ISLE OF CAPRI CASINOS INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 10-Q 

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended July 27, 2003

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from ______________________ to ______________________ 

Commission File Number 0-20538 

ISLE OF CAPRI CASINOS, INC. 

Delaware			41-1659606


(State or other jurisdiction			(I.R.S. Employer
of incorporation or organization)			Identification Number)

1641 Popps Ferry Road, Biloxi, Mississippi			39532

(Address of principal executive offices)			(Zip Code)

Registrant's telephone number, including area code:			(228) 396-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. 

Yes x No o 

Indicate by check mark if the registrant is an accelerated file (as defined in Rule 12b-2 of the Act). Yes x No o 

As of August 15, 2003, the Company had a total of 29,249,896 shares of Common Stock outstanding (which excludes 3,293,223 shares held by us in treasury). 

ISLE OF CAPRI CASINOS, INC. 

FORM 10-Q 

INDEX 

	PAGE


PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, JULY 27, 2003 (UNAUDITED)
AND APRIL 27, 2003		2

CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED JULY 27, 2003 AND JULY 28, 2002 (UNAUDITED)		3

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE
MONTHS ENDED JULY 27, 2003 (UNAUDITED)		4

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED JULY 27, 2003 AND JULY 28, 2002 (UNAUDITED)		5

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS		24

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
		32
ITEM 4. CONTROLS AND PROCEDURES
		34
PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		35

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS		36

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		36

ITEM 4. SUBMISSION OF MATTERS SUBJECT TO A VOTE OF SECURITY HOLDERS		36

ITEM 5. OTHER INFORMATION		36

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K		37

SIGNATURE		38
EXHIBIT LIST		39

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS 

      All statements other than statements of historical or current facts included in this report on Form 10-Q or incorporated by reference herein, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected
 in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. 

     Our Internet website is http://www.islecorp.com . We make our filings 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. 


	1
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS.

ISLE OF CAPRI CASINOS, INC. 

CONSOLIDATED BALANCE SHEETS 

(In thousands) 

July 27, 

April 27, 

2003 

2003 

ASSETS 

(Unaudited) 

Current assets: 

      Cash and cash equivalents

$

108,514 

$

80,639 

      Short-term investments

11,996 

13,987 

      Accounts receivable 

7,521 

7,786 

      Notes receivable

314 

5,658 

      Income tax receivable

- 

2,260 

      Deferred income taxes

6,953 

7,433 

      Prepaid expenses and other assets 

24,181 

17,982 

    Total current assets

159,479 

135,745 

Property and equipment, net

851,935 

841,332 

Other assets: 

      Goodwill 

327,758 

326,309 

      Other intangible assets 

72,244 

75,344 

      Deferred financing costs, net of accumulated amortization of $12,574 

          and $11,500, respectively 

21,956 

22,962 

      Restricted cash 

2,556 

2,551 

      Other 

3,472 

3,961 

    Total assets 

$

1,439,400 

$

1,408,204 

LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities: 

      Current maturities of long-term debt 

$

16,721 

$

24,757 

      Accounts payable trade

16,778 

18,630 

      Accrued liabilities: 

         Interest 

20,731 

7,132 

         Payroll and related 

45,775 

45,578 

         Property and other taxes 

20,989 

17,852 

         Income taxes 

5,807 

- 

         Progressive jackpots and slot club awards 

16,149 

15,583 

         Other 

28,817 

26,639 

    Total current liabilities 

171,767 

156,171 

Long-term debt, less current maturities 

1,001,376 

1,003,230 

Deferred income taxes 

9,799 

9,700 

Deferred state income taxes 

7,675 

7,675 

Other accrued liabilities

13,106 

13,347 

Minority interest 

16,805 

14,177 

Stockholders' equity: 

      Preferred stock, $.01 par value; 2,000 shares authorized; none issued 

- 

- 

      Common stock, $.01 par value; 45,000 shares authorized; shares issued and 

         outstanding: 32,543 at July 27, 2003 and 32,377 at April 27, 2003 

323 

322 

      Class B common stock, $.01 par value; 3,000 shares authorized; none issued

- 

- 

      Additional paid-in capital 

138,654 

137,542 

      Unearned compensation. 

(2,159) 

(1,498) 

      Retained earnings 

113,898 

100,346 

      Accumulated other comprehensive loss, net of income tax benefit of $1,948 and 

         $2,527, respectively 

(3,320)

(4,284) 

247,396 

232,428 

Treasury stock, 3,293 shares at July 27, 2003 and at April 27, 2003 

(28,524) 

(28,524) 

Total stockholders' equity

218,872 

203,904 

Total liabilities and stockholders' equity 

$

1,439,400 

$

1,408,204 

See notes to the consolidated financial statements.

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

Pari-mutuel commissions and fees

Food, beverage and other

Less promotional allowances

Food, beverage and other

Marine and facilities

Marketing and administrative

Depreciation and amortization

Total operating expenses

Interest expense, net

Income before income taxes

Net income per common share-basic

Net income per common share-diluted

Weighted average basic shares

Weighted average diluted shares

ISLE OF CAPRI CASINOS, INC. 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY 

(UNAUDITED) 

(In thousands) 

						Accumulated
						Other
	Shares of		Additional	Unearned		Compre-		Total
	Common	Common	Paid-in	Compen-	Retained	hensive	Treasury	Stockholders'
	Stock	Stock	Capital	sation	Earnings	Loss	Stock	Equity


Balance, April 27, 2003	32,377	$ 322	$ 137,542	$ (1,498)	$100,346	$ (4,284)	$(28,524)	$ 203,904
Net income	-	-	-	-	13,552	-	-	13,552
Unrealized gain on interest
rate swap contract	-	-	-	-	-	964	-	964

Comprehensive income, net of
income taxes of $1,948	-	-	-	-	-	-	-	14,516
Exercise of stock, net of
income tax benefit of $93	166	1	264	-	-	-	-	265
Grant of nonvested stock	-	-	848	(848)	-	-	-	-
Amortization of unearned
compensation	-	-	-	187	-	-	-	187

Balance, July 27, 2003	32,543	$ 323	$ 138,654	$ (2,159)	$113,898	$ (3,320)	$(28,524)	$ 218,872

ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

	Three Months Ended

		July 27,		July 28,
		2003		2002

Operating activities:
Net income	$	13,552	$	12,173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		21,617		17,984
Amortization of deferred financing costs		1,074		951
Amortization of unearned compensation		187		132
Minority interest		2,833		2,558
Changes in current assets and liabilities:
Accounts receivable		265		(34)
Prepaid expenses and other assets		(6,429)		1,041
Accounts payable and accrued liabilities		27,344		17,907

Net cash provided by operating activities		60,443		52,712

Investing activities:
Purchase of property and equipment		(29,424)		(7,127)
Proceeds from notes receivable		5,344		-
Net cash paid for acquisitions		(878)		-
Sale of short-term investments		1,991		-
Investments in and advances to joint ventures		-		(285)
Restricted cash		89		577
Other		408		(85)

Net cash used in investing activities		(22,470)		(6,920)

Financing activities:
Net reduction in line of credit		(5,915)		(43,290)
Principal payments on debt		(3,976)		(5,468)
Deferred financing costs		(68)		(494)
Proceeds from exercise of stock options		265		193
Cash distribution to minority partner		(404)		(1,187)

Net cash used in financing activities		(10,098)		(50,246)

Net increase (decrease) in cash and cash equivalents		27,875		(4,454)
Cash and cash equivalents at beginning of period		80,639		76,597

Cash and cash equivalents at end of period	$	108,514	$	72,143

Supplemental disclosure of cash flow information:
Net cash payments for:
Interest	$	6,726	$	5,593
Income taxes		522		4,167

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies 

Basis of Presentation 

Isle of Capri Casinos, Inc. (the "Company" or "Isle of Capri") was incorporated as a Delaware corporation on February 14, 1990. The Company, through its subsidiaries, is engaged in the business of developing, owning and operating branded gaming facilities and related lodging and entertainment facilities in growing markets in the United States. The Company wholly owns and operates eleven gaming facilities located in Bossier City and Lake Charles, Louisiana; Biloxi, Lula, Natchez and Vicksburg, Mississippi; Boonville and Kansas City, Missouri; and Bettendorf, Marquette and Davenport, Iowa. The Company also owns a 57% interest in and receives a management fee for operating two gaming facilities in Black Hawk, Colorado, and a gaming facility in Cripple Creek, Colorado. All but three of these 
gaming facilities operate under the name "Isle of Capri" and feature our distinctive tropical island theme. In addition, the Company wholly owns and operates a pari-mutuel harness racing facility in Pompano Beach, Florida. 

Fiscal Year-End 

The Company’s fiscal year ends on the last Sunday in April. This fiscal year creates more comparability of the Company’s quarterly operations, by generally having an equal number of weeks (13) and weekend days (26) in each quarter. Periodically, this system necessitates a 53-week year. Fiscal 2004 commenced on April 28, 2003, and ends on April 25, 2004. 

Interim Financial Information 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended July 27, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending April 25, 2004. For further information, refer to the con
solidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 27, 2003. 


	6

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
1. Summary of Significant Accounting Policies (continued) 

Stock-Based Compensation 
The Company has three stock-based employee compensation plans. The Company applies the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for those plans. No stock-based employee compensation expense is reflected in net income as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by Statement of Financial Accounting Standards No. 
148, "Accounting for Stock-Based Compensation-Transition and Disclosure"("SFAS 148"), to stock-based employee compensation. 

Three Months Ended 

        July 27, 2003 

       July 28, 2002 

(In thousands, except per share data) 

Net income, as reported

$

13,552 

$

12,173 

Deduct: Total stock-based employee 

      compensation expense determined under fair 

      value based method for all awards, net of 

      related tax effects

(711) 

(617) 

Pro forma net income

$

12,841 

$

11,556 

Earnings per common share: 

Basic - as reported

$

0.46 

$

0.42 

Basic - pro forma

$

0.44 

$

0.40 

Diluted - as reported

$

0.45 

$

0.40 

Diluted - pro forma

$

0.42 

$

0.38

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
1. Summary of Significant Accounting Policies (continued) 

Stock-Based Compensation (continued) 

The stock-based compensation included in the table above represents the after-tax amount of pro forma compensation related to stock option plans. Reported net income includes $117 and $83, net of tax, of amortization of restricted stock compensation for the three months ended July 27, 2003, and July 28, 2002, respectively. 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 

 
Risk-Free 

Original 

Expected 

Expected 

Fiscal Quarter 

Interest Rate 

Expected Life 

Volatility 

Dividends 

July 27, 2003 

2.97% 

6.14 years 

58.4% 

None 

July 28, 2002 

4.49% 

5.00 years 

70.0% 

None 

Recently Issued Accounting Standards 
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As the Company does not have financial instruments that will be required to be reclassified from equity to a liability, the adoption of SFAS 150 is not expected to have any impact on the Company’s consolidated financial statements. 

2. Acquisitions 

CCSC/Blackhawk, Inc. and Colorado Grande Enterprises, Inc. 

On April 22, 2003, the Isle of Capri-Black Hawk, L.L.C. (the "Isle-Black Hawk"), acquired CCSC/Blackhawk, Inc. (the "Colorado Central Station-Black Hawk"), which owns and operates the Colorado Central Station casino in Black Hawk, Colorado, and Colorado Grande Enterprises, Inc. (the "Colorado Grande-Cripple Creek"), which owns and operates the Colorado Grande casino in Cripple Creek, Colorado. The total purchase price was $75.6 million for CCSC/Blackhawk, Inc. and $10.2 million for Colorado Grande Enterprises, Inc.  As the Company owns 57% of the Isle-Black Hawk, as of April 22, 2003, the Company acquired a 57% indirect ownership interest in the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. 

During the quarter ended April 27, 2003, these acquisitions were accounted for as purchase business combinations with the purchase price preliminarily allocated to the fair values of the assets and liabilities acquired resulting in preliminary goodwill of $20.5 million and other intangible assets of $16.6 million for the value of certain trademarks acquired with the properties. The results of operations of CCSC/Blackhawk, Inc. and Colorado Grande Enterprises, Inc. are included in the consolidated statements of income since the acquisition date.

8

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
2. Acquisitions (continued) 

During the fiscal quarter ended July 27, 2003, the Company obtained third party valuations of certain assets, which resulted in adjustments to the fair value of these assets, including an increase in property and equipment of $2.8 million and a decrease in other intangible assets of $3.1 million. Goodwill related to these acquisitions increased by $1.4 million, primarily as a result of the change in these fair values and the payment of certain acquisition costs in fiscal 2004. 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition, as adjusted. The purchase price allocations have been completed on a preliminary basis, subject to adjustment should new or additional facts about the businesses become known. The Company expects to finalize the allocations during fiscal 2004.
 
Colorado 

CCSC/ 

Grande 

Blackhawk, Inc. 

Enterprises, Inc. 

Current assets 

$

5,457 

$

844 

Property and equipment, net

47,911 

1,951 

Goodwill 

14,948 

6,959 

Other intangible assets

12,200 

1,300 

Other

113 

- 

      Total assets acquired 

$

80,629 

$

11,054 

Current liabilities

4,992 

808 

      Net assets acquired

$

75,637 

$

10,246 

Consolidated pro forma revenue, net income, and earnings per share would not have been materially different from reported amounts for the fiscal quarter ended July 28, 2002. Such pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisitions had been effective at the beginning of fiscal 2003. 
 
9
 
ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
3. Long-Term Debt 
 
July 27, 

April 27, 

2003 

2003 

Long-term debt consists of the following: 

(In thousands)  

8.75% Senior Subordinated Notes (described below)

$

390,000 

$

390,000 

9.00% Senior Subordinated Notes (described below)

200,000 

200,000 

Senior Secured Credit Facility (described below): 

   Variable rate term loan 

246,875 

247,500 

   Revolver

- 

3,000 

Isle-Black Hawk Senior Secured Credit Facility, non-recourse to Isle of Capri 

   Casinos, Inc. (described below): 

   Variable rate term loan Tranche A 

25,422 

27,922 

   Variable rate term loan Tranche B

142,369 

142,732 

Special Assessment BID Bonds (described below)

816 

816 

Variable rate TIF Bonds due to City of Bettendorf (described below)

5,306 

5,306 

12.5% note payable, due in monthly installments of $125, including interest, 

   beginning October 1997 through October 2005

2,739 

3,022 

Other

4,570 

7,689 

1,018,097 

1,027,987 

Less current maturities

16,721 

24,757 

Long-term debt

$

1,001,376 

$

1,003,230

The following is a brief description of the Company’s borrowing arrangements. Certain of these arrangements contain financial covenants. The Company was in compliance with all covenants as of July 27, 2003 and April 27, 2003.

8.75% Senior Subordinated Notes

On April 23, 1999, the Company issued $390.0 million of 8.75% Senior Subordinated Notes due 2009 (the "8.75% Senior Subordinated Notes"). The 8.75% Senior Subordinated Notes are guaranteed by all of the Company’s significant subsidiaries, excluding the subsidiaries that own and operate the Isle-Black Hawk, the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. Interest on the 8.75% Senior Subordinated Notes is payable semi-annually on each April 15 and October 15 through maturity. The 8.75% Senior Subordinated Notes are redeemable, in whole or in part, at the Company’s option at any time on or after April 15, 2004, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest to the applicable redempt ion date, if redeemed during the 12-month period beginning on April 15 of the years indicated below:

Year	Percentage

2004	104.375%
2005	102.917%
2006	101.458%
2007 and thereafter	100.000%

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Long-Term Debt (continued)

9% Senior Subordinated Notes

On March 27, 2002, the Company issued $200.0 million of 9% Senior Subordinated Notes due 2012 (the "9% Senior Subordinated Notes"). The 9% Senior Subordinated Notes are guaranteed by all of the Company’s significant subsidiaries, excluding the subsidiaries that own and operate the Isle-Black Hawk, the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. The 9% Senior Subordinated Notes are general unsecured obligations and rank junior to all existing and future senior indebtedness, senior to any subordinated indebtedness and equally with all existing and future senior subordinated debt, inc luding the $390.0 million in aggregate principal amount of the existing 8.75% Senior Subordinated Notes. Interest on the 9% Senior Subordinated Notes is payable semi-annually on each March 15 and September 15 through maturity. The 9% Senior Subordinated Notes are redeemable, in whole or in part, at the Company’s option at any time on or after March 15, 2007, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest to the applicable redemption date, if redeemed during the 12-month period beginning on March 15 of the years indicated below:

Year	Percentage

2007	104.500%
2008	103.000%
2009	101.500%
2010 and thereafter	100.000%

Additionally, the Company may redeem a portion of the 9% Senior Subordinated Notes with the proceeds of specified equity offerings.

The Company issued the 9% Senior Subordinated Notes under an indenture between the Company, the subsidiary guarantors and a trustee. The indenture, among other things, limits the ability of the Company and its restricted subsidiaries to borrow money, make restricted payments, use assets as security in other transactions, enter into transactions with affiliates or pay dividends on or repurchase its stock or its restricted subsidiaries’ stock. The Company is also limited in its ability to issue and sell capital stock of its subsidiaries and in its ability to sell assets in excess of specified amounts or merge with or into other companies.

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Long-Term Debt (continued) 

Senior Secured Credit Facility 

The Senior Secured Credit Facility provides for a $250.0 million revolving credit facility maturing on April 25, 2007, and a $250.0 million term loan facility maturing on April 25, 2008. The Company is required to make quarterly principal payments on the $250.0 million term loan portion of the Senior Secured Credit Facility. Such payments were initially $0.6 million per quarter, which started in June 2002, and will increase to $59.4 million per quarter beginning in June 2007. At the Company’s option, the revolving credit facility may bear interest at (1) the higher of 0.05% in excess of the federal funds
 effective rate or the rate that the bank group announces from time to time as its prime lending rate plus an applicable margin of up to 1.75%, or (2) a rate tied to a LIBOR rate plus an applicable margin of up to 2.75%. The term loan may bear interest at the Company’s option at (1) the higher of 0.05% in excess of the federal funds effective rate or the rate that the bank group announces from time to time as its prime lending rate plus an applicable margin of up to 1.50% or (2) a rate tied to a LIBOR rate plus an applicable margin of up to 2.50%. 

The Senior Secured Credit Facility is secured by liens on substantially all of the Company’s assets and guaranteed by all of its significant restricted subsidiaries, excluding Casino America of Colorado, Inc., the Isle-Black Hawk, the Colorado Central Station-Black Hawk, the Colorado Grande-Cripple Creek and their subsidiaries. 

The weighted average effective interest rate of total debt outstanding under the Senior Secured Credit Facility at July 27, 2003 was 6.01%. 

Isle-Black Hawk Senior Secured Credit Facility 

The Isle-Black Hawk Senior Secured Credit Facility provides for a $40.0 million revolving credit facility maturing on November 16, 2005, a $27.9 million Tranche A term loan maturing on November 16, 2005, and a $142.8 million Tranche B term loan maturing on November 16, 2006. The proceeds from the $105.0 million increase of the Tranche B term loan were used to provide financing for the acquisitions of the CCSC/Blackhawk, Inc. casino in Black Hawk, Colorado and the Colorado Grande Enterprises, Inc. casino in Cripple Creek, Colorado. The Isle-Black Hawk is required to make quarterly principal payments on the term loan portions of the Isle-Black Hawk Senior Secured Credit Facility that commenced in June 2003. Such payments on the Tranche A term loan initially were $2.5 million per quart
er with scheduled increases to $3.0 million per quarter commencing March 2005 with a balloon payment of $1.4 million due upon maturity. Such payments on the Tranche B term loan initially were $0.4 million per quarter with a scheduled increase to $9.9 million per quarter commencing March 2006 with a balloon payment of $109.2 million due upon maturity. 


	12

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Long-Term Debt (continued) 

Isle-Black Hawk Senior Secured Credit Facility (continued) 

At the Isle-Black Hawk’s option, the revolving credit facility and the Tranche A term loan may bear interest at (1) the highest of 0.05% in excess of the federal funds effective rate or the rate that the bank group announces from time to time as its prime lending rate plus an applicable margin of up to 3.00%, or (2) a rate tied to a LIBOR rate plus an applicable margin of up to 4.00%. At the Isle-Black Hawk’s option, the Tranche B term loan may bear interest at (1) the higher of 0.05% in excess of the federal funds effective rate or the rate that the bank group announces from time to time as its prime lending rate plus an applicable margin of up to 3.00%, or (2) a rate tied to a LIBOR rate plus an applicable margin of up to 4.00%. 

The Isle-Black Hawk Senior Secured Credit Facility is secured by liens on the assets of the Isle-Black Hawk, the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. 

The weighted average effective interest rate of total debt outstanding under the Isle-Black Hawk Senior Secured Credit Facility at July 27, 2003 was 5.90% . 

Interest Rate Swaps 

The Company entered into three interest rate swap agreements in fiscal 2001, four interest rate swap agreements in fiscal 2002 and four interest rate swap agreements in the first fiscal quarter of 2004 that effectively convert portions of the floating rate term loans to a fixed rate, thus reducing the impact of interest-rate changes on future interest expense. In fiscal 2003, $50.0 million of interest rate swaps terminated. The notional value of the swaps, which were designated as cash flow hedges, was $230.0 million or 55.5% of the Isle of Capri’s variable rate term loans as of July 27, 2003. The interest rate swaps terminate as follows: $150.0 million in fiscal 2004, $40.0 million in fiscal 2005 and $40.0 million in fiscal 2006. 

The four interest rate swap agreements entered into in fiscal 2004 relate to the Isle-Black Hawk Senior Secured Credit Facility. The notional value of the swaps that were designated as cash flow hedges was $40.0 million or 23.8% of the Isle-Black Hawk’s variable rate term debt outstanding under the Isle-Black Hawk Senior Secured Credit Facility as of July 27, 2003. The new interest rate swaps terminate in 2005. When added to the interest swaps that are already outstanding, the total notional value of the swaps that have been designated as cash flow hedges is $80.0 million or 47.7% of the Isle-Black Hawk’s variable rate term debt outstanding under the Isle-Black Hawk Senior Secured Credit Facility. 

For the three months ended July 27, 2003, comprehensive income was $14.5 million compared to $10.6 million in comprehensive income for the three months ended July 28, 2002. At July 27, 2003, accumulated other comprehensive loss totaled $3.3 million for changes in the fair value of derivative instruments for cash flow hedges. The fair value of the estimated interest differential between the applicable future variable rates and the interest rate swap contracts, expressed in present value terms totals $5.3 million, of which $4.4 million is recorded in other accrued current liabilities and $0.9 million is recorded in other accrued long-term liabilities in the accompanying consolidated balance sheets. There was no effect on income related to hedge ineffectiveness. 


	13

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Long-Term Debt (continued) 

Interest Rate Swaps (continued) 

At July 27, 2003, the Company does not expect to reclassify any net gains (losses) on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months due to the payment of variable interest associated with the floating rate debt. 

Isle-Black Hawk Special Assessment BID Bonds 

In July 1998, the Black Hawk Business Improvement District (the "BID"), issued $2.9 million in 6.00% bonds due on December 1, 2009. The proceeds from the sale of the bonds were used to fund road and utility improvements in the Special Improvement District 1997-1 (the "SID"), of which the Isle-Black Hawk is a member. The total costs of the improvements amounted to $2.2 million with the excess proceeds being returned to the bondholders by the BID. Isle-Black Hawk is responsible for 50% of this amount plus interest, and in April 2000, made the first of twenty semi-annual payments of $0.1 million in the form of special property tax assessments levied on the improvement project. This amount is calculated by amortizing $1.1 million or 50% of the net bond proceeds, over twenty semi-annual&
nbsp;periods at an interest rate of 6.25%. The difference between the bond rate of 6.00% and the 6.25% assessed is to cover administrative costs of the BID related to the issuance. 

Bettendorf TIF Bonds 

As part of the City of Bettendorf Development Agreement dated June 17, 1997, the City of Bettendorf ("the City") issued $9.5 million in tax incremental financing bonds ("TIF Bonds"), $7.5 million of which was used by the Isle-Bettendorf to construct an overpass, parking garage, related site improvements and pay for disruption damages caused by construction of the overpass. To enable financing of the City’s obligations, the Isle-Bettendorf will pay incremental property taxes on the developed property assessed at a valuation of not less than $32.0 million until the TIF Bonds mature. Additionally, the TIF Bonds will also be repaid from the incremental taxes on the developed property within the defined "TIF District" which includes the Isle-Bettendorf and over 100 other tax paying 
entities. As the TIF District will repay the TIF Bonds, the Isle-Bettendorf may not be required to fully repay the $7.5 million. In the event that the taxes generated by the project and other qualifying developments in the redevelopment district do not fund the repayment of the total TIF Bonds prior to their scheduled maturity, the Isle-Bettendorf will pay the City $0.25 per person for each person entering the boat until the remaining balance has been repaid. 

Lines of Credit 

As of July 27, 2003, the Company had $294.0 million under its lines of credit of which all was available. 

4. Contingencies 

One of the Company’s subsidiaries has been named, along with numerous manufacturers, distributors and gaming operators, including many of the country’s largest gaming operators, in a consolidated class action lawsuit pending in Las Vegas, Nevada. These gaming industry defendants are alleged to have violated the Racketeer Influenced and Corrupt Organizations Act by engaging in a course of fraudulent and misleading conduct intended to induce people to play their gaming machines based upon a false belief concerning how those gaming machines actually operate and the extent to which there is actually an opportunity to win on any given play. The suit seeks unspecified compensatory and punitive damages. The district court recently denied the Motion for Class Certification, but this 
decision has been appealed. Therefore, the Company is still unable at this time to determine what effect, if any, the suit would have 

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Contingencies (continued)

on its consolidated financial position or results of operations. The gaming industry defendants are committed to continuing a vigorous defense of all claims asserted in this matter. 

In August 1997, a lawsuit was filed which seeks to nullify a contract to which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a percentage of revenue to various local governmental entities, including the City of Bossier and the Bossier Parish School Board, in lieu of payment of a per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat Gaming Partnership was granted on June 4, 1998. That judgment was not appealed and is now final. On June 11, 1998, a similar suit was filed and the lower court rendered judgment in the Company’s favor on September 16, 1999. The case was reversed on
 appeal and remanded to the lower court for further proceedings; however, on October 8, 2001, the trial court dismissed the case again, this time on the basis that the plaintiffs lack standing. The appellate court reversed. The plaintiffs have amended the petition and continue to pursue this matter. The Company intends to vigorously defend this suit, which is set for trial on April 6, 2004. In any event, the contracts that form the subject matter of the suit will expire in April 2004. In addition, a similar action was recently filed against the City of Bossier City, challenging the validity of its contracts with Louisiana Riverboat Gaming Partnership and other casinos. Exceptions have been filed requiring joinder of all interested parties, including Louisiana Riverboat Gaming Partnership. The Company believes the claims are without merit and intends to continue to vigorously defend this suit along with the other intere
sted parties. 

Lady Luck and several joint venture partners are defendants in a lawsuit brought by the country of Greece through its Minister of Tourism (now Development) and Finance. The action alleges that the defendants failed to make specified payments in connection with the gaming license bid process for Patras, Greece. The payment the Company is alleged to have been required to make aggregates approximately 6.5 million Euros (which was approximately $7.5 million as of July 27, 2003, based on published exchange rates). Although it is difficult to determine the damages being sought from the lawsuit, the action may seek damages up to that aggregate amount plus interest from the date of the action. The Athens Civil Court of First Instance granted judgment in the Company’s favor and dismissed the laws
uit, but the Ministry of Tourism has appealed the matter and the appeal was heard in April 2002. There has been no announcement as to whether there has been a decision on the appeal. Also, the Ministry of Tourism is proceeding with an appeal from a dismissal of its action by the Athens Administrative Court of First Instance. An appeal of this matter was heard on January 22, 2003, which has been rejected. A further appeal is possible. Accordingly, the outcome of this matter is still in doubt and cannot be predicted with any degree of certainty. The Company believes the claims against it to be without merit and intends to continue a vigorous and appropriate defense to the claims asserted in this matter. 

On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued an award that the Company was liable for $4.5 million in damages in connection with a lease of real estate located near Kimmswick, Jefferson County, Missouri. The Company filed a motion in the United States District Court for the Eastern District of Missouri seeking to vacate the arbitration award and established a reserve in the aggregate amount of $4.5 million. Subsequent to the quarter ended July 27, 2003, on August 22, 2003, the Company entered into a settlement agreement pursuant to which the Company settled the dispute and paid $4.5 million plus accrued interest of $0.3 million. 


	15

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Contingencies (continued) 

On December 30, 2002, the County of Jefferson, Missouri initiated a lawsuit in the Circuit Court of Jefferson County, Missouri, against the Company and a subsidiary, alleging a breach of a 1993 contract entered into by the County, that subsidiary and guaranteed by Lady Luck Gaming Corporation (now a wholly owned subsidiary of the Company) relating to the development of a casino site near Kimmswick, Missouri. The suit alleges damages in excess of $10.0 million. The case has now been moved to the state court. The outcome of this matter cannot be predicted with any degree of certainty. The Company believes the claims against it to be without merit and intends to vigorously and appropriately defend the claims asserted in this matter. 

The Company is engaged in various other litigation matters and has a number of unresolved claims. Although the ultimate liability of this litigation and these claims cannot be determined at this time, the Company believes that they will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. 

The Company is subject to certain federal, state and local environmental protection, health and safety laws, regulations and ordinances that apply to businesses generally, and is subject to cleanup requirements at certain of its facilities as a result thereof. The Company has not made, and does not anticipate making, material expenditures or incurring delays with respect to environmental remediation or protection. However, in part because the Company’s present and future development sites have, in some cases, been used as manufacturing facilities or other facilities that generate materials that are required to be remediated under environmental laws and regulations, there can be no guarantee that additional pre-existing conditions will not be discovered and that the Company will not exper
ience material liabilities or delays. 


	16

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Earnings per Share of Common Stock

The following table sets forth the computation of basic and diluted earnings per share: 

Three Months Ended 

July 27, 

July 28, 

2003 

2002 

(In thousands, except per share data)   
 
Numerator: 

Net income 

$

13,552 

$

12,173 

Numerator for basic earnings per share - income 

   available to common stockholders

$

13,552 

$

12,173 

Effect of diluted securities

- 

- 

Numerator for diluted earnings per share- 

   income available to common stockholders after 

      assumed conversions

$

13,552 

$

12,173 

Denominator: 

Denominator for basic earnings per share - 

    weighted - average shares

29,146 

28,739 

Effect of dilutive securities 

    Employee stock options and 

       nonvested restricted stock 

1,209 

1,983 

Denominator for diluted earnings per share - 

     adjusted weighted - average shares and 

        assumed conversions

30,355 

30,722 

Basic earnings per share

$

0.46 

$

0.42 

Diluted earnings per share

$

0.45 

$

0.40


	17

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Consolidating Condensed Financial Information

Certain of the Company’s subsidiaries have fully and unconditionally guaranteed the payment of all obligations under the Company’s $390.0 million 8.75% Senior Subordinated Notes due 2009, $200.0 million 9% Senior Subordinated Notes due 2012 and $500.0 million Senior Secured Credit Facility. The following tables present the consolidating condensed financial information of Isle of Capri Casinos, Inc., as the parent company, its guarantor subsidiaries and its non-guarantor subsidiaries for the three months ended July 27, 2003 and July 28, 2002 and balance sheet as of July 27, 2003 and April 27, 2003.

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATING CONDENSED GUARANTOR, NONGUARANTOR, AND PARENT COMPANY

FINANCIAL INFORMATION

AS OF JULY 27, 2003 (UNAUDITED) AND APRIL 27, 2003 AND FOR

THE THREE MONTHS ENDED JULY 27, 2003 AND JULY 28, 2002

(UNAUDITED)

(In thousands)

(b)

Isle of Capri

(a)

Non-Wholly

Casinos, Inc.

Wholly

Owned

Consolidating

Guarantor

Owned

Non-

and

Isle of Capri

(Parent

Guarantor

Guarantor

Eliminating

Casinos, Inc.

Obligor)

Subsidiaries

Subsidiaries

Entries

Consolidated

As of July 27, 2003

Balance Sheet

Current assets

$

28,290

$

98,068

$

36,756

$

(3,635)

$

159,479

Intercompany receivables

(169,958)

201,290

(31,332)

-

-

Investments in subsidiaries

263,743

284,368

172,592

(720,703)

-

Property and equipment, net

4,432

675,129

172,374

-

851,935

Other assets

970,716

369,772

139,423

(1,051,925)

427,986

Total assets

$

1,097,223

$

1,628,627

$

489,813

$

(1,776,263)

$

1,439,400

Current liabilities

$

37,599

$

94,980

$

42,821

$

(3,633)

$

171,767

Intercompany payables

14,900

936,813

100,212

(1,051,925)

-

Long-term debt,

less current maturities

834,375

6,223

160,778

-

1,001,376

Deferred state income taxes

-

7,557

118

-

7,675

Other accrued liabilities

(9,404)

53,375

(21,066)

-

22,905

Minority interest

-

-

-

16,805

16,805

Stockholders' equity

219,753

529,679

206,950

(737,510)

218,872

Total liabilities and stockholders' equity

$

1,097,223

$

1,628,627

$

489,813

$

(1,776,263)

$

1,439,400

18

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Consolidating Condensed Financial Information (Continued)

(b)

Isle of Capri

(a)

Non-Wholly

Casinos, Inc.

Wholly

Owned

Consolidating

Guarantor

Owned

Non-

and

Isle of Capri

(Parent

Guarantor

Guarantor

Eliminating

Casinos, Inc.

Obligor)

Subsidiaries

Subsidiaries

Entries

Consolidated

For the Three Months Ended July 27, 2003

Statement of Income

Revenues:

Casino

$

-

$

242,800

$

45,983

$

-

$

288,783

Rooms, food, beverage and other

1,122

46,000

7,113

-

54,235

Gross revenues

1,122

288,800

53,096

-

343,018

Less promotional allowances

-

46,504

10,763

-

57,267

Net revenues

1,122

242,296

42,333

-

285,751

Operating expenses:

Casino

-

42,681

6,757

-

49,438

Gaming taxes

-

53,494

8,725

-

62,219

Rooms, food, beverage and other

5,955

87,055

13,683

-

106,693

Management fee expense (revenue)

(8,362)

8,392

(30)

-

-

Depreciation and amortization

350

18,993

2,274

-

21,617

Total operating expenses

(2,057)

210,615

31,409

-

239,967

Operating income

3,179

31,681

10,924

-

45,784

Interest expense

(18,313)

(25,599)

(5,141)

27,870

(21,183)

Interest income

25,766

252

1,937

(27,870)

85

Minority interest

-

-

-

(2,833)

(2,833)

Equity in income of subsidiaries

11,052

1,471

558

(13,081)

-

Income before income taxes

21,684

7,805

8,278

(15,914)

21,853

Income taxes

8,132

-

169

-

8,301

Net income

$

13,552

$

7,805

$

8,109

$

(15,914)

$

13,552

19

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Consolidating Condensed Financial Information (Continued)

(b)

Isle of Capri

(a)

Non-Wholly

Casinos, Inc.

Wholly

Owned

Consolidating

Guarantor

Owned

Non-

and

Isle of Capri

(Parent

Guarantor

Guarantor

Eliminating

Casinos, Inc.

Obligor)

Subsidiaries

Subsidiaries

Entries

Consolidated

For the Three Months Ended July 27, 2003

Statement of Cash Flows

Net cash provided by (used in)

   operating activities

$

29,782

$

39,261

$

9,910

$

(18,510)

$

60,443

Net cash provided by (used in)

   investing activities

(11,533)

(26,875)

2,936

13,002

(22,470)

Net cash provided by (used in)

   financing activities

(3,360)

(3,265)

(4,009)

536

(10,098)

Net increase in cash and

   cash equivalents

14,889

9,121

8,837

(4,972)

27,875

Cash and cash equivalents at

    beginning of the period

7,313

53,268

15,508

4,550

80,639

Cash and cash equivalents at

   end of the period

$

22,202

$

62,389

$

24,345

$

(422)

$

108,514

20

ISLE OF CAPRI CASINOS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Consolidating Condensed Financial Information (Continued)

(b)

Isle of Capri

(a)

Non-Wholly

Casinos, Inc.

Wholly

Owned

Consolidating

Guarantor

Owned

Non-

and

Isle of Capri

(Parent

Guarantor

Guarantor

Eliminating

Casinos, Inc.

Obligor)

Subsidiaries

Subsidiaries

Entries

Consolidated

For the Three Months Ended July 28, 2002

Statement of Income

Revenues:

Casino

$

-

$

242,786

$

27,299

$

-

$

270,085

Rooms, food, beverage and other

12

52,090

5,333

-

57,435

Gross revenues

12

294,876

32,632

-

327,520

Less promotional allowances

-

45,205

5,652

-

50,857

Net revenues

12

249,671

26,980

-

276,663

Operating expenses:

Casino

-

45,994

3,992

-

49,986

Gaming taxes

-

53,298

5,351

-

58,649

Rooms, food, beverage and other

4,758

94,377

8,001

-

107,136

Management fee expense (revenue)

(9,003)

7,821

1,182

-

-

Depreciation and amortization

224

16,518

1,242

-

17,984

Total operating expenses

(4,021)

218,008

19,768

-

233,755

Operating income

4,033

31,663

7,212

-

42,908

Interest expense

(20,242)

(28,121)

(1,791)

29,049

(21,105)

Interest income

27,709

1,385

20

(29,049)

65

Minority interest

-

-

-

(2,558)

(2,558)

Equity in income of subsidiaries

7,810

4,414

(7)

(12,217)

-

Income before income taxes

19,310

9,341

5,434

(14,775)

19,310

Income taxes

7,137

-

-

-

7,137

Net income

$

12,173

$

9,341

$

5,434

$

(14,775)

$

12,173

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Consolidating Condensed Financial Information (Continued)
 
(b) 

Isle of Capri 

(a) 

Non-Wholly 

Casinos, Inc. 

Wholly 

Owned 

Consolidating 

Guarantor 

Owned 

Non- 

and 

Isle of Capri 

(Parent 

Guarantor 

Guarantor 

Eliminating 

Casinos, Inc. 

Obligor) 

Subsidiaries 

Subsidiaries 

Entries 

Consolidated 

For the Three Months Ended July 28, 2002 

Statement of Cash Flows 

Net cash provided by (used in) 

   operating activities 

$

49,058 

$

9,423 

$

5,234 

$ 

(11,003) 

$

52,712 

Net cash provided by (used in) 

   investing activities 

(6,957) 

(9,503) 

(1,104) 

10,644 

(6,920) 

Net cash provided by (used in) 

   financing activities 

(45,771) 

1,129 

(7,044) 

1,440 

(50,246) 

Net increase (decrease) in cash and 

   cash equivalents 

(3,670) 

1,049 

(2,914) 

1,081 

(4,454) 

Cash and cash equivalents at 

   beginning of the period 

2,690 

58,312 

11,045 

4,550 

76,597 

Cash and cash equivalents at 

   end of the period 

$ 

(980) 

$

59,361 

$

8,131 

$

5,631 

$

72,143

As of April 27, 2003

Intercompany receivables

Investments in subsidiaries

Property and equipment, net

Intercompany payables

less current maturities

Deferred state income taxes

Other accrued liabilities

Stockholders' equity

Total liabilities and stockholders' equity

ISLE OF CAPRI CASINOS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Consolidating Condensed Financial Information (Continued)
 
(a)     Certain of the Company’s wholly owned subsidiaries were guarantors on the 8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes and the Senior Secured Credit Facility including the following: the Isle-Biloxi, the Isle-Vicksburg, the Isle-Tunica, the Isle-Bossier City, the Isle-Lake Charles, PPI, Inc., IOC Holdings, L.L.C., Riverboat Services, Inc., the Isle-Natchez, the Isle-Lula, the Isle-Bettendorf, the Isle-Marquette, the Isle-Boonville, the Isle-Kansas City, the Lady Luck-Las Vegas and the Rhythm City-Davenport. Each of the subsidiaries guarantors is joint and several with the guarantees of the other subsidiaries. 

(b)     The following non-wholly owned subsidiaries were not guarantors on the 8.75% Senior Subordinated Notes, the 9% Senior Subordinated Notes nor the Senior Secured Credit Facility: Isle of Capri Black Hawk, L.L.C., Isle of Capri Black Hawk Capital Corp., IC Holdings Colorado, Inc., CCSC/Blackhawk, Inc., Colorado Grande Enterprises, Inc., Capri Air, Inc., Lady Luck Gaming Corp., Lady Luck Gulfport, Inc., Lady Luck Vicksburg, Inc., Lady Luck Biloxi, Inc., Lady Luck Central City, Inc., IOC-Coahoma, Inc., Pompano Park Holdings, L.L.C., Casino America of Colorado, Inc., ASMI Management, Inc. and IOC Development, L.L.C., Casino America, Inc., ICC Corp., International Marco Polo Services, Inc., IOC-St. Louis County, Inc., IOC, L.L.C., Isle of Capri Casino Col
orado, Inc., Isle of Capri of Michigan L.L.C., Lady Luck Bettendorf Marina Corp., Water Street Redevelopment Corporation, Casino Parking, Inc., IOC-Black Hawk Distribution Company, L.L.C., Isle of Capri of Jefferson County, Inc., Lady Luck Scott City, Inc., IOC Services, L.L.C. and Louisiana Horizons, L.L.C. 
 
7. Subsequent Event

On August 22, 2003, the Company paid a previously arbitrated award in connection with a lease of real estate located near Kimmswick, Jefferson County, Missouri. The payment was fully reserved on the Company’s consolidated balance sheet as of July 27, 2003. (See Note 4.)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion together with the financial statements, including the related notes and the other financial information in this Form 10-Q.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States that require our management to make estimates and assumptions about the effects of matters that are inherently uncertain. We have summarized our significant accounting policies in Note 1 to our consolidated financial statements included herewith in Item 1. Of our accounting policies, we believe the following may involve a higher degree of judgment and complexity:

At July 27, 2003, we had goodwill and other intangible assets of $400.0 million, representing 28% of total assets. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangibles," ("SFAS 142") requires that goodwill and other intangible assets be tested for impairment annually or if an event occurs or circumstances change that may reduce the fair value of the Company below its book value. Should circumstances change or events occur to indicate that the fair market value of the Company has fallen below its book value, management must then compare the estimated fair value of goodwill and other intangible assets to book value. If the book value exceeds the estimated fair value, an impairment loss would be recognized in an amount equal to that excess. S uch an impairment loss would be recognized as a non-cash component of operating income. We completed our annual impairment test as required under SFAS 142, in the fourth quarter of fiscal 2003 and determined that goodwill and other indefinite lived intangible assets were not impaired. This test required comparison of the estimated fair value of each property to book value, including goodwill and other intangible assets. The estimated fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions and represent our best estimates of the cash flows expected to result from the use of the assets and their eventual disposition. Changes in estimates or application of alternative assumptions and definitions could produce significantly different results.

Property and Equipment

At July 27, 2003, we had property and equipment of $852.0 million, representing 59% of total assets. We capitalize the cost of property and equipment. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Costs incurred in connection with the Company’s "all properties other capital improvements," program include individual capital expenditures related to the purchase of furniture and equipment and upgrade of hotel rooms, restaurants and other areas of our properties. We depreciate property and equipment on a straight-line basis over their estimated useful lives. The estimated useful lives are based on the nature of the assets as well as our current operating strategy. Fut ure events such as property expansions, new competition and new regulations could result in a change in the manner in which we are using certain assets requiring a change in the estimated useful lives of such assets. In assessing the recoverability of the carrying value of property and equipment, we make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record impairment loss for these assets. Such an impairment loss would be recognized as a non-cash component of operating income.

Self-Insurance Liabilities

We are self-funded up to a maximum amount per claim for our employee-related healthcare benefits program, workers’ compensation insurance and general liability insurance. Claims in excess of this maximum are fully insured through a stop-loss insurance policy. We accrue for these liabilities based on claims filed and estimates of claims incurred but not reported. We also rely on independent consultants to assist in the determination of estimated accruals. While the total cost of claims incurred depends on future developments, such as increases in healthcare costs, in our opinion, recorded reserves are adequate to cover payments on future claims.

Income Tax Assets and Liabilities

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires that we recognize a current tax asset or liability for the estimated taxes payable or refundable based upon application of the enacted tax rates to taxable income in the current year. Additionally, we are required to recognize a deferred tax liability or asset for the estimated future tax effects attributable to temporary differences. Temporary differences occur when differences arise between: (a) the amount of taxable income and pretax financial income for a year and (b) the tax bases of assets or liabilities and their reported amounts in financial statements. SFAS 109 also requires that any deferred tax asset recognized must be reduced by a valuation allowance for any tax benefits that, in our judgment and based upon available evidence, may not be realizable.

The deferred tax assets and liabilities, as well as the need for a valuation allowance, are evaluated on a quarterly basis and adjusted if necessary. We use forecasted future operating results and consider enacted tax laws and rates in determining if the valuation allowance is sufficient. We operate in multiple taxing jurisdictions and are therefore subject to varying tax laws and potential audits, which could impact our assessments and estimates.

We are involved in various legal proceedings and have identified certain loss contingencies. We record liabilities related to these contingencies when it is determined that a loss is probable and reasonably estimable. These assessments are based on our knowledge and experience as well as the advice of legal counsel regarding current and past events. Any such estimates are also subject to future events, court rulings, negotiations between the parties and other uncertainties. If an actual loss differs from our estimate, or the actual outcome of any of the legal proceedings differs from expectations, operating results could be impacted.

The Company routinely faces challenges from federal and other tax authorities regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. The Company records reserves for probable exposures associated with the various filing positions.

Slot Club Awards 

     We reward our slot customers for their loyalty based on the dollar amount of play on slot machines. We accrue for these slot club awards based on an estimate of the outstanding value of the awards utilizing the age and prior history of redemptions. Future events such as a change in our marketing strategy or new competition could result in a change in the value of the awards. 

General 

     Our results of operations for the three months ended July 27, 2003, reflect the consolidated operations of all of our subsidiaries and include the following properties: the Isle-Bossier City, the Isle-Lake Charles, the Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Vicksburg, the Isle-Kansas City, the Isle-Boonville, the Isle-Bettendorf, the Isle-Marquette, the Rhythm City-Davenport, the Isle-Black Hawk, the Colorado Central Station-Black Hawk, the Colorado Grande-Cripple Creek, the Lady Luck-Las Vegas, and Pompano Park. On October 30, 2002, we completed the sale of the Lady Luck-Las Vegas but will continue to operate the casino until the purchaser’s designated gaming operator receives regulatory approval. The Colorado Central Stati
on-Black Hawk and the Colorado Grande-Cripple Creek were acquired on April 22, 2003. 

     Our results of operations for the three months ended July 28, 2002, reflect the consolidated operations of all of our subsidiaries and include the following properties: the Isle-Bossier City, the Isle-Lake Charles, the Isle-Biloxi, the Isle-Lula, the Isle-Natchez, the Isle-Tunica, the Isle-Vicksburg, the Isle-Kansas City, the Isle-Boonville, the Isle-Bettendorf, the Isle-Marquette, the Rhythm City-Davenport, the Isle-Black Hawk, the Lady Luck-Las Vegas, and Pompano Park. 

     We believe that our historical results of operations may not be indicative of our future results of operations because of the substantial present and expected future increase in competition for gaming customers in each of our markets, as new gaming facilities open and existing gaming facilities expand or enhance their facilities. 

     We believe that our operating results are affected by the economy, seasonality and weather. Seasonality has historically caused the operating results for our first and fourth fiscal quarters ending in July and April, respectively, to be better than the operating results for the second and third fiscal quarters ending October and January, respectively. 

Results of Operations 

Three Fiscal Months Ended July 27, 2003 Compared to Three Fiscal Months Ended July 28, 2002 

     Gross revenue for the quarter ended July 27, 2003, was $343.0 million, which included $288.8 million of casino revenue, $11.9 million of rooms revenue, $4.7 million of pari-mutuel commissions and $37.7 million of food, beverage and other revenue. This compares to gross revenue for the quarter ended July 28, 2002, of $327.5 million, which included $270.1 million of casino revenue, $14.7 million of rooms revenue, $5.6 million of pari-mutuel commissions and $37.1 million of food, beverage and other revenue. 

     Casino revenue increased $18.7 million or 6.9% primarily as a result of the addition of the Colorado Central Station-Black Hawk, which added $14.7 million in casino revenue. Additionally, the Isle-Marquette, the Rhythm City-Davenport, and the Isle-Boonville each showed year-over-year increases in casino revenue of over 10%. These increases were partially offset by a $6.9 million decrease in casino revenue due to the sale of the Isle-Tunica in October 2002. Room revenue decreased $2.9 million or 19.5% primarily due to the sale of the hotel operation at the Lady Luck-Las Vegas and the sale of the 


	26

Isle-Tunica. Food and beverage revenue decreased by $0.4 million or 1.3% as a result of ceasing operations at the Isle-Tunica and the Lady Luck-Las Vegas. Other revenue increased by $1.0 million or 23.1% primarily due to proceeds from litigation settlement. 

Promotional allowances for the quarter ended July 27, 2003, were $57.3 million, which includes complimentary revenue of $30.4 million and redeemed coupons and slot club points of $26.9 million. This compares to promotional allowances for the quarter ended July 28, 2002, of $50.9 million, which includes complimentary revenue of $30.6 million and redeemed coupons and slot club points of $20.3 million. The $6.6 million increase in redeemed coupons and slot club points is due to the acquisition of the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek; a change in the slot club point structure at the Rhythm City-Davenport that occurred in the second fiscal quarter of 2003; an increase in rated play; and an offsetting decrease as a result of ceasing operations 
at the Isle-Tunica. 

     Casino operating expenses for the quarter ended July 27, 2003, totaled $49.4 million, or 17.1% of casino revenue, versus $50.0 million, or 18.5% of casino revenue, for the quarter ended July 28, 2002. These expenses are primarily comprised of salaries, wages and benefits and other operating expenses of the casinos. The decrease in casino operating expenses is attributable to the discontinuation of gaming operations at the Isle-Tunica. The decrease was offset by additional casino operating expenses related to the acquisition of the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. Room expenses of $2.6 million or 21.7% of room revenue from the hotels at the Isle-Lake Charles, the Isle-Bossier City, the Isle-Biloxi, the Is
le-Vicksburg, the Isle-Natchez, the Isle-Lula, the Isle-Bettendorf, the Isle-Marquette, the Isle-Black Hawk, the Colorado Central Station-Black Hawk, the Colorado Grande-Cripple Creek and the Rhythm City-Davenport compared to $3.7 million or 24.9% of room revenue for the quarter ended July 28, 2002. These expenses directly relate to the cost of providing hotel rooms. Other costs of the hotels are shared with the casinos and are presented in their respective expense categories. 

     For the quarter ended July 27, 2003, state and local gaming taxes were paid in Louisiana, Mississippi, Colorado, Iowa, Missouri and Nevada totaling $62.2 million, or 21.5% of casino revenue, compared to $58.6 million, or 21.7% of casino revenues for the three months ended July 28, 2002, which is consistent with each state’s gaming tax rate for the applicable fiscal quarters. 

     Food, beverage and other expenses totaled $8.6 million for the quarter ended July 27, 2003, compared to $9.3 million for the quarter ended July 28, 2002. Food, beverage and other operating expenses as a percentage of food, beverage and other revenues decreased to 22.8% for the quarter ended July 27, 2003 from 25.1% for the quarter ending July 28, 2002. These expenses consist primarily of the cost of goods sold, salaries, wages and benefits and other operating expenses of these departments. These expenses decreased as a result of ceasing operations at the Isle-Tunica and the Lady Luck-Las Vegas, offset by the acquisition of the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. 

     Marine and facilities expenses totaled $16.1 million for the quarter ended July 27, 2003, versus $18.3 million for the quarter ended July 28, 2002. These expenses include salaries, wages and benefits, operating expenses of the marine crews, insurance, public areas, housekeeping and general maintenance of the riverboats and pavilions. The 11.9% decrease in marine and facilities expenses resulted in part from the winding down of operations at the Isle-Tunica and the Lady Luck-Las Vegas. 

     Marketing and administrative expenses totaled $76.0 million, or 26.6% of net revenue, for the quarter ended July 27, 2003, versus $71.9 million, or 26.0% of net revenue, for the quarter ended July 28, 2002. Marketing expenses include salaries, wages and benefits of the marketing and sales departments, as well as promotions, advertising, special events and entertainment. Administrative expenses include administration and human resource department expenses, rent, new development activities, professional 

27

fees and property taxes. The 5.8% increase in marketing and administrative expenses for the current quarter versus the quarter ended July 28, 2002, is commensurate with the increase in gross revenues and the acquisition of the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. 

      Depreciation expense was $21.6 million for the quarter ended July 27, 2003, and $18.0 million for the quarter ended July 28, 2002. Depreciation expense increased by $3.6 million compared to the prior year quarter related to the acquisition of the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek and other fixed assets placed into service or acquired. 

     Interest expense was $21.2 million for the quarter ended July 27, 2003, as compared to interest expense of $21.1 million for the quarter ended July 28, 2002. Interest expense primarily relates to indebtedness incurred in connection with the acquisition of property, equipment, leasehold improvements and berthing and concession rights. Additionally, interest expense of $2.9 million related to the Isle-Black Hawk is included in interest expense in the quarter ended July 27, 2003. This compares to interest expense of $1.5 million for the quarter ended July 28, 2002. The increase relates to the increase in long-term debt to fund the acquisition of the Colorado Central Station-Black Hawk and the Colorado Grande-Cripple Creek. 

     Our effective tax rate was 37.5%, excluding an unrelated party’s portion of the Colorado Central Station-Black Hawk’s and the Colorado Grande-Cripple Creek’s income taxes, for the quarter ended July 27, 2003, compared to 37.0% for the quarter ended July 28, 2002. 


	28

Liquidity and Capital Resources 

     At July 27, 2003, we had cash and cash equivalents of $108.5 million compared to $80.6 million in cash and cash equivalents at April 27, 2003. The $27.9 million increase in cash is the net result of $60.5 million net cash provided by operating activities, $22.5 million net cash used in investing activities, and $10.1 million net cash used in financing activities. 

Cash Flow from Investing Activities 

     We invested $29.4 million in property and equipment during the three months ended July 27, 2003. The following table reflects expenditures for property and equipment on major projects: 

Actual 

Remainder of 

Fiscal Year 

Three Months 

Fiscal Year 

Ended 4/27/03 

Ended 07/27/03 

Ending 4/25/04 

(dollars in millions) 

Property 

Project 

Isle-Biloxi 

Construct hotel & parking facility

$ 6.0 

$ 5.5 

$ 20.2 

Isle-Bossier City 

Construct hotel & entertainment center

6.4 

8.5 

35.1 

Isle-Bossier City

Renovate casino 

- 

0.3 

1.7 

Isle-Marquette 

Construct hotel 

0.1 

- 

0.8 

Isle-Lake Charles 

Renovate & expand casino

- 

0.1 

12.0 

Isle-Kansas City 

Renovate & expand casino 

- 

0.1 

9.9 

Isle-Black Hawk (57% owned) 

Expansion 

1.4 

2.0 

6.4 

All

Slot program

24.1 

7.9 

24.5 

All 

Other capital improvements  

20.4 

5.0 

29.2 

Total 

$ 58.4 

$ 29.4 

$ 139.8 

     For the three months ended July 27, 2003, we spent $5.0 million on other capital improvements and $7.9 million on our slot program. The other capital improvements at all of our properties consists of numerous capital expenditures related to the purchase of furniture and equipment and upgrade of hotel rooms, restaurants and other areas of our properties. 

     In August 2002, we announced plans for a $135.0 million expansion at three of our casinos of which $14.3 million was spent during the three months ended July 27, 2003. The plan will include upgraded and additional amenities at the Isle-Biloxi, the Isle-Bossier City and the Isle-Marquette. This plan, which will utilize cash flow from operations, reinforces our commitment to develop our portfolio of properties to feature a more resort-oriented product. 

     The Isle-Biloxi plan, estimated at $79.0 million, will include an additional 400 hotel rooms, an Isle-branded Kitt’s Kitchen restaurant, a 12,000 square-foot multi-purpose center, an expanded pool and spa area and a 1,000-space parking facility. The parking garage will provide a podium for future expansion for an additional hotel tower. Construction began in January 2003 with a projected construction period of approximately 24 months. 

     The Isle-Bossier City plan, estimated at $50.0 million, features a hotel tower, with 265 rooms, a Kitt’s Kitchen restaurant, a new pool and deck, and a 12,000 square-foot convention/entertainment center. Construction began in October 2002 and will span about 18 months. 
 
29
 
     The Isle-Marquette property phase of the plan will include $6.0 million in improvements including a 60-room Inn-at-the-Isle and improved parking. The construction will commence once we have received local and regulatory permits and will last approximately 16 months. 

     The Isle-Black Hawk plans to invest approximately $75.0 million, of which $6.4 million will be spent in fiscal 2004, to significantly increase covered parking for both properties in Black Hawk, add additional casino space, hotel rooms and restaurants, and connect the properties by means of a skywalk that can service both the Isle-Black Hawk and the Colorado Central Station-Black Hawk. It is expected that approximately $22.0 million of special improvement bonds will be issued by a business improvement district of the City of Black Hawk to fund public improvements which include extending Main Street to connect directly to Colorado Route 119, approximately one half mile closer to Denver. These bonds will be paid from increased property taxes on each of the casi
nos benefiting from the improvements. This expansion has been delayed until after the outcome of a proposed statewide referendum on VLTs at racetracks in Colorado in November 2003. 

     On October 30, 2002, we completed the sale of the Lady Luck-Las Vegas and received a cash payment of $4.4 million and notes receivable of $6.8 million, which were paid in full in May 2003. A subsidiary of the Company will continue to operate the casino pending the receipt of regulatory approval by the purchaser’s designated gaming operator. As a result, the results of operations for fiscal 2004 include the gaming operations of the Lady Luck-Las Vegas. The proceeds from the sale approximated the carrying value of the assets. We have p
resented the sale of the Lady Luck-Las Vegas in accordance with SFAS 121 as the Company’s commitment to a plan of sale was initiated prior to the effective date of SFAS 144. 

     We are continuing to evaluate and pursue development and acquisition opportunities in a number of jurisdictions both domestically and abroad. All of our  plans are subject to obtaining permits, licenses and approvals from appropriate regulatory and other agencies and, in certain circumstances, negotiating and executing definitive agreements and acceptable leases. In addition, many of the plans are preliminary, subject to continuing refinement or otherwise subject to change. 

Cash Flow from Financing Activities 

Contractual Obligations and Commercial Commitments 

     There have been no material changes in contractual obligations and commercial commitments from what we reported in our Form 10-K for the year ended April 27, 2003. 

     During the three months ended July 27, 2003, we used net cash of $10.1 million primarily in the following financing activities: 

We made net reductions to our Revolving Credit Facilities and lines of credit of $5.9 million. 
We made principal payments on our Senior Secured Credit Facility and other debt of $4.0 million. 
     On April 26, 2002, we entered into a Senior Secured Credit Facility, which refinanced our prior facility. This Senior Secured Credit Facility consists of a $250.0 million revolving credit facility maturing on April 25, 2007, and a $250.0 million term loan facility maturing on April 25, 2008. We are required to make quarterly principal payments on the $250.0 million term loan portion of our Senior Secured Credit Facility. Such payments were initially $0.6 million per quarter, which started in June 2002 and will increase to $59.4 million per quarter beginning in June 2007. In addition, we are required to make substantial quarterly interest payments on the outstanding balance of our Senior Secured Credit Facility. The proceeds were used to refinance $336.8 mi
llion of the prior facility. 
 
30
 
     Our Senior Secured Credit Facility, among other things, limits our ability to borrow money, make capital expenditures, use assets as security in other transactions, make restricted payments or restricted investments, incur contingent obligations, sell assets and enter into leases and transactions with affiliates. In addition, our credit facility requires us to meet certain financial ratios and tests, including: a minimum consolidated net worth test, a maximum consolidated total leverage test, a maximum consolidated senior leverage test, and a minimum consolidated fixed charge coverage test. 

     We expect that available cash and cash from future operations, as well as borrowings under our Senior Secured Credit Facility and lines of credit will be sufficient to fund future expansion and planned capital expenditures, service senior debt, and meet working capital requirements. As of July 27, 2003, we had $250.0 million of unused credit capacity with the revolving loan commitment on our Senior Secured Credit Facility, $40.0 million of unused credit capacity with the Isle-Black Hawk’s Senior Secured Credit Facility and $4.0 million of available credit from other lines of credit. The revolving loan commitment is a variable rate instrument based on, at our option, LIBOR or our lender’s prime rate plus the applicable interest rate spread, and is effe
ctive through April 2007. Our lines of credit are also at variable rates based on our lender’s prime rate and are subject to annual renewal. There is no assurance that these sources will in fact provide adequate funding for the expenditures described above or that planned capital investments will be sufficient to allow us to remain competitive in our existing markets. 

     We are in compliance with all covenants contained in our senior and subordinated debt instruments as of July 27, 2003. If we do not maintain compliance with these covenants, the lenders under the Senior Secured Credit Facility have the option (in some cases, after the expiration of contractual grace periods), but not the obligation, to demand immediate repayment of all or any portion of the obligations outstanding under the Senior Secured Credit Facility. Any significant deterioration of earnings could affect certain of our covenants. Adverse changes in our credit rating or stock price would not impact our borrowing costs or covenant compliance under existing debt instruments. Future events, such as a significant increase in interest rates can be expected to in
crease our costs of borrowing under our Senior Secured Credit Facility. The indentures governing our 8.75% notes and our 9.0% notes limit, among other things, our ability to borrow money, create liens, make restricted payments and sell assets. 

     We are highly leveraged and may be unable to obtain additional debt or equity financing on acceptable terms. As a result, limitations on our capital resources could delay or cause us to abandon certain plans for capital improvements at our existing properties and development of new properties. We will continue to evaluate our planned capital expenditures at each of our existing locations in light of the operating performance of the facilities at such locations. 

Recently Issued Accounting Standards 
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. As we do not have financial instruments that will be required to be reclassified from equity to a liability, the adoption of SFAS 150 is not expected to have any impact on our consolidated financial statements. 

31
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

     Market risk is the risk of loss arising from adverse changes in market rates and prices, including interest rates, foreign currency exchange rates, commodity prices and equity prices. Our primary exposure to market risk is interest rate risk associated with our Senior Secured Credit Facility and the Isle-Black Hawk Senior Secured Credit Facility. 
 
Senior Secured Credit Facility 
     We entered into three interest rate swap agreements in the fourth quarter of fiscal 2001 and one interest rate swap agreement in the first quarter of fiscal 2002 that effectively convert portions of our variable rate debt to a fixed-rate basis for the next year, thus reducing the impact of interest rate changes on future interest expense. The notional value of the swaps that were designated as cash flow hedges was $150.0 million or 60.6% of our variable rate term debt outstanding under our Senior Secured Credit Facility as of July 27, 2003. We evaluate the effectiveness of these hedged transactions on a quarterly basis. We terminated $50.0 million of interest rate swaps in fiscal 2003. The remaining $150.0 million in interest rate swaps terminate in 2004. We fo
und no portion of the hedging instruments to be ineffective during the fiscal quarter ended July 27, 2003. Accordingly, no gains or losses have been recognized on these cash flow hedges. 
 
Isle-Black Hawk Senior Secured Credit Facility 
     The Isle-Black Hawk entered into three interest rate swap agreements in the fourth quarter of fiscal 2002 that effectively convert portions of their variable rate debt to a fixed-rate basis for the next two years, thus reducing the impact of interest rate changes on future interest expense. The notional value of the swaps that were designated as cash flow hedges was $40.0 million or 23.4% of their variable rate term debt outstanding under the Isle-Black Hawk Senior Secured Credit Facility as of July 27, 2003. The interest rate swaps terminate in 2005. We evaluate the effectiveness of these hedged transactions on a quarterly basis. We found no portion of the hedging instruments to be ineffective during the fiscal quarter ended July 27, 2003. Accordingly, no gain
s or losses have been recognized on these cash flow hedges. 

 The following table provides information at April 27, 2003, about our financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows (in millions) and related weighted average interest rates by expected maturity dates.
 
Interest Rate Sensitivity 

Principal (Notional) Amount by Expected Maturity 

Average Interest (Swap) Rate 

Fiscal year 

Fair Value 

(dollars in millions) 

2004 

2005 

2006 

2007 

2008 

Thereafter 

Total 

4/27/2003 

Liabilities 

Long-term debt, including current portion 

   Fixed rate

$ 2.8 

$ 2.5 

$ 1.5 

$ 0.9 

$ 1.0 

$ 595.2 

$ 603.9 

$ 633.8 

   Average interest rate

8.8% 

8.8% 

8.8% 

8.8% 

8.8% 

8.9% 

   Variable rate 

$ 22.0 

$ 14.5 

$ 20.6 

$ 129.6 

$ 237.5 

$ - 

$ 424.1 

$ 424.1 

   Average interest rate (1) 

4.3% 

4.7% 

5.5% 

6.3% 

6.5% 

- 

Interest Rate Derivative Financial Instruments Related to Debt 

Interest rate swaps 

   Pay fixed/receive variable 

$ 150.0 

$ 40.0 

$ - 

$ - 

$ - 

$ - 

$ 190.0 

$ (5.9) 

   Average pay rate 

4.8% 

4.2% 

- 

- 

- 

- 

   Average receive rate 

1.2% 

1.6% 

- 

- 

- 

- 

(1) Represents the annual average LIBOR from the forward yield curve at April 27, 2003, plus the weighted average margin above LIBOR on all consolidated variable rate debt.
 
32
 
In addition to the foregoing, the Isle-Black Hawk entered into four interest rate swap agreements during the first fiscal quarter ended July 27, 2003. The swaps effectively convert portions of its variable rate debt to a fixed-rate basis for the next two years, thus reducing the impact of interest rate changes on future interest expense. The notional value of the swaps that were designated as cash flow hedges was $40.0 million or 23.8% of its variable rate term debt outstanding under the Isle-Black Hawk Senior Secured Credit Facility as of July 27, 2003. The new interest rate swaps terminate in 2005. When added to the interest rate swaps that were already outstanding, the total notional value of the swaps that have been designated as cash flow hedges is $80.0 million or 47.7% of it
s variable rate term debt outstanding under the Isle-Black Hawk Senior Secured Credit Facility as of July 27, 2003. We evaluate the effectiveness of these hedged transactions on a quarterly basis. We found no portion of the hedging instruments to be ineffective during the first fiscal quarter ended July 27, 2003. Accordingly, no gains or losses have been recognized on these cash flow hedges. As of July 25, 2003, the last business day of the fiscal quarter ended July 27, 2003, the three-month LIBOR rate, the variable interest rate, was 1.1%. The interest rate swaps effectively converted $10.0 million notional value to 1.39% fixed rate, $10.0 million notional value to 1.45% fixed rate, $10.0 million notional value to 1.40% fixed rate and $10.0 million notional value to 1.65% fixed rate. Each of the rates is before the addition of the applicable spread currently 4.00%. With the addition of the applicable spread, the total interest rate for the debt related to each of the $10.0 million notional value interest ra
te swaps is 4.39%, 4.45%, 4.40% and 4.65%, respectively. 

33
 
ITEM 4. CONTROLS AND PROCEDURES 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in
 evaluating the cost-benefit relationship of possible controls and procedures. 

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. 
 
CHANGES IN INTERNAL CONTROLS 

There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore no corrective actions were taken. 

34
 
PART II - OTHER INFORMATION 

ITEM 1. LEGAL PROCEEDINGS. 

     One of our subsidiaries has been named, along with numerous manufacturers, distributors and gaming operators, including many of the country’s largest gaming operators, in a consolidated class action lawsuit pending in Las Vegas, Nevada. These gaming industry defendants are alleged to have violated the Racketeer Influenced and Corrupt Organizations Act by engaging in a course of fraudulent and misleading conduct intended to induce people to play their gaming machines based upon a false belief concerning how those gaming machines actually operate and the extent to which there is actually an opportunity to win on any given play. The suit seeks unspecified compensatory and punitive damages. This district court recently denied the Motion for Class Certificat
ion, but this decision has been appealed. Therefore, we are still unable at this time to determine what effect, if any, the suit would have on our consolidated financial position or results of operations. The gaming industry defendants are committed to continuing a vigorous defense of all claims asserted in this matter. 

     In August 1997, a lawsuit was filed which seeks to nullify a contract to which Louisiana Riverboat Gaming Partnership is a party. Pursuant to the contract, Louisiana Riverboat Gaming Partnership pays a fixed amount plus a percentage of revenue to various local governmental entities, including the City of Bossier and the Bossier Parish School Board, in lieu of payment of a per-passenger boarding fee. Summary judgment in favor of Louisiana Riverboat Gaming Partnership was granted on June 4, 1998. That judgment was not appealed and is now final. On June 11, 1998, a similar suit was filed and the lower court rendered judgment in our favor on September 16, 1999. The case was reversed on appeal and remanded to the lower court for further proceedings; however, on O
ctober 8, 2001, the trial court dismissed the case again, this time on the basis that the plaintiffs lack standing. The appellate court reversed. The plaintiffs have amended the petition and continue to pursue this matter. We intend to vigorously defend this suit, which is set for trial April 6, 2004. In any event, the contracts that form the subject matter of the suit will expire in April 2004. In addition, a similar action was recently filed against the City of Bossier City, challenging the validity of its contracts with Louisiana Riverboat Gaming Partnership and other casinos. Exceptions have been filed requiring joinder of all interested parties, including Louisiana Riverboat Gaming Partnership. We believe the claims are without merit and we intend to continue to vigorously defend this suit along with the other interested parties. 

     Lady Luck and several joint venture partners are defendants in a lawsuit brought by the country of Greece through its Minister of Tourism (now Development) and Finance. The action alleges that the defendants failed to make specified payments in connection with the gaming license bid process for Patras, Greece. The payment we are alleged to have been required to make aggregates approximately 6.5 million Euros (which was approximately $7.5 million as of July 27, 2003, based on published exchange rates). Although it is difficult to determine the damages being sought from the lawsuit, the action may seek damages up to that aggregate amount plus interest from the date of the action. The Athens Civil Court of First Instance granted judgment in our favor and dismis
sed the lawsuit, but the Ministry of Tourism has appealed the matter and the appeal was heard in April 2002. There has been no announcement as to whether there has been a decision on the appeal. Also, the Ministry of Tourism is proceeding with an appeal from a dismissal of its action by the Athens Administrative Court of First Instance. An appeal of this matter was heard on January 22, 2003, which has been rejected. A further appeal is possible. Accordingly, the outcome of this matter is still in doubt and cannot be predicted with any degree of certainty. We believe the claims against us to be without merit and we intend to continue a vigorous and appropriate defense to the claims asserted in this matter. 

35
 
On December 6, 2002, a panel of arbitrators in St. Louis, Missouri issued an award that we were liable for $4.5 million in damages in connection with a lease of real estate located near Kimmswick, Jefferson County, Missouri. We filed a motion in the United States District Court for the Eastern District of Missouri seeking to vacate the arbitration award and established a reserve in the aggregate amount of $4.5 million. Subsequent to the quarter ended July 27, 2003, on August 22, 2003, we entered into a settlement agreement pursuant to which we settled the dispute and paid $4.5 million plus accrued interest of $0.3 million. 

     On December 30, 2002, the County of Jefferson, Missouri initiated a lawsuit in the Circuit Court of Jefferson County, Missouri, against us and a subsidiary, alleging a breach of a 1993 contract entered into by the County, that subsidiary, and guaranteed by Lady Luck Gaming Corporation (now our wholly owned subsidiary) relating to the development of a casino site near Kimmswick, Missouri. The suit alleges damages in excess of $10.0 million. The case has been moved to the state court. The outcome of this matter cannot be predicted with any degree of certainty. We believe the claims against us to be without merit and we intend to vigorously and appropriately defend the claims asserted in this matter. 

     We are engaged in various other litigation matters and have a number of unresolved claims. Although the ultimate liability of this litigation and these claims cannot be determined at this time, we believe that they will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.    

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS. 

None. 

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES. 

None. 

ITEM 4.     SUBMISSION OF MATTERS SUBJECT TO A VOTE OF SECURITY HOLDERS. 
                              
                              None. 

ITEM 5.      OTHER INFORMATION. 

None. 

36
 
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K. 

(a) 

Documents Filed as Part of this Report . 

1. 

Exhibits . 

31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
 
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
 
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
 
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

2. 

Reports on Form 8-K. 

During the quarter ended July 27, 2003, the Company filed the following reports on Form 8-K: 

Current Report on Form 8-K filed on June 19, 2003, regarding Item 9 pursuant to Item 12 announcing the financial results of the fourth fiscal quarter and fiscal year ended April 27, 2003. 

37
 
SIGNATURE 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

              ISLE OF CAPRI CASINOS, INC. 

Dated: August 29, 2003             /s/ Rexford A. Yeisley 
             Rexford A. Yeisley, Chief Financial Officer 
            (Principal Financial and Accounting Officer) 

38
 
INDEX TO EXHIBITS 

EXHIBIT NUMBER 
 DESCRIPTION

31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

31.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

32.1 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

32.2 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

39

ISLE OF CAPRI CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

		July 27,		April 27,
		2003		2003

ASSETS		(Unaudited)

Current assets:
Cash and cash equivalents	$	108,514	$	80,639
Short-term investments		11,996		13,987
Accounts receivable		7,521		7,786
Notes receivable		314		5,658
Income tax receivable		-		2,260
Deferred income taxes		6,953		7,433
Prepaid expenses and other assets		24,181		17,982

Total current assets		159,479		135,745
Property and equipment, net		851,935		841,332
Other assets:
Goodwill		327,758		326,309
Other intangible assets		72,244		75,344
Deferred financing costs, net of accumulated amortization of $12,574
and $11,500, respectively		21,956		22,962
Restricted cash		2,556		2,551
Other		3,472		3,961

Total assets	$	1,439,400	$	1,408,204

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	16,721	$	24,757
Accounts payable trade		16,778		18,630
Accrued liabilities:
Interest		20,731		7,132
Payroll and related		45,775		45,578
Property and other taxes		20,989		17,852
Income taxes		5,807		-
Progressive jackpots and slot club awards		16,149		15,583
Other		28,817		26,639

Total current liabilities		171,767		156,171
Long-term debt, less current maturities		1,001,376		1,003,230
Deferred income taxes		9,799		9,700
Deferred state income taxes		7,675		7,675
Other accrued liabilities		13,106		13,347
Minority interest		16,805		14,177
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized; none issued		-		-
Common stock, $.01 par value; 45,000 shares authorized; shares issued and
outstanding: 32,543 at July 27, 2003 and 32,377 at April 27, 2003		323		322
Class B common stock, $.01 par value; 3,000 shares authorized; none issued		-		-
Additional paid-in capital		138,654		137,542
Unearned compensation.		(2,159)		(1,498)
Retained earnings		113,898		100,346
Accumulated other comprehensive loss, net of income tax benefit of $1,948 and
$2,527, respectively		(3,320)		(4,284)

		247,396		232,428
Treasury stock, 3,293 shares at July 27, 2003 and at April 27, 2003		(28,524)		(28,524)

Total stockholders' equity		218,872		203,904

Total liabilities and stockholders' equity	$	1,439,400	$	1,408,204

See notes to the consolidated financial statements.

	Three Months Ended
	July 27, 2003		July 28, 2002

	(In thousands, except per share data)


Net income, as reported	$	13,552	$	12,173
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects		(711)		(617)


Pro forma net income	$	12,841	$	11,556


Earnings per common share:
Basic - as reported	$	0.46	$	0.42

Basic - pro forma	$	0.44	$	0.40



Diluted - as reported	$	0.45	$	0.40

Diluted - pro forma	$	0.42	$	0.38

	Risk-Free	Original	Expected	Expected
Fiscal Quarter	Interest Rate	Expected Life	Volatility	Dividends


July 27, 2003	2.97%	6.14 years	58.4%	None
July 28, 2002	4.49%	5.00 years	70.0%	None

			Colorado
	CCSC/		Grande
	Blackhawk, Inc.		Enterprises, Inc.

Current assets	$	5,457	$	844
Property and equipment, net		47,911		1,951
Goodwill		14,948		6,959
Other intangible assets		12,200		1,300
Other		113		-

Total assets acquired	$	80,629	$	11,054

Current liabilities		4,992		808

Net assets acquired	$	75,637	$	10,246

					(b)
	Isle of Capri		(a)		Non-Wholly
	Casinos, Inc.		Wholly		Owned		Consolidating
	Guarantor		Owned		Non-		and		Isle of Capri
	(Parent		Guarantor		Guarantor		Eliminating		Casinos, Inc.
	Obligor)		Subsidiaries		Subsidiaries		Entries		Consolidated
	As of July 27, 2003
Balance Sheet
Current assets	$	28,290	$	98,068	$	36,756	$	(3,635)	$	159,479
Intercompany receivables		(169,958)		201,290		(31,332)		-		-
Investments in subsidiaries		263,743		284,368		172,592		(720,703)		-
Property and equipment, net		4,432		675,129		172,374		-		851,935
Other assets		970,716		369,772		139,423		(1,051,925)		427,986

Total assets	$	1,097,223	$	1,628,627	$	489,813	$	(1,776,263)	$	1,439,400


Current liabilities	$	37,599	$	94,980	$	42,821	$	(3,633)	$	171,767
Intercompany payables		14,900		936,813		100,212		(1,051,925)		-
Long-term debt,
less current maturities		834,375		6,223		160,778		-		1,001,376
Deferred state income taxes		-		7,557		118		-		7,675
Other accrued liabilities		(9,404)		53,375		(21,066)		-		22,905
Minority interest		-		-		-		16,805		16,805
Stockholders' equity		219,753		529,679		206,950		(737,510)		218,872

Total liabilities and stockholders' equity	$	1,097,223	$	1,628,627	$	489,813	$	(1,776,263)	$	1,439,400

		Actual		Remainder of

		Fiscal Year	Three Months	Fiscal Year
		Ended 4/27/03	Ended 07/27/03	Ending 4/25/04

		(dollars in millions)
Property	Project

Isle-Biloxi	Construct hotel & parking facility	$ 6.0	$ 5.5	$ 20.2
Isle-Bossier City	Construct hotel & entertainment center	6.4	8.5	35.1
Isle-Bossier City	Renovate casino	-	0.3	1.7
Isle-Marquette	Construct hotel	0.1	-	0.8
Isle-Lake Charles	Renovate & expand casino	-	0.1	12.0
Isle-Kansas City	Renovate & expand casino	-	0.1	9.9
Isle-Black Hawk (57% owned)	Expansion	1.4	2.0	6.4
All	Slot program	24.1	7.9	24.5
All	Other capital improvements	20.4	5.0	29.2

Total		$ 58.4	$ 29.4	$ 139.8

Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate

Fiscal year								Fair Value
(dollars in millions)	2004	2005	2006	2007	2008	Thereafter	Total	4/27/2003

Liabilities
Long-term debt, including current portion
Fixed rate	$ 2.8	$ 2.5	$ 1.5	$ 0.9	$ 1.0	$ 595.2	$ 603.9	$ 633.8
Average interest rate	8.8%	8.8%	8.8%	8.8%	8.8%	8.9%

Variable rate	$ 22.0	$ 14.5	$ 20.6	$ 129.6	$ 237.5	$ -	$ 424.1	$ 424.1
Average interest rate (1)	4.3%	4.7%	5.5%	6.3%	6.5%	-

Interest Rate Derivative Financial Instruments Related to Debt
Interest rate swaps
Pay fixed/receive variable	$ 150.0	$ 40.0	$ -	$ -	$ -	$ -	$ 190.0	$ (5.9)
Average pay rate	4.8%	4.2%	-	-	-	-
Average receive rate	1.2%	1.6%	-	-	-	-

(a)		Documents Filed as Part of this Report .

	1.	Exhibits .

		31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	2.	Reports on Form 8-K.

		During the quarter ended July 27, 2003, the Company filed the following reports on Form 8-K:

		Current Report on Form 8-K filed on June 19, 2003, regarding Item 9 pursuant to Item 12 announcing the financial results of the fourth fiscal quarter and fiscal year ended April 27, 2003.

EXHIBIT NUMBER	DESCRIPTION

31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.