FORM 10-Q FOR THE THREE MONTHS ENDED JULY 29, 2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
________________________________________________________
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended July 29, 2007
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from
to
Commission
File Number 0-20538
ISLE
OF CAPRI CASINOS, INC.
|
|
Delaware
|
41-1659606
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
Number)
|
|
|
600
Emerson Road, Suite 300, Saint Louis, Missouri
|
63141
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (314) 813-9200
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
Accelerated
filer x
Non-accelerated filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As
of
September 3, 2007, the Company had a total of 34,813,153 shares of Common Stock
outstanding (which includes 4,302,687 shares
held by us in treasury).
Table
of Contents
ISLE
OF CAPRI CASINOS, INC.
FORM
10-Q
INDEX
|
|
|
|
|
PAGE
|
|
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEETS, JULY 29, 2007 (UNAUDITED) AND APRIL 29, 2007
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 29, 2007
AND JULY
30, 2006 (UNAUDITED)
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED JULY 29, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JULY 29, 2007
AND JULY
30, 2006 (UNAUDITED)
|
|
|
|
|
|
|
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
|
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
|
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
|
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
|
|
|
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
|
|
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
|
|
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
|
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
|
|
|
|
|
|
ITEM
6.
|
EXHIBITS
|
|
|
|
|
|
SIGNATURES
|
|
|
|
|
|
EXHIBITS
|
|
|
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
All
statements other than statements of historical or current facts included in
this
report on Form 10-Q or incorporated by reference herein, including, without
limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of management for
future operations, are “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
generally can be identified by the use of forward-looking terminology such
as
“may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe” or
“continue” or the negative thereof or variations thereon or similar terminology.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations
will
prove to have been correct.
Important
factors that could cause actual results to differ materially from those in
the
forward-looking statements include, but are not limited to:
• the
effect of significant competition from other gaming operations in the markets
in
which we operate;
• the
effects of changes in gaming authority regulations;
• the
effects of changes in gaming taxes;
• the
effects of changes in non-gaming regulations;
• loss
of
key personnel;
• the
impact of inclement weather on our patronage;
• the
timing and amount of collection of insurance receivables;
• the
effects of construction and related disruptions associated with expansion
projects at existing facilities;
• the
effects of increases in energy and fuel prices;
• the
effects of increases in construction costs;
• general
and regional economic conditions;
• the
effects of limitations imposed by our substantial indebtedness
• the
outcome of pending litigation;
• political
conditions and regulatory uncertainties in the U.S. and international venues
in
which we operate or are pursuing development opportunities; and
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.
Our
Internet website is http://www.islecorp.com. We make our filings available
free
of charge on our Internet website as soon as reasonably practical after we
electronically file such reports with, or furnish them to, the SEC.
PART
I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
(In
thousands, except per share data)
|
|
|
|
|
|
ASSETS
|
July
29,
|
|
April
29,
|
|
|
2007
|
|
2007
|
|
|
(Unaudited)
|
|
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
$
|
136,856
|
|
$
|
188,114
|
|
Marketable
securities
|
|
17,840
|
|
|
17,169
|
|
Accounts
receivable, net
|
|
24,689
|
|
|
22,527
|
|
Insurance
receivable, net
|
|
57,487
|
|
|
56,040
|
|
Income
tax receivable
|
|
2,678
|
|
|
-
|
|
Deferred
income taxes
|
|
12,421
|
|
|
12,421
|
|
Prepaid
expenses and other assets
|
|
39,680
|
|
|
24,067
|
|
Total
current assets
|
|
291,651
|
|
|
320,338
|
|
Property
and equipment, net
|
|
1,437,908
|
|
|
1,338,570
|
|
Other
assets:
|
|
|
|
|
|
|
Goodwill
|
|
297,268
|
|
|
297,268
|
|
Other
intangible assets, net
|
|
79,688
|
|
|
74,154
|
|
Deferred
financing costs, net
|
|
19,006
|
|
|
13,644
|
|
Restricted
cash
|
|
2,639
|
|
|
4,637
|
|
Prepaid
deposits and other
|
|
26,579
|
|
|
27,080
|
|
Total
assets
|
$
|
2,154,739
|
|
$
|
2,075,691
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
$
|
9,769
|
|
$
|
7,594
|
|
Accounts
payable
|
|
39,380
|
|
|
60,460
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
Interest
|
|
23,496
|
|
|
10,166
|
|
Payroll
and related
|
|
47,738
|
|
|
48,402
|
|
Property
and other taxes
|
|
27,847
|
|
|
23,380
|
|
Income
taxes
|
|
-
|
|
|
16,011
|
|
Progressive
jackpots and slot club awards
|
|
13,487
|
|
|
12,785
|
|
Other
|
|
76,413
|
|
|
56,943
|
|
Total
current liabilities
|
|
238,130
|
|
|
235,741
|
|
Long-term
debt, less current maturities
|
|
1,487,177
|
|
|
1,410,385
|
|
Deferred
income taxes
|
|
32,348
|
|
|
41,451
|
|
Other
accrued liabilities
|
|
42,200
|
|
|
30,817
|
|
Other
long-term liabilities
|
|
48,591
|
|
|
47,639
|
|
Minority
interest
|
|
28,802
|
|
|
27,836
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 2,000 shares authorized; none
issued
|
|
-
|
|
|
-
|
|
Common
stock, $.01 par value; 45,000 shares authorized; shares
issued:
|
|
|
|
|
|
|
34,720
at July 29, 2007 and 34,682 at April 29, 2007
|
|
347
|
|
|
347
|
|
Class
B common stock, $.01 par value; 3,000 shares authorized; none
issued
|
|
-
|
|
|
-
|
|
Additional
paid-in capital
|
|
176,304
|
|
|
175,132
|
|
Retained
earnings
|
|
148,012
|
|
|
155,127
|
|
Accumulated
other comprehensive income
|
|
4,556
|
|
|
3,358
|
|
|
|
329,219
|
|
|
333,964
|
|
Treasury
stock, 4,303 shares at July 29, 2007 and 4,324 shares at April
29,
2007
|
|
(51,728
|
)
|
|
(52,142
|
)
|
Total
stockholders' equity
|
|
277,491
|
|
|
281,822
|
|
Total
liabilities and stockholders' equity
|
$
|
2,154,739
|
|
$
|
2,075,691
|
|
See
notes
to the unaudited consolidated financial statements.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(In
thousands, except per share data)
|
(Unaudited)
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
July
29,
|
|
July
30,
|
|
|
2007
|
|
2006
|
|
|
|
|
(Restated)
|
|
Revenues:
|
|
|
|
|
Casino
|
$
|
277,234
|
|
$
|
277,620
|
|
Rooms
|
|
13,841
|
|
|
14,651
|
|
Pari-mutuel
commissions and fees
|
|
4,576
|
|
|
4,961
|
|
Food,
beverage and other
|
|
34,068
|
|
|
34,812
|
|
Gross
revenues
|
|
329,719
|
|
|
332,044
|
|
Less
promotional allowances
|
|
51,186
|
|
|
58,076
|
|
Net
revenues
|
|
278,533
|
|
|
273,968
|
|
Operating
expenses:
|
|
|
|
|
|
|
Casino
|
|
38,595
|
|
|
42,231
|
|
Gaming
taxes
|
|
69,072
|
|
|
58,343
|
|
Rooms
|
|
3,181
|
|
|
2,451
|
|
Pari-mutuel
commissions and fees
|
|
3,672
|
|
|
3,826
|
|
Food,
beverage and other
|
|
11,629
|
|
|
9,086
|
|
Marine
and facilities
|
|
16,992
|
|
|
15,472
|
|
Marketing
and administrative
|
|
80,656
|
|
|
86,984
|
|
Preopening
|
|
6,133
|
|
|
249
|
|
Depreciation
and amortization
|
|
30,557
|
|
|
23,986
|
|
Total
operating expenses
|
|
260,487
|
|
|
242,628
|
|
Operating
income
|
|
18,046
|
|
|
31,340
|
|
Interest
expense
|
|
(25,814
|
)
|
|
(20,056
|
)
|
Interest
income
|
|
1,094
|
|
|
569
|
|
Loss
on early extinguishment of debt
|
|
(2,192
|
)
|
|
-
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes and minority
interest
|
|
(8,866
|
)
|
|
11,853
|
|
Income
tax (provision) benefit
|
|
3,678
|
|
|
(5,487
|
)
|
Minority
interest
|
|
(1,927
|
)
|
|
(1,038
|
)
|
Income
(loss) from continuing operations
|
|
(7,115
|
)
|
|
5,328
|
|
Income
from discontinued operations, net of income taxes
|
|
-
|
|
|
3,956
|
|
Net
income (loss)
|
$
|
(7,115
|
)
|
$
|
9,284
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share-basic:
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$
|
(0.23
|
)
|
$
|
0.18
|
|
Income
from discontinued operations, net of income taxes
|
|
-
|
|
|
0.13
|
|
Net
income (loss)
|
$
|
(0.23
|
)
|
$
|
0.31
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share-diluted:
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$
|
(0.23
|
)
|
$
|
0.17
|
|
Income
from discontinued operatons, net of income taxes
|
|
-
|
|
|
0.13
|
|
Net
income (loss)
|
$
|
(0.23
|
)
|
$
|
0.30
|
|
|
|
|
|
|
|
|
Weighted
average basic shares
|
|
30,417
|
|
|
30,422
|
|
Weighted
average diluted shares
|
|
30,417
|
|
|
31,404
|
|
See
notes
to the unaudited consolidated financial statements.
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
(Unaudited)
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accum.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
Shares
of
|
|
|
|
Additional
|
|
|
|
hensive
|
|
|
|
Total
|
|
|
Common
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Income
|
|
Treasury
|
|
Stockholders'
|
|
|
Stock
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
(Loss)
|
|
Stock
|
|
Equity
|
|
Balance,
April 29, 2007
|
|
34,682
|
|
$
|
347
|
|
$
|
175,132
|
|
$
|
155,127
|
|
$
|
3,358
|
|
$
|
(52,142
|
)
|
$
|
281,822
|
|
Net
loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,115
|
)
|
|
-
|
|
|
-
|
|
|
(7,115
|
)
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,198
|
|
|
-
|
|
|
1,198
|
|
Comprehensive
loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,917
|
)
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $64
|
|
38
|
|
|
-
|
|
|
645
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
645
|
|
Issuance
of deferred bonus shares from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
treasury
stock
|
|
-
|
|
|
-
|
|
|
(414
|
)
|
|
-
|
|
|
-
|
|
|
414
|
|
|
-
|
|
Deferred
bonus expense
|
|
-
|
|
|
-
|
|
|
66
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
66
|
|
Stock
compensation expense
|
|
-
|
|
|
-
|
|
|
875
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
875
|
|
Balance,
July 29, 2007
|
|
34,720
|
|
$
|
347
|
|
$
|
176,304
|
|
$
|
148,012
|
|
$
|
4,556
|
|
$
|
(51,728
|
)
|
$
|
277,491
|
|
See
notes
to the unaudited consolidated financial statements
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
(In
thousands)
|
|
Three
Months Ended
|
|
|
July
29,
|
|
July
30,
|
|
|
2007
|
|
2006
|
|
|
|
|
(Restated)
|
|
Operating
activities:
|
|
|
|
|
Net
income (loss)
|
$
|
(7,115
|
)
|
$
|
9,284
|
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
30,557
|
|
|
23,986
|
|
Amortization
of bond discount and deferred financing costs
|
|
655
|
|
|
648
|
|
Loss
on derivative instruments
|
|
226
|
|
|
-
|
|
Asset
impairment
|
|
-
|
|
|
61
|
|
Stock
compensation expense
|
|
875
|
|
|
1,531
|
|
Deferred
compensation expense
|
|
66
|
|
|
-
|
|
Loss
on extinguishment of debt
|
|
2,192
|
|
|
-
|
|
Loss
(gain) on disposal of assets
|
|
38
|
|
|
(451
|
)
|
Minority
interest
|
|
1,927
|
|
|
1,038
|
|
Changes
in operating assets and liabilities, net of dispositions:
|
|
|
|
|
|
|
Accounts
receivable
|
|
(1,978
|
)
|
|
(2,202
|
)
|
Insurance
receivable
|
|
(1,445
|
)
|
|
7,496
|
|
Income
tax receivable (payable)
|
|
(6,577
|
)
|
|
1,846
|
|
Prepaid
expenses and other assets
|
|
(16,262
|
)
|
|
(38,133
|
)
|
Accounts
payable and accrued liabilities
|
|
4,141
|
|
|
(3,428
|
)
|
Net
cash provided by operating activities
|
|
7,300
|
|
|
1,676
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
(85,174
|
)
|
|
(80,763
|
)
|
Purchase
of short-term investments, net of sales
|
|
(671
|
)
|
|
(182
|
)
|
Acquisition
of assets, net of cash acquired
|
|
(43,026
|
)
|
|
-
|
|
Insurance
proceeds for hurricane damages
|
|
-
|
|
|
15,286
|
|
Decrease
in restricted cash
|
|
1,998
|
|
|
-
|
|
Prepaid
deposits and other
|
|
275
|
|
|
(4,426
|
)
|
Payments
received on notes receivable
|
|
-
|
|
|
491
|
|
Net
cash used in investing activities
|
|
(126,598
|
)
|
|
(69,594
|
)
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
Proceeds
from debt
|
|
500,000
|
|
|
(750
|
)
|
Principal
payments on debt
|
|
(294,618
|
)
|
|
-
|
|
Borrowings
on line of credit
|
|
131,967
|
|
|
133,477
|
|
Repayments
on line of credit
|
|
(261,600
|
)
|
|
(88,033
|
)
|
Payment
of deferred financing costs
|
|
(8,378
|
)
|
|
-
|
|
Proceeds
from sale of stock and exercise of stock options
|
|
581
|
|
|
208
|
|
Tax
benefit of exercise of stock options
|
|
64
|
|
|
119
|
|
Net
cash provided by financing activities
|
|
68,016
|
|
|
45,021
|
|
|
|
|
|
|
|
|
Effect
of foreign currency exchange rates on cash
|
|
24
|
|
|
4
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(51,258
|
)
|
|
(22,893
|
)
|
Cash
and cash equivalents at the beginning of period
|
|
188,114
|
|
|
121,049
|
|
Cash
and cash equivalents at the end of the period
|
$
|
136,856
|
|
$
|
98,156
|
|
See
notes
to the unaudited consolidated financial statements
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
|
(Unaudited)
|
(In
thousands)
|
|
|
|
|
|
Three
Months Ended
|
|
July
29,
|
|
July
30,
|
|
2007
|
|
2006
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Net
cash payments for:
|
|
|
|
Interest
(net of capitalized interest)
|
$
|
11,309
|
|
$
|
9,866
|
Income
taxes, net of refunds
|
|
4,610
|
|
|
7,377
|
|
|
|
|
|
|
Supplemental
schedule of noncash investing and financing
activities:
|
|
|
|
|
|
Purchase
of land financed with note payable
|
|
3,125
|
|
|
-
|
See
notes
to the unaudited consolidated financial statement
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Isle
of
Capri Casinos, Inc. and its subsidiaries (the “Company” or “Isle of Capri”) was
incorporated in Delaware in February 1990. The Company is a leading developer,
owner and operator of branded gaming facilities and related lodging and
entertainment facilities in markets throughout the United States and
internationally. The Company wholly owns and operates twelve casino gaming
facilities in the United States located in Lake Charles, Louisiana; Lula,
Biloxi
and Natchez, Mississippi; Kansas City, Caruthersville and Boonville, Missouri;
Bettendorf, Davenport, Waterloo and Marquette, Iowa; and Pompano Beach, Florida.
The Company also owns a 57% interest in and receives management fees for
operating, two gaming facilities in Black Hawk, Colorado. The Company’s
international gaming interests include a wholly owned casino in Freeport,
Grand
Bahama, a two-thirds ownership interest in casinos in Dudley and Wolverhampton,
England and a wholly owned casino in Coventry, England. The Company also
wholly
owns and operates a pari-mutuel harness racing facility in Pompano Beach,
Florida at the site of its Pompano Beach casino facility. The Company views
each
property as an operating segment and all such operating segments have been
aggregated into one reporting segment.
The
Company receives a significant amount of its revenue from patrons within
50
miles of its 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.
Interim
Financial Information
The
accompanying unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”) for interim
financial information and with the instructions to Form 10-Q and Article
10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion
of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included. Operating
results for the three months ended July 29, 2007 are not necessarily indicative
of the results that may be expected for the fiscal year ended April 27,
2008.
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 fiscal
quarter. Periodically, this system necessitates a 53-week year. Fiscal 2008
is a
52 week year which commenced on April 30, 2007 and ends on April 27,
2008.
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 Riverboat Corporation of Mississippi-Vicksburg
in Vicksburg, Mississippi and Louisiana Riverboat Gaming Partnership in Bossier
City, Louisiana. Results of these operations are included in the consolidated
Statements of Operations as discontinued operations and are shown net of
income
tax effects. The financial position and results of these operations for prior
periods are presented as discontinued operations in accordance with Statement
of
Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2.
Summary of Significant Accounting Policies
Adoption
of New Accounting Pronouncements
In
July
2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes”
(FIN No.
48). This interpretation clarified the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with FASB Statement
No. 109, “Accounting
for Income Taxes.”
FIN No.
48 prescribes a recognition threshold and measurement of a tax position taken
or
expected to be taken in a tax return. This interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, and disclosure.
The
Company adopted the provisions of FIN No. 48 on April 30, 2007. The adoption
of
FIN 48 did not have any impact on the Company’s consolidated statement of
operation or stockholders’ equity within the consolidated balance sheet. As of
April 30, 2007, the Company had a total of $24.2 million of unrecognized
tax
benefits. The total amount of these unrecognized tax benefits that, if
recognized, would affect the effective tax rate is $13.8 million. The Company
recognizes accrued interest and penalties related to unrecognized tax benefits
in income tax expense. This policy did not change as a result of the adoption
of
FIN 48. The Company had $3.6 million in interest related to unrecognized
tax
benefits accrued as of April 30, 2007 and no amounts were accrued for penalties.
However, FIN No. 48 did require a reclassification of unrecognized tax benefits
from deferred income taxes to current liabilities and long-term
liabilities. At April 30, 2007, the Company reclassified $12.1 million from
Income taxes payable and $9.1 million from Deferred income taxes to Other
current accrued liabilities ($10.3 million) and Other accrued liabilities
($10.9
million).
As
of
July 29, 2007, the Company’s unrecognized tax benefit did not materially change.
As a result of anticipated amended federal and state tax return filings,
we
expect the amount of unrecognized tax benefits will decrease during 2008
between
$6.1 million and $12.4 million.
The
Company files income tax returns in the U.S. federal jurisdiction, various
state
jurisdictions, and foreign jurisdictions. As of April 30, 2007, the Company
was
no longer subject to examination of its U.S. federal income tax returns filed
for tax years prior to 2003. The IRS is currently examining the Company’s
federal income tax returns for the 2004 and 2005 tax years which relate to
the
Company’s fiscal years ended April 24, 2005 and April 30, 2006, respectively.
The tax returns for subsequent years are also subject to
examination.
The
Company files in numerous state jurisdictions with varying statutes of
limitation. Our unrecognized state tax benefits are related to state tax
returns
open from tax years 2001 through 2006 depending on each state’s statute of
limitation.
New
Pronouncements
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115” (“SFAS 159”) which permits entities to choose to measure
many financial instruments and certain other items at fair value. The Company
would report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. SFAS
159
becomes effective in the first quarter of fiscal 2009. Early adoption is
permitted. The adoption of SFAS 159 could affect the Company’s accounting for
available-for-sale securities held by the Company as investments. The Company
is
currently evaluating the impact, if any, of adopting SFAS No. 159 on its
financial statements, and cannot reasonably estimate the impact at this time.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3.
Restatement of Consolidated Financial Statements
As
previously disclosed in our fiscal 2007 Form 10-K, during fiscal 2007 the
Company identified a series of adjustments that resulted in the restatement
of
our financial statements for the fiscal year ended April 30, 2006 and prior
years, the quarterly results for fiscal 2006, and the first three quarters
of
fiscal 2007. Financial information related to these periods contained in these
consolidated financial statements give effect to this restatement. For further
details see our fiscal 2007 Form 10-K.
In
summary, the restatement adjustments primarily related to: a) the income tax
provision and related income tax liabilities; b) accounting for the lease of
the
Company’s new casino space in Coventry, England in accordance with Emerging
Issue Task Force (“EITF”) 97-10; c) accounting for leases with rent escalation
and rent holiday clauses on a straight-line basis at several properties; d)
correction of accounting errors at the Company’s 66-2/3% owned Blue Chip Casinos
plc subsidiary in England; and e) amortization of certain intangible assets
(primarily related to Lady Luck customer lists, Biloxi berthing rights and
the
Waterloo gaming license). Additionally, as part of the restatement process,
the
Company has made correcting adjustments for other miscellaneous items.
These
adjustments have been reflected in the accompanying consolidated interim
financial statements for the prior year. The Company’s previously reported
consolidated net income for the three months ended July 30, 2006 increased
by $0.04 million to net income of $9.3 million. In addition, as a result of
certain of these adjustments, the Company’s statement of cash flows for the
three months ended July 30, 2006 has been restated. Cash flows provided by
operating activities for the three months ended July 30, 2006 increased by
$15.3 million.
The
following tables summarize the effects of the adjustments on the consolidated
statements of operations and cash flows for the three month period ended July
30, 2006.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3.
Restatement of Consolidated Financial Statements
(continued)
Consolidated
Statement of Operations
Increase/(Decrease)
(in thousands, except per share data)
|
Three
Months Ended
|
|
|
July
30, 2006
|
|
|
As
|
|
|
|
|
|
|
Originally
|
|
|
|
As
|
|
|
Reported
|
|
Adjustment
|
|
Restated
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
Casino
|
$
|
42,270
|
|
$
|
(39
|
)
|
$
|
42,231
|
|
Rooms
|
|
2,454
|
|
|
(3
|
)
|
|
2,451
|
|
Food,
beverage and other
|
|
9,092
|
|
|
(6
|
)
|
|
9,086
|
|
Marine
and facilities
|
|
15,525
|
|
|
(53
|
)
|
|
15,472
|
|
Marketing
and administrative
|
|
87,465
|
|
|
(481
|
)
|
|
86,984
|
|
Depreciation
and amortization
|
|
23,502
|
|
|
484
|
|
|
23,986
|
|
Total
operating expenses
|
|
242,726
|
|
|
(98
|
)
|
|
242,628
|
|
Operating
income
|
|
31,242
|
|
|
98
|
|
|
31,340
|
|
Interest
expense
|
|
(19,870
|
)
|
|
(186
|
)
|
|
(20,056
|
)
|
Interest
income
|
|
762
|
|
|
(193
|
)
|
|
569
|
|
Income
from continuing operations before income taxes and minority
interest
|
|
12,134
|
|
|
(281
|
)
|
|
11,853
|
|
Income
tax provision
|
|
(5,748
|
)
|
|
261
|
|
|
(5,487
|
)
|
Minority
interest
|
|
(1,071
|
)
|
|
33
|
|
|
(1,038
|
)
|
Income
from continuing operations
|
|
5,315
|
|
|
13
|
|
|
5,328
|
|
Income
from discontinued operations, net of income taxes
|
|
3,925
|
|
|
31
|
|
|
3,956
|
|
Net
income
|
|
9,240
|
|
|
44
|
|
|
9,284
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share-basic:
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.17
|
|
$
|
0.01
|
|
$
|
0.18
|
|
Income
from discontinued operations, net of income taxes
|
|
0.13
|
|
|
-
|
|
|
0.13
|
|
Net
income
|
$
|
0.30
|
|
$
|
0.01
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share-diluted:
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
$
|
0.17
|
|
$
|
-
|
|
$
|
0.17
|
|
Income
from discontinued operatons, net of income taxes
|
|
0.12
|
|
|
0.01
|
|
|
0.13
|
|
Net
income
|
$
|
0.29
|
|
$
|
0.01
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares
|
|
30,422
|
|
|
|
|
|
30,422
|
|
Weighted
average diluted shares
|
|
31,404
|
|
|
|
|
|
31,404
|
|
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3.
Restatement of Consolidated Financial Statements
(continued)
Consolidated
Statement of Cash Flows
Increase/(Decrease)
(in thousands)
|
Three
Months Ended
|
|
|
July
30, 2006
|
|
|
As
originally
|
|
|
|
As
|
|
|
reported
|
|
Adjustment
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
9,240
|
|
$
|
44
|
|
$
|
9,284
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
23,502
|
|
|
484
|
|
|
23,986
|
|
Asset
impairment
|
|
-
|
|
|
61
|
|
|
61
|
|
Deferred
income taxes
|
|
1,477
|
|
|
(1,477
|
)
|
|
-
|
|
Stock
compensation expense
|
|
1,950
|
|
|
(419
|
)
|
|
1,531
|
|
Gain
on disposal of assets
|
|
-
|
|
|
(451
|
)
|
|
(451
|
)
|
Minority
interest
|
|
1,071
|
|
|
(33
|
)
|
|
1,038
|
|
Changes
in operating assets and liabilities, net of dispositions:
|
|
|
|
|
|
|
|
|
|
Insurance
receivable
|
|
7,557
|
|
|
(61
|
)
|
|
7,496
|
|
Income
tax receivable
|
|
856
|
|
|
990
|
|
|
1,846
|
|
Prepaid
expenses and other assets
|
|
(22,654
|
)
|
|
(15,479
|
)
|
|
(38,133
|
)
|
Accounts
payable and accrued liabilities
|
|
(4,433
|
)
|
|
1,005
|
|
|
(3,428
|
)
|
Net
cash provided by operating activities
|
|
17,012
|
|
|
(15,336
|
)
|
|
1,676
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
(80,697
|
)
|
|
(66
|
)
|
|
(80,763
|
)
|
Insurance
proceeds for hurricane damages
|
|
-
|
|
|
15,286
|
|
|
15,286
|
|
Prepaid
deposits and other
|
|
(4,686
|
)
|
|
260
|
|
|
(4,426
|
)
|
Net
cash used in investing activities
|
|
(85,074
|
)
|
|
15,480
|
|
|
(69,594
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(23,037
|
)
|
|
144
|
|
|
(22,893
|
)
|
Cash
and cash equivalents at the beginning of period
|
|
121,193
|
|
|
(144
|
)
|
|
121,049
|
|
4. Stock-Based
Compensation
During
the three months ended July 29, 2007, the Company granted 10,000 stock options
with an exercise price and a grant date fair value of $23.71 per share and
$15.38 per share, respectively. These options vest and become exercisable
50%
upon the date of grant and 50% upon the one-year anniversary of the grant
date.
The Company recognizes compensation expense for this grant on a straight-line
basis over the requisite service period for each separately vesting portion
of
the award as if the award was, in substance, multiple awards. During the
three
months ended July 30, 2006, the Company granted 3,999 stock options with
an
exercise price and a grant date fair value of $24.49 per share and $13.65
per
share, respectively. These options were granted as a stock option reload
and
vested and were exercisable upon the date of grant. The Company fully recognized
compensation expense for this grant upon the date of grant.
The
estimated rate of forfeitures for executives increased from 17.7% in fiscal
2007
to 25.5% in fiscal 2008, and for optionees beneath the executive level, it
increased from 31.9% to 42.7% over the same reporting period. The cumulative
impact of these changes in forfeiture estimates decreased expense approximately
$0.5 million during the first quarter of fiscal 2008.
Total
stock option expense included in Marketing and administrative expense in
the
accompanying consolidated statements of operations was $0.9 million and $1.5
million for the three months ended July 29, 2007 and July 30, 2006,
respectively.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5.
Discontinued Operations
On
July 31, 2006, the sale of the Company’s Bossier City and Vicksburg
properties to privately owned Legends Gaming, LLC was completed for $240.0
million cash plus a working capital adjustment of $7.4 million. The Company
received $240.0 million, less transaction fees, at closing and has been paid
$4.9 million of the $7.4 million working capital adjustment as of July 29,
2007.
Net
revenues, pretax income from discontinued operations, income taxes from
discontinued operations and income from discontinued operations, net of tax
are
summarized as follows (in thousands):
|
|
Three
Months
|
|
|
|
Ended
|
|
|
|
July
30,
|
|
|
|
2006
|
|
|
|
(Restated)
|
|
|
Net
revenues
|
$
|
41,403
|
|
|
Pretax
income from discontinued operations
|
|
6,968
|
|
|
Income
taxes from discontinued operations
|
|
3,012
|
|
|
Income
from discontinued operations
|
|
3,956
|
|
Net
interest expense of $3.3 million for the three months ended July 30, 2006 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 in accordance with EITF 87-24,
“Allocation of Interest to Discontinued Operations.”
6.
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 and 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.
The
Company has insurance coverage related to the three hurricanes for property
damage and destruction, business interruption insurance for incremental costs
incurred and business interruption insurance for lost profits. The Company
believes it will receive proceeds from its insurance carriers related to all
three types of losses the Company has sustained.
The
Company has recognized hurricane related charges, net for property impairment
of
$75.9 million in the statements of operations. In addition to the property
impairment, the Company also incurred additional costs directly related to
the
hurricane damage and recovery and the property operating costs related to the
period of closure which are also covered under the insurance policies. The
Company has incurred a total of $86.2 million of incremental costs, consisting
of $62.2 million in fiscal year 2006, $22.6 million in fiscal year 2007 and
$1.5
million in the first quarter of fiscal 2008.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6.
Hurricanes and Related Charges (continued)
As
discussed above, the Company has business interruption insurance for lost
profits. Gains recognized under this coverage are recorded in food, beverage
and
other revenue in the accompanying statements of operations when the Company
receives proof of loss from the insurance carriers. In the third fiscal quarter
of 2007, the Company recorded a gain and insurance receivable of $2.8 million
as
the result of the receipt of a proof of loss under the business
interruption-loss of income coverage related to Hurricane Rita at Lake Charles
and Hurricane Wilma at Pompano Park. This amount was received during the fourth
fiscal quarter of 2007.
As
of
July 29, 2007, the Company has established an insurance receivable of $160.2
million since the inception of the claims. This amount includes the property
impairments recognized, incremental costs incurred and receipt of proof of
loss,
net of the deductible portion of its claims, of $4.8 million, which was expensed
in fiscal 2006 and recorded as hurricane related charges, net on the
consolidated statements of operations.
Also
as
of July 29, 2007, the Company has received advances of $102.7 million related
to
property impairment and incremental costs incurred. The Company believes it
will
ultimately collect more than the $75.9 million related to the property
impairment as the insurance coverage is for replacement value and the insurance
receivable recorded for the property impairment represents the net book value
off the assets at the date of loss. In addition, the Company has not yet
received proof of losses on open claims under the business interruption loss
of
profits coverage related to the claims in Biloxi and Lake Charles. The Company
continues to negotiate with its insurers to settle its claims. The timeline
for
final settlement of the claims is expected to occur within one year.
The
following table shows the activity flowing through the insurance accounts (in
thousands):
|
|
Total
Items Incurred as of
|
|
|
|
July
29,
|
|
April
29,
|
|
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
Property
impairment
|
$
|
75,868
|
|
$
|
75,868
|
|
|
Incremental
costs incurred
|
|
86,244
|
|
|
84,793
|
|
|
Loss
of income*
|
|
2,817
|
|
|
2,817
|
|
|
Hurricane
related charges, net
|
|
(4,776
|
)
|
|
(4,776
|
)
|
|
Insurance
receivable, gross
|
$
|
160,153
|
|
$
|
158,702
|
|
|
Insurance
receipts
|
|
(102,666
|
)
|
|
(102,662
|
)
|
|
Insurance
receivable, net
|
$
|
57,487
|
|
$
|
56,040
|
|
|
|
|
|
|
|
|
|
|
*
Represents business interruption claim for loss of income for which
a
proof of loss has been received.
|
7.
Goodwill and Other Intangible Assets
The
changes in the carrying amount of goodwill and other intangible assets are
as
follows (in thousands):
|
|
Goodwill
|
|
Gaming
Licenses
|
|
Customer
Lists, net
|
|
Trademarks
|
|
Other
Intangibles Assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
29, 2007 balance
|
$
|
297,268
|
|
$
|
61,953
|
|
$
|
-
|
|
$
|
12,201
|
|
$
|
74,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of Caruthersville
|
|
-
|
|
|
4,566
|
|
|
868
|
|
|
100
|
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
29, 2007 balance
|
$
|
297,268
|
|
$
|
66,519
|
|
$
|
868
|
|
$
|
12,301
|
|
$
|
79,688
|
|
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Long-term
debt consists of the following (in thousands):
|
July
29,
|
|
April
29,
|
|
2007
|
|
2007
|
|
|
|
|
7%
Senior Subordinated Notes
|
$
|
500,000
|
|
$
|
500,000
|
9%
Senior Subordinated Notes
|
|
200,000
|
|
|
200,000
|
Senior
Secured Credit Facilities:
|
|
|
|
|
|
February
2005 Credit Facility:
|
|
|
|
|
|
Variable
rate term loan
|
|
-
|
|
|
293,500
|
Revolver
|
|
-
|
|
|
210,000
|
July
2007 Credit Facility:
|
|
|
|
|
|
Variable
rate term loan
|
|
500,000
|
|
|
-
|
Revolver
|
|
80,000
|
|
|
-
|
Isle-Black
Hawk Senior Secured Credit Facility, non-recourse to
|
|
|
|
|
|
Isle
of Capri Casinos, Inc.:
|
|
|
|
|
|
Variable
rate term loan
|
|
186,675
|
|
|
187,150
|
Revolver
|
|
16,400
|
|
|
16,400
|
Isle-Black
Hawk Special Assessment BID Bonds, non-recourse to Isle of Capri
|
|
|
|
|
|
Casinos,
Inc.
|
|
348
|
|
|
348
|
Blue
Chip Credit Facility non-recourse to Isle of Capri Casinos,
Inc.
|
|
6,166
|
|
|
6,157
|
Variable
rate TIF Bonds due to City of Bettendorf
|
|
1,751
|
|
|
1,751
|
Variable
rate General Obligation Bonds due to City of Davenport
|
|
1,335
|
|
|
1,505
|
Other
|
|
4,271
|
|
|
1,168
|
|
|
1,496,946
|
|
|
1,417,979
|
Less
current maturities
|
|
9,769
|
|
|
7,594
|
Long-term
debt
|
$
|
1,487,177
|
|
$
|
1,410,385
|
The
following is a brief description of the Company and its subsidiaries’ borrowing
arrangements.
7%
Senior Subordinated Notes
On
March
3, 2004, the Company issued $500.0 million of 7% Senior Subordinated Notes
due
2014 (“7% Senior Subordinated Notes”). 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 13. The 7% Senior Subordinated Notes are
general unsecured obligations and rank junior to all existing and future senior
indebtedness, equally with all existing and future senior subordinated debt,
including the $200 million in aggregate principal amount of the existing 9%
Senior Subordinated Notes, and senior to any future subordinated indebtedness.
Interest on the 7% Senior Subordinated Notes is payable semi-annually on each
March 1st
and
September 1st
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 1st
of the
years indicated below:
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8.
Long-Term Debt (continued)
7%
Senior Subordinated Notes (continued)
|
Year
|
Percentage
|
|
|
|
|
|
|
|
|
2009
|
|
103.500
|
%
|
|
|
2010
|
|
102.333
|
%
|
|
|
2011
|
|
101.167
|
%
|
|
|
2012
and thereafter
|
|
100.000
|
%
|
|
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 indenture also
limits the Company’s 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 (“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 13. The 9% Senior Subordinated Notes are
general unsecured obligations and rank junior to all existing and future senior
indebtedness, 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 and senior to any future subordinated indebtedness.
Interest on the 9% Senior Subordinated Notes is payable semi-annually on each
March 15th
and
September 15th
through
maturity. 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.
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 a percentage 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 15th
of the
years indicated below.
|
Year
|
Percentage
|
|
|
|
|
|
|
|
|
2007
|
|
104.500
|
%
|
|
|
2008
|
|
103.000
|
%
|
|
|
2009
|
|
101.500
|
%
|
|
|
2010
and thereafter
|
|
100.000
|
%
|
|
Effective
July 30, 2007, the Company called the $200.0 million 9% Senior Subordinated
Notes which were redeemed, in full, on August 29, 2007, at the 104.5% call
price, a premium of 4.5% or $9.0 million.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8.
Long-Term Debt (continued)
Senior
Secured Credit Facilities:
February
2005 Credit Facility
On
February 4, 2005, the Company refinanced its previous senior secured credit
facility. The $700 million new credit facility (the “February 2005 Credit
Facility”) provided 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 principal installments beginning on March 31,
2005 and ending on February 4, 2011 unless extended as described above. The
revolving credit facility bears interest at the Company’s option at (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 bears interest at the Company’s
option at (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 was required to pay a commitment
fee of 0.50% of the unused revolving facility.
The
senior secured credit facility provides for certain covenants, including
financial covenants. 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 a result of the Company’s delay in filing its
original third quarter of fiscal year 2007 Form 10-Q, the Company did not meet
its financial reporting requirements. On March 15, 2007, the Company received
a
limited waiver through June 15, 2007, which was later extended through August
31, 2007, for meeting its financial reporting requirement, as well as waiving
certain financial covenants for the fourth quarter of fiscal year 2007 and
the
first quarter of fiscal year 2008.
July
2007 Credit Facility
On
July
26, 2007, the Company entered into a $1.35 billion senior secured credit
facility (the “July 2007 Credit Facility”), replacing the February 2005 Credit
Facility. The July 2007 Credit Facility is secured on a first priority basis,
subject to certain permitted liens, by substantially all of the Company’s assets
and certain of its subsidiaries. The July 2007 Credit Facility consists of
a
$475.0 million five-year revolving credit facility which matures on July 26,
2012 and a $875.0 million term loan facility which matures on November 25,
2013,
subject to extension at the Company’s option to July 26, 2014 upon the
satisfaction of certain conditions. The $875.0 million term loan facility
consists of a $500.0 million senior secured loan facility which was drawn at
closing; a $200.0 million senior secured delayed draw facility which may be
drawn within 30 days after closing in order to retire the Company’s 9% Senior
Subordinated Notes which were called in accordance with the terms of the related
indenture on July 30, 2007, at a call price of 104.5%, a premium of 4.5% or
$9.0
million; and a $175.0 million senior secured delayed draw facility which can
be
drawn within twelve months after closing, at the Company’s option. The
redemption of the 9% Senior Subordinated Notes and the satisfaction and
discharge of the related indenture was completed on August 29, 2007.
The
July
2007 Credit Facility also provides for up to an aggregate amount of $500.0
million in incremental financing (also referred to as “greenshoe” facilities) of
which $300.0 million may be used for general corporate purposes and $200.0
million may be used, at the Company’s option, solely to refinance the
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8.
Long-Term Debt (continued)
Senior
Secured Credit Facilities: (continued)
Isle-Black
Hawk Credit Facility. All incremental facilities are subject to certain
conditions, including the agreement of existing and/or new lenders to make
the
additional credit extensions thereunder and will be guarantied and secured
on a
pari passu basis with the July 2007 Credit Facility.
The
term
loans are payable in quarterly principal installments beginning on September
30,
2007 and ending on November 25, 2013 unless extended as described above. The
revolving credit facility bears interest at the Company’s option at (1) the
higher of 0.5% in excess of the federal funds effective rate or the rate that
the administrative agent announces from time to time as its prime lending rate
plus an applicable margin of up to 1.25% or (2) a rate tied to a LIBOR rate
plus
an applicable margin of up to 2.25%. The term loan bears interest at the
Company’s option at (1) the higher of 0.5% in excess of the federal funds
effective rate or the rate that the administrative agent 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 0.375% of the unused revolving
facility.
Costs
incurred as part of the July 2007 Credit Facility aggregated to $7.8 million.
In
conjunction with the replacement of the February 2005 Credit Facility with
the
July 2007 Credit Facility, $2.2 million of debt issuance costs were recorded
as
a loss on early extinguishment of debt while the remaining deferred debt
issuance costs will be amortization over the life of the respective lives
of the
revolver and term credit facility. The
weighted average effective interest rate of the February 2005 and July 2007
Credit Facilities for the three month period ended July 29, 2007 was 7.72%.
The
weighted average effective interest rate of the February 2005 Credit Facility
for the three month period ended July 30, 2006 was 7.41%.
As
of July 29, 2007, the Company had letters of credit outstanding under
the July 2007 Credit Facility totaling $29.4 million. As
of July 29, 2007, the net line of credit availability under the July
2007 Credit Facility revolver was $365.6 million, and additional
lines of credit were available under the 30-day and 365-day delayed
draws aggregating $200.0 million and $175.0 million, respectively.
Isle-Black
Hawk Senior Secured Credit Facility
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. On October 24, 2005, Isle
of Capri Black Hawk, L.L.C. entered into a $240.0 million Second Amended and
Restated Credit Agreement (the “Isle-Black Hawk Credit Facility”). 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 principal installments of $0.475 million beginning on
December 30, 2005 through September 30, 2010, and $45.125 million beginning
December 31, 2010 through September 30, 2011. The revolving loans 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 plus an applicable margin up to
1.25%
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 loan bears 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 plus an applicable base rate margin of 1.00%
or
the rate that the lead arranger announces from time to time as its prime lending
rate, plus an applicable base rate 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. The weighted
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8.
Long-Term Debt (continued)
Senior
Secured Credit Facilities: (continued)
average
effective interest rate of total debt
outstanding under the Isle-Black Hawk Credit Facility for the three month period
ended at July 29, 2007 and July 30, 2006 was 7.07% and 6.85%, respectively.
Effective
January 26, 2007, the Company executed a First Amendment to the Second Amended
and Restated Credit Agreement amending certain covenant requirements for the
third and fourth quarters of fiscal year 2007. Effective July 20, 2007, the
Company executed a Second Amendment to the Second Amended and Restated Credit
Agreement to adjust certain financial covenants for the remainder of the term
of
the Isle-Black Hawk Credit Facility. The Isle of Capri Black Hawk, L.L.C. was
in
compliance with all covenants as of July 29, 2007.
As
of July 29, 2007, the Isle of Capri Black Hawk, L.L.C. had no letters
of credit outstanding under the Isle-Black Hawk Credit Facility. As
of July 29, 2007, the net line of credit availability under the
Isle-Black Hawk Credit Facility was $33.6 million.
Interest
Rate Swap Agreements
As
of
July 29, 2007, the Isle of Capri Black Hawk, L.L.C. has interest rate swap
agreements with an aggregate notional value of $40.0 million or 19.7% of its
variable rate term loan outstanding under the Isle-Black Hawk Credit Facility.
The swap agreements effectively convert portions of Isle of Capri Black Hawk,
L.L.C. variable rate debt to a fixed-rate basis until the respective remaining
swap agreements terminate, which occurs during the fourth quarter of fiscal
year
2008. For the fiscal quarters ended July 29, 2007 and July 30, 2006, the Isle
of
Capri Black Hawk, L.L.C. recorded a net valuation loss of $0.2 million and
$0.0 million, respectively in food, beverage and other within the accompanying
consolidated statements of operations related to the change in fair market
value
of the undesignated swap agreements.
The
fair
value of the estimated interest differential between the applicable future
variable rates and the interest rate swap contracts not designated as hedging
instruments, expressed in present value terms, totaled $0.3 million and $0.5
million as of July 29, 2007 and April 29, 2007, respectively. Based on the
maturity dates of the contracts, these amounts are included in Prepaid expenses
and other assets in the accompanying consolidated balance sheets.
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 of Capri Black Hawk, L.L.C. is a
member. The costs of the improvements were $2.2 million, with the excess
proceeds being returned to the bondholders by the BID. Isle of Capri Black
Hawk,
L.L.C. is responsible for 50% of the $2.2 million plus interest, which is
non-recourse to the Isle of Capri Casinos, Inc. In April 2000, the Isle of
Capri
Black Hawk, L.L.C. 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 6.00% and the 6.25% assessed is to cover administrative
costs of the BID related to the issuance.
Blue
Chip Credit Facility
Blue
Chip
Casinos Plc (“Blue Chip”) entered into an agreement effective November 28, 2003,
as amended, on May 24, 2004, with the Bank of Scotland to borrow up to £3.5
million (the “Blue Chip Credit Facility”) to fund its casino development
program. As of July 29, 2007, total outstanding debt aggregated £3.0 million
($6.2 million) which consisted of a £2.3 million ($4.6 million) term loan
facility and a £0.7 million ($1.6 million) outstanding balance under the £0.8
million available revolving loan facility. The term loan is to be repaid in
quarterly principal payments starting in July 2005 and continuing through July
2009. The
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8.
Long-Term Debt (continued)
Blue
Chip Credit Facility (continued)
interest
rate at Blue Chip’s option, is (1) the Bank
of Scotland’s base rate plus a margin of 2.0% or (2) LIBOR plus a margin of
1.75%. As of July 29, 2007, the Bank of Scotland’s base rate was 5.75% and the
variable
margin was 2.00% resulting in an effective interest rate of 7.75%. The Blue
Chip
Credit Facility is non-recourse to the Company.
Blue
Chip
Casinos Plc was in compliance with all covenants as of July 29, 2007.
As of July 29, 2007, Blue Chip Casinos Plc had no letters of credit
outstanding under the Blue Chip Credit Facility, and net line of credit
availability under the Blue Chip Credit Facility was £0.04 million
($0.07 million).
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 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,
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, Bettendorf will pay
the City of Bettendorf $0.25 per person for each person entering the boat until
the remaining balance has been repaid.
Davenport
General Obligation Bonds
In
fiscal
2002, Davenport entered into an agreement with the City of Davenport whereby
the
City of Davenport would construct and own a sky bridge connecting to Davenport’s
facility, allowing safer access across the street and railroad tracks. The
project has been completed by the City of Davenport, at a cost of approximately
$6.4 million, with 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%. Davenport is required
to
make annual payments of principal and interest to the City of Davenport to
retire the bonds.
9.
Other Long-Term Obligations
The
Company entered into an agreement during fiscal year 2004 to lease space for
a
new casino, which opened in July 2007, in Coventry, England in the sub-level
of
the Arena Coventry Convention Center. The convention center was developed,
owned
and operated by a non-affiliated entity and began operations in August 2005.
Due
to certain structural elements installed by the Company during the construction
of the space being leased and certain prepaid lease payments it made, the
Company is required to be treated, for accounting purposes only, as the “owner”
of the Arena Coventry Convention Center, in accordance with Emerging Issues
Task
Force Issue No. 97-10 (“EITF 97-10”), “The Effect of Lessee Involvement in
Asset Construction”. Accordingly, the Company has recorded a long-term
obligation for £23.9 million $48.6 million and £23.8 million $47.6 million as of
July 29, 2007 and April 29, 2007, respectively, even though the
Company does not own this asset, is not the obligor on the corresponding
long-term obligation and does not participate in or control the operations
of
the convention center.
The
other
long-term obligation will be reflected in the accompanying consolidated balance
sheets until completion of the lease term, when the related fixed assets will
be
removed from the Company’s financial statements. At such time, the net of the
remaining obligation and carrying value of the fixed asset will be recognized
as
a gain on sale of the facility.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10.
Accumulated Comprehensive Income
As
a
result of the operations of the Company’s international subsidiaries with
functional currencies other than the U.S. dollar, a resulting currency
translation adjustment is necessary. The assets and liabilities of the Company’s
international subsidiaries are translated using the exchange rate in effect
at
the balance sheet date, with the resulting translation adjustment recognized
as
accumulated other comprehensive income. The net change in accumulated other
comprehensive income was an increase of $1.2 million for the three months ended
July 29, 2007.
The
following table sets forth total comprehensive income for the three months
ended
July 29, 2007 and July 30, 2006 (in thousands).
|
|
July
29,
|
|
July
30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
(Restated)
|
|
|
Net
income (loss)
|
$
|
(7,115
|
)
|
$
|
9,284
|
|
|
Foreign
current translation adjustment
|
|
1,198
|
|
|
740
|
|
|
Total
comprehensive income (loss)
|
$
|
(5,917
|
)
|
$
|
10,024
|
|
11.
Contingencies
Lady
Luck
Gaming Corporation (now a wholly owned subsidiary of the Company) and several
joint venture partners have been defendants in the Greek Civil Court and
the
Greek Administrative Court in similar lawsuits brought by the country of
Greece
through its Minister of Tourism (now Development) and Finance. The actions
allege that the defendants failed to make specified payments in connection
with
the gaming license bid process for Patras, Greece. The payment Lady Luck
is
alleged to have been required to make totals approximately 6.5 million Euros
(which was approximately $8.9 million as of July 29, 2007 based on published
exchange rates). Although it is difficult to determine the damages being
sought
from the lawsuits, 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 Lady Luck’s favor and dismissed the civil lawsuit. Appeals
to both the Athens Civil Appeals Court and the Greek Civil Supreme Court
have
been dismissed. The Greek Civil Supreme Court denied the appeal on the basis
that the Administrative Court is the competent court to hear the matter.
During
October 2005, after the administrative lawsuit had been dismissed by both
the
Athens Administrative Court of First Instance and the Athens Administrative
Court of Appeals on the basis that the Administrative Court did not have
jurisdiction, the Administrative Supreme Court remanded the matter back to
the
Athens Administrative Appeals Court for a hearing on the merits. The Company
is
awaiting a decision following that hearing. The outcome of this matter is
still
in doubt and cannot be predicted with any degree of certainty. The Company
intends to continue a vigorous and appropriate defense to the claims asserted
in
this matter.
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.
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.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12.
Earnings per Share of Common Stock
The
following table sets forth the computation of basic and diluted earnings per
share (in thousands):
|
Three
Months Ended
|
|
July
29,
|
|
July
30,
|
|
2007
|
|
2006
|
Numerator:
|
|
|
(Restated)
|
Income
(loss) applicable to common shares:
|
|
|
|
Income
(loss) from continuing operations
|
$
|
(7,115
|
)
|
$
|
5,328
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
-
|
|
|
3,956
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
(7,115
|
)
|
$
|
9,284
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator
for basic earnings per share -
|
|
|
|
|
|
weighted
- average shares
|
|
30,417
|
|
|
30,422
|
Effect
of dilutive securities
|
|
|
|
|
|
Employee
stock options
|
|
|
|
|
|
and
nonvested restricted stock
|
|
-
|
|
|
982
|
Denominator
for diluted earnings per share -
|
|
|
|
|
|
adjusted
weighted - average shares and
|
|
|
|
|
|
assumed
conversions
|
|
30,417
|
|
|
31,404
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$
|
(0.23
|
)
|
$
|
0.18
|
Income
from discontinued operations
|
|
-
|
|
|
0.13
|
Net
income (loss)
|
$
|
(0.23
|
)
|
$
|
0.31
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
Income
(loss) from continuing operations
|
$
|
(0.23
|
)
|
$
|
0.17
|
Income
from discontinued operations
|
|
-
|
|
|
0.13
|
Net
income (loss)
|
$
|
(0.23
|
)
|
$
|
0.30
|
The
Company computed basic earnings (loss) per share by dividing net income (loss)
by the weighted average number of shares outstanding for the period. The Company
reported a net loss for the three months ended July 29, 2007 and thus reported
no dilutive effect upon the number of shares outstanding for the calculation
of
diluted earnings per share for that time period. For the three months ended
July
30, 2006, diluted earnings per share was determined as net income divided by
the
weighted average number of shares outstanding for the period, after applying
the
treasury method to determine any incremental shares associated with stock
options outstanding. Anti-dilutive stock options were excluded from the
calculation of potential common shares for diluted earnings per share.
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. There were no anti-dilutive shares outstanding for the three
months ended July 30, 2006.
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13.
Consolidating Condensed Financial Information
Certain
of the Company’s subsidiaries have fully and unconditionally guaranteed the
payment of all obligations under the Company’s 9% Senior Subordinated Notes and
7% Senior Subordinated Notes. The following tables present the consolidating
condensed balance sheets as of July 29, 2007 and April 29, 2007, statements
of operations for the three months ended July 29, 2007 and July 30, 2006 and
statements of cash flows for the three months ended July 29, 2007 and July
30,
2006 of the parent company, guarantor subsidiaries and non-guarantor
subsidiaries of the Isle of Capri Casinos, Inc.
ISLE
OF CAPRI CASINOS, INC.
CONSOLIDATED
CONDENSED GUARANTOR SUBSIDIARIES, NON-GUARANTOR
SUBSIDIARIES,
AND
PARENT COMPANY FINANCIAL INFORMATION
AS
OF JULY 29, 2007 AND APRIL 29, 2007;
THE
THREE MONTHS ENDED JULY 29, 2007 AND JULY 30, 2006
UNAUDITED
(IN
THOUSANDS)
|
Isle
of Capri
|
|
|
|
|
|
Consolidating
|
|
|
|
Casinos,
Inc.
|
|
|
|
Non-
|
|
and
|
|
Isle
of Capri
|
|
(Parent
|
|
Guarantor
|
|
Guarantor
|
|
Eliminating
|
|
Casinos,
Inc.
|
|
Obligor)
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
As
of July 29, 2007
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$
|
62,400
|
|
$
|
174,258
|
|
$
|
78,852
|
|
$
|
(23,859
|
)
|
$
|
291,651
|
Intercompany
receivables
|
|
1,262,828
|
|
|
(308,731
|
)
|
|
(6,978
|
)
|
|
(947,119
|
)
|
|
-
|
Investments
in subsidiaries
|
|
273,245
|
|
|
295,188
|
|
|
(34,804
|
)
|
|
(533,629
|
)
|
|
-
|
Property
and equipment, net
|
|
21,640
|
|
|
1,026,381
|
|
|
389,887
|
|
|
-
|
|
|
1,437,908
|
Other
assets
|
|
22,266
|
|
|
372,174
|
|
|
33,741
|
|
|
(3,001
|
)
|
|
425,180
|
Total
assets
|
$
|
1,642,379
|
|
$
|
1,559,270
|
|
$
|
460,698
|
|
$
|
(1,507,608
|
)
|
$
|
2,154,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$
|
80,529
|
|
$
|
112,501
|
|
$
|
73,378
|
|
$
|
(28,278
|
)
|
$
|
238,130
|
Intercompany
payables
|
|
-
|
|
|
796,772
|
|
|
153,087
|
|
|
(949,859
|
)
|
|
-
|
Long-term
debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less
current maturities
|
|
1,276,946
|
|
|
5,965
|
|
|
204,266
|
|
|
-
|
|
|
1,487,177
|
Other
accrued liabilities
|
|
7,061
|
|
|
75,892
|
|
|
40,186
|
|
|
-
|
|
|
123,139
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,802
|
|
|
28,802
|
Stockholders'
equity
|
|
277,843
|
|
|
568,140
|
|
|
(10,219
|
)
|
|
(558,273
|
)
|
|
277,491
|
Total
liabilities and stockholders' equity
|
$
|
1,642,379
|
|
$
|
1,559,270
|
|
$
|
460,698
|
|
$
|
(1,507,608
|
)
|
$
|
2,154,739
|
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13.
Consolidating Condensed Financial Information (continued)
|
Isle
of Capri
|
|
|
|
|
|
Consolidating
|
|
|
|
|
Casinos,
Inc.
|
|
|
|
Non-
|
|
and
|
|
Isle
of Capri
|
|
|
(Parent
|
|
Guarantor
|
|
Guarantor
|
|
Eliminating
|
|
Casinos,
Inc.
|
|
|
Obligor)
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
|
For
the Three Months Ended July 29, 2007
|
|
Statement
of Operations
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Casino
|
$
|
-
|
|
$
|
228,817
|
|
$
|
48,417
|
|
$
|
-
|
|
$
|
277,234
|
|
Rooms,
food, beverage and other
|
|
31
|
|
|
44,682
|
|
|
11,002
|
|
|
(3,230
|
)
|
|
52,485
|
|
Gross
revenues
|
|
31
|
|
|
273,499
|
|
|
59,419
|
|
|
(3,230
|
)
|
|
329,719
|
|
Less
promotional allowances
|
|
-
|
|
|
40,937
|
|
|
10,249
|
|
|
-
|
|
|
51,186
|
|
Net
revenues
|
|
31
|
|
|
232,562
|
|
|
49,170
|
|
|
(3,230
|
)
|
|
278,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
(766
|
)
|
|
31,493
|
|
|
7,868
|
|
|
-
|
|
|
38,595
|
|
Gaming
taxes
|
|
-
|
|
|
60,292
|
|
|
8,780
|
|
|
-
|
|
|
69,072
|
|
Rooms,
food, beverage and other
|
|
11,949
|
|
|
90,958
|
|
|
22,670
|
|
|
(3,315
|
)
|
|
122,262
|
|
Management
fee expense (revenue)
|
|
(8,417
|
)
|
|
8,366
|
|
|
51
|
|
|
-
|
|
|
-
|
|
Depreciation
and amortization
|
|
805
|
|
|
24,709
|
|
|
5,044
|
|
|
-
|
|
|
30,558
|
|
Total
operating expenses
|
|
3,571
|
|
|
215,818
|
|
|
44,413
|
|
|
(3,315
|
)
|
|
260,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
(3,540
|
)
|
|
16,744
|
|
|
4,757
|
|
|
85
|
|
|
18,046
|
|
Interest
expense, net
|
|
(8,181
|
)
|
|
(11,401
|
)
|
|
(5,138
|
)
|
|
-
|
|
|
(24,720
|
)
|
Loss
on extinguishment of debt
|
|
(2,192
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,192
|
)
|
Equity
in income (loss) of subsidiaries
|
|
1,026
|
|
|
5,332
|
|
|
(1,075
|
)
|
|
(5,283
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and minority interest
|
|
(12,887
|
)
|
|
10,675
|
|
|
(1,456
|
)
|
|
(5,198
|
)
|
|
(8,866
|
)
|
Income
tax (provision) benefit
|
|
5,772
|
|
|
(2,217
|
)
|
|
123
|
|
|
-
|
|
|
3,678
|
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,927
|
)
|
|
(1,927
|
)
|
Net
income (loss)
|
$
|
(7,115
|
)
|
$
|
8,458
|
|
$
|
(1,333
|
)
|
$
|
(7,125
|
)
|
$
|
(7,115
|
)
|
|
Isle
of Capri
|
|
|
|
|
|
Consolidating
|
|
|
|
|
Casinos,
Inc.
|
|
|
|
Non-
|
|
and
|
|
Isle
of Capri
|
|
|
(Parent
|
|
Guarantor
|
|
Guarantor
|
|
Eliminating
|
|
Casinos,
Inc.
|
|
|
Obligor)
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
|
For
the Three Months Ended July 29, 2007
|
|
Statement
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
$
|
4,424
|
|
$
|
1,325
|
|
$
|
8,439
|
|
$
|
(6,888
|
)
|
$
|
7,300
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investing
activities
|
|
(934
|
)
|
|
(104,974
|
)
|
|
(20,690
|
)
|
|
-
|
|
|
(126,598
|
)
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
(58,633
|
)
|
|
105,352
|
|
|
14,409
|
|
|
6,888
|
|
|
68,016
|
|
Effect
of foreign currency exchange rates on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
and cash equivalents
|
|
-
|
|
|
-
|
|
|
24
|
|
|
-
|
|
|
24
|
|
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
(55,143
|
)
|
|
1,703
|
|
|
2,182
|
|
|
-
|
|
|
(51,258
|
)
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of the period
|
|
82,895
|
|
|
70,638
|
|
|
34,581
|
|
|
-
|
|
|
188,114
|
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end
of the period
|
$
|
27,752
|
|
$
|
72,341
|
|
$
|
36,763
|
|
$
|
-
|
|
$
|
136,856
|
|
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13.
Consolidating Condensed Financial Information (continued)
|
Isle
of Capri
|
|
|
|
|
|
Consolidating
|
|
|
|
Casinos,
Inc.
|
|
|
|
Non-
|
|
and
|
|
Isle
of Capri
|
|
(Parent
|
|
Guarantor
|
|
Guarantor
|
|
Eliminating
|
|
Casinos,
Inc.
|
|
Obligor)
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
As
of April 29, 2007
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
Current
assets
|
$
|
110,189
|
|
$
|
152,937
|
|
$
|
70,420
|
|
$
|
(13,208
|
)
|
$
|
320,338
|
Intercompany
receivables
|
|
1,130,006
|
|
|
(455,871
|
)
|
|
8,262
|
|
|
(682,397
|
)
|
|
-
|
Investments
in subsidiaries
|
|
273,493
|
|
|
289,857
|
|
|
(33,730
|
)
|
|
(529,620
|
)
|
|
-
|
Property
and equipment, net
|
|
19,644
|
|
|
946,127
|
|
|
372,799
|
|
|
-
|
|
|
1,338,570
|
Other
assets
|
|
19,248
|
|
|
366,889
|
|
|
36,446
|
|
|
(5,800
|
)
|
|
416,783
|
Total
assets
|
$
|
1,552,580
|
|
$
|
1,299,939
|
|
$
|
454,197
|
|
$
|
(1,231,025
|
)
|
$
|
2,075,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
$
|
61,274
|
|
$
|
122,089
|
|
$
|
60,889
|
|
$
|
(8,511
|
)
|
$
|
235,741
|
Intercompany
payables
|
|
-
|
|
|
539,023
|
|
|
151,017
|
|
|
(690,040
|
)
|
|
-
|
Long-term
debt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less
current maturities
|
|
1,200,500
|
|
|
3,495
|
|
|
206,390
|
|
|
-
|
|
|
1,410,385
|
Other
accrued liabilities, deferred taxes and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
long-term
obligations
|
|
5,122
|
|
|
75,791
|
|
|
38,994
|
|
|
-
|
|
|
119,907
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,836
|
|
|
27,836
|
Stockholders'
equity
|
|
285,684
|
|
|
559,541
|
|
|
(3,093
|
)
|
|
(560,310
|
)
|
|
281,822
|
Total
liabilities and stockholders' equity
|
$
|
1,552,580
|
|
$
|
1,299,939
|
|
$
|
454,197
|
|
$
|
(1,231,025
|
)
|
$
|
2,075,691
|
|
Isle
of Capri
|
|
|
|
|
|
Consolidating
|
|
|
|
|
Casinos,
Inc.
|
|
|
|
Non-
|
|
and
|
|
Isle
of Capri
|
|
|
(Parent
|
|
Guarantor
|
|
Guarantor
|
|
Eliminating
|
|
Casinos,
Inc.
|
|
|
Obligor)
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
|
For
the Three Months Ended July 30, 2006
|
|
|
(Restated)
|
|
Statement
of Operations
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Casino
|
$
|
-
|
|
$
|
228,445
|
|
$
|
49,175
|
|
$
|
-
|
|
$
|
277,620
|
|
Rooms,
food, beverage and other
|
|
(46
|
)
|
|
45,534
|
|
|
12,510
|
|
|
(3,574
|
)
|
|
54,424
|
|
Gross
revenues
|
|
(46
|
)
|
|
273,979
|
|
|
61,685
|
|
|
(3,574
|
)
|
|
332,044
|
|
Less
promotional allowances
|
|
-
|
|
|
47,001
|
|
|
11,075
|
|
|
-
|
|
|
58,076
|
|
Net
revenues
|
|
(46
|
)
|
|
226,978
|
|
|
50,610
|
|
|
(3,574
|
)
|
|
273,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino
|
|
201
|
|
|
34,107
|
|
|
7,923
|
|
|
-
|
|
|
42,231
|
|
Gaming
taxes
|
|
-
|
|
|
48,886
|
|
|
9,457
|
|
|
-
|
|
|
58,343
|
|
Rooms,
food, beverage and other
|
|
11,283
|
|
|
81,602
|
|
|
29,159
|
|
|
(3,976
|
)
|
|
118,068
|
|
Management
fee expense (revenue)
|
|
(9,741
|
)
|
|
9,849
|
|
|
(108
|
)
|
|
-
|
|
|
-
|
|
Depreciation
and amortization
|
|
447
|
|
|
18,855
|
|
|
4,684
|
|
|
-
|
|
|
23,986
|
|
Total
operating expenses
|
|
2,190
|
|
|
193,299
|
|
|
51,115
|
|
|
(3,976
|
)
|
|
242,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
(2,236
|
)
|
|
33,679
|
|
|
(505
|
)
|
|
402
|
|
|
31,340
|
|
Interest
expense, net
|
|
(4,949
|
)
|
|
(9,503
|
)
|
|
(5,035
|
)
|
|
-
|
|
|
(19,487
|
)
|
Equity
in income (loss) of subsidiaries
|
|
13,143
|
|
|
2,947
|
|
|
(2,901
|
)
|
|
(13,189
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
income taxes and minority interest
|
|
5,958
|
|
|
27,123
|
|
|
(8,441
|
)
|
|
(12,787
|
)
|
|
11,853
|
|
Income
tax (provision) benefit
|
|
3,326
|
|
|
(11,192
|
)
|
|
2,379
|
|
|
-
|
|
|
(5,487
|
)
|
Minority
interest
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,038
|
)
|
|
(1,038
|
)
|
Income
(loss) from continuing operations
|
|
9,284
|
|
|
15,931
|
|
|
(6,062
|
)
|
|
(13,825
|
)
|
|
5,328
|
|
Income
from discontinued operations, net of taxes
|
|
-
|
|
|
3,956
|
|
|
-
|
|
|
-
|
|
|
3,956
|
|
Net
income (loss)
|
$
|
9,284
|
|
$
|
19,887
|
|
$
|
(6,062
|
)
|
$
|
(13,825
|
)
|
$
|
9,284
|
|
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13.
Consolidating Condensed Financial Information (continued)
|
Isle
of Capri
|
|
|
|
|
|
Consolidating
|
|
|
|
|
Casinos,
Inc.
|
|
|
|
Non-
|
|
and
|
|
Isle
of Capri
|
|
|
(Parent
|
|
Guarantor
|
|
Guarantor
|
|
Eliminating
|
|
Casinos,
Inc.
|
|
|
Obligor)
|
|
Subsidiaries
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
|
For
the Three Months Ended July 30, 2006
|
|
|
(Restated)
|
|
Statement
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
$
|
21,292
|
|
$
|
9,659
|
|
$
|
(2,313
|
)
|
$
|
(26,962
|
)
|
$
|
1,676
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investing
activities
|
|
(5,713
|
)
|
|
(57,506
|
)
|
|
(7,169
|
)
|
|
794
|
|
|
(69,594
|
)
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
(45,074
|
)
|
|
52,657
|
|
|
11,270
|
|
|
26,168
|
|
|
45,021
|
|
Effect
of foreign currency exchange rates on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
and cash equivalents
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
4
|
|
Net
increase (decrease) in cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
(29,495
|
)
|
|
4,810
|
|
|
1,792
|
|
|
-
|
|
|
(22,893
|
)
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of the period
|
|
29,187
|
|
|
67,494
|
|
|
24,368
|
|
|
-
|
|
|
121,049
|
|
Cash
and cash equivalents at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
end
of the period
|
$
|
(308
|
)
|
$
|
72,304
|
|
$
|
26,160
|
|
$
|
-
|
|
$
|
98,156
|
|
(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 Services, Inc.; CSNO, L.L.C.;
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.; IOC-Manufacturing,
Inc.;
and Riverboat Corporation of Mississippi - Vicksburg. 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.; IC 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.; International
Marco
Polo Services, Inc.; Isle of Capri of Michigan L.L.C.; Isle of
Capri
Bettendorf Marina Corp.; IOC Services, 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.; The Isle of Capri Casinos Limited, IOC Pittsburgh,
Inc. and Capri Insurance
Corporation.
|
ISLE
OF CAPRI CASINOS, INC.
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14.
Business Combination
On
June
10, 2007, the Company acquired 100% of the membership interests of Atzar
Missouri Riverboat Gaming Company, L.L.C., a Missouri limited liability company.
Atzar Missouri Riverboat Gaming Company, L.L.C. is located in southeast Missouri
and employs approximately 300 team members. The purchase price was approximately
$46.0 million subject to finalization of certain adjustments in accordance
with
the Purchase Agreement dated March 16, 2007. The Company is finalizing the
asset
valuation and certain closing date adjustments with the seller. Therefore,
the
allocation of the purchase price and the valuation of the assets and liabilities
is preliminary as of July 29, 2007. Any adjustments are not expected to be
material. The estimated fair value of long-term assets acquired and liabilities
assumed at the acquisition date was $45.2 million, of which $39.7 million relate
to fixed assets and $5.5 million relate to intangible assets.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, Florida, Coventry, England and Freeport, Grand Bahama.
We also operate a harness racing track in Florida at the same location that
we
operate a casino. Additionally, we have a controlling interest in and manage
casinos in Dudley and Wolverhampton, England.
The
following table reflects our consolidated net revenues and operating income
by
state:
ISLE
OF CAPRI CASINOS, INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
July
29,
|
|
July
30,
|
|
Variance
|
|
Variance
|
|
2007
|
|
2006
|
|
$ |
|
%
|
|
|
|
(Restated)
|
|
|
|
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
Mississippi
|
$
|
55,923
|
|
$
|
85,383
|
|
$
|
(29,460
|
)
|
|
(34.5
|
%)
|
Louisiana
|
|
43,001
|
|
|
44,667
|
|
|
(1,666
|
)
|
|
(3.7
|
%)
|
Missouri
|
|
44,756
|
|
|
40,831
|
|
|
3,925
|
|
|
9.6
|
%
|
Iowa
|
|
54,667
|
|
|
50,514
|
|
|
4,153
|
|
|
8.2
|
%
|
Colorado
|
|
39,215
|
|
|
39,615
|
|
|
(400
|
)
|
|
(1.0
|
%)
|
Florida
|
|
34,197
|
|
|
5,832
|
|
|
28,365
|
|
|
486.4
|
%
|
International
|
|
6,709
|
|
|
7,109
|
|
|
(400
|
)
|
|
(5.6
|
%)
|
Corporate
and other
|
|
65
|
|
|
17
|
|
|
48
|
|
|
282.4
|
%
|
Total
net revenues
|
$
|
278,533
|
|
$
|
273,968
|
|
$
|
4,565
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mississippi
|
$
|
6,164
|
|
$
|
23,842
|
|
$
|
(17,678
|
)
|
|
(74.1
|
%)
|
Louisiana
|
|
6,671
|
|
|
6,028
|
|
|
643
|
|
|
10.7
|
%
|
Missouri
|
|
8,626
|
|
|
5,056
|
|
|
3,570
|
|
|
70.6
|
%
|
Iowa
|
|
8,164
|
|
|
9,922
|
|
|
(1,758
|
)
|
|
(17.7
|
%)
|
Colorado
|
|
9,904
|
|
|
7,132
|
|
|
2,772
|
|
|
38.9
|
%
|
Florida
|
|
(4,454
|
)
|
|
(1,369
|
)
|
|
(3,085
|
)
|
|
(225.3
|
%)
|
International
|
|
(5,108
|
)
|
|
(3,672
|
)
|
|
(1,436
|
)
|
|
(39.1
|
%)
|
Corporate
and other
|
|
(11,921
|
)
|
|
(15,599
|
)
|
|
3,678
|
|
|
23.6
|
%
|
Operating
income
|
$
|
18,046
|
|
$
|
31,340
|
|
$
|
(13,294
|
)
|
|
(42.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
The table excludes our Vicksburg and Bossier City properties which
have
been classified
as discontinued operations. Additionally, results in fiscal year
2008 will
not be
|
comparable
to results in fiscal year 2007 for Missouri, Iowa, International,
and
Corporate and
other due to the opening or reclassification of properties in each
category
|
in
fiscal year 2008.
|
In
Mississippi, our three continuing operations contributed 20.1% of net revenues.
The Biloxi property’s net revenues and operating income decreased significantly
from abnormally high prior year operating results due to increased competition
in the market as competitors have re-opened after closures caused by Hurricane
Katrina and while our Biloxi property remains negatively impacted by the
destruction of the Biloxi/Ocean Springs bridge, which is the primary
thoroughfare for travelers from Alabama and Florida to east Biloxi where our
Biloxi property is located. Two lanes of the new Biloxi/Ocean Springs bridge
are
scheduled
to open in November 2007 and the complete new bridge with six lanes is scheduled
to open in June 2008. The Natchez property continues to experience decreases
in
both net revenues and operating income primarily resulting from the re-opening
of casinos along the Gulf Coast. The Lula property’s net revenues and operating
income decreased due to increased competition impacting certain of the
property’s outlying feeder markets and disruption due to renovations of the
casino floor.
In
Louisiana, the Lake Charles property contributed 15.4% of net revenues. The
Lake
Charles property experienced a decrease in net revenues due to increased
competition in the market as competitors have fully re-opened following closures
caused by Hurricane Rita and post hurricane normalization of population levels
in the property’s feeder markets. Operating income increased, however, due
primarily to decreased marketing expenses and overall cost control
efforts.
In
Missouri, our three properties contributed 16.1% of net revenues. Net revenues
increased due to the addition of the Caruthersville property on June 11, 2007
while revenues at our other Missouri properties decreased slightly. Operating
income increased in the first quarter of fiscal 2008 due to the addition of
the
Caruthersville property as well as increases at our other Missouri properties
related to decreased marketing expenses and overall cost control
efforts.
In
Iowa,
our four casinos contributed 19.6% of net revenues. Net revenues and operating
income increased primarily due to the opening of the Waterloo property on June
30, 2007. Combined net revenues decreased moderately at our Quad-City and
Marquette properties due primarily to the impact of increased competition.
However, combined operating income for these properties decreased only slightly
due to cost control efforts.
In
Colorado, our two casino operations contributed 14.1% of net revenues. The
Black
Hawk properties experienced a decrease in net revenues compared to the prior
year period primarily due to a planned reduction in complimentary rooms and
food
and beverage. Operating income increased at both Black Hawk properties due
to
decreases in marketing expenses and overall cost control efforts.
In
Florida, the Pompano property contributed 12.3% of net revenues. Net revenues
and operating income increased due to the opening of the slot gaming facility
on
April 14, 2007.
In
International operations, net revenues decreased primarily due to decreased
marketing at Lucaya slightly offset by the opening of the Coventry property
in
July. Operating income decreased $1.4 million primarily due to the opening
of
Coventry.
Corporate
and other includes our corporate office operations and new development costs.
The decrease in corporate and other compared to the first quarter of fiscal
2007
is primarily due to a $3.2 million decrease in new developments costs, primarily
due to costs incurred in the prior year fiscal quarter related to the pursuit
of
gaming licenses in Pittsburgh, Pennsylvania and Singapore.
Operating
results from the Vicksburg and Bossier City properties have been classified
as
discontinued operations for all periods presented and thus are not included
in
the Executive Review discussed above.
Critical
Accounting Estimates
Income
Tax Assets and Liabilities
We
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109
requires that we recognize a current tax asset or liability for the estimated
taxes payable or refundable based upon application of the enacted tax rates
to
taxable income in the current year. Additionally, we are required to recognize
a
deferred tax liability or asset for the estimated future tax effects
attributable to temporary differences. Temporary differences occur when
differences arise between: (a) the amount of taxable income and pretax
financial income for a year and (b) the tax basis of assets or liabilities
and their reported amounts in financial statements. SFAS 109 also requires
that
any deferred tax asset recognized must be reduced by a valuation allowance
for
any tax benefits that, in our judgment and based upon available evidence, may
not be realizable.
As
of
April 30, 2007, we adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 requires that tax positions be assessed using a two-step process.
A
tax position is recognized if it meets a “more likely than not” threshold, and
is measured at the largest amount of benefit that is greater than 50 percent
likely of being realized. Uncertain tax positions must be reviewed at each
balance sheet date. Liabilities recorded as a result of this analysis must
generally be recorded separately from any current or deferred income tax
accounts, and are classified as current Other accrued liabilities or long-term
Other long-term liabilities based on the time until expected payment.
We
recognize accrued interest and penalties related to unrecognized tax benefits
in
income tax expense. This policy did not change as a result of the adoption
of
FIN 48.
Stock
Based Compensation
We
apply
the FASB Statement of Financial Accounting Standards No. 123 (revised
2004), “Share-Based Payment” (SFAS 123(R)). The estimate of the fair value of
the stock options is calculated using the Black-Scholes-Merton option-pricing
model. This model requires the use of various assumptions, including the
historical volatility, the risk free interest rate, estimated expected life
of
the grants, the estimated dividend yield and estimated rate of forfeitures.
As
of July 29, 2007, there was $6.3 million in unrecognized stock compensation
costs that we will expense over the remaining vesting period, approximately
5.0
years with a weighted average period of 3.1 years.
The
estimated rate of forfeitures for executives increased from 17.7% in fiscal
2007
to 25.5% in fiscal 2008, and for optionees beneath the executive level, it
increased from 31.9% to 42.7% over the same reporting period. The cumulative
impact of these changes in forfeiture estimates decreased expense approximately
$0.5 million during the fiscal quarter ended July 29, 2007.
Results
of Operations
Our
results of operations for the fiscal quarter ended July 29, 2007 reflect the
consolidated operations of all of our subsidiaries and include the following
properties: Lake Charles, Biloxi, Lula, Natchez, Kansas City, Boonville,
Caruthersville, Bettendorf, Marquette, Rhythm City-Davenport, Waterloo,
Isle-Black Hawk, Colorado Central Station-Black Hawk, Our Lucaya, Pompano Park,
Coventry, Blue Chip-Dudley and Blue Chip-Wolverhampton. For the fiscal quarter
ended July 30, 2006 results reflect Vicksburg and Bossier City 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 also believe that our operating results are materially
affected by declines in the economy and adverse weather.
Three
Fiscal Months Ended July 29, 2007 Compared to Three Fiscal Months Ended July
30,
2006
Gross
revenues for the fiscal quarter ended July 29, 2007 were $329.7 million, which
included $277.2 million of casino revenue, $13.8 million of room revenue, $4.6
million of pari-mutuel commissions, and $34.1 million of food, beverage and
other revenue. This compares to gross revenues for the fiscal quarter ended
July
30, 2006 of $332.0 million, which included $277.6 million of casino revenue,
$14.7 million of room revenue, $5.0 million of pari-mutuel commissions and
$34.8
million of food, beverage and other revenue.
Casino
revenue decreased by $0.4 million, or 0.1%, compared to the fiscal quarter
ended
July 30, 2006. We experienced a significant decrease of $28.0 million in our
revenues from the Biloxi property principally because of limited competition
due
to hurricane closures in the prior year. This decrease in revenues was offset
by
an increase of $26.6 million in casino revenue at the Pompano property, which
opened a slot gaming facility in April 2007. Casino revenue at the Natchez
property was down $1.5 million primarily due to the reopening of Gulf Coast
casinos. The Lula property experienced a decrease of $1.6 million in casino
revenue primarily due to increased competition impacting certain of the
property’s outlying feeder markets, and disruption due to renovations of the
casino floor. Casino revenue at our two Quad-City properties and the Marquette
property was collectively down $4.0 million over the same fiscal quarter of
the
prior year largely due to increased competition, however this decrease was
offset by a $7.6 million increase related to the Waterloo property, which opened
in July 2007. Casino revenue at the Kansas City property decreased $1.5 million
due to aggressive marketing and new amenities by our competitors, however this
decrease was offset by a $4.5 million increase related to the Caruthersville
property, which we acquired in June 2007. Casino revenue was down at the Lake
Charles property by $2.0 million over the same fiscal quarter in prior year
primarily due to increased competition and post-hurricane market normalization.
Room
revenue decreased $0.8 million, or 5.5% compared to the fiscal quarter ended
July 30, 2006, primarily resulting from the decreased revenue at the Biloxi
property related to increased competition, which was partially offset by the
new
hotels in Waterloo and Bettendorf. Pari-mutuel commissions earned at Pompano
Park in Florida for the fiscal quarter were down slightly due to fewer live
race
days. Food, beverage and other revenues decreased by $0.8 million, or 2.2%,
primarily attributable to an increased competition and a planned reduction
in
marketing spend in our Mississippi, Colorado and Louisiana markets with partial
offsets by increases at our new Caruthersville, Waterloo, Coventry locations
and
the opening of the slot gaming facility at the Pompano property.
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 decreased by 11.9% in
the
fiscal quarter ended July 29, 2007, as compared to the prior year quarter,
primarily due to efforts to reduce and improve the efficiencies of marketing
costs. These allowances also decreased due to decreases at the Biloxi property
related to lower gaming revenue which has been driven by increased competition
in the market.
Casino
operating expenses decreased $3.6 million, or 8.6% in the fiscal quarter ended
July 29, 2007 compared to the fiscal quarter ended July 30, 2006. These expenses
are primarily comprised of salaries, wages and benefits and other operating
expenses of the casinos. Casino operating expenses decreased in proportion
to
casino revenue from 15.2% to 13.9%, primarily due to labor cost control efforts.
State
and
local gaming taxes increased $10.7 million, or 18.4%, in the fiscal quarter
ended July 29, 2007 as compared to the fiscal quarter ended July 30, 2006 due
to
the opening of the Caruthersville, Waterloo, Coventry properties and the Pompano
slot gaming facility, with partial offsets by decreases at the Biloxi, Lake
Charles and Quad-City properties. The effective rate for gaming taxes as a
percentage of gaming revenue increased from 21.0% to 24.9% due to a higher
ratio
of gaming revenues derived from higher rate states.
Room
expenses increased $0.7 million, or 29.9%, compared to the fiscal quarter ended
July 30, 2006 as a result of increased room capacity due to the opening of
the
Waterloo property hotel and the Bettendorf
property
hotel expansion. 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.
Pari-mutuel
operating costs of the Pompano property decreased 4.0% in the current fiscal
quarter as compared to our fiscal quarter ended July 30, 2006 due to fewer
live
race days. Such costs consist primarily of compensation, benefits, purses,
simulcast fees and other direct costs of track operations.
Food,
beverage and other expenses increased $2.5 million, or 28.0%, over the fiscal
quarter ended July 30, 2006 primarily attributable to our new Caruthersville,
Waterloo and Coventry properties and the opening of the slot gaming facility
at
the Pompano property. 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 26.1% to 34.1% primarily resulting
from decreased revenues at the Biloxi property, the acquisition of the
Caruthersville property and the opening of our new Pompanp, Waterloo and
Coventry properties.
Marine
and facilities expenses for the fiscal quarter ended July 29, 2007 increased
$1.5 million, or 9.8%, compared to the fiscal quarter ended July 30, 2006
primarily attributable to our new Caruthersville, Waterloo, and Coventry
properties and the opening of the slot gaming facility at the Pompano property.
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.
Marketing
and administrative expenses decreased $6.3 million, or 7.3%, compared to the
fiscal quarter ended July 30, 2006. 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 include administration and human resource department expenses, rent,
new development activities, professional fees and property taxes. The decrease
is primarily related to improved marketing spend efficiency through identifying
and eliminating unprofitable marketing programs. New development expenses were
down due to our prior year efforts to obtain gaming licenses in Pittsburgh,
Pennsylvania and Singapore and relocation expenses which were incurred in the
prior year related to the relocation of our corporate headquarters to Saint
Louis, Missouri. Additionally, we incurred lease termination costs in the prior
year related our decision in April 2006 that we would close the Our Lucaya
property in Freeport, Grand Bahama by June 2007. In April 2007 we reached an
agreement with government officials and our landlord to continue operations
at
Our Lucaya. These cost reductions were partially offset by increased
professional fees incurred during the quarter.
Pre-opening
expense increased $5.9 million for the fiscal quarter ended July 29, 2007 over
the fiscal quarter ended July 30, 2006 in relation to the opening of Waterloo
and Coventry properties and the slot gaming facility at the Pompano
property.
Depreciation
and amortization expense for the quarter increased $6.6 million primarily due
to
the new hotel at the Bettendorf property, and the opening of the Caruthersville,
Waterloo, Coventry properties and the slot gaming facility at the Pompano
property. Additionally, we recorded approximately $0.5 million of new
depreciation expense related to the convention center at the RICOHTM
Arena in
Coventry.
Net
interest expense for the quarter increased $5.2 million or 26.8% compared with
our fiscal quarter ended July 30, 2006. This is primarily attributable to higher
debt balances on our senior secured credit facility and the allocation of a
portion of net interest expense related to discontinued operations to the income
statement line item Income from discontinued operations, net of income taxes
in
the prior year.
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, from that point forward.
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.
Our
effective tax rate from continuing operations for the three months ended July
29, 2007 was a benefit of 41.48% compared to an expense of 46.29% for the three
months ended July 30, 2006, which, in each case, includes an unrelated party’s
portion of the Colorado Central Station-Black Hawk’s income taxes. Our effective
tax rate from combining continuing and discontinued operations for the quarter
ended July 29, 2007 was a benefit of 41.48%, as there were no discontinued
operations for the quarter ended July 29, 2007, compared to an expense of 45.16%
for the quarter ended July 30, 2006. The primary drivers for the difference
between our effective tax rate and the statutory tax rates were permanent
differences from non-deductible expenses, employment tax credits, change in
state valuation allowances, international operations, taxes related to minority
interests, and qualified stock option expenses that are not
deductible.
Liquidity
and Capital Resources
At
July
29, 2007, we had cash and cash equivalents and marketable securities of $154.7
million compared to $205.3 million at April 29, 2007, the end of our last
fiscal year. The $50.6 million decrease in cash and cash equivalents is the
net
result of $7.3 million net cash provided by operating activities, $126.6 million
net cash used in investing activities and $68.0 million net cash provided by
financing activities. The Company also had $2.6 million of restricted cash
as of
July 29, 2007. In addition, as of July 29, 2007, we had $774.3 million of unused
capacity under lines of credit and available term debt consisting of $365.6
million in unused credit capacity under the July 2007 Credit Facility revolving
loan commitment, $375.0 million in unused delayed draws under the July 2007
Credit Facility, $33.6 million of unused credit capacity under the Isle-Black
Hawk senior secured credit facility (limited to use by the Isle-Black Hawk)
and
$0.1 million in unused credit capacity under the Blue Chip Credit Facility.
During the fiscal quarter ended July 29, 2007, we had net payments on the
February 2005 Credit Facility of $503.5 million, borrowings on the July 2007
Credit Facility of $580.0 million and the Isle-Black Hawk made net payments
of
$0.5 million under the Isle-Black Hawk’s senior secured credit facility. We
believe that existing cash, cash flow from operations and available borrowings
under our existing credit facilities will be sufficient to support our working
capital needs, planned capital expenditures and debt service requirements for
the foreseeable future.
Investing
Activities
We
made
expenditures of $85.2 million for property and equipment during the fiscal
quarter ended July 29, 2007. Included in the $85.2 million was $4.5 million
in construction costs related to the Biloxi casino reconstruction following
Hurricane Katrina, which we expect to recover from insurance. The following
table reflects expenditures and accruals for property and equipment on major
projects approved by the Board of Directors for which we are committed as
of
July 29, 2007 and projected expenditures for these projects. The amounts
in the
table do not include any expenditures and accruals prior to the beginning
of
fiscal 2007.
|
|
|
|
Actual
|
|
Remaining
|
|
|
|
|
|
Fiscal
Year
|
|
Three
Months
|
|
Fiscal
Year
|
|
|
|
|
|
|
|
Ended
4/29/07
|
|
Ended
7/29/07
|
|
Ending
4/27/08
|
|
Thereafter
(3)
|
|
|
|
|
|
(dollars
in millions)
|
|
Property
|
|
Project
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biloxi
(1)
|
|
|
Rebuild
casino
|
|
$
|
-
|
|
$
|
4.5
|
|
$
|
75.0
|
|
$
|
105.5
|
|
Bettendorf
|
|
|
Construct
hotel
|
|
|
32.8
|
|
|
1.8
|
|
|
3.9
|
|
|
-
|
|
Davenport
|
|
|
Construct
hotel
|
|
|
0.2
|
|
|
-
|
|
|
17.0
|
|
|
25.5
|
|
Pompano
Park
|
|
|
Construct
casino
|
|
|
136.7
|
|
|
9.5
|
|
|
19.2
|
|
|
-
|
|
Waterloo
|
|
|
Construct
casino & hotel
|
|
|
78.9
|
|
|
39.4
|
|
|
53.6
|
|
|
-
|
|
Kansas
City
|
|
|
Expansion
& public improvements
|
|
|
0.1
|
|
|
-
|
|
|
-
|
|
|
83.9
|
|
Coventry
|
|
|
Construct
leasehold improvements
|
|
|
44.6
|
|
|
16.6
|
|
|
14.7
|
|
|
-
|
|
West
Harrison County
|
|
|
Construct
hotel & casino
|
|
|
4.3
|
|
|
0.5
|
|
|
127.6
|
|
|
187.6
|
|
Other
properties (2)
|
|
|
IGT
Advantage program
|
|
|
9.7
|
|
|
0.2
|
|
|
6.0
|
|
|
-
|
|
Various
|
|
|
Slot
programs
|
|
|
20.4
|
|
|
4.2
|
|
|
9.1
|
|
|
-
|
|
Various
|
|
|
Other
capital improvements
|
|
|
69.7
|
|
|
8.5
|
|
|
24.0
|
|
|
6.9
|
|
Total
|
|
|
|
|
$
|
397.4
|
|
$
|
85.2
|
|
$
|
350.1
|
|
$
|
409.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations (4)
|
$
|
1.9
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Excludes: destroyed Biloxi casino barge of $0.2 million in fiscal
2007;
Biloxi temporary casino of $52.7 million in fiscal 2007 related
to
|
construction
costs at the Biloxi temporary casino hurricane reconstruction,
which we
expect to recover from insurance proceeds.
|
(2)
Includes: Biloxi, Natchez, Lula, Lake Charles and Colorado Central
Station
|
(3)
The timing of these projects is discussed below
|
(4)
Discontinued Operations consist of Vicksburg and Bossier
City
|
Biloxi:
We plan
to rebuild our Biloxi casino to a scope level at or beyond the expansion
project
under construction when it was destroyed by Hurricane Katrina. Current estimates
include a $185 million final construction phase however we are currently
evaluating the final plans, the ultimate project cost, and timing are unknown
at
this time.
Bettendorf:
We have
constructed a new $45.0 million hotel with 258 rooms and additional parking.
As
of July 29, 2007, we had spent $41.1 million of this amount. The new hotel
opened on May 21, 2007.
Davenport:
In June
2005, we agreed to a $43.0 million project with the City of Davenport in
which
we were planning to build a 180-room hotel and rooftop restaurant, with the
City
of Davenport constructing a 500 space parking ramp and providing funding
to
realign our casino with the new hotel facility. This project is being
re-evaluated based upon the recent and pending legislative changes in Iowa.
Pompano
Park:
We have
constructed a gaming and entertainment complex including 1,500 slot machines,
two restaurants and a feature bar at our Pompano Park site adjacent to the
existing harness racing facility at a cost of approximately $177.6 million.
Slot
machine operations commenced April 14, 2007. Two additional restaurants and
a new poker room with 34 tables on the second floor of the new facility opened
in May 2007.
Waterloo:
In
May
2005, the Iowa Racing and Gaming Commission awarded us a gaming license in
Waterloo, Iowa. The facility is a single level casino with 1,300 gaming
positions, two restaurants, a 200-room hotel and 1,000 parking spaces, which
opened on June 30, 2007. A third restaurant opened in the beginning of the
second quarter of fiscal 2008. Later this year, we expect to add a pool area
to
the facility and a nightclub and spa additions are in the preliminary stages.
Total cost of the project is expected to be $177.1 million. As of July 29,
2007, we have spent $123.5 million on this project.
Kansas
City:
As
previously announced, we have postponed our approximate $85.0 million expansion
project in Kansas City, Missouri due to current bridge construction on
Interstate 35. When the bridge construction timeline and impact is more clear,
we will reconsider the timing this expansion project. As of July 29, 2007,
we have capitalized $1.2 million on this project.
Coventry:
In
December 2003, we entered into an agreement to develop and operate a casino,
subject to obtaining a license, in a commercial leisure complex currently
under
development in Coventry, England. In fiscal year 2005, we were granted a
gaming
license to open the Coventry casino under the current legislation (Gaming
Act
1968). The casino opened on July 6, 2007.
We
entered into an agreement during fiscal 2004 to lease space for Coventry
(which
opened in fiscal year 2008) in Coventry, England in the Coventry Convention
Center. The Coventry Convention Center was developed, owned and operated
by a
non-affiliated entity and began operations in August 2005. We determined
that
due to certain structural elements installed by us during the construction
of
the space being leased and certain prepaid lease payments made by us, we
are
required to be treated, for accounting purposes only, as the “owner” of the
Coventry Convention Center, in accordance with EITF 97-10. As a result, we
have
recorded property and equipment, (net) of $53.5 million and $53.2 million
as of
July 29, 2007 and April 29, 2007, respectively. Additionally, we have
recorded a long-term obligation for $48.6 million and $47.6 million as of
July
29, 2007 and April 29, 2007, respectively. However, we do not own these
assets, are not the obligor on the corresponding long-term obligation and
do not
participate in or control the operations of the Coventry Convention Center.
These non-cash charges are not reflected in the above table.
Total
project costs, excluding the above referenced “non-owned assets” are estimated
to be approximately $86.6 million. The casino opened on July 5, 2007.
West
Harrison County (Mississippi):
During
fiscal year 2007, the Harrison County Planning Commission approved our master
plan for the previously announced 50-acre development at West Harrison County,
Mississippi. Preliminary plans call for the estimated $320 million project
to
include a single level gaming facility with over 2,000 gaming positions,
a
hotel, restaurants and a complement of additional resort amenities. The project
remains in the permitting and planning stages, and is subject to certain
conditions, including, but not limited to, the receipt of all necessary
licenses, approvals and permits. As of July 29, 2007, we have capitalized
$4.8
million on this project.
IGT
Advantage program:
In
January 2005, we announced plans to deploy the IGT Advantage™
Casino
System with a total cost of the project estimated to be $20.2 million. In
2006,
the project was expanded by $14.9 million for fiscal year 2007 for a total
project amount of approximately $35.1 million. As of July 29, 2007, we have
capitalized $28.8 million at Biloxi, Lula, Lake Charles and Natchez, leaving
a
remaining budget of approximately $6.3 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.
The
other
capital improvements at all of our properties consists of numerous capital
expenditures related to the purchase of furniture and equipment and the
renovation and upgrade of hotel rooms, restaurants and other areas of our
properties.
Development
and other projects:
Pittsburgh:
In late
December 2006, the Pennsylvania Gaming Control Board notified us that our
proposed project in Pittsburgh had not been selected for a slot machine gaming
license. We appealed the decision. In July 2007, the appeal was denied.
Florida
Gaming Corporation:
On
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.
Rosemont
(Illinois):
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. In 2006, however,
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 increased uncertainty. At this juncture, it appears unlikely
that the license will be awarded to Rosemont.
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.
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, from that point forward.
Financing
Activities
On
July 26, 2007, we extinguished the February 2005 Credit Facility and
entered into the July 2007 Credit Facility. See Note 8 for further detail
on
this refinancing. During the three fiscal months ended July 29, 2007, we
had net
sources of cash of $68.0 million primarily in the following financing
activities:
• We
made
payments on the Isle-Black Hawk’s senior secured credit facility of $0.5
million.
• We
made
payments on the February 2005 Credit Facility term loans of $293.5 million.
• We
made
net payments on the February 2005 Credit Facility revolving credit facility
of
$210.0 million.
• We
had
borrowings on the July 2007 Credit Facility term loans of $500.0 million.
• We
had
borrowings on the July 2007 Credit Facility revolving credit facility of
$80.0
million.
• We
made
payments on other property debt in the amount of $0.2 million.
• We
made
payments on deferred financing costs of $8.4 million.
• We
received $0.6 million in proceeds from the exercise of stock options.
• We
recognized a tax benefit of $0.1 million related to the exercise of stock
options.
• We
financed the acquisition of land in Biloxi, Mississippi through the use of
a
$3.1 million note payable.
As
of
July 29, 2007, we had $774.3 million of unused capacity under lines of credit
and available term debt consisting of $365.6 million in unused credit capacity
under the July 2007 Credit Facility revolving loan
commitment,
$375.0 million in unused delayed draws under the July 2007 Credit Facility,
$33.6 million of unused credit capacity under the Isle-Black Hawk senior
secured
credit facility (limited to use by the Isle-Black Hawk) and $0.1 million
in
unused credit capacity under the Blue Chip Credit Facility. The revolving
loan
commitment on the July 2007 Credit Facility is a variable rate instrument
based
on, at our option, LIBOR or our lender’s prime rate plus the applicable interest
rate spread, and is effective through July 2012. Our lines of credit are
also at
variable rates based on our lender’s prime rate and are subject to annual
renewal. There is no assurance that these sources will in fact provide adequate
funding for the expenditures described above or that planned capital investments
will be sufficient to allow us to remain competitive in our existing markets.
We
are
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
in
light of the operating performance of the facilities at such locations.
Recently
Issued Accounting Standards
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities Including an Amendment of
FASB
Statement No. 115” (“SFAS 159”) which permits entities to choose to measure
many financial instruments and certain other items at fair value. We would
report unrealized gains and losses on items for which the fair value option
has
been elected in earnings at each subsequent reporting date. SFAS 159 becomes
effective in the first quarter of fiscal 2009. Early adoption is permitted.
The
adoption of SFAS 159 could affect our accounting for available-for-sale
securities held as investments. We are currently evaluating the impact, if
any,
of adopting SFAS No. 159 on its financial statements, and such impact
cannot be reasonably estimated at this time.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For
quantitative and qualitative disclosures about market risk, see Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” in our Annual
Report on Form 10-K for the fiscal year ended April 29, 2007. Our exposures
to market risk have not changed materially since April 29, 2007.
ITEM 4.
CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company, 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 (“COSO”).
Because
of its inherent limitations, systems of internal control over financial
reporting can provide only reasonable assurance with respect to financial
statement preparation and presentation.
As
of
July 29, 2007, we carried out an evaluation, under the supervision and with
the
participation of our management, including our Chief Executive Officer and
Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that the design and operation
of
certain of our
disclosure
controls and procedures were not effective as of July 29, 2007 because of
the
continued existence of the material weakness related to accounting for leases
as
described in Management’s Report on Internal Control Over Financial Reporting in
Item 9A. Controls and Procedures in our Annual Report on Form 10-K for the
year ended April 29, 2007 (“Management’s Report”).
To
address our material weakness related to accounting for leases, in June 2007
the
Company engaged a third party professional services firm to review all of
the
Company’s leases to verify the Company is recording leases in accordance with
generally accepted accounting principles, based on lease terms. In addition,
the
Company implemented a revised Summary of Procedures for lease accounting
on May
18, 2007. These updated procedures state the technical guidance on accounting
for leases and instituted a multi-level review control for new leases at
the
property level and at the corporate office. The effectiveness of these control
changes has not been fully evaluated as of July 29, 2007.
REMEDIATION
OF MATERIAL WEAKNESSES
As
discussed above, as of April 29, 2007, the Company identified a material
weakness in our internal control over accounting for leases. We are currently
addressing this material weakness and expect to have this material weakness
remediated by April 27, 2008.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Except
as
otherwise discussed above, there have been no changes in the Company’s internal
control over financial reporting during the fiscal quarter ended July 29,
2007,
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
PART
II—OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
Lady
Luck
Gaming Corporation (now a wholly owned subsidiary of the Company) and several
joint venture partners have been defendants in the Greek Civil Court and
the
Greek Administrative Court in similar lawsuits brought by the country of
Greece
through its Minister of Tourism (now Development) and Finance. The actions
allege that the defendants failed to make specified payments in connection
with
the gaming license bid process for Patras, Greece. The payment Lady Luck
is are
alleged to have been required to make totals approximately 6.5 million
Euros
(which was approximately $8.9 million as of July 29, 2007 based on published
exchange rates). Although it is difficult to determine the damages being
sought
from the lawsuits, 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 Lady Luck’s favor and dismissed the civil lawsuit. Appeals
to both the Athens Civil Appeals Court and the Greek Civil Supreme Court
have
been dismissed. The Greek Civil Supreme Court denied the appeal on the
basis
that the Administrative Court is the competent court to hear the matter.
During
October 2005, after the administrative lawsuit had been dismissed by both
the
Athens Administrative Court of First Instance and the Athens Administrative
Court of Appeals on the basis that the Administrative Court did not have
jurisdiction, the Administrative Supreme Court remanded the matter back
to the
Athens Administrative Appeals Court for a hearing on the merits. We are
awaiting
a decision following that hearing. The outcome of this matter is still
in doubt
and cannot be predicted with any degree of certainty. 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.
ITEM 1A. RISK
FACTORS
There
are
no material changes to the disclosure regarding risk factors presented in
our
Annual Report on Form 10-K for the fiscal year ended April 29,
2007.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
30, 2007 to May 27, 2007
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
1,173,594
|
|
|
|
|
|
|
|
|
|
|
|
|
May
28, 2007 to July 1, 2007
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,173,594
|
|
|
|
|
|
|
|
|
|
|
|
|
July
2, 2007 to July 29, 2007
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,173,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
1,173,594
|
(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 4,826,406
shares of our common stock under the two programs. These programs
have no
approved dollar amounts, nor expiration
dates.
|
ITEM 3. DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION
OF MATTERS SUBJECT TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER
INFORMATION
None.
See
the
Index to Exhibits following the signature page hereto for a list of the exhibits
filed pursuant to Item 601 of Regulation S-K.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
|
ISLE
OF CAPRI CASINOS, INC.
|
|
|
|
Dated:
September 7, 2007
|
|
/s/
DONN R. MITCHELL, II
|
|
|
Donn
R. Mitchell, II
Senior
Vice President and Chief Financial Officer
|
|
|
(Principal
Financial Officer and Authorized
Officer)
|
|
|
EXHIBIT
NUMBER
|
DESCRIPTION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|