<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 October 26, 1997
---------------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------------------------------------------
Commission File Number: 0-20538
-----------------------------------------------------
Casino America, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-1659606
- ------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
711 Washington Loop, Second Floor, Biloxi, Mississippi 39530
- -------------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(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
----- -----
Shares of Common Stock outstanding at December 5, 1997: 23,394,225
------------
<PAGE>
CASINO AMERICA, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
October 26, 1997 (unaudited)
and April 27, 1997 1-2
Consolidated Statements of
Operations for the Six Months
Ended October 26, 1997 and
October 31, 1996 (unaudited) 3
Consolidated Statements of
Cash Flows for the Six Months
Ended October 26, 1997 and
October 31,1996 (unaudited) 4-5
Consolidated Statement of
Stockholders' Equity (unaudited) 6
Notes to Unaudited Consolidated
Financial Statements 7-11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12-18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT LIST 22
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 26, 1997 APRIL 27, 1997
---------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,362,000 $ 51,846,000
Accounts receivable 5,452,000 5,108,000
Income taxes receivable 4,486,000 11,014,000
Deferred income taxes 5,350,000 5,350,000
Prepaid expenses and other assets 6,881,000 5,097,000
------------ ------------
TOTAL CURRENT ASSETS 66,531,000 78,415,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 53,734,000 38,844,000
Leasehold improvements 96,510,000 95,012,000
Buildings and improvements 42,365,000 32,358,000
Riverboats and floating pavilions 92,946,000 92,876,000
Furniture, fixtures and equipment 83,324,000 81,214,000
Construction in progress 13,676,000 3,269,000
------------ ------------
382,555,000 343,573,000
Less: Accumulated depreciation 70,492,000 58,339,000
------------ ------------
Property and equipment, net 312,063,000 285,234,000
------------ ------------
OTHER ASSETS:
Other investments 2,250,000 2,250,000
Property held for development or sale 7,943,000 7,943,000
Licenses, and other intangible assets
net of accumulated amortization of
$4,656,000 and $2,894,000, respectively 68,235,000 69,997,000
Goodwill, net of accumulated amortization of
$4,339,000 and $2,963,000, respectively 65,082,000 66,297,000
Berthing, concession and leasehold rights, net of
accumulated amortization of $1,680,000 and
$1,522,000, respectively 4,589,000 4,746,000
Deferred financing costs, net of accumulated
amortization of $2,003,000 and $1,378,000,
respectively 15,507,000 11,565,000
Restricted Cash 67,337,000 ---
Prepaid expenses, deposits and other 2,211,000 1,974,000
------------ ------------
233,154,000 164,772,000
------------ ------------
TOTAL ASSETS $611,748,000 $528,421,000
============ ============
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 26, 1997 APRIL 27, 1997
---------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 16,740,000 $ 14,905,000
Accounts payable - Trade 9,992,000 10,871,000
Accrued liabilities:
Interest 11,429,000 9,898,000
Payroll and payroll related 16,883,000 16,238,000
Property and other taxes 10,596,000 6,669,000
Progressive jackpots and slot club awards 4,977,000 5,566,000
Other 5,883,000 5,391,000
----------- -----------
TOTAL CURRENT LIABILITIES 76,500,000 69,538,000
----------- -----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 430,364,000 364,617,000
DEFERRED INCOME TAXES 16,293,000 16,293,000
MINORITY INTEREST 6,482,000 ---
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 2,050,000
shares authorized; none issued --- ---
Common stock, $0.01 par value; 45,000,000
shares authorized; shares issued and
outstanding: 23,394,225 and 23,345,287,
respectively 234,000 233,000
Class B common stock, $0.01 par value;
3,000,000 shares authorized; none issued --- ---
Additional paid-in capital 62,648,000 62,538,000
Retained earnings 19,227,000 15,202,000
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 82,109,000 77,973,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $611,748,000 $528,421,000
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 26 October 31 October 26 October 31
1997 1996 1997 1996
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUE:
Casino 95,821,000 $ 94,624,000 $194,968,000 $ 132,098,000
Rooms 1,695,000 3,274,000 4,773,000 5,457,000
Management fee - joint ventures --- 98,000 --- 2,110,000
Pari-mutuel commissions and fees 3,839,000 2,278,000 8,326,000 5,664,000
Food, beverage and other 4,918,000 5,785,000 9,943,000 8,847,000
------------ ------------- ------------ -------------
TOTAL REVENUE 106,273,000 106,059,000 218,010,000 154,176,000
------------ ------------- ------------ -------------
Operating expenses:
Casino 19,040,000 21,156,000 37,861,000 28,160,000
Rooms 552,000 537,000 1,681,000 1,418,000
Gaming taxes 19,196,000 18,281,000 38,894,000 23,229,000
Pari-mutuel 2,651,000 2,398,000 6,415,000 5,308,000
Food, beverage and other 3,981,000 5,424,000 7,455,000 7,599,000
Marine and facilities 6,081,000 6,699,000 11,922,000 9,420,000
Marketing and administrative 32,697,000 37,448,000 67,401,000 55,531,000
Preopening expenses --- 516,000 --- 2,500,000
Depreciation and amortization 8,143,000 8,075,000 16,422,000 11,448,000
------------ ------------- ------------ -------------
TOTAL OPERATING EXPENSES 92,341,000 100,534,000 188,051,000 144,613,000
------------ ------------- ------------ -------------
OPERATING INCOME 13,932,000 5,525,000 29,959,000 9,563,000
INTEREST EXPENSE, NET OF CAPITALIZED
INTEREST OF $578, $0, $672, AND
$0, RESPECTIVELY (13,070,000) (11,960,000) (24,634,000) (16,644,000)
INTEREST INCOME:
Related parties --- --- --- 203,000
Other 1,067,000 225,000 1,518,000 344,000
EQUITY IN INCOME OF UNCONSOLIDATED
JOINT VENTURES --- 255,000 --- 4,534,000
MINORITY INTEREST 321,000 --- 321,000 ---
------------ ------------- ------------ -------------
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM 2,250,000 (5,955,000) 7,164,000 (2,000,000)
INCOME TAX PROVISION (BENEFIT) 1,173,000 (998,000) 3,139,000 40,000
------------ ------------- ------------ -------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 1,077,000 (4,957,000) 4,025,000 (2,040,000)
EXTRAORDINARY ITEM (NET OF TAXES) --- (12,253,000) --- (12,253,000)
------------ ------------- ------------ -------------
NET INCOME (LOSS) $ 1,077,000 ($17,210,000) $ 4,025,000 ($14,293,000)
============ ============= ============ =============
INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM $0.05 ($0.21) $0.17 ($0.09)
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARES $0.05 ($0.74) $0.17 ($0.66)
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 23,385,000 23,229,000 23,369,000 21,669,000
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
October 26 October 31
1997 1996
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,025,000 $ (14,293,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 16,422,000 11,448,000
Amortization of bond discount and deferred
financing costs 856,000 721,000
Equity in income of unconsolidated joint
ventures --- (4,534,000)
Extraordinary loss on retirement of debt
(net of taxes) --- 12,253,000
Changes in current assets and liabilities:
Accounts receivable (131,000) 2,363,000
Income tax receivable 6,315,000 (2,386,000)
Prepaid expenses and other (1,640,000) (451,000)
Accounts payable and accrued liabilities 5,098,000 3,287,000
------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,945,000 8,408,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (31,969,000) (7,596,000)
Net cash paid for acquisitions (679,000) (81,168,000)
Proceeds from disposals of property and equipment 83,000 518,000
Minority interests (321,000) ---
Increase in restricted cash (67,337,000) ---
Other (354,000) 1,138,000
------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (100,577,000) (87,108,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 72,000,000 317,698,000
Principal payments on borrowings and cash paid
to retire debt (8,063,000) (205,182,000)
Deferred financing costs (1,797,000) (12,724,000)
Proceeds from sale of stock and exercise of options 8,000 18,357,000
------------ -------------
Net cash provided by financing activities 62,148,000 118,149,000
------------ -------------
Net increase (decrease) in cash and cash equivalents (7,484,000) 39,449,000
Cash and cash equivalents at beginning of period 51,846,000 18,585,000
------------ -------------
Cash and cash equivalents at end of period $ 44,362,000 $ 58,034,000
============ =============
</TABLE>
(Continued)
4
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
October 26 October 31
1997 1996
----------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest, net of amounts capitalized $23,103,000 $ 12,373,000
Income taxes, net of refunds received (2,395,000) 7,390,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Notes payable and debt issued for:
Land 396,000 ---
Property and equipment 30,000 514,000
Insurance premiums 420,000 573,000
Acquisitions:
Debt assumed --- (37,142,000)
Debt issued --- (90,328,000)
Stock issued --- (27,669,000)
Warrants issued --- (2,500,000)
Capital Contributions:
Land, net of mortgage of $396,000 7,604,000 ---
Financing fees 137,000 ---
Property and equipment 180,000 ---
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Shares of Additional Total
Common Common Paid-In Retained Stockholders'
Stock Stock Capital Earnings Equity
---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 27, 1997 23,345,287 $233,000 $62,538,000 $15,202,000 $77,973,000
Exercise of stock 8,438 --- 8,000 --- 8,000
options
Issuance of common stock
for compensation 40,500 1,000 102,000 --- 103,000
Net Income --- --- --- 4,025,000 4,025,000
---------- ---------- ----------- ----------- -------------
BALANCE, OCTOBER 26, 1997 23,394,225 $234,000 $62,648,000 $19,227,000 $82,109,000
========== ======== =========== =========== =============
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
CASINO AMERICA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
---------------------
Casino America, Inc. (the "Company") was incorporated as a Delaware
corporation on February 14, 1990. The Company, through its
subsidiaries, is engaged in the business of developing, owning and
operating riverboat, dockside and land based casinos and related
facilities. The Company has licenses to conduct gaming operations in
Biloxi and Vicksburg, Mississippi, and in Bossier City and Lake
Charles, Louisiana through its subsidiaries. The Company, through its
subsidiary, Casino America of Colorado, Inc., has applied for a
Colorado gaming license.
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 six-month period ended
October 26, 1997 are not necessarily indicative of the results that
may be expected for the fiscal year ending April 26, 1998. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended April 27, 1997.
Other Assets
------------
Licenses and other intangible assets - principally represent the
license value attributed to the Louisiana gaming licenses acquired
through the Company's acquisition of St. Charles Gaming Company, Inc.
("SCGC"), Grand Palais Riverboat, Inc. ("GPRI") and Louisiana
Riverboat Gaming Partnership ("LRGP"). These assets are being
amortized over a twenty-five-year period using the straight-line
method.
Goodwill - reflects the excess purchase price the Company paid in
acquiring the net identifiable tangible assets of SCGC, GPRI and LRGP.
Goodwill is being amortized over a twenty-five-year period using the
straight line method.
Restricted cash - represents cash proceeds from the 13% First Mortgage
Notes due 2004 with Contingent Interest issued by the Isle of Capri
Black Hawk L.L.C. (the "First Mortgage Notes") held in trust by IBJ
Schroder Bank and Trust in New York, as trustee for Isle of Capri
Black Hawk L.L.C. ("ICBH"), a majority owned subsidiary of the
Company. These funds are held in three separate accounts (Construction
Disbursement, Completion Reserve, Interest Reserve) with usage
restricted by an indenture between ICBH and the trustee, dated August
20, 1997 in connection with issuance of the ICBH First Mortgage Notes
(the "Indenture"). Amounts in the Construction Disbursement Account,
approximately $48.2 million, will be used for the development,
construction and opening of a casino entertainment complex by ICBH in
Colorado. Amounts in the Completion Reserve Account, approximately
$5.0 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 $14.1 million, will be used to pay the first three fixed
interest payments on the ICBH First Mortgage Notes, which were issued
pursuant to the Indenture.
7
<PAGE>
Impact of Recently Issued Accounting Standards
----------------------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share," which will become effective for both interim and annual
periods ending after December 15, 1997. SFAS No. 128 will require
companies to disclose basic and diluted earnings per share. Basic
earnings per share will be calculated based on the weighted average
common shares outstanding and would exclude common stock equivalents
from the calculation. The requirements of SFAS No. 128, based on
current circumstances, will not have a significant effect on the
Company's earnings per share calculations.
Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform with
the current presentation.
Note 2. Business Acquisitions
---------------------
Purchase of GPRI
----------------
On May 3, 1996, the Company purchased all of the outstanding shares of
common stock of GPRI in a bankruptcy proceeding (the "GPRI
Acquisition"). Pursuant to the Plan of Reorganization adopted in such
bankruptcy proceeding, the Company purchased 100% of the shares of the
reorganized GPRI, which at the time of closing owned the Grand Palais
riverboat casino, gaming equipment, certain other furniture, fixtures
and equipment, all necessary gaming licenses issued by the State of
Louisiana, and other permits and authorizations. The acquisition was
accounted for as a purchase, and the operating results of GPRI have
been included in the Company's consolidated income statement from the
date operations commenced. GPRI commenced operations on July 12, 1996
as part of a two-riverboat operation with SCGC. The aggregate
consideration paid by the Company in connection with the GPRI
acquisition was approximately $60.8 million, consisting of $7.5
million in cash, approximately $37.1 million in promissory notes and
assumed indebtedness. The Company also issued 2,250,000 shares of
its common stock, and five-year warrants to purchase an additional
500,000 shares of common stock at an exercise price of $10 per share,
to GPRI's former secured debt holders. Additionally, in connection
with the Grand Palais Acquisition, Bernard Goldstein, the Chairman of
the Company, and three of his sons (including Robert Goldstein, a
director of the Company) pledged certain of their assets for the
issuance of a letter of credit to secure the repayment of a portion of
the principal of certain notes issued to effect the Grand Palais
Acquisition. The Company issued to two of Mr. Goldstein's sons (other
than Robert Goldstein) a five-year warrant to purchase 12,500 shares
of Common Stock at an exercise price of $5.875 per share.
St. Charles Gaming Company
--------------------------
On May 3, 1996, the Company also purchased the remaining 50% interest
in SCGC not already owned by LRGP (the "SCGC Acquisition"), in
exchange for 1,850,000 shares of the Company's common stock and a
five-year warrant. The warrant allows the seller to convert its note
payable to LRGP (up to a maximum of $5,000,000) to 416,667 shares of
common stock of the Company at an exercise price of $12 per share.
The purchase agreement also provided for the restructuring of certain
indebtedness owed to the seller. The acquisition was accounted for as
a purchase, however, the operating results of SCGC were still
accounted for under the equity method of accounting as the Company did
not obtain a controlling interest in SCGC.
8
<PAGE>
Louisiana Riverboat Gaming Partnership
--------------------------------------
On August 6, 1996, the Company acquired the remaining 50% interest in
LRGP held by outside parties (the "LRGP Acquisition"). The
consideration for the acquisition was $85 million in cash, five-year
warrants to purchase 500,000 shares of the Company's common stock at
an exercise price of $10.50 per share and $1.5 million per year for
seven years, payable monthly beginning on October 1, 1998. The
acquisition was accounted for as a purchase, and as a result of this
acquisition, the operating results of LRGP and SCGC, from the
acquisition date forward are consolidated in the Company's financial
statements.
Pro forma Information
---------------------
The following unaudited consolidated pro forma information shows the
results of the Company's operations as though the SCGC Acquisition,
the LRGP Acquisition and the GPRI Acquisition had occurred at May 1,
1996. Other than amortization of the related intangible assets and
interest on debt incurred to effect the GPRI Acquisition, adjustments
related to the pre-bankruptcy operations of GPRI have not been
included in the pro forma results of operations for the three months
ended July 31, 1996 because the pre-bankruptcy operations of GPRI were
very limited and substantially different than the post-acquisition
operations. The pro forma results are not necessarily indicative of
the future results or actual results that would have occurred had the
purchase been made at the beginning of the period presented.
Six Months Ended
October 31,1996
-------------------
Total revenue $220,603,000
Operating income 20,813,000
Net loss before extraordinary item (2,686,000)
Net loss before extraordinary item per common
and common equivalent share $ (.12)
Note 3. Joint Venture
-------------
In June 1997, the Company entered into a joint venture agreement to
develop the Isle-Black Hawk. As of October 26, 1997, the Company owns
approximately 60% of ICBH and as such, ICBH is considered to be a
consolidated subsidiary of the Company. On August 20, 1997, ICBH
issued $75 million of 13% First Mortgage Notes due 2004 with
Contingent Interest, which is non-recourse debt to the joint venture
partners. The net proceeds of the issuance will be used to fund the
development of the Isle-Black Hawk. The project, which broke ground on
August 25, 1997, is estimated to cost approximately $104 million and
is expected to be completed in early 1999. The Company has made
capital investments into the project totaling approximately $8.2
million. Additionally, the Company has provided a completion capital
commitment of up to $5.0 million, which is required to be paid if the
facility has not commenced operations by April 1, 1999.
9
<PAGE>
Note 4. Operating Expenses
------------------
On July 12, 1996, GPRI commenced operations as part of a two-boat
operation and expanded pavilion at the Isle-Lake Charles. The Company
incurred $516,000 and $2,500,000 of preopening expenses in connection
with the opening of GPRI during the three-month period ended October
31, 1996 and the six-month period ended October 31, 1996,
respectively.
Note 5. Long-term Debt
--------------
On August 6, 1996, the Company issued $315,000,000 of 12 1/2% Senior
Secured Notes due 2003 (the "Senior Secured Notes"). Interest on the
Senior Secured Notes is payable semiannually on each February 1 and
August 1 through maturity. The Senior Secured Notes are redeemable at
the option of the Company, in whole or in part, at any time on or
after August 1, 2000 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 1, of the years indicated below:
Year Percentage
---- ----------
2000..................... 106.250%
2001..................... 103.125%
2002 and thereafter...... 100.000%
The Senior Secured Notes restrict, among other things: (i) the
incurrence of additional debt, except under certain circumstances
including meeting certain pro forma coverage tests; (ii) the payment
of dividends on and redemptions of capital stock; (iii) the businesses
in which the Company may engage; (iv) the use of proceeds from the
sale of assets; (v) transactions with affiliates; (vi) the creation of
liens; and (vii) sale and leaseback transactions. At October 26,
1997, no dividends were permitted to be paid under these restrictions.
Part of the proceeds from the Senior Secured Notes were used to prepay
or defease long-term debt, including the $105,000,000 of 11 1/2% First
Mortgage Notes due 2001. The proceeds were also used to pay accrued
interest and other costs, as well as to consummate the LRGP
Acquisition.
The Company has $5,500,000 available in bank lines of credit. As of
October 26, 1997, the Company had no outstanding balances under these
lines of credit.
Substantially all of the Company's assets are pledged as collateral
for long-term debt. At October 26, 1997, the Company was either in
compliance with all debt covenants or had obtained waivers.
On August 20, 1997, the ICBH issued $75 million of 13% First Mortgage
Notes due 2004, with Contingent Interest which is non-recourse debt to
the joint venture partners. Interest on the ICBH First Mortgage Notes
(the "ICBH First Mortgage Notes"), is payable semiannually on February
28 and August 31 of each year, commencing February 28, 1998.
Additionally, contingent interest is payable on the ICBH First
Mortgage Notes on each interest payment date, in an aggregate
principal amount of 5% of the Consolidated Cash Flow (as defined in
the Indenture) provided that no Contingent Interest is payable prior
to commencement to operations payment. The ICBH First Mortgage Notes
are redeemable at the option of the ICBH, 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
10
<PAGE>
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 the first operating year after the Isle-Black Hawk
begins gaming operations, ICBH will be required to offer to purchase,
at the price of 101% of the aggregate principal amount thereof, the
maximum principal amount of the ICBH First Mortgage Notes that may be
purchased with 50% of the Isle-Black Hawk's excess cash flow.
Substantially all of ICBH's assets are pledged as collateral for long-
term debt.
Note 6. Contingencies
-------------
The Company has challenged a statute that purportedly permits the
Bossier Parish Police Jury to levy an additional $.50 boarding fee per
passenger against LRGP beginning January 1, 1996. The Company's
challenge has been denied at the state trial court level, however, the
Company has appealed the decision. If the ruling is upheld, the
Company is required to pay the Bossier Parish Police Jury
approximately $3,036,000 as of October 26, 1997, for prior unpaid
boarding fees, plus a continuing $.50 fee per passenger at the Bossier
City facility. This liability has been fully recorded.
Subsequent to October 26, 1997, LRGP was assessed and has paid
approximately $1,044,000 of sales and use tax on the construction cost
of its riverboat casino vessel. The Company believes that this tax
has been improperly imposed and has paid the tax under protest. The
Company will vigorously defend its position regarding the assessment
of this tax and believes it will ultimately be reimbursed in full.
The tax payment has been capitalized as part of the cost of the vessel
and will be depreciated over its remaining useful life.
11
<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 unaudited consolidated financial statements, including the
notes thereto, 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
markets, the Company's plans to make capital investments at its facilities,
including, without limitation, considerations to develop hotels at the Isle-
Bossier City and the Isle-Lake Charles, to develop a casino entertainment
complex at the Isle-Black Hawk and the expansion of non-gaming amenities at all
facilities, 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 and unforeseen delays resulting from site
conditions, a failure to obtain necessary approvals, the Company's limited
experience in developing hotel operations, and changes in gaming laws and
regulations in the jurisdictions 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 prospectus dated August
1, 1996 relating to the issuance of the Company's Senior Secured Notes. For
further information, refer to the Company's Form S-4 Registration Statement,
filed with the Securities and Exchange Commission, Registration No. 333-38093.
GENERAL
The Company's results of operations for the six fiscal months ended October 26,
1997 reflect the consolidated operations of all of the Company's subsidiaries,
including Isle of Capri Casino in Biloxi, Mississippi (the "Isle-Biloxi"), Isle
of Capri Casino in Vicksburg, Mississippi (the "Isle-Vicksburg"), Isle of Capri
Casino in Bossier City, Louisiana (the "Isle-Bossier City"), Isle of Capri
Casino in Lake Charles, Louisiana (the "Isle-Lake Charles"), Pompano Park, Inc.
("PPI") and the Isle of Capri-Black Hawk. The LRGP Acquisition, consummated
August 6, 1996, gave the Company 100% ownership in the Isle-Bossier City and the
Isle-Lake Charles, allowing the Company to consolidate their results of
operations beginning in the quarter ended October 31, 1996. Previously, the
Company reported its interests in the Isle-Bossier City and the Isle-Lake
Charles using the equity method of accounting. The Company believes that its
results of operations for the six fiscal months ended October 26, 1997 are not
readily comparable to the results of operations for the six months ended October
31, 1996 primarily because of the consolidation of the results of operations of
the Isle-Bossier City and the Isle-Lake Charles. Furthermore, the historical
results of operations reflect the Isle-Lake Charles as a single riverboat
operation. The Isle-Lake Charles has operated two riverboats since July 12, 1996
as a result of the GPRI Acquisition. The three months ended October 31, 1996 was
the first full quarter of operating results for GPRI. Because of the lack of
comparable information on a consolidated basis, for the six fiscal months ended
October 26, 1997, the following discussion will focus on certain events and
trends that affected the Company's consolidated operations during this period
and comparable data on a location basis.
The Company believes that its historical results may not be indicative of future
results of operations because of the substantial present and expected future
increase in gaming competition for gaming customers in each of the Company's
markets as new casinos open and as existing casinos add to or enhance their
facilities. As the markets in which the Company operates have matured, it has
12
<PAGE>
become apparent to management that the Company's operating results are effected
by seasonality. Seasonality causes the operating results for the Company's first
and fourth fiscal quarters ending July and April, respectively, to be
notably better than the second and third fiscal quarters ending October and
January, respectively.
RESULTS OF OPERATIONS
Three Fiscal Months Ended October 26, 1997 - Consolidated Company
Total revenue for the quarter ended October 26, 1997 was $106.3 million which
included $95.8 million of casino revenue, $1.7 million of rooms revenue, $3.8 of
pari-mutuel commissions, and $4.9 million of food, beverage and other revenue.
Comparably, total revenue for the quarter ended October 31, 1996 was $106.1
million which included $94.6 million of casino revenue, $3.3 million of rooms
and other revenue, $2.3 million of para-mutuel commissions, and $5.8 million of
food, beverage and other revenue. The consolidated revenue of the Company
reflects the inclusion of the Isle-Bossier City and the Isle-Lake Charles into
the Company's consolidated financial statements as a result of the LRGP
Acquisition. Also, as a result of the LRGP Acquisition, management fees are not
reported for periods subsequent to the date of acquisition because these amounts
have been eliminated in consolidation. Casino revenues have increased as a
result of the Company's shift to direct response marketing, even though the
markets in which the Company operates have become more competitive. Relatedly,
rooms revenue and food, beverage and other revenue have decreased as a result of
the increased competition in the Company's market and as a result of the shift
to direct response marketing which has increased complimentaries. Revenue does
not reflect the retail value of any complimentaries. Pari-mutuel revenues have
increased as a result of an increased number of "live" race days, increased
simulcasting and the addition of a limited stakes poker room at PPI.
Casino operating expenses for the quarter ended October 26, 1997 totaled $19.0
million, or 20% of casino revenue versus $21.2 million, or 22% of casino revenue
for the three months ended October 31, 1996. These expenses were primarily
comprised of salaries, wages and benefits, and other operating expenses of the
casinos. Casino operating expenses have been reduced as a result of management's
expense reduction efforts.
Operating expenses for the quarter ended October 26, 1997 also included room
expenses of $0.6 million from the hotels at the Isle-Biloxi, Isle-Bossier City
and the "Inn" at the Isle-Lake Charles. Comparably, operating expenses for the
three months ended October 31, 1996 included $.5 million of rooms expenses from
the hotels at the Isle-Biloxi and the Isle-Bossier City. These expenses were
those directly relating 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. Rooms expense increased as a result of the addition of the
"Inn" at the Isle-Lake Charles, which opened in September, 1997.
State and local gaming taxes paid in Mississippi and Louisiana totaled $19.2
million for the quarter ended October 26, 1997 versus $18.3 million for the
three months ended October 31, 1996, which is consistent with each state's
applicable gaming tax rate. The increase in gaming taxes paid is a result of the
increase in casino revenues.
Food and beverage and other expenses totaled $4.0 million for the quarter ended
October 26, 1997 versus $5.4 million for the quarter ended October 31, 1996.
These expenses are comprised primarily of the cost of goods sold, salaries,
wages and benefits, and the operating expenses of these departments. Food,
beverage and other expenses have decreased as a result of management's expense
reduction efforts.
Marine and facilities expenses totaled $6.1 million for the three fiscal months
ended October 26, 1997 versus $6.7 million for the quarter ended October 31,
1996. These expenses included salaries, wages and benefits, operating expenses
of the marine crews, insurance, housekeeping and
13
<PAGE>
general maintenance of the riverboats and floating pavilions. Marine and
facilities expenses have decreased as a result of management's expense reduction
efforts.
Marketing and administrative expenses totaled $32.7 million for the quarter
ended October 26, 1997 versus $37.4 million for the quarter ended October 31,
1996. Marketing expenses included salaries, wages and benefits of the marketing
and sales departments 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. Marketing and administrative expenses have decreased
as a result of the Company's shift to direct response marketing and management's
expense reduction efforts.
Depreciation and amortization expense was $8.1 million for the quarter ended
October 26, 1997, and for the quarter ended October 31, 1996. These expenses
relate to property and equipment, berthing and concession rights, and intangible
assets.
Interest expense was $12.0 million for the quarter ended October 26, 1997 net of
capitalized interest of $.6 million and interest income of $1.1 million versus
$11.7 million for the quarter ended October 31, 1996, net of interest income of
$0.2 million. Interest expense primarily relates to indebtedness incurred in
connection with the acquisition of property, equipment, leasehold improvements
and berthing and concession rights, as well as indebtedness relating to the
purchase of the remaining interest in LRGP.
The Company's effective tax rate for the quarter was approximately 52%,
primarily due to non-deductible goodwill amortization.
The Company had net income of $1.1 million for the quarter ended October 26,
1997, as compared to a net loss of $17.2 million in the comparable quarter in
fiscal 1997. The increase in net income relates primarily to a $12.3 million
extraordinary after-tax charge taken in the prior year's quarter resulting from
the issuance of the Senior Secured Notes in August 1996. The remainder of the
increase in net income is a result of the Company's shift to direct response
marketing combined with expense reductions.
Three Fiscal Months Ended October 26, 1997, Compared to Three Months Ended
October 31, 1996-By Casino Location
Isle-Biloxi
- -----------
For the quarter ended October 26, 1997, the Isle-Biloxi had total revenue of
$24.0 million of which $20.5 million was casino revenue, compared to total
revenue of $22.9 million of which $19.0 million was casino revenue for the
quarter ended October 31, 1996. The increase in revenue relates primarily to
increased utilization of its 367-room hotel through improved management of the
casino's player database. Operating income for the three fiscal months ended
October 26, 1997 totaled $4.8 million or 20% of total revenues compared to $4.3
million or 19% for the three months ended October 31, 1996. Increased operating
income margin is due primarily to improved operating efficiency, as a result of
reduced expenses combined with a shift to direct response marketing.
Isle-Vicksburg
- --------------
For the quarter ended October 26, 1997, the Isle-Vicksburg had total revenue of
$12.0 million of which $11.5 million was casino revenue, compared to total
revenue of $13.5 million of which $12.9 million was casino revenue for the
quarter ended October 31, 1996. The decrease in revenue relates primarily to
the impact of increased competition and the overall weakness of the market.
Operating Income for the three fiscal months ended October 26, 1997 totaled $2.0
million or 17% of total revenue compared to $1.6 million or 12% for the three
months ended October 31, 1996. Increased operating income margin is due
primarily to reductions in expenses combined with a shift to direct response
marketing.
14
<PAGE>
Isle-Bossier City
- -----------------
For the quarter ended October 26, 1997, the Isle-Bossier City had total revenue
of $30.6 million of which $29.6 million was casino revenue, compared to total
revenue of $36.8 million of which $34.0 million was casino revenue for the
quarter ended October 31, 1996. The decrease in revenue relates primarily to
the addition of a new competitor in the market and the impact of increased
promotional activities by competitors in the market. Operating income for the
three fiscal months ended October 26, 1997 totaled $6.0 million or 20% of total
revenue compared to $4.9 million or 13% for the three months ended October 31,
1996. Increased operating income margin is due primarily to a reduction in
expenses combined with a shift to direct response marketing.
Isle-Lake Charles
- -----------------
For the quarter ended October 26, 1997, the Isle-Lake Charles had total revenue
of $35.0 million of which $34.1 million was casino revenue, compared to total
revenue of $32.9 million of which $31.8 million was casino revenue for the
quarter ended October 31, 1996. Operating income for the three months ended
October 26, 1997 totaled $5.1 million or 15% of total revenue compared to a loss
of $1.0 million for the three months ended October 31, 1996. The increase in
revenue has resulted from increased use of the casino's player database, the
increased utilization of the Isle-Lake Charles' entertainment center and the
opening of its 241-room Inn at the Isle in September 1997. The operating income
increase relates to improved overall operating efficiency, primarily resulting
from expense reductions combined with a shift to direct response marketing.
Six Months Ended October 26, 1997 - Consolidated Company
Total revenue for the six months ended October 26, 1997 was $218.0 million which
included $195.0 million of casino revenue, $4.8 million of rooms revenue, $8.3
million of pari mutuel commissions, and $9.9 million of food, beverage and other
revenue. Revenues do not reflect the retail value of any complimentaries.
Casino operating expenses for the six-month period totaled $37.9 million, or 19%
of casino revenue versus $28.2 million, or 21% of casino revenue for the six
months ended October 31, 1996. These expenses were primarily comprised of
salaries, wages and benefits, and operating and promotional expenses of the
casino.
Operating expenses for the six-month period also included room expenses of $1.7
million from the hotels at the Isle - Biloxi, the Isle - Bossier City and the
Isle - Lake Charles. These expenses were those directly relating 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.
State and local gaming taxes paid in Mississippi and Louisiana totaled $38.9
million for the six-month period ended October 26, 1997, which is consistent
with the gaming tax rate for previous periods.
Food and beverage expenses totaled $7.5 million for the six-month period ended
October 26, 1997. These expenses are comprised primarily of the cost of goods
sold, salaries, wages and benefits, and the operating expenses of these
departments.
Marine and facilities expenses totaled $11.9 million for the six-month period
ended October 26, 1997 and include salaries, wages and benefits, operating
expenses of the marine crews, insurance, housekeeping and general maintenance of
the riverboats and floating pavilions.
Marketing and administrative expenses totaled $67.4 million for the six-month
period. Marketing expenses included salaries, wages and benefits of the
marketing and sales departments 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.
15
<PAGE>
Depreciation and amortization expense was $16.4 million for the six-month
period. These expenses relate to property and equipment, berthing and
concession rights, and intangible assets.
Six Months Ended October 26, 1997, Compared to Six Months Ended October 31, 1996
- - By Casino Location
Isle - Biloxi
- -------------
For the six months ended October 26, 1997, the Isle - Biloxi had total revenue
of $47.5 million of which $40.3 million was casino revenue, compared to total
revenue of $46.0 million of which $38.1 million was casino revenue for the six
months ended October 31, 1996. The increase in revenue relates to increased
casino traffic, resulting from improved database customer utilization of its
367-room hotel. Operating income for the six fiscal months ended October 26,
1997 totaled $8.9 million or 19% of total revenue compared to $8.0 million or
17% of total revenue for the six months ended October 31, 1996. Increased
operating income and operating income margin are due primarily to improved
operating efficiency as a result of expense reduction combined with a shift to
direct response marketing.
Isle - Vicksburg
- ----------------
For the six months ended October 26, 1997, the Isle - Vicksburg had total
revenue of $25.4 million of which $24.3 million was casino revenue, compared to
total revenue of $28.2 million of which $26.8 million was casino revenue for the
six months ended October 31, 1996. Operating income for the six months ended
October 26, 1997 totaled $4.9 million or 19% of total revenue compared to $3.8
million or 14% of total revenue for the six months ended October 31, 1996. The
decrease in revenue relates primarily to the impact of increased competition and
the overall weakness of the market. The increase in operating income is a result
of expense reduction combined with a shift to direct response marketing.
Isle - Bossier City
- -------------------
For the six months ended October 26, 1997, the Isle - Bossier City had total
revenue of $65.0 million of which $61.6 million was casino revenue, compared to
total revenue of $77.2 million of which $71.3 million was casino revenue for the
six months ended October 31, 1996. Operating income for the six months ended
October 26, 1997 totaled $12.6 million or 19% of total revenue compared to $13.6
million or 18% of total revenue for the six months ended October 31, 1996. The
decrease in revenue and operating income relates primarily to the addition of a
new competitor in the market in October, 1996, resulting in increased
promotional activities by the Isle-Bossier City and its competitors in the
market.
Isle - Lake Charles
- -------------------
For the six months ended October 26, 1997, the Isle - Lake Charles had total
revenue of $70.4 million of which $68.6 million was casino revenue, compared to
total revenue of $61.8 million of which $59.6 million was casino revenue for the
six months ended October 31, 1996. The increase in revenue relates to the
commencement of a two-boat operation on July 12, 1996, improved usage of the
casino's player database, the increased utilization of the Isle-Lake Charles'
entertainment center and the opening of its 241 room Inn at the Isle in
September 1997. Operating income for the six months ended October 26, 1997
totaled $11.2 million or 16% of total revenue compared to an operating income of
$4.4 million or 7% of total revenue for the six months ended October 31, 1996.
The operating performance at the Isle - Lake Charles has been positively
impacted by the addition of the second riverboat casino, direct response
marketing and reductions in expenses.
16
<PAGE>
Liquidity and Capital Resources
At October 26, 1997, the Company had cash and cash equivalents of $44.3 million
compared to $51.8 million at April 27, 1997. The decrease in cash is primarily
a result of the Company's capital expenditures. During the six month period
ended October 26, 1997, the Company's operating activities provided $30.9
million of cash compared to $8.4 million of cash flow provided by operating
activities in the first six months of fiscal 1997.
The Company invested $32.0 million in property and equipment in the first six
months of fiscal 1998, primarily for the construction of its 241-room hotel at
the Isle-Lake Charles which commenced operation in September, 1997, and for the
development of the Isle-Black Hawk, which is currently under construction and
scheduled to open in early 1999. Additionally, capital expenditures were made in
connection with the completion of the remodeling of the pavilion and the
addition of Farraddays' restaurant at the Isle-Bossier City, which opened in
July 1997, the addition of Farraddays' restaurant at the Isle-Lake Charles,
which opened in September 1997, and the additions of Farraddays' restaurants at
the Isle-Biloxi and Isle-Vicksburg, which are both currently under construction.
The Company has also incurred capital expenditures related to the development of
a 305-room hotel at the Isle-Bossier City, for which the Company recently
obtained a financing commitment.
On May 3, 1996, the Company purchased all of the common stock of GPRI. The
aggregate consideration paid by the Company in the Grand Palais Acquisition was
approximately $60.8 million, consisting of cash in the amount of approximately
$7.5 million, notes and the assumption of indebtedness of approximately $37.1
million, 2,250,000 shares of Common Stock and warrants to purchase an additional
500,000 shares of Common Stock at an exercise price of $10.00 per share. On the
same date, the Company consummated the SCGC Acquisition for 1,850,000 shares of
Common Stock and restructured the terms of an existing $20.0 million note
previously issued to Crown Casino.
In July and August, 1996, the Company received an aggregate of $18.1 million
from the issuance of 3,079,980 shares of common stock issued pursuant to the
Rights Offering.
On August 6, 1996, the Company issued $315,000,000 of 12 1/2% Senior Secured
Notes due 2003. Interest on the Senior Secured Notes is payable semiannually on
each February 1 and August 1, commencing February 1, 1997, through maturity.
Part of the proceeds from the Senior Secured Notes were used to retire or
defease $180,285,000 in long-term debt, including $105,000,000 of 11 1/2% First
Mortgage Notes due 2001. The proceeds were also used to pay accrued interest and
other costs of $16,396,000 and to acquire the remaining 50% interest in LRGP and
LRG Hotels, L.L.C. held by Louisiana River Site Development, Inc. The
consideration for the LRGP Acquisition included $85,000,000 in cash, five-year
warrants to purchase 500,000 shares of common stock at an exercise price of
$10.50 per share, and $1.5 million per year for seven years, payable monthly
beginning on October 1, 1998.
On August 20, 1997, Isle of Capri Black Hawk L.L.C., a joint venture of which
the Company owns approximately 60%, issued $75 million of its 13% First Mortgage
Notes due 2004 with Contingent Interest, which is non-recourse debt to the joint
venture partners. Interest is payable semiannually on each February 28 and
August 31, commencing February 28, 1998. Additionally, contingent interest is
payable on the First Mortgage Notes on each interest payment date, in an
aggregate principal amount equal to 5% of the Company's Consolidated Cash Flow
(as defined in the Indenture), provided that no Contingent Interest is payable
prior to commencement of operations and may be deferred under certain
circumstances. The net proceeds of the issuance are being used to fund the
development of the Isle of Capri casino entertainment complex in Black Hawk,
Colorado. Interest payments due on February 28, 1998, August 31, 1998 and
February 28, 1999 have been placed in escrow at the discounted amount.
17
<PAGE>
Additionally, the Company has provided a completion capital commitment of up to
$5.0 million, which is required to be paid if the Facility has not commenced
operations by April 1, 1999.
An important component of the Company's operating strategy will be to develop,
open and operate, either directly, through a hotel joint venture or otherwise,
hotel facilities at its gaming facilities in order to attract additional gaming
patrons and encourage longer visits to and a greater level of play at the
Company's casinos. The Company has secured a financing commitment for the
development of a 305-room hotel at the Isle-Bossier City. Construction of this
hotel facility is scheduled to begin during the third quarter of fiscal 1998.
The Company is currently seeking financing and/or a joint venture partner for
another hotel at the Isle-Lake Charles. Construction of this hotel facility
will not begin until such financing and/or a joint venture partner or partners
are obtained.
The Company anticipates that its principal near-term capital requirements will
relate to the addition of a Farraddays' restaurant at the Isle-Vicksburg and the
Isle-Biloxi and investment in the hotel project adjacent to the Isle-Bossier
City.
The Company is not presently committed to making any significant capital
expenditures or investment in a new gaming market, other than discussed above.
However, the Company, in addition to possibly developing hotels at its existing
properties, is considering making certain capital improvements to its land-based
facilities at the Isle-Vicksburg and that enhancements to its non-gaming
amenities at all facilities will be important to operations at those facilities.
The Company may, in the future, also consider making certain capital
improvements to its land based facility and expanding its casino square footage
at the Isle-Biloxi. In addition, the Company may consider making investments in
jurisdictions where gaming is presently permitted and in jurisdictions where
gaming is not presently permitted, but in which it believes that gaming may be
legalized in the future.
The Company expects that available cash and cash from future operations will be
adequate to fund planned capital expenditures, debt service and working capital
requirements. However, no assurance can be made that the Company will have
sufficient capital resources to make all of the planned capital expenditures
described above or such capital investments that may be necessary to remain
competitive in the Company's markets. In addition, the Indenture governing the
Senior Secured Notes places certain limits on the Company's ability to incur
additional indebtedness and to make certain investments. The Company is highly
leveraged and, as a result, may be unable to obtain additional debt or equity
financing on terms acceptable to the Company. As a result, limitations on the
Company's capital resources could delay certain plans with respect to capital
improvements at the Company's existing properties. Furthermore, the Company
will continue to evaluate its planned capital expenditures at each location in
light of the operating performance of the respective facilities at such
locations.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company and its Chairman, Bernard Goldstein, were named as
defendants in a lawsuit entitled "Martin B. Greenberg v. Casino
America, Inc. and Bernard Goldstein, individually," which was filed on
January 23, 1997 in the United States District Court for the Southern
District of Florida, Fort Lauderdale Division. The lawsuit alleges
that the Company purportedly breached a contract of employment between
Mr. Greenberg and the Company concerning Mr. Greenberg's employment as
Chairman of the Board of the Company's Pompano Park subsidiary. The
suit makes a claim for damages against the Company, and against its
Chairman for related matters, in an unspecified amount.
The Company has been named, along with two gaming equipment suppliers,
41 of the country's largest gaming operators and four gaming
distributors (the "Gaming Industry Defendants") in a consolidated
class action lawsuit pending in Las Vegas, Nevada. The suit alleges
that the Gaming Industry Defendants violated the Racketeer Influenced
and Corrupt Organizations Act by engaging in a course of fraudulent
and misleading conduct intended to induce people to play their gaming
machines based upon a false belief concerning how those gaming
machines actually operate, as well as the extent to which there is
actually an opportunity to win on any given play. The suit seeks
unspecified compensatory and punitive damages. The actions are in the
early stages of discovery and preliminary motions. The Company is
unable at this time to determine what effect, if any, the suit would
have on its financial position or results of operations.
The Company has challenged a statute that purportedly permits the
Bossier Parish Police Jury to levy an additional $.50 boarding fee per
passenger against LRGP beginning January 1, 1996. The Company's
challenge has been denied at the state trial court level, however, the
Company has appealed the decision. If the ruling is upheld, the
Company would have to pay the Bossier Parish Police Jury approximately
$2,723,000 as of October 26, 1997, for prior unpaid boarding fees,
plus a continuing $.50 fee per passenger at LRGP. This liability has
been fully recorded.
LRGP has been named as a defendant in a lawsuit entitled Bossier
Parish School Board v. City of Bossier, Louisiana Riverboat Gaming
Partnership d/b/a Isle of Capri, Bossier City, and Horseshoe
Entertainment, a Louisiana limited partnership with new Gaming Capital
Partnership, a Nevada corporation as its General Partner which was
filed in the Twenty-Sixth Judicial District Court, Parish of Bossier,
Louisiana, on August 26, 1997, and which seeks to nullify a contract
to which LRGP is a party. Pursuant to the contract, LRGP pays a fixed
amount plus a percent of revenue to various local governmental
entities, including the City of Bossier (the "City"), and the Bossier
Parish School Board (the "School Board"), in lieu of payment of a
boarding fee per passenger. The School Board also seeks to have the
City pay the School Board fifteen (15%) percent of all revenues
derived by the City to date, less any previous payments. The lawsuit
is in the early stages, and the Company is unable to make any
prediction on the outcome at this time. The Company intends to
vigorously defend the action.
The Company is engaged in various matters of litigation and has a
number of unresolved claims pending. While the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, it is the opinion of management that such liability is not
likely to be material to the Company's consolidated financial position
or results of operations.
19
<PAGE>
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 the 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 second quarter ended October 26, 1997, the Company filed
the following reports on Form 8-K for the following dates:
None
20
<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.
CASINO AMERICA, INC.
Dated: December 10, 1997 By: /s/ Rexford A. Yeisley
----------------------
Rexford A. Yeisley
Chief Financial Officer & Treasurer
(Duly Authorized Officer and
Principal Financial Officer
and Accounting Officer)
21
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 Financial Data Schedule
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CASINO
AMERICA, INC.'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> 6-MOS
<FISCAL-YEAR-END> APR-26-1998
<PERIOD-START> APR-28-1997
<PERIOD-END> OCT-26-1997
<CASH> 44,362
<SECURITIES> 0
<RECEIVABLES> 5,452
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,531
<PP&E> 382,555
<DEPRECIATION> 70,492
<TOTAL-ASSETS> 611,748
<CURRENT-LIABILITIES> 76,500
<BONDS> 430,364<F1>
0
0
<COMMON> 234
<OTHER-SE> 81,875
<TOTAL-LIABILITY-AND-EQUITY> 611,748
<SALES> 0
<TOTAL-REVENUES> 218,010
<CGS> 0
<TOTAL-COSTS> 92,306
<OTHER-EXPENSES> 95,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,634
<INCOME-PRETAX> 7,164
<INCOME-TAX> 3,139
<INCOME-CONTINUING> 4,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,025
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<FN>
<F1>Includes Bonds payable of $315 million, $75 million plus other long-term debt.
</FN>
</TABLE>
