<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 25, 1998
-----------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
-----------------------------------------
Commission File Number: 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 March 6, 1998: 23,568,562
---------------------
<PAGE>
CASINO AMERICA, INC.
FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
January 25, 1998 (unaudited) and
April 27, 1997 1-2
Consolidated Statements of
Operations for the Three Months and
Nine Months Ended January 25, 1998
and January 31, 1997 (unaudited) 3
Consolidated Statements of
Cash Flows for the Nine Months
Ended January 25, 1998 and
January 31,1997 (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 19-20
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>
JANUARY 25, 1998 APRIL 27, 1997
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,628,000 $ 51,846,000
Accounts receivable 7,171,000 5,108,000
Income taxes receivable 4,414,000 11,014,000
Deferred income taxes 5,350,000 5,350,000
Prepaid expenses and other assets 6,960,000 5,097,000
------------ ------------
TOTAL CURRENT ASSETS 71,523,000 78,415,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements 58,345,000 38,844,000
Leasehold improvements 97,272,000 95,012,000
Buildings and improvements 45,463,000 32,358,000
Riverboats and floating pavilions 92,973,000 92,876,000
Furniture, fixtures and equipment 86,654,000 81,214,000
Construction in progress 15,817,000 3,269,000
------------ ------------
396,524,000 343,573,000
Less: Accumulated depreciation 77,241,000 58,339,000
------------ ------------
Property and equipment, net 319,283,000 285,234,000
------------ ------------
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
$5,356,000 and $2,894,000, respectively 67,535,000 69,997,000
Goodwill, net of accumulated amortization of
$5,185,000 and $2,963,000, respectively 64,236,000 66,297,000
Berthing, concession and leasehold rights, net of
accumulated amortization of $1,758,000 and
$1,522,000, respectively 4,510,000 4,746,000
Deferred financing costs, net of accumulated
amortization of $2,520,000 and $1,378,000,
respectively 15,683,000 11,565,000
Restricted Cash 65,004,000 ---
Prepaid expenses, deposits and other 3,019,000 1,974,000
------------ ------------
230,180,000 164,772,000
------------ ------------
TOTAL ASSETS $620,986,000 $528,421,000
============ ============
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 25, 1998 APRIL 27, 1997
---------------- --------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 16,292,000 $ 14,905,000
Accounts payable - Trade 13,468,000 10,871,000
Accrued liabilities:
Interest 23,306,000 9,898,000
Payroll and payroll related 17,076,000 16,238,000
Property and other taxes 7,686,000 6,669,000
Progressive jackpots and slot club awards 5,225,000 5,566,000
Other 3,909,000 5,391,000
------------ ------------
TOTAL CURRENT LIABILITIES 86,962,000 69,538,000
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 429,009,000 364,617,000
DEFERRED INCOME TAXES 16,293,000 16,293,000
MINORITY INTEREST 5,852,000 ---
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:
23,568,612 and 23,345,287, respectively 239,000 233,000
Class B common stock, $0.01 par value; 3,000,000
shares authorized; none issued --- ---
Additional paid-in capital 63,143,000 62,538,000
Retained earnings 19,488,000 15,202,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 82,870,000 77,973,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $620,986,000 $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 Nine Months Ended
January 25 January 31 January 25 January 31
1998 1997 1998 1997
------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUE
Casino $ 93,052,000 $ 95,812,000 $288,020,000 $ 227,910,000
Rooms 1,943,000 1,994,000 6,716,000 7,451,000
Management fee - joint ventures --- --- --- 2,110,000
Pari-mutuel commissions and fees 6,047,000 6,425,000 14,373,000 12,089,000
Food, beverage and other 4,777,000 5,586,000 14,720,000 14,433,000
------------ ------------ ------------ -------------
TOTAL REVENUE 105,819,000 109,817,000 323,829,000 263,993,000
------------ ------------ ------------ -------------
OPERATING EXPENSES:
Casino 20,548,000 17,915,000 58,409,000 46,075,000
Rooms 646,000 393,000 2,327,000 1,811,000
Gaming taxes 19,539,000 18,610,000 58,433,000 41,839,000
Pari-mutuel 4,366,000 5,054,000 10,781,000 10,362,000
Food, beverage and other 2,285,000 3,099,000 9,740,000 10,698,000
Marine and facilities 5,994,000 5,265,000 17,916,000 14,685,000
Marketing and administrative 31,831,000 38,914,000 99,231,000 94,850,000
Preopening expenses --- --- --- 2,500,000
Depreciation and amortization 8,391,000 7,682,000 24,813,000 19,130,000
------------ ------------ ------------ -------------
TOTAL OPERATING EXPENSES 93,600,000 96,932,000 281,650,000 241,950,000
------------ ------------ ------------ -------------
OPERATING INCOME 12,219,000 12,885,000 42,179,000 22,043,000
INTEREST EXPENSE, NET OF CAPITALIZED
INTEREST OF $688, $0, $1,360, AND
$0, RESPECTIVELY (13,059,000) (12,575,000) (37,693,000) (29,219,000)
INTEREST INCOME:
Related parties --- --- --- 203,000
Other 954,000 1,027,000 2,472,000 1,371,000
EQUITY IN INCOME OF UNCONSOLIDATED
JOINT VENTURES --- --- --- 4,534,000
MINORITY INTEREST 498,000 --- 819,000 ---
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM 612,000 1,337,000 7,777,000 (1,068,000)
INCOME TAX PROVISION 352,000 568,000 3,491,000 203,000
------------ ------------ ------------ -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 260,000 769,000 4,286,000 (1,271,000)
EXTRAORDINARY ITEM (NET OF TAXES) --- --- --- (12,253,000)
------------ ------------ ------------ -------------
NET INCOME (LOSS) $ 260,000 $ 769,000 $ 4,286,000 ($13,524,000)
============ ============ ============ =============
INCOME (LOSS) PER DILUTED COMMON AND
COMMON EQUIVALENT SHARES BEFORE
EXTRAORDINARY ITEM $0.01 $0.03 $0.18 ($0.06)
NET INCOME (LOSS) PER DILUTED COMMON
AND COMMON EQUIVALENT SHARES $0.01 $0.03 $0.18 ($0.61)
DILUTED WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES 23,515,000 23,330,000 23,418,000 22,218,000
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
January 25 January 31
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,286,000 $ (13,524,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 24,813,000 19,130,000
Amortization of bond discount and deferred
financing costs 1,332,000 644,000
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 (1,778,000) (793,000)
Income tax receivable 6,315,000 (4,633,000)
Prepaid expenses and other (1,675,000) (959,000)
Accounts payable and accrued liabilities 15,749,000 (8,425,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 49,042,000 (841,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (44,118,000) (13,411,000)
Net cash paid for acquisitions (795,000) (81,168,000)
Proceeds from disposals of property and equipment 92,000 594,000
Minority interests (819,000) ---
Increase in restricted cash (67,337,000) ---
Other 1,118,000 1,388,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (111,859,000) (92,597,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 72,017,000 317,698,000
Principal payments on borrowings and cash paid
to retire debt (11,477,000) (209,656,000)
Deferred financing costs (2,449,000) (12,724,000)
Proceeds from sale of stock and exercise of options 508,000 18,357,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 58,599,000 113,675,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,218,000) 20,237,000
Cash and cash equivalents at beginning of period 51,846,000 18,585,000
----------- -----------
Cash and cash equivalents at end of period $ 47,628,000 $ 38,822,000
=========== ===========
</TABLE>
(CONTINUED)
4
<PAGE>
CASINO AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
January 25 January 31
1998 1997
---------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest, net of amounts capitalized 41,387,000 $35,901,000
Income taxes, net of refunds received (1,718,000) 8,256,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Notes payable and debt issued for:
Land 1,993,000 ---
Property and equipment 1,644,000 514,000
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
Issuance of common stock 174,387 5,000 495,000 500,000
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 --- --- --- 4,286,000 4,286,000
---------- ---------- ----------- ----------- -------------
BALANCE, JANUARY 25, 1998 23,568,612 $ 239,000 $63,143,000 $19,488,000 $ 82,870,000
========== ========== =========== =========== =============
</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 nine-month period ended
January 25, 1998 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 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 as of
January 25, 1998, approximately $45.4 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 $5.1 million, will be used in the event there
are insufficient funds in the Construction Disbursement Account to
complete the casino
7
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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 (the first of which
was made on February 28, 1998) which were issued pursuant to the
Indenture.
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 became effective for both interim and annual periods
ending after December 15, 1997. SFAS No. 128 requires companies to
disclose basic and diluted earnings per share. Basic earnings per
share are calculated based on the weighted average common shares
outstanding and exclude common stock equivalents from the calculation.
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
8
<PAGE>
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.
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.
Nine Months Ended
January 31,1997
------------------------
Total revenue $330,988,000
Operating income 34,092,000
Net loss before extraordinary item (1,917,000)
Net loss before extraordinary item per common
and common equivalent share $(.08)
Note 3. Joint Venture
-------------
In June 1997, the Company entered into a joint venture agreement to
develop the Isle-Black Hawk. As of January 25, 1998, the Company
owned 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 expected to cost approximately $104 million and to be completed in
late 1998 or 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, or earlier upon the occurrence
of certain other events.
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 $2,500,000 of preopening expenses in connection with the
opening of GPRI during the nine-month period ended January 31, 1997.
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 January 25,
1998, 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
January 25, 1998, 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 January 25, 1998, the Company was in compliance
with all debt covenants.
On August 20, 1997, ICBH issued $75 million of 13% First Mortgage
Notes due 2004 with Contingent Interest (the "ICBH First Mortgage
Notes"), which is non-recourse debt to the joint venture partners.
Interest on 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 of the facility's operations. The ICBH First Mortgage
Notes are redeemable at the option of ICBH, in whole or in part, at
any time on or after August 1, 2001 at the redemption prices
10
<PAGE>
(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 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
-------------
During the quarter ended January 25, 1998, LRGP was assessed and has
paid under protest 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 the Company has
contested the assessment by filing suit against the Louisiana
Department of Revenue and Taxation seeking to recover the amount paid
under protest. The Company will vigorously assert its position
regarding the assessment of this tax. The tax payment has been
capitalized as part of the cost of the vessel and depreciated over its
remaining useful life.
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 $3,325,000 as of January 25, 1998, for prior unpaid
boarding fees, plus a continuing $.50 fee per passenger at the Bossier
City facility. This liability has been fully recorded.
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 to expand its 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, 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-3 Registration Statement,
declared effective by the Securities and Exchange Commission on July 31, 1996,
registration number 333-7517, and Isle of Capri Black Hawk L.L.C.'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 three fiscal months ended January
25, 1998 and January 31, 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-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 nine fiscal months ended January 25, 1998
are not readily comparable to the results of operations for the nine months
ended January 31, 1997 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
nine fiscal months ended January 25, 1998, the following discussion, related to
this period, 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 following discussion related to the period for the three fiscal
months ended January 25, 1998 will be compared with the three month period
ending January 31, 1997.
12
<PAGE>
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
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 January 25, 1998 - Consolidated Company
Total revenue for the quarter ended January 25, 1998 was $105.8 million which
included $93.1 million of casino revenue, $1.9 million of rooms revenue, $6.0 of
pari-mutuel commissions, and $4.8 million of food, beverage and other revenue.
Comparably, total revenue for the quarter ended January 31, 1997 was $109.8
million which included $95.8 million of casino revenue, $2.0 million of rooms
revenue, $6.4 million of pari-mutuel commissions, and $5.6 million of food,
beverage and other revenue. Casino revenue decreased as a result of increased
competition in the Bossier City market, partially offset by increased revenues
and market share in Lake Charles. Room revenue and food, beverage and other
revenue have decreased as a result of the increased competition in the Company's
markets and as a result of a shift to direct response marketing which has
increased complimentaries. Revenue does not reflect the retail value of any
complimentaries.
Casino operating expenses for the quarter ended January 25, 1998 totaled $20.5
million, or 22% of casino revenue versus $17.9 million, or 19% of casino revenue
for the three months ended January 31, 1997. These expenses were primarily
comprised of salaries, wages and benefits, and other operating expenses of the
casinos. Casino operating expenses have increased primarily as a result of
increased complimentaries, resulting from the Company's shift to direct response
marketing.
Operating expenses for the quarter ended January 25, 1998 also included room
expenses of $0.6 million from the hotels at the Isle-Biloxi (the "Isle-Biloxi
Hotel"), the Isle-Bossier City (the "Isle-Bossier City Hotel") and the Isle-Lake
Charles (the "Inn at the Isle"). Comparably, operating expenses for the three
months ended January 31, 1997 included $0.4 million of room 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. Room expenses increased as a result of the addition of the Inn at
the Isle, which opened in September, 1997.
State and local gaming taxes paid in Mississippi and Louisiana totaled $19.5
million for the quarter ended January 25, 1998 versus $18.6 million for the
three months ended January 31, 1997. The increase relates to additional
payments for minimum local tax guarantees at the Isle-Lake Charles, but
otherwise is consistent with each state's applicable gaming tax rate.
Food, beverage and other expenses totaled $2.3 million for the quarter ended
January 25, 1998 versus $3.1 million for the quarter ended January 31, 1997.
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 and increased complimentaries, the cost of which are
reclassified as Casino expense, consistent with Securities Exchange Commission
requirements.
Marine and facilities expenses totaled $6.0 million for the three fiscal months
ended January 25, 1998 versus $5.3 million for the quarter ended January 31,
1997. These expenses included salaries, wages and benefits, operating expenses
of the marine crews, insurance, housekeeping and general
13
<PAGE>
maintenance of the riverboats and floating pavilions. Marine and facilities
expenses have increased due to the maturity of the Company's vessels and
facilities.
Marketing and administrative expenses totaled $31.8 million for the quarter
ended January 25, 1998 versus $38.9 million for the quarter ended January 31,
1997. 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 $8.4 million for the quarter ended
January 25, 1998, and $7.7 million for the quarter ended January 31, 1997.
These expenses relate to property and equipment, berthing and concession rights,
and intangible assets. The increase in depreciation and amortization expense is
consistent with the increase in fixed assets.
Interest expense was $12.1 million for the quarter ended January 25, 1998, net
of capitalized interest of $.7 million and interest income of $1.0 million,
versus $11.5 million for the quarter ended January 31, 1997, net of interest
income of $1.0 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 increase in
interest expense was due primarily to the Isle of Capri Black Hawk L.L.C.
The Company's effective tax rate for the quarter was approximately 57%,
primarily due to non-deductible goodwill amortization.
The Company had net income of $0.3 million for the quarter ended January 25,
1998, which includes a $0.5 million charge related to the Company's share of net
interest expense at the Isle of Capri Black Hawk L.L.C. This compares to a net
income of $0.8 million in the comparable quarter in fiscal 1997.
Three Fiscal Months Ended January 25, 1998, Compared to Three Months Ended
January 31, 1997-By Casino Location
Isle-Biloxi
- -----------
For the quarter ended January 25, 1998, the Isle-Biloxi had total revenue of
$20.9 million of which $18.4 million was casino revenue, compared to total
revenue of $21.3 million of which $18.3 million was casino revenue for the
quarter ended January 31, 1997. The decrease in total revenue relates to the
Company's direct response marketing efforts, resulting in increased
complimentaries, the value for which is not reflected in revenues. Relatedly,
casino revenues have increased slightly. Operating income for the three fiscal
months ended January 25, 1998 totaled $2.4 million or 11% of total revenues
compared to $3.3 million or 15% of total revenues for the three months ended
January 31, 1997. Decreased operating income margin is due primarily to low
table hold related to a few players and increased marketing expenditures.
Isle-Vicksburg
- --------------
For the quarter ended January 25, 1998, the Isle-Vicksburg had total revenue of
$11.8 million of which $11.4 million was casino revenue, compared to total
revenue of $12.3 million of which $11.8 million was casino revenue for the
quarter ended January 31, 1997. The decrease in revenue relates primarily to
the impact of increased competition and the overall weakness of the Vicksburg
market. Operating income for the three fiscal months ended January 25, 1998
totaled $2.5 million or 21% of total revenue compared to $2.0 million or 16% of
total revenues for the three months ended January 31, 1997.
14
<PAGE>
Increased operating income margin is due primarily to reductions in operating
expenses combined with a shift to direct response marketing.
Isle-Bossier City
- -----------------
For the quarter ended January 25, 1998, the Isle-Bossier City had total revenue
of $29.6 million of which $28.3 million was casino revenue, compared to total
revenue of $35.5 million of which $33.9 million was casino revenue for the
quarter ended January 31, 1997. 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 January 25, 1998 totaled $5.6 million or 19% of total
revenue compared to $4.9 million or 14% of total revenue for the three months
ended January 31, 1997. Increased operating income margin is due primarily to a
reduction in operating expenses combined with a shift to direct response
marketing and the favorable resolution of disputed tax claims.
Isle-Lake Charles
- -----------------
For the quarter ended January 25, 1998, the Isle-Lake Charles had total revenue
of $36.2 million of which $34.8 million was casino revenue, compared to total
revenue of $32.6 million of which $31.7 million was casino revenue for the
quarter ended January 31, 1997. Operating income for the three months ended
January 25, 1998 totaled $4.7 million or 13% of total revenue compared to
operating income of $5.9 million or 18% of total revenue for the three months
ended January 31, 1997. 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 decrease in operating income relates to low table hold and
payments related to minimum local tax guarantees.
Nine Months Ended January 25, 1998 - Consolidated Company
Total revenue for the nine months ended January 25, 1998 was $323.8 million
which included $288.0 million of casino revenue, $6.7 million of rooms revenue,
$14.4 million of pari-mutuel commissions, and $14.7 million of food, beverage
and other revenue. Revenues do not reflect the retail value of any
complimentaries.
Casino operating expenses for the nine-month period totaled $58.4 million, or
20% of casino revenue versus $46.1 million, or 20% of casino revenue for the
nine months ended January 31, 1997. These expenses were primarily comprised of
salaries, wages and benefits, and operating and promotional expenses of the
casinos.
Operating expenses for the nine-month period also included room expenses of $2.3
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 $58.4
million for the nine-month period ended January 25, 1998, which is substantially
consistent with the gaming tax rate for previous periods.
Food and beverage expenses totaled $9.7 million for the nine-month period ended
January 25, 1998. 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 $17.9 million for the nine-month period
ended January 25, 1998 and include salaries, wages and benefits, operating
expenses of the marine crews, insurance, housekeeping and general maintenance of
the riverboats and floating pavilions.
15
<PAGE>
Marketing and administrative expenses totaled $99.2 million for the nine-month
period ended January 25, 1998. 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.
Depreciation and amortization expense was $24.8 million for the nine-month
period. These expenses relate to property and equipment, berthing and
concession rights, and intangible assets.
Nine Months Ended January 25, 1998, Compared to Nine Months Ended January 31,
1997 - By Casino Location
Isle-Biloxi
- -----------
For the nine months ended January 25, 1998, the Isle-Biloxi had total revenue of
$68.4 million of which $58.7 million was casino revenue, compared to total
revenue of $67.3 million of which $56.4 million was casino revenue for the nine
months ended January 31, 1997. The increase in revenue relates to increased
casino traffic, resulting from improved database customer utilization of its
367-room hotel. Operating income for the nine fiscal months ended January 25,
1998 totaled $11.4 million or 17% of total revenue compared to $11.3 million or
17% of total revenue for the nine months ended January 31, 1997.
Isle-Vicksburg
- --------------
For the nine months ended January 25, 1998, the Isle-Vicksburg had total revenue
of $37.2 million of which $35.7 million was casino revenue, compared to total
revenue of $40.5 million of which $38.6 million was casino revenue for the nine
months ended January 31, 1997. Operating income for the nine months ended
January 25, 1998 totaled $7.4 million or 20% of total revenue compared to $5.8
million or 14% of total revenue for the nine months ended January 31, 1997. 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 nine months ended January 25, 1998, the Isle-Bossier City had total
revenue of $94.5 million of which $89.9 million was casino revenue, compared to
total revenue of $111.7 million of which $105.2 million was casino revenue for
the nine months ended January 31, 1997. Operating income for the nine months
ended January 25, 1998 totaled $18.2 million or 19% of total revenue compared to
$18.5 million or 17% of total revenue for the nine months ended January 31,
1997. 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. However, the Isle-Bossier City's operating income margin has
increased as a result of expense reductions combined with a shift to direct
response marketing.
Isle-Lake Charles
- -----------------
For the nine months ended January 25, 1998, the Isle-Lake Charles had total
revenue of $106.6 million of which $103.4 million was casino revenue, compared
to total revenue of $94.4 million of which $91.4 million was casino revenue for
the nine months ended January 31, 1997. 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 nine months ended January 25, 1998
totaled $15.9 million or 15% of total revenue compared to operating income of
$10.2 million or 11% of total revenue for the nine months ended January 31,
1997. The operating performance at the Isle-Lake Charles has been positively
impacted by the addition of the
16
<PAGE>
second riverboat casino, the "Inn at the Isle", direct response marketing and a
reduction in operating expenses.
Liquidity and Capital Resources
At January 25, 1998, the Company had cash and cash equivalents of $47.6 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 nine-month period
ended January 25, 1998, the Company's operating activities provided $49.0
million of cash compared to $0.8 million of cash used in operating activities in
the first nine months of fiscal 1997.
The Company invested $44.1 million in property and equipment in the first nine
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 late 1998 or 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 addition of Farraddays'
restaurants at the Isle-Biloxi and Isle-Vicksburg, which opened December, 1997.
The Company has also incurred capital expenditures related to the planned
development of a 305-room all suite hotel at the Isle-Bossier City. The all
suite hotel at the Isle-Bossier City is expected to open in early 1999.
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 60%, issued $75 million of 13% First Mortgage Notes due 2004
with Contingent Interest, which is non-recourse debt to the Company. 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
17
<PAGE>
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.
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 financing for the development of a
305-room all suite hotel at the Isle-Bossier City. Construction of this hotel
facility began on January 29, 1998, and the hotel is expected to open early
1999. The Company is currently seeking financing and/or a joint venture partner
for a second hotel at the Isle-Lake Charles. The Company anticipates that its
principal near-term capital requirements will relate to the additional
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 is considering constructing a hotel at the Isle-Vicksburg,
as well as possibly developing additional lodging facilities at the Isle-Lake
Charles. The Company may, in the future, also consider making certain capital
improvements to its land-based facility, including the development of additional
lodging facilities, and expanding its casino square footage at the Isle-Biloxi.
The Company believes that enhancements to its non-gaming amenities at all
facilities will be important to operations at those facilities. 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 given 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
-----------------
A subsidiary of the Company has been named, along with numerous
manufacturers, distributors and gaming operators, including many of
the country's largest gaming operators (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. However, the Defendants are committed to vigorously
defend all claims asserted in the consolidated action.
LRGP 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 January 25, 1998, 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, et. al. 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. However, the School Board has filed a motion
for summary judgment in which it appears to abandon its assertion that
the entire contract should be set aside, and in which it requests that
the court find as a matter of law that the City be obligated to pay
the School Board 15% of the funds collected under the contract.
Responses to the motion for summary judgment have not been filed. The
Company intends to vigorously defend the action.
In a complaint filed on February 23, 1998, Riverboat Corporation of
Mississippi - Vicksburg, which operates the Isle-Vicksburg, was named
as a defendant in an action brought by an individual who owns property
adjacent to the Big Black River in the eastern part of Warren County.
Also named as defendants in the action are two other operators in the
Vicksburg market and one of the largest banks in the State of
Mississippi. The plaintiff alleges that the defendants entered into an
agreement, the effect of which was to improperly restrain trade and
hinder competition in the gaming business by conducting a campaign in
opposition to a gaming application for a site adjacent to property
owned by the Plaintiff (the "Proposed Project"). The plaintiff
19
<PAGE>
further alleges that the defendants conspired for the purpose of
injuring the property rights of the plaintiff. On February 27, 1998,
an Amended Complaint was filed reasserting the claims set forth in the
original complaint and adding similar claims by additional plaintiffs
who allegedly had equity interests in the Proposed Project. The
Plaintiffs seek compensatory and punitive damages in the amount of
$238 million from the defendants. The Company denies the allegations
contained in the Complaint and Amended Complaint and intends to
vigorously defend all claims and allegations in the action.
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. On or
about January 7, 1998, the Company has settled the suit within amounts
previously reserved.
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.
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 third quarter ended January 25, 1998, 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: MARCH 11, 1998 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> 9-MOS
<FISCAL-YEAR-END> APR-26-1998
<PERIOD-START> APR-28-1997
<PERIOD-END> JAN-25-1998
<CASH> 47,628
<SECURITIES> 0
<RECEIVABLES> 7,171
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,523
<PP&E> 396,524
<DEPRECIATION> 77,241
<TOTAL-ASSETS> 620,986
<CURRENT-LIABILITIES> 86,962
<BONDS> 429,009<F1>
0
0
<COMMON> 239
<OTHER-SE> 82,870
<TOTAL-LIABILITY-AND-EQUITY> 620,986
<SALES> 0
<TOTAL-REVENUES> 323,829
<CGS> 0
<TOTAL-COSTS> 139,690
<OTHER-EXPENSES> 141,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,693
<INCOME-PRETAX> 7,777
<INCOME-TAX> 3,491
<INCOME-CONTINUING> 4,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,286
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1>Includes Bonds payable of $315 million, $75 million plus other long-term
debt.
</FN>
</TABLE>
