vicksburg
attracts customers primarily from the local area, Jackson and northeastern
Louisiana. Approximately 530,000 people reside within 50 miles of the
Isle-Vicksburg.
MISSOURI
The Isle-Boonville
The Isle-Boonville, which opened on December 6, 2001, is located off of
Interstate 70, approximately halfway between Kansas City and St. Louis. The
property consists of a dockside casino offering 899 slot machines and 27 table
games, a 32,396 square foot pavilion and entertainment center and 1,101 parking
spaces. The pavilion and entertainment center offers customers a wide variety of
non-gaming amenities, including a 60-seat Farraddays' restaurant, a 282-seat
Calypso's buffet, a 36-seat Tradewinds Marketplace and a historic display area.
The Isle-Boonville is the only gaming facility in the Boonville market and
generated gaming revenues of approximately $62.0 million in calendar 2002.We
believe the Isle-Boonville attracts most of its customers from the approximately
733,000 persons living within a 75-mile radius in central Missouri, including
Jefferson City and Columbia.
The Isle-Kansas City
We acquired the Isle-Kansas City in June 2000. The facility is the closest
facility to downtown Kansas City and consists of a dockside casino offering
1,149 slot machines and 25 table games, a 72-seat Farraddays' restaurant, a
325-seat Calypso's buffet, a 24-seat Tradewinds Marketplace and 2,054 parking
spaces.
The Kansas City market consists of four dockside gaming facilities that, in
the aggregate, generated gaming revenues of approximately $612.1 million in
calendar 2002. Among the other operators of dockside gaming facilities in this
market are Ameristar Casinos, Argosy Gaming and Harrah's Entertainment. We
believe that the Isle-Kansas City attracts customers primarily from the Kansas
City metropolitan area, which has approximately 1.7 million residents.
IOWA
The Isle-Bettendorf
The Isle-Bettendorf, which we acquired in March 2000, is located off of
Interstate 74, an interstate highway serving the Quad Cities metropolitan area.
The property consists of a riverboat casino offering 1,065 slot machines and 36
table games, a 256-room hotel, approximately 104,056 square feet of
convention/banquet space, a 140-seat Farraddays' restaurant, a 320-seat
Calypso's buffet, a 30-seat Tradewinds Marketplace and 1,539 parking spaces.
The Quad Cities metropolitan area, consisting of Bettendorf and Davenport,
Iowa and Moline and Rock Island, Illinois, currently has three gaming
operations; Our two gaming facilities, the Isle-Bettendorf and the Rhythm City-
Davenport, and one smaller operator. The three operations in the Quad Cities
generated, in the aggregate, gaming revenues of approximately $201.7 million in
calendar 2002. In addition to the Quad Cities metropolitan area, our operations
in the Quad Cities also compete with gaming operations in Peoria, Illinois;
Dubuque, Clinton and Des Moines, Iowa; and to a lesser extent, gaming operations
in Chicago, Illinois.
The Isle-Marquette
The Isle-Marquette, which we acquired in March 2000, is located in
Marquette, Iowa, which is 60 miles north of Dubuque, Iowa, which has two gaming
facilities. The property consists of a riverboat casino offering 750 slot
machines and 13 table games, a land-based facility including a 25-room hotel, a
160-seat Calypso's buffet restaurant, a Tradewinds Marketplace and an
entertainment showroom, a marina and 750 parking spaces.
The Isle-Marquette is the only gaming facility in the Marquette, Iowa
market, and generated gaming revenues of approximately $40.3 million in calendar
2002. We believe the Isle-Marquette draws most of its customers from northeast
Iowa and Wisconsin and to some extent, competes for those customers with another
riverboat facility and a racetrack with slot machines, both of which are in the
Dubuque area.
The Rhythm City-Davenport
The Rhythm City-Davenport, which we acquired in October 2000, is located
between Interstates 74, 80 and 280. The property consists of a riverboat gaming
facility offering 1,003 slot machines and 19 table games, a 191-room hotel
located approximately four blocks from the casino, a 290-seat Hit Parade buffet,
a 76-seat Rock Around the Clock diner and 984 parking spaces.
COLORADO
The Isle-Black Hawk
The Isle-Black Hawk, which commenced operation in December 1998, is located
on an approximately 10-acre site and is one of the first gaming facilities
reached by customers arriving from Denver via Highway 119, the main thoroughfare
connecting Denver to Black Hawk. The property currently consists of a land-based
casino with 1,119 slot machines and 14 table games, a 237-room hotel and 1,100
parking spaces in an attached parking garage. The Isle-Black Hawk also offers
customers a wide variety of non-gaming amenities, including a 78-seat
Farraddays' restaurant, a 228-seat Calypso's buffet, a 32-seat Tradewinds
Marketplace and a 4,000 square foot event center that can be used for meetings
and entertainment. We own 57% of the Isle-Black Hawk through an unrestricted
subsidiary and receive a management fee for operating the facility.
The Black Hawk/Central City market consists of 25 gaming facilities (nine
of which have more than 600 slot machines), which, in aggregate, generated
gaming revenues of approximately $577.0 million in calendar 2002. Black Hawk is
the closest gaming market to the Denver, Colorado metropolitan area, which has a
population of approximately 2.5 million and is located approximately 40 miles
east of Black Hawk. We believe that the Isle-Black Hawk attracts customers
primarily from Denver, Boulder, Fort Collins and Golden, Colorado and Cheyenne,
Wyoming.
The Colorado Central Station-Black Hawk
The Colorado Central Station-Black Hawk, which we acquired in April 2003,
is located across the intersection of Main Street and Mill Street from the
Isle-Black Hawk. The property currently consists of a land-based casino with
754 slot machines, 9 table games and 546 parking spaces across two parking
areas. The property also offers guests three dining options including the
Whistle Stop buffet, Fire Box restaurant, and the Chew Chew deli. We own 57% of
the Colorado Central Station-Black Hawk through an unrestricted subsidiary and
receive a management fee for operating the facility.
The Colorado Grande-Cripple Creek
The Colorado Grande-Cripple Creek, which we acquired in April 2003, is
located at a primary intersection, near the center of the Cripple Creek market.
The property currently consists of a land-based casino with 223 slot machines,
no table games, a 4-room hotel and 44 parking spaces. The property offers
guests dining at Maggie's restaurant. We own 57% of the Colorado Grande-Cripple
Creek through an unrestricted subsidiary and receive a management fee for
operating the facility.
The Cripple Creek market consists of 17 gaming facilities and generated
gaming revenues of approximately $142.4 million in calendar 2002. Cripple Creek
is 40 miles west of Colorado Springs, Colorado, which is 30 miles south of
Denver, Colorado, a metropolitan area that has a population of approximately 2.5
million. We believe that the Colorado Grande-Cripple Creek attracts customers
primarily from Colorado Springs, Fort Carson and smaller areas south of Denver.
POMPANO PARK
In 1995, we acquired Pompano Park, a harness racing track located in
Pompano Beach, Florida. Pompano Park is conveniently located off of Interstate
95 and the Florida Turnpike on a 220-acre owned facility, midway between Miami
and West Palm Beach. Pompano Park is the only racetrack licensed to conduct
harness racing in Florida. Pompano Park can accommodate up to 14,500 customers
and has 4,000 parking spaces and 1,040 horse stalls. The six-story,
air-conditioned facility includes a box seat area, a 260,000 square foot
clubhouse, a large grandstand, a 1,250-seat dining area from which the races can
be viewed, five concession stands, five bars and a 180-seat Player's Lounge
cafeteria.
We believe that Pompano Park would be an attractive location for
casino-style gaming if such gaming were to be legalized in Florida. Pompano Park
would be one of nine facilities in south Florida to benefit from legislation.
This facility draws most of its customers from the 2.6 million people residing
within a 25-mile radius.
MARKETING
We attract customers to our casinos by designing and implementing marketing
and promotional programs that emphasize our Isle of Capri, Rhythm City and
Colorado Central Station brands and reward loyal customers. We have developed an
extensive proprietary database of primarily slot-oriented customers that allows
us to create effective targeted marketing and promotional programs, merchandise
giveaways, game tournaments and other special events. These programs are
designed to reward customer loyalty, attract new customers to our properties and
maintain high recognition of our brands. Also phase II of our IsleOne marketing
system was implemented in June 2002, and includes our IsleMiles program, which
includes rewards through a partnership with Carnival Cruise Lines.
As of April 27, 2003, our database contained approximately 4.7 million
members, of whom approximately 1.4 million receive regular mailings. To develop
this database, we offer all of our customers membership in the IsleOne Players
Club at Isle of Capri properties, the Fan Club at the Rhythm City-Davenport and
the Fast Track Club at the Colorado Central Station properties. These programs
reward loyal customers with IsleOne points that can be redeemed at our casinos
by using our players club card. Currently, the players club card allows us
to track the members' gaming preferences, maximum, minimum and total amount
wagered and frequency of visits. Players are classified in groups according
to these characteristics. Our database is used for direct mailings, giveaways
and other promotional events that are tailored to these specific groups of
players. We have effectively used our database to encourage repeat visits,
increase customers' length of stay and improve our operating results.
We place significant emphasis on attracting local residents and seek to
maintain a strong local identity in each market in which we operate by
initiating and supporting community and special events. We use radio and
television media to promote the Isle of Capri brand name and attract customers
to our properties. To further enhance our tropical theme, we have engaged actor
Ricardo Montalban to narrate our radio and television advertisements.
EMPLOYEES
As of April 27, 2003, we employed approximately 11,000 people. None of our
employees are subject to a collective bargaining agreement. We believe that our
relationship with our employees is satisfactory.
SEASONALITY
We typically generate the major portion of our income in our first and
fourth fiscal quarters that end in July and April, respectively.
RISK FACTORS
WE FACE SIGNIFICANT COMPETITION FROM OTHER GAMING OPERATIONS THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FUTURE OPERATIONS.
We face intense competition in the markets in which we operate. We have
numerous competitors, including land-based casinos, dockside casinos, riverboat
casinos, casinos located on Native American reservations and at racing and
pari-mutuel operations. Several of our competitors have substantially better
name recognition, marketing and financial resources than we do. Legalized gaming
is currently permitted in various forms throughout the United States. Certain
states have recently legalized, and other states are currently considering
legalizing, casino gaming in designated areas. In addition, many Native American
tribes conduct casino gaming on reservations throughout the United States that
have the advantages of being land-based and exempt from certain state and
federal taxes. Some Native American tribes are either in the process of
establishing, or are considering the establishment of, gaming at additional
locations. There is no limit on the number of gaming licenses that may be
granted in several of the markets in which we operate. As a result, new licenses
could be awarded to gaming facilities in such markets, which could have an
adverse effect on our operating results. In particular, we face significant new
competition in the Lake Charles, Louisiana market. In February 2002, Boyd Gaming
opened a casino with 15,000 square feet of gaming space with approximately 1,500
slot machines at Delta Downs, a horse racing facility. Delta Downs is 25 miles
closer to Houston than the Isle-Lake Charles, making it the closest gaming
facility to Houston. In addition, the last available Louisiana gaming license
was awarded to Pinnacle Entertainment for a new development in the Lake Charles
market. Expansion of existing gaming facilities and the development of new
gaming facilities and casinos on Native American reservations will increase
competition for our existing and future operations.
We also compete with other forms of legalized gaming and entertainment such
as online computer gambling, bingo, pull tab games, card parlors, sports books,
pari-mutuel or telephonic betting on horse racing and dog racing,
state-sponsored lotteries, jai-alai, video lottery terminals and video poker
terminals. For example, there currently is legislation pending in Florida that,
if passed, would legalize video poker, electronic games of chance or video
lottery terminal gaming at pari-mutuel gaming facilities, including our facility
in Pompano Beach, which could have an adverse effect on the operations of the
Isle-Biloxi.
Our existing gaming facilities compete directly with other gaming
properties in Louisiana, Mississippi, Missouri, Iowa and Colorado. We also
compete with gaming operators in other gaming jurisdictions such as Atlantic
City, New Jersey. Our existing casinos attract a significant number of their
customers from Houston and Dallas/Fort Worth, Texas; Mobile, Alabama; Jackson,
Mississippi; Memphis, Tennessee; Little Rock, Arkansas and Denver, Colorado. Our
continued success depends upon drawing customers from each of these geographic
markets. Legalization of gaming in jurisdictions closer to these geographic
markets than the jurisdictions in which our facilities are located would have a
material adverse effect on our operating results. We expect competition to
increase as new gaming operators enter our markets, existing competitors expand
their operations, gaming activities expand in existing jurisdictions and gaming
is legalized in new jurisdictions. We cannot predict with any certainty the
effects of existing and future competition on our operating results.
WE ARE SUBJECT TO EXTENSIVE REGULATION FROM GAMING AUTHORITIES THAT COULD
ADVERSELY AFFECT US.
Licensing Requirements.
As owners and operators of gaming facilities, we are subject to extensive
state and local regulation. State and local authorities require us and our
subsidiaries to demonstrate suitability to obtain and retain various licenses
and require that we have registrations, permits and approvals to conduct gaming
operations. The regulatory authorities in the jurisdictions in which we operate
may, for any reasonable cause, limit, condition, suspend or revoke a license to
conduct gaming operations or prevent us from owning the securities of any of our
gaming subsidiaries. In addition, regulatory authorities in certain
jurisdictions must approve, in advance, any restrictions on, transfers of,
agreements not to encumber or pledges of equity securities that are issued by a
corporation that is registered as an intermediary company with such state, or
holds a gaming license. If these restrictions, transfers, agreements or pledges
are not approved in advance, they will be invalid. Like all gaming operators in
the jurisdictions in which we operate, we must periodically apply to renew our
gaming licenses. We cannot assure you that we will be able to obtain such
renewals. Regulatory authorities may also levy substantial fines against us or
seize our assets, or the assets of our subsidiaries. Any of these events could
have a material adverse effect on our business.
We have demonstrated suitability to obtain and have obtained all
governmental licenses, registrations, permits and approvals necessary for us to
operate our existing gaming facilities. We cannot assure you that we will be
able to retain them or continue to demonstrate suitability to obtain any new
licenses, registrations, permits or approvals. If we expand our gaming
operations in the jurisdictions in which we currently operate or to new
jurisdictions, we will have to meet suitability requirements and obtain
additional licenses, registrations, permits and approvals from gaming
authorities in these jurisdictions. The approval process can be time-consuming
and costly and there is no assurance that we will be successful.
Potential Changes in Regulatory Environment.
From time to time, legislators and special interest groups have proposed
legislation that would expand, restrict or prevent gaming operations in the
jurisdictions in which we operate. In addition, from time to time, certain
anti-gaming groups propose referenda that, if adopted, would limit our ability
to continue to operate in those jurisdictions in which such referenda are
adopted. Any expansion of gaming or restriction on or prohibition of our gaming
operations could have a material adverse effect on our operating results.
WE ARE SUBJECT TO THE POSSIBILITY OF AN INCREASE IN GAMING TAXES.
State and local authorities raise a significant amount of revenue through
taxes and fees on gaming activities. We believe that the prospect of
significant revenue is one of the primary reasons that jurisdictions permit
legalized gaming. As a result, gaming companies are typically subject to
significant taxes and fees in addition to normal federal, state, local and
provincial income taxes, and such taxes and fees are subject to increase at any
time. We pay substantial taxes and fees with respect to our operations. From
time to time, federal, state, local and provincial legislators and officials
have proposed changes in tax laws, or in the administration of such laws,
affecting the gaming industry. In addition, worsening economic conditions could
intensify the efforts of state and local governments to raise revenues through
increases in gaming taxes. For example, in June 2002 and again in June 2003,
the state legislature in Illinois, a state in which we do not own or operate any
casinos, voted to increase gaming taxes to fund a budget shortfall. Some of the
states in which we own or operate casinos also have budget shortfalls and may
increase gaming taxes to raise more revenue. It is not possible to determine
with certainty the likelihood of changes in tax laws or in the administration of
such laws. Such changes, if adopted, could have a material adverse effect on
our business, financial condition and results of operations.
WE ARE SUBJECT TO NON-GAMING REGULATION THAT COULD ADVERSELY AFFECT US.
Several of our riverboats must comply with U.S. Coast Guard requirements as
to boat design, on-board facilities, equipment, personnel and safety and must
hold U.S. Coast Guard Certificates of Documentation and Inspection. The U.S.
Coast Guard requirements also set limits on the operation of the riverboats and
mandate licensing of certain personnel involved with the operation of the
riverboats. Loss of a riverboat's Certificate of Documentation and Inspection
could preclude its use as a riverboat casino. Each of our riverboats is
inspected annually and, every five years, is subject to dry-docking for
inspection of its hull, which could result in a temporary loss of service.
We are required to have third parties periodically inspect and certify all
of our casino barges for stability and single compartment flooding integrity.
Our casino barges must also meet local fire safety standards. We would incur
additional costs if any of our gaming facilities were not in compliance with one
or more of these regulations.
We are also subject to certain federal, state and local environmental laws,
regulations and ordinances that apply to non-gaming businesses generally, such
as the Clean Air Act, the Clean Water Act, the Resource Conservation Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
and the Oil Pollution Act of 1990. Under various federal, state and local laws
and regulations, an owner or operator of real property may be held liable for
the costs of removal or remediation of certain hazardous or toxic substances or
wastes located on its property, regardless of whether or not the present owner
or operator knows of, or is responsible for, the presence of such substances or
wastes. We have not identified any issues associated with our properties that
could reasonably be expected to have an adverse effect on us or the results of
our operations. However, several of our properties are located in industrial
areas or were used for industrial purposes for many years. As a consequence, it
is possible that historical or neighboring activities have affected one or more
of our properties and that, as a result, environmental issues could arise in the
future, the precise nature of which we cannot now predict. The coverage and
attendant compliance costs associated with these laws, regulations and
ordinances may result in future additional costs.
Regulations adopted by the Financial Crimes Enforcement Network of the U.S.
Treasury Department require us to report currency transactions in excess of
$10,000 occurring within a gaming day, including identification of the patron by
name and social security number. Substantial penalties can be imposed against us
if we fail to comply with these regulations.
We are also subject to a variety of other local rules and regulations,
including zoning, environmental, construction and land-use laws and regulations
governing the serving of alcoholic beverages.
IF OUR KEY PERSONNEL LEAVE US, OUR BUSINESS WILL BE SIGNIFICANTLY ADVERSELY
AFFECTED.
Our continued success will depend, among other things, on the efforts and
skills of a few key executive officers and the experience of our property
managers as well as our ability to attract and retain additional highly
qualified personnel with gaming industry experience and qualifications to obtain
the requisite licenses. On January 22, 2003, we announced that Timothy M.
Hinkley, currently our Senior Vice President of Operations, would succeed
President and Chief Operating Officer John M. Gallaway upon his retirement
effective July 1, 2003. We do not maintain ''key man'' life insurance for any
of our employees. There is no assurance that we would be able to attract and
hire suitable replacements for any of our key employees. We need qualified
executives, managers and skilled employees with gaming industry experience to
continue to successfully operate our business. We believe a shortage of skilled
labor in the gaming industry may make it increasingly difficult and expensive to
attract and retain qualified employees. We expect that increased competition in
the gaming industry will intensify this problem.
INCLEMENT WEATHER AND OTHER CONDITIONS COULD SERIOUSLY DISRUPT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Dockside and riverboat facilities are subject to risks in addition to those
associated with land-based casinos, including loss of service due to casualty,
mechanical failure, extended or extraordinary maintenance, flood, hurricane or
other severe weather. Our riverboats and barges face additional risks from the
movement of vessels on waterways.
Reduced patronage and the loss of a dockside or riverboat casino from
service for any period of time could adversely affect our results of operations.
For example, as a result of flooding of the Mississippi River, we closed the
Isle-Marquette from April 18 to May 2, 2001, and the Rhythm City-Davenport from
April 18 to May 20, 2001. While our business interruption insurance provided
sufficient coverage for those losses, we cannot assure you that the proceeds
from any future claim will be sufficient to compensate us if one or more of our
casinos experiences a closure.
Access to a number of our facilities may also be affected by road
conditions, such as construction and traffic. In addition, severe weather such
as high winds and blizzards occasionally limits access to the Isle-Black Hawk
and the Colorado Central Station-Black Hawk.
WE EXPERIENCE QUARTERLY FLUCTUATIONS IN RESULTS OF OPERATIONS.
Our quarterly operating results fluctuate because of seasonality and other
factors. We typically generate the major portion of our income in our first and
fourth fiscal quarters, which end in July and April, respectively.
ENERGY AND FUEL PRICE INCREASES MAY ADVERSELY AFFECT OUR COSTS OF OPERATIONS AND
OUR REVENUES.
Our casino properties use significant amounts of electricity, natural gas
and other forms of energy. While no shortages of energy have been experienced,
the recent substantial increases in the cost of electricity in the United States
will negatively affect our results of operations. In addition, energy and fuel
price increases in cities that constitute a significant source of customers for
our properties could result in a decline in disposable income of potential
customers and a corresponding decrease in visitation to our properties, which
would negatively impact our revenues. The extent of the impact is subject to the
magnitude and duration of the energy and fuel price increases, but this impact
could be material.
A DOWNTURN IN GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
Our business operations are subject to changes in international, national
and local economic conditions, including changes in the economy related to
future security alerts in connection with threatened or actual terrorist
attacks, such as those that occurred on September 11, 2001, and related to the
war with Iraq, which may affect our customers' willingness to travel. A
recession or downturn in the general economy, or in a region constituting a
significant source of customers for our properties, could result in fewer
customers visiting our properties, which would adversely affect our results of
operations.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We now have a significant amount of indebtedness. As of April 27, 2003, we
had $1.03 billion of total debt outstanding.
Our significant indebtedness could have important consequences, such as:
- - limiting our ability to obtain additional financing to fund our working
capital requirements, capital expenditures, debt service, general corporate or
other obligations, including our obligations with respect to the notes;
- - limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a significant portion of these funds to make
principal and interest payments on our indebtedness;
- - increasing our interest expense if there is a rise in interest rates,
because a portion of our borrowings under our senior secured credit facility are
subject to interest rate periods with short-term durations (typically 30 to 180
days) that require ongoing refunding at the then current rates of interest;
- - causing our failure to comply with the financial and restrictive covenants
contained in the indenture and agreements
governing the notes, and the indenture and agreements governing the 8.75% senior
subordinated notes due 2009, the 9.00% senior subordinated notes due 2012, our
senior secured credit facility and our other indebtedness which could cause
a default under those instruments and which, if not cured or waived, could
have a material adverse effect on us;
- - placing us at a competitive disadvantage to our competitors who are not as
highly leveraged; and
- - increasing our vulnerability to and limiting our ability to react to
changing market conditions, changes in our industry and economic downturns.
Any of the factors listed above could have a material adverse effect on our
business, financial condition and results of operations. In addition, as of
April 27, 2003, we had the capacity to issue additional indebtedness, including
the ability to incur additional indebtedness under all of our lines of credit,
of approximately $288.1 million, subject to the limitations imposed by the
covenants in the senior secured credit facility and the indentures governing our
notes. The indenture governing our notes and the senior secured credit facility
contain financial and other restrictive covenants, but will not fully prohibit
us from incurring additional debt. If new debt is added to our current level of
indebtedness, related risks that we and you now face could increase.
We have made and will need to make significant capital expenditures at our
existing facilities to remain competitive with current and future competitors in
our markets. Our senior secured credit facility and the indentures governing
our notes contain operating and financial restrictions that may limit our
ability to obtain the financing to make these capital expenditures.
Our agreements governing our indebtedness, among other things, limit our
ability to:
- - borrow money;
- - make capital expenditures;
- - use assets as security in other transactions;
- - make restricted payments or restricted investments;
- - incur contingent obligations; and
- - sell assets and enter into leases and transactions with affiliates.
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities are subject to
extensive state and local regulations. We are required to obtain and maintain
gaming licenses in each of the jurisdictions in which we conduct gaming. The
limitation, conditioning or suspension of gaming licenses could (and the
revocation or non-renewal of gaming licenses, or the failure to reauthorize
gaming in certain jurisdictions, would) materially adversely affect our
operation in that jurisdiction. In addition, changes in law that restrict or
prohibit our gaming operations in any jurisdiction could have a material adverse
effect on us.
LOUISIANA
In July 1991, Louisiana enacted legislation permitting certain types of
gaming activity on certain rivers and waterways in Louisiana. The legislation
granted authority to supervise riverboat gaming activities to the Louisiana
Riverboat Gaming Commission and the Riverboat Gaming Enforcement Division of the
Louisiana State Police. The Louisiana Riverboat Gaming Commission was authorized
to hear and determine all appeals relative to the granting, suspension,
revocation, condition or renewal of all licenses, permits and applications. In
addition, the Louisiana Riverboat Gaming Commission established regulations
concerning authorized routes, duration of excursions, minimum levels of
insurance, construction of riverboats and periodic inspections. The Riverboat
Gaming Enforcement Division of the Louisiana State Police was authorized to
investigate applicants and issue licenses, investigate violations of the statute
and conduct continuing reviews of gaming activities.
In May 1996, regulatory oversight of riverboat gaming was transferred to
the Louisiana Gaming Control Board, which is comprised of nine voting members
appointed by the governor. The Louisiana Gaming Control Board now oversees all
licensing matters for riverboat casinos, land-based casinos, video poker and
certain aspects of Native American gaming other than those responsibilities
reserved to the Louisiana State Police.
The Louisiana Gaming Control Board is empowered to issue up to 15 licenses
to conduct gaming activities on a riverboat of new construction in accordance
with applicable law. However, no more than six licenses may be granted to
riverboats operating from any one designated waterway.
The Louisiana State Police continues to be involved broadly in gaming
enforcement and reports to the Louisiana Gaming Control Board. Louisiana law
permits the Louisiana State Police, among other things, to continue to (1)
conduct suitability investigations, (2) audit, investigate and enforce
compliance with standing regulations, (3) initiate enforcement and
administrative actions and (4) perform "all other duties and functions necessary
for the efficient, efficacious, and thorough regulation and control of gaming
activities and operations" under the Louisiana Gaming Control Board's
jurisdiction.
Louisiana gaming law specifies certain restrictions relating to the
operation of riverboat gaming, including the following:
- - agents of the Louisiana State Police are permitted on board at any time
during gaming operations;
- - gaming devices, equipment and supplies may only be purchased or leased
from permitted suppliers and, with respect to gaming equipment, from permitted
manufacturers;
- - gaming may only take place in the designated gaming area while the
riverboat is docked on a designated river or waterway;
- - gaming equipment may not be possessed, maintained or exhibited by any
person on a riverboat except in the specifically designated gaming area or in a
secure area used for inspection, repair or storage of such equipment;
- - wagers may be received only from a person present on a licensed riverboat;
- - persons under 21 are not permitted in designated gaming areas;
- - except for slot machine play, wagers may be made only with tokens, chips
or electronic cards purchased from the licensee aboard a riverboat;
- - licensees may only use docking facilities and routes for which they are
licensed and may only board and discharge passengers at the riverboat's licensed
berth;
- - licensees must have adequate protection and indemnity insurance;
- - licensees must have all necessary federal and state licenses, certificates
and other regulatory approvals prior to operating a riverboat; and
- - gaming may only be conducted in accordance with the terms of the license
and Louisiana law.
To receive a gaming license in Louisiana, an applicant must be found to be
a person of good character, honesty and integrity and a person whose prior
activities, criminal record, if any, reputation, habits and associations do not
(1) pose a threat to the public interest of the State of Louisiana or to the
effective regulation and control of gaming or (2) create or enhance the dangers
of unsuitable, unfair or illegal practices, methods and activities in the
conduct of gaming or the carrying on of business and financial arrangements of
gaming activities. In addition, the Louisiana Gaming Control Board will not
grant a license unless it finds that, among other things:
- - the applicant can demonstrate the capability, either through training,
education, business experience or a combination of the preceding, to operate a
gaming operation;
- - the proposed financing of the riverboat and the gaming operations is
adequate for the nature of the proposed operation and is from a suitable and
acceptable source;
- - the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat so as to ensure the
safety of its passengers;
- - the applicant submits with its application for a license a detailed plan
of design of the riverboat;
- - the applicant designates the docking facilities to be used by the
riverboat;
- - the applicant shows adequate financial ability to construct and maintain a
riverboat; and
- - the applicant has a good faith plan to recruit, train and upgrade
minorities in all employment classifications.
An initial license to conduct riverboat gaming operations is valid for a
term of five years and legislation passed in the 1999 legislative session
provides for renewals every five years thereafter. Louisiana gaming law provides
that a renewal application for the period succeeding the initial five-year term
of an operator's license must be made to the Louisiana Gaming Control Board and
must include a statement under oath of any and all changes in information,
including financial information, provided in the previous application. The
transfer of a license or an interest in a license is prohibited. A gaming
license is deemed to be a privilege under Louisiana law and, as such, may be
denied, revoked, suspended, conditioned or limited at any time by the Louisiana
Gaming Control Board. The Isle-Bossier City and the Isle-Lake Charles each
received a five-year renewal of their license on July 20, 1999.
Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding 5% or
greater interests in the licensee and persons exercising influence over a
licensee, are subject to the application and suitability requirements of
Louisiana gaming law.
The sale, purchase, assignment, transfer, pledge or other hypothecation,
lease, disposition or acquisition by any person of securities which represent 5%
or more of the total outstanding shares issued by a licensee is subject to the
approval of the Louisiana Gaming Control Board. A security issued by a licensee
must generally disclose these restrictions. Prior approval from the Louisiana
Gaming Control Board is required for the sale, purchase, assignment, transfer,
pledge or other hypothecation, lease, disposition or acquisition of any
ownership interest of 5% or more of any non-corporate licensee or for the
transfer of any "economic interest" of 5% or more of any licensee or affiliated
gaming person. An "economic interest" is defined as any interest whereby a
person receives or is entitled to receive, by agreement or otherwise, a profit,
gain, thing of value, loan, credit, security interest, ownership interest or
other benefit.
Fees payable to the state for conducting gaming activities on a riverboat
include (1) $50,000 per riverboat for the first year of operation and $100,000
per year per riverboat thereafter, plus (2) 21.5% of net gaming proceeds.
Legislation was passed during the 2001 legislative session that allowed those
riverboats that had been required to conduct cruises, including the riverboats
at the Isle-Lake Charles, to remain permanently dockside beginning April 1,
2001. The legislation also increased the gaming tax for operators from 18.5% to
21.5%. A statute also authorizes local governing authorities to levy boarding
fees. We have development agreements with the local governing authorities in the
jurisdictions in which we operate pursuant to which we make payments in lieu of
boarding fees.
A licensee must notify and/or seek approval from the Louisiana Gaming
Control Board in connection with any withdrawals of capital, loans, advances or
distributions in excess of 5% of retained earnings for a corporate licensee, or
of capital accounts for a partnership or limited liability company licensee,
upon completion of any such transaction. The Louisiana Gaming Control Board may
issue an emergency order for not more than ten days prohibiting payment of
profits, income or accruals by, or investments in, a licensee. Unless excepted
or waived by the Louisiana Gaming Control Board, riverboat gaming licensees and
their affiliated gaming persons must notify the Louisiana Gaming Control Board
60 days prior to the receipt by any such persons of any loans or extensions of
credit or modifications thereof. The Louisiana Gaming Control Board is required
to investigate the reported loan, extension of credit or modification thereof
and to determine whether an exemption exists on the requirement of prior written
approval and, if such exemption is not applicable, to either approve or
disapprove the transaction. If the Louisiana Gaming Control Board disapproves of
a transaction, the transaction cannot be entered into by the licensee or
affiliated gaming person. We are an affiliated gaming person of our subsidiaries
that hold the licenses to conduct riverboat gaming at the Isle-Bossier City and
the Isle-Lake Charles.
The failure of a licensee to comply with the requirements set forth above
may result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Louisiana Gaming Control Board finds that the individual
owner or holder of a security of a corporate license or intermediary company or
any person with an economic interest in a licensee is not qualified under
Louisiana law, the Louisiana Gaming Control Board may require, under penalty of
suspension or revocation of the license, that the person not:
- - receive dividends or interest on securities of the corporation;
- - exercise directly or indirectly a right conferred by securities of the
corporation;
- - receive remuneration or economic benefit from the licensee;
- - exercise significant influence over activities of the licensee; or
- - continue its ownership or economic interest in the licensee.
A licensee must periodically report the following information to the
Louisiana Gaming Control Board, which is not confidential and is available for
public inspection: (1) the licensee's net gaming proceeds from all authorized
games, (2) the amount of net gaming proceeds tax paid and (3) all quarterly and
annual financial statements presenting historical data, including annual
financial statements that have been audited by an independent certified public
auditor.
During the 1996 special session of the Louisiana legislature, legislation
was enacted placing on the ballot for a statewide election a constitutional
amendment limiting the expansion of gaming, which was subsequently passed by the
voters. As a result, local option elections are required before new or
additional forms of gaming can be brought into a parish.
Proposals to amend or supplement Louisiana's riverboat gaming statute are
frequently introduced in the Louisiana State legislature. There is no assurance
that changes in Louisiana gaming law will not occur or that such changes will
not have a material adverse effect on our business in Louisiana.
MISSISSIPPI
In June 1990, Mississippi enacted legislation legalizing dockside casino
gaming for counties along the Mississippi River, which is the western border for
most of the state, and the Gulf Coast, which is the southern border for most of
the state. The legislation gave each of those counties the opportunity to hold a
referendum on whether to allow dockside casino gaming within its boundaries.
Gaming vessels in Mississippi must be located on the Mississippi River, on
navigable waters in eligible counties along the Mississippi River or in the
waters lying south of the counties along the Mississippi Gulf Coast. Mississippi
law permits unlimited stakes gaming on permanently moored vessels on a 24-hour
basis and does not restrict the percentage of space that may be utilized for
gaming. There are no limitations on the number of gaming licenses that may be
issued in Mississippi.
The ownership and operation of gaming facilities in Mississippi are subject
to extensive state and local regulation intended to:
- - prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- - establish and maintain responsible accounting practices and procedures for
gaming operations;
- - maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports;
- - provide a source of state and local revenues through taxation and
licensing fees;
- - prevent cheating and fraudulent practices; and
- - ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted
in Mississippi and such changes, if enacted, could have an adverse effect on us
and our Mississippi gaming operations.
We are registered as a publicly traded corporation under the Mississippi
Gaming Control Act. Our gaming operations in Mississippi are subject to
regulatory control by the Mississippi Gaming
Commission, the State Tax Commission and various other local, city and county
regulatory agencies (collectively referred to as the "Mississippi Gaming
Authorities"). Our subsidiaries have obtained gaming licenses from the
Mississippi Gaming Authorities. Any proposed gaming operations outside of
Mississippi are also subject to approval by the Mississippi Gaming Commission.
The licenses held by our Mississippi gaming operations have terms of three years
and are not transferable. The Isle-Biloxi received a renewal gaming license in
May 2000, and the Isle-Vicksburg obtained a renewal gaming license in February
2001. The Isle-Tunica obtained a renewal gaming license in May 2001 and
surrendered that license in October 2002. The Isle-Natchez received its current
license in June 2000, and the Isle-Lula received its current license in July
2000. There is no assurance that new licenses can be obtained at the end of each
three-year period of a license. Moreover, the Mississippi Gaming Commission may,
at any time, and for any cause it deems reasonable, revoke, suspend, condition,
limit or restrict a license or approval to own shares of stock in our
subsidiaries that operate in Mississippi.
Substantial fines for each violation of Mississippi's gaming laws or
regulations may be levied against us, our subsidiaries and the persons involved.
A violation under a gaming license held by a subsidiary of ours operating in
Mississippi may be deemed a violation of all the other licenses held by us.
We, along with each of our Mississippi gaming subsidiaries, must
periodically submit detailed financial, operating and other reports to the
Mississippi Gaming Commission and/or the State Tax Commission. Numerous
transactions, including substantially all loans, leases, sales of securities and
similar financing transactions entered into by any of ours operating a casino in
Mississippi must be reported to or approved by the Mississippi Gaming
Commission. In addition, the Mississippi Gaming Commission may, at its
discretion, require additional information about our operations.
Certain of our officers and employees and the officers, directors and
certain key employees of our Mississippi gaming subsidiaries must be found
suitable or be licensed by the Mississippi Gaming Commission. We believe that
all required findings of suitability related to all of our Mississippi
properties have been applied for or obtained, although the Mississippi Gaming
Commission at its discretion may require additional persons to file applications
for findings of suitability. In addition, any person having a material
relationship or involvement with us may be required to be found suitable or
licensed, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi Gaming
Commission. In addition to its authority to deny an application for a finding
of suitability, the Mississippi Gaming Commission has jurisdiction to disapprove
a change in a licensed position. The Mississippi Gaming Commission has the
power to require us and any of our Mississippi gaming subsidiaries to suspend
or dismiss officers, directors and other key employees or to sever relationships
with other persons who refuse to file appropriate applications or whom
the authorities find unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Gaming
Commission will refuse to issue a work permit to a person who has been convicted
of a felony, committed certain misdemeanors or knowingly violated the
Mississippi Gaming Control Act, and it may refuse to issue a work permit to a
gaming employee for any other reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require the finding of suitability of any record or beneficial stockholder
of ours. The Mississippi Gaming Control Act requires any person who individually
or in association with others acquires, directly or indirectly, beneficial
ownership of more than 5% of our common stock to report the acquisition to the
Mississippi Gaming Commission, and such person may be required to be found
suitable. In addition, the Mississippi Gaming Control Act requires any person
who, individually or in association with others, becomes, directly or
indirectly, a beneficial owner of more than 10% of our common stock, as reported
to the U.S. Securities and Exchange Commission, to apply for a finding of
suitability by the Mississippi Gaming Commission and pay the costs and fees that
the Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered publicly traded corporation's stock. However, the Mississippi Gaming
Commission has adopted a regulation that may permit certain "institutional"
investors to obtain waivers that allow them to beneficially own, directly or
indirectly, up to 15% (19% in certain specific instances) of the voting
securities of a registered publicly traded corporation without a finding of
suitability. If a stockholder who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial
information, including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. We believe that compliance by us with the
licensing procedures and regulatory requirements of the Mississippi Gaming
Commission will not affect the marketability of our securities. Any person found
unsuitable who holds, directly or indirectly, any beneficial ownership of our
securities beyond such time as the Mississippi Gaming Commission prescribes may
be guilty of a misdemeanor. We are subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or our subsidiaries operating casinos in Mississippi,
we:
- - pay the unsuitable person any dividend or other distribution upon its
voting securities;
- - recognize the exercise, directly or indirectly, of any voting rights
conferred by its securities;
- - pay the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances; or
- - fail to pursue all lawful efforts to require the unsuitable person to
divest itself of the securities, including, if necessary, our immediate purchase
of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Gaming Commission upon
request the identities of the holders of any of our debt securities. In
addition, under the Mississippi Gaming Control Act, the Mississippi Gaming
Commission may, in its discretion, (1) require holders of our securities,
including the notes, to file applications, (2) investigate such holders and (3)
require such holders to be found suitable to own such securities. Although the
Mississippi Gaming Commission generally does not require the individual holders
of obligations such as the notes to be investigated and found suitable, the
Mississippi Gaming Commission retains the discretion to do so for any reason,
including but not limited to a default, or where the holder of the debt
instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with such an investigation.
The Mississippi regulations provide that a change in control of us may not
occur without the prior approval of the Mississippi Gaming Commission.
Mississippi law prohibits us from making a public offering of our securities
without the approval of the Mississippi Gaming Commission if any part of the
proceeds of the offering is to be used to finance the construction, acquisition
or operation of gaming facilities in Mississippi, or to retire or extend
obligations incurred for one or more such purposes. The Mississippi Gaming
Commission has the authority to grant a continuous approval of securities
offerings and has granted such approval for us, subject to renewal every two
years.
Regulations of the Mississippi Gaming Commission prohibit certain
repurchases of securities of publicly traded corporations registered with the
Mississippi Gaming Commission, including holding companies such as ours, without
prior approval of the Mississippi Gaming Commission. Transactions covered by
these regulations are generally aimed at discouraging repurchases of securities
at a premium over market price from certain holders of greater than 3% of the
outstanding securities of the registered publicly traded corporation. The
regulations of the Mississippi Gaming Commission also require prior approval for
a "plan of recapitalization" as defined in such regulations.
We must maintain in the State of Mississippi current stock ledgers, which
may be examined by the Mississippi Gaming Authorities at any time. If any
securities are held in trust by an agent or by a nominee, the record holder may
be required to disclose the identity of the beneficial owner to the Mississippi
Gaming Authorities. A failure to make such disclosure may be grounds for finding
the record holder unsuitable. We must render maximum assistance in determining
the identity of the beneficial owner.
Mississippi law requires that certificates representing shares of our
common stock bear a legend to the general effect that the securities are subject
to the Mississippi Gaming Control Act and regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the authority to grant a
waiver from the legend requirement, which we have obtained. The Mississippi
Gaming Commission, through the power to regulate licenses, has the power to
impose additional restrictions on the holders of our securities at any time.
The Mississippi Gaming Commission enacted a regulation requiring that, as a
condition to licensure or license renewal, an applicant must provide a plan to
develop infrastructure facilities amounting to 25% of the cost of the casino and
a parking facility capable of accommodating 500 cars. In 1999, the Mississippi
Gaming Commission approved amendments to this regulation that increased the
infrastructure development requirement from 25% to 100% for new casinos (or upon
acquisition of a closed casino), but grandfathered existing licensees and
development plans approved prior to the effective date of the new regulation
(including the Isle-Tunica and the Isle-Lula). "Infrastructure facilities"
include any of the following:
- - a 250-room or larger hotel of at least a two-star rating as defined by the
current edition of the Mobil Travel Guide;
- - theme parks;
- - golf courses;
- - marinas;
- - entertainment facilities;
- - tennis complexes; and
- - any other facilities approved by the Mississippi Gaming Commission.
Parking facilities, roads, sewage and water systems or civic facilities are
not considered "infrastructure facilities." The Mississippi Gaming Commission
may reduce the number of rooms required in a hotel if it is satisfied that
sufficient rooms are available to accommodate the anticipated number of
visitors.
License fees and taxes are payable to the State of Mississippi and to the
counties and cities in which a Mississippi gaming subsidiary's respective
operations will be conducted. The license fee payable to the state of
Mississippi is based upon gross revenue of the licensee (generally defined as
gaming receipts less
payout to customers as winnings) and equals 4% of gross revenue of $50,000 or
less per month, 6% of gross revenue in excess of $50,000 but less than $134,000
per calendar month, and 8% of gross revenue in excess of $134,000 per calendar
month. The foregoing license fees are allowed as a credit against the licensee's
Mississippi income tax liability for the year paid. Additionally, a licensee
must pay a $5,000 annual license fee and an annual fee based upon the number of
games it operates. The gross revenue tax imposed by the Mississippi communities
and counties in which our casino operations are located equals 0.4% of gross
revenue of $50,000 or less per calendar month, 0.6% of gross revenue over
$50,000 and less than $134,000 per calendar month and 0.8% of gross revenue
greater than $134,000 per calendar month. These fees have been imposed in, among
other cities and counties, Biloxi, Vicksburg, Tunica County and Coahoma County.
Certain local and private laws of the state of Mississippi may impose fees or
taxes on the Mississippi gaming subsidiaries in addition to the fees described
above.
The Mississippi Gaming Commission requires, as a condition of licensure or
license renewal, that casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile-per-hour winds and 15-foot tidal surge. We believe that all of our
Mississippi gaming locations currently meet this requirement. A 1996 Mississippi
Gaming Commission regulation prescribes the hurricane emergency procedure to be
used by the Mississippi Gulf Coast casinos.
The sale of food or alcoholic beverages at our Mississippi gaming locations
is subject to licensing, control and regulation by the applicable state and
local authorities. The agencies involved have full power to limit, condition,
suspend or revoke any such license, and any such disciplinary action could (and
revocation would) have a material adverse effect upon the operations of the
affected casino or casinos. Certain of our officers and managers and our
Mississippi gaming subsidiaries must be investigated by the Alcoholic Beverage
Control Division of the State Tax Commission in connection with liquor permits
that have been issued. The Alcoholic Beverage Control Division of the State Tax
Commission must approve all changes in licensed positions.
On three separate occasions since 1998, certain anti-gaming groups have
proposed referenda that, if adopted, would have banned gaming in Mississippi and
required that gaming entities cease operations within two years after the ban.
All three referenda were declared invalid by Mississippi courts because each
lacked a required government revenue impact statement.
MISSOURI
Conducting gambling games and operating an excursion gambling boat in
Missouri are subject to extensive regulation under Missouri's Riverboat Gambling
Act and the rules and regulations promulgated thereunder. The Missouri Gaming
Commission was created by the Missouri Riverboat Gambling Act and is charged
with regulatory authority over riverboat gaming operations in Missouri,
including the issuance of riverboat gaming licenses. In June 2000, IOC-Kansas
City, Inc., a subsidiary of ours, was issued a riverboat gaming license in
connection with our Kansas City operation. Additionally, in December 2001,
IOC-Boonville, Inc., a subsidiary of ours, was issued a riverboat gaming license
for our Boonville operation.
In order to obtain a riverboat gaming license, the proposed operating
business entity must complete a Class A Riverboat Gaming Application, comprised
of comprehensive application forms, including corroborating attachments, and
undergo an extensive background investigation by the Missouri Gaming Commission.
In addition, each key person associated with the applicant (including directors,
officers, managers and owners of a significant direct or indirect interest in
the applicant) must complete a Riverboat Gaming Application Form I and undergo a
background investigation. Certain key business entities closely related to the
applicant or "business entity key persons" must undergo a similar application
process and background check. An applicant will not receive a license to
conduct gambling games and to operate an excursion gambling boat if the
applicant and its key persons have not established
good repute and moral character and no licensee shall either employ or contract
with any person who has pled guilty to, or been convicted of, a felony, to
perform any duties directly connected with the licensee's privileges under a
license granted by the Commission. Each license granted entitles a licensee to
conduct gambling games on an excursion gambling boat or to operate an excursion
gambling boat and the equipment thereon from a specific location. The duration
of the license initially runs for two one-year terms; thereafter, two-year
terms. The Commission also licenses the serving of alcoholic beverages on
riverboats and related facilities.
In determining whether to grant a license, the Commission considers the
following factors, among others: (i) the integrity of the applicants; (ii) the
types and variety of games the applicant may offer; (iii) the quality of the
physical facility, together with improvements and equipment, and how soon the
project will be completed; (iv) the financial ability of the applicant to
develop and operate the facility successfully; (v) the status of governmental
actions required by the facility; (vi) management ability of the applicant;
(vii) compliance with applicable statutes, rules, charters and ordinances;
(viii) the economic, ecological and social impact of the facility as well as the
cost of public improvements; (ix) the extent of public support or opposition;
(x) the plan adopted by the home dock city or county; and (xi) effects on
competition.
A licensee is subject to the imposition of penalties, suspension or
revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the State of
Missouri, or that would discredit or tend to discredit the Missouri gaming
industry or the State of Missouri, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rules, order or ruling of the Missouri Gaming
Commission or its agents pertaining to gaming; (iii) receiving goods or services
from a person or business entity who does not hold a supplier's license but who
is required to hold such license by the legislation or the rules; (iv) being
suspended or ruled ineligible or having a license revoked or suspended in any
state of gaming jurisdiction; (v) associating with, either socially or in
business affairs, or employing persons of notorious or unsavory reputation or
who have extensive police records, or who have failed to cooperate with any
officially constituted investigatory or administrative body and would adversely
affect public confidence and trust in gaming; (vi) employing in any Missouri
gaming operation any person known to have been found guilty of cheating or using
any improper device in connection with any gambling game; (vii) use of fraud,
deception, misrepresentation or bribery in securing any license or permit issued
pursuant to the legislation; (viii) obtaining any fee, charge, or other
compensation by fraud, deception or misrepresentation; and (ix) incompetence,
misconduct, gross negligence, fraud, misrepresentation or dishonesty in the
performance of the functions or duties regulated by the Missouri Riverboat
Gambling Act.
Any transfer or issuance of ownership interest in a publicly held gaming
licensee or its holding company that results in an entity owning, directly or
indirectly, an aggregate ownership interest of 5% or more in the
gaming licensee must be reported to the Missouri Gaming Commission within seven
days. Further, any pledge or hypothecation of five percent or more of the
ownership interest in a publicly held gaming licensee or its holding company
must be reported to the Missouri Gaming Commission within seven days.
Every employee participating in a riverboat gaming operation must hold an
occupational license. In addition, the Missouri Gaming Commission issues
supplier's licenses, which authorize the supplier licensee to sell or lease
gaming equipment and supplies to any licensee involved in the operation of
gaming operations.
Riverboat gaming operations may only be conducted on the Missouri River or
Mississippi River. Although, all of the excursion gambling boats in Missouri are
permanently moored boats or barges, a two hour simulated cruise is imposed in
order to ensure the enforcement of loss limit restrictions. Missouri
law imposes a maximum loss per person per cruise of $500. Minimum and maximum
wagers on games are set by the licensee and wagering may be conducted only with
a cashless wagering system, whereby money is converted to tokens, electronic
cards or chips that can only be used for wagering. No person under the age of 21
is permitted to wager, and wagers may only be taken from a person present on a
licensed excursion gambling boat.
The Missouri Riverboat Gambling Act imposes a 20% wagering tax on adjusted
gross receipts (generally defined as gross receipts less winnings paid to
wagerers) from gambling games. The tax imposed is to be paid by the licensee to
the Commission on the day after the day when the wagers were made. Of the
proceeds of that tax, 10% goes to the local government where the home dock is
located, and the remainder goes to the State of Missouri.
The Missouri Riverboat Gambling Act also requires that licensees pay a
$2.00 admission tax to the Missouri Gaming Commission for each person admitted
to a gaming cruise. The licensee is required to maintain public books and
records clearly showing amounts received from admission fees, the total amount
of gross receipts and the total amount of adjusted gross receipts. In addition,
all local income, earnings, use, property and sales taxes are applicable to
licensees. There are currently pending before the Missouri General Assembly
several proposed bills which individually or in combination would, if adopted,
(1) remove the loss limit restriction, (2) adjust the amount of wagering tax
imposed on adjusted gross receipts of licensees and/or (3) adjust the amount of
admission tax paid by the licensee for each person admitted for a gaming cruise.
The Missouri General Assembly concludes its current session in June 2003.
IOWA
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi
River and other waterways located in Iowa. The legislation authorized the
granting of licenses to non-profit corporations that, in turn, are permitted
to enter into operating agreements with qualified persons who also actually
conduct riverboat gaming operations. Such operators must likewise be approved
and licensed by the Iowa Racing and Gaming Commission (the "Iowa Gaming
Commission").
The Isle-Bettendorf has the right to renew its operator's contract with the
Riverbend Regional Authority, a non-profit corporation organized for the
purpose of facilitating riverboat gaming in Bettendorf, Iowa, for succeeding
three-year periods as long as Scott County voters approve gaming in the
jurisdiction. Under the operator's contract, the Isle-Bettendorf pays the
Riverbend Regional Authority a fee equal to 4.1% of the adjusted gross receipts.
Further, the Isle-Bettendorf generally must pay a fee to the City of Bettendorf
equal to 1.65% of adjusted gross receipts.
In June 1994, Upper Mississippi Gaming Corporation, a non-profit
corporation organized for the purpose of facilitating riverboat gaming in
Marquette, Iowa, entered into an operator's agreement for the Isle-Marquette for
a period of twenty-five years. Under the management agreement, the non-profit
organization is to be paid a fee of $0.50 per passenger. Further, pursuant to a
dock site agreement (which also has a term of twenty-five years), the
Isle-Marquette is required to pay a fee to the City of Marquette in the amount
of $1.00 per passenger, plus a fixed amount of $15,000 per month and 2.5% of
gaming revenues (less state wagering taxes) in excess of $20.0 million but less
than $40.0 million; 5% of gaming revenues (less state wagering taxes) in excess
of $40.0 million but less than $60.0 million; and 7.5% of gaming revenues (less
state wagering taxes) in excess of $60.0 million.
On October 2000, the Riverboat Development Authority, a non-profit
corporation organized for the purpose of facilitating riverboat gaming in
Davenport, Iowa, entered into an operator's agreement with the Isle-Davenport to
conduct riverboat gaming in Davenport, Iowa. The operating agreement requires
the Isle-Davenport to make weekly payments to the qualified sponsoring
organization equal to 4.1% of each week's adjusted gross receipts (as defined in
the enabling legislation) or $38,461.54, whichever is greater.
This agreement will remain in effect through March 31, 2009 and may be extended
by the Isle-Davenport so long as it holds a license to conduct gaming. In
addition, the Isle-Davenport pays a docking fee, gaming tax and a payment in
lieu of taxes to the City of Davenport. Pursuant to a development agreement with
the City, the Isle-Davenport has exclusive docking privileges in the City of
Davenport until March 31, 2017 in consideration of this docking fee. The docking
fee has both a fixed base and a per passenger increment. The fixed fee commenced
April 1, 1994 at $111,759 and increases annually by 4%. The incremental
component is a $0.10 charge for each passenger in excess of 1,117,579 passengers
(which charge also increases by 4% per year). The City is also guaranteed an
annual gaming tax of $558,789.50 per year (based on a minimum passenger floor
count of 1,117,579 passengers at $0.50 per passenger). Finally, the
Isle-Davenport is obligated to pay a payment in lieu of taxes to support the
downtown development district. This annual lump sum payment is in the amount of
$123,516 plus $0.20 per passenger in excess of 1,117,579 passengers. This
payment in lieu of taxes is further subject to a minimum $226,179 per year
payment.
Iowa law permits gaming licensees to offer unlimited stakes gaming on games
approved by the Iowa Gaming Commission on a 24-hour basis. Dockside casino
gaming is authorized by the Iowa Gaming Commission although the licensed vessel
is required to conduct at least one two-hour excursion cruise each day for at
least 100 days during the excursion season. The legal age for gaming is 21.
All Iowa licenses were approved for renewal at the March 6, 2003, Iowa
Gaming Commission meeting. These licenses are not transferable and will need to
be renewed in March 2004 and prior to the commencement of each subsequent annual
renewal period.
The ownership and operation of gaming facilities in Iowa are subject to
extensive state laws, regulations of the Iowa Gaming Commission and various
county and municipal ordinances (collectively, the "Iowa Gaming Laws"),
concerning the responsibility, financial stability and character of gaming
operators and persons financially interested or involved in gaming operations,
Iowa Gaming Laws seek to: (1) prevent unsavory or unsuitable persons from having
direct or indirect involvement with gaming at any time or in any capacity; (2)
establish and maintain responsible accounting practices and procedures; (3)
maintain effective control over the financial practices of licensees (including
the establishment of minimum procedures for internal fiscal affairs, the
safeguarding of assets and revenues, the provision of reliable record keeping
and the filing of periodic reports with the Iowa Gaming Commission); (4) prevent
cheating and fraudulent practices; and (5) provide a source of state and local
revenues through taxation and licensing fees. Changes in Iowa Gaming Laws could
have a material adverse effect on the Iowa gaming operations.
Gaming licenses granted to individuals must be renewed every year, and
licensing authorities have broad discretion with regard to such renewals.
Licenses are not transferable. The Iowa gaming operations must submit detailed
financial and operating reports to the Iowa Gaming Commission. Certain contracts
of licensees in excess of $100,000 must be submitted to and approved by the Iowa
Gaming Commission.
Certain officers, directors, managers and key employees of the Iowa gaming
operations are required to be licensed by the Iowa Gaming Commission. Employees
associated with gaming must obtain work permits that are subject to immediate
suspension under specific circumstances. In addition, anyone having a material
relationship or involvement with the Iowa gaming operations may be required to
be found suitable or to be licensed, in which case those persons would be
required to pay the costs and fees of the Iowa Gaming Commission in connection
with the investigation. The Iowa Gaming Commission may deny an application for a
license for any cause deemed reasonable. In addition to its authority to deny an
application for license, the Iowa Gaming Commission has jurisdiction to
disapprove a change in position by officers or key employees and the power to
require the Iowa gaming operations to suspend or dismiss officers, directors or
other key employees or sever relationships with other persons who refuse to file
appropriate applications or whom the Iowa Gaming Commission finds unsuitable to
act in such capacities.
The Iowa Gaming Commission may revoke a gaming license if the licensee:
- - has been suspended from operating a gaming operation in another
jurisdiction by a board or commission of that jurisdiction;
- - has failed to demonstrate financial responsibility sufficient to meet
adequately the requirements of the gaming enterprise;
- - is not the true owner of the enterprise;
- - has failed to disclose ownership of other persons in the enterprise;
- - is a corporation 10% of the stock of which is subject to a contract or
option to purchase at any time during the period for which the license was
issued, unless the contract or option was disclosed to the Iowa Gaming
Commission and the Iowa Gaming Commission approved the sale or transfer during
the period of the license;
- - knowingly makes a false statement of a material fact to the Iowa Gaming
Commission;
- - fails to meet a monetary obligation in connection with an excursion gaming
boat;
- - pleads guilty to, or is convicted of a felony;
- - loans to any person, money or other thing of value for the purpose of
permitting that person to wager on any game of chance;
- - is delinquent in the payment of property taxes or other taxes or fees or a
payment of any other contractual obligation or debt due or owed to a city or
county; or
- - assigns, grants or turns over to another person the operation of a
licensed excursion boat (this provision does not prohibit assignment of a
management contract approved by the Iowa Gaming Commission) or permits another
person to have a share of the money received for admission to the excursion
boat.
If it were determined that the Iowa Gaming Laws were violated by a
licensee, the gaming licenses held by a licensee could be limited, made
conditional, suspended or revoked. In addition, the licensee and the persons
involved could be subject to substantial fines for each separate violation of
the Iowa Gaming Laws in the discretion of the Iowa Gaming Commission.
Limitations, conditioning or suspension of any gaming license could (and
revocation of any gaming license would) have a material adverse effect on
operations.
The Iowa Gaming Commission may also require any individual who has a
material relationship with the Iowa gaming operations to be investigated and
licensed or found suitable. The Iowa Gaming Commission, prior to the
acquisition, must approve any person who acquires 5% or more of a licensee's
equity securities. The applicant stockholder is required to pay all costs of
this investigation.
Gaming taxes approximating 20% of the adjusted gross receipts will be
payable by each licensee on its operations to the State of Iowa. In addition,
there are costs that include a $50,000 initial application fee, yearly
operations fees and all costs associated with monitoring and enforcement by the
Iowa Gaming Commission and the Iowa Department of Criminal Investigation.
COLORADO
The State of Colorado created the Division of Gaming (the "Colorado
Division") within the Department of Revenue to license, implement, regulate and
supervise the conduct of limited gaming under the Colorado Limited Gaming Act.
The Director of the Colorado Division (the "Colorado Director"), pursuant to
regulations promulgated by, and subject to the review of, a five-member Colorado
Limited Gaming Control Commission (the "Colorado Commission"), has been granted
broad power to ensure compliance with the Colorado gaming laws and regulations
(collectively, the "Colorado Regulations"). The Colorado Director may inspect,
without notice, impound or remove any gaming device. The Colorado Director may
examine and copy any licensee's records, may investigate the background and
conduct of licensees and their employees, and may bring disciplinary actions
against licensees and their employees. The Colorado Director may also conduct
detailed background investigations of persons who loan money to, or otherwise
provide financing to, a licensee.
The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses, and has delegated authority to the Colorado Director to
issue certain types of licenses and approve certain changes in ownership. The
licenses are revocable and non-transferable. The failure or inability of the
Isle-Black Hawk, the Colorado Central Station-Black Hawk or the Colorado
Grande-Cripple Creek (the "Colorado Casino" or collectively, the "Colorado
Casinos"), or the failure or inability of others associated with any of the
Colorado Casinos, including us, to maintain necessary gaming licenses or
approvals would have a material adverse effect on our operations. All persons
employed by any of the Colorado Casinos, and involved, directly or indirectly,
in gaming operations in Colorado also are required to obtain a Colorado gaming
license. All licenses must be renewed annually, except those for key and support
employees, which must be renewed every two years.
As a general rule, under the Colorado Regulations, no person may have an
"ownership interest" in more than three retail gaming licenses in Colorado. The
Colorado Commission has ruled that a person does not have an ownership interest
in a retail gaming licensee for purposes of the multiple license prohibition if:
- - that person has less than a 5% ownership interest in an institutional
investor that has an ownership interest in a publicly traded licensee or
publicly traded company affiliated with a licensee;
- - a person has a 5% or more ownership interest in an institutional investor,
but the institutional investor has less than a 5% ownership interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
- - an institutional investor has less than a 5% ownership interest in a
publicly traded licensee or publicly traded company affiliated with a licensee;
- - an institutional investor possesses voting securities in a fiduciary
capacity for another person, and does not exercise voting control over 5% or
more of the outstanding voting securities of a publicly traded licensee or of a
publicly traded company affiliated with a licensee;
- - a registered broker or dealer retains possession of voting securities of a
publicly traded licensee or of a publicly traded company affiliated with a
licensee for its customers and not for its own account, and exercises voting
rights for less than 5% of the outstanding voting securities of a publicly
traded licensee or publicly traded company affiliated with a licensee;
- - a registered broker or dealer acts as a market maker for the stock of a
publicly traded
licensee or of a publicly traded company affiliated with a licensee and
exercises voting rights in less than 5% of the outstanding voting securities of
the publicly traded licensee or publicly traded company affiliated with a
licensee;
- - an underwriter is holding securities of a publicly traded licensee or
publicly traded company affiliated with a licensee as part of an underwriting
for no more than 90 days after the beginning of such underwriting if it
exercises voting rights of less than 5% of the outstanding voting securities of
a publicly traded licensee or publicly traded company affiliated with a
licensee;
- - a book entry transfer facility holds voting securities for third parties,
if it exercises voting rights with respect to less than 5% of the outstanding
voting securities of a publicly traded licensee or publicly traded company
affiliated with a licensee; or
- - a person's sole ownership interest is less than 5% of the outstanding
voting securities of the publicly traded licensee or publicly traded company
affiliated with a licensee.
Because we own the Colorado Casinos, our business opportunities, and those
of persons with an "ownership interest" in us, or any of the Colorado Casinos,
are limited to interests that comply with the Colorado Regulations and the
Colorado Commission's rule.
In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines or associated equipment may, without notification
being provided to the Colorado Division within ten days, knowingly have an
interest in any casino operator, allow any of its officers or any other person
with a substantial interest in such business to have such an interest, employ
any person if that person is employed by a casino operator, or allow any casino
operator or person with a substantial interest therein to have an interest in a
manufacturer's or distributor's business. A "substantial interest" means the
lesser of (i) as large an interest in an entity as any other person or (ii) any
financial or equity interest equal to or greater than 5%. The Colorado
Commission has ruled that a person does not have a "substantial interest" if
such person's sole ownership interest in such licensee is through the ownership
of less than 5% of the outstanding voting securities of a publicly traded
licensee or publicly traded affiliated company of a licensee.
We are a "publicly traded corporation" under the Colorado Regulations.
Under the Colorado Regulations, any person or entity having any direct or
indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, us, Casino America of Colorado, Inc., IC Holdings
Colorado, Inc., CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc. or any
of the three Colorado Casinos and their security holders, may be required to
supply the Colorado Commission with substantial information, including, but not
limited to, background information, source of funding information, a sworn
statement that such person or entity is not holding his or her interest for any
other party, and fingerprints. Such information, investigation and licensing (or
finding of suitability) as an "associated person" automatically will be required
of all persons (other than certain institutional investors discussed below)
which directly or indirectly beneficially own 10% or more of a direct or
indirect beneficial ownership or interest in any of the three Colorado Casinos,
through their beneficial ownership of any class of voting securities of us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., CCSC/Blackhawk,
Inc., Colorado Grande Enterprises, Inc. or any of the three Colorado Casinos.
Those persons must report their interest within 10 days and file appropriate
applications within 45 days after acquiring that interest. Persons who directly
or indirectly beneficially own 5% or more (but less than 10%) of a direct or
indirect beneficial ownership or interest in any of the three Colorado Casinos,
through their beneficial ownership of any class of voting securities of us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., CCSC/Blackhawk,
Inc., Colorado Grande Enterprises, Inc. or any of the three Colorado Casinos,
must report their interest to the Colorado Commission within 10 days
after acquiring that interest and may be required to provide additional
information and to be found suitable. (It is the current practice of the gaming
regulators to require findings of suitability for persons beneficially owning 5%
or more of a direct or indirect beneficial ownership or interest, other than
certain institutional investors discussed below.) If certain institutional
investors provide specified information to the Colorado Commission and are
holding for investment purposes only, those investors, in the Colorado
Commission's discretion, may be permitted to own up to 14.99% of the Colorado
Casinos through their beneficial ownership in any class of voting of securities
of us, Casino America of Colorado, Inc., IC Holdings Colorado, Inc.,
CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc. or any of the three
Colorado Casinos, before being required to be found suitable. All licensing and
investigation fees will have to be paid by the person in question. The
associated person investigation fee currently is $62 per hour.
The Colorado Regulations define a "voting security" to be a security the
holder of which is entitled to vote generally for the election of a member or
members of the board of directors or board of trustees of a corporation or a
comparable person or persons of another form of business organization.
The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of: (1) all persons licensed
pursuant to the Colorado Limited Gaming Act; (2) all officers, directors and
stockholders of a licensed privately held corporation; (3) all officers,
directors and stockholders holding either a 5% or greater interest or a
controlling interest in a licensed publicly traded corporation; (4) all general
partners and all limited partners of a licensed partnership; (5) all persons
that have a relationship similar to that of an officer, director or stockholder
of a corporation (such as members and managers of a limited liability company);
(6) all persons supplying financing or loaning money to any licensee connected
with the establishment or operation of limited gaming; (7) all persons having a
contract, lease or ongoing financial or business arrangement with any licensee,
where such contract, lease or arrangement relates to limited gaming operations,
equipment devices or premises; and (8) all persons contracting with or supplying
any goods and services to the gaming regulators.
Certain public officials and employees are prohibited from having any
direct or indirect interest in a license or limited gaming.
In addition, under the Colorado Regulations, every person who is a party to
a "gaming contract" (as defined below) or lease with an applicant for a license,
or with a licensee, upon the request of the Colorado Commission or the Colorado
Director, must promptly provide the Colorado Commission or Colorado Director all
information which may be requested concerning financial history, financial
holdings, real and personal property ownership, interests in other companies,
criminal history, personal history and associations, character, reputation in
the community and all other information which might be relevant to a
determination of whether a person would be suitable to be licensed by the
Colorado Commission. Failure to provide all information requested constitutes
sufficient grounds for the Colorado Director or the Colorado Commission to
require a licensee or applicant to terminate its "gaming contract" or lease with
any person who failed to provide the information requested. In addition, the
Colorado Director or the Colorado Commission may require changes in "gaming
contracts" before an application is approved or participation in the contract is
allowed. A "gaming contract" is defined as an agreement in which a person does
business with or on the premises of a licensed