<PAGE>
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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 October 25, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission File Number: 333-38093
ISLE OF CAPRI BLACK HAWK L.L.C./ISLE OF CAPRI BLACK HAWK CAPITAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-1422931
(STATE OF ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
711 WASHINGTON LOOP, SECOND FLOOR, BILOXI, 39530
MISSISSIPPI (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(228) 436-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (a) 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 (b) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
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<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
FORM 10-Q
INDEX
Part I--FINANCIAL INFORMATION
<TABLE>
<C> <C> <S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets, October 25, 1998 (unaudited)
and April 26, 1998....................................... 1
Consolidated Statements of Operations for the three months
and six months ended October 25, 1998 and October 26,
1997 and for the period of April 25, 1997 (date of
inception) through October 25, 1998...................... 2
Consolidated Statements of Members' Equity (unaudited).... 3
Consolidated Statements of Cash Flows for the six months
ended October 25, 1998 and for the period of April 25,
1997 (date of inception) through October 25, 1998........ 4
Notes to Unaudited Consolidated Financial Statements...... 5-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 10-12
Part II--OTHER INFORMATION
Item 1. Legal Proceedings......................................... 13
Item 2. Changes in Securities..................................... 13
Item 3. Defaults Upon Senior Securities........................... 13
Item 4. Submission of Matters to a Vote of Security Holders....... 13
Item 5. Other Information......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 13
SIGNATURES......................................................... 14
EXHIBIT LIST....................................................... 15
</TABLE>
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL
OCTOBER 25, 26,
1998 1998
----------- -------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash..................................................... $ 53 $ 547
Accrued interest receivable.............................. 470 1,031
Prepaid expenses......................................... 32 34
------- -------
Total current assets................................... 555 1,612
Property and equipment:
Land and land improvements............................... 14,605 14,585
Construction in progress................................. 58,523 26,357
------- -------
73,128 40,942
Other assets:
Restricted cash.......................................... 21,699 48,948
Deferred financing costs, net of accumulated amortization
of $838 and $481, respectively.......................... 4,073 4,375
Deposits and Other Assets................................ 55 --
------- -------
Total Assets........................................... $99,510 $95,877
======= =======
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt..................... $ 426 $ --
Accounts payable--trade.................................. 4,143 4,602
Accounts payable--related................................ 2,931 --
Accrued liabilities:
Interest................................................. 1,481 1,688
Construction payables.................................... 2,724 1,614
Other.................................................... 46 --
------- -------
Total current liabilities.............................. 11,751 7,904
Long-term debt, net of current maturities and discount of
note payable of $95....................................... 76,060 75,000
Members' Equity
Member's equity--Casino America of Colorado, Inc......... 5,874 7,121
Member's equity--Blackhawk Gold, Ltd..................... 5,825 5,852
------- -------
Total members' equity.................................. 11,699 12,973
------- -------
Total Liabilities and Members' Equity.................. $99,510 $95,877
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
1
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS APRIL 25, 1997
ENDED ENDED (DATE OF
----------------------- ----------------------- INCEPTION)
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26, THROUGH
1998 1997 1998 1997 APRIL 26, 1998
----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Interest expense, net
of capitalized
interest of $2,054,
$408, $3,215, $408
and $5,535,
respectively......... $ 559 $1,469 $ 1,813 $1,469 $ 6,834
Interest income ...... 89 681 539 681 3,528
----- ------ ------- ------ -------
Net loss.............. $(470) $ (788) $(1,274) $ (788) $(3,306)
===== ====== ======= ====== =======
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASINO AMERICA OF BLACKHAWK TOTAL
COLORADO, INC. GOLD, LTD. MEMBERS' EQUITY
----------------- ---------- ---------------
<S> <C> <C> <C>
Balance, April 25, 1997 (date of
inception)...................... $ -- $ -- $ --
Capital contribution
development costs............. 317 -- 317
Capital contribution--cash..... 7,084 -- 7,084
Capital contribution--land..... 100 7,504 7,604
Equity transfer................ 833 (833) --
Net loss....................... (1,213) (819) (2,032)
------- ------ -------
Balance, April 26, 1998.......... $ 7,121 $5,852 $12,973
Equity transfer (unaudited).... (500) 500 --
Net loss (unaudited)........... (747) (527) (1,274)
------- ------ -------
Balance, October 25, 1998
(unaudited)..................... $ 5,874 $5,825 $11,699
======= ====== =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS APRIL 25, 1997 (DATE
ENDED OF INCEPTION) THROUGH
OCTOBER 25, 1998 OCTOBER 25, 1998
---------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................... $ (1,274) $ (3,306)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Amortization of deferred financing
costs................................ 357 838
Interest receivable................... 561 (470)
Prepaid expenses & other.............. (53) (87)
Accounts payable & accrued
liabilities.......................... 2,311 5,799
-------- --------
Net Cash provided by Operations...... 1,902 2,774
Cash flows from investing activities:
Purchase of property and equipment..... (31,076) (59,500)
Decrease/(Increase) in Restricted
Cash.................................. 27,249 (21,699)
-------- --------
Net Cash Used in Investing
Activities.......................... (3,827) (81,199)
Cash Flows from Financing Activities:
Proceeds from debt..................... 1,486 73,486
Deferred financing costs............... (55) (1,696)
Principal payment on land mortgage..... -- (396)
Capital contribution received.......... -- 7,084
-------- --------
Net Cash Provided by Financing
Activities.......................... 1,431 78,478
Net increase in cash................... (494) 53
Cash, beginning of period.............. 547 --
-------- --------
Cash, end of period.................... $ 53 $ 53
======== ========
Supplemental disclosures of cash flow
information
Cash payments for:
Interest.............................. $ 4,875 $ 10,047
Supplemental schedule of noncash
investing and financing activities:
Debt issued for:
Underwriting fees on first mortgage
notes................................ -- 3,000
Capital contributions:
Land, net of mortgage of $396......... -- 7,604
Financing fees........................ -- 137
Property and equipment................ -- 180
Other:
Construction costs funded through
accounts payable..................... 1,110 2,724
Discount on Notes Payable............. 95 --
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
On April 25, 1997 ("Date of Inception"), Isle of Capri Black Hawk L.L.C.
(the "Company"), a Colorado limited liability company, was formed. The Company
is owned by Casino America of Colorado, Inc. ("Casino America of Colorado"), a
wholly-owned subsidiary of Isle of Capri Casinos, Inc. ("IOC-Corp."), and
Blackhawk Gold, Ltd. ("Blackhawk Gold"), a wholly-owned subsidiary of Nevada
Gold and Casinos, Inc. ("Nevada Gold"). The Company is a Development Stage
Company and has not commenced gaming operations. The principal purpose of the
Company is to develop and operate a casino entertainment complex in Black
Hawk, Colorado (the "Isle-Black Hawk"), which is anticipated to open in late
1998 or early 1999.
On August 20, 1997, the Company and Isle of Capri Black Hawk Capital Corp.
("Capital Corp."), a wholly-owned subsidiary of the Company that has no
operations, assets or liabilities, issued $75,000,000 of 13% First Mortgage
Notes (the "Notes") due 2004 with Contingent Interest in order to finance the
construction and development of the Isle-Black Hawk.
The rights and obligations of Casino America of Colorado and Blackhawk Gold
are governed in part by the Amended and Restated Operating Agreement of the
Company ("the Agreement") dated as of July 29, 1997. The Agreement provides
that the Company will continue until December 31, 2096, or until such date
that dissolution may occur. Pursuant to the Agreement, Casino America of
Colorado contributed cash, land purchase rights and development costs to the
Company and Blackhawk Gold contributed land to the Company.
On July 29, 1997, Casino America of Colorado, IOC-Corp., Blackhawk Gold and
Nevada Gold also entered into a Members Agreement (the "Members Agreement")
which addressed the development of the Isle-Black Hawk, management of the
Company, additional capital contributions, and other matters. On August 20,
1997, pursuant to the Members Agreement, Casino America of Colorado purchased
from Blackhawk Gold a 4.2% ownership interest (the "Transferred Interest") in
the Company for $700,000, and Blackhawk Gold had 180 days within which to
reacquire all or a portion of the Transferred Interest for $700,000, together
with interest. In addition, pursuant to the Members Agreement, Blackhawk Gold
had the right to sell up to an additional 4.8% ownership interest in the
Company to Casino America of Colorado (the "Put"), for up to $800,000, and to
repurchase, within 180 days, any ownership interest sold pursuant to the Put,
with the repurchase price being the price for which such ownership interest
was sold, together with interest. On November 13, 1997, pursuant to the Put,
Casino America of Colorado purchased an additional .8% ownership interest from
Blackhawk Gold for $133,333. On February 16, 1998, pursuant to the Put, Casino
America of Colorado acquired an additional 4.0% ownership interest from
Blackhawk Gold for $666,000, exhausting Blackhawk Gold's right to sell any
additional ownership interest pursuant to the Put. Simultaneously, Blackhawk
Gold repurchased from Casino America of Colorado, a 4.0% ownership interest
out of the Transferred Interest for $714,000, which includes interest. On
August 17, 1998, Blackhawk Gold exercised its right to reacquire from Casino
America of Colorado 3.0% in the Company, out of the 4.0% which was conveyed to
Casino America of Colorado on February 16, 1998, for $0.5 million which
includes interest. As a result, following the transfers discussed above,
Casino America of Colorado has an ownership interest in the Company of 57% and
Blackhawk Gold has an ownership interest in the Company of 43%. Profits and
losses of the Company are allocated in proportion to ownership interests.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles
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 period
from April 27, 1998 through October 25, 1998 are not necessarily
5
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
indicative of the results that may be expected for the fiscal year ending
April 25, 1999. For further information, refer to the Company's Form S-4
Registration Statement, filed with the Securities and Exchange Commission,
registration no. 333-38093.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses during the reporting
period. Actual amounts when ultimately realized could differ from those
estimates.
Recently Issued Authoritative Pronouncement
In April 1998, the AICPA's Accounting Standards Executive Committee issued
SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires
entities to charge to expense start-up costs, including organizational costs,
as incurred. In addition, the SOP requires entities upon adoption to write-off
as the cumulative effect of a change in accounting principle any previously
capitalized start-up or organization costs. The SOP is effective for most
entities for fiscal years beginning after December 15, 1998.
Cash equivalents
The Company considers all highly liquid investments with a maturity at the
time of purchase of six months or less to be cash equivalents. (At October 25,
1998, there were no cash equivalents.)
Pre-opening costs
Pre-opening costs include costs such as salaries, recruiting and training
associated with activities necessary to open the casino entertainment complex.
These costs are initially capitalized and then expensed when the related
business commences operations. From inception to date, the Company's sole
business activity has been developing the Isle-Black Hawk.
Income Taxes
No provision for federal or state income taxes is recorded in the financial
statements as income taxes are the responsibilities of the individual members.
Certain significant risks and uncertainties
Gaming regulation licensing. The Company was awarded its license to conduct
gaming operations in the State of Colorado on October 16, 1998. Such licensing
and qualifications will be reviewed periodically by the gaming authorities in
Colorado.
Competition. The Black Hawk/Central City, Colorado market has many
established casinos. The market is highly competitive and other significant
development projects are currently being planned or are under construction.
Construction risks. Construction projects entail significant risks,
including, but not limited to, cost overruns, delays in receipt of
governmental approvals, shortages of materials or skilled labor, labor
disputes, unforeseen environmental or engineering problems, work stoppages,
fire and other natural disasters, construction scheduling
6
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
problems and weather interference, any of which, if it occurred, could delay
construction and/or result in substantial increases in costs to the Company.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amounts. In that
event, an impairment loss is measured by comparing the fair value of the asset
to its carrying amount.
Revenue and promotional allowances
Casino revenues will be the net win from gaming activities which is the
difference between gaming wins and losses. Casino revenues will be presented
net of accruals for the anticipated payouts of progressive electronic gaming
device jackpots. Revenue will not include the retail amount of food, beverage,
and other items provided gratuitously to customers. The cost of providing such
complimentary services will be included in casino expense.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current presentation.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost except for land contributed by
Blackhawk Gold, which is stated at its appraised value. Depreciation will be
computed, upon the commencement of gaming operations, using the straight-line
method over the estimated useful lives of the property and equipment.
NOTE 3. OTHER ASSETS
Restricted cash--represents cash proceeds from the sale of the Notes held in
trust by IBJ Schroder Bank and Trust in New York, as trustee. These funds are
held in three separate accounts (Construction Disbursement, Completion
Reserve, Interest Reserve), with use restricted by an indenture between the
Company and the trustee, dated August 20, 1997 in connection with the issuance
of the Notes (the "Indenture"). Amounts in the Construction Disbursement
Account, which contained approximately $13.6 million at October 25, 1998, will
be used for the development, construction and opening of the casino
entertainment complex by the Company in Black Hawk, Colorado. Amounts in the
Completion Reserve Account, approximately $3.6 million, will be used in the
event there are insufficient funds in the Construction Disbursement Account to
complete the casino entertainment complex. Amounts in the Interest Reserve
Account, approximately $4.5 million, will be used to pay the next fixed
interest payment on the Notes, which were issued pursuant to the Indenture.
Deferred financing costs--are being amortized over the life of the Notes
commencing on the date of issuance, August 20, 1997.
NOTE 4. LONG-TERM DEBT
Long-term debt consists primarily of $75,000,000 in 13% First Mortgage Notes
with Contingent Interest, due August 31, 2004. The Notes were issued under the
Indenture. Interest on the Notes is payable semiannually on February 28 and
August 31 of each year, commencing February 28, 1998. Additionally, contingent
interest is payable on the Notes on each interest payment date, in an
aggregate principal amount of 5% of the Company's Consolidated Cash Flow (as
defined in the Indenture), provided that no Contingent Interest shall be
payable prior to commencement of operations and may, under certain
circumstances, be deferred.
7
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after August 1, 2001 at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest to the redemption date, if redeemed during the 12-month period
beginning on August 31 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... 106.5%
2002........................................................... 103.2%
2003 and thereafter............................................ 100.0%
</TABLE>
Beginning with the first operating year after the Company begins gaming
operations, the Company will be required to offer to purchase, at the price of
101% of the aggregate principal amount thereof, the maximum principal amount
of the Notes that may be purchased with 50% of the Company's Excess Cash Flow,
as defined in the indenture.
Substantially all of the Company's assets are pledged as collateral for
long-term debt. At October 25, 1998, the Company was in compliance with all
debt covenants.
On October 17, 1997, the Company filed a Registration Statement on Form S-4
(registration number 333-38093) relating to an exchange offer for the Notes.
The Registration Statement was declared effective by the Commission on
December 22, 1997, and the exchange offer was consummated on January 21, 1998.
The exchange offer was accepted by the holders of all of the Notes.
On July 31, 1998, the Company secured financing from a third party in the
amount of $1.6 million to partially fund the furniture, fixtures and equipment
for the Isle of Capri-Black Hawk. The Company plans to fund the balance of the
furniture, fixtures and equipment approximately $13.0 million from the same
third party.
The Company has posted a letter of credit as a requirement to obtain a
building permit from the City of Black Hawk (the "City"). The letter of
credit, totaling $2.1 million, can be drawn upon by the City if for any reason
ICBH fails to fulfill its obligations under its subdivision agreement with the
City, which includes making certain public improvements and constructing a
hotel containing a minimum of 100 rooms within specified time periods.
NOTE 5. RELATED PARTY TRANSACTIONS
Completion Capital Commitment. IOC-Corp. has provided a Completion Capital
Commitment pursuant to which it has committed to contribute to the Company up
to $5.0 million in the event that such amounts are necessary to cause the
Isle-Black Hawk to commence operations on or before April 1, 1999, or if the
Isle-Black Hawk has not begun operating by such date.
Management Agreement. On April 25, 1997, the Company entered into a
Management Agreement, which was subsequently amended and restated on July 29,
1997 (the "Management Agreement"), with IOC-Corp., which will manage the
casino entertainment complex in exchange for a fee. The management fee will be
equal to two percent of revenues, plus ten percent of operating income, but
not to exceed four percent of revenues. The management fee will go into effect
upon commencement of casino operations.
Lease Agreement. On January 2, 1998, Casino America of Colorado acquired
approximately 0.7 acres of property contiguous to the property being developed
by the Isle-Black Hawk for expansion of entrance and
8
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
signage (the "Acquired Property'). On January 2, 1998, the Company, as Lessee,
entered into a Lease Agreement with Casino America of Colorado for the
Acquired Property and will utilize the Acquired Property in developing the
Isle-Black Hawk. The lease payment consists of $102,000 paid upon the
inception of the lease and $17,000 per month, commencing July 15, 1998, and
continuing until December 31, 2002, and thereafter on a year to year basis.
During the term of the lease, the Company has the right to purchase the
property for $1,500,000 plus all interest and out-of-pocket costs that Casino
America of Colorado incurred in connection with the purchase and ownership of
the land, less any payments made by the Company, as lessee.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Company's financial statements, including
the notes thereto, and other financial information included elsewhere in this
report.
The following discussion includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. In particular,
statements concerning the effects of increased competition in the Company's
market, the Company's construction activities and the Company's possible plans
to develop a hotel at its facility, are forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that such expectations
are reasonable or that they will be correct. Actual results may vary
materially from those expected. Important factors that could cause actual
results to differ with respect to the Company's planned capital expenditures
principally include a lack of available capital resources, construction and
development risks such as cost overruns, shortages of materials and labor,
unforeseen delays resulting from weather interference, failure to obtain
necessary approvals, further development of the competitive environment in the
Black Hawk market, environmental issues, changes in gaming laws and
regulations in the jurisdiction in which the Company operates and the failure
or the inability to adequately address or anticipate, the cost of correcting
problems arising from what is commonly described as the "Year 2000 problem".
Other important factors that could cause the Company's actual results to
differ materially from expectations are discussed under "Risk Factors" in the
Company's Registration Statement on Form S-4, filed with the Securities and
Exchange Commission, registration no. 333-38093.
DEVELOPMENT ACTIVITIES
The Company was organized in April 1997 and was initially capitalized with
cash contributions from its members in the aggregate amount of $1,000. Since
that time, the Company's activities have been limited to applying for certain
necessary permits, licenses and approvals to enable it to construct and
operate the Isle-Black Hawk; arranging for the design, construction and
financing of the Isle-Black Hawk; coordinating the contribution to the Company
of the property on which the Isle-Black Hawk will be developed and other
capital contributions and conducting excavation at the site in preparation for
construction. It is anticipated that the Isle-Black Hawk will include a 55,000
square foot gaming facility featuring approximately 1,100 slot machines, up to
24 table games and on-site covered parking for approximately 1,000 vehicles,
and various other amenities. On October 16, 1998, the Colorado Limited Gaming
Division granted the Company a gaming license, and, subject to the delays
inherent in construction projects of the magnitude of the Isle-Black Hawk, and
subject to obtaining all necessary permits, the Company expects to open the
Isle-Black Hawk for business in late 1998 or early 1999. The Company intends
to build a hotel in conjunction with the Isle-Black Hawk which, pursuant to an
amendment to the Company's Subdivision Agreement with the City of Blackhawk,
must contain a minimum of 100 rooms. The Company's commitment to build the
hotel is secured by a letter of credit in the amount of approximately $2.1
million. The Company will need to secure financing for the development of the
hotel.
RESULTS OF OPERATIONS
The Company is in the development stage and does not have any historical
operating results other than interest expense on the Company's outstanding
indebtedness, interest income on the Company's restricted cash, the receipt of
certain capital contributions and the capitalization of certain costs. The
capitalized costs have consisted primarily of license and permit application,
design, construction and financing fees. Future operating results are subject
to significant business, economic, regulatory and competitive uncertainties
and contingencies, many of which are beyond the control of the Company. While
the Company believes that the Isle-Black Hawk, if completed and opened, will
be able to attract a sufficient number of patrons and achieve the level of
activity and revenues necessary to permit the Company to meet its payment
obligations, including with respect to the
10
<PAGE>
Notes, there can be no assurance that the Company will be able to achieve
these results. Isle of Capri Black Hawk Capital Corp. ("Capital Corp.") is a
wholly owned subsidiary of the Company and was incorporated for the sole
purpose of serving as co-issuer of the Notes in order to facilitate the
Offering. Capital Corp. will not have any operations or material assets and
will not have any revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial development expenses were incurred by its members as
provided in the Members Agreement and capitalized on the closing date of the
First Mortgage Notes. The Company expects to fund the continued development of
the Isle-Black Hawk from a combination of (i) previous equity contributions
(primarily real estate and up to $1.0 million of cash and third party
development costs) valued at approximately $15.4 million, (ii) net proceeds of
$72.0 million from the sale of the First Mortgage Notes, which were deposited
and invested as set forth in the Cash Collateral and Disbursement Agreement,
(iii) furniture, fixtures and equipment financing in the amount of up to $15.0
million, and (iv) net proceeds of approximately $2.3 million from the issuance
of public improvement bonds issued by the Blackhawk Special Improvement
District in August, 1998. The Company believes that sufficient funds remain
available from these sources to enable the Isle-Blackhawk to be developed as
planned and open for business within the expected time frame, and the Company
expects to utilize all available funds in connection with the development. In
addition, IOC-Corp. provided the Completion Capital Commitment, pursuant to
which it committed to contribute up to $5.0 million to the Company in the
event that amounts in the Construction Disbursement Account and the Completion
Reserve Account are insufficient to cause the Isle-Black Hawk to become
operating on or before April 1, 1999, or if the Isle-Black Hawk is not
operating by such date. The Company did not exercise an option under the
Design/Build Agreement prior to March 1, 1998, to construct a 118-room hotel;
however, the Company intends to construct a hotel at the site of the Isle-
Black Hawk which, pursuant to an amendment to the Company's subdivision
agreement with the City of Blackhawk, must contain a minimum of 100 rooms. The
Company's commitment to build the hotel is secured by a letter of credit in
the amount of approximately $2.1 million. As of the date of this filing, no
definitive arrangements have been made with respect to financing the
construction of the hotel, and the gaming facility will open for business
without a hotel.
Following the commencement of operations of the Isle-Black Hawk, the Company
expects to fund its operating and capital needs (except for the construction
of a hotel) from operating cash flows. The Company intends to establish
initial working capital reserves to provide for reasonably anticipated short-
term liquidity needs. However, there can be no assurance that any additional
financing, if needed to meet its liquidity needs, will be available to the
Company in the future, or that, if available, any such financing will be on
terms favorable to the Company. There can be no assurance that the Company's
estimate of its reasonably foreseeable liquidity needs is or will be accurate
or that new business developments or other unforeseen events will not occur,
resulting in the need to raise additional funds. The Company expects that the
adequacy of its operating cash flow will depend, among other things, upon
customer acceptance of the Isle-Black Hawk, the continued development of the
Black Hawk, Colorado market as a gaming destination, the intensity of the
Company's competition, the efficiency of operations, depth of customer demand,
the effectiveness of the Company's marketing and promotional efforts and the
performance by the manager of its responsibilities, pursuant to the Management
Agreement.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 issues (i.e., computer applications
that use only two digits to identify a year and could produce erroneous
results or systems failure during and after the year 2000). The evaluation
included inquiries to the vendors of various hardware and software products.
Most of the Company's information technology infrastructure are currently Year
2000 compliant, and the Company has received assurances that it believes to be
reasonable from the vendors of material products used by the Company that
their products are compliant. As of this date, the Company's assessment does
not indicate that any material costs will be incurred to modify its
information
11
<PAGE>
technology infrastructure in order to be Year 2000 compliant, as all software
needed will be provided by the respective information technology vendor at no
charge to the Company. The Company expects to have all software modifications
in place by mid-1999. The Company and its results of operations and financial
condition could be materially and adversely affected by a failure of one or
more of the third parties with whom it does business to satisfactorily address
and resolve any Year 2000 issues discovered in the future on a timely basis.
In addition, Year 2000 difficulties, if any, experienced by public utilities,
the banking system, the postal system or other similar infrastructure
enterprises could adversely affect the Company. However, the Company believes
that the impact of such problems on the Company would be the same as on other
businesses in the same area or areas. The Company believes these risks range
from slight financial functions, and in a worst case scenario, extensive and
costly inability to communicate with customers and suppliers. The Company
believes it can not be certain there will not be a material effect on the
Company's result of operations, liquidity or financial condition until the
Company has substantially completed the evaluation process. Management of the
Company believes it has an effective program in place to resolve the Year 2000
issues and although all phases of the program are not yet complete, the
Company feels confident this will occur.
The Company has no contingency plan in place at this time in the event it
does not complete all phases of the Year 2000 program. The Company plans to
evaluate the status of completion in mid-1999 and determine whether such a
plan is necessary.
12
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS--None
ITEM 2. CHANGES IN SECURITIES--None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--None
ITEM 5. OTHER INFORMATION--None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K--
A. Exhibits
A list of exhibits included as part of this Form 10-Q is set forth in the
Exhibit Index that immediately precedes such exhibits, which is incorporated
herein by reference.
B. Reports on Form 8-K
During the quarter ended October 25, 1998, the Company filed the following
reports on Form 8-K:
None.
13
<PAGE>
SIGNATURES
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 BLACK HAWK L.L.C.
/s/ Rexford A. Yeisley
Dated: December 8, 1998 By:__________________________________
Rexford A. Yeisley
Chief Financial Officer & Treasurer
(Duly Authorized Officer and
Principal Financial Officer
and Accounting Officer)
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> APR-25-1999 APR-26-1998
<PERIOD-START> APR-27-1998 APR-28-1997
<PERIOD-END> OCT-25-1998 OCT-26-1997
<CASH> 53 547
<SECURITIES> 0 0
<RECEIVABLES> 470 1,031
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 555 1,612
<PP&E> 73,128 40,942
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 99,510 95,877
<CURRENT-LIABILITIES> 11,751 7,904
<BONDS> 75,000 75,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 11,699 12,973
<TOTAL-LIABILITY-AND-EQUITY> 99,510 95,877
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,813 1,469
<INCOME-PRETAX> (1,274) (788)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,274) (788)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,274) (788)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
