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EX-31.2 - EX-31.2 - ISLE OF CAPRI CASINOS INCa15-3244_1ex31d2.htm
EX-32.2 - EX-32.2 - ISLE OF CAPRI CASINOS INCa15-3244_1ex32d2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

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

 

For the quarterly period ended January 25, 2015

 

OR

 

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 of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

600 Emerson Road, Suite 300, Saint Louis, Missouri

 

63141

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (314) 813-9200

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

 

As of February 24, 2015, the Company had a total of 40,027,800 shares of Common Stock outstanding (which excludes 2,038,348 shares held by us in treasury).

 

 

 



 

PART I—FINANCIAL INFORMATION

ITEM 1.                         FINANCIAL STATEMENTS

 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

January 25,

 

April 27,

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

67,140

 

$

69,830

 

Marketable securities

 

27,999

 

27,289

 

Accounts receivable, net

 

11,824

 

12,615

 

Income taxes receivable

 

184

 

73

 

Deferred income taxes

 

3,898

 

4,106

 

Prepaid expenses and other assets

 

21,770

 

18,526

 

Total current assets

 

132,815

 

132,439

 

Property and equipment, net

 

927,692

 

955,604

 

Other assets:

 

 

 

 

 

Goodwill

 

108,970

 

108,970

 

Other intangible assets, net

 

54,282

 

54,911

 

Deferred financing costs, net

 

20,080

 

23,439

 

Restricted cash and investments

 

9,173

 

9,807

 

Prepaid deposits and other

 

4,816

 

4,904

 

Total assets

 

$

1,257,828

 

$

1,290,074

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

200

 

$

230

 

Accounts payable

 

21,126

 

20,869

 

Accrued liabilities:

 

 

 

 

 

Payroll and related

 

36,051

 

34,700

 

Property and other taxes

 

20,107

 

20,360

 

Interest

 

19,631

 

16,920

 

Progressive jackpots and slot club awards

 

16,181

 

16,306

 

Other

 

20,036

 

18,478

 

Total current liabilities

 

133,332

 

127,863

 

Long-term debt, less current maturities

 

1,020,722

 

1,066,071

 

Deferred income taxes

 

38,413

 

35,870

 

Other accrued liabilities

 

18,661

 

18,495

 

Other long-term liabilities

 

22,489

 

22,391

 

Stockholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, $.01 par value; 60,000,000 shares authorized; shares issued: 42,066,148 at January 25, 2015 and April 27, 2014

 

421

 

421

 

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

 

 

 

Additional paid-in capital

 

248,169

 

247,819

 

Retained earnings (deficit)

 

(199,828

)

(201,913

)

 

 

48,762

 

46,327

 

Treasury stock, 2,038,348 shares at January 25, 2015 and 2,236,971 at April 27, 2014

 

(24,551

)

(26,943

)

Total stockholders’ equity

 

24,211

 

19,384

 

Total liabilities and stockholders’ equity

 

$

1,257,828

 

$

1,290,074

 

 

 See notes to the consolidated financial statements.

 

2



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 25,

 

January 26,

 

January 25,

 

January 26,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

Casino

 

$

256,842

 

$

235,843

 

$

767,359

 

$

733,185

 

Rooms

 

6,991

 

6,933

 

23,777

 

24,560

 

Food, beverage, pari-mutuel and other

 

34,281

 

32,404

 

102,839

 

99,123

 

Gross revenues

 

298,114

 

275,180

 

893,975

 

856,868

 

Less promotional allowances

 

(57,050

)

(50,990

)

(172,345

)

(163,044

)

Net revenues

 

241,064

 

224,190

 

721,630

 

693,824

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Casino

 

40,344

 

38,354

 

120,747

 

118,414

 

Gaming taxes

 

66,182

 

60,324

 

195,052

 

185,454

 

Rooms

 

1,371

 

1,448

 

5,123

 

5,221

 

Food, beverage, pari-mutuel and other

 

11,121

 

10,608

 

33,167

 

31,724

 

Marine and facilities

 

14,111

 

13,967

 

43,318

 

42,969

 

Marketing and administrative

 

55,485

 

56,120

 

175,704

 

175,010

 

Corporate and development

 

5,880

 

7,230

 

21,763

 

21,314

 

Litigation accrual reversals

 

 

(1,979

)

 

(9,330

)

Preopening expense

 

 

 

 

3,898

 

Depreciation and amortization

 

19,528

 

20,171

 

58,781

 

60,495

 

Total operating expenses

 

214,022

 

206,243

 

653,655

 

635,169

 

Operating income

 

27,042

 

17,947

 

67,975

 

58,655

 

Interest expense

 

(20,927

)

(21,910

)

(63,370

)

(59,758

)

Interest income

 

94

 

84

 

273

 

260

 

Derivative income

 

 

 

 

398

 

Income (loss) from continuing operations before income taxes

 

6,209

 

(3,879

)

4,878

 

(445

)

Income tax (provision) benefit

 

(786

)

13,270

 

(2,793

)

10,499

 

Income from continuing operations

 

5,423

 

9,391

 

2,085

 

10,054

 

Income from discontinued operations, net of income taxes

 

 

1,266

 

 

3,778

 

Net income

 

$

5,423

 

$

10,657

 

$

2,085

 

$

13,832

 

 

 

 

 

 

 

 

 

 

 

Income per common share-basic:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.14

 

$

0.24

 

$

0.05

 

$

0.25

 

Income from discontinued operations, net of income taxes

 

 

0.03

 

 

0.10

 

Net income

 

$

0.14

 

$

0.27

 

$

0.05

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share-diluted:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.13

 

$

0.24

 

$

0.05

 

$

0.25

 

Income from discontinued operations, net of income taxes

 

 

0.03

 

 

0.10

 

Net income

 

$

0.13

 

$

0.27

 

$

0.05

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares

 

40,028,776

 

39,828,740

 

39,929,845

 

39,699,295

 

Weighted average diluted shares

 

40,336,663

 

39,911,715

 

40,062,008

 

39,758,965

 

 

See notes to the consolidated financial statements.

 

3



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 25,

 

January 26,

 

January 25,

 

January 26,

 

 

 

2015

 

2014

 

2015

 

2014

 

Net income

 

$

5,423

 

$

10,657

 

$

2,085

 

$

13,832

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Deferred hedge adjustment, net of income tax provision of $149 for the nine months ended January 26, 2014

 

 

 

 

247

 

Comprehensive income

 

$

5,423

 

$

10,657

 

$

2,085

 

$

14,079

 

 

See notes to the consolidated financial statements.

 

4



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

Shares of

 

 

 

Additional

 

Retained

 

 

 

Total

 

 

 

Common

 

Common

 

Paid-in

 

Earnings

 

Treasury

 

Stockholders’

 

 

 

Stock

 

Stock

 

Capital

 

(Deficit)

 

Stock

 

Equity

 

Balance, April 27, 2014

 

42,066,148

 

$

421

 

$

247,819

 

$

(201,913

)

$

(26,943

)

$

19,384

 

Net income

 

 

 

 

2,085

 

 

2,085

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

Issuance of restricted stock from treasury stock, net of forfeitures

 

 

 

(2,392

)

 

2,392

 

 

Stock compensation expense

 

 

 

2,742

 

 

 

2,742

 

Balance, January 25, 2015

 

42,066,148

 

$

421

 

$

248,169

 

$

(199,828

)

$

(24,551

)

$

24,211

 

 

See notes to the consolidated financial statements.

 

5



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

January 25,

 

January 26,

 

 

 

2015

 

2014

 

Operating activities:

 

 

 

 

 

Net income

 

$

2,085

 

$

13,832

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

58,781

 

61,857

 

Amortization of deferred financing costs

 

3,359

 

3,344

 

Amortization of debt discount

 

194

 

180

 

Deferred income taxes

 

2,751

 

(9,812

)

Stock compensation expense

 

2,742

 

3,532

 

Litigation accrual reversals

 

 

(16,953

)

Gain on derivative instruments

 

 

(398

)

Loss (gain) on disposal of assets

 

46

 

(1,002

)

Changes in operating assets and liabilities:

 

 

 

 

 

Marketable securities

 

(710

)

43

 

Accounts receivable

 

791

 

927

 

Income taxes receivable

 

(111

)

(761

)

Prepaid expenses and other assets

 

(3,137

)

(2,129

)

Accrued interest

 

2,711

 

2,823

 

Accounts payable and accrued liabilities

 

2,745

 

(7,028

)

Net cash provided by operating activities

 

72,247

 

48,455

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(30,032

)

(32,941

)

Proceeds from asset sales, net

 

54

 

1,156

 

Payment towards gaming licenses

 

 

(7,500

)

Restricted cash and investments

 

614

 

1,717

 

Net cash used in investing activities

 

(29,364

)

(37,568

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Principal payments on debt

 

(173

)

(361

)

Net repayments on line of credit

 

(45,400

)

(9,900

)

Payment of deferred financing costs

 

 

(673

)

Net cash used in financing activities

 

(45,573

)

(10,934

)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(2,690

)

(47

)

Cash and cash equivalents, beginning of period

 

69,830

 

68,469

 

Cash and cash equivalents, end of the period

 

$

67,140

 

$

68,422

 

 

See notes to the consolidated financial statements.

 

6



 

ISLE OF CAPRI CASINOS, INC.

Notes to Consolidated Financial Statements

(amounts in thousands, except share and per share amounts)

(Unaudited)

 

1.  Nature of Operations

 

Isle of Capri Casinos, Inc., a Delaware corporation, was incorporated in February 1990. Except where otherwise noted, the words “we,” “us,” “our” and similar terms, as well as “Company,” refer to Isle of Capri Casinos, Inc. and all of its subsidiaries. We are a developer, owner and operator of branded gaming facilities and related lodging and entertainment facilities in markets throughout the United States. Our wholly owned subsidiaries own or operate fifteen casino gaming facilities in the United States located in Black Hawk, Colorado; Pompano Beach, Florida; Bettendorf, Marquette and Waterloo, Iowa; Lake Charles, Louisiana; Lula, Natchez and Vicksburg, Mississippi; Boonville, Cape Girardeau, Caruthersville and Kansas City, Missouri; and Nemacolin, Pennsylvania.

 

2.  Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted. In management’s opinion, the accompanying interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results presented. The accompanying interim condensed consolidated financial statements have been prepared without audit. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended April 27, 2014 as filed with the SEC and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report, which are available on the SEC’s website at www.sec.gov or our website at www.islecorp.com.

 

Our fiscal year ends on the last Sunday in April. Periodically, this system necessitates a 53-week year.  Fiscal 2015 and 2014 are both 52-week years, which commenced on April 28, 2014 and April 29, 2013, respectively.

 

The condensed consolidated financial statements include our accounts and those of our subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. We view each property as an operating segment and all such operating segments have been aggregated into one reporting segment.

 

Discontinued Operations - Discontinued operations include our former Davenport, Iowa casino operations sold in February 2014.  The results of our discontinued operations are summarized as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 26,

 

January 26,

 

 

 

2014

 

2014

 

Net revenues

 

$

8,864

 

$

28,539

 

Pretax income from discontinued operations

 

1,441

 

3,953

 

Income tax provision from discontinued operations

 

(175

)

(175

)

Income from discontinued operations

 

1,266

 

3,778

 

 

7



 

3. New Accounting Pronouncements

 

In June 2014, the Financial Accounting Standards Board issued Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This update requires awards with a performance target which affects vesting and could be achieved after the requisite service period, be treated as a performance condition and should not be reflected in estimating the grant date fair value of the award. This update is effective for annual periods ending after December 15, 2015. Early adoption is permitted.  The Company is evaluating the potential impact of the update on future grants under its stock-based compensation plans.

 

4.  Long-Term Debt

 

Long-term debt consists of the following:

 

 

 

January 25,

 

April 27,

 

 

 

2015

 

2014

 

Senior Secured Credit Facility:

 

 

 

 

 

Revolving line of credit, expires April 19, 2018, interest payable at least quarterly at either LIBOR and/or prime plus a margin

 

$

19,300

 

$

64,700

 

5.875% Senior Notes, interest payable semi-annually March 15 and September 15

 

350,000

 

350,000

 

7.75% Senior Notes, interest payable semi-annually March 15 and September 15, net of discount

 

298,682

 

298,488

 

8.875% Senior Subordinated Notes, interest payable Semi-annually June 15 and December 15

 

350,000

 

350,000

 

Other

 

2,940

 

3,113

 

 

 

1,020,922

 

1,066,301

 

Less current maturities

 

200

 

230

 

Long-term debt

 

$

1,020,722

 

$

1,066,071

 

 

Senior Secured Credit Facility—Our Senior Secured Credit Facility as amended and restated (“Credit Facility”) consists of a $300,000 revolving line of credit. The Credit Facility is secured on a first priority basis by substantially all of our assets and guaranteed by substantially all of our significant subsidiaries.

 

Our net revolving line of credit availability at January 25, 2015, as limited by our outstanding borrowings, was approximately $273,000, after consideration of approximately $7,400 in outstanding letters of credit. We have an annual commitment fee related to the unused portion of the Credit Facility of up to 0.55% which is included in interest expense in the accompanying consolidated statements of operations. The weighted average effective interest rates of the Credit Facility for the nine months ended January 25, 2015 was 3.50%.

 

The Credit Facility includes a number of affirmative and negative covenants. Additionally, we must comply with certain financial covenants including maintenance of a total leverage ratio, senior secured leverage ratio and minimum interest coverage ratio. The Credit Facility also restricts our ability to make certain investments or distributions. We were in compliance with the covenants as of January 25, 2015.

 

On October 29, 2014, we amended our Credit Facility to revise the definition of consolidated EBITDA to exclude the costs associated with the Colorado Referendum and certain severance expenses related to the corporate restructuring.

 

5.875% Senior Notes—In March 2013, we issued $350,000 of 5.875% Senior Notes due 2021 (“5.875% Senior Notes”). The net proceeds from the issuance were used to repay term loans under our Credit Facility. The 5.875% Senior Notes are general unsecured obligations and rank junior to all of our senior secured indebtedness and senior to our senior subordinated indebtedness. The 5.875% Senior Notes are redeemable, in whole or in part, at our option at any time on or after March 15, 2016, with call premiums as defined in the indenture governing the 5.875% Senior Notes.

 

8



 

7.75% Senior Notes—In March 2011, we issued $300,000 of 7.75% Senior Notes due 2019 at a price of 99.264% (“7.75% Senior Notes”).  The 7.75% Senior Notes are general unsecured obligations and rank junior to all of our senior secured indebtedness and senior to our senior subordinated indebtedness. The 7.75% Senior Notes are redeemable, in whole or in part, at our option at any time on or after March 15, 2015, with call premiums as defined in the indenture governing the 7.75% Senior Notes.

 

8.875% Senior Subordinated Notes — In August 2012, we issued $350,000 of 8.875% Senior Subordinated Notes due 2020 (“8.875% Senior Subordinated Notes”).  The 8.875% Senior Subordinated Notes are general unsecured obligations and rank junior to all of our senior indebtedness. The 8.875% Senior Subordinated Notes are redeemable, in whole or in part, at our option at any time on or after June 15, 2016, with call premiums as defined in the indenture governing the 8.875% Senior Subordinated Notes.

 

The 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes are guaranteed, on a joint and several basis, by substantially all of our significant subsidiaries and certain other subsidiaries as described in Footnote 10. All of the guarantor subsidiaries are wholly owned by us.

 

The indentures governing the 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes limit, among other things, our ability and our restricted subsidiaries’ ability to borrow money, make restricted payments, use assets as security in other transactions, enter into transactions with affiliates, pay dividends, or repurchase stock. The indentures also limit our ability to issue and sell capital stock of subsidiaries, sell assets in excess of specified amounts or merge with or into other companies.

 

9



 

5.  Earnings Per Share

 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 25,

 

January 26,

 

January 25,

 

January 26,

 

 

 

2015

 

2014

 

2015

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

 

Income applicable to common shares:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

5,423

 

$

9,391

 

$

2,085

 

$

10,054

 

Income from discontinued operations

 

 

1,266

 

 

3,778

 

Net income

 

$

5,423

 

$

10,657

 

$

2,085

 

$

13,832

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Denominator for basic income per share - weighted average shares

 

40,028,776

 

39,828,740

 

39,929,845

 

39,699,295

 

Effect of dilutive securities Employee stock options

 

55,644

 

54,508

 

48,082

 

50,181

 

Restricted stock units

 

252,243

 

28,467

 

84,081

 

9,489

 

Denominator for diluted income per share - adjusted weighted average shares and assumed conversions

 

40,336,663

 

39,911,715

 

40,062,008

 

39,758,965

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.14

 

$

0.24

 

$

0.05

 

$

0.25

 

Income from discontinued operations

 

 

0.03

 

 

0.10

 

Net income

 

$

0.14

 

$

0.27

 

$

0.05

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.13

 

$

0.24

 

$

0.05

 

$

0.25

 

Income from discontinued operations

 

 

0.03

 

 

0.10

 

Net income

 

$

0.13

 

$

0.27

 

$

0.05

 

$

0.35

 

 

Our basic earnings per share are computed by dividing net income by the weighted average number of shares outstanding for the period.  Diluted earnings per share reflect the additional dilution from all potentially dilutive securities such as stock options and restricted stock units.  Stock options with an exercise price in excess of the average market price of our common stock during the periods presented are not considered when calculating diluted earnings per share as they would be anti-dilutive. Restricted stock units where the market performance condition has not been achieved as of the end of the period have also been excluded from calculating diluted earnings per share.  Excluded securities are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 25,

 

January 26,

 

January 25,

 

January 26,

 

 

 

2015

 

2014

 

2015

 

2014

 

Employee stock options

 

205,060

 

753,860

 

205,060

 

753,860

 

Restricted stock units

 

1,269,351

 

1,332,740

 

1,269,351

 

1,332,740

 

 

6.  Stock Based Compensation

 

Under our Amended and Restated 2009 Long Term Stock Incentive Plan we have issued restricted stock units, restricted stock and stock options.

 

Restricted Stock Units—During fiscal 2013, we granted restricted stock units (“RSUs”) containing market performance conditions which will determine the ultimate amount of RSUs, if any, to be awarded up to 1,656,943 shares.  Any RSUs earned will vest 50% on April 26, 2015 and 50% on April 26, 2016.  The fair value of these RSUs was determined utilizing a lattice pricing model which considered a range of assumptions including

 

10



 

volatility and risk-free interest rates.  The aggregate compensation cost related to these RSUs is $4,695 to be recognized over the vesting periods. As of January 25, 2015, our unrecognized compensation cost for these RSUs was $922.

 

Restricted Stock — During the nine months ended January 25, 2015, we issued 107,214 shares of restricted stock with a weighted average grant date fair value of $7.92 to employees and 122,325 shares of restricted stock with a weighted-average grant date fair value of $7.24 to directors.  Restricted stock awards are made to employees and directors under annual long-term incentive grants which primarily vest one-third on each anniversary of the grant date for employees and vests one-half on the grant date and one-half on the first anniversary of the grant date for directors. Our aggregate estimate of forfeitures for restricted stock for employees and directors is 12% and 0%, respectively. As of January 25, 2015, our unrecognized compensation cost for unvested restricted stock was $1,109 with a remaining weighted average vesting period of 0.95 years.

 

7.  Fair Value

 

Items Measured at Fair Value on a Recurring Basis—The following table sets forth the assets measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at January 25, 2015 and April 27, 2014:

 

 

 

January 25, 2015

 

 

 

Level 1

 

Level 2

 

Total

 

Assets:

 

 

 

 

 

 

 

Marketable securities

 

$

8,581

 

$

19,418

 

$

27,999

 

Restricted cash and investments

 

4,748

 

4,425

 

9,173

 

 

 

 

 

 

 

 

 

 

 

 

April 27, 2014

 

 

 

Level 1

 

Level 2

 

Total

 

Assets:

 

 

 

 

 

 

 

Marketable securities

 

$

10,074

 

$

17,215

 

$

27,289

 

Restricted cash and investments

 

4,459

 

5,348

 

9,807

 

 

Marketable securities—The estimated fair values of our marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets (Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold these marketable securities.

 

Restricted cash and investments—The estimated fair values of our restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold our restricted cash and investments.

 

11



 

Other Financial Instruments - The estimated carrying amounts and fair values of our other financial instruments are as follows:

 

 

 

January 25, 2015

 

April 27, 2014

 

 

 

Carrying

 

 

 

Carrying

 

 

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Revolving line of credit

 

$

19,300

 

$

18,914

 

$

64,700

 

$

63,083

 

5.875% Senior notes

 

350,000

 

365,750

 

350,000

 

351,750

 

7.75% Senior notes

 

298,682

 

312,357

 

298,488

 

318,576

 

8.875% Senior subordinated notes

 

350,000

 

372,712

 

350,000

 

373,520

 

Other long-term debt

 

2,940

 

2,940

 

3,113

 

3,113

 

Other long-term liabilities

 

22,489

 

22,489

 

22,391

 

22,391

 

 

The fair value of our long-term debt or other long-term liabilities is estimated based on the quoted market price of the underlying debt issue (Level 1) or, when a quoted market price is not available, the discounted cash flow of future payments utilizing current rates available to us for debt of similar remaining maturities (Level 3). Debt obligations with a short remaining maturity have a carrying amount that approximates fair value.

 

8.  Income Taxes

 

A summary of our effective income tax (provision) benefit from continuing operations is as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 25,

 

January 26,

 

January 25,

 

January 26,

 

 

 

2015

 

2014

 

2015

 

2014

 

Federal taxes at the statutory rate

 

$

(2,173

)

$

1,358

 

$

(1,707

)

$

156

 

State taxes

 

72

 

(45

)

592

 

(492

)

Permanent differences

 

(197

)

(353

)

(2,202

)

(885

)

Tax credits

 

113

 

570

 

784

 

1,082

 

Other

 

(1

)

1,566

 

(40

)

1,465

 

Valuation allowance

 

1,400

 

10,174

 

(220

)

9,173

 

Income tax (provision) benefit from continuing operations

 

$

(786

)

$

13,270

 

$

(2,793

)

$

10,499

 

 

Our income tax (provision) benefit from continuing operations consists of changes in the deferred tax liability attributable to indefinite lived intangibles and expense in state jurisdictions without net operating loss carryforwards available. During the three months ended January 26, 2014, we released a valuation allowance of $11,993 related to the expected utilization of the deferred tax liability associated with Davenport’s goodwill.  The assets related to Davenport were classified as held for sale as of January 26, 2014, which resulted in the goodwill’s deferred tax liability having a finite life.

 

As of January 25, 2015, we have a full valuation allowance on our federal and state deferred tax assets and have concluded that the valuation allowance was still needed due to our history of cumulative losses.  During fiscal 2014, our Florida operations experienced their second consecutive year of substantive pretax income. These operations have continued to be profitable through the nine months ended January 25, 2015.  While this is positive information, we have concluded that a valuation allowance is still required on the deferred tax assets related to these operations based on our history of losses.  We continue to review our cumulative income position and income trend, as well as our future projections of sustained profitability for our Florida operations. If this profitability trend continues for the remainder of the fiscal year, we may reverse substantially all of our Florida state valuation allowance of approximately $2,800 as early as the end of fiscal year 2015.

 

12



 

9.  Supplemental Disclosures

 

Cash Flow — For the nine months ended January 25, 2015 and January 26, 2014, we made net cash interest payments of $57,300 and $61,139, respectively. Additionally, we made net income tax payments of $151 and received net income tax refunds of $93 during the nine months ended January 25, 2015 and January 26, 2014, respectively.

 

For the nine months ended January 25, 2015 and January 26, 2014, the accrued purchases of property and equipment in accounts payable increased by $310 and decreased by $6,661, respectively.

 

10.  Consolidating Condensed Financial Information

 

Certain of our wholly owned subsidiaries have fully and unconditionally guaranteed on a joint and several basis, the payment of all obligations under our 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes.

 

The following wholly owned subsidiaries of the Company are guarantors, on a joint and several basis, under the  5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes: Black Hawk Holdings, L.L.C.; CCSC/Blackhawk, Inc.; IC Holdings Colorado, Inc.; IOC-Black Hawk Distribution Company, L.L.C.; IOC-Boonville, Inc.; IOC-Caruthersville, L.L.C.; IOC-Kansas City, Inc.; IOC-Lula, Inc.; IOC-Natchez, Inc.; IOC-Black Hawk County, Inc.; IOC Holdings, L.L.C.; IOC-Vicksburg, Inc.; IOC-Vicksburg, LLC; Rainbow Casino- Vicksburg Partnership, L.P.; IOC Cape Girardeau, LLC; Isle of Capri Bettendorf, L.C; Isle of Capri Black Hawk, L.L.C.; Isle of Capri Marquette, Inc.; PPI, Inc.; and St. Charles Gaming Company, L.L.C. Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.

 

During the nine months ended January 25, 2015, our wholly owned subsidiary, IOC-Davenport, Inc., changed designations from a Guarantor Subsidiary to a Non-Guarantor Subsidiary. All periods presented below reflect the operations of IOC-Davenport, Inc. as a Non-Guarantor Subsidiary.

 

13



 

Consolidating condensed balance sheets as of January 25, 2015 and April 27, 2014 are as follows:

 

 

 

As of January 25, 2015

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

20,760

 

$

80,641

 

$

34,000

 

$

(2,586

)

$

132,815

 

Intercompany receivables

 

469,584

 

 

 

(469,584

)

 

Investments in subsidiaries

 

561,764

 

3,358

 

 

(565,122

)

 

Property and equipment, net

 

7,024

 

882,677

 

37,991

 

 

927,692

 

Other assets

 

30,012

 

150,352

 

20,234

 

(3,277

)

197,321

 

Total assets

 

$

1,089,144

 

$

1,117,028

 

$

92,225

 

$

(1,040,569

)

$

1,257,828

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

37,003

 

$

70,375

 

$

28,540

 

$

(2,586

)

$

133,332

 

Intercompany payables

 

 

444,147

 

25,437

 

(469,584

)

 

Long-term debt, less current maturities

 

1,020,653

 

 

69

 

 

1,020,722

 

Other accrued liabilities

 

7,277

 

68,324

 

7,239

 

(3,277

)

79,563

 

Stockholders’ equity

 

24,211

 

534,182

 

30,940

 

(565,122

)

24,211

 

Total liabilities and stockholders’ equity

 

$

1,089,144

 

$

1,117,028

 

$

92,225

 

$

(1,040,569

)

$

1,257,828

 

 

 

 

As of April 27, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

16,131

 

$

80,918

 

$

35,589

 

$

(199

)

$

132,439

 

Intercompany receivables

 

530,886

 

 

 

(530,886

)

 

Investments in subsidiaries

 

535,662

 

3,358

 

 

(539,020

)

 

Property and equipment, net

 

6,693

 

907,175

 

41,736

 

 

955,604

 

Other assets

 

35,837

 

151,044

 

20,236

 

(5,086

)

202,031

 

Total assets

 

$

1,125,209

 

$

1,142,495

 

$

97,561

 

$

(1,075,191

)

$

1,290,074

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

33,447

 

$

67,899

 

$

26,716

 

$

(199

)

$

127,863

 

Intercompany payables

 

 

495,416

 

35,470

 

(530,886

)

 

Long-term debt, less current maturities

 

1,065,913

 

 

158

 

 

1,066,071

 

Other accrued liabilities

 

6,465

 

68,002

 

7,375

 

(5,086

)

76,756

 

Stockholders’ equity

 

19,384

 

511,178

 

27,842

 

(539,020

)

19,384

 

Total liabilities and stockholders’ equity

 

$

1,125,209

 

$

1,142,495

 

$

97,561

 

$

(1,075,191

)

$

1,290,074

 

 

14



 

Consolidating condensed statements of operations for the three and nine months ended January 25, 2015 and January 26, 2014 are as follows:

 

 

 

For the Three Months Ended January 25, 2015

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

247,265

 

$

9,577

 

$

 

$

256,842

 

Rooms, food, beverage, pari-mutuel and other

 

32

 

40,268

 

3,199

 

(2,227

)

41,272

 

Management fee revenue

 

8,557

 

 

 

(8,557

)

 

Gross revenues

 

8,589

 

287,533

 

12,776

 

(10,784

)

298,114

 

Less promotional allowances

 

 

(54,545

)

(2,505

)

 

(57,050

)

Net revenues

 

8,589

 

232,988

 

10,271

 

(10,784

)

241,064

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

38,572

 

1,772

 

 

40,344

 

Gaming taxes

 

 

62,404

 

3,778

 

 

66,182

 

Rooms, food, beverage, pari-mutuel and other

 

7,327

 

78,963

 

3,905

 

(2,227

)

87,968

 

Management fee expense

 

 

8,257

 

300

 

(8,557

)

 

Depreciation and amortization

 

506

 

17,655

 

1,367

 

 

19,528

 

Total operating expenses

 

7,833

 

205,851

 

11,122

 

(10,784

)

214,022

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

756

 

27,137

 

(851

)

 

27,042

 

Interest expense, net

 

(10,773

)

(9,532

)

(528

)

 

(20,833

)

Equity in income (loss) of subsidiaries

 

9,822

 

 

 

(9,822

)

 

Income (loss) from continuing operations before income taxes

 

(195

)

17,605

 

(1,379

)

(9,822

)

6,209

 

Income tax (provision) benefit

 

5,618

 

(7,300

)

896

 

 

(786

)

Income (loss) from continuining operations

 

5,423

 

10,305

 

(483

)

(9,822

)

5,423

 

Income (loss) of discontinued operations

 

 

 

 

 

 

Net income (loss)

 

$

5,423

 

$

10,305

 

$

(483

)

$

(9,822

)

$

5,423

 

 

15



 

 

 

For the Three Months Ended January 26, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

228,842

 

$

7,001

 

$

 

$

235,843

 

Rooms, food, beverage, pari-mutuel and other

 

171

 

38,262

 

3,223

 

(2,319

)

39,337

 

Management fee revenue

 

7,878

 

 

 

(7,878

)

 

Gross revenues

 

8,049

 

267,104

 

10,224

 

(10,197

)

275,180

 

Less promotional allowances

 

 

(49,171

)

(1,819

)

 

(50,990

)

Net revenues

 

8,049

 

217,933

 

8,405

 

(10,197

)

224,190

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

36,678

 

1,676

 

 

38,354

 

Gaming taxes

 

 

57,585

 

2,739

 

 

60,324

 

Rooms, food, beverage, pari-mutuel and other

 

7,433

 

78,833

 

5,426

 

(2,319

)

89,373

 

Litigation accrual reversals

 

(1,979

)

 

 

 

(1,979

)

Management fee expense

 

 

7,578

 

300

 

(7,878

)

 

Depreciation and amortization

 

385

 

18,227

 

1,559

 

 

20,171

 

Total operating expenses

 

5,839

 

198,901

 

11,700

 

(10,197

)

206,243

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

2,210

 

19,032

 

(3,295

)

 

17,947

 

Interest expense, net

 

(11,168

)

(9,746

)

(912

)

 

(21,826

)

Equity in income (loss) of subsidiaries

 

5,546

 

 

 

(5,546

)

 

Income (loss) from continuing operations before income taxes

 

(3,412

)

9,286

 

(4,207

)

(5,546

)

(3,879

)

Income tax (provision) benefit

 

12,803

 

(663

)

1,130

 

 

13,270

 

Income (loss) from continuining operations

 

9,391

 

8,623

 

(3,077

)

(5,546

)

9,391

 

Income (loss) of discontinued operations

 

1,266

 

 

937

 

(937

)

1,266

 

Net income (loss)

 

$

10,657

 

$

8,623

 

$

(2,140

)

$

(6,483

)

$

10,657

 

 

16



 

 

 

For the Nine Months Ended January 25, 2015

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

736,244

 

$

31,115

 

$

 

$

767,359

 

Rooms, food, beverage, pari-mutuel and other

 

74

 

123,463

 

9,835

 

(6,756

)

126,616

 

Management fee revenue

 

25,357

 

 

 

(25,357

)

 

Gross revenues

 

25,431

 

859,707

 

40,950

 

(32,113

)

893,975

 

Less promotional allowances

 

 

(163,896

)

(8,449

)

 

(172,345

)

Net revenues

 

25,431

 

695,811

 

32,501

 

(32,113

)

721,630

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

115,783

 

4,964

 

 

120,747

 

Gaming taxes

 

 

183,187

 

11,865

 

 

195,052

 

Rooms, food, beverage, pari-mutuel and other

 

24,753

 

246,976

 

14,102

 

(6,756

)

279,075

 

Management fee expense

 

 

24,457

 

900

 

(25,357

)

 

Depreciation and amortization

 

1,483

 

53,211

 

4,087

 

 

58,781

 

Total operating expenses

 

26,236

 

623,614

 

35,918

 

(32,113

)

653,655

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(805

)

72,197

 

(3,417

)

 

67,975

 

Interest expense, net

 

(32,926

)

(28,572

)

(1,599

)

 

(63,097

)

Equity in income (loss) of subsidiaries

 

21,399

 

 

 

(21,399

)

 

Income (loss) from continuing operations before income taxes

 

(12,332

)

43,625

 

(5,016

)

(21,399

)

4,878

 

Income tax (provision) benefit

 

14,417

 

(20,802

)

3,592

 

 

(2,793

)

Income (loss) from continuining operations

 

2,085

 

22,823

 

(1,424

)

(21,399

)

2,085

 

Income (loss) of discontinued operations

 

 

 

 

 

 

Net income (loss)

 

$

2,085

 

$

22,823

 

$

(1,424

)

$

(21,399

)

$

2,085

 

 

17



 

 

 

For the Nine Months Ended January 26, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

Statement of Operations

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

715,259

 

$

17,926

 

$

 

$

733,185

 

Rooms, food, beverage, pari-mutuel and other

 

525

 

121,036

 

9,108

 

(6,986

)

123,683

 

Management fee revenue

 

23,933

 

 

 

(23,933

)

 

Gross revenues

 

24,458

 

836,295

 

27,034

 

(30,919

)

856,868

 

Less promotional allowances

 

 

(159,117

)

(3,927

)

 

(163,044

)

Net revenues

 

24,458

 

677,178

 

23,107

 

(30,919

)

693,824

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

114,217

 

4,197

 

 

118,414

 

Gaming taxes

 

 

178,230

 

7,224

 

 

185,454

 

Rooms, food, beverage, pari-mutuel and other

 

24,194

 

246,699

 

16,229

 

(6,986

)

280,136

 

Litigation accrual reversals

 

(1,979

)

 

(7,351

)

 

(9,330

)

Management fee expense

 

 

23,425

 

508

 

(23,933

)

 

Depreciation and amortization

 

1,168

 

55,540

 

3,787

 

 

60,495

 

Total operating expenses

 

23,383

 

618,111

 

24,594

 

(30,919

)

635,169

 

Operating income (loss)

 

1,075

 

59,067

 

(1,487

)

 

58,655

 

Interest (expense) interest, net

 

(34,475

)

(29,174

)

4,151

 

 

(59,498

)

Derivative income

 

398

 

 

 

 

398

 

Equity in income (loss) of subsidiaries

 

23,756

 

 

 

(23,756

)

 

Income (loss) from continuing operations before income taxes

 

(9,246

)

29,893

 

2,664

 

(23,756

)

(445

)

Income tax (provision) benefit

 

19,300

 

(12,004

)

3,203

 

 

10,499

 

Income (loss) from continuining operations

 

10,054

 

17,889

 

5,867

 

(23,756

)

10,054

 

Income (loss) of discontinued operations

 

3,778

 

 

2,714

 

(2,714

)

3,778

 

Net income (loss)

 

$

13,832

 

$

17,889

 

$

8,581

 

$

(26,470

)

$

13,832

 

 

18



 

Consolidating condensed statements of cash flows for the nine months ended January 25, 2015 and January 26, 2014 are as follows:

 

 

 

Nine Months Ended January 25, 2015

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(10,373

)

$

79,173

 

$

3,447

 

$

 

$

72,247

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment, net of proceeds

 

(1,863

)

(27,758

)

(357

)

 

(29,978

)

Restricted cash and investments

 

 

 

614

 

 

614

 

Parent company investment in subsidiaries

 

56,786

 

 

 

(56,786

)

 

Net cash provided by (used in) investing activities

 

54,923

 

(27,758

)

257

 

(56,786

)

(29,364

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Principal payments on debt

 

(50

)

 

(123

)

 

(173

)

Net repayments on line of credit

 

(45,400

)

 

 

 

(45,400

)

Net proceeds from (payments to) related parties

 

 

(51,269

)

(5,517

)

56,786

 

 

Net cash provided by (used in) financing activities

 

(45,450

)

(51,269

)

(5,640

)

56,786

 

(45,573

)

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(900

)

146

 

(1,936

)

 

(2,690

)

Cash and cash equivalents at beginning of period

 

6,051

 

53,787

 

9,992

 

 

69,830

 

Cash and cash equivalents at end of the period

 

$

5,151

 

$

53,933

 

$

8,056

 

$

 

$

67,140

 

 

 

 

Nine Months Ended January 26, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(14,541

)

$

63,475

 

$

(479

)

$

 

$

48,455

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment, net of proceeds

 

(253

)

(14,833

)

(16,699

)

 

(31,785

)

Payments towards gaming license

 

 

 

(7,500

)

 

(7,500

)

Restricted cash and investments

 

 

 

1,717

 

 

1,717

 

Parent company investment in subsidiaries

 

21,625

 

 

 

(21,625

)

 

Net cash provided by (used in) investing activities

 

21,372

 

(14,833

)

(22,482

)

(21,625

)

(37,568

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Principal payments on debt

 

(47

)

 

(314

)

 

(361

)

Net repayments on line of credit

 

(9,900

)

 

 

 

(9,900

)

Payments of deferred financing costs

 

(673

)

 

 

 

(673

)

Net proceeds from (payments to) related parties

 

 

(50,982

)

29,357

 

21,625

 

 

Net cash provided by (used in) financing activities

 

(10,620

)

(50,982

)

29,043

 

21,625

 

(10,934

)

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(3,789

)

(2,340

)

6,082

 

 

(47

)

Cash and cash equivalents at beginning of period

 

6,914

 

54,612

 

6,943

 

 

68,469

 

Cash and cash equivalents at end of the period

 

$

3,125

 

$

52,272

 

$

13,025

 

$

 

$

68,422

 

 

19



 

11.  Commitments and Contingencies

 

Legal and Regulatory Proceedings— In October 2012, we opened our new casino in Cape Girardeau, Missouri. A subcontractor filed a mechanics’ lien against our property resulting from a dispute between the subcontractor and our general contractor for the construction project. We demanded the general contractor cause the lien to be bonded against or satisfied, however the general contractor refused to do so and asserted that a portion of the subcontractor’s claim resulted from additional work directly requested by us. In October 2013, the subcontractor filed suit against our wholly-owned subsidiary IOC-Cape Girardeau, LLC, the general contractor and two other defendants alleging various contract and equitable claims and is seeking damages of approximately $4,600. In August 2014, we filed a cross claim against the general contractor alleging breach of contract and various indemnity claims. The outcome of this matter is still in doubt and cannot be predicted with any degree of certainty.  In the event that we incur any costs in connection with this matter, we do not believe that any such costs would be material, and if incurred, the settlement of construction costs would be capitalized.

 

We and our wholly-owned subsidiary, Riverboat Corporation of Mississippi - Vicksburg, have been defendants in a lawsuit filed in the Circuit Court of Adams County, Mississippi by Silver Land, Inc., alleging breach of contract in connection with our 2006 sale of casino operations in Vicksburg, Mississippi.  The court originally ruled in favor of Silver Land and awarded damages of $1,979, which we accrued.  We appealed the decision and in June 2013 the court of appeals reversed the trial court and ruled in our favor. Silver Land filed a Petition for Writ of Certiorari in November 2013 requesting review by the Mississippi Supreme Court. On February 20, 2014, the Mississippi Supreme Court denied Silver Land’s request, which effectively disposed of the matter in its entirety.  As a result, during the three and nine months ended January 26, 2014, we reversed a litigation accrual of $2,223, of which $1,979 was recorded as a reduction to operating expenses and $244 was recorded as a reduction to interest expense.

 

Our wholly owned subsidiary, Lady Luck Gaming Corporation, and several joint venture partners have been defendants in the Greek Civil Courts and the Greek Administrative Courts in similar lawsuits brought by the country of Greece. The actions alleged that the defendants failed to make specified payments in connection with the gaming license bid process for Patras, Greece. In the Civil Court lawsuit, the Civil Court of First Instance ruled in our favor and dismissed the lawsuit in 2001. The lawsuits continued through the appeals process and in October 2013, the Supreme Administrative Court rejected both lawsuits in a final and irrevocable decision which disposed of this matter completely. As a result, during the nine months ended January 26, 2014, we reversed a litigation accrual of $14,730, of which $7,351 was recorded as a reduction to operating expenses and $7,379 was recorded as a reduction to interest expense.

 

We are subject to certain federal, state and local environmental protection, health and safety laws, regulations and ordinances that apply to businesses generally, and are subject to cleanup requirements at certain of our facilities as a result thereof. We have not made, and do not anticipate making material expenditures, nor do we anticipate incurring delays with respect to environmental remediation or protection. However, in part because our 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 we will not experience material liabilities or delays.

 

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

 

On February 1, 2013, we signed an agreement with Tower Investments, Inc. to manage The Provence, the resort and casino on North Broad Street, Philadelphia, proposed by Tower Entertainment, LLC (the “Tower JV”), if the project was selected by the Pennsylvania Gaming Control Board. The agreement included a commitment for a loan that was secured by a stand by letter of credit of $25,000, which could only be drawn upon if the Tower JV was awarded the license. In November 2014, the license was awarded to another applicant and we cancelled the letter of credit. In December 2014, we terminated all of our agreements with Tower Investments, Inc.

 

20



 

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

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct and are not guarantees of future performance. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. 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 contained in this report.

 

For a more complete description of the risks that may affect our business, see our Annual Report on Form 10-K for the year ended April 27, 2014.

 

Executive Overview

 

We are a developer, owner and operator of branded gaming facilities and related dining, lodging and entertainment facilities in regional markets in the United States. We have sought and established geographic diversity to limit the risks caused by weather, regional economic difficulties, gaming tax rates and regulations of local gaming authorities. We currently operate casinos in Colorado, Florida, Iowa, Louisiana, Mississippi, Missouri and Pennsylvania.

 

Our operating results for the periods presented have been affected, both positively and negatively, by current economic conditions and several other factors discussed in detail below. Our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets, as well as by factors discussed elsewhere herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended April 27, 2014 and by giving consideration to the following:

 

Items Impacting Income from Continuing Operations— Significant items impacting our income from continuing operations during the periods ended January 25, 2015, and January 26, 2014 are as follows:

 

Colorado Referendum Costs —During the nine months ended January 25, 2015, the Company incurred costs of $4.1 million in support of efforts to defeat the proposed November referendum that would have expanded gaming to racetracks in certain Colorado counties.

 

Property Tax Settlement — During the nine months ended January 25, 2015, we reduced property tax expense by $1.2 million as a result of the settlement of our property tax appeal at our Waterloo, Iowa property for calendar years 2011 through 2014.

 

21



 

Corporate Restructuring - During the nine months ended January 25, 2015, we eliminated executive positions in the corporate office to maximize efficiency and streamline reporting lines, resulting in severance expense of $2.3 million.

 

Casino Openings — We opened our Lady Luck Casino on the Nemacolin Woodlands Resort in Farmington, Pennsylvania on July 1, 2013.

 

Legal Recoveries — During February 2014, we received a favorable ruling in our Silver Land legal proceedings.  As a result of this favorable ruling, during the three and nine months ended January 26, 2014, we reversed a litigation accrual of $2.2 million, of which $2.0 million was recorded as a reduction to operating expenses and $0.2 million was recorded as a reduction to interest expense.

 

During October 2013, we received a favorable appellant ruling in our Greece gaming license legal proceedings.  As a result of this favorable ruling, during the nine months ended January 26, 2014, we reversed a litigation accrual of $14.7 million, of which $7.3 million was recorded as a reduction to operating expenses and $7.4 million was recorded as a reduction to interest expense.

 

Disruption — Severe winter weather negatively impacted visitation and revenues at several of our casinos in December 2013 and January 2014.  Our Black Hawk property’s attendance was negatively impacted by the severe weather and flooding in Colorado during September 2013.  Our Boonville property was affected by power outages and was forced to close three times for a total of approximately 40 hours, of which two periods were over the key holidays of Father’s Day weekend and on the 4th of July in 2013. These disruptive events had a negative impact on our operating results for the prior year periods.

 

Income Tax (Provision) Benefit — Our income tax (provision) benefit from continuing operations was impacted by changes in the deferred tax liability attributable to indefinite lived intangibles and expense for state jurisdictions where taxable income is generated.  Our tax provision was $0.8 million and $2.8 million for the three and nine months ended January 25, 2015, respectively.

 

During the three and nine months ended January 26, 2014, we reversed a valuation allowance of $12.0 million as a result of our Davenport sale and the change in the status of the indefinite lived intangible assets. As a result, our tax benefit from continuing operations was $13.3 million and $10.5 million for the three and nine months ended January 26, 2014, respectively.

 

22



 

Results of Operations

 

Revenues and operating expenses for the three and nine months ended January 25, 2015 and January 26, 2014 are as follows:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

January 25,

 

January 26,

 

 

 

Percentage

 

(in thousands)

 

2015

 

2014

 

Variance

 

Variance

 

Revenues:

 

 

 

 

 

 

 

 

 

Casino

 

$

256,842

 

$

235,843

 

$

20,999

 

8.9

%

Rooms

 

6,991

 

6,933

 

58

 

0.8

%

Food, beverage, pari-mutuel and other

 

34,281

 

32,404

 

1,877

 

5.8

%

Gross revenues

 

298,114

 

275,180

 

22,934

 

8.3

%

Less promotional allowances

 

(57,050

)

(50,990

)

(6,060

)

11.9

%

Net revenues

 

241,064

 

224,190

 

16,874

 

7.5

%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Casino

 

40,344

 

38,354

 

1,990

 

5.2

%

Gaming taxes

 

66,182

 

60,324

 

5,858

 

9.7

%

Rooms

 

1,371

 

1,448

 

(77

)

-5.3

%

Food, beverage, pari-mutuel and other

 

11,121

 

10,608

 

513

 

4.8

%

Marine and facilities

 

14,111

 

13,967

 

144

 

1.0

%

Marketing and administrative

 

55,485

 

56,120

 

(635

)

-1.1

%

Corporate and development

 

5,880

 

7,230

 

(1,350

)

-18.7

%

Litigation accrual reversal

 

 

(1,979

)

1,979

 

N/M

 

Depreciation and amortization

 

19,528

 

20,171

 

(643

)

-3.2

%

Total operating expenses

 

$

214,022

 

$

206,243

 

7,779

 

3.8

%

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

January 25,

 

January 26,

 

 

 

Percentage

 

(in thousands)

 

2015

 

2014

 

Variance

 

Variance

 

Revenues:

 

 

 

 

 

 

 

 

 

Casino

 

$

767,359

 

$

733,185

 

$

34,174

 

4.7

%

Rooms

 

23,777

 

24,560

 

(783

)

-3.2

%

Food, beverage, pari-mutuel and other

 

102,839

 

99,123

 

3,716

 

3.7

%

Gross revenues

 

893,975

 

856,868

 

37,107

 

4.3

%

Less promotional allowances

 

(172,345

)

(163,044

)

(9,301

)

5.7

%

Net revenues

 

721,630

 

693,824

 

27,806

 

4.0

%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Casino

 

120,747

 

118,414

 

2,333

 

2.0

%

Gaming taxes

 

195,052

 

185,454

 

9,598

 

5.2

%

Rooms

 

5,123

 

5,221

 

(98

)

-1.9

%

Food, beverage, pari-mutuel and other

 

33,167

 

31,724

 

1,443

 

4.5

%

Marine and facilities

 

43,318

 

42,969

 

349

 

0.8

%

Marketing and administrative

 

175,704

 

175,010

 

694

 

0.4

%

Corporate and development

 

21,763

 

21,314

 

449

 

2.1

%

Litigation accrual reversal

 

 

(9,330

)

9,330

 

N/M

 

Preopening expense

 

 

3,898

 

(3,898

)

N/M

 

Depreciation and amortization

 

58,781

 

60,495

 

(1,714

)

-2.8

%

Total operating expenses

 

$

653,655

 

$

635,169

 

18,486

 

2.9

%

 

Casino Casino revenues increased $21.0 million, or 8.9%, for the three months ended January 25, 2015, as compared to the same period in fiscal 2014. Casino revenues increased at all 15 properties due to improved macroeconomic trends, favorable weather conditions compared to the prior year quarter and more focused marketing efforts.  Notably, our properties in Pompano, Nemacolin, Lula, Kansas City and Black Hawk had year-over-year increases in casino revenues of $5.0 million, $2.6 million, $1.7 million, $1.5 million and $1.5 million, respectively.

 

23



 

Casino operating expenses increased $2.0 million, or 5.2%, for the three months ended January 25, 2015, as compared to the same period in the prior fiscal year reflecting the increased casino revenues partially offset by savings from cost reduction initiatives.

 

Casino revenues increased $34.2 million, or 4.7%, for the nine months ended January 25, 2015, as compared to the same period in fiscal 2014. Casino revenues at our Nemacolin property, which opened July 1, 2013, were $31.1 million and $17.9 million for the nine months ended January 25, 2015 and January 26, 2014, respectively. Excluding casino revenues at our Nemacolin property, casino revenues increased $21.0 million, or 2.9%, primarily due to favorable results in the third quarter of 2015.

 

Casino operating expenses increased $2.3 million, or 2.0%, for the nine months ended January 25, 2015, as compared to the same period in the prior fiscal year.  Excluding casino operating expenses of $5.0 million and $4.2 million at our Nemacolin property for the nine months ended January 25, 2015 and January 26, 2014, respectively, casino expenses increased $1.6 million, or 1.4%, reflecting the increased casino revenues partially offset by savings from cost reduction initiatives.

 

Gaming Taxes State and local gaming taxes increased $5.9 million, or 9.7%, and $9.6 million, or 5.2%, for the three and nine months ended January 25, 2015, respectively, as compared to the same period in the prior fiscal year.  The increase was commensurate with the increase in casino revenues and a change in the mix of our gaming revenues derived from states with higher gaming tax rates.

 

Rooms Rooms revenue increased $0.1 million, or 0.8%, and decreased $0.8 million, or 3.2%, for the three and nine months ended January 25, 2015, respectively, as compared to the same period in the prior fiscal year.  The decrease for the nine month period was due to lower occupancy rates.

 

Food, Beverage, Pari-Mutuel and Other — Food, beverage, pari-mutuel and other revenues increased $1.9 million, or 5.8%, and $3.7 million, or 3.7%, for the three and nine months ended January 25, 2015, respectively, as compared to the same periods in the prior fiscal year. Excluding food, beverage and other revenue at our Nemacolin property, which opened July 1, 2013, for the nine months ending January 25, 2015 and January 26, 2014 of $3.1 million and $2.1 million, respectively, food, beverage and other revenue increased $2.7 million, for the nine months ended January 25, 2015, as compared to the same period in fiscal 2014, primarily reflective of the increase in casino revenues.

 

Food, beverage, pari-mutuel and other expenses increased $0.5 million, or 4.8%, and $1.4 million, or 4.5%, for the three and nine months ended January 25, 2015, respectively, as compared to the same periods in the prior fiscal year. The increase in expense is commensurate with the increase in food, beverage, pari-mutuel and other revenues.

 

Promotional Allowances Promotional allowances increased $6.1 million, or 11.9%, for the three months ended January 25, 2015, reflecting changes in our marketing programs. Promotional allowances increased at our properties in Lake Charles, Pompano and Black Hawk by $1.4 million, $1.2 million and $0.9 million, respectively.

 

Promotional allowances increased $9.3 million, or 5.7%, for the nine months ended January 25, 2015, as compared to the same period in fiscal 2014. Excluding promotional allowances at our Nemacolin property, which opened July 1, 2013, for the nine months ending January 25, 2015 and January 26, 2014, of $8.4 million and $3.9 million, respectively, promotional allowances increased $4.8 million, or 3.0%, for the nine months ended January 25, 2015, as compared to the same period in fiscal 2014, primarily reflective of changes in our marketing programs.

 

Marketing and Administrative   Marketing and administrative expenses decreased $0.6 million, or 1.1%, for the three months ended January 25, 2015 as compared to the same period in the prior fiscal year reflecting changes in our marketing programs as well as savings from cost reduction initiatives.

 

Marketing and administrative expenses increased $0.7 million, or 0.4%, for the nine months ended January 25, 2015 as compared to the same period in the prior fiscal year. Excluding marketing and administrative expenses at our Nemacolin property for both periods, the $4.1 million of costs incurred to defeat the Colorado referendum and the $1.2 million credit related to the property tax settlement at Waterloo, marketing and administrative

 

24



 

expenses decreased $3.9 million, or 2.3%, reflecting changes in our marketing programs as well as savings from cost reduction initiatives.

 

Corporate and Development — During the three months ended January 25, 2015, our corporate and development expenses were $5.9 million compared to $7.2 million for the three months ended January 26, 2014. The decrease reflects lower stock compensation expense of $0.2 million and savings due to our corporate realignment completed earlier in fiscal 2015 and continued focus on managing expenses.

 

During the nine months ended January 25, 2015, our corporate and development expenses were $21.8 million compared to $21.3 million for the nine months ended January 26, 2014. The nine months ended January 25, 2015 includes severance of $2.3 million resulting from the corporate restructuring. The nine months ended January 26, 2014 includes a gain of $1.0 million from the sale of our corporate aircraft.  Excluding these items, corporate and development decreased $2.9 million, or 12.8%, reflecting lower stock compensation expense of $0.8 million and savings due to our corporate realignment completed in fiscal 2015 and continued focus on managing expenses.

 

Depreciation and Amortization Depreciation and amortization expense for the three and nine months ended January 25, 2015 decreased $0.6 million and $1.7 million, respectively, primarily due to certain assets becoming fully depreciated.

 

Other Income (Expense) and Income Taxes

 

Interest expense, interest income, derivative income and income tax benefit for the three and nine months ended January 25, 2015 and January 26, 2014 are as follows:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

January 25,

 

January 26,

 

 

 

Percentage

 

(in thousands)

 

2015

 

2014

 

Variance

 

Variance

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

(20,927

)

$

(21,910

)

$

983

 

-4.5

%

Interest income

 

94

 

84

 

10

 

11.9

%

Income tax (provision) benefit

 

(786

)

13,270

 

(14,056

)

-105.9

%

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

January 25,

 

January 26,

 

 

 

Percentage

 

(in thousands)

 

2015

 

2014

 

Variance

 

Variance

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

(63,370

)

$

(59,758

)

$

(3,612

)

6.0

%

Interest income

 

273

 

260

 

13

 

5.0

%

Derivative income

 

 

398

 

(398

)

-100.0

%

Income tax (provision) benefit

 

(2,793

)

10,499

 

(13,292

)

-126.6

%

 

Interest Expense Interest expense decreased by $1.0 million and increased by $3.6 million for the three and nine months ended January 25, 2015, respectively, as compared to the same periods in the prior fiscal year. The three and nine months of the prior year includes the reversal of $0.2 million in interest expense resulting from the favorable Silver Land litigation ruling and the nine months of the prior year includes the reversal of $7.4 million in interest expense resulting from the favorable Greek litigation ruling.  Excluding these reversals, interest expense decreased $1.2 million and $4.0 million in the three and nine months of the current year, respectively, on lower credit facility borrowings.

 

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Liquidity and Capital Resources

 

Cash Flows provided by Operating Activities - During the nine months ended January 25, 2015, we generated $72.2 million in cash flows from operating activities compared to generating $48.5 million during the nine months ended January 26, 2014. The year-over-year increase in cash flows from operating activities is the result of improved operating income, increased business volumes and working capital changes.

 

Cash Flows used in Investing Activities - During the nine months ended January 25, 2015, we used $29.4 million for investing activities compared to using $37.6 million during the nine months ended January 26, 2014. Significant investing activities for the nine months ended January 25, 2015 included capital expenditures of $30.0 million.  Significant investing activities for the nine months ended January 26, 2014 included capital expenditures of $32.9 million, of which $17.4 million related to Nemacolin, as well as an additional $7.5 million toward a Nemacolin table gaming license.  These outflows were offset by $1.7 million of cash inflows from the change in restricted cash and investments and $1.2 million in proceeds from the sale of property and equipment.

 

Cash Flows used in Financing Activities — During the nine months ended January 25, 2015, our net cash flows used in financing activities were primarily to repay $45.4 million of borrowings under our Credit Facility.  During the nine months ended January 26, 2014, our net cash flows used in financing activities were primarily from repayments of $9.9 million of borrowings under our Credit Facility.

 

Availability of Cash and Additional Capital - At January 25, 2015, we had cash and cash equivalents of $67.1 million and marketable securities of $28.0 million. As of January 25, 2015, we had $19.3 million in outstanding revolving credit borrowings under our Credit Facility and our net line of credit availability was approximately $273.0 million, as limited by our outstanding borrowings and letters of credit.

 

Capital Expenditures and Development Activities— Historically, as part of our business development activities, we have entered into agreements which have resulted in the acquisition or development of businesses or assets. These business development efforts and related agreements typically require the expenditure of cash, which may be significant. The amount and timing of our cash expenditures relating to development activities may vary based upon our evaluation of current and future development opportunities, our financial condition and the condition of the financing markets. Our development activities are subject to a variety of factors including but not limited to: obtaining permits, licenses and approvals from appropriate regulatory and other agencies, legislative changes and, in certain circumstances, negotiating acceptable leases.

 

On February 1, 2013, we signed an agreement with Tower Investments, Inc. to manage The Provence, the resort and casino on North Broad Street, Philadelphia, proposed by Tower Entertainment, LLC (the “Tower JV”), if the project was selected by the Pennsylvania Gaming Control Board.  The agreement included a commitment for a loan that was secured by a stand by letter of credit of $25 million, which could only be drawn upon if the Tower JV was awarded the license. In November 2014, the license was awarded to another applicant and we cancelled the letter of credit. In December 2014, we terminated all of our agreements with Tower Investments, Inc.

 

Historically, we have made significant investments in property and equipment and expect that our operations will continue to require ongoing investments to keep our properties competitive. The timing, completion and amount of additional capital projects will be subject to economic and local market conditions, cash flows from our continuing operations and borrowing availability under our Credit Facility.

 

Typically, we have funded our daily operations through net cash provided by operating activities and our significant capital expenditures through operating cash flows and debt financing. While we believe that cash on hand, cash flow from operations, and available borrowings under our Credit Facility will be sufficient to support our working capital needs, planned capital expenditures and debt service requirements for the foreseeable future, there is no assurance that these sources will in fact provide adequate funding for our planned and necessary expenditures or that the level of our capital investments will be sufficient to allow us to remain competitive in our existing markets.

 

We are highly leveraged and may be unable to obtain additional debt or equity financing on acceptable terms if our current sources of liquidity are not sufficient or if we fail to stay in compliance with the covenants of our

 

26



 

Credit Facility. 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.

 

Critical Accounting Estimates

 

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles that require our management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:

 

·

those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made;

 

 

·

those estimates where, had we chosen different estimates or assumptions, the resulting differences would have had a material impact on our financial condition, changes in financial condition or results of operations; and

 

 

·

those estimates that, if they were to change from period to period, likely would result in a material impact on our financial condition, changes in financial condition or results of operations.

 

For a discussion of our significant accounting policies and estimates, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements presented in our 2014 Annual Report on Form 10-K. There were no newly identified significant accounting estimates in the third quarter of fiscal year 2015, nor were there any material changes to the critical accounting policies and estimates set forth in our 2014 Annual Report.

 

New Accounting Pronouncements

 

In June 2014, the Financial Accounting Standards Board issued Update No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This update requires awards with a performance target which affects vesting and could be achieved after the requisite service period, be treated as a performance condition and should not be reflected in estimating the grant date fair value of the award. This update is effective for annual periods ending after December 15, 2015. Early adoption is permitted.  The Company is evaluating the potential impact of the update on future grants under its stock-based compensation plans.

 

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, commodity prices and equity prices. Our primary exposure to market risk is interest rate risk associated with our Credit Facility.

 

ITEM 4.   CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of January 25, 2015.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of January 25, 2015, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act of 1934 and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

 

27



 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There have been no changes in our internal controls over financial reporting during the fiscal quarter ended January 25, 2015, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

28



 

PART II—OTHER INFORMATION

 

ITEM 1.                         LEGAL PROCEEDINGS

 

A reference is made to the information contained in Footnote 11 of our unaudited consolidated financial statements included herein, which is incorporated herein by reference.

 

ITEM 1A.                RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended April 27, 2014, except for the following:

 

We face significant competition from other gaming operations, including Native American gaming facilities, and from legalization or expansion of gaming by states in or near where we own properties, that could have a material adverse effect on our future operations.

 

The gaming industry is intensely competitive, and we face a high degree of competition in the markets in which we operate. We have numerous competitors, including land-based casinos, dockside casinos, riverboat casinos, casinos located on racing, pari-mutuel operations or Native American-owned lands and video lottery and poker machines not located in casinos. We also compete with other forms of legalized gaming and entertainment such as online computer gambling, bingo, pull tab games, card parlors, sports books, “cruise-to-nowhere” operations, pari-mutuel or telephonic betting on horse racing and dog racing, state-sponsored lotteries, jai-alai, and, in the future, may compete with gaming at other venues. In addition, we compete more generally with other forms of entertainment for the discretionary spending of our customers. We also face the risk that existing competitors will expand their operations and the risk that Native American gaming will continue to grow. For example, an existing competitor in Davenport, Iowa, has announced plans to move its riverboat casino to a new land-based gaming facility that will compete with our Bettendorf, Iowa property. Some of our competitors may have better name recognition, marketing and financial resources than we do; competitors with more financial resources may therefore be able to improve the quality of, or expand, their gaming facilities in a way that we may be unable to match.

 

In addition, we also face the risk of further legalization and/or expansion of gaming. Certain states have recently legalized, and other states are currently considering legalizing gaming. Our existing casinos attract a significant number of their customers from Houston, Texas; South Florida; Little Rock, Arkansas; and Denver, Colorado. Our continued success depends upon drawing customers from each of these geographic markets.  In the past, legislation to legalize or expand gaming has been introduced that would impact some of these markets. In July 2014, the Secretary of State of Colorado declared that proponents of an initiative to expand gaming to horse tracks in Colorado had obtained sufficient signatures to place the initiative on the ballot in November 2014. If passed, the initiative would expand gaming at Arapahoe Park horse racetrack and no more than one horse racetrack in each of Pueblo and Mesa counties where racing and wagering have taken place for at least five consecutive years. On November 4, 2014, the initiative failed.  Had the initiative passed, our business would have been adversely affected, particularly our Black Hawk, Colorado property.

 

We expect similar proposals to legalize or expand gaming will be made in the future in various states, and it is uncertain whether such proposals will be successful. Further, because the economic recession has reduced the revenues of state governments from traditional tax sources, voters and state legislatures may be more sympathetic to proposals authorizing or expanding gaming in those jurisdictions.

 

In addition, there is no limit on the number of gaming licenses that may be granted in several of the jurisdictions in which we operate. As a result, new gaming licenses could be awarded in these jurisdictions, which could allow new gaming operators to enter our markets that could have an adverse effect on our operating results.

 

ITEM 2.                         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We have purchased our common stock under stock repurchase programs. These programs allow for the repurchase of up to 6,000,000 shares.  To date, we have purchased 4,895,792 shares of our common stock under

 

29



 

these programs.  These programs have no approved dollar amount, nor expiration dates.  No purchases have been made under the program since September 2007.

 

ITEM 3.                         DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.                         MINE SAFETY DISCLOSURE

 

Not Applicable.

 

ITEM 5.                         OTHER INFORMATION

 

None.

 

ITEM 6.                         EXHIBITS

 

See the Index to Exhibits following the signature page hereto for a list of the exhibits filed pursuant to Item 601 of Regulation S-K.

 

30



 

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 thereunto duly authorized.

 

 

ISLE OF CAPRI CASINOS, INC.

 

 

Dated: February 27, 2015

/s/ Eric L. Hausler

 

Eric L. Hausler

 

Chief Financial Officer

 

(Principal Financial Officer and Authorized Officer)

 

ISLE OF CAPRI CASINOS, INC.

 

31



 

EXHIBIT
NUMBER

 

DESCRIPTION

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a—14(a) under the Securities Exchange Act of 1934.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a—14(a) under the Securities Exchange Act of 1934.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

 

 

 

101

 

The following financial statements and notes from the Isle of Capri Casinos, Inc. Quarterly Report on Form 10-Q for the quarter ended January 25, 2015, filed on February 27, 2015, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Comprehensive Income; (iv) Consolidated Statements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

 

32