<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): OCTOBER 29, 1999
LADY LUCK GAMING CORPORATION
(Exact name of registrant as specified in its charter)
- -------------------------------------------------------------------------------
DELAWARE 000-22436 880295602
- -------------------------------------------------------------------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
- -------------------------------------------------------------------------------
220 STEWART AVENUE
LAS VEGAS, NEVADA 89101
(Address of principal executive offices) (Zip Code)
- -------------------------------------------------------------------------------
(702) 477-3000
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 29, 1999, Lady Luck Gaming Corporation ("Lady Luck")
consummated the purchase (the "Miss Marquette Purchase") of all of the
outstanding capital stock of Gamblers Supply Management Company ("GSMC" or
"Miss Marquette"), a wholly-owned subsidiary of Sodak Gaming, Inc. ("Sodak"),
from Sodak, a wholly-owned subsidiary of International Game Technology,
pursuant to a Stock Purchase Agreement dated as of July 30, 1999 (the "Miss
Marquette Purchase Agreement"), by and among Lady Luck, Sodak, and GSMC. GSMC
owns the Miss Marquette riverboat casino located on the Mississippi River in
Marquette, Iowa and the associated real property and assets.
Isle of Capri Casinos, Inc. ("Isle of Capri") made a secured bridge
loan in the principal amount of $16.3 million to Lady Luck, pursuant to a
Credit Agreement dated as of October 29, 1999, between GSMC, as the Borrower,
and Isle of Capri, as the Lender (the "Miss Marquette Credit Agreement"), in
order to fund a portion of the purchase price of the Miss Marquette Purchase.
The balance of the purchase price for the Miss Marquette Purchase was funded
out of Lady Luck's working capital. Isle of Capri has taken a lien on
substantially all of the assets of the Miss Marquette riverboat gaming
facility, excluding the gaming licenses.
On November 1, 1999, Lady Luck and Sodak issued a joint press
release announcing the Miss Marquette Purchase.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Gamblers Supply Management Company
Audited balance sheets dated as of December 31, 1998, and the
related statements of operations and accumulated deficit and cash flows for
the year then ended are filed as an amendment to Lady Luck's initial Current
Report on Form 8-K filed on November 15, 1999 and dated as of the date
hereof, and unaudited balance sheets dated as of September 30, 1999, and the
related statements of operations and accumulated deficit and cash flows for
the nine month periods ended September 30, 1999 and 1998, are filed as an
amendment to Lady Luck's initial Current Report on Form 8-K filed on November
15, 1999 and dated as of the date hereof.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Gamblers Supply Management Company:
We have audited the accompanying balance sheet of Gamblers Supply Management
Company (the Company), a wholly owned subsidiary of Sodak Gaming, Inc., as of
December 31, 1998, and the related statements of earnings and accumulated
deficit and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gamblers Supply Management
Company as of December 31, 1998, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Minneapolis, Minnesota
February 10, 1999, except as to
note 2 and note 5, which are
as of July 30, 1999 and
March 11, 1999, respectively
4
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Balance Sheets
September 30, 1999 and December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 (UNAUDITED) 1998
---------------- ------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
- --------------------------------------------------------------------------------------------------------
Cash $ 2,306 2,763
- --------------------------------------------------------------------------------------------------------
Accounts receivable 1 73
- --------------------------------------------------------------------------------------------------------
Inventories 196 199
- --------------------------------------------------------------------------------------------------------
Prepaid Expenses 174 178
---------------- ------------
- --------------------------------------------------------------------------------------------------------
Total current assets 2,677 3,213
- --------------------------------------------------------------------------------------------------------
Property and equipment, net 28,323 29,445
- --------------------------------------------------------------------------------------------------------
Note receivable 100 100
- --------------------------------------------------------------------------------------------------------
Deferred income taxes 282 875
---------------- ------------
- --------------------------------------------------------------------------------------------------------
$ 31,382 33,633
================ ==============
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
- --------------------------------------------------------------------------------------------------------
Current liabilities:
- --------------------------------------------------------------------------------------------------------
Accounts payable $ 344 397
- --------------------------------------------------------------------------------------------------------
Current maturities of long-term debt 2,207 2,837
- --------------------------------------------------------------------------------------------------------
Accrued payroll and payroll related costs 1,145 1,391
- --------------------------------------------------------------------------------------------------------
Other accrued liabilities 819 2,517
- --------------------------------------------------------------------------------------------------------
Amounts due to parent company 11,762 11,989
---------------- ------------
- --------------------------------------------------------------------------------------------------------
Total current liabilities 16,277 19,131
- --------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 2,669 4,366
---------------- ------------
- --------------------------------------------------------------------------------------------------------
Total liabilities 18,946 23,497
---------------- ------------
- --------------------------------------------------------------------------------------------------------
Shareholder's deficit:
- --------------------------------------------------------------------------------------------------------
Common stock, $1 par value; 1,000,000 shares 10 10
authorized; 10,000 shares issued and outstanding
- --------------------------------------------------------------------------------------------------------
Additional paid-in capital 14,677 14,677
- --------------------------------------------------------------------------------------------------------
Accumulated deficit (2,251) (4,551)
---------------- ------------
- --------------------------------------------------------------------------------------------------------
Total shareholder's deficit 12,436 10,136
---------------- ------------
- --------------------------------------------------------------------------------------------------------
$ 31,382 33,633
================ ==============
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Statements of Operations and Accumulated Deficit
Periods ended September 30, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TWELVE
MONTHS ENDED (UNAUDITED) NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30,
-------------------------------
- ---------------------------------------------------------------------------------------------------------
1998 1999 1998
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
- ---------------------------------------------------------------------------------------------------------
Casino $ 33,182 24,390 24,986
- ---------------------------------------------------------------------------------------------------------
Food and beverage 3,954 3,130 2,981
- ---------------------------------------------------------------------------------------------------------
Rooms 474 360 364
- ---------------------------------------------------------------------------------------------------------
Other 400 326 366
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
38,010 28,206 28,697
- ---------------------------------------------------------------------------------------------------------
Less promotional allowances (2,069) (1,614) (1,597)
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Net revenue 35,941 26,592 27,100
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Costs and expenses:
- ---------------------------------------------------------------------------------------------------------
Casino 16,910 12,597 12,487
- ---------------------------------------------------------------------------------------------------------
Food and beverage 1,791 1,374 1,253
- ---------------------------------------------------------------------------------------------------------
Rooms 167 125 101
- ---------------------------------------------------------------------------------------------------------
Other 378 218 313
- ---------------------------------------------------------------------------------------------------------
Depreciation and amortization 2,421 1,860 1,812
- ---------------------------------------------------------------------------------------------------------
General and administrative 7,985 5,105 6,054
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 29,652 21,279 22,020
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Earnings from operations 6,289 5,313 5,080
- ---------------------------------------------------------------------------------------------------------
Interest expense 2,890 1,775 2,278
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Earnings before income taxes 3,399 3,538 2,802
- ---------------------------------------------------------------------------------------------------------
Income tax expense 1,189 1,238 961
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Net earnings 2,210 2,300 1,841
- ---------------------------------------------------------------------------------------------------------
Accumulated deficit, beginning of period (6,761) (4,551) (6,761)
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Accumulated deficit, end of period ($4,551) (2,251) (4,920)
============== ============= ============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Statements of Cash Flows
Periods ended September 30, 1999 and 1998
(In thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TWELVE
MONTHS ENDED (UNAUDITED) NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30,
-------------------------------
- ---------------------------------------------------------------------------------------------------------
1998 1999 1998
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 2,210 2,300 1,841
- ---------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
- ---------------------------------------------------------------------------------------------------------
Depreciation and amortization 2,421 1,860 1,812
- ---------------------------------------------------------------------------------------------------------
Loss on sale of property and equipment 11 -- 10
- ---------------------------------------------------------------------------------------------------------
Deferred income taxes 645 593 126
- ---------------------------------------------------------------------------------------------------------
Changes in operating assets and liabilities:
- ---------------------------------------------------------------------------------------------------------
Accounts receivable (51) 72 (68)
- ---------------------------------------------------------------------------------------------------------
Inventories 3 3 0
- ---------------------------------------------------------------------------------------------------------
Prepaid expenses (140) 4 (102)
- ---------------------------------------------------------------------------------------------------------
Accounts payable (359) (204) (506)
- ---------------------------------------------------------------------------------------------------------
Accrued liabilities (681) (3,394) 20
- ---------------------------------------------------------------------------------------------------------
Income taxes payable, net of refundable
income taxes 544 645 171
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,603 1,879 3,304
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- ---------------------------------------------------------------------------------------------------------
Purchases of property and equipment (721) (749) (364)
- ---------------------------------------------------------------------------------------------------------
Proceeds from sale of property and equipment 133 12 0
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (588) (737) (364)
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- ---------------------------------------------------------------------------------------------------------
Proceeds from borrowings from parent company -- 732 0
- ---------------------------------------------------------------------------------------------------------
Principal repayments of long-term debt (3,266) (2,330) (2,459)
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,266) (1,598) (2,459)
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Net increase in cash 749 (456) 481
- ---------------------------------------------------------------------------------------------------------
Cash, beginning of period 2,014 2,762 2,014
-------------- ------------- ------------
- ---------------------------------------------------------------------------------------------------------
Cash, end of period $ 2,763 2,306 2,495
- ---------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
- ---------------------------------------------------------------------------------------------------------
Cash paid during the period for interest $ 1,552 840 1,207
============== ============= ============
- ---------------------------------------------------------------------------------------------------------
Cash paid during the period for taxes $ -- $ -- $ --
============== ============= ============
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
(1) Organization and Summary of Significant Accounting Policies
(a) ORGANIZATION
Gamblers Supply Management Company (the Company) a wholly
owned subsidiary of Sodak Gaming, Inc. operates the MISS
MARQUETTE riverboat casino entertainment facility. In addition
to the casino, which has 698 slot machines and 36 table games,
the operation includes a hotel, restaurant, and marina. The
Company was acquired by Sodak Gaming, Inc. (parent company) on
July 1, 1996, and is a wholly owned subsidiary of the parent
company.
(b) BASIS OF PRESENTATION
The accompanying financial statements of the Company include
the Miss Marquette riverboat and related depreciation and
accumulated depreciation. The riverboat is owned by the parent
company and will be transferred to the Company in conjunction
with the proposed acquisition by Lady Luck Gaming Corporation
(note 2).
(c) REVENUE RECOGNITION AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes
as casino revenue the net wins from gaming activities, which
is the difference between gaming wins and losses. Casino
revenue includes the retail value of complimentary food,
beverage, and hotel services provided gratuitously to
customers. Such amounts are then deducted as promotional
allowances to arrive at net revenue. The estimated costs of
providing such promotional allowances, which are classified as
casino expenses on the accompanying statement of operations,
are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Food and beverage $ 1,310
Rooms 83
Other 74
------------
Total $ 1,467
============
</TABLE>
(d) INVENTORIES
Inventories consist primarily of food, beverages, supplies,
and gift shop items, and are stated at the lower of cost or
market using the first in, first out method.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
provided principally on a straight-line basis in amounts
sufficient to relate the cost of depreciable assets to
operations over the following estimated useful lives:
8
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Riverboat 25
Land improvements 15
Buildings and improvements 15-39
Equipment and furniture 5-7
Transportation equipment 5
</TABLE>
(f) LONG LIVED ASSETS
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, which requires that long-lived assets and
certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable based on future
undiscounted cash flows.
(g) INCOME TAXES
The Company provides for income taxes in accordance with SFAS
No. 109, ACCOUNTING FOR INCOME TAXES. Deferred tax assets and
liabilities are recognized for the expected future tax
consequences arising from temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes.
(h) OPERATING COSTS AND EXPENSES
Certain operating expenses such as utilities, maintenance,
rents, and insurance are not allocated to the operating
departments and are included in general and administrative
expenses.
(i) ADVERTISING
The Company expenses advertising costs as incurred.
Advertising costs amounted to approximately $2.2 million in
1998.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
(2) LIQUIDITY AND SUBSEQUENT EVENT
At December 31, 1998, current liabilities exceeded current assets by
$15,918,000, including amounts the Company had due to its parent
company of $11,989,000 (see note 7). The amounts due to the parent
company resulted primarily from the initial construction and equipping
of the riverboat casino operation
9
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
and related amenities. The parent company has provided additional funds
as needed related to the Company's repayment of third party debt. The
Company generated $6,289,000 operating income and $4,603,000 operating
cash flow in 1998.
On July 30, 1999, the Company's Parent entered into an agreement to
sell the stock of the Company and the Miss Marquette riverboat to
Lady Luck Gaming Corporation. In the event the transaction between
the parent company and Lady Luck Gaming Corporation does not close,
and the parent company does not divest of the Company, management of
the Company expects the financial support of the parent company to
continue to provide adequate working capital to fund ongoing
operations and repayment of third party debt, if necessary.
(3) DISCLOSURES ABOUT FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical
to estimate that value:
ACCOUNTS RECEIVABLE, NOTE RECEIVABLE, ACCOUNTS PAYABLE, ACCRUED
LIABILITIES, AND NOTES PAYABLE
The carrying amounts of accounts receivable, accounts payable, and
accrued liabilities approximate fair value because of the short
maturity of those instruments.
Management estimates that the note receivable and notes payable
approximate fair value as the interest rates associated with these
instruments generally approximate current borrowing rates.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
<TABLE>
<CAPTION>
IN THOUSANDS
---------------
<S> <C>
Land and improvements $ 923
Riverboat 13,687
Buildings and improvements 10,924
Equipment and furniture 8,002
Transportation equipment 309
Construction in progress 95
---------------
33,940
Less accumulated depreciation and amortization 4,495
---------------
$ 29,445
===============
</TABLE>
Included in property and equipment is $7.5 million of equipment and
furniture relating to a capital lease obligation (see note 5), with
accumulated amortization of approximately $2.0 million at December
31, 1998.
10
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
(5) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------
<S> <C>
Capital lease obligation as explained below $ 5,552
Notes payable to the former shareholders of the
Company due in monthly installments of $137,880;
including interest at 8%, through July 1999;
unsecured, guaranteed by the parent company 940
Contract payable in monthly installments of $12,668,
including interest at 9%, through January 2005;
secured by real estate 710
-----------------
7,202
Less current maturities (2,836)
-----------------
Total long term debt $ 4,366
=================
</TABLE>
The notes payable to the former shareholders were paid in full as of
March 11, 1999.
CAPITAL LEASE OBLIGATION
During 1997, the Company entered into a sale-leaseback arrangement
involving the sale of certain furniture and equipment for $7.5 million,
which approximated book value at the time of the sale. The transaction
was accounted for as a financing, whereby the property remains on the
books and continues to be depreciated. A financing obligation
representing the proceeds was recorded and is reduced based on payments
under the arrangement. The financing arrangement requires 48 monthly
payments of $233,452, including interest at 21% per annum, through July
2001. Upon expiration of the arrangement, the Company will own the
furniture and equipment.
11
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
Future minimum lease payments related to the capital lease obligation
are as follows for the years ended December 31:
<TABLE>
<CAPTION>
YEAR IN THOUSANDS
<S> <C>
1999 $ 2,802
2000 2,802
2001 1,634
-----
Total minimum lease payment 7,238
Less amounts representing interest (1,686)
-----
Present value of minimum lease payments 5,552
Less current maturities (1,805)
-----
Long-term capital lease obligation $ 3,747
=====
</TABLE>
Principal maturities of long-term debt, including the capital lease
obligation, are as follows for the years ended December 31:
<TABLE>
<CAPTION>
YEAR IN THOUSANDS
- ---- ----------------
<S> <C>
1999 $ 2,836
2000 2,322
2001 1,636
2002 120
2003 131
Thereafter 157
</TABLE>
(6) INCOME TAXES
A reconciliation of income tax expense based on the statutory rate of
35% to the Company's actual income taxes based on earnings before
income taxes for the years ended December 31, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Federal income tax expense at statutory
federal rate $ 1,190
Federal surtax exemption and other (1)
-----------------
Income tax expense $ 1,189
=================
</TABLE>
12
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
The income tax expense for the years ended December 31, 1998 is
summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Current $ 544
Deferred 645
Income tax expense $ 1,189
</TABLE>
The Company files a consolidated federal income tax return with its
parent company. The parent company allocates the consolidated provision
for income tax to its subsidiaries as if the subsidiaries filed
separate federal income tax returns. The current and deferred income
tax expense allocated to the Company for the year ended December 31,
1998 represents the income tax expense realized by the consolidated
group as a result of the Company's 1998 earnings.
The refundable income tax due from the parent company of $2,112,000 at
December 31, 1998 (see note 7), which represents the Company's net
income tax benefits since being acquired by the parent company on July
1, 1996, will be realized by the Company as the Company uses its net
operating loss carryforward to offset future taxable income.
Deferred tax assets and liabilities consist of the following at
December 31, 1998:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Current deferred assets:
Allowance for impairment $ 2,776
Accrued liabilities 10
------------------
Total deferred assets 2,786
Deferred tax liabilities:
Property and equipment (1,911)
------------------
Net current deferred tax assets $ 875
==================
</TABLE>
(7) TRANSACTIONS WITH PARENT COMPANY
The Company periodically purchases supplies and borrows money as needed
from the parent company. Interest on the borrowings from the parent
company is charged at the prime rate, which was 7 3/4% at December 31,
1998. A summary of transactions with the parent company during the
years ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Supply purchases and miscellaneous transactions $ 89
Interest expense 1,375
</TABLE>
13
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Financial Statements
December 31, 1998
There is no fixed maturity date related to the amounts due to the
parent company (see note 2). A summary of the amounts due to the parent
company at December 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
<S> <C>
Due from parent $ (3,605)
Refundable income taxes due from the parent company (see note 6) (2,112)
Accounts payable for supply purchases 152
Interest-bearing debt 15,717
Accrued interest 1,837
--------------
$ 11,989
==============
</TABLE>
(8) RETIREMENT PLAN
In July 1997, the employees of the Company became eligible to
participate in the parent company's 401(k) defined contribution benefit
plan. In accordance with plan provisions, the Company provides a
discretionary matching contribution of up to 6% of employee
compensation. The amount of expense recognized by the Company as a
result of matching contributions was approximately $371,000 in 1998.
Employees vest in Company contributions over a seven year period of
employment.
(9) OPERATING LEASE COMMITMENT
The Company leases riverfront land from the City of Marquette, Iowa
(the City). The agreement is in effect until December 2019, and it
requires the Company to make payments under the following terms:
- $180,000 per year in equal monthly installments due on the
first of each month
- Plus fifty cents ($0.50) daily fee per customer, due the 15th
day following each month
- Plus the following: 2 1/2% of "net gambling receipts" (net win
less state wagering taxes paid) from $20 million to $40
million, plus 5% of "net gambling receipts" from $40 million
to $60 million, plus 7 1/2% of "net gambling receipts" in
excess of $60 million, due annually
Total rent expense paid in association with the non-cancelable
operating lease with the City amounted to approximately $759,000 in
1998. Future lease payments are dependent on customer and revenue
numbers generated by future years' operations.
(10) LITIGATION
The Company is subject to certain claims and lawsuits which have been
filed in the ordinary course of business. Management does not believe
these pending claims and litigation would have a material adverse
effect on the financial position of the Company.
14
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
Notes to Interim Financial Statements
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
Note 1 - Unaudited Financial Statements
The accompanying unaudited financial statements of Gamblers Supply
Management Company have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial information,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Pursuant to such rules and regulations, certain financial
information and footnote disclosures normally included in the financial
statements have been condensed or omitted. The results for the periods
indicated are unaudited, but reflect all adjustments (consisting only of
normal recurring adjustments) which management considers necessary for a fair
presentation of operating results.
The Miss Marquette riverboat, which is owned by the Company's
parent, and related depreciation have been included in the accompanying
financial statements.
Results of operations for interim periods are not necessarily
indicative of a full year of operations.
These unaudited financial statements should be read in conjunction
with the 1998 financial statements and notes thereto, which are included in
this document.
Note 2 - Recent Accounting Pronouncements
During 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new
standards for recognizing all derivatives as either assets or liabilities,
and measuring those instruments at fair value. The Company plans to adopt the
new standard during the first quarter of the year 2001, as required. The
Company is in the process of evaluating SFAS 133 and the impact on the
Company, but does not believe the impact will be material.
Note 3 - Liquidity
At September 30, 1999, current liabilities exceeded current assets
by $13,600,000, including amounts the Company had due to its parent company
of $11,762,000. The amounts due to the parent company resulted primarily from
the initial construction and equipping of the riverboat casino operation and
related amenities. The parent company has provided additional funds as needed
related to the Company's repayment of third party debt. The Company generated
$5,313,000 operating income and $1,879,000 operating cash flow for the nine
months period ending September 30, 1999.
Note 4 - Subsequent Events
On July 30, 1999, the Company's parent entered into a definitive
agreement to sell the Company and the Miss Marquette riverboat to Lady Luck
Gaming Corporation. The agreement provided for a sale price of $41.67 million
and the assumption of certain liabilities. GSMC borrowed $16.3 million from
Isle of Capri in order to fund a portion of this purchase price. The loan is
secured by a lien on substantially all of the assets of the Miss Marquette
riverboat gaming facility, excluding the gaming licenses. Closing of the sale
occurred on October 29, 1999.
15
<PAGE>
(b) Unaudited Pro Forma Information
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance
sheet as of September 30, 1999 (the "9/30/99 Pro Forma Balance Sheet"), and
unaudited pro forma condensed consolidated statements of earnings for the
fiscal year ended December 31, 1998 and the nine months ended September 30,
1999 (the "12/31/98 Pro Forma Statement of Operations" and the "9/30/99 Pro
Forma Statement of Operations," respectively, and together with the 9/30/99
Pro Forma Balance Sheet, the "Pro Forma Statements") are based on the
historical consolidated financial statements of Lady Luck included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, and the historical financial statements of GSMC for the fiscal year
ended December 31, 1998 and for the nine months ended September 30, 1999. The
Pro Forma Statements and the notes thereto should be read in conjunction with
such historical financial statements (and the notes thereto). The Pro Forma
Statements give effect to the Miss Marquette Purchase and the related secured
purchase money loan in the principal amount of $16.3 million made by Isle of
Capri to GSMC pursuant to the Miss Marquette Credit Agreement.
The 9/30/99 Pro Forma Balance Sheet gives effect to the Miss
Marquette Purchase and the related secured purchase money loan as if they
occurred as of September 30, 1999, and the 12/31/98 Pro Forma Statement of
Operations and the 9/30/99 Pro Forma Statement of Operations give effect to
the Miss Marquette Purchase and the related secured purchase money loan as if
they occurred as of January 1, 1998. The Miss Marquette Purchase is accounted
for as a purchase for accounting and financial reporting purposes.
Assumptions necessary to reflect the Miss Marquette Purchase and the related
secured purchase money loan and to restate historical amounts are presented
in the "Miss Marquette Acquisition Adjustments" and the "Financing
Adjustments" columns, which assumptions are further described below and in
the accompanying Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
In the opinion of Lady Luck's management, all adjustments necessary
to present fairly the Pro Forma Statements have been made. The pro forma
adjustments are based upon available information and certain assumptions that
Lady Luck believes are reasonable. The Pro Forma Statements do not purport to
represent what the Company's financial position and results of operations
would actually have been had the Miss Marquette Purchase and the related
secured purchase money loan in fact occurred on such dates or to project Lady
Luck's financial position or results of operations for any future period.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
for the
Miss Financing
Historical Marquette and
Historical Miss Acquisition Financing Acquisition
LLGC Marquette Adjustments Adjustments Adjustments
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash , cash equivalents and
marketable securities $40,293 $2,306 $ - $(25,775) (g) $16,824
Accounts receivable, net 736 1 - - 737
Inventories 499 196 - - 695
Prepaid expenses 1,744 174 - - 1,918
---------- ---------- ----------- ----------- -----------
Total current assets 43,272 2,677 - (25,775) 20,174
Property and equipment
(b)
Land and land improvements 15,786 923 - - 16,709
Building, boats and (b)
improvements 104,334 25,759 (14,364) - 115,729
(b)
Furniture, fixtures and equipment 39,042 9,316 (4,234) - 44,124
---------- ---------- ----------- ----------- -----------
159,162 35,998 (18,598) - 176,562
Less accumulated depreciation (36,514) (7,675) 7,675 (b) - (36,514)
---------- ---------- ----------- ----------- -----------
122,648 28,323 (10,923) - 140,048
Construction in progress 9,226 - - - 9,226
---------- ---------- ----------- ----------- -----------
Total property and equipment,
net 131,874 28,323 (10,923) - 149,274
Other assets:
Deferred financing fees and costs,
net 1,226 - - 408 (a) 1,634
Investment in unconsolidated
affiliates, net 17,204 - - - 17,204
(b)
Other 4,601 382 (282) - 4,701
(b)
Goodwill - - 29,174 - 29,174
---------- ---------- ----------- ----------- -----------
Total other assets 23,031 382 28,892 408 52,713
TOTAL ASSETS $198,177 $31,382 $17,969 $(25,367) $222,161
========== ========== ============ =========== ==========
Current liabilities:
Current portion of long-term debt 1,052 2,207 - 16,300 (g) 19,559
Accrued interest 1,859 - - - 1,859
Accounts payable 2,697 344 - - 3,041
Construction payables 1,952 - - - 1,952
Accrued property taxes 985 - - - 985
Other accrued liabilities 8,514 1,964 500 (b) - 10,978
(c)
Amounts due to related party - 11,762 (11,762) - -
---------- ---------- ----------- ----------- -----------
Total current liabilities 17,059 16,277 (11,262) 16,300 38,374
Long-term debt:
17
<PAGE>
Mortgage notes payable 173,500 - - - 173,500
Other long-term debt 3,114 2,669 - - 5,783
---------- ---------- ----------- ----------- -----------
Total long-term debt 176,614 2,669 - - 179,283
Total liabilities 193,673 18,946 (11,262) 16,300 217,657
Series A mandatory redeemable
preferred stock 22,442 - - - 22,442
Stockholders' equity/(deficit):
Common stock 29 10 (10) (e) - 29
Additional paid-in capital 31,382 14,677 (14,677) (e) - 31,382
Purchase accounting adjustments - - 41,667 (b) (41,667) (g) -
Accumulated Deficit (49,349) (2,251) 2,251 (e) - (49,349)
---------- ---------- ----------- ----------- -----------
Total stockholders'
equity/(deficit) (17,938) 12,436 29,231 (41,667) (17,938)
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY/(DEFICIT) $198,177 $31,382 $17,969 $(25,367) $222,161
========== ========== ============ =========== ==========
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
for the
Miss Financing
Historical Marquette and
Historical Miss Acquisition Financing Acquisition
LLGC Marquette Adjustments Adjustments Adjustments
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Casino $97,818 $24,390 $ - $ - $122,208
Food and Beverage 11,553 3,130 - - 14,683
Hotel 4,281 360 - - 4,641
Equity in net income of
unconsolidated affiliate 5,242 - - - 5,242
Management fees from
unconsolidated affiliate 2,054 - - - 2,054
Other 2,949 326 - 3,275
---------- ---------- ----------- ----------- -----------
Gross revenues 123,897 28,206 - - 152,103
Less: Promotional allowances (10,660) (1,614) - - (12,274)
---------- ---------- ----------- ----------- -----------
Net revenues 113,237 26,592 - - 139,829
Costs and expenses:
Casino 40,873 12,597 - - 53,470
Food and Beverage 3,467 1,374 - - 4,841
Hotel 1,333 125 - - 1,458
Other 51 218 - - 269
Selling, general administrative 34,371 5,105 - - 39,476
Related party license fee 2,944 - - 2,944
Depreciation and amortization 6,760 1,860 119 (d) - 8,739
Gain on sale of assets - - - - -
Pre-opening expenses 437 - - - 437
---------- ---------- ----------- ----------- -----------
Totals costs and expenses 90,236 21,279 119 - 111,634
---------- ---------- ----------- ----------- -----------
Operating income 23,001 5,313 (119) - 28,195
Other income (expense):
Interest income 1,295 - - - 1,295
Interest expense, net (15,935) (1,775) 965 (f) (1,605) (a) (18,350)
Other (167) - - (167)
---------- ---------- ----------- ----------- -----------
Total other income (expense) (14,807) (1,775) 965 (1,605) (17,222)
---------- ---------- ----------- ----------- -----------
Income from continuing operations $ 8,194 $ 3,538 $ 846 $ (1,605) $ 10,973
========== ========== =========== =========== ===========
EBITDA(1) $30,198 $7,173 $37,371
</TABLE>
(1) EBITDA is defined as operating income adjusted for depreciation and
amortization, pre-opening expenses and any gain on sale of assets.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
for the
Miss Financing
Historical Marquette and
Historical Miss Acquisition Financing Acquisition
LLGC Marquette Adjustments Adjustments Adjustments
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Casino $126,314 $33,182 $ - $ - $159,496
Food and Beverage 15,535 3,954 - - 19,489
Hotel 4,229 474 - - 4,703
Equity in net income of
unconsolidated affiliate 5,099 - - - 5,099
Management fees from
unconsolidated affiliate 2,292 - - - 2,292
Other 3,715 400 - - 4,115
---------- ---------- ----------- ----------- -----------
Gross revenues 157,184 38,010 - - 195,194
Less: Promotional allowances (13,105) (2,069) - - (15,174)
---------- ---------- ----------- ----------- -----------
Net revenues 144,079 35,941 - - 180,020
Costs and expenses:
Casino 52,497 16,910 - - 69,407
Food and Beverage 4,941 1,791 - - 6,732
Hotel 1,640 167 - - 1,807
Other 143 378 - - 521
Selling, general administrative 45,252 7,985 - - 53,237
Related party license fee 3,370 - - - 3,370
Depreciation and amortization 8,506 2,421 218 (d) - 11,145
Gain on sale of assets (2,848) - - - (2,848)
Pre-opening expenses - - - - -
---------- ---------- ----------- ----------- -----------
Totals costs and expenses 113,501 29,652 218 - 143,371
---------- ---------- ----------- ----------- -----------
Operating income 30,578 6,289 (218) - 36,649
Other income (expense):
Interest income 2,160 - - - 2,160
Interest expense, net (21,960) (2,890) 1,375 (f) (2,140) (a) (25,615)
Other (537) - - - (537)
---------- ---------- ----------- ----------- -----------
Total other income (expense) (20,337) (2,890) 1,375 (2,140) (23,992)
---------- ---------- ----------- ----------- -----------
Income from continuing operations $ 10,241 $ 3,399 $1,157 $ (2,140) $ 12,657
========== ========== =========== =========== ===========
EBITDA(1) $36,236 $8,710 $44,946
</TABLE>
(1) EBITDA is defined as operating income adjusted for depreciation and
amortization, pre-opening expenses and any gain on sale of assets.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FINANCING ADJUSTMENTS
(a) Reflects the changes in interest expense and debt issuance costs due to
the increase in long-term debt arising from the loan from Isle of Capri
Casinos, Inc. to finance a portion of the acquisition.
MISS MARQUETTE ACQUISITION ADJUSTMENTS
(b) The following table sets forth the purchase price of Miss Marquette and
the preliminary allocation as of September 30, 1999:
<TABLE>
<S> <C>
Preliminary Allocation:
Working capital* $ (2,338)
Land and land improvements 923
Building, boats and improvements 11,395
Furniture, fixtures and equipment 5,082
Other assets 100
Other long-term liabilities (2,669)
----------
Subtotal (fair value of net assets acquired) 12,493
Goodwill (excess of purchase price over fair value of assets acquired) 29,174
----------
$ 41,667
==========
</TABLE>
*The parties have agreed to adjust the above purchase price to reflect
changes in Miss Marquette's working capital from an agreed-upon amount
as compared to the amount of working capital at the closing date.
We are currently in the process of allocating the purchase price and
its allocation will be based on the discounted cash flows, quoted
market prices and estimates by management which are expected to be
completed within one year following the Miss Marquette acquisition.
Upon completion of the purchase price allocation process, to the extent
the purchase price exceeds the fair value of the net identifiable
tangible and intangible assets acquired, such excess will be allocated
to goodwill. The Company has developed a preliminary plan to replace
the riverboat in the next 12 months and has allocated the purchase
price to the riverboat based on the estimated net realizable value.
(c) Reflects reductions for assets and liabilities, which are not included
in our purchase of Miss Marquette.
(d) Reflects the estimated expense for the amortization of the goodwill
over a period of 25 years and the incremental change in depreciation
expense as a result of the adjustment of the assets acquired to fair
value. Depreciation of assets acquired is based upon the following
estimated useful lives:
Buildings, boats and improvements.................... 25 years
Furniture, fixtures and equipment.................... 5 years
(e) Reflects the elimination necessary for the consolidation of Miss
Marquette based upon the allocation of the purchase price.
21
<PAGE>
(f) Reflects the elimination of the interest expense for debt to related
party not assumed by Lady Luck Gaming Corporation in the acquisition.
(g) Reflects the effects of the increase in debt and use of proceeds for
the acquisition. The following activity is reflected in the cash
account as of September 30, 1999:
<TABLE>
<S> <C>
Net proceeds from Miss Marquette Credit Agreement $ 15,892
Purchase of Miss Marquette for cash (41,667)
----------
Net use of proceeds $ 25,775
==========
</TABLE>
22
<PAGE>
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Stock Purchase Agreement dated as of July 30, 1999,
among Lady Luck, Sodak and GSMC, incorporated herein
by reference to Exhibit 2 of Lady Luck's Current
Report on Form 8-K filed with the Securities and
Exchange Commission on August 9, 1999 and dated as of
July 30, 1999.
4.1 Security Agreement dated as of October 29, 1999,
between GSMC and Isle of Capri, incorporated by
reference to Lady Luck's initial Current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 15, 1999 and dated as of the
date hereof.
4.2 Mortgage, Security Agreement, Financing Statement and
Assignment of Leases and Rents, entered into as of
October 29, 1999, incorporated by reference to Lady
Luck's initial Current Report on Form 8-K filed with
the Securities and Exchange Commission on November
15, 1999 and dated as of the date hereof.
4.3 First Preferred Mortgage dated as of October 29,
1999, by GSMC and Isle of Capri, incorporated herein
by reference to Lady Luck's initial Current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 15, 1999 and dated as of the
date hereof.
4.4 Credit Agreement dated as of October 29, 1999, by and
between GSMC and Isle of Capri, incorporated herein
by reference to Exhibit 10.2 of Lady Luck's Current
Report on Form 8-K filed with the Securities and
Exchange Commission on October 18, 1999 and dated as
of October 5, 1999.
99.1 Joint Press Release dated November 1, 1999,
incorporated by reference to Lady Luck's initial
Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 15, 1999 and
dated as of the date hereof.
</TABLE>
23
<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 hereunto duly authorized.
LADY LUCK GAMING CORPORATION
By: /s/ RORY J. REID
--------------------------------------
Rory J. Reid
Senior Vice President, Secretary
and General Counsel
Date: January 12, 2000
24
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
2.1 Stock Purchase Agreement dated as of July 30, 1999,
among Lady Luck, Sodak and GSMC, incorporated herein
by reference to Exhibit 2 of Lady Luck's Current
Report on Form 8-K filed with the Securities and
Exchange Commission on August 9, 1999 and dated as of
July 30, 1999.
4.1 Security Agreement dated as of October 29, 1999,
between GSMC and Isle of Capri, incorporated by
reference to Lady Luck's initial current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 15, 1999 and dated as of the
date hereof.
4.2 Mortgage, Security Agreement, Financing Statement and
Assignment of Leases and Rents, entered into as of
October 29, 1999, incorporated by reference to Lady
Luck's initial current Report on Form 8-K filed with
the Securities and Exchange Commission on November
15, 1999 and dated as of the date hereof.
4.3 First Preferred Mortgage dated as of October 29,
1999, by GSMC and Isle of Capri, incorporated herein
by reference to Lady Luck's initial current Report on
Form 8-K filed with the Securities and Exchange
Commission on November 15, 1999 and dated as of the
date hereof.
10.1 Credit Agreement dated as of October 29, 1999, by and
between GSMC and Isle of Capri, incorporated herein
by reference to Exhibit 10.2 of Lady Luck's Current
Report on Form 8-K filed with the Securities and
Exchange Commission on October 18, 1999 and dated as
of October 5, 1999.
99.1 Joint Press Release dated November 1, 1999,
incorporated by reference to Lady Luck's initial
current Report on Form 8-K filed with the Securities
and Exchange Commission on November 15, 1999 and
dated as of the date hereof.
</TABLE>
25
