10-K ISLE OF CAPRI CASINOS, APRIL 30, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the fiscal year ended April 30, 2006
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.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
41-1659606
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(State
or other jurisdiction
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|
(I.R.S.
Employer
|
of
incorporation or organization)
|
|
Identification
Number)
|
|
|
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1641
Popps Ferry Road, Biloxi, Mississippi
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|
39532
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(Address
of principal executive offices)
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|
(Zip
Code)
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|
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|
Registrant's
telephone number, including area code:
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(228)
396-7000
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Securities
Registered Pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common
Stock, $.01 Par Value Per Share
(Title
of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
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 disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, or a non-accelerated filer (Check one):
Large
accelerated filer o Accelerated
filer x Non-accelerated
filer
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
The
aggregate market value of the voting and non-voting stock held by
non-affiliates1
of
the
Company is $305,584,206, based on the last reported sale price of $20.79 per
share on October 21, 2005 on the NASDAQ Stock Market; multiplied by 14,698,615
shares of Common Stock outstanding and held by non-affiliates of the Company
on
such date.
As
of
July 3, 2006, the Company had a total of 30,392,940 shares of Common Stock
outstanding (which excludes 3,902,423 shares held by us in
treasury).
(1)Affiliates
for the purpose of this item refer to the directors, named executive officers
and/or persons owning 10% or more of the Company’s common stock, both of record
and beneficially; however, this determination does not constitute an admission
of affiliate status for any of the individual stockholders.
Document
Incorporated by Reference:
Document
|
Part
of Form 10-K into which Incorporated
|
Isle
of Capri Casinos, Inc.’s Definitive Proxy Statement for its Annual Meeting
of Stockholders to be held October 26, 2006.
|
Part
III
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ISLE
OF CAPRI CASINOS, INC.
FORM
10-K
INDEX
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PAGE
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PART
I
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2
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ITEM
1. BUSINESS
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2
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ITEM
1A. RISK FACTORS
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36
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ITEM
1B. UNRESOLVED STAFF COMMENTS
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42
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ITEM
2. PROPERTIES
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42
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ITEM
3. LEGAL PROCEEDINGS
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46
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|
ITEM
4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
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47
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PART
II
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47
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|
|
ITEM
5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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47
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|
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ITEM
6. SELECTED FINANCIAL
DATA
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49
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ITEM
7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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51
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ITEM
7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES
ABOUT MARKET RISK
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68
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ITEM
8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
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69
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ITEM
9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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119
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ITEM
9A. CONTROLS AND PROCEDURES
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119
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ITEM
9B. OTHER INFORMATION
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121
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PART
III
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121
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ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT
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121
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ITEM
11. EXECUTIVE COMPENSATION
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121
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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121
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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
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121
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ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
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121
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PART
IV
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122
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ITEM
15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
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122
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SIGNATURES
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123
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DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
All
statements other than statements of historical or current facts included
in this
annual report on form 10-K or incorporated by reference herein, including,
without limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of management
for
future operations, are forward-looking statements. Forward-looking statements
generally can be identified by the use of forward-looking terminology such
as
“may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe” or
“continue” or the negative thereof or variations thereof or similar terminology.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations
will
prove to have been correct.
Important
factors with respect to any such forward-looking statements, including certain
risks and uncertainties that could cause actual results to differ materially
from our expectations (“cautionary statements”), are disclosed under “Risk
Factors” and elsewhere in this annual report on Form 10-K, including, without
limitation, in conjunction with the forward-looking statements included in
this
Annual Report on Form 10-K.
We
urge
you to review carefully the section “Risk Factors” beginning on page 36 in this
annual report on Form 10-K for a more complete discussion of the risks of
investing our common stock. All subsequent written and oral forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by these cautionary statements.
PART
I
ITEM
1. BUSINESS.
Overview
We
were
incorporated in Delaware in February 1990. We are a leading developer, owner
and
operator of branded gaming facilities and related lodging and entertainment
facilities in markets throughout the United States and internationally. We
wholly own and operate eleven gaming facilities in the U.S. located in Lake
Charles and Bossier City, Louisiana; Lula, Biloxi, Vicksburg and Natchez,
Mississippi; Kansas City and Boonville, Missouri; and Bettendorf, Davenport
and
Marquette, Iowa. We also own a 57% interest in, and receive management fees
for
operating, two gaming facilities in Black Hawk, Colorado. One of these
facilities in Black Hawk, Colorado operates under the name “Isle of Capri” and
features our distinctive tropical island theme. Our international gaming
interests include a wholly owned casino in Freeport, Grand Bahama, and a
two-thirds ownership interest in casinos in Dudley, Wolverhampton, and Walsall,
England. We also wholly own and operate a pari-mutuel harness racing facility
in
Pompano Beach, Florida.
On
May
11, 2005, we announced that the Iowa Racing and Gaming Commission awarded
us a
gaming license in Waterloo, Iowa. Construction is underway on a 35,000 square
foot single level casino with 1,300 gaming positions, three restaurants,
a
200-room hotel and 1,000 parking spaces. We expect to open in late spring
of
2007 at a total cost of approximately $135 million.
On
January 4, 2006, a Florida statute became effective allowing Pompano Park
and
three other pari-mutuel facilities in Broward County to offer slot machine
gaming to patrons at these facilities. Although there are pari-mutuel facilities
in numerous other counties in the State of Florida, slot machine gaming is
only
authorized in Broward County where Pompano Park is located. We are constructing
a gaming facility including 1,500 slot machines, four restaurants and a feature
bar at Pompano Park adjacent to the existing grandstand at a cost approximately
$140 million with slot machine gaming anticipated to commence in early calendar
year 2007. We
do not
plan to open a temporary gaming facility. The
statute authorizes us to operate up to 1,500 slot machines at Pompano Park
365
days per year, 16 hours per day and requires Pompano Park to pay an annual
license fee of $3.0 million and gaming taxes equal to 50% of Pompano Park’s net
slot machine revenue plus combined county and city taxes of approximately
an
additional 3.5% on the first $250 million of net slot machine revenue and
5% on net slot machine revenue over $250 million. The
Florida Department of Business and Professional Regulation is administering
the
law and is now implementing rules and regulations for the operation of the
slot
machines.
On
February 14, 2006, we announced the execution of an agreement to sell our
properties in Bossier City, Louisiana and Vicksburg, Mississippi to Legends
Gaming, LLC for $240 million. We expect to use proceeds from the sale to
fund
existing development projects and/or pay down debt. The agreement is subject
to
regulatory approvals and other customary closing conditions. This transaction
is
expected to close in the second quarter of fiscal 2007. These properties
have
been reported as discontinued operations throughout this document.
In
April
2006, our Board of Directors approved a plan to close the Isle-Our Lucaya
facility. Effective June 1, 2006, we notified our landlord of our decision
to
terminate the lease and we intend to cease operations by June 1, 2007 as
required by our lease. We will continue to report the results of the Isle-Our
Lucaya property as continuing operations until a probable sale of this facility
is reached or operations are ceased, at which time, these results will be
reported as discontinued operations.
On
June
15, 2006, we announced that we received site and development approval from
the
Mississippi Gaming Commission in connection with our previously announced
casino
resort in west Harrison County, Mississippi, which is approximately 20
miles
from the Mississippi/Louisiana state border near Interstate 10. Preliminary
plans call for the estimated $250-$300 million project to include a single
level
gaming facility with over 2,000 gaming positions, a 500-room hotel, five
restaurants and a complement of additional resort amenities. The project
remains
in the preliminary planning stages, and is subject to certain significant
conditions, including but not limited to the receipt of all necessary licenses,
approvals and permits.
For
the
fiscal year ended April 30, 2006, we had net revenues from continuing operations
of approximately $988.0 million.
Competitive
Strengths
Strong
Brand Identity. Most
of
our casino properties operate under the “Isle of Capri” name designed to
incorporate our distinctive tropical island theme. Most of our domestic
gaming
facilities contain similar amenities, including hotels, one or more of
our
trademark restaurants (Farraddays’ fine dining restaurant, Calypso’s buffet and
Tradewinds Marketplace), a Banana Cabana gift shop and an entertainment
center
for performances and meetings. Each of our facilities also offers all customers
membership in our rewards program, which rewards loyal customers with points
and
complimentaries that can be redeemed at any of our properties by using
a
player’s club card. These programs are the IsleOne Players Club, the Fan Club,
and the Fast Track Club at the Isle of Capri properties, the Rhythm
City-Davenport and the Colorado Central Station-Black Hawk, respectively.
We
believe our brand names convey excitement, entertainment, consistent
high-quality service and value to our customers.
Standardized
Quality and Services.
We have
developed and implemented standardized procedures for operating our casinos,
hotels, restaurants and other non-gaming amenities, which has allowed us
to
fully and effectively integrate the domestic properties we have developed
or
acquired during the past fourteen years. We utilize management development
and
employee training programs to implement these procedures throughout our
facilities, which we believe help us efficiently operate our facilities.
This
standardization encourages high-quality service and provides our customers
with
a consistent experience.
Geographically
Diverse Markets. We
own or
operate our gaming facilities in eleven distinct geographic markets located
in 6
states, the Bahamas and the United Kingdom, allowing us to maintain diverse
sources of revenue and cash flow.
Most
of
our gaming facilities are conveniently located near major highways. We
have
located our facilities so that, in most cases, they are either the first
casino
reached by customers arriving from major nearby cities or are within a
cluster
of facilities, allowing us to generate significant customer
traffic.
Substantial
Capital Investment in Our Properties.
We are
continuing to expand and upgrade the facilities at several of our domestic
properties and believe the continued investment has improved their competitive
position.
Effective
Utilization of Proprietary Database.
We have
developed an extensive proprietary database of primarily slot-oriented customers
that allows us to create and deploy effective targeted marketing and promotional
programs, merchandise giveaways, game tournaments and other special events.
These promotional programs are designed to reward customer loyalty and maintain
high recognition of our “Isle of Capri” brand. As of April 30, 2006, our
database contained approximately 6.9 million members, of whom approximately
1.6
million receive regular communications from us. We believe we have effectively
used our database to encourage repeat visits, increase customers’ length of stay
and improve our operating results.
Experienced,
Stable Management Team. We
are an
experienced gaming operator and opened our first gaming facility approximately
fourteen years ago. Each member of our senior management team has extensive
gaming or related industry experience and most have been with us for a number
of
years, providing consistency in our operations.
Casino
Properties
The
following is an overview of our existing casino properties as of April 30,
2006:
|
Date
Opened or
|
|
Slot
|
|
Table
|
|
Hotel
|
|
Parking
|
Property*
|
Acquired
|
|
Machines
|
|
Games
|
|
Rooms
|
|
Spaces
|
|
|
|
|
|
|
|
|
|
|
Louisiana
|
|
|
|
|
|
|
|
|
|
Isle-Lake
Charles
|
July
1995
|
|
1,968
|
|
83
|
|
493
|
|
2,200
|
Mississippi
|
|
|
|
|
|
|
|
|
|
Isle-Lula
|
March
2000
|
|
1,506
|
|
24
|
|
486
|
|
1,500
|
Isle-Biloxi
|
August
1992
|
|
927
|
|
36
|
|
728
|
|
900
|
Isle-Natchez
|
March
2000
|
|
648
|
|
19
|
|
143
|
|
908
|
Missouri
|
|
|
|
|
|
|
|
|
|
Isle-Kansas
City
|
June
2000
|
|
1,533
|
|
33
|
|
-
|
|
1,947
|
Isle-Boonville
|
December
2001
|
|
902
|
|
34
|
|
-
|
|
1,079
|
Iowa
|
|
|
|
|
|
|
|
|
|
Isle-Bettendorf
|
March
2000
|
|
1,122
|
|
28
|
|
256
|
|
1,539
|
Rhythm
City-Davenport
|
October
2000
|
|
1,024
|
|
17
|
|
121
|
|
984
|
Isle-Marquette
|
March
2000
|
|
708
|
|
15
|
|
25
|
|
490
|
Colorado
|
|
|
|
|
|
|
|
|
|
Isle-Black
Hawk (57% owned)
|
December
1998
|
|
1,378
|
|
18
|
|
238
|
|
1,100
|
Colorado
Central Station - Black Hawk (57% owned)
|
April
2003
|
|
778
|
|
15
|
|
162
|
|
1,200
|
International
Properties
|
|
|
|
|
|
|
|
|
|
Isle-Our
Lucaya
|
December
2003
|
|
351
|
|
33
|
|
-
|
|
-
|
Blue
Chip-Dudley (66 2/3% owned)
|
November
2003
|
|
10
|
|
29
|
|
-
|
|
63
|
Blue
Chip-Wolverhampton (66 2/3% owned)
|
April
2004
|
|
10
|
|
48
|
|
-
|
|
20
|
Blue
Chip-Walsall (66 2/3% owned)
|
October
2004
|
|
10
|
|
51
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
*
Excludes Isle-Vicksburg and Isle-Bossier City which have been
classified
as discontinued operations due to an agreement
|
to
sell both properties. The Company expects the transaction to close
in the second quarter of fiscal
2007. |
Louisiana
The
Isle-Lake Charles
The
Isle-Lake Charles, which commenced operations in July 1995, is located on a
19-acre site along Interstate 10, the main thoroughfare connecting Houston,
Texas to Lake Charles, Louisiana. The property consists of two dockside casinos
offering 1,968 slot machines and 83 table games, a 252-room deluxe hotel, a
separate 241-room hotel, a 105,000 square foot land-based pavilion and
entertainment center, and 2,200 parking spaces, including approximately 1,400
spaces in an attached parking garage. The pavilion and entertainment center
offer customers a wide variety of non-gaming amenities, including a 97-seat
Farraddays’ restaurant, a 360-seat Calypso’s buffet, a 165-seat Tradewinds
Marketplace, a 140-seat Kitt’s Kitchen restaurant, a 64-seat Lucky Wins oriental
restaurant and Caribbean Cove, which features free live entertainment and can
accommodate 180 customers. The pavilion also has a 14,750 square foot
entertainment center comprised of an 1,100-seat special events center designed
for concerts, live boxing, televised pay-per-view events, banquets and other
events, meeting facilities and administrative offices.
The
Lake
Charles market currently consists of two dockside gaming facilities (which
include the Isle-Lake Charles and Pinnacle Entertainment’s one-level barge
facility), a Native American casino and a pari-mutuel facility/racino (operated
by Boyd Gaming). Due to Hurricane Rita, Harrah’s has not operated in the market
since its closure in September 2005. Pinnacle Entertainment has entered into
an
agreement to acquire the Harrah’s Lake Charles assets, including its two gaming
licenses. Pinnacle has announced that it intends to move one of these
licenses out of the Lake Charles market and use the other license to develop
a
new casino in Lake Charles. The current number of slot machines in the market
exceeds 8,200 machines and table games exceed 200 tables. In calendar year
2005,
the three gaming facilities (Isle, Pinnacle, Harrah’s) and one racino (Boyd), in
the aggregate, generated gaming revenues of approximately $550 million. Revenues
for the Native American property are not published and are not available. Lake
Charles is the closest gaming market to the Houston metropolitan area, which
has
a population of approximately 4.7 million and is located approximately 140
miles
west of Lake Charles. We believe that the Isle-Lake Charles attracts customers
primarily from southeast Texas, including Houston, Beaumont, Galveston, Orange
and Port Arthur and from local area residents. Approximately 490,000 and 1.6
million people reside within 50 and 100 miles, respectively, of the Isle-Lake
Charles.
Mississippi
The
Isle-Lula
The
Isle-Lula, which was acquired in March 2000, is strategically located off of
Highway 49, the only road crossing the Mississippi River between Mississippi
and
Arkansas for more than 50 miles in either direction. The property consists
of
two dockside casinos containing 1,506 slot machines and 24 table games, two
on-site hotels with a total of 486 rooms, a land-based pavilion and
entertainment center, and 1,500 parking spaces. The pavilion and entertainment
center offer a wide variety of non-gaming amenities, including a 144-seat
Farraddays’ restaurant, a 260-seat Calypso’s buffet and a 50-seat Tradewinds
Marketplace.
The
Isle-Lula is the only gaming facility in the Coahoma County, Mississippi market
and generated gaming revenues of approximately $90.2 million in calendar year
2005. The Isle-Lula is the closest gaming facility to the Little Rock, Arkansas
metropolitan area, which has a population of approximately 629,000 and is
located approximately 120 miles west of the property. Coahoma County is also
located approximately 60 miles southwest of Memphis, Tennessee, which is
primarily served by 9 casinos in Tunica, Mississippi. Approximately 964,000
people reside within the property’s primary target market.
The
Isle-Biloxi
The
Isle-Biloxi, which commenced operations in August 1992, is located on a 17-acre
site at the eastern end of a cluster of facilities formerly known as “Casino
Row” in Biloxi, Mississippi, and is the first property reached by visitors
coming from Alabama, Florida and Georgia via Highway 90.
On
August
29, 2005 the property was significantly damaged by Hurricane Katrina. The
property was closed on August 28, 2005 and remained closed to the public
until
December 26, 2005. The Highway 90 bridge spanning Biloxi Bay, located to
the
east of the property, was also destroyed. The bridge is expected to be replaced
with a new, larger bridge within the next 18 months.
In
October 2005, the Mississippi legislature amended the gaming laws to allow
casinos to operate land-based facilities within 800 feet of the shore. The
Isle-Biloxi re-opened on December 26, 2005 with a land-based casino offering
approximately 1,179 gaming positions, a 728-room hotel including 200 whirlpool
suites, a 120-seat restaurant named “A Taste of Farraddays’,” a 200-seat
Calypso’s buffet, a Tradewinds Express and 900 parking spaces. In
late
May 2006, Isle-Biloxi completed the renovation of its existing atrium that
added
a new multi-story feature bar, connected the parking garage with the atrium
by a
covered walkway, and increased the number of gaming positions to approximately
1,600.
Prior
to
Hurricane Katrina, the Mississippi Gulf Coast market (which includes Biloxi,
Gulfport and Bay St. Louis) was one of the largest gaming markets in the
United
States and consisted of 12 dockside gaming facilities which, in the aggregate,
generated gaming revenues of approximately $1.2 billion in calendar year
2004.
Comparable gaming revenue information for this market is not available for
calendar year 2005 due to the impact of Hurricane Katrina. Since our re-opening
in December 2005, four other competitors have re-entered the market: the
Imperial Palace, Palace Casino Resort, Treasure Bay and Boomtown. During
our
fiscal 2007 we anticipate additional casinos to re-enter the market, although
the effect of this additional competition cannot be determined.
The
Isle-Natchez
The
Isle-Natchez, which was acquired in March 2000, is located off of Highways
84
and 61 in western Mississippi. The property consists of a dockside casino
offering 648 slot machines and 19 table games, a 143-room off-site hotel located
approximately one mile from the casino, a 150-seat Calypso’s buffet and 908
parking spaces.
The
Isle-Natchez is the only gaming facility in the Natchez market and generated
gaming revenues of approximately $42.3 million in calendar year 2005. We believe
that the Isle-Natchez attracts customers primarily from among the 110,000 people
residing within 50 miles of the Isle-Natchez.
Missouri
The
Isle-Kansas City
The
Isle-Kansas City which was acquired in June 2000, is the closest facility
to
downtown Kansas City and consists of a dockside casino offering 1,533 slot
machines, 27 table games and 6 poker tables, a 96-seat Farraddays’ Bistro
restaurant, a 372-seat Calypso’s buffet, a 45-seat Tradewinds Marketplace and
1,947 parking spaces. We are currently in the design phase of an $85 million
expansion project at Isle-Kansas City. The planned expansion project will
improve guest traffic patterns and renovate existing gaming space. Exterior
plans include a new, updated entryway, exterior facade refinishing,
reconfiguration of existing parking, and the addition of 1,000 parking spaces.
Plans for the casino interior include expanding and renovating the gaming
area
including 400 additional slots and adding an entertainment venue to seat
at
least 1,000 guests, as well as, additional food and beverage amenities. The
planned Kansas City expansion project is subject to negotiation of an amended
lease and development agreement and receipt of necessary permits and approvals.
The
Kansas City market consists of four dockside gaming facilities that, in the
aggregate, generated gaming revenues of approximately $688.2 million in calendar
year 2005. The other operators of dockside gaming facilities in this market
are
Ameristar Casinos, Penn National Gaming (formerly Argosy Gaming) and Harrah’s
Entertainment. We believe that the Isle-Kansas City attracts customers primarily
from the Kansas City metropolitan area, which has approximately 1.9 million
residents.
The
Isle-Boonville
The
Isle-Boonville, which opened on December 6, 2001, is located off of Interstate
70, approximately halfway between Kansas City and St. Louis. The property
consists of a single level dockside casino offering 902 slot machines, 28
table
games and 6 poker tables, a 140-room hotel that opened in June 2006, a 32,400
square foot pavilion and entertainment center and 1,079 parking spaces. The
pavilion and entertainment center offers customers a wide variety of non-gaming
amenities, including a 92-seat Farraddays’ restaurant, a 270-seat Calypso’s
buffet, a 32-seat Tradewinds Marketplace and a historic display area.
Isle-Boonville’s new hotel includes 20 suites and an 800-seat event center. The
Isle-Boonville is the only gaming facility between Kansas City, Missouri,
and
St. Louis, Missouri and generated gaming revenues of approximately $75.2
million
in calendar year 2005.
Iowa
The
Isle-Bettendorf
The
Isle-Bettendorf,
which we acquired in March 2000, is located off of Interstate 74, an interstate
highway serving the Quad Cities metropolitan area. The property consists
of a
dockside casino offering 1,122 slot machines and 28 table games, a 256-room
hotel, approximately 20,500 square feet of convention/banquet space, a 140-seat
Farraddays’ restaurant, a 320-seat Calypso’s buffet, a 30-seat Tradewinds
Marketplace and 1,539 parking spaces. We have signed a development agreement
with the City of Bettendorf pursuant to which we are constructing a new 250-room
Isle hotel, additional parking and an additional restaurant. Also, the City
agreed to construct a 50,000 square foot convention center adjacent to the
facility, which will be managed by the Isle-Bettendorf. The cost of our portion
of this project will be approximately $45 million, and the new hotel is
scheduled to open in the spring of 2007.
The
Quad
Cities metropolitan area, consisting of Bettendorf and Davenport, Iowa and
Moline and Rock Island, Illinois currently has three gaming operations -
our two
gaming facilities, the Isle-Bettendorf and the Rhythm City-Davenport, and
one
smaller operator. The three operations in the Quad Cities generated, in the
aggregate, gaming revenues of approximately $217.8 million in calendar year
2005. In addition to the Quad Cities metropolitan area, our operations in
the
Quad Cities also compete with other gaming operations in Illinois and Iowa.
The
Rhythm City-Davenport
The
Rhythm City-Davenport, which we acquired in October 2000, is located between
Interstates 74, 80 and 280. The property consists of a dockside gaming facility
offering 1,024 slot machines and 17 table games, a 290-seat Hit Parade buffet,
a
76-seat Rock Around the Clock diner and 984 parking spaces. The Rhythm
City-Davenport also operates a 121-room off-site hotel located approximately
four blocks from the casino. The hotel has been closed since February 2006,
due
to damage from a fire.
The
Isle-Marquette
The
Isle-Marquette, which we acquired in March 2000, is located in Marquette,
Iowa,
approximately 60 miles north of Dubuque, Iowa. The property consists of a
dockside casino offering 708 slot machines and 15 table games, a land-based
facility which includes a 160-seat Calypso’s buffet restaurant, a Tradewinds
Marketplace, an entertainment showroom, a 25-room hotel, a marina and 490
parking spaces.
The
Isle-Marquette is the only gaming facility in the Marquette, Iowa market,
and
generated gaming revenues of approximately $42.6 million in calendar year
2005.
We believe the Isle-Marquette draws most of its customers from northeast
Iowa
and Wisconsin and to some extent, competes for those customers with other
gaming
facilities in Iowa and Wisconsin.
Colorado
The
Isle-Black Hawk
The
Isle-Black Hawk, which commenced operations in December 1998, is located
on an
approximately 10-acre site and is one of the first gaming facilities reached
by
customers arriving from Denver via Highway 119, the main thoroughfare connecting
Denver to Black Hawk. The property includes a land-based casino with 1,378
slot
machines and 18 table games, a 238-room hotel and 1,100 parking spaces in
an
attached parking garage. The Isle-Black Hawk also offers customers a wide
variety of non-gaming amenities, including a 96-seat Farraddays’ restaurant, a
228-seat Calypso’s buffet, a 32-seat Tradewinds Marketplace and a 4,000 square
foot event center that can be used for meetings and entertainment. We own
57% of
the Isle-Black Hawk through an unrestricted subsidiary and receive a management
fee for operating the facility.
The
Colorado Central Station-Black Hawk
The
Colorado Central Station-Black Hawk, which we acquired in April 2003, is
located
across the intersection of Main Street and Mill Street from the Isle-Black
Hawk.
The property currently consists of a land-based casino with 778 slot machines,
15 table games, a 162-room hotel that opened December 24, 2005 and 1,200
parking
spaces in our new parking structure connecting Isle-Black Hawk and Colorado
Central Station-Black Hawk. The property also offers guests dining in its
food
court that was opened in 2005 featuring three distinct dining options. We
own
57% of the Colorado Central Station-Black Hawk through an unrestricted
subsidiary and receive a management fee for operating the facility.
The
Black
Hawk/Central City market consists of 26 gaming facilities (six of which have
more than 600 slot machines), which, in aggregate, generated gaming revenues
of
approximately $604.7 million in calendar year 2005. Black Hawk is the closest
gaming market to the Denver, Colorado metropolitan area, which has a population
of approximately 2.6 million and which is located approximately 40 miles
east of
Black Hawk. We believe that the Isle-Black Hawk and Colorado Central
Station-Black Hawk attract customers primarily from Denver, Boulder, Fort
Collins and Golden, Colorado and Cheyenne, Wyoming.
Florida
Pompano
Park
In
1995,
we acquired Pompano Park, a harness racing track located in Pompano Beach,
Florida. Pompano Park is conveniently located off of Interstate 95 and the
Florida Turnpike on a 223-acre owned site, near Fort Lauderdale, midway between
Miami and West Palm Beach. Pompano Park is the only racetrack licensed to
conduct harness racing in Florida. During the fiscal year ended April 30,
2006,
Pompano Park conducted 149 live racing programs. Pompano Park can accommodate
up
to 14,500 customers and has 4,000 parking spaces and 1,040 horse stalls.
The
six-story, air-conditioned facility consists of 21 poker tables, a box seat
area, a 277,000 square foot clubhouse, a large grandstand, a 1,250-seat dining
area from which the races can be viewed, five concession stands, five bars
and a
180-seat Player’s Lounge cafeteria.
In
November 2004, voters in the State of Florida voted to amend the state's
constitution to allow the voters of Miami-Dade and Broward counties (Broward
County is the location of the Pompano Park Racetrack) to decide whether to
approve slot machines in racetracks and jai alai frontons in their respective
counties. Broward County voters passed their local referendum and Dade county
voters rejected their referendum in March 2005. In December 2005, the Florida
legislature passed legislation to permit the operation of 1,500 slot machines
at
Pompano Park. We are constructing a gaming facility including 1,500 slot
machines, four restaurants and feature bar at Pompano Park adjacent to the
existing grandstand at a cost of approximately $140 million with slot machine
gaming anticipated to commence in early 2007.
This
facility has drawn and we anticipate will continue to draw most of its customers
from the 2.6 million people residing within a 25-mile radius.
Grand
Bahama Island
The
Isle-Our Lucaya
The
Isle-Our Lucaya is a 19,000 square-foot resort-style casino located in Freeport,
Grand Bahama that offers 351 slot machines, 33 table games and a 110-seat
restaurant.
United
Kingdom
Blue
Chip-Dudley
The
pub-style casino in Dudley, England is one of 17 gaming facilities in the
West
Midlands market. Dudley is close to the Birmingham metropolitan area, which
has
a population of approximately 5.3 million. The casino consists of 10 slot
machines, 29 table games and 63 parking spaces. We own two-thirds of the
Blue
Chip-Dudley through an unrestricted subsidiary.
Blue
Chip-Wolverhampton
The
pub-style casino in Wolverhampton, England is also in the West Midlands market.
Wolverhampton is close to the Birmingham metropolitan area. The casino consists
of 10 slot machines, 48 table games and 20 parking spaces. We own two-thirds
of
the Blue Chip-Wolverhampton through an unrestricted subsidiary.
Blue
Chip-Walsall
The
pub-style casino in Walsall, England is also in the West Midlands market.
Walsall is close to the Birmingham metropolitan area. The casino consists of
10
slot machines and 51 table games. We own two-thirds of the Blue Chip-Walsall
through an unrestricted subsidiary.
Coventry
We
have
obtained a gaming license to open a casino at RICOHTM
Arena in
Coventry, England under the 1968 Gambling Act and are currently constructing
this facility. Additionally, we are exploring our options with respect to
overall development plans for this property, including a possible entertainment
facility.
Marketing
We
attract customers to our casinos by designing and implementing marketing and
promotional programs that leverage our Isle of Capri, Rhythm City and Colorado
Central Station brands by building customer loyalty. We have developed an
extensive proprietary database of primarily slot-oriented customers that allows
us to create effective targeted marketing and promotional programs, merchandise
giveaways, game tournaments and other special events. The programs are designed
to reward customer loyalty, attract new customers to our properties and maintain
high recognition of our brands. These promotional programs are designed to
reward customer loyalty and maintain high recognition of our
brands.
The
Company has enhanced its gaming service by installing the IGT Advantage™ Casino
System at our properties in Mississippi, Lake Charles, La. and Colorado Central
Station in Black Hawk. The state-of-the-art system interfaces with our
proprietary IsleOne marketing system giving the Company a robust platform for
future automated marketing programs. The Mississippi properties feature one
such
program called IslePlay allowing customers to redeem direct marketing offers
electronically. Deployment of the IGT Advantage™ Casino System continues at our
properties in Missouri and Iowa at this time.
As
of
April 30, 2006, our database contained approximately 6.9 million members, of
whom approximately 1.6 million receive regular mailings. To develop this
database, we offer all of our customers a membership in the IsleOne Players
Club
at Isle of Capri properties, the Fan Club at the Rhythm City-Davenport and
the
Fast Track Club at the Colorado Central Station property. These programs reward
loyal customers with points that can be redeemed at our casinos by using our
player’s club card. Currently, the player’s club card allows us to track the
members’ gaming preferences, maximum, minimum and total amount wagered and
frequency of visits. Players are classified in groups according to these
characteristics. Our database is used for direct marketing programs and other
promotional events that are tailored to these specific groups of players. We
believe we have effectively used our database to encourage repeat visits,
increase customers’ length of stay and improve our operating results.
We
place
significant emphasis on attracting local residents and seek to maintain a strong
local identity in each market in which we operate by initiating and supporting
community and special events. We use broadcast media to promote our brands
and
attract customers to our properties.
Employees
As
of
April 30, 2006, we employed approximately 8,516 people, which excludes employees
at Isle-Vicksburg and Isle-Bossier City, which are presented as discontinued
operations. None of our employees are subject to a collective bargaining
agreement. We believe that our relationship with our employees is satisfactory.
Regulation
and Licensing
The
ownership and operation of casino gaming facilities are subject to extensive
state and local regulations. We are required to obtain and maintain gaming
licenses in each of the jurisdictions in which we conduct gaming. The
limitation, conditioning or suspension of gaming licenses could (and the
revocation or non-renewal of gaming licenses, or the failure to reauthorize
gaming in certain jurisdictions, would) materially adversely affect our
operation in that jurisdiction. In addition, changes in law that restrict or
prohibit our gaming operations in any jurisdiction could have a material adverse
effect on us.
Louisiana
In
July
1991, Louisiana enacted legislation permitting certain types of gaming activity
on certain rivers and waterways in Louisiana. The legislation granted authority
to supervise riverboat gaming activities to the Louisiana Riverboat Gaming
Commission and the Riverboat Gaming Enforcement Division of the Louisiana State
Police. The Louisiana Riverboat Gaming Commission was authorized to hear and
determine all appeals relative to the granting, suspension, revocation,
condition or renewal of all licenses, permits and applications. In addition,
the
Louisiana Riverboat Gaming Commission established regulations concerning
authorized routes, duration of excursions, minimum levels of insurance,
construction of riverboats and periodic inspections. The Riverboat Gaming
Enforcement Division of the Louisiana State Police was authorized to investigate
applicants and issue licenses, investigate violations of the statute and conduct
continuing reviews of gaming activities.
In
May
1996, regulatory oversight of riverboat gaming was transferred to the Louisiana
Gaming Control Board, which is comprised of nine voting members appointed by
the
governor. The Louisiana Gaming Control Board now oversees all licensing matters
for riverboat casinos, land-based casinos, racinos, video poker and certain
aspects of Native American gaming other than those responsibilities reserved
to
the Louisiana State Police.
The
Louisiana Gaming Control Board is empowered to issue up to 15 licenses to
conduct gaming activities on a riverboat in accordance with applicable law.
However, no more than six licenses may be granted to riverboats operating from
any one designated waterway.
The
Louisiana State Police continues to be involved broadly in gaming enforcement
and reports to the Louisiana Gaming Control Board. Louisiana law permits the
Louisiana State Police, among other things, to continue to (1) conduct
suitability investigations, (2) audit, investigate and enforce compliance with
standing regulations, (3) initiate enforcement and administrative actions and
(4) perform “all other duties and functions necessary for the efficient,
efficacious, and thorough regulation and control of gaming activities and
operations” under the Louisiana Gaming Control Board’s
jurisdiction.
Louisiana
gaming law specifies certain restrictions relating to the operation of riverboat
gaming, including the following:
· |
agents
of the Louisiana State Police are permitted on board at any time
during
gaming operations;
|
· |
gaming
devices, equipment and supplies may only be purchased or leased from
permitted suppliers and, with respect to gaming equipment, from permitted
manufacturers;
|
· |
gaming
may only take place in the designated gaming area while the riverboat
is
docked on a designated river or
waterway;
|
· |
gaming
equipment may not be possessed, maintained or exhibited by any person
on a
riverboat except in the specifically designated gaming area or in
a secure
area used for inspection, repair or storage of such
equipment;
|
· |
wagers
may be received only from a person present on a licensed
riverboat;
|
· |
persons
under 21 are not permitted in designated gaming
areas;
|
· |
except
for slot machine play, wagers may be made only with tokens, chips
or
electronic cards purchased from the licensee aboard a
riverboat;
|
· |
licensees
may only use docking facilities and routes for which they are licensed
and
may only board and discharge passengers at the riverboat’s licensed
berth;
|
· |
licensees
must have adequate protection and indemnity
insurance;
|
· |
licensees
must have all necessary federal and state licenses, certificates
and other
regulatory approvals prior to operating a riverboat;
and
|
· |
gaming
may only be conducted in accordance with the terms of the license
and
Louisiana law.
|
To
receive a gaming license in Louisiana, an applicant must be found to be a person
of good character, honesty and integrity and a person whose prior activities,
criminal record, if any, reputation, habits and associations do not (1) pose
a
threat to the public interest of the State of Louisiana or to the effective
regulation and control of gaming or (2) create or enhance the dangers of
unsuitable, unfair or illegal practices, methods and activities in the conduct
of gaming or the carrying on of business and financial arrangements of gaming
activities. In addition, the Louisiana Gaming Control Board will not grant
a
license unless it finds that, among other things:
· |
the
applicant can demonstrate the capability, either through training,
education, business experience or a combination of the preceding,
to
operate a gaming operation;
|
· |
the
proposed financing of the riverboat and the gaming operations is
adequate
for the nature of the proposed operation and is from a suitable and
acceptable source;
|
· |
the
applicant demonstrates a proven ability to operate a vessel of comparable
size, capacity and complexity to a riverboat so as to ensure the
safety of
its passengers;
|
· |
the
applicant submits with its application for a license a detailed plan
of
design of the riverboat;
|
· |
the
applicant designates the docking facilities to be used by the
riverboat;
|
· |
the
applicant shows adequate financial ability to construct and maintain
a
riverboat; and
|
· |
the
applicant has a good faith plan to recruit, train and upgrade minorities
in all employment classifications.
|
An
initial license to conduct riverboat gaming operations is valid for a term
of
five years and legislation passed in the 1999 legislative session provides
for
renewals every five years thereafter. Louisiana gaming law provides that a
renewal application for the period succeeding the initial five-year term of
an
operator’s license must be made to the Louisiana Gaming Control Board and must
include a statement under oath of any and all changes in information, including
financial information, provided in the previous application. The transfer of
a
license or an interest in a license is prohibited. A gaming license is deemed
to
be a privilege under Louisiana law and, as such, may be denied, revoked,
suspended, conditioned or limited at any time by the Louisiana Gaming Control
Board. The Isle-Bossier City and the Isle-Lake Charles each received a five-year
renewal of their license on July 20, 1999.
On
April
9, 2004, the Isle-Bossier City and the Isle-Lake Charles filed applications
for
a second five year renewal of their three licenses. These five year renewal
applications were approved for Louisiana Riverboat Gaming Partnership and Grand
Palais Riverboat, Inc. on August 17, 2004 and St. Charles Gaming Company, Inc.
was approved on March 29, 2005.
Certain
persons affiliated with a riverboat gaming licensee, including directors and
officers of the licensee, directors and officers of any holding company of
the
licensee involved in gaming operations, persons holding 5% or greater interests
in the licensee and persons exercising influence over a licensee, are subject
to
the application and suitability requirements of Louisiana gaming
law.
The
sale,
purchase, assignment, transfer, pledge or other hypothecation, lease,
disposition or acquisition by any person of securities that represent 5% or
more
of the total outstanding shares issued by a licensee is subject to the approval
of the Louisiana Gaming Control Board. A security issued by a licensee must
generally disclose these restrictions. Prior approval from the Louisiana Gaming
Control Board is required for the sale, purchase, assignment, transfer, pledge
or other hypothecation, lease, disposition or acquisition of any ownership
interest of 5% or more of any non-corporate licensee or for the transfer of
any
“economic interest” of 5% or more of any licensee or affiliated gaming person.
An “economic interest” is defined as any interest whereby a person receives or
is entitled to receive, by agreement or otherwise, a profit, gain, thing of
value, loan, credit, security interest, ownership interest or other
benefit.
Fees
payable to the state for conducting gaming activities on a riverboat include
(1)
$50,000 per riverboat for the first year of operation and $100,000 per year
per
riverboat thereafter, plus (2) 18.5% of net gaming proceeds. Legislation was
passed during the 2001 legislative session that allowed those riverboats that
had been required to conduct cruises, including the riverboats at the Isle-Lake
Charles, to remain permanently dockside beginning April 1, 2001. The legislation
also increased the gaming tax for operators from 18.5% to 21.5%. A statute
also
authorizes local governing authorities to levy boarding fees. We currently
have
development agreements in Lake Charles with certain local governing authorities
in the jurisdictions in which we operate pursuant to which we make payments
in
lieu of boarding fees.
A
licensee must notify and/or seek approval from the Louisiana Gaming Control
Board in connection with any withdrawals of capital, loans, advances or
distributions in excess of 5% of retained earnings for a corporate licensee,
or
of capital accounts for a partnership or limited liability company licensee,
upon completion of any such transaction. The Louisiana Gaming Control Board
may
issue an emergency order for not more than ten days prohibiting payment of
profits, income or accruals by, or investments in, a licensee. Unless excepted
or waived by the Louisiana Gaming Control Board, riverboat gaming licensees
and
their affiliated gaming persons must notify the Louisiana Gaming Control Board
60 days prior to the receipt by any such persons of any loans or extensions
of
credit or modifications thereof. The Louisiana Gaming Control Board is required
to investigate the reported loan, extension of credit or modification thereof
and to determine whether an exemption exists on the requirement of prior written
approval and, if such exemption is not applicable, to either approve or
disapprove the transaction. If the Louisiana Gaming Control Board disapproves
of
a transaction, the transaction cannot be entered into by the licensee or
affiliated gaming person. We are an affiliated gaming person of our subsidiaries
that hold the licenses to conduct riverboat gaming at the Isle-Bossier City
and
the Isle-Lake Charles.
The
failure of a licensee to comply with the requirements set forth above may result
in the suspension or revocation of that licensee’s gaming license. Additionally,
if the Louisiana Gaming Control Board finds that the individual owner or holder
of a security of a corporate license or intermediary company or any person
with
an economic interest in a licensee is not qualified under Louisiana law, the
Louisiana Gaming Control Board may require, under penalty of suspension or
revocation of the license, that the person not:
· |
receive
dividends or interest on securities of the
corporation;
|
· |
exercise
directly or indirectly a right conferred by securities of the
corporation;
|
· |
receive
remuneration or economic benefit from the
licensee;
|
· |
exercise
significant influence over activities of the licensee;
or
|
· |
continue
its ownership or economic interest in the
licensee.
|
A
licensee must periodically report the following information to the Louisiana
Gaming Control Board, which is not confidential and is available for public
inspection: (1) the licensee’s net gaming proceeds from all authorized games,
(2) the amount of net gaming proceeds tax paid and (3) all quarterly and annual
financial statements presenting historical data, including annual financial
statements that have been audited by an independent certified public
auditor.
During
the 1996 special session of the Louisiana legislature, legislation was enacted
placing on the ballot for a statewide election a constitutional amendment
limiting the expansion of gaming, which was subsequently passed by the voters.
As a result, local option elections are required before new or additional forms
of gaming can be brought into a parish.
Proposals
to amend or supplement Louisiana’s riverboat gaming statute are frequently
introduced in the Louisiana State Legislature. There is no assurance that
changes in Louisiana gaming law will not occur or that such changes will not
have a material adverse effect on our business in Louisiana.
Mississippi
In
June
1990, Mississippi enacted legislation legalizing dockside casino gaming for
counties along the Mississippi River, which is the western border for most
of
the state, and the Gulf Coast, which is the southern border for most of the
state. The legislation gave each of those counties the opportunity to hold
a
referendum on whether to allow dockside casino gaming within its
boundaries.
In
its
2005 regular session, the legislature amended Mississippi law to allow gaming
to
be conducted on vessels or cruise vessels placed upon permanent structures
located on, in or above the Mississippi River, on, in or above navigable waters
in eligible counties along the Mississippi River or on, in or above the waters
lying south of the counties along the Mississippi Gulf Coast. Later, after
Hurricane Katrina, the Mississippi legislature again amended the law to allow
land-based gaming along the Gulf Coast in very limited circumstances.
Mississippi law permits unlimited stakes gaming, on a 24-hour basis and does
not
restrict the percentage of space that may be utilized for gaming. There are
no
limitations on the number of gaming licenses that may be issued in
Mississippi.
The
ownership and operation of gaming facilities in Mississippi are subject to
extensive state and local regulation intended to:
· |
prevent
unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any
capacity;
|
· |
establish
and maintain responsible accounting practices and procedures for
gaming
operations;
|
· |
maintain
effective control over the financial practices of licensees, including
establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping
and
making periodic reports;
|
· |
provide
a source of state and local revenues through taxation and licensing
fees;
|
· |
prevent
cheating and fraudulent practices;
and
|
· |
ensure
that gaming licensees, to the extent practicable, employ Mississippi
residents.
|
State
gaming regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted
in Mississippi and such changes, if enacted, could have an adverse effect on
us
and our Mississippi gaming operations.
We
are
registered as a publicly traded corporation under the Mississippi Gaming Control
Act. Our gaming operations in Mississippi are subject to regulatory control
by
the Mississippi Gaming Commission, the State Tax Commission and various other
local, city and county regulatory agencies (collectively referred to as the
“Mississippi Gaming Authorities”). Our subsidiaries have obtained gaming
licenses from the Mississippi Gaming Authorities. We must obtain a waiver from
the Mississippi Gaming Commission before beginning any proposed gaming
operations outside of Mississippi. The licenses held by our Mississippi gaming
operations have terms of three years and are not transferable. The Isle-Biloxi,
the Isle-Vicksburg, the Isle-Natchez and the Isle-Lula hold licenses effective
from May 23, 2006, through May 22, 2009. In addition, our wholly-owned
subsidiary, IOC Manufacturing, Inc. holds a manufacturer and distributor’s
license, so that we may perform certain upgrades to our Mississippi player
tracking system. This license has a term of three years, is effective from
June
16, 2005, through June 15, 2008, and is not transferable. There is no assurance
that new licenses can be obtained at the end of each three-year period of a
license. Moreover, the Mississippi Gaming Commission may, at any time, and
for
any cause it deems reasonable, revoke, suspend, condition, limit or restrict
a
license or approval to own shares of stock in our subsidiaries that operate
in
Mississippi.
Substantial
fines for each violation of Mississippi’s gaming laws or regulations may be
levied against us, our subsidiaries and the persons involved. Disciplinary
action against us or one of our subsidiary gaming licensees in any jurisdiction
may lead to disciplinary action against us or any of our subsidiary licensees
in
Mississippi, including, but not limited to, the revocation or suspension of
any
such subsidiary gaming license.
We,
along
with each of our Mississippi gaming subsidiaries, must periodically submit
detailed financial, operating and other reports to the Mississippi Gaming
Commission and/or the State Tax Commission. Numerous transactions, including
but
not limited to substantially all loans, leases, sales of securities and similar
financing transactions entered into by any of our Mississippi gaming
subsidiaries must be reported to or approved by the Mississippi Gaming
Commission. In addition, the Mississippi Gaming Commission may, at its
discretion, require additional information about our operations.
Certain
of our officers and employees and the officers, directors and certain key
employees of our Mississippi gaming subsidiaries must be found suitable or
be
licensed by the Mississippi Gaming Commission. We believe that all required
findings of suitability and key employee licenses related to all of our
Mississippi properties have been applied for or obtained, although the
Mississippi Gaming Commission at its discretion may require additional persons
to file applications for findings of suitability or key employee licenses.
In
addition, any person having a material relationship or involvement with us
may
be required to be found suitable or licensed, in which case those persons must
pay the costs and fees associated with such investigation. The Mississippi
Gaming Commission may deny an application for a finding of suitability for
any
cause that it deems reasonable. Changes in certain licensed positions must
be
reported to the Mississippi Gaming Commission. In addition to its authority
to
deny an application for a finding of suitability, the Mississippi Gaming
Commission has jurisdiction to disapprove a change in a licensed position.
The
Mississippi Gaming Commission has the power to require us and any of our
Mississippi gaming subsidiaries to suspend or dismiss officers, directors and
other key employees or to sever relationships with other persons who refuse
to
file appropriate applications or who the authorities find unsuitable to act
in
such capacities.
Employees
associated with gaming must obtain work permits that are subject to immediate
suspension under certain circumstances. The Mississippi Gaming Commission will
refuse to issue a work permit to a person who has been convicted of a felony,
committed certain misdemeanors or knowingly violated the Mississippi Gaming
Control Act, and it may refuse to issue a work permit to a gaming employee
for
any other reasonable cause.
At
any
time, the Mississippi Gaming Commission has the power to investigate and require
the finding of suitability of any record or beneficial stockholder of ours.
The
Mississippi Gaming Control Act requires any person who individually or in
association with others acquires, directly or indirectly, beneficial ownership
of more than 5% of our common stock to report the acquisition to the Mississippi
Gaming Commission, and such person may be required to be found suitable. In
addition, the Mississippi Gaming Control Act requires any person who,
individually or in association with others, becomes, directly or indirectly,
a
beneficial owner of more than 10% of our common stock, as reported to the U.S.
Securities and Exchange Commission, to apply for a finding of suitability by
the
Mississippi Gaming Commission and pay the costs and fees that the Mississippi
Gaming Commission incurs in conducting the investigation.
The
Mississippi Gaming Commission has generally exercised its discretion to require
a finding of suitability of any beneficial owner of more than 5% of a registered
publicly traded corporation’s stock. However, the Mississippi Gaming Commission
has adopted a regulation that may permit certain "institutional" investors
to
obtain waivers that allow them to beneficially own, directly or indirectly,
up
to 15% (19% in certain specific instances) of the voting securities of a
registered publicly traded corporation without a finding of suitability. If
a
stockholder who must be found suitable is a corporation, partnership or trust,
it must submit detailed business and financial information, including a list
of
beneficial owners.
Any
person who fails or refuses to apply for a finding of suitability or a license
within 30 days after being ordered to do so by the Mississippi Gaming Commission
may be found unsuitable. We believe that compliance by us with the licensing
procedures and regulatory requirements of the Mississippi Gaming Commission
will
not affect the marketability of our securities. Any person found unsuitable
who
holds, directly or indirectly, any beneficial ownership of our securities beyond
such time as the Mississippi Gaming Commission prescribes may be guilty of
a
misdemeanor. We are subject to disciplinary action if, after receiving notice
that a person is unsuitable to be a stockholder or to have any other
relationship with us or our subsidiaries operating casinos in Mississippi,
we:
· |
pay
the unsuitable person any dividend or other distribution upon its
voting
securities;
|
· |
recognize
the exercise, directly or indirectly, of any voting rights conferred
by
its securities;
|
· |
pay
the unsuitable person any remuneration in any form for services rendered
or otherwise, except in certain limited and specific circumstances;
or
|
· |
fail
to pursue all lawful efforts to require the unsuitable person to
divest
itself of the securities, including, if necessary, our immediate
purchase
of the securities for cash at a fair market
value.
|
We
may be
required to disclose to the Mississippi Gaming Commission upon request the
identities of the holders of any of our debt securities. In addition, under
the
Mississippi Gaming Control Act, the Mississippi Gaming Commission may, in its
discretion, (1) require holders of our securities, including our notes, to
file
applications, (2) investigate such holders and (3) require such holders to
be
found suitable to own such securities. Although the Mississippi Gaming
Commission generally does not require the individual holders of obligations
such
as the notes to be investigated and found suitable, the Mississippi Gaming
Commission retains the discretion to do so for any reason, including but not
limited to a default, or where the holder of the debt instrument exercises
a
material influence over the gaming operations of the entity in question. Any
holder of debt securities required to apply for a finding of suitability must
pay all investigative fees and costs of the Mississippi Gaming Commission in
connection with such an investigation.
The
Mississippi regulations provide that a change in control of us may not occur
without the prior approval of the Mississippi Gaming Commission. Mississippi
law
prohibits us from making a public offering of our securities without the
approval of the Mississippi Gaming Commission if any part of the proceeds of
the
offering is to be used to finance the construction, acquisition or operation
of
gaming facilities in Mississippi, or to retire or extend obligations incurred
for one or more such purposes. The Mississippi Gaming Commission has the
authority to grant a continuous approval of securities offerings and has granted
such approval to us, subject to renewal every three years.
Regulations
of the Mississippi Gaming Commission prohibit certain repurchases of securities
of publicly traded corporations registered with the Mississippi Gaming
Commission, including holding companies such as ours, without prior approval
of
the Mississippi Gaming Commission. Transactions covered by these regulations
are
generally aimed at discouraging repurchases of securities at a premium over
market price from certain holders of greater than 3% of the outstanding
securities of the registered publicly traded corporation. The regulations of
the
Mississippi Gaming Commission also require prior approval for a “plan of
recapitalization” as defined in such regulations.
We
must
maintain in the State of Mississippi current stock ledgers, which may be
examined by the Mississippi Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Mississippi Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. We must render maximum assistance in determining
the
identity of the beneficial owner.
Mississippi
law requires that certificates representing shares of our common stock bear
a
legend to the general effect that the securities are subject to the Mississippi
Gaming Control Act and regulations of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has the authority to grant a waiver from the
legend requirement, which we have obtained. The Mississippi Gaming Commission,
through the power to regulate licenses, has the power to impose additional
restrictions on the holders of our securities at any time.
The
Mississippi Gaming Commission enacted a regulation in 1994 requiring that,
as a
condition to licensure, an applicant must provide a plan to develop
infrastructure facilities amounting to 25% of the cost of the casino and a
parking facility capable of accommodating 500 cars. In 1999, the Mississippi
Gaming Commission approved amendments to this regulation that increased the
infrastructure development requirement from 25% to 100% for new casinos (or
upon
acquisition of a closed casino), but grandfathered existing licensees and
development plans approved prior to the effective date of the new regulation.
“Infrastructure facilities” include any of the following:
· |
a
250-room or larger hotel of at least a two-star rating as defined
by the
current edition of the Mobil Travel
Guide;
|
· |
entertainment
facilities;
|
· |
any
other facilities approved by the Mississippi Gaming
Commission.
|
Parking
facilities, roads, sewage and water systems or civic facilities are not
considered “infrastructure facilities.” The Mississippi Gaming Commission may
reduce the number of rooms required in a hotel if it is satisfied that
sufficient rooms are available to accommodate the anticipated number of
visitors. In 2003 and in 2006, the Mississippi Gaming Commission again amended
its regulation regarding development plan approval but left the 100%
infrastructure requirement intact.
License
fees and taxes are payable to the State of Mississippi and to the counties
and
cities in which a Mississippi gaming subsidiary’s respective operations will be
conducted. The license fee payable to the state of Mississippi is based upon
gross revenue of the licensee (generally defined as gaming receipts less payout
to customers as winnings) and equals 4% of gross revenue of $50,000 or less
per
month, 6% of gross revenue in excess of $50,000 but less than $134,000 per
calendar month, and 8% of gross revenue in excess of $134,000 per calendar
month. The foregoing license fees are allowed as a credit against the licensee’s
Mississippi income tax liability for the year paid. Additionally, a licensee
must pay a $5,000 annual license fee and an annual fee based upon the number
of
games it operates. The gross revenue tax imposed by the Mississippi communities
and counties in which our casino operations are located equals 0.4% of gross
revenue of $50,000 or less per calendar month, 0.6% of gross revenue over
$50,000 and less than $134,000 per calendar month and 0.8% of gross revenue
greater than $134,000 per calendar month. These fees have been imposed in,
among
other cities and counties, Biloxi, Vicksburg, and Coahoma County. Certain local
and private laws of the state of Mississippi may impose fees or taxes on the
Mississippi gaming subsidiaries in addition to the fees described
above.
The
Mississippi Gaming Commission requires, as a condition of licensure or license
renewal, that casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile-per-hour winds and 15-foot tidal surge. However, after Hurricane Katrina,
Isle - Biloxi reopened its casino on shore rather than on a vessel. A 1996
Mississippi Gaming Commission regulation prescribes the hurricane emergency
procedure to be used by the Mississippi Gulf Coast casinos.
The
sale
of food or alcoholic beverages at our Mississippi gaming locations is subject
to
licensing, control and regulation by the applicable state and local authorities.
The agencies involved have full power to limit, condition, suspend or revoke
any
such license, and any such disciplinary action could (and revocation would)
have
a material adverse effect upon the operations of the affected casino or casinos.
Certain of our officers and managers and our Mississippi gaming subsidiaries
must be investigated by the Alcoholic Beverage Control Division of the State
Tax
Commission in connection with liquor permits that have been issued. The
Alcoholic Beverage Control Division of the State Tax Commission must approve
all
changes in licensed positions.
On
three
separate occasions since 1998, certain anti-gaming groups have proposed
referenda that, if adopted, would have banned gaming in Mississippi and required
that gaming entities cease operations within two years after the ban. All three
referenda were declared invalid by Mississippi courts because each lacked a
required government revenue impact statement.
Missouri
Conducting
gambling games and operating an excursion gambling boat in Missouri are subject
to extensive regulation under Missouri’s Riverboat Gambling Act and the rules
and regulations promulgated thereunder. The Missouri Gaming Commission was
created by the Missouri Riverboat Gambling Act and is charged with regulatory
authority over riverboat gaming operations in Missouri, including the issuance
of riverboat gaming licenses. In June 2000, IOC-Kansas City, Inc., a subsidiary
of ours, was issued a riverboat gaming license in connection with our Kansas
City operation. Additionally, in December 2001, IOC-Boonville, Inc., a
subsidiary of ours, was issued a riverboat gaming license for our Boonville
operation.
In
order
to obtain a riverboat gaming license, the proposed operating business entity
must complete a Class A Riverboat Gaming Application, comprised of comprehensive
application forms, including corroborating attachments, and undergo an extensive
background investigation by the Missouri Gaming Commission. In addition, each
key person associated with the applicant (including directors, officers,
managers and owners of a significant direct or indirect interest in the
applicant) must complete a Riverboat Gaming Application Form I and undergo
a
background investigation. Certain key business entities closely related to
the
applicant or "business entity key persons" must undergo a similar application
process and background check. An applicant will not receive a license to conduct
gambling games and to operate an excursion gambling boat if the applicant and
its key persons have not established good repute and moral character and no
licensee shall either employ or contract with any person who has pled guilty
to,
or been convicted of, a felony, to perform any duties directly connected with
the licensee’s privileges under a license granted by the Commission. Each
license granted entitles a licensee to conduct gambling games on an excursion
gambling boat or to operate an excursion gambling boat and the equipment thereon
from a specific location. The duration of the license initially runs for two
one-year terms; thereafter, two-year terms. In conjunction with the renewal
of
each license, the Missouri Gaming Commission requires an updated Class A
Riverboat Gaming Application and, prior to the renewal of the license, conducts
an additional investigation of the licensee and of us with specific emphasis
on
new information provided in the updated Class A Riverboat Gaming Application.
The Commission also licenses the serving of alcoholic beverages on riverboats
and related facilities.
In
determining whether to grant a license, the Commission considers the following
factors, among others: (i) the integrity of the applicants; (ii) the types
and
variety of games the applicant may offer; (iii) the quality of the physical
facility, together with improvements and equipment, and how soon the project
will be completed; (iv) the financial ability of the applicant to develop and
operate the facility successfully; (v) the status of governmental actions
required by the facility; (vi) management ability of the applicant; (vii)
compliance with applicable statutes, rules, charters and ordinances; (viii)
the
economic, ecological and social impact of the facility as well as the cost
of
public improvements; (ix) the extent of public support or opposition; (x) the
plan adopted by the home dock city or county; and (xi) effects on
competition.
A
licensee is subject to
the imposition of penalties, suspension or revocation of its license for any
act
that is injurious to the public health, safety, morals, good order, and general
welfare of the people of the State of Missouri, or that would discredit or
tend
to discredit the Missouri gaming industry or the State of Missouri, including
without limitation: (i) failing to comply with or make provision for compliance
with the legislation, the rules promulgated thereunder or any federal, state
or
local law or regulation; (ii) failing to comply with any rules, order or ruling
of the Missouri Gaming Commission or its agents pertaining to gaming; (iii)
receiving goods or services from a person or business entity who does not hold
a
supplier’s license but who is required to hold such license by the legislation
or the rules; (iv) being suspended or ruled ineligible or having a license
revoked or suspended in any state or
gaming
jurisdiction; (v) associating with, either
socially or in business affairs, or employing persons of notorious or unsavory
reputation or who have extensive police records, or who have failed to cooperate
with any officially constituted investigatory or administrative body and would
adversely affect public confidence and trust in gaming; (vi) employing in any
Missouri gaming operation any person known to have been found guilty of cheating
or using any improper device in connection with any gambling game; (vii) use
of
fraud, deception, misrepresentation or bribery in securing any license or permit
issued pursuant to the legislation; (viii) obtaining any fee, charge, or other
compensation by fraud, deception or misrepresentation; and (ix) incompetence,
misconduct, gross negligence, fraud, misrepresentation or dishonesty in the
performance of the functions or duties regulated by the Missouri Riverboat
Gambling Act.
Any
transfer or
issuance of ownership interest in a publicly held gaming licensee or its holding
company that results in an entity owning, directly or indirectly, an aggregate
ownership interest of 5% or more in the gaming licensee must be reported to
the
Missouri Gaming Commission within seven days. Further, any pledge or
hypothecation of 5% or more of the ownership interest in a publicly held gaming
licensee or its holding company must be reported to the Missouri Gaming
Commission within seven days.
Every
employee participating in a riverboat gaming operation must hold an occupational
license. In addition, the Missouri Gaming Commission issues supplier’s licenses,
which authorize the supplier licensee to sell or lease gaming equipment and
supplies to any licensee involved in the operation of gaming
operations.
Riverboat
gaming operations may only be conducted on, or within 1,000 feet of the main
channel of, the Missouri River or Mississippi River. Although, all of the
excursion gambling facilities in Missouri are permanently moored boats or
impounded barges, a two hour simulated cruise is imposed in order to ensure
the
enforcement of loss limit restrictions. Missouri law imposes a maximum loss
per
person per cruise of $500. Minimum and maximum wagers on games are set by the
licensee and wagering may be conducted only with a cashless wagering system,
whereby money is converted to tokens, electronic cards or chips that can only
be
used for wagering. No person under the age of 21 is permitted to wager, and
wagers may only be taken from a person present on a licensed excursion gambling
boat.
The
Missouri Riverboat Gambling Act imposes a 20% wagering tax on adjusted gross
receipts (generally defined as gross receipts less winnings paid to wagerers)
from gambling games. The tax imposed is to be paid by the licensee to the
Commission on the day after the day when the wagers were made. Of the proceeds
of that tax, 10% goes to the local government where the home dock is located,
and the remainder goes to the State of Missouri.
The
Missouri Riverboat Gambling Act also requires that licensees pay a $2.00
admission tax to the Missouri Gaming Commission for each person admitted to
a
gaming cruise. One dollar of the admission fee goes to the state and one dollar
goes to the home dock city in which the licensee operates. The licensee is
required to maintain public books and records clearly showing amounts received
from admission fees, the total amount of gross receipts and the total amount
of
adjusted gross receipts. In addition, all local income, earnings, use, property
and sales taxes are applicable to licensees. There have been from time to time
pending before the Missouri General Assembly several proposed bills which
individually or in combination would, if adopted, (1) remove the loss limit
restriction, (2) adjust the amount of wagering tax imposed on adjusted gross
receipts of licensees and/or (3) adjust the amount of admission tax paid by
the
licensee for each person admitted for a gaming cruise.
Iowa
In
1989,
the State of Iowa legalized riverboat gaming on the Mississippi River and other
waterways located in Iowa. The legislation authorized the granting of licenses
to non-profit corporations that, in turn, are permitted to enter into operating
agreements with qualified persons who also actually conduct riverboat gaming
operations. Such operators must likewise be approved and licensed by the Iowa
Racing and Gaming Commission (the “Iowa Gaming Commission”).
The
Isle-Bettendorf has the right to renew its operator’s contract with the Scott
County Regional Authority, a non-profit corporation organized for the purpose
of
facilitating riverboat gaming in Bettendorf, Iowa, for succeeding three-year
periods as long as Scott County voters approve gaming in the jurisdiction.
Under
the operator’s contract, the Isle-Bettendorf pays the Scott County Regional
Authority a fee equal to 4.1% of the adjusted gross receipts. Further, the
Isle-Bettendorf pays a fee to the City of Bettendorf equal to 1.65% of adjusted
gross receipts.
In
June
1994, Upper Mississippi Gaming Corporation, a non-profit corporation organized
for the purpose of facilitating riverboat gaming in Marquette, Iowa, entered
into an operator’s agreement for the Isle-Marquette for a period of twenty-five
years. Under the management agreement, the non-profit organization is to be
paid
a fee of $0.50 per passenger. Further, pursuant to a dock site agreement (which
also has a term of twenty-five years), the Isle-Marquette is required to pay
a
fee to the City of Marquette in the amount of $1.00 per passenger, plus a fixed
amount of $15,000 per month and 2.5% of gaming revenues (less state wagering
taxes) in excess of $20.0 million but less than $40.0 million; 5% of gaming
revenues (less state wagering taxes) in excess of $40.0 million but less than
$60.0 million; and 7.5% of gaming revenues (less state wagering taxes) in excess
of $60.0 million.
In
October 2000, the Riverboat Development Authority, a non-profit corporation
organized for the purpose of facilitating riverboat gaming in Davenport, Iowa,
entered into an operator’s agreement with the Isle-Davenport to conduct
riverboat gaming in Davenport, Iowa. The operating agreement requires the
Isle-Davenport to make weekly payments to the qualified sponsoring organization
equal to 4.1% of each week’s adjusted gross receipts (as defined in the enabling
legislation) provided that the Isle-Davenport has agreed that the qualifying
sponsoring organization will be paid at least the following minimums: (i)
$3,000,000 for the years ending June 30, 2006 and 2007; (ii) $3,200,000 for
the
year ending June 30, 2008 if the Isle-Davenport's new hotel is open by September
30, 2007, otherwise $3,000,000 and (iii) $3,200,000 for the years ending June
30, 2009 and thereafter. This agreement will remain in effect through March
31,
2009 and may be extended by the Isle-Davenport so long as it holds a license
to
conduct gaming. In addition, the Isle-Davenport pays a docking fee, admission
fee, gaming tax and a payment in lieu of taxes to the City of Davenport.
Pursuant to a development agreement with the City, the Isle-Davenport has
exclusive docking privileges in the City of Davenport until March 31, 2017
in
consideration for this docking fee. The docking fee has both a fixed base and
a
per passenger increment. The fixed fee commenced April 1, 1994 at $111,759
and
increases annually by 4%. The incremental component is a $0.10 charge for each
passenger in excess of 1,117,579 passengers (which charge also increases by
4%
per year). The City is also guaranteed an annual gaming tax of $558,789.50
per
year (based on a minimum passenger floor count of 1,117,579 passengers at $0.50
per passenger). Finally, the Isle-Davenport is obligated to pay a payment in
lieu of taxes to support the downtown development district. This annual lump
sum
payment is in the amount of $123,516 plus $0.20 per passenger in excess of
1,117,579 passengers. This payment in lieu of taxes is further subject to a
minimum $226,179 per year payment.
On
July 26, 2005 the
Isle-Davenport entered into a new development agreement with the City of
Davenport that supersedes its existing development agreement. Upon satisfaction
of certain conditions precedent, the docking fee and admission fee will be
replaced by a development fee equal to 1.65% of
adjusted
gross receipts. The conditions precedent were satisfied in June 2006 resulting
in the aforementioned lease change. The term of the new development agreement
is
for fifty years. The development agreement also includes a payment in lieu
of
taxes in the amount equal to the real estate taxes on an assessed value of
$5,200,000 per year.
In
November 2004, the Black Hawk County Gaming Association, a non-profit
corporation organized for the purpose of facilitating riverboat gaming in
Waterloo, Iowa entered into an operator's agreement with the Isle-Waterloo
to
conduct riverboat gaming in Waterloo, Iowa. The operating agreement requires
that upon commencement of operations the Isle-Waterloo is to make weekly
payments to the qualified sponsoring organization equal to 4.1% of each week's
adjusted gross receipts and an additional fee of 1.65% of each week's adjusted
gross receipts in lieu of any admission or docking fee which might otherwise
be
charged by the county or any city (as defined in Section 99F.1(1) of the Iowa
Code). This agreement will remain in effect through March 31, 2015 and may
be
extended by the Isle-Waterloo so long as it holds a license to conduct gaming.
In addition, the Isle-Waterloo has agreed to pay a development fee to the City.
Pursuant to an admission fee administration and development agreement with
the
City and Black Hawk County Gaming Association the Isle-Waterloo shall pay a
development fee equal to 0.5% of each week's adjusted gross receipts.
Iowa
law
permits gaming licensees to offer unlimited stakes gaming on games approved
by
the Iowa Gaming Commission on a 24-hour basis. Dockside casino gaming is
authorized and the Iowa Gaming Commission now permits licensees the option
to
operate on permanently moored vessels or moored barges. The legal age for gaming
is 21.
All
Iowa
licenses were approved for renewal at the March 2, 2006 Iowa Gaming Commission
meeting. These licenses are not transferable and will need to be renewed in
March 2007 and prior to the commencement of each subsequent annual renewal
period.
The
ownership and operation of gaming facilities in Iowa are subject to extensive
state laws, regulations of the Iowa Gaming Commission and various county and
municipal ordinances (collectively, the “Iowa Gaming Laws”), concerning the
responsibility, financial stability and character of gaming operators and
persons financially interested or involved in gaming operations. Iowa Gaming
Laws seek to: (1) prevent unsavory or unsuitable persons from having direct
or
indirect involvement with gaming at any time or in any capacity; (2) establish
and maintain responsible accounting practices and procedures; (3) maintain
effective control over the financial practices of licensees (including the
establishment of minimum procedures for internal fiscal affairs, the
safeguarding of assets and revenues, the provision of reliable record keeping
and the filing of periodic reports with the Iowa Gaming Commission); (4) prevent
cheating and fraudulent practices; and (5) provide a source of state and local
revenues through taxation and licensing fees. Changes in Iowa Gaming Laws could
have a material adverse effect on the Iowa gaming operations.
Gaming
licenses granted to individuals must be renewed every year, and licensing
authorities have broad discretion with regard to such renewals. Licenses are
not
transferable. The Iowa gaming operations must submit detailed financial and
operating reports to the Iowa Gaming Commission. Certain contracts of licensees
in excess of $100,000 must be submitted to and approved by the Iowa Gaming
Commission.
Certain
officers,
directors, managers and key employees of the Iowa gaming operations are required
to be licensed by the Iowa Gaming Commission. Employees associated with gaming
must obtain work permits that are subject to immediate suspension under specific
circumstances. In addition, anyone having a material relationship or involvement
with the Iowa gaming operations may be required to be found suitable or to
be
licensed, in which case those persons would be required to pay the costs
and
fees
of the Iowa Gaming Commission in connection with the investigation. The Iowa
Gaming Commission may deny an application for a license for any cause deemed
reasonable. In addition to its authority to deny an application for license,
the
Iowa Gaming Commission has jurisdiction to disapprove a change in position
by
officers or key employees and the power to require the Iowa gaming operations
to
suspend or dismiss officers, directors or other key employees or sever
relationships with other persons who refuse to file appropriate applications
or
whom the Iowa Gaming Commission finds unsuitable to act in such
capacities.
The
Iowa
Gaming Commission may revoke a gaming license if the licensee:
· |
has
been suspended from operating a gaming operation in another jurisdiction
by a board or commission of that
jurisdiction;
|
· |
has
failed to demonstrate financial responsibility sufficient to meet
adequately the requirements of the gaming
enterprise;
|
· |
is
not the true owner of the
enterprise;
|
· |
has
failed to disclose ownership of other persons in the
enterprise;
|
· |
is
a corporation 10% of the stock of which is subject to a contract
or option
to purchase at any time during the period for which the license was
issued, unless the contract or option was disclosed to the Iowa Gaming
Commission and the Iowa Gaming Commission approved the sale or transfer
during the period of the license;
|
· |
knowingly
makes a false statement of a material fact to the Iowa Gaming
Commission;
|
· |
fails
to meet a monetary obligation in connection with an excursion gaming
boat;
|
· |
pleads
guilty to, or is convicted of a
felony;
|
· |
loans
to any person, money or other thing of value for the purpose of permitting
that person to wager on any game of
chance;
|
· |
is
delinquent in the payment of property taxes or other taxes or fees
or a
payment of any other contractual obligation or debt due or owed to
a city
or county; or
|
· |
assigns,
grants or turns over to another person the operation of a licensed
excursion boat (this provision does not prohibit assignment of a
management contract approved by the Iowa Gaming Commission) or permits
another person to have a share of the money received for admission
to the
excursion boat.
|
If
it
were determined that the Iowa Gaming Laws were violated by a licensee, the
gaming licenses held by a licensee could be limited, made conditional, suspended
or revoked. In addition, the licensee and the persons involved could be subject
to substantial fines for each separate violation of the Iowa Gaming Laws in
the
discretion of the Iowa Gaming Commission. Limitations, conditioning or
suspension of any gaming license could (and revocation of any gaming license
would) have a material adverse effect on operations.
The
Iowa
Gaming Commission may also require any individual who has a material
relationship with the Iowa gaming operations to be investigated and licensed
or
found suitable. The Iowa Gaming Commission, prior to the acquisition, must
approve any person who acquires 5% or more of a licensee’s equity securities.
The applicant stockholder is required to pay all costs of this
investigation.
Gaming
taxes approximating 22% of the adjusted gross receipts will be payable by each
licensee on its operations to the State of Iowa. In addition, the second of
two
prepaid assessments was paid on June 1, 2006 in an amount equal to 2.152% of
each licensee's adjusted gross receipts for fiscal year 2004. These assessments
will be offset by future state gaming taxes paid by each licensee with a credit
for 20% of the assessments paid allowed each year beginning July 1, 2010 for
five consecutive years. The state of Iowa is also reimbursed by the licensees
for all costs associated with monitoring and enforcement by the Iowa Gaming
Commission and the Iowa Department of Criminal Investigation.
Colorado
The
State
of Colorado created the Division of Gaming (the “Colorado Division”) within the
Department of Revenue to license, implement, regulate and supervise the conduct
of limited gaming under the Colorado Limited Gaming Act. The Director of the
Colorado Division (the “Colorado Director”), pursuant to regulations promulgated
by, and subject to the review of, a five-member Colorado Limited Gaming Control
Commission (the “Colorado Commission”), has been granted broad power to ensure
compliance with the Colorado gaming laws and regulations (collectively, the
“Colorado Regulations”). The Colorado Director may inspect without notice,
impound or remove any gaming device. The Colorado Director may examine and
copy
any licensee’s records, may investigate the background and conduct of licensees
and their employees, and may bring disciplinary actions against licensees and
their employees. The Colorado Director may also conduct detailed background
investigations of persons who loan money to, or otherwise provide financing
to,
a licensee.
The
Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses, and has delegated authority to the Colorado Director
to
issue certain types of licenses and approve certain changes in ownership. The
licenses are revocable and non-transferable. The failure or inability of the
Isle of Capri Black Hawk, LLC (“Isle-Black Hawk”) or CCSC/Blackhawk, Inc.
(“Colorado Central Station-Black Hawk”) (each, a “Colorado Casino” or
collectively, the “Colorado Casinos”), or the failure or inability of others
associated with any of the Colorado Casinos, including us, to maintain necessary
gaming licenses or approvals would have a material adverse effect on our
operations. All persons employed by any of the Colorado Casinos, and involved,
directly or indirectly, in gaming operations in Colorado also are required
to
obtain a Colorado gaming license. All licenses must be renewed annually, except
those for key and support employees, which must be renewed every two
years.
As
a
general rule, under the Colorado Regulations, no person may have an “ownership
interest” in more than three retail gaming licenses in Colorado. The Colorado
Commission has ruled that a person does not have an ownership interest in a
retail gaming licensee for purposes of the multiple license prohibition if:
· |
that
person has less than a 5% ownership interest in an institutional
investor
that has an ownership interest in a publicly traded licensee or publicly
traded company affiliated with a
licensee;
|
· |
a
person has a 5% or more ownership interest in an institutional investor,
but the institutional investor has less than a 5% ownership interest
in a
publicly traded licensee or publicly traded company affiliated with
a
licensee;
|
· |
an
institutional investor has less than a 5% ownership interest in a
publicly
traded licensee or publicly traded company affiliated with a
licensee;
|
· |
an
institutional investor possesses voting securities in a fiduciary
capacity
for another person, and does not exercise voting control over 5%
or more
of the outstanding voting securities of a publicly traded licensee
or of a
publicly traded company affiliated with a
licensee;
|
· |
a
registered broker or dealer retains possession of voting securities
of a
publicly traded licensee or of a publicly traded company affiliated
with a
licensee for its customers and not for its own account, and exercises
voting rights for less than 5% of the outstanding voting securities
of a
publicly traded licensee or publicly traded company affiliated with
a
licensee;
|
· |
a
registered broker or dealer acts as a market maker for the stock
of a
publicly traded licensee or of a publicly traded company affiliated
with a
licensee and exercises voting rights in less than 5% of the outstanding
voting securities of the publicly traded licensee or publicly traded
company affiliated with a licensee;
|
· |
an
underwriter is holding securities of a publicly traded licensee or
publicly traded company affiliated with a licensee as part of an
underwriting for no more than 90 days after the beginning of such
underwriting if it exercises voting rights of less than 5% of the
outstanding voting securities of a publicly traded licensee or publicly
traded company affiliated with a
licensee;
|
· |
a
book entry transfer facility holds voting securities for third parties,
if
it exercises voting rights with respect to less than 5% of the outstanding
voting securities of a publicly traded licensee or publicly traded
company
affiliated with a licensee; or
|
· |
a
person’s sole ownership interest is less than 5% of the outstanding voting
securities of the publicly traded licensee or publicly traded company
affiliated with a licensee.
|
Because
we own the Colorado Casinos, our business opportunities, and those of persons
with an “ownership interest” in us, or any of the Colorado Casinos, are limited
to interests that comply with the Colorado Regulations and the Colorado
Commission’s rule.
In
addition, pursuant to the Colorado Regulations, no manufacturer or distributor
of slot machines or associated equipment may, without notification being
provided to the Colorado Division within ten days, knowingly have an interest
in
any casino operator, allow any of its officers or any other person with a
substantial interest in such business to have such an interest, employ any
person if that person is employed by a casino operator, or allow any casino
operator or person with a substantial interest therein to have an interest
in a
manufacturer’s or distributor’s business. A “substantial interest” means the
lesser of (i) as large an interest in an entity as any other person or (ii)
any
financial or equity interest equal to or greater than 5%. The Colorado
Commission has ruled that a person does not have a “substantial interest” if
such person’s sole ownership interest in such licensee is through the ownership
of less than 5% of the outstanding voting securities of a publicly traded
licensee or publicly traded affiliated company of a licensee.
We
are a
“publicly traded corporation” under the Colorado Regulations.
Under
the
Colorado Regulations, any person or entity having any direct or indirect
interest in a gaming licensee or an applicant for a gaming license, including,
but not limited to, us, Casino America of Colorado, Inc., IC Holdings Colorado,
Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado
Casinos and their security holders, may be required to supply the Colorado
Commission with substantial information, including, but not limited to,
background information, source of funding information, a sworn statement that
such person or entity is not holding his or her interest for any other party,
and fingerprints. Such information, investigation and licensing (or finding
of
suitability) as an “associated person” automatically will be required of all
persons (other than certain institutional investors discussed below) which
directly or indirectly beneficially own 10% or more of a direct or indirect
beneficial ownership or interest in either of the two Colorado Casinos, through
their beneficial ownership of any class of voting securities of us, Casino
America of Colorado, Inc., IC Holdings Colorado, Inc., IOC Black Hawk
Distribution Company, LLC or either of the two Colorado Casinos. Those persons
must report their interest within 10 days (including institutional investors)
and file appropriate applications within 45 days after acquiring that interest
(other than certain institutional investors discussed below). Persons (including
institutional investors) who directly or indirectly beneficially own 5% or
more
(but less than 10%) of a direct or indirect beneficial ownership or interest
in
either of the two Colorado Casinos, through their beneficial ownership of any
class of voting securities of us, Casino America of Colorado, Inc., IC Holdings
Colorado, Inc., IOC Black Hawk Distribution Company, LLC or either of the two
Colorado Casinos, must report their interest to the Colorado Commission within
10 days after acquiring that interest and may be required to provide additional
information and to be found suitable. (It is the current practice of the gaming
regulators to require findings of suitability for persons beneficially owning
5%
or more of a direct or indirect beneficial ownership or interest, other than
certain institutional investors discussed below.) If certain institutional
investors provide specified information to the Colorado Commission within 45
days after acquiring their interest (which, under the current practice of the
gaming regulators is an interest of 5% or more, directly or indirectly) and
are
holding for investment purposes only, those investors, in the Colorado
Commission’s discretion, may be permitted to own up to 14.99% of the Colorado
Casinos through their beneficial ownership in any class of voting of securities
of us, Casino America of Colorado, Inc., IC Holdings Colorado, Inc., IOC Black
Hawk Distribution Company, LLC or either of the two Colorado Casinos, before
being required to be found suitable. All licensing and investigation fees will
have to be paid by the person in question. The associated person investigation
fee currently is $59 per hour.
The
Colorado Regulations define a “voting security” to be a security the holder of
which is entitled to vote generally for the election of a member or members
of
the board of directors or board of trustees of a corporation or a comparable
person or persons of another form of business organization.
The
Colorado Commission
also has the right to request information from any person directly or indirectly
interested in, or employed by, a licensee, and to investigate the moral
character, honesty, integrity, prior activities, criminal record, reputation,
habits and associations of: (1) all persons licensed pursuant to the Colorado
Limited Gaming Act; (2) all officers, directors and stockholders of a licensed
privately held corporation; (3) all officers, directors and stockholders holding
either a 5% or greater interest or a controlling interest in a licensed publicly
traded corporation; (4) all general partners and all limited partners of a
licensed partnership; (5) all persons that have a relationship similar to that
of an officer, director or stockholder of a corporation (such as members and
managers of a limited liability company); (6) all persons supplying financing
or
loaning money to any licensee connected with the establishment or operation
of
limited gaming; (7) all persons having a contract, lease or ongoing financial
or
business arrangement with any licensee, where such contract, lease or
arrangement relates
to
limited gaming operations, equipment devices or premises; and (8) all persons
contracting with or supplying any goods and services to the gaming regulators.
Certain
public officials and employees are prohibited from having any direct or indirect
interest in a license or limited gaming.
In
addition, under the Colorado Regulations, every person who is a party to a
“gaming contract” (as defined below) or lease with an applicant for a license,
or with a licensee, upon the request of the Colorado Commission or the Colorado
Director, must promptly provide the Colorado Commission or Colorado Director
all
information that may be requested concerning financial history, financial
holdings, real and personal property ownership, interests in other companies,
criminal history, personal history and associations, character, reputation
in
the community and all other information that might be relevant to a
determination of whether a person would be suitable to be licensed by the
Colorado Commission. Failure to provide all information requested constitutes
sufficient grounds for the Colorado Director or the Colorado Commission to
require a licensee or applicant to terminate its “gaming contract” or lease with
any person who failed to provide the information requested. In addition, the
Colorado Director or the Colorado Commission may require changes in “gaming
contracts” before an application is approved or participation in the contract is
allowed. A “gaming contract” is defined as an agreement in which a person does
business with or on the premises of a licensed entity.
The
Colorado Commission and the Colorado Division have interpreted the Colorado
Regulations to permit the Colorado Commission to investigate and find suitable
persons or entities providing financing to or acquiring securities from us,
Casino America of Colorado, Inc., IC Holdings Colorado, Inc., IOC Black Hawk
Distribution Company, LLC or either of the two Colorado Casinos. As noted above,
any person or entity required to file information, be licensed or found suitable
would be required to pay the costs thereof and of any investigation. Although
the Colorado Regulations do not require the prior approval for the execution
of
credit facilities or issuance of debt securities, the Colorado regulators
reserve the right to approve, require changes to or require the termination
of
any financing, including if a person or entity is required to be found suitable
and is not found suitable. In any event, lenders, note holders, and others
providing financing will not be able to exercise certain rights and remedies
without the prior approval of the Colorado gaming authorities. Information
regarding lenders and holders of securities will be periodically reported to
the
Colorado gaming authorities.
Except
under certain limited circumstances relating to slot machine manufacturers
and
distributors, every person supplying goods, equipment, devices or services
to
any licensee in return for payment of a percentage, or calculated upon a
percentage, of limited gaming activity or income must obtain an operator license
or be listed on the retailer’s license where such gaming will take
place.
An
application for
licensure or suitability may be denied for any cause deemed reasonable by the
Colorado Commission or the Colorado Director, as appropriate. Specifically,
the
Colorado Commission and the Colorado Director must deny a license to any
applicant who, among other things: (1) fails to prove by clear and convincing
evidence that the applicant is qualified; (2) fails to provide information
and
documentation requested; (3) fails to reveal any fact material to qualification,
or supplies information which is untrue or misleading as to a material fact
pertaining to qualification; (4) has been convicted of, or has a director,
officer, general partner, stockholder, limited partner or other person who
has a
financial or equity interest in the applicant who has been convicted of,
specified crimes, including the service of a sentence upon conviction of a
felony in a correctional facility, city or county jail, or community
correctional facility or under the state board of parole or any probation
department within ten years prior to the date of the application,
gambling-related offenses, theft by deception or crimes involving fraud or
misrepresentation, is under current prosecution for such crimes (during the
pendency
of which license determination may be deferred), is a career offender or
a
member or associate of a career offender cartel, or is a professional gambler;
or (5) has refused to cooperate with any state or federal body investigating
organized crime, official corruption or gaming offenses. If the Colorado
Commission determines that a person or entity is unsuitable to directly or
indirectly own interests in us, Casino America of Colorado, Inc., IC Holdings
Colorado, Inc., or either of the two Colorado Casinos, one or more of the
Colorado Casinos may be sanctioned, which may include the loss of our approvals
and licenses.
The
Colorado Commission does not need to approve in advance a public offering of
securities but rather requires the filing of notice and additional documents
prior to a public offering of (i) voting securities, and (ii) non-voting
securities if any of the proceeds will be used to pay for the construction
of
gaming facilities in Colorado, to directly or indirectly acquire an interest
in
a gaming facility in Colorado, to finance the operation of a gaming facility
in
Colorado or to retire or extend obligations for any of the foregoing. The
Colorado Commission may, in its discretion, require additional information
and
prior approval of such public offering.
In
addition, the Colorado Regulations prohibit a licensee or affiliated company
thereof, such as us, Casino America of Colorado, Inc., IC Holdings Colorado,
Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado
Casinos, from paying any unsuitable person any dividends or interest upon any
voting securities or any payments or distributions of any kind (except as set
forth below), or paying any unsuitable person any remuneration for services
or
recognizing the exercise of any voting rights by any unsuitable person. Further,
under the Colorado Regulations, each of the Colorado Casinos and IOC Black
Hawk
Distribution Company, LLC may repurchase its voting securities from anyone
found
unsuitable at the lesser of the cash equivalent to the original investment
in
the applicable Colorado Casino or IOC Black Hawk Distribution Company, LLC
or
the current market price as of the date of the finding of unsuitability unless
such voting securities are transferred to a suitable person (as determined
by
the Colorado Commission) within sixty (60) days after the finding of
unsuitability. A licensee or affiliated company must pursue all lawful efforts
to require an unsuitable person to relinquish all voting securities, including
purchasing such voting securities. The staff of Colorado Division has taken
the
position that a licensee or affiliated company may not pay any unsuitable person
any interest, dividends or other payments with respect to non-voting securities,
other than with respect to pursuing all lawful efforts to require an unsuitable
person to relinquish non-voting securities, including by purchasing or redeeming
such securities. Further, the regulations require anyone with a material
involvement with a licensee, including a director or officer of a holding
company, such as us, Casino America of Colorado, Inc., IC Holdings Colorado,
Inc., IOC Black Hawk Distribution Company, LLC or either of the two Colorado
Casinos, to file for a finding of suitability if required by the Colorado
Commission.
Because
of their authority to deny an application for a license or suitability, the
Colorado Commission and the Colorado Director effectively can disapprove a
change in corporate position of a licensee and with respect to any entity which
is required to be found suitable, or indirectly can cause us, Casino America
of
Colorado, Inc., IC Holdings Colorado, Inc., IOC Black Hawk Distribution Company,
LLC or the applicable Colorado Casino to suspend or dismiss managers, officers,
directors and other key employees or sever relationships with other persons
who
refuse to file appropriate applications or who the authorities find unsuitable
to act in such capacities.
Generally,
a sale, lease,
purchase, conveyance or acquisition of any interest in a licensee is prohibited
without the Colorado Commission’s prior approval. However, because we are a
publicly traded corporation, persons may acquire an interest in us (even, under
current staff interpretations, a controlling interest) without the Colorado
Commission’s prior approval, but such persons may be required to file notices
with the Colorado Commission and applications for suitability (as discussed
above)
and the Colorado Commission may, after such acquisition, find such person
unsuitable and require them to dispose of their interest. Under some
circumstances, we may not sell any interest in our Colorado gaming businesses
without the prior approval of the Colorado Commission.
Each
Colorado Casino must meet specified architectural requirements, fire safety
standards and standards for access for disabled persons. Each Colorado Casino
also must not exceed specified gaming square footage limits as a total of each
floor and the full building. Each Colorado Casino may operate only between
8:00
a.m. and 2:00 a.m., and may permit only individuals 21 or older to gamble in
the
casino. It may permit slot machines, blackjack and poker, with a maximum single
bet of $5.00. No Colorado Casino may provide credit to its gaming
patrons.
A
licensee is required to provide information and file periodic reports with
the
Colorado Division, including identifying those who have a 5% or greater
ownership, financial or equity interest in the licensee, or who have the ability
to control the licensee, or who have the ability to exercise significant
influence over the licensee, or who loan money or other things of value to
a
licensee, or who have the right to share in revenues of limited gaming, or
to
whom any interest or share in profits of limited gaming has been pledged as
security for a debt or performance of an act. A licensee, and any parent company
or subsidiary of a licensee, who has applied to a foreign jurisdiction for
licensure or permission to conduct gaming, or who possesses a license to conduct
foreign gaming, is required to notify the Colorado Division. Any person licensed
by the Colorado Commission and any associated person of a licensee must report
criminal convictions and criminal charges to the Colorado Division.
The
Colorado Commission has broad authority to sanction, fine, suspend and revoke
a
license for violations of the Colorado Regulations. Violations of many
provisions of the Colorado Regulations also can result in criminal
penalties.
The
Colorado Constitution currently permits gaming only in a limited number of
cities and certain commercial districts in such cities.
The
Colorado Constitution permits a gaming tax of up to 40% on adjusted gross gaming
proceeds, and authorizes the Colorado Commission to change the rate annually.
The current gaming tax rate is 0.25% on adjusted gross gaming proceeds of up
to
and including $2.0 million, 2% over $2.0 million up to and including $4.0
million, 4% over $4.0 million up to and including $5.0 million, 11% over $5.0
million up to and including $10.0 million, 16% over $10.0 million up to and
including $15.0 million and 20% on adjusted gross gaming proceeds in excess of
$15.0 million. The City of Black Hawk has imposed an annual device fee of $750
per gaming device and may revise it from time to time. The City of Black Hawk
also has imposed other fees, including a business improvement district fee
and
transportation fee, calculated based on the number of devices and may revise
the
same or impose additional such fees.
Colorado
participates in multi-state lotteries.
The
sale of alcoholic
beverages is subject to licensing, control and regulation by the Colorado liquor
agencies. All persons who directly or indirectly hold a 10% or more interest
in,
or 10% or more of the issued and outstanding capital stock of, any of the
Colorado Casinos, through their ownership of us, Casino America of Colorado,
Inc., IC Holdings Colorado, Inc., or
either
of the two Colorado
Casinos,
must file applications and possibly be investigated by the Colorado liquor
agencies. The Colorado liquor agencies also may investigate those persons who,
directly or indirectly, loan money to or have any financial interest in liquor
licensees. In addition, there are restrictions on stockholders, directors and
officers of liquor licensees preventing such persons from being a stockholder,
director, officer or otherwise interested in some persons lending money to
liquor licensees and from making
loans
to
other liquor licensees. All licenses are revocable and transferable only
in
accordance with all applicable laws. The Colorado liquor agencies have the
full
power to limit, condition, suspend or revoke any liquor license and any
disciplinary action could (and revocation would) have a material adverse
effect
upon the operations of us, Casino America of Colorado, Inc., IC Holdings
Colorado, Inc., or the applicable Colorado Casino. Each Colorado Casino holds
a
retail gaming tavern liquor license for its casino, hotel and restaurant
operations.
Persons
directly or indirectly interested in either of the two Colorado Casinos may
be
limited in certain other types of liquor licenses in which they may have an
interest, and specifically cannot have an interest in a retail liquor license
(but may have an interest in a hotel and restaurant liquor license and several
other types of liquor licenses). No person can hold more than three retail
gaming tavern liquor licenses. The remedies of certain lenders may be limited
by
applicable liquor laws and regulations.
Florida
On
June
15, 1995, the Florida Department of Business and Professional Regulation, acting
through its division of pari-mutuel wagering (the “Florida Division”), issued
its final order approving Pompano Park as a pari-mutuel wagering permit holder
for harness and quarter horse racing at Pompano Park. The Florida Division
approved Pompano Park’s license to conduct a total of 160 live evening
performances for the season beginning July 1, 2005 to June 30, 2006. Although
we
do not presently intend to conduct quarter horse racing operations at Pompano
Park, we may do so in the future, subject to Florida Division approval. The
Florida Division must approve any transfer of 10% or more of stock of a
pari-mutuel racing permit holder such as Pompano Park.
The
Florida Statute and the applicable rules and regulations thereunder (the
“Florida Statute”) establish license fees, the tax structure on pari-mutuel
permit holders and minimum purse requirements for breeders and owners. The
Florida Division may revoke or suspend any permit or license upon the willful
violation by the permit holder or licensee of any provision of the Florida
Statute. Instead of suspending or revoking a permit or license, the Florida
Division may impose various civil penalties on the permit holder or licensee.
Penalties may not exceed $1,000 for each count or separate offense.
Pursuant
to a Florida Division order and enactments to the Florida Statute, Pompano
Park
is also authorized to conduct full-card pari-mutuel wagering on: (1) simulcast
harness races from outside Florida throughout the racing season and (2) night
thoroughbred races within Florida if the thoroughbred permit holder has decided
to simulcast night races. Pompano Park has been granted the exclusive right
in
Florida to conduct full-card simulcasting of harness racing on days during
which
no live racing is held at Pompano Park. However, on non-race days, Pompano
Park
must offer to rebroadcast its simulcast signals to pari-mutuel facilities that
are not thoroughbred parks in Pompano Park’s market area. In addition, Pompano
Park may transmit its live races into any dog racing or jai alai facility in
Florida, including Dade and Broward counties, for intertrack wagering. The
Florida Statute establishes the percentage split between Pompano Park and the
other facilities receiving such signals. Legislation in Florida provided certain
reductions in applicable tax and license fees related to intertrack wagering
on
broadcasts of simulcast harness racing and thoroughbred racing. We believe
that
simulcast rights at Pompano Park and the changes in the Florida Statute are
important to Pompano Park’s operating results.
The
Florida Statute permits pari-mutuel facilities licensed by the Florida Division
to operate card rooms in those counties in which a majority vote of the County
Commission has been obtained and a local ordinance has been adopted. Pompano
Park reopened its card room in fiscal year 2004 after State Legislation was
amended authorizing card game pot limits to be eliminated and bets limits of
$2
per bet were imposed.
In
November 2004, voters in the State of Florida amended the state's constitution
to allow the voters of Miami-Dade and Broward counties (Broward County is the
location of the Pompano Park Racetrack) to decide whether to approve slot
machines in racetracks and jai alai frontons in their respective counties.
Broward County voters passed their local referendum and Miami-Dade county voters
rejected their referendum in March 2005. An appeal challenging the validity
of
signatures needed to place the amendment on the ballot is pending following
the
granting of summary judgment against the plaintiffs in a lower court dismissing
the challenge. Oral arguments were held in November 2005 but no decision has
been issued as of the date of this filing. On
January 4, 2006, a Florida Statute became effective allowing Pompano Park and
three other pari-mutuel facilities in Broward County to offer slot machine
gaming to patrons at these facilities. Although there are pari-mutuel facilities
in numerous other counties in the State of Florida, slot machine gaming is
only
authorized in Broward County where Pompano Park is located. We are constructing
a slot machine and entertainment area at Pompano Park adjacent to the existing
grandstand at a cost of $140.5 million with slot machine gaming anticipated
to
commence in early 2007. We
do not
plan to open a temporary facility. The
statute authorizes Pompano Park to install and operate up to 1500 slot machines
at its facility 365 days per year, 16 hours per day and requires Pompano Park
to
pay an annual license fee of $3 million dollars and gaming taxes equal to 50%
of
Pompano Park’s net slot machine revenue plus combined
county and city taxes of approximately an additional 3.5% on the first $250
million of net slot machine revenue and 5% on net slot machine revenue over
$250
million.The
Florida Division administering the law is now implementing rules and regulations
for the operation of the slot machines.
Bahamas
In
1969,
the Government of The Bahamas enacted the Lotteries and Gaming Act. This
legislation, together with its regulations, governs and regulates gaming. The
Gaming Board is the body that regulates the operation of casinos. The gaming
license is renewable annually. All casino workers must be approved by the Board
and are issued certificates, which are also renewable on an annual basis. There
is a basic annual gaming tax of $200,000 payable in six equal shares. In
addition a winnings tax is also imposed and is based on the following
scale:
Winnings
of
|
|
$10,000,000
|
25%
|
|
|
$10,000,001
- $16,000,000
|
20%
|
|
|
$16,000,001
- $20,000,000
|
10%
|
|
|
amounts
exceeding $20,000,001
|
5%
|
The
Minister of Tourism has responsibility for gaming and acts in consultation
with
the Gaming Board. A license can be cancelled if a fraudulent or misleading
representation has been supplied to the Board or if there is a breach of
restrictions or conditions imposed by the Minister. There is however a right
to
be heard before cancellation is made final. Citizens, permanent residents and
holders of work permits are prohibited from gambling. Those found doing so
are
guilty of an offense punishable by law. The operator may also be liable if
it
knowingly allows any such persons to gamble in its establishment.
Currently
the Casino has an agreement to lease the premises housing its operations and
a
management agreement. The Casino holds a number of other licenses including
one
with the Port Authority of Grand Bahama, a business license and liquor and
dining and dancing licenses.
Effective
June 1, 2006, we notified our landlord of our decision to terminate the lease
and we intend to cease operations by June 1, 2007 as required by our lease.
In
conjunction with exercising the lease termination, we paid a $2.2 million fee
to
the landlord. Based on our lease terms, projected cash flows and government
regulations, we have taken a impairment charge of approximately $2.4 million
and
have accrued $1.2 million for severance payments.
United
Kingdom
Gaming
and gaming facilities in the UK are currently subject to regulation under the
Gaming Act of 1968 (the “Gaming Act”). Under the Gaming Act, the Gaming Board
for Great Britain (the “Gaming Board”) (now The Gambling Commission - per
Gambling Act 2005) was charged with ensuring compliance with the Gaming Act
and
the regulations promulgated under the Gaming Act. Pursuant to its regulatory
authority, the Gaming Board issued detailed guidelines that govern licensing
procedures as well as the management, operation and supervision of gaming
facilities. (See further regarding new Gambling Act 2005).
The
Gaming Act specifies that only individuals that have been a resident of Great
Britain for at least six months or a company incorporated in Great Britain
can
apply for a license to operate, or operate, a casino in Great Britain. The
Gaming Act does not prohibit foreign ownership in casinos operated by a resident
of Great Britain. Casinos can be located only in certain designated areas known
as “permitted areas,” of which there currently are fifty-three; there are
approximately 142 gaming facilities currently are operating in these permitted
areas.
A
casino
operator must obtain a Certificate of Consent from the Gaming Board prior to
submitting an application for a gaming license. Before it grants a Certificate
of Consent, the Gaming Board must be satisfied that the applicant is “fit and
proper” to operate a gaming facility. To be deemed fit and proper, the applicant
must convince the Gaming Board of its ability to diligently comply with the
Gaming Act and the regulations promulgated thereunder. The applicant also must
convince the Board that gaming in the proposed gaming facility would be
conducted fairly and properly and without disorder or disturbance. The Board
also evaluates the character, reputation and financial standing of both the
applicant and any entity that would operate or hold a significant ownership
interest in the gaming facility.
The
Certificate of Consent, if granted, permits the recipient to apply for a gaming
license for a specific location. Additional Certificates of Consent are required
for additional locations. The Certificate of Consent requires that any gaming
license application be submitted within one year and may restrict the type
of
gaming for which the applicant may seek a license.
The
applicant must submit an application to a Justice of the local Magistrates
Court
(the “Licensing Justice”), seeking a license to provide commercial gaming in the
location specified by the Certificate of Consent. The license application must
include the name and description of the facility to be used for gaming. A copy
of the application also must be filed with the Gaming Board, a designated
officer of the police, the relevant local authority, the relevant fire authority
and the relevant collector of duty. Within 14 days of submitting the license
application, the applicant must publish a notice in the local newspaper stating
that such application has been made. The applicant also must post notice outside
the facility for which the gaming license has been requested. A copy of the
newspaper notice must be sent to the licensing authority before the application
will be considered.
Gaming
Board regulations provide guidelines under which the Licensing Justices review
license applications. Under current regulations, before granting a license,
the
Justice must determine that there exists “substantial demand for gaming
facilities of the kind proposed to be provided on the relevant premises.” The
Justice also must be satisfied that current gaming facilities are either not
available in an area that is reasonably accessible to prospective players or,
where such facilities are available, the current gaming facilities are
insufficient to meet current demand. The Justice also must evaluate the
suitability of the proposed gaming facility, including the lay-out of the
facility and the character, condition and location of the facility, and whether
the applicant is fit and proper to be a holder of the license under the Gaming
Act.
The
Gaming Board regulations also establish detailed guidelines governing the
operation, management and supervision of gaming facilities. Under the Gaming
Board guidelines, an inspector must supervise the croupiers who are normally
in
charge of two gaming tables, under the direction of a pit boss. The role of
the
inspector is to verify large payouts, ensure compliance with gaming regulations,
confirm verbal bets and resolve player disputes. Gaming Board guidelines also
require that management and inspectors have a clear view of the tables and
all
players at all times. Gaming facilities also must be designed to permit adequate
supervision by the police and the Gaming Board’s inspectors.
The
transfer of 15% or more of the voting power of a casino triggers an obligation
on the part of the holder of the existing Certificate of Consent to apply to
the
Gaming Board for a continuance of its Certificate of Consent. The Gaming Board
will evaluate whether the transferee is fit and proper to hold a gaming license
and meets the tests discussed above.
The
government of the UK recently enacted new legislation to update gaming in a
socially responsive manner in light of developments in the industry and new
technology. The Gambling Act was passed by the UK Parliament on April 8, 2005
and will be implemented in stages. Under the new legislation, a new Gambling
Commission has been created to oversee license applications and establish new
regulations for gaming (including on-line gaming) in the UK. It has taken over
responsibilities from the Gaming Board and is working on the transition to
meet
this objective. The legislation will provide a significant change in regulation
of the casino industry including:
· |
removing
the requirement that gaming facilities operate as private members’ clubs,
including the statutorily prescribed 24-hour interval between membership
and play; this has now occurred;
|
· |
extending
the gaming products available;
|
· |
abolishing
the demand test and permitted area
rules;
|
· |
allowing
large casinos specific numbers of gaming machines with a broader
range of
stakes and prizes;
|
· |
allowing
casinos to offer live entertainment and to advertise;
and
|
· |
allowing
a new category of regional casinos.
|
In
order
to pass the legislation, having regard to the UK General Election on May 5,
2005, the Government agreed to limit the number of Regional Casinos to one,
on a
pilot basis. A list was recently released of cities being considered to receive
the regional gaming license and Coventry was not included on the list. An
increase in the number of regional casinos can be approved by a Ministerial
Order using the affirmative resolution procedure, which will require that the
order is affirmed by a vote of both Houses of Parliament.
We
have obtained a gaming
license to open a casino at RICOHTM
Arena in
Coventry, England under the 1968 Gambling Act and are currently constructing
this facility. Additionally, we are exploring our options with respect to
overall development plans for this property, including a possible entertainment
facility.
Non-Gaming
Regulation
We
are
subject to certain federal, state and local safety and health, employment and
environmental laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Clean Water Act, Occupational
Safety and Health Act, Resource Conservation Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act and the Oil Pollution
Act
of 1990. We have not made, and do not anticipate making, material expenditures
with respect to such environmental laws and regulations. However, the coverage
and attendant compliance costs associated with such laws, regulations and
ordinances may result in future additional costs to our operations. For example,
the Department of Transportation has promulgated regulations under the Oil
Pollution Act of 1990 requiring owners and operators of certain vessels to
establish through the Coast Guard evidence of financial responsibility for
clean
up of oil pollution. This requirement has been satisfied by proof of adequate
insurance.
Our
riverboats operated in Louisiana and Iowa must comply with U.S. Coast Guard
requirements as to boat design, on-board facilities, equipment, personnel and
safety and hold U.S. Coast Guard Certificates of Documentation and Inspection.
The U.S. Coast Guard requirements also set limits on the operation of the
riverboats and require licensing of certain personnel involved with the
operation of the riverboats. Loss of a riverboat’s Certificate of Documentation
and Inspection could preclude its use as a riverboat casino. Each of our
riverboats is inspected annually and, every five years, is subject to
dry-docking for inspection of its hull, which could result in a temporary loss
of service.
The
barges are inspected by third parties and certified with respect to stability
and single compartment flooding integrity. Our casino barges must also meet
local fire safety standards. We would incur additional costs if any of our
gaming facilities were not in compliance with one or more of these
regulations.
Regulations
adopted by the Financial Crimes Enforcement Network of the U.S. Treasury
Department require us to report currency transactions in excess of $10,000
occurring within a gaming day, including identification of the patron by name
and social security number. U.S. Treasury Department regulations also require
us
to report certain suspicious activity, including any transaction that exceeds
$5,000 if we know, suspect or have reason to believe that the transaction
involves funds from illegal activity or is designed to evade federal regulations
or reporting requirements. Substantial penalties can be imposed against us
if we
fail to comply with these regulations.
All
of
our shipboard employees, even those who have nothing to do with our operation
as
a vessel, such as dealers, waiters and security personnel, may be subject to
the
Jones Act which, among other things, exempts those employees from state limits
on workers’ compensation awards.
ITEM
1A.
RISK FACTORS.
Risk
Factors
We
face significant competition from other gaming operations that could have a
material adverse effect on our future operations.
We
face
intense competition in the markets in which we operate. We have numerous
competitors, including land-based casinos, dockside casinos, riverboat casinos,
casinos located on Native American-owned lands and at racing and pari-mutuel
operations. Several of our competitors have substantially better name
recognition, marketing and financial resources than we do. Legalized gaming
is
currently permitted in various forms throughout the United States. Certain
states have recently legalized, and other states are currently considering
legalizing, casino gaming in designated areas. There is no limit on the number
of gaming licenses that may be granted in several of the markets in which we
operate. As a result, new licenses could be awarded to gaming facilities in
such
markets, which could have an adverse effect on our operating results. Expansion
of existing gaming facilities and the development of new gaming facilities
in
our current markets will increase competition for our existing and future
operations. In addition, many Native American tribes conduct casino gaming
on
Native American-owned lands throughout the United States. Such facilities have
the advantages of being land-based and exempt from certain state and federal
taxes and operational restrictions imposed by state gaming authorities. Some
Native American tribes are either in the process of establishing or expanding,
or are considering the establishment or expansion of, gaming in Oklahoma, Texas,
Louisiana, Florida, Alabama, Kansas, Colorado, Mississippi and Iowa. The
establishment or expansion of new gaming facilities and casinos on Native
American-owned lands will increase competition for our existing and future
gaming facilities in proximity to Native American owned lands.
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, video lottery
terminals and video poker terminals and, in the future, may compete with gaming
at other venues.
Our
existing gaming facilities compete directly with other gaming properties in
Louisiana, Mississippi, Missouri, Iowa and Colorado. We also compete with gaming
operators in other gaming jurisdictions such as Atlantic City, New Jersey and
Las Vegas, Nevada. Our existing casinos attract a significant number of their
customers from Houston, Texas; Mobile, Alabama; Jackson, Mississippi; Memphis,
Tennessee; Little Rock, Arkansas and Denver, Colorado. Our continued success
depends upon drawing customers from each of these geographic markets.
Legalization of gaming in jurisdictions closer to these geographic markets
than
the jurisdictions in which our facilities are located would have a material
adverse effect on our operating results. We expect competition to increase
as
new gaming operators enter our markets, existing competitors expand their
operations, gaming activities expand in existing jurisdictions and gaming is
legalized in new jurisdictions. We cannot predict with any certainty the effects
of existing and future competition on our operating results.
We
are subject to extensive regulation from gaming authorities that could adversely
affect us.
As
owners
and operators of gaming facilities, we are subject to extensive state and local
regulation. State and local authorities require us and our subsidiaries to
demonstrate suitability to obtain and retain various licenses and require that
we have registrations, permits and approvals to conduct gaming operations.
The
regulatory authorities in the jurisdictions in which we operate may limit,
condition, suspend or revoke a license to conduct gaming operations or prevent
us from owning the securities of
any
of
our gaming subsidiaries. We may also be deemed responsible for the acts
and
conduct of our employees. Substantial fines or forfeiture of assets for
violations of gaming laws or regulations may be levied against us, our
subsidiaries and the persons involved. The suspension or revocation of
any of
our licenses or the levy on us or our subsidiaries of a substantial fine
would
have a material adverse effect on our business.
To
date,
we have demonstrated suitability to obtain and have obtained all governmental
licenses, registrations, permits and approvals necessary for us to operate
our
existing gaming facilities. However, like all gaming operators in the
jurisdictions in which we operate, we must periodically apply to renew
our
gaming licenses. We cannot assure you that we will be able to obtain such
renewals.
In
addition, regulatory authorities in certain jurisdictions must approve,
in
advance, any restrictions on transfers of, agreements not to encumber or
pledges
of equity securities issued by a corporation that is registered as an
intermediary company with such state, or that holds a gaming license. If
these
restrictions are not approved in advance, they will be invalid.
On
January 4, 2006, a Florida statute became effective allowing Pompano Park
and
three other pari-mutuel facilities in Broward County to offer slot machine
gaming to patrons at these facilities. The
Florida Department of Business and Professional Regulation is administering
the
law and is now implementing rules and regulations for the operation of
the slot
machines. We cannot assure you how restrictive the aforementioned rules
will be
drafted or that we will receive all necessary approvals to commence slot
operations.
From
time
to time, legislators and special interest groups have proposed legislation
that
would expand, restrict or prevent gaming operations in the jurisdictions
in
which we operate. In addition, from time to time, certain anti-gaming groups
have attacked constitutional amendments or legislation that would limit
our
ability to continue to operate in those jurisdictions in which these
constitutional amendments or legislation have been adopted. For example,
in
November 2004, voters in the State of Florida amended the state’s constitution
to allow the voters of Miami-Dade and Broward counties (Broward County
is the
location of the Pompano Park Racetrack) to decide whether to approve slot
machines in racetracks and jai alai frontons in their respective counties.
Broward County voters passed their local referendum and Miami-Dade County
voters
rejected their referendum in March 2005. An appeal challenging the validity
of
signatures needed to place the Florida constitutional amendment on the
ballot is
pending following the granting of summary judgment against the plaintiffs
in a
lower court dismissing the challenge. Oral arguments were held in November
2005,
but no decision has been issued as of the date of this filing. If the
constitutional amendment were ultimately found to be invalid, our right
to
operate slot machines at Pompano Park would be eliminated. We cannot assure
you
as to the outcome of this litigation. Any expansion of gaming or restriction
on
or prohibition of our gaming operations could have a material adverse effect
on
our operating results.
We
are subject to the possibility of an increase in gaming taxes, which would
increase our costs.
State
and local authorities
raise a significant amount of revenue through taxes and fees on gaming
activities. We believe that the prospect of significant revenue is one
of the
primary reasons that jurisdictions permit legalized gaming. As a result,
gaming
companies are typically subject to significant taxes and fees in addition
to
normal federal, state, local and provincial income taxes, and such taxes
and
fees are subject to increase at any time. We pay substantial taxes and
fees with
respect to our operations. From time to time, federal, state, local and
provincial legislators and officials have proposed changes in tax laws,
or in
the administration of such laws, affecting the gaming industry. In addition,
poor economic conditions could intensify the efforts of state and local
governments to raise revenues through increases in gaming taxes. Some of
the
states in which we own or operate casinos
continue
to experience budget shortfalls and, as a result, may increase gaming taxes
to
raise more revenue. It is not possible to determine with certainty the
likelihood of changes in tax laws or in the administration of such laws.
Such
changes, if adopted, could have a material adverse effect on our business,
financial condition and results of operations.
We
are subject to non-gaming regulation that could adversely affect
us.
Several
of our riverboats must comply with U.S. Coast Guard requirements as to boat
design, on-board facilities, equipment, personnel and safety and must hold
U.S.
Coast Guard Certificates of Documentation and Inspection. The U.S. Coast
Guard
requirements also set limits on the operation of the riverboats and mandate
licensing of certain personnel involved with the operation of the riverboats.
Loss of a riverboat’s Certificate of Documentation and Inspection could preclude
its use as a riverboat casino. Each of our riverboats is inspected annually
and,
every five years, is subject to dry-docking for inspection of its hull, which
could result in a temporary loss of service.
We
are
required to have third parties periodically inspect and certify all of our
casino barges for stability and single compartment flooding integrity. Our
casino barges must also meet local fire safety standards. We would incur
additional costs if any of our gaming facilities were not in compliance with
one
or more of these regulations.
We
are
also subject to certain federal, state and local environmental laws, regulations
and ordinances that apply to non-gaming businesses generally, such as the
Clean
Air Act, the Clean Water Act, the Resource Conservation Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act and
the Oil
Pollution Act of 1990. Under various federal, state and local laws and
regulations, an owner or operator of real property may be held liable for
the
costs of removal or remediation of certain hazardous or toxic substances
or
wastes located on its property, regardless of whether or not the present
owner
or operator knows of, or is responsible for, the presence of such substances
or
wastes. We have not identified any issues associated with our properties
that
could reasonably be expected to have an adverse effect on us or the results
of
our operations. However, several of our properties are located in industrial
areas or were used for industrial purposes for many years. As a consequence,
it
is possible that historical or neighboring activities have affected one or
more
of our properties and that, as a result, environmental issues could arise
in the
future, the precise nature of which we cannot now predict. The coverage and
attendant compliance costs associated with these laws, regulations and
ordinances may result in future additional costs.
Regulations
adopted by the Financial Crimes Enforcement Network of the U.S. Treasury
Department require us to report currency transactions in excess of $10,000
occurring within a gaming day, including identification of the patron by
name
and social security number. U.S. Treasury Department regulations also require
us
to report certain suspicious activity, including any transaction that exceeds
$5,000 if we know, suspect or have reason to believe that the transaction
involves funds from illegal activity or is designed to evade federal regulations
or reporting requirements. Substantial penalties can be imposed against us
if we
fail to comply with these regulations.
We
are
also subject to a variety of other local rules and regulations, including
zoning, environmental, construction and land-use laws and regulations governing
the serving of alcoholic beverages. Penalties can be imposed against us if
we
fail to comply with these regulations. The imposition of a substantial penalty
or the loss of service of a gaming facility for a significant period of time
would have a material adverse affect on our business.
Our
substantial indebtedness could adversely affect our financial health and
restrict our operations.
We
have a
significant amount of indebtedness. As of April 30, 2006, we had $1.2 billion
of
total debt outstanding.
Our
significant indebtedness could have important consequences, such
as:
· |
limiting
our ability to obtain additional financing to fund our working capital
requirements, capital expenditures, debt service, general corporate
or
other obligations;
|
· |
limiting
our ability to use operating cash flow in other areas of our business
because we must dedicate a significant portion of these funds to
make
principal and interest payments on our
indebtedness;
|
· |
increasing
our interest expense if there is a rise in interest rates, because
a
portion of our borrowings under our senior secured credit facility
are
subject to interest rate periods with short-term durations (typically
30
to 180 days) that require ongoing refunding at the then current rates
of
interest;
|
· |
causing
our failure to comply with the financial and restrictive covenants
contained in the indenture and agreements governing the 7% senior
subordinated notes due 2014, the 9% senior subordinated notes due
2012,
our senior secured credit facility and our other indebtedness, which
could
cause a default under those instruments and which, if not cured or
waived,
could have a material adverse effect on us;
|
· |
placing
us at a competitive disadvantage to our competitors who are not as
highly
leveraged; and
|
· |
increasing
our vulnerability to and limiting our ability to react to changing
market
conditions, changes in our industry and economic
downturns.
|
Any
of
the factors listed above could have a material adverse effect on our business,
financial condition and results of operations. In addition, as of April 30,
2006, we had the capacity to issue additional indebtedness, including the
ability to incur additional indebtedness under all of our lines of credit,
of
approximately $433.4 million, of which, approximately $72.2 million of these
lines of credit were used to support letters of credit. Our capacity to issue
additional indebtedness is subject to the limitations imposed by the covenants
in our senior secured credit facility and the indentures governing our notes.
The indenture governing our notes and our senior secured credit facility
contain
financial and other restrictive covenants, but will not fully prohibit us
from
incurring additional debt. If new debt is added to our current level of
indebtedness, related risks that we now face could increase.
We
have
made and will need to make significant capital expenditures at our existing
facilities to remain competitive with current and future competitors in our
markets. Our senior secured credit facility and the indentures governing
our
notes contain operating and financial restrictions that may limit our ability
to
obtain the financing to make these capital expenditures.
Our
agreements governing our indebtedness, among other things, limit our ability
to:
· |
make
capital expenditures;
|
· |
use
assets as security in other transactions;
|
· |
make
restricted payments or restricted
investments;
|
· |
incur
contingent obligations; and
|
· |
sell
assets and enter into leases and transactions with
affiliates.
|
We
may not be able to successfully expand to new locations or recover our
investment in new locations which would adversely affect our operations and
available resources.
We
regularly evaluate and pursue new gaming acquisition and development
opportunities in existing and new gaming markets including Waterloo, Iowa;
Pompano Beach, Florida; Coventry, England; west Harrison County, Mississippi;
Pittsburgh, Pennsylvania; Singapore and Rosemont, Illinois. To the extent
that
we elect to pursue any new gaming acquisition or development opportunity,
our
ability to benefit from our investment will depend on many factors, including:
· |
our
ability to successfully identify attractive acquisition and development
opportunities;
|
· |
our
ability to successfully operate any developed or acquired
properties;
|
· |
our
ability to attract and retain competent management and employees
for the
new locations;
|
· |
our
ability to secure required federal, state and local licenses, permits
and
approvals, which in some jurisdictions are limited in number and
subject
to intense competition;
|
· |
the
availability of adequate financing on acceptable
terms.
|
Many
of
these factors are beyond our control. Therefore, we cannot be sure that
we will
be able to recover our investments in any new gaming development opportunities
or acquired facilities, or successfully expand to additional locations.
We
may experience construction delays during our expansion or development
projects
which could adversely affect our operations.
We
currently are engaged in substantial expansion projects at several of our
properties. We also evaluate other expansion opportunities as they become
available and we may in the future engage in additional construction projects.
The anticipated costs and construction periods are based upon budgets,
conceptual design documents and construction schedule estimates prepared
by us
in consultation with our architects and contractors.
Construction
projects entail significant risks, which can substantially increase costs
or
delay completion of a project. Such risks include shortages of materials
or
skilled labor, unforeseen engineering, environmental or geological problems,
work stoppages, weather interference and unanticipated cost increases.
Most of
these factors are beyond our control. In addition, difficulties or delays
in
obtaining any of the requisite licenses, permits or authorizations from
regulatory authorities can increase the cost or delay the completion of
an
expansion or development. Significant budget overruns or delays with respect
to
expansion and development projects could adversely affect our results of
operations.
If
our key personnel leave us, our business will be significantly adversely
affected.
Our
continued success will depend, among other things, on the efforts and skills
of
a few key executive officers and the experience of our property managers
as well
as our ability to attract and retain additional highly qualified personnel
with
gaming industry experience and qualifications to obtain the requisite licenses.
We do not maintain “key man” life insurance for any of our employees. There is
no assurance that we would be able to attract and hire suitable replacements
for
any of our key employees. We need qualified executives, managers and skilled
employees with gaming industry experience to continue to successfully operate
our business. We believe a shortage of skilled labor in the gaming industry
may
make it increasingly difficult and expensive to attract and retain qualified
employees. We expect that increased competition in the gaming industry
will
intensify this problem.
Inclement
weather and other conditions could seriously disrupt our business, financial
condition and results of operations.
Dockside
and riverboat facilities are subject to risks in addition to those associated
with land-based casinos, including loss of service due to casualty, mechanical
failure, extended or extraordinary maintenance, flood, hurricane or other
severe
weather. Our riverboats and barges face additional risks from the movement
of
vessels on waterways.
Reduced
patronage and the loss of a dockside or riverboat casino from service for
any
period of time could adversely affect our results of operations. For example,
as
a result of hurricanes Katrina and Rita, we closed the Isle-Biloxi from August
28, 2005 to December 26, 2005 and the Isle-Lake Charles from September 22,
2005
to October 8, 2005. While our business interruption insurance provided
sufficient coverage for those losses, we cannot be assured that the proceeds
from any future claim will be sufficient to compensate us if one or more
of our
casinos experience a closure.
In
fiscal
2007, as a result of hurricane claims in the Gulf Coast region over the past
several years, we have experienced a significant increase in property and
business interruption premiums.
Access
to
a number of our facilities may also be affected by road conditions, such
as
construction and traffic. In addition, severe weather such as high winds
and
blizzards occasionally limits access to our facilities in Colorado.
Energy
and fuel price increases may adversely affect our costs of operations and
our
revenues
Our
casino properties use significant amounts of electricity, natural gas and
other
forms of energy. While no shortages of energy have been experienced, substantial
increases in the cost of electricity in the United States will negatively
affect
our results of operations. In addition, energy and fuel price increases in
cities that constitute a significant source of customers for our properties
could result in a decline in disposable income of potential customers and
a
corresponding decrease in visitation to our properties, which would negatively
impact our revenues. The extent of the impact is subject to the magnitude
and
duration of the energy and fuel price increases, but this impact could be
material.
A
downturn in general economic conditions may adversely affect our results
of
operations.
Our
business operations are subject to changes in international, national and
local
economic conditions, including changes in the economy related to future security
alerts in connection with threatened or actual terrorist attacks and related
to
the war with Iraq, which may affect our customers’ willingness to travel. A
recession or downturn in the general economy, or in a region constituting
a
significant source of customers for our properties, could result in fewer
customers visiting our properties, which would adversely affect our results
of
operations.
We
have international operations that are subject to different risks than our
domestic operations.
In
the
United Kingdom and the Bahamas, we are subject to certain additional risks,
including difficulty in staffing and managing foreign subsidiary operations,
foreign currency fluctuations, dependence on foreign economies, political
issues, adverse tax consequences and uncertainty in regulatory reform in
the
United Kingdom. In addition, in the Bahamas current gaming regulation preclude
residence from participating in gaming activities. Therefore, disruptions
in
tourism traffic such as airline and other means of transportation and hotel
accommodations can have an adverse impact in our gaming operations.
ITEM
1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM
2.
PROPERTIES.
The
Isle-Lake Charles
We
own
approximately 2.7 acres and lease approximately 16.25 acres of land in Calcasieu
Parish, Louisiana for use in connection with the Isle-Lake Charles. This lease
automatically renewed in March 2005 and we have the option to renew it for
sixteen additional terms of five years each. Rent under the Isle-Lake Charles
lease is currently $1.5 million per year and is subject to increases based
on
the Consumer Price Index (“CPI”) and construction of hotel facilities on the
property. We own two hotels in Lake Charles with a total of 493
rooms.
The
Isle-Bossier City
We
own
approximately 38 acres of land in Bossier City, Louisiana for use in connection
with the Isle-Bossier City and we own two hotels with 565 rooms on approximately
10.5 acres of land located 2.5 miles east of the Isle-Bossier City. We presently
have a pending purchase agreement with Legends Gaming, LLC to sell our Bossier
City operations which we expect to close in the second quarter of fiscal year
2007.
The
Isle-Lula
We
lease
approximately 1,000 acres of land in Coahoma County, Mississippi and utilize
approximately 50 acres in connection with the operations of the Isle-Lula.
Unless terminated by us at an earlier date, the lease expires in 2033. Rent
under the lease is currently 5.5% of gross gaming revenue as calculated by
the
Mississippi Gaming Commission, plus $5,000 per month, as well as $3,333 per
month for the hotel. We also own approximately 100 acres in Coahoma County,
which may be utilized for future development.
The
Isle-Biloxi
We
lease
the Biloxi berth from the Biloxi Port Commission at an annual rent of the
greater of $500,000 or 1% of the gross gaming revenue net of state and local
gaming taxes. The lease terminates on July 1, 2009 and we have the option to
renew it for seven additional terms of five years each subject to increases
based on the CPI, limited to 6% for each renewal period.
We
lease
the real estate upon which some of our land-based facilities are located from
the City of Biloxi and the Mississippi Secretary of State at current annual
rent
of $561,800 per year, plus 3% of the Isle-Biloxi’s gross gaming revenues, net of
state and local gaming taxes and fees, in excess of $25.0 million. The lease
terminates on July 1, 2009, but it is renewable at our option for five
additional terms of five years each and a sixth option renewal term, concluding
on January 31, 2034, subject to rent increases based on the CPI, limited to
6%
for each renewal period. In April 1994, we entered into an addendum to this
lease that requires us to pay 4% of our gross non-gaming revenue, net of sales
tax, complimentaries and discounts. Additional rent will be due to the City
of
Biloxi for the amount of any increase from and after January 1, 2016, in the
rent due to the State Institutions of Higher Learning under a lease between
the
City of Biloxi and the State Institutions of Higher Learning and for any
increases in certain tidelands leases between the City of Biloxi and the State
of Mississippi.
In
April
1994, in connection with the construction of a hotel, we entered into a lease
for additional land adjoining the Isle-Biloxi. This lease with the City of
Biloxi and the Mississippi Secretary of State is for an initial term of 25
years, with options to renew for six additional terms of ten years each and
a
final option period concluding December 31, 2085. Current annual rent is
$605,000 plus 4% of gross non-gaming revenue, as defined in the lease, and
renewals are subject to rent increases based on the CPI. The
annual rent is adjusted after each five-year period based on increases in the
CPI, limited to a 10% increase in any five-year period.
In
August
2002, we entered into a lease for two additional parcels of land adjoining
the
Isle-Biloxi and the hotel. On the parcel adjoining the Isle-Biloxi, we
constructed a multi-level parking garage that has approximately 1,000 parking
spaces. There is additional ground level parking on a parcel of land in front
of
the garage, also subject to this lease, with approximately 600 parking spaces.
We have constructed a 400-room addition to the existing hotel on the parcel
leased next to the existing hotel. In addition, we may construct a hotel above
the parking garage. This lease with the City of Biloxi and the Mississippi
Secretary of State is for an initial term of forty years, with one option to
renew for an additional twenty-five years and additional options thereafter,
with the consent of the Mississippi Secretary of State, consistent with the
term
of the lease described in the preceding paragraph. When combined with the base
and percentage rents described for the leases in the preceding two paragraphs,
annual rent under those two leases and this lease is estimated to be $4.3
million for the lease year ending July 31, 2006 and $4.4 million for lease
year
ending July 31, 2007. Such minimum rent to increase thereafter over time in
accordance with a formula based on anticipated timing for completion of the
current hotel and completion of the hotel on top of the parking garage (or
August 31, 2008, whichever occurs first), up to a minimum rent of $3.7 million.
Such amounts are subject to decreases due to market adjustments and increases
based on the CPI. Also, we are responsible for annual rent equal to 4% of gross
retail revenue and gross cash revenue (as defined in the lease), but without
double counting. If the rent minimum described in the preceding sentences is
not
otherwise satisfied from other rents, then this percentage rent is not in
addition to the minimum rent, but rather is to be applied to that
minimum.
In
connection with and pursuant to a settlement between the City of Biloxi and
the
State of Mississippi concerning the control and management area where the
Isle-Biloxi is located, we also have agreed to pay the City of Biloxi’s lease
obligations to the State of Mississippi. This amount is $500,000 per year,
payable on June 30, subject to increases based on the CPI and decreases if
there
are other tenants of the subject property. This obligation ends after June
2018,
but may be renewed for thirty years.
We
have
also entered into a joint venture arrangement to sublease property containing
a
two-level parking garage next to the Isle-Biloxi. Our annual rent under this
lease is approximately $212,500. The current term is for five years expiring
December 31, 2010, with a renewal option for an additional five-year term (under
which our annual rent would increase based on a Consumer Price Index) extending
the lease through December 31, 2015.
The
Isle-Vicksburg
We
own
approximately 13.1 acres of land in Vicksburg, Mississippi for use in connection
with the Isle-Vicksburg. We own an additional thirteen acres of land in
Vicksburg on which we operate off-site parking and a recreational vehicle park.
We also entered into a lease for approximately five acres of land adjacent
to
the Isle-Vicksburg to be used for additional parking. We presently have a
pending purchase agreement with Legends Gaming, LLC to sell our Vicksburg
operations which we expect to close in the second quarter of fiscal year
2007.
The
Isle-Natchez
Through
numerous lease agreements, we lease approximately 24 acres of land in Natchez,
Mississippi that is used in connection with the operations of the Isle-Natchez.
Unless terminated by us at an earlier date, the leases have varying expiration
dates through 2037. Rents under the leases currently total approximately
$101,000 per month. We also lease approximately 7.5 acres of land that is
utilized for parking at the facility. We own approximately six acres of property
in Natchez, Mississippi, as well as the property upon which our hotel is
located.
The
Isle-Kansas City
We
lease
approximately twenty-eight acres from the Kansas City Port Authority in
connection with the operation of the Isle-Kansas City facility. The term of
the
lease is ten years, expiring in October 2006, and we have the option to renew
the lease for eight additional terms of five years each. Rent under the lease
is
currently $3.0 million per year, subject to the higher of $2.0 million (minimum
rent) per year, or 3.25% of gross revenues, less complimentaries. As a part
of
our expansion plans, we are negotiating a new lease with the Kansas City Port
Authority.
The
Isle-Boonville
The
Company entered into a lease agreement with the City of Boonville. Under the
terms of agreement, the Company leases the site for a period of ninety-nine
years. In lieu of rent, the Company is assessed additional amounts by the City
of Boonville based on a 3.5% tax on gaming revenue, which the Company recognizes
as additional rent.
The
Isle-Bettendorf
We
own
approximately 24.6 acres of land in Bettendorf, Iowa used in connection with
the
operations of the Isle-Bettendorf. We also lease approximately eight acres
of
land on a month-to-month basis from an entity owned by family members of our
chief executive officer, Bernard Goldstein, including Robert S. Goldstein,
vice
chairman and director and Jeffrey D. Goldstein, director of our company, which
we utilize for parking and warehouse space. The initial term of the lease
expires sixty days after written notice is given to either party and rent under
the lease is currently $23,360 per month.
The
Rhythm City-Davenport
Pursuant
to various lease agreements, we lease approximately twelve acres of land in
Davenport, Iowa used in connection with the operations of Rhythm City-Davenport.
The aggregate annual rent on these leases is approximately $0.8 million and
they
have varying expiration dates through 2022. We also own a 121-room hotel on
approximately one acre of land located several blocks northeast of the Rhythm
City-Davenport.
The
Isle-Marquette
We
lease the dock site in
Marquette, Iowa that is used in connection with the operations of the
Isle-Marquette. The lease expires in 2019, and rent under the lease is currently
$15,000 per month, plus $0.50 per passenger, plus 2.5% of gaming revenues (less
state wagering taxes) in excess of $20.0 million but less than $40.0 million;
5%
of gaming revenues (less state wagering taxes) in excess of $40.0 million but
less than $60.0 million; and 7.5% of gaming revenues (less state wagering taxes)
in excess of $60.0 million. We also rent approximately 5 acres of land used
for
the employee parking lot
that
is a
month-to-month rental of $833. We also own approximately twenty-five acres
of
land for the pavilion, hotel, satellite offices, warehouse, lots by the marina,
and other property.
The
Isle-Black Hawk
Through
our 57% ownership interest in Isle-Black Hawk, we own approximately 10.1 acres
of land in Black Hawk, Colorado for use in connection with the Isle-Black
Hawk.
The
Colorado Central Station-Black Hawk
Through
our 57% ownership interest in Colorado Central Station-Black Hawk, we own or
lease approximately 7.1 acres of land in Black Hawk, Colorado for use in
connection with the Colorado Central Station-Black Hawk. We lease additional
parcels of land adjoining the Colorado Central Station-Black Hawk for parking.
This lease is for an initial term of nine years with options to renew for
eighteen additional terms of five years each with the final option period
concluding June 1, 2094. Annual rent is $1.7 million indexed to correspond
to
any rise or fall in the CPI at one-year intervals beginning June 1, 1996, not
to
exceed a 3% increase or decrease from the previous year’s rate. We also entered
into a lease for additional parking. This lease is for an initial term of ten
years with options to renew for nine additional terms of ten years each with
the
final option period concluding June 1, 2094. Annual rent is $576,000 and
renewals are subject to 20% rent increases over the rate of the previous term.
Pompano
Park
We
own
approximately 223 acres at Pompano Park.
The
Isle-Our Lucaya
In
April
2006, our Board of Directors approved a plan to close the Isle-Our Lucaya
facility. Effective June 1, 2006, we notified our landlord of our decision
to
terminate the lease and we intend to cease operations by June 1, 2007 as
required by our lease. We
will
continue to report the results of the Isle-Our Lucaya property as continuing
operations until a probable sale of this facility is reached or operations
are
ceased, at which time, these results will be reported as discontinued
operations.
Blue
Chip-Dudley
Through
our two-thirds ownership interest in Blue Chip PLC, we own the 15,000
square-foot building used for the Blue Chip-Dudley casino operation. We also
own
an 8,000 square-foot parking area for the casino.
Blue
Chip-Wolverhampton
Through
our two-thirds ownership interest in Blue Chip PLC, we own the 15,000
square-foot building used for the Blue Chip-Wolverhampton casino operation.
We
also own a 2,000 square foot parking area for the casino.
Blue
Chip-Walsall
Through
our two-thirds ownership interest in Blue Chip PLC, we own the 17,938
square-foot building used for the Blue Chip-Walsall casino operation.
Coventry
We
entered into a twenty-five year lease in December 2003, to lease approximately
120,000 square
feet within the arena compound that will be used in connection with the
operation of the Isle-Coventry. We have paid approximately £6.0 million plus
17.5% value added tax (“VAT”) ($10.9 million plus VAT as of April 30, 2006,
based on published exchange rates) for prepaid rent. Due to delayed construction
we will start to make lease payments in the second quarter of fiscal 2007 rather
than fourth quarter of fiscal 2006 in the approximate amount of £1.3 million
plus VAT ($2.4 million plus VAT as of April 30, 2006, based on published
exchange rates) per year. The lease payment will be offset by the £6.0 million
plus VAT ($10.9 million plus VAT as of April 30, 2006, based on published
exchange rates) prepaid rent and interest of 8% per annum on the unpaid balance
that reduces annual rent expenses over 15 years.
Other
We
own
all of the riverboats and barges utilized at our facilities. We also own or
lease all of our gaming and non-gaming equipment.
We
lease
our corporate office in Biloxi, Mississippi and our corporate office in Boca
Raton, Florida.
We
have
entered into a lease for our new corporate office location in Creve Coeur,
Missouri.
We
own
additional property and have various property leases and options to either
lease
or purchase property that are not directly related to our existing operations
and that may be utilized in the future in connection with expansion projects
at
our existing facilities or development of new projects, including our proposed
development in west Harrison County, Mississippi and our project currently
under
construction in Waterloo, Iowa.
ITEM
3. LEGAL PROCEEDINGS.
Lady
Luck
Gaming Corporation (now our wholly owned subsidiary) 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 $8.2 million as of April 30, 2006 based on published exchange
rates). Although it is difficult to determine the damages being sought from
the
lawsuit, the action may seek damages up to that aggregate amount plus interest
from the date of the action. The Athens Civil Court of First Instance granted
judgment in our favor and dismissed the lawsuit, but the Ministry appealed
the
matter and the appeal was heard before the Athens Appeal Court of First
Instance. The Athens Appeal Court issued certified copies of judgments denying
the Ministry’s appeal. The Ministry elected to appeal this matter further to the
Supreme Court. During October 2005, the Administrative Supreme Court remanded
the matter back to the Athens Administrative Appeals Court for a hearing on
the
merits, which is expected to take place at the end of 2006 or early 2007. The
civil matter was set for hearing before the Greek Supreme Court during May
2006;
however, prior to the scheduled hearing date, the Greek Supreme Court reset
the
hearing for January 8, 2007. We intend to continue a vigorous and appropriate
defense to the claims asserted in this matter.
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 that 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 that
they will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows. See Footnote 20 to the
Consolidated Financial Statements for further discussion of these matters.
None.
PART
II
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDER
MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a)
i. |
Market
Information.
Our common stock is traded on the NASDAQ National Market under the
symbol
“ISLE”. The following table presents the high and low closing sales prices
for our common stock as reported by the NASDAQ National Market for
the
fiscal periods indicated.
|
|
|
High
|
|
|
Low
|
|
Fiscal
Year Ending April 29, 2007
|
|
|
|
|
|
|
First
Quarter (through July 3, 2006)
|
$
|
33.01
|
|
$
|
23.86
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended April 30, 2006
|
|
|
|
|
|
|
Fourth
Quarter
|
$
|
33.93
|
|
$
|
27.70
|
|
Third
Quarter
|
|
28.76
|
|
|
20.30
|
|
Second
Quarter
|
|
28.67
|
|
|
19.48
|
|
First
Quarter
|
|
28.87
|
|
|
22.60
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended April 24, 2005
|
|
|
|
|
|
|
Fourth
Quarter
|
$
|
30.68
|
|
$
|
23.77
|
|
Third
Quarter
|
|
27.90
|
|
|
20.24
|
|
Second
Quarter
|
|
22.26
|
|
|
15.90
|
|
First
Quarter
|
|
23.55
|
|
|
16.25
|
|
ii. |
Holders
of Common Stock.
As of July 3, 2006, there were approximately 1,576 holders of record
of
our common stock.
|
iii. |
Dividends.
We
have never declared or paid any dividends with respect to our common
stock
and the current policy of our board of directors is to retain earnings
to
provide for the growth of the company. In addition, our senior secured
credit facility and the indentures governing our 7%
|
|
senior
subordinated notes and our 9% senior subordinated notes limit our
ability
to pay dividends. See “Item 8-Financial Statements and Supplementary
Data-Isle of Capri Casinos, Inc.-Notes to Consolidated Financial
Statements - Note 7.” Consequently, no cash dividends are expected to be
paid on our common stock in the foreseeable future. Further, there
can be
no assurance that our current and proposed operations will generate
the
funds needed to declare a cash dividend or that we will have legally
available funds to pay dividends. In addition, we may fund part of
our
operations in the future from indebtedness, the terms of which may
prohibit or restrict the payment of cash dividends. If a holder of
common
stock is disqualified by the regulatory authorities from owning such
shares, such holder will not be permitted to receive any dividends
with
respect to such stock. See “Item 1-Business-Regulation and
Licensing.”
|
iv. |
Equity
Compensation Plans.
The following table provides information about securities authorized
for
issuance under our 1992, 1993 and 2000 Employee Stock Option Plans,
and
our Deferred Bonus Plan, for the fiscal year ended April 30,
2006.
|
|
(a)
|
(b)
|
(c)
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
Equity
compensation plans approved by security holders
|
2,932,100
|
$
15.85
|
1,186,032
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
Total
|
2,932,100
|
$
15.85
|
1,186,032
|
(b) Issuance
of Unregistered Securities
None.
(c) Purchases
of our Common Stock
The
following table provides information related to our purchases of Isle of
Capri
Casinos, Inc. common stock:
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Programs
(1)
|
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Programs
(1)
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
23, 2006 to February 19, 2006
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
1,620,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
20, 2006 to March 26, 2006
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,620,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
27, 2006 to April 30, 2006
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,620,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
1,620,902
|
|
(1)
We
have purchased our common stock under two separate repurchase programs. The
first program, which allowed repurchase of up to 1,500,000 shares was announced
on November 15, 2000, and subsequently expanded to allow repurchase of an
additional 1,500,000 shares, as announced on January 11, 2001. The current
program was announced on October 25, 2002 and allows for the repurchase of
up to
1,500,000 shares. On October 7, 2005 the board also approved the repurchase
of
an additional 1,500,000 shares. To date, we have purchased 4,379,098 shares
of
our common stock under the two programs. These programs have no approved dollar
amounts, nor expiration dates.
ITEM
6. SELECTED FINANCIAL DATA.
The
following table presents our selected consolidated financial data for the five
most recent fiscal years, which is derived from our audited consolidated
financial statements and the notes to those statements. Because the data in
this
table does not provide all of the data contained in our consolidated financial
statements, including the related notes, you should read “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” our
consolidated financial statements, including the related notes contained
elsewhere in this document and other data we have filed with the U.S. Securities
and Exchange Commission.
|
Fiscal
Year Ended (1)
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
April
27,
|
|
|
April
28,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Income
Statement Data:
|
(dollars
in millions, except per share data)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
$
|
1,004.6
|
|
$
|
957.8
|
|
$
|
948.9
|
|
$
|
878.6
|
|
$
|
879.2
|
|
Rooms
|
|
37.0
|
|
|
33.1
|
|
|
33.4
|
|
|
38.8
|
|
|
45.6
|
|
Pari-mutuel
commissions and fees
|
|
20.6
|
|
|
20.1
|
|
|
20.3
|
|
|
23.9
|
|
|
23.5
|
|
Food,
beverage and other
|
|
126.0
|
|
|
124.8
|
|
|
120.3
|
|
|
117.3
|
|
|
128.5
|
|
Gross
revenues
|
|
1,188.2
|
|
|
1,135.8
|
|
|
1,122.9
|
|
|
1,058.6
|
|
|
1,076.8
|
|
Less
promotional allowances
|
|
200.2
|
|
|
188.3
|
|
|
183.4
|
|
|
166.3
|
|
|
169.8
|
|
Net
revenues
|
|
988.0
|
|
|
947.5
|
|
|
939.5
|
|
|
892.3
|
|
|
907.0
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
152.5
|
|
|
157.3
|
|
|
152.3
|
|
|
151.9
|
|
|
164.0
|
|
Gaming
taxes
|
|
220.0
|
|
|
215.1
|
|
|
208.9
|
|
|
192.9
|
|
|
190.8
|
|
Rooms
|
|
8.5
|
|
|
7.5
|
|
|
7.5
|
|
|
9.3
|
|
|
11.2
|
|
Pari-mutuel
|
|
16.1
|
|
|
15.5
|
|
|
15.4
|
|
|
16.9
|
|
|
16.8
|
|
Food,
beverage and other
|
|
31.5
|
|
|
29.8
|
|
|
26.6
|
|
|
28.7
|
|
|
30.2
|
|
Marine
and facilities
|
|
58.1
|
|
|
56.7
|
|
|
54.4
|
|
|
54.3
|
|
|
58.2
|
|
Marketing
and administrative
|
|
294.0
|
|
|
274.3
|
|
|
260.8
|
|
|
238.7
|
|
|
241.7
|
|
Valuation
and other charges
|
|
13.5
|
|
|
4.1
|
|
|
-
|
|
|
1.9
|
|
|
61.4
|
|
Hurricane
related charges, net
|
|
4.7
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Preopening
|
|
0.3
|
|
|
0.2
|
|
|
2.3
|
|
|
-
|
|
|
3.9
|
|
Depreciation
and amortization
|
|
87.1
|
|
|
82.3
|
|
|
75.9
|
|
|
63.9
|
|
|
60.5
|
|
Total
operating expenses
|
|
886.3
|
|
|
842.8
|
|
|
804.1
|
|
|
758.5
|
|
|
838.7
|
|
Operating
income
|
|
101.7
|
|
|
104.7
|
|
|
135.4
|
|
|
133.8
|
|
|
68.3
|
|
Interest
expense
|
|
(74.4)
|
|
|
(64.7)
|
|
|
(71.1)
|
|
|
(65.8)
|
|
|
(71.6)
|
|
Interest
income
|
|
3.3
|
|
|
1.8
|
|
|
0.5
|
|
|
0.4
|
|
|
0.6
|
|
Loss
on early extinguishment of debt
|
|
(2.1)
|
|
|
(5.2)
|
|
|
(14.1)
|
|
|
-
|
|
|
(7.0)
|
|
Minority
interest
|
|
(6.5)
|
|
|
(5.5)
|
|
|
(10.1)
|
|
|
(9.5)
|
|
|
(7.7)
|
|
Income
(loss) from continuing operations before income taxes
|
|
22.0
|
|
|
31.1
|
|
|
40.6
|
|
|
58.9
|
|
|
(17.4)
|
|
Income
taxes
|
|
14.2
|
|
|
16.1
|
|
|
13.3
|
|
|
21.6
|
|
|
(5.5)
|
|
Income
(loss) from continuing operations
|
|
7.8
|
|
|
15.0
|
|
|
27.3
|
|
|
37.3
|
|
|
(11.9)
|
|
Income
from discontinued operations, net of income taxes
|
|
11.2
|
|
|
3.0
|
|
|
0.4
|
|
|
8.3
|
|
|
11.9
|
|
Net
income
|
$
|
19.0
|
|
$
|
18.0
|
|
$
|
27.7
|
|
$
|
45.6
|
|
$
|
-
|
|
(Footnotes
follow table)
|
Fiscal
Year Ended (1)
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
April
27,
|
|
|
April
28,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
Income
Statement Data (continued):
|
(dollars
in millions, except per share data)
|
Income
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.26
|
|
$
|
0.51
|
|
$
|
0.93
|
|
$
|
1.29
|
|
$
|
(0.42)
|
Income
from discontinued operations
|
|
0.37
|
|
|
0.10
|
|
|
0.01
|
|
|
0.29
|
|
|
0.42
|
Net
Income
|
$
|
0.63
|
|
$
|
0.61
|
|
$
|
0.94
|
|
$
|
1.57
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.25
|
|
|
0.49
|
|
$
|
0.90
|
|
$
|
1.22
|
|
$
|
(0.40)
|
Income
from discontinued operations
|
|
0.36
|
|
|
0.10
|
|
|
0.01
|
|
|
0.27
|
|
|
0.40
|
Net
Income
|
$
|
0.61
|
|
$
|
0.58
|
|
$
|
0.91
|
|
$
|
1.50
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
$
|
99.5
|
|
$
|
169.9
|
|
$
|
173.2
|
|
$
|
138.2
|
|
$
|
153.7
|
Investing
activities
|
$
|
(188.9)
|
|
$
|
(213.7)
|
|
$
|
(159.1)
|
|
$
|
(126.6)
|
|
$
|
(100.6)
|
Financing
activities
|
$
|
64.4
|
|
$
|
55.4
|
|
$
|
25.8
|
|
$
|
6.4
|
|
$
|
(53.2)
|
Capital
expenditures*
|
$
|
161.8
|
|
$
|
217.3
|
|
$
|
153.4
|
|
$
|
61.3
|
|
$
|
98.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of slot machines (2)
|
|
12,875
|
|
|
12,672
|
|
|
12,702
|
|
|
11,665
|
|
|
12,740
|
Number
of table games (2)
|
|
483
|
|
|
485
|
|
|
398
|
|
|
283
|
|
|
325
|
Number
of hotel rooms (2)
|
|
2,652
|
|
|
2,129
|
|
|
2,082
|
|
|
2,198
|
|
|
3,217
|
Average
daily occupancy rate (3)
|
|
81.7%
|
|
|
84.8%
|
|
|
83.7%
|
|
|
78.1%
|
|
|
84.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
121.2
|
|
$
|
146.7
|
|
$
|
134.6
|
|
$
|
94.6
|
|
$
|
76.6
|
Total
assets
|
|
1,833.9
|
|
|
1,681.4
|
|
|
1,524.0
|
|
|
1,416.0
|
|
|
1,353.4
|
Long-term
debt, including current portion
|
|
1,221.3
|
|
|
1,156.1
|
|
|
1,088.9
|
|
|
1,028.0
|
|
|
1,009.3
|
Stockholders'
equity
|
|
282.7
|
|
|
261.4
|
|
|
241.4
|
|
|
203.9
|
|
|
159.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Excludes:
destroyed Isle-Biloxi casino barge of $7.4 million in fiscal 2005
and
$36.8 million in fiscal 2006, and Isle-Biloxi
|
temporary
casino
of $37.9 million in fiscal 2006 and discontinued operations of
Isle-Vicksburg and Isle-Bossier
City
|
(1)
The
operating results and data presented for fiscal years prior to fiscal year
2003
are not comparable to other fiscal years presented as we ceased operations
at
the Isle-Tunica on September 3, 2002, acquired the Colorado Central
Station-Black Hawk and the Colorado Grande-Cripple Creek on April 22, 2003
and
ceased operations at the Colorado Grande-Cripple Creek on April 25, 2005.
The
operating results and data presented for fiscal years prior to fiscal year
2004
are not comparable to other fiscal years presented because they do not include
the operating results of the Isle-Our Lucaya, which we opened on December
15,
2003, the Blue Chip-Dudley, which we acquired on November 28, 2003, the Blue
Chip-Wolverhampton, which we opened on April 22, 2004, and the Blue
Chip-Walsall, which we opened on September 23, 2004. We also ceased operations
at the Lady Luck-Las Vegas on September 3, 2003. The results of fiscal years
2002-2006 have been reclassified to reflect the Isle-Bossier City,
Isle-Vicksburg and Colorado Grande-Cripple Creek as discontinued
operations.
(2)
The
data presented for fiscal years prior to 2003 is not comparable to other
fiscal
years presented due to the exclusion of the 223 Colorado Grande-Cripple Creek
slot machines due to discontinued operations. The results of fiscal years
2002-2006 have been reclassified to reflect the Isle-Bossier City,
Isle-Vicksburg and Colorado Grande-Cripple Creek as discontinued
operations.
(3)
The
data presented for fiscal years prior to 2003 is not comparable to other
fiscal
years presented due to the exclusion of the 227 Isle-Tunica and the 792 Lady
Luck-Las Vegas hotel rooms. The results of fiscal years 2002-2006 have been
reclassified to reflect the Isle-Bossier City, Isle-Vicksburg and Colorado
Grande-Cripple Creek as discontinued operations.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
You
should read the following discussion together with the financial statements,
including the related notes and the other financial information in this
Form
10-K.
Executive
Overview
We
are a
leading developer, owner and operator of branded gaming facilities and
related
lodging and entertainment facilities in regional markets in the United
States
and internationally. We continue to investigate developing new locations,
purchasing existing operations and expanding our current properties. These
activities require capital-intensive investments that have long-term return
potential. We have intentionally sought geographic diversity to limit the
risks
caused by weather, regional economic difficulties, and local gaming authorities
and regulations. We currently operate casinos in Mississippi, Louisiana,
Missouri, Iowa, Colorado and Freeport, Grand Bahama Island. We operate
a harness
racing track in Florida. Additionally, we have a controlling interest in
casino
investments in Dudley, Wolverhampton and Walsall, England, each of which
is
operated by the minority owners. The following discussion includes results
only
from our continuing operations.
The
following table reflects our consolidated net revenues and operating income
by
state:
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
|
April
30,
|
|
|
April
24,
|
|
|
|
|
|
Variance
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mississippi
|
|
$
|
232,475
|
|
$
|
201,629
|
|
$
|
30,846
|
|
|
15.3%
|
Lousiana
|
|
|
161,912
|
|
|
172,081
|
|
|
(10,169)
|
|
|
(5.9%)
|
Missouri
|
|
|
162,644
|
|
|
166,274
|
|
|
(3,630)
|
|
|
(2.2%)
|
Iowa
|
|
|
208,977
|
|
|
211,650
|
|
|
(2,673)
|
|
|
(1.3%)
|
Colorado
|
|
|
163,411
|
|
|
138,588
|
|
|
24,823
|
|
|
17.9%
|
International
|
|
|
33,570
|
|
|
31,115
|
|
|
2,455
|
|
|
7.9%
|
Corporate
and other
|
|
|
25,031
|
|
|
26,235
|
|
|
(1,204)
|
|
|
(4.6%)
|
Total
net revenues
|
|
$
|
988,020
|
|
$
|
947,572
|
|
$
|
40,448
|
|
|
4.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mississippi
|
|
$
|
51,673
|
|
$
|
23,117
|
|
$
|
28,556
|
|
|
123.5%
|
Lousiana
|
|
|
19,517
|
|
|
27,036
|
|
|
(7,519)
|
|
|
(27.8%)
|
Missouri
|
|
|
27,011
|
|
|
24,976
|
|
|
2,035
|
|
|
8.1%
|
Iowa
|
|
|
42,075
|
|
|
44,710
|
|
|
(2,635)
|
|
|
(5.9%)
|
Colorado
|
|
|
36,132
|
|
|
29,764
|
|
|
6,368
|
|
|
21.4%
|
International
|
|
|
(13,459)
|
|
|
(4,013)
|
|
|
(9,446)
|
|
|
(235.4%)
|
Corporate
and other
|
|
|
(61,254)
|
|
|
(40,842)
|
|
|
(20,412)
|
|
|
(50.0%)
|
Operating
income
|
|
$
|
101,695
|
|
$
|
104,748
|
|
$
|
(3,053)
|
|
|
(2.9%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
Exlcudes Isle-Vicksburg, Isle-Bossier City and Colorado Grande-Cripple
Creek which
have been classified as discontinued
operations
|
In
Mississippi, our three continuing operations contributed $232.5 million
or 23.5%
of our net revenues during the fiscal year ended April 30, 2006. Net
revenues
and operating income were up $30.8 million and $28.6 million, respectively,
compared to prior year. The primary reason for these increases were a
new and
upgraded land-based casino at the Isle-Biloxi, limited competition in
the Biloxi
market due to closures related to Hurricane Katrina, and continuing effects
of a
population shift into the Isle-Natchez’ market. Isle-Lula’s results remained
consistent with prior year.
In
Louisiana, the Isle-Lake Charles contributed $161.9 million or 16.4% of our
net
revenues during the fiscal year ended April 30, 2006. Net revenues decreased
$10.2 million and operating income decreased $7.5 million over prior year.
Isle-Lake Charles experienced a decrease in net revenues and operating income,
compared to the prior year period, due to the addition of a competitor and
the
disruptions and charges related to Hurricane Rita.
In
Missouri, our two properties contributed $162.6 million or 16.5% of our net
revenues during the fiscal year ended April 30, 2006. Net revenues were down
$3.6 million and operating income was up $2.0 million. Isle-Kansas City’s net
revenues and operating income were down due to a decreased gaming patron
count
caused primarily by the completion of competitors’ expansion projects in the
market. Isle-Boonville’s net revenues and operating income increased due to an
increase in marketing efforts.
In
Iowa,
our three casinos contributed $209.0 million or 21.2% of our net revenues
during
the fiscal year ended April 30, 2006. Net revenues decreased $2.7 million
primarily due to increased competition and operating income decreased $2.6
million primarily due to increased marketing costs as compared to the prior
year.
In
Colorado, our two Black Hawk properties contributed $163.4 million or 16.5%
of
our net revenues during the fiscal year ended April 30, 2006. Net revenues
were
up $24.8 million and operating income was up $6.4 million over prior year.
During fiscal 2005, construction at our Black Hawk properties, which
significantly reduced parking for the Colorado Central Station-Black Hawk
and
restricted access to the street entrances to both Black Hawk casinos, adversely
impacted net revenues and operating income by $10.3 million and $10.2 million,
respectively. In June 2005, we completed the casino expansions at both casinos,
a new restaurant, the skywalks connecting the casinos to the new garage and
a
total of 900 new parking spaces thus ending the most disruptive phase of
our
Black Hawk expansion projects. Construction of the new 162-room Colorado
Central
Station hotel was completed in December 2005. The extension of Main Street
to
Colorado Route 119, temporarily delayed by engineering challenges, opened
in the
first quarter of fiscal 2007.
In
our
international locations, we experienced an increase in net revenues of $2.5
million. Operating income decreased $9.4 million primarily due to $13.3 million
in valuation and other charges related to Blue Chip and the Isle-Our Lucaya.
In
April
2006, our Board of Directors approved a plan to close the Isle-Our Lucaya
facility. Effective
June 1, 2006, we notified our landlord of our decision to terminate the lease
and we intend to cease operations by June 1, 2007 as required by our lease.
In
conjunction with exercising the lease termination, we paid a $2.2 million
fee to
our landlord to terminate the lease early. This amount will be expensed,
in
accordance with SFAS 146 on the date of notification, which was in the first
quarter of fiscal year 2007. We
will
continue to report the results of the Isle-Our Lucaya property as continuing
operations until a probable sale of this facility is reached or operations
are
ceased at which time these results will be reported as discontinued
operations.
In
corporate and other, our new development expenses increased to $19.7 million
for
the fiscal year ended April 30, 2006, up from $14.4 million for the same
period
in the previous fiscal year. This is primarily due to our continuing development
efforts in Pompano Beach, Florida; Waterloo, Iowa; Pittsburgh, Pennsylvania;
Singapore, and the United Kingdom as well as other initial investments to
proposed future projects. Additional costs have been incurred due to the
ongoing
relocation of the corporate offices to the St. Louis, Missouri metropolitan
area
which is expected to be completed in late calendar year 2006.
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.
|
Based
upon management’s discussion of the development and selection of these critical
accounting estimates with the Audit Committee of our Board of Directors, we
believe the following accounting estimates involve a higher degree of judgment
and complexity.
Goodwill
and Other Intangible Assets
At
April
30, 2006, we had goodwill and other intangible assets with indefinite useful
lives of $371.1 million, representing 20.2% of total assets. Statement of
Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets”
(“SFAS 142”), requires that goodwill and intangible assets with indefinite
useful lives be tested for impairment annually or more frequently if an event
occurs or circumstances change that may reduce the fair value of our goodwill
and intangible assets below their carrying value. We completed our
annual impairment
test as required under SFAS 142 in the fourth
quarter of fiscal year 2006. For properties with goodwill and/or other
intangible assets with indefinite lives, this test requires the comparison
of
the implied fair value of each property to carrying value. The implied 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
April 30, 2006, we had
property and equipment of $938.4 million, representing 51.2% 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
our
“other capital improvements,” program, as detailed in the “Liquidity and Capital
Resources” section below, include individual capital expenditures related to the
purchase of furniture and equipment and to the 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. Future events such as property expansions, new
competition and new regulations could result in a change in the manner in which
we are using certain assets requiring a change in the estimated useful lives
of
such assets. We evaluate long-lived assets for impairment using Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial
accounting and reporting for the impairment or
disposal
of long-lived assets. In assessing the recoverability of the carrying value
of
property and equipment, we make assumptions regarding future cash flows and
residual values. If these estimates or the related assumptions change in the
future, we may be required to record impairment loss for these assets. Such
an
impairment loss would be recognized as a non-cash component of operating
income.
Self-Insurance
Liabilities
We
are
self-funded up to a maximum amount per claim for our employee-related health
care benefits program, workers’ compensation insurance and general liability
insurance. Claims in excess of this maximum are fully insured through a
stop-loss insurance policy. We accrue for these liabilities based on claims
filed and estimates of claims incurred but not reported. We 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 health care costs, in our opinion, recorded reserves are adequate to cover
future claims payments.
Insurance
Accounting
We
have
recorded an impairment charge of $68.6 million based on current assessments
of
damages related to the impact of hurricanes. The impairment charge is offset
by
an insurance receivable for the amount we expect to recover from our insurance
carriers under our policy coverages. We have incurred $62.2 million for
incremental out-of-pocket costs related to the hurricanes and the property
operating costs related to the periods affected by the hurricanes. These amounts
are included in the “Hurricane related charges, net” in the accompanying
statements of income. The Company has insurance coverage related to damage
from
the three hurricanes for property damage incurred, property operating costs
during the operational downtime of the hurricanes, incremental costs incurred
related to hurricane damage and recovery activities and business interruption
insurance for lost profits during the period directly related to the hurricanes.
The total amount of losses recognized and expenses incurred of $130.8 million
has been recorded in the accompanying statement of income as “Hurricane related
charges, net” and have been offset by the amount of $126.0 million, which the
Company believes is probable that it will collect from its insurance carriers
under its policy coverages. The remaining amount of $4.8 million represents
the
Company’s deductible portion of its claims. The Company believes it will receive
proceeds from its insurance carrier related to all four types of losses the
Company has sustained, and through July 5, 2007 has received advances of $55.4
million, of which $53.9 million was received by April 30, 2006. When the Company
and its insurance carriers agree on the final amount of the insurance proceeds
the Company is entitled to, the Company will also record any related gain in
this account. The Company's insurance policies also provide coverage for the
loss of profits caused by the storms. Any lost profit recoveries will be
recognized when agreed to with the insurance carrier and will be reflected
in
the related properties' revenues.
Income
Tax Assets and Liabilities
We
are
subject to income taxes in the United States as well as various states and
foreign jurisdictions in which we operate. We account for income taxes under
SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109), whereby deferred tax
assets and liabilities are recognized for the expected future tax consequences
of events that have been included in the financial statements or income tax
returns. Deferred tax assets and liabilities are determined based on differences
between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled.
The
effect on the income tax provision and deferred tax assets and liabilities
of a
change in tax rates is recognized in income in the period that includes the
enactment date. We provide a valuation allowance for deferred tax assets,
including net operating losses, when we believe that we will be unable to
utilize the benefits of those assets on our tax returns. Changes to the
valuation allowance are recorded in the period when we revise our estimate
of
the recoverability of the related deferred assets. As indicated in Note 18,
we
have provided a valuation allowance for certain state net operating losses
(“NOLs”), and other deferred tax assets as of April 30, 2006 and April 24, 2005.
Other than these exceptions, we are unaware of any circumstances that would
cause the remaining deferred tax assets to not be realizable.
Our
income tax returns are subject to examination by the Internal Revenue Service
(“IRS”) and other taxing authorities. While positions taken in tax returns are
sometimes subject to uncertainty in the tax laws, we do not take such positions
unless we have “substantial authority” to do so under the Internal Revenue Code
and applicable regulations. We may take positions on our tax returns based
on
substantial authority that are not ultimately accepted by the IRS or other
taxing authorities. We assess such potential unfavorable outcomes based on
the
criteria of SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5). We
establish a tax reserve if an unfavorable outcome is probable and the amount
of
the unfavorable outcome can be reasonably estimated. We assess the potential
outcomes of tax uncertainties on a quarterly basis. In determining whether
the
probable criterion of SFAS No. 5 is met, we presume that the taxing authority
will focus on the exposure and we assess the probable outcome of a particular
issue based upon the relevant legal and technical merits. We also apply our
judgment regarding the potential actions by the tax authorities and resolution
through the settlement process. We maintain required tax reserves until such
time as the underlying issue is resolved.
When
actual results differ from reserve estimates, we adjust the income tax provision
and our tax reserves in the period resolved. For tax years that are not examined
by taxing authorities, we adjust tax reserves in the year that the statute
of
limitations expires. Our estimate of the potential outcome for any uncertain
tax
issue is highly judgmental, and we believe we have adequately provided for
any
reasonable and foreseeable outcomes related to uncertain tax
matters.
Contingencies
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.
We
routinely face 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. We record tax accruals for probable exposures associated with
the
various filing positions in accordance with Statement of Financial Accounting
Standards No. 5, “Accounting for Contingencies.”
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
value
of the outstanding 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.
Results
of Operations
Our
results of operations for the fiscal years ended April 30, 2006, and April
24,
2005, reflect the consolidated operations of all of our subsidiaries and include
the following properties: the Isle-Lake Charles, the Isle-Biloxi, the Isle-Lula,
the Isle-Natchez, 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 Isle-Our Lucaya, the Blue Chip-Dudley, the
Blue
Chip-Wolverhampton, the Blue Chip-Walsall and Pompano Park. Fiscal 2006 and
2005
results have been reclassified to reflect the Isle-Vicksburg, the Isle-Bossier
City and Colorado Grande-Cripple Creek as discontinued operations.
Our
fiscal year ends on the last Sunday in April. This fiscal year convention
creates more comparability of our quarterly operations, by generally having
an
equal number of weeks (13) and weekend days (26) in each quarter. Periodically,
this convention necessitates a 53-week year. The fiscal year ended April 30,
2006 was a 53-week year. The extra week was included in the fourth fiscal
quarter.
Our
results of operations for the fiscal year ended April 25, 2004, reflect the
consolidated operations of all of our subsidiaries, and includes the following
properties: the Isle-Lake Charles, the Isle-Biloxi, the Isle-Lula, the
Isle-Natchez, 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 Lady Luck-Las Vegas, the Isle-Our Lucaya, the
Blue Chip-Dudley, the Blue Chip-Wolverhampton, the Blue Chip-Walsall and Pompano
Park. On October 30, 2002, we completed the sale of the Lady Luck-Las Vegas.
We
operated the casino until September 3, 2003, when the purchaser’s designated
gaming operator received regulatory approval. The Isle-Our Lucaya began
operations in December of 2003. We purchased a two-thirds interest in Blue
Chip
Casinos, PLC (“Blue Chip”) in November of 2003. Blue Chip owns and operates a
pub-style casino in Dudley, England, and a pub-style casino in Wolverhampton,
England, which began operations in April of 2004. Fiscal 2004 results have
been
reclassified to reflect the Isle-Vicksburg, the Isle-Bossier City and Colorado
Grande-Cripple Creek as discontinued operations.
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 materially affected
by the economy and weather.
Fiscal
Year Ended April 30, 2006 Compared to Fiscal Year Ended April 24,
2005
Gross
revenues for the fiscal year ended April 30, 2006 were $1.2 billion, which
included $1.0 billion of casino revenue, $37.0 million of room revenue, $20.6
million of pari-mutuel commissions, $107.6 million of food and beverage revenue
and $18.4 million of other revenue. This compares to gross revenues for the
fiscal year ended April 24, 2005 of $1.1 billion, which included $957.9 million
of casino revenue, $33.1 million of room revenue, $20.1 million of pari-mutuel
commissions, $106.2 million of food and beverage revenue and $18.6 million
of
other revenue.
Casino
revenue increased 4.9% compared to fiscal year 2005. We saw an increase in
casino revenues at our Mississippi properties due to Isle-Biloxi’s limited
competition following re-opening as a result of Hurricane Katrina and upgraded
land-based casino, effects of population growth in the Isle-Natchez market
because of hurricane relocations and an improved marketing program at Isle-Lula.
Likewise, casino revenues increased at the Isle’s Colorado casinos due to the
completion of the expansion projects. Isle-Lake Charles saw a decline in casino
revenues due to the entry of a new competitor and the disruptions caused by
Hurricane Rita. Our Iowa properties saw flat casino revenues. The Isle-Kansas
City saw a drop in revenues due to decreased patron count caused by completion
of competitors’ expansion projects in the market. Isle-Booneville casino
revenues increased due to an increase in marketing efforts. Our international
operations, which account for a small percentage of our gaming revenues, saw
an
increase in casino revenues primarily due to a decrease in hurricane disruptions
at the Isle-Our Lucaya during fiscal year 2006.
Room
revenue increased 11.8% compared to fiscal year 2005 primarily as a result
of
the additional capacity at the Isle-Biloxi. Pari-mutuel commissions earned
at
Pompano Park in Florida for the fiscal year increased 2.2% compared to prior
year. Food and beverage revenues increased by 1.3%.
Promotional
allowances, which are made up of complimentary revenues, cash points and
coupons, are rewards that we give our loyal customers and incentives given
to
both existing and potential customers to encourage future patronage at our
properties. These allowances increased by 6.3% in fiscal year 2006 as we
increased our direct mail efforts to promote play and the addition of Isle
Play
at our Mississippi properties.
Casino
operating expenses decreased 3.1% over fiscal year 2005. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. Casino operating expenses have decreased despite an increase
in
casino revenue primarily due to temporary closures of operations in Biloxi,
Lake
Charles and Pompano caused by hurricanes in fiscal 2006 and certain operating
costs at these properties being offset with expected insurance recoveries
related to the closures. For further discussion, see footnote 14 to
the consolidated financial statements.
State
and
local gaming taxes increased by 2.3% compared to fiscal year 2005 primarily
due
to the increase in gaming revenues.
Room
expenses increased 13.5% compared to fiscal year 2005. These expenses directly
relate to the cost of providing hotel rooms. The increase in expenses was due
primarily to the additional room capacity at the Isle-Biloxi and increased
guest
counts at Isle-Natchez and Isle-Lake Charles.
Pari-mutuel
operating costs of Pompano Park in Florida increased 3.9% compared to fiscal
year 2005. Such costs consist primarily of compensation, benefits, purses,
simulcast fees and other direct costs of track operations.
Food
and
beverage expenses increased 7.3% over fiscal year 2005. Food and beverage
expenses as a percentage of gross food and beverage revenues increased from
23.9% for the fiscal year ended April 24, 2005, to 25.3% for the fiscal year
ended April 30, 2006. These
expenses consist primarily of the cost of goods sold, salaries, wages and
benefits and other operating expenses of these departments. Food,
beverage and other expenses as a percentage of gross food, beverage and other
revenues increased from 23.9% for the fiscal year ended April 24, 2005, to
25.0%
for the fiscal year ended April 30, 2006. These
expenses increased partly as a result of the expansion at the Colorado
property.
Marine
and facilities expenses increased 2.6% compared to fiscal year 2005. These
expenses include salaries, wages and benefits of the marine and facilities
departments, operating expenses of the marine crews, insurance, maintenance
of
public areas, housekeeping and general maintenance of the riverboats and
pavilions. The increase was primarily due to the Isle’s Colorado expansion
projects that came on line during 2006.
Marketing
expenses increased 2.0% compared to fiscal year 2005. The increase in marketing
expenses is primarily due to the additional marketing of our Colorado properties
after the completion of the expansion projects and additional corporate
marketing expenses. Marketing expenses include salaries, wages and benefits
of
the marketing and sales departments, as well as promotions, direct mail,
advertising, special events and entertainment.
Administrative
expenses, which include administration and human resource department expenses,
rent, new development activities, professional fees, insurance and property
taxes, have increased 9.0% over fiscal year 2005. The increase is due primarily
to the settlement of the Jefferson County, Missouri lawsuit and increased
development and investment activities. In Florida, we supported the successful
campaign to pass a constitutional amendment that allows the voters of Miami-Dade
and Broward counties to decide whether to approve slot machines in racetracks
and jai alai facilities in their respective counties. We are continuing to
pursue a slot parlor license in Pittsburgh, Pennsylvania and have joined with
resort developer Eighth Wonder in applying to operate a casino resort in
Singapore. Additionally, we expect administrative expenses to increase in fiscal
2007 primarily due to costs related to moving the corporate office from
Mississippi to Missouri and expected substantial increased property insurance
premiums related to increases in recent hurricane activity in our southern
region.
Depreciation
expense increased by 5.8% compared to fiscal year 2005. Depreciation has
increased as a result of our capital expansion programs.
In
fiscal
2006, we recorded $3.6 million in impairment and severance related charges
on
the Isle-Our Lucaya property due to the change in future expected cash flows
resulting from our decision to close the casino by June of 2007. As a result
of
adverse market conditions on the expected future cash flows of the Blue Chip
operations, we recorded additional impairment charges of $9.6 million related
to
the Blue Chip properties. In fiscal 2005, we recorded a gain on the sale of
a
land option in St. Louis, Missouri, in addition to impairment related charges
of
$1.6 million related to fixed assets in the United Kingdom and $2.5 million
on
our investment in a license in Rosemont, Illinois.
We
incurred a loss on early extinguishment of debt totaling $2.1 million in fiscal
2006 in connection with the refinancing of the Isle-Black Hawk senior secured
credit facility on October 24, 2005. In fiscal 2005, we incurred a loss on
early
extinguishment of debt totaling $5.3 million in connection with the amendment
of
our senior secured credit facility on February 4, 2005. These charges include
the write-off of debt acquisition costs.
Net
interest expense increased 13.1% compared with fiscal year 2005. This is
primarily attributable to the higher average balances outstanding and higher
interest rates on our variable rate debt and an increase in capitalized interest
from $3.2 million in the fiscal year ended April 24, 2005 to $4.6 million in
fiscal year ended April 30, 2006. The increase in capitalized interest results
from the ongoing construction at Coventry, England and expansion projects at
Pompano Park and Isle-Boonville.
Our
effective tax rate from continuing operations for the year ended April 30,
2006
was 64.5% compared to 51.8% for the year ended April 24, 2005, which, in each
case, excludes our joint venture partner’s portion of the Colorado Central
Station-Black Hawk’s income taxes. This increase in effective rate over the
comparable prior fiscal period is primarily attributable to the impact of not
benefiting from a
portion
of our current losses in the United Kingdom at this time, and not benefiting
from the capital loss related to the Colorado Grande Cripple-Creek transaction
at this time because of a lack of capital gains to offset against the loss.
As
part of our ongoing operations, we will continue to evaluate prudent tax
planning strategies to maximize the benefits of existing tax attributes,
however, no assurance can be made that this can be achieved. For further
discussion, see footnote 18 to the consolidated financial
statements.
Fiscal
Year Ended April 24, 2005 Compared to Fiscal Year Ended April 25,
2004
Gross
revenues for the fiscal year ended April 24, 2005 were $1.1 billion, which
included $957.9 million of casino revenue, $33.1 million of room revenue, $20.1
million of pari-mutuel commissions, $106.2 million of food and beverage revenue
and $18.6 million of other revenue. This compares to gross revenues for the
fiscal year ended April 25, 2004 of $1.1 billion, which included $0.9 billion
of
casino revenue, $33.4 million of room revenue, $20.3 million of pari-mutuel
commissions and $103.4 million of food and beverage and $16.9 million of other
revenue.
Casino
revenue increased 0.9% compared to fiscal year 2004. We
saw an
increase in casino revenues at our Missouri properties due primarily to the
Isle-Kansas City’s expansion of its gaming floor and the Isle-Boonville’s
continued strong performance. Likewise, casino revenues increased at the
Isle-Lake Charles resulting from the expansion and renovation of the Grand
Palais. The addition of the Isle-Our Lucaya and the Blue Chip-Dudley also
increased casino revenues as these properties opened in the third quarter of
fiscal 2004. These increases were offset by the sale of the Lady Luck-Las Vegas.
In Colorado, casino revenues declined as the Isle-Black Hawk and the Colorado
Central Station-Black Hawk have been affected by construction disruption. We
also faced decreases in casino revenues at the Isle-Biloxi because of
construction and the aftermath of Hurricane Ivan.
Room
revenue decreased 1.0% compared to fiscal year 2004 primarily
as a result of construction at the Isle-Biloxi. Pari-mutuel commissions earned
at Pompano Park in Florida for the fiscal year was essentially flat compared
to
prior year. Food and beverage revenues increased by 2.7% because of renovations
made to the buffet at the Isle-Lake Charles. The addition of the Isle-Our Lucaya
and the Blue Chip locations also added to food and beverage
revenues.
Promotional
allowances, which are made up of complimentary revenues, cash points and
coupons, are rewards that we give our loyal customers to encourage them to
continue to patronize our properties. These allowances increased by 2.7% in
fiscal year 2005 as we increased our direct mail efforts to promote
play.
Casino
operating expenses increased 3.3% over fiscal year 2004. These expenses are
primarily comprised of salaries, wages and benefits and other operating expenses
of the casinos. The increase in casino operating expenses is attributable to
the
addition of the Isle-Our Lucaya and Blue Chip. This increase is partially offset
by the discontinuation of gaming operations at the Lady Luck-Las Vegas,
following the finalization of the property’s sale.
State
and
local gaming taxes increased by 3.0% compared to fiscal year 2004. Effective
July 1, 2004, we were subject to an additional assessment of 2.0% of gross
gaming revenues in Iowa due to a tax increase enacted in that state.
Room
expenses decreased 0.8% compared to fiscal year 2004. 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. The decrease in expenses was due primarily to the loss
of
room capacity due to construction at the Isle-Biloxi
Pari-mutuel
operating costs of Pompano Park in Florida increase 0.4% compared to fiscal
year
2004. Such costs consist primarily of compensation, benefits, purses, simulcast
fees and other direct costs of track operations.
Food
and
beverage expenses increased 13.3% over fiscal year 2004. Food and beverage
expenses as a percentage of gross food and beverage revenues increased from
21.7% for the fiscal year ended April 25, 2004, to 23.9% for the fiscal year
ended April 24, 2005. These
expenses consist primarily of the cost of goods sold, salaries, wages and
benefits and other operating expenses of these departments. Food,
beverage and other expenses as a percentage of gross food, beverage and other
revenues increased from 22.1% for the fiscal year ended April 25, 2004, to
23.9%
for the fiscal year ended April 24, 2005. Room
service and banquet expense increased as the availability of meeting space
and
hotel rooms increased during the fiscal year. The addition of the Isle-Our
Lucaya and Blue Chip also increased food, beverage and other
expenses.
Marine
and facilities expenses increased 4.2% compared to fiscal year 2004. These
expenses include salaries, wages and benefits of the marine and facilities
departments, operating expenses of the marine crews, insurance, maintenance
of
public areas, housekeeping and general maintenance of the riverboats and
pavilions. The increase was primarily due to ongoing repairs and maintenance
at
the Isle-Lula and the addition of the Isle-Our Lucaya.
Marketing
expenses increased 1.4% compared to fiscal year 2004. The increase in marketing
expenses is primarily due to the addition of the Isle-Our Lucaya and is
partially offset by the finalization of the sale of the Lady Luck-Las Vegas.
Marketing expenses include salaries, wages and benefits of the marketing and
sales departments, as well as promotions, direct mail, advertising, special
events and entertainment.
Administrative
expenses have increased 8.6% over fiscal year 2004. These expenses include
administration and human resource department expenses, rent, new development
activities, professional fees, insurance and property taxes. The increase
is due to the addition of the Isle-Our Lucaya and Blue Chip. We also increased
our development and investment activities domestically and in the United
Kingdom. In Florida, we supported the successful campaign to pass a
constitutional amendment that allows the voters of Miami-Dade and Broward
counties to decide whether to approve slot machines in racetracks and jai alai
facilities in their respective counties. These increases were partially offset
by finalization of the sale and discontinuation of all operations at the Lady
Luck-Las Vegas and savings from combining some administrative functions of
the
Isle-Bettendorf and the Rhythm City-Davenport properties.
Depreciation
expense increased by 8.5% compared to fiscal year 2004. Depreciation has
increased as a result of our capital expansion programs.
The
increase was primarily due to a one-time charge for additional depreciation
expense of $2.9 million related to a reclassification of certain land
improvements that were improperly classified as land at the time of the
conversion of our manual system to a computerized asset tracking system in
fiscal 2002, identified in the second fiscal quarter of 2005, as well as the
capital additions at the Isle-Biloxi, the Isle-Lake Charles and the Isle-Kansas
City.
In
fiscal year 2005, we
recorded a gain on the sale of a land option in St. Louis, Missouri in addition
to impairment related charges of $1.6 million related to fixed assets in the
United Kingdom and $2.5 million on our investment in a license in Rosemont,
Illinois.
We
incurred a loss on early extinguishment of debt totaling $5.3 million in fiscal
2005 in connection with the amendment of our senior secured credit facility
on
February 4, 2005. These charges include the write-off of debt acquisition costs.
We also incurred a loss on early extinguishment of debt of $14.1 million in
fiscal 2004 related to the amendment of our $390.0 million 8.75% senior
subordinated notes on March 3, 2004. These charges included early payment
premiums as well as the write-off of debt acquisition costs.
Net
interest expense decreased 10.9% compared with fiscal year 2004. This is
primarily attributable to the lower average balances outstanding and an increase
in capitalized interest from $0.8 million in the fiscal year ended April 25,
2004 to $3.2 million in fiscal year ended April 24, 2005. The increase in
capitalized interest results from the expansion projects at the Isle-Biloxi
and
in Black Hawk.
Our
effective tax rate from continuing operations was 51.8% for the fiscal year
ended April 24, 2005, compared to 32.7% for fiscal year ended April 25, 2004,
which, in each case, excludes our joint venture partner’s portion of the
Colorado Central Station-Black Hawk income taxes. The increase in the rate
for
fiscal 2005 is a result of the effect of non-deductible permanent items on
earnings, the impact of not benefiting, at this time, from a portion of the
current operating losses of our interests in the United Kingdom and state income
taxes. Also in the second fiscal quarter ended 2004, the Internal Revenue
Service concluded a federal tax examination covering four tax years without
significant adjustments and provided administrative guidance on certain other
tax matters for other open years. As a result, we analyzed our tax accruals
and
reduced income tax expense by approximately $3.0 million for previously accrued
income tax liabilities. This had the effect of reducing our effective tax rate
to 32.7% from continuing operations, excluding the minority interest’s portion
of the Colorado Central Station-Black Hawk income taxes. Excluding the impact
of
these adjustments, our fiscal year 2004 effective rate from continuing
operations would have been 40.0%, excluding the minority interest’s portion of
the Colorado Central Station-Black Hawk income taxes. For further discussion,
see footnote 18 to the consolidated financial statements.
Liquidity
and Capital Resources
At
April
30, 2006, we had cash and cash equivalents and marketable securities of $138.9
million compared to $162.8 million in cash and cash equivalents at April
24,
2005, the end of our last fiscal year. Of this $23.9 million decrease, $25.6
is
a decrease in cash and cash equivalents and is the net result of $99.5 million
net cash provided by operating activities, $188.9 million net cash used in
investing activities, $64.4 million net cash provided by financing activities
and $0.6 million decrease in cash from the effect of foreign currency exchange
rates. The remaining increase of $1.7 million is marketable securities held
by
Capri Insurance Corporation, which is available to pay insurance claims.
In
addition, as of April 30, 2006, we
had
$361.2 million of unused capacity under lines of credit and available term
debt
consisting of $331.8 million in unused credit capacity under the revolving
loan
commitment on our senior secured credit facility, $25.4
million of unused credit capacity with the Isle-Black Hawk’s senior secured
credit facility (limited to use by the Isle-Black Hawk),
and $4.0
million under other lines of credit and available term debt. During the year
ended April 30, 2006, the Isle-Black Hawk paid off $5.4 million, net of
borrowings, on its revolving loan under the Isle-Black Hawk’s senior secured
credit facility. We also had borrowings, net of payments of $0.5 million
under
other lines of credit. We
believe that our cash and cash equivalents balance, our cash flows from
operations, the financing sources discussed herein, planned asset sales and
expected hurricane insurance proceeds will be sufficient to meet our normal
operating requirements during the next twelve months and to fund additional
investments. In addition, we may consider issuing additional debt or equity
securities in the future to fund potential acquisitions or growth or to
refinance existing debt.
Investing
Activities
We
invested $174.1 million in property and equipment during fiscal year 2006,
including accrued purchases of $23.9 million. These amounts exclude $74.7
million related to the Isle-Biloxi casino barge destroyed by Hurricane Katrina
and the subsequent costs related to the temporary casino that we expect to
recover from insurance proceeds. The following table reflects expenditures
and
accruals for property and equipment on major projects in fiscal years 2005
and
2006 and projected expenditures for these and other projects we are pursuing.
The amounts in the table do not include any expenditures and accruals prior
to
fiscal 2005 and do
not
include capital required for development projects we are pursuing which involve
us competing with other casino developers for a single license.
|
|
Actual
|
|
Remaining
|
|
|
|
Fiscal
Year
|
|
|
Fiscal
Year
|
|
|
Fiscal
Year
|
|
|
|
|
|
|
Ended
4/24/05
|
|
|
Ended
4/30/06
|
|
|
Ending
4/29/07
|
|
|
Thereafter
|
|
|
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
|
(3)
|
|
|
(dollars
in millions)
|
Property
|
Project
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isle-Biloxi
|
Construct
hotel
|
$
|
43.0
|
|
$
|
9.6
|
|
$
|
-
|
|
$
|
-
|
Isle-Bettendorf
|
Construct
hotel
|
|
-
|
|
|
6.5
|
|
|
34.0
|
|
|
4.5
|
Isle-Pompano
|
Construct
casino
|
|
-
|
|
|
12.3
|
|
|
128.2
|
|
|
-
|
Isle-Boonville
|
Construct
hotel
|
|
2.0
|
|
|
14.3
|
|
|
1.2
|
|
|
-
|
Isle-Waterloo
|
Construct
casino & hotel
|
|
-
|
|
|
5.2
|
|
|
77.0
|
|
|
52.3
|
Isle
- Kansas City
|
Expansion
& public improvements
|
|
-
|
|
|
1.1
|
|
|
15.2
|
|
|
68.7
|
Coventry
|
Construct
leasehold improvements
|
|
8.4
|
|
|
18.1
|
|
|
28.5
|
|
|
-
|
West
Harrison County
|
Construct
hotel & casino
|
|
-
|
|
|
-
|
|
|
35.0
|
|
|
240.0
|
Isle-Davenport
|
Construct
hotel
|
|
-
|
|
|
0.3
|
|
|
7.8
|
|
|
34.9
|
Isle-Lake
Charles
|
Renovate
& expand casinos
|
|
11.6
|
|
|
5.2
|
|
|
0.8
|
|
|
-
|
Isle-Black
Hawk (57% owned)
|
Expansion
& public improvements
|
|
62.5
|
|
|
27.1
|
|
|
1.9
|
|
|
-
|
Other
properties (2)
|
IGT
Advantage program
|
|
6.8
|
|
|
12.1
|
|
|
14.1
|
|
|
-
|
All
|
Slot
programs
|
|
28.8
|
|
|
20.2
|
|
|
23.9
|
|
|
4.4
|
All
|
Other
capital improvements
|
|
28.8
|
|
|
29.8
|
|
|
60.1
|
|
|
19.4
|
Total
|
|
$
|
191.9
|
|
$
|
161.8
|
|
$
|
427.7
|
|
$
|
424.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations (4)
|
|
$
|
18.0
|
|
$
|
12.3
|
|
$
|
3.2
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Excludes: destroyed Isle-Biloxi casino barge of $7.4 million in
fiscal
2005 and $36.8 million in fiscal 2006, and Isle-Biloxi temporary
casino
of $37.9 million in fiscal 2006
|
(2)
Includes: Isle-Biloxi, Isle-Natchez, Isle-Lula, Isle-Lake Charles
and
Colorado Central Station
|
(3)
The timing of these projects is discussed below
|
(4)
Discontinued operations consist of Isle-Vicksburg and Isle-Bossier
City
|
The
other
capital improvements at all of our properties consists of numerous capital
expenditures related to the purchase of furniture and equipment and the
upgrade
of hotel rooms, restaurants and other areas of our properties.
The
previously announced Isle-Biloxi hotel and parking plan, estimated at $79.0
million, included an additional 400 hotel rooms, a 12,000 square-foot
convention/entertainment center, an expanded pool and spa area and a 1,000-space
parking facility. This project was completed prior to Hurricane Katrina,
with
the exception of the spa. In October 2004, we announced plans to replace
the
casino at Isle-Biloxi with a new state-of-the-art casino facility, which
was
expected to cost approximately $90.0 million and was expected to open in
December 2005. The Isle-Biloxi casino barge and the new casino barge were
destroyed by Hurricane Katrina. Subsequent
to the end of the fiscal year, Isle-Biloxi completed the renovation of
its
existing atrium adding additional gaming space bringing the casino resort
to
approximately 1,600 gaming positions, opening a new multi-story entry feature
and bar, and connecting the parking deck with the atrium by a covered walkway.
We
continue to evaluate our redevelopment opportunities for the Isle-Biloxi
and
expect a significant portion of these costs to be funded through anticipated
insurance proceeds.
We
have
signed a development agreement with the City of Bettendorf pursuant to
which we
agreed to construct a new 250-room Isle hotel, additional parking, a new
restaurant, and an expansion of the existing buffet and the City agreed
to
construct a 50,000 square foot convention center adjacent to the facility,
which
will be managed by Isle-Bettendorf. The cost of our portion of this project
is
approximately $45.0 million, and the new hotel is scheduled to open in
the
spring of 2007.
In
November 2004, voters in the State of Florida amended the state’s constitution
to allow the voters of Miami-Dade and Broward counties (Broward County
is the
location of the Pompano Park Racetrack) to decide whether to approve
slot
machines in racetracks and jai alai frontons in their respective counties.
Broward County voters passed their local referendum and Miami-Dade County
voters
rejected their referendum in March 2005. On January 4, 2006, a Florida
statue
became effective allowing Pompano Park and three other pari-mutuel facilities
in
Broward County to offer slot machine gaming to patrons at these facilities.
We
are constructing a gaming facility including 1,500 slot machines, four
restaurants and a feature bar at Pompano Park adjacent to the existing
grandstand at a cost of approximately $140 million with slot machine
gaming
anticipated to commence in early calendar year 2007. We do not plan to
open a
temporary gaming facility. An appeal challenging the validity of signatures
needed to place the amendment on the ballot is pending following the
granting of
summary judgment against the plaintiffs in a lower court dismissing the
challenge. Oral arguments were held in November 2005 but no decision
has been
issued as of the date of this filing. If the constitutional amendment
were
ultimately found to be invalid, our right to operate slot machines at
Pompano
Park would be eliminated.
In
June
2006, we opened the new 140-room hotel including 20 suites and an 800-seat
entertainment venue at Isle-Boonville in Missouri. As of April 30, 2006
we had
spent approximately $16.3 million on the project. The remaining $1.2
million
will be spent in the subsequent period.
We
have
been selected by the Iowa Racing and Gaming Commission as the successful
applicant for a gaming license in Waterloo, Iowa. We plan to spend approximately
$134.5 million on constructing a single-level casino with 1,300 gaming
positions, three of our signature restaurants, a 200-room hotel and 1,000
parking spaces. Construction is underway with completion expected in the
late
spring of 2007. As of the fiscal year ended April 30, 2006, we have spent
approximately $5.2 million on this project.
We
announced plans for an $85.0 million expansion project at our Kansas City,
Missouri property. The expansion project will improve guest traffic patterns
in
the casino and renovate existing gaming space. Exterior plans include a
new,
updated entryway, exterior facade refinishing, reconfiguration of existing
parking, and the addition of 1,000 parking spaces. Plans for the casino
interior
include expanding and renovating the gaming area including 400 additional
slots
and adding an entertainment venue to seat at least 1,000 guests, as well
as
additional food and beverage amenities. The Kansas City expansion project
is
subject to negotiation of an amended lease and development agreement and
receipt
of necessary permits and approvals. As of April 30, 2006, we have spent
approximately $1.1 million on this project.
As
announced in December 2003, we entered into an agreement to develop and
operate
an Isle of Capri-themed casino, subject to obtaining a license, in a commercial
leisure complex currently under development in Coventry, England. In fiscal
year
2005, Isle was granted a gaming license to open the Coventry casino under
the
current legislation (Gaming Act 1968). Total project costs are estimated
to be
$55.0 million. Project costs for the leased space include design, architectural,
mechanical and electrical build-out, construction and equipment. As of
April 30,
2006, we have spent $26.5 million on the Coventry project and expect to
spend
the remainder over the next twelve months. Completion of the casino at
the
RICOHTM
Arena
Coventry is estimated to be in spring of 2007.
On
June
15, 2006, we announced that we received site and development approval from
the
Mississippi Gaming Commission in connection with our previously announced
casino
resort in west Harrison County, Mississippi, which is approximately 20 miles
from the Mississippi/Louisiana state border along Interstate 10. Preliminary
plans call for the estimated $250-300 million project to include a single
level
gaming facility with over 2,000 gaming positions, a 500-room hotel, five
restaurants and a complement of additional resort amenities. The project
remains
in the preliminary planning stages, and is subject to certain significant
conditions, including but not limited to the receipt of all necessary licenses,
approvals and permits.
We
have
completed a $94.0 million expansion project for Isle-Black Hawk and Colorado
Central Station-Black Hawk properties. The project included expansion of the
Isle-Black Hawk and the Colorado Central Station-Black Hawk casinos, a new
1,000
space parking structure and a new 162-room Colorado Central Station hotel,
which
opened on December 24, 2005. Subsequent to the end of the fiscal year,
construction on the extension of Main Street just south of the Isle-Black Hawk
connecting to Colorado Route 119 was completed and open to traffic.
In
January 2005, we announced plans to deploy the IGT AdvantageTM
Casino
System with a total cost of the project estimated to be $20.2 million. In 2006,
the project was expanded by $12.8 million for fiscal year 2007 for a total
project amount of approximately $33.0 of which $1.8 million is included in
the
Colorado Central Station-Black Hawk property expansion project discussed above.
We have also spent $18.9 million at the Isle-Biloxi, the Isle-Lula, the
Isle-Lake Charles, and the Isle-Natchez, leaving a remaining budget of
approximately $14.1 million. We expect these product upgrades will allow us
to
operate more competitively within our markets. Our slot improvement initiative
also includes an increased ticket-in/ticket-out slot product offering.
On
March
15, 2004, we announced that we had been selected by the Illinois Gaming Board
as
the successful bidder in a federal bankruptcy court auction for the 10th
Illinois gaming license previously issued to Emerald Casinos, Inc. This process
was conducted pursuant to an agreement approved by, among other parties,
the
Illinois Attorney General. We bid $518.0 million to acquire by merger the
stock
of a company in bankruptcy that owns the license. The plan of reorganization
pursuant to which the merger would be consummated has been confirmed by the
federal bankruptcy court. The merger remains subject to certain conditions,
including a finding of suitability and final approval by the Illinois Gaming
Board as well as certain other conditions. The entire matter also is the
subject
of ongoing litigation of which we are not a party. The
Illinois Attorney General has raised issues with regard to the appropriateness
of the Village of Rosemont as a host community
and the Illinois Gaming Board's selection of our bid. In addition, in 2006
the
Illinois Gaming Board, based on a recommendation by an administrative law
judge
following a hearing, revoked the license issued to Emerald on the basis of
Emerald’s past conduct (which revocation has been stayed pending the outcome of
litigation). For
the
reasons set forth above, among others, we believe that our ability to obtain
the
gaming license and open a gaming facility in Rosemont has been subjected
to
added uncertainty. There can be no assurance that we will ultimately acquire
the
license. The full cost of the license and all associated costs were originally
capitalized in the amount of $2.5 million. Due to the continuing uncertainty
with respect to this matter, we recorded a valuation charge of $2.5 million
for
these capitalized license costs at April 24, 2005.
In October 29, 2004, we loaned $5.0 million to Florida Gaming Corporation
(“Florida Gaming”). Interest accrues on the unpaid principal balance of the loan
at an annual rate of 6.0% and is paid in arrears on the first day of each
fiscal
quarter. The loan is secured by a pledge of all of the issued and outstanding
shares of capital stock of Florida Gaming Centers, Inc. (“FGC”), a wholly owned
subsidiary of Florida Gaming. The entire unpaid principal amount of the loan
and
unpaid interest
thereon
is payable on the earlier of (1) the sale of all or any material portion
of the
assets of, or all or any substantial equity interest in FGC, or (2) December
31,
2008. Concurrently with the loan, Florida Gaming and FGC entered into a letter
agreement with us pursuant to which Florida Gaming and FGC gave us exclusive
negotiating rights with respect to the acquisition of all or substantially
all
of FGC’s Miami jai alai business for a period ending no later than December 31,
2008.
In
May 2005, we signed a
casino management and related development and option agreements with resort
developer Eighth Wonder to manage the casino included in Eighth Wonder’s
proposal for a new integrated resort complex in Singapore should Eighth Wonder
be selected to develop such complex. During the fiscal quarter ended July 24,
2005, we paid and expensed a $4.0 million payment to Eighth Wonder pursuant
to
the terms of these agreements. If Eighth Wonder is awarded this project, upon
the occurrence of certain milestones, we will pay a total of $50.0 million
in
concession fees to Eighth Wonder for the right to operate the casino and a
400-room hotel.
In
December 2005, we signed a joint development agreement with Lemieux Group LP
that includes a provision for us to fund a $290 million new multi-purpose arena
and pursue a gaming license at a cost of approximately $50 million for a stand
alone slot parlor in Pittsburgh, Pennsylvania. Plans include the new
multi-purpose arena and a $400 million gaming facility, with 3,000 slot
machines, that are part of a larger billion-dollar effort known as Pittsburgh
First to redevelop the Lower Hill and Uptown Districts in conjunction with
the
Pittsburgh Penguins and a development partner. This proposal is one of three
applications under consideration by the Pennsylvania Gaming Control Board for
a
single license with a decision expected by the end of calendar 2006 or early
2007. If the license is granted to us, we anticipate that the construction
of
the project would begin shortly thereafter with a temporary casino also a
possibility. Due to the uncertainty of the timing of the Gaming Control Board,
license grant date, the final design of the gaming facility and the timing
of
obtaining the necessary permits, we have not included this project in the above
table. We have issued a $50.0 million stand by letter of credit to the
Pennsylvania Gaming Control board in connection with our license
application.
Other
capital improvements include maintenance capital items and other small
projects.
We
expense all developmental costs until we determine that ultimate licensure
and
operation is deemed probable. At that time, we evaluate the applicable costs
and
capitalize if appropriate.
All
of
our development plans are subject to obtaining permits, licenses and approvals
from appropriate regulatory and other agencies and, in certain circumstances,
negotiating acceptable leases. In addition, many of the plans are preliminary,
subject to continuing refinement or otherwise subject to change.
Financing
Activities
During
the fiscal year ended April 30, 2006, we had net sources of cash from financing
of $64.4 million primarily in the following financing activities:
•
|
We
exercised a $50.0 million delayed draw term loan available under
our
Senior Secured Credit Facility and made additional net borrowings
of $27.5
million.
|
• |
We
received proceeds from the exercise of stock options of $9.3
million. |
•
|
We
made principal payments on our senior secured credit facility and
other
debt of $34.7 million.
|
•
|
We
purchased 367,303 shares of our common stock at a total cost of $8.5
million
|
• |
We
paid $1.8 million in costs related to the Black Hawk financing
costs
|
•
|
We
had net borrowings under the Isle-Black Hawk senior secured credit
facility of $27.2 million.
|
During
fiscal 2005, we modified the covenants related to the Isle-Black Hawk senior
secured credit facility to align the covenants with the financial impact of
construction at Isle-Black Hawk. The Isle-Black Hawk is in compliance with
all
covenants contained in our senior and subordinated debt instruments as of April
30, 2006.
We
believe that our cash and cash equivalents balance, our cash flows from
operations, planned asset sales, our expected hurricane insurance proceeds
and
the financing sources discussed herein, will be sufficient to meet our normal
operating requirements during the next fiscal year and to fund additional
investments. In addition, we may consider issuing additional debt or equity
securities in the future to fund potential acquisitions or our developments
or
to refinance existing debt. 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/or development
of
new properties. We will continue to evaluate our planned capital expenditures
at
each of our existing locations as well as opportunities to acquire or invest
in
companies, properties and other projects that meet our strategic and return
on
investment criteria. If a material acquisition or investment is completed,
our
operating results and financial condition could change significantly in future
periods.
Contractual
Obligations and Commercial Commitments
The
following table
provides information as of April 30, 2006, about our contractual obligations
and
commercial commitments. The table presents contractual obligations by due dates
and related contractual commitments by expiration dates.
|
Payments
Due by Period
|
|
(dollars
in millions)
|
Contractual
Obligations
|
Total
|
Less
Than 1 Year
|
1-3
Years
|
4-5
Years
|
After
5 Years
|
Long-Term
Debt (1)
|
$ 1,219.0
|
$ 8.6
|
$
16.0
|
$
382.1
|
$
812.3
|
Capital
Lease Obligations (2)
|
2.3
|
0.0
|
0.1
|
0.2
|
2.0
|
Operating
Leases (2)
|
1,119.3
|
15.3
|
24.1
|
23.5
|
1,056.4
|
Other
Long-Term Obligations (3)
|
36.5
|
21.0
|
15.5
|
-
|
-
|
Total
Contractual Cash Obligations
|
$
2,377.1
|
$
44.9
|
$
55.7
|
$
405.8
|
$
1,870.7
|
|
Amount
of Commitment Expiration per Period
|
|
(dollars
in millions)
|
Other
Commercial Commitments
|
Total
Amounts Committed
|
Less
Than 1 Year
|
1-3
Years
|
4-5
Years
|
Over
5 Years
|
Lines
of Credit (1)
|
$
361.2
|
$
4.0
|
$
331.8
|
$
25.4
|
$
-
|
Standby
Letters of Credit (4)
|
22.2
|
22.2
|
-
|
-
|
-
|
Pittsburgh
Letter of Credit (5)
|
50.0
|
50.0
|
-
|
-
|
-
|
Total
Commercial Commitments
|
$
433.4
|
$
76.2
|
$
331.8
|
$
25.4
|
$
-
|
(1)
The
table does not include associated interest expense. See Note 7, Long-Term Debt,
in the accompanying notes to consolidated financial statements.
(2)
See
Note 9, Commitments, in the accompanying notes to consolidated financial
statements.
(3)
Other
long-term obligations include current and future construction contracts as
discussed under “Investing Activities” on page 63. This amount also includes
$10.9 million in open purchase orders at April 30, 2006.
(4)
Standby letters of credit consists of the following: $4.0 million for the
Isle-Black Hawk and
Colorado Central Station, $1.7 million for gaming taxes,
$6.5
million for workers’ compensation, $2.0 million on a lease in St. Louis, $5.8
million for insurance and $2.2 million for other.
(5)
Letter of credit to the Pennsylvania Gaming Control Board related to our
license
application.
Recently
Issued Accounting Standards
On
December 16, 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a
revision of Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”). Statement 123(R) supersedes APB Opinion
No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and amends
Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows”
(“SFAS 95”). Generally, the accounting method required by SFAS 123(R) is similar
to the accounting method required by SFAS 123. However, SFAS 123(R) requires
all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair market values.
Pro
forma disclosure is no longer an alternative. SFAS 123(R) must be adopted
as of
the beginning of the first annual reporting period of our first fiscal year
that
begins on or after June 15, 2005. We are required to adopt SFAS 123(R) on
May 1,
2006.
We
have
elected to apply the “modified prospective” method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements
of
SFAS 123(R) for all share-based payments granted after the effective date
and
(b) based on the requirements of SFAS 123 for all awards granted to employees
prior to the effective date of SFAS 123(R) that remain unvested on the effective
date.
As
permitted by SFAS 123, we currently account for share-based payments to
employees using APB 25’s intrinsic value method and, as such, generally
recognizes no compensation cost for employee stock options. Accordingly,
the
adoption of SFAS 123(R)’s fair value method will have a significant impact on
its result of operations. The initial impact of adoption of SFAS 123(R) is
discussed in Footnote 11 related to the fair market value of options that
are
not vested at the effective date of adoption. We
are
also required to estimate the number of instruments for which the requisite
service is expected to be rendered in lieu of accounting for forfeitures
as they
occur.
As
123(R)
also requires the benefits of tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow, rather than as
an
operating cash flow as required under current literature. This requirement
will
reduce net operating cash flows and increase net financing cash flows in
periods
after adoption.
ITEM
7A. 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.
Isle-Black
Hawk Senior Secured Credit Facility
The
Isle-Black Hawk has entered into seven interest rate swap agreements with an
aggregate notional value of $80.0 million, or 42.2% of its variable rate term
debt, outstanding under the Isle-Black Hawk senior secured credit facility
as of
April 30, 2006. The swap agreements were entered in to effectively convert
portions of its variable rate debt to a fixed-rate basis until the fourth fiscal
quarter of 2008, thus reducing the impact of interest rate changes on future
interest expense. These interest rate swap agreements terminate in fiscal year
2008. During fiscal year 2006, the swaps were not designated as effective
hedges.
The
following table provides information at April 30, 2006 about our financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows 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)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
Thereafter
|
|
Total
|
|
4/30/2006
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, including current portion
|
Fixed
rate
|
|
$
1.3
|
|
$
1.3
|
|
$
1.7
|
|
$
0.4
|
|
$
0.4
|
|
$
703.5
|
|
$
708.6
|
|
$
714.3
|
Average
interest rate
|
|
7.6%
|
|
7.6%
|
|
7.6%
|
|
7.6%
|
|
7.6%
|
|
7.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate
|
|
$
7.3
|
|
$
6.2
|
|
$
6.9
|
|
$
5.8
|
|
$
396.3
|
|
$
90.2
|
|
$
512.7
|
|
$
512.7
|
Average
interest rate (1)
|
|
7.3%
|
|
7.2%
|
|
7.2%
|
|
7.3%
|
|
7.4%
|
|
7.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Derivative Financial Instruments Related to
Debt
|
Interest
rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay
fixed/receive variable (2)
|
|
$
40.0
|
|
$
40.0
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
80.0
|
|
$
1.6
|
Average
pay rate
|
|
3.9%
|
|
3.8%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
|
|
|
Average
receive rate
|
|
5.5%
|
|
5.4%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
0.0%
|
|
|
|
|
(1)
Represents the annual average LIBOR from the forward yield curve at April
30,
2006 plus the weighted average margin above LIBOR on all consolidated variable
rate debt.
(2)
|
Fair
value represents the amount we would have to receive from the counter
party if we had terminated the swap agreements at April 30,
2006.
|
We
are
also exposed to market risks relating to fluctuations in currency exchange
rates
related to our ownership interests and development activities in the United
Kingdom. We attempt to minimize our foreign exchange risk through obtaining,
when it is practical to do so, financing in the United Kingdom.
For
the
fiscal year ended April 30, 2006, we recorded a loss of $2.5 million in foreign
currency translation adjustments on the accompanying consolidated balance
sheets. Foreign currency translation adjustments show the cumulative effect,
at
the balance sheet date, of fluctuations in the foreign currency exchange
rate on
balances denominated in a foreign currency, which were recorded at a historical
rate at the transaction date.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
Page
|
Isle
of Capri Casinos, Inc.
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
70
|
Consolidated
Balance Sheets, April 30, 2006 and April 24, 2005
|
71
|
Consolidated
Statements of Income, Years ended April 30, 2006, April 24, 2005
and April
25, 2004
|
72
|
Consolidated
Statements of Stockholders’ Equity, Years ended April 30, 2006, April 24,
2005 and
April 25, 2004
|
73
|
Consolidated
Statements of Cash Flows, Years ended April 30, 2006, April 24,
2005 and
April
25, 2004
|
74
|
Notes
to Consolidated Financial Statements
|
76
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Stockholders
Isle
of
Capri Casinos, Inc.
We
have
audited the accompanying consolidated balance sheets of Isle of Capri Casinos,
Inc. as of April 30,
2006
and
April 24,
2005,
and the
related consolidated statements of income, stockholders’ equity, and cash flows
for the years ended April 30,
2006,
April 24,
2005,
and
April 25,
2004.
These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Isle of Capri Casinos,
Inc. at April 30,
2006
and
April 24,
2005,
and the
consolidated results of its operations and its cash flows for the years ended
April 30,
2006,
April 24,
2005
and
April 25,
2004,
in
conformity with U.S. generally accepted accounting principles.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Isle of Capri Casinos,
Inc.’s internal control over financial reporting as of April 30,
2006,
based
on criteria established in Internal Control-Integrated Framework issued by
the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated July 7, 2006, expressed an unqualified opinion thereon.
ERNST
& YOUNG LLP
New
Orleans, Louisiana
July
7,
2006
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
ASSETS
|
|
April
30,
|
|
|
April
24,
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
121,193
|
|
$
|
146,743
|
Marketable
securities
|
|
17,727
|
|
|
16,016
|
Accounts
receivable, net
|
|
17,268
|
|
|
15,460
|
Insurance
receivable, net
|
|
72,053
|
|
|
-
|
Deferred
income taxes
|
|
9,006
|
|
|
8,607
|
Deferred
state income taxes
|
|
891
|
|
|
988
|
Prepaid
expenses and other assets
|
|
15,560
|
|
|
16,634
|
Total
current assets
|
|
253,698
|
|
|
204,448
|
Property
and equipment, net
|
|
938,428
|
|
|
857,643
|
Other
assets:
|
|
|
|
|
|
Assets
held for sale
|
|
222,446
|
|
|
222,601
|
Goodwill
|
|
296,354
|
|
|
305,000
|
Other
intangible assets
|
|
74,789
|
|
|
54,435
|
Deferred
financing costs, net
|
|
16,064
|
|
|
19,461
|
Restricted
cash
|
|
2,210
|
|
|
2,193
|
Prepaid
deposits and other
|
|
29,955
|
|
|
15,665
|
Total
assets
|
$
|
1,833,944
|
|
$
|
1,681,446
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Current
maturities of long-term debt
|
$
|
8,588
|
|
$
|
7,501
|
Accounts
payable
|
|
58,561
|
|
|
42,456
|
Accrued
liabilities:
|
|
|
|
|
|
Interest
|
|
10,523
|
|
|
10,312
|
Payroll
and related
|
|
56,904
|
|
|
47,806
|
Property
and other taxes
|
|
25,888
|
|
|
21,061
|
Income
taxes
|
|
10,323
|
|
|
1,160
|
Progressive
jackpots and slot club awards
|
|
12,415
|
|
|
15,045
|
Other
|
|
40,652
|
|
|
34,321
|
Total
current liabilities
|
|
223,854
|
|
|
179,662
|
Long-term
debt, less current maturities
|
|
1,212,692
|
|
|
1,148,617
|
Deferred
income taxes
|
|
58,105
|
|
|
42,102
|
Deferred
state income taxes
|
|
6,335
|
|
|
9,329
|
Other
accrued liabilities
|
|
23,580
|
|
|
17,115
|
Minority
interest
|
|
26,690
|
|
|
23,225
|
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:
34,291 at April 30, 2006 and 33,528 at April 24, 2005
|
|
343
|
|
|
335
|
Class
B common stock, $.01 par value; 3,000 shares authorized; none
issued
|
|
-
|
|
|
-
|
Additional
paid-in capital
|
|
160,508
|
|
|
148,177
|
Unearned
compensation
|
|
(1,383)
|
|
|
(1,488)
|
Retained
earnings
|
|
165,156
|
|
|
146,133
|
Accumulated
other comprehensive income
|
|
220
|
|
|
2,858
|
|
|
324,844
|
|
|
296,015
|
Treasury
stock, 3,902 shares at April 30, 2006 and 3,607 shares at April
24,
2005
|
|
(42,156)
|
|
|
(34,619)
|
Total
stockholders' equity
|
|
282,688
|
|
|
261,396
|
Total
liabilities and stockholders' equity
|
$
|
1,833,944
|
|
$
|
1,681,446
|
See
notes
to consolidated financial statements
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF INCOME
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
Revenues:
|
|
|
|
|
|
|
|
|
Casino
|
$
|
1,004,644
|
|
$
|
957,878
|
|
$
|
948,903
|
Rooms
|
|
36,999
|
|
|
33,093
|
|
|
33,366
|
Pari-mutuel
commissions and fees
|
|
20,573
|
|
|
20,126
|
|
|
20,327
|
Food,
beverage and other
|
|
125,978
|
|
|
124,780
|
|
|
120,326
|
Gross
revenues
|
|
1,188,194
|
|
|
1,135,877
|
|
|
1,122,922
|
Less
promotional allowances
|
|
200,174
|
|
|
188,305
|
|
|
183,393
|
Net
revenues
|
|
988,020
|
|
|
947,572
|
|
|
939,529
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Casino
|
|
152,490
|
|
|
157,289
|
|
|
152,346
|
Gaming
taxes
|
|
220,039
|
|
|
215,134
|
|
|
208,926
|
Rooms
|
|
8,463
|
|
|
7,454
|
|
|
7,512
|
Pari-mutuel
commissions and fees
|
|
16,051
|
|
|
15,449
|
|
|
15,395
|
Food,
beverage and other
|
|
31,523
|
|
|
29,848
|
|
|
26,583
|
Marine
and facilities
|
|
58,141
|
|
|
56,680
|
|
|
54,367
|
Marketing
and administrative
|
|
293,969
|
|
|
274,250
|
|
|
260,845
|
Valuation
and other charges
|
|
13,486
|
|
|
4,136
|
|
|
-
|
Hurricane
related charges, net
|
|
4,776
|
|
|
-
|
|
|
-
|
Preopening
|
|
281
|
|
|
247
|
|
|
2,293
|
Depreciation
and amortization
|
|
87,106
|
|
|
82,337
|
|
|
75,896
|
Total
operating expenses
|
|
886,325
|
|
|
842,824
|
|
|
804,163
|
Operating
income
|
|
101,695
|
|
|
104,748
|
|
|
135,366
|
Interest
expense
|
|
(74,430)
|
|
|
(64,745)
|
|
|
(71,068)
|
Interest
income
|
|
3,348
|
|
|
1,898
|
|
|
534
|
Loss
on early extinguishment of debt
|
|
(2,110)
|
|
|
(5,251)
|
|
|
(14,116)
|
Minority
interest
|
|
(6,517)
|
|
|
(5,493)
|
|
|
(10,072)
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
21,986
|
|
|
31,157
|
|
|
40,644
|
Income
taxes
|
|
14,176
|
|
|
16,125
|
|
|
13,288
|
Income
from continuing operations
|
|
7,810
|
|
|
15,032
|
|
|
27,356
|
Income
from discontinued operations, net of income taxes
|
|
11,213
|
|
|
3,006
|
|
|
393
|
Net
income
|
$
|
19,023
|
|
$
|
18,038
|
|
$
|
27,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share-basic:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.26
|
|
$
|
0.51
|
|
$
|
0.93
|
Income
from discontinued operations, net of income taxes
|
|
0.37
|
|
|
0.10
|
|
|
0.01
|
Net
income
|
$
|
0.63
|
|
$
|
0.61
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
Earnings
per common share-diluted:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.25
|
|
$
|
0.49
|
|
$
|
0.90
|
Income
from discontinued operatons, net of income taxes
|
|
0.36
|
|
|
0.10
|
|
|
0.01
|
Net
income
|
$
|
0.61
|
|
$
|
0.58
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares
|
|
30,028
|
|
|
29,682
|
|
|
29,404
|
Weighted
average diluted shares
|
|
31,270
|
|
|
30,930
|
|
|
30,466
|
See
notes
to consolidated financial statements
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
Shares
of
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
|
|
|
hensive
|
|
|
|
|
|
Total
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Compen-
|
|
|
Retained
|
|
|
Income
|
|
|
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
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,749
|
|
|
-
|
|
|
-
|
|
|
27,749
|
Unrealized
gain on interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
swap contract,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of income taxes of $2,322
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,044
|
|
|
-
|
|
|
4,044
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
761
|
|
|
-
|
|
|
761
|
Comprehensive
income
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,554
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $1,833
|
785
|
|
|
9
|
|
|
7,407
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(988)
|
|
|
6,428
|
Purchase
of treasury stock
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,030)
|
|
|
(2,030)
|
Treasury
stock retired
|
(107)
|
|
|
(1)
|
|
|
(2,029)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,030
|
|
|
-
|
Grant
of nonvested stock
|
-
|
|
|
-
|
|
|
465
|
|
|
(465)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Amortization
of unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
-
|
|
|
-
|
|
|
-
|
|
|
550
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
550
|
Balance,
April 25, 2004
|
33,055
|
|
|
330
|
|
|
143,385
|
|
|
(1,413)
|
|
|
128,095
|
|
|
521
|
|
|
(29,512)
|
|
|
241,406
|
Net
income
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,038
|
|
|
-
|
|
|
-
|
|
|
18,038
|
Unrealized
gain on interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
swap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of income taxes of $224
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
345
|
|
|
-
|
|
|
345
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,992
|
|
|
-
|
|
|
1,992
|
Comprehensive
income
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,375
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $828
|
473
|
|
|
5
|
|
|
4,191
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,253
|
|
|
5,449
|
Purchase
of treasury stock
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,360)
|
|
|
(6,360)
|
Grant
of nonvested stock
|
-
|
|
|
-
|
|
|
601
|
|
|
(601)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Amortization
of unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
-
|
|
|
-
|
|
|
-
|
|
|
526
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
526
|
Balance,
April 24, 2005
|
33,528
|
|
|
335
|
|
|
148,177
|
|
|
(1,488)
|
|
|
146,133
|
|
|
2,858
|
|
|
(34,619)
|
|
|
261,396
|
Net
income
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,023
|
|
|
-
|
|
|
-
|
|
|
19,023
|
Reclassification
of unrealized gain on interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
swap contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of income taxes of $(68)
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(105)
|
|
|
-
|
|
|
(105)
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,533)
|
|
|
-
|
|
|
(2,533)
|
Comprehensive
income
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16,385
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $3,020
|
763
|
|
|
8
|
|
|
11,964
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
957
|
|
|
12,929
|
Purchase
of treasury stock
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,494)
|
|
|
(8,494)
|
Grant
of nonvested stock
|
-
|
|
|
-
|
|
|
367
|
|
|
(367)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Amortization
of unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
-
|
|
|
-
|
|
|
-
|
|
|
472
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
472
|
Balance,
April 30, 2006
|
34,291
|
|
$
|
343
|
|
$
|
160,508
|
|
$
|
(1,383)
|
|
$
|
165,156
|
|
$
|
220
|
|
$
|
(42,156)
|
|
$
|
282,688
|
See
notes
to consolidated financial statements
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
Operating
activities:
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
19,023
|
|
$
|
18,038
|
|
$
|
27,749
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
98,789
|
|
|
97,821
|
|
|
90,063
|
Amortization
of deferred financing costs
|
|
2,979
|
|
|
3,886
|
|
|
4,261
|
Amortization
of unearned compensation
|
|
472
|
|
|
526
|
|
|
550
|
Gain
on derivative instruments
|
|
1,585
|
|
|
-
|
|
|
-
|
Asset
impairment
|
|
68,560
|
|
|
-
|
|
|
-
|
Goodwill
impairment
|
|
9,191
|
|
|
3,958
|
|
|
-
|
Valuation
and other charges
|
|
4,295
|
|
|
4,136
|
|
|
-
|
Early
extinguishment of debt
|
|
2,110
|
|
|
5,251
|
|
|
26,115
|
Deferred
income taxes
|
|
8,932
|
|
|
15,078
|
|
|
8,788
|
Minority
interest
|
|
6,517
|
|
|
5,493
|
|
|
10,072
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
(5,874)
|
|
|
(4,796)
|
|
|
(2,433)
|
Insurance
receivable
|
|
(125,959)
|
|
|
-
|
|
|
-
|
Income
taxes, net
|
|
13,119
|
|
|
4,949
|
|
|
(1,027)
|
Prepaid
expenses and other assets
|
|
(1,865)
|
|
|
2,022
|
|
|
1,356
|
Accounts
payable and accrued liabilities
|
|
(2,327)
|
|
|
13,524
|
|
|
7,736
|
Net
cash provided by operating activities
|
|
99,547
|
|
|
169,886
|
|
|
173,230
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
(224,849)
|
|
|
(188,879)
|
|
|
(151,629)
|
Purchase
of intangibles
|
|
(5,775)
|
|
|
-
|
|
|
-
|
Purchase
of short-term investments, net of sales
|
|
(1,222)
|
|
|
(14,842)
|
|
|
-
|
Net
cash paid for acquisitions
|
|
-
|
|
|
-
|
|
|
(10,917)
|
Investments
in and advances to joint ventures
|
|
-
|
|
|
-
|
|
|
(549)
|
Insurance
proceeds for hurricane damages
|
|
53,905
|
|
|
-
|
|
|
-
|
Restricted
cash
|
|
(175)
|
|
|
(98)
|
|
|
(79)
|
Prepaid
deposits and other
|
|
(10,815)
|
|
|
(4,327)
|
|
|
(1,602)
|
Payments
on notes receivable
|
|
30
|
|
|
23
|
|
|
5,658
|
Loans
made
|
|
(3)
|
|
|
(5,563)
|
|
|
-
|
Net
cash used in investing activities
|
|
(188,904)
|
|
|
(213,686)
|
|
|
(159,118)
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from debt
|
|
240,000
|
|
|
250,718
|
|
|
668,526
|
Principal
payments on debt and cash paid to retire debt
|
|
(169,749)
|
|
|
(209,975)
|
|
|
(622,899)
|
Borrowings
on line of credit
|
|
59,742
|
|
|
28,307
|
|
|
74,361
|
Repayments
on line of credit
|
|
(64,658)
|
|
|
(2,200)
|
|
|
(80,278)
|
Payment
of deferred financing costs
|
|
(1,797)
|
|
|
(5,249)
|
|
|
(10,951)
|
Purchase
of treasury stock
|
|
(8,494)
|
|
|
(6,360)
|
|
|
(2,030)
|
Proceeds
from exercise of stock options
|
|
9,338
|
|
|
4,519
|
|
|
3,753
|
Cash
distribution to minority partner
|
|
-
|
|
|
(4,344)
|
|
|
(4,638)
|
Net
cash provided by financing activities
|
|
64,382
|
|
|
55,416
|
|
|
25,844
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency exchange rates on cash
|
|
(575)
|
|
|
545
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
(25,550)
|
|
|
12,161
|
|
|
39,956
|
Cash
and cash equivalents at beginning of year
|
|
146,743
|
|
|
134,582
|
|
|
94,626
|
Cash
and cash equivalents at end of year
|
$
|
121,193
|
|
$
|
146,743
|
|
$
|
134,582
|
See
notes
to consolidated financial statements
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Net
cash payments for:
|
|
|
|
|
|
|
|
|
Interest
(net of capitalized interest)
|
$
|
88,360
|
|
$
|
75,029
|
|
$
|
77,598
|
Income
taxes, net of refunds
|
|
(392)
|
|
|
(8)
|
|
|
4,804
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash investing activities:
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
Construction
costs funded through accounts payable and
|
|
|
|
|
|
|
|
|
notes
payable
|
|
23,911
|
|
|
28,372
|
|
|
1,807
|
Balance
due on acquisition of license
|
|
16,000
|
|
|
-
|
|
|
-
|
Balance
due on acquisitions of businesses:
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
-
|
|
|
-
|
|
|
12,433
|
Less
fair value of liabilities assumed
|
|
-
|
|
|
-
|
|
|
(1,516)
|
Net
cash payment
|
|
-
|
|
|
-
|
|
|
10,917
|
See
notes to consolidated financial statements
1.
Summary of Significant Accounting Policies
Nature
of Operations
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 and internationally. The Company wholly
owns and operates twelve casinos in eleven gaming facilities in the United
States located in Lake Charles and Bossier City, Louisiana; Lula, Biloxi,
Vicksburg and Natchez, Mississippi; Kansas City and Boonville, Missouri; and
Bettendorf, Davenport and Marquette, Iowa. The Company also owns a 57% interest
in, and receives a management fee for operating, two gaming facilities in Black
Hawk, Colorado. All but two of these gaming facilities operate under the name
“Isle of Capri” and feature the Company’s distinctive tropical island theme. The
Company’s international gaming interests include a wholly owned casino in
Freeport, Grand Bahama, and a two-thirds ownership interest in casinos in
Dudley, Wolverhampton and Walsall, England. The Company also wholly owns and
operates a pari-mutuel harness racing facility in Pompano Beach,
Florida.
The
Company receives a significant amount of its revenue from patrons within 50
miles of the properties. If economic conditions in these areas were to decline
materially or additional casino licenses were awarded in these locations, the
Company’s results of operations could be materially affected.
The
Company’s operations are dependent on the continued licensing or qualification
of the Company and such licensing and qualifications are reviewed periodically
by the gaming authorities in the state of operation. The loss of a license,
in
any jurisdiction in which it operates, could have a material adverse effect
on
future results. The Company is also dependent upon a stable regulatory and
tax
environment in the jurisdictions that it operates, including but not limited
to
the gaming regulations by which the Company is licensed. Any changes that occur
in either the regulatory, political or tax structure could have a material
effect on the Company’s operations.
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 convention necessitates a 53-week year. Fiscal 2006 commenced on April
25,
2005 and ended on April 30, 2006. The fiscal year ended April 30, 2006 was
a
53-week year. The extra week was included in the fourth fiscal
quarter.
Basis
of Presentation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Discontinued
operations relate to those of the Colorado Grande casino, located in Cripple
Creek, Colorado, the Isle-Vicksburg, which is the Riverboat Gaming Corporation
of Mississippi-Vicksburg located in Vicksburg, Mississippi and the Isle-Bossier
City, which is the Louisiana Riverboat Gaming Partnership located in Bossier
City, Louisiana. Results of these operations are included in the consolidated
statements of income as discontinued operations and are shown net of income
tax
effects. The financial position and results of these operations and financial
position for prior fiscal years are presented as discontinued operations in
accordance with SFAS 144.
1.
Summary of Significant Accounting Policies (continued)
Basis
of Presentation (continued)
In
April
2006, the Company’s Board of Directors approved a plan to close the Isle-Our
Lucaya facility. Effective June 1, 2006, the Company notified its landlord
of
its decision to terminate the lease and the Company intends to cease operations
by June 1, 2007 as required by its lease.
The
Company will continue to report the results of the Isle-Our Lucaya property
as
continuing operations until a probable sale of this facility is reached or
operations are ceased, at which time, these results will be reported as
discontinued operations.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less as cash equivalents. Cash
equivalents are placed primarily with high-credit-quality financial
institutions. The carrying amount of cash equivalents approximates fair value
because of the short term maturity of these instruments. Cash and cash
equivalents include short-term
investments, which are considered highly liquid, and consist primarily of
short-term commercial paper at the Isle of Capri Black Hawk, L.L.C. (the
“Isle-Black Hawk”). The carrying amount of short-term investments approximates
fair value because of the short maturity of these instruments. Cash
also
includes the minimum cash balances required by state regulatory bodies, which
totaled approximately $33.6 million and $27.7 million at April 30, 2006 and
April 24, 2005, respectively.
Marketable
Securities
Marketable
securities consist of trading securities held by Capri Insurance Corporation,
the Company’s captive insurance subsidiary. The trading securities are primarily
debt and equity securities that are purchased with the intention to resell
in
the near term. The trading securities are carried at fair value with changes
in
fair value recognized in current period income.
Inventories
Inventories
generally consist of food and beverage and retail merchandise, and are stated
at
the lower of cost
or
market. Cost is determined by the weighted average method.
1.
Summary of Significant Accounting Policies (continued)
Property
and Equipment
Property
and equipment are stated at cost. The Company capitalizes the cost of purchases
of property and equipment and capitalizes the cost of improvements to property
and equipment that increases the value or extends the useful lives of the
assets. Costs of normal repairs and maintenance are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are included
in the determination of income. Depreciation is computed using the straight-line
method over the following estimated useful lives of the
assets:
|
|
Years
|
|
|
Slot
machines, software and computers
|
3
|
|
|
Furniture,
fixtures and equipment
|
5-10
|
|
|
Leasehold
improvements
|
5-39.5
|
|
|
Riverboats
and floating pavilions
|
25
|
|
|
Buildings
and improvements
|
39.5
|
|
Long-lived
assets are not depreciated while they are classified as held for sale. Capital
leases are depreciated over the estimated useful life of the assets or the
life
of the lease whichever is shorter.
Goodwill
and Other Intangible
Assets
Goodwill,
representing the excess of the cost over the net identifiable tangible and
intangible assets of acquired businesses, is stated at cost. Other intangible
assets include the license value attributed to the Louisiana gaming licenses
acquired through the Company’s acquisition of St. Charles Gaming Company and
Grand Palais Riverboat, Inc. (the “Licenses”), the value of the Lady Luck
trademarks and player databases acquired in the acquisition of Lady Luck
Gaming
Corporation and the value of the Colorado Central Station trademarks acquired
in
the acquisition of CCSC/Blackhawk, Inc. and until April 25, 2005, Colorado
Grande Enterprises, Inc. The licenses related to Louisiana Riverboat Gaming
Partnership are presented in Assets held for sale on the balance sheet due
to
the agreement to sell the Isle-Bossier City to Legends Gaming, LLC, as discussed
in Note 2. The Licenses have indefinite lives as the Company has determined
that
there are no legal, regulatory, contractual, economic or other factors that
would limit the useful life of the Licenses and the Company intends to renew
and
operate the Licenses indefinitely. In addition, other key factors in the
Company’s assessment that these Licenses have an indefinite life include: (1)
the Company’s license renewal experience confirms that the renewal process is
perfunctory and renewals would not be withheld except under extraordinary
circumstances; (2) the renewals related to these Licenses confirms the Company’s
belief that the renewal process could be completed without substantial cost
and
without material modification of the Licenses; (3) the economic performance
of
the operations related to the Licenses support the Company’s intention of
operating the Licenses indefinitely; and (4) the continued limitation of
gaming
licenses in the State of Louisiana limits competition in the jurisdictions
where
these Licenses are maintained. Statement of Financial Accounting Standards
No.
142, “Goodwill and Other Intangible Assets,” (“SFAS 142”) requires that these
assets be reviewed for impairment at least annually. Based on its annual
review,
the Company believes that, except for the goodwill associated with licensing
and
goodwill at Blue Chip of $9.2 million, there were no impairments of its goodwill
and other indefinite-lived intangible assets. Goodwill related to Isle-Bossier
City is presented in Assets held for sale on the balance sheet due to the
agreement to sell the property to Legends Gaming, LLC, as discussed in Note
2.
1.
Summary of Significant Accounting Policies (continued)
Goodwill
and Other Intangible Assets (continued)
The
Company intends to continue to evaluate intangible assets that are not
being
amortized at least annually to determine whether events and circumstances
continue to support an indefinite useful life. If these assets are subsequently
determined to have a finite useful life, they will be tested for impairment,
and
then amortized prospectively over the estimated remaining useful lives
and
accounted for in the same manner as other intangible assets that are subject
to
amortization.
Long-Lived
Assets
The
Company periodically evaluates the carrying value of long-lived assets
to be
held for sale or held and used in accordance with Statement of Financial
Accounting Standards No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS 144”). SFAS 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by
those
assets are less than the assets’ carrying amounts. In that event, a loss is
recognized based on the amount by which the carrying amount exceeds the
fair
market value of the long-lived assets. Loss on long-lived assets to be
disposed
of is determined in a similar manner, except that fair market values are
reduced
for the cost of disposal.
Based
on
the pending sale of the Isle-Vicksburg
and Isle-Bossier City properties,
the Company reclassified
long-lived assets of $42.8 million and $126.3 million, respectively to
assets
held for sale.
Additionally, during the fourth quarter review for asset impairment, the
Company
recorded valuation expense of $2.4 million and $0.7 million on the long-lived
assets of Isle -
Our
Lucaya and IOC UK, Ltd - Blue Chip, respectively as an impairment to the
carrying value of those assets.
Deferred
Financing Costs
The
costs
of issuing long-term debt are capitalized and amortized using the effective
interest method over the term of the related debt.
Self
-Insurance
The
Company is self-insured for various levels of general liability, workers’
compensation, and employee medical and life insurance coverage. Self-insurance
liabilities are estimated based on the Company’s claims experience and are
included in current accrued liabilities on the consolidated balance
sheets.
Slot
Club Awards
The
Company provides slot patrons with rewards based on the dollar amount of
play on
slot machines. A liability has been established based on an estimate of
the
value of these outstanding rewards, utilizing the age and prior history
of
redemptions.
1.
Summary of Significant Accounting Policies (continued)
Derivative
Instruments and Hedging Activities
The
Company utilizes derivative financial instruments to manage interest rate risk
associated with some of its variable rate borrowings. Derivative financial
instruments are intended to reduce the Company’s exposure to interest rate risk.
The Company accounts for changes in the fair value of a derivative instrument
depending on the intended use of the derivative and the resulting designation,
which is established at the inception of a derivative. FASB Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative Instruments
and Hedging Activities,” (“SFAS 133”) requires that a company formally document,
at the inception of a hedge, the hedging relationship and the entity’s risk
management objective and strategy for undertaking the hedge, including
identification of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged, the method used to assess effectiveness and
the
method that will be used to measure hedge ineffectiveness of derivative
instruments that receive hedge accounting treatment. For derivative instruments
designated as cash flow hedges, changes in fair value, to the extent the hedge
is effective, are recognized in other comprehensive income until the hedged
item
is recognized in earnings. Hedge effectiveness is assessed quarterly based
on
the total change in the derivative’s fair value.
Revenue
Recognition
In
accordance with gaming industry practice, the Company recognizes casino revenues
as the net win from gaming activities, which is the difference between gaming
wins and losses. Casino revenues are net of accruals for anticipated payouts
of
progressive slot jackpots and certain table games. Revenues from the hotel,
food, beverage, entertainment, and the gift shop are recognized at the time
the
related service or sale is performed/made.
Net
Revenues
Net
revenues do not include the retail amount of food, beverage and other items
provided gratuitously to customers. The Company records the redemption of
coupons and points for cash as a reduction of revenue. These amounts, that
are
included in promotional allowances in the accompanying consolidated statements
of income, were as follows:
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Rooms
|
$
|
19,506
|
|
$
|
18,091
|
|
$
|
18,589
|
Food
and beverage
|
|
76,097
|
|
|
76,279
|
|
|
75,435
|
Other
|
|
2,521
|
|
|
2,239
|
|
|
2,121
|
Customer
loyalty programs
|
|
102,050
|
|
|
91,696
|
|
|
87,248
|
Total
promotional allowances
|
$
|
200,174
|
|
$
|
188,305
|
|
$
|
183,393
|
1.
Summary of Significant Accounting Policies (continued)
Net
Revenues (continued)
The
estimated cost of providing such complimentary services that is included
in
casino expense in the accompanying consolidated statements of income was
as
follows:
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Rooms
|
$
|
9,636
|
|
$
|
9,108
|
|
$
|
9,517
|
Food
and beverage
|
|
59,508
|
|
|
60,477
|
|
|
57,714
|
Other
|
|
249
|
|
|
195
|
|
|
193
|
Total
cost of complimentary services
|
$
|
69,393
|
|
$
|
69,780
|
|
$
|
67,424
|
Advertising
Advertising
costs are expensed the first time such advertisement appears. Total advertising
costs, including direct mail marketing, were $21.4 million in fiscal 2006,
$19.7
million in fiscal 2005 and $19.5 million in fiscal 2004.
Pre-opening
Expense
Pre-opening,
pre-operating and organizational costs are expensed as incurred.
Capitalized
Interest
The
interest cost associated with major development and construction projects is
capitalized and included in the cost of the project. When no debt is incurred
specifically for a project, interest is capitalized on amounts expended on
the
project using the weighted-average cost of the Company’s outstanding borrowings.
Capitalization of interest ceases when the project is substantially complete
or
development activity is suspended for more than a brief period.
Income
Taxes
Income
taxes are recorded in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (SFAS No. 109), whereby
deferred tax assets and liabilities are recognized for the expected future
tax
consequences of events that have been included in the financial statements
or
income tax returns. Deferred tax assets and liabilities are determined based
on
differences between financial statement carrying amounts of existing assets
and
liabilities and their respective tax bases using enacted tax rates expected
to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on the income tax provision
and
deferred tax assets and liabilities of a change in tax rates is recognized
in
income in the period that includes the enactment date.
1.
Summary of Significant Accounting Policies (continued)
Income
Taxes (continued)
Income
tax returns are subject to examination by the Internal Revenue Service (“IRS”)
and other taxing authorities. As part of the examinations, the Company routinely
faces challenges regarding the amount of taxes due. These challenges may include
questions regarding the timing and amount of deductions and the allocation
of
income among various jurisdictions. Positions on the Company’s tax returns are
based on substantial authority that may not ultimately be accepted by the IRS
or
other taxing authorities. Assessments for such potential unfavorable outcomes
are based on the criteria of Statement of Financial Accounting Standards No.
5,
“Accounting for Contingencies” (SFAS No. 5). Tax reserves are established
if an unfavorable outcome is probable and the amount of the unfavorable outcome
can be reasonably estimated. These required tax reserves are maintained until
the period that the underlying issue is resolved or when actual results differ
from reserve estimates, and then the income tax provision and tax reserves
are
adjusted in that period. For tax years that are not examined by taxing
authorities, tax reserves are adjusted in the period that the statute of
limitations expires.
Earnings
per Share of Common Stock
In
accordance with the provisions of FASB Statement of Financial Accounting
Standards No. 128, “Earnings Per Share” (“SFAS 128”), basic earnings per share
(“EPS”) is computed by dividing net income applicable to common stock by the
weighted average common shares outstanding during the period. Diluted EPS
reflects the additional dilution for all potentially dilutive securities such
as
stock options.
Stock-Based
Compensation
The
Company applies the recognition and measurement principles of APB 25 and related
Interpretations in accounting for the Company’s three stock-based employee
compensation 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 SFAS
123
as
amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and
Disclosure” (“SFAS 148”),
to
stock-based employee compensation.
|
Fiscal
Year Ended
|
|
|
April
30, 2006
|
|
|
April
24, 2005
|
|
|
April
25, 2004
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
Net
income, as reported
|
$
|
19,023
|
|
$
|
18,038
|
|
$
|
27,749
|
Deduct:
total stock-based employee
|
|
|
|
|
|
|
|
|
compensation
expense determined under fair
|
|
|
|
|
|
|
|
|
value
based method for all awards, net of
|
|
|
|
|
|
|
|
|
related
tax effects
|
|
(3,804)
|
|
|
(3,944)
|
|
|
(4,175)
|
Pro
forma net income
|
$
|
15,219
|
|
$
|
14,094
|
|
$
|
23,574
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
Basic
- as reported
|
$
|
0.63
|
|
$
|
0.61
|
|
$
|
0.94
|
Basic
- pro forma
|
$
|
0.51
|
|
$
|
0.47
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
Diluted
- as reported
|
$
|
0.61
|
|
$
|
0.58
|
|
$
|
0.91
|
Diluted
- pro forma
|
$
|
0.49
|
|
$
|
0.46
|
|
$
|
0.77
|
1.
Summary of Significant Accounting Policies (continued)
Stock-Based
Compensation (continued)
The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
|
Risk-Free
|
Original
|
Expected
|
Expected
|
Fiscal
Year
|
Interest
Rate
|
Expected
Life
|
Volality
|
Dividends
|
|
|
|
|
|
2006
|
4.30%
|
6.40
years
|
55.1%
|
None
|
2005
|
4.00%
|
6.26
years
|
55.8%
|
None
|
2004
|
3.02%
|
6.05
years
|
57.8%
|
None
|
Currency
Translation
The
Company accounts for currency translation in accordance with FASB Statement
of
Financial Standards No. 52, “Foreign Currency Translation”. Assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
at the exchange rate in effect at each balance sheet date. Income statement
accounts are translated at the average rate of exchange prevailing during the
period. Translation adjustments resulting from this process are included in
stockholders’ equity as other comprehensive income. Gains and losses from
foreign currency transactions are included in operating income.
Reclassification
Results
of operations for all periods presented were reclassified to reflect the
discontinued operations for the Colorado Grande-Cripple Creek, the
Isle-Vicksburg and the Isle-Bossier City properties. Property and equipment,
net
of depreciation, for the Isle-Vicksburg and the Isle-Bossier City have been
reclassified to property held for sale, but not for Colorado Grande-Cripple
Creek as the amounts were not material to the Company’s financial
position.
Allowance
for Doubtful Accounts
The
Company reserves an estimated amount for receivables that may not be collected.
Methodologies for estimating the allowance for doubtful accounts range from
specific reserves to various percentages applied to aged receivables. Historical
collection rates are considered, as are customer relationships, in determining
specific reserves. The balances and activities of this account for fiscal years
2006, 2005 and 2004 are disclosed in the following table.
Allowance
for Doubtful Accounts
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
Balance
at Beginning of Period
|
|
|
Charged
to Costs and Expenses
|
|
|
Charged
to Other Accounts
|
|
|
Deductions
from Reserves
|
|
|
Balance
at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended April 30, 2006
|
$
|
2,945
|
|
$
|
1,562
|
|
$
|
562
|
|
$
|
2,698
|
|
$
|
2,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended April 24, 2005
|
$
|
2,510
|
|
$
|
1,233
|
|
$
|
558
|
|
$
|
1,356
|
|
$
|
2,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended April 25, 2004
|
$
|
2,603
|
|
$
|
2,019
|
|
$
|
-
|
|
$
|
2,112
|
|
$
|
2,510
|
1.
Summary of Significant Accounting Policies (continued)
Recently
Issued Accounting Standards
On
December 16, 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which is a
revision of Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”). Statement 123(R) supersedes APB Opinion
No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and amends
Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows”
(“SFAS 95”). Generally, the accounting method required by SFAS 123(R) is similar
to the accounting method required by SFAS 123. However, SFAS 123(R) requires
all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair market values.
Pro
forma disclosure is no longer an alternative. SFAS 123(R) must be adopted as
of
the beginning of the first annual reporting period of the Company’s first fiscal
year that begins on or after June 15, 2005. The Company is required to adopt
SFAS 123(R) on May 1, 2006.
The
Company has elected to apply the “modified prospective” method in which
compensation cost is recognized beginning with the effective date (a) based
on
the requirements of SFAS 123(R) for all share-based payments granted after
the
effective date and (b) based on the requirements of SFAS 123 for all awards
granted to employees prior to the effective date of SFAS 123(R) that remain
unvested on the effective date. The
initial impact of adoption of SFAS 123(R) is discussed in Note 11.
2.
Assets Held for Sale
On
April
25, 2005, the Company and Colorado Grande executed a Stock Purchase Agreement
with a subsidiary of Nevada Gold & Casinos, Inc. to sell all outstanding
shares of the common stock of Colorado Grande to a subsidiary of Nevada Gold
& Casinos, Inc. The aggregate estimated sales price agreed to was $6.5
million payable:
(a)
$600,000 in cash upon closing and
(b)
a
$5.9 million promissory note secured by the stock of Colorado Grande and Nevada
Gold’s future membership distributions from the Isle-Black Hawk until the note
has been fully repaid.
The
estimated sales price was adjusted by the difference between actual working
capital and a target working capital (as defined by the Sales Agreement) on
the
closing date. The post closing adjustment to adjust the actual working capital
to the target working capital was made during the fiscal year ended April 30,
2006 for the Colorado Grande-Cripple Creek property sale and $0.8 million in
cash was paid to the Company by Nevada Gold.
On
February 14, 2006, the Company announced that it had entered into a
definitive purchase agreement, dated February 13, 2006 to sell its properties
in
Bossier City, Louisiana and Vicksburg, Mississippi to privately owned Legends
Gaming, LLC for $240 million cash. The sales agreement includes a net working
capital adjustment to the purchase price which is not expected to be
significant. The closing of the transaction, expected to occur during the second
quarter of fiscal 2007, is subject to regulatory and other customary closing
conditions. Assets held for sale on the consolidated balance sheet as of April
30, 2006 relates to $42.8 million of fixed assets at the Isle-Vicksburg and
$126.3 million of fixed assets and $53.3 million of goodwill and other
intangible assets at the Isle-Bossier City. Assets held for sale on the
consolidated balance sheet as of April 24, 2005 relates to $41.7 million of
fixed assets at Isle-Vicksburg and $127.6 million of fixed assets and $53.3
million of goodwill and other intangible assets at Isle-Bossier City.
The
Company does not expect the net working capital components to be significant
upon disposition.
2.
Assets Held for Sale (continued)
Revenue,
expense, and net income (loss) from discontinued operations are summarized
as
follows:
Net
interest expense of $24.6 million, $23.2 million and $32.1 million for the
fiscal years 2006, 2005 and 2004 respectively has been allocated to discontinued
operations based on the ratio of net assets to be sold to the sum of total
net
assets of the Company plus the Company’s debt that is not attributable to a
particular operation.
|
Discontinued
Operations
|
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
thousands)
|
Net
revenues
|
$
|
166,423
|
|
$
|
171,052
|
|
$
|
173,614
|
Pretax
income (loss) from discontinued operations
|
$
|
18,250
|
|
$
|
6,146
|
|
$
|
(58)
|
Income
from discontinued operations, net of tax
|
$
|
11,213
|
|
$
|
3,006
|
|
$
|
393
|
3. Property
and Equipment
Property
and equipment consists of the following:
|
|
April
30,
|
|
|
April
24,
|
|
|
2006
|
|
|
2005
|
|
(In
thousands)
|
Property
and equipment:
|
|
|
|
|
|
Land
and land improvements
|
$
|
126,430
|
|
$
|
123,231
|
Leasehold
improvements
|
|
277,205
|
|
|
161,746
|
Buildings
and improvements
|
|
345,326
|
|
|
323,776
|
Riverboats
and floating pavilions
|
|
126,590
|
|
|
148,062
|
Furniture,
fixtures and equipment
|
|
383,321
|
|
|
343,576
|
Construction
in progress
|
|
87,074
|
|
|
127,680
|
Total
property and equipment
|
|
1,345,946
|
|
|
1,228,071
|
Less
accumulated depreciation and amortization
|
|
407,518
|
|
|
370,428
|
Property
and equipment, net
|
$
|
938,428
|
|
$
|
857,643
|
Interest
capitalized totaled $4.6 million in fiscal 2006, $3.2 million in fiscal 2005
and
$0.8 million in fiscal 2004.
4.
Goodwill and Other Intangible Assets
The
changes in the carrying amount of goodwill are as follows (in
thousands):
Balance
at April 25, 2004
|
$
|
306,176
|
Reclassification
of goodwill
|
|
2,022
|
Foreign
currency translation adjustment
|
|
761
|
Impairment
of the Colorado Grande - Cripple Creek
|
|
(3,959)
|
Balance
at April 24, 2005
|
$
|
305,000
|
Sale
of Colorado Grande - Cripple Creek
|
|
(2,897)
|
Impairment
related to Blue Chip Casinos
|
|
(8,956)
|
Foreign
currency translation adjustment
|
|
(235)
|
Goodwill
adjustment - Grand Palais Riverboat, Inc.
|
|
3,442
|
Balance
at April 30, 2006
|
$
|
296,354
|
4.
Goodwill and Other Intangible Assets
For
the
fiscal year ended April 30, 2006, the net carrying value of the
intangible assets of Blue Chip exceeded the fair value for which a charge of
$9.2 million was recorded in the fourth quarter to impair the remaining carrying
value of goodwill.
During
the fiscal year ended April 30, 2006, an adjustment was made to adjust the
deferred tax liability for basis differences related to the original purchase
price of the Grand Palais Riverboat property at Lake Charles, Louisiana for
$3.4
million. The impact to prior years was not material.
Goodwill
related to Isle-Bossier City is presented in Assets held for sale on the balance
sheet for fiscal years 2004, 2005 and 2006 in accordance with the agreement
to
sell the property to Legends Gaming, LLC, as discussed in Note
2.
In
the
fourth quarter of fiscal 2005 the net fair value of the Colorado Grande-Cripple
Creek was $5.8 million which was exceeded by the carrying value of the
long-term assets of $9.8 million, including goodwill of $6.9 million. A charge
of $4.0 million was recorded in the fourth quarter of fiscal 2005 for the
impairment of the Colorado Grande-Cripple Creek’s remaining goodwill. An
adjustment to goodwill of $2.9 million for Colorado Grande-Cripple Creek was
recorded as part of the recording of the final adjustment for the sale of the
property in the fiscal year ended April 30, 2006. Colorado Grande-Cripple
Creek’s operating results and minority interest share is classified as
discontinued operations on the consolidated statements of income.
The
$2.0
million reclassification for the fiscal year ended April 24, 2005, is for the
Company’s final purchase price allocation on the Blue
Chip
properties.
Other
intangible assets consist of the following:
|
|
April
30,
|
|
|
April
24,
|
|
|
2006
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
Gaming
licenses
|
$
|
57,224
|
|
$
|
35,450
|
Trademarks
and player database
|
|
17,565
|
|
|
18,985
|
Other
intangible assets, net
|
$
|
74,789
|
|
$
|
54,435
|
The
increase in Other intangible assets, net for fiscal year 2006 compared to
fiscal
year 2005 is primarily due to $21.1 million related to the acquisition of
the
gaming license in Waterloo, Iowa. Other intangible assets, net is net of
accumulated amortization prior to the adoption of FAS 142 of $25.0
million.
5.
Restricted
Cash
Restricted
cash of $2.2 million includes minimum cash requirements in banks for properties
of $1.6 million and a state tax bond and other deposits for gaming at various
properties of $0.6 million.
6.
Self-Insurance Liabilities
The
Company’s employee-related health care benefits program, workers’ compensation
insurance and general liability insurance are self-funded up to a maximum
amount
per claim. Claims in excess of this maximum are fully insured through stop-loss
insurance policies. The liabilities are based on claims filed and estimates
of
claims incurred but not reported. For the fiscal years ended April 24, 2006
and
April 25, 2005, the Company’s liabilities for unpaid and incurred but not
reported claims totaled $27.4 million and $22.9 million, respectively, and
are
included in “Accrued liabilities-payroll and related” for health care benefits
and workers’ compensation insurance and in “Accrued liabilities-other” for
general liability insurance in the accompanying consolidated balance sheets.
While the total cost of claims incurred depends on future developments, in
management’s opinion, recorded reserves are adequate to cover future claims
payments.
7.
Long-Term Debt
|
|
April
30,
|
|
|
April
24,
|
|
|
2006
|
|
|
2005
|
Long-term
debt consists of the following:
|
(In
thousands)
|
|
|
|
|
|
|
7%
Senior Subordinated Notes (described below)
|
$
|
500,000
|
|
$
|
500,000
|
9%
Senior Subordinated Notes (described below)
|
|
200,000
|
|
|
200,000
|
Senior
Secured Credit Facility (described below)
|
|
|
|
|
|
Variable
rate term loan
|
|
296,500
|
|
|
249,375
|
Revolver
|
|
-
|
|
|
-
|
Isle-Black
Hawk Senior Secured Credit Facility, non-recourse to Isle of
Capri
|
|
|
|
|
|
Casinos,
Inc. (described below)
|
|
|
|
|
|
Variable
rate term loan Tranche C
|
|
189,050
|
|
|
163,350
|
Revolver
|
|
20,600
|
|
|
26,000
|
Isle-Black
Hawk Special Assessment BID Bonds, non-recourse to Isle of
Capri
|
|
|
|
|
|
Casinos,
Inc. (described below)
|
|
472
|
|
|
590
|
Blue
Chip Credit Facility (6.50% at April 30, 2006) due January
2009;
|
|
|
|
|
|
non-recourse
to Isle of Capri Casinos, Inc. (described below)
|
|
6,563
|
|
|
6,942
|
Variable
rate TIF Bonds due to City of Bettendorf (described below)
|
|
2,926
|
|
|
3,875
|
Variable
rate General Obligation Bonds due to City of Davenport (described
below)
|
|
1,675
|
|
|
1,830
|
12.5%
note payable, due in monthly installments of $125, including
interest,
|
|
|
|
|
|
beginning
October 1997 through October 2005
|
|
-
|
|
|
494
|
Other
|
|
3,494
|
|
|
3,662
|
|
|
1,221,280
|
|
|
1,156,118
|
Less
current maturities
|
|
8,588
|
|
|
7,501
|
Long-term
debt
|
$
|
1,212,692
|
|
$
|
1,148,617
|
The
following is a brief description of the Company’s and its subsidiaries’
borrowing arrangements. Certain of these arrangements contain financial
covenants. The Company and its subsidiaries were in compliance with all
covenants as of April 30, 2006 and April 24, 2005.
7.
Long-Term Debt (continued)
7%
Senior Subordinated Notes
On
March
3, 2004, the Company issued $500.0 million of 7% Senior Subordinated Notes
due
2014. The 7% Senior Subordinated Notes are guaranteed by all of the Company’s
significant domestic subsidiaries, excluding the subsidiaries that own and
operate the Isle-Black Hawk and the Colorado Central Station-Black Hawk, and
other subsidiaries as described more fully in Note 21. The 7% 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, including
the
$200.0 million in aggregate principal amount of the existing 9% Senior
Subordinated Notes. Interest on the 7% Senior Subordinated Notes is payable
semi-annually on each March 1 and September 1 through maturity. The 7% Senior
Subordinated Notes are redeemable, in whole or in part, at the Company’s option
at any time on or after March 1, 2009, 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 1 of the years indicated below:
|
Year
|
|
Percentage
|
|
|
|
|
|
|
|
2009
|
|
103.500%
|
|
|
2010
|
|
102.333%
|
|
|
2011
|
|
101.167%
|
|
|
2012 and thereafter
|
|
100.000%
|
|
Additionally,
the Company may redeem a portion of the 7% Senior Subordinated Notes with the
proceeds of specified equity offerings.
The
Company issued the 7% 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.
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
domestic subsidiaries, excluding the subsidiaries that own and operate the
Isle-Black Hawk and Colorado Central Station-Black Hawk, and other subsidiaries
as described more fully in Note 21. 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,
including the $500.0 million in aggregate principal amount of the existing
7%
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:
7.
Long-Term Debt (continued)
|
Year
|
|
Percentage
|
|
|
|
|
|
|
|
2007
|
|
104.500%
|
|
|
2008
|
|
103.000%
|
|
|
2009
|
|
101.500%
|
|
|
2010 and thereafter
|
|
100.000%
|
|
Additionally,
the Company may redeem a portion of the 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.
Senior
Secured Credit Facility
On
February 4, 2005, the Company refinanced its senior secured credit facility.
The
refinanced facility provides for a $400.0 million revolving credit facility
maturing on February 4, 2010 and a $250.0 million term loan facility maturing
on
February 4, 2011 (or February 6, 2012 if the Company elects to refinance its
existing 9% Senior Subordinated Notes currently due March 2012). On August
3,
2005, the Company exercised its option for a delayed draw term loan for an
additional $50.0 million. The draw was accessed in anticipation of funding
the
Company’s ongoing development projects. At the Company’s and the lead arranger’s
mutual discretion, the Company may increase the revolver and/or term loan,
in an
aggregate amount up to $200.0 million subject to certain conditions. The term
loans are payable in quarterly installments beginning on March 31, 2005 and
ending on February 4, 2011 unless extended as described above. The revolving
credit facility may bear interest at the Company’s option (1) the higher of 0.5%
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 (1) the
higher of 0.5% 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 0.75% or (2) a rate tied to a LIBOR rate plus an
applicable margin of 1.75%.
The
Company is required to pay a commitment fee of 0.50% of the unused revolving
facility.
The
proceeds from the refinancing were used to pay down the existing senior secured
credit facility term loan, of which $205.6 million in principal and $0.7 million
in accrued interest were outstanding as of February 4, 2005. The remainder
of
the undrawn facility will be used for general corporate purposes, including
working capital, permitted acquisitions, capital expenditures and investments.
7.
Long-Term Debt (continued)
Pursuant
to the refinancing, the Company recognized a loss before income taxes on early
extinguishment of debt of $5.3 million in fiscal 2005, due to the write-off
of
previously deferred financing costs related to its existing senior secured
credit facility. The costs of $4.8 million associated with the new senior
secured credit facility have been deferred and are being amortized over the
term
of the new facility.
The
senior secured credit facility provides for certain covenants, including those
of a financial nature. The senior secured credit facility is secured by liens
on
substantially all of the Company’s assets and guaranteed by all of its
restricted subsidiaries. As of April 30, 2006, the Company was in compliance
with all covenants related to this facility.
The
weighted average effective interest rate of total debt outstanding under the
senior secured credit facility at April 30, 2006, was 6.76%.
At
April
30, 2006, the Company had $296.5 million outstanding under the senior secured
term loan credit facility and no amounts outstanding under the revolving credit
facility.
Isle-Black
Hawk Senior Secured Credit Facility
On
October 24, 2005, Isle of Capri Black Hawk, L.L.C., a joint venture company
that
owns and operates two casinos in Black Hawk, Colorado is owned 57% by Isle
of
Capri Casinos, Inc. and 43% by a subsidiary of Nevada Gold & Casinos, Inc.,
entered into a $240.0 million Second Amended and Restated Credit Agreement.
The
credit agreement, which amends and restates the Isle of Capri Black Hawk,
L.L.C.’s existing credit agreement in its entirety, provides for a $50.0 million
revolving credit facility maturing the earlier of October 24, 2010 or such
date
as the term loan facility is repaid in full and a $190.0 million term loan
facility maturing on October 24, 2011. At the Isle of Capri Black Hawk, L.L.C.’s
and the lead arranger’s mutual discretion, Isle of Capri Black Hawk, L.L.C. may
increase the size of the revolver and/or term loan facility, in an aggregate
amount up to $25.0 million subject to certain conditions. The term loans are
payable in quarterly installments beginning on December 30, 2005 and ending
on
September 30, 2011. The revolving loans may bear interest at the Isle of Capri
Black Hawk, L.L.C.’s option at (1) the higher of 0.5% in excess of the federal
funds effective rate or the rate that the lead arranger announces from time
to
time as its prime lending rate plus an applicable margin up to 1.25% or (2)
a
rate tied to a LIBOR rate plus an applicable margin up to 2.25%. The term loans
may bear interest at the Isle of Capri Black Hawk, L.L.C.’s option at (1) the
higher of 0.5% in excess of the federal funds effective rate or the rate that
the lead arranger announces from time to time as its prime lending rate, plus
an
applicable margin of 1.00% or (2) a rate tied to a LIBOR rate plus an applicable
margin of 2.00%. The Isle of Capri Black Hawk, L.L.C is required to pay a
commitment fee of 0.5% of the unused portion of the revolving facility. The
credit agreement is secured by liens on substantially all of the Isle of Capri
Black Hawk, L.L.C.’s assets. The credit agreement contains customary
representations and warranties and affirmative and negative covenants and is
non-recourse to the Company. Pursuant to the refinancing, the Company recognized
a loss before income taxes on early extinguishment of debt of $2.1 million,
due
to the write-off of previously deferred financing costs related to its existing
senior secured credit facility. The costs of $1.8 million associated with the
new senior secured credit facility have been deferred and are being amortized
over the term of the new facility.
7.
Long-Term Debt (continued)
The
Isle-Black Hawk senior secured credit facility as amended provides for certain
covenants including those of a financial nature. The Isle-Black Hawk was in
compliance with all of the covenants as of April 30, 2006. The Isle-Black Hawk
senior secured credit facility is secured by liens on the Isle-Black Hawk’s
assets.
The
weighted average effective interest rate of total debt outstanding under the
Isle-Black Hawk Senior Secured Credit Facility at April 24, 2005, was
6.51%.
Interest
Rate Swap Agreements
The
Isle-Black Hawk has interest rate swap agreements with an aggregate notional
value of $80.0 million or 42.2% of its variable rate term debt outstanding
under
the Isle-Black Hawk’s senior secured credit facility as of April 30, 2006. The
swaps were entered in to effectively convert portions of its variable rate
debt
to a fixed-rate basis until the fourth fiscal quarter of 2008, thus reducing
the
impact of interest rate changes on future interest expense. During fiscal year
2006, the swaps were not designated as effective hedges. The interest rate
swap
agreements terminate in fiscal year 2008.
Isle-Black
Hawk Special Assessment BID Bonds
In
July
1998, the Black Hawk Business Improvement District (the “BID”), issued $2.9
million in 6% 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. The Isle-Black Hawk is responsible
for 50% of this amount plus interest, which is non-recourse to the Isle of
Capri
Casinos, Inc. In April 2000, the Isle-Black Hawk 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 periods at an interest
rate of 6.25%. The difference between the bond rate of 6% and the 6.25% assessed
is to cover administrative costs of the BID related to the
issuance.
Blue
Chip Credit Facility
Blue
Chip
PLC has an agreement with the Bank of Scotland to borrow up to £3.8 million
($6.9 million as of April 30, 2006) to fund its casino development program.
As
of April 30, 2006, only £3.6 million ($6.6 million) has been borrowed. The term
loan is to be repaid in quarterly payments commencing in July 2005, and is
to be
repaid in April 2009 should Blue Chip borrow the additional £0.2 million ($0.4
million). If the additional funds are not borrowed, the loan will be repaid
in
January 2009. The interest rate is either, at Blue Chip’s option, the Bank of
Scotland’s base rate or LIBOR plus a margin of 1.75%. This debt is non-recourse
to the Company.
7.
Long-Term Debt (continued)
Isle-Bettendorf
TIF Bonds
As
part
of the City of Bettendorf Development Agreement dated June 17, 1997, the
City of
Bettendorf issued $9.5 million in tax incremental financing bonds (“TIF Bonds”),
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 of Bettendorf’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. 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 of Bettendorf $0.25 per person for each person entering
the
boat until the remaining balance has been repaid.
Isle-Davenport
General Obligation Bonds
In
2002,
the Isle-Davenport entered into an agreement with the City of Davenport whereby
the City of Davenport would construct and own a skybridge connecting to the
Isle-Davenport’s facility, allowing safer access across the street and railroad
tracks. The project, which is currently under construction by the City of
Davenport, is expected to cost $6.4 million, with the Isle-Davenport obligated
to pay $1.8 million. In February 2004, the City of Davenport issued $1.8 million
in ten-year general obligation tax-exempt bonds at an average interest rate
of
3.1%. The Isle-Davenport is required to make annual payments of principal and
interest to the City of Davenport to retire the bonds.
Other
The
aggregate principal payments due on total long-term debt over the next five
fiscal years and thereafter are as follows:
|
Fiscal
Year Ending
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
2007
|
|
8,588
|
|
|
2008
|
|
7,485
|
|
|
2009
|
|
8,612
|
|
|
2010
|
|
6,203
|
|
|
2011
|
|
376,089
|
|
|
Thereafter
|
|
814,303
|
|
|
|
$
|
1,221,280
|
|
As
of
April 30, 2006, the Company had $361.2 million of availability under its lines
of credit.
Standby
letters of credit totaling $72.2 million consist of the following: $4.0 million
for the Isle-Black Hawk and Colorado Central Station, $1.7 million for gaming
taxes, $6.5 million for workers’ compensation, $2.0 million on a building lease
for the Company’s headquarters in the St. Louis, Missouri area, $5.8 million for
insurance and $2.2 million for other. A $50.0 million letter of credit also
was
issued in connection with the gaming license application in Pittsburgh,
Pennsylvania.
8.
Comprehensive Income
Comprehensive
income consists of the following:
|
|
Unrealized
gain (loss) on interest rate swaps
|
|
|
Foreign
currency translation adjustment
|
|
|
Accumulated
other comprehensive income (loss
|
|
(In
thousands)
|
Balance,
April 27, 2003
|
$
|
(4,284)
|
|
$
|
-
|
|
$
|
(4,284)
|
|
|
|
|
|
|
|
|
|
Net
change
|
|
4,044
|
|
|
761
|
|
|
4,805
|
|
|
|
|
|
|
|
|
|
Balance,
April 25, 2004
|
$
|
(240)
|
|
$
|
761
|
|
$
|
521
|
|
|
|
|
|
|
|
|
|
Net
change
|
|
345
|
|
|
1,992
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
Balance,
April 24, 2005
|
$
|
105
|
|
$
|
2,753
|
|
$
|
2,858
|
|
|
|
|
|
|
|
|
|
Net
change
|
|
(105)
|
|
|
(2,533)
|
|
|
(2,638)
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2006
|
$
|
-
|
|
$
|
220
|
|
$
|
220
|
9.
Commitments
Isle-Lake
Charles
The
Company leases approximately 16.25 acres of land in Calcasieu Parish, Louisiana
for use in connection with the Isle-Lake Charles. This agreement expires in
March 2010, with fifteen renewal options of five years each. Rent under the
Isle-Lake Charles lease is currently $1.8 million per year and is subject to
increases based on the Consumer Price Index (“CPI”).
Isle-Lula
The
Company leases approximately 1,000 acres of land in Coahoma County, Mississippi
and utilizes approximately 50 acres in connection with the operations of the
Isle-Lula. Unless terminated by the Company at an earlier date, the lease
expires in 2033. Rent under the lease is currently 5.5% of gross gaming revenue
as established by the Mississippi Gaming Commission, as well as $3,333 per
month
for the Rhythm & Blues Hotel.
Isle-Biloxi
The
Company has an agreement with the Biloxi Port Commission that provides the
Company with certain docking rights. This agreement expires in July 2009, with
seven renewal options of five years each. Annual rentals are the greater of
$500,000 or 1% of gross gaming revenue, as defined. Annual rent during each
renewal term is adjusted for increases in the CPI, limited to 6% for each
renewal period.
In
addition, the Company leases certain land, buildings, and other improvements
from the City of Biloxi under a lease and concession agreement. This agreement
expires in July 2009, with options to renew for six additional terms of five
years each. Annual rent is $530,000 plus 3% of gross gaming revenue, as defined,
in excess of $25.0 million. Annual rent during each renewal term is adjusted
for
increases in the CPI, limited to 6% for each renewal period.
9.
Commitments (continued)
In
April
1994, the Company entered an Addendum to the lease with the City of Biloxi,
which requires the Company to pay 4% of gross non-gaming revenues received
as
defined, net of sales tax, comps and discounts. Additional rent will be due
to
the City of Biloxi for the amount of any increase from and after January 1,
2016
in the rent due to the State Institutions of Higher Learning under a lease
between the City of Biloxi and the State Institutions of Higher Learning (the
“IHL Lease”) and for any increases in certain tidelands leases between the City
of Biloxi and the State of Mississippi.
In
August
2002, the Company entered into a lease for two additional parcels of land
adjoining the Isle-Biloxi and the hotel. On the parcel adjoining the
Isle-Biloxi, the Company constructed a multi-level parking garage that has
approximately 1,000 parking spaces. There is additional ground level parking
on
a parcel of land in front of the garage, also subject to this lease, with
approximately 600 parking spaces. The Company has constructed a 400-room
addition to the existing hotel on the parcel leased next to the existing hotel.
In addition, the Company may construct a hotel above the parking garage. This
lease with the City of Biloxi and the Mississippi Secretary of State is for
an
initial term of forty years, with one option to renew for an additional
twenty-five years and additional options thereafter, with the consent of the
Mississippi Secretary of State, consistent with the term of the lease described
in the preceding paragraph. When combined with the base and percentage rents
described for the leases in the preceding two paragraphs, annual rent under
those two leases and this lease is estimated to be $3.5 million for lease year
ending July 31, 2006. Such minimum rent to increase thereafter over time in
accordance with a formula based on the completion of the current hotel and
completion of the hotel on top of the parking garage (or August 31, 2008, which
ever occurs first), up to a minimum rent of $3.7 million. Such amounts are
subject to decreases due to market adjustments and increases based on the CPI.
Also, the Company is responsible for annual rent equal to 4% of gross retail
revenue and gross cash revenue (as defined in the lease), but without double
counting. If the rent minimum described in the preceding sentences is not
otherwise satisfied from other rents, then this percentage rent is not in
addition to the minimum rent, but rather is to be applied to that minimum.
In
connection with and pursuant to a settlement between the City of Biloxi and
the
State of Mississippi concerning the control and management area where the
Isle-Biloxi is located, the Company also has agreed to pay the City of Biloxi’s
lease obligations to the State of Mississippi. This amount is $500,000 per
year,
payable on June 30, subject to increases based on the CPI and decreases if
there
are other tenants of the subject property. This obligation ends after June
2018,
but may be renewed for thirty years.
Isle-Natchez
Through
numerous lease agreements, the Company leases approximately 24 acres of land
in
Natchez, Mississippi, which is used in connection with the operation of the
Isle-Natchez. Unless terminated by the Company at an earlier date, the lease
expiration dates vary through 2037. Rents under the leases currently total
approximately $84,334 per month. The Company also leases approximately 7.5
acres
of land, which is utilized for parking at the facility.
Isle-Kansas
City
The
Company leases approximately 28 acres from the Kansas City Port Authority in
connection with the operation of the Isle-Kansas City. The term of the lease
is
ten years and the Company has the option to renew the lease for eight additional
terms of five years each. Rent under the lease is currently $2.0 million per
year, subject to the higher of $2.0 million (minimum rent) per year, or 3.25%
of
gross revenues, less complimentaries.
9.
Commitments (continued)
Isle-Boonville
The
Company entered into a lease agreement with the City of Boonville. Under the
terms of agreement, the Company leases the site for a period of ninety-nine
years. In lieu of rent, the Company is assessed additional amounts by the City
of Boonville based on a 3.5% tax on gaming revenue, which the Company recognizes
as additional rent.
Isle-Bettendorf
The
Company has signed a development agreement with the City of Bettendorf pursuant
to which the Company agreed to construct a new 250-room Isle hotel, additional
parking, a new restaurant and an expansion of the existing buffet. The cost
of
the Company’s portion of this project is approximately $45.0 million, and the
new hotel is planned to open in the summer of 2007. The City agreed to construct
a 50,000 square foot convention center adjacent to the company’s facility, which
will be managed by the Isle-Bettendorf.
Isle-Davenport
Through
various lease agreements, the Company leases approximately twelve acres of
land
in Davenport, Iowa in connection with the operations of Rhythm City-Davenport.
The aggregate annual rent on these leases is approximately $0.8 million and
they
have varying expiration dates through 2022. Pursuant to a development agreement
with the City, the Isle-Davenport has exclusive docking privileges in the City
of Davenport until March 31, 2017 in consideration of this docking fee. The
docking fee has both a fixed base and a per passenger increment. The fixed
fee
commenced April 1, 1994 at $111,759 and increases annually by 4%. The
incremental component is a $0.10 charge for each passenger in excess of
1,117,579 passengers (which charge also increases by 4% per year). The lease
is
accounted for on a straight-line basis; however effective June 9, 2006, the
Company has renegotiated the lease with the City of Davenport to pay a
development fee of 1.65% of adjusted gross receipts, 0.5% gaming taxes and
other
fees, property taxes, rebates and payments in lieu of taxes as set forth in
the
agreement with a minimum assessment of $32.8 million to be paid no later than
December 31, 2021. This is in conjunction with a joint development between
Rhythm City and the City of Davenport known as the Riverfront Development
Project and contains various conditions related to the design and completion
of
the project.
Isle-Marquette
The
Company leases riverfront land from the City of Marquette, Iowa, under a lease
agreement. This agreement expires in December 2019. Annual rent is $180,000
payable in equal monthly installments due on the first of each month. In
addition to the base rent, the Company must also pay the following amounts:
(1)
$0.50 per customer per day due the 15th
day
following each month and (2) 2.5% of net gambling receipts, as defined, from
$20.0 million to $40.0 million, plus 5% of net gambling receipts, as defined,
from $40.0 million to $60.0 million, plus 7.5% of net gambling receipts, as
defined, in excess of $60.0 million, due annually.
9.
Commitments (continued)
Colorado
Central Station-Black Hawk
The
Company leases additional parcels of land adjoining the Colorado Central
Station-Black Hawk for current and future parking. The lease for current parking
is for an initial term of nine years with options to renew for eighteen
additional terms of five years
each with the final option period concluding June 1, 2094. Annual rent is $1.7
million indexed to correspond to any rise or fall in the CPI at one-year
intervals beginning June 1, 1996, not to exceed 3% difference from the previous
year’s rate. The lease for future parking is for an initial term of ten years
with options to renew for nine additional terms of ten years each with the
final
option period concluding June 1, 2094. Annual rent is $576,000 and renewals
are
subject to 20% rent increases over the rate of the previous term.
Isle-Our
Lucaya
In
April
2006, the Company’s Board of Directors approved a plan to close the Isle-Our
Lucaya facility. Effective
June 1, 2006, the Company notified its landlord of its decision to terminate
the
lease and the Company intends to cease operations by June 1, 2007 as required
by
the lease. In
conjunction with exercising the lease termination, the Company paid a $2.2
million fee to its landlord to early terminate the lease. This amount will
be
expensed, in accordance with SFAS 146 on the date of notification, in the first
quarter of fiscal 2007. Based on projected cash flows, we have recorded an
impairment charge of approximately $2.4 million and based on Bahamian government
regulations, we have accrued $1.2 million for severance payments in the fourth
quarter of fiscal 2006. In addition, the Company will be required to make its
$2.5 million annual lease payment in fiscal year 2007 according to the terms
of
the lease.
Other
In
December 2003, the Company entered into a 25-year lease with Arena Coventry
Limited to lease approximately 120,000 square feet within the arena compound
that will be used in connection with the operation of the Isle-Coventry.
Beginning in the fourth quarter of fiscal 2006, the Company will pay
approximately £1.3 million plus VAT ($2.4 million at April 30, 2006) per year
offset by £6.0 million plus VAT ($10.9 million at April 30, 2006) prepaid rent
that reduces annual rent expenses over 15 years.
In
November 2003, pursuant to a subscription and shareholders agreement, the Isle
of Capri Casinos, Ltd. (the “Isle-Ltd.”), a wholly owned subsidiary of the
Company, acquired a two-thirds interest in Blue Chip Casinos,
PLC (“Blue Chip”). Under the agreement, the Isle-Ltd. has the option to require
the minority shareholders to sell their respective shares to the Isle-Ltd at
fair value or at a price to be agreed upon. This option is available for a
period of two years from the later of five years after the acquisition date
or
for three years after the introduction of new gaming laws. If the Isle-Ltd.
does
not exercise its option, the minority shareholders have the right, during the
one-year period after the option expiration date, to require the Isle-Ltd.
to
purchase the minority shares at fair value or at a price to be agreed upon.
Due
to the current uncertainty in United Kingdom (“UK”) gaming legislation, and the
long-term nature of this option, the impact of this obligation is not reasonably
estimable at this time.
9.
Commitments (continued)
Future
minimum payments under capital leases and noncancelable operating leases with
initial terms of one year or more consisted of the following at April 30,
2006:
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
2007
|
$
|
330
|
|
$
|
15,240
|
|
|
2008
|
|
331
|
|
|
12,292
|
|
|
2009
|
|
343
|
|
|
11,837
|
|
|
2010
|
|
344
|
|
|
11,810
|
|
|
2011
|
|
357
|
|
|
11,672
|
|
|
Thereafter
|
|
3,410
|
|
|
1,056,396
|
|
|
Total
minimum lease payments
|
$
|
5,115
|
|
$
|
1,119,247
|
|
|
Amounts
representing interest
|
|
(2,892)
|
|
|
|
|
|
Present
value of net minimum lease payments
|
$
|
2,223
|
|
|
|
|
All
future operating minimum lease payments include long-term land lease payments,
which have various renewal options varying between five to ten years. The
Company has assumed that it will exercise all option periods for calculation
of
minimum lease payments. Rent expense for operating leases was approximately
$36.0 million in fiscal 2006, $36.7 million in fiscal 2005 and $35.1 million
in
fiscal 2004. Such amounts include contingent rentals of $9.6 million in fiscal
2006, $9.7 million in fiscal 2005 and $9.3 million in fiscal 2004.
10.
Related Party Transactions
The
Company leases approximately eight acres of land on a month-to-month basis
from
an entity owned by family members of the Company’s chief executive officer,
Bernard Goldstein, including Robert S. Goldstein and Jeffrey D. Goldstein,
directors of the Company. The land is used for parking and warehouse space
by
the Isle-Bettendorf. The initial term of the lease expires sixty days after
written notice is given to either party and rent under the lease is currently
$23,360 per month.
The
Company reimbursed Alter Trading Corporation for annual lease payments of
approximately $119,000 and $93,000 in fiscal 2006 and fiscal 2005, respectively,
for property leased by Alter Trading Corporation. The land was leased at the
Company’s request in order to secure sites for possible casino
operations.
On
August
19, 2004, the Company entered into a contract with John Brackenbury, a member
of
the Board of Directors, for consulting fees related to on-going contracts and
transactions in the United Kingdom. The total paid under this contract during
fiscal 2006 and fiscal 2005 were $60,000 and $40,000, respectively. The contract
continues month-to-month at $5,000 per month.
On
April
22, 2005, the Company approved an agreement to sell the Colorado Grande-Cripple
Creek for an estimated $6.5 million payable in $0.6 million cash and a $5.9
million promissory note secured by the assets of the casino. After receiving
offers from several third parties, the Company’s Board of Directors agreed to
sell the Colorado Grande-Cripple Cripple Creek to Nevada Gold & Casinos,
Inc. Nevada Gold & Casinos, Inc. also owns 43% of the Isle-Black Hawk and
the Colorado Central Station-Black Hawk.
10.
Related Party Transactions (continued)
The
Company’s Board of Directors has previously approved all of these transactions.
The Company obtained pre-approval from the Audit Committee (comprised of
independent directors) of the Company’s Board of Directors for these related
party transactions.
11.
Common Stock
Earnings
per Share of Common Stock
The
following table sets forth the computation of basic and diluted earnings per
share:
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
thousands, except per share data)
|
Numerator:
|
|
|
|
|
|
|
|
|
Income
applicable to common shares:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
7,810
|
|
$
|
15,032
|
|
$
|
27,356
|
Income
from discontinued operations
|
|
11,213
|
|
|
3,006
|
|
|
393
|
Net
income
|
$
|
19,023
|
|
$
|
18,038
|
|
$
|
27,749
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share -
|
|
|
|
|
|
|
|
|
weighted
- average shares
|
|
30,028
|
|
|
29,682
|
|
|
29,404
|
Effect
of dilutive securities
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
|
|
|
|
|
|
and
nonvested restricted stock
|
|
1,242
|
|
|
1,248
|
|
|
1,062
|
Denominator
for diluted earnings per share -
|
|
|
|
|
|
|
|
|
adjusted
weighted - average shares and
|
|
|
|
|
|
|
|
|
assumed
conversions
|
|
31,270
|
|
|
30,930
|
|
|
30,466
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.26
|
|
$
|
0.51
|
|
$
|
0.93
|
Income
from discontinued operations
|
|
0.37
|
|
|
0.10
|
|
|
0.01
|
Net
income
|
$
|
0.63
|
|
$
|
0.61
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.25
|
|
$
|
0.49
|
|
$
|
0.90
|
Income
from discontinued operations
|
|
0.36
|
|
|
0.10
|
|
|
0.01
|
Net
income
|
$
|
0.61
|
|
$
|
0.58
|
|
$
|
0.91
|
Any
options with an exercise price in excess of the average market price of the
Company’s common stock during the periods presented are not considered when
calculating the dilutive effect of stock options for diluted earnings per share
calculations. The average number of options excluded from the calculation was
335,106 shares, 1,468,478 shares, and 1,331,635 shares for fiscal years 2006,
2005 and 2004, respectively.
11.
Common Stock (continued)
Stock-based
Compensation - Stock Option Plans
Under
the
Company’s 1992, 1993 and 2000 Stock Option Plans, as amended, a maximum of
1,058,750, 4,650,000 and 3,500,000 options, respectively, are reserved for
issuance and may be granted to directors, officers and employees. The plans
provide for the issuance of incentive stock options and nonqualified options
which have a maximum term of 10 years and are, generally, exercisable in yearly
installments ranging from 20% to 25%, commencing one year after the date of
grant. The Company has 1,186,032 shares available for future issuance under
its
equity compensation plans.
Stock
options outstanding are as follows:
|
|
2006
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
2005
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
2004
Options
|
|
|
Weighted
Average Exercise Price
|
Outstanding
options at beginning of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fiscal
year
|
|
3,332,612
|
|
$
|
14.05
|
|
|
3,367,997
|
|
$
|
12.31
|
|
|
3,572,083
|
|
$
|
9.80
|
Options
granted
|
|
567,000
|
|
|
22.43
|
|
|
662,421
|
|
|
20.42
|
|
|
751,431
|
|
|
20.59
|
Options
exercised
|
|
(763,104)
|
|
|
12.01
|
|
|
(472,375)
|
|
|
9.48
|
|
|
(669,764)
|
|
|
8.13
|
Options
canceled
|
|
(204,408)
|
|
|
19.18
|
|
|
(225,431)
|
|
|
16.37
|
|
|
(285,753)
|
|
|
12.54
|
Outstanding
options at end of fiscal year
|
|
2,932,100
|
|
$
|
15.85
|
|
|
3,332,612
|
|
$
|
14.05
|
|
|
3,367,997
|
|
$
|
12.31
|
The
weighted average fair value of options granted during the years ended April
30,
2006, April 24, 2005 and April 23, 2004 was $13.09, $11.55 and $11.69,
respectively.
The
following table summarizes information about stock options outstanding at
April
30, 2006:
|
Options
Outstanding
|
|
Options
Exercisable
|
Ranges
of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life
|
|
Weighted
Average Exercise Price
|
|
|
|
Number
Exercisable
|
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.61
- $5.22
|
|
244,429
|
|
|
2.0
|
|
|
years
|
|
|
$
3.13
|
|
|
|
244,429
|
|
|
$
3.13
|
5.22
- 7.84
|
|
381,685
|
|
|
5.1
|
|
|
years
|
|
|
6.50
|
|
|
|
247,185
|
|
|
6.50
|
7.84
- 10.45
|
|
148,022
|
|
|
3.4
|
|
|
years
|
|
|
10.25
|
|
|
|
148,022
|
|
|
10.25
|
10.45
- 13.06
|
|
39,173
|
|
|
2.4
|
|
|
years
|
|
|
12.38
|
|
|
|
39,173
|
|
|
12.38
|
13.06
- 15.67
|
|
609,124
|
|
|
5.0
|
|
|
years
|
|
|
15.18
|
|
|
|
452,624
|
|
|
15.05
|
15.67
- 18.28
|
|
7,827
|
|
|
3.5
|
|
|
years
|
|
|
17.75
|
|
|
|
7,827
|
|
|
17.75
|
18.28
- 20.90
|
|
1,197,638
|
|
|
8.1
|
|
|
years
|
|
|
20.35
|
|
|
|
238,588
|
|
|
20.44
|
20.90
- 23.51
|
|
26,962
|
|
|
2.5
|
|
|
years
|
|
|
23.00
|
|
|
|
26,962
|
|
|
23.00
|
23.51
- 26.12
|
|
277,240
|
|
|
8.9
|
|
|
years
|
|
|
24.66
|
|
|
|
24,990
|
|
|
25.22
|
$2.61
- $26.12
|
|
2,932,100
|
|
|
6.3
|
|
|
years
|
|
|
$
15.85
|
|
|
|
1,429,800
|
|
|
$
12.21
|
As
permitted by SFAS 123, the Company currently accounts for share-based payments
to employees using APB 25’s intrinsic value method and, as such, generally
recognizes no compensation cost for employee stock options. Accordingly,
the
adoption of SFAS 123(R)’s fair value method will have a significant impact on
its result of operations. The additional compensation expense, net of tax,
for
unvested options at April 30, 2006 that will be recognized is $1.9 million
and
$4.5 million for the quarter ended July 30, 2006 and the year ended April
29,
2007, respectively.
11.
Common Stock (continued)
Additionally,
the Company will book compensation expense on options granted using the
fair
value method of accounting for stock-based compensation and will include
an
estimate of options expected to be forfeited in lieu of accounting for
forfeitures as they occur.
Stock-based
Compensation - Deferred Bonus Plan
In
fiscal
2001, the Company’s stockholders approved the Deferred Bonus Plan. The Plan
provides for the issuance of non-vested stock to eligible officers and
employees
who agree to receive a deferred bonus in the form of non-vested stock.
The
vesting of the stock is dependent upon continued service to the Company
for a
period of five years. At April 30, 2006, the non-vested stock issued in
connection with the Plan totaled 143,125 shares, of which 32,707 shares
were
issued during fiscal year ended April 30, 2006 at $24.33, the weighted-average
fair value of the non-vested stock at the grant date. For the fiscal year
ended
April 30, 2005, the Company recorded unearned compensation in consolidated
stockholders’ equity equal to the fair value of the non-vested award.
Compensation expense related to stock-based compensation under the Deferred
Bonus Plan totaled $514,576 in fiscal 2006, $606,000 in fiscal 2005, and
$605,000 in fiscal 2004. The Company does not plan to award any further
compensation under this plan, however, any grants that have been awarded
prior
to the plan’s discontinuation will be paid provided the vesting requirements are
met.
In
accordance with the adoption of SFAS 123(R) on May 1, 2006, the Company
will
include an estimate of restricted shares expected to be forfeited in lieu
of
accounting for forfeitures as they occur in recording compensation expense
under
the Deferred Bonus Plan.
Stock
Repurchase
On
November 15, 2000, the Company’s Board of Directors approved a stock repurchase
program, which allowed for the purchase of up to 1.5 million shares of
the
Company’s outstanding common stock. The Board expanded this program on January
11, 2001, and allowed an additional 1.5 million shares to be repurchased.
On
October 25, 2002, the Company’s Board of Directors approved a new stock
repurchase program allowing for the purchase of up to 1.5 million shares
of the
Company’s outstanding common stock, for a total of 4.5 million shares. As of
April 30, 2006, the Company has repurchased 3.9 million and retired 553,800
shares of common stock under these programs.
Stockholder
Rights Plan
In
February 1997, the Company adopted a Stockholder Rights Plan. The Plan
is
designed to preserve the long-term value of the shareholders’ investment in the
Company. Under the Plan, each shareholder will receive a distribution of
one
right for each share of the Company’s outstanding common stock. The rights were
distributed to shareholders of record on March 3, 1997, and will expire
ten
years thereafter. Each right entitles the holder to purchase one one-thousandth
(1/1,000) of a share of a new series of participating preferred stock at
an
initial exercise price of $12.50. Initially the rights are represented
by the
Company’s common stock certificates and are not exercisable. The rights become
exercisable shortly after a person or group acquires beneficial ownership
of 15%
or more of the Company or publicly announces its intention to commence
a tender
or exchange offer that would result in the 15% beneficial ownership level.
Under
certain circumstances involving a buyer’s acquisition of a 15% position in the
Company, all rights holders except the buyer will be entitled to purchase
common
stock at half price. If the Company is acquired through a merger, after
such an
acquisition, all rights holders except the buyer will be entitled to purchase
stock in the buyer at half price. The Company may redeem the rights at
one cent
each at any time before a buyer acquires 15% of the Company’s
stock.
12.
Deferred Compensation Plans
2005
Deferred Compensation Plan
On
January 11, 2005, the Company adopted the 2005 Deferred Compensation Plan
(the
“Plan”), which amends and restates its existing deferred compensation
arrangement. The Plan is an unfunded deferred compensation arrangement
for the
benefit of key management officers and employees of the Company and its
subsidiaries. The terms of the Plan include the ability of the participants
to
defer, on a pre-tax basis, salary, bonus payments and any voluntary deferrals
to
the Company’s Retirement Trust and Savings Plan in excess of the amount
permitted under IRS Code Section 401(k). The terms also include a discretionary
annual matching contribution by the Company. The Plan allows for the aggregation
and investment of deferred amounts in notional investment alternatives,
including units representing shares of the Company’s common stock.
Non-Employee
Directors’ Deferred Compensation Plan
On
January 11, 2005, the Company adopted the Non-Employee Directors’ Deferred
Compensation Plan (the “Directors’ Plan”). The Directors’ Plan provides a means
by which non-employee directors can defer the receipt of their annual retainer
and meeting fees. Deferred amounts are subject to notional investment in
either
a money market or similar cash equivalent fund or units representing shares
of
the Company’s common stock. Deferred amounts, as adjusted for earnings during
the deferral period, are distributed after a director ceases to serve for
any
reason.
13.
Employee Benefit Plans
401(k)
Plan
The
Company has a 401(k) plan covering substantially all of its employees.
The
Company’s contribution expense related to the 401(k) plan was approximately $1.7
million in fiscal 2006, $1.7 million in fiscal 2005 and $1.5 million in
fiscal
2004. The Company’s contribution is based on a percentage of employee
contributions and may include an additional discretionary amount. The 401(k)
plan allows employees to invest no more than 5% of their contribution in
the
Company’s common stock.
Insurance
Plan
The
Company has a qualified employee insurance plan covering all employees
who work
an average of 32 hours or more per week on a regular basis. The plan, which
is
self-funded by the Company with respect to claims below a certain maximum
amount, requires contributions from eligible employees and their dependents.
The
Company’s contribution expense for the plan was approximately $32.2 million in
fiscal 2006, $34.3 million in fiscal 2005 and $30.4 million in fiscal
2004.
14.
Hurricanes and Related Charges
On
August
29, 2005, Hurricane Katrina struck the Gulf Coast of Mississippi and Louisiana,
which resulted in significant damage to the Company’s facility and its casino
barge under construction in Biloxi, Mississippi. On December 26, 2005 the
Company, using its existing facility, opened a casino as part of the land-based
structure that was not severely damaged by the storm.
On
September 22, 2005, Hurricane Rita struck the Gulf Coast of Louisiana and
Texas,
which caused damage to the casino and hotel facilities in Lake Charles,
Louisiana. The property was closed for 16 days as a result but subsequently
reopened on October 8, 2005.
On
October 24, 2005, Hurricane Wilma struck Florida, causing damage to the
Company’s Pompano Park racing facility. The Property was closed until December
2, 2005.
14.
Hurricanes and Related Charges (continued)
The
Company has insurance coverage related to damage from the three hurricanes
for
property damage incurred, property operating costs during the operational
downtime of the hurricanes, incremental costs incurred related to hurricane
damage and recovery activities and business interruption insurance for
lost
profits during the period directly related to the hurricanes. The Company
believes it will receive proceeds from its insurance carrier related to
all four
types of losses the Company has sustained, and through July 5, 2007 has
received
advances of $55.4 million, of which $53.9 million was received by April
30,
2006.
The
Company has recognized asset impairments and losses of $68.6 million based
on
assessments of damage at all its locations. The Company has also incurred
out-of-pocket costs directly related to the hurricanes and the property
operating costs related to the period of closure caused by the hurricanes,
of
$62.2 million. The total amount of losses recognized and expenses incurred
of
$130.7 million has been recorded in the accompanying statement of income
as
“Hurricane related charges, net” and has been offset by $126.0 million, which
the Company believes is probable that it will collect from its insurance
carriers under its policy coverages. The remaining amount of $4.8 million
represents the Company’s deductible portion of its claims. As discussed, the
Company has been receiving advances against its insurance claims from the
applicable insurance carriers and believes it will ultimately collect more
than
the $130.7 million of loss recognized in the income statement due to its
replacement value coverage for its property damage and the lost profits
component of its coverage. These amounts will be recognized by the Company
when
it and the insurance carriers agree to the final amounts to be paid to
the
Company for the losses sustained. The following table shows the activity
flowing
through the insurance accounts:
|
|
|
Items
Incurred as of April 30, 2006
|
|
|
|
|
|
|
|
Property
impairment
|
$
|
68,560
|
|
|
Incremental
costs incurred
|
|
62,175
|
|
|
Hurricane
related charges
|
|
(4,776)
|
|
|
Insurance
receivable, gross
|
$
|
125,959
|
|
|
Insurance
receipts
|
|
(53,906)
|
|
|
Insurance
receivable, net
|
$
|
72,053
|
|
During
the fiscal year ended April 24, 2005, the Company recorded $2.2 million
in
business interruption insurance proceeds, which was received subsequent
to 2005.
These amounts are recorded in the accompanying consolidated statements
of income
for fiscal 2005 in the line item “Marketing and administrative operating
expenses.” The business interruption insurance proceeds relate to the closing of
the Isle-Our Lucaya from September 1, 2004 to October 13, 2004 and twenty-one
other days throughout October 2004 and November 2004 due to Hurricane
Frances
and the closing of the Isle-Biloxi from September 14, 2004 to September
17, 2004
due to Hurricane Ivan.
In
the
fourth quarter of fiscal 2004, the Company received $0.3 million in business
interruption insurance proceeds. The amount was received to offset expenses
incurred as a result of a flood during construction at the Isle-Boonville.
In
addition to flood damages and related clean-up expenses, the Company
also
incurred costs for the delay of construction.
15.
Valuation and Other Charges
As
a
result of adverse gaming legislation in the UK, the Company determined
during
the fiscal year ended April 24, 2005 that previously capitalized fixed
assets
for certain projects would not be recoverable under the provisions of
SFAS No.
144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.
Additionally as of April 30, 2006, the Company believes that based on
the
economic performance of Blue Chip and with its focus on other development
plans,
that an impairment of the goodwill associated with licensing and goodwill
at
Blue Chip is impaired. The Company recorded impairment charges of $9.0
million
to goodwill and $0.6 million to fixed assets for the fiscal year ended
April 30,
2006 and $1.6 million to fixed assets for the fiscal year ended April
24, 2005
in the line item “Valuation and other charges” in the accompanying consolidated
statements of income.
Additionally,
during the fourth quarter fiscal year 2006 review for asset impairment,
the
Company recorded valuation expense of $2.4 million on the long-lived
assets of
Isle-Our
Lucaya as an impairment to the carrying value of those assets. The Company
also
recorded expected severance cost as a valuation expense of $1.2 million
related
to the closure of Isle-Our Lucaya in June 2007.
On
March
15, 2004, the Company announced that it had been selected by the Illinois
Gaming
Board as the successful bidder in a federal bankruptcy court auction
for the
10th Illinois gaming license previously issued to Emerald Casinos,
Inc. This
process was conducted pursuant to an agreement approved by, among other
parties,
the Illinois Attorney General. The Company bid $518.0 million to acquire
by
merger the stock of a company in bankruptcy that owns the license.
The plan of
reorganization pursuant to which the merger would be consummated has
been
confirmed by the federal bankruptcy court. The merger remains subject
to certain
conditions, including a finding of suitability and final approval by
the
Illinois Gaming Board as well as certain other conditions. The entire
matter
also is the subject of ongoing litigation to which the Company is not
a party.
The
Illinois Attorney General has raised issues with regard to the appropriateness
of the Village of Rosemont as a host community
and the Illinois Gaming Board's selection of the Company’s bid. In addition, in
2006 the Illinois Gaming Board, based on a recommendation by an administrative
law judge following a hearing, revoked the license issued to Emerald
on the
basis of Emerald’s past conduct (which revocation has been stayed pending the
outcome of litigation). For
the
reasons set forth above, among others, the Company believes that its
ability to
obtain the gaming license and open a gaming facility in Rosemont has been
subjected to added uncertainty. There can be no assurance that the
Company will
ultimately acquire the license. The full cost of the license and all
associated
costs were originally capitalized in the amount of $2.5 million. Due
to the
continuing uncertainty with respect to this matter, a valuation charge
of $2.5
million was recorded for these capitalized license costs at April 24,
2005.
15.
Valuation and Other Charges (continued)
As
discussed in Note 2, on April 25, 2005, the Company and Colorado Grande
executed
a Stock Purchase Agreement (the “Agreement”) with a subsidiary of Nevada Gold
& Casinos, Inc. to sell all outstanding shares of the common stock of
Colorado Grande to a subsidiary of Nevada Gold & Casinos, Inc. Pursuant to
the Agreement, the estimated sales price was to be adjusted by the difference
between actual working capital and a target working capital (as defined
by the
Agreement) on the closing date. The actual working capital was determined
by
Nevada Gold 45 days after the closing date and reviewed by independent
auditors
for both parties. The post closing adjustment to adjust the actual working
capital to the target working capital was made during the fiscal year
ended
April 30, 2006, as an
adjustment to goodwill and a corresponding valuation charge of $2.9 million
for
the Colorado Grande-Cripple Creek property sale. Colorado Grande-Cripple
Creek’s
operating results, including this associated goodwill impairment and
minority
interest share is classified as discontinued operations on the consolidated
statements of income and prior year results have been reclassified to
conform to
the fiscal 2006 presentation.
16.
Preopening Expenses
Preopening
expenses, representing salaries, benefits, training, marketing and other
costs,
of $0.3 million, $0.2 million and $2.3 million in fiscal 2006, fiscal
2005 and
fiscal 2004, respectively, were incurred in connection with the opening
of the
Pompano Park racino in early calendar year 2007 and Isle-Waterloo in
late spring
of 2007, Blue Chip-Walsall on September 23, 2004 and with the openings
of the
Isle-Our Lucaya on December 15, 2003 and the Blue Chip-Wolverhampton
on April
22, 2004.
17.
Loss On Early Extinguishment Of Debt
The
Company incurred a loss on early extinguishment of debt totaling $5.3
million in
fiscal 2005 in connection with the refinancing of its Senior secured
credit
facility on February 4, 2005. These charges include the write-off of
debt
acquisition costs.
The
Company incurred a loss on early extinguishment of debt of $26.1 million
in
fiscal 2004 related to the refinancing of the Company’s $390.0 million 8.75%
Senior Subordinated Notes on March 3, 2004. These charges included early
payment
premiums as well as the write-off of debt acquisition costs.
18.
Income Taxes
Income
tax provision from continuing operations consists of the following:
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
thousands)
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
2,187
|
|
$
|
(1,462)
|
|
$
|
3,823
|
State
|
|
537
|
|
|
2,287
|
|
|
677
|
|
|
2,724
|
|
|
825
|
|
|
4,500
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
10,177
|
|
|
14,947
|
|
|
8,765
|
State
|
|
1,275
|
|
|
353
|
|
|
23
|
|
|
11,452
|
|
|
15,300
|
|
|
8,788
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
$
|
14,176
|
|
$
|
16,125
|
|
$
|
13,288
|
18.
Income Taxes (continued)
There
is
no international tax expense or (benefit) in the Company’s consolidated tax
provision for any fiscal year because either the international jurisdiction
does
not assess an income tax or the Company is currently unable to benefit
from its
international source losses. These international losses will be tax benefited
at
such time the related international operations generate operating earnings,
subject to statutory limitations.
A
reconciliation of income taxes from continuing operations at the statutory
corporate federal tax rate of 35% to the income tax provision reported
in the
accompanying consolidated statements of income is as follows:
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
April
25,
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
(In
thousands)
|
Statutory
tax provision
|
$
|
7,895
|
|
$
|
11,302
|
|
$
|
14,242
|
Effects
of:
|
|
|
|
|
|
|
|
|
State
taxes
|
|
1,858
|
|
|
1,716
|
|
|
455
|
Non-deductible
items
|
|
645
|
|
|
1,907
|
|
|
537
|
IRS
adjustment
|
|
-
|
|
|
-
|
|
|
(3,000)
|
Employment
tax credits
|
|
(2,498)
|
|
|
(335)
|
|
|
(389)
|
International
activity
|
|
4,205
|
|
|
1,314
|
|
|
1,113
|
Other
|
|
839
|
|
|
221
|
|
|
330
|
Valuation
Allowance
|
|
1,232
|
|
|
-
|
|
|
-
|
Income
taxes
|
$
|
14,176
|
|
$
|
16,125
|
|
$
|
13,288
|
The
provision for fiscal year 2006 includes a net tax benefit of $2.5 million
for
Employment tax credits which include a one-time retention tax credit of
$1.8
million related to the hurricanes. The provision for fiscal year 2006 also
includes a tax expense of $4.2 million for international activity that
includes
$3.2 million related to a valuation charge against international operations
that
cannot be tax benefited at this time. During fiscal year 2006, the Company
provided a valuation allowance of $1.2 million, which includes $0.9 million
related to a capital loss carryover and $0.3 million related to state net
operating losses.
Significant
components of the Company’s domestic net deferred state and federal income tax
liabilities are as follows:
|
Fiscal
Year Ended
|
|
|
April
30,
|
|
|
April
24,
|
|
|
2006
|
|
|
2005
|
|
(In
thousands)
|
Deferred
tax liabilities:
|
|
|
|
|
|
Property
and equipment
|
$
|
(79,353)
|
|
$
|
(77,436)
|
Other
|
|
(1,647)
|
|
|
(1,660)
|
Total
deferred tax liabilities
|
|
(81,000)
|
|
|
(79,096)
|
Deferred
tax assets:
|
|
|
|
|
|
Accrued
expenses
|
|
10,219
|
|
|
10,172
|
Alternative
minimum tax credit
|
|
1,718
|
|
|
3,641
|
Employment
tax credits
|
|
80
|
|
|
2,954
|
Capital
loss carryover
|
|
937
|
|
|
-
|
Net
operating losses
|
|
13,273
|
|
|
14,874
|
Other
|
|
2,973
|
|
|
7,130
|
Total
deferred tax assets
|
|
29,200
|
|
|
38,771
|
Valuation
allowance on deferred tax assets
|
|
(2,743)
|
|
|
(1,511)
|
Net
deferred tax asset
|
|
26,457
|
|
|
37,260
|
|
|
|
|
|
|
Net
deferred tax liability
|
$
|
(54,543)
|
|
$
|
(41,836)
|
18.
Income Taxes (continued)
At
April
30, 2006, the Company has alternative minimum tax credits that can be carried
forward indefinitely to reduce future regular tax liabilities. Additionally,
as
of April 30, 2006, the Company has federal net operating loss carryforwards
of
$25.1 million for income tax purposes, with expiration dates from 2011
to 2023.
Approximately $14.9 million of these net operating losses are attributable
to
Colorado Central Station-Black Hawk and can only be used to offset income
earned by this entity. The remaining federal net operating losses are subject
to
limitations under the income tax regulations, which may limit the amount
ultimately utilized; however, the Company believes that all federal net
operating losses, except $0.7 million related to discontinued operations,
will
be utilized prior to expiration. The Company also has state income tax
net
operating loss carryforwards of $91.2 million, with expiration dates from
2016
to 2026.
At
April
30, 2006, the Company had approximately $7.0 million of international loss
carryforwards that will provide tax benefits at such time the related
international operations generate sufficient taxable earnings.
19.
Fair Value of Financial Instruments
The
following methods and assumptions were used to estimate the fair value
of each
class of financial instruments for which it is practicable to estimate
that
value:
Assets,
including cash, restricted cash, and notes receivable are carried at cost,
which
approximates fair value due to their short-term maturities.
Marketable
securities consist of trading securities held by Capri Insurance Corporation,
our captive insurance subsidiary. The trading securities are primarily
debt and
equity securities which we buy with the intention to resell in the near
term.
Our trading securities are carried at fair value with changes in fair value
recognized in current period income.
Long-term
debt - The fair value of the Company’s long-term debt is estimated based on the
quoted market price of the underlying debt issue or, when a quoted market
price
is not available, the discounted cash flow of future payments utilizing
current
rates available to the Company for debt of similar remaining maturities.
Debt
obligations with a short remaining maturity are valued at the carrying
amount.
19.
Fair Value of Financial Instruments (continued)
The
estimated carrying amounts and fair values of the Company’s financial
instruments are as follows:
|
|
April
30, 2006
|
|
April
24, 2005
|
|
|
|
Carrying
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
|
Amount
|
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
121,193
|
|
$
|
121,193
|
|
|
$
|
146,743
|
|
$
|
146,743
|
|
Marketable
securities
|
|
|
17,727
|
|
|
17,727
|
|
|
|
16,016
|
|
|
16,016
|
|
Restricted
cash
|
|
|
2,210
|
|
|
2,210
|
|
|
|
2,193
|
|
|
2,193
|
|
Notes
receivable
|
|
|
9,453
|
|
|
9,453
|
|
|
|
5,472
|
|
|
5,472
|
|
Interest
rate swaps
|
|
|
1,585
|
|
|
1,585
|
|
|
|
345
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7%
Senior subordinated notes
|
|
$
|
500,000
|
|
$
|
493,750
|
|
|
$
|
500,000
|
|
$
|
485,650
|
|
Senior
secured credit facility
|
|
|
296,500
|
|
|
296,500
|
|
|
|
249,375
|
|
|
249,375
|
|
9%
Senior subordinated notes
|
|
|
200,000
|
|
|
212,000
|
|
|
|
200,000
|
|
|
210,340
|
|
Isle-Black
Hawk senior secured credit facility
|
|
|
209,650
|
|
|
209,650
|
|
|
|
189,350
|
|
|
189,350
|
|
Blue
Chip Credit Facility
|
|
|
6,563
|
|
|
6,563
|
|
|
|
6,942
|
|
|
6,942
|
|
TIF
bonds
|
|
|
2,926
|
|
|
2,944
|
|
|
|
3,875
|
|
|
3,875
|
|
General
obligation bonds
|
|
|
1,675
|
|
|
1,673
|
|
|
|
1,830
|
|
|
1,835
|
|
BID
bonds
|
|
|
472
|
|
|
472
|
|
|
|
590
|
|
|
590
|
|
Other
long-term debt
|
|
|
3,494
|
|
|
3,494
|
|
|
|
4,156
|
|
|
4,156
|
|
20.
Contingencies
Lady
Luck
Gaming Corporation (now a wholly owned subsidiary of the Company) 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 totals approximately 6.5 million Euros
(which was approximately $8.2 million as of April 30, 2006 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 lawsuit, but the
Ministry appealed the matter and the appeal was heard before the Athens Appeal
Court of First Instance. The Athens Appeal Court issued certified copies of
judgments denying the Ministry’s appeal. The Ministry elected to appeal this
matter further to the Supreme Court. During October 2005, the Administrative
Supreme Court remanded the matter back to the Athens Administrative Appeals
Court for a hearing on the merits, which is expected to take place at the end
of
2006 or early 2007. The civil matter was set for hearing before the Greek
Supreme Court during May 2006; however, prior to the scheduled hearing date,
the
Greek Supreme Court reset the hearing for January 8, 2007. The Company intends
to continue a vigorous and appropriate defense to the claims asserted in this
matter.
20.
Contingencies (continued)
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, nor does it anticipate incurring delays with respect
to
environmental remediation or protection. However, in part because the Company’s
present and future development sites have, in some cases, been used as
manufacturing facilities or other facilities that generate materials that are
required to be remediated under environmental laws and regulations, there can
be
no guarantee that additional pre-existing conditions will not be discovered
and
that the Company will not experience material liabilities or delays.
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 and that
subsidiary, and guaranteed by Lady Luck Gaming Corporation, relating to the
development of a casino site near Kimmswick, Missouri. The suit alleged damages
in excess of $10.0 million. The Company increased its reserve for this
suit by $6.1 million in the quarter ended October 23, 2005. A settlement was
reached in the third fiscal quarter of 2006 and a payment was made that was
within the Company’s reserves for this lawsuit.
The
Company is subject to various contingencies and litigation matters and has
a
number of unresolved claims. Although the ultimate liability of these
contingencies, 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.
21.
Consolidating Condensed Financial Information
Certain
of the Company’s subsidiaries have fully and unconditionally guaranteed the
payment of all obligations under the Company’s $200.0 million 9% Senior
Subordinated Notes due 2012 and $500.0 million 7% Senior Subordinated Notes
due
2014. The following tables present the consolidating condensed financial
information of the parent company, guarantor subsidiaries and non-guarantor
subsidiaries of the Isle of Capri Casinos, Inc., balance sheets as of April
30,
2006 and April 24, 2005, statements of income and cash flows for the fiscal
years ended April 30, 2006, April 24, 2005 and April 25, 2004. The Company
disregards intercompany transactions for purposes of computing income taxes
at
the subsidiary level. Therefore, no income tax provision is required to be
eliminated in consolidation.
21.
Consolidating Condensed Financial Information (continued)
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATING
CONDENSED GUARANTOR SUBSIDIARIES, NON-GUARANTOR SUBSIDIARIES,
|
AND
PARENT COMPANY FINANCIAL INFORMATION
|
AS
OF APRIL 30, 2006; APRIL 24, 2005 AND FOR
|
THE
YEARS ENDED APRIL 30, 2006; APRIL 24, 2005 AND APRIL 25,
2004
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
As
of April 30, 2006
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$
|
47,103
|
|
$
|
162,659
|
|
$
|
56,762
|
|
$
|
(12,826)
|
|
$
|
253,698
|
Intercompany
receivables
|
|
980,029
|
|
|
(365,151)
|
|
|
70,539
|
|
|
(685,417)
|
|
|
-
|
Investments
in subsidiaries
|
|
259,565
|
|
|
273,403
|
|
|
(19,221)
|
|
|
(513,747)
|
|
|
-
|
Property
and equipment, net
|
|
5,801
|
|
|
649,862
|
|
|
282,765
|
|
|
-
|
|
|
938,428
|
Other
assets
|
|
19,516
|
|
|
577,358
|
|
|
50,744
|
|
|
(5,800)
|
|
|
641,818
|
Total
assets
|
$
|
1,312,014
|
|
$
|
1,298,131
|
|
$
|
441,589
|
|
$
|
(1,217,790)
|
|
$
|
1,833,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$
|
38,651
|
|
$
|
125,821
|
|
$
|
76,150
|
|
$
|
(16,768)
|
|
$
|
223,854
|
Intercompany
payables
|
|
-
|
|
|
551,749
|
|
|
132,272
|
|
|
(684,021)
|
|
|
-
|
Long-term
debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less
current maturities
|
|
993,500
|
|
|
6,692
|
|
|
212,500
|
|
|
-
|
|
|
1,212,692
|
Other
accrued liabilities
|
|
(2,607)
|
|
|
93,687
|
|
|
(3,060)
|
|
|
-
|
|
|
88,020
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
26,690
|
|
|
26,690
|
Stockholders'
equity
|
|
282,470
|
|
|
520,182
|
|
|
23,727
|
|
|
(543,691)
|
|
|
282,688
|
Total
liabilities and stockholders' equity
|
$
|
1,312,014
|
|
$
|
1,298,131
|
|
$
|
441,589
|
|
$
|
(1,217,790)
|
|
$
|
1,833,944
|
21.
Consolidating Condensed Financial Information (continued)
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
For
the Fiscal Year Ended April 30, 2006
|
Statement
of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
$
|
-
|
|
$
|
796,277
|
|
$
|
208,367
|
|
$
|
-
|
|
$
|
1,004,644
|
Rooms,
food, beverage and other
|
|
146
|
|
|
148,427
|
|
|
46,878
|
|
|
(11,901)
|
|
|
183,550
|
Gross
revenues
|
|
146
|
|
|
944,704
|
|
|
255,245
|
|
|
(11,901)
|
|
|
1,188,194
|
Less
promotional allowances
|
|
-
|
|
|
155,264
|
|
|
44,910
|
|
|
-
|
|
|
200,174
|
Net
revenues
|
|
146
|
|
|
789,440
|
|
|
210,335
|
|
|
(11,901)
|
|
|
988,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
672
|
|
|
119,424
|
|
|
32,394
|
|
|
-
|
|
|
152,490
|
Gaming
taxes
|
|
-
|
|
|
180,402
|
|
|
39,637
|
|
|
-
|
|
|
220,039
|
Rooms,
food, beverage and other
|
|
38,254
|
|
|
280,743
|
|
|
117,871
|
|
|
(10,178)
|
|
|
426,690
|
Management
fee expense (revenue)
|
|
(34,172)
|
|
|
34,178
|
|
|
(6)
|
|
|
-
|
|
|
-
|
Depreciation
and amortization
|
|
1,539
|
|
|
69,333
|
|
|
18,790
|
|
|
(2,556)
|
|
|
87,106
|
Total
operating expenses
|
|
6,293
|
|
|
684,080
|
|
|
208,686
|
|
|
(12,734)
|
|
|
886,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
(6,147)
|
|
|
105,360
|
|
|
1,649
|
|
|
833
|
|
|
101,695
|
Interest
expense, net
|
|
(14,210)
|
|
|
(44,235)
|
|
|
(12,637)
|
|
|
-
|
|
|
(71,082)
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,517)
|
|
|
(6,517)
|
Loss
on extinguishment of debt
|
|
-
|
|
|
-
|
|
|
(2,110)
|
|
|
-
|
|
|
(2,110)
|
Equity
in income (loss) of subsidiaries
|
|
37,839
|
|
|
3,587
|
|
|
(16,802)
|
|
|
(24,624)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
17,482
|
|
|
64,712
|
|
|
(29,900)
|
|
|
(30,308)
|
|
|
21,986
|
Income
tax expense (benefit)
|
|
(1,541)
|
|
|
20,732
|
|
|
(5,015)
|
|
|
-
|
|
|
14,176
|
Income
(loss) from continuing operations
|
|
19,023
|
|
|
43,980
|
|
|
(24,885)
|
|
|
(30,308)
|
|
|
7,810
|
Income
(Loss) from discontinued operations, net of taxes
|
|
-
|
|
|
11,346
|
|
|
(133)
|
|
|
-
|
|
|
11,213
|
Net
income (loss)
|
$
|
19,023
|
|
$
|
55,326
|
|
$
|
(25,018)
|
|
$
|
(30,308)
|
|
$
|
19,023
|
21.
Consolidating Condensed Financial Information (continued)
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
For
the Fiscal Year Ended April 30, 2006
|
Statement
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
$
|
(30,820)
|
|
$
|
144,615
|
|
$
|
10,376
|
|
$
|
(24,624)
|
|
$
|
99,547
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investing
activities
|
|
(41,489)
|
|
|
(132,732)
|
|
|
(40,052)
|
|
|
25,369
|
|
|
(188,904)
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
47,921
|
|
|
(1,911)
|
|
|
19,117
|
|
|
(745)
|
|
|
64,382
|
Effect
of foreign currency exchange rates on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
and cash equivalents
|
|
-
|
|
|
-
|
|
|
(575)
|
|
|
-
|
|
|
(575)
|
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
(24,388)
|
|
|
9,972
|
|
|
(11,134)
|
|
|
-
|
|
|
(25,550)
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of the period
|
|
53,584
|
|
|
57,661
|
|
|
35,498
|
|
|
-
|
|
|
146,743
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end
of the period
|
$
|
29,196
|
|
$
|
67,633
|
|
$
|
24,364
|
|
$
|
-
|
|
$
|
121,193
|
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
As
of April 24, 2005
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$
|
63,560
|
|
$
|
82,644
|
|
$
|
64,871
|
|
$
|
(6,627)
|
|
$
|
204,448
|
Intercompany
receivables
|
|
896,214
|
|
|
(228,835)
|
|
|
42,463
|
|
|
(709,842)
|
|
|
-
|
Investments
in subsidiaries
|
|
233,544
|
|
|
269,817
|
|
|
(10,027)
|
|
|
(493,334)
|
|
|
-
|
Property
and equipment, net
|
|
4,630
|
|
|
604,902
|
|
|
248,111
|
|
|
-
|
|
|
857,643
|
Other
assets
|
|
21,806
|
|
|
545,230
|
|
|
58,215
|
|
|
(5,896)
|
|
|
619,355
|
Total
assets
|
$
|
1,219,754
|
|
$
|
1,273,758
|
|
$
|
403,633
|
|
$
|
(1,215,699)
|
|
$
|
1,681,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$
|
22,360
|
|
$
|
99,930
|
|
$
|
67,110
|
|
$
|
(9,738)
|
|
$
|
179,662
|
Intercompany
payables
|
|
-
|
|
|
623,879
|
|
|
85,963
|
|
|
(709,842)
|
|
|
-
|
Long-term
debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less
current maturities
|
|
946,875
|
|
|
8,080
|
|
|
193,662
|
|
|
-
|
|
|
1,148,617
|
Other
accrued liabilities
|
|
(7,939)
|
|
|
77,012
|
|
|
(527)
|
|
|
-
|
|
|
68,546
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23,225
|
|
|
23,225
|
Stockholders'
equity
|
|
258,458
|
|
|
464,857
|
|
|
57,425
|
|
|
(519,344)
|
|
|
261,396
|
Total
liabilities and stockholders' equity
|
$
|
1,219,754
|
|
$
|
1,273,758
|
|
$
|
403,633
|
|
$
|
(1,215,699)
|
|
$
|
1,681,446
|
21. Consolidating Condensed Financial Information
(continued)
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
For
the Fiscal Year Ended April 24, 2005
|
Statement
of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
$
|
-
|
|
$
|
778,001
|
|
$
|
179,877
|
|
$
|
-
|
|
$
|
957,878
|
Rooms,
food, beverage and other
|
|
1,359
|
|
|
145,698
|
|
|
51,556
|
|
|
(20,614)
|
|
|
177,999
|
Gross
Revenues
|
|
1,359
|
|
|
923,699
|
|
|
231,433
|
|
|
(20,614)
|
|
|
1,135,877
|
Less
promotional allowances
|
|
-
|
|
|
148,771
|
|
|
39,534
|
|
|
-
|
|
|
188,305
|
Net
revenues
|
|
1,359
|
|
|
774,928
|
|
|
191,899
|
|
|
(20,614)
|
|
|
947,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
-
|
|
|
126,024
|
|
|
31,266
|
|
|
-
|
|
|
157,290
|
Gaming
taxes
|
|
-
|
|
|
181,682
|
|
|
33,452
|
|
|
-
|
|
|
215,134
|
Rooms,
food, beverage and other
|
|
26,146
|
|
|
278,936
|
|
|
105,310
|
|
|
(22,329)
|
|
|
388,063
|
Management
fee expense (revenue)
|
|
(31,418)
|
|
|
32,516
|
|
|
(1,098)
|
|
|
-
|
|
|
-
|
Depreciation
and amortization
|
|
1,590
|
|
|
68,682
|
|
|
12,065
|
|
|
-
|
|
|
82,337
|
Total
operating expenses
|
|
(3,682)
|
|
|
687,840
|
|
|
180,995
|
|
|
(22,329)
|
|
|
842,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
5,041
|
|
|
87,088
|
|
|
10,904
|
|
|
1,715
|
|
|
104,748
|
Interest
expense, net
|
|
4,229
|
|
|
(56,858)
|
|
|
(10,218)
|
|
|
-
|
|
|
(62,847)
|
Loss
on early extinguishment of debt
|
|
-
|
|
|
(5,251)
|
|
|
-
|
|
|
-
|
|
|
(5,251)
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,493)
|
|
|
(5,493)
|
Equity
in income (loss) of subsidiaries
|
|
20,949
|
|
|
6,492
|
|
|
(18,451)
|
|
|
(8,990)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
30,219
|
|
|
31,471
|
|
|
(17,765)
|
|
|
(12,768)
|
|
|
31,157
|
Income
taxes
|
|
12,181
|
|
|
9,804
|
|
|
(5,860)
|
|
|
-
|
|
|
16,125
|
Income
(loss) from continuing operations
|
|
18,038
|
|
|
21,667
|
|
|
(11,905)
|
|
|
(12,768)
|
|
|
15,032
|
Income
from discontinued operations, net of taxes
|
|
-
|
|
|
5,952
|
|
|
(2,946)
|
|
|
-
|
|
|
3,006
|
Net
income (loss)
|
$
|
18,038
|
|
$
|
27,619
|
|
$
|
(14,851)
|
|
$
|
(12,768)
|
|
$
|
18,038
|
21. Consolidating Condensed Financial Information
(continued)
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
For
the Fiscal Year Ended April 24, 2005
|
Statement
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
$
|
19,556
|
|
$
|
113,237
|
|
$
|
46,082
|
|
$
|
(8,989)
|
|
$
|
169,886
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investing
activities
|
|
(34,102)
|
|
|
(123,823)
|
|
|
(69,330)
|
|
|
13,569
|
|
|
(213,686)
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
34,811
|
|
|
1,138
|
|
|
24,047
|
|
|
(4,580)
|
|
|
55,416
|
Effect
of foreign currency exchange rates on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
and cash equivalents
|
|
-
|
|
|
-
|
|
|
545
|
|
|
-
|
|
|
545
|
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
20,265
|
|
|
(9,448)
|
|
|
1,344
|
|
|
-
|
|
|
12,161
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of the period
|
|
33,323
|
|
|
67,108
|
|
|
34,151
|
|
|
-
|
|
|
134,582
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end
of the period
|
$
|
53,588
|
|
$
|
57,660
|
|
$
|
35,495
|
|
$
|
-
|
|
$
|
146,743
|
21. Consolidating Condensed Financial Information
(continued)
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
For
the Fiscal Year Ended April 25, 2004
|
Statement
of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
$
|
-
|
|
$
|
776,116
|
|
$
|
172,787
|
|
$
|
-
|
|
$
|
948,903
|
Rooms,
food, beverage and other
|
|
1,228
|
|
|
146,249
|
|
|
26,542
|
|
|
-
|
|
|
174,019
|
Gross
Revenues
|
|
1,228
|
|
|
922,365
|
|
|
199,329
|
|
|
-
|
|
|
1,122,922
|
Less
promotional allowances
|
|
-
|
|
|
143,885
|
|
|
39,508
|
|
|
-
|
|
|
183,393
|
Net
revenues
|
|
1,228
|
|
|
778,480
|
|
|
159,821
|
|
|
-
|
|
|
939,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
-
|
|
|
127,912
|
|
|
24,434
|
|
|
-
|
|
|
152,346
|
Gaming
taxes
|
|
-
|
|
|
175,556
|
|
|
33,370
|
|
|
-
|
|
|
208,926
|
Rooms,
food, beverage and other
|
|
26,005
|
|
|
281,904
|
|
|
59,086
|
|
|
-
|
|
|
366,995
|
Management
fee expense (revenue)
|
|
(31,960)
|
|
|
32,464
|
|
|
(504)
|
|
|
-
|
|
|
-
|
Depreciation
and amortization
|
|
1,591
|
|
|
64,931
|
|
|
9,374
|
|
|
-
|
|
|
75,896
|
Total
operating expenses
|
|
(4,364)
|
|
|
682,767
|
|
|
125,760
|
|
|
-
|
|
|
804,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
5,592
|
|
|
95,713
|
|
|
34,061
|
|
|
-
|
|
|
135,366
|
Interest
expense, related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Interest
income, related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Interest
expense, net
|
|
30,143
|
|
|
(89,000)
|
|
|
(11,677)
|
|
|
-
|
|
|
(70,534)
|
Loss
on early extinguishment of debt
|
|
-
|
|
|
(14,116)
|
|
|
-
|
|
|
-
|
|
|
(14,116)
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,072)
|
|
|
(10,072)
|
Dividend
income
|
|
64,493
|
|
|
-
|
|
|
-
|
|
|
(64,493)
|
|
|
-
|
Equity
in income (loss) of subsidiaries
|
|
(61,781)
|
|
|
(19,574)
|
|
|
(451)
|
|
|
81,806
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
38,447
|
|
|
(26,977)
|
|
|
21,933
|
|
|
7,241
|
|
|
40,644
|
Income
taxes
|
|
10,698
|
|
|
2,700
|
|
|
(110)
|
|
|
-
|
|
|
13,288
|
Income
(loss) from continuing operations
|
|
27,749
|
|
|
(29,677)
|
|
|
22,043
|
|
|
7,241
|
|
|
27,356
|
Income
from discontinued operations, net of taxes
|
|
-
|
|
|
(1,025)
|
|
|
1,418
|
|
|
-
|
|
|
393
|
Net
income (loss)
|
$
|
27,749
|
|
$
|
(30,702)
|
|
$
|
23,461
|
|
$
|
7,241
|
|
$
|
27,749
|
21.
Consolidating Condensed Financial Information (continued)
|
|
Isle
of Capri Casinos, Inc. (Parent Obligor)
|
|
|
(a)
Guarantor Subsidiaries
|
|
|
(b)
Non-Guarantor Subsidiaries
|
|
|
Consolidating
and Eliminating Entries
|
|
|
Isle
of Capri Casinos, Inc. Consolidated
|
|
For
the Fiscal Year Ended April 25, 2004
|
Statement
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
$
|
(3,728)
|
|
$
|
131,019
|
|
$
|
32,716
|
|
$
|
13,223
|
|
$
|
173,230
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investing
activities
|
|
(29,856)
|
|
|
(116,720)
|
|
|
(10,533)
|
|
|
(2,009)
|
|
|
(159,118)
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
59,594
|
|
|
(1,407)
|
|
|
(15,991)
|
|
|
(16,352)
|
|
|
25,844
|
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
26,010
|
|
|
12,892
|
|
|
6,192
|
|
|
(5,138)
|
|
|
39,956
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of the period
|
|
7,313
|
|
|
53,268
|
|
|
29,495
|
|
|
4,550
|
|
|
94,626
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end
of the period
|
$
|
33,323
|
|
$
|
66,160
|
|
$
|
35,687
|
|
$
|
(588)
|
|
$
|
134,582
|
(a) The
following subsidiaries of the Company are guarantors of the 7% Senior
Subordinated Notes and the 9% Senior Subordinated Notes: Riverboat Corporation
of Mississippi; Riverboat Corporation of Mississippi-Vicksburg; Riverboat
Services, Inc.; CSNO, L.L.C.; Louisiana Riverboat Gaming Partnership; St.
Charles Gaming Company, Inc.; IOC Holdings, L.L.C.; Grand Palais Riverboat,
Inc.; LRGP Holdings, L.L.C.; P.P.I, Inc.; Isle of Capri Casino Colorado,
Inc.;
IOC-Coahoma, Inc.; IOC-Natchez, Inc.; IOC-Lula, Inc.; IOC-Boonville, Inc.;
IOC-Kansas City, Inc.; Isle of Capri Bettendorf, L.C.; Isle of Capri Marquette,
Inc.; IOC-Davenport, Inc.; LL Holding Corporation; IOC-St. Louis County,
Inc.;
IOC-Black Hawk County, Inc.; IOC-PA, L.L.C.; IOC-City of St. Louis, L.L.C.;
and
IOC-Manufacturing, Inc. Each of the subsidiaries’ guarantees is joint and
several with the guarantees of the other subsidiaries.
(b) The
following subsidiaries are not guarantors of the 7% Senior Subordinated Notes
and the 9% Senior Subordinated Notes: Isle of Capri Black Hawk, L.L.C.; Isle
of
Capri Black Hawk Capital Corp.; IOC Holdings Colorado, Inc.; CCSC/Blackhawk,
Inc.; IOC-Black Hawk Distribution Company, L.L.C.; Blue Chip Casinos, PLC;
Isle
of Capri of Jefferson County, Inc.; Casino Parking, Inc.; Isle of Capri-Bahamas,
Ltd.; ASMI Management, Inc.; IOC Development Company, L.L.C.; Casino America,
Inc.; ICC Corp.; International Marco Polo Services, Inc.; IOC, L.L.C.; Isle
of
Capri of Michigan L.L.C.; Isle of Capri Bettendorf Marina Corp.; Water Street
Redevelopment Corporation; IOC Services, L.L.C.; Louisiana Horizons, L.L.C.;
Capri Air, Inc.; Lady Luck Gaming Corp.; Lady Luck Gulfport, Inc.; Lady Luck
Vicksburg, Inc.; Lady Luck Biloxi, Inc.; Lady Luck Central City, Inc.; Pompano
Park Holdings, L.L.C.; Casino America of Colorado, Inc.; JPLA Pelican, L.L.C.;
IOC-Cameron, L.L.C.; Isle of Capri Casinos Limited, Isle of Capri Casinos
Pittsburgh, Inc. and Capri Insurance Corporation.
22.
Selected Quarterly Financial Information (unaudited)
|
Fiscal
Quarters Ended
|
|
|
July
24,
|
|
|
October
23,
|
|
|
January
22,
|
|
|
April
30,
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
$
|
242,496
|
|
$
|
210,039
|
|
$
|
228,956
|
|
$
|
306,529
|
Operating
income
|
|
24,119
|
|
|
9,491
|
|
|
25,721
|
|
|
42,364
|
Income
(loss) from continuing operations
|
|
3,295
|
|
|
(5,531)
|
|
|
1,956
|
|
|
8,090
|
Net
income (loss)
|
|
3,984
|
|
|
(4,219)
|
|
|
4,133
|
|
|
15,125
|
Earnings
(loss) per common share-basic:
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
0.11
|
|
|
(0.18)
|
|
|
0.07
|
|
|
0.27
|
Net
income (loss)
|
|
0.13
|
|
|
(0.14)
|
|
|
0.14
|
|
|
0.50
|
Earnings
(loss) per common share-diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
0.10
|
|
|
(0.18)
|
|
|
0.06
|
|
|
0.26
|
Net
income (loss)
|
|
0.13
|
|
|
(0.14)
|
|
|
0.13
|
|
|
0.48
|
Weighted
average basic shares
|
|
30,114
|
|
|
30,097
|
|
|
29,951
|
|
|
30,028
|
Weighted
average dilute shares
|
|
31,529
|
|
|
30,097
|
|
|
31,042
|
|
|
31,270
|
|
Fiscal
Quarters Ended
|
|
|
July
25,
|
|
|
October
24,
|
|
|
January
23,
|
|
|
April
24,
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
$
|
235,971
|
|
$
|
227,524
|
|
$
|
227,039
|
|
$
|
257,039
|
Operating
income
|
|
30,539
|
|
|
17,739
|
|
|
22,838
|
|
|
33,632
|
Income
(loss) from continuing operations
|
|
8,368
|
|
|
(995)
|
|
|
2,320
|
|
|
5,339
|
Net
income
|
|
10,609
|
|
|
448
|
|
|
3,530
|
|
|
3,451
|
Earnings
(loss) per common share-basic:
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
0.28
|
|
|
(0.03)
|
|
|
0.08
|
|
|
0.18
|
Net
income
|
|
0.36
|
|
|
0.02
|
|
|
0.12
|
|
|
0.12
|
Earnings
(loss) per common share-diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
0.27
|
|
|
(0.03)
|
|
|
0.07
|
|
|
0.17
|
Net
income
|
|
0.35
|
|
|
0.01
|
|
|
0.11
|
|
|
0.11
|
Weighted
average basic shares
|
|
29,686
|
|
|
29,532
|
|
|
29,675
|
|
|
29,833
|
Weighted
average dilute shares
|
|
30,749
|
|
|
30,542
|
|
|
31,037
|
|
|
31,391
|
Income
from continuing operations in the first quarter of fiscal year 2006 excludes
$0.7 million related to Isle-Vicksburg, Isle-Bossier City, and Colorado
Grande-Cripple Creek, which have all been classified as discontinued operations.
The
second quarter of fiscal 2006 includes $1.2 million in hurricane related
charges, net. Income from continuing operations in the second quarter of fiscal
year 2006 excludes $1.3 million related to Isle-Vicksburg, Isle-Bossier City,
and Colorado Grande-Cripple Creek, each of which have been classified as
discontinued operations.
The
third
quarter of fiscal year 2006 includes a loss on early extinguishment of debt
of
$2.1 million. Income from continuing operations in the third quarter of fiscal
year 2006 excludes $2.2 million related to Isle-Vicksburg, Isle-Bossier City,
and Colorado Grande-Cripple Creek, each of which have been classified as
discontinued operations. Included in income for the third quarter of fiscal
year
2006 is $3.6 million in hurricane related charges, net.
22.
Selected Quarterly Financial Information (unaudited)
Income
from continuing operations in the fourth quarter of fiscal year 2006 excludes
$7.0 million related to Isle-Vicksburg, Isle-Bossier City, and Colorado
Grande-Cripple Creek, which have all been classified as discontinued operations.
Included in income for the fourth quarter of fiscal year 2006 is $13.3 million
in valuation and other charges related primarily to impairment of goodwill
and
fixed assets at Blue Chip casinos in the United Kingdom and the accrual of
a
severance charge and impairment of fixed assets at Isle-Our Lucaya.
Income
from continuing operations in the first quarter of fiscal year 2005 excludes
income of $2.2 million related to Colorado Grande-Cripple Creek, Isle-Vicksburg
and Isle-Bossier City which have all been classified as discontinued operations.
The
second quarter of fiscal year 2005 includes $0.2 million related to other
expenses incurred in preparation for the opening of the Blue Chip-Walsall on
September 23, 2004. Income from continuing operations in the second quarter
of
fiscal year 2005 excludes $1.4 million related to Colorado Grande-Cripple Creek,
Isle-Vicksburg and Isle-Bossier City, which have all been classified as
discontinued operations.
The
third
quarter of fiscal year 2005 includes other charges of $1.6 million related
to
previously capitalized fixed assts for certain projects as a result of current
uncertainties related to gaming legislation in the UK. Income from continuing
operations in the third quarter of fiscal year 2005 excludes $1.2 million
related to Colorado Grande-Cripple Creek, Isle-Vicksburg and Isle-Bossier City,
which have all been classified as discontinued operations.
The
fourth quarter of fiscal year 2005 includes $2.3 million gain on sale of option
related to an option to purchase real estate in St. Louis, Missouri; a reserve
of $2.5 million for the license in Rosemont, Illinois; and a $5.3 million loss
on early extinguishment of debt related to the refinancing of the Company’s
senior secured credit facility on February 4, 2005. Income from continuing
operations in the fourth quarter of fiscal year 2005 excludes a loss of $1.9
million related to Colorado Grande-Cripple Creek, Isle-Vicksburg and
Isle-Bossier City, which have all been classified as discontinued
operations.
23.
Subsequent Events
The
previously announced sale of the Company’s properties in Bossier City, Louisiana
and Vicksburg, Mississippi is expected to close in the second quarter of fiscal
2007, subject to regulatory and other customary closing conditions.
On
June
15, 2006, the Company announced that it received site and development approval
from the Mississippi Gaming Commission in connection with its previously
announced casino resort in west Harrison County, Mississippi, which is
approximately 20 miles from the Mississippi/Louisiana state border near
Interstate 10. Preliminary plans call for the estimated $250-$300 million
project to include a single level gaming facility with over 2,000 gaming
positions, a 500-room hotel, five restaurants and a complement of additional
resort amenities. The project remains in the preliminary planning stages, and
is
subject to certain significant conditions, including but not limited to the
receipt of all necessary licenses, approvals and permits.
23.
Subsequent Events (continued)
As
reported in other notes, in April 2006, the Company’s Board of Directors
approved a plan to close its Our Lucaya facility. Effective June 1, 2006,
the
Company notified its landlord of its decision to terminate the lease and
the
Company intends to cease operations by June 1, 2007 as required by the
lease. The
Company will report these results as continuing operations until a probable
sale
of this facility is reached or operations are ceased, at which time these
results will be reported as discontinued operations.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM
9A. 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.
As
of April 30, 2006 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 have concluded that the design and operation of the
Company’s disclosure controls and procedures were effective as of April 30,
2006.
Changes
in Internal Control Over Financial Reporting
During
the fiscal quarter
and fiscal year ended April 30, 2006, there was no change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal
Control-Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation under the framework in Internal
Control-Integrated Framework,
our
management concluded that our internal control over financial reporting was
effective as of April 30, 2006 to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our management’s assessment of the effectiveness of our internal
control over financial reporting as of April 30, 2006 has been audited by Ernst
& Young LLP, an independent registered public accounting firm, as stated in
their report which is included below, which expresses unqualified opinions
on
management’s assessment and on the effectiveness of our internal control over
financial reporting as of April 30, 2006.
Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting
The
Board of Directors and Stockholders of Isle of Capri Casinos, Inc.
We
have audited management’s
assessment, included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting, that Isle of Capri Casinos, Inc. maintained
effective internal control over financial reporting as of April 30, 2006,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Isle of Capri Casinos, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that
our
audit provides a reasonable basis for our opinion.
A
company’s internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance
of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because
of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our opinion, management’s
assessment that Isle of Capri Casinos, Inc. maintained effective internal
control over financial reporting as of April 30, 2006, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Isle
of
Capri Casinos, Inc. maintained, in all material respects, effective internal
control over financial reporting as of April 30, 2006, based on the
COSO
criteria.
We
also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Isle of Capri Casinos,
Inc.
as of April 30, 2006, and April 24, 2005, and the related consolidated
statements of income, shareholders’ equity, and cash flows for the years ended
April 30, 2006, April 24, 2005, and April 25, 2004, of
Isle
of Capri Casinos, Inc. and our report dated July 7, 2006, expressed an
unqualified opinion thereon.
ERNST
&
YOUNG LLP
New
Orleans, Louisiana
July
7,
2006
ITEM
9B. OTHER INFORMATION
None.
This
item
has been omitted from this report and is incorporated by reference to Isle
of
Capri’s definitive proxy statement to be filed with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year covered
by
this report.
This
item
has been omitted from this report and is incorporated by reference to Isle
of
Capri’s definitive proxy statement to be filed with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year covered
by
this report.
This
item
has been omitted from this report and is incorporated by reference to Isle
of
Capri’s definitive proxy statement to be filed with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year covered
by
this report.
This
item
has been omitted from this report and is incorporated by reference to Isle
of
Capri’s definitive proxy statement to be filed with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year covered
by
this report.
This
item
has been omitted from this report and is incorporated by reference to Isle
of
Capri’s definitive proxy statement to be filed with the U.S. Securities and
Exchange Commission within 120 days after the end of the fiscal year covered
by
this report.
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Documents
Filed as Part of this Report.
1. Financial
Statements.
The
following financial statements and report of independent registered public
accounting firm are included on pages 73 to 120 of this Form 10-K:
Isle
of Capri Casinos, Inc.
Report
of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets - April 30, 2006 and April 24, 2005
Consolidated
Statements of Income - Fiscal Years ended April 30, 2006, April 24, 2005, and
April 25, 2004
Consolidated
Statements of Stockholders’ Equity - Fiscal Years ended
April
30,
2006, April 24, 2005 and April 25, 2004
Consolidated
Statements of Cash Flows - Fiscal Years
ended April 30, 2006,
April
24, 2005 and April 25, 2004
Notes
to
Consolidated Financial Statements
2. Financial
Statements Schedule.
All
schedules are omitted because they are not applicable or not required or because
the required information is included in the Consolidated Financial Statements
or
Notes.
3. Exhibits.
A
list of
the exhibits included as part of this Form 10-K is set forth in the Index to
Exhibits that immediately precedes such exhibits, which is incorporated herein
by reference.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
ISLE
OF CAPRI CASINOS, INC.
Dated:
July 7,
2006 By:
/s/
Bernard Goldstein
Bernard Goldstein, Chairman of the Board,
Chief Executive Officer, and Director
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Dated:
July 7, 2006 /s/
Bernard Goldstein
Bernard
Goldstein, Chairman of the Board,
Chief
Executive Officer and Director
(Principal
Executive Officer)
Dated:
July 7, 2006 /s/
Donn R. Mitchell, II
Donn
R.
Mitchell, II, Senior Vice President and
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
Dated:
July 7, 2006
/s/
Robert S. Goldstein
Robert
S.
Goldstein, Director and Executive Vice
Chairman
Dated:
July 7, 2006
/s/
Alan J. Glazer
Alan
J.
Glazer, Director
Dated:
July 7, 2006
/s/
Emanuel Crystal
Emanuel
Crystal, Director
Dated:
July 7, 2006
/s/
W. Randolph Baker
W.
Randolph Baker, Director
Dated:
July 7, 2006
/s/
Jeffrey D. Goldstein
Jeffrey
D. Goldstein, Director
Dated:
July 7, 2006
/s/
John Brackenbury
John
Brackenbury, Director
Dated:
July 7, 2006 _______________
Shaun
R.
Hayes, Director
INDEX
TO
EXHIBITS
EXHIBIT
NUMBER
DESCRIPTION
3.1A
|
|
|
Certificate
of Incorporation of Casino America, Inc. (1)
|
3.1B
|
|
|
Amendment
to Certificate of Incorporation of Casino America, Inc.
(2)
|
3.2A
|
|
|
By-laws
of Casino America, Inc. (1)
|
3.2B
|
|
|
Amendments
to By-laws of Casino America, Inc., dated February 7, 1997
(3)
|
4.1
|
|
|
Indenture,
dated as of March 3, 2004, among Isle of Capri Casinos, Inc., the
subsidiary guarantors named therein and U.S. Bank National Association,
as
Trustee (4)
|
4.2
|
|
|
Indenture,
dated as of March 27, 2002 among Isle of Capri Casinos, Inc., the
subsidiary guarantors named therein and State Street Bank and Trust
Company, as trustee (5)
|
4.3
|
|
|
Rights
Agreement, dated as of February 7, 1997, between Casino America,
Inc. and
Norwest Bank Minnesota, N.A., as rights agent (6)
|
10.1*
|
|
|
Casino
America, Inc. description of Employee Bonus Plan (7)
|
10.2*
|
|
|
Director’s
Option Plan (8)
|
10.3
|
|
|
Biloxi
Waterfront Project Lease dated as of April 9, 1994 by and between
the City
of Biloxi, Mississippi and Riverboat Corporation of Mississippi
(9)
|
10.4
|
|
|
First
Amendment to Biloxi Waterfront Project Lease (Hotel Lease), dated
as of
April 26, 1995, by and between Riverboat Corporation of Mississippi
(10)
|
10.5
|
|
|
Amended
and Restated Lease, dated as of April 19, 1999, among Port Resources,
Inc.
and CRU, Inc., as landlords and St. Charles Gaming Company, Inc.,
as
tenant (11)
|
10.6*
|
|
|
Amended
Casino America, Inc. 1992 Stock Option Plan (12)
|
10.7*
|
|
|
Amended
Casino America, Inc. 1993 Stock Option Plan (13)
|
10.8
|
|
|
Lease
of property in Coahoma, Mississippi dated as of November 16, 1993
by and
among Roger Allen Johnson, Jr., Charles Bryant Johnson and Magnolia
Lady,
Inc. (5)
|
10.9
|
|
|
Addendum
to Lease dated as of June 22, 1994 by and among Roger Allen Johnson,
Jr.,
Charles Bryant Johnson and Magnolia Lady, Inc. (14)
|
10.10
|
|
|
Second
addendum to Lease dated as of October 17, 1995 by and among Roger
Allen
Johnson, Jr., Charles Bryant Johnson and Magnolia Lady, Inc.
(14)
|
10.11
|
|
|
Amended
and Restated Operating Agreement of Isle of Capri Black Hawk, L.L.C.,
dated as of July 29, 1997, between Casino America of Colorado,
Inc. and
Blackhawk Gold, Ltd. as amended (5)
|
10.12
|
|
|
Development
Agreement dated as of June 17, 1997, between City of Bettendorf,
Lady Luck
Bettendorf, Lady Luck Quad Cities, Inc. and Bettendorf Riverboat
Development, LC (5)
|
10.13
|
|
|
Operator’s
Contract, dated as of December 28, 1989, between Riverboat Development
Authority and the Connelley Group, LP, as amended on February 9,
1990,
March 1, 1990, January 1, 1991, September 30, 1994 and March 1,
1998
(5)
|
10.14*
|
|
|
Isle
of Capri Casinos, Inc. 2000 Long-Term Stock Incentive Plan
(15)
|
10.15*
|
|
|
Isle
of Capri Casinos, Inc. Deferred Bonus Plan
(15)
|
|
|
|
INDEX
TO EXHIBITS
(continued)
|
10.16*
|
|
|
Employment
Agreement dated as of January 1, 2002 between Isle of Capri Casinos,
Inc.
and Allan B. Solomon (5)
|
10.17*
|
|
|
Employment
Agreement dated as of January 1, 2002 between Isle of Capri Casinos,
Inc.
and Timothy M. Hinkley (5)
|
10.18*
|
|
|
Employment
Agreement dated as of January 1, 2002 between Isle of Capri Casinos,
Inc.
and Bernard Goldstein (5)
|
10.19
|
|
|
Third
Amended and Restated Credit Agreement, dated as of February 4,
2005, among
Isle of Capri Casinos, Inc., the lenders listed therein, Canadian
Imperial
Bank of Commerce, as administrative agent and issuing lender, Deutsche
Bank Trust Company Americas and Wells Fargo Bank, N.A., as co-syndication
agents, Calyon New York Branch and the CIT/Group/Equipment Financing,
Inc., as co-documentation agents and CIBC World Markets Corp.,
as lead
arranger (16)
|
10.20*
|
|
|
Isle
of Capri Casinos, Inc.’s 2005 Deferred Compensation Plan
(17)
|
10.21*
|
|
|
Isle
of Capri Casinos, Inc.’s 1995 Deferred Compensation Plan
(17)
|
10.22*
|
|
|
Isle
of Capri Casinos, Inc.’s 2005 Non-employee Director Deferred Compensation
Plan (17)
|
10.23*
|
|
|
Employment
Agreement dated as of January 1, 2005 between Isle of Capri Casinos,
Inc.
and Robert F. Griffin (17)
|
10.24*
|
|
|
Isle
of Capri Casinos, Inc. Master Retirement Plan (18)
|
10.25
|
|
|
Second
Amended and Restated Credit Agreement, dated as of October 24,
2005, by
and among Isle of Capri Black Hawk, L.L.C., Canadian Imperial Bank
of
Commerce, as administrative agent, the credit support parties named
therein and certain other lenders party from time to time thereto
(19)
|
10.26*
|
|
|
Voluntary
Resignation Agreement, dated as of November 14, 2005, by and between
Isle
of Capri Casinos, Inc. and Rexford A. Yeisley (20)
|
10.27*
|
|
|
Employment
Agreement, dated October 7, 2005, between Isle of Capri Casinos,
Inc. and
Robert Goldstein (21)
|
10.28*
|
|
|
Employment
Agreement, dated January 13, 2006 between Isle of Capri Casinos,
Inc. and
Donn R. Mitchell II (22)
|
10.29
|
|
|
Purchase
Agreement, dated February 13, 2006, by and among Legends Gaming,
LLC,
Legends Gaming of Mississippi, LLC, Legends Gaming of Louisiana-1,
LLC,
Legends Gaming of Louisiana-2, LLC, Isle of Capri Casinos, Inc.,
Riverboat
Corporation of Mississippi - Vicksburg, Louisiana Riverboat Gaming
Partnership, CSNO, L.L.C., LRGP Holdings, L.L.C. and IOC Holdings,
L.L.C
(23)
|
10.30*
|
|
|
Consulting
Agreement, dated as of March 23, 2006, by and between John G. Brackenbury
and Isle of Capri Casinos, Inc. (24)
|
10.31
|
|
|
Point
Cadet Compromise and Settlement Agreement, dated August 15, 2002,
by and
between the Secretary of State of the State of Mississippi, the
City of
Biloxi, Mississippi, the Board of Trustees of State Institutions
of Higher
Learning and Isle of Capri Casinos, Inc. and Riverboat Corporation
of
Mississippi.
|
|
|
|
INDEX
TO EXHIBITS (continued)
|
10.32
|
|
|
First
Amendment to Ground Lease, made and entered into effective June
14, 2006,
by and between Family Lands L.P. and IOC Mississippi,
Inc.
|
10.33
|
|
|
Ground
Lease, made and entered into effective May 5, 2006, by and between
Family
Lands L.P. and IOC Mississippi, Inc.
|
12.1
|
|
|
Computation
of ratio of earnings to fixed charges.
|
21.1
|
|
|
Subsidiaries
of Isle of Capri Casinos, Inc.
|
23.1
|
|
|
Consent
of Ernst & Young LLP
|
31.1
|
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a - 14(a) under the
Securities Exchange Act of 1934, filed under Exhibit 31 of Item
601 of
Regulation
S-K.
|
31.2
|
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a - 14(a) under the
Securities Exchange Act of 1934, filed under Exhibit 31 of Item
601 of
Regulation S-K.
|
32.1
|
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350) filed under Exhibit 32 of
Item 601 of
Regulation S-K.
|
32.2
|
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350) filed under Exhibit 32 of
Item 601 of
Regulation S-K.
|
(1)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Registration Statement on Form S-1
filed September 3, 1993, as amended (Reg. No. 33-68434), and incorporated
herein by reference.
|
(2)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Proxy Statement for the fiscal
year ended April 26, 1998 (File No. 0-20538) and incorporated herein
by
reference.
|
(3)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K
for the fiscal year ended April 27, 1997 (File No. 0-20538) and
incorporated herein by reference.
|
(4)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Registration Statement on
Form S-4 filed on May 12, 2004 (File No. 333-115419) and incorporated
herein by reference.
|
(5)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Amendment No. 1 to
Registration Statement on Form S-4 filed on June 19, 2002 (File
No.
333-88802) and incorporated herein by reference.
|
(6)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Current Report on Form 8-K filed
on February 14, 1997 (File No. 0-20538) and incorporated herein
by
reference.
|
(7)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Annual Report on form 10-K for the
fiscal year ended April 30, 1993 (File No. 0-20538) and incorporated
herein by reference.
|
(8)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Registration Statement on Form S-8
filed June 30, 1994 (File No. 33-80918) and incorporated herein
by
reference.
|
(9)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Annual Report on Form 10-K for
fiscal year ended April 30, 1994 (File No. 0-20538) and incorporated
herein by reference.
|
|
|
|
INDEX
TO EXHIBITS
(continued)
|
(10)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Annual Report on Form 10-K for
fiscal year ended April 30, 1995 (File No. 0-20538) and incorporated
herein by reference.
|
(11)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K
for the fiscal year ended April 25, 1999 (File No. 0-20538) and
incorporated herein by reference.
|
(12)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Proxy Statement for the fiscal
year ended April 30, 1996 (File No. 0-20538) and incorporated herein
by
reference.
|
(13)
|
|
|
Filed
as an exhibit to Casino America, Inc.’s Proxy Statement for the fiscal
year ended April 27, 1997 (File No. 0-20538) and incorporated herein
by
reference.
|
(14)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K
for the fiscal year ended April 30, 2000 (File No. 0-20538) and
incorporated herein by reference.
|
(15)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Proxy Statement for the
fiscal year ended April 30, 2000 (File No. 0-20538) and incorporated
herein by reference.
|
(16)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Current Report on Form 8-K
filed on February 10, 2005 (File No. 0-20538) and incorporated
herein by
reference.
|
(17)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Quarterly Report on Form
10-Q for the fiscal quarter ended January 23, 2005 (File No. 0-20538)
and
incorporated herein by reference.
|
(18)
|
|
|
Filed
as an exhibit to Isle of Capri Casinos, Inc.’s Annual Report on Form 10-K
for the fiscal year ended April 24, 2005 (File No. 0-20538) and
incorporated herein by reference
|
(19)
|
|
|
Filed
as an exhibit to Isle of Capri Casino, Inc.’s Current Report on Form 8-K
filed on October 28, 2005 (File No. 0-20538) and incorporated herein
by
reference.
|
(20)
|
|
|
Filed
as an exhibit to Isle of Capri Casino, Inc.’s Current Report on Form 8-K
filed on November 17, 2005 (File No. 0-20538) and incorporated
herein by
reference.
|
(21)
|
|
|
Filed
as an exhibit to Isle of Capri Casino, Inc.’s Current Report on Form 8-K
filed on January 6, 2006 (File No. 0-20538) and incorporated herein
by
reference.
|
(22)
|
|
|
Filed
as an exhibit to Isle of Capri Casino, Inc.’s Current Report on Form 8-K
filed on January 19, 2006 (File No. 0-20538) and incorporated herein
by
reference.
|
(23)
|
|
|
Filed
as an exhibit to Isle of Capri Casino, Inc.’s Current Report on Form 8-K
filed on February 17, 2006 (File No. 0-20538) and incorporated
herein by
reference.
|
(24)
|
|
|
Filed
as an exhibit to Isle of Capri Casino, Inc.’s Current Report on Form 8-K
filed on March 29, 2006 (File No. 0-20538) and incorporated herein
by
reference.
|
*
Management
contract or compensatory plan or arrangement.