<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 24, 1999
-----------------------------------------
( ) 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, Mississippi 39530
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(Address of principal executive offices) (Zip Code)
(228) 436-7000
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(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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ISLE OF CAPRI BLACK HAWK L.L.C.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
January 24, 1999 (unaudited) and
April 26, 1998 1
Consolidated Statements of Operations
for the three months and nine months
ended January 24, 1999 and
January 25, 1998 and for the period
from April 25, 1997 (date of inception)
through January 24, 1999 (unaudited) 2
Consolidated Statements of
Members' Equity (unaudited) 3
Consolidated Statements of
Cash Flows for the nine months ended
January 24, 1999 and for the period from
April 25, 1997 (date of inception)
through January 24, 1999 (unaudited) 4
Notes to Unaudited Consolidated
Financial Statements 5-9
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10-13
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT LIST 16
<PAGE>
ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
January 24, 1999 April 26, 1998
---------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 5,783 $ 547
Accounts receivable 3,196 1,031
Prepaid expenses 296 34
-------- -------
Total current assets 9,275 1,612
PROPERTY AND EQUIPMENT, NET 79,756 40,942
OTHER ASSETS:
Deferred financing costs, net of accumulated
amortization of $1,003 and $481, respectively 3,846 4,375
Deposits and other assets 476 --
Restricted cash 9,438 48,948
-------- -------
Total Assets $102,791 $95,877
======== =======
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current maturities of long-term debt 489 $ --
Accounts payable - trade 4,046 4,602
Accounts payable - related 6,592 --
ACCRUED LIABILITIES:
Interest 3,968 1,688
Construction payables 1,571 1,614
Payroll and payroll related 706 --
Property and other taxes 955 --
Progressive jackpots and slot club awards 501 --
Other 55 --
-------- -------
TOTAL CURRENT LIABILITIES 18,883 7,904
Long-term debt, net of current maturities 76,092 75,000
Members' Equity
Member's equity - Casino America of Colorado, Inc. 3,661 7,121
Member's equity - Blackhawk Gold, Ltd. 4,155 5,852
-------- -------
Total members' equity 7,816 12,973
-------- -------
TOTAL LIABILITIES AND MEMBERS' EQUITY $102,791 $95,877
======== =======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
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ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended April 25, 1997
-------------------------------- ---------------------------- (date of inception)
January 24, January 25, January 24, January 25, through
1999 1998 1999 1998 January 24, 1999
---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Casino $ 4,436 --- $ 4,436 --- $ 4,436
Food, beverage and other 231 --- 231 --- 231
------- -------- ------- ------- -------
Total revenue 4,667 --- 4,667 --- 4,667
Operating expenses:
Casino 568 --- 568 --- 568
Gaming taxes 952 --- 952 --- 952
Food and beverage 243 --- 243 --- 243
Facilities 237 --- 237 --- 237
Marketing and administrative 1,995 --- 1,995 --- 1,995
Pre-opening 3,320 --- 3,320 --- 3,320
Depreciation and amortization 234 --- 234 --- 234
------- -------- ------- ------- -------
Total operating expenses 7,549 --- 7,549 --- 7,549
------- -------- ------- ------- -------
Operating loss (2,882) --- (2,882) --- (2,882)
Interest expense, net of capitalized
interest of $1,634, $688, $4,849
and $1,096, respectively (1,224) (1,813) (3,037) (3,282) (8,058)
Interest income 223 570 762 1,251 3,751
------- -------- ------- ------- -------
Net loss $(3,883) $(1,243) $(5,157) $(2,031) $(7,189)
======= ======== ======= ======= =======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
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ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS 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) (2,960) (2,197) (5,157)
------- ------- -------
BALANCE, JANUARY 24, 1999 (UNAUDITED) $ 3,661 $ 4,155 $ 7,816
======= ======= =======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ISLE OF CAPRI BLACK HAWK L.L.C.
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 25, 1997
NINE MONTHS (DATE OF INCEPTION)
ENDED THROUGH
JANUARY 24, 1999 JANUARY 24, 1999
----------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,157) $ (7,189)
Adjustments to net loss:
Depreciation and amortization 234 234
Amortization of deferred financing costs 522 1,003
Accounts receivable (2,165) (3,196)
Prepaid expenses and other (642) (677)
Accounts payable & accrued liabilities 10,489 16,701
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,281 6,876
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (39,048) (70,195)
Decrease (increase) in restricted cash 39,510 (9,438)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 462 (79,633)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 1,486 73,486
Deferred financing costs 7 (1,634)
Principal payment on debt & cash paid for refinancing --- (396)
Capital contribution received --- 7,084
-------- --------
Net Cash Provided by Financing Activities 1,493 78,540
Net increase in cash 5,236 5,783
Cash, beginning of period 547 ---
-------- --------
Cash, end of period 5,783 5,783
======== ========
Supplemental disclosures for cash flow information:
CASH PAID FOR INTEREST:
Net cash paid for interest 5,607 5,607
Supplemental schedule of non-cash investing and financing activities:
Property and equipment funded through accounts payable 43 43
Discount on notes payable 95 95
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
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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 principal purpose of the Company
has been to develop and operate a casino entertainment complex in
Black Hawk, Colorado (the "Isle-Black Hawk"), which opened December
30, 1998. Prior to December 30, 1998, the Company was a Development
Stage Company and had not commenced gaming operations.
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
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interest out of the Transferred Interest for $714,000, which included
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 $500,000 which included 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 January 24, 1999 are not necessarily 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.
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. As
of January 24, 1999 and April 26, 1998 there were no cash equivalents.
Pre-opening costs
Pre-opening costs represent benefits, training, marketing and other
non-capitalizable costs necessary to open the casino entertainment
complex. These costs were initially capitalized and then expensed when
the related business commenced operations on December 30, 1998. The
Company recognized pre-opening costs of $3.3 million of which $0.9
million relates to salaries and wages and $2.4 million relates to
general operating expenses. From inception through the date operations
commenced, the Company's sole business activity was 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.
6
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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.
Revenue and promotional allowances
Casino revenue is the net win from gaming activities which is the
difference between gaming wins and losses. Casino revenues are
presented net of accruals for the anticipated payouts of progressive
electronic gaming device jackpots. Revenue does not include the
retail amount of food, beverage, and other items provided gratuitously
to customers. The cost of providing such complimentary services is
included in casino expense.
Note 2. Property and equipment
Property and equipment is recorded at cost except for land contributed
by Blackhawk Gold, which is recorded at its appraised value.
Depreciation began accumulating upon the commencement of gaming
operations and is computed using the straight-line method over the
estimated useful lives of the property and equipment, ranging from 5 -
25 years.
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 and Interest Reserve), with usage
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, equal
to approximately $4.1 million at January 24, 1999, will be used
to complete the construction of the Isle - Black Hawk. Amounts in the
Completion Reserve Account, approximately $0.9 million, will be used
in the event there are insufficient funds in the Construction
Disbursement Account to complete the Isle - Black Hawk. Amounts in the
Interest Reserve Account, approximately $4.5 million, were
subsequently used to pay the February 28, 1999 fixed interest payment
on the Notes.
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 of 13% First Mortgage
Notes with Contingent Interest, due August 31, 2004. 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
7
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of 5% of the Company's Consolidated Cash Flow (as defined in the
Indenture), provided that no Contingent Interest shall be payable,
with respect to the period prior to commencement of operations and
may, under certain circumstances, be deferred.
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:
Year Percentage
---- ----------
2001............................... 106.5%
2002............................... 103.2%
2003 and thereafter................ 100.0%
Beginning with respect to the four fiscal quarters ending January,
2000, 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 January 24, 1999, 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 purchase furniture, fixtures and
equipment for the Isle of Capri - Black Hawk. The remainder of the
furniture, fixtures and equipment needed for the Isle-Black Hawk was
acquired through operating leases with 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 the Company 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. The letter of credit is
secured by a deposit held in trust of $1.1 million, which was funded
by the IOC Corp., and the balance is secured by the IOC-Corp.'s open
line of credit with a bank.
Note 5. Related Party Transactions
Completion Capital Commitment. IOC-Corp. had provided a Completion
Capital Commitment pursuant to which it had 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. This Commitment expired on December 30, 1998,
upon the commencement of the Company's operations. No amounts were
funded under this Commitment.
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 is equal to two percent of revenue, plus ten percent of
operating income, but not to exceed four percent of revenue. The
management fee became effective upon commencement of casino
operations.
8
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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 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
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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 and results of
operations 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, or saturation of the Black Hawk market, environmental issues and changes in
gaming laws and regulations in the jurisdiction in which the Company operates.
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.
GENERAL
The Company was organized in April 1997 and was initially capitalized with cash
contributions from its members in the aggregate amount of $1,000. Until the
Isle-Black Hawk commenced operations on December 30, 1998, the Company's
activities had 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. The Isle-Black Hawk
commenced operations on December 30, 1998 and includes a 55,000 square foot
gaming facility featuring approximately 1,100 slot machines, 14 table games and
on-site covered parking for approximately 1,000 vehicles, and various other
amenities, including a Farraddays'(R) restaurant, Calypso's(R) buffet and
Tradewinds(R) deli. 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 Black Hawk, 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 is currently examining
alternatives with respect to the need to secure financing for the development of
the hotel.
The following discussion relates to the period for the three fiscal months and
the nine fiscal months ended January 24, 1999 and will not be compared to prior
year results since the Company 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 Company believes that its historical results will not be indicative of
future results of operations because the Company had no prior operating history
and due to the many economic, regulatory and competitive uncertainties and
contingencies, any of which are beyond the control of the Company.
10
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RESULTS OF OPERATIONS
The Company, having only recently commenced operations, does not have any
historical operating results for comparable purposes 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, consisting primarily of license and permit
application costs. The Company commenced operations on December 30, 1998. While
the Company believes that the Isle-Black Hawk 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 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.
Three and Nine Fiscal Months Ended January 24, 1999.
The Isle-Black Hawk opened for business December 30, 1998.
Total revenue for the quarter ended January 24, 1999 was $4.7 million, which
included $4.5 million of casino revenue and $0.2 million of food, beverage and
other revenue. Revenue does not reflect the retail value of any
complimentaries.
Casino operating expenses for the quarter ended January 24, 1999 totaled $0.6
million or 13% of casino revenue. These expenses were primarily comprised of
salaries, wages and benefits, and other operating expenses of the casino.
State and local gaming taxes paid in Colorado totaled $1.0 million for the
quarter ended January 24, 1999, in line with the applicable taxes assessed by
the state and local governing bodies.
Food, beverage and other expenses totaled $0.2 million, or 100% of food,
beverage and other revenues, for the quarter ended January 24, 1999. These
expenses are comprised primarily of the cost of goods sold, salaries, wages and
benefits and the operating expenses of these departments.
Facilities expenses totaled $0.2 million for the three months ended January 24,
1999. These expenses include salaries, wages and benefits, operating expenses
of the housekeeping and general maintenance of the property.
Marketing and administrative expenses totaled $2.0 million, or 43% of total
revenues for the quarter ended January 24, 1999. Marketing expenses included
salaries, wages and benefits of the marketing and sales department as well as
promotions, advertising, special events and entertainment. Administrative
expenses included administration and human resource department expenses, rent,
new development activities, professional fees and property taxes.
Upon the commencement of operations, the Company recognized pre-opening expenses
of $3.3 million. These expenses include pre-opening payroll, marketing and
other administrative costs.
Depreciation expense was $0.2 million for the quarter ended January 24, 1999.
These expenses relate to property and equipment placed in service upon the
commencement of operations.
Interest expense was $1.2 million and $3.0 million for the three months and nine
months ended January 24, 1999, respectively, net of capitalized interest of $1.6
million and $4.8 million, respectively. Interest income was $0.2 million and
$0.8 million for the three months and nine
11
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months respectively ended January 24, 1999. The Company had a net loss of $3.9
million and $5.2 million for the three and nine months ended January 24, 1999
respectively.
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
sale of the First Mortgage Notes. The Company funded 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 $1.6 million,
and (iv) net proceeds of approximately $2.4 million from the issuance of public
improvement bonds issued by the Black Hawk Special Improvement District in
August, 1998. The Company did not exercise an option under the Design/Build
Agreement to construct a 118-room hotel; however, the Company intends to
construct a hotel at the site of the Isle-Black Hawk at a later date which,
pursuant to an amendment to the Company's subdivision agreement with the City of
Black Hawk, must commence construction on or before June 15, 1999 and be
completed within 22 months of the commencement of construction. The hotel 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.
At January 24, 1999, the Company had cash of $5.8 million. During the one month
of operations ended January 24, 1999, the Company's operating activities
provided $3.3 million of cash.
The Company invested $39.0 million in property and equipment in the first nine
months of fiscal 1999, primarily for the development of the Isle-Black Hawk,
which opened December 30, 1998.
An important component of the Company's operating strategy is to develop, open
and operate a hotel facility at its gaming facility in order to attract
additional gaming patrons and encourage longer visits to and a greater level of
play at the Company's casino.
The Company expects that available cash and cash from future operations, as well
as financing arrangements, not yet finalized, will be adequate to fund the hotel
expansion, debt service and working capital requirements. The financing is
expected to include additional capital contributions and the incurrence of
additional indebtedness. However, no assurance can be made that the Company will
have sufficient capital resources to make all of the expenditures described
above or such capital investments that may be necessary to remain competitive in
the Company's market.
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 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 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
12
<PAGE>
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 malfunctions, 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.
13
<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 January 24, 1999, the Company filed the
following reports on Form 8-K:
None.
14
<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.
Dated: March 9, 1999 By: /s/ Rexford A. Yeisley
------------------------------------
Rexford A. Yeisley
Chief Financial Officer & Treasurer
(Duly Authorized Officer and
Principal Financial Officer
and Accounting Officer)
15
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 Financial Data Schedule
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ISLE OF
CAPRI BLACK HAWK LLC'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES TO SAID
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-25-1999
<PERIOD-START> APR-27-1998
<PERIOD-END> JAN-24-1999
<CASH> 5,783
<SECURITIES> 0
<RECEIVABLES> 3,196
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,275
<PP&E> 79,990
<DEPRECIATION> 234
<TOTAL-ASSETS> 102,791
<CURRENT-LIABILITIES> 18,883
<BONDS> 76,092
0
0
<COMMON> 0
<OTHER-SE> 7,816
<TOTAL-LIABILITY-AND-EQUITY> 102,791
<SALES> 0
<TOTAL-REVENUES> 4,667
<CGS> 0
<TOTAL-COSTS> 1,763
<OTHER-EXPENSES> 5,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,037
<INCOME-PRETAX> (5,157)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,157)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes Bonds payable of $75 million plus other long-term debt.
</FN>
</TABLE>
