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 July 27, 2014

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number 0-20538

 

ISLE OF CAPRI CASINOS, INC.

 

Delaware

 

41-1659606

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

 

 

 

600 Emerson Road, Suite 300, Saint Louis, Missouri

 

63141

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (314) 813-9200

 

Indicate by check mark whether the registrant (1) 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 (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of August 26, 2014, the Company had a total of 39,909,916 shares of Common Stock outstanding (which excludes 2,156,232 shares held by us in treasury).

 

 

 



 

PART I—FINANCIAL INFORMATION

 

ITEM 1.                        FINANCIAL STATEMENTS

 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

July 27,

 

April 27

 

 

 

2014

 

2014

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

68,330

 

$

69,830

 

Marketable securities

 

27,566

 

27,289

 

Accounts receivable, net

 

10,806

 

12,615

 

Income taxes receivable

 

243

 

73

 

Deferred income taxes

 

4,106

 

4,106

 

Prepaid expenses and other assets

 

28,535

 

18,526

 

Total current assets

 

139,586

 

132,439

 

Property and equipment, net

 

946,193

 

955,604

 

Other assets:

 

 

 

 

 

Goodwill

 

108,970

 

108,970

 

Other intangible assets, net

 

54,701

 

54,911

 

Deferred financing costs, net

 

22,320

 

23,439

 

Restricted cash and investments

 

9,125

 

9,807

 

Prepaid deposits and other

 

4,865

 

4,904

 

Total assets

 

$

1,285,760

 

$

1,290,074

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

231

 

$

230

 

Accounts payable

 

19,196

 

20,869

 

Accrued liabilities:

 

 

 

 

 

Payroll and related

 

35,384

 

34,700

 

Property and other taxes

 

22,274

 

20,360

 

Interest

 

20,020

 

16,920

 

Progressive jackpots and slot club awards

 

16,526

 

16,306

 

Other

 

19,746

 

18,478

 

Total current liabilities

 

133,377

 

127,863

 

Long-term debt, less current maturities

 

1,056,377

 

1,066,071

 

Deferred income taxes

 

36,852

 

35,870

 

Other accrued liabilities

 

18,575

 

18,495

 

Other long-term liabilities

 

22,629

 

22,391

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued

 

 

 

Common stock, $.01 par value; 60,000,000 shares authorized; shares issued: 42,066,148 at July 27, 2014 and April 27, 2014

 

421

 

421

 

Class B common stock, $.01 par value; 3,000,000 shares authorized; none issued

 

 

 

Additional paid-in capital

 

248,785

 

247,819

 

Retained earnings (deficit)

 

(204,230

)

(201,913

)

 

 

44,976

 

46,327

 

Treasury stock, 2,243,789 shares at July 27, 2014 and 2,236,971 at April 27, 2014

 

(27,026

)

(26,943

)

Total stockholders’ equity

 

17,950

 

19,384

 

Total liabilities and stockholders’ equity

 

$

1,285,760

 

$

1,290,074

 

 

See notes to the consolidated financial statements.

 

3



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 27,

 

July 28,

 

 

 

2014

 

2013

 

Revenues:

 

 

 

 

 

Casino

 

$

255,072

 

$

250,834

 

Rooms

 

8,312

 

8,915

 

Food, beverage, pari-mutuel and other

 

34,123

 

34,122

 

Gross revenues

 

297,507

 

293,871

 

Less promotional allowances

 

(55,858

)

(55,858

)

Net revenues

 

241,649

 

238,013

 

Operating expenses:

 

 

 

 

 

Casino

 

40,128

 

40,268

 

Gaming taxes

 

64,467

 

62,678

 

Rooms

 

1,903

 

1,901

 

Food, beverage, pari-mutuel and other

 

11,372

 

10,802

 

Marine and facilities

 

14,719

 

14,619

 

Marketing and administrative

 

60,361

 

59,250

 

Corporate and development

 

9,148

 

6,698

 

Preopening expense

 

 

3,898

 

Depreciation and amortization

 

19,643

 

19,802

 

Total operating expenses

 

221,741

 

219,916

 

Operating income

 

19,908

 

18,097

 

Interest expense

 

(21,329

)

(22,654

)

Interest income

 

87

 

90

 

Derivative income

 

 

230

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(1,334

)

(4,237

)

Income tax provision

 

(983

)

(1,411

)

Loss from continuing operations

 

(2,317

)

(5,648

)

Income from discontinued operations, net of income tax provision of $- for the three months ended July 28, 2013

 

 

786

 

Net loss

 

$

(2,317

)

$

(4,862

)

 

 

 

 

 

 

Income (loss) per common share-basic and dilutive:

 

 

 

 

 

Loss from continuing operations

 

$

(0.06

)

$

(0.14

)

Income from discontinued operations, net of income taxes

 

 

0.02

 

Net loss

 

$

(0.06

)

$

(0.12

)

 

 

 

 

 

 

Weighted average basic shares

 

39,827,889

 

39,582,928

 

Weighted average diluted shares

 

39,827,889

 

39,582,928

 

 

See notes to the consolidated financial statements.

 

4



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 27, 2014

 

July 28, 2013

 

Net loss

 

$

(2,317

)

$

(4,862

)

Other comprehensive income, net of tax:

 

 

 

 

 

Deferred hedge adjustment, net of income tax provision of $90 for the three months ended July 28, 2013

 

 

148

 

Comprehensive loss

 

$

(2,317

)

$

(4,714

)

 

See notes to the consolidated financial statements.

 

5



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

Shares of

 

 

 

Additional

 

Retained

 

 

 

Total

 

 

 

Common

 

Common

 

Paid-in

 

Earnings

 

Treasury

 

Stockholders’

 

 

 

Stock

 

Stock

 

Capital

 

(Deficit)

 

Stock

 

Equity

 

Balance, April 27, 2014

 

42,066,148

 

$

421

 

$

247,819

 

$

(201,913

)

$

(26,943

)

$

19,384

 

Net loss

 

 

 

 

(2,317

)

 

(2,317

)

Issuance of restricted stock from treasury stock, net of forfeitures

 

 

 

83

 

 

(83

)

 

Stock compensation expense

 

 

 

883

 

 

 

883

 

Balance, July 27, 2014

 

42,066,148

 

$

421

 

$

248,785

 

$

(204,230

)

$

(27,026

)

$

17,950

 

 

See notes to the consolidated financial statements.

 

6



 

ISLE OF CAPRI CASINOS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 27,

 

July 28,

 

 

 

2014

 

2013

 

Operating activities:

 

 

 

 

 

Net loss

 

$

(2,317

)

$

(4,862

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

19,643

 

20,395

 

Amortization and write-off of deferred financing costs

 

1,119

 

1,105

 

Amortization of debt discount

 

63

 

59

 

Deferred income taxes

 

982

 

662

 

Stock compensation expense

 

883

 

1,134

 

Gain on derivative instruments

 

 

(230

)

Loss (gain) on disposal of assets

 

30

 

(1,027

)

Changes in operating assets and liabilities:

 

 

 

 

 

Marketable securities

 

(277

)

(1,800

)

Accounts receivable

 

1,809

 

390

 

Income tax receivable

 

(170

)

526

 

Prepaid expenses and other assets

 

(9,880

)

(9,758

)

Accounts payable and accrued liabilities

 

4,736

 

4,289

 

Net cash provided by operating activities

 

16,621

 

10,883

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(8,979

)

(22,271

)

Proceeds from sale of property and equipment

 

22

 

1,145

 

Payments towards gaming license

 

 

(7,500

)

Restricted cash and investments

 

592

 

1,846

 

Net cash used in investing activities

 

(8,365

)

(26,780

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Principal payments on debt

 

(56

)

(253

)

Net (repayments) borrowings on line of credit

 

(9,700

)

14,900

 

Payment of deferred financing costs

 

 

(659

)

Net cash (used in) provided by financing activities

 

(9,756

)

13,988

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(1,500

)

(1,909

)

Cash and cash equivalents, beginning of period

 

69,830

 

68,469

 

Cash and cash equivalents, end of the period

 

$

68,330

 

$

66,560

 

 

See notes to the consolidated financial statements.

 

7



 

ISLE OF CAPRI CASINOS, INC.

Notes to Consolidated Financial Statements

(amounts in thousands, except share and per share amounts)

(Unaudited)

 

1.  Nature of Operations

 

Isle of Capri Casinos, Inc., a Delaware corporation, was incorporated in February 1990. Except where otherwise noted, the words “we,” “us,” “our” and similar terms, as well as “Company,” refer to Isle of Capri Casinos, Inc. and all of its subsidiaries. We are a developer, owner and operator of branded gaming facilities and related lodging and entertainment facilities in markets throughout the United States. Our wholly owned subsidiaries own or operate fifteen casino gaming facilities in the United States located in Black Hawk, Colorado; Pompano Beach, Florida; Bettendorf, Marquette and Waterloo, Iowa; Lake Charles, Louisiana; Lula, Natchez and Vicksburg, Mississippi; Boonville, Cape Girardeau, Caruthersville and Kansas City, Missouri; and Nemacolin, Pennsylvania.

 

2.  Basis of Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted. In managements’ opinion, the accompanying interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results presented. The accompanying interim condensed consolidated financial statements have been prepared without audit. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended April 27, 2014 as filed with the SEC and all of our other filings, including Current Reports on Form 8-K, filed with the SEC after such date and through the date of this report, which are available on the SEC’s website at www.sec.gov or our website at www.islecorp.com.

 

Our fiscal year ends on the last Sunday in April. Periodically, this system necessitates a 53-week year.  Fiscal 2015 and 2014 are both 52-week years, which commenced on April 28, 2014 and April 29, 2013, respectively.

 

The condensed consolidated financial statements include our accounts and those of our subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. We view each property as an operating segment and all such operating segments have been aggregated into one reporting segment.

 

Discontinued operations include our former Davenport, Iowa casino operations sold in February 2014.  The results of our discontinued operations for the three months ended July 28, 2013 are summarized as follows:

 

Net revenues

 

$

9,716

 

Pretax income from discontinued operations

 

786

 

Income tax provision from discontinued operations

 

 

Income from discontinued operations

 

786

 

 

8



 

3.  Long-Term Debt

 

Long-term debt consists of the following:

 

 

 

July 27,

 

April 27,

 

 

 

2014

 

2014

 

Senior Secured Credit Facility:

 

 

 

 

 

Revolving line of credit, expires April 19, 2018, interest payable at least quarterly at either LIBOR and/or prime plus a margin

 

$

55,000

 

$

64,700

 

5.875% Senior Notes, interest payable semi-annually March 15 and September 15

 

350,000

 

350,000

 

7.75% Senior Notes, interest payable semi-annually March 15 and September 15, net of discount

 

298,551

 

298,488

 

8.875% Senior Subordinated Notes, interest payable Semi-annually June 15 and December 15

 

350,000

 

350,000

 

Other

 

3,057

 

3,113

 

 

 

1,056,608

 

1,066,301

 

Less current maturities

 

231

 

230

 

Long-term debt

 

$

1,056,377

 

$

1,066,071

 

 

Senior Secured Credit Facility—Our Senior Secured Credit Facility as amended and restated (“Credit Facility”) consists of a $300,000 revolving line of credit. The Credit Facility is secured on a first priority basis by substantially all of our assets and guaranteed by substantially all of our significant subsidiaries.

 

Our net revolving line of credit availability at July 27, 2014, as limited by our maximum consolidated total leverage ratio, was approximately $125,000, after consideration of approximately $33,000 in outstanding letters of credit. We have an annual commitment fee related to the unused portion of the Credit Facility of up to 0.55% which is included in interest expense in the accompanying consolidated statements of operations. The weighted average effective interest rates of the Credit Facility for the three months ended July 27, 2014 was 3.66%.

 

The Credit Facility includes a number of affirmative and negative covenants. Additionally, we must comply with certain financial covenants including maintenance of a total leverage ratio, senior secured leverage ratio and minimum interest coverage ratio. The Credit Facility also restricts our ability to make certain investments or distributions. We were in compliance with the covenants as of July 27, 2014.

 

5.875% Senior Notes—In March 2013, we issued $350,000 of 5.875% Senior Notes due 2021 (“5.875% Senior Notes”). The net proceeds from the issuance were used to repay term loans under our Credit Facility. The 5.875% Senior Notes are general unsecured obligations and rank junior to all of our senior secured indebtedness and senior to our senior subordinated indebtedness. The 5.875% Senior Notes are redeemable, in whole or in part, at our option at any time on or after March 15, 2016, with call premiums as defined in the indenture governing the 5.875% Senior Notes.

 

7.75% Senior Notes—In March 2011, we issued $300,000 of 7.75% Senior Notes due 2019 at a price of 99.264% (“7.75% Senior Notes”).  The 7.75% Senior Notes are general unsecured obligations and rank junior to all of our senior secured indebtedness and senior to our senior subordinated indebtedness. The 7.75% Senior Notes are redeemable, in whole or in part, at our option at any time on or after March 15, 2015, with call premiums as defined in the indenture governing the 7.75% Senior Notes.

 

8.875% Senior Subordinated Notes — In August 2012, we issued $350,000 of 8.875% Senior Subordinated Notes due 2020 (“8.875% Senior Subordinated Notes”).  The 8.875% Senior Subordinated Notes are general unsecured obligations and rank junior to all of our senior indebtedness. The 8.875% Senior Subordinated Notes are

 

9



 

redeemable, in whole or in part, at our option at any time on or after June 15, 2016, with call premiums as defined in the indenture governing the 8.875% Senior Subordinated Notes.

 

The 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes are guaranteed, on a joint and several basis, by substantially all of our significant subsidiaries and certain other subsidiaries as described in Note 9. All of the guarantor subsidiaries are wholly owned by us.

 

The indentures governing the 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes limit, among other things, our ability and our restricted subsidiaries’ ability to borrow money, make restricted payments, use assets as security in other transactions, enter into transactions with affiliates, pay dividends, or repurchase stock. The indentures also limit our ability to issue and sell capital stock of subsidiaries, sell assets in excess of specified amounts or merge with or into other companies.

 

4.  Earnings Per Share

 

The following table sets forth the computation of basic and diluted income (loss) per share:

 

 

 

Three Months Ended

 

 

 

July 27,

 

July 28,

 

 

 

2014

 

2013

 

Numerator:

 

 

 

 

 

Income (loss) applicable to common shares:

 

 

 

 

 

Loss from continuing operations

 

$

(2,317

)

$

(5,648

)

Income from discontinued operations

 

 

786

 

 

 

 

 

 

 

Net loss

 

$

(2,317

)

$

(4,862

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Denominator for basic earnings (loss) per share - weighted average shares

 

39,827,889

 

39,582,928

 

Effect of dilutive securities

 

 

 

 

 

Employee stock options

 

 

 

Denominator for diluted earnings (loss) per share - adjusted weighted average shares and assumed conversions

 

39,827,889

 

39,582,928

 

 

 

 

 

 

 

Basic and Diluted earnings (loss) per share:

 

 

 

 

 

Loss from continuing operations

 

$

(0.06

)

$

(0.14

)

Income from discontinued operations

 

 

0.02

 

Net loss

 

$

(0.06

)

$

(0.12

)

 

Due to the loss from continuing operations, stock options representing 44,418 shares, which are potentially dilutive, and 746,110 shares, which were anti-dilutive, were excluded from the calculation of common shares for diluted earnings per share for the three months ended July 27, 2014. Due to the loss from continuing operations, stock options representing 66,145 shares, which are potentially dilutive, and 961,710 shares, which were anti-dilutive, were excluded from the calculation of common shares for diluted earnings per share for the three months ended July 28, 2013. As the minimum market performance conditions related to our restricted stock units have not been achieved as of July 27, 2014 or July 28, 2013, 1,656,943 and 1,714,286 units have been excluded from the calculation of diluted earnings per share for the respective periods.

 

10



 

5.  Stock Based Compensation

 

Under our 2009 Long Term Incentive Plan we have issued restricted stock units, restricted stock and stock options.

 

Restricted Stock Units—During fiscal 2013, we granted restricted stock units (“RSUs”) containing market performance conditions which will determine the ultimate amount of RSUs, if any, to be awarded up to 1,656,943 shares.  Any RSUs earned will vest 50% on April 26, 2015 and 50% on April 26, 2016.  The fair value of these RSUs was determined utilizing a lattice pricing model which considered a range of assumptions including volatility and risk-free interest rates.  The aggregate compensation cost related to these RSUs is $4,405 to be recognized over the vesting periods. As of July 27, 2014, our unrecognized compensation cost for these RSUs was $1,609.

 

Restricted Stock — Restricted stock awards are made to employees and directors under annual long-term incentive grants which primarily vest one-third on each anniversary of the grant date. Our aggregate estimate of forfeitures for restricted stock for employees and directors is 15% and 0%, respectively. As of July 27, 2014, our unrecognized compensation cost for unvested restricted stock was $679 with a remaining weighted average vesting period of 0.92 years.  Subsequent to quarter end, on July 31, 2014, we issued 107,214 shares of restricted stock with a weighted average grant-date fair value of $7.92 to employees.

 

6.  Fair Value

 

Items Measured at Fair Value on a Recurring Basis—The following table sets forth the assets measured at fair value on a recurring basis, by input level, in the consolidated balance sheets at July 27, 2014 and April 27, 2014:

 

 

 

July 27, 2014

 

 

 

Level 1

 

Level 2

 

Total

 

Assets:

 

 

 

 

 

 

 

Marketable securities

 

$

9,657

 

$

17,909

 

$

27,566

 

Restricted cash and investments

 

4,392

 

4,733

 

9,125

 

 

 

 

April 27, 2014

 

 

 

Level 1

 

Level 2

 

Total

 

Assets:

 

 

 

 

 

 

 

Marketable securities

 

$

10,074

 

$

17,215

 

$

27,289

 

Restricted cash and investments

 

4,459

 

5,348

 

9,807

 

 

Marketable securities—The estimated fair values of our marketable securities are determined on an individual asset basis based upon quoted prices of identical assets available in active markets (Level 1), quoted prices of identical assets in inactive markets, or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold these marketable securities.

 

Restricted cash and investments—The estimated fair values of our restricted cash and investments are based upon quoted prices available in active markets (Level 1), or quoted prices for similar assets in active and inactive markets (Level 2), and represent the amounts we would expect to receive if we sold our restricted cash and investments.

 

11



 

Other Financial Instruments - The estimated carrying amounts and fair values of our other financial instruments are as follows:

 

 

 

July 27, 2014

 

April 27, 2014

 

 

 

Carrying

 

 

 

Carrying

 

 

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Revolving line of credit

 

$

55,000

 

$

53,350

 

$

64,700

 

$

63,083

 

5.875% Senior notes

 

350,000

 

364,000

 

350,000

 

351,750

 

7.75% Senior notes

 

298,551

 

316,839

 

298,488

 

318,576

 

8.875% Senior subordinated notes

 

350,000

 

379,750

 

350,000

 

373,520

 

Other long-term debt

 

3,057

 

3,057

 

3,113

 

3,113

 

Other long-term obligations

 

22,629

 

22,629

 

22,391

 

22,391

 

 

The fair value of our long-term debt or other long-term obligations is estimated based on the quoted market price of the underlying debt issue (Level 1) or, when a quoted market price is not available, the discounted cash flow of future payments utilizing current rates available to us for debt of similar remaining maturities (Level 3). Debt obligations with a short remaining maturity have a carrying amount that approximates fair value.

 

7.  Income Taxes

 

Income tax expense of $983 and $1,411 was recognized from continuing operations during the three months ended July 27, 2014 and July 28, 2013, respectively.  We recorded a valuation allowance against the tax benefit recognized during the three months ended July 27, 2014, as we do not currently expect to be able to utilize our interim period tax benefit.  Our income tax provision consists of changes in the deferred tax liability attributable to indefinite lived intangibles and expense for state jurisdictions where taxable income is generated without net operating loss carryforwards available.

 

A summary of our effective income tax rate is as follows:

 

 

 

Three Months Ended

 

 

 

July 27,
2014

 

July 28,
2013

 

Federal taxes at the statutory rate

 

$

(467

)

$

(1,208

)

State taxes

 

(340

)

283

 

Permanent differences

 

540

 

259

 

Tax credits

 

(112

)

(262

)

Other

 

 

52

 

Valuation allowance

 

1,362

 

2,287

 

Income tax provision

 

$

983

 

$

1,411

 

 

As of July 27, 2014, we have a full valuation allowance on our federal and state deferred tax assets and have concluded that the valuation allowance was still needed due to our history of cumulative losses.  During fiscal 2014, our Florida operations experienced their second consecutive year of substantive pretax income.  We continue to evaluate our cumulative income position and income trend, as well as our future projections of sustained profitability for our Florida operations. We will continue to evaluate whether this profitability trend constitutes sufficient positive evidence to support a full, or partial, reversal of our Florida state valuation allowance of approximately $3,300.

 

12



 

8.  Supplemental Disclosures

 

Cash Flow — For the three months ended July 27, 2014 and July 28, 2013, we made net cash interest payments of $15,887 and $18,253, respectively. Additionally, we made income tax payments of $171 and $106 during the three months ended July 27, 2014 and July 28, 2013, respectively.

 

The change in accrued purchases of property and equipment in accounts payable was an increase of $1,096 and a decrease of $2,590, for the three months ended July 27, 2014 and July 28, 2013, respectively.

 

9.  Consolidating Condensed Financial Information

 

Certain of our wholly owned subsidiaries have fully and unconditionally guaranteed on a joint and several basis, the payment of all obligations under our 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes.

 

The following wholly owned subsidiaries of the Company are guarantors, on a joint and several basis, under the 5.875% Senior Notes, 7.75% Senior Notes and 8.875% Senior Subordinated Notes: Black Hawk Holdings, L.L.C.; CCSC/Blackhawk, Inc.; IC Holdings Colorado, Inc.; IOC-Black Hawk Distribution Company, L.L.C.; IOC-Boonville, Inc.; IOC-Caruthersville, L.L.C.; IOC-Kansas City, Inc.; IOC-Lula, Inc.; IOC-Natchez, Inc.; IOC-Black Hawk County, Inc.; IOC-Davenport, Inc.; IOC Holdings, L.L.C.; IOC-Vicksburg, Inc.; IOC-Vicksburg, LLC; Rainbow Casino- Vicksburg Partnership, L.P.; IOC Cape Girardeau, LLC; Isle of Capri Bettendorf, L.C; Isle of Capri Black Hawk, L.L.C.; Isle of Capri Marquette, Inc.; PPI, Inc.; and St. Charles Gaming Company, L.L.C. Each of the subsidiaries’ guarantees is joint and several with the guarantees of the other subsidiaries.

 

During fiscal 2014, the IOC-PA, L.L.C. subsidiary changed designations from a Guarantor Subsidiary to a Non-Guarantor Subsidiary. All periods presented below reflect the operations of IOC-PA, L.L.C as a Non-Guarantor Subsidiary.

 

13



 

Consolidating condensed balance sheets as of July 27, 2014 and April 27, 2014 are as follows:

 

 

 

As of July 27, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

31,018

 

$

79,733

 

$

35,638

 

$

(6,803

)

$

139,586

 

Intercompany receivables

 

499,928

 

 

1,288

 

(501,216

)

 

Investments in subsidiaries

 

546,040

 

3,358

 

 

(549,398

)

 

Property and equipment, net

 

7,115

 

898,570

 

40,508

 

 

946,193

 

Other assets

 

33,852

 

150,795

 

19,554

 

(4,220

)

199,981

 

Total assets

 

$

1,117,953

 

$

1,132,456

 

$

96,988

 

$

(1,061,637

)

$

1,285,760

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

37,103

 

$

69,577

 

$

33,500

 

$

(6,803

)

$

133,377

 

Intercompany payables

 

 

476,216

 

25,000

 

(501,216

)

 

Long-term debt, less current maturities

 

1,056,259

 

 

118

 

 

1,056,377

 

Other accrued liabilities

 

6,641

 

68,299

 

7,336

 

(4,220

)

78,056

 

Stockholders’ equity

 

17,950

 

518,364

 

31,034

 

(549,398

)

17,950

 

Total liabilities and stockholders’ equity

 

$

1,117,953

 

$

1,132,456

 

$

96,988

 

$

(1,061,637

)

$

1,285,760

 

 

 

 

As of April 27, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

16,131

 

$

80,918

 

$

35,589

 

$

(199

)

$

132,439

 

Intercompany receivables

 

530,886

 

 

 

(530,886

)

 

Investments in subsidiaries

 

535,662

 

3,358

 

 

(539,020

)

 

Property and equipment, net

 

6,693

 

907,175

 

41,736

 

 

955,604

 

Other assets

 

35,837

 

151,044

 

20,236

 

(5,086

)

202,031

 

Total assets

 

$

1,125,209

 

$

1,142,495

 

$

97,561

 

$

(1,075,191

)

$

1,290,074

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

33,447

 

$

67,899

 

$

26,716

 

$

(199

)

$

127,863

 

Intercompany payables

 

 

495,416

 

35,470

 

(530,886

)

 

Long-term debt, less current maturities

 

1,065,913

 

 

158

 

 

1,066,071

 

Other accrued liabilities

 

6,465

 

68,002

 

7,375

 

(5,086

)

76,756

 

Stockholders’ equity

 

19,384

 

511,178

 

27,842

 

(539,020

)

19,384

 

Total liabilities and stockholders’ equity

 

$

1,125,209

 

$

1,142,495

 

$

97,561

 

$

(1,075,191

)

$

1,290,074

 

 

14



 

Consolidating condensed statements of operations for the three months ended July 27, 2014 and July 28, 2013 are as follows:

 

 

 

For the Three Months Ended July 27, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

244,873

 

$

10,199

 

$

 

$

255,072

 

Rooms, food, beverage, pari-mutuel and other

 

41

 

41,441

 

3,257

 

(2,304

)

42,435

 

Management fee revenue

 

8,466

 

 

 

(8,466

)

 

Gross revenues

 

8,507

 

286,314

 

13,456

 

(10,770

)

297,507

 

Less promotional allowances

 

 

(53,368

)

(2,490

)

 

(55,858

)

Net revenues

 

8,507

 

232,946

 

10,966

 

(10,770

)

241,649

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

38,612

 

1,516

 

 

40,128

 

Gaming taxes

 

 

60,533

 

3,934

 

 

64,467

 

Rooms, food, beverage, pari-mutuel and other

 

9,409

 

84,733

 

5,665

 

(2,304

)

97,503

 

Management fee expense

 

 

8,166

 

300

 

(8,466

)

 

Depreciation and amortization

 

468

 

17,817

 

1,358

 

 

19,643

 

Total operating expenses

 

9,877

 

209,861

 

12,773

 

(10,770

)

221,741

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(1,370

)

23,085

 

(1,807

)

 

19,908

 

Interest expense, net

 

(11,183

)

(9,521

)

(538

)

 

(21,242

)

Derivative income

 

 

 

 

 

 

Equity in income (loss) of subsidiaries

 

5,809

 

 

 

(5,809

)

 

Income (loss) from continuing operations before income taxes and noncontolling interest

 

(6,744

)

13,564

 

(2,345

)

(5,809

)

(1,334

)

Income tax (provision) benefit

 

4,427

 

(6,433

)

1,023

 

 

(983

)

Income (loss) from continuining operations

 

(2,317

)

7,131

 

(1,322

)

(5,809

)

(2,317

)

Income (loss) of discontinued operations

 

 

 

 

 

 

Net income (loss)

 

$

(2,317

)

$

7,131

 

$

(1,322

)

$

(5,809

)

$

(2,317

)

 

15



 

 

 

For the Three Months Ended July 28, 2013

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

 

$

248,367

 

$

2,467

 

$

 

$

250,834

 

Rooms, food, beverage, pari-mutuel and other

 

179

 

42,539

 

2,668

 

(2,349

)

43,037

 

Management fee revenue

 

8,238

 

 

 

(8,238

)

 

Gross revenues

 

8,417

 

290,906

 

5,135

 

(10,587

)

293,871

 

Less promotional allowances

 

 

(55,671

)

(187

)

 

(55,858

)

Net revenues

 

8,417

 

235,235

 

4,948

 

(10,587

)

238,013

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

39,602

 

666

 

 

40,268

 

Gaming taxes

 

 

61,461

 

1,217

 

 

62,678

 

Rooms, food, beverage, pari-mutuel and other

 

8,133

 

85,307

 

6,077

 

(2,349

)

97,168

 

Management fee expense

 

 

8,238

 

 

(8,238

)

 

Depreciation and amortization

 

403

 

18,842

 

557

 

 

19,802

 

Total operating expenses

 

8,536

 

213,450

 

8,517

 

(10,587

)

219,916

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(119

)

21,785

 

(3,569

)

 

18,097

 

Interest expense, net

 

(11,762

)

(10,103

)

(699

)

 

(22,564

)

Derivative income

 

230

 

 

 

 

230

 

Equity in income (loss) of subsidiaries

 

2,787

 

 

 

(2,787

)

 

Income (loss) from continuing operations before income taxes and noncontolling interest

 

(8,864

)

11,682

 

(4,268

)

(2,787

)

(4,237

)

Income tax (provision) benefit

 

3,216

 

(6,511

)

1,884

 

 

(1,411

)

Income (loss) from continuining operations

 

(5,648

)

5,171

 

(2,384

)

(2,787

)

(5,648

)

Income (loss) of discontinued operations

 

786

 

467

 

 

(467

)

786

 

Net income (loss)

 

$

(4,862

)

$

5,638

 

$

(2,384

)

$

(3,254

)

$

(4,862

)

 

16



 

Consolidating condensed statements of cash flows for the three months ended July 27, 2014 and July 28, 2013 are as follows:

 

 

 

Three Months Ended July 27, 2014

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(16,629

)

$

26,651

 

$

6,599

 

$

 

$

16,621

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment, net of proceeds

 

(689

)

(8,131

)

(137

)

 

(8,957

)

Restricted cash and investments

 

 

 

592

 

 

592

 

Parent company investment in subsidiaries

 

26,443

 

 

 

(26,443

)

 

Net cash provided by (used in) investing activities

 

25,754

 

(8,131

)

455

 

(26,443

)

(8,365

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Principal payments on debt

 

(16

)

 

(40

)

 

(56

)

Net repayments on line of credit

 

(9,700

)

 

 

 

(9,700

)

Net proceeds from (payments to) related parties

 

 

(19,201

)

(7,242

)

26,443

 

 

Net cash provided by (used in) financing activities

 

(9,716

)

(19,201

)

(7,282

)

26,443

 

(9,756

)

 

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(591

)

(681

)

(228

)

 

(1,500

)

Cash and cash equivalents at beginning of period

 

6,051

 

53,787

 

9,992

 

 

69,830

 

Cash and cash equivalents at end of the period

 

$

5,460

 

$

53,106

 

$

9,764

 

 

$

68,330

 

 

 

 

Three Months Ended July 28, 2013

 

 

 

Isle of Capri

 

 

 

 

 

Consolidating

 

 

 

 

 

Casinos, Inc.

 

 

 

Non-

 

and

 

Isle of Capri

 

 

 

(Parent

 

Guarantor

 

Guarantor

 

Eliminating

 

Casinos, Inc.

 

 

 

Obligor)

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Consolidated

 

Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(14,815

)

$

25,320

 

$

378

 

$

 

$

10,883

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment, net of proceeds

 

72

 

(9,500

)

(11,698

)

 

(21,126

)

Purchases towards gaming license

 

 

 

(7,500

)

 

(7,500

)

Restricted cash and investments

 

 

 

1,846

 

 

1,846

 

Parent company investment in subsidiaries

 

(1,315

)

 

 

1,315

 

 

Net cash provided by (used in) investing activities

 

(1,243

)

(9,500

)

(17,352

)

1,315

 

(26,780

)

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Principal payments on debt

 

(16

)

(200

)

(37

)

 

(253

)

Net borrowings on line of credit

 

14,900

 

 

 

 

14,900

 

Payments of deferred financing costs

 

(659

)

 

 

 

(659

)

Net proceeds from (payments to) related parties

 

 

(16,730

)

18,045

 

(1,315

)

 

Net cash provided by (used in) financing activities

 

14,225

 

(16,930

)

18,008

 

(1,315

)

13,988

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(1,833

)

(1,110

)

1,034

 

 

(1,909

)

Cash and cash equivalents at beginning of period

 

6,914

 

57,268

 

4,287

 

 

68,469

 

Cash and cash equivalents at end of the period

 

$

5,081

 

$

56,158

 

$

5,321

 

$

 

$

66,560

 

 

17



 

10.  Commitments and Contingencies

 

Legal and Regulatory Proceedings In October 2012, we opened our new casino in Cape Girardeau, Missouri. A subcontractor filed a mechanics’ lien against our property resulting from a dispute between the subcontractor and our general contractor for the construction project. We demanded that the general contractor cause the lien to be bonded against or satisfied, however the general contractor refused to do so and asserted that a portion of the subcontractor’s claim resulted from additional work directly requested by us. In October 2013, the subcontractor filed suit against our wholly-owned subsidiary IOC-Cape Girardeau, LLC, the general contractor and two other defendants alleging various contract and equitable claims and are seeking damages of approximately $4,600. In August 2014, we filed a cross claim against the general contractor alleging breach of contract and various indemnity claims. The outcome of this matter is still in doubt and cannot be predicted with any degree of certainty.  In the event that we incur any costs in connection with this matter, we do not believe that any such costs would be material, and if incurred, the settlement of construction costs would be capitalized.

 

We are subject to certain federal, state and local environmental protection, health and safety laws, regulations and ordinances that apply to businesses generally, and are subject to cleanup requirements at certain of our facilities as a result thereof. We have not made, and do not anticipate making material expenditures, nor do we anticipate incurring delays with respect to environmental remediation or protection. However, in part because our present and future development sites have, in some cases, been used as manufacturing facilities or other facilities that generate materials that are required to be remediated under environmental laws and regulations, there can be no guarantee that additional pre-existing conditions will not be discovered and we will not experience material liabilities or delays.

 

We are subject to various contingencies and litigation matters and have a number of unresolved claims. Although the ultimate liability of these contingencies, this litigation and these claims cannot be determined at this time, we believe they will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

 

Development Projects— On February 1, 2013, we signed an agreement with Tower Investments, Inc. to manage The Provence, the resort and casino on North Broad Street, Philadelphia, proposed by Tower Entertainment, LLC (the “Tower JV”), if the project is selected by the Pennsylvania Gaming Control Board.  The Tower JV is one of four applicants for the final gaming license in Philadelphia. As part of our agreement with the Tower JV, we committed to loan $25 million to the Tower JV for the purpose of securing the Pennsylvania gaming license fee relating to the project.  The commitment for the loan is secured by a stand by letter of credit, which can only be drawn upon if the Tower JV is awarded the license. If the Tower JV is selected, we have the option to either 1) be repaid from the proceeds of permanent financing, or 2) convert the $25 million loan into a minority investment in the Tower JV.

 

18



 

ITEM 2.                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct and are not guarantees of future performance. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this report.

 

For a more complete description of the risks that may affect our business, see our Annual Report on Form 10-K for the year ended April 27, 2014.

 

Executive Overview

 

We are a developer, owner and operator of branded gaming facilities and related dining, lodging and entertainment facilities in regional markets in the United States. We have sought and established geographic diversity to limit the risks caused by weather, regional economic difficulties, gaming tax rates and regulations of local gaming authorities. We currently operate casinos in Colorado, Florida, Iowa, Louisiana, Mississippi, Missouri and Pennsylvania.

 

Our operating results for the periods presented have been affected, both positively and negatively, by current economic conditions and several other factors discussed in detail below. Our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets, as well as by factors discussed elsewhere herein. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended April 27, 2014 and by giving consideration to the following:

 

Items Impacting Income (Loss) from Continuing Operations— Significant items impacting our income (loss) from continuing operations during the fiscal quarters ended July 27, 2014, and July 28, 2013 are as follows:

 

Corporate Restructuring - During the fiscal quarter ended July 27, 2014, we eliminated certain executive positions in the corporate office to maximize efficiency and streamline reporting lines, resulting in severance expense of $2.3 million.

 

Colorado Referendum Costs —During the fiscal quarter ended July 27, 2014, the Company incurred $1.0 million of costs in support of efforts to defeat the proposed November referendum that would expand gaming to racetracks in certain counties in Colorado.

 

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Casino Openings — We opened our Lady Luck Casino on the Nemacolin Woodlands Resort in Farmington, Pennsylvania on July 1, 2013.

 

Disruption —Our Boonville property was affected by power outages and forced to close three times during the three months ended July 28, 2013 for approximately 40 hours, of which two periods were over the key holidays of Father’s Day weekend and on the 4th of July. These disruptive events had a negative impact on our fiscal 2014 operating results.

 

Income Tax Provision — Our income tax provision from continuing operations was impacted by changes in the deferred tax liability attributable to indefinite lived intangibles and expense for state jurisdictions where taxable income is generated without net operating loss carry forwards available.  Our tax provision was $1.0 million and $1.4 million for the three months ended July 27, 2014 and July 28, 2013, respectively.

 

Results of Operations

 

Revenues and operating expenses for the three months ended July 27, 2014 and July 28, 2013 are as follows:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

July 27,

 

July 28,

 

 

 

Percentage

 

(in thousands)

 

2014

 

2013

 

Variance

 

Variance

 

Revenues:

 

 

 

 

 

 

 

 

 

Casino

 

$

255,072

 

$

250,834

 

$

4,238

 

1.7

%

Rooms

 

8,312

 

8,915

 

(603

)

-6.8

%

Food, beverage, pari-mutuel and other

 

34,123

 

34,122

 

1

 

0.0

%

Gross revenues

 

297,507

 

293,871

 

3,636

 

1.2

%

Less promotional allowances

 

(55,858

)

(55,858

)

 

0.0

%

Net revenues

 

241,649

 

238,013

 

3,636

 

1.5

%

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Casino

 

40,128

 

40,268

 

(140

)

-0.3

%

Gaming taxes

 

64,467

 

62,678

 

1,789

 

2.9

%

Rooms

 

1,903

 

1,901

 

2

 

0.1

%

Food, beverage, pari-mutuel and other

 

11,372

 

10,802

 

570

 

5.3

%

Marine and facilities

 

14,719

 

14,619

 

100

 

0.7

%

Marketing and administrative

 

60,361

 

59,250

 

1,111

 

1.9

%

Corporate and development

 

9,148

 

6,698

 

2,450

 

36.6

%

Preopening expense

 

 

3,898

 

(3,898

)

N/M

 

Depreciation and amortization

 

19,643

 

19,802

 

(159

)

-0.8

%

Total operating expenses

 

$

221,741

 

$

219,916

 

1,825

 

0.8

%

 

Casino Casino revenues increased $4.2 million, or 1.7%, for the three months ended July 27, 2014, as compared to the same period in fiscal 2013. Casino revenues at our Nemacolin property, which opened July 1, 2013, were $10.2 million and $2.5 million for the three months ended July 27, 2014 and July 28, 2013, respectively. Excluding casino revenues at our Nemacolin property, casino revenues decreased $3.5 million, or 1.4%.

 

Casino operating expenses decreased $0.1 million, or 0.3%, for the three months ended July 27, 2014, as compared to the same period in the prior fiscal year. Excluding casino operating expenses of $1.5 million and $0.7 million at our Nemacolin property for the three months ended July 27, 2014 and July 28, 2013, respectively, casino expenses decreased $1.0 million or 2.5%.

 

Gaming Taxes State and local gaming taxes increased $1.8 million, or 2.9%, for the three months ended July 27, 2014, as compared to the same period in the prior fiscal year.  Excluding gaming taxes at our Nemacolin property for both periods, gaming taxes decreased $0.9 million, or 1.5%, commensurate with the decrease in casino revenues.

 

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Rooms Rooms revenue decreased $0.6 million, or 6.8%, for the three months ended July 27, 2014, as compared to the same period in the prior fiscal year due to lower occupancy rates.

 

Promotional Allowances Promotional allowances were flat for the three months ended July 27, 2014 as compared to the same period in the prior fiscal year.  Excluding promotional expenses at our Nemacolin property for both periods, promotional allowances decreased $2.3 million, or 4.1%, reflecting changes in our marketing programs.

 

Food, Beverage, Pari-Mutuel and Other — Food, beverage, pari-mutuel revenue was flat for the three months ended July 27, 2014 as compared to the same period in the prior fiscal year.  Excluding food and beverage revenue at our Nemacolin property of $0.9 million and $0.3 million for the three months ended July 27, 2014 and July 28, 2013, respectively, food, beverage, pari-mutuel and other revenues decreased $0.6 million, or 1.9%.

 

Food, beverage, pari-mutuel and other expense increased $0.6 million, or 5.3%, for the three months ended July 27, 2014 as compared to the same period of the prior year.  Excluding food and beverage expense of $0.4 million and $0.1 million at our Nemacolin property during the three months ended July 27, 2014 and July 28, 2013, respectively, food, beverage, pari-mutuel and other expense increased $0.3 million, or 3.1%.

 

Marketing and Administrative   Marketing and administrative expenses increased $1.1 million, or 1.9%, for the three months ended July 27, 2014 as compared to the same period in the prior fiscal year. Excluding marketing and administrative expenses at our Nemacolin property for both periods, as well as the $1.0 million of costs incurred to defeat the Colorado referendum, marketing and administrative expenses decreased $1.9 million, or 1.6%, reflecting changes in our marketing programs as well as savings from cost reduction initiatives.

 

Corporate and Development — During the three months ended July 27, 2014, our corporate and development expenses were $9.1 million compared to $6.7 million for the three months ended July 28, 2013. The three months ended July 27, 2014 includes severance of $2.3 million resulting from the corporate restructuring. The three months ended July 28, 2013 includes a gain of $1.0 million from the sale of our corporate aircraft.  The remaining decrease reflects savings achieved through cost reduction initiatives and the timing of our long-term incentive plan payments.

 

Other Income (Expense) and Income Taxes

 

Interest expense, interest income, derivative expense and income tax provision for the three months ended July 27, 2014 and July 28, 2013 are as follows:

 

 

 

Three Months Ended

 

 

 

 

 

 

 

July 27,

 

July 28,

 

 

 

Percentage

 

(in thousands)

 

2014

 

2013

 

Variance

 

Variance

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

$

(21,329

)

$

(22,654

)

$

1,325

 

-5.8

%

Interest income

 

87

 

90

 

(3

)

-3.3

%

Derivative income

 

 

230

 

(230

)

-100.0

%

Income tax provision

 

(983

)

(1,411

)

428

 

-30.3

%

 

Interest Expense Interest expense decreased $1.3 million for the three months ended July 27, 2014, as compared to the same period in the prior fiscal year. This decrease is a result of a decrease in the outstanding borrowings against our revolving credit facility as compared to prior year.

 

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Liquidity and Capital Resources

 

Cash Flows from Operating Activities - During the three months ended July 27, 2014, we generated $16.6 million in cash flows from operating activities compared to generating $10.9 million during the three months ended July 28, 2013. The year over year increase in cash flows from operating activities is primarily the result of the decrease in operating loss and changes in working capital.

 

Cash Flows used in Investing Activities — During the three months ended July 27, 2014, we used $8.4 million for investing activities compared to using $26.8 million during the three months ended July 28, 2013. Significant investing activities for the three months ended July 27, 2014 included capital expenditures of $9.0 million offset by the change in restricted cash and investments of $0.6 million.  Significant investing activities for the three months ended July 28, 2013 included capital expenditures of $22.3 million, of which $13.8 million related to Nemacolin, as well as an additional $7.5 million toward a Nemacolin gaming license.  These outflows were offset by $1.8 million of cash inflows from the change in restricted cash and investments and $1.1 million in proceeds from the sale of property and equipment, primarily the sale of the corporate aircraft.

 

Cash Flows from Financing Activities — During the three months ended July 27, 2014, our net cash flows used in financing activities were used primarily to repay borrowings under our Credit Facility of $9.7 million.  During the three months ended July 28, 2013, our net cash flows provided from financing activities were primarily from $14.9 million in borrowings under our Credit Facility.

 

Availability of Cash and Additional Capital - At July 27, 2014, we had cash and cash equivalents of $68.3 million and marketable securities of $27.6 million. As of July 27, 2014, we had $55.0 million in outstanding revolving credit borrowings under our Credit Facility and our net line of credit availability was approximately $125.0 million, as limited by our maximum consolidated total leverage ratio covenant.

 

Capital Expenditures and Development Activities— Historically, as part of our business development activities, we have entered into agreements which have resulted in the acquisition or development of businesses or assets. These business development efforts and related agreements typically require the expenditure of cash, which may be significant. The amount and timing of our cash expenditures relating to development activities may vary based upon our evaluation of current and future development opportunities, our financial condition and the condition of the financing markets. Our development activities are subject to a variety of factors including but not limited to: obtaining permits, licenses and approvals from appropriate regulatory and other agencies, legislative changes and, in certain circumstances, negotiating acceptable leases.

 

On February 1, 2013, we signed an agreement with Tower Investments, Inc. to manage The Provence, the resort and casino on North Broad Street, Philadelphia, proposed by Tower Entertainment, LLC (the “Tower JV”), if the project is selected by the Pennsylvania Gaming Control Board.  The Tower JV is one of four applicants for the final gaming license in Philadelphia. As part of our agreement with the Tower JV, we committed to loan $25 million to the Tower JV for the purpose of securing the Pennsylvania gaming license fee relating to the project.  The commitment for the loan is secured by a stand by letter of credit, which can only be drawn upon if the Tower JV is awarded the license. If the Tower JV is selected, we have the option to either 1) be repaid from the proceeds of permanent financing, or 2) convert the $25 million loan into a minority investment in the Tower JV.

 

Historically, we have made significant investments in property and equipment and expect that our operations will continue to demand ongoing investments to keep our properties competitive. The timing, completion and amount of additional capital projects will be subject to improvement of economic and local market conditions, cash flows from our continuing operations and borrowing availability under our Credit Facility.

 

Typically, we have funded our daily operations through net cash provided by operating activities and our significant capital expenditures through operating cash flow and debt financing. While we believe that cash on hand, cash flow from operations, and available borrowings under our Credit Facility will be sufficient to support our working capital needs, planned capital expenditures and debt service requirements for the foreseeable future, there is no assurance that these sources will in fact provide adequate funding for our planned and necessary expenditures or that the level of our capital investments will be sufficient to allow us to remain competitive in our existing markets.

 

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We are highly leveraged and may be unable to obtain additional debt or equity financing on acceptable terms if our current sources of liquidity are not sufficient or if we fail to stay in compliance with the covenants of our Credit Facility. We will continue to evaluate our planned capital expenditures at each of our existing locations in light of the operating performance of the facilities at such locations.

 

Critical Accounting Estimates

 

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles that require our management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:

 

·                  those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made;

 

·                  those estimates where, had we chosen different estimates or assumptions, the resulting differences would have had a material impact on our financial condition, changes in financial condition or results of operations; and

 

·                  those estimates that, if they were to change from period to period, likely would result in a material impact on our financial condition, changes in financial condition or results of operations.

 

For a discussion of our significant accounting policies and estimates, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements presented in our 2014 Annual Report on Form 10-K. There were no newly identified significant accounting estimates in the first quarter of fiscal year 2015, nor were there any material changes to the critical accounting policies and estimates set forth in our 2014 Annual Report.

 

ITEM 3.                        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, including interest rates, commodity prices and equity prices. Our primary exposure to market risk is interest rate risk associated with our Credit Facility.

 

ITEM 4.                        CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of July 27, 2014.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of July 27, 2014, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act of 1934 and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There have been no changes in our internal controls over financial reporting during the fiscal quarter ended July 27, 2014, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

23



 

PART II—OTHER INFORMATION

 

ITEM 1.                        LEGAL PROCEEDINGS

 

A reference is made to the information contained in Footnote 10 of our unaudited condensed consolidated financial statements included herein, which is incorporated herein by reference.

 

ITEM 1A.               RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended April 27, 2014, except for the following:

 

We face significant competition from other gaming operations, including Native American gaming facilities, and from legalization or expansion of gaming by states in or near where we own properties, that could have a material adverse effect on our future operations.

 

The gaming industry is intensely competitive, and we face a high degree of competition in the markets in which we operate. We have numerous competitors, including land-based casinos, dockside casinos, riverboat casinos, casinos located on racing, pari-mutuel operations or Native American-owned lands and video lottery and poker machines not located in casinos. We also compete with other forms of legalized gaming and entertainment such as online computer gambling, bingo, pull tab games, card parlors, sports books, “cruise-to-nowhere” operations, pari-mutuel or telephonic betting on horse racing and dog racing, state-sponsored lotteries, jai-alai, and, in the future, may compete with gaming at other venues. In addition, we compete more generally with other forms of entertainment for the discretionary spending of our customers. We also face the risk that existing competitors will expand their operations and the risk that Native American gaming will continue to grow. For example, an existing competitor in Davenport, Iowa, has announced plans to move its riverboat casino to a new land-based gaming facility that will compete with our Bettendorf, Iowa property, and a new casino is under construction in Lake Charles, Louisiana that will compete with our property there. Some of our competitors may have better name recognition, marketing and financial resources than we do; competitors with more financial resources may therefore be able to improve the quality of, or expand, their gaming facilities in a way that we may be unable to match.

 

In addition, we also face the risk of further legalization and/or expansion of gaming. Certain states have recently legalized, and other states are currently considering legalizing gaming. Our existing casinos attract a significant number of their customers from Houston, Texas; South Florida; Little Rock, Arkansas; and Denver, Colorado. Our continued success depends upon drawing customers from each of these geographic markets.  In the past, legislation to legalize or expand gaming has been introduced that would impact some of these markets. In July 2014, the Secretary of State of Colorado declared that proponents of an initiative to expand gaming to horse tracks in Colorado had obtained sufficient signatures to place the initiative on the ballot in November 2014. If passed, the initiative would expand gaming at Arapahoe Park horse racetrack and no more than one horse racetrack in each of Pueblo and Mesa counties where racing and wagering have taken place for at least five consecutive years. If the initiative passes and gaming expands in Colorado, it would adversely affect our business, particularly our Black Hawk, Colorado property.

 

We expect similar proposals to legalize or expand gaming will be made in the future in various states, and it is uncertain whether such proposals will be successful. Further, because the economic recession has reduced the revenues of state governments from traditional tax sources, voters and state legislatures may be more sympathetic to proposals authorizing or expanding gaming in those jurisdictions.

 

In addition, there is no limit on the number of gaming licenses that may be granted in several of the jurisdictions in which we operate. As a result, new gaming licenses could be awarded in these jurisdictions, which could allow new gaming operators to enter our markets that could have an adverse effect on our operating results.

 

ITEM 2.                        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We have purchased our common stock under stock repurchase programs. These programs allow for the repurchase of up to 6,000,000 shares.  To date, we have purchased 4,895,792 shares of our common stock under these

 

24



 

programs.  These programs have no approved dollar amount, nor expiration dates.  No purchases have been made under the program since September 2007.

 

ITEM 3.                        DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.                        MINE SAFETY DISCLOSURE

 

Not Applicable.

 

ITEM 5.                        OTHER INFORMATION

 

None.

 

ITEM 6.                        EXHIBITS

 

See the Index to Exhibits following the signature page hereto for a list of the exhibits filed pursuant to Item 601 of Regulation S-K.

 

25



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

ISLE OF CAPRI CASINOS, INC.

 

 

Dated: August 29, 2014

/s/ Eric L. Hausler

 

Eric L. Hausler

 

Chief Financial Officer

 

(Principal Financial Officer and Authorized Officer)

 

26



 

EXHIBIT
NUMBER

 

DESCRIPTION

 

 

 

10.1

 

First Amendment to Employment Agreement, dated August 11, 2014, between Isle of Capri Casinos, Inc. and Eric L. Hausler

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a—14(a) under the Securities Exchange Act of 1934.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a—14(a) under the Securities Exchange Act of 1934.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

 

 

 

101

 

The following financial statements and notes from the Isle of Capri Casinos, Inc. Quarterly Report on Form 10-Q for the quarter ended July 27, 2014, filed on August 29, 2014 formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Comprehensive Income (Loss); (iv) Consolidated Statements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

 


                                         Management contract or compensatory plan or arrangement.

 

27